I move:
That Dáil Éireann takes note of the 1991 Estimates for the Public Services (Abridged Version) and of the 1991 Summary Public Capital Programme.
It has been the practice since 1987 to afford this House the opportunity to debate the Government's spending plans for the following year before the Christmas recess and I am once again happy to be able to facilitate such a discussion.
The publication of the Estimates this year somewhat later than in previous years stems from the difficult task which faces us on the budgetary front in 1991, and the painstaking and detailed way in which the Government set about the job of determining the Estimates, line-by-line, so as to keep expenditure at its lowest practicable level in 1991.
Policy on public expenditure is part of the Government's overall economic and budgetary strategy. That strategy has been, and remains, to secure the highest possible rate of sustainable economic growth. The objective is not just growth itself, rather the employment opportunities for Irish men and women, the higher living standards for those at work, and the extra capacity to serve the disadvantaged which growth makes possible. These are the essentials of the better future and a fairer deal for everyone which our efforts aim to achieve.
As a small open economy, our fortunes are inescapably linked with developments in world markets, and determined by our ability to exploit those markets. We must be recognised as a stable, competitive economy if the investment necessary for future growth is to be made here rather than go elsewhere. These simple facts of life dictate the key strands of policy — economic, monetary and budgetary — which make up the strategy.
Our firm commitment to maintenance of the value of the IR£ within the EMS is central to investors' perceptions of stability. This commitment to maintain the value of the IR£ will continue.
Just as important to investment perceptions and indeed to interest rates is the fiscal stance. A public debt which continues to decline as a share of GNP, lessening the burden of debt/service and the associated need for taxes, is essential if the gains of recent years in terms of improved interest rate differentials are to be consolidated and built upon. This is one of the reasons we are committed to bringing the debt/GNP ratio down towards 100 per cent by 1993. The other is to remove the risks that go with having a debt/GNP ratio that is too high. We have already achieved very significant progress in that regard with the debt/GNP ratio falling from 131 per cent in 1987 to 119 per cent in 1989. I expect that the final figures for this year will show a further significant reduction in the ratio.
Continued moderation in cost developments right across the spectrum is a third vital ingredient. I say "right across the spectrum" because I want to emphasise that its not just a matter of wage moderation. We must all be prepared, employers and workers, sheltered and exposed sectors alike, to tailor our demands to a basic reality. Our costs cannot outpace — indeed, must rise more slowly than — those of our narrow-band EMS partners if we are to prosper in the years ahead.
This brings me to a fourth strand of policy — structural reform. Old ways of organising our affairs are far from ideal in the integrated world markets of the nineties; and have not delivered adequately, down through the years. We have to get our priorities right. Public policies must concentrate on the avenues which best enhance our capacity for growth, while underpinning the position of the genuinely disadvantaged. We have to get our incentives right. Effort and enterprise must obtain fair reward.
We have to utilise all our resources to the best effect. If changes in existing practice or regulation can better serve our aims for growing employment and income, we must bring about these changes. We must use the resources we can devote to social policies so that they have the greatest possible impact in tackling real social problems and help the genuinely disadvantaged as much as possible.
The economic and budgetary strategy we have followed for the past few years has been clear, consistent and credible and it has delivered results. It is essential that we build on those results.
The Government welcome the report of the National Economic and Social Council, A Strategy for the Nineties. This report states that the outstanding lesson of the Programme for National Recovery 1987-1990 is that economic stability and a competitive development of incomes are vital to economic progress. It sees continuity in the fiscal policies, which have been so successful under the programme, as essential. It endorses the Government's key fiscal target of a national debt/GNP ratio of about 100 per cent by 1993, and also recommends that the current budget deficit and the EBR be kept on a sustained downward path in the interim. The council consider that to achieve these goals, there should be no real increase in public sector activity on average over the years to 1993.
The economic environment within which our economic and budgetary policy will operate and develop in future years will be different to what it has been up to now. The European Community dimension, consequent upon our participation in economic and monetary union, will assume increasing importance. Indeed, we have already embarked upon the first stage of that union which will see closer co-ordination of economic and monetary policies generally.
