Neri warns against budget tax cuts in face of long term spending ‘mega-challenges’

The current pace of employment growth is “unsustainable”, and the economic outlook for the next year is likely to be more muted, according to a new report by the Nevin Economic Research Institute (Neri).

The institute, which is supported by trade unions affiliated with the Irish Congress of Trade Unions (ICTU), has said that there is “little or no rationale” for an expansionary budget, and warned against proposed income tax cuts that “will disproportionately benefit the better off”.

Report author and Neri co-director Tom McDonnell said that as Ireland was at record employment, the economy was “at capacity”, but looking ahead employment growth and domestic demand were set to become “more muted”.

The report noted that the post-Covid demand as households spent their savings had “petered out”, and warned that the tightening of monetary policy and weak consumer and business confidence would “dampen consumption and investment” over the next year.

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However, Neri said employment should increase by close to 1.5 per cent next year, while unemployment should remain around 4 per cent, and real wages should catch up with inflation by the end of 2023.

The institute said that modified domestic demand should grow by around 2.5 per cent next year as improvements in real household incomes supported demand.

Neri qualified that its predictions assume there will be no further tightening of monetary policy and that fiscal policy will act as a stimulant, that there will be a return to real wage growth as inflation lowers, and that growth in disposable household income will lead to increased consumption.

Neri said that Budget 2024 was an opportunity to plan for “mega-challenges” that Ireland faced in the medium to long term, including ageing demographics, deglobalisation, climate change and technological disruption such as artificial intelligence.

As the Government plans to spend about €1.1 billion on tax changes in next week’s budget, Mr McDonnell said an expansionary budget focused on tax cuts “doesn’t particularly make sense economically” when the country had “all of these fiscal pressures coming at us over the next 20 years”.

“We should be saving now, we should be gradually building up our tax base and our revenue base rather than stripping it away year on year ... [with] short term sugar rush tax cuts or once-off payments that might help briefly but actually won’t matter once we get into 2024.”

The institute has said that windfall corporate tax receipts should be saved and spent on future ageing costs, infrastructure to support the green transition and housing, and has called for taxes and social contributions to be increased over the medium-term.

In the immediate term the institute said income adequacy should be ensured for vulnerable households, but warned against more universal or once-off payments, which it said were “unnecessary and in many cases likely to be badly targeted”.