STATEMENT BY AN TAOISEACH MACRO ECONOMIC AND FISCAL OUTLOOK DÁIL ÉIREANN WEDNESDAY 27 OCTOBER 2010
Ceann Chomhairle,
As the people of Ireland look to this House today, they do so with understandable concern.
Our people are concerned about their future, about the prospects for their children, about the well-being of their neighbours and of the country as a whole.
They are looking to this House with hope and with expectation.
They hope that the political leaders of this country have the capacity to steer us through this period of unprecedented economic challenge.
And they expect that there will be a clear plan - a pathway which charts our course to economic recovery and secures confidence in our country's future.
The people need to hear from the members of this House what we are all going to do to fix our problems.
As the House is aware, I invited the Leaders of the Opposition to meet with me and my colleague, Minister Gormley, last week to discuss the budgetary crisis.
I proposed that the Opposition should have full access to briefings by the Department of Finance, so that they would appreciate fully the scale of that challenge.
I believe it is important to afford other parties in the House the opportunity to formulate their proposals for putting the public finances on a sustainable footing.
I was also seeking to build external confidence in the determination of Ireland to achieve fiscal and economic stability through a broadly expressed commitment on the part of Irish political leaders.
It is, therefore, particularly important and beneficial that the Leaders of the main political parties in this House have expressed their commitment to the target of reducing the deficit to 3% of GDP by 2014.
That commitment will underpin confidence on the part of investors and workers and the community generally.
I acknowledge that commitment and the spirit in which it was reiterated at our discussions last week.
It is a sure sign of the strength of our democracy, and of the widely-shared recognition in the House of where the national interest lies at this critical moment in our history.
Ceann Chomhairle,
We should reflect on how far we have come in our efforts to overcome this unprecedented economic crisis - a crisis that has affected all the developed economies.
Since 2008, we have achieved budgetary savings of €14.5 billion in just two years.
The economy is emerging from recession, with growth returning and the prospect of stronger growth next year.
There have been significant improvements in our competitiveness as Ireland prices itself back into the markets we sell to and a remarkably strong export performance.
The budgetary figures for this year are broadly on target.
Despite all that has happened, our debt to GDP ratio in 2014 - forecast to be about 110% - will not be significantly out of line with many other developed countries. Taking account of the National Pension Reserve Fund, and cash reserves, our net debt position is forecast to be about 83% of GDP. While these forecasts may alter slightly post budgetary adjustments, our net debt position will be lower than many other developed countries.
However, our borrowing costs have increased significantly and our public finance position still requires a major additional correction to put it on a sustainable path.
The State therefore continues to be faced with an enormous budgetary crisis.
Against that background, the Government has decided that an overall budgetary adjustment of €15 billion over the next four years is warranted in order to achieve the target deficit of 3% of GDP by 2014.
This is based on a projected average annual real GDP growth rate of 2.75 per cent over the period 2011-2014.
It is also based on a working assumption that the budgetary adjustment will be somewhat front-loaded in 2011 and that it will be weighted more towards reductions in spending than tax increases.
It is the Government's judgement that, while a degree of front-loading may dampen economic growth in 2011, it will give the necessary confidence to the international markets and secure our funding position, which is of course fundamental to sustaining public services for our citizens, and achieving sustainable economic growth in future years.
The key reasons for the significant increase in the required consolidation are lower growth prospects both at home and abroad and higher debt interest costs.
The size of the adjustment for 2011 and the distribution over the remaining years will be announced in the Four Year Plan, which Government is presently discussing and preparing for publication in mid-November.
However, more work needs to be done, and more up to date information will be assessed, before a final decision on the precise figure for 2011 is made.
The projected adjustment for each of the four years is not arrived at lightly.
It is based on a rigorous assessment of the balance between what is credible to the markets and to international institutions, and the inevitable impact on potential economic growth in the economy.
It is severe, but it is a necessary next step to economic recovery.
Ceann Chomhairle,
No-one can forecast with complete accuracy how the Irish economy will perform next year, never mind over a 4-year period.
There is also considerable uncertainty about the international economic outlook, which has a powerful influence on the performance of our economy.
But, there is also considerable room for continued action here at home.
We are not passive spectators, watching helplessly as events unfold.
