Dáil Éireann debate -
Thursday, 19 Dec 1996

Vol. 473 No. 3

Book of Estimates, 1997: Statements.

Minister for Finance (Mr. Quinn)

I welcome this opportunity to address the House on the Government's 1997 spending Estimates presented last week. I welcome also the opportunity to reject some of the misleading and unjustified criticism of Government spending policy since the Estimates were published. Some of that criticism extended beyond the Estimates and called into question the soundness of the Government's management of the public finances and the economy. It has gone so far as to have us believe the Government's budgetary policy will lead us into economic crisis. Nothing could be further from the truth. The public finances and the economy have never been in a healthier state. I intend today to set the record straight on the facts.

I will deal with spending in 1996. The estimated outturn for gross current expenditure in 1996 is £12,268 million, an increase of £181 million over the budget estimate of £12,087 million. This outturn represents an increase of 6.7 per cent in nominal terms or 4.8 per cent in real terms over the 1995 base figure of £11,502 million, the 1995 actual outturn of £11,642 million less the £140 million exceptional equal treatment payments which we decided to exclude from the base. The figure of £12,268 million takes account of all the Supplementary Estimates voted by the Dáil. However, it is quite likely that, as usual, savings in departmental spending will emerge by end year. Taking those into account the increase in spending could be half a percentage point lower than the figures I quoted.

In my statement on the publication of the 1997 Estimates, I dealt comprehensively with the reasons spending overruns occurred this year. The circumstances which caused the greatest part of the excess spending in 1996 were exceptional and unavoidable. I give the House a categorical assurance that the spending overruns this year do not signal any diminution in the Government's commitment to control public spending.

The single biggest increases in current spending have been for the EU agricultural disallowances, or beef fines as they are known, and for additional spending due to the BSE crisis. Neither this Government nor any other Government could have avoided this spending. Those two items alone have added £113 million to gross current spending this year, more than half of the total estimated excess of £181 million. The actual budgetary impact is reduced since I provided for £50 million for the beef fines in my original budget.

It is clear, therefore, that the Government's ability to contain spending has been curtailed by events which were outside its control. That is not an excuse, it is a fact. I challenge anyone, particularly those critics on the Opposition benches, to tell me how they would have avoided incurring this expenditure. The allocation of additional resources to deal effectively with these problems was unavoidable. If we had not done so on BSE, for example, I am sure those critics who are now accusing us of reckless spending would be the first to accuse us of failing to deal with a major threat to the economy. They cannot have it both ways.

I make no apologies for the Government's decision to increase spending this year in a limited number of other areas where there was an overwhelming case for so doing. An example is the anti-crime package. I do not recall anyone on the Opposition benches criticising the extra spending involved when that package was launched. If anything the Government was accused of not having done enough.

The Government has decided to pay the Christmas bonus to social welfare recipients at a cost of £38 million. We can hardly be accused of reckless spending here. Are the Opposition parties prepared to say the Government should have refused to pay the bonus this year? Every Government since 1980, when the bonus was first introduced, has paid it, even when the economy and the public finances were nowhere near as healthy as they are now.

I will now turn to deal with 1997 expenditure. I stated on the publication of the 1997 Abridged Estimates and Summary Public Capital Programme that the Government had agreed a provision of £13,014 million for gross non-capital supply services expenditure post-budget. The principal ways in which additional resources provided for in the Abridged Estimates will be used is as follows. Significant additional resources have been allocated for FÁS training and employment schemes. This reflects the measures announced in the 1996 budget, including improved targeting of the community employment scheme at the long-term unemployed, the special jobs initiative which provides a whole-time jobs option for 1,000 places on the scheme and an increased level of training in projects supported by the scheme.

Community employment will provide 40,000 parttime places and 1,000 whole-time places in 1997.

Turning to education, the 1997 Estimate provides for a £70 million increase over the expected 1996 outturn. This provides for the cost of advances in the sector as well as for a number of recent initiatives. At primary level provision is made for the continuation of several important measures including the early start and breaking the cycle pilot initiatives for disadvantaged areas and the substance abuse programme. The primary pupil-teacher ratio will be reduced to 22:1 from 1 September 1997. At second level provision is made for extra participation in the restructured and improved senior cycle. A third level provision is made for additional participation in third level courses and the establishment of new third level institutions including Dun Laoghaire regional technical college and Tipperary Rural and Business Development Initiative.

Gross current spending on health will increase by £115 million in 1997 over the 1996 expected outturn. Provision is made for the full cost of developments phased in over 1995 and 1996. This will enable health agencies to continue with a wide range of programmes approved by Government including action on mental handicap, physical disability, psychiatric services, the elderly, child care and AIDS-HIV.

Gross current spending on social welfare is set to increase by £127 million over 1996. The additional resources provide for the full year cost of 1996 budget improvements, an easing of the qualifying criteria for some programmes and a response to the increased demand for certain programmes and services mainly caused by demographic factors. Those additional costs are partly offset by a projected fall in the live register. Provision of £39 million is also included for the payment of a Christmas bonus in 1997. This is being included in the Abridged Estimates Volume for the first time. If I had followed practice up to now, the increase in spending in 1997 shown in the Estimates would, as a consequence, have been less.

Ireland's total official development assistance spending in 1997 is estimated to amount to approximately £122 million or 0.31 per cent of GNP, a very significant increase on the 1996 figure of £107 million.

Turning to agriculture, increased resources for agriculture show the Government's commitment to taking the necessary measures to minimise the impact of BSE. To help tackle BSE better, the Government has provided the necessary finance including provision for the introduction of a cattle tracing system. There are also substantial increases in the provisions for restructuring agriculture through farmers' early retirement, the rural environment protection scheme and forestry development.

I made clear when the Estimates were presented that they did not include a provision for any further increase in public service pay costs beyond those provided under the current PCW agreement. Neither did they include any additional provision for the social inclusion dimension of a new national partnership although it is clear from what I have said that they provide more resources for measures which will help in some way in achieving social inclusion.

Since then, proposals for a new public service pay agreement have been negotiated. They involve an additional cost of £24 million in 1997. The negotiations towards a new national programme and, in particular, its social inclusion dimension have been complex and wide-ranging. They have been carried out with maximum commitment and dispatch by the Government and the social partners. The additional cost of the social inclusion dimension remains to be finally settled. I will provide for the additional costs of social inclusion in my 1997 Budget. I stress that I will not announce massive additional spending in 1997.

A major element of the social inclusion dimension will be the costs of the social welfare measures to be included in the next three budgets. A substantial provision towards the cost of the 1997 budget social welfare package, greater than the £80 million provided in my 1996 budget, is already included in the figure of £13,014 million. To that figure falls to be added the £24 million cost of the new public service pay agreement, giving a figure of £13,038 million. The final budget day figure will be somewhat higher than this, when the additional 1997 provision for social inclusion is decided.

I would prefer to be able to announce now what the post-budget figure will be, as I did this time last year but, for the reasons stated, clearly I am unable to do so. However, the House can rest assured that the figure I will announce in my budget will not be inconsistent with the overall 1997 budgetary framework already decided by the Government.

In 1997, Exchequer capital expenditure will amount to £1,574 million, all of which is allocated in the Abridged Estimates and Public Capital Programme, which I announced on 9 December.

The provisions in the 1997 Public Capital Programme reflect the ongoing investment needs of the economy and are in line with the Government's priorities in these areas: in Environment, an additional £55 million is allocated to national and county roads; £25 million extra to the local authority housing programme and following the Government's decision on the anti-crime package, £30 million extra is being allocated to the prisons building programme in 1997.

The Exchequer-funded Public Capital Programme will increase by 6.5 per cent in nominal terms and 3.6 per cent in real terms over the 1996 outturn, when Supplementary Estimates have been taken into account. It is estimated that, overall, the 1997 Public Capital Programme will result in volume growth of 9 per cent in publicly funded construction projects, which should help to sustain the healthy level of activity and employment in the construction sector.

I also stated last week that the Government has decided the overall framework within which my 1997 budget will be prepared. That framework is centred on a general Government deficit which will be significantly lower than the target of 2.6 per cent of GDP set in my 1996 budget — itself comfortably within the Maastricht guidelines. The level of the general Government deficit is the crucial measure of economic and budgetary performance. All other measures are secondary to it and 1997 will be a most important year as next year's outturn on the general Government deficit will be used to determine our eligibility to participate in economic and monetary union.

The fact that I can confidently predict that in both 1996 and 1997 the general Government deficit will be significantly below the Maastricht Treaty guideline of 3 per cent of GDP shows that the public finances are firmly under control. Deputy Bertie Ahern, on publication of the Estimates, remarked it is generally agreed that prudent management of the economy requires a substantial safety margin, given the Maastricht guideline of 3 per cent. I agree; the Government's programme stated two years ago it is appropriate in the case of Ireland that the deficit be maintained at a level comfortably within the Maastricht benchmark. The Deputy need not fear that the 1996 outturn, or indeed my 1997 budget, will fail to meet that Government aim.

The decided 1997 budget framework also allows for significant tax reductions, as promised in our Government programme. It is not the case, as some have argued, that spending increases are being allowed to crowd out tax reductions.

In my 1996 budget I announced tax measures with a full-year cost of £266 million, of which £225 million was for income tax and employee PRSI measures.

The concerns expressed inside and outside this House about the "excessive" increase in planned spending in 1997 are overstated. Certainly, taking 1996 and 1997 together, the increase in gross current spending in real terms will exceed the target of an annual average rate of 2 per cent for those years. However, the 2 per cent target should not be taken out of the context in which it was set in our Government programme. That programme said, and I quote:

...the Government is committed to firm management of the public finances throughout its period of office. In particular we accept the public debt philosophy and targets set out in the Maastricht Treaty.

...the implementation and phasing of all commitments in this programme will depend on their consistency with the requirements that the Exchequer borrowing requirement be kept prudently below 3% of GNP and the debt/GDP ratio be steadily reduced towards 60%.

