Mr. John McCarthy:

I thank the Deputy. I think I picked up from the start of the Deputy's intervention that he agrees with me that risks are tilted to the downside - he looked at the Bank for International Settlements, Citibank and a few others. I certainly stressed in my opening statement and in the presentation here that I think that is the case. I believe the source of those risks are, as the Deputy correctly said, mainly on the external side, given the highly uncertain environment.

The Deputy mentioned projections at the time of the crash. I can say, hand on heart, that they were subsequently out of date within months in 2009, given what happened. However, what happened both in Ireland and in the vast majority of the global economy was a once in a lifetime situation. This had not happened since the Great Depression. I remember that, when we trying to compile the budget for 2009, which was brought forward to October 2008, we were basing our projections on IMF projections which were published a few days earlier. Within two weeks, the IMF, which is the global leader in terms of economic analysis and economic projections, had to revise down its forecast substantially. For such an institution to reduce its forecast within two weeks was simply unheard of. I have spoken to those who do my job in the Treasury and practically every finance Ministry throughout Europe so I know everybody was in the same boat and everybody was behind the curve. It was obviously a very difficult time for people on the ground but for those trying to understand what was going on, it was also difficult. Projections were out of date within a couple of weeks, given the scale of what happened at the time.

I will now turn to the question of what we can do. I have a copy of the stability programme and I would urge the Deputy to have a look at it, in particular pages 26 and 27. In order to try to quantify the impact of some of these scenarios, we undertake a sensitivity analysis based on models we have access to, some of which are developed by the ESRI and colleagues on my econometrics team. We are all talking about the world economy and, for example, if world growth is 1% lower than we thought, what is the impact on the Irish economy, what is the impact on the labour market and, from a Department of Finance perspective, what is the impact on the deficit? We look at a number of scenarios, for example, more de-leveraging within Ireland, a change in world demand, a rise in interest rates or a percentage point sterling depreciation, although we have, of course, seen even more than that.

We outline what the impact would be and then we provide advice to our Minister and to the political system on the appropriate policy response. Needless to say, part of the advice we would give is that there must be sustainable public finances in order to be able to accommodate the shock.

The Deputy mentioned the five firms accounting for one third of our exports. That figure is publicly available and is in various presentations. We did a risk matrix, which is set out in the stability programme, where we talk about our concentrated industrial base and the impact and main transmission channel. It states that Ireland's industrial base is highly concentrated in a small number of high tech sectors with the result that output and employment are exposed to firm- and sector-specific shocks. We saw that, for example, in 2012 with the patent cliff in the pharmaceutical sector. A number of drugs were coming off patent and it had a massive impact in terms of value added. This is very difficult to control for because there is a small number of very large firms in Ireland and they pay a disproportionate amount of our corporation tax. One cannot tell them to go away. They are significant employers in their own right. They contribute to the Irish economy and they are very valuable. However, there is no doubt that it raises concentration risks.

It is difficult as well, without going into economic theory, for a small economy to have comparative advantage in a large number of sectors. It is difficult to diversify. It is not like Germany or the US where it is easy to develop comparative advantage in many sectors. In our case, we must be quite specific. What we can do to mitigate this concentration risk is remain competitive and ensure that workers have the appropriate skills, because these firms are in the high technology sectors. They are not locating here just for the corporation tax but for the quality of our labour, the work-life balance and so forth. Ireland is generally deemed to be a good place in which to live. By addressing some of these concerns we can further embed these multinationals and that can mitigate the risk. However, it can never fully eliminate it, as the Deputy will appreciate.

Regarding the distribution of wages, on budget day or shortly thereafter we will publish an analysis of what the budget measures mean for each decile of income earners. We split the total population from the first decile to the tenth and we will be able to say who gains most from the budget measures. If one looks at the past five or six years, and obviously it differs on a year to year basis, in general the budgetary measures have neither been progressive nor regressive. It remains to be seen what the impact of budget 2015 will be. We conduct that analysis - we are conscious of the social impact as well - and we publish it.