Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

Budget day offers the opportunity to reflect on a journey made, to recognise both what our country has achieved and what we want to achieve. On this budget day, we build on progress that would have looked impossible only a few short years ago. Today, we redouble our efforts to rise to the challenges that exist while mapping our national response to the new risks but also to the new opportunities of tomorrow. We should do so - and I do so - with optimism and with confidence in what we can achieve and in where Ireland can still go. Upon my appointment as Minister for Finance and Public Expenditure and Reform by our new Taoiseach, I articulated three economic pillars of this journey. Budget 2018 sees their delivery. This budget will safeguard our national finances and help to rebalance our economy, promote fairness and provide for sustained improvements in people's lives and make sensible and long-term investments to benefit us now and into the future. It has been framed to comply with the confidence-and-supply agreement between this Government and the main Opposition party, Fianna Fáil. Their representatives are making their contribution to Ireland achieving more and I acknowledge that now.

The Economic and Budgetary Position

Before moving on to the strategy and measures for both revenue and expenditure, I will outline the economic and budgetary position of the Irish economy. The economy continues to grow strongly, with real growth projected to be 4.3% in 2017 and 3.5% in 2018. The benefit of this economic growth is best illustrated in the employment figures which show 19 consecutive quarters of employment growth, with gains visible across most sectors and well balanced across our country. Unemployment is now at its lowest since 2008 at 6.1% and is forecast to fall to 5.7% on average in 2018. This is close to the level considered to represent full employment in Ireland just six years since we had an unemployment rate at over 15%. There remains much to be done and our challenge is to maintain this progress and use the benefits of this growth for a better, fairer Ireland.

Balancing our Books

In this context, the budget I am setting out to the House today will deliver this Government's long-held objective of balancing our books in structural terms by achieving the medium-term budgetary objective, MTO. Achieving the MTO is not an end in itself. Sticking to careful budgeting through adherence to the rules agreed by the Irish people in the referendum on the fiscal compact will not protect us from every crisis. However, it will help reduce the chances that future crises are home grown and will mean that our economy, public finances and our society are in a better position to weather crises caused factors beyond our control. We know the list of these potential external risks is lengthy. It includes Brexit, potential changes in US trade policy and various geopolitical threats that could have impacts on the global economy and our country. That is why balancing our books in 2018 will also mean we can devote additional resources to tackling the needs of the Irish people and the economy in 2019 and beyond. In headline terms, the projected deficit for this year is 0.3% of gross domestic product, GDP, and taking account of the budget package, the forecast deficit for 2018 is 0.2% of GDP. In structural terms, the metric by which our obligations under the Stability and Growth Pact are set and measured, we will deliver a structural deficit of 0.5% of GDP, thus achieving Ireland’s medium-term objective.

Reducing the debt burden we face is critical. Our debt-to-GDP ratio has come down impressively in recent years but it is still too high. We cannot ignore the level of this debt and what it could mean for future generations. That is why sticking to careful budgetary plans, avoiding overruns and protecting our solid economic growth will continue to reduce the debt burden in the coming years and reinforce the resilience of both our economy and our national finances.

It means we will be doing the right thing at this point in our economic cycle, the right thing for those who want sustained investment in our public services and the right thing by those who will bear the burden of our debt in the future.

The Rainy Day Fund

To further protect the economy and the national finances, I propose to establish the rainy day fund and transfer at least €1.5 billion to it from the Ireland Strategic Investment Fund to start it off. As set out in the summer economic statement, the annual contributions of €500 million will commence in 2019 after we have achieved the MTO in 2018. This is another important step in strengthening our national finances in a changing and risky world, especially in light of Brexit. To progress this initiative, I am publishing the consultation paper on the establishment of the fund today and I look forward to hearing the views of the Oireachtas on this matter in due course.

Sustainably Growing Investment

I now want to confirm that total voted expenditure in 2018 will amount to just over €60.9 billion. This will equate to €12,700 for every person in our country. Of that sum, nearly €55.6 billion has been allocated to current expenditure to ensure the continued delivery of sustainable and high-quality public finances. This reflects the Government’s continued commitment to rebuilding and investing in our public services.

