The scale of the setback for both Government parties in the local and European elections is proportionate to the chances of €2bn in budget cuts being implemented next October.
The ESRI, Ibec, and now the Nevin Economic Research Institute, are among the bodies urging the Government to ease up on consolidation.
Finance Minister Michael Noonan has signalled that he will wait until the end of the summer when there is much greater clarity on tax receipts and economic growth before making any decision.
However, the minister has said on a number of occasions, if the budgetary arithmetic stacks up, he would like to provide tax relief for middle-income earners.
Joan Burton and Alex White are battling it out for leadership of the Labour Party. Whoever wins will try and gain as many concessions as possible for traditional Labour policies.
Tense negotiations between the coalition partners over the summer will determine whether the Government serves its full term in office. In view of both parties’ performances in the recent elections, they will be most anxious not to face the electorate anytime soon.
If the Government opts for a budget short of the €2bn advised by both the Commission and the IMF, and it misses the 3% deficit target next year, then the markets might not remain so well disposed to Ireland.
This would see an increase in borrowing costs. Moreover, if the Government ignores the advice of the Commission and fails to meet the 3% target, it could be subject to a fine of up to €300m under new rules brought in by the Fiscal Stability Treaty.
On the other hand, if it went for the €2bn adjustment, then it could test the resolve of the coalition to breaking point. As the local elections showed, Sinn Féin among other anti-austerity parties, are waiting in the wings with vows to unravel much of the consolidation that has been introduced in the past six years.
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