Ciarán Lynch (Cork South Central, Labour)
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Question 127: To ask the Minister for Finance the impact on 2009 gross national product and gross domestic product from a €4 billion fiscal consolidation package in budget 2010; the number of months such a €4 billion fiscal consolidation package would delay the return to growth of the economy here; and if he will make a statement on the matter. [37676/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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As the Deputy will be aware, it is not sustainable to continue to allow the gap between revenue and expenditure to grow and that it is essential to stabilise the General Government Deficit in that context. Stabilising the deficit in 2010 will facilitate confidence and the earlier return to growth in the economy than would occur if stabilisation is deferred and the national debt increases further as a result.

In relation to the specifics of the question, it is assumed that the Deputy is referring to the economic impact in 2010 of any consolidation package. There are considerable uncertainties regarding the economic impact of any fiscal measures, given that it is unknown how economic agents will react to the various policy changes. In addition, the composition of the fiscal package would be important, as different policy measures would have different economic impacts. Notwithstanding these uncertainties, the economic impact of fiscal measures can be estimated in broad terms.

A fiscal package designed to raise €4 billion in 2010 would be the equivalent of about 21⁄2% of GDP. Taking account of a number of factors, such as the potential for significant 'leakages' through imports and some impact on price rather than on the quantity of output it is estimated that GDP growth would be around 1 to 11⁄2% lower than would otherwise be the case on foot of these measures.

However, as stated above, there is potential for considerable variation on the macroeconomic impact depending on the exact nature of any fiscal package. Furthermore, account of the potential for enhanced consumer and investor confidence and greater future certainty that such a package could have is also important and would have to be factored in. On balance, stabilising the deficit in 2010 is critical to restoring confidence and to positioning the economy for growth in the years ahead.

It is intended to publish model-based estimates of the economic impact of actual fiscal consolidation alongside the budget documentation.