Alan Kelly (Labour)

I welcome the Minister to the House. This is the first time I have had the opportunity to discuss the forthcoming budget. I wish to consider the ongoing budgetary assessments and then refer to specific areas the Minister may consider addressing in his response. I welcome the Minister's new approach to the budgetary process as it will bring about more transparency. This year is unique in that we are getting used to it. Unfortunately, the outlook for the budget is far less healthy than was forecast last year. It is predicted that we will have a Government surplus of 0.9% of GDP this year, which figure has decreased from 1.2%, as predicted previously. We face a shortfall in tax revenue of €1.5 billion. In 2008, growth in GDP is expected to be approximately 3.25%. It is expected to be approximately 4.75% this year and therefore we face a considerable drop within a year, in spite of the fact that the average is expected to be over 3.5% until 2010. The unemployment rate is expected to rise from 4.5% to 5% and this must be considered. We are not used to such unemployment rates but there has been an upward trend, particularly in the past year.

The number of new house completions this year will be approximately 60,000. Every time the annual rate drops by 10,000, €1 billion in revenue is lost and GDP growth decreases by 1%. In addition, the Government balance is lowered by 0.5%. We must determine specific ways of addressing the changes in the housing market. Public spending for 2008 will increase by 4.8%. We need to discuss how the money can be spent to the best of our ability.

Various commentators have referred to the somewhat negative tone of the Minister's outlook. We have been assured in this regard, but the tone reflects a consistent style of post-election predictions in this area. The Estimates pertaining to the third and fourth budgets of a Government seem to reflect a different approach. Perhaps this is just coincidence, but it may indicate something else.

The past few months have not been great for the economy. By the Minister's admission, there have been changes. There were warning signs of a downturn but in many cases they have been ignored. The run on Northern Rock was unique and represented a sign of change. Many of the reasons for this were based on sub-prime lending, as I stated specifically in the past. The Minister has considered addressing the matter of sub-prime lending in respect of the MiFID but I still have concerns that might need to be addressed.

The Stock Exchange value decreased by 30% and this is serious. The credit crunch across Europe has affected Irish finances. Last year credit growth increased by 30%, which is serious, while our dependence on debt, which stands at two and a half times the gross domestic product, is far in excess of that of most other European countries. This is a worrying trend. The loss of export market share for four years in a row is very much a cause of concern. In this regard, consider yesterday's announcement on Waterford Wedgwood. The difficulties faced by such a company are indicative of the direction in which the manufacturing industry is going. We need to address this.

The harmonised index of consumer prices shows that the Irish inflation rate, excluding that associated with mortgages, is 50% higher than that in the eurozone. I am sure the Minister is conscious of this figure and a solution to the problem needs to be found. There are a number of reasons for the change in our circumstances, many of which are outside our control, including rising oil prices and the change in the euro to dollar exchange rate. Another contributory factor is the weakening residential housing output and this area must be examined closely. Income tax, excise duty, corporation tax and VAT are all performing well, particularly VAT. However, our economy is overly dependent on the property market. I will not dwell on this issue as it was debated at length in the House yesterday, but approximately 280,000 people are employed in the construction industry. That industry contributes almost 25% to our GDP. The property industry is both the economy's major driver and Achilles heel. It is predicted that 90,000 housing units will be built this year, 70,000 next year, decreasing further from 2008. I have already referred to the economic consequences of this change.

Housing and construction accounts for between 12% and 14% of GDP. A serious drop in activity in that sector will mean other sectors will have to improve their performances to bolster our growth rates. Stamp duty income is 14% below predictions and the tax take is 12% behind current spending, therefore, something will have to give.

We must move the economy away from debt finance and the property sector. The property market is over-valued and in a bind. Productivity growth is at its lowest level for 20 years, reflecting our dependency on the property market. The economic reliance on these sectors has created problems in traditional sectors such as exports, on which an open economy like Ireland is very much dependent. However, I welcome the recent announcement by Enterprise Ireland that it plans to examine how to increase export output in the next few years. The initial approach is promising but we must study the plans in more detail to ascertain how effective strategies can be put in place. I hope Enterprise Ireland will receive budgetary support for this initiative. Irish banks provide property loans at twice the rate of their EU counterparts, which is worrying.

I turn my attention now to the forthcoming budget and the promises made by the Minister for Finance and Fianna Fáil prior to the election. The Celtic tiger is no more. Prior to 2007 we had growth rates of approximately 7%. From 2008 onwards we can expect growth rates to hover between 3% and 3.5% but Fianna Fáil declared before the election that our growth rate would be at 4.5%. The difference is significant.

The Fianna Fáil manifesto promised a 1% cut in the top rate of tax. Where does the Government stand in this regard? The Minister said that such a cut would depend on the economic outlook at budget time but what is the current Government position? Fianna Fáil also promised that over the lifetime of this Government, the standard rate of tax would be reduced from 20% to 18%. What is the Minister's outlook in this regard, given the economic projections for the next few years? What is the situation regarding the PRSI changes that were outlined prior to the election? I am also interested in the Minister's view on the changes that were proposed for VRT and motor tax. All of the proposed changes were to take place in the lifetime of this Dáil and I ask the Minister to clarify the situation in the context of current economic projections.

