Walking a fine line on budget strategy

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

 Minister for Finance Paschal Donohoe and Minister for Public Expenditure  Michael McGrath: National debt may hit 125 per cent of GNI*.  Photograph: Julien Behal

Minister for Finance Paschal Donohoe and Minister for Public Expenditure Michael McGrath: National debt may hit 125 per cent of GNI*. Photograph: Julien Behal

 

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.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
GO BACK
Error Image
The account details entered are not currently associated with an Irish Times subscription. Please subscribe to sign in to comment.
Comment Sign In

Forgot password?
The Irish Times Logo
Thank you
You should receive instructions for resetting your password. When you have reset your password, you can Sign In.
The Irish Times Logo
Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.
Screen Name Selection

Hello

Please choose a screen name. This name will appear beside any comments you post. Your screen name should follow the standards set out in our community standards.

The Irish Times Logo
Commenting on The Irish Times has changed. To comment you must now be an Irish Times subscriber.
SUBSCRIBE
Forgot Password
Please enter your email address so we can send you a link to reset your password.

Sign In

Your Comments
We reserve the right to remove any content at any time from this Community, including without limitation if it violates the Community Standards. We ask that you report content that you in good faith believe violates the above rules by clicking the Flag link next to the offending comment or by filling out this form. New comments are only accepted for 3 days from the date of publication.