Simon Harris (Wicklow, Fine Gael) | Oireachtas source

Last year saw a welcome return to economic growth. There were clear indications that this would accelerate in 2014 and that domestic demand was stabilising and about to return to modest growth. Nevertheless, in the first half of this year the pace of real economic activity surprised on the upside. Exports performed strongly, even when account is taken of the impact of so-called contract production, partly due to a rebound after the pharma-led weakness of the past two years. There was also a better than expected recovery in domestic demand, and this concerns people throughout the country. This trend is projected to continue for the remainder of the year and into 2015. As a result, real GDP growth of 4.7% is projected by the Department for 2014.

The budget arithmetic is based on a further strong increase in GDP of 3.9% in 2015. This is based on an expected continuing strong export performance and on strong domestic demand in both investment and personal consumption. The particularly strong export growth in the first half of 2014 took place against a background of mixed economic developments in Ireland's main trading partners. Growth in the UK and the US was relatively robust, while the euro area continues to underperform. The latest indicators point to a momentum of US and UK economies remaining strong in 2015. As a result of the weakness in its three largest economies, Germany, France and Italy, growth in the euro area looks set to remain subdued, although somewhat better than this year.

For most, proof of economic growth is best seen in proof of employment growth. Proof of this has been evident for well over a year. The total number at work has risen for seven consecutive quarters and the latest available quarterly national household survey data indicate a year-on-year increase in employment of 37,000 for the first half of 2014 - real people in real jobs. Even better, the bulk of jobs growth has been in full-time employment rather than the gains in part-time employment which had characterised earlier recovery trends. Employment growth has also been broadly based and has taken place in ten of the 14 economic sectors. The recovery in the labour market reflects the shift in the composition of economic activity to more domestic sources which, by their nature, are typically more labour intensive. The rate of employment growth for 2014 as a whole is expected to be 1.8% and is to accelerate to 2.4% in 2015. This represents a net increase during the period of 46,000 jobs. Average unemployment for 2014 is expected to be 11.4% and is expected to fall to 10.2% in 2015. While still unacceptably high, the latest figures show that unemployment is now below the euro area average, and in the absence of an adverse shock to the economy, unemployment should continue falling over the forecast horizon.

Inflationary pressures remain subdued, both domestically and in the wider euro area. As measured by the harmonised index of consumer prices, inflation averaged 0.4% in the first nine months of this year and is expected to be 0.5% for 2014 as a whole.

This moderate rate of growth is mainly due to the fall in the price of goods, in particular non-energy industrial goods and to a lesser extent unprocessed food but price inflation in services continue to rise. As a result inflationary pressures are expected to pick up slightly next year to an average of 1.1%. The inflationary impact of the budget is small and is estimated to add only 0.1% to inflation next year.

Over the medium-term, that is out to 2018, GDP is forecast to grow broadly in line with the economy's potential at around 3.5% per cent per annum, characterised by more balanced contributions from net exports and domestic demand. Employment growth is set to continue with unemployment falling to just over 8% by the end of 2018.

At this point, I should remind the House that the forecasts by the Department of Finance underpinning budget 2015 were endorsed, as is required, by the Irish Fiscal Advisory Council. The endorsed forecasts were based on the technical assumption of a neutral budget and therefore a detailed reconciliation table and qualitative explanation of how any modifications impact the post-endorsement forecasts are set out in the budget documents, which Members should have.

Let us turn to the budgetary position. Today's statement confirms that after successfully exiting the EU-IMF programme at the end of last year, Ireland remains on track to meet its obligations under the excessive deficit procedure with the underlying general Government deficit for 2014 forecast to be 3.7% of GDP. It is worth repeating that this is a considerable over-performance against the target of 5.1% under the excessive deficit procedure and the forecast of 4.8% in April's stability programme update. For 2015 the forecast is for an underlying deficit of 2.7% of GDP, which as Members will be aware, is lower than the required target.

This target is based on a total package of €1.05 billion of fiscal leeway in 2015, consisting of new measures to reduce tax revenue in net terms by €420 million in 2015 and new measures to increase expenditure in a targeted and necessary way in net terms by €630 million. In summary for the first time since the crisis began this budget does not require further consolidation through either overall tax increases or expenditure reductions. This is an important milestone on the road back to full recovery.

Ireland's gross debt-to-GDP ratio peaked last year at just over 123% of GDP. This ratio is now on a downward path and is expected to fall to under 111% of GDP by the end of this year and to under 100% of GDP by the end of 2018. It is also important to bear in mind that when account is taken of cash balances and other financial assets, the net debt position is expected to be just below 91% of GDP at the end of 2014. These ratios are approaching the euro area average. The markets have played close attention to our progress in dealing with our public finances and economy with the result that Ireland's debt is now regarded as investment grade by all the main credit rating agencies and two of them have now moved Ireland into the A grades. This time last year the yield on Irish ten year bond rates was just over 3.5%, which was considerably lower than its peak value. Now it is less than half of what it was a year ago and is lower than the rates for Italy, Spain, Greece, Portugal and even lower than the rates for the UK and the USA. This favourable position was hard earned by all of us, by every Irish citizen and cannot be taken for granted, which means that we must stick to our ongoing commitment to repair the public finances.

