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Statement on the Budget


This is the most socially progressive Budget of recent years.

While underpinning economic growth and social partnership, our overriding objective is to give a boost to people on low incomes, to encourage those who want to take up a job and to assist those who have retired. The sweeping tax reforms introduced in this Budget allow us to target help at those who most need it. We are doing not only what our economy but what our society requires at this time. The jobs crisis today consists of the fact that we have thousands of jobs that need filling. This Budget is about ensuring that we have people to fill them. The live register, which has already fallen dramatically by 32,000 over the last 12 months, will be further slashed, so that in 1999 it could plunge below 200,000 for the first time since 1983.

Our economic success since the major turning point in 1987 has been based in large part on social partnership. We have more than fulfilled our obligations on taxation under Partnership 2000. We were committed to introducing personal tax reductions to the cumulative value over three years of £900 million on a full cost basis. I calculate that the cumulative concessions amount to about £1,500m, or about 60% above target, of which well over £1 billion will have been given back under the present Government. As a result, the net income increase of up to 14% for those on average earnings envisaged under Partnership 2000 will turn out to be around 18% to 20%.

This year, we are taking 80,000 people out of the tax net, which is dramatic. This is way beyond the 15,000 removed last year, and the 10,000 removed in Deputy Quinn's last Budget.

It has long been recognised that the gap between the tax-free allowance and the tax exemption limit represents a major poverty trap. This gap is being substantially reduced. Exemption limits will now be relevant mainly for the over-65s.

The personal allowance, standard-rated so that the benefit goes equally to all, is being increased by over £1,000, or over £2,000 for married couples, with an additional £200 added to the PAYE allowance. This means that for a single employee the first £100 earned will be tax free, compared to £79 at present. It will also be PRSI-free per full-rate contributions, as the threshold for both tax and PRSI is now the same. While up till now it has been the case that going off the dole meant pretty much going straight into the tax net, that will no longer be the position. There is a clear gap between tax-free earnings, and what can be received on the dole.

It is my view that the vast majority of the unemployed are anxious to work. Everyone who is able-bodied and mobile should be able to get a job. They need access to education and training, and encouragement and support to get back into work. This Budget radically alters the moral-sapping disincentives to work. In particular, there is no real excuse any more for young people to stay at home. The days of the dependency culture are over.

Last year, we concentrated on reducing rates. This year, in terms of our Programme, we are concentrating on 'giving people an incentive to take up work', which is the first sentence of our Government Action Programme for the Millennium. The substantial increase in the personal allowance achieves this. After this Budget, about 27% of all people subject to income tax will have no tax to pay and only 32% will pay tax at the top rate.

Parties opposite will no doubt want to claim, for want of anything to criticise, that this represents their policy. It certainly did not represent their policy in general, where there was an increase in personal allowances for a single person of only £150 a year in 1995 and 1996, and £250 in 1997, a figure that we matched incidentally in the last Budget. That tax-free allowance has now been quadrupled. Fianna Fáil and the PDs have gone far beyond anything that they envisaged. Deputy Bruton did attempt to introduce a tax credit system in the 1982 Budget which fell, but it did not feature in Fine Gael's more recent policies. We have eliminated the Employment and Training Levy introduced by Fine Gael in the early 1980s, but increased the Health Levy, giving a net reduction of 0.25%.

The only party that I recall that wanted to put everything into the tax free allowances at the last Election was Democratic Left. But it was in the context of limited tax relief overall. The total relief figure of £1,500m over five years was the Rainbow target at that time. I would point out that in just two Budgets, and with three more to go, we have provided just under £1,100m in full year personal relief or over two-thirds of what the Rainbow parties were prepared to contemplate over a five year period. They showed by their record in Government that they did not regard reducing taxation as an important priority, except at Election time. They wanted to do only what was strictly required by social partnership. Under this Government, real tax relief is not confined to Election Budgets once every five years.

