Brian Lenihan Jnr (Dublin West, Fianna Fail)

I am glad to avail of the opportunity to appear before the House to discuss public expenditure and, in particular, the background to the 2010 Appropriation Bill which gives to statutory effect to Voted expenditure for 2010. However, before discussing public expenditure, it would be useful to offer some context by reviewing briefly the performance of the economy and the public finances in 2010. I am glad to say that, following the sharp contraction of the economy in the past two years - the most severe since the Second World War - the latest data suggest economic activity has stabilised this year. In fact, data published this morning show that both GDP and GNP increased in the third quarter. Most analysts expect the economy to expand next year. Initially, growth will be driven by the export sector, underpinned by significant improvements in competitiveness.

As wages have adjusted and costs fallen, we have priced ourselves back into global markets for our goods and services. Exports of goods and services increased at an annual rate of more than 13% in the third quarter, one of the best performances in the European Union. This growth is broad-based, with the pharmaceutical, software, financial and food sectors all performing well. With this export-driven growth, Ireland will have a current account surplus next year; therefore, the country as a whole will be paying its way. Given the impact of the fiscal consolidation and the necessary unwinding of private sector imbalances, domestic demand is only expected to make a limited contribution to growth next year. However, in the coming years export-led growth will gradually support expansion in the domestic economy.

There are signs also that conditions in the labour market are beginning to stabilise. It is encouraging that the unemployment rate has fallen in recent months. Employment trends are expected to be flat next year, as one would expect, given the typical lag between economic growth and employment. However, employment growth is expected to pick up from 2012 onwards.

I acknowledge the high levels of foreign direct investment Ireland continues to attract. Almost 1,000 companies, including household names such as Google, eBay and Facebook, have chosen Ireland as the hub of their European networks. Eight of the top ten global medical technology companies have a manufacturing base in Ireland, while eight of the top ten pharmaceutical firms have operations here. The message must be clear that Ireland remains open for business and is still the destination of choice for many of the world's leading firms.

The public finances have stabilised over the course of 2010, the year to which the Appropriation Bill relates. The underlying general government deficit is now expected to be 11.6% of GDP which is in line with the forecast presented in budget 2010. Tax revenues are expected to end the year close to €500 million above target. However, there will still be a gap between what we spend and our receipts in 2010 of approximately €19 billion. It is clear the State must reduce its level of borrowing in the coming years by aligning more closely its revenues and expenditure. In the past two and half years the Government has engaged in a process of reprioritisation and consolidation across all areas of expenditure in order to close this gap. The measures have reduced all aspects of Government discretionary spending, including public service pay and running costs across Departments and State bodies. Significant revenue raising measures have also been implemented during this period, including the introduction of an income levy, the carbon tax and an increase in capital tax rates. Based on a budgetary consolidation package of €6 billion in 2011, the deficit is expected to decline further next year to 9.4%. The key message is that both the real economy and the public finances have stabilised during the course of the year and the economy is set for recovery next year.

Having set out this broad context, I want to deal with particular issues of public expenditure in 2010. While a number of Supplementary Estimates were taken this year, the major ones were technical in nature. Of the substantive Supplementary Estimates, the vast bulk of the additional moneys required resulted from shortfalls in receipts, rather than from increased expenditure. In fact, the latest estimate of gross expenditure for this year shows savings of €422 million against the original estimates published in the 2010 Revised Estimates Volume, with savings of approximately €175 million in day-to-day expenditure. In annual terms, current spending is estimated to contract by more than 2% this year, compared to an increase of more than 12% in 2007. This major consolidation has been achieved in the face of significant fiscal pressures associated with the rising numbers in receipt of unemployment payments.

Capital expenditure is anticipated to be lower than published in the Revised Estimates Volume for 2010. This is due to a number of causes, primarily cheaper tender prices and delays in land purchases arising from landowners' reluctance to sell at new lower values. The 2010 capital programme remains very substantial and is forecast to represent approximately 4.9% of GNP. This scale of investment is proportionately higher than 2007 levels and exceeds the average percentage for the five year period to 2009.

Capital investment has played an important role in driving Irish economic advancement in the past decade. The quality of the capital stock across the country gives powerful witness to progress already made. The Government's capital investment priorities for 2010 and in the medium term build on what has been achieved to date. These investment priorities are designed to drive productivity enhancements, lay the foundations for a return to export-led growth, assist in sustainable employment creation and deliver essential social infrastructure. In this way, capital investment will be central to the push for economic renewal. Even in these difficult budgetary times, we cannot afford not to invest in infrastructure which is needed to secure the country's economic future.

Given the budgetary challenges of the past three years, we have had to reduce the financial allocations for capital investment set out in the national development plan at the beginning of 2007. Like other areas of Government expenditure such as public service pay and social welfare, capital allocations could not avoid the imperative for budgetary corrections. However, tender prices for construction have fallen considerably. Lower prices, coupled with improvements in public sector procurement procedures such as fixed price contracts, afford greater opportunities to achieve value for money than during the boom years. Departments have reported that they are benefiting from these changed market conditions. In short, we will get more for less and the infrastructure we now need will be cheaper than a few years ago.

The 2010 capital programme supported the key investment priorities to help facilitate a return to growth and thereby support sustainable job creation in the longer term. Modern transport infrastructure is vital to a modern economy. This year we will complete the inter-urban motorway network and continue to improve the road network. We are also providing substantial allocations for developing public transport infrastructure. We will invest heavily in water services, not only for the obvious environmental benefits but also to provide the necessary infrastructure for industry and business.

We will continue to invest heavily in our schools. An educated workforce has been central to our previous economic advances and is an absolute prerequisite for our future economic renewal. We are providing for the investment in science and innovation that will help to build our future success. Significant sums are being allocated to ensure Ireland is at the forefront in using the commercial potential of innovation and technological development. Investment in higher education will also enable Ireland to fully realise the opportunities offered by science and innovation.

IDA Ireland will be able to attract and support foreign direct investment. This has been a key element of Ireland's past economic success and will be vital in developing an export-driven recovery. Foreign direct investment has helped to sustain Ireland through our economic troubles and will be central to putting them behind us. Enterprise Ireland will help indigenous enterprise to realise its potential. Domestic enterprise will be supported in exploiting the opportunities for job creation and increasing exports as the international economy recovers.

We will invest in enhancing the attractiveness of the tourism infrastructure and our attractions for overseas visitors. Tourism provides significant employment, as well as being a significant earner of foreign income.

We recognise the need for continued investment in important social infrastructure that will benefit all citizens. Accordingly, we have continued to provide resources to meet social housing needs, support urban regeneration, particularly in Limerick and Ballymun, help maintain our national heritage, enhance and augment our hospitals and develop the network of primary and community care centres.

The Appropriation Bill 2010 deals with expenditure during the course of the year. Expenditure has been managed and controlled in a responsible way by the Government. It is well short of target and revenue is in excess of target. That process of responsible and prudent budgetary management will be continued into 2011, as set out in the recent Budget Statement.