Coalition tension grows over tough budgets
Parties at odds over cutting debt with future growth levels uncertain
TENSIONS are emerging in the Coalition over the post-bailout plan for the economy, where more difficult budgetary targets will be set, the Irish Independent has learnt.
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 country's heavy debt burden remains a concern on the international markets.
Next month, the Government will reveal its plans to eliminate borrowing in order to prove it can be trusted to manage the public finances beyond the bailout.
The central plank of the plan involves bringing the level of annual borrowing down to zero.
But there are differences between the Government parties over the commitments to be included in the plan and how quickly they have to be achieved.
Fine Gael figures believe the elimination of borrowing has to be done "over a reasonable period of time" and have pencilled in 2017 to 2018 as the timeframe.
But Labour Party sources said those types of details have still to be worked out and there is no agreement yet on the exact targets.
The junior coalition party doesn't want to attach rigid targets that leave little room for flexibility if there is not the necessary level of growth in the economy.
"In some circumstances, zero is easy. If you have large rates of growth, steady increases in employment and no external factors working against you, then fine. But it's a very theoretical model.
"A zero target in isolation is a very blinkered view of the world," a senior government source said.
The specific targets up to the end of the decade will be set in a new 'Mid-Term Economic Outlook' being prepared by the Government.
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 vast bulk of the plan is agreed in principle and will involve continuing to reduce the deficit, while driving on with reforms in banking, the professions, health and utilities.
The plan for economic policy up to 2020 is to reassure the markets the country will not return to a cycle of so-called 'boom and bust economics'.
"They want us to convince the public and prove to ourselves this will never happen again.
"That's the goal," a government source said.
Next year, the country will run a primary surplus, which means the taxes collected will exceed expenditure – but only when interest rate payments on debt are excluded.
The step after that is a budget surplus, even when debt repayments are included.
The government plan will go beyond the tight budgetary rules set down by the EU, setting out what will happen each year.
The budget deficit already has to be reduced to 3pc of economic output by 2015, as pledged under the bailout programme.
But the Coalition will then seek to direct the benefits of growth in 2016 towards reducing debt, rather than spending increases and tax cuts.
The plan will set out how to bring the structural deficit down to zero by 2017 or 2018 to stop borrowing completely.
The credit ratings agency Moody's said exiting the bailout without a backstop is not influencing its view of Ireland.
Instead, whether Ireland can reduce its debt – expected to peak at 124pc of gross domestic product this year – is really the "key factor" for the firm.
Moody's analyst Yves Lemay said what will inform its view is "clear evidence" of sustainable growth and recurring budgetary surpluses that would bring down the level of debt.
"It's important to remind ourselves that the country is still shouldering a very high debt burden. That certainly informs our view on the rating level."