Professor John McHale:

I agree that capital investment suffered very significantly during the crisis and took a disproportionate share of the hits to expenditure. In terms of the long-term growth potential of the economy and providing key social services, there are disadvantages and deficits that have resulted from the reduced investment. On the other hand, the overall framework is broadly suitable for Ireland as much as it is for other countries. The framework has different elements to it. Until now, we have been in the so-called corrective arm, which, as I noted in my statement, allowed the deficit to rise, not including the cost of bailing out the banking system, to 11.7% of GDP. It is not totally rigid, but it allows countries' deficits to increase substantially when they go into recessions. This helps protect expenditure, including capital expenditure, to a certain degree. However, once the deficit goes above 3% of GDP, one has to start taking actions to ensure it does not completely spin out of control. We did this, and it looks like we will get the deficit below 3% of GDP this year, which is an impressive achievement given that in 2009 we had a deficit approaching 12% of GDP.

Next year, all going to plan, we will move to the next phase, which is the so-called preventative arm of the Stability and Growth Pact. Then, we must slowly move towards a balanced budget adjusted for cyclical factors. Certain adjustments will still be taking place, and expenditure will have to be kept below the underlying growth of the economy. This should allow more room for expenditure increases, although I would not exaggerate the size of them, and it is to be hoped the kind of squeeze that has been taking place in capital spending will be lessened in the years ahead.