Draconian Budget will curb our economic growth by 2pc
Published 08/12/2010 | 05:00
THE Budget will knock up to two percentage points off economic growth next year, the Department of Finance's own calculations admit.
Despite this, the department is forecasting growth in output (GDP) of 1.7pc next year.
This implies the Irish economy could have expanded by 4pc in 2011 if there had been no contractionary Budget.
However, the government deficit would have risen to 22pc of GDP, even with this pace of growth, according to the department's white paper last week.
"Ireland would be on an unsustainable debt path, with very negative growth consequences over time," the Budget documentation says.
Many outside analysts regard the official growth figures as too optimistic.
"Any deficit-reduction programme amounting to 4pc of GDP is bound to have a large negative impact on the economy," said Marie Diron, economic adviser to accountants Ernst & Young.
"Indeed, we are forecasting a significant contraction in economic activity in 2011; a much bleaker picture than the Government currently depicts."
The department's belief in the underlying strength of the economy allows them to forecast strong growth from 2012, when the Budget corrections should take only 1pc off growth.
The four-year plan sees growth of 3.2pc in 2012, easing to 2.8pc in 2014. Growth at this pace is required to generate some of the extra €10bn in tax revenue needed to meet the targets.
It is relying on a turn in house building to support its growth forecasts.
Although investment will fall a further 6pc next year, on the forecasts, it will rebound to 5pc growth in 2012, spurred by the new 1pc stamp duty, to reach 25,000 dwellings by 2014.
The EU is also forecasting lower growth than the Government and agreed to extend to 2015 the deadline for bringing the deficit down to 3pc of GDP.
The agreement with the EU/IMF says any slippage on revenues will have to be addressed by new measures to meet the targets.
The country's largest trade union, SIPTU, also queried the forecasts.
"Nothing in Mr Lenihan's presentation supports these figures," SIPTU general president Jack O'Connor said.
"There is no provision, of any substance, for investment or job creation. Where is the growth to come from?"
Paula Clancy, director of the left-of-centre think-tank TASC said the economic strategy will mean debt interest repayments continue to rise, making budget deficit reduction almost impossible.
"Instead, the approach restated in this Budget will stagnate the economy, and make recovery much more difficult," Ms Clancy said.