Monday, October 29, 2012

Meeting the fiscal targets

The eighth quarterly review of the EU/IMF programme for Ireland was concluded last week and once again Ireland was praised for steadfast policy implementation and the expectation that fiscal targets will be met once again.  Statement here.  The general government deficit targets for 2011 to 2013 are

  • 2011: 10.6% of GDP
  • 2012: 8.6% of GDP
  • 2013: 7.5% of GDP

At the conclusion of the sixth review back in April a statement released by the Department of Finance said that:

“We are pleased that we have met our targets, all measures have been implemented and the programme is on track. This successful outcome illustrates, once more, the ability and the commitment of the Irish State to implement a challenging programme effectively.

Economic data released since the last Troika review in January has shown that the Irish Economy has returned to growth in 2011, the first time since 2007, our underlying deficit for 2011 is 9.4% - significantly ahead of the target of 10.6%, our tax take is growing and we are on track to meet our 8.6% deficit target in 2012.”

Last week the Department’s statement was equally ebullient:

“The programme remains on track and we continue to meet all of our targets. We are confident that the headline deficit targets of 8.6% of GDP will be achieved in 2012 and we remain fully committed to reducing our deficit to below 3% of GDP by 2015.

Back in April there was delight that the “underlying” deficit was below the 2011 limit.  By September that delight was that the “headline” deficit would be below the 2012 limit.  The deficit is falling (albeit slowly) but I wonder what deficit measure will be used to ensure we are below the 2013 limit?

It should also be noted that the March statement said “our underlying deficit for 2011 is 9.4% - significantly ahead of the target of 10.6%”.  What was the deficit target set at the time Budget 2011? Among other places, the answer can be found in the third paragraph of page 12 in The Economic and Fiscal Outlook released with the Decemeber 2010 budget:

“The measures being introduced in Budget 2011…will reduce the General Government Deficit to 9.4% of GDP.”

The 10.6% limit comes from the December 5th 2010 Council Recommendation to Ireland under the Excessive Deficit Procedure which set out the deficit limits for each year out to 2015 by which time Ireland has to bring the general government deficit under the Maastricht limit of 3% of GDP.  Budget 2011 was a couple of days later but as the late Brian Lenihan said in his budget speech:

In the National Recovery Plan, we have set out the timetable for achieving this adjustment over the next four years. These targets are reflected in the Joint Programme of Assistance. Because the European Commission has more conservative forecasts for the medium-term, we have been given an extra year to reach the 3% deficit target required under the Stability and Growth Pact. But this changes neither our targets nor our timetable for reaching them.

The Department of Finance deficit target for 2011 was 9.4%.  As the recent Maastricht Returns Information Note has shown the actual 2011 deficit was 13.4% of GDP, but excluding direct payments to the banks the deficit was 9.1% of GDP.  As pointed out previously this does not exclude direct receipts from the banks.  This 9.1% of GDP deficit is below the 9.4% of GDP budget day target. 

There was never a deficit target of 10.6% of GDP that we could be “significantly ahead of”.

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