Kieran O'Donnell (Limerick East, Fine Gael)
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Question 3: To ask the Tánaiste and Minister for Finance his views on the pattern of inflation here and its implications for public policy on pay and sectoral policy. [15892/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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Inflation, as measured by the consumer price index, reached 5% in the 12 months to March 2008. Most of the upward pressure on prices here is due to external factors, particularly mortgage interest rate increases and rising fuel and food prices.

When comparing our inflation rate with that in other EU member states we must use the EU comparable measure of inflation, the harmonised index of consumer prices, which is a better measure of underlying inflation. The harmonised index differs from the CPI in terms of coverage. The most notable difference is the exclusion of mortgage interest repayments from the HICP. Annual HICP inflation in Ireland in the 12 months to March 2008 was 3.7%, compared with 3.5% in the euro area and 3.8% for the EU as a whole. I apologise that I gave a different figure earlier. The ones I have just given are correct.

Achieving a moderate rate of inflation remains a key priority of economic policy because of its importance in restoring competitiveness. The Government is focusing on areas it can control and is taking positive action to contain inflation by implementing responsible fiscal policies. I addressed the inflation impact from last year's interest rate increases in this year's budget when I increased the ceiling on mortgage interest relief for first-time house buyers. This, I believe, is the appropriate targeted response to such specific cost pressures.

We are promoting greater price competition through the work of the Competition Authority and the National Consumer Agency. We are also investing in public infrastructure, as evidenced by the National Development Plan 2007-2013. This will enhance our ability to produce more goods and services, which by improving the economy's efficiency should help to keep down inflation. To the extent that inflation is externally driven it is essential that such increases are not exacerbated by generating second-round effects through inflation-chasing pay settlements, which would have a further adverse impact on Ireland's competitiveness.

In the sectors that contribute to domestically generated inflation, pay and profit margin restraint are essential as well as increased competition in order to keep down price increases. Therefore, it is essential that the upcoming pay talks under the social partnership agreement, Towards 2016, take account of the reality that we face.

Kieran O'Donnell (Limerick East, Fine Gael)
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The word "external" seems to be creeping into most of the Tánaiste's speeches at the moment and everything is deemed to be due external factors. Does the Tánaiste and Minister for Finance take responsibility for the fact that since 2001 Government regulated costs have gone up by 45% while at the same time manufacturing exporters have taken a 24% reduction in real income? Does the Tánaiste accept that since 2006 Ireland has seen a loss of 30% in cost competitiveness that has resulted in goods and services exports losing 7% of their market share?

The fact is the Tánaiste and Minister for Finance is not responsible for external factors but he is certainly responsible for domestic factors, which, particularly Government regulated costs, have been a major contributor to inflation.

National pay talks commenced at 2.30 p.m. today and the question I wish to ask is the same as the one I asked on 30 January. Will the Tánaiste forgo the pay increase of €38,000, recommended by the review body on higher remuneration in the public sector, that he is to receive when he takes up the office of Taoiseach? The Tánaiste yesterday said he has problems with business leaders taking exorbitant pay increases but this is hypocritical because none is more exorbitant than the pay increase he is to receive. The Tánaiste should lead by example.

Brian Cowen (Laois-Offaly, Fianna Fail)
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There is nothing more hypocritical than seeking to support an independent pay determination system that has served successive Governments for 40 years and then walk away from it when a populist argument arises that suits one's case.

On external factors that affect inflation, we do not control the price of oil. Exchange rate deterioration vis-À-vis the dollar or sterling, which makes the environment more difficult for exporters is not within the direct control of the Government.

Kieran O'Donnell (Limerick East, Fine Gael)
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What of the ESB?

Brendan Howlin (Wexford, Labour)
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Please allow the Minister to answer the question.

Kieran O'Donnell (Limerick East, Fine Gael)
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I would like the Minister to answer the question I asked.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I have one third of the time the Deputy had to ask his question yet he is interrupting before I have had a chance to answer. Answering the Deputy's question in one third of the time it took him to ask it is a stiff challenge. I will do the best I can but the content may not be as good as the Deputy hopes.

Regarding Government regulated costs, we have opened up to independent regulation to promote competition and bring greater price transparency to markets that were previously Government controlled. What the Deputy calls Government regulated costs are actually decisions made by independent regulators, set up by this House, that act independently of the Government. The phrase he used does not reflect modern reality. I do not know what percentages the Deputy is using since I do not accept the basis on which they are composed.

As I said previously to Deputy Burton, the Government has made a differentiated decision relating to the recommendations of the Review Body on Higher Remuneration in the Public Sector as they affect politicians rather than other public servants. A pay pause will take place for one year and the pay recommendations will be implemented over the following three years. The continuing mantra in this House relating to imminent pay rises of the amounts mentioned are not true, as the Deputy knows.

Kieran O'Donnell (Limerick East, Fine Gael)
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The terms of reference of the Review Body on Higher Remuneration in the Public Sector state it should take account of the state of the public finances, which have changed significantly. I understand, based on reports yesterday, that the Government is reconsidering the position and that it will be discussed in September. This matter should be discussed tomorrow. I do not think it is good enough for the Minister to state that we must accept everything in this regard.

Brendan Howlin (Wexford, Labour)
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The Deputy is repeating his earlier question.

Kieran O'Donnell (Limerick East, Fine Gael)
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It is a valid question. Some 80% of people feel the Government should not take this pay increase so why is it being accepted?