merrion street

Ladies and Gentlemen, good afternoon.

At the outset, let me say that I am delighted to have been invited here today by the Chairman of the Leinster Society of Chartered Accountants, Mr. Frank Gannon. I would like to congratulate Mr. Gannon on his recent elevation to this role and also acknowledge the work done by his predecessor, Mr. Paul Kennedy.

In my remarks today, I would like to highlight what I see as the main challenges facing the Irish economy, together with the key strengths which I believe will help us overcome these challenges.

The first challenge must be to get the economy growing in a sustainable manner once again. And there are already some encouraging signs in this regard: figures published last month show growth in the first half of this year and this is to be welcomed. Activity is being led by the exporting sectors of the economy, a reflection of the significant improvements in our competitiveness that have taken place since the onset of the recession. This confirms the flexibility and adaptability of the Irish economy, something which my colleagues around the Eurogroup and ECOFIN tables regularly remark upon.

The strong export performance also means that our balance of payments with the rest of the world moved into surplus last year, the first time in over a decade. This means that the nation as a whole is able to finance itself, which is an undoubted strength at the current juncture and something which I feel should be emphasised more.

Our task now is to build upon this momentum, and I think it is fair to say that most of the foundations for a continuation of export-led growth into the future are in place. For instance, we have:

· a very open economy, with exports amounting to over 100 per cent of GDP last year;

· a flexible, dynamic English-speaking labour force;

· favourable demographics, particularly in a European context;

· a vibrant high-technology export base with critical mass in key sectors; and,

· a pro-enterprise environment.

Another important strength is our corporation tax regime, and Government policy is crystal clear in this regard: the 12½ per cent corporation tax rate is here to stay. It is also abundantly clear that the broad-based commitment across the Irish political spectrum to this policy remains steadfast. There can be no doubt that our corporation tax rate has contributed to the relatively robust export performance during the recent difficult years and I note that the IDA has confirmed that the pipeline for inward foreign direct investment is good, particularly in knowledge-intensive, high value-added sectors. So Ireland remains the destination of choice for many of the world’s leading firms.

Of course, it is not only the multinational sector that is contributing to export growth. Many parts of the Irish-owned exporting sector – such as the agri-foods sector – are also performing well, and I am very encouraged by this. The tourism sector has also had a relative good year, helped in part by the Jobs Initiative.

But we cannot rest on our laurels. Prices and costs in many sectors remain well in excess of those in competitor countries and so further improvements in competitiveness will be necessary. Part of this will require a renewed emphasis on boosting our productivity and many of the structural reforms being implemented under the joint EU-IMF programme are designed with this in mind

A second key challenge will be to align more closely government spending with revenues, because sustainable public finances are a pre-requisite for maintaining economic growth.

Again our recent history clearly demonstrates that we have strengths here. I say this because Ireland has been ahead of the curve when it comes to fiscal consolidation, and this is acknowledged internationally. However, notwithstanding the significant adjustments already achieved, the budgetary gap simply remains too large. The Government’s view is that economic recovery alone will not be sufficient to restore balance. So bridging the revenue / expenditure gap will, unfortunately, require additional consolidation efforts. The Government is acutely aware that in the fiscal adjustment process, our approach must be to minimise the negative impact on our economy. My view is that a credible, medium term consolidation strategy is the most appropriate means of restoring balance. In this context, the Government will be setting out greater details in the coming weeks in a series of announcements, culminating in the presentation of the 2012 Budget to Dáil Éireann on the 6^th December. I believe that this will help provide some certainty to the private sector, and contribute to a reduction in precautionary saving, which remains elevated at the moment.

In terms of the balance between revenue-raising and expenditure-reductions, more detail will be provided next week and I do not want to pre-empt this. What I will say is that the Government is acutely aware that tax rates in some areas are already high and significant increases would be harmful to economic activity. Our overall approach on the revenue side, therefore, will involve a broadening of the tax base while maintaining rates as low as possible.

In terms of the forthcoming budget, you will appreciate that I do not want to go into too much detail. However, as I have said on a number of occasions, the Government is committed to making the necessary level of budgetary adjustment in order to ensure that the target of a deficit of 8.6 per cent of GDP is achieved. The importance of adhering to our targets cannot be overstated.

I would also like to highlight recent reforms in the budgetary architecture, which are designed to ensure that the mistakes of the past are not repeated. For example, the Fiscal Advisory Council has now been established and will be put on a statutory basis in the forthcoming Fiscal Responsibility Bill. The function of the Council is to assess and comment on the appropriateness of the government’s macroeconomic projections, budgetary projections and fiscal stance. The forthcoming Bill – due for publication in the coming months – will also define and establish fiscal rules to guide budgetary policy. So concrete steps are being taken to strengthen the budgetary framework in line with best international practice and these will stand to us in the future.

