Brian Cowen (Laois-Offaly, Fianna Fail)

Today, I present my fourth budget and this Government's first one against a challenging economic backdrop.

INTRODUCTION

Our economy has experienced extraordinary growth for more than a decade. At home and abroad our success has been lauded. That success is down to the commitment and drive of our people. Recent Governments have succeeded in managing the growth of the economy so that it has been sustained for much longer than anticipated.

The global economy is beset by uncertainties, financial markets are highly volatile and the construction sector domestically is experiencing a slowdown. However, we must not lose sight of the fact that the fundamentals of the economy are still good — a point often lost by some. Next year will see our economy growing at a relatively modest pace. In this changed environment of more moderate growth, this Government will manage the resources available so that growth will be sustained into the future. Today's budget is important in that context.

As Minister for Finance, I must place one economic objective ahead of any other — that we do things now that will position our country for sustainable development over the years ahead. This objective does not conflict with our commitment to make Ireland more environmentally friendly.

CONTEXT AND AIMS

Since becoming Minister for Finance, I have reformed the way the budgetary process is operated to enable better transparency and to improve accountability and scrutiny by the Oireachtas and its relevant committees. For example, annual output statements were provided by Ministers earlier this year to accompany their Estimates of expenditure and I published the pre-budget outlook in October. That outlook showed that delivering all that we did this year would mean increasing current expenditure by €2.3 billion in 2008 to almost €51 billion.

Today, I am announcing all new spending and taxation measures in a single unified budget. This reform allows us to focus on the totality of what Government is spending with taxpayers' money. By making spending and revenue decisions in a more transparent manner within the overall economic and budgetary parameters, we will ensure that Ireland maintains a sound and sensible fiscal policy, fully in line with the provisions of the EU's Stability and Growth Pact.

What this means is that the rate of increase on public current expenditure in 2008 has to moderate to take account of the resources available but, even so, I am still providing almost €53 billion, which is a net increase of more than €1.7 billion. This includes almost €960 million for welfare supports in 2008, which is just over half of the total additional spending announced today. I am also providing more than €8.6 billion in 2008 for investment on the capital side. When I compare that with the resources available to me, I am planning for a general Government deficit of 0.9% in 2008, which is the appropriate response at this time. This is the context in which my budget is set. This budget is focused on the future challenges and addresses them now in a way which is sustainable.

Investment in a sustainable future is this Government's top priority. I have consistently stressed the importance of the national development plan in the realisation of this goal. In the past, Governments have reacted to economic slowdown by stalling capital investment. I will not do so. On the contrary, I am providing more than €8.6 billion for capital investment in 2008.

In the proposals I announce today, I will also: protect the incomes of the vulnerable; promote our environmental goals; support ordinary working people; help home-buyers; and boost our economy, while adapting to the reality of more moderate growth into the future.

I will do all this while, at the same time, ensuring that the budgetary outlook remains positive and builds on the improvements in our fiscal position to date.

ECONOMIC AND FISCAL BACKGROUND AND TARGETS

2007 Economy

The pattern of very strong growth, mainly as a result of buoyant domestic demand, has eased as this year has progressed but growth still continues at a rate that is the envy of many other countries. For 2007 as a whole my Department expects GDP growth of around 4.75% is now likely. This is a very good performance in the circumstances. We estimate that an additional 72,000 jobs will have been created this year and that unemployment will be among the lowest in the European Union.

This budget is being framed against the background of significant uncertainty in the international economic environment. Since the summer, global financial markets have experienced considerable volatility and while the impact of such developments on the world economy appears to have been contained so far, we must acknowledge that downside risks remain.

Another issue is the significant appreciation of the euro against the dollar. This partly reflects financial market developments as well as growing concerns regarding the outlook for the US economy. This is of particular concern to us given the importance of the US both as an export destination and a source of inward foreign direct investment.

Ireland, of course, has deep international links and we are not immune from such developments. As I have said before, retaining flexibility and continuing to improve our productivity is the route to enhancing the competitiveness of our economy. The measures I will outline in this budget will help to achieve these goals.

In light of all of these adverse international developments, many of my colleagues elsewhere in Europe are revising down their growth forecasts. In these circumstances, our short-term economic prospects are still impressive.

