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Statement on the 2005 Budget, Dáil Éireann


Yesterdays Budget presented by the Minister for Finance was a Budget for real social inclusion. It shows how a strong economy can be coupled with real social advance. Wealth cannot be taken as a given. It has to be continuously generated and renewed. When it is, the State can play its role in redistribution, in order to foster the stability and social cohesion that are so necessary to underpin growing prosperity.

There are four main headlines:

  • the consolidation of rapid economic progress on a sound, non-inflationary basis, which supports a further net growth in jobs;
  • a major rolling programme of multiannual investment in essential physical and social infrastructure;
  • a marked improvement in social services, with an emphasis on helping those at a disadvantage and especially those suffering from disabilities;
  • making the tax system fairer for those on low and average incomes.

Our economic performance has been by any measure outstanding. We have come through a difficult period in good order. Unemployment stayed below 5%, to the astonishment of many economic commentators. The danger of rising inflation was brought under control, with the help of the social partners, but it is still the case that the level of costs that we now have leaves us with little margin for error.

The public finances are in excellent order. Revenue has exceeded target by an estimated €2.3 billion, thanks to higher growth and effective tax collection. Rarely, if ever, has an outgoing Minister for Finance been able to leave his successor a more positive legacy. I pay full tribute to the outstanding contribution, which was to the benefit of us all, and which will long be remembered, of Charlie McCreevy during his years in the office of Minister for Finance.

By any standards, a General Government Debt/GDP ratio of 30%, the second lowest after Luxembourg in the Eurozone, and a projected General Government deficit of only 0.8% of GDP, after an unexpected surplus of equivalent proportions this year, is robustly healthy. Many of our EU partners would dearly love to be in even half as comfortable a situation. Now, we can look forward to GNP growth in 2005 of the order of 5%, an average inflation rate of 2.5%, and a continued increase in employment of around 35,000.

Over a longer time perspective, the gains have been enormous, and they have been sustained.  Since 1997, employment in Ireland has grown by a phenomenal one-third, or well over 400,000 additional jobs.  That achievement is closely connected to our success in attracting overseas investment.  Indeed, we have moved from only fortieth place in the international ranking for overseas investment in the 1994/1996 period, to a remarkable fourth place today.

Ireland was unique among OECD States for attracting increased inward investment last year. Recent growth has also been generated by rising demand in the domestic economy.

Our strong performance resumed this year, despite international conditions.  Employment grew, with 43,000 new jobs in the twelve months to last May, representing 2.4% growth.  That reflected GDP growth well in excess of the European average; indeed, we are growing at twice the average for the Euro area. As a result, instead of contemplating cutbacks, we are able to continue to develop our public services and invest heavily in our infrastructure without further tax increases.

We are investing almost to 5% of GNP in transport, roads, housing, schools and healthcare.  This is twice the European average for public investment.  Across the full range of public spending, the resources made available by economic growth will enable us to increase public spending up to three times the European average, without compromising our fiscal stability or  adding to inflationary pressure.

But most sensible people will accept that a 9% increase in gross public spending in 2005 is close to the maximum consistent with financial prudence, and as much as we can manage in one year.  The underspending this year is also a factor in magnifying the apparent increase.

Solid sustained progress will deliver infinitely better results for everyone than stop-go policies caused by impatience and trying to do too much too quickly.  Even where there are undoubted needs to be met, improvements in capacity and facilities have to be phased in. 

We all recognise the importance of economic consistency and stability for confidence and investment.  We have avoided as far as possible placing extra burdens on either employers or employees or the farming community.  We have targeted those factors which will secure our living standards and competitiveness into the future, for example, investment in high value-added industries, such as pharmaceuticals and the software sector. 

We have incentivised, and invested heavily in, research and development to underpin higher value added activity across the economy.  

We have encouraged unprecedented output from the housing sector, and we are well advanced in the process of transforming our road and public transport networks, the benefits of which are now coming on stream thick and fast.

