Check Against Delivery
Good morning everyone.
It’s a pleasure to be back in Dublin Castle for the fifth National Economic Dialogue. I want to start by thanking Minister Donohoe and his officials for organising the Dialogue again this year. And thanks again to Alan for once again chairing today’s proceedings. Every year this Dialogue is an opportunity to come together and discuss the challenges we face as an economy, how we protect the progress and how we move forward as a country. Everyone here represents a different strand of Irish society. Though, not all strands are represented. So I welcome this opportunity to step back and take stock of where Ireland stands today.
In the round, I can confidently say that our economy is being managed well as are the public finances.
- 2.3 million people in employment. The most ever.
- An unemployment rate of 4.4% - the lowest since 2005.
- Economic growth is increasingly well spread across the country.
- Solid wage growth, with average earnings increasing by over 3% last year, well ahead of inflation.
- Falling poverty, child poverty and deprivation rates.
- Exchequer returns have improved year-on-year and, this year, will improve upon the surplus recorded in 2018.
- The national debt is down as a % of GDP.
- Public spending is rising but at only half the rate it did in the “Celtic Tiger” period.
- Implementation of Project Ireland 2040, the Public Sector Stability Agreement on pay, the National Childcare Scheme and reforms to social protections like parental leave and Job Seekers Benefit for the self-employed are all on track.
- Housing construction is increasing and there is some evidence of house prices levelling off.
I am determined that we should consolidate this progress and strive to do better. Unfortunately in our recent past there have been times where good performance has encouraged complacency, even hubris. In 2007, I entered the Dáil as a TD, and had the privilege of being the Opposition spokesperson for Enterprise, Trade and Employment. In my first question time, I discussed with the then Minister the potential for rising unemployment. The rate at the time was only 4.7% - a very good position – but outside analysts were predicting a deterioration, pointing to over-reliance on the construction sector and declining competitiveness. The then Minister responded with the right words. He told me that we were ‘taking a very resilient, forward-looking approach to employment creation and protection, which must be achieved through innovation and investment in research and upskilling.’ However while the words were there, the actions were not. More than a decade on, we must learn the mistakes of the past and guard against complacency.
We must also guard against the sin of exaggeration. We are not back where Ireland was in 2007. Yes, there are serious risks ahead. We acknowledge them and will respond to them – and we will respond with actions as well as with words and we will do so proportionately. The IMD’s latest report ranks Ireland as the world’s 7th most competitive economy and the 2nd most competitive economy in the euro area. In 2011 we were at an historic low position. However, the impressive performance of our economy has resulted in the emergence of real capacity constraints. Labour supply, increasing wage costs and infrastructure bottlenecks threaten to over-heat the economy if not managed carefully. The housing shortage is a huge social and economic risk. External risks have also grown. A disorderly no-deal Brexit has become more likely, trade tensions are threatening the global economy, and recent international tax developments are likely to impact foreign investment.
In light of these risks, it is very important as we turn attention to Budget 2020 that we continue to manage our finances carefully, perhaps even more carefully. We must protect the progress we have made in economic terms and also in terms of advancing social justice, equality of opportunity and improving quality of life. I believe this means two things. First, we must not allow our day-to-day spending increase too fast. In terms of our national infrastructure we are playing catch-up, and our detailed plans in Project Ireland 2040 are deliberately designed to avoid this problem. Second, we must not become over-reliant on volatile revenues. As you know, over the last few years we have benefited from bumper corporation tax receipts. However, we can’t assume that money will always be there. In ancient mythology, Odysseus was forced to chart a course between the sea monsters of Scylla and Charybdis. Each option was perilous and fraught with danger.
Today our economy is caught between a modern Scylla and Charybdis. The Scylla is the risk of over-heating. The Charybdis is the growing prospect of a no-deal Brexit. Our solution is to prepare for both, and steer a course to minimise risk no matter what happens. In this context, we are taking a cautious approach to Budget 2020. As we do not know what’s going to happen on the 31st of October, we are preparing the Budget for two different scenarios:
• One will be based on a no-deal hard Brexit in which case we won’t have to worry about the economy over-heating. It will slow down rapidly, even contract.
• The other Budget is for one where we have a deal and the economy continues to grow and we still have capacity issues around full employment and the risk of inflation.
The Government will decide in September which of those two courses to steer, guiding our country safely to economic security no matter what happens externally. Our future economic security depends on the actions we take now. So we have been building up our fiscal capacity which will help improve our resilience in the years ahead. We have set up the Rainy Day Fund and will add €500 million to this each year. Last October we recorded a Budget surplus for the first time since 2007 and we plan to maintain this in the years ahead. We are reducing our national debt, although it is still too high. By the end of this year our debt is projected to fall to 101.7% of GNI compared to 166.1% of GNI in 2012. That’s our €40,000 per person which is high by international standards.
We have also taken steps to broaden the tax-base. Not easy decisions to make, and not popular but, in a growing economy, the right ones to make, VAT, stamp duties, Sugar. With respect to recent international tax developments, we believe it is important that we maintain a predictable, transparent and stable tax regime to facilitate continued cross-border trade and investment. Ireland recognises that further change to the international tax framework is necessary to ensure that we reach a stable global consensus for how and where companies should be taxed.
