Department of Finance Annual Policy Conference, Radisson Blu Golden Lane
Good morning everyone.
I am very pleased to open the department’s fifth annual Policy Conference and to welcome you all here today for what I expect will be an interesting and thought-provoking event.
I am particularly delighted to welcome Mr. Angel Gurría, Secretary-General of the OECD to Dublin today to launch the OECD’s biennial Economic Survey of Ireland.
It is appropriate that we are launching the survey at this conference. As you are all aware, this year’s conference title is “Gathering Evidence Ensuring Growth”.
The OECD Report
The OECD’s is universally recognised for the quality of its analysis.
The survey being launched today is objective and evidence-based research at its finest and today’s first presentation, covering research on firm-level productivity, represents a joint research collaboration between economists in my department and the OECD.
It also fed into the findings of the OECD’s Economic Survey.
The second topic concerns SME investment decisions and whether or not they are under-investing today.
And the third and final topic today investigates how responsive taxpayers are to their marginal rate of income tax.
Both the second and third topics are outputs of the department’s joint research programme with the ESRI, which is now in its fourth successful year.
I believe that it is vital that policy decisions are informed by a high quality, robust evidence-base – be it analysis conducted by my department alone or in conjunction with other institutions.
But as well as producing the evidence, we need to disseminate it and debate it with policy stakeholders.
And that is the purpose of today’s conference – why great brains like your own are here to stimulate debate and discussion with policy makers, social partners, tax practitioners, academics and other stakeholders.
Ireland's Relationship with the OECD
I would like, if I may, to say a word about Ireland’s long and mutually beneficial relationship with the OECD.
Indeed Ireland was among the founding members of the OECD in 1961.
The OECD provides expert policy advice supported by evidence-based analysis, peer learning and exchanges of best practice.
As a small open economy, with important trade relationships both inside and outside the EU, it makes sense for us to work towards global consensus on important issues of policy.
This approach has already delivered an unprecedented level of progress under the OECD BEPS process, and Ireland has not been slow to deliver on our international obligations.
Findings of the Survey
As for today’s report itself, our economic and financial position have improved considerably since the last survey was published in 2015.
The prudent policy choices over recent years have placed Ireland in a stronger place in 2018.
There has been robust economic growth perhaps best reflected in the labour market – which has seen strong employment growth and a corresponding fall in unemployment – to just 6 per cent at present.
Macroeconomic Developments and Challenges
The report focuses on the main developments and key challenges facing the economy and I believe that it addresses important issues in a comprehensive, balanced and fair manner.
I broadly share its assessment regarding the short-term economic outlook and associated challenges.
The economy is performing strongly with growth expected to moderate to more sustainable rates over the medium-term.
The challenges and risks identified in the report are similar to those which my department identified in Budget 2018.
The sensible economic and fiscal policies implemented over recent years have placed Ireland in a stronger position to better weather these challenges, although vulnerabilities remain.
But the biggest uncertainty on the horizon is, of course, Brexit.
In the report, the OECD assesses the economic effects of an illustrative Brexit scenario, and finds that the negative economic impacts of Brexit may be much larger for Ireland than for the average of all other EU countries.
This finding is consistent with research my department published last year.
I can assure all attendees here today that the government is not under any illusions about the complexity of Brexit.
Detailed work is continuing at home to prepare for the UK’s exit, in parallel to work underway in Brussels.
This includes contingency planning for all possible scenarios.
We have already taken important steps to prepare our economy, including the Action Plan for Jobs process, and our Trade and Investment Strategy, in addition to dedicated measures in the Budget and extra capital supports for the State and its agencies to factor Brexit into our longer-term economic strategy.
A key message of the report is that the resilience of the economy to future shocks needs to be buttressed by improving the stability of both the public finances and the financial system.
This has been an important focus of government policy over the past number of years.
To that end, our public finances are now in a much better position to withstand fiscal shocks.
Based on Budget 2018 forecasts, we will broadly balance the books this year and meet our medium-term budgetary objective, or MTO.
However, as the survey notes, our public debt per person remains among the highest in the OECD.
It is therefore essential that we continue to reduce our debt burden.
In this context, I am determined that we do not repeat the mistakes of the past.
We will operate a countercyclical fiscal policy and ensure that it does not contribute to overheating.
Measures such as the Rainy Day Fund are an important part of this and this countercyclical approach will help improve the resilience of our public finances in the event of an economic downturn.
Creating the Conditions for Sustainable Productivity Growth
Focusing now to the special theme of the OECD review, namely reforms for sustainable productivity growth, I would like to thank the OECD for taking on this topic.
My own department has been working with the OECD over the last number of years, using OECD models with Irish data to understand what is going on beneath the aggregate statistics.
This work has helped to provide the evidence-base for the OECD’s thematic chapter on productivity and its associated recommendations.
This topic is of particular importance given the role of productivity growth in sustainably increasing living standards in the long run.
Economies cannot solely rely on increases in capital and labour to improve living standards in the long-run.
It is therefore crucial that our endowments of capital and labour are used more productively, thereby enabling firms to improve their efficiency and profitability. This in turn enhances our ability to maintain international competitiveness, while supporting wage growth and sustainable increases in living standards.
As the presentations today will show, Ireland has one of the highest levels of labour productivity among OECD members.
However this is largely as a result of high productivity levels in a small number of foreign-owned sectors, and a small group of firms within these sectors.
As the results from our research from the OECD have shown, and which you will see today, a large number of firms have experienced a decline in productivity since 2006.
Therefore, as the OECD quite rightly points out, that a critical question to further raise living standards in Ireland is how to enhance the productivity of local firms and I welcome the OECD’s recommendations in this regard.
And you might be interested to know that I will be discussing productivity challenges with colleagues in Europe next week.
Given the worrying evidence of a slowdown in productivity growth across advanced economies, including Ireland, productivity enhancing reforms have been given a particular emphasis under the European Semester process.
Improve Wellbeing further over the medium term
As we launch the report today, we are now the fastest-growing economy in Europe.
Having said that, we must not become complacent.
We need ensure that the recovery becomes more inclusive.
One of the main messages of the Survey is that there are several areas where well-being could be improved over the medium-term.
These areas include the supply of housing, water infrastructure, health services and labour market participation.
I firmly believe that I, as the Minister for Finance and for Public Expenditure and Reform, along with the rest of the government, must continue to take the necessary actions in order to improve well-being.
After all, our most important resource is our people.
We have made substantive structural reforms to the labour market.
It is crucial that we continue to invest in human capital so that our workers have the skills and knowledge to succeed in the economy.
My department is focused on ensuring that the taxation system is balanced in such a way so as to support the growth prospects of our economy and improve living standards within society.
The government’s strategy for tackling housing issues is set out in Rebuilding Ireland – An Action Plan for Housing and Homelessness.
The government has committed to spending €5.35 billion to implement the plan, with the overarching objective of significantly increasing housing supply.
It is essential that our economy sees continued investment in public infrastructure that facilitates the priorities like high-speed broadband and public transport, in better cities and in better communities.
The National Development Plan commits to investments totalling over €110 billion in the next ten years.
It will be transformative in nature, supporting our economy and society in the most ambitious manner in the history of our young country.
To conclude, I want to express my gratitude to the Secretary-General Gurría and to all who worked on the OECD report for being here with us this morning and for producing what is a very balanced and constructive assessment of the Irish economy.
The Survey provides us with some valuable policy insights and recommendations which we can use to inform and shape economic and social policy in the period ahead.