Speech by Minister for Finance
Mr. Michael Noonan T.D.
To Dublin Chamber of Commerce
11 September 2013
Introduction
Ladies and Gentlemen, good evening.
Before I begin I would like thank Liam Kavanagh, the President of the Dublin Chamber of Commerce for his kind invitation to speak here this evening. I’m speaking to you earlier this year than last year. From now on our annual Budgets will take place in mid- October. The reason for this is that we have agreed new EU regulations known as the Two-Pack which require all Euro Area member states to provide draft budgets for the forthcoming year not later than October 15th. I view this earlier Budget date positively. I believe it will give our citizens and our businesses a greater level of certainty and confidence as we enter the busy Christmas period.
The forthcoming Budget will continue the necessary work of stabilising the public finances. Although we have made much progress, the deficit is still too high. In 2013 we are borrowing €1 billion a month to fund current spending. The EU/IMF programme has given us the time and space to reduce the deficit gradually but we must balance the public finances so people are confident enough to increase their spending and investment. It is these increases that will create the jobs that we all want to see.
Rebuilding
This restoration of domestic confidence has been helped by the growing international confidence in Ireland over the last 2½ years. The important agreements that we reached with our European partners over the period shows how positively Ireland is viewed. These agreements include the lowering of the interest rate on our EU programme funding, an extension of maturities on lending from our European partners and the restructuring of the promissory note. These all help to underpin our longer term debt sustainability, lower financing costs to the State and support economic growth.
EU-IMF Programme
As the EU-IMF Programme of Financial Support is coming to an end, the Government’s focus has now firmly turned to exiting the programme. It is the Government’s intention to achieve a successful and durable exit from our programme and a full and sustainable return to the financial markets.
Significant work on the return to markets has already been accomplished as evidenced by the benchmark long-term Irish bond yield, which has fallen by about ten percentage points in the last two years. This has allowed the NTMA to re-engage with the debt markets including this year’s new ten year benchmark bond, the first since entry into the EU-IMF programme in November 2010.
Employment
I have already mentioned the necessity of rebalancing the public finances, but I can assure you that the Government has not lost sight of our primary goals: Economic growth and Job creation. Since coming into office, we have introduced a range of measures across sectors that have supported economic growth.
We are now in our third year of economic growth and more importantly, employment is consistently growing and unemployment is falling.
Since I spoke to you last year, employment levels have grown by almost 34,000. A real positive is that the increases were broad based. There were increases in industry, construction and services sectors as well as agriculture, forestry and fishing.
In August the unemployment rate was 13.4 per cent, down from 15.1 per cent at the beginning of 2012. While all this progress is very encouraging, tackling unemployment will remain the Government’s priority for the foreseeable future as we build on the progress made over the past year. The Pathways to Work 2013 is a 50-point action plan that builds on the 2012 Pathways plan, and will involve a range of Government Departments and State Agencies working in tandem to tackle unemployment.
Budget 2013
As I have said, the initiatives which I introduced in the Budgets, the Jobs Initiative, and the Finance Bills focus on specific measures that assist the sectors of the economy.
When I spoke to you last year I said that the government doesn’t create jobs: it is the private sector, and the SME sector in particular, that creates jobs. The government’s role is to create the right conditions for the private sector to create jobs. In that vein, last year’s budget targeted assistance at SMEs, which are the lifeblood of the economy and play a vital role in the recovery of employment growth in our country.
10-Point Plan for Small Business
This targeted assistance saw a 10 point plan designed to support Small and Medium Enterprises, which included:
· reform of the three-year corporation tax relief for start-up companies;
· increasing the cash receipts basis threshold for VAT; and
· extending the Foreign Earnings Deduction for work-related travel to certain additional countries.
These measures were aimed at assisting SMEs across all sectors. However, I also made sure to include sector specific measures that are supporting the hard work and commitment of business owners and employees.
Sectors
In Tourism, the Gathering Ireland 2013, along with the Jobs Initiative’s temporary reduction in VAT for the tourism and hospitality sectors, was aimed at “jump-starting” the tourism sector. Recent figures show that visitor numbers from North America, Great Britain and mainland Europe are all growing, as trips to Ireland from January to July this year increased by 6.0 per cent compared to the same period last year. Employment in accommodation and food services activities was up by 10 per cent in the year to June.
