Brendan Howlin (Wexford, Labour) | Oireachtas source

Consolidation measures amounting to around €28 billion, or over 17% of estimated 2013 GDP, have been implemented since the crisis began. This represents about 85% of the total consolidation required and highlights the scale of the challenge faced by the Government on taking office.

The policy response requires a continuous, ambitious programme of fiscal consolidation, accompanied by structural reforms, to improve the fiscal position of the State, allied with measures necessary to ameliorate the impact on those who are most vulnerable in society. The fiscal parameters, while improving, do not provide any significant latitude to the current programme necessary to meet the general Government deficit target of less than 3% by 2015.

To meet Ireland’s commitment to a deficit of less than 3% by 2015, the medium term fiscal statement published in November 2012 indicated that, in addition to the overall consolidation of €3.5 billion required for 2013, an additional €3.1 billion in savings and revenue raising measures must be identified for 2014 and €2 billion in 2015. If the public service pay and pensions bill, at 36% of spending, is to make a proportionate contribution to the necessary additional expenditure reduction currently identified as necessary over the next three years based on current economic forecasts, it will require a reduction of some €1 billion in the cost of pay and pensions.

Otherwise the existing significant burden of adjustment falling on services and social transfers, rather than pay, would be untenable. The report referred to by the Deputy focuses on only one element of the consolidation measures required to put our public finances on a sustainable path. While acknowledging that it is difficult to model all of the impacts of the proposed adjustments, it models a form of pay bill reduction that is not proposed by the Government. The report also does not review or consider alternative strategies, particularly in the context of the wider economy.

Model simulations conducted using the ESRI’s HERMES model suggest that a €1 billion reduction in the public service pay bill would reduce the level of economic activity by some 0.25 to 0.5 of a percentage point in the short-run. The exact impact would, of course, depend on how the reduction was achieved. This impact on the economy must be balanced against the need to ensure that the fiscal deficit is reduced so that the debt to GDP ratio assumes a downward path from next year onwards. Continuing to meet our fiscal targets can generate positive confidence and investment and can have a favourable impact on our economic performance.

See this speech in context