Government accused of giving up on inflation

THE Government was accused last night of giving up on tackling inflation following the announcement of Budget 2003.

Finance Minister Charlie McCreevy predicted that inflation next year is expected to come in at 4.8% following budget increases to VAT, excise charges, and stamp duty.

But the head of the country’s largest union said inflation will rise well above 5% as a result of measures introduced by Mr McCreevy.

SIPTU general secretary Joe O’Flynn said the inflationary impact of the budget was now the biggest concern.

“The Budget is going to have a disastrous effect on low to middle income earners. It is ordinary workers who are going to be put to the pin of their collars. Effectively, workers in the country will be worse off than they are at the moment. It would appear the Government has actually given up on tackling the inflation issue,” Mr O’Flynn said.

Employers’ representatives backed Mr McCreevy’s figures but some economists have predicted that inflation could rise to as high as 6%, reducing competitiveness.

Aside from a minor rise in tax-credits, Mr McCreevy took no further measures to adjust the income tax system for inflation. Any rise in inflation will mean social welfare recipients will only barely break even, despite the increases in benefits.

The inflationary pressures arising from the Budget will make negotiating a new national wage agreement to succeed the Programme for Prosperity and Fairness even more awkward, Mr O’Flynn said.

The increase in the lower rate of VAT from 12.5% to 13.5% will kick in on January 1 and drive up inflation in the first half of the year when the national pay talks are taking place.

“These negotiations will be difficult enough, without adding to it,” Mr O’Flynn said.

The VAT hike will also add up to 2,000 on the cost of buying a house, eroding any benefit from the tax relief brought in as compensation for the eradication of the first-time buyers grant, Mr O’Flynn said.

“Again he has put housing out of the reach of low to middle income earners,” he said.

The employers group IBEC agreed that the rate of inflation will be high at the time of the pay talks, making the negotiations more difficult.

Predicting that inflation would run up to 5.7% at the start of the year, IBEC chief economist David Croughan said it will gradually wind down towards 3.7% in December, thereby rounding off at an average of 4.8% for the year.

“We will have to attempt to get across the fact that the rate of increase is relatively temporary. But there is one thing that will kick against that and that is if the service industry continues to have a higher rate of inflation,” Mr Croughan said.