 Minister, mae'r ffrwng i'n gweithio. Ministry'r Fyngorn Gwyrdraeth, Mae'r Fyngorn Gwyrdraeth i'r rôl i gwybod mae'r Ffyrdd yn cydwyd ac yn cydwyd. Rwyf yn ddwych i'n ddweud i'r Fyngorn Gwyrdraeth o'r cyfrydol yw ddwyng hwnnod yma. Y rhagor cynnigfawr yn y dyna y gade gyda нid y maes yw'r grath rhagor cynnyr vendor mae'r rhaid i ddod yn揍d the political and economic landscape and indeed, society, more generally in many advanced countries. The forces at work are of course larger than just Brexit. The international landscape is changing very rapidly. Trade tensions are elevasers and many are questioning whether we have reached a ond weithio hefyd o peynigol. Y Rall Bwysigol Ffwrdd yw sponsor yn gweithio, ac Y Rhaid Ileid yr hoffi hefyd yn y gweld y frontfyniad ac nid yw dderbyni. RhywUNT a thwn yn y Llyfrgell… … ac mae'n gweithio yng Nghymru. Felly, mae'r gweithio cael badaeth atchynol yn ei wneud o'r ffordd o'r gangffradau a phodol yma, a'r gwaith ffordd o'n ei wneud o'r gweithio a'r gwaith ffordd i ddweud o'r gweithio'r gweithio'r gweithio'r gweithio. Felly, yn ymddangos yma yma, wedi gwneud cyffredinol gweithio'r ==== a'u gwneud y corddion gwagol yma yn y wahanol, a'i adnodau cyfwyrd yma yw'r mynd i chi i fishing both now and in the future. In doing so, I will also outline what I see as the most appropriate way that we in Ireland can respond to these emerging challenges and opportunities. Our objective at all times has to be the preservation of sustainable living standards to give our citizens the opportunity to have a home they can call their own. To offer timely and effective health care and to provide world-class education. Achieving this will require measures to boost the resilience of our economy and also to safeguard our public finances. Before proceeding, I think it's important to take stock to remind ourselves of just how far we have come. While date stamping the low point of the crisis clearly is not an exact science. Given the nature of Irish data, I place greatest emphasis on labour market information as an indicator. But I do this more particularly because employment is the foundation upon which we build so much in our economy and in our society. The unemployment rate peaked at 16.0% in 2012. Today it is 4.9%. That same year our budget deficit was 8.1% of gross domestic product and that was a figure that had nothing to do with supporting the banking sector. Last year a modest surplus was recorded, the first since 2007. Budget 2020 outlined a surplus of around 0.2% of gross domestic product or 700 million euro for this year. That year, the year of 2012, involved a very difficult but necessary budgetary contraction of 1.6% of our national income and this year despite the uncertainties around Brexit, I was happy to present the sixth budget in a row in which investment and spending in our public services was increased. Back in 2012 public indebtedness as a share of income was on a rising trajectory. It's now on a downward trajectory although as I'll outline laser much more needs to be done and crucially our economy today is much more balanced than it was during the pre-crisis period and the eve of the crisis the construction sector accounted for around 10% of all economic activity. At that time one in ten workers in Ireland were directly employed in this sector and that is not counting those employed in so-called downstream activities such as in conveyancing or real estate activities. Today the figure is one in six. Similarly the recent improvements in living standards have been achieved without a credit boom and fundamentally last year we had an underlying current account surplus of 13 billion euro 6.5% of our national income and that of course was the indicator that wasn't closely and better tracked in the pre-crisis period. That indicator of itself means that we are very much paying away in the world. In summary although many many of our citizens are still experiencing difficulty the economy is now in much better shape and this wouldn't have been possible without the repair of our public finances but those decisions laid the foundations for the subsequent recovery. Having said that I am acutely aware that this economic recovery has not been felt by all. I'm absolutely aware that a recovering economy is not the same as a healed society. Crisis legacies still remain not least in the challenges we have for example with regard to housing as well as many other challenges with regard for example to the cost of childcare. So my job as Minister for Finance does I believe boil down to the following essentials. First that economic progress is maintained and second that resources are then made available on a sustainable basis to meet the needs and realise the opportunities of Ireland and I need to do both because ultimately I am the Minister for an economy within a democracy not a democracy within an economy. So while recognising the progress that has been made it's crystal clear to me that there is no and that this is not the time for complacency. New challenges are emerging with the potential to shape our prospects for years to come. I want to highlight some of these focusing today on the external challenges and in my remarks I'll be as brief as I can because as I'm sure you'll agree I could devote a full speech to discussing each of these issues individually. So first there is the issue of Brexit. The risk of the UK departing the European Union without a deal for this year has been averted. However the ultimate outcome continues to remain highly uncertain and the disorderly access either without ratification of the revised withdrawal agreement or at the end of the transition period in 2020 remains a distinct possibility in the not too distant future. It goes almost without saying that our hope is that the UK's withdrawal will take place on the basis of the deal agreed between the UK and the EU at the European Council last October while also awaiting the outcome of the UK's general election. But there is no good UK exit for Ireland. Anything