Paul McGrath
Question:115 Mr. P. McGrath asked the Minister for Finance his proposals for an anti-inflation plan. [5634/03]
Priority Questions. - Fiscal Policy.
For a variety of reasons, our inflation has been exceeding the EU norm for some time. Some of this has been due to external factors, some is due to the process of Ireland catching up in growth terms with the rest of Europe and some due to domestic factors. The last is where we must concentrate our efforts. That is why the adoption of the pay arrangement set out under the new social partnership agreement, Sustaining Progress, is important. By ensuring that wage increases are kept to sustainable levels, we can continue to focus on our competitiveness and avoid losing jobs.
I welcome the aims of the anti-inflation provisions in Sustaining Progress. The Government, along with IBEC and ICTU, will work together to keep downward pressure on inflation, particularly over the next 18 months. I am pleased that the rate of inflation fell to 4.8% in January, despite many predictions that it would rise to around 5.5%. I also note that some commentators see inflation dropping sharply by the end of the year. I will not make a prediction except to say that the trend will be downward during the course of the year.
The Minister referred to the fact that the social partnership agreement included measures that would try to control inflation. Is that credible given that he and the Government have been the main drivers of inflation in recent times? For example, VAT has increased, which has increased the price of everything. Motor tax and hospital charges have increased, the drug refund scheme is much more expensive, VHI, bank charges, bin charges, ESB, college fees and bus fares have all increased with the approval of the Government. Today, an increase in gas prices was announced. What does the Minister intend to do about the way in which the Government is driving inflation to its current rate? Given that manufacturing inflation is down 3% since last April, it is incredible that the Government can enter an agreement with the social partners to control inflation when they are the main drivers of it.
I can give the Deputy the breakdown of the various impacts on the consumer price index. However, it would be correct to say that they do not make up the bulk of the increase in the consumer price index over the past year or so. The main factor driving inflation upwards is the services sector. The Deputy is correct that in the new document, Sustaining Progress, there is a commitment to setting up an anti-inflation group consisting of the Government and the social partners, which will address all the issues in that context. If anyone on the opposite side of the House has any brilliant ideas regarding reducing inflation, we will be gladly take them on board.
The effect of my budgetary measures in regard to excise duty and other increases will add approximately 0.8% to the consumer price index, which is not the dominant factor in the increase in the CPI.
The Minister asked for suggestions on how we might control inflation. The first suggestion is to get rid of the Government, because it is inflationary in everything it does. He said that his budgetary measures will add 0.8% to the consumer price index, but what about all the other increases, including colleges fees, the knock-on effects of the VAT increases, ESB increases, gas increases and so on? He is not taking these increases into account. When the Minister referred to the 0.8%, he is not being absolutely up-front to the House and the taxpayers because he knows that many of the measures he introduced will have knock-on effects, which is what is driving inflation to its current level. Does the Minister think it is credible to enter into an agreement with themselves to control inflation given that the Government is the main driver of it?
I accept what the Deputy said about the importance of keeping down inflation. If we can bring down inflation to the levels of our European partners, we will no longer lose competitiveness to them, which will have a beneficial effect on the Irish economy. There are many reasons for high inflation in Ireland. As we are now part of a single currency area, there will automatically be differences in this area, therefore, there is an element of catching up. It is in all our interests to reduce inflation to the same level as our European partners. The raison d'être of the European Central Bank is to keep inflation at approximately 2% per annum, and it will endeavour to achieve that figure. Therefore, if our inflation is higher than 2% per annum we will get into difficulties. The European Central Bank recently forecast that the rate of inflation will be slightly above the 2% figure this year. Therefore, we must reduce inflation, because if we do not do so, we will lose competitiveness.
The Deputy is correct in saying that manufacturing prices are not increasing. They will not increase in the coming years because capital will be used to set up businesses in places that will keep prices down, particularly in the Far East and other eastern European countries. Even when eastern European countries come up to the level of Europe, manufacturing prices will be kept down due to competition from the Far East. The market share will go to the Far East unless Europe, particularly Ireland, can keep prices down.