Dr. Kieran McQuinn:

Going back to Professor Barrett's comments in the opening statement regarding how we frame and think about the budgetary package and the measures that should be taken, the crucial point for us, particularly regarding taxation or expenditure, is where we think the economy is at, whether we think it is growing in line what we call the potential level or whether it is at the potential level. If it is above or below this, perhaps there is a requirement for measures to be taken. At present, and it is quite difficult given the headline figures announced recently, our view is the economy is pretty much at its potential level. This is an important assessment because it suggests that in terms of the overall budgetary package the Government should follow a broadly neutral strategy.

Where there is a rationale to cut taxes - looking at it from a broad economic perspective - is when one feels the economy, or the domestic sector of the economy, needs some type of stimulus and we need to put more money in people's pockets which they will go out and spend with a resultant knock-on impact on growth. However, our assessment is that all of the dynamism and growth in the Irish economy is coming from domestic sector. This is with the understanding of the many difficulties and the households still suffering the after-effects of the financial crisis. Looking at the headline figures, consumption is very strong and increased by 4.5% last year, which is higher than what we thought it would be, employment growth is very strong and unemployment is reducing albeit gradually in recent times. All of the headline figures for retail sales this year have increased strongly and I believe consumption will increase again this year. The rationale from our perspective for cutting taxes is whether it is required in terms of its impact on economic growth and, given the strong rates of growth in the economy, particularly the fact they are coming from domestic sources rather than from external trade sources - as was the case in the initial phases of the recovery - we do not see the rationale for a cut at this point in time.

We will speak a little about the Government's plan on housing in our next commentary. In line with the comments I made earlier when I spoke about identifying the role the Government can play in terms of the greater provision of social housing, we welcome the increased commitment as outlined in the plan during the summer. The targets set out are very ambitious and they may or not be met. However, the increase in resources in the area is clearly important. The overall package of €5.5 billion over four years must be seen in the context of the metrics we spoke about earlier regarding the spend in the noughties of approximately €1.5 billion or €1.6 billion on social housing. The measures taken, particularly those announced on the supply side, will have a positive impact.

I echo Professor Barrett's point on breaks or a stimulus on the demand side of the market. When we have supply-side issues and, unfortunately, supply is relatively slow coming on stream in the current market. If we give a demand-side incentive such as a tax break, the danger is it simply just gets bid into the price of the house. This is the difficulty with such a measure.