John Deasy (Waterford, Fine Gael) | Oireachtas source

A part of this Bill I was drawn to, and on which I might agree with the previous speaker, concerns the Irish Fiscal Advisory Council, not necessarily the mechanics of setting it up but what the council has been saying and what has happened as a result. The Bill puts the advisory council on a statutory basis and it limits the Minister for Finance's power to fire members of the council, thereby strengthening its independence. "Independence" is the key word here. The council provides independent assessments of fiscal policy but the truth is that, so far, it has more or less been ignored and, ultimately, might always be ignored. The key point is that, to date, it has urged greater budget adjustments or, in other words, a front-loading of cuts in the last two budgets. The interesting point for me is that it has not been the only group to have done this.

Last Friday I noticed the Central Bank again cutting its growth forecast, which is something we are getting used to. I thought it would be no harm to take a look at the area of growth forecasting - who has been saying what, who has been most accurate and the usefulness of this exercise, particularly when it comes to the budget and the assumptions that are made and what we base budgets on. To start with the Department of Finance, in December 2010 the Department said we would have a 1.8% growth rate for 2011 but, by April 2011, that figure was down to 0.8%. At that time, it was probably the most upbeat of any forecast. In late May 2011, it was calling for a 2.8% growth rate for 2012. In July, Mr. Kevin Cardiff came into the Committee of Public Accounts and reiterated that figure. By November 2011, that was down to 1.6%, the following month it was down to 1.3% and by April of 2012 it landed at 0.75%. The reality is that in 2012 the Department was forced to lower its GDP forecasts three or four times.

As far as the Central Bank is concerned, in July 2011 it forecast a 2.1% growth rate for 2012. An important point is that around that time it advised the Government to make expenditure cuts rather than increase tax. One year later, it is advising the Government to increase the overall scale of fiscal correction, making the case for getting the adjustment over with more quickly. It is still doing this, which is a key point. To return to the projections, by October 2011 the 2.1% growth figure for 2012 was 1.8%. The Central Bank's explanation for this was a darkening international outlook. This was not atypical at the time and many groups were saying the same, and this sounds ominously like the IMF's position yesterday. Again, the Central Bank recommended an aggressive approach to deficit reduction and explained it was worried about the risk of negative shocks to the domestic economy.

By February 2012 the 1.8% was down to 0.5% and at that time it was projected to be 2.1% for 2013. Last week the figure for 2013 was down to 1.7%. The IMF said it would be 1.4% yesterday. I took a look at some other organisations and sources for growth forecasts. A similar picture emerges. A reasonable sense of optimism at the start of 2011 slowly ebbed away in recent years primarily due to the eurozone economy contracting, along with the global economy, which the IMF, unfortunately, reiterated again yesterday. In May 2011 the OECD announced a 2.3% growth rate for 2012, stating a global recovery was firmly on the way. Within a month it changed its tune saying the economy would stagnate. At the time I remember a Government spokesman saying it was out of line with our thinking and that of the consensus. It turned out to be the consensus very quickly. EU Commission figures were as follows: In 2010 it said the economy would grow by 3% in 2012; by May 2011 the 2012 figure was put at 1.9%; by December it was down to 1%; and, by February it was down to 0.5%. The 2013 figure has gone from 1.9% to 1.4%, which is a lot more pessimistic than others. Two months ago it was said that the outlook for external demand was deteriorating badly. That now appears to be the consensus. One can see where the optimism was coming from. The year 2011 was the first year in three that the economy grew on an annual basis. The Minister for Finance, Deputy Noonan, said yesterday that what the IMF said is not all doom and gloom. We are growing not contracting. That is a fair point and must be repeated. It is a small figure but we are growing. Unfortunately, as Moody's put it back then, there was a deceleration of European economic activity in particular and it has affected us badly. The troika, the IMF, the ESRI, Bloxhams – everybody got it wrong. It is an imperfect science at the best of times. I will make a point later about the budget and growth forecasting.

One could ask where that leaves us. It leaves us in an extremely vulnerable situation for a number of reasons. The first is exports – export figures and the export trends. The second is our potential debt deal and the ESM. The third is the current political environment in the Chamber and outside it. The only source of growth in the economy since 2008 has been exports. The truth is that even though we have become far more competitive, this country’s share of goods and services exports on a global scale has been reduced by approximately one quarter in the past ten years. We are massively reliant on the pharmaceutical sector and would suffer greatly if any changes to patent arrangements were made globally. Our corporate tax regime has served us well but countries such as the United Kingdom and the Netherlands are changing their tax codes and, in effect, becoming far more competitive with us. We cannot rely on that approach forever. We found that out again yesterday with the effort by 11 countries to change the eurozone tax regime in particular areas. In the 1990s this country was the global manufacturing centre for computers. In 2001 the value of IT goods shipped abroad from this country was €38 billion. Last year the figure was down to €10 billion. Things change dramatically and quickly. A total of 75% of all Irish exports come from multinationals in the IT, tech area and life sciences area, which means pharmaceuticals. Some would say we are massively over-reliant on those two sectors.