These are the most important budgetary targets set in our programme. They have been, and will continue to be met. However, this does not imply any complacency on the Government's part about the level of spending. We remain resolutely committed to firm control of public expenditure.

It is important not to lose sight of the fact that the amount of national output absorbed by public expenditure remains well below the levels of the early 1980s. Gross current supply services spending now accounts for approximately 34 per cent of GNP compared to about 40 per cent in the early 1980s. Moreover, the percentage increase in real gross non-capital supply services expenditure in 1997 will be less than the real projected increase in GNP. Therefore, that spending will actually fall as a proportion of GNP next year as it did this year and last.

The Government is alert to the dangers of allowing spending to rise too quickly in times of fast economic growth, as we are now experiencing. We are very conscious of the danger of building up an unsustainable expenditure base on the back of the exceptional economic growth and revenue buoyancy which we have achieved in recent years. The Government is satisfied, however, that the level of increase in public spending it plans for 1997 will not add excessively to the existing expenditure base. As I said, the 1997 Estimates largely reflect the cost of continuing the existing level of departmental services with some limited improvements in certain services to reflect the Government's policy priorities.

We are determined that the benefits of the current record economic growth will be shared by all sections of our society, especially those in greatest need. Our Government programme is not simply about budgetary policy. It contains clear statements of policy on areas such as education, health, welfare, housing, and economic development measures. Implementing these policies requires additional resources. For that reason I have no difficulty defending the increase in spending provided in the 1997 Estimates and the modest, targeted improvement in public services consistent with our programme which it reflects.

Since the Abridged Estimates were presented, proposals for a new public service pay agreement have been negotiated. The Abridged Estimates Volume includes provisions for PCW commitments on general rounds and local bargaining increases. General round increases will add £131 million to the pay bill in 1997 as a result of the carry-over cost of the general rounds paid in 1996 and the 1 per cent payable from 1 January 1997. A sum of £110 million is provided in the Vote for Remuneration for the cost of the outcome of local bargaining discussions with teachers, nurses and other groups who have not yet completed negotiations. Overall, these commitments will add £241 millon or approximately 5 per cent to the Exchequer pay and pensions bill in 1997.

The pace of settlements in the PCW local bargaining negotiations throughout the public service in 1996 was slow. I hope these negotiations can be brought to a satisfactory conclusion at an early date. I need hardly remind all concerned that settlements must be within the cost parameters set out in the PCW, as this is what underlies the Estimates provision.

The new pay agreement, which will form part of the new national partnership, if accepted by all the parties, is intended to provide certainty on pay costs in the public service to the end of September 2000. The pay agreement will result in a 9.25 per cent increase in pay rates over 39 months. The increases will be the same as those in the private sector. However, in the case of the public service, there has been some recognition of the difficult position which the Government faces with the carry-over costs from the PCW. Instead of the full 2.5 per cent first phase applying from the end of the current agreement, the increase will apply in the public service only to the first £200 per week from 1 July 1997. This will secure savings of £36 million in 1997 while protecting the position of lower paid public servants. They will receive the full 2.5 per cent increase from 1 July 1997 on earnings up to £200 per week, that is approximately £5 per week. The balance of the increase, on income above £200 per week, will be paid in April 1998. Furthermore, the local level negotiations provision of 2 per cent, which applies from the middle of the second year in the private sector, applies in the third year of the agreement in the public service and is linked to the agreed process for delivery of the public service modernisation programme. As I remarked earlier, the additional cost in 1997 of the new pay agreement will be approximately £24 million.

I stress that the pay terms in the new partnership form only one part of the overall package on pay, taxation and public service modernisation. The public service has a vital contribution to make to our national economic and social wellbeing. To maximise this contribution, it will need to strengthen its capacity to manage strategically, to respond more flexibly to changing service needs, to deploy resources to best effect and to operate cost effectively. Underpinning these high-level aims, we need to develop new and more effective approaches to performance management appropriate to the particular needs of each sector of the public service.

The positive commitment by all sides to the modernisation of the public service as part of the new partnership is very welcome. The Government places great importance on securing delivery of its plans for reform in the various parts of the public service. With the other social partners, we are committed to developing the necessary action programmes in an open and participative manner.

When presenting my Estimates for 1996 this time last year, I expressed concern at the growth in the size of the public service in recent years. Since then we have succeeded in keeping numbers growth to levels consistent with the Estimates provisions taking account of priority social and economic needs. Increases have been sanctioned by the Government only where there is an overriding social and economic need. Obviously we cannot provide improved services in the health and education sectors without having some increases in numbers. Numbers in education have increased by an estimated 350 during 1996 and in health by approximately 600. We have also provided for the recruitment of extra gardaí in 1996 and 1997, as part of the anti-crime package. Garda numbers increased in 1996 by about 140. However, numbers have fallen in other sectors in 1996, for example in the Defence Forces, in line with planned restructuring of the forces, which involves voluntary early retirement and recruitment.

The number of civil servants has also fallen by about 250. The overall increase in numbers in the public service in 1996 is estimated at about 600, which compares favourably with an average increase of approximately 3,700 per annum in the preceding two years.

Some commentators have linked the Estimates to the state of the economy. That presents no problem for me since the economy is and will remain remarkably buoyant. Indeed, some alarmist comments forecasting that economic disaster could result from the policies reflected in the 1997 Estimates are unfounded. It would be useful to briefly remind the House of some facts that show the current robust state of the economy under this Government's stewardship.

The economic background to this debate remains positive. While all the data for 1996 is not yet in, GNP is expected to grow by about 6 per cent this year—considerably in excess of the average for our EU or OECD partners. This is the third successive year of high growth, which contrasts with the rather sluggish performance in the industrial countries generally over the same period. In contrast to earlier years, domestic demand has been the major contributor to overall growth. Personal consumption has been particularly strong. Low interest rates, improved labour market conditions and increases in real disposable income have contributed to buoyant consumer confidence, which is reflected in consumer spending. Retail sales in the first eight months of 1996 were nearly 7 per cent higher in volume terms than in same period of 1995. Car sales have been particularly strong, with new car registrations estimated to have grown by 32 per cent over 1996 as a whole.

Investment has recorded a further substantial increase this year, stimulated by a combination of low interest rates, foreign direct investment, EU Structural Funds and the general economic upswing. Capital goods imports in the first seven months have been buoyant, while the available indicators for the building and construction sector point to a further acceleration of activity this year. This is not a pattern of growth driven by higher public spending.

Price stability is a cornerstone of sustainable growth, and the economy's recent inflation performance has been satisfactory. The consumer price index rose by 1.6 per cent on average in 1996. The underlying inflation rate, which excludes mortgage interest payments, averaged 1.9 per cent in 1996 — the lowest rate recorded since 1960. Manufacturing output prices have also been quite subdued, falling by 0.3 per cent in the 12 months to October.

Ireland is a trading nation and the health of the external sector is essential to our overall economic well-being. Export growth has moderated this year, reflecting the sharp slowdown in some of our main European markets in the first half of this year, and also the impact of the BSE crisis on agricultural exports. As a result, export growth will be somewhat lower than in 1996, at over 10 per cent in real terms. Import growth will also be over 10 per cent in volume.

Acting Chairman (Mr. Kirk)

It may take some time to complete this speech. Does the House agree to allow the Minister to continue? Agreed.

Mr. B. Ahern

We enjoy listening to it.

Mr. Quinn

Delivering good news takes time.

Mr. B. Ahern

As long as the Minister does not believe it.

Mr. Quinn

The outstanding economic performance over the last number of years has led to a significant rise in employment. Over the past three years, non-agricultural employment, excluding schemes, has increased by an average of 42,000 per year. In 1996 alone, some 50,000 new jobs are estimated to have been created. The increase has been strongest in the services sector while industry has also recorded appreciable job gains, particularly in high-technology areas of manufacturing.

The strong performance of the economy this year has laid the foundation for continued growth over the coming years. Looking ahead, the prospects for 1997 to 1999 remain bright. Members will be familiar with the broad details of the outlook from presentations given by me and by officials of my Department during the past few months. This outlook is drawn from my Department's most recent medium-term benchmark projection.

The international economic environment underlying this projection is expected to be broadly favourable. Growth in the European economy is expected to be of the order of 2.5 per cent on average over the next three years, which is in line with EU Commission forecasts. Inflation in our main trading partners is expected to remain relatively subdued, so that there will be little externally generated inflation impetus. Given this background, we can expect a continuation of growth rates well above the EU or OECD average, but with some moderation from the truly exceptional increases seen in recent years. GNP growth is expected to be around 5.5 per cent in 1997 and 4.5 per cent on average in 1998 and 1999. Inflation is expected to remain subdued, at slightly over 2 per cent. Employment growth is expected to average 38,000 per year, with the increase next year somewhat higher than this average.

While the outlook remains positive, there are domestic and external risks to this outlook. Domestically, failure to maintain the combination of wage moderation and low budget deficits, which have underpinned our performance for a decade now, would have negative consequences for business and consumer confidence, interest rates, investment and economic activity. However, the obvious success of our current approach underlines the need for continuation and consolidation of these policies, a course which the Government is determined to follow. The principal external risk is that the recovery of growth in our main trading partners would be slower than expected, although the forecasts currently available could not be considered to be excessively optimistic. In fact, they suggest no more than a return to the long-term average rate of growth in Europe.

As regards inflation, our performance this year has been encouraging. However, we are no longer among the best inflation performers in Europe and we do not have any scope for complacency in this regard if we wish to meet the Maastricht criterion on inflation in 1997.

I would like to address concerns which have recently been expressed regarding inflationary pressures. Particular attention has focused on the Central Bank's recommendations in its recently published winter bulletin, where it noted that low inflation requires a firm exchange rate and modest wage increases. It recommended that fiscal policy should not be expansionary with any tax reductions being matched by spending restraint. It also adverted to the need to plan for the requirements of the Stability Pact within economic and monetary union and the future reduction of Structural Funds. I agree with these recommendations from the Central Bank because they reflect my concerns. Developments this year have been consistent with the Central Bank's prescription. In line with the policy stance set out by the Central Bank in its 1996 monetary policy statement, the exchange rate has been firm. The effective exchange rate has appreciated. Its average to the end of November this year was 1.8 per cent higher than the annual average for 1995.

