Brian Cowen (Laois-Offaly, Fianna Fail)

I welcome the opportunity to open this debate. While the focus of the debate is on progress in the BMW region, it is important that we reflect at the outset on the major economic strides the country as a whole has made in recent years. As I will indicate in my address, the BMW region has very much shared in this progress.

A thriving economic climate has been created in Ireland over the past decade and we have recorded one of the best economic performances in the world. From 1997 to 2003, Irish gross domestic product grew by an average of over 7.5%, compared to an average of just over 2% in the Union. The fruits of this economic success have been put to good use and have benefited people the length and breadth of the country.

The taxation system has been significantly reformed, public services have been improved and provision for the future has also been made with the establishment of the national pensions reserve fund. Our public finances have been put on a sound footing and the general Government debt level has been more than halved from 74% of GDP in 1996 to 31% last year.

The unprecedented growth rates of the past decade could not be maintained indefinitely. We are now moving towards a more sustainable level of annual growth of 4% to 5%, still more than twice the EU average. The key challenge facing us is to manage the transition to these lower rates of growth and to tailor our expectations accordingly. This is particularly important in the context of this debate when we will no doubt hear strong arguments for higher levels of investment of taxpayers' money. With this in mind, I ask Senators to reflect on the following two considerations.

First, it is imperative to both our national and regional social and economic well-being that we remain competitive. We must focus on competitiveness if we are to copperfasten the economic progress we have made so far and enhance our capacity to grow in the medium term. In particular, we must keep our labour costs competitive and this has implications not just for the level of pay increases but also for the level of payroll taxes which can be levied.

The second consideration is that maintaining the public finances on a sound footing is essential. We face many demands for improvements in public services while lower growth rates mean lower tax revenue growth. Our low debt ratio is an important positive but we must remain vigilant to ensure that we continue to enjoy stable public finances.

These realities require us to continue to pursue the correct economic policies to enable us to create at national level the resources for investment throughout the country. They also require us to prioritise investment in sectoral areas of best economic return, taking account of overall Government policy objectives. The key point is that investment in the BMW region or the country as a whole cannot take place in a vacuum. It must be built on the foundations of solid and stable national economic and fiscal policies.

The fact that we are addressing today the issue of development in the BMW region is itself a tribute to the outcome of the Government's negotiating strategy in the Agenda 2000 negotiations. As Senators may recall, Ireland went into those negotiations in the position that the country as a whole had no prospect of retaining Objective One status for Structural Funds. Our rapid and continuing economic growth since the mid-1990s meant that Ireland had well exceeded the 75% of GDP threshold for Objective One status.

Initially, it seemed the only option in the Agenda 2000 negotiations was to pursue a transitional movement from Objective One status for the entire country. This was certainly the fate the EU Commission had in mind for Ireland at the time. However, the Government was conscious that some regions were below the 75% threshold and adopted the policy of seeking to retain Objective One status for those regions for the period 2000 to 2006. I recall the scepticism of the Opposition when that negotiating strategy was brought forward.

The Government strongly pursued the retention of Objective One status for the BMW region in the Agenda 2000 negotiations, which culminated in the Berlin summit in March 1999. After intensive negotiating efforts, the Government's objective was fully achieved when agreement was secured on dividing Ireland into two regions for Structural Funds purposes. The BMW region was to retain full Objective One status for the period 2000 to 2006 while the rest of the country secured generous transitional arrangements for the phasing out of Objective One status.

The outcome of the Berlin summit, in so far as Structural and Cohesion Funds are concerned, was a major success for the Government's strategy, leading to continuing significant transfers of funds to Ireland in the period 2000 to 2006, notwithstanding the major economic strides we had made by 2000. The agreement provided for €3.8 billion of structural and cohesion transfers over the seven-year period. An additional €600 million of Structural Funds was allocated for the BMW region on foot of its retention of Objective One status, bringing the total Structural Funds allocation to €1.4 billion. In addition, the Government secured the retention of a much more favourable State aids regime for the BMW region.

It is only fair that I acknowledge the support the Government received at that time from the relevant regional authorities and the newly-created regional assembly for the BMW region. It should also be recorded that the assembly has discharged most efficiently its responsibility as managing authority for the regional operational programme under the national development plan.