On the contrary, I believe that the Four Year Plan which we will publish will be a call to action for our entire economy and society.
That Four Year Plan is not only about bringing order to the public finances by 2014, vital though that is.
It will bring together our growth strategy as set out in the Smart Economy Plan, our jobs strategy and our proposals for structural economic reform.
It will demonstrate how growth in the economy and in jobs will be fast-tracked, building on those key competitive strengths which I mentioned earlier.
If we can do that, we can reduce the scale of the €15 billion adjustment necessary to achieve the 3% target by 2014.
Let me stress that point to the House.
The best way to reduce the deficit is to accelerate a major programme of structural reform in our economy, aimed at increasing both employment and national income.
If vested interests wish to oppose reform, all they would be doing is helping to deepen our problems.
If they proceed with that approach, they would be helping to condemn our society to persistent unemployment, deteriorating public services and reduced support for the most vulnerable in our society.
Our problems are so serious that no vested interest, and no section of our society, can escape from their consequences by trying to protect their narrow sectional interests.
Everyone has a part to play.
We really are all in this together.
The public service has a critical role to play in achieving the goals of the Plan which we are preparing.
I want to fully acknowledge the contribution that individual public servants and the system as a whole have made already.
There has already been a significant reduction in the number of staff in the public service - some 11,000 in total to date - and staff have seen very significant income reductions.
Staff numbers will fall further over the coming years, as the cost of the public service is reduced while service delivery is radically reformed.
Crucially, we have agreed with the public service unions a framework in the form of the Croke Park Agreement which acknowledges the necessity for greater flexibility and faster change in underpinning jobs and living standards in the public service.
That Agreement is an instrument not only to enable the public service to live within our means, but to transform it to meet the needs of our citizens for the future.
What the Government is looking for is not just a slimmed down or less costly public service, but a total transformation.
We need a transformation in what the public service achieves for our citizens: the targets and outcomes for our people across every stage of the lifecycle, whether children, people of working age, people with disabilities or older people.
And we need a transformation in how those targets and outcomes are delivered so that the overall cost of the public service is sustainable for our economy.
We will need extraordinary leadership, creativity and flexibility - from management as well as staff - if the commitment to avoiding further pay reductions and compulsory redundancies is to be honoured.
The Government has no wish to back away from the commitment into which it entered, but it can do this only on the basis of full and comprehensive delivery by all of the parties.
Ceann Chomhairle,
We need to give our people hope.
It is important that the country is taking credible, thoughtful and resolute action.
This debate can and should be about finding the right solutions to our problems.
And it is about implementing those solutions, because they are right for our country at this time.
It is my absolute and firm conviction that the challenges we face can be met and can be overcome.
They will be overcome through the resilience and capacities of our people, through the inherent strengths of our economy and through the intrinsic values of our society.
They will be overcome through a commitment to courageous, innovative and responsible policies.
They will be overcome through the formulation, and energetic implementation, of a plan which demonstrates to our own people and to the world how we will come through our present difficulties.
The scale of the challenge is clear.
It is reflected in the significant drop in economic activity and the output of the economy.
That is why we must continue to plan for growth.
It is reflected in the rise in unemployment and the reduced prospects for those of our young people who are leaving our schools and colleges at this time.
That is why policies and actions to create and sustain jobs are of paramount importance.
It is reflected in the loss of national competitiveness in recent years.
That is why we will bring forward proposals for further reducing costs and further improving competitiveness right across the economy.
It is reflected in the extent of the repairs required to our badly damaged financial institutions.
That is why must conclude the process of banking reform and recapitalisation.
Finally, the scale of the challenge is reflected in the size of the gap between our income and expenditure as a State.
That is why we need to continue the process of reducing the deficit, with measures to increase growth and jobs, to raise revenue and to reduce public spending.
We must face these realities, but we will not be overwhelmed by them.
We take great encouragement from the significant progress that has already been made in tacking this unprecedented crisis.
Our objective now must be to build on the decisions we have taken and the stabilisation that we have achieved.
Now, we must push ahead to grow our economy, to create jobs and to bring down the deficit.
Ceann Chomhairle,
A crucial element in building confidence in our capacity to overcome these problems is to realise the strengths which we have here and the strong performance which continues in many parts of the Irish economy.