Let me outline the specific tax and spending measures contained in budget 2015. As I indicated, this budget is not just about continuing to stabilise the public finances but also about the goals of achieving sustainable growth, supporting all families and citizens, business and jobs and investing in our future. These goals are not altogether new because since taking office this Government has done whatever it could do in difficult circumstances to enhance growth where it was taking place and to enable recovery to take place where it stalled while all the time seeking to protect the vulnerable and ensure fairness.

Ireland's competitive corporate tax system plays a central role in our economic development. The international environment for corporation tax is changing. Every Member of this House is aware of that and Ireland must, to secure sustainable economic development for the decades ahead, respond to this change. Accordingly, today's announcement by the Minister for Finance of a roadmap to secure Ireland's place as the destination for the best and most successful companies in the world is timely and strategically important. The main elements of the roadmap are based on the Minister's three principles when it comes to corporation tax - rate, reputation and regime. These will improve Ireland's research and development support by fully phasing out the research and development base year from 1 January 2015. It will make Ireland an even more attractive location for companies to develop intellectual property by enhancing Ireland's existing intangible asset tax provisions and will improve the special assignee relief programme, commonly known as SARP.

In addition, the three-year corporation tax relief for start-up companies and the accelerated capital allowances scheme for energy-efficient equipment are also being extended for a further three years.

In recognition of the need for Ireland’s economy to be innovative if it is to prosper, the Minister for Finance has announced that he intends to put in place a "knowledge development box", along the lines of the patent and innovation boxes which have existed for many years in countries that compete directly with us for foreign direct investment. To address criticisms relating to multinational companies being facilitated in aggressive tax planning, legislation will be enacted to ensure that from January of next year, new companies will no longer to avail of the "double Irish" mechanism. Specifically, our residency rules will be changed to require all companies registered in Ireland to be tax-resident in Ireland as well. For existing companies, provision will be made for a transition period until the end of 2020.

The increase in the higher tax income threshold and the reduction in the higher tax rates from 41% to 40%, combined with the overall reductions in the universal social charge, give a clear message that the Government supports job creation and work and wants to ease the burden on workers and others in receipt of an income. The commitment to allow for tax relief of up to €500 per annum on water charges represents an important support to many hard-pressed working families and a recognition of the need to invest in our water infrastructure. The agri-taxation review measures represent the outcome of a serious and thorough examination of the appropriateness of the tax framework of our largest indigenous sector and a determination to ensure agricultural land will be used as productively as possible for the foreseeable future. I am sure many Senators will welcome the decision to end the 0.6% pension levy by the end of this year and to end the additional 0.15% levy at the end of 2015.

It is evident that action must be taken now to ensure the private and social housing market meets the needs of our citizens. No Member of either House is unaware of the huge demand for private and social housing in this country. Action is being taken under the Construction 2020 strategy to get things moving, and this process will be accelerated by the tax measures in the budget. The extension of the home renovation incentive to rental properties, the owners of which are liable to income tax, is one such measure. This will ensure rental properties are kept at a decent standard and will enable landlords to have such work carried out in an efficient manner.

With effect from 1 January next, the 80% windfall tax applying to chargeable gains on the disposal or development of land which are attributable to planning decisions made since October 2009 will be removed and the normal 33% rate of capital gains tax will then apply. A refund for deposit interest retention tax on savings used to purchase first homes will apply from tonight and will run until the end of 2017 in respect of savings up to a maximum of 20% of the purchase price. I am sure Senators on all sides of the House will agree that this provides welcome support to many young people who are saving to buy their first home. In addition, the Ireland strategic investment fund, under the auspices of the National Treasury Management Agency, will explore new ways to support financing projects that will enhance the supply of housing.

The corporation tax reforms outlined in this budget will also support our international financial services sector. In my role as Minister for State with specific responsibility for this sector, last month the Government assigned me the task of preparing a new national strategy for international financial services. The international financial services sector makes an important contribution to the economy. It employs over 33,000 people in Dublin and in towns throughout the country. My appointment to this task is timely. The current strategy for this sector was prepared in very difficult times in early 2011. The IFSC has slipped considerably in the global ratings, from tenth place in 2009 to 70th out of 83 centres in the most recent rankings issued last month. There is no shortage of ideas to develop this sector, in which many stakeholders are involved. One of my key tasks is to ensure a co-ordinated approach is agreed to drawing up a strategy that can be presented to the Government for approval and publication in the first quarter of next year. I am determined that this will be a public sector strategy and will be action-based. It will have clear deliverables, timelines and responsibilities as part of an effort to ensure our financial services sector is competitive, is fit for purpose, grows and creates more jobs in communities throughout the country.

A total gross increase in expenditure of €639 million, by comparison with the 2014 Estimates, is being provided for in budget 2015. The increase of €429 million for current expenditure will bring the total to just over €50 billion. The comparable increase for capital expenditure is €210 million, bringing the total allocation for investment in 2015 to €3.5 billion.

