Dr. Conor O'Toole:

Let me talk in general about our view on the fiscal stance or budgetary approach. It is clear that for a number of years, spending has been growing rapidly, particularly on the current side. On the capital side, we know there are long-standing infrastructural deficits, particularly in the energy infrastructure in wastewater, water treatment and the grid. Many infrastructural investments need to happen, and we would see those as critical to the competitiveness and long-term productivity of the economy. We expect that to have to be rolled out.

On the overall fiscal stance, a couple of elements are important. The first is that the Irish economy is growing rapidly, certainly in the domestic economy. It is always difficult with Ireland. There are well-known challenges in respect of the indicators for measuring the domestic economy. If we look at the labour market, which is the best signal we have, unemployment is at 4%, which is an historical low, and the level of employment is at an historical high. From that perspective, the economy is performing extremely well. One of the offshoots of a tight labour market is rising wages. To the end of last year and at the start of this year, we have seen nominal wages rise quite rapidly. That would be expected with such a tight labour market. Economists do not agree on many things, but they often agree about prudent budgetary management and running counter-cyclical fiscal policy. That means, in net terms, taking more out of the economy than you are putting in. The Government can choose the specific measures it wants on the revenue and taxation side. If it wants to make choices around one particular instrument, it can trade that off against spending on other instruments. From our point of view, and we were trying to reinforce this in the commentary, the net position needs restraint and the Government needs to pull back in net terms relative to what it is spending. While it can make choices on specific instruments, it needs to get that net position right so we can lead ourselves into a position where we are not overheating the economy too much or contributing to inflationary pressures, or leading ourselves into a position where that sort of instability returns to the public finances so we have to run procyclical fiscal policy during downturns and cut back when times are bad and when we would want the economy to be injected with public expenditure.

It is to try to run those countercyclical fiscal policies.