Brian Hayes (Dublin South West, Fine Gael) | Oireachtas source

I thank the Cathaoirleach for this opportunity to come before the Members to make a contribution on budget 2013, which was presented by my colleagues, the Minister, Deputy Howlin, and the Minister, Deputy Noonan, to Dáil Éireann earlier.

As I have said previously in this House, a precondition for balanced economic growth is the sustainability of our public finances and the Government is absolutely determined to ensure this. Despite continuing to meet our targets set out under the EU-IMF programme, Ireland's general government deficit of just over 8% for 2012 is likely to be one of the largest deficits within the EU. If Ireland is to prosper into the future we have to come to terms with the fact that borrowing at such elevated levels is not a viable option and, simply put, must be addressed. Budget 2013 is the next step by the Government towards achieving this aim and ambition.

However, mirroring its predecessor, budget 2013 is not merely about expenditure cuts and increased revenue, it is also about supporting the emerging economic recovery and protecting the most vulnerable in our society. It is fair to say that this budget achieves the core objectives and principles of consolidating a growth-friendly and fair mannered budget. One of the keys to achieving such objectives will be the recovery of the labour market and getting people back to work. The Government has never shirked its responsibilities in addressing the poor state of the labour market. Measures introduced during 2012 such as the action plan for jobs and the Pathways to Work initiatives are aimed at tackling the unprecedented high level of unemployment and seek to complement the various measures introduced in budget 2012 to support employment growth, particularly in the job-rich indigenous sectors. Budget 2013 aims to build upon these foundations by once again putting in place supports to aid key sectors capable of creating and sustaining employment within our economy.

Before addressing the specific measures in budget 2013, I would like to contextualise them by providing the economic and fiscal background against which the budget will play out. Last year, following three successive years of decline, Irish GDP increased by 1.4%, and a second year of modest positive growth is anticipated this year. For next year, the budgetary arithmetic is based on a GDP projection of 1.5%, a figure which is in line with the prevailing consensus.

I realise that for many people in Ireland these figures seem at odds with what they are experiencing in their lives and that such talk of a "return to growth" is not reflected in the difficulties they face in their day to day struggle. The reason for this is that exports are the only engine of growth at present. On the other hand, domestic economic conditions - spending by households, the Government and SMEs - remain weak. Unfortunately, the overhang from the bubble period still lingers, as good, hard-working people struggle to find employment, as families are burdened by debts accumulated during the boom, and as parents are forced to watch their young leave the country to find employment.

There can be no illusions about the gravity of the task facing the Government in addressing these issues but significant progress has been made on a number of fronts. As I mentioned, the exporting sectors are leading the recovery and the strong performance of these sectors during the past few years is a welcome development. Exports of services, in particular, are playing an increasingly vital role, having experienced double digit growth in the first half of this year. Looking at the year as a whole, the Department of Finance is expecting export growth of 3% this year. Furthermore, last year was a record year for inward foreign direct investment and the pipeline for this year remains strong also. I see this as a vote of confidence by the international business community in our economy. The strong export performance and inflows of foreign direct investment have been facilitated by the continued improvements in competitiveness that Ireland has achieved in recent years, as relative reductions in prices and costs continue to bear fruit.

The strong export performance and inflows of foreign direct investment have been facilitated by the continued improvements in competitiveness that Ireland has achieved in recent years as relative reductions in prices and costs continue to bear fruit. This means our balance of payments with the rest of the world is in a very healthy position, with surpluses in each of the past three years, following a decade of deficits. The most recent figures show a surplus of ¤3.2 billion in the second quarter of 2012, representing the largest nominal surplus for Ireland since records began in 1981. Notwithstanding these improvements regarding exports, it is clear the domestic economy is not progressing in the same manner. Although recent data provide some grounds for optimism - with retail sales figures having seen year-on-year increases in each of the past two months and with property prices showing their first signs of stabilisation - domestic economic conditions remain weak.

