No need for personal tax cuts, says ESRI

It was not the first time that the ESRI think-tank has warned the Coalition against inflating the economy.

Last June the same co-authors said something similar.

David Duffy and Kieran McQuinn said then that the Government would run the risk of failing to learn from the mistakes of the past if it were tempted to run expansionary budgets.

It said then that the tax receipts of the recovery were bountiful and the economic growth numbers were already sufficiently strong.

Three months on and the authors find the justifications for stimulating the economy through personal tax cuts threadbare.

Earlier this year there were doubts about whether shell-shocked households would start spending again. The ESRI says there is now sufficient evidence that consumer spending will be one leg of a sustainable recovery.

It has significantly raised its growth projections to 6% this year and to 4.5% in 2016. Thanks to the weak euro, exports are booming, and the domestic economy is expanding.

The assessment by the ESRI will need answering by the Coalition.

“In our view the increase in the pace of economic growth reinforces the case for a neutral budget this year,” said the report’s co-author Kieran McQuinn.

“There has been some suggestion that a reduction in personal taxation rates is needed to consolidate the recovery, however, the recent increase in personal expenditure undermines this notion.

"A reduction in personal taxation is not required for growth in household consumption,” it says.

“Similarly, the better-than-expected growth outlook along with the relatively buoyant tax receipts may be regarded as a justification for a generous budget.

"There again, the strength of the Irish recovery actually indicates the most prudent budgetary course of action at this time is to follow a neutral fiscal strategy.”


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