‘Embarrassment of riches’ should be spent on capital infrastructure – Goodbody
The chief economist at stockbroker Goodbody said he supports a proposed new capital spending stabilisation fund for the country’s “embarrassment of riches”.
“The public finances have been the story of 2023 for the Irish economy,” Dermot O’Leary said.
While he acknowledged that a sovereign wealth fund for corporation tax revenue is a good idea, he said the country is already experiencing ‘a rainy day’ when it comes to infrastructure.
“Let’s face it we have a very chequered history in terms of capital spending, there’s been a boom and bust episode,” Mr O’Leary said.
“If we can introduce any policy that stabilises capital spending to ensure that we have the energy infrastructure and the housing infrastructure, that will have medium term positive implications for the Irish economy.”
He said a large portion of capital spending should be on housing.
“Absolutely, we are way behind the rest of Europe in terms of this, and we have one of the fastest growing populations in Europe as well.
We have seen reports from the ESRI this morning around affordability, I think an increasing proportion and a stable proportion of spending on housing is necessary over the medium term,” he added.
The Irish economy continues to perform ahead of expectations, fuelled by robust growth in consumer spending, a strong FDI sector and healthy government finances, and Goodbody is increasing its forecast for modified domestic demand for this year to 2.6% from 0.7%.
Its chief economist said the reason for the upgrade is due to a better international picture, better investment spending in the economy, and growth in consumer spending.
Mr O’Leary said household finances in aggregate are holding up well.
“We have a situation where the labour market is as tight as it has ever been with a 3.8% unemployment rate. Employment growth is running at around 4%, wage earnings growth running at around 4% – so all of those combined give you a situation where disposable incomes are growing at a healthy rate in a European context.
“When you look at the savings behaviour there is some evidence of a normalisation of savings beyond the pandemic period,” Dermot O’Leary said.
“That doesn’t suggest that households are dipping into their war chest that was built up over the pandemic period that’s still there and that’s there as a support as we go over the next year or so,” he added.