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Thursday 22 June 2017

We will suffer more in the recession than any other country, says IMF

Ireland will suffer the largest contraction of any advanced economy before the recession ends, says the IMF.

The International Monetary Fund said the country was facing a "formidable" task to drag itself back in the direction of economic success, and taxpayers would bear the brunt of the pain.

A broad selection of spending cuts, more reductions in the public sector pay bill, a redeveloped tax base and changes to social welfare payments were all likely, analysts said.



Stress

A second report by the Organisation for Economic Co-operation and Development (OECD) forecasts that the Irish economy will shrink by almost 10pc this year, with a further fall of 1.5pc next year.

By the end of the recession, the OECD suggests that the overall contraction will hit 14pc.

This is broadly in line with the IMF's prediction that the economy will contract by 13.5pc by the end of 2010.

Only after that can "a moderate paced recovery" begin.

While both organisations are painting a gloomier picture than the Government, Finance Minister Brian Lenihan said the IMF was making a "realistic assessment".

The IMF said: "The economy is in the midst of unprecedented correction. The stress exceeds that being faced currently by any other advanced economy and matches episodes of the most severe economic distress in post-Second World War history."

The report also pointed to the fact that Ireland remains the most expensive place in the eurozone to do business.

It has the highest wages and is losing its share of exports and foreign direct investment. A key factor was the "generous increases" in public-sector wages.

But in a further blow to workers, the IMF said that taxes must rise following what they saw as years of undercharging by the Government.

The report identifies a need to raise new taxes and to increase the number of people who pay tax.



Mistakes

"The tax base must be broadened, while limiting the impact on labour costs," the IMF said, adding that the property tax was "long overdue".

The good news for the Government was that the IMF endorsed the setting up of NAMA, which will take the bad debts of bank balances.

Reacting to the report, Fine Gael's Richard Bruton argued that it proved the crash was largely "driven by Fianna Fail's mistakes".

And Labour's Joan Burton said that the report put the Government "in the dock".

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