Cuts on the way to plug €3bn tax black hole
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MINISTERS will have to cut €500m from their spending plans to pay for increased dole payments, as the property slump blows a €3bn black hole in their tax take.
Department of Finance officials now expect the jobless queues to lengthen by an average of 5,000 a month for the rest of the year, bringing the average number on the Live Register to 210,000.
Finance Minister Brian Lenihan hopes the €500m "savings" on Government spending will be enough to prevent Ireland breaking EU rules on borrowing this year.
But that depends on the rest of the economy -- outside of building and property -- holding firm. A string of other bad news yesterday suggested it may not: lStock markets slumped again, with the Dublin market falling to its lowest level in five years.
lThe falls were led by building companies, as the outlook for property markets worsened in Ireland and Britain.
lWith interest rates set to rise today, European Central Bank president Jean-Claude Trichet seemed to warn that more may follow, saying inflation could "explode" without decisive action by central banks. lConsumer confidence and spending could take a further hit, after calculations that Irish pension pots are now worth less than in 2005.
Economists say the worsening outlook suggests that cutbacks of €1.5bn will be needed in next year's Budget to avoid a large breach of EU rules, which limit the government deficit to 3pc of national output (GDP).
"It will not be easy, but we can expect a re-run of 'An Bord Snip', with Ray MacSharry in 1987 and Charlie McCreevy in 2002," said Pat McArdle, chief economist at Ulster Bank Markets.
Davy Stockbrokers think Mr Lenihan will have to cut by even more than he plans to do this year to avoid breaking EU limits. "We forecast a shortfall of €3bn at the end of May -- which the Government is now doing -- but something closer to €4bn is now more likely," said economist Rossa White.
Trimmed
"By our calculations, the Budget will need to be trimmed by about €1bn," he said.
The Exchequer returns show tax revenues were €1.45bn short of expectations in the first six months of the year. Taxes from property and construction were almost entirely to blame, but poor car sales knocked another €170m off the figures.
Mr Lenihan reckons he will have to borrow almost €8bn this year -- €3bn more than planned. Economic growth, which was widely forecast at around 3pc at the time of last year's Budget, has been revised down to just half a per cent.
Mr Lenihan blamed the dramatic collapse in the public finances on external factors.
"This particular mess has international causes," he said. "We are in choppy waters. But we shouldn't be talking ourselves into a recession. The Irish economy has very strong fundamentals," he added.
Taoiseach Brian Cowen said the Government had to "cut our cloth to meet our measure".
There was no painless or easy formula to stay within budget spending limits, he warned.
Fine Gael said the mid-term Exchequer figures "show conclusively" that the Taoiseach had blown the boom and brought about "the worst deterioration in our public finances in the history of the State". Labour said the figures "paint a sorry picture of Brian Cowen's stewardship of the economy."
- Fionnan Sheahan and Brendan Keenan
