The Government has been warned of the danger of overheating the economy with its planned €9.4 billion spending increase in the Budget next month by the Economic and Social Research Institute.
The development comes a week after the Central Bank said the additional expenditure in the Budget was “too large”.
The ESRI said the Government’s extra spending could have “damaging” effects on the economy.
It also warned windfall taxes paid by multinationals could “vanish quickly” and “parallels to the collapse in building-related taxes at the outset of the economic crisis of 2007–2008 are clear”.
The ESRI also questioned the Government’s position of financially assisting companies to seek new markets abroad while opposing the EU-Mercosur deal, which would see more trade with South America.
The ESRI’s Research Professor Alan Barrett said the Government’s position “seems somewhat extraordinary”.
The Mercosur deal has been vigorously opposed by farming groups concerned about the impact of South American beef imports.
The ESRI has revised upwards its forecast for growth for this year to 3.9% for the domestic economy.
It said 35,000 homes will be built this year but added it expected the increase in house building next year and in following years will be slower than expected.
It said future construction of homes “appears to be weakening with falling planning permissions and low commencements”.
It said the EU’s tariff agreement with the Trump administration had brought certainty to trade but said 15% tariffs were a “a clear deterioration in Ireland’s trading environment”.
An analysis by Professor John Fitzgerald in the ESRI’s quarterly economic commentary showed the US tariffs will impact profits of pharmaceutical companies operating in Ireland, rather than output or employment.
On the cost-of-living, the ESRI said price rises for food were hitting middle and lower income households.
Article Source – Govt warned of ‘damaging’ economic effect of increased Budget spend
