Richard Bruton (Dublin North Central, Fine Gael)
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Question 90: To ask the Minister for Finance the balance between spending savings on the current side, on the capital side, and additional tax measures which will make up his fiscal strategy for the coming years. [38094/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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In the supplementary budget last April, the Government set out a multi-annual plan to correct the public finances. This plan has been welcomed by the European Commission. The immediate need is the stabilisation of the deficit in 2010 and this is Government's proposed aim. This will require difficult decisions to be made for budget 2010 which will presented to the Dáil on 9 December. The bulk of the corrective action in budget 2010 will have to come from the expenditure side as further significant increases in the tax burden would impact on enterprise and growth prospects. The measures that must be introduced will undoubtedly be difficult, but the imperative for action is clear and we must make the necessary adjustments now in order to stabilise the public finances.

At the publication of the end September Exchequer returns, my Department announced that tax revenues could finish the year in the region of €32 billion. Later today, my Department will publish the most recent Exchequer returns for the period covering to the end of October. While the poor performance of tax revenue has continued, it is not out of line with what had been anticipated. To put this in perspective, overall tax revenue in 2009 is back to 2003 levels while gross voted expenditure has increased by about 70% since 2003. Consequently, we will have to borrow approximately €26 billion this year to fund the voted services and the central fund.

Bridging the gap between income and expenditure through ongoing increased borrowing is not a viable solution in the medium to long term. Taking the necessary action now will ensure that confidence is maintained in the Irish economy and that Ireland is favourably placed to benefit from global recovery as it takes hold. Delaying the necessary action is not an option and would require harsher measures to be taken later. It would also result in ever increasing amounts of scarce Government resources being used to service the mounting debt.

In 2009, gross voted spending divides into three main areas with 37% going on social welfare spending; 35% on the public service pay and pensions bill; and 28% on other programmes, including the capital programme. The priority must be the stabilisation of the deficit next year. It is clear, therefore, that all areas of expenditure will have to be considered in the context of deciding on the adjustments.

The pre-budget outlook, which my Department plans to publish in mid-November, will provide an update on the macroeconomic outlook and set out a technical fiscal forecast. The House will have the opportunity to discuss these forecasts in a pre-budget outlook debate. The budget will be published on 9 December and will provide full details of the nature of the corrective measures being undertaken.

Richard Bruton (Dublin North Central, Fine Gael)
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I am disappointed that the Minister did not answer my question about where the savings would come from. Has there been a fresh Government decision overturning the proposal set out in table 6 of the April budget that in the next two years it would earn €4.6 billion in extra taxes, €2.5 billion of which was to come in next year? Has the Minister rescinded that proposal? He has said frequently that €4 billion must be found and none of that will come from taxation. Is that a Government decision or is it different people interpreting their individual thoughts? Does the Government still intend to reduce capital spending by €750 million next year and by €1 billion the following year? Such a move would severely undermine investment at a time when investment value can be obtained in the marketplace.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The table to which Deputy Bruton referred must be read in the context of the speech I delivered at the time of the supplementary budget. Then, I clearly stated the figure for taxation was an absolute maximum and the figure for expenditure reduction was an absolute minimum. I am sure Deputy Bruton would appreciate it is important that a Government keeps its options open in such a matter and reviews it having regard to developments on the general fiscal front.

It is clear from the decline in tax receipts that has continued to take place this year, albeit not on as spectacular basis as last year, that the scope for increased taxation in this year's budget is limited. I have made that clear in numerous public statements in recent months and that is also the general view of the Government. Of course, the precise composition of the balance between taxation and current and capital expenditure will finally be determined on budget day. What I have been doing is outlining the general character of the challenge facing the Government, which is to find the bulk of the expenditure savings on the expenditure side and to indicate clearly that the scope for taxation is limited.

As to the Deputy's second question about the capital budget, as he stated the indicative target stated in the Stability and Growth Pact was €750 million. Again, because of various decisions taken in the past year much of that target is readily achievable in the year ahead. It should be borne in mind that there has been a substantial reduction in tender prices in the interim.

Richard Bruton (Dublin North Central, Fine Gael)
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Will the Minister confirm or deny whether the Government made a decision on changing the balance on the amounts that must be found from current and capital spending? When the Minister says he is keeping his options open, does that mean he is open to some of the suggestions advanced by the social partners that the balance should be different from the Government's current position that the bulk of the €4 billion will be found in spending cuts?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Government has decided, and made it clear at all stages, that the €4 billion must be found to comply with our obligations under the Stability and Growth Pact. Apart altogether from our obligations under the pact, the Government has decided the figure is essential, having regard-----

Richard Bruton (Dublin North Central, Fine Gael)
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A new decision has been made then.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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-----to the need to stabilise our borrowing requirement at 12%.

