Speech by the Taoiseach, Mr. Bertie Ahern, T.D., on the 2007 Budget in Dáil Eireann, on Thursday, 7 December, 2006, at 11.00am approx
This Budget is designed to sustain the strength of the Irish economy over the next few years, as well as making a further substantial contribution to a fairer and more socially friendly Ireland.
We are living in the midst of an astonishing period of national development. We are at last bringing about the realisation of the immense potential in the land and people of Ireland that generations of patriots hoped for and dreamed of, but which sadly they never lived to see.
This is a Budget of commitments – meeting them and making them. It is a Budget for workers, enterprise, pensioners and family.
Over the past 20 years, employment will have virtually doubled to well over 2 million people. Involuntary emigration is a thing of the past, while instead fellow-EU citizens and some people of other nationalities have come to make their indispensable contribution to our economic life. We continue to have consistently the highest growth rate in the Eurozone. Inflation has been held to low single figures, in line with the rest of Europe, despite much higher growth rates, and well controlled with the help of the social partners. From being one of the least healthy countries financially, our national debt relative to national income, after taking account of the national pension fund reserve, will be brought down to under 15% of GDP next year.
The Budget is an entirely responsible one, designed not to overheat the economy and to give us a substantial safety margin, if the existing environment should disimprove. External conditions permitting, uninterrupted momentum can be maintained through next year and beyond, provided our broad strategy is adhered to.
Yesterday’s Budget from Minister Brian Cowen marks not just another milestone towards substantial reform and development, but it is, in key respects, the culmination of the coherent strategy of a series of Budgets over recent years.
Inevitably, public attention has concentrated on some of the specific measures announced in the Budget. While these are important and worthy of comment, I want to focus this morning on the bigger picture; on the results which our overall budgetary strategy is producing and on the foundation which has been laid for further sustained progress in the years ahead.
I want to emphasise the extent to which I have always seen my Government’s strategy as being at the service of our people. At the service of those who are working hard to raise their families and create the best possible future for their children. Of our entrepreneurs, who are building world-class businesses in the face of stiff world competition. Of our older people, who have seen far too many days of long struggle and hardship in the past and who now deserve comfort in their retirement. Of our vulnerable and disadvantaged citizens, who badly need our support, if they are to live with dignity.
There is no Government presumption in this. We know that the consistently good revenue performance of recent times is due to the new investment made in world-class projects, in small and developing businesses, in professional and business services, in tourism ventures and in farm and agri-business across the country. It is due also to the hard work, flexibility and skill of the now more than 2 million people at work in this State. But we also know that their efforts, and those investment decisions, need the right policy framework. The responsibility lies with Government to create that environment, through our economic policies, our budgetary arrangements, our approach to flexible and smart regulation and through our willingness to listen and respond. It is for Government to provide confidence in the future and in our capacity as a country to manage the relentless change sweeping the global economy.
Far from believing that we know everything, this Government has been at pains to listen and to take on board what we hear. We listen to those struggling to compete in world markets. We listen to international investors who have options to locate major projects almost anywhere in the world. We listen to our universities and international research experts about how to create a new platform for knowledge-based activity. We listen to technical experts and project managers about how to get better value in our massive commitment to infrastructural improvement.
We listen in particular to the social partners. Earlier this year, we concluded a ground-breaking 10-year framework agreement with the social partners. We have continued and deepened the partnership process as the most effective way of marshalling all of our resources, for the benefit of all our people. This Government knows what is required to sustain and develop this approach, which is the envy of governments and societies around the world, large and small, because they understand the critical part it has played in the Irish success story.
If there is arrogance in the Irish political system, it rests with those who think that democratic Government has to be some sort of merry-go-round, where parties have an automatic entitlement to take their turn at the levers of Government at regular intervals. Democracy does not involve any such entitlement that is not earned. I believe that the people deserve the best in terms of reliable and experienced leadership, capacity and hard work. In this Budget, the Government have shown again why we merit the people’s continuing confidence in our commitment and in our capacity to serve them.
In framing his Budget, the Minister has been aiming for an outturn which would sustain the strong performance of the economy, continue on the path of fiscal sustainability and increase the impact of positive redistribution on those in need. The remarkably strong revenue performance in the current year has led some Members opposite to make extraordinary claims.
