Easier Budget will only prolong austerity – IMF
THE International Monetary Fund has warned Finance Minister Michael Noonan that easing off in the Budget will mean tougher measures next time.
The warning came as Fine Gael and the Labour Party reached a deal on the size of the package of cuts and taxes in next year's Budget.
The deal sees the adjustment lowered from €3.1bn in line with Labour's demands, while also meeting Fine Gael's requirement of reaching a primary surplus.
Labour sources said the party was "happy" with the outcome.
The junior coalition party was seeking an adjustment of €2.5bn and the final figure is expected to be somewhere around €2.65bn. But the tax hikes will also be lower as a result of the deal, which will keep Fine Gael satisfied.
Finance Minister Michael Noonan and Public Spending Minister Brendan Howlin will bring a joint memo to Cabinet next Tuesday
In the IMF's second last report before Ireland is due to leave the bailout, the organisation stopped short of demanding the Government stick to the €3.1bn target originally promised. But mission chief Craig Beaumont warned tax hikes and spending cuts of €5.1bn in total must still be imposed by the end of 2015, regardless of the Budget later this month. This suggests that if the Government chooses a softer Budget for 2014, it would have to do more in 2015 to plug the shortfall.
The Washington-based lender cautioned that while the country has met its targets, recovery prospects are "fragile" and Ireland's projected debt mountain remains very high, at an estimated 123pc of economic output next year.
"Ireland's steady consolidation efforts have been rewarded with high credibility and manageable market interest rates," Mr Beaumont said.
"Budget 2014 should protect this achievement by setting out adjustment in 2014-2015 consistent with the €5.1bn cumulative consolidation set out in the 2011 and 2012 Medium Term Fiscal Statements."
The planned target this year was €3.1bn, and the target for Budget 2015 is €2bn.
Mr Beaumont said the budgetary target for next year will be discussed with the troika of lenders. That leaves Mr Noonan with just a few days to get approval from the troika ahead of the October 15 Budget.
Meanwhile the IMF said domestic demand is expected to be flat, while private spending will shrink because of austerity and attempts to slash household debt.
Separately it said resolving the mortgage crisis won't boost personal spending, but will make banks more willing to lend and give a kick to the property market.