TAX hikes and spending cuts are essential for Ireland to keep control of its financial sovereignty, Taoiseach Brian Cowen has warned.
Mr Cowen said if Dublin was to continue to “manage its own affairs”, the public needed to accept the budget outlook for the next four years would be painful.
Mr Cowen said public finances were now €18.5 billion out of kilter and the only way to remedy that was through “growth in the economy, tax increases and expenditure cuts”.
The comments came as Fitch Ratings lowered Ireland’s credit grade again and warned of further reductions to come – making borrowing more expensive – if no political consensus emerged.
Mr Cowen’s comments also came as the International Monetary Fund backed the tough measures being taken by the Government. The IMF said Ireland must take strong and credible action to try to restore its finances. It believes the economy will see 2.3% growth in 2011.
In what was viewed as a reference to the spectre of the Government having to invoke emergency funding from the EU rescue fund or the IMF, the Taoiseach stressed Ireland needed to keep control of its finances.
“It is important… the public finances are put into order and we are able to convince international investors and people who deposit their monies in this country that we are determined to deal with this issue.
“There is a gap between what we spend and what’s coming in of €18.5bn. We have to come forward with a four-year framework that would see how we would reduce that considerably through growth in the economy, where we can identify it and have it implemented, tax increases and also expenditure cuts.”
The Taoiseach refused to rule out following the British government’s example and ending universal child benefit, saying that the Cabinet needed to look at all aspects of public spending in light of the tax take collapsing by a third during the economic slump.
Fine Gael finance spokesman Michael Noonan said the Government was “playing its last cards” but the opposition would approach the budget responsibly knowing international markets were watching.
Meanwhile, Financial Regulator Matthew Elderfield indicated the Government may enter negotiations with senior bondholders to share some of the massive cost of the bank bailout – but admitted they could not be forced to do so.
Mr Elderfield told a Dáil committee that financial institutions not managing risk adequately will face intervention from his office.
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