Dáil Éireann - Volume 400 - 27 June, 1990

Written Answers. - Central Bank Report.

83. Mr. Bell asked the Minister for Finance his views on the recent Central Bank report regarding pay policy, low inflation and the Programme for National Recovery.

Minister for Finance (Mr. A. Reynolds): I presume the Deputy refers to the annual report of the Central Bank, [1062] published in May. I fully concur with the Central Bank's views on the importance of competitiveness. Improved competitiveness is a vital catalyst for increased growth and employment. This is evident from the growth and employment performance during the Programme for National Recovery. The annual growth rate of GNP over the life of the programme is expected to be 3½ per cent, and non-agricultural employment is expected to increase by 16,000 on average this year, following on an increase of 13,000 in 1989. We can aspire to continue on this path of progress only if we remain competitive, especially in the challenging context of closer European integration.

Pay moderation, in particular, is essential if the virtuous circle of improved competitiveness and increased growth, referred to in the Central Bank report, is to be sustained. Realism in pay settlements has been a feature of the Programme for National Recovery and must be central in any follow-on arrangement. As the record of the programme shows, pay moderation can be fully compatible with improvement in workers' living standards.The combination of moderate pay increases, low inflation, and the taxation relief which has been possible in the past two years and into 1990, means that the real take-home pay of workers with average industrial earnings will have increased by 4 per cent to 8½ per cent over the three years of the programme. This compares with a fall in purchasing power of 7 per cent to 11 per cent over the period 1980 to 1987, when money incomes grew far more rapidly.

Inflation is on a downward trend since November of last year. The benefits of our strong exchange rate, and the reductions in VAT and excise duties which I announced in the budget, were in evidence in the Consumer Price Index for Mid-May. This showed a year-on-year increase of 3.5 per cent compared with an increase of 4.2 per cent for mid-February.The inflation rate should decline further in the remainder of the year. It is expected that the year-on-year increase in prices will have fallen to around 2½ per cent by year-end. As I [1063] stated in my budget speech, there must be unrelenting action to control inflation and costs of all kinds. My views on this are consistent with those expressed in the Central Bank report.