At the outset, I would like to extend to the House the Minister for Finance's apologies at being unable to attend himself this afternoon. You can appreciate, of course, that the Minister is at present fully engaged in familiarising himself with his new responsibilities and preparing the groundwork for his first budget.
The Appropriation Bill is an important annual piece of financial legislation the purpose of which is to give statutory effect to the Departmental Estimates for the supply services, both non-capital and capital, including all Supplementary Estimates that were voted and approved by the Dáil since the enactment of the 1987 Appropriation Act. This year's Bill appropriates to the various services set out in the Schedule to the Bill, the sum of £6,454 million comprising the Estimates totalling almost £6,372 million as set out in the revised post-Budget Book of Estimates, Supplementary Estimates of just over £67 million and some £15 million in respect of a 1986 excess on the Environment Vote.
As usual the Bill also authorises the use of certain departmental receipts amounting to almost £668 million as appropriations-in-aid.
The 1986 excess on the Environment Vote arose because of a deficiency in appropriations-in-aid as a result of the ESB's refusal to pay its full contribution in lieu of rates for that year as required under section 7 of the Electricity (Supply) (Amendment) Act, 1982. Following intervention by the Government in 1987, the ESB agreed to pay the balance of the 1986 contribution and this was brought to account in 1987. The shortfall on the 1986 accounts must, however, be made good, hence the need for the excess Vote. The excess Vote was cleared by the Committee of Public Accounts and has been approved by the Minister for Finance. As the Central Fund (Permanent Provisions) Act, 1965 does not authorise the issue of moneys for an excess vote, a special section is required in this year's Appropriation Bill for this purpose.
The Appropriation Bill also provides the statutory basis for calculation of the "four-fifths" issues which the Minister for Finance is authorised, under the Central Fund (Permanent Provisions) Act, 1965, to make from the Exchequer towards meeting the cost of next year's services during the period before the Dáil has an opportunity to consider and pass the various individual Estimates.
I want now to look at recent economic developments. Many of the main economic indicators have shown considerable improvement over the past two years. Growth last year was over 5 per cent, the highest growth rate of the eighties so far. This was mainly due to the strength of exports. Last year we saw the trade surplus improve further, while the balance of payments moved from deficit into surplus for the first time in 20 years. Inflation fell to a very low level — just over 3 per cent — and was in line with the European average, rather than double it, as was the case in earlier years.
I am glad to report that these favourable trends are being maintained this year. While GNP growth probably will not reach the exceptional heights of 1987 which resulted from a very strong export performance, it will probably be in the 1 per cent to 2 per cent range, higher than anyone had believed possible at the time of the budget. Inflation has continued to fall this year, averaging 2.1 per cent — the lowest inflation rate for a quarter of a century. It is now actually lower than the EC average and, of course, very much lower than in the UK, our single largest trading partner.
The trade surplus is continuing to improve this year. In the first ten months of the year, the surplus was £1,731 million, up from £1,205 million in the first ten months of last year. For the year as a whole, we will probably see a trade surplus of about £2 billion, which is equivalent to about 11 per cent of GNP. The main source of the improvement in our trading position continues to be the strength of exports. In the first three-quarters of the year, the volume of exports was 9½ per cent higher than in the same period last year. It is very heartening to see that this export growth has been more widely spread among all sectors. Growth is no longer coming from the high technology sectors alone.
Mainly as a consequence of the strength of exports, the balance of payments surplus is expected to grow. Last year we had a balance of payments surplus for the first time in 20 years. This year it is expected that the surplus will increase, probably to about 4 per cent of GNP compared with about 1½ per cent last year.
There will be a surplus this year even though imports of capital goods have increased by over 6 per cent year-on-year in the first nine months of the year and imports of consumer goods by over 8 per cent. Moreover, the surplus cannot be attributed to a temporary boom in exports. The recent strong export growth reflects increased industrial capacity in the economy and a stronger competitive position which Government policies have fostered. The surplus can be maintained because the world economy, especially the EC, is now in a phase of rapid industrial growth. There is every reason to believe that the balance of payments position will remain sound over the medium term.
Interest rates in 1988 continued the remarkably favourable trend that has been evident since the Government assumed office. The present level of rates is a full 6 percentage points below the level in early 1987. Interest rates are now at their lowest level for over a decade. Incidentally our Associated Bank's prime rate is also a full 6 percentage points below the corresponding UK rate.
