Economic Policy Overview – February 2014

The Economy has Stabilised
We exited the EU/IMF bailout as planned, without needing a new precautionary credit line.
The economy has returned to growth, with 1.5% GDP growth in Q3 2013.
Ireland was one of a minority of Eurozone countries to achieve two successive years of economic growth in 2011 and 2012.  Real GDP increased by 2.2% in 2011 & 0.2% in 2012.
In 2012 real GDP increased by 0.2%, while GNP increased by 1.8%.  This compares to an average GDP growth rate of -0.6% in the euro area for 2012.

 

Employment is Increasing
Employment increased by 61,000 jobs in 2013.  Ireland has the highest annual employment growth in both the EU and the OECD.
Private sector jobs are increasing by 1,300 per week.  This contrasts with 1,600 private sector jobs lost per week in the 3 years before this government took office.
The number on the Live Register has dropped below 400,000 for the first time since 2009.And the unemployment rate has decreased to 12.1% from a peak of 15.1% in Feb 2012.
IDA has had three record years, with a net increase of 19,500 in employment in supported companies in 2011-13.  New jobs were created in companies like PayPal, Sky & Apple.
Enterprise Ireland reports a net increase of 5,400 jobs in Irish exporting companies in 2013.

 

International Confidence has Returned
In January 2014 the NTMA sold €3.75bn of bonds maturing in March 2024, showing that Ireland has fully exited the EU–IMF bailout.  The yield of 3.54%, compared to 15% yields in July 2011, shows the renewed strength of Ireland’s international reputation.
In March 2013 the NTMA raised €5bn with a new benchmark Treasury Bond maturing in March 2023 at a yield of 4.15% — the first new 10-year issuance since before the bailout.

 

Budget / Fiscal Policy
Our 2013 exchequer deficit of €11.5bn is an improvement of €3.4bn on the 2012 deficit of €14.9bn.  We are confident that the 7.5% of GDP target for general govt. deficit will be met.
Budget 2014 was a fair budget:

  1. Reduced the tax & spending adjustment to €2.5bn; a €600m lower consolidation.
  2. No increases in income tax, USC, VAT rates, or excise on petrol or home heating fuel
  3. Maintained core social welfare rates of jobseekers benefit, carers’ allowance, and state pension — as well as class sizes and child benefit.
  4. Fair tax increases: a bank levy; no tax relief for super-pensions; DIRT increase.

 

Public Sector Reform Policy
Public service numbers have been reduced by more than 30,000 (almost 10%) from a peak of 320,000 in 2008, to less than 290,000 in 2014.
The Exchequer pay bill has decreased by €3bn from €17.5bn in 2009 to €14.1bn in 2013 (net of Pensions Related Deduction). Haddington Road will save a further €1 billion by 2016.

 

Policy on Debt & Europe
The Government achieved greater than expected savings of circa €9bn from reduced interest rates on funding from the troika, in Summer 2011.
Renegotiations with the troika allow reinvestment of half of the proceeds from the sale of State assets for job creation.
The Eurogroup agreed a framework for the ESM to recapitalise European banks (June 2013) including “potential retroactive application … on a case-by-case basis and by mutual agreement.” The joint Communiqué from the Taoiseach and Chancellor Merkel (21st Oct 2012) states that “Ireland is a special case” with “unique circumstances.”
In June 2013, the extension to the maturities of our EFSF & EFSM loans was formally agreed. The changes will reduce our market refinancing requirement by €20bn from 2015-2022.

 

Banking Policy
The cost of bank recapitalizations was limited from an initial €35bn (troika programme) to €16.5bn, through junior bondholder burden-sharing and securing private capital investment.
The State has generated over €1.8 billion from selling their preference shares in Bank of Ireland, delivering a profit for the taxpayer (Dec 2013).
Anglo Irish Bank and Irish Nationwide Building Society (IBRC) have been closed down.
The promissory notes were exchanged for long-term government bonds, reducing Ireland’s borrowing need by €20 billion over the next 10 years.
NAMA has met its key target of redeeming €7.5 billion of Senior Bonds by the end of 2013.
Irish banks can access private markets: both Bank of Ireland and AIB raised €500m in 3 Year senior unsecured funding (in May and November 2013 respectively).
By end 2013, there will be new schemes worth €2.5bn in new lending to business: including €850m of National Pension Reserve Fund for the SME sector; €700m seed & venture capital scheme; €450m credit guarantee scheme; and a €225m development capital scheme.

 

Mortgage Arrears Policy
The number of primary home mortgage accounts in arrears decreased by 3% in Q4 2013.
51,200 mortgages were permanently restructured by Q4 2013; an increase of 12% on Q3.
  1. Resolution strategies: the Central Bank has published specific, time-bound targets for the banks to propose sustainable mortgage solutions for distressed borrowers.

The CBI will consider regulatory action (e.g. additional capital requirements) if necessary

  1. The new Personal Insolvency Bill has been passed. The Insolvency Service of Ireland has been established and began taking applications from the public in Sept. 2013.  Automatic discharge from bankruptcy has been reduced to 3 years from 12 years.
  2. Advice: a ‘Mortgage Arrears Information & Advisory Service’ was launched in 2012, & a website ‘keepingyourhome.ie’ was launched in June 2012 with over 177,000 hits to date.
  3. The mortgage to rent scheme has over 1,000 cases being progressed.

 

Jobs Policy
NewERA provides €6.4 billion for a stimulus in the economy, using the National Pensions Reserve Fund’s remaining ‘discretionary’ funds (the Fund excluding the stakes in the banks).
Budget 2014 contained a €500m jobs package of 25 measures: retention of 9% VAT rate; reduction of air travel tax to 0%; home renovation incentive; CGT relief for reinvestment of previous asset disposals; ‘start your own business’ exemption from income tax.
The 2014 ‘Action Plan for Jobs’ contains 385 job creation measures, building on the more than 500 measures already implemented through APJ 2012 and 2013.  These include 3 new high-impact ‘Disruptive Reforms’ in entrepreneurship, FDI and manufacturing.
Improved our competitiveness — “best place in the world to do business”, Forbes Magazine
Under the JobsPlus scheme, launched in July 2013, the State will pay €1 of every €4 of the employer’s costs, when they recruit someone who is long-term unemployed (over 12 mths).