Warning over end to boom

THE end of the Irish property boom will present Ireland with strong budget challenges in the years ahead, an EU Commission report warned yesterday.

The economy was facing “several macro economic challenges” due to a drop in output to more sustainable levels, said the commission.

It added the Spanish economy, also underpinned by a property boom over the past decade, faced similar challenges, concluding rising interest rates have hurt the spending power of Spaniards.

That scenario is resulting in falling tax takes from the property market, it said.

“Ireland’s fiscal position faced a noticeable deterioration in 2007-2008, from a sound surplus in 2006,” the commission said.

“It is forecasting a deficit of 0.9% of gross domestic product this year, compared with a surplus of 0.5% of GDP in 2007. It warned this could widen to 1.1% in 2009.

“The EU places a limit of 3% of GDP on deficits.

The commission said public finances in Ireland and Spain are at “medium risk” in the long term due to the impact of aging populations on pension costs.

Fine Gael MEP Gay Mitchell last night lashed out at the Government’s failure to plan better for the impending downturn.

Speaking in Strasbourg yesterday he said the report called for firm control over spending and an improvement in our public finances by implementing further pension reform.

“The reality is that by partying on when our economy was growing at unsustainable rates, the Government has left the country more vulnerable at a time of a downturn in the construction industry and in our main markets — the US and the UK,” said Mr Mitchell.

Apart from the impact of the weaker housing market, loss of competitiveness of Irish exports and the long-term implications for pensions, due to an ageing population, will add to fiscal problems of our economy in coming years, the report said.

It also warned the boom times in the economy were gone.

Scarcer resources will demand tight budgets with greater efforts devoted to looking after a population that is getting older.

This economy was in transition mode to lower growth and already the impact has been a “noticeable deterioration” in the national finances, it said.

Recent economic reports from Irish economists have revised forecasts for the economy sharply downwards. Growth could be as low as 2%.

David Croughan, chief economist at IBEC, said the dip in the national finances was due to the huge push through the National Development Plan to improve Ireland’s infrastructure, which would restore our competitive base.

Growth in Ireland will still be ahead of the EU average, the commission said.