I am happy to report that for the first in some years, the Government’s Budget announced earlier this month was important for what it was not. It was not an austerity budget. Consolidation is being implemented in the least growth-damaging way possible, with the majority of the adjustment on the spending side. The Budget targets a General Government Deficit of 4.8 per cent and a Primary Budget Surplus (i.e. not accounting for interest payments on national debt).
The economic backdrop to this is encouraging. According to the Economic and Social Research Institute of Ireland:
“In light of the recent trends observed in economic activity, we now revise upwards our growth forecasts for GNP to 4.9 and 5.2 per cent for 2014 and 2015 respectively. This improvement in the forecast is driven by a combination of better than expected performance in the net trade sector, a pick-up in investment levels and strong budgetary receipts.”
This positive economic and fiscal news is a signal achievement for Ireland and a measure of how far we have progressed since the onset of the financial crisis back in 2008. Since then, Ireland has made a budgetary adjustment of nearly €30 billion, equivalent to 18.9% of GDP.
This adjustment – heroic by any measure in peacetime – combined with resilient economic growth means that we are on target to bring the General Government Deficit down from over 30% of GDP in 2010 to 3.7% of GDP this year and 2.7% in 2015.
Export levels are at an all-time high, significantly higher than the pre-crisis peak in 2007. Our domestic economy is strengthening: Unemployment fell to 11.1% in September from a peak of 15.1% in 2012. 61,000 additional jobs were created in Ireland in 2013. In fact, 2013 saw the highest net job creation in Ireland from Foreign Direct Investment in more than a decade.
All of this has been achieved against a backdrop of global economic uncertainty and less than buoyant international trade.
This is not to say everything is rosy in the garden. Too many jobs have been lost, too much equity vanished, too much debt rests on the Irish taxpayer and too many young people have emigrated to say that. But from the low point of the bailout and concerns about our economic viability, we have climbed back to a position of real recovery.
Some milestones along the way:
• Ireland became the first Euro area country to exit an EU-IMF programme of assistance when the programme concluded on 15 December 2013.
• Full return to normal market funding, with bond yields at historic lows, our economy and exports growing, and unemployment falling.
• Balance of Payments surplus achieved for the fourth year in a row in 2013, after 10 years in deficit.
• Gross General Government Debt peaked at just over 120% of GDP in 2013 and is expected to decline to around 100% of GDP by 2018 (taking into account significant cash balances and other financial assets, net Government Debt in 2013 amounted to around 98% of GDP).
• With a recapitalisation of the banks of some €64 billion and a major consolidation, deleveraging and reduction in the banking sector, the Government and taxpayer have gone a long way in sorting out the mess the banks made of themselves and the economy (recall that during the boom, bank loan books grew from 60% (1997) to 200% of GNP (2008), catapulting average 2nd hand house price in Dublin from 4 times to 17 times average industrial wage).
Challenges of course still face us, including primarily unemployment, patent expiration, household debt and the international economic climate. But Ireland’s real economic assets remain in place to continue and develop the recovery:
An agile economy, ranked 1st in the world for the flexibility and adaptability of our people and 2nd most globalised country in the world.
We are in the global top 20 for quality of scientific research.
According to Forbes, Ireland is the best country in the world for business, 1st in the world for investment incentives and in the top 10 easiest countries in the world to start a business.
Ireland is in the top 10 most educated countries in world, 1st in the world for availability of skilled labour and we have the youngest population in Europe.
The 12.5% rate of Corporation Tax will remain as a key element supporting inward investment and export-led growth. At the same time, the Government is taking action to restrict certain complex international tax structures used by tax planners to exploit mismatches between the tax rules of different countries, which have impacted negatively on Ireland’s tax reputation internationally
In summary then, Ireland has done what the EU asked of it. For our people, it has been and remains a painful process of fiscal stabilisation and consolidation. Ireland has restored much of its lost competitiveness and secured record levels of inward investment. But Ireland is a small open economy with much of its trade focused on Europe. Attention now shifts to Europe and the Eurozone where sluggish growth and the threat of stagnation present real issues for European leaders to address at their summit in December. As the Irish Times editorialised recently, “Ireland’s diplomatic approach here is clear. The Government must support action on as many fronts as possible to try to get the euro zone economy growing again….The best option for Ireland is fiscal discipline at home, combined with as much as possible being done to support growth in the main euro zone economies.”
Ambassador Tel Aviv