Eamon Gilmore (Dún Laoghaire, Labour)

This budget is a monumental breach of the promises made by Fianna Fáil to the Irish people at the general election in May. We recall that when the Fianna Fáil campaign floundered last May, the Minister for Finance appeared at a press conference, thumped the table, steadied the ship and made the promises. Nobody was better placed than him to be informed of the state of the economy before he made those promises, and he made them in the full knowledge that it was never intended they would be delivered.

The Minister promised 4,000 extra teachers, but he delivered none. He promised 2,000 more gardaí. Where are they? He was to double capitation funding for schools but he has not done so. He promised free fees for part-time students, but that is not in the budget. He promised 2,000 hospital consultants but, again, no money was provided in the budget for them. The list continues. We were to get additional child psychologists, extended GP services, local injury clinics, personal health checks and a community development fund. In terms of tax commitments, he promised to cut the top and standard rates of tax, halve the rate of PRSI, increase the home carer credit and introduce major indexation to bands and credits. Many of the promises were imprudent, as the Labour Party noted at the time, but the Tánaiste had the full resources of the Department of Finance behind him when he made them. He also promised a €300 per week old age pension to come into effect within four or five years. Based on yesterday's increases, however, it will take a further eight years before pensioners receive that level of benefit.

Instead of real improvements to the health service, yesterday's announcement brought more stealth taxes in health. The cost of attending an accident and emergency department goes up by 10% and the threshold for the drugs payment scheme is increased to €90. These stealth taxes were announced in the dead of night after the statement by the Minister for Health and Children. When I asked the Taoiseach about them this morning, he told me reference was made to them in the Budget Statement. I cannot find any such reference, so he might indicate in his response the page on which they are mentioned.

Yesterday our country needed a new budget for a new era which would restore economic confidence, begin a serious reform agenda to tackle poverty, make the hard decisions on climate change, invest in the people and the ideas that will grow the knowledge economy and point the way towards a better future. What we got was harmless but useless. Where we needed vision we got drift; where we needed innovation, we got indolence; and where we needed energy, we got lethargy.

The annual budget is much more than an accounting exercise. It is, or should be, a governing document, that is, a primary statement of the Government's political, social and economic priorities and an elaboration of how it intends to achieve them. It should at a minimum provide for basic competence in the management of the Exchequer and fiscal policy and seek to protect the jobs and incomes of people. It should also go beyond that, however, to provide for a social dividend and a set of coherent policies which will improve the well-being of our communities and people, protecting in particular the least well off in our society. Economic management and social policy should be based on a vision of where our country stands and where the Government wants to take us. This budget fails those three tests. It is an admission of economic incompetence and does not provide for an adequate social dividend. Indeed, it demonstrates that the Government has no intention of living up to the many promises that were made in the Fianna Fáil manifesto, which was initialled by the Green Party and the Progressive Democrats and subsequently called the programme for Government. Rather than being grounded in a coherent vision or national purpose, it continues the aimless drift of an Administration that surfed the wave of the economic boom it inherited, squandered its fruits, engendered serious economic imbalances and has no idea about what to do next.

This budget constitutes an admission of economic incompetence on behalf of the Tánaiste. That a Minister for Finance should see it as necessary to change the stamp duty regime twice in six months is an extraordinary admission of bad judgment. This is the Tánaiste's third attempt at stamp duty. First, he said he would make no reforms, then he implemented the wrong reforms and now we must wait to see the effect of his latest proposals. A simple review of some of the main aggregates presented in the budget also raises basic questions about the Government's economic competence. The Tánaiste is predicting 3% growth in real GNP in 2008 and 5.5% growth in nominal GNP, yet his baseline no policy change forecast, as set out in the White Paper, is for tax revenue to grow by 3.1%. Why is the elasticity of total revenues with respect to nominal GNP so low? How can it be that the configuration of taxes yields such limited revenues from what in most European countries would be regarded as a broadly healthy level of economic growth? I would like to hear an explanation because otherwise I am left to wonder if the Tánaiste has doubts about his own GNP growth forecast or is understating the expectations for next year's tax yields.

The weakness in tax yield explains why the Tánaiste is having to borrow nearly €5 billion to finance what is by modern standards a very limited social welfare package, almost no improvements in public services and an anaemic tax package. It should also be borne in mind that the total increase in capital spending amounts to only one sixth of the Exchequer borrowing requirement. Little is being achieved from the projected rise in current spending of 8.2%. In any other advanced economy, an 8% increase in spending would yield major improvements in public services but we are getting virtually none. Of the €5 billion increase in gross current expenditure, only 15% takes the form of improvements in non-social welfare services. The total budget for service improvement in health amounts to six days spending under that heading.

