Today I present my second budget to the House and to the Irish people as Minister for Finance and Public Expenditure and Reform.
A decade on from the financial and economic crisis that wrought havoc on the lives and aspirations of so many of our citizens, I can report that our economy is again growing strongly and sustainably. A record number of people have jobs and many of our citizens who left in the wake of the economic crisis are returning home. Our public finances are balanced. The policies pursued by this Government and its predecessor have facilitated this. This has enabled us to invest record levels of funding into our key public services, including health and education. The shared progress we have made is real.
The risks and the challenges we now face, however, are equally real. We are working hard to deliver enough housing to provide secure and affordable homes for all our people. Brexit, the outcome of which is still unclear, edges closer each day. Increasing trade barriers are raising the spectre of protectionism, and the international tax landscape is changing rapidly.
For these reasons we must continue to maintain a broad and stable tax base and ensure that our spending is efficient and sustainable and that our economy is as resilient in bad times as it is dynamic in good times. I will run a budgetary policy that will see a budget balanced and will be designed on the basis of what is right for the economy at each stage of our economic cycle.
At this point I want to acknowledge the input of all colleagues in government in preparing this budget and of course the constructive engagement of the main Opposition party in the context of the confidence and supply agreement.
The budget I am setting out to the House will further develop the strength and resilience of our economy. We will manage our public finances responsibly; provide significant additional capital investment to enhance the growth potential of our economy and to improve the quality of life for our people; protect the most vulnerable in our society and promote real and sustainable increases in living standards for all; and of course prepare the economy for the many challenges of Brexit, the best preparation for which is responsible budgetary policy.
PREPARING FOR BREXIT
Brexit is the political, economic and diplomatic challenge of our generation. The Government has been clear on our objectives, robust in our negotiations and thorough in our planning. We will remain at the heart of the European Union and open to the world. We will protect our hard-won peace. We will implement responsible but ambitious policies for the future of our country.
The most important next step is to conclude the negotiations on the withdrawal agreement, including the backstop to ensure no hard border in Ireland, and the political declaration on the future relationship between the EU and the UK. Once that is concluded, the transition period will be in place until the end of 2020 and negotiations on the future relationship can move ahead. Of course, in these negotiations we acknowledge our unique shared past and our social, economic and cultural links. This is why Ireland will press for the closest possible relationship across the UK.
Across the Government the necessary measures to prepare for Brexit are being put in place. These plans are based on a central case that there will be agreement in the coming weeks. However, the possibility of a no-deal Brexit has influenced decisions we have made on our finances, balancing our books and investing in our capital infrastructure.
In addition to this, further decisions I will outline later today include the launch of a human capital initiative worth €300 million; the launch of a future growth loan scheme for small and medium-sized enterprises, SMEs, and the agricultural and food sector; the provision of over €110 million for Brexit measures across many Government Departments; and increasing funding for the PEACE programme.
As we look forward to 2019, this budget will help to ensure that Ireland is in the best possible position to respond to the challenges - and indeed even some opportunities - that Brexit will bring. We face the year of Brexit with a balanced budget, more people at work than ever before and a strong platform for future growth.
ECONOMIC PROGRESS IN 2018
I can confirm to the House that our economy is growing at a healthy pace. GDP growth of 7.5% is now forecast for this year, an upward revision of nearly two percentage points relative to our forecasts in the April stability programme update, supported by stronger than expected growth in the first half of this year. Next year, gross domestic product is forecast to increase by 4.2%. Domestic demand has increased by 6% in the first half of the year, and with exports increasing by just under 9% our growth is broadly based and supported by many sectors.
We now have record employment. There are over 380,000 more people at work today than there were at the low point in 2011 and the rate of unemployment is at its lowest level in a decade. Our policies are working.
Reflecting this broad-based recovery, tax revenues are largely in line with forecasts for this year with €37 billion collected by the end of September, an annual increase of 5.2%. We expect to meet our target of €55.1 billion by the end of the year.
BUILDING STRENGTH AND RESILIENCE FOR THE FUTURE
However, as a small open economy, we are disproportionately impacted by changes in the international economy. Historically, our economic performance has been less stable than that of other small open economies in the EU. In the future, our ability to withstand economic shocks needs to be stronger. It needs to be rebuilt. This is why I am establishing a rainy day fund to increase the State’s resilience to larger economic shocks. The fund will be capitalised with €1.5 billion from the Ireland Strategic Investment Fund, ISIF, and supplemented with an annual contribution of €500 million from the Exchequer starting from 2019. Some of the historically high levels of corporation tax will be set aside for the purpose of capitalising the fund.
