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

The spring economic statement, SES, outlines Ireland's medium-term economic and fiscal plan. It demonstrates that our public finances are under control, the economy is growing and continued improvement is forecast in the coming years. In this regard, the SES outlined that fiscal space of the order of €1.2 to €1.5 billion will be available for budget 2016, while still complying with our obligations under the Stability and Growth Pact. Indeed, one of the key purposes of the SES is to provide a basis for debate with relevant stakeholders in the national economic dialogue on how this fiscal space should be best used. The exact quantum available will depend on the composition of measures, changes in the estimated 2015 fiscal outturn, macroeconomic variables, etc.

In general, cost-benefit analyses are more appropriate to individual measures than to overall fiscal strategy. The 50:50 split reflects the strategy of Government to marry the objectives of encouraging economic growth while increasing the resources available to deliver quality public services. With regard to the taxation element, according to the OECD hierarchy of taxes, labour taxes are considered one of the most harmful to economic growth. Therefore, the Government has committed to reducing the tax burden for low and middle income earners as a means of encouraging labour market participation and subsequently economic growth. Given the expenditure reductions over recent years, certain sectors require expenditure increases to accommodate demographic and other demand pressures. For example, given the increase in the number of children of school-going age, the need for additional teachers has become evident. It should be noted that expenditure on education will facilitate a more productive workforce over the longer term which will improve Ireland's potential growth rate.

Similarly, Ireland's investment in capital is operating at a level only just below depreciation. Further investment in capital stock will add to Ireland's growth potential. Budget 2016 will incorporate elements of the capital review to be published this summer and will prioritise projects and deliver value for money. Ultimately, the Government will use the available fiscal space to strike a balance between encouraging economic growth and ensuring that our public services are improving and fit for purpose. The exact measures to be contained in budget 2016 will reflect these objectives.

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