Thursday, 21 November 2002
Seanad Eireann Debate
Ireland may be an island geographically but it is certainly not an economic island. We live in a small open economy and cannot avoid the effects of the slow-down in worldwide economic growth. The pace of international economic activity is disappointing with continuing uncertainty about the timing of any upturn. The fiscal position in the euro area, the United Kingdom and the United States has deteriorated. The same factors are at work in Ireland. As economic and revenue growth moderates, we must face reality.
I assure the House that the Government did not embark on a strict approach to public spending in 2003 simply because we wanted to balance the books. The European Union Stability and Growth Pact requires us to keep general Government finances close to balance or in surplus, and to take corrective action when there is an actual or expected divergence from this objective. We made it clear in An Agreed Programme for Government that we would respect this sovereign commitment.
We also have responsibilities to the people. We have a responsibility to protect the economy and to foster conditions which will maintain high levels of employment and generate the resources which we need to keep improving our public services. If this requires difficult decisions in the short term, we are willing to take them. The lessons of the past have shown us that high taxation rates and high levels of borrowing will deliver the opposite. We cannot repeat the mistakes of the past.
Certain headline figures about spending this year and next have featured prominently in much of the commentary on the Estimates. The media refer to a planned increase in spending next year of 2% compared to a 20% increase this year. Neither figure is correct.
True, last week's abridged volume provides for a 2% increase in spending. However, I made it clear last week that the abridged Estimates volume (AEV) does not include any provision for social welfare rate increases, benchmarking or any other pay increases. I will deal with these issues on budget day.
True, the end-October Exchequer returns showed that spending at that point was nearly 20% above spending in the corresponding period last year. However, my aim and expectation remain that spending this year will come in on, or close to, the target increase of 14.5%. The forecast outturn figures for 2002 which were included in last week's AEV show that, at this stage, the forecast outturn for net voted expenditure is only slightly above the revised Estimates volume (REV) provision.
Some of those who argue for higher public spending claim that Ireland's share of spending relative to national income is much lower than that of other EU countries. The implication is that our level of public service provision is therefore correspondingly lower. This suggestion is based on cross-country comparisons which indicate, for example, that general Government spending in Ireland is budgeted at about 35.5% of GDP for 2002 compared with an EU average of 47%. However, this comparison is misleading.
Ireland's taxable capacity, which delivers the resources for public service provision, is essentially related to GNP, not GDP. Our GDP is about 20% higher than our GNP whereas there is no real difference between GDP and GNP in other EU member states. In addition, a lot of expenditure is age related – pensions in particular. Other EU member states currently have a far less favourable demographic position than us. On average 16% of other member states' populations are aged 65 plus whereas only 11% of our population is in this age group. This means, for example, that other EU member states have to spend much more to provide the same level of pensions and health services as us. If one takes account of these factors, our spending ratio is much closer to the EU average. Because I have managed our budgetary affairs prudently over the years, we now spend far less on debt service than others – about €1,000 less per household per annum.
There has been much talk of cutbacks and curtailment. I want once again to remind this House of the scale of investment in our public services in recent years. I am proud that our growth rates since 1997 have allowed us to spend more on public services than has ever been possible before. In fact, we have had the highest rate of increase in public spending of all EU member states over that period. Spending on day-to-day public services here rose three times as fast as in the average EU member state between 1997 and 2002.
Inevitably, at Estimates time, many figures are quoted and the scale of overall spending can be lost in the detail. It bears repeating therefore that the abridged Estimates provide for total gross expenditure next year of €36.7 billion. This is nearly double the amount spent in 1997. Current spending will be over €31 billion compared to €17 billion in 1997. Since I became Minister for Finance, funding for the health service has increased by €5.3 billion, education spending has increased by €2.4 billion and social welfare spending has increased by €4 billion. Capital investment next year will be over €5 billion compared with only €2 billion in 1997.
Taking account of the Estimates figures just published and before any budget day allocations, public expenditure will have increased at an average of about 13 % per annum over the period 2001 to 2003. We are now operating from a high spending base which will allow us to continue to deliver high levels of public services.
This Government's philosophy is to share our economic success with the Irish people. We have used resources wisely to reform our tax system, invest in our public services, reduce our debt and establish the national pensions reserve fund to safeguard the pensions of this and future generations.
I have said many times since the publication of the Estimates that spending must be prioritised. It is not possible to afford the same priority to each sector. The debate in the Lower House was characterised by long lists of high priority programmes which Deputies believed should be granted more resources. Constructive opposition might be expected to signal what areas of expenditure are of a lower priority. Yet no one seems prepared to propose reductions in even one specific spending programme. This Government has the courage to make difficult choices. We have decided to continue to provide substantial funding in 2003 for health, social welfare, education and transport infrastructure. Inevitably this has required a tighter approach in other areas.
One thing I have learned from my time as Minister for Finance is that money alone is not the answer to delivering top quality public services. If it were, we would have solved all our problems by now. The funding which this Government has provided since 1997 has produced substantial benefits for the people of this country. However, we all agree that there is scope for securing better value for money through more effective control and management of public expenditure.
In my speech to the Dáil on Tuesday, I outlined a number of improvements to the financial management systems which I will introduce from the beginning of next year. Briefly, I expect Ministers and their management advisory committees to manage within the allocations given to them. I intend to publish the yearly spending profiles which are submitted to my Department at the start of the year to facilitate a more informed assessment of emerging spending trends. I will continue to submit monthly expenditure management reports to Government, reporting on overall spending and revenue trends.
I want to see improvements in risk assessment measures and the introduction of contingency planning to cater for unforeseen pressures which may emerge as the year progresses. I want spending on demand led schemes to be managed effectively, just like other spending programmes. I am introducing revised arrangements for managing capital spending which will provide details of all capital projects being initiated during 2003 and planned for the following four years. I also want to provide incentives for Departments to improve efficiency and cost effectiveness. For example, where Departments secure savings as a result of efficiency measures or steps they have taken to curtail a programme, these savings should, as a general rule, be available for other high priority programmes within the same Department.
While these control measures are very important in their own right they are also designed to encourage public service managers to seek out and exploit greater efficiencies. A number of initiatives are already in place which will help put the spotlight on value for money issues, including the management information framework, the expenditure review process and the forthcoming mid-term evaluation of the national development plan. I am aware, however, that more needs to be done.
For a number of years now a three year planning horizon has been in place for public expenditure. I want to develop this further to give greater certainty to Departments in relation to planned allocations over the medium term. I have already introduced a five year financial envelope in the public transport sector to facilitate greater planning and more effective management of expenditure. My Department is currently considering whether a similar approach can be applied in other large capital spending areas. Ministers and Secretaries General are responsible for managing spending within their area and I want to give them the maximum flexibility to do so effectively. Greater delegation must be coupled with greater accountability. The public has a right to see whether it is getting value for money. I want to see a greater focus on results and outputs achieved.
Many points have been raised about specific aspects of the Estimates but I would like to comment on three particular issues – infrastructural investment, health spending and housing. There has been a lot of loose talk to the effect that the Government has abandoned the national development plan. Nothing could be further from the truth. Investment in NDP economic and social infrastructure will exceed €12 billion over the period 2000 to 2003. This is €700 million above what was promised under the plan even after taking account of actual inflation in the construction industry over that period.
The evidence of this is visible throughout the country as infrastructural projects, especially in the transport and environment areas, of a scale never before seen in Ireland, are either under construction or at various stages of planning. In 2003 alone the Government will invest almost €3.4 billion in the NDP economic and social infrastructural programme. I would like to have been able to provide more, but investment, too, must be subject to overall budgetary policy.
I have commented before on the high level of construction inflation in recent years. I am disappointed that this has eroded the output being delivered in return for this massive level of investment. The taxpayer cannot be expected to write a blank cheque to meet cost increases generated within the construction sector. The rate of inflation in the sector is now reducing to more acceptable levels and I expect to see greater value for money and improved output from the capital investment in 2003 than has been the case in recent years.
Another misconception being peddled is that the 6% increase in health spending next year will not match an alleged 10% health service inflation rate. This is a fundamentally flawed view and the conclusion drawn is incorrect. I will not bore Senators with the details, but the 10% rate of inflation being cited refers to part of the consumer price index. A simplistic comparison of this CPI based data with the rate of increase in the Vote for the Department of Health and Children is both inappropriate and misleading. Some 70% of health spending is pay or pay related. It is not driven by the CPI measurement of health inflation. The 2003 abridged Estimates include adequate provision for the carryover costs from 2002 of the PPF pay terms. As I indicated, I will be dealing with the pay implications of any further increases on budget day. The remaining 30% or so of health spending covers a myriad of different elements ranging from food, light and heat to high technology, drugs and equipment. The increased abridged Estimates volume provision is intended to ensure the existing level of health services is broadly maintained in 2003 and allows for some limited expansion of high priority areas such as cancer treatment.
