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NERI warns that ‘legacy cuts’ may increase real adjustment in Tuesday’s budget

Date Released: 14 October 2013

The Director of the Nevin Economic Research Institute, Dr Tom Healy, today warned that what he termed ‘legacy cuts’ may increase the real adjustment in Tuesday’s Budget. Dr Healy was commenting on reports that the likely fiscal adjustment in Budget 2014 will be €2.5 billion rather than the previously assumed €3.1 billion.

“Whatever adjustment is announced on Tuesday will take further money out of an economy already on its knees in terms of retail sales, employment and debt.  Any reduction in that adjustment is to be welcome”

“It is important, however, that the pre-Budget debate, and the analysis following the Budget, is based not simply on headline figures but takes into account the effective adjustment and its impact on the economy, including ‘legacy’ cuts and increased taxes.”

“Every year the Minister for Finance announces a 'fiscal consolidation' of a given amount. While some of the changes made to achieve that amount take effect from the following January, others kick in more gradually.

“For example, last year the Government’s headline figure for current spending cuts was approximately €1.5 billion.  In fact, they announced over €2 billion in current spending cuts over a full year.  The difference is accounted for because some of the cuts kick in gradually over time.”

“’Legacy cuts and taxes can thus effectively increase the adjustment in subsequent years.  The real impact of next Tuesday’s adjustment on households, communities and the economy may therefore end up being considerably more than the headline adjustment figure to be  announced later this week”, Dr Healy warned.


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