Tuesday, 23 October 2007
Dáil Eireann Debate
I welcome this opportunity to present to the House my pre-budget outlook, which was launched last Thursday. I look forward to hearing the views of other Deputies on this. Before I set out the details of the outlook, I will remind the House of the changes made to the overall budgetary process. The Government made significant progress in recent years since I announced in budget 2005 that I intended to make major reforms to the budgetary process, aimed at delivering a more constructive and relevant examination of how the nation’s finances are run. As the latest step in the budgetary reform process, I announced on 13 September last that the Government will introduce a unified budget with effect from budget 2008 next December. That all the key announcements on the spending and revenue sides of the budget will be announced on the same day represents a more coherent approach to budgetary policy-making. It will facilitate the Government in introducing all its proposals for future service improvements within a planned, progressive and sustainable overall framework.
The Government’s approach allows for transparency and democratic accountability, which are the hallmarks of my approach to budgetary reform, to be brought to bear on the expenditure determination process in its entirety. It will also accommodate a proposal made by the Committee of Public Accounts in its Report on Estimates Reform, which was published in October 2005. The committee asked for a clear distinction to be made between the pre-budget and post-budget allocations. This is the second year in which I have published the pre-budget outlook. I am incorporating in the document detailed technical pre-budget Estimates for the public services on the basis of maintaining existing levels of service. This publication represents another important step in the budgetary reform process and will enable greater transparency and understanding of how taxpayers’ money is spent.
Last week’s pre-budget outlook outlined the Department of Finance’s assessment of the economic and fiscal picture for the coming years. The projections in the outlook, which update the budget day forecast of last December, are based on the latest information to hand. The forecasts will be reassessed as more information becomes available and more decisions are made in the context of this year’s budget. When I commented last week on this year’s economic developments, I indicated that this year represents a turning point for the Irish economy. While the economy performed well in the first half of the year, the current indications are that the short to medium-term outlook has changed from that envisaged on budget day last year. At that time, growth for this year was forecast at 5.3% in GDP terms, whereas GDP growth of 4% per cent is now anticipated. Like other commentators, the Department has had to consider the national and international developments that are likely to affect activity this year.
The main reason for the more modest growth this year is the firm prospect of lower new housing output. While a small decline was assumed on budget day, in line with the prevailing consensus at the time, later data now confirm that output will be considerably lower. Interest rates have risen by 75 basis points since budget day and this, and other factors, have weighed on consumer confidence and also have impacted on the inflation performance this year. The current level of oil prices and the appreciation of the euro-dollar exchange rate also impact on the outlook.
As against this, it must be recognised that the decline in housing output is occurring at a time when other parts of the economy, such as the exporting sector, are performing well and this is partly offsetting these negative influences.
My Department’s GDP growth forecast for this year is of the order of 4.75%. The current market consensus for growth in 2007 is around 5%. However, it should be noted that more recent forecasts, which take into account the less favourable new house developments over the summer, tend to be closer to my forecast.
In terms of the outlook over the next few years, I now find myself being criticised as being too pessimistic. At the time of publication, I indicated the forecasts being published were just that — forecasts based on the latest information to hand. If later information shows more favourable factors, then my Department will obviously take such new information on board. However, at present it would seem to me that it would be unwise to ignore the signs that are there for all to see.
The main factors underpinning the downward revision this year will also prevail next year. The latest leading indicators of future housing output, such as new house registrations and housing starts, have been negative for some time and clearly point towards lower output for next year. This will have a negative impact on employment trends and lower employment growth is now likely for next year. This will lower the rate of personal consumption growth.
GDP growth is expected to be 3.25% next year, which is not out of line with others that have published forecasts since the summer. This forecast is based on a considered view of economic prospects and is not slanted to achieve a purpose, political or otherwise, as some have mistakenly claimed.
Looking at the overall period 2008-10, GDP growth is forecast to average 3.5%. This level of growth is lower than we have experienced in recent years and it will have implications for us all. For instance, lower levels of activity are assumed to result in some employment losses in the construction sector. As a result, the rate of employment growth is expected to slow to 1.25% next year from an estimated 3.5% this year. Consequently, unemployment is forecast to rise from 4.5% this year to 5.5% next year. In this regard, a provision for an increase of 10,000 in the live register has been made in the pre-budget Estimates for 2008. Immigration is forecast to continue, albeit at a slower pace. The slower pace of economic growth and less favourable labour market conditions are expected to result in a moderation in the rate of wage inflation.
However, I emphasise that we must not lose sight of the fact that our overall growth performance is nevertheless impressive by international standards and one that many of our European partners would be very happy with. It should also be noted that the economy’s fundamentals are strong. Provided we manage the current temporary slowdown well, the economy is expected to revert to its trend growth rate by the end of the forecasting horizon in 2010. In this context, the International Monetary Fund has recently noted that Ireland’s economic success has been underpinned by outward-orientation, prudent fiscal policy, low taxes on labour and capital and labour market flexibility.
Apart from setting out the economic position, the pre-budget outlook also confirms the emerging budgetary position for this year as signalled at the end of September Exchequer returns. A cash deficit of up to €1 billion is now in prospect, somewhat more than forecast at budget time and reflecting the weakness in some taxes, mainly as a result of the weaker property market. However, in general Government terms a surplus of 0.9% of GDP is still expected for this year. This means that in ten of the last 11 years we will have achieved surpluses on the general Government account.
The tax shortfall of €1 billion that now seems likely for 2007, along with the reduced economic forecasts for the period 2008-10, means that tax revenue over the period will be lower than previously envisaged. Fewer resources will mean that choices will have to be made and actions prioritised. The pre-budget outlook sets out the technical budget arithmetic and on that technical basis, the overall budgetary position at this stage points to a deficit of -0.4% of GDP in 2008 and 2009 and a balanced budget in 2010. These technical budgetary projections will be affected by any change between now and budget day and by any policy decisions on spending or tax in the budget.
