Tuesday 27 September 2016

ESRI echoes Noonan on continued corporation tax surge

Published 18/12/2015 | 02:30

Michael Noonan
Michael Noonan

The Economic and Social Research Institute (ESRI) has backed Finance Minister Michael Noonan in forecasting the surge in corporation tax is set to continue next year.

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The Government had collected around €3bn more in taxes than expected by the end of November, with the vast bulk of that over performance coming from corporation tax.

Economists - including the Fiscal Advisory Council - have expressed concern claiming it's not clear what's behind the surge.

But ESRI senior research officer David Duffy yesterday joined with the Revenue Commissioners in saying there will be a similar performance next year.

"We think that much of that increase will be sustained into 2016," he said, at the launch of the ESRI's latest Quarterly Economic Commentary.

The ESRI forecast another year of strong growth in 2016, with GDP forecast to rise by 4.8pc, slower than this year's prediction of 6.7pc.

Unemployment is set to drop to 7.9pc by the end of the year on average, and to around 7.5pc in the final quarter.

But the think tank warned that the economy is closer to operating at its full potential than the unemployment data would suggest.

And this means there is little if any scope for stimulus measures such as the tax cuts seen in Budget 2016.

Kieran McQuinn, associate research professor with the ESRI, said there isn't much slack in the economy.

"Between that, the more conservative estimate of the output gap, and the speed of economic growth, basically suggests that there's very little if any role for fiscal policy to play in terms of stimulating activity in the new year or beyond," he said.

"We may well reach a position where we may even need to start thinking about targeting surpluses as a way of taking some heat out of the economy if the economy continues to grow as robustly as it has in the last two years and it may well in 2016."

On housing, the ESRI said a number of factors may be influencing the residential market at present, such as the Central Bank's mortgage deposit rules, which it argues could be having an effect on demand. It pointed out that asking prices had risen in the commuter counties around Dublin, suggesting demand may have shifted to locations with better availability and affordability.

"In particular, the down payment requirement under the new macro-prudential regulations is likely to have adversely impacted on affordability amongst first time buyers in Dublin especially," the report said.

Irish Independent

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