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Budget Debate, Dáil Eireann


This is the Budget of a successful economy that continues to outperform practically all others in the developed world.  It is a budget designed to enhance social solidarity and improve the quality of life for young families and for older people alike.  It is constructed in the spirit of social partnership, which for almost 20 years now has served this country well.  It continues the ambitious programme of improvements across the board in our public services. Finally, the Budget provides once again compelling evidence of a consistently high quality of stewardship in managing our affairs that we will be glad to submit to the Irish people for their judgement in 18 months’ time, when seeking a renewal of our mandate.

Other countries today, and previous governments here, have had to grapple with some or all of the following: lower growth than forecast; high unemployment;  and persistent overshoots in targeted borrowing.  Our situation is the opposite.  We can look forward for the third year running to very satisfactory growth close to 5%.  Employment growth, at nearly 5% or an extra 96,000 jobs in the last twelve months, is dynamic.  Early in 2006, we will pass the 2 million employed mark, well over half a million people up on 1997, and by 2007, most likely a million people up on the level in 1987. 

Buoyant revenue growth, which can never be taken for granted, has meant that we have significantly undershot a modest level of borrowing, projected in the 2005 Budget, and will end up with a general Government surplus, albeit small, as we have done in all but one year since 1997. 

As a result, we have substantial resources available for several purposes: to relieve the tax burden on the low paid and on hard-pressed working families; to increase the volume of spending on our social services, focusing on greatest need; and to invest in infrastructure improvements that were not affordable to us in the past, and that are not affordable in many other jurisdictions today.  Inflation is forecast for next year to remain in historically low single figures, and we are obtaining much better value now from capital spending.  The overall level of spending remains a constant 33% of GDP, and gross current spending is increasing at roughly the same level as in each year since 2002, by around 10%.  We have to guard against overheating an economy at full throttle, or causing sudden jolts, when things are going so well.

Record growth, the most impressive, sustained growth record of all of the countries surveyed by the National Competitiveness Council in their recent report;  unemployment at half the European average pro rata; the labour force, growing at record rates both through inward migration and a higher participation rate by our own people;  infrastructure development through investment rates at more than twice the European average;  continuing developments in the quality and extent of our social services, and the very substantial increase in the real incomes of those dependent on social welfare, all represent an exceptionally positive balance sheet for this Government.  

The whole aim of the Budget is to underpin the strong confidence which has been such a marked feature of the Irish economy in recent years, so that we can continue making dynamic progress of a kind that has never been sustained before in our history.     

Another important priority, in keeping with the progressive social philosophy of democratic Republicanism, is ensuring justice and fairness in the tax system.  The Exchequer should not continue to offer unlimited incentives at the expense of the general taxpayer to the wealthiest tax residents in our society.  It is not right that a few of them would contribute nothing by way of income tax directly to the State, or that we would publicly assist further accumulation of very substantial pension funds without any limit.  People in that fortunate situation are well able beyond a certain point to look after themselves, and, to be fair, most of them are contributing heavily, in more ways than one, to the running costs of this society.

Those few affected by these changes will still enjoy a very favourable tax environment compared to most other countries.  In fairness, it should also be stressed that the top 4% of income earners pay 40% of the total take from income tax. 

A whole array of construction incentives, which were always meant to be finite, have served their purpose.  With some exceptions, such as park and ride, which is obviously relevant to the roll-out of Transport 21, and private health care provision, they should no longer be needed to stimulate activity.  The provision of student accommodation, thanks to an incentive introduced in 1998, for instance, has been very successful, but has now served its purpose.

Writers and artists will still have exemption on annual income up to a quarter of a million Euro. The vast majority of artists fall well below this threshold. Before the stallion fee exemption runs out at a time when all the other relevant reliefs end also, we will consult closely with the industry and the European Commission to to come up with an effective alternative, that takes account of the importance of the success of this industry not only to Ireland but to Europe.

Our reforming approach to the tax system has been designed to underpin a more enterprising and fairer society, through a pragmatic approach to the various components of the tax system.   Fundamentally, our objective has to be to generate the maximum resources available for redistribution consistent with fostering a dynamic and sustainable enterprise sector.   Our commitment is to a clear and transparent corporate tax régime, which, with many other highly attractive features of Ireland as a business location, has brought about substantial investment, and increased activity, employment and, crucially, tax revenue.

