Budget Targets Slipping: Cause of Optimism

The Government is said to be a little ‘optimistic’ about our prospects for next year. This is despite the slow slippage of budgetary targets in data released last week and to be followed up with the pre-budget outlook tomorrow.

We know that the target revenue for this year is already €2.75bn behind the April budget’s figures. It now looks like the debt to GDP ratio (which is vital in the context of the EU stability and growth pact and our commitments to cut spending and raise taxes) will hit a targets of 12% for 2010.

That is over a year behind where they wanted it to be. Have a look at Minister Lenihan’s April speech:

Without this supplementary Budget the general government deficit would have been 12¾% of GDP reflecting the large gap needed to fund the difference between spending and revenue….
A difficult balance must be struck between the need to show a credible way forward on our structural problems and the need to protect our economy as far as we can this year. It is the considered view of the Government that a borrowing target of 10¾% strikes the correct balance.

That is the target for end 2009 – a debt to GDP ratio of 10.75% down from 12%.

Now the leaked report of the Pre-Budget Outlook suggests that next years projections from the Dept of Finance have us on a debt to GDP ratio of 12% for 2010. Between that projection and the disaster of revenues, we have managed to get to a stage where the April budget might as well not have happened.

So where the hell have we gotten the more ‘positive’ outlook in the Irish Times headline from?

It appears we are shrinking more slowly, a projected 1.5% in 2010 versus the 2.9% projection in April’s budget. We are still a way off the major budget target hanging over our pols – getting back onside with the EU.