Cowen refuses to rule out €7bn hit in cuts and taxes

THE spectre of a savage €7bn package of spending cuts and tax rises in the budget emerged last night.

The Taoiseach refused to rule out emergency measures reaching that scale, despite it dwarfing all previous predictions and coming in the wake of a major ESRI warning that the Government’s “front-loading” fiscal agenda threatens to keep the nation mired in recession.

The Cabinet will meet on Monday and Tuesday to try and get a grip on the deteriorating economic situation as attention once again focused on whether the Croke Park public service pay deal would be able to withstand the pressure on the Exchequer, as unions insisted it must be respected.

Chairman of the body implementing the deal, PJ Fitzpatrick, admitted action plans from Government departments are under review due to the looming budget.

A fiscal “adjustment” on the scale of €7bn would see the country taking a hit in one budget almost as big as the one the Government had promised to spread over the next four years.

Fine Gael finance spokesman Michael Noonan revealed that the €7bn “correction” option was being considered after his top level civil service briefing this week. Mr Noonan indicated that the figure was so huge because €15bn worth of cuts and tax rises may be needed to get the deficit down to the 3% of GDP by the 2014 target, not the previous estimate of €7.5bn.

Brian Cowen refused to be drawn on the claims, insisting that nothing had yet been finalised, but saying “significant adjustments” would be needed over the next four years. Stressing his party’s demand for independent assessment of the nation’s finances, Mr Noonan said the ESRI had called for a €4bn “correction” in the December 7 budget, while the Department of Finance “is looking at a figure nearer to €7bn”.

“There are two different set of numbers now. The difference between €4bn and €7bn on a correction in the first budget. It is hard to see how two respected organisations could arrive at such diametrically different figures,” Mr Noonan said.

The comments prompted a sharp response from the finance department, which insisted opposition spokespeople had been given a range of fiscal models relating to adjustments of €3bn, €4.5bn and €7bn, but “at no point was any specific target given”.

Mr Cowen said the Government was consulting with the EU and waiting for further growth projections before outlining its plans.

The Finance Department also moved to counter the ESRI’s demand to extend the correction period, saying it would not ask the European Commission for permission to do so.

“It is not realistic to extend out the period of adjustment. This would result in a situation in which more and more of our revenue would be used to simply pay interest on our debt. We cannot allow this to happen,” a spokesperson said.

Finance Minister Brian Lenihan said the Government could get an extension of the 2014 deadline “after a few years”, but only if it showed a credible four-year plan now. Government cuts adviser Colm McCarthy warned the money markets had already shown Ireland a “yellow card” and would react badly to extending the “correction” process beyond 2014 as the ESRI recommends.