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The economic background against which Budget 2018 was presented is positive. The global economy continues to expand and most domestic economic indicators are continuing to suggest solid growth in the economy.
We only have detailed national accounts data for the first half of the year. Despite the distortions created by the multi-national sector, the underlying picture is good. In the first 6 months, gross domestic product (GDP) expanded 5.5% and gross national product (GNP) expanded by 2.6%. Consumer spending on goods and services increased by 1.7%; investment expanded by 3.1%; exports of goods & services expanded by 3.2%; and imports of goods & services declined by 1.9%.
The following is a synopsis of the most up to date data:
The success or failure of any budget in terms of its fiscal targets is heavily dependent on how the real economy performs.
Table 1 provides a summary of the economic outlook according to the Department of Finance following the changes announced in Budget 2018.
GDP growth is expected to average 3.5% per annum between 2017 and 2020.
Table 1: Economic Forecast
Table 2 shows the projections for the key budgetary numbers out to 2020.
Table 2: Fiscal Forecasts
While the Irish economy continues to enjoy strong and broad-based growth, it is clear that there are significant challenges ahead. It was essential that Budget 2018 should be heavily driven by these challenges.
The key challenges include:
On the taxation side, the key measures in Budget 2018 include:
On the expenditure side:
On the housing side:
Accepting that the world cannot be changed in just one budget, the efforts made by the Minister in boosting the supply of social housing and private housing has to be acknowledged. The big challenge is if we have enough capacity on the construction side to deliver the planned housing.
There was no major surprises in the Budget as it had been well leaked in advance. The attempts to ease the burden on middle-income tax payers are modest, but at least moving in the right direction. The strong focus on expenditure in the budget package will see a significant increase in current and capital spending. Health, housing and education are the key target areas for expenditure increases. These reflect a sensible set of priorities.
The economic assumptions underlying the budget look very realistic and suggest that as long as there are no unforeseen shocks, the economic outlook looks positive for the foreseeable future and the public finances will continue to improve.
All in all, it looks like a reasonably good day’s work for the Minister for Finance, given the very limited resources at his disposal. Incremental changes are being introduced, and provided they remain on track, the benefits will gradually be felt over the coming years. Of course, regardless of what the Minister did in the budget, he was never going to please everybody. That is the reality of political life and scarce economic resources.
October 10th 2017