Richard Bruton (Dublin North Central, Fine Gael)
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Question 1: To ask the Tánaiste and Minister for Finance his views on the deteriorating condition of Ireland's public finances; and the underlying causes and the policy responses needed. [15894/08]

Joan Burton (Dublin West, Labour)
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Question 2: To ask the Tánaiste and Minister for Finance if he will make a statement on the Exchequer returns for the first quarter of 2008; the estimated budget deficit he expects at the end of 2008; if he will compare this with the deficit forecast in budget 2008; if he will provide revised Exchequer profiles for 2008 in view of his statement that shortfalls during the first quarter of the year are not expected to be recouped over the course of the remaining nine months of the year; and if he will make a statement on the matter. [15728/08]

Brian Cowen (Laois-Offaly, Fianna Fail)
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I propose to take Questions Nos. 1 and 2 together.

At budget time, an Exchequer deficit of €4,866 million was projected for this year. This was based on an economic growth rate of 3% in GDP terms. However, a number of risks to the economic forecast were identified, including the possibility of a sharper slowdown in the US, the possibility of adverse exchange rate movements, the possibility that financial market difficulties could persist for longer than assumed and the possibility of a sharper contraction in new house building. It now appears that some of these risks have materialised and, in this regard, other economic commentators who produce forecasts on a more frequent basis have revised their forecasts downwards for growth in 2008. The market consensus is now for GDP growth of around 2.25% this year, compared with 3.25% at budget time. More modest growth would have implications for the evolution of the public finances.

At the end of the first quarter, an Exchequer deficit of €354 million was recorded. Overall tax receipts were €600 million, or 5.1%, behind target in the first three months of 2008. Over half of this shortfall was accounted for by the poor performance of capital gains tax and the bulk of the remainder accounted for by weaker than anticipated VAT receipts. Most of the other taxes were closer to what had been anticipated. However, income tax was above target and this is a welcome indicator of the resilience of the Irish economy. At this stage it is not expected that this tax shortfall, particularly in capital gains tax, will be recouped later in the year.

As regards expenditure, at the end of March total voted expenditure was broadly in line with the target, at €66 million, or 0.6%, under profile. Voted current expenditure was 1.4% below profile, while net voted capital expenditure was 4.3% above profile. The strength of capital expenditure is due mainly to better-than-anticipated progress on a range of key capital spending projects. This is real evidence of this Government's commitment to continued investment in economic and social development.

While our fiscal position may have weakened from that envisaged at budget time, it is important to point out that the current situation is manageable given the strong position of the public finances, including our low ratio of debt to GDP. As is usual, my Department will continue to monitor and report regularly on progress compared with the published profiles issued at the end of January.

The fundamentals of the Irish economy remain strong. This will help us to absorb the housing adjustment and external shocks so that our medium-term prospects are favourable. For instance, our public finances are sound with one of the lowest levels of debt in the euro area; our markets are flexible allowing us to respond efficiently to adverse developments; we have a dynamic and well educated labour force; we have a pro-business, outward-looking society; and the tax burden on both labour and capital is low.

The Government accepts that there can be no unnecessary loosening of fiscal policy and, in that context, the implementation of the national development plan remains a key priority. As regards current day-to-day expenditure, it is crucial that the agreed budget spending limits be adhered to this year. As I indicated at budget time, the rate of increase in current spending over the medium term must be managed carefully and kept within available resources. This Government intends to do just that.

Richard Bruton (Dublin North Central, Fine Gael)
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People express dismay at the very rapid deterioration in the public finances. It is hard to believe that while the Minister was in office, a surplus of €2.3 billion has turned to a predicted deficit this year of €6 billion, if we are fortunate. This has occurred on the back of the Minister ignoring repeated warnings from bodies such as the International Monetary Fund and the European Union to the effect that his budgetary stance was inappropriate and that building permanent spending programmes on the back of temporary revenue from the building boom was not sustainable.

