Brian Cowen (Laois-Offaly, Fianna Fail)

I move:

That Dáil Éireann commends the Pre-Budget Outlook incorporating Pre-Budget Estimates for Public Services 2008 published by the Minister for Finance on 18 October, 2007.

I welcome this opportunity to present to the House my pre-budget outlook, which was launched last Thursday. I look forward to hearing the views of other Deputies on this. Before I set out the details of the outlook, I will remind the House of the changes made to the overall budgetary process. The Government made significant progress in recent years since I announced in budget 2005 that I intended to make major reforms to the budgetary process, aimed at delivering a more constructive and relevant examination of how the nation's finances are run. As the latest step in the budgetary reform process, I announced on 13 September last that the Government will introduce a unified budget with effect from budget 2008 next December. That all the key announcements on the spending and revenue sides of the budget will be announced on the same day represents a more coherent approach to budgetary policy-making. It will facilitate the Government in introducing all its proposals for future service improvements within a planned, progressive and sustainable overall framework.

The Government's approach allows for transparency and democratic accountability, which are the hallmarks of my approach to budgetary reform, to be brought to bear on the expenditure determination process in its entirety. It will also accommodate a proposal made by the Committee of Public Accounts in its Report on Estimates Reform, which was published in October 2005. The committee asked for a clear distinction to be made between the pre-budget and post-budget allocations. This is the second year in which I have published the pre-budget outlook. I am incorporating in the document detailed technical pre-budget Estimates for the public services on the basis of maintaining existing levels of service. This publication represents another important step in the budgetary reform process and will enable greater transparency and understanding of how taxpayers' money is spent.

Last week's pre-budget outlook outlined the Department of Finance's assessment of the economic and fiscal picture for the coming years. The projections in the outlook, which update the budget day forecast of last December, are based on the latest information to hand. The forecasts will be reassessed as more information becomes available and more decisions are made in the context of this year's budget. When I commented last week on this year's economic developments, I indicated that this year represents a turning point for the Irish economy. While the economy performed well in the first half of the year, the current indications are that the short to medium-term outlook has changed from that envisaged on budget day last year. At that time, growth for this year was forecast at 5.3% in GDP terms, whereas GDP growth of 4% per cent is now anticipated. Like other commentators, the Department has had to consider the national and international developments that are likely to affect activity this year.

The main reason for the more modest growth this year is the firm prospect of lower new housing output. While a small decline was assumed on budget day, in line with the prevailing consensus at the time, later data now confirm that output will be considerably lower. Interest rates have risen by 75 basis points since budget day and this, and other factors, have weighed on consumer confidence and also have impacted on the inflation performance this year. The current level of oil prices and the appreciation of the euro-dollar exchange rate also impact on the outlook.

As against this, it must be recognised that the decline in housing output is occurring at a time when other parts of the economy, such as the exporting sector, are performing well and this is partly offsetting these negative influences.

My Department's GDP growth forecast for this year is of the order of 4.75%. The current market consensus for growth in 2007 is around 5%. However, it should be noted that more recent forecasts, which take into account the less favourable new house developments over the summer, tend to be closer to my forecast.

In terms of the outlook over the next few years, I now find myself being criticised as being too pessimistic. At the time of publication, I indicated the forecasts being published were just that — forecasts based on the latest information to hand. If later information shows more favourable factors, then my Department will obviously take such new information on board. However, at present it would seem to me that it would be unwise to ignore the signs that are there for all to see.

The main factors underpinning the downward revision this year will also prevail next year. The latest leading indicators of future housing output, such as new house registrations and housing starts, have been negative for some time and clearly point towards lower output for next year. This will have a negative impact on employment trends and lower employment growth is now likely for next year. This will lower the rate of personal consumption growth.

GDP growth is expected to be 3.25% next year, which is not out of line with others that have published forecasts since the summer. This forecast is based on a considered view of economic prospects and is not slanted to achieve a purpose, political or otherwise, as some have mistakenly claimed.

Looking at the overall period 2008-10, GDP growth is forecast to average 3.5%. This level of growth is lower than we have experienced in recent years and it will have implications for us all. For instance, lower levels of activity are assumed to result in some employment losses in the construction sector. As a result, the rate of employment growth is expected to slow to 1.25% next year from an estimated 3.5% this year. Consequently, unemployment is forecast to rise from 4.5% this year to 5.5% next year. In this regard, a provision for an increase of 10,000 in the live register has been made in the pre-budget Estimates for 2008. Immigration is forecast to continue, albeit at a slower pace. The slower pace of economic growth and less favourable labour market conditions are expected to result in a moderation in the rate of wage inflation.

