The European Commission has warned the Government that it must press ahead and drive home €2bn in spending cuts and tax hikes in the upcoming Budget.
A new report from the EU Commission has poured cold water over repeated calls from both Labour leadership contenders Joan Burton and Alex White for an end to austerity.
Contrary to Labour’s wishes, European officials want tax increases and spending cuts to continue.
In particular, the Government must gain control of its runaway health budget and must do significantly more to tackle the country’s high level of unemployment — long-term unemployment is of particular concern.
Commission officials are also insisting that there is no leeway in meeting the target of reducing borrowing to under 3pc of GDP next year.
The report also warns that it is vital Ireland stays the course in order to retain the confidence of the international money markets.
Ms Burton, who is the perceived front-runner for the Labour leadership, has signalled a major shift in economic policy in the wake of the party’s hammering in the local and European elections, which culminated in the resignation of Tanaiste Eamon Gilmore last Monday.
But her plans have been dashed by this new report which comes six months after Ireland exited the IMF/EU/ECB troika bailout and is part of the normal engagement between countries and the commission.
The warning comes as part of new recommendations from the EU Commission on the Irish economy.
This monitoring is on top up of the twice yearly visits from the troika, which are set to continue for a number of years in the wake of the bailout programme.
The commission is calling on the Government to specifically ensure, through tax increases and spending cuts, a reduction in the gap between tax income and what the State spends to under €5bn or 3pc of GDP.
As part of new budgetary rules, Dublin will now have to negotiate with the commission over the summer as to what cash adjustment will be needed to reach the 3pc target, and the working figure pencilled in is €2bn.
But it is the concern about the health sector that is exercising the minds of Brussels bureaucrats.
The commission wants the Government to gain control of the health budget by delivering savings in the area of pharmaceuticals.
Significant overspending in Health Minister James Reilly’s department has again occurred with a reported overrun of €80m up to the end of March.
Of that, the HSE said hospitals had racked up €63m.
A spokesman for the Department of Health last night said they would review the report once they have received it.
“That report will have some observations around health among many other areas,” he said. “We will study the report and then be in a position to respond.”