that disrupts free and easy trade between Ireland and the United Kingdom however minimal or however non-intrusive is bad for Irish business. It's bad for our economy and it is bad for the common binds between both societies. And the loss of a large member state, one that has actively promoted free trade and liberal values, does come at a considerable cost to a small country like Ireland where free and open trade has been the driving force behind the convergence of living standards to EU norms. But however we must be realistic. Brexit in whatever form it takes will be a reality and our economy will and must adopt. The government can and will help to ease the transition but our economy will adjust to a new normal. In addition to this the rise in protectionism and the associated trend towards de-globalisation and what the Irish political economist Henry Farrell has referred to as weaponised interdependence that is the unraveling of global supply chains and their potential leverage for advantage are worrying from an Irish perspective. Our economic model is based on integrating Irish production into global value chains and over time shifting this production further and further up the value chain. Following three decades of growth world trade as a percentage of global gross domestic product has now been declining in recent years. This trend predates the current deterioration in trade relations between US and China. If I then turn to the issue of international tax reform it's fair to say that there is a broad consensus that further international tax reforms are needed in order to address the tax challenges arising from the digitalisation of the economy. The corporate tax system that is in place in most jurisdictions was developed around a century ago with very little change in the meantime. Meanwhile the digitalisation of the global economy has preceded the pace especially in the past two decades. This has led to a mismatch between the global corporate tax code and global economic activity and addressing this mismatch is now a priority for many and I've always supported the OECD as the most effective organisation through which these challenges can be addressed. I've also consistently argued that tax competition is a legitimate form of competition between countries looking to attract investment to their shores. This is especially the case for a country like ours located where we are and I'll continue to argue that point within the OECD framework but I want to be clear the precise form and timing of these changes may be up for the base but their introduction is not. Changes are coming and changes will have an impact on both our economic model and on our revenue stream. In terms of the latter we have seen a large increase in corporation tax receipts since the mid part of this decade. These now account for nearly a fifth of total receipts. Later today my department will publish figures that show taxes paid by the corporate sector in November the single most important month were 700 million euro ahead of expectations. In the year as a whole overall tax receipts are likely to be 600 million euro higher than we thought in October. So on first of today's figures I now believe that a surplus of 0.4% of our national income is in prospect for this year and in cash terms this will represent a surplus of approximately 1.4 billion euro and it is by running these surplices that we can reduce our vulnerability to a reduction in the future. As I have said previously receipts at this level will not last forever. A further increase for next year is likely but subsequently I expect that these receipts will begin to fall. Building up our surplus is the best way of addressing this decline in the future and this is now well underway. The implementation of budget 2020 will be the next significant step in the process of reducing that reliance. One other factor behind the trend towards lower interest rates is the very real possibility that the potential growth rate of advanced economies is slowing but simply a combination of ageing populations and weakening productivity growth could mean that future growth rates will be lower than in the past. The US economist Larry Summers has reintroduced the concept of secular stagnation to describe this phenomenon. So if I relate this now to changes and debates that are happening in this year we can see now changes that are beginning in the political economy landscape which in very broad terms could be described as a shift towards even more increased government spending including deficit finance spending and this is evident in the US in some of the debates on the way in the UK and it's increasingly informing debates at a European level. The US is an interesting example of this debate. Last year under President Trump the Republican party voted true a series of tax reductions that are estimated to result in success of federal deficits out to 2022. The package could add up to over $1 trillion to the federal debt per annum. The fact that the narrative in the United States appears to have changed with regard to deficits is significant. In the UK too the current election campaign is interesting for the physical position of the two main parties. Both the Labour party and the Conservative party are committed to increasing public spending particularly on capital infrastructure in a way not seen in recent years. The Conservative party in particular have deferred their commitment to a balanced budget beyond 2024. In a speech at the European Banking Conference a number of weeks ago the new ECB President Christine Lagarde who I met last Wednesday spoke of the importance of investment in boosting domestic demand and countering some of today's economic challenges. Her comments are indicative of a discussion occurring now within Europe on the appropriate role for fiscal policy. The Commission's recent call for a pre-emptive rather than reactive approach to fiscal policy in which infrastructure investment is used to boost long-term growth