Starting on Saturday last, 15 December, the Community began negotiations on the Treaty amendments necessary to secure EMU. Fundamental to the success of that union will be sound and sustainable financial and budgetary conditions. Agreement has already been reached that excessive budget deficits will be avoided. Furthermore, monetary financing of budget deficits will be expressly prohibited. Both these measures will be reflected in the text of any amended Treaty which emerges from the conference on EMU.
With the entry of sterling into the exchange rate mechanism of the European monetary system, a welcome element of stability has been introduced into the management of our economy. Another vital element of stage one is the complete removal of exchange controls. We have already moved a long way towards our goal of full capital liberalisation. Recently I announced a series of significant measures, which will advance our progress further.
The true test of the value of the economic and budgetary strategy which we have been pursuing is whether it actually delivers results. By any standards, the progress achieved already has been remarkable. Growth in output and employment has been strong, inflation has been low and very substantial progress has been made in correcting budgetary imbalances.
The average rate of growth in real GNP of 4 per cent in the period 1987 to 1989 was double the rate achieved in the early eighties and was higher than the average of about 3½ per cent in the European Community as a whole. This year GNP growth is likely to be close to 5 per cent — broadly similar to the 1989 performance and again will be ahead of the expected EC average.
This recovery in our economic performance over the last few years has not been confined to a narrow area of activity. It is broadly based, covering both the foreign sectors and the domestic economy. There has been a significant increase since 1987 in the volume of personal consumption, in contrast to the first half of the eighties. The combined effects of increased disposable income following growth in employment, cuts in personal taxation, increased consumer confidence, and falling interest rates were largely responsible for this turn-about. The strong performance of the tourist industry, as borne out by the increase in the number of people visiting this country in recent years, has also undoubtedly played a part.
While consumer spending increased by 5¼ per cent in 1989, some slowdown in the growth rate is indicated by the trend in retail sales in 1990 to date. Nevertheless, personal consumption is likely to increase by about 3½ per cent this year.
A major element of economic strategy has been to lower inflation and to keep the rate of increase in our costs in line with, or preferably, below that of our trading partners.
Before the Gulf crisis broke, inflation here had been brought down to just under 3 per cent — around the same as the German rate and well below the double digit level then prevailing in the United Kingdom. While the higher price of oil was an inflationary force this autumn, its impact was more than offset by lower food prices, lower import prices for other goods and — most importantly — by our own sensible behaviour in regard to wage increases under the Programme for National Recovery.
A most encouraging feature of recent economic developments has been the very strong investment performance. Last year, after a period of almost continual decline since 1982, investment grew strongly with both the main components of investment — machinery and equipment and building and construction — contributing.
Investment is again performing strongly in 1990. In the first ten months of the year, imports of capital goods were up by an estimated 8 per cent in real terms on the same period in 1989, indicating that business is continuing to invest in new machinery and equipment. In the building and construction area, activity remains strong particularly in areas such as infrastructure assisted by the EC Structural Funds programmes, and commercial construction.
Industrial output has also been quite buoyant in recent years, rising at an average rate of just over 9 per cent between 1987 and 1989. The manufacturing sector has been the main source of this growth. High technology sectors were to the forefront in the earlier years. However, more recently the contribution of the traditional sectors improved.
This year industrial output has risen by just 4 per cent in the first eight months. This slowdown relative to last year's growth has been most evident in the high technology sectors. The remainder of manufacturing, which includes the more "traditional" sectors, has maintained satisfactory growth.
The balance in our trade and payments with the rest of the world also improved considerably following decades of deficits in the current account. We are now paying our way in the world. In 1988 and 1989 we had a balance of payments surplus of around 2 per cent of GNP and the surplus is being maintained this year.
This balance of payments surplus reflects: the continuing strong performance of our exports which have grown by an estimated further 8 per cent in volume in the first ten months of this year; increased Structural Funds transfers from the European Community under the Community Support Framework which are underpinning stronger investment and helping us prepare for the challenges of "1992"; higher EC agricultural transfers which are helping to ameliorate the difficult situation facing farmers this year in relation to agricultural exports and prices; and the increased numbers of tourists who visited this country this year.
Despite having to pay more for our oil imports, the balance of payments will remain in substantial surplus this year. With a surplus of over £400 million in the first half of the year, the current account surplus for the whole of 1990 should be in line with that of 1988 and 1989, if not better.
