Tom Parlon (Laois-Offaly, Progressive Democrats)

I am pleased to be here in the Seanad today outlining the provisions of the 2007 budget and to listen to the debate this evening. Ireland continues to make strong economic and social progress and the key indicators for the future remain positive. It is in this context that the 2007 budget has been cast and with a view to ensuring the benefits of success are shared by all. The Government has set out four key objectives: sustaining a strong economy; supporting employment; promoting improved competitiveness; and building a fairer, more caring society.

The Government's budgetary strategy is based on the objective of continued budgetary sustainability both in the medium and longer term. The public finance position is sound. The debt-GDP ratio is projected to be 23% in 2007, one of the lowest in Europe. The outlook is for a general Government budget surplus of 1.2% of GDP in 2007. This includes the cost of infrastructural investment which, at around 5% of GNP, is running well ahead of the EU average.

The strategy for achieving the Government's key objectives with regard to budgetary and economic policy includes improving equity and opportunity, fostering employment and economic growth, helping families and those on low incomes, enhancing public services and value for money, maintaining high levels of infrastructural investment to secure future economic growth, and pursuing prudent fiscal policies to ensure the flexibility required to respond effectively to any budgetary pressures that may arise in the future. The continuing strong performance of the economy together with appropriate and prudent management of the public finances have made today's budget possible. The tax, social welfare and public investment measures will ensure this success will be sustained and widely shared.

I will set out the context in which this budget has been framed. As one of the most open economies in the world, Ireland's performance depends on its economy being able to respond quickly and appropriately to international developments. Global growth has been robust in 2006, despite volatile oil prices and the latest forecasts from the EU Commission are for an increase of 5% in world GDP for this year. GDP growth in the US is expected to be 3.4% for 2006 but the economy is slowing. Growth in other regions and, in particular emerging Asia, is set to remain strong. The euro area has experienced considerable economic expansion in the first half of 2006 and output growth is expected to average 2.6% in 2006, driven mainly by domestic demand.

The performance of the Irish economy continues to be impressive and GDP growth is expected to rise by 5.4% for this year and by 5.25% in 2007. A key component of our economic strategy was job creation and our success in this area is exceeding all expectations. The number of people employed is now more than 2 million for the first time in the history of the State and for 2006 as a whole employment is projected to grow by 4.4%. This represents an increase of 87,000 jobs, or more people than would fill Croke Park on an All-Ireland Sunday. The outlook for unemployment remains equally favourable and we have one of the lowest unemployment rates in the euro area.

Business policies have helped to nurture new and existing enterprises from the sole trader to the large multinational corporation. We recognise that creating the environment that encourages business is critical if we are to maintain job creation and economic growth, which are essential to maintain social progress. While I acknowledge that inflation has been a concern this year, it is now expected to moderate during 2007, with HICP inflation forecast to be 2.6% in 2007.

We must not, however, be complacent. A number of potential risks remain on the horizon. Further interest rate increases, oil price volatility and the weakening dollar allied to a possible disorderly unwinding of global imbalances, continue to be the main areas of concern. The Irish economy must be resilient if these risks become a reality and improving its competitiveness will play an important role in this regard.

We have achieved economic progress by choosing prudent and appropriate policies and this has created a favourable economic environment for growth. The Government is committed to ensuring that the public finances remain in a healthy position. Prudent fiscal policy means this year we are operating off a budget surplus — one of only six countries in the EU 25 forecasted to achieve a surplus this year. Despite this, we are continuing to provide generously for health, education and social welfare and continuing to introduce measures to reward work and promote enterprise.

The Minister today outlined that a longer-term and sectoral approach will be adopted to ensure public spending is efficient and effective. A total of €48.5 billion is being provided for gross current expenditure in 2007 and this represents an increase of 11.5% over 2006. More than 77% of gross current expenditure is for social welfare, health and education and this demonstrates the priority the Government accords to these areas.

The Government wants to ensure everyone in our country benefits from our economic success, particularly those who are less well off. The total cost of the social welfare improvements announced today amounts to €1.4 billion in a full year and will bring total social welfare expenditure for 2007 to €15.3 billion. From the first week in January, all maximum State and related social insurance pensions will be increased by €16 to €209.30 per week while the maximum personal weekly rate of the non-contributory State pension will increase by €18 bringing it to €200 per week. There has been a €20 increase in the lowest rates of social welfare payments bringing the lowest adult rate to €185.80 per week. The Minister has also provided a further €189 million for other social welfare measures which will include increasing the respite care grant, providing a disability allowance for the 2,700 people in residential institutions, doubling the back to school allowance, and increasing the fuel allowance by €4 per week.

