The recent Budget and spending Estimates will add 5-10 per cent to house prices next year, Economic & Social Research Institute (ESRI) research professor John FitzGerald, has warned.
As a result house prices are likely to be more than 15 per cent higher at the end of next year and much of the infrastructure planned under the National Development Plan will not go ahead because of a shortage of construction workers, he predicted.
The combination of the Budget and spending Estimates will mean the Government will be seeking to employ more than 20,000 new workers in 2001. Many of these will be at the expense of jobs in the private sector and on top of an already very tight labour market will give a major boost to wage inflation, he warned.
According to Prof FitzGerald, tax cuts no longer ease wage pressures but now actually increase wages given the tight labour supply. Spending increases give an even bigger stimulus.
Speaking at the Institute of European Affairs, Prof FitzGerald said the Budget would boost wages by 3-4 per cent on average on top of the 7.5 per cent in the Programme for Prosperity and Fairness (PPF).
That will put pressure on many private sector firms and will be the only mechanism to release enough people to meet the employment needs of the State sector.
Mr David Croughan of IBEC also worried about the impact of large wage rises on private sector firms.
"Almost one third of indigenous firms were stagnating last year. Wage bills are up 10 per cent to 12 per cent before the amazingly unnecessary abolition of the PRSI ceiling which will push up wage costs even further."
He insisted that IBEC would be seeking to have the employers' PRSI ceiling reinstated or else the rate reduced. However, SIPTU's Mr Manus O'Riordan said it would be unacceptable for the Government to do any u-turn on the issue.
Mr Croughan warned that if the total package boosted inflation it should not lead to another renegotiation of the PPF. The real concern, he added, was that the public would expect a similar sized package for the next two years.
Mr O'Riordan criticised the provision for childcare which "remains woefully inadequate" while the tax discrimination against working parents in last year's revised Budget had yet to be removed, he said.
"The Minister for Finance failed to implement Fianna Fail's own election manifesto commitment to provide tax relief on the childcare costs of working parents, equivalent to the home carer's allowance introduced in the course of the last Budget's U-turn. "Existing tax discrimination means that the gain of an extra £50 per month in child benefit for a single-income two-child family will be completely offset by the loss of £50 per month home carer's allowance if the second partner wishes to enter the labour force," Mr O'Riordan added.
He said social welfare increases should have been higher, but he welcomed the rise in allowances and said it was the result of trade union pressure.
"The entry point for tax liability will rise from an earnings level of £110 per week to one of £144. This outcome has only been brought about because the trade union movement refused to let the Government have its head, but instead insisted on negotiating a Programme for Prosperity and Fairness which rearranged the priorities of taxation policy."
