Government urged to borrow €5bn a year to stop house prices spiralling
The ESRI says the State’s finances are robust enough to allow it to invest big in social housing. Picture: Sasko Lazarov/RollingNews.ie
The Government has been urged to borrow €5bn more each year to solve the housing crisis amid fears prices and rents will soar as the economy looks set to boom.
In its latest economic assessment, the ESRI says the State’s finances are robust enough to allow it to invest big in social housing.
That type of large-scale investment would tackle the high cost of housing and help prevent prices that are already among the most expensive in the world from rising further when the Covid recovery gets under way, the ESRI said.
Professor Kieran McQuinn said the ESRI believes that, with sovereign interest rates likely to stay at record-low levels, the Government could sustainably borrow €5bn more a year, over multiple years, when the worst of the Covid crisis has passed.
Professor McQuinn said the additional borrowings wouldn't be used for current spending, as was the case in the 1980s, but for capital expenditure, with the returns from housing also delivering for multinationals by offsetting the risk of a new house price spiral.
Funds could also be used to invest in Sláintecare and the pensions "time bomb", and help Ireland meet its considerable climate targets, he said.
The ESRI’s advice marks something of a watershed for Ireland’s leading institute, even though many other rich states are looking to borrow big to invest in their social and climate programmes at a time when sovereign borrowings have never been lower.
It comes amid fresh signs that the economy may be poised for a boom.
The Government looks set to comfortably fund the billions it says it will inject into the economy under its Covid stimulus package, as Vat, income and excise duties rose sharply in May.
The latest exchequer figures again reflected the remarkable recovery, as tax revenues climbed even before major parts of the consumer economy, such as hospitality, have fully reopened.
The exchequer collected over €7.5bn in tax revenues in May, up by over €1.3bn from May 2020, when the first Covid lockdown was just coming to an end.
The Government has taken in almost €23.7bn in the first five months of the year, an increase of almost €2bn over the same period last year.
The figures will boost expectations that the unwinding of some of the almost €15bn in additional deposits built by households during the pandemic will help support the recovery when restrictions are lifted through the summer.
Economists have said the economy is showing signs of having weathered the Covid slump.
"With non-essential retail having now reopened, Vat receipts are likely to rise sharply in the second half of the year," Grant Thornton Ireland tax partner Peter Vale said.
The Department of Finance said the exchequer deficit for the five months to the end of May was running at €6bn — little changed from the same period last year — and was running at €12.2bn on a 12-month rolling basis.
Paschal Donohoe, the finance minister, said that "a sustainable and broad-based recovery" was under way.
Michael McGrath, the expenditure minister, said that, over a 12-month rolling basis, total gross spending was running at €86.7bn, up by €14bn from the previous period.
Meanwhile, the number of people requiring the pandemic unemployment payment (PUP) fell by almost 24,480 this week as the reopening of the economy gathers pace. However, almost 751,500 people still rely on some sort of welfare payment, such as wage subsidies and jobseeker allowances, to make ends meet.
The Department of Social Protection figures show there are now 305,515 people availing of the PUP as the pace of people leaving the scheme quickens.
