IMF warns against using promissory note deal proceeds to ease budget

Latest progress report says maintaining fiscal retrenchment performance essential

Minister for Finance Michael Noonan at Government Buildings on his way to present his budget to the Dáil last year. Photograph: Eric Luke

Minister for Finance Michael Noonan at Government Buildings on his way to present his budget to the Dáil last year. Photograph: Eric Luke


The International Monetary Fund has warned the Government against using the proceeds from the deal to scrap the Anglo Irish Bank promissory note to reduce the planned rate of fiscal retrenchment next year or in 2015.

In their latest progress report yesterday on the bailout, the IMF’s inspectors said the maintenance of Ireland’s strong budget performance was essential.

The Government is obliged under its agreements with its sponsors to cut the deficit by €3.1 billion in 2014 and €2 billion in 2015. However, savings from the promissory note deal could provide scope to reduce the combined total of €5.1 billion by €1 billion in the next two years.

There has been pressure, particularly on the Labour side of Government, to use this to ease the planned retrenchment rate next year. At the same time, Fine Gael Minister for Jobs, Enterprise and Innovation Richard Bruton said in a speech yesterday that tax cuts were necessary to sustain economic recovery.However, Minister for Finance Michael Noonan has been adamant there should be no reduction in the €3.1 billion budget consolidation for next year.

Promissory note
The IMF said in a statement earlier this week that the promissory note savings should be used as a buffer against any economic shock, but it was more explicit still in yesterday’s report. “Staff would not support reductions in the agreed scale of fiscal consolidation effort in 2014-15 on the basis of interest savings from the promissory note transaction,” the IMF said. The report’s release came as the Cabinet opened preliminary talks on the October budget at its weekly meeting yesterday, a debate in which the potential use of the promissory note savings will feature heavily.

The Government spokesman declined to discuss the Cabinet talks in any detail, stating only that the Coalition reaffirmed its commitment to realise the EU-mandated targets of a 5.1 per cent budget deficit in 2014 and a 3 per cent deficit in 2015. At the same time, the latest Department of Finance projections suggest a 4.3 per cent deficit could be achieved next year on the back of a €3.1 billion retrenchment package.

Asked if the confirmation of the 5.1 per cent deficit objective could be read as providing scope for the Cabinet to walk away from the €3.1 billion target, the Government spokesman said: “There is no decision that I’m aware of to resile – to use the mot du jour from any of the targets set out in the programme for government.”

As efforts continue to secure a smooth exit from the bailout, senior Coalition sources see no prospect of any change to the target. Taoiseach Enda Kenny and Mr Noonan yesterday joined Mr Bruton in emphasising the need to avoid any further income tax increases in the budget.

Income tax cuts
Mr Kenny declined to comment on possible income tax cuts, saying the Cabinet had not yet discussed the budget. However, he said there would be “no income tax increases”.

“The budget insofar as Ireland is concerned hasn’t been discussed by Cabinet yet,” Mr Kenny said in Dublin at an event with Japanese prime minister Shinzo Abe.

“Let me say that it’s part of our programme for government that there would not be any increase in income tax. We believe this is fundamental in the context of the creation of jobs and not to put obstacles in the way of jobs being created.”