On the one hand, they have argued that our strong performance showed that taxes should be lower, that the Government did not need the money because public spending was high enough and could be funded through lower taxes. On the other hand, they argue that there should be higher public spending, because the resources are now available for an unlimited spending spree, except, of course, that it would be irresponsible of the Minister to embark on such a pre-election splurge. These contradictory statements are sometimes expressed back-to-back by the same Opposition politicians. Some, who definitely know better, choose to ignore altogether the economic effects of fiscal policy on inflation and competitiveness, as if the only issue that mattered was balancing the books by spending up to the limit.
Happily, we have a Minister for Finance, and a Government, that have a fine record of delivering what the economy requires, both in the present and for the future.
A targeted general Government surplus of 1.2%, a forecast debt ratio of 23%, an increase in gross current spending of 11.5%, and an increase of 13% in gross capital spending are budgetary parameters which are the envy of Europe, and indeed further afield. They represent a fiscal path which will underpin the future strong performance of the economy and sustain progressive real improvements in incomes and living standards, which the Government is committed to achieve in our agreement with the social partners, Towards 2016.
The Budget continues the strategy of investing around 5% of our GNP in developing and modernising our infrastructure. Since 1997, and by the end of this year, 400 kilometres of motorway and dual carriageway will have been completed and opened. Our public transport system is being transformed, through investment in buses, rail and Luas. We are doing in half a generation what other societies implemented over decades. The National Development Plan, which the Government will publish in January, will chart the way to fulfil our ambition to have a world-class infrastructure appropriate to our needs and developed in a timely and cost-effective way.
This Budget is not just about building for the future through responsible fiscal policies and ambitious investment programmes, important as they are. On the contrary, it is equally about dealing with our current needs. I want to stress four key features of the Budget in that regard:
- first, it completes a transition to a more equitable tax and welfare system;
- secondly, it maintains and deepens our strategy to reward work and enterprise;
- thirdly, it provides real support for families with particular needs at critical stages of the lifecycle; and
- fourthly, it provides incentives to deepen our competitiveness on a sustainable basis.
I take particular satisfaction that the Government, in this Budget, is achieving, and indeed exceeding in many cases, the targets which we set to attain, a better standard of adequacy in the social welfare payments for the most vulnerable people in our society. The full year cost of the measures announced yesterday is a record €1.4bn, and is, in itself, a demonstration of our commitment to the less well-off in our society. The Government had committed to increase the old-age pension to at least €200 per week and, in this Budget, we have more than delivered on that commitment. Indeed, by increasing the non-contributory pension by €18 per week, we are doing this, not just for recipients of contributory old-age pensions – who will in fact now receive €209 per week – but also for non-contributory pensioners.
We also committed to increasing significantly the lower rates of social welfare, and we agreed with the social partners a target to be achieved by 2007. In this Budget, we are completing the transition to this substantially better income support for the most vulnerable in our society by increasing these rates by an unprecedented €20 per week. This means that these lowest rates have increased by over €50 a week in the last three Budgets.
A particularly important measure in promoting social and gender equity is the decision announced yesterday to achieve, over three Budgets, the transformation of the current qualified adult allowance for the dependants of non-contributory old age pensioners into a full pension of equal value and paid in their own right. This new entitlement recognises particularly the role of those women who, because of social conditions in the past, did not have the opportunity to qualify for a social welfare pension in their own right, but who made a major contribution in their families and communities. This is proper recognition of the role and entitlements of a most deserving group in our society.
The balanced nature of this Budget package is also reflected in the tax provisions. Through the increases in personal tax credits of €130 for single people and twice that for married couples, and the increase of €270 in the Employee Tax Credit, we are continuing to ensure that those earning at the increased minimum wage level remain completely outside the tax net. That means that nearly 40% of earners are protected from having to pay any tax, compared to 25% of earners back in 1997. This significant achievement, despite the further increases in the rate of the National Minimum Wage which was introduced by this Government, will cost €657 million in a full year. In addition, the entry point for payment of employee’s PRSI is being increased, as is the threshold for payment of the health levy. These are evidence of our commitment to maintaining a very low tax environment for those on low earnings. It has long been acknowledged by the European Commission that we have the most favourable tax conditions for the low paid, which are incentives to take up work.
By increasing the standard rate income tax band by €2,000 per year for single workers and pro rata for married earners, the Government are ensuring that those earning the average industrial wage in 2007, estimated at just over €33,000, will not be liable to pay any tax at the higher rate. Accordingly, 80% of income earners will continue to pay an effective tax rate of no more than 20%, in line with our commitments in social partnership and our Programme for Government.