I will now deal with the pre-budget Estimates included in the outlook. In a sense this is the major innovation of this year’s budgetary process. For the first time, the House is being provided with full Estimates-level detail on the estimated cost of maintaining existing high levels of public service in 2008. This detail is being provided in October, a month earlier than the previous Abridged Estimates and in advance of the policy formulation process for the 2008 budget and Estimates. Dáil Éireann is now being provided with a clear opportunity to make its mark at this stage of the budgetary debate. I am looking forward to a constructive and informed debate on where our priorities are, and where they should be in the future. I invite Deputies from all parties to avail of this opportunity to the fullest and to set out clearly their own priorities for resources and how this should manifest itself in terms of improved services for the people of this country.
As the pre-budget Estimates are presented on an “existing level of service” basis, new policy initiatives and significant improvements on existing policies are not included at this stage. These will be announced together with the tax measures on budget day in December and provided for in full in the budget Estimates.
For now, the focus should be on the level of services that are currently being delivered with the over €58.500 billion euro that the Government is allocating for 2008. This in itself is a remarkable level of resources and represents an increase of almost 30% over the level of spending in 2005. In my view it is quite right and proper that such resources have been made available by the Government. We have been living through times of unprecedented economic strength and we have had the opportunity to make good on some of the historic challenges in our public services — not only the deficit in our capital infrastructure but also the deficits in our social infrastructure and in the nature and level of public services in their most general sense. We have allocated resources under all of these headings.
The pre-budget Estimates show that the total gross current spending next year on existing services will be almost €51 billion. This is a 4.8% increase over this year’s Estimate and a 30% increase over the 2005 level. We have made available these increased resources in order to achieve better results in terms of public services. My colleagues will wish to give details on what is being delivered with these funds. However, a preliminary overview will give Deputies a sense of the tremendous social benefits that are being achieved with the existing level of public services.
The pre-budget Estimates provided for about €16.1 billion in gross current spending in the Department of Social and Family Affairs. This is an increase of €784 million over the 2007 allocation, and means that total resources in this area have increased by around one third, or €4 billion, over the past three years. As a result of this level of provision, the State contributory pension has been increased to €209.30 per week and the weekly non-contributory pension currently stands at €200 per week. The rate of fuel allowance has been doubled to €18 per week and the free electricity and gas schemes have been enhanced.
Other adult social welfare rates have also significantly increased since 2005, with the lowest social welfare rate increasing by almost 25%, well ahead of consumer price inflation, to a level of €185.80 per week and thereby achieving the target set out in the national anti-poverty strategy.
Child benefit rates have increased significantly in recent years. Separately, the new early child care supplement has been introduced to give further help to parents. The family income supplement thresholds have also been increased significantly, to give more support to larger families. Carers have received special support in recent years. For example, the pre-budget Estimates provide for a respite care grant to all full-time carers and a new half-rate carer’s payment to certain carers who are also in receipt of another social welfare payment.
In the area of health, the pre-budget Estimates provide for €15.1 billion in gross current spending in 2008, an increase of almost €1 billion over the 2007 allocation, when the special provision for the long-term repayment scheme is factored out, and brings the total increase over the past three years to almost €4 billion or 33%.
The pre-budget Estimates provide for the full range of improvements introduced over recent years. BreastCheck, the national breast screening programme, under which 124,000 women have been screened in the past two years, will commence national roll-out later this month. The National Treatment Purchase Fund is provided for. This service will have arranged treatment for over 72,000 patients by the end of 2007 and has contributed to a reduction in waiting times for most common procedures to between two to five months, compared to two to five years before the advent of the fund in 2002.
Approximately 4,500 additional front line staff have been deployed since 2005, made up of medical and dental personnel, nurses and other health professionals such as speech and language therapists, physiotherapists, social care and social workers, psychologists and environmental health officers. The service provided by these front line staff has a real impact on the quality of health care being experienced by people across the country. Today, the number of people holding a medical card stands at more than 1.25 million, an increase of approximately 108,000 since 2005. The number of persons holding a GP visit card is more than 73,600.
The pre-budget Estimates provide for €8.4 billion in gross current spending on education. This is an increase of approximately €500 million on the 2007 allocation and brings the total increase over the past three years to more than €1.75 billion or 27%. This has enabled us to reduce the staffing schedule at primary level from 29:1 to 27:1 since 2005, thereby reducing average class sizes.
Approximately 3,400 additional primary teachers have been appointed since 2005, and the pre-budget Estimates include provision for an additional 1,100 teachers next year to maintain the improved pupil-teacher ratio and provide for special needs and language support requirements in light of demographic changes. An additional 300 post-primary teachers have been appointed since 2005 and 2,500 additional special needs assistants have also been appointed.
The primary capitation grant has increased by more than 22% to €163.58 per pupil this year. The post-primary capitation grant has also increased to €316 per pupil over the same period. The “three for two” seating arrangement on school buses was fully phased out and all children carried on school buses now have an individual seat fitted with a seat-belt. During the past ten years more than 30,000 places were created at third level, bringing the overall number of full-time places to approximately 136,000.
In addition, more than €1 billion has been invested in educational infrastructure since 2005. This has delivered 28 new schools with construction underway at a further 16 new schools. Moreover, 77 large-scale school refurbishments or extensions have been completed and development is underway at a further 44 schools. More than 2,800 small scale projects were also facilitated in schools during the period.
The pre-budget Estimates encapsulate and represent a great deal of achievement on the part of the Government to date, and set the scene for continued progress in 2008. On the capital side, the pre-budget Estimates set out the existing level of service position, in advance of budget day decisions on spending and as such they broadly repeat the 2007 capital provision for each Department. However, full provision for capital expenditure in 2008 will be announced at budget time, consistent with the multi-annual capital investment framework and the continued roll out of the national development plan. An aggregate unallocated capital provision is made in this context in the budgetary tables in Part 1 of the pre-budget outlook. In this regard, the Government will continue to implement the national development plan as its overarching priority. This approach will underpin continued economic as well as social progress in the years ahead.
