According to a new report from Goodbody Stockbrokers 'A Rocky Road Ahead', the Government will have to provide a further €9bn in equity to the banking system.
Unpalatable decisions will have to be made in the form of cuts in social welfare payments, a reduction in the public sector wage bill, tax hikes and a widening of the tax base.
Given the scale of the savings required, it is not reasonable to suggest that it can be done through cuts in expenditure (-28%) or increases in taxes (+44%) alone. It must be a combination of these, including a widening of the tax base. Goodbody economists say if policies are not changed, the budget deficit will reach 12% of GDP this year and 13% next year, with total Government debt rising to 87% of economic output by 2013.
Goodbody says that it's not clear whether international bond markets would fund a big rise in borrowing in the current environment.
The report also states that with the need to close a gap of some €16.5bn (8% of GDP) over the next five years, some unpalatable decisions will have to be made.