Brian Cowen (Laois-Offaly, Fianna Fail)

I am delighted to have this opportunity to outline to Seanad Éireann the Government's public spending plans as set out in the 2005 Estimates. In my budget next week I will set out the full details of the Government's economic and fiscal strategy for 2005, including further spending measures and taxation.

In framing the 2005 Estimates the Government was conscious that the funds being spent are provided through the taxes paid by workers and businesses. It is important that these taxpayers can see real value for their taxes and that Government priorities in spending reflect this as much as possible. Accordingly, the Estimates are about ensuring, for example, that ageing members of families are better cared for, that children have better facilities in which to learn and develop and that those who are disadvantaged progress through tangible improvements in their lives. The Estimates and the budget must also contribute to our general economic and social development.

It is the objective of the Government, by making the correct decisions in the Estimates and budget, to promote sustainable economic growth so we have the resources to spend money on the social needs of our society that help enhance the dignity and quality of life of those who require our help and support. It is through the implementation of the correct economic policies and the creation of an efficient and enterprise friendly taxation system that we can best provide the funds that help advance these objectives. On an objective analysis, I strongly contend that the Government's management of the nation's finances has been excellent in both good and less favourable economic times.

As a result of an international downturn that began in 2001 we have had to keep a relatively tight rein on public spending in recent years. Accordingly, we have reduced the gap between revenue and public spending growth and managed to consolidate our fiscal position. Managing public spending growth broadly in line with the growth in resources and in a manner sustainable in the medium term remains essential. The Government intends to continue with this general approach so as not to undermine the hard work of the past few years, which ensured that we are now better placed than most to take advantage of the current international economic upturn.

While the world economic outlook is now improving and we are experiencing an economic upturn, our economy will not return to the high growth rates we saw in the period up to 2001. The consensus among most commentators is that economic growth in 2004 will be approximately 5%. This is a continuation of last year's positive trend. There are, however, a number of risks to our economic performance next year. These include oil prices, the dollar and a possible weakening of the US economy. A combination of these events could lead to a slowdown in domestic economic activity. Despite these risks, however, I believe the economic prospects for 2005 and beyond are quite positive.

The Government's successful management of the public finances and the economy has resulted in a major reduction in the debt burden, with the general Government debt falling from a level close to 100% of GDP in the early 1990s to its current level of approximately 31% of GDP. Similarly, the cost of servicing debt has reduced significantly in terms of the resources available. The cost of servicing the national debt in 1990 took up 29% of tax revenue; it is expected to require approximately 7% of tax revenue this year. Reducing debt has turned debt interest payments into money which is available on an ongoing annual basis for funding real improvements in public service provision.

Large surpluses enjoyed until 2000 are now replaced with a position much closer to balance. When the downturn came, the general Government surplus of €4.5 billion for 2000 turned into a deficit of €300 million in 2002, showing how important it is to be prudent in managing public services at the top of an economic cycle so that services are not totally disrupted and set back when the downturn sees tax revenues ebb away. Due to higher than expected economic growth and, consequently, higher tax revenue buoyancy, 2004 is turning out approximately €2 billion better than had been budgeted. However, a significant element, some €670 million, of this improvement is due to the Revenue Commissioners' special investigation receipts which are once off in nature.

While making significant progress in managing the public finances, the Government has more than doubled total spending on public services to over €41 billion between 1997 and 2004 and has managed to do this without recourse to large-scale borrowing or increased taxes. Our aim is to continue to support economic growth and employment while generating resources for key social and economic public services and investment priorities. To achieve this objective, there must be a correlation between the growth in spending on public services and the growth in revenue, while seeking to address priority areas where Government responds to particular service pressures.

I intend to maintain this balanced approach and this is reflected in the 2005 Estimates. An expenditure spree in buoyant economic circumstances would simply overheat our economy, lead to inflationary pressures and excessive wage demands and cause serious damage to our international competitiveness. Throwing money at problems exclusively will not resolve those problems either in the short term or on a sustainable basis. Targeted resources and reform in service delivery with everyone working for shared objectives and placing a quality service to our citizens at the centre of our concerns is the best guarantee of an improvement for all. We also have to strike a necessary balance between allocating additional resources to priority needs while continuing to promote sustainable economic growth and avoiding inflationary pressures.

