Government's budget proposal faces criticism from Central Bank, who deem it oversized
Robert Kelly, the head of the Department of Economics and Statistics at the International Monetary Fund (IMF), has expressed concern about the Irish Government's planned Budget package, worth €9.4bn of additional spending. Speaking on RTE's Morning Ireland, Kelly highlighted several issues that could potentially impact the economy.
Kelly emphasized the need for more infrastructure to support the delivery of housing, as there has been at least five to ten years where demand has exceeded supply. He suggested a focus on addressing this gap to meet housing needs.
The economist also expressed concern about the value for money that may be lost as the economy tries to absorb large increases in current spending and tax cuts. He suggested broadening the tax base by generating revenue from more sources to pay for increased expenditure.
According to Kelly, the focus on capital spending is the correct one, but space in the economy needs to be created for that to happen. He indicated that if there was a risk further down the road, we wouldn't have the space or capacity for the public finances to respond due to the current level of spending and tax cuts.
The Central Bank, in its latest forecast, revised upwards its forecast for economic growth for this year to 2.9%. However, it also warned that the sharp increase in Government expenditure will impact public finances. The bank expects more moderate growth over the coming two years, with the economy expanding by 2.2% next year and 2.4% in 2027.
The Central Bank expects 32,500 homes to be built this year, but has revised downwards its forecast for housing by 1,500 for 2026 and 2027 to 36,000 and 40,000 respectively. Kelly suggested a need to move away from broader measures that drive up current expenditure to more targeted measures for households experiencing difficulty.
In addition, Kelly stated that the tariffs covering EU-US trade are lower than expected earlier in the year. He pointed out that they are not having the binding and strength that was initially expected in terms of the outlook. According to the Central Bank, national income would be 1% lower than previous forecasts over the next five to ten years due to US tariffs.
The Central Bank considers this spending as "too large" and "unnecessary". Kelly suggested that the Government should be mindful of this and strive for a more balanced approach to ensure sustainable economic growth.
Read also:
- Trade Disputes Escalate: Trump Imposes Tariffs, India Retaliates; threatened boycott ranges from McDonald's, Coca-Cola to iPhones
- Aquatech purchases Koch's Direct Lithium Extraction business, merging Li-ProTM DLE technology into the PEARLTM Technology Platform.
- Nepal's Journey: Evolution from Street Life to Political Power
- Li Auto faces scrutiny after crash test involving i8 model and a truck manufacturer sparks controversy
