I am pleased to have the opportunity to contribute to this budget debate. This has been a landmark budget. It is comprehensive, progressive, developmental and caring. The Minister for Finance deserves all our thanks for the prudent way in which he managed the national finances over the past year and a half. It left him in a position to allocate the resources available to him. In doing so, he succeeded in producing a fair and balanced budget and he used the opportunity to be most helpful to those most in need.
The resources were available to the Minister because workers worked hard over recent years, management was progressive and professional and the trade union movement was responsible and always had the best interests of its members at heart. Employers and farmers took the same approach. Our good economic performance has resulted mainly from the structure of partnership Government and the partnerships programmes, which have been exceptionally positive and successful over the past decade.
The budget is important to every sector of the economy. The agri-food sector has been given a very generous allocation, which is very welcome in view of the difficult times experienced by agriculture and farming over the past few months. The budget will contribute to and maintain national economic growth generally, while also ensuring that we care for those most in need. It is a difficult task to strike the right balance, but the Minister for Finance is to be commended for his efforts in this regard.
We are all aware of the difficulties faced by the agri-food sector in the past few months. There were two primary causes: the collapse of the Russian market and the very difficult weather. Ireland depends to an inordinate extent — up to 85 to 90 per cent — on foreign markets and lost out, especially on the Russian market. That was compounded by the fact that our EU partners also lost this valuable export market, thus resulting in our having to compete strongly on the EU market. The international markets for pigmeat also suffered badly, not just from the Russian crisis but also from the effects of the weakness in the Asian markets and a serious general oversupply in the EU pigmeat markets. This meant that the cattle, beef, sheep and pigmeat markets suffered badly from low prices over recent months. The international markets for pigmeat also suffered badly, not just from the Russian crisis, but also from the effects of the weakness in the Asian markets and a serious general oversupply in EU pigmeat markets. The cattle and beef markets, the sheep markets and pigmeat markets all suffered badly from low prices over the past few months.
As each new development unfolded I responded effectively in a swift and comprehensive manner to counter the negative effects. I will briefly recount the wide range of actions I have taken to date. For example, total direct income payments this year will amount to £1,023 million. This has set a new landmark in that they, for the first time, represent over half of aggregate, that is 55 per cent, of farm income. This record figure reflects the speeding up of payments by the Department of Agriculture and Food; an increased advance in suckler cow and special beef premium payments from 60 per cent to 80 per cent; and a special package of almost £20 million, including £10 million in fodder payments, £6 million for a mountain ewe destocking scheme and almost £3 million in sheep headage top-up.
Other key actions I have undertaken during the past few months include: winning substantial increases in export refunds for beef and pigmeat, export refunds for beef were increased by 9p from 43p to 52p, there was a 33 per cent general increase for export refunds for pigmeat and a 75 per cent increase in export refunds for pigmeat destined for the Russian market; getting private storage schemes for sheepmeat and pigmeat — 70,000 tonnes of private storage for pigmeat; and obtaining increased access to intervention for heavier cattle. I call on the industry to use those achievements and facilities, particularly increased access to intervention and the aid to private storage scheme for pigmeat. As I said publicly on several occasions, I am disappointed the meat processors have not used the improved intervention arrangements or the improved APS scheme more extensively. However, the reality is that without the availability of intervention support it is doubtful if the fall in cattle prices would have been arrested.
The figures for farm income released by the CSO on Monday this week show that aggregate income fell by 4 per cent for the year as a whole. While average farm income would have fallen by less than this, as farm numbers are declining, the result is very disappointing, coming after last year's decline and in view of the very good income performance in the previous five years during which average farm incomes improved by some 50 per cent. The 1998 figures mask different performances in different sectors. For example, dairy farmers had a good year while cattle sheep and pig farmers were hit by substantial price losses. Nevertheless, the CSO figures show that overall agricultural output value for the year fell by less than 1 per cent. There was an increase in the cost of production, the input side of the equation, which was more problematical. Input costs are estimated to have risen significantly and depreciation also increased. The latter is good news in the sense that it reflects the very high levels of investment in recent years which will stand to the agricultural industry for years to come.
We estimate that direct agricultural payments to farmers will reach the record level of in excess of £1 million in 1998. That is an extraordinary figure and a 9 per cent increase on last year's figure, which was an all-time record. This level of direct subsidy payments to farmers shows how strong my commitment is to supporting the sector. While others made a good deal of noise and issued wild and exaggerated statements, I worked hard to ensure that farmers would have the support they needed and this is why the income figures are better than many people had anticipated. Farmers are entitled to compensatory payments. I was Minister in the early 1990s when these direct payments were negotiated and they are an important buffer in these difficult times. I ensured that extra resources and staff were provided in the Department and compliment the staff who worked overtime and unsocial hours over weekends to ensure the extra payments were issued to farmers.
