UCC economist: Budget risks 'boom and bust' cycle

UCC economist: Budget risks 'boom and bust' cycle
Minister for Finance and Public Expenditure and Reform, Paschal Donohoe, TD at the announcement of Budget 2019 in the Courtyard of the Department of the Taoiseach,Government Buildings, Dublin.Photo Gareth Chaney Collins

FINE Gael has delivered another “pro-cyclical” budget that will perpetuate Ireland’s boom and bust economy, according to University College Cork economist Robbie Butler.

Dr Robbie Butler, School of Economics, UCC.
Dr Robbie Butler, School of Economics, UCC.

He said that the rapid growth of the Irish economy should be met with caution rather than a run on spending, as the country could easily be hit by another downturn or the economy spiralling out of control.

“We’re stuck in that cyclical system. Breaking that cycle is politically impossible,” he said.

However, Mr Butler said that the budget is likely to be balanced next year, with the increase in spending not significantly outpacing the rate of growth.He lauded the establishment of a Rainy Day Fund, although he warned it would not be enough to protect Ireland from another recession.

He said that the next downturn is a matter of if not when, but said that adding just €500,000 million a year on top of the initial €1.5 billion Rainy Day Fund meant that it would take four or five years before it could offset the deficit in a single bad year.

Mr Butler welcomed extra spending on Brexit, which includes targeted funding for sectors like agriculture, but said that it is difficult to plan ahead.

“It’s a positive thing that there has been some contingency planning, but I don’t know how much you can plan. We still just don’t know the shape of the agreement,” he said.

He also defended the decision to raise the 9% Vat rate in the hospitality sector, saying that it was an emergency measure that served its purpose. “It will have a very marginal effect on businesses. I think it there will be some impact, but it will be negligible,” he said.

He said that the goal of Vat is to produce revenue for the Government, and this change will do that.

He welcomed the investment in housing but said that it will take time to deliver.

“Anything that increases the supply of housing is a good thing. Anything that can help solve the issue of affordability, homelessness and emergency accommodation is good.

“The issue is that you can’t just snap your fingers and the houses get built,” he said.

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