Wednesday, 24 October 2007
Pre-Budget Outlook: Motion (Resumed)
"notes the Pre-Budget Outlook incorporating Pre-Budget Estimates for Public Services 2008, published by the Tánaiste and Minister for Finance on 18 October, 2007 and having regard to the statement by the Minister that 2007 represented a turning point for the Irish economy, calls on the Government to take all necessary steps to:
The climate for this year's budget is extremely different from that which pertained before the general election. The way in which Fianna Fáil, in particular, presented the finances of the State in the lead-up to the election suggested the only way was up. However, the vast majority of our hard-working people were of the view that this budget would never be anything other than reasonably tight. However, the Taoiseach and his Ministers are now using that old trick of giving the impression to the electorate that the budget will be punitive so that whatever is revealed on budget day will not seem so bad.
There are several issues to which people will look with concern on budget day. We all want to know how far the Government will go in implementing the promises it made before the election. For instance, will there be a change in either the higher or standard tax rates? Will there be any change in PRSI? I recall a clear statement on the part of the Government that the rate would be reduced from 4% to 2%. These are fundamental issues in which every working person will have more than a passing interest. According to the information presented yesterday by the Tánaiste and Minister for Finance, all the indications are that the outturn for 2008 will involve a revenue intake of some €2.2 billion less than that for 2007. This is an enormous shortfall.
Our priority, as we approach budget day, is to obtain a clear view of the infrastructural projects that will be financed in 2008. For example, I read a newspaper article last week indicating that 14 new schools will be built in the Dublin area. I have no doubt those schools are urgently required but no more so than the extension to the school in my own locality of Mountbellew, where 169 pupils are accommodated in a building intended for no more than 97. This school faces the same difficulties as those encountered by any school in Dublin. Pupils in Mountbellew endure cramped conditions in prefabricated classrooms. People had an expectation, given the money available to the Government in the last five years, as disbursed through the much trumpeted multiannual budgets, that school accommodation needs throughout the State would be met.
The new budgetary process is to be welcomed because it at least gives us an opportunity to discuss what our priorities should be, based on the figures provided to us by the Department. However, it does not in any way identify what will happen in 2008 in respect of specific infrastructural projects. For example, there is no indication whether proposed investment in inter-urban and secondary roads and in rail services will go ahead. Evidence of the unfortunate slowdown in the building industry is everywhere. In County Galway, building sites are closing on a weekly basis or only ten houses are built on sites which were originally to accommodate 60. A significant proportion of the €2.2 billion of taxes foregone next year results from the slowdown in the building industry. Are we to assume this slowdown means proposed infrastructural projects will not go ahead at the level and pace which we were promised? Alternatively, will another mechanism be deployed, such as borrowing, to ensure those projects can be implemented?
We wait with bated breath to see what happens on budget day.
I welcome the opportunity to contribute to this debate. I compliment the Tánaiste and Minister for Finance on the reforms he has brought to the budgetary process, that is, the preparation and publication of the pre-budget outlook document and the facilitation of this debate in advance of the budget. I also welcome his introduction of a new unified budgetary framework which encompasses the simultaneous release of both spending and revenue forecasts on budget day. I have sat on the Committee of Public Accounts for a number of years. Two years ago the committee made a number of recommendations relating to the budgetary process. I am very pleased that the Minister for Finance has been receptive to those recommendations and has fully adopted them. The committee asked for a clear distinction to be made between pre-budget and post-budget allocations and I compliment the Minister on that.
As I am speaking on the subject of public accounts, I will make an observation. As part of our reporting process people are able to read about witnesses brought before the Committee of Public Accounts but they often ask what happens. We are all interested in best practice and value for money. We report our findings on issues that arise to the Minister for Finance and make specific recommendations. The Minister for Finance, in so far as has been possible, has accepted and implemented the vast majority of changes the committee has recommended and this is one example. He should be complimented on that as it is always easy to continue doing things in the way they have been done as there is a sense of security in so doing. However, the Minister for Finance has the courage of his convictions to make the relevant changes and present them in the House. I am very appreciative of that and believe he has made a very good change to a system, adding a huge degree of transparency in the process.
The previous speaker said things had changed a lot since the election and that it was boom one moment and doom the next. It is a pity he has left the House, having made his statement, because it is easy to make such a statement. I will go back to December 2006 when the budget announcement was made. At the time growth in GDP was expected to be 5.3% and that was seen to be a realistic target. I have no recollection of anybody, Members on the Opposition side of the House or economic commentators, suggesting that the expectation was wrong. People were not suggesting that the expectation of 5.3%, on which the budget of last year was built, was grossly incorrect. Things have happened in the meantime.
