The Minister for Finance, Mr McCreevy should adopt a cautious approach in framing this year’s Budget given the current climate of uncertainty, the ESRI said today.
|
|
Mr Danny McCoy: "prudent approach"
|
Speaking at the ESRI’s pre-budget conference, the ESRI director Mr Brendan Whelan described the current economic climate as "the most uncertain in at least a decade." The institute called on the Minister to avoid any more innovations such as individualisation and to aim for a neutral budget.
ESRI economist Mr Danny McCoy told the conference that a prudent approach to Budget 2003 is called for given the deterioration in the public finance position along with the slowdown in the domestic economy and the uncertainty regarding the international outlook.
The Exchequer Balance is expected to fall from a surplus of €650 million in 2001 to a deficit of €3 billion in 2003. This figure is does not include the estimated €1 billion cost of benchmarking.
The General Government Balance, the better measure of the public finances, is forecast to be in deficit by €550 million in 2002 and by €783 million in 2003.
Even to achieve this outcome it is vital that Government expenditure is brought into line with tax revenue growth in 2003. Mr McCoy said that while the medium outlook for the economy remains bright, given fiscal prudent policy, there is a strong likelihood of a serious deterioration of the Government’s finances in the short term.
The ESRI recommends indexing tax bands and welfare payments to prices and wages in an attempt to deliver a broadly neutral budgetary stance at a cost of around €1 billion.
The Irish economy made a tentative recovery in the first half of the year but the international outlook remains cloudy, Mr McCoy said. The US economy has not bounced back as vigorously as expected, an appreciating euro and rising domestic wages could also erode the rate of recovery, he added.
In light of these factors, the ESRI is forecasting GDP growth this year of 2.4 per cent and a gradual recovery to 3.2 per cent next year.
The ESRI restated its call for the Government to remain committed to the National Development Plan as this capital investment will drive growth in future generations.