Taoiseach Brian Cowen has defended the €6 billion in cuts planned for next month’s budget as the best way forward for the economy.
He told Labour leader Eamon Gilmore in the Dáil that it was the Government’s “best judgment” that this was the way to progress. The “frontloading” is supported by the EU commission and “we expect two thirds of the adjustment” to be completed next year to get to a 3 per cent deficit rate.
Mr Gilmore said that the Government’s plan for €6 billion in budget cuts “doesn’t appear to have greatly impressed the markets”. He said there was €4 billion in cuts last year “and no growth resulted. It’s now intended to cut €6 billion and the Government expects growth of 1.75 per cent.”
During leaders’ questions Mr Gilmore said that while the €6 billion in cuts aimed to “convince certain institutions that you’re in earnest about making fiscal adjustment” but “it does not appear to have made a particularly big impression on the markets”.
The markets were now “looking at the growth side – the lack of growth – as much as they are at the fiscal side”. The Labour leader added that multinational company executives warned at the weekend that companies that were successful “have invested their way out of a recession and not tried to save their way out of it”.
He said many believed a cut of €6 billion was “too deep, will damage growth, will damage potential for job creation” and the Taoiseach’s “judgment in this matter may be wrong”.
The Taoiseach said however that “if you’re view that what we’re doing is not generating sufficient confidence I don’t know how 4.5 billion would generate more confidence”. He said growth on the investment side meant capital investment “which has been historically high, which has been twice the EU average”.
He added that “there is no strategy that’s without risk. But we’re not doing this simply in an effort to convince markets, we’re doing it because it’s imperative that we reduce the gap between what we spend and what we bring in.”
“Those policies have brought us from a contraction in the economy of –10 per cent last year to stabilisation this year. Now we’ve got to move into a growth path over the next number of years and it is true that consolidation of the public finances has to be done.”