Department of Finance moves to clarify fiscal space discrepancy with the IFAS

The numbers range between €3bn and €12bn...

Michael Noonan, tax cuts, Budget 2016

Finance Minister Michael Noonan at the press briefing on the Budget 2016 on Tuesday evening at Government Buildings. Photo: RollingNews.ie

The Department of Finance last night issued an explanatory note as to why its estimate of the so-called fiscal space available over the next five years to the incoming government, differs so significantly from that estimated by the Irish Fiscal Advisory Council (IFAC).

The Fiscal Space is the amount of money likely to be available for spending increases, investment or tax cuts, based on current projections of economic growth and the limits of EU rules.

As the Government pushes it economic narrative in the coming weeks as the country formally enters election season, its handling of the country's finances will be a key matter of debate.

The Minister for Finance has said recently that the number may be as high as €12bn, the Fiscal Council says it could be as low as €3.2bn and the Department reckons it will come in at just under €11bn.

Last night the Department said that, unlike the Fiscal Council, its estimates do not assume that various forms of social payments such as the old age pension and child benefits are indexed in line with inflation nor that additional public sector pay increases kick in after 2018 when the current Lansdowne Road Agreement expires.

The Department’s estimates do assume that the income tax system and its various credits is index-linked with inflation.

The note said, "The difference between the department’s figures and those of the IFAC reflects the fact that their estimates assume that various forms of social benefits are indexed to the rate of inflation.

"Any such increases in expenditure are a matter for the Government of the day and require a policy decision as part of the annual budgetary cycle. To include these measures in the fiscal space by the Department of Finance would be an assumption on future policy decisions, which are a matter for the next government."