Independent reports that the Government has said there is no need for a tougher
Budget, despite slower growth than previously forecast.
But more than half of the €3.5bn austerity measures in next month’s Budget will
be needed to pay off debt at the failed Anglo Irish Bank, unless there is a
last-minute deal on the so-called promissory notes.
The slower rate of growth means fewer jobs will be created over the next three
years than previously predicted, latest estimates from the Department of Finance
“Perhaps the most significant feature of (this) statement was the focus on
benefits, suggesting that the Government has identified better-targeted social
spending as the most opportune way to implement this year's expenditure cuts,”
said Conall MacCoille, chief economist at Davy stockbrokers.
The Government believes it can meet the troika targets by using extra revenues
generated this year and cutting back on reserves. “It can be done, but it will
be tight,” a spokesman said.
This means the department has succeeded in its desire to maintain the targets –
as recently explained by Secretary General John Moran – but without having to
add extra austerity.
The Government is also depending on inflation being somewhat higher, which will
help achieve the targets.
Higher prices mean that the department now expects the value of next year’s
national output (GDP) to be €168bn, rather than the previous €164bn.
This may help achieve the bailout target of a deficit of 7.5pc of GDP next year,
but the slower growth will hit jobs. The slowdown in major economies is the main
reason the department expects output – mainly exports – to grow by 1.5pc next
year, instead of the original 2.4pc.
Although it sees 18,000 extra jobs by 2015, this will not be enough to match the
growth in the numbers seeking work.
The unemployment rate, now at almost 15pc, will fall only to 13.5pc, instead of
the hoped-for reduction to 11pc in three years' time, with damaging social
"Unemployment of over two years' duration is now at 39pc and over three years'
duration is 23pc. This level of persistence suggests that unemployment is
becoming increasingly structural in nature," the document says.
Next year is the first in which the Government will have to pay interest on the
€30bn borrowed to cover losses at Anglo (now IBRC).
Unless there is a last-minute deal with the European Central Bank, the €1.9bn
payment will represent a "significant additional item".
Without this, next year's deficit would tumble to 6.4pc of GDP, instead of the
tiny one percentage point improvement in the Budget plan.
Things could change again if tax revenues this month fall short of expectations.
November is the month for self-assessed income tax payments.
The department expects €5.7bn – almost 16pc of total tax revenue for the year –
to be collected this month.
The document gives some of the clearest hints yet on the contents of next
month's Budget, when €1bn will be raised in new tax revenues and day-to-day
spending cut by €1.7bn.
"It will be necessary to examine the full range of social transfers," the
document says, including universal payments such as child benefit.
The Government remains committed to leaving income tax rates and bands unchanged
– although most of the increase in revenues so far has come from other income
It is expected to concentrate on reducing tax reliefs – including mortgage
interest relief – and broadening the base for PRSI by applying it to areas like
rental income and dividends.
Independent also reports that Ireland received a significant boost last night
after ratings agency Fitch said the outlook for the national finances has
improved to "stable" from "negative". Earlier, rival agency Moody's also issued
a broadly supportive assessment of Ireland's financial progress.
Fitch left its BBB+ rating for Ireland unchanged but said it has changed its
outlook for the country to a higher "stable" ranking because the risks
surrounding the Irish financial adjustment path have "narrowed and become more
The boost comes as the National Treasury Management Agency (NTMA) is due to
raise €500m on the bond markets later today. Bank of Ireland borrowed €1bn on
the markets without a government guarantee earlier in the week.
"It is encouraging that Fitch acknowledges the continued progress Ireland is
making on the fiscal side and the improved access to capital markets as
reflected in our bond market engagements this year," the NTMA said last night.
Moody's held back from upgrading Ireland's debt ranking in a separate report
published yesterday, but was also positive about how the financial crisis has
A deal on the Anglo promissory notes, or a real pick-up in economic growth,
could help catapult Ireland back into the coveted "investment grade" rating
territory, a Moody's analyst told the Irish Independent.
Moody's kept its 'Ba1' credit rating for the country unchanged yesterday when it
published an annual report on the state finances.