prospects echoes the view of some. The political momentum behind a more proactive fiscal stance has fed into some recent discussions around the appropriateness of fiscal rules. I've long highlighted their limitations in relation to Ireland but I would caution against diluting the principles upon which they are based. In my opinion there are a number of key drivers behind this shift in political debates. First in relation to many countries wages have now been stagnant over recent years. In the US real wages have barely increased now for a number of decades. In the UK Italy and Spain very large wealthy successful European countries we have seen real wage increases being sluggish. In democracies people who feel they are not benefiting from the prevailing economic orthodoxy demand change. Politicians or at least those who wish to be elected respond. The macroeconomic data is instructive in this regard. Manufacturing as a share of economic activity is falling in many advanced economies and withered at times the loss of high-paying employment in particular parts of some countries. At the same time the macro data shows that the trend of rapidly expanding world trade in evidence since the 1980s has now gone into reverse. Moreover the share of the for want of a better phrase the economic pie that goes to workers the so-called labour share of national income has fallen in many countries with adverse distributional issues as the labour share has declined returns to capital have increased and in turn the rise of capital at the expense of those kind of earnings are placing strains on the social contract that underpins global capitalism. Our progressive tax regime as well as our comprehensive social welfare system helps to mitigate against those forces. A second driver is at a time when demographic pressures mean that developed economies increasingly rely on productivity increases for economic growth it has flat lined paradoxically occurring at a time of immense technological advancement this productivity conundrum has an effect on wages and can reduce the standard of living we have seen in some parts of the world the public and private sectors not increasing investment in line with economic growth and this in turn is a major cause of the paradigm shift we're now seeing. Private sector investment in many cases has fallen some large corporations are choosing to spend their excess cash and share buyback schemes rather than on investment. The financialization of many of the world's huge companies at the same time can make it harder to achieve long-term productivity gains so even though while here in Ireland we've seen huge inflows of foreign direct investment and we've also seen an increase in our public investment it's natural that there are increased demands for public investment. Thirdly adding to these kind of demands is the need for investment in climate-related infrastructure almost on pre-sidented levels of investment are needed across the world to aid the transition to low or zero emission economies as societies increasingly recognise the importance of adopting such changes demands for public investment are increasing but again the private sector must play its part the primary role of the public sector is to provide the legal and administrative framework with regard to this within which private investment can flourish. Private investment in low carbon technologies and processes will need to do a large proportion of the heavy lifting if we are to make the necessary transition and then a final factor behind the debate on spending is that in many advanced economies policy interest rates are now effectively at zero what economists call the zero lower bound many central banks have followed the example of the Japanese central bank resorting to non-standard policies such as expanding their balance sheets in order to reduce longer term rates but there is an increasingly shared view that monetary policy has borne too much of this burden that it has reached its limitations particularly with regard to its effectiveness because of this there is a growing though not complete consensus that fiscal policy has a complementary role to play at the zero lower bound the low interest rates environment means that financial market access is no longer the constraint it once was for many countries and this creates both opportunities for greater fiscal activism but also dangers of overreach and the intellectual backdrop to this can be traced and can be seen in Olivier Blanchard's speech to the American Economic Association earlier this year which played a catalytic role in some of this discussion he highlights us that when the growth rates of the economy is higher than the average rates of interest on public deaths then all other things be equal the debt ratio will fall using this approach he argued that there is more scope for fiscal policy to smooth the economic cycle in many advanced economies as long as interest rates remain low but as we know all things never are truly equal when you're a small open economy with much going on around you so when outlining my view regarding why we're seeing a shift in this debate let me make a couple of points about Ireland first I broadly agree with the view that with monetary policy increasingly constrained fiscal policy does have a role to play in stabilizing the cycle but it must be accompanied by structural reforms that boost the supply side reforms that raise growth through boosting productivity and the number of people available to work and in Ireland this has already been happening the government has been using fiscal policy proactively successively increasing capital spending since 2013 that year capital spending was 3.4 billion euro this year it will be 7.4 billion euro more than a two-fold increase in 2019 capital spending would be 24 percent higher than in 2018 the investment was made at a time when our public finances were in deficits we borrowed to make capital investment and to boost the productive capacity of our economy