Finance | Adjusting the response to economic difficulties
To ask the Minister for Finance the extent to which any particular economic features require amendment or refocus in order to avoid difficulties in the future; and if he will make a statement on the matter.
As a small open and highly globalised economy, we are, by our very nature particularly susceptible to economic shocks and periods of volatility. In the last half decade alone, our economy has endured several once in a generation type shocks. Firstly, we had to contend with the long drawn-out effects of Brexit, this was followed by a global pandemic which brought large parts of our economy to a standstill for nearly two years. Now our economy must contend with the economic aftershocks of war on European soil.
The exceptionally large energy price shock, resulting from Russia’s invasion of Ukraine, has reverberated throughout the world and led to multi-decade high global inflationary pressure. In Ireland, the annual average inflation rate rose to just over 8 per cent in 2022, compared with around ½ per cent over the past decade. Almost every advanced economy is in the same position, with euro area inflation averaging 8.4 per cent last year.
Whilst we cannot prevent shocks of this nature from occurring, we can ensure we are on the best possible footing to respond to these shocks when they do occur. This prudent approach has enabled the Government to respond pro-actively to help protect households and business as cost of living pressures have mounted. Budget 2023 was a cost of living budget and provided for a total package of €11 billion in measures, comprising €4.1 billion of temporary supports, such as electricity credits, double transfer payments and TBESS as well as €6.9 billion of permanent measures including adjustments to income tax bands, increases in social welfare and pension rates and reduced childcare costs. These supports have been designed to provide much needed support to households and firms while avoiding a situation in which the Government’s response becomes part of the inflation problem.
Despite numerous shocks over recent years, our economy proven to be remarkably resilient in the face of these challenges. Nowhere has this resilience been more clearly evident than in the labour market, with 2½ million people now in employment – a record level and an unemployment rate of just 4.3 per cent in December, one of the lowest rates on record.
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