In reducing the higher rate of tax by 1%, but increasing the health levy by one-half of 1% for those earning in excess of €100,000 per annum, the Government is both honouring its commitments in the context of strong economic performance and recognising the importance that those who can do so, make an appropriate contribution to the cost of caring for our older citizens and others in need of our support. It contributes to the balanced and well-judged character of the Budget in achieving equitable and sustainable outcomes.
Turning to our strategy to reward work and enterprise, I would highlight again the critical importance of maintaining tax and welfare systems which reward effort and enterprise. This is particularly important when we have made such progress in achieving our goals of improved adequacy of income support for those not currently in employment. Such incentives must be substantially overhauled, if higher income supports are not to turn into a poverty trap.
The substantial resources applied to exempting those on the minimum wage from the tax net, and ensuring that those on average earnings do not face the higher rate of tax are very effective in achieving precisely this result. The strong employment performance reflected in last week’s Household Survey figures, showing employment growing here at twice the rate in the rest of Europe and especially strongly for women, provide clear evidence of the continuing success of the Government’s strategy in that regard.
There is one aspect of the social welfare package which I would particularly wish to mention in this context. It is the decision to abolish the waiting time for the Back-to-Education Allowance in the case of workers made redundant and who qualify for statutory redundancy and social welfare payments. This may not impact on very many individuals, but, for those who do face the very difficult experience of being made redundant, we are in this measure providing a direct support for the acquisition of new skills and knowledge. It is entirely right that we should support individuals who make the effort to improve their own employability in the face of difficult employment experiences. By increasing the incentives for investment in seed capital and venture capital targeted at small business, the Government is also increasing the availability of finance to those who take the initiative to establish their own businesses. The dynamism of the small business sector, but especially the willingness of people to establish new ventures, is a critical test of the strength of any economy. We are fortunate in having many who are willing to invest their time, talent and energy and, above all, to take risks in putting their ideas into practice in the market.
With regard to support for families at critical stages of the lifecycle, the Budget shows real flair and commitment. This Budget is good for all families. For those with child-rearing responsibilities, the further increase in child benefit of €10 per month, the significant increase in Child Dependant Allowance for families in receipt of social welfare payments, and the doubling of the Back to School Allowance represent important practical support for the costs of child-rearing.
The increase in the rate of Maternity Benefit, in the reckonable earnings threshold for payment of that benefit, and the increase in the duration of both paid and unpaid maternity leave by four weeks each, represent significant improvements for women at a particularly challenging time in the balancing of work and family commitments, and important social progress for society as a whole.
I am particularly proud of the improvements which are being made in the supports available to those with caring responsibilities within families. In addition to increases in the level of payment of the Carers’ Allowance and the increase in the Respite Care Grant, the Minister is introducing an entitlement for recipients of other social welfare payments to be paid a half-rate Carers’ Allowance in appropriate caring circumstances. This is a major innovation which will redress what many had come to see as a serious anomaly. It will recognise and support the invaluable work done by many people around the country who have assumed great burdens in enabling older people and people with severe disabilities to remain in their own home and community, and it will be rightly welcomed for that reason.
Another critically important issue facing many families around the country is the need to care for those with disabilities. Last month, the Minister for Finance provided an increase of 10% in planned spending on disability-related services in 2007. This has been increased in the Budget by a further €100 million in support of residential, respite and day places, as well as the centrepiece of our new National Disability Strategy, the independent assessment of need and the provision of service statements, commencing with children under five from 1st June next. It also enables substantial progress to be made in implementing our commitment to improved mental health services, set out in A Vision for Change.
For those families with caring responsibilities in respect of older persons, there is the important provision of €255 million in full year terms to enable a total of over 5,000 comprehensive home care packages to be offered to older people and their carers, to enable them to stay in their own homes. There will be increased provision of residential care places and improvements in the Nursing Home Subvention Scheme, which the Minister for Health and Children will announce next week. We will provide assurance to older people and their families in this country about the availability of care, the standard of care and the cost of care. With a further €40 million provided in the Budget for improved health and personal social services, total spending on health will reach almost €15 billion next year and provide real supports for families and individuals across the whole spectrum of need for health and social care. In that context, the increase in charges for private beds in public teaching hospitals and the small increase in excise duty on cigarettes are entirely reasonable provisions.
