ESRI warns the government to avoid taking measures that could overheat the economy

The Institute for Economic and Social Research said the government should consider putting more money into the national reserve fund in 2024 than currently planned to avoid the temptation to take measures that could overheat the economy in a possible election year.

ESRI predicts a budget surplus of 15.5 billion euros in 2024, up from 9.8 billion euros this year, reflecting the huge value of tax receipts that will continue to flow into the Treasury.

Kieran McQueen, Professor of Economics at ESRI, said:

If receipts are as large as expected, there is also the possibility of increasing receipts going to the National Reserve Fund to ensure that policy does not contribute to overheating.

ESRI said it supports the government setting aside credit or excess tax revenues, including setting up a sovereign wealth fund, to address the government’s long-term pension liabilities.

It also makes it possible to use some of the funds to address „barriers” to housing and health care.

„From an economic perspective, the challenge is not to turn on the heat because the economy is running too hot at the moment,” Mr McQueen said.

The ESRI report predicts that despite the pandemic and cost of living crises, significant growth in the Irish economy will continue.

However, they warn that for the first time in years, valuable exports from multinational pharmaceutical companies are faltering.

Many of the world’s largest pharmaceutical companies, including Pfizer, have major facilities here and make significant contributions to Ireland’s corporation tax revenue.

Conor O’Toole, associate research professor at ESRI, said the economy had recovered from inflation shocks and damage to global supply chains from the war in Ukraine.

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„In a way, it’s really a tale of two economies again, with the domestic economy performing strongly,” Mr O’Toole said, citing low levels of unemployment, a recovery in construction and „very healthy” public finances. .

„Meanwhile, contrary to our expectations, there is weakness in export growth due to slowdown in pharmaceutical companies,” he said.

If wholesale gas and electricity prices are reduced, ESRI expects some decline in household utility bills in the coming months.

On housing, it said the pandemic and rising costs of building materials will push new home production to 27,000 this year and 30,000 homes built in 2024, defying inflation.

Growth in house prices has slowed significantly this year and in real terms after taking inflation into account.

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