Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I welcome the opportunity to be here today to discuss the draft stability programme update. As the Chairman said, this sets out our forecasts for Ireland and is the first update of our projections since budget 2018. It is presented in draft form. I look forward to hearing the views of the committee members. The final version will be submitted to Brussels later this month.

I wish to emphasise that the macroeconomic forecasts underpinning the stability programme have been endorsed by the Irish Fiscal Advisory Council. The council also welcomes the progress my Department has made towards developing alternative models for its medium-term forecast.

Turning first to the economic situation, I am greatly encouraged by the latest data showing that the economy grew by 7.8% last year. However, I want to emphasise that the headline figure can be exaggerated in an Irish context and other indicators I will be tracking are changes in consumer spending, what is happening in our labour market and changes in tax receipts, all of which point to last year being a year of strong economic growth.

My Department has increased its forecast this year to 5.6% reflecting the stronger economic momentum in the second half of last year. For next year, growth of 4.0% is forecast so the economy, overall, is in good shape. However, yesterday I stressed that this growth cannot be taken for granted and I want to emphasise that again today while acknowledging also that, for many, these top-line and overall figures do not match the experience of their own personal economy.

The changes and potential changes to which I refer are the UK's impending exit from the EU, changes in the international corporation tax landscape, and rising geopolitical tensions, all of which could derail the recovery. From 2020 onwards, the economy has the capacity to grow by around 3% per annum. The economic recovery is most clearly evident in the labour market, with employment growth of 2.9% last year, representing the addition of some 61,000 jobs. There are now more than 2.2 million people at work for the first time since 2008. We have now recovered nine out of every ten jobs lost, and the labour market will continue to benefit from strong growth in domestic demand, with employment growth of 2.7% for the year.

On this basis, there will be more people at work in Ireland this year than before. We expect unemployment to fall further to 5.8% and to 5.3% in 2019, down from a peak of 16%.

Public finances continue to move in the right direction. In terms of the underlying general Government deficit, progress continues to be made. I am pleased to outline that, notwithstanding the additional expenditure, as a result of the reclassification of approved housing bodies, the deficit of 0.3% of GDP recorded last year is in line with the budget day estimate. This provides further evidence that the public finances are becoming increasingly sustainable. Furthermore, a careful approach to budgetary policy is being implemented, with tax revenue forecast to grow by 6%, while gross voted expenditure is up by 4.5%. This demonstrates the Government’s commitment to maintaining sound and stable public finances.

Turning to this year, the latest Exchequer returns to the end of the first quarter show that we continue to deliver on our financial targets and commitments. It is also important to point out that the annual growth has been strong with tax receipts 3.5% higher compared to the same period in 2017 and positive annual growth witnessed across most tax heads.

Turning to expenditure, it is being managed by Departments within their allocations thus far, with overall expenditure slightly below profile by 2.3%. Capital investment to enhance our growth and address key challenges in our society is slightly behind profile but well up on last year.

For next year, an additional €2.6 billion in expenditure has already been committed. Included in this is €1.5 billion for additional capital spending, €0.4 billion to provide for demographic-related costs, €0.4 billion for public sector pay and €0.3 billion for carry-over costs associated with measures introduced this year. A key Government priority is to reduce the level of public indebtedness. However, it must be acknowledged that the recent evolution of the debt to GDP ratio presents an overly benign view of our pubic indebtedness. The debt to GDP ratio has decreased only because GDP has increased. Other measures, notably the ratio of debt to GNI* show that while declining, public debt remains high. The legacies of the crisis persist with the total stock of debt now standing at €206 billion, with €40,000 worth of debt for every citizen in our State. It is essential that we begin to reduce this burden.

In conclusion, growth cannot be taken for granted. There are a number of risks domestically, notwithstanding the well-known limitations with gross domestic product. The recovery economically continues to outperform expectations, but this, of course, creates its own challenges. If the economy continues to grow in excess of its potential, capacity constraints will begin to emerge. For these reasons, I want to be careful with budgetary policy to maintain a careful approach to it and look at measures to improve the competitiveness of our economy, while addressing our many social challenges. That is what I and the Government intend to do. Thank you, Chairman.