Almost €15 billion will be provided in the health and children area in 2007. Included in this figure is €321 million in 2007 to enhance our capacity to care for a number of important groups in our society. More than €205 million will be provided for additional care packages for our elderly, including an expanded home help service, additional residential beds, improvements to palliative care and day-respite service and enhancement of the support available under the nursing home subvention scheme.

Today, the Minister for Finance has allocated an additional €100 million for health related disability services. As well as providing for additional residential, respite and day places, this funding will enable the introduction of Part 2 of the Disability Act 2005 which involves assessments of need and service statements for people with disabilities, and which will commence for children under 5 years from 1 June 2007. It will also enable the continuing transfer of persons with an intellectual disability from settings inappropriate to their needs.

Of the additional €100 million announced, €25 million is being assigned to support the continued implementation of the mental health services plan, A Vision for Change, as well as funding for the national strategy on suicide prevention. This funding will support the provision of additional community-based mental health facilities, including mental health day centres, day hospitals and community residential facilities, as well as the appointment of extra frontline staff to support adults and children with mental illness. An additional €16 million is also being provided for primary care.

Ireland has led the world by successfully banning smoking in the workplace. To discourage smoking further, which is having such a negative effect on our health, an excise duty of 50 cent is being added per packet of 20 cigarettes and corresponding amounts on other tobacco products.

The budget recognises the essential role education plays as a catalyst in delivering economic success and €7.89 billion has been provided for education in 2007. Over the past four years we have added 6,800 teachers at first and second level and increased special needs assistants by 3,100. A further 800 teachers will be provided at primary level in 2007. A 24% increase in graduates between 2002 and 2004 shows that investment at third level is also paying off.

In recent years, the Government has provided significant resources for child income support and child care. In today's budget, the Minister announced that the three rates of child dependant allowance will be merged and a new standard rate of €22 per week is being introduced in 2007. Child benefit is being increased by €10 per month for all children. The total cost of these child related increases will be almost €244 million in a full year. A national child care strategy was introduced in last year's budget. This is a five-year strategy to address the supply and the cost of child care, costing a cumulative €2.65 billion over that period. A provision of €381 million was included in the 2007 Estimates for the early child care supplement. There will be a further four-week increase in both paid and unpaid maternity leave in 2007, bringing the duration of paid maternity leave to 26 weeks and the duration of unpaid maternity leave up to 16 weeks. Together, these measures should help to ease some of the pressures on young families.

The stock and quality of public physical infrastructure is one of the critical elements in the long-term growth strategy for the economy. While there have been significant developments in infrastructure delivery under the current national development plan, especially in the area of roads, public transport, housing and health care, ongoing investment in these areas is still required. The Minister for Finance stated today that he will publish a new national development plan in January which will commit to a major seven-year programme of investment above current levels, especially in the area of transport. The 2007 capital allocation provides for a total public capital investment of €7.8 billion. Around €7.6 billion of this is Exchequer capital and €264 million is public private partnership capital, to be funded by annual payments from the Exchequer.

We are constantly striving to achieve the objective of a fairer, more progressive and rewarding income tax system. The entry point at which people will start paying tax is being increased to €17,600, or the equivalent of €8.65 per hour, while the PRSI entry point is also being raised to this level, keeping those on the minimum wage out of the tax net, as the Government promised. These measures will cost €501 million in 2007 and €657 million in a full year. The 20% standard tax band is being widened by €2,000 per year. The changes to the credits and tax bands mean that 80% of income earners will continue to pay an effective rate of tax of 20% or less.

The threshold for payments of the health levy has been increased by €40 while the tax exemptions for senior citizens aged 65 are being raised by €2,000 for a single person and by €4,000 for a couple. Tax credits are being increased for widowed persons while widowed parents will receive a special tax credit for five years. The special tax credit for persons who care for an incapacitated children is being doubled to €3,000. The Revenue Commissioners will be putting measures in place to make it easier for taxpayers to claim and receive their entitlements.

Purchasing a first home is always a financial challenge, and to support people in this respect, the ceiling on mortgage interest relief is being doubled for first-time buyers in the first seven years of their mortgage, up to a limit of €8,000 for single purchasers and €16,000 for those who are married or widowed. The increased relief will be available to all first-time buyers in the first seven years of their mortgage. The ceiling for other buyers is also being increased to €3,000 for single purchasers and to €6,000 for married couples. The cost of these measures is estimated to be €50 million in 2007 and €70 million in a full year.

