NEXT YEAR'S budget for capital spending has been cut by €300 million, effectively halting further purchases of land and property to accommodate the Government's decentralisation programme, The Irish Timeshas learned.
A further €609 million is to be saved through efficiency measures, including a reduction of €135 million on expenditure on external consultancy, advertising, public relations and procurement during 2009.
The cuts form part of savings of €1 billion for 2009 agreed by the Government last Tuesday.
Some €100 million is to be saved by deferring capital allocations to the Gateways Innovation Fund Programme covering the nine gateways in the spatial strategy.
The requirement for all Government departments, State agencies and local authorities to reduce their payroll bills by 3 per cent for non-frontline personnel by the end of 2009 will yield expected savings of €250 million next year. Greater efficiency in State agencies, including the HSE, is targeted to generate a further €177 million in savings. Reductions in the Fás apprenticeship programme and additional control measures on social welfare fraud are expected to contribute most of the remaining €81 million to the total expenditure savings of €1 billion next year.
Details of the cuts emerged amid warnings yesterday from the Central Bank that economic growth is likely to be significantly less than 1 per cent this year. Publishing the Central Bank's annual report in Dublin, its governor John Hurley said 2009 was set to see a modest improvement to a growth rate of some 2 per cent.
Despite the weakening economy and steeply falling share prices, the governor gave the Irish banks a clean bill of health. Mr Hurley said that the Irish banks were "well-capitalised with good asset quality".
The Central Bank had stress-tested the ability of the banks to weather a serious economic downturn, and the preliminary results suggested that "the banking sector's shock absorption capacity remains strong", the governor said.
In a further indicator yesterday of difficult times ahead, the ESB said it would make a €300 million contribution to help offset pending electricity price rises. Industry sources estimate that rocketing oil and gas costs will drive electricity prices up by as much as 30 per cent.
The annual rate of consumer price inflation accelerated to 5.0 per cent in June from 4.7 per cent in May, according to the Consumer Price Index released yesterday by the Central Statistics Office.
With the Economic and Social Research Institute (ESRI) forecasting wage growth at just 4.0 per cent this year, price increases are outpacing pay rises by an increasing margin. As a result, the prospects of securing a moderate pay settlement in the current negotiations on a new national pay deal are waning.
At the same time, rising inflation will make it more difficult for the Government to achieve its new objective of reducing the pay bills in Government departments, State agencies and local authorities by 3 per cent for non-frontline staff by the end of 2009.
In the Dáil, the Government won a motion on its economic policies, by 79 votes to 62, at the conclusion of a two-day debate on its €440 million cost-cutting package for this year.
Minister for Finance Brian Lenihan told the House that the economy would return to a growth rate of 4 per cent per annum once the "cyclical effect of the housing adjustment washes through".