All this has delivered real gains for the whole of society.  It has been made possible in large measure by the very fruitful social partnership arrangements, which have seen a strong measure of agreement between the Government and employers, trade unions, farms organisations and the community and voluntary sector.  They have recognised, as has the Government, that only strong and sustainable growth, facilitated by a consistent policy framework, will generate the resources required to address our social and developmental needs.  There is no credible alternative foreign model to the hybrid one that we have developed here in recent years tailored to the needs of our particular situation.

The resources made available in the Book of Estimates for the development of public services are a vindication of our approach.  Without repeating the main points made by the Minister for Finance and other colleagues regarding the details of increased provision, it is worth recalling the scale of additional allocations:

  • an increase of €915 million or 9% for Health;
  • an increase of €530 million or 8% for Education;

Total expenditure on health, education and social welfare now accounts for a little over two-thirds of current spending.

In all, the value of social inclusion measures announced yesterday exceeds the cost of the income tax measures by almost €200 million.  That focus continues a clear and consistent trend that took hold from the day when I first led Fianna Fáil and the Progressive Democrats into Government.  If anyone doubts that, let them compare the level of employment and unemployment in 1997 and today.  Let them compare the level of pensions and child benefit, and the substantial real increase in all welfare payments. 

We are long past the time, when social welfare payments were pitched around the rate of inflation, be it to compensate for the year past or the year to come, which resulted ten years ago in a miserly £1.80 increase for old-age pensioners as part of an exercise in so-called socialism that excluded the old. 

The economic and social outcomes demonstrate beyond doubt that social progress and competitiveness gains can be pursued in mutually reinforcing ways.

Our tax strategy has been an important ingredient in this success story, but not the only one.  Since 1997, approximately €6 billion has been applied to reducing the burden of taxation.  That has been done in such a way, however, that we have generated €20 billion in additional day-to-day spending and a further €4 billion for additional public investment.  This additional revenue has been generated at the same time as the average tax rate for nearly all PAYE workers has been falling, year on year. 

The total tax levied on the average industrial wage has fallen from 27% in 1997 to just under 17% after yesterday's Budget. This reducing burden has been implemented with a clear eye on the distributive impact.  The share of the income tax yield from those on or below average industrial earnings has fallen from over 14% in 1997 to less than 6% in 2005, following the Budget.  Our decision that those on the minimum wage will be fully outside the tax net as a result of the Budget measures represents a landmark development.

Through the confidence generated by the strong commitment of this Government to maintain our existing standard corporation tax rate, as well as a capital tax régime that generates activity, we can continue to maximise our revenue from these sources, while maintaining a low tax burden on those on modest incomes.

The measures contained in the Budget mean that we have met the expectations of the social partners, that there will be significant real increases in take-home pay when the combination of tax and pay changes under Sustaining Progress are taken together. 

Together with the anti-inflationary strategy on indirect taxes in this Budget, we are creating the conditions for moderate wage growth in the period ahead.  This is of real assistance to employment.

The personal taxation tables in this year's budget booklet speak for themselves.  They show a focus on equity.  They show the benefits of tax relief concentrated on low and middle-income earners, and on the largest segments of the workforce.  This is a budget for hardworking citizens, both men and women, and it continues a trend since 1997 of falling average tax rates.

Equity in the tax system is a legitimate concern of compliant taxpayers.  We can see an extremely vigorous pursuit of tax evasion taking place, which yielded an extra €650m into the Exchequer this year, and which will yield an expected €200m at least in the coming year.   Nor is it acceptable that even a few of the wealthiest who live here  and who use our public services like the rest of us are able so to arrange their affairs as to pay no income tax contribution whatever.

With regard to reliefs and exemptions, many of them are of benefit to a large number of taxpayers, such as mortgage interest relief and exemption of the family home from tax.  Yet, many property incentives have been instrumental in transforming the physical appearance of our towns and cities, and tackling dereliction.  Most of them will expire in the next 2 years, and the tax base will be broadened as a result over time.  Where incentives are unlimited and open-ended, they are clearly open to question.  But I think it important that Ireland will remain home to success in many different fields, and an attractive place for capturing mobile investment and enterprise.

