Dáil Éireann Debate, Tuesday - 23 October 2012
127. Deputy Pearse Doherty asked the Minister for Finance the fiscal multipliers used by his Department in determining their growth projections and deficit reduction targets; and if he will make a statement on the matter. [45715/12]
View answerIn framing fiscal and economic policy so far, the Government has sought to balance the need to restore confidence in Ireland's fiscal position with the key objective of supporting economic growth that delivers jobs. While the short-run impact of fiscal consolidation may see a reduction in economic output, over the medium term positive effects are expected as the fiscal deficit is reduced and increased investor confidence translates into a lower risk premium which will allow us to sooner put public debt on a declining path. Recent IMF staff research suggests that the average scale of fiscal multipliers (the effect of consolidation on growth) across countries may have been underestimated in recent years. However this result did not hold for Ireland which suggests that multipliers used by economic forecasters for Ireland are reasonably accurate.
Ireland is a small, open economy with imports at over 80% of GDP. This means that a considerable impact of consolidation in Ireland translates into reduced demand in countries we import from, not here at home. Evidence of this can be seen in the current account of the balance of payments which has moved from a deficit of -5.7% of GDP in 2008 to a surplus of 1.1% in 2011. It is also important to point out that fiscal multipliers vary according to the fiscal instrument used. For example, the impact on aggregate demand as a result of tax changes could be different to the impact from expenditure changes. I would stress, however, that the Government is committed to implementing consolidation in as growth-friendly a manner as possible.
Ireland is committed to implementing further consolidation in the years to 2015 in order to correct our excessive deficit. This is designed to sustain investor confidence and keep the cost of borrowing as low as possible to minimise the cost to taxpayers. This strategy has shown recent signs of success with the significant lowering of bond yields since early summer and the successful return of the NTMA to the debt market.
