‘Don’t get your hopes up on tax cuts,’ warns Leo
‘Keep economy on track’ ‘Risk of repeating past mistakes’
THE Taoiseach has cautioned against high expectations of further tax cuts next year.
Leo Varadkar said the widely anticipated cuts may not now materialise in 2018 – as much will depend on how the economy develops,
Changes introduced in the last budget will finally be seen in people’s pay packets at the end of this month, but the Taoiseach is warning that that could be the end of it for the moment.
While the economy is performing very well currently, he told reporters that nothing can be taken for granted.
He said: ‘Economic growth could slow down next year. It’s ahead of expectations this year, but it could slow down next year.’
As things stand, whether the country can afford both USC and tax reduction again next year is ‘not certain’, Mr Varadkar said. Whether it was prudent to do so had to be considered, he added.
‘If the economy continues to grow at the rate it is growing now, I think we would (still) have to consider not spending all of the resources available to us,’ the Taoiseach said.
He continued: ‘What we do spend will be spent primarily on services and infrastructure, with the lesser part, a third or less, going to tax reductions and tax relief, particularly for middleincome earners.
‘But there is a risk, as is always the case for a growing economy with low unemployment, of repeating the mistakes of the past, and actually making government decisions that could overheat the economy.’
Mr Varadkar said a lot had been done by the Government in the past few months to improve living standards, but added that keeping the economy strong was the foundation that ‘allows us to do everything else’.
The most recent budget was the first to balance the books in ten years, he said, adding: ‘People will start to feel the effect for real in their pay packets over the next couple of months.
‘The budget also put a lot more money into additional public services but the minimum wage increase also kicks in, along with other things, including the reduction in prescription charges.
‘The measures continue to run through until March when the pension increase arrives, together with increases in welfare payments across the board. So over the course of the first three months of the year, people will see an improvement in their pay, welfare and pensions.’
The economy will have grown by more than 5% in 2017, which is a bit better than originally expected, he said, adding: ‘Unemployment is about 6% and longterm unemployment half that, down at around 3%. We expect both to fall further. The national debt is also falling and we have indicated our intention to pay off our loans to the IMF early and that is also in train.’
The first priority for next year is to keep the economy on track and manage the public finances prudently, Mr Varadkar said.
‘We’ll avoid overheating in the economy,’ he added.
‘We know that if we increase capital spending too quickly, even though we all want more hospitals, schools and houses, all you do is drive construction inflation and you end up getting the same number of schools, but you pay more.
‘We also know that there are risks in terms of competitiveness, if we let pay grow too fast and potentially become less attractive to employment. We are going to have to balance those things.’
A rainy-day fund will be established in 2018, he promised, with an initial €1.5billion before €500million is added in both 2019 and 2020. ‘That’s designed to be a buffer and to insulate us from any future shocks... There will be a big focus next year on improving living standards,’ he said.
The Taoiseach added: ‘That can be done lots of different ways: through higher pay, lower taxes, or reducing costs of accessing services like the cost of visiting your GP, childcare or insurance costs.’ However, despite the tax cuts in the last budget and Mr Varadkar’s insistence that it would leave us better off, the Irish Daily Mail revealed at the time that most of us would actually be worse off.
While the budget will see most workers paying €5 to €7 a week less in tax, this will be swallowed up by the Government’s failure to take account of inflation and other factors when drawing up the tax plans.
This was borne out by research from the Economic and Social Research Institute earlier this month, which showed that we will all be down €40 for every €10,000 earned.