The pre-budget figures show that keeping in place the recent improvements in our public services and dealing with the expansion in our population requires a substantial increase of 4.8% in resources. This increased level largely reflects higher pay and extra demographic pressures. As such, it makes it incumbent on all of us to ensure the money is well spent and resources are managed effectively and for managers to stay within overall staff levels by re-allocating and prioritising key areas. This also means focusing on front-line and essential services within approved funding levels.
The Government is determined to ensure that all of the increased resources made available will lead to corresponding improvements in our public services. This is the reason I put in place a robust and comprehensive value for money framework over recent years to ensure we can get the maximum value out of every euro spent. This framework includes the following measures: the publication in February 2005 of new guidelines for the appraisal and management of capital expenditure proposals in the public sector; additional value for money measures in major capital and ICT projects and consultancies codified in Department of Finance circular of 25 January 2006, in particular the appointment of project managers for all capital projects with responsibility for monitoring and managing project progress; the introduction of value for money and policy reviews in place of expenditure reviews spearheaded by a new central expenditure evaluation unit in the Department of Finance; reforms to public procurement including the introduction of the national public procurement policy framework for implementation by public bodies and, from 2007, reforms to public construction contracts and the system for employing construction-related consultants.
In addition, as part of the general focus on what is achieved with public moneys, annual output statements were introduced for each ministerial Vote group. These will be examined by the relevant Dáil committees. Early next year, for the first time, Ministers will report on what outputs they achieved with the money they were given this year as well as setting out their output aims for 2008.
The pre-budget outlook and the pre-budget Estimates for 2008 envisage sustainable economic growth into the medium term at a level which is healthy by international standards and which reflects Ireland’s status as a vibrant, maturing economy on the European and global scene. As our growth prospects ease we must be more responsive to change and prioritise our spending to ensure the best value is achieved.
The pre-budget Estimates are a testimony of the high level of public services we have attained. It is timely to reflect upon what will be achieved with the €58.5 billion in resources to be made available in 2008 and to keep in mind the economic policies which will enable us to sustain further social improvements in the years ahead. I look forward to hearing the contributions of Deputies from all sides in setting out the economic and social priorities which should inform the future course of policy-making in our country. I commend the motion to the House.
Deputy Richard Bruton: Members of the House will remember as I do that one of the turning points of the extremely tight Nixon-Kennedy campaign in 1960 was when a poster of an unshaven Richard Nixon was put out with the caption, “Would you buy a used car from this man?” A number of people will look at the Minister for Finance, Deputy Brian Cowen and wonder whether it is appropriate here.
Deputy Richard Bruton: The glossy high-performance car they were encouraged to buy last May was going to hum and produce large amounts of tax revenue to fund numerous doctors, gardaí, teachers and tax relief. Suddenly, one finds it is spluttering and shuddering and will not deliver any of these. People will take a long and hard look at what is happening. We have been here before as Fianna Fáil talked up the economy prior to elections but as soon as those elections were over we discovered all types of unenvisaged cutbacks would be implemented.
The Government has built a reputation for economic management on the back of a debt-driven property boom. We have had major growth in revenue sources coming from this property boom but as it is stripped away we see the reality of how the boom has been squandered and how the Government has handled the resources given to it. We had high spending without reform and large increases in bureaucracy without matching delivery at the front line.
We never see a Minister step up to the plate to take responsibility when anything goes wrong whether it be with regard to nursing homes or, as Deputy Kieran O’Donnell highlighted recently, problems such as those concerning Shannon when miraculously Ministers were not informed although everyone else seemed to know. The worrying aspect is that at present Ireland is going through a difficult transition forced upon us by the forces of global and climate change. We are presented with major challenges for which the Government has not prepared us well. This is the background to what we are debating.
The document produced last Thursday shows that in 2008 the Government will be €2.2 billion off the tax revenue it projected last year. The Minister proposes to make up this by switching a promised €1,800 million in surplus on the general Government debt into a deficit. The first line of the manifesto which Fianna Fáil produced prior to the election, when it sold itself as the great economic manager, was that it would not run budget deficits but would run the economy prudently to have budget surpluses. At the first test we see the Minister providing for a budget deficit.
The difficulty is that while one can run a budget deficit for an unexpected blip, the Minister projects a number of years ahead where all the promises made and factored into the manifesto are gone. People are right to worry that the Government will choose the soft option of pushing ahead with manifesto commitments, funding them on the back of borrowing. This asks the next generation to pay for Fianna Fáil manifesto commitments. Alternatively, we will see what we saw in the past when the stealth tax route was adopted to fill the large hole in the Government’s finances concealed prior to the 2002 election and which emerged afterwards. Many families and businesses were left to carry the cost.
The tax projections for 2010 which the Minister for Finance had in the manifesto are exactly €4.9 billion off what is projected in this pre-budget outlook. The commitment the Minister had in his manifesto for new spending programmes and tax reform in 2010 was an identical figure. What these tax projections mean is that there is a black hole that wipes out the entire Fianna Fáil manifesto promises by 2010. I presume the Minister hopes there will be some recovery in the last two years. Even if it recovers on the scale he projected originally, back to 4.5% growth, to the low rate of inflation, the best he can hope for is that he will be able to fund 20% of his commitments by 2012. That is the reality. That is what this book tells us.
There is a need to have honesty from the Minister, instead of talk about wanting to hear what Deputies have to say. We want to hear what the Minister has to say about commitments he has made to people — 4,000 extra teachers, 2,000 extra gardaí, 2,000 extra consultants, 500 extra public beds in addition to the 1,500 PPP beds, the cutting of PRSI, the cutting of the top rate of income tax, indexation to wages of all bands and credits. What is going to give? Let us see the Minister’s options list and what is affordable next year in order that we can have the meaningful debate that he says this new structure is designed to promote. This is not a meaningful debate because the Minister is not contributing anything. We have his manifesto but we have no meaningful contribution from him on the options we face for the coming election. We know what he wants to do but we know he cannot do it so we have to see a reduced form as to what he thinks is realistic for the coming year. We are not getting that.
