Thursday, 16 December 2010
Appropriation Bill 2010 (Certified Money Bill): Second Stage
I am glad to avail of the opportunity to appear before the House to discuss public expenditure and, in particular, the background to the 2010 Appropriation Bill which gives to statutory effect to Voted expenditure for 2010. However, before discussing public expenditure, it would be useful to offer some context by reviewing briefly the performance of the economy and the public finances in 2010. I am glad to say that, following the sharp contraction of the economy in the past two years - the most severe since the Second World War - the latest data suggest economic activity has stabilised this year. In fact, data published this morning show that both GDP and GNP increased in the third quarter. Most analysts expect the economy to expand next year. Initially, growth will be driven by the export sector, underpinned by significant improvements in competitiveness.
As wages have adjusted and costs fallen, we have priced ourselves back into global markets for our goods and services. Exports of goods and services increased at an annual rate of more than 13% in the third quarter, one of the best performances in the European Union. This growth is broad-based, with the pharmaceutical, software, financial and food sectors all performing well. With this export-driven growth, Ireland will have a current account surplus next year; therefore, the country as a whole will be paying its way. Given the impact of the fiscal consolidation and the necessary unwinding of private sector imbalances, domestic demand is only expected to make a limited contribution to growth next year. However, in the coming years export-led growth will gradually support expansion in the domestic economy.
There are signs also that conditions in the labour market are beginning to stabilise. It is encouraging that the unemployment rate has fallen in recent months. Employment trends are expected to be flat next year, as one would expect, given the typical lag between economic growth and employment. However, employment growth is expected to pick up from 2012 onwards.
I acknowledge the high levels of foreign direct investment Ireland continues to attract. Almost 1,000 companies, including household names such as Google, eBay and Facebook, have chosen Ireland as the hub of their European networks. Eight of the top ten global medical technology companies have a manufacturing base in Ireland, while eight of the top ten pharmaceutical firms have operations here. The message must be clear that Ireland remains open for business and is still the destination of choice for many of the world's leading firms.
The public finances have stabilised over the course of 2010, the year to which the Appropriation Bill relates. The underlying general government deficit is now expected to be 11.6% of GDP which is in line with the forecast presented in budget 2010. Tax revenues are expected to end the year close to €500 million above target. However, there will still be a gap between what we spend and our receipts in 2010 of approximately €19 billion. It is clear the State must reduce its level of borrowing in the coming years by aligning more closely its revenues and expenditure. In the past two and half years the Government has engaged in a process of reprioritisation and consolidation across all areas of expenditure in order to close this gap. The measures have reduced all aspects of Government discretionary spending, including public service pay and running costs across Departments and State bodies. Significant revenue raising measures have also been implemented during this period, including the introduction of an income levy, the carbon tax and an increase in capital tax rates. Based on a budgetary consolidation package of €6 billion in 2011, the deficit is expected to decline further next year to 9.4%. The key message is that both the real economy and the public finances have stabilised during the course of the year and the economy is set for recovery next year.
Having set out this broad context, I want to deal with particular issues of public expenditure in 2010. While a number of Supplementary Estimates were taken this year, the major ones were technical in nature. Of the substantive Supplementary Estimates, the vast bulk of the additional moneys required resulted from shortfalls in receipts, rather than from increased expenditure. In fact, the latest estimate of gross expenditure for this year shows savings of €422 million against the original estimates published in the 2010 Revised Estimates Volume, with savings of approximately €175 million in day-to-day expenditure. In annual terms, current spending is estimated to contract by more than 2% this year, compared to an increase of more than 12% in 2007. This major consolidation has been achieved in the face of significant fiscal pressures associated with the rising numbers in receipt of unemployment payments.
Capital expenditure is anticipated to be lower than published in the Revised Estimates Volume for 2010. This is due to a number of causes, primarily cheaper tender prices and delays in land purchases arising from landowners' reluctance to sell at new lower values. The 2010 capital programme remains very substantial and is forecast to represent approximately 4.9% of GNP. This scale of investment is proportionately higher than 2007 levels and exceeds the average percentage for the five year period to 2009.
Capital investment has played an important role in driving Irish economic advancement in the past decade. The quality of the capital stock across the country gives powerful witness to progress already made. The Government's capital investment priorities for 2010 and in the medium term build on what has been achieved to date. These investment priorities are designed to drive productivity enhancements, lay the foundations for a return to export-led growth, assist in sustainable employment creation and deliver essential social infrastructure. In this way, capital investment will be central to the push for economic renewal. Even in these difficult budgetary times, we cannot afford not to invest in infrastructure which is needed to secure the country's economic future.
Given the budgetary challenges of the past three years, we have had to reduce the financial allocations for capital investment set out in the national development plan at the beginning of 2007. Like other areas of Government expenditure such as public service pay and social welfare, capital allocations could not avoid the imperative for budgetary corrections. However, tender prices for construction have fallen considerably. Lower prices, coupled with improvements in public sector procurement procedures such as fixed price contracts, afford greater opportunities to achieve value for money than during the boom years. Departments have reported that they are benefiting from these changed market conditions. In short, we will get more for less and the infrastructure we now need will be cheaper than a few years ago.
