Thursday, 20 June 2019

Questions (92, 93, 94)

Bernard Durkan

Question:

92. Deputy Bernard J. Durkan asked the Minister for Public Expenditure and Reform the extent to which he remains satisfied that policies of his Department continue to reflect well on economic performance with particular reference to competitiveness; and if he will make a statement on the matter. [26020/19]

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Bernard Durkan

Question:

93. Deputy Bernard J. Durkan asked the Minister for Public Expenditure and Reform the steps he views necessary to correct imbalances emerging in the economy in the context the responsibility of his Department; and if he will make a statement on the matter. [26021/19]

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Bernard Durkan

Question:

94. Deputy Bernard J. Durkan asked the Minister for Public Expenditure and Reform the reforms he views as most preferred or appropriate with particular reference to the degree to which his Department makes a positive contribution to the well-being and economic performance of Ireland; and if he will make a statement on the matter. [26023/19]

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Written answers (Question to Public)

I propose to take Questions Nos. 92 to 94, inclusive, together.

Overall our economy is in good shape and is expected to grow this year and next. Indeed modified domestic demand, an underlying measure of growth in the economy, grew by 4.5 per cent for 2018 as a whole.

One of the best barometers of the heath in the economy is the labour market. The strong growth in employment over the last number of years has continued into this year, with total employment increasing by 81,200 (+3.7 per cent) in the year to Q1 2019. As a result, there are now more people working in Ireland than ever before.

At the cornerstone of our recovery, has been the improvement in our competitiveness. Since 2008, the Central Bank’s real harmonised competitiveness indicator has improved by approximately 22 per cent. The improvement in our competitiveness reflects the hard-won productivity gains made over the last number of years, alongside wage and price moderation.

Importantly, the robust economic growth in recent years has not yet given rise to significant inflationary pressures. In the first four months of 2019, average annual inflation of just 1.1 per cent was recorded.

On wage developments, while average annual earnings grew by over 3 per cent in 2018, this came on the back of a near decade of low or negative growth in earnings. The rise in household incomes is a welcome development, however it needs to be monitored closely to avoid a significant acceleration in wages, which may undermine Ireland’s relative competitiveness to other European countries.

Over the medium term, the domestic economy is expected to act as the primary driver of growth. In this context, we must remain cognisant of the potential upward pressure this will place on both prices and wages, that could give rise to a loss of competitiveness.

Indeed, as we approach full employment, the economy is in an unusual position, with possible domestic overheating and capacity constraints on one hand and a slowdown in key export markets on the other. Brexit also represents a significant risk and is part of a wider environment of global uncertainty. In order to mitigate against these risks, it is important that the economy is in a strong position to retain competitiveness and resistant to external shocks. Taking this into account, the National Development Plan (NDP) includes a more than doubling of capital investment from €4.2 to €8.6 billion between 2016 and 2021. This increase reflects the Government’s commitment to addressing bottlenecks which could hinder the economy going forward.

These risks mentioned above highlight the need for a cautious approach to expenditure policy, which is sustainable now and into the future. In contrast to the increases in expenditure seen in the years leading up to the crisis, recent expenditure increases have been based on sustainable growth underpinned by predictable revenue sources. It is crucial that this approach is maintained in the medium term in order to mitigate against emerging risks in the domestic and global economy. As such, the expenditure ceilings set out in the forthcoming SES will be based on the expenditure strategy set out in the SPU, published by the Department of Finance.

Ireland still has a significant level of public debt following the global financial crisis. While debt-to-GDP ratio has been declining over recent years, this is primarily due to the increase in GDP, rather than a reduction in the debt itself, which remains at over €200 million. At the end of 2018, our debt ratio as a percentage of GDP was 64.8 per cent. Maintaining sustainable expenditure policy is an important element of ensuring that our economy is performing well and that our debt-to-GDP and debt-to-GNI* ratios continue to decline. This includes ensuring that we are delivering public services in the most efficient and effective way possible. To this end, a number of reforms have been put in place in recent years, including the Performance Budgeting Initiative, the Equality Budgeting Initiative, the National Economic Dialogue and the Spending Review.