Pat Rabbitte
Question:4 Mr. Rabbitte asked the Taoiseach if he has studied the most recent economic report from the ESRI; if he will outline his views on the projected growth rates in that report; and if he will make a statement on the matter.
Ceisteanna—Questions. Oral Answers. - ESRI Economic Report.
The recent ESRI Quarterly Economic Commentary predicts growth in GDP of 3¾ per cent and GNP growth of 2¼ per cent this year. This is the most optimistic forecast yet published by a major forecasting agency. It compares with recent forecasts of GDP growth of 2¼ per cent and 2½ per cent by the EC Commission and the Central Bank respectively. The commentary also predicts that tax receipts will come in about £150 million better than the budget target and that the EBR will be about £500 million — some £90 million below the budget estimate.
In the January budget, the Minister for Finance projected GDP growth of 2¼ per cent and GNP growth of 2 per cent. The difference between the ESRI's assessment and that underpinning the budget is not as great as it seems. Half of the difference is due to a technical factor — the projected change in EC Intervention Agency stocks. The remainder is due to the ESRI's forecast of stronger growth in industrial exports and investment.
Economic data available since the budget suggest that growth could be stronger than envisaged at budget time but I would not be as optimistic as the ESRI. The institute's forecast for industrial exports and investment seems to be somewhat optimistic in view of the sluggishness of the international recovery, particularly in the UK. I note that the EC Commission has recently revised downwards by ½ per cent its forecast for EC growth in 1992 and has revised down its forecast for UK growth from 2 per cent to 0.6 per cent. On the other hand, the latest economic data from Germany are encouraging showing an annualised GDP growth rate in the first quarter of 1992 of over 8 per cent which is probably due to technical reasons but nevertheless may be significant. Projected growth rates are matters on which analysts do, and may reasonably, differ.
I cannot accept the ESRI's forecast that tax revenue this year will come in £150 million better than projected in the budget. The ESRI's forecast is not based on a projection of stronger domestic economic growth than that on which the budget was based. In fact, growth in the key variables driving tax revenue — the value of consumption and the non-agricultural wage bill — is actually less in the ESRI's assessement than that projected by the Department of Finance at budget time.
All the available information suggests that tax revenue so far this year is in line with budget expectations but not significantly better. As is the usual practice, the Department of Finance will be reviewing economic and budgetary prospects in July and will publish their updated forecasts in Economic Review and Outlook in a couple of months.
Has the Taoiseach studied in particular the section of the report which draws attention to the fact that a large amount of capital has been invested overseas by both institutions and Irish business and is he aware that, in relation to job creation, it identifies this as a key issue in terms of how that capital should be invested domestically; if he agrees with it and, if so, do the Government propose to take any measures to ensure that some of that overseas investment is invested in the domestic economy?
It was always recognised, with the liberalisation of capital movements, that there would be a movement of Irish capital abroad by investment managers in Ireland to ensure a balanced portfolio. However the Deputy should look at both sides of the coin. Inflows of capital have been extremely strong from Germany and other foreign investors. This forms part and parcel of the single market and we are going to have to live with it in the future. We will have to continue to try to attract as much if not more than what goes out. Our reserves at this point in time would suggest that we are doing extremely well in that regard. There is also the question of Irish companies making acquisitions abroad to strengthen their home base and company activities for the future. Therefore, while there will always be the free movement of capital, what is important is that we attract more in than goes out. Job creation remains the unsolved problem in the economy and that is the reason we take every initiative and seek out every opportunity to create jobs because that is what it is all about.
Does the Taoiseach consider that the ESRI forecast on economic growth will change the projected out-turn for unemployment at the end of the year as contained in the budget and is he concerned, despite the projected increase in growth for the year, that the ESRI conclude that there will be a rise in unemployment of 10,000 and, with regard to the slowing down pattern witnessed at the end of 1991 — I think this is specifically referred to on page 24 — an accelerating rate of unemployment in the early months of 1992?
The reasons for the rise in unemployment, which we all anticipate and debate at length in the House from time to time, include the non-availability of job opportunities in many traditional areas, the return of many people throughout 1991 and into 1992 and the increase in the labour force of 25,000 every year at a time when the world recession makes it impossible to create jobs at the level required to stem the rise in unemployment. There is no simple, instant, quick fix solution, as the Deputy is well aware, but, as I said, the Government will continue to do what they can in that respect.
Forecasting is an inexact science and it is a question of taking views on certain segments of the economy from the ERSI, other forecasters and the Department of Finance. As we all recall, at the start of last year the forecasters predicted a disastrous year in terms of budgetary overruns. Indeed, many of the Deputies sitting opposite in this House pleaded the same cause but, as we are all aware, at the end of the year there was not this budgetary overrun despite the scare given by various forecasters throughout the year and by various politicians as well. I caution everybody that forecasting is an inexact science; people take a different view on different aspects of statistics but, as I have already said, I forecast growth of close on 3 per cent while the ESRI forecast growth of 3.75 per cent. I have no doubt that between now and the end of the year other forecasts will be made.
Would the Taoiseach agree that there is a considerable buildup of unspent savings in the economy at present and that if people had confidence to invest those savings the ingredients exist for rapid economic growth in Ireland? Is he aware that the ESRI forecasts which, as the Taoiseach said, are among the most optimistic that have been made in recent times, are predicated on continued guaranteed free access to the European market and on the prospects for a single European currency and that a "No" vote in the referendum could undermine a good part of the optimism in the ESRI report? Furthermore, is he aware that there is a substantial volume of German money invested in the Irish money market, Deutsche Marks converted into Irish Punts, in Irish gilts so that any suggestion that Ireland was not going to be a full participant in economic monetary union could lead to a withdrawal of those funds almost overnight resulting in the possibility of quite a significant increase in interest rates here?
