MINISTER for Finance Brian Lenihan should stop the annual €1.6bn payment into the National Pension Reserve Fund, because of the crisis in the national finances over the next two years, the influential Organisation for Co-operation and Development has said.
Peter Hoeller, head of division at the OECD, said there was no reason to put more money into the fund, worth €19bn in stock market investments,for the time being because the money was needed to plug holes elsewhere. "There is no reason to put money into it, if it is desperately needed for other priorities. If there is an emergency, there is an emergency: the pension issue is a long-term problem," said Hoeller.
He predicted the government would either cancel or cut by a substantial amount the payment it makes into the fund. Hoeller said the government should freeze the payment even though under the accounting rules of the eurozone that would mean the Irishgovernment's deficit would rise by the equivalent €1.6bn payment.
Figures published last week showed a looming €11bn hole in the government finances this year, that will mean Ireland will break the eurozone's 3% budget deficit rule this year, and only a hairshirt budget on October 14, that would do more severe damage to the economy, would keep Ireland within the eurozone's spending limit in 2009, said Alan McQuaid, chief economist at Bloxham Stockbrokers. But the Sunday Tribune understands that the Minister for Finance, Brian Lenihan, may be able to tap over €1bn that the pension fund has prudently held in cash, and not yet invested, because of the exceptional crisis on stock markets. But Hoeller at the OECD said that the government should keep its hands off using €19bn by, say, subsidising mortgages or boosting the housing market. "We would look on that poorly," he said. "We would be against any subsidising of mortgages because your house subsidies are already pretty generous. Those things got you into trouble in the first place." House prices need to fall to a level that people will start buying houses again, Holler said.