Brian Cowen (Laois-Offaly, Fianna Fail)

I am pleased to be here today to resume discussions on the Appropriation Act 2005. As the House is aware, the Bill was enacted in December 2005, giving statutory effect to voted expenditure for 2005. At the outset, I would like to brief the House in similar terms to those which I briefed the Dáil yesterday in respect of the issue of capital carryover from 2005 to 2006 for the Vote of the Health Service Executive, HSE. The Appropriation Act 2005 made provision for a capital carryover into 2006 of some €346 million on capital expenditure programme priorities in 2006, including some €56 million for the HSE.

My Department was advised late on Tuesday, 17 January 2006 by the Department of Health and Children that the Health Service Executive had advised it on that day that there may be some alterations to its estimated outturn and consequently to its capital carryover figure of €56.4 million included in the Appropriation Act 2005. The Act provided that, with regard to the HSE, a sum of €56.4 million could be made available for spending in 2006 in respect of capital not disbursed in 2005. My Department has been advised by the Department of Health and Children that, on the basis of the preliminary outturn figures for 2005 from the HSE, the capital savings anticipated by the HSE in December may have been used to meet similar size costs under the current expenditure heading. The Department of Health and Children is awaiting final verification of the outturn from the HSE.

The implications of this development for the 2006 capital budget for the HSE will be reviewed in the context of the 2006 Revised Estimates Volume. I am determined to ensure that it will not have an adverse impact on the plans for the HSE's capital spending in 2006. As matters stand, the 2006 capital allocation for the HSE is €558 million; an increase of 10% on the provisional 2005 outturn.

The legal instrument which gives effect to the carryover of funds from 2005 to 2006 and which determines the actual amounts to be carried forward is a ministerial order. Under the relevant legislation — section 91 of the Finance Act 2004 — the order must be made before the end of March and the draft order will be put formally before the Dáil for approval by resolution. The Revised Estimates Volume will also include details of the carry over under each Vote and I will be accordingly advising the Dáil in due course in compliance with the legal requirements.

I want to make it clear to this House that this development has no implications for the multi-annual approach to capital investment or the availability of the capital carryover facility. The five-year capital envelope system introduced in 2004 will remain in place, as will the facility to carry over savings of up to 10% of the capital allocation for spending in the following year. The reaction to the multi-annual system and to the carryover facility has been uniformly positive. In particular, Departments and implementing agencies have indicated that it has greatly assisted more efficient planning and management of their capital programmes and projects. It has also discouraged any rush to sub-optimal end year capital spend to avoid savings occurring.

In 2005, some €237 million of capital carryover from 2004 was available for spend on key areas such as transport, social housing and education. Under the old system, this amount would have been surrendered to the Exchequer and lost to the areas in question. Excluding the HSE €56 million, the amount of carryover available for spend in 2006 will be €290 million. This will be invested again in key areas including transport, housing and industrial promotion.

Before I turn to the most significant elements of public expenditure in 2005, I will highlight some key budgetary and economic outcomes in 2005. The Exchequer statement published earlier this month showed an Exchequer borrowing requirement of just under €500 million. This compares with an initial forecast on budget day 2005 of almost €3 billion. On a general Government balance basis, the position improved from a projected deficit of €1.2 billion to a surplus of almost €700 million. This excellent outcome is a product of the Government's prudent fiscal policies and sound management of the economy.

Overall the economy is forecast to have grown by 4.6% in 2005. There has been an 89,000 increase in the numbers employed. The debt to GDP ratio has fallen to 28%. Under the stewardship of this Government, this robust economic position is forecast to continue in 2006 with forecast growth in GDP of 4.8% and growth in employment of 3.1%. Sensible economic policies are driving growth, which provides the resources to fund essential public services and address priority social needs over the medium term.

In line with this Government's policy to maintain expenditure growth at sustainable levels consistent with the growth in available resources, the end-year Exchequer returns showed an increase in net voted current spending in 2005 of approximately 9%, or approximately €2.5 billion. The vast bulk of these increases were targeted by the Government at the priority areas of health, approximately €1 billion; education, €450 million; and social and family affairs, €425 million. Between them, these three priorities accounted for over three-quarters of the total increase in net current spending.

