Dáil debates

Thursday, 23 June 2016

Summer Economic Statement 2016: Statements


1:30 pm

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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I call the Minister for Finance, Deputy Noonan, who, I understand, intends to share time with the Minister for Public Expenditure and Reform, Deputy Donohoe, and the Minister of State, Deputy Eoghan Murphy. Is that agreed? Agreed.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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I welcome the opportunity to discuss the summer economic statement, which outlines the broad parameters that will underpin discussions of economic and fiscal policy over the medium term. In the short term, it sets the framework for discussions on budget 2017 over the coming months. As Members will be aware, the recent stability programme update, SPU, submitted to the European Commission in April was completed before the formation of the Government. Accordingly, the SPU was prepared on a purely technical, no-policy-change basis. This is the established practice in circumstances such as those that applied in April, when the Government remained to be formed following the election.

To put this week's publication in context, it represents a key element of the proposed new budgetary reform framework and the initiation of a process of enhanced engagement by the Oireachtas in budgetary scrutiny. This will be followed by the national economic dialogue next week. The dialogue is an important element of the budgetary framework and its objective is to facilitate an open and inclusive exchange on the competing economic perspectives in advance of budget 2017. Representatives of community, voluntary and environmental groups, business, unions, research institutes, the academic community and the diaspora will be invited to contribute to this dialogue.

Oireachtas involvement is very important. Therefore, all members of the Select Committee on Arrangements for Budgetary Scrutiny have also been invited.

The third element of the process, which represents a new departure, will involve the publication next month by the Department of Public Expenditure and Reform of a mid-year expenditure report. I will leave it to my colleague the Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, to discuss this initiative, which will provide valuable input to the Dáil's consideration of priorities for budget 2017.

A further development is the circulation next month by my Department of tax strategy papers to the relevant sectoral Oireachtas committees. The tax strategy group is made up of representatives from various Departments and political advisors. The tax strategy papers set out existing measures across all tax heads and contain issues for discussion and costed options for tax changes.

Turning to the economic situation, I am greatly encouraged by the latest data showing that the economic recovery is now firmly established, with growth of 7.8% recorded in 2015. The budgetary position is also set on a safe and sustainable path, with a headline deficit of 2.3% recorded in 2015. Accordingly, we have now formally exited the excessive deficit procedure. Under the preventative arm of the European fiscal rules, Ireland will have greater room for budgetary manoeuvre to accommodate increases in Government expenditure and tax reductions in a prudent and sustainable manner. Importantly, the expansion in economic activity initially led by the exporting sectors has broadened, with growth now increasingly driven by domestic factors as both consumer and business confidence continue to recover. This is very important, as the domestic sectors are both jobs-rich and tax-rich.

My Department is forecasting GDP growth of around 5% this year and 4% next year. From 2018 onwards, GDP is expected to grow broadly in line with the potential growth rate of the economy, with positive contributions from both exports and domestic demand. In this context, I should emphasise that economic growth is not an end in itself; rather, it is a means through which a social recovery can be achieved. Growth provides the resources necessary to advance social progress, promote inclusivity and provide high-quality public services to all citizens. That is why economic growth is so important.

The economic recovery is perhaps most clearly evident in the labour market, where we have now had fourteen successive quarters of employment growth, representing an increase of almost 160,000 jobs since the low point of the crisis. The latest data show that employment increased by 2.4% year on year in the first quarter of 2016, representing the addition of almost 47,000 jobs. Importantly, the recovery remains broadly based, with gains recorded in virtually all economic sectors reported by the Central Statistics Office, with the construction sector showing particularly strong momentum. In parallel, the unemployment rate has fallen to 7.8% in May, which is down from a peak of over 15% in early 2012.

Over the short run, we expect labour market dynamics to continue to strengthen. My Department is projecting that an additional 50,000 jobs will be created this year. As a result, employment is set to exceed the two million mark this year for the first time since 2008. These figures are a testament to the continued success of the Government's Action Plan for Jobs, which will help ensure that we reach full employment of 2.1 million by 2018.

Turning to fiscal developments, following a very difficult period, the public finances are continuing to move in the right direction. In fact, I am pleased to state that significant progress has been made in this regard. The underlying deficit of 1.3% recorded last year is further evidence that the public finances are being placed on a sustainable footing. Encouragingly, Ireland has successfully exited the excessive deficit procedure in a timely and durable manner. As Members will be aware, from this year the Irish public finances will be subject to the rules of the preventative arm of the Stability and Growth Pact. It is important to point out that our new fiscal objective is to achieve a structural deficit of 0.5% of GDP. Based on the revised trajectory and assumptions set out in the summer economic statement, I am pleased to state that we will achieve this medium-term objective by 2018. It is worth noting that under the new fiscal regime, increases in public expenditure will be sustainably financed and safeguarded from dependence on cyclical revenues. These rules are designed to ensure that fiscal policy enhances economic growth and macroeconomic stability. This is something that should be welcomed.

I am greatly encouraged by the latest Exchequer returns, which provide a real-time indication of the pertaining budgetary position. After the first five months of 2016, tax revenues were three quarters of a billion euro, or 4.3% above expectations, representing an annual increase of 9%, or just over €1.5 billion, when compared to the same period in 2015. This solid performance provides confidence and facilitates an increase in the tax revenue forecast for 2016. This revised projection is for an additional €900 million, which equates to an increase of around 2% when compared to the budget 2016 forecast.

Have I much time left?

1:35 pm

Photo of Bernard DurkanBernard Durkan (Kildare North, Fine Gael)
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The Minister has two minutes plus.

Photo of Michael NoonanMichael Noonan (Limerick City, Fine Gael)
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As Members will be aware, our tax forecasts are unchanged in the recent stability programme update, SPU. In view of the strong tax revenue performance since the publication of the SPU, this increase is realistic and within the parameters of prudence. However, I should point out that not all of this additional tax revenue is of a recurring nature.

The summer economic statement highlights the benefits that will be achieved from this Government's policy approach in managing the public finances. These positive developments are clearly seen in our debt levels. Our general Government debt-to-GDP ratio peaked at over 120% of GDP in 2012. My Department is now projecting a debt ratio of 88% of GDP for this year, which is below the euro area average, with the debt ratio set to decline further to 72% by 2021. This means that more of our resources can go towards paying for a fairer society rather than servicing the debt.

With regard to fiscal space, this document sets out that the estimated indicative fiscal space from 2017 to 2021 is in the region of €11.3 billion. For next year, it is currently estimated that there will be just shy of €1 billion available for additional expenditure increases and taxation reductions. This will be distributed in line with the programme for Government, with a split of at least 2:1 between public expenditure increases and tax reductions. My ministerial colleague Deputy Donohoe will outline the expenditure issues.

I wish to mention that we have also included provision for a rainy day fund. I believe it is crucial that we plan for the future and that we are ready for any unforeseen events that may occur. With this in mind, I am pleased to state that a contingency fund will be established and it will be known as a rainy day fund. After achieving our medium-term objective in 2018, from 2019 onwards €1 billion will be remitted to the fund each year. I believe this is very prudent. I plan to bring forward a paper at the end of this year or early next year and I will welcome input from colleagues in all parties as to the detail of this rainy day fund and on the triggers that would be desirable before this money could be spent.

Photo of Paschal DonohoePaschal Donohoe (Dublin Central, Fine Gael)
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The publication of the summer economic statement represents a very significant step in laying out the Government's medium-term strategy for sustaining economic growth, securing sensible and responsible budgetary policies and using the proceeds of both to continue to build services for all. Published a little over six weeks after the Government took up office, the summer economic statement details the economic and budgetary framework within which the Government's ambitious programme for a partnership Government can be delivered. In addition, the statement also plays a pivotal role in providing the foundation stone for a better budgetary process, which provides the opportunity for Government and the Oireachtas - while each continues to play its constitutionally ordained role - to address economic and social priorities.

Today also coincides with a momentous decision by the UK on EU membership. As set out in the statement, our interest is that the UK remain a valued and vital partner for Ireland in Europe and in the EU. Whatever the opinion polls say, no one can predict the result. There are clear risks to Ireland.

That is why a core message of the summer economic statement is that we must invest in, and save for, our future.

As the Minister for Finance said, we will have an estimated €995 million available in 2017 to provide for additional expenditure increases and taxation reduction and reform. The programme for Government provides for at least a two to one split of this available fiscal space between public spending increases and tax reductions. At the end of last year, we eliminated our unsustainable deficit. However, this underlines the need for fiscal and economic sustainability balanced with the continued need to provide essential and improved public services.Of course, all of this did not happen by accident. It came about as a result of the sacrifices of the people and difficult decisions. Consolidation measures totalling €30 billion were implemented over the period of 2008 to 2014, with expenditure reductions accounting for two thirds of those measures. A targeted approach was adopted in order to protect key public services and social supports to the greatest extent possible. As the Minister for Finance has outlined, we are now in a very different position. Our deficit is under control and debt is falling as a share of our national income. Nobody speaks now of the troika, promissory notes or the risk of default and yet these are all very recent experiences. This Government will not take expenditure decisions that endanger this hard won position.

