Minister for Finance Brian Lenihan said this evening the outlook for the Irish economy was gradually improving but reiterated €4 billion in savings would have to be found in the Budget.
The Irish economy is expected to decline 1.5 per cent next year, with unemployment peaking at 13.75 per cent, according to the Government's Pre-Budget Outlook which was published this evening. Unemployment is currently 12 per cent.
Although recent trends indicate that the rate of increase in unemployment has slowed, the report said that this may be attributed to an adjustment in labour supply, through migration or lower participation, rather than any real improvement in demand for workers.
The predictions are more optimistic than estimates contained in April's Supplementary Budget, which forecast a 2.9 per cent economic contraction in 2010 coupled with an unemployment rate of 15.5 per cent.
If the Government achieves savings of €4 billion in public spending in the Budget the general government balance will have a deficit of 12 per cent of gross domestic product next year, according to the report.
National Debt is set to rise to €76 billion, up from €50 billion at the end of 2008, with an Exchequer borrowing requirement for this year of close to €26 billion. Spending this year is expected to total €56 billion, with a €26 billion deficit.
However, there was some positive news, with annual growth predicted to return to positive territory in the second half of 2010. The economy is expected to contract 7.5 per cent this year.
Minister for Finance Brian Lenihan said while the outlook was improving he warned against complacency. He said tax revenues had fallen to 2003 levels.
"The last year or so has been exceptionally difficult for us all. And there are significant challenges ahead. But I am pleased to note that the outlook for the economy is now improving," Mr Lenihan said.
If no cuts were taken or if adjustments were delayed the general government deficit would rise to around 14 per cent of GDP.
The Minister repeated a large part of the €4 billion adjustment would have to come from expenditure savings as the scope for further taxation increases was limited.
In a press conference in Dublin Mr Lenihan said the public sector pay bill had increased 115 per cent in the eight years since 2000.
The Minister said taking decisive action now would bring immediate benefits to the economy.
"Now is the time to stabilise the deficit: falling prices and lower interest rates are cushioning the impact of the necessary adjustments on families," he said.
"The decline in prices this year and the prospect of a further - albeit more modest - decline next year is restoring our international cost competitiveness. Nominal income levels must be seen in the context of declining prices," he said.
Mr Lenihan also welcomed the EU Commission's report which found that Ireland had taken effective action to address the deterioration in its finances. However, Mr Lenihan said that a proposed one-year extension for the correction path did not change the focus of the country's need to stabilise the large deficit.
"If anything, it reinforces the need to continue to take effective action in 2010,” he said.
Labour finance spokeswoman Joan Burton said the approach set out in the pre-budget outlook would be "divisive, unfair, and will lack credibility domestically and internationally".
"Back in April at the time of the emergency budget, Brian Lenihan indicated that the €4 billion adjustment for 2010, would be achieved through a more balanced mix of measures. This could and should include a greater contribution from the better off sectors of Irish society, something which the document explicitly rejects," she said.
"It would not be unreasonable in a balanced programme of recovery to look for a contribution of upwards of ?1bn from the elimination of tax expenditures and reliefs such as the remaining property relief schemes, reducing and capping pension reliefs and tax reliefs for landlords.
"Many of the proposed social welfare cuts being canvassed by Ministers, particularly the possible cuts in child benefit, risk creating ever bigger poverty and unemployment traps."
