Thursday, September 13 11:41:40
The Fiscal Advisory Council - the expert group set up to review Government finances - has advised that a further E1.9 billion should be cut from State spending up to 2015 and that the Government should be more radical with its cuts.
That's on top of the planned E8.6 billion over the 2013-15 period.
"Debt sustainability and creditworthiness remain fragile. Weighing the risks to debt sustainability and ongoing weakness in the real economy, the Council supports an alternative fiscal stance involving a total of E1.9 billion of additional adjustments in the period to 2015 compared to the Government's baseline," the FAC said.
It added that, due to continued weakness in demand and some further improvement in market assessments of Ireland's creditworthiness, the amount of additional adjustment is scaled back by E0.9 billion since the previous Fiscal Assessment Report, with no additional adjustments for 2013 in the Council's alternative scenario. "Model-based projections indicate that this alternative scenario would yield a primary budget surplus of 3.7 per cent of GDP in 2015, which is 0.9 per cent of GDP higher than under current plans. This would also help to put the debt to GDP ratio on a faster downward trajectory and would provide additional insurance, albeit limited, in the effort to ensure debt sustainability."
The council believes the additional cuts and tax increases should be introduced in the last two years of this period rather than in the forthcoming budget.
It believes the E3.5 billion package of measures for next year is appropriate, but that similar-sized adjustments are required in both subsequent years. Currently, the Government plans a savings and new taxes package of E3.1 billion in budget 2014 and E2 billion in budget 2015.
"For 2012, the forecast for the General Government deficit was revised to 8.3 per cent of GDP in SPU 2012, from 8.6 per cent in Budget 2012 despite a downward revision in forecast growth. This reflected, in part, revisions to interest payments and the impact of banking-related revenues. A General Government deficit of 8.3 per cent of GDP for 2012 looks achievable at this stage based on the cumulative trends in the Exchequer data and the economic outlook. That said, there have been significant spending overruns in Health and Social Protection over the first eight months of the year. The current year overrun in Health reflects a pattern in recent years. There has also been a notable increase in non-tax revenues, partly related to the State's involvement in the banking sector. These sources of income should be closely monitored," the report said.
The Council said it believes the additional measures will "help to put the debt to GDP ratio on a faster downward trajectory and would provide additional insurance, albeit limited, in the effort to ensure debt sustainability".