By far the most conclusive proof of the success of the economic strategy pursued in the last few years has been the growth in employment. The preliminary results of the 1990 Labour Force Survey indicated an increase in total employment of 30,000 in the 12 months to April 1990. All indicators in the period since April give clear evidence of further growth in employment: in the three months to June manufacturing employment — seasonally adjusted — increased by over 2,000, giving a net annual increase of 7,000. Non-agricultural employment growth has been better than I expected at budget time. Employment in the larger private sector firms in building and construction grew by 9 per cent in the first nine months of this year as compared with the same period last year. Private sector services employment has grown strongly, particularly in tourism-related areas.
Over the duration of the Programme for National Recovery, total non-farm private sector employment will have increased by about 70,000. This provides the clearest demonstration of the gains resulting from the consensus achieved under the programme and shows that further gains can be achieved if this consensus is renewed.
In 1989, we improved our competitiveness, in terms of hourly earnings in manufacturing industry, against most of our trading partners. Moderate pay increases, combined with a general fall in the Irish pound's exchange rate, made this possible. This year there has been some minor erosion of these gains, though not against the other EMS narrow band members, because of a strengthening of the Irish pound.
Despite the gains in employment, unemployment is still a major problem. For 1990 as a whole, unemployment, as measured by the live register, should fall on average by some 7,000. This fall is less than had been forecast at budget time. The shortfall is due to a slowing of emigration because of the deterioration in the UK and US economies. All the evidence points to this reduction in emigration, rather than any under-performance on employment growth as the explanation for the live register position.
This year's budget continued on the path of responsible financial management which is so important to economic progress. It was widely welcomed as a sympathetic and balanced response to the needs of those seeking jobs, of taxpayers and of the least well-off in the community, through a well-thought-out package of measures aimed at bettering job prospects on an enduring basis, improving the structure of taxation, and looking after those on social welfare and on low incomes.
It could be said that the 1990 budget represented the culmination of the Programme for National Recovery. It was, indeed, a justification of the overall economic strategy pursued in accordance with the programme, since it was the strategy's wider success that made these provisions possible. The measures introduced last January, together with the steps taken in 1988 and 1989, met in full the commitments given by the Government in the programme. In fact, they went further in many respects, making a significant start towards the objectives established in the Programme for Government. It should be clear to all that the difficult decisions we took over the past few years have paid off, not only by way of growth and jobs, but also in terms of enabling us to address the issues of taxation and poverty in a very tangible way.
I am glad to say that the improvement in budgetary performance is being maintained through 1990. The trends reflected in the end-September Exchequer returns indicate that the level of borrowing by the Exchequer this year would be broadly in line with the budget estimate of 2.1 per cent of GNP. Developments since then indicate the prospect of Exchequer borrowing coming in below the budget target for the fourth year in succession.
The main contribution to the good budgetary performance this year is once again coming from the buoyancy of tax revenue. Corporation tax revenues are running well ahead of expectations and PAYE receipts are also set to come in ahead of projections. Corporation tax receipts could end up over 50 per cent above the budget estimate. This dramatic improvement reflects, of course, the introduction of self-assessment for companies as well as the cumulative effects of the changes made in the corporation tax regime over the past few years. Though some of the buoyancy now evident may reflect timing factors, notably a bringing forward of receipts under the self-assessment system, the size of the increase testifies to the success of the Government's policy of raising the tax yield from the corporate sector.
The PAYE improvement reflects a combination of better collection from employers and a better employment performance than had been expected. At budget time, the expectation was that non-agricultural employment would increase by 16,000. The present indications are, however, that the actual figure could be over 20,000.
On the expenditure side of the 1990 budget, the indications are that there will be some overruns in the current and capital areas. There is also likely to be a shortfall in the planned receipts from the EC, mainly down to timing factors. The improved tax revenue receipts are, however, more than compensating for the higher expenditure and the lower EC receipts with the effect, as I have said, that the budget target should be bettered once again this year.
Setting the expenditure allocations for 1991 proved to be an extremely difficult task. A number of inescapable factors combined to put upward pressure on expenditure, such as the £100 million carryover cost of this year's budget welfare increases, the need for us to spend more on programmes attracting EC Structural Funds, and the carryover cost of sanctioned special pay increases. The Government were determined to avoid taking measures which would adversely affect the less well off, or would damage vital public services.
