Business Irish

Wednesday 26 October 2016

The Noonan doctrine

The Minister for Finance Michael Noonan spells out his plan to guide the Irish economy through these first few hopeful years of growth and recovery and into a prolonged period of steady, stable economic growth

Michael Noonan

Published 03/05/2015 | 02:30

Michael Noonan
Michael Noonan

The scale of the economic crisis that we have gone through since the collapse has been unprecedented in Ireland's history. We have essentially lost a decade in terms of economic growth and job creation. Difficult decisions have been taken - and huge sacrifices have been made by the Irish people.

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As we now plan for the remainder of this decade, our citizens have every reason to be confident and hopeful about their future. A future of steady, stable economic growth and a future with more people working in secure and sustainable jobs than ever before in the history of the State. A future of stable public finances that will deliver money in people's pockets, higher quality public services and strategic investment in essential infrastructure throughout the country.

Protecting and securing the hard-won gains of the last four years and building on them for the future is the priority of this Government. The economy is growing at the fastest rate in Europe - by 4.8pc in 2014 and the Department of Finance is forecasting growth of 4pc this year. Steady, stable economic growth of 3.25pc on average is forecast for the remainder of the decade.

The recovery is jobs-rich with 95,000 jobs added from the low point of 2012. My department is forecasting that we will pass the two million people in employment mark next year; replace all of the jobs lost during the downturn by 2018, and, in total, between 2015 and 2020, add 200,000 new jobs.

The spring economic statement which I outlined to the Dail last Tuesday sets out the policies to build upon the recovery and deliver these objectives over the remainder of this decade through a continuation of prudent, medium-term focussed budgetary and economic policies that will secure sustainable increases in jobs and in living standards.

The recovery is now gaining momentum and, importantly, is becoming more broadly based. This is just the start of the recovery and the figures tally with what we are seeing on the ground - more people are working; people have more income in their pockets; people are more confident about the future; businesses are being created and are expanding.

Rebuilding the economy sector by sector

In each of the Budgets introduced since 2011 re-building the economy sector-by-sector has been a key feature.

In some areas - such as tourism and agri-food - the approach has been about building on our comparative advantage and exploiting new external market opportunities.

The reduction of the VAT to 9pc in the tourism and hospitality sector, the abolition of air travel tax and the tax changes to support farmers gearing up for the ending of the milk quota have all proven very successful.

The Government has presented plans to continue the sector-by-sector approach to growing the economy and the spring economic statement underpins these plans. In the tourism sector we aim to increase revenue from overseas visitors by €1.5bn to €5bn and increase employment in the sector to 250,000 by 2025.

We will attract 900 new investments for Ireland over the period to 2019, creating 80,000 new jobs and 35,000 net jobs.

Addressing personal indebtedness is also essential as our economy returns to strength. A mortgage is the single biggest debt most people will ever take on. Supporting homeowners in arrears has been a priority for this Government and our strategy has assisted borrowers and lenders reaching agreement to restructure about 115,000 mortgage accounts.

The Government is actively considering a range of options to further strengthen the mortgage arrears framework in order to ensure that families in long-term arrears can find a solution.

The Government intends making an announcement on this issue in the coming weeks. A particular focus will be on enhancing the role of the Insolvency Service, which is overseen by the Department of Justice.

Access to credit for households is as important as access to credit to businesses. The mortgage interest rates being charged by banks in Ireland have not been reduced in line with the rate reductions by the ECB. I recently discussed this issue with the Central Bank Governor and he updated me on the ongoing work that the Central Bank is carrying out on this issue.

The Central Bank will report back to me in the coming weeks and I intend, during the month of May, to initiate discussions with the six main lenders in Irish banking on the issue and look forward to hearing their plans for reducing interest rates.

A series of reductions over a fixed time frame would be acceptable to me - and in that context I welcome AIB's announcement as a good first step.

New EU rules

This Government is committed to prudent management of the public finances and this is supported by the fiscal rules that are applicable to Ireland and indeed all other member states of the European Union since the ratification of the Stability Treaty.

My department is now forecasting a deficit of 2.3pc of GDP in 2015. There are obviously risks to this forecast and it is essential that discipline is maintained in the management of the public finances.

With the deficit falling below 3pc, from next year onwards a different set of rules apply and we will be required to make progress towards a balanced budget in structural terms.

This will be the new anchor for budgetary policy and it is designed to ensure that budgetary policy supports economic growth.

Put simply, it is designed to ensure that the days of 'if I have it, I'll spend it' are over - and this new approach will protect the Irish people from the boom and bust policies of the past.

If these rules had been in place - and had been properly applied and adhered to in the early 2000s - Ireland would have been far better positioned to weather the global financial crisis. In the early 2000s, our taxation system became over-reliant on transaction- and property-based taxes. The revenues from the property boom were used to fund a narrowing tax base to an unsustainable level and to fund day-to-day current expenditure.

The use of tax expenditures in the early 2000s not only served to hollow out the tax base, but led to an overheating of the economy.

When the property bubble burst, the revenues dried up and the consequences have been eight years of tax increases and expenditure cuts.

The principal domestic risk to Ireland's continued economic growth is the tax and spend policies of the Opposition.

Unfortunately the policies proposed by the Opposition will do exactly this. They will increase taxes, increase expenditure, increase debt, lower growth rates, reduce tax buoyancy and cost jobs. The policies of the Opposition will again cause the economy to spiral downwards.

A growing economy is not an end in itself - it is the means by which we will improve living standards, create employment and deliver better public services to the Irish people.

Economic recovery provides us with the platform upon which to build for a future of economic growth, job creation and increased living standards.

We must never again repeat the mistakes that left Ireland on the verge of bankruptcy in 2010 and resulted in a lost decade and such hardship in the lives of so many people.

This Government's strategy of steady, stable economic growth will benefit all of our citizens. It will provide the resources for investment in our public services. It will fund the building of new schools, health centres and essential infrastructure. It will deliver secure jobs to more people than ever before in the history of the State.

It will put more money in people's pockets and give people security around their income and their pensions. It will attract our emigrants home and they in turn will help to build strong communities throughout the country.

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