Bertie Ahern (Dublin Central, Fianna Fail)

The confidence of the Irish people in the capacity of the Government to manage our way through difficult conditions has been fully vindicated by the terms of the budget introduced by the Tánaiste and Minister for Finance, Deputy Brian Cowen. The role of the budget in a modern economy is only in part about the specific measures announced on budget day. Its more important role is to signal the strategic direction that policy is taking and thereby to send a clear signal to citizens and to stakeholders about how current challenges will be met.

This is a budget that will sustain progress in the Irish economy through more difficult international conditions. Our ability to produce an innovative, progressive and socially caring budget at this time reflects well on the strength and resilience of our economy, built up over many years. Today, we have the resources and the flexibility to respond constructively to less favourable conditions, in a way that would be the envy of our predecessors in the 1980s and of many of our European partners now. The budget is prudent and stays well within the margins of safety but expresses the Government's determination not just to hold what we have but to maintain forward momentum.

The message is loud and clear from this budget: we will maintain our focus on deepening the competitiveness of the economy so that we more than match most of our competitors, we will continue to prioritise the needs of the disadvantaged and those who need our support within the resources that are available and we will continue to create an environment where working people are rewarded for their efforts while enterprises are encouraged to invest through a strong and consistent pro-enterprise tax system. These strategic priorities have to be pursued in a realistic fashion, year by year. Our great strength as a society is our capacity to respond rapidly to changing circumstances. That is what is facing us at present. As a very open economy, we are directly and rapidly affected by changes in the external environment, such as the dramatic developments in international financial markets, the related sharp reduction in the value of the dollar, the changes in the environment for corporate investment globally and the international trend in consumer and business confidence.

Some pre-budget commentary appeared to suggest that the Government should somehow be able to control these forces while others suggested that we should implement all our specific policy commitments at once, irrespective of the economic and fiscal context. Some have warned us that we will be criticised either for taking account of these fiscal realities or for not taking account of them. At least we know where we stand with those people.

We have continued to make substantial economic advances this year and we look forward to further positive growth, including growth in employment, even if somewhat slower, next year. In 2007, growth will be well over 4%. The latest Central Bank figure is 4.75% for the year end. Next year, we expect it to be approximately 3%. About 72,000 net new jobs have been created this year, bringing total employment to approximately 2.1 million. This compares to less than 1.1 million at work 20 years ago. Next year, we expect to create net 24,000 new jobs.

Growth in current expenditure will be a healthy 8% and in capital expenditure it will be 12%, while general Government borrowing remains less than 1%. Very few of our EU partners have the financial scope to bring in such a positive budget in the current climate. In the circumstances, the Government is acting with great responsibility in adopting a fiscal policy that envisages a general Government deficit of 0.9% as a percentage of gross domestic product. This is a prudent course to adopt, within the parameters of our European commitments under the growth and stability pact, especially given the significant provision for capital spending and the responsible measures being taken to contain current spending to an increase of 8.2% in the current year, which is nevertheless a measured deceleration compared with recent years.

Some of the outside commentary of recent weeks might have led people to believe that there would be a different budget. We have no recession. There are no cutbacks of any significance and no stealth taxes. This budget is for a country that is continuing to do remarkably well. Despite this, many people are anxious to emphasise only the negative side, the problems and challenging structural deficiencies that the Government is addressing. Many of the critics inside and outside this House are not willing even to acknowledge, let alone praise, the amount of progress being made on so many fronts, of which the public is aware.

The strategic priorities of this budget will come as no surprise. That is because they are consistent with the policy of Government over the past ten years. Not only that, they are consistent with the strategic direction for the medium to long term that we have set out with the social partners in the framework agreement, Towards 2016. The reality is that we cannot achieve all our goals in one year or even in a short run of years. The changes that have brought us thus far, and the further changes that are needed to allow us to meet our economic and social objectives in full, require the consistent pursuit of policy goals over a long period, during which short-term challenges must be faced and dealt with while we keep a clear focus on the underlying direction in which we wish to travel.

