Michael Noonan (Limerick City, Fine Gael) | Oireachtas source

I welcome the opportunity to discuss the prospects for the Irish economy. In my remarks today, I will outline how the policies adopted by the Government are beginning to bear fruit. However, while the Irish economy is showing signs of growth, we must not be complacent. This is only the first step on the road to recovery.

Economic growth and a recovery in the jobs market are the crucial preconditions for an improvement in the living standards across society that continue to be the ultimate aim of Government policy. The Government is continuing to tackle the economic and fiscal challenges we face in the coming years to ensure that recovery takes firm root and is sustained. As such, putting in place the conditions for supporting economic growth has been a focus of my work as Minister for Finance.

I will give an overview of the economic situation before discussing the Government's policy responses to the opportunities and challenges facing us. Last year saw an expansion in gross domestic product of some 1.4%. This followed three years of successive decline in GDP and marked a positive first step on the road to recovery. Growth has continued into this year, rising at the modest rate of 0.5% in the first half of this year, compared with the same period in 2011.

The recovery is being led by the external sector, with exports of goods and services now well in excess of pre-crisis levels. This shows that the improvement in competitiveness which has been evident in recent years is yielding benefits. It also highlights the inherent flexibility of the Irish economy, which has seen significant improvements in relative prices and costs. The strong export performance also means that our balance of payments with the rest of the world moved into surplus in 2010 for the first time in over a decade. More recently, a surplus of €3.2 billion was recorded on the current account of the balance of payments in the second quarter of this year. This is the largest nominal surplus recorded since records began in 1981. While the figures can be quite volatile, it is worth pointing out that over the past four quarters, the current account balance has averaged 3.3% of GDP.

In the second quarter of the year, services exports recorded an 8% annual increase. This is reflective of the competitiveness improvements achieved in recent years, but also the continuing willingness of both international and domestic multinational firms to locate new business in Ireland. The pipeline to win more foreign direct investment is strong and the IDA has secured 73 foreign direct investments to date this year. Notwithstanding these positive developments, the Government is acutely aware that the greatest fall-out from our economic difficulties is in the labour market. Unemployment is estimated at 14.8% in September, which is far too high. The only reliable way to bring down unemployment is to secure economic growth, and that is the main focus of the Government's economic policies.

On the budgetary front, the gap between revenue and expenditure remains large, despite the reduction in the underlying deficit to an estimated 9.1% of GDP last year - a level well within the limit set under the terms of the EU-IMF financial assistance programme. The Government is committed to reducing the deficit further. The deficit limit set for this year is 8.6%of GDP and the latest data are consistent with the achievement of this target.

Aggregate tax receipts for the year to end-September are 1.5% ahead of target, with three of the four main sources of revenue performing better than expected. Although the majority of Departments continue to manage within their agreed limits, spending is somewhat higher than planned in the social protection and health areas. This is a cause for concern in the context of achieving budgetary targets and restoring confidence in the sound management of the public finances. My colleague, the Minister for Public Expenditure and Reform, is working with our ministerial colleagues in these areas to ensure our expenditure targets for this year are achieved, as they were in 2011. However, we must be cautious not to overstate the risks posed by these overspends within the overall voted public expenditure of €55.9 billion. Any overruns are very small in comparison with the total budget.

The Government has been working hard to reposition Ireland to return to the financial markets in advance of the completion of the EU-IMF programme and we are continuing to meet the targets set out within it. The State's consistent delivery on commitments that we have made has enhanced market sentiment towards Ireland. This is evidenced by how our bond yields, at all maturities, have come down considerably since the early summer. The return to the bond market over the summer by the NTMA is welcome and last week's successful t-bill auction is evidence of continued market access.

As a small and open economy, Ireland's prospects are inextricably linked to wider global developments. In terms of our main trading partners, GDP in the euro area contracted by 0.2% in the second quarter of this year following a flat first quarter. In the UK, GDP contracted by 0.5% in the second quarter, the third successive quarter of negative growth. In the United States, the figures were a little more encouraging, with GDP increasing by 0.4% in the second quarter.

The IMF recently revised downwards its global growth projections for 2013, including the projections for Ireland's main trading partners, particularly the United Kingdom and the euro area. This means that demand for our exports in 2013 will not be as high as was anticipated when my Department published its growth forecasts in April this year. This reflects global forecasts.

The Government fully recognises the pain and suffering of many in our society who have been negatively affected by the economic difficulties of the last four years. I reiterate that job creation is our key objective. Putting the right policies in place to encourage employment growth is at the centre of the policy actions being taken by the Government. I will go into some detail on this. The Action Plan for Jobs which was launched earlier this year by my colleague, the Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, builds on work across government to deliver reform and create economic growth. It builds on the progress made on economic reforms to accelerate jobs growth and get the country working again. The 2012 Action Plan for Jobs is the first instalment in an ambitious multi-year process. The overall success of the plan will depend on whether it fosters greater job retention and creation. The latest progress report on the plan shows that in the third quarter of 2012 Departments and agencies delivered on schedule 58 of the 67 measures due, giving a completion rate of 87%. Having said that, structural unemployment is a key concern, as can be seen in the regrettably high share of long-term unemployed. This is, in part, a legacy issue in the aftermath of the construction boom and the decline of associated sectors. To combat this, the Government has prioritised job creation and retention through the Action Plan for Jobs and the Government's jobs activation programme, Pathways to Work. We have successfully negotiated with the troika that some of the receipts from the sale of State assets will be directed towards job creation.

