Business

Ibec warns against giveaway budget before election

Taoiseach expected to reiterate Government pledges for tax cuts and welfare increases at National Economic Dialogue in Dublin

Taoiseach Simon Harris addresses the National Economic Dialogue today and is expected to reiterate Government pledges for tax cuts and welfare increases in the budget. Photograph: Paul Faith/AFP via Getty Images

Joe Brennan
Mon May 27 2024 - 05:00

Business lobby group Ibec has urged the Government to avoid a giveaway budget before the election, saying it should have a “strategic” long-term focus.

In advance of the National Economic Dialogue in Dublin Castle on Monday, Ibec emphasised the “real risk of complacency” in not effectively supporting domestic business growth and competing for inward investment.

Taoiseach Simon Harris will open the annual pre-budget consultation and discussion forum where he is expected to reiterate Government promises for tax cuts and welfare increases in Budget 2025.

“Budget 2025 needs to have a two-pronged approach: one that reassures our domestic businesses in terms of long-term support and also repositions Ireland to capitalise on the next wave of inward investment through our capabilities, capacity and competitiveness,” said Ibec chief executive Danny McCoy.

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“The Irish economy has emerged stronger than ever from a period of significant turbulence. However, the rise of state-driven competition for investment, increasing geopolitical tensions and decreasing trade openness are not beneficial for small countries like Ireland.”

Mr McCoy said the budget should focus on strategic issues – such as increasing investment in the upskilling of workers and addressing energy costs – rather than “distributing handouts that end up spreading the pot too thinly”.

Minister for Finance Michael McGrath has previously promised tax cuts for people “at all income levels” in the budget in October. The Minister has also pledged to increase the State pension. The general election must be held by early March 2025.

The Government forecast last month that record inflows of tax revenues will boost the annual budget surplus to a better-than-expected €8.6 billion this year. It sees the State generating total surpluses of €38 billion over the next four years through 2027, though much of this is set to be transferred into two new sovereign wealth funds.

Central Bank officials said last month that big tax cuts or spending increases above the 5 per cent rule in the upcoming budget could overheat the economy. The rule limits annual increases in public spending to 5 per cent, viewed as a sustainable rate for the economy

The Economic and Social Research Institute (ESRI) also said recently that the Government should resist political temptation to spend money from the huge surpluses at a time when the economy is already expanding at a healthy rate.

The Government currently forecasts that modified domestic demand – a measure of the underlying Irish economy – is expected to grow by 1.9 per cent this year and accelerate to 2.3 per cent in 2025. It sees headline inflation falling back to 2.1 per cent this year from 5.2 per cent in 2023.

“We will never be able to compete with larger countries when it comes to subsidies and have benefited enormously from global trade integration. Now more than ever we need to be laser-focused on competing based on our own strengths,” said Mr McCoy.

“If we want to guarantee high living standards into the future we must use this pre-election budget to look past short-term gains and clearly define where we need the economy to be in the coming years.”

Joe Brennan

Joe Brennan

Joe Brennan is Markets Correspondent of The Irish Times

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