Michael McGrath (Cork South Central, Fianna Fail)
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Question 29: To ask the Minister for Finance if he will explain his logic for opting for a budget adjustment of €3.8 billion in 2012; if he intends to adjust the scale of the fiscal adjustment during the year if the economic growth target of 1.6% is not being achieved and the data indicates that a greater fiscal adjustment is required to achieve the 8.6% deficit; and if he will make a statement on the matter. [34882/11]

Michael Noonan (Limerick City, Fine Gael)
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The terms of the EU-IMF programme require Ireland to achieve a general Government deficit of no more than 8.6% of GDP in 2012. Based on the macroeconomic and fiscal assessment set out in the medium-term fiscal statement, a €3.8 billion adjustment is therefore required in 2012 to meet this deficit target. My Department set out its latest forecasts in the medium-term fiscal statement. GDP growth of 1.6% is projected for next year. The Reuters consensus forecast for the end of October was 1.5% for 2012, broadly in line with my Department's views.

Given the current uncertainties in the global economic and financial environment, chapter 5 of the medium-term fiscal statement is dedicated to analysing the risks to the economic and budgetary outlook. This chapter also provides estimates of the impact on both the general Government balance and general Government debt of lower and also higher rates of economic growth. Clearly, if growth is weaker than currently anticipated, this will make the achievement of the 2012 deficit target more difficult, all else being equal. Generally speaking, taking account of the inherent uncertainty in macroeconomic and fiscal forecasting, the Department's current working assessment is that the risks to the outlook are broadly balanced.

That said, I am not going to speculate here, in mid-November, about an eventuality that may or may not arise. The Government's focus now is on delivering a budget for 2012 which will implement a set of measures in as fair and equitable a manner as possible that will allow for the achievement of next year's deficit target. The Government is committed to ensuring that the deficit target of 8.6% of GDP is achieved.

Michael McGrath (Cork South Central, Fianna Fail)
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I thank the Minister for his response. We all hope the tentative recovery in our economy that we are witnessing takes root and develops further in 2012. The forecast for 2012 is for an adjustment of €3.8 billion, yielding a deficit of 8.6% on the button. There is therefore no room whatsoever for slippage on the outturn for 2011, on the income and expenditure side for 2012, or indeed on the growth side for 2012. What might cause alarm is the fact that the European Commission has predicted that growth in Ireland next year will be 1.1%, which is a full half percent less than what the Department of Finance estimates. If that were to materialise - and we hope it does not - it would result in the need for an extra adjustment of about half a billion euro to bring the deficit within 8.6% of GDP. Is the Minister concerned that we may still be too optimistic on the growth side for 2012? If we are being overly optimistic, and that becomes clear in the early part of next year, is he committed to achieving a deficit of 8.6%, come what may?

Michael Noonan (Limerick City, Fine Gael)
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Forecasting is always an inexact science. What we have to do is to use the best information available to come to a judgment on what growth rates may be in the following year. It is generally recognised in the European Union that Ireland has now returned to significant growth rates which are at present in advance of those of most of our colleague countries in the EU. The Deputy is probably aware that the CSO revisited the growth figures for the first quarter of this year and it now agrees that growth in the first quarter was 1.9%, which is significant. Last April we were looking at growth, on the basis of reasonable forecasts, of 2.5% for next year. In preparing the budget we have marked that down by 0.9%, which is a significant amount. Writers who tabulate the various forecasts have pitched a mid-range figure of 1.5%, and we are in line with that. I hope we will actually beat these figures, but I can assure the Deputy these are the forecasts produced by the forecasting section of the Department of Finance, with no political input, and we think they are prudent and the risks are balanced. One could cite risks on the down-side, but one could also cite risks on the up-side, so I think they are balanced.

Michael McGrath (Cork South Central, Fianna Fail)
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I am sure the Minister will agree that the pattern in recent times from the Department of Finance has been to be overly optimistic in its growth projections. Unfortunately, that is what we have seen. We all hope the projections will not transpire in 2012 and that growth surpasses what it has predicted, but it has predicted a level of growth for the Irish economy in excess of three times what the European Commission is forecasting for Europe generally. We are trying to achieve an export-led recovery but since many of our main trading partners in the European Union are experiencing sluggish growth, to say the least, this poses a real threat to the prospects of an export-led recovery. The key question is how sacrosanct is getting to a figure of 8.6% on the button next year. If growth does not materialise - we hope it does - will there be a requirement for adjustments mid-year to ensure we come in on target?

Michael Noonan (Limerick City, Fine Gael)
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I do not agree with the Deputy that the Department of Finance has erred on the side of optimism in recent years. It has been close enough to the average in its forecasts. Sometimes it has been slightly above and sometimes below. It predicted a growth rate of 0.8% in 2011 and it has now marked up this rate to 1%. This makes it easier at year's end because if one considers the correction made in the CSO figures of 1.9% in the first quarter and 1.3% in the second quarter, one would need it to come back significantly to get it down to 1% for the full year.

The anecdotal evidence suggests export-led growth is continuing through the third quarter. As I have stated already, this is rather inexact and we must work on the best information available to us. We should be cognisant as well that other forecasters are at work, some of whom are more pessimistic and others who are more optimistic. Those in the ESRI have always tended to be more optimistic than the Department of Finance and, historically, they have proven to be correct. They are more optimistic on this occasion. Let us hope they are right.