A draconian budget is in store following a Government decision to frontload a significant element of its planned €15 billion four-year adjustment into next year.
Minister for Finance Brian Lenihan confirmed last night that the first instalment of the four-year plan would have to be the biggest.
“The Government accepts that there must be significant frontloading in relation to this figure in the budget this year . . . that first instalment will have to frontload a sizeable part of that adjustment.”
Mr Lenihan also confirmed to political correspondents that EU commissioner for economic and monetary affairs Olli Rehn would brief Opposition parties and the social partners about the commission’s assessment of Ireland’s budgetary options during a visit to this country the week after next.
The Minister refused to accept the argument from the Irish Congress of Trade Unions (Ictu) that a longer time-frame was needed for the adjustment. “The core issue here is there’s a fiscal gap of €19 billion between what the State receives and what the State spends.”
He said the gap could not remain on an indefinite basis. “And this is the argument to be made to the Ictu point, the State already is seeing an impact on its borrowing costs because that gap is so wide.”
Mr Lenihan expressed unease at the rate of progress in implementing the Croke Park agreement and said that he had raised the issue with the relevant departments.
“I do think that the ambition of the Croke Park agreement will have to be broadened and deepened in relation to the savings that can be secured by it, but in relation to the pay provision, the Government has no plans there.”
In a statement issued after a six-hour Cabinet meeting yesterday, the Government said it had decided that an overall adjustment of €15 billion over the next four years was warranted to achieve the target deficit of 3 per cent of gross domestic product (GDP) by 2014.
“The key reasons for the significant increase from the figure announced in budget 2010 are lower growth prospects both at home and abroad, and higher debt interest costs,” said the statement.
“The Government realises that the expenditure adjustments and revenue-raising measures that must now be introduced will have an impact on the living standards of citizens, but it is neither credible nor realistic to delay these measures.”
The Government statement added that any further delay would further undermine confidence in the country’s ability to meet its obligations and responsibilities and would delay a return to sustainable growth and full employment in the economy.
“Our obligations are clear. We must demonstrate that we are bringing sustainability to our public finances. We must stabilise our debt to GDP ratio over the period of the plan and we must set out our strategy for returning our economy to growth.”
Yesterday’s long Cabinet meeting followed a three-hour meeting on Monday night, and Ministers will meet again at 8pm this evening for further discussions on the budget in advance of a two-day Dáil debate on the country’s economic position.
Fine Gael finance spokesman Michael Noonan said it was significant that Mr Lenihan announced the four-year adjustment figure after a trip to Brussels and consultation with Mr Rehn.
“We have a Government that was elected, they have to carry the responsibility,” Mr Noonan said. “Europe is a mirror which reflects the reality of the outside world and what the people who lend us money are expecting.”
Mr Noonan said Mr Lenihan had “deferred conversation” about the extent of the first-year correction.
Labour Party finance spokeswoman Joan Burton said Mr Rehn’s visit was part of a new policy by the European Commission.
“Obviously as we’re now only about six weeks out to budget day, Commissioner Rehn has decided to visit Dublin. It’s obviously part of the policy of the commission to now take a closer interest in how member states prepare their budgetary plans and that’s what the commissioner, as I understand it, is proposing to do,” she said.
Sinn Féin finance spokesman Arthur Morgan said his party had decided to bring forward the publication of its pre-budget submission to next week.
Departmental officials had provided a number of options available to the Government in relation to the upcoming budget, “and I must say it was a two-way street because we shared with them quite strongly what the Sinn Féin options are, which avoid a deflationary economic consequence”, Mr Morgan said.