Dr. Kieran McQuinn:

The Deputy has identified a very pressing issue, particularly for those of us working in the analysis area of the economy. The CSO has to follow the approach taken in the national accounts as this is mandated by EUROSTAT under the ISA 2010 approach to setting out national accounts. There may have been some commentary to the effect that the figures were wrong but they were not - they were correct. However, it is hugely important, for ourselves and for everybody, that we have a set of national accounts which gives us an assessment of what is going on in the general day-to-day activity of the economy that is as accurate as possible. Nobody believes that economic activity surged by 26% in Ireland last year. This is a particularly important issue at this moment because we are facing into the budget and we will address it in some detail in our next quarterly commentary. We will show that it has implications on a number of levels, such as assessing what would be the most prudent budgetary package. For example, the debt-GDP ratio is a hugely important concept for which the Commission has set a target of 60%. When GDP is inflated to the extent it was in the figures in question, it brings down the debt-GDP ratio by a huge amount. The question is whether that is an accurate reflection of the economy's ability to sustain its debt and we would argue that it is not. This is an example of where figures such as these can affect a lot of our analysis.

A hugely important concept is that of potential output, which defines the output gap and the prudence of the budgetary package. I agree with what Dr. Gabriel Fagan suggested yesterday. A committee has already been established, chaired by Professor Philip Lane and including Professor Barrett, as well as many other distinguished luminaries to look at the issue. I am sure there will be some very positive and concrete proposals. We in the quarterly economic commentary, QEC, will try out some ourselves. The CSO used another accounting methodology, the ISA 1995 approach, and one possible avenue would be for both sets of accounts to come out.

That would provide two different approaches and one could compare the differences from that. However, as economists and analysts generally, there is an onus on us to come up with indicators that better reflect what is going on in the economy. Those indicators therefore would then be accepted among the policy makers generally in setting credible standards and means by which one can assess the prudence or otherwise of budgetary packages. Another area into which this comes is that it is not just the headline GDP figure, as the investment figure, for instance, which also surged last year. Going back to the discussion about the amount of capital investment, another indicator we look at is the ratio of investment to GDP and if investment is surging in an unnatural way, it is then hard to get an indication as to what is the actual level of investment in the economy and what are the levels of investment we should be having.

If I can also touch briefly on the housing issue, as we do quite a bit of research on it, one reason we have been plugging the need for greater investment in social housing in particular over the past couple of years is that quite apart from the obvious social issue there, we also believe that greater investment on the social side could have positive spillovers through the effect it would have in addressing the private market as well. When one hears of many of the difficulties that are being experienced on the supply side of the market from listening to people on the developer side regarding access to finance and the confidence factor in the market in general, a greater involvement by the Government sector in the provision of social housing could have positive spillover effects. The other crucial reason to mention housing in the context of investment in housing is that the housing issue is not merely affecting those in the housing market, although obviously it is having a huge impact on those people. It is also potentially having knock-on effects as far as the general economy is concerned. Everybody in the economy has worked hard to restore competitiveness in the economy in recent years and rental levels surging to the extent to which they are can only put upward pressure on and cause potential deterioration in our competitiveness, particularly when we are trying to attract people to come and work in our major cities especially and in Dublin in particular.