October 12, 2016 / 7:46 AM / a year ago

Irish budget beyond limit of prudent policy, watchdog says

DUBLIN, Oct 12 (Reuters) - Ireland’s 2017 budget goes beyond the limit of prudent policy, the country’s fiscal watchdog said on Wednesday after the government announced a 1.3 billion euro ($1.46 billion) package of spending increases and tax cuts.

The measures appear to break European Union budgetary rules, but not by a significant enough margin to justify fines, the head of Ireland’s Fiscal Advisory Council John McHale said.

Finance Minister Michael Noonan on Tuesday announced the 1.3 billion package of tax cuts and spending increases, increasing an earlier estimate that the government would have 1 billion euros to spend in the budget.

That extra 300 million euros plus an extra 300 million euros of resources for 2016, also confirmed on Tuesday, means the government will inject 3 billion euros of new resources into the economy in 2016-17 up from an earlier estimate of 2.4 billion, McHale said.

“We see that as beyond the limit of 2.4 billion which we saw itself as being the limit of prudent policy,” McHale told state broadcaster RTE.

The budget indicates the government will reduce its structural deficit -- a measure that strips out business cycle effects and one-off revenue and spending -- by 0.3 percent next year rather than the 0.6 percent improvement demanded by EU rules, McHale said.

He said it also exceeded EU rules on allowable expenditure growth by 200 million euros.

“These breaches are not large enough - at least on current projections - to bring fines from the EU. But they still are breaches of the rules,” McHale said.

Noonan on Tuesday described the budget as representing “prudent fiscal policy” and said he expected the country’s budget deficit fall to 0.4 percent of GDP in 2017 from a deficit of 32 percent when he took office in 2010 in the middle of the country’s financial crisis.

Deputy Prime Minister Frances Fitzgerald told RTE that the department of finance did not agree with the Fiscal Advisory Council’s assessment. ($1 = 0.8928 euros) (Reporting by Conor Humphries; Editing by Toby Chopra)

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