Exiting recession won't make Budget any easier – Noonan
* Sticks to guns on €3.1bn target n Labour demands less austerity
FINANCE Minister Michael Noonan is playing down the prospect of a much softer Budget, despite the economy emerging from recession.
Mr Noonan was pushing back yesterday against Labour Party demands for a lower package of taxes and cuts in next month's Budget.
But the positions were hardening within the Coalition, as Labour figures were insisting on a budgetary adjustment of under €3.1bn.
Figures from the Central Statistics Office (CSO) showed the end of recession and the economy returning to tepid growth in the second quarter.
Dampening expectations of an easier Budget, Mr Noonan said it was still going to be "very difficult".
"The figures are more or less in line with expectations. There's still a very difficult Budget coming," he said.
However, Labour sources said the new figures did not change anything and the party was still seeking a lower adjustment.
Attention is now focusing on the Exchequer figures for the end of September – a vital month for VAT returns – to determine the economic picture ahead of the Budget.
It has also emerged that the EU may change the targets for deficit reduction to make them less restrictive and allow for lower levels of austerity.
European Union finance officials have reached a preliminary agreement to change the way the EU measures some deficit figures.
Sources in Brussels said this might lessen the pressure for austerity measures in Ireland, although it would help Spain most of all.
An EU official said yesterday the change to the calculation of the structural deficit would have "very significant" positive consequences for Spain and somewhat less so for Ireland, Greece and Portugal.
The change could allow the Government a slightly looser fiscal stance, supporting growth.
The anonymous official said the working-level agreement on the "superior methodology" still needed approval by a meeting of representatives from the bloc's 28 member states next week.
The CSO figures showed that the economy expanded in the spring, which enabled the country to finally crawl out of a nine-month "double-dip" recession.
Gross domestic product expanded 0.4pc in the second quarter of this year following a contraction in the first quarter, the CSO said.
While analysts welcomed the return to growth, most had been expecting a much bigger increase of around 1pc.
Gross national product, another method of measuring the economy, contracted 0.4pc in the second quarter, emphasising the tentative nature of the latest recovery.
Mr Noonan repeatedly played down the significance of the figures in framing the Budget while admitting that any sort of economic shrinkage, such as the 0.6pc contraction seen in the first quarter, would have drastically reduced his room for manoeuvre in next month's Budget.
"These data reduce room for manoeuvre on the Budget arithmetic," said KBC Bank economist Austin Hughes.
"On the other hand, by emphasising the tentative nature of the economic trend, they also argue against being overly ambitious in regard to the degree of adjustment that is attempted.
"So, they are likely to add more heat than light to the current debate on this topic."
Like most other economists, Mr Hughes said he would be reducing his forecast for 2013 growth after lower-than-expected growth.
The Department of Finance has not yet reduced its official predictions.
But it will probably reduce the forecasts when it meets with the Fiscal Advisory Council ahead of the Budget.