Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

On Deputy McGrath's first question, I am as confident as any finance Minister in Europe can be about how events will play out by the end of the year. We also are not that enthusiastic about GDP figures because GNP is a more accurate measure of how the Irish economy is going now than GDP. As the Deputy knows, GDP includes all the foreign stuff whereas GNP is more or less the domestic economy with the foreign profits stripped out of it. What is happening with GNP is consistent with very high levels of increased employment.

I am confident, first because we are at the lower end of the consensus. Deputy McGrath will have seen what the ESRI, IBEC and the various stockbroker economists predicted. Even the Central Bank is slightly ahead of us now. We are at the lower end of the consensus but we are still within the consensus space. Our forecasts have been endorsed by the Fiscal Advisory Council which is also very prudent in its approach. There is always uncertainty. I cannot give a cast iron guarantee. I am sure Deputy McGrath is aware of what happened with the patent cliff. There are particularly high-selling drugs manufactured in Ireland, for example, Lipitor - anyone who has a heart problem would be familiar with that - and Viagra and its co-equivalents under other names is also very high selling and is highly profitable.

As they go off patent they continue to be produced, and the same number of people are employed in the pharmaceutical industry. There are more people employed in the pharmaceutical industry this year than there were last year or in 2012, but in terms of value what they produce is worth less. Pharmaceuticals, with 25,000 employees and massively expensive products, were contributing about 5% to GDP, and that has to be pulled back. We are not quite clear how it washes through, so to speak, because we do not control the decision-making in the companies. However, from what we can see they continue to produce but what they are producing now in general terms would be more on the generic side rather than the patented product where the high profits are available. Obviously, they will come in again with new patented products and it will drive again. That has given us a distortion, and that is the best explanation I can give the Deputy.

On the level of adjustment made, we are saying that we are in line with our budgetary predictions after three months of 2014 and that we are on target to get to the deficit of 4.8% but to go from 4.8% to less than 3% will require an adjustment of about €2 billion next year. That is what we have predicted for a couple of years, and we are not moving from that forecast even though independent forecasters are saying we could do this much easier. If there is a big surge in tax receipts as the year goes by or a big fall in expenditure because many additional people go back to work, we will welcome that and take it into account coming into the budget, but currently we are looking at an adjustment.

The Deputy asked how that leaves scope for tax reductions. I have always talked about tax reductions in the context of the tax reductions I have had in the past three budgets. The Deputy will recall that I reduced VAT from 13.5% to 9%, but I had to raise revenue elsewhere. I reduced stamp duty to transfer family farms to the next generation of young farmers. I gave enhanced provisions for research and development, which enhanced the IDA package and succeeded in bringing in many American companies, with emphasis on research and development. I gave a capital gains window for the property industry in Dublin, which brought a wall of money into Dublin for commercial property. I use taxes as quasi-supply side initiatives, to use a fancy term, to stimulate sectors of the economy. I brought in other measures and they did not work, and no doubt the Deputy will remind me of those, but that is no reason for not trying.

An aspect of the tax code that is most jobs-unfriendly is the fact that people on relatively small incomes must go on the high rate of tax. A single person earning €32,800 goes on the high rate of tax, and I am saying that my next move on tax is to address that. If I do not have some resources what I can do will be very small, but I am pledged to doing something. If there is a good deal of movement in that regard, that is where I will have the emphasis in the budget but that is not inconsistent with the correction we have to make. I am simply saying that we will continue to make the tax code across the different tax heads jobs and growth friendly because our objective is to grow the economy and create more jobs.