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Fiscal council finds 'wiggle room' on Budget targets - but wants full cuts

The Fiscal Advisory Council recommends sticking to plans for another €5.1bn in cuts over two years – even though we’re on course to be well ahead of the EU’s deficit targets.

Diarmaid Smyth and John McHale of the IFAC launching today's report.
Diarmaid Smyth and John McHale of the IFAC launching today's report.
Image: Sam Boal/Photocall Ireland

THE GOVERNMENT’S BUDGET advisory group says Ireland is on course to bring its budget deficit significantly below the European Union’s limits by 2015 – but has nonetheless recommended that the government stick to its plans for the next two Budgets.

The Irish Fiscal Advisory Council says better-than-expected economic data for the end of 2012 means Ireland’s budget deficit could fall to 2.0 per cent of GDP in 2015 – well below the 3.0 per cent limit imposed by the EU.

This would give the government some space to relax some of the Budget adjustments planned for the next two Budgets, amounting to a total of €5.1 billion – but the council still recommends that the full adjustments be planned.

This is because of “significant uncertainties” surrounding its projections for the coming two years, which could be threatened by a collapse in domestic demand, which has shown tentative signs of recovery, or a fall in exports if other European economies begin to falter.

The council’s quarterly fiscal assessment, published today, also says there are “expenditure pressures” in the Health and Social Protection parts of the Budget, which “raised concerns about the implementation of planned adjustment measures”.

“However, improved monitoring in Health and a successful implementation of the Croke Park Extension Agreement should help underpin expenditure savings.”

The council believes the final figures for 2012 will show that the deficit came in at “significantly below 8 per cent” of GDP in 2012 – below the projection of 8.2 per cent given on Budget day, and the 8.6 per cent target laid down by Brussels.

“This should have some beneficial carryover effects for future years,” it explains, adding that the promissory note arrangements would cut the 2015 deficit by 0.6 per cent of GDP.

The Fiscal Council was set up in 2011 as part of a reform of government budgeting and spending, and aims to offer expert and independent advice on the government’s budgetary policy.

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