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

I move amendment No. 5:

To delete all words after “Dáil Éireann” and substitute the following:

“affirms its support for the Programme for a Partnership Government’s commitment to provide for a sale of our banking investments where conditions permit;

recognises the sustainable increases in infrastructure spending being achieved under the Capital Plan, ‘Building on Recovery’, including the additional funding of €5.14 billion committed by Government since the original plan was published in 2015;

welcomes the Government’s intention to produce a new 10 year capital plan by the end of 2017, setting out the Government’s key investment priorities over the coming decade;

commends the Government’s continued achievement of budgetary targets and sustainable economic growth, and notes that a range of policy measures have been undertaken over recent years to address the budgetary implications of population ageing;

recognises that these Government policies have played a role in the continued low debt servicing costs which are also driven by the European Central Bank’s ongoing non-standard monetary policy measures, and therefore should not be assumed to be permanent;

supports the sensible objective of the Stability and Growth Pact to drive budgetary discipline and sustainable public finances in the European Union and the Euro Area, and recognises the important changes that Ireland has already secured in relation to the operation of the fiscal rules in relation to the expenditure benchmark;

further affirms that the Government is committed to compliance with the fiscal rules which are designed to avoid the mistakes of the past and ensure that increases in public expenditure are sustainably financed and not funded on the back of cyclical or windfall revenues, and

recognises that the fiscal rules are enshrined in Irish law in the Fiscal Responsibility Act 2012, which implemented the Treaty on Stability, Coordination and Governance in the Economic and Monetary Union that Ireland acceded to in 2012, following the decision of the Irish people in the referendum held on 31st May, 2012;

further supports the Government’s policy to exit our banking investments in a measured and careful manner, returning them to private ownership over time and in a manner that maximises value for the taxpayer;

further recognises that public indebtedness has risen significantly as a result of this support and it is entirely appropriate to utilise any proceeds from the sale of our remaining investments, to reduce this debt burden and the associated ongoing debt servicing costs; and

notes the significant progress made by the Government in recovering taxpayer support to Allied Irish Banks (AIB) to date and that future capital investment decisions are entirely unrelated to the achievement of the Government banking policy and should not influence those objectives.”

I wish to thank the Deputies for the motion proposed. It addresses a number of important and distinct policy areas. While I, and I am sure many of the Members in this House, can largely agree with the sentiments of the motion proposed, in one critical respect it is flawed and for this reason I have tabled the counter-motion which I have just proposed. The motion as proposed by the Deputy attempts to constrain the progress of the Government's banking policy, and efforts being made to further aid the normalisation of the banking sector, by tying them artificially to expenditure constraints imposed by the European Union Stability and Growth Pact. I would urge this House not to conflate two separate and discrete policy areas. An understandable desire for higher levels of capital investment is not a reasonable justification for delaying this Government's policy to bring down public debt and contain contingent liabilities while moving to a more normalised banking environment that will help to foster greater competition in the banking sector.

In short what I am saying is that it is not absence of money that is constraining capital investment, it is the legal constraints imposed by the Stability and Growth Pact and the fiscal rules. I can raise unlimited amounts of money on the market at very low cost through the NTMA. If it was permissible to invest that money, we would have no need to cash in AIB shares to provide us with investment funds for infrastructure. If it was desirable to do so, the money is available, and it is available very cheaply now as every Deputy in the House knows. It is a fallacy to conflate two separate and distinct areas of policy and make one contingent on the other, when no such contingency arises.

I would like to address a number of issues that are raised by the Deputy's motion. I will raise them in turn.

There is a broad consensus on the need for increased public investment. Indeed, I share this view. The Government's current capital plan sets a baseline from which we intend to increase investment in critical infrastructure into the future. As outlined in the 2017 Estimates, gross voted capital expenditure will increase to €4.5 billion in 2017. This represents an increase of almost €400 million in comparison with the 2016 outturn. By 2021 it is envisaged that gross voted capital expenditure will reach €7.3 billion, an increase of over 100% in comparison with its level in 2014. Based on my Department's GNP forecasts, Ireland's Exchequer public investment will reach 2.7% of GNP by 2021.

In addition, as outlined in the capital plan, the wider State sector, including our ports, airports, energy network, etc., plans to invest €14.5 billion in capital projects over the period from 2016 to 2021. This amounts to approximately €2.4 billion invested per year and brings total State-backed investment in 2017 to 3.1% of GNP, rising to 3.7% of GNP by 2021. These are reasonable comparators with what is happening in other OECD countries, particularly in Europe.