As regards wage developments, the pay element of the draft agreement with the social partners represents a continuation of the wage moderation of the past decade, which has been such an important contributor to our current economic buoyancy.

The fiscal position this year has tightened with the general Government deficit now expected to be around 1.5 per cent of GDP, which is less than last year's outturn, despite slower growth. Looking to the 1997 fiscal policy stance, the proposed changes in taxation, which have been discussed with the social partners, will underpin moderate wage developments, as recommended by the Central Bank and reflected in the proposed pay provisions in the new national programme.

Taking the longer term perspective, I have been conscious for some time of the need to provide for the requirements of the Stability Pact and also the possible reduction of Structural Funds post 1999. The new system of planning the budget in a multi-year framework, which I announced in the 1996 budget, is aimed at putting the public finances into this longer term perspective. Fiscal strategy for the medium term will take explicit account of the need to meet the requirements of the Stability Pact and of the post 1999 Structural Funds position.

The 1997 Estimates do not signal any weakening of the Government's commitment to fiscal discipline. On the contrary, they are part of an overall budgetary framework which provides for a level of general Government deficit comfortably within the Maastricht guidelines. This framework will build on the significant progress already achieved in the prudent management of the public finances and will help to sustain the confidence which has been a major factor in the impressive performance of the economy in recent years.

I commend the 1997 Abridged Estimates Volume and Public Capital Programme to the House.

Mr. B. Ahern

The Estimates debate is sometimes an occasion for a more general review of Government performance but having had the opportunity to speak on Northern Ireland in the decommissioning debate and on Europe earlier this morning, I intend to devote my contribution to what I consider to be the Government's serious mismanagement of the economy.

The Government's complacency and self-satisfaction over the state of the economy are misplaced. It has done little either to create or sustain the boom, which started in 1993-94. The Government simply inherited it, managed it, and is in danger of squandering it. With economic and monetary union looming, this economy is on a tightrope. We cannot afford any mistakes. If the course of the economy is not corrected soon, we will head for the rocks because of the utter political recklessness of this Government as an election approaches.

The Minister makes much of Ireland's adherence to the Maastricht criteria. I am sure he is aware from the Report on Convergence in the European Union in 1996 of 6 November that the cyclically adjusted deficit was estimated by the Commission Services at 3.6 per cent. This year's budget target was much too high in an underlying sense. The Minister can say in his defence that the budget outcome will be much below target, and therefore the 3.6 per cent figure will be revised downwards. That may be true, but it shows that the management of the national finances is not as prudent as he makes out. It sends out a bad message when a Government sets itself targets and consistently fails to meet them. Between 1987 and 1989, the Fianna Fáil minority Government not only kept to the ceiling on public expenditure it set itself, it went far below that. Every year, post-budget targets were consistently undershot. This Government has done the exact opposite.

In its first year, 1995, the Government initially sought to remain within its own 6 per cent target. Within a couple of months that was cast aside and it ended up with an overrun of £177 million which was out by 1 per cent. In 1996, current expenditure should have risen by only 4 per cent. Instead, it has risen by 5.3 per cent, with an overrun of £181 million. The 1997 Book of Estimates, unlike its two predecessors, does not even pretend to live within the original target. The provisional ceiling in the Book of Estimates at £13,014 million post-budget is already 6.1 per cent. The pretence that there was no more money in 1997 for public service pay did not even last a week. If there are further overruns of a similar order to the last two years, then we will end up with an expenditure increase of 8 per cent.

The programme, A Government of Renewal, set out broadly speaking what was right and appropriate for a booming but also heavily indebted economy. The failure of the Government to stick to its targets is a serious indictment of its economic management. While there were special factors, much of the additional expenditure is discretionary. One of the primary jobs of a Minister for Finance is to control public expenditure. It is clear that in this Government it is impossible to do that. Comparisons with the early 1990s, when we were affected by an international downturn, are not relevant. It is correct anti-cyclical policy to increase public expenditure in such circumstances and to constrain it in a boom.

Let us consider the consequences of the Government's fiscal policy since 1995. The first consequence is that people end up paying more tax, over £500 million. There was no worthwhile tax relief in the 1996 budget. The trade unions complained correctly that the Government had failed to honour the tax provisions of the PCW. As Minister for Finance, I honoured them in 1994. In 1995 and 1996, the Minister for Finance, Deputy Quinn, and his Government failed to do so, especially the promise to redress the tendency for earned income to contribute a growing proportion of total revenue. Labour and Democratic Left like to present themselves as champions of the PAYE worker. They are no such thing. In reality they are engaged in policies which will result in the ordinary PAYE taxpayer paying heavy taxes indefinitely.

One of the biggest disincentives to employment is that on virtually any level of income workers in this State pay far more tax than workers in the North or in Britain. We may disdain a low pay economy, but many low paid workers in Britain have higher take home pay than higher paid workers here. The Minister is perpetrating a foolish deceit on the Irish people in pretending that living standards have overtaken those in the North and are about to overtake those in Britain. That is palpable rubbish, and the Minister knows it. It is a gross misuse of the EU's GDP per capita statistics which ignore the UK subvention, multinational repatriations and debt repayments and different tax rates. The only income that matters to people is their after tax disposable income. Up to date figures are not available. In 1993, personal disposable income per head was about 75 per cent of that in the North. It may be around, or a little over 80 per cent today. We will never catch up with or overtake either the North or Britain, unless we do something serious about our income tax rates and bands, and employers' PRSI.

No one will be impressed by a once off giveaway election budget. For economic reasons, tax reductions should be evenly spread, and not all given in an election year. No one will be taken in. Headline figures in national programmes about the nominal level of tax reductions are deceptive. In the 1996 budget, the difference between preand post-budget revenue showed that budget changes cost the Exchequer £12 million net. In the 1995 budget, the tax changes involved a revenue gain of £3 million. It is clear to any taxpayer what they have received under this Minister for Finance. Over his two years in office, the gain has been £9 million and we talk about wage packages of £200 and £300 today. This time next year it will be the same old story; the big giveaway budget with all the tricks, swings and roundabouts and little in it for the taxpayer. The only year in which there was any real tax giveaway was in 1990. In the budgets I introduced, particularly in 1992 and 1994, there was tax reform and a rebalancing of the tax system through a widening of the tax base. The last two years represent a missed opportunity to build on that and move beyond it, with only token moves in the right direction.

If we had a more attractive tax system, I have no doubt we could soak up unemployment much more quickly. Our highest and best qualified people would be more tempted to stay, rather than seek the higher salaries and take home pay they can earn abroad. The usual plausible defence of our situation is that more money needs to be spent on education, fighting crime, social exclusion, housing etc., as well as county roads and other essential infrastructure. I do not deny any of that. Fianna Fáil has never advocated that the State should shrug off its social responsibilities. It is a question of ordering our priorities in a way that maximises national welfare and social equity.

It is generally agreed that increased employment is the best overall way of improving social conditions. A more competitive tax system is needed among other things to increase employment more rapidly. That is only possible if expenditure is kept under control. One way is to eliminate Exchequer borrowing so that we can readily reduce the proportion of tax revenue pre-empted by debt servicing which amounted to £2.3 billion in 1996. On the late night news on new year's eve the public will be told the national debt/GDP ratio for the year has improved. However, the figure to watch out for is the national debt and it will be seen to have increased substantially. The national debt will top £30 billion for the first time. Not long ago, we asked if we could keep it in and around £20 billion. This indebtedness is being wrapped around future generations. It is unrealistic to think that at our stage of development we can freeze expenditure the way the British Labour Party proposes, but if we keep the annual rise tight — which was implemented Fianna Fáil policy — to about 2 per cent in real terms, as this Government originally proposed in the draft document prepared by Deputies Cowen, Dempsey and myself, we would have enough additional resources for special priorities, and we could eliminate Exchequer borrowing by 1999 as the ESRI recommends, and the EU stability and growth pact effectively now demands.

I am also extremely concerned about the effects of rising expenditure on our ability to participate or prosper in economic and monetary union. Current spending will have risen by 20 per cent in three years, with an inflation rate of little more than 6 per cent. The markets were unsettled by the Book of Estimates last week, with the possibility that an interest rate rise in the new year might claw back some of the economic benefits of increased expenditure. Fortunately for the country, this was overtaken by the weekend agreement on the stability and growth pact, which sent interest rates in the opposite direction but the issue will arise again at the time of the budget, when the markets consider the combined impact of expenditure increases and tax reductions. The Minister gave a figure of £13,038 million which represents a 6.3 per cent increase. There will be further social measures in the budget which will bring it up to a six per cent increase and even that would be tight for him to achieve. The Minister stated that expenditure for 1996 may be a little lower than outlined in the Book of Estimates. The increase is likely to be in the order of 6.9 or 7 per cent, about five percentage points higher than inflation in a year when we have a so-called booming economy, with no strains on welfare or other issues.

In its winter bulletin last week, the Central Bank issued a specific warning three times against an expansionary budget in 1997. It stated:

It is especially important that fiscal policy should not be expansionary. The present buoyant disposition of the economy does not warrant an expansionary fiscal stance which could only serve to increase inflation dangers which may already be present.

Any stimulus to demand from fiscal policy would risk an acceleration in inflation, against the very strong growth in recent years.

In the current context of strong economic growth, however, any tax reductions would have to be made only in conjunction with more stringent control of expenditure.

That amounts to a clear warning to the Minister. In recent years the country has listened to the Central Bank, the people responsible for maintaining the country within economic and monetary union, and by ignoring that bank the Minister is going against everything favoured by the EMI.

