Tuesday, 8 October 2019
Budget 2020: Statements
Michael D'Arcy (Wexford, Fine Gael)
It is a pleasure to be back in the real Seanad; we were in the other room for quite some time. I am pleased to return to the Seanad to contribute to the debate here on budget 2020, which the Minister for Finance presented to Dáil Éireann.
This year's budget has been prepared in circumstances that are without precedent. We are dealing with the implications of the UK's imminent departure from the EU at a time when the domestic economy is on the brink of overheating. The global economic environment is deteriorating. The Government has adopted a no-deal Brexit as the central scenario for this budget to ensure we are ready in the event that there is no deal, which is likely but not yet certain. The approach will ensure the necessary resources are available to Government to address the significant impact of Brexit while maintaining the credibility of our fiscal policy.
We have eliminated the deficit and are expecting a surplus of 0.2% of GDP this year. There will be a further surplus next year if the UK departs with an agreement. In the event of a no-deal Brexit, there will be a deficit of 0.6% of GDP in 2020 but there is a wide margin around this unprecedented event. This reflects the Government's commitment to provide targeted, temporary supports for the most affected sectors and regions along with the impact of slower growth in tax revenues and higher social welfare spending. We are in a strong position to face this challenge. The economy is more balanced and diversified than it was at the onset of the great recession in 2008 with less reliance on construction, less dependence on credit growth and a much more moderate rate of increase in public expenditure. We are, therefore, facing a period of uncertainty from a position of strength. The performance of the domestic economy is such that in the absence of Brexit, it would risk overheating. Unemployment is now 5.3%, down from the peak of 16% in 2012, and growth this year is expected to be 5.5%. However, a no-deal Brexit would see a substantial reduction in growth to just 0.7% in 2020 and a slowdown in the rate of employment increase next year.
Today's budget sets out a range of measures to help the economy to deal with Brexit. The overall funding package to respond to Brexit is €1.2 billion, excluding EU funds. This is in two parts - one to apply irrespective of the type of Brexit and the second to be triggered only in the event of no deal. The first part of close to €200 million of Brexit expenditure is being made available next year. This is being provided across a number of Departments for infrastructure upgrades at ports and airports, along with IT investment. In the event of a no-deal Brexit, the Government will implement contingency expenditure to protect the economy. The funding will be provided for a no-deal Brexit. It will be borrowed. If it is not needed, we will not borrow it. There would be a total of €650 million for no-deal contingency expenditure to help the agriculture, enterprise and tourism sectors and to support the citizens in the most affected regions. A total of €220 million would be provided immediately. Of this, €110 million will be provided for time-limited, targeted interventions for vulnerable but viable enterprises. A further €110 million is being allocated through the Department of Agriculture, Food and the Marine to support the beef sector at €85 million along with the fishing fleet, other livestock farmers and the food and drinks processing industry. In addition, some €40 million will be available to support tourism. The deployment of the balance of €390 million of Brexit contingency expenditure will be decided at the time. There is also provision for up to €365 million for additional social protection expenditure for the live register and associated schemes.A further €45 million is available to assist people to move to new employment opportunities. In this context, I should point out that every additional 10,000 people on the live register increases the full-year cost by €100 million. In the event of a more severe impact than expected, funding intended for the rainy day fund could be used. In this context, the intended €500 million contribution to the rainy day fund will not be made this year, but the transfer of €1.5 billion from the Irish Strategic Investment Fund, ISIF, will be made and will be available if circumstances require it.
The summer economic statement provided that €2.8 billion of additional resources would be available for 2020. Of this, €2.1 billion has been pre-committed to expenditure measures, leaving €700 million to be allocated. Targeted tax changes to a net value of around €300 million are being implemented in this budget to cover additional expenditure, bringing the total net budget package to in excess of €2.9 billion. This incorporates fully the additional expenditure pressures being carried over from 2019. I will turn to some of the key elements of today's budget.
While we are properly engaged with the immediate and medium-term challenges posed by Brexit, it is clear that climate change is the critical issue for our generation. Our climate action plan sets out a pathway to meeting our 2030 climate targets and is supported by significant investment of €8.1 billion under the national development plan and €13.7 billion investment by the State companies. However, investment is just one part of the picture. Taxes and regulation, including carbon pricing, are also essential. Today's budget includes a number of measures to address climate change. There is cross-party support to increase the price of carbon from €20 per tonne at present to €80 per tonne by 2030. This can provide funds to invest in decarbonisation while protecting the most vulnerable from the associated increased living costs.
