I am very pleased to have this opportunity to address the American Chamber of Commerce in Ireland today.
As you are well aware, the transatlantic relationship is extremely important to Ireland. The US has extended the hand of friendship and support to us in so many ways over the years. From your involvement in the Northern Ireland peace process, to support for political dialogue and exchange on all levels, this is a relationship that we value and nurture.
Today, I would like to take the opportunity to focus on the strong economic interest that Ireland has in maintaining good relations with the United States. Everyone here knows of the pivotal role that US investment played in transforming Ireland over the past decade or so. That investment continues to be a key driver of our economy and is crucial to future growth.
Last week, a report by Deloitte showed that Ireland was the fourth most important destination for US foreign direct investment in 2002. This is a truly remarkable result. Faced with any number of low-cost economies or countries offering far larger marketplaces, US multinationals continue to choose Ireland. They do so because we offer a pro-business climate, a talented workforce and policy credibility.
The importance of policy credibility in this regard should not be underestimated. Any country could decide to offer multinationals low corporation taxes tomorrow. However,unless such an announcement is credible, it will not succeed in attracting companies with a long-term investment interest. If low taxes are to be effective as an incentive, they must be regarded as sustainable within the normal constraints of budgetary policy.
And the good news is that confidence in the Irish economy is certainly palpable. Investment flows are picking up, unemployment is falling, and tax revenues are running well ahead of targets.Growth forecasts for this year are being revised higher, with reports in recent days suggesting that the economy will expand by an impressive rate of about 5% this year. There is even some talk that the Celtic Tiger is making a return visit to these shores!
Naturally, I am delighted to be able to highlight these developments for you today. It is not so long ago that the country seemed to be caught in the grip of a deeply pessimistic outlook. To some extent, this downbeat demeanour was understandable. Everything that could go wrong from an economic viewpoint, went wrong. We had the tragic events of September11th, recession in the US, stock market falls, a blow-out in the IT sector and Foot and Mouth Disease. On top of everything else, the euro enjoyed a remarkable turnaround on the foreign exchanges and appreciated dramatically over the last eighteen months.
It seemed to some that the wheels were coming off the economy.We were told that the economy was destined to enjoy a hard landing,that the gains of the past seven years were going to evaporate in front of our eyes. It has not quite worked out like that -much to the disappointment, I imagine, of those who predicted imminent disaster.
Certainly, we are benefiting from the strength of the recovery in the US as well as signs of improved momentum in both Britain and the rest of the European Union. Undoubtedly, we were supported by the impact of low interest rates. However, no one should try to downplay the effects of domestic behaviour and domestic policy on Ireland's soft landing and subsequent robust recovery.
Through our record of delivering low corporation tax rates alongside broad budgetary balance, we have succeeded in attracting some of the worlds greatest companies to Ireland. Only this morning, I was at Intel in Leixlip opening their new Fab 24 plant.Ireland's partnership with Intel has been remarkably successful.Their recent announcement to invest a further $2 billion in the Irish economy is a very important and welcome vote of confidence.
The Government was heavily criticised for responding to the global slowdown and its impact on the fiscal outlook by reducing the rate of growth in public expenditure. However, by taking the necessary corrective action at the right time, we underpinned confidence, both at home and abroad, in our policy regime. In that way we laid the foundations for an early return to budgetary balance.
By acting quickly and responsibly, we were still able to increase Government expenditure by relatively generous amounts. Should we have delayed in correcting emerging imbalances, if we had faltered in our determination to do what was in Ireland's long-term interests, we would be looking at a very unpleasant situation today. Now, far from presiding over the threatened fiscal chaos, we have seen stability returning to the public finances. True leadership is about taking the tough but correct decisions. We took them, we implemented them, and we defended them. The public finances and our economys prospects were the key beneficiaries.
While it is important that we celebrate our success in coming safely through a perilous period, we must not let our expectations get out of control. Many of the behaviours, which characterised the Celtic Tiger period, cannot be sustained in calmer economic conditions. That was an extraordinary period, which allowed us to do some extraordinary things. We increased government expenditure, radically reformed our taxation system, and the public and private workforce enjoyed large increases in their wages. All this was made possible by a surge in both government resources and profitability in private enterprise on the back of double digit growth in the economy.
Irelands growth looks set to exceed levels which would previously have been regarded as optimistic. That said, we are not going to see a return to the hectic pace of activity which characterised the late 1990s and opening years of the new millennium. As a consequence, we must keep this changed growth profile in mind when making demands for higher government expenditure, more tax cuts or higher wages.
In this context, social partnership is critical. Nobody who has given any serious consideration to the drivers of Irelands economic transformation can do anything but believe in partnership. It is incumbent on all of the social partners to recognise that its success has always involved engagement and compromise. At its core, it has always been about the subsuming of sectional positions in the national interest. I look forward to it continuing to contribute to Irelands success over the coming years.
Ireland is one of the worlds great trading nations. Our external competitiveness is a critical factor in determining our economic potential. Given the volatility we have seen on the foreign exchanges over the past few years, it is vital that we do everything within our power to protect and enhance our competitive nature. That involves defending and underpinning our corporate tax regime through budgetary common sense. It also requires restraint in the setting of prices and wages. Wage and consumer price inflation rates moderated from excessive levels in the past two years. We must now work to ensure that they remain at levels, which do not undermine our ability to earn a large part of our national income from the outside world.
On May 1st, I welcomed the leaders of the newly enlarged European Union to Dublin to celebrate the accession of ten new states. Rather than threatening our competitive nature, I believe that enlargement presents Ireland with a great opportunity.At the moment, Ireland has the weakest trade linkages of any member of the EU 15 with the new member states. As these countries enjoy greater economic success and our partnership strengthens, I look forward to a significant increase in trade with the newest family members. I have no doubt that this will have a knock-on effect for you too.
Two years ago, the Government received a new and more powerful mandate from the people. The Fianna Fáil party campaigned in that election under the slogan A lot done, More to do. We have achieved a lot in the past two years and our focus on restoring the public finances to good health has borne great rewards.
Now that we have emerged in good shape from the global slowdown,it is time for us to complete the tasks we set for ourselves on taking office in 1997. As a priority, any new budgetary resources should be devoted to the completion of the overhaul of our public infrastructure. While we still lag many of our competitors in terms of the quality of our transport system, any of you who have strolled through the city centre or driven around the country will have noticed that we are working flat out to close that gap. Luas services, due to start in a fortnight, will make an important and obvious contribution to the enhancement of Dublins infrastructure. We established an ambitious programme in the National Development Plan and I look forward to seeing it and more being delivered in the years ahead.
The future is certainly looking brighter now than at any point in the past four years. However, we should not use the restoration of our good economic fortune as an excuse for complacency. We will continue to strive and compete in order to create new opportunity and new prosperity. We are confident that US investment will continue to play a key role in that regard.
To conclude, I want to acknowledge the work being done by the American Chamber of Commerce in Ireland in promoting trade and business links between our two countries. You have played an important role in the unprecedented growth experienced in the Irish economy over the past decade. I have no doubt, but that with the renewed economic optimism of recent time you will continue to do so over the years to come.
Thank you
ENDS