As we all know, this country is facing into a very challenging three years as we try to close the gap between the tax generated in the State and the cost of welfare, public sector and interest on our massive debt. No-one should be surprised by the overall adjustments that will be set out in Budget 2013, Budget 2014 and Budget 2015 because the adjustments are set out in black-and-white in the Memorandum of Understanding which Ireland signed with the bailout Troika of the IMF/EU and ECB. We have in store €19bn of adjustments in 2013, 2014 and 2015 with 2015 alone being €8.6bn or €5,000 per average household. It is going to be difficult and an attempt was made on here recently to provide some clarity on the challenges and options.
So for any economist or politician or citizen considering the future of the country, they would at least like to know the basis on which the next three years projections have been prepared. After all, circumstances change for the better and worse, and we would like to have a sense of the impact of those circumstances on our deficit.
One of the key components of our deficit is the amount of interest we have to pay each year on our national debt, and remember that our gross government debt is set to rise to over €190bn next year according to official sources. And we know we will need find funding of about €40bn in 2014-2015 in deficits and rolling over maturing debt. Seamus Coffey sets out here our deficits for 2014-15 here which shows €8.3bn of cash interest payable in 2014 and €8.5bn in 2015. When you consider our deficits overall are projected to be €8.3bn in 2014 and €5bn in 2015, you can appreciate that the interest payable is significant. But what interest rate assumptions underpin the projections?
In the Dail on Tuesday, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to set out the interest rate assumptions in the projection of our deficit. A fair enough question, you might think in an economy where even small differences to the interest payable can have a big impact on the budget adjustment comprising new taxes and spending cuts. But alas, Minister Noonan is of the opinion that letting us know the interest rate assumptions would be “unwise”. The full exchange is here (with emphasis added)
“Deputy Pearse Doherty: the projected interest rates used in his Department’s April 2012 Stability Programme Update for new debt issued by the State in each of the years 2013, 2014 and 2015. [27957/12]
Minister for Finance, Michael Noonan: Having consulted with the National Treasury Management Agency (NTMA), I am of the view that it would be unwise to outline the interest rate assumptions underpinning new debt issuance over the period 2013 – 2015 as this would compromise the State’s ability to access funds at the most competitive rate possible. As the Deputy is aware, the majority of the State’s financing needs to the end of 2013 will be met through the funding provided under the EU/IMF programme of assistance. However, the NTMA is planning to return to the markets before the end of the term of the programme once conditions have become more receptive.
The NTMA is in constant contact with market participants and will advise me when it feels that the time is right to re-enter the markets. The NTMA will also advise me in relation to the interest rates that it feels are appropriate.”
Despite Minister Noonan’s refusal to provide what is a key assumption in our projections – we need to issue about €18bn of debt to cover our needs for 2014, and there is a €180m annual difference for each 1% that we need pay on that issuance – we can have a stab at the overall interest rate by dividing the interest payable by the estimated debt. So in 2014 we expect to pay €10bn on debt of about €200bn. And it works out at a shade under 5%. It would be good to know the assumptions though, because if the ESM is actually available at 3% then we might have perhaps €400m extra in 2014 to either accelerate the budget adjustment or to cushion the austerity.