Three tough Budgets to get us back on track
- ESRI says pain will ease by 2014
- But slow growth could hit targets
Published 06/09/2011 | 05:00
THREE more tough Budgets will get us back on track, the country's top economic think-tank predicts today.
The pain of tax hikes, pay reductions and cuts to public services will ease significantly after 2014, the Economic and Social Research Institute (ESRI) forecasts.
That would mean the country could start borrowing normally again from the markets and avert any likelihood of having to look for a second IMF/EU bailout.
In the meantime, the country faces swingeing cuts and tax hikes to get our level of borrowing down to that dictated by our EU partners. That means Finance Minister Michael Noonan will have to hit all pockets harder in the next three Budgets.
We have already endured five tough Budgets to help get our public finances back on track.
And the agony might still be prolonged if real growth does not help reignite the economy over the course of the next three years.
ESRI economists John FitzGerald and Ide Kearney predict the Government must take another €9.8bn out of the economy -- running the risk of choking off growth.
The Government, which is set to announce a three-year spending scheme in October, plans to announce cuts of between €3.6bn and €4bn in December's Budget, which hints at marginally smaller cuts in the following two years.
This would lead to the prospect of a continued improvement in the years after 2015 when the economy is likely to return to a "more normal" growth trajectory, the economists predict.
The pair forecast that the most likely outcome is national debt will stabilise "at a manageable level" in 2013 and 2014.
And it will then begin to fall the following year if growth picks up along the lines forecast by the Government.
The ESRI report is the latest in a series of upbeat assessments coming from a range of influential sources.
First came Standard & Poor's saying our banks are now fixed, and, more recently, the 'Financial Times' said our economy was finally making progress.
Bond markets are also viewing Ireland more optimistically, pushing down borrowing costs towards 8pc.
If things go to plan, we will no longer be borrowing to meet day-to-day expenses by 2014 and will only be returning to the bond markets to borrow money to repay existing debts and interest, the economists say.
The forecast of a return to more sensible borrowing is more optimistic than the Government's own predictions because it takes into account the July agreement to reduce the amount of interest Ireland must pay for the €85bn bailout by 2.5 percentage points.
It also assumes the banks will repay €3bn of the money lent to the financial sector in recent years.
Those assumptions depend on decisions by many outside organisations such as the parliaments of all eurozone states, the boards of the country's so-called pillar banks and European bank regulators.
Another reason for the relatively hopeful analysis is that the ESRI and the Department of Finance predict the economy growing much faster over the next few years than do almost all other economic forecasters.