25 October 2000
Address by Mr Charlie McCreevy, TD, Minister for Finance
International Cash & Treasury Management Conference RDS
"Every time I think of the statistics which reflect our rapid economic development over the past few years, they still surprise even me.
Our performance has been exceptional, both by international standards, and in terms of our own historical experience.
Reasons for Ireland’s Success
Government policies have been an important factor. These policies were designed to ensure stable inflation, and they adopted a prudent approach to fiscal policy. They provided the platform for a return to growth from an economic position which in the 1980’s included fiscal difficulties, high inflation, a falling exchange rate and an increasingly uncompetitive economy. The improvement in the public finances was particularly dramatic. The budget deficit fell from over 10 % of GDP in the mid 1980’s to the 3.7 % surplus expected this year.
Another important aspect of government policies has been tax reform, which has ensured a very favourable environment for investment, with beneficial corporation tax levels which are the lowest in the EU – this means that all traded profits will be taxed at 12½ % from 2003. In last year’s Budget, I brought forward this date by 2 years for companies with total trading income of less than £50,000 per year. This measure is especially designed to assist small and medium-sized enterprises and will be of benefit to those companies where start-up costs are high. The general Capital Gains Tax rate was also reduced from 40% to 20% in Budget 1997, thus encouraging an enterprise friendly culture.
Personal taxes have also undergone major reform:
the standard rate of tax has been reduced by 4 percentage points;
the top rate is also down by 4 percentage points;
we have also increased personal allowances and the standard band while introducing tax credits and starting the first phase of individualisation.
Social Partnership Agreements between Government, Employers and Trade Unions, which have been in operation in Ireland since 1987, have also underpinned our success. This Partnership process, which started out as essentially a pay agreement between the parties, has been refined and expanded over the years and now embraces all the main factors which impinge on living standards and economic and social development. It has acted as a framework within which broad consensus was reached on the allocation of the fruits of growth. At the same time, peaceful labour relations have been maintained and increasing flexibility in the economy promoted. There is no doubt that the Partnership approach has been crucial to our economic transformation over the last decade.
Of course, Government policies are not the full story. A whole range of other factors also enabled the Irish economy to grow rapidly.
Challenges for the Future
Of course, despite our recent economic progress we still face many challenges. The economy is now close to full employment and is operating at full capacity. Supply-side problems are becoming a constraint on growth.
For example, employers are finding it increasingly difficult to recruit staff from an ever tightening labour market - this is leading to some upward drift in pay settlements and this needs to be managed carefully.
The Government is also concerned about price pressures in the economy and has acknowledged that the inflation challenge is a pressing one at present. Because of the effect of inflation on people and businesses the Government has taken a proactive approach in key areas. Last July we announced a number of measures to offset these pressures which focussed on increasing competition in the domestic economy. Other measures focussed on improving the supply of affordable housing, curbing speculative demand, and also helping first-time buyers gain a foothold on the property ladder. The Government is reviewing the impact of these measures and recent indications are that they are having an effect.
In addition, the under-developed nature of our infrastructure in some places is causing strain with the emergence of bottlenecks, especially in roads. The £40 Billion National Development Plan will however go a long way to alleviate this pressure.
Of course, in any speech on the Irish economy I would have to include a mention of our continued commitment to the development of the Information Society and in particular, E-Commerce. This Government recognises the need for a broad based, multi disciplinary approach to the new challenges presented by the Information Society. One example of our commitment to the ‘new economy’ is the recent enactment of the Electronic Commerce Act. This Act ensures a transparent and codified legal framework for electronic transactions, crucial to the successful development of many sectors of the economy, including of course, the Financial Services Sector.
It creates legal equivalence between traditional paper-based transactions and electronic transactions, thereby providing a firm legal basis for the growth of e-business in Ireland.
The Financial Services Sector
I would also like to mention briefly the success of the financial services sector in Ireland, which is currently in a very healthy state. Dublin is now recognised world-wide as a substantial, well-regulated financial hub, providing sustainable, high-quality employment over an increasingly-broad range of services. Today there are more than 8,500 people employed either directly in the International Financial Service Centre or in associated back office projects. The Centre is now home to a large number of the highest quality international financial services operations from amongst the most reputable and well-known organisations in the world.
However, just as with the economy generally, so with international financial services, we cannot afford to be complacent. We must consolidate on success, and strengthen our position in the highly competitive market for international financial services.
I would like to take this opportunity to reaffirm this Government’s continuing commitment to the development of the international financial services industry in Ireland. We intend to build on the truly international success that the IFSC has become, and maintain the momentum and confidence which are now synonymous with the IFSC.
My purpose in this brief speech is to outline Ireland’s recent economic success, and what I consider to be the main factors behind this success. I have outlined the many different challenges that we face as a small regional economy in Europe going forward.
We must be ready and able to respond to these challenges in order to guarantee the continued success of the Irish economy".
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