This Budget, like last year’s, is once again characterised by no increases in direct or indirect taxes, thus helping to keep down inflation, and ensuring that the Budget does not put pressure on prices in the family shopping-basket.  Indeed, we have reduced excise on certain heating oils, which will be of benefit particularly to older people, but which will also over the years eliminate a North-South difference that provides an incentive for irregular trade.  The phased-in removal or capping of incentives will, however, broaden the tax base and have positive revenue flow implications in the years ahead.

We have developed a structure of taxation, which provides incentives for those who wish to work and employ others, and which distributes the burden of income tax fairly among those best able to meet it.   The exemption of those on the current minimum wage from the tax net – despite the fact that our minimum wage rate is one of the most attractive in Europe – combined with our low rate of taxation on those around the level of average earnings, have produced a highly equitable and progressive income tax system.  It will be a constant task in every budget to make sure that those working full-time on the minimum wage, which is likely to rise each year, stay out of the tax net.   

The total full-year cost of income tax relief goes up from €682m in the 2005 Budget to €900m in next year’s Budget.  Once again, it is concentrated on low to middle income groups.

Some 36% of all income taxpayers will pay no tax at all.  The rest will be equally distributed between the standard and higher tax bands.  The standard tax band is being increased by €2,600 or nearly 9% this year, compared to €1,400 or 5% last year.  The standard income tax band is now effectively protected in real terms since 2002.  The primary objective must be to ensure that we keep those on the average industrial wage out of the tax net and that we have done, unlike our predecessors.  Wise Governments avoid automatic and unthinking index-linking, being sometimes able to do more, sometimes less, so as to retain necessary flexibility to manage the economy and the public finances and inject resources into what may have become new priority areas.  While I am on it, I doubt if too many people would wish us to index-link excise duties by reference to an automatic scale. They have had to abandon such  linkages in other Member States, when economic priorities changed.

As has been the case in all Budgets since 2002, a study of the tables showing who benefits presents a picture of progressive tax changes, with the proportional benefit concentrated on the middle to lower end.  Tax equity has been our priority.

By preserving incentives, especially at lower income levels, and by keeping the tax wedge at a generally low level, we have produced an environment in which almost 2 million of our people are at work, and unemployment, especially long-term unemployment that was once chronic, is at historically low levels. 

Another feature of the budget is the support it gives to small business by relieving their tax and administrative burden.

Targeted special reliefs will enhance protection of our environment and heritage, helping to implement our Kyoto commitments and establishing the Heritage Trust which I proposed in the early autumn.

I turn now to the purposes for which the revenue raised through our equitable and balanced taxation system will be applied.

The major initiative of this Budget is to make inroads into the problem of the cost and supply of childcare.

There has been much public debate about whether the European model of society can continue, about whether the welfare state has had its day.   Trading labels of that kind is not always particularly helpful.   But, if we must have a label, I believe our policies are designed to build up what the NESC in a recent report has called the “Developmental Welfare State”.   What that involves is combining income supports, well targeted services and appropriately innovative measures to help individuals, families and communities not only to access quality services, but to achieve their full potential and, in particular, to maximise their independence, autonomy and contribution to society.

These are the principles which were already expressed in our National Anti-Poverty Strategy, our National Children’s Strategy and the National Disability Strategy, which was published earlier this year.   What these different approaches have in common is that they set out (i) the standard of services which we aim to provide as a recognition of the rights of our citizens, (ii) improved arrangements to develop a joined-up approach on the part of Government to developing policy, and (iii) a better degree of integration at a local level in delivering services and supports which reflect the needs of people.   In doing this, we have recognised the particular milestones in people’s lives, where particular types of support and encouragement are required, be it in respect of children, young adults at the stage of establishing a family, independent adults in the workforce, older people or those with disabilities or other restrictions on their autonomy.  

This is the context within which the Government’s policy on childcare has been developed, through a careful combination of measures to stimulate the availability and supply of childcare and measures to support those in need of childcare services.    We have taken this balanced approach, and set out how we propose to develop it over a number of years, in response to the obvious facts about childcare.   In particular, we know that, if we relied only on putting more money into the purchasing of childcare services without increasing its supply, the likelihood is that prices would soon rise. We also recognise that parents have, legitimately, differing views about the best type of childcare for their children.   Some people will wish to provide care in the home themselves, either for a period after the birth of a child or for the pre-school years.   Others will wish to use part-time nurseries and crèches, while working in the home.   Many will wish to place children in a family home setting, using the services of family members or neighbours.   Others will wish to have the benefits of structured childcare programmes in well-run and regulated centres. 

