Deputy O'Rourke said that if the crisis continued in the long term that would be considered but that is the Government position. The necessary legislative and administrative changes could not be brought in easily or quickly and the resultant system could only apply on an inflexible basis with no guarantee of effective targeting. Such differentiation would thus be an inappropriate use of the PRSI system. Moreover, even if it were easy to accomplish, any such differentiation would lead to demands for its extention to other sectors and an across the board reduction of 1 percentage point in employers' PRSI would cost no less than £85 million. Clearly, therefore, no responsible Government could go down the road suggested by the Deputy in this respect.
The question of covering the exchange risk of firms which borrow abroad does not arise because the rationale of our firm exchange rate policy is that there should be little or no exchange rate risk in commercial or financial dealings with countries which are members of the narrow-band of the ERM. The situation in relation to non-Community currencies, such as the US dollar, remains the same as it was before, that is there is and will be no cover for exchange risks.
With regard to any incentive to increased cross-Border shopping induced by the depreciation of sterling, it is essential to keep a sense of proportion. I certainly am not going to be forced into panic measures, such as costly VAT or excise duty reductions outside of the normal budgetary process, especially when there is no clear evidence that there has been anything more than a modest resumption of cross-Border shopping. Notwithstanding the strengthening of our currency in the intervening period, the scale of movement is a mere fraction of that experienced in the mid-eighties. I realise, of course, that this is a time of great uncertainty and I am aware of the potential damage to trade that large scale currency fluctuations can bring. For this reason, I shall be monitoring the situation carefully.
In sum, it would be all too easy in the short term to take soft options and compensate everybody for the costs of the recent currency shock. That was the approach taken to other crises in the past, particularly the oil-price shocks. With hindsight, it is now clear that choosing the soft option in response to these crises was a serious mistake.
We must also remember that considerable benefits will flow from the depreciation of sterling. Many inputs to industrial processes will be cheaper, as will finished goods imported from the UK. It is vital that all those involved in the production and distribution chains who benefit in this way should pass on these lower prices. By so doing, they will shorten the interval and ease the burden of adjustment of our economy to its new exchange situation in relation to sterling.
We are well geared to making that adjustment because our ability to maintain the macroeconomic and exchange rate policies which have laid the foundations for strong sutainable growth in the long term has been tested and proved. But we must continue to deepen these policies. A sustainable budgetary policy, responsible wage and cost developments, the enhancement of restructuring and growth potential in key sectors and the effective utilisation of assistance from the Community's Structual Funds are central elements to our continued success.
The factors have increased domestic and foreign confidence in Irish economic performance and, as I have already said, helped lower interest rates. This has underpinned the significent progress in investment, growth and relative incomes achieved since the mid-eighties. For example, between 1986 and 1990 fixed investment increased by 22 per cent in volume terms. At 6 per cent, our annual average growth in real GDP was well ahead of our EC competitors. Improved competitiveness meant that Irish exports increased their share of external markets leading to a trade surplus of over 10 per cent of GNP this year. Our rate of inflation of 2.8 per cent is one of the lowest in the EC and well below the current level in Germany. Most satisfying of all, is that total non-agricultural employment increased by 54,000 between 1986 and 1991.
Whiler recording these advances, we have, since 1988, consistently kept the Exchequer borrowing requirement to less than 2.5 per cent of GNP each year, and that will be the case again this year. As a consequence, the debt-GNP ratio fell to under 105 per cent by end-1991 and it will continue its decline this year.
These are commendable achievements which have been applauded by other member states. Indeed, as I have already informed this House on other occasions, the Council of Finance Ministers concluded in Feburary last that Ireland already complied with the objective criteria for the move to the third stage of economic and monetary union.
Despite external recession, our impressive economic progress is being maintained this year. My Department'sEconomic Review and Outlook 1992, published in the middle of August, forecast growth in real GDP of the order of 2½ per cent this year, compared with the EC Commission's forecast of 2¼ per cent. Recent forecast by other agencies have been more optimistic. In September, the Central Bank and the ESRI forecast GDP growth of 3½ per cent and 4 per cent respectively — well ahead of both the EC Commission's forecast of average growth in the Community of 1¾ per cent growth and the OECD's forecast of average growth of the same order in the OECD area. Clearly, we are continuing to perform better than our competitors.
Consumer spending is growing broadly in line with the rise in real disposable incomes allowed for in the 1992 budget. To date retail sales are about 3 per cent higher compared with the corresponding period of 1991. Car sales have been very weak in the early part of the year but have improved in recent months. Merchandise exports increased by about 12 per cent in the first seven months of the year and output in manufacturing is up by 10 per cent. These factors indicate the remarkable resilience of the Irish economy in the face of external turmoil.
The bottom line for most people is employment and here again we appear to be maintaining our position. TheEconomic Review and Outlook 1992 projected growth in non-agricultural employment of about 5,000. Leading indicators suggest employment is indeed continuing to rise. Training and employment levy receipts show a year-to-year rise of 7½ per cent up to September, which is a good indicator of rising employment.
In conclusion, I should like to emphasise that a strong currency must be based on strong economic fundamentals. Our fundamentals are strong. The conclusions of the February ECOFIN Council explicitly recognised this. Our ability to sustain our position in the EMS is widely and justifiably acknowledged. Our present prudent economic and budgetary policies, backed by a firm exchange rate policy, have proved sucsessful in sustaining our performance. We have consistently been able to adjust quickly and decisively where necessary to changing external developments. We have demonstrated that capacity again in response to the recent currency turbulence.
Deputy Yates raised the issue of the exchange rate formula used in determining the customs value of imported goods for the purpose of calculating VAT at the point of entry. He specifically asked if an approach had been made to the EC Commission to allow us to ignore the requirements of Community law which provides for a fixed monthly rate subject to a weekly review and to establish instead a system which would be based on daily exchange rates. There is no provision in the governing EC regulations whereby one member state can operate, or even apply to the Commission to operate, a unilateral derogation in relation to the exchange rate system which has been fixed. Any change to the existing system of calculation would have to be approved by all 12 member states. It was recently pointed out to this House that VAT at the point of entry is reclaimable by registered traders. Any disadvantage arising from this can only be a temporary cash flow problem. I also said that the formula was being used at the behest of the users of this system. I commend the Government's amendment to the House.