ESRI report further evidence of idiocy of pre-election tax cutting promises – Sinn Féin
Sinn Féin spokesperson on Finance Caoimhghín Ó Caoláin TD has said that the latest ESRI quarterly economic commentary published today was further evidence of the folly of the pre-election tax cutting promises made by all the other major parties. Ó Caoláin argued that the projections from the ESRI demonstrated that the money was not there to proceed with these cuts while continuing to deliver and improve public services. Government failure to moderate house price increases over the last decade is to blame for the threat of rapid house price deflation which now hangs over the housing market according to Ó Caoláin.
Ó Caoláin said, "Sinn Féin has expressed growing concerns in recent years that the economy is not based on solid foundations. We have pointed to the loss of competitiveness and an over-reliance of the economy on the construction sector. The economy is being driven primarily by domestic demand and this is unsustainable. Sinn Féin has argued that these vulnerabilities which undermine the Irish economy must be addressed.
"The ESRI quarterly economic summary published today backs up a key concern which Sinn Féin has been highlighting for many months - that the exchequer was vulnerable to a sharp contraction in revenue due to the extent to which it was now dependent on revenue related to property and consumption. The ESRI is predicting a swing in the Exchequer balance from a surplus of €2.2 billion in 2006 to a deficit of €622 million this year, deteriorating to €1 billion in 2008.
"Political parties who promised tax cuts misled the electorate. Take for example the issue of PRSI. The proposal from Fianna Fail to reduce PRSI rates (from 4% to 2% for PAYE workers and from 3% to 2% for the self employed) is projected to cost €940 million. In the Programme for Government it states that the shortfall in revenue in the Social Insurance Fund resulting from the proposed cuts in PRSI rates will be made up by the Exchequer. How exactly does the Government propose to do this if the ESRI projections in regard to the Exchequer balance prove correct?
"Many homeowners will be deeply worried by the research paper by Morgan Kelly, Professor of Economics at UCD, published alongside the latest ESRI quarterly report. Kelly, based on an examination of property booms in other states, has warned that the housing market could go into rapid freefall.
"Last November the Central Bank in its Financial Stability report for 2006 estimated that house prices were overvalued by at least 14% - in real terms by an average of around €43,000 state-wide and around €59,000 in the Dublin area. The Government allowed this situation to develop when it was clear to all, as Morgan Kelly points out, that 'the bigger the boom in house prices, the bigger the subsequent bust'. The Government steadfastly refused to intervene in the housing market to moderate house price growth. Those who will pay the price for this refusal to act are the many young couples who have over-borrowed for overpriced housing and who will find themselves facing negative equity while being unable to meet increased mortgage repayments. The Government needs to ensure that it has an action plan in place to protect vulnerable homeowners, in particular those on average and lower incomes, in the event that Professor Kelly's predications materialise." ENDS