I regard housing policy as particularly important.  We have had huge success in increasing housing output to close to 80,000 houses and housing units this year.  There are genuine concerns about affordability for young buyers. 

The modifications in stamp duty applied to second-hand housing purchased by first-time buyers as well as the increase in rent relief on private accommodation are intended to ease housing costs for those likely to be most affected. 

The Minister for the Environment and Local Government is determined to give new impetus to the social and affordable housing programme, as provided in the Estimates, and will be seeking the active cooperation of local authorities in overcoming in some cases the hesitations of builders.

A particular emphasis in this year's Budget is on the most disadvantaged individuals and families in our society.  In its totality, it is a powerful statement of commitment to the welfare of those in greatest need.

The benefits of the changes are targeted at those on the lowest income levels whether at work or dependent on State support.  At the same time, our ability to compete in the labour market will be strengthened, recognising that a competitive economy is the essential enabler for an inclusive and cohesive society based on full employment or the nearest approximation to it.

We in this Government over the past 8 years have directed huge efforts and resources towards the less well-off.  The introduction of the national minimum wage and the achievement of close on full employment testify to policies that are targeted centrally at the care and welfare of our people.  While clearly great progress has been made, I have always acknowledged that not everyone has benefited in full measure from the growing national prosperity.  That is why a clear focus on interventions in favour of the most needy permeates this Budget.

I am very proud of our achievements on child benefit and old age pensions.  Building incrementally on the enormous increases of more than 270% since 1997 until yesterday, Child Benefit will rise by €10 per month for the first and second child and €12 for the third and subsequent children, bringing the respective totals to €141.60 and €177.30, quite close to target.

We have an equal concern too for the older generation.  All of our Budgets since 1997 have included measures to improve the income and situation of those on pensions. 

At the last General Election, we promised to increase the State pension to €200 per week.  Last year's Budget provided for a €10 per week increase. 

This year's Budget provides for a further €12 rise, showing clearly that we will deliver on this commitment.  There is also another substantial rise in the level of tax-exempt income for pensioners, up to €33,000 for a married couple.  The issue of medical cards to all those over 70 was to ensure that they could have peace of mind, without having to worry about the possibility of rising and unquantifiable medical expenses.  Major progress has been made on a number of fronts over a short period.  

We value older people for their invaluable contributions - both past and future - to the well-being of this economy and society.  I can assure this House that we will always uphold that ideal.

A particular effort has been made in this Budget to address the needs of those on the lowest rates of Social Welfare.  They have seen real increases over recent years somewhat below those of others.  The increase of €14 per week - four times the expected rate of inflation and a rise of 10% - is a very significant step to enable recipients to live life with dignity, in line with our commitments under the National Anti-Poverty Strategy and Sustaining Progress. 

Some valid concerns expressed last year regarding particular social welfare changes, such as for example, rent supplement and funding of crèches, have been addressed.

The impression has been given in some quarters that nothing has been done for carers.  Carers allowance increases by €14, and the income disregard has also been raised, together with a €1,000 increase in the Respite Care Grant, from which 9,000 new recipients will benefit.

Deputies will note the poverty proofing applied to the Budget contained in Annex B to the Budget Statement.  It refers and I quote to the highly progressive nature of Budget 2005, which sees those dependent on welfare getting the greatest gains. 

From a distributional point of view, Budget 2005 ensures that the lowest income groups gain progressively more (from welfare payments) than the higher income groups, who contribute progressively more to the cost of public service provision.  The overall distributional effect is similar to that from Budgets 2003 and 2004 but greater in impact. 

Amongst the most vulnerable in our society are persons with a disability.

However, I believe that we reached a watershed in Ireland's response to the needs of our citizens with disabilities, when the Government launched the National Disability Strategy last September. 

A comprehensive legislative programme was announced to give practical effect to the rights of those with disabilities.  The Disability Bill provides for the objective assessment of need and statements of service entitlements. The Comhairle (Amendment) Bill provides  for an independent advocacy service.  The six outline Sectoral Plans demonstrate how public policy and services will enhance the quality of life of those with disabilities in a number of critical areas of everyday life.