Earlier I mentioned the importance of small businesses to the economy, particularly in terms of job creation and maintaining our competitiveness. Following a consultation process with groups such as the Small Business Forum, it has been announced that the business expansion scheme, or BES, and the seed capital schemes, which were due to expire at the end of this year, have now been extended for a further seven years, subject to the approval of the European Commission. The ceiling per company is being raised from €1 million to €2 million for the BES and the annual limit per investor is being increased from €31,750 to €150,000. The annual investor limit in the seed capital scheme is being increased to €100,000.

Tax administration will now be simpler for 97% of Irish companies. Companies with a corporation tax liability of less than €50,000 can now pay preliminary tax based on their last year's final liability, thereby avoiding forecasting the current year's performance in advance of the accounting year. The small company liability threshold has been increased from €50,000 to €150,000. New companies will no longer have to pay preliminary tax in their first accounting period. The VAT accounting threshold is being raised, VAT registration turnover thresholds are being doubled, while the number of VAT payments for small firms is being reduced from six to three or two per year depending on the case. The full annual cost of these measures, which are designed to reduce the regulatory burden on firms, will be €53 million with an additional once-off cash flow of €84 million.

Protecting the environment must be an integral part of public policy and we must work toward realistic targets in areas such as renewable energy, pollution reduction and waste management. A total of €328 million has been allocated in 2007 for the rural environment protection scheme, including provision for REPS 4, part of the Ireland's rural development programme for the period 2007 to 2013, which will shortly be sent to Brussels for approval. The Department of Finance will shortly carry out a public consultation process to determine how the vehicle registration tax system can be tailored to encourage drivers to choose lower emission vehicles, and will report on the outcome to the Government. Decisions taken in this area will have a target date of 1 January 2008. The Minister for the Environment, Heritage and Local Government will also consult on proposals for rebalancing annual motor tax to encourage drivers to choose cleaner cars, and this would apply to vehicles registered after 1 January 2008.

Farming continues to be an important part of the economy and central to maintaining and developing vibrant and economically viable rural communities. To prosper, farming must be able to respond to a range of emerging challenges, which include developments in the EU and world trade agriculture policy, changes in food markets, increasing trade liberalisation and technological developments. To help meet those challenges, the Government will continue to provide the necessary support to enable farmers to invest in and be innovative on their farms. The Exchequer capital provision for agriculture in 2007 is €279.1 million, inclusive of budget day add-ons of €3.6 million. In line with changes announced in previous budgets and arising from the conclusion of the latest social partnership agreement, the Minister announced a package of measures to assist farmers maintain and develop farming as a viable family business.

The threshold for capital gains tax retirement relief is being increased from €500,000 to €750,000, also from 1 January 2007. The CGT retirement relief is being extended to disposal of leased land subject to certain conditions.

Farm consolidation relief is being extended to 30 June 2009. The existing general 25% stock relief for farmers and the special incentive stock relief of 100% for certain young trained farmers are being extended from 1 January 2007 for a further two years subject to clearance with the European Union under state aid rules. Also, from the 1 January tax exemptions will apply for income derived from certain leases of farm land and a new exemption of €20,000 per annum will be introduced for leases of ten years or more. The overall cost of these measures will amount to €14 million in a full year. In addition to these farm tax reliefs, the farmers flat rate of VAT is being increased from 4.8% to 5.2% from the 1 January 2007 at a full year cost of €16 million.

A welcome development is the introduction, subject to EU approval, of three measures to encourage farmers to grow energy crops. The bioenergy establishment scheme will provide grants to farmers interested in planting willow and miscanthus that can be used for heat and electricity purposes. Grant aid is being provided to offset the high establishment costs of these crops. The estimated cost in 2007 will be €2 million, rising to €3.5 million in 2009. The national aid for energy crops will provide a top-up grant of €80 per hectare to the existing EU premium of €45 per hectare. The purpose of the measure is to stimulate production to meet demand arising from the excise relief scheme and to avoid this being met by imported feedstock The biomass harvesting machinery measure will provide funding for specialised equipment. It is expected that the cost of the national aid for the energy crops and biomass harvesting machinery measures will amount to €3 million in 2009.

The decentralisation programme is progressing and over the next 18 months——