Tax Downturn Could Force Irish Finance Minister To Borrow £2 Billion

by Amanda Banks, Tax-News.com, London

07 November 2001

Ireland's Economic and Social Research Insitute has suggested in its latest Quarterly Economic Commentary that Finance Minister, Charlie McCreevy, may be forced to borrow as much as £2 billion next year if the sharp deceleration in the Irish economy evident throughout the latter part of 2001 continues into next year.

Given the momentum from the record growth rates of last year, stated the Institute, economic growth in 2001 is expected to be 6.4% in real GDP and 4.9% in real GNP terms. but the prospects for 2002 are much more uncertain given the extent of the international slowdown.

The Institute continued: 'On the basis of the US and European economies recovering in the second half of next year, our forecast growth in 2002 for real GDP and real GNP is 3.4% and 2.6% respectively. This would result in the economy growing below its trend growth rate for the first time in eight years.'

ESRI believes that the 2002 Budget should be 'neutral' to best deal with the sharp economic downturn and in order to do this it advises Mr McCreevy to index the tax and welfare terms by limiting the value of tax cuts to a maximum of £500 million; and no more than £400 million should be allocated towards social welfare increases.

ESRI added: 'The reality of the Irish economy entering a new phase of lower growth must be matched by revised expectations about wage growth and the potency of budgetary policy. While the public finances remain sound, they can be expected to deteriorate in 2002 in line with slower growth.'

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