Anybody who has any understanding of what is really happening in the Irish economy would find it very hard to disagree with the arguments put forward by the ESRI in the past week.

The economy is in a very difficult place. Unfortunately it is very difficult to see anything on the horizon that could change that. In many ways there is little new in what the ESRI is saying, although its forecast for growth and unemployment is the most negative prognosis put forward by any forecaster to date.

However, it is one of the first forecasts to emerge in the aftermath of the savage and inappropriately crafted budget introduced in April. Its distinctly negative prognosis is building on the damage that will be done to consumer confidence and spending power once May salary slips start to arrive. If that much money is taken through tax cuts out of an economy already in deep recession, it would not take a rocket scientist to figure out the impact. Many consumers are already stretched and when they see the reductions in their take home pay, they will either be technically bankrupt or will decide to cut out all non-necessary spending. Either eventuality would not be good for the economy.

Last November, I argued that the throngs of people going to Northern Ireland to shop should think carefully about what they are doing. The tax revenues gathered in the North do not find their way into the coffers of the 'free state' government.

Neither will her majesty's government pay for the job losses in the south that result from the flow of retail north of the border. My argument was not based on any patriotic ideology or codology, but rather a recognition of some simple economic and financial facts; shopping up north costs jobs and tax revenues in the south. However, I am less convinced about these arguments today. Based on the pillaging of incomes due to ill-judged tax increases, I could not be stupid enough to argue consumers should desist from flooding north. Many are left with little choice.

Perhaps the policy makers in the Department of Finance are correct in thinking it is possible to tax one's way out of a recession. I find it hard to understand. There is little evidence that increasing the tax burden in an economy already on its knees could revive confidence and activity. The stance of budgetary policy could ultimately make the ESRI's forecast this week look optimistic over the coming months.

The ESRI is forecasting a contraction of over €18.8bn in Irish national income in 2009. This is equivalent to €4,481 for every individual; a significant amount of money to be taken out of an economy. A lot more is likely to be taken out next year and possibly the year after. The scariest prospect is the dramatic rise in the number of unemployed and under employed in the economy over the coming year.

It is not surprising people are scared. Our policy makers are doing nothing to inspire confidence. The debacle with mortgage interest relief this week is just another example in a long line of ill-thought out budgetary measures. Surely they have enough time and resources to implement policies they do not have to back track on.

It is high time we started getting some real leadership that we can believe in. The quality of policy making and leadership is dire and there is a real sense that we are plunging deeper into a black hole. The notion of external influence is becoming increasingly attractive and the possibility that social partnership might come back on track just serves to increase that attract­ive­ness. Ireland is looking increasingly like the failed economic and political entity that it was back in the mid 1980s.

The author is chief economist with Friends First