The basis for the debates about fiscal policy in the election has been the Four Year Plan agreed with the EU and the IMF. This plan outlined measures that cumulated to have a €15 billion effect on the level of the deficit by 2014.
It is widely believed that the timing of the adjustment in this plan involved €6 billion in adjustment in 2011 and €9 billion in further adjustments over 2012-2014. In fact, this is not the case. The widely-cited €6 billion figure in relation to the current year’s budget includes €700 million in temporary measures due to once-off asset sales.
Thus, looking at page 19 of the Four Year Plan, we see that the adjustments planned for future years are €3.6 billion in 2012 and €3.1 billion in 2013 and 2014. This adds up to €9.8 billion. (I’m guessing there is some rounding going on here so that additional adjustments over €9 billion don’t appear to add up to the €700 million in once-off measures for 2011.)
Coming back to the election campaign, Fine Gael say their figures are from the Department of Finance, so they are presumably using the Four Year Plan figures. And they are aiming for the same 2.8% deficit that Fianna Fail are. This means that will also need to make €9.8 billion in adjustments. However, going to the back of Fine Gael’s budget document, one finds €6.444 in spending adjustments and €2.441 billion in tax measures, for a combined €8.9 billion.
So, on the face of it, Fine Gael’s proposed adjustment is about €900 million too low to achieve their targeted budget deficit, even if one accepts the Department of Finance growth rates. If this figure is added to FG’s tax measures, you would get €3.3 billion in additional taxes over 2012-2014, just €300 million lower than in the Four Year Plan. (I’d also note that €750 million of FG’s spending savings are actually due to transferring water provision to private firms that will collect these funds in water charges—these are spending savings that will feel like tax increases.)
During the campaign, Brian Lenihan has raised the issue of FG treating the current temporary asset sale measures as though they are permanent. However, this appears to be another case of glasshouses and stones. The Fianna Fail manifesto now claims that 2011 will see €5.9 billion in permanent deficit-reducing measures and only €110 in once-off other measures. And the FF manifesto now promises a figure for tax increases over 2012-2014 that is €650 million less than in the four year plan.
All of this raises a few questions: Have €600 million in once-off revenue raising measures been abandoned? If so, what are the permanent revenue raising measures that have been put in place to make up for them? If there are still €700 million in temporary measures in place, as Brian Lenihan seems to believe, then why are these not accounted for in Fine Gael’s plans or, indeed, those of his own party?
Update: From comment exchanges with FG officials below, I now see that I had missed that FG’s €8.8 billion omitted €1.2 billion in adjustments that occur in future years as a consequence of decisions taken in the 2011 budget. This additional €1.2 billion splits equally between spending cuts and tax increases. I don’t much like the way FG have presented the figures or calculated the tax\spend mix. Still, I’m going to score this one for FG and against Brian Lenihan.