Tuesday, 2 December 2008
Dáil Eireann Debate
Deputy Enda Kenny: When the budget was delivered on 14 October, the forecast was for a shortfall in taxes of €6.5 billion. Will the Taoiseach confirm if the November returns are consistent with that forecast? If they are not, what are the implications?
Deputy Enda Kenny: I understand the Exchequer returns to be published at 4.30 p.m. are almost €1 billion off from the forecast made on 14 October, when the budget was delivered. That means the economy in this country is now in freefall. Some 10,000 jobs per month are being lost and while the British Government reduced its VAT rate, our Government has increased it with devastating consequences for retailing within 50 miles of the Border and beyond. There is still no credit flowing from the banks to small businesses.
The budget and bank guarantee system was supposed to deal with these problems but it has not. If these reports are correct — we will know at 4.30 p.m. — will it be the view of the Taoiseach that the budget figures for 2009 will be in shreds? There are over 2 million people at work in this country.
Deputy Enda Kenny: There is a clear need to instill confidence in the Irish consumer and economy. Everybody is afraid to spend a euro now. The Government’s budget cut back capital projects by almost €1 billion. Carbon credits were paid out to power generators when it was not necessary and the position in Northern Ireland is now devastating for the retail trade across a swathe of the country.
Will the Taoiseach revisit the capital budget arithmetic because investment is needed in serious infrastructure projects to allow people continue to work if they have been out of work since the collapse of the housing industry? Is the Taoiseach prepared to look at the question of a reversal of the 0.5% increase in the rate of VAT, which is crucifying retail at the moment? Will he consider the implications of the investment available to the Government from a pay freeze, the money from which could be reinvested into the economy to upskill and retrain, provide schools and retain teachers and be used in many other areas which are causing difficulties in the health and agriculture sectors and so on?
Is the Taoiseach prepared to consider again the budgetary arithmetic of 14 October in view of the devastation that now faces us and the lack of confidence that the Irish consumer has in the economy? What is the Government’s plan to inject confidence into the economy so we can kick-start it again through infrastructure, retraining, upskilling and getting back to a point where we can begin to trade increased exports? What is the Government’s plan now in view of reports that the Exchequer returns for November are seriously off line with those forecast in the budget on 14 October?
The Taoiseach: As Deputy Kenny is aware, we are experiencing a sharp deterioration in the economic situation internationally and that obviously affects an open economy like Ireland’s, as any other. The Government’s approach has been to invest over €8.2 billion in direct Exchequer funding in a capital investment programme, together with the possibility of up to a further €800 million in public private partnership money for next year’s capital programme. That represents about 5.2% or 5.3% of GNP, which is more than twice the average capital investment in other countries. The package being suggested relates to a stimulus of the order of 1% of GNP. There are various responses from various countries to be envisaged in that, in terms of the draft Commission proposal for consideration at the European Council meeting next week. We are already investing about 2.5% more as a percentage of GNP in capital infrastructure next year, based on existing plans, than the European Union average. We have kept up capital expenditure to the greatest extent possible because we believe that is an important part of providing for a more competitive economy when the upturn comes.
As regards the current budget deficit, an increasing amount of funding will have to be provided next year for a deficit on the current side. We need to address that issue over a period of years to ensure we bring current budget spending back into balance, which will require primarily continuing to look at expenditure programmes. That is the reason Mr. Colm McCarthy’s group will come forward early next year with proposals for what other areas of expenditure we will have to examine in order to ensure that we provide some stabilisation in the public finances.
Deputy Eamon Gilmore: The Exchequer figures for the first 11 months of the year will be announced at 4.30 p.m. — very probably before the Taoiseach and I conclude our exchange of questions and answers here. Will he take this opportunity to inform the House what the tax returns were for the first 11 months of this year, and how they compare to the Government’s projected figures? Can he say specifically by how much the tax figures for November were behind the projected level? Can he also tell the House what is now the projected Exchequer deficit for the end of the year?
Does the Taoiseach accept that the Government was mistaken in increasing VAT to 21.5% in the budget, making our VAT rates the third highest in Europe? Does the Government have any plans to change the VAT regime, particularly after what has happened in the United Kingdom and the implications that has for cross-Border activity?
