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Party promises: terms and conditions apply
Kevin Rafter Political Editor

 


THEmain political parties will spend the next few weeks attempting to convince the electorate that significant points of difference exist between them. Yet on one significant matter, all the parties are in agreement . . . that is, the health warning they tag onto all their promises and pledges.

Pat Rabbitte was open about this health warning at the recent Labour Party conference. "Given the resources available, " he said, "Labour in government would take two percentage points off the lower income tax rate and invest heavily in schools and the health services. But if the resources are suddenly not available, well then the public will just have to wait."

Taoiseach Bertie Ahern followed Rabbitte with a similar theme last week. "Nobody can do anything in health, anything in education, or anything in taxes, unless we keep the economy strong, " he said.

In election 2007, all things good are on offer, from tax reductions to big spending projects. But the health warning opt-out is in the small print.

It's the economic, stupid.

On budget day last December, Brian Cowen projected economic growth of 5.3% in both GNP and GDP terms for 2007. The recent increases in interest rates have not altered Cowen's assessment of the economic outlook. An average growth rate of 4.7% is forecast for the next three years. Employment growth is estimated to average 2.4% between 2007 and 2009, with unemployment remaining relatively low.

Inflation will also remain at moderate levels, with the Department of Finance predicting that it will fall to the current lower average levels in the eurozone by 2009. The official government forecasts for the national finances are also good, while Ireland's debt-to-GDP ratio is predicted to remain as the secondlowest in the euro zone.

There are, however, a few dark clouds on the international horizon, with concerns about the US economy and the risk of more oil price rises.

Overall, however, the picture for the global economic environment is generally favourable, with growth rates in the European Union moving in the right direction. So the economic outlook for the new Irish government looks good, at least over the next three years. But it will be in the latter part of the new coalition's term that problems may emerge. "It takes a while for an economic slowdown to arrive, " one seasoned economic expert predicted last week.

In general, across the economic community in Dublin, the real worry centres on the competitiveness of the Irish economy. "Price increases are fine when we are only doing it to ourselves, but try doing it to foreigners and they just say, thanks but no thanks, " one economist said.

UK chancellor Gordon Browne's decision to cut British corporation tax rates in his budget last week is another indication that Ireland's low tax regime for business is no longer unique.

Elsewhere in Europe, from Germany to the former communist regimes in eastern Europe, foreign investment is being keenly sought with attractive corporate tax packages on offer.

There are also concerns about the type of foreign companies operating here and their declining stakes in their own sectors. Pfizer is an example of a company that is no longer a leading player, outstripped by young turks in its sector. There is no reason to believe the Dells and Intels might not find themselves facing the same 'vintage' issue in the near future.

While the government's own predictions for the next three years are broadly positive, domestic demand . . .

the powerhouse of current growth levels . . . is unlikely to continue growing at the pace of recent years, while personal borrowing rates will have to ease. All of this means lower growth rates. This may be compounded by less job creation, which means lower tax receipts and in turn lower growth.

The exposure of the economy to the construction sector is another risk, although the housing boom may shortly switch to a National Development Plan-inspired boom, which may ease some worries in this area.

But in the short term, the next government may just be able to play down the economic health warnings. The public finances are in excellent condition, with a pile of money ready for spending should the next government decide to loosen the purse-strings. In addition, the National Development Plans contained 184bn in spending plans. Little of that money has yet been conclusively allocated, and a revision of the plan might allow the next government deliver all that has been promised so far in 2007, as well as all that will be promised between now and polling day.




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