Michael McGrath (Cork South Central, Fianna Fail)
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63. To ask the Minister for Finance the steps he plans to take to ensure Ireland protects its competitiveness and to mitigate the risk of overheating pressures in the economy; and if he will make a statement on the matter. [31237/18]

Michael McGrath (Cork South Central, Fianna Fail)
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The purpose of this question is to tease out how the Minister can square the circle. We need to build tens of thousands more homes but we also need to address the risk of overheating in the economy and the need to retain competitiveness, which is a key issue. We do not want to see a return to the rip-off Ireland which the Minister's party heralded many years ago during the Celtic tiger. Key labour shortages are emerging alongside rising costs. We need to build the homes but the issue that keeps coming up is capacity. How will the Minister manage that?

Paschal Donohoe (Dublin Central, Fine Gael)
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Ireland’s economic recovery has been underpinned by a significant improvement in competitiveness. The latest figures from the Central Bank show that Ireland’s harmonised competitiveness indicator, a widely used measure of competitiveness in Europe, has improved by approximately 19% between its peak in 2008 and February 2018. The restoration of Irish competitiveness since 2008 has been hard won through improvements in productivity and wage and price moderation. It is important that Ireland’s competitiveness position is preserved and continues to facilitate growth.

Regarding domestic risks to competitiveness, overheating and housing supply pressures are of particular concern. The housing sector can adversely impact on competitiveness through, for example, restricting the ability of people to move, while the change in asset prices there has a knock-on effect on other pressures in our economy. This is why the Government introduced a number of initiatives in budget 2018, in addition to the measures implemented in Rebuilding Ireland, to tackle the underlying problem of a supply shortage.

While the economy is in good shape at the moment, capacity constraints are emerging which could lead to overheating. The most recent unemployment data show that we are fast approaching full employment, and in this context we need to take care with the management of our economy. It is therefore crucial that we continue to prudently manage the public finances to avoid pro-cyclical policies. The fiscal rules are currently unhelpful in this regard. A full and literal application of these rules would involve the adoption of policies that would mean more borrowing, which is not appropriate for us now.

As set out in the 2018 Summer Economic Statement, budgetary policy will be framed on the basis of what is right for the economy to ensure continued, steady improvements in Irish employment and living standards.

Michael McGrath (Cork South Central, Fianna Fail)
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The gains we made in competitiveness were necessary and enforced. It was an enormous correction in the economy. The signs are there now when we look at the rising costs businesses and workers are facing. These include energy costs, the cost of insurance, which we have addressed in this House many times, transport costs, childcare costs and the gender pay gap, which also needs to be addressed from a policy perspective. Capacity issues are evident in the economy. This is a point in the cycle where we need to ramp up the delivery of investment and the delivery of the homes that people require. How is the Minister going to ensure that the economy remains competitive and that we deliver the investment required to build the homes that are needed, while ensuring that he avoids the overheating pressures that are beginning to simmer? Those pressures are evident; one can see them again around the place.

Paschal Donohoe (Dublin Central, Fine Gael)
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I am struck that the focus of analysis and debate has evolved over the past 18 months. Deputies Michael McGrath, Paul Murphy and Pearse Doherty were then arguing that the level of capital investment in our economy was far too low. Deputy Doherty would still argue that it needs to be higher and we need to borrow more to do it. This year we have increased capital investment by €800 million and we have a further €1.5 billion planned for next year.

To answer the Deputy's question regarding how I plan to help the economy walk the tightrope he is talking about, there are three things the Government will be able to do and is doing. From a procurement point of view, it can make sure that as we are making agreements in respect of key projects, we do so at prices that are affordable to the State while being mindful of the signalling effect they have on the rest of the economy. We can ensure that we stand by the Public Service Stability Agreement 2018-2022 and do not do anything through that agreement or elsewhere that could stimulate a degree of wage growth that might ultimately be counterproductive. Finally, we can look at particular sectors to continue to address issues within them to do with developing pricing pressure. My colleague, the Minister of State, Deputy D'Arcy, is at the forefront of doing that in the insurance sector, for example.

Michael McGrath (Cork South Central, Fianna Fail)
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One of the key messages I want to convey is the need to keep a firm eye on costs. Costs are rising in the economy and rising costs will make us and our businesses less competitive. That is emerging as a key issue. In respect of the labour market, shortages are emerging. In our constituency work, we are all seeing more enquiries about employment permits, critical visas and so on. There is a need to ramp up the delivery of apprenticeships, not just across the traditional trades but across different sectors, including financial services, where some exist. We need to ensure we are delivering the supply of labour in the areas where it is needed across the economy.

The pressures are emerging. We are listening to businesses and hearing the issues they are encountering. They mention capacity regularly as well as labour shortages and they highlight rising costs. It is a difficult circle to square but it has do be done. Those issues must be addressed while at the same time achieving the level of investment that the economy needs.

Paschal Donohoe (Dublin Central, Fine Gael)
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Those same businesses in different parts of our economy were previously calling for the need for further capital investment. That capital investment is under way. We have to take great care in dealing with the issue to which the Deputy refers. I am conscious of the fact that the last time our economy was at this point, we saw large degrees of underemployment or unemployment in other parts of Europe, particularly in central and eastern Europe. As we look across the eurozone now, we find that many of the economies from which people would have travelled in the past are themselves doing well and are experiencing wage growth and either low unemployment or rising employment levels. The net effect is that the ability and willingness of people to travel to Ireland could be different from what was the case in the past.

I have outlined what I am going to do to strike the balance to which the Deputy refers. The most recently published World Economic Forum competitiveness report shows that currently the Irish economy is the 24th most competitive within the survey, a decline of one place against the previous year. We continue to be one of the most competitive economies within the eurozone. That said, the risks the Deputy has described are there. I accept them and have looked to articulate what I am trying to do to manage them.