Vol. 455 No. 2
10 Mr. McCreevy asked the Minister for Finance his views on the recent OECD survey report which put forward the view that the best way to secure long-term prosperity for the Irish economy is to use fiscal leeway to cut debt and taxes rather than to finance increasing public spending, as has been the case since the current Government took office; and if he will make a statement on the matter. [11938/95]
The OECD acknowledges that Ireland's "Budget position has remained under control". It could, indeed, say no less since Government borrowing has remained well below 3 per cent of GDP for several years and the ratio of debt to GDP has been falling rapidly. The OECD assessment of the spending limits which this Government has set itself is that these limits are consistent with substantial further reduction of our debt burden in the period ahead.
While the choice of reducing the level of debt at a faster pace is, of course, a desirable one, the use of resources in this way must be weighed against the potential benefits of alternative uses. The choice of how to use the fruits of growth must be considered in the context of the overall priority of Government policy which is to sustainably reduce the level of unemployment as quickly as possible. In deciding on the allocation of resources, it is necessary to strike a balance between reducing the level of debt on the one hand while committing appropriate resources to other desirable objectives on the other.
The OECD is critical of the pace of expenditure growth in recent years. This criticism of past spending trends has some validity. The fact is that since 1990 spending on current supply services has increased on average by about 5 per cent per annum over the rate of inflation. This rate of increase in spending clearly has to be reduced.
The Deputy's question implies that public spending began to increase only since this Government took office. This is simply, as he well knows, not the case. In fact, the upward trend in public spending has been evident for at least four or five years.
The importance which this Government attaches to strict control of public spending is clear in the commitment in A Government of Renewal to limit the growth in current supply spending to 6 per cent in nominal terms this year and to an average of 2 per cent in real terms in 1996 and 1997; and in the action we have recently taken to ensure that these limits are observed.
The aim of the measures we are taking is to ensure that the benefits of future growth are used in substantial measure for tax reform which will favour the incentive to work, tackle the poverty trap, encourage enterprise development and, above all, ensure the maximum growth in sustainable employment.
Does the Minister agree with the OECD's contention that the best way to secure long term prosperity for the Irish economy is to use fiscal leeway to cut debt and taxes rather than to finance increases in public spending? Secondly, we recently had a lengthy Private Members' debate on this whole area. Does the Minister accept that there is an implied criticism in the OECD report that the setting of a target of inflation plus 2 per cent for the next number of years was not the correct strategy?
If the Deputy read the report carefully — which I am sure he has — he would recognise that the OECD is critical of the drift upwards in public spending over the four to five year period. However, it takes note of the commitment which we made in the programme A Government of Renewal and this is a correct course of action from the OECD point of view. Increases in public spending of the level which we have had over the last five years are not sustainable for the interim period. That is why in the formulation of the programme of the present three-party Government this problem was both recognised and addressed.
I recognise, in turn, that achieving the target of 6 per cent was clearly difficult this year and, in respect to equal treatment, we breached it — consciously and for reasons which I have addressed elsewhere. I said in my budget speech that we would have difficulties in meeting our target of 2 per cent for 1996 and 1997 but they are desirable targets and ones to which I remain fully committed.