The 2010 capital programme supported the key investment priorities to help facilitate a return to growth and thereby support sustainable job creation in the longer term. Modern transport infrastructure is vital to a modern economy. This year we will complete the inter-urban motorway network and continue to improve the road network. We are also providing substantial allocations for developing public transport infrastructure. We will invest heavily in water services, not only for the obvious environmental benefits but also to provide the necessary infrastructure for industry and business.
We will continue to invest heavily in our schools. An educated workforce has been central to our previous economic advances and is an absolute prerequisite for our future economic renewal. We are providing for the investment in science and innovation that will help to build our future success. Significant sums are being allocated to ensure Ireland is at the forefront in using the commercial potential of innovation and technological development. Investment in higher education will also enable Ireland to fully realise the opportunities offered by science and innovation.
IDA Ireland will be able to attract and support foreign direct investment. This has been a key element of Ireland's past economic success and will be vital in developing an export-driven recovery. Foreign direct investment has helped to sustain Ireland through our economic troubles and will be central to putting them behind us. Enterprise Ireland will help indigenous enterprise to realise its potential. Domestic enterprise will be supported in exploiting the opportunities for job creation and increasing exports as the international economy recovers.
We will invest in enhancing the attractiveness of the tourism infrastructure and our attractions for overseas visitors. Tourism provides significant employment, as well as being a significant earner of foreign income.
We recognise the need for continued investment in important social infrastructure that will benefit all citizens. Accordingly, we have continued to provide resources to meet social housing needs, support urban regeneration, particularly in Limerick and Ballymun, help maintain our national heritage, enhance and augment our hospitals and develop the network of primary and community care centres.
The Appropriation Bill 2010 deals with expenditure during the course of the year. Expenditure has been managed and controlled in a responsible way by the Government. It is well short of target and revenue is in excess of target. That process of responsible and prudent budgetary management will be continued into 2011, as set out in the recent Budget Statement.
I have not had an opportunity to speak on any of the financial matters raised in recent weeks. While I might disagree with the Minister politically, I commend him for his performance. He is doing his best in difficult circumstances, for which I thank him on a personal level. I agree with much of what he said about the Bill. He referred to the continued significant investment in road infrastructure. One of the lasting benefits of the years of the Celtic tiger is that we have a national road network which is comparable to that in any other EU member state. I welcome the Minister's commitment to invest further in water services. Water is a costly commodity, yet almost half of the water produced escapes into the ground. That is unsustainable. I also welcome the Minister's acknowledgement of the need to invest heavily in schools building projects. He is correct that better value for money can be achieved, alongside their potential to stimulate employment creation.
I take a different view from the Minister on other issues. He has suggested most economists expect the economy to expand next year. However, a significant number of analysts do not expect such a recovery. The Government's projections are based on a growth figure which a number of respected economists doubt we can achieve. I agree with the Minister, however, that the improvement in our export position has resulted in an unexpected bonus for the Exchequer, but it is inaccurate to imply that most analysts expect the economy to expand next year.
While there are signs labour market conditions are beginning to stabilise, I disagree that the falling unemployment rate is encouraging. In my part of the world the rate is falling because people are leaving Ireland. Looking through my telephone directory, I was shocked to see the number of my friends who had moved to London, Melbourne or Canada to ensure their economic survival. The encouragement which the Minister claims to derive from the slight reduction in unemployment levels is false because we are losing many of our best and brightest. That is the biggest indictment of 13 years of Fianna Fáil-led Governments. We never thought so many would again be forced to emigrate for economic reasons.
I concur with the Minister on the need to maintain capital spending on schools. However, we appear to have missed the OECD report on falling education standards. Whoever is Minister for Education and Skills next year, he or she will face a major task in reversing the rapid decline in standards. Our educated workforce is crucial in getting out of our economic difficulties.
I welcome the Minister's comments on tourism infrastructure. Tourism and agriculture are two sectors in which we do well and investment in them is the key to restoring growth. I was disappointed, however, that the Minister did not completely scrap the travel tax which I accept is now an old chestnut. If the Government had bitten the bullet, it would have been in a stronger position to call on chief executives of the various airlines to meet their commitments. A €3 tax will not bring in substantial revenue, but it is being used as an excuse by certain individuals in attracting tourists.
The Minister's claim that the overall level of capital expenditure is higher than it was in the five-year period to 2009 is an example of how statistics can be used to prove anything. We all know the level of capital expenditure is down, even if it is higher as a proportion of GNP.
