Spending boom will grow next year, economist says

The spending boom is likely to grow significantly next year with workers on the average industrial wage getting almost 9 per cent more in their pay packets, according to an economist.

The increase in take-home pay is set to double any such increase seen in the past 10 years. Mr Eunan King, an analyst with NCB Stockbrokers, calculates that when the tax measures announced in the Budget kick in, a single worker on £17,400 will be up to £1,000 better off after tax.

With interest rates likely to average almost a percentage point less than they did this year, Mr King predicts the amount people spend on their mortgages will fall significantly as a percentage of take-home pay.

He says single workers on three times the average industrial wage will see their after-tax income rise by about 8 per cent. The situation is only slightly less favourable for married people.

A worker taking home just over £13,000 will have more than £14,000 next year. "There are enormous gains here," he says. "The consumption boom in the Irish economy is about to gather steam in a marked manner."

Mr King assumes that nominal industrial wages will continue to grow at this year's pace of 6 per cent, to reach £17,400, so that since 1997, the cumulative increase will have been more than 22 per cent.

Pre-tax income is likely to rise by less than 3 per cent; however, when the Budget's tax measures are taken into account, single people on the average industrial wage will have take-home pay which is nominally 11.8 per cent greater than it is this year. When inflation of 3 per cent is factored in, the rise drops to 8.8 per cent.

For single people on the average industrial wage, tax as a percentage of total pay is set to decline by three percentage points in 2000, to 21 per cent, having been as high as 30 per cent in 1996. For those on higher incomes, the percentage of gross taken by tax is higher but the scale of decline is similar.

Mr King says the average industrial worker's percentage of after-tax income which will be absorbed by mortgage repayments will fall to 46 per cent. This compares with the early 1990s, when the level was above 50 per cent.

However the downside of all the extra money, according to Mr King, is that it is likely to fuel inflation in the property market.