GDP growth pushes deficit close to the limit

Ireland’s deficit fell at an impressive rate at the tail end of last year, with the final quarter deficit just above the EU-imposed limit the Government will have to reach by the end of 2015.

Minister for Finance, Michael NoonanMinister for Finance, Michael Noonan
The general government deficit for the fourth quarter of last year — which measures the difference between what the country takes in and its expenditure — stood at €1.46bn.

This equates to a deficit of 3.1% of GDP — just above the 3% level enshrined in Irish law that the Government will have to reach by the close of the year.

While the figures are largely in line with expectations, they nonetheless represent an impressive reduction in the deficit which will easily fall in line with EU requirements, according to Investec Ireland chief economist Philip O’Sullivan.

“The figures have been well documented and are not particularly surprising, but the deficit is certainly moving very strongly in the right direction and should be comfortably inside 3% of GDP this year,” Mr O’Sullivan said yesterday.

The figures for the final quarter of 2014, published by the Central Statistics Office (CSO), further highlight the impressive growth levels achieved in the past year and represent another boost for the Government’s economic policy ahead of next year’s general election.

The strong set of figures should give the Minister for Finance, Michael Noonan, a little more wriggle room, in the forthcoming budget, to cut income tax and make moderate spending increases.

Government revenue for the final three months of last year exceeded the same period in 2013 by more than €1.2bn to stand at €18.12bn, mainly due to increased revenue from taxes and social contributions.

Government spending of €19.59n reflected an increase of €312m on the equivalent period in 2013, with increases recorded across most sectors.

Ireland’s gross Government deficit for 2014 as a whole amounted to €7.63bn, or 4.1% — a significant fall from €10.1bn, or 5.8%, at the end of 2013.

At just shy of 5%, the EU-leading rate of GDP growth has helped deliver the reduction seen to date — a trend which is expected to continue this year.

Meanwhile, the Government’s gross debt fell to €203.3bn in the final months of 2014, representing a debt- to-GDP ratio of 109.7%.

At the end of the previous quarter in September of last year, the debt was €5bn higher at €208.2bn (114.3% of annualised GDP).

The decrease at the tail-end of last year was driven by the early repayment of a portion of IMF loans.

This restructuring agreement, as well as others with the EU and ECB — including the deal on promissory notes — have reduced the burden on the country over the past three-and-a-half year.

The promissory note deal, struck in February 2013, which saw the notes replaced with a series of long-term bonds, helped reduce the debt burden associated with the Irish Bank Resolution Corporation, formerly Anglo Irish Bank.

“A lot of the fall in the debt/GDP is down to IBRC and its resolution, which is obviously very welcome, to remove that contingent liability on the sovereign,” said Mr O’Sullivan.

“Also, we’ve seen some other moves, like a drop in EU/IMF funding, and it was replaced by new bond issuance, which is a lot cheaper and longer dated.”

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