Eamon Gilmore (Dún Laoghaire, Labour) | Oireachtas source

This is a difficult and hard budget that will hit many people’s pockets. However, it also is a necessary, honest and fair budget. This budget is not an end in itself but is a step that, as a country, we must take on the road to recovery. This is the budget that takes us 85% of the way and it is a bridge to the future. For weeks, all one has heard from the Opposition is fairytale economics. As for Fianna Fáil, there is no such thing as BC or AD as history begins in March 2011. As for Sinn Féin, what it does in government in Northern Ireland has absolutely no bearing on what its Members say down here and for the Technical Group, arithmetic is an imperialist plot.

We would all love to go back in time and to start again from a different and more favourable place. We would all like to undo and roll back the damage that was done to the people by the greed of the few. While it would be wonderful if a small group of other people could pay for everything, the Irish people know that is not possible. What we can and must do is repair the damage, pursue the guilty and then wipe our feet on the mat and move on. This budget is a bridge to the future, because it is necessary to get us from where we are to where we need to be. The mission of the Government is simple, namely, to fix the economy in order that it works for the people and delivers for the needs of the many, not the greed of a few. Moreover, the Government's means of doing that is not by shouting at the problem but by taking the difficult yet necessary decisions that must be taken.

There are many in this House whose favourite word is "austerity" and the word is bandied around at every possibility. However, the Government is not engaged in a policy of austerity. It is engaged in a policy of solvency. Our country is in an EU-IMF programme because the last Government reached a point where no-one would lend money to Ireland. After 14 years of misgovernment and after the fatal mistake of the bank guarantee that Sinn Féin supported, the point was reached at which no-one would lend Ireland money at any price.

That is the key point as a country that cannot fund itself cannot function, and the economy of that country cannot function either. Once the creditworthiness of the State is undermined, there are profound implications for the rest of the economy, for firms large and small and for families young and old.

The first step on the route to recovery is to restore financial stability and rebuild the creditworthiness of the economy. This budget is part of that process. Such was the extent of the property bubble that this year, even after all the consolidation we have done, the Government will take in €12.6 billion less than it will spend. We will borrow €42 million per day to finance the State. That is simply not sustainable or just, as we are passing on debt to the next generation. This budget takes us another step closer to bridging that gap and bringing our deficit down to a sustainable level.

The Government has been clear that fiscal consolidation on its own will not solve our problems. We have a three-dimensional crisis and we need a three-dimensional solution involving restructuring the banks, dealing with the budget deficit and doing everything possible to promote employment. Our employment strategy is itself built on a number of pillars, each of which involves major programmes of change and reform. During the summer, we launched a major stimulus package, progress on which was reported in the statement by the Minister for Public Expenditure and Reform, Deputy Howlin, yesterday. Pathways to Work is nothing less than a transformation of the way in which we think about and deliver social welfare services. Yesterday, my colleague, the Minister for Social Protection, Deputy Joan Burton, was able to announce a further 10,000 activation places to assist people on the live register. The Minister for Jobs, Enterprise and Innovation, Deputy Bruton, is driving the implementation of a suite of supply side and competitiveness measures and working with other colleagues to develop a plus-one initiative to tackle long-term unemployment. The Minister for Finance, Deputy Noonan, yesterday announced a suite of measures to assist small business and the agrifood sector, including funding for enterprise from the strategic investment fund, to add to measures taken last year.

The domestic economy, which is still a major challenge, is beginning to stabilise. The budget measures announced last year assisted the normalisation of the property market that is taking place, and further measures on commercial and residential property are contained in this year’s budget. Allowing early withdrawal of additional voluntary contributions, AVCs, which has the potential to stimulate domestic activity, will be provided for in the new finance Act. The Minister for Communications, Energy and Natural Resources, Deputy Rabbitte, is bringing forward a major programme to promote construction activity in the retrofit area.

The biggest drain on the domestic economy is the uncertainty and fear that surrounds the problem of household debt. Before the end of the year, the Personal Insolvency Bill, a massive undertaking, will pass all Stages in the House, and the personal insolvency service will go live on 1 February. As families begin to sort out their debt issues and as others see there is light at the end of the tunnel, we will begin to see an impact on consumer confidence and investment.

In my own portfolio, the Minister for Finance, Deputy Noonan, announced the extension of the foreign earnings deduction for companies that are sending key personnel to develop new trade opportunities in developing countries and emerging markets. We are expanding support for exporters so that the foreign earnings deduction will now include Africa, a continent home to seven of the world’s ten fastest growing economies. In particular, we are targeting Algeria, the Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Senegal, and Tanzania.

Nobody in this Government is under any illusion about the scale of the challenge we face. The problem of unemployment and the tragedy of forced emigration are a significant loss of human and economic potential to our country. We all know that the export sector is performing well but the domestic economy is still a major issue. Nonetheless, where there are signs of progress, we should acknowledge them.

The notional cost of borrowing as expressed in the bond yield has fallen to new low levels. The National Treasury Management Agency is making a phased return to the market and yield on long-dated paper is today approximately 4.5%. Several major Irish banks and companies have been able to borrow money on international markets, our bank deleveraging programme is on target, and we are progressively reducing our reliance on European Central Bank funding. In the last quarterly national household survey, there were modest signs of recovery in private sector employment. Export performance remains strong. The economy is growing again and our balance of payments surplus for this year is expected to reach 3.4% of GDP in a sign that our economy can reduce debt and grow at the same time.

