Ireland's falling inflation rate may lead to higher rates of indirect taxation in the next budget, a leading economist warned today.
Mr Austin Hughes, chief economist with IIB Bank, said lower inflation will lower tax revenues in real terms so the upcoming budget may see hefty increases in indirect taxation.
Irish inflation fell to 2.9 per cent in September, the lowest rate since November 1999. Whether prices continue to fall throughout the rest of the year may depend on the decisions taken in the upcoming budget.
Mr Hughes maintains that as the Minister for Finance, Mr McCreevy, will be keen to ensure that the budget arithmetic doesn't weaken too far, he may decide to meet the shortfall by raising indirect taxes by about €400 million.
In that event, Irish inflation would average about 2.6 per cent in 2004, according to Mr Hughes.