In spite of tight budgetary situation there are still a number of options for the economy
A group of Fine Gael backbenchers set out their position on taxes and spending in the budget
Money could be invested in projects that would pay dividends for employment in the future.
There are always options at budget time, even when you are part of a financial bailout programme that has policy strings attached. The big question at the moment is how much we should reduce the annual deficit in 2014, and how.
We believe that it is vitally important to continue to reduce the budget deficit from levels which are still unsustainable. We also believe it is important that reduction targets continue to be exceeded as they have been over recent years. However, to cushion the blow in 2014, a slower reduction in the deficit in a bid to invest in a job creating capital spending programme is recommended.
Why do we propose this?
Our annual deficit – the gap between what we earn and what we spend – is too high. This year, government expenditure will amount to €71 billion, while revenues amount to just €59 billion. We have to borrow to bridge that gap and at the moment that gap amounts to €12.5 billion every year. That is akin to borrowing to build a national children’s hospital every fortnight.
We must reduce this figure to a more sustainable level. The higher the deficit, the more exposed we are to international financial events beyond our control. Recent history has taught us that we cannot borrow indefinitely. Moreover, always spending more than you earn, and using new borrowing to pay off past borrowing (as we are doing now), is not a responsible way to run the country.
So, what are our choices?
The medium term fiscal plan requires that we implement tax-raising and spending cuts of €3.1 billion in 2014. However, the original projection was that this would reduce our annual deficit as a percentage of Gross Domestic Product to 5.1 per cent (which would mean we would then be borrowing 5.1 per cent of our annual output each year). A number of important steps taken by the Government over the course of 2012 and 2013 mean that a €3.1 billion correction next year would in fact bring our deficit-to-GDP ratio closer to 4.3 per cent.
Thanks to the efforts of the Government, there is a better than expected outturn and this gives us options.
The first option would be to push on in 2014 with the planned fiscal correction of €3.1 billion and bring the deficit ratio down to 4.3 per cent. This would mean another difficult budget, but the benefit is that it would bring us closer to balancing our national finances, thus making us more in control of our own recovery.
The second option would be to target a deficit of 5.1 per cent, in line with troika targets. This would mean less than €3.1 billion in deficit-cutting and so fewer cuts or fewer tax increases (or both) for 2014. Just how much would be open to discussion. The problem with this option is that the cuts would probably still have to come the following year and thus delay the return of the public finances to stability.