In its latest report, the Irish Tax Advisory Council said the economy continues to recover, with domestic demand returning to pre-pandemic levels.
The tax assessment report credited the vaccinations and easing restrictions for the economic rebound. However, sectors with below-average wages, such as tourism and hospitality, remain well below pre-pandemic trends.
It is expected that possible additional restrictions linked to Covid-19, the risks to foreign direct investment linked to the evolution of international taxation and the lingering uncertainties surrounding Brexit may have an impact on economic growth in the future. middle term.
The budget forecasts that the economic deficit will be sharply reduced to 5.9% of national income in 2021.
For next year, the budget projects a deficit of 3.4% of gross national income, building on a further expected recovery in income and lower allocations for Covid-related spending.
According to the advisory group, the government’s decision to stick to its planned budget of 4.7 billion euros for 2022 “strikes an appropriate balance between supporting the economy and keeping public finances on a path. sustainable ”.
“For the medium term, the 2022 budget presents a clearer strategy than previous budgets,” said the report.
A number of budget measures such as the new “5% spending rule”, the spending forecast based on maintaining the “existing level of service” and the updated capital plan were all welcome initiatives.
However, the Budget Council said the current budget strategy could be improved by setting spending ceilings for each government department, as required by law.
He suggested that the 5 percent expenditure rule could be linked more closely to national fiscal rules, broadened to cover non-cash spending and tax changes, and have legal support.
Clarification on health and climate
Despite welcome improvements in budget strategy, the Budget Council has expressed concerns about major government plans.
According to the advisory group, it is not clear how the government’s health and climate commitments fit into the medium-term spending strategy.
Highlighting one of the most politically controversial issues, the Tax Council noted that Slaintécare’s costs have not been updated since 2017.
In addition, he raised the issue of the lack of estimated budgetary costs for the government for the implementation of the recently announced Climate Action Plan.
“While a substantial part of the capital expenditure of the National Development Plan could contribute to these objectives, there could be significant additional costs for the State, in particular to encourage the switch to electric vehicles and improve energy efficiency. houses, ”the report notes.
According to the Budget Council, the room for maneuver on these projects is narrow because spending plans allow on average only 0.5 to 1.5 billion euros in additional current spending each year without increasing taxes or reducing spending. in other areas.
Speaking about the latest report, Tax Council Chairman Sebastian Barnes said the government needs to clarify these costs.
“The government has defined a more credible strategy. By sticking to his plans, this would both increase investments and reduce the debt ratio to safer levels.
“However, the government must now clarify the costs of Sláintecare and the new climate action plan and how these will be financed in a sustainable manner,” he added.
“The over-reliance on corporate taxes needs to be addressed. “
Another challenge highlighted in the budget report was the aging of the Irish population. According to the advisory group, this will put pressure on pensions and healthcare costs.
He called on the government to present a response to the preferred reform package defined by the Pensions Commission as well as recommendations aimed at postponing the increase in the retirement age and involving a significant increase in PRSI contributions.
“Although legitimate, this option raises questions about the willingness of governments to impose these measures,” said the report.
“Defining a plan to phase in any increase in the PRSI over the next few years could make these measures more credible.”