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

The deficit target of 5.1% of GDP to which the Deputy refers is the maximum general government deficit in 2014 which the Government is required to deliver under the excessive deficit procedure in the Stability and Growth Pact. This is part of an agreed consolidation path which Ireland will follow in order to return the public finances to sustainability. The European Commission, the International Monetary Fund, the European Central Bank and most economic commentators have acknowledged that Ireland has met all of its targets to date and that substantial progress has been made in setting the public finances and the economy back on the road to good health.

However, while it is right to recognise progress, it should be remembered that, regardless of commitments we have made to our international partners, these deficits represent the annual shortfall between what the State collects in revenue and what it spends. Every year in which there is a deficit the Government must borrow money, adding to the quantum of outstanding debt. This borrowing attracts additional interest and in turn this adds to the national debt. Interest payments divert scarce resources from areas where they are badly needed. It must be evident to everyone that this situation cannot persist in the longer term and that every effort must be made to alleviate this burden on the Irish people. This is the primary reason the Government is taking action to close the deficit but in such a way that seeks to find a balance between the need to tackle the deficit and the need to promote growth in the economy.

Last April in the stability programme update, I set out, on a purely technical basis, that consolidation of €3.1 billion would result in a general government deficit of 4.3% of GDP in 2014. That estimate was based on the latest available data at the time. Since then, we have received more up to date information, most recently the quarterly national accounts from the Central Statistics Office and the end of September Exchequer returns published yesterday. My officials are currently analysing these data for incorporation into the budgetary forecasts. The work is well under way and I will not be drawn into speculation on the composition of the budget at this time. However, the Deputy may rest assured that budget 2014 will include the required combination of revenue raising and expenditure reduction measures to ensure that Ireland continues on the road to repairing its public finances while providing an environment suitable to allow economic recovery to continue. This will be done in such a way as to spread the burden as equitably as possible.

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Turning to your question on recent economic data, while activity in the domestic economy remains at muted levels, I think it is fair to say there is growing evidence of stabilisation in recent months. Personal consumption increased by 0.7% in seasonally-adjusted terms in the second quarter, and more high frequency data point to further growth in the third quarter. Core retail sales, excluding motor trade, have increased in year-on-year terms in each of the past four months. While the impact of the new motor registration regime impacted on headline retail sales in the first half of the year, strong growth in car sales in July and August was reflected in a 3.7% increase in the July-August headline retail sales when compared with the same period in 2012.

Recent labour market developments should also support more robust personal consumption in the second half of the year. Employment has now increased in seasonally adjusted terms in each of the last four quarters, with employment increasing by 1.8 % in year-on-year terms in the second quarter, representing an additional 33,800 jobs over the year. The Government is under no illusions about the importance of a recovery in the domestic economy to sustain the impressive momentum in the labour market of late and will continue to support the domestic economy where fiscal space allows.

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