Cowen says €6bn cuts package is best way forward

TAOISEACH BRIAN Cowen has insisted that the €6 billion in cuts planned for next month’s budget are the best way forward for the economy and “imperative” in reducing the €19 billion gap between State income and spending.

He told Labour leader Eamon Gilmore in the Dáil that a €6 billion “consolidation” would have a dampening effect on growth potential – but “if we do not make this level of adjustment, the ability of our State to be funded on an ongoing basis will be put at risk”.

No strategy was without risk, but this was the Government’s “best judgment” of the way to progress.

He said putting the bigger cuts at the start of the four-year budgetary plan was supported by the European Commission and he expected “two-thirds of the adjustment” to be completed next year on the way to reducing the deficit to 3 per cent of GDP.

Mr Cowen also expected the four-year budgetary plan to be published this month but “whether it is the week beginning 15th or 22nd remains to be seen based on discussions we are having and the approval of the plan overall”.

Mr Gilmore said the Government’s plan for €6 billion in budget cuts did not seem to have “greatly impressed” the markets.

During Leaders’ Questions the Labour leader said that while the €6 billion in cuts aimed to “convince certain institutions that you’re in earnest about making fiscal adjustment”, there were €4 billion in cuts last year “and no growth resulted”.

It was now intended to cut €6 billion “and the Government expects growth of 1.75 per cent”; but it did “not appear to have made a particularly big impression on the markets”.

Mr Gilmore said the markets were now “looking at the growth side – the lack of growth – as much as they are at the fiscal side”.

He highlighted warnings at the weekend by current and former multinational company executives that companies that were successful “have invested their way out of a recession and not tried to save their way out of it”.

He said many believed a cut of €6 billion was “too deep, will damage growth, will damage potential for job creation” and the Taoiseach’s “judgment in this matter may be wrong”.

The Taoiseach said, however, that “if your view [is] that what we’re doing is not generating sufficient confidence, I don’t know how €4.5 billion would generate more confidence”.

He said growth on the investment side meant capital investment, “which has been historically high, which has been twice the EU average”.

He acknowledged “there is no strategy that’s without risk. But we’re not doing this simply in an effort to convince markets, we’re doing it because it’s imperative that we reduce the gap between what we spend and what we bring in.”

Mr Cowen said the Government’s policies “have brought us from a contraction in the economy of -10 per cent last year to stabilisation this year”.

“Now we’ve got to move into a growth path over the next number of years and it is true that consolidation of the public finances has to be done,” added Mr Cowen

He said a greater emphasis on expenditure cuts rather than tax rises “is important in terms of creating investment opportunities, promoting job creation and reducing the tax on labour that would be envisaged by a 50:50 split in the composition of the adjustment”.

He stressed that if “this country and this parliament fails to make the necessary adjustments then we put at risk the ability of the State to be funded on an ongoing basis”.

The Taoiseach stressed that “you can’t go on spending €50 billion if you’re taking in €31 billion. That will involve a very serious adjustment in the level of service of being provided.”

But he added that, taking all the factors into consideration, “that is the best approach”.