At the margin, yesterday's budget package was probably a little more generous than anticipated. In the near term this may be no bad thing, but there is some risk that in the run-up to the next election expectations of even greater "giveaways" in future budgets could increase.
I think the economy will benefit from a measure of support in the coming year. While prospects are generally still fairly encouraging, there are a number of significant "headwinds" that could mean growth will be lower than many forecasts envisage. A weaker dollar suggests that export growth won't be as strong as the Department of Finance expects.
Yesterday's social welfare and tax changes will provide a "real" boost to consumer spending power but household incomes will be burdened by high energy costs and, in many instances, by increased PRSI and higher local authority and hospital charges as well as relatively modest pay increases. As a result, the budget package may be insufficient to generate a widespread feel-good factor in the Irish economy next year. For these reasons I think growth could fall a touch short of the Department of Finance estimates.
One sector that should do well again in 2005 is the residential property market. The reduction in stamp duty on second-hand house purchases will underpin demand and could mean house price inflation remains strong in the coming year.
Increased public sector spending should also ensure the construction sector sees further growth in 2005.
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