We could be facing an even tougher budget than feared after Brian Hayes, the junior finance minister, proposed that the Government go beyond its savings target and impose harsher cuts than officially required.
Mr Hayes said pitching such a budget — a reduction in the fiscal deficit of 1% more than has been mooted so far — would strengthen Ireland’s reputation in the international markets and facilitate easier terms for borrowing money to run the economy.
Extra cuts would bring the deficit down to about 4% to pave the way for a successful exit from the bailout, said Mr Hayes.
In an interview with the Irish Examiner, he said Fine Gael and Labour had failed to correct the public finances while in power together in the 1980s, and that the current Coalition faces a more challenging position.
Senior Fine Gael and Labour ministers disagree on whether cuts and savings amounting to €3.1bn are necessary in the October budget. However, until now, most ministers agreed that the adjustment must reduce the deficit to 5.1% of GDP in 2014.
Mr Hayes’s suggestion that an even tougher deficit target should be set could cause a backlash from Labour backbenchers, who last week called for a softer budget.
Mr Hayes, minister with responsibility for the Office of Public Works, said: “I think what we need to do in establishing a budget for next year is to have a deficit target of below 5%. I think that would be important. I think we need to be in the 4% region.
“The reason I say this is because what’s important as we exit the programme is to get the credibility of the markets. Reputation is everything there. If we’re seen to be pitching a budget to be more ambitious in terms of reducing the deficit, that would send out a very strong signal to the markets — that we have here a public administration system and a government that’s going to fix this problem once and for all...
“I’m not saying 4%, I’m saying in the region of 4%, that’s 4.9% all the way down to 4.1%.”
Some ministers say there may be flexibility in the budget savings but are undecided whether cash goes into job creation or less cuts to services.
Mr Hayes said decisions on the October budget would be a “very delicate balancing act”. The amount saved and final deficit target set will depend on the economy, what savings are available from the Anglo promissory note deal, and any outstanding costs winding down Anglo. Furthermore, these decisions must be made before capital taxes and self-assessment taxes are declared in November.
“In the 1980s, Fine Gael and Labour didn’t do the job they were elected to do,” said Mr Hayes. “They didn’t correct the public financial position. It could be argued the position we face now is more challenging.
“If we take our foot off the throttle now, it will send the wrong signals to the markets.”
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