The new house grants scheme was introduced in its present form in 1977. The main purpose of the grant was to encourage new house building. For this reason first-time purchasers who bought an existing house did not qualify for the grant. In 1977 only 17,000 or so new private houses were being built. Last year private housing output amounted to over 47,000 units. The level of home ownership in Ireland is about 80%, the highest in Europe by some margin. First-time buyers now account for about 40% of all purchases. The abolition of the grant is not intended simply to generate savings for the Exchequer. The intention is that the funding devoted to the grant will in future be allocated to the local authority and social housing programme. Over the lifetime of the Government this could involve up to €200 million.
In recent years a range of better targeted schemes to assist low income purchasers and those with social housing needs have been put in place. Between 1998 and 2001 the provision of social and affordable housing has grown by 35% to 11,385 units and a further increase to almost 13,000 units is forecast in 2002. In addition to an Exchequer investment of over €1 billion in housing in 2003, a further €680 million will also be available from local authorities' own resources and advances by the Housing Financing Agency. In total, over €1.6 billion will be available for social housing compared with €1.5 billion in 2002.
I recognise the impact which the abolition of the new house grant will have on individuals planning to buy a new house. However, in current circumstances, it is essential to look carefully at every expenditure programme to see whether the costs are still justified in the light of changes in circumstances during the years. Most commentators recognise that the new house grant has outlived any usefulness it had as an economic incentive. We, as politicians, are very fond of talking about the need to establish clear criteria for spending programmes and the need to introduce better evaluation of those spending programmes. If we are really honest with ourselves, the new house grant is a classic example of a scheme which was introduced for a specific purpose at a particular time and which has since been overtaken by changing circumstances.
The economy is in good shape and a good position to deal with the current slowdown. The Government did not take decisions on the 2003 Estimates lightly. This is not some form of technical accounting exercise to balance the books. It is a necessary step to ensure our continued prosperity. We want to continue to foster the economic conditions to create wealth and jobs. We cannot do so through high taxation or high borrowing. The only way forward is to have an ongoing sustainable match between revenue and expenditure. The 2003 Estimates will set us on that path.
Mr. Higgins: In spite of what the Minister said, the contents of the Book of Estimates have little, if anything, to do with the slowdown in world economic growth. Last May the Minister and his Government colleagues perpetrated the biggest con job on the electorate since 1977. In that year the Minister's Fianna Fáil predecessors and their infamous manifesto wrecked an economy, which then took 15 years to repair. It abolished rates on domestic dwellings and motor taxation in one fell swoop. The buzz-word at the time was “pump-priming” the economy. Instead of pump-priming the economy, it wrecked it. The then so-called Minister for Economic Planning and Development, Mr. Martin O'Donoghue, went down in annals of history as the architect of this catastrophe.
History will be equally damning in relation to the economic performance of the Minister for Finance. The last general election was a replica of the one in 1977, possibly even worse. It was preceded by a splurge of spending that has left the coffers empty, married to a plethora of promises, each of which has now been shamelessly discarded, abandoned and thrown on the scrap heap leaving the economy in tatters. To an extent, I am delighted the chickens have come home to roost and the people who once again blindly voted for the promises of Fianna Fáil and the Progressive Democrat have now been left to rue the day. They now realise they were duped. The chickens have well and truly come home to roost, but instead of laying any golden eggs, they are leaving behind glugger after glugger.
The Minister for Finance will go down in history as the Minister who brought the much envied Celtic tiger to its knees. If somebody in the private sector perpetrated the fraud that the Minister for Finance perpetrated and wasted billions of money that was not his own, he or she would be charged, hauled before the courts and convicted of reckless trading and possibly even end up in jail.
Having fooled the electorate in order to win the general election and get back into power the Minister devised a clear political strategy – two or possibly three bad years of drastic economic cut-backs followed by two more years of splurge and give-away before the next general election based on the premise that people would forgive and forget. However, the people will not forgive and forget because public anger and revulsion at the manner in which they were conned is such that those who trusted him and bought into his policies are likely to be anything but forgiving come the next general election.
In 1977 people bought into the Fianna Fáil manifesto and gave Fianna Fáil a 20 seat majority. The electorate waited for four years from 1977 to 1981 and dumped the party unceremoniously out of office. It never forgave the Labour Party for jumping into bed with Fianna Fáil in 1992, despite its semi-redemption by participating in the three part rainbow Government, and in 1997 exacted a devastating revenge. On this occasion it will wait patiently and menacing in the long grass for 2005 or 2006 in order to exact the same revenge.
The Minister probably does not have time to listen to radio chat shows, but if he tuned into “Today with Pat Kenny,” he would hear the daily legion of callers, many of them traditional Fianna Fáil supporters palpably angry and vowing that never again will they support that party or the Progressive Democrats. They have every right to be angry when they consider what was promised so clearly and unequivocally last May. There were no ifs, buts or maybes. Fianna Fáil and the Progressive Democrats in government were going to deliver even better times ahead.
–ensure that every primary school reaches and is maintained at an acceptable, explicit national standard within three years. The primary school building capital programme will increase to over €200 million within three years. The budget for second level school building will increase to more than €250 million within the lifetime of the Government.
–continue our policy of implementing significant increases in direct school funding. We will build on the unprecedented investment which we have made in school buildings, to ensure that every school attains modern standards within the next five years. We will continue our unprecedented programme to modernise third level buildings throughout the country.
What has happened? Last Thursday, the Minister for Finance cut capital investment in primary education by 4%, in secondary education by 10% and in third level education by 29%. Third level fees have also been introduced by way of a huge hike in registration fees. All the promises made by Ministers and Government Deputies to individual communities regarding the elimination of sub-standard school buildings, many of them unhygienic and on a par with the worst in the Third World, have come to naught. Is it any wonder that teachers, parents and students are angry?
to maintain full employment throughout our flexible labour market by providing additional support through FÁS for measures to help the long-term unemployed, older workers and women returning to paid employment. We will treble the FÁS budget for employment opportunities for people with disabilities.
to establish a training fund of up to €2,500 per person for unemployed people facing very serious barriers to employment. We will extend, on a permanent basis, the employment action plan to all persons on the live register for longer than six months and to other marginalized and disadvantaged groups. FÁS will continue to provide training and employment, especially for unemployed people and for people entering the jobs market.
Can one doubt the frustration and disillusionment of the jobless, older workers, women workers and the marginalised when last Thursday, instead of all the enhancement and promotional programmes, the Minister announced that IDA grants had been cut by 44%, Enterprise Ireland grants by 38%, FÁS supports by 41%, community enterprise schemes by 5,000 places and the back to work scheme by 31%?
On public transport, the Progressive Democrats Party promised that the two Luas lines would be on schedule to open for service by the end of 2003 and the network would be expanded so that three additional sections would be operational by 2006. There was also a clear commitment to the provision of a national waterways system. Fianna Fáil, for its part, was strong on the idea of lower pricing for public transport around peak travel times. Dublin light rail would be introduced between Tallaght and Connolly Stations and between Sandyford and St. Stephen's Green on schedule by October 2003. The party was fully committed to implementing the national roads programme provided for in the national development plan.
These are all noble aspirations – if only they were genuine. What has happened to Luas? It has been deferred for another year and the cuts in infrastructural investment mean there will be no new road starts in 2003. Instead of cheaper fares, the Minister for Transport announced a 9% increase in CIE fares to compensate for the Minister for Finance's cut in Exchequer funding for the company.
Tourism has taken a terrible hit over the past two years. In its manifesto, the Progressive Democrats Party promised further funding for tourism, particularly in marketing. The Fianna Fáil programme went even further: “Fianna Fail will restore Irish tourism to a planned annual growth path of 5% per annum by continued investment.” Conversely, the Minister for Finance has cut Bord Fáilte's grant by 20% in the Estimates and the Tourism Ireland administration budget has been cut by 3%. Funding for the National Gallery, cultural projects, heritage and the National Museum – all major tourism attractions – has been cut by between 4% and 26%.
One of the biggest areas of social concern has been the huge increase in violent crime. On average, two people die in violent circumstances each week. Street violence has spiralled out of control. All political parties recognise that crucial to combating violence and protecting the security of the ordinary citizen is an increase in garda numbers. Both Fianna Fáil and the Progressive Democrats gave a clear unequivocal commitment that they would increase the strength of the Garda Síochána by 2,000 personnel. Last Thursday, the Minister for Finance announced that there would be no funding allocation for increased garda numbers, so the spiral of violence is set not alone to continue but to get considerably worse. More people will die on our streets and end up in hospital, the victims of unprovoked attacks. This is yet another broken Government promise.
