LAST UPDATE | 29 Jun 2023
TAOISEACH LEO VARADKAR has confirmed that the government intends to make “tax cuts” in the next budget despite comments from the Economic and Social Research Institute (ESRI), reported this morning, arguing that there is “no rationale” for them.
“There will be tax cuts in the forthcoming budget, as there has been the last couple of budgets,” Varadkar told reporter in Brussels today while attending a meeting of the EU Council.
Varadkar’s comments come on the day the ESRI released their quarterly report on the Irish economy, which stated among other things that tax revenue had risen this year and would continue to do so next year.
In general, according to the report, Ireland is expected to experience continued economic growth for the rest of this year and into 2024, according to the ESRI, with domestic economic activity forecast to remain “strong” while multinational activity is predicted to slow down.
“Our forecast for Modified Domestic Demand (MDD), the more accurate measure of domestic economic activity, is for growth of 3.6% this year and 4% in 2024,” the ESRI said in a statement accompanying its quarterly report.
Inflation is expected to come down while tax revenue is due to rise, the ESRI said.
“We continue to forecast a significant moderation in the inflation rate as price pressures begin to ease, particularly in the energy market,” the economic think tank stated.
“Lower inflation, coupled with some unwinding of high savings from the pandemic, is likely to boost consumption,” it predicted.
The Irish labour market “continues to operate near full capacity” with unemployment standing at 3.8% as of May this year. The ESRI predicts that this will remain below 4% this year and in 2024.
This tracks with the quarterly report released by the Central Bank last week.
Tax revenue is showing signs of continued growth, with a 10% rise in receipts in the first five months of this year compared to the same period in 2022, according to the report.
“We anticipate a significant surplus in the government balance in 2023 and 2024, some of which will be added to the National Reserve Fund.”
Higher interest rates and reduced global demand for exports are contributing to “some moderation in investment activity and a cooling impact in housing and mortgage demand,” the ESRI said.
“Reduced global demand is also feeding through to export activity. Growth in exports is now expected to increase at a reduced pace, largely due to declines in pharma-related goods,” it said.
The ESRI also warned that any continued contraction in the pharma and tech sectors could lead to “downward revisions in export growth and lower the growth outlook.”
Additionally, price increases based on higher wages may lead to “persistently high inflation and labour-related constraints in sectors such as construction may dampen housing output.”
One of the report’s authors, associate research professor Conor O’Toole, said: “The domestic economy is continuing to grow robustly and the labour market is particularly buoyant.”
“This is likely to lead to challenges in sectors such as construction and risks exerting upward pressure on general prices and wages,” he said.
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