As in previous years, and notwithstanding pressures and demands for additional spending, the Government's approach in settling the Estimates was firmly based on the principle that there must be continuing constraint on expenditure. Public spending is and will remain under firm control. In its deliberations on the Estimates the Government actively searched for ways to reduce spending by curtailing allocations to programmes not deemed to be absolutely essential, and by seeking greater efficiency in the use of resources in all programmes, even the most essential. Allocations for 1991 were allowed to increase only where there were decisive economic or social arguments for it.
The results of our work are an increase of 4 per cent in the provision for non-capital spending in 1991, marginally above the projected inflation rate of about 3 per cent and an increase in Exchequer-funded capital investment of 5 per cent, with the total Public Capital Programme set to rise by 7 per cent. Total Exchequer-funded expenditure, current and capital, is set to rise by about 4 per cent.
I would like to emphasise that the work on the 1991 Estimates does not stop here. The Government intend to review the published Estimates allocations before budget time to seek out further reduction possibilities in the light of the emerging outturn figures for this year and the changing domestic and international economic environment. Other Government Ministers contributing to this debate will be discussing in more detail the implications of the Estimates for their own spending areas, but I would also like to make some general comments on the major spending allocations.
The provision showing the largest nominal increase in spending is that for the health services. The net total Vote for health in 1991 amounts to £1,355 million, representing an increase of over £100 million on the budget provision for 1990 and a cost of about £25 per week for every household in the country. When account is taken of the 1990 outturn, after the Supplementary Estimate of almost £38 million, the increase is about £63 million or under 5 per cent. This rate of increase shows that there is no relaxation on the part of the Government in maintaining control on health spending.
While respecting the constraints imposed by the need to bring order to the public finances, welfare rates since 1987 have been increased by this Government at least in line with the rate of inflation and, in some cases such as the long term unemployed, substantial additional increases have been given. In fact, nobody who must rely on welfare for support has been left behind in the general recovery in the economy.
The published provision for social welfare at £1,554 million is £78 million or 5 per cent higher than the 1990 budget allocation and reflects in large part the carryover costs of this year's budget welfare improvements.
We have also been both imaginative and innovative in our approach towards helping those on welfare. There have been new schemes such as the carer's allowance; an overhaul of the plethora of existing schemes for lone parents into a new, consolidated lone parent's allowance; and extensions such as the supplement to the fuel allowance scheme for additional smokeless fuel costs. These changes are the mark of a Government who are actively concerned about improving the plight of the less-privileged.
There has been inadequate recognition of the extent of the upratings and reforms in welfare provision carried through by this Government over the past few years. These have been expensive; improvements since 1987 account for about £500 million of 1991 gross social welfare expenditure before any 1991 budgetary increases. This should be borne in mind by those who propose additional welfare expenditures, proposals which at times are unrealistic by reference to our resources.
Given all that we have achieved on the welfare front, and the difficult budget facing us in 1991, it is essential that there is a sense of balance and realism in considering what can reasonably be achieved in the short term.
The Government's commitment to law and order is reflected in the 1991 allocations for the Justice group of Votes. Overall expenditure next year will increase by £30 million. Expenditure on prisons will increase by 11 per cent. We intend to significantly strengthen the staffing of the prisons and provision has been made for the recruitment of up to 170 prison staff, including medical orderlies, by reducing the very high level of overtime in the prisons. An extensive refurbishment programme is underway in St. Patrick's Institution. This will include significant improvements to the women's prison. The construction of an infectious diseases unit in Mountjoy will commence to provide the proper hygienic accommodation for offenders suffering from Hepatitis-B and the AIDS virus. I am also making provision in the education area for the construction in Finglas of a new centre for young girl offenders. The facility for boys at Ard Mhuire in Lusk which at present is not in use will also benefit next year from a major refurbishment prior to reopening.
The funds made available for the prevention of crime and traffic law enforcement have considerably increased over the past two years. In the coming year, funding is being provided to bring Garda numbers close to an all time high. Including recruits in training, numbers will increase to over 11,000 by the end of 1991. We will also have increased by the end of the current year civilian staff to a level of 600, thereby releasing an equivalent number of gardaí onto the beat.
