The General Government deficit ( expenditure less receipts) was c.€14bn last year and is set to come in at €9-10bn this year. Mind you that improved deficit amounts to almost 25% of expected tax receipts so there is very little wiggle room in that sort of arithemetic. Then again it was over 30% of tax receipts only last year so it is coming down fast.
Noonan should be aiming at reducing that shortfall to no more than €6bn in 2015 and with a target of €0 in 2017 or even a slight surplus…and surpluses thereafter. Now would be the time to state that €0 target, especially if Noonan is still MoF on Wednesday moring as I would expect he will be.
HOWEVER improvements in the economy, generally, should deliver most of that €3bn budgetary adjustment in 2015 in the form of higher tax revenue and the ‘special treatment’ of VAT EU wide will deliver €1bn alone. One must be coy about that windfall lest the Germans find out as they surely will sooner or later.
The governments income profile looks lilke coming in at €42-43bn this year rather than the expected €40bn but we all know that some of this will be swallowed up by O Reilly and his successor in Angola…not all of it thankfully. A few 100 million is being used to pork bits of the economy, called stimulus funding. It will sticky plaster a tad of the capital envelope is all.
From 2016 onwards the national debt can be reduced in absolute terms with no real impact on the budgetary numbers because the NTMA can reduce its cash on hand requirement year on year in each of 2015-2017 inclusive. Reductions in cash on hand in 2015 and 2016 will not cover the governments funding requirements so the debt, now €180bn at the end of June will probably rise to €187-188 bn at end 2015 before stabilising at that number. Finally an end to it. So I predict that the absolute number will be €188bn tops.
This strategy of making payments to reduce the absolute number, starting 2017, reduces the debt in absolute terms YoY and even if growth is anorexic it reduces further on the key Debt/GDP measure. I think growth will be 2-3% per annum over 2015-2017 inclusive. From 2018 on the explicit target must be to get the Debt/GDP ratio under 100% by end 2022, which is achievable in a generally stable environment and to get the debt number down to €170bn over that time too. We will not be out of the woods ( with the scope to finance expected deficits over a recession) until we have it down to €150bn or so, perhaps by 2030
A recession in the interim will lengthen the time required of course.
The debt gdp ratio was restated as 116% last week once slappers, crookedness and villiany was capitalised onto it so there is no obvious reason to my mind that it cannot be brought down to 110% by end 2016…mainly by increased growth. But the NTMA can play a part by indulging in strategic redemptions to keep the narrative on track.