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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 Level of Irish GDP and GNP, constant prices 200,000 € millions, constant prices 180,000 160,000 140,000 120,000 100,000 2000 2001 2002 2003 2004 2005 Real GDP 2006 2007 2008 2009 2010 Real GNP Sources: CSO, Department of Finance Current Outlook: The underlying fiscal position stabilised in 2010 45 35 % of GDP 25 15 5 -5 -15 Headline General Government Balance at -14.4% of GDP in 2009 and -31.5% of GDP in 2010 (estimated outturn), due to inclusion of bank support measures. -25 -35 2005 2006 2007 Year 2008 2009 2010 (estimated outturn) Underlying General Government Balance Headline General Government Balance General Government Revenue (% of GDP) General Government Expenditure (% of GDP) 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 Percentage of population aged 20-24 with at least upper second level education 90 85 80 70 65 60 Ireland Sweden Austria Finland France Belgium Greece United Kingdom EU 27 Luxembourg Netherlands Italy Euro area (16 countries) Germany Spain 50 Denmark 55 Portugal % 75 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 Capital Inve s tm e nt as a % of GDP 6 5 4 Ireland 3 Euro Area 16 2 1 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: European Commission Ireland’s fundamental strengths remain: Very open economy… Exports as a percentage of GDP 120 100 % 80 60 40 20 0 2000 2001 2002 2003 EU27 2004 Ireland 2005 2006 Greece 2007 Spain 2008 2009 Italy 2010 2011 2012 Portugal 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 (%) 8 6 4 2 0 IRE BEL GER SPN FRA ITA LUX MAL NTH OST FIN GRE EZ17 EU27 -2 -4 Source: European Commission Autumn Forecasts Employment also remains high… Irish employment level 2,200 2,000 1,600 1,400 1,200 1,000 19 90 19 91 19 92 19 93 19 94 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11 20 12 20 13 20 14 thousand 1,800 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 48 36 % of GDP 24 12 0 -12 2005 2006 2007 2008 2010 2009 2011 2012 2013 2014 Year Underlying General Government Balance (% of GDP) General Government Revenue (% of GDP) General Government Expenditure (% of GDP) Source: Department of Finance Average GDP growth of 2¾% forecast over this period Department of Finance real GDP forecasts 12.0 10.0 8.0 6.0 % change 4.0 2.0 0.0 average 2011 - 2014 = 2¾% p.a. -2.0 -4.0 -6.0 -8.0 -10.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Sources: CSO, Department of Finance Exports supported by improving competitiveness Forecast change in unit labour costs, 2009 to 2012 15.0 10.0 % change 5.0 0.0 -5.0 Finland Slovakia Slovenia Portugal Austria Netherlands Malta Luxembourg Cyprus Italy France Spain Greece Germany Belgium Ireland Euro Area -10.0 Source: European Commission Autumn 2010 forecasts As a result, current account will move back into surplus Current account as a percentage of GDP 4.0 3.0 2.0 1.0 % 0.0 -1.0 -2.0 -3.0 -4.0 -5.0 -6.0 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 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.