One of the positives that this stronger fiscal position is that it allows greater potential for capital investment to increase our public infrastructure stock. The national capital plan published in September 2015 announced an Exchequer capital spend of €27 billion over a six year period. This was primarily targeted at addressing priority needs in transport, education, housing and health care. The scale of the Exchequer component of the plan was developed following a strategic review of infrastructure requirements and taking account of the Government's economic forecasts at the time. It was also planned to ensure that it was fully consistent with both our national and European fiscal rules. Supplementing Exchequer funded investment was investment from the wider semi-State sector and public private partnerships, PPPs, delivering total investment of €42 billion over the period of the plan. On the basis of the latest estimates of national income, the planned level of State backed capital investment represented an average of 3.2% of national income per annum over the period of the plan.

However, in the programme for a partnership Government, the Government committed to seeking Oireachtas approval for a cumulative additional €4 billion in Exchequer capital investment up to 2021. This was to be targeted in areas such as transport, broadband, education, health and flood defences. I am pleased to confirm that our stronger fiscal position allows us to provide for an even greater level of increase in capital investment than envisaged in the programme and to further increase our additional level of investment in our schools, hospitals, transport and other public infrastructure on which people depend. The statement published this week provides for an additional €1 billion in capital investmentover and above the €4 billion already signalled in the programme for a partnership Government. This brings the total extra spending on capital investment to €5billion over the period of the plan, an increase of 18.5% on the previously proposed Exchequer component of the plan and of 12% of the total plan. This will bring State backed capital investment increase as a percentage of our national income from the previously planned 3.2% to 3.7% over the period 2016 to 2021.

The allocation of this funding will be informed by the outcome of the mid-term capital review. It will provide the Government with an opportunity to consider the scope for an even higher level of capital investment, taking account of the information and projections available at that point on our economy. Of course, any other funding decisions and any decisions that may be made due to this additional funding will be made on the basis of value for money and the best interests of taxpayers.

Against this background, however, new challenges are also emerging. The demand for health care continues to grow. The rate of growth is, at times, increasing more rapidly than the capacity of our service to respond to it. It is critical that we strike a balance between the health needs of our people and the ability of the State to sustainably fund the service. This is why the Government has been able to allocate an additional €500 million to our health service in recent weeks. With this increase, total health spending for 2016 will be €14.1 billion, a year-on-year increase of 6%. This will be used to maintain and improve front-line services, tackle overcrowding and reduce waiting lists. With no scope for further increases in expenditure this year, it is now incumbent on the Department of Health and the HSE to manage this budget in a sustainable way, with all to be held to account for any failure to do so. The investment provides the health sector with the best opportunity to manage within its budget this year. I welcome the development of new accountability measures that the Department of Health is currently finalising. This approach will benefit both patients and taxpayers over the coming years.

Another huge challenge is housing and homelessness. The Government's action plan for housing will set out the details of how the State will increase housing supply to achieve our target of 25,000 homes per year. Reflecting the urgency of this, I launched a €200 million local authority infrastructure fund in conjunction with my colleague, the Minister for the Environment, Community and Local Government, Deputy Coveney. It will enable local authorities to provide access roads, bridges and other vital local supporting infrastructure to enable the development of up to 20,000 homes areas throughout the country, including areas of high demand such as Dublin and Cork. The fund will be open to all areas.

Meeting the twin challenges of providing additional and better health services and providing the necessary resources to increase significantly the supply of social and affordable housing to address our housing needs will inevitably have consequences for other resources that will be available to fund other priorities but these choices must be made because we must pursue sensible policies.

Regarding public service pay and pensions, I will reiterate what I have said on a number of occasions. The Lansdowne Road agreement provides the Government with the only framework for managing the competing demands of the need for better public services and the needs of those who work within our public services. Under the agreement, the first phase of pay restoration has already commenced. It is progressively weighted towards those at lower levels of pay. We must continue to develop a way of determining public service pay in a manner that balances the competing interests of the Exchequer, the State as employer and our public service employees. This is why the programme for Government contains a specific commitment to establish a public service pay commission to examine pay levels across the public service, including entry levels of pay.

Since the first public service reform plan was published in 2011, a significant programme of reform has been put in place. Its aim is to improve service delivery and outcomes for users of public services. The need for this is clear. The economic statement projects that total spending is projected to exceed €53.5 billion in 2017, with day-to-day spending broadly in line with that of 2008. As a result of this, it is critical that the process of reform is intensified over and above the significant achievements under the current plans. We must recognise that there can be no return to providing increased resources for public expenditure on the basis of measures or gains that will not be sustained. We must make every effort to identify and drive reforms and change at every level of our services to free-up and maximise the effectiveness of existing resources to meet priority and targeted public service needs.

Taking these decisions is not easy. The previous Government did not shy away from them and neither will this Government. In doing so, our only interest is the future of our society and the economy upon which it depends. This statement is a recognition that social progress and economic growth go hand in hand and that the purpose of a strong economy and sound public finances is to create the fair society to which we all aspire. Only by creating a working Ireland and supporting those in work and those wanting to work can we deliver better schools, hospitals and public services for all who use and rely on them.

1:55 pm

Photo of Eoghan MurphyEoghan Murphy (Dublin Bay South, Fine Gael)
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The summer economic statement is an important stage in a new enhanced budgetary process. The Government's engagement with the Oireachtas is key to that. The summer economic statement will be followed by the national economic dialogue next week. We will then move into the mid-term review into the tax strategy papers. This will be followed by the budget, which will be followed by the relevant legislation. We will then deal with the Revised Estimates process and prepare for the next stability programme update. We are looking at an all-of-year cycle, with constant scrutiny of the numbers. The latter is an important development, particularly when one has new resources coming into play in the form of a new budget oversight committee, which is being scoped at present, and a new independent budget oversight office, which will come into being next year. With these new resources, we hope to have better debate and analysis and, as a result, better decision making by Government. That was not there in the past when we needed it. It is a crucial development that will require more work from all of us in this House.

The rainy day fund is about prudent management of any surplus income coming into the economy in the years ahead as the economy continues to grow. The Minister for Finance has outlined his intentions to engage with the Oireachtas as to how this rainy day fund might work, when it would be deployed and on what terms, the authorisation mechanisms and whether there would be partner funds working in co-operation with that fund. I know we previously had the National Pensions Reserve Fund which built up an important reserve but, unfortunately, that had been deployed almost wholly in one big bang so it was less of a rainy day fund than something to deal with the economic earthquake we experienced. What we are talking about in terms of building up a rainy day fund when resources are available is making those small but important interventions into the economic cycle in a counter-cyclical manner to help a smooth and adjusted path for growth and to do that in a focused way without having to wait for those major events when the fund would then have to be deployed, as happened in the past. What we hope to get from this new economic cycle, the summer economic statement, the new budget office and the new budget oversight committee is that those interventions will not be necessary in the future and that, through the new oversight of the numbers and the new work we are doing, we will be able to continue to grow the economy in a sustainable and balanced way. That is very important. Nonetheless, prudence requires a rainy day fund to make those small interventions where they may be necessary in the future.

What underpins all of this, the summer economic statement and the debate that is about to begin in respect of the fiscal space and our priorities as a Government, which reflect the priorities of the people, is the increase in jobs. It is the reason why we are in this space and are able to do this. This increase is thanks in no small part to the activities of many businesses and small and medium-sized enterprises and the great work they have done to increase employment. It is also thanks to foreign direct investment that much work has been done to shepherd and keep it in the country and the job creation that comes from that. Many of these measures are underpinned by the Action Plan for Jobs introduced by the previous Government and the great gains it made in the past and continues to make today.

The growth in jobs has allowed people to get back to work and make a positive contribution to the economy. I know that when we have these debates and people look for extra resources, they often talk about increasing taxation. If we want to increase revenue to the Government for spending on public services, however, the best way to do so is through activity, productivity and getting people back to work. As a result of getting people back to work, apart from the very tangible benefit for them in their personal, family and community lives, there have been extra resources for the Exchequer. This has allowed us to close the deficit, reduce the debt, increase spending gradually and prudently and make targeted reductions in taxation for those on low and middle incomes. As this happens, it creates a better environment for further job creation and the benefits come again from that. It is important that we can continue the momentum that exists in the context of creating jobs.

The reason we focus on the numbers, which can sometimes seem cold, is because in focusing on the numbers and these headline targets like job creation and deficit reduction, it brings us into the space where we are today where we can focus on the needs of the Irish people and the opportunities for the country in the years ahead. The choice comes down to us, as a Government, working with the Oireachtas as to how best to deploy our resources so that people can benefit from the sacrifices that everyone has made through the difficult years following the financial crisis. This is what the summer economic statement is about. It is about getting that dialogue going about what our choices are as a Government and as a Parliament.

