Ibec: Ease budgetary adjustment

The Government should ease up on the budgetary adjustment by €500m this year and rule out any further tax increases, according to Ibec in its pre-budget submission.

This would help boost domestic demand and provide a platform for much needed growth, it added.

The Government plans a fiscal consolidation of €3.1bn this year and €2bn next year in order to bring the budget deficit back within the 3% limit by 2015.

At a recent conference organised by the ESRI, its chief economist, John Fitzgerald, Trinity economics lecturer Philip Lane, the IMF’s Peter Breuer and former government adviser Alan Ahearne all urged the Government to stick to the €3.1bn adjustment planned for this year on the basis that there are still considerable downside risks to the economy.

Ibec chief executive Danny McCoy said that reducing the planned cuts by €500m would show that an end to austerity is in sight. This, combined with the pledge not to increase any income taxes would provide a huge boost to consumer confidence which would drive growth in the domestic economy and help the Government meet its target by 2015.

“In the broad sweep austerity has worked. We now have choices and if we had not done the austerity, we would not have this choice,” said Mr McCoy.

Ibec does not want any further taxes that would increase employment costs. Even though there has been an improvement in competitiveness over the past few years, labour costs remain higher than in many of the country’s competitor locations.

“In particular, it should not introduce statutory sick pay proposals or make further adjustments to the pricing of private beds in public hospitals as this measure has already resulted in sharp increases in health insurance costs paid by employers.”

Ibec also wants the Government to retain for this year the cut in Vat from 13.5% to 9% for the hospitality sector that it introduced on a temporary base in 2012. “Our analysis demonstrates significant gains in employment, activity and Exchequer benefit from these measures and they should be retained. Budget 2014 should also support the domestic economy through the introduction of a home improvement tax credit or grant incentive scheme,” said Ibec in its pre-budget submission.

The employers’ group advises that the Research & Development tax credit scheme should be improved in an effort to make Ireland more attractive to foreign investors.

Moreover, Ireland lags behind Britain in providing tax incentives to boost innovation, said Ibec chief economist Fergal O’Brien.