In the short period since last year's budget economic changes have taken place, the most significant being a number of increases in interest rates amounting, in total, to 0.75%. That has had a knock-on effect. Other changes include increases in oil prices and in the exchange rate of the euro vis-À-vis the dollar, which affects exports. We did not con the public. We used a figure, 5.3%, and neither the Opposition, economic commentators nor anybody else suggested that figure was wrong. It is easy to say so in hindsight but it was a forecast, no more than that. Most economic analysts felt, at the time, that it was correct and it is a bit rich to say we conned or fooled people. It was a forecast and it did not turn out to be exactly correct. Neither did many previous forecasts, however, because in many years we were criticised for understating the rate of growth. It was a forecast, and exact forecasts are always difficult.
One of the significant changes which has been mentioned has been the reduction in housing output. That was always going to happen because a country of this size cannot produce 80,000 or 90,000 houses per annum. Admittedly the drop-off has probably been much quicker and more severe than people might have expected but housing output and housing starts are back to a level that is more realistic and sustainable over a longer period. There was very high output to meet very high demand, and supply and demand are coming more into line, maybe as a result of higher interest rates. That will have an impact on our economy. In particular, the rate of increase in employment next year will drop. It is expected to be a little over 1% instead of the 3.5% to which we have become accustomed. Next year, for the first time, we also expect, because of the reduction in construction industry output in housing, that unemployment will rise from its current level of approximately 4.5%.
That is the context in which the Minister for Finance is framing the budget and he is upfront about the issues. It is not all doom and gloom, however. In 2007 there has been record spending on services. We have more medical people, more educators, more gardaí and the range of services provided across all Departments is at an all-time high. As we approach the budget it needs to be noted that, despite the fact that the rate of growth in the economy next year will not be what it was last year, all services will be provided and there will be no reductions. We had a record year in 2007 and it will be repeated in 2008. What will vary is the rate of growth in a number of areas. People have said the Minister for Finance is being pessimistic, but he is being realistic. We will maintain all the services to which I referred and the Minister has said so. He has also indicated how much it will cost to provide the same level of service next year as this year.
People have asked where the money and the good times have gone, now that the economy is not growing as much. They say it has been squandered and frittered away, but nothing could be further from the truth. All we need do is look around us to see where the money has been spent. One of the areas in which I have a particular interest is education but a number of years ago there was no such thing as an SNA, special needs assistant. Since 2005 alone there have been 2,500 additional SNAs in education, there have been 3,400 additional primary school teachers and 1,100 more are earmarked for next year.
The same applies to our school building programmes. Investment in education infrastructure since 2005 has been in excess of €1 billion and involves a number of projects. The previous speaker has left the Chamber but the point is very relevant to the growth of population in Dublin. I suggest to the Minister that, as parts of west Dublin, in particular the town of Lucan in my constituency of Dublin Mid-West, have experienced huge growths in population, such investment needs to continue apace. The population is young and in the past five years in Lucan alone we have provided virtually a new primary school each year. The consequence of that is that there will be a demand, as those young people get older, for a secondary school in the area.
The Minister must be cautious in his budget and must spend within our means. Running the finances of the State is probably not very different from running the finances of the home. It would be inappropriate to return to an era in which we spent and borrowed very significantly, expecting our children to pay tomorrow for the services we enjoy today. Of equal importance is that the Minister sends out the signal that he is running the economy on a sound financial basis, because that inspires business confidence. As most people realise, business confidence and sentiment can be somewhat fickle. We still depend very significantly on investment in this country. We are constantly seeking companies like Wyeth, which has invested in my area. One of the key elements such companies will look for is a sound, well run economy. Irrespective of whether the next generation pays for current borrowing, the present one has benefited from such companies.
I said we expected a slight increase in unemployment next year, particularly arising from the reduction in construction industry and housing output. It is important the budget takes cognisance of that fact by targeting resources at those who become unemployed, to get them back into the workforce as quickly as possible. We saw the adverse effects of long-term unemployment in the 1980s and earlier so the quicker those who become unemployed can be trained and get back into the workforce the easier and more adaptable they are. Knowing that this is likely to happen in the near future, it is something we should take into consideration in the preparation of the budget.