Photo of Michael McGrathMichael McGrath (Cork South Central, Fianna Fail)
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I thank the Ministers and Minister of State for their opening remarks on the summer economic statement and the opportunity to make a contribution to this debate. I welcome the fact that we now have a summer economic statement. It is more meaningful that a spring economic statement by virtue of the fact that it is closer in the time cycle to the budget. I also welcome the reforms that are in the process of being established in respect of how budgets are formed in this budget. Not all of the reforms will be in place for budget 2017 but I hope that a number of the important pillars of those reforms can be in place in respect of the forthcoming budget.

Those reforms can only mean something if we do not have a situation where on the Friday before the budget when the White Paper on receipts and expenditure is published, the Government can pull a rabbit out of a hat. This would undermine the entire process so it is good that, four months out from the budget, we know there is likely fiscal space or available resources of the order of €1 billion. I hope that if there are any changes to that over the next number of months, the House is made aware of them and we can have a more informed debate because there have been massive swings very late in the day in recent budgets in respect of the level of resources available to the Government of the day.

I must mention the shadow hanging over this debate and, indeed, the future of our economy, namely, the referendum taking place in the UK today. Fianna Fáil very much hopes that the decision is for the UK to remain within the EU but we must acknowledge that if a contrary decision is made by the British people, it will have very profound consequences for our economy. This is an issue to which we will return later in the day during Oral Questions to the Minister for Finance.

We very much welcome that the economic recovery is broadening. It is a strong recovery that is employment-rich but there are major pressures in the economy that need to be acknowledged. I am glad that the Minister for Public Expenditure and Reform acknowledged the crisis we are dealing with in housing. Not only is that the social challenge of our time for people caught up in the housing emergency, it is also a key economic issue. The lack of affordable housing could hinder our economic development. It needs to be recognised as an economic issue as well being principally a social issue for those directly affected by it.

The two main issues that received attention in the coverage of the publication of the statement during the week were the increase in the available fiscal space and how it will be deployed between tax and expenditure and the decision to create a rainy day fund with an allocation of €1 billion per annum from 2019 after we have reached a balanced budget. At first glance, the fiscal space for the next five years has increased substantially from €8.6 billion to €11.3 billion but much of that increase relates not to any shift in the fundamentals of the economy or a change in external factors but rather to a decision by the Government in April 2016 to approve a change to Ireland's medium-term budgetary objective such that we will now be constrained by a deficit target in structural terms of 0.5% compared with the previous balanced budget target in the context of our medium-term objective. While many will welcome the greater flexibility this brings, it is not without risk and this should be acknowledged. Ultimately, all borrowing is deferred taxation and it is our firm view that we should aim to continue to outperform the deficit target, run a balanced budget as quickly as possible and establish the rainy day fund.

Within the overall annual budget of approximately €70 billion, there are plenty of choices for Government and policy-makers to decide upon. One that will receive considerable attention is what happens with income tax and USC. We have a different perspective from the Government on the question of USC. Fianna Fáil policy remains that we should progressively reduce the burden of USC on all income earners. Our ultimate objective is to remove it from all income up to €80,000 per annum and that surplus income would remain liable to USC. It comes down to the fundamental choices we have to face as a country because we cannot have everything. We cannot have as many gardaí on the streets to protect and defend communities as we would like. We cannot have the high quality education system we would like to have at primary, second and third level if we make choices to deprive ourselves of so much revenue. The Fianna Fáil objective is an ambitious one of reducing and eliminating the USC on income up to €80,000. In our view, it is achievable providing economic growth remains strong. We want to ensure that public services are prioritised and that children who are on waiting lists for a year or more, even to have an assessment of need carried out, have some prospect of getting that done and that once the assessment is carried out, they will have access to intervention services. It will come down to choices. We do not believe the abolition of the USC in the lifetime of this Government is achievable or desirable in light of the pressures that have clearly been built up on public services. The question of how tax cuts and the proposed abolition of USC over time will be funded is crucial.

One issue that needs to be highlighted is that part of the mechanism for funding that is the non-indexation of the taxation system which does not come without a cost for individuals. That should be acknowledged. According to replies I have received, the gain to the Exchequer from not indexing the tax bands and credits next year will be in the order of €380 million. By contrast, the projected amount of tax relief the Government is planning to provide is in the order of €330 million. In very simple terms, this means taxes will effectively go up in real terms by about €50 million in 2017 when account is taken of the loss to taxpayers of freezing bands and credits.

There are other taxation commitments made by Government apart from the changes to the USC. Presumably there will be a further move in terms of the earned income tax credit for the self-employed. A very welcome step was made in that direction in the last budget. I imagine the Government will go another way towards introducing parity between self-employed and PAYE workers. There is a commitment on capital gains tax so the €330 million will not go that far. Of course, there is the option of raising additional revenue. I believe the Government is looking strongly at the issue of a sugar tax of some kind, which may provide additional choices.

We welcome that a rainy day fund will be established. It is an issue we proposed prior to the election but we are concerned at the manner in which it may be implemented. I welcome the Minister's commitment to consult the House and have a debate on this issue and that he is open to ideas on how it can be structured and on what the trigger mechanisms will be for deploying the resources that will over time be built up in the rainy day fund. It needs to be ring-fenced, placed at arm's length and the trigger for accessing it needs to be clear. It should be counter-cyclical as the Minister for State, Deputy Eoghan Murphy, has said. The Minister of State, Deputy Eoghan Murphy, Deputy Pearse Doherty and I sat through the banking inquiry and that point about the mistake of pro-cyclical fiscal policy was made time and again. It needs to be changed in the future in terms of the economic governance of the country. That is one of the key reasons this fund is necessary and should not develop into a slush fund of any kind for the Government of the day. The criteria under which it can be deployed need to be clearly defined. It should be deployed when certain economic conditions are met in a downturn - for example, an increase in the unemployment rate of 1% would be one suggested trigger.

We also believe that a sensible approach would be to link payments into the fund to some volatile element of the State's revenue base - the obvious one is corporation tax. June's Exchequer figures show that the State took in €774 million more in taxes in the first five months of the year than the Government expected. The figures for the period up to the end of May were announced at the beginning of June and 63% of the out performance came from corporation tax receipts mirroring the performance last year when over €2 billion above what was anticipated for corporation tax receipts was received.

Fianna Fáil very much welcomes these strong Exchequer figures. However, the risk associated with treating corporation tax receipts as permanent can be seen from the fact that the top ten multinationals account for about a quarter of the overall corporation tax revenue and the top 50 multinationals pay about half of all corporation tax. There is a dependency and volatility there which needs to be recognised. The risk of building up permanent expenditure commitments on the back of that volatile revenue base has to be considered by Government. Should international trading conditions deteriorate, this revenue stream will inevitably come under pressure. There are many changes in the international tax environment. Those changes and the behaviour and response of multinational corporations have contributed to the increase corporation tax revenue that we are benefitting from as a country.

The economic statement makes considerable play on the need for a supportive business environment. This is something with which we concur, however, delivery of this commitment is what matters. Fianna Fáil has very much put the issue of equal tax treatment with the PAYE sector for the self-employed on the political agenda. We welcome the Government's commitment to deal with that issue in the forthcoming budget and presumably in the following budget to bring the tax credit up to the full €1,650.

I made the point previously that the extension of capital gains tax relief announced in the last budget was inadequate as it restricted the benefit to the first €1 million of gains. In contrast, the UK has a far simpler, clearer and more attractive relief which applies to a flat 10% rate to entrepreneurial gains of up to £10 million. This limit has increased threefold since the relief was first introduced. The reality is that given the mobile nature of much of the investment, we are competing for that investment with our nearest neighbour and other jurisdictions.

The summer economic statement is largely silent on the question of other issues that impact on family finances and on the viability of many businesses. The only mention of mortgages is a vague commitment to take action on mortgage arrears and while this is welcome, it does not address the ongoing problem of scandalously high variable rates. Fianna Fáil has been consistently campaigning on this issue and we look forward to the Committee Stage debate on the Central Bank (Variable Rate Mortgages) Bill. Hopefully, it will be brought forward to the finance committee early in the autumn. This legislation strikes the right balance between the bank's need to make a profit and the borrower's right to be treated in a fair manner. Under the legislation, the Central Bank will be required to carry out an assessment of the state of the mortgage market and should the Central Bank conclude that a market failure exists, the legislation empowers it with a range of tools to influence standard variable rates being charged. The outcome is what is important in the issue of rates. Some progress has been made to date, which I have acknowledged. I hope there will be more progress before the finance committee has an opportunity to consider the legislation on Committee Stage.

Other items are important for businesses. Interest rates are important, not just for families in terms of personal rates and mortgages but, as Deputy Calleary has pointed out on many occasions, SMEs in Ireland are paying interest rates way above the European norm. The cost of credit, insurance and energy is an issue. I raised the issue of motor insurance during Leaders' Questions earlier today. Insurance costs, which are being reviewed by the Department of Finance, are increasingly a concern for businesses because of the increased costs.

