House prices increase pressure on economy

SPIRALLING house prices are posing significant risks to the economy, the Central Bank warned yesterday.

Calling for an investigation into land prices, the bank said homeowners are being financially crippled by excessive mortgages.

Highlighting its concern over the housing market, the Central Bank said prices had risen more than 15% over the past year.

Unhappy with lending procedures at the main banks and building societies, the Central Bank also warned unsustainable house-price growth is posing significant risks to financial stability and the economy.

The bank said high housing costs had the potential to add to wage pressures, as even relatively well-paid workers were finding it difficult to get a foothold in the housing market.

Ominous signs for the economy and the tough budget ahead were also shown in the latest Exchequer figures.

Tax receipts are still significantly down, at 500m below predictions, in this year's third-quarter Exchequer returns.

But an unprecedented fall in cigarette revenue has accounted for up to 100 million in lost excise duty, accounting for a fifth of the missing tax black hole.

Overall the Exchequer balance sheet is more than 1 billion in the red, compared to a surplus of almost 600m last year.

Yesterday's Exchequer figures painted a similar picture to June's half-year returns and Finance Minster Charlie McCreevy warned public spending would have to remain tight.

"The end-September results underline the need to keep public expenditure within projected limits. This is being done and is made all the more necessary by the likely shortfall in tax receipts," he said.

While Government departments have underspent by 1.5bn so far, they are expected to make up the difference before the year is out.

Although the drop in tax receipts remains largely unexplained, the Department of Finance's Philip Hamill said falls in excise duty, VAT, corporation tax and income tax had all contributed to the 500m shortfall. "Tobacco is particularly affected. Production of cigarettes for sale is down 15%," he said.

The drop in cigarette revenue is not believed to be a result of an increase in illegal sales as, according to the Revenue Commissioners, there is no evidence of more smuggling.

Instead Mr Hamill attributed the drop in cigarette sales and a further dip in alcohol sales to declining levels of disposable income.