Dáil debates

Wednesday, 4 June 2008

8:00 pm

Photo of Máire HoctorMáire Hoctor (Tipperary North, Fianna Fail)

Our economic performance to date illustrates the success of the policies previous Governments have pursued. The economic statistics illustrate the success of these policies. Our debt-GDP ratio is extremely low and will be approximately 26% at year end compared to 65% in 1997. When account is taken of the National Pensions Reserve Fund, this figure stands at 14% of GDP.

Since 1997, we have achieved an average economic growth rate of over 6%, more than twice the EU average. We have radically reduced personal, business and capital tax rates, encouraging enterprise and improving real take home pay. Unemployment has fallen dramatically and we have been effectively a full employment economy at a time of strong population growth and net inwardmigration. Our policies promote enterprise. The total number employed now stands at almost 2 million. Approximately 500,000 more people are at work compared to 1997. This is an increase of over a third and compares to employment growth of less than 10% in the EU15.

This performance was exceptional by any standard but we must now take account of the international economic developments which have a crucial bearing on prospects for the Irish economy. Given the climate of uncertainty which characterises the global economy at present, I wish to speak about the environment.

With regard to the European economy, the EU Commission in its latest assessment has revised downwards its projections for growth this year. Another important international economic development has been the pick-up in inflation over the past year or so. Until recently, emerging market economies imparted a deflationary stimulus to Europe and the US, mainly through the provision of cheaper manufactured goods. More recently, however, growth in these economies has put pressure on energy and food prices. Additional global demand for various foodstuffs has also put pressure on prices, while the diversion of agricultural land to bio-fuel production has restricted supply. The result has been food price inflation which, when combined with higher energy price inflation, has imparted an inflationary stimulus to developed economies.

On the domestic front, an adjustment towards more sustainable levels of new house building is under way, which will have a restraining influence on growth in the near term. This is a labour intensive sector and, therefore, employment growth is expected to slow this year. In the December budget, the previous Minister for Finance implemented a number of measures designed to support the housing market, most notably reform of the stamp duty regime. The purpose of these changes was to restore confidence to the market in order to ensure an orderly transition to more sustainable levels of output in this sector.

This Government recognised the pressures from a decline in the new house market that would occur in 2008 and, therefore, used fiscal policy to provide support for the economy. This year, current spending will rise by approximately 8%, with an even larger increase in capital expenditure. This measure has provided some support, but, unfortunately, overall economic performance has been deteriorating. The end of May Exchequer returns published today show a continuing deterioration in the economic situation with the tax take below profile. The House will recall that, at budget time, an Exchequer deficit of €4,866 million was projected for this year. At the end of April, the Department of Finance stated that the overall tax receipts for the first four months of the year were €736 million, or 5.3%, behind target. As the Minister indicated at that time, that shortfall is not expected to be recouped. While income tax receipts are on target, there has been a drop in capital gains tax, stamp duty, VAT and capital acquisitions tax.

Today, the OECD economic outlook is forecasting a GDP growth rate of 1.5% for Ireland, picking up to 3.25% next year. There is no doubt that the fiscal position has weakened from that envisaged at budget time and that many of the downside risks I outlined at that time have been realised. Our economic fundamentals are sound and if we adopt a prudent approach to public spending, we are well placed to weather this international economic storm. There are several reasons that we can weather it. Some of these factors are demographic, but many of them are related to positive Government actions taken over previous decades and years.

In meeting these challenges our population is young and dynamic, while the labour force is flexible and increasingly well educated. As part of the national development plan we are investing in infrastructure to bring Ireland's public capital stock more in line with that of other developed countries. This year, capital spending will rise by 12% and will remain at high levels for many years to come. We are deepening the skills pool through investing in education at all levels within the framework of the NDP. Fourth level education is receiving special attention, which is appropriate given the premium on knowledge creation in a globalised economy.

We are implementing sound fiscal policies to maintain a low burden of taxation on both capital and labour and to keep public indebtedness low. We are maintaining an efficient regulatory environment which does not add to the burden on firms. All of these factors will support productivity growth, raise participation rates and enhance the productive capacity of our economy.

Research and development are the keys to a more knowledge-intensive economy aimed at providing a sustainable long-term basis for growth in employment and incomes. The research and development tax credit scheme is an important part of the overall strategy to encourage the undertaking of more research and development in this country.

Practical measures to help protect the environment are necessary to have a real impact on it. With regard to measures to deal with pressures on food and fuel, in considering these proposals to radically change VAT rates we must remember that taxation is normally considered as part of the overall budgetary process. This reduces the risk of rash proposals which lead to unanticipated difficulties, namely, in terms of secondary economic effects and also negative effects on society and the environment.

The Fine Gael proposal to change the reduced rate of VAT from 13.5% to 12.5% is unlikely to achieve its aim due to the likelihood that any reduction in the VAT rate would be absorbed by retailers and wholesalers and would not be passed on to consumers. Another factor is that because these high fuel and food prices are an international phenomenon, it is not possible for Ireland to act alone. We must take action in conjunction with our European partners to ensure that we can maximise our potential to reduce prices to those who can least afford to pay the increases.

I take this opportunity to firmly set out the tax position in Ireland. We do not charge VAT on food. We have some of the lowest taxation on fuel, especially in comparison to our competitors. We are below the average price for both the EU27 and EU15. VAT content of auto diesel and other fuels used in the course of business is a deductible tax credit so that VAT may be reclaimed by hauliers, fishermen and other businesses.

There is no sound economic rationale for reducing VAT or issuing VAT reductions, especially as both of these price benefits will be taken either by wholesalers or producers, leaving the public subsidising an unsustainable fuel level from public funds. This is very much in line with position taken by most of our EU colleagues.

I look forward to voting in the correct manner on the motion, in support of the Government and, more important, to voting "Yes" to the Lisbon treaty which will place us at the heart of the EU. It is only there that we will be able to take the effective action in conjunction with our fellow member states to ensure that sustainable long-term solutions can be found to the international difficulties that face us regarding the high prices of commodities.

Comments

No comments

Log in or join to post a public comment.