These increases were made possible because of the improving economic position as well as the fall in the numbers of the unemployed and the efficiencies achieved in the public service. This money will be used in a targeted way to help support our citizens and families, in particular, in the areas of social housing, social protection, education, health, justice and transport, and to support business and jobs.

As part of the Government's commitment to supporting our citizens and their families, an overall capital investment of more than €2.2 billion is being provided for social housing for the next three years. This will involve an innovative three-strand approach consisting of more than €1.5 billion to be directly invested from the Exchequer by 2017, using public private partnerships to invest a further €300 million in social housing units by 2017 and an off-balance sheet financial vehicle to provide at least €400 million from 2015 on to the approved housing bodies.

More than 7,500 new homes will be provided under a range of social housing initiatives in 2015 - these are 7,500 badly needed new homes in communities throughout the country. Up to 8,000 low-income families will be assisted to secure suitable accommodation under the housing assistance payment. The housing needs of the most vulnerable and disadvantaged in society will be prioritised in several ways, including the provision of some 7,600 housing adaptation grants to assist older people and people with disabilities remain at home and in the community for longer. In addition, the number of leased housing units will be increased by 8,700. A new social housing strategy will be published by my colleague, the Minister for the Environment, Community and Local Government, that will outline a range of actions to increase housing supply, including through the maximisation of existing social housing stock and harnessing new funding streams to underpin additional investment in social housing.

The reduction in the number of people out of work has allowed the Government to reprioritise social welfare spending and to introduce several important measures to improve the welfare of families and the less well-off. The first of these, as announced by the Minister for Public Expenditure and Reform, is an increase in child benefit of €5 per child per month. A water subsidy payment of €100 per annum will be given to recipients of the household benefits package and this will be extended to all those in receipt of the fuel allowance who do not already qualify for household benefits payments. The living alone allowance will be increased to €9 per week which will help nearly 180,000 elderly and vulnerable people. A back to work family dividend will be introduced to incentivise the move from welfare to work. This will allow families to retain the full qualified child increase of €29.80 per week for 12 months after returning to work and half of that amount for a further 12 months.

The allocation of €13.1 billion to health will allow the health services to begin to address the long-standing deficits and continue to provide its core services, including the roll-out of universal GP services in respect of children under six years and persons over 70 and, above all, to enable delivery of the Government commitments to improve the health of all of our citizens. My colleague, the Minister for Health, will announce further details on this later today.

The allocation of €8.3 billion in current expenditure to education will, among other things, enable some 1,700 new full-time posts to be provided within the education sector and class sizes to be maintained. That means more special needs assistants in our classrooms and more mainstream teachers and more resource teachers. I welcome Senator Gerard P. Craughwell, who has an interest in education, to the House. He has come on a very good day.

The budget includes measures to help the long-term unemployed get back to work. The number of positions in JobsPlus is to be doubled to 6,000. The JobPath service will provide case management services to all long-term unemployed during the next four years. Also, €1.6 billion has been allocated to the Pathways to Work strategy which will provide almost 300,000 work and training places. It will provide help for those who are long-term unemployed in getting access to work, getting access to training and being work ready.

Through its capital allocation of €50 million, the Department of Jobs, Enterprise and Innovation will be able to continue to provide strong support for job creation and enterprise. The allocation to Enterprise Ireland and Science Foundation Ireland of more than €260 million will provide a strong impetus to the development of Ireland as an innovative economy.

Although the recovery is most evident in Dublin and in some other large urban centres, many rural areas are still struggling with the aftermath of a deep and difficult recession. For this reason, the Minister for Agriculture, Food and the Marine will use more than €1 billion to support initiatives such as the rural development programme and the Food Harvest 2020 plan. In addition, the increase in the Structural Funds available to Ireland for the period 2014 to 2020 will help to share the benefits of our recovery right across the country and not just in its urban centres.

The Minister for Justice and Equality will outline her plans to increase the number of gardaí and the number of Garda vehicles, an issue of importance in every town and village in Ireland.

The cost savings delivered through the Government's reform programme are being used to fund priority front-line services.

There will be no further reductions in public service numbers and additional education workers and gardaí will be recruited. From 2015 onwards numbers will be allowed to increase provided this is done within set payroll limits. This will increase flexibility and allow public service managers, who are best placed to manage their work force and to target recruitment and employment in the areas it is most needed, take charge. We have come a long way and suffered a lot to bring us to where we are today, where recovery is well-established, employment is growing and the public finances are improving at a rapid pace.

Budget 2015 does not just involve fixing the public finances but also putting the economy firmly on the road to sustainable employment growth while supporting business, providing for the future through investment and using the leeway that we have in public expenditure to make targeted investment that will help our young people, our businesses and the vulnerable in society. If we continue with the discipline and commitment that has been demonstrated since this Government came into office, we can all look forward to a bright future of high employment, low unemployment and increasing prosperity. I look forward to this debate and I commend the budget.