The Finance Minister says he does not wish to "add fuel to the fire" in case the economy overheats
The Minister for Finance has said there will be €800m available to spend on new measures in the upcoming budget.
Paschal Donohoe is providing the first glimpse at what can be expected for Budget 2019 this afternoon.
His Summer Economic Statement outlines the general state of play ahead of the budget – including projections for growth in the economy and the numbers of people currently at work.
Minister Donohoe has said that the Government is now aiming to reduce Ireland's deficit to 0.1% of the country's GDP (Gross Domestic Product) next year.
He said he plans to announce a budgetary package of €3.4bn in additional spending for next year - however €2.6bn of this has been earmarked for projects that have already been announced.
He said this leaves €800m available for additional spending - and warned that any spending above this limit would involve more borrowing and could allow the country's deficit to deteriorate.
“While the economic situation is relatively healthy at present, it is clear that the external environment is also becoming increasingly challenging. A crucial policy response is to build up our capacity to respond to these challenges...— MerrionStreet.ie (@merrionstreet) June 19, 2018
... This is why the Government is prioritising reducing public debt, further working down the deficit, establishing a Rainy Day Fund and avoiding pro-cyclical budgetary policies . While there are risks ahead there are also opportunities.’— MerrionStreet.ie (@merrionstreet) June 19, 2018
He said using all the available 'fiscal space' would increase the deficit by 0.3% and would "represent the wrong choice for the economy at this stage of the cycle."
As a result he said the upcoming budget will be aimed at reducing borrowing and ensuring the required economic buffers are in place to protect the economy into the future.
"Our economy is in good shape at the moment and this is reflected in the labour market," he said.
"The level of employment is close to its highest level ever and we are approaching what could reasonably be called ‘full employment.'"
"This is a welcome development but as capacity constraints are increasingly becoming a feature of some sectors this, in turn, could lead to overheating of the economy.
"In this context, it is vital that Government policy does not add fuel to the fire but that we make sensible and prudent decisions now to secure our hard-won gains and ensure the continuation of sustainable future growth."
He warned that while Ireland's economy is "relatively healthy at present," the global political climate is " becoming increasingly challenging."
"This is why the Government is prioritising reducing public debt, further working down the deficit, establishing a Rainy Day Fund and avoiding pro-cyclical budgetary policies," he said.
"While there are risks ahead there are also opportunities; our goal is to position our economy to minimise these risks and to maximise the opportunities that lie ahead."
Budgetary policy will be framed to reduce borrowing, rebuild our fiscal buffers and support steady, sustainable increases in living standards to ensure we are protected into the future. @Paschald @IRLDeptFinance— MerrionStreet.ie (@merrionstreet) June 19, 2018
Minister Donohoe was warned against any significant cuts to income tax by the Economic and Social Research Institute (ESRI) ahead of the statement.
The economic think-tank warned that there is "little or no scope" for cutting the overall tax burden.
It also raised concerns that that it will become harder and harder to get a mortgage in the coming years.
ESRI is right - tax cuts extremely unwise. In any event, we are already a low-tax economy. What we need is investment in housing, childcare, education and R&D. pic.twitter.com/1WhZgzHFzx— Michael Taft (@notesonthefront) June 19, 2018
Earlier, Fianna Fáil warned that the budget should be focused on housing and not tax cuts.
The party's housing spokesperson Darragh O'Brien said members will be negotiating for better public services in pre-budget talks.
"We want this to be a housing budget," he said.
"We want to show hope to people that you will be able to buy a home.
"We want to show hops to people who are homeless and the kids who are in emergency accommodation; that there is a future for them as well."
"So I think our priority should really be focusing on housing, the issues that we have had in health and focusing on services."