Due to the strength of our economy, our public finances have improved. While the summer economic statement forecast a headline deficit of 0.2% this year and 0.1% in 2019, the progress we have made means that we will reduce our deficit to 0.1% in 2018. Building on this progress, I am pleased to announce that next year I will balance the budget for the first time since 2007. It is my intention to run surpluses into the future if the economy continues to perform well and to use them, in turn, to reduce our national debt. We will continue to be careful in the management of our public finances. The need for this was set out in a recent report by my Department which shows that our public debt level amounts to €42,000 for every person resident in the State, one of the highest in the developed world. We will continue to reduce our national debt as a percentage of our national income. Having stood at 111% of GNI* in 2017, this is forecast to reduce further to 105% in 2018 and 101% in 2019.
Within this framework, we have scope to increase expenditure for next year. Total voted expenditure in 2019 will be €66.5 billion. This amounts to €13,571 for every person living in Ireland. Next year, I am allocating €59.2 billion to current expenditure, a 4% increase. This will be seen in every classroom, hospital and Garda station across our country. The quality services and jobs supported through this investment are a vital part of what makes our country function each day. The Government will continue to incrementally improve the delivery of public services. The public has demanded this and we will deliver.
Importantly, the increase in current expenditure I am committing to today is lower than the rate of economic growth forecast for next year. This is consistent with my view that current expenditure growth should not exceed growth in national income. In addition, the 20% increase in current expenditure between 2014 and 2019 is significantly lower than the 57% increase between 2004 and 2009, a comparable point in the economic cycle. This underlines my commitment to responsible management of expenditure and our public finances. This allows me to allocate an additional €1.4 billion for schools, universities, public transport and other important infrastructure projects in 2019, bringing total capital expenditure next year to €7.3 billion.
This is an increase of 24% and means that investment next year will be 3.5% of GNI* compared to an EU average in recent years of 2.7% of GDP. This should place Ireland in the top ten European countries for levels of public investment in this area. We are making this significant domestic investment at a time of external uncertainty when the impacts and consequences of Brexit are unclear.
The Government has made the clear national choice in Project Ireland 2040 to prioritise increases in capital spending to address the infrastructural deficits that emerged during the recession. Project Ireland 2040 foresees population growth of 1 million supported by massive planned investment in our national infrastructure. This means we will build more houses, hospitals and schools, climate-proof our economy and invest in our energy and communications networks.
Added to this, the Dublin Airport Authority, DAA, is investing €320 million to enhance capacity at Dublin Airport and €587 million will be invested in the ports of Dublin, Cork and Shannon-Foynes to enhance our national and international connectivity. Crucially, Project Ireland 2040 also includes a comprehensive programme of investment in cross-Border and all-island projects which will be of huge significance in protecting and growing prosperity in the Border region. I believe the steps we are taking will benefit our country for years to come.
In the summer economic statement, I stated that €3.4 billion of additional resources were available for 2019. Of this, €2.6 billion has been pre-committed to expenditure measures leaving €800 million to be allocated. To enhance these resources, I am raising additional revenues in the order of €700 million. This will allow us to spend €66.5 billion in total in 2019. Of this, €59.2 billion will go to current expenditure and €7.3 billion to capital expenditure. I am also introducing a personal tax package worth €291 million in 2019.
I am allocating a total of €2.3 billion to the housing programme for next year. When added to the additional €93 million in local authority funding for housing next year, this represents an increase of over €470 million or 26% on 2018. This means that over four years to the end of 2019, €6.6 billion will have been provided to accelerate the delivery of housing supports. This funding reflects our determination to do more to rise to the challenge of providing shelter and homes for our people.
I acknowledge that where we find ourselves today is not where we want to be. There is much work to be done to reduce the level of homelessness, find permanent solutions for those in temporary and emergency accommodation and to improve affordability for those on low and middle incomes.
However, from a point where housebuilding was close to a standstill a number of years ago, the Government has made, and is continuing to make, progress. In the past 12 months, 5,000 households have exited homelessness.