The Minister for Finance has said that Budget day expectations will have to be adjusted to reflect the new economic realities. He was speaking after the publication of Economic Review and Outlook 2001 by the Department of Finance yesterday. The report updated the Department's economic forecasts for the first time since the outbreak of foot-and mouth disease and the US economic downturn.
The Department has cut its forecast for growth in the Gross National Product from 7.4 per cent to 6.0 per cent.
This compared with growth in GNP - the monetary value of everything produced by the economy less profits remitted home by foreign owned companies - of 10.4 per cent last year.
The economic slow down has already had an impact on the Department's tax revenue projections which have been cut back by £500 million. Although Mr McCreevy did not specifically mention tax cuts his comments are seen as paving the way for lower than expected reductions in next December's budget.
He was echoing the comments of his Department which said yesterday that the lower than expected growth rates "point to a need to align aspirations for future increases in public spending and further tax relief to levels consistent with a prospectively slower pace of economic expansion".
The Department went on recommended that any tax cuts should "focus even more on supply side measures to aid growth potential". This would in effect mean concentrating on measures that encourage people to take up paid employment rather than survive on benefits.
The Department's new forecasts are in the mid range of market expectations according to Mr Michael Crowley, economist with Bank of Ireland. He said that Bank of Ireland was currently more optimistic than the Department and was forecasting 9 per cent growth in Gross Domestic Product compared to the Department's projection of 7.2 per cent, which has been revised down from 8.8 per cent.
The lower than expected tax take was blamed, in part, on the Foot and Mouth epidemic, which had hit excise duties. The restrictions put on cross border movements meant that fewer motorists were crossing the border from Northern Ireland to buy cheaper fuel in the Republic.
The generally lower level of rural economic activity that resulted from the controls has affected other tax receipts including VAT, said Mr Crowley.
The Department has also revised its inflation forecast for the year. It had initially predicted that the Consumer Price Index would have fallen to 4.5 per cent by the end of the year, but the figure has been adjusted upwards to 5 per cent.
The outturn will still represent an improvement on the 5.6 per cent out turn in 2000 but "the deceleration has been somewhat more muted than expected, partly because of an unanticipated sharp increase in food prices and also because of the persistent strength of oil prices and ongoing euro weakness," according to the Department.
