Repairing our public finances
To restore sustainability to the public finances, which were affected by the global economic shock and the banking crisis, the government has implemented a significant programme of fiscal consolidation. Despite this, Ireland returned to GDP growth of 1.4% in 2011, with modest growth forecast of 0.9% in 2012 and increasing growth expected in 2013.
The overriding priorities for fiscal policy are:
continue the process of restoring stability to public finances
ensure economic growth and job creation are supported.
No matter what happens in the wider eurozone, Ireland needs to restore sustainability to its public finances. If the eurozone crisis recedes, Ireland is amongst the best placed to grow quickly, as shown by the EU Commission’s growth forecasts. If the eurozone crisis persists, it is equally important for the state to reduce its dependence on borrowing.
Ireland, through its significant reforms, has made enormous progress in regaining trust and confidence. This has instilled international confidence in Ireland: many feel that Ireland’s experience holds valuable lessons for the wider monetary union. Ireland has positioned itself as something of a role model for recovery.
Extent of Fiscal Consolidation
There have been eight separate fiscal consolidation policy announcements – the most recent of which was Budget 2013 on 5 December 2012. All told, Ireland has implemented expenditure reducing and revenue raising measures designed to save/yield close to €29 billion (or around 17% of estimated 2013 GDP).
In 2011 the underlying government budget deficit was encouragingly well below target. The 2012 deficit is also on track to come within target. Budget 2013 has introduced measures to enable Ireland to meet its 7.5% deficit target for 2013, and the government remains committed to bringing the deficit below 3% by 2015. The latest fiscal forecasts are in line with achieving these fiscal targets as discussed in the Irish Department of Finance's 'Report Card' on the Irish Economy from March 2013.
Roughly 60%of the fiscal consolidation package over the period 2013-2015 relates to expenditure-reducing measures with the balance coming from revenue-raising measures. This strikes a balance to make the overall policy as growth-friendly as possible.
The government has sought to protect investments in productive capacity and has introduced an additional €2.25 billion (2012-2018) stimulus package which will leverage private and other investment.
Budget 2013 contains a mix of revenue raising policy actions designed to maximise future growth in employment including the 10 Point Tax Reform Plan to Help Small Business. Many of the measures are aimed at areas (property tax, capital tax increases) which are less damaging to economic growth than direct forms of taxation, as well as measures to encourage economic activity. Income tax has largely been left unchanged given the focus on job creation.
Looking forward – exiting the EU/IMF programme
Meeting deficit targets has helped Ireland to establish a reputation for sound policymaking and has enabled the state to recommence market financing.
In the referendum on the EU Stability Treaty held in Ireland on 31 May 2012 the people of Ireland voted by a significant majority to ratify what is known as the “fiscal compact”.
So far, Ireland has successfully returned to the financial markets: in the second half of 2012 it raised over €7 billion in short and longer term financing, including the issuance of new amortising bonds with maturities of up to 35 years. The government remains fully committed to restoring order to the public finances, to building on the economic recovery and to successfully exiting the EU/IMF Programme of Financial Support at the end of 2013.
The first months of 2013 have brought further progress, particularly with the recent issurance of a €5bn bond which recieved strong international demand - the first such issuance of 10 year bonds since 2010.