The National Development Plan 2000-2006 built on the regionalisation approach adopted by the Government in the Agenda 2000 negotiations. It set out an unprecedented level of national investment, €51 billion in 1999 prices, in key economic and social areas. A particular focus of the NDP was a major enhancement of the economic and social infrastructure of the country through an investment of some €22 billion over the period, of which €6 billion related to the BMW region. This constituted a significant increase in investment in the region over previous levels in key areas such as transport, social and affordable housing, environmental services, education and health.

The Government viewed the initial allocations in the plan published in November 1999 as indicative in nature, as was clearly stated in the plan as published. Senators will accept it would be impossible to set out precisely, seven years in advance, the yearly outturns for the many areas of investment encompassed by the NDP. By reference to the initial investment profile set out in the plan, investment in the BMW region at mid-2004 in the key area of economic and social infrastructure was some €660 million below the target set. Exchequer-funded investment in the infrastructure in the region was only €240 million below profile.

I assure the House that over the remainder of the NDP, the BMW region will see a significant increase in investment in economic and social infrastructure. I will elaborate shortly on how I hope this objective will be achieved. Before that, however, I will give some examples of enhancements to the infrastructure of the BMW region under the NDP. In the area of transport infrastructure, almost €2 billion has been spent since 2000. Projects completed or continuing are leading to major improvements to key routes in the region, such as the M1 Dundalk western bypass, the N2 Carrickmacross bypass, the N4 Sligo inner relief road and the N5 Strokestown-Longford road. The key rail lines into the region were completely upgraded by 2003 and significant assistance has been given to its regional airports.

More than €749 million has been invested to date in non-national road projects in the BMW region, contributing to the improvement of almost 20,000 km of non-national roads. The second and third phases of the broadband metropolitan area networks, MAN, scheme is being rolled out and will cover all towns in the region with populations of 1,500 and over by the end of 2006. This is an important initiative in the context of the region's future economic development.

Almost 8,000 child care places have been created, with significant further investment planned before the end of 2006. Much progress has been made in the area of environmental services, with expenditure to date of €634 million on the economic and social infrastructure operational programme. In addition, expenditure on the rural water measure in the BMW regional operational programme is more than €100 million and 103,000 people in the region are benefiting from improved group water supplies.

These examples of major outputs arising from capital investment are replicated in other key areas such as housing, health and education. The Exchequer also heavily subsidises the operation of certain services in the region. For example, there is significant subvention of passenger rail and air services into the region.

At a macro-economic level, significant progress has been made in the region since 2000. Employment in the BMW region has grown by some 33% in the past six years, representing an average annual growth rate of 5%. In early 2004, there were some 120,000 more people in employment in the region compared with the beginning of 1998. This is a phenomenal rate of employment growth by any standard and is well ahead of the national employment growth rate. Unemployment in the region is at approximately 4.5%, indicating almost full employment. The latest published data indicate that output per capita, measured in terms of GDP, was 88% of the EU-15 average in 2001, compared to 79.3% in 1998. I do not doubt that the region has since then converged much closer to the EU average. The BMW region is now the second wealthiest Objective One region in the EU.

BMW representatives have been critical of the pace of investment in transport in particular in the BMW region as compared with the south and east region. I accept the BMW region has to date lagged behind the other region in this regard by reference to the initial profile of NDP investment. However, the BMW region benefits from investment in transport, especially road infrastructure, in other parts of the country. For example, most of our ports are located in the south and east region and much of the exports from the BMW region are routed through these ports. In addition, much internal business is conducted between the BMW and Dublin regions. Without good and efficient transport links to the Dublin market, and onwards to the major markets in the UK and Europe, businesses in the BMW region will suffer cost disadvantages.

It is my objective to see increased levels of investment in infrastructure in the BMW region. For the remainder of the plan and beyond, the financial framework for investment in infrastructure will be governed by the five-year capital envelopes launched in budget 2004 and rolled over for another five years in budget 2005. When account is taken of the envelope provisions for 2005 and 2006, total Exchequer resources available in these years for investment in the key infrastructure areas is well in excess of that originally planned for under the NDP. Accordingly, there is scope for additional investment in the region in these years over that originally projected.