In the current year, public expenditure is expected to grow by 7.5%. This compares with a projected economic growth rate of 5% and an annual inflation rate of 2.2%. Overall, there is a forecast saving of €150 million on gross spending for 2004. Higher receipts of €100 million across a few Departments will result in a net total forecast saving of €250 million between current and capital. This equates to approximately 0.4% of the total gross provision in the 2004 Revised Estimates volume. Of the €150 million saving overall on gross spending, a saving of €70 million is forecast on current spending.

The Exchequer provision for capital expenditure in 2004 was €5.6 billion. When account is taken of €248 million capital carryover from this year to next under the multi-annual capital envelopes announced in last year's budget, there is a small saving on capital of €80 million. Some €46 million of this will be used to fund current spending on justice and transport. I will return to the subject of capital carryover when I deal with investment for 2005.

We are providing for an increase of €2.5 billion in gross spending on public services in 2005, bringing the total cost to €43.6 billion for the year. This represents a 6% increase on a pre-budget basis. The Government's approach to formulating the 2005 Estimates has been to allocate resources to priority needs, while being consistent with an overall public finance position that promotes sustainable economic and employment growth. We have allocated particular priority to spending on health and education in the pre-budget Estimates. Accordingly, we have provided almost €11 billion for health, an increase of €915 million, or 9%, and €7.1 billion for education, an increase of €530 million, or 8%.

The increased provision of €915 million for health will fund improved access to primary care, high priority disability services such as day care facilities, respite services and dedicated units and other initiatives in acute hospital services. The cumulative increase in gross expenditure on health during the period 1997 to 2005 will amount to 205%, representing an additional €7.4 billion. It is important to put on record that this massive level of increased provision has led to improved services. Staffing levels have increased by almost 50% from a base of 66,000 in 1997 to almost 98,000 this year. This major increase in staffing levels has included a significant increase in frontline service staff; an additional 6,500 nurses — representing 21% of the increase in staff numbers — with further additional staffing increases in the provision of therapists, dentistry and orthodontic services, medical professionals and social care professionals.

There has been a concomitant increase in service delivery with an increase of 30% since 1997 in the number of patients treated in hospitals as inpatients and day care patients and a reduction in waiting lists, with 80% of patients now waiting less that one year — a development on which we will improve further. There has also been an increase in the elective surgery rate in public hospitals of 85% between 1995 and 2002. Furthermore, there is a marked improvement in the wide range of community services provided by the health services throughout the country.

The gross education and science allocation will increase by €530 million, or 8%, to €7.1 billion in 2005. The cumulative increase in gross expenditure on education during the period 1997 to 2005 will amount to €3.9 billion. This represents a rise of 218% over the period. Again, this has resulted in significant improvements in services. Since 1997, there has been a significant increase in the number of teachers employed in our primary and secondary schools. The provision of educational services for children with special educational needs has been transformed since the Government entered office. From a base of 400 in 1999, there are now over 4,000 resource and learning support teachers. In addition, there are almost 6,000 special needs assistants employed in our schools. The latter should be measured against a base of fewer than 300 such assistants in 1998.

Capital investment in our schools has also been transformed with the introduction of focused schemes to redress the historic under-investment in our schools. Initiatives such as the summer works scheme and the programme for the development of small schools — known as the devolved scheme — have been introduced to ensure quicker delivery of improved schools.

As regards third level, the Government has ensured that the programme for research and technology in third level institutions has been funded to provide a firm foundation for our future economic success. This programme complements the work of Science Foundation Ireland in the research and development area.

The gross allocation for social and family affairs is €11.4 billion on a pre-budget basis. On budget day I will announce the provision for increases in social welfare payment rates next year. Evidence of the Government's commitment to the needy in society is that it has doubled spending on social welfare since entering office. In the same period, the unemployment rate has fallen from over 10% to less than 5%. This represents a significant improvement in real terms in the level of social welfare provision. The provision of child benefit expenditure, which has been identified as a key mechanism for reducing consistent poverty in Ireland, has been supported significantly by the Government. Expenditure on child benefit has increased from under €500 million in 1996 to a pre-budget allocation of €1.8 billion this year.

A particular priority for the Government is services for people with disabilities. The 2005 Estimates provide over €2.8 billion for disability specific services. This represents an increase of €290 million, or 11%, on the 2004 provision, almost twice the general overall increase in expenditure, on a pre-budget basis, of 6%. During the period since we re-entered office in 1997, €230 million in additional funding has been provided for the maintenance and development of services to people with physical and sensory disabilities. Furthermore, an additional 1,700 residential places for people with intellectual disabilities and almost 3,000 new day places have been provided.

