Income taxes will be cut and the welfare spending package will be boosted this autumn, Taoiseach Leo Varadkar has promised.
Figures released this week showed that a surplus of some €10 billion is expected this year, rising to €16 billion next year. By 2026, if no policy changes are made, the surplus will be €20 billion.
Mr Varadkar was speaking at a Bloomberg New Economy Gateway Europe event, where he also defended Ireland’s corporate tax regime and said he believes Britain could in future eventually seek a closer relationship with the EU.
Asked about how the Government intended to use the significant surpluses forecast, he pointed towards the forthcoming budget.
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He said: “Yes, we will reduce income taxes, yes, there will be a welfare package in the budget to help people with the cost of living, particularly pensioners and people on social welfare. We will be able to invest more in capital and infrastructure but it is also important that we set aside some of that windfall gain and pay down the debt. Because sooner or later it will come to pass that revenues fall.
“We shouldn’t forget why we have all those revenues. We have full employment, we have incomes that are much higher than the EU or world average, and we have successful companies that have big operations here who pay a lot of tax. That is why we will have substantial budget surplus this year and next year too.”
However, he cautioned that any positive financial news needs to be viewed in the context of Ireland still retaining significant levels of debt.
“I think any time we talk about the budget surplus, we should not forget the debt. We have a debt of €250 billion and on a per capita basis our debt is quite high.
“We are building up an anti-austerity fund so that when the day comes when revenues fall off, we won’t have to cut pensions or increase income tax.”
Mr Varadkar said bringing down the debt is about insulating the country from shocks. He said future generations would judge previous governments harshly if they were reckless with the country’s finances.
“I don’t want that on my conscience in 10 years’ time or 15 years’ time.”
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He also defended Ireland’s corporate tax regime.
“We have modernised and reformed our corporate tax laws quite a lot in Ireland over recent years, because we want to stay inside the international framework. We’re not a tax haven. We don’t want to be perceived as a tax haven. So we’ve got rid of things like the double Irish, we closed a lot of loopholes that existed. We’re now increasing our rates. And every time we seem to do it, more money comes in even though people expect less money to come in. But someday that will happen.”
He was also asked about the post-Brexit relationship between Ireland and the UK. Mr Varadkar said he hoped to one day see a closer relationship between Britain and the EU.
“None of these things are necessarily the final word on the UK’s trading relationship with the EU. Brexit will never just be done. It will require constant negotiations, constant alterations to the relationship. The relationship with the UK is going to be more like the relationship we have with Switzerland or other third countries, where agreements have to be amended from time to time. One thing I would still hope for, and it is not impossible in my view, is that a future British government, maybe not the next one or the one after that, will seek a closer relationship with the European Union. That might not be rejoining, I think that’s a remote prospect, but it might involve a revision of the TCA, the Trade and Co-operation Agreement, to have a closer relationship. That is something the door will always be open to.”
On China, he said that emerging competition between the US and China “is something I don’t think Europe wants to get stuck in the middle of”.
“Chinese investment is welcome in Ireland. Trade with China is very important. We don’t want to enter into any sort of political conflict with China. They’re a competitor. They’re also a partner. But we do need to bear in mind that there are potential risks and that’s around certain raw materials; we don’t want to be overly dependent on any third country for raw materials that are essential to us. Certain products and also certain security issues.”
