Transcript www.budget.gov.ie

The National Recovery Plan
2011-2014
Overview
•
The Plan provides a blueprint for a return to sustainable growth in the
Irish economy.
•
It outlines the measures that will be taken to put our public finances in
order:
– €15 billion budgetary adjustment over the period 2011 to 2014;
– this will achieve a deficit of below 3 per cent by 2014;
– adjustments must be viewed in the context of significant expenditure
allocations over the period 2000 to 2008.
•
It also specifies the reforms that the Government will implement to
promote growth in output and employment in the coming years.
•
Budget 2011 represents the first phase of implementation of the Plan. It
brings forward adjustments to the value of €6 billion or 40% of the €15
billion adjustment committed to in the Plan.
Current Outlook:
The economy is stabilising after a very sharp decline in activity
Sources: CSO, Department of Finance
Current Outlook:
The underlying fiscal position stabilised in 2010
Source: Department of Finance
Ireland’s fundamental strengths remain
• Young, well educated workforce
• Favourable demographics
• High quality physical infrastructure
• Very open economy with strong high-technology exporting base
• Pro-enterprise environment
• Very flexible economy.
Ireland’s fundamental strengths remain:
Well educated workforce
Source: Eurostat
Ireland’s fundamental strengths remain:
Favourable demographics
Percent of total population 65 or over
2005
2010
2015
2020
2030
2040
Austria
16.3
17.6
18.6
19.7
24.0
27.1
Belgium
17.2
17.2
18.2
19.4
22.8
25.0
Denmark
15.1
16.7
19.1
20.7
23.9
26.1
Finland
15.9
17.3
20.4
22.8
26.2
27.0
France
16.4
16.7
18.6
20.3
23.4
25.6
Germany
18.9
20.4
21.2
22.7
27.8
31.1
Greece
18.3
18.9
20.1
21.3
24.8
29.4
Ireland
11.1
11.9
13.3
14.9
18.5
22.4
Italy
19.6
20.6
22.1
23.3
27.3
32.3
Luxembourg
14.1
14.6
15.5
16.6
20.0
22.3
Netherlands
14.2
15.5
17.9
19.8
23.4
25.0
Portugal
17.1
17.5
18.7
20.1
23.9
28.2
Spain
16.7
17.4
18.6
20.0
25.1
31.6
Sweden
17.3
18.4
20.2
21.1
22.8
24.0
UK
16.0
16.5
18.0
19.0
21.9
23.7
Source: OECD data and forecasts
Ireland’s fundamental strengths remain:
High quality physical infrastructure
Source: European Commission
Ireland’s fundamental strengths remain:
Very open economy…
Sources: Eurostat, European Commission Autumn 2010 Forecast
Ireland’s fundamental strengths remain:
… with high-tech export base
Source: Eurostat
A remarkably flexible economy
Cumulative rates of HICP inflation: 2008-2010 (%)
Source: European Commission Autumn Forecasts
Employment also remains high…
Sources: CSO, Department of Finance
The Plan will return the public finances
back to a sustainable level
€ billion
2011
2012
2013
2014
Total Consolidation
6.0
3.6
3.1
3.1
Expenditure
3.9
2.1
2.0
2.0
- Current
2.1
1.7
1.6
1.6
- Capital
1.9
0.4
0.4
0.4
Taxation
1.4
1.5
1.1
1.1
Other Measures
0.7
Forecast General Government Deficit
(% of GDP) ^
9.4*
7.3*
5.8
2.8
Rounding may affect totals
* Projected GGDs for 2011 and 2012 take full account of the interest holiday on the Promissory Notes which are providing
capital support to Anglo Irish Bank, INBS and EBS.
^ Budget 2011 forecast (December 2010)
Source: Department of Finance
The Plan will return the public finances
back to a sustainable level
Source: Department of Finance
Average GDP growth of 2¾% forecast over this period
Sources: CSO, Department of Finance
Exports supported by improving competitiveness
Source: European Commission Autumn 2010 forecasts
As a result, current account will move back into surplus
Sources: CSO, Department of Finance
Two-thirds of adjustment to come from expenditure measures
over the Plan period to 2014
• Government expenditure will be reduced by €10 billion by 2014:
• Current and capital expenditure approximately €7 billion and €3 billion lower,
respectively;
• Total Government expenditure will fall from 49% of GNP to 36% by 2014.
• Reductions should be seen in context of a rapid increase in spending over 2000-2008 –
total public expenditure went up by 141%.
• Expenditure decisions will be based on a set of principles to ensure they take account
of their impact on medium term developments.
• Comprehensive reform of the budget system to bring greater sustainability to the
management of the public finances.
Increases in Public Service Allocations 2000-2008
2000
€m
2008
€m
% change
2000 - 2008
Social Welfare
6,829
17,741
+160 %
Education
3,716
8,465
+128 %
Health
5,362
15,356
+186 %
Capital Investment
3,930
9,011
+129 %
Total Expenditure
25,925
62,395
+141 %
GDP
105,018
179,989
+71%
Composition of Expenditure Savings 2011-2014^
2010
2011
€bn
2012
2013
2014
Cumulative Change (€bn)
Public service pay
16.0
0.3
0.7
0.9
1.2
Public service pensions
2.8
-0.1
0
0
0
Social protection expenditure
20.9
0.9
1.5
2.3
2.8
Other expenditures
15.0
1.0
1.6
2.2
3.0
1.2
0.1
0.1
0.1
0.1
of which Subsidies, Grants & other
schemes, Procurements
13.8
1.0
1.6
2.2
3.0
Current Total
54.7
2.1
3.8
5.4
7.0
Capital Total
6.4
1.8
2.2
2.6
3.0
Total Expenditure
61.1
3.9
6.0
8.0
10.0
of which Administration
^ Figures as presented in the National Recovery Plan, Tables 3.1 and 4.1 on Pages 54 and 62, respectively.
Specific expenditure measures announced in Budget 2011 include…
• 4% reduction in working age rates of social welfare payments
• Reduction in child benefit rates
• Additional 15,000 activation places and supports for the unemployed
• Maximum salary rate introduced for public sector
• Public service* pensions above €12,000 per year reduced by an average
of 4%
• New pension scheme and pay reduction for new entrants to public service.
* The public service differs from the public sector as it excludes commercial State bodies.
Remaining third reflects revenue raising measures
• Government revenues will increase by €5 billion over the period 2011 to 2014:
• Approximately 40% of this adjustment frontloaded into 2011.
• Sustainable Structural Reform
• Focus on broadening base across tax system:

