A BUDGET adjustment of €4 million to €5 billion is required for next year if Ireland is to retain fiscal independence, according to former EU commissioner Peter Sutherland. He told the Dublin Chamber of Commerce annual dinner last night that the Opposition had as important a role to play as the Government as it appeared there was a chance of a general election in the near future.
“If Ireland’s creditors around the world are to continue to lend Ireland money, they need to be confident that any succeeding government will continue to take the tough decisions required to ensure that Ireland can continue to pay its bills,” said Mr Sutherland.
He said that if creditors lost that confidence in the run-up to the election, then the incoming government might find the IMF and the EU authorities were effectively making decisions for them.
“So the co-operation promised by the Government to the Opposition for the analysis of the facts and options is of great importance and time is of the essence.
“What we need now is a clear sense of direction and clarity about where we are going. We need confidence rather than uncertainty. The multi-year programme can provide a road map if it is credible,” said Mr Sutherland.
He said while the financial services sector had wrought a terrible destruction on what had appeared to be a resurgent Ireland, the recurring budget deficit and its reduction was the real issue.
“Those of us who work abroad are not unaware of the fact that it may seem easy for us to offer prescriptions for these issues. So what I say here I am sorry to have to say.
“There is a saying in Irish that it is easy to lie on another man’s wound but I am very conscious of that and, in any event, like all Irishmen we hate what we see happening at home.”
Mr Sutherland said on the positive side Ireland was not a poor country, even after the catastrophic events of recent times. Ireland had still grown since 1995 in terms of GDP per capita by 30 per cent more in cumulative terms than the EU 27 and 16 per cent more than euro zone countries.
“Last year’s fiscal plan indicated that a tightening of €3 billion would be required in 2011. The change in economic and fiscal conditions since means that a tightening in the range of €4 billion- €5 billion should be implemented if Ireland is to maintain its fiscal independence.
“It would be much easier to say that this could be avoided or that the further large adjustments to follow will not be needed, but in my opinion this is unavoidable and not simply an expression of some economic orthodoxy,” he said.
Mr Sutherland added that any examination of the budget deficit, running annually at €18.5 billion, made the point as did the fact that the outlook for growth did not provide a panacea.
He disagreed with those who argued that correcting the deficit in this way would be damaging for the economy as it would be much more damaging and costly if the fiscal adjustment was not made.
“What is damaging growth now, and will damage the prospects of growth in the future, is the sense of fatalism and even depression evident everywhere in Ireland today.”
Mr Sutherland said before the budgetary adjustment in the late 1980s, most commentators also argued that the cuts or tax increases would drive Ireland into a downward spiral, but with the benefit of hindsight we know now that the opposite was the case.
“It was only after cuts were made and confidence in our long-term fiscal situation improved that the economy turned dramatically, driven by the private sector.”
He also dismissed the argument that the current fiscal cuts contributed to the recession, pointing out that output fell by about 4 per cent in 2008 and by another 8 per cent in 2009, while the fiscal “austerity measures” only came into force towards the end of 2009 after a sharp fall in output.