Tax, not growth, to determine budget cuts

Finance Minister Michael Noonan will determine the size of October’s budget cuts based on tax revenues and not growth forecasts, he said.

The minister was responding to the Central Bank, which downgraded growth forecasts for this year and next year and advised the Government to stick to the planned €3.1bn in budget cuts in October.

“The next budget is going to be tough and we’ll have to stick to the targets. There’s a little bit of flexibility emerging now, but if we do what the (Central) Bank did and look at the targets over the two years we’ll still have to adjust by about €5bn over 2014 and 2015,” the minister said at an event at the University of Limerick. “It’s too soon to predict the budget, because the budget is coming forward to October, I don’t have enough data yet, to see where we’ll land.

“But, the picture will begin to fill in as of next Wednesday, when we’ll have the tax figures for July, and we’ll begin to see then, as the second half of the year opens up, how excise is running, how income tax is running.

“I’m not going to get involved in talking about budgets in August but, we’ll have a fairly sharp six weeks when we go back in September,” he added.

The Government is coming under increasing pressure to ease up on fiscal consolidation. A number of opposition parties and lobby groups want an easing in austerity measures this year. The Central Bank, in its latest quarterly review of the economy disagrees.

“While recognising that some difficult decisions will still have to be made, Central Bank management remain of the view that this temptation should be resisted. The faster the needed fiscal adjustment is concluded, the stronger and more secure will be the platform for building the recovery in employment and income.

“Besides, Ireland’s deficit and debt levels remain very high and full implementation of the planned fiscal adjustment of €5.1 billion, as scheduled for 2014 and 2015, is a valuable key in maintaining the confidence of international lenders and will also help build a buffer against potential shocks.”

Tensions have emerged between the coalition partners with some ministers looking to use the estimated €1bn in savings made through the restructuring of the promissory notes to cut back on austerity.

As part of the IMF/EU bailout programme, the fiscal deficit target to be met through October’s budget is 5.1% achieved by €3.1bn in cuts. On current forecasts, if the full consolidation is implemented, then the economy is on schedule to exceed these targets.

However, in its 11th review of the economy as part of the bailout programme, IMF Ireland mission chief, Craig Beaumont, said he would prefer if the Government stuck to the €3.1bn adjustment rather than aiming for the 5.1% target.


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