This morning's editorial in the Farmers Journal by Matt Dempsey states that the Government privately acknowledges there is a lot of pent-up inflation in the system, particularly in the housing market. There is not the slightest evidence the Minister is paying attention to the Central Bank's advice. The British Chancellor of the Exchequer, Kenneth Clarke, in his budget was very concerned about avoiding giving any push to inflation and, to his credit, was not prepared to play politics with the health of the British economy. Our irresponsible and reckless rainbow coalition Government has, in contrast, every intention of playing politics in the most brazen manner with the economy. It hopes to buy back the election by playing around with taxpayers' money. If the economy is seriously damaged as a result, it will no doubt be safely back on the Opposition benches to criticise our efforts to pick up the pieces once again.

If the 1997 budget triggers a rise in interest rates, it will claw back most of the benefit of tax concessions and will be utterly self-defeating. Perhaps the country is getting ready for Christmas and is not listening to what we are saying, but this will be on the record. The Minister will give a little in the budget to make things look good. That will create inflationary pressures and interest rates will drift upwards with the result that the tax concessions will amount to a misnomer and taxpayers will be worse off. Will they allow themselves to be conned by the mirage presented on 22 January?

I have advice for the Minister. If he were to adopt an EBR close to the expected outturn for 1996 of around £400 million or 1 per cent of GNP, the level recommended in the Stability and Growth Pact—the Taoiseach claimed this morning that that matter was well handled at the week-end—no one could legitimately criticise him for bringing in an imprudent, expansionary budget at a time of economic boom. Inflation is the greatest immediate danger to our economic and monetary union membership. Consequently, the Minister will have to be extremely careful. He would be well advised to adjust expenditure downwards between now and budget time, which is not what he and his colleagues are doing. They are trawling the country to see if they can find bright ideas on which to spend money in constituencies where they believe they will be decimated, but they should recognise that they will be decimated anyway. If the Minister saves money, at least in his old age he can say he did something constructive. Otherwise he will be recognised as a reckless Minister for Finance.

The usual catch-cry of Governments on the defensive is, where would you make cuts? We heard an extraordinarily defensive speech by the Minister for Finance this morning. I think he knows, or at least his officials in the Department will advise him, that what he is doing is reckless. He defended himself from start to finish — he even extended his time by 20 minutes in order to defend himself, and I will do likewise if I am allowed. Allocating resources is something done in Government, not with incomplete information in Opposition.

I am dismayed that the strategic management initiative, in the best "Yes, Minister" style, has not yet led to a single identifiable budget saving. In a reply to me on Tuesday, the Minister of State, Deputy Doyle, told me that the primary additional administrative costs in the Taoiseach's Department arise from the strategic management initiative. I thought the objective of that initiative was to save money, but there is a 14 per cent increase in the Department of the Taoiseach's administrative overheads, even before increases in pay are added to the figure. That is scandalous. It is an eloquent commentary on the Taoiseach's complete abdication of responsibility in the area of economic policy. There is a 20 per cent increase in administration costs in the Department of the former Minister, Deputy Lowry, and a trebling of expenditure on consultancies. Perhaps the Minister, Deputy Dukes, will do something about this. There is a 17 per cent increase in administrative costs in the Department of Arts, Culture and the Gaeltacht. I thought the Minister, Deputy Michael D. Higgins, made all the decisions, that once you were from Galway you got the money and that no administration was needed.

There are no satisfactory explanations for any of this in the Minister's speech this morning. Civil Service numbers have been allowed to rise by more than 1,000 under this Government while Garda numbers have dropped. It is a fair bet that many of the increases in the subheads are for the purpose of making a string of good news announcements around constituencies in the next few weeks rather than for tackling genuine high priority social needs. There has been a huge escalation — 44 per cent — in the Exchequer's capital budget since 1994. It should be clear to everyone that public spending cannot continue to increase at this rate. There has been a 20 per cent increase in public spending during the life of this Government, which is celebrating only its second anniversary. Those figures are not mine and are not Fianna Fáil propaganda. They were produced by the Minister in the 1995 and 1996 budgets and in the Book of Estimates. It is difficult to believe that with economic growth of 8 per cent there would be a 20 per cent increase in public spending. The Department of Finance must have worked extraordinarily hard to get the Book of Estimates into such a mess. It would have been much easier to take the outturn figures and issue the book without doing any work.

Fianna Fáil's priority is to eliminate Exchequer borrowing altogether in normal times and, if possible, to start cutting the national debt so that we can concentrate the maximum resources both on improving services and making our tax system more competitive. We need a better balance in our economic management to prolong the economic boom which effectively began in 1987, with a slight interruption in the early 1990s. If we eliminate borrowing, make our tax system more competitive and have more people at work, we will also generate more resources to improve public services. All that is required is a less short-term approach.

Despite my other criticisms, I am glad a new social partnership agreement, the fourth since 1987, appears to have been largely agreed. I congratulate the Civil Service team headed by Mr. Paddy Teahon, who conducted the negotiations on behalf of the Government, and all the social partners. Social partnership has been the key to our economic progress. None of the three partners in Government supported the Programme for National Recovery in 1987, but they are all converts to that approach now, which is one of the most important legacies of that Fianna Fáil Government and its successors. While the pay increases are at the upper limit of what is safe, it is worth paying some price for certainty. I have not had time to study it, but I note from this morning's newspapers that a new ESRI study shows a major reduction in poverty between 1987 and 1994. A major effort was made by Fianna Fáil in those years to fulfil the recommendations of the report of the Commission on Social Welfare. The ESRI report will no doubt identify priorities for further action in the years ahead.

Fianna Fáil, on return to office in 1997, intends to make the same economic impact we achieved ten years ago, by tackling borrowing, expenditure and the tax system. If we put public spending first, as this Government has, we will not achieve the decisive breakthrough we want. Prohibitive tax levels will always prevent us reaching higher European living standards. Government is about choosing priorities but this Government has none, which is why spending has increased virtually across the board. I fervently hope nothing goes seriously wrong through bad economic decision making this side of an election. A new Fianna Fáil-led Government will act prudently and responsibly, and that cannot come too soon.

Mr. M. McDowell

As Deputy Ahern said, it is ironic that a Minister for Finance who broke every commitment to keep public expenditure under control should challenge the Opposition to produce ideas as to how he could keep his commitments. When the programme, A Government of Renewal, was put in place, clear commitments on expenditure were made to the people. These were not merely quietly abandoned but trampled on. Regrettably, the extent of the drift in public expenditure control has now done serious damage to this country's prospects over the next few years.

One can argue this way or that about the real level of increase in public expenditure and I do not disagree substantially with Deputy Ahern's assessment that it is about 7 per cent. The best way to compare like with like is to look at the abridged Estimates for last year and the previous year, which show the increase on the estimated cost of running the country in 1997 over the 1996 Estimates, published about this time last year, was of the order of 8 per cent, and the increase over the last two years totals 15 per cent.

It has been stated on a number of occasions that the justification for this was largely one-off items such as the anti-crime drive, the BSE crisis, the hepatitis C tribunal or the social welfare equality payments. A one-off item is always used to justify not maintaining public spending at the targets set. However, every time the one-off excuse is given, the revised increased Estimate is taken as the base point for public expenditure the following year. The unexpected equality, BSE or hepatitis C payments are always assumed to be part of the public expenditure necessary for the following year. That is why the growth figures are so outrageous. These one-off items, which come to hundreds of millions of pounds between them, are built into next year's expenditure and doubtless, half way through the year — if we are not in the middle of an election — we will be told there are yet further unexpected items to increase the cost of running the country.

We are on the eve of an election year and 1997 will be significant from the viewpoint that Labour will have been in office for the majority of the previous quarter century. I mention that not because I am jealous of that party's capacity to get and keep office but to state that if a party has been in office for most of the last quarter century, it bears some responsibility for the state of play on taxation.

I do not know what ideological wrangle is going on in this Government but I can see no sense in its taxation policies. It seems Fine Gael is making the same mistake it made on the eve of its débâcles in 1977 and, even more deservedly, in 1987. It thinks that fiddling with tax rates on the eve of an election, having done nothing for years in office, will convince some faltering voters to come back to the fold. It did not work then and it will not work now. If Fine Gael is going to take one penny off the income tax rate now, why was that not done in 1994 or 1995? If it makes good sense to start changing the viciously anti-work tax system on the eve of an election, why was it not attempted over the last two years?

It has been stated so often that it is probably trite to note that if a single worker earning £2,000 less than the average industrial wage is offered an extra £10 in earnings, whether through overtime, productivity or a raise, the Minister for Finance, Deputy Quinn, and the Minister for Social Welfare, Deputy De Rossa, will take £5.70 of it in taxes and PRSI. That is the position after Labour has been in power for most of the last 25 years. How can any party claim to represent the working man if, after a quarter century of office holding, more than half the additional earnings of a single worker, earning below the average industrial wage, are taken in tax? It is a sick joke for it to claim to be a party of the left.

Mr. D. Ahern

That is why the left does not vote for Labour.

Mr. M. McDowell

It is a most penal and draconian tax system but Labour has always defended it and attacked those of us who tried to do something about it. Fianna Fáil's early budget of 1989 started the process of bringing down the standard rate by reducing it from 35 per cent to 33 per cent. It came down to 27 per cent over the succeeding three budgets and doubtless would have been reduced further but for unfortunate events. At the time we were attacked and harried and these reductions were called tax cuts for the rich. I will not give the Minister ideas for cuts but I make this challenge in reply to his: does he want to return to the tax system which obtained after Labour left office in 1987, when ordinary workers paid 35 per cent income tax and 7.75 per cent PRSI — a 42.75 per cent deduction rate — on the first taxable pound of their incomes? Does anyone on the left think that was fair or just, or that the significant reforms achieved between 1989 and 1992 were not warranted? They were derided at the time as "mé féin" policies for the rich in society but they were no such thing, they were for ordinary workers. If we do not give single workers earning well below the average industrial wage a fairer tax deal, and do not give, in those circumstances, an incentive to work rather than to be on welfare, we are the authors of the social injustice which follows from that.

