Tougher Budgets on way
THE Government last night admitted it will have to borrow €25bn more over the next four years because growth will be less than forecast in last December's Budget.
The Department of Finance slashed its estimate for growth this year from 1.7pc to 0.7pc, and cut a further 0.25pc off the forecast for 2012. That is likely to mean Budgets from 2013-2015 will have to be even tougher than planned, with even more severe cuts and possible increases in taxation.
In the first progress report on how the economy is performing, the Government said the €3.6bn 'correction' due in next December's Budget would not be changed. However, it said it would "review progress" as part of its preparations for Budget 2013.
Last night's 'Stability Programme Update' is the first under new EU rules. Countries have to submit Budget plans for assessment by the EU Commission and other member states.
It remains to be seen whether the Coalition's plan to take no further action in December will be approved by the EU or by the IMF under the bailout agreement. The Government now expects borrowing this year to be €18.2bn compared with the original estimate of €17.7bn.
It says the "slight deterioration" is due primarily to higher than expected interest on bailout funds and to the additional interest costs for banking recapitalisation.
The Coalition hopes to save €4bn on the €24bn bank re-financing costs from the sale of assets and forcing bondholders to take losses.
That still leaves around €10bn to be borrowed and another €10bn to be taken from the national pension fund.
There will be further financial slippage next year, with a deficit equal to 8.6pc of output (GDP), compared with the original target of 7.3pc.
But the Coalition is still committed to getting the deficit below 3pc by 2015.
This will require good growth averaging 3pc a year from 2012 and further Budget corrections, which would appear to be coming on the tax side.
The spending figures are unchanged but revenues in 2014 are seen as €2bn higher than in the previous projections.
"General Government Debt at end-2011 is currently forecast at 111pc of GDP," the document says. "It is projected to peak at 118pc of GDP in 2013, coming back down to around 111pc of GDP by the end of the forecast period (2015).
"The scale of the necessary consolidation in Budgets 2013-15 will have to be reviewed in the context of the likely growth prospects nearer the time."
It says interest payments on the national debt are forecast to account for around 21pc of tax revenues by 2015, compared with just 3.5pc of revenues in 2007.
"While very high, this is lower than in the mid-1980s when around one-third of all tax revenues were required for this purpose," it says.
"It is clear that difficult choices need to be made . . . Further reductions across various areas of spending will therefore be required and will be addressed in the context of the Comprehensive Review of Expenditure," the report says.
More cuts will have to come in capital spending, although the document says this should be seen in the context of the major improvement in public infrastructure already in place.
The Government confirmed that there would be no new money for the Jobs Initiative Fund, with the cost having to be met from savings elsewhere.