Welfare and health cuts to be last battle in budget talks

The Coalition is bracing itself for a battle over health and welfare cutbacks as talks on Budget 2014 move into their final phase.

A positive set of tax returns for September has put the Government in position to retrench by less than €3.1 billion.

Well-placed Government sources say the main question to be resolved is the extent to which the reduction goes to ease the brunt of cuts to the welfare and health budgets.

Minister for Health James Reilly and Minister for Social Protection Joan Burton are each under acute pressure to extract big savings next year.

However, Dr Reilly's difficulties are compounded by a spending overrun in the Health Service Executive of up to €200 million this year.

This prompted a public rebuke last night from the Department of Public Expenditure, which took issue with the failure of health managers to realise savings from the Croke Park and Haddington Road deals. “The pace of reform is set by management, not by unions,” the department said.

For her part, Ms Burton is resisting the demand for €440 million in savings from the welfare budget.

Solidarity with Labour
Certain Fine Gael Ministers are anxious to show solidarity with their Labour colleagues after this week's Irish Times/Ipsos MRBI opinion poll showed support for the junior Coalition partner has dropped to 6 per cent, its lowest level since 1987.

However, it is recognised in Fine Gael that Dr Reilly is deputy leader of the party and should be given some leeway in the budget talks.

The Government’s task is made a little easier by the September tax returns, which indicate it will hit its budget deficit target of 7.5 per cent of gross domestic product this year.

Minister for Finance Michael Noonan told reporters at the Department of Finance: "The significance for the budget and for 2014 is that we'll be starting the next race from the starting line and not five yards behind it, which is always the problem if you don't meet your target in the preceding year."

Mr Noonan said the Government believed it would be able to realise next year’s deficit target – which is 5.1 per cent of GDP – for “somewhat less” than the €3.1 billion sought by the EU-IMF troika.

The Minister declined to quantify the amount by which the €3.l billion would be cut.

He made it clear, however, that the Government would be targeting a primary budget surplus next year, which occurs when tax income exceeds the cost of running the State when the cost of servicing the national debt is excluded.

'Something for everyone'
In Government circles, the political calculation is that this approach offers "something for everyone".

The anticipated gain for Labour is that it would demonstrate a result from its campaign to ease the retrenchment rate. Fine Gael is expected to play up the notion of people being given “hope” that a long line of painful budgets may be coming to an end.

Although the troika has taken a firm line against any reduction from the €3.1 billion, the Government believes the achievement of a primary surplus would find favour with the international lenders.

A further benefit is that this would necessitate the achievement of budget deficit of some 4.8 per cent of GDP, well below the troika’s 5.1 per cent target for next year.

Still, the Central Bank warned yesterday against any deviation from the €3.1 billion. It said in its quarterly bulletin that there was no point in putting hard-won gains at risk for the sake of "a relatively small short-term fiscal easing".