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Tuesday 23 January 2018

Coalition: tough budgets not over

Government plans to stop borrowing within next five years and chip away at national debt

FIONNAN SHEAHAN Group Political Editor

SEVERAL tough budgets lie ahead as the Government plans to stop borrowing completely within the next five years and chip away at our huge debt, the Sunday Independent can reveal.

The move to prove the country's credibility to the international markets comes as a Sunday Independent/ Millward Brown opinion poll shows deep disbelief that Budget 2014 was the last harsh one.

The poll finds that seven out of 10 people believe there will be more tough budgets. Only 12pc of people believe they have seen the last tough budget.

The feeling that further harsh budgets are yet to come is actually highest among Labour Party supporters, where 82pc believe they haven't seen the last of the tough measures.

This belief will be reinforced next month when the Government reveals its plans to eliminate borrowing in order to prove it can be trusted to manage the public finances beyond the bailout.

Tensions are emerging within the Coalition over the exact targets to be set in the economic plan aimed at taking the country beyond the bailout.

ANALYSIS, Pages 24-25 Poll details, pages 22-23

The Government wants to prove to the international markets that its commitment to repair the public finances will continue, even without the Troika's supervision.

The central plank of the plan involves bringing the level of annual borrowing down to zero "over a reasonable period of time".

"We are going to have to be doubly credible. We have to stick to targets. We have got to keep reducing the deficit," a senior government source said.

But the proposal also means there will be no pre-general election giveaway by the Coalition. As a result, the Government plans to go beyond the tight budgetary rules set down by the EU already by:

* Reducing the budget deficit to 3pc by 2015, as promised.

* Directing the benefits of growth towards reducing debt in 2016, rather than spending increases and tax cuts.

* Bringing the structural deficit down to 0pc by 2017-2018 to stop borrowing.

Although the country has exited the bailout, the level of debt on the books is still a threat to the economy.

The targets will be set out in a new Mid-Term Economic Outlook being prepared by the Government.

Rather than tax cuts and spending increases, the benefit of economic uplift will "mostly" go to reducing the level of debt.

"A lot of that can be achieved by growth. That doesn't require additional taxes in 2016. But the benefit of growth mostly goes towards deficit reduction, rather than spending increases," a senior government source said.

The Government's policy of continuing with the austerity policies tallies with the message coming from Europe.

Germany's representative on the European Central Bank warned yesterday the "fiscal, structural and financial reforms" will have to continue after the bailout.

Although supporting the decision to leave without a backstop, ECB executive board member Joerg Asmussen said the exit "does not mean there is room for complacency".

"I think continuing the reform and fiscal consolidation is necessary for Ireland to truly regain its ability to stand on its own. And we will apply, as normal, even after the programme has finalised, the usual post-programme monitoring," he said.

Sunday Independent

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