These wounds are self-inflicted. For some time, it has been clear that significant imbalances have been developing in the economy, particularly but not exclusively in the property sector. The housing boom brought a welcome and necessary increase in the housing stock and a strong increase in employment in the construction sector. It also resulted in an over reliance by both the economy in general and the Exchequer in particular on the construction sector. The key to managing this threat was house prices. The boom was driven by spiralling house prices, which drove profits and drew more and more workers and materiel into the construction sector. Time and again, the Labour Party warned the Government that allowing house prices to race on unchecked was making life impossible for buyers and that the economy was over reliant on construction but the Government refused to listen. Almost two years ago, the banks moved to curtail their exposure to land speculation by cutting down on loans for purchase of development land. It was also clear from the planning permissions data that developers were starting to stand back from the market. The total number of new housing units for which planning permission was granted peaked at nearly 76,000 in 2005 but decreased to 60,000 in 2006, a fall of over 20%. The downturn in the housing market was well flagged but the Government did nothing.

The inevitable has now happened in that the housing market has stalled. The ESRI-Permanent TSB index reports an average decline in house prices of 4.9% since the beginning of this year, including 1.3% in October alone. Anecdotal evidence suggests far more significant falls in some areas. However, that is only part of the picture. As anyone trying to sell a house will attest, the volume of transactions has collapsed. Many potential buyers are standing back from the market and waiting to see when prices will stabilise, which in turn is making stability even less likely. Of course, interest rates have had a major impact but the abrupt slowing of transactions in the housing sector is directly related to price uncertainty. The fact that rents are increasing is direct testimony to the strength of the underlying demand for housing.

A number of factors have come together to cause this fall in prices and collapse in transaction volumes, including general economic uncertainty, the rise in interest rates and the Government's hamfisted handling of the stamp duty issue. This tax, and particularly the accelerator built into it, was allowed to go unreformed for years, so that as house prices increased it became inevitable that stamp duty would eventually act to choke off demand rapidly rather than gradually. It was within the Government's power to reform the tax but it did not do so. Instead, it was a Government Minister, former Deputy Michael McDowell, who first created uncertainty about stamp duty and started the phenomenon of buyers withdrawing from the market. At that point, it was correct to be concerned about a cut in stamp duty causing an acceleration in prices but once the market had come to a halt and transaction volumes had fallen off, the time was right for significant reform. The reform introduced by the Minister for Finance, Deputy Cowen, after the election was too little, too late and badly constructed.

In the debate on that measure in the House last June, the Minister stated: "The proposals before the House to introduce stamp duty reform with retrospective effect will restore stability and certainty to the market." Now he has decided he needs a second bite at the cherry. It is a stunning admission of incompetence for a Minister for Finance to have to revisit a capital tax of this type twice within six months.

None of this was necessary. Time and again, the Labour Party called on the Government to address the spiral in house prices, through a number of measures, including intervening to limit increases in the price of building land. Fianna Fáil refused to do so. Now house prices are falling and buyers have withdrawn from the market, with the result that the number of units being built has also dropped dramatically. There has been a corresponding impact on the level of economic activity, with 1% being knocked off the rate of growth for every 10,000 fewer units being built. It is this failure of economic management which has led us to this budget.

It remains to be seen whether the changes announced yesterday will have the desired effect. With the construction boom fizzling out, there is little enough left in the Government's economic locker. Employment has been driven for some years now by construction and the public service. Neither sector will now drive growth or jobs.

The target for job creation for next year is very disappointing — at 24,000 it is half the figure of ten years ago — as is the prospect of unemployment creeping upwards. Only this week, Abbott Ireland announced the loss of 500 jobs in Galway. Why does the budget have no strategy to provide education or training opportunities for those being laid off from the construction sector and other sectors in order that they might be re-employed in other sectors of the economy?

Meanwhile, the competitiveness of the traded sector of the economy has been significantly eroded. When Deputy Ruairí Quinn left office as Minister for Finance the current account of the balance of payments was in surplus to the tune of 2.7% of GNP. Today, there is a deficit of 4.9% of GNP. While the balance of payments is not of immediate concern, the weakness in this area is a reflection of poor export performance and of an economy which has substituted domestic demand for export led growth.

