McCreevy warned by economists not to raise taxes in next Budget

ECONOMISTS have warned the finance minister not to increase taxes in the next Budget.

Charlie McCreevy should keep his hands off incomes and other sources of taxation. But the minister will

definitely have to take the knife to public spending.

Most of the economists in open letters to the minister have focused on the need for restrained Government

spending involving a tough stance on public sector pay. Unless public spending is brought under control in the next Budget, the economists warn of serious problems ahead.

Writing in Finance magazine, most say the Government has to keep spending tight to ensure we stay within the EU terms set down for the Budget under the Growth and Stability Pact.

However, views differ on the advice offered the minister in the series of open letters requested by the

magazine. Dr Dan McLaughlin says a temporary increase in the Budget deficit will not be the disaster some suggest, given that it would be tofinance capital spending.

Dermot O'Brien of NCB Stockbrokers suggests we are edging dangerously close to the bad times of 1980s and he urged the minister to pull back from the brink by sharply curtailing spending next year. Colin Hunt of Goodbody Stockbrokers says spending in total has to be kept to a maximum of 9%. He described the spending behaviour of the Government as"lunatic" in the context of the economic slowdown that has taken place in a recent economic commentary for Goodbody.

Jim Power of Friends First, who has been extremely sceptical about the nation's finances says the minister is facing into "the most difficult economic background that any minister has faced since Ray MacSharry in 1987." Most of the economists urged the minister not to raise taxes in the next Budget. Eoin Fahy, of KCB Asset Management said: "Our low tax rates should be seen as one of the key building blocks of our economic success, and should on no account be increased.

Supporting that view, Colin Hunt urges the minister to bear in mind "the tax system is pretty close to the point of optimal efficiency and any changes will run the risk of disturbing the soft landing which the economy is currently going through."

Given the background, the question of benchmarking was commented on by several of the economists.

Mr McCreevy was urged to cap the overall cost or else cut the numbers in the public service. Oliver Mangan of AIB said a jobs freeze would have to allow for necessary increases in certain sectors of the service. On the National Pension Reserve Fund and the National Development Plan, economists said these should go ahead as planned.