Richard Bruton
Question:1 Deputy Richard Bruton asked the Tánaiste and Minister for Finance his views on the deteriorating condition of Ireland’s public finances; and the underlying causes and the policy responses needed. [15894/08]
Priority Questions.
Fiscal Policy.
Joan Burton
Question:2 Deputy Joan Burton asked the Tánaiste and Minister for Finance if he will make a statement on the Exchequer returns for the first quarter of 2008; the estimated budget deficit he expects at the end of 2008; if he will compare this with the deficit forecast in budget 2008; if he will provide revised Exchequer profiles for 2008 in view of his statement that shortfalls during the first quarter of the year are not expected to be recouped over the course of the remaining nine months of the year; and if he will make a statement on the matter. [15728/08]
I propose to take Questions Nos. 1 and 2 together.
At budget time, an Exchequer deficit of €4,866 million was projected for this year. This was based on an economic growth rate of 3% in GDP terms. However, a number of risks to the economic forecast were identified, including the possibility of a sharper slowdown in the US, the possibility of adverse exchange rate movements, the possibility that financial market difficulties could persist for longer than assumed and the possibility of a sharper contraction in new house building. It now appears that some of these risks have materialised and, in this regard, other economic commentators who produce forecasts on a more frequent basis have revised their forecasts downwards for growth in 2008. The market consensus is now for GDP growth of around 2.25% this year, compared with 3.25% at budget time. More modest growth would have implications for the evolution of the public finances.
At the end of the first quarter, an Exchequer deficit of €354 million was recorded. Overall tax receipts were €600 million, or 5.1%, behind target in the first three months of 2008. Over half of this shortfall was accounted for by the poor performance of capital gains tax and the bulk of the remainder accounted for by weaker than anticipated VAT receipts. Most of the other taxes were closer to what had been anticipated. However, income tax was above target and this is a welcome indicator of the resilience of the Irish economy. At this stage it is not expected that this tax shortfall, particularly in capital gains tax, will be recouped later in the year.
As regards expenditure, at the end of March total voted expenditure was broadly in line with the target, at €66 million, or 0.6%, under profile. Voted current expenditure was 1.4% below profile, while net voted capital expenditure was 4.3% above profile. The strength of capital expenditure is due mainly to better-than-anticipated progress on a range of key capital spending projects. This is real evidence of this Government's commitment to continued investment in economic and social development.
While our fiscal position may have weakened from that envisaged at budget time, it is important to point out that the current situation is manageable given the strong position of the public finances, including our low ratio of debt to GDP. As is usual, my Department will continue to monitor and report regularly on progress compared with the published profiles issued at the end of January.
The fundamentals of the Irish economy remain strong. This will help us to absorb the housing adjustment and external shocks so that our medium-term prospects are favourable. For instance, our public finances are sound with one of the lowest levels of debt in the euro area; our markets are flexible allowing us to respond efficiently to adverse developments; we have a dynamic and well educated labour force; we have a pro-business, outward-looking society; and the tax burden on both labour and capital is low.
The Government accepts that there can be no unnecessary loosening of fiscal policy and, in that context, the implementation of the national development plan remains a key priority. As regards current day-to-day expenditure, it is crucial that the agreed budget spending limits be adhered to this year. As I indicated at budget time, the rate of increase in current spending over the medium term must be managed carefully and kept within available resources. This Government intends to do just that.
People express dismay at the very rapid deterioration in the public finances. It is hard to believe that while the Minister was in office, a surplus of €2.3 billion has turned to a predicted deficit this year of €6 billion, if we are fortunate. This has occurred on the back of the Minister ignoring repeated warnings from bodies such as the International Monetary Fund and the European Union to the effect that his budgetary stance was inappropriate and that building permanent spending programmes on the back of temporary revenue from the building boom was not sustainable.
Does the Minister now believe the statements he issued and which were the core of his strategy for the public finances? The strategy was to keep the budget in broad balance, secure a declining debt, which was to be close to zero in 2012, deliver on the national development plan in full, resulting in the expenditure of €184 billion, and make improvements to spending programmes. Does he believe this approach, which is the core of the existing programme for Government, is still feasible? If he does not believe it is feasible, will he outline how he intends to ensure Ministers, in making their plans, will make a realistic assessment of what is likely to be available in the coming years? The Minister will be aware that, as recently as last week, the HSE was planning a massive hospital. According to one Minister, there is not a red cent to deliver it. Something is going seriously wrong and there needs to be a corrective approach.
