Borrowing will top EU debt limit 'until at least 2017'
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Wednesday November 11 2009
GOVERNMENT borrowing won't come back within EU rules for another seven years -- and any easing in the budgetary cuts could push the date to the end of the next decade, a new economic forecast warns.
The forecast from consultants Ernst & Young says the deficit will still be 8pc of national production in 2013 -- the same year when the Government hopes it will be back below the 3pc of GDP allowed under EU rules.
The prediction came as the EU Commission prepared to announce that it was extending Ireland's agreed deadline for reaching the 3pc limit by one year, to 2014.
France is also seeking an extension, but Germany said yesterday it would make the agreed 2013 deadline.
Final confirmation is likely to be agreed by finance ministers exactly one week before Finance Minister Brian Lenihan's Budget on December 9.
But any extension will not allow the Government to put swingeing budgetary cuts on the long finger, as has been suggested by some public sector unions.
It will come too late to give Mr Lenihan scope for savings at next month's Budget. But it could give governments room to temper cuts in future budgets, a spokesman for the Department of Finance said.
European Commission Secretary-General Catherine Day admitted it would be a "squeeze" to meet the 2014 deadline, but said the extension gave Ireland a "reasonable amount of time" to reduce borrowing. The decision followed "a lot of analysis", she added.
But Ernst & Young economist Neil Gibson said yesterday that the new 2014 target would prove elusive.
Even with a return to growth, and continued budgetary restraint, he forecast that the deficit would still be 6.4pc in 2014.
"We don't think the 2013 deadline -- or 2014 -- can be met, but we do see it happening by 2017," he said.
"If the current correction process was allowed a longer timeframe, as advocated by the trade unions, you might still achieve the 3pc deficit by 2017, but run the risk that it takes even longer, especially if you don't get the forecast growth."
The forecasts see the accumulated deficits from 2008-2005 amounting to more than 60pc of GDP.
That would add around €100bn to the national debt over that period, which implies an annual cost of almost €5bn a year in interest payments.
But Ernst & Young is optimistic about the Irish economy's prospects, saying it should be growing faster than that of the UK in 2011, with GDP rising by 2.9pc. That compares with a forecast of 2.6pc for the UK as a whole, and 1.6pc for the North.
"There have been sensationalist claims that the 'Irish model' is broken. But that is mixing up a good performance by the foreign exporting sector with the weakness in the domestic sector, which has been very hard hit by the construction crash," Mr Gibson said.
Flexible
"Our clients are telling us they still want to be here in Ireland... The recession will help with keeping down costs, which had become a big factor, and even in reducing skill shortages."
He said the Government would have to remain flexible in its budgetary plans, because things could change quickly, especially on revenue from corporation tax.
"They were better than expected this year, but that reflects past profits. The financial sector is only moving back into profit and that will not show up until the 2011 corporation taxes. Next year could be very difficult in that area."
Meanwhile, the Irish Congress of Trade Unions (ICTU) said any decision by the European Commission to extend the deadline on Ireland's budget deficit would be a vindication of its demand for a longer period to stabilise the public finances.
ICTU economic advisor Paul Sweeney said such a decision would amount to a tacit recognition that the congress was correct to call for an extended period of adjustment until 2017.
- Brendan Keenan and Ailish O'Hora
Irish Independent
