Ireland sees bigger exchequer deficits

Ireland's government finances will fall further into the red than previously projected this year and the deficit in 2008 will more than double, the country's finance ministry said on Saturday.
The exchequer deficit for this year is now seen at 1.6 billion euros ($2.36 billion) versus the 1 billion euros predicted last month, the Department of Finance said in its Estimates of Receipts and Expenditure published ahead of Wednesday's budget.
Assuming there were to be no changes to tax or spending when Finance Minister Brian Cowen presents his 2008 budget on December 5, the deficit for next year is seen at 3.8 billion euros. The median forecast of 12 Dublin-based economists polled by Reuters earlier this week showed they expected a 1.2 billion euro shortfall in government finances this year, rising to almost 3.4 billion in 2008.
Ireland's thriving economy is expected to slow sharply next year with gross domestic product (GDP) growth seen at just over 3 percent, which although still comfortably above the European norm would be well below the 5.7 percent recorded in 2006.
An end to Ireland's decade long property boom during which house prices more than quadrupled, and the associated slowing in housing output, is expected to not only dampen economic expansion but also cap years of rapid growth in tax revenues.
On the upside, the finance ministry said the general government balance, which includes the finances of other state bodies as well as the central exchequer, was expected to show a surplus of 0.5 percent of GDP this year.
For 2008 it is seen deteriorating to a deficit of 0.2 percent of GDP on a pre-budget basis although that will still be well within the limit demanded by the EU under the Stability and Growth Pact which sets a cap on deficits of 3 percent of GDP.
Indeed, Ireland's finances are so strong by European standards and national debt so low that a number of economists have argued that Cowen should ramp up spending and cut taxes in Wednesday's budget in order to stimulate the slowing economy.
Cowen has warned, however, that the big spending increases seen in recent years will not be repeated given more subdued economic growth. He has indicated that 2008 public spending will rise 8 percent which is down from nearly 13 percent this year.