One of the frightening developments in the modern, so-called progressive Ireland has been the increase in racism and xenophobia. All parties recognise the need to put in place anti-racism measures. According to the Progressive Democrats Party, it is “determined to prevent the rise of racism in this country and we will continue to implement anti-racism awareness programmes.” One of the truly frightening developments on election night was the fact that a Fianna Fáil TD, who openly tried to stir up public emotions with a series of blatantly racist comments, headed the poll in his constituency. Perhaps prompted by the embarrassment of having such a Deputy on its team, Fianna Fáil promised to review the campaigns designed to promote tolerance and understanding between the settled and Traveller communities and maintain multi-annual funding for targeted programmes. However, last Thursday, the Minister reviewed the campaigns by going in – not with a scalpel but a slash hook – and slashing the racism awareness campaign budget by a whopping 63% and cutting funding to the national consultative committee on racism and inter-culturalism by 5%. All of this following the scrapping of the Citizen Traveller programme.
The inability of low income or medium income couples to obtain housing accommodation was one of the most damning indictments of the performance of Fianna Fáil and the Progressive Democrats during their five years in government. To belatedly address the problem, the Progressive Democrats Party promised it would increase social housing output by increasing the local authority housing programme through funding for 40,000 new start-ups, front-loaded to meet existing demand more quickly. There would be an increase in the subsidy levels on an annual basis for the shared ownership and affordable and voluntary housing schemes. Fianna Fáil likewise committed itself to a further expansion of the various social housing programmes, setting a target of meeting the housing needs of 15,000 households per annum.
Instead of more money being pumped into the various local authority social housing programmes as promised, the Minister for Finance cut the local authority programmes by 5%, but the big bombshell was the abolition of the €3,510 first-time buyer's grant. I was amused by the Minister's comment that it had outlived its usefulness. It is a move the Minister and the two Government parties will rue – and all for a mere saving of €39 million. In one fell swoop, the Minister shattered the dreams of many young couples. The sum of €3,510 might be small change in the pocket of the Minister and his colleagues but to people struggling to get their toe on the first rung of the housing ladder it is a devastating blow for which the Minister and his colleagues will never be forgiven.
Likewise in health, the Minister and his colleagues have totally reneged on their promises. According to Fianna Fáil, they would implement the national health strategy through a co-ordinated multi-annual programme of service development and would permanently end hospital waiting lists within two years. The Progressive Democrats would review medical card eligibility for people with long-term illnesses to assess whether the needs of all people with long-term illnesses were being met and extend medical card eligibility to over 200,000 extra people. What has happened? Medical card eligibility is not to be extended and the expectations of 200,000 potential beneficiaries have been shattered. Private beds in public hospitals will now cost 10% more and twice within a matter of months the drugs payment scheme charges have been increased.
The Minister for Finance stands indicted of delivering a kick in the groin to the economy – a kick which has left election promises in shreds. What we have had is not the delivery of Governnment programmes but a litany of broken promises.
Dr. Mansergh: One judges the implementation of a programme after five years rather than five months. All political programmes are, as it were, best case scenarios of what one intends to fulfil as and when circumstances allow. In the last five years, in many ways, many pledges were over-fulfilled. Sometimes, one has to take one step back in order to take two steps forward.
Today, we are dealing with the abridged Book of Estimates which is the first in five stages to be followed by the budget and the revised Book of Estimates. After that comes what the Minister, Deputy McCreevy, referred to in his letter to Deputy Michael Noonan on 13 May as mid-summer adjustments because of underspending in some areas and overspending in others – a passage which, of course, is never quoted. Then, in late autumn, there is a further issue of the Book of Estimates with an estimated outturn and, possibly, Supplementary Estimates and, finally, the actual outturn. Clearly, it is a long process. At this stage, pending the outturn for this year, we do not know if the increase in expenditure is 2%. In particular, the social welfare spending and what arises from the pay round are not yet dealt with.
The Minister has created space for pay negotiations and benchmarking discussions with the social partners. I welcome that. Social partnership has worked exceptionally well over the last 15 years and has been one of the main ingredients of the most spectacular catch-up to have taken place in any OECD country over the past 40 years, only exceeded by Japan and Germany in the immediate post-war years. Coming from the public service – and I suppose Oireachtas Members are also public servants in a sense – I believe in a well remunerated public service. A very good example of that is to be found in the education budget which includes reasonably well paid teachers who are the most important element in the system. The Government has not got a monopoly of wisdom. The input of the social partners, as well as that of Europe, means that we have a governed country and a broad consensus on what needs to be done.
Steering an economy, like steering a boat, cannot ignore weather conditions. Much of the debate on the Estimates simply disregards economic circumstances which have worsened considerably over the past two years. There has been a downturn in the world economy and, during last spring and early summer – which also happened to be the time of the general election – there were hopes of a lift this year. However, the international gloom has set in again and, possibly, the uncertainty as to what will happen in relation to Iraq is part of that. Another aspect left out of account is the fact that the economy is still running fairly close to full capacity with virtually full employment, taking the country as a whole, although, of course, there are still pockets of serious unemployment. That is reflected in the inflation rate which, at about 4%, is currently the highest in the European Union. Arguments for higher Government spending against the background of a huge increase in public spending over the last five years, tends to overlook the fact that we are operating at nearly full capacity.
It can be argued that trying to do too much at once in the national development programme contributed to driving up inflation, giving us less bang for our buck. Compared to the past, we have a very healthy economy, with positive growth, near full employment, the second lowest public debt in the EU compared to the second highest 15 years ago and a tax system which does not place a huge burden on anyone. We have the conditions for a dynamic economy. The overriding need is to keep the economy on the rails and hold on, as far as we can, to the huge gains of the last five years in what will clearly be much more difficult conditions. It is not a big demand on any one Department, given the huge increases of the last five years, to have to hasten slowly. The maxim of less haste, more speed also applies to economic management.
Vastly more is being done in most areas than even two or three years ago, accepting that, for the moment, some ambitions have to be put on hold. The public capital programme, at €8.6 billion, is still double the 1998 level. For example, compared to the 1997 level, capital spending has increased threefold on roads and transport, fourfold on housing and more than threefold on hospital building and education. Those who now say we should have spent less were previously urging us to spend even more. Now that we are in more normal times, economic management will need to take more account of the cycle, which may have seemed to be more or less suspended for a period. Nevertheless, given the choice, I believe most of us would have opted for the very exciting and exhilarating period of the last five years rather than, say, the very cautious, prudent and almost dour style of management of the Chancellor of the Exchequer across the water.
People complain that they cannot see the results of Government spending. In some cases, that is a fair point but if one takes transport infrastructure, there is a huge number of important projects under way and we will see the real fruits of that over the next two or three years, such as the Dublin port tunnel, the Luas, the motorway to the Border, the Kildare bypass and so on. With regard to current spending, the increase in old age pensions and child benefit were deeply appreciated, as evidenced by our experience on the doorsteps last May. To have reached near full employment is a major achievement.
Expenditure control is important. I am firmly convinced that quality of expenditure is not solely a function of ever increasing budgets. From time to time, it is healthy to have a pause for more efficient operation. Ministers who accept and work within their budgets and who can operate with only small increases do not always get enough credit for that. In some areas, one can operate with a smaller budget. At a relatively minuscule level, my former role in the Department of the Taoiseach included co-administering a small commemoration fund which was cut from £300,000 to about £50,000 but was, nonetheless, adequate for the purpose and still gave very beneficial support to projects on one sixth of the original budget. No doubt we could have spent more but not necessarily with proportionate benefit. I urge the Minister not to fall into the trap of employing more administrators to supervise budget expenditure. For example, in third level education in Britain there is a vast amount of form filling, cross-checking and reviews which do not necessarily produce a better education system but end up costing more.
I believe the Government will do all in its power to minimise hardship to those most affected by changes in the Estimates. In particular, in the context of the budget and in relation to first-time buyers who should be the priority of housing policy, I hope steps will be taken to ensure there is a level playing field as between those purchasing their own homes and investors.
In the last five years, we have had the biggest increase in public spending in the history of the State. There was money for many things not possible in the past. There is no doubt that a sound economy is the best passport to improved services in the future. There is no virtue in getting into hock to bankers. Good and caring government is not just a function of those who can sound most caring in a soulful sense but those who can make the right decisions. It is not just a question of redistributing wealth, although that is important and is taken as a given, but creating it. Socialist instincts, which I admit I have, can lead one astray.
