THE EUROPEAN COMMISSIONER in charge of economic and monetary affairs has said the savings that Ireland will make by switching the promissory notes for long-term government bonds should be used to pay down the government’s debt.
Olli Rehn’s comments mean it is now unlikely that taxpayers will see any of the benefit of the €1 billion annual savings in next December’s Budget.
Rehn is in Dublin today to speak at a meeting of the chairmen of the European Union’s parliamentary finance committees.
He told RTÉ’s Morning Ireland that the annual savings – which will be made by repaying only the interest on the government bonds, instead of repaying the capital from the promissory notes in annual instalments – should not be considered a windfall.
Rehn said the savings made by Ireland should not be considered a “windfall” given that they did not amount to extra cash income for the government, but rather reduced the amount that Ireland had to borrow to meet its obligations.
He pointed out that Ireland’s government deficit still remained substantial, and suggested it would be better for Ireland to put the savings toward paying down its debt and cutting down on the cost of servicing that debt.
Savings could soften €3.1 billion Budget
Under the terms of the Troika bailout and the extended deficit programme with the EU, Ireland is required to bring its budget deficit to within 3 per cent of its GDP by 2015.
This currently requires Ireland to implement Budget adjustments of €3.1 billion for next year, including €2 billion in spending cuts and €1.1 billion in tax increases.
The savings on the promissory notes could have been put towards this Budget, meaning the adjustment could have been lowered to €2.1 billion while keeping Ireland on track of meeting the 2015 deadline.
Similarly, a €2 billion adjustment in Budget 2015 – with €1.3 billion in spending cuts and €700 million in taxes – could be halved if the promissory note savings are rolled in.
Last week Michael Noonan said he was unwilling to speculate on how Budget 2014 could be affected by the IBRC deal, given that the previous Budget had only been published two months ago, but that it ‘makes sense’ to reduce Ireland’s overall debts and balance the Budget if possible.
He suggested, however, that there were other “moving parts” that had to be considered when compiling the next Budget, such as Ireland’s economic growth for 2013 and any change to the unemployment rate.
This suggests that weak growth in 2013 and any failure to make progress in tackling unemployment could see the government put some of the savings towards softening the next Budget, which could yet be brought forward to October.
The IMF declined to comment on its stance when contacted by TheJournal.ie on the issue two weeks ago.