Ireland is still vulnerable to economic downturns

WE have reached a point in economic forecasting which suggests fair winds ahead for several years to come.

It seems too good to be true. But Exchequer figures showing the Government took in €1.7 billion more than projected in taxation last year points to a very buoyant economy.

It doesn't matter that 80% of this was generated by the various tax investigations of the past few years.

The figures show the State did better out of property and consumer spending generally than it had anticipated at the start of 2005.

As a result most tax categories were ahead and, instead of facing a deficit of €3 billion, that was cut to €499 million.

Even allowing for the tax cheats whose contribution to the higher figures was substantial the bottom line is the economy continues to outperform Budget expectations.

It can be argued the conservative stance of the Finance Department makes the Government look good and certainly the potential for the Coalition to play Santa at the next Budget is immense.

Some are cynical about the persistent miscalculation of the tax take over the past five or six years, given the optimistic growth forecasts.

The types of Budget we have seen have done little to assuage concerns about a health service creaking at the seams and they have also failed to address the pressures on those who are weakest in our society.

The other question raised by the continuing buoyancy in the economy is whether we are doing enough to provide for the rainy day. The answer is probably no. One recent report on care of the aged, prepared by the Government, argues that people's home equity should be raided to help pay for their care.

In a perverse way that argument points to the reality in this economy that people are significantly better off than once was the case, due to the property boom.

Despite the down sides to the economy and the squandering of some of the wealth that has been created in various projects by the State, the persistent view is we never had it so good.

As the prospect of SSIAs moves closer, this economy will be swept along for another few years on the back of spending their maturing will unleash.

Figures for Government and consumer spending are strong and it looks as if property demand is set to stay robust. How that translates in terms of house prices is one of the trickier issues facing forecasters, but don't expect any fall in house prices in the short term.

For this benign outlook to be stood on its head right now requires a major upheaval in the US where the dollar nose dives and international investment starts to dry up.

That is the one fear the Economic and Social Research raised in its medium term review in late December. It raised the prospect of a 30% decline in the value of the dollar or possibly 50% if investors took flight.

This could see unemployment double in Ireland and house prices collapse by up to 30%, according to that respected body.

It is the one scenario most Irish economists, bullish about our future prospects, refuse to give any serious thought to.

For most investors the dollar remains king and as long as that remains the case then we have nothing to worry about.

And even if the dollar comes under attack the underlying reality for this economy is that, compared to the rest of Europe, we are in a better position to cope than most.

Our budget is almost in balance and our debt situation remains one of the best in Europe.

However, an uneasy feeling persists that we are vulnerable and that the Government could, perhaps, have done a bit more by way of taxation to slow economic growth and build up reserves in the event of the US taking a severe hit in the next few years.