The resources of €2.8 billion being allocated in 2005 for disability - specific services represent an 11% increase on the 2004 figure. This shows the Government's commitment to providing high-quality services and supports to people with disabilities.  In the health sector, extra funding and more than 1,000 new frontline staff will be used for services covering intellectual disability, physical and sensory disability, mental health and adapted accommodation.  Provision will also be made for teachers and assistants for special needs pupils and special school transport.

The Budget has gone beyond even that unprecedented level of increased expenditure by putting in place a multi-annual current and capital programme for high priority disability support services.

The new framework emulates the highly successful approach announced at the last Budget regarding capital expenditure.  However, uniquely, it extends to current spending also, reflecting the Government's determination to achieve long-awaited real and lasting improvements in the lives of people with disabilities, and their families.  This commitment of €900 million cumulative total funding over the period 2006 - 2009, will provide greater funding certainty into the future. 

It will allow for greater flexibility in the spending of resources.  It will facilitate and encourage more effective outcomes.   Above all, it will inject a new sense of confidence and urgency into national policy, in its entirety, regarding the provision of care and support for those with a disability.  The new framework is an enlightened and compassionate move.  It gives a robust financial underpinning to the provisions in the Disability Bill.

It has long been my view that a competitive economy can be a powerful enabler of greater social justice, and that a just  and caring society can be a powerful source of competitiveness itself.  That broad philosophy, as distinct from any narrow ideology, forms the heart of our social partnership model.

Improving national competitiveness is, in the context of our Eurozone membership, a heightened challenge demanding special vigilance.  Maintaining our relative position and promoting improvement are about more than growing business and trade, important though they are.  They are also about protecting jobs, providing increased financial security for families, and promoting price stability.

The framing of this year's Budget was guided by such core aims.  First, the Budget maintains a sustainable balance between expenditure growth and revenue growth.  Secondly, the taxation measures will assist non-inflationary economic expansion. 

Thirdly, the investment commitments already announced, especially on infrastructure and high-value activity like R&D, will continue the priority objective of raising innovation and competitiveness.  

This time last year, the Government introduced the multi-annual agreements on capital spending.  That approach has worked very well  especially in the management and planning of large-scale investment programmes.  For next year alone, the cash available for investment, at almost €6.3 billion, will be 20% greater than what has been actually spent this year.

The 2005 - 2009 capital envelope provision of €36.3 billion, and the proposal to move to a 10 year envelope for transport, means that in the areas of transport, communications, education and the environment, Ireland will continue to move rapidly beyond the redress of serious infrastructure deficit trends, towards the achievement of world-class facilities.  The baseline can always be adjusted upwards, as has happened in this Budget, if economic and financial circumstances allow. 

The House will have noted with approval the clear commitment to decentralisation, underpinned by a €70m provision, mainly for office accommodation, next year, so that a real start can be made.

The Budget also contains a number of modest but practical and important measures to assist farmers and the business community.  The 12.5% rate of corporation tax, which stood at 50% for non-exporting firms less than 20 years ago, will be maintained by this Government.

Commentators at home and abroad continue to look with some awe and much perplexity at the changing Ireland.  Huge progress is evident through the length and breadth of this country.  I am proud of what this Government has achieved so far in its one-and-a-half terms.  I am glad that the stage is now set for major incremental progress next year on both the economic and social fronts. 

Particularly gratifying is the confidence and optimism of our people about the future of this economy and society and about our quality of life.  In that regard, there is no doubt but that the Government strategy, reflected in eight Budgets since 1997, have played a central and indispensable part.

To conclude, I know that the people will see that this Budget represents major progress towards fulfilling our contract with them, as set out in the Programme for Government.  I congratulate Minister Brian Cowen on his first inspired Budget, a Budget guided towards greater social justice, higher household prosperity and enhanced national competitiveness, but still rooted in sound public finance.  This is social justice in practice, making a real difference to all our lives.