The tax system is a vital aspect of competitiveness and jobs. Lightening the tax burden makes it easier to create and fill jobs and to keep down inflation. It is the only way to sustain Social Partnership. Full employment is the best means, of tackling social exclusion, even if it is not the full answer. For far too long the burden of funding public services fell on too few shoulders. In 1986, we had 1,080,000 at work, of whom between one quarter and one-fifth would not have been in the tax net. Today, close to 1.5 million people are at work, which makes it possible to spread the load and reduce it.

After today's Budget, the personal allowance together with the PAYE allowance will compare well with basic allowances in Britain. But at higher levels of income there is still a substantial gap, in tax levels, especially for single people. The width of the tax band and the rates are matters that we will have to return to in future Budgets, particularly if we are to attract the skilled people we need into the workforce and to keep them here, given international mobility.

This is a reforming Budget. We have been focused in our approach. We have moved to introduce a tax credit system, which is a major reform that has long been recommended in many important analyses of the tax system. The tax credit system allows for better targeting and transparency of tax changes. That is the main justification for its introduction. Previously, if for example one put all the money for tax relief into raising the personal allowance, the lion's share of the benefit went to higher earners. This forced Ministers for Finance, if they only wanted to help those on low incomes, to raise the exemption limits, but then that created poverty traps. We have taken a strategic step to create a fairer and more socially progressive tax system. We have moved beyond debating the theories of social inclusion, actually to implement radical reform.

Higher earners did well in last year's Budget. This year the benefits are more evenly spread. But a married couple on one income with four children taxed under PAYE at £40,000 a year will be £800 better off in tax terms compared to a bit over £900 last year, and approximately the same as in Deputy Quinn's last Budget. The net reduction in levies of a quarter of one per cent will be of benefit across their entire income. But taking our two budgets together, the higher earner has nothing to complain about, and can look forward to future Budgets under this Government, that will ease a burden that is heavier than in most other countries.

There is no significant claw-back, as far as indirect taxation is concerned. Apart from 5p on a packet of cigarettes, which is the minimum that can be justified from a health point of view, there is no increase in excise on beer, spirits or petrol. Since 1987, in all the budgets in which Fianna Fáil have been involved, there have only been very rare increases in the so-called old reliables.

This has helped keep inflation down, and ensured that what is given with one hand is not taken back with the other.

Both in the context of EMU and Social Partnership we are anxious to get back down to a 2% rate of inflation in 1999, so that neither jobs nor living standards are put at risk. Under EMU even more than now, higher inflation means a loss of competitiveness and a loss of jobs, so we must avoid it.

We are ready to use the tax system to promote environmentally friendly developments. We are quite consciously increasing tax on the less fuel efficient vehicles. To encourage public transport, we are also encouraging the provision of park - and - ride facilities by a capital allowance scheme, and freeing the provision of monthly travel passes from benefit-in-kind taxation.

To relieve pressure on the housing rental market, and responding to some of the representations from third-level institutions, Section 23 relief is being extended to cover the provision of student accommodation.

This is the largest social welfare and social inclusion package that has ever been introduced. For purposes of comparison, Deputy Quinn's social welfare package amounted to about £114m in 1997. This year's came to £125m. Next year's will cost £155m, also in the calendar year. The full year cost of this Budget's total social welfare and social inclusion measures comes to £378m. I calculate that almost £1 billion has been spent on social inclusion measures, or nearly double what was promised in Partnership 2000. Not merely has there been no slackening of the pace since the change of Government, but in fact the pace has accelerated. Providing effective help to the less well off has everything to do with good management of the economy, and nothing to do with ideological labels.

Even excluding the old, the general social welfare increases are at the top end compared with the Rainbow Budgets, which amounted to 2.5%, 3% and 4% from 1995 to 1997. The long-term unemployed get an increase of 5.25% or £3.60 to bring remaining payments up to the indexed minimum recorded by the Commission on Social Welfare as promised in Partnership 2000. Others receive £3 a week or an increase of 4% or double the expected rate of inflation.

