Having listened attentively to the previous two speakers one can see just how divided the Fianna Fáil Party is. Deputy Burke complained about the level of spending, while Deputy O'Rourke wanted more spending. It shows clearly the difference between the Fianna Fáil philosophy on privatisation and that of the Progressive Democrats. If and when the Progressive Democrats Party gets into power it has promised to privatise as many companies as possible, yet statements from Fianna Fáil speakers today indicate it is totally opposed to even the partial involvement of any partner with Aer Lingus to ensure the company's future. Contradictions are emerging daily in the statements from Fianna Fáil depending on the audience it is addressing — local people in Ballymun or the business sector in Dublin 4.
There was a reference by Deputy O'Rourke to the fact that the Government partners are very much in agreement. That is because the Government is being managed well. There is total coherence among the three parties. We are adhering to our programme and, as a result, the country is benefiting considerably. The Fianna Fáil-Progressive Democrats Government collapsed following various scandals and inquires, and the Fianna Fáil-Labour coalition collapsed because Labour could no longer trust its partner in Government. This is one of the most successful Governments in the history of the State and I am sure the people will vote confidence in it in the next election, whenever that may be.
Deputy Burke referred to Telecom Éireann but failed to acknowledge its recent announcement of substantial decreases in the cost of international telephone calls which will make our industry far more competitive. That reflects the cost cutting exercise undergone by Telecom in recent years and the fact that it can be competitive which will help industry and tourism and boost our overall competitiveness.
Listening to Deputy Burke, who makes very little sense, and Deputy O'Rourke, to whom I would tend to listen a little more attentively, it is obvious there are wide differences in Fianna Fáil in regard to its future policy. There is no resemblance between the utterances of Fianna Fáil speakers and those of speakers from the Progressive Democrats.
I wish to examine specifically the sections of the Finance Bill which impact most directly on the agri-food sector. It is important to examine how these measures fit into the broader picture of the performance of that sector and its contribution to the national economy. I will commence by looking back at 1996, in particular the performance of the national economy and the way agriculture performed in that buoyant economic climate. I will briefly examine capital investment in agriculture during the 1990s.
At the end of 1996, agreement was reached with the social partners on a new programme, Partnership 2000, and I will refer to some of the main items contained in the agreement as they affect agriculture. Partnership 2000 provides a framework for the development of our economy over the next three years and it was a significant development on which to conclude 1996. From this agreement arose many of the Government commitments subsequently dealt with in the budget and which gave rise to the 1997 Finance Bill. I will refer to the various sections of the Bill dealing with Partnership 2000 commitments as I discuss them and conclude with a brief look at the prospects for agriculture, and the economy as a whole, for the years ahead.
In 1996, the economy performed exceptionally well with output growth of 7.25 per cent compared to an OECD average of 2.5 per cent. As in 1995, the strong growth was underpinned by low inflation and a low interest rate environment. I am sure Deputy Cullen received his copy ofThe Week in Europe today, the first item of which deals with the Irish economy. It is headed “Ireland tops EU growth rate” and reads as follows:
Ireland's economy grew in 1996 at five times the EU average growth rate. Irish GDP growth was 7.8 per cent compared to 1.6 per cent for the EU as a whole. Apart from Ireland, the next best performer was the Netherlands at 2.56 per cent. Most Members States saw reduced growth rates. Italy had the weakest growth at 0.77 per cent.
Despite that good news, Deputies Burke and O'Rourke told us the country was in trouble and that our economy was in a poor state. The indicators are that the economy is currently prospering and is likely to continue. Ireland is called the Celtic Tiger because it is perceived, not only in Europe but throughout the developed world, as a properly managed economy going in the right direction. That is the reason we are creating more jobs than ever through international investment. I spoke to a number of international investors recently who were very positive about Ireland and the way we are managing our economy. That is to the credit of this Government, although I would be the first to recognise the contributions of previous Governments.
The growth in the economy is impressive in the context of economic uncertainty in Europe and the difficulties associated with the negative impact of the BSE crisis. The underlying strength of the Irish economy has been achieved by a focused approach to fiscal, monetary, income and employment policies by the Government. The strong performance has been achieved without any upward pressure on inflation which has been held at 1.6 per cent — the lowest since the 1950s — and compares very favourably with an EU average of 2.6 per cent. The economy was driven in 1996 by strong domestic demand, with capital investment in construction rising strongly. The most significant development of our economic performance has been the increase of 50,000 in the numbers at work last year.
