Paschal Donohoe: 'Our economy must be built to stay strong when inevitable external shocks hit home'
Yesterday I published the Government's annual update of its Stability Programme. In the coming weeks, all member states of the European Union will formally submit their updates to the European Commission. It is a vehicle through which member states take stock of the latest economic and budgetary developments in their countries and update their projections accordingly.
In an Irish context, it is worthwhile taking stock over a longer timeframe. This week marks exactly a decade since the Fianna Fáil-led government of the time presented an emergency Budget that slashed spending and increased taxes because of its shocking mismanagement of the economy.
The decade-long journey we have undertaken since then has undoubtedly been difficult but the economy has been transformed. The public finances have stabilised, we are close to full employment, progress is being made in improving our public services and our economy is one of the fastest growing in the EU.
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Last year, the national accounts moved into surplus - albeit a small surplus - for the first time since 2007 and, as outlined in the Stability Programme, the Government is targeting a headline surplus of 0.2pc of national income for this year.
We will achieve this while at the same time increasing capital investment by 22pc this year. This and future investment will provide for new homes, schools, primary care centres and major roads, and make fundamental improvements to the well-being of our communities and citizens.
Of course, public expenditure must be sustainable. Between 2015 - soon after we emerged from the bailout - and now, expenditure has increased by just under 25pc. In the bubble period from 2004-2009, the growth rate of public expenditure was 55pc. So what we are doing now is ensuring moderate, sustainable increases in expenditure that are affordable while also meeting the huge social needs that emerged after a long period of austerity.
The transformation of the public finances is rivalled only by the transformation in the labour market. The Stability Programme shows an average unemployment rate of 5.4pc for this year; as recently as 2012 our unemployment rate was around 16pc. To put it another way, 398,700 jobs have been created since 2011; an incredible pace of job creation. Behind these figures are transformed lives.
The key message in the Stability Programme is that we cannot rest on our laurels. The economy is undoubtedly in a good position at present but there are challenges also. Some of these are domestic.
The rapid growth in employment has created bottlenecks, most importantly in relation to housing and the provision of public services such as healthcare, all of which can be a real source of anxiety for people in their daily lives.
The Government has been to the fore in addressing these and, while progress is being made, there is clearly more that needs to be done.
There are also challenges on the external front. Whatever shape it takes, the UK's likely exit from the European Union will be damaging for the Irish economy.
There will be direct effects such as lost economic output and trade. But there will also be indirect effects such as the loss, from the union, of a pro-trade, economically liberal, large member state which shares many of our values and principles.
I have just returned from the IMF spring meetings in Washington where the overwhelming sense was that global economic conditions have deteriorated since last autumn. In Ireland, we cannot be immune from this.
Our priority must be to build up our resilience through ensuring that budgetary measures are financed by revenue streams that are sustainable into the future, that budgetary policy is more strategic, public debt is reduced and the Rainy Day Fund is built up. This will enable us to absorb economic shocks if, and when, they undoubtedly occur.
In conclusion, our economy is growing strongly and sustainably due to our responsible management of expenditure and public finances. Our priority must be to build on the success of the past few years, to continue to invest in our public services and, as a small and highly globalised economy, to enhance our resilience to withstand external shocks, if, and when, they come.
Paschal Donohoe TD is Minister for Finance and for Public Expenditure and Reform