Phil Hogan (Carlow-Kilkenny, Fine Gael)

I have obviously hit a nerve.

As the Deputies opposite are well aware, the gap that has emerged between revenues and expenditure is not sustainable. Budget 2012 estimates the general government deficit in 2011 at €15.6 billion or 10.1% of GDP, which is likely to be the highest deficit in the EU. The Government is committed to reducing this to 8.6% of GDP next year, a target set under the EU-IMF programme agreed by the previous Administration. The comprehensive expenditure report 2012 to 2014 and budget 2012 published last week provide for an adjustment of €3.8 billion in 2012 to reach this 8.6% target, with approximately 60% of the adjustment being implemented on the expenditure side.

Consolidation is being implemented in the least "growth damaging" way and there are no increases in income tax this year. Supporting growth as much as possible must be at the heart of the consolidation process. Furthermore, as debt servicing costs have first call on resources, an increasing debt interest burden will lead to higher interest costs adding to the burden on the taxpayer, will reduce our productive capacity, increase unemployment and reduce the scope for providing public services in the future. Borrowing at current levels is not a long-term solution.

Over the coming years as economic growth returns, we also expect that growth in tax revenues will resume. However, the tax base is much reduced and economic growth will be export-led, which is not as tax rich as domestically driven growth. As a result, the expected pick up in tax revenues will not bridge the significant gap that has emerged in the public finances, even taking account of the revenue raising measures that will be implemented. Taxes in 2015 are currently forecast at €43.2 billion, still some €4 billion below their 2007 peak. Expenditure, therefore, must continue to play its part also in restoring sustainability to the public finances. Delivering on our budgetary targets is vital if we are to regain our economic and financial sovereignty and to return to sourcing our own funding from international financial markets next year. The motion simply bears no relation to these budgetary realities and I oppose it on that basis.

The Government is acutely aware of the economic challenges facing many property owners and businesses. My Department provides local authorities with significant resources from central government funds, which help reduce the need for local government charges. General purpose grants of €651 million from the local government fund have been allocated to local authorities for 2012. However, it is recognised that the existing revenue base of local authorities is too narrow by international standards. This was a consideration in the introduction of the €200 non-principal private residence, NPPR, charge in 2009. While the charge represents a dedicated source of funding for local authorities, which is relatively stable, it does not go far enough in addressing the imbalance in the sector's financing.

A proper broadening of the revenue base for local government will be achieved as a result of the introduction of the household charge in 2012 and the subsequent property tax in due course, proposals which found great favour with the previous Administration a short time ago. This charge, which has the potential to contribute up to €160 million towards the provision of local services, is an interim measure and proposals for a full property tax will be developed and considered by the Government in due course. These measures will provide a stable base of financial support for local government.

Local authorities are under a statutory obligation to levy commercial rates. Rates must be levied on any property used for commercial purposes in accordance with the details entered in the valuation lists which are prepared by the independent Commissioner of Valuation under the Valuation Act 2001. The levying and collection of rates are matters for each individual local authority. The annual rate on valuation which is applied to the valuation of each property as determined by the Valuation Office to obtain the amount payable in rates is decided by the elected members of each local authority in annual budgets. Its determination is a reserved function of a local authority. Local authorities have responded positively to requests from my Department to exercise restraint in recent years in setting commercial rates. Annual rates on valuation reduced in 2010 and again in 2011 and all commercial rates are collected and spent locally on essential public services. This is local democracy in action.

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