This is a dialogue in which the Minister expects others to contribute while he says nothing about the most important thing that jumps out, that is, the gaping black hole in the middle of the Fianna Fáil manifesto which is underpinning the programme for Government. If the Minister wanted a meaningful debate today, we would be listening to that. People do not have memories as short as the Minister thinks. Let us not forget the last time we were to have 80% paying at the standard rate of tax but that was air-brushed out of reality. The Minister does not even report on that in the budget any more. Children under the age of nine were to be in classes of under 20. That promise has been forgotten about. When the Minister goes to the electorate, tells people this is what he will do and ignores them afterwards he devalues the currency of politics. That is a big problem I have in looking at this.
We will have to look hard at the issue I have been banging on about at every hand’s turn, that is, delivering real efficiency in the way public services are run. The expenditure review system introduced in 1997 was supposed to have a rolling programme every three years when the entire amount of public spending would be scrutinised with a view to identifying efficiencies. That was allowed to rust and almost be abandoned under this Government’s regime. It was reintroduced by the Minister last June in a very mealy-mouthed way. This is not the type of expenditure review we expected, that was built into the public service Act in 1997. We are paying for that failure. We are paying also for the failure of the Government to use benchmarking, a golden opportunity to reform delivery of public services at the front line so that there would less bureaucracy and more delivery. That opportunity was squandered. No serious reform proposals were put on the table by Government. In fact, there was no serious negotiation whatsoever around that issue, it was simply a question of paying the ATM machine as one prominent trade union leader and a Member of the House described it. That was another missed opportunity. In the area of health this can be seen in spades.
The Government started to spend money rapidly in the health area but it was not delivering results. The Minister said the problem was that managers were not close enough to the front line so the eight health boards were expanded to 11 health boards. This means there are many more managers close to the action. When this did not work the Government abolished the 11 health boards and created a new Health Service Executive, bringing in a whole new layer of management. Anyone who is seeking approval for a medical card will be aware that is the reality as three people are required to sign off on it where previously one was sufficient. We do not see delivery at the front line and, further, this body is not even accountable. Where is the drive for value for money, efficiency, and service delivery in any of this? The reality is this has passed the Government by.
The Government has had the soft option of being able to lie back on its couch and watch the money tumble in from the property boom and do nothing about reforming delivery. That is why people hurt at the front line. At the first test the HSE is closing beds, people who expected home care packages are not getting them and those in hospitals such as Beaumont, which cannot cope in its accident and emergency unit, are left there because the promised step-down facilities are not available. More people are left in expensive €1,000 per day beds when they should be in beds that cost €250 per day. Where is the economy in that? This is not delivery or value for money, driven by front-end needs of patients.
The Minister can speak about value for money frameworks and so on but this has not been consistently pursued. Nobody has been made responsible for targets at the front line and when things go wrong nobody is there to take responsibility, neither Ministers nor anybody further down the line. That is where we have been sold short. The spending bonanza is coming to an end. Since 2000 the Government’s current spending has been at a rate 40% faster than the rate of growth in the economy. It has driven the proportion of GNP represented by current spending from less than 25% in 2000 to 31% today. That is a huge growth in the wedge of spending that has to be funded by taxation. It was being funded for a number of years by the golden goose laying eggs in the form of stamp duties, housing taxes, VAT and so on from the property boom. That golden goose has stopped laying and funding for those services will have to come from ordinary taxation. The tragedy is that we did not squeeze out the efficiency. Those golden years when money was available were not used to reform to provide a strong, well-functioning system. There are creaking systems in crucial areas such as health. We will rue the day we did not have a Government more alert and more hungry to deliver change and public service reform when it was needed.
I thank the Minister’s officials, some of whom are present, for the courtesy of briefing me and colleagues on this new approach which I appreciate. I am more dismayed at what is not being revealed than what is being revealed. The Minister had an interesting analysis in his statement where he broke down the percentages. I cannot remember them exactly — 36% related to demographic change, another 35% to the impact of decisions already taken and there was other public service pay. I do not blame the officials but when I asked to see the background, the demographic spend and the carryover programmes in each Department, that information was not available. In his contribution the Minister produced figures, which I presume are categorical because they come from the Minister for Finance, but there is no backup.
If we are to have a meaningful debate on any of this spending we need to know the amount of money that is being provided for demographic growth in, say, the health area. In my area, an extra 8,000 people per year are leaning on the Mater and Beaumont structure, which is not capable of handling that number. I would like to have seen the demographic provision for extra service on the north side to deal with this population strain. No figures are available for demographic growth. The Minister asked for suggestions. I have many suggestions if he is serious about reforming Beaumont and the Mater, which are in a chronic state. He has to provide capacity and he cannot back out of that. There will have to be step-down capacity in order to manage what is a very expensive modern hospital in an efficient way. It should be possible to move people from beds into convalescence but that cannot be done in Beaumont. People wring their hands and ask why the accident and emergency unit in Beaumont is in crisis again. That is because it has nowhere to put patients who should be in convalescence. That is the reality. A facility that was due to open in November will not now open. The promises made are not being delivered, apparently, because of the latest round of cutbacks. This is short-sighted because it means more people will sit in the accident and emergency unit and more will suffer misadventure because they are not being seen.
We cannot have a meaningful debate until the Minister starts to put some of that information into the public domain so that we can have something like equality of information to debate the options. The Minister has claimed that this would accommodate the proposal from the Committee of Public Accounts. It is not fair to pretend that he is fulfilling the requirements of that committee’s proposal. It stated it wanted existing levels of service, and new spending and tax decisions brought together. However, it also stated that the Dáil must have the opportunity to see the details early and have meaningful debate with ex-ante choices, which we would be in a position to amend. This would mean that the Minister would propose options for improvement in particular areas and we could have a meaningful debate on which options are best.