The package of measures announced by the Minister for Finance provides recognition and support for that full range of choice.   They also provide a particular focus on the needs of families and communities with the greatest needs and under the greatest pressures.   The package also recognises the importance of the development of the child as a specific objective in its own right, within the broader childcare needs of the family.  The extension of paid and unpaid maternity leave will be widely welcomed.

Supply is vitally important.  I have had pleasure in opening publicly funded as well as voluntarily organized Family Resource Centres in different parts of the country.  The €10,000 income tax and PRSI disregard for those who look after up to three children not their own, in the minders home will also have a measurable impact on increased supply and help to keep down costs. This is certainly one instance, where we are better off regularizing the informal economy.

 Child benefit has been transformed, and is now four to five times its value back in 1997.  The new child care payment of €1,000 per year extra in cash for children under six is the equivalent of a €5,000 tax allowance at the standard rate per child.

The multi-annual strategy for childcare announced by the Minister for Finance requires an equally ambitious strategy to improve the arrangements for developing and implementing our policies on childcare.   Excellent work has been carried out by the Minister for Justice, Equality and Law Reform and his Department in developing the Equal Opportunities Childcare Programme.   However, at present, that responsibility is separated from policy in respect of standards, registration and inspection of childcare facilities in the Department of Health and Children, while early years education is the responsibility of the Department of Education and Science.  

In order to bring greater coherence to the sector, the Government have decided that responsibility for the Childcare Programme will transfer from Justice to the Department of Health and Children and, as is normal in these situations, the relevant staff will also transfer.   Therefore, the expertise and network of contacts which have developed will continue to be available to the childcare area.

Responsibility for childcare, together with other aspects of policy for children generally, is delegated to the Minister for Children, Deputy Brian Lenihan.   The Government have decided to take this opportunity to bring greater coherence to this important area of public policy.    Accordingly, the Office of the Minister for Children will now have responsibility not only for childcare, but also for child protection and welfare, for juvenile justice and for early years education, reflecting the Minister’s responsibilities in the Departments of Health and Children, Justice, Equality and Law Reform and Education and Science, respectively.   To the greatest extent possible, all of the staff involved will be brought together in this Office.   There will be an overall Head of Office in the Department of Health and Children, reporting to Minister Lenihan.  The Minister will attend Cabinet regularly in furtherance of his responsibilities for children.   Further details of these arrangements will be announced by Minister Lenihan, following consultation with the relevant staff interests.

This Budget, therefore, represents a major step forward for children and families not only in terms of the resources provided, but also in terms of a more effective and joined-up approach to this critical area of public policy.

An equally important aspect of our Budget strategy is the very strong commitment to share the current prosperity of our society with those who are retired as well as the less fortunate.   We are honouring our commitments to our older citizens who have served this country in their families, communities and workplaces over the years.   

We are meeting our commitments to provide more realistic incomes for those dependent on the old age pension, which is now within easy striking distance of €200 a week.   We are also honouring our commitments in respect of the most vulnerable, those in receipt of the lowest rates of social welfare payment, including those in receipt of unemployment assistance and supplementary welfare, who receive an increase of €17 a week or 11%.  This is far in excess of the 2½, 3 or 4% budgetary increases that were for a long time the norm under previous regimes.  

Enabling all of our citizens to live life with dignity is a commitment which we have made in the National Anti-Poverty Strategy and in our agreements with the social partners.   We are taking practical and effective steps to recognise and support the invaluable role of carers.   We are also taking the opportunity to make more flexible some of the conditions which apply to the receipt of social welfare payments, so as to encourage people to maximise their independence and to contribute, if they wish, through undertaking some paid work to the common good.  It would not be right that they alone would be prevented from supplementing their income within reasonable limits. 

It is right that at a time of buoyant incomes and record employment levels we should create the opportunity for the less well off to share in the success of our society.   We are doing this in a way which reflects the mutual obligation on all of us to support the less well off, but also the obligation on every citizen to provide for their own needs and to contribute, to the greatest extent possible, to the common good, through their active participation in the workforce and in society.  This is a record €1,120m social welfare package.