My budget stance in recent years has been appropriate. I do not accept that the stance involved the building of permanent spending programmes with the benefits associated with improvements in economic performance, including surpluses. Much of the surplus beyond what was predicted was put towards reducing debt, and that is why our ratio of GDP to debt was practically halved in a ten-year period.
On the question of the implications for the future, no one, let alone members of the Deputy's party, predicted the current economic trends before the last election. That said, it is for the Government to manage the situation. Obviously, I do not believe one should dismantle current spending programmes and resile from capital programmes, as suggested in the Deputy's question.
That is not what I said. I referred to the plans in the programme for Government. The Minister should not answer a question I did not ask.
There is no problem at all. I will answer all questions to the best of my ability. The Deputy made some assertions that I want to rebut. If I do not do so, he might assume I agree with them.
It is clear that if the goals set out in the programmes under the national development plan are not met, prioritisation of programmes will be required. As members of the euro area, we must adhere to the guidelines and imperatives of the Stability and Growth Pact. Our having used our surplus in the good times for the reduction of debt enables us to be in a better position than would otherwise be possible. We will work within the guidelines set out in the Stability and Growth Pact regarding deficit spending. As I stated before, there were times of surplus when we were paying for capital programmes out of cash. Borrowing modestly to invest ambitiously is the correct approach at this phase of the economic cycle.
Does the Tánaiste agree that his legacy as Minister for Finance since 2004 is now very doubtful because of the events that occurred on his watch which, in many cases, were incited by him? I refer to the slide in house prices, largely brought about by the Minister's two botched attempts to reform the stamp duty system, and to inflation, which is running at 5%, one of the highest rates in the Union. Has the Government a strategy to deal with inflation? The number on the live register has increased by 42,000 over the past year and, next month or the month thereafter, there will be 200,000 people registered as unemployed, many of whom will have had jobs in the construction industry, which is now in decline. Exchequer returns are running at €600 million below profile for the first quarter of 2008. Most important is the Minister's amazing record of turning a surplus of €1.861 billion in the first quarter of 2007 into a deficit of €354 million in the first quarter of this year.
Does the Minister believe there will be a need for Supplementary Estimates to redress these problems? What does he propose to say to workers coping with an inflation rate of 5% as members of his Government step up to take a very large salary increase next September? The increase, amounting to €38,000, is €4,000 above the average industrial wage. As he takes up fairly awesome responsibilities on becoming Taoiseach, does the Tánaiste have a response?
Yes, I do. Once again I reject the assertions made in the Deputy's question. The first part of her critique was a suggestion that my fiscal policy was not sufficiently loose in terms of not meeting the current programme, which the Deputy and many other Deputies in her party and the main Opposition party continue to call for. By the same token she then refers to a change to a deficit in the current year as being a matter of doubtful legacy and suggests that I need a Supplementary Estimate. She cannot have it both ways. We are either spending too much or spending too little. She cannot come with both sides of the argument.
Based on the EU harmonised index of consumer prices, the gap between average EU inflation and Irish inflation is at the smallest it has been for a number of years, with inflation at 3.5% here and 3.2% in the euro area. Approximately 12 months ago there was a one percentage point difference, between 2.8% and 1.8%. Even before we joined the euro, historically we had slightly higher inflation levels. Regarding how that feeds into the pay negotiations, we need to make the point that as a result of our taxation policies and the previous pay agreements, taking account of personal, employee and other credits and tax age exemption limits, when the cost of living as measured by the CPI is taken into account, those on the average industrial wage will have seen their take-home pay rise by 41% since 1997 of which more than half is due to tax reductions in real terms. That is a very important improvement, which I am very glad to be able to report to the House. As we enter these negotiations — I will not negotiate here — it is clear from all our points of view that we want to enhance job security and not let further joblessness accelerate. We need to ensure we link productivity improvements with pay increases.
