The Stability Pact Update, published by the Department of Finance on Tuesday, essentially amounts to the opening salvo in the budgetary war.
Under the new post-crash rules, all EU member states must now submit detailed budgetary projections to the European Commission in April each year.
The department’s 48-page draft document contains its fiscal forecasts for the coming year, and of course, a remainder of the planned €2 billion adjustment that still lies ahead.
Underpinning this proposed level of adjustment is a GDP forecast of 2.7 per cent for the economy in 2015.
The finance ministry did, however, state the “actual consolidation effort” required to meet the agreed deficit objective for next year would be based on “the most up-to-date economic and fiscal data on budget day.”
So the question is, what level of growth would we need to see this adjustment reduced, and significantly reduced?
According to the bean counters in the department, a 1 per cent increase in the GDP forecast for 2015 would reduce the proposed adjustment by about €750-€850 million.
So essentially, if the department and Minister for Finance Michael Noonan abide by the logic of these numbers, the economy will need to grow by 4.7 per cent next year to cancel out the proposed adjustment of €2 billion. Included in this calculation is the €500 million from the introduction of water charges.
Even the Economic and Social Research Institute’s most optimistic growth forecast for 2015 falls well short of 4.7 per cent.
The argument also raises the question of what happens if changes in the global economy prompt a downward revision in next year’s GDP forecast.
Will we then be asked to increase the planned level of adjustment?
The ESRI, however, takes a differing view from the European Commission on what constitutes a structural deficit.
And, on that basis, it believes the Government can hit the 3 per cent target without any further consolidation. It’s not clear where Mr Noonan stands on all these issues.
On Tuesday, he again held out the prospect of doing “something” for hard-pressed middle-income earners, possibly widening the bands to take more people out of the higher tax bracket.
On the evidence of its forecasts, however, the finance ministry believes he has little room for manoeuvre.
That said, the Department of Finance does not draw up the budget, the Cabinet does, and there are six months of negotiating and forecasting still to be had before Noonan delivers the final adjustment figure.