Sunday 27 May 2018

Last of the cuts: but plans beyond Budget 2015 at risk

Michael Noonan
Michael Noonan
Fionnan Sheahan

Fionnan Sheahan

BUDGET 2015 will be the last of the budgets where there are major cuts to spending.

But the Government's hopes of continued economic recovery are being jeopardised by growth in the eurozone stuttering to a halt with setbacks for the major EU economies.

After the adjustment to be announced in October's budget, future budgets will not be as harsh.

The Government will also be planning ahead with spending in departments, including health, education and social welfare, to be set beyond the general election.

The Coalition aims to dampen expectation of an opening of the purse strings.

The expenditure ceilings will put a cap on how much will be spent in each area over the following years and give an indication of where the Government sees the priorities.

However, Budget 2015 will not be followed by any further major spending cuts, senior Government figures say.

"It is unlikely you will see expenditure reductions in 2016 or 2017. The 2015 consolidation is the last ask," a senior source said.

The budget deficit next year will come under three per cent of GDP, which is the EU's acceptable level of borrowing.

After that, the Government expects economic growth to provide sufficient funds to avoid having to bring in a major adjustment or go above the three per cent limit.

The current round of talks on planned spending cuts for next year will also continue up until the end of August.

The annual compilation of a list of potential cuts, known as the Comprehensive Review Of Expenditure (CRE), has been conducted.

Individual departments are in discussions with the Department of Public Expenditure about their proposals.

Departments were told to come up with cuts worth five per cent of their spending.

But most departments didn't respond with equivalent cuts and some even asked for spending increases.

An adjustment of €2bn was supposed to be required this year.

But Finance Minister Michael Noonan has accepted the package will be lower. The admission marks a change in approach from the Finance Minister, who continued to insist until late 
in the process last year that a full adjustment would be required.

The threat to the Government's plans comes from a lack of growth in the eurozone and there are ominous warnings emerging.

In the second quarter of the year, from March to June, Germany's economy contracted and France stagnated.

The latest figures come just weeks after Italy, the eurozone's third largest economy, slipped back into recession.

In another blow to hopes of a recovery in the 18 nation eurozone, GDP remained flat in the second quarter.

The results caused heightened speculation the European Central Bank would have to carry out further stimulus to help kick start activity.

Of particular surprise was the contraction in Europe's economic powerhouse Germany, which even undercut forecasts from the Bundesbank and came on the back of a fall in inflation and a drop in investor confidence.

France fared little better as its economy stagnated. The French government announced that it had slashed its growth estimates for this year and next and claimed it would miss its deficit targets.

The country's largest business body, Ibec, says the economy is well in recovery mode and an adjustment of €200m will be adequate.

Ibec says more confident consumers are spending again, investment is recovering strongly and exports have been boosted by a better than expected recovery in Britain.

However, unemployment is still too high, the organisation says.

Ibec says putting more people back to work must be the leading priority for the Government.

The organisation says a lower adjustment would mean creating an additional 10,000 jobs in the economy next year.

Irish Independent

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