5 more years of budget pain

FIVE more years of excruciating budgets similar to this year’s lie ahead for the country in an effort to get the state’s finances under control.

The European Commission extended the deadline from four to five years because the task has become so much more difficult than it looked even a few months ago.

Now, instead of having to cut the budget overspend by some €2.5 billion for each of four years, the Department of Finance will have to slash it by an average of €3.4bn for each of five years.

Finance Minister Brian Lenihan said the commission’s recommendation was “a reflection of the scale of the challenges involved in stabilising the public finances”.

Ireland will have to reduce budget spending by 2% a year compared with 1.75% for France, Britain and Spain. There was a shortfall of €2bn in the tax take this year, pushing the budget deficit to 12.5%, and it is expected to increase further next year to 14.7%.

In addition to the €9bn in spending cuts and tax increases over the past year, a further €4bn must be found in December’s budget.

“We want to do the heavy lifting in the early years rather than spread it out,” a department spokesperson said.

The economic crisis has hit Ireland’s GDP harder than any other eurozone country, Economic Commissioner Joaquin Almunia said, and he praised the way it was being handled by Mr Lenihan.

“The reaction of the authorities, the decisions adopted and their determination to pursue the adjustment process and reducing balances… puts the Irish economy in a good perspective of sustained growth,” he said.

Bank of Ireland economist Dan McLoughlin warned that the Government would have no option other than to cut spending, as the opportunity to increase taxes is very limited. The only hope is that growth will be much stronger than expected.

“We could be rescued by the global economic recovery, but barring that, it looks pretty bleak,” he said.

Privately, economists are warning that even five years to meet the eurozone’s budget rules is very ambitious.

The latest figures show that the EU is coming out of recession and set for growth in 2011.