Lenihan warns of 'colossal' borrowing

Minister for Finance Brian Lenihan has warned if Ireland does not make a €4bn adjustment it faces a 'colossal amount of borrowing'.

Read the Dept of Finance's Pre-Budget Outlook.

The minister made the comments at the publication of Pre-budget Outlook.

The minister said there had been full discussion with Fianna Fáil parliamentary party members on social welfare payments which would rise by €2bn if there is no action taken.

He pointed out there had been 4% to 7% reduction in the cost of living.

He said social welfare payments had been increased by 3.5% last year.

He added 'you cannot escalate the cost of public services at the expense of others in the community'.

The Pre-Budget Outlook has indicated that the Government will have to reduce spending by €4bn next year just to stay at this year's level.

Rising unemployment, forecast to average 13.75% next year, means spending is likely to increase to €58bn, unless action is taken in the Budget next month.

Without any action, the Budget deficit is likely to be 14% of GDP - far in excess of the EU limit on government borrowing of 3%.

The Dept of Finance's Pre-Budget Outlook says the Irish economy is projected to contract by 1.5% next year following a decline of 7.5% this year.

The 2010 forecast is an improvement from the April forecast of just under a 3% contraction. Unemployment is forecast to peak at an average of 13.75% of the labour force in 2010.

This forecast is lower than the 15.5% rate contained in the April Supplementary Budget.

However, in a statement Minister of Finance Brian Lenihan said the 'downward revision leaves no room for complacency'.

'The creation and protection of jobs remains the overriding objective of government economic policy.

He said the consensus view was that positive growth would return during 2010, though it would be 2011 before there would be positive growth for the year as a whole.

It also said the Government's planned €4bn adjustment to the public finances in the forthcoming Budget is forecast to result in the General Government Balance stabilising at -12% of GDP next year.