The decision to have a softer-than-expected budget means a greater risk that a crucial EU deficit target will not be met by 2015, the Irish Fiscal Advisory Council has warned. The Council also said it would have supported an application for a precautionary credit line.
Under EU rules, the Government must reduce the budget deficit – the gap between how much the State spends and how much it takes in through taxes and revenue – to below 3 per cent of the value of the economy by 2015. It is expected to come in at 7.3 per cent this year.
John McHale, Fiscal Advisory chair, said more austerity may be needed beyond 2015 if growth stagnates. "If growth turns out to be lower than projected, if this balance sheet recession turns out to be more persistent than we currently fear, people will be familiar with the term of a lost decade in Japan, you can have long periods of very disappointing growth following financial crises", Mr McHale said. "The signs are that Ireland is pulling out of it, but you can't discount the possibility that this will be more prolonged than is currently thought. But based on the best guesses for the moment, the difficult phase should be over after 2015."
The council, which must endorse the economic projections on which the Finance Department bases the budget, said there was some public confusion about the size of the adjustment in Budget 2014. It said future budget statements should identify clearly the impacts of the measures.
Precautionary Credit Line
The Council said that given a fragile international financial environment, it would have supported an application for a precautionary credit line as part of a broader self-protection strategy. Provided this had come with reasonable terms and conditions, such a facility would have provided valuable additional protection against any renewed funding pressures as Ireland exits the EU/IMF assistance programme, the report added.
Assessment summary
Fiscal Stance
Fiscal Assessment Report
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© Irish Fiscal Advisory Council
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