The benefits of lower rates to the business and personal sectors are self-evident. Investment is encouraged by the reduced cost of capital and personal interest rate burdens are lessened. In general, increased confidence generated by lower interest costs are assisting growth in activity and hence in employment in the economy.
Encouraged by lower interest and inflation rates, consumer spending is showing a modest expansion. Private consumption is likely to grow by about 1½ per cent this year compared with no change in 1987. Retail sales have arisen by about 11 per cent for the year to August; new car registrations are over 12 per cent up for the year to date. Also, investment in plant and equipment is picking up.
Although there have been major successes over the past 18 months, unemployment and emigration remain at unacceptably high levels. Reducing unemployment by expanding employment continues to be a major priority for the Government. It is heartening to see that unemployment has begun to fall. This year to date, there has been an average decline of nearly 6,000 in the live register compared with the same period last year. The live register for end-November showed a drop of 2,100 in the de-seasonalised total. This was the fourth successive month in which such a fall took place. The fall in November was the largest so far this year and the seasonally adjusted figure was the lowest for over two years.
This decline has come about for a number of reasons. It certainly has not been due to emigration and the Jobsearch programme alone, as some critics claim. The labour force survey for mid-April this year disproves that. The survey showed that total employment rose in the year to mid-April by 6,000, having remained virtually static for the previous three years. Within this overall increase, services employment increased by some 10,000 and, given the fall in numbers employed in the public service in this period, this points to a considerable increase in private services employment. This is a very welcome sign and shows that non-agricultural employment has definitely turned the corner and is starting to grow again. The private sector is clearly responding to the improved economic climate brought about by the Government's policies. Our main objective is to accelerate this rate of growth in employment and to bring down the rate of unemployment.
The recovery in the public finances continued through 1988. The target set for the Exchequer borrowing requirement in the budget last January was 8.2 per cent of GNP. The outturn for the year will be well below this figure. There are, undoubtedly, some exceptional factors at work, notably the tax amnesty, the success of which has exceeded all our expectations, and the encouraging response to the introduction of self-assessment for the self-employed which has resulted in significantly higher income tax receipts than had been expected.
Even without the exceptional and largely once-off nature of the improvements brought about by the tax amnesty and the introduction of self-assessment, the budgetary performance in 1988 has been satisfactory. Discounting these one-off improvements, the underlying Exchequer borrowing requirement for this year is still likely to come in under 7 per cent of GNP. This reflects the general improvement in the economic climate and the beneficial effects of a sound budgetary policy. The recovery in car sales in 1988 which I referred to earlier has significantly boosted indirect taxes.
The decline in the live register has meant that the annual average live register of 253,000 underpinning the budget can be revised downwards to an expected average level for the year of the order of 241,500. The savings resulting from this allied to tight expenditure control generally have also contributed to the improvement which took place during the year. Although the Government are in a position to report good progress the fact remains, however, that our borrowing and debt are still too high and responsible, strict management of the public finances must continue.
The funding programme this year has proved to be highly successful and leaves us in a very strong financing position facing into 1989. I will mention just two of the highlights. First, investment in Irish pound denominated Government securities by foreigners reached an all time high this year with about £800 million being invested in the first three-quarters of the year. This represents a vote of confidence on the part of foreign investors in the policies we have been pursuing since taking up office. The second point I want to mention is that we have been able to pay off significant amounts of our foreign currency denominated debt this year — by end-September we had paid off £230 million. The end-year position is likely to be even better. It is clear at this stage, despite the many uncertainties which must still surround the figures, that we are well on target towards achieving the goal of stabilising the national debt-GNP ratio which was set out in the Programme for National Recovery.
In addition to the progress in the correction of budgetary imbalances, the Government have been able to implement a number of important tax reform measures in 1988. This year's budget went a long way towards meeting the Government's objective of putting two-thirds of taxpayers on the standard rate. In fact, as a result of the concessions this year, nearly 63 per cent of taxpayers will be paying tax at the standard rate in the 1988-89 tax year. What is often forgotten is the ongoing cost of such concessions—those in this year's budget will cost some £150 million in a full year, on an ongoing basis. This has to be provided for before any further easement can be given.
New ground has been broken, too, on company taxation. The phased reduction in the standard rate of corporation tax brings us into line with the trend in other countries. At the same time, the reduction in capital allