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'Slow progress' in Budget talks, as Donohoe confirms he will be dipping into corporation tax take

A total of €1.5bn is to be moved into the rainy day fund.

Finance and Public Expenditure Minister Paschal Donohoe has a long weekend of talks ahead of him.
Finance and Public Expenditure Minister Paschal Donohoe has a long weekend of talks ahead of him.
Image: TheJournal.ie

Updated Oct 4th 2019, 5:00 PM

FINANCE MINISTER PASCHAL Donohoe said today that there is a real material risk of a no-deal Brexit and that this year’s budget is based on that. 

Ahead of the government’s White Paper being published, which sets out the finances ahead of next week, the minister told reporters that €450 million in supplementary estimates will be needed.

There is also an additional surplus of €600 million this year, the paper will confirm.

A rainy-day fund will be put in place, according to Donohoe. €1.5 billion will be moved into it, but the minister ruled out adding in an extra €500 million as he would have to borrow money to do so. 

Earlier today, Fianna Fáil claimed there is actually far less money to spend in this year’s Budget compared to what was published in the Summer Economic Statement.

Speaking about the ongoing Budget talks with Fine Gael, Fianna Fáil’s Michael McGrath said his party went into Budget discussions on the assumption that there was €700 million in fiscal space (the amount of money there for tax cuts or new spending measures).

While McGrath would not be pushed on what the final figure is, he said:

“It’s very limited”. 

McGrath said Fianna Fáil went into the negotiations on the basis of the “information given to date that we were looking at an overall budget of around €2.8 billion, of which 2.1 billion was pre-committed, leaving headroom of about €700 million for package of budgetary decision”. 

“But it seems to us that when the Minister for Finance gets into discussions with the various departments, and the picture is very different indeed. And the amount of money actually needed at a standstill, before you make a new policy decisions, is far greater than the €2.1 billion euro. And that is certainly an issue,” he said. 

“The headroom for new measures is very, very limited,” he said, adding that the published figures in the Summer Economic Statement are not accurate.

Sitting around the table, McGrath said they were presented with a “different picture” during the course of the talks than presented in the Summer Economic Status in terms of the headroom available. I think it’s fair to say that, and that will be shown next week,” he said. 

However, when asked about the matter today, the finance minister denied this, stating he would be making reference to the €700 million fiscal space in his Budget speech.

Overspend

McGrath said underestimations by departments on what they need and the overspend in the health budget has eaten into the pot. 

Today, Donohoe confirmed that supplementary budgets will be required, such as in health. 

“The Department of Health will have a total overall supplementary that will be very significantly reduced from where it has been in previous years, myself and the Minister for Health put a massive amount of effort into dealing with this issue. And we’re meeting again tonight,” he said.

Outlining how it is going to be paid for, the minister said there is an over performance on a number of tax sets at the moment at which will contribute to bailing out the health budget. Underspends by some government departments will also be used to fill the gap, and on Budget day, Donohoe said he will be outling his plans regarding how this could be paid for in a sustainable way, he said. 

This comes down to the running of the Department of Finance, “being in control and ensuring the figures we publish can be stood over, and in this case, they can’t”, said McGrath. 

McGrath said today the the process is far less advanced now than it has been for the previous three years. Donohoe said talks would continue into the weekend. 

Setting out some of Fianna Fáil’s asks, McGrath and Barry Cowen said they want to see improvements in home care packages for the elderly, school places for those with special needs, as well as the ring-fencing of the carbon tax. 

Social Protection not signed off on 

All eyes will be on the social protection package, which McGrath said the government hasn’t yet presented to them yet. Fianna Fáil’s Willie O’Dea has called for increases to the pension, but the government has indicated it is a non-runner. 

Donohoe said the social protection package will be “smaller in scale and will be targeted”.  He said there are a few small options that he is considering.

However, McGrath said today that “nothing is off the table” regarding social welfare rates.

McGrath says there is “some scope” for tax cuts, something the Taoiseach indicated last week. 

Pressure has been mounting on the minister to dip into the corporation tax windfall, which was announced this week, to fund opposition demands.

With such a small pot to go around, it is understood that pressure is mounting on Donohoe to dip into the government’s corporate tax take, which is almost 11% ahead of target at €5.84 billion for the first nine months of the year.

McGrath said Fianna Fáil are taking Fine Gael “at their word” that there is no “rabbit to be pulled out of a hat” on Budget day, as there was last year, when additional funds was found by government.

Today, the minister confirmed that he would be using “some” of the corporation tax take to pay for supplementary estimates. 

However, he said he will also be outlining next week how they plan to wean the government of relying on Ireland’s corporation tax take, which has been dubbed unstainable and risky money to rely on going into the future by many economists and think tanks.

Brexit budget

With just four days until Budget Day, some parties have said they are “not happy one bit” in how it has all played out.

Donohoe has already described how the upcoming Budget will be “safe” and warned that in light of Brexit, there isn’t much money to play with this year.

Unlike other years, Donohoe had to consider two scenarios when drafting this year’s Budget.

One, in which there is a real possibility of a no-deal Brexit, and the other, in which it is all relatively smooth sailing after the Brexit deadline of 31 October.

Due to the deadlock over the Irish backstop, the minister has decided to err on the side of caution, and opted for Budget option A, in preparation for a possible no-deal Brexit. 

Not getting a lot 

With Fine Gael in a confidence and supply arrangement with Fianna Fáil, as well as having the Independent Alliance as partners in government, the finance minister has a tricky job of balancing expectations and delivering a prudent Brexit budget, while also ensuring no one walks away from the table. 

Last week, TheJournal.ie reported that the Independent Alliance was insisting that the inheritance tax threshold be raised, which is the amount that parents can leave to their children when they die without the children paying tax on it.

However, sources in Fianna Fáil has insisted it is a non-runner, due to the frugality of this year’s Budget. 

This is just one demand that is being fought for in the talks. Others include affordable housing, insurance industry levies, pension increases, climate action policies, and disability payments.

It is believed that items both parties thought were a certainty have had question marks placed over them by the finance minister, with one source close to the talks stating that Donohoe has said if there is no agreement on what is on offer by today, he is simply going to tell people what they are getting. 

With Donohoe appearing to be putting his foot down in a bid to get things wrapped up by the weekend, all eyes will be on Fianna Fáil and the Independent Alliance in terms of how they react to such a harsh move. 

While parties could simply walk away, throwing the Budget into chaos, a source said that is unlikely to happen. Nobody wants to be seen “throwing the toys out of the pram” when Ireland is in the middle of Brexit drama.

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