Simon Harris (Wicklow, Fine Gael) | Oireachtas source

I am very pleased to be in the Seanad to have the opportunity to contribute to the debate on budget 2016. As Senators will be aware, the Minister for Finance and the Minister for Public Expenditure and Reform presented the Government's fifth budget to Dáil earlier today.

This budget marks another major milestone in Ireland's recovery from the crisis conditions that prevailed just a few short years ago. It confirms that in 2015 Ireland will have corrected its "excessive deficit" with a headline budget deficit of 2.1% of GDP, well inside the original 2015 budget target of 2.7%. What this means is that we have now complied with the recommendation that the European Council of Finance Ministers, ECOFIN, made to Ireland way back in late 2010 to bring our deficit below 3% of GDP. The estimated deficit in 2015 was in fact the lowest since 2007. This is a very significant achievement and one that attests to the determined, disciplined way in which the Government has managed the public finances on behalf of the people in recent years. It is also a testament to the character of the public in recognising the need for the necessarily tough actions entailed in restoring our public finances to a sustainable position.

A consequence of this achievement is that budget 2016 has been framed under the rules of the preventive arm of the Stability and Growth Pact, rather than the corrective arm which set the context for this Government's previous four budgets. While this is a better place to be, it will bring its own challenges. The rules that we have to adhere under the Stability and Growth Pact are somewhat more complicated but basically are about ensuring that the public finances are managed in a sustainable way.

The key objective for fiscal policy is now to achieve a balanced budget in structural terms. I am happy to say that budget 2016 is compliant with the requirements of the preventive arm. These relate to the required improvement in the structural or underlying budget balance, and the so-called expenditure benchmark which limits growth in public expenditure to the economy's potential growth rate. This speaks to an important point which was emphasised by both Ministers, Deputy Michael Noonan and Deputy Brendan Howlin, in their speeches today, namely, that we are not going to go back to the bad old ways of the boom and bust cycles. It sends an important signal to the people and to the wider world that, having extricated ourselves from a very difficult fiscal position, we are embracing the necessary disciplines that will ensure we avoid such damaging mistakes in fiscal policy in the future.

As well as getting our deficit under control, we have started to make a lot of progress in reducing our elevated government debt level which has represented a key risk to our economy. At the end of 2015, our general government debt had fallen to some 97% of GDP. Again, this signifies the achievement of a critical milestone - the point where our debt level is below the annual value of the goods and services produced in our economy. The Department of Finance is projecting that our debt ratio will fall further next year to 93% of GDP, around the eurozone average, and to below 80% of GDP by 2021. A falling debt ratio is not just a statistic; it is important in enhancing the economy's resilience and in reducing our vulnerability as an economy and as a country to future external shocks.

I will move on from the public finances to the broader economic background to this budget. As Senators will be aware, the economic recovery that has been under way for a number of years has gathered significant momentum of late. The pace of economic growth accelerated in the first half of this year when GDP grew by some 7% in annual terms. Importantly, this growth was broadly based with both the export sector and the domestic economy performing strongly. The recovery in the domestic economy is evident from the fact that spending by households on goods and services increased by 3.25% while investment rose by almost 22%. Taking account of the latest trends and an assessment of the international economic outlook, the Department of Finance has revised upwards its forecasts for economic growth. The Department is now projecting growth in GDP of some 6.2% and growth of 4.3% is forecast for 2016. These are numbers that would have been unimaginable a couple of years ago. Importantly, these forecasts have been endorsed by the Irish Fiscal Advisory Council.

Of critical importance is the fact that this strengthening economic performance is carrying through to the labour market, with more jobs and reduced unemployment. We have experienced ten consecutive quarters of gains in employment with total employment in the economy some 133,000 higher than the low point reached in early 2012. Similar to the trend we are observing in the composition of economic growth, employment is growing across most sectors of the economy. This again points to the broad based and sustainable nature of the economic recovery. Looking ahead, the Department is forecasting that 48,000 jobs will be created in 2016 and we will have more than 2 million people in work. The growth in employment is feeding through to reductions in unemployment which has fallen from a peak rate of more than 15% in 2012 to 9.4% in September. We are projecting an average unemployment rate of 8.3% in 2016 and an end-year rate of 8%. These reductions in unemployment are key to ensuring that the benefits of the recovery are widely shared. What better way to ensure somebody shares economic recovery than by ensuring he or she can have a job. Looking further ahead, the Department's assessment of medium-term growth prospects suggests that unemployment will fall steadily towards 6% by 2021.

