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

I do not believe that because it was tried not only in Ireland but elsewhere.

A strategy of piling deficit on deficit and debt on debt was tried not only in Ireland but elsewhere and it was supposed to make everyone rich. That is the reason we crashed out. It reached the point where it was unsustainable and had to be paid for and we are still paying for it. That is not a solution. On the other hand, every economy needs some stimulatory demand-led projects. My colleague, the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, is using European Investment Bank funds to fund bundles of schools in various parts of the country and release 19 community health centres some time in the summer. This is very important. Completing roads programmes is also important. However, we should never forget the supply side of the economy, a case we have been arguing for a long time. We have included supply measures in every Finance Bill. If demand increases, supply normally increases to fulfil demand, but if supply increases, it can create its own demand. For example, I have observed Members using iPads and iPhones. They were not driven by demand but by supply. Smart people invented them and put them on the market. The fact that they were available meant everybody wanted to have them. An economy with supply side difficulties such as we have encountered can work. We cut the VAT rate for the tourism industry from 13.5% to 9%. That is on the supply side and it worked. Because prices are more competitive more people will come. It is a case of working on the supply side instead of the demand side. However, both are needed to balance an economy, but we do not have the resources for this big new deal initiative which works best in an enclosed economy.

The IMF paper is very controversial and has been severely criticised by equally eminent economists around the world. Even if it works in a country such as the United States, it does not work in Ireland because the multiplier is probably less than one. If one spends money, it has a knock-on effect. However, we import so many goods that the money goes out fast. As savings are high in Ireland, it goes out fast. The return on big infrastructural developments in Ireland is no longer great. A balance on both sides is needed.

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