Michael McGrath (Cork South Central, Fianna Fail)

I very much welcome the opportunity to speak on the 2008 budget. At the outset it is important to understand the context of the budget, in particular given the incessant negative commentary we have had in recent weeks about the performance of the economy. It is important to take an objective look at the facts and examine the performance of the economy and the state of the national finances as we come to the end of the 2007 calendar year.

In 2007 growth in gross domestic product will be in the region of 4.75%. Over the past decade we have had rapid growth in GDP. Not alone have we maintained the level of that output, we again have increased it by almost 5% in 2007. Year on year we are breaking new barriers and continue to make further progress in economic performance. We generated an additional 72,000 jobs in 2007, quite a remarkable performance for an economy of this size. I also commend the Minister on that. I am especially pleased he is prioritising investment on the capital side in the context of the implementation of the national development plan, with a 12% increase over 2007 figures in the allocation to the capital side of the budget. It is important we continue to invest in the development of infrastructure and projects that will deliver benefits throughout the country over the years ahead and put us in a strong position to maintain sustainable and prudent economic growth.

On the current side, spending will increase by 8%. Despite all the talk of cutbacks and deficits, we are increasing expenditure on the current side by that percentage, and by any measure across the OECD, that is a significant increase. Based on those points the Minister can genuinely argue that the fundamentals of the economy are strong and this is irrefutable. Most developed countries in the world would grab the performance we have achieved in recent years and would be delighted to be in the position Ireland is in currently as regards national finances. Growth will moderate further in 2008, but GDP will increase by 3% in real terms. We will create a further 24,000 jobs and inflation will moderate to around 2.4%.

I noted with interest some of the earlier comments about the national debt and our borrowing a further €5 billion in 2008. It is very important we consider what this means. Many Opposition Deputies have expressed concern about borrowing, but the level of a country's debt cannot be measured in absolute terms. The value of the figure in absolute terms is not a real measure of debt. It must be measured as a percentage of the country's output, better known as its GDP. The debt-GDP ratio in Ireland in 2008 will be in the region of 26%. When I looked at the comparators across Europe I found that Ireland was in a very strong position. In 1997 the debt-GDP ratio was 64% while in 2008 it will be less than 26%, which is a dramatic improvement. Having reviewed the NTMA report and examined Eurostat figures, Ireland is in an extremely strong position vis-À-vis our European partners, with a debt to GDP ratio which is less than half the EU average. This is significant. Next week, I hope to speak on the Social Welfare Bill and to welcome many of the initiatives the Minister will introduce.

As Deputy Mansergh did earlier, I welcome the allocation of €914 million towards overseas development aid in 2008. This places a major obligation on us to ensure the money is properly invested. A country of our size spending approximately €1 billion on overseas aid is a tremendous achievement and we are well on the way to achieving our overall targets.

In the coming weeks, the Minister will give consideration to the detailed measures of the Finance Bill 2008. I ask the Minister to give serious consideration to the inclusion of tax incentives for the Cork docklands project. Cork City Council and the Cork Chamber of Commerce have submitted a proposal which is in line with EU approval for these incentives. It is a project of regional significance and is in line with our overall gateway strategy. It will help to continue to regenerate Cork city in a positive way.

I welcome the changes in stamp duty introduced by the Tánaiste and Minister for Finance in yesterday's budget. It is an appropriate time to introduce stamp duty reform as can be seen if one examines the impact it will have on couples in particular who wish to trade up and families who need extra bedrooms. Taking the example of a couple buying a house for €500,000, which is not a large amount of money in many parts of the country in terms of property, under the old regime they would have paid €37,000 on stamp duty. The changes implemented yesterday will reduce this liability to €26,250, a reduction of €11,250. This will generate further activity and buoyancy in the market at a time when nobody will deny it is needed. The Minister's intervention is timely, measured and appropriate. I also welcome the significant improvements in mortgage interest relief. The relief has been increased to €20,000 per annum for a couple. This will make a difference of more than €300 every month.