Does the Tánaiste accept there has been a serious structural deterioration in the public finances, which has nothing to do with the cycle set out in the programmes he presents to the EU? Does he accept the Department's forecast that tax revenue in 2010 will be at least €6.3 billion short of the figure used as the basis in the programme for Government? Even that is optimistic as it does not take into account the deterioration this year. Against that background how does he intend to prioritise the savings he claims now need to be made in the NDP and elsewhere? Will it mean more closed respite beds? We have seen the hospital in the home service cut off. Alternatively will there be some sensible assessment of what is realistic to achieve with the resources we will have and have a proper structure for planning spending?
I repeat my question to the Tánaiste. Does he believe it shows good authority that at a time when workers must cope with 5% inflation, the Government is on course to take salary increases of, in some cases, €38,000, which is €4,000 in excess of the average industrial wage? If we are in a period of greater economic difficulty — the Tánaiste talked about facing that in some coherent fashion — what moral authority or leadership is shown by the Government which is accepting increases far in excess of what people earn as an average wage? Where is the moral authority in that stance?
I will take Deputy Burton's question first. The Review Body on Higher Remuneration in the Public Sector, the Labour Court and all the pay determination bodies that are in place have served us for, in some cases, more than 40 years in dealing with some aspects of public pay remuneration. The pay increases are being made available to the Judiciary and senior people in Garda, Army etc. to ensure we get good, qualified people in those important positions. As the Deputy will know, for members of the Government we have come to different arrangements, which involve a deferral of the pay increase for 12 months and then a payment over three years of the proposed increase. It is not correct to say that that level of money will be made available to politicians this year. We modified the recommendation significantly in that respect.
In response to Deputy Bruton, at mid-year we will make an assessment as to the trend and we will clearly set out our position on that basis. In March there was a bit of a pick-up in respect of some of the tax heads. We are monitoring that situation and we will develop it. It is clear that the reduction of €600 million in capital gains tax will not be recouped.
My question related to 2010 when the Government will be €6.3 billion short of what the programme for Government is based on.
We will manage the nation's monetary affairs in the context of our programme for Government, which is seeking to achieve broad budgetary balance. Clearly in the event of the anticipated growth rates not being achieved we will need to adapt to that situation, otherwise we would not achieve broad budgetary balance. The questions tabled asked what revised expenditure Estimates etc. I would provide at this stage. I am making the point that I do not believe we should dismantle in the course of this year the expenditure targets we have set. Obviously we will try to live within them. However, rather than having a rapid deceleration this year, I believe my budgetary stance has been correct. Over the period we need to consider reductions of current day-to-day expenditure more in balance with available resources in the interests——
The Government needs a compass to do that and it is in rough seas without a compass.
I am explaining my stance, which is a fair point to make. The Deputy put his point. I do not believe that we should at this stage, as other governments have done at various stages in an economic cycle like this one, resile on the capital programme, particularly in those areas for which we get a return.
I did not say that.
I call Question No. 3 in the name of Deputy Kieran O'Donnell.
The Deputy is saying both things at the same time.
I said the Government has spending planned that it cannot honour and it has Departments planning on the basis that they can.
I ask the Tánaiste to move on to Question No. 3, as called, or we will run out of time for Priority Questions.
Price Inflation.
Kieran O'Donnell
Question:3 Deputy Kieran O’Donnell asked the Tánaiste and Minister for Finance his views on the pattern of inflation here and its implications for public policy on pay and sectoral policy. [15892/08]
Inflation, as measured by the consumer price index, reached 5% in the 12 months to March 2008. Most of the upward pressure on prices here is due to external factors, particularly mortgage interest rate increases and rising fuel and food prices.
When comparing our inflation rate with that in other EU member states we must use the EU comparable measure of inflation, the harmonised index of consumer prices, which is a better measure of underlying inflation. The harmonised index differs from the CPI in terms of coverage. The most notable difference is the exclusion of mortgage interest repayments from the HICP. Annual HICP inflation in Ireland in the 12 months to March 2008 was 3.7%, compared with 3.5% in the euro area and 3.8% for the EU as a whole. I apologise that I gave a different figure earlier. The ones I have just given are correct.
