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Continue supply side policies in Budget and beyond Back  
Last year Ireland’s finance sector economists in this poll of their policy recommendations on the forthcoming Budget gave strong backing to the Minister for Finance Mr McCreevy in his tussle with Europe over tax cuts, and recommended a continuation of the broad policies being followed by the Government.

This year, they still argue for emphasis on supply side policies, tax cuts, public sector capital spending on infrastructure, and restraint in public expenditure, particularly public sector pay and, as reported on page 1, are unanimous in the view that he should rescind what is being called the ‘skills tax’, imposed by removing the ceiling on employer PRSI contributions in the last Budget.

So clear is their view on this that some of our panellists even suggest ways in which it might be done, although there is a preference for a clear reversal of the move, introduced in the last Budget, rather than a ‘fudge’, which might involve, say, a reduction in the overall rate of employer PRSI, rather than a re-introduction of the ceiling.

Among almost all of the contributions emerges a clear concern about the overall trends in the public finances. The following comments are typical: ‘From a fiscal perspective, controlling public spending growth as the economy slows is key to avoiding a repeat of the late 1970s/early 1980s public finance crisis’ (Aziz McMahon, economist of Ulster Bank Group treasury), and ‘another couple of years of day to day expenditure like we have seen in 2001, and all the good work of targeting/achieving Exchequer surpluses will be undone’ (Alan McQuaid, Bloxham Stockbrokers).

A broad consensus emerges around several policy initiatives that should be taken under the following heads:

The PRSI ‘Skills Tax’: Unanimous agreement that a ceiling should be re-introduced at around previous levels.

Housing Market: Restore tax relief on interest payments by investors engaged in the development and provision of rental accomodatio. Abolish the 20 p.c. social housing provision. Reduce stamp duty on housing.
Infrastructure: Full steam ahead with the National Development Plan (although some questions persist over the National Stadium).

Tax: Tax cuts should be continued, particularly with emphasis on widening the bands and reducing the incidence of the higher rate of income tax on incomes.

Inflation and Public Sector Pay Bill: Pay should be benchmarked, and benchmarks should recognise the risk differential between private sector and public sector employment. The Budget should be inflation conscious e.g. in not exacerbating the CPI, for example through moves such as the cigarette price increase of 2000; one panel member calls for a 1 per cent off the VAT rate.

Business Confidence: Beneficial corporation tax moves should not be counteracted by the skills tax which acts to penalise companies for paying their Irish employees higher wages and moving up the added value pyramid.

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