Belfast Telegraph

Republic is facing stark choices on debt cuts

By Brendan Keenan

The Republic needs to find a further €13bn (£11bn) in tax and spending cuts to start its debt burden on a downward path, new calculations from the Organisation for Economic Co-operation and Development reveal.

This is one of the largest adjustments required among advanced economies, although Britain's gap is almost as big, the study says.

Even with an adjustment this size, it would take almost 30 years to get debt down to the 60% of GDP laid down in the the new eurozone fiscal compact which will be the subject of the referendum by the Republic in May.

A decision on how soon countries move to a situation where output is growing faster than debt will depend on the choice between taxes and spending, estimates of the impact on growth, and whether monetary policy, such as lower interest rates, can offset the reductions in demand.

The OECD favours property taxes as a way of avoiding the distortion caused by high labour taxes.

"Governments should also emphasise less-harmful taxes, such as those on immobile property, and corrective taxes such as pollution charges," the report says.

Only four countries require bigger corrections than Ireland to reduce their debt to 50% of GDP by 2050. They include the world's biggest economy, the US, whose stance affects global economy. "In many countries, just stabilising debt, let alone bringing it down to a sustainable level, will be a major challenge,'' the report says.

"The poor state of public finances will require wide-ranging fiscal consolidation in most countries, particularly in those whose pre-existing imbalances have been aggravated by the crisis, as well as in those facing rapidly rising spending on health and long-term care.''

30 years

The time necessary to bring debt down to 60% of national output (GDP)

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