Budget proposals ‘inappropriate’, says think tank

The equal split approach, between spending increases and tax reductions, being proposed for October’s budget has been rejected as “inappropriate”, given the current levels of both revenue and spending.

In its latest economic forecast document, published yesterday, left-leaning fiscal think tank, the Nevin Economic Research Institute (Neri) said there is “no scope” for a reduction in tax take in Budget 2016, “given the pressures on the expenditure side”.

It has been mooted that the Government will have around €1.5bn with which to reduce tax and increase public spending in the Budget, with Finance Minister Michael Noonan intimating a 50-50 split between the two measures.

Neri said that long-term economic growth and employment would be best achieved by prioritising use of available fiscal space to increase public capital investment levels.

“Adherence to the medium-term budgetary objective limits the space available for increasing public spending in the Republic to near €1bn per annum until at least the end of 2018, and potentially for longer depending on how the structural budget balance is estimated in future years,” the institute said.

“We reject, as inappropriate, the proposed 50-50 split between revenue and expenditure measures given the far-from-optimal growth and equity implications of that split and the current low levels of government revenue and spending,” it added.

On a broader level, Neri said it anticipates the Irish economy continuing to grow at “a reasonably robust” rate for the next two-and-a-half years, “albeit with growth moderating year-on-year.”

In GDP terms, the think tank sees the economy growing by 3.7% this year, followed by rises of 3.5% and 3.1% in the next two years.

Consumer spending will, it claims, grow by 2.2% this year; with that growth moderating to 2% next year and coming in at 2.1% in 2017. Export growth of 5.5% this year will slow to just over 4% in the next two years.

In terms of employment, it sees the number of people in work exceeding two million by close of next year, and the unemployment rate dropping to as low as 8.5% by the end of 2017.