BUSINESS commentators on the economy last night criticised the Budget for taking risks with inflation, but said it would boost the economy significantly.
"Our strong growth means tighter fiscal policy is needed," said Mr Jim Power, chief economist at Bank of Ireland. "If the Minister wanted to make tax giveaways he should have matched them with expenditure cuts."
According to Mr Power, the Exchequer Borrowing Requirement should not be going up at the top of an economic cycle. "If anything, borrowing should be declining at this stage," Mr Power said. However, he noted, financial markets are unlikely to react to the Budget.
"Much of it was well known in advance," he said. "In any case the markets will be happy that the deficit is low at 1.5 per cent of gross national product." The ceiling for the deficit is 3 per cent under the rules to qualify for the single currency.
Dr Dan McLaughlin, chief economist at Riada Stockbrokers, is also less than sanguine about inflation. "This is not by any stretch of the imagination a tight Budget," he said.
"The bottom line is that we have a structurally inbuilt rise in expenditure of 5 to 6 per cent which no government seems to be able to do anything about. When the economy is weak the government does not cut taxes, which is contractionary, but when it is booming we cut taxes which just compounds the cycle." This carried risks.
However, Mr Jim O'Leary, chief economist at Davy Stockbrokers, was far less worried about any inflationary impact. "The difference will be at the margins," he said. "What really matters for Irish inflation is the exchange rate and inflation in the rest of the world because we are such a small open economy.
He added that the tax cuts and spending increases will result in consumer spending increasing faster than otherwise. "At the margin that will add to inflationary pressure."
However, according to Mr O'Leary, the increases in excise duty on cigarettes and petrol will add 0.2 of a percentage point to inflation. "I would have thought they would have had some doubt about that. But they can always cut excise duties at the stroke of a pen in May or June if inflation looks as if it is picking up.
Mr Alan McQuaid, economist at Bloxham Stockbrokers, bemoaned the "missed opportunities" in cutting the debt burden. "There is no reason why the pursuit of a balanced budget should not be a legitimate and realistic objective in the Irish context."
He said that since 1990 current day to day spending has risen by almost 63 per cent while inflation in the same period has gone up by just 15 per cent. If total government expenditure had risen at the same pace as inflation then overall day to day spending in 1996 would have amounted to £6.7 billion or £2.8 billion less.
"It doesn't bear thinking about that Ireland could have had significant tax reform or a substantial reduction in the national debt but successive governments spent tax payers money as if it were going out of fashion," he said.