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ESRI wants further cuts to public spend

Friday, September 21 08:02:29

More cuts in public expenditure this year are needed to reduce the budget deficit, according to the Economic and Social Research Institute. In its latest quarterly economic commentary, the ESRI says that the public sector pay bill needs to be adjusted, either through a new voluntary redundancy scheme or extra working hours, while cuts in health, education and welfare are inevitable.

Services exports are likely to be the main driver of export growth this year, although goods exports, particularly those of indigenous industries, are likely to contract modestly. On the domestic front, fiscal retrenchment is almost certain to constrain domestic demand over the forecast horizon, yet renewed investment expenditure looks set to partly offset this impact next year, with strong FDI inflows, development projects undertaken by NAMA and the Government's investment stimulus providing some impetus for growth.

The institute also advocates a number of changes to the tax system, including reform of the vehicle registration tax scheme introduced in mid-2008. Changes in tax credits and in the width of relevant tax bands could also increase the tax base, it says. The assessment comes as the ESRI revised its economic forecasts for this year and next. Having forecast in June that Ireland's gross national product would remain flat in 2012, the think-tank is now predicting that GNP will fall by 0.2 per cent in 2012.

It predicts a 1.8 per cent increase in gross domestic product this year, having forecast a full-year increase of 0.6 per cent in June. The institute is more upbeat in its assessment of 2013, predicting that GNP growth will be positive at 0.7 per cent next year. It estimates that GDP growth in 2013 will be 2.1 per cent. The more positive outlook reflects the impact of stronger exports and an expected rise in investment next year, generated by foreign direct investment; the Government's stimulus package announced in July; and Nama's plan to invest in construction projects