ALL MINISTERS have been ordered to come up with additional cuts in departmental spending following the publication of official figures showing a continuing collapse in tax revenues.
With Government borrowing set to come in at close to twice the limit established under European Union guidelines, Minister for Finance Brian Lenihan said "difficult decisions" would be required to stabilise public finances.
The exchequer deficit has now reached €9.4 billion - three times the size of the deficit this time last year - while the amount of tax collected by the Government is now almost €3.6 billion or 11.2 per cent behind projections made at the start of the year. This leaves the Government with an estimated borrowing requirement of €11.5 billion this year to balance the books. This will take general Government borrowing to around 5.5 per cent of gross domestic product (GDP) - well above the 3 per cent specified in the EU Stability and Growth Pact.
In a further indication of a tough budget on October 14th, Taoiseach Brian Cowen said last night the Government would make the necessary decisions "no matter how unpalatable".
Speaking at a forum of North-South business leaders in Dublin, Mr Cowen said it was a "defining moment in our nation's history".
"We're in extraordinary economic circumstances," he said. "We face stark choices. If we do not make the right ones, it will have catastrophic consequences."
The exchequer figures came as the European Central Bank (ECB) signalled yesterday that euro zone interest rates could soon be cut for the first time in five years.
ECB president Jean-Claude Trichet opened the door for a possible cut in official borrowing costs from 4.25 per cent in November - or earlier if the financial market crisis escalates - by saying that, although euro zone inflation risks had not disappeared, they had fallen.
The Cabinet held a special meeting yesterday to consider the implications of the figures for the budget in less than two weeks. Ministers will meet again over the weekend to try and hammer out a package of cuts to deal with the crisis in the public finances.
Government sources indicated that cuts of up to 7 per cent would be sought in certain areas, well above the 3 per cent general cutback flagged earlier this year. As well as being told to cut current spending by this amount, departments have been askedto slash their budgets for major capital programmes.
Major flagship capital spending programmes like the Metro are now under threat and some high-profile ones will inevitably be postponed or even abandoned.
Mr Lenihan said last night that decisive action was now necessary to help ensure fiscal sustainability in the medium term. "The sharp deterioration in economic growth that we have seen reflects the more challenging international conditions as well as the substantial correction in the property market that we are experiencing."
He also referred to a number of spending pressures such as social welfare - where a gross overrun of €1 billion is now expected as a result of the rapid increase in unemployment.
Opposition parties laid responsibility for the state of the public finances firmly at the door of the Government. "The Irish economy has slammed into a brick wall after four years of Brian Cowen at the wheel, and it is ordinary families that will feel the impact of the crash," said Richard Bruton, Fine Gael finance spokesman, after publication of the exchequer figures.
He accused Fianna Fáil of a dangerously complacent style of government that had seen borrowing this year rise five times more than projected by Mr Cowen on budget day.
Labour's finance spokeswoman Joan Burton said the exchequer returns were calamitous and were the direct result of four years of "Cowenomics". She said: "The common thread running through the banking crisis and the fiscal crisis is how Brian Cowen's property boom built up an unsustainable house of cards, which is now collapsing around all of us. The collapse in tax revenues is unprecedented."
Alan McQuaid, economist at stockbrokers Bloxham, said it seemed like it would be a "hairshirt" budget as the Government tried to stabilise public finances and limit the overrun on the general Government deficit as much as possible.
Rossa White, economist at Davy Research, said the hole in the public finances was deep. "The government must take the brave decision to keep the infrastructure budget largely intact," he said.