It goes without saying that the collapse of the banking sector has been at the heart of Ireland’s economic difficulties. In repairing the banking system, the over-arching challenge has been to restructure the sector by, for instance, boosting its resilience and "right-sizing" it relative to the needs of the Irish economy.

Significant progress has been achieved in recent months in forming pillar banks, recapitalising the banking sector and strengthening the governance framework of the banks. At this stage, I think it is fair to say that there is a growing consensus that a line has now been drawn in the sand.

In terms of boosting resilience, a final €24 billion recapitalisation of the banking sector took place in July of this year following the PCAR process and earlier steps taken by the State during 2009 and 2010. The PCAR process is regarded as robust and comprehensive, a point underlined by the outcome of the European Banking Authority stress tests announced yesterday. And with the additional PCAR capital, Irish banks are now amongst the best capitalised banks anywhere in the world. It is worth highlighting that around one-third of this capital injection was sourced from the private sector, through Liability Management Exercises with subordinated bondholders in the various banks, anticipated asset sales and the injection of private capital into one major bank. The contribution of the private sector is larger than originally envisaged and I view this as a clear vote of confidence in the Irish banking system and indeed in the future of the Irish economy.

At the same time, the programme of asset deleveraging is underway. For instance, Bank of Ireland recently announced that it had achieved some €5 billion of asset sales so far this year; AIB is also performing in line with its deleveraging targets. Because it is sometimes overlooked, I want to stress that more than 80 per cent of the assets to be disposed of by the Irish banking system by end-2013 are located outside of Ireland.

All of these measures are helping to continue the process of rebuilding international investor confidence in the Irish banking sector and we are confident in and committed to the bank restructuring plans.

The final – and greatest – challenge facing us is to reverse the major deterioration in the labour market, which has borne the brunt of the crisis. To put some numbers on the scale of the problem: one in seven of those employed at the peak of the boom have subsequently lost their job and the unemployment rate has risen by around ten percentage points since the crisis began. This is having a detrimental impact on Irish society, as is the large increase in involuntary emigration we have seen in recent times.

I want to stress that Government policy is very pro-active in trying to address this terrible situation. In fact, all of the economic policies being pursued by government – correcting the imbalance in the public finances, resolving the banking situation, improving competitiveness – are designed with the ultimate goal of generating economic growth, in order to boost the demand for workers.

The Government is also very conscious of the "structural" nature of the labour market situation – for example, activity in the construction sector will never return to levels reached during the bubble; nor would we want it to. So large cohorts of the population are being re-trained and up-skilled so that they have the necessary skills-set to find employment in new and expanding sectors of the economy. The recent Government decision to establish SOLAS will provide the platform to rationalise and streamline the provision of further education and training courses to both the unemployed and those seeking to up-skill.

This is our general approach. A more specific example of Government labour market policy is the Jobs Initiative, which amongst other things, lowered the rate of VAT on labour-intensive goods and services in the tourism and recreational sectors and which reprioritised capital spending. One of the most successful elements of the Initiative is the National Internship Scheme, which provides much needed experience to job seekers, and helps keep people as close to the workforce as possible.

Before concluding I would like to highlight a key challenge which is not unique to Ireland but one which affects Ireland directly. I am, of course, talking about the need to address the euro area sovereign debt crisis in a credible, comprehensive manner. As you all know, euro area Heads of State or Government last night agreed the principles of a five-point comprehensive strategy to deal with the euro area sovereign debt crisis.

The five parts of the plan are:

· Restoring stability to Greece;

· Recapitalising Europe’s banks;

· Increasing the firepower of the euro area’s stability fund through leveraging;

· Enhancing economic growth though structural reforms;

· Improved economic governance.

These are all important developments, especially when viewed as a package. Full implementation will, I believe, set the euro area on the right path once again. This is in all of our interests.

The latest quarterly review by the Troika was successfully completed last week. I am pleased that the mission has concluded that the Programme is on track and our funding partners are firmly of the view that Ireland continues to make tangible progress in all of the key areas.

Market sentiment towards Ireland has improved, with a clear de-coupling from other programme countries evident since the summer. And while sentiment is not yet consistent with a return to market-based funding, we are moving in the right direction. Of course, we cannot – and we will not – be complacent. I want to assure you that the Government will continue to act decisively. Difficult but necessary changes will be made in order to help drive Ireland’s economy forward.

In conclusion, there are challenges ahead; significant challenges, all of which are inter-related. But what I have tried to convey here today is that we have the strengths to deal with these challenges. We know where we want to go and we have the strengths to get there.

Thank you for your attention.