Vol. 422 No. 4
5 Mr. Noonan (Limerick East) asked the Minister for Finance if he will make a statement on the opening budgetary position for 1993 on the basis of the Exchequer returns at the half-year position, and having regard to the commitments already made in respect of expenditure in 1993 and the loss of yield to the Exchequer coming from changes in DIRT and the application of VAT at the point of entry.
The end-June Exchequer returns showing total Exchequer borrowing of £647 million in the first half of the year were broadly in line with expectations and compare very favourably with the position at the same stage last year. Tax receipts are performing satisfactorily, and although the 9 per cent increase on the yield during the first six months of 1991 will drop back as the year progresses, there should be a margin sufficient to cover much of the emerging upward pressure on social spending. In any event, the Government are reviewing the potential for securing savings so as to ensure that expenditure will be held as closely as possible to the budget provisions. In consequence, I do not expect the EBR out-turn to exceed significantly the budget target.
As I indicated in my statement on their release, the end-June returns provide further evidence that the Irish economy continues to turn in a creditable performance against a difficult international background. They indicate that the view of economic prospects that underpinned the 1992 budget is being substantially borne out. I am particularly pleased by the confirmation the revenue returns give, in the payroll-related components, that employment is holding up well. Nevertheless, the unfavourable economic trends abroad, whose knock-on is directly affecting the unemployment figures, undoubtedly make it more difficult to achieve the employment gains we need. For that reason, it is vital to preserve the domestic conditions that were of decisive importance in reviving growth and turning around employment over the past few years — especially the budgetary discipline.
I am well aware of the challenge that faces me in framing a budget for 1993. I have already acknowledged that the slow international recovery, with its indirect implications for certain spending areas, makes for a more difficult scenario than had been anticipated last autumn. Moreover, there are, as the question recognises, additional pressures arising from certain factors that come into play in 1993, particularly on account of the EC internal market.
I can assure the Deputy that notwithstanding these pressures the Government are determined to bring in a budget which both accords with the need for prudent management of the public finances, keeping us on course for participation from the outset in European Monetary Union, and otherwise contributes to economic and social progress. As regards the ending of VAT at point-of-entry on goods sourced in other EC member states, I have already announced my intention to provide in a supplementary 1992 Finance Bill for measures to offset its adverse implications for Exchequer cash-flow. The Government's commitment to ensure that public expenditure for 1993 is kept within the tight bounds necessary in these circumstances is also made clear in the strict parameters that I have laid down in the Estimates circular recently issued to Departments.
(Limerick East): I thank the Minister for his reply. Would he confirm the remarks attributed to him in the news media that the Government have now abandoned their medium-term fiscal targets for 1993; that the Government do not intend to bring in a broadly balanced budget, as stated in the Programme for Government, and that his intention to bring in a current budget deficit in excess of 2 per cent is Government policy? If that is Government policy, I put it to the Minister that that is undermining confidence in the economy, is undermining his credibility, will tend to continue upward pressure on interest rates and is not consistent with the targets outlined by the Taoiseach, and by Cabinet, during the Maastricht Treaty debate to bring Ireland to the position in which it needs to be in 1997 consistent with European Monetary Union.
What the 1993 EBR will be is a matter that will be decided about Christmas time. I assure the Deputy that no decision for next year has been made, six months earlier than usual. What I said and what was correctly attributed to me by the news media was that the factors that underlined the 1.5 per cent EBR for 1993 in the Programme for Government were based on certain economic facts and indicators. Those figures differ in two major areas. Unemployment is now about 31 per cent higher than it was in the earlier part of last year, to which the Department of Finance figures used in the discussions between the Government parties held a little later than this time last year, related. The cost in the unemployment area is £100 million and a combination of other elements come to approximately £100 million. There is social welfare indexation, and other non-pay aspects agreed for inclusion in the targets for this year and next year. Social welfare indexation stood at 3.75 per cent, based on the long term unemployment figures of 6 per cent. Social welfare carryover figures also were not fully reflected. If one were to make a direct comparison between what the targets were last year when we discussed the Programme for Government and the parallel position now, those figures would suggest an EBR somewhere between 2.1 per cent and 2.2 per cent. That is the point I made. The Government have to reflect on the way that should be handled.
I should like to tell Deputy Noonan that 1993 will be an extremely difficult year. The cutbacks and the control on public expenditure that will be required for next year will be severe because of the Internal Market — which the Deputy referred to — and because the pay figures for next year show a requirement for an additional £350 million. What I was signalling last week was that the addition of another £200 million is something I do not believe will be possible. I did not upset the markets who have been indicating that since last February.
(Limerick East): I put it to the Minister that there is now widespread public belief that the Government have abandoned their medium term fiscal targets——
That is correct.
(Limerick East):——that there will be an extravagant increase in borrowing next year and that the budget wil not be in broad balance. Is the Minister aware that that is continuing to undermine his credibility as a Minister, the undermining of which commenced at the time of the budget and the Finance Bill, by the deferral of so many commitments to next year?
I remind the House that less than five minutes now remains of the time available for dealing with these questions.
I am sure the Deputy is not completely unaware of the markets' reactions to the budgetary targets in recent months and weeks and that there is great satisfaction with the six month figures, which were better than the markets had forecasted. I am glad all the financial markets in statements made following the publication of last week's figures were complimentary in relation to Government policies.
