Income tax cuts at risk due to trade war, Donohoe says

By Cillian Sherlock, PA

Government plans for tax cuts may have to be postponed due to the threat of a global trade war, the finance minister has said.

Models undertaken by the Department of Finance and the Economic and Social Research Institute show that an intense trade dispute between the US and the EU would risk increased prices, fewer new jobs and slower growth in the economy.

Minister Paschal Donohoe said it is “very possible” that between 50,000 and 80,000 jobs would be affected over the next five years, that would have otherwise been created or kept in the economy in that period under previous projections.

Under a worst-case scenario, the Fine Gael minister said a global trade dispute would impact economic growth and living standards.

Mr Donohoe also said proposals to cut taxes may have to be delayed.

In its election manifesto, Fine Gael said it would “prioritise making work pay” through taxation measures including reducing taxes. It had pledged to raise the cut-off point for entering into the higher rate of income tax.

The Programme for Government, which Fine Gael agreed with Fianna Fáil and some independents, pledges to implement “progressive changes in taxation if the economy remains strong, including indexing credits and bands to prevent an increase in the real burden of income tax”.

However, it also states it would postpone changes to income tax credits or bands “in the event of an economic downturn and unexpected deterioration in the public finances”.

Asked on RTÉ Radio One if there was a prospect of the Government making spending cuts, Mr Donohoe said he projected “a slower pace of spending growth” as opposed to cutbacks.

He said: “In all of the scenarios that are in front of me at the moment, I would say that our focus will be in continuing to increase our rate of capital investment within our economy, because that would be good for national economic growth, and it would be good for how we regain our competitiveness.

“However, there will be other choices that we will have to make. Those choices could mean current spending not growing at the pace we were anticipating.”

He added: “It could also mean we have to make changes in relation to taxation because we have to prioritise the keeping of jobs and retention of the competitiveness of our economy.”

Pressed on whether this means tax cuts, he said: “If we’re in a situation where we’re experiencing an economic shock, that wouldn’t be the right thing to do.

“The right thing to do would be to maintain your tax base so that you’re in a position then where you can continue to invest in housing, you can keep your public finances safe, and you can look after day-to-day spending.”

The minister said this was consistent with the position of the Programme for Government.