I had the honour to be invited to address the ISME conference in Killarney some weeks ago. Mr. Bill Attlee was also there as part of a prenational wage agreement propaganda exercise to announce that there was no prospect of a deal. I was in the happy position of speaking after Mr. Attlee so I said this was nonsense — the idea that the Taoiseach, the Tánaiste and the Minister for Social Welfare would end up with no agreement was out of the question, because they were bound to negotiate something. This was simply poker playing by Mr. Attlee and everyone knew he was merely flexing his muscles. The Minister for Finance, Deputy Quinn, indicated, both publicly and through a series of leaks, that there was not enough money to meet public sector pay demands. He was quoted as looking for a wage freeze and saying he could not and should not match the private sector deal, but he did. He had to back down because the Government was not in a position to show to the trade union movement either in the private or public sector that it could deliver on tax reform. Now we have the spectre of another £80 million which should be used to make Ireland a more competitive place in which to work but which will be taken out of the tax revenue by the abolition of local service charges and residential property tax. I am in favour of getting rid of residential property tax because it is unfair, but what is the economic effect of taking out £14 million on one front and between £65 million and £70 million on the other? Will that enable the Government to make working more worthwhile? I doubt that very much.

There is such deep-seated confusion at the heart of this Government that I find it difficult to understand what the philosophy of its tax policies amounts to. The Minister present strongly defends PRSI as a social insurance contribution but everybody else sees it for what it is — a tax — because our Social Insurance Fund is about as real as my overdraft in terms of its existence. It is just one account which is used for paper purposes.

I am deeply concerned that interest rates may not be so benign in the next two or three years. This may be of little concern to the members of the rainbow Coalition because they might feel it will not be their problem if interest rates increase, but if they increase by 1 per cent or 2 per cent in the course of the next three years our position in terms of public spending could be seriously affected.

Now is the time to seriously face up to marshalling our assets and containing growth in public spending. One does not have to subscribe to some new right Thatcherite view to say that Ireland would be wise to do what most economies in eastern and western Europe and in the developed world have done, namely, ensure we do not hold on to assets in the public sector while holding on to huge amounts of indebtedness. It makes the Government less efficient.

I want to ask a reasonable question. What good is being served by not selling off the TSB? Why not reduce our Exchequer borrowing requirement in 1997 by selling it off? I fail to understand what national purpose is served by the State being the owner of Cablelink. If it makes good sense to sell off 35 per cent of the shares of Telecom to KPN-Telia — I will not comment on the good sense of that deal or the partner chosen — what useful purpose is now being served by retaining the remaining 65 per cent? What good is it to this country to own that 65 per cent? There is no answer to that question. I do not believe any Minister can say it is a good idea to keep that 65 per cent of shares because the telecommunications market will, by definition, become an open competitive market in the next two to three years on an unfolding basis.

Why should the taxpayer take the risk of capitalising one player in a competitive market while encouraging other players such as Esat to come into that market and compete fairly with the company in which we have a 65 per cent share? Why should we take a bet of that kind on one player in the market when our interest is not to act as speculative shareholders in a share market for public utilities? Our interest is to reduce the cost of these services to the ordinary person, to minimise monopoly profits in the area and to increase efficiency to the maximum. That is our interest as an economy and as a society.

It does not make sense for the Government to insist on owning, say, Aer Rianta at a time when it is busily buying into foreign airports which foreign governments are privatising. Why should Aer Rianta buy Australian or English airports in circumstances where the Irish taxpayer is capitalising that purpose? What interest do we have in owning a midlands airport in England with capital supplied by the Irish worker? I do not understand the interest that is supposed to be served by that but I know the money tied up by way of State capital in Aer Rianta is significant, and if this country had the best interests of its workers at heart — I am talking about the generality of workers — it would try to reduce the potential debt burden on those workers, especially in the context that it is quite possible an increase in interest rates would pose a serious crisis in terms of our ability to control public expenditure in the next two or three years.

Without being ideological or massively political on this matter I want to know what interests are being served by the policies this Government is following? There is no pattern to its policies. The Government cannot control public spending and it has broken all of its undertakings in relation to that. It has not achieved significant tax reform and it is busily creating more reasons it cannot do that. It is not tax reform, for instance, to get rid of local service charges, to earmark an element of motor tax and say that will be the substitute amount because the bottom line in that transaction is either that taxation centrally is rising to make up the difference or, alternatively, an opportunity to reduce tax on work is being thrown away to pay for that. Whatever sense of direction was implicit in that policy, it was lost on me. The Minister for Social Welfare's party attempted at one stage to make local service charges tax deductible. That was possibly a high point of philosophical tax confusion, that one tax was made deductible against another. The point of that still eludes me.

I hope next year's budget is a successful one and significant steps towards reform of our income tax code are taken. I see the predictions in the media the same as anybody else and it appears somebody has decided not to touch the 48 per cent tax rate which, together with PRSI, results in single people giving £5.70 to two Ministers out of every extra £10 they earn even though they do not earn the average industrial wage. That is a wall which somebody will hit at some level of income, which is indefensible in present circumstances.

I hope the Government does not produce a vote buying budget but I fear, along with Deputy Bertie Ahern, that what we are seeing now is positioning by the Government parties to try to win back favour from the electorate. The sad fact is that this Government is not re-electable. Any fair-minded person would see it that way, and it is unfortunate that we will all have to pay the price for its efforts to be re-elected, futile and hopeless though that enterprise appears to be.

These Estimates have not been explained. We have not had a clear explanation as to from where the increased expenditure will come. We have engaged yet again in a kind of intellectual striptease. If we knew the decisions which underlay these Estimates and where the changes were, we would be well off but most of the time we are looking at increased figures which are unexplained aggregate totals. The question we have to ask is when are we going to get serious about the Estimates process and demand that every change in a Book of Estimates should be clearly explained on an accompanying page. What is the point of considering Estimates when one side of the House knows what they mean but refuses to tell the other side? Are we simply to speculate on the effect of this Book of Estimates?

This country has, over the lifetime of the next Government, a unique opportunity to turn itself around and make itself capable of standing on its own two feet in a post-EMU Europe. That will not be easy. Unless we take some hard decisions on public spending control, realising our assets, reducing public borrowing and containing the growth in national debt this year, and elect a Government which is mandated to make those decisions and has the political will and cohesion to do so, the post-EMU reality might be very different from what is being painted. Post economic and monetary union a weak Irish economy will suffer very badly if it has not taken the necessary corrective actions between 1997 and 2002.

Minister for Social Welfare (Proinsias De Rossa)

I propose to deal primarily with the Social Welfare Estimate. I hope to throw some light on Deputy Michael McDowell's confusion in the course of my contribution. I hope he will use the information I give him today to write factually about the matter in his next article in the Sunday Independent.

Total social welfare spending in 1997 is estimated at around £4.5 billion. Of that amount, the Exchequer will contribute some £2.6 billion while the balance will be met mainly from employers, employees and the self employed by way of PRSI contributions. The increase in the Estimates provision over 1996 is 1 per cent; the increase on gross expenditure is 2.9 per cent.

Deputies will be aware that I recently published a social insurance discussion document which outlines options regarding the coverage, types of entitlement, levels of payment and rates of PRSI contributions. In my two years experience as Minister, I have found that the area of debate where there is most heat and least light is that concerning PRSI. Calls for the outright abolition of PRSI, for example, never seem to be accompanied by a coherent analysis of how benefits and pensions should be funded now and in the future. There is much special pleading and selective comparison with the social insurance regime in the UK and very little mention of the lower level of benefits provided to employers and employees there.

It is essential that we have a clear understanding of the implications of any proposed cut in PRSI contribution rates, both from the point of view of the real competitiveness of our businesses and also the long-term effect on the social insurance fund of a recurring reduction in income. Looking towards the future, we need to consider the possibility of expanding the PRSI system to help meet the cost of other contingencies, such as caring for the elderly.

Insurance payments are made to over 410,000 people each week, about two thirds of whom are pensioners. The pay related social insurance contributions which fund these payments now amount to over £1,800 million each year. The point is that the social insurance fund is a dynamic framework which has to change with the changing nature of the labour force and demography. It is not a piggy bank to be raided for short-term advantage. I firmly believe it is possible to have a PRSI system which is both socially and economically balanced, which is my purpose and aim in getting a rational and reasoned debate on this vital issue under way.

The increase in my Department's Estimate for 1997 over 1996 is some £13 million. I would like to draw the attention of the House to the more significant items which account for this. In the first instance, the carry-over costs of the 1996 budget improvements — the increases in the rates of social welfare payments combined with the targeted reductions in PRSI employer contribution rates — will amount to some £128 million in 1997.

Second, additional provision of some £84 million is made in the Estimates for projected increases in the number of claimants of certain payments, for example, pensioners, widowers and lone parents, and for additional expenditure on the disability allowance following its transfer from the Department of Health to my Department earlier this year. Third, the increasing importance of the employment support services available from my Department, notably through the back to work allowance scheme and the enhanced third level allowance scheme, is reflected in an increase of £18 million. However, to listen to Deputy McDowell one would think there were no incentives for people to move from welfare into education and work.

The 1997 Estimate also differs from the 1996 provision, and that of all previous years, in that it contains an allocation for a Christmas bonus for long-term social welfare recipients to be paid in late 1997. This is the first time that specific provision has been made for this payment within the Estimates for my Department, allowing the bonus to be placed on a more secure footing.

The additional expenditure I have outlined will be partially offset by an increase in PRSI income arising from higher earnings and employment levels, reflecting the robust health of the economy and the fact that substantial numbers of new jobs are being created. The sustained reductions in the numbers on the live register, as a result of the generation of new jobs allied to effective antifraud measures, will also give rise to a reduction in expenditure.

The 1997 Estimates for my Department are based on the pre-budget 1997 position and, therefore, they do not provide for any additional social welfare spending that may arise in next year's budget. The two budgets which this Government introduced in 1995 and 1996 have enabled us to achieve radical and effective improvements in the social welfare system. We have set out to tackle the root causes of poverty, for example, through the very substantial increases in child benefit, and to make the system more work friendly so that it can act to provide both vital income support and a springboard into the active labour force. I can assure the House that the forthcoming budget will further enhance the progress we have achieved to date.