The difficulties the Minister has encountered in framing this budget are of his own making. He has failed during his tenure to exercise the economic management required to avoid the hard landing we are now experiencing. This was not, however, the task he was given. He was appointed to the Department of Finance after the last local elections and given the job of rescuing Fianna Fáil rather than properly managing the economy. It was the Fianna Fáil interest as opposed to the national interest that came first. The damage done to the economy extends beyond the usual cynicism of spending before an election and cutting back afterwards. Through his failure to exercise basic economic management, we have been left with serious imbalances in the economy, the correction of which will cause unnecessary and in some respects severe pain.

As I stated, most European countries would be delighted with 3% economic growth. While there are problems in the economy, there are also many positives. Growth is no longer driven by exports of goods, although recent trade figures show growth in services exports of 16%, albeit from a low base. We should by no means abandon the idea of Ireland as a manufacturing location but the future lies in high value added activities such as sales, research and development and high value traded services. While Ireland cannot hope to make a living making the things other countries design and sell, there is no reason we cannot design and sell things ourselves.

If Ireland is to prosper in the next two decades, we must embrace the new economy and organise ourselves properly to latch onto and make the most of scientific innovations. We need to ensure not only that we invest in research in our universities but that the knowledge being generated is turned into commercial activities and young indigenous companies.

Significant investment has been made in our universities in developing world class research teams and facilities. What will determine our success, however, will be whether we can commercialise new ideas and intellectual property and turn them into jobs and incomes. A central element of this process is ensuring that entrepreneurs have access to start-up capital, an area in which Ireland currently falls short.

In the past 20 years, far too much investment has been made in property, in no small measure because the Government has provided tax based incentives for what was low risk activity. It is not overstating the case to say we have developed a cultural preference for lower risk investment in property rather than higher risk productive activity. We need to get better at ensuring technology, entrepreneurs and venture capital come together in the same place and time. In that way, we can develop the indigenous companies which will provide high value, high paying jobs and help to drive growth in other sectors. We need to shift the balance of advantage within the tax code towards high risk, high-tech investment and this budget was a missed opportunity to begin to reorientate the tax code in that direction.

The budget correctly maintains strong investment in the national development plan. If the expenditure plans set out are realised, we will finally reach the 5% of GNP target promised many years ago, notwithstanding the number of times the Government has congratulated itself for announcing the target. The issue of value for money arises regarding this expenditure. The Government has also made a number of announcements about this, before immediately praising itself for its record on this issue, as though announcements were action or correcting appalling levels of waste were an achievement.

There have been some changes to the budget process this year, which we welcomed, although the differences between the pre-budget statement and White Paper were such as to call the first exercise into question. I will refer, however, to the approach taken to investment spending. The Minister was correct to refer to the centrality of productivity growth to our future prosperity. While investment in physical capital is central to productivity growth, so too is investment in human capital. In other words, in a knowledge economy we cannot invest too heavily in our people.

Investment in human capital also allows a Government to simultaneously pursue higher productivity and social objectives. There is no better investment, for example, than universal pre-school education but it is also a highly important anti-poverty measure. The Labour Party has repeatedly called for this basic provision for our children. It is not expensive in the greater scheme of things and could be implemented over a number of years. Against that objective, the €1.50 per week increase in child benefit provided for in the budget is a matter of grave disappointment.

It is disappointing that in drawing up this budget the Minister has adhered to the old-fashioned distinction between capital and current expenditure in deciding what is investment. While I welcome the additional spending on school buildings, very little additional money have been made available to run the schools we have. Before the election the Government promised to double the capitation payment to primary schools. It could and should have taken this step this year because the cost is minimal and the long-run advantages are enormous.

Investment in human capital must begin with the basics, with children being taught in small classes, in high quality buildings with decent back-up services and resources for those who need extra help. Sometimes it is the small, unglamorous investments which are of most significance.

The greatest threat to our long-run prosperity is not the budget deficit or balance of payments deficit but the skills deficit. We cannot afford to continue with circumstances in which 165,000 adults under 35 years do not have a leaving certificate. We need a determined programme of investment in training and upskilling and a corresponding shift in our work culture to achieve it. For example, everyone who leaves school should benefit from a third level education, whether at degree level, through a post-leaving certificate course or another suitable form of education. This budget should have made a start by eliminating fees for part-time students who do not already have a degree — again, a modest but affordable measure.

