More pain for families as Noonan told to slash €4.4bn
Published 13/10/2011 | 05:00
Families got the clearest signal yet that there is more pain than expected coming in the Budget as the Government came under pressure to inflict larger cuts next year.
Finance Minister Michael Noonan confirmed for the first time that the package of cuts and taxes will go above the existing figure of €3.6bn.
The development came after the Government's new economic advisers called for a much harsher Budget this December than any other organisation advising the coalition.
The advisory group also recommended cutting another €4bn over the next four years and told the Government not to rule out income tax hikes, social welfare cuts or pay cuts.
The Government will find it difficult to ignore the advice from an organisation created as part of last November's bailout agreement to guard citizens against irresponsible government spending.
Mr Noonan's comments raise the prospect of the Budget 2012 round of cuts hitting €4bn.
Public Spending Minister Brendan Howlin also said the spending cuts being lined up by the Government will be tough.
Mr Howlin said the "low-hanging fruit has long disappeared and we now face quite stark policy choices".
Mr Noonan was now confirming the Budget package would be higher as he said his "own thinking is we probably need a little more" than €3.6bn to reach the borrowing targets agreed under the bailout.
Government sources said the coalition has been preparing the ground for months to go above the previous estimate of cuts, by raising that prospect.
"That wasn't done accidentally. You can safely say for the first time it will be above €3.6bn," a source said.
The newly established Fiscal Advisory Council, set up at the insistence of the IMF and ECB, wants Mr Noonan to suck €4.4bn out of the economy next year through spending cuts and tax hikes.
The group warned the present target of €3.6bn won't be enough to meet the IMF-EU debt targets next year.
Cuts of €4bn, already mooted by some politicians, would keep Ireland on track to keep borrowing at or below 8.6pc of gross domestic product but the country should do more to copper-fasten the target and speed the eventual recovery, the council advised.
"We don't recommend this lightly and it will have knock-on effects on employment," council president John McHale said.
The council will meet with IMF, European Commission and European Central Bank officials in Dublin this week and report directly to Mr Noonan.
It made its first recommendations in a report yesterday since it was set up on an informal footing over the summer.
Mr McHale, the head of economics at NUI Galway, described the council's role as "a watchdog essentially for the Irish people".
The council admits that there are many uncertainties surrounding its recommendations.
Nobody knows how much money will be saved by the July decision to lower the interest charged on the European component of the bailout fund. Strong growth overseas could also reduce the need for a particularly harsh Budget.
The council also concludes that the 2015 target will be met even if the Government only takes €3.6bn out of the economy next year because there will be stronger growth in later years -- but insists that the targets must be met year for year.
It also admits that taking €4.4bn out of the economy could be self-defeating although it describes the chances of this as "very unlikely". The fiscal council made no recommendations about the best way to achieve the €4.4bn figure but indirectly criticised the Government's pledges to avoid hikes in income tax or reductions in social welfare spending.
The Economic and Social Research Institute (ESRI) has called for €4bn to be taken out of the economy in December's Budget to ensure Ireland meets its targets.
At a conference on the budget choices available to the Government to be hosted by the ESRI today, academic Tim Callan will say that the Government should avoid further hikes in income tax and look elsewhere for money.
Mr Callan will also say that eight out of 10 unemployed people would increase their income by at least 50pc if they were to obtain a job, refuting the impression created by selected non-typical examples that most unemployed people are "better off on the dole", he will also say.