A report from independent watchdog, the Irish Fiscal Advisory Council (IFAC), has claimed that current government fiscal policy is working and that if anything, the Irish government may need to make further cuts to keep Ireland’s economic projections on track.
According to the report, “the Council continues to believe on balance that there is a strong argument for greater consolidation than currently envisaged by the government. This assessment takes into account factors such as the deterioration in the growth outlook, some improvement in Ireland’s creditworthiness and a less ambitious budgetary target for 2012 than that underlying the Council’s October 2011 analysis.”
As such, the current report recognises that the pretexts on which the IFAC made their last calculations in late 2011 are no longer valid, and that government cuts, austerity measures and taxation increases outlined in the last budget may be inadequate in meeting Ireland’s planned fiscal targets for 2012 and beyond. This is due largely to deteriorating conditions in several global economies, and a resulting slowdown in the Irish economy’s return to growth.
The Irish Fiscal Advisory Council was established in June 2011 as part of a wider agenda of reform of Ireland’s budgetary architecture. The role of the Council is to independently assess, and comment publicly on, whether the government is meeting its own stated targets and objectives, with a mandate to assess the appropriateness and soundness of the government’s macroeconomic forecasts, budgetary projections and fiscal stance.
The IFAC report says that: “The government’s plan to reduce the General Government deficit from approximately 10 per cent of GDP in 2011 on an underlying basis to 8.6 per cent of GDP in 2012 was based on a real growth rate of 1.3 per cent in 2012. However, some deterioration in growth prospects since the Budget announcement raises a question mark as to whether this deficit target can be attained with currently planned consolidation measures.
“As regards 2013-2015, the headline targets for the General Government deficit set out in Budget 2012 remain within the range of appropriate courses of action. Nevertheless, the Council continues to believe on balance that there is a strong argument for greater consolidation than currently envisaged by the government. This assessment takes into account factors such as the deterioration in the growth outlook, some improvement in Ireland’s creditworthiness and a less ambitious budgetary target for 2012 than that underlying the Council’s October 2011 analysis.”
According to The Irish Times, additional measures of 400 million euro may be needed this year to achieve the deficit target, and the government is not doing enough to cut deficit and debt levels in the period up to 2015.
The IFAC is chaired by Professor John McHale, National University of Ireland, Galway. The other members are Mr Sebastian Barnes, Organisation for Economic Co-operation and Development; Professor Alan Barrett, Trinity College Dublin (on secondment from the Economic and Social Research Institute); Dr Donal Donovan, University of Limerick (formerly of the International Monetary Fund) and Dr Róisín O’Sullivan, Associate Professor, Smith College, Massachusetts.