Minister for Finance Michael Noonan has upgraded his growth forecast for the economy for the third time in three weeks as well as signalling the current capital gains tax exemption for property investors would be removed in next month's budget.

Mr Noonan said Ministers were now finalising their budgetary plans on the basis of 4.7 per cent growth in gross domestic product (GDP) this year, which would be the highest annual growth rate recorded in seven years

The forecast is higher than the 4.5 per cent growth he predicted just last week, following a string of positive economic indicators, and well above the 3.5 per cent he forecast earlier this month on the back of better-than-expected tax returns in August.

Growing economy

“Because of the buoyancy in taxation from the growing economy” there will be no new austerity measures in the budget, Mr Noonan said yesterday at an event in Killiney, south Dublin, hosted by local

Fine Gael

TD Mary Mitchell O’Connor.

Describing it as the first official announcement of Budget 2015, Mr Noonan also said he intended to close the capital gains tax exemption window for property investors in the budget. The measure, introduced in 2011 to stimulate activity in the sector, offers investors a capital gains tax holiday provided they hold on to the property for at least seven years.

“I use tax breaks to get a particular economic or social response in the short term but I will not have it bedded in as a permanent feature of the tax code,” he said.

Mr Noonan said removing the relief would also reduce the number of property investors buying three- or four-bed houses to rent, which should bolster supply for families and others wishing to trade up, particularly in Dublin where housing shortages are most evident. Confirmation that the tax relief will be closed may yet prompt an end-of-year upswing in buying and selling activity in the commercial sector.

Nama, however, said it had no plans to front load or alter its sales pipeline in advance of the scheme being closed.

In his address, Mr Noonan said the State's overall debt burden would peak at 123 per cent of GDP this year – the fourth-highest in Europe – which equates to about €204 billion.

“But as GDP goes up with the growth figures and we bring the deficit down, we’re getting the debt under control.”

Arising out of the Government’s recent refinancing deal in relation to the IMF portion of its bailout loans, Mr Noonan said the troika conducted a report on Ireland’s debt sustainability, which forecast the State’s debt would fall to 102 per cent of GDP by 2020.

Falling debt

Mr Noonan said, however, this calculation was made in advance of the recent growth upgrades and that he expected the State’s debt to be fall below 100 per cent of GDP by 2020, bringing

Ireland

close to the European average. Under new stability and growth rules, euro zone states are still obliged to bring debt levels down to 60 per cent of GDP.

The Government’s approach to the upcoming budget was simple, he said, “if we can continue to control expenditure and grow the economy, all things are possible.

“If the crazy spending starts again, not only will you use up the resources on the spending side but the signal will go out that the discipline has been removed from Irish economic management.”