Statement in Dáil Éireann on Ireland’s Stability Programme Update 2016
In light of the current political situation and ongoing attempts to form a new government, this annual SPU update has been prepared on a technical, no policy change basis.
Regardless, and in another very real way, the document tells a positive story of remarkable change.
In April 2011, shortly after Labour entered government, that year’s SPU told a grim story.
It spoke of the critical need to restore order to the public finances, ensure the sustainability of the Government’s debt position, haul the banking sector back to health, and get people back to work.
As grim as it was, it nevertheless proved to be overly optimistic in parts – forecasting that unemployment would peak at 14.4% when in fact it went on to exceed 15%.
Similarly, it predicted overall government debt would peak at 118% when in fact it eventually hit 120%.
In truth, the scale and depth of Ireland’s crisis was worse than anybody could accurately foresee.
And yet, the lost decade of growth so firmly on the cards at the time was prevented.
Just five years on, as this Government prepares to leave office, the situation has been utterly transformed.
In 2015, as this SPU shows, the economy grew by 7.8%, the strongest performance in Europe by a very wide margin and well ahead of expectations.
The number of people at work rose by more than 50,000, with unemployment falling below 9% for the first time since December 2008.
In 2015 and in each of the previous four years, Ireland over-achieved its targets for the public finances.
We comfortably exceeded our debt and deficit reduction targets.
Both the headline deficit, at 2.3% of GDP, and the underlying deficit, at 1.3%, were comfortably below the 3% reference rate for an excessive deficit under the Fiscal Treaty.
Accordingly, for the first time since 2009, Ireland will be outside the excessive deficit procedure.
The debt to GDP ratio fell to 93.8%, close to the European average and on a strong downward trajectory.
Effectively, therefore, the 2016 SPU sets out in unambiguous terms:
- the rescue of the Irish economy and our public finances from a state close to bankruptcy five years ago;
- the very strong performance over the last twelve months; and
- the very solid transformation in prospect over the next five years.
Now, none of this is to say that everything is rosy, because it isn’t.
Behind every new job is a person or family benefitting from recovery in their own lives.
But not everyone who wants a job has got a job yet.
Unemployment has fallen significantly, but it hasn’t fallen far enough.
For people who are at work, wages have increased in some sectors, but not all.
The housing crisis will take time to work out, but in the meantime, thousands of families need practical, affordable interim solutions.
The number of mortgage arrears has been steadily falling, but that’s no consolation for those families who remain in arrears, and need more help.
And while great strides have been made in terms of expanding the network of primary care centres, the health system as a whole remains under severe pressure.
I’m acutely conscious that on all these fronts and more, the effects of the crisis are still being felt and that many people are still struggling to see recovery in their own lives.
But what the 2016 SPU presents is the opportunity to build on the progress made to date, put sustainable solutions in place for outstanding problems, and change people’s lives for the better.
The outlook for the economy this year has improved since Budget Day and the public finances are again projected to beat targets.
Economic growth this year is projected to be close to 5%.
The deficit is expected to fall to 1.1%, and there’s a good chance this target will be beaten, given the prudent assumptions for tax revenue.
The issue of tax revenue itself has been the subject of global discussion in recent weeks following the revelations contained in the Panama Papers.
The details emerging from this leak point to two distinct but related problems.
Firstly, there is a global web of interlinked legal and financial firms that facilitates illegality, which is a matter for the relevant policing authorities to pursue.
Secondly, this web also supports legal but morally dubious tax planning that allows firms and wealthy individuals to minimise their tax liabilities at the expense of national exchequers and their citizens.
Much of this aggressive tax planning is carried out in secret behind the shield of the sort of paper companies identified in this leak.
Such tax planning is an international issue that requires a coordinated international response – because through such a response, all national exchequers would benefit.
Here in Ireland, we should urgently consider reforms such as the introduction of minimum effective tax rates to undermine the incentives for tax avoidance by wealthy individuals and firms.
This would ensure that every citizen pays their fair share of tax, no more and no less.
Ensuring such an outcome would boost our tax revenues even further in the years ahead.
Returning to the SPU projections, the budget will be close to balance next year with a prospective surplus of 3% of GDP by 2021.
And the debt to GDP ratio is set to fall to under 70% in 2021, in touching distance of the 60% target.
GDP in 2021 is now projected to be €15.5bn higher than the Budget Day estimate, given the upward revisions.
It will mean a prospective budget surplus, on a policy neutral basis, of more than €8 billion in 2021.
These are very strong figures and highlight the opportunity ahead of us to take strong economic growth and use it to people’s benefit – to make our society stronger, fairer, and more equal.
But opportunity has to be realised.
And the vital thing to recognise about the projections in this SPU is that the additional resources are contingent on the growth assumptions underlying them.
Given the risks facing the Irish economy, these assumptions cannot be taken for granted.
If the recovery in the economy falters, there will be a corresponding reduction in the resources available.
One very significant risk looming large is the prospect of Brexit, which, were it to materialise, would likely be very damaging to our economy.
Another risk is, of course, political instability at home.
While our ability to influence external risks is limited to say the least, we have the power to mitigate the risk of political instability.
In short, it is imperative that a new government is put in place as soon as possible – to guard against the risks on the horizon and, hopefully, maximise the opportunity ahead of us as a country.