Prudence still key for the economy
Exchequer returns for the first quarter of the year showed solid revenue growth but there was also some cause for concern with a fall in income tax receipts in March, which is being put down to a dip in returns from the self-employed sector. Lower-than-expected income tax receipts have been a feature in previous returns which is difficult to understand in a strong labour market. While the Department of Finance expects this downturn to unwind later in the year, the returns do serve as a salutary reminder that caution and prudence must remain the watch words. That said, the figures for the first three months of the year are on target and up 5.7pc on 2017. The economic news, therefore, is to be generally welcomed.
But while the domestic economy has maintained its strong momentum there remain a number of risks to the economy, most notably the threat of Brexit. There are also other issues of serious concern, particularly impending international tax changes which highlight Ireland's exposure to a small group of companies, as well as supply shortages and the strong increases in residential prices and rents.
These potential threats make it even more important that the Government maintains a careful stewardship of the country's finances, and this is particularly so in advance of a Budget which is already beginning to fill the political vacuum. The Minister for Finance has said that the Government will continue to focus on prudent management of the economy and on implementing competitiveness-oriented policies to ensure the country remains resilient in the years ahead. This is to be welcomed. That said, at this stage it has become critical that the Government makes greater effort to address issues affecting the residential housing market. While house prices appear to be in line with fundamental factors, pressures on the market are reducing affordability. Rapid price increases are now widespread across the country, although significant regional differences in absolute terms remain. The European Commission has made a good case for housing policy to be underpinned by a concrete regulatory framework that facilitates higher densities. In this regard, the Government has made proposals to lift height restrictions. These proposals should be given urgent consideration. Problems in the housing market must be offset by an acceleration of supply, in the private sector but also the public sector.
Furthermore, the implementation of Project Ireland 2040 is critical to address key infrastructural bottlenecks and enhance potential growth. However, such infrastructure projects must be economically and socially tested to ensure that they make absolute sense. The country can ill-afford a costly white elephant. While the resilience of the banking system has improved, important challenges also remain in relation to the non-performing loans and weak credit demand.
The news last week that mortgages are now being offered with an initial interest-only period of up to 15 years is also a cause of concern. Yet while these and other threats and uncertainties remain, at this point the potential for tax cuts in October's Budget also remains. Sight should not be lost that the public is entitled to a return on the sacrifices of the last decade, but neither should it be forgotten that a sustainable future is the best reward for all of that effort.