Taoiseach Brian Cowen has refused to be drawn on claims the Government is looking at making an adjustment of €7 billion in the forthcoming budget.
Reacting to a claim by Fine Gael finance spokesman Michael Noonan that the Department for Finance is considering cuts of up to €7 billion, Mr Cowen said no final decision on the budget has been made. However, he warned the economy will face “significant adjustments” over the next four years.
Mr Cowen told RTÉ Radio a number of different scenarios were outlined to Fine Gael and Labour spokespeople when they met with departmental officials earlier this week.
“Scenarios were outlined for illustrative purposes,” he said. “One per cent [growth] - certain outcomes arise, two per cent - certain outcomes arise.”
In a statement today, the Department of Finance said it had outlined a number of options for the Government that would entail cuts of up to €7 billion in the budget.
"Given the current working macroeconomic forecast, indicative deficits were set out for consolidation packages of the order of €3 billion, €4.5 billion and €7 billion," the ministry said in a statement, adding: "At no point was any specific target given."
Mr Cowen said the Government said a final decision on the adjustments is contingent on finalising a projected growth figure for next year. “We’re consulting with a whole range of international agencies and obviously the EU as well,” he said. “When we finalise this [growth projection for next year] in the coming days and weeks we will outline the situation in full.”
Warning that a “significantly higher adjustment” will have to be made over the next four years, the Taoiseach said the Cabinet would be meeting over the bank holiday weekend and into next week to discuss the fiscal situation.
“There are a lot of discussions taking place. What we do know is that there will be a significantly higher adjustment to be made between now and 2014”
Last night, the Government and the two main Opposition parties reaffirmed their commitment to meeting the 2014 deadline after a 2¼-hour meeting of the party leaders. In a statement last night, Mr Cowen said the party leaders had also welcomed the proposal that there should be a debate on the economy in the Dáil next week, and said the Department of Finance would remain available to continue its briefing of the Opposition parties and to cost any proposals they put forward.
The Department of Finance said said today the Government will not ask the European Commission to extend the 2014 deadline for getting the country’s budget deficit back under control.
"It is not realistic to extend out the period of adjustment. This would result in a situation in which more and more of our revenue would be used to simply pay interest on our debt. We cannot allow this to happen,” a spokesman said.
The comments come after the country’s leading economic think-tank cast doubt on the wisdom of the proposed four-year-strategy to deal with the hole in the public finances.
In its latest quarterly economic forecast, the Economic and Social Research Institute (ESRI) endorsed the suggestion from the general secretary of the Irish Congress of Trade Unions David Begg that the Government should extend to 2016 the period over which it attempts to reduce the deficit.
The institute said the proposed deadline posed a risk of “overkill”.
Mr Begg said the country had already seen three “brutal budgets” which had failed to build credibility. “How is anybody going to sell this message to the Irish people in those circumstances?” he asked.
Mr Begg said it was clear if the Government continued with the 2014 scenario, the consequences for the country would be very great.
However, the European Commission last night rejected calls for the deadline to be extended. The chief spokesman for EU economics commissioner Olli Rehn said only the European Council could change the 2014 target confirmed recently by the Government. “The Irish Government has confirmed as of the end of September its commitment to achieving the 3 per cent per target in 2014,” he said.
Minister for Finance Brian Lenihan said the Government could get an extension of the 2014 deadline “after a few years”, but only if it showed a credible four-year plan now. Seeking an extension of the deadline beyond 2014 now would be “devoid of any credibility”.
In its quarterly economic forecast published today, the ESRI acknowledges that changing the current timeframe is “highly” unlikely and that the Government has very little room for manoeuvre, but it says moving the time horizon from 2014 to 2016 would be seen as credible by international lenders.
One of the authors of the report, Dr Alan Barrett, told a press briefing yesterday it was "very hard to see the Croke Park deal surviving”.
That deal, agreed between the Government and public sector trade unions, excludes further pay cuts and compulsory redundancies for public sector employees. The ESRI report questions whether either of these commitments can be maintained and says the issue of pay might have to be “re-opened”.
Dr Barrett said the strategy of depending on natural wastage to reduce the number of people employed in the public sector was not efficient as it made no account of productivity.
The institute also states that last year’s report for the Government by economist Colm McCarthy, known as “An Bord Snip Nua”, may have to be re-examined to consider more fundamental cuts to public sector spending and employee numbers.
The ESRI has become more pessimistic in its analysis over the past three months, stating “a range of severe difficulties still face the economy and, in the case of at least one, Ireland’s capacity to borrow on international markets, difficulties have become more acute”. Reflecting this, it has cut its economic growth forecasts for both this year and next.
In 2010, it expects gross domestic product (GDP) to contract by 0.25 per cent. Three months ago, it expected the economy to expand by that amount. For 2011, it expects the economy to grow 2.25 per cent, the first annual expansion since 2007. However, this forecast has been revised down by half a percentage point since July.