The strategic management initiative, introduced by Albert Reynolds as Taoiseach, was inspired by the New Zealand model. I fear that what has happened to it is straight out of “Yes Minister”. It may have produced some useful reforms but savings on costs and numbers in the public service are not among them. I do not believe that the top pay in the public service should be the same as in industry. If people want to make money they should go into business. There is an ethos of public service which should not be denigrated. Disproportionate increases at or near the top, and I must admit that I benefited from those when I was in the public service, are demoralising to people lower down the scale. I am not in favour of elitism. I think that Ministers, and indeed the Taoiseach, should be paid more than top civil servants rather than the other way around. Otherwise there may be a misleading impression as to who is really in charge.
A good Minister for Finance should be impervious to public and political abuse but not to reasoned argument. This Minister will go down in history as one of the great Ministers for Finance. In terms of political longevity he has some way to go to outpace Doctor Jim Ryan, Sean McEntee and Ernest Blythe. To paraphrase Kipling's famous poem, If, if ministerial colleagues are grumbling, if the Taoiseach is shaking his head, if advisers are looking worried, if members of the parliamentary party are mutinous, if there are tirades by columnists and ideological brickbats from political opponents who want to advance the argument that only the rich benefit from economic progress, if there is censure from an EU Commissioner and all the untoward developments that markets can throw up must be coped with, then indeed you have an effective Minister for Finance.
The abridged Estimates are a strong start to a new Administration, showing that it intends to keep a firm grip on the economy and steer it through difficult times. That was the fundamental mandate given to Fianna Fail in this election. I have every confidence that the Celtic Tiger will not go the way of the Asian tigers. The belief in our ability to manage the economy was the principal reason that we were re-elected, the first Government in 30 years to be re-elected.
Mr. Quinn: I wish to share my time with Senators Norris and Ross. I welcome the Minister of State. The Minister for Finance's paper and his speech were very interesting. I agree with much of it, particularly when he said that the Government has the courage to make difficult choices. I will concentrate on the areas where I disagree with the Minister. Margaret Thatcher said that there was no alternative in the ‘80s . I believe there are alternatives.
The Minister mentioned value for money. There is a tradition in the Department of Finance which does not look at value for money in the way that others look at it. Value for money, in the case of a business or an individual, means asking whether if we put an amount of money into something we will get value out of it. In business we would use key performance indicators to measure whether money spent resulted in the waiting lists actually reducing. If we can measure them we can we see if we are getting value for money. The Department of Finance say that if they provide a budget of €X , value for money is sticking to the budget and not going beyond it. I do not get a sense that they measure value on the basis of key performance indicators, such as hospital waiting lists. I read and listened to the Minister. He gave instances of seven different items of value for money, all of which involved staying within a budget and being encouraged to do so rather than looking for value for money. We have a difference of opinion as to what value for money is.
There are other ways of looking at it. One of the areas is the decision to take 1% of GNP for the national pension fund every year no matter how well the economy is doing. I supported that at the time but I now realise that it was too inflexible. In good years we should invest more than 1%. In other years we should put in less than that because we need to get better value for money. This is one of the years when we should not invest in the fund. This is not easy to do, but a firm, determined, committed Government can make the changes, even if it means making tough decisions. The Minister said that he has the courage to make the decisions and that is one step. We are paying €1 billion per year into the fund. That is the correct thing to do in the good years that Senator Mansergh talked about. We could make a dramatic change in this area.
Another area is the special savings incentive scheme. I supported it and was taking credit for being one of those who said two years ago that we should encourage people to spend less because there is inflation and encourage them to save more. The Minister responded with what I thought was a very good scheme, perhaps generous. It now seems incorrect. We should have the courage to admit mistakes. I think we should scrap it and say that we are sorry we got it wrong.
I come from a business in which a special offer is expected to sell a certain amount. If you realise that you have misjudged how much you will sell, you save while stocks last. In this case the stocks have not lasted, they will not last. We should admit to making a mistake, apologise and cancel the scheme. This takes legislation and the Government will be accused of letting people down, having coaxed them into it. The signs say that it is the wealthy who are putting money into it and that child benefit payments are being invested in it because the recipients are well enough off.
It is incorrect to give equal child benefit to everyone. The very wealthy get the same amount as those who are not well off. The Government should face up to this and do something about it, whether by a means test or tax.
This area alone, without touching on the value for money aspect, will save €2 billion this year and provide this amount to do other things. I hope this would take account of what the Minister said about courage and would emphasise the investment structure. We would then look for value for money when making decisions. The Minister has time, not much time, to consider this. We should consider it now and do some of the things that we want to do. We cannot do them all. I agree with the Minister that the Opposition will always criticise without saying what it would do. These are areas where we could act. The other one, value for money, hangs over all of them. If the Minster grabs hold of that opportunity he will go down, as Senator Mansergh said, as one of the great Ministers for Finance.
Mr. Ross: I congratulate Senator Quinn on having done two U-turns out of three. It is a time for U-turns because the economy has turned. I was not among those who welcomed the national pensions reserve fund as I believed it would be the first fund that people would suggest should be raided when times got tough. That is exactly what is happening. Everybody else supported the scheme at the time and told me not to worry about the fund being raided because it was to be sacrosanct. Now is the time to raid it. It does not make sense to continue to put money into a fund that has lost almost one third of its value, while borrowing money and sustaining the national debt. What sort of economic nonsense was behind the idea in the first place? We are now completely exposed because Opposition spokespersons are asking the Minister to raid the fund.
If there is any criticism to be made in relation to the Estimates, like Senator Quinn, I suggest that it is the Opposition that should be criticised, not the Government. The Government's approach to our problems is absolutely right. Each of us may face problems on the micro-level, as a result of the abolition of the first-time buyer's grant or the fact that Trinity College is to be hit, which is a particular concern of mine. We can quarrel with such micro-issues, but the Minister for Finance is right on the macro-issues. Senator Quinn is correct when he says Deputy McCreevy has the ability and the capacity to be a great Minister in bad times and in good. It is likely that he will be seen as a great Minister if he continues on this road. His attitude is correct because he is recognising the realities and facing political difficulties head on. He is trying to balance the budget and it may come right for him over three or four years.
I do not agree with some of the cuts that have been made. The real problem is being caused by benchmarking, the unspoken word. Everybody seems to think it is right to spend €1.1 billion on those who have safe jobs while others suffer, even though it makes no ethical or economic sense. The benchmarking committee was established to report on 30 June this year. What a coincidence that the report was scheduled to appear after the general election. It kept the trade unions, trade union leaders and trade union members happy for long enough to carry the Government beyond the general election.
The Government cannot pay for the benchmarking explosion and will not do so. It will disguise the failure to pay in all sorts of language which will eventually result in another pay deal. ICTU will demand this, that and the other and walk out of the talks a couple of times before Christmas. There will be drama in Government Buildings, but another national pay deal will emerge. ICTU will say benchmarking is being met and others will say it is not. There will be a pay pause of some sort and all concerned will be happy with whatever eventually comes out of the pot. The public finances will suffer, however, because too much money is being paid to public servants. Everybody knows that this is the real problem, but politicians do not have the guts to stand up to vested interest groups because they yield too many votes. That is a shame because other areas of the public service have to suffer unnecessarily.
I do not understand one or two things. I do not understand the reason one or two areas are sacrosanct and FÁS has a budget of €2 billion per year. I always thought that it was established to solve the unemployment problem when about 300,000 were out of work. Unemployment is now very low, but the numbers on FÁS programmes are increasing all the time. I do not understand the reason its budget is going up as the number of unemployed persons decreases. Nobody will examine or challenge this phenomenon.
Enterprise Ireland is another example of an agency which is not analysed to see if it is providing value for money. How much money are we getting back from the firms and companies subsidised by Enterprise Ireland? What is the return on our investment, in the form of subsidies, in CIE, FÁS, Bord Bia and Bord Glas? Is there a case for retaining these State bodies anymore? This area should have been tackled in the Estimates.
Mr. Norris: I am grateful to my colleagues for sharing time with me. I am at a disadvantage when I find myself agreeing with Senators Quinn and Ross, as I like to disagree with them to make things more exciting. I particularly agree with the Senators' support for the Minister for Finance, Deputy McCreevy, and their criticism of the Opposition. I admire my great friend, Senator Higgins, as a superb speaker, but I was rather taken aback when I heard him say he was delighted that the Government's chickens were coming home to roost. I do not think I would like to adopt such an attitude in terms of the national interest. If chickens are coming home to roost, I greatly regret it. We should make sure, as far as possible, that it does not happen. We should stick together and abandon the auction politics that was prevalent across the political spectrum during the last general election campaign.
