The mood music surrounding the needs of the Irish economy has changed significantly in the past year as the work of the Central Statisics Office has shown a pattern of rising full-time employment.
The improving mood received a boost last week when the half-year exchequer figures showed that tax receipts were €500 million ahead of target and data from the Central Statistics Office showed strong economic growth.
Not only that, but new rules for estimating the size of EU economies had a particularly large impact on the perceived size of the Irish one, which in turn positively affects our debt-to-GDP ratio and the size of the deficits we can have in our public finances without incurring Europe’s ire.
Domestic demand
All of this feeds into the pre-budget submission from business and employers’ lobby group Ibec, published today, which is calling for an ending to austerity budgets, and a budget adjustment package of just €200 million as part of a change in focus designed to promote domestic demand and economic growth.
The group now believes Ireland is about to enter a period of up to two decades of sustained economic growth, with the size of our economy growing by up to 3 or 4 per cent a year.
However, after a period of sustained austerity during which capital spending by the Government was reduced to just 2 per cent of GDP (accounting for 70 per cent of total expenditure cuts), economic growth of the scale forecast will quickly create a series of infrastructural bottlenecks.
The experience of the 1990s, Ibec says, shows that it is crucial that work on providing the infrastructure begins prior to the growth, as it gets much more difficult to catch up once the growth has begun.
There is a lot of labour available and money is unusually cheap.
It believes now is the time for the Government to oversee a sustained period of capital investment, of about 4 per cent of GDP per annum, which would target the areas that are likely to create pressures in the years ahead.
Social housing
An obvious immediate one is social housing and Ibec suggests that Ireland needs to explore “off balance sheet” models to fund such construction. It points to the Irish Water model as one that shows the way.
Also, Ibec chief economist Fergal O’Brien believes the recently established €6.8 billion Irish Strategic Investment Fund could have a role.
“Ireland needs to invest for the future now, to ensure that it doesn’t hit bottlenecks,” says Ibec director of business representation, Mary Rose Burke, citing the resumption of the building of the Atlantic Corridor roadway.
The tax and other measures recommended by Ibec are aimed at a growth-enhancing budget, but the infrastructure recommendations, while being aimed at facilitating longer-term growth, would also have immediate growth and job-creating effects.
Ibec also believes that during a time when international practice on corporation tax seems set for change, Ireland should seek to profit in a number of ways, including setting out to attract more research and development work here that would be attached to the ownership of multinationals’ intellectual property.
