Mr. Sebastian Barnes:

The Deputy is correct. There are two separate issues. However we look at it, using GNI* is a more appropriate measure than GDP. It is far closer to the real fundamental activity in the economy and it is far closer to the tax base. That is why we made the suggestion. Unfortunately, aspects of the rules under the Fiscal Responsibility Act are framed in terms of GDP. That is really what we were pushing against.

The second point raised by the Deputy is a very good one. It relates to the appropriate level of the debt ratio we should have bearing in mind that interest rates are especially low. I made two observations earlier and I will elaborate on them because they are relevant here. It is a reasonable question and one we plan to think about more - many people are thinking about it carefully.

One thing is clear. We do not know that interest rates are going to stay this low forever. They could fall further and become increasingly or ultimately negative. They could increase as well. We simply do not know. The extent to which we are sensitive to that risk depends on the debt ratio. That is why the debt ratio is still a highly relevant factor to look at.

We would obviously look at it differently now from how we did in the 1980s. However, it is still a useful metric and it is still the right thing to look at. It is something that adjusts slowly because it is a function of the stock of debt. It is also a good target because it is not too volatile. My concern is that if we simply looked at interest payments, which are low, we would miss this point about the riskiness of the position we are in.

The position of Ireland is not the same as a country like the United States. Ireland is a far smaller economy and far more dependent on external capital. Its economy is far more volatile too. Ireland is dependent on far fewer activities than the US. Ireland has been lucky in recent decades in its growth experience. We expect that to continue to a degree but it may not happen. Ireland, therefore, has to be far more cautious than the US, Germany, France or Italy for that matter. That is an important point.

The second point is that there are limits to looking at the debt ratio. This is why the council published its long-term sustainability report this summer. Basically, the report showed that if we got debt on a downward path but nothing was done about pensions and increasing health costs, then essentially the debt ratio would fall to not much below 100% of GNI*. Then, from the mid 2030s it would start to pick up. These pension issues are big as well. It would be a mistake to focus too much on the debt without taking into account these big long-term fiscal pressures that may come from an ageing population.