THE Government remains on target to cut €3.5bn out of the economy in next month’s budget despite a cut to its Gross Domestic Product (GDP) growth target for 2013 to 1.5pc, down from 2.2pc, as expected.
However, the move should not impact the €3.5bn budget adjustment figure because when inflation is factored in the nominal growth figure is relatively unchanged.
This 2013 target is on a par with a poll of Reuters economists and is lower than that of the Central Bank and the ESRI but higher than the IMF and the European Commission.
The cut comes against the backdrop of the continuing crisis in the eurozone which is dampening growth at the country’s main trading partners both in the UK and Europe, according to the Government’s Medium Term Fiscal Statement published this afternoon.
Last week, the European Commission cut its growth target for next year to 1.1pc and the document recognises other sector specific risks to growth including that of the export sector which is weighted heavily towards pharmaceuticals with many of those made in Ireland coming off patent.
The GDP target for 2014 remains at 2.2pc while the target for this year has been increased from 0.7pc to 0.9pc.
Spending cuts and tax hikes worth €25bn since 2008, or the equivalent of15pc of annual output, have been made.
The Government believes another €8.6bn from 2013 to 2015 will be enough to get the economy back on track.
Focusing on the domestic economy, the Government expects unemployment of 14.5pc next year with an ongoing necessity for households and businesses to reduce down debt levels built up during the boom.
“Loans to the household sector in Ireland measured 207pc of household income in the year to second quarter with the private sector savings rate at over 12pc in the same period,” according to the document.
“Although household indebtedness is on a declining path, any further acceleration in deleveraging by households presents a downside risk,” it added.
Turning to GNP growth, which excludes multinationals, because of the export-led nature of the forecast economy, the prognosis is for lower domestic growth.
Another risk to the public finances is that tax revenues in the month of November – the key month of the year for revenue collection – do not perform in line with expectations.
According to the figures, €5.7bn or close to 16pc of total tax revenue for the year is profiled for collection this month.
While not expected, if revenues were to underperform, this could have negative implications not just for 2012 fiscal targets but also the base upon which the 2013 tax revenue forecast is built.
Finance Minister Michael Noonan will deliver Budget 2013 on December 5.
Last week, the Department of Finance has signalled it wants a tougher Budget next month to make up for lost tax revenues as a result of lower growth.
Department of Finance secretary general John Moran has said that while decisions were a matter for Cabinet, his view was the 2013 target deficit of 7.5pc of output should be met.
He warned that downward growth would lead to downward pressures on revenue and the "need to adjust accordingly".