This is not that sort of debate. We are not being given the opportunity to veer money around and consider, for example, what is the possible provision for step-down beds next year or whether we could make more room for step-down beds so that we could run expensive hospitals like Beaumont more efficiently without the need for people to sit in accident and emergency departments. We cannot have that debate because the Minister is not giving us the information to allow us to do so. The Minister knows as well as I do that this debate is simply going through the motions and we will have a vote tomorrow night. In no sense are we engaged in scrutiny if we are supposed to be scrutinising the options and weighing up the better thing to do. If that is what the Minister wants, as implied in the proposal of the Committee of Public Accounts, then we need a completely different system from what he is offering us.
The notion is that budget secrecy is contained on the other side of the House with the Minister having all the wisdom, which we wait to drop from his lips like pearls to be picked up from the ground. That is not the way a modern society works any more and our budgeting process must change to reflect that. We want to have a meaningful impact on the choices taken. This change of bringing tax and spending together will only be cosmetic without that facility for advance debate on the choices. The Minister keeps saying he is only delivering on the recommendation of the Committee of Public Accounts. However, he is selling short the vision of that committee. On budget day it will be the same with a big list of spending, another big list of taxation and no real debate. It will be a case of take it or leave it. The Whips will be brought in, we will vote and it will all be over. It will be the same as it has always been and it is not a meaningful change.
I would like to have seen some of the proposals from Fine Gael’s document. For instance five-year costings for any new spending proposal should be published in advance. We should also see five-year performance targets for the programme so that we can see what it should deliver. For example next year we will have a new nursing homes subvention scheme that will be entirely different from any we have ever had. We ought to have five-year projections of what it will cost, who will be the beneficiaries and how it will develop. I am sure it will be a good thing to do and is a well thought out idea. However, we still need to see the costings. From past experience we have seen good ideas like this, for example medical cards for certain categories of people, balloon out of control because no one felt the obligation to carry out accurate five-year costings. That should be part of the meaningful process in which we are now engaged. We know that change is coming up the track: it is a Government decision.
When I asked the very worthy Department of Finance officials if I could see the Government decisions that have been taken and details of their required funding for next year, I was advised that was a political decision. However, these are decisions the Government has already taken and they are in the public domain. While I accept it is a political decision as to whether they will proceed, what they will cost is not a political decision and we should be entitled to that detail to allow us to start to have more meaningful debate. However, that is not what we are getting. We have been sold a pup if the Minister believes this represents meaningful reform.
I welcome the output statements. However, we have been down this road before with the strategy statements. The Departments of Education and Science, and Transport are the worst in this regard. What they regard as output statements are input statements. The Department of Education and Science will state we are to have more teachers. However, it does not outline what this will deliver. Output statements should address what will happen to literacy and dropout rates, and what will happen to children with special needs. That is what an output statement is. Outcomes and outputs are different from inputs, which are teachers and, in the transport area, buses and tracks. Output statements on transport relate to what happens to passenger numbers and the modal split. This is what we ought to see if we want our output statements to trigger meaningful debate about spending choices and how well Departments are doing. However, with some notable exceptions, many big Departments are just producing documentation that does not stand up to real performance indicators. The Minister for Finance would not accept them as performance indicators. What is being done in the UK is light years ahead of what is being done here.
I have no doubt the anthem for this year’s budget will be “after the ball is over” because that is the dilemma we are facing. Our grandmothers were fond of telling us that doctors differ and patients die. I wonder what they would say about economists and the Department of Finance forecast. One prediction is for zero growth in 2008, others including the Department of Finance predict 3% and the Sunday Independent for its own curious political agenda plumps for the 5.5% forecast given by the wise experts of NCB. Internationally the IMF is honest enough to admit evidence of a significant slowdown and a confirmation of the credit crunch that has left the financial markets in sustained turmoil for months — and it is not getting any better.
It has not gone away, you know, just because there are no queues in front of banks. Just today Standard & Poor’s had some salutary warnings about Irish growth prospects should the downturn in housing construction persist with implications for the credit ratings of Irish construction firms and banks because they are so inextricably entwined together. So who is right? It is like doctors who are a trifle confused about the proper strength of medication to be given to the patient. God help the patient who must trust their judgment and God help the Minister who must rely on what the dismal scientists have to tell him.
However, that is as much sympathy as the Minister will get from me in the context of the budget. If he has budget difficulties, the Minister has only himself to blame. He took a strictly political view this time last year and opted to spend at a rate that could not be repeated. He then, no doubt reluctantly, allowed his Taoiseach to throw caution to the winds and make profligate promise after promise in the run up to the general election in May. Looking at the Fianna Fáil general election promises, the taxation commitments for 2008 come to more than €1 billion and its spending promises total €888 million. That is nearly €2 billion in promises for 2008. The Minister is responsible for standing over that. Promises were made of €300 pensions, lower taxes for everyone and significant reductions in PRSI. Now after the ball is over the Minister is facing up to a headache. As that song goes it is “many the hopes that have vanished after the ball”. The Minister might ask for the Solpadeine quickly because that is what he seems to need from the economic side.
Today it is more than the hopes of a jilted lover that have vanished. The reputation of the Minister and his party for economic wizardry and competence has vanished also. The Minister, perhaps in an unguarded moment in a press conference last week, said that he could not be expected to manage the wind, that we could not shape the wind and that we could just hope it was on our backs. The Minister is managing the nation’s economic fortunes in the hope that it will be all right on the night. It used to be a wing and prayer but today Fianna Fáil does not do the prayer, faith, certainly not charity and, therefore, what we are left with is hope. The Minister conceded that the favourable international winds of recent years allowed him to spend so politically but he must recognise the winds have changed and his scope to deliver growth is severely hampered. I cannot believe the Taoiseach could announce such a set of election promises in March without the full knowledge that oil prices would remain high, housing construction was slowing and would remain stagnant for a long time and no significant foreign investment project announcement was on the cards for Ireland in 2007.
