Statement on the Publication of the Stability Programme Update
by Mr Brendan Howlin, T.D. Minister for Public Expenditure and Reform,
27 April 2016, Dáil Éireann
The reforms to the Stability and Growth Pact implemented as part of the (obscurely named) “Two Pack” of EU Regulations, require Member States to publish, no later than 30 April each year, their national medium-term fiscal plans in accordance with their medium-term budgetary framework.
These plans are a central element of the intensified surveillance at EU-level of the conduct of national fiscal policy.
In light of this requirement the Department of Finance has published the Stability Programme Update (SPU) for 2016.
As the Minister Finance has stated, by deciding to submit this update the Government is complying with EU rules.
However, the foreword to the SPU makes clear, the fiscal – expenditure and tax – forecasts set out in the document are prepared on a technical, no-policy change basis in line with those set out in Budget 2016 and do not take account of subsequent economic developments, potential tax buoyancy or identified expenditure pressures that will need to be addressed.
Therefore, the document does not, and indeed in the absence of an agreed programme for government, cannot set out a medium-term plan for Ireland’s public finances.
This approach is adopted as it will be a matter for a new government to set out its medium-term fiscal strategy responding to the major challenges it faces, as well as to the Commission’s assessment of Ireland’s fiscal position represented in the SPU.
The SPU does, however, contain updated macroeconomic forecasts which – in line with the forecasts of authoritative national and international bodies – forecast an even stronger economic performance in 2016 than expected at Budget-time – notwithstanding international uncertainty.
The economic forecasts in the SPU highlight that the Irish economy has the potential to:-
- generate strong growth;
- continue to increase employment; and
- to generate the fiscal resources required to continue to reinforce the social, economic and financial sustainability of our State – which teetered on the brink in 2011.
Economic and Fiscal Crisis
The SPU published in April 2011 stresses the scale of the threat faced at that time with a headline General Government Deficit, an incredible 32% of GDP for 2010.
The underlying deficit – reflecting the gap excluding support for the banking sector – the gap between the Government’s income and day to day expenditure was estimated at 12% of GDP.
The April 2011 SPU confirmed that there was no scope for the state to rely on economic growth to help resolve its budgetary crisis forecasting a decline of 1% in real GDP for 2010 with growth of only 0.8% forecast for 2011.
With this scale of an economic and fiscal crisis, hardship was being experienced by very many people, with the SPU noting that the standardised unemployment rate for the early months of 2011 was almost 15%.
With Ireland in an EU/IMF Programme the choices facing the Government were very stark, not only to regain the country’s economic sovereignty but to return the economy to sustainable growth and the public finances to stability.
Significant Fiscal Adjustment with Key Areas Protected
The fiscal adjustment implemented in order to successfully exit the EU-IMF Programme of Support and return sustainability to the public finances inevitably required a major fiscal consolidation.
Adjustment measures taken from the onset of the financial crisis to restore the public finances are estimated as having amounted to one-fifth of GDP.
Gross voted expenditure was reduced from its peak of just over €63 billion in 2009 to €54 billion in 2014.
We have seen elsewhere the type of measures imposed under a Programme to achieve that scale of adjustment and their impact on the role of the state in society and on social cohesion overall.
In Ireland in implementing painful expenditure reductions, the Government’s priority was to ensure that a balanced and targeted approach was adopted in order to protect key public services and social supports to the greatest extent possible at a time of increasing demand often driven by demographic pressures.
This national approach to essential fiscal adjustment was central to maintaining social cohesion, to laying firm foundations for a return to growth and to restoring Ireland’s economic reputation which has helped ensure the continued inflow of foreign investment.
The key areas of Health, Social Protection and Education were prioritised and together, they account for over 80% of all gross current expenditure.
The evidence for this specific national approach to budgetary recovery is unassailable.
Social Welfare
Core weekly social welfare rates were protected. Social Welfare Expenditure increased as a percentage of our total spend.
Health
The investment in the Health sector ensured that key frontline services were maintained.
The number of whole time equivalent (WTE) staff in the Health sector increased from 97,010 at the end December 2013 to 105,183 in March 2016. This represents an increase of 8,173, or almost 8½%, over the period. Over 80% of this increase relates to front line activities.
Free GP care is to be extended to children under 12 from this year.
As recently highlighted in Eurostat data, Ireland’s spending on health as a percentage of total general Government expenditure was the highest in the EU in 2014.
Education
The education sector has faced increasing demands over the past number of years.
For 2015, there were over 900 additional mainstream teachers and 630 new Resource Teacher posts sanctioned, compared to 2014.
In the same period, an extra 830 Special Needs Assistants were sanctioned, reflecting the Government’s prioritisation of special educational needs.
Budget 2016 set out provision for over 2,260 new additional teaching posts, including 600 new Resource Teachers, and for 100 SNA posts. The staffing schedule (pupil-teacher ratio) is also being reduced, from 28:1 to 27:1 at primary level and from 19:1 to 18.7:1 at second level.
The outgoing Government has also protected the funding allocations for DEIS expenditure, which prioritises the educational needs of children and young people from disadvantaged areas.
Work
Returning people to work was central to the recovery strategy. The seasonally adjusted unemployment rate for March 2016 was 8.6%, down from a peak of over 15% in 2011.
This priority for job creation did not mean jobs at any price. In February 2011, the minimum wage was reduced from €8.65 per hour to €7.65 per hour.
One of the first acts of the Government on taking Office in March 2011 was to reverse that cut to the minimum wage. From January this year, the statutory minimum wage rose to €9.15 per hour.
Improved Fiscal Position
These achievements in safeguarding and in developing – within the severe constraints that existed – core social benefits and key public services should be seen alongside the substantial progress in returning order to the public finances.
This year’s SPU sets out that the headline deficit of 2.3% of GDP was achieved in 2015 with an underlying general government deficit of 1.3% of GDP. This is in sharp contrast to the figures of 32% and 12% for the headline and underlying deficit for 2010 set out in the first SPU we published in April 2011 on coming into Office, which I referred to previously.
The general government deficit, on the no policy basis, is forecast to be 1.1% in 2016. I expect that figure to be comfortably exceeded.
Real GDP growth has been revised upwards since October and is forecast to be 4.9% in 2016.
General Government Debt is forecast to come in below 90% of GDP this year with net debt forecast of 75% of GDP. Our national debt now stands at the European average and will exceed that next year. Not long ago the parties opposite and economic commentators were telling us that it was unsustainable and would prevent us raising funds in the markets.
Conclusion
The fiscal and economic position facing the new Government could not be more different to that encountered by the Government on taking Office in 2011.
On leaving office, as was the case too in 1997 we leave the public finances and the economy in a far better place than we found them.
The efforts made to return sustainability to the public finances over the last number of years have ensured that the new Government will have increased resources available to direct towards ensuring social and economic progress for all our citizens.
That new opportunity should not be squandered. There are real social pressures which have built up in the time of crisis. They should be addressed with care and with speed, but with a strategic and long term perspective.
The Irish people have paid too high a price over the past seven years to see a return to short term political expediency trumping the long term interest of our country.