Paschal Donohoe (Dublin Central, Fine Gael) | Oireachtas source

I am pleased to have the opportunity to appear before the Seanad today to contribute to the debate on budget 2021. As I informed the Dáil yesterday, this year's budget has been prepared in circumstances that are without precedent. The outbreak of the coronavirus has hugely impacted individuals, communities, societies and economies throughout the world, and our country is part of this.

Economic activity in the Irish economy is projected to fall by around 2.5% this year with modified domestic demand, a better measure of domestic conditions, expected to contract by around 6%. Along, of course, with the immediate prospect of dealing with this disease, we continue to have Brexit on the horizon. In these most challenging of times, I am keenly aware of the impact of this disease on the lives of people and their livelihoods and of the need for us to find a balance between health and well-being. The substantial efforts we have made to date have focused on minimising the economic and social impact of this virus, cushioning household incomes and supporting micro-sized firms and small and medium-sized enterprises while strengthening the capacity of our healthcare system.

The highly fluid nature of this disease demands a response that can change. Our ability to respond in a timely and effective way is in no small part due to how our national finances were managed in recent years and, of course, the work of the European Central Bank. On this point, we are not facing into this challenge alone. The global nature of this pandemic requires and demands an international and coherent response. The actions of the European Union have complimented national measures and have allowed national policy decisions to achieve more.

Given the levels of uncertainty, the budget focuses purely on the coming year and is based on a number of careful assumptions. In particular, the central scenario underpinning budget 2021 is that bilateral trade between the European Union and the UK will be on WTO terms from January and that Covid-19 will continue to be present next year in the absence of a broadly available vaccine. Overall economic activity is not expected to return to last year's levels until at least 2022. In addition, unemployment is expected to remain high at around 10.25% for next year. This is why the Government is absolutely determined to do all we can to address unemployment, particularly among our young people. This has influenced the shape and size of this budget.

Significant resources were required to support policy actions to mitigate the impact of the pandemic. Against this challenging backdrop, the appropriate budgetary approach is to continue to provide support to our economy. This is why we are aiming for a deficit next year of €20.5 billion, or 5.7% of gross domestic product. Over the medium term we will need to correct that. For now, we need to act to support our economy.

Ultimately, budgetary policy will have to steer a course that sets expenditure and taxation at levels that allow us to reduce our deficit while at the same time supporting our economy and society. In finding this balance, however, employment growth is absolutely central to reducing our deficit and, in turn, allowing our debt to be safely managed. This was the context of the budget package yesterday.

Included within it is €8.5 billion for public services to address the challenges of Covid-19. This includes a €2.1 billion Covid contingency fund, €3.8 billion to support existing services, in particular those that are health-related, and €1.6 billion for core capital programmes. Capital expenditure will increase to €10.1 billion, the largest amount that has ever been allocated to invest in our schools, homes and public transport.

Alongside these measures, a targeted and time bound recovery fund worth €3.4 billion has been established.This fund will be focused on infrastructure development, reskilling and training and supporting investment in jobs. This recognises that the business sector and the SME community are a cornerstone of our economy. Further supports will be provided by way of an extension of the tax debt warehousing scheme to include repayments of temporary wage subsidy scheme funds owed by employers and preliminary tax obligations for self-employed citizens who have been adversely affected. My Department has begun the process of applying for EU funding towards the cost of the wage subsidy scheme and, of course, will also seek to avail of the Brexit adjustment reserve.

I am conscious that while the employment wage subsidy scheme is due to remain in place until the end of March, a similar scheme will likely be required until the end of next year to provide greater certainty for businesses. A new scheme, the Covid restrictions support scheme, also provides targeted and timely support for businesses in restricted sectors or locations which are prohibited from opening temporarily or effectively closed due to restrictions introduced to contain the virus.

In terms of VAT, the standard rate reduction to 21% will be in place until 28 February. Yesterday, I announced further VAT reduction for the hospitality and tourism sector to 9% with effect from 1 November and to continue to 31 December 2021.

With regard to income tax, I have made some specific and targeted changes. With regard to housing, from a taxation perspective, in addition to the many measures announced by the Minister for Public Expenditure, Deputy Michael McGrath, I am extending the July stimulus additional measures to the end of next year and I plan to make a number of changes to the stamp duty residential development refund scheme.

Another key issue I highlighted at the outset is climate change. We are making a further change in respect of carbon taxation in that we are ring-fencing the revenues from carbon tax to provide support to the most vulnerable. Our vehicle registration tax, VRT, tax regime will transition to the more robust worldwide harmonised light vehicle test procedure from January, with the aim of accurately relating the tax which people pay when they buy a new car or an imported car from elsewhere to the effect that car has on our environment. I am also changing a measure I brought in last year, namely, a surcharge relating to nitrogen oxide emissions.

Turning to corporation tax, I reaffirm our commitment to ensure that our regime remains competitive with the 12.5% rate at its core. However, I am alert to the changes that are developing across the world in this area. I have been involved in this over the past number of years and the Government will be publishing a further updated statement of our roadmap for corporate tax reform in the coming months. Finally, I am announcing the establishment of a commission on welfare and taxation with further details and its membership resources and terms of reference to follow.

I acknowledge the individual and collective efforts we have made to respond to this disease. It has not been easy. It has been so difficult for so many. As always, I extend my sympathies to the families of all those who have lost their lives and to people whose health has been affected. In recent months there has been true inspiration to be found in the strength and determination of our country to fight this disease. We have worked together to support and protect each other and we have taken tough but necessary steps to limit the damage and devastation caused by this insidious virus. We are all too aware that this disease will be a continuing presence in our lives for some of the future but, equally, we know we are up to the task of containing this invisible enemy and minimising its impact on our country.

The main message I want to convey today is that, while I accept that we are living in uncertain times and facing immense challenges, we can and will get through this. With this budget, the Government is seeking to provide as much economic certainty as it can to allow families and businesses to plan ahead and to allow individuals, families, communities and employers to have a sense of a different future. The Government is doing its part but all citizens continue to have a crucial role to play in fighting this virus. Through our common purpose and collective efforts, we will reduce the impact of this disease on our country and build a more sustainable and resilient Ireland.