The very substantial resources which we are committing through this Budget to the development of public services and the building up of our physical infrastructure make it essential that we use these resources to best effect.   Waste and inefficiency are no more acceptable in the context of the very large resources made available in this year’s Budget than when resources were much more constrained.   That is why the modernisation of the public service is of critical importance to the Government.   We need to maintain progress in the streamlining of our administrative and regulatory systems, and the updating of our work practices and use of technology.   In fairness, much has been achieved in these areas, as evidenced by the independent Performance Verification Groups for the different sectors of the public service.

However, we need to ensure that best practice standards are operated in our public departments and agencies.   In particular, we need the flexibility of staff at all levels, and their willingness to embrace change, including new technology, if the goals for a successful society and economy are to be achieved.

The Budget also demonstrates the continuing commitment of this Government to creating a modern, world-class physical infrastructure to serve our people for the 21st century.   The extent of that commitment is evident, both from the specific additional capital investment announced by the Minister in the Budget, but also from the detailed provisions set out in the Book of Estimates published last month.   In total, capital expenditure in the coming year will amount to over €9bn, equivalent in terms of the net Exchequer contribution to 5% of GNP.    This is double the European average.  

Transport 21 is a bold and ambitious programme to address not only the inherited transport deficit, but to anticipate the growth in population and commerce for the decades ahead.   What is important here is not just the scale of that financial commitment, dramatic though that is – but also the focused and effective manner in which it will be managed.   The enhanced project management system within the transport sector has been steadily delivering infrastructure projects within budget and ahead of time.   It is no secret that the very substantial ramping up of capital expenditure in transport did put strains on our administrative, planning and management systems.   What is clear is that these challenges have been met and we have developed both our capacities and our policies.    Managing large projects of this nature requires consistency and continuity, as well as a process and contracting changes to deliver value for money.  That is why the Government decided to introduce a 10-year capital envelope for transport investment, thus providing both the timeframe and the confidence to ensure value for money in the planning and execution of our ambitious transport plans.

Our productive capacity is also dependent on the quality of our people, their qualifications and skills.   That is why providing high quality educational facilities at all levels are of such a high priority to the Government.   The provision made for the development of new schools for a growing population, and the upgrading and refurbishment of literally hundreds of primary and post-primary schools, are evidence of that commitment.

It is also critical that we continue to develop our talent base of graduates and researchers.   That is why the Government has made a further commitment not only to the ongoing development of our third level sector, but also to its transformation, and to the development of a fourth level system meeting the highest international standards in important areas of research and development.

Developing our physical infrastructure extends beyond the economy’s productive capacity, to underpinning the quality of life of our people.   In particular, our capital investment in health care, both hospitals and community-based facilities, provides a clear expression of our commitment to the modernisation and greater effectiveness of the health services.  The challenge is not only to provide substantial additional resources, but to manage them in a way which reduces unnecessary strains on the system.

In addition to flexibility and modernisation, value for money in public services also requires that our wage bill remains reasonable.   Pay costs in the public service represent a high percentage of total expenditure, to a greater extent than in the enterprise sector of the economy.   We must ensure that wage costs are managed and that any pay increases are realistic, having regard to our low inflation environment and to trends in productivity compared to international norms.

As a small society, we have an innate capacity to move quickly and to anticipate change.   We also have the capacity to engage in dialogue with one another and to work together for the benefit of a real, national common interest.   The social partnership framework which we have operated since 1987 provides a tried and tested mechanism to realise that potential.  It has delivered in the past.   It can deliver again, not only for trade unions and their members, but also for employers and the enterprise sector, including farmers, through its contribution to the successful management of change, and for the wider community, through the stability and confidence which industrial harmony and a shared understanding can provide.   I strongly believe that early engagement between the social partners and the Government, and early agreement on a new social partnership framework, would be in the best interests of the entire community.   I believe that the measures announced in this Budget should significantly help to underpin progress towards such an agreement.

This Budget provides the means by which we can consolidate our strong growth and development, based on high employment and rising productivity into the future.   It provides a generous and sustainable response to the needs of those who are most at risk in our society.   It provides realistic and effective support for families and children facing the pressures of life in a modern and dynamic economy.   Above all, it provides evidence that this Government continues to honour its commitments, to manage our economic and social affairs with care and imagination, to balance securing long-term growth with more immediate improvements in the quality of life of our citizens.   I commend it to the House.