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News : Irish Economy Last Updated: Apr 17, 2014 - 9:52 AM

Ireland’s Stability Programme 2014 Update published; Noonan still hopes to cut income tax
By Michael Hennigan, Finfacts founder and editor
Apr 16, 2014 - 9:43 AM

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The Department of Finance on Tuesday published the Ireland’s Stability Programme – April 2014 Update [pdf] for the European Commission. The report sets out the official macro-economic and fiscal forecasts for Ireland out to 2018 and is the first revision since last year's  budget. Michael Noonan, finance minister, also confirmed on Tuesday that he still hopes to cut income tax in next October's budget.

GDP is expected to grow by 2.1% this year, improving  to 2.7% next year and to 3.5% by 2018. Employment is expected to grow by about 2% per annum to 2018, with unemployment falling to 8%. Inflation is set to remain low (at 0.5% this year) and remain muted over the next number of years.

Job creation of 42,000 is forecast for this year and the Irish Fiscal Advisory Council has endorsed the forecasts.

A €2bn, or 1.2% of GDP (gross domestic product) tax and spending adjustment plan for Budget 2015 is retained.

"However, the update contains a range of provisos, indicating that the final adjustment will depend on the Comprehensive Expenditure Review, and outturns in tax revenues and spending through 2014," Conall Mac Coille, chief economist at Davy, said. "So, there is still ample time for the government partners to bargain over the final amount of spending cuts and tax rises to be included in Budget 2015."

Michael Noonan told the Oireachtas Finance Committee after the publication of the report that he planned to widen income tax bands to take more people out of the higher tax bracket as soon as the State could afford it. He did not commit to freezing stealth taxes.

John McCarthy, chief economist of the Department, told a conference last month that under the EU's new fiscal rules, Ireland will have to run a primary surplus equivalent to debt interest payments by 2018.

So Noonan will be constrained on his planning for a pre-election giveaway budget.

"If it happens that there's a big surge in tax receipts as the year goes by, or there's a big fall in expenditure because a lot of people go back to work, we'll welcome that and take it into account,'' the minister told the Oireachtas committee. ""Whether we'll have to do the full €2bn or not...on the figures that I've presented to you, we will. But if things improve in the course of the year, we'll see how it plays out.''

On the fiscal side, the Department said that Monday’s fiscal release by the CSO shows a deficit of 7.2% of GDP, comfortably inside the EU deficit ceiling of 7.5%. For 2014 a deficit of 4.8% is forecast - - the same as Budget day. The underlying deficit is set to fall to 2.9% in 2015, and return to a position of balance in 2018. The debt ratio peaked last year at 124% of GDP. It is set to fall to 107% by 2018 as the deficit is eliminated and economic growth continues.

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