Richard Bruton (Dublin North Central, Fine Gael)
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Will the Minister reveal the nature of the decision? That was the purpose of my question to find out what decision had been made.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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If Deputy Bruton would bear with me a moment.

Richard Bruton (Dublin North Central, Fine Gael)
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It is only now apparent that the Minister has made a decision but will not release it to the House.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Government decided last April that the indicative figure for this year's budget was €4 billion. Having reviewed-----

Richard Bruton (Dublin North Central, Fine Gael)
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That was not the question I asked.

Brendan Howlin (Wexford, Labour)
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Please, allow the Minister to continue.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am about to answer the Deputy's question. Having reviewed the end-September returns, the Government further decided that not only was this requisite to comply with our obligations under the Stability and Growth Pact, it was also essential in addressing the deterioration of the percentage ratio of debt to gross domestic product that was emerging this year. That ratio stands at approximately 12% and the Government does not see any room for slippage in regard to that target. We need to stabilise that target now.

Richard Bruton (Dublin North Central, Fine Gael)
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The Government has made no decision on the balance between spending and tax.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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That is the whole purpose of the budgetary discussions taking place in the Government.

Joan Burton (Dublin West, Labour)
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Question 91: To ask the Minister for Finance his views on the most recent Central Statistics Office quarterly national accounts which showed a decline of 7.4% of gross domestic product, and a decline of 11.6% of gross national product, in the first six months of 2009 compared to the same period in 2008; his further views on the most recent Central Statistics Office quarterly national household survey which showed a decline in employment of 8.2% in the year to end June 2009; and if he will make a statement on the matter. [37967/09]

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Central Statistics Office published national accounts data for the second quarter of 2009 at the end of September. These data show that gross domestic product and gross national product fell at an annual rate of 7.4% and 11.6%, respectively, in the second quarter of this year. Combined with the first quarter data, the figures show the annual rate of decline in the first half of the year was 8.4% in gross domestic product terms and 12.4% in gross national product terms.

The sharp declines in housing output and in personal spending were the main reasons for the contraction in the second quarter. While these results are poor, one positive feature of the data is that the rate of export decline was not as large as that in many other export-oriented economies.

Data which have been published since then suggest the rate of contraction has slowed in the intervening period. As a result, I am advised the forecast for a gross domestic product contraction of 7.75% this year, contained in the April supplementary budget remains broadly valid. My Department will publish in mid-November the pre-budget outlook which will update the macro-economic outlook.

Regarding labour market developments, the latest quarterly national household survey from the Central Statistics Office shows an annual employment fall of 8.2% in the year to the second quarter of this year. On a sectoral basis, the sharpest falls were in the construction, followed at some distance by the retail sector and then at another considerable distance, the manufacturing sector.

In April, my Department projected that employment would fall by 7.8% for this year as a whole. The data which have subsequently been published are in line with this. So while we are seeing a sharp fall in employment, which is clearly a concern, it is not unexpected.

There are a substantial number of measures in place to support the unemployed. The Government is devoting substantial resources to training and up-skilling so that those losing their jobs in declining sectors can gain future employment in expanding sectors of the economy. The number of places for the unemployed in training, education and other support programmes has doubled this year.

The Government is also implementing measures to benefit from the global recovery when it eventually takes hold. The most important of these short-term measures include restoring confidence to our banking system and stabilising the public finances. Also, from a medium and long-term perspective our future pattern of growth will, by necessity, be predicated on a more sustainable export-led economic model. This will require a continued focus on improving our competitiveness.

Joan Burton (Dublin West, Labour)
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At this stage the Minister knows the Exchequer returns due to be published in the next hour. Does he expect the tax receipts for the year to be closer to between €31 billion and €32 billion than the €34.4 billion he projected at the time of the emergency budget six months ago?

Does he accept that the past two deflationary budgets have hit tax revenues hard, worsening the already perilous state of the public finances? The Minister, in his reply, drew attention to the fact that exports are holding up, confirming that it is the collapse in the domestic economy and demand which is at the heart of the deflationary and depressive spiral in which the county finds itself. As the economy faces a collapse in demand, the current cause of the crisis, does he accept there is a revenue crisis as much as there is a spending crisis in the public finances? If the Government keeps cutting key services and public spending, the deflationary spiral will get worse.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The Deputy asked two broad questions. First, I have not been briefed as of yet about the end of month forecast which will be published in an hour's time.

