Tough Budget looms as Central Bank says: stick to austerity path
MORE hairshirt budgets are in prospect after the Central Bank urged the Government not to let up on austerity and Finance Minister Michael Noonan admitted next year's cuts and taxes will be "tough".
The Central Bank said the Government should force through more cuts in 2013 or else risk delaying the recovery, even though the Coalition is split on whether to use the €1bn proceeds from the promissory note deal to ease up on cuts and taxes.
Mr Noonan has repeatedly claimed there may be some scope for easing the terms of the upcoming Budget but the Central Bank makes clear it believes this would be wrong.
In its quarterly economic update, the Bank said Mr Noonan should force through the full €3.1bn in spending cuts and tax hikes this year and ignore using the promissory note deal.
The Government will have to stick to its plan to suck another €5.1bn out of the economy over the next two years, the Bank claims. It also admitted the economy will barely grow this year.
Mr Noonan appeared to back the Bank's position. Speaking in Limerick, he claimed: "We are all on a programme and the next Budget is going to be tough.
"We will have to stick to the targets and there is a little bit of flexibility emerging now, but if we do what the bank did and look at the targets over the two years, we will still have to adjust by about €5bn for 2014 and 2015," he said, adding that the cut in economic forecasts was "totally predictable".
Some, particularly those in Labour, have said the Government can still reach its target of bringing the deficit down to 3pc by 2015 even if it chooses not to go for the full €3.1bn next year.
A Labour spokesman said the party's position that the promissory note windfall should be used to give people a "break" was well known, and it would be pushing this as the October Budget approaches.
The Central Bank makes plain that it wants to get all the cuts out of the way as quickly as possible. It claims if that was to happen, then the economy would be able to start growing at a faster pace.
"It is important that no slippage vis-à-vis the target for 2013 is allowed," said Central Bank economist John Flynn.
"Looking ahead, there has been discussion of scaling back the fiscal consolidation effort in 2014-15 on the basis of the interest savings from the promissory note transaction," he added.
"However, while recognising that some difficult decisions will still have to be made, Central Bank management remain of the view that this temptation should be resisted," the Bank said.
The Bank's comments came as it cut its forecasts for economic growth this year and in 2014. According to the Bank, unemployment will be little changed over the next year, barely falling to 13.2pc by the end of 2014.
It also backed plans to cut public sector pay, adding it would help the economy regain competitiveness.
The Bank's insistence of more cuts will be hard to stomach, after it emerged property prices rose last month for the first time in five years, in the latest sign that the economy is starting to grow again.