I know that there is a lobbying campaign underway to maintain the temporary reduction in the VAT rate but such a decision would have costs that must be offset by equal revenue raising measures.
Recent news in the Construction and Property sector is positive too. In June of this year, National House Prices returned to year-on-year growth for the first time since 2008. This was then followed up with stronger year-on-year growth of 2.3% in July, which has a very important positive effect on consumer confidence. We have also seen the first signs of improvements in construction employment, which grew by 3 per cent in the year to June. This is the first growth since 2007.
I am happy to say that less than 7 months after I introduced the REIT measure in the Budget, the first Irish REIT was launched, with a joint listing on the Irish and London Stock Exchanges. Commercial property consultants CBRE Ireland in their recent bi-monthly report have cited the REIT measure among other factors to account for the significant increase in investment in commercial property in Ireland in 2013. There has been more investment in the first 8 months of 2013 compared with all of 2012 – already, 37 transactions totalling almost €970 million in investments.
There is positive news from the Financial Services Sector, for which Finance Bills 2012 and 2013 included a series of measures. The Irish Funds Industry is performing very well with figures showing that the industry has over €2.5 trillion in assets under administration, and €1.25 trillion in Irish domiciled funds. This is a significant increase on the 2012 figures. Numbers throughout the entire financial services industry have remained stable despite the necessary reduction in staff at the Irish banks.
In the Agri-Food sector, it is expected that total food and drink exports will reach €9.3 billion this year, an increase of €300 million on 2012. A total of 19 significant food and drink industry investments have also been achieved to date in 2013 and employment in the sector has seen a double digit percentage increase in the last year.
Manufacturing PMI and Services PMI have both shown growth for August. In the Manufacturing Sector new orders expanded at the fastest rate in thirteen months in August while output, export orders and employment all continued to increase. Business activity in the Services Sector accelerated for the third consecutive month, with the rate of expansion the strongest recorded since February 2007.
Credit and Investment
Last year, I spoke of how one of the key priorities of this Government was to ensure that an adequate pool of credit is available to fund SMEs in the real economy. Firstly, I am informed that the pillar banks met their lending targets to SMEs last year and are on track for a similar result this year.
Secondly, it has been reported that the Credit Review Office, which is vital in ensuring that those viable businesses who have been refused credit by our pillar banks can appeal those decisions, is overturning 55% of refusals. The upheld appeals have resulted in €16.8 million credit being made available to SMEs and farms, protecting 1,297 jobs.
Finally, earlier this year the National Pension Reserve Fund announced investment commitments of €375m to three new long-term funds which will provide equity, credit and restructuring investment for SMEs.
Corporation Tax
I know that the Dublin Chamber of Commerce is anxious that we maintain our Corporation tax rate of 12.5%. This Government is committed to retaining this rate and the strategy that surrounds it. The objective of our corporation tax strategy is the
creation of jobs and growth, by encouraging domestic enterprise and attracting foreign direct investment.
Our policy with regard to the rate is clear – Ireland has a low rate applied to a broad base. The Government’s clear commitment to the 12.5% rate provides certainty which is essential for business and supports planning and investment decisions in Ireland well into the long-term.
However, we also believe it is equally important to emphasise the importance of our pro-business tax regime. Ireland ranks first in Europe for Ease in Paying Taxes. We also have a large and growing tax treaty network which ensures effective double taxation relief for companies operating across borders. Finally, we have highly targeted incentives to encourage sectors that drive innovation and generate employment. These include the Corporation Tax 3 year exemption for start-up companies and the R&D tax credit, which is regarded as best in class internationally.
Conclusion and Activating Dublin
In his introduction Liam referred to the Activating Dublin project - I commend the Chamber, Dublin City Council and all those involved in this project, who are working to stimulate economic activity through initiatives such as helping businesses successfully trade online so they can secure greater market share and create jobs. Your efforts for the Dublin region mirror what we in Government are wholly committed to on a national basis – that is securing economic stability, job creation and a more prosperous future for our citizens.