ESRI calls for 20% cut in child benefit

THE Government thinktank the ESRI has called for a 20% cut in child benefit as part of the Government’s drive to slash €4 billion in spending from the next budget.

The report also recommends that social welfare payments should be frozen and not cut as part of that drive to stabilise the national finances.

Alan Barrett, chief author of the ESRI’s quarterly bulletin, stressed the Government has to stick to its pledge to deliver on its €4bn savings target.

That should take the form of €1bn in tax, with the remaining €3bn to be saved by a variety of means, including pay and other cuts – many of which were detailed in the recent Bord Snip report.

Keeping to the €4bn target outlined in the April budget will halt the haemorrhage in the Government’s finances, the ESRI said.

It warned the Government’s target of getting back to a deficit of 3% by end 2013 could be affected by how the global economy performs in the meantime.

Interest payments on our growing national debt will hit €3bn, or 10% of total tax revenue, this year, and the ESRI said reducing the mounting national debt was a priority.

The economy will shrink by 7.2% in GDP terms this year and by 1.1% next year, leaving the figures unchanged from the previous forecast.

For 2011, the ESRI says only modest growth can be expected with a modest pick-up in economic activity anticipated towards the end of 2010.

Much will depend on how global growth performs, said Ide Kearney, a co-author of the report.

Serious question marks hang over the US banking sector and that could derail the anticipated recovery in the US next year, she said.

Unemployment, which hovered at around 4.6% during the boom period, is now destined to peak at close to 15% next year, slightly lower than the ESRI’s previous forecast.

Unemployment levels next year will be helped by the anticipated migration of 40,000 back to their home countries due to lack of work here, the bulletin said.

House prices, which have continued to fall during the slump, could lose 50% of their value from peak.

The quarterly report also raised doubts about the fall in wages in the private sector and questioned how much competitiveness we have regained since the recession set in.

Wage restraint was one of the main themes dealt with by the governor of the Central Bank, Professor Patrick Honohan, in his first public address since being appointed to the bank last month.

At a pre-budget seminar in Dublin he stressed that curbing wage demands was vital to the economy regaining competitiveness and for the retention of jobs.

“Retaining wage competitiveness to ensure maximum employment in these difficult times is surely a key priority, even if it means cuts in nominal wages.

“Wage discussions need to recognise the increased purchasing power of money in an environment where inflation is falling; if not then our wage structures will move out of line with our competitors,” he said.

“If average wages in Ireland do not get back reasonably close to where they were relative to competitors earlier in this decade, then a reduction in unemployment will owe more to migration than to a return to job growth,” he said.