Total voted capital spending for 2018 will amount to over €5.3 billion, an increase of €790 million on the 2017 allocation. This is central to our national response to Brexit. It will allow our State and agencies to properly plan major projects over the medium term, while also ensuring that communities and businesses can plan ahead. This will result in capital expenditure doubling between 2015 and 2021, from €3.7 billion to €7.8 billion in gross voted capital.

This will bring Ireland’s public investment levels to among the highest in the European Union and will ensure we can deliver crucial projects in areas such as housing, roads and schools. A number of such projects are already having a real impact on improving people’s lives. To give some examples, last month the new M17 was opened between Gort and Tuam ahead of schedule and a new emergency department was opened at University Hospital Limerick , as was the renovated Páirc Uí Chaoimh. In Dublin, the Luas cross city will soon begin to carry its first passengers.

This increased investment will deliver better public services, promote more balanced economic growth and help address the many challenges such as Brexit and climate change. We cannot repeat old mistakes. Ramping up capital expenditure by too high a level, for example, would be a dangerous and simplistic policy. It would very clearly risk excessive inflation, and the overheating of the construction sector and, therefore, our economy. This, in turn, would deliver poor value for money for the taxpayer.

Budgetary Stance

The guiding principle in these choices is choosing the right budgetary stance. At the time of the summer economic statement, I announced that the unallocated fiscal space for 2018 would amount to a little over €500 million in nominal terms, and €180 million of that has since been committed to the public service stability agreement.

To augment the resources for distribution in the budget, I am raising additional revenues of the order of €830 million, giving a total budget day package of €1.2 billion. Expenditure will receive an additional €898 million, in that €684 million is being used to fund current expenditure and €214 million will fund additional capital expenditure. I also will be introducing tax reductions on income worth €335 million.

The budget increases gross voted current expenditure by over €1.8 billion or 3.4% compared with the expected outturn for 2017 excluding the water charge refund. This growth in current spending is less than the forecast real growth in the economy of 3.5%. This is dramatically different to the levels of increases in current expenditure the last time this country was in a full-employment situation between 2000 and 2007, when the average annual increase in current spending was an unsustainable 12%.

I am increasing voted capital expenditure by €790 million from €4.5 billion this year to just over €5.3 billion in 2018, an increase of over 17%. This is about protecting our country’s economic future while investing in our schools, hospitals, child care and housing.

Housing

Housing remains a crucial priority for the Government. I am very aware of the corrosive impact of homelessness on those who are homeless and on our society. I am also aware that many people living in the private rented sector wish to find more appropriate accommodation or move to their own homes but at the moment cannot do so.

Our actions to support the sector, though, are bearing fruit. Commencement notices for new housing are up by 47%. Planning permissions are up by 49%. We are increasing our ambitions for what we will build directly.

I am allocating a total of €1.83 billion for housing in 2018. Some 3,800 new social homes will be built next year by local authorities and approved housing bodies. I am increasing the housing assistance payment, HAP, scheme by €149 million in 2018. This will enable an additional 17,000 households to be supported and accommodated next year. This increased funding will also support the roll-out of the HAP place finder service across the country, thus allowing more households to move out of emergency accommodation and into rental properties.

Funding for homeless services will be increased by a further €18 million to over €116 million to ensure that those who are homeless or in emergency accommodation and those who provide support for them have more resources to do this vital work next year. An increase of €31 million has been allocated to the social housing current expenditure programme. This will bring the total to €115 million and will deliver an additional 4,000 social housing homes next year.

In addition to these extra resources next year, I am today also announcing an additional commitment to further accelerate the delivery of social housing from 2019. I am providing an extra €500 million for the direct building programme that will see an additional 3,000 new build social homes by 2021, as well as increasing the existing Rebuilding Ireland target of social housing homes to 50,000, of which 33,500 will be delivered through construction. The real way to tackle homelessness and to make housing more affordable for everyone is to increase housing supply.