We look forward to the debate on the summer economic statement and to the other reforms in the budgetary process, which are currently being discussed and debated. Hopefully, some of them will be in place for the forthcoming budget and we will certainly play a full and constructive part in that regard.

2:15 pm

Photo of Dara CallearyDara Calleary (Mayo, Fianna Fail)
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I, too, welcome the chance to speak on the summer economic statement but the reality is that, today, Brexit hangs over this debate like Banquo's ghost. When we gather on Monday for the national economic dialogue, we will have a result and we will, hopefully, have a sense of direction from the Government as to how that result will be dealt with because, whatever happens, there must be change at the heart of Europe and the European economy. I have felt for some time that the Government has not prepared for the eventuality of a Brexit. We will need, in the event of a British decision to leave, an immediate and rapid response involving a roadmap as to how the Government will deal with it. If we do not see that, this document and debate will be irrelevant. The budgetary figures and the figures contained within it will all have to be reviewed and recast in the light of the new environment.

I welcome the decision to increase investment in capital expenditure and while I note there is still a commitment to the review in 2017, I repeat my earlier call that this review needs now to be brought forward, particularly in light of the increased envelope of spending. Investment in infrastructure is an effective means of ensuring that everybody feels the benefits of the recovery. Every region should feel the benefits of the recovery, from new hospitals and roads to a proper national broadband scheme, public transport and a range of other projects. The previous Government's capital plan, as presented last year, fell well short of achieving that and Ireland now lags behind the OECD average with the quality of our infrastructure dropping four places to twenty-fourth in 2015. Efficient infrastructure, in telecommunications, energy, transport, water and broadband, is vital to support national competitiveness and employment. While there appears to be a multitude of reasons for the decline in the quality of infrastructure, notably the maintenance nature of the previous capital programme, we must ensure that we begin rapidly to catch up, and I reiterate my call for a review of the current capital plan. According to IBEC estimates, 95% of capital expenditure is currently on maintenance. That sets the challenge of the limits of the current capital plan. It would be to the benefit of that plan, if that review was brought forward and if the kind of dialogue the Minister wants with the Oireachtas, but also with various partners, was engaged in at an early stage so that there could be a sharing of information and ideas around a capital plan that would deliver, both to the people and the regions regardless of where they were, value for money.

The capital plan is also the element of the summer economic statement that provides employment and employment opportunities. I thought one of the benefits of leaving the spokesmanship on enterprise - I am sure Deputy Cullinane would agree - would be that the cheerleading around the jobs action plan would stop or I would not have to hear as much about it. I did not realise that the three Ministers, as cheerleaders, were as good as the former Minister for Jobs, Enterprise and Innovation, Deputy Richard Bruton, around the nature of that plan. The plan should be tied in to the capital plan in terms of both regional delivery and employment delivery of projects. That employment delivery should be attached to fair employment laws and conditions. The delivery of the capital programme should be attached to whatever projects can deliver in terms of employment creation, as well as in terms of regional competitiveness. Finally, I say to the Minister of State, Deputy Eoghan Murphy, that it is essential that we bring in reforms through our procurement laws so that small companies get the benefit of investment in the capital plan and access to tenders for various projects in it because our procurement rules are frightening small companies away at present. We may deliver both a capital plan and additional expenditure, but it must mean something for SMEs as well and that is the instrument by which we can deliver on it.

Public sector pay was referred to by the Minister, Deputy Donohoe, and his remarks were important. We support the Lansdowne Road agreement and it is beginning to deliver. However, it is important that the commitment the Minister gave, in terms of the public sector pay commission, is moved forward rapidly. The summer economic statement does not contain any provision for a post-Lansdowne Road agreement scenario and over the course of its implementation in the next five years, I hope there will be a replacement agreement and a structure put in place. We need to begin that process quickly because 2017 will not be long coming upon us. If the Minister wants the kind of dialogue and engagement he aspires to, the process of establishing the commission and its work should be got under way without any further delay. We want to see issues of equal treatment for newly recruited staff in the public sector, particularly those in education and in An Garda Síochána, dealt with as a matter of priority over the next number of weeks and months as the commission starts its work.

The public sector has contributed a significant amount to the recovery. The recovery and the sacrifice the Minister spoke about has crystalised in terms of extra productivity but also lower wages, and they need to be a partner in the recovery in the fullest sense. I welcome the reports this morning that negotiations are under way with An Garda Síochána around a new framework. The work done by the Minister, Deputy Donohoe's predecessor in terms of the fire service workers has giving us a vehicle and an opportunity to begin rewarding and restoring more staff, and that needs to be increased.

One criticism I have relates to the programme for Government. The summer economic plan is laid out, but the programme for Government that comes with it is not costed and has a range of commitments that are not timed. We get no sense of how they connect with the economic plan. The funding made available, as Deputy Michael McGrath stated, has as much to do with changes in rules as anything else and in many areas, that funding is badly needed. However, what we have within the programme for Government is a range of ambitions and promises without a timeline and costings. For example, the Minister said that the Government housing plan will be published later in the year but we have a plan published by an Oireachtas all-party committee last Friday last which should offer a framework in that regard. It will be a test of the seriousness of this Government about taking the views of the Oireachtas on board regarding how much of that action plan, the development of which was shared by Deputies, including the Acting Chairman, Deputy Durkan, from all parties, is enacted.

Housing is merely one issue. The health service is another issue. The Minister increased the Estimate again last week and that proved the point my colleague, Deputy Kelleher, has consistently made that the Estimates process for the health service over the past five years was, at best, flawed and, at worst, an annual lie for the amount that had to be provided in Supplementary Estimates. That provision is no longer available and unless that funding delivers on waiting lists, emergency rooms and services to patients, it will have been for nought. The Minister made commitments a number of weeks ago about performance budgeting and how that funding will be delivered and make people's lives better. I would like to see those proposals brought forward as soon as possible so that we get a sense before the recess of how the effectiveness of this funding will be measured. The HSE and the Department of Health need to get their act together when it comes to budgeting for the health service because the people who are paying for their ineptitude in that regard are patients and those on waiting lists and that must stop. I look forward to the Minister's proposals in that regard.

The notion of fairness was at the heart of the recent election campaign and was one of the reasons the Ministers' party returned with so many fewer Deputies. Fairness must be at the heart of the delivery of this programme in terms of its ability to deliver better outcomes for people, as I stated, in health, education, our public services, growing communities facing the brunt of crime and for regional communities. Just because one lives in Dublin, one should not benefit from an economic recovery or enjoy the consequences of the recovery while other communities are shut down.

The Minister spoke about the reform of public services, but this should not mean withdrawal of public services. Reform has been the mantra for many public service changes in recent years. There has been the withdrawal of services from weak communities, regional communities and communities within this city in the interest of putting services online. We need to come up with a public service modernisation programme that involves people and puts people's interest, rather than the interest of accountants within the Civil Service, at the heart of it. That is public service transformation. The delivery of better service does not mean the withdrawal of services. That is a trend that we need to take control of also.

Deputy Michael McGrath has spoken about the microeconomy and we have a large macroeconomic statement. On Monday and Tuesday next, the Minister will get an indication of the micro problem, of people's home economy and of the economy in education and health when he meets Departments. Unless this plan, the tax strategy papers and the final budgetary process end up delivering for people in their homes as well as for the country, this budget process reform will be for nought.

Unless we deliver a whole-of-government approach to improving people's financial circumstances not just at budget time, but with the costs they face on a daily basis and which they cannot control such as pressure within schools, universities and hospitals, economic recovery will be a concept alien to the majority of the population. We must not forget the goal of a fairer system of employment and more robust employment law for those in weak jobs. One lesson to be learned from the tenure of the previous Government is that it is not just the Departments of Finance or Public Expenditure and Reform that have a role in delivering recovery; it must be an entire whole-of-government approach. Until this is done, the notion of a recovery will continue to be something that the majority of households and people do not see, as they still live with the consequences of the cuts in expenditure from recent years.

This will be the test of budget reform. Budget day may not have the big bang announcement any more but we will see how measures have an impact on households not just with income tax and services, but across a range of costs felt by people. If people feel their life is better on 1 January next year, as the measures from budget 2017 kick in, we will have had some input into the process. We will have engaged people in the macroeconomic recovery.

2:25 pm

Photo of Pearse DohertyPearse Doherty (Donegal, Sinn Fein)
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Cuirim fáilte roimh an deis seo labhairt ar ráiteas eacnamaíochta an tsamhraidh. Tá an ráiteas againn, sa deireadh thiar thall, agus is féidir linn plé agus scansáil a dhéanamh air. The summer statement indicates boldly in its second paragraph that "decisive policy action means that the public finances are now in a better position". It is important we look at that premise, which could have been the Fine Gael election slogan. That premise was rejected. It is a despicable and mindless rewriting of history, brushing aside the years of needless and painful austerity as somehow worth it. We have already heard talk of the tough decisions, when in reality Labour and Fine Gael simply followed the EU's handbook on how to do austerity. Like all troika governments that followed the handbook, it was booted out of office by the people when they got the chance.

