Government and troika clash over cuts in 2014 budget

The Government and the troika have clashed over the looming 2014 budget as the Coalition pushes to ease off next year on spending cutbacks and tax hikes. Fresh divisions have surfaced this week in Dublin as inspectors from the International Monetary Fund, the EU Commission and the European Central Bank carry out their second-last review of Ireland's bailout programme.

“For the first time in a long time, fiscal consolidation was on the top of the agenda,” said a senior participant in the talks.

The engagements with the troika, which continue this weekend, come as Minister for Public Expenditure Brendan Howlin prepares for bilateral talks on the budget with other Ministers next week.

To promote economic growth as it returns to private debt markets next year, the Government wants to pull back from the target for a €3.1 billion package of spending and tax measures in the budget on October 15th.

The Government argues there will be leeway to put money back into the economy because forecasts from the Department of Finance suggest it is on track to exceed its deficit-cutting target next year.

As work on the budget intensifies before the summer break, this has led both Fine Gael and Labour to work separately on a range of proposals to stimulate employment and consumer spending.

Concerned
However, the troika is concerned that trends in official data from the first three months of the year suggest the Government may not realise its projections for the growth of exports to Britain, euro zone countries like Germany and Asian markets.

This is said to have to have “spooked” officials in the troika, who are worried that economic growth and the effort to trim the budget deficit will be hampered. As a result, the inspectors have argued this week that there is no scope to ease the €3.1 billion target.

In response, Government officials have argued that any weakness in the outlook for exports underscores the necessity for measures to boost the domestic economy. Tánaiste Eamon Gilmore was expected to make this point during talks yesterday in Washington with David Lipton, first deputy managing director of the IMF.

The tensions with the troika may have implications for the Government’s plan to make early use of savings from the deal to scrap the Anglo Irish Bank promissory note scheme to return money to the economy.

While the Government’s agreements with the troika suggest it should follow a €3.1 billion retrenchment in 2014 with €2 billion in 2015, promissory note savings could reduce the total by €1 billion over two years.

The Government wants to use some of the money upfront, but the troika wants it to be held in reserve. The ECB is said to be in the vanguard of the troika institutions urging extreme caution in the budget, with the commission and the IMF perceived to be less trenchant.