In political terms, we have made a good start on implementing our promises. The Fianna Fáil election programme and the programme for Government agreed with our colleagues in the Progressive Democrats and the Green Party are for five years, not for one. Taking into account adverse developments since mid-year, we are running a small and manageable deficit of under 1% of GDP. Taking one year with another, this is not too far removed from keeping the budget in broad balance. We said we would invest 5.4% of GNP in public infrastructure. Instead, we will raise it to an average of 6% over the next five years.

In the programme for Government we said we would increase tax bands and credits in line with wage inflation. We have done so. We immediately abolished stamp duty for first-time buyers in June, as agreed with the Progressive Democrats and the Green Party, and we have improved mortgage interest relief for first-time buyers in this budget, increasing it by €2,000 for a single person and €4,000 for a married couple. We have gone beyond that and reformed and simplified stamp duty on residential homes.

In the absence of a general property tax, stamp duty is, as I have stated on many occasions, an important source of revenue to fund essential public services and it raises approximately €3 billion annually. The existing step changes in stamp duty undoubtedly create anomalies, which there was little opportunity to modify when the market was already overheating. A rationalisation of the system on houses is clearly warranted and this is a good time bring it about. Sooner or later, a correction in the housing market was inevitable, given the high level of house building and historically low interest rates in recent years. It will be beneficial in bringing home purchase more within the reach of younger couples. One of the issues in previous partnership discussions was the high cost of housing, particularly in Dublin. The changes to stamp duty will restore confidence and stability.

The message from the budget is one of confidence that our short-term goals are attainable, that our strategy is the right one, that we have delivered in recent years and that we will continue to deliver. The message is one of confidence that the underlying strength of the economy enables us to increase spending — for both investment and current purposes — at significantly faster rates than most of our partner countries and that we can anticipate employment growth, low unemployment rates, increases in real living standards and improvements in physical infrastructure and human capital, in respect of which we are doing more than almost all of our trading partners. All of this is while maintaining a prudent fiscal position, including record low levels of national debt, and facing fully up to our responsibilities to build a more environmentally sustainable society and economy.

The budget sends a clear message that our delivery under all of these headings will continue. The dislocation caused by international economic turbulence will be limited, and will not deflect us from the strategic course on which we have embarked. Workers whose real incomes are protected by the budget, businesses whose commitment to development through moving up the value chain by a greater reliance on research and development, towns and regions that are planning for a new and strengthened role under our commitment to regional balance, educational institutions that seek to meet the needs of the students of today and tomorrow, families with caring responsibilities and communities seeking to look after their older people, their children and those with disabilities, can all see that their needs and efforts are being supported by the Government through the very balanced and progressive measures in the budget.

This budget is strong on equity. The gains in tax relief are again concentrated at the lower end. We have succeeded in maintaining the position where only approximately one fifth of income earners are on the top rate of tax, where two fifths pay the standard rate and where the remaining two fifths are outside the tax net altogether. As has been observed by the EU Commission on many occasions, we have the most favourable tax system for low earners in the Union.

Tables in the budget booklet also show how in the past ten years effective rates of taxation on annual earnings have declined both in percentage terms and on all levels of income. For example, a married couple on a joint income of €60,000 with two children now pay only 12% of their income in tax. Ten years ago, they would have paid three times that amount, namely, 36%. This is an enormous improvement for those on lower pay, which those opposite are incapable of acknowledging.

On the personal tax side, we have honoured our commitments to the social partners that net income gains will be preserved. Increases in bands and credits will ensure that four out of five income earners, including all those on average industrial earnings, will pay no more than the standard rate of tax, while those on the increased minimum wage will continue to remain outside the tax net. Average industrial earnings have risen by more than €14,600 in the past decade. Compared to then, however, tax on these earnings has been cut by more than €430. Since 1997, those on average industrial earnings have seen their take-home pay increase by 41%. Our consistent approach to income tax policy is to make work pay.

These changes maintain the strong, progressive character of tax policy in recent years. With them in place, the top 1% of income earners will pay 25% of all income tax, compared to the 15% they paid ten years ago. At the same time, those on average earnings or below who comprise 55% of all income earners, will pay only 4% of all income tax, down from the 14% paid ten years ago.