Everything is down. The level of local government funding is relevant to the Bill because it deals with the funding provided for all Departments. For whatever reason, this issue was kicked to touch in the budget, other than reducing the overall grant allocation to local authorities. It is, however, a significant issue because we have a centralised system of local government, but we now have an opportunity to reimagine how we provide public services from top to bottom. Much of what is done centrally is managed at local level in most other European countries. Local authorities are being starved of funding. I recognise the political angle in terms of giving Fianna Fáil candidates in next year's general election an opportunity to claim local authorities led by Fine Gael and the Labour Party pushed up rates. They will have no option but to increase them because their funding from the Exchequer is being dramatically reduced. Most local authorities have already removed all of their temporary and part-time staff and are down to the bare bones. We are left with the structures put in place by the then Minister for the Environment, Heritage and Local Government, Deputy Dempsey, in which top level managers are paid large salaries and bonuses, irrespective of whether they deserve them.
It was interesting that the Minister and the Government decided not to make any pronouncements on water rates. I have long held the view - the Minister probably holds the same view - that water is expensive to provide. People should pay for the use of a service which is delivered into their homes. Most people are of that opinion but the Government decided not to touch it.
We must take a radical look at how local government operates. We do not need as many town councils performing and duplicating functions. Many people argue about the county council and the city council structure. Does it need to be streamlined? One local authority in each county area is enough. Whether one breaches county boundaries is a contentious issue, not least in County Kilkenny where county boundaries are very strong. We will have to examine that issue in more detail in the new year. I would be interested to know if the Minister has some views on how we will fund and reform local government in the future.
I support the Appropriation Bill. The Minister has achieved the balance needed. With all the evidence provided to us, we can see we have turned the corner. We have expended less than we suggested at the beginning of the year. Our income is higher than we expected but, more important, the CSO figures indicate there was growth in the economy in the third quarter of this year. The reason for that growth is exports.
I mention those of us who gave voice to the view that our situation was unique and different from that in Greece, Italy, Spain or Portugal and that Ireland was the most globalised economy in the world, bar the Hong Kong special administrative region or Singapore. In the bad times, we were like a cork on the ocean. Now that world economies are expected to grow by 4.5% this year and 4.5% in 2011, we are beginning to see a turnaround as this economy has placed itself at the forefront in the world.
We took significant sums out of the economy in the past two years - €15 billion - and we will take a further €6 billion out next year, but we are still looking at growth of 1.7% next year. It shows that the policies of this Government and previous Governments to preserve and protect our 12.5% corporation tax rate have been essential, as has an outward looking policy of looking for foreign direct investment and sending people to the European and Far Eastern markets to bring business to our shores. They have done that very successfully and the Minister alluded to all the companies setting up in Ireland. We are at the forefront again.
Will the Minister continue research and development expenditure? There are areas in which we could again specialise, including biotechnology and stem cell research. I point out to the Minister that adult stem cells are beginning to bring the only advances in this area. Ireland has another unique opportunity in this regard.
Israel spends large sums of money on research and development and its economy has increased significantly. Large numbers of people have gone to Israel in recent years and the population has risen from 5 million to 7 million in a very short space of time.
It looks as if we have finally achieved what we set out to do. It looks as if 2011 will be a very good year for Ireland. It will be a good year because we can see we have turned that corner the Minister promised we would turn.
The fact there are intercity motorways is very welcome and 2010 should see the finalisation of that project. We are all dressed up and ready to go. There are other areas in which we need investment and in which we can bring forward policies which will assist us in the future, including access to broadband. There is a plan to include all remaining areas because that will be essential in the future.
Looking at the budgetary packages for the coming year, one of the best items the Minister introduced was the reduction in stamp duty on houses. Given our high dependence on the housing market in the past, it did not make sense to charge 6% stamp duty when a low rate or no rate would have given a floor to that market and the necessary security, which the Minister achieved in the budget.
It was undoubtedly a fair budget, which is what the Minister set out to achieve. The appropriations for next year will bear that out. We hope we will continue to see less expenditure and extra value for the expenditure the Government makes. We have achieved great savings. The construction industry is competing with lower tenders, of which it is well capable, and we have achieved great results. During the good years, we achieved a very high standard of housing.
Whether we are prepared to recognise it or not, despite having 400,000 unemployed, there are 1.8 million people at work. Despite the fact we took €8 from certain social welfare payments, ours are among the highest social welfare payments in Europe. We started from an exceptionally high base. Money needed to be taken out of the economy and people gave a bit according to the amount they could afford. That was an important achievement the Minister managed in the budget. I support the Appropriation Bill 2010.
I welcome the Minister. I listened to his speech in my office. If I closed my eyes, I could picture him giving the same speech in any part of the world. He is oblivious to the fact the budget, of which this is almost the culmination, was unfair.
It is important for us to have a national debate on the political system. The level of frustration and anger among the people at the political class is extraordinary. We are fortunate we have not had an overwhelming level of social unrest. It is important we understand what people are saying to us. The people are not always right, because they are volatile in terms of what they want and do not want, but there is one common theme in what they are looking for and that is smaller, cheaper and better government.
I do not subscribe to the notion that this country is banjaxed. It may be broken and in need of repair.
That means a change of people in charge of the country with a new government coming in offering a new sense of hope. What upsets me most is that the Government has divided public versus private and poor versus rich, which is wrong. It has polarised society and allowed for a new movement of the extreme left, which needs to be put up for scrutiny in what it is offering to the people. Whatever else about Fine Gael, we have put forward policies which, while different from the Government's, are fair and will get Ireland back to work.
