Michael Noonan
Ceist:23 Mr. Noonan asked the Minister for Finance if he will outline the steps, if any, he will take to tackle inflation; and if he will make a statement on the matter. [5287/00]
Ceisteanna – Questions (Resumed). - Priority Questions. Inflation Figures.
The most recently published inflation figures for Ireland – January 2000 – show a year-on-year increase of 4.0% in the consumer price index, CPI, and a 4.4% increase in the harmonised index of consumer prices, HICP. The most recently published EU HICP was 1.7% for December; this compares with the December HICP figure of 3.9% for Ireland.
The recent increase in the rate of inflation reflects a number of factors which include the fall in the value of the euro; the increase in crude oil prices which have added more than 1% to inflation; and the budget increase in excise duty on tobacco, which was introduced for health promotion purposes, and which has added about .75% to inflation.
Excluding the increases in oil prices and excise duty, which do not reflect the underlying trend, inflation in January was closer to 2%. As the impact of these special factors passes through, it is expected that inflation will peak in the near future and should fall through the second half of this year. Concern about inflation substantially reflects concern about competitiveness. Since key factors behind the recent increase in inflation are temporary in nature, they should not lead to a disimprovement in our competitive position. However, this temporary increase in prices would be a matter for concern if it were to show signs of adding to wage inflation. The main policy response of this Government, therefore, has been to guard against such an outcome by ensuring that wage increases remain competitive.
Towards this end, the Government has just completed negotiations on a successor to Partnership 2000, aimed at ensuring that the consensus-based approach to managing our economic affairs, which has been so successful to date, will continue for another three years. The pay terms of the new agreement strike a balance between providing gains in real disposable incomes and maintaining the economy's competitiveness. Adherence to these pay terms will help ensure that the recent rise in inflation is temporary and that we can sustain economic and social progress. In supporting social partnership and sensible wages evolution, budgetary policy is also geared towards maintaining stability. Reducing taxes is an essential part of this process. The Government intends to continue with these successful income and budgetary policies as the best way to tackle inflation.
Enhancing competition is also important in keeping inflation low and with that in mind the Government has been opening up markets to greater competition. The efficiency improvements and the higher productivity that has resulted from this process has put downward pressure on prices in certain sectors. The recent dramatic fall in telecommunications costs is an example of this. The Government is continuing to pursue these policies in those areas of the economy that could benefit from increased competition.
I am optimistic that the recent increase in inflation will turn out to be temporary. I am confident that the continuation of the Government's wage, tax and market-reform policies is the best approach to achieving this objective.
I want to put two points to the Minister. First, when the 50p increase on a packet of cigarettes impacted on the consumer price index by one quarter of 1%, would it not have been prudent of the Minister to reduce excise on petrol by an equivalent amount in order that the excise decisions in the budget would have neutralised each other? The Minister did not need the additional revenue and the considerations for increasing excise on tobacco were health related, not revenue related. The Minister should have taken other measures to cancel out the impact of the increase.
Second, is the Minister aware that in other EU countries, particularly Belgium, where continuing increases in cigarette and tobacco costs form government policy, the cost of excise on these items has been removed from the basket of items which form the basis of the consumer price index and would he consider introducing a similar strategy here?
The Deputy stated that the cigarette price increase impacted on the consumer price index by one quarter of 1% when it actually impacted by three quarters of 1%. The decision to increase the price of cigarettes was signalled well in advance by the Minister for Health and Children in May or June of last year and should not have come as any surprise in the budget. The Deputy asked why I did not consider reducing excise on petrol. An energy directive is currently being drafted in Europe and the Irish rates of excise on petrol and related products are currently far below the EU average. To reduce excise in this area would move us further away from probable increases which future Governments will be obliged to make. In terms of environmental concerns, Deputy Noonan's Green Party colleagues would have objected loudly had I reduced the price of petrol or oil products. All of these matters were borne in mind when I was making my budget decisions.
On the removal of tobacco prices from the CPI, the Deputy will recall that many years ago a former Minister for Finance, Deputy Ryan, removed mortgage interest from the CPI but found that nobody was prepared to accept the CPI unless it included mortgage interest. People want these issues to be included in the index.
I remind the Minister that questions are subject to a six minute time limit.
It would be possible to exclude tobacco in the same way from the CPI but past experience is that nobody would take it into account.
We have exceeded the time for this question and must proceed to Question No. 24.
The Minister should give shorter answers.