We are managing the economy prudently and we are not depending on a surge in property-related revenue, writes Brian Cowen
There is no doubt, and I have been saying this for almost two years, that we have to be aware of economic threats and act to deal with serious issues - but this is quite different from presenting our economy as a headless chicken which is "aimless, lopsided and unsustainable" (Marc Coleman, The Irish Times, July 6th).
Any sense of complacency is an especially serious threat, but equally so is a lack of proportion.
Last week's Exchequer returns confirmed that our fiscal situation remains extremely strong and ahead of budget estimates. That a significant proportion of the revenue buoyancy has come from property and construction-related activity does indeed bring with it a very strong caution.
Income tax, VAT and Excise combined make up three-quarters of overall tax revenue. Our tax revenue projections for 2006, based on a forecasted economic growth of 4.6 per cent, were that we would increase revenues for the year from these tax heads by 6 per cent.
The Exchequer returns for the first six months of the year show that these revenues increased year-to-date by 9 per cent or so, consistent with my department's revenue profile for that period, and consistent with the projected revenue increase from these sources for the year of 6 per cent.
It is true that it has been difficult to accurately forecast stamp duty and capital taxes arising from the sale of property with any degree of reliability. It is important to point out that these revenues are projected to account for 12 per cent of overall revenues. We have not based our budgets on a continuing surge of this revenue because we recognise that the sector should return to equilibrium in terms of demand and supply in the medium- term. This is exactly why I announced in last December's Budget that I was taking a conservative approach to the estimating of this revenue. What these additional revenues will help to achieve is to reduce our projected borrowing this year from almost €3 billion to just over €1 billion.
This responsible approach has been central to our fiscal policy. Including this year, this Government will have run a general Government surplus in nine of the last 10 years.
When times of real crisis emerged, especially the international slowdown during the early part of this decade, we were willing to take corrective action which meant that we came out of that downturn faster and stronger than nearly all other European economies.
It should be noted that the maintenance of this prudent policy has led to continuous political attacks on us.
Last week, for example, during the Fine Gael/Labour censure debate, speaker after speaker from the Opposition denounced us as uncaring and arrogant for refusing to spend what amounted to billions on various programmes.
If you look back over the last few weeks, you will see repeated demands for Ireland's levels of social spending and spending on various other services to be significantly increased so as to meet European averages, despite the fact that we have a much younger population and lower dependency ratios. You are not comparing like with like in that analysis.
What we have done instead is to take a balanced approach - ensuring sustainability in spending increases and a responsible approach to the long-term needs of the economy.
Central to making sure that Ireland is a success, not just today but in the years ahead, is to invest in increasing its productive capacity. In this respect we are seeing a dramatic and unprecedented series of initiatives. This year our public capital investment programme will amount to 5 per cent of GNP (€6¾ billion) - a level which is twice that of the rest of the EU.
We need to make up for the historic under-investment in our infrastructure, but this spending, which can be seen throughout the country, is central to sustaining and growing economic progress.
This involves many areas beyond physical infrastructure - especially human capital, enabling individuals to participate in and drive progress. In recent years more than 30,000 extra third-level places have been created. As a result, our young people now have the highest rate of third-level qualification in Europe.
The same sort of expanded skills-development can be found at every level, including basic skills like adult literacy, where the numbers benefiting from courses every year have expanded five-fold. If you want a demonstration that there is a very clear commitment to protecting and building recent success all you have to do is look at the recently launched Strategy for Science, Technology and Innovation. As far as we are concerned we have to shape the future, not sit back and wait for it.
Therefore investing in knowledge is central. The strategy is important far beyond a few core industries and includes major investment which will help our agrifood and marine industries for example, as well as support dynamic health research.
Recent major announcements in relation to new research facilities attached to significant employers did not happen by accident - they came from a concerted policy effort which is directly designed to support sustainable economic growth.
These and many other initiatives show that the idea that there is no attempt to address issues of sustainability is just not true. It is noteworthy that even forecasters, such as the OECD, who point to various risks to our economy, are predicting annual growth of 5 per cent of GNP per year over the medium-term.
In relation to public spending, it is the case that spending has risen by large amounts and that these rates of increases cannot be sustained. There can be no argument with this - but I absolutely disagree with the idea that these increases were unjustified.
The vast bulk of public spending goes into areas like pensions, child benefit and employing the teachers, doctors, nurses and support staff who deliver public services. These areas required a major step up in spending to help them to catch up.
These increases in public spending have been accompanied by budget surpluses, a falling national debt, increases in capital investment and the saving of 1 per cent of national income every year in the National Pension Reserve Fund. These are the hallmarks of an economy which is prudentially and well managed.
Based on these facts, the headless chicken analogy presented by your writer just does not fly.
• Brian Cowen TD is Minister for Finance