Report of the Local Government Efficiency Review Group

4. Context – Looking Forward
4.1 National Fiscal and Economic Position
4.1.1 The Irish public finances have been severely affected by the downturn in
economic activity. In response, the Government has implemented a series
of measures, beginning in July 2008, aimed at stabilising the public finances
and beginning the process of returning to a more sustainable fiscal position.
4.1.2 In total, fiscal adjustments – both expenditure-reducing and revenue-raising
– designed to yield about 5% of GDP in 2009 were implemented between
July 2008 and April 2009.
4.1.3 Budget 2010 introduced a further set of adjustments, designed to save €4
billion or 2½% of GDP in 2010 with the intention to stabilise the General
Government deficit at the underlying 2009 level – approximately 11½% of
GDP. The 2009 headline deficit stood at 14.3% of GDP, the highest in the
EU, when account was taken of the capital injection into Anglo Irish Bank.
4.1.4 The focus of the Budget 2010 adjustments was on reducing expenditure
and included cuts to public service pay rates and reductions in social
welfare benefits. Capital spending was also curtailed. The reductions in
spending have been far reaching and have impacted on all sectors of
society.
4.1.5 The overall projected position for 2010 is set out in Table 2.1 above. In
short, the Exchequer is borrowing around one-third of current day-to-day
spending. This is not sustainable.
4.1.6 The Government has set out a framework to restore order to the public
finances and to reduce the General Government deficit to less than 3% of
GDP by 2014. Delivering on this plan means that further adjustments will be
required over the coming years. This 3% target includes all State spending,
including the net position of local government finances.
4.1.7 While reducing the deficit to below 3% of GDP, it will still be necessary, over
the period 2010-2014 to undertake very considerable levels of borrowing.
Current projections are that close to an additional €75 billion will have to be
borrowed, thus doubling the national debt again over the period to 2014. As
recently as 2007, the national debt was just €38 billion.
4.1.8 The sharp increase in our national debt means that an increasing proportion
of tax revenues will be needed to service this debt. This year, some 14% of
estimated tax revenues will be used for this purpose. By 2014, this will
increase to 20%. In 2007, the comparable figure was 3%.
4.1.9 On the economic front, it is expected that growth will return to the Irish
economy on an annual basis in 2011 and that modest growth in tax
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