However, I emphasise that we must not lose sight of the fact that our overall growth performance is nevertheless impressive by international standards and one that many of our European partners would be very happy with. It should also be noted that the economy's fundamentals are strong. Provided we manage the current temporary slowdown well, the economy is expected to revert to its trend growth rate by the end of the forecasting horizon in 2010. In this context, the International Monetary Fund has recently noted that Ireland's economic success has been underpinned by outward-orientation, prudent fiscal policy, low taxes on labour and capital and labour market flexibility.

Apart from setting out the economic position, the pre-budget outlook also confirms the emerging budgetary position for this year as signalled at the end of September Exchequer returns. A cash deficit of up to €1 billion is now in prospect, somewhat more than forecast at budget time and reflecting the weakness in some taxes, mainly as a result of the weaker property market. However, in general Government terms a surplus of 0.9% of GDP is still expected for this year. This means that in ten of the last 11 years we will have achieved surpluses on the general Government account.

The tax shortfall of €1 billion that now seems likely for 2007, along with the reduced economic forecasts for the period 2008-10, means that tax revenue over the period will be lower than previously envisaged. Fewer resources will mean that choices will have to be made and actions prioritised. The pre-budget outlook sets out the technical budget arithmetic and on that technical basis, the overall budgetary position at this stage points to a deficit of -0.4% of GDP in 2008 and 2009 and a balanced budget in 2010. These technical budgetary projections will be affected by any change between now and budget day and by any policy decisions on spending or tax in the budget.

I will now deal with the pre-budget Estimates included in the outlook. In a sense this is the major innovation of this year's budgetary process. For the first time, the House is being provided with full Estimates-level detail on the estimated cost of maintaining existing high levels of public service in 2008. This detail is being provided in October, a month earlier than the previous Abridged Estimates and in advance of the policy formulation process for the 2008 budget and Estimates. Dáil Éireann is now being provided with a clear opportunity to make its mark at this stage of the budgetary debate. I am looking forward to a constructive and informed debate on where our priorities are, and where they should be in the future. I invite Deputies from all parties to avail of this opportunity to the fullest and to set out clearly their own priorities for resources and how this should manifest itself in terms of improved services for the people of this country.

As the pre-budget Estimates are presented on an "existing level of service" basis, new policy initiatives and significant improvements on existing policies are not included at this stage. These will be announced together with the tax measures on budget day in December and provided for in full in the budget Estimates.

For now, the focus should be on the level of services that are currently being delivered with the over €58.500 billion euro that the Government is allocating for 2008. This in itself is a remarkable level of resources and represents an increase of almost 30% over the level of spending in 2005. In my view it is quite right and proper that such resources have been made available by the Government. We have been living through times of unprecedented economic strength and we have had the opportunity to make good on some of the historic challenges in our public services — not only the deficit in our capital infrastructure but also the deficits in our social infrastructure and in the nature and level of public services in their most general sense. We have allocated resources under all of these headings.

The pre-budget Estimates show that the total gross current spending next year on existing services will be almost €51 billion. This is a 4.8% increase over this year's Estimate and a 30% increase over the 2005 level. We have made available these increased resources in order to achieve better results in terms of public services. My colleagues will wish to give details on what is being delivered with these funds. However, a preliminary overview will give Deputies a sense of the tremendous social benefits that are being achieved with the existing level of public services.

The pre-budget Estimates provided for about €16.1 billion in gross current spending in the Department of Social and Family Affairs. This is an increase of €784 million over the 2007 allocation, and means that total resources in this area have increased by around one third, or €4 billion, over the past three years. As a result of this level of provision, the State contributory pension has been increased to €209.30 per week and the weekly non-contributory pension currently stands at €200 per week. The rate of fuel allowance has been doubled to €18 per week and the free electricity and gas schemes have been enhanced.

Other adult social welfare rates have also significantly increased since 2005, with the lowest social welfare rate increasing by almost 25%, well ahead of consumer price inflation, to a level of €185.80 per week and thereby achieving the target set out in the national anti-poverty strategy.

Child benefit rates have increased significantly in recent years. Separately, the new early child care supplement has been introduced to give further help to parents. The family income supplement thresholds have also been increased significantly, to give more support to larger families. Carers have received special support in recent years. For example, the pre-budget Estimates provide for a respite care grant to all full-time carers and a new half-rate carer's payment to certain carers who are also in receipt of another social welfare payment.

In the area of health, the pre-budget Estimates provide for €15.1 billion in gross current spending in 2008, an increase of almost €1 billion over the 2007 allocation, when the special provision for the long-term repayment scheme is factored out, and brings the total increase over the past three years to almost €4 billion or 33%.

The pre-budget Estimates provide for the full range of improvements introduced over recent years. BreastCheck, the national breast screening programme, under which 124,000 women have been screened in the past two years, will commence national roll-out later this month. The National Treatment Purchase Fund is provided for. This service will have arranged treatment for over 72,000 patients by the end of 2007 and has contributed to a reduction in waiting times for most common procedures to between two to five months, compared to two to five years before the advent of the fund in 2002.