The existing local infrastructure housing activation fund is geared up to contribute to a significant expansion in housing delivery, with over 30 projects supporting the construction of 20,000 homes by 2021. I am providing additional Exchequer funding of €75 million for a second phase of the fund, which will also support the local authority delivery of affordable housing.

When combined with the local authority matching contribution, this fund has the potential to provide approximately 5,000 more homes at more affordable levels by 2021.

Addressing the Financing of Housing Development

We must, however, also make it easier to get funds, build homes and house families and I am, therefore, announcing a significant intervention. I am making up to €750 million of the Ireland Strategic Investment Fund, ISIF, available for commercial investment in housing finance. The funds announced will be made available to a new vehicle to be known as Home Building Finance Ireland, or HBFI for short. It will increase the availability of debt funding on market terms to commercially viable residential development projects whose landowners want to build homes. To get up and running quickly, it will draw on the extensive skill and expertise in residential development funding that currently resides in NAMA. ISIF and NAMA are already supporting the commercial delivery of 30,000 homes and apartments up to 2021 and these additional funds have the potential to fund the construction of an additional 6,000 homes. This initiative, which will have no impact on the ongoing wind-down of NAMA, will be designed to avoid distortion of the market and to comply with state aid rules. Work is under way on enabling legislation to effect these proposals and I look forward to the co-operation of the House on this matter.

The Property Market

Stamp duty on non-residential property was lowered to 2% in 2011 to get the commercial property market moving again. It worked and now that the market is performing strongly, the time is right to focus resources elsewhere. Accordingly, I am increasing the level of stamp duty on commercial property transactions from 2% to 6% with effect from midnight tonight. This new rate is still well below the maximum rate of 9% charged between 2002 and 2008.

However, in relation to commercial land purchased for the development of housing, I intend to introduce a stamp duty refund scheme because of the housing supply challenge. The refund will be subject to certain conditions, including a requirement that developers will have to commence the relevant development within 30 months of the land purchase. Details of my proposal on this and all the other tax measures I am announcing today will be set out in the Finance Bill.

I also wish to signal some proposed changes to the vacant site levy. Taking account of house price and rent inflation since the level of the levy was first set in 2015, and now the clear urgency to see more strategic, serviced sites in and around our cities and towns brought forward for development to provide much-needed homes, the Government, has decided to more than double the current 3% levy rate that applies in the first year to 7% in the second and subsequent years. What this means in practical terms is that any owner of a vacant site on the register who does not develop their land in 2018 will pay the 3% levy in 2019 and then become liable to the increased rate of 7% from 1 January 2019. If they continue to hoard their land in 2019, they will pay 7% in 2020, resulting in an effective vacant site levy of 10% per cent over the previous two years. The message to vacant site owners is clear – to have their levy lifted, they need to get on with developing their lands urgently.

I am reducing the seven year period over which owners must retain qualifying assets to enjoy full relief from capital gains tax to four years. This will reduce any impact it may have on limiting the supply of development land available for sale. In order to encourage owners of vacant residential property to bring that property into the rental market for a minimum of four years, I am introducing a new, time-limited deduction for pre-letting expenses.

Mortgage interest relief for home owners ceased for new borrowers with effect from 2013. The relief that remained in effect for property owners who took out qualifying loans between 2004 and 2012 is scheduled to cease at the end of this year. However, it was stated in the programme for Government, and confirmed in last year’s budget, that it would be tapered out to 2020 for the remaining recipients. In line with that commitment, I am confirming today that this tapered extension will take the form of the continuation of 75% of the existing relief into 2018, 50% in 2019 and 25% in 2020.

Building a Better Health Service

A good health service is vital to the success of any country. Spending on our health services is already at record levels and Irish health care spend per capitais already over 30% higher than the OECD average, but I know that our health service needs further improvement. Today, I am announcing an increase of €685 million in the allocation for the Department of Health. This brings total funding to almost €15.3 billion for 2018, reflecting an almost 5% increase. Securing value for money is now an absolute requirement that must be delivered to maximise the impact of these resources. The allocation includes an additional 1,800 staff aimed at a range of front-line services across the acute, mental health, disability, primary and community care sectors.

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