As we all know, growth in the Irish economy has been greatly aided by external conditions, namely, a weak exchange rate, trading partner growth, low oil prices and accommodative monetary policy. There have been bumper corporation tax receipts so far in 2016 but much like 2015, we are still at a loss to explain them. We saw corporation tax coming in at €1.18 billion, some €484 million or 41% ahead of profile. That is not a sustainable basis on which to build a sound economy, no matter how tempting it is to spin it that way. This year, we benefited from a fluke with €1.5 billion extra thanks to the upward revision of Government expenditure in 2015 by reflecting a reclassification of State transactions with AIB. If this accounting exercise had not happened, we would be in big trouble, with overruns in health and elsewhere already. We have seen a Supplementary Estimate only possible as a result of this accounting exercise. This will not happen next year or the year after and then we will see how tight and unreasonable are these fiscal rules.

The main purpose of this statement is to squeeze Fine Gael’s narrative into the fiscal space figures and, luckily for the Government, nobody is disputing the Department of Finance figures this time around. They are what they are. Let us be clear. My party has never supported these fiscal rules and we campaigned against the austerity treaty that brought in these rules. The rules do not allow us the necessary budgetary flexibility to deal with emergencies or pressures in society. They are far too restrictive. At the same time, we have always called for the need to reduce one's deficit, not spending beyond one's means and bringing down the national debt. As Sinn Féin argued, these rules have the potential to cripple our ability to provide services and invest in our infrastructure. Economically and politically, they are bad rules that need to change. As outlined in our manifesto, Sinn Fein would seek support for changes at an EU level and in the shorter term we will work to achieve the type of flexibilities to these rules that have been afforded to other States within the EU. Sinn Féin has been consistent therefore, unlike others, in our approach.

It is heartening to see some of the organisations and politicians in parties who were so vocal in their support for the rules now come around to our position, especially on the need for changes so that investment can be made. It is a bit pitiful that the Minister for Finance - one of the architects of these rules and supported by Fianna Fáil - is now begging the European Commission to change the rules that he helped design and sell to the Irish people in that referendum. Sinn Féin has been proved right. There is a growing consensus that the rules do not work and must be changed significantly. We now have the unedifying spectacle of the Taoiseach writing to the EU looking for a way out of these rules. There have been countless debates, both in this House and in committees and elsewhere, about the need to circumvent the rules by inventing special purpose vehicles that are off-balance sheet. That is just a way around the rules.

The rules allow choices to be made and Sinn Féin argues that until the rules are changed, we will always put forward proposals to comply with them. The choices are there for any Government. As much as Fine Gael and Labour in the past would like to argue that there were no choices, there is always a choice. That is why we in Sinn Féin have produced alternative budgets consistent with the fiscal rules year after year. We have demonstrated very clearly that we are the party which understood the application of these rules.

The net fiscal space is €11.3 billion ofchoices to be made over the next five years. This figure is not set in stone and can be expanded with discretionary tax measures, and in this regard I am glad the Government has taken Sinn Fein's lead on additional taxation measures such as the proposed sugary drinks tax, an increase in excise on tobacco products and the tapering of tax credits for high earners. We called for those in parliamentary questions some years ago. Sinn Féin believes the Government can go further in this regard and central to this is not carrying on with the most reckless tax cut in recent times, namely, around cutting or phasing out of the universal social charge, USC.

The Fine Gael and the Fianna Fáil promise to abolish or severely cut USC is populist and reckless. I welcome Deputy Michael McGrath's earlier comments that abolishing the universal social charge in this Government term is not on, but he is trying to have it both ways. His party wants to abolish USC on incomes up to €80,000, which will cost billions of euro each year. Of course, people on low incomes must be taken out of the USC net, and that is why, from the tax's introduction, Sinn Féin has campaigned to ensure that up to 1 million people are brought out of its net. It is not possible to be a tax-cutting party while promising to make the necessary investment in our economy and to maintain, never mind improve, our health services or provide housing for families who are homeless. It is nonsense to suggest all this can be done at the same time. Now is the time to invest in and repair our economy and not to start the ball rolling on the road to ruin again.

The Minister argues his tax cuts for the better off will be funded by other tax increases and by non-indexation. Non-indexation is already factored into the fiscal space and it has been the policy of the State, for right or wrong, for the past eight to nine years. It is not as if this is a major change that will offset costs. It is pure misrepresentation to present this as offsetting those reckless tax cuts. Likewise, the Revenue Commissioners have unambiguously stated that tax increases on tobacco cannot be relied as a revenue raising tool. Those opposite know this as it is published in black and white. My party supports increases in excise on cigarettes on a systemic basis as part of a health policy but not in trying to find a few extra bob. The mind boggles when I note the assertion in the summer statement that "A broad tax base that ensures financing of public expenditure is crucial", but the Government is intent on taking €2.54 billion out of the tax take by 2021. USC could bring in €5.6 billion by 2021, and it would bring in that amount every year based on non-indexation.

If the Minister does not want to listen to Sinn Féin's arguments regarding not abolishing the USC, not getting rid of this annual tax of €5.6 billion by that year, then he should listen to the European Commission, the Irish Fiscal Advisory Council and the ESRI, all of whom have criticised, in one way or another, the Minister's plans in this regard. The Minister must consider the housing crisis and the hospital waiting lists. Does it appear that we can afford to go without €5.6 billion in tax revenues each year? God help us when the next shock hits, particularly in light of the Minister's constant erosion of the tax base. The Minister of State, Deputy Eoghan Murphy should know this because we dealt with it at the Joint Oireachtas Committee on Finance, Public Expenditure and Reform. The fiscal crisis that hit this State was partly down to the fact that the former Minister, Charlie McCreevy, reduced taxation to an unsustainable level. That is what happened. It was camouflaged by the fact that stamp duty and other property-related taxes were coming in. There will be an economic downturn; there is no doubt about that. The only question relates to its intensity and when it will strike. A big risk in this regard is corporation tax. The summer statement does not give any information regarding the massive increase in corporation tax or the increase in its concentration among large companies. It should have been noted in the summer statement that the concentration of corporation tax receipts has risen, with over 40% of corporation tax paid by just ten companies in 2015. I think it was said that it was 25%, but in fact 40% of corporation tax receipts were paid by ten companies in 2015. That is up from 21% in 2009. In 2015, corporation tax payments from the top ten companies amounted to 6% of total Exchequer tax revenue. That is approximately the same proportion of overall Exchequer tax revenue accounted for by stamp duty in 2007, at the height of the boom.

The Government is just repeating the mistakes of the past. It is staring us in the face. God help us if this goes belly-up. Columns will be written to the effect that it was obvious. It will be stated that ten companies accounted for 40% of corporation tax receipts and the Minister cut one of the most stable forms of taxes, which is on income and which brings in €5.4 billion every year, because this type of unstable tax increase was happening. It is McCreevy stuff, it is wrong and it caused massive problems across Irish society. We have a responsibility in this House to have a proper and informed debate and to point out the risk. The Minister can use terms such as "prudent" and "broad-based" and all the rest, but what he is saying is nonsense. It is nonsense and it is reckless.

The Minister talks the talk with regard to public investment to safeguard our future and he acknowledges that "higher levels of investment are crucial in supporting balanced regional growth, eliminating capacity constraints and enhancing the growth potential of the economy". However, he does not walk the walk. Even taking account of the additional cumulative €5.1 billion capital investment, Ireland will still be among the countries with the lowest level of capital investment in the EU and the planned increases are certainly not transformative. Everybody is saying there is a housing emergency and we want to build more houses but we cannot because we need the European Commission to change the rules and help us to invest. If the Minister decides not to go ahead with his tax-cutting agenda in October's budget to achieve the net effect of providing tax relief amounting to €330 million, he could invest €1.3 billion next year in building houses for the homeless. He could invest that in the services that Deputy McDonald was talking about when she referred to the mother with her child who could not get access to emergency services.

These are the choices both Ministers and the Minister of State are making. That is Cabinet responsibility, folks. They cannot walk around and say "We hear your pain, we feel your pain". They are making these damn choices and they are deciding to sacrifice these individuals and these sectors of society because they think it is more politically beneficial that they cut income tax rates on the false premise that cutting these rates will create jobs. Somehow, the Government is already creating jobs. It claims jobs are being created by the spade load, yet tax rates are still high. The Government cannot have it both ways. The fiscal space allocated to capital investment next year is 6%, yet 33% of it is devoted to tax cuts. That is the priority of this Government. If the Ministers do not want to listen to us, they should listen to IBEC, to the European Commission and, most importantly, to our small and medium-sized enterprises, which are crying out for capital investment. The best way to stave off any economic shock in the future is to ensure we have the investment in our society at this time.

