Ireland's large fiscal-stimulus response to the coronavirus pandemic will lead to tighter budgets in future but not necessarily a return to the austerity of a decade ago, the country's fiscal watchdog said on Wednesday.

Ireland has committed more than 13 billion euros so far to help businesses, workers and the health service cope, turning a budget surplus in 2019 into an estimated deficit of 7.4% to 10% of gross domestic product this year.

The Irish Fiscal Advisory Council found the "very large" stimulus to be consistent with prudent budgetary management but raised the question of whether a worst-case scenario implies future austerity. "Not necessarily," was its answer.

Tax and spending plans might have to be adjusted by 6 billion to 14 billion euros from 2023 to 2025, according to three scenarios the council modelled - a rapid rebound, a recovery with some lasting effects and a severe outcome marred by repeated lockdowns.

Even in the severe scenario, where Ireland's debt to gross national income could rise to 160%, the adjustment required to return it to 100% is less than half the 30 billion euros of tax hikes and spending cuts imposed a decade ago.

Rather than outright austerity, the council said that might mean less ambitious budgetary plans from 2023, the second half of the next government's term if ongoing talks to form a new administration succeed.

The council noted that when considering how to achieve an annual adjustment of 2 billion euros, freezing public-sector pay would generate about 1.5 billion euros a year. Keeping public investment at 2019 levels rather than increasing it as planned would lower spending by 2 billion euros.

"These changes are much less dramatic than the kind of measures that were needed in 2008-2010," the council's acting chairman, Sebastian Barnes, told reporters, adding that less upward pressure on property prices was a possible silver lining from the crisis. (Reuters)

Source: www.businessworld.ie