The main focus of our entire Budget package are the older citizen and the family. The contributory old age pension is incensed £6 a week to £89, or £9 for a couple, so that we are well on target to reach our goal of £100 pension a week for a single person in the lifetime of the Government. This represents a 7.25% increase on top of the 6.4% or £5 increase last year. In addition to that, we have given by far the largest increase in the tax exemption this year. By way of comparison the exemption increase given in the Rainbow Budgets for the 65-74 age group were £200 each in 1995 and 1996, and £100 in 1997. We brought it up by £400 to £5,000 for 1998. For 1999, we have put it up another £1,500 to £6,500 or £13,000.

This tax exemption level is now significantly above the UK level age allowance especially for a married couple. Improvement and liberalisation in the carer's allowance, and tax encouragement for the provision of convalescent homes are also for the benefit of old people. We are also allowing those not in pension fund schemes to put more aside for their old age by greatly increasing the allowable size of tax-free contributions, particularly over the age of 50, when there are less likely to be a lot of children in the family, and when people are beginning to worry about providing for their old age.

The family and children are central concerns of this Government. We have continued to raise child benefit, weighted towards the larger family. We have improved family income supplement. We are also encouraging employers to provide childcare facilities, by providing capital allowances for their provision, and also by disregarding their use as benefit-in-kind. This is, I recognise, only a limited response to the demand for help with the cost of childcare. We will be studying the report of the Interdepartmental Group, when completed in February, which will form part of further deliberations on the subject. It is a subject to which we will clearly have to return.

We have also provided substantial further support for people suffering from disabilities with improved provision for carers, together with extra places and improved facilities to help those with learning disabilities and further help for the physically handicapped.

Post-Budget, there will be a 11% increase in gross current health spending to tackle pressing priorities, including waiting lists and services for older people.

This Government recognises that education and science are in many ways the key to our future. The educational capital programme for 1998 and 1999 is running at least double the annual average of the years 1995 and 1997, amounting to £239m next year. The increase in the current educational budget at 9% will be at last four times the rate of inflation, with a heavy concentration on those with learning difficulties. Since we came to office, we have improved funding to scientific research and innovation, tapping sources of private funding with matching State aid. We have provided tax relief in the budget for personal and comporate donations to our Scientific and Technological Education Investment Fund as well as on a smaller scale to libraries.

I have to question Deputy Bruton's claim that his priority is primary education. The provision for first-level education under the Rainbow increased by 4% each year that he was Taoiseach. It increased by 7%, the two years that I have been Taoiseach. The capital programme has increased from £34m in 1997 to £55m in 1999. So much for the priority Deputy Bruton attached to primary education.

Many non-commercial farmers have been having a very tough year. We have provided an income floor through the Farm Assist Programme and also improved access to pensions. We have restored the farm installation and scheme aid the farm pollution scheme. Farmers will also benefit from lower interest rates and tax reductions in the Budget.

Every Budget has to have a lighter element. This year, it is a budget for the punter. Horse-racing is a national sport enjoyed by all sectors of the population. Keeping the bets in Ireland is another way of keeping the racecourses open. I look forward to my next flutter at even keener odds.

This Government are supportive of commemorative projects that reflect our heritage. My Department will be giving £200,000 to help with the construction of the Dunbrody. The Minister and myself have been instrumental in providing £300,000 to secure the family home of Pádraig Pearse. We are happy to give £300,000 to the Irish School of Ecumenics in recognition of their continuing contribution.

Our ambition is to make Ireland one of the best countries in which to do business. Small businesses will be pleased at the increase in the lower 25% corporation tax threshold to £100,000 in fulfilment of our election manifesto pledge.

We are continuing the reduction of the standard rate of corporation tax by 4% and mapping out the route whereby we will reach the standard rate of 12.5% by the year 2003.

I would point out that our corporate tax régime goes back with modifications nearly 40 years. It was designed to offset our peripherality, while countries in the centre of Europe boomed. Every important move since then has been negotiated with Brussels. The question of unfair competition does not arise.