Approximately 4,500 additional front line staff have been deployed since 2005, made up of medical and dental personnel, nurses and other health professionals such as speech and language therapists, physiotherapists, social care and social workers, psychologists and environmental health officers. The service provided by these front line staff has a real impact on the quality of health care being experienced by people across the country. Today, the number of people holding a medical card stands at more than 1.25 million, an increase of approximately 108,000 since 2005. The number of persons holding a GP visit card is more than 73,600.

The pre-budget Estimates provide for €8.4 billion in gross current spending on education. This is an increase of approximately €500 million on the 2007 allocation and brings the total increase over the past three years to more than €1.75 billion or 27%. This has enabled us to reduce the staffing schedule at primary level from 29:1 to 27:1 since 2005, thereby reducing average class sizes.

Approximately 3,400 additional primary teachers have been appointed since 2005, and the pre-budget Estimates include provision for an additional 1,100 teachers next year to maintain the improved pupil-teacher ratio and provide for special needs and language support requirements in light of demographic changes. An additional 300 post-primary teachers have been appointed since 2005 and 2,500 additional special needs assistants have also been appointed.

The primary capitation grant has increased by more than 22% to €163.58 per pupil this year. The post-primary capitation grant has also increased to €316 per pupil over the same period. The "three for two" seating arrangement on school buses was fully phased out and all children carried on school buses now have an individual seat fitted with a seat-belt. During the past ten years more than 30,000 places were created at third level, bringing the overall number of full-time places to approximately 136,000.

In addition, more than €1 billion has been invested in educational infrastructure since 2005. This has delivered 28 new schools with construction underway at a further 16 new schools. Moreover, 77 large-scale school refurbishments or extensions have been completed and development is underway at a further 44 schools. More than 2,800 small scale projects were also facilitated in schools during the period.

The pre-budget Estimates encapsulate and represent a great deal of achievement on the part of the Government to date, and set the scene for continued progress in 2008. On the capital side, the pre-budget Estimates set out the existing level of service position, in advance of budget day decisions on spending and as such they broadly repeat the 2007 capital provision for each Department. However, full provision for capital expenditure in 2008 will be announced at budget time, consistent with the multi-annual capital investment framework and the continued roll out of the national development plan. An aggregate unallocated capital provision is made in this context in the budgetary tables in Part 1 of the pre-budget outlook. In this regard, the Government will continue to implement the national development plan as its overarching priority. This approach will underpin continued economic as well as social progress in the years ahead.

The pre-budget figures show that keeping in place the recent improvements in our public services and dealing with the expansion in our population requires a substantial increase of 4.8% in resources. This increased level largely reflects higher pay and extra demographic pressures. As such, it makes it incumbent on all of us to ensure the money is well spent and resources are managed effectively and for managers to stay within overall staff levels by re-allocating and prioritising key areas. This also means focusing on front-line and essential services within approved funding levels.

The Government is determined to ensure that all of the increased resources made available will lead to corresponding improvements in our public services. This is the reason I put in place a robust and comprehensive value for money framework over recent years to ensure we can get the maximum value out of every euro spent. This framework includes the following measures: the publication in February 2005 of new guidelines for the appraisal and management of capital expenditure proposals in the public sector; additional value for money measures in major capital and ICT projects and consultancies codified in Department of Finance circular of 25 January 2006, in particular the appointment of project managers for all capital projects with responsibility for monitoring and managing project progress; the introduction of value for money and policy reviews in place of expenditure reviews spearheaded by a new central expenditure evaluation unit in the Department of Finance; reforms to public procurement including the introduction of the national public procurement policy framework for implementation by public bodies and, from 2007, reforms to public construction contracts and the system for employing construction-related consultants.

In addition, as part of the general focus on what is achieved with public moneys, annual output statements were introduced for each ministerial Vote group. These will be examined by the relevant Dáil committees. Early next year, for the first time, Ministers will report on what outputs they achieved with the money they were given this year as well as setting out their output aims for 2008.

The pre-budget outlook and the pre-budget Estimates for 2008 envisage sustainable economic growth into the medium term at a level which is healthy by international standards and which reflects Ireland's status as a vibrant, maturing economy on the European and global scene. As our growth prospects ease we must be more responsive to change and prioritise our spending to ensure the best value is achieved.

The pre-budget Estimates are a testimony of the high level of public services we have attained. It is timely to reflect upon what will be achieved with the €58.5 billion in resources to be made available in 2008 and to keep in mind the economic policies which will enable us to sustain further social improvements in the years ahead. I look forward to hearing the contributions of Deputies from all sides in setting out the economic and social priorities which should inform the future course of policy-making in our country. I commend the motion to the House.

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