The Government is not the only element of the State's political life that was involved. I listened to “Tonight with Vincent Browne” last night. The presenter could not extract a single public acknowledgement of a cut from any contributor to the programme, including representatives of Fine Gael and Sinn Féin.
Mr. Norris: As I said last night, I met the Minister for Finance in the corridor after this year's general election. I told him that he had been a good Minister for Finance and that he had an opportunity to be a great one by breaking every single election promise. I want to modify that statement a little by saying there is one promise that should not be broken. The Government should keep its promise to extend medical cards to children, as such a measure is necessary. I would also like a commitment from the Minister that we will meet our obligations in terms of overseas development aid. We made an honourable vow to meet the UN target of 0.7% of GNP and were on target before this year's blip. A commitment that the shortfall will be met is necessary. I accept that 18 months of punishment is planned to get the country's finances back on track and think the Minister is capable of doing it.
While I agree with Senator Ross in relation to benchmarking, I would also like to defend my colleague, Senator O'Toole. He was much pilloried for comparing benchmarking to an ATM, but it was a valid comparison. An ATM gobbled up my card some time ago and when no light went on, I went into the bank to make a complaint. I was thrown unceremoniously onto the street. I cannot think of anything which more exactly resembles what I would like to see happening to benchmarking. In his colourful way, Senator O'Toole has once more hit the nail smack on its head. I agree with Senator Mansergh about the importance of social partnership. Our remarkably successful economy has resulted from the degree of agreement and consensus we enjoy and I hope this can be maintained in the interests of society.
Two central principles which are simple to understand, even for someone who is not an economic guru like Senators Ross and Quinn, should be borne in mind. We have to cut the flab while continuing to invest in infrastructure. I do not think the Luas is going to do very much to ease the problems in Dublin and the port tunnel seems to have certain technical difficulties. The initial procedures for the construction of an underground railway must be commenced as soon as possible. Traffic in this city is always in a state of gridlock and it is only going to get worse. As surface methods of public transport cannot and will not be able to deal with the traffic problems, we have to “think big” and proceed with large projects. Unfortunately, certain prestige projects like what has been called, in a slightly cheap shot, the Bertie bowl will have to be scrapped. I wish we had the opportunity to promote such ventures, but we do not. We have to invest in projects that will improve the overall standard of our infrastructure.
I agree with Senator Ross, in part, about pensions. The Minister is obviously preparing us for a cessation of investment in long-term pensions. He said, “a lot of expenditure is age related – pensions in particular” and mentioned that “16% of other member states' populations are aged 65 plus whereas only 11% of our population is in this age group.” It seems that he has sent a clear signal that he is going to stop investing in pensions for the time being. This is the time to do so, based on a judgment of the market.
I am in several pension schemes, including one in Trinity College. I put in accelerated voluntary contributions which were worth £16,000 last year. However, when I received a statement the other day the figure had decreased to £12,000, thanks to the glorious investment policy. As Senator Ross said, it is absolutely mad to invest when one could take the cash and shove it in where it would do good.
We should get rid of the health boards because they are an absolute disgrace. They exist only for political patronage purposes. They are utterly unnecessary and a complete waste of time. We are wasting money on administration while we are not putting it into direct treatment and drugs for patients.
Mr. Morrissey: Having listened to the previous contributions we can now see how difficult it is to manage the problems we are facing. I suppose one could say the problems we are trying to solve have been created by ourselves. One could possibly argue the last Government was beginning to lose its grip by spending money in areas where it should not have done. For example, we were going to have a £1 billion stadium and an underground metro leading to it but no one said where the money would come from.
What has been done in the area of health in the past few years? As Senator Norris said, we set up several health boards in Dublin, filled them with councillors from throughout Dublin and the country and we are now afraid to abolish them. What did these health boards do to deliver a service? The special savings scheme was introduced. Wealthy people are transferring the children's allowance into that account in order to get 25% extra in a couple of years' time to pay off their mortgages. I know of several people who are doing this and are laughing at the system.
There is the question of benchmarking. I and others in this House operate in the private sector. I wish people in the private sector had pension entitlements for life and letters of comfort. However, those of us who operate in the private sector know we are benchmarked from here to Malaysia on an hourly and daily basis. Unfortunately, this is not the case in the public service.
A Member spoke earlier about FÁS which was established to look after the long-term unemployed. The LES scheme was introduced in Dublin in the mid-1990s to look after the long-term unemployed. There are four LES offices in Blanchardstown where the unemployment rate has fallen drastically. As a business person who operates in Blanchardstown and who has gone to FÁS each year, I have failed to get an applicant through LES or FÁS. I get phone calls from recruitment agencies in Lithuania where people see the same jobs advertised by FÁS in Dublin. When one rings the LES offices in Dublin, the first question one is asked is whether the job on offer is full-time and permanent. That is the philosophy under which these public service offices operate.
I would like the Government to look again at reform in all these areas, including reform of the health service by abolishing health boards. I welcome the Minister of State at the Department of Health and Children, Deputy Callely, to the House. I would like to see reform of the public transport system by the dismantling of CIE, reform of the education system and reform of the public services in general.
In 1997, it cost the Government less than €17 billion to run the country. Today it is costing €32 billion, an increase of almost 100%. We must look at value for money, including the margin of return on every euro spent from now on. There appear to be two views among media commentators and Opposition politicians in regard to the state of the public finances: one view is that the rate of growth in public expenditure has been far too high and should be brought under control and the other is that the rate of growth in public spending is too low and should currently be much greater. The first criticism has been levelled constantly at the Government since the general election, and even prior to that. The second criticism has been levelled at it since the publication of the Book of Estimates. Both positions cannot be correct.
It is my view that the Government has delivered generous increases in public spending over the past five years. It did so for two reasons, first, because there were major deficiencies in the whole system of public provision and, second, the resources became available as a result of economic growth and sound fiscal management. For those of us who operate in the private sector, if the resources are not in place one cannot spend the money. One does not borrow willy nilly without considering the margin of return. Therefore, I welcome the Government's decision to keep borrowing under control.
The House will recall in 1997 that the old age pension for a single person was less than £100 per week. Funding for the health service was approximately one third of what it is now and funding for people with disabilities was a fraction of its current level. Are we to continue spending at that rate? Those of us who operate in the private sector know the economy cannot continue to grow at 10% without capacity constraints. There is full employment but there will be other issues.
The Government has put improved resources into public services and into boosting public provision and I believe it has no apology to make for the increases in pensions or child benefit. It would be useful for those who say that public spending is too high to indicate where it is too high and where cuts should be made. It appears that people now want higher levels of spending in each area of Government activity, including health, education and transport, but they also want the overall level of Government spending to be reduced. This is clearly an unsustainable argument. People should recognise that great social progress has been made over the past five years. Some 380,000 extra people have been employed and the long-term rate of unemployment has been reduced to approximately 4%. It should be recognised also that we must cut our cloth according to our measure. That means moderating the rate of growth in public expenditure at a time when the rate of growth in the economy is also moderating.
Senator Higgins seems to be in denial that this is a small trading nation. He does not accept that the difficulties have been created because the level of taxation from large multinationals has fallen because their level of output has been reduced in the global market. In the current economic circumstances we must cut our cloth according to our measure. The Government is spending a lot of money running the country. However, there is a legitimate question as to whether taxpayers are getting value for money. This is why I am calling for reform of the health and transport services.
Mr. McDowell: It is a pleasure to have an opportunity to contribute to this debate and an even greater pleasure because of the presence of the Minister of State, Deputy Callely, a former constituency colleague of mine whom I am pleased to see perched on the high stool. It gives me an opportunity to refine what I was going to say and to include a few constituency jibes at the end.
I was interested in what Senator Morrissey said because it reflects in large measure the view of the Minister for Finance, that when one has the money one should spend it and when one does not have the money one should not spend it. This may be very well in the private sector but it is not the way to run an economy. It is, in fact, a procyclical policy and I do not believe in procyclical economics. Clearly the Minister takes him at face value. He clearly believes, for example, that when the economy is doing well, one should stoke it, even though the obvious and inevitable result is that it produces inflation, including the sort of inflation in the construction sector which will inevitably mean less value for money. He clearly believes that in the current circumstances one should take money out of the economy, thereby exacerbating any depression in which we may find ourselves. This is classic procyclical economics which does not make sense.
The first thing that should be done in the current circumstances is to stop digging. There is no doubt that taking money out of the economy will inevitably depress further the economy and prolong any depression. I use the word “depression” in a very loose fashion because the Minister would say that since there is no negative growth we are not in a depression, but we are clearly in a slowdown that is drastic compared to recent years. The turnaround in the economy, particularly the public finances, in the last two years must be seen a number of times to be believed. It is only two years since we had a budget surplus of €3,178 million. This year we are on target for a deficit of €1 billion, a turnabout of €4.25 billion in just two years. It is difficult to understand how this has happened and the Government has fallen far short of a sensible explanation.
