‘Budget must not increase taxes’

THE Government has been warned not to increase the tax burden in the budget and to slash spending to achieve savings of €3 billion plus.

Raising income taxes risks pushing the economy back into recession when the global recovery is under pressure, warned Bloxham Stockbrokers economist Alan McQuaid.

As the global recovery falters, Mr McQuaid has cut the growth forecast in 2011 to 2.5% from the consensus figure of 3.5%.

The focus should be on spending cuts, current and capital, and on selling state assets, he said.

“The Irish economic outlook remains clouded in uncertainty. With the latest US economic indicators clearly showing that the world’s largest economy is slowing down, this doesn’t augur well for the economic picture here at home,” he said.

Job opportunities remain weak, with unemployment to hit 14% by the year end, before dropping back to 13% by the end 2011.

Inflation is turning positive due to rising global food prices and higher mortgage interest repayments, he said. Unemployment demands a series of “major pro-employment initiatives” to deliver badly needed jobs in the shortest possible time.

Too much focus has gone on Anglo Irish Bank while the jobless issue is not getting the attention it deserves, he said.

On Anglo, the “constant drip-feeding of bad news” about the bank was having a bad impact on the public and international investors.” So far the Government has failed “to put either a price or a timeline on its plan”, he said.

The country will not recover economically unless the bank issue is satisfactorily resolved, he said.

The lack of a “coherent government strategy” is damaging our prospects, while lack of credit and the rising mortgage costs are undermining consumer confidence, he said.

Spending will remain constrained, with lack of credit and higher interest rates prompting people to pay down debt instead of spending more, he said.

Looking ahead building activity will remain the biggest drag on domestic demand for some time.

House completions are likely to be between 10,000 to 15,000, both this year and next, well down on the 90,000 plus houses built at the height of the boom.

Non-residential construction remains fairly weak, having contracted by almost a quarter in 2009, with the pace of contraction speeding up again into 2010, he said.

After years during which the economy lost competitiveness, indicators continue to give grounds for optimism, he said. The unwinding of structural imbalances associated with the housing market boom, coupled with a pick-up in the multi-national sector, “is helping to foster a return to positive productivity growth”, he said.


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