It is important to place on the record that increased spending is leading to substantial improvements in the delivery of services. I will provide some examples of this. In the health sector, expenditure under the National Treatment Purchase Fund has been over €140 million since its inception. This scheme now generally facilitates anyone waiting more than three months for a routine surgical procedure. Since its establishment in 2002, over 37,000 patients have had treatment arranged for them by the fund.

In the period since 1997, there has been a dramatic increase in frontline staff in the health service as follows: 2,000 additional medical and dental personnel, including 620 additional consultants; 7,000 additional nurses; and nearly 7,000 other health professionals such as speech and language therapists, physiotherapists, social care and social workers, psychologists and environmental health officers.

Expenditure on the medical card services scheme had increased to approximately €1.4 billion by the end of 2005, from €360 million in 1997. The increased funding in this area provided for the introduction of medical cards to all over 70s and the new GP visit card. It also funded significant increases in income guidelines — the guidelines were increased by a total of 29% in 2005 — and simplification of the means test, which is now based on people's income after tax and PRSI and takes account of reasonable rent and mortgage payments, child care expenses and travel to work expenses.

In education, the pupil-teacher ratios have fallen since 1996-97 at primary and post-primary levels from 22.3:1 and 16:1 to a 2003-04 level of 17:1 and 13.6:1, respectively. There are now more than 5,000 primary school teachers working solely with children with special needs and there are nearly 6,000 special needs assistants providing individual support in schools to children with special needs. At third level, there have been significant increases in participation rates, rising to 54% in 2003. Third level participation rates were 44% in 1997. This increase reflects Government policies to broaden access to third Ievel education.

Gross spending on social welfare last year amounted to over €12 billion. The increases in social welfare spending have been targeted at the least well-off in our society. In particular, the Government has provided for significant increases in the old age pension, unemployment assistance and child benefit. Since 1997, these rates have increased from just under €100 per week to €193 per week for the old age contributory pension; from €83 per week to €166 per week for the lowest rate of unemployment assistance, which represents a doubling of this rate; and from €38 per month to €150 per month for the rate of child benefit for the first and second child.

While the Appropriation Act refers to expenditure in 2005 it is relevant to recall details of the budget announced last December. The budget saw a major investment of resources in key areas such as social welfare, child care and education. A social welfare package, costing over €1.1 billion in 2006, reflected significant increases in personal social welfare rates. These increases were well in excess of inflation and included an increase of €14 per week on the old age pension. A multi-annual child care package worth some €2.65 billion was announced. This included a new annual payment of some €1,000 in respect of every child aged six or under and a major programme of investment in child care facilities.

I announced significant additional investment in education including the creation of a multi-annual strategic innovation fund for third-level education, which has been widely welcomed by that sector. This investment recognises the sector's key role in nurturing the skills base necessary to compete in the modern global economy. I challenge the Opposition to outline which elements of the budget package do not represent value for money. The budget targeted resources in a major way at areas of need and also in areas related to our future competitiveness.

Significant additional investment is not limited to current expenditure. The Government has put a major investment programme in place to radically enhance our infrastructure to meet the needs of a modern society with a rapidly expanding economy. Net cash spend on investment in 2005 was almost €5.8 billion, an increase of over €600 million, or approximately 13% on the 2004 outturn. The biggest increases in capital spending were on the social and affordable housing programme, the school building programme, roads and public transport and science and technology development programmes.

In November 2005 the Government launched Transport 21, a ten-year capital investment framework for transport that provides for gross investment of €34.4 billion. This initiative, involving a massive acceleration of investment in transport, is an important expansion of the multi-annual capital investment framework and will facilitate better long-term planning in a sector which is central to the economic and social development of the State. The budget provided for investment of €43.5 billion under the 2006-10 multi-annual capital envelope, including provision for Transport 21. Some €38 billion is being provided for Exchequer capital investment and €5.5 million for PPP-funded investment. This capital investment is producing tangible results, including better and more houses, better and more schools and a major enhancement of our motorway network and public transport capacity. We will continue to give top priority to investment through the National Development Plan 2007-2013, which is currently in the initial stages of preparation.

