Economists give Budget cautious welcome

Brian Cowen's fourth budget has received a positive response from the financial sector with economists and banking commentators…

Brian Cowen's fourth budget has received a positive response from the financial sector with economists and banking commentators describing it as "a reasonable balancing act" and "prudent".

However, the ESRI said it was opposed to cutting stamp duty to help construction.

In his Budget speech Mr Cowen said prospects for 2008 were for more modest growth than we had become accustomed to. He said that against this background estimates were that GDP would increase by 3 per cent, inflation would average 2.4 per cent and 24,000 new jobs would be created.

The most notable feature was the announcement of significant changes to stamp duty and mortgage interest relief costing an estimated €190 million.

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"Prudent is the word that best describes yesterday's budget and it must be accorded a generally favourable welcome."
Pat McArdle, Chief Economist, Ulster Bank

The changes will result in a stamp duty saving of €10,750 on a typical second-hand house valued at €400,000. A house costing €650,000 will show a saving of €21,750 while purchasers of a €1 million house will benefit to the tune of €28,750.

Robbie Kelleher and Rossa White of Davy described the Budget as a "reasonable balancing act" and a "timely boost for the housing market".

The Bank of Ireland said the move would " be a strong support to prospective buyers of new and second-hand houses" and would help to "re-establish customer confidence".

Marian Finnegan, chief economist at Sherry FitzGerald, described the changes as "good news for the property market". The penal rate of stamp duty applicable in the second-hand market had for too long acted as a barrier to entry into the established property market and was in effect a tax on mobility, she said.

Fintan McNamara, chief executive of the Institute of Professional Auctioneers and Valuers (IPAV), said the "changes were a positive move in the right direction", which would hopefully "generate activity in the current flagging market".

Pat McArdle, Chief Economist, Ulster Bank said "Prudent is the word that best describes yesterday's budget and it must be accorded a generally favourable welcome."

Austin Hughes, Chief Economist at IIB Bank, said the Mr Cowen's approach was "safe and/or dull and unlikely to boost or bury sentiment toward the Irish economy".

He said Modest tax and social welfare changes could have been larger and added that Mr Cowen's "cautious approach" to the public finances "limits the boost to the economy."

While the banks and industry commentators were largely welcoming of the budget, the ESRI said the stamp duty cut was a 'bad idea'. The property market, it said, had been slowing to more sustainable levels "after a decade of escalating prices."