When the Disability Bill was published, the Government committed itself to the introduction of a multi-annual investment programme for high priority disability support services which would involve both capital and current spending. In the budget I will announce details of the additional current expenditure which the Government will provide in the years 2006 to 2009 for high priority disability support services. I will also include an additional capital allocation for disability services as part of a revised multi-annual capital envelope for 2005 to 2009.

Overseas development aid has also been accorded a very high priority by the Government since 1997. We are providing an additional €60 million, or a 15% increase, on the current year's allocation for ODA. That will bring our contribution to some €535 million next year. This represents an increase of 240% since 1997 and it is a remarkable achievement, particularly when one considers that the equivalent provision in 1997 was only €158 million.

The gross provision for Exchequer funded public service pay and pensions is €15.3 billion, an increase of €1 billion, or 7%, on 2004. The increase makes full provision for the carryover of the first phase of Sustaining Progress, the payment of the final tranche of benchmarking and the increases due in 2005 under the mid-term review of Sustaining Progress.

In budget 2003, in order to control public service numbers, the Government decided to cap numbers at the existing authorised level and to reduce numbers by 5,000 by the end of 2005. As part of our commitment to address priority areas of service, we have subsequently agreed some adjustments to the figures for health, education and the Garda in respect of frontline staff. Outside the health and education sectors, the numbers serving in 2004 indicate that this year's targets for a reduction in public service numbers will be met. I emphasise that the Government remains committed to the control of public service numbers, particularly in light of the size of the public service pay and pensions bill as a component of overall Government expenditure, and is determined that the full effect of the reduction in numbers will materialise in 2005 and 2006.

In last year's budget, my predecessor, Deputy McCreevy, announced the introduction of five-year rolling multi-annual capital envelopes designed to improve the efficiency and effectiveness of the planning, management and implementation of capital programmes and projects. As part of this initiative, Departments were permitted to carry forward to the next year capital savings up to a maximum of 10% of voted capital. The facility will operate for the first time this year.

The carryover facility means that Departments and implementing agencies do not have to surrender this money and it avoids the potential for wasteful end of year expenditure inherent in an annual allocation system. The total amount of capital carryover from 2004 to 2005 is estimated at close to €250 million, or 4.5% of this year's voted capital allocation.

Turning to the capital provision for 2005, the 2005 pre-budget Exchequer capital allocation in the abridged Estimates volume is €5.7 billion. In addition, Departments will have the €250 million of carryover savings from 2004 available to spend in 2005. When taking this into account, Departments will have, on a pre-budget basis, some €730 million additional cash for capital spend or 14% higher than in 2004.

The 2004 budget envelope provided for total capital investment in 2005 of €6.3 billion, comprised of €5.715 billion Exchequer and €0.585 billion PPP funded by annual Exchequer payments. The Exchequer figure included an unallocated reserve of €120 million. On budget day I will announce a revised multi-annual capital envelope for the period 2005-09 and in the process will allocate the €120 million reserve in 2005.

It is now clear that there will be a major shortfall on the 2005 PPP component of the existing envelope. The new five-year envelope for 2005-09 which I will be announcing on budget day will take into account the cash already available to Departments in 2005, the PPP situation and the overall budgetary situation. It will also include a multi-annual provision for disability services.

The 2005 Estimates provide for an extra €2.5 billion bringing total planned expenditure on services to over €43.5 billion. By any standards this represents a substantial commitment to spending on public services. I have emphasised to all ministerial colleagues that we must continue to seek better value for money in delivering public services. The taxpayer and citizen demand no less. Departments and offices must therefore intensify their efforts to prioritise spending and to continually re-evaluate spending on existing programmes, projects and services in order to ensure that available resources can be directed to the areas of greatest need. While continuing to allocate resources to priority social and economic needs as resources permit, the Government will seek to ensure that better value for money is achieved from the increased expenditure.

In summary, the 2005 Estimates allocate significant provision for the key areas of health, education and infrastructure provision while retaining a prudent approach to overall expenditure policy. In conjunction with the resources I will be announcing on budget day, the Estimates focus on the areas of concern to the people and will promote economic and social development. I believe they deserve the support of the House.