Walking a fine line on budget strategy

Cantillon: Warning Ireland must keep deficit and debt levels similar to other EU countries

Whether this is the public servants warning Ministers, or Minister for Finance Paschal Donohoe and Minister for Public Expenditure and Reform Michael McGrath who will have to present the budget cautioning their colleagues, is an interesting question. But the message is clear – the amount of money available is limited.

The Irish level of borrowing and debt looks high when it is compared to gross national income *, the measure developed by the Central Statistics Office to factor out the distorting impact of multinational accounting, which messes up the traditional gross domestic product data.

National debt

If the deficit reaches €30 billion this year, as has been predicted, this will be equivalent to 17 per cent of GNI*, John McCarthy warns, and some of the increase is “structural” – in other words it won’t disappear as growth picks up.

National debt, meanwhile, could head to 125 per cent of GNI*, “among the highest in the developed world”.


McCarthy notes that while Ireland can borrow cheaply now, we have seen before how quickly sentiment can change – and also remain exposed if corporation tax receipts take a dive. In addition, current exceptional European Central Bank support for the markets is due to end next June, though it could be extended.

‘In the pack’

All in all, it is a clear warning shot. The departmental view, repeated by McCarthy, is that Ireland must remain “in the pack” – in other words with deficit and debt levels similar to other EU countries and thus not attracting the attention of the markets. The presentation is clearly designed to show that, using GNI*, Ireland’s debt and deficit is already moving out of line.

Analysts now believe that borrowing may, in fact, come in lower this year, given the buoyancy in tax revenues. But one way or another, as McCarthy concludes , budgetary policy must “walk a fine line” between supporting the economy and fiscal sustainability.