ESRI warning over €2.7bn available for Budget

FINANCE Minister Brian Cowen will have up to e2.7 billion to spend in next year’s Budget, the Government think tank, the Economic and Social Research Institute (ESRI) has concluded.

The figure was reached after the deduction of an estimated e1bn, to cover the costs of a planned 5.5% hike in social welfare payments.

According to Dr Alan Barrett of ESRI, the Government is “awash with money going into next year”.

However, the ESRI reiterated its earlier warning to resist prime-pumping the economy in an election year.

According to Dr Barrett, the economy does not require e2.7bn to deliver another year of solid economic growth.

“The bottom line is that 2008 looks like being a year of much more modest growth as higher interest rates and an easing of SSIA monies results in significantly lower growth,” he said.

On that basis, the Government should hold back on spending all the finances at its disposal in 2007.

These findings were presented at the Budget Perspectives Conference in Dublin, yesterday, which was sponsored by ESRI and the Foundation for Fiscal Studies.

It shows consumption is forecast to grow strongly in 2007, at a rate of 7.4%, partly due to the spending of SSIA funds.

Good employment growth of 3.5% and nominal wage increases of 5.5% will also boost consumer spending in 2007, ESRI said.

For the current year, investment is forecast to grow by 6.5% with the biggest contribution coming from non-housing building and construction. This will be due largely to the roll out of the new National Development Programme.

ESRI also noted that the strong growth in consumption is likely to produce increases in VAT and excise revenues of more than 10%. . “Our forecasts for strong growth in employment lead us to estimate a possible increase of over 6% in income taxes [in 2007],” according to ESRI.