Cowen set to deliver ‘unique’ Budget

ONE of the country’s leading economists expects the 2007 Budget to be expansionary and to deliver a surplus at the same time.

Finance Minister Brian Cowen will find himself in this unique position next year, according to Ulster Bank chief economist Pat McArdle.

He told the Institute of Certified Public Accountants in Ireland yesterday, that strong economic growth made it possible for Mr Cowen to meet people’s expectations and still appear fiscally responsible. Tax buoyancy, which showed strong momentum in 2006, will carry over into 2007.

“That will provide the minister with the latitude he needs to further boost public spending on Budget Day, while at the same time delivering a surplus of up to 0.5% of GDP,” he said.

Afterward he said the very strong state of the public finances left the minister with a very strong hand.

The Economic and Social Research Institute (ESRI) has said the Government’s 2007 Budget should be neutral. It made more sense for the Government to keep its firepower until Budget 2008 when the economy could benefit from a bigger injection of demand to counter the slowdown the ESRI sees looming for 2008.

However, Mr McArdle said he believed the Government would use the current strong public finances to “introduce a pre-election budget which satisfies the electorate while at the same time providing an aura of fiscal rectitude”.

He has forecast increased public spending of €1 billion and tax concessions to be even higher than last year’s figure of €750 million. And he made another positive forecast, saying: “Don’t expect any increase in taxes, this is a pre-election budget.”

To prevent the tax burden rising, Mr Cowen needs to index-link tax bands and allowances to wage growth, not inflation, which will run at 4.75% in 2007, he said.

The minister has already increased the PRSI ceiling from €46,400 to €48,800 — an increase of 4.75% which is his Department’s measure of wage inflation for this year.

Mr McArdle thought it highly unlikely stamp duty would be abolished, but did not rule out some movement on the issue: “I would not rule out a tinkering with the bands to ease the burden on buyers at entry level. The rates of duty in Ireland are reaching penal rates and need urgent address.”