Returning to Economic Growth, May 2010


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Fianna Fáil Economic Policy and

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Returning to Economic Growth, May 2010

  1. 1. Returning to Economic Growth May 2010
  2. 2. Our plan for economic recovery is working <ul><li>Restoring order to the public finances. </li></ul><ul><li>Repairing the banking system. </li></ul><ul><li>Regaining competitiveness to create new jobs. </li></ul>
  3. 3. Much has been achieved on the public finances <ul><li>Fiscal correction of 5 per cent of GDP in 2009 and 2½ per cent of GDP in 2010. </li></ul><ul><li>Without these measures, budget deficit would have ballooned to 20 per cent of GDP. </li></ul>
  4. 4. We have stabilised the deficit with decisive actions. EU Commission have endorsed our plan to reduce the deficit to 3 per cent by 2014. Budget balance (% of GDP) *Underlying 2009 General Government Deficit of 11.8% of GDP
  5. 5. We must retain our fiscal discipline and deliver €3 billion of adjustments in 2011 <ul><li>€ 1 billion adjustment in capital spending already provided for . </li></ul><ul><ul><li>Will still spend € 5½ billion in 2011 to boost productive capacity in crucial growth sectors. </li></ul></ul><ul><li>Where will the other €2 billion adjustment be achieved? </li></ul><ul><ul><li>Reduce cost of public services and reform of how we tax income. </li></ul></ul>
  6. 6. We need to reduce spending further <ul><li>Payroll costs must be contained. </li></ul><ul><li>Certain current expenditure programmes can be scaled back or eliminated. </li></ul>
  7. 7. Tax base needs to be broadened <ul><li>Little or no scope for increases in marginal income tax rates. </li></ul><ul><ul><li>Nearly half of income earners will pay no income tax this year. </li></ul></ul><ul><li>New universal social contribution to be paid at a low rate on a wide base. </li></ul><ul><ul><li>Replace employee PRSI, the Health Levy and the Income Levy. </li></ul></ul><ul><li>Water charges. </li></ul>
  8. 8. We have taken the necessary actions to solve the problems in the banking system <ul><li>State guarantee to stabilise funding. </li></ul><ul><li>National Asset Management Agency to clean up banks’ balance sheets. </li></ul><ul><li>Recapitalisation of banks and restructuring of the banking system. </li></ul><ul><li>Reform of the regulatory system. </li></ul>
  9. 9. We are in t he ultimate phase in the resolution of our financial crisis <ul><li>NAMA has determined the price for the first tranche of loans, after rigorous loan-by-loan analysis. </li></ul><ul><ul><li>51% average discount – aggressive valuations. </li></ul></ul><ul><ul><li>NAMA has forced the banks to acknowledge reality and recognise their losses. </li></ul></ul><ul><li>Financial Regulator and Central Bank have set prudent capital requirements. </li></ul><ul><ul><li>8% core tier 1 capital requirement, of which 7% must be equity. </li></ul></ul>
  10. 10. Banks need additional equity capital to meet the new capital standards <ul><li>Bank of Ireland: €2.7 billion. </li></ul><ul><ul><li>Private capital raising </li></ul></ul><ul><ul><li>Significant return to the State from its involvement in the capital raising – includes conversion of preference shares into ordinary equity. </li></ul></ul><ul><li>Allied Irish Bank: €7.4 billion. </li></ul><ul><ul><li>Detailed capital plan submitted to Financial Regulator. </li></ul></ul><ul><li>Can be fully met from the National Pension Reserve Fund. </li></ul><ul><ul><li>NPRF will hold valuable shares. </li></ul></ul>
  11. 11. Getting credit to viable businesses, particularly SMEs. <ul><li>Specific lending targets on two main banks. </li></ul><ul><ul><li>€ 3bn each for new lending to SMEs in both 2010 and 2011. </li></ul></ul><ul><ul><li>Must include funds for working capital. </li></ul></ul><ul><ul><li>Must submit SME lending plans both by geography and sector. </li></ul></ul><ul><li>Credit Review process. </li></ul><ul><ul><li>SMEs, sole traders and farmers, who have had credit refused or withdrawn, can apply for an independent review of the bank’s decision. </li></ul></ul>
  12. 12. Why are we supporting Anglo Irish Bank? <ul><li>Immediate wind-up would lead to: </li></ul><ul><ul><li>Fire-sale of assets resulting in a permanent additional and unnecessary loss of more than €30 billion. </li></ul></ul><ul><ul><li>State would have to provide in the order of €70 billion of cash up-front to meet the deposits, bondholders and the liabilities due to the Eurosystem. </li></ul></ul>
  13. 13. Stabilising the economy and setting the seeds for renewed growth and new jobs <ul><li>Consensus forecast is for a return to positive growth in the second half of this year. </li></ul><ul><li>Growth projected to strengthen next year and beyond, led by exports. </li></ul><ul><li>Net job creation of 20,000 next year, and 45,000 each year thereafter. </li></ul>
  14. 14. Improving competitiveness will spur exports Unit labour costs (annual change in 2009, %)
  15. 15. Balance of payments is moving toward surplus Chart shows: current account of balance of payments (inc D/Finance forecasts)
  16. 16. Consumer confidence and spending are improving Consumer spending* Consumer confidence *Volume of core (excl cars) retail sales. 2005=100
  17. 17. Business confidence is improving Purchasing Managers’ Indexes
  18. 18. Our polices have boosted international confidence in our ability to recover <ul><li>“ In the case of Ireland very, very tough decisions have been taken by the government and rightly so.” </li></ul><ul><li> Jean Claude Trichet (ECB) </li></ul><ul><li>“ Ireland has set the high standard the rest of us must follow.” </li></ul><ul><li> French Finance Minister, Christine Lagarde </li></ul><ul><li>“ I think there is a deeply rooted trust and confidence in this country’s ability to sort out its problems. … There is a fundamental belief that the Irish are going to solve it.” </li></ul><ul><li> German Minister for European Affairs, Dr. Werner Hoyer </li></ul><ul><li>“ Ireland’s bold and credible measures are paying off. I would agree with Brian Lenihan that the worst is over and the Irish economy is now recovering.” </li></ul><ul><ul><li> European Commissioner for Economic and Monetary Affairs, Olli Rehn </li></ul></ul>
  19. 19. Conclusions <ul><li>Plan for economic recovery is working. </li></ul><ul><ul><li>Positive growth later this year, leading to employment growth next year. </li></ul></ul><ul><ul><li>Confidence is returning – externally and domestically. </li></ul></ul><ul><li>The full implementation of the plan will restore sustainable growth, create new jobs, and deliver economic prosperity. </li></ul>