A GOVERNMENT economic adviser has said the Government’s budgetary plan aims to frontload €30 billion in “adjustments” over a six-year period, which started in 2008.
Dr Alan Ahearne, special adviser to the Minister for Finance, said this strategy would help to restore lost confidence, and return the deficit to 3 per cent of gross domestic product.
At a Western Development Commission lunch at NUI Galway yesterday, Dr Ahearne said Ireland would have a current account surplus next year, which was “unusual” for countries seeking assistance from the International Monetary Fund (IMF).
Dr Ahearne, who is on secondment from NUIG, said the high rate of household saving was one reason for this “surplus”, in spite of high levels of State borrowing.
Householders were saving an average 12 per cent of disposable income, which was double the previous average of 6 per cent. The household sector had €200 billion in liabilities, but €300 billion in financial assets, he said.
While this was “good in the medium term”, it was “problematic in the short term” as people were not spending money, he said.
By frontloading budgetary “corrections” totalling €30 billion between 2008 and 2014, the Government aimed to boost domestic spending next year, he added.
An “adjustment” of €6 billion next year would bring total adjustments since 2008 to €20 billion. This would leave a situation where householders would know that “the worst of it is over”, with two-thirds of the adjustments already implemented.
Dr Ahearne said that while part of the four-year plan due for publication tomorrow was based on a €15 billion adjustment, it was very difficult to make such changes unless the economy was growing.
Some €10 billion of the €15 billion would focus on expenditure cuts, while €5 billion would be based on revenue-raising in the years ahead, he said.
The plan was also based on a forecast of 1.75 per cent growth next year and 2.75 per cent growth in succeeding years. Some economists – including those for whom he had great respect – disagreed with this forecast, he added, but he believed it was “reasonable”.
A big emphasis in the four-year plan would be on growth, Dr Ahearne said. Much of this would occur in small and medium enterprises (SMEs).
With reforms and adjustments in place, it was possible Ireland’s growth would reach 3 per cent in 2012, and 90,000 new jobs would be created by 2014, he said.
The four-year plan would also tackle “barriers to competitiveness” as identified by the National Competitiveness Council.
Such “barriers” included the high costs of electricity, waste disposal, broadband and professional services, such as legal fees.
The plan would also look at certain sectors, including those with potential for strong performance. In the west, these sectors included tourism, life sciences and information communications.
Dr Ahearne said the fact that Irish exports fell so moderately in 2009 was “testament to the strength of the multinational sector”. There had been very strong growth in the first half of this year, with medical devices and life sciences up by 15 per cent specifically.
The Government was “very firm” that the 12.5 per cent corporation tax was “not negotiable”, as reiterated yesterday by Minister for Finance Brian Lenihan and as reaffirmed in recent statements from Germany and France.
Gillian Buckley of the commission noted the OECD believed the regions to be “drivers of national economies”.
NUIG president Dr James Browne said there were two “parallel economies” – the banking and financial sector, which was in serious crisis, and the business economy which was “doing quite well”, he said, referring to the increase in exports this year.
