The framing of next year's spending Estimates and the putting together of the overall budget for the year ahead takes place against a background of very difficult economic conditions. These conditions demand a political response that is imaginative and caring but one which is also firm and fiscally responsible. The unemployment crisis which sadly is set to worsen in the year ahead is the overriding priority of the Progressive Democrats in Government. The thrust of the recently revised Programme for Government for the next two and a half years is focused on that issue. That is why so many of its provisions highlight the need for major changes in how we run our affairs, including such fundamental matters as industrial policy, tax reform and major institutional change at both central and local government levels.
The challenge here is to bring imagination and efficiency to the way Government operates. A caring ethos also prevades the work of this Government in framing the Estimates and in preparing next year's Estimates. It is essential that our social services in health, education and social welfare combine to ensure the welfare of the weakest and the less well off in our society, and protects them from the economic retrenchment that must follow at times of worldwide economic recession. We must also have an approach that is firm and fiscally responsible. The economic fortunes of this country in line with some of the world's leading economies, notably the US, Britain and many of the European Community countries, having worsened over the past year. As a major exporting country with a small open economy we cannot insulate ourselves from the effects of recession overseas.
The turnaround in the country's economic fortunes has been sudden and dramatic. In 1990 we experienced a record growth of 7.5 per cent GNP. The total number employed, according to a labour force survey, increased by 36 per cent and unemployment reduced somewhat. This year as a result of the biting international recession economic growth has ground nearly to a halt. The increase in the workforce has outpaced the growth in employment and with a dramatic reduction in emigration, along with the influx of returned emigrants, we continue to experience further growth in unemployment. The situation facing us is very grave on a number of fronts besides the unemployment crisis, the level of public debt while still falling remains unacceptably high. Servicing the interest payments of this debt alone consumes three-quarters of all income tax receipts or £2.4 billion approximately and we continue to add to the debt mountain. Our borrowing requirement for 1991 will be higher than that achieved last year and in cash terms will turn out at about £600 million. That is why it is misleading and irresponsible for some people to claim that because the pace of fiscal correction in the past few years has exceeded target, we can afford to further loosen borrowing next year. That would be fine if we did not have the overhanging debt mountain of £26 billion.
There are some very positive economic features amidst the gloom of the present situation. Employment levels in industry have held up very well. This is in marked contrast with the dismal performance of manufacturing industry during the previous recessional periods of the seventies and the mid-eighties. Employment in the services sector has continued to grow. The preliminary labour force survey studies for 1991 suggest that an overall increase of 27,000 jobs was achieved in this sector over the last two years.
Our trade balances remain very healthy. Our most recent figures for September show the best export figures in 18 months. The Progressive Democrats are confident that if the various sectors of our community continue to pull together, we can as a nation win the battle against high unemployment, high taxation, excessive debt and poor economic growth. The Progressive Democrats are convinced that the solutions to these problems require a series of inter-related responses.
Firstly, we must recognise that the unemployment crisis in our society cannot be cured by short term expansionary budgetary measures. Our existing level of debt is far too high to contemplate that. Our debt must be reduced and we must bring our current budget into balance. That is why the revised Programme for Government's mid-term target of reducing the EBR to 1.5 per cent by 1993 is crucial, as is our target of reducing the current budget deficit to 1 per cent by the end of 1993. In particular, we must reduce our borrowing for day to day spending purposes. It is indefensible that we as a nation continue to run up bills that our children will have to pay. We must learn to live within our means.
Investment in our economy is sensitive to the overall level of fiscal stability and to the Government's capacity and determination to underpin it. We must also recognise that the goal of participating in European Monetary Union at the earliest possible time is dependent on maintaining certain macro-economic targets, which are in themselves prudent and desirable for any properly managed economy.
We must also recognise that, along with fiscal stability, other structural reforms must also be undertaken. In this area the Progressive Democrats lay particular emphasis on the need for major tax reform and to remove its distorting and inhibiting impact on work, effort and enterprise.
The gross Book of Estimates published on Tuesday allows for a 3.9 per cent growth in public spending next year. This exceeds the likely rate of inflation and therefore involves a real increase in spending. One-quarter of the increase, however, is to cover the projected rise in the live register.
The Estimates do not provide for potential pay increases of £70 million for public servants, and neither do they anticipate the possible budget day increases for social welfare recipients. These are matters to which the Government must give further attention over the next month in framing the budget. It is possible, therefore, that these Estimates will have to be further revised, and cut back next month when the overall budget aggregates are firmed up.