We also need to look at targeted measures to improve skills in key areas. I would like to see the development in one of our third level colleges of an institute for advanced studies in financial services, which could be an important factor in the future development of what, for Ireland, is an important and high-value added industry. The over-arching point here is that we need a new approach for a new era, not simply a re-heat of budgets gone by.

The big picture in this budget is that capital spending has been increased, the rate of growth in current spending has been curtailed, a minimal tax package has been introduced which will effectively increase the taxes that families pay, and the State is willing to borrow about 1% of GDP. It is necessary to manage down the rate of growth in current spending from the unsustainable pre-election splurge, but again it is striking how little has been achieved with 8% current expenditure growth. How limited is the social dividend from 3% real economic growth?

Pensioners have fared best from the social welfare package. From 1 January, they will receive an extra €14 per week. By Christmas 2008, they will have received the same increase that the Taoiseach has awarded himself for a week. The remainder of the social welfare package is minimal. What can a person on the lowest rate of social welfare buy for €12 per week? What can a family on a low income buy with a child benefit increase of €1.43 per week — barely the price of a loaf of bread?

The Minister claims to have increased social welfare rates by more than inflation, but the truth is that inflation for people on low incomes is much higher at present than for the population as a whole. This is because the price of basic foodstuffs, such as milk and bread, is being driven up by increases in world commodity prices, particularly the price of cereals.

The UN Food and Agriculture Organisation predicts that these high prices will be a feature of world markets for the foreseeable future. There is a requirement to change the traditional mind set which compares social welfare increases to the cost of the standard basket of goods as measured by the consumer price index.

This budget contains no concerted or thought-through effort to address the very real poverty that afflicts our society. One in nine children in Ireland lives in poverty, but there is no concerted effort here to address this monumental waste of human potential. We will only truly address the problem of poverty, when we extend the ladder of opportunity to every family in the State and break the intergenerational cycle of poverty. We will do that, when we ensure that people who can work can access the educational and training opportunities and the child care and other supports that are necessary to make the transition into the workplace.

The existing social welfare code does not do that. In fact, it traps people in poverty through schemes such as the rent allowance or the one-parent family payment, by not offering people real opportunities to train, and by its hopelessly inadequate child care system. The proposal to cut the funding for community crèches is typical of the small-minded cheeseparing myopic attitude that has driven social policy for too long. My colleague, Deputy Burton, referred yesterday to a number of the reforms the Government could have made, but did not — tackling the poverty trap that is the rent allowance, reforming the lone parents' payment, introducing a supplementary child benefit payment for people on low incomes, including the working poor. These are the kind of measures that need to be introduced.

Perhaps the most abject and pathetic element in this budget is the paragraph on medical cards. The Government says it wants to increase the number of medical cards for families with young children and for families who have a child with an intellectual disability. However, it says it cannot because it has to conduct a "data collection exercise" and a "review of the eligibility criteria for medical cards". That is very fine English. What it actually means is that it wants to give out more medical cards but does not know how to do it.

Will the Taoiseach please go and tell a mother, working on a low income, whose child is running a high fever, and who knows she cannot afford the €50 or €60 doctor's fee, that he does not know how to give her a medical card?

The net effect of this budget is to essentially freeze public services for a year. The allocation for improved services in health is so small, that the HSE will probably not notice it has it. It amounts to six days of spending on the health services. Other Departments, including the vital areas of Education and Science and Justice, Equality and Law Reform are getting paltry amounts for additional services. This is in an economy which after 15 years of growth has a crumbling health service and crumbling schools. It is striking that in the Departments of Health and Children, Education and Science and Justice, Equality and Law Reform, the money for additional services is contingent on something called "savings in other areas". There is an entire section on what is called an "efficiency review". Why is the roll-out of cancer screening dependent on tight control of the number of pencils the Department of Health and Children buys? This is the same Department that cannot figure out who has and who does not have a medical card. All of these references, with which the Budget Statement is peppered, to savings in other areas look like cutbacks on a timer. I do not expect the Government to change everything overnight, but I expect it to have a reform agenda — to say, this is what it wants to do, and this is the first instalment. Even that would constitute a social dividend, but it is absent from this budget.

