News Brendan Keenan

Tuesday 23 September 2014

Brendan Keenan: You talkin' to me about €3.5bn correction in Budget?

The silence of ministers on planned cutbacks next month may signal real fear

Published 25/11/2012 | 05:00

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TAXI drivers, every journalist believes, are a well-informed source as to what is going on. Evidence that they may be correct in their belief came last week from, of all people, the Secretary General of the Department of Finance.

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John Moran told the annual conference of the Association of Treasurers (the people who look after company finances rather than government ones) that, not only did a taxi driver recognise him, he knew the size (€3.5bn) of the correction planned in next week's Budget.

What he wanted to know, of course, was the detail. Mr Moran quickly assured the audience that he had given away no Budget secrets – thereby averting a rush to the phones by the journalists present, to try to find the cabbie in question.

What the country's chief treasurer did tell him was that, while €3.5bn is a lot, it is only a fraction of the €23bn in Budget measures since the crisis hit. Apparently the taxi driver did not know that and commented: "Ah, so maybe it will not be so bad after all."

The Secretary General could therefore notch up one success for the Government's current stratagem – to make people feel that things are not getting any worse.

There is no doubt that the extraordinary fall in output has stopped – building has really no further to fall – and some signs that consumer spending is stabilising.

Mr Moran's figures showed a rise in disposable income last year and, besides, people get used to anything, and surprisingly quickly. The crisis is certainly not over, here or abroad, but if it is not actually deepening, gloom may begin to lift of its accord.

That does not mean it is not getting worse for the Government. Its dynamics are different and the pressures are mounting, not easing.

All the attention, naturally, is on next month's Budget but it is worth looking at what happened to last December's. We know the targets were met, but there was a lot of collateral damage along the way.

Perhaps this explains the silence of the lambs – the absence of pre-emptive leaks from ministers fighting proposed cuts. Just like the lambs to the slaughter, the silence may betoken real fear.

Day-to-day spending, as we now know, will be more than €400m over the target set a year ago. Luckily – but also due to cautious forecasts – tax revenues will be €1bn ahead of Budget figures. Kicking the Anglo debt can down the road last March means capital spending will be a full €2.5bn less than in the December figures.

Yet with all that, the deficit will be just 3 per cent better than had been forecast. And it's actually a worse performance than that. Allowing for higher prices for exports and things, the value of output (GDP), against which the deficit is measured, is €4bn more than forecast – which made the debt target easier to achieve.

All this means that next year's Budget is a knife-edge affair. Forecast prices for 2013 have been racked up again to make the troika targets attainable. In the real world of hard cash, the cushions which Finance likes to build into the Budget are looking pretty threadbare.

Departmental reserves have been raided and contingency funds – like the one to cover overspending in local authorities – scrapped. The capital budget has been cut again.

On the current side, Fianna Fail's Budget plan on Thursday hit on the fact that, since the wave of early departures under Croke Park, the pay and pensions bill has fallen by just one per cent.

This is hardly surprising, especially with automatic pay rises ("increments") adding one per cent a year. Fianna Fail does not have to deal with them in practice, and felt able to call for another €350m reduction in the pay bill, a freeze on increments and their abolition on top salaries, as part of Croke Park, the Second Half.

The Government will concentrate on more job losses and overtime in its approach but it needs savings for 2013. The unions are well aware that it does and, by and large, seem anxious that the 2013 targets are not missed – or at least that they are not blamed.

What the Government really needs is a deal on Anglo debt in the form of the dratted promissory notes. In its medium term outlook this month, Finance made a point of saying that, without the scheduled €2bn payment, the deficit next year could be 6.4 per cent of GDP, rather than the planned 7.5 per cent.

One might think that this would be manna to the powers-that-be in Europe; a real success story as they struggle with Greece. But it will probably work the other way. The fear of setting precedents was expressed by one EU leader who said that, if Greece got debt relief, Ireland and Portugal would want it too.

And if we got it? The implication is obvious. Things may not be getting worse but it's going to be a white-knuckle ride.

Sunday Indo Business

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