State urged to scrap tax cuts

The Government has been urged to scrap plans to cut taxes in next month’s Budget, with one economic think-tank saying it risks widening the gap between rich and poor.

The left-leaning Nevin Economic Research Institute (NERI) wants the Government to instead focus on supporting long-term growth objectives such as education and infrastructure for long-term growth.

“Tax cuts won’t grow the economy in the long-run and are, in general, likely to increase the wealth and income divide,” the think-tank has said in its latest economic outlook, due to be published this morning.

In the document, NERI has offered one of the most positive outlooks for the Irish economy, with 5.9% growth forecast for this year and 4.1% next year.

It also suggests that employment will exceed two million people around the middle of 2016 and that the general government deficit will improve to 1% of GDP by the end of next year.

According to Dr Tom McDonnell, NERI’s chief economist, the economy’s growth potential depends on its ability to generate annualised productivity gains.

“The best way to sustain growth in productivity, over the long-term, is to invest in education and skills; in productivity-enhancing infrastructure and in the production and diffusion of new technologies and ideas.

@EMPLOY2016 @NERI_research the IMF's infographic on youth unemployment. The 'quiet coerciveness' of diagrams! https://t.co/MjwsAZIBPC

— ffinnegan (@FinneganFergal) August 24, 2015

"Increased investment in strategic infrastructure, in research, and in the early years of childhood would all help to increase the economy’s future productive capacity,” he said.

In June, NERI blasted the Government’s planned equal split approach between spending increases and tax reductions, in Budget 2016, as “inappropriate”.

Ahead of today’s outlook launch, NERI’s director, Tom Healy said: “The Institute urges the Government to prioritise long-term strategic investment over short-term giveaways such as tax breaks or tax cuts, especially where these disproportionately benefit the better off. Budget 2016 must put the emphasis on investment for future prosperity and equality.”

NERI has also reiterated its call for a proper Strategic Investment Bank.

It said the NTMA-controlled Ireland Strategic Investment Fund, which is in the midst of investing the contents of the former National Pension Reserve Fund into commercial investments, is the most obvious institution to evolve into such an entity.