Major risks remain

My main reaction to the budget presented in Parliament is that the fiscal space needed to avoid a downturn in economic activity is not significant. The effect of the big increases in the energy services charged to households and to businesses is not sufficiently compensated for by the proposed income tax reductions. We, therefore, still risk a major economic slowdown.

Inflationary pressures caused by the energy services increases is going to affect our competitiveness and could also give rise to wage increase demands by the unions.

Workers wages decreased in real terms by 0.7 per cent in the first six months of this year and this is bound to add pressure on trade unions to negotiate for wage increases.

Many areas of economic activity have received attention in this budget. In particular, the tourism sector has been well catered for, except that the €120 million voted for the improvement of the tourism product should have been targeted for the next two years rather than the four years planned by the government.

The tax on tourist accommodation could also send the wrong signals to the industry, which is not seeing a prosperous season for 2009. The budget says the right things about education. But we have heard these pious intentions before. The facts are that, despite ever increasing allocations on education year after year, the results are not sufficiently good.

We need to introduce value-for-money audits in education if we are to achieve better results than we are doing at present. The token votes on research and development, assistance to SMEs, and improvement of the environment are welcome, even if their effect may not be significant. If these manage to raise an awareness of the challenges that all these areas are facing, then, at least, it will be a beginning for more intensive action in future.

The capital projects announced are a good move. One has to see to what extent they will stimulate private consumption.