Today the Opposition has been challenged to say whether the Government is spending too much and where it would spend less. It is a reasonable question. For the first three to three and a half years of the last Government I would happily have spent more and for the last two years I would have spent less, in order to end up with a more balanced path of economic development over the period of five years. While I have accused the Minister of being procyclical in his economic thinking, the economic cycle has been precisely determined by the political cycle. The Minister cut slowly, as is his instinct, in the early years and splurged at the last minute, possibly against his instincts, because of electoral demands and he was being pushed to do so by spending Ministers. He has allowed the economy to be run, not by economic considerations, but by considerations of party politics. On these grounds alone he will be judged a failure as Minister for Finance.
I am sorry the Minister is not present, but I am sure his officials will pass this on. He said most spectacularly today and in the Dáil earlier this week that he still expects to come in with a 14% increase in current spending this year, notwithstanding the fact that at the end of October the figure stood at 20%. I tried to do a few sums this morning using the end of October Exchequer returns which showed that at that stage we had spent some €26.2 billion in terms of net supply of services. The overall annual budget is €29 billion, which suggests that somehow the Government will manage to get by on €2.8 billion, give or take, in the last two months of the year. Obviously, this is totally out of sync with the pattern of spending over the previous ten months, but it defies belief that he could manage to spend in a half sensible way in the last two months of the year. The Minister has been confidently saying in a number of different forums this week that he will manage it. I would like to know how, because it is not clear to me on reading the figures.
This is of far more than academic interest because it determines the base for next year. We could end up spending more than €1 billion more than the €29 billion forecast for this year, by which the Minister still stands, and if we do, it means that the 2% increase projected last week will amount to a quite considerable real decrease in terms of the amount being provided for next year. The base with which we end up this year is important in determining the relationship between that figure and the amount provided for next year. I would like to know how the Minister does this.
The single greatest failure in this year's Estimates is the very short-sighted cutback in capital spending. I have always taken the view, as would any sensible person looking at the development of the economy, that capital spending is critically important, not just because of the social services provided and the individual projects such as roads, but also in terms of economic development into the future. If we slow down now on roads and public transport development, we will inevitably slow economic development and hence our capacity to pay for these projects in the future. It is a self-defeating cut-back. I would not have thought that the Minister needed to be persuaded of this because he has made this argument a number of times. When cuts in health and so on were offered, with obvious immediate and painful effects, he decided to take the easier option of cutting back on and postponing investment for the future. We will come to count the cost very soon.
The cuts in the roads programme are particularly to be regretted. As the Minister knows, it has taken a number of years to get it up and running. The planning phase, which we under-financed for so many years, had just been completed, with a whole range of projects through the planning stage. The route selection process took longer than we thought it would and in some cases proved to be quite controversial. In a number of cases there were tolling schemes that had to be settled with public inquiries and so on. It has taken two and a half to three years to get to where we are now and it is remarkable that having got through the whole process, in order that we are in a position to get a few projects started, the money has suddenly dried up and we cannot do it. If we could postpone the projects for a year or two, that would be fine, but I am not convinced we can.
The process has been painful. In the last couple of years we managed to attract interest from contractors who bid for larger chunks of motorway than was traditionally the case. Some of them are in situ working on projects. If, come the third quarter of next year, the projects are simply not there for the people concerned to become involved in, they will lose interest and go away. This will disrupt the whole process of delivery. If there was ever a case for multi-annual budgeting, which the Minister mentioned, this is clearly it. The process of delivering a road project is long and painful: it requires changes in a development plan, a tolling scheme, planning, route selection, putting out to tender, actually building the road and then delivery. If this is interrupted at any stage, as has happened plenty of times, including in our constituency, as the Minister of State knows, the whole process becomes elongated, with the result that something is delivered ten or 15 years later which is not capable of delivering demand because demand has increased in the meantime. This is the reason the cutback in the roads programme is so short-sighted.
Deputy Callely is a Minister of State at the Department of Health and Children. Before the last general election, as spokesperson on finance for my party, I had a careful look at the health strategy published by the Government about 18 months ago. It was clear that the key part of it, which needed to be delivered in an organised way over a period of years, was the capital spend. There is clearly a need for additional beds, both in the major hospitals and step-down facilities. The health strategy, in fairness to the Department of Health and Children, spelled out in considerable detail the number of beds and the facilities needed. As Minister of State with responsibility for older people, Deputy Callely will know about the requirements in step-down facilities spelled out in the document. Perhaps he can help me with this. That part of the programme, which is not the sexiest by any stretch of the imagination, is the one most likely to get cut. As we all know, having no step-down facilities results in critical beds being blocked for lengthy periods in acute hospitals with the result that they are unavailable to those who need them urgently. The problem is then backed up through the system.
I do not believe the capital programme is on target. It clearly has not survived these Estimates. I hope it can be rescued between now and budget day. There was some additional money last year on budget day and I hope there will be more this year. As of now, the health strategy, particularly as it relates to the additional capacity in the capital programme, is dead. It is going nowhere. One does not have to listen to the Minister for very long to realise that he will not shed many tears over this, because he has clearly never been a fan of the health strategy.
Senator Ross mentioned the pension fund. One should be slow to react to the Senator, but not only were his comments about the Opposition unfair, they were also inaccurate. He implied that the Opposition was only now suggesting that we raid the fund, never having made any comment about it earlier. I made it clear before the fund was even set up that the Labour Party did not feel that this was to be the priority in spending for the next 25 years and that we would not be bound by this. We always reserved our position. In addition, we have never suggested raiding the fund. What we suggested was that some of the annual contribution could be used in a different way. To be specific, at the last general election we suggested that it be directed towards the health capital budget. We have never suggested touching the capital within the fund.
This fund will take in about €1 billion this year. It took in slightly less last year. Of the €900 million that was taken in last year, roughly half has been lost on the Stock Exchange. There was a lengthy controversy this year, with disputes between the two Government parties, over the construction of a national stadium, which would have cost about €500 or €600 million over three or four years. With the money that has been lost on the Stock Exchange by virtue of the pension reserve fund this year alone, it would be possible to build the stadium in one year. With the money it is costing us to fund the SSIAs this year and for the next five years, it would be possible to build a stadium a year. That is an enormous waste of money and it is spectacular that there has been so little debate about it. Last week the Minister announced a cut that will save €40 million but the fact that we are spending billions of euro in a fashion that attracts so little debate is dispiriting.
The contribution to the pension fund should be reduced and the amount of the reduction should be used for other purposes. The amounts paid into SSIAs should be capped and people should be allowed to leave the scheme early. I do not want to make a speech apologising pro vita sua but we made those criticisms of the SSIAs when they were introduced.
I welcome the Minister's remarks on value for money and the Estimates process. I have been critical of the process for some years. The fundamental difficulty is that it is entirely secret and the Estimates campaign that has been going on since the summer was conducted behind closed doors by senior civil servants and, in the latter stages, by Ministers. None of us has a notion what went on; we do not know how priorities were decided, except that we were told the committee of wise men were those who made the ultimate recommendations to the Minister for Finance. It is not acceptable that we make decisions on priorities entirely in private. There should at least be a requirement on Ministers to appear before the Dáil or a committee with his initial Estimates at an early stage so there can be an objective analysis of spending plans and, subsequently, as to how the money has been spent.
These Estimates provide for a very slight increase in spending. My guess is that by the time budget day comes around it will be around 8%. In normal circumstances I would not object to an increase of that size. We are, however, entitled to say that this is completely at odds with the suggestion of the Minister for Finance, Fianna Fáil and the Progressive Democrats before 17 May. Obviously this Government feels that in time people will forget and, if everything comes good by the next election, they will be fine. The Government is wrong. When people are betrayed and deceived to the extent they have been by this Government, the bad taste lasts for a very long time. It may be that things done next year or the year after will be forgotten by the next election but the deception of the 2002 election will linger for a long time and the people will find a way to pay the Government back.
Mr. Fitzgerald: It is interesting that Senator McDowell should conclude on that note and I am sure it has resonances of the experience the Labour Party had in 1997. Following its decision in 1992, the public waited in the long grass and gave them a clear, unambiguous message in 1997. That message is potent for the Labour Party today. It is nice to be able to divert attention from the dilemma the party found itself in and still has to deal with.
Since the publication of the Estimates, the public has been overwhelmed with analyses of the rights and wrongs of the Minister's approach to the management of the economy and commentators are parading panaceas for our short-term fiscal difficulties. Media commentators with certain agendas are hell bent on depicting the Minister as all the things he is not. They are in an unseemly rush to surpass each other in being derogatory about the Minister. Their analysis of the current economic situation, however, and how we should deal with it defies all logic.