This leads me to the key objectives and priorities of this budget. I have already outlined the strength and breadth of the economic recovery. Above all else, this budget is about protecting and sustaining that recovery. It cannot be put at risk. There is still a job of work to be done. The journey must continue to full employment. This can be seen in some of the key budget priorities outlined by the Minister for Finance, Deputy Michael Noonan, and the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, to the Dáil earlier this afternoon including making work pay, ensuring fairness, encouraging entrepreneurs and fostering innovation. I commented earlier on the remarkable progress we have made in recent years in creating jobs and reducing unemployment. There is more to do on this front. Getting people into work is critical to ensure that the fruits of economic growth are felt by every family. As the Minister for Finance emphasised, this means we must ensure that work pays for each family. To this end, the Minister continued in this budget with the approach he adopted in budget 2015 of targeting the majority of the resources available for tax reductions on low and middle-income families. As Senators will be aware by now, the Minister has announced an increase in the entry threshold to the universal social charge and has also reduced the three lowest USC rates. The effect of these changes is that the marginal tax rate for middle-income earners under €70,044 will fall below the critical 50% threshold. This will be the first time in many years that middle and low-income earners will see the threshold fall below 50%. The changes announced by the Minister are such so as to restrict the benefit to earnings up to €70,000. In this way, the budget will increase the incentive to work while maintaining and enhancing the progressivity that is already a key feature of the Irish income tax system.

The OECD measures the progressivity of income tax systems by comparing the tax wedge at different levels of earnings. By the most widely used of the measures, Ireland had the second highest progressivity outcome of OECD member countries in 2014 and the highest among all EU member states. The progressivity of the income tax system contributes substantially to redistributing income. According to the latest available data, the reduction in Ireland's Gini coefficient - a standard measure of income inequality - due to the tax system is the third largest in the OECD and the largest among EU members. The data also indicate that the reduction in inequality due to the welfare system was the largest in the OECD. Combined, Ireland's tax and welfare system result in the greatest redistribution of income among all OECD countries. I trust we can have an honest debate around the budget in this regard. The figures speak for themselves in terms of the progressivity of the measures being pursued by the Government. It is evident that, compared to other countries, the Irish tax system is strongly progressive and that the tax and welfare systems combined contribute substantially to the redistribution of income and the reduction of income inequality. These key features of our tax and welfare systems have been preserved and indeed enhanced in budget 2016.

I will now set out the social protection measures announced in the budget. I was pleased that my colleague, the Minister for Public Expenditure and Reform, was in a position to announce an increase in pension payments of €3 per week in 2016 as well as an increase in the fuel allowance of €2.50 per week. While the Government did not cut pensions and preserved the pension rate, we are now in a position to increase the pension rate. These targeted increases are important for the groups concerned and will help to ensure that the benefits of recovery are widely spread. The Minister for Public Expenditure and Reform, Deputy Howlin, also indicated in his speech that the Government will implement the recommendation of the Low Pay Commission to increase the minimum wage from €8.65 an hour to €9.15 from 1 January 2016. Given the changes in the USC that I have already outlined and the increases in the threshold for the family income supplement, it is clear that the budget has a strong focus on ensuring that work pays, particularly for those on modest incomes and those with children.

The child care measures announced by the Minister for Public Expenditure and Reform, Deputy Howlin, and my colleague, the Minister for Children and Family Affairs, Deputy Reilly, are also important, not least in helping parents who wish to participate in the labour market. Of course, as the Minister pointed out, child care investment offers both economic and social returns. In economic terms, it helps promote participation in the labour market. As our population ages and the increase in our working age population starts to slow down, increasing participation and labour supply will be important for long-term growth. Moreover, strong international evidence points to long-run educational and social benefits for children participating in preschool education. This evidence base provides strong support for the decision announced by the Minister in the budget to extend eligibility to free child care to children from three years of age until they reach five and a half years or until they start primary school. The budget also includes additional funding of €15 million to allow for the full participation of children with disabilities in the early childhood care and education scheme, something I imagine Senators on all sides will welcome.

The Minister also announced the intention to legislate for statutory paternity leave of two weeks in recognition of the role played by fathers in families. This will take effect from next September. It will complement the child care measures and help parents to reconcile the demands of work and family life.