We still have 1.86 million people at work today, which is around 480,000 more people than were at work in 1997.
This is a highly qualified and productive workforce, working in an economy where a high proportion of our output comes from the innovation-intensive, high value-added and growing high-technology sector. As well as an indigenous sector that is now more efficient and competitive than it was when the economic and financial crisis hit us in 2008.
This is reflected in our export performance, which has recovered rapidly this year, despite the very difficult international trading conditions. Today's figures from the Irish Exporters Association show a 12.8% growth in merchandise exports in the third quarter and a 9% increase in total exports on the same period last year.
The balance of payments of the Irish economy is moving into surplus. The level of exports and capital inflows is set to exceed imports and capital outflows from next year on.
This fact tells us that our economic relations with the rest of the world are firmly pointing towards our capacity to pay our way, to service our debts and to achieve economic and fiscal stability.
Ireland's real competitive strength is further reflected in the continuing flow of investment announcements and the expansion of employment by world-leading international companies, who still see Ireland as the location of choice for many of their activities. Last week an IBM survey stated that Ireland was the best location for direct investment.
Many of the best and biggest companies in the world have decided to locate their higher value-added activities in Ireland, and we are seeing a high and growing proportion of firms engaged in research and innovation.
That inherent competitive strength also reflects the realism and flexibility of our people at work across the entire economy.
The Irish workforce has adapted to the international economic crisis and the very changed circumstances at home.
In many cases, work practices have changed, working hours have been altered, pay rates have been reduced, especially premium earnings of various kinds. Employers and workers have got together at local level to agree how to adapt and to preserve jobs.
As a result, the unit labour cost of production in Ireland has reduced, while it has continued to rise elsewhere. That improvement in cost competitiveness is already being reflected in the more positive way in which operations in Ireland are being viewed by international companies.
The Government has also been taking a range of actions to help return the economy to the path of sustainable growth.
In December 2008, we published our economic plan "Building Ireland's Smart Economy".
This identified five Action Areas as the basis for the Government's response to the crisis. Since then, we have been assiduously implementing that Framework.
We have acted aggressively in all these areas to tackle short-term difficulties while laying the basis for future recovery.
We have introduced supports for business - for example the Enterprise Stabilisation Fund and the Employment Subsidy Scheme - while seeing large gains in international competitiveness.
We have acted decisively to stabilise the banking system in very difficult circumstances, and ensured a continued flow of credit to business, albeit not yet back to its optimum, and work continues in this critical area.
We have begun to re-position Ireland as a Global Innovation Hub, based on the work of the Innovation Taskforce, notably through the establishment of Innovation Fund Ireland and improvements to our Research and Development and Intellectual Property tax regime.
We have invested heavily in renewable energy infrastructure, while developing new market opportunities in areas like electric vehicles and the SmartGrid.
We have sustained high levels of capital investment to support economic activity during the last two years, completing the inter-urban motorways and delivering new projects at reduced cost.
The decisions we have already taken, and the reforms we have already introduced, will greatly benefit this country in the years ahead.
So, there are many reasons to be hopeful and optimistic about the future of our country and her people.
Our mission now is to translate our economic strengths into economic recovery.
We must be hopeful, optimistic and energetic.
And yet we must be clear-eyed, realistic and thoughtful.
Hope and optimism are the essential ingredients of our future, but they do no blind us to the realities of the present.
We must recognise that the rapidity of the recent economic decline and the scale of our budgetary deficit have created real doubts about the State's capacity to pay its way.
These financial problems have overshadowed our real economic and competitive strengths.
The reality is that we must convince those who lend to the State, who fund our banks and who do business with Ireland that we have a credible plan to close the gap between Government income and expenditure, and to meet the cost of servicing our increased debt.
There is no other choice.
It simply must be done.
The Government is determined that it will be done.
Ceann Chomhairle,
This House is now entering a crucial period.
Together, we will have to make some of the most significant decisions in our recent history.
Those decisions will shape the future for all of our people for many years to come.
If we shirk the necessary decisions, or if we make the wrong judgements, the consequences are very difficult to contemplate.
That must not happen, and it will not happen.
