EU economy chief confident Ireland won’t face budget crisis due to wave of layoffs in tech jobs
Job losses in the tech industry pose no “particular threat” to Irish public finances, the EU says.
European Commission economics chief Paolo Gentiloni said the finance minister’s “cautious” budgeting insulates the economy from recent staff cuts announced by companies including Twitter, Meta, Intel, Zendesk and Stripe.
“I don’t envision [this] a particular threat, honestly, because I saw the path, after a deep crisis, of Ireland as very positive, so I am quite confident on the budgetary path, ”Mr Gentiloni told the Irish Independent by video call from his office in Brussels.
“I worked a lot with my friend Pascal Donohoe. He is committed to prudent fiscal policies. This is his message, I would say, permanent, and I have full confidence in this message.
Public Expenditure Minister Michael McGrath said yesterday that the “major correction” in the tech sector will affect income tax and corporation tax revenues “across the board”, and admitted that there is a real risk of recession in Ireland next year.
Irish corporation tax revenue is expected to hit a record €20 billion this year, with a handful of large pharmaceutical and IT companies accounting for around half that amount.
A September finance ministry report warned that up to €6 billion in corporation tax could be windfall revenue and warned of a ‘substantial loss’ in income tax if shock for the multinational sector.
Mr Gentiloni’s comments came after the Commission launched a bid to scrap an “unrealistic” fiscal rule forcing heavily indebted countries to cut spending, even in times of crisis.
It is the deathblow to an austerity policy put in place after the financial crash of 2008 and effectively ended by the Covid pandemic.
“Is this a contribution to avoid austerity? Yes, but I wouldn’t overstate that contribution,” Gentiloni said.
EU rules – frozen during the pandemic but set to return in 2024 – require governments to keep budget deficits below 3% of gross domestic product (GDP) and debt below 60%.
They also demand that heavily indebted countries reduce their excess debt by 5% a year and eliminate it within two decades, a rule the Commission now admits undermines growth and investment.
Under the Commission’s proposed changes, the bloc’s 30-year-old debt and deficit limits would remain in place, but highly indebted countries – where debt is over 90% of GDP – would have more time to reduce. this, ending the 5% rule.
This means that the next Irish government will have less room to spend in the same way as the current coalition has, unless another crisis hits.
Ireland is considered a moderately indebted country by EU standards, with debt reaching 55% of GDP in 2021, and the budget deficit is expected to turn into a surplus this year thanks to buoyant tax revenues.
Rule change announced this week extends debt reduction deadline from three to four years
But the 2021 debt amounts to more than 100% if measured against the government’s preferred measure of modified gross national income (GNI*), which removes patents and aircraft leasing. It should fall below 90% of GNI* this year.
The rule change announced this week extends the deadline for debt reduction from three to four years – and to seven years for countries that commit to growth-enhancing reforms and investments.
Highly indebted countries like Italy or Greece will still have to cut their net spending and reduce their deficits over time, although states facing “exceptional circumstances” are given an opt-out option.
Eurozone governments could be fined if they fail to meet their commitments, while any country could face an EU funding freeze.
The EU also emphasizes net primary expenditure – expenditure less one-off tax revenues, interest payments and unemployment benefits – rather than the “structural” budget balance, a complex and difficult to measure concept.
The rule change must get approval from EU governments before it can be written into law.