I wish to comment on the gateway innovation fund and the national spatial strategy. Cork has its docklands project which has been in gestation for a long time. The strategy report of the docklands committee has never been published and I wonder why the Minister, Deputy Gormley did not do so. He mentioned tourism in his remarks and the city of Cork is the major city in the south. The gateway innovation fund needs to be reviewed in the context of the prioritisation of the Cork docklands project. A number of weeks ago we met the Cork city manager who spoke about the importance of the docklands. Before it leaves office, the Government should prioritise the immediate steps necessary to grant aid that project without having to hand over the seed capital immediately. Cork City Council has all its ducks in a row and An Bord Pleanála has given permission for building the two bridges which would open up the Cork docklands. Despite the recession and the economic difficulties we are experiencing, there are developers willing to embark upon a journey with Cork City Council and the Government in this project.
The two swing bridges at Tivoli and Water Street are fundamental to the project proceeding. It needs commitment and support from Government to ensure this public infrastructure work will get started and completed. I understand that €100 million or €120 million is a major commitment and I am not expecting that. The green light should be given to the Cork City Council, however, and to the developers who are willing to embark on this, which would indicate the national spatial strategy and gateway innovation fund are still central to our development. It is important the Minister for Finance would assist this project. Already this week in Cork we had the announcement of the plans for Beamish and Crawford, which as the Minister knows closed down, but we have a very ambitious plan to develop this quarter of Cork city. I heard Senator Hanafin speak about the unemployment figures. While we may have 1.8 million in work, let us consider the number of people out of work and the number who have emigrated. I am asking that the docklands area in Cork, which is strategic and attractive, should receive Government commitment and the Government should show a willingness to journey with the people in Cork.
The Minister is right in what he said about tourism and I am glad he went some of the way in reversing the daft air travel tax the Government introduced in a previous budget. Tourism is very important and can create thousands of jobs. A proposal has been submitted for a convention centre in the city of Cork, which I believe is necessary. If the Minister has not been to Cork city, I invite him to visit the English Market and look at the wonderful array of foods and produce there, which can be used to fly the flag for Cork across the world. The Government should consider supporting it through its tourism incentives.
It is imperative for us to grapple with the issue of reform of the public sector as proposed by Fine Gael. I reassure public sector workers that there is nothing they should fear in the Fine Gael proposals. We want to have a public sector that is fit for purpose and has pride in its committed workers. Morale in the public sector is at an all-time low. They come to work every day and get pummelled by social commentators and by Members of these Houses. I was interested in the Minister's remarks on social partnership and if I heard it correctly he was questioning social partnership and some of the decisions taken therein. One of the biggest mistakes we made in social partnership was removing the Houses of the Oireachtas as a pillar of it. There was no accountability or engagement with the Houses of the Oireachtas.
We need to reform the political class. I do not believe for a second that abolition of the Seanad and getting rid of State cars will solve our nation's problems, but it will send out a message of leadership. The budget should have proposed abolishing some of the State bodies and quangos we do not need, but the Minister did not do so, which surprised me. Equally the Government did not go far enough regarding FÁS. Yesterday I stated that the people operating at the front line in FÁS have unfairly got a very bad press. As with the banks, those at the top tier of management lost the run of themselves and, unfortunately, the main body of workers were demonised as well.
Some 16 years ago today, John Bruton was in his second day as Taoiseach and it is now time for Government to come back to being transparent and open with its citizens. We need to restore the link between us and the people which has been badly damaged. The legacy of Deputy Bertie Ahern has ruined a generation of lives. It behoves all of us to tell the people that politics is a noble profession and that we are concerned about the people and work for them, which is something the Government has not done. I am amused when I hear members of the Cabinet claim they have acted in the national interest for the past two years. Why did they not do it all the time? What have they been doing for the past 13 years? They had a slush fund they spent on an orgy of getting votes and staying in power.
The Minister made a very positive speech on the Appropriation Bill 2010. In a radio interview last Sunday I explained that the economy is a live unit comprising people who are naturally energetic who want to keep producing, get on and find an income for themselves. Senator Buttimer was using emotional words about the state of the economy, which is very negative. As the Minister said in his speech, it is very important the message is clear that Ireland remains open for business and is still the destination of choice for many of the world's leading firms. It seems to be going over the head of Senator Buttimer, who is now in the Chair, that Ireland is still in business and is very attractive to multinational investors and that the economy is a dynamic unit. I attended a meeting of the Joint Committee on Enterprise, Trade and Innovation the other evening where there were positive presentations by Mr. Frank Ryan, Chief Executive of Enterprise Ireland, and Mr. Barry O'Leary, Chief Executive of IDA Ireland. IDA Ireland will launch its view of last year in approximately two weeks, which will be very interesting. The Minister referred to the road infrastructure, and if a person who is interested in investing in Ireland comes for a meeting here with IDA Ireland and sees all of that magnificent road infrastructure, he or she will think it is wonderful. It now is uplifting to drive from Dublin to Cork in less than three hours, or to anywhere in the country. It gives a straightforward signal that this is a fabulous country with good infrastructure and an inter-city network. The country has achieved this over the past number of years. It is a great achievement that we have this mega-road system.
