Government officials are examining whether there will be scope in next year’s budget for an investment programme of €1 billion or more targeted at the construction sector.
The debate comes against the backdrop of demands from the Department of Public Expenditure for deep spending cutbacks in health, social welfare and education in the next three years.
It follows projections that suggest the Coalition may be on track to overshoot the deficit target it must meet next year under agreements with the European authorities.
While the Coalition is obliged by the EU to achieve a budget deficit of 5.1 per cent of economic output in 2014, the latest Department of Finance projections suggest a deficit of 4.3 per cent could yet be reached.
This has clear potential to reduce some of the fiscal pressure on the Government but Minister for Finance Michael Noonan is adamant there should be no move away from the €3.1 billion retrenchment set out in the bailout programme.
Mr Noonan is understood to be arguing that the achievement of this figure is an essential prerequisite for the Government to fully regain access to private debt markets as it seeks to exit the EU-International Monetary Fund bailout programme at the end of this year.
The figure assumes €2 billion in spending cuts and €1.1 billion in taxation measures, €600 million of them carried forward from the introduction of the property tax this year and looming pension measures.
However, officials are looking at the possibility of an increased capital programme to funnel money back into the economy.
It is understood that some €1 billion and possibly up to €1.5 billion could be in play but the notion is subject to the achievement of economic targets in coming months. The debate is acknowledged to be in its early phase only.
In spite of the acute pressure on welfare, health and education expenditure, this is seen in some quarters of the Government as a better option than simply easing off on fiscal retrenchment.
This notion is said to carry particular attractions on the Fine Gael side of the Government. There is, however, pressure on the Labour side to keep spending cutbacks to a minimum, particularly in social welfare.
The basic idea behind any capital investment plan would be to boost employment, especially in the construction sector, while signalling to market investors that the Government continues to deal with the underlying weaknesses in the public finances.
Unemployment rate
While an alternative option is for the Government to press ahead with the fiscal plan without introducing any additional measures to stimulate the economy, the Coalition is under pressure to make inroads into the 14 per cent unemployment rate.
The discussion comes amid the opening phase of the budget estimates process, which comes earlier this year because the budget has been brought forward under new EU laws by two months to mid-October.
Following the conclusion of the Haddington Road deal on public pay last week, the budget process is set to rise to the fore of the Government’s agenda over the summer months.
