And the Government should use the record-low borrowing costs to fund a large-scale public investment programme focused on areas like social housing, education and high-speed broadband infrastructure, the Nevin Economic Research Institute (NERI) has said.

In its latest economic commentary, the trade-union funded think-tank called for a budget adjustment of around €800m and said the Government shouldn’t cut taxes.

Budget measures, it said, should include an increase in employers PRSI, a wealth tax and reforms to capital acquisitions tax, as well as €375m from water charges.

NERI economist Dr Tom McDonnell said there was no room for tax cuts, but he added the Fiscal Advisory Council was being “excessively cautious” in pushing for the original €2bn adjustment.

“There is a strong case for the Government to fund a large-scale programme of public investment focussed on areas such as social housing, education and high speed broadband infrastructure,” Mr McDonnell said.

“While the latest quarterly figures are positive, concerns remain around the high level of debt, weak credit conditions and unemployment.”

NERI said the public investment/GDP ratio is very low in Ireland. It claimed that the long-term rate of return to the economy a targeted public investment scheme would exceed the rate of return on borrowing.

The think-tank said public capital investment should be increased to average at least 3pc of GDP.

NERI is forecasting growth of 5pc this year, 3pc next year and 2.9pc in 2016. It expects unemployment to fall to 9.8pc by 2016.

It also warned that further cuts to public spending will put “immense pressure” on public services and public investment.

“Instead of cutting taxes, a social emergency fund should be created and targeted at the most vulnerable people and communities in Irish society,” it said.

“Reversing cuts to mental health services should be a priority as should a programme of social housing and additional training and education supports for young people.”

NERI said that although the pace of growth is expected to moderate in the second half of the year, it is projecting further strong growth for the remainder of this year, 2015 and 2016.

But it said concerns remain including high levels of debt, weak credit conditions and high levels of long-term and youth unemployment.

“The recovery remains fragile and the weak performance of the euro area, and the threat of deflation, could begin to weigh on the Republic’s economy,” the think tank said.

It said it was concerned by the fall off in growth of employment at the start of this year, and it said the recovery has not been the same throughout the regions.

“In general, employment is expanding in the east of the country and declining in the west,” it said.

It added that economic recovery in Northern Ireland will start to take hold with modest increases in employment and output, but said the pace of recovery will continue to lag that of the rest of the UK and the Republic.

“Uncertainty about the UK’s position in the European Union may dampen the North’s ability to attract investment over the next few years,” NERI said.

Article Source: http://tinyurl.com/kbwqb42