Most market economists agree that while the 1998 Budget is stimulatory and expansionary they do not see any imminent threat of inflation on the horizon.
However, nearly all are surprised at the Minister for Finance's decision to run a borrowing requirement for another year.
Davy chief economist, Mr Jim O'Leary, said that corrected for the artificial boost given to the 1997 base, the underlying rise in spending is more than 7 per cent.
"This has an eerie resonance," said Mr O'Leary. It will take nothing short of a regime change rather than a change of government to effect a genuine reduction in the rate of spending growth.
AIB economist, Mr Oliver Mangan, said it was a major disappointment that the Budget failed to rein in the runaway growth of Government spending.
However, Mr O'Leary also questions the projected decline in capital spending, despite the needs of the economy and indeed the Department's own assertions in its Economics Bulletin.
Exchequer borrowing for capital purposes is projected to decline from 2.7 per cent of GNP in 1998 to 2 per cent in 2000.
This is predicated on two elements: a significant decline in capital spending and a sharp increase in capital resources.
Mr Mangan said the failure of the Government to achieve a surplus on its finances was in marked contrast to the success of other small open economies such as New Zealand and Denmark.
According to Mr Mangan, the Government should be aiming for large budget surpluses during exceptionally buoyant economic growth. In addition, large budget surpluses now would leave the public finances in much better shape to cope with the scaling back post-1999 of EU transfers.
He said the budget surplus hit: 3.5 per cent of GDP in Denmark in the mid-1980s; 6 per cent of GDP in Finland at the end of the 1980s; and about 3 per cent of GDP in New Zealand.
There is general agreement that the Budget was a boost for business. According to Mr O'Leary, the cut in capital gains tax from 40 per cent to 20 per cent was a "bold stroke".
He added that the cocktail of a more expansionary budget than many had expected as well as the expected significant reduction in short-term interest rates struck most market participants as "decidedly inappropriate if not downright lethal".
Davy equity analyst, Mr Robbie Kelleher, pointed out that the equity market would focus on Corporate Tax changes. The reduction in the standard rate will boost overall market earnings by just 1 per cent, but the eventual impact of a 12.5 per cent rate will be about 5 per cent.
However, for a company paying all its tax at 36 per cent the initial impact will be 6 per cent and the eventual full impact on earnings will be more than 30 per cent.
However, the abolition of tax credits will reduce gross yield in the market by about 0.5 per cent and will be equivalent to a hit on earnings of about 3-4 per cent. Industrial companies will suffer most, according to Mr Kelleher, in that there is no reduction in Corporate Tax to enable them to offset the abolition of tax credits.
According to NCB Stockbrokers, the Budget may have contained the first official hint that a revaluation is likely. It points out that the Department of Finance is expecting inflation of 2 per cent in 1998, 1999 and 2000.
It says this would not be tenable if the currency fell from DM2.60 to DM2.41. "In that case the 1998 inflation rate would be approaching 3 per cent and heading north."
