Press conference:Minister for Finance Brian Cowen yesterday warned that government finances for next year would be "tight" as he forecast an exchequer deficit of €1 billion for this year. Carl O'Brienreports.
He said lower growth rates would have implications for all, in the form of a rise in unemployment, smaller increases in public spending and slower employment growth.
Mr Cowen dampened any expectation of a tax cut of one percentage point promised in the general election campaign, pointing out that this promise was predicated on better economic growth.
He described 2007 as a "turning point" for the Irish economy, with lower output in the residential housing sectors expected to affect overall growth rates. In addition, oil prices and the appreciation of the euro-dollar exchange rate would affect economic performance.
"While the economy has performed reasonably well in the first half of this year, the current indications are that the short- to medium-term outlook has changed vis-a-vis that envisaged on budget day," he told a press conference yesterday.
While the Department of Finance expects gross domestic product (GDP) growth of 4.75 per cent this year, its projections show it falling to 3.25 per cent next year and to an average of 3.5 per cent between 2008 and 2010.
The Minister insisted that these growth rates, while lower than what we have come to expect, were still positive.
"We mustn't lose sight of the fact that our overall growth performance is nevertheless impressive by international standards and one that many of our European partners would love to replicate," he said.
While the pre-Budget estimates underlined the need for managers to stay within overall staff levels, Mr Cowen said there would be exceptions. For example, 9,200 public servants are due to be recruited in front-line services, mainly in education, health and the Garda.
Mr Cowen rejected suggestions that the Government would not be able to deliver on promises contained in the Programme for Government which were based on a more positive growth rate of 4.5 per cent.
He said the fundamentals of the economy were strong and the main sources of tax income - income tax, excise duty, corporation tax and VAT - were performing well.
He said gross current spending next year on existing services would be almost €51 billion, an increase of 4.8 per cent over 2007.
Mr Cowen said policy initiatives involving increased expenditure would be set out on Budget day. An unallocated provision of €1.5 billion would form part of those announcements, he added.
