MINISTER FOR Finance Brian Lenihan needs to take radical measures to generate savings of up to €9 billion to lower next year's Government deficit, Ulster Bank chief economist Pat McArdle told the Kenmare economic conference.
Mr McArdle outlined a series of measures that would lower next year's expected Government deficit, bringing it closer to this year's expected deficit of 5.5 per cent of GDP, which is already higher than the 3 per cent limit set down in the EU Stability and Growth Pact.
He said the Government could create savings in the budget next week by suspending the annual €1.5 billion payment to the National Pension Reserve Fund (NPRF) and selling State assets generating €1 billion
"If there is any silver left in the cupboard, it will be flogged this year," said Mr McArdle, "so watch out for that and you could make up a list of semi-State bodies or other assets there are."
He said the Government could cut current spending by €2 billion and capital spending by €2 billion, which would reduce capital expenditure by about 20 per cent.
"They will not have set out to do that - and won't want to do it - but inevitably capital spending is coming to under the knife. It's the easiest thing to cut by far."
Mr Lenihan could also earn €1 billion this year from the bank guarantee charge, said Mr McArdle, and he could generate a further €1 billion if he "raided" the pension funds of Irish universities and third-level colleges.
"Do I think all of that is do-able? Not by a long shot. They won't raise €9 billion.
"So the inevitable conclusion I come to is that the budget deficit next year will be more than 5.5 per cent.
"I don't know what it will be - it'll be 6 per cent or 7 per cent or something like that. It will be associated with swingeing cuts of the nature I have outlined."
Mr McArdle added that if the Government didn't carry out these cuts next year, then it would have to do it in the following years.
"Sooner or later we are going to have to get back to having a deficit more in line with the stability growth pact norms," he said.
He said that unless Mr Lenihan "pulls a rabbit out the hat" next Tuesday, the Government will be facing a deficit of about 6-7 per cent of GDP.
The economist outlined in his presentation to the 31st annual economic policy conference of the Dublin Economic Workshop that the Government was - without significant cuts - facing a deficit of 8.5 per cent of GDP next year, though he admitted that his €42.4 billion estimate for tax revenues next year was "optimistic".
