Michael Noonan (Limerick City, Fine Gael)

The State's debt burden has increased substantially over the last number of years as a result of the significant deterioration in our public finances, owing to the economic downturn and the significant level of State support provided to the banking sector. A gross general Government debt level of €148 billion or 96% of GDP, as it is estimated to have been at the end of 2010, is very high and requires our ongoing, close attention.

Both the nominal level of the debt and the debt to GDP ratio are forecast to increase further in the coming years, albeit at reducing levels as we will have to continue to borrow to fill the gap between revenue and spending. In addition, economic growth remains relatively subdued. The stability programme update, laid before the House and submitted to the European Commission last Friday, forecasts that the debt to GDP ratio will peak at 118% in 2013 before declining in the following two years to 111% by 2015. These forecasts are based on my Department's macroeconomic and fiscal forecasts and the advice of the National Treasury Management Agency regarding the debt. The stability programme update also forecasts GDP growth of 0.75% in 2011, rising to 2.5% in 2012. For the period 2013 to 2015, GDP is expected to grow by 3% per annum on average.

The trajectory for the debt ratio depends on the relationship between economic growth, the interest rates applying to the Government debt and the level of budgetary adjustment implemented by Government. However, there is no one rule that says that if one's debt is above a particular level, it is unmanageable. A key determinant in the stabilisation of the debt ratio will be the narrowing of the gap that currently exists between revenues and expenditure through further fiscal consolidation. Coupled with the implementation of policy measures that will assist in boosting economic growth, a primary surplus is forecast to emerge, that is, an excess of revenues over expenditure excluding interest expenditure. This is scheduled to happen by 2014.

A further measure which may be referenced in forming a judgment on whether a particular level of debt is sustainable is the proportion of tax revenues that must go towards servicing the debt. Based on the stability programme update projections, it is estimated that around 15% of tax revenues will be required to service the interest on the State's national debt this year. By 2015 almost 21% of our total tax revenues will be required for that purpose. This is undoubtedly a very significant level, but it is worth bearing in mind that it is well below the ratios experienced in the mid-1980s when around one third of the tax revenues generated in the State went towards servicing the interest on the national debt.

As the NTMA is the agency tasked with the management of the State's borrowing needs, I and my officials have naturally been in close contact with them regarding our debt position. The NTMA is in constant contact with market participants and their view on the market perception regarding sovereign Irish debt is a crucial input into our deliberations as it is the markets' assessment of our position which will ultimately determine the rate at which we can borrow. The agency's view is the same as ours at present, namely, that Ireland's debt position is very large and has grown rapidly in recent years but if we continue to pursue the right policies, it is sustainable. However, debt sustainability is not a black and white issue and we must do everything in our power to ensure that as much as possible the balance of the arguments reinforces this assessment. This underlines the reason we must continue to deliver on our commitment to fiscal consolidation, pursue policies that underpin growth and seek to achieve measures that alleviate the cost of our debt burden.

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