This is the man who boasts of his immense intelligence network that lets him know about anything that is stirring. Could he or the Minister for Finance not have known, given their close association with house builders, how stagnant the market was and the automatic chain reaction that would result, affecting the Exchequer and the economy generally? We can only conclude that they set out to deceive and they succeeded in that exercise in the crucial months before the country went to the polls. I cannot have sympathy for the Minister if he is faced with headaches in framing the budget. He brought them on himself promoting expectations of continued growth in the spring and, with equal sincerity, promoting pretty much the exact opposite now that the leaves are falling in the autumn.
I do not propose to engage in an exercise that talks down the economy, as that would be a futile exercise for anyone foolish enough to attempt it, but we must be realistic about significant trends and challenges. The Opposition has a proper duty to put the Minister on the spot to test his capacity to handle difficult times as well as boom times. I refer to a number of the trends and studied ambiguities within the pre-budget report, one of which concerns investment inflow. Suddenly Ireland has fallen out of favour. In 2006 the State experienced a respectable flow of foreign direct investment and a high rating in international league tables for such super mobile investment but in 2007 good news has not been reported with no major announcement to boast of and clear indications that these funds are looking elsewhere for a more favourable home than Ireland offers, despite its generous tax regime.
The CSO states the complete value of foreign investment has fallen by no less than €13 billion in 2006. Overall at €170 billion, it is still a very good figure but a further reduction in value would seriously erode confidence. The loss of value will mean a significant switch in our economic climate. The earliest years of the Celtic tiger era were fuelled primarily by foreign direct investment and not by tax cuts. The Progressive Democrats Party is wrong in this regard because the tax cuts followed the period of growth initiated by my colleague, Deputy Quinn. In 2007, this sector’s contribution to economic growth has reduced significantly and there is little evidence the Minister has a back up policy to turn this around.
The low corporation tax regime, important though it is, no longer has the cachet it once had and many other countries offer packages that are as good, and often more competitive, than Ireland. Investors must look at Ireland and wonder why key skills in science and engineering have such a low status that few students are attracted to pursue associated courses in our universities. How can the Government expect companies that rely on these skills to invest here when young people demonstrate such little interest in acquiring them? The economic Ministers and the Minister for Education and Science do not pay enough attention to this issue. However, every August we witness ritual hand wringing by them about the scarcity of graduates in science and related disciplines.
A precedent for this was mentioned recently. In 1957 the US was shaken out of its complacency when the Russians sent the Sputnik into space. Within a short period, the US education system got its act together and upgraded its attention to science, maths and engineering with spectacular rewards, which it still reaps. The Government should examine how the US did this and the painstaking approach adopted to reverse the decline in science education. The Minister and myself debated this issue in Donegal last July but the Minister for Education and Science still has not indicated that she is even aware of this issue, even though she is the lead Minister in the development of science and technology in education.
I refer to a number of other issues. Ten days ago Fingal County Council announced an ambitious programme of more than a dozen primary and post-primary schools to cope with the massive increase in population in areas such as Castleknock, Blanchardstown, Mulhuddart, Balbriggan and Swords. It is unusual in my experience of government in Ireland — I am sure the Department of Finance was as surprised as I was — for a local authority to announce significant capital commitments for new schools, given the current expenditure implications for spending on staff and so on. The commitment to new schools is absolutely essential. Has this additional capital commitment, which featured prominently on radio and television, been provided for in the context of the population increases to which the Minister referred in framing the pre-budget outlook? Where is it included in the Estimates? What is the status of capital commitments on school funding? Will we have to wait until budget day or later to find out the detail of the schools building programme and the consequent staffing commitments for the new schools? Is the Minister for Education and Science even aware of this commitment? Has she paid the Minister for Finance a visit to discuss Fingal County Council’s correct identification of areas that need new schools?
A further area of commitment on the part of Fianna Fáil during the general election campaign involved a climate change programme and a significant reduction in carbon emissions. The pre-budget document gives no indication as to the Minister’s thinking on these important issues. I do not know whether he intends to propose tax changes that will reduce carbon emissions and encourage people to save energy. It is a limited document when one considers this is one of the critical questions not only facing Ireland but the world. The general understanding following the election was that a serious climate change and carbon reduction programme was one of the cornerstones of the deal between Fianna Fáil and the Green Party to form a coalition Government. However, the pre-budget document is silent on what the deal will mean on budget day. This is an important issue because it features prominently in the programme for Government.
The Government also made a significant commitment, which I strongly support, regarding overseas development aid. As the economy slows, we need to know what will be the impact of this commitment on an ongoing basis on the Exchequer. The commitments on climate change, ODA and the construction and staffing of new schools arising from population increases are as significant as the commitment to the national development plan but if the Minister is facing a levelling off or a reduction in expenditure capacity, we need to know how he proposes to approach them. The pre-budget outlook does not tell us very much about his thinking. In the run-up to the election, the Minister’s approach to spending was almost entirely political. Now that the budgetary situation has turned around, he must act in the national interest.
The Minister asked about the Labour Party’s commitments. In the event of cutbacks, we want to ensure those who are marginalised and disadvantaged are not further reduced in circumstances. We seek to maintain the commitments made to the development of key infrastructure, which forms the basis of future economic growth.  Now is the time to review areas where administrative overheads and vanity projects have led to wasteful spending. The issue for the Minister and for Fianna Fáil is whether they have the bottle to adopt this type of approach.
In the course of the general election, the Minister made specific commitments to lower both the higher and standard tax rates. He promised to reduce significantly and reform PRSI, not just over a five-year period but on an annual basis. He further promised to index bands and allowances for PAYE taxpayers. The first line of the section on tax promises in Fianna Fáil’s election manifesto referred to indexation, tax bands, PAYE and personal credits. Fianna Fáil promised to undertake all these reforms within the expected tax take.