Does the Minister now believe the statements he issued and which were the core of his strategy for the public finances? The strategy was to keep the budget in broad balance, secure a declining debt, which was to be close to zero in 2012, deliver on the national development plan in full, resulting in the expenditure of €184 billion, and make improvements to spending programmes. Does he believe this approach, which is the core of the existing programme for Government, is still feasible? If he does not believe it is feasible, will he outline how he intends to ensure Ministers, in making their plans, will make a realistic assessment of what is likely to be available in the coming years? The Minister will be aware that, as recently as last week, the HSE was planning a massive hospital. According to one Minister, there is not a red cent to deliver it. Something is going seriously wrong and there needs to be a corrective approach.

Brian Cowen (Laois-Offaly, Fianna Fail)
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My budget stance in recent years has been appropriate. I do not accept that the stance involved the building of permanent spending programmes with the benefits associated with improvements in economic performance, including surpluses. Much of the surplus beyond what was predicted was put towards reducing debt, and that is why our ratio of GDP to debt was practically halved in a ten-year period.

On the question of the implications for the future, no one, let alone members of the Deputy's party, predicted the current economic trends before the last election. That said, it is for the Government to manage the situation. Obviously, I do not believe one should dismantle current spending programmes and resile from capital programmes, as suggested in the Deputy's question.

Richard Bruton (Dublin North Central, Fine Gael)
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That is not what I said. I referred to the plans in the programme for Government. The Minister should not answer a question I did not ask.

Brian Cowen (Laois-Offaly, Fianna Fail)
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There is no problem at all. I will answer all questions to the best of my ability. The Deputy made some assertions that I want to rebut. If I do not do so, he might assume I agree with them.

It is clear that if the goals set out in the programmes under the national development plan are not met, prioritisation of programmes will be required. As members of the euro area, we must adhere to the guidelines and imperatives of the Stability and Growth Pact. Our having used our surplus in the good times for the reduction of debt enables us to be in a better position than would otherwise be possible. We will work within the guidelines set out in the Stability and Growth Pact regarding deficit spending. As I stated before, there were times of surplus when we were paying for capital programmes out of cash. Borrowing modestly to invest ambitiously is the correct approach at this phase of the economic cycle.

Joan Burton (Dublin West, Labour)
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Does the Tánaiste agree that his legacy as Minister for Finance since 2004 is now very doubtful because of the events that occurred on his watch which, in many cases, were incited by him? I refer to the slide in house prices, largely brought about by the Minister's two botched attempts to reform the stamp duty system, and to inflation, which is running at 5%, one of the highest rates in the Union. Has the Government a strategy to deal with inflation? The number on the live register has increased by 42,000 over the past year and, next month or the month thereafter, there will be 200,000 people registered as unemployed, many of whom will have had jobs in the construction industry, which is now in decline. Exchequer returns are running at €600 million below profile for the first quarter of 2008. Most important is the Minister's amazing record of turning a surplus of €1.861 billion in the first quarter of 2007 into a deficit of €354 million in the first quarter of this year.

Does the Minister believe there will be a need for Supplementary Estimates to redress these problems? What does he propose to say to workers coping with an inflation rate of 5% as members of his Government step up to take a very large salary increase next September? The increase, amounting to €38,000, is €4,000 above the average industrial wage. As he takes up fairly awesome responsibilities on becoming Taoiseach, does the Tánaiste have a response?

Brian Cowen (Laois-Offaly, Fianna Fail)
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Yes, I do. Once again I reject the assertions made in the Deputy's question. The first part of her critique was a suggestion that my fiscal policy was not sufficiently loose in terms of not meeting the current programme, which the Deputy and many other Deputies in her party and the main Opposition party continue to call for. By the same token she then refers to a change to a deficit in the current year as being a matter of doubtful legacy and suggests that I need a Supplementary Estimate. She cannot have it both ways. We are either spending too much or spending too little. She cannot come with both sides of the argument.

Based on the EU harmonised index of consumer prices, the gap between average EU inflation and Irish inflation is at the smallest it has been for a number of years, with inflation at 3.5% here and 3.2% in the euro area. Approximately 12 months ago there was a one percentage point difference, between 2.8% and 1.8%. Even before we joined the euro, historically we had slightly higher inflation levels. Regarding how that feeds into the pay negotiations, we need to make the point that as a result of our taxation policies and the previous pay agreements, taking account of personal, employee and other credits and tax age exemption limits, when the cost of living as measured by the CPI is taken into account, those on the average industrial wage will have seen their take-home pay rise by 41% since 1997 of which more than half is due to tax reductions in real terms. That is a very important improvement, which I am very glad to be able to report to the House. As we enter these negotiations — I will not negotiate here — it is clear from all our points of view that we want to enhance job security and not let further joblessness accelerate. We need to ensure we link productivity improvements with pay increases.