The increase of €6 announced today represents a start towards meeting the 2030 target. This applies to auto fuel from tonight and to all other fuels from 1 May 2020. What this means is that the cost for a 60 litre fill of petrol will increase by €1.02 and a 60 litre fill of diesel will increase by €1.18. The €90 million being raised will be ring-fenced for new climate action measures which will protect the most vulnerable in society, support sustainable mobility projects, deliver new agri-environmental schemes, and invest in our low-carbon future. A number of measures have been announced to address the impact of climate disruption in the midlands region, where job losses are already being experienced. These include €20 million for an energy efficiency scheme targeted initially at social housing, supporting 400 jobs, and €5 million for peatland regeneration which will support 100 jobs. A number of other climate initiatives have been announced. The 1% diesel surcharge is being replaced with a nitrogen oxide emissions-based charge applying to all passenger cars registering for the first time from January 2020. A number of further measures will be introduced in the Finance Bill, including extension of the VRT relief for conventional and plug-in hybrids to 2020 and additional relief for hauliers through the diesel rebate scheme.
Agriculture and rural development are facing significant challenges in the form of Brexit but also climate change. The Government is providing a total of nearly €2 billion to meet these challenges in 2020, with an increase of €51 million for the Department of Agriculture, Food and the Marine and the €17 million for the Department Rural and Community Development. This includes an allocation of €3 million for pilot agri-environmental schemes in 2020, helping to reduce emissions, improve water quality and supporting farm incomes. The Government stands ready to increase investment further in light of the impact of a no-deal Brexit on the rural economy.
The strong performance of the tourism sector in recent years has supported increased job creation in the sector. However, the weakening performance in our main export markets and the potential impact of a no-deal Brexit pose particular challenges. For 2020, €40 million is being allocated for tourism-specific initiatives. In the event of a no-deal Brexit, we stand ready to provide contingency expenditure.Ireland's membership of the EU has been central to our substantial economic development since joining and a stronger Union is essential to protecting our interests at home and abroad. We will continue to develop new markets and opportunities, particularly though the Global Ireland 2025 strategy which targets a doubling of Ireland's global footprint. In this context, the doubling of Ireland's contribution to the green climate F=fund is part of our broader development assistance approach and will provide support for reduction of greenhouse gas emissions in developing countries.
The transport sector has an important contribution to make to addressing climate change. The measures announced today include additional funding for greenways and new urban cycling projects, along with funding to double the number of local authority on-street chargers, support for a new scheme to install communal charging points at apartment blocks and facilitating the roll-out of fast charging points to taxi ranks around the country.
The record level of employment in our country at present underlines the importance of business to our economy. The Government's strategies Future Jobs Ireland, Project Ireland 2040 and Global Ireland 2025 are an integrated approach to preparing for future opportunities and challenges. Funding for the Department of Business, Enterprise and Innovation in 2020 will be close to €1 billion, a 2% increase. This will enable continued support for businesses by the Department and enterprise agencies. Brexit will pose particular difficulties for SMEs and a suite of supports, including the Brexit loan scheme and the future growth loan scheme, are already in place. In addition, further improvements are being made to tax supports for SMEs, notably the key employee engagement programme and the employment and investment incentive. Changes to the research and development tax credit will also assist the sector.
Government funding for housing has been significant, with €6.6 billion allocated over the past four years. A further €2.5 billion is being allocated for 2020. This substantial increase in investment will meet the growing demand for housing supports and enable the prioritisation of social housing. There was an 82% increase in new dwelling completions between 2016 and 2018 and a 17% increase in the first half of this year. This is reflected in a slowing rate of house price increase. However, the sustained increase in demand means more needs to be done.
Funding for homelessness is being increased by €20 million to €166 million to provide continued support for those in emergency accommodation and increase preventative measures. Capital funding of over €1.1 billion is being provided for social housing. Some 11,000 social homes will be delivered in 2020 and a further 12,000 in 2021. Funding for affordable homes has also been increased, with an additional €17.5 million for the Land Development Agency. The allocation for the serviced site fund and the local infrastructure housing activation fund will be €186 million in 2020.
The Government's concern at the high cost of rent is reflected in the fact that 44 rent pressure zones are in place throughout the country. Additional funding of €2 million is being provide to the Residential Tenancies Board to support its essential role in this sector. The help-to-buy scheme is being extended in its current form for two years up to the end of 2021. This will provide certainty to buyers and those building homes. The Living City initiative is being extended to the end of 2022.
