Former finance minister Charlie McCreevy informed his cabinet colleagues of a warning that the Irish economy was entering a “dangerous phase” just months ahead of his 2001 giveaway budget.
That budget projected a general surplus of £3.9bn for the year. It included a 2% cut in the standard and higher rates of income tax. It also introduced the free medical card for over-70s and an increase in child benefit of £25 to £67.50 per month for the first and second child, and by £30 to £86 for subsequent children.
Government papers released under the Freedom of Information Act record Mr McCreevy telling cabinet colleagues in the Fianna Fáil-Progressive Democrat government that the IMF had warned that Ireland was entering “a potentially dangerous phase”.
The statement was contained in the IMF’s assessment of the economy dated Jun 23, 2000.
It advised that “a tighter overall fiscal stance should be targeted if demand growth does not begin to moderate soon”.
In briefings with ministerial colleagues ahead of the budget for 2001, Mr McCreevy warned of the threat of “a resurgence of unemployment or emigration” as the risk of “damaging wage-price spiral” intensified.
He cautioned colleagues that excessive wage demands could lead to a “hard landing for the economy”.
The budget included a 2% wage increase for public sector workers which had been agreed days earlier in discussions between unions and the government.
Inflation was 4.5% that year, which Mr McCreevy said in his budget speech was a “key challenge”.
He also announced an “anti-inflation package” that included a reduction on Vat to bring down prices, and tax incentives to encourage saving.
However, shortly after it was delivered, the European Commission said that Budget 2001 had been inflationary.
It said the Government was spending £400m more than it should have been.
Mr McCreevy insisted that his policies were the best for Ireland and that he had no intention of revising the tax cuts and spending plan.
He accused the commission of behaving in a disproportionate manner towards Ireland. The taoiseach of the day, Bertie Ahern, said that he totally agreed.
The then tánaiste, Mary Harney, said that other countries would regard the commission’s censure as “bizarre”.
She said the coalition should be applauded, not reprimanded, for policies, which had created one of the most dynamic economies in Europe.
An MRBI opinion poll published in The Irish Times following the commission’s comments found that more than seven out of 10 voters believed that the budget was good for the country.
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