Brian Cowen (Laois-Offaly, Fianna Fail)

I do not agree that the weightings applied to such services in the overall basket are the drivers. The main drivers for inflation have been international factors such as the European Central Bank's interest rate rises over the past year and the increase in energy prices. The Deputy contends that the Government has been the main driver. If one considers the position between January 1997 and September 2006, the constant tax price index published by the CSO, a measure that excludes the impact of changes in indirect taxes on the CPI, shows inflation of approximately 33%. The full CPI, including the impact of indirect taxes, rose by approximately 39% over the same period, indicating that taxation has only a marginal impact on overall inflation.

It should be noted regarding the inflation in health and education to which the Deputy refers that those sectors have relatively small weight in the basket of consumer goods and services, meaning that their impact on overall inflation is relatively low. Factors that influence health inflation, such as doctors' and dentists' fees, are outside Government control. The gas and electricity sectors have regulators and increases in recent years largely reflect the global increase in oil prices, something over which we have no control. The oil price increase is not exclusive to Ireland since all oil importing countries are similarly affected. The impact on competitiveness will ultimately depend on how we respond.

Our long-term strategy continually to reposition the economy towards the production of more knowledge-intensive goods and services, which tend to be less energy-intensive, should help reduce our exposure to international energy price developments. The impact of higher energy prices on the economy will ultimately be a function of how economic agents, including policymakers, react. Higher energy prices have resulted in higher wage demands and increased public spending, which have a detrimental impact on economic performance. There is now greater awareness that we cannot compensate ourselves for those increases.

On local authority rates, the 1993 rates contributed 17% of total local authority income. Today the figure is closer to 12.5%. The Minister sought, in the adoption of budgets for this year, to have local authorities ensure that any increase in commercial rates and local charges took account of the impact on competitiveness in the economy generally. The response to that request was positive and to a large extent local authorities exercised significant restraint, with increases generally of a lower order than in previous years.

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