IBEC warns high income growth expectations must be curbed

Excessively high expectations for income growth and the provision of government services must be curbed if Ireland is not to undo much of the progress of the past decade, IBEC has warned.

In its latest monthly assessment of trends in the economy, IBEC chief economist Mr David Croughan said the hoped for second-half resurgence in the global economy was looking "distinctly feeble". Uncertainty about the prospects of a war in Iraq was adding to the downside worries.

Mr Croughan said the euro-zone economy had failed to rally and faced a growth rate of less than 1 per cent this year. In the United States, mixed data suggested the economy was not firing on all cylinders.

Ireland, he said, had its own home-grown problems centred on high expectations, persistent inflation and fiscal imbalance.

"The next couple of years will require determined and resolute leadership to tackle the problems which threaten to undo much of the progress of the last decade," said Mr Croughan in the report published yesterday.

For the Government, the challenge was to control current spending in the public services. "It must contain its own contribution to inflation caused by excessive spending," the IBEC economist warned. He urged Minister for Finance Mr McCreevy to resist the temptation to raise excise duties in the next budget to balance Exchequer books. Such a move, he said, "would severely undermine attempts to prevent inflation from becoming embedded" in the economy.

Mr Croughan said there was high inflation in certain service sectors, a situation not helped by the recently announced increases in ESB charges or uncertainty about the outlook for oil prices.

He alluded to the recent IMF report on the Irish economy, highlighting the competitive losses in manufacturing and said too much should not be read into aggregate growth and productivity figures for Ireland, which were "greatly distorted" by the chemicals sector.

Speaking to the Dublin Chamber of Commerce yesterday, Fine Gael leader Mr Enda Kenny urged the Government to engage in serious debate and analysis on the outlook for the public finances. He warned that the current fall-off in tax receipts, combined with spending running well ahead of target, would undermine budgetary targets.

Already, economic commentators were lining up against the Minister's confident assertion of a budget surplus at the end of 2002, Mr Kenny said, and if the current trends continued, the deficit in 2004 would be closer to €6 billion than to the €3.7 billion projected in the last budget.