Fiscal council urges Government to stick to budget adjustment of €2bn

Tuesday 17 June 2014 20.43
The council says the figure already pencilled in to Government forecasts is the right one
The council says the figure already pencilled in to Government forecasts is the right one

The Fiscal Advisory Council has urged the Government not to reduce the overall level of tax and spending measures to be implemented in October's Budget below €2bn.

The council's advice follows recent suggestions from Minister for Finance Michael Noonan that the package of measures required to hit deficit reduction targets may be lower than that figure.

Last year, the advice from the council was that the Government should aim to implement tax hikes and spending cuts to a total value of €3.1bn.

The Government opted for a less severe adjustment but still hit the EU-mandated deficit reduction targets.

This year the council, a publicly-funded body set up to run a critical eye over fiscal policy, says the €2bn figure, already pencilled in to Government forecasts, is the right one.

Mr Noonan, however, has already said such a severe adjustment may not be necessary.

Tax receipts are running ahead of target so far this year and employment levels are rising.

But the council believes economic growth prospects are uncertain and that the national debt is still alarmingly high.

Despite this, Ireland's sovereign borrowing costs are at record lows.

The council says that is due to hard-won respect from international markets for following through on previous budget-deficit reduction promises.

It advises that the Government sticks to the €2bn target to retain credibility.

Council chairman Professor John McHale has said it would be "premature" for the Government to introduce tax cuts in the forthcoming Budget.

Speaking on RTÉ’s Morning Ireland, Prof McHale also said it was "unlikely" that Ireland would get further relief from Europe to recapitalise banks.

While significant progress has been made in correcting the public finances, he said care needs to be taken not to undermine revenue-raising capacity given the uncertainties around growth in the economy.

It is very important to meet the key 3% deficit target by 2015, he said.

Prof McHale said reducing the burden of debt was always more important than relying on further relief from Europe and the European Stability Mechanism (ESM).

He said it has been his view that pursuing relief from the ESM could distract from efforts at reducing the debt burden.

Prof McHale said very substantial relief had been achieved on reducing interest rates, extending the maturity term on debt and with the promissory note deal.

He said Mr Noonan may pursue further debt relief, but it was not factored into the figures recommended by the council in its report today.

He said the council was advising that the country was on the right course to correcting the public finances.

Minister for Public Expenditure and Reform Brendan Howlin said while the advice is important, the Government makes decisions that would least impact the recovery of the economy and give as much support as possible to struggling families.

He also pointed out that last year the council advised the Government make €3.1bn in adjustments, but in the end an adjustment of €400m less was implemented.