Bernard Allen
Question:51 Mr. Allen asked the Minister for Finance his views on the appropriate level of public borrowing for Ireland. [14559/03]
Other Questions. - Fiscal Policy.
Policy in relation to debt and deficit levels for Ireland must be addressed in the context of the EU treaty and Stability and Growth Pact. Under the EU treaty, member states must aim to keep their general government debt levels at or below 60% of GDP. In the most recent return to the EU Commission in March, my Department reported that Ireland was expected to have a general Government debt level of 34% of GDP at end 2003.
The treaty also requires that member states stay within a general government deficit limit of 3% of GDP. The Stability and Growth Pact reiterates this deficit requirement and requires further that member states should keep the finances of general government close to balance over the course of the economic cycle. Under the pact therefore, Ireland has given a commitment to keep the finances of general Government close to balance or in surplus and to take corrective action when there is an actual or expected divergence from this objective. The programme for Government clearly states that the Stability and Growth Pact provides the overriding framework for Irish budgetary policy. The essential message of the Stability and Growth Pact is that through fiscal prudence we can ensure economic growth and fiscal stability.
The budget projections last December included Exchequer borrowing requirements of €1.8 billion in 2003, €3.4 billion in 2004 and €3.7 billion in 2005. This borrowing would increase the level of our general Government debt.
We need to be careful in increasing our borrowing not to allow it to grow so significantly that we repeat the mistakes of the past, when a large proportion of current spending was used up in paying interest on our debt. We cannot ignore the fact that tax revenue has slowed because economic activity has slowed. As a result, we will have less resources for new public spending. As I stated in my budget speech last December, we therefore have no choice but to move our expenditure, pay and cost levels on to a lower growth trajectory.
Will the Minister clarify his view of the status of those figures he quoted, namely the €3.4 billion deficit on the Exchequer? Is he saying that this is an acceptable level which he will set as his target at the end of the 2004 budget or does he believe it is excessive or insufficient? Will the Minister comment on the views of the Tánaiste who was a party to the programme for Government but has a different viewpoint to his? She said that we are very under-borrowed as a country and points to the opportunity to expand borrowing to 4% of GDP, way ahead of the stability pact for infrastructural projects. Is the Government speaking out of two sides of its mouth on this? Is there any agreement between the parties in Government as to what is the correct strategy for borrowing? Perhaps the Minister would outline that because it is important to know whether the two parties in Government are at one on the issue of the extent to which we would borrow. The Minister seems to be saying that the right approach is a cautious one while the Tánaiste is saying something very different.
We had better be clear on the figures for 2004 and 2005 which formed the earlier part of the Deputy's questions. The figure for 2004 of €3.4 billion is based on expenditure on the existing level of services and our projections for tax revenue based on expected growth rates as decided last December. As the Deputy knows, borrowing is the residual left between one's income and expenditure. Therefore, if the income side were to go down – and we will make a projection on that come the next budget – and if our expenditure were to stay at the same level as we thought last December, the difference would have to be greater than €3.4 billion this year and €3.7 billion in 2005. That is the basis of the calculation for 2004 and 2005. This has to be revisited in the light of our expected outcome for this year or expected growth in revenues for next year which depends—
I know. I am asking what is the appropriate level.
Just a second, I need to make sure we are talking about those particular figures. To go back to what we think is appropriate – the overriding matter in regard to budgetary policy is the Stability and Growth Pact. It is in the programme for Government.
An Leas-Cheann Comhairle
The Minister has now exceeded the time limit.
The Government has decided that that is the overriding framework. Even if that were not the case, it would still be my view, based on the lessons we learned in the past, to have prudent borrowing in the future.
An Leas-Cheann Comhairle
The Minister is well in excess of the one minute rule.
This is the final point. Even if those figures were to be met; €1.8 billion this year, €3.4 billion next year and €3.5 the following year, that means over those three years we will have borrowed an extra €9 billion. We are borrowing a substantial amount of money for the next number of years.
An Leas-Cheann Comhairle
I call Deputy Burton for the next supplementary.