Tax revenues are down which means there will be no generous budgets for the next few years. The Minister's approach has been, post-election, to put money by for a rainy day which may arrive in four or five years' time. We will see how that works out but, based on the current figures, we do not know if it will be possible.

Ireland has experienced enormous growth in the past ten to 15 years, doubling its national wealth. Now is the time to reflect on what was achieved in that time. There is no doubt much has been achieved, as Senator MacSharry argued earlier. Expansion and development in a number of areas has taken place and is very welcome. However, some areas have slipped through the net. We still have an enormous drug and crime problem. There is, without doubt, a crisis in the health service. Literacy is still a problem, as is the neglect of disadvantaged areas. Unfortunately, there are still children living in poverty and low incomes are prevalent, despite the Celtic tiger. There are many infrastructural problems, some of which are related to the fact that money was not spent wisely. Overcrowding is still an issue in our schools and our emergency services are under-resourced.

I wish to put on the record some areas where money was wasted. Approximately €35 million was wasted on MediaLab Europe, on e-voting — €52 million, on PPARS — pick a figure, Stadium Campus Ireland — €100 million, toll bridges — pick a figure, Luas — €470 million, the Port tunnel — €150 million and decentralisation — God knows how much, but the figure is at least €900 million. Such waste must stop because we will no longer be able to afford it, given the current economic outlook.

According to the latest figures, the budget deficit for this year will be €1 billion, which is €500 million more than predicted at the beginning of the year. An increase in current spending levels means the Government must raise revenue through cuts. We are seeing such cuts at present. There are cuts in frontline services in hospitals, reducing the number of nurses and doctors available. This means, for example, that patients arriving at regional hospitals like that in Nenagh must transfer to Limerick, which is also experiencing cuts. Spending in education has been reduced in the area of the pupil-teacher ratio, which I hope will be addressed in the forthcoming budget.

Slash and burn economics are the fashion for the next few months in order to meet budgetary requirements in the context of the deficit increasing from €500 million to €1 billion. Warning signs were apparent but were not heeded in time.

I will now deal with specific budgetary issues which are of concern to me. The national development plan is a priority for the Government, which I respect and appreciate. However, it is ridiculous that national development plan appraisals are carried out in secret. This must be addressed. Given the changes that will take place in the construction industry, I expect the Minister to include some provision in the budget to assist in the re-skilling of a percentage of the 250,000 workers currently employed in that sector.

Decentralisation has been debated and has been a failure, although some have argued it has been a success in some areas. Semi-state bodies are never going to decentralise, mainly because of specific issues relating to pensions and the transfer thereof. It will not happen. I worked in Fáilte Ireland, which is a semi-state organisation, and not one person applied to move to Mallow. Such a move would be ridiculous for some staff, who have to be in Dublin to meet people at the airport and so forth. Decentralisation will not happen. The Government should bite the bullet on the matter.

There is an anomaly in old age pension provisions whereby a husband receives approximately €209 per week but the dependent woman receives only €173, which must be addressed. Rent allowances must be also addressed because in some circumstances they act as a disincentive to people to take up work, given the money they stand to lose. In the area of people with disabilities, we must examine the funding for the disability federation. It has put together a very good submission to provide a resource centre. Given that we have a weakening economy, the federation will be able to create economies of scale across the board which would be helpful. The manner in which we tax multi-millionaires must be examined, given that thousands of them are paying between 0% and 5% tax, which is a scandal. The Minister must close the loopholes in the stamp duty legislation, which have allowed organisations such as the Ringsend bottle factory to avoid paying up to €30 million in stamp duty.

The budget provision for tourism should be maintained because it is a sustainable economic activity and given the requirement for the review of the TBI brand. Like Senator MacSharry, I believe in balanced regional development, particularly given what has happened in the mid-west. Provision needs to be made for that.

In the area of agriculture, sugar beet growers have a genuine issue. The fact the EU compensation fund is being treated as income rather than capital means they are being charged capital gains tax. This issue should be addressed.

A real worry is employee pension schemes. Defined benefit schemes have dropped from 67% to 37% in a five-year period. This is a very worrying trend. In the next budget, we need to consider reforming employee pension schemes so that in 20 years' time people will not wake up to find they have pensions which do not meet their lifestyles. I appreciate there is a Green Paper on pensions.

We also need to look at the relief available for pension contributions in the next budget. Giving relief at the marginal rate of tax has helped many higher income taxpayers to save for retirement. Between PRSI and other factors, it amounts to approximately 49%. Why can the same encouragement not be given to lower paid workers who are on the standard rate of tax?

I ask that the provisions in place for the emergency services are maintained or upped at the level required.