NERI: Fiscal space ‘too tight’ for further tax cuts

Another economic think-tank has called on the Government to hold off on tax cuts in next month’s budget; saying the current fiscal space is too tight.

The Nevin Economic Research Institute (NERI) yesterday published its latest economic forecast in which it argued that a focus on educational, infrastructural and R&D spend, in Budget 2017, is the only way to boost long-term productivity and economic growth.

“Existing and future spending pressures mean that the case for cutting taxes in Budget 2017 is very weaksaid senior economist Tom McDonnell, who added the available fiscal space will remain very tight for the next two years.

“Instead, the budget should focus on measures to boost productivity and labour force participation.

“This means prioritising spending on infrastructure, education, R&D and childcare.”

NERI’s forecast follows on from the ESRI last week calling for now tax cuts in the budget and only expenditure measures which can improve the potential growth of the economy.

NERI still sees strong growth for the Irish economy in the short-term — with GDP growing by 4.1% this year and by 3.7% next year.

It sees the deficit in the public finances improving to around 0.5% of GDP in 2017 and a modest budgetary surplus occurring in 2018.

It added that the country’s unemployment rate should drop below 7% by the end of 2018.

As well as Brexit, NERI sees rising energy prices, weaker-than-expected productivity growth and greater than assumed damage to the labour force — arising from the recession and prolonged stagnation — as major downside risks to Ireland’s continuing growth.