Weary citizens deserve not to face full force of another round of cuts and taxes
We have demonstrated sufficient good faith to be allowed to decide for ourselves how to reach the required deficit target
With 419,200 people still on the live register, unemployment remains the single biggest crisis facing the country.
With budget 2014 due to be announced on Tuesday, October 15th, the debate about what the appropriate fiscal adjustment should be in this latest austerity budget is already in full flow.
Kites are now being flown on an almost daily basis about what might be in the budget – especially in the area of social protection – without any regard to the stress and anxiety such leaks can cause to those who fear they will be affected.
Before turning to the scale of the adjustment, I believe the budget needs to be about much more than spending cuts and tax increases. Practical measures need to be implemented to continue to improve our attractiveness as a location for foreign direct investment. Even more important is the need to tackle the issues causing immense difficulties for our SME sector such as crippling local authority rates, Celtic Tiger-scale rents, excessive energy costs and the burden of red tape.
Since July 2008, a mammoth fiscal adjustment of about €28 billion has been implemented. It is little commented upon that three-quarters of the fiscal adjustment achieved so far is as a result of budgets introduced by the late Brian Lenihan as Minister for Finance. In fact, were it not for the decisions Brian initiated between July 2008 and December 2010, our deficit would now be off the Richter scale.
Fianna Fáil is fully committed to bringing our deficit down to not greater than 3 per cent by the end of 2015. Principally due to the restructuring of the promissory notes, there is now some limited scope to moderate the correction of the public finances, perhaps by up to €1 billion over the next two years.
In reality, as a country, we can only say that austerity is truly over when the Minister for Finance is able to stand up on the day and announce a neutral budget where the net total of taxation and expenditure measures is zero.
That scenario is still some time away.
With more than €8 billion in interest being paid this year to service the national debt, the imperative to reduce the general Government deficit remains inescapable. Given that official funding from the troika is now almost fully drawn down, if we were to revoke our commitment to reduce the deficit, I ask the question: how willing would the international markets be to lend money to Ireland at reasonable interest rates? Not very willing at all, I believe. In that scenario, I suspect we would find ourselves in another bailout very quickly.
The memorandum of understanding with the troika does not specify a nominal adjustment for 2014. However, the decision of Ecofin on December 7th, 2010, ratifying the troika programme, requires Ireland, under the excessive deficit procedure, to achieve a deficit not exceeding 5.1 per cent in 2014 and not exceeding 2.9 per cent in 2015.
So October’s budget must ensure that our general Government deficit in 2014 does not exceed 5.1 per cent of GDP. That is the bottom line. Taking that as a given, as far as I am concerned, the troika cannot dictate the scale of the adjustment in October’s budget. I believe Ireland has demonstrated sufficient good faith in getting our public finances on the right track in recent years to be allowed to decide for ourselves how we achieve the required deficit target in 2014.
It is true that we cannot be certain at this stage of the exact quantum of adjustment required to stay within the deficit limits. The stability programme update submitted by Government to the European Commission in April this year tells us that an adjustment of €3.1 billion in the budget will yield a deficit figure of 4.3 per cent in 2014 – well below the limit of 5.1 per cent.
I accept that we have a lot of moving parts – principally some worrying emerging data on economic growth – and that it is not possible to finalise the fiscal adjustment until September. Having said that, at this remove I believe we should be aiming for a deficit a little south of 5 per cent. This will involve an adjustment of less than €3.1 billion. It is too early to say how much less than €3.1 billion.
However, it is likely that an adjustment between €2 billion and €2.5 billion would meet this deficit objective.
In an effort to boost growth, there also needs to be an acceleration of the strategic investment fund. The long-promised investment projects need to come on stream. It is nothing short of a disgrace that two years on from the announcement of this investment fund, the enabling legislation has still not been brought before the Oireachtas. With 419,200 people still on the live register, unemployment remains the single biggest crisis facing the country.
Reducing the adjustment by several hundred million euro might not make an enormous difference to the economy. However, for our austerity-weary citizens it could make all the difference indeed.
Michael McGrath is the Fianna Fáil spokesman on finance and a TD for Cork South Central