That depends on fairly favourable growth rates. All the evidence suggests that growth is not going to be as good as anyone anticipated.
So it is a question of "Tánaiste, please take note."
Does the Minister agree with the Tánaiste who said that we are under-borrowed? The Minister said that the stability pact is a bit too tight in terms of the needs of the economy. In particular, does he share the views of the head of the American Chamber of Commerce in Ireland – that we are facing a massive infrastructural deficit and that prudent borrowing for key infrastructural projects would, in fact, be good for the economy? It would make fiscal sense but it would also allow us to become competitive again. Does the Minister agree with his colleague, the Tánaiste?
What about the view expressed by his colleague at the weekend, the Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, who published another Fianna Fáil rebuttal in which he seems to be on a different tack to the Minister and the Tánaiste? He seemed to indicate lower spending and lower borrowing. When the Cabinet sits down at the table in Farmleigh is there so much confusion that it is like a happy Italian family with everybody shouting in different directions or are conclusions reached there about a view on the economy?
An Leas-Cheann Comhairle
The Deputy must conclude now.
We will borrow a substantial amount of money over this year and the following two years, unless growth returns to a level that nobody expects. All that money we will be borrowing will go on capital infrastructure. I have brought capital spending up to 5% of gross national product, which is approximately double the EU rate and considerably in excess of what we were doing a few years ago. If we can continue to have capital spending at that level as a percentage of GNP, people will see a major difference to the country's infrastructure in the years to come. People should not be too simplistic in this regard, however, and say that all borrowing for capital purposes is good. All borrowing for capital purposes is not good if the capital project one is investing in does not give value for money and a proper return.
In the context of the EU Stability and Growth Pact, we tried to have it recognised that countries with low debt and poor infrastructure would enjoy some flexibility. The Commission supported us as did the United Kingdom, but at the recent European Council that matter was debated, as it had been at previous ECOFIN meetings, and no progress was made. One of the reasons for that is that some countries with considerably higher debt wanted to be part of that flexibility also and I can readily see the Commission's problems in that regard.
An Leas-Cheann Comhairle
The Minister has exceeded the one minute available.
Even if there were no rules governing the Stability and Growth Pact, a small country like ours should have learned its lesson from the past and be prudent before embarking on a spending spree.
An Leas-Cheann Comhairle
The Minister has gone way over the one minute available.
Politicians the world over suffer from one congenital defect in that they wish to spend and spend. Thank God there are rules governing the Stability and Growth Pact because otherwise Ministers would have to get very big sticks to beat the ball.
Is the Minister a genetic mutation?
Interestingly, in his budget, the Minister spelt out not only that next year's Exchequer borrowing could be €3.5 billion, but also that if growth fell 1% short of predictions, it would rise to €5,000 million.
Yes, €5 billion.
What is the Minister's view of the likely environment for the forthcoming budget? Is he looking to Ministers to make further significant cuts in their spending programmes in order to come within what he believes are prudent limits, or does he believe there is another route?
In light of the guidelines on public private partnerships, published by his Department last Thursday, will the Minister explain his policy concerning the use of PPPs? Is there still a reluctance to use them and are they seen as a mechanism to avoid the GDP ratio under the Maastricht guidelines?
It is not that I want to avoid Deputy Richard Bruton's question but at this stage it would be impossible for me to decide what the budgetary parameters are going to be. Coming into 2003 there was no momentum from 2002, which is evidenced from the tax revenue figures. Therefore, the best assessment both locally and internationally is that if there is going to be any recovery it will be in the second half of this year or possibly in 2004. All the evidence shows that the risks are on the down side and that will have to be taken into account when we set our budgetary policies.
We are committed to public private partnerships but as regards the earlier question from Deputy Burton, one can see the difficulty she has because private operators receive, what she would call, more than the benefit she thinks they should get.
I want transparency.
An Leas-Cheann Comhairle
We must move on to Question No. 52.
There are later questions about PPPs and I can come back to Deputy Boyle's question then.