Advice to cut €1.9bn 'not binding'

Taoiseach Enda Kenny has indicated the Government may not follow the advice of the Fiscal Advisory Council to impose €1.9 billion in cuts between now and 2015, in addition to those already provided for in the Troika bailout programme.

The Irish Fiscal Advisory Council (IFAC) today urged the Government to be more ambitious in tackling the budget deficit over the next three years. The new independent watchdog is tasked with overseeing the management of the public finances.

In his first response to the report by the panel of independent economists established by the Coalition, Mr Kenny said the report was not binding on Government but could reflect on any issues that were appropriate.

The Taoiseach said the Government’s medium-term economic programme had won the support of the Troika, a comment that suggested that neither Mr Kenny nor his ministerial colleagues were minded to contemplate further cuts over and above those already agreed.

December’s Budget will involve a total of €3.5 billion in cuts and new revenue streams. The Taoiseach has told Fine Gael colleagues the three months in the lead-up to the Budget will be the most Coalition’s most difficult period in office.

Mr Kenny also referred to the NTMA’s successful foray into markets this morning as a sign of increased confidence in the present economic strategy.

In the third report since its establishment in the middle of last year, the Fiscal Advisory Council urged the Government to add a further €1.9 billion in adjustments to the planned €8.6 billion over the 2013-15 period.

The council believes the additional cuts and tax increases should be introduced in the last two years of this period rather than in the forthcoming budget.

It believes the €3.5 billion package of measures for next year is appropriate, but that similar-sized adjustments are required in both subsequent years. Currently, the Government plans a savings and new taxes package of €3.1 billion in budget 2014 and €2 billion in budget 2015.

The independent council of five academic economists, which is mandated by legislation to make such recommendations, believes the additional measures will “help to put the debt to GDP ratio on a faster downward trajectory and would provide additional insurance, albeit limited, in the effort to ensure debt sustainability”.

In an implicit criticism of the Government’s ruling out of a range of budgetary options, the council “urges that all adjustment margins be kept under close review, including tax rates, public-sector pay/pensions, and welfare rates”.

This echoes recent hints by the International Monetary Fund about the fire-walling some tax rates and spending areas.

Its latest report highlights the risks to the State's solvency if economic growth does not materialise and warns that while a reduction in bank-related public debt would help the adjustment process it is not a “panacea”.

In its assessment as to whether budgetary plans comply with the rules set out in the Fiscal Compact, which Irish voters accepted in a referendum earlier in the year, the IFAC finds that current plans are “ more than in line” with requirements.

Sinn Féin president Gerry Adams today said the Fiscal Advisory Council should “get lost”.

“It is reckless what they are advocating,” he said, adding that additional cuts would have a huge impact on those already struggling to make ends meet.

Speaking today, the Taoiseach was also asked to outline what he had told Cabinet colleagues about the Croke Park agreement at its weekly meeting yesterday.

Mr Kenny has said the agreement was honoured but has called for its implementation to be quickened and for more savings to be identified in each department ahead of the Budget.

“I want the process to be accelerated so we can have maximum savings and minimise the impact of any cuts. I have asked every Minister and every secretary general to report by next Wednesday with their best estimate of what can be squeezed by next week,” he said.