€1bn Budget boost on the cards for families
Published 04/07/2014 | 02:30
FINANCE Minister Michael Noonan could slash the planned Budget adjustment in half and still meet troika targets.
New figures showing the economy growing faster than previously thought provide scope for an easier Budget.
Economists believe that Mr Noonan needs to take only €1bn out of the economy in October compared to the €2bn demanded by the troika.
The potential reprieve for hard-pressed families comes as new figures show the economy is bigger than previously thought and growing more quickly, thanks in small part to the inclusion of prostitution and street drugs in official statistics for the first time.
Coupled with stronger-than-expected tax revenues revealed earlier this week, Mr Noonan is now all but certain to easily surpass his budgetary targets. And the minister last night hinted that a much softer Budget may be on the cards, claiming crucial deficit targets could easily be beaten.
The latest figures were revealed by the Central Statistics Office (CSO) yesterday.
The CSO now believes the economy expanded modestly last year, a considerably better outcome than the 0.3pc contraction it had previously calculated. According to the CSO, the economy grew 2.7pc in the first quarter of this year – more than even the most optimistic forecasts.
Part of the revised growth last year was attributed to inclusion of prostitution and illegal drugs in calculations for the first time, but the bulk was due to new ways of measuring research and development. Other reasons include surging exports.
The news of better-than-expected growth came as a separate survey showed growth in the services sector was at a seven-year high, while investment in commercial property was approaching record levels that surpassed investment during the height of the boom.
Experts said the new data gave the Government scope to have a much smaller Budget in October, potentially halving the planned tax hikes and spending cuts to just €1bn.
Business lobby group IBEC said the economy was considerably larger last year that originally thought.
“The revised figures give the minister much more room for manoeuvre on Budget Day,” said IBEC economist Fergal O’Brien.
“A significantly lower adjustment than the envisaged €2bn will be enough to reach the required deficit target. The numbers show a solid broad- based recovery is under way.”
The CSO has in the past included certain illegal activities in the national accounts, including fuel smuggling and drug smuggling.
But as a result of new EU rules, statisticians have had a closer look at drug dealing to determine the street value of drugs instead of simply the wholesale value.
And they’ve also looked at prostitution for the first time.
Officials were coy yesterday about how they measure such illegal activities but they estimate that drug dealing and prostitution increased in recent years and never really waned during the worst of the economic crisis.
The CSO estimates that more than €800m was spent on prostitution, drugs and smuggled goods last year.
The Immigrant Council of Ireland said the inclusion of prostitution and drugs in the national accounts shows the extent of organised crime in the country.
“People will be rightfully shocked that pimps, pushers and traffickers are using criminal activity to take cash which would otherwise be spent in legitimate businesses where it would create jobs and support the economic recovery,” said chief executive Denise Charlton.
But the bulk of the changes in the GDP data are because of the new way of classifying research and development spending by businesses.
Stockbrokers Davy said that with tax revenues ahead of target, less austerity was likely on the cards.
While KBC Bank said the Government could get away with a €1bn adjustment instead of €2bn.
“We think this year’s Government deficit is likely to be in the region of 4pc of GDP compared to the targeted 4.8pc figure. This implies the size of the adjustment needed to hit the 3pc deficit target in the 2015 Budget is significantly lower than previously indicated.”