Economists Warn Over Prospects For Irish Tax Cuts

by Amanda Banks, Tax-News.com, London

28 March 2002

In a recent survey conducted by Finance magazine, several of Ireland's leading market economists have warned that future tax cuts are in jeopardy, whichever party is elected into power.

Almost all of the main political contenders have, in the run-up to the general election, promised not to increase personal or corporate income tax levels. However, analysts have warned that if the next government wants to deliver further tax cuts, it will have to bring the increase in public spending down to below 7% a year.

Indeed, according to the economists polled by the magazine, tax rises will only be avoided if the growth in spending is halved from its current level of 20% to 10%.

Jim Power, Investment Director at Friends First, told Finance that the time has passed when tax cuts increased economic growth, and therefore effectively paid for themselves. 'Over the next five years, it is unlikely that the economy has the potential to grow at more than 5% a year, so the scope for self-financing tax cuts will be very limited,' he explained.

Austin Hughes, of Irish Intercontinental Bank, expressed fears of excessive government spending during the next term, whichever political party is successful. 'There are signs that many believe that a strong budgetary position and a strong economy are ours by divine right,' he warned.

According to the survey, the economists questioned were all also of the belief that Ireland should reject EU efforts to harmonise taxes across the Union.

'It is nonsense in a monetary union because it removes the only policy lever national governments have to cope with economic shocks,' he concluded.

Recommended