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

I welcome the opportunity to be here today to discuss the stability programme update. In terms of process, we have a legal obligation to submit a stability programme to Brussels by the end of April. All member states are required to do this, unless they are in a programme. Thankfully, the days when we were in a programme are over for Ireland.

The stability programme sets out the Government's macroeconomic and fiscal forecasts for Ireland and is the first update of the Government's projections since budget

2016 in October of last year. The SPU is presented in draft form and I am, as usual, willing to take on board useful comments made by Deputies. The final version will be submitted to Brussels tomorrow, or at the latest on Friday. The macroeconomic forecasts underpinning the stability programme have already been endorsed by the Irish Fiscal Advisory Council. That is the process. The Department of Finance generates the statistics, they are submitted to the Irish Fiscal Advisory Council and, when it agrees, the documents are prepared for submission to the European Commission.

As part of the annual European semester process, the European Commission assesses the budgetary strategy of each member state by reference to its stability programme. On this occasion it is important to note that the economic and fiscal forecasts contained in this document are prepared on a technical, no-policy-change basis. We are not setting out any new policies within this document. This is the standard practice where there is a political interregnum.

This document makes no reference to fiscal space. This can be set out in a Spring Economic Statement or summer statement at a later stage. The Spring Economic Statement, which an incoming Government should be in a position to generate in the first half of May, will be the subject of a major debate in this House and will contain policy proposals in the normal way. At the time of the budget last year, my Department estimated a net fiscal space of €8.5 billion over the period 2017 to 2021. The Department of Finance also clarified that if the medium-term objective, MTO, was changed, it would free up an additional €1.5 billion of fiscal space over this timeline. The MTO has subsequently been changed. In addition, some other inputs have changed. On foot of these changes, my Department currently estimates the net fiscal space to be somewhere in the region of €10 billion to €11 billion over the period 2017 to 2021. For next year, again arising from some changes into the inputs of calculation, the net fiscal space is estimated at around €900 million. I stress that this is work in progress and subject to revision. There are many moving parts in the calculation, including inputs from the European Commission that only become available over the summer, and this may give rise to further variations in the figure before budget day.

The House will recall that the figures last year varied considerably between the spring statement and budget day. The likelihood is that any variation of the €900 million figure will be an upward variation rather than a downward variation. This is not absolutely certain at this point because, as I have said, there is a number of moving parts and we are dependent on the European Commission for some of the data on which these calculations are made and that data will not be available until some time in the summer.

Turning to the economic situation, I am greatly encouraged by the data flow over the past year or so showing that the recovery is gaining momentum with the economy growing at the fastest rate in Europe, with growth of 7.8% recorded in 2015. The expansion in economic activity, initially led by the exporting sectors, has broadened with growth now increasingly driven by domestic factors allowing households and businesses plan for the future with a renewed sense of optimism. This is very important as the domestic sectors are both jobs rich and tax rich. Central to this progress has been the restoration of Irish competitiveness which is a prerequisite for sustainable economic growth.

The latest data show GDP increased by 9.2% year-on-year in the fourth quarter of last year. This comes on the back of a similar increase of 7.2% in the third quarter. These are strong figures and tally with what I see on the ground; people, especially those working in the private sector, have more money in their pockets, consumer confidence is recovering and businesses are expanding. The job now is to broaden the recovery so that every individual in all parts of the country benefits from the better situation.

My Department is forecasting GDP growth of 4.9% this year and 3.9% next year, likely to put us at the top of the European league table once again. Over the remainder of the forecast horizon out to 2021, the economy has the capacity to grow by 3% to 3.25% per annum with positive contributions from both exports and domestic demand. These forecasts have been marked upwards since the forecast presented here on budget day in October last and they are in line with Central Bank forecasts, ESRI forecasts and some forecasts generated by the private sector. As a matter of fact, we are slightly adrift of the Central Bank forecast which predicted 5.1% for this year.

The economic recovery is perhaps most clearly evident in the labour market in which we have now had 13 successive quarters of employment growth. Approximately 140,000 jobs have been created since the launch of the Government's Action Plan for Jobs initiative in early 2012. Encouragingly, employment is set to exceed the 2 million mark this year for the first time since early 2009.

In 2015, robust employment growth of 2.6% was recorded, representing the addition of 50,000 jobs. Importantly, growth remains broad based. Employment gains have been posted in full-year terms by all 14 sectors reported by the CSO, with the construction sector showing particularly strong momentum. Growth also remains driven by an increase in full-time employment. Deputies will recall that the CSO, for statistical purposes, divides the economy into 14 sectors, two of which are public sectors - the other 12 are private sectors. There was no growth in employment in the public sectors because of employment embargoes but that has changed and there are people being taken on in the public sector. More importantly, all 12 private sectors of the economy have now taken on extra employees. I suppose the sector that was most tardy in recovery, the construction sector, increased employment by 10,000 persons in 2015.

In parallel, consecutive declines in unemployment have been recorded over the past ten quarters. The latest data indicate that the unemployment rate had fallen to 8.6% at the end of March - the lowest since 2008. Overall, there are now 140,000 fewer unemployed people than at the peak in late 2011. Encouragingly, we continue to see significant declines in long-term unemployment indicating that carefully crafted activation strategies to date are continuing to bear fruit. This, however, is not the end point; policy efforts will continue to focus on further reducing the unemployment rate.

Over the short run, we expect labour market dynamics to continue to strengthen. The Department of Finance is projecting an additional 50,000 jobs will be created this year. It is worth noting that in the early stages of the recovery, many of the jobs created were part-time jobs. In recent quarters, this has changed and there is a movement from part-time jobs to full-time jobs. The bulk of the jobs now being created are full-time jobs and this is a further strengthening of the economy. Taking all these matters into account, unemployment is forecast to remain on a downward trajectory and is expected to fall to 8% by December of this year. We remain on track to reach full employment of 2.1 million by 2018, as outlined in the Action Plan for Jobs.

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