The record of this Government in its first two years in office has been one of outstanding success, particularly in the economic area. I have already outlined some of our achievements in the social welfare area, but the impact of the sound and sensible policies being implemented by this Government can be seen in virtually every economic indicator. More than 100,000 new jobs have been created since we came into office. A whole new range of job creation initiatives were announced in the last budget and the numbers on the live register have fallen by almost 25,000 since August, bringing the live register down to its lowest level since November 1991. Almost 3,500 new jobs were announced last week alone.

Sustained economic growth has resulted in significant tax buoyancy, but inflation remains comfortably below the EU average. Mortgage rates under this Government have reached their lowest levels for over a decade, leading to substantial savings for householders. We have managed to stay comfortably within the Maastricht guidelines while maintaining and increasing spending on essential public and social services. All this is in stark contrast to the disastrous economic performance of the Fianna Fáil-PD coalition Government.

However, it is not just in the economic area that the Government has been successful. We have also delivered a wide range of social and political reforms. Thorny issues that had been long fingered by successive Governments were tackled by this Administration. The divorce amendment was passed and the subsequent legislation enacted. The difficult issue of abortion information was dealt with by legislation. The Constitution was amended to allow for reform of our bail regime and the most comprehensive anti-crime package ever undertaken by any Government is now tightening the screw on organised crime. The gang bosses are being squeezed dry.

While we can be very satisfied with what has been achieved so far, there are important problems to be tackled and further legislation to be enacted before the life of this Dáil expires towards the end of next year. The final details of the budget have to be worked out, but the successful negotiation of a new wage agreement in the private and public sectors offers real opportunities for continued economic growth. For the first time, a national programme will recognise the voice of those who speak for the socially excluded. The Community Platform has had intensive discussions with Government on how we launch a sustained assault on social exclusion over the next three years. It is imperative that we ensure the fruits of economic growth are fairly shared around and are not hogged by any one sector of society.

One of the particular successes of this Government in recent months, which I spearheaded, was the improved control measures aimed at combating social welfare abuses, particularly social welfare fraud. These have been very successful and, with the job creation programme of the Government, have contributed to the substantial decreases in the numbers on the live register to which I referred earlier. In addition to the 25,000 who have signed off the register, some 11,000 have had their payments suspended pending further investigation, leading to projected savings to the taxpayer of £84 million in 1996 and 1997.

However, it is not just social welfare cheats who defraud the taxpayer. Tax cheats place an even greater burden on the compliant taxpayer and this Government is determined to tackle the social culture which has allowed some people in the business and professional sectors to treat tax evasion as a sort of national sport. Progress has been made under successive Ministers for Finance, but it is a constant battle for the Revenue Commissioners to stay one step ahead of the tax cheats. In 1995 more than 500 companies and individuals were caught and compelled to make settlements and pay financial penalties amounting to more than £10 million.

Corporation tax cases were pursued to prosecution for the first time in 1995 and represent 25 per cent of these cases. Some 24,359 audits were undertaken by the Revenue Commissioners during 1995, yielding more than £140 million.

These figures show quite clearly that it is not true, as some commentators tried to suggest, that the Government is pursuing social welfare fraud but turning a blind eye to tax fraud. There is no room for complacency. We need to turn the screw even tighter to end equivocation with regard to tax law, close off remaining loopholes, bring in all arrears and ensure the highest possible level of compliance in the future.

As the 27th Dáil was elected in November 1992, we are now entering the final year of this Government. I will be happy to go before the people on the basis of the record of this Government and particularly on the basis of what Democratic Left, a relatively small party that will only reach its fifth birthday in March, has been able to achieve. That is not to deny that the Government has made mistakes, or that there were issues that could, and with the benefit of hindsight, should have been tackled differently, but where mistakes have been made, the Government has moved speedily to remedy them. The co-operative and constructive way in which the three parties in this Government have dealt with problems is in stark contrast to the infighting and political brinkmanship that made political instability the hallmark of the last two Fianna Fáil-led Governments.

I will be particularly happy to go before the people and to compare the record of this Administration with that of the last Fianna Fáil-Progressive Democrats administration. The Fianna Fáil-PD Government added 56,000 people to the live register in its term of office. Under Fianna Fáil and the Progressive Democrats mortgage rates reached their highest level ever, almost 15 per cent, adding up to £80 per month to many families' housing bills. In contrast, under this Government mortgage rates have reached their lowest levels in decades. This Government has delivered real tax reform, especially for the PAYE sector, and there is more to come in the January budget. The Progressive Democrats came to Government promising tax relief, but the reality was that the average tax take from an average PAYE worker increased by 17 per cent when they were in office.

This Government has made the fight against poverty a priority, it is the first Administration to introduce a national anti-poverty strategy. The word "poverty" did not figure even once in the programme negotiated and agreed between Fianna Fáil and the Progressive Democrats in 1989. This Government has increased social welfare rates steadily and in real terms. Compare that to the "dirty dozen" cuts of ill fame.

I respectfully suggest that it is time for the media to subject the Progressive Democrats, their record and policies to the same sort of scrutiny to which all the parties, including Fianna Fáil, are subjected. The Progressive Democrats say in public that they are opposed to the principle of State funding for political parties, while privately canvassing for an increased share of the pot at the expense of their potential partners in Government, and it does not even merit a comment in the media. Deputy "Hong Kong" Harney sheds crocodile tears for the Dunnes Stores workers while championing the Asian economic model of low pay and low social protection, and it passes without comment. The Progressive Democrats produce an economic plan which would cost over £1,000 million, yet they are asked no more than cursory questions about what essential services they would cut to finance their programme. The Progressive Democrats would have us cut the social insurance fund to an extent which would mean we could not pay old age pensions or widows' pensions.

Deputy Harney may be the benign, televisionfriendly face of the Progressive Democrats, but the ideological steel, as he has shown in and out of Government, is provided by Deputy McDowell. A potential Cabinet which would have at its ideological core, possibly as Ministers for Finance and Social Welfare, Deputies McCreevy and McDowell, the nightmare of the poor in society, will send a cold shiver of apprehension down the spines of the poorest and weakest sectors of society — the poor, the sick, the elderly, the unemployed.

In his desperation to keep on side with the only party he sees as even remotely capable of propelling him back to Government, Deputy Ahern is engaged with Deputy Harney in a frantic "riverdance" to the right with the Fianna Fáil leader threatening wholesale privatisation of semi-State companies, calling for cutbacks in public spending, while at the same time demanding increased spending on their own favoured projects. It would be interesting to hear whether Deputy McCreevy agrees with the privatisation list announced here today by Deputy McDowell. There is a need for realism in public debate. Fianna Fáil even opposes the Organisation of Working Time Bill which, among other things, will offer protection against zero hour contracts and regulate Sunday trading in the interests of employees.

The battle lines are now being drawn for the next general election. It is quite clear that the option facing the electorate is a choice between a Fianna Fáil-PD Government that would be the most right-wing for decades and the continuation of this centre-left Coalition. This is not about an abstract choice between political ideologies. It is about different policies that can have a real impact on lives. It is about providing the poor and disadvantaged with the means to cope, or abandoning them to their own devices. It is about providing real tax reform which will primarily assist those on low incomes, or providing more tax breaks for the wealthy. It is about Government promoting job creation as a central political objective. The alternative is a society based on dog eat dog economics. That may suit the Progressive Democrats. It may suit their groupies in the print media, and it may, out of desperation, suit Fianna Fáil.

The problem for them is that it will not suit the people when they realise what exactly is being offered to them.

Mr. McCreevy

The speeches written for the Minister for Social Welfare when he was in Opposition were more entertaining. These combination speeches, the fruits of Department and outside advisers, do not read so well.

The Minister for Finance was remarkably defensive about the 1997 Estimates. It was obvious that he believes, in his heart of hearts, that they are irresponsible and that view is shared throughout his Department. I cannot remember him being so defensive regarding comments made about the Book of Estimates. It is quite obvious that a message has been signalled to him from within his Department and the plethora of outside comment that this is not on. A few days after the publication of the Estimates the Central Bank report cautioned the Minister and the Government from taking this route.

In the past Democratic Left and its predecessors put forward a clear and distinctive view on how to run the economy. Although I disagree with its fundamental ideological positions, I defend its right to espouse them and accept that they were based on a coherent philosophy. However, while it has been in Government that whole ethos has been forgotten.

In the past couple of years the Labour Party seems to have moved its ideological position. The Minister for Finance knows that what is proposed in the 1997 Estimates is not in line with any type of coherent economic strategy. No economist would suggest that increasing current spending over three years by 20 per cent at a time of unprecedented economic growth and cumulative inflation not exceeding approximately 6.5 per cent amounts to sound economics. Nobody has advocated this approach and it has led to ultimate disaster where it has been practised. That will be the case here.

Inflation rates are low and economic growth is high. However, we are approaching 1999, which will result in a smaller share of EU Structural Funding and reduced control over our public finances. In addition, we are at the peak of the economic cycle. In such circumstances nobody would advocate increasing current expenditure by 20 per cent over three years. The Government has been shy in producing economists who support this approach. The question is not whether the Book of Estimates is acceptable to the Dáil. The Minister has lost that debate because people with common-sense know what an increase of 20 per cent means and communicators and businessmen see their hard won advantages and opportunities sacrificed by the Government's expenditure programmes for 1995-97.

Who is to blame for this sorry state of affairs? The Minister says he is ideologically driven to authorise this level of spending. He advises that the Government is left of centre, as if this was an explanation. This is news to the Taoiseach and his party. Are they aware that the Government is left of centre?

The budget will be a test of Fine Gael's position in the Government, when it will be clear if the party is in a position to resist the temptation to blow the rest of the revenue windfall in an appeal to the voters on the basis that they have never had it so good. While perhaps the country has never had it so good, it could have been much better.

