Thursday, 17 June 2010
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.
Perhaps the Minister will, in respect of the €3 billion mentioned, provide the House with a broad breakdown between expenditure and taxation. Perhaps also he will comment on the fact that relative to other countries our bond spreads are and have been consistently high. Does he agree with the view that we continue to have a credibility issue with which to deal in terms of the budget measures introduced in 2007 and 2008 which were a little too late and how does he intend to address the bonds crisis in terms of borrowing on the international markets?
On the broad breakdown of the figure, I have already outlined the position in respect of the €1 billion on the capital side. On the other €2 billion and the breakdown as between day to day expenditure and taxation, I am not in a position at this stage to give a definitive figure in that regard. I cannot give a definitive figure because at end June we will have the mid-year returns in respect of taxation and expenditure at which stage the Government will begin its consideration of the broad thrust of budgetary policy. I am not in a position at this stage in advance of that Government deliberation to give a precise figure in respect of the breakdown between taxation and expenditure. Even after the Government commences its consideration of that issue, it will be considerably later in the year, in the context of the budgetary figures, before a final determination of those figures can be given.
Last year, we collected €32 billion in taxes. The Minister is saying that commencing next year at least €5 billion will be spent on paying down interest. This means that one in every six euro collected in taxes will be used to pay off interest on the debt, including the bailout of Anglo Irish Bank. As the Minister stated, the Government is hoping the European Union will allow it to write off the promissory note. It is a shocking indictment of the Government's approach that one in every six euro of all taxes will go to pay down the debt. That is what the Minister is effectively saying.
The bulk of that debt has accumulated as a result of the gap between Government receipts and expenditure, current and capital. The total overall cost of the bank rescue package in relation to Anglo Irish Bank and Irish Nationwide Building Society will be, as Deputy Bruton knows, spread over a long period and will be offset by gains which the State has made in respect of payments on foot of the guarantee, payments from Bank of Ireland, prospective payments from Allied Irish Bank and other results of the State's investments in the banking sector. The core crucial central issue which must be addressed, which the Labour Party has singularly abstained from addressing in the past two years, is the gap that exists between the current and capital expenditures by State and the receipts and revenues available to it. That is the central issue that must be addressed by any occupant of this Office.