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

I wish to thank the committee for the invitation to appear here today to discuss revenue raising proposals. Both the Minister, Deputy Donohoe, who the committee is seeing tomorrow, and I are looking forward to a fruitful and positive collaboration with the committee in the weeks and years ahead. Innovations such as this will increase our collective understanding of the economic and fiscal challenges facing the country. The budget will be announced on Tuesday, 11 October.

Since the publication of the Summer Economic Statement in June, the national economic dialogue has taken place. This provided a cross-section of stakeholders an opportunity to have an open and inclusive exchange on the competing economic perspectives in advance of budget 2017. Subsequently, in a new departure and in line with commitments made to the select committee on arrangements for budget scrutiny, the Department of Public Expenditure and Reform published its mid-year expenditure report and my Department circulated the Tax Strategy Group papers and the income tax reform plan to the Oireachtas earlier this year. With the publication of the Tax Strategy Group papers and the income tax reform plan, I fulfilled two commitments in the new programme for Government to help make the annual budgetary process more transparent and to provide Oireachtas Members with the ability to make proposals, which, in part, is why we are here today.

The Tax Strategy Group papers run to 250 pages and set out existing measures across all tax heads, and contain issues for discussion as well as costed options for tax changes. I believe the formulation of expenditure and taxation policy options will benefit from the discussion of both sets of documents and from the enhanced scrutiny and dialogue this committee can provide. The income tax reform plan, which runs to 50 pages, sets out a menu of different options for reducing the universal social charge over the coming years. The plan details the existing income tax and USC systems and presents three possible options to continue the phasing out of the USC. While there are many potential options, the committee will also be aware that, due to the limited Exchequer space available, it would not be possible to phase out the USC entirely over the next three years. Both documents were circulated over the summer and are available on the Department of Finance website.

It is also my intention that, in line with the Oireachtas budget reform report, I intend to publish the Finance Bill as soon as possible after budget day and not later than two weeks after the budget. Indeed, in line with the Oireachtas budget scrutiny report and in order to allow more time, the Finance Bill will be shorter than in previous years and will focus on key items of budgetary importance.

The economy continues to perform strongly, as evidenced by developments in the labour market. Employment in the second quarter of 2016 has increased by 56,200 year-on-year, while unemployment has fallen from a peak of over 15% to 8.3% in August. Domestic demand is also growing strongly, with private consumption up 3.5% in the first half of the year. However, the international outlook illustrates the need for caution. The recent UK vote to leave the European Union has only added to those concerns. My Department is currently preparing a full macroeconomic projection, in advance of the budget, which will take accounts of this and other international developments.

Turning to the fiscal position, the attainment of an underling deficit of 1% in 2015, which facilitated Ireland’s successful exit from the excessive deficit procedure, attested to the return of the public finances to sustainability. We can ensure this position is maintained into the medium term by the achievement of the medium-term budgetary objective of a structural deficit of 0.5% of GDP. Based on current assumptions, this should be accomplished by 2018. Once this goal is achieved, it will provide us with more flexibility to increase expenditure on priorities over the medium term.

Looking at the Exchequer position, this provides a real-time indicator of how the public finances are performing.

After the first eight months of the year, tax revenues are now €449 million, or 1.6%, above target. This equates to an annual increase of 6.2%, or €1.7 billion, when compared to the same period in 2015. While this represents a reasonably solid performance, I emphasise that we are not complacent about any challenge or risk which could emerge. We are committed to complying with the fiscal rules which are designed to ensure increases in public expenditure are sustainably financed through the decoupling of increases in expenditure from cyclical or windfall revenues. We are not going to repeat the mistakes of the past because we know the price.

Notwithstanding the fact that GDP now flatters the position to some extent, our debt-to-GDP ratio has come down strongly since the peak in 2012 and 2013. However, as the committee has discussed with the various bodies which have appeared before it, our debt levels remain high. We are committed to continuing to reduce this debt burden even further as part of our budgetary strategy.

As set out in the summer economic statement, the fiscal space available for budget 2017 will be of the order of €1 billion. I note that both the Irish Fiscal Advisory Council and the ESRI, representatives of which have appeared before the committee, have indicated that this is appropriate. The fiscal space will be allocated between expenditure and revenue on a two-to-one basis. This split between expenditure and revenue recognises the need to boost the supply of critical infrastructure following the reduction in capital investment after the economic and financial crisis. On the revenue side, reform of the income tax system will incentivise and reward work. Investing in infrastructure and addressing expenditure priorities while encouraging labour market participation and reforming the income tax system will serve to facilitate continued economic growth.

Looking to the future, there is some concern about global economic prospects. The Government is very cognisant of the risks facing us. It is, therefore, essential that we plan for the future in a prudent fashion. It is for these reasons that a contingency reserve or rainy day fund will be established to which, from 2019, when we expect to run a balanced budget, €1 billion will be remitted each year to provide a counter-cyclical buffer or fund to deal with any unforeseen circumstance that may arise.

I thank the committee.