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IFAC urges Budget caution over Brexit, global risks

IFAC urges Budget caution over Brexit, global risks

The Irish Fiscal Advisory Council has urged the Government not to rely on surges in corporation tax to cover spending overruns.

In its pre-Budget statement, the economic watchdog has said the Government should be cautious because of the risks associated with Brexit and a “worsening outlook” in the rest of the world.

IFAC said Ireland’s underlying budgetary position has deteriorated since 2015.

It argued that the benefit of record corporation tax receipts and lower interest rates have been undermined by increased spending, particularly unplanned spending in areas such as health.

The council said using bumper corporation taxes to balance the books “carries significant risks”, as they are likely to prove temporary and the spending measures likely to last longer.

It said there was a case for the Government to more cautious as the risks around Brexit increase and the outlook in the rest of the world gets worse.

The council also said the Government needed to deliver on a more credible medium term plan for the public finances.

One of its ideas is to develop a so-called prudence account to save excess corporation tax receipts.

The IFAC is an independent body set up under statute to assess and comment on government fiscal policy.

IFAC Chairperson Seamus Coffey, speaking to RTÉ’s Morning Ireland, said that budgetary planning on the basis of a hard Brexit is the “most appropriate course of action”.

He said that a no-deal scenario does appear the most likely and planning for this scenario makes the most sense.

Brexit, Mr Coffey said, should not have an impact on the overall package that the Government chooses to deliver.

He explained the Government has set out a plan for budgetary measures totalling €2.8bn and the IFAC believes the Government must stick to and deliver this plan.

He added that the Government’s existing commitments total around €2.2bn, leaving €600m for discretionary measures.

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