By Padraic Halpin
DUBLIN (Reuters) - Ireland's senior coalition party Fine Gael would use a quarter of the additional 10 billion euros it estimates will be available during the next government's five-year term on tax cuts if it is re-elected later this month, it said on Thursday.
Ireland's prime minister called elections for Feb. 26 on Wednesday, kicking off a campaign set to be dominated by a fractious debate over how the resources freed up by the country's strong economic recovery should be spent.
Enda Kenny's Fine Gael, whose lead is slipping in opinion polls that suggest an inconclusive outcome, said it would use 40 percent of the resources on spending, invest 10 percent in jobs and save the other 25 percent in a contingency fund.
The 10 billion euros of so-called "fiscal space" - a major focus of the campaign so far - is predicated on the economy growing by around 3.5 percent a year between 2017 and 2021, which Finance Minister Michael Noonan said was conservative.
"There is no money to fund anyone's promises unless the recovery continues. We're modest in our assumptions. We also know there are risks both internal and external," Noonan told a news conference.
Having grown around 7 percent in 2015, Ireland's economy is forecast to be Europe's best performer for the third year running in 2016 and Noonan pointed out that the country's central bank estimates growth of 4.4 percent in 2017, above the 3.7 percent Fine Gael has pencilled in.
Noonan said the resources available rose to 10 billion euros as a result of a decision by the European Commission to modify rules for Ireland on how it defines a balanced budget for the economy, freeing up 1.5 billion euros.
Ireland's budget will now be deemed to be balanced on structural terms - a measure that excludes the effects of the economic cycle - if it comes within half a percent of zero, a marker Ireland expects to hit by 2018, Noonan said.
Support for Fine Gael slipped in the first opinion poll of the campaign on Thursday, the latest sign that even with the support of current junior coalition partner Labour, the election may fail to produce a stable government.
Kenny's Fine Gael party has the support of 28 percent of voters, according to an Irish Times/IPSOS MRBI poll, down 2 percentage points since the newspaper's last poll in November. Labour is unchanged on 7 percent.
With no obvious alternative coalition in view, that could leave Ireland facing the instability of a minority government, a larger coalition that includes a number of independent deputies or another election.