Despite the buoyancy of the economy, 1996 was a difficult year for agriculture. There were many difficulties which needed to be tackled by the Government in preparation for the budget. Although aggregate farm income throughout the year as a whole was maintained at just below 1995 levels, which was a very creditable performance, the benefits were not distributed equally across all sectors. There was very strong growth in output values in the pig and sheep sectors while there was a good performance in milk output values and, despite signs of a weakening of the international market for dairy products, milk prices were more or less maintained at the high levels achieved in 1995. Cereal producers suffered a sharp price decline which caused their output value to fall, although this was compensated to some extent by a very good harvest.
The main difficulties faced in 1996 related to beef production. Deputies hardly need reminding that from March 1996 onwards the BSE crisis threw this sector into turmoil, with a decline in consumer confidence in beef and the closure of certain international markets to Irish beef. The Government moved swiftly and made every effort to maintain stability in the market, to support producer income once the crisis emerged and to minimise income loss. The emergency market support measures adopted went a considerable way to assist with this. The special BSE package of £70 million which was secured in June last year was both timely and helpful. Included as part of this package was an amendment to the rules governing the deseasonalisation premium, worth £16 million, to guarantee its continuation this year. The additional £31 million package agreed in October will further cushion producers. The reopening of international markets and the recovery in consumer confidence within the EU helped stabilise the sector towards year end.
Since the 1992 CAP reform changes, direct payments have become a vital element of farmers' incomes, and 1996 was no exception with payments of over £904 million being paid out by my Department during the year. These equated to over 44 per cent of aggregate farm income in 1996 without which farmers would have found themselves in very poor financial circumstances.
Investment in agriculture increased by over 27 per cent in nominal terms and over 12 per cent in real terms between 1991 and 1995. Expenditure on farm buildings peaked in 1991, helped by grant aid available under the Operational Programme for the Control of Farmyard Pollution 1989-92. The pace of on-farm investment weakened during 1993 but recovered by 1995 reflecting in part the strong uptake of the new CFP scheme under the OPARDF 1994-9, and strong growth in farm incomes over the period. Favourable taxation incentives, introduced as part of the special package of measures for farmers in the 1997 budget, should further boost investment on necessary capital works for pollution control on Irish farms over the medium term. Investment in farm machinery has increased dramatically — by 50 per cent in the two years to 1995 — reflecting increased on-farm mechanisation and buoyant farm incomes. However, the 1996 out-turn may well show a levelling off of investment in response to the uncertainties caused by the BSE crisis.
The successful conclusion of Partnership 2000 provides the framework for social and economic progress and cohesion over the next three years. Partnership 2000 addresses three essential economic and social challenges: maintaining an effective and consistent policy approach in a period of high economic growth; significantly reducing social disparities and exclusion especially by reducing long-term unemployment; and responding effectively at national, sectoral and enterprise levels to global competition and the information society.
The primary objective of macro-economic policy is identified so as to secure and strengthen the economy's capacity for sustainable employment, economic growth and social inclusion. In this regard it was agreed that fiscal policy should incorporate the following: an action programme on social inclusion involving extra expenditure of £525 million; tax reductions of £1 billion, in a full year equal to over 0.55 per cent of GDP; annual growth in gross current supply service expenditure to be kept as close as possible to 2 per cent in real terms; a general Government deficit of not more than 1.5 per cent by 1999 and a debt-GDP ratio of 70 per cent by 1999.
As one of the major social partners the farm organisations were involved in these discussions and I believe that the agreement with these organisations provides a blueprint for developing a competitive sector over the coming years. The overriding concern in the short-term is to ensure that our high animal health status is maintained and that consumer confidence in livestock products is strengthened both at home and in our important export markets. Therefore, to provide for effective traceability of cattle we have agreed, in Partnership 2000, that the computerised animal monitoring system currently being developed will be fully implemented during 1998.
The production of low-cost high quality products that can compete in the more liberalised trading environment of the future is essential. The long-term competitiveness of the agri-food sector will depend crucially on attracting new entrants to farming, providing the necessary training, advice and research backup to all farmers and encouraging productive and non-productive investment throughout the sector.
