The policies being implemented by this Government are supporting a strong economic recovery and are putting the public finances on a sustainable footing.
Following rigorous and successful implementation of the EU-IMF programme, Ireland’s economy has emerged from the deep and prolonged recession that began in 2008 and economic recovery is clearly under way. Economic activity was particularly strong in the first half of 2014 and the official forecast for GDP was an increase of 4.7 per cent for the year as a whole. Strong growth is also forecast for 2015, at 3.9 per cent. The 2014 figure is the highest for the EU as a whole and the recent winter 2015 forecasts by the European Commission put Ireland in the lead position again for this year.
What are particularly encouraging are the growing signs of recovery in domestic demand which suggest that the imbalances built up during the bubble years are being corrected.
Recovery is perhaps most clearly evident in the labour market with employment increasing by over 80,000 since the low-point in mid-2012. The Department of Finance expects employment to continue increasing and unemployment to fall to an average 10.2 per cent this year. Because of the success of the annual series of action plans for jobs – which began in 2012 – the Government has now brought forward its target date of reaching full employment by two years, from 2020 to 2018.
In terms of the public finances, the policy measures implemented by the Government have resulted in a decline in the deficit in recent years. Ireland is firmly on track to achieve a deficit of below 3 per cent this year. This objective has been a cornerstone of the Government’s fiscal policy and has been an important factor in restoring Ireland’s credibility in the international markets. The debt-to-GDP ratio has peaked and is now on a downward path. After this year, fiscal policy will be set in line with the requirement to move towards Ireland’s medium-term budgetary objective, which is for a balanced budget in structural terms.
The more favourable than anticipated macroeconomic and fiscal framework conditions underpinning Budget 2015 allowed for the introduction of a package of expenditure increases and the first stage of a three-year plan to reduce income tax to help low and middle income earners. There has been some questioning of this more expansionary stance but this package was a Government priority for sound economic reasons. A fair, efficient and competitive income tax system is essential for continued economic growth and job creation.
The corporation tax changes in Budget 2015 have given certainty to companies and investors and have been broadly welcomed at home and by international organisations such as the OECD. In addition, the publication of the ‘Road Map for Ireland’s Tax Competitiveness’ provides the foundations for Ireland to maintain and expand as a thriving hub for foreign direct investment.
The Government continues to prioritise credit availability for productive enterprises and sustainable investment. The recent establishment of the Strategic Banking Corporation of Ireland fills an important gap. This new source of competitive and innovative funding will provide support to SMEs to invest, grow and create jobs. SMEs are the driving force behind each sector in the economy and provide some 70 per cent of jobs.
The Government is committed to helping to bring the various economic sectors back to appropriate and sustainable levels of job-rich activity. The introduction of the 9 per cent VAT rate and the abolition of the travel tax to help the tourism sector have been very successful in terms of increased tourist numbers and jobs. In implementing the Construction 2020 strategy, the Government is supporting the emergence of an effective, sustainable and appropriately-sized construction sector. The Government has also focused its attention on farming and agri-food, particularly through the tax measures announced in Budget 2015 which are aimed at increasing the mobility of ownership of land and thereby increasing its productive capacity.
This Government has made considerable progress in restoring fiscal stability and economic growth. The economy is on a firm recovery path and a steady improvement in the public finances is under way. The Government is therefore determined to continue this progress to maintain the downward trajectory in the public debt ratio, achieve a balanced budget and attain full employment.
Simon Harris TD is Minister of State with special responsibility for the Office of Public Works, public procurement and international banking.