Olivia Mitchell
Ceist:36 Ms O. Mitchell asked the Minister for Finance whether his Department has considered the medium-term impact on the economy of escalating house prices and increased traffic congestion in the greater Dublin region. [5591/98]
Written Answers - Economic Policy.
Gerry Reynolds
Ceist:53 Mr. G. Reynolds asked the Minister for Finance his views on commentators who view asset price inflation as posing a medium-term threat to the economy; and if he will make a statement on the matter. [5594/98]
I propose to take Questions Nos. 36 and 53 together.
My Department's economic forecasts for the period 1998-2000 inclusive were presented in the Economic Background to the Budget publication circulated to the House on 3 December 1997. These projected volume increases in GNP of 7 per cent for 1998, 5.7 per cent for 1999 and 4.9 per cent in the year 2000. These forecasts were presented against the background of the favourable international outlook of reasonable prospects for growth in continental Europe and continued subdued inflationary pressures in the OECD.
As with all economic forecasts, there are risks associated with this outlook, and these risks were adverted to at paragraphs 2.6 to 2.9 of the Economic Background to the Budget:
The most immediate (risk) arises from the emerging shortages of both skilled and unskilled labour. If not dealt with, these shortages have the potential to bring the current strong growth phase to a premature end. Tackling the changing needs of the labour market will be one of the most important features of Government policy over the next few years.
Another risk is that the current economic success may generate excessive pay demands and/or unrealistic expectations for improvements in a wide range of public services. This would undermine the conditions for sustained economic growth; in these buoyant conditions, it is essential that expectations are contained. The risk that international developments and/or current uncertainties in international financial markets could result in slower growth must also be taken into account.
If inflationary pressures are not contained, there will be a loss in competitiveness and, ultimately, lower economic and employment growth. Accordingly, it is essential that the moderate pay terms of Partnership 2000 for Inclusion, Employment and Competitiveness be strictly observed to ensure that inflationary pressures are minimised.
House prices have escalated dramatically over the last two years, both in absolute terms and as a proportion of disposable incomes. While the impact of this has been mitigated by reduced interest rates, the current rate of house price increases is of particular concern.
I am satisfied that the overall macro-economic policies which the Government is pursuing will create the conditions necessary for continued economic growth. We are using the good economic conditions to move to a budget surplus while reducing the tax burden, providing for increased resources in the area of social inclusion and meeting the investment needs of our economy.
The next review of the prospects for the Irish economy in 1998 will be published by my Department in Economic Review and Outlook in July next and this will take account of all relevant developments in the domestic and international economy. As regards particular sectoral areas of policy such as housing, which is the responsibility of the Minister for the Environment and Local Government, who also has responsibility for transport in conjunction with the Minister for Public Enterprise and other relevant Ministers, all my colleagues are very much aware of the link between successful targeting of resources and the pursuit of appropriate policies across all sectors, and the performance of the economy in the medium term.