Responsible management of the public finances and building a resilient economy
Fairness is at the heart of Fine Gael’s economic policy. Fairness to the citizens who pay their taxes. Fairness to those who get up early in the morning and make this country work. Fairness to the citizens who use and rely on public services. Fairness to the future generations who will inherit our country in the years to come. Bad economic management in the past was unfair to all. It resulted in huge job losses, public services being cut, taxes increased and the opportunities for future generations mortgaged by huge borrowing.
The economic mismanagement of the 2000s resulted in a lost decade for many Irish citizens, from which we are only now emerging. Fine Gael in government will never let this happen again. Care and prudence must be at the centre of our management of the economy so that we are able to take pre-emptive action to mitigate the impact of external risks like Brexit, changes to corporate tax regimes or international trade conflict. We need to keep building a mixed, resilient and balanced economy to ensure that we will never again be dependent on a single sector of our economy like construction.
As such, maintaining and developing a steady state economy where we balance our books, invest in the future and deliver incremental and sustainable increases in living standards over time is the foundation upon which our social and economic model must be built.
Our ambitions are that:
- for the first time in our nation’s history we achieve sustainable full employment;
- the public finances are in surplus, that we are paying down our national debt and building up the Rainy Day Fund;
- the growing capacity of the economy enables better opportunity for all our people;
- we keep a singular focus on competitiveness and resilience, and maintain our open trading society and economy;
- talent based on high skills and innovation is the backbone of economic progress;
- the tax and social insurance system rewards work and provides a strong safety net; and
- we continue to develop world leading indigenous enterprise to match our existing position in foreign direct investment.
Among the actions that will be brought forward to meet this ambition are:
Careful management of the public finances
Fine Gael believes in responsible and careful management of the public finances based on three rules:
- when the economy is growing, we will run modest surpluses and use them to pay down debt and build up the Rainy Day Fund, thereby protecting ourselves in the long-term;
- we will not increase the rate of the current government expenditure by more than the rate of economic growth; and
- we will ensure that there is long-term and consistent level of commitment to investment in our national infrastructure.
These rules will ensure that we do not repeat the economic mistakes of the past and the unfairness that was visited on some many of our citizens during the course of the lost decade.
As a consequence of Fianna Fail’s economic mismanagement, our debt levels are among the highest in the developed world standing at over €42,000 per person. Over the next five years we are spending €20 billion on interest payments on this debt, money that would be much better spent on reducing the tax burden on families or improving public services. Furthermore, while we can meet these repayments now, as the economy grows it makes sense to use some of that additional money to pay down our debt. This will protect us against future international shocks.
That is why in 2019 we are balancing the books. Thereafter we are committed to running modest surpluses and using those surpluses to pay down debt. We are also committed to using one-off and windfall gains to pay down our debt.
This is responsible management of the economy. That prudence is also why we are establishing a Rainy Day Fund and putting it on a legislative footing. This is a reserve that government can tap into if there is a significant and unexpected demand on the Exchequer in years to come.
We are guided by what we have learnt from the mistakes of the past and our commitment to never repeating them. We will ensure that when the Irish economy is in a period of sustained growth – as at present – the rate of growth in the government’s current expenditure increase will, at most, be in line with the rate of economic growth. In the 3 year period before the recession public expenditure increased from €23bn to €36bn, a 57% increase, leaving us exposed when the economy turned.
However, we also recognise that we need to invest in our national infrastructure in the years ahead, both to catch up with underinvestment during the lost decade but also to prepare for the future now. So Fine Gael in government is driving implementation of ‘Project Ireland 2040’ and a €116 billion investment plan for the next decade, and capital investment is increasing by 25% in 2019.
Investing for the future now
By 2040, we will have a population of 6 million. Our infrastructure already lags behind our European peers in areas like housing, roads, public transport, broadband, healthcare, water, ICT, and education. We also need to invest to prepare Ireland for a low carbon future and the consequences of climate change. Advances are being made, but due to the economic crash we have not been able to make the investments we needed over the past decade.
Fine Gael in government brought forward ‘Project Ireland 2040’, which consists of a €116 billion National Development Plan and is based on the National Planning Framework. For the first time in Ireland’s history our planning and capital investment plans are meaningfully aligned. This will help ensure that future population and economic growth is more balanced than was the case in the past.
In ‘Project Ireland 2040’, the government commits to increasing the level of government investment in capital to about 4% of GNI* per annum. This will bring us in line with mainstream European levels of capital investment, which is critical given our current demographic advantage over many of our comparator countries.
This is the appropriate and sustainable level of investment that we believe is prudent and will provide for the right level of investment in infrastructure to meet our current and future needs, without exposing the economy to risks of overheating, the crowding out of private sector investment, or the development of imbalances in the economy as occurred in the past. This approach will allow all parts of our country share in the nation’s prosperity, and that this investment is done in a sustainable fashion.
A new vision for state enterprises
Commercial state enterprises, both existing and new, should play an important role in the future economic and social development of Ireland. Where private enterprise fails or lacks interest or ambition, state enterprises are required.
For this reason Fine Gael has brought forward Home Building Finance Ireland and the Land Development Agency as commercial state agencies in the past year to deal with clear market failures. In the years to come we are open to the establishment of further state enterprises in situations of clear and significant market failure.
Introducing real accountability and culture reform to the banking sector
Over a decade on from the Bank Guarantee, the collapse in the Irish banking sector must remain a salutary lesson. The lack of regulation and oversight by the banks’ management and boards, by the Central Bank and by government must never be repeated.