We spent the money well. There were slip-ups. Not everything was perfect. My party has admitted that there were mistakes made. I listened last night Dr. Michael Somers, who was here at the Lemass group meeting last night, who stated that the challenge is to get the money that has left the banks to come back into the country, to get the money of the large investors and the smaller investors back in and to develop and create employment to stop the outward flow of young people. I have no issue with young people going abroad. Many Irish people who have emigrated have risen to the top of their companies in the United States, Australia and the UK. They create a tremendous reputation for Ireland. People are so impressed that persons of such calibre running these large world companies are from Ireland. Within their number are those who have no desire to be adventurous and to leave, and who want to stay here, and it is to create employment for them. I have stated here regularly that Lir Chocolates employes 250 in Navan and it is 75% export driven. The companies which are exporting and are innovating non-stop are surviving and doing well. It is harder on the companies that do not export because demand is so low. If they are relying on the indigenous market, it is difficult for them. We must try to get people to spend more money and to keep employment in the indigenous businesses that have not yet got to the stage of exporting.
I am very optimistic about Ireland. By nature, thanks be to God, I am an optimistic person. There are challenges facing us but there are tremendous opportunities. An important point is that we need to court the international media more. There has been excessive prudence about entertaining journalists and the staff of credit rating agencies. Dr. Somers made the point that when he was in the National Treasury Management Agency, they were constantly going to America, talking to these guys, bringing them to Ireland and spending time with them. I made the point that we must keep that up. It is probably not politically correct now to be hosting people and humouring them, but we need more of that such as bringing them to Ireland so that they may see how we are getting on and how we have got our act together. It is obvious - the figures speak for themselves - that we are stabilising the economy and unemployment is coming down, but we need more comfort meetings with those who are influential around the world.
I complimented Mr. O'Leary of IDA Ireland on the advertisement on Bloomberg for Innovation Ireland. That is a fantastic mantra - the country of innovation and creativity. That works.
I thank the Minister for his inspirational leadership to everybody in Ireland over the past few years. He is a model of keeping going. I wish him the best of luck in the coming year.
I also welcome the Minister and sincerely wish him well. I also welcome the appointment, short term as it may be, of Senator Buttimer to the Chair. It will add greatly to the prospects of peace in the House on the basis that I trust he cannot interrupt from the Chair.
It is an interesting time of year, politically and generally. When we speak on the Appropriation Bill, we wander freely and easily across a broad range of Government policy and philosophy. This year, in particular, the Appropriation Bill gives great scope for reflection, consideration and, I suppose, some degree of suggestion.
I was interested in what the previous speaker stated about marketing Ireland. It is important that Ireland strives to present a positive, vibrant, modern image abroad, particularly from the point of view of inward investment. With that in mind, I remind the Minister of a suggestion - this possibly has nothing to do with the Bill but that is the sort of flexibility we are allowed in the Seanad - made on many occasions by one of my former colleagues in the House, former Deputy Austin Deasy, who asked that the Government consider the limited appointment of a number of former politicians to ambassadorial roles. The argument being presented by former Deputy Deasy was that notwithstanding the supreme level of personnel available in the Department of Foreign Affairs, it could be useful for the selling of Ireland abroad and the presentation of a strong and vibrant image of Ireland abroad that former political personnel-----
-----particularly persons who had senior political experience, be available for appointment to ambassadorial roles. It is something we should consider. In the efforts we all will make to try to rebuild this country, we certainly need to look at new ideas and new solutions.
On the Appropriation Bill, it is fair to say that the practice of politics and economics in this country in recent times has been of a see-saw nature, by which I mean that we go from periods of great spending to periods of great adjustment on the other end. There were a number of Appropriation Bills over the past decade where the only issues we were debating were how much money was being spent. We did not even ask how it was being spent or if it was being well spent, but merely concentrated on what it was being spent on. We have now gone to the other extreme where we are talking about how much money is being saved. We need a debate, both from a spending perspective and a savings perspective, on what I call the how and the why. It is not merely a question of saving money and trying to reduce public expenditure. We must try to ensure it is done in a way that is least damaging to society and to the economy.
I welcome what the Minister stated on matters such as tourism, which was referred to by Senator Buttimer. It is one of the sectors where there is enormous scope for growth and improvement. I hope even the modest decision made in the budget to reduce the travel tax will be of some degree of help. Much pressure was put on the Department and on all of us by the airline industry and the tourism sector in general to have this travel tax reduced or fully waived, and indications were given that if the Minister acceded to that request, it would result in significant tourist numbers coming to this country. At least, that is something which we will be able to judge and, hopefully, the tourism industry will respond to the budgetary initiative.