Ireland is engaged in the OECD BEPS framework to build that global consensus and are open to solutions so long as they respect our right to compete fairly and respect the legitimacy of Ireland’s longstanding 12.5% corporate tax rate. Our philosophy is to reward work and support enterprise, ensuring we do not lose sight of competitiveness and the inevitable movements in the economic cycle. This approach will provide a solid foundation from which to continue to raise living standards in a sustainable way for all our citizens through:
• making work pay;
• subsidised childcare and early education;
• greater access to healthcare and medicines with less “out of pocket” charges;
• access to a pension plan for all private sector workers through auto-enrolment; and,
• more family friendly working conditions.
As we approach full employment, our emphasis is not just about creating new jobs, but creating good jobs that pay well, have reasonable security, that respect work-life balance, and have access to a pension plan for everyone. We know there are vulnerabilities in our enterprise base that threaten our economic welfare. These include low productivity levels in indigenous firms and an over reliance on certain export markets, and on certain countries and sectors for FDI. We also know technology and the move to a low carbon economy will involve profound economic changes for our businesses and workers.
So earlier in the year we launched Future Jobs Ireland our ambitious plan to future-proof our economy against these risks. It also enables us exploit, to our national benefit, the changes that are already happening and are accelerating with the move to a low-carbon economy, artificial intelligence and robotics. We will increase domestic productivity, improve participation levels, achieve better work-life balance, and make Lifelong Learning the norm. This will also help keep Ireland an attractive place to come and work. We will continue to compete for talent internationally. We are building our resilience and competitiveness through the delivery of crucial infrastructure investment under Project Ireland 2040.
This year we are ramping up our investment in infrastructure by another 25%; which means more investment in transport, housing, education, healthcare, energy and climate action. There’ll be a further 10% in 2020. As you all know, homelessness is one of the greatest challenges Government is facing. So we allocated €146 million for homelessness services and provided an additional €60 million in capital funding for emergency accommodation in Budget 2019. Minister Murphy has introduced a range of reforms to ease rising rents, increase protections for tenants and accelerate the delivery of social housing. 10,000 people have already availed of the Help-to-Buy scheme, many others through the Rebuilding Ireland Home Loan. Homeownership is at the core of our housing policy. And we are seeing progress. Last year, over 5,000 adults exited homelessness. Sadly, as many entered. The social housing stock increased by 9,000 with about half new builds by Local Authorities and housing trusts. We’ll do better again this year.
The latest CSO statistics show that 22,242 new homes have become available in the twelve months to end-March 2019. We continue to deliver on doubling our global footprint under the ‘Global Ireland’ initiative.
This year we are opening new diplomatic missions including in Los Angeles, Mumbai, Wellington, Santiago, Bogota, Amman, Vancouver, Frankfurt and Cardiff and we will do more to promote Irish culture and values around the world. We’ve increased our international development budget and we are expanding our peacekeeping operations. Our commitment to the EU, UN and multilateralism is undoubted. One of the most important responsibilities of any Government is to pass on our planet and the environment to the next generation in a better condition than we inherited.
Last week, following a dedicated Cabinet meeting, Minister Bruton published a Climate Action Plan for Ireland. It’s about reducing our Green House Gas emissions to help stabilise the climate. It’s also about clean air, warmer homes, better quality of life and creating the jobs, businesses and wealth of the future. So climate policy and climate action are now central to Government decision making. The far-reaching plan sets out over 180 actions, together with hundreds of sub-actions, that need to be taken at a time when the warning signs are growing, and the window for taking action is narrowing. We need to nudge people, businesses, communities and families to make the right choices. I welcome proposals on which incentives and disincentives we should put in place to achieve this.
Brexit will have negative consequences but we are determined to be as ready as we can be. A Comprehensive Contingency Action Plan is in place, with a cross government response. In recent months, we have ramped up our planning at both domestic and EU levels, and this work will intensify. The Brexit Omnibus Act was signed into law by the President on St Patrick's Day. It is focused on protecting our citizens, on defending the economy and jobs, particularly in the regions and sectors most exposed to Brexit. The Common Travel Area has been protected and strengthened. We are also working hard to ensure our ports and airports will be ready for the new customs and trade controls. Although some disruption will be inevitable regardless of what kind of Brexit occurs, we are determined that the necessary infrastructure, staffing and ICT will be in place so the trade flows can continue. Budget 2019 included €78 million for farmers, fishermen and food SMEs to cover the additional costs associated with Brexit. Low-cost loans are available, as are grants, information and advice.
The Cabinet reviews and discusses this work on a near weekly basis. Next month, we will publish an updated No Deal Brexit Contingency Action Plan setting out state of readiness and further actions to be taken between now and the end of October. However, despite all the no deal planning underway, a No Deal Brexit would be deeply challenging with many risks which can’t be mitigated away. Furthermore, a no deal Brexit would be particularly challenging for Northern Ireland where organisations like many represented here at the NED today will have an important contribution to make.
I am keen to hear it.
Finally, all businesses need to take planning for a no deal Brexit outcome seriously. The Government is providing help and advice but businesses must also take preparatory action. Today we are facing a high level of uncertainty and risk. We have made enormous progress recovering from the recession but we must avoid the temptation of complacency. As we look to Budget 2020 and beyond, we need to be responsible in our choices so we don’t repeat past mistakes of other’s and so undo the progress we have made together in recent years. I hope you find this dialogue to be useful. I know that Ministers do, taking away good ideas and being challenged on their assumptions.