Eoghan Murphy (Dublin Bay South, Fine Gael) | Oireachtas source

I am very pleased to have the opportunity to contribute to the Seanad's debate on budget 2017. The Minister for Finance and the Minister for Public Expenditure and Reform presented the Government’s first budget to Dáil Éireann earlier today. A number of key themes run through this budget - fairness, protecting our hard-won economic recovery, housing and preparing for Brexit.

This is the second year of preparing budgets under the preventive arm of the EU’s fiscal rules following our successful exit from the excessive deficit procedure at the end of last year. Our estimated deficit for this year is 0.9% and we are now on target to balance the fiscal books and achieve our medium-term budgetary objective, defined as a balanced budget in structural terms, in 2018. This represents significant progress in a relatively short space of time. It shows all the hard work and sacrifices of the Irish people during the crisis have paid dividends. It is important we remember and retain the lessons learned for the future. The changes announced in today’s budget reduce the burden on taxpayers by close to €300 million with €500 million of tax cuts offset by revenue-raising measures of €195 million. On the expenditure side, gross voted expenditure in 2017 will be almost €58 billion, an increase of over €1.84 billion compared with the 2016 projected outturn. Approximately €980 million of this relates to new announcements, while the remaining €860 million was precommitted in line with the mid-year expenditure report. The overall budget package amounts to €1.3 billion and is in a ratio of 3:1 in favour of expenditure over taxation. This is above the Government’s commitment to a 2:1 split and reflects the Government's commitment to rebuilding our public services.

This budget is being framed against a background of continuing domestic recovery along with increasing international uncertainty, most notably the UK's decision to leave the EU, and a number of the measures announced are focused on addressing that. Ireland’s economic recovery is now firmly established. This reflects a combination of decisive policy implementation, as well as, until recently, relatively favourable external tailwinds. It is important to emphasise that although levels of economic activity and employment are returning to their pre-crisis level, the composition is now considerably better balanced and more sustainable. In this context, the unexpected upwards revision to the 2015 growth rates last July, with GDP increasing by 26% in real terms, clearly shows the information content in key macroeconomic aggregates, particularly for GDP and GNP, is less relevant than elsewhere. Although the data are compiled in accordance with international standards, the 2015 headline GDP figures clearly have been distorted and are exaggerated in an Irish context. More concrete indicators of the underlying levels of economic activity point to a continuation of a now firmly rooted recovery. Specifically, indicators such as consumer spending, tax trends and labour market developments all corroborate that Ireland’s economic fundamentals remain strong. This is probably best reflected in employment, where we have seen continued increases for 15 successive quarters, resulting in an additional 180,000 jobs since the trough in 2012. There are now over 2 million people at work for the first time since 2009. There has been a corresponding reduction in unemployment, which fell to 7.9% in September from a high of over 15% in 2012.

Turning to the outlook, the Department of Finance’s forecasts for the economy, which have been endorsed by the Irish Fiscal Advisory Council, show GDP growth of 4.2% this year and 3.5% next year. This is lower than was expected when the stability programme update was published in the spring and reflects the impact of the uncertainty arising from the Brexit decision and slowing international growth. Employment is expected to increase by around 2.6% this year and a further 2.1% - 43,000 extra jobs - in 2017. The average unemployment rate for this year will be 8.3%, falling to 7.7% in 2017. The external environment, which is so important for our export performance, is characterised by increasing uncertainty. Forecasts for the international economy are being revised downwards, most recently in last week’s IMF World Economic Outlook. The weakness in emerging markets is a continuing cause for concern. The UK's vote to leave the EU, the recent indications that the UK is tilting towards a hard exit and the consequent weakening of sterling have heightened those concerns. These factors underline the need for caution but also the need to adapt our approach in order to meet these challenges.

The deficit target for 2017 is 0.4% of GDP and follows the projected deficit of 0.9% of GDP this year. This will keep us on course to achieve our medium-term target of a balanced budget in structural terms, defined as a deficit of 0.5% of GDP in 2018. It is worth reflecting that not too long ago, in 2010, we had a headline deficit of 32% of GDP and, when banking-related measures were excluded, an underlying deficit of 12% of GDP. We have made a lot of progress since then and it is critical that we continue to build on that. The budget target for 2017 will ensure that, while using the additional resources available to us, we do not lose sight of the need for prudent fiscal policy. However, it is appropriate that we should enhance our fiscal shock absorption capacity. The rainy day fund announced in the summer economic statement will start in 2019, once we have achieved a balanced budget in 2018 as envisaged. This will be a counter-cyclical measure to avoid overheating and will also enable us to deal with the initial effects of any shock that may occur.

