The Economic and Social Research Institute has called on the Government to embark on a big social housing investment in the budget next week instead of income tax cuts.
In a new forecast, which finds that a 5 per cent economic growth rate is likely in 2015, the institute said the Government would beat its deficit target comfortably with a “neutral” fiscal plan in which there were no new cutbacks and no net rise in taxation.
The think tank has also said acceleration in growth means the Government could balance the budget by 2016, two years earlier than foreseen previously.
In addition, ESRI research professor John FitzGerald said full employment could be be achieved a year or two earlier than his previous estimate of 2020 if there was no disruption to the present growth path.
As talks proceed on the budget package to be unveiled next Tuesday, the ESRI has also forecast that the unemployment rate would drop below 10 per cent next year to 9.6 per cent.
Health reforms
As budget talks intensify, Minister for Health Leo Varadkar has warned Cabinet colleagues key health reforms may be at risk if he does not receive a “realistic” spending allocation next week.
Mr Varadkar is now seeking a “neutral” allocation, comprising a sum equal to the €13.7 billion in his current budget as well as a supplementary estimate “in excess” of €500 million which he expects soon.
Sources said the key elements of Coalition health policy, such as free GP care for the under-sixes, had yet to be implemented and could be at risk.
The tax package expected next week is expected to feature substantial changes to the unpopular universal social charge (USC).
Although the Government plans modest income tax concessions next week, the ESRI said it would be better to divert a large sum for investment in social housing and added that such a plan would reinforce the acceleration in growth.
The Government will benefit next year from €400 million in water tax proceeds and €100 million in new savings from the Haddington Road pay pact.
“Our advice is that this should go on an investment package and more particularly that it should tackle social housing,” said ESRI associate research professor Kieran McQuinn. He said the requirement to maintain fiscal vigilance was obvious.
GNP growth
The ESRI forecast said gross national product would grow by 4.9 per cent this year and by 5.2 per cent in 2015.
In terms of gross domestic product, the measure most often used by the Government, it said the growth rate this year would be 5 per cent and that this would accelerate to 5.3 per cent in 2015.
Such figures exceed the forecasts the Government will use in the budget, which will assume 4.7 per cent GDP growth this year and 3.6 per cent growth in 2015.
Department of Finance chief economist John McCarthy told an Oireachtas committee yesterday that the Government forecast had been endorsed by the fiscal advisory council, the body that monitors economic policy.
