Budget prospect eased by boost in tax take

Hopes of an easier budget have been boosted after figures on tax and spending helped smooth over the fault lines between the Coalition partners on the final size of the adjustment.

Finance Minister Michael Noonan said the adjustment will be “somewhat less” than the €3.1bn previously agreed, after exchequer figures showed the tax take back on track and spending lower than expected.

Mr Noonan met last night with Public Expenditure Minister Brendan Howlin, Taoiseach Enda Kenny, and Tánaiste Eamon Gilmore, who make up the Economic Management Council, in an effort to agree a figure.

Positions were said to be “less entrenched” after the exchequer figures allowed for negotiation. Sources said the parties were close to deciding the figure, which Mr Noonan previously said will be from €2.5bn to €3bn.

Labour TDs had been seeking an adjustment of €2.5bn, but this was well below Fine Gael’s expectations.

Data published yesterday show an exchequer deficit — the gap between what the Government is spending and taking in — of €7.1bn.

This is an improvement of almost €4bn on the first nine months of 2012 and means the Government is on course to meet the 7.5% debt-to-GDP target outlined by the troika.

Mr Noonan signalled the figures will allow the Government to ease up austerity, but that the Oct 15 budget will still be tough.

“The level of consolidation required to deliver us a deficit of at least 5.1 [percent] and to get us into primary surplus territory, we think we can do it [with] somewhat less than the €3.1bn, but we still have an awful lot of number crunching to do,” he said.

However, his comments put the Government at odds with the Central Bank, which yesterday said the Coalition should not water down austerity.

In its quarterly bulletin, it downgraded its GDP growth forecast for 2013 to 0.5% from 0.7%.

Growth of 2% is forecast for 2014, down 0.1 percentage points from its earlier prediction.

While “significant action” has been taken in recent years to lower the deficit and contain the growth in public debt, said the Central Bank, “the levels of both, in relative and absolute terms, remain very high”.

The Central Bank said that while projections suggest the debt ratio should peak this year, then slowly fall, the sustainability of the debt path and its implications for regaining access to the financial markets “should not be taken for granted”.

“Any scaling back of the planned fiscal adjustment runs the risk of starting to unwind the positive effects of the considerable consolidation effort to date, amounting to around €28bn, for the sake of a relatively small short-term fiscal easing,” it said.

The IMF and ECB executive board member Jörg Asmussen also said the money should be held to cushion the weak economy.

However, Mr Howlin said the troika’s role is “to partner us”.

“They are not supervisory authorities, they are not independent agencies laying down the law,” he said.

“They want a success story in Ireland and they know it’s a balancing act.”