System not sustainable when 45% of tax units pay no Income tax

Base also broadened by abolition or restriction of tax expenditures and
reliefs

All taxpayers contribute.
• This approach allows nominal rates of tax to be kept lower, while the effective rate
can be raised in a way that is fairer to all.
• The Government will maintain the 12½% rate of corporation tax.
Main revenue increases over the period of the Plan^
2011
€m
2012
€m
2013
€m
2014
€m
Total
€m
1,245
260
210
160
1,875
Pensions
260
225
225
155
865
Tax Expenditures
405
100
100
60
665
Site Value Tax
-
180
175
175
530
Carbon Tax
-
220
-
80
300
Capital Tax
-
145
-
-
145
310
260
570
Income Tax
Value Added Tax
Other Measures
TOTAL
110
-
-
-
110
2,020
1,130
1,020
890
5,060
^ Figures as presented in the National Recovery Plan, Table 6.1 on Page 91.
Specific taxation measures announced in Budget 2011 include…
• Introduction of Universal Social Charge
• 10% reduction in value of income tax bands and credits
• Phasing out of the age-related credits and exemptions over 4 years
• Abolition or restriction of 25 tax expenditures
• Removal of employee PRSI contribution ceiling of €75,036
• Major changes to tax treatment of pensions
• Increase in excise duties
• Fundamental reform of Stamp Duty on residential property transactions
• Reconfirm commitment to 12½% corporation tax rate.
Plan continues process of restoring sustainability to the public finances…
Adjustment package
Main consolidation
form
Saving
€m *
Expenditure
1,000
2. October 2008
(2009 Budget)
Revenue
2,000
3. February 2009
Expenditure
2,100
4. April 2009
(Supplementary Budget)
Revenue
Expenditure
3,600
1,800
5. December 2009
(2010 Budget)
Expenditure
4,100
6. November 2010
(National Recovery Plan 2011-2014)
Expenditure
Revenue
10,000
5,000
1. July 2008
* Figures in all cases are broad orders of magnitude.
The Plan also outlines reforms to support growth and employment over
the medium term
Essential conditions
Anticipated outcomes
Policies for Growth
Infrastructure,
Human Capital
Credit
availability
Favourable
taxation
Sustainable
public
finances
1. Horizontal Measures
(a) Labour market reform
(b) Steps to reduce costs
(c) Public administration
improvements
Employment
increases,
Unemployment
stabilises
Consumption
improves
2. Specific sectoral
initiatives
Exports
recover
Employment gains,
Tax revenue
increases,
Unemployment falls
Policies for growth: Labour market reform
• Removing barriers to employment creation and disincentives to work:
• Reduction in national minimum wage by €1 to €7.65 per hour
• Review of the framework REA and ERO agreements within 3 months
• Reform of the welfare system to incentivise work and reduce
unemployment traps.
• Strengthen labour market activation measures:
• A community work placement programme (up to 5,000 places)
• A skills development and internship programme (up to 5,000 places)
• Additional placements on the work placement scheme (up to 5,000
places)
• Extension of the PRSI Employers Exemption scheme to end-2011.
Policies for growth: Boosting cost competitiveness
• Further improvement required in non-labour components of cost
competitiveness, particularly in the locally trading sector of the economy.
• Measures will be introduced to boost competitiveness in a number of
areas:
• Energy costs
• Professional services
• Telecommunications
• Office space / property
• Waste management costs.
• Steps will also be taken to improve the efficiency of public
administration for the benefit of business customers.
Policies for growth: Sectoral outlook
•
Actions will be taken to support small businesses, promote Ireland as
an innovation hub and embed science techology and innovation.
•
Exports in manufacturing have improved this year. The sector can reposition itself by moving up the value chain and exploiting new
opportunities.
•
The services sector has increased in importance in recent years. The
ESRI forecasts that services will make up 70% of total exports by 2025.
•
Measures will be taken for the key labour intensive sectors where
employment growth can take place:
– Agri-Food
– Tourism and Travel
– Retail and Wholesale
– Construction.
In Summary
•
Economy and fiscal position has stabilised.
•
The Plan will return public finances to a sustainable level:
–
–
–
–
€15 billion budgetary adjustment over next four years
Two-thirds of adjustment will come from expenditure measures
General Government Deficit below 3 per cent by 2014
Gross debt position falling by end of period.
•
The Plan enjoys the support of the IMF and the European Commission.
•
The Plan outlines reforms to support growth and employment.
•
Essential conditions for sustainable economic growth are in place, or policies to achieve
them are being pursued.
•
The Irish economy’s fundamental strengths remain:
–
–
–
Highly educated workforce and high quality physical infrastructure
Strong high-technology exporting base
Pro-enterprise environment and very flexible economy.
•
Average growth of 2¾ per cent is forecast for the period 2011 to 2014.
•
Budget 2011 represents the first phase of implementation of the National Recovery Plan.