Paschal Donohoe (Dublin Central, Fine Gael)
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I thank the Chairperson and members of the committee for the opportunity to come before them as part of the ex-ante scrutiny of budget 2018 and I look forward to a good exchange.

During the summer, two main elements of the pre-budgetary process took place with the national economic dialogue being held in June and the publication of the summer economic statement shortly afterwards. The national economic dialogue allowed for a positive, open and inclusive exchange to take place between a wide range of stakeholders on the differing economic perspectives in advance of the budget. In line with last year’s arrangements, the Department of Public Expenditure and Reform also published its mid-year expenditure report in July and the Department of Finance circulated the tax strategy papers. These elements all form an important part of the pre-budget cycle, which has led to a more open, transparent and collaborative approach to the annual budgetary process.

Last year, my predecessor published the Finance Bill shortly after budget day. It is my intention to publish this year's Bill as soon as possible after budget day and not later than two weeks after I deliver the Budget Statement.

The economy continues to perform strongly, as evidenced by developments in the labour market and as highlighted in the summer economic statement. Our GDP growth last year was 5.2%, the highest rate in the European Union, with the European Commission forecasting that the economy will be among the fastest-growing in the EU over this year and next. Unemployment has fallen from a peak of over 15% to 6.1% in August, and is on track to fall below 6% by the end of this year. Employment has also increased by over 230,000 from its lowest point – which translates into a 13% increase. Domestic demand is likewise growing strongly, with private consumption up 10% during the past three years. It now exceeds its pre-crisis peak.

Turning to the public finances, tax revenues at the end of August were just 0.7% or €209 million below profile. This equates to a solid year-on-year increase of 4.9 % and we are still targeting an annual tax take of €50.6 billion for 2017.

Ireland’s debt levels are still high and we are committed to continuing to reduce this debt burden further as part of our budgetary strategy. As such, we must be cognisant of the risks to the economic cycle, in particular from the external environment and to plan accordingly. In that context, the Government is maintaining its commitment to establishing a rainy day fund into which it will put €500 million per annum. I will be circulating a consultation paper to the Oireachtas shortly to seek views on a range of matters. These include the nature or purpose of the fund, how to provide for the fund, accessing the fund, the maximum size of the fund and so on.

In terms of the budgetary position, I have stated on previous occasions that our objective for next year is to achieve a balanced budget. This will mean ensuring that Ireland reaches its medium-term budgetary objective in 2017 by achieving a structural deficit of 0.5% of national income. As set out in the summer economic statement, the fiscal space available for budget 2018 will be of the order of €1.2 billion. This will enable us to reach our medium-term objective and achieve a balanced budget next year. As members are aware, only €350 million of this remains to be allocated in respect of specific measures, with the rest already spoken for, due to demographics, carryovers from budget 2017, the Action Plan for Housing and Homelessness and the Lansdowne Road agreement.

The mid-year expenditure report outlines an increase of €2 billion in gross voted expenditure for 2018. This increase of 3.5% continues the approach of implementing moderate sustainable increases in public expenditure to facilitate targeted improvements in key public services and infrastructure. This approach has seen increases for key priority areas. In 2017, the allocation for the housing programme in the Department of Housing, Planning and Local Government was increased by over €400 million or 50%. The health allocation increased by almost €500 million or 3.5 %. The allocation for the Department of Children and Youth Affairs increased by over 15 % this year.

One key issue which must be addressed each year is demographic pressures. These include: additional numbers qualifying for the State pension; and the hiring of additional teachers to address the incremental increase in pupil enrolments. This can often be characterised as the cost of merely standing still. Given the need to meet these costs, and also to enhance public services to meet new priorities, there is a clear need for focus on value for money and policy effectiveness. This is the context in which the spending review was carried out.

Unlike previous reviews, which focused on reducing spending, the aim of this review was to systematically examine existing programmes to assess their effectiveness in meeting policy objectives. The spending review operates as a complementary process to the Estimates process. It was undertaken over the first half of the year in order to enable the outputs relating to each area to feed into the consideration of expenditure proposals for the Estimates for 2018.

Investment in public infrastructure is essential to increasing the long-term capacity of the economy. The significant progress in our public finances has enabled the Government to increase capital expenditure by a further €4 billion over the remaining period of the capital plan to 2021. This is in addition to the money - €2.2 billion - already committed to support the delivery of the Action Plan for Housing and Homelessness. On budget day, I intend to announce the allocation of this additional funding. This reflects a significant planned increase in public capital investment, with expenditure in Ireland more than doubling between 2014 and 2021. As confirmed by the Irish Fiscal Advisory Council in its pre-budget submission, this will result in public investment in Ireland moving to among the highest in the EU. I do not want to repeat previous mistakes, such as when capital expenditure was ramped up too quickly and resulted in inflation and poor value for money. This is why the Government has set out a planned and sustainable increase in expenditure that is based on evidence and analysis.

The mid-term review of the capital plan, which was published on 14 September, provides the evidence base. The review includes: submissions by Departments and offices; a public consultation; and capacity-and-demand analysis of our infrastructure completed by the Irish Government Economic and Evaluation Service, IGEES. This analysis will be used to inform the allocations at budget time and, subsequently, for the new ten-year investment plan in light of the infrastructural deficits identified in the review. A key priority in the context of the ten-year plan will be to ensure the coherence of a long-term and strategic approach that fits in with the spatial configuration in the national planning framework. It will be announced before the end of the year.