Wednesday, 17 May 2006
Dáil Eireann Debate
63. Mr. Rabbitte asked the Minister for Enterprise, Trade and Employment the steps he intends to take to alleviate potential pressures on businesses and consumers caused by rising oil prices internationally and the knock-on effect on many other products, such as plastics and pharmaceuticals; and if he will make a statement on the matter. [18203/06]
Mr. Martin: I recognise that escalating oil prices affect the cost structure of all sectors of the economy, including household budgets. At approximately $73 a barrel, the price of oil on international markets is now at historically high nominal levels. No oil user, whether industrial, commercial or personal, is immune from the impact of higher prices. Neither do we have any influence over international factors which influence world oil prices. We are all price takers and this includes our competitors.
However, the economy has proved resilient to higher oil prices. Despite escalating oil prices over the past two years, we saw gross national product grow by 5.4% in 2005. A further growth of 5% is forecast for 2006 with continued expansion of many sectors, including those which are energy intensive such as pharmaceuticals, food and drink and construction. Despite elevated oil prices over recent years, there is no indication that high prices have had a marked impact on economic growth or employment.
Sustainable Energy Ireland has a number of programmes and initiatives available for industry aimed at reducing energy intensity, improving energy efficiency and more effective approaches to managing energy costs. The development agencies under my Department monitor the issue of energy costs and the impact of these on their clients. The principal effects of rising oil prices will be through indirect or knock-on effects. Our focus therefore must be on the long-term competitive implications of higher oil costs.
We cannot either avoid or put off adjusting to higher oil costs. Trying to micro-manage potential pressures on different sectors is not sustainable and will not properly address the needs of the entire economy in the best interests of our society. In this connection, EU Finance Ministers agreed earlier this month that distortionary fiscal and other policy interventions which prevent the necessary price adjustments should be avoided. Our response is most usefully advanced by using policy instruments we already have. For example, in the partnership discussions and elsewhere, we must agree and implement economy-wide adaptations. These must include flexibility and wage restraint as key components in managing our economy.
In the context of energy policy, my colleague, the Minister for Communications, Marine and Natural Resources, who has primary responsibility in this area, is preparing a national energy policy paper which will address key policy options for energy management. This will set a policy agenda for energy over the medium to longer term. It will set out policy on a range of issues affecting energy, such as market issues, energy efficiency, alternative energy and research with sustainable energy as a key overriding theme. Sustaining and strengthening the competitiveness of our economy is a front line concern and a priority for my Department and the Government. Our international competitiveness ranking has improved, and I wish to ensure we build on recent gains as a basis for sustainable growth into the future.
I will turn to macroeconomic management and offer two options which are not subject to international factors, over which the Government has no control. There are two issues of considerable concern currently. The first is the level of inflation, which informs social partnership talks. We have already heard Mr. Paul Sweeney and others for the Irish Congress of Trade Unions discussing compensation for increased inflation. We know from recent data from the CSO and the CPI that the major contributing factor to the current surge in inflation is the international price of oil, over which we have no control. I accept that.
The Government has control over the revenue, tax and VAT which is received from increased prices. Every time the international price of a barrel of crude oil goes up and is factored into the economy, the Government gets a slice of the action. The extra revenues the Minister for Finance gets is above and beyond what was budgeted in December of last year. Revenue incomes are way ahead of what would originally have been forecast. The Government does not need the extra tax revenue.
The surge in cost is putting pressure on inflation, which is in turn informing social partnership wage negotiations. The Government is therefore shooting itself in two feet at once. This Government does not have to depend on the international price of oil, and it could, if it was serious about controlling inflation, decide between now and the end of this year to reduce the revenue take, both in VAT and fiscal terms, in order to ameliorate the increase in price and inflation. Oil prices could subside slightly, as the problem with them is as much to do with refining capacity as supply from oil wells. That political choice is entirely under the control of the Government.
Mr. Martin: With the bulk of our excise rates we compare very favourably with the UK. The ultimate sustainable position for the country with regard to competitiveness, in terms of responding to the global scenario, is to change behaviour and significantly shift policy. The Minister for Finance, Deputy Cowen, made very significant tax reliefs available in the last budget with regard to alternative motor fuels. They amount to over €200 million over the next five years to promote biofuels etc.
Mr. Martin: ——to the issue of global difficulties in terms of oil supply and refining than a measure suggested by the Deputy, which has no guarantee with regard to follow through or downstream impact.
Mr. Quinn: Does the Minister’s party and its partners in Government believe in the sanctity of markets? If markets work, if there are half a dozen different forecourt oil suppliers, and if the Government announces it will reduce the price of a litre of petrol by as much as 15 cent, does the Minister seriously believe the oil companies will collude and not pass that saving on to the consumer?
Mr. Martin: The Deputy should hear me out. Year after year there was no increase in the price of a pint in the budget, going back to when the Taoiseach was Minister for Finance. Did that stop the price of a pint going up? It did not. The Deputies know this.
Mr. Martin: It was at its highest when the notion existed in the 1970s and early 1980s of fixing matters by putting price orders in place. These prices very quickly became the floor. Thankfully we have moved away from the idea of intervening in the marketplace with price orders, which did not have the impact people believed they would have. In essence, they had the opposite impact.
Ms C. Murphy: I support the points raised. The Sunday Business Post, not a particularly left-wing leaning paper, had an article last Sunday on an employers’ group meeting with officials of the Government, making exactly the same points.
Ms C. Murphy: They expressed serious concerns about this issue. What did the Minister tell them, as the group stated the matter would be seriously considered in the context of the national partnership talks and its ancillary aspects?
Ms C. Murphy: What did the Minister tell IBEC when it looked for the issue to be addressed in the context of the negotiations which are ongoing? IBEC is clearly flagging this as a serious issue for it in terms of competitiveness. There will be consequences for job security etc.
Mr. Martin: There is no question but that rising oil prices have an impact, and nobody is arguing that they do not. With regard to the social partnership talks, the objective from our perspective is sustainability and competitiveness.
Mr. Martin: The social partners have other issues, which they have raised. The first issue relates to labour law compliance etc., and there have been substantive talks and progress on that matter. We are moving into a new phase of those talks, which have been under way for some time. In that context, competitiveness is of course an issue. Employers are looking for restraint with regard to pay awards. The unions have a different perspective.
Mr. Martin: With regard to the energy issue, the Minister for Communications, Marine and Natural Resources is producing an energy paper which is considering the wider issues pertaining to the energy market——
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