As Senators will realise, decisions on project selection in individual areas are generally taken by Ministers and Departments under the delegated sanctions on capital expenditure from my Department. Of course, they do not do this in isolation but in a manner consistent with Government priorities. In this context I have no doubt that my colleagues will be particularly attentive to need to increase the level of investment in the BMW region between now and end 2006.

I will now briefly address the post-2006 situation on two levels, namely the Structural Funds outlook and, more generally, the sectoral investment and regional development in that period. Last year the European Commission published its proposals for the planning period beginning in 2007. These proposals have implications for Ireland and for the BMW region. Since contributions to the EU budget are based broadly on a country's relative income, Ireland will pay a higher share of the financing of the EU budget. In addition, as our per capita income increases, we become less eligible for support from the Community budget in the form of Cohesion and Structural Funds.

The result of these developments is that over the seven years from 2007 to 2013, Ireland will receive a much lower level of net transfers from the EU budget than we previously enjoyed. We will continue to be net recipients from the EU budget for the initial years of the 2007 to 2013 period. From approximately midway in the period, we will become net contributors. This rather dramatic turnaround is the result of the very positive economic progress of recent years. While recognising that EU membership has been good for us and that EU budgetary transfers have assisted in our economic progress, we will still be defending our national position in the current budget negotiations as strongly as any of our partners.

Nonetheless, it must be recognised that the Border, midlands and west region, because of its comparative prosperity, will not qualify for Objective One status under the proposals. Instead the BMW region will qualify for enhanced support under the Commission's proposals to achieve regional competitiveness. This transitional support will be at a more reduced level than under the current round and will need to be concentrated in a few key sectors linked firmly to the Lisbon Process if the Commission's proposals are accepted. In essence, after 2006, the Structural Funds transfer to the BMW region will be more modest. This means that even more so than under the current plan, investment after 2006 at national and regional levels will have to be funded from our own resources.

The Government has made no decision as yet on whether to have a successor to the current national development plan and, if so, what it should encompass. I would be interested to hear Senators' views on the subject in today's debate. As I have stated already a medium-term capital investment envelope is now in place, which sets the financial framework and programme prioritisation out to 2009. As Senators are aware, in the budget I announced agreement in principle to the idea of a ten-year envelope for transport. I expect that the Minister for Transport will submit his proposals in this regard to the Government in the near future.

The Government is committed to maintaining the current high levels of capital investment, approximately twice the EU average, over the next five years and perhaps for a number of years beyond this. It will be considering if and how this commitment needs to be given greater expression through the articulation of sectoral policy priorities in a new national development plan. Whatever the post-2006 scenarios there is no doubt that the BMW region will lay claim to significant investment in infrastructure in the coming years. As already stated, I am sympathetic in this regard. However, I expect any submissions I receive from regional interests on the issue to be characterised by two key necessities — an economic return from the programme or project being promoted and prioritisation within programmes and between projects.

Given the demands for improved public services nationally we will never have sufficient resources to satisfy all needs. Therefore, the Government must prioritise by reference to what yields the best economic and social return. For example, in the area of transport, it is particularly important to avoid wasteful duplication of high levels of investment on the same routes across all transport modes unless a strong economic case in favour of such duplication exists.

I would like to make some brief comments on the general issue of balanced regional development. Over the period of the current plan, while the BMW region made rapid economic strides, little progress has been made on narrowing the gap with the other region as that region has also benefited from the prosperity of the country. However, it must be borne in mind that the southern and eastern region has significant areas of deprivation including in the larger urban centres. Simple comparisons between the two regions do not tell the whole story.

The major new factor is that we now have a template for balanced regional development through the national spatial strategy. The national spatial strategy does not focus on a two-region approach but has rather designated a number of new gateway towns and hubs through which to drive greater balance in regional development. As it happens the four new gateway towns or centres in the national spatial strategy are in the BMW region. The national spatial strategy has a 20-year horizon going beyond 2020. It will be important for the future and especially beyond 2006 that investment choices at national and regional level take full account of the national spatial strategy framework. While this approach will probably benefit the BMW region, it will be firmly grounded in the national spatial strategy.

The BMW region has benefited significantly under the current national development plan and has made strong economic progress across many headings. The infrastructure needs of the region mean it has legitimate claims to an increasing level of investment over the medium term. The national spatial strategy provides the template for promoting better balance in regional development in all parts of the country. I look forward to hearing the contributions of Senators and thank them for their attention.