DUBLIN – Ireland unveiled its first expansive budget Tuesday since the collapse of the Celtic Tiger economy six years ago, ending an era of austerity earlier than expected thanks to the return of Europe-leading growth.
Measures unveiled in the 2015 budget will increase spending and tax breaks by a combined 1.2 billion ($1.5 billion), including a plan to build 6,700 state-funded homes for the poor as Ireland seeks to stimulate even more tax-driving growth. The U-turn follows seven hard-cutting budgets that, when combined, took nearly 30 billion euros annually — representing nearly a quarter of previous domestic demand — out of a shell-shocked economy.
“The road we have travelled to get to this point has been very difficult and the Irish people have made major sacrifices, but the policies pursued by this government have worked and the recovery in the Irish economy is well under way,” Finance Minister Michael Noonan told lawmakers as he forecast that his budget blueprint would boost Ireland’s 2015 growth to 3.9 per cent. He previously guided 3.6 per cent.
Ireland also sought to shore up its international image by announcing plans to end a corporate accounting rule that permitted hundreds of U.S. multinationals with European bases in Ireland to shift their non-American profits between two Irish-registered companies and avoid tax.
Noonan declared that the tactic called the “Double Irish” would be outlawed for new applicants from Jan. 1, while existing beneficiaries — among them scores of global pharmaceutical and technology giants including Apple and Google — would have until the end of 2020 to find different shelters.
Tuesday’s budget represents a stunning turnaround for Ireland, which in 2010 teetered on the brink of national bankruptcy after being overwhelmed by the cost of rescuing its banks. At the start of this year, Ireland remained committed to a European Union-International Monetary Fund plan that foresaw a further 2 billion euro ($2.6 billion) dose of austerity in 2015.
But confidence has soared since Ireland’s December 2013 exit from its bailout support. Unexpectedly strong economic growth this year driven by robust exports to Britain and the United States, its two major trading partners, have made it much easier for Ireland to meet deficit-reduction targets, with 2014 growth expected to exceed 4.5 per cent.
Noonan said that even with Tuesday’s plans to cut income tax and boost spending, Ireland still expected to post a 2015 deficit of 2.7 per cent of GDP.
Since Ireland’s credit-fueled property bubble burst in 2008, the country has toiled to return to the eurozone’s annual red-ink limit of 3 per cent of GDP. In 2010, the year of the bailout, Ireland posted a modern European-record deficit exceeding 32 per cent of GDP.
Among dozens of tax tweaks, Noonan said Ireland’s top income-tax band would drop to 40 per cent from 41 per cent, and the level that it kicks in would rise by 1,000 euros to 33,800 euros ($43,000). He raised the starting point for lower levels of income tax to take 80,000 more low-paid workers out of the tax net.
The only new tax: another 40 cents on a pack of cigarettes, raising their average price to 10 euros ($12.70).
Budget and government statements, www.budget.ie