IRELAND CONTINUES TO have the largest government deficit of all European Union member states, according to the latest official figures from Eurostat.
In 2011, a deficit of 13.1 per cent of GDP was recorded as capital injections into the country’s failed banks are included.
It was noted that without the banking recapitalisation, the deficit would have been 9.4 per cent. However, that is still higher than any other nation, including Greece and Spain.
It is this underlying budget deficit which is used by the Troika to measure performance under the bailout programme. Although the headline deficit far exceeds the target figure of 10.6 per cent, the underlying budget deficit beats it by more than a percentage point.
In a statement, Finance Minister Michael said:
The return of the underlying deficit to single figures is a positive development and reflects the very strong progress that has been made in restoring order to our public finances. This progress has been due to the very significant adjustments that the Irish people have taken over the past number of years. The Government appreciates that this adjustment was not painless and as the Programme continues to reduce the deficit to under 3 per cent by 2015, the Government will ensure that future expenditure cuts or tax increases continue to be applied fairly.
The Government has argued that money used in the banking bailout should not be included in the deficit because some of it may be recovered.
In a statement, the Department of Finance said the €5.8 billion deficit-increasing capital transfer which adds 3.7 per cent of GDP to the deficit was fully reflected in the last Eurostat debt report.
Ireland is no worse off. This is simply a statistical reclassification from financial transaction to capital transfer for deficit purposes. There is no impact on our debt position.
Eurostat said it has specific reservations on the data reported by Ireland because plans for the restructuring of AIB and Irish Life & Permanent have not been finalised.
The statistics house is awaiting the confirmation of the plans and EU approval so that the amount of the capital transfer – currently estimated at 3.7 per cent of GDP – can be locked down.
The Department of Finance noted that Eurostat’s approach is prudent and is confident that the reservations will be removed the next time Eurostat reports on these Maastricht returns.
The group also had a reservation about the non-government status of NAMA. The bad bank is in majority public ownership since it took control of Irish Life, according to Eurostat. To keep its classification outside general government, it needs to be in majority private ownership.
NAMA is currently in the process of selling Irish Life but no deal has been finalised. If the classification is lost, NAMA’s books could be included in the calculations of the Irish budget deficit.
The Department of Finance said today that the sale of the Irish Life shareholding in NAMA to private investors will be complete within three weeks.
“As a consequence the NAMA special purpose vehicle (SPV) will not be brought onto the government balance sheet,” the department said but declined to give any further details on the sale.
Noonan said, “The effect of the sale will mean that NAMA will continue to have absolutely no General Government impact. In addition, it is worth noting that provisional figures indicate that NAMA has posted a profit of €200m in 2011 and has very sizeable cash reserves.”