Dr. Kieran McQuinn:

I will deal with a number of the points. We will focus on this in our next economic commentary, which will be out early next week. We will look at and trace the impacts of increased investment in the economy versus the implications of cutting taxes and the related impacts of that on a variety of different economic indicators. Our starting point would be the plans outlined by the Government as far as the national development plan is concerned, which signifies and indicates there will be a significant increase in investment over the medium term. Some of that is already beginning, which can be seen from the figures. Most people would agree that we need increased investment in a variety of different areas. Many infrastructural deficits, to give it the technical term, have arisen in the past ten years, not least in areas such as housing, because of the cutback we observed. What we were trying to do is to highlight the dangers that could arise from increasing investment that does not focus on productive areas and could cause overheating in the economy. Similarly, we also wanted to look at the impact of cutting taxes on overheating of the economy and to look at the combined package of the two. We think it is important to do this at this point in time. The economy is growing very strongly and we are coming back to the potential level so it is very important how we handle the impact of investment on overheating in the next couple of years. I do not think the rainy day fund in itself is purely about preventing overheating. I think it is probably complex. I am not here to support it or propose it. I think it is about more prudent fiscal policy, the idea that one has a fund to which one can divert funds that one does not believe are ongoing current funds that are likely to there on an ongoing basis and then one can use those funds when there is an economic downturn. For instance, some people have suggested as an example that if we had had the funds available in 2008 to 2009, which we did not, it would have been an lopportunity to spend money in areas such as social housing. It would have helped to counterbalance the fact that the economy was going into a very sharp downturn and we could have offset some of the impacts by putting money into the economy. If we had had the fund at that stage, that would have been a good practical use of it. Obviously the funds that we had at that stage had to go into plugging holes in the balance sheets of the banks. That is my understanding of what the rainy day fund is. I would not necessarily focus on it as a means of solely preventing overheating. It is more for prudent fiscal policy over the medium term.

I will outline one other area. Deputy Jonathan O'Brien mentioned various measures to tackle overheating in the economy. I think one crucial difference this time round from the last time - again it goes back to the idea of incorporating developments in financial markets - is the new macro prudential policy framework, which I think is very important because if properly implemented it will hopefully ensure that we do not see the unsustainable levels in credit growth emerging, which we clearly did up to 2007 and 2008.