If the positive reaction of Irish business to the budget is translated into creative action, then the worst effects of the recession may have passed; the domestic economy will expand and jobs will emerge at a faster pace. That was the Government’s objective when it minimised tax increases and service cuts and concentrated on promoting homegrown enthusiasm and growth as it prepares to exit the EU-IMF bailout programme in December.
Ireland’s international standing is already in positive territory, as shown by falling interest rates on Government borrowings and record inward investment . That positive perception will have been helped, rather than hindered, by Michael Noonan’s announcement that “stateless” companies – for the purpose of aggressive tax-planning – will no longer be welcome here. By taking the initiative in supporting broad OECD reform, the Minister for Finance will have reduced pressure on our 12.5 per cent corporate tax regime.
A long road and a great deal of tough bargaining lie ahead. Seven austerity budgets have brought increasing poverty and falling living standards, but Ireland still has the highest government deficit within the EU. The crisis may be contained, but it has not been banished. Significant economic growth is needed. In addition, the Government’s fiscal strategy relies on further debt relief and delivery on an EU commitment to treat direct recapitalisation of Irish banks as a special case.
There is a sense of unrealised potential, of latent growth, behind recent economic surveys. Management purchasing indexes have turned sharply positive; the private sector is creating jobs; exports have risen, in spite of expiring drug patents; the international economic outlook has become more favourable; building and construction is showing tentative growth, as is the domestic retail sector. The trends, however, are not strong enough to seriously challenge an unemployment rate of 13.3 per cent.
Jobs are being created at a rate of more than 3,000 a month and that figure is expected to rise. The Department of Finance estimates that, by the end of next year, unemployment will have fallen to 12.4 per cent, from 14.7 per cent in 2012. That represents useful, but inadequate progress. International growth remains sluggish. On a more positive note, the economy is gaining traction and expected to expand by 1.7 per cent next year. The budget anticipated that gross domestic product will grow by 2 per cent next year, rising to 2.8 per cent in 2016. Such a gradual recovery would be insufficient to transform the fortunes of the Government in an election year. That is why the budget is being presented as a springboard for growth. Ministers hope that a range of stimulus measures will spark the kind of chain reaction that saw rapid growth in the 1990’s.