When the Government presents its Budget, it will set out the specific adjustments, in terms of income and expenditure, which will demonstrate progress towards our 2014 target.
Achieving budgetary balance will require difficult decisions, based on a clear view of economic and social priorities and, crucially, by the principle that the burden must be shared.
As I have outlined, we all have a part to play in contributing to recovery.
The gap between what we are spending and what we are collecting in revenue is simply too big for anyone to escape sharing the burden of adjustment.
But the society that we have built has at its core a commitment to help the less fortunate.
The Government is determined that the major gains in social protection and support for the vulnerable in recent years will be maintained as far as is possible, in present circumstances.
Between 2005 and 2010, the contributory state pension rose by 37.7%, the lowest rate of welfare payment rose by 45.4% , the qualified child increase rose by 77.4% and the national fuel scheme payment rose by 122.2%.
Inflation in the same period was just 10.3%.
Those gains are real and substantial.
There have also been major improvements in public services such as health and education, in care for our elderly and in support for people with disabilities.
Given the budgetary crisis we are now in, I do not believe that we can protect every aspect of health, education and social welfare spending.
That is, unfortunately, impossible given the scale of spending in those areas relative to the reduced Exchequer resources that will be available.
But many, if not all, of the gains of recent years can and will be preserved. And once financial stability is restored and sustainable economic growth achieved, we can improve our living standards again also.
Every measure we consider over the coming weeks will be assessed with this in mind.
We must aspire to the goal that all of our citizens have an opportunity to work and to be valued in our society, to be well-educated and to be properly cared for when needs be. To do this, we must get more from less, and not to be afraid to change things around to get the best possible outcomes for the resources we now have available.
Ceann Chomhairle,
The Four Year Plan is about demonstrating how we will achieve a return to growth and jobs in line with the capacities and ambitions of our people.
While this is a national plan, to be presented by the Government and containing a range of measures requiring the approval of the Oireachtas, we will also seek support for it from the EU institutions.
That is prudent and it recognises the reality of the international situation, as well as the support we have already received from those institutions.
A viable plan, with the approval of this House and the support of the EU institutions, is the surest way forward to economic recovery.
Responsibility lies with the members of this House and the Irish people.
We all need to understand and believe that we can have a powerful influence - as we have had before - on our own economic fortunes.
As a small open economy we have to pay our way in the world through trade and exports.
That means we must ensure that our costs are not out of line with our competitors, that we focus our investments and our energies on sectors and activities with scope to secure more jobs, and that we organise our business and industrial relations practices in a way that unleashes the full potential of the economy.
We will continue the process of reducing the costs of doing business in Ireland.
While we have seen significant improvements in many areas, the reality is that some significant costs are out of line with our competitors.
This is true of parts of our sheltered domestic economy, which are not exposed to international competition.
We will be looking in particular at the costs of professional services and charges levied by public bodies of all kinds.
We will adopt a focused and determined approach to drive down costs where these are unreasonably out of line with important competitors.
Many employers, including the public service, have had to take steps and take sometimes unpalatable decisions to reduce payroll costs.
Labour costs in the Irish economy, like other costs, cannot be sustained at a level which is out of line with our international competitors, when account is taken of productivity and other relevant factors.
I welcome the fact that a framework for engagement between employers and trade unions in the private sector was agreed between IBEC and ICTU. Negotiations have also produced adjustments in a number of sectoral agreements which are underpinned by the institutional machinery of the State.
I believe it is time to look closely at the terms of some of those agreements to ensure that they are fair by reference to what has happened in the rest of the economy, and appropriate to the task of sustaining and growing employment.
As part of an overall competitive economy, there are sectors where specific opportunities arise at this time if we focus particular effort on taking advantage of them.
These have been identified in a series of strategic initiatives on the part of the Government over recent months.
For example, we are determined to ensure that the environment for innovation in existing and new businesses is as positive and productive as possible. This is as important for Irish SMEs as it is for the high-tech sector.
Our economic policy framework is not only about new industries and high-tech capabilities.
It applies just as much to what we might regard as our traditional businesses of agri-food, tourism and construction.
These industries have the benefit of involving people right across the community and all around the country.
They are sustaining communities and families and have the potential to do so for many years ahead as they evolve in line with market realities.