Therefore, we will continue the reforms that we have been brought in at a domestic and European level over the last decade. It is clear from the Central Bank’s ‘Behaviour and Culture of the Irish Retail Banks’ report that there is still a long road to be travelled before the sector is fit for purpose. We will monitor the effectiveness of the new Irish Banking Culture Board and will act further if the banking sector is not improving its performance.
Diversifying our economy to protect our prosperity
Foreign direct investment has been at the centre of Ireland’s economic model for many decades and will continue to play a central role in the years ahead. However, in order to build lasting prosperity and mitigate against external risks it is crucial that we continue to rebalance our economy so that the domestic sector continues to play a more significant role.
Our indigenous SMEs employ 70% of those working in the private sector. As the result of cross-governmental effort and consistent policy making Ireland has developed a global reputation for FDI. We need to develop a similar reputation for our indigenous SMEs, especially those with export potential. This will form a central plank of Fine Gael’s economic policy in the years to come.
We will cut the red-tape that ties up so many of our SMEs and improve the training and development opportunities available to their management and staff. We have published legislation to reform the collection and levying of commercial rates, some of which dates back to the 19th century. We will seek to enact that legislation as a matter of priority. In those sectors where Ireland enjoys comparative advantage, we will develop and implement long-term plans such as ‘Foodwise 2025’. We will also ensure that current loan and equity funding gaps being experienced by SMEs are tackled by way of SBCI and EIB funding, as well as through greater competition in the banking sector.
A sustained focus on productivity across all of the economy
Increasing productivity across all sectors of our economy is the only way that we can achieve economic growth, improve living standards and full employment. Irish workers are among some of the most productive in world. However it is clear that there is a significant and widening productivity gap in the Irish economy – as in most countries – between the top performing, and mainly foreign-owned firms in manufacturing and services, and the rest of the economy.
Improving productivity outside of these top performing firms, and narrowing the gap, is of the utmost importance. It is at the core of the recently announced Future Jobs Programme, which is about preparing Irish workers and employers for the opportunities and challenges of a changing world. As part of this, we will continue to develop initiatives that will strengthen strategic leadership, management and business skills within Irish companies.
Higher and Further Education will be reprofiled to deliver better and more lifelong learning for those in work to prepare for changed workplace requirements. A particular focus will be placed on developing initiatives to give managers in smaller companies access to business school and management education. We will work closely with employers and the enterprise community to secure buy in and engagement for apprenticeships in a wide variety of traditional and non-traditional areas.
Expanding economic opportunity
Increasing living standards for the future is a central element of the social contract that underpins our democratic system. Due to the effectiveness of our tax and welfare system we have ensured that the gains from economic growth have been distributed equitably. As the ESRI has demonstrated, while household disposable incomes have grown strongly in Ireland over the past 30 years, income inequality has been broadly stable compared with a trend towards increased inequality internationally. As a result, low, middle and high-income households in Ireland have all seen substantial growth in their incomes – unlike the slow and unequal growth seen in the UK and the US.
However, the very success of our tax and welfare system in correcting for our high levels of inequality of market income may have insulated us from tackling the deeper-seated causes of poor market outcomes. We need to increase our focus on policies that tackle income inequality before redistribution. This includes measures in the labour market like:
- boosting minimum wages and enhancing wage subsidies like the Working Family Payment;
- education initiatives that increase investment in pre-school, lifelong learning and vocational training like apprenticeships as well as increased access to third level in areas where participation is low; and
- wider market reforms that tackle the cost of living by boosting competition and consumer protection.
Protecting our 12.5% Corporation Tax Rate
Fine Gael is committed to the maintenance of our competitive 12.5% Corporate Tax rate. However, we will continue to engage constructively on international tax reform while critically analysing proposals that may not be in Ireland’s long term interests. In that regard Fine Gael in government brought forward the Roadmap on Corporation Tax Reform and are committed to its implementation.
The Roadmap provides certainty about our future direction. It reaffirms eleven clear commitments for further action and provides detail on the timing of those actions. It also outlines Ireland’s commitment to continuing our engagement at international forums on work to prevent aggressive tax planning by multinational companies.
We acknowledge there are concerns about the long-term sustainability of the historically high levels of corporation tax. That is why in Budget 2019 we will use some of those revenues for the Rainy Day Fund.
Avoiding repeating the mistakes of the past on public pay
Fine Gael will honour the terms of the current Public Service Stability Agreement, which commits to €1.2 billion in pay restoration and pay increases for public servants up until 2020. It is a negotiated pathway for the dismantling of the financial emergency legislation (FEMPI).
However, we must avoid repeating the mistakes of the past. The level of public sector wage increase we saw during the 2000s proved to be unsustainable. Any increases in the future must be sustainable for the long-term, and public servants who saw their take home pay slashed as a result of Fianna Fail’s irresponsibility know this. Therefore, we will ensure that any public sector pay increases are affordable and sustainable; we never want to be in a position where pay needs to be cut again. That will guide our approach to a successor agreement to the current Public Service Stability Agreement.
We are conscious that public servants not only want sustainable pay increases, but a rewarding and fulfilling career. Fine Gael appreciates that certain areas of the public service feel particularly demotivated. We will seek to continue to enhance public servants’ working conditions and career development opportunities, through support for greater mobility in the public services and greater opportunities for training, promotion, and upskilling.
Fine Gael will ensure that additional expenditure on pay is spent prudently and that we continue to reform the way in which our public sector performs. Recent years have proven that spending more money on recruitment and services is not enough to tackle some of the most challenging issues we face.
We believe the recent agreement on post-2011 new entrant pay provides a credible pathway to resolving this issue for the 60,000 public servants impacted. It equalises the length of time both new and existing members of staff will take to reach the end point of their salary scales, costing €200 million up until 2025.