The increased spend allocated to the Department of Education and Science is to be welcomed, particularly in the context of the primary school building and modernisation programme. I note from the Minister's comments yesterday that the emphasis in 2008 will be on the provision of places in rapidly developing areas throughout the country. My constituency has a number of such areas, particularly Carrigaline and Passage West which are undergoing dramatic development and population expansion and where new school places will be required. The 28% increase in the capital envelope on the primary school side for 2008 gives great hope to communities such as Carrigaline and Passage West that projects in these areas will advance through the building and modernisation programme in 2008.

It would be remiss of us not to acknowledge the tremendous progress achieved in the area of income tax since we came into Government in 1997. I am pleased to see the Minister will continue with this progress in 2008. When one examines the tables in the budget publication one sees the improvements are stark. In 1997, the effective tax rate for a person earning €40,000 in today's terms was approximately 41%. It is now less than half of this at 18.6%. This is a dramatic improvement. While the progress made in the budget might have been less dramatic than in previous budgets it keeps pace with inflation and gives real improvements to people.

Taking the example of a married couple with one income and two children, if the household income in 1997 was €60,000 in today's terms, the effective tax rate would be 36%. In 2008, these changes and progress over the past ten years mean this rate is reduced to just under 20%. These are dramatic improvements in take home pay and allow families to choose how to spend their income and rewards work. This is to be welcomed.

I welcome the many pro-business initiatives in the budget, particularly in the areas of science, technology and innovation. The research allocation of approximately €300 million in 2008 will provide tremendous opportunities for this country to position itself as a leading nation throughout the OECD in terms of investment in science, technology and innovation. This investment will yield a high dividend for the country in the years ahead. I commend the Minister on his ongoing commitment to invest in science, technology and innovation in the State.

The improvements to the research and development tax credit are also to be welcomed. Yesterday, the Minister agreed the base year used to calculate expenditure on research and development is being fixed at 2003 for a further four years to 2013. This will give greater capacity for research and development investment throughout the country. Many companies and organisations will benefit in the long term from this.

The linking of VRT to emission levels is to be welcomed. The Minister for the Environment, Heritage and Local Government, Deputy Gormley, made further announcements today with regard to the carbon budget. This is an important initiative. Much public comment has been made in recent months on the importance of the climate change issue and the significance of it for mankind. The fact cannot be disputed that it must become the most significant political issue in the years ahead. Every citizen of the State, all political parties and all groups and organisations throughout the country have a role to play. While Ireland is a small piece in the jigsaw which can only do what it can, we must play our part in tackling climate change and ensuring the future of the planet is secure for the generations to come. I commend the Minister for the Environment, Heritage and Local Government, Deputy Gormley, on the significant initiatives he has taken.

Many improvements have been made with regard to compliance of small and medium businesses with the Revenue Commissioners and the taxation regime to reduce the administrative burden and bureaucracy and provide them with greater flexibility. This is important, as is the Minister's announcement that the small company tax liability threshold for the payment of preliminary tax on the simpler prior year basis will be increased to €200,000 from €150,000 and the threshold for new start-up companies at or below which they do not have to pay preliminary tax in their first accounting year will be increased from €150,000 to €200,000. As my colleague, Deputy Byrne, stated, the small business VAT registration threshold will be increased further from €35,000 per annum for services and €70,000 for goods to €37,500 and €75,000 respectively from 1 May 2008.

As someone with eight years' experience serving in local government, I welcome the fact that local government will benefit significantly from yesterday's budget. While every motorist in the country will experience pain from the increases in motor tax, it is essential that we invest greater resources in local government. The interaction the vast majority of the public has with Government is through the local government system. The roads on which they drive, the footpaths they walk, the facilities their children have in terms of playgrounds, amenities, water services and waste water services are essential facilities provided by local government.

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