There are about four or five elements to the question. I will reply to them as best I can. I agree with the Deputy, there has been a large buildup of savings, a normal trend that follows deep world recession when people are uncertain about the future. As the recession recedes, as Ireland is now well poised to take advantage of an upturn in the world economy, I expect there will be more foreign demand generated in our economy. I would certainly agree with that. Of course, all of the ERSI forecasts are predicated on the assumption of a "Yes" vote to the Maastricht Treaty. Indeed, they quite clearly point out that we are at a juncture from which we could take off and have very large growth rates in ensuing years, based on a "Yes" vote on 18 June, on increased growth in Europe, a single currency, on European monetary union, all the aspects which will be beneficial to us resulting from the Maastricht Treaty. The ESRI are forecasting high growth rates on that basis. One would have to agree with them in that respect. While one might be inclined to quarrel with some elements of the figures, that is the underlying position.
I must agree wholeheartedly with Deputy John Bruton when he said that a "No" vote would create uncertainty in the future, a certain type of isolationism on the part of Ireland, giving the impression that we do not want to be part of mainstream development in Europe and, consequently, would affect the investment climate here, investment in the Irish market and uncertainty among multinationals looking to invest here, as happened in the early days of the "No" vote in Denmark. Only this morning I read or heard about a multinational company, Lego — a company with which we will all be familiar — who were to invest heavily in Denmark but who have changed their minds. Those are the types of uncertainties that have flowed from the result of a "No" vote in Denmark. Certainly, the uncertainty a "No" vote would create here — in an economy so largely dependent on investor confidence, on international investment, on good world trade, on a sound, integrated European market — would mean that we would have a great deal to lose and everybody should be fully aware of that fact.
Would the Taoiseach agree that his initial comments about our export prospects for this year are perhaps unduly pessimistic in view of the 15 per cent increase in the value of manufactured exports in the first quarter, pointing to the probability that the ESRI forecast of a 10 per cent volume of growth for the year may be on the low side? Second, and more importantly, can the Taoiseach say why, in his reply he concentrated exclusively on the short term position and made no reference to the essential, crucial part of the ESRI report in which the point was made, that, because of our extraordinary balance of payments surplus position — which is something like over three times that of Japan in relation to our GNP — we now have a capacity for growth of 6 per cent per annum over four or five years which could yield 30,000 net extra jobs per annum? Will he agree that the only thing holding us back is the pessimistic assessment on the part of people here of our prospects with regard to outflow of capital, in the mistaken belief that a better return can be got in the United Kingdom and USA than can be got here? Why does the Taoiseach not emphasise these positive features, all of which depend on a "Yes" vote in the forthcoming referendum?
I accept what Deputy FitzGerald said, that there were over pessimistic forecasts of our economy last year, in which many Members of this House participated. Indeed, I constantly fought a rear-guard battle all last year, saying that that will not be the position, while people complained about the Government fiddling the figures, doing this, that and the other. Those are the sorts of things that affect public confidence. Consequently, we should look at what the facts demonstrate. The reason for placing a question mark over the ESRI forecast of export growth is because of the OECD forecasted downturn in relation to growth in the United Kingdom market, as they see it, and the sluggishness of the recovery in the international market. We must remember that everybody takes a different view but I have given the view of the Department of Finance and of my Department at present. There are other aspects of the ending of the recession that may well lead to stronger pluses than are being forecast by the ESRI. There are always different views between forecasters.
I accept what Deputy Garret FitzGerald said and agree with him. I said we were poised for enhanced growth in the years ahead if there is a "Yes" vote in the referendum, if everything transpires in the manner we want and hope. Indeed, our balance of payments is such that we can afford growth rates of the size about which Deputy FitzGerald spoke without any constraint thereon. All in all, we could not be better poised or in a better position if we do the right thing on 18 June. Let us get on with developing our economy in the manner in which we all desire.
If we do not shoot ourselves in the foot.
It always amazes me how Members of this House latch onto a particular "do or die" aspect of policy at any given moment. It appears now that the future of the world hangs on Ireland voting "Yes" in the referendum. We were told our future was dependent on getting inflation down and on getting our productivity up. We were told we could not have jobs unless an economic miracle was achieved. We achieved our economic miracle——
Please, Deputy De Rossa——
——but we still have 300,000 people unemployed. Perhaps we could endeavour to introduce some degree of reality into the position. Seeing that we have now discovered that optimism is a way of creating jobs, would the Taoiseach recommend that the unemployed get up in the morning and be somewhat more optimistic, that that might solve their problems——
Smart alecry.
——or does optimism apply only to those with money?
I am afraid we are having a speech from the Deputy now.
Could the Taoiseach indicate whether the forecasters he has pointed out were wrong in the past may well be wrong in the future? Can he indicate whether the forecasted 50,000 jobs which he says may emanate from the Maastricht Treaty are within that category, possibly right or possibly wrong? Can we have some degree of honesty in the debate?
A little bit of honesty would be called for on the part of Deputy De Rossa from time to time — for example, if he set out the reasons the people of Ireland should vote "No"; what would be their future if they voted "No"; where he perceives all these solutions he appears to have under a foreign philosophy and ideology that has been buried worldwide but which appears still to be alive over on those benches, the only place it is still alive? Perhaps if we had some honesty on the part of the "No" campaigners for a change we might know what they are saying.
Could we get that Lego plant for Christmas?
It is a pity this is not being broadcast live, since the Taoiseach is bluffing——
I am talking. I did not interrupt the Deputy. Perhaps Deputy De Rossa would like to go back and look at the records last year with regard to forecasts to ascertain who was right and who was wrong.
I am calling Question No. 5.