It still regards the rating outlook as negative.
Despite leaving the rating unchanged, the report paints a highly favourable
picture of efforts to restore Ireland's financial health.
It cites high institutional strength, a "relatively predictable policy
framework, commitment to fiscal consolidation and structural reforms", among the
It noted that Ireland is meeting all the targets set under the EU/IMF bailout
The Republic benefits from a business-friendly tax environment and a flexible
workforce that have helped regain lost competitiveness, Moody's said.
While the country is seen to be making progress, there are still significant
risks, according to Dietmar Hornung, who wrote the report.
That includes the problems of the wider euro area, which are a drag on the
On the upside, there is now a potential path back to a higher "investment grade"
rating, he told the Irish Independent.
That could happen if growth resumes at any kind of significant pace; if a deal
is done to cut the €3.1bn-a-year cost of the Anglo promissory notes, or even if
there are no new surprises from the banks, he said.
The path back to "investment grade" will be damaged and Ireland's rating could
fall further if figures for economic growth disappoint again, if there is
evidence of a worsening of the mortgage crisis and if the Government fails to
secure a restructuring of the €30bn bill for Anglo, he said.
Moody's no longer sees any risk of "Greek-style" losses for holders of Irish
However, the agency has not lifted its Irish rating back above so-called junk
status and says the outlook is still negative.
That negative outlook reflects the risk that austerity measures may not be fully
followed through, especially because of the weakness in the Irish economy. It is
also driven by the continuing "debt crisis" in the wider euro area.
The Irish Times reports that
outsourcing of services provided by the Civil Service and State agencies could
begin from the second quarter of next year.
A draft reform plan drawn up in accordance with
the Croke Park agreement also states the Government will consider a business
case for shared services to administering payroll early next year.
The draft plan envisages longer opening hours for
some State services as well as further cuts to the number of court venues and
other office accommodation. It says the first wave of projects that could be
outsourced are to be identified this month and the process could begin by the
second quarter of next year. Further projects would be considered for
outsourcing later next year, and implemented, if warranted, from the third
Printing of summonses
The plan states the Courts Service is examining
the case for outsourcing the printing of summonses. It also says that the
Department of Communications, Energy and Natural Resources is tendering for a
range of services where savings of up to 10 per cent have been targeted.
The draft plan says the Road Safety Authority is
to pilot the introduction of driving tests early in the morning and at weekends
as parts of reforms dealing with staff attendance patterns.
It says the Department of Foreign Affairs is to
pilot the introduction of longer opening hours and a new appointment system in
the Passport Office.
“The Probation Service is to establish systems to
extend the hours of service delivery where there is a need including weekend and
evening working arrangements.”
The draft report also says that following the
review of allowances for staff in the public service, the Department of Public
Expenditure and Reform will look at the pay structure for service officer
grades. There is also to be a review of the allowances paid to staff who act as
private secretaries to ministers.
The plan provides for a scheme next year to allow
the placement of Civil Service staff in private companies and the executives of
private sector firms in Government departments and offices for a 12-month
The draft also says departments, offices and
agencies will continue to pursue organisational reconfiguration. Examples
include the expansion of a programme by the Irish Naturalisation and Immigration
Service at Dublin Airport to have civilians rather than gardaí carry out certain
port of entry duties on a phased basis to the end of 2014.
The draft plan also says departments and agencies
will seek to reduce their office and accommodation requirements. “The Department
of Social Protection will review accommodation with a view to minimising costs
(for example by co-location in towns with more than one office following the
transfer of services from Fás and HSE, new accommodation approaches etc).”
“The Courts Service is considering the future of
a number of standalone district court offices, the programme to rationalise the
number of court venues will continue.”
The document will be considered further by
management and unions in the weeks ahead.
The Irish Times also reports
that Glanbia plc’s plan to set up a joint venture with its co-op has cleared the
first hurdle, with 71 per cent of co-op members voting to take majority
ownership in the new entity – Glanbia Ingredients Ireland.