It is correct that we should provide clear incentives within the tax code to underpin economic activity on a sustainable basis. For that reason, I greatly welcome the further enhancements of the tax credits for research and development expenditure. It is vital that our enterprise sector, both indigenous and overseas, should be constantly attuned to innovation and development. The Government is continuing to increase its own investment in third and fourth level education and the associated research efforts. It is equally important that the enterprise sector should continue to increase its investment and the budget gives it further encouragement to do so. Tax changes affecting agriculture will also benefit that sector of the economy.

The changes in stamp duty on residential property bring to an end the period of uncertainty created by others about how stamp duty might evolve and might impact upon future transactions. The Government has a primary concern to support first-time buyers who are largely exempt from stamp duty. The increases in mortgage interest relief, which the Minister for Finance had flagged and which have now been implemented, will ensure that most new buyers are effectively insulated from the negative impact on affordability of trends in market interest rates.

The changes in stamp duty will encourage those who have perhaps been holding back from appropriate changes in their housing to reflect, for example, the stage of the life cycle they have reached. The six rates have been reduced to two and there will be a substantial reduction in liability. There will, for example, be a saving of €11,000 on a house costing €450,000.

Furthermore, young families moving into somewhat larger accommodation or older people trading down to more manageable properties will now have confidence regarding the stamp duty implications, which in most cases will now be more positive than would otherwise have been the case. This will provide greater confidence across the housing market and will help stabilise housing output at levels appropriate to our underlying need and at price levels that are realistic and sustainable. It is appropriate that those engaging in property transactions at the high end should contribute through stamp duty a proportionately higher share of the yield from property. However, everyone will benefit to some degree from these changes.

In other areas of the construction industry, there will be strong satisfaction at the clear commitment of the Government to maintain record investment levels in physical infrastructure. The national development plan is central to our economic strategy. It has the capacity to raise our performance. In previous times, a reflex response to periods of economic difficulty was often to cut capital expenditure as a less painful option. We are not merely maintaining it, we are stepping it up for the period ahead.

We have made rapid progress in recent years in rolling out our high-quality roads programme and developing public transport capacity and quality across the various modes of travel. We have provided record improvements in the water services required by our growing population. That trend will continue and accelerate, with an overall increase of 12% in capital spending over the current year. The Tánaiste is right to maintain this focus on the investment which will produce the basis for our continued prosperity, while enhancing the social infrastructure, such as output of social housing in line with our commitments under Towards 2016.

Road improvements, the removal of serious bottlenecks and the achievement of faster and more consistent journey times are appreciated by the public and are essential to all elements of industry and commerce. They are making many different parts of the country more accessible and, therefore, easier to live in and work from. Additional funding is being provided to maintain momentum.

Commuting, particularly at peak times, needs improved and expanded public transport capacity. Up to 1997, when I became Taoiseach, there was limited EU, but no domestic Exchequer investment in public transport. That situation was transformed from the late 1990s by this Government and in 2008 investment will further increase to close to €1 billion.

I have a particular commitment to those who are least well-off in our society. Nearly €1 billion has been allocated to support those in need. In recent budgets, the Government has provided record increases in the principal social welfare rates, especially the lowest rates. This is in accordance with our national anti-poverty strategy and our agreement with the social partners. I am pleased to say that the focus of the social welfare increases in the current budget has been to increase the rates for those dependent on social welfare. Despite the pressure on resources, the increases of €14 and €12 per week in the main rates are in line with what is required to maintain the relative value of payments and entail increases very significantly ahead of inflation. They put us well on target to achieve a pension of €300 a week by 2012 in line with the commitments in the programme for Government.

These real increases are particularly welcome in the case of older people. There is a strong conviction across society that those who have worked hard all their lives, reared families, paid taxes and built up the foundations on which our current prosperity rests should benefit from our policy decisions. The increase of €14 per week is in line with the commitments in the programme for Government. I am particularly pleased at the increase in the qualified adult allowance for pensioners, which means that couples over age 66 in receipt of the contributory old age pension and dependent allowance will have an 11% increase, equating to €41 per week. Equality will be achieved in next year's budget. Support for families with children is also most welcome, with increases across the full range of supports, including a 10% increase in the child care payment for children under six. This support is a quantum leap ahead of what it was ten years ago.

