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Budget 2014

Dáil Éireann Debate, Thursday - 3 October 2013

Thursday, 3 October 2013

Questions (6)

Pádraig MacLochlainn

Question:

6. Deputy Pádraig Mac Lochlainn asked the Minister for Finance the budget adjustment necessary this year to reach the troika’s deficit target of 5.1%; and the level of taxes and expenditure cuts this deficit will require. [41519/13]

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Oral answers (21 contributions) (Question to Finance)

The deficit target of 5.1% of GDP to which the Deputy refers is the maximum general government deficit in 2014 that the Government is required to deliver under the excessive deficit procedure in the Stability and Growth Pact. This is part of an agreed consolidation path that Ireland will follow to restore the public finances to sustainability.

The European Commission, the International Monetary Fund, the European Central Bank and most economic commentators have acknowledged that Ireland has met all of its targets to date and that substantial progress has been made in setting the public finances and the economy back on the road to good health. However, while it is right to recognise progress, it should be remembered that, regardless of commitments we have made to our international partners, these deficits represent the annual shortfall between what the State collects in revenue and what it spends. Every year in which there is a deficit, the Government must borrow money, adding to the quantum of outstanding debt. This borrowing attracts additional interest and, in turn, this adds to the national debt. Interest payments divert scarce resources from areas where they are badly needed. It must be evident to everyone that this situation cannot persist in the longer term and that every effort must be made to alleviate this burden on the people. This is the primary reason the Government is taking action to close the deficit, but in a way that seeks to find a balance between the need to tackle the deficit and the need to promote growth in the economy.

Last April in the stability programme update, I set out, on a purely technical basis, that consolidation of €3.1 billion would result in a general government deficit of 4.3% of GDP in 2014. That estimate was based on the latest available data at the time. Since then, we have received more up-to-date information, most recently the quarterly national accounts from the Central Statistics Office and the end-of-September Exchequer returns, which were published yesterday. My officials are analysing these data for incorporation into the budgetary forecasts. This work is well under way and I will not be drawn into speculation on the composition of the budget at this time. However, the Deputy may rest assured that budget 2014 will include the required combination of revenue-raising and expenditure-reduction measures to ensure Ireland continues on the road to repairing its public finances while providing an environment suitable to allow economic recovery to continue. This will be done in such a way that the burden is spread as equitably as possible.

I had not imagined the Minister would divulge the budget’s details today. However, I am concerned about what he said about the 5.1% target and that he would target the high fours, trying to bring the deficit into the 4% area. Where is the sense behind that? He said there was a delicate balance between closing the deficit and achieving economic growth. When the Government came into office, the first projection it had for 2013 was 3% growth, but we have not seen that. The Tánaiste said we should just hit the target and not go beyond it. Is it Noonan’s way instead of Gilmore’s way on the 5.1% target?

It is a fine judgment. The main purpose of this budget is to position us to exit the bailout programme. We are being watched by the international community and the markets. If we just cut it to 5.1% and bring it in as a deficit, there is a risk of drift. These matters are never that precise. As the year goes on one could come out on the wrong side of any storm that blows up. Accordingly, it is prudent to build in a buffer, and that is why I aiming for the high fours, without being more precise than that.

Based on the figures published yesterday, we are on track to reach the 7.5% deficit target for 2013. Built into that figure are the up-front once-off costs of the promissory note. While we will have a deficit of 7.5% on 31 December 2013, on 1 January 2014 it will be about 6.8%, because those costs fall out. As one works one's way down through it, one makes the consolidation. It is prudent to get into the high fours and deliver a balance or primary surplus. That will convince the markets that they can lend money to us at reasonable interest rates. Accordingly, we would be out of the programme.

The buffer the Minister talks about is made up of real cuts affecting real people. It is millions of euro of cuts that will cause hardship and pain, as well as additional taxes. I am disappointed that the Minister is going beyond the troika target of 5.1%. We have been led to believe by the Government that the troika is making us go into the high 4% region. The Tánaiste is correct that we should not go beyond that target, because it is counterproductive. The Government’s projection of a growth rate of 3% for this year has not materialised. We are unlikely to see even a 1% growth rate by the end of the year. The levels of austerity are counterproductive. We should meet our targets but in a way that delivers growth. Going beyond the target is a sure recipe for dampening growth and domestic demand while inflicting pain on the people. We need to pay attention to the citizens, to whom we have a responsibility to deliver, not just the markets.

Some of us believe we should tell the markets to take a hike and not pay the €8 billion in interest on a debt that is mostly not ours. Will he confirm that the figure is €8 billion?

The Minister is hell-bent on going for the 5.1% target, which means either €2.8 billion or €2.9 billion in cuts. Most people do not care about the difference between the two figures because they are going to feel the pain regardless.

When he is framing his budget, will the Minister consider some redistribution of the pain he is planning to inflict by lifting the burden off low- and middle-income families and small and medium-sized enterprises and shifting it to those with wealth and large profits? Will he consider examining the corporate tax rate, wealth taxes or a higher tax rate for those earning over €100,000, measures that up to now he has refused to examine?

The Minister is considering the merits and demerits of changing the 9% VAT rate for the restaurant and hotel industry.

I have answered that question already.

My question might be different. The Minister is conscious of the fact that it has a cost of approximately €360 million. He has probably underestimated the benefits of it. Apart from the fact that the industry was on its knees, it has given much extra work to people, especially those from low-income backgrounds. On the question of where the Minister will get the money, up to €200 million could be picked up from a sugar tax that we still have not introduced here. Given that obesity costs the country more than €1 billion per year and rising, this would involve some joined-up thinking. I do not know how easily this could be done, but online gambling is a rapidly growing industry and I do not see why it should not be taxed.

This is almost like a budget discussion.

It is a pre-budget consultation.

I wish the Minister well in the next week or ten days because we are being told completely different things by senior members of the Government. The Tánaiste has been playing a very high-stakes game in recent months, saying there should not be a cent more than is required to get us to a deficit of 5.1%. The Minister has given a different opinion today. That is all in the nature of ongoing political negotiations but, clearly, there is a division within Government. I hope that issue can be resolved at the Economic Management Council, EMC, in the next few days. In principle it is sensible to have some level of a buffer but it depends on what the cash difference is and exactly the make up of those cuts and tax increases. That remains to be seen.

There are many targets in the programme. There are three relevant targets here: the 5.1% deficit, the consolidation target of 3.1%, and the issue of achieving a primary surplus in 2014. We must be conscious of these three targets. I have told the Members what I am prepared to do. We will try to bring in an equitable budget despite the constraints on us. We have done that, by and large, in the past.

Will the Minister examine sectors he has not examined before?

There is sugar in many food products, for example, wine.

We should tax the bad wine more and the good wine less. The good wine is good for one; the bad wine is very bad for one.

Is Deputy Wallace declaring an interest?

I am definitely declaring an interest. I hold my hands up.

I know how hard it is to reply to a budget when one has just seen the script. One decimal point on this is approximately €160 million, although Members should not tie me to that. The Deputies opposite can start running their numbers.

Is that a decimal point on the deficit?

Yes. If the 5.1% goes down one point that is approximately €160 million to €165 million. That might be a useful piece of information for the Deputies when they are attacking me on budget day.

It might also be useful information for the Tánaiste, Deputy Gilmore.

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