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

We must secure a new economy for a new Ireland. Of course, we must continue to deal with the legacy issues of the economic crisis, and we will do so, but today is about looking forward. It is about building for the future upon this solid foundation that has been so painstakingly laid.

Macro-economic, fiscal and financial framework

As a result of the policies pursued by the Government and the sacrifices of the people, the macro-economic and fiscal framework underpinning this year's budget is far more favourable than in previous years. The recovery is gaining momentum. While exports are continuing to grow, the recovery is broadening, with domestic sources of growth, consumer spending and investment contributing positively for the first time since 2007. We have now had seven consecutive quarters of solid annual employment expansion and seen an increase in employment of over 70,000 people at work since the low point in early 2012. Unemployment, while still too high at 11.1%, is at its lowest level in five and a half years and has now fallen for 27 months in a row. My Department is forecasting a continuation of this trend and expects unemployment to fall to an average of just above 10% next year. It is clear that the measures introduced to support job creation in key sectors of the economy are working. My Department estimates that there will be around 1,920,000 people in work by the end of the year - this is over 80,000 higher than at the low point two and a half years ago. By the end of 2015, it is anticipated that the increase from the low point will be around 128,000 and we expect to have two million people at work in 2016.

The evidence of the growing economy can be seen in the public finances. Throughout the course of 2014, taxes have grown steadily and my Department is projecting an outturn of over €41 billion - €1 billion ahead of profile. Thanks to this strong revenue growth, effective expenditure management and the impact of European statistical changes, the forecast deficit for 2014 is 3.7% of GDP. This is well inside our excessive deficit procedure target of 5.1% and the 4.8% target on which we built the budget for 2014.

My Department is forecasting GDP growth of 4.7% this year. On a no policy change basis, it is forecasting real GDP growth in 2015 of 3.6%. These forecasts are prudent and were endorsed by the Irish Fiscal Advisory Council. However, as a result of the package of measures I am introducing today, the GDP growth forecast in 2015 has been revised upwards to 3.9%. In 2016 the growth rate will be 3.4%. In 2017 the growth rate will be 3.4%. In 2018 the growth rate will be 3.4%. This is the type of solid and steady economic growth that we want in the coming years.

The Government's strategy to reduce the burden of our debt by improving the terms of our EU-IMF loans and the promissory note, minimising future borrowing requirements by reducing the deficit and growing the economy is working. The forecast debt-to-GDP ratio for end 2014 is under 111%. When account is taken of cash balances and other financial assets, the 2014 net debt forecast is just below 91%. Furthermore, a debt reducing primary surplus of 0.3% of GDP will be achieved this year. However, as our debt is still high by comparison to many of our fellow EU members, we need to continue this approach. Not only will this make the debt more sustainable, it will also minimise the cost to the taxpayer of interest paid on the national debt.

That is the backdrop to today's budget. Prudent and responsible budgeting has got us to this point. Prudent and responsible budgeting will be how we will continue. Each year the Government has set ambitious deficit reduction targets, often inside those required under the Stability and Growth Pact, and each year we have beaten these targets. This approach has been a key factor in restoring market access and successfully exiting the EU-IMF programme last year. Investor confidence in Ireland has returned and our ten year sovereign bond yields are down to record lows, trading at 1.72% this morning.

The three major agencies, Moody's, S&P and Fitch, all upgraded their rating of our long-term debt during 2014, with two of them moving us into the A grades.

That is why I am targeting a deficit of 2.7% in budget 2015, ahead of the required target of 2.9% of GDP. I think it is appropriate to go beyond our requirements under the Stability and Growth Pact in order to build upon the progress made to date. Achieving a deficit below 3% does not signal an end to fiscal prudence in Ireland. Exceeding our target in 2015 will underpin solid, steady economic growth into the medium term and it is a further step on the way to balancing the budget. Even so, these figures do not fully reflect the progress we are making, as an element of the surplus income due from the Central Bank in 2015 is being used to reduce the debt. If the entire surplus income were counted for deficit reduction, the forecast deficit would be 2.5% next year. This prudent approach further improves our debt sustainability. We are making significant progress and we are forecasting that our gross debt ratio will drop below 100% of GDP in 2018, ahead of the reduction required by the Stability and Growth Pact.

Total general Government revenue will be €65.2 billion in 2015 and total general Government expenditure will be €70.5 billion. Expenditure under the Government expenditure ceiling, consisting of gross voted expenditure along with expenditure funded by the Social Insurance Fund and the National Training Fund, will be €53.6 billion. The Minister for Public Expenditure and Reform will set out full details of his 2015 expenditure allocations and publish the ministerial expenditure ceilings.

Corporation Tax Reform

Since coming to office, the Government has provided vital supports to indigenous industry to grow and create jobs, such as the jobs initiative for the tourism sector, the tax reform plan for SMEs and measures such as the home renovation incentive for the construction sector. We have introduced significant reforms and improvements to our corporate tax system, and last year I introduced changes to address stateless companies.

Today I am publishing a roadmap to secure Ireland’s place as the destination for the best and most successful companies in the world. There are many changes taking place globally in corporate tax. The key role the corporate tax regime plays in attracting investment is recognised by all developed economies, and our competitors for foreign direct investment are introducing enhancements to their systems to attract investment.

For over 60 years, foreign direct investment has been a cornerstone of Ireland’s economic development. We have competed for and won major investment into Ireland and Europe from some of the largest and most successful companies in the world. With more than 166,000 people employed in more than 1,100 companies, the Irish foreign direct investment sector has real substance. Our competitive corporate tax system plays a key role. Ireland’s corporation tax strategy has three key elements: rate, regime and reputation. I will deal with each issue in turn.

The 12.5% tax rate remains at the heart of this. The Government has successfully protected this tax rate in recent years. The 12.5% tax rate never has been and never will be up for discussion. The 12.5% tax rate is settled policy. It will not change.

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