Their vote also means co-op members have reduced
their share in the plc by 3 per cent, to 51 per cent. Some 77 per cent of
members – or 5,931 farmers – voted on Tuesday. The result was described by
Glanbia chief executive John Moloney as “an historic outcome” that would place
the milk processing assets back under farmers’ control.
“In any walk of life today, even if we judge
recent events in Ireland, to get 71 per cent endorsement of a 77 per cent
turnout for any proposition to an electorate is hugely significant. It’s an
unequivocal, strong, democratic decision.”
The votes were counted by the Irish Co-operative
Organisation Society in Kilkenny yesterday morning.
The result gives the co-op a 60 per cent share in
Glanbia’s dairy ingredients business, which will be known as Glanbia Ingredients
Ireland. This includes cream, cheese, butter for the Kerrygold brand and
ingredients such as whey and lactose. The joint venture will involve the
building of a new €180 million plant at Belview, on the Waterford-Kilkenny
What happens next
The next step in the complex process involves two
more votes to allow the co-op’s share in the plc to go under 50 per cent. It
will fall to 41 per cent if the votes are carried, with the shareholding going
to co-op members and the co-op.
Yesterday’s result needed a 50 per cent majority,
but that threshold increases to 75 per cent in the next two votes.
Mr Moloney said 75 per cent was “a high hurdle”
to cross but was necessary under co-op rules. By agreeing to drop their share in
the plc to 41 per cent, co-op members will get a spin-out of 7 per cent of
shares, worth about €165 million, while the co-op will get shares worth about
Asked if he had expected the run-up to the vote
to be as divisive as it was, Mr Moloney said: “It depends on how you define
divisiveness; we had very good debates at all the meetings.”
There was “a minor level of scaremongering but
apart from that, the debates were very good and when you get a turnout of 77 per
cent it means the people entitled to vote were massively engaged by the process
and voted overwhelmingly in favour of it”.
Glanbia co-op’s chairman Liam Herlihy said the
outcome was “a significant milestone for dairying in Ireland”. IFA president
John Bryan said the strength of the Yes vote reflected the fact that the
proposal was balanced and fair.
The Irish Examiner reports
that Ireland’s seasonally adjusted trade surplus fell by 41%, to €2.9bn, in
September — marking the first time the monthly surplus has been below the €3bn
mark since last December.
The surplus had reached a high of €4.88bn in
Preliminary figures, published yesterday by the CSO, indicate that the value of
Irish exports dipped by nearly €1.8bn — or 19% — to €7.31bn during September.
This compared to a monthly high value of almost €9.1bn in August. Helping to
drive down the trade surplus was a 5% monthly increase in import value to
On a year-on-year basis, September’s export value fell by 6%, while imports grew
8%. The export fall — the first marked decrease since last April — was driven by
a €1bn decline in chemical and pharmaceutical products, as had been anticipated
following unusually strong growth figures in August.
Commentators anticipate a certain level of volatility in trade data over the
coming months as an increasing number of pharmaceutical products lose their
exclusive patents, but expect limited impact on multinational investment and job
The CSO data also showed that while the EU remains Ireland’s main trading
region, the US and China are our main non-EU trade partners, particularly in
terms of imports.
Reaction to the figures was relatively benign — with a near 10.5% increase in
services exports also noted.
Chief economist at NCB Stockbrokers, Philip O’Sullivan, said: "In all, the
year-to-date trade surplus stands at €32.5bn, up 2.2% on the same period in
2011, which represents a solid performance in light of both the well-documented
problems being experienced by a number of Ireland’s key trading partners and
input price pressures on the import side."
Merrion Capital’s Alan McQuaid said that whether the weak September performance
was a one-off remains to be seen, but if it’s not then it’s a serious cause for
concern, significantly denting export growth and impacting negatively on GDP.
"Irish export growth, in 2012, looks set to be weaker than in 2011. We are
currently forecasting a volume rise of 4.5% in goods and services — down from
5.1% in 2011, but pushing back up again to 5% in 2013 and 5.6% in 2014 all
things being equal."
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