The Progressive Democrats are committed to ensuring that the overall borrowing target, or EBR, does not exceed 2.5 per cent of GNP in 1992. We recognise that in the current economic climate, achieving this will be difficult and we cannot rule out further expenditure cuts to achieve this.
It can be seen from the individual departmental Estimates where the additional spending arises, compared with this year's projected out-turn. Additional spending is limited to a small number of Departments, and increases in education, health and social welfare make up over three-quarters of the total. Many Departments will experience cuts in real terms.
The issue of public sector pay has loomed large in recent months and the slump in economic growth has obliged the Government to adjust the pay proposals contained in the Programme for Economic and Social Progress. Such a move, while regrettable, is provided for in the programme when sufficient levels of economic growth are not realised. The public sector wage bill amounted to £3,160 million in 1990. Next year, with the revised pay arrangements presented to the unions last week, it is set to rise to £3,681 million. This represents an increase of 16.5 per cent over two years, when inflation will be less than half that over the same period. It is questionable whether we can even afford this level of increase, not to mind increasing it by a futher £100 million as we are now being urged to do by the unions.
I would ask all public sector employees to reflect on the economic and financial difficulties which the country and the Government now face. I am sure that most public servants would not welcome futher increases in taxation to meet the Exchequer's wage bill, nor do I believe that workers or trade unions want to see public services cut back further to provide the money which the Exchequer does not otherwise have.
I can understand the annoyance and upset of workers at having to countenance further delays in wage increases which they had expected, but the plain truth is that the Government have sought to go as far as we possibly can in trying to meet next year's projected wage bill. I am conscious too, that an appeal for further sacrifices on the part of public servants is made all the more difficult in the light of the recent business scandals that have unfolded. Workers, like teachers, nurses, prison officers soldiers and gardaí providing vital public services, can rightly ask why they should go without legitimate pay demands while a handful of people in this country can apparently amass millions of pounds, with little or no tax liability.
The Progressive Democrats share that sense of outrage and that is why we, along with the whole Government, are pursuing the various public inquiries so zealously to ensure that any proven wrong doing in these recent business transactions will be properly dealt with.
It is also evident from these recent business scandals that some aspects of our taxation laws, and our tax enforcement and collection systems are in need of overhaul. The Progressive Democrats are fully committed to such initiatives, and a particular measure in the agreed Programme for Government, proposing the introduction of a universal ID system, would be a major step forward in this regard.
I hope that in the coming budget it will be possible to introduce this measure, and to provide for the application of a universal ID number to all business and financial transactions. Through that one measure, decisive action could be taken against tax evasion and the black economy and it could be the foundation of greater social equity in our society.
I would also remind public sector workers, and workers generally, that the Government's tax reform programme will give many of them more money in their pocket. It is surely preferable in our present economic circumstances that improved take-home-pay arises from tax reform rather than increased Exchequer payroll costs.
Turning now to my own departmental responsibilities, the net Energy and Forestry Estimates for 1992, of £6.4 million and £9.5 million respectively, represent only a fraction of 1 per cent of the total 1992 Estimates for Public Services. Net expenditure in my Department has been reduced by 41 per cent over the past four years. The over-riding policy objective of this Government in relation to energy is to facilitate its provision at competitive cost, with every possible regard to security of supply, along with environmental and safety concerns.
The strategic importance of both the Whitegate Refinery and the Whiddy Oil Terminal was brought to the forefront by the Gulf conflict earlier this year. Officials of my Department, together with the INPC, are continuing to evaluate projects for the modernisation of the refinery, and upgrading of the oil terminal to further underpin supply security and reduce costs.
Natural gas now accounts for over 15 per cent of primary energy demand. Against this backbround, and to provide for assured supplies into the future, I have, as the House knows, given the highest priority to planning for interconnection with the UK gas grid. The project is on target to meet its completion date of October 1993.
I am pleased to announce that the Government have today given final approval for this project which they estimate will cost about £250 million. Following my meeting with Commissioner Millan last week I was satisfied that the project would receive 35 per cent grant support under the EC Regen Programme and I am glad to be able to inform the House that the formal decision confirming a Regen grant of over £80 million has just been made this afternoon.
One of my main priorities as Minister for Energy is to bring this project to effective implementation. Because of the critical reliance on one source of supply gas interconnection had to command priority.
The linking with European energy grids will not, however, stop at gas and I have already asked my Department and the ESB to look at ways which will best facilitate the bringing forward of an electricity interconnector as well. My ultimate aim is to ensure that we can provide secure sources of energy for our industry and services at internationally competitive prices.
