Cabinet expects more money in economy next year

SLIGHTLY more money will pass through the Irish economy next year despite the Government taking €6 billion out of it.

This is according to the Department of Finance’s figures published to justify the most savage budget of the recession.

Officials, who defended the extent to which they got predictions wrong last year, said this was the best assessment of the effect international and domestic trends would have on the national balance sheet.

The department’s technical document predicted the economy would grow by 1.75% in 2011. During that time the Government will spend €4.5bn less and find €1.5bn in taxes.

Ordinary consumers will spend 3% below what they did this year and prices will rise by 0.75% by the end of the year.

This will happen at the expense of 100,000 people who will emigrate by 2014.

And the rate of unemployment will rise so that 13.25% of workers will not have a job.

The department expects this to be the net effect of the ongoing economic crisis, the staggering recovery and the €6bn the Government will cut from spending in the hope of meeting European borrowing rules.

The cost of servicing this debt will rise from €4bn to €5.1bn.

In order to get over the hump in the short term the department revealed that the country will take an interest holiday on the €31bn worth of promissory notes (the IOUs) it used to pay fund Anglo Irish Bank, the EBS and Irish Nationwide.

In 2011 and 2012 it will pay nothing and in 2013 €1.8bn will be needed to pay the interest on the sum.

This annual bill for the promissory notes will fall marginally until 2025 when it will kill off the loan.

Joan Burton, the Labour Party’s finance spokeswoman, said this promissory note treatment would add €400m to the cost of the bank bailout and leave the problem at the foot of the next Government.

And she said the €6bn upfront cut for 2011 was more than the economy could withstand.

“Imposing a cut of €6bn risks damaging the fabric of the economy, and undermining our capacity to grow in future years. It is an unwise, and unacceptable risk to the economy, to jobs and to the living standards of Irish families,” she said.

However, her Fine Gael counterpart, Michael Noonan, said his party agreed with the target for 2011 but it could not be done without also finding ways of stimulating spending.

“Fianna Fáil and the Greens don’t get it. The country needs hope, optimism and the confidence that only a jobs and growth economic plan in parallel with the fiscal correction would deliver,” he said.