Friday 30 September 2016

Government budget plan 'disappoints' the ESRI

Published 10/06/2015 | 02:30

Finance Minister Michael Noonan
Finance Minister Michael Noonan

Government plans for an expansionary budget in October have been branded disappointing by the Economic and Social Research Institute (ESRI).

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At the launch of its latest economic commentary, the think tank said the Government should unveil a neutral budget and said the current planned budgetary policy was regrettable and not advisable.

Finance Minister Michael Noonan has said the Government will introduce an "expansionary budget" this year and every year until 2020, "if this is deemed prudent".

The Government will have between €1.2bn and €1.5bn of additional money to split evenly between new spending measures and tax cuts for Budget 2016.

But the ESRI cautioned against the plans.

"The specific commitment to an expansionary policy is not advisable, is disappointing," said Kieran McQuinn, ESRI associate research professor.

"Our contention is that the economy is growing quite strongly and it calls into question whether you need an expansionary policy."

The think-tank said the economy will be at, or near potential, in 2016. In that context, it said it was more advisable to have a neutral budget and not to "deliberately inflate" the economy.

"Signalling an expansionary policy next year, we don't think is advisable," Mr McQuinn said.

The ESRI commentary also warns that the forecasts set out in the Spring Statement of growth of 3.5pc out to 2020 are credible, but are "somewhat optimistic". It says the economy is likely to grow by between 2.5pc to 3pc.

The warnings come just days after the Fiscal Advisory Council claimed the Government has no real plan and is too optimistic about future economic growth.

The Council warned that the Government is breaking budget rules imposed on all European Union governments. Government forecasts fail to take full account of an ageing population, spending pressures or promised tax cuts, the budgetary watchdog adds.

Asked if the Government's policy was responsible, Mr Mc Quinn said if an expansionary, pro-cyclical policy was continued for a number of years, it would be irresponsible.

"Over the longer period of time, the adoption of a pro- cyclical policy isn't responsible over a longer period of time if that policy was continually pursued," he said.

The ESRI is predicting the economy will grow by 4.4pc this year and 3.7pc in 2016. Unemployment will fall to 9.6pc in 2015, before dropping further to 8.3pc next year.

The ESRI said the economy is expected to recover to 2007 levels by the end of this year. The think tank said it expects the domestic economy to continue to make a major contribution to growth this year and next year.

It also said it expects the Government to need to run a surplus earlier than expected to take some heat out of the economy.

 

Irish Independent

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