2008 Economy

Nevertheless, for 2008 it is fair to say that the prospects are for somewhat more modest growth than we have become accustomed to. This reflects developments in the international economy as well as domestic developments. In relation to the latter, the main factor weighing on overall growth is the prospect of somewhat lower output in the new house building sector. Against this background, my Department is forecasting that GDP will increase by 3% in real terms, 24,000 new jobs will be created with the total number at work increasing by a little over 1% and unemployment at 5.5% by the end of next year, inflation will ease and the harmonised index of consumer prices will average 2.4%.

This economic outlook, while still reasonably impressive, means that it is more vital than ever that we retain our flexibility, act responsibly and continue to raise our productivity. If we do this, it will protect and enhance our competitiveness and employment levels.

Responsible Management

Responsible management of the public finances has been one of the prime drivers of our economic success. Our national debt is now around 25% of GDP, one of the smallest in the developed world. It is right and appropriate that we should run budget surpluses when the economy is performing very well. It is equally right and appropriate that we borrow when the growth outlook is less favourable. However, the move into deficit must involve productive borrowing, which will strengthen our economy for the long term.

Accordingly, I have set the following fiscal targets for next year: growth in total spending of 8.6% to maintain and improve the provision of services and to invest in the future; gross current spending growth of 8.2%; capital spending growth of the order of 12%; a general Government deficit of 0.9% of GDP, which is fully consistent with our EU obligations; and a debt to GDP ratio of just under 26%. These targets are realistic and achievable and a reflection of the underlying health and strength of our economy.

SPENDING POLICY

Public Spending Priorities and Value for Money

We must maintain the basic correspondence between spending and resources if we are to avoid piling up debt for the future and if we are to continue to afford the massive capital investment that is vital for all our futures. Obviously, the pattern of income and spending can vary from year to year but the overall trend line must be correlated with the resources available. We must get back to lower single digit increases in current spending as quickly and as prudently as possible, particularly in view of my determination to maintain capital investment as set out in the national development plan. A measured deceleration is required, not a sudden slamming of brakes, especially when we are entering a period of below trend growth by Irish standards.

My priorities are clear and straightforward, namely, to protect the weaker in society through maintaining a high level of social spending, deliver better and more effective public services, seek value for money at all levels of public spending and continue to invest heavily in public infrastructure. Our priorities for current spending remain health, education and social welfare, which account for almost 80% of total current spending.

At the core of all this spending must be the search for quality of service and value for money. As the pre-budget Estimates showed, we need nearly 5% more in 2008 compared to 2007 to stay as we are with existing levels of service. This requires all Departments to continue to monitor closely and examine carefully how efficiently and effectively resources are being utilised in the provision of all public services and this is what I intend to do using appropriate value for money initiatives.

The Government has agreed to an efficiency review of all administrative spending across the whole public service. I have set out in the summary of budget measures my intentions as to how the review should proceed. I refer colleagues to B.24 in the budget summary.

INVESTMENT FOR THE FUTURE

National Development Plan

The national development plan is an ambitious programme of investment in the future. Nothing on this scale has ever been attempted before in our history. It will transform our country socially and economically and I am determined to roll it out as planned and thereby secure our future. The national development plan is my top priority. Postponing or delaying it would be a major policy error. It would damage activity next year and impair our quality of life in future.

The new multi-annual capital envelope for each Vote group, which is published today in the budget documentation, provides for total capital expenditure to be maintained at an average of 6% of GNP during the next five years. All Departments have had their capital allocations increased from the pre-budget Estimates levels by more than €1 billion in total.

The main elements of our capital investment programme for 2008 will concentrate on transport, education, housing and environmental services, with significant spending in other areas such as health, agriculture and enterprise.

Transport

I am allocating €2.7 billion for investment in rail and bus services, national and secondary roads, regional airports and ports. Of this, nearly €1.7 billion will be invested in our national roads network, thus continuing this Government's unprecedented levels of investment in this key piece of infrastructure. We are building high class roads, which are absolutely integral to economic activity and long-term economic and social prosperity.

During the coming year, this massive investment will deliver significantly on the M50 upgrade as targeted, resulting in four lanes between the N4 and Ballymount and a transformed and fully functional Red Cow junction. The West Link bridge will also have four lanes by the end of next year and we will have barrier free tolling.

Elsewhere around the country, almost 30 km of dual carriageway will open between Kilbeggan and Athlone, 37 km of dual carriageway will open between Cashel and Mitchelstown and almost 20 km of dual carriageway will open to bypass Carlow town. All these are key components of the major inter-urban routes between Dublin and our main regional cities and the National Roads Authority is working to ensure that they are delivered on time and within budget.

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