I have already referred to the real outputs arising from Government expenditure. It is appropriate that I outline the initiatives introduced by the Government in recent years to promote better value for money for the taxpayer. As I indicated earlier, in 2004 the Government moved capital spending onto a multi-annual framework. This has given the financial certainty to Departments and agencies to plan their capital programmes over a medium-term horizon. The result has been better management of programmes and projects. To complement the multi-annual capital framework my Department issued in February 2005 a revised edition of Guidelines for the Appraisal and Management of Capital Expenditure Proposals in the Public Sector. The new guidelines put in place a rigorous approach to project appraisal. They also provide for proportionality in project appraisal, depending on the size and scale of projects. In particular, they require detailed cost-benefit analysis for all projects costing over €50 million. I subsequently reduced this threshold to €30 million on foot of the additional value for money measures I set out in my address of 20 October last to the Dublin Chamber of Commerce.

The Government announced in October last an initiative in relation to the management of information and communication technology projects and consultancy. This includes provision for a peer review process for major ICT projects and for review of the guidelines in respect of the engagement and management of consultants. I also announced on 20 October additional measures to promote greater value for money including ex ante evaluation and formalised contracts review of projects over €30 million, more competition for public sector contracts, a requirement to put out to tender extension of major service contracts and recruitment and training of specialist IT, capital project appraisal and management staff.

Engagement with Departments has been ongoing to ensure that these measures are fully implemented. Substantial progress has also been made on the introduction of fixed price public sector contracts for construction and related services. Consultations on the implementation details with the construction industry are advanced with a view to introducing shortly the new range of fixed price contracts. These new contracts will transfer appropriate risks to contractors where they are best placed to manage them thus reducing the potential for cost overruns. Evidence is already emerging that the reforms of recent years in regard to capital spending, appraisal and management are making an impact. Most projects, notably in the roads area are now within budget and on or, more likely, ahead of schedule.

The Government accepts that there should be a more transparent system for reporting to Parliament on outputs achieved for resources invested. In my recent budget I announced Government proposals for a reform of the budgetary and Estimates process. The proposals involve my meeting the Committee on Finance and the Public Service early in the year to discuss the economic and fiscal background to the three-year medium-term framework as set out in the stability programme that we submit to the EU Commission. I also proposed as a new feature that my Department would publish updates of the multi-annual projections the following autumn.

To facilitate more meaningful consideration of the annual Estimates I have proposed that from 2007, each Minister will publish an annual outputs statement setting out the performance targets for their expenditure programmes. These statements will be presented to the relevant select committees together with the Department's annual Estimates to facilitate consideration of what is being achieved for the public expenditure being voted. From 2008 the statements will also provide information on actual outturns against targets.

On foot of the budget announcement I extended an invitation in December to the Opposition spokespersons on finance and the party Whips to meet with me to discuss issues in relation to the implementation of the Government's proposals. I regret to say that a negative response has been received from the Labour Party to my invitation to discussions. This is disappointing as the Government's proposals involve real reform and provide an opportunity for enhancing accountability in regard to the Estimates and budgetary process. I would like to advance this issue by consensus and I hope that, notwithstanding the Labour Party's stated position, my invitation to discuss these proposals will be taken up by all parties so that real improvements to Oireachtas scrutiny of the public expenditure and budgetary policies can be achieved over time and in a spirit of co-operation.

The year 2005 was another successful one for the Irish economy. The Government's prudent policies have seen continued economic growth, buoyant tax revenues and significant increases in public expenditure with associated improvements in public services. In the recent Estimates and budget the Government has made provision for further significant increases in expenditure which will deliver better public services. These, combined with the additional value for money initiatives introduced in 2005, should ensure that 2006 sees further progress on the Government's commitment to delivering modern class infrastructure and better public services.