By Andrew Bushe
DUBLIN — The Celtic Tiger success story will continue with the economy growing by about 5 percent a year until 2005 and no boom to bust scenario after that, the country’s main independent economic think-tank has predicted in a major report.
The upbeat forecast was delivered in a medium-term review from the Economic and Social Research Institute.
The report’s co-author Professor John FitzGerald, said there would be "almost full employment". Unemployment would remain about 5 percent and net immigration would be 15,000 a year.
"About 25,000 emigrate every year and 40,000 come in of which slightly over half are Irish people returning home.
The report says that unless major external factors cause problems and there are policy mistakes at home, there will be a gradual "unwind" to growth of 4.3 percent a year between 2005 and 2010.
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"The superior performance of the economy to that of the EU as a whole is attributable to a much higher growth in labour supply, as well as a somewhat higher growth in productivity."
The ESRI predicts a transformation of public finances with the £30 billion national debt virtually wiped out by the end of the decade.
The debt burden would be down to 9 percent of GNP instead of this year’s 55 percent.
The report cautions against tax cuts by Finance Minister Charlie McCreevy in his budgets for the next two years — until the economy’s growth has slowed down from the current 6.5 percent.
After that, "fairly dramatic" cuts would bring the tax take down to 35 percent of GNP from the present 40 percent.
Real wages would rise faster without damaging the economy, by about 3.25 percent compared to the 2.5 percent in the 1990s.
The ESRI envisages income per head rising above the EU average by 2005.
There would be a gradual shift from high-tech manufacturing to market services, especially internationally traded services.
"If the relatively benign scenario which we paint turns out to be true, we can repay the national debt, have significantly higher living standards with substantial cuts in taxation in the long term, an improvement in public services and a very big investment in infrastructure," FitzGerald said.