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Economic Policy

Dáil Éireann Debate, Wednesday - 4 July 2012

Wednesday, 4 July 2012

Questions (11)

Clare Daly


9Deputy Clare Daly asked the Minister for Public Expenditure and Reform his views on the conclusions of the Nevin Economic Research Institute’s Quarterly Economic Observer Summer 2012 report that cutting public expenditure and other austerity measures result only in a much reduced public service and do nothing to promote economic growth; and if he will act on the Institute’s advice and do no further harm. [32439/12]

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Oral answers (20 contributions) (Question to Minister for Public)

The Government's budgetary strategy is not one of austerity. On the contrary, we are borrowing significant sums of money to sustain the State and to protect the living standards of its citizens. We have extended the time available to the State to reach its 3% deficit target from that originally agreed with the troika. That means we are still borrowing 3% of GDP and not paying our way even then.

I remind the Deputy that the State's day-to-day spending is currently financed through borrowing from the troika which is based on firm conditions relating to the public finances. These conditions are rigorously overseen and the troika team is in my Department and the Department of Finance right now. We are committed to achieving a deficit target of 7.5% next year.

The Government is aware of the concerns expressed in the Nevin report and has made clear its commitment to focus our limited resources on measures that offer the greatest potential for expansion and employment creation in the domestic economy. This approach was evident both in the jobs initiative launched last year and the jobs action plan launched earlier this year. I will bring forward promised proposals for a further stimulus in the coming weeks.

I understand the Minister's sensitivity as the employment creation process over which the Government has stood led to a youth unemployment rate of 27.5% in April and an overall unemployment rate of 15%. The Nevin Economic Research Institute has indicated firmly that the policies being pursued of consistent cutbacks have succeeded in bringing about a cumulative decline of 26% in domestic demand in recent years. Cutting our way out of the crisis is not an option and the institute has produced very firm evidence in that regard. For example, it indicates a cut of €1 billion in capital spending lowers GDP by between 0.1% and 0.3%, although that may be an underestimation. A cut of €1 billion in public sector wages lowers GDP by a further 0.2% to 0.3%. Where are the measures, as recommended by the Nevin Economic Research Institute, for strategic priority investment in infrastructural programmes? There should be no further cuts in the overall level of discretionary capital and current expenditure. The Government is doing the opposite of what was recommended by the institute and the results will be the same, continuing decline in the domestic economy and hardship for citizens.

The Deputy wills misfortune on us because she thrives in that milieu. I will be clear: the basic economics are simple; we cannot spend more than we take in. We were doing this hand over fist. This year we are borrowing 8.6% of GDP to meet day-to-day expenses. Approximately one quarter goes towards bank debt repayment, but three quarters goes on paying gardaí, nurses and so on. The only people who will lend us money at affordable rates are the troika which has set out the conditions we must work towards in balancing the budget over time. If we do as the Deputy suggests and stop trying to balance the budget, we will immediately have to fill the gap because nobody will lend us the money. Instead of enduring cuts, there would be savagery, as we would only be able to pay for what we could from current income. That would be catastrophic for the people whom the Deputy pretends to represent. In her heart, she knows this.

We can get money elsewhere.

Where would we get it?

The Nevin institute which is made up of economists recommends the Government could start by closing off tax breaks and reliefs, with a graduated and incremental increase in the average target tax take for high income households, with the aim of reducing the budget deficit to below 3% of GDP by 2017.

What are the targets?

The Government could take a leaf from the book of Social Justice Ireland which has indicated that if we dealt with our taxation rates and had them at the EU average, the Government could raise another €6.5 billion. Instead, it has chosen to go after ordinary households through cutbacks in welfare and other general tax hikes.

I am not sure if there was a question asked, but there was a rant without giving data. The Deputy may talk about a wealth tax-----

I did not mention a wealth tax.

-----a progressive tax system or something else. I will cost any proposal given to me, as I did last year. This means people cannot throw out the line that there are billions of euro available here and there.

The Department refused to cost a wealth tax proposal last year.

A notion is peddled by some that there is a soft option and a rich cohort of people and that if we could only get to them, all our woes would be over. That is to peddle a falsehood.

That is not what the Deputy said.

It is for party political reasons that such a falsehood is peddled.

I have quoted a reputable source.

I will certainly look at any suggestion from the Nevin institute or proposal from any quarter that-----

The Department did not cost our suggestions last year.

I am giving the Deputies an open invitation. I will have any suggestion they present for taxation measures costed to see if it would have an impact in order that we can have as fair and balanced a journey as possible. We will have a difficult time balancing the income of the State to maintain decent levels of social provision.

My question was related to something else. The Minister did not answer it.

Written Answers follow Adjournment.