Written Answers Nos. 65-71
66. Deputy Bernard J. Durkan asked the Minister for Finance the position as indicated to his European colleagues in the context of Ireland’s exit from the bailout programme; the extent to which he is satisfied that the decision will assist towards economic recovery; and if he will make a statement on the matter. [49791/13]
View answer67. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which the economic fundamentals have improved in this economy in the past three years; and if he will make a statement on the matter. [49792/13]
View answer72. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which he expects economic growth to improve in 2014; the factors within the control of this country which are likely to be most effective in this context; and if he will make a statement on the matter. [49797/13]
View answerI propose to take Questions Nos. 66, 67 and 72 together.
As the Deputy is aware, the Government decided on 14 November that Ireland is now in the best position to exit the EU-IMF programme of financial assistance on December 15 without the need to prearrange a new precautionary credit line.
The Government’s assessment is that the best option for Ireland is to exit the programme as planned in December without a prearranged backstop for a number of reasons, including prevailing market conditions, progress in improving the public finances, and the new European fiscal governance architecture.
Regarding economic performance, the economy recorded a second successive year of growth in 2012 having contracted for three successive years from 2008 to 2010. This recovery has been driven by strong export growth over the period, reflecting, in part, the considerable competitiveness gains achieved in the last number of years. Inflation in Ireland has been below or on par with that of the euro area average for every month since March 2008 and the latest European Commission forecasts suggests a 22 per cent improvement in unit labour cost relative to the euro area average between 2008 and 2014.
Domestic activity contracted sharply following the collapse of the property market, with domestic demand decreasing significantly between 2008 and 2012. This has had severe ramifications for the labour market with the unemployment rate increasing by around 10 percentage points over this period.
However, recent indications have been that domestic demand is stabilising and is moving on to a modest recovery path. Personal consumption was up by 0.7 per cent in the second quarter and healthy retail sales in the third quarter, along with improving consumer sentiment, bode well for the second half of the year. We have also seen a return to growth in ‘core’ (excluding planes) investment, with both construction and machinery and equipment growing in recent quarters.
Perhaps most pertinently, employment has now increased in each of the last four quarters, with employment up 1.8 per cent year-on-year in the second quarter. In line with this, the standardised unemployment rate stood at 13.2 per cent in October, having fallen from a peak of 15.1 per cent early last year. While I would stress that more must be done to tackle the still high level of unemployment, it is clear that we are now moving in the right direction.
Growth of 0.2 per cent is forecast this year, with patent expiry in the pharmaceutical sector impacting on output in Ireland. Current forecasts for 2014 are for an acceleration in the pace of economic growth, with GDP forecast to increase by 2.0 per cent. The contribution from domestic demand is expected to strengthen, which is encouraging. On the assumption of a pick-up in trading partner growth, exports are set to increase once again, although the potential for further reductions in pharma-chem output presents a notable risk to this projection.
Through the fiscal adjustment measures that the Government has implemented since 2011, stability has been restored to the public finances. Having met and exceeded all of our deficit targets to date, we remain on track to bring our deficit below 3 per cent of GDP in 2015.
Irish sovereign yields are now at about 3½ per cent, a fraction of the highs reached in summer 2011. This is due in no small part to successful re-negotiation of the terms of the EU-IMF programme and the promissory note deal, as well as the overall confidence in the future of economic and monetary union. However, the improvement in yields is also down to the Government’s fiscal strategy which has seen the consistent delivery of deficit reduction. A reduced cost of borrowing for the Government reduces the interest bill which has to be paid by the taxpayer, and, over the long term serves to keep economy-wide interest rates low in order to stimulate investment. On foot on this progress and prudent debt management policies, Ireland’s debt ratio is now expected to decline in 2014 and remain on a downward trajectory thereafter. Budget 2014 also forecasts a modest primary surplus next year. This means that, excluding debt service costs, revenues are sufficient to meet expenditures.
The process of rebuilding the economy takes time. The approach the Government is adopting is designed to implement the necessary changes in a manner that positions the economy to grow into the future and instils confidence in Ireland at home and abroad.
68. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which any consideration might be given to the launch of a Government development bond which might assist economic recovery with particular reference to the need to provide a channel whereby those with savings might obtain a reasonable return on their investment; and if he will make a statement on the matter. [49793/13]
View answer75. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which economic analysis has been undertaken with a view to identifying the best means of harnessing savings and investment funds at a time of low banking interest rates; and if he will make a statement on the matter. [49800/13]
View answerI propose to take Questions Nos. 68 and 75 together.
The National Treasury Management Agency (NTMA) offers a range of savings products to personal savers under the brand name State Savings. NTMA State Savings products have been an important and dependable component of Government borrowing for many years and make a valuable contribution to the national finances. The suite of State Savings products includes Savings Certificates, Savings Bonds, Prize Bonds, the National Solidarity Bond, Instalment Savings and Deposit Accounts such as the Ordinary Deposit Account and the Deposit Account Plus.