With this budget the Government has shown its continuing recognition of the difficulties faced by farmers and its continuing support for the sector. This budget has delivered in two key areas, in providing further support for our most severely disadvantaged and marginalised farmers; and in providing a number of measures which will strengthen the competitiveness of the industry for the future. For example, the 1999 Estimates provide £814 million gross for agriculture and food, a record figure. That is a net increase of 19 per cent, which will underpin the sector during this difficult period and build for its future development.
The measures in the budget are well balanced. They will provide assistance to low income farmers and our rural communities, while also strengthening the competitiveness of the sector for the future. Low income farmers will benefit from the introduction of the new smallholders assistance scheme. They will benefit from headage support payments of £111 million for next year and other general social welfare measures including the new pro rata old age contributory pension. Rural communities will benefit from Leader and INTERREG payments of £40 million and from the £50 million special allocation for rural water and sewerage schemes.
Other measures include the extension of the 25 per cent general rate of stock relief and the 100 per cent special rate for young trained farmers to 5 April 2001; and an increase in the flat rate VAT refund from 3.6 per cent to 4 per cent. The value of that flat rate VAT refund will be approximately an additional £11 million for the coming year, making its total value in excess of £100 million. Farmers in isolated rural areas, particularly in the west, will benefit from funding for REPS, which was increased by 21 per cent for the coming year. The take up in that scheme has been fabulously successful. The total allocation for next year will amount to £176 million, which is in the order of £3 million per week for that scheme alone.
I was particularly pleased to be able to help secure an allocation of an extra £25 million to allow for the reopening of the farm investment schemes, including the control of farm pollution scheme, the dairy hygiene scheme and the scheme of installation aid for young farmers. A total of £10 million over three years has been allocated to the scheme of installation aid. An increase of up to £73 million has been provided for the farmers early retirement scheme, £42 million has been provided for disease eradication and controls and £6.5 million has been provided for the national beef assurance scheme. That is an important scheme to ensure we continue to trade and maintain our presence in the valuable beef market worldwide.
I am particularly pleased with the budgetary provision for low income farmers. It allowed for the introduction of a smallholders assistance scheme. The new scheme has several significant advantages over the previous scheme. Under the new scheme, the means test applied to farming families to assess eligibility for the scheme will be changed. The new system provides a £100 disregard of annual income for each of the first two children, and a £200 disregard each for the third and subsequent children. Additionally only 80 per cent of remaining income will be counted for the purpose of the means test. As a result, many farm families who do not currently qualify for assistance will now qualify, and many families who already qualify will be eligible for higher rates of payment. For example, a farmer with a spouse and two children, earning £100 per week, would have qualified under the old scheme and received a weekly payment of £38 per week. Under the new means assessment system that same farmer will receive almost double that amount, £66 per week. A farmer with an income of £150 per week, who has a spouse and two children, would not have qualified for the old scheme, but under the new scheme will qualify for a substantial weekly payment.
The number of participants in the scheme is expected to almost double from 6,800 under the old scheme to almost 14,000 under the new scheme. The scheme will cost in the order of £45 million next year, but as it is demand-led it may be more or less than that depending on the number of farmers who apply to participate in it. The essential matter is that the Government has always recognised the important role the farming community plays in maintaining the fabric of rural society and this new scheme reinforces our commitment to them.
The Government's decision in that regard is in addition to the recent decision by the Minister for Social, Community and Family Affairs to introduce a pro rata contributory pension which will benefit all self-employed people, about 8,000 in all, who were aged 56 or over in April 1998 and who have at least five years paid contributions since then. This scheme will cost an additional £18 million.
A provision of £111 million is being made for headage support payments in 1999. This includes a further substantial allocation from the Exchequer. Over the six years of the Structural Funds programme a total of £718 million in cofinanced and non-co-financed funds would have been paid out under the headage schemes. These payments benefited 100,000 farmers in disadvantaged areas. These are the most deserving farmers. The payment of £718 million over the past six years is substantial and because of front loading in these schemes, almost half of that money has come from the taxpayer or the Exchequer.
An allocation of £40 million has been made for the Leader and INTERREG schemes. These programmes encourage and support development initiatives by local groups and rural communities.
