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Saturday, 27th April 2024 |
| Economists call for controlled public spending, no tax increases |
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| Ireland’s leading financial sector economists have called on Minister for Finance, Charlie McCreevy, to maintain the present tax position and bring public expenditure under control in the next Budget in the annual Finance pre-budget economist survey. |
Ireland’s top economists have written open letters to the Minister for Finance giving their recommendations as to what actions he should take in the forthcoming Budget. The letters are published in this issue of Finance and a focus on supply side policies, particularly the issue of public spending and public sector pay is dominating the messages.
Almost all the economists warn the Minister that public spending must be curtailed to stay within the terms of the budgetary provisions of the EU Growth and Stability Pact and to avoid what Dermot O’Brien of NCB Stockbrokers calls ‘a risk of a repetition of the 1980s experience,’ which, he says, is ‘not too far down the line’. Colin Hunt of Goodbody Stockbrokers says that overall spending growth must be limited to nine per cent at most, otherwise the Minster will ‘lay a foundation for an array of growing budget deficits over the coming years and increase the probability of an increase in income taxes’.
Dr. Dan McLaughlin believes however, that a temporary increase in the budget deficit ‘is sensible if the economy is growing below trend, particularly as any deficits in 2002 and 2003 would be solely due to the level of capital borrowing.’
In what Jim Power of Friends First calls ‘the most difficult economic background that any Minister for Finance has faced since Ray Mac Sharry in 1987’, the majority of the economists urge the Minister not to raise taxes with Eoin Fahy of KBC Asset Management saying, ‘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’. Hunt agrees with this viewpoint and urges McCreevy to remember that ‘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.’
On the issue of the National Pension Reserve Fund and the National Development Plan, the consensus is that these should go ahead as planned, as according to Austin Hughes of IIB Bank, ‘the Irish economy and the public finances are in a sufficiently healthy state to allow most obligations be met’. Only Alan McQuaid of Bloxham Stockbrokers believes that the legislation regarding the state pension fund be relaxed, saying that it is an easy way of generating much needed money, and ‘a lot of people could do with some of this money now’.
Benchmarking is again a contentious issue, with two key recommendations emerging for the Minister. Number one would be to put a cap on, or even reduce the numbers employed in the sector in order to reduce the public service pay bill and the second is to introduce a performance related pay structure. A ceiling on numbers employed should not however be applied ‘crudely across the public sector,’ says Oliver Mangan of AIB. Rather some areas should see increases and others reductions in payroll numbers he says. |
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| Article appeared in the September 2002 issue.
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