Ireland pledges to cut tax and increase public spending

The Irish government has promised "expansionary" budgets for the next five years as a result of strong economic growth and tax revenues, in a highly political move ahead of an election within a year.

Announcing his first "spring statement" on Tuesday - an estimate of the outlook for the economy and budget up to 2020 - finance minister Michael Noonan said he could offer tax cuts and public spending increases of up to €1.5bn in the next budget as a result of the Irish economy's sharp return to growth.

After seven years of austerity and shrinking living standards, Ireland was the fastest-growing economy in the eurozone last year, and could repeat the feat in 2015. Mr Noonan said he expected growth to be 4 per cent this year and 3.25 per cent in each year to 2020. Ireland is the fastest growing of the post-bailout countries, along with Spain, while other economies such as France are struggling to adopt to the euro crisis.

Mr Noonan said the European Commission had agreed to a tweak to the fiscal rules governing eurozone budgets to allow for greater flexibility for the Irish government to spend a greater share of the bulging exchequer revenues. That stance was backed last week by Manuel Valls, the French prime minister, on a visit to Dublin.

The spring statement is modelled on the UK "autumn statement" and is part of a wider reform of the budget process to include a "national economic dialogue" with trade unions and business leaders during the summer.

It will be a highly charged annual political event, if the tone set yesterday is a guide. Mr Noonan made several barbed references to the opposition's economic policies as he told MPs that, more than a year after the end of a €67bn bailout, Irish people "have every reason to be confident and hopeful about their future" if fiscal discipline and growth policies were maintained.

The coalition government is under intense pressure to reverse some of the pay and public spending cuts and tax rises that followed the Irish financial crash of 2008/10. Public sector trade unions are agitating for pay increases after seven years of shrinking salaries, while the health service is bursting at the seams. Some €30bn was squeezed out of the Irish economy since the crisis in "adjustment" measures to restore stability.

In his last budget in October 2014 Mr Noonan announced the "end of austerity". With the budget deficit falling towards the required level of 3 per cent of gross domestic product, he said yesterday he "will be in a position to implement another expansionary budget this year and every year out to 2020 if this is deemed prudent and appropriate".

The government's tilt towards the voters is not a surprise. Fine Gael, the centre-right party of Mr Noonan and Taoiseach (prime minister) Enda Kenny, is being challenged as the biggest Irish political party by Sinn Fein, the former political wing of the IRA. It has set out a hardline leftwing economic policy centred around the refusal to pay water charges - an unpopular tax introduced last year.

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