Increases in the health Vote include additional resources for cancer services. The very substantial increases in expenditure on health services only make sense in a situation where we can be reasonably sure that they will be applied to best effect. For that reason, I welcome the steps being taken under the health forum, established at the initiative of the Irish Congress of Trade Unions, to bring all of the energies of the social partnership process to bear on developing a world-class public health system that we all desire. I appreciate that the changes which may be required to get from where we are to such a preferred model will not be easy. However, I express the Government's absolute commitment to delivering a world-class service and to supporting the change agenda which will come from the forum.

I welcome very strongly the provisions in the budget in support of the agenda for environmental sustainability. This is no longer a policy option. Well before the current Government was formed, I signalled my conviction that the question of climate change and the more general environmental challenge had to be at the centre of the policy-making agenda. Last year, the Minister for Finance made important changes in the supports available for more sustainable energy, including domestic heating systems. He flagged then his intention to do more, especially to align vehicle taxation more closely with environmental policy objectives. I strongly welcome the measures he has announced. They will encourage people to act responsibly when making decisions about car purchase.

It is a strategy which is entirely in line with making the cost of pollution more transparent, to be borne by those who choose to generate it. With these and other measures, the budget sends a clear signal about the direction of change which the Government has been driving since the summer. Later on, the Minister for Environment, Heritage and Local Government will bring before the House the first ever carbon budget to deal with our CO2 emissions and show that we can generate new policy initiatives that will have a substantial effect on the kind of life we live in future.

The Minister for Communications, Energy and Natural Resources will seek to find out how we can drive further investment in new technologies in the context of economics and business. We have seen how the private sector and environmentalists agree with the policies that we have created to make this a practicable way of doing business in the future. I look forward to these contributions later on today. These and other measures send a clear signal about the direction of change the Government, as outlined in the programme for Government, will implement over the next five years.

These are now urgent matters if the scale of the global challenge is to be met and if we are to take seriously the issues of climate change. Later on today, I will meet a representative group of young people who take this as part of their social responsibility. They will be presenting their views to me and my colleagues and will be taking part in a peaceful march this weekend to show that climate change must be at the top of the Government, the country and the world's agenda.

The Government is following through on the commitment to bring our overseas development assistance up to the UN target of 0.7% of GDP. We will be raising our oversees development contribution to €914 million, or 0.54% of GDP in 2008. We are doing this to help the people of the Third World and to live up to our commitment. We should be proud of this country and the financial contribution we make to UN aid projects, and to our own NGOs in many countries such as Vietnam, in Africa and other parts of the world which need our support. Staying on target to reach 0.4%, besides being the right thing to do, increases our influence and standing with a lot of the world's poorer countries which is deeply appreciated.

I would like to finish with reference to a particular change announced by the Tánaiste which is especially welcome. That is the reduction in stamp duty on payment cards and the parallel increase in duty on cheques. For some time now, my Department has been leading a cross-departmental and cross-sectoral debate about the development of a better payments system, which would be both more efficient and more appropriate to a knowledge economy. Yesterday's announcements will bring us closer to the day when payments are made more safely and more efficiently, and with significant savings as a result for customers and traders alike.

All budgets signal longer-term strategic studies and reviews. A quarter of a century after the commission on taxation, which was a catalyst for many significant changes, it is time to take a new look at our taxation system. This will include the question of how best to implement a carbon tax on a revenue-neutral basis. We look forward to the new commission on taxation being set up in the new year. We are also undertaking a review of administrative efficiency in all areas of the public service. This will complement the comprehensive review of the Irish public service by the OECD which I announced earlier this year and which will be finalised early in the new year. It will also complement the programme of external review of the capacity of Departments and offices which I initiated this year.

I note with some gratification that Ireland rated highly in an international business tax survey. The Minister indicated that he was also looking at uses of the tax system to encourage lower alcohol beverages, which is as important to public health as discouraging smoking. In the shorter term, the Minister is also looking at section 481 film incentives in the Finance Bill, a sector where international tax competition is fierce.

By honouring our commitments to the people, by keeping faith with the social partners, by signalling our clear intent to deliver fully on the programme for Government, by exercising responsible choices for today with an eye on the needs of tomorrow, and by demonstrating that one can combine a drive for continued prosperity with both environmental sustainability and social equity, the Government has shown why we continue to earn the confidence of the people in our handling of the economy. This is the first budget of five for the new Government and I congratulate the Tánaiste on it. I commend this budget to the House.

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