Further cuts and harsh tax increases on cards in budget

Further cuts and harsh tax increases are on the cards for next year’s budget following the latest figures forecasting the perfect storm of anaemic growth, unemployment, rising debt and falling pay.

Ireland will beat the budget deficit target this year and is still expected to cut its overspend each year to reach 3% by 2015, according to the latest forecast from the European Commission.

Economics Commissioner Olli Rehn revised growth forecasts downwards, again. He said we would have to wait to see what effect the latest forecast would have for the Government’s spending and money-raising plans and for the EU-IMF programme as a whole.

“We will have to see this with the Irish Government and our partners”, he said of the IMF and the ECB.

While the cut in the growth forecast for this year is slight — from 0.5% in the spring to 0.4% now — Mr Rehn conceded that the cut in the growth expectations for next year was much more significant — from 1.9% six months ago to 1.1% now.

This reflected what he called the challenging external environment, where Ireland’s export customer countries are suffering a slow down and Irish consumers are not spending.

The Government debt will reach 122.5% of GDP next year — higher than the 118% expected two years ago — but should begin to fall in 2014, according to the forecast.

The budget deficit, despite the slowing growth, is expected to be 8.4% this year — less than the 8.6% set by the Troika while, for next year, it is expected to drop to 7.5%.

The report points out that strong tax revenue this year has offset over-runs in health and social welfare spending. While the slippages in health can be made up, the report warns that the overruns in unemployment benefits and social contributions will remain.

Unemployment is expected to peak this year at 14.8% but to drop only very slowly to 14.7% next year, considerably higher than the 13.6% forecast just six months ago.

The drop will be to little more than 14.2% in 2014, mainly thanks to more jobs in the export sector which however, the report points out, is more capital than labour intensive.

Pay however will continue to reduce in real terms for this and the following two years, down by 1.2% this year and another 1.3% both next year and in 2014. This will be the sharpest fall in the EU in 2014, except for Cyprus.