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

This is the sixth budget I have introduced since 2011. Since then the country has overcome huge challenges, challenges that many thought were insurmountable. The lessons learned over this period must not be forgotten. We must budget prudently while we prioritise the repair of our public services after a period of underinvestment.

We will be true to the commitments we made in A Programme for a Partnership Government.

We will divide the resources available between increased investment in public services and tax cuts in proportions of at least two to one in favour of public services.

The economy is in good shape, it is growing strongly and sustainable growth is forecast for the coming years. My Department, with the endorsement of the Irish Fiscal Advisory Council, is forecasting that GDP will grow by 4.2% in 2016 and 3.5% in 2017. The strength of our economy is even better understood when one looks at employment. There are over 2 million people at work this year and my Department is forecasting that there will be a further 43,000 at work by the end of 2017. Employment is still short of what it reached in 2007 but it is far more solidly based with jobs being created across all sectors of the economy rather than being dependent on one overblown sector. As the numbers at work continue to grow to well beyond 2 million, it is salutary to remember that as recently as 1989, fewer than 1.1 million people were at work in Ireland.

The growth of the economy has been mirrored in the public finances. We have moved from a completely unsustainable position, depending on the troika and the bailout programme, to our current sustainable position. We have rebuilt our tax revenues and have been able to invest more in public services. We will continue on this path. Today, I am announcing changes to the tax system that will reduce the burden on taxpayers by just under €300 million. These changes consist of about €500 million of tax cuts that are offset by measures increasing tax revenue worth €195 million. My colleague, the Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, will shortly outline the allocation of gross voted expenditure for 2017 of €58 billion, including €1 billion of additional allocations above the amounts precommitted in line with the mid-year expenditure report.

Overall, the budget package of €1.3 billion favours expenditure increases over revenue reductions by over three to one. This reflects the Government's commitment to rebuilding and investing in public services. In headline terms, the projected deficit for this year is 0.9% of GDP and, taking account of the budget package, the forecast for 2017 is a deficit of 0.4% of GDP. In structural terms, the metric by which our obligations under the Stability and Growth Pact are set and measured, the forecast is that there will be an improvement in the structural balance of 0.8% of GDP, in excess of the 0.6% of GDP requirement set for us under the pact. This will leave us with a structural balance of 1.1% of GDP at the end of 2017 and we will be well set to reach our structural deficit target of -0.5% in 2018 and better placed to deal with external shocks and challenges.

The UK's decision to exit the European Union represents a real risk to our economy given the close links and the high level of trade between us. Approximately 16% of Irish exports go to the UK but 40% of indigenous company exports go there. In turn, Ireland is the UK's fifth biggest export market. Over €1.2 billion of goods and services are exchanged between us on a weekly basis. This trade supports 400,000 jobs, split evenly between the two islands, with many more jobs in the supply chain. The uncertainty introduced to the economic outlook by the UK's decision has prompted my Department to reduce its forecast for GDP growth for next year to 3.5%. What the effect will ultimately be will depend on the settlement between the UK and the EU. It is not possible to forecast the impact of this at present. The best outcome for Ireland is a UK that is still closely linked to the European Union. We want to avoid any moves towards a hard Border with Northern Ireland or any changes that reverse what is a common economy on this island.

We also want to see the preservation of the common travel area, including the preservation of a common labour market. Whatever the final settlement, we know with certainty that Brexit poses increased risk to the Irish economy and, as well as introducing specific measures to assist particular sectors of the economy, we must also put in place safety nets to protect us against future economic shocks. The best and most immediate policy under our own control to mitigate this risk is to control the public finances through budgetary process. We need to keep faith with the prudent fiscal policy we have followed for the five previous budgets. Through this budget and beyond, we must reduce and eliminate the current budget deficit, balance the budget in 2018 and run budgetary surpluses after that date.

Second, we must put in place economic shock absorbers to enable us to deploy resources to reduce or eliminate the impact of future economic shocks. In the summer economic statement, I announced that when the budget is in surplus after 2018, it is the Government's intention to establish a contingency fund or a rainy day fund. I confirm today that the Government will set aside up to €1 billion annually to this fund, to be deployed by the Government of the day in a counter cyclical manner.

Our high level of national debt is also a risk to our future well-being. The national debt peaked at over 120% of GDP during the crisis. It will be down to 76% of GDP at the end of this year and we will continue to reduce it to achieve the target of 60% of GDP in accordance with the European Stability and Growth Pact. At this level of debt, however, I believe there is still risk. Ireland is a small open economy, dependent on international trade. An economic shock in any region of the world impacts on Ireland. Therefore, I am announcing today a new debt to GDP target beyond the requirements of the Stability and Growth Pact. The Government has decided to set a new domestic target of debt to GDP ratio of 45% to be reached by the mid-2020s or thereafter depending on economic growth. This will allow future Governments not only to apply the rainy day fund but to borrow to mitigate the impact of future shock on the lives of our people. We must get away from, forever, the boom and bust cycles that have caused so much grief in the past. If we do so we can build a great economy; we can build a fair and just society and the kind of country to which we all aspire.

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