Conference told there is no need for a tough Budget

A tough 2004 Budget "is neither necessary nor desirable", two leading economists told the Kenmare conference.

Despite forecasts by the Department of Finance of a tax shortfall this year, Dr Donal de Buitleir and Mr Pat McArdle have predicted that the 2003 Budget is "on or slightly ahead of target", and that while next year's Budget will be difficult, the problems facing the Minister for Finance, Mr McCreevy, are "by no means insurmountable".

A small tax undershoot this year will be more than made up for by savings on spending, particularly on debt servicing, according to the paper. While Government sources were reported as warning of the most difficult Budget in decades, "our forecast that the 2003 Budget is on target leads to a much more favourable, albeit still difficult, 2004 Budget". Mr de Buitleir, who works for AIB, and Mr McArdle of Ulster Bank, say that tight control on current spending in the Budget and a small rise in borrowing should allow capital spending to be maintained at current levels "without having to resort to tax rises or spending cutbacks".

Borrowing on the EU general government borrowing measure could rise from a forecast 0.6 per cent of Gross Domestic Product this year to 1.5 per cent next year, they say. This should be acceptable to the EU as the underlying budget position - adjusting for the impact of relatively slow growth on the figures - should still be in surplus.

The economists wrote that it was "critical" that the Budget does not increase inflation by pushing up excise duties ahead of negotiations next year on the second phase of the pay agreement under the national programme, Sustaining Progress.

The paper calls for a longer-term focus to be introduced to Budget planning, including a mechanism to reallocate resources from contracting to expanding areas in the public sector. "Departments could surrender 2 per cent of payroll costs to a central pool each year with provision for reallocation to priority areas," they suggested.

They also proposed an updated investment plan covering the period to 2010. Under the terms of the EU stability and growth pact - the budget rules for euro countries - the EU could be expected to agree to the Irish public finances running an underlying budget deficit of around 1 per cent of GDP. This could allow capital spending to be boosted from 5 per cent of GDP annually to 6 per cent, provided worthwhile projects could be found.

The paper also proposes:

Some mechanism to "recycle"SSIA savings by encouraging people to extend the existing savings or put them into pensions to stop a €17.5 billion boost to consumer spending from mid-2006. The restoration of indexation of capital gains tax, abolished in last year's Budget.

An abolition of employee's PRSI as a separate tax, paid for by a rise in general income tax.

A recycling of the proceeds of the new carbon tax to general tax reductions to boost competitiveness.

"There is no evidence that the burden of taxation in Ireland is insufficient to deliver good public services," the authors argue. When adjustment is made for factors such as Ireland's low spending on defence, our low debt level and the structure of our social security system, the tax burden here is around 41.7 per cent , the paper calculates, in line with the 41.9 per cent EU average.

Addressing the budgetary aspects of education, a paper by Mr Colm Harmon and Professor John Sheehan of UCD suggested that free university fees was not the way to boost access to education.

The paper proposes the reintroduction of fees for all undergraduate courses. The resulting savings to the Exchequer could be used to finance extra student loans and grants, the paper proposed, or to address key areas of primary and secondary education.