EU business chief confident Ireland won’t suffer budget crisis from tech jobs rampage

According to the EU, the loss of jobs in the technology sector does not pose a “particular threat” to Ireland’s public finances.

Paolo Gentiloni, the European Commission’s chief economic officer, said the finance minister’s “prudent” budgeting is protecting the economy from recent staff cuts announced by the likes of Twitter, Meta, Intel, Zendesk and Stripe.

“I don’t think about it [this] a particular threat, frankly because I’ve seen Ireland’s path after a deep crisis as very positive, so I’m quite confident about the fiscal path,” said Mr Gentiloni Irish Independent via video call from his office in Brussels.

“I’ve worked a lot with my friend Pascal Donohoe. He is committed to a prudent financial policy. This is, I would say, his enduring message and I believe in that message wholeheartedly.”

Public Expenditure Secretary Michael McGrath said yesterday that the “big correction” in the tech sector will affect income tax and corporation tax revenues “across the board” and acknowledged there was a real risk of recession in Ireland next year .

Ireland’s corporate tax receipts are expected to hit a record €20 billion this year, with a handful of big pharma and IT companies accounting for around half of that amount.

A Treasury Department report in September warned that up to €6 billion in corporate tax could be windfall revenue and warned of a “significant loss” in income tax revenue if there were a shock to the multinational sector.

Mr Gentiloni’s comments came after the Commission launched an attempt to scrap an “unrealistic” budget rule that is forcing heavily indebted countries to cut spending, even during a crisis.

It is the latest blow to austerity policies introduced after the 2008 financial crash and effectively ended by the Covid pandemic.

“Is that a contribution to avoiding austerity measures? Yes, but I would not overestimate this contribution,” said Mr. Gentiloni.

EU rules – which were frozen during the pandemic but set to return in 2024 – require governments to keep budget deficits below 3 percent of gross domestic product (GDP) and debt below 60 percent.

They also require heavily indebted countries to deleverage by 5 percent a year and eliminate it within two decades, a rule the commission now admits that 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 heavily indebted countries – with debt above 90% of GDP – would be given more time to reduce them and the 5% rule to end.

That means the next Irish government will have less leeway to spend than the current coalition has, unless another crisis strikes.

Ireland is classified as a medium-debt country by EU standards, with debt at 55 percent of GDP in 2021 and a budget deficit expected to turn into a surplus this year on buoyant tax revenues.

The rule change released this week extends the timeframe for deleveraging from three to four years

But in 2021, debt will soar to over 100 percent as measured by the government’s preferred measure of modified gross national income (GNI*), which excludes patents and aircraft leasing. It is expected to fall below 90 percent of GNI* this year.

The rule change unveiled this week extends the timeframe for debt reduction from three to four years – and to seven for countries that commit to reforms and pro-growth investments.

Highly indebted countries like Italy or Greece must continue to cut net spending and eventually lower their deficits, although states facing “extraordinary circumstances” are given an opt-out.

Eurozone governments could be fined for failing to meet their commitments, while any country could face an EU funding freeze.

The EU also focuses on net primary expenditure – expenditure less one-off tax revenues, interest payments and unemployment benefits – rather than the “structural” budget balance, a concept that is complex and difficult to measure.

The rule change must be approved by EU governments before it can be turned into law. EU business chief confident Ireland won’t suffer budget crisis from tech jobs rampage

Fry Electronics Team

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