and to invest in our society I'm sometimes asked during many debates on this issue why we're not running larger surpluses at this stage of the economic cycle and a factor in this is the capital expenditure that I refer to a moment ago if capital expenditure had not been increased in the way it was Ireland would have a fiscal surplus of over one and a half percent this year which is the better approach I think it's clear borrowing to invest in capital infrastructure was the correct approach to take and it is consistent with some of the arguments underway today however at the same time how we manage our current expenditure will allow us to continue to invest in the productive capacity of our economy Budget 2020 included increases in capital expenditure at an average annual raise of 5.8 percent out to 2024 in 2020 we will invest 4.4 percent of gross national income star which is as you know a measure of national income when we stripped out the effect of large global companies on our national income in public infrastructure crucially we will continue to invest at a steady raise investment as a share of this income will be maintained at an average raise of 4.3 percent over the medium term investing in this way ensures that our productive capacity doesn't fall behind as it did in the aftermath of the financial crisis second let me address some who think we should take a similar approach to current spending as a small open economy Ireland is particularly vulnerable to the global economic environment we don't have the luxury of a large domestic markers we don't print our own currency and we don't have the independent monetary policy that is involved in that so for economies such as ours it is important that fiscal policy leans against the wind and doesn't become pro cyclical by inflating booms and exacerbating downturns we need to do our best to ensure that when times are good we hold back resources to allow us to spend during the inevitable downturn and then thirdly and crucially given the issues that I've already outlined in relation to corporation tax Ireland has particular vulnerabilities in the future that require a specific set of responses that have begun now in this year government deficits were needed in recent years to address infrastructural deficits that level of investment will be maintained but we cannot ignore the clear and present danger of a potential fall-off in corporation tax receipts the political economy zeitgeist may be changing but the fundamental juicy of any government to protect the public finances against risks including those posed by potentially transient tax revenues has not and then finally despite the progress made over recent years we remain a highly indebted country the ratio of debt to income is around 100% on a per capita basis public indebtedness increased last year to over 42 000 euro a figure which is amongst the highest amongst OECD countries so recognition of these key points the use of deficit funded fiscal policy to increase capital spending over recent years the open and sometimes volatile nature of our economy the risk of a reduction in corporate tax receipts and the existing level of public debt inform the policy response I'm now proposing so first I'd like to briefly address the fiscal rules they are as enshrined in stability and growth pact intended to institutionalize counter-scyclical fiscal policy and ensure sustainability however compliance with the one size fits all EU fiscal rules may not be sufficient to achieve that objective in Ireland I've previously outlined the limitations of the rules in an Irish context for example the use of GDP as the key metric by which our national debt is calculated is problematic it misrepresents the true size of our debt burden so in recognition of this fact today I am therefore announcing a new target namely that the ratio of debt to GNI star be brought down to 60% at a suitable pace I'm setting an interim target that I'm aiming to reduce the debt to gross national income ratio to around 85% by 2025 these targets are of course predicates on a continuation of the positive economic growth seen in recent years and nominal annual growth of around three and a half to four percent of gross national income should allow us to meet these targets however to go back to the scenario outlined in my recent budget under a disorderly brexit scenario in which significant economic challenges will then emerge the target will be to reduce debt to between 90 and 95% of GNI star by 2025 I've asked my department to continue to monitor debt dynamics closely and to report to government on progress towards meeting these goals in our annual debt report a key objective of budgetary policy must be to smooth the economic cycle the economy is at or close to full employment at present this calls for care in how we frame future policy so given the economic risks that I've outlined here this afternoon not least by the expected reduction in corporate tax receipts the appropriate policy is to increase this surplus in success of budgets this is how we can guard against the kind of risks I referred to earlier on therefore I'm announcing today that assuming continued economic growth the government would target annual increases in the budgetary surplus over the coming years overall I'm aiming to achieve a surplus of at least 1% of gross domestic product by 2022 and crucially to maintain and improve that level over the medium term subject to economic trends in gross national income terms the better gauge of the size of our economy the surplus would be around 1.7% or around 3.8 billion euro building upon our performance in 2019 and the figures that I'm indicating today running surpluses is the best way of addressing the vulnerabilities particularly vulnerabilities associated with our exposure to corporate tax this approach is of course contingent upon the avoidance of economic shocks which leads again therefore to the risk of a no deal Brexit should a disorderly Brexit occur we would follow the