This year a turning point for economy, says Cowen
Related Articles
Finance Minister Brian Cowen gave a clear signal last night there won't be tax cuts in the forthcoming budget.
The promised cuts to the higher and lower tax rate, as well as PRSI, made during the general election, now appear to be on the back burner ahead of a "tight" budget.
"In relative terms it is tight. We are entering a new situation," he said.
Mr Cowen said 2007 was a "turning point" for the economy.
"While the economy has performed reasonably well in the first half of the year, the current indications are that the short to medium term outlook has changed vis-a-vis that envisaged on budget day," he said.
The minister is predicting he will have to borrow €1bn this year and another €3.7bn next year to balance the books as economic growth slows down.
Publishing the new Pre-Budget Outlook and Pre-Budget Estimates for Public Services in 2008, the minister said election promises were always predicated on a favourable budgetary position.
"Obviously I can't do everything if it's not all there. The NDP [National Development Plan] is number one in all circumstances," he said.
The Tanaiste said the lower level of growth will have implications for everybody.
"But we mustn't lose sight of the fact that this performance is nevertheless impressive by international standards and one that many of our European partners would love to replicate," he said.
The estimates outline the cost for next year of providing the same level of public services currently in operation.
This will mean an increase in day-to-day spending of €2.3bn or 4.8pc, taking current spending up to almost €51bn.
Funds for extra services will be provided on Budget day in December.
House completions are falling dramatically -- down from 80,000 to 70,000 this year and expected to drop further in 2008 to under 60,000.
Growth rates forecasts have been slashed from 5.25pc to 4.75pc.
Next year, economic growth is expected to drop further to 3.25pc and to average out at 3.5pc from 2008 to 2010.
"It is a lower rate of growth but I believe it is perhaps a more sustainable rate," he said.
The tax take is still expected to rise by 5pc across the board, also down on the increases of recent times. This year tax revenues are expected to increase by 7pc.
"Gone are the days of the surpluses way beyond what was expected," he said.
But the minister said the so-called big four tax areas -- income tax, corporation tax, excise duty and VAT -- which provide around 85pc of revenues will perform well in 2008.
Around one third of the increased spending is allocated to pay increases for public sector staff under the current wage agreement, Towards 2016.
The allocation for next year does not include funds to meet the pay awards from the next benchmarking review for public sector workers.
Although this body is due to report to the minister in December, any increases are not expected to kick in until 2009.
The estimates for next year do include the full year costs of hiring extra gardai and also take account of the additional 1,100 primary school teachers who will be needed for the 14,000 extra children starting primary school next September.
- Fionnan Sheahan Political Correspondent
