Government to look for €4.5bn in budget cutbacks

THE BUDGET adjustment for next year will be about €4.5 billion, according to Government sources.

THE BUDGET adjustment for next year will be about €4.5 billion, according to Government sources.

The Department of Finance confirmed yesterday that it was looking at three budget scenarios for next year, one involving an adjustment of €3 billion, another of around €4.5 billion and a third of €7 billion.

Government sources have firmly ruled out a €7 billion adjustment for 2011.

The department is now focused on the mid-range figure of €4.5 billion as a necessary and obtainable objective, according to the sources. The department was responding to a statement from Fine Gael finance spokesman Michael Noonan.

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Mr Noonan said that at a briefing with officials last Monday he had been told a first-year adjustment of €7 billion would be required.

A spokesman for the department said that various technical scenarios had been set out for the Opposition for the purposes of showing the orders of magnitude involved in the consolidation effort.

He said the department officials did not give a definitive scenario as the preferred option as that was a decision for the Government to make.

The spokesman added that given the current working macro-economic forecast, indicative deficits were set out for consolidation packages of the order of €3 billion, €4.5 billion and €7 billion.

At no point was any specific target given; the officials stressed that all the numbers were working numbers and also emphasised that “the make-up of the actual consolidation package would have differing impacts on the economy and hence on the post-consolidation deficit, so it is not a simple linear process”.

The Cabinet met yesterday to discuss the budget and will meet again on the October bank holiday next Monday evening and all day on Tuesday.

The Government and the main Opposition parties yesterday reaffirmed their commitment to reducing the current budget deficit to 3 per cent of gross domestic product by 2014 despite the concerns expressed by the Economic and Social Research Institute (ESRI) that it might be more feasible to extend the target for another two years.

Taoiseach Brian Cowen said that extending the deadline would only increase the national debt and the debt repayments.

Mr Cowen repeated the Government’s commitment to meeting the 2014 target saying they must and would proceed with the deadline.

He added that no decisions had yet been made about the level of adjustment that would be required in the budget.

Mr Noonan said the ESRI’s concern that it would be difficult to adhere to the 3 per cent deficit was understandable but Ireland had no choice but to stick to the target.

“EU commissioner Olli Rehn made this clear last night, and party leaders Enda Kenny, Eamon Gilmore and Brian Cowen fully understood the choices when they confirmed that adherence to the deadline was common ground,” said Mr Noonan.

He added that there were other matters of concern in the ESRI’s report. While their €15 billion estimate of the total adjustment required over four budgets was in line with that of the department, Mr Noonan said the ESRI believed that cuts of €4 billion in the first budget would bring Ireland’s deficit/GDP ratio to below 10 per cent.

By contrast, he said that the department believed that a first budget adjustment of €7 billion would be required to achieve this.

“This is a huge divergence, and it confirms the correctness of Enda Kenny’s call for independent verification of all the essential figures,” said Mr Noonan.

Sinn Féin’s finance spokesman Arthur Morgan said that the ESRI report vindicated his party’s position of advocating a longer timeframe for reducing the deficit.

“Of course we were told by the economic whizz-kids which form the ‘consensus for cuts’ that our position was not viable.

“The blinkers have been on these parties for so long that economic reason escapes them.

“Now we have Ictu, Prof Karl Whelan and the ESRI supporting the case for a longer timeframe for economic recovery,” said Mr Morgan.

Stephen Collins

Stephen Collins

Stephen Collins is a columnist with and former political editor of The Irish Times