Other areas which the Government intend to strengthen include the scheme of civil legal aid and advice and the Garda Síochána Complaints Board. The financial allocations for both these bodies are being substantially increased. Deputies may have noticed that the financial provision for the Criminal Injuries Compensation Tribunal is being reduced for next year. However, a Supplementary Estimate for £4 million has been introduced this year to significantly reduce the backlog of outstanding awards.
The provision for Exchequer pay and pensions already included in the Estimates is £3,264 million, an increase of 4.5 per cent on 1990. The pay and pensions bill now accounts for almost 54 per cent of total net spending on non-capital supply services.
Deferred implementation of the full costs of special pay increses under the Programme for National Recovery gave the Exchequer some breathing space during 1988, 1989 and 1990. However, large liabilities have accrued which fall to be met in 1991 and 1992. These commitments are now placing a considerable and increasing burden on the Exchequer.
The 1991 Abridged Estimate Volume already includes an additional £54 million in respect of the cost of sanctioned special pay increases. The outcome to a number of other claims, which are currently being processed, is expected shortly. A further provision will have to be made in the 1991 budget for any increases in pay recommended on foot of these claims.
Negotiations are taking place on a new pay agreement as part of the current discussions on a new programme for economic and social development. The cost of any general round increase that may be agreed will have to be provided for next year. It is not possible, at this stage of the negotiations with the social partners, to predict the level of increase that may emerge.
The numbers employed in the public service in 1990 averaged approximately 197,000. It is expected that there will be a slight increase in numbers in 1991 to around 198,000. This is due mainly to increased staffing levels in the health sector because of the implementation of the 39 hour week and improvements in the child care and mentally handicapped services.
While recruitment may be permitted in areas of particular need, the emphasis in 1991 will continue to be on consolidating the reductions in staff numbers already achieved. There is no question of a general resumption in public service employment creation.
On the question of the costs of running the Civil Service administration, I said as far back as my 1989 Budget Statement that I was examining the possibility of fixing Departments' administrative budgets on a three year cycle which would involve a real reduction in funding each year because of greater efficiency but which would allow greater managerial flexibility within these budgets. A three year administrative budget has already been agreed for the Department of Social Welfare. Under this agreement the management of the Department of Social Welfare have certainty in relation to the administrative resources at their disposal for the next three years and much greater discretion as to how they deploy these resources. In the context of settling the 1991 Estimates, the Government decided that these arrangements should be extended to all Departments by 1 March 1991 at the latest. I am certain that this approach will stimulate improved management practices in all Departments while at the same time ensuring that the cost of running the Civil Service remains in harmony with the Government's overall public expenditure plans.
This year the Abridged Estimates Volume shows for the first time the allocations of national lottery funds for 1991. Lottery funded items are provided for the identified subheads in the relevant Votes, while an annex at the end of the volume brings them all together. This presentation was used in the Revised Estimates Volume for 1990 but this is the first time lottery allocations have been listed in the Abridged Estimates Volume.
Nineteen ninety-one will see real growth in the Public Capital Programme for the second year in succession. The 1991 programme, at £1,811 million, is 7 per cent up in cash terms on 1990.
Exchequer-financed expenditure is up by £39 million while non-Exchequer financed spending, which consists for the most part of spending by the commercial State-sponsored body sector, will grow by £79 million. The Exchequer will spend an additional £50 million during 1991 on PCP programmes supported from the EC Structural Funds. In order to accommodate this, aggregate expenditure on other Exchequer-financed programmes has been reduced. The Government are confident that the higher level of public sector investment next year will consolidate recent upward trends in the construction industry.
The provision in the PCP affecting the building industry is £51 million, or 5 per cent higher than that provided in the current year, with a £15 million increase for roads, £12 million for construction in tourism areas, a £14 million increase in industrial sector construction and an increase of £24.6 million in the Exchequer's provision for local authority housing.
The allocation for agriculture is up by 10 per cent to £126 million. This increase reflects, in the main, spending under the integrated rural development programme, which is an operational programme under the Community Support Framework which we expect will be approved shortly by the Commission, and for which £11.5 million Exchequer funding has been allocated as against less than £1 million this year.
Tourism allocations will increase by more than one third from £43 million to £58 million. The operational programme for tourism under the Community Support Framework provides for an extra £10 million for Bórd Fáilte and for SFADCo for first, a scheme of grants to private operators for non-accommodation tourism projects, and second, grants to local authorities and regional tourism bodies for non-commercial tourism projects. There will also be a major expansion of investment in forestry, again under the Community Support Framework.