Richard Bruton (Dublin North Central, Fine Gael)
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Does the Tánaiste accept there has been a serious structural deterioration in the public finances, which has nothing to do with the cycle set out in the programmes he presents to the EU? Does he accept the Department's forecast that tax revenue in 2010 will be at least €6.3 billion short of the figure used as the basis in the programme for Government? Even that is optimistic as it does not take into account the deterioration this year. Against that background how does he intend to prioritise the savings he claims now need to be made in the NDP and elsewhere? Will it mean more closed respite beds? We have seen the hospital in the home service cut off. Alternatively will there be some sensible assessment of what is realistic to achieve with the resources we will have and have a proper structure for planning spending?

Joan Burton (Dublin West, Labour)
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I repeat my question to the Tánaiste. Does he believe it shows good authority that at a time when workers must cope with 5% inflation, the Government is on course to take salary increases of, in some cases, €38,000, which is €4,000 in excess of the average industrial wage? If we are in a period of greater economic difficulty — the Tánaiste talked about facing that in some coherent fashion — what moral authority or leadership is shown by the Government which is accepting increases far in excess of what people earn as an average wage? Where is the moral authority in that stance?

Brian Cowen (Laois-Offaly, Fianna Fail)
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I will take Deputy Burton's question first. The Review Body on Higher Remuneration in the Public Sector, the Labour Court and all the pay determination bodies that are in place have served us for, in some cases, more than 40 years in dealing with some aspects of public pay remuneration. The pay increases are being made available to the Judiciary and senior people in Garda, Army etc. to ensure we get good, qualified people in those important positions. As the Deputy will know, for members of the Government we have come to different arrangements, which involve a deferral of the pay increase for 12 months and then a payment over three years of the proposed increase. It is not correct to say that that level of money will be made available to politicians this year. We modified the recommendation significantly in that respect.

In response to Deputy Bruton, at mid-year we will make an assessment as to the trend and we will clearly set out our position on that basis. In March there was a bit of a pick-up in respect of some of the tax heads. We are monitoring that situation and we will develop it. It is clear that the reduction of €600 million in capital gains tax will not be recouped.

Richard Bruton (Dublin North Central, Fine Gael)
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My question related to 2010 when the Government will be €6.3 billion short of what the programme for Government is based on.

Brian Cowen (Laois-Offaly, Fianna Fail)
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We will manage the nation's monetary affairs in the context of our programme for Government, which is seeking to achieve broad budgetary balance. Clearly in the event of the anticipated growth rates not being achieved we will need to adapt to that situation, otherwise we would not achieve broad budgetary balance. The questions tabled asked what revised expenditure Estimates etc. I would provide at this stage. I am making the point that I do not believe we should dismantle in the course of this year the expenditure targets we have set. Obviously we will try to live within them. However, rather than having a rapid deceleration this year, I believe my budgetary stance has been correct. Over the period we need to consider reductions of current day-to-day expenditure more in balance with available resources in the interests——

Richard Bruton (Dublin North Central, Fine Gael)
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The Government needs a compass to do that and it is in rough seas without a compass.

Brian Cowen (Laois-Offaly, Fianna Fail)
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I am explaining my stance, which is a fair point to make. The Deputy put his point. I do not believe that we should at this stage, as other governments have done at various stages in an economic cycle like this one, resile on the capital programme, particularly in those areas for which we get a return.

Richard Bruton (Dublin North Central, Fine Gael)
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I did not say that.

Brendan Howlin (Wexford, Labour)
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I call Question No. 3 in the name of Deputy Kieran O'Donnell.

Brian Cowen (Laois-Offaly, Fianna Fail)
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The Deputy is saying both things at the same time.

Richard Bruton (Dublin North Central, Fine Gael)
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I said the Government has spending planned that it cannot honour and it has Departments planning on the basis that they can.

Brendan Howlin (Wexford, Labour)
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I ask the Tánaiste to move on to Question No. 3, as called, or we will run out of time for Priority Questions.