A budgetary adjustment of €15 billion will be required over the next four years to reduce the State’s deficit to 3 per cent by 2014, the Government said today.
It said the key reasons for the "significant increase" from the €7.5 billion figure announced in budget 2010 were “lower growth prospects both at home and abroad and higher debt interest costs”.
In a statement, which followed Cabinet discussions at Farmleigh last night and Merrion Street today, the Government said the adjustment for next year and the three following years would be revealed when its four year plan - which is expected to be submitted to the European Commission by mid-November - is published.
Minister for Finance Brian Lenihan said the bulk of the adjustment must be taken in the Budget.
“The Government accepts that there must be significant front-loading in relation to this figure in the Budget this year,” he said.
“Clearly for credibility purposes it has to be frontloaded.”
The Government has pledged to the European Commission the deficit will be reduced to 3 per cent by 2014 and has secured consensus from Fine Gael and Labour on this target. The deficit currently stands at 14.4 per cent of GDP, according to Eurostat.
Fine Gael finance spokesman Michael Noonan, Labour finance spokeswoman Joan Burton and Sinn Féin finance spokesman Arthur Morgan were all briefed on the budget situation at the Department of Finance today.
Ms Burton accused the Government of not explaining the basis of the decision and withholding basic economic information from the public and the opposition parties.
"They have not yet set out what their growth forecast is for 2011, nor have they agreed that forecast with the European Commission," she said.
"Crucially, they have not been willing to indicate what budget adjustment they intend to make in the 2011 budget, which will have a major impact on growth for next year, and for subsequent years."
The department last week said it was looking at three budget scenarios for next year, one involving an adjustment of €3 billion, another of around €4.5 billion and a third of €7 billion.
Today’s statement said the Government realised a €15 billion adjustment "will have an impact on the living standards of citizens" but that it was “neither credible nor realistic” to delay introducing the measures.
“To do so would further undermine confidence in our ability to meet our obligations and responsibilities and delay a return to sustainable growth and full employment in our economy,” it continued.
“Our obligations are clear. We must demonstrate that we are bringing sustainability to our public finances. We must stabilise our debt to GDP ratio over the period of the plan. And we must set out our strategy for returning our economy to growth.”
Sinn Féin finance spokesman Arthur Morgansaid a programme of "savage cuts" would lead to severe hardship and will force thousands of people into poverty and debt.
His party advocated "a better and more fair way" to reduce the deficit by extending the deadline to 2016. This would involve the introduction of a range of revenue raising measures targeted at those who can afford to pay more, and investment in an economic stimulus package.
“This way we can protect the most vulnerable sections of society from economic hardships while creating jobs and stimulating economic activity.”
Taoiseach Brian Cowen last week said a large adjustment to the public finances over the next four years was feasible and that €14.5 billion had been taken out of the economy since the summer of 2008.
Ahead of today’s Cabinet meeting, Minister for Tourism Mary Hanafin said the cuts to be implemented in the budget were likely to touch all areas of public spending.
"I suspect there will be cuts in every department and that’s the only fair way to do it and at the same time we have to balance those cuts out for everybody. It’s not an easy job but one we want to get right,” she told RTÉ radio.
Minister for Community and Gaeltacht Affairs Pat Carey would not be drawn on whether the Government intended to fulfil a pledge made to the European Commission last December to reduce the deficit to 10 per cent in 2011.
"The plan first of all has got to be a credible plan and has to contain three important elements; one is growth, the other is emphasis on expenditure and the third is what elements of taxation need to be introduced," he told Morning Ireland.
“A lot has changed since last December. The bond spreads have changed dramatically against us…The other is that world growth hasn’t been anywhere near as positive as expected at the time.”
Mr Carey said that the Government had to ensure it did not stifle growth when taking “significant amounts of money” out of the economy. He said a very careful balance needed to be struck between and that the Government would be “taking a serious look at expenditure and the cost of public services”.
The Minister said he expected modest growth next year and that stifling this through harsh cuts would “do a lot of damage to the economy".
He said the government was discussing whether to adopt a budget savings package with "a very heavy front loading this year and lesser in the subsequent three years, or whether it should be more equally divided over the four-year period".