Achieving a moderate rate of inflation remains a key priority of economic policy because of its importance in restoring competitiveness. The Government is focusing on areas it can control and is taking positive action to contain inflation by implementing responsible fiscal policies. I addressed the inflation impact from last year's interest rate increases in this year's budget when I increased the ceiling on mortgage interest relief for first-time house buyers. This, I believe, is the appropriate targeted response to such specific cost pressures.
We are promoting greater price competition through the work of the Competition Authority and the National Consumer Agency. We are also investing in public infrastructure, as evidenced by the National Development Plan 2007-2013. This will enhance our ability to produce more goods and services, which by improving the economy's efficiency should help to keep down inflation. To the extent that inflation is externally driven it is essential that such increases are not exacerbated by generating second-round effects through inflation-chasing pay settlements, which would have a further adverse impact on Ireland's competitiveness.
In the sectors that contribute to domestically generated inflation, pay and profit margin restraint are essential as well as increased competition in order to keep down price increases. Therefore, it is essential that the upcoming pay talks under the social partnership agreement, Towards 2016, take account of the reality that we face.
The word "external" seems to be creeping into most of the Tánaiste's speeches at the moment and everything is deemed to be due external factors. Does the Tánaiste and Minister for Finance take responsibility for the fact that since 2001 Government regulated costs have gone up by 45% while at the same time manufacturing exporters have taken a 24% reduction in real income? Does the Tánaiste accept that since 2006 Ireland has seen a loss of 30% in cost competitiveness that has resulted in goods and services exports losing 7% of their market share?
The fact is the Tánaiste and Minister for Finance is not responsible for external factors but he is certainly responsible for domestic factors, which, particularly Government regulated costs, have been a major contributor to inflation.
National pay talks commenced at 2.30 p.m. today and the question I wish to ask is the same as the one I asked on 30 January. Will the Tánaiste forgo the pay increase of €38,000, recommended by the review body on higher remuneration in the public sector, that he is to receive when he takes up the office of Taoiseach? The Tánaiste yesterday said he has problems with business leaders taking exorbitant pay increases but this is hypocritical because none is more exorbitant than the pay increase he is to receive. The Tánaiste should lead by example.
There is nothing more hypocritical than seeking to support an independent pay determination system that has served successive Governments for 40 years and then walk away from it when a populist argument arises that suits one's case.
On external factors that affect inflation, we do not control the price of oil. Exchange rate deterioration vis-à-vis the dollar or sterling, which makes the environment more difficult for exporters is not within the direct control of the Government.
What of the ESB?
Please allow the Minister to answer the question.
I would like the Minister to answer the question I asked.
I have one third of the time the Deputy had to ask his question yet he is interrupting before I have had a chance to answer. Answering the Deputy's question in one third of the time it took him to ask it is a stiff challenge. I will do the best I can but the content may not be as good as the Deputy hopes.
Regarding Government regulated costs, we have opened up to independent regulation to promote competition and bring greater price transparency to markets that were previously Government controlled. What the Deputy calls Government regulated costs are actually decisions made by independent regulators, set up by this House, that act independently of the Government. The phrase he used does not reflect modern reality. I do not know what percentages the Deputy is using since I do not accept the basis on which they are composed.
As I said previously to Deputy Burton, the Government has made a differentiated decision relating to the recommendations of the Review Body on Higher Remuneration in the Public Sector as they affect politicians rather than other public servants. A pay pause will take place for one year and the pay recommendations will be implemented over the following three years. The continuing mantra in this House relating to imminent pay rises of the amounts mentioned are not true, as the Deputy knows.
The terms of reference of the Review Body on Higher Remuneration in the Public Sector state it should take account of the state of the public finances, which have changed significantly. I understand, based on reports yesterday, that the Government is reconsidering the position and that it will be discussed in September. This matter should be discussed tomorrow. I do not think it is good enough for the Minister to state that we must accept everything in this regard.
The Deputy is repeating his earlier question.
It is a valid question. Some 80% of people feel the Government should not take this pay increase so why is it being accepted?
Public Sector Reform.