What will be the cost of allowing Government expenditure to rise at this wanton rate in terms of the lost opportunities for tax reduction and reform? If at the beginning of its term the Government considered it was essential to curb the level of public expenditure and to cap its growth at 2 per cent in real terms, what circumstances have changed its position? What caused all three Government parties to abandon that prudence and to apparently encourage public expenditure in all fields instead?

Now that he has concluded his onerous EU agenda, the Minister should withdraw these Estimates and try again because the public is entitled to prudent and sensible management of the public purse. Why is the Government apparently unable to hold expenditure constant in real terms? There is an inbuilt, unchecked appetite by the Government for real extra expenditure above and beyond the previous years. Processes should be in place to ensure the inverse of that phenomenon. Programmes and expenditure heads should be allowed to wither and die and be pruned on a regular basis.

It is puzzling that we appear to accept as a necessity starting next year's Estimates on the basis of last year's out-turns, whether good, bad or indifferent. Instead of this, the Minister should tell us why the Vote for his office has increased from a provisional out-turn of £20 million in 1994 to a 1997 Estimate of over £30 million? Why has the Estimate for the Vote for the Department of the Minister for Justice, who appears to be unable to find her own correspondence, increased by a similar amount, from £23 million in 1994 to an Estimate of £32 million in 1997? Is it the cost of photocopying letters?

Mr. S. Brennan

Cheques in the post.

Mr. McCreevy

For the first time, the Minister for the Environment has managed to increase his expenditure over the billion pounds mark. Does he want to be congratulated by this side of the House? Perhaps the Tánaiste and Minister for Foreign Affairs is to be congratulated for managing to increase his departmental budget by just under 50 per cent in three years, from £41 million in 1994 to an Estimate of £58 million for 1997. It must be due to the costs of unavoidable air travel. The Minister for Health has not done so well, with an increase of 12.5 per cent over three years. Has Fine Gael any clout in Cabinet? By contrast, the Minister for Arts, Culture and the Gaeltacht has increased the Estimate for his Department for 1997 to £128 million; it was only £48 million in 1994.

What is the bottom line? On 9 December the Minister advised that the Estimates amounted to £13 billion on the basis that that there would be no provision for further increases in public sector pay. However, what is the bottom line now, given the recent pay agreements for the private and public sectors? The Minister told the House today that he has revised this sum upwards to £13.38 billion but, unlike last year, he cannot say what the outcome will be after the budget. It leaves room for manoeuvre on funding the myriad proposals that will be put to him by the Government in view of the forthcoming general election.

Why was it not possible for the Government to adhere to its agreed real increase of 2 per cent per annum? The comparable figure for 1994 is £11 billion, or £10.892 billion on gross non-capital supply services. However, according to the Book of Estimates, the Government proposes to spend £13.014 billion in 1997, which represents an increase of 19.5 per cent in three years. Given the overruns of the past two years, it is reasonable to assume that Government expenditure will have increased by 20 per cent over three years.

Does the Minister remember when an increase of 2 per cent per annum above inflation appeared to be sound economics? He advised that because he would allow a little leeway above that target in 1995 he would underspend the following year. Some would say that is politics, but unfortunately the present situation amounts to more than politics.

When the Minister for Finance declares an objective, the business world, the investment managers and the world's commercial bankers take notice. The message of sound economics was as much for them as it was for his backbenchers. When he rubbishes these objectives bankers and commentators become nervous and distrustful. The sound policy image, so carefully and painfully constructed by Fianna Fáil since the latter end of the 1980s, is now in jeopardy. The reality of our present budgeting ratio, in the longer term, is placed in doubt. Will the Minister tell us how this may affect our interest rates in the next 18 months or what our rates of exchange will be against the Deutschmark or sterling in six or 12 months' time? How will he explain to an anxious monetary committee in Brussels how flexible the levels of expenditure are for the year ahead and how easy it will be to shift these downwards when storm clouds threaten? The Minister for Finance constantly complains about how difficult it is to halt public expenditure. In the knowledge of these difficulties, why does he allow it to spiral out of control, knowing it may have to be cut again soon?

The Minister proposes to borrow and spend £3.4 billion in 1997 on capital projects and infrastructure. The corresponding figure in 1994 was £2.4 billion. Between 1995 and 1997, the Government's expenditure under this heading will amount to just over £9 billion. What is the rate of return on that investment? How much is that extra national debt costing every taxpayer and is he or she getting value for money?

I accept a significant proportion of that investment is committed in advance as part of the Structural Fund deal committing us to an investment path from 1994 to 1999. As for the balance, are we not simply crowding out domestic capital formation and keeping interest rates too high to allow the levels of private sector investment and the research and development on which this country will rely as the engine of future growth?

The time has come, well in advance of the 1999 end-year deadline of Structural Funding at the levels negotiated by the former Taoiseach, Deputy Albert Reynolds, to give more thought to the shape and size of our public capital programme and our national debt. We should also think about the Maastricht convergence criterion and how our budgetary parameters will be restricted after that date.

The suspicion is that we were not spending wisely and will regret this last opportunity when Structural Funding assumes a less significant input to the costings. There is no evidence in the Book of Estimates of a clearly defined prioritisation for capital projects. Perhaps we never had clear priorities for capital expenditure. It is well past the time for us to sit down and decide what those priorities ought to be.

The actions in the last years of this Administration in raising gross current spending to levels which will be at least 20 per cent higher in 1997 than in 1994 will make it extremely difficult for future Governments to correct and there will be a heavy price to pay.

Mr. S. Brennan

I am grateful for the opportunity to contribute. I wish to reflect on the economic strategy being pursued by the Government. It gives me no pleasure to say that much of what I warned about in the Estimates debate last year has taken place.

Current spending as a percentage of GNP is about 35 per cent; in the UK, 25 per cent; in the US, 20 per cent and in France, which boasts about its public finances, it is 25-28 per cent. Compared to countries with socially advanced services or to countries without socially advanced services we are totally out of line in terms of public spending as a percentage of GNP. Our present economic position is extremely vulnerable and unsustainable. The inability to control public spending is at the heart of this misplaced economic strategy. As I said in the debate last year, the whole direction of economic management is not right and I plead that it be changed before it is too late.

There are underlying realities to what the Government regards as a sparkling economic performance. On one level it is a sparkling economic performance but the underlying realities have to be taken into account. Those realities are that the fiscal policy being pursued by the Government is a dangerous one with public spending running at 20 per cent over the three years from 1995-7 at a time when inflation is 6 per cent; a dangerous fiscal policy of running public spending at three and a half times the rate of inflation. No sensible Government anywhere in the western world would tolerate that type of economic madness. I mentioned this last year and it seems the train is out of control. Another economic reality is the reduction in EU funds. I am informed the Minister for Finance is heading for a budget surplus in 1996. If adjustments are made for EU funds there is a deficit. There is no preparation for the tailing off of some £500 million of EU funding towards the end of 1999. We are in receipt of £2 billion per year and we merrily spend it but there is no provision in the Estimates for ending those EU funds. Another reality which is not being taken into account by the Government is that economics and growth are cyclical. The realities underlying the sparkling performance are the dangerous fiscal policy, the reduction in EU funds and the natural cycle. The Government seems to totally ignore these realities and spends at the rate of four or five times above inflation.

The Government missed its targets in every area since coming to office on the finance front. It set targets for 1995 and 1996 and missed them. It has set enormous targets for 1997 and if they are missed by the same rate as previous targets one is arguably talking about 24 per cent or 25 per cent. That is a 25 per cent increase in spending in three years. Every time we say that from this side of the House it is met by the riposte from the backbenchers opposite who ask us to name where we would make the cuts. There is only one answer to that question. Nobody is asking for cuts but what we are asking for, as any sensible person will know, is not to increase public spending at the rate of 20 per cent over three years. No law specifies that must be done. One does not have to make cuts to say "no", as Ray MacSharry had to do from 1987-9. One does not have to say an application to increase spending from one's Department by 20 per cent in three years has been refused by the Cabinet. One does not have to name cuts and slash social welfare and education.

I heard the Minister for Education on radio the other day boast that her budget was up threefold since coming to office, she seemed proud of it. I held that post for some time and obviously sought investment and spending in a targeted way in the Department. I would not boast if my spending had increased by one-third in three years. That is the mentality that dominates the Government.

The Government has missed its financial targets for three years in a row and asks us where the cuts are to be made. I do not ask the Government to make cuts but to draw a line in the sand and not to increase spending by more than inflation. There are areas where funds have to be targeted because people have fallen behind, but one or two percentage points above inflation would certainly be sufficient. This is a reckless economic strategy. I know of no Government in my time in this House which, having missed all its financial targets, would calmly set about spending three and a half times the rate of inflation and try to explain it as being good sound economic policy.

As I said during the debate on last year's budget and Book of Estimates, the Government has options on what to do with the growth rate of 5-6 per cent in the economy — it can use it to reduce taxes and the national debt or spend it. Regrettably, the Government has decided on the latter soft option in an effort to keep three parties with diametrically opposed economic philosophies around the Cabinet table. The deal was cut to keep these parties together. This reckless decision is a tragedy for the country. It has been possible to camouflage because there is money available to spend. Any tax cuts in next year's budget will be nominal and will be funded out of the additional pent up revenue of recent years.

The Minister of State, Deputy Coveney, knows that we should be running a budget surplus. His colleagues in Democratic Left and Labour should be sold that message. I spent five years studying economics in university where it was drummed into me that the sensible way to manage an economy is to run a balanced budget or surplus during good times and it is legitimate to argue for a budget deficit during bad times. I never heard a lecturer or economist say one should add to the demands on the economy during good times by pumping more money into it. The Government is throwing petrol on the flames to make them higher but what will happen when the flames stop and the ashes appear, as they always do in cyclical economic terms? It will be left with an overhang in spending and commitments in the areas of health, education and social welfare. In order to meet these commitments it will have to make cuts in public spending and increase taxation. In previous years Ministers used the excuse of the international recession to increase taxes or reduce spending. That is not the case at present but this excuse will be used again in the future.

