“After the party, the bill,” said Lex in the FT. Now that Ireland’s property and construction-led bubble has burst, it is in a period of “severe economic distress”, as finance minister Brian Lenihan put it. GDP is expected to slump by 8% this year; consumer spending has fallen by a fifth; unemployment is at 10% and expected to reach 14% by the end of 2009; and there is a gaping hole in the public finances.
With the budget deficit heading for double figures this year, and overall public debt likely to rocket from 33% to 70% by 2013, according to Standard & Poor’s, markets have begun to doubt Ireland’s ability to get its finances under control. Hence the second emergency budget in six months, which will see income tax raised by 2%, 2% of GDP lopped off capital spending and cuts in public spending including the jobseekers’ allowance and child benefit. All this adds up to the “harshest austerity measures ever”, said Ambrose Evans-Pritchard in The Daily Telegraph.
But will they be enough? Tax revenues, down 27% on two years ago, “are plunging so fast that the government is barely doing more than running to stand still”, said Edward Hadas on Breakingviews. This budget lowers the likely deficit from 13% to only 11% of GDP, and this figure also assumes an 8% GDP fall in 2009, which “looks optimistic”. It may not be too long before the next “painful budget”. Britain’s downturn may not be as deep, said Allister Heath in City AM, but given that our public finances look similarly awful we should consider this budget a “sneak preview” of what awaits us after the next election.