See ESRI predicts 1.8pc growth this year, urges Government to continue with austerity - Independent.ie
ESRI's overoptimistic economic forecast is unfazed by well known headwinds of the EU recession,UK snailpace growth and continued domestic austerity.
Another headwind is that taxation may kill the private sector goose that lays the golden egg-the truly market oriented,incentivised private sector,just over a third of the economy.In the 2011 national accounts at CSO,the latest dilatory annual figures available,government spending was €74 billion,a whopping 58% of Gross National Income (GNI) of €128 billion*,with the private sector balance of 42% being €54 billion.Government spending included public sector pay and pensions of €19 billion,old age pensions,social welfare and government capital spending which is largely private sector contracts or semi-state.
Given that public sector trade union opposition to pay cuts and redundancies is highly organised and militant, austerity will likely continue largely to fall largely on the market oriented private sector in continuing tax increases. Say tax increases of €4.5 billion were applied to the market oriented private sector of €54 billion in the next four years,that would be a hit of 8%,which could well reduce it to say €50 billion. Could that €50 billion keep the 48% larger public sector levitating? Could incentives be so damaged by more increases of taxation-which is already well beyond diminishing returns-that thousands of successful businesses and business people become defeatist?
*This is a higher figure than World Bank international comparisons,based on per capita 2011 Irish GNI of $39,150 x approximate foreign exchange rate for euro of €0.72 x population of 4.2 million = €118 billion. The latter figure looks considerably worse for the situation of the private sector.