‘No need for spending cuts or tax hikes to meet targets’

The Government need not make any spending cuts or increase taxes any further in this year’s budget to achieve its targets, according to Davy Stockbrokers.

In its monthly economic outlook, Davy’s stated that with exchequer returns already €1bn ahead of target in the first half of the year and GDP revised up to €174.8bn in 2013, the Government no longer requires the €2bn adjustment mooted in this year’s budget.

Commenting on the results, Davy’s chief economist, Conall Mac Coille said that the Government can afford to leave the economy do the work in reaching the deficit targets this year and next.

“We think that the deficit will come below 4% of GDP; well below the 4.8% target that the Government were expecting back in last year’s budget, so as we move from the deficit under 4% this year to the 3% target in 2015, we believe the Government doesn’t actually need to do any budgetary adjustment in the budget for 2015; no more tax rises or spending cuts — that it can just leave things as they are and allow the economy to do the work,” said Mr Mac Coille.

The economist warned however that building on the progress made to date depends on maintaining spending discipline.

Further cause for optimism is seen in the possibility of the Government being able to refinance IMF loans to take advantage of current low market interest rates.

AIB’s return to profitability also raises the prospect of the State realising further value from its stakes in the banking sector, according to Davy.

Davy is predicting that a small budgetary adjustment of around €500m will be implemented by the Government.