On a related issue, I also want to raise with the Taoiseach what appears to be the Government’s response to the €200 billion recovery plan proposed by the European Commission. A spokesperson for the Minister for Finance is reported to have said that while the Government welcomes the European Commission’s proposed €200 billion recovery plan, the Government’s feeling is that enough is already being done. Quite clearly, however, not enough is being done. I doubt if the 150 workers who were told today that they will lose their jobs at FBD think enough is being done, or the other 150 workers at Element Six in Shannon who have been told they are to be let go before Christmas.
Will the Taoiseach inform the House what are the Exchequer figures for the first 11 months of the year? Will he also tell the House what steps the Government intends to take to address this situation?
The Taoiseach: Expenditure for 2008 is broadly in line and we estimate that the reduction in overall revenues over those projected will be approximately 13%. November is a disappointing month and next month will be also. It reflects not just the situation in the construction industry but also, more broadly, a slowdown across the economy which we have all observed in recent times. Economic forecasters have indicated a difficult year coming up in 2009 also.
While I want to maintain the convention regarding the issuing of the November returns with the Department of Finance in the normal way, there will be a deterioration on the projected 5.5% deficit for this year. It will be above that because of the slowdown in the economy and the fact that the reduction in taxation concerns not only property-related taxes but also other taxes which have performed disappointingly, as one would expect, including corporation tax returns which reflect reduced profitability in the more exacting economic circumstances they are now contending with.
The Taoiseach: That deterioration must be addressed by the Government examining further programmes to see in what way we can ensure that going into next year, as challenging as it may be, we can seek to stabilise finances further.
The Deputy mentioned further borrowing in order to borrow our way out of a problem, but that is not necessarily a lesson that remains unlearned in this country. We must recognise that, even in the difficult times in which we are operating, there is a considerable commitment by the Government to invest in a capital programme of over €8.2 billion. That is, quite rightly, a significant commitment by the Government given the part of the economic cycle we are in at the moment. It certainly does not offset the reduction in economic activity in the private sector in view of the openness of the economy and the difficulties we now face, but it is a considerable commitment of over 5.2% or 5.3% of GNP in next year’s capital programme.
The real issue is the need to continue to work on stabilising day-to-day expenditure in excess of revenues. That is the structural issue that must be addressed and on the basis of figures to emerge we will have to continue our work in that area and identify measures to ensure the sustainability of the public finances. Our top priority is to ensure we do so because that is the basis upon which we can determine a sustainable level of public services in future. On the basis of a deficit on the current budget side and in the overall public finances at the end of this year and into next year, one must consider the question of a stimulus package. We already have in our expenditure a stimulus package on capital investment which is, on average, double that which our European partners are in a position to commit to in respect of public investment programmes.
Deputy Eamon Gilmore: The Taoiseach answered a lot of questions but unfortunately not the one I specifically wanted him to answer, so let me put it another way. I do appreciate the convention but since it is now 4.30 p.m. the Taoiseach is released from that convention. By how much will tax revenues this year be less than projected, either at the beginning of the year or in the budget? That is the bottom line we want to know. The Taoiseach should express the figures in money terms rather than in percentages. Will the Taoiseach resist the temptation to discuss capital expenditure and so on and give the House the bottom line figure of how far tax revenues will have fallen this year compared to projections? It would be helpful if we are to understand our situation.
When the Taoiseach states that programmes must be reviewed, reconsidered or revisited, is he discussing another budget? Will he address the issue I raised, namely, the Government’s budget decision to increase VAT rates? Our neighbouring state and the one with which we have a land border has reduced its VAT rates considerably.
The Taoiseach: While the UK’s standard VAT rate will have an impact on the price differentials between North and South in respect of some goods, it should be pointed out that the UK has increased excise duties on alcohol, cigarettes, petrol and diesel to offset the 2.5% reduction in VAT on those items.
Approximately half of the value of goods and services purchased in the State are not subject to the standard rate of VAT and, therefore, are unaffected by the change therein. For example, all Government services, local authorities, hospitals, schools, the majority of foodstuffs, oral medicines, books, children’s clothes and so on are subject to a zero VAT rate. Housing, electricity, gas, domestic fuels, restaurant services and labour intensive services, such as hairdressing and shoe repair, have the reduced VAT rate of 13.5% applied to them.
As part of a fiscal stimulus package, the UK Government decided to reduce its standard VAT rate from 17.5% to 15% on a temporary basis with effect from 1 December 2008 to 31 December 2009. The exchange rate is the determining factor rather than the VAT rate.
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