The joint committee is joined by a delegation of the Czech Parliament, Mr. Michal Doktor, Mr. Petr Cervenka, Mr. Daniel Rovan and Ms Miloslava Vostra. I understand the delegation is interested in discussing issues such as public service, budgetary finance, EU budgetary policy and Ireland's experience with the Structural and Cohesion Funds.
Exchange of Views with Budget Committee of the Parliament of the Czech Republic.
Mr. Michal Doktor
I thank the Chairman for his words of welcome. Ms Vostra is a member of the Communist Party of Bohemia, while Mr. Cervenka is a member of the Czech Social Democratic Party. Mr. Rovan and I are members of the Civic Democratic Party. This is our second working day in Ireland. Yesterday we had an interesting meeting with the Department of Finance. Although we have prepared for this visit thoroughly, yesterday we realised the many differences in habits and ways between our two countries. Many governments in emerging democracies have a bad habit of dispensing moneys before elections. We noted the Irish Government has also already dispensed some moneys.
It is contagious.
Mr. Doktor
How difficult was it for the Irish Government to increase the budget and how hard were the discussions at the committee concerning this topic?
I am the Chairman and a Government Deputy from the midlands. The Vice Chairman is Deputy Michael Finneran. Deputy Paul McGrath is the Fine Gael Party's deputy spokesperson on finance. Our position is that it is the people's money, not the Government's. We see no problem in giving the people their own money. The Opposition believes that is wrong but we do not.
It is typical when there is a difficult situation, that the Government will pass it on to the Opposition. Our economic position is set out by the Government. There are clearly defined lines between the Government and the Opposition. The Government decides economic policy and has a majority to ensure it is passed by Parliament. There are no compromises on these issues. The witnesses referred in their introduction to the increase in spending that may occur in emerging democracies in the run-up to elections. That is not just a feature of emerging democracies. For example, there was an increase in spending before Ireland's previous general election in 2002. The graph went up dramatically and then levelled out. Now it is going up again with a general election due this year.
The Chairman rightly pointed out that personal taxation has recently decreased somewhat in Ireland regarding lead rates and sums paid. However, there has been a dramatic increase in sums raised through indirect taxes. For example, if someone buys a new house costing €300,000, which is the average price, approximately €100,000, or one third, goes to the Government in the form of some tax or other. If one puts €40 of petrol in one's car, the Government takes €25. The delegates probably have some kind of goods tax in their country, which here is known as VAT. That is currently set at 21% and covers everything except food. For the first time in the history of our State, last year the take in VAT exceeded that from personal taxation.
One can compare that with an economy similar to ours such as New Zealand. It has a similar goods and services tax, but the take there is 10% of what is taken in personal tax. Here, the tax take from VAT exceeds the personal tax take. That points to the possibility that the lead personal rates may be low but the incidental taxes are high.
I apologise for not welcoming the members of the group when it arrived. I am glad to have met them and shared ideas. I am afraid that I was so excited by the Government asking me to explain the position that I forgot to greet the delegates at the beginning.
I join the Chairman and Deputy Paul McGrath in welcoming the delegation from the Czech Republic. They are very welcome, and we have a great deal in common, with our Celtic roots. We are probably related if we go back far enough.
Perhaps I might detail the facts from a Government perspective regarding Ireland's economy, which is one of the most successful in the Western world. We have practically no unemployment and the second lowest ratio of debt in Europe after Luxembourg. We also have a national development plan that stretches until 2016. That plan lays down a blueprint for the Irish economy and nation over the next ten years. It is open and transparent and was published earlier this year. There is no question of the Government frontloading expenditure or spending money willy-nilly before the election. All the promises on spending are coming from the Opposition.
The Czech Republic has recently joined the European Union and has a very stable economy. I believe that projected growth for 2007 is approximately 5%. We have used Structural and Cohesion Funds very well to benefit the Irish people over the past 30 years, and we wish the delegates well in accessing funds through the EU and further developing their fine country. The delegation is very welcome and if there are questions the committee will be pleased to answer them.