It is hoped that the recently negotiated agreement with Marathon Petroleum Ireland Limited, which will involve the drilling of seven exploration wells in the period to 1996, will also help to provide domestic supplies of gas into the future.
In 1991, the demand for electricity has continued to grow at over 5 per cent per annum. If this trend were to continue it would draw closer the time when extra generating capacity would be required.
On the nuclear side, the most important development this year has been the passing of the Radiological Protection Act, 1991, providing for the establishment of the Radiological Protection Institute of Ireland, to replace the existing Nuclear Energy Board. I hope to formally establish the new institute early in the new year.
On the issue of minerals exploration, I am aware that the whole issue of mining gives rise to great and understandable concern on the part of those who, like myself, wish to see our natural environment preserved. I would like to take this opportunity to say again clearly that it is Government policy to facilitate the exploitation of the mineral wealth of the country only where this can be done in an environmentally acceptable way.
Bord na Móna derive about 60 per cent of their turnover from milled peat sold to the ESB at a price agreed between the two boards. The remainder of their products are sold on a competitive basis into the solid fuel and horticultural markets.
The company's financial situation continues to be a cause for concern in spite of the price it receives for milled peat sold to the ESB. The report recently published by the Oireachtas Joint Committee on State-Sponsored Bodies generally confirmed the conclusions of my Department and their consultants.
Rationalisation and further cost reduction appear to be inescapable. In these circumstances, and in the present financial situation, it is not possible to provide Exchequer aid for the company, but I am satisfied that a substantial reduction in debt can be achieved without it.
Energy conservation is acknowledged as a potentially significant contributor to redressing environmental damage, as well as reducing costs to energy users. A sum of £300,000 is being provided in the 1992 Estimates for energy conservation activities.
The Government have identified forestry as a key development activity, and the increased resources being allocated to the Forestry Vote in 1992 is ample testimony to the Government's commitment to this.
The gross Forestry Vote for 1992 shows a 42 per cent increase over the outturn for this year which is largely offset by an increase in EC funding. Nearly all of these additional resources are being channelled into afforestation grants and forestry research. It is very much a case of putting the money into areas where the maximum wealth creation and employment benefits will accrue.
I am very pleased to be able to report to the House that the level of afforestation in 1991 will be a new record high. I expect that the combined planting by Coillte Teoranta and the private sector this year will exceed 23,000 hectares.
We cannot, however, rest on our laurels. It is of vital economic and strategic importance to our economy that the area under forest in Ireland be increased from its present level of around 6 per cent to a level, over time, which is more closely aligned with the EC average of 24 per cent. The drive towards increased afforestation must continue. The expansion of planting and wood production in the public and private sectors planned under the Programme for Economic and Social Progress will generate upwards of 300 extra jobs, gross, in 1992.
The public forest estate of some 400,000 hectares which transferred to Coillte Teoranta on 1 January 1989 is a major asset base and resource which the company must manage and develop on a commercial basis. This year, Coillte Teoranta will plant 12,000 hectares, more than 50 per cent of total national planting, and I expect a similarly good performance from Coillte Teoranta next year.
Timber production from public forests has increased steadily as a greater percentage of the estate reaches exploitable age. Revenue from timber sales in 1990 increased by 16 per cent to nearly £32 million. Unfortunately, the market situation has deteriorated since the last quarter of 1990. There has been a weakening in demand for construction timber in Ireland and for palletwood and fencing in Britain. This situation has continued in 1991 but Coillte Teoranta still expect timber production to be reasonably close to last year's level.
Production from public forests is set to rise to 2.3 million cubic metres by 1995 and to over 3 million cubic metres by the end of the century. This increase will allow Ireland to become a major exporter of timber products, and will transform Coillte Teoranta into a very profitable and financially sound company.
I am very pleased also to record the exceptional level of expansion in private forestry in recent years. Last year an all time record level of planting of 9,217 hectares was achieved. This year, planting by the private sector is projected to exceed 11,000 hectares, of which it is estimated more than half was by farmers. I intend to see this progress continue well into the future because forestry can play a very important role in supplementing rural incomes.
The voted allocation of £15.64 million in 1992 for private forestry development will support planting of over 13,000 hectares, the building of over 20 kilometres of private forestry roads, investment in forestry harvesting machinery and various other back-up measures.
In promoting increased afforestation, it is essential to ensure that such development is compatible with the environment. While the primary objectives of forestry are to produce raw material and create wealth and employment, particularly in rural areas, its potential effects on wildlife habitats, the landscape and recreation and leisure cannot be ignored. The grant schemes operated by my Department have been structured to encourage the establishment and management of forests which contribute positively to the environment.
