Eric Byrne (Dublin South Central, Labour)
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Question 92: To ask the Minister for Finance the estimated impact on nominal GDP growth and real GDP growth of the July 2008 budget adjustments, budget 2009, the February 2009 budget adjustments and the April 2009 supplementary budget, in view of the fact that his Department's information note on the economic and budgetary outlook for 2011 to 2014 estimated that budget 2011's fiscal adjustment of €6 billion reduced the rate of GDP growth by somewhere in the region of 1.5 to 2 percentage points. [20818/11]

Michael Noonan (Limerick City, Fine Gael)
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Long-run historical relationships suggest that fiscal consolidation amounting to 1% of GDP reduces Ireland's economic growth rate by around 0.5 percentage points, reflecting inter alia the fact that a large part of domestic expenditure is on imported goods and services. This relationship is static in nature and does not allow for a number of factors which have a bearing on the impact of fiscal consolidation on economic growth. These include changes in credit conditions and the monetary policy stance, the credibility of the adjustment package, as well as its composition. On the latter, international evidence suggests that the economy is less impacted when consolidation focuses on spending as opposed to taxation measures. The composition of spending and taxation measures is also important. For example, a reduction in capital spending on machinery and equipment has less impact on the level of GDP, as much of this is imported rather than being produced domestically.

While there is no doubt that fiscal consolidation has had a dampening effect on economic activity, I will be very clear in saying that had such action not been taken, the deficit would have been far worse, with very negative growth consequences.