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Michael Noonan rules out fresh tax hikes, spending cuts


Professor John McHale

Professor John McHale


FINANCE Minister Michael Noonan has ruled out more cuts or taxes despite his own think tank warning he needs to reduce spending by another €3bn.

Boosted by a surge in tax revenue for the first quarter, Mr Noonan rejected questions over the Government's ability to hit its targets. In doing so, he snubbed his own expert group of economists. They said he might have to introduce new cuts or taxes worth up to €400m this year alone to reduce borrowing to 8.6pc of economic output this year as demanded under the bailout.

If Mr Noonan was to take the advice and chop €3bn, it would mean fresh hits in politically sensitive areas, such as income tax, social welfare payments and health spending.

The minister's claim that the Government is on track with its economic figures was boosted by higher than expected tax returns for the first three months of the year.

But the economists on his Fiscal Advisory Council said the Coalition needs to factor in another €2.8bn in cuts and taxes over the next four years.

This would increase the total amount of tax and cuts over the next three years to €11.4bn.

The group of experts was set up in the aftermath of the economic crisis to serve as a independent watchdog over the economy.

The council was given a legal status to ensure the government was given ample objective advice on its budgetary and financial decisions.

But Mr Noonan said the Government has "absolutely no plans" to increase the planned level of cuts over the coming years. This is the second time in just six months Mr Noonan has dismissed a recommendation from the council.

Before last December's Budget, the experts suggested the Government should go beyond cutting €3.6bn -- but this advice was ignored.

The latest Exchequer figures show the budget deficit fell last month, compared to 2011, in the wake of the deal struck on the repayment of €3bn worth of Anglo Irish Bank debt.

Tax revenues were €351m ahead of what was projected in the Budget.

Department of Finance assistant secretary Michael McGrath said the council was working off older data than its own figures.

"To be fair to the council, its report would have been based on data available up to February," he said.

"The numbers that we are presenting today don't suggest that the targets won't be met.

"It's still very early days so we will continue to assess and monitor, but on the basis of what we say today."

The Fiscal Advisory Council said the Government may have to introduce more austerity measures this year to meet its deficit targets of 8.6pc.

Mr Noonan has repeatedly said this is an important target that must be met. Looking at the next few years, the Council recommended that Mr Noonan should save another €2.8bn, bringing the total adjustment between 2013 and 2015 to €11.4bn. The Government has said that future budgets will be less austere than the one in December.


If Mr Noonan wanted to meet the new targets proposed by the council, he would have to introduce three more painful budgets and take about €3.8bn out of the economy.

The council's report said: "The council believes there is still a strong case for favouring an adjustment path that is more ambitious than that outlined in Budget 2012."

It added: "The council considers that the government's general deficit target of 8.6pc of GDP for 2012 is appropriate given the current growth outlook for 2012."

"This may point to the need for additional fiscal measures this year." Under current projections, the Government is set to miss its deficit targets outlined by the IMF, with 8.8pc projected by the end of this year, while the 2015 target of 3.2pc will be missed by two tenths of a percent.

The Department of Finance will issue a new growth forecast for 2012 and 2013 later this month.

The council makes no attempt to forecast growth and uses Department of Finance forecasts although it cautioned that these may be wrong.

"There is an unusually high degree of uncertainty surrounding Irish growth prospects," it said.

While the report implies some criticism of government policies is also praises the decision to raise VAT as appropriate.

The report acknowledges that predicting growth in a small and open economy like Ireland's is difficult. For this reason, the council's chair Professor John McHale said the Government should make forecasts in bands or explain in more detail how the forecasts could be affected by a slowdown in growth overseas. He also suggested the Government should outline contingency plans if forecasts are missed, in order to retain international credibility.

Irish Independent