Bloomberg News

Irish Cuts Economic Growth Forecast as Debt Crisis Escalates

December 06, 2011

(Updates with government majority in ninth, economist’s comment in 11th)

Dec. 6 (Bloomberg) -- Ireland’s government lowered its economic growth forecast for 2012 for the second time in five weeks as the euro region’s debt crisis escalates.

Delivering the second part of the budget in Dublin, Finance Minister Michael Noonan said gross domestic product will rise 1.3 percent, down from 1.6 percent he forecast on Nov. 4.

“As a small country with an open economy, the crisis in the eurozone has a profound effect on our economic prospects,” Noonan said in a speech in parliament today.

Noonan said today he’ll raise the country’s sales tax, levies on deposit interests and taxes on tobacco, as part of austerity measures aimed at winning a return to international credit markets. Yesterday, Prime Minister Enda Kenny’s government outlined about 2.2 billion euros ($2.9 billion) of spending cuts even as concern mounted that the euro region debt crisis will derail the nation’s economic recovery.

“Broad events in Europe could well have a larger impact on Ireland’s economic prospects than the composition of tax increases,” Conall Mac Coille, an economist at Dublin-based securities firm Davy, said in a note today.

The yield on the Irish 5 percent security due October 2020 fell 18 basis points to 8.96 percent as of 4:41 p.m. in London, leaving the price at 76.47.

Tax

Capital gains tax and capital acquisitions tax will rise to 30 percent from 25 percent, Noonan said. Tax on deposit interest will also increase to 30 percent from 27 percent, and Noonan plans to extend taxes to remote betting and exchanges.

Sales tax will rise to 23 percent from 21 percent and excise duty on a packet of 20 cigarettes will be raised by 25 cents.

One of the government’s lawmakers, Patrick Nulty, will vote against the budget, broadcaster RTE reported. The two ruling parties, Fine Gael and Labour Party, won 113 seats out of a possible 166 in a general election on Feb. 25, assuring the coalition can still pass austerity measures.

In all, Noonan plans 12.4 billion euros of austerity over the next four years, adding to 21 billion euros taken since 2008.

“With economic forecasts tilted to the downside for 2012, the worry is that further austerity may have to be introduced in coming months if the next year’s budget deficit targets are to met,” said Alan McQuaid, chief economist at Bloxham Stockbrokers in Dublin.

--Editors: Dara Doyle, Rodney Jefferson

To contact the reporters on this story: Finbarr Flynn at fflynn3@bloomberg.net;

To contact the editor responsible for this story: Colin Keatinge at ckeatinge@bloomberg.net


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