Moving on to current expenditure, the assertion in the programme for Government that there will be an additional spend on public services by 2021 is a clear attempt to pull the wool over the public’s eyes. The expenditure commitment of €6.75 billion is clearly shown as the con job it is in the summer statement, particularly as €2.5 billion of it has already been committed and that the additional spend - if we are to believe the figures - will be just €4.25 billion over five years. Unfortunately, it gets worse. This €4.25 billion does not even give the full picture because the expenditure projections do not make any allowance for inflation. Does the Government really believe the cost of medicine is not going to increase in the next five years? Does it really believe the cost of maintaining schools will not increase in the same period? This is mind-boggling stuff. It does not account for that or for public pay increases beyond 2018 and it understates demographic pressures. The Irish Fiscal Advisory Council recently asserted that a standstill estimate of expenditure, which would maintain the current level of public services and benefits given a full accounting for demographic changes and inflation, would result in an additional €6 billion of public expenditure by 2021. A standstill position means people on social welfare get increases in line with inflation, inflation is built into non-pay issues and pay rises in respect of inflation. What would be left of the fiscal space if that is the case? The answer is there would be €750 million to be spent over five years. That figure is important because it is the real amount of money the Government has in terms of service enhancements or fixing the problems we have in health, education and dealing with all the different pressures.

I will hand over to my colleague, but I look forward to dealing with the idea of a rainy day fund. It will be slush fund for the Government. We will have opportunities to talk about that. We suggested a rainy day fund, but we did not suggest leaving those who are being soaked at this point without the necessary supports and protections from Government. I am sure we will get an opportunity in the coming days to discuss that in more detail.

2:35 pm

Photo of David CullinaneDavid Cullinane (Waterford, Sinn Fein)
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We need to first acknowledge a simple truth: the Ministers' Government has no mandate. The policies it will implement in terms of current and capital expenditure and public sector recruitment and pay were roundly rejected by the electorate. They do not even have the support of the majority of Members in the House. The Ministers' roles derive not from the people but from the Fianna Fáil Deputies who sit opposite them in this Chamber. This is called new politics. New politics has to mean new policies. It has to be about changing direction and it has to mean a departure from the old.

I am positive about Ireland’s future, but only if we make the right choices. We all know that political choices are down to us as politicians. It is we who can make those choices. We can choose to give tax cuts to the wealthy or we can invest in public services. We can choose to protect the top 14% of income earners or we can invest in our hospitals and our schools. We can choose to build houses and sustainable communities in the here and now or we can pretend we are putting money away for a rainy day. The choices set out in this summer economic statement fail the fairness test, yet again. We need to move away from the very narrow view that the Irish people exist to serve the economy, when it should be the other way around.

I present the Ministers with the figures from the stability programme update that underpin the summer economic statement. They show total Government revenues as a percentage of GDP dropping from 2017 to 2021, and total expenditure as a percentage of GDP dropping during the same period. While these figures will need to be adjusted, the Minister's dealt with the matter in a disingenuous way. He referred to State-backed capital investment as a percentage of GNP and not State investment as a percentage of GDP. When we factor in the figures, we can see that, as the economy grows, the Government is raising less and spending less as a percentage of GDP. This Fine Gael-Independent Government, propped up by Fianna Fáil, is actively shrinking the State, while issuing press releases stating that this is about building for the future.

These are policies that would make the British Tory party blush.

What can we say about the projections in the summer economic statement and the policies the Government is ready to impose on the people? It means more pressure on our health system, more patients lying on hospital trolleys, more band aid solutions and more missed targets as impossible budgets are allocated to hospitals in order to force the increased privatisation of the system. It means more pressure on our education system which is already running at undercapacity even before demographic pressures and international standards on classroom sizes are factored in. It means more pressure on housing and infrastructure as communities and businesses grow but have to do so within reduced capacity.

Capital investment is one of the key issues, indeed possibly the key issue, that we are faced with today. When we think about capital investment, we usually think of roads, infrastructure and the mechanisms that facilitate trade and business activity but capital investment is also houses, health and education. Usually, when these issues are raised in public debate, they are talked about as expenditure, as a cost, as if housing serves the same social and economic purpose as shopping online. It does not. When we build houses, when we increase capacity in our health service and when we lower class sizes, we are investing in the future. That is the big difference between building an economy and building a society. This is why, after nine years of chronic underinvestment in these areas, after the bank bailout of Fianna Fáil and the unequal austerity measures of Fine Gael and the Labour Party, we have in Ireland today a chorus of diverse voices all calling for the same thing, namely, public investment in social and economic infrastructure.

We hear it from IBEC which in a briefing last week said that the current fiscal rules should take on board the unique demographic pressures we face and the associated need for capital investment. It said that Ireland had access to the cheapest money in history and should be able to borrow to spend on badly needed infrastructure. IBEC is saying this. It then went on to say that it was unconcerned about the associated rise in national debt as capital investment taps into a wider economic dynamic. We will leave to one side my astonishment at IBEC suddenly advocating public investment after being supply-side cheerleaders for so long but on this issue IBEC is right. The Irish Congress of Trade Unions has also called for greater investment over tax cuts for the elites, for the wealthy and for the top 14%. Patricia King said recently that investing in quality public services like health and education will boost economic growth, achieve a better quality of life for all citizens and help create a more equal society. She said that these services should be funded through a system of fair and progressive taxation and in this she is correct.

We also had the European Commission calling for greater capital investment. It said in its country report in February of this year that, "the current levels of capital expenditure in Ireland are barely sufficient to replace the existing stock of public capital" and that, "Ireland is now witnessing the emergence of capacity constraints in public infrastructure." It has no confidence that we are investing correctly in capital investment.

This is not news to the people of Ireland. When Fine Gael took it upon itself in the last election, very foolishly, to tell the Irish people to keep the recovery going, it got a very harsh lesson in what happens when one believes one's own spin and bluster. There has been a modest recovery, and we recognise that, but the reality is that the vast majority of Irish households do not feel it because it is not in their wages and it is not in services. There are more people working but they are working in low-pay jobs with high social cost overheads. The Minister said the previous Government's approach to expenditure reductions was a targeted one and how right he is. The top 14% were cosseted and protected and not one cent of extra income tax was sought from them while those who rely on our public services, those who rely on our hospitals and our schools, those people now on hospital trolleys and the 2,000 children now sleeping in emergency accommodation are victims of the Minister's targeted approach, which was cut after cut after cut in public services. People are now seeing the true cost of that.

We live in a State where essential public services have been downgraded or privatised in order to pay for tax breaks for high earners and to provide investment opportunities for private corporations in waste, health, education, housing and water. After 2018, the Government is going to start saving for a rainy day, or so the spin goes. How many families have to be put up in hotels for the Government to see that, for many, it is already raining on them, and very heavily?

I now turn to public sector pay and pensions. As the Minister is well aware, the FEMPI Acts need to be unwound. This process has begun under the Lansdowne Road agreement, which runs out in 2018. A new collective agreement would need to be put in place to finally shut down FEMPI and yet there is no recognition of this fact in the summer statement, not one single mention of what happens post-2018 except for the establishment of a commission to make recommendations. When I questioned the Minister on this yesterday, he said that it was not his job to pre-empt any possible new collective agreement to replace the Lansdowne Road agreement, especially as that would be a bad negotiating strategy. What type of strategy is it that says that when one is working out a new pay deal, one puts €1 billion a year on the table, not just once or twice but three times for a rainy day, but no provision at all for increased public sector pay? What type of strategy is it to argue for the continuation of economic emergency legislation by announcing €5 billion in tax cuts over five years because the emergency is, according to the Minister, over? This Government has just announced more than €8 billion in tax cuts and unspent revenue over five years but says this has no influence on its negotiating position with public sector unions. I can imagine public sector unions scratching their heads at such a strategy. Astonishingly, there is no provision for pay equalisation in the statement. The Minister made passing reference to it in his speech today but no longer can this State stand over a two-tier pay structure in the public service. No longer can the sore that there is in classrooms and hospitals continue. If the Minister believes in the principle of equal pay for equal work, he has a responsibility to deal with this issue but there is no mention of it in this statement.

We recognise that provisions have to made for the winding down of FEMPI. Sinn Féin's recent Ard-Fheis recognised that public service workers play a vital role in our society and yet many of the newer entrants have been penalised by the two-tier pay structure brought in by the last Fine Gael-Labour Party Government. Sinn Féin will continue to support the demand that this unfair two-tier system be replaced with a fairer system that rewards people based on their work and is not defined by when they began their career. It is Sinn Féin's view that FEMPI needs to be unwound in an equitable and structured way, with emphasis on low to middle income workers before those on more than €65,000 who are already due to receive significant elements of pay restoration under the Lansdowne Road agreement due to the unwinding of the Haddington Road agreement.

On a deeper note, there is an intentional sleight of hand here in these figures. For the years 2017 and 2018, the net fiscal space is exclusive of public sector pay restoration. However, for the years 2019, 2020 and 2021, no provision is made for future pay restoration. This is not net fiscal space for those three years. It is, in fact, a sleight of hand and an attempt to make the figures look rosier than they actually are. The Minister has to be straight with people and clear with public sector workers. He has to give them hope that he will do the right thing and that there will be further restoration in 2019, 2020 and 2021 for those on low and middle incomes in the public sector. He knows that is the reality but he has left it out of this because he wants to distort the figures and pretend that this is net fiscal space when, in reality, it is not.