There is little enough to say about the tax package, because there is little enough in it. I want to comment, though, on one issue, individualisation. The indexation of tax bands has once again deepened the process of individualisation, but so too has the increase in the PAYE credit. For some years now, we have seen an increase in the PAYE credit alongside the personal credit, as a cheap way of taking employees on low incomes out of the tax net. One consequence of this policy, however is to further disadvantage one-income families, since the personal credit is doubled for one-income families, but the PAYE credit is not. This amounts to €1,830 per annum. It also disadvantages the large number of people, particularly in construction, who are technically self-employed.

I welcome the Minister's and the Taoiseach's conversion to the environment, though it would have been helpful had the Government seen the light in time to meet our Kyoto commitments during the past ten years. The greenest thing about last year's budget was a €270 million fund to purchase carbon credits from abroad. We were treated to more hot air yesterday, when the Minister said that all sectors of the economy must "contribute as best they can to the necessary reductions" in carbon emissions, but then proceeded to tackle only the soft-touch of the private motorist.

Where are the economy and society-wide changes championed by the Greens before they went into Government? Where is the climate change legislation to put the targets, with which we agree, on a statutory basis? A carbon report is not a carbon budget, no matter how it is spun. What about a rebalancing of infrastructure spending in favour of public transport — something that would be welcome?

The sustainability of our economy is dependent on the sustainability of our environment. We need vision to go beyond what is immediately necessary, and to anticipate the changes we will ultimately have to make. The vision of this budget does not reach that far. Increasing taxation on heavy CO2 emitting cars is a positive step, but is it enough to bring about a significant change in behaviour? What of those who have no choice but to travel by car, because they do not have access to public transport? If the track record on delivering public transport infrastructure is anything to go by, relatively minor changes to VRT will not deter people who have to get to work by the only means available for years to come. That €1 billion should be spent on replacing train carriages and commuter links is fine, if people did not have to go to work until 2009, instead of Monday morning. Delivering reliable, efficient public transport infrastructure within the next few years — not the distant future — are what will bring about real behavioural change.

One could start with purchasing 500 extra buses for Dublin, extending the Dublin Bus network further into our new suburbs, and introducing a simple €1 adult fare for the greater Dublin area, as proposed by the Labour Party earlier this year.

Reducing our carbon footprint must go beyond fine words and expensive ad campaigns. People need practical, accessible tools to help them to make changes to their homes, how they get around and where they get their energy. The greener homes scheme provided such support until the decision to slash its grants last September. Improvements in building standards are long overdue, but what will the Government do for the millions of existing homes that have already been built to poor specifications, and that will continue to be expensive and carbon-intensive to run? A €5 million pilot scheme on insulation will hardly cover its own administration costs. I urge the Government to overhaul the greener homes scheme to help people achieve lower "whole house" emissions. This should enable people to insulate their homes and to install renewable energy heating systems through a mixture of grant assistance and a loan. Evidence has shown that Irish people will respond to practical environmental measures, so let us see more of them.

The Minister stated that €1.7 billion will be spent on energy next year but omitted to specify how much of this will be spent on green energy, and how much will be spent on coal and peat burning power plants that will cost us millions in carbon credits for years to come. If the Government wants to achieve its target of a 33% share in the energy market for renewable energy, it needs to give a clear signal to renewable energy suppliers that it is serious about weaning Ireland off its fossil fuel addiction.

This budget confirms, once again, that the Government has long since run out of ideas. It has simply no concept of where it wants to take our country or of what kind of society we should build. This is not a new budget for a new era; it is a budget for muddling through what, it is hoped, will be a temporary diversion from more of the same.

The Minister, in his speech and in recent pronouncements has shown some inclination to believing that he should have some kind of vision. He just cannot articulate what it might be, and he certainly will not adjust policy to reflect it. There were references in his recent speech to Indecon and something called "equity", but certainly not to true equality. There was much talk about productivity, which I applaud, but calling for higher productivity does not constitute a vision of society. There were references yesterday to the environment, but no sign of economy-wide action on climate change.

As a country we have come a long way but we still have a long way to go. We need a new sense of direction and new purpose. I believe we can set out an inspiring vision of what it is within our power to become, and the Government can take the concrete steps that will further realise that vision. We did not get that yesterday. This was not a budget with a vision. It was not, as the Taoiseach said, the first of something new. It was the 11th budget of a tired Government. It was the budget of a Minister for Finance who has one eye on the Taoiseach beside him to see when he is leaving and the other on his colleagues to see which of them will challenge. If he had an eye in the back of his head, he would need it to keep track of the shifting sands of support behind him.

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