Worst is over but €4bn cuts still needed

THE country’s main think-tank says the worst is over but that the Government’s budget cuts should be closer to €4 billion than €3.6bn.

The Economic and Social Research Institute (ESRI) believes the economy has “bottomed out” and predicted we are not facing a double dip recession.

Its latest economic forecast, out today, has scaled back its earlier predictions of growth, saying “great uncertainty” over what is to come has dampened consumer spending.

The institute is urging the Government to state clearly its tax plans for the next two to three years so that households can plan accordingly and confidence can return.

As employment figures show 1,600 joined the Live Register in August, bringing the total close to 450,000, the think-tank predicted a further rise in joblessness next year.

At least 40% on the register have been claiming the dole for more than a year, according to Central Statistics Office. The ESRI said economic growth will not be strong enough to reverse this and called for policies to avoid a long-term crisis.

The ESRI said gross national product will grow by 1.8% in 2011, lower than its last forecast in May, which said it would grow 2%.

This is a result of people saving more money because of “great uncertainty about the future global and domestic economic climate and about the impact of future domestic budgets”.

The Government has indicated it will publish a three-year plan of spending cuts and tax increases ahead of December’s budget. But this should have been done sooner, according to Joseph Durkan of the ESRI, as “not doing so creates all this uncertainty and part of the Government’s function is to reduce the uncertainty that faces its citizens”.

The expectation of household charges and other taxes “are filling people with concern because they simply have no idea what those charges are going to be”.

Finance Minister Michael Noonan has hinted that the budget adjustment might be closer to €4bn and the ESRI said there is a lot to recommend in this approach.

Mr Durkan urged the Government to aim for about €3.9bn to €4bn in spending cuts and tax increases for next year to ease market concerns and reduce the deficit sooner.

The economic bulletin said the reduction of the interest rate on the EU share of the bailout loan will save Ireland €1bn a year.

It comes as the US billionaire investor in Bank of Ireland predicted Ireland will “once again become the Celtic Tiger”. Wilbur Ross, 73, said: “Ireland will be the first of the euro countries to recover because they really bit the bullet.”