same approach as taken in budget 2020 that is to say we would allow the automatic stabilizers to play a counter cyclical role and we would introduce timely temporary and targeted supports for the most affected sectors these supports will be funded through deficit spending if necessary under such a scenario the deficit in 2020 would be around 2 billion euro on this basis then we would expect the budgetary accounts to return to balance by around 2023 I want to make clear that achieving budgetary surpluses can be achieved at the same time as improving public services which is the key commitment of the government the days of austerity are over but so are the days of pro cyclical budgets to safeguard public services in the long term current expenditure increases need to be sustainable we can't return to a cycle of the past public investment has increased dramatically over recent years but there is a limit that any economy can take before additional investment only serves to increase prices and a role value for money given capacity constraints in the construction sector and more generally it would not be appropriate to increase capital expenditure beyond this very high level instead there is a role for the construction sector itself in helping to address some of the constraints that are now becoming evident and to do this the sector must become more productive a recent report by the department of public expenditure and reform showed that the industry in Ireland lags behind its European peers in productivity in fact productivity remains over 12 percent below the level achieved in 2020 this has to change but this need and this change has to apply to all sectors productivity in many ways is the economic holy grail it's how living standards are improved think for example of countries like Denmark or Sweden where countries are high where the wages are high but still competitive high wage levels and competitiveness coexist because workers in these countries are so productive this is an important lesson and given the importance of productivity especially at full employment my department has conducted a considerable volume of research on this issue perhaps the most important finding is that while productivity levels are very high in Ireland this is mainly accounted for by exceptionally high levels in a small number of multinational dominated sectors elsewhere productivity levels are lower and I believe the scope to improve this the government is playing its role pillar two of the government's future job strategy aims to increase productivity in the domestic sector by 1 per cent per year by 2025 we'll do this by increasing the role and impact of state supports available through local enterprise offices and enterprise island through strengthening the national competitiveness council and deepening the linkages between irish and foreign owned companies and we'll do all of this inside a changing europe and our relationship with europe is of course an imperative access to european markets and especially the single european markets has allowed ireland to prosper we have received incalculable benefits and ensuring that the fruits of this success are felt at wise as widely as possible is crucial if we're to avoid the emergence of some of the kind of politics we can see elsewhere a key part of my job is to help make this happen and this is why in successive budgets the government has invested heavily in public services such as housing and health the loss of the uk from the european table therefore presents many challenges were the uk to pursue a policy of regulatory divergence from the eu there are very profound implications for the single markets for the single market on this island which constitutes the uk sole land border with the eu for ireland our future is with the european union we must recognise the reality that are in our global era where the separate regulatory superpowers of the us eu and china co-create global rules our place is inside the european project that's how we will prosper it's a market of 440 million people it's how we negotiate with the rest of the world it is how we have a voice on the global stage but the union is not perfect nobody ever said it was with apologies to bobby mcdonald urogan clop but it very well recently when he said and i power phrase the eu has never been perfect it isn't perfect now and it never will be but i've yet to hear anybody come up with anything better however we should be very clear that the uk that eu without the uk will have a different character agendas on european security and economic sovereignty and competition will move at a different pace we need to be ready for this change in direction and then respond to it strategically and of course we must strive to improve especially when it comes to the architecture of the euro area ireland will continue to push to retrofit the euro area with the tools necessary to make us a fully functioning monetary union for example we'll push for a banking union which of course is a key item in our euro group and echo fin discussions tomorrow in brussel we will work to reignite the capital markets union so that funds can be better channeled borrowers in the euro area and ireland supported the introduction the introduction of a budgetary instrument for convergence to help provide area wide fiscal support but in conclusion a previous minister for finance once said that it is difficult to run a surplus in a democracy but let me say that surplus is not a dirty word running budgetary surplices over the economic cycle is an effective response to looming threats other small open economies like the Netherlands like Sweden like Luxembourg have succeeded in running budgetary surplices over the medium term i don't believe that the irish people have a wish to go back to the past and while the risks of this happening are always there this policy framework is driven by me as the minister for finance but more importantly by my very strong intention to avoid that same prospect too thank you