The Irish economy is now so strong it is operating at 100% capacity. One of the frustrations we have in Government is that new projects take a long time because activity in the construction industry is at full steam and there is very little capacity for extra work to be done quickly. More than 50,000 immigrants come to Ireland each year, most of whom work in construction. Finally, all the major contracts in Ireland are subject to EU tender processes, so it is not possible to get things done just before an election. It is a slow process. It is a small exaggeration, therefore, to say we are spending all this money before the election.
The Minister will have a photocall, however, for a particular project. He or she will then have a photograph to show constituents what is supposed to be happening before the election.
I invite members of the delegation to ask questions if they wish.
Mr. Doktor
Even in the Czech Republic the construction industry plays an important role in terms of the gross national product. Similarly to Ireland, vacancies in the construction industry are being filled by foreign employees. I have a feeling that, as with Ireland, greater efficiency is the only way to expand this industry. Greater numbers of people in construction is not the solution, but only increased all-round efficiency.
Regarding tax collection, even in our country the weight of revenue is shifting from direct to indirect taxation. I have noticed in the Irish budget Estimates for 2007 the planned growth in VAT. In our country, too, the number of goods on which VAT must be paid is increasing. In sport, we have not had quite the positive results Ireland has had, with the great win last week over England in rugby. Will this have positive effects for the Exchequer?
While the Irish economy has grown massively, followed by some flattening out of its performance, how efficient is the Government at controlling expenditure? Our problems arise from the fact that most of the expenditure within the budgetary framework is mandatory, by virtue of legislation. It is very difficult to reduce such mandatory expenditure without altering the legislation. That is why I should like to know the process through which the Irish Government reduces its expenditure. I assume the Oireachtas has a contributory role in that regard.
I thank the delegation for its comments about the sport last Saturday. We saw the Czech Republic's goalkeeper, Petr Cech, playing for Chelsea at the weekend and he helped win the big cup competition for his club against Arsenal. Many Irish people follow the Czech Republic's players in English soccer. There is not much professional soccer in Ireland, so most Irish people watch the English games. We shall now endeavour to answer the questions.
In a few sentences I will try to explain how the system works here and what checks are in place to monitor spending. The main expenditures in the annual budget relate to health, education and social welfare, for example pensions and whatever. These are set out in the Budget Statement and normally there cannot be any overrun unless, perhaps, unemployment rises. To that extent the revenue budget is relatively stable.
The capital budget, which I have spoken about, namely, the national development plan, is a different matter. Projects are on demand at all times under this heading, whether for schools, hospitals, roads, rail or whatever. In the past 12 months 18 of the 25 projects under EU advertisements came in under budget and on time.
I would like to make one more point about our social agreement. It is reached between employers, employees, the Government, farmers and the other pillars of society. It is set in place and has kept industrial peace in this country for many years. This has proved very advantageous from an economic perspective.
In overall terms, we are in a very comfortable financial position. As we have budget surpluses, there is no need to reduce public expenditure and cut programmes. In recent years there has tended to be an underspend at the end of the financial year, partly because of the difficulty in having projects completed on time owing to full employment. However, in the 1980s we were in a very difficult financial position, as a consequence of which there was a need to cut public expenditure drastically. This was done by a combination of measures and the Government had the support of the main Opposition party between 1987 and 1989. The Department of Finance was assisted by a group of economists and other advisers, popularly known as "An Bord Snip". There was also a scheme of voluntary and agreed public service redundancies. A number of subsidy schemes — especially environmental schemes — were cut or dropped. Cuts were also made in the number of hospital beds which created problems for the future. There was a temporary increase in the pupil-teacher ratio which was agreed with the trade unions. These cuts were reversed when the financial position improved.