Increases in investment over the coming years will be prioritised on the basis of the outcome of the review of the capital plan currently under way. This evidence-based review will include an analysis of demand for future infrastructure needs and the capacity of the building industry to deliver increased output. It will culminate in the formulation of a ten-year plan addressing the key priorities identified by Government.

Deputies will remember that in the mid 2000s, when capital investment was advanced very strongly, it flowed into inflation and increased costs of tendered projects rather than leading to an increased volume of projects. There are limits to what can be spent on capital investment. We must be aware of the constraints of the building industry as well. That is a constraint on us.

The objective of the Stability and Growth Pact is sustainable public finances in the EU and the euro area. The European Commission takes the view that budgetary discipline means that there cannot be differentiation between different types of expenditure because all deficit-financed expenditure must be repaid by future taxes and granting special treatment to certain kinds of expenditure would create incentives for creative accounting.

Ireland has secured important changes in the operation of the fiscal rules, for example, by getting the reference rate for the expenditure benchmark updated every year instead of every three years which have been universally applied to all member states. We were also involved in smoothing out the treatment of capital investment so that only 25% of the fiscal space is now taken up by expenditure in the first year of investment. Other changes have also been made which have not yet applied to Ireland, but which may apply to us at different points in the business cycle.

We are committed to compliance with the fiscal rules which are designed to avoid the mistakes of the past and ensure that increases in public expenditure are sustainably financed and not funded on the back of cyclical or windfall revenues. I would also remind Members that the fiscal rules are enshrined in Irish law in the Fiscal Responsibility Act 2012, which implemented the treaty on stability, coordination and governance that Ireland acceded to following the decision of the Irish people in the referendum held on 31 May 2012. It would be incorrect to proceed on the basis that there is a set of rules which have been imposed unilaterally by the European authorities or the European Commission. These are enshrined in Irish law and they run from the referendum which was passed by the Irish people in May 2012. We must abide by that.

Clearly I can agree with the motion where it recognises the significant achievements made by the Government in reducing the headline debt-to-GDP ratio and bringing the public finances onto a more sustainable footing, which should not be understated. However, we are not in a position to rest on our laurels. Notwithstanding the progress that has been made over the past number of years, the absolute level of debt remains high at over €200 billion. It is over four times the level it was in 2007 and remains high relative to our EU peers, on a per capita basis.

Certainly if only a proportion of GDP is used as the measure, we are below the European average, but there are other ways of assessing the debt. One is the actual amount of debt on a per capita basis. If we measure it that way, we are at the upper reaches of European debt and we are still vulnerable to that mountain of debt that is out there. It is four times what it was in 2007 and the level in 2007 was not sufficient to sustain us when cataclysmic events occurred and we hit the nadir of recession in 2008 and subsequent years. Headroom is needed to deal with the economic management of the economy. When the debt is too high, that headroom is not there.

It has been said that any proceeds of a sale should not be used to reduce the national debt as it would have little or no impact on the debt-to-GDP ratio. This to me represents flawed logic. It is precisely because the nominal amount of debt is so high that the impact might be considered small, but this makes the need to reduce the debt level all the more pressing.

Furthermore, the cost of servicing the national debt has fallen, primarily as a result of improvements in our credit spreads - we are now issuing debt at lower interest rates and at longer maturities. While this is noteworthy progress, the reductions in servicing costs are due primarily to improvements in financing terms and the profile of our debt. Similar to the reduction in our debt-to-GDP ratio, this has arisen primarily from sustained improvements in economic growth rather than significant reductions in the absolute level of debt. Clearly the cost of servicing has also been greatly assisted by the ECB's ongoing non-standard monetary policy measures which cannot be assumed to be permanent.

There is no room for complacency, and the Government is committed to its target of a debt-to-GDP target of 45% by the mid-2020s, or thereafter depending on economic growth. I know, as Deputy Howlin pointed out, that the target under EU rules is 60%, but we are a much more open economy than most of our colleagues in the European Union.

If we look at countries like New Zealand and Australia, we can see that their debt to GDP ratio is in the teens. They are protecting currencies. We are part of the eurozone so we are not singularly protecting currencies so I am not advocating that we move down to 15% or 16%. However, there is a very strong case to be made for moving around 45% so that if we hit the bottom of the business cycle again and go into recession, the Government of the day will have the capacity to borrow to stimulate the economy, to keep business activity going and to stay out of recession in a classic Keynesian model with which many Deputies will be familiar. That is the purpose of that.

The target of 45% takes account of the particular risks that Ireland, as a small and very open economy, faces in an uncertain global context. It also takes account of the fact GDP is a less than perfect measure for Ireland. The Government's position on management of the public debt and the establishment of a rainy day fund are important examples of measures which will help to maintain competitiveness and sustain the public finances in a way that will help to protect against future risks.

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