Earlier I mentioned the allocation over three years of £50 million for rural water and sewerage schemes. This allocation involves two programmes, one relating to facilities in small rural towns and villages, and one directed towards improving water quality in private group schemes. With the concentration of industry around urban centres, and the consequent migration, people often forget that nearly 40 per cent of our population still resides in rural areas. This £50 million was badly needed in those areas and once more shows our commitment to maintaining rural society.
The provisions made for improving the competitiveness of the agri-food sector for the future include measures to improve the age structure, protect the environment and strengthen further action on food safety and quality.
With regard to the age structure, this budget sees the introduction of a new, targeted national scheme of installation aid for young farmers. The scheme will be funded by the Exchequer at a cost of £10 million over three years.
The allocation for the farmers' early retirement scheme has been increased to £73 million for this year. The early retirement scheme, which applies to farmers over 55 years of age, has assisted the hand over of land to younger farmers. To date more than 250,000 hectares have been released to young farmers to improve the viability of their holdings, thereby improving the structure of the industry overall. To date over 8,000 eligible farmers have joined the scheme and are receiving pensions of up to £10,000 per annum.
Some specific agricultural tax measures were introduced in this budget. The general 25 per cent rate of stock relief and the 100 per cent rate for young trained farmers have been extended by two years, from 5 April 1999 to 5 April 2001. This measure has a dual purpose — to encourage further investment in stock and to encourage the participation of young trained farmers. Both of these measures will be worth a total of £1.5 million in a full year.
The flat rate VAT refund will be increased from 3.6 per cent to 4 per cent. The rate change will ensure that farmers continue to be compensated in full for the VAT they bear on their business inputs. The change will cost £10.76 million in a full year, while the total benefit accruing to farmers is in excess of £106 million per annum.
There have been many measures introduced in this budget for the purpose of maintaining and improving the environment. The rural environmental protection scheme has been very successful in the past. A measure of this success is the high level of participation in the scheme — 38,500 to date. The 1999 allocation shows an increase of 21 per cent to £176 million. This will allow more farmers to participate in the scheme and to avail of attractive supports for farming in an environmentally friendly way.
I have worked hard to secure the reintroduction of the farm investment schemes. Application forms for the scheme will soon be available. An additional £25 million has been allocated in this budget, bringing the total allocation to £36.5 million. This allows for the reopening of the control of farm pollution and dairy hygiene schemes. This funding is in addition to the £45 million which I have already secured for on farm investment since taking office and meets the commitment in An Action Programme for the Millennium. The newly introduced schemes will be more focused in their approach than in the past, with the emphasis on assisting the smaller, more marginalised farms.
In strengthening the development of our food industry, food safety and quality must be given the absolute importance they deserve. The market demands a strong focus on disease eradication and control. In response to these demands, we have increased the budget allocation by 18 per cent to £42 million. This will ensure that the systematic and comprehensive disease control measures which are already in place can be further strengthened.
Still on the theme of food safety, we have maintained our allocation of £6.5 million to the national beef assurance scheme. Provision in this area is to ensure that the national infrastructure for cattle traceability and the associated quality control checks are implemented.
The marketing of beef in the future will depend more and more on the guarantees we can offer our customers on the safety and the quality of the product, as well as its traceability to the farm of origin.
The agri-food industry will also benefit from the changes introduced in corporation tax. The 4 per cent reduction in the top rate of corporation tax is significant and is the first of many reductions intended to reduce the rate to 12.5 per cent by 2003. This step should attract further investment and aid competitiveness and job creation. Equally important for small business is the increase in the threshold for the low rate of corporation tax, from £50,000 to £100,000.
The farming sector will also benefit from some of the more general taxation and social inclusion measures introduced in the budget. Income tax has been changed dramatically in preparation for a move towards a tax credit system. The basic personal allowances have been standard-rated and substantially increased. These changes will remove from the tax net 80,000 taxpayers, who would otherwise be liable for tax and I am confident this measure will include many farmers. These changes are worth £581 million in a full year.
Budget improvements in social welfare will cost £288 million in a full year. Its focus on the elderly will be especially welcome in rural areas. In addition to increased old age pensions, the budget provides for improved eligibility conditions for the medical card for people over 70.
The tax and expenditure items I have outlined are a well balanced package of measures to support the agri-food sector. They will contribute both to assisting the sector in its short-term difficulties and to supporting its long-term development. Our objective is to ensure that farm families get a decent income and that they have a realistic future in the sector.
Farm families and rural communities generally will benefit substantially from the broader tax reform measures in the budget and the improvements in social welfare rates. Most importantly, this budget will contribute significantly to the continuation and reinforcement of our current economic success. This is vital to us all.