Budget deficit well within troika target

Last year’s budget deficit was 7.6%, which is well within the 8.6% target agreed with the Troika, according to latest official data.

Gross government debt is now forecast to peak at 123% at the end of this year, which is 2% higher than previous estimate of 121%. However, the rise in debt is due to the increase in the Government’s funding programme before it exits the market at the end of this year rather than a deterioration of the fiscal position.

Excluding cash sitting on the Government’s balance sheet, the country’s net debt position is 110%.

Last December the Government predicted the deficit for the year would reach 8.2%. The better-than-expected performance was based on the higher sales proceeds from the mobile phone licence and higher than projected tax revenues for the year.

However, the budget deficit for this year is forecast to come in at 7.4%, marginally ahead of the 7.5% agreed with the troika. The abolition of the eligible liabilities guarantee scheme for bank deposits will remove €700m from the State’s coffers for the year. The sale of the Government’s €1bn of contingent capital notes in January means the State will not receive a €100m dividend.

Moreover, even though the restructuring of the €28bn in promissory notes will save €1bn, this will be offset by the costs of liquidating IBRC.

“Hence, despite the better-than-expected outturn for 2012, there has been little revision to the deficit forecast for 2013. The Department of Finance expects the deficit to equal 7.4% of nominal GDP in 2013, revised down from 7.5%,” says Davy Stockbroker economist Conall MacCoille.

According to the Central Statistics Office, total general government revenue was €56.6bn last year. Taxes and social contributions made up €49.2bn of the total Government revenues. However, expenditure came in at €68.8bn, comprising a €28.7bn outlay on social benefits; €18.8bn on public sector pay and benefits and €5.9bn on interest payments.

The budget deficit was 11.4% in 2009. The Government has agreed with the troika that it will reduce the deficit to within 3% of GDP by 2015.

However, public sector unions rejected proposals last week to cut the pay bill by €300m this year. Even though the Government will meet its 2013 target because most of the heavy lifting has already been done, it requires the economy to grow over the next two years if it is to reach its 2015 target.