McCarthy sees cuts to health and education

THE GOVERNMENT will not be able to cut spending without tackling areas such as health, education and welfare, economist Colm McCarthy warned yesterday.

Mr McCarthy chaired the Government-appointed group which in July published a report recommending €5 billion in cuts in public spending that were needed to ease the crisis in the State’s finances. The Government is looking for savings of €4 billion a year.

The report has since caused a rift in Government. This week Tánaiste Mary Coughlan said many of its proposals did not make sense, while Minister for Finance Brian Lenihan said they would remain at the centre of the budgetary process.

Mr McCarthy did not comment on the differences of opinion within Government yesterday. However, he warned that, despite four separate policy measures, public spending was continuing to rise and would be between 5 per cent and 6 per cent ahead of 2008 levels by the end of the year.

Speaking at the Chartered Accountants of Ireland, Leinster Society, lunch yesterday, Mr McCarthy explained that an increase in the costs of servicing the national debt and a growing social welfare bill were key factors in this.

He said Government borrowing was running at €400 million a week, and he estimated that borrowing was likely to reach 11 per cent of gross domestic product (GDP) by the end of the year.

“Annual borrowings at numbers like 10 per cent or 11 per cent of GDP is just dangerous, and it’s all happened very suddenly.”

The economist argued that this was not sustainable, and when the public finances reached this state in the 1980s and nothing was done about it, it resulted in a decade of depressed economic activity.

Mr McCarthy added that, as the Government wanted to bring borrowing back to 3 per cent of GDP by 2013 and was not willing to increase taxes in next December’s budget, it would have no choice but to cut spending. Health, education and social welfare accounted for €3 out of every €4 of current Government spending. “It is not possible to make meaningful cuts without addressing the big spending areas.”

He also suggested that the Government could find savings in its capital programme, which funds public projects such as roads and other services, and said the recession justified deferring some projects.

“Borrowing needs to be reduced in 2010, and I would not think that you could rule out further tax increases either.”