A "populist reaction" by the Government to its recent poor electoral performance in terms of lower taxes and increased spending is the biggest threat to the domestic economy, Friends First, Mr Jim Power, warned today.
Speaking at the launch of the Quarterly Economic Outlook, Mr Power, said buoyant tax revenues and strict fiscal controls will put the next Minister for Finance in a very strong financial position going into December's budget.
He said: "This will facilitate full indexation of tax bands, possible tax cuts and increased spending in politically sensitive areas."
Mr Power warned the threat of what he called a "populist reaction" was the biggest "risk currently facing the domestic economy".
He said: "The economic platform pursued over the past seven years has been instrumental to the success of the economy and it should not be forsaken for short-term populist reasons".
"The policy of low taxation has been key to the growth of the economy and needs to be maintained if the Government is to continue to generate the level of income growth necessary to bring public services and infrastructure up to acceptable standards.
He warned: "A policy of sharply increased spending would be a major policy mistake that would have negative longer-term repercussions on the economy."
On the outlook for the coming year, Mr Power that the overall signs are positive.
He said: "Investment spending is expanding rapidly again confirming that business confidence is recovering strongly, however Irish consumers are still behaving in a relatively cautious manner."
He forecast GNP growth of four per cent for this year.
Commenting on the economic outlook within the Eurozone, Mr Power said there are signs of a gradual recovery, but the Eurozone is still vulnerable as most growth in the larger economies is being driven by external demand.