Howlin rejects commission call for €2bn in budget cuts

A call by the European Commission to implement €2 billion in budgetary cuts would hinder rather than assist growth, according to Minister for Public Expenditure and Reform Brendan Howlin.

Speaking on his way into this morning's Cabinet meeting, Mr Howlin firmly rejected fresh pressure from the commission, which echoed the views of both the IMF and the Irish Fiscal Advisory Council.

"We are determined, both Michael Noonan and I, that we will comfortably reach our three per cent deficit target next year," he said.

The means of reaching that target had changed thanks to an upturn in the economy, he said.

“We believe that we do not need to make adjustments of a further €2 billion. In fact we believe it would hinder as opposed to assist growth into the future,” he said.

Fergal O’Brien, Ibec Head of Policy and Chief Economist, agreed that further austerity in this year’s budget was unnecessary.

“What we do with public finances has to reflect the economy at the moment”, said Mr O’Brien. “If the Government wants to implement the Commission recommendation of €2 billion that would delay the return to work of 10,000 people next year.”

He said Ibec was expecting growth “well north of 5 per cent” this year, adding that tax revenue could also grow by €3 billion next year “without doing anything on budget day”.

“The priority is to help put more people back to work as quickly as possible,” Mr O’Brien said. “We don’t need to austerity now, we cannot afford to go down that road.”

The Irish Times reported this morning that the European Commission is putting renewed pressure on the Government to implement a full €2 billion in cuts and extra taxes in the coming budget, echoing the views of both the IMF and the Irish Fiscal Advisory Council.

The commission fears the strong exchequer figures in the second quarter may not be sustainable for the remainder of the year and has concerns about the “volatility” of Irish quarterly GDP estimates.

As with all euro zone member states, the Department of Finance must submit its budgetary plan to the European Commission before October 15th, with the EU’s executive arm reserving the right to demand changes.

Discussions are ongoing between officials in the commission in Brussels and the Department of Finance in Dublin on the budget, which will be unveiled in two weeks’ time.

Big cuts not needed

Minister for Finance Michael Noonan has said that cuts of €2 billion will not be required to bring the budget deficit to 3 per cent by next year, as mandated by the EU.

The European Commission, however, is pushing for Dublin to press ahead with a €2 billion fiscal retrenchment.