The Government should not actively attract skilled labour from abroad, the Economic and Social Research Institute has warned, in a policy recommendation directly conflicting with proposals advocated by the Tanaiste, Ms Harney.
Presenting the institute's latest quarterly economic report yesterday, research professor Mr John FitzGerald said it was better the economy slowed down and he cautioned that State expenditure to attract skilled labour "is not wise". Mr FitzGerald also warned that taxation changes were increasing the risk of a collapse in the housing market. Earlier this month, Ms Harney said she wanted to bring 200,000 skilled immigrants to the State to achieve National Development Plan targets over the next six or seven years. At the same time, the State training and employment agency, FAS, is planning job fairs in Europe, the US and Canada to attract skilled labour.
According to the latest figures obtained by FAS, there was net immigration of 45,000 people during 1999, with half of these returned emigrants. FAS hopes to boost the figure to 60,000 this year to meet skill shortages, keeping it on track to meet Ms Harney's targets. However, Mr FitzGerald said this risked pushing the housing market towards collapse and the policy should be to slow growth rather than attract skilled labour from abroad, whether returned emigrant or immigrant.
He also said taxation changes next month as a result of the Budget were increasing the risk of a collapse in the housing market. The ESRI report says house prices will rise by 15 to 20 per cent this year and will continue to accelerate next year, even if no further tax cuts are announced.
Mr FitzGerald, one of the first to predict the economy was entering an era of high growth, said the cost of housing in Dublin was out of line with Europe. High prices left the economy vulnerable to an external shock. "The costs of accommodation would appear to be higher in our cities than in those of most of our European partners," he said. "In the long run the cost of building should be no greater in Ireland than elsewhere - we have more abundant supplies of land than around Amsterdam or Brussels."
The report says the problem is "the absence of serviced sites and the labour shortage that has arisen due to the exceptional growth rates faced by the industry". Nevertheless, according to Mr FitzGerald, a so-called soft landing was most likely but the possibility of house price collapse was greater. "If we continue with tax cuts, we make it more and more probable," he said. A soft landing would still mean that property prices would be below the current level in a few years. "We are saying to the Government, take it easy. Further tax cuts should be postponed until the economy has started to slow in 2002 or 2003." After all, he noted, there were few costs involved in deferring tax cuts, but if house prices collapsed, a rise of 3 to 4 per cent in unemployment might occur. "There is no need to take this risk."
Mr FitzGerald said the Government needed to take money out of the market. Mortgage interest relief should have been abolished and not increased as it was in the Budget, he said.
Mr FitzGerald also said that all spending on grants to industry ought to be cut. "The Government ought to be neutral and should stop these programmes. It should not be intervening to stimulate supply," he warned.