The ten-year National Solidarity Bond was introduced in 2010 specifically to allow citizens an opportunity to invest and provide money to the State to stimulate economic recovery and to assist in the maintenance and creation of employment. A four-year National Solidarity Bond was introduced in 2011. The four-year National Solidarity Bond offers a fixed return of 12%, while the ten-year Solidarity Bond offers a return of 45%. Savers have invested a total of over approximately €1.671 billion in the National Solidarity Bond to date.
The NTMA is responsible for the State Savings products and keep the suite of State Savings products and the interest rates paid on them under constant review to ensure that the products remain competitive and attractive to savers, while balancing the funding requirements and financing costs of the State.
In addition to the above, my Department is currently working on legislation to establish the Ireland Strategic Investment Fund (ISIF). The ISIF will have a commercial Ireland-focused investment mandate that supports economic growth and employment. Work is already underway by economic consultants (appointed by the NTMA) to assist in identify the linkages between commercial investment and economic growth and employment. Establishing the ISIF will unlock €6.6 billion of NPRF resources (as at end September 2013) for commercial investment in Ireland, ensuring that the State uses the resources available to it to support economic growth and employment in Ireland. I expect that the ISIF will be an important resource for Ireland in the years to come.
70. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which savings from other jurisdictions might be attracted here post the exit from the bailout programme with particular reference to the need to create an attractive environment for economic recovery; and if he will make a statement on the matter. [49795/13]
View answerThe Medium Term Economic Strategy, which will be published shortly, will set out the principles that will guide economic and fiscal policy out to 2020. By setting out the macroeconomic and fiscal framework to govern the post-programme period, the Medium Term Economic Strategy will provide certainty and confidence to investors, both domestically and internationally and support economic recovery.
71. Deputy Bernard J. Durkan asked the Minister for Finance the extent to which Exchequer returns continue to indicate meeting various taxations targets under their respective headings as envisaged for budget 2013; the way he expects this to impact on future performance in 2014; and if he will make a statement on the matter. [49796/13]
View answerTax revenues in the period to end-October remain largely in line with the 2013 published profile coming in some €37 million (0.1%) ahead of profile, despite some variations at individual tax head level. Notwithstanding this position, the forecast of €37,825 million for 2013, as set out in Budget 2014 stands. This represents a fall of €125 million (0.3%) on the original Budget 2013 forecast. Moving to individual tax heads, excise duties continue to be below profile with declines in receipts from alcohol and tobacco the main contributors.
As discussed in the Budget 2014 booklet, the shortfall in value added tax (VAT) can be largely explained by a sector specific issue unrelated to personal consumption expenditure. Encouragingly, receipts during the most recent VAT due month of September, reflective of trading during July and August, was up €80 million on expectations. This is consistent with the uptick in retail sales over the summer and the impact of the change in the car registration system. Nevertheless, despite its positive momentum in the domestic economy, a small shortfall against profile is expected.
Turning to income tax, the largest tax head, performance in the year to date has been healthy. The position at end-October is a small shortfall of 1% against profile. This is substantially attributable to the lower than expected DIRT receipts as a result of the low interest rate environment. Encouragingly, other elements of income tax are actually ahead of target, reflective of the better than expected performance of the labour market.
Against these downsides, there has also been an over performance relative to expectation in some key tax heads, with corporation tax performing particularly well, up €235 million against profile to end October. Stamp duties are also recording a surplus against profile to end October, with volumes increasing across the board from property transactions to share disposals.
The table below set outs the original Budget 2013 forecasts for each tax head, the revised forecast outturn for 2013 and the forecast for 2014 as set out in Budget 2014 last month.
Exchequer Tax Revenues 2013 - 2014
|
- |
Original Budget 2013 Forecast |
Forecast Outturn 2013 |
Budget Forecast 2014 |
|
- |
€m |
€m |
€m |
|
Customs |
250 |
250 |
255 |
|
Excise Duty |
4,920 |
4,720 |
4,815 |
|
Capital Gains Tax |
420 |
390 |
400 |
|
Capital Acquisitions Tax |
375 |
405 |
380 |
|
Stamp Duty |
1,180 |
1,310 |
1,475 |
|
income Tax |
15,860 |
15,730 |
17,045 |
|
Corporation Tax |
4,135 |
4,355 |
4,380 |
|
Value Added Tax |
10,560 |
10,365 |
10,740 |
|
Local Property Tax |
250 |
300 |
550 |
|
Total |
37,950 |
37,825 |
40,040 |
Source: Department of Finance
Figures are rounded to the nearest €5 million.
The performance for October 2013 does not warrant a change to the 2013 outturn forecast as Budget 2014, which was based on the performance to the end of September. Consequently, the forecast for 2014 tax revenue also stands.
