Updated 17:30
THE DEPARTMENT OF FINANCE has confirmed that the government will seek to implement budget adjustments of €6 billion when it announces the national Budget on December 7.
€4.5bn in the adjustments will be sought through spending cuts, while the remaining €1.5bn will be raised through new taxation, finance minister Brian Lenihan said in a statement released this afternoon.
The amount of adjustments being sought by the government is double the €3bn first expected, and is part of the government’s plan to cut €15bn from the public deficit by 2014 in order to bring the budget deficit back to within EU targets.
“The Government has decided that a consolidation package of €15 billion will be required over the course of the next four years if we are to deliver on our deficit reduction target,” Lenihan said.
A significant frontloading of the consolidation in 2011 is deemed necessary and will underline the strength of our resolve and show that the country is serious about tackling our public finance difficulties.
The initial four-year forecast, which had suggested €7.5bn in cuts would have been sufficient, had had to be adjusted because of “legacy effects of the bursting of the property bubble” which were “weighting on economy-wide prices and activity to a greater degree than initially assumed.”
The €6bn budget would reduce the general government deficit to between 9.25% and 9.5% of GDP next year, Lenihan forecasted, with the Department expecting to see real GDP growth of 2.75% on average every year for the next four years.
The Department also downgraded its individual growth forecasts for next year to 1.75% in GDP, with GNP set to grow by 1%. Unemployment would remain broadly unchanged at 13.25% at the end of the year.
This would fall to 12% by end of 2012, 11% by the end of 2013, and 9.75% by end of 2014, under the forecasts. This would be contributed to by net outward migration, which would see the number of people living in Ireland would decrease by 100,000 in the four years to 2014.
Lenihan added that he wanted “to stress again the strength of the Government’s resolve to return the country to a sustainable fiscal position.
I am well aware that such measures will impact on the living standards of everybody. But our spending and revenues must be more closely aligned. This is the only way to ensure the future economic wellbeing of our society.
The scale of the €6bn cuts has been welcomed by Fine Gael’s finance spokesman Michael Noonan, who referred to the €6bn cuts and the debt-to-GDP target of 9.5% as “prudent”.
“The Government has given Fine Gael no confidence, however, that they have any plan to protect jobs and public services from the effects of the €6 billion correction they now intend to deliver in the Budget,” he said.
In particular, the government’s plan of taking an “interest holiday” on the promissory notes it had issued to fund the banking bailout was “worrying” for Noonan, saying the government risked undermining its own fiscal credibility.
The harsh cuts being sought have been criticised by Sinn Féin’s Arthur Morgan, who said Ireland’s arrival at this point was a “direct consequence of the government’s incompetence. Cutting the economy to death will not make it grow.”
Stockbroking firm NCB told the Irish Times it believed the growth rates forecasted by the government were at the ambitious end of the scale, and that the markets would perceive the forecasts as being overtly optimistic.
The cost of borrowing to the Irish government reached another all-time record 7.645% – a rise Lenihan told Today FM he attributed to rumours being fuelled by Germany which suggested Ireland would organise a default on its debts. Lenihan insisted such rumours were unfounded.
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