Controlling the public finances was the best policy to mitigate the risk created by Britain's EU exit, Minister for Finance Michael Noonan told the Dáil as he presented his sixth budget to the House.
“We need to keep faith with the prudent fiscal policy we have followed for the five previous budgets,’’ he said.
“Through this budget and beyond, we must reduce and eliminate the current budget deficit, balance the budget in 2018 and run budgetary surpluses after that date.’’
He said the budget represented the first steps on a new road by a new government. "Subsequent budgets will travel further down that road in accordance with the programme for partnership government and the support of the Oireachtas, '' he said.
Mr Noonan recalled that shortly after he took office in March 2011, the Central Statistics Office (CSO) announced the headline deficit for 2010 was 32 per cent of Gross Domestic Product (GDP). Even on an underlying basis that excluded banking related transactions, it was still over 12 per cent of GDP. “Today we are forecasting a deficit of just 0.4 per cent of GDP in 2017,’’Mr Noonan said.
In March 2011 Ireland was no longer able to borrow on the open market and was dependent on the EU/IMF programme loans to keep going, he said.
Ten-year bond yields peaked at 14 per cent in July 2011 whereas, only last month, the National Treasury Management Agency (NTMA) was able to issue 10-year bonds at a yield of 0.33 per cent and it was issuing treasury notes at negative yields, he said.
In March 2011 unemployed was already at 14.3 per cent on its way to peaking at over 15 per cent in January 2012, Mr Noonan said. Now it was 7.9 per cent and the new jobs would reduce it further next year.
“So we have come a long way and the objective set in our medium-term fiscal policy is within our reach provided we continue to act responsibly and implement prudent fiscal policy,’’ he said.
Mr Noonan said Ireland was a small and very open economy in a world that had more risks than usual.
“It makes sense to continue reducing our debt to much lower levels and to build our capacity to withstand shocks,’’ he said.
“It makes sense to avoid the mistakes of the past that could lead to overheating our economy,’’
He said now was not the time to move away from the prudent and sensible fiscal policy that Ireland had been following.
Mr Noonan warned Ireland’s high level of national debt was a risk to future wellbeing. It had peaked at over 120 per cent of GDP during the crisis and it would be down to 76 per cent at the end of this year.
The Government would continue to reduce it to achieve the 60 per cent target in accordance with the European Stability and Growth Pact. “At this level of debt, however, I believe there is still risk,’’ he said. “Ireland is a small open economy, and we depend on international trade.’’
That was why the Government had decided to set a new domestic target of a debt to GDP ratio of 45 per cent to be reached by the mid-2020s, or thereafter, depending on economic growth, he added.
He said this would allow future governments to not only apply the €1 billion annual rainy day fund but to borrow to mitigate the impact of future shock on people’s lives.