Let me refer to the labour market. Figures released today by the CSO show an improvement regarding unemployment. The standardised unemployment rate fell for the second consecutive month and stood at 14.6% in November. Nevertheless, despite these encouraging signs, the rate remains unacceptably high. I reassure the House that reducing unemployment remains the key priority for the Government.

On the budgetary position, the Government remains committed to achieving the deficit limits set under the terms of the EU-IMF programme and, in particular, to reducing the deficit to below 3% of GDP by 2015. The target for 2012 was for a deficit of 8.6% and the budgetary documentation confirms an estimated outturn of 8.2%. Therefore, this will be the second successive year in which the target has been more than achieved. I am confident that clear progress is being made. Our international funders and the international community recognise that our deficit, which is currently too high, is coming down and that we are meeting our targets in this regard. Meeting budgetary targets is essential. Ireland's return to the bond markets this year - yields on Government bonds fell significantly over the course of the year - provides a clear and tangible indication that Ireland's efforts are being recognised internationally.

For next year, the Government is targeting a deficit of 7.6% of GDP, a target that requires further consolidation measures worth ¤3.5 billion. While the Government is under no illusion that consolidation of this magnitude could be achieved without having some negative impact on short-term economic growth, budget 2013 has been constructed with the explicit aim of seeking to minimise such an impact. A key facet of this has been the decision, once again, to concentrate the adjustment on the expenditure side according to best practice internationally in order to support job creation and ultimately encourage economic growth. No economy in the world with a deficit such as ours can lower it by pretending more can be done on the tax side than the expenditure side. It simply has not happened internationally and that is why more must be done on the expenditure side than the taxation side. If someone can show me evidence to the contrary I will consider it, but I believe there is no international evidence suggesting the quickest way to resolve a deficit and get an economy working again is by having a more vigorous approach to tax than to expenditure.

While some of the measures may seem unpalatable, all are necessary. Despite the progress made in recent years, the gap between the State's revenue and expenditure remains formidable. Large deficits mean large amounts of borrowing, and devoting an ever-increasing share of revenue to debt servicing is a waste of resources in a time of need for public service provision. This year, it is likely that over 11% of all Government revenue will go towards servicing debt. To put this figure in context, it is close to two-thirds of all the revenue the State will collect in VAT this year. If we are serious about putting the debt ratio on a declining path and regaining our sovereignty, then these measures are essential.

Today, the Minister for Finance, Deputy Noonan, announced the introduction of a ten-point tax reform plan to support the SME sector. ISME stated publicly this evening that this has been the most pro-jobs budget for small businesses. I welcome its assessment given the announcement earlier by the Ministers, Deputy Howlin and Deputy Noonan. The renewed focus on assisting the SME sector is a very welcome step. While growth in the export sector is a strong starting point for a recovery in an open economy such as ours, it is our SMEs that comprise the job-rich sector of the economy. SMEs provide almost 70% of Irish employment. It is our continued support for these businesses that remains the key to addressing the unemployment problem we face. The measures contained in the tax reform plan will, inter alia, aim to increase the accessibility of capital for SMEs, help in boosting international demand for their products and, most important, support the creation of jobs in these sectors.

Long-term unemployment, in particular, remains a problem, with the long-term unemployed now accounting for nearly 60% of the total number unemployed. The development of the Plus One initiative, which aims to encourage employers to hire those who are long-term unemployed, will provide a welcome relief for these individuals. Supplementing this, the Minister also announced a series of measures aimed at supporting job creation in specific job-rich industries. Included are the introduction of a relief from capital gains tax arising on disposals of farm land for restructuring purposes, as well as the extension of the stock reliefs for the agrifood sector announced in budget 2012 and the extension of the film tax relief scheme, which will run to 2020.

Next year, 2013, looks set to be an important year for tourism. The Gathering, although it has drawn criticism from some of the usual suspects, looks set to play a vital role in this regard. The confirmation early today by the Minister for Finance, Deputy Noonan, that the reduced VAT rate of 9% for the tourism sector, introduced last year, is to be maintained will support further this crucial job-rich sector, which is a key part of the service industry.