Another major theme in this budget relates to the need to encourage new entrepreneurs and further support existing ones. It is well known that we have been successful in attracting foreign direct investment to Ireland and we will continue to compete to attract new investment and jobs. We also need to focus on improving the conditions for those who run the small and medium-sized enterprises that are so important for employment throughout the country. As well as making work pay, we need to ensure enterprise pays and that the tax system does not act as a disincentive to those who wish to start their own business. Following a public consultation launched earlier this year, the Minister for Finance has announced a number of significant taxation changes in the budget to support entrepreneurs. Of particular note is the introduction of an earned income tax credit for those with earned income but without access to the PAYE credit. As the Minister put it, this is an important first step in levelling the playing field between entrepreneurs and employees and removing a distortion in our tax system that was highlighted by the Commission on Taxation. The Minister also announced a revised capital gains tax relief in the form of a reduced rate of 20% on the disposal, in whole or in part, of a business as well as an extension of the three-year tax relief for certain start-up companies. This is an important package that sends a signal to those thinking of establishing a new business or moving into a new business venture. It will boost entrepreneurship and complement the other measures included in the budget aimed at supporting key sectors including tourism, agrifood and retail. Indeed these two measures, the reduction in capital gains tax and the introduction of an earned tax credit for the self-employed, came up consistently in the public consultation held by the Department of Finance on taxation and entrepreneurship. In addition, a key focus of the activity of the enterprise agencies next year will be to ensure that the recovery in employment which I spoke about earlier reaches all parts of the country. The IDA Ireland regional property programme aimed at supporting the regional action plans prepared earlier this year can and will play an important role in meeting this objective.

The Minister for Finance has emphasised the role of the budget in fostering innovation. Encouraging innovation is vital for an advanced economy like ours. The key to long-term growth is getting more out of our resources through higher productivity and finding new and better ways to do things. For the future, our growth model needs to be about getting more out of what we have rather than using more resources. The role of research and development in driving innovation is well-recognised by economists. To further support research and development, we will introduce a knowledge development box in the finance Bill in what will be the first OECD-compliant knowledge development box in the world. This is an important initiative that will complement Ireland's existing suite of research and development supports including the research and development tax credit and the various grant supports for enterprise-level research and development. It will help position Ireland to attract the type of knowledge-intensive innovation-driven economic activity that will be critical to our long-term growth. It sends out a message to major international companies and start-ups to come to Ireland, undertake research and innovation, create jobs and employment here and benefit from our knowledge development box in the process.

While I am on the theme of innovation, I wish to draw the attention of Senators to the provision for new additional teaching posts announced in the budget by the Minister for Public Expenditure and Reform, Deputy Howlin. If we are going to build the kind of knowledge-driven economy and society that we aspire to, we must ensure that our education system is delivering for our young people and equips them with the skills and competencies they will need to participate in the knowledge economy. The measures announced today, including a reduction in pupil-teacher ratios at primary and secondary level and the allocation of new 600 new resource teachers, are particularly welcome in this regard. As well as reducing our class sizes, it sends a strong message to those studying teaching in our many colleges and universities as well as those who studied and felt the need to go abroad to get a job that they can now have a realistic expectation of getting a job in this country and, in the process, help to contribute to our education system.

Senators will be well aware of the problems we are experiencing in the housing market, particularly in the greater Dublin area and some of our other large cities. The shortage of supply of new housing in our cities presents economic and social policy challenges. It is clear that there is market failure in the provision of new housing, especially in the greater Dublin area, and, as the Minister, Deputy Howlin, noted, a dysfunctional housing market represents one of the worst legacies of the economic crisis experienced by the country. Against this backdrop, the announcement by the Minister for Finance of new targets by NAMA for the delivery of 20,000 residential units by the end of 2020 is most welcome. This will amount to approximately 80 new homes a week. Some 90% of these units will be in the greater Dublin area and approximately 75% will be houses, mainly starter homes, which are the areas of acute need at present. As the Minister indicated, this initiative by NAMA is entirely consistent with its existing commercial mandate to deliver the best financial return to the taxpayer.

The Minister for Public Expenditure and Reform has also announced a number of additional measures in the social housing sphere building on the Government's social housing strategy. This includes measures to enable local authorities to secure accommodation for an additional 14,000 households and an additional €17 million for emergency accommodation for homeless people. The affordable housing pilot scheme that the Minister announced is also an important initiative as we look at new innovative ways to increase the supply of affordable rental accommodation in the years ahead.

Another area that I realise is of concern to Senators on all sides of the House is the fact that the Government re-opened Templemore and has re-commenced the recruitment and training of members of An Garda Síochána. In this budget we have provided funding for up to 600 additional gardaí. This will play a major role in combatting crime in the country. As I have already said, and as the Minister for Finance, Deputy Michael Noonan, and the Minister for Public Expenditure and Reform, Deputy Brendan Howlin, stressed in the Dáil earlier today, this budget is fundamentally about fostering our economic recovery, an economic recovery that was hard won and achieved through determined policy action on the part of the Government and the willingness of the Irish people to make the sacrifices necessary for a better future. That economic recovery must not now be squandered. By managing our public finances in a sustainable way by making work pay, investing in essential public services, promoting entrepreneurship, fostering innovation and ensuring fairness, this budget will help to secure and prolong our economic recovery. I look forward to the debate in the Seanad and commend the budget.