Central Bank backs plan for tougher Budget
THE Central Bank has backed moves by Finance Minister Brian Lenihan to bring in a tougher Budget than previously planned, but refused to discuss any measures the Government could take to reach its targets.
Exchequer returns for government revenues and spending published yesterday were broadly on target for the first nine months of the year. But lower forecasts for growth next year mean Mr Lenihan must tighten the screw to keep to his 2011 targets.
The bank revised down its 2011 growth forecasts for output (GDP) from 2.8pc to 2.4pc and said a "larger adjustment" in the Budget was now needed.
It said the chief reason for the lower growth forecasts was a slowdown in global growth, which reduces demand for Irish exports. This also slows the recovery in tax revenues.
But chief economist Maurice McGuire said he wasn't prepared to say how the Government could find savings and tax increases that would bring in more than the originally planned €3bn.
"We're not getting into micro advice," he said. The bank doesn't want to recommend specific measures, he added, but the country could only achieve fiscal credibility if it went for a larger budgetary adjustment.
"This would particularly be the case if a consensus, or at a minimum, acceptance, were to emerge around the details of a credible re-programming of the adjustment," the bank's report said.
The Exchequer figures showed tax revenues of €22.2bn for the first nine months were almost exactly on target, although that was 6.5pc less revenue than in the same period last year.
Income tax was €337m below target, but this was almost made up by corporation tax on company profits coming in 12pc better than expected at €2.2bn.
"There has been a welcome shift towards an improved dynamic in tax receipts in recent months," said Simon Barry, chief economist at Ulster Bank.
"While VAT receipts came in slightly below plan in September, they put in a decent performance in what is a large VAT collection month, especially given that retail sales figures have failed to impress in recent months," he said.
Alan McQuaid, chief economist at Bloxham Stockbrokers, said the figures were a warning to the Government not to squeeze the economy too hard in the Budget.
"The fragility of the economic recovery should be a clear warning sign to the coalition partners that increasing the personal tax burden further at this juncture runs the serious risk of pushing the economy backwards again.
"The Government should also resist the temptation to deliver more than is absolutely necessary in savings, in the mis-guided belief that this will appease the markets," he said.
Day-to-day spending was on target, but still 0.5pc higher than the same period last year. Capital spending was €900m less than planned, but officials say most of this will be spent before year-end. However, there could be a shortfall of around €100m on the capital programme.
Mr Lenihan said the performance of corporation tax was particularly encouraging, but higher unemployment and lower wages were affecting income tax. "The figures show the government finances have stabilised," he said.
"Easing off on capital expenditure is the Government's main strategy to buy breathing space on the deficit," said Labour's finance spokeswoman Joan Burton. "If it was not for the Government's capital investment 'go slow', the underlying deficit would show little improvement on 2009's nadir."
Fine Gael finance spokesman Michael Noonan said that, on the figures, "the huge sacrifices made by the Irish people to get to this point would now be helping to restore confidence and growth to the economy were it not for the Government's catastrophic management of the banking sector".