This budget also sees the introduction of the much-discussed local property tax, which is to commence on 1July 2013. The benefits of a property tax are well stated. Property taxes are shown to be less harmful to economic growth than comparable revenue-generating measures such as income tax. Property taxes are a standard feature of many other countries. They provide a stable income stream and help to reinforce local democratic decision-making by providing a funding base for local authorities. If ever there were a decision recognised as wrong in our political system, it was the decision in 1977 to abolish rates, thus removing a key aspect of revenue-generating power. Everyone accepts that this kind of short-term decision making is ultimately not sustainable where there is a considerable gap between expenditure and taxation revenue. The new property tax is a step in the right direction, not only because it will create a new means of funding but because it will extend the tax base in a radical way. Some 42% of all the taxes we take in are income related. This is no way to generate employment or encourage people to work or move from social welfare benefits to work. So much revenue is taken from the pockets of those who work. Any western European civilised society has within it a property tax to generate the revenue needed for public services and to act as a counterbalance in respect of income tax.

The local property tax has been structured in a fair and progressive manner. Those with the most valuable properties are to pay the most and those who are unable to pay in the current climate will be given the option of a voluntary deferral. The Government has recognised the need for clarity on this matter. Allowing the initial valuations of property to remain valid up to 2016 eliminates a cloud of uncertainty surrounding property tax. As the Minister for Finance said in his statement to the House, in addition to the valuations remaining valid until 2016, the rates of taxation, 0.18% on the first ¤1 million and 0.25% thereafter, will also remain until that year, thus giving some certainty to homeowners.

A key principle underpinning this budget is the need to ensure that the policies we are introducing are equitable and those who can afford to pay a little bit more bear the majority of the burden of adjustment. Budget 2013 has introduced a number of measures with this in mind to protect the most vulnerable in our society. Ireland's income tax system is the most progressive in the EU and a continuation of this fairness in our tax system means reducing reliefs which can be availed of by higher income earners. The Government has announced a number of measures in accordance with this, including the introduction of standard rates of USC to those aged 70 or older who earn ¤60,000 or more.

Other measures of note which will ensure a fair adjustment include increases in the rates of capital acquisitions tax, capital gains tax and DIRT tax. Last year we increased the rate of capital acquisitions tax and capital gains tax from 25% to 30% and this year we are proposing to further increase it to 33%, which is fair in the context of those who are making money in this economy paying a little bit more.

The budget represents the next step forward in terms of correcting the imbalances in the public finances and getting people back to work. It provides clarity and certainty to the people of Ireland and addresses many of the pressing issues facing our economy today. The Minister for Finance made an important point in his speech when he stressed that once this budget is implemented, most of the tax consolidation committed to by the Government will have been completed. We were told this year that the adjustment is at ¤3.5 billion, with ¤1.25 billion on the tax side and ¤2.25 billion on expenditure. The full impact of these taxation measures will mean an adjustment of ¤3 billion next year. Assuming tax increases of ¤1 billion, half of this amount is already catered for by virtue of the taxation measures announced today. There is, therefore, some certainty that what we have done on the taxation side, difficult as it may be for people to accept, is bringing us to the end of an adjustment process which has removed ¤24 billion from the Irish economy since 2008, or ¤27.5 billion after today's budget. The cumulative effect of the next two years will mean that the great majority of the heavy lifting has been done. I know that knowledge does not make it any more palatable for people. I live in the real world, in a real community and in a real housing estate with ordinary people. I am aware of the impact this is having on our community because I am also in the middle of it but this is being done in the fairest way possible. I ask Senators to give the budget a fair wind and to ensure that we stay on the path of recovery. The only way we can create jobs as a small and open trading economy is by putting our public finances in order. I contend that the measures announced in today's budget are another step towards that goal.