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

I welcome this opportunity to speak in the Seanad and to contribute to this debate on budget 2014. Earlier today the Ministers, Deputies Noonan and Howlin, presented to Dáil Éireann the Government's third budget. This is yet another milestone in repairing Ireland's public finances, supporting our emerging economic recovery and crucially a further step to exiting the EU-IMF programme at the end of this year and regaining our full economic sovereignty.

Much has already been done on repairing the public finances and we are now seeing the fruits of this. On the basis of the measures outlined in the budget, we are likely to see a small primary surplus next year - in other words once debt-servicing costs are excluded, we are once again paying our way.

Effectively, we will be taking in more tax than expenditure when one takes away the cost of paying the national debt. This is a primary surplus and I gather this is the first time it has happened for some years. It is a positive development because once that happens one begins to reduce the stockpile of national debt vis-à-visGDP and that will be a major and important step along the road to recovery.

As I have stated before in the House, the budget is not only about consolidation. This budget includes measures that will help to support and drive forward the economic revival of the country. It is about building on the progress that we have seen this year in the economy, in the public finances and especially in the labour market. Before turning to the specifics of the budget for next year, 2014, I will set out the economic and fiscal background that underpins the budgetary arithmetic.

This year, GDP is projected to increase at 0.2% over the year. At first glance this may appear at odds with labour market data which have been strong in the opening part of the year. As the Minister for Finance stated, we are creating jobs at a rate of approximately 3,000 per month. This apparent puzzle is explained, at least in part, by the so-called patent cliff in the pharmaceutical sector. Although the sector has been a large weight in GDP and exports, its share of employment is relatively low, meaning that the impact on the domestic economy is relatively contained. Importantly, there are increasing signs of a stabilisation and indeed modest growth in domestic demand, in other words, in consumer spending and business investment. This is in contrast to previous years when the growth was driven by the export sector. This is encouraging because it is growth in domestic demand that people will more readily identify with, in other words, it is jobs-rich and as a consequence, it is more tax-rich as well.

For next year, the budget arithmetic is based on GDP growth of 2%, a figure in line with the prevailing consensus. This is based on the assumption of a further albeit moderate improvement in domestic demand combined with a recovery in our exporting performance. The rebound in exports is contingent upon a recovery in our key export markets. The recent data in the United Kingdom, the USA and the euro area have been reasonably encouraging in this respect.

The competitiveness improvements that we continue to achieve will also stand to us. According to the European Commission we will have seen a relative improvement in our unit labour costs of over 20% between 2009 and 2010. This is significant. Let us consider the unit labour costs throughout the eurozone economies as a whole. I understand they have gone up by 8% in the course of the past three years. In respect of our economy, because people are more productive and competitive and wage price inflation is not a problem, unit labour costs have gone down by almost 14%. There are two important points to note in this regard. First, it suggests we are producing more and we are more competitive and, as a consequence, this has led to a restructuring of the economy. Second, from the point of view of IDA Ireland, which is trying to sell the country and get jobs to the country, the reduction in unit labour costs is a key determinant upon which businesses decide to locate in Ireland. Not only has the consolidation been necessary, because we could not continue to borrow on the basis of the deficit, but it has had the greater macro effect of making Ireland a more attractive place to do business. Often we do not give due cognisance to that fact in trying to sell the country to the foreign direct investment sector.

In the labour market, thankfully, employment is now increasing again after several difficult years. Annual employment growth averaged 1.5%, the equivalent of 27,000 jobs in the first half of this year. In the past 15 months the net new employment in private sector jobs has been 47,000. This is significant and it is down to the strong exporting sector but also speaks to a rebounding of the domestic economy. The fact that we have seen a net improvement in private sector jobs by approximately 47,000 is most encouraging. The Pathways to Work initiative, spearheaded by the Minister for Social Protection, Deputy Joan Burton, has been significant in shaking out the labour market and ensuring that where opportunities exist, people will go back to work.

