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Ireland may spend any spare budget cash rather than ease austerity

A woman walks past graffiti on the side of a building in Dublin December 5, 2011. REUTERS/Cathal McNaughton
A woman walks past graffiti on the side of a building in Dublin December 5, 2011. REUTERS/Cathal McNaughton

By Padraic Halpin

DUBLIN (Reuters) - Ireland may spend any spare cash from future budgets rather than ease austerity measures, Finance Minister Michael Noonan said on Tuesday, after it left its plans to cut spending by 5.1 billion euro ($6.7 billion) for the next two years unchanged.

Ireland has consistently beaten deficit goals set under its EU/IMF bailout agreement, and the European Central Bank cut it some slack on future targets in February when it delivered savings on its debt servicing.

Noonan, presenting an updated medium-term fiscal plan to parliament, said his preference would be to spend any leftover money on capital projects which would generate jobs.

But any leeway could be quickly eaten up if the fragile upturn disappoints, a point highlighted when Noonan's department trimmed growth forecasts for the next three years as Europe's recession looked set to further hinder an export-led recovery.

"I'm sure colleagues in government will all be looking for a slice of it. It will depend on how the year develops and how we use it best to grow the economy," Noonan told a parliamentary committee.

"We're in a good position at the moment and it looks as if there may be some flexibility but it's too early in the year to give any kind of commitment of what way the budget will work out because things can happen to knock you off course," he said.

Noonan said the government would make a final decision on this year's spending closer to budget day in October. He can expect to come under enormous pressure from coalition colleagues to lighten the burden of austerity measures as the debate rages throughout Europe on whether countries should ease up on cuts.

However, the advice coming from the country's central bank was to stay the course after governor Patrick Honohan repeated earlier on Tuesday that sticking to the schedule of cutbacks would continue to restore confidence.

That return of confidence has helped Ireland's economy grow for the last two years, however, growth is now expected to come in at 1.3 percent this year rather than the 1.5 percent seen in December, data from the finance ministry showed.

While it predicted domestic demand would rise for the first time since the crisis began, the impact of weaker exports was showed in the forecasts from this time last year which had penciled in gross domestic product (GDP) growth of 2.2 percent.

Ireland, which is likely to became the first bailed-out euro country to exit an EU/IMF support program later this year, sees the economy growing by 2.4 percent in 2014 and 2.8 percent in 2015, a touch lower than previously thought.

Such an acceleration in growth, together with the planned austerity cuts, would see Ireland comfortably bring its budget deficit to within EU limits and it forecast that the deficit would fall to 2.2 percent of GDP by 2015 from 7.4 percent this year.

The fiscal plan outlined expectations for 2016 for the first time and showed it would bring an end to austerity, with no new tax hikes or spending cuts penciled in, providing the economy grows by 2.7 percent.

If Ireland can hit its growth targets, its debt will begin to steadily fall to 110 percent of GDP by 2016 from a peak of 123 percent this year. However unemployment will only fall to 12.3 percent by then from the current rate of 14 percent.

($1 = 0.7634 euros)

(Editing by Louise Ireland)

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