Education, another area to which the Minister referred, is one of the significant Government expenditure programmes. One of the issues which arises regularly in this House on Adjournment debates is school building programmes, prefabricated accommodation etc. The Government must be a little more flexible in how we spend the funding, and on cause and effect. Right across the country on an annual basis tens of millions of euro, which is taxpayers' money not Government money, is being spent on prefabricated accommodation and the rules and regulations governing school building, and the various stages involved in even sanctioning the most basic project, are so complex and so regulated and administratively difficult that projects which could be built at a relatively reasonable cost are being delayed and deferred. Rented accommodation is being used and when the project finally comes for delivery and for building, the cost has shot up enormously. That is a small item in which administrative blockages cost the taxpayer money and social cohesion because of inadequate schooling facilities. I know the issue has been brought to the attention of the Minister and the Minister for Education and Skills dozens of times. It should be possible to resolve it and, in the new environment where we will be more careful of the money we spend, it is something we must consider.
The Appropriation Bill gives us the opportunity to pose questions about public expenditure. There was a time before the Minister's arrival in the Houses when there was a joint committee dealing with public expenditure which did some very valuable work. Notwithstanding the plethora of committees we have, it disappeared despite working with the Committee of Public Accounts. We should reconsider its operation because the era has long gone when money could be treated like confetti. Even if money at the level of the Celtic tiger is ever available again, we must ensure it is spent in a more constructive and longer lasting fashion. Some type of public expenditure committee or watchdog in the House, led by politicians, would be helpful in that regard.
Senator Buttimer referred to the Minister's comments on social partnership. It was a creature of the late 1980s, having been conceived in 1987. Some 23 years later we are in a very different place which requires new responses. There should always be an opportunity for social partners, in the broadest sense, to have a voice to be listened to in order to freely make known their views. If we have learned anything from recent political and economic crises, it is that politicians are the people who must make decisions. Those who are hired and can be fired by the public are best placed to make the required tough decisions. Politicians should take the lead in this respect and although there must be a role for social dialogue, the decision making should be politically led.
I welcome the Minister for Finance to the House. I know he had a long and difficult year and I know he is probably looking forward to a good Christmas break, so I will not detain him too long. I reiterate Senator Buttimer's and Senator Bradford's comments on the travel tax. We can achieve growth in the tourism industry and I come from a county which is strong in the sector. There is great potential in this through activities like golf, deep sea and lake fishing and mountaineering or climbing, and we could achieve growth in the coming years. The issue is all about such growth because if the economy grows, it would mean a cut of less than €15 billion cut over the next few years.
I am delighted the Minister is present because I also have tabled an Adjournment matter for the next issue as well. There is much potential in the Irish co-operative movement and the work of the National Dairy Council and Irish Dairy Board. We can achieve growth in exports with new products, etc. The Irish Dairy Board is seeking a change in its financial year which will make no difference to the Exchequer. There is an obligation that the accounts be done between 1 September and 31 January and a change is sought of a number of months either side of that period. I hope the Minister will consider that favourably in the upcoming finance Bill in January as it would greatly help the dairy board and societies. They could proceed along with the agricultural cycle rather than within the period specified under existing legislation. The Minister might consider this in the short term and include a provision in January's finance Bill.
There is great potential in co-operatives because they want to invest much more money in research and development. They also want to target specific products, with a focus on export-led growth. This would be of major benefit to the economy. I will leave it at that and hope the Minister will consider this favourably in the finance Bill.
I thank Senators for their contributions. It has always been a custom of the Seanad to have a debate on the Appropriation Bill but there is not always a debate in the other House. It gives an opportunity to discuss general economic questions relating to this country so it is a very valuable opportunity. Senator Phelan was concerned about the forecast made by the Department relating to GDP next year, but the forecast of 1.7% of GDP growth is in line with the latest private sector consensus forecast or the so-called Reuter's basket.
In what was a very interesting speech Senator Phelan discussed the question of the OECD and education standards. In the plan for national recovery the Government went to great lengths to preserve educational provision and expenditure as much as possible. There has been a significant return to education throughout this economic crisis and it is clear the up-skilling of individuals who find themselves out of work during this period of temporary recession is very valuable and of great long-term benefit to the economy.
The Senator is correct in focusing on the issue of standards as well as financial provision. Too much of the education debate is focused on financial provision and appropriate class sizes or provision at third level of investment programmes. The core issue in our educational system is the quality of the graduate from the school or institution concerned.
One of the most interesting ways of discussing Ireland abroad and explaining our position is to point out the proportion of our workforce with third level qualifications, which is the second highest in the European Union after Sweden. Such qualifications only have value if the standard of the qualification is up to the mark. That is a fundamental issue that will be very important for this and the next Government. The OECD education report was very disturbing and while one can argue about methodologies in the schools chosen, the fact remains it is a warning sign to us that we should heed.
Senator Phelan mentioned tourist infrastructure and this comment was echoed by most speakers. Attention was also drawn by many speakers to the question of the travel tax. There was a very substantial reduction in this to €3, although there are some who argue it should be abolished. This is a tax base that is being resorted to by an increasing number of European governments. What is important for us is to position ourselves as a peripheral European state at the lower end of the tax rate, which we have done in the budget. In addition, the Dublin Airport Authority has made an offer in respect of Shannon, Cork and Dublin that if passenger levels exceed certain amounts, there will be free landing charges. These combined measures create the incentive for those who wish to carry passengers into the country to expand their numbers.