The re-election of the Government was a clear vote of confidence in its economic management over the past five years. The Minister for Finance managed our finances extremely well and he translated that management into spectacular success in all sectors of the economy and Government. He was more than up to the challenge in the good times. Anyone who deludes themselves that it is easier to manage success than failure should consult world renowned independent analysts. He was more than up to the challenge and I have no doubt that he is the right man in the right place. He is widely regarded by those we depend on to spend money to generate wealth, create employment and provide tax revenue as the best placed to confront our present difficulties and manage our changed economic circumstances in the next five years.
If an independent analyst was asked to describe this Minister's record in terms of the state of the economy right now, irrespective of the illogical assertions of the Opposition, he would have to use the words, “safe, sound, secure”. That is where we are now. For the few doubting Thomases—
Mr. Fitzgerald: —among us, we should sketch the track record of the Minister for Finance over the last five years. There is irrefutable evidence of his sound economic judgment and management. Although Ireland is suffering the effects of a global economic slow down, as are all other economies, it is performing on a par with the very best in Europe. The approach to the economy that was appropriate during five years of boom of necessity must now change in the short term. I am satisfied, as are many others, that the principal changes in the fiscal strategy that the Minister is adopting in the short term will prove to right in the long term.
There will be temporary pain but there will be long-term gain. The approach to rapidly changed global economic circumstances, reflected in the downturn in domestic tax revenue, is to slow down an expanded programme throughout Government for a short time. In reassessing we will move forward. The cooling down period is necessary in any cyclical economy and our economy is cyclical because it is subject to so many variables at any one time.
Since 1997 public expenditure has almost doubled. Everyone accepts that money had to be spent because significant under-investment in vital public services had to be addressed. In this context, there is a curious logic to Opposition howls of condemnation of the Minister's Estimates. They were very audible when they denigrated the Minister in the last few years as a spendthrift. The same Opposition parties produced manifestos that were not costed but were based on cloud cuckoo land—
Mr. Fitzgerald: —and bore little relation to reality. If the people had the misfortune to vote them into office, they would now be taking them down hurriedly to where they left them in 1987 staring blindly at the appalling abyss of bankruptcy.
Mr. Fitzgerald: That is where we were in 1987 and from where Ireland had to be rescued by the then Fianna Fáil Government, albeit a minority Government, with support from a wise, young, dynamic politician in the Tallaght strategy who, within a short time, was subsequently cast to the wolves and to political oblivion by his own party. The facts are there, unpalatable as they may be. I have heard spokesmen in unseemly haste to top the spin doctor league perpetuate the view that the public finances are in total disarray. I have heard them on radio and television and read articles in the newspapers. This is nothing but abject nonsense because on a day to day basis the country continues to enjoy a significant budget surplus. The three most sensitive spending Departments are Health and Children, represented here by the Minister of State, Education and Science and Social and Family Affairs which have received the lion's share of the increases. In each case expenditure has almost doubled but in the Department of Health and Children it has more than doubled.
The question of the effectiveness of that spending is one that has to be addressed. I was most heartened to find it addressed today by the Minister in his opening speech. The question of accountability and good management within each Department has been addressed. He has sent a clear signal to the public and to all his Cabinet colleagues that that management process will have to step up quickly.
I wish to comment on the pension fund because some of our commentators have rushed to print to say we should rob the pension fund. That is an abominable and an appalling indictment of the mentality of some people—
Mr. Fitzgerald: —who fail to recognise that this fund has been one of the most imaginative, innovative, creations in the history of Ministers for Finance. It is a clear acknowledgment by the Minister of consultants' reports and of trends in the age profile of the working population and of where we will be in 25 years' time. It is putting money away for the rainy day. I have no doubt it is one of the many sound initiatives undertaken by the Minister over the past 12 years. It will go down in history and stand in glorious testimony to his record of achievements.
Mr. McHugh: This has been a most interesting afternoon in terms of learning new elements of economics. I know it was not always an exact science and many commentators would still believe it is not an exact science. In his contribution Senator Mansergh mentioned the lead up to the last general election and referred specifically to the economic cycle as being suspended. I have never heard of an economic cycle being suspended. Perhaps he is spending too much time in the Assembly in Northern Ireland. The Assembly is suspended. Economic cycles are not suspended. The Minister for Finance, Deputy McCreevy, has proven that economics is an exact science because if one overspends foolishly and lavishly in the good times naturally as a follow on there will be bad times.
In 1992 there was a conference in Rio de Janeiro at which there was a definition of “sustainable development”. That definition said that if we meet the needs of the present generation we cannot compromise the needs of future generations. In the past five years we have heard from various conferences, the media, different commentators, journalists and professors that we need sustainable development. I accuse the Minister, Deputy McCreevy, of completely ignoring the principles of sustainable development. I agree with Senator Fitzgerald that in the past five years there was spending, overspending and overkill. It met the needs of that voting generation in the last general election but it does not meet the needs of the incoming Government and the people under the present Government. That is a disgrace of the last Government. I am disappointed with the three Independents who stood up here and congratulated the Minister, Deputy McCreevy. Of course, there have to be cutbacks but, as Senator McDowell said, they should have been made two years ago. There should have been a pull back in the economy. The Minister did not do that and should stand corrected on that. I accuse him of deliberating misleading the people in the lead up to the general election.
The local government development fund will be reduced in 2003 to 96%. I can only empathise with over 1,000 local authority members who have to deal with the cutbacks in their local authorities and specifically Donegal County Council which has opened three new decentralised offices. How will it manage the funds if there are cutbacks in the allocations to local authorities? We have learned that the Downings harbour development project will not go ahead after promises prior to the general election. The Letterkenny leisure centre which was promised prior to the election is in limbo. The capital project, the N2 from Dublin to Donegal, was not even included in the National Development Programme 2000-2006. What hope have those who work in Dublin and live in Donegal in terms of quality of life when it takes six hours on a Friday evening to get from Dublin to Donegal whereas when I was in college here in 1993 it took me five hours?
Let us talk about progress and where we have come from. Money has been spent but it has not been spent in a sustainable way and not in terms of value for money. That applies to affordable housing throughout Donegal and the country. That was not promoted enough by the last Government.
We are in trouble when it comes to the Estimates because we have spent lavish amounts of money on feasibility studies, environmental impact studies and, as Senator McDowell mentioned, studies for road projects, tendering and so on. A sum of €1.6 million was spent on a feasibility study and on an environmental impact study for a bridge across Mulroy Bay in County Donegal that will never be built.
Let us talk about value for money and the overspend in the last election. We are in a precarious position. There have to be cutbacks but I do not agree with all of them. As I said, the cutbacks should have been introduced two years prior to the last election. I accuse the Minister of completely ignoring the public when it came to this issue.
Mr. Browne: This book should be renamed “Aspirations” as opposed to “Estimates” because it is purely aspirational. The Government seems to be in turmoil. The Tánaiste said public spending was out of control. A few days later she praised the Minister for Finance as the best ever. I cannot reconcile these two comments.
We could become bogged down in smaller projects such as the first-time buyer's grant, which is what Fianna Fáil and the Progressive Democrats want us to do. However, the main issue is public sector pay, to which half the expenditure relates. A report published today shows that if we continue as we are, we will by next year be 14% more expensive in terms of wages than the European standard, making us less competitive, which will not be good for the economy. Recently, over 4,000 personnel who had not been sanctioned were employed by health boards. We are, therefore, seeing wastage of money.
One area that concerns me is the cut-back in consultants' reports. I might be asked the reason. The Jeanie Johnston project in Tralee is a case where proper consultants were not engaged. It went way over budget and we had a fiasco. It would be easy to cut back on consultancies and consultants' reports across every Department, including the Taoiseach's, but it might come back to haunt us. I hope it is done in a good manner.
Senator Fitzgerald mentioned the costing of manifestos before the last general election. Fine Gael produced a manifesto which was costed by the Department of Finance. However, the so-called independence of the Department of Finance has been questioned. I certainly would not trust it as far as I could throw it. It costed all the political parties' manifestos, including that of the Labour Party, as far as I am aware. Now it has emerged that the figures it gave us, on which we based our manifesto, are false. There are serious questions to answer. The Secretary General of the Department of Finance should be brought before the House to answer questions. It is not good enough. I understood the Civil Service was independent. It obviously is not and certainly cannot be depended upon.