It would seem that some of our European partners are afraid not of unfair competition but simply of competition. We account for a mere 1% of inward investment in the EU, the vast majority of which comes from outside the EU. There are isolated instances, where firms relocate or rationalise from one part of the EU to another, and that has happened occasionally both to our cost and to our benefit. But in general terms manufacturing industries are not relocating from Germany to Ireland. There is competition in the financial services area, and some years ago we made special tax arrangements to meet certain German concerns.

My understanding of a single market is that it is an arena in which companies and indeed countries compete. It is not a closed cartel, which protects inefficiency or high costs. The high tax high spending route will do nothing for Ireland, and we are not going back down that road. We live in a global economy, and Europe has both to compete and work in partnership with low tax economies in the rest of the developed world and notably in North America.

For the first time ever, a Government is able to budget for a large surplus. In 1998, the outturn is at present estimated to be £668m, and there is a surplus budgeted for of £925m in 1999. The General Government Surplus is in each instance somewhat higher, but a constant 1.7% of GDP. We are observing the rules of the European Stability Pact.

I note a sharp contradiction in the critique coming from Right and Left. The Fine Gael party seems to regards the Budget as too expansionary, with dangers for inflation. This disregards the fact that it is carefully targeted at lower incomes, where spending is likely to be less inflationary. Presumably they would have liked a higher surplus. On the other hand, Labour and Democratic Left seem bitterly to resent the fact that the Government are running any surplus at all. Clearly, from their point of view the Budget was not nearly expansionary enough. I do not agree with either view, but it is a good illustration of the economic incoherence of the former Rainbow combination.

I fail to understand the mania for going on paying precious taxpayers' money to bankers foreign and domestic in perpetuity. Why are Labour and Democratic Left so determined to be the international bankers' friend ? Why should we go on for ever paying over £2 billion a year to the bankers, when we could be spending it on improved services, providing a hedge against a downturn, and lowering taxes on the PAYE sector ?

The steady improvement in the national finances since 1987, about which some Opposition Parties were never really happy, has been one of the foundations of our present prosperity. Our General Government Debt/GDP ratio has more than halved since the late 1980s, and now stands at an estimated 59% of GDP, just under the Maastricht criteria. It is due to fall to 52% in 1999, and by another ten points by the year 2001.

It is no accident that the wealthiest country in the EU is Luxembourg, a small country with virtually no public debt.

We have increased spending for next year to the absolute limit of what is prudent. The main concentration is on public investment, which will now rise by more than 30%, and its job is to tackle the bottlenecks in housing, transport, and all the other needs of what is now a rapidly growing population, of which the most recent CSO estimate is 3.7 million. It is legitimate to switch expenditure from unproductive debt servicing to current services and that is what we have done, within an overall average 4% limit. If we were not reducing our debt services expenditure at the same time, it would not be prudent to be increasing day to day expenditure by an average of 7.7% over the next 2 years.

All of us, when we pause to reflect, are somewhat bemused by the rapid growth of the Irish economy, in ways that seem to defy the laws of economics. We could be scared by the opportunities. But this Government is determined to rise to the challenge. The basic formula adopted since 1987 remains the right one, and we will stick to it, and try to make best use of the fruits of growth for the benefit of all. As Taoiseach, and as former Minister for Finance, I am very proud of this year's Budget. Some of the most deprived people in this country live in my constituency, and I know it will help most of them. But it is also what the country needs at this time. There will be a renewed sense of fairness. There are of course priorities in our Programme for Government that we have not yet been able to implement. We have three more Budgets in which to do that.

This Budget will keep the Irish economic success story going. It honours Partnership 2000 commitments and provides a sound basis for the continuation and deepening of social partnership. We promised lower taxes to individuals and businesses, as well as a new deal for the old. We are delivering the best set of economic conditions and the most prolonged ones that the Irish people have ever experienced.