Full employment set to curb further tax cuts

21st June 2018 | News

Ireland’s Economic and Social Research Institute (ESRI) has admitted the prospect of additional tax cuts is “very limited” due to the country reaching “full employment” levels by the end of 2019.

The ESRI has predicted GDP growth of 4.7% in 2018, with growth expected to decelerate to below 4% in 2019. However, the economic think-tank anticipates unemployment levels to fall beneath 5% by the end of next year, with 70,000 more people in work than at the peak of the ‘Celtic Tiger’ era prior to the global economic recession.

Consequently, these “full employment” levels could trigger economic overheating, based on heightened consumer spending. The ESRI has therefore urged the Government not to implement additional tax cuts in the October budget.

“Given the Government’s commitment to the National Development Plan in the medium term, there is little, or no, scope for cutting the overall tax burden which would stimulate the economy further,” the ESRI confirmed.

“This is not an economy that looks like it needs additional stimulus,” added Conor O’Toole, senior research officer, ESRI.

Kieran McQuinn, research professor, ESRI concurred that slashing personal tax rates further would not be a prudent move, instead recommending the Government focuses on a neutral tax package.

Levels of consumer spending are expected to rise by 2.4% in 2018 and a further 2.5% next year, although McQuinn called for “careful monitoring” of the overall situation. That’s due to rising lending levels, with Ireland’s SMEs experiencing a 10% rise in business finance and new mortgage lending up 13.5% in Q1 2018.

At the present time, Mr O’Toole stated that credit risks were largely minimal in 2018, with lending closely aligned with rising incomes.