"Macroeconomic Background for Budget 2005"

October 12, 2004

News

12/10/2004

 

"Macroeconomic Background for Budget 2005"

By Shane Garrett and Daniel McCoy (ESRI)



The paper "Macroeconomic Background for Budget 2005" will be presented at the ESRI/FFS “Budget Perspectives Conference”.



Press Release Embargoed until 00:01 hours, Tuesday 12th October 2004



Budget 2005 will be delivered against the backdrop of strong global macroeconomic conditions, the most favourable in thirty years, along with the Irish economy growing at its estimated medium-term potential. The out-turn at the end of 2004 for the General Government Balance, the most appropriate measure of the public finances, is likely to be close to balance or mildly in surplus reflecting the underlying strength of the economy, in particular favourable revenue trends. The expectation is for the growth in the economy in 2005 to be in the order of 5 per cent in real terms or a value increase of 8 to 8.5 per cent. Public expenditure is anticipated to grow in line with this output growth, in the order of 8 per cent in 2005. Such an expenditure profile would be prudent and sustainable given the anticipated cyclical conditions within the economy next year.



These favourable circumstances are likely to inflate expectations about the scope for an expansionary budget. However, the most appropriate fiscal stance for the Irish economy is to deliver a broadly neutral budget in terms of its macroeconomic impact. This would still allow for a package involving widening of tax bands along with social expenditure increases over and above expected inflation. The extent of any fiscal loosening undertaken with Budget 2005 should not be so large as to exacerbate demand pressures within the economy that will ultimately contribute to deterioration in Ireland’s international competitiveness.



This paper, "Macroeconomic Background for Budget 2005" by Shane Garrett and Daniel McCoy (ESRI), will be presented at the “Budget Perspectives Conference”, co-hosted by The Economic and Social Research Institute and the Foundation for Fiscal Studies. Members of the Press are invited to attend the Conference, which will take place on Tuesday, 12th October, 2004, from 9 a.m. to 1 p.m. at the Hilton Dublin Hotel, Charlemont Place, Dublin 2.