Let me mention transport which is part of my brief. I am concerned about cut-backs in transport. When construction inflation is taken into account, there are cut-backs. There is no question about this. I urge the Minister to consider the introduction of fixed cost contracts because project costs are escalating way beyond control. We must be realistic. We need to award fixed cost contracts in order that we know exactly how much a road or other infrastructural project will cost. Otherwise we will get into awful difficulty. I urge the Minister also, instead of wasting time commissioning reports on projects that will never be done, to set reasonable and realistic targets.
This is a very disappointing report. These are the first Estimates on which I have contributed. They are not worth the paper on which they are written, which means we will be back here again in a few months. They fail to look at public pay, a key issue. I resent the accusations of some Members opposite about the Fine Gael manifesto which we costed it in our way. The Department of Finance has serious questions to answer.
I do not want to go into the details of the Estimates again because my colleague, Senator McDowell, did so with both a skill and an expertise that I would not have. The fundamental debate taking place here – I note it is taking place inside Fianna Fáil with considerable vigour – is about the position on the political spectrum where the people want our country to end up. There is an articulated fear in Fianna Fáil that the minority party in the Government, aided by the Minister for Finance whose ideology is that of the minority party, has dragged what was a party of the centre left in a rightward direction, to the detriment of the well-being of many of those who vote for Fianna Fáil.
The real quality of the past four or five years of Government was the contradiction posed by the Government trying to have two different ideologies. In terms of taxation, it espoused George Bush's view. In particular, the touchstone of George Bush's economic philosophy was and is a reduction in capital gains tax. The essential point of divergence between his economic philosophy and that of Al Gore was the view of capital gains tax. Capital gains tax is, by definition, a tax on the wealthy. Ordinary people, unless they inherit shares or something similar, do not end up with the privilege of paying capital gains tax. As an instrument of public policy, capital gains tax can and should be used in times of difficulty to stimulate the economy. Cutting capital gains tax at a time when property, share and land prices were booming was both socially unjust and economically very foolish. It simply stimulated and provoked an overheated property market. It was the wrong thing to do.
The competing ideology is the political necessity to at least appear to match the quality of public services with which most people are now familiar in the rest of Europe beyond the fairly devastated United Kingdom that was left after Mrs. Thatcher's reign in which public services were severely damaged. All over the rest of northern Europe, France, Germany, The Netherlands, Sweden, Norway, Denmark, Austria – not Switzerland because it is unique – have similar views. The first is that a country must manage its economy with great efficiency. The second is that it must, through a broadly-based fair taxation system, use the resources of that economy to deliver services that make people feel that the efficiencies of the economy serve a purpose.
The problem is that the Government is trying to do the two things at once and that cannot be done. It is a bit like a number of great quotes attributed to Irish politicians that they deny ever having said. The late Jack Lynch said he never said he would not stand idly by; the Tánaiste said she never said Ireland was closer to Boston than to Berlin. It is a pity that all the best quotes are apocryphal, but perhaps that is the nature of good quotes. However, the Boston-Berlin dilemma is precisely the Government's problem. It was determined on a route of tax cutting. We should remember that the reduction in betting tax that the Government introduced was larger than the amount being spent on the first-time buyer's grant. What was the economic necessity or the urgency about this? It was done because of a determination to cut taxes across the spectrum.
I am not talking about the excessive burden of income tax loaded on middle income earners, but about other taxes cut in other areas, including the unnecessary cutting of the top rate of income tax. That is the problem we now have. The Government could have followed the logic of George Bush and Margaret Thatcher and cut public expenditure to the measure of the tax regime in which it believed, or it could have ensured the expenditure regime was matched by the level of taxation and, therefore, avoided some of the wilder aspects of its tax cutting frenzy. It had a choice and chose to do both. Hence our crisis.
In 1997 when it came to office, the first Labour Party Minister for Finance in the history of the State delivered the first surplus in about 30 years. He delivered that because in the previous two years he had been excessively prudent about public expenditure, in Gordon Brown's immortal words. He did not allow public expenditure to run away because he, I and most people on the social democratic left in Europe believed that the best way to deliver good public services was by steady growth in their delivery, not by an election driven frenzy of wasteful expenditure.
I reiterate what Senator McDowell has said. There is something close to insanity in the diversion of €1.5 million to €2 billion per year into SSIAs and provision for pensions while proper services for old people in our communities cannot be provided. What is the point of using an instrument like that to make provision for 25 years ahead if the major sacrifice is made now? The Labour Party did not propose to raid the fund. The only fund raided was the social insurance fund which was raided by the Minister for Finance. He did not divert money from revenue; he took it from the fund to pretend to balance his books last December when he intended to have a surplus, as we all remember.
As Senator McDowell said, the Labour Party criticised the SSIAs when they were introduced. We said that they were a State subsidy to those who were already well off and that remains the case. The contract cannot be broken but it would be sensible to create conditions in which people are encouraged to get out of the scheme early. It is particularly now, when people are a little tight for money, that we should consider letting investors out of the scheme. Whatever the cost up so far, it would be lessened if that was done.
There has been a failure by the Government to realise the choices it was making. It has tried to win both sides of the argument at the same time and that is the cause of the mess we are in, not any economic crisis. We have a crisis caused by a Government that never made up its mind which side it was on regarding very basic arguments. It tried to be on both sides and failed miserably.
I am surprised by the back slapping and other antics of Government Senators and Deputies with the Minister for Finance after the publication of the Book of Estimates. It is a damning indictment of the Minister that we have had such economic success over recent years, and still have strong economic growth, yet the public finances are in such a mess. As Senator Ryan said, it is a political mess that the Minister has created, primarily with the intention of seeking re-election in May 2002. The Minister achieved that goal but at a high cost.
There is a lack of interest in and a cynical view of politics and politicians at this time. That is because politicians do not do what they say they will. It is also because there are Government Deputies who, when in their constituencies, criticise the Government and the Minister and say he is wrong to do certain things, then come to Dublin and vote in the opposite direction by supporting the Government they criticise. This leads to cynicism among the electorate.
I want to focus on arts, sport and tourism with which I am concerned. There have been significant cutbacks in certain areas and a controversial one that will affect many communities is that of swimming pool grants. The Book of Estimates contains a proposal to cut grants next year by 41%. The outgoing Government – in the person of then Minister of State, Mr. Bobby Molloy, before his political demise – had the stated ambition to give all children access to swimming pool facilities. It is difficult to square that ambition with a 41% cut in the grant for the building of new swimming pools and the renovation of existing pools.
There is also a reduction in the capital grant to the Irish Film Board. This is particularly significant, especially in my area, County Kilkenny, where a number of films have been made in recent years and where there is a film industry. A recent survey carried out by Bord Fáilte regarding American visitors to Ireland said that 14% came because they had seen an Irish film and became interested in visiting. Cutting this grant by 12% is a double-edged sword and should not have been done. It did not save much money and is another example of a soft target.
I saw the Arts Plan 2002-2004 for the first time today. It is a good document and cost a lot of money to draw up. It contains specific costings which detail funding over the five year period of the plan. Last year, the Government spent €48 million on the arts; it is proposed in the Book of Estimates to spend €44 million this year, a significant reduction of €4 million. It is all the more significant when it is considered that the arts plan projected that €54 million was needed for this year to keep the plan going. Is this another Government report that will be shelved in the context of the cutbacks the Minister for Finance proposes?
Forestry is another area that has seen drastic cuts. There is a 22% reduction in the fund for forestry and this will have a major impact throughout the country. Up to 1,000 full and part-time jobs are believed to be under threat. That is worth €20 million to the rural economy and €3 million in funding from the European Union is definitely being put at risk. This is another soft target which should not have been singled out.
Mr. Cummins: I am always brief, a Chathaoirligh. I never say in ten words what I can say in two. It amazed me when I heard Senator Norris stating that he advised the Minister for Finance to tear up all his election promises. The Minister obviously listened to Senator Norris because the election manifesto has been torn to shreds and no promises have been honoured. I was also amazed to hear ill-informed attacks on the Opposition from Senators Ross and Quinn while they preached financial rectitude. It is the current Government who has been in office for the past five years, squandered €4.8 billion of a surplus created by the efforts of all sections of this economy and mismanaged the economy to such an extent that we are faced with cutbacks that will affect every citizen, especially the vulnerable, disadvantaged and young couples trying to put a roof over their heads. The Minister may feel that €3,800 is an insignificant amount but many young couples who have budgeted for it now have the ground swept from under them.
Regarding the economic and social infrastructure programme to which the Minister referred, the National Roads Authority has stated that the money is not available to complete the inter-urban routes or motorways between the gateway cities and Dublin. In 1997 the Minister inherited a sound financial platform any Minister would be delighted to have. Five years later and after a period of unprecedented growth in the economy, we are in a much poorer state than when the Minister came to office.
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