BACKGROUND: THE OBSERVATIONS of key EU officials will have a big bearing on the Government's financial plan but the four-year proposal will not be the subject of a formal approval process in Brussels.
However, political backing for the measures from EU economics commissioner Olli Rehn, European Central Bank chief Jean-Claude Trichet and EU finance ministers will be crucial if the plan is to achieve its objective of restoring international confidence in Ireland.
Although the initiative falls outside the reach of EU procedures for the oversight of national budgets, Irish officials are in frequent contact with their counterparts in the European Commission. “We are not negotiating. It’s up to the Irish authorities to set out their plan but we are in close contact with them,” said a commission spokesman.
A Brussels source described this process as a methodical one, with the quality of Dublin’s “homework” under constant assessment as the Government prepares a timetable of specific measures to be introduced in 2011, 2012, 2013 and 2014.
Given austerity measures already taken since mid-2008, it is widely acknowledged in Brussels that the new plan presents a significant test for the Government.
The scope of the savings and tax increases proposed for each of the years to 2014 remains a secret, although European officials are known to have pushed for a front-loading of as many measures as possible.
For 2011 and 2012, for example, it appears to be widely accepted by now that the total package will be significantly in excess of measures totalling €3 billion that are already foreseen in each of those years.
Every single taxation and cost-cutting proposal from Dublin is being assessed line-by-line in Brussels as officials seek to reinforce the proposal.
In addition, the assumptions underpinning the revenues foreseen from tax increases and the savings foreseen from cutbacks are being tested in line with annual forecasts for economic growth and inflation.
The projected yield from each specific taxation measure in the proposal is being examined from the perspective of whether it is realistic. If VAT, excise duties or income tax were to rise, for example, the yield from each individual increase each year would be assessed.
In cases of doubt on taxation measures, said the source, officials in Dublin are being asked to provide additional information or fresh calculations or to qualify the proposal.
Remarks on the talks last week by the commission’s top civil servant, Catherine Day, are seen accurately to reflect the tenor of the engagement.
While she told reporters the EU executive cannot force any policy change, she indicated that the process involved robust questioning of the Government’s policy stance.
“So if Ireland decides it wants to keep a low corporation tax, it has to deal with the deficit in some other way and we will be saying: ‘Okay, that’s your choice. If you don’t deal with it that way, how are you going to do it?’ ” she said.
Similarly, cost-cutting and reform proposals are being examined from the perspective
of whether there are grey areas and whether the measures in question are subject to any uncertainties.
This would be the case in respect of any proposals as regards public sector pay and conditions or any proposals on the size of the public sector.
The plan is likely to form the basis of the Government’s “stability programme update” to Brussels, an annual review of its medium-term fiscal position which is typically submitted on budget day.
As such it will ultimately come before a formal review by EU finance ministers when they scrutinise each state’s budgetary position next spring. By then, however, the judgment of senior European officials and the markets will already be clear.