Dáil Éireann debate -
Thursday, 2 Jun 1994

Vol. 443 No. 6

Written Answers. - Capital Outflow.

Ivor Callely

Question:

17 Mr. Callely asked the Minister for Finance if there has been any noticeable capital outflow from Ireland in the first six months of 1994; his views on whether it is important to have a stable economic environment, a firm and stable exchange rate and responsible fiscal policies to protect against the outflow of funds; his further views on the suggestion of a 2 per cent wealth tax in view of the fact that Ireland's membership of the EU is supportive of the benefits of economic and monetary union; and if he will make a statement on the matter.

Minister for Finance (Mr. B. Ahern)

Central Statistics Office balance of payments data are not available so far for any part of 1994. However, the latest banking statistics published by the Central Bank show that the level of the official external reserves increased by over £140 million during the first quarter of 1994, to £4.4 billion — the second highest monthly figure ever. This strong performance of the official external reserves and the fact that the currency was firm during the period does not support the view that there were net capital outflows in the first quarter of 1994.

I can, of course, confirm the importance of a stable economic environment, a firm and stable exchange rate within the ERM and responsible fiscal policies in ensuring that international investors have the necessary confidence to invest in Ireland. Economic uncertainty and poor economic management give rise to a lack of confidence on the part of foreign investors and lead to higher interest rates and lower levels of investment and job creation.

On the other hand, a country with a sustained record or stable economic performance can expect to see the relative cost of financing fall. In this context, I was particularly pleased that the credit rating agency, Standard and Poors, recently revised its outlook for Ireland's long term foreign debt credit rating from "stable" to "positive", stating that the continuation of current Government policies promise "to extend Ireland's record since the late 1980s of relatively fast economic growth, low inflation, sizeable current account surpluses, and light net external debt burdens". Ireland already holds the top AAA rating in relation to its domestic debt issues.

On the question of a wealth tax, I would have to say that, with the arrival of the Single Market and the free movement of capital within the EU, such a measure could involve a serious risk of significant capital outflows from the country and could discourage productive investment in the Irish economy.