Irish central bank links high tax policies with jobless rate

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The Independent Online
IRELAND'S central bank has embarrassed the Dublin government with criticism of its high tax policies, which it says have worsened the country's unemployment numbers.

At 18.4 per cent, Ireland has the second-highest jobless rate in the European Community, after Spain with 20.9 per cent. The bank said that present government policies could see the number out of work jump from 283,000 to 310,000 by the end of the year.

It warned that neither January's 10 per cent devaluation of the punt nor money supply growth could deliver an economic upturn.

The bank, which operates independently of the government, called for sharp changes to fiscal policy. In February's budget income tax on earnings of more than Ir pounds 10,900 ( pounds 10,812) was lifted to 57 per cent.

The bank's annual report suggested action to lift demand for labour. One option would be to narrow the gap between take-home pay and employers' per capita labour costs when tax and insurance contributions are included.

It also called for work incentives and more flexible terms for setting wage levels, currently governed by a national employer-union pact, to reflect setbacks in particular sectors.

The bank also favours opening the public sector to wider competition. It advocated shifting investment incentives that are heavily geared towards property and other non-productive sectors, and a 'rebalancing' of education to give more scope for vocational and technical training.

The bank predicted that growth will rise from 1.75 per cent last year to 2 per cent in 1993, the same rate projected for the continuing expansion of the labour force. But the rise in Exchequer borrowing from 2.8 per cent in 1992 to 3.4 per cent this year 'stretches to the limit what is prudent' in a weak economy.