State of emergency...
BRIAN COWEN last night tried to get a grip on the country’s escalating economic crisis by calling an emergency October budget that looks primed to inflict deep spending cuts.
The unprecedented decision to advance the budget — the centrepiece of the Dáil year — by almost two months to October 14 was sparked by shock in government circles at the collapse in tax revenues over the summer that has left the country heading for a €6 billion deficit by the year-end.
The cabinet made the dramatic move as unemployment surged to a 10-year high as dole queues swelled by record amounts for the fourth month in succession.
Finance Minister Brian Lenihan said the Government’s priority was to “curb spending” and this would be achieved through a “balance” of taxation, borrowing and cuts as he warned the country faced the worst economic conditions since the late 1980s.
“We cannot let our state to drift into fiscal unsustainability. We have to take corrective action,” said Mr Lenihan.
The dramatic nature of the announcement was questioned in some quarters as spending cuts and any income tax changes announced would not kick in until 2009, while Mr Lenihan would be making fiscal forecasts in October, with 34% of 2008’s tax haul still to be taken in. This is considered a risky calculation considering the Department of Finance has got such predictions so spectacularly wrong in the past.
The early budget was interpreted as a warning shot to the social partners that expectations must be lowered and an attempt to prove to the money markets the Government was still in control of events.
Mr Lenihan admitted Ireland would break through the 3% barrier on borrowing imposed by the EU for this year and next year, and that previous finance department attempts to stimulate the deflating housing market had failed.
However, Mr Lenihan refused to be drawn on the likelihood of a new package modelled on the multi-billion-euro rescue plan for the British housing market unveiled this week.
With many economists expecting the republic to slide into its first recession for 25 years in the coming months, the Government admitted the economy was “under considerable pressure” with the construction sector pulling the rest of the economy down with it.
Mr Lenihan predicted a year-end deficit of €3bn in July, but has now revised that to €5bn. However some experts said €6bn was more likely as Mr Cowen refused to accept any blame for getting Government figures so wrong in the past.
“The tax shortfall is horrific and it’s going to get worse,” said Friends First chief economist Jim Power. “People could interpret this as panic, but the positive interpretation is that at least they are standing up, recognising the problem and doing something about it,” he said.
Fine Gael finance spokesman Richard Bruton accused the Government of reacting too late to the worsening situation.
Labour’s finance spokeswoman Joan Burton called for an early return of the Dáil.
By Shaun Connolly, Political Correspondent - Irish Examiner