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Govt lays out post-bailout blueprint

Tuesday, December 17 16:54:00

The Government today laid out a fiscal blueprint for the next seven years to bolster its bailout exit and show that its economy can grow enough to cut its debt by a quarter by the end of the decade.

Ireland became the first euro zone member to successfully complete a bailout and is keen to prove to investors that it will maintain its fiscal rigor, while offering hope to the austerity-weary that the worst is over.

The government said its main goal was to cut unemployment to below 10 percent by the end of 2016 - when parliamentary elections are due - and to achieve full employment, defined as a jobless rate of 5 to 6 percent, by 2020.

"The Irish people have made a lot of sacrifices to ensure Ireland's recovery. We will ensure that the mistakes of the past won't be repeated," Taoiseach Enda Kenny told a news conference, introducing the new plan.

"It is about staying the course. It is a roadmap for the Irish economy. It will provide certainty for the Irish people and for investors in our country."

The government maintained gross domestic product forecasts of 0.2 percent this year and 2 percent next. It said growth would average 3.4 percent between 2017 and 2020 - the first time it has forecast that far out - and that it would cut its debt to 93 percent of GDP in 2020 from a peak of just over 120 percent this year.

Debt in the euro zone as a whole is forecast to peak at 96 percent of GDP next year, according to the most recent European Commission forecasts.

Today's plan showed the next budget, for which tax hikes and spending cuts of 2 billion euros have been pencilled in, would be the last round of an austerity drive that began in 2008 and will have amounted to 20 percent of annual output.

Finance Minister Michael Noonan told Reuters in an interview on Monday that higher-than-forecast tax revenues this year should enable it to beat its budget deficit target and is likely to leave room to ease austerity in next year's budget.

There are signs the economy is picking up, with the jobless rate down to 12.5 percent from a 15.1 percent peak in 2012. In a baseline scenario that does not include recent positive data, the government said the rate would fall to 8.1 percent by 2020.

If the new plan works, however, it said that full employment could be achieved under a 'high growth' scenario where the economy grows by 2.3 percent next year and as much as 3.7 percent in 2017 as a result of the outlined policies.

They include a renewed focus on construction to address housing supply issues and getting banks to help borrowers in negative equity to trade up or down in the property market.

The government also remains fully committed to the 12.5 percent corporation tax rate that has enticed multinationals like Google and Facebook.

The plan acknowledged that legacy effects of the crisis such as high levels of household and corporate debt will cast a long shadow and that risks to domestic and international demand mean the forecasts are subject to a high level of uncertainty.

"It's welcome in the sense that it does put the onus on future governments to adhere to strict fiscal discipline, but at the same time you just worry that the targets won't be met," said Alan McQuaid, chief economist at Merrion Stockbrokers.

"The forecasts are reasonable enough but the concern about exercises like this is that up to now the success has been in under-promising and over-delivering; you just wonder now if putting targets down that far out is the smartest thing to do."