Brendan Howlin (Wexford, Labour) | Oireachtas source

The reforms to the Stability and Growth Pact, implemented as part of the obscurely named two pack of EU regulations, require member states to publish, no later than 30 April each year, their national medium-term fiscal plans in accordance with their medium-term budgetary framework. These plans are a central element of the intensified surveillance at EU-level of the conduct of national fiscal policy. In light of this requirement, the Department of Finance has published the stability programme update, SPU, for 2016. As the Minister for Finance has stated, by deciding to submit this update, the Government is complying with EU rules. However, as the foreword to the SPU makes clear, the fiscal - expenditure and tax - forecasts set out in the document are prepared on a technical, no-policy change basis in line with those set out in budget 2016 and do not take account of subsequent economic developments, potential tax buoyancy or identified expenditure pressures which will need to be addressed. Therefore, the document does not, and in the absence of an agreed programme for Government, cannot, set out a medium-term plan for Ireland's public finances.

This approach is adopted given that it will be a matter for a new Government, whenever it takes office, to set out its medium-term fiscal strategy responding to the major challenges our country faces, as well as to the Commission's assessment of Ireland's fiscal position represented in the SPU. The SPU does, however, contain updated macroeconomic forecasts which, in line with the forecasts of authoritative national and international bodies, forecast an even stronger economic performance in 2016 than the Government expected last year when we presented our budget, notwithstanding the identified international uncertainties. The economic forecasts in the SPU highlight that the Irish economy has the potential to continue to generate strong growth; continue to increase employment, as the Minister set out; and generate the fiscal resources required to continue to reinforce the social, economic and financial sustainability of our State, which teetered on the brink in 2011.

The SPU published in April 2011 stresses the scale of the threat faced at that time when the headline general Government deficit reached an incredible 32% of GDP for 2010. The underlying deficit, reflecting the gap, excluding the support required for the banking sector, between the Government's income and day-to-day expenditure to pay for items such as social welfare, health and public sector pay, was estimated at 12% of GDP. The April 2011 SPU confirmed that there was no scope for the State to rely on economic growth to help resolve its budgetary crisis, forecasting a decline of 1% in real GDP for 2010 with growth of only 0.8% forecast for 2011.

With this scale of an economic and fiscal crisis, hardship was being experienced by people across the country, with the SPU noting that the standardised unemployment rate for the early months of 2011 was almost 15%. With Ireland in an EU-IMF programme, the choices facing the Government were very stark, not only to regain the country's economic sovereignty but to return the economy to sustainable growth and the public finances to stability. The fiscal adjustment implemented in order successfully to exit the EU-IMF programme of support and return sustainability to the public finances inevitably required a major fiscal consolidation. Adjustment measures taken from the onset of the financial crisis to restore the public finances are estimated as having amounted to one fifth of GDP. Gross voted expenditure was reduced from its peak of just over €63 billion in 2009 to €54 billion in 2014.

We have seen the type of measures imposed under EU-IMF programmes in other jurisdictions to achieve this scale of adjustment and their impact on the role of the State in society and on social cohesion. In Ireland, in implementing painful expenditure reductions, the Government's priority was to ensure a balanced and targeted approach was adopted in order to protect key public services and social supports to the greatest extent possible at a time of increasing demand often driven by demographic pressures. This national approach to essential fiscal adjustment during the past five years was central to maintaining social cohesion, laying firm foundations for a return to growth and restoring Ireland's economic reputation which has helped ensure the continued inflow of foreign investment. The key areas of health, social protection and education were prioritised, and together they account for over 80% of all gross current expenditure.

The evidence in favour of this specific national approach to budgetary recovery is unassailable. Core weekly social welfare rates were protected. Social welfare expenditure increased as a percentage of our total budget. The investment in the health sector ensured key front-line services were maintained. The number of whole time equivalent, WTE, staff in the health sector increased from 97,010 at the end of 2013 to 105,183 in March 2016. This represents an increase of 8,173, almost 8.5%, over the period. Over 80% of this increase related to front-line staff. Free GP care is to be extended this year to children under 12.

As recently highlighted in EUROSTAT data, Ireland's spending on health as a percentage of total general government expenditure was the highest in the EU in 2014.

The education sector has faced increasing demands over recent years. More than 900 additional mainstream teachers and 630 new resource teachers were sanctioned for 2015 compared to the previous year. In the same period, an extra 830 special needs assistants were sanctioned, reflecting the Government's prioritisation of special needs. Budget 2016 made provision for more than 2,200 new teaching posts, including 600 new resource teachers and 100 special needs assistant posts. The staffing schedule is being reduced this year from 28:1 to 27:1 at primary level and from 19:1 to 18.7:1 at second level. The outgoing Government has protected the funding allocations for DEIS expenditure, which prioritises the educational needs of young children from disadvantaged areas.

Returning people to work was essential in the recovery strategy. The seasonally adjusted unemployment rate for March of this year was 8.6%, which represented a reduction on the crushing peak of over 15% unemployment in 2011. This priority of creating jobs did not mean jobs at any price. In February 2011, the minimum wage rate was reduced from €8.65 per hour to €7.65 per hour. One of the first steps taken by the outgoing Government when it took office in March 2011 was to reverse that cut. From January of this year, the minimum wage increased to €9.15 per hour.

The achievements in safeguarding and developing core social benefits and key public services within the severe constraints that existed should be viewed alongside the substantial progress that was made in returning order to the public finances. As this year's stability programme update sets out, a headline deficit of 2.3% of GDP was achieved last year with an underlying general government deficit of 1.3% of GDP. This is in sharp contrast to the 2010 figures of 32% for the headline deficit and 12% for the underlying deficit that were set out in the first stability programme update, which we published in April 2011 when we came into office. The general government deficit, on a no policy change basis, is forecast to be 1.1% in 2016. I expect this figure to be comfortably exceeded. Real growth has been revised upwards since October and is forecast to be 4.9%. General government debt is forecast to come in below 90% of GDP this year, with a net forecast of 75% of GDP. Our national debt now stands at the European average and will fall further this year. Not long ago, some of the parties opposite and indeed some of the economic commentariat were telling us that our debt was unsustainable and would prevent us from raising funds in the markets.

The fiscal and economic position facing the new Government could not be more different from that we encountered when we came into office in 2011. As was the case in 1997, we are leaving office with the public finances and the economy in a far better condition than they were in when we found them. The efforts we have made to return sustainability to the public finances over recent years have ensured that increased resources will be available to the new Government to direct to ensure social and economic progress for all our people. That new opportunity should not be squandered. The real social pressures that built up during the crisis period should and must be addressed with care, speed and a strategic long-term perspective. The Irish people have paid too high a price over the past seven years to see a return to short-term political expediency trumping the long-term interests of our country.

See this speech in context