Central Bank calls for cut to government debt

Central Bank calls for cut to government debt

By Geoff Percival and Eamon Quinn

The Central Bank, the Parliamentary Budget Office, and the world’s largest ratings firms have all urged the next government to avoid pumping up spending that could lead to a new crash.

At the launch of the Central Bank’s latest economic bulletin, officials called for “prudence” in the public finances and a focus on reducing the Government’s debt burden.

Nonetheless, the Central Bank forecast continued strong growth despite economic expansion slowing to 4.2% next year.

It predicts 26,000 homes will be built this year, well short of the 35,000 most economists believe is required to meet demand. Its remarks come as Sinn Féin and Fianna Fáil both pledged, in their election campaigns, to expand housebuilding.

However, Central Bank director Mark Cassidy shied away from making comments on the main parties’ housing pledges.

The Parliamentary Budget Office, in its latest fiscal commentary, said that GDP continues to expand at a fair clip, but warned against relying on corporate tax receipts to fuel spending plans.

Unreliable corporate tax receipts pose “a major challenge for the delivery of public services”, said Budget Office director Annette Connolly.

S&P Global Ratings and Fitch Ratings said they believed a new government would increase spending but, nonetheless, abide by EU fiscal rules.

Anticipating protracted negotiations to form a new government, S&P said Ireland will “continue to rank among the strongest in the developed world”, but still faces risks from Brexit. Fitch Ratings said that, despite the inconclusive election result, “some fiscal easing is likely”.

Meanwhile, it is likely to take months to name a successor to Seamus Coffey as head of the Irish Fiscal Advisory Council (IFAC) at a time of renewed focus on public spending amid the talks between the political parties.

Mr Coffey’s term as chair of the budget watchdog ended on December 31 and his successor will not be named until a new finance minister is in place.

IFAC has long called on government spending programmes to be based on sustainable tax revenues.

Meanwhile, debt advocate David Hall has predicted that the banks face “the end of the road” in selling any more of their distressed mortgage loans to vulture funds.

Citing the performance of both Sinn Féin’s Pearse Doherty and Fianna Fáil’s Michael McGrath in opposition, he said that he expected a new government to legislate in favour of distressed customers.

Addressing the low levels of growth across the eurozone, ECB president Christine Lagarde called on governments to spend more.

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