Anglo bailout cost pushes national debt over €100bn
THE national debt rose above €100bn for the first time yesterday as the Government added the entire €8.3bn cost of rescuing Anglo Irish Bank to it.
Under EU rules, the sum may also have to be added to this year's deficit, sending it to a stratospheric 18pc of economic output (GDP).
This follows the EU ruling that the €4bn injected into Anglo last year must be treated as day-to-day government spending and appear on the deficit figure for 2009.
The change left Ireland with the biggest government deficit in the EU last year. At 14.3pc of GDP, it was higher than those of Greece and Britain.
The Government yesterday added the €8.3bn it plans to borrow for Anglo to the general government debt, even though the money may actually be raised over 10 years.
This is also in line with the EU "accruals" approach of recording a cost once it is known, rather than when it is paid. A similar issue arose with the pension costs of the privatised Eircom.
Finance Minister Brian Lenihan insisted the changes were purely technical and would have no impact on the budgetary arithmetic. Many analysts agree, but opposition politicians raised the spectre of even tougher tax rises and spending cuts.
An 18pc deficit this year would have no parallel in the EU. But it would be a one-off, with the deficit plummeting back to the planned 10pc of GDP in 2011. Whether this happens will depend on the EU rulings on the Anglo rescue scheme, which has to be submitted to Brussels. A decision is expected around June. Mr Lenihan has indicated that Anglo might need a further €10bn.
It is thought the Government might favour this "big bang" treatment of recording the costs in one year. It might strengthen its case that this is an accounting technicality, and limit the political embarrassment to just one year.
The alternative would be to add €1bn a year to the deficit. This would be relatively small in the context of an €18bn borrowing requirement, but would still add to the challenge of getting the deficit down to 3pc of GDP by 2014.
This figure is based on the EU measure. A €1bn extra annual borrowing for the bank rescue would still appear on the Exchequer deficit, and cost taxpayers around €50m a year in interest.
Fine Gael finance spokesman Richard Bruton TD said the budgetary targets are now in question: "This means that this money will have to be found from extra taxes or cuts in spending," he said.
The change showed there were real choices for the Government in their approach to the banking crisis.
Labour Party finance spokesperson Joan Burton TD said the Eurostat decision confirmed what the Government and Minister Lenihan had "sought to conceal".
"The Government describes the upward revision as merely technical. This is a breathtaking attempt to airbrush out of economic history the financial consequences of the €4bn injection into Anglo Irish Bank," she said.
The row erupted as TDs heard that taxpayers will have to pay €5bn this year to service the national debt -- which is set to hit €112bn next year.
National Treasury Management Agency (NTMA) chief executive John Corrigan yesterday told the Public Accounts Committee that within four years, one euro in every five raised in tax will be going towards paying the interest on our national debt.