Economist says Irish stimulus needed . But is Brian listening ?
A top Irish economist has called on the government to launch a major stimulus package fot the economy here.
Taoiseach Brian Cowan and his Government appear to be ignoring the difficulties facing Irish business . They need to take their heads out of the sand and listen to the advice of Davy Stockbrokers before it is to late .
Rossa White of Davy Stockbrokers says that Irish business and the economy in general are crying out for a fiscal stimulus but the Government is sleep-walking in the opposite direction.
He says the US, Spain and Australia have all cut key taxes to give their economies a jump-start and bolster enterprise but the Irish Government has actually raised taxes that depress business activity.
‘A tax rebate, similar to the US model from the second quarter of 2008, would work. Why not send a cheque for E1 billion in the post to households in time for Christmas. This would work out at about E500 per worker. We are confident that the government would get this and more back in VAT, excise duties and income tax through increased consumer spending.’
He says that he is not sure that the Taoiseach fully appreciates the perilous state of the economy and that Ireland could be facing a recession the likes of which we have not seen before in recent history.
‘We are not sure that there is full appreciation yet of the stark outlook facing the Irish economy. Our recent forecasts suggested that the economy may contract by 3.5pc in volume next year following a 2pc decline in 2008. That is at the severe end of historic recession experience globally and has not happened in Ireland in the period for which reliable statistics are available. Such an outlook demands hard decisions from government at a time when the burden falls more heavily on fiscal rather than monetary policy,’ he said.
He said that the banking system is still close to paralysis with businesses finding the lines of credit they need to survive and pay their wage bills increasingly hard to find.
‘It is crucial that viable businesses and households that do not have stretched balance sheets get ready access to credit. As we have stated many times in this column, credit contractions are highly pro-cyclical, i.e. they reinforce economic downturns,’ he said. Worryingly, he added that there are signs that the banks simply don’t have the liquid cash to cope with the loan losses that are coming. ‘Without replenishment, that implies restricted new credit availability for business investment and household purchases: the worst-case scenario for the economy. The economy will not simply re-emerge from this recession in a reasonable timeframe if funds are not available, because we know that cash flow is drying up progressively,’ the report said. The Budget was marginally deflationary on paper, based on official estimates. In other words, it took a little cash (0.2pc of GDP) out of the economy. But its shape was poor: the burden fell more on the over-borrowed taxpayer than on cost-cutting in public services, Mr White said. He called for tax cuts. ‘We have lost sight of the successful strategy. What we have learned in Ireland over the past 20 years is that tax cuts work. Cutting corporation, income and capital gains tax helped to generate huge growth in employment,’ he said.