Now that the Minister has acknowledged that the tax take for next year is likely to decline even further than it did this year, the question arises as to which of these promises will be jettisoned on budget day? In terms of ordinary workers and their families, the key objective the Minister must deliver is to maintain the value of income tax credits, bands and allowances in line with inflation. If he fails to do so, there will be a repeat of the situation from 2002 to 2007, where the failure to expand tax credits, bands and allowances for inflation meant they were effectively frozen and thus constituted the largest stealth tax of all for ordinary workers and their families. Some 50 stealth taxes were introduced in those early years of cutbacks under the Minister’s predecessor, Charlie McCreevy. The most significant of these was the failure to index the various tax credits and bands.
Where does the Minister stand on this? What is the use of a pre-budget outlook if he is not prepared to impart his thinking on the pre-election promises that must now be curtailed? He may hope the electorate will have forgotten these broken promises by the time of the next election in 2012. This time, however, it will be a case of: “Fool me once, shame on you; fool me twice, shame on me.” We will look closely at the package announced by the Minister on budget day to see whether he takes the electorate for a complete bunch of suckers now that the election is safely over.
The recent chaos in the health services has led to significant suffering for many individuals. I do not know whether this is a tactic pour encourager les autres , that is, to ensure other overspending Departments get back into line as quickly as possible. The Labour Party amendment proposes that in examining the pre-budget outlook, the emphasis, looking forward to budget day, should be on maintaining critical infrastructure investment, protecting the marginalised, poorest and most disadvantaged from cuts, and protecting key areas such as health and education.
The Government has put forward proposals to change and reduce funding for community crèches. These operate in some of the poorest areas in all our constituencies. Now that the EU funding for this service is due to end later this month, my understanding is that the Government proposes to revert to offering funding for crèche places only to those in receipt of social welfare assistance. This means that families on the most minimal incomes could soon face commercial crèche prices for community crèche places. These can be as high as €200 per week in Dublin. This is a recipe for introducing another poverty trap. The pre-budget outlook is silent as to the intentions of the Government in this area.
Minister for Enterprise, Trade and Employment (Deputy Micheál Martin): I welcome the opportunity to contribute to this discussion on the pre-budget Estimates for 2008, published last week by the Tánaiste and Minister for Finance. They mark a significant development in reform of the Estimates and budgetary process. The Government’s objective is to create a more unified and transparent approach to the budgetary framework and to provide greater transparency in terms of the allocation of resources.
The Government wishes to focus on value for money. In response to Deputy Burton, I contend that it is in everybody’s interests to move away from the rhetoric on child care and instead seek ways to deal with the proposals before us. Those proposals emanated from a value-for-money exercise undertaken by the Department of Health and Children in regard to the previous six-year programme, which was largely funded by the Exchequer. The claims in leaflets emanating from those campaigning on this issue that it was all EU money are disingenuous. Deputy Burton too referred to the cessation of EU funding in this area. The reality is that the Government has allocated significant resources to child care in the past six years. More money will be allocated in the next six years. That should be acknowledged.
The issue to consider is how this money is allocated. I recognise the concerns raised in this regard. I have impressed upon interested parties the importance of gathering data and information so that we can form a basis for teasing out the issues involved and how serious are the problems in certain communities.
Deputy Micheál Martin: That is disingenuous. Deputy Burton knows the pre-budget Estimates were not designed to deal with a detailed scheme under the aegis of one Department. We should not use this process as an opportunity for propaganda. What is of primary concern within this framework is the outcome, which is about looking after those most vulnerable and disadvantaged. This is the focus we wish to develop.
I welcome the publication of the 2008 Pre-budget Estimate for the Department of Enterprise, Trade and Employment, which amounts to more than €1.522 billion in Exchequer funding. This represents an increase of €28.68 million on the 2007 allocation. In addition to the Exchequer allocation, the national training fund, NRF, will contribute more than €402 million to my Department for the training and upskilling of the labour force. The combined Exchequer and NTF allocations will allow my Department and its agencies to continue to focus on the delivery of key services that will support Ireland’s competitiveness.
Improving our competitiveness is vital if Ireland is to maintain economic growth in the years ahead. It is all the more important in the context of an ever-changing global environment and an increasing number of aspiring competitors in the global market place. To improve our competitiveness, we must anticipate and adapt to international challenges. The strategy for science, technology and innovation, which was published last year, represents a vision to make Ireland renowned for the excellence of its research and innovation. It is an integral part of the national development plan and adopts a whole-of-Government approach to transforming further the State’s research and development base.
For 2008, investment in science, technology and innovation programmes under my Department’s Vote will amount to more than €289 million. This funding will allow Ireland to continue to build its science base and ensure that we have the capacity to attract foreign direct investment and improve competitiveness through innovative products. Although it is early days in the delivery of the Government’s science strategy, substantial progress is already being recorded. Science Foundation Ireland, SFI, made a total of 832 awards across all of its programmes to the end of 2005. By the end of 2008, it is projected this will have almost trebled, to a total of 2,401 awards. In 2008, SFI will continue to fund the existing eight centres for science, technology and engineering, or CSETS. To support and develop programmes with commercial potential, 155 projects will be supported under Enterprise Ireland’s commercialisation fund. More than 50 research and development projects will be supported by the IDA in 2008.
People have raised the legitimate question of whether the STI strategy is delivering for Ireland. Total research and development spending across all sectors of the economy reached about €2.33 billion in 2006, up more than 14% on 2005. Gross expenditure on research and development has increased by 26% in nominal terms between 2004 and 2006. Research and development spending in the business sector rose by more than 17% in 2006 compared to the previous year, to reach €1.56 billion.
Expenditure in excess of €2 million in research and development activity by Enterprise Ireland assisted companies rose from a base of 21 companies in 2003 to 40 in 2006, with such progress expected to continue throughout 2008. It is in line with the target set for 2013 that 100 will achieve this level of spend. Enterprise Ireland client companies spending €100,000 or more on research and development rose from 462 in 2003 to 620 in 2007, with such progress expected to continue throughout 2008. It is also in line with the target set for 2013 of 1,050 companies spending €100,000 or more on research and development projects.
