Major Budget boost as IMF backs €300m loan bill deal
Finance Minister Michael Noonan has pledged to use savings from a deal to cut the cost of IMF bailout loans to ease the impact of next month's Budget on families and businesses.
In a surprise move, the minister said savings - which could be €300m next year - would be factored into Budget 2015, after European leaders backed Irish plans aimed at cutting the interest bill on the bailout debt.
The EU support was widely anticipated, but getting the deal early enough for Budget 2015 was not expected.
It raises the prospect of an easier Budget, including possible cuts to the punishingly-high universal social charge or changes to PAYE tax rates.
Earlier this year there were fears that the Government would seek €2bn in tax hikes and spending cuts in 2015.
The latest savings mean the overall Budget may now be little changed from this year's - boosting the prospect of some measures to put cash in consumers' pockets.
The final numbers are difficult to calculate because spending plans for next year will be finalised in October - and savings from any debt deal won't materialise until later. But Mr Noonan said that savings from a plan to pay back costly IMF bailout loans early with cheaper bond debt will be factored into Budget 2015.
The plan will save taxpayers €1.5bn over the next five to seven years, Mr Noonan said. That would work out at between €214m and €300m a year.
'It will have some effect on the Budget. We will probably include a prudent and modest figure for additional savings in the Budget figures,' he said in Milan after ministers from the Eurozone agreed to back his money-saving plan.
The savings are on the same scale as the €350m the Government will raise next year from water charges - or the €500m it hopes to take in in household property charges next year.
Some analysts say the savings will be higher, closer to €400m annual according to Phillip O'Sullivan of Investec.
Taoiseach Enda Kenny welcomed the news, which he received at the Fine Gael party think-in in Fota Island, Cork.
'This is a further step in a reorganisation and restructuring of the bailout programme for the country that we inherited from our predecessors,' he said.
Fianna Fail's Michael McGrath said saving can be used to replace spending cuts or tax increases in the Budget.
'The capacity of the Government to deliver meaningful income tax reductions has undoubtedly been given a boost,' he said.
Getting support to repay the IMF loans is important because the interest bill on the national debt has soared since the financial crisis hitting a high of €7.3bn last year.
Ireland went from having little national debt to becoming one of the heaviest borrowers in Europe in the wake of the bank bailout. The interest bill - known as debt servicing - has become a major element in every Budget.
The deal with the IMF chips away at just a portion of that by swapping IMF loans for cheaper bonds. This will not reduce the overall size of the national debt, but it helps cut the State's annual interest bill.
The IMF charges Ireland close to 5pc in interest on €22.5bn of rescue loans - compared to the around 2pc it would cost to borrow from the financial markets,depending on the price on the day.
Servicing just the IMF share of the bailout will cost taxpayers €1bn next year, if the debt repayment plan does not happen.
Under the original bailout terms, Ireland cannot repay the IMF without paying back others - including the European bailout fund - but the other lenders can waive that.
It meant the Government was forced to seek agreement from each of the other 27 EU member states for the cost-saving plan.
Ministers from the 17 other euro countries are backing Ireland's proposal to pay back €15bn of the IMF debt in three huge chunks, the first this year by borrowing €5bn on the markets, probably in November. The head of the European bailout funds Klaus Regling threw his weight behind the plan.
'I welcome the Irish initiative for a very simple reason, it benefits other large creditors like the European Financial Stabilisation Fund (EFSF),' he said.
Ministers from non-euro countries including the UK, Denmark and Poland are expected to row in behind the plan today - when finance ministers from all 28 European Union counties meet in Milan.
Some technical barriers to full formal approval remain. Sweden is in the midst of a general election and the German parliament, as well as government, have to give their endorsement.
One possible hurdle to a deal was the European Central Bank (ECB), which has pressed Ireland to cut the amount of Government bonds owed to the Central Bank here, as a result of last year's complicated deal to scrap the Anglo Irish Bank Promissory Note. But yesterday Mario Draghi (pictured above) accepted the two issues are not connected.
Irish Independent
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