Today's budget also provides for additional funding for the justice sector, in particular An Garda Síochána. An additional €120 million has been allocated to the sector. This includes €81 million for An Garda Síochána to allow for the recruitment of 700 Garda trainees in 2020 and to support the return of more trained gardaí to front-line policing. A further €39 million is being provided to the broader justice sector to fund the increased costs of direct provision, increased activity in the Courts Service and the Prison Service, extending the Abhaile scheme for borrowers in home mortgage arrears and the establishment of the judicial council in 2020. The capital allocation of €265 million will enable the construction of the new Forensic Science Laboratory, the redevelopment and modernisation of Limerick Prison, new Garda offices in Dublin to replace Harcourt Square and further investment in Garda IT to allow its digital strategy to be advanced.
The budgetary strategy this year, which is directed towards addressing the impact of an imminent Brexit, means that the scope of tax changes is limited. Broad tax cuts in the current circumstances would undermine the stability of our public finances. It is essential that we avoid making decisions on tax now which might need to be reversed in the future. The reliefs announced today are prudent and targeted. The home carer credit is being increased by €100 to bring its value to €1,600 to support working families with caring responsibilities in the home. The earned income credit for the self-employed is being increased by €150 to bring the value of the credit to €1,500 which is close to the level of the employee credit of €1,650. These changes will cost an additional €27 million in 2020. The reduced rate of USC for medical card holders has been extended for a further year to the end of December 2020.
This year's budget also includes two compliance measures aimed at ensuring that the correct income tax and USC on the income from distributions of Irish registered companies is paid. These measures will not change the amount of income tax and USC payable, but they will improve compliance. The rate for the bank levy has been increased to ensure that the existing €150 million paid by the banks will be maintained for 2019 and 2020.
Our corporation tax rate is competitive and will not be changing. It is bringing in strong revenues, with receipts to the end of September running at €5,839 million, an annual increase of over 13%. However, there are risks with concentration in this area. A paper published with the budget today examines corporation tax over-performance and policy options to ensure the sustainability of the public finances. The process of reforming corporation tax continues and a number of further changes will be introduced in the Finance Bill 2019. Ireland will continue to play a constructive role in the process of global tax reform to ensure a global and robust tax architecture that works for all.
Stamp duty on commercial property transactions is being increased by 1.5% from tonight. The commercial property sector is performing strongly at present. There are long-standing reliefs which should mitigate the increase in some circumstances, particularly agriculture. Changes are also being introduced to the tax arrangements of real estate investment trusts, REITs, to ensure the appropriate level of tax is paid by them on property gains. In addition, changes will be made to anti-avoidance measures for Irish real estate funds, IREFs.
The Government has made significant progress in reducing inequality through increases in social transfers. This year's budget takes a more targeted approach given the prevailing uncertainty. Increased funding of €690 million is being provided to the Department of Employment Affairs and Social Protection. This will support our strategy to maintain the increases in welfare rates from previous years, focus more on supports for the elderly, children and families at risk of poverty and protect the most vulnerable from the impact of the carbon tax. In order to further this strategy a 100% Christmas bonus is being paid to all social welfare recipients in 2019. In addition, the living alone allowance is being increased by €5 to help our vulnerable elderly and disabled people. The earnings disregard for the one-parent family payment and the working family payment are being increased to ensure that work pays. The qualifying child payment for children aged over and under 12 years is also being increased. The fuel allowance is being increased by €2 per week, reflecting the fact that the burden of the carbon tax falls unequally. Funding for the warmer homes scheme is being increased by €13 million in order to address a key cause of fuel poverty for those on lower incomes and to provide a more sustainable long term solution.
We are looking to develop the Civil Service of the future to meet the demands of demographic changes, digitalisation and future technological change.Officials have therefore been asked to review future workforce and office requirements and to report next year.
The Government's budgetary strategy over the past four years has delivered steady reductions in personal taxation and a sustainable increase in public expenditure. It has supported robust economic expansion, strong employment growth and a substantial reduction in unemployment. This budget has been prepared in the context of heightened uncertainty around Brexit and other pressing challenges, particularly climate change. The Government has adopted a prudent approach, basing preparations on a no-deal scenario on 31 October. This will protect the substantial progress we have made to date within the limited available resources. The Government has continued to address priority areas, including climate change, housing and continuing preparations for Brexit, with the inclusion of contingencies in case they are needed. I recognise the positive engagement of the main Opposition party to the budgetary process in the context of the confidence and supply agreement. I commend the budget to the House.