A major expansion in Exchequer investment in regional technical colleges from £8.5 million to £14 million is also provided for. This is being supported under the Community Support Framework and provides for the building of Tallaght RTC and the enhancement and replacement of existing RTC/DIT buildings.
What I have said makes clear the important influence which the Structural Funds now have on our spending and investment programmes.
The Community Support Framework for Ireland concluded more than a year ago has been translated into increased spending at programme level. Already nine of the operational programmes under the CSF have been approved and the remaining three programmes — rural development, vocational training infrastructure and training of trainers, and objective 4 — occupational integration of young people — are expected to be approved shortly.
The total commitments made to Ireland in respect of 1990 expenditure amounted to 631 MECU or almost £487 million. The commitments for 1991 will amount to almost 767 MECU or £591 million, which shows an increase of 21.5 per cent over the commitments relating to 1990.
I now want to deal with prospects for the coming year. The Government are now engaged in important negotiations with the social partners on a new programme to succeed the Programme for National Recovery. It is our aim to achieve the same type of consensus in this new programme as we did in the PNR. The objectives for the economy have not changed; they are to maximise sustainable employment growth and to continue the path of fiscal adjustment. In order to attain these twin objectives the terms of any new programme must ensure that we have pay moderation so that we can continue to improve our competitiveness against our narrow-band EMS partners in Europe. This is essential if we are to have the investment and employment growth which the economy requires, particularly with the completion of the internal market coming ever closer. These terms must also be consistent with the Government's medium-term fiscal objectives which have been endorsed by NESC.
At the beginning of the PNR, our economy was in dire straits but the international environment was good. Since then our economy has improved considerably and is now much healthier than in 1987, but the external environment facing us in 1991 will be a lot tougher. The short term outlook for our major trading partners has, at least temporarily, been clouded both by the Gulf crisis and by the advent of recession in the United Kingdom and the United States. It would be unrealistic for us in this country to expect to remain immune from the impact of a slowing down in our export markets. Slower growth among our trading partners places an even greater onus on us to remain competitive so as to increase our share of markets which are less buoyant.
Despite the Gulf situation and the more pessimistic view of the external environment, the domestic economy is still growing at a satisfactory pace though somewhat less quickly than in the recent past. The inflationary impact of the Gulf crisis in 1991 may not be too severe because the substantial fall in the exchange rate of the dollar against the EMS currencies this year has mitigated the impact of higher oil prices on import prices.
However, the potential inflationary impact of the crisis would be much greater if price increases were also to include extra profit margins or if workers were to seek compensation for the transfer of purchasing power to the oil producers. Accelerating inflation, loss of confidence in the economy, declining employment and rapidly increasing unemployment could follow. However, if the crisis is peacefully resolved, as we hope it will, we can expect oil prices to fall with a resulting easing of inflation.
It is generally accepted that oil prices have risen so rapidly and are remaining so high because of uncertainty and the risk of war in the Gulf rather than because of any major shift in the fundamental balance between supply and demand for oil. When the Gulf crisis is resolved oil prices may begin to fall again fairly quickly. All of us, Government, business and trade unions alike, should bear in mind in our assessments the likely rate of inflation for next year and beyond. We must not allow present uncertainties to distract us from the longer-term fundamentals which on the whole are favourable.
That the 1991 budgetary position for next year is particularly difficult is evident from the published Estimates. There is a small real increase in overall allocations. On budget day, provision will have to be made for agreed special pay increases, in addition to the cost of any new general pay agreement and for welfare improvements. It is abundantly clear that there will be very limited room for manoeuvre in next year's budget if we are to stay on course for our medium-term goals.
Beyond any temporary slowing down which may occur in 1991, the longer-term prospects for growth in our trading partners, especially our continental European Community partners, are still very promising. How much we can benefit from this depends greatly on our own conduct. We as a Government, will continue to implement the appropriate economic policies. Likewise, businessmen and employees should appreciate the pay-off in terms of job security and real gains in disposable income which continued cost moderation delivers. Business, in particular, must plan to exploit fully new market opportunities especially in the Europe beyond 1992. If we continue to pull together sensibly, I am confident that we can look forward to stronger economic growth in the medium term.
