Wednesday, 20 July 2011
Dáil Éireann Debate
74. Deputy Thomas P. Broughan asked the Minister for Finance if he will estimate the total debt to GDP ratios for 2011 to 2015, inclusive; if he will indicate whether national debt levels of over 80% of GDP are remotely sustainable; and if he will make a statement on the matter. [21704/11]
84. Deputy Thomas P. Broughan asked the Minister for Finance his views on the level of general Government debt that is sustainable; the way and by when he intends to reach that level; and if he will make a statement on the matter. [21714/11]
National debt is defined as the total outstanding amount of principal borrowed by Central Government and not repaid to-date less liquid assets available for redemption of those liabilities at the same date. General Government debt is the standard measure used within the EU for comparative purposes. It includes the National debt as well as Local Government debt and some other minor liabilities of Government. In addition, General Government debt is a gross measure and it does not allow for the netting off of cash balances, which had been built up considerably in recent years, so adding greatly to General Government debt.
While debt levels are currently very high, up until as recently as 2008 Ireland’s debt was among the lowest in the EU. Since then, debt levels have risen considerably throughout Europe as a result of the financial crisis. Indeed, in 2010, the average eurozone general government debt exceeded 85% of GDP. Although General Government Debt is estimated on reasonable assumptions to continue to rise in the short term it is expected to peak in 2013 and begin to fall thereafter, and is thus sustainable.
Of course sustainability is predicated on a whole host of factors, including assumptions regarding future economic growth and interest costs, amongst other things. But in addition to our own estimates, as indicated in the table, the IMF, the European Commission and others also believe that our debt is sustainable (provided the appropriate fiscal and structural programmes are maintained), and on that basis have been prepared to make large loans to us. One measure which may be referenced in forming a judgment of whether or not a particular level of debt is sustainable is the proportion of tax revenues that must go towards servicing the interest on that debt. Based on the Stability Programme Update projections, it is estimated that around 15 per cent of tax revenues will be required to service the interest on the State’s national debt this year. By 2015, almost 21 per cent of our total tax revenues will be required for that purpose. This is undoubtedly a significant level, but it is worth bearing in mind that it is well below the ratios experienced in the mid-1980s when around a third of the tax revenues generated in the State went towards servicing the interest on the national debt.
The first step in ensuring that our debt remains sustainable is to stop the debt from rising any further. Stabilising the debt is one of this Governments key policy objectives and that is why we are implementing policies which both consolidate the budgetary position and foster economic growth. The Government is committed to bringing the General Government deficit back below 3 per cent of GDP by 2015, and this is very important in achieving debt sustainability.
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