Next month's budget will be the toughest in a decade and the public should expect increases in indirect taxation and stealth increases in direct tax, a leading economist warned today.
Mr Jim Power of Friends First warned that tough measures are required in the budget to keep the economy on a stable footing in the medium term.
He suggested Mr McCreevey should consider such revenue-raising measures as lifting the indexation of tax bands and tax increases on "old reliables" to raise revenue.
Mr Power said that control of public spending has to be the key priority for Government and warned if spending is not pared back from its current rate of almost 20 per cent, taxes will have to be increased.
He said that although some cutbacks were now inevitable, cuts should not be made for cosmetic reasons. "The knife needs to be applied to all relatively wasteful spending, regardless of the political fallout," he said.
Mr Power rejected the Department of Finance prediction of a €750 million deficit for the full year and predicted the final figure would be in excess of €1 billion.
Mr Power said: "On December 4th, Mr McCreevy will take the first difficult decision during his tenure as Minister for Finance, and for the good of the country it has to be hoped that he will grasp the nettle".
On the economic picture for 2003, Mr Power is forecasting GDP growth of 3.7 per cent, which represents a modest downgrade on July forecasts of 3.9 per cent and 3.2 per cent.