EU REACTION:THE EUROPEAN Commission gave a guarded welcome to the four-year plan, but said it was only a "starting point" for talks on the EU-IMF bailout.
With the negotiation of the rescue package set to step up following publication of the plan, the key growth assumptions built in to the Government’s proposals face a key test next Monday when the commission releases its winter economic forecast.
“It’s a starting point. It’s a good basis for discussions to build a budget programme in the fiscal chapter,” said a spokesman for economics commissioner Olli Rehn in the context of the bailout talks. “It’s not the end of the process.”
Rating agency Standard Poor’s questioned the Government’s assumption that the gross domestic product will expand by 1.75 per cent next year and 3.25 per cent in 2012. However, the commissioner’s spokesman did not respond directly to the question if the growth projections were too optimistic.
He said the commission would publish its own projection for Ireland when it publishes its winter forecast for all EU states next week.
Some senior figures in the EU executive believe Ireland’s growth prospects for the next couple of years are negligible, but whether the commission agrees will not be known until Monday.
Mr Rehn said in a statement that the four-year plan struck a “good balance” of durable expenditure and revenue measures, and had due regard to the protection of the least well-off.
“A 2011 budget involving a consolidation effort of €6 billion would be appropriate as it would strike a balance between allowing the nascent recovery to strengthen and addressing budgetary challenges in a timely fashion.
“I welcome the continued commitment of the Irish authorities to reducing the deficit to below 3 per cent by 2014. The four-year fiscal plan is an important contribution to the stabilisation of Irish public finances.”
He also welcomed the structural reform commitments in the plan.
“These policies encourage exports and a recovery of domestic demand. Implementation of the reforms will thus contribute to the authorities’ ambitious fiscal adjustment strategy and a return to fiscal sustainability.”
Mr Rehn’s spokesman told reporters the commission was still working to conclude talks on the bailout by the end of the month. The initiative would involve a “severe restructuring” of Ireland’s banks.
While negotiators may push to conclude the bailout deal over the weekend, a source briefed on the talks said it was not clear that the discussion would be wrapped up by then. The discussion on the banks was complex, the source said.
The Government said in the plan that it would not be raising the 12.5 per cent corporate tax rate, but the issue continues to attract negative attention in Germany.
Two members of Angela Merkel’s coalition drew links between emergency aid for Ireland and an increase in corporate tax.
“Ireland cannot remain a tax oasis,” said the state finance minister of Bavaria Georg Fahrenschon, who is a member of the chancellor’s Christian Social Union government partner.
Peter Altmaier, a senior parliamentarian in the chancellor’s Christian Democratic Union party, said taxes were a matter for individual states, but these “should as far as possible avoid dumping measures”.
A group of eight MEPs from across the political spectrum called yesterday for an average European corporate tax rate of 25 per cent, twice the Irish rate.
There was no response to the four-year plan last night from the European Central Bank.