Finally, in regard to the needs of families at different stages of the lifecycle, I want to refer to the very important support now being given to first-time buyers. The doubling of mortgage interest relief provides real and valuable support for those who are currently facing the financial pressure of mortgages taken out on first homes over the past seven years, as well as those who are about to take on that responsibility. The Government is entirely right to provide support for all those who are facing this financial pressure, and not just those signing a contract after the date of the Budget. Furthermore, by providing support in this way, the Minister is seeking to ensure that it benefits the purchaser and is not taken by the seller in the form of higher house prices. Taken together with the very substantial provision in the Book of Estimates for social housing, and the continuing strategy to increase the volume and accessibility of affordable housing, this Government is showing its determination to continue the extraordinary record of achievement in housing output and increasing the capacity of our young people to buy their own homes.
Our capacity to continue to improve the quality and range of our public services depends on the strength and performance of the economy. The Budget recognises that a supportive environment is critical, if we are to meet that challenge.
Through the significantly improved régime to support investment in research and development through the tax system, through support for investment in energy efficiency on the part of business, and through the very significant improvements in administrative arrangements and in increased VAT thresholds for small business, in particular, the Minister has acted to address real issues which are of concern to Irish firms of all sizes, in all sectors, such as the reduction in the regulatory burden. The improved conditions applying to the BES scheme will be particularly welcome.
In addition, through the Budget’s support on a joined-up basis for the development of renewable energy systems, it is providing support not only for more secure and cost-effective energy supplies, but for greater environmental sustainability at this time of heightened awareness of the importance of addressing the problems of climate change. Keeping Ireland green is an ambition common to all of us, but needs to be done in a way that enhances living standards and the quality of life.
In addition to these improvements in the tax environment for all businesses, I want to mention briefly a couple of specific initiatives, which, I know, will be widely welcome in the sectors concerned.
First, the decision to allow deductibility of accommodation services for conferences is a major boost for this important and growing segment of the tourism market. It will give a major boost to a segment of activity with great potential to support employment and income in the tourism sector. The dynamism of the tourism sector, which has seen visitor numbers comfortably exceed the 7 million target this year, gives the lie to the prophets of doom. We are not losing competitiveness and market share. The economy is firing on all cylinders, not just the construction industry. Tourism definitely provides value for money for Government expenditure on market promotion.
Secondly, the package of measures to support development in farming will be rightly seen as important for those facing the challenge of adaptation to the new environment for agriculture. The continuation of stock relief, the improvement in the conditions applying to long-term leases of farm land, and new arrangements for purchase of formerly leased land will help the necessary restructuring in farming, while the increase in the farmers’ flat rate refund of VAT to 5.2% will benefit all farmers. These measures complement the very substantial provisions agreed with the farm bodies in the context of Towards 2016, which provide a firm basis for rural and farming development in the period ahead, while the additional support for the establishment of bio-fuel crops is a welcome boost to a necessary diversification at farm level. Today, much of the spending that supports farm income comes as much from Government as the EU.
The various measures which I have briefly summarised represent, as I said at the beginning, the transition to a more equitable and sustainable tax and welfare régime. Having achieved our targets, we are now in a position to approach the future from a position of strength. We now can judge the appropriate allocation of future resources to an appropriate mix of reductions in tax burdens where surplus to requirements, and sustainable improvements in public services. That set of choices will, as far as I am concerned, continue to be informed by responsible fiscal policy. It will be underpinned by the competitive success which generates the resources for allocation in future Budgets. The measures announced yesterday provide clear assurance that that competitive success can continue, as investors at home and abroad respond to the supportive conditions created by the policies of this Government.
I am proud that this Government has committed well over €5 billion to increased social welfare expenditure since 2002. In that period, real social welfare rates to those on the lowest levels of benefit have increased by about 25%. Pensions to those in receipt of contributory old-age pensions have increased by €62 and non-contributory pensions by €66, with €103 and €110 respectively in the case of pensioner couples. Having met our benchmarks, we can now commit to maintain at least these real improvements in the years ahead, while having the resources to address other priorities in the social welfare area at the same time.
We will commit year by year resources to the improved infrastructure and support services which our economy and society require, in line with the priorities of the National Development Plan to be published in January.
In all of this, we are focused clearly and effectively on the goals for the long-term future of Irish society which we set out, with the social partners, in Towards 2016. I am confident that the continued pursuit of the strategy set out in this year’s Budget and the qualities of leadership and effective management which this Government has displayed can ensure that we together will build a society, of every aspect of which we can be proud, a fairer, stronger Ireland. By the time we reach the historically resonant date of 2016, the vision and aspirations of the founders of this State are well capable of realisation. I commend the Budget to the House.
ENDS