The predictions I made this time last year have unfortunately come true. I would prefer to have been wrong but unfortunately spending continued unabated, the wrong economic policies were pursued and tax cuts were minimal. Like other economies, the rate of growth in our economy will slow down to 3 or 4 per cent. A growth rate of 5-6 per cent is not sustainable in any economy. As the Government will not be able to fund its spending it will have to raise taxes and make cuts in health, education and social welfare. The economic strategy being pursued by the Government is totally unsustainable. The percentage of spending to gross national product is 35 per cent, which is substantially higher than the figure in most western developed countries. The Government should stop adding to the demand during good times so that it does not have to make too many cuts when the slow down comes.

We receive EU funding of £2 billion per year, which is a very substantial addition to the budget. When this funding falls off the Government will have to find approximately £500 million extra. In a recent article in Business and Finance the economist, Moore McDowell, predicted that within five years the Government would have to find an extra £500 million. There is no preparation for enlargement of the European Union which will enable poor East European countries to become member states. It is obvious that in future funding from Brussels to support the economy will not be on the same scale. How will we be able to replace £2 billion a year if we do not run up budget surpluses now in preparation for the fall off in revenue from the EU?

The Government's economic strategy and the increase in the Estimates are wrong as any increase in interest rates, slow down in tax revenue and indefinite fall off in EU funding will plunge the country into a new cycle of tax increases and cuts in spending on health, education and social welfare. This is unfair to the public and, in particular, to young people. The Department of Finance, advisers and the politicians who have the honour of being in Government should know better than to run riot during good times with no strategy or policy. Any child in the street could tell them that they should not let public spending rise by 20 per cent at a time when inflation is running at 6 per cent. This is a dangerous economic strategy.

According to reports from Bloxham Stockbrokers, if total Government expenditure had increased at the rate of inflation during the year spending would have been approximately £2 billion less. One can imagine what this could have achieved in tax cuts. Approximately two-thirds of workers pay tax at 48 per cent. The facts are being hidden because the economy is running well on a superficial level, but the chickens will come home to roost. If the Government had decided to keep spending last year at the rate of inflation it would have had £2 billion to give out in tax cuts. The left wing parties in Government often suggest that it is only the rich who are interested in tax cuts. However, two-thirds of workers pay tax at 48 per cent and, if one adds on other taxes, the rate is probably 55 or 56 per cent. Increased public spending is not only bad economics it is also very bad politics. If the Government had the courage not to increase spending above the rate of inflation last year it would have been able to reduce the 48 per cent tax rate to 40 per cent. Unfortunately it has missed the opportunity to do this.

The Government had the option of providing for tax cuts and to prepare for a fall off in EU funding. However, it took the soft option which unfortunately will have a detrimental effect on the economy in the future.

Minister of State at the Department of Finance (Mr. Coveney)

It is unpalatable and difficult for the Opposition to accept that the economy is in a good position. Our economic miracle is constantly referred to in Brussels and elsewhere, but I suppose it is too much to expect the Opposition to recognise it.

We have had a period of unprecedented economic growth. Growth rates have hovered between 6 per cent and 7 per cent for a number of years. We have never denied we inherited from the previous Government an economy that set the foundations for much of this growth, but it is churlish of the Opposition not to accept we have enhanced its work and that our economy is justifiably the envy of other economies in the European Union and elsewhere. To accuse us of irresponsible management of the economy is inconsistent with the facts.

Apart from the growth rate, which is comparable to the tiger economies of the Far East, we have also managed — which is not easy in a fast growing economy — to contain inflation at below average European levels, where growth rates are less than half of those here. We have consistently kept inflation hovering around 2 per cent. Furthermore, most of us cannot remember when our interest rates were so low. These achievements have had huge spin-offs for mortgage holders and small, medium and large businesses which want to borrow money to grow their businesses. We can be justifiably proud of our record in terms of growth, inflation and interest rates.

These achievements have finally begun to break the most intractable problem all Governments have faced in the past number of years, that of creating enough jobs to meet the expectations of a fast growing population. We have begun to make worthwhile inroads into the numbers out of work. We have created more new jobs in the last two years than ever before. The IDA and Forbairt, which I primarily congratulate for that achievement, have had a spectacular year of growth in jobs, and this is evident in Dublin, Cork, Limerick and elsewhere. That will give great hope to school leavers wondering whether to work here or abroad.

While there will be debating points about spending, overall the Government has exercised prudent management of the public finances at a time when people know there is a good deal of money around and they are entitled to funding for education, health and other such areas. We must balance the true perception of the fastest growing economy in Europe with reasonable prudence in spending on social disadvantage.

I do not expect people to believe statements from the Government about its achievements, but all EU economies are currently undergoing severe examination in the run-up to economic and monetary union. The Minister for Finance, Deputy Quinn, must be commended for successfully negotiating the Maastricht criteria and the stability pact during the Irish Presidency. The stability pact looked like derailing economic and monetary union and our summit, but the interpersonal skills the Minister brought to bear on difficult decisions enabled a compromise to be reached which put a stamp of success on the summit and, more importantly, on the long-term future of the European Union and economic and monetary union. Apart from the UK, there is not a shortage of critics who would like economic and monetary union derailed.

The Maastricht criteria present the economies of Europe with enormous problems. Even the strongest ones will have great difficulty meeting the criteria to qualify for entry. While it would be unrealistic to be over confident about our ability to meet the criteria, we can say with reasonable confidence that our economy is among the few that will almost undoubtedly qualify for entry to the new dimension of the European Union. It is the Commission, not politicians, which will make this judgment and the criteria will be applied with a similar degree of force to each economy. We are one of the top three economies clamouring to be in the first division of economic and monetary union when it commences.

While Governments may criticise one another about spending and so on, since the beginning of this decade Governments of various compositions have exercised consistent prudent management of the economy. Last week a group of Americans who announced a major investment in Cork gave two reasons for their investment here. They detected an economic sanity about the Irish political system in that, irrespective of Government mix, we had adopted a consistent coherent economic strategy during the past decade. They were also influenced by our young, well educated population. They stated that rather than grants, tax incentives and so on, our young, well educated and flexible population, hungry for work, was a main factor in their decision to invest here. IBM and other companies which have made major investments in Dublin also made that point. That consistency, with obviously some differences, in our approach is a major factor in our economic health. Future Governments will continue to adopt that approach and it will be a major selling point for the country.

The other points I wish to make on the economy relate initially to the successor to the PCW. In Government we have recognised the value of national agreements and national partnership. There was a time in the 1980s when there was a serious dispute about it. The leader of my party expressed reservations about it because it was seen, particularly in the 1980s, to have led to high inflation. The last two agreements — and the one I hope will be announced shortly — have had a most stabilising effect. Employers and representatives of employees, the trade unions, have acted responsibly and in the national interest as well as in the interests of their members, which is their job. That valuable plank in the stability of our economy has been recognised by the Government and I hope it will lead to a new programme being announced in the next few days.

There was a reference to EU funding. Deputy Brennan made the valid point that we cannot anticipate a continuation of EU funding at the present level, but it would be very misleading, although the Deputy did not say it, to send out a message that such funding will cease in 1999. We have a good deal of negotiating to do but, at worst, we are talking about a diminishing inflow of EU funding over a period of years after that. It will not be a sudden blow. It is something we can and are planning for. I do not subscribe to the view that European funding will end in 1999 or all that quickly after that.

Regarding the argument about spending, people hear and read reports of economists, what is said about us in Europe and they understand a great deal of revenue is flowing into the Government's coffers. They understand the argument that we must provide for the rainy day and pay off our debt. We are paying it off. It has fallen rapidly and that is a factor in the criteria for Maastricht and economic and monetary union. People have waited a long time, some of them half their lives, for expenditures in areas about which they feel deeply. It is all very well to say we should only spend the same amount as last year with perhaps an adjustment for inflation, but people are clamouring for new programmes. We are putting through new legislation here week in, week out. That costs money and nobody is saying that should not happen, they are saying the reverse and clamouring for more.

In big spending Departments, such as Health, we introduced a new set of childcare provisions and there are great pressures to give additional aid to the mentally and physically disabled, with which Deputies across the floor agree, but the consequences are increased spending.

The same argument holds in education. Companies come here because successive Governments recognised that education is not only important social spending but the most important investment we could make in the future interest of this economy, particularly in regard to our large number of young people. When a Government decides to reduce pupil-teacher ratios, to introduce free third level fees and a host of other measures, Deputies across the floor do not say it should not do that, but they do not accept the consequences that we need to spend money.

The same is true in the area of social welfare. Far from the Opposition regarding the enhancement of benefits introduced by the Government as generous, they are constantly the subject of abuse and adverse comment that we are mean and not doing enough. The Opposition cannot have it both ways.

Nobody imagined at the start of 1996 that the greatest crisis ever to hit Irish agriculture and European and world beef was about to happen. It had nothing directly to do with us, if anyone can be blamed, it was largely the result of the failure of the British system to spot what was happening in time and to take action. The British are probably the biggest culprits. The Minister for Agriculture, Food and Forestry and the Government had no choice, nor should it have, in dealing with that problem, which also involved money.

All Members, particularly the Opposition, have, with justification at times, been critical of the fact that more resources and efforts had not been put into the area of justice. I can say without fear or favour that the Government in the past year has provided extra judges, courthouses and a new prison crash programme. I am directing where we will spend £70 million to provide a third more prison places than we had last year, in approximately two years from now. That is being done not only with the blessing of the Opposition, but with the active encouragement of the main Opposition party's articulate spokesperson on this subject.

Having a business background, I recognise the arguments put forward by Deputy Brennan about the need to contain public spending, but we must have a sense of balance about it. Our economy is doing very well. We will not spend all the fruits of that on some type of irrelevant public spending. We are spending some of that money on important social areas, but we are also managing the economy prudently. That has been recognised not only by economists, the Central Bank and others here, but by our peers and judges in Europe who must make the most critical decisions about all the economies in regard to economic and monetary union within the next 12 months. I am confident our economy will stand that test. On that basis I can say this economy is being prudently and well managed in the interests of our people.