Cabinet meets to discuss Budget proposals

 

A six-hour meeting of the Cabinet today was the first of a series taking place in the run-up to a Budget on October 14th that is expected to be the toughest since Ray McSharry was finance minister two decades ago.

Today's meeting of the coalition ministers began at 10am and finished shortly before 4pm.

The discussion centred on extra spending cuts over and above those that have already been broadly agreed.

A number of Government sources confirmed that agreement had already been reached that spending next year would be 2.5 per cent above this year's levels. When inflation is factored in, that will amount to a net reduction
of 1.5 per cent to 2 per cent.

However, today's discussions centred on additional cuts that would compensate for a substantial decrease in tax revenue this year. The eventual shortfall in projected income is expected to be between €6 billion and €7
billion. That will amount to over twice the deficit of €3 billion estimated by Finance Minister Brian Lenihan only two months ago, which in itself was a dramatic revision of the budgetary projection for 2008.

Several sources also confirmed that that the Government will breach the 3 per cent of GDP guidelines for borrowing laid down by the Maastrich Treaty. A borrowing requirement of circa 5.5 per cent of GDP will be required but one source pointed out that that will be substantially higher if the extra cut-backs being discussed today are not implemented.

A practice has grown up during this Government's term of office that a Sunday Cabinet meeting is held some weeks before the budget to discuss the general outlook and the priorities of the budget itself.

The fact that today's meeting is the first in a series specifically discussing the details of the budget gives a strong indication of the severity of the downturn. Figures released by the CSO earlier this week showed negative growth for the second quarter in a row, an official confirmation that the economy is in recession.

Speaking in the Dáil last week, Minister for Finance Brian Lenihan called for a public service redundancy programme as part of the strategy to deal with the economic downturn.

Yesterday, HSE chief executive Prof Brendan Drumm said up to 1,000 backroom jobs will be slashed across the health service over the next 12 months.

Prof Drumm told RTÉ that the redundancies will not hit current front-line services.

Public sector unions have already voiced opposition to any such move. Siptu and Impact have questioned the cost and efficacy of a redundancy package, while the CPSU said it would need to see the details of what was being proposed.

It was confirmed last week that Ireland's economy is officially in recession for the first time in 25 years after data from the Central Statistics Office revealed the economy contracted by 0.8 per cent in the second quarter of this year, compared with a year earlier.

GDP fell by 1.5 per cent in the first three months of this year compared to the first quarter of 2007. If an economy shrinks for two quarters, it is considered to be in recession.

The Government announced last month that it was bringing forward the 2009 budget by almost two months to deal with the crisis in the public finances and the decline in consumer confidence.