The Minister for Finance should breach the Maastricht rules that limit government deficits in the eurozone and budget for a “significant deficit” next year so as to provide a boost to the economy, economist Alan McQuaid said today.
Dr McQuaid, of Bloxham Stockbrokers, suggested that Brian Lenihan should run a deficit of up to 5 per cent in 2209, well in breach of the 3 per cent rule laid down by Maastricht.
He suggested stimulatory measures such as cutting income tax, privatising State companies, or using the National Treasury Management Agency to fund cheap mortgages, should be looked at by the Government.
"The Government has got to bite the bullet because the economy is pretty sick and it needs a cure," he said when briefing journalists on his latest outlook statement for the Irish economy. "If the Government raises taxes and cuts expenditure in an effort to keep Brussels happy, then the outlook is going to be pretty gloomy."
Dr McQuaid said he didn't "get the idea that [Mr Lenihan] is going to be too imaginative." He suspected the early budget to be delivered next month would be used to introduce immediate tax increases in areas such as excise duty, in an attempt to be "a good European".
He predicted that Gross Domestic Product (GDP) would contract by 2.5 per cent this year and by a further 0.5 next year, and that house prices would fall by 9.8 per cent this year and 7.5 per cent next year, in the absence of an effort to stimulate the economy. House completions next year would be 24,000.
Given that GDP had grown by 6 per cent last year and would contract by one per cent this year, according to the most conservative predictions, the sudden change in economic growth constituted an "economic shock".
Senior figures in the US were saying the global economic crisis was the worst since the 1930s, but there was no impression that the European Central Bank was responding.
He predicted that all 15 eurozone economies would be in or near recession by the end of this year.