‘Budget measures totalling €500m required’

The Government should stick to a €500m adjustment in October’s budget, Investec chief economist Philip O’Sullivan has said.

A consolidation of €500m would be achieved through introducing water charges and is much less than the €2bn that the IMF and the European Commission have asked for in October’s budget.

“The positive momentum in consumer spending is a key factor behind the outperformance of the public finances. Exchequer returns data show that year to date, tax revenues are plus 6.4% year-on-year, and 2.5% ahead of guidance, while expenditure is, on the whole, contained.

“These dynamics are producing a strong tailwind as we head towards October’s budget, which will represent the final act in a series of measures which began in July 2008 to restore the public finances to good order. Our view is that an incremental €500m of fiscal consolidation measures are required in order to meet next year’s target of a deficit of less than 3% of GDP while maintaining a buffer to guard against any adverse shocks,” he said in a research note.

Overall, he is positive on the future of the economy.

“The Irish consumer has made a meaningful comeback, with retail sales posting eight successive months of annual gains in both volume and value terms. So-called ‘big ticket’ items such as cars, (the number of new cars licensed in Ireland in the first seven months of the year was up 30% year on year), and furniture are enjoying a bright start to the year, while consumer confidence stands at a seven- year high.

“In the property market, the recovery in residential prices has spread beyond the capital. In the year to date the CSO’s national residential property price index is up 5.4% and within that Dublin is up 8.9% while the rest of the country is up 1.9%.

“In the non-residential sector, busy secondary market activity has been supported by positive trends in prices and rents.