ESRI says water charges may be only adjustment needed in Budget

Friday 11 April 2014 22.54
The ESRI says the Government can hit its fiscal target for 2015 by leaving taxes unchanged
The ESRI says the Government can hit its fiscal target for 2015 by leaving taxes unchanged

The Economic and Social Research Institute has said if the economy continued at its current level of growth, the Government may have to do little or no adjustment in the next Budget beyond bringing in water charges.

In its latest quarterly economic commentary, the ESRI said it expected output and employment growth this year and next to be at least as strong as 2013.

Much like Ibec at the start of the week, the ESRI is forecasting much stronger growth than that foreseen by the Central Bank or the International Monetary Fund.

It argues that distortions in the multinational sector caused by the patent cliff and changes in the accounting practices of ICT firms mean GDP is a particularly unsuitable measure of the health of the Irish economy.

The ESRI concentrates instead on GNP, which it said will grow by 3.5% this year, and 3.7% next year, after a 3.3% rise last year.

This will be driven by an annual increase of 50,000 in the numbers in work and a 10% rise in investment.

Based on early trends in the Exchequer returns, the ESRI said the Government can hit its fiscal target for 2015 simply by leaving taxes unchanged.

It said it can also use the Haddington Road Agreement to have no increase in public sector pay, and introduce water charges, which raise €500m from households and companies.

This is considerably less than the Government's previously planned adjustment of €2 billion, but it warned that talk of tax cuts is premature.

The ESRI is forecasting that wage rises could return by 2016, as the economy continues to improve.

Speaking on RTÉ's Morning Ireland, ESRI research professor John FitzGerald said: "If we are right, and things go according to plan, then we are definitely looking at an easier time.

"One of the elements of Ireland's success is that we've under-promised and over-delivered since 2010.

"We've been surprised every year by things being a bit better than we thought, and I think (we should) keep it that way."

Prof FitzGerald said that the Government should continue to plan for €2bn in cuts, but could then change its policy.

He said: "Come September, if things are going the way they are, then I think the Government could get away with doing significantly less."

The next target was to get borrowing below 3% next year, he said.

The Construction Industry Federation has said that there are builders ready to construct houses to tackle the deficit in new homes, but that cash and capital are not available to them.

Speaking on RTÉ's News at One, CIF Director Tom Parlon said that only 8,300 houses were built last year.

The ESRI's latest commentary says there is a need for 20,000 to 30,000 dwellings a year for the next 15 years.

Mr Parlon said: "At the moment the industry does not have the working capital and it's not available, or it's very scarce.

"Obviously the industry wants to build. There's a lot of people that if they just could get the working capital could be out and could be earning," he said.

He said that 25,000 houses would generate a €2bn return for the Exchequer and create 70,000 jobs.

He said it would be a "win win" situation for the Government, who are facing a "potential housing bubble" and a lack of good infrastructure.

Sinn Féin finance spokesperson Pearse Doherty has said he hopes the ESRI forecasts materialise in terms of growth and unemployment.

However, if they do materialise, it will be the first time ever because, he said, the ESRI has got it so wrong for many years.

The ESRI has been a cheerleader for Government austerity, he said.

He claimed it has given the Government cover to unleash its austerity programme by referencing ERSI reports, which said there would be economic growth in the last number of years.

Mr Doherty said this never materialised.

Keywords: economy, esri