‘Stick to full €2bn budget adjustment’
The council says significant progress has been made in resolving Ireland’s fiscal crisis. A total of €32bn in spending cuts and tax increases has been agreed with the troika in order to reduce the budget deficit, which ballooned to 31% of GDP in 2010, to below 3% by the end of next year.
So far, €30bn of these cuts have been implemented and the council is urging the Government to proceed with the full €2bn budget adjustment next October.
The ESRI has forecast that the Irish economy will grow by 2.6% this year. It recommended that the Government should introduce a budget which is less than €2bn. ESRI chief economist John FitzGerald said that if the Government implemented the water charges, which are forecast to raise €500m, the carryover savings from the Haddington Road agreement and retained the pension levy, then it would reduce the deficit to roughly 2.9%. If it implemented the full €2bn, then the deficit would probably fall to 2.3%, said Mr FitzGerald.
Mr McHale said the ERSI’s growth forecast was an “outlier.” He noted the European Commission’s GDP forecast for this year is 1.7% and the Department of Finance’s GDP projection is 2%.
The NUIG economics professor said that Ireland was a high debt level country. The reason why it is important to reduce the deficit below 3% is that it decreases risks to debt sustainability by putting the debt-to-GDP on a firm downward path and to protect the hard-won credibility of Ireland’s capacity to follow through on adjustment commitments.
The Government’s stability programme update released in April has been endorsed by IFAC.
Mr McHale said there could be some difficulty for Ireland if it is to reach the medium-term objective of a balanced budget in structural terms by 2018. This was agreed when Ireland ratified the Fiscal Stability Treaty.
Last year, the council recommended that the Government adhere to the €3.1bn in budget consolidation agreed with the Troika. The Government eventually unveiled budget cuts of €2.5bn.
