ANALYSIS:Department of Finance figures show massive cuts are required just to stand still on day-to-day spending PAT McARDLE
BECAUSE OF the hiatus, there was no Pre-Budget Outlook last year. This means that the one preceding yesterday’s was published back in October 2007 when Brian Cowen was minister for finance.
“I think it is fair to say that 2007 represents a turning point for the Irish economy” was one of his comments. Boy was he right, but, unfortunately, he followed on to say that “We’re not heading into a deflationary situation. No one is suggesting we are on our uppers.”
His successor, Brian Lenihan, was keen to emphasise that we are, indeed, on our uppers and have no choice but to stabilise the budget deficit at the alarmingly high level of 12 per cent of GDP this year and next.
This means that €4 billion in "cuts" are a sine qua non. The Minister remained very much on message, adding to the growing realisation that the Government are intent on doing what they say.
There was little new information in yesterday’s set piece. The budget numbers have been debated for months and even the revised Department of Finance economic forecasts had been leaked.
For the record, they envisage contractions of 7.5 per cent this year and, a lesser, 1.5 per cent in 2010.
They are virtually identical to the recent forecasts of the European Commission, a body that is playing an ever-increasing role in our daily lives.
Thereafter, growth edges up to 3.25 per cent in 2011 and 4.5 per cent in 2012 and 2013. No doubt some will say these forecasts are pessimistic.
To me, they appear optimistic; certainly, they are well ahead of the new long-run potential growth of the economy which is probably nearer to 3 per cent, a rate we will eventually return to.
The European Commission gave forecasts out to 2011 only and have pencilled in a lower 2.6 per cent for that year, this moreover, on the basis of unchanged policies, ie no cuts.
We did get one piece of interesting information yesterday. The €750 million cut in capital spending initially proposed in last April’s budget, has been maintained.
The remaining €3.25 billion has been lumped together as current, leaving open the option of including some tax increases.
It will be surprising if there are not some tax measures in the budget, most likely a Carbon Tax but the Minister refused to be drawn on John Gormley’s proposal that this be offset by reductions elsewhere.
The updated 2009 budget figures put the tax shortfall at €2.2 billion, slightly above the €2 billion signalled in early October.
There must still be a good deal of uncertainty over this given that the self-employed tax payments have yet to come in.
There was a surprisingly large offset in the form of €600 million savings on the Central Fund.
Some €475 million of this is debt interest, probably reflecting the narrowing of spread margins since April and the rest is savings on our contribution to the EU budget. Current voted spending is slated to come in €200 million below target in line with recent trends in the monthly exchequer figures. This mainly reflects lower-than-expected Live Register numbers.
Capital spending is unchanged from the budget-day estimate, despite being €475 million behind profile at the end of October. The department believe that this reflects the timing of drawdowns but, human nature being what it is, there is likely to be a saving of a few hundred million here.
We did not learn much from the Pre-Budget Outlook which, was, in any event, a much truncated version of that was unveiled in 2007 as part of the “ongoing budgetary reform process”.
It is interesting to compare the projections for 2010 in the earlier document with those unveiled yesterday. Back then, total current spending was projected at €55 billion. Yesterday, the figure on an unchanged policy basis was €58.1 billion.
Take, say, €3 billion away on budget day and the two figures are line ball, ie massive cuts will have been required just to stand still on day-to-day spending.
The forecast 2010 debt interest bill has risen by €2.6 billion in the meantime reflecting higher borrowing already undertaken.
The picture on the revenue side is even starker. In 2007, tax receipts for 2010 were projected at €56.5 billion. Now, that figure has fallen to €30.8 billion. Little wonder that the Minister is sticking to his guns. These figures leave him no option.