Minister for Finance Michael Noonan has played down concern about the Government's use of an unexpected €1 billion windfall in corporation tax for spending.
In its latest report, the Fiscal Advisory Council warned that using unexpected tax revenue for difficult-to-reverse spending increases was "especially risky".
Corporation tax surged to record levels last year and has remained above profile this year.
Responding to the council’s concern, Mr Noonan said: “While Budget 2017 acknowledges a concentration risk, it should be borne in mind that corporation tax is expected to account for just 16 per cent of total tax revenue in 2016, which is still within recent norms.”
He also said that VAT and income taxes still accounted for two thirds of all tax revenues.
Key infrastructures
Mr Noonan also noted the council's concern regarding the Government's compliance with the European Union's budgetary framework, which was achieved through a technical reclassification relating to an AIB transaction.
“This did allow for some additional spending within the rules this year and it was used to meet expenditure demands for vital public services and investment in key infrastructures, arising from a growing economy,” Mr Noonan said.
However, he said it was up to the European Commission which assesses compliance with the fiscal rules after applying an overall assessment.
“Its clear opinion is that we are broadly compliant,” he said.
The fiscal council’s report also highlights the very credible risk posed to the economy by Brexit.
‘Shock absorption’
“As part of our Brexit readiness approach, a lower debt target of 45 per cent of gross domestic product has been announced for the mid-to-late 2020s. This will help to provide additional fiscal ‘shock absorption’ capacity to the public finances,” Mr Noonan said.
In its report, the State’s fiscal watchdog said there is growing evidence of a potential slowdown in the Irish economy and warned that public sector pay increases will have to be funded by cuts elsewhere.
It said while the economy continues to grow at a solid rate, recent data on domestic demand, output and retail sales pointed to a gradual “loss of momentum”.