Richard Bruton
Question:4 Deputy Richard Bruton asked the Tánaiste and Minister for Finance the specific changes he plans to deliver public service reform. [15893/08]
Public service reform is essentially about improving the service provided to citizens at all levels in the most efficient and cost effective way. Any reasonable analysis must acknowledge that the public service has come a long way since the strategic management initiative was launched over a decade ago with the objective of ensuring that the public service would make a greater contribution to national development, be a provider of services to the public and make effective use of resources. Our public services have been expanded, improved and reformed. There have been significant improvements in the areas of financial management, human resources management, regulatory reforms, e-Government initiatives, and customer service delivery mechanisms.
The implementation of the modernisation agenda has been, and continues to be, driven by the various partnership agreements across the public service. The current partnership agreement, Towards 2016, builds on the progress made under previous agreements and ensures continued co-operation with change and further modernisation initiatives as well as improvements in productivity right across the public service. It provides an important framework for meeting the economic and social challenges ahead and builds on the achievements of previous agreements.
Towards 2016 sets out a mechanism for the verification of progress at sectoral, organisational and grade level in the public service through the establishment of a performance verification group for each of the sectors — the Civil Service, the health, education and local authority sectors, the Garda Síochána and Defence Forces. Under the terms of Towards 2016, payment of each of the public service pay increases is dependent on verification of satisfactory achievement in regard to co-operation with flexibility and ongoing change, including co-operation with satisfactory implementation of the agenda for modernisation set out in the agreement, maintenance of stable industrial relations and the absence of industrial action in respect of any matters covered by the agreement.
Of course, any reasonable analysis will also acknowledge that while significant progress has been made over the past decade in modernising the public service, many more changes are both awaited and needed. At a time when the Government has been investing unprecedented levels of resources in public services, problems remain — mainly with delivery on the ground and maximising return on investment. There now needs to be a step change in the delivery of public services, with a focus on a more citizen-centred approach.
Additional information not given on the floor of the House.
This is why the Government asked the OECD to carry out a review of the Irish public service. The Government wanted the OECD to examine rigorously the connections between the investment decisions that are being made at the Cabinet table and delivery to citizens on the ground. The OECD was given two tasks — first, to benchmark the public service in Ireland against other comparable countries; and second, to make recommendations as to future directions for public service reform which will support the Irish Government's drive for delivery of world class services to the citizen, within existing resources, and contribute to sustainable national competitive advantage. Put simply, the Government was asking the OECD to examine how Government priorities and decisions are translated into services and outcomes for citizens, and how these processes can be improved. The review is intended to highlight what is working and what is not working and help us make better informed choices about developing our public services.
The OECD review will be published next Monday. It will make a major contribution to the ongoing modernisation of the Irish public service. It will provide a health check on the state of the public service. More than that, it will provide us with a direction for the future. It may deliver some stark messages but that is precisely what we asked the OECD to do so we must be prepared to listen to what it says. I and my colleagues will be giving careful consideration to its recommendations.
The Minister has said public service reform is his first priority but in the two minutes of his reply he did not offer a single specific initiative. The Minister has been in the Cabinet for 13 years and has been responsible for the public service for four years but he has no proposal to offer the Dáil on the eve of his taking office as Taoiseach. Would the Minister agree to an audit of quangos, as proposed by Fine Gael, so we can start to rationalise duplication that is evident? Would he agree to changes in the linking of pay and performance? To return to Deputy O'Donnell's point, this is at the core of disquiet at the payment of top earners in the public service. Would the Minister agree to an efficiency programme to squeeze back the administration in Departments? Would he agree to abandon ill-conceived elements of the decentralisation programme, which is wastefully absorbing a great deal of the time of public agencies? Would he agree to change the archaic way in which we deal with the Estimates and the budget on one day and make a decision without any meaningful scrutiny of what they are to achieve? Is there anything the Minister is going to change?
I have already brought forward initiatives relating to the budget that mean the Deputy and others in committees can look at output statements and examine whether we are getting the outputs Departments set for themselves at the beginning of the year. I have unified the budget process considerably and I would have thought there would be some acknowledgement of change in this area. If this is to be ignored then that is fine.