The second issue is our debt deal. The facts are as follows. The ESM board held its first meeting last week. We have €64 billion in bank debt. That is our burden. Our bailout expires next year. The October deadline for a bank debt deal is gone. In the June EU summit the issue of “retrospective debt” – according to German, Finnish and Dutch gentlemen from the AAA rated countries – was not set down precisely. We still do not know if Germany in particular will insist that national bodies should remain liable for legacy bank losses. The important fact is that the German elections are approaching. We are now exploring the conversion of State debts in regard to Anglo into a 40-year bond. On the question of whether we will get a debt deal, of course we will. The scale and effect of the deal is akin to guessing GDP figures and growth forecasting. I still foresee major employment contractions in retailing, property, banking and construction. If the economy flattens or shrinks any further even the most generous deal on bank debt will not dramatically change the debt sustainability situation. We must remember that €198 billion of Greek public debt was written down this year alone and the riots are still continuing there.

The Government must take a long-term approach when it makes decisions in the next couple of months. Decisions were made by the previous Administration on the basis of keeping the show on the road for a few days or a few weeks. It was a case of short-termism on a repeated basis in recent years in particular. That kind of political culture is doomed to failure. One must take a longer-term view. Based on my conclusions, one might be better off saying one does not trust the growth forecasts and that one cannot base everything on them when it comes to the budget. In response to the retort that one must base some figures on growth assumptions, my view is that the assumptions to date have been optimistic to say the least. Some might say they have been aspirational. What we can say is that recent budgets, not just this Government’s budgets, have been based on overly optimistic growth assumptions. That gives rise to questions. Generally speaking, the consequence of that is it allows Governments to keep spending and avoid taking hard decisions.

The final reason for our current vulnerability is the political environment. There will always be personal casualties when two Ministers clash and one resigns. The other more serious potential casualty is the decision-making process between two coalition partners. We are not out of the woods yet. Tough decisions still need to be made. When the grassroots of a particular party start feeling aggrieved and accuse the other party of dominating it or say that one party has impressed its views on the other, there is a natural political tendency to cool things down by avoiding controversy that would stoke up the grassroots of one party or the other. In such circumstances, caution seeps in and a 'safety first' approach is adopted. That is the danger but it must not be allowed to happen. If there has been fallout from the recent affair and there is now more emphasis on keeping harmony between the coalition partners within the Government it must not be done at the expense of making hard decisions such as on public sector pay.

The public wanted a Government it believed would do what was necessary regardless of petty, political considerations after a lifetime of Fianna Fáil Administrations and short-termism. The public still want that. Last week the Central Bank said the Government should accelerate the pace of its austerity programme to eliminate the uncertainty that has plagued the economy. It said that again and it has been saying it for two years. In effect, it is saying the economy is crippled and that we must make the adjustment more quickly. The economist, John Maynard Keynes, was asked to explain his change of position on economic policy. He responded by saying that when the facts change he changes his mind. The facts have changed when it comes to the Irish economy, not necessarily for the better. What has not changed is the attitude of the public. They know what the situation is and want the Government to do what is necessary for the long-term benefit of the country.

Unfortunately, the IMF confirmed the trend yesterday that there is no great lift. The Minister for Finance made an important point when he said we had to remember we are still in growth and have been for some years. Although the growth is small it is significant that we are in growth. The stewardship by the Minister of this portfolio has been amazing in recent years. In my view people want him in the job, believing he is the person who understands the issues and knows where we need to be in a couple of years. The Minister has not yet been on the cover ofTimebut, as I keep telling him, if he was a Minister in China he would be only at the start of his political career. He still has time. The IMF stated that Ireland's economy was in a bumpy recovery and would achieve 1.4% next year. It also stated the global economic slowdown is worsening, with the eurozone area contracting this year and, at best, flatlining next year.

I refer again to the Central Bank report published in August which stated: "Consolidation episodes that focus on expenditure reduction appear more successful at reducing deficits in a sustainable and structural manner that is least damaging to growth". To my mind, that is the bank's way of saying that government needs to get smaller - and smaller again. I agree with that and do not believe we can shy away from it.

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