Tax cuts and massive spending make sense economically as well as politically, according to the chief economist at Goodbody Stockbrokers.
Launching a new report, Eurovision 2006, Mr Colin Hunt, said there is now so much money in the Exchequer's coffers that there is no restraint needed on spending or tax cuts.
He also argued that the current strong growth in the economy is not a boom which would imply it could bust but rather a structural shift in the economy, similar to Germany in the 1950s or Japan in the 1960s. "If we have a performance similar to Germany or Japan now by 2040 we will not be doing badly," Mr Hunt noted.
He argued that tax cuts are needed to increase the flows of people into the labour market, as are significant allowances for childcare.
"Cutting taxes and raising spending is not only good economics but good politics," Mr Hunt said.
He added that the only way to keep growing at a sustainable rate is to tackle labour shortages and attract more people into the workforce. Given the rise in house prices this can now only be done by reducing the disparity between income taxes between Britain and the Republic as well as the US.
"We need to boost disposable incomes to compensate for the movement in house prices. If we do not, it will come in the form of higher wages and will create inflationary pressures across the entire economy," he said.
He added that the advice of many overseas experts to tighten fiscal or tax and spending policy simply will not work as the scale of tax hike needed would be politically unacceptable. "We should aim to keep increasing supply enough to keep growing," he said.
He said that while the State can afford all the capital spending it needs over the medium term there is still an argument for public private partnerships which would help the quality of projects and deliver them faster.
The report also argues that the main benefit of EU membership has been the single market rather than transfers through structural funds or the Common Agricultural Policy.
According to Mr Hunt, it is a myth that structural fund transfers have contributed significantly to Irish growth over the past 26 years. The Common Agricultural Policy has had a bigger impact but the real benefit, according to him, is in the impact on the budgetary accounts. If the Government had attempted to give the same transfer to the farmers, debt would have peaked at 150 per cent of Gross Domestic Product rather than 115 per cent.
But the real benefit is the single market which boosted US foreign investment. Mr Hunt pointed out that in 1997, 7.5 per cent of total US foreign direct investment into Europe came to Ireland, but 15.6 per cent of manufacturing came here and an incredible 40 per cent of electronics.
"It is reassuring that it was the free market mechanisms which have boosted growth rather than any form of income redistribution," he added.
As a result, the complete loss of structural funding by 2006 will have a neglible impact. By then we will have 122 per cent of average EU wealth, ahead of Britain which is likely to have 111 per cent, according to Goodbody's calculations.
At the same time, Mr Hunt maintains, our net contribution to the EU is set to decline as a per cent of Gross National Product from 1.68 per cent currently to 1.27 per cent by 2006.
Regional funding will also be non-existent by 2006. Dublin is set to have an income of 169 per cent of the average when new countries joining the EU are taken into account, with the West running at 97 per cent. However, there may be a possibility that educational and training funds could be forthcoming under objective three given the low levels of female participation and large numbers of young people. Nevertheless, this is only likely to amount to around £43.2 million (€54.85 million) by 2006.
