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Tough Budget could damage fragile consumer spending

NEXT week's Budget risks further damaging already fragile consumer spending, an expert has warned.

Consumer spending is continuing to fall this year, marking the fourth year in a row of lower buying by households.

But the rate of decline has eased, an analysis carried out by the UCD Smurfit Business School shows.

Mary Lambkin, marketing professor at the business school, said next week's Budget comes at a time when retail spending is very weak, and the tax and levy changes may do massive damage to consumer spending.

She said there was a slight rise to the numbers of goods bought in shops in July, August and September, but spending remains extremely weak.

The Budget is coming at the same time as the peak retail spending period.

Some estimates have calculated that families on €40,000 a year will be hit for an additional €3,250 in taxes and levies.

And the Irish Tax Institute has argued that families cannot take any more punishing tax hikes. The institute has advocated spending cuts instead.

Prof Lambkin said: "It seems paradoxical that the Budget comes at a time when it can do maximum damage to consumer spending. Arguably, it would be better to time it for March or perhaps October, to avoid clashing with the peak retail season."

The consumer market accounts for around 63pc of economic activity, making it a key economic indicator.

Prof Lambkin said that the signs were that consumers will continue to be very careful with spending.

"The remainder of this year is expected to remain challenging, especially for the retail sector," she said.

"However, various forecasts agree that the cutbacks may have run their course by next year as real disposable incomes begin to stabilise, with a modest level of growth returning from 2014 onwards."

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