Bernard Durkan (Kildare North, Fine Gael)
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123. To ask the Minister for Finance the extent to which corrective fiscal or budgetary measures are required over the next six years to ensure sustainable economic growth without over reliance on any particular sector; the extent to which he expects the economy to perform throughout this period and to remain amenable to job creation; and if he will make a statement on the matter. [34279/16]

Michael Noonan (Limerick City, Fine Gael)
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Budget 2017, which I presented last month, sets a general government deficit target of 0.4 per cent of GDP for 2017, following the projected deficit of 0.9 per cent of GDP this year. This will keep us on course to achieve our medium term target of a balanced budget in structural terms, defined as a structural deficit of 0.5 per cent of GDP, in 2018.

It should be noted these calculations are highly sensitive and are a function of a number of factors including our deficit performance which is contingent upon the continuation of prudent fiscal policies, consistent with the EU fiscal rules. Any deviation from this budgetary path could jeopardise achievement of this central assumption of our fiscal policy, particularly in relation to the post 2018 years when fiscal space opens up significantly on foot of achievement of a balanced budget in 2018.

My Department's macroeconomic forecasts, which underpin the Budget, show growth of 4.2 per cent this year and 3.5 per cent next year. The growth outlook for next year has been revised downwards by approximately ½ percentage point reflecting the uncertainty arising from the UK decision to leave the European Union. Over the medium-term (2018-2021) the economy is projected to grow in line with potential at around 3 per cent per annum on average. This growth is projected to be more balanced with strong positive contributions expected from both domestic demand and net exports.

The short-term outlook for the labour market also remains positive. For this year, employment growth of 2.6 per cent (52,000 jobs) is projected, with the unemployment rate set to average 8.3 per cent. For next year, employment gains of 2.1 per cent (43,000 jobs) are anticipated, with unemployment set to average 7.7 per cent. Employment growth averaging 1¾ per cent per annum is envisaged over the 2018-2021 period. Aggregate labour supply is projected to continue to expand over the medium-term supported by a resumption in positive net migration and a pick-up in participation rates. As a result, the unemployment rate is expected to fall towards 6 per cent by 2021.

My Department closely monitors developments at macro- fiscal level and economic performance at a sectoral level. Government policy will continue to guard against the build-up of sectoral imbalances and to avoid over-dependence on a single sector, as was previously the case with Ireland's construction sector.

The Fiscal and Economic Outlook published with the Budget notes that the economic landscape is characterised by considerable uncertainty at present, with risks firmly tilted to the downside. A number of specific risks are identified, including those arising from further sterling depreciation and a "hard" Brexit.

In view of such risks, it is appropriate that we should enhance our fiscal shock absorption capacity. The Government has therefore decided to establish a rainy day fund, starting in 2019, once we have achieved a balanced budget in 2018 as envisaged. This will be both a counter cyclical measure to avoid overheating, and will also enable us to deal with the initial effects of any shock that may occur.

However, it is also appropriate to take additional measures. While our debt ratio has fallen from a high of 120 per cent in 2013 to an expected 76 per cent this year it remains high in value and by comparison with others. The Government has therefore decided to set a new domestic target of a debt to GDP ratio of 45 per cent to be reached by the mid-2020s or thereafter depending on economic growth well inside the 60 per cent required by the Stability and Growth Pact to take account of the particular risks that Ireland, as a small and very open economy, faces.