Finance Minister Brian Lenihan has said there is 'no room for complacency', despite confirming that the Government was now expecting a slightly smaller fall in Irish economic output this year.
A pre-Budget outlook published by the Department of Finance forecasts that the economy will shrink by 7.5% this year and 1.5% in 2010. In April, these forecasts had been 8% and 3% respectively.
Read the department's outlook in full here
The outlook also forecast that the unemployment rate would peak at 13.75% next year, lower than 15.5% the department had expected earlier this year.
The Minister said the Government's plan to come up with €4 billion in the forthcoming Budget would result in the government deficit stabilising at 12% of GDP next year. He repeated that the scope for further tax rises was limited, and the bulk of the €4 billion would have to come from spending cuts.
Mr Lenihan said the last year had been 'exceptionally difficult', but the economic outlook was now improving. 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.
But he warned that the Government would continue to take 'necessary and difficult decisions' in the Budget next month. 'There is light at the end of the tunnel but any deviation from the path that we have now embarked upon will quench the emerging recovery,' he added.
Minister Lenihan later told reporters there had been full discussion with Fianna Fail parlimentary party members on social welfare payments, which would rise by €2 billion if no action were taken. He pointed out there had been 4% to 7% reduction in the cost of living, and said social welfare payments had been increased by 3.5% last year. 'You cannot escalate the cost of public services at the expense of others in the community,' he added.
Government confirms lower tax forecast
The outlook says only 23,000 new homes are expected to be built this year - the lowest level of output since the early 1990s - with only just over 10,000 next year.
It also confirms that the Government is expecting to take in around €32 billion in tax revenue this year, more than €2 billion lower than it expected at the time of the April Budget. This figure is expected to fall further to €31 billion next year.
The outlook says the Government will need to borrow €26 billion this year to cover the gap between spending and tax revenue, bringing the national debt up to €76 billion. It hopes to bring the borrowing requirement down to €19.5 billion next year.
