Government told to slash its spending
Think-tank says state salaries must be cut
Published 11/05/2011 | 05:00
THE Government should intensify the programme of cuts in public spending, the country's leading economic think-tank urged yesterday.
The Economic and Social Research Institute (ESRI) also called on the Government to abandon the Croke Park Agreement by cutting salaries and to raise taxes for everybody so that the country can stop borrowing by 2014 -- a much more ambitious target than the one set by the IMF and EU as part of the bailout agreement.
In its quarterly report, the ESRI said cuts introduced in last December's Budget had slowed growth, but further cuts would help the economy by reducing the deficit.
The Government should therefore intensify the present austerity drive by cutting spending, civil service salaries and raising taxes, it added.
The ESRI's Professor Joe Durkan said the Croke Park Agreement should be abandoned and public sector salaries should be cut.
He urged the Government to slash spending so the State does not need to borrow by 2014. The Government's present policy is to reduce borrowing to 3pc of gross domestic product by 2015.
While the IMF and EU want Ireland to return to the bond markets by 2012, Prof Durkan does not believe Ireland will be able to borrow for at least a further two years after that.
Talking about his own salary, Prof Durkan said it should be reduced by 20pc, although lower paid civil servants should not suffer to the same degree.
Senior civil servants were basing their salary expectations on what was paid to bankers, which should not happen, he added.
Tax increases were "inevitable" and the Government should "just get on with it", Prof Durkan said.
The ESRI also called on the Government to cut capital expenditure projects to increase savings.
The ESRI forecasted that unemployment would remain at 14.5pc this year and warned that future unemployment was difficult to predict and would be determined by emigration rates.
New laws that allow eastern European workers to work in Germany's booming economy since last week may entice some Irish residents to move to mainland Europe, the ESRI added.
Prof Durkan also said Europe should shave as much as €50bn off Ireland's debts to speed up the country's economic recovery.
Between a fifth and a quarter of the national debt should be written off to reward Ireland for preventing problems with our banking industry from spreading to other European states and damaging their banks, he added.
The National Treasury Management Agency forecasts that general government debt will hit €173bn this year and rise to €203.6bn by 2015.
Even without any write-off, Prof Durkan forecasted that the economy would return to growth over the next few years, although the growth rate would be much slower than it would be if debts were cancelled.
One of the drivers of growth will be rising exports, driven by Irish companies as well as multi-nationals, he said.
Projects such as Metro North which have not begun or have not been analysed properly should be axed, he added.