Alan McQuaid: Budget 2018 starts to address the housing crisis but it's a slow burner
For many in the general public, addressing the housing imbalance remains the main priority facing the minority government.
Initiatives announced in Budget 2018 are a start, but this is a slow burner and not something that can be rectified with immediate effect.
Furthermore, the increase in stamp duty from 2pc to 6pc on commercial property transactions may have some unforeseen negative consequences for the residential property sector and house prices in particular.
Still, there are a number of positives in today's Budget from an overall macro-economic perspective:
(1) The income-tax reductions coupled with social welfare increases should boost disposable income and in theory lead to higher personal spending. However, whether that money is spent in the Republic or North of the border remains to be seen. The euro/sterling exchange rate will be key again in 2018. The weakness of the pound this year has encouraged many people to go North to do their shopping, with a big increase in the number of second-hand cars imported from the UK. We have also seen the impact of weaker sterling on Irish food exports to Britain and the number of British tourists visiting Ireland. Still, greater clarity on "Brexit" and an increase in UK official interest rates may in the coming months give sterling a lift to some degree, which would be good news for Irish retailers.
(2) The Government's spending plans on both the current and capital side will help boost employment and further reduce the numbers out of work. We have already passed the two million people in employment mark, and another net jobs rise of over 30,000 looks on the cards for 2018, following an estimated increase of 48,000 this year. Having peaked at 15.1% during the financial crisis, the unemployment rate is set to drop below the 6.0% level over the next few months. However, youth unemployment remains elevated at 14.8% and needs to be brought down into single digits as soon as possible.
(3) Investing in education is key if Ireland is to improve its skill-sets over the long-run. The announcement of the creation of new teacher posts is a welcome development, reducing pupil/teacher ratios, and giving students a better chance to achieve a higher standard of qualification going forward.
(4) Despite having the fastest growing economy in the EU over the past three years, Ireland has an infrastructural deficit. New initiatives announced today will help to alleviate that, but again it won't be corrected overnight. Furthermore, ensuring greater broad-band penetration across the whole country is imperative, if rural Ireland is to attract jobs away from Dublin.
(5) Ireland's strategy in recent years has been to under-promise and over-deliver on the budgetary front, and this is set to be the case again next year. Irish 10-year bond yields (long-term interest rates) have once more hit record lows in 2017, and there is nothing in Budget 2018 that in our opinion should spook the financial markets too much. Lower interest rates means reduced debt service costs, leaving more money available for other, more important areas of expenditure.