Dáil debates

Thursday, 17 June 2010

2:00 pm

Photo of Brian Lenihan JnrBrian Lenihan Jnr (Dublin West, Fianna Fail)

Based on the projections for the Exchequer borrowing requirement for the years to 2014 set out in budget 2010, the estimated cost of interest on the national debt will be approximately €5.75 billion in 2011 and €7.5 billion in 2013. The National Treasury Management Agency has advised that, as is usual, these estimates were prepared on the basis of the prevailing market conditions for Irish Government bonds. Based on these estimates and the projections for tax revenue for the years to 2014 as set out in budget 2010, it is forecast that the proportion of tax revenue that will be accounted for by interest payments on the national debt will amount to 17.5% in 2011 and 20% in 2013.

Borrowing at current levels is not a sustainable long-term option. As debt servicing costs have first call on resources, an increasing debt interest burden will lead to higher interest costs, thereby reducing the resources available for the provision of public services in the future. This underlines the importance of continuing to take the necessary action to restore stability to the public finances. That is why, since mid-2008, the Government has been taking the decisive action that will help restore sustainability to the budgetary position.

The Government is committed to restoring order to the public finances through reducing the deficit to below 3% of GDP by the end of 2014. Recent market developments highlight the importance of continuing to take firm and decisive action in this regard. The Government's plan to reduce its general deficit to less than 3% of GDP by the end of 2014 has met with the approval of many, including the European Commission, the ECB, the OECD and the IMF. Considerable progress has already been made towards achieving this target. Fiscal adjustments designed to yield 5% of GDP in 2009 were implemented between July 2008 and April 2009. Budget 2010 implemented a further set of adjustments – mainly on the expenditure side - amounting to 2.5% of GDP. The most recent Exchequer returns to the end of May show that the Government's actions are having a positive effect and that we are on track to meet our budgetary targets for 2010.

The Government's focus now is on securing the necessary adjustments for budget 2011 and work is under way in that regard. In terms of the amount involved, €3 billion was set out in budget 2010 as the necessary adjustment for 2011 and, contrary to much recent speculation, the European Commission has agreed that this is the correct amount. Some €1 billion of this sum will come from the capital expenditure side and the balance of €2 billion will come from the current side of the budget and involve a mix of expenditure and taxation measures. The precise breakdown of this adjustment is a matter for ongoing determination in the context of the formulation of budget 2011. At this stage, I cannot on the specifics of the budget.

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