Minister for Finance Michael Noonan has pledged to do "something" for struggling middle-income earners in the budget despite indications yesterday from his own department that a further €2 billion adjustment would be required to hit deficit targets next year.
Speaking at the Oireachtas Finance Committee after the publication of the Department of Finance's latest Stability Pact Update (SPU), Mr Noonan said he intended to widen income tax bands to take more people out of the higher tax bracket as soon as the State could afford it.
Economic growth
He insisted easing the tax burden on hard-pressed workers was not incompatible with the planned €2 billion adjustment required to achieve the troika-agreed deficit target of 3 per cent in 2015.
In the first update of the Government’s forecasts since the budget last October, the department increased its forecasts for economic growth and employment for this year and next, noting economic recovery was “gaining momentum”.
However, it indicated the improved conditions were not enough to warrant a let-up in the State’s long-standing austerity drive.
Last week, the Economic and Social Research Institute suggested the Government could meet the target without any new austerity measures, other than the €500 million from the introduction of water charges.
The Department of Finance increased its forecast for gross domestic product (GDP) growth to 2.1 per cent this year from 2 per cent previously, and to 2.7 per cent for 2015 from 2.3 per cent. "Although GDP was weak last year, it was impacted by sector-specific developments," Mr Noonan said, referring to the expiry of patents in the pharmaceutical sector.
"The Irish economy is performing well and we are forecasting a strengthening of this recovery. Most importantly this recovery is translating into jobs."
Improved confidence
The recovery this year would be led by consumer spending and investment, the department said, with employment growth boosting household incomes and improved confidence pushing down savings rates that jumped when the financial crisis hit.
It predicted employment growth would accelerate to 2.2 per cent this year, from 1.5 per cent at the time of the budget, which would see the creation about 42,000 new jobs.
The department forecasts the economy’s unemployment rate would fall from its 2012-peak of 15.1 per cent to 11.5 per cent this year, and to 10.5 per cent next year.
In its report, the department maintained its fiscal target projections, forecasting a deficit of 4.8 per cent of GDP for this year, and 2.9 per cent for 2015, inside the excessive deficit procedure target of 3 per cent, provided there was no change to its planned €2 billion adjustment in the upcoming budget.
