Waterford-born economist Jim Power has described last week’s Budget as “the latest Irish economic debacle”.
While accepting the grim fiscal background – “the toughest since 1987” – and, moreover, the bleak outlook which Finance Minister Brian Lenihan was faced with, the Clonea-Power man says the package announced last Tuesday will do nothing to counter the current recession and the “distinct lack of confidence in the economy amongst consumers and businesspeople alike”.
He said: “The external environment is turning distinctly nasty, credit availability is seriously constrained in the ailing domestic banking system, and the savage adjustment in the housing market continues to worsen.”
Mr Power, who is Chief Economist with Friends First, added: “There was nothing contained in Budget 2009 that will reverse this sense of gloom amongst consumers and business.”
The former De La Salle College Waterford student told The Munster Express that, “From a consumer perspective, disposable incomes were already under pressure, and the combination of increased taxes, levies and service charges contained in the budget will just exacerbate the pressures.”
The so-called ‘Lenihan levy’ “will take a lot of money out of people’s already stretched pockets” and combined with the many stealth tax hikes “will just serve to further depress an already ailing consumer,” he says.
For business, he foresees cash flow difficulties, with very little in the Minister’s measures to encourage job creation, while none of the steps taken in terms of the construction sector “are likely to be sufficient to turn or even stabilise the housing market, because the key problems have not been addressed” – not least excess supply and stagnant demand due to a “well-founded belief amongst potential buyers that prices will fall further.”
One of the budget’s most worrying aspects is that the General Government Deficit next year is projected at just over €12 billion, equivalent to a massive 6.5 per cent of GDP, while a mere 0.75 per cent decline in economic growth in ’09 has been planned for.
“This appears too optimistic, given the unfolding domestic and external environment and the amount of money that the government is going to take out of the economy over the coming year.”
He expects “an even more severe budget at the end of 2009” and a mini-budget in the first half next year “cannot be ruled out…
“It is unfortunate that the Minister for Finance is being forced to tighten fiscal policy significantly at a time when the economic cycle is in a strong downturn,” Mr Power said, but concluded, “If spending had been controlled over past seven years or so, this would not now be necessary.”
Other reaction to the Budget: