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Economist says tougher budgets than EU demands are needed

IRELAND may need even tougher budgets than EU rules demand over the next several years if the national debt is to be reduced to safe levels.

Trinity College economist Philip Lane, a recognised expert on fiscal policy, told a seminar organised by the departments of Finance and Public Expenditure & Reform that the EU's ceiling of a surplus of 4pc of GDP before interest payments was "minimalist" in the Irish context.

"Reducing the debt to 60pc of GDP over 15 years would require a surplus of 4.4pc of GDP on standard assumptions about growth. Only optimistic assumptions would allow the target to fall below 4pc of GDP," Prof Lane said.

The seminar was held to discuss proposals to set up a Fiscal Advisory Council which would assess whether Government was keeping to agreed fiscal rules. Under the EU/IMF programme, the council is due to be established by the end of next month, with legislation published by the end of the year.

Fiscal rules

Prof Lane said keeping to purely fiscal rules on surpluses and deficits would not have prevented the 2008 crash. "Such a council will have to be able to take into account things like the balance-of-payments position with the rest of the world and credit conditions," he said.

Joe Cullen, a senior official at the Department of Finance, said the council would have to be independent and should be made up of a small number of experts from varying backgrounds "with a strong track record in economic and financial matters and . . . have a bias towards international expertise".

He said the present crisis meant so-called "stormy weather rules" would have to be applied. The primary budget balance before interest -- which now has a deficit of 6pc of GDP -- would have to strengthen by 0.7pc-1.5pc of GDP each year until the national debt was down to at least 60pc of GDP.

Ronnie Downes, of the new Department of Public Expenditure and Reform, said the present arrangements meant that the department knew how much was spent, but not how much was bought, by government departments.

"There is a weak linkage between resources and the outputs and outcomes," he said.

The present "indicative" three-year budgetary programme had limited credibility. The reform proposals would build medium-term spending ceilings into the budgetary framework and individual ministers would be responsible for keeping to their ceilings.

Irish Independent