Brian Cowen (Laois-Offaly, Fianna Fail)

I am honoured to be in the House again to present the 2006 budget. This budget reflects the priorities of the Government, and I believe it reflects the needs and hopes of the Irish people also.

Introduction

We are living in the midst of the longest and strongest era of sustained prosperity in our history. This did not happen by chance. It involved careful planning. It involved investment in infrastructure development where we had considerable ground to make up. It involved a commitment to educate our children so they could be a match for their peers across every discipline. It involved careful fiscal management and the creation of an economic environment that attracts investment. Furthermore, it represents the hard work of the Irish people themselves.

As a nation, we now enjoy a much enhanced quality of life. We are a more prosperous country. More of our citizens are in work than at any time in our history. More enjoy a decent quality of life than ever before. We are welcoming more and more new people to our shores — citizens of the new Europe — and we are providing for them also.

It is a new Ireland — prosperous but not without challenges. This budget is largely about two key objectives: the facilitation of sustained economic growth and improved equality and opportunity for all in society. We have made our choices in the light of a simple, but powerful principle: we cannot take prosperity for granted. We will not put at risk the prosperity the Irish people have achieved.

In last year's budget, I made one simple statement that is often taken for granted and perhaps fails to get the right resonance as a result. Let me restate it now. Economic prosperity is a means to an end and not an end in itself. We must strive for economic success but we must also insist on prudent fiscal management to achieve the establishment of a better society for all.

Supporting our economic success

We are right to focus on our economic success. It is correct, not to congratulate ourselves but because the better we understand it, the more we are likely to know how we can sustain it. The deeper our economic success and the longer it is sustained, the greater the challenge to keep the forward momentum. While we work to maintain it, we must carry out reforms that will introduce greater opportunity for even more people to become involved in our economy and to benefit from its success. This budget brings the Government closer to fulfilling the public promises we offered when the people gave us their mandate. We had first to build safeguards and act to sustain the economic growth and stability long into the future, and we had to work to find ways of sharing more evenly the benefits of our economic success.

My aims for this budget are straightforward. I want to improve equality and opportunity for all in our society. I want to help those on lower incomes and to support families at all levels. I want to develop our infrastructure so our firms and industries can compete better while helping to secure our environment and our heritage. I am also determined to pursue value for money for consumers and taxpayers. This budget is rooted in the belief that Irish people can continue to achieve extraordinary things provided the Government creates the right environment for them to do so. It is rooted in the need to make that environment more inclusive so that fewer of our people feel excluded.

Education

Education is critical to this ambition. It is accepted that the quality of our educated young people has been at the heart of the economic success of the past 15 years. The world has not stood still in the meantime. We face new challenges in the education sphere. This is about access and about the strength of an offer to the young people coming through the system. I will be announcing a major new initiative in this budget to address that challenge.

Infrastructure

Infrastructure continues to be a priority and while we have made considerable advances in recent years, there is still much to be done. The Transport 21 initiative is a major plank of our budgetary policy and correctly so.

Supporting the family

We are committed to supporting the family as the cornerstone of our society. The place of the child, mother and father within the family unit needs protection and support. The balance to be achieved between the need to work outside the home and the costs associated with the care of the youngest of our citizens needs attention by Government. Budget measures alone cannot achieve this balance but I have taken steps to deal with the issue.

Reaching full equality

We are committed to achieving fuller equality and opening the doors of opportunity for every citizen in Ireland. We want as many of them as possible to be within the workforce. That relates to respecting the minimum wage and to taxation. For those on social welfare, it relates to increased payments which can improve their quality of life. We are deeply committed to ensuring value for the hard earned money that millions of our citizens pay in taxes. Taxpayers have a right to a Government that spends their money for the right reasons and in the right way, which is wisely and efficiently. The choices we have made at every point in this budget and the protocols we have put in place reflect the deep responsibility that my colleagues and I feel when it comes to getting value for every euro that is spent.

Budget measures

I plan to achieve my aims in this budget by means of a series of measures, which involve investing much more in our future through enhanced capital spending, helping to care for older people through a package of measures, increasing social welfare rates well ahead of inflation, developing a five-year child care package to support families with young children, keeping those on the minimum wage out of the tax net, keeping those on the average industrial wage out of the higher tax rate, reforming tax reliefs so tax payments more fairly reflect one's ability to pay, freezing indirect taxes and reducing some others, introducing special reliefs designed to improve our environment, and relieving the tax and administrative burden on business, particularly on small business.

Budget and economic outlook

We have the resources to do these things because our economy is healthy. We have to ensure it remains healthy by pursuing the right policies. That will be a challenge in light of major external factors such as oil prices, higher interest rates and shifting exchange rates and trade patterns. We will be best placed to meet the challenge if we work to secure the competitiveness of the economy. We have additional resources available to us now because we have followed the correct tax path of lower rates yielding more revenue. It is the tax take that counts, not the tax rate, as this year's record capital gains tax yield shows.

Economic growth this year is projected by the Department of Finance at 4.6% in GDP terms, that is the value of all goods and services produced in the State. Growth of 4.8% is predicted in GNP terms, that is the income we earn from producing goods and services. The success story of 2005 has been the very strong growth in employment, which has resulted from to the correct policies which have been followed by the Government. The latest labour force data show that employment grew by 96,200, or 5%, in the past 12 months. Almost 71,000 of that increase represents additional full-time jobs. The number of people on the live register — 150,000 — is 14,500 lower than two years ago. Ireland's employment record, which is far ahead of the rest of the EU, is a testimony to the enterprise and effort of our workforce.

