Written answers

Wednesday, 30 January 2008

Department of Finance

Economic Competitiveness

8:00 pm

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 261: To ask the Tánaiste and Minister for Finance the steps he will take to ensure that the economy is capable of competing with others in the marketplace; and if he will make a statement on the matter. [2754/08]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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The Government recognises the importance of achieving sustainable export-led growth in order to enhance living standards in Ireland. In this regard this Government is pursuing a number of policies which will underpin the future growth of our economy, including pursuing responsible budgetary policies. We have for a number of years actively focussed on rewarding work and enterprise through maintaining a low tax burden on capital and labour. Furthermore, I have already indicated that a key priority is the continued roll out of the National Development Plan. Investment in capital — human and physical — as well as infrastructural investment designed to eliminate bottlenecks will go some way towards enhancing productivity. Also the ongoing consensus approach to pay determination is another key factor in safeguarding our economic well-being.

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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Question 262: To ask the Tánaiste and Minister for Finance the extent to which hidden inflationary costs are affecting the economy; the action taken or proposed to address these issues; and if he will make a statement on the matter. [2755/08]

Photo of Brian CowenBrian Cowen (Laois-Offaly, Fianna Fail)
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Maintaining a moderate rate of inflation remains a key priority of economic policy because of its importance in restoring competitiveness. While inflation, as measured by the Consumer Price Index, averaged 4.9% last year, my Department's latest forecast is for an average CPI of 3% this year.

Including the impact of mortgage rate increases in the CPI not only masks the underlying inflation rate but also highlights the short-term impact of interest rate increases which are designed to bring down inflation. As such, a better measure of inflation than the Consumer Price Index is the Harmonised Index of Consumer Prices (HICP) which excludes, among other things, mortgage interest and is a more realistic measure of inflation. The average increase in the HICP in 2007 was 2.8 per cent, and the forecast increase for 2008 is 2.4 per cent.

As I indicated at Budget time, I expect the rate of inflation to moderate over the course of this year. However, it must be acknowledged that we have no control over some of the factors influencing inflation, such as oil prices, the exchange rate and mortgage interest rates in the case of the CPI. In this regard, we must always seek to ensure that our domestic cost base does not undermine competitiveness. Seeking to maintain low inflation, the pursuit of sensible incomes policy, and keeping public spending growth at sustainable levels in the medium term are important. Doing this will allow us to keep the burden of taxation low, thus helping to maintain competitiveness and to maximise our economic potential.

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