Government rejects Budget spend spree claim

The Government has said it is not planning to accelerate spending in advance of next year's general election.

In a statement issued late last night in response to the latest quarterly economic commentary from the ESRI, the Government said that the Minister for Finance Mr Cowen had "repeatedly stated that we will continue to introduce prudent economic policies in order to keep delivering on our commitments, in particular in Health and Education."

The statement said it rejected "any assertion by the Economic and Social Research Institute (ESRI)" that it would engage in a spree next year.

ESRI economist Dr Alan Barrett: High Government spending will compromise future economic stability

In its review the ESRI warned that rates of economic growth are expected to slow after 2007, requiring the Government to "supplement" falling domestic demand. It also believes the Government will increase its public spending in advance of the general election, despite ministers playing down the likelihood of such a scenario.

ESRI economist Dr Alan Barrett said the Government should not add fuel the current boom and instead act in years of weaker economic growth. The Government was also accused of planning to use the next Budget as an electoral war chest by the Labour Party.

However, in its reaction the Government said: 'we reject any assertion by the ESRI or the Labour Party that there is any "acceleration of spending' or 'splurge' being planned ahead of next year's election."

The ESRI expects 43,000 "SSIA jobs" to be created as a direct result of an expected consumer flurry over the next year.

The ESRI stopped short of saying the current boom was coming to an end but it identified 2008 as a watershed. Dr Barret said: "A slowdown is inevitable."

The economy is expected to grow at more than twice the EU average over the next 18 months, by more than 5 per cent this year and next.

Some 159,000 new jobs will be created, mainly in services, such as finance, health and education, as well as construction, the ESRI quarterly report said.

Of these, it believes around 43,000 "SSIA jobs" will be created from the Government savings plan windfall.

The figures are based on the assumption that people will spend a third of the matured total saved.

The resultant spree is expected to add around 1 per cent to overall economic growth over the 12 months from May this year.

With the increased need for labour, wages should grow to attract people into new jobs, it is anticipated. The income growth, of 5.8 per cent and 5.5 per cent, for this year and next year respectively, is in turn expected to encourage more spending.

Indications that profitability is falling suggests employers may begin shedding jobs in 2008.

Also, the inevitable end of the construction industry boom continues to loom on the horizon. Dr Barrett described Ireland's reliance on the building trade as "off the wall" compared to other economies.

"By definition it's not sustainable. There's a natural end to it, a natural limit," he said.