Senator Phelan also raised an issue close to my own heart in the funding of local government. This is an issue on which the outgoing government made quite a bit of progress. The introduction of the second home tax was a very important initiative in broadening the revenue base of local government, and the tax was introduced and made a receipt of local government without any corresponding reduction in the local government fund. Whereas there were no specific announcements on local government funding in this year's budget, the four year plan for national recovery sets out a very clear path on how to fund local government in future. The introduction of the site value tax as a residential charge which will be paid to local government is a fundamental step in that regard. The basic level of household charge will be set at €100 under the plan. An increase can then be built in based on the higher valuations of higher value properties. These measures are targeted to raise approximately €500 million under the plan during the four year period.
This is a realistic way of proceeding in relation to local government. It links the local household which receives such benefits from local government with the provision or contribution of revenue. It also has the advantage of ensuring responsibility is imposed on every householder. It is for this reason that a minimum level of charge is imposed on every household. The charge is equitable in that it can be scaled up for wealthier households to achieve the necessary revenue base. All that is required to introduce the tax is an amendment to the existing legislation dealing with second homes. This is a credible and realistic way of making a good start on local government finance.
Other areas have to be addressed, of which one is the apportionment of the local government roads fund between transport and local government. If the Opposition parties are formulating a credible plan for local government financial reform for the general election in the early to middle part of next year, they should focus on this important issue. The measure included in the four year plan for national recovery is credible in this regard. The charge is not pitched at such a level that owners of property believe they will be mugged for vast sums of money in property tax. This measure creates a highly credible funding base. It is extraordinary that such a small charge can raise a dramatic amount of funding and lessen the dependence of local government on the Exchequer. It is vital that we proceed with these measures.
Senator Phelan raised the issue of town, city and county councils. I concur with him that there is substantial scope for rationalisation in this regard and the matter should be pursued.
Senator Hanafin spoke about the property market, specifically changes in stamp duty. This aspect of the budget which has not been much commented on is of fundamental importance to future reform of the property market. Most countries that have experienced dramatic residential property bubbles similar to that in Ireland have not had a transparent pricing mechanism in place for house valuations. This was the case in Ireland. We know that the value of most private residences here turns on a matter of auctioneering and estate agency reputation. If, as has been secured since budget day, one's stamp duty base is universal and set at a low rate of 1%, stamp duty no longer operates as a distortion in the markets and facilitates the giving of information. One of the crucial elements of the Finance Bill will be the enabling powers to allow regulations to be adopted to publicise information on stamp duty collections in order that we will know the valuations of different house types throughout the country on an objective basis. This will be a substantial change in how the residential property market functions. The element of transparency is very important.
The fact that first-time buyers must pay stamp duty as a result of the budget was criticised. Stamp duty is charged at a rate of 1%. In the current market - very much a buyer's market - the seller will in all probability pocket the loss through the imposition of this taxation. Stamp duty changes in the budget effect fundamental reform in the property market. I was delighted to hear Senator Hanafin comment on this matter.
The Senator also highlighted the importance of research and development. Under the plan for national recovery, the budgets in the Department of Enterprise, Trade and Innovation for science, research and attracting industry are carefully safeguarded. This was an important issue in the formulation of the plan. In the current fiscal circumstances it is difficult to ring-fence any item of expenditure. We must, however, ring-fence the expenditures that keep open the jobs pipeline and ensure we will have sustainable job creation in the years ahead. This will lay the foundations for full economic recovery. The Senator stated we were a cork on a world ocean. I have certainly had plenty of such experience.
Senator Buttimer referred to the fairness of the budget. It is too late on an evening approaching Christmas to open that subject. However, if one examines the four budgets I have had the obligation to introduce, the balance of the adjustment has been heaviest on those who have the highest incomes and lowest on those who have the lowest. What is regrettable is that those on lower incomes can no longer be exempted. Everyone must make some contribution. This has been a difficulty in the budgets in recent years. Political parties which do not face up to this reality will not be able to provide an effective Government in the years ahead because the €19 billion gap between expenditure and receipts remains. Not one cent of this sum has anything to do with the banking sector. Irrespective of which political party finds itself in government, it will have to address the question of how one closes this gap. When one tries to do so, one discovers very quickly that the main drivers of public expenditure are salaries, welfare payments, transfer payments and agricultural subsidies. These items account for the great bulk of expenditure.
It is easy for an Opposition - I am not making a partisan point - to talk about administrative efficiencies and public sector reform. When one translates this into practical fiscal reform, public sector reform means one does not pay doctors €64,000 per annum for having 100 elderly patients on their medical card list and that one assesses class sizes to ascertain whether one is obtaining value for money. While public sector reform is a mantra that has entered debate, I sense a reluctance in the political system to translate this mantra into the reality of what it represents.