We need to look beyond this. While our debt ratio has fallen from a high of 120% in 2013 to an expected 76% this year, it remains high in value and by comparison with others. The Government has therefore decided to set a new domestic target of a debt-to-GDP ratio of 45%, to be reached by the mid-2020s or thereafter depending on economic growth, which is well inside the 60% required by the Stability and Growth Pact. This is to take account of the particular risks that Ireland, as a small and very open economy, faces.

Senators will be familiar with the announcements today by the Ministers, Deputies Noonan and Donohoe, on budgetary policy and taxation and expenditure measures. I do not propose to go through all the measures but I will focus on elements which address key Government priorities including those relating to housing, rewarding work, fairness and preparing for Brexit.

Ireland’s tax system is highly progressive with high marginal rates applying to relatively modest earnings. The Minister, Deputy Noonan, is allocating €330 million in 2017 to reducing each of the three lower USC rates by 0.5%. This addresses the Government’s target to phase out the USC over time. It will have a material impact on the disposable income of lower and middle-income earners. It should also help to encourage highly-skilled emigrants to return and migrants to take up employment opportunities here.

The changes to the capital gains thresholds for gifts or inheritances from parents to their children announced by the Minister today addresses the problems caused for families from the combination of reduced capital gains thresholds and rising property prices.

Our commitment to retaining the 12.5% corporation tax rate is clearly stated and understood. The rate will not change. It is nevertheless prudent to keep our system under review, to ensure we continue to meet international standards while also maintaining competitiveness. In this context, the Minister has announced that an independent economist, Mr. Seamus Coffey, will undertake the review of our corporation tax code announced in September.

Housing is a key priority for the Government as the programme for Government and Rebuilding Ireland, the action plan for housing and homelessness, make clear. The Ministers, Deputies Noonan and Donohoe, have announced a number of complementary measures in this area aimed at increasing supply and alleviating costs for specific groups within the housing market. The Minister for Finance has announced an important new initiative for first-time buyers, the help-to-buy scheme, applying to new homes only. This addresses the fact that the Central Bank macroprudential rules have resulted in a funding gap, which many prospective first-time purchasers found difficult to bridge. We expect that the building industry will respond to the resulting increase in demand for newly-built homes by increasing the supply. The announcement of the phased restoration of full interest deductibility for landlords, the increase in the ceiling that applies under the rent-a-room scheme and the removal of the size cap on the Living City initiative are aimed at encouraging increased supply of rental accommodation. The extension of the home renovation incentive scheme will help improve the quality and size of the existing housing stock and will also complement the rent-a-room scheme. The Minister for Finance has also decided to extend mortgage interest relief beyond 2017 to 2020 and details of this will be announced in budget 2018.

On the expenditure side, the €1.2 billion in funding provided to the Department of Housing, Planning, Community and Local Government for 2017 will allow for continued implementation of the housing action plan, which aims to deliver 47,000 new social housing units by 2021. The capital allocation for the local infrastructure housing activation fund includes funding to accelerate the provision of local public infrastructure to support the delivery of up to 20,000 private houses to 2019.Additional funding for the housing assistance payment scheme, along with the capital allocation provided for housing, will enable more than 21,000 applicants for social housing to have their housing needs met next year. In addition, the allocation for emergency accommodation for homeless people has been increased.

Climate change is the global challenge of our generation. The Minister for Finance has announced a number of tax measures to assist in the transition to a low-carbon economy, including an extension of several existing reliefs and the introduction of a full relief from carbon tax for inputs to combined heat and fuel plants, which are by far the most energy-efficient way of generating electricity. On expenditure, the increased allocation to the new Department of Communications, Climate Action and Environment will contribute towards our carbon reduction, energy efficiency and renewable energy targets, support energy efficiency in the business and public sectors, assist those in energy poverty and enhance the affordability and attractiveness of electric vehicles. Funding for the green low-carbon agri-environment scheme, GLAS, within the Department of Agriculture, Food and the Marine has also been increased.

The Government's commitment to a healthier Ireland is reflected in the further increase in tobacco excise duties and the announcement of a tax on sugar-sweetened drinks, to be introduced in 2018. On the expenditure side, the substantial resources already allocated for health services have been further increased for 2017, bringing the total to some €14.6 billion. This is an increase of some 7.4% compared with the budget 2016 provision. The Minister for Public Expenditure and Reform, Deputy Paschal Donohoe, has emphasised the Government's commitment to ensuring this significant allocation is managed effectively to ensure the twin priorities of better care and better accountability are achieved.

