THE ECONOMY will not contract by as much as previously expected next year, and the peak in the unemployment rate will be lower than anticipated, Minister for Finance Brian Lenihan said yesterday, as he published the Government’s Pre-Budget Outlook.
Mr Lenihan reiterated the Government’s commitment to making a €4 billion adjustment to the public finances in the budget in December and said this would stabilise the Government deficit at 12 per cent of gross domestic product (GDP) next year.
Without the €4 billion adjustment, the exchequer borrowing requirement would rise to 14 per cent of GDP and the national debt would stand at about €100 billion by the end of 2010, Department of Finance figures show. Mr Lenihan said this was “not an option” for the country and would result in reputational damage.
“Irrespective of what period you choose to phase out the debt, the task there for the Government is to stabilise the borrowing requirement at 12 per cent. We cannot let it drift out,” Mr Lenihan said.
The economy is forecast to contract by 1.5 per cent next year, the Minister said yesterday, rather than the previously forecast decline of 3 per cent. This will follow a 7.5 per cent decline in the economy in terms of its GDP.
The rate of unemployment, which is currently 12.5 per cent according to the most recent Central Statistics Office (CSO) estimates, is now forecast to peak at 13.75 per cent next year.
This forecast is lower than the 15.5 per cent rate contained in the April supplementary budget, but the Minister said the improved forecasts left no room for complacency.
The Pre-Budget Outlook contains projections of the spending requirements for each Government department over the next three years, with the departmental budgets representing what would happen to public expenditure before any budget policy measures were applied.
Mr Lenihan pointed to the budget for the Department of Social and Family Affairs, which has estimated expenditure of €20.4 billion in 2009. Without any action, this figure would increase to almost €22.3 billion in 2010 as a result of the rising number of unemployment benefit claimants and other payments.
Overall, total current expenditure would widen from €40.2 billion this year to €43.3 billion in 2010, before any new policies were implemented.
The Department of Finance confirmed that it was on track for an exchequer borrowing requirement of almost €26 billion this year and would secure tax revenues “in the region of €32 billion”, more than €2 billion less than it had expected in April.
Some 8.5 per cent of tax revenues received this year will be used to service the national debt.
The Pre-Budget Outlook cites three preconditions necessary for the economy to return to sustainable growth: the stabilisation of public finances; the regaining of international competitiveness; and the establishment of a properly functioning banking system.
The document states that the Government is committed to the phased introduction of a carbon tax in 2010, but “further significant tax increases are not desirable at this time”.
