Irish Economy
Irish Budget 2015: Fiscal Council says €2bn adjustment should apply - it will be ignored
By Michael Hennigan, Finfacts founder and editor
Jun 17, 2014 - 9:20 AM

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Irish Budget 2015: The Fiscal Advisory Council in its latest assessment of the Irish economy says that in the Budget that will be announced next October, the existing planned €2bn deficit adjustment should be implemented. However, the pre-Budget ritual has begun and in the short-term at least Michael Noonan, finance minister, will ignore the council's advice this year as he did last year when the official adjustment had been originally set at €3.1bn.

The deficit target for next year is 3% of gross domestic product or below.

The council says [pdf] there are three main reasons to stick to the plan that has been agreed by the bailout troika: (i) to reduce risks surrounding debt sustainability by putting the debt-to-GDP ratio on a firm downward path; (ii) to help to ensure that Ireland successfully exits the Excessive Deficit Procedure in 2015; and (iii) to protect hard-won gains in borrowing capacity.

There are three main reasons for Minister Noonan to ignore the recommendation: (i) the pasting the governing parties got in the May elections and the Labour Party facing the grim reaper will insist on some relief on taxes and spending even at a cost of Fine Gael having to raise taxes on its core tax base (excluding farmers of course); (ii) taxes have risen by 2.9% in the year to May and the increase in jobs and construction activity is likely to maintain that trend; (iii) Noonan has spoken about adjusting tax bands so often, he would look stupid now if he abandoned that promise.

Note how ministers have dropped mention of jobs from their official talking points following a fall in the 12-month net job creation level by 19,000 in Q1 2014.

The CSO messed up the incorporation of Census 2011 data in its employment estimates: the updated non-Irish national working age population for Q2 2011 was 103,100 (27.6%) higher than the previously published estimate -- 476,900 v 373,800 - -  and the number at work was revised up by 48,300 in Q2 2012.

So ministers may well fear that the 12-month jobs total may fall again when the next household survey will be published in August.

The existing data are not reliable.

Finfacts 2014: Irish Economy May 2014: Number of employees remains below bailout quarter of 2010

The jump in self employment does not reflect a surge in entrepreneurial activity.

The Irish Times reports today that Michael Noonan will continue to press the case for direct recapitalisation of Bank of Ireland and AIB when Eurozone finance ministers meet later this week in Luxembourg, despite receding political support.

What is bizarre about the claimed agreement in June 2012 that the sovereign debt related to support of Irish banks would be mutualised by the Eurozone, neither Enda Kenny, taoiseach, nor Michael Noonan have named any EU leader who had made such a promise - and Angela Merkel, German chancellor, was the only leader there who could have credibly made such a committment.

Irish Budget 2015 Page


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