The Department of Finance is forecasting that next year the economy will grow by between 4.5% and 5%, unemployment will remain very low at approximately 4.3%, employment will grow by a further 60,000 and inflation will average 2.7%. This is a continued strong performance, especially in respect of employment. In money terms, it means a GDP of over €172 billion in 2006 and a GNP of just under €145 billion. If we are to maintain our levels of employment, it is particularly important that we play our part in securing the competitiveness of the economy.

As regards the Government's finances, we have set a target for a general government deficit next year of 0.6%, as measured by the EU, together with a debt ratio of 28% of GDP. This debt ratio is one of the lowest in the EU. Next year, total gross voted public spending will rise by over €5 billion, or just over 11%, to €50.6 billion, of which €43.8 billion is current day-to-day spending. Day-to-day spending next year will be 9.9% above the projected outturn for 2005, excluding the exceptional provision of €400 million to meet the cost of repaying nursing home charges. Spending on capital to provide roads, public transport, housing, hospitals and other major projects will come close to 5% of GNP, which is the highest rate of public investment in the EU.

Overall gross voted current public spending

Of the €43.8 billion in gross voted current spending, more than one in every four euro, or €12.2 billion, is spent on health. Expenditure on health amounts to €3,000 for every citizen in the State, or over €9,000 for every taxpayer. The other major current spending Departments are the Departments of Education and Science and Social and Family Affairs. Education expenditure accounts for one in every six euro spent. Expenditure on social and family affairs accounts for one in every three euro spent. Taken together, the Departments of Health and Children, Education and Science and Social and Family Affairs account for three in every four euro required to fund total day-to-day voted spending next year. It is a question not only of the quantity of spending, but also of the quality of expenditure. We need to consider whether expenditure meets current needs and provides for the future. We should determine whether we are getting full value for it and whether we could achieve the same for less. Such issues are rightly to the fore in the debate on public spending. The processes we use to secure value for money at all levels are vital elements in addressing these issues. I am determined to pursue the issue of the quality of public spending. I recently put in place a series of specific measures to that end, on which I intend to build. In particular, I plan to roll out new forms of construction contracts next year, aimed at providing greater cost certainty, better value in spending and more cost-effective delivery of capital works projects.

Building the nation's capital stock

In seeking value for money, we must build this country's capital stock to make the economy more competitive and to help it to develop and expand. This is vital if we want to lay the platform for future growth and jobs and good quality employment. I am providing €43.5 billion for capital investment over the 2006-10 period, of which €38 billion is Exchequer-funded and €5.5 billion is PPP-funded. This money will support strategic improvements in our education sector to deepen and widen our store of human capital, major improvements in health facilities, a very significant programme of social and affordable housing and important new initiatives in the arts, culture and leisure areas, reflecting our development as a mature economy and society.

Third level investment

I mentioned earlier that any budget represents a moment in time on where we stand economically and where our priorities should lie in light of the prevailing fiscal conditions. I referred to the particular focus I want to give to education. Many of those in Ireland and, particularly, externally who have commented on this country's economic success tend to attribute a disproportionate amount of the cause to our taxation policy, which is important and will be maintained. It is clear that such policies have been beneficial in attracting inward investment, but I believe the single biggest contributor to our economic success has been the exceptional wealth of intellectual capital available to native and overseas investors. Ireland has become synonymous with the quality of its graduates.

The investment in and reform of primary and post-primary education during the 1960s and 1970s, with the support of the third level sector, has been pivotal to what has been achieved in Ireland over the past 15 years. That job is continuing and we will continue to deal with the real needs at primary and post-primary levels. The basis for future growth in prosperity and jobs is investment in the knowledge, skills and innovation capacity that will drive economic and social development in an increasingly competitive global environment. The higher education system must deliver people who will expand knowledge-based business in Ireland. That will require substantial change and quality improvement in universities and centres of higher learning and the promotion of system-wide collaboration that can draw on the collective strengths of the institutions.

A major initiative in this budget is a commitment to the establishment of a new PhD level — a fourth level — of education. Earlier this year, the Minister for Education and Science, Deputy Hanafin, signalled the Government's intention to create a multi-annual strategic innovation fund for higher education. To achieve what we have to achieve will require a commitment to substantial change in our third level institutions. We must remove unnecessary duplication. There must be an appetite within the sector for greater collaboration. As Ireland is a small country, it is not sensible for its third level institutions to be pitched against each other across all key disciplines. We need to promote a system-wide form of collaboration that draws on the collective strengths of all our third level institutions.

I am confident that such a commitment will be forthcoming as it must be if we are to deliver the required complement of people with PhD level qualifications, in what I would like to call "fourth level Ireland". If we are to compete in a globalised world and to retain the strength of what we offer, we have to invest in the knowledge, skills and innovation capacity of this nation. Our edge in education is being challenged not only by the established sources of excellence but also by emerging economies throughout the world. The Government believes that the programme I have outlined is fundamental to our economic and social development. As it is a major plank of the Government's policy, I am announcing the allocation of €300 million to the strategic innovation fund for higher education over the next five years.

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