One of the principal themes for this budget is to make Ireland Brexit-ready. A key element of this is to continue to manage our economy and the public finances to enable us to meet the challenges that present. The Department of Finance has been working on the economic impacts of Brexit since well before the UK referendum. This included funding an ESRI study, which was published in November 2015. The Department today published a document, entitled Getting Ireland Brexit Ready, which provides an overview of the key issues and concerns as well as the policy responses introduced in budget 2017 on the issue. The continued adherence to prudent fiscal and economic policies, the rainy day fund and the revised debt target already mentioned are central elements in this strategy, along with a number of specific measures announced today. These include reduced capital gains taxes to help entrepreneurs, extension of the special assignee relief programme, extension of the foreign earnings deduction, an increase in the earned income tax credit to support indigenous entrepreneurs and small businesses, extension of the reduced VAT rate for the tourism and hospitality sector, and the introduction of a "step-out" facility for farmers who have opted for income averaging. In addition, it is proposed to introduce a new SME-focused share-based incentive scheme in budget 2018. Such participation can increase competitiveness, thereby supporting employment. This scheme is subject to European Commission approval under state aid rules.

On expenditure, measures will include continuing to invest in Food Wise 2025 to aid the development of Ireland's agrifood sector and strengthen it in the face of what could be more difficult market conditions for exporters to Britain. Additional resources have been provided for Enterprise Ireland and IDA Ireland, in the context of Brexit, to enable them to assist indigenous companies and attract overseas investment, in a business environment that will offer both challenges and opportunities. The Estimate allocations also provide the resources required in the key Departments to quickly build the expertise, capacity and capability across Government to deliver Ireland's Brexit-ready strategy

Financial services is an area that is frequently identified in any discussion of Brexit. Ireland has a successful track record of competing for and winning global foreign direct investment. One of the key pillars of that success is the growth of the international financial services sector over the past 30 years or so. Ireland is now recognised internationally as a leading global centre for internationally traded financial services. In March of last year, the Government launched the lFS 2020 strategy, a whole-of-government approach to driving the growth and development of the international financial services sector in Ireland. The strategy sets an ambitious target of growing our international financial services sector by almost 30% over the five-year period to 2020. My appointment as Minister of State with responsibility for financial services sent a clear signal that the sector continues to play a vitally important role in the Irish economy. The IFS 2020 strategy has a clear vision for Ireland as the recognised global location of choice for specialist international financial services. Ireland is in a strong position to build on its successful track record and compete for future mobile investments in the IFS sector. In a post-UK referendum environment, the Government will continue to prioritise the implementation of IFS 2020.

There will be opportunities for Ireland arising from Britain's decision to leave the EU. We will of course seek to take those opportunities, many of which already form part of IDA Ireland's marketing strategy. The lFS 2020 strategy provides a clear roadmap to maximise any opportunities that might arise. The second annual European Financial Forum will take place in Dublin Castle on 24 January 2017. Given the result of the UK referendum on the EU and the potential implications for the financial services industry in that country, the forum is an opportune time to bring more than 600 financial services executives and policy makers from around the world to Dublin. Ireland's infrastructure and regulatory capacity is well prepared to meet any potential influx of new business post-Brexit. There is a strong pipeline of commercial office space coming to the market. The recently announced housing strategy will boost the supply of domestic housing. The Central Bank has made clear it is ready and open for engagement should there be a material increase in authorisation applications in the aftermath of Brexit.

The emphasis on fairness in this budget is already evident in the focus on universal social charge changes on the lower-income and middle-income ranges. On the spending side, the State pension is being increased by €5 per week from March. All weekly payments will rise by the same amount so that the unemployed, carers and those with a disability will also benefit from March next year. This represents the first increase in many of these payments for seven years. In addition, there will be a Christmas bonus payment of 85% for all social welfare recipients in 2016.

The importance of supporting the development of affordable child care is recognised by the increase of 35% in early years funding and the provision of extra funding for the full-year costs of the extended early childhood care and education scheme.

The additional resources for education announced today underline the importance of increased educational attainment in developing our society and preparing to meet our future challenges. The additional funding will fund extra mainstream and resource teachers for our schools. Additional funding is also being provided for the critically important third level sector, the first such increase since the economic collapse.

The importance of the arts is recognised in the decision by the Minister for Public Expenditure and Reform, Deputy Donohoe, to maintain a significant portion of the funding provided for the highly successful 1916 commemorations in the arts provision for 2017.

Today's budget is the first in a series of at least three over which the Government's priorities will be implemented. It represents the continuation of the prudent fiscal and economic policies that have served us well in recent years. Within the limited level of additional resources available, we have managed to address the key priorities of improving fairness and reducing the tax burden, improving housing provision and dealing with the growing challenges we face, most particularly Brexit. This has been achieved while maintaining fiscal discipline and staying on track to reach our medium-term objective of a balanced budget in 2018. I commend the budget to the House.