(26 November 2010) Ireland’s four-year fiscal plan has just been released by the Department of Finance. (http://www.budget.gov.ie/RecoveryPlan.aspx )

The main budgetary and economic assumptions are contained in Annex 4 and Annex 5. Annex 3 deals with debt sustainability.

Key macro points:

• The General Government deficit falls from 9.1% in 2011 to 2.7% in 2014, by which stage Ireland may be running a primary budget surplus.


• Nominal GDP is forecast to grow by 2.5%; 4.2%; 4.3% and 4.6% in 2011-2014 respectively.


• Real growth reaches 3% in 2011-2012, but the GDP deflator does not grow any faster than 1.5% in the period thanks to ongoing deleveraging.


• The current account is in surplus throughout the period.


• Unemployment dips below 10% in 2014.


• The average interest rate on the stock of General Government debt rises from 3.4% to almost 5% by 2014.


• The debt to GDP peaks at 102% of GDP (note that these numbers are ahead of any upcoming Programme).

Fiscal initiatives:

Spending

• The €15bn fiscal consolidation will be split into €10bn of expenditure measures and €5bn in revenue-raising.


• Within expenditure, current spending will be reduced by €7bn (40% front-loaded into 2011) and capital spending by €3bn.


• Public payroll is to be cut by 27,500 in 2010-2014 – back to 2005 levels.


• The pay bill net of pensions is to be cut by €800m. The public pension scheme will be reformed for new entrants and pay cut by 10% at the margin (i.e. for new entrants to the public service).


• Social welfare spending will be reduced by €2.75bn compared with the opening position. 


• The Croke Park agreement on public service modernisation will be fully enforced.


• Staff will be redeployed.


• A student contribution will be introduced to meet the cost of third-level education.


• Water metering will be introduced in 2014.

Taxation

• The plan is unambiguous on the corporation tax rate: “This is a cornerstone of our pro-enterprise outward-looking industrial policy”.


• 45% of workers pay no income tax at present (lower-paid workers). The base will be broadened. Income tax will contribute €1.9bn.


• Tax expenditures and pension-related tax changes will yield almost €1.5bn.


• VAT will be hiked from 21% to 22% in 2013 and to 23% in 2014.


• A site-value tax will be introduced, yielding over €500m.


• The price of carbon will be increased (a carbon tax came in Budget 2010) gradually.

Structural reform

• The minimum wage will be cut by €1 or 12% to €7.65/ hour.


• The welfare system will be reformed: cuts in social welfare spending will help to encourage labour force participation.


• Activation policies will be brought in to try to reduce long-term unemployment.


• Professional fees, rents and utility costs will all be vigorously tackled to boost competitiveness.


• The broadband rollout will be stepped up.


• Many sectoral initiatives will be introduced to boost exports.

Please see below for further information.