Fergus O'Dowd
Question:7 Mr. O’Dowd asked the Minister for Finance if he has revised his forecast for inflation; and the key elements making up his current forecast. [18693/04]
View answerWednesday, 23 June 2004
Questions (7)
Oral answers (10 contributions)
On budget day, inflation, as measured by annual changes in the consumer price index, or CPI, was projected to average 2.5 % in 2004. As measured by the HICP, which is the EU measure of inflation, it was forecast to average 2.3% in 2004. My Department will publish a Revised Estimate in the economic review and outlook in the summer.
As set out in the stability programme update published with the budget, this forecast is based on the following assumptions: a euro-dollar exchange rate of $1.16, oil prices of about $26, a short-term interest rate of 2.3 %, and a continued easing in services sector inflation, which has been borne out so far this year with service sector inflation averaging 2.9% in the first five months of 2004, compared with an average of 4.8% in 2003. The challenge now is to keep inflation down. Keeping public expenditure on target is vital if our inflation rate is to remain low. The Department of Finance will continue closely to monitor spending to ensure it remains within budget. Continued moderate pay developments are essential. We must be careful not to price ourselves out of export markets otherwise we will lose jobs.
I thank the Minister for his projections. I look forward to seeing the revised Estimates. When the Minister says public expenditure must be kept on target, does that imply he does not accept the view of many Government back-benchers that the spending strings need to be relaxed as part of the Government's response to the recent election result?
Will the Minister agree there is an undesirable pattern in price increases in state utilities ranging from electricity, water, health, gas, transport and postal services which are running at approximately 15%, at least six times the stated average rate of inflation? Does he believe he and his colleagues who are ultimately shareholders in these companies need to take a more robust view in terms of efficiency in the delivery of State services? Does he accept, as many people do, that part of our inflationary difficulties is that the competitiveness pressures, which the Minister rightly addressed, stem from stealth taxes in Government and from high cost increases in Government-owned companies?
The Deputy will be aware, as a former economist, that the CPI is designed to measure the impact of all increases. The weighting, based on a household survey undertaken every couple of years, gives weight to all these matters. The increases in the areas to which the Deputy refers are captured in the Consumer Price Index.
The Deputy also asked if such organisations are working to maximum efficiency and operating to their full potential. I would be a foolish Minister for Finance to state that every State organisation is doing so. However, such issues are matters for the board and the relevant line Minister. Most of the increases to which the Deputy refers are not what would be termed stealth taxes, something of which I know the Deputy is aware even though politically he must state they are. They are the charges made by various organisations for the delivery of services. They are user charges. We do not expect electricity, water, gas or health insurance to be provided free of charge. We must also increase such prices each year.
The Deputy is correct in saying that the more efficient the organisations, the better they are able to control costs, wages and ancillary items and, the lower will be price increases. However, they must also make enough money to provide for adequate capital spending into the future. They are given sufficient weighting so as to be captured by the CPI.
Is the Minister aware of the recent European Union publication which illustrates Ireland is the Union's most expensive State? For example, the cost of vegetables in Ireland is 43% more than the average in other European countries; child care costs are astronomically higher, as are medical costs for those who have to pay.
The Minister stated earlier that he favours performance-related pay. If members of the Cabinet were on performance related pay, does the Minister believe the Minister for Health and Children would deserve anything other than a basic salary? Would he not have to pay money back given that he has hopelessly failed to administer the billions of euro the Minister says he has given to him?
Whatever about other Ministers, I should be paid quadruple the rate I currently earn. Everybody in and outside Government, regardless of what I give them, believes he or she could do better if I gave them more. It would appear I am running a number of Departments although I am only responsible for the Department of Finance. My primary responsibility is to ensure the economy is run well so as to create the wealth and resources required by line Ministers to enable them to do all the things they wish to do in particular areas. If the Deputy is advocating an increase in my salary, I will gladly accept it.
I am aware of all types of surveys regarding the relative costs between Ireland and elsewhere. One of the pluses of the euro has been an ability to measure the price of goods in Ireland as compared with France, Italy, Germany, Spain and so on. That in itself should bring its own pressure in terms of reducing prices. There are two reasons prices in Ireland are high: the high cost of oil and the strength of the euro to the dollar and, inflation as generated by us. If we pay ourselves more without increasing productivity levels, the inevitable will happen — prices will increase. Also excessive wage increases result in our products becoming less competitive on the world market. If that happens one does not sell products, firms go out of business and jobs are lost. It is important we take control of such matters.
Oil prices increased dramatically recently. There will be dramatic increases in gas prices in the future regardless of what we do given our long term contracts are now coming to an end. I am told, regardless of what is happening in the world market, that energy costs will increase dramatically.
How would the Minister for Finance advise a line Minister on a request from, say, the ESB seeking a further increase in electricity prices beyond the 23% increases already given in the past two years? Would he offer the opinion that given inflationary concerns we could not afford it or would he allow him or her to decide whether an increase should be given? As regards stealth taxes and the user charges referred to earlier by the Minister, how would he describe the €60 million to €70 million which he took in dividends from the ESB this year? Was it a user charge paid for by the public or was it a classic example of what Deputy Bruton might call a stealth tax?
It was a distribution of profits. I am glad to have an opportunity to put on the record my view regarding the profits made by semi-State companies. Often the last person to be considered by commercial companies is the stake holder, the ordinary taxpayers. Matters such as workers remuneration and so on are considered but no consideration is given to those who are not members of the company. I have tried to enforce a policy of requiring each semi-State company to consider its dividend policy vis-à-vis the State. That money which accrues to the Exchequer pays for health services and welfare benefits. I have tried in recent years to encourage semi-State organisations to put in train a dividend policy. We have started from the position of stating that each semi-State company must have a dividend policy, as is the case with ordinary companies.
Deputy Bruton referred to matters such as ESB increases. They are user charges similar to the one advocated by the Deputy's party for water. There is a cost in providing water to one's tap and it must be paid. If it is not paid for by user charge — in that regard I am of the view that there should be a relationship between the quantity of water used and the charge — then the general body of taxpayers who use water efficiently must pay for it.
Perhaps the Minister might answer the question. How would he advise a line Minister seeking a rise in ESB charges?
I advise my Ministers to scrutinise every proposal put before them by any of the bodies within their remit. I am sure that all my ministerial colleagues do that in any event.
Would the Minister say "Yes"?