To sustain that progress, there is no alternative to getting our public finances under control. A deficit of 8.2% of GDP, while falling, is still extraordinarily high and we must reduce it; there is no good or painless way to do that. The measures contained in this budget will affect many people but we can say the budget is fair. We have protected weekly rates of social welfare because we believe that as a people we must look to the needs of those on the lowest incomes. To achieve this end, both Ministers, Deputies Howlin and Noonan, have found resources to reduce the quantum of measures needed in social protection from €540 million to €390 million. Although difficult measures are being taken, we have also found resources to take a number of positive steps, including 6,000 additional after-school child care places for low income parents and an additional €2 million for school meals.

We have also made an important commitment to an area-based child poverty strategy, which will build on a number of highly successful pilot projects that were jointly resourced by the State and Atlantic Philanthropies. I pay tribute to Atlantic Philanthropies for the vision it has shown and the results that have been achieved in developing these schemes. I am hopeful that our partnership will continue, and I congratulate Deputy John Lyons in particular on the work he has done in promoting this cause.

Despite the immensely difficult financial circumstances, we have managed to find resources to continue providing new social housing units and to maintain the effort in urban regeneration. This fairness agenda was only possible because we found additional resources from a tax package which is manifestly fair and which asks most of those who have most. The tax measures in this budget are reforming and progressive. The budget measures contain a wealth tax package that amounts to over €500 million in full-year terms. Several of these measures will take time to introduce precisely because they are fundamental changes to the structure of the tax system.

The wealth tax package includes the reduction in the standard fund threshold so that the State will no longer subsidise pensions of more than €60,000 per annum. There is a progressive structure in the property tax so that houses valued at more than €1 million will pay a higher rate of 0.25%. Changes to PRSI will mean that unearned incomes will also be liable to social insurance contributions and there will be a higher rate of universal social charge on pensions over €60,000 and a €200,000 cap on top-slicing relief. There will be increases in the rates of capital taxes, which bring all rates to 33%, and a 10% reduction in the thresholds for capital acquisitions tax. These rates now mean there is a far greater parity between taxes on capital and taxes on labour, ending a distortion introduced by Fianna Fáil. The vast bulk of these taxes will be borne by those who are better able to bear them. This is a real wealth tax package, in contrast to the make-believe fairy tale figures that every Sinn Féin Deputy is ordered to parrot.

The reform of pensions policy comes after years of debate and analysis that highlighted the inequity of what was once some €3 billion in tax reliefs. By capping relief rather than standard rating, we are maintaining an incentive for people on middle incomes to contribute to their pensions while removing the biggest tax shelter in the Irish tax code. The scale of this reform is such that it will bring some €250 million into the Exchequer and affect some 30,000 higher earners.

The introduction of a property tax will impact significantly on households across the country. I do not expect people to be happy about paying a property tax but it must be recognised that this is a major reform that will provide a stream of revenue to local authorities without taxing work and will enhance the quality of local democracy.

Those who oppose the property tax will have to explain to their electorates how they intend to provide services on the very same streets they are canvassing. When combined with the changes to local government announced by the Minister for the Environment, Community and Local Government, Deputy Phil Hogan, we are driving the most fundamental modernisation and reform of local government since 1898.

This budget is not only about deficit reduction but also about reform. It is not only about building a financial bridge to a more stable future but also about shaping that same future. While this financial crisis imposes real constraints on what the Government can do, it is also the case that we are not wasting the crisis. This budget has prioritised education by reducing to a minimum the expenditure reduction measures in the Department of Education and Skills. There is an increase in capital spending to provide schools to serve demographic needs. We are driving ahead with fundamental reforms of what happens in the classroom, including junior certificate reform, the national literacy and numeracy strategy and a sensitive reappraisal of the position on patronage.

In social protection, we are developing a system that is far better suited to the needs of a modern open economy, in line with principles similar to the "flexicurity" approach driven by social democrats in Scandinavia. While social protection needs to provide income support for those who lose jobs or suffer illness, we are moving to a system whereby one's first day on the live register is also one's first day on the route back to education, training and a job.

In health, we are driving ahead with our primary care strategy and have published a roadmap setting out the steps towards universal health insurance. Despite all the financial problems and the planning issue thrown up by the mistakes of the previous Government, we will begin construction of a national children’s hospital.

Notwithstanding the many financial constraints we face, the Minister for Justice and Equality, Deputy Alan Shatter, has been one of the most reforming justice Ministers of the modern era and has made real strides on penal reform with limited resources. In addition, the Minister for Children and Youth Affairs, Deputy Frances Fitzgerald, is working to end the practice of committing 17 year olds to St. Patrick’s Institution.

After a series of hard budgets, we now have an income tax code which is among the most progressive in the developed world. This budget makes the system even fairer. The challenge we face, however, is to ensure that when people pay their taxes, the State makes the best possible use of their money. The work the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, is doing in driving reform in the public service is driven by that principle. I am committed to ensuring we have the best quality, service driven public services. To achieve this objective we need to make the best possible use of public funds. Such is our commitment to better schools, hospitals and local services that we are determined to take back control of our financial destiny.

We are also bringing transparency and reform to the system of political funding. I note that no single measure caused as much outrage among members of the Technical Group yesterday as the suggestion that they be required to audit their leader’s allowance in the same way as political parties.

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