Irish News

Friday 1 August 2014

Noonan vows to stick with €2bn in cuts despite positive outlook

Colm Kelpie and Fionnan Sheahan

Published 16/04/2014|02:30

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Finance Minister Michael Noonan. Photo: Frank Mc Grath
Finance Minister Michael Noonan. Photo: Frank Mc Grath

FINANCE Minister Michael Noonan is playing down the prospects of a giveaway Budget, despite job-creation figures beating all expectations.

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The country is finally getting back to work with employment levels set to surpass all estimates for the coming five years, new government figures show.

It is now predicted that 42,000 jobs will be created this year alone – a significant hike on the 30,000 anticipated.

Unemployment is expected to dip below the 10pc mark by 2016 – two years earlier than forecast – according to the Department of Finance figures.

But the economic update cautioned that €2bn in tax hikes and spending cuts was still pencilled in for Budget 2015, despite suggestions from the ESRI last week that we could be in for much less austerity.

One of the country's leading stockbroking firms also said that while the recovery was gaining strength, the Government shouldn't ease off on the planned €2bn of cuts.

Mr Noonan insisted the Government was not moving from its original plan at this stage.

"If it happens that there's a big surge in tax receipts as the year goes by, or there's a big fall in expenditure because a lot of people go back to work, we'll welcome that and take it into account,'' he told the Oireachtas finance Committee.

"Whether we'll have to do the full €2bn or not . . . on the figures that I've presented to you, we will. But if things improve in the course of the year, we'll see how it plays out.''

His comments came as the Government's drive for jobs appears to be paying dividends, with revised economic estimates painting a more positive picture for the coming years.

SPENDING

Increased employment will provide a further boost to the economy by pushing down the social welfare and the health bill, while increasing income tax and consumer spending.

Employment figures are better than what was predicted in the Budget last October and are now expected to be higher in 2014, 2015, 2016, 2017 and 2018.

But economic growth, as measured by gross domestic product, will remain largely the same as the Budget's forecast as changes in Ireland's volatile pharmaceutical sector will act as a drag.

Revised figures from the Department of Finance show:

* Employment will surge 2.2pc this year, with 42,000 new jobs being created.

* The unemployment rate will fall to 11.5pc in 2014, before dropping to 10.4pc next year and 9.7pc in 2016. It will hit 8pc in 2018.

* GDP will rise 2.1pc this year, surging to 2.7pc in 2015 and jumping further to 3pc in 2016.

* The debt-to-GDP ratio will fall to 121.4pc this year – higher than the 120pc estimate in the Budget.

* The unemployment rate fell to 11.8pc last month, with 61,000 new jobs created last year.

Last week, the country's leading economic think-tank, the ESRI, said the Government could get away with no further austerity next year, apart from the €500m to be raised from water charges.

But the Government is sticking to its plan to bring in the €2bn adjustment.

"When the ESRI said you could do it without the €2bn, they didn't say you should. People missed that," a government source said.

Goodbody economist Dermot O'Leary said Mr Noonan didn't have much wriggle room.

"While we believe there is scope to reduce the planned €2bn in austerity measures by up to €500m, it would be unwise to abandon the programme completely, especially when Budget 2015 could prove to be the last of a long and painful period," he said.

Fianna Fail finance spokesman Michael McGrath said the Government was telling people tax cuts were back on the agenda, yet the department was sticking to the €2bn target.

"The Government is factoring in a further slashing of public expenditure by 1.6pc next year. The brunt of these cuts will inevitably fall hardest on families with children and people using the health service," he said.

"The suggestion of any sort of meaningful tax cuts for middle-income families should be taken with a pinch of salt."

Irish Independent

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