IBEC proposes economic reforms

IBEC yesterday launched a report Unlocking Domestic Demand promoting a three-year series of initiatives it believes it could create 25,000 jobs, generate €2.4 billion for the Exchequer and increase domestic economic activity by €6bn.

The ambitious proposals have four main planks:

* Reform of pension rules to allow the unlocking of €20bn in AVCs and personal schemes for investment, creating 3,150 jobs.

* A social welfare smart card system to ensure €2.2bn child benefit payments are spent in the domestic economy, benefiting the Exchequer by €100 million per annum and help create 3,600 jobs.

* Stamp duty and property tax incentives for first-time buyers to get the property market moving again. Every house sale brings €20,000 in ancillary services. IBEC says normalisation of transactions would generate approximately €600m per annum for the domestic economy and 5,600 jobs.

* Tax incentives to encourage additional home renovation activity and move work from the informal to the formal economy resulting in €660m of additional spending in the economy and generate 9,200 jobs.

IBEC director of policy Brendan Butler said: “The domestic economy is stuck in recession and just waiting for things to improve is not an option. Simple and inexpensive steps can be taken to support consumer spending and create jobs. Public finance pressures mean that an exchequer-backed stimulus package is not an option, but government policy can change consumer behaviour and unlock untapped demand in the economy.”

To reach a ‘new normal’ savings will need to return to their long-term average and consumers must have access to credit.

“In 2006, there was a net flow of credit of €30bn from the banks to households – mainly to fund housing investment. By 2010, this position had been completely reversed and there was a net credit flow of €10bn from households to the banks. While it is desirable for many households to deleverage, this needs to be balanced with a normal flow of new credit to people without debt who now want to buy homes and make other investments,” the report states.

The report said Irish pension funds are a substantial wealth stock, largely invested outside of the State.

“IBEC estimates that about €20bn is currently invested in AVCs and personal schemes and by allowing early access to these funds there would be a substantial stimulus for the domestic economy and a significant revenue injection for the Exchequer. Early drawdown of a proportion of these funds would not have a significantly negative impact on pensions adequacy and would greatly assist many individuals currently experiencing financial distress,” the report advocates.