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Economic Competitiveness

Dáil Éireann Debate, Wednesday - 1 February 2012

Wednesday, 1 February 2012

Questions (5)

Mick Wallace

Question:

5Deputy Mick Wallace asked the Minister for Finance in view of statements that our recovery will be export-led, the country’s financial situation is unlikely to improve until we deal more directly with the problems facing the domestic economy; and if he will make a statement on the matter. [5931/12]

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Oral answers (9 contributions)

Over the last number of years, the Irish economy has suffered enormously, and by extension so too have the Irish people. The bursting of the property bubble has had severe adverse implications for the economy, the public finances and the banking sector, and the fallout has been exacerbated by a global downturn.

However, the Deputy should also remember that it was strong export-led growth which provided the basis for the original pick-up in economic activity in the early to mid-1990s. This is how growth in a small open economy such as Ireland's should be driven, and we are once again seeing evidence of that, with exports growing by over 6% in 2010 and by 4.5 % in the first nine months of 2011. This growth is broadening out into the indigenous export sector, with areas such as agrifood and tourism performing well. The growth in our exports reflects significant improvements in competitiveness, which are allowing us to trade our way to recovery. Indeed, economic growth has returned, with my Department projecting that last year saw real GDP growth of 1%. As a result of the export-led recovery, the current account of the balance of payments has also returned to surplus, which shows that Ireland as a whole is once more paying its way. This is a crucial signal to investors.

Evidence of Ireland's enduring attractiveness as a location for foreign direct investment was underlined by the IDA's recent announcement that a record number of new investments were won last year. This will underpin further export growth into the future.

While the economy is growing again, it will take time for export growth to feed through to the labour market and the domestic economy. Moreover, it will take households and firms time to work through the imbalances which had built up during the boom. The Government is acutely aware of the headwinds which the domestic economy faces in this regard. We have therefore taken a number of steps to support domestic activity and job creation, including the introduction of the jobs initiative shortly after coming into office and the structuring of the 2012 budget in such a way as to be as growth friendly as possible.

The jobs initiative is an important part of the Government's overall strategy to establish the correct conditions to allow our domestic economy to recover, while at the same time respecting the requirement to return our public finances to a sustainable position. It should be viewed as one element of a wider strategy to support economic activity and will be followed up shortly by the action plan on jobs which the Minister for Jobs, Enterprise and Innovation will publish shortly.

Additional information not given on the floor of the House.

The establishment of NewERA and the strategic investment fund within the National Treasury Management Agency, which the Government announced last September, is a further major initiative within the domestic economic sphere. The Government has also taken a number of steps to ensure there is sufficient credit available to business. I have also sought to support firms and encourage job creation through extending the three-year start-up relief scheme, improving the research and development tax credit scheme and replacing the business expansion scheme with a new employment and investment incentive.

While the Government is taking every step to support the recovery of the domestic economy, there is no quick-fix solution. We must continue to deliver on our commitments under our EU-IMF programme and, in so doing, we will ensure that the programme works for us. The challenges are substantial and this is why the Government has focused on three main priorities; restoring order to the public finances, repairing the banking system and restructuring the economy towards a sustainable growth model. We are on track to bring the deficit below 3% of GDP by 2015, the banking system has been recapitalised and the economy returned to growth last year following three successive years of annual declines. In short, the Government is delivering a return to sustainable growth which capitalises upon the underlying strengths of the Irish economy.

The Minister must surely agree that the relationship between the export figures and the number of people involved looks unusual. For example, I believe the top three export companies in Ireland at the moment are Johnson & Johnson, Microsoft and Google. They export over €24 billion in products and services and account for 15% of our exports. Given that they account for 0.3% of the workforce, that is a bit uneven. The pharmaceutical industry has exports worth over €56 billion, yet employs only 2.6% of the workforce. It looks from the figures as if each worker is producing €1.2 million worth of work each year. Clearly there are sales funnelled through this country for tax avoidance purposes which are inflating these figures.

If the Government is serious about job creation, we need to look more closely at doing something for the domestic economy. We need to look at the rates structure, which is linked to our poor local government structure, our huge energy costs, upward only rent reviews, which I know are difficult to deal with-----

I must call on the Minister to reply. I will come back to you for another supplementary question.

Incentives for people investing in small businesses would be a help as well.

The best way to project the future is to look at what happened in similar circumstances in the past. It was export-led growth that brought us a great recovery in the 1990s. Between 1994 and 2000, nearly 700,000 extra jobs were created. However, the jobs lagged behind the growth. I am not sure if the Deputy's statistics are correct, but I accept what he says about different components of the multinational industry base in the country. Overall, there are over 200,000 people working in these industries and they generate double that number in employment in the ancillary industries that supply them and support them. That is out of a total number of 1.8 million still at work in this country. I remember that at the height of the crisis in the late 1980s, employment in the country was down to about 940,000. Today it is still at 1.8 million. There are many people still going to work every morning.

The level of employment is not acceptable and we must do everything in our power to address the unemployment problem and get people back to work. However, we are not as badly positioned as the gloom and doom merchants would have us believe, and we can work our way and grow our way out of this.

I assure the Minister that I am not a doom and gloom merchant.

There are none in this House.

However, indigenous industry would be far more likely to create secondary industry, given that many of our multinationals bring in much of their material from abroad. There is not quite as much the same spin-off from that.

I saw a statement today from Mark Fielding of ISME, who said "How many more people must we lose to emigration and unemployment before we see some action from this ... Government?" The seasonally adjusted live register figures confirm that almost half a million people are unemployed. The domestic economy has a huge impact on everybody in the country. It accounts for 90% of the workforce. The amount of money that people have in their pockets has such a dramatic effect on small businesses. They are suffering at the moment and while it is great that the export market is looking good, if the Government can do a bit more for the domestic economy, it will have a much bigger impact on people's lives.

I fully agree with what Deputy Wallace is saying. Sector after sector in the domestic economy is targeted with initiatives in the budget. In a couple of weeks we will be able to discuss them when we implement them in the finance Bill. There are incentives targeted across the board from agribusiness to the food sector to the property business. We must get the domestic economy going again. We will not get people going back to work with the numbers we require until the domestic economy is booted up once more.

However, we cannot go back to where we were. Reverting to a property bubble will not solve our problems. We must go back to the economy we had from the mid to late 1990s, when we were very competitive, when we invested in skills and education and when almost 700,000 extra people went to work over six years.

Labour market figures are very interesting. In 2011, a total of 144,000 people left the live register to go back to work. It shows the enormous amount of change that took place. Other people lost their jobs and went onto the live register. This shows the flux and flexibility of the labour market when 144,000 left the live register and got jobs, yet a whole other tranche of people lost their jobs and went on it. If we could stop the losses, there are things happening in the economy that are encouraging.

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