Noonan targets `flawed' policy
The economy is more vulnerable than at any time in a decade, Fine Gael's spokesman on finance said yesterday.
Mr Michael Noonan said pumping money into the economy through indiscriminate tax cuts and spending, and spiralling bank credit would ultimately threaten the State's prosperity.
His comments follow concerns expressed by the Central Bank on Tuesday about the threat to the economy from the Government's budgetary policy. Inflation, house prices, credit problems and growth are all vulnerable to the increasing demand created by the Government's policies, the bank warned in its winter bulletin.
It is revising its inflation forecasts for next year to 5 per cent from 4 per cent as a direct result of the recent Budget and revised partnership agreement.
"The Government's stance in the Budget clearly indicates a belief that the policies that have been so effective over the past decade will be equally as effective going forward," said Mr Noonan. "There is a failure to recognise that the environment has changed and different policies are now required."
The Government's argument that recent tax cuts were justified since they would guarantee wage stability and increase labour supply was flawed, he said. "The reality is that the tax cuts will just fuel demand and exacerbate the imbalance between demand and supply in the economy that is leading to congestion," said Mr Noonan.
The labour supply is limited either in the form of unemployed workers or stay-at-home spouses and, for those people, the tax burden was not the main disincentive to returning to work, he said.
"The long-term unemployed need to be given the skills to enter the labour force and adequate childcare facilities need to be provided. The Government is not willing to address either of these issues, either due to a lack of imagination or an unwillingness to depart from the blind ideology that is dictating its policy stance," said Mr Noonan.
The price and scarcity of housing and the congested social and physical infrastructure made mass immigration unattractive, he added.
Arguments that inflation was externally generated was the Government's excuse for doing nothing, said Mr Noonan.
"The experts in the Central Bank now believe that the home-grown nature of much of our inflation is confirmed by the persistent and substantial increases in service inflation and the increase in property prices. Yet the Government persists in pumping money into the economy without any thought for the consequences," he said.
Federal Reserve warnings of economic weakness in the US would pose some threat to US multinational investment in Ireland, he added.