Ibec says EU fiscal rules could undermine economic recovery

Employers Group Ibec has said European Union fiscal rules could undermine the recovery in the economy, because they severely restrict investment spending by government.

It says the Government should seek more flexibility from Brussels on how the rules are applied.

It also says tax changes in the recent UK budget need an urgent response to keep Ireland competitive for foreign investment.

Ibec has said the economy needs an extra €2.5bn a year in investment spending, of which about a billion would come from Government.

It has said this extra spend is needed to overcome bottle-necks such as housing and broadband supply that could hold back economic growth.

But EU fiscal rules, which come into effect here next year, underestimate potential growth in the economy and population trends, and result in overly conservative spending limits, particularly on capital spending, Ibec said.

It wants the Government to lobby Brussels to ease the rules to allow an effective doubling of the annual capital spend by the end of this decade, on the basis that Ireland has the fastest growing population in Europe, but the second lowest level of capital investment.

Ibec has said the recent UK budget launched a radical reform of the British tax code to make it more attractive to inward investment and entrepreneurs.  Describing it as a wake up call, Ibec said tax reform is needed here to reposition the post crisis economy.

In particular it points to the high marginal tax rate on average industrial earnings, with UK workers reaching the top marginal rate at €61,000, compared with €34,000 here.