The coalition's been given another stern warning to stick to the planned €2 billion of expenditure cuts and tax hikes in October's budget.
In a blow to the pledge of the Labour leadership contenders' promise of an easier budget, the Irish Fiscal Advisory Council has warned there are too many risks with the economy to change the plan now.
Chairman of the Fiscal Advisory Council, John McHale has been speaking with our Political Correspondent, Páraic Gallagher about what the coalition must do in its first post-Troika budget:The Council says there are three main reasons why the Government should stick to the €2bn adjustment in the budget:
- To reduce the risks surrounding debt sustainability by ensuring our debt to GDP ratio goes on a firm downward path;
- To help to ensure that Ireland exits the Excessive Deficit Procedure as planned in 2015;
- To protect the hard won gains in borrowing for the country.
This €2bn correction will bring the total austerity to €32bn, but John McHale says this should be the end of it, "The adjustment so far has been horrendous and created huge hardship for people so we absolutely understand people would like to see some relief. But we've made huge progress and the most difficult part will be over by 2015, so at this stage it does seem to be better to stick to the €2bn and finish the job" he told Newstalk.
Professor McHale also suggests that the talk about tax cuts at this point is ill-advised. Finance Minister Michael Noonan has said he wants to give something back to workers in income tax over the next two budgets, but Professor McHale says the coalition "needs to ensure damage is not done" as the income may be needed to secure services and ensure further expenditure cuts are not necessary down the road.
The coalition is also being told that its plans for the years 2016-2018 are overly ambitious and it is at this point that they have room to ease up on austerity, possibly by as much as €2bn.
During these years the coalition needs to begin to move the budget from a deficit to balanced. But the Fiscal Advisory Council says that the current plan, as set out by the government, is not required by fiscal rules. "It's not clear that the level of tightness suggested by government is actually required" says Professor McHale.
It also says that a case can be made for a less ambitious stance in reaching the balanced budget, and remain within the rules.
The full report from the I.F.A.C. published today can be viewed here