EU Structural and Cohesion Funds played an important role during that period. What was known as the Delors package was introduced in 1989; a second package was introduced in 1993. This helped us to maintain a level of capital expenditure which would not have been easy to maintain, given that we were correcting budget deficits and borrowing. There was probably a degree of de facto displacement, but EU funding helped us to manage the economy during a period when we had to redress the public finances. We have now come to the end of the third EU funding package. We have a major national development plan worth €184 billion, very little of which will come from the European Union, outside the area of agriculture. We are now in a position to meet from our own resources our capital investment needs for the next ten years.
I invite comments from the delegation.
Mr. Daniel Rovan
Let me express our thanks. Yesterday, we had an opportunity at the Department of Finance to get detailed information about the procedure of budget creation.
Mr. Rovan might tell us. It is often a secret to us.
It is protected from freedom of information provisions. We cannot see it.
Mr. Doktor
We could organise a meeting in Prague concerning the Irish budget.
Mr. Rovan
The Irish way differs significantly from the way we create the budget in the Czech Republic, particularly with regard to the role of the Government, on one side, and the role of Parliament on the other. In the Czech Republic, the budget is adopted through a special Act. In the procedure which is implemented in Ireland, as we see it, the role of the Parliament is different from the role of Parliament in the Czech Republic. I would like to know the role played by this committee.
The delegation will learn no good lessons from the Irish Parliament in this regard. The Irish Parliament's procedure in this area is a disgrace. For example, our committee is considering the expenditure for 2007 in April 2007. Every other committee in the Parliament considers Estimates for their Departments in April of this year. It is clear that much of the money has already been spent and the rest is already committed. The discussion at our committee serves no useful purpose.
The Minister for Finance has agreed to change the process from next year because every business should discuss the spending of its money in advance, not after the money has been spent. If we are re-elected and are here next year, we will be able to tell the delegation if that has happened. In reality, the Government dictates to Parliament. The Government has a majority, so it does not need to debate with Parliament. What I have said has probably offended many Members of the Parliament, but it is the truth.
Having read the brief with regard to the two Czech deputies who did not turn up at the Parliament to effect a vote, it does not happen like that in Ireland. The Government parties, despite what they will say, will support the budget.
What is the inflation rate in the Czech Republic? Does it have a minimum wage per hour? It is €8.30 in Ireland.
Mr. Doktor
The inflation rate for 2006 was 2.5% and was 1.3% in January of this year. The greatest cause of inflation in the past year was the growth of regulated prices, which in the Czech Republic are the prices of housing and energy. Consumer prices played an insignificant role in this inflation and related mainly to excise duty on tobacco, which was increased. The fluctuations in oil prices on world markets have not been reflected significantly in inflation in the Czech Republic. The estimate for inflation for 2007 is 3% to 3.5%. The 3% figure is the estimate by the Czech National Bank and the 3.5% figure is the estimate by the Department of Finance. The minimum wage is 8,000 CZK per month. This equates to some 49 CZK per hour, or approximately €1.50. However, one must take into account the purchasing power parity.
Exactly. I emphasise that the greatest problem the delegates will encounter in their economy in the years ahead is inflation. This was a problem for us after we joined the EU, as it was for many member states. The Czech Republic's currently low wage rates and low cost of living will rise as they have done elsewhere in Europe. This will be a problem for its economy.
Mr. Doktor
I understand inflation is running at 5.4% in Ireland. Perhaps we can continue our discussion of this issue during lunch. I am particularly interested in the possible implementation of so-called ecology or environmental taxes in Ireland. The minimum rates of the ecology tax being ordered by the EU are significant and may represent a substantial inflation driver. The ecology tax concept is based on so-called double benefits. Is the Irish Government already discussing its approach in this regard? Has it considered whether if taxes are increased on one side, there might be some reduction on another side to balance that?
That debate is only starting in Ireland and no decision has yet been made.
We have our heads firmly in the sand until after the election.
Mr. Doktor
In April our Parliament will discuss the minimum limits that should be implemented.
I thank the delegates. We will conclude our discussion but can continue it over lunch.