It has to be pointed out that Government's policies, as outlined in the summer economic statement, are extremely short-sighted, as well as ideological. The Minister is committed to shrinking public services and to tax cuts for the wealthy and high earners and is committed to outsourcing as much of the State as he possibly can. He does it with a smile but it is his intention, nevertheless. In Sinn Féin, we stand against all of this and we stand with the ordinary people of Ireland. We stand with low to middle income workers, 77% of whom earn less than €50,000 a year.

There are alternatives and every year we in Sinn Féin have put forward costed, fair and deliverable alternatives.

We publish policy documents on child care, housing and health. We are the only party that has set out a costed route to a genuinely universal health system. Others talk about it but we have costed it and have set out a strategy that would lead us to a fair, equitable health service for the first time. Sinn Féin holds the fundamental belief that inability to pay should not deny access or the opportunity to lead a full, long and healthy life. In order to have universal health care, we need to increase capacity in the system and progressively replace private spending by members of the public with public spending.

Sinn Féin believes that one of the fundamental rights in any society is the right to a home. That is why in our election manifesto, we committed ourselves to building 100,000 social and affordable homes, which is what needs to happen. I have heard an awful lot of spin since the election from this current Government about what it may or may not do about housing. What people outside this Chamber need is real action and not rhetoric and not more false promises but I do not see that reflected in this statement.

I will finish as I started. New politics is old wine in new bottles unless it means new policies and a change of course. The Minister talks about new politics and he says he wants to listen to us on this side of the Chamber and yet what we see before us mapped out for the next five years is more of the same - more of the same neoliberal economic policies, more of the same tax cuts for those at the top who do not need them and no real hope for those who depend on public services, those on trolleys, those in emergency accommodation and those living in poverty. We, in Sinn Féin, provide that hope and I do not believe that what has been presented to us today is the fair way to manage our economy over the next five years.

2:55 pm

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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I would be grateful if the Acting Chairman could advise me when 15 minutes have elapsed as I am sharing time with my colleague, Deputy Sherlock.

This is the first full-on Fine Gael budget or economic plan that we have seen, unmitigated by any left-of-centre force-----

Photo of Paul MurphyPaul Murphy (Dublin South West, Anti-Austerity Alliance)
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We will be fine without the Labour Party.

Photo of Joan BurtonJoan Burton (Dublin West, Labour)
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-----so this is what Fine Gael is planning, and there are a few things I want to draw attention to in it.

Under the summer economic statement, the share of public spending in GDP will decline from 28.9% in 2016, which is already one of the lowest in any advanced country, to 25.3% in 2021. This is a shocking decline over a five-year period in the share of public spending and unprecedented, particularly for a country in recovery, even though I understand that many people in this Chamber do not believe there is any recovery, but actually, there is. When I entered Government, 330,000 people had lost their jobs. Now, as the statement sets out, more than half of those people are back at work. We still have a long way to go. The fall in the share of public spending from 28.9% in 2016 to 25.3% in 2021, however, is very shocking, and if the Minister, Deputy Donohoe, gets a chance to explain anything to us - better still, the Minister for Finance, Deputy Noonan - I would like him to go through those figures with us.

The share of gross current spending in GDP is set to decline from 26.7% in 2016 to 22.6% in 2021. It has fallen, and will fall, over the five years very dramatically unless, of course, these figures are wrong, although we must take in good faith that the Department and the Ministers have put in the figures as honestly as they could. Gross capital spending is set to increase, as was pointed out by the Ministers in their statement, from 2.2% of GDP in 2016 to 2.7% in 2021. However, even this increase is below what is required. Why is this happening? The planned growth in spending is only a fraction of the rate of growth in GDP, as both Ministers have said in their statements. Between 2016 and 2021, nominal GDP cash value is set to increase by 29.3%. That is a really good rate of growth, one of the best growth rates of any European country. However, over the same period, planned increase in gross current spending is 9.6%, as opposed to an increase of 29.3%. Over the same period, therefore, the planned increase in gross current expenditure is 9.6%. Taking account of the faster increase in capital spending, which I have acknowledged, total gross expenditure increases by only 13.3%.

The summer economic statement is grounded in the EU fiscal rules and specifically in the expenditure benchmark rule, EBR. The EBR states that unless funded by additional taxation measures, spending should only grow in line with the sustainable or trend rate of growth in the economy, that is, GDP. If this rule is followed, then the share of public spending in GDP will remain broadly stable. However, the Government plans only to allocate just over half of the fiscal space, 51%, to increases in spending. Some 23% of the space, or €2.54 billion, is allocated to the abolition of the USC in a way which will favour the better off, and I will come back to that if I have time. Indexation of the tax system, by the way, could be achieved for approximately €1.8 billion. Of the fiscal space, however, 23% is allocated to the rainy day fund, that is, €3 billion is allocated in the later years of the statement to the rainy day fund at a rate of €1 billion a year. This is totally unnecessary since adhering to the fiscal rules is sufficient to keep the public finances safe. I know it is catchy and sounds attractive and given what people have been through and suffered, it sounds fantastic that we will put all that money away towards the end of the five-year period and lock it away and keep it safe but from whom? Is it from people? Is it from our economy, while cutting in effect the share of current spending very dramatically over the five years?

This is why I say this is the first example of what Fine Gael, as an admittedly very conservative, right-wing party, would do on its own. It has been allowed do this, notwithstanding the fact it is in government with a number of Independents, without any let or restraint apparently being imposed on them by those in government. Having listened down through the years to the Minister for Transport, Deputy Ross, however, I know that he is generally of a very conservative fiscal outlook. He is not in any way lacking in any kind of humanity but he is very conservative. Maybe he has been the cheerleader of this extraordinary turnaround in terms of how to produce a recovery for everybody in this country in a way that is fair and geared particularly at getting more people back to work, with low-income and middle-income people then sharing as much as possible in the fruits of any growth or increase.

I will give the Minister my honest view. I know he means very well but to allocate so much money to a rainy day fund is absolutely ridiculous when the need to restore public services is so acute. For instance, we must still get more people back to work. We have already heard people commenting in the period that this new Dáil has been operating on the need to invest in the health services and the Minister has done some of that in the additional allocations. We know we must invest in housing for our increased population.

I want to make two other points. First, there is no provision in this at all for increasing social welfare rates. Last year, the year before and the year previous to that, I devoted significant amounts of money to this.

For example, when I was Minister for Social Protection I devoted €200 million of additional spending each year simply to meeting the population pressures of the growing number of older people in our society, to maintaining their pensions and to maintaining particular measures such as the free travel pass, which is iconic to older people in Ireland, and with regard to people in receipt of carer's allowance and disability allowance.

There is no provision for public pay restoration beyond 2018. The Minister and I know, because we were involved in this discussion when we were in government together, that the priority, of course, is to unwind the financial emergency measures in the public interest, FEMPI, legislation and make provision through the Lansdowne Road agreement. However, according to the table on page 27, the roll-out of the Lansdowne Road agreement stops at the end of 2018. There is an additional €300 million for each of those years, together with the additionality for this year. What will happen to public sector pay between 2019 and 2021? Nada - nothing. Is this realistic? I am not sure it is totally realistic. Frankly, I am surprised, and I am sure it did not escape the Minister's attention.

Everything is being sacrificed down the road for the rainy day fund. It starts in 2019 to be built up to €3 billion. Perhaps it is simply a bargaining chip for potential negotiations that will take place in the years from 2019 to 2021. Perhaps the Minister will enlighten us on his thinking.

I wish to speak about the tax package and the approach to tax mentioned in the plan. The tax package in the plan appears to have a built-in bonus for the better off. In contrast, in the recent general election campaign, the Labour Party - I thought Fine Gael agreed with this - envisaged abolishing the universal social charge for anyone earning less than €72,000. Fianna Fáil's plan was to go slightly higher, at €80,000, if memory serves me right, and Sinn Féin's plan was to stop at approximately €21,000. It was very low. We proposed that it be capped for anyone earning more than €70,000, and for anyone earning more than €120,000 relief would be clawed back.

The plan in the summer economic statement seems unfair and unwise in a recovering economy. While there is provision for more capital spending, it is limited and not sufficient to address bottlenecks in the economy and the population and demographic pressures the country faces, with growing populations of younger people and older retired people. This alone requires €200 million extra of social welfare spending in every year, as it has done since 2011.

The rainy day fund is a catchy idea but difficult to fathom. In an economy which has faced enormous limitations on capital expenditure due to the crisis from 2008 on, it seems odd to set aside €3 billion for the fund. Furthermore, I repeat that it is not required under EU fiscal rules. The small matter of the Lansdowne Road agreement is not addressed after 2018. In effect, there is no provision for public sector pay restoration after 2018.

