The Irish government has announced
that it will make budget cuts worth $8.5 billion next year in order to reduce
its record deficit.
They are designed to reduce the
deficit to 9.25 per cent -9.5 per cent of economic output.
By 2014, the government wants to
make $21 billion of cuts to reduce the deficit to 3 per cent of GDP.
The savings will be made through a
combination of both spending cuts and tax rises, details of which will be
released later this month.
The move reflected increasing
scepticism about the Republic’s ability to tackle its problems without outside
help.
The Irish Finance Ministry has
released its budget early to try to soothe investor concerns as Irish borrowing
costs have hit a new high every day so far this week.
The Irish deficit is predicted to
be the equivalent of 32 per cent of the country’s economic output this year.
It has been pushed up by the cost
of government bail-outs of Irish banks. At the end of September, Prime Minister
Brian Cowen revealed that taxpayers’ total bill for bailing out the banks could
reach $71 billion.
Mr Cowen has vowed to reduce the
deficit to below 3 per cent of gross domestic product (GDP) by 2014 through
major spending cuts.
Ken Wattrett, chief European
economist at BNP Paribas, said the government faced a difficult dilemma.
“[$21 billion] is a huge
amount – what we’re talking about there is something in the region of 10 per
cent of GDP in addition to all the measures that have already been delivered,”
he told the BBC.
“The intention for 2011 is to
frontload quite a lot of that adjustment, probably in the region of 4 per cent
of GDP.
“[The government] needs to
deliver these cuts to stabilise its public finances and win its credibility
back, but at the same time it will probably push its economy into a deeper
recession.”
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