I now will turn to the budgetary position and today's statements confirm Ireland remains on track to reduce the deficit to below 3% of gross domestic product, GDP, by 2014. Next year, as the Minister, Deputy Noonan, has stated consistently, a deficit of 4.8% of GDP is being targeted, which is well within the 5.1% GDP ceiling imposed by the ECOFIN Council in December 2010 when Ireland entered the EU-IMF programme. As the Minister outlined to the Dáil earlier today, this target is based on consolidation of €3.1 billion, comprising €2.5 billion in tax and expenditure measures and a further saving of €600 million in other areas. As has been the case in recent budgets, the consolidation is concentrated on the expenditure side in order to underpin the emerging recovery in domestic demand and to support job creation.

I wish to highlight to colleagues two crucial developments. First, as I alluded to earlier, the Government is targeting a primary budgetary surplus for next year. This will be the first such surplus since the crisis in Ireland's public finances began and means that leaving aside interest costs, we finally will be paying our way again. This is an important achievement and is due to the painstaking support and patience of the people. Second, our gross debt-to-GDP ratio is set to peak this year at 124% of GDP, with net debt of less than 100% of GDP. In respect of net debt, when talking about the amount we owe, we often forget the amount we have. If one adds up the amount of money held within the National Treasury Management Agency, NTMA, - the Minister for Finance referred recently to the €25 billion Ireland has in cash reserves - and when one takes out that amount, which is an asset, albeit one which is in a deposit account through the NTMA as a buffer to exit the programme, Ireland's debt-to-GDP ratio is approximately 100%. This ratio is not all that dissimilar from virtually all eurozone economies, which have debt-to-GDP ratios of close to 100%. Markets look at such indicators. They watch closely the implications of a surplus and how Ireland is faring on the deficit.

It is also worth stressing there are significant cash reserves, which enhance our position as we approach the year ahead. There is no point in leaving a programme only to go back into another programme shortly thereafter and as Ireland leaves this programme, it needs cash buffers within the NTMA that are evidently there. The really important development this year in respect of the NTMA, as I am sure Members have noted, is that for the first time in six years, Ireland has got away a ten-year money bond. Significant buffers have been built into the NTMA figures for next year and ultimately, I believe such things make a difference in ensuring the yield on Irish ten-year bond rates is reduced. I believe the rate this morning was at 3.6%, which is a rate lower than that of Italy, Spain, Greece or Portugal. This really is the test of creditworthiness, namely, where the market determines the cost of ten-year Irish debt to be. As Ireland returns to the market in a more long-term and sustainable basis, keeping the interest rate low and the cost of Ireland's ten-year money will be extremely important.

I will now turn to the specific tax and spending measures contained in the budget. Were I to choose three words to describe the objective of this budget, they simply would be jobs, jobs and jobs. As the Minister outlined in his speech to the Dáil earlier today, since taking office the Government has been looking at the economy sector by sector, building upon the strengths of those sectors that are doing well and repairing the damaged sectors. The objective is to support businesses, to create jobs and to get people back to work. For the tourism sector, the VAT rate has been reduced. Moreover, a ten-point tax plan to support the SME sector was introduced last year, 20 measures were introduced to support the financial services industry and a number of initiatives have been introduced to support the property sector. Taken together, all these measures are playing a significant part in the recovery in the jobs market, as is now evident. The 2014 budget seeks to build on this with the introduction of 25 pro-business and pro-jobs measures, which on the tax side amount to more than €500 million on a full-year costed basis. For instance, the 9% VAT rate for the tourism sector is being continued, the air travel tax is being reduced to zero from April next year and a home renovation tax incentive scheme is being introduced to help the construction sector and, in particular, to help those who may be in the black economy at present to be fully compliant within the tax regime.

To further underpin job creation, a number of measures under the Build your Business initiative are being introduced to support entrepreneurship, innovation and investment.