Partnership 2000 contains commitments to improve existing arrangements for education and training for farmers. It also makes provision for an independent review of advisory services to ensure a more effective and efficient delivery of Teagasc programmes in this area.
Incentives to encourage new entrants into farming include a commitment to seek the continuation of the early retirement scheme after 1997. The agreement also provided for significant tax concessions to encourage investment and early transfer of land. The relatively high age profile of Irish farmers has been a persistent obstacle to structural change within the agriculture sector over many years, and I am very pleased that this year's Finance Bill has put in place a coherent set of tax incentives which will greatly assist the entry of young people into farming and encourage investment generally among farmers.
The targeted set of measures agreed in the context of Partnership 2000 and contained in the Finance Bill is as follows: the renewal of the special stamp duty relief for transfers of agricultural land and buildings to young trained farmers for a further three years is dealt with in section 98. This concession will save young farmers £4.5 million in a full year and will continue to act as an important incentive to early transfer and, in turn, structural change within the farming sector.
The Government is very much aware of the investment needs of young farmers and this was the subject of much discussion during the talks on Partnership 2000. Section 17 deals with concessions in this area and I consider that, for example, the continuation of 100 per cent stock relief for young trained farmers for a further two years will continue to benefit new entrants who have to invest heavily in building up stock numbers.
Section 18 allows all farmers to continue to avail of the 25 per cent stock relief which will release resources for productive investment for the upgrading and replacement of facilities necessary to reduce production costs and enhance efficiency.
One of the Government's main objectives is to maintain an environmentally sound farming sector. During the discussions on the new programme, the farm organisations pressed very strongly for the introduction of incentives for investment in necessary on-farm pollution control works, and it was agreed that some incentives were needed to encourage larger farmers within the tax net to undertake pollution related investment.
The commitment in Partnership 2000 to improve the existing very generous capital allowances available to farmers has been honoured. Under section 18 provision is made for a special one year allowance of 50 per cent of the expenditure incurred on necessary pollution control measures up to an expenditure limit of £20,000, with the balance of expenditure written off over the following seven years. This concession is the most favourable countrywide relief in the economy, and we are confident that it will make a very significant contribution to the protection of the rural environmental in the years ahead.
The commitment of small to medium sized farmers to environmental protection is clearly demonstrated by the strong uptake of the control of farm pollution scheme which attracted some 18,500 participants at the time of its suspension in 1995. To ensure that the momentum of on-farm pollution control investment is maintained over the coming years we agreed, in the context of Partnership 2000, to give priority to the reintroduction of the control of farm pollution scheme, if additional funds become available at the mid term review of Structural Funds.
Other changes of benefit to farmers and the food industry contained in the Finance Bill are also worth highlighting. Despite the fact that 1996 aggregate farm incomes were more or less maintained at the 1995 levels, many farmers were badly affected by the BSE crisis during the year, and continue to be affected. The decision to increase the VAT refund again this year to 3.3 per cent at a full-year cost of £14.1 million, and for which provision is made in section 78, should boost the income of farmers who are not currently registered for VAT but are required to pay VAT on their inputs.
Section 104 provides that farmers will also benefit from the increase in agricultural relief for Capital Acquisition Tax from 75 per cent to 90 per cent for those transferring land, buildings, livestock and machinery. This and other incentives will further ease the transfer costs for farmers, and young farmers in particular.
Under sections 37 and 38 the reduction in the standard rate of corporation tax from 38 per cent to 36 per cent and from 30 per cent to 28 per cent on the first £50,000 of company income will reduce tax on non-manufacturing activities.
Farmers, as taxpayers, will also share the benefits of what has been, by any standard, a well thought out and comprehensive Finance Bill. The further cut in the standard rate from 27 per cent to 26 per cent coupled with the widening of the bands increased personal allowances and the increase in the income tax exemption limit should all put more money into the pockets of farmers this year. The integrated package of measures for the farming sector contained in this year's Bill should boost income, promote on farm investment, particularly necessary investment in environmental protection, and help improve the structure of the Irish agricultural sector. The new measures, along with the renewal and improvement of incentives for investment and the orderly transfer of land, are important elements in the drive for improved competitiveness in the sector.
The Bill is very positive for the farming community. It honours many of the commitments made in Partnership 2000. This morning I heard a prominent trade unionist refer to the fact that many of the agreements entered into were not being put in place. They have been honoured in the agricultural sector and some are contained in the Bill.