TENSION IS emerging in Government over the scale of budget cutbacks for next year with Minister for Energy Pat Rabbitte maintaining that the adjustment should not be more than €3.6 billion.
Minister for Finance Michael Noonan has indicated he is likely to seek more than €3.6 billion in savings to keep to the target of reducing the deficit to 8.6 per cent of gross domestic product.
Minister for Public Expenditure and Reform Brendan Howlin has backed Mr Noonan saying the Coalition was committed to a deficit reduction target of 8.6 per cent despite the difficult choices this entails.
However, speaking in Brussels, Mr Rabbitte said it would be wrong to hamper the capacity of the economy to expand by seeking additional savings over and above €3.6 billion.
“We’re committed to meeting a target of 8.6 per cent of GDP in terms of the deficit. The advice I have is that €3.6 billion is likely to meet that target,” Mr Rabbitte said. “I’m giving you my view. Even though it’s going to be painful I think we should stick to that commitment.”
Mr Rabbitte said he was not a proponent of the Big Bang theory. “The €20 billion plus taken out of the economy in the last three to four budgets is very, very severe,” he said. “I think to do what we said we would do and to take out €3.6 billion in itself will be very, very difficult. We’re committed to doing what we said we would do. But I think those noises off stage who advocate more than that wouldn’t have my support.”
The inaugural report from the Fiscal Advisory Council, the new watchdog on Government finances, published earlier this week estimated that to meet the 8.6 per cent deficit target an adjustment of €4 billion will be required for next year.
Mr Noonan responded to the council’s advice by repeating his commitment to the 8.6 per cent target even if it took an adjustment of more than €3.6 billion to achieve it.
Mr Rabbitte claimed there was no pressure from the Minister for Finance to increase the target and suggested his colleague was merely carving out leeway for himself as the budget process advanced.
Asked whether he was at odds with Mr Noonan, Mr Rabbitte said the Minister for Finance was a “good friend” . “I have never met a minister for finance who didn’t allow himself some room for manoeuvre and Minister Noonan is far too long around not to allow himself room to manoeuvre,” he said. “But I answered the question I was asked, which is that I think €3.6 billion is what we would do and I think that’s sufficient.”
It was not possible for the Cabinet to discuss the budget target as vital data was not to hand, he added.
“I’m talking at the beginning of October. And we don’t really have all of the information yet, nor do we have growth projections for next year,” he said.
“This month is a key month in terms of tax returns because it’s self-employed month. Next month will be very significant in terms of corporate returns. We don’t know growth projections for next year yet so it’s impossible to be precise. But my own view is that it would be wrong to impede the capacity of the economy to grow.”
He was cool on the prospect of a change to the EU treaties to reinforce European budget rules, but acknowledged that such a manoeuvre could not be ruled out.
“The crisis that has befallen us is so cataclysmic that it’s going to require us to consider options that might have been unthinkable before. We will make haste slowly as a country in our response,” he said. “We would prefer to see whatever solutions emerge not requiring us to go back to the people in a referendum. But I suppose down the road I would say to you that it depends on what the solutions proposed are.”
Although the Coalition has pledged to sell a minority stake in the ESB under the EU-International Monetary Fund bailout, Mr Rabbitte said market conditions were not appropriate to do that at the moment. “I think it’s likely that the troika will accept that that ought to be done in more propitious circumstances than obtain at the moment.”