Joan Burton (Dublin West, Labour)
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The Minister should be. Is he sure he has not been briefed?

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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The monthly forecasts are not briefed in the same way as the quarterly or the end-November forecast. They are the subject, as the Deputy knows, of a press conference at the Department and are briefed to the Minister in advance.

Joan Burton (Dublin West, Labour)
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I was referring to the Exchequer figures.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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I am referring to them too.

Joan Burton (Dublin West, Labour)
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The Minister astonishes me. How can he talk about them? He should be poring over them all morning.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Generally, the monthly figures are posted on the departmental website. They are not the subject of a separate presentation by the officials or briefing to the Minister. If there were anything out of the ordinary in them, the Minister would be briefed about them specifically. In the case of this month, there is nothing out of the ordinary in the forecasts. As I made clear at the end of September, I anticipated a €2 billion shortfall in tax. The tax receipts disclosed in the end-October receipt side are broadly in line with that forecast. Therefore, to answer the Deputy's question, the drop is of the order of €2 billion on the April forecast.

On the matter of the Deputy's general thesis on the operation of deflation in the economy, she is laying far too much stress on budgetary considerations as a motor for deflation in the economy. I will illustrate that point in one way. On the tax side, our estimation this year is that the number of income earners who will fall outside the income tax net will be of the order of half the income earners in the State. That will be an increase from the 39% or 40% forecast in the October budget last year. Equally, those on the top rate, some 21% in the forecast last year, have fallen to 10%. All that suggests a substantial wage adjustment has taken place in the economy in response to international developments. That wage adjustment does not always illustrate itself in CSO analyses of pay rates because they are often based on basic rates. However, we know that a great deal of private sector remuneration took the form of overtime, bonuses or additional remuneration. That features somewhat less in the public sector but reductions in that respect in that sector have been also a significant factor.

That huge wage adjustment is one reason we have witnessed the amount of deflation that has occurred in the economy. The other factor in this context, which the Deputy neglected to mention, is the enormous depreciation in sterling that has taken place. That was already under way in 2008, but that has fed into cheaper import prices within the State this year because our trade position with Britain is in deficit. We buy more from Britain than we export to it. Therefore, any depreciation in sterling has a knock on effect in terms of a fall in the current standard of living in Ireland.

Joan Burton (Dublin West, Labour)
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I am rather surprised and a little shocked that the Minister will not be very much involved in examining the details of the October Exchequer figures. The deflationary spiral is all about tax revenues falling. Much of the Minister's budget strategy appears to be around cuts, which will further deflate spending capacity and receipts of taxes such as VAT. He referred to the UK. Does he agree that the single most disastrous mistake he made as Minister for Finance was to raise the higher VAT rate by 0.5%, which has sent hundreds of thousands of people across the Border to shop in Northern Ireland?

In regard to employment figures, the Minister acknowledged the figures were deteriorating even if the rate of unemployment was slowing down. Does he agree that we are looking at close to 500,000 people being unemployed and that one in five of the people on the live register are now under 25 years of age? Has he had a chance to study the comments made by Professor Blanchflower, a recognised international expert on youth employment-----

Brendan Howlin (Wexford, Labour)
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I must call the Minister to make a brief reply as we have spent well over the time allocated for this question.

Joan Burton (Dublin West, Labour)
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-----that it is essential to have measures in place, in terms of education, training, internship and gaining experience, to get young people back into work.

Brendan Howlin (Wexford, Labour)
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I ask the Minister to be brief in his reply.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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There are many matters to which to reply. Briefly, I agree with Professor Blanchflower to the extent that training measures are exceptionally important. However, I should point out that the CSO figures to the end of October will show for the first time that the live register has not increased in the month of October. There is clearly a stabilisation in the growth of unemployment at this stage. I do not accept the Deputy's prediction that it will grow to 500,000. That is no longer an official prediction.

Joan Burton (Dublin West, Labour)
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I said it is heading towards 500,000.

Brian Lenihan Jnr (Dublin West, Fianna Fail)
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Yes, heading towards it - it is not reaching that figure. I mentioned the extent to which I agree with Professor Blanchflower.

The matter of thousands of shoppers proceeding across the Border had very little to do with a half percentage increase in the VAT rate. It was caused by the fact that there was a very substantial reduction in UK VAT rates, which policy, incidentally, is now a proven failure. There was also a disparity in excise duty arrangements between this State and Northern Ireland, especially in regard to the price of alcohol. All the research on the subject of Northern Ireland has demonstrated how crucial and central a part that is in the inducement to shop there.