Friday 24 March 2017

Spending: Ireland has never succeeded in cutting its cloth by so much

Emmet Oliver

THE Government is promising to cut public spending by 12pc – a feat that has never been achieved before in the history of the State.

Projections show the Government plans to cut current expenditure from €54.8bn this year to €48bn in 2014, a drop of 12.4pc.

Austerity programmes in other countries have also involved deep cuts to expenditure. But when inflation has been taken into account the actual real cash amount has not fallen by much, if at all, in those countries.

This has also been the practice in Ireland.

Expenditure cuts, when adjusted for inflation, are usually not as deep as those announced by the Government. But the difficult part will be achieving the cuts and making them permanent.

In Ireland's case the scale of expenditure cuts is considerable.

Capital spending, on roads, bridges and other infrastructure will fall sharply over the period from €6.1bn to €3.5bn.

“Capital spending must be reduced,” the plan states.

But the Government defended the cuts by saying there was significant capital investment over recent years which had “transformed” the roads network and the public transport system.

The Government claimed current expenditure was going back to 2007 levels.

Finance Minister Brian Lenihan said the Government simply had to cut spending so the deficit fell back to single-digit figures as a percentage of GDP. Under the assumptions in yesterdays plan, the deficit will finally head below 10pc to 9.1pc, followed by 7pc the next year and 5.5pc in 2013.

Ultimately, by 2014, the Government is hoping to deficit will be within the rules of the EU's Stability and Growth Pact.

In terms of tax revenue, the Government is hoping for huge increases in the tax take, from €31.5bn this year to €42.2bn by 2014.

The amount of spending cuts the Government needs to engage in will depend heavily on the forecasts for growth. For the first time in many years the Department of Finance is predicting slower growth than most other analysts.

Next year, the Department expects GDP to rise by 1.75pc, but the IMF has growth at 2.3pc, while a Reuters poll of other economists has the figure at 2p.

Irish Independent

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