The ESRI has urged the Government to refrain from tax cuts in this year's budget. It said that the Government should instead focus on spending to improve infrastructure. The ESRI, delivering its quarterly commentary, warned that budget spending should be less than half of what was delivered last year.
It said that the biggest risk to the Irish economy is a prolonged slowdown in the United States, which would hurt employment prospects and consumer confidence here. The ESRI warned that the international economic environment is particularly gloomy at present, with stagnant growth in the US, Europe and Japan.
The ESRI said that if the US failed to recover it would have a large knock-on effect on jobs and on consumer confidence here. It also predicts a fall in the value of the dollar and of sterling. It warned that this would lead to a sharp loss of our competitiveness, given that Irish wages are climbing by about 11%.
The ESRI said that the economy is now at a turning point so the Government must be extra careful in managing its finances. It warned that the Government should not put more than £700 million into the economy in this year's budget. This is less than half of the budget give away last year, when tax cuts alone were worth £1.2 billion and the total budget spending and tax package was over £2 billion.
The economy is now at full employment so the ESRI wants the Government to concentrate on improving our infrastructure rather than spending money on tax cuts, which are unlikely to attract more workers into the labour force.
