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Monday, 15th April 2024
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Economists back McCreevy approach on 2001 Budget Back  
A survey of the leading economists working in Ireland's financial institutions shows a substantial majority providing broad encouragement for the Government's economic policy approach, with approval given to continued cuts in income taxes in the next Budget, and a continuation of the controversial 'individualisation' tax reform.
Economists such as Jim O’Leary, Dan McLaughlin, Eoin Fahy, and Alan McQuaid are calling for cuts in both the top rate of tax and the standard rate, with ABN AMRO’s Dan McLaughlin pointing out that the old target rates for income tax of 40 per cent and 20 per cent should be replaced with new medium term targets of 30 per cent and 10 per cent respectively.

The proposals arise in the context of a symposium of economists’ views, compiled by Finance, and published on page 5 of this issue. Nine economists, all working in Irish financial services institutions and banks, were asked to contribute their policy recommendations in the form of a ‘Memo to Mr McCreevy’, listing some seven priorities for economic policy in the 2001 Budget.

All of the nine, with only one exception, plump for further income tax reductions and reject the views of some, including a number of English economists commenting lately on the Irish economy in the context of the UK’s debate on the euro, that tax cuts are inflationary. The dissenting voice amongst the nine is Jim Power, chief economist of the Bank of Ireland, who rejects the supply side consensus. ‘Cutting taxes further will not increase the supply of labour’, he says. ‘It is fine to make headlines about the need to attract foreign workers into the country, but the reality is that we are not in a position to house these workers’.

Against this, the ‘supply side’ view put forward by Jim O’Leary is typical : ‘The Minister should press on with his individualisation plans, and make it clear that they have as much to do with removing the present discrimination against single people as they have to do with altering the relative positions of single-and double-earner married households. Nor should he allow his plans to be derailed by distributional arguments: in a progressive system it is difficult to implement significant tax cuts that don’t favour middle and upper income groups. In the limiting case, tax reductions cannot benefit those who don’t pay tax at all. Is this a valid argument against cutting tax? Of course not’. Amongst the sixty plus policy ideas contained in the survey are a series of proposals centering on: free trade/anti-monopoly measures; finance sector reforms; and proposals on indirect taxes.

Given the amount of publicity currently being given to the Irish inflation rate, proposals for cuts in excise duties and other indirect taxes such as VAT are considered but the panel is divided on the question of cutting indirect taxes, with some, such as McLaughlin and NCB’s Dermot O’Brien opposing such cuts, and others, such as O’Leary declaring themselves undecided.

Perhaps many might agree with the sentiments of Goodbody’s Colin Hunt: ‘Minister, don’t let the doomsayers get you down. Economic policy is on the correct course and should not be altered because of the recent deterioration in inflation readings. Rather than tightening fiscal policy, you should continue with the supply-side approach of recent years with an emphasis on using both taxation changes to enhance the efficiency of the labour market’. Perhaps all, however, even McLaughlin, O’Brien and O’Leary, will agree with Hunt’s point that Ireland’s wine duties are out of kilter with those of our European Union colleagues ‘and are ripe for a significant reduction’.
(Memo to Mr McCreevy: page 5)

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