Separately, 54 research and development projects were supported by the IDA in 2006, with about 50 to be supported in 2007 and 2008. Some 140 projects were approved in 2005 under Enterprise Ireland’s commercialisation fund, which rose to 155 in 2006. That progress is expected to continue throughout 2008. We have more licensing between third level institutions and industry, and there is also patenting etc. under Enterprise Ireland schemes.
A host of companies, such as Lucent Technologies, Wyeth Biotech, Guidant, Cisco, GlaxoSmithKline, Pepsico, Intel, IBM, Bristol-Myers Squibb, Servier, Merrill Lynch, Merck Sharp & Dohme, Dawn Farm Foods and others, such as Bell Labs and Georgia Tech, are now choosing Ireland as a home for their research activity. That would have been unthinkable in the past, so we are making the transformation to a knowledge-based economy, and one that is looking to create Ireland as a very significant and attractive location for investment in science and technology.
Parallel with this is the key target of upskilling the labour force. Last year we published the national skills strategy, which set ambitious targets for upskilling the population. The national training fund will provide €402.9 million in 2008 for the training and upskilling of the labour force, directed at a range of activities, such as Skillnets and FÁS. FÁS will also receive substantial Exchequer investment for an extensive range of programmes addressing the needs of both individuals and companies. In total, the body will receive more than €1 billion in 2008 from the national training fund and the Exchequer.
In addition to upskilling those already in the workforce, FÁS funding will provide training and support for people seeking employment including people with disabilities. Funding for specific employment and training programmes for people with disabilities will amount to €77 million in 2008. People with disabilities can also avail of mainline FÁS programmes and services. Funding for FÁS employment programmes, including community employment and jobs initiatives will total €419.5 million in 2008.
The promotion of appropriate strategies to encourage a competitive economy is balanced, in my Department’s pre-budget Estimates, with the protection afforded to consumers and workers. The establishment of the National Consumer Agency on a statutory basis this year was a watershed in the drive to protect consumer rights. Funding for the agency has been increased by €2 million in the 2008 pre-budget Estimates, to €10.397 million, an increase of 24% in the 2007 allocation.
The increased allocation to the NCA for 2008 will allow the agency to deliver on its mandate, particularly in areas such as consumer advocacy, research, information, enforcement, education and awareness. It will champion the cause of the consumer while working with businesses to help them understand and comply with their regulatory obligations.
Funding for the National Employment Rights Authority has been increased in 2008 by more than €1 million, or 12%, to €9.6 million. This increase takes account of the recruitment of additional staff which has been ongoing in 2007. The establishment of the National Employment Rights Authority was a key element of the social partnership agreement, Towards 2016. The agreement provided for a trebling of the number of labour inspectors to 90 by the end of 2007 and for associated legal accounting administrative support staff. The labour inspectors will be based in Dublin, Cork, Shannon and Sligo, as well as the new head office of the authority in Carlow, which opened in July. That was a good example of successful decentralisation.
Deputy Micheál Martin: I expect the authority to be fully staffed by the end of 2007 and there is an ambitious business plan in place for 2008 focusing on the promotion and enforcement of employment rights.
The Labour Court, the Labour Relations Commission and the Employment Appeals Tribunal, which are all funded through my Department’s Estimate, provide further supports where necessary to workers — and indeed to employers — as part of the employment rights and industrial relations mechanisms under my Department’s remit. These areas have had their allocations increased in the pre-budget Estimates in line with standard inflationary increases to allow them to maintain their high level of services. Funding to the Health and Safety Authority has also been increased in line with standard inflators to ensure occupational health and safety continues to receive attention.
I draw the attention of Deputies to an increase provided in my Department’s pre-budget Estimate for the workplace innovation fund, with the allocation amounting to €2.75 million. This represents an increase of €1.8 million on 2007, in line with previously stated partnership commitments. This has been a significant contributor to social partnership in the Irish economy.
We are determined to provide value for money and concentrate on outcomes in key strategic areas which will ensure the continuation of Ireland’s competitiveness. The key areas of skills, research and development, consumer awareness and advocacy, as well as a commitment to fair practice and the proper application of labour law, will be key elements of this year’s pre-budget Estimates for my Department.
Deputy Paul Connaughton: If only it was as simple as the way the Minister finished up his speech. It is a pity those concepts are not actually put into practice. I have listened to the same comments from one budget to another and they never seem to work out.
The outlook for this year’s budget is an entirely different kettle of fish to last year’s example. At that time there was not even a cloud in the sky, although some of the underlying problems now besetting the economy were beginning to emerge. However, we were approaching a general election and there could be no impediment on the return to Government by Fianna Fáil.
This is not the first time Fianna Fáil pulled this stroke. People may have very short memories but the same comments were made before the 2002 general election. We remember the so-called swingeing cuts the then Minister for Finance, former Deputy McCreevy, made to correct the position. That was the fashionable phrase we had for two years. It was not that the Minister was reneging on promises but rather he was correcting a position when the general election was over.
Is it not strange that in the 12 months leading up to the last general election, everything seemed absolutely rosy as the economy was being talked up without the possibility of a problem? I understand Fianna Fáil, based on election promises, indicated that based on the growth in the economy of 3% to 3.5% over the next three years, the programme for Government set out last May would have been possible. Economists now seem to agree the growth in the economy should be between 3% and 3.5% over the next three or four years. If the Government figures were predicated on this growth rate, why is the Minister for Finance now literally frightening people in the last couple of weeks before the budget with this very dour forecast?
There are several issues the Irish people will be sore about next budget day if they do not come about. The people were given an absolute understanding, given the growth rate I have spoken about, that the top and standard rate of tax would be reduced and there would be indexation of the bands and allowances. Everything I hear coming from the Minister for Finance, the Taoiseach and everybody else speaking about the forthcoming budget seems to suggest the Government is trying to sidestep these matters.
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