Joe Higgins (Dublin West, Socialist Party)
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To ask the Minister for Public Expenditure and Reform if he has estimated the deflationary impact if further reductions of €1 billion are imposed on the pay and conditions of public sector workers. [2909/13]

Brendan Howlin (Wexford, Labour)
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Ireland is committed to reducing its general government deficit to less than 3% by 2015. To meet this commitment the Medium Term Fiscal Statement indicated that, in addition to the overall consolidation of €3.5 billion required for 2013, an additional €3.1 billion in savings and revenue raising measures must be identified for 2014 and €2 billion in 2015. If the public service pay and pensions bill at 36% of spending is to make a proportionate contribution to the necessary additional expenditure reduction currently identified as necessary for the next 3 years based on current economic forecasts, it will require a further reduction of some €1 billion in the cost of the pay and pensions bill.

Model simulations conducted using the ESRI’s HERMES suggest that a €1 billion reduction in the public service wage bill would reduce the level of economic activity by somewhere in the region of ¼ to ½ a percentage point in the short-run. The exact impact would, of course, depend on how the reduction was achieved. This impact on the economy must be balanced against the need to ensure that the fiscal deficit is reduced so that debt-to-GDP assumes a downward path from next year onwards.

Continuing to meet our fiscal targets can generate positive confidence effects, which can have a favourable impact on economic performance.