ESRI Calls For Budget Cuts To Increase

A think tank report has called for the government to go beyond the €3.6bn savings required, in order to reduce the deficit more rapidly.

Through research the Economic and Social Research Institute (ESRI) has said the international situation has become more challenging as the recovery in the US and the UK has slowed down. It fears that this could greatly affect the fragile economy recovery of Ireland.

Thus the ESRI has urged the Government to cut the deficit in the December Budget by more than the €3.6bn required by the European Union-International Monetary Fund programme. The think tank fears uncertainty about the sustainability of the overall recovery and has some concerns that the developed economies will slip back into recession.

The president of the country's largest trade union however is hitting out at the ESRI for urging the Government to make Budget savings above what was estimated.

SIPTU's Jack O'Connor said: "I think it is an absolutely absurd idea which is contrary to the interests of everyone in Ireland.

"If we were to list all the things that we could and should be doing, this is about the single worst thing that we could do in Ireland today."

The institute does however remain strongly upbeat about the prospects for exports in 2011-2012 but believes that the domestic economy will continue to contract over the next year. It suggests that it is this weakness in domestic economy that is hitting the job market.

The ESRI now expects net job losses in this year of 45,000, a considerable increase on its last forecast three months ago when it expected 28,000 fewer people to be working in 2011.

However next year the ESRI does expect a slight increase in net jobs for the first time in five years. But at only 12,000 this will not be enough, considering the new entrants into the labour force.

According to the report public finances are likely to remain within the targets set for the budget deficit, with revenue perhaps slightly better and expenditure slightly less than set out in the budget documents.

Although credit conditions remain tight as banks have been obliged to reduce the size of their balance sheets. There are still outflows from the covered banks, but the pace has moderated.

In general assessment the ESRI offered four restructuring agendas: in the labour market it is suggests that the government need to deal with the structural unemployment problem. In the banking sector where the burden of adjustment has fallen primarily on the domestic economy; in the private sector where corporate and household indebtedness are a strain on growth; and, finally, in the public finances where the process of correcting the imbalances is well underway.

(LB/GK)