Labour’s proposals for the next budget can be found here.
The numbers are in the back of the document.
UPDATE: Fine Gael’s proposal is here.
The government have released a ten-page document outlining its plans for the level of adjustment in the upcoming budget and also some details on growth projections and adjustments planned for future years. Here‘s the press statement.
The Government has agreed on an adjustment of €6 billion for 2011 and this will reduce the General Government deficit to around 9¼ to 9½% of GDP next year. Taking account of the €15 billion consolidation package, my Department now expects annual average real GDP growth to be 2¾% over the 2011 to 2014 period.
The government have also released a note on the accounting treatment of the promissory notes. The key point:
the terms of the promissory notes will provide that no interest will be chargeable in 2011 and 2012.
I’m guessing these are newly-negotiated terms, though I’m happy to be shown that this is not the case.
In any case, the bottom line is that this €6 billion of adjustment will have slightly more effect on the GGD than the approach I had been recommending. I had been recommending €7 billion but that figure included €1.5 bilion for the promissory note interest, which does not apply now.
There is lots to absorb in this plan but, for now, let me say that I think the govenment have taken the right decision in relation to the size of the planned adjustment. Now we just have to see if they can get it passed.
Here‘s an article I wrote for Business and Finance on the current budgetary situation (complete with a nice picture of Mrs. Merkel). The article emphasises the importance of getting the upcoming budget right rather than worrying too much about the 3% target for 2014.
With consensus on the likely size of a four-year adjustment unlikely to emerge (and perhaps not particularly relevant anyway) the key fiscal policy question for now is what the size of the adjustment is going to be in the upcoming budget.
Yesterday’s Fine Gael Dail questioning on this subject was interesting. Deputy Noonan:
Now that we have agreed that 3% in 2014 is the finish of the race, what is the Minister’s starting point on 7 December? Will he go soft? Will the budget deficit be 11%, 11.5% or 10.5% of GDP? Will he go below 10%? He needs to come up with this figure pretty quickly. I will not press him any harder on this; I am simply speculating. I have no information as to his thinking on this but this is an essential piece of information. Unless we know the starting point we do not know where the Minister is going.
I’m pretty sure that Noonan knows that an adjustment of €7 billion would be required to reach the 10% target but hasn’t yet said that he would support it. His lack of enthusiasm for the €15 billion four-year adjustment figure suggests he wouldn’t be too keen.
However, others in Fine Gael are calling for the 10% to be met. Here’s Simon Coveney
My understanding from the briefing from the Department of Finance is that the key requirement from bond markets to allow Ireland to issue bonds is that we will need to bring our deficit below 10% of GDP next year from our current position. No Government speaker, including the Taoiseach and the Minister for Finance, addressed that issue as to what figure will be necessary in the 2011 budget to bring down the deficit to 10% or less of GDP. That is the guideline figure we have been given to issue bonds and raise money in order that we can keep Ireland functioning and keep our economic and political independence in terms of budgetary decision-making.
And here’s a bit of cat-and-mouse play from Damien English
Deputy Coveney is correct in stating that we must bring the deficit down below 10% of GDP next year, and I ask the Government to give us the figure now. Tell us what it is, whether it be €5.5 billion, €6 billion, €5 billion or €4.5 billion, and let us work to that.
Well, Deputy English, it’s not going to be €4.5 billion!
Labour’s participants in this debate seem to have stayed away from this issue. However, on the Vincent Browne show last night, Pat Rabbitte indicated he wouldn’t support more than €4 billion in adjustments. If this is the party line, then it means that Labour are not supporting reaching the 10% target.
Yesterday’s Dail debate shows that Fine Gael’s approach to the upcoming budget and four-year plan debates appears to be to emphasise the idea that economic growth may be higher in future years so that €15 billion in cuts will not be needed. The ESRI’s high growth scenario gets a lot of play in these discussions.
From Enda Kenny’s speech in the Dail:
There are better possible outcomes. For instance, if the ESRI’s updated high-growth scenario of an average growth of 4.5% were to materialise, a smaller package of fiscal measures would be needed to hit the 3% target by 2014.
That is why Fine Gael believes it is necessary, over the coming weeks, to put a relentless focus on the ways to support growth and jobs as the country attempts to repair its public finances. That is why Fine Gael believes that any fiscal plan has to operate in parallel with a credible growth and jobs plan to turn the present downward vicious cycle into an upward virtuous cycle. We have a different approach from the Government. Fine Gael offers real hope that we can rebuild our economy and restore trust in politics and in Government.
This was backed up by Michael Noonan, who was pretty clear about the political costs to the opposition of agreeing to the €15 billion figure:
When the €15 billion is a forecast and when minor adjustments in the growth rate can make such vast variations, would we not be desperate clowns to tie ourselves in to the Minister’s figure, especially when the Taoiseach could not answer Deputy Gilmore this morning when he asked what was factored into the estimate of growth? …. The key element is the forecast for growth and there is a vast variation between Davy’s forecast, which would take us over €20 billion, and the ESRI high growth forecast, which would bring us down to €9 billion. The Minister is on the mid point so maybe he is right, but we are not buying in. We need more information.
I’m pretty sure that Fine Gael are aware that the previous budget’s growth projections are now considered to be highly aspirational by the European Commission and that any plan that is agreed will have to be on the basis of lower growth figures than contained in the ESRI’s high growth scenario.
You can call this unfair if you want (and some will—no doubt we’ll have comments here about the need to wear shades due to the brightness of our economic future.) However, that’s the way things are going to work and with the EFSF waiting in the wings to bail us out, the government probably doesn’t have a lot of bargaining power to make the case for a more optimistic scenario.
Indeed, I’m sure even the ESRI don’t believe that their high-growth scenario is the appropriate basis for fiscal planning over the next few years. Recall that the Recovery Scenarios document gingerly raised the question as to “whether a more rapid fiscal adjustment than currently planned would have a more beneficial outcome for the economy.” Note also that, on its own, the news about €1.5 billion per year in promissory note interest would take us to €9 billion even on the basis of the government’s December 2009 calculations.
What this emphasises, I’m afraid, is that the current political situation makes a cross-party consensus on multi-year budgeting essentially impossible. Opposition parties do not want to campaign at the next election on the basis of €15 billion in adjustments and who can blame them? However, this will gravely undermine the credibility of any four-year plan introduced by the government and will also worry financial markets.