It is clear that as we seek to manage the public finances and understand the requirements of the situation in the short to medium term, decisions will be needed across the board on a range of issues. We are talking about further public sector reform and the OECD report is due on Monday. I believe it will set out a good analysis, in terms of benchmarking, of the performance of the Civil Service and public service compared to others and will suggest improvements. In a unionised environment, on the basis of partnership, we must also recognise the need to get improvements and agreements in place that can be provided for in the context of the pay negotiations we are now embarking on. We must get on this agenda and bring about improvements. There have been improvements but no one is suggesting we are in a satisfactory position, given the expectations of our citizens. The agenda will continue.
The Minister must offer leadership in this area and cannot move at the pace of the slowest mover, that is, the approach he mentioned of waiting for agreement. I will list three simple political actions he can take. First, he could provide that every appointment to a new board of a State agency be approved by a Dáil committee. Second, he could provide that the Comptroller and Auditor General have a mandate to examine corporate governance in order to foresee any potential mistakes, not waiting for the milk to be spilt. Third, will the Minister give the evaluation of public spending programmes to the Oireachtas and not to Departments? There should be proper evaluation and scrutiny of public spending by Members.
In fairness, a structure is in place for the committees of this House to analyse Government expenditure across all areas of the public service on the basis of targets they would place for themselves. Before I introduced changes to the budgetary process, there were criticisms of no references to outputs. I have put an obligation on all Departments to set out their outputs at the beginning of every year and to explain why if they do not reach them.
I am asking the Minister to do something different, something new.
It is not just a question of doing something different and what I just referred to is new. It was not done in the Deputy's time in the Department or ever before.
It was done in the 1980s.
The committee system has a large responsibility. I suggest that should be used for effective scrutiny. Although I am not a close watcher of everything going on in every committee, from my observations I note that committees decide their own agendas as to who attends and when depending on what issue arises daily or weekly, when they could set out a strategic job of work to be done. If we used the potential of the reforms I have outlined which would bring relevance to debate in a timely manner it would be helpful to the Executive and the standing of the House.
House Prices.
Kieran O'Donnell
Question:5 Deputy Kieran O’Donnell asked the Tánaiste and Minister for Finance the lessons that can be learned from the recent developments in the property market. [15895/08]
There is a general view that the sustainable level of new housing completions is approximately 60,000 units per annum. This estimate is based on factors such as the demographic structure of the population.
In the past several years, the level of output has been in excess of that level. The Government has always been aware that activity would have to revert to more sustainable levels at some stage. Last year, the level of completions recorded an annual decline for the first time since the early 1990s and a further decline in new house completions is expected for this year. As such the market remains in a transition phase this year, although there is a possibility that completions could undershoot sustainable levels, given that confidence in the wider economy has been affected by international economic developments. Given the level of activity of recent years, it is now accepted that the initial problem of inadequate supply has been rectified.
Over the medium term, however, we expect output to evolve in line with sustainable levels. In this regard it must be remembered that on a per capita basis this level of output is still high by international standards.
Regarding price developments, the latest data for February show that prices are approximately 9% below their peak levels. When inflation is taken into account, prices in real terms are now approximately 15% lower than at their peak. In other words, a significant part of any price adjustment that may have been necessary has already been completed.
This easing back of prices, combined with the measures I took at budget time on stamp duty and mortgage interest relief, makes house purchases more affordable, particularly for first-time buyers. In terms of affordability, the April EBS-DKM affordability index shows that the proportion of net income devoted to mortgage payments for a first-time buyer working couple has decreased from 26.4% in December 2006 to 22.4% in January 2008.
The underlying demand for housing remains strong as evidenced by the strong growth in rents and supported by continuing high employment and migratory inflows. In overall terms, while it is still not certain, there are signs, therefore, that confidence may be gradually returning to the housing market and that better value is being obtained for those wishing to buy their own home.
The main lesson from recent events is that like any market where the price of an asset increases rapidly, potential purchasers should exercise caution, which I think we are seeing happen. We must not lose sight of the fact that one of the reasons why housing demand grew so rapidly relates to the underlying strength of the economy, seen most clearly by the strong growth in employment and incomes over the past several years.
Additional information not given on the floor of the House.
