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Government must 'persuade' banks to start lending

A leading economist has called on the Government to call in the heads of the major Irish banks and "persuade" them to start lending money again "to get the economy moving".

His call comes as Allied Irish Banks (AIB) prepares to raise surcharge interest on "out of order" accounts, where people exceed their overdraft limits, to 27 per cent.

According to Dr Alan McQuaid, chief economist with Bloxham Stockbrokers, a package of radical measures is now needed to kick-start the ailing Irish economy.

He is calling on Finance Minister Brian Lenihan to do what his predecessor, the current Taoiseach Brian Cowen, refused to do -- drop stamp duty by up to 3 per cent to "try to get the property market going again".

"Of course, there are those in the Department of Finance who will argue that this will put a huge dent in the level of tax receipts, but the same could have been said about Charlie McCreevy's move to reduce capital gains tax to 20 per cent."

He argues that the tax take actually rose after the rate was cut because of the volume of transactions "and history could repeat itself if stamp duty was slashed".

The property market is now in such decline that virtually no houses are selling. Last week, a prominent Dublin auctioneer turned potential customers away -- because it has too many houses on its books already.

Dr McQuaid's comments come as some property developers are under pressure from their banks, and many are unable to keep up interest payments on multi-million loans handed out during the building boom.

Now Dr McQuaid has called on the Government to put together a package of measures to stimulate the economy and revive the building industry -- where employment fell 14 per cent in the year to March.

"We are not advocating a return to to the fiscal laxity of the 1980s, but it is obvious that, although there are global concerns about inflation, Irish consumers must be encouraged to spend."

Dr McQuaid called for a government subsidy or tax breaks to offset spiralling energy bills.

"Under Charlie McCreevy's tenure at the Department of Finance, there were some radical and innovative measures introduced in the Budgets over the years -- what we need now is a policy move encouraging consumers to spend and houses to be bought.

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"Only time will tell if Brian Lenihan is up to that task," he said, calling for "unorthodox measures" to stimulate an economic revival.

Dr McQuaid's comments come at a time when the house building industry has come to a halt and the banks and mortgage lenders have virtually shut up shop.

The Government is already €3.6bn in the red, compared to a surplus of €260m at the same time last year. Tax returns are €1.2bn or 6.5 per cent down compared to the first five months of 2007, with only income tax holding up. Car sales are down 51 per cent, VAT receipts have fallen €600m and there are over 200,000 people unemployed in the State for the first time since 1999.

With the Lisbon Treaty out of the way, he said the Government needs focus all its attention on "tackling the fast-deteriorating health of the Irish economy".


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