'Onus on all citizens and political parties to reflect on economic reality'

Fri, Nov 13, 2009, 00:00

PRESS CONFERENCE:MINISTER FOR Finance Brian Lenihan has said there is an onus on all citizens and political parties to reflect on the economic realities which leave the Government no option but to impose €4 billion in savings next month.

Mr Lenihan yesterday published the Pre-Budget Outlook which disclosed that the economy will contract by 7.5 per cent this year and also projected a 1.5 per cent contraction next year.

The estimates are a little better than anticipated in the emergency budget in April, which predicted that the economy would contract by over 8 per cent this year and by almost 3 per cent in 2010.

Mr Lenihan also said that the unemployment projection for next year of 13.75 per cent (compared to 12 per cent at present) was also a “downward projection”. At one point this year, the Government estimated that unemployment would rise to 15 per cent in 2010.

Mr Lenihan said the €4 billion in fiscal adjustment in 2010 would contain the budget deficit to this year’s level of 12 per cent of Gross Domestic Product (GDP). That is four times higher than the 3 per cent deficit allowed under European Commission rules.

“In the absence of the stabilisation, we would see the position deteriorate to 14 per cent. A borrowing requirement of that level would not be acceptable or sustainable for the country.”

Presenting the key set of economic figures that will inform public debate in the run-up to the budget on December 9th, Mr Lenihan warned on several occasions that the gravity of the situation facing the Government could not be underestimated and that decisive action in the form of the €4 billion savings to the exchequer next year was the only way in which Ireland could emerge from its current problems.

“Leaving [it] alone is not an option for this country as far as it will lead to a further escalation of borrowing costs into the future. Such an escalation would not be in the best interests of the Irish people,” he contended.

He also challenged unions and Opposition parties to supply details of their alternative solutions to reduce the deficit over a longer period or to increase taxes.

“The economic effect of any increase in taxes must be assessed. At the higher end, people are paying a marginal rate of 52 per cent if they are PAYE employees and 55 per cent if they are self-employed,” he said.

During the course of a press conference at the Department of Finance in Dublin, the Minister asserted that it was wrong to portray Ireland’s situation as the worst in Europe. He pointed out that the commission had identified four other states – the UK, Spain, Latvia and Greece – whose problems were similar to those of Ireland.

“We are in a group of five countries that are seen to have critical problems at present,” he said. He also argued that the actions proposed in the budget would lead to improvements from the middle of next year.

“There is light at the end of the tunnel,” he said referring to his department’s prediction that economic growth will return in the second half of 2010; and of growth levels of over 3 per cent from 2011 onwards. He also said that the 13.75 per cent unemployment rate would represent the peak and that figures would improve in 2011 and beyond. Mr Lenihan would not be drawn on specific measure on how the €4 billion adjustment will be made. Responding to questions about the anticipated cuts in social welfare, he said there had been a full discussion in the Fianna Fáil parliamentary party, indicating that his party’s TDs and Senators would support the measure.

There had been a substantial drop in the costs of living of between 4 per cent and 7 per cent this year, he also said.

Mr Lenihan conceded that the unemployment figure next year would be “stubbornly high” but promised that “certain decisive steps” would be taken to create more jobs.

“We did it with the Lisbon Treaty. We have done it with the enactment of Nama. We will do it with the budget to ensure that finances are put on a sustainable basis,” he said.