EU Stability PactThe Government expects that the Irish economy will continue to benefit from the recovery in the world economy and is forecasting a sustained recovery in the pace of economic growth here.
The December 2004 update to Ireland's EU Stability pact included in the Budget documentation indicates the Government is forecasting that the Irish economy will achieve annual average growth rates of 5.3 per cent over the next two years. The economy is expected to grow at 5.3 per cent in 2004, up from 2.8 per cent in the previous year. This growth rate is well above the EU average at 2.1 per cent this year. Ireland is required to present December 2004 update to Brussels under the terms of the Growth and Stability Pact that underpins the single currency.
The Government has warned of a number of downside risks for the international economy, including uncertainty about oil prices, a softer-than-expected international economic recovery and the potential for the euro to appreciate further against the dollar. It states that the realisation of any of these risks could impact negatively on Irish growth.
It believes that the outlook for employment in 2005 to 2007 is positive and will grow by an average of 1.6 per cent per year. The rate of unemployment is expected to average 4.5 per cent over the period.
Inflation will remain much closer to the euro area average over the next two years than in the previous three, with the rate of price increases expected to average 2.4 per cent.
Over the next two years, the Government expects to run a Budget deficit of less than one per cent of GDP. In 2005 this will decline to 0.8 of one percentage point and will decline to 0.6 of a percentage point in 2006 and 2007.
During that period, the underlying budget balance will move from a balanced position next year to a surplus of 0.3 of a percentage point in 2007. This is in line with the terms of the EU's stability and growth pact. Ireland's debt to GDP ratio will be maintained at the second lowest in the euro area.
The Government says the growth of public expenditure must continue to be correlated with revenue growth, consolidating recent achievements, and ensuring budgetary sustainability going forward. "The Government is determined that Ireland's public finances will be well-placed to address additional fiscal pressures over the longer term, including the budgetary consequences of an ageing population," it said.
At least one per cent of GNP will continue to be set aside annually in the National Pensions Reserve Fund for the pre-funding of part of future pension liabilities, building up assets to help address costs associated with ageing in future decades, according to the report. This will not affect the general Government balance but does add to the general Government debt.
The Government has moved to publishing three-year economic and fiscal programmes and to multi-annual capital budgets that provide a clearer focus on the reasons why such investments are made and their likely return. Every Government department also publishes regular statements of strategy setting out what it intends to do.
Yesterday, the Minister for Finance, Mr Cowen, said he believed there was a need for a constructive debate on, and examination of, all of this material as part of the policy formation process. "I am open to considering with the House how we can make improvements in the situation, while retaining the right and duty of the Government to direct and manage the budgetary process," he said.