Ireland must maintain its position as an attractive destination for inward investment and position the economy to take advantage of the global recovery when it emerges. Notwithstanding the need to underpin the sustainability of the public finances, the Government has taken and will continue to take steps to support competitiveness. These include the Government's commitment to retaining the 12.5% rate of corporation tax and maintaining and enhancing its pro-business tax policies. As a result, Ireland continues to attract inward foreign direct investment. Almost 1,000 companies, including Google, eBay and Facebook, have chosen Ireland as the hub for their European networks. Irish companies are happy to locate new businesses at home, as seen by recent investment announcements by companies such as Paddy Power and the Kerry Group. Since 2011 the Government has introduced and enhanced a number of pro-business tax measures. In the Finance Act 2012 we introduced the special assignee relief programme to attract key talent and innovators to Ireland and the foreign earnings deduction to aid companies seeking to expand into the emerging markets in Brazil, Russia, India, China and South Africa. We introduced significant enhancements to the research and development tax credit scheme to the extent that we have an international reputation as one of the leading countries in this respect. We improved the three year tax exemption for start­up companies by linking the value of the relief with employment creation. The jobs initiative introduced a reduction in the VAT rate on certain employment sensitive industries, particularly the tourism sector, and reduced the rate of PRSI payable by employers to help wage competitiveness.

As a consequence of their contribution to total costs, Ireland's labour costs have a significant impact on overall cost competitiveness. Ireland's labour costs have improved substantially in recent years, relative to the euro area, and are forecast to continue to converge in the coming years. Recent exchange rate movements are beneficial from a competitiveness perspective. The euro has depreciated against the dollar and sterling over the course of the last year. This benefits Ireland because of our greater exposure to trade outside the euro area. Recent inward investment announcements provide further grounds for optimism, clearly demonstrating that Ireland remains an attractive location for the production and export of high technology goods and services. I see this as a clear demonstration that the Government's strategy in relation to the 12.5% rate of corporation tax is an appropriate one.

Despite the challenges we are facing as a country, the Government will spend €17 billion on the capital programme for the period of 2012 to 2016. This level of expenditure is based primarily on what we can afford and has been focused on the investments most needed. The capital investment plan has been designed to facilitate economic growth and build our social infrastructure. Capital spending will see an increasing share of our scarce resources allocated to schools, health care facilities and areas where the construction industry can expect to benefit from the increased demand stimulated and the consequent jobs this will provide. We will spend €2.2 billion on 40 new schools and 180 other major school projects. We will spend €2.9 billion on the national and regional roads programme, including a new public private partnership road - the Ballaghaderreen bypass - as well as provision for motorway maintenance and local and regional roads. We will provide €1.4 billion for Luas interconnection, rail safety measures, regional cities traffic management and the removal of bottlenecks. We will spend €1.5 billion on water services. Some €1.4 billion is being provided for social housing provision and some regeneration schemes.

In July my colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, announced the Government's plans for an additional investment of €2.25 billion in job-rich public infrastructural projects. The bulk of the funding will come from a combination of the National Pension Reserve Fund, the European Investment Bank and the Council of Europe Bank, domestic banks and other potential private investment sources. This package is the culmination of intensive efforts to identify projects that are realistic, credible and deliverable. It is estimated that the first phase of the public private partnership programme will generate up to 13,000 jobs. The focus for this phase is on projects valued at up to €1.4 billion in the education, health, transport and justice sectors.

In May NAMA set out proposals to invest €2 billion in Ireland in the next five years. This investment by NAMA will be an important contribution to the Government's plans for getting people back to work. It has been estimated that a €2 billion investment could generate up to 25,000 direct and indirect construction jobs and up to 10,000 additional jobs in the wider economy. This investment will facilitate the completion of properties and, importantly, allow land to be developed in anticipation of future supply shortages.

The importance of ensuring a sustainable public finance position is clear to everyone. The Government is conscious of the need to demonstrate nationally and internationally that the public finances are being managed in a stable and sustainable way. We must put our debt-to-GDP ratio on a downward path. The ratio is expected to peak next year and fall thereafter. In the medium term the external environment is expected to strengthen from 2014 onwards, as is our export growth. As this strong export performance starts to feed through to investment and employment, consumer confidence is expected to improve and the savings rate should start to fall somewhat. I expect to see economic activity beginning to gradually firm and broaden from being externally driven, with domestic demand also making a modest contribution. The strong performance of foreign direct investment points to the fact that many of the underlying strengths of the economy remain in place, including a well educated workforce, favourable demographics and an open, flexible and pro-enterprise economy. Internationally, it is widely recognised by those who objectively assess our performance that the Government is reacting in a decisive and timely manner to address the country's economic challenges. The difficult decisions that have been taken have helped to reposition the economy on a more sustainable export-led path. The Government believes Ireland's future is intrinsically linked with continued membership of a strong and vibrant European Union and the euro area. It intends to continue to engage proactively with senior officials in the EU institutions and our EU partners on the implementation of policies aimed at strengthening growth and stabilising turbulent financial markets. I look forward to hearing the views of Deputies.

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