Senator Buttimer also discussed the political system. There has been very little social unrest and people have shown an extraordinary degree of patience, courtesy, restraint and common feeling in addressing the effects of the recession. The Senator noted that we needed a smaller, cheaper and better Government service. These objectives are not always consistent with each other. One feature of the current public debate that I deplore is the constant harking towards an imaginary state, people or republic. This is a republic for which many generations made deep sacrifices to secure. Ireland is a republic with representative institutions. Representative democracy is the foundation of our democracy. It is the foundation of the debates in this and the other House and the authority of the Government deriving from the other House. Representative democracy is important. This particular plant did not grow automatically on Irish soil. It took generations of Irish Nationalist politicians who for many years had to sit in an imperial parliament in Westminster and later participated in the Free State and republic. I believe a denigration of representative democracy is in progress when I hear panellists on programmes state they would not contest a Dáil election but believe the country should be ruled by citizen assemblies. These Houses are the representative institutions of the State and if we have failings, let us reform them. Members have taken substantial pay adjustments in recent years. The take home pay of the Taoiseach is less than €100,000 per annum. Few top executives in any company are on this kind of take home pay figure. I know the Taoiseach does not resent this. We have to protect representative democracy and respect it as a system. If changes are needed in the composition of the Seanad, the size of the Dáil or the accountability of Ministers, let us consider them. Let us examine how we can bring better people into public life. Let us ascertain how we can attract - I do not like the word "incentivise" - the best and the most talented, idealistic and patriotic into public life. We should devote ourselves to this task when we consider the subject of political reform because reform that simply reduces the political class to a collection of road sweepers will not work.
In regard to the gateway innovation fund, Senator Buttimer made an even more eloquent contribution. I introduced a tax relief on this subject some years ago and I am aware of the swing bridges needed in Cork. This is an issue that can be developed.
The Senator also referred to social partnership, about which I wish to say a few things. I am very much in favour of a public service wage agreement, which is what we have. It is only common sense for an employer to have such an agreement with his or her employees. In regard to social partnership, the expert group which looked at the Department of Finance made the point that although the process in itself was not wrong both social partnership and programmes for Government negotiated by parties after elections involved entering unsustainable financial promises, took the focus from the need for proper financial discipline and focused instead on a system of delivering results which became detached from fiscal realities. It is an important point and a lesson we have had to learn the hard way.
I admire the confidence of Senator White and thank her for her kind wishes to me. Her main point was the importance of marketing Ireland abroad. I discussed this with the NTMA which has stepped up its media presence around the world. The current director general has been most insistent on that. I do not know about the entertainment budget but it has stepped up its involvement with foreign media. A consistent report one receives from the foreign media is that most bad news about Ireland comes out of the country from the Irish media. This is copied abroad and does not originate in the foreign media as we are inclined to think, being a small country.
Senator Bradford spoke about marketing Ireland abroad and suggested that former politicians be appointed to ambassadorial roles. Given the current state of opinion polls that suggestion should come from this side of the House. I have no ambition to be an ambassador and wish to reassure my constituents in that regard. The Department of Foreign Affairs provides a very competent service and represents the country well abroad but it is important that we evaluate its work in the current situation. The focus of Irish diplomacy was very much on political objectives in the better years. Economic and commercial objectives should predominate in whatever arrangements we may have.
I believe all parties should perform a stronger role on St. Patrick's Day. I tire of the endless abuse concerning the annual St. Patrick's Day visits. It is a very important opportunity to sell Ireland and there is a case for having an all-party approach to that issue.
In regard to educational expenditure and school building projects which were referred to by Senator Bradford, we have always insisted on value for money. Some schools built in recent years were built to a fantastic design and quality which must be commended.
Concerning public expenditure control, Senator Bradford mentioned there had been a joint Oireachtas committee on public expenditure. He referred also to social partnership. The Joint Committee on Finance and the Public Service examined this issue recently and produced a report, elements of which are in the plan for national recovery. In the area of public expenditure it is very important to focus the debate on what can be secured with the expenditure we have at our disposal and that we do not assume automatically that expenditure should take place. Under the plan, from next year Ministers will have to observe cash ceilings in their expenditure which will have very dramatic results. It will mean, for example, that if any Minister does not have enough cash he or she will not be able to pay a certain line of grant assistance. In order to implement that the Department will be forced to make an accurate forecast of its likely expenditure on the grant in the coming year. It may have to reduce in overall terms the amount of any particular grant available as a result. That measure is in the four year plan. It is real public sector reform because it forces those who manage Departments and accounting bodies to manage within their budgets.
That is fundamental to public sector reform. I love to spell out what public sector reform means because it seems to me to have a somewhat fluffy meaning for some sectors of the electorate.
Senator Hogan made a plea in regard to co-operatives. I would appreciate if Senator Hogan-----
I believe I have covered all the contributions. Senator Burke made a plea for co-operatives in the context of the Finance Bill. I am glad to see such a constructive atmosphere developing already in regard to that Bill. Perhaps the Senator might drop me a line and I shall try to address the issue about which he is concerned.