Troika adds to pressure over fiscal targets

The Government is under increasing pressure from the bailout troika over its fiscal targets as updated forecasts from the European Commission suggest it is likely to miss its end-year deficit target.

The news comes as Fine Gael and Labour push this week for a final settlement on the scale of cutbacks and tax measures to be adopted in this month's budget.

In a draft report circulated last night to members of the Oireachtas Finance Committee, the commission projected an end-year deficit of 7.6 per cent of economic output, “just slightly above” the programme ceiling of 7.5 per cent of GDP.

“This reflects mostly the effect of lower economic growth and related downward reassessment of tax revenue,” the report stated. The commission said the figures underlined the case for “careful budget execution”.

“Other deficit-increasing risks bear close monitoring, including potential overruns in the health budget in the second half of 2013 due to delayed implementation of certain budgetary measures.”

The commission implicitly urged the Government not to dilute the recommended €3.1 billion “adjustment” target next year.

Referring to the €3.1 billion, the commission said “the recommended structural consolidation should be maintained”.

By saying “interest savings should be used to accelerate debt reduction”, the commission made the case to avoid using savings from the deal to scrap the Anglo Irish Bank promissory notes to ease the retrenchment rate.

Circulation of the commission's report, summing up the troika's quarterly visit to Dublin in July, comes amid increasing expectations that the Government will settle on a target below €3 billion for Budget 2014.

Tax returns
While the Cabinet meets today, the final set of September tax returns will not be available until tomorrow. Such figures are crucial as any shortfall in tax receipts could upset the calculations underpinning preparations for the budget.

The commission said in its report that the decline in Irish bond yields since the 2011 peak was remarkable, but warned of “challenges and risks” on the road to full recovery as the bailout draws to a close in December.