Thursday 8 December 2016

USC cuts would be better for economic recovery than public sector pay hikes - economist

Published 03/06/2015 | 07:49

Grafton Street
Grafton Street
The Irish consumer economy turned a corner in 2014 after five years of recession, and is now recovering steadily, a new report reveals today

ECONOMIST Jim Power said today that cutting the Universal Service Charge for workers would be a better move for economic recovery than the recent decision to award public sector pay increases.

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He added that as the economy improves, political instability is the biggest risk to its recovery.

He is expecting GDP growth in the economy of 4.5pc this year.

"All economic indicators are suggesting that the recovery underway is robust, however it would be dangerous to be complacent about this recovery and it is imperative that in the run up to a general election, the Government desists from fiscal extravagance and politically popular measures which would jeopardise the recovery," said Mr Power, chief economist at Friends First, in a new economic outlook published today.

“News of the Government’s decision to award public sector wage increases is worrying. A gradual easing of the personal tax burden, particularly for low to middle-income workers would be the most appropriate policy measure to pursue, rather than increasing public sector pay and generally increasing government expenditure,” according to the Friends First economist. “Increasing public sector pay will add to the cost of running the country and will feed through to the private sector, which in turn could undermine Ireland’s cost competitiveness – USC reductions would be a much more sensible way to put money into workers’ pockets. We are once again seeing the primacy of politics over economics.”

He added that the biggest threats to Ireland’s economic recovery are now political, both local and European.

“The most obvious domestic risk factor is now political. An election must be held by April 2016 at the latest and there is no guarantee that the formation of a stable government will be possible due to the growing proliferation of Independents. Political stability has been a key factor in selling Ireland to international investors in recent years and this is now under threat. The Irish electorate needs to be very careful not to undermine the progress that has been made in very difficult circumstances since the economy crashed,” he said.

Total employment in the economy continues to improve and has increased by 87,700 since the Government was elected in the first quarter of 2011.

“There is nothing better than meaningful employment creation to start solving social and financial problems. Ireland is moving in the right direction and sensible people around the country need to ensure that the anti-business hard left are not allowed to derail the progress that is being made,” according to Mr Power.

Commenting on the the Irish housing market, Mr Power says it is not appropriate to talk about another unsustainable bubble in the residential housing market but warns that it is important that demand and supply side measures are implemented early in the recovery cycle in order to prevent economically dangerous price trends from developing.

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