When in government, the Labour Party worked to produce a balanced recovery which would increase employment. As we left the Government, unemployment had decreased to 7.8% from a high of more than 15%, which we had inherited from the previous Government. Many people, particularly young people and older unemployed people aged over 52, are still unemployed and very anxious to get back to work, to get into work or to get an apprenticeship or training, particularly if they are young and beginning their careers. Older people in their 50s face many obstacles to getting jobs if they have been unfortunate enough to lose them.

People throughout the country have made heroic sacrifices. Fine Gael has acknowledged on many occasions the sacrifices people have made. They deserve much better in terms of restoring the level and quality of public services and the development of a fairer and more progressive tax system, rather than favouring tax cuts which proportionately benefit the better off and the highest paid.

In 2014, 2015 and this year, we achieved improvements in the living alone allowance for the first time in 22 years, a small increase in the weekly pension, and a 75% or 80% restoration of the Christmas bonus, which goes not just to pensioners but to people in receipt of the loan parent allowance and the long-term unemployed. What will happen to all of this? The money is there for 2016, according to the Estimates that have been published so far, for measures such as the Christmas bonus. If the regime set out is followed, is the Government really telling us that public sector spending as a share of overall GDP and a share of the overall economy over a five-year period will fall dramatically? From an economic point of view, in terms of demand in Ireland and people having confidence and spending, it is a recipe for returning to much darker horizons for the Irish economy. The Minister promised that there would be a new way of doing politics. Unfortunately, we only received notice of this approximately one hour before it was published. We did not really get anything like a real briefing from the Minister's officials, because the rules do not really seem to have changed as yet. For heaven's sake, it would be worth the Government's while talking to people about what is in the statement, because I can tell the Minister it will not do the general health of the economy and the growth of the economy an awful lot of good.

3:05 pm

Photo of Seán SherlockSeán Sherlock (Cork East, Labour)
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I welcome the fact that time has been devoted today for statements on the summer economic statement. If I may make a request, I ask that at some stage time be provided in the finance committee or the budgetary control committee so we can have a more iterative process and a question and answer process to interrogate the points made heretofore on the macroeconomic piece of the economic statement and the microeconomic element.

If we take some of the points made on the universal social charge, there is a difference in emphasis between the parties. In its manifesto, my party made a commitment to abolish the universal social charge for the first €72,000 of an individual's income. A school of thought seems to be emerging here, and whether there is common ground to be found on the treatment of the universal social charge on a cross-party basis remains to be seen. As I said, we need to have a more iterative process in committee to discuss how we can find some common ground on this.

I wish to speak specifically on the summer economic statement as it relates to next year. I do not want to go to far beyond next year, given the political ferment we are in at present. I acknowledge the projections, but the net message of the summer economic statement is that approximately €300 million is to be made available for additional tax cuts and approximately €600 million is to be made available for additional expenditure in 2017.

The Irish Fiscal Advisory Council, IFAC, has described the sum as a contractional one. The ESRI, in its quarterly economic commentary for summer 2016, states that economic growth in GNP terms will be 4.8% in 2016 and 4.3% in 2017. The ESRI has reported an indicative slowdown in global trade and pointed to the uncertainty surrounding the outcome of the Brexit referendum as having an adverse impact on the trade sector of the Irish economy. The ESRI is pointing to "domestic sources of growth, investment and consumption [as] the main determinants of the increase expected in Irish economic activity."

We argued at the last election for a ratio of 2:1 between investment and tax reductions. This seems to be what is being outlined in the summer economic statement. However, one could argue for a better ratio in order to deliver on the indexation of welfare payments, smaller class sizes, transport infrastructure, health care and so on. Consider also capital investment for productive purposes, be they broadband, schools or roads. If the Government sets up a rainy day fund for economic downturns or externalities over which we have no control, the question arises as to whether we are being risk-averse. Should we consider investing in infrastructure to fund economic growth instead of simply leaving money on deposit? Also, the 2:1 ratio only applies after the rainy day fund has been created. We need a closer interrogation of what the fund is about and what it will mean. A more detailed analysis of the issues is required. If we understand the proposal of the rainy day fund correctly, it will commit €1 billion per annum between 2019 and 2021. When will proposals be tabled in the Dáil for the fund's creation?

On Tuesday, the Taoiseach told us that the total amount available to the Government over the next five years was an estimated cumulative of €11.3 billion. The space for 2017 has increased to approximately €1 billion, with €1.2 billion available in 2018. This is the supposed logic for bringing forward spending in 2017 for "infrastructure and social issues", to quote the Taoiseach from Tuesday. I do not want to spend too much time discussing the projections beyond 2017, but we welcome those relating to the increase in capital expenditure. We wonder whether we could be more ambitious in that regard with a view to expansionary economic activity.

Since my colleague has discussed the public sector pay elements and the Lansdowne Road agreement, I do not want to dwell too much on them, but we in the committee debated the 2016 Estimates yesterday and it is our view that, if the promise of a new budgetary architecture is to mean anything in terms of a truly collaborative approach to governance where the primacy of this House supersedes that of the Executive, there must be a better consultative process for budget 2017. If the House rises in July and returns in the autumn, the space for such a discussion is limited. We want to interrogate further whether there is common ground to be had between parties on budget 2017, particularly regarding the taxation on work side.

We feel that there is greater scope for more capital expenditure. Although we acknowledge the increases, there is a positive multiplier effect. The programme for Government includes clear commitments on regional economic growth and targets for the number of jobs that it seeks to create outside of the Dublin area. If one is realistic about that job creation, though, one needs an Atlantic corridor strategy that links the three main cities beyond Dublin, namely, Cork, Limerick and Galway. Issues of connectivity between the three must be considered, including capital expenditure on roads infrastructure, if the job creation target of 130,000 plus outside of Dublin is to be achieved during the lifetime of this Government.

We need to get away from the anachronistic policy provision whereby there is an increase in expenditure every year via a Revised Estimate presented to the House relating to, for instance, health. We are all of the view that, if a Department is allocated an amount of money for a year, justifying a Revised Estimate for same should be difficult if the people within the Department have already made spending projections. We go through this choreography and pageantry around Revised Estimates every year. If we are to examine performance and reform within the public sector, we must determine how to move away from the architecture of Revised Estimates. If we are considering budgetary arithmetic in a truly collaborative fashion, we should seek to ensure that Departments have enough money to do the jobs that they need to do. We must be a bit more lateral in our thinking.

The summer economic statement is a point-in-time assessment of where we stand now and speaks to the challenges ahead. We must devote more time in committee to delving into how the multi-annual expenditure ceilings will operate, how the publication of the updated public spending code will operate and what the establishment of the Irish Government Economic and Evaluation Service, IGEES, means to the allocation of public money in terms of greater levels of transparency and efficiency. Evidence-based decision making so as to ensure that we spend public money in ways that will be of maximum benefit to the people of Ireland is vital.

The summer economic statement makes reference to the increase in the minimum wage. It is proposed that the minimum wage be increased to €10.50 per hour over the next five years. I hope that we could have a further discussion about this proposal in committee. For example, how is the Low Pay Commission proposed to operate? The Labour Party has argued for a living wage and has clear proposals on how this can be achieved. To our minds, the sum of €10.50 after five years is not where we want to go, given that the House passed a motion on 1 June that supported the call for a programme of incremental increases in the national minimum wage until it was pegged at 60% of median earnings and for a living wage of €11.50 per hour to be adopted throughout the public sector. There was a clear statement by the House, agreed by all parties, that contradicts the summer economic statement. If we are in the paradigm of new politics, we must respect the fact that there was a clear motion that was the majority view.

I want to return to the question of the Low Pay Commission. The Minister, Deputy Donohoe, made a very specific reference to public service pay. He reminded the House that "the programme for Government contains a specific commitment to establish a public service pay commission to examine pay levels across the public service, including entry levels of pay." We welcome that proposal. We await the details of the establishment of the Low Pay Commission. It is fair to ask when the commission will be established. What will its exact remit be? How will it be constituted? Will it include members of the trade union movement? How is it proposed to deal with entry levels of pay? I echo the points made by Deputy Calleary earlier with regard to the statement made today by gardaí on restoration of pay for new entrants. It is important that we deal with this issue and find a mechanism through which a positive outcome can be achieved for new entrants.

I would welcome a further discussion on the local investment fund at the relevant line committee. We need a further interrogation of what this €200 million fund will deliver in 2017. It is not entirely clear how individual local authorities will compete for this remarkable pot of money.

I think we have to acknowledge the increases in capital expenditure. We would like to interrogate further with the line Ministers each of the points raised here today. Perhaps that can happen on a cross-party basis as part of an iterative process. We need to move beyond the tribes. If the paradigm shift in relation to how we do business in this House is to be meaningful, we must take a collaborative approach to reaching consensus on policy provisions.

3:25 pm

Photo of John LahartJohn Lahart (Dublin South West, Fianna Fail)
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I thank the Deputy. I will bring the comments he made at the outset to the attention of the Ceann Comhairle.