OECD tells State to cut deeper if economy improves
Published 15/10/2011 | 05:00
THE Government has been told to deliver an even harsher Budget to speed up the reduction in the country's massive debt.
The Paris-based Organisation for Economic Co-operation and Development (OECD) has joined the calls to cut the budget deficit even faster than the EU/IMF bailout programme.
Ireland has the worst budget deficit amongst the OECD countries, it said.
Finance Minister Michael Noonan has signalled the government will seek tax and spending measures of up to €4bn, ahead of the €3.6bn required as part of the bailout.
Yesterday the think tank said Ireland had "done pretty well" in terms of meeting this plan and had "broken from the back" of other financially distressed countries such as Greece and Portugal.
"Ireland has very little option but to continue consolidating," OECD deputy directory Robert Ford said. "It would be very risky" to "ease up" on the austerity measures he said.
It would be easier for Ireland to go even further than required if the economy began to grow more strongly, but it would be difficult to remain on track if growth remained weak or even stagnant, the report stated. Continuing to meet the bailout targets would become difficult for Ireland next year if economic growth slowed, it said.
The OECD forecasted economic growth of 1.2pc this year but has halved its prediction for 2012, saying the economy would grow at just 1pc as it was affected by the worsening global outlook.
If things improved, though, and the economy managed to grow by 2pc next year, Mr Ford said it would be "very important" for it to "overshoot" the bailout targets.
In the years ahead it expects that growth will be fairly weak. It said the rate of unemployment would stay above 14pc this year and in 2012.
It said that benefits offered to those who lost their jobs could be higher to allow them to maintain their income and search for another job. This could continue, for example, for one year after they became unemployed and reduced after that. Mr Ford suggested that benefits only become a disincentive to rejoining the workforce after five years.
The housing allowance could also be modified, he said. The OECD also said property prices were still falling and it was hard to see when strong demand would return to the housing market.
"It is hard to be optimistic" according to David Haugh, one of the authors of its report on Ireland. "There is no sign of the market bottoming out yet. It is still falling and we expect prices to come down a bit more."