They face challenges, but their potential for further growth and development is significant.
We must ensure that those capabilities are fully realised so that these traditional sectors too can play their part in growing jobs.
The Four Year Plan will therefore set out concrete and tangible ways in which key sectors of the economy are being supported and mobilised to grow our economic base over the period ahead.
Their vitality will build the credibility of our overall economic and fiscal commitments.
Achieving our budgetary targets will in turn build a better business environment for investment in these sectors which can result in many thousands of new jobs, which in turn can facilitate a much less severe budgetary adjustment.
That virtuous circle of budgetary performance, competitiveness and economic development is the dynamic which will drive a successful economic future for our country.
Ceann Chomhairle,
Democratic government is, in essence, about choices.
With hindsight, we can see that the sustained boom period of the Celtic Tiger misled us all into believing that we could avoid difficult choices.
Now we know differently.
As a consequence, the choices we now face are, unfortunately, very stark.
It is essential, at this time of severe economic difficulty, that our people understand the choices facing the country, the decisions being taken by the Government and the reasons for them.
It is also important and appropriate that the Government can show to this House and to the Irish people that it is listening to all points of view and that it is considering all policy options.
Some have expressed the view that we can reduce the severity of the fiscal consolidation by extending the 2014 deadline.
The Government understands that view, but it is simply not grounded in the reality of the political and economic situation we find ourselves. It also disregards the implications of the consequent rise in debt service costs for the economy.
I know there is a lively debate about the scale and pace of changes to public spending amid fears that austerity could create a deflationary spiral.
Of course, reducing public spending on the scale envisaged will temporarily dampen economic growth, but we must recognise that even with the proposed adjustment of €15 billion, we still intend to borrow tens of billions of euros between now and 2014.
We simply cannot afford to increase borrowing further. If we tried, we would run a very real risk of not being able to borrow at all.
There are, however, many good ideas that the Government has been carefully listening to and actively thinking about.
While respecting the absolute need to meet the deficit target, we are considering new initiatives to promote employment in various sectors of the economy.
We are looking at how we can reduce the abnormally high savings ratio and release some of those resources into the economy.
We are examining the entire asset base of the State to make sure that it is being used to maximum effect - to drive investment and to help our competitiveness.
We are acutely aware of the role of small business in providing employment and the need to make sure we support our indigenous companies, by helping reduce their costs and their administrative burden.
We are evaluating our capital investment plans, to make sure we make the right investments for the future as well as helping employment in the short-term.
All of our decisions - on taxation, on spending and on stimulating growth - will be made with an open mind.
There are many choices still to be made.
In bringing forward the Four Year Plan, the Government will be setting out its ambitions for the future of Ireland, our economy and our society.
In doing this, we will be part of the broader Europe 2020 Strategy for Jobs and Growth to ensure that our economy and society develop to meet the ambitions and aspirations of our people.
We will be outlining an approach to budgetary policy which is not just about balancing the books in line with our commitments, but about transforming our economy and improving our society.
We will also set out a new vision for social partnership, as a process that can mobilise commitment and energy to support economic recovery and a fair and decent society. Our social dialogue will thereby return to its roots as an important part of the process of building up the real economic and social strengths of our economy and society.
Ceann Chomhairle,
This is a moment with very few parallels in our history.
It is a moment when the Government will act clearly and resolutely in the national interest.
I truly believe that the present difficulties, daunting as they appear, represent an opportunity to rejuvenate our institutions, to refocus our energy and to inspire our people.
There is a realistic prospect of achieving, within a reasonable time, not merely budgetary balance and economic security, but an Ireland worthy of the sacrifices our people are currently being called upon to make.
We can build an Ireland capable of meeting our ambitions for our children and their future in this country.
I remain open to the possibility of a broad measure of agreement on the details of a pathway to recovery - and I am very open to hearing and acting on sound proposals that may be aired in this debate.
However, I stand before the House in the full knowledge of my own responsibilities as Taoiseach.
I will do my duty.
I will discharge my responsibilities to the best of my ability.
I will do so in the best interests of my country at this important time. I trust the debate we are having here will be a constructive and solid contribution to meeting the challenges our country faces presently.
ENDS