Despite all the doom and gloom that now seems to be fashionable among some commentators, we still have an economy that last year added in net terms just over 70,000 new jobs. As regards what we must do in learning to adjust to the new property market environment, Government has been clear. I have already mentioned the actions that I took in relation to assisting individuals wishing to enter the market. In terms of the wider economic aspects Government is playing its part. Our high level of public investment in capital under the NDP, is helping to offset the impact of the decline in housing output in the economy. This has been acknowledged by the OECD as contributing to stabilising the economy in the coming years.
The Minister did not answer the question as to what lessons were learned. The sustainable level of new housing completions is 50,000 units per annum, not the 60,000 units he claims. The budget figures are flawed as they were based on this completion figure. The ESRI flagged to the Minister that sustainable housing levels were approximately 45,000 to 55,000 units.
The Minister referred to young people now being able to afford houses. What about the 100,000 people who bought houses in 2005 which are now in negative equity? They went from 58,000 in 2002 to 69,000 in 2003 to 77,000 in 2004 and 81,000 in 2005. Still alarm bells did not go off with the Minister. He was cheerleading the growth in house-building. Interest rates were artificially low and these levels could not be sustained.
The Minister was advised by the IMF in late 2005 that house prices in Ireland did not reflect economic reality. In 2006 the Minister told everyone to build away because the economic fundamentals would sustain it. The Minister should instead have taken corrective action. Does he take responsibility for what has happened in the housing market? Does he agree he should have moved earlier on stamp duty reform?
I do not understand the Deputy's argument. He argues I should have moved earlier on stamp duty reform but it was his party's main policy plank going into the general election. This canard has been going about for 12 months. The Deputy has just decried the fact that housing output was increasing exponentially, which is a function of the market. The housing market and the capacity of the building industry grew because of demand. We have been decrying the fact that output was not meeting demand requirements which was a reason why house prices were high. Suddenly I am responsible for all this. I am responsible, thankfully, for managing the economy and letting people get on with their business.
The Deputy is claiming I should have intervened in the housing market by reducing stamp duty further and, as a result, increase house price inflation. The Deputy's argument does not make sense. An OECD report in the past month claimed my stamp duty changes were timely because the time to make an intervention is when the market is coming down. The time is not, which was the argument I had with Fine Gael and others last year, when the market is not coming down.
Mistakes were made much earlier. The Minister is evading the question.
I am pointing out the paradox in the Deputy's argument.
The Minister allowed housing output to reach a dangerous peak. He should have introduced stamp duty reform earlier. What he has created is negative equity. Will he accept he built his budget figures around unsustainable housing output?
I do not accept that point.
Why not?
For the very simple reason that when revenue projections were exceeded, more than 75% of the increased revenues went back to reduce debt. We did not base the budget on the boom. Deputy Bruton claimed earlier that all these increased revenues went on unsustainable spending programmes and we are now hitting the wall. That is not the case.
We are borrowing way ahead of the rate of growth.
Fine Gael is decrying we do not have those revenues available to us this year.
The Government did not build its budgets on solid foundations.
We did build them on solid foundations.
Why are the foundations crumbling?
Is the Deputy saying the foundations of the economy are crumbling?
No, the foundations of the housing market.
The foundations of the housing market are not crumbling. The market is adjusting. There is a correction taking place because we had an oversupply in the market. That happens in markets. The commercial property market is not as weak but actually stronger.
I am not referring to that sector.
Allow the Tánaiste without interruption.
I know that but the suggestion that the whole building industry is crumbling does not stand up.
I am referring to the housing market.
Housing output this year — a relatively poor year compared to others — is still higher than ten years ago. Concerning this idea of the market crumbling, we must keep a sense of perspective.
The Minister is missing the point.
The point the Deputy is missing is that markets adjust to supply and demand.
The Minister was warned a year ago.
I did not interrupt the Deputy while he was asking his question. The criticism beforehand concerned when the Government would try to increase supply to meet demand. Now that the market has adjusted and built up capacity to meet demand, the Deputy's problem is that we allowed the market to grow too quickly. The market grew in response to demand.
The Government fuelled the market.
The demographics of the country are such that, at a per capita level, housing output in the medium term——
The Government cheered it on.
——suggests 60,000 units per year is the best way forward, according to the ESRI and others.