The small and medium-sized enterprise sector is the biggest employer in Ireland. We need to build on this, and encourage people to set up their own businesses and to expand existing businesses. Access to finance is crucial for the sector and the Government has been very proactive in this regard, with measures in the 25-point strategy designed to finance growth in the SME sector.

Protecting and creating employment is also at the heart of everything that we try to do. Today my colleague, Deputy Howlin, announced that a further €200 million in capital spending arising from the balance of the lottery licence proceeds - which we took to this House some months ago - will be used to support local economic activity and job creation. The money will help to fund road maintenance and repairs, a new round of sports capital grants, the better energy programme, and housing adaptation grants for older people and those with a disability.

The Government is transforming the National Pensions Reserve Fund into the Ireland strategic investment fund, to invest on a commercial basis in projects in Ireland that support economic activity and employment. The value of the NPRF discretionary portfolio at the end of June 2013 was €6.4 billion.

Overall, the Government is reducing public spending in a balanced, strategic and responsible way. Of course there must be reductions in spending but it is being done in a way that minimises the impact on the Irish people. When one adds the capital and current expenditures as proposed for 2014, I think that the total consolidated amount is €53 billion. We are projecting that the total tax take for next year will be €42 billion. One does not have to be a mastermind to work out that the deficit problem has not gone away. We still face a difficulty in terms of a fundamental distinction between tax and expenditure. Even though we have bridged the gap - and we expect growth will fill the gap in a way that it did not this year - it is important to say that we still have a difficult budgetary situation that must be corrected. For those on the hard left and hard right who argue that those in the troika should take away their money, were that to happen they would go and they would take away their money. That would have meant that the adjustment would have happened overnight or over a two-year period. Such a move would have left the country in an economic Armageddon and I do not think that anyone would have wanted that scenario.

Before concluding I want to take the opportunity to highlight some of the recent reforms of the budgetary process. I know colleagues in the House have very forcibly spoken about reform in the past while. In particular, as part of the improvements to economic governance at a European level, euro area member states are required to have their economic forecasts, upon which their budgets are based, endorsed by independent authorities. The rationale behind this is to provide for greater transparency and ensure that budgets across the euro area member states are not based on optimistic or overly optimistic economic projections. The Irish Fiscal Advisory Council has been tasked with assessing the economic forecasts of the Department of Finance. It concluded that the forecasts are "within the range of appropriate projections" for this year and next which Senators will see in the accompanying documentation. I refer to a letter by Professor McHale and his colleagues at the end of the book that was published today by the Department of Finance.

In addition, the Government has moved, in line with European arrangements, to an October budget which is important. In recent years ongoing speculation mania started and ended in December that left people frightened to spend money. Therefore, it is good that such mania is now over because now there is certainty on income and where we stand as we go into next year. I hope the measure will help, particularly the Christmas market, to encourage people to spend the money that they have in terms of retail Ireland and the domestic economy.

In conclusion, I want to highlight that the 2014 budget represents the penultimate step in bringing our deficit below the 3% GDP threshold. We are consolidating the public finances while at the same time supporting jobs and growth and ensuring fairness. We are all making substantial progress, especially our people. The Government has renegotiated the bailout programme, achieved an extension to the maturities and a reduction in the interest rates on our European loans, as well as the replacement of promissory notes with Government bonds that will serve to reduce future financing needs and galvanize investor sentiment. The Government has also reached agreement with the troika that half of the proceeds from the sale of State assets can be used for capital investment. The minimum wage has been restored when we were told it would not happen. Anglo Irish Bank has been liquidated. We are creating jobs for the first time since 2007 and the measures outlined in the budget will build upon this recovery. We are supporting important jobs-rich sectors of the economy as seen by the fact that we can continue with a 9% VAT rate for the hospitality industry.

The budget provides further clarity and certainty to the people of this country and addresses many of the most pressing issues facing the economy today. It strikes the appropriate balance between repairing the budgetary situation on the one hand and supporting the recovery in domestic demand on the other. As always I look forward to the constructive comments from Senators on all of these matters.