Budget Oversight Committee - 13 April 2017
Minister for Finance Michael Noonan T.D.
Opening Address to Budget Oversight Committee
I welcome the opportunity to be here today to discuss the Stability Programme Update.
The Stability Programme sets out the Governments macroeconomic and fiscal forecasts for Ireland and is the first update of the Government’s projections since Budget 2017 in October of last year
The Stability Programme is presented in draft form - I am as usual willing to take on board constructive suggestions from Deputies. The final version will be submitted to Brussels later this month.
The macroeconomic forecasts underpinning the Stability Programme have been endorsed by the Irish Fiscal Advisory Council.
Turning firstly to the economic situation, I am greatly encouraged by the latest data showing that the economy grew by 5.2 per cent last year with strong contributions from consumption and in particular investment spending.
My Department has increased its GDP growth forecast this year to 4.3 per cent reflecting the stronger economic momentum in the second half of last year. For next year, GDP growth of 3.7 per cent is forecast.
From 2019 onwards, the economy has the capacity to grow by around 3 per cent per annum with positive contributions from both exports and domestic demand.
Labour Market Developments
The economic recovery is most clearly evident in the labour market with employment growth of 2.9 per cent recorded last year, representing the addition of some 56,000 jobs. As a result, there are now more than 2 million people at work for the first time since 2008.
My Department is forecasting a continuation of robust employment growth over the forecast horizon and, on this basis, by the end of this decade there will be more people at work in Ireland than ever before. Accordingly, unemployment is set to fall further to 5½ per cent by 2019 down from a peak of over 15 per cent in 2012.
Turning to the fiscal side, following a very difficult period, the public finances are continuing to move in the right direction. Significant successes have been made in this regard, with underlying General Government deficit targets being consistently over-achieved to date. By way of example, I am pleased to state, that the underlying deficit of 0.7 per cent of GDP recorded last year, is slightly better than anticipated at the time of the Budget. This provides further evidence that the public finances are being positioned on a sustainable footing.
Furthermore, the strategy has been implemented through a prudent approach to fiscal policy. In this context, while tax revenue in 2016 grew by 5 per cent year-on-year, the growth in gross voted expenditure was 2½ per cent. This illustrates the commitment to maintain sound public finances so we don’t repeat the policy mistakes of the past.
Turning to 2017 and beyond, the latest Exchequer Returns demonstrate that the Government continues to deliver on its commitments. While tax revenues were slightly below expectations, it still remains too early to discern any firm trends. However, it is important to point out that annual growth has been reasonably strong with tax receipts 3.2 per cent higher compared to the same period in 2016. The performance of VAT has been very encouraging with receipts up over 17 per cent or €673 million in annual terms.
Turning to expenditure, it is reassuring that spending is being managed by Departments within their allocations, with overall expenditure on delivering public services below profile. Capital investment on infrastructure is slightly ahead of profile and well up on last year, reflecting increased expenditure on the housing programme.
The general government deficit of 0.4 per cent of GDP projected for this year is unchanged from Budget 2017. In addition, it is important to point out that our primary fiscal policy objective is to achieve a balanced budget in structural terms. This is now within sight. Taking account of current trajectory and assumptions set out in the Stability Programme Update, I am pleased to reiterate that we will achieve this medium term objective by 2018.
Our second priority in fiscal policy is to reduce the level of public indebtedness and we are making significant progress in this respect. Our general government debt-to-GDP ratio peaked at over 120 per cent in 2012. This has declined to 75.4 per cent and 72.9 per cent for 2016 and 2017 respectively. As a result Ireland is on track to achieve a debt-to-GDP ratio of 60 per cent early in the next decade.
Despite the strong momentum, a continuation of robust growth cannot be taken for granted as there are a number of significant risks on the horizon that could potentially derail the recovery.
Principal among these are the potential fallout from the UK’s exit from the European Union and uncertainty associated with the policy stance in the US.
The best way of dealing with these risks is through prudent management of the public finances and competitiveness-oriented policies. This approach helped create the recovery and it will help ensure sustainable growth in the years to come.
This is what the Government will continue to do.