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
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
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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