Brian Cowen (Laois-Offaly, Fianna Fail)

Thank you.

On foot of the review, the European Council agreed that in consultation with national parliaments and social partners, member states would prepare national reform programmes which would set out measures which are being taken or proposed in support of the priority objectives of jobs and growth. In particular, national programmes would address the need for increased investment in research and development in education, promote enterprise and innovation by reducing regulatory burdens, eliminating barriers to market entry and improving access to capital markets. It was agreed the national programmes would be geared to the needs of member states, allowing for the diversity of situations and policy priorities at national level. This would allow member states to take greater ownership of the process and secure increased support for government initiatives.

Ireland's national reform programme is in line with the Government's overall economic and social policies as set out in An Agreed Programme for Government and incorporated in the current social partnership agreement, Sustaining Progress. The programme also reflects the underlying premise of the Lisbon strategy, that progress on economic and structural reforms and the maintenance of sound public finances are interdependent. This has consistently been our approach also. The President of the European Central Bank, Jean-Claude Trichet, recently cited Ireland as a "magnificent performer" in regard to structural reform in the EU and eurozone economies. This is a significant endorsement of the Government's economic and budgetary policies from the President of the ECB.

The Government is committed to sustaining economic growth and maintaining full employment in the Irish economy in tandem with progressing necessary economic and structural reforms. The national reform programme reiterates the Government's commitment to the Stability and Growth Pact as the overall framework for budgetary policy. Ireland has consistently adhered to the close-to-balance requirements of the pact through prudent budgetary planning.

The programme responds to the Commission's integrated guidelines for growth and jobs. It brings together a broad range of policies and initiatives, the implementation of which aims to sustain Ireland's strong economic growth and employment performance, as its overall contribution to the relaunched Lisbon Agenda over the period to 2008. It sets out the strong position of the Irish economy and illustrates the existing broad alignment of budgetary and economic policies with the Lisbon objectives. The healthy condition of the public finances underpins projected GDP growth of the order of 5% over the programme period to 2008. Public expenditure should not exceed the sustainable growth in resources in the future. This will facilitate the maintenance of a low burden of taxation, protect competitiveness and maximise economic potential.

Income tax policy has been aimed at maintaining full employment and strengthening and maintaining the competitive position of the Irish economy through reducing the tax burden on labour. The standard and top rates of tax have been reduced by 6% each since 1997. The reductions in the rates of tax have been accompanied by major reform of the income tax code, the move to a fairer system of tax credits, an increase in the value of the credits and a widening of the standard rate band. Taken together, these developments have reduced average tax rates and have helped to remove more of the lower paid from the tax net and to reduce the tax burden on those on average pay.

OECD data show that Ireland has one of the lowest tax wedges of the 30 member OECD countries. This provides strong incentives both for employers to hire more workers and for people to join the workforce and is reflected in the strong employment performance of the economy in recent years. There are now more than 2 million people in the workforce, which is an increase of over 400,000 jobs since 1997.

Public capital investment will continue to be a key priority for public expenditure in the medium term. The five-year rolling multi-annual capital envelopes for public investment introduced in 2004 contain a commitment to maintain public investment at or close to 5% of GNP or around twice the EU average to further reduce Ireland's infrastructural deficit. A new national development plan for the period 2007-13 will set out a new strategy for economic and social public capital and human capital investment, including research and development, when the current plan expires at the end of 2006.

A key concern in the Commission's guidelines is the safeguarding of the economic sustainability of the public finances in view of the projected costs of aging populations. Member states and the EU institutions have been taking steps to respond to the aging challenge. At national level, important reforms of pension systems and of early retirement arrangements have been launched in several member states. At EU level, macroeconomic policies offer a path towards stability and sound public finances which should put member states in a better position to meet future spending increases. Ireland is in a relatively favourable position with regard to meeting the economic and budgetary challenges of an aging population. Our ratio of general Government debt at the end of 2005 is forecast to be just over 29% and is expected to remain below 30% in the medium term, among the lowest in the euro area.

The importance of sustainability has become ingrained in Ireland's policy making process. A wide range of policy initiatives have been implemented in this regard in recent years. These include timely anticipation of the costs of aging by the setting aside of 1% of GNP each year for the national pensions reserve fund with the aim of pre-funding in part the future budgetary cost of social welfare and public service pensions. The fund's value at the end of June 2005 was about 10% of GNP.

The programme also describes reform in the area of public service pension provision, the national pensions review, tax incentives for private pension provision and issues related to the financing of long-term care. It notes the Government's concern to ensure the adequacy of the old age pension rates as evidenced by increases since 1997 of over 80% in a period during which prices increased by 31% and industrial earnings by 51%. The Government is committed to increasing State social welfare pensions to €200 by 2007.

Our economic fundamentals remain strong. Ireland continues to enjoy low unemployment, high rates of job creation, rising incomes, budgetary stability, low inflation and buoyant economic growth. After increasing by 4.5% in 2004, GDP growth is projected to accelerate to 5.1% this year with domestic demand the main engine of growth. Higher oil prices are a risk, both for the international economy generally and for Ireland. Our best response to them is to maintain our competitiveness. That means we must keep our price and wage inflation in line with our international peers. Developments regarding competitiveness remain a cause for concern. Over the past number of years our competitive position has worsened due to increasing domestic costs and to the appreciation of the euro exchange rate. Regaining competitiveness is a key challenge for the Irish economy, particularly with the recent enlargement of the European Union and the emergence of other world economies.

The Government is committed to improving competitiveness and to enhancing the conditions for economic growth through further structural reform of product, capital and labour markets. As indicated in the programme, the overall strategy is focused on maintaining budgetary stability and competitiveness. In parallel, we will continue to address certain areas where significant improvement is still required, such as the acknowledged infrastructure deficit and the need for significant expansion of research and development capacity and investment. This overall strategy will also be shaped by other key policies, such as ensuring a sustainable environment and the pursuit of continued improvement in key areas of social inclusion.

The pursuit of competitiveness is not an end in itself. Our approach also emphasises the reciprocal relationship between competitiveness and social inclusion, whereby competitiveness helps to generate the resources to enhance social inclusion while increased social inclusion enhances competitiveness.

Globalisation is a major issue for Europe. Driven by lower communication costs, reduced barriers to trade and the emergence of China and India, this process is likely to intensify further. This will create many benefits for the European Union. However, it will also entail significant challenges and therefore the European Union must improve the flexibility of its markets and enhance the incentives for enterprise and innovation if it is to respond to globalisation and achieve its objectives regarding jobs and growth.

Europe can no longer afford to wait because what is different five years on is the added sense of urgency. On the policy responses for the European economy, ensuring macro-economic stability is a key requirement in reducing uncertainty and providing the basis for future prosperity. This includes putting public finances on a more stable, sustainable footing to meet the long-term demographic challenges facing our economies. I stress the need to press on with structural reforms needed to boost EU competitiveness. This is particularly important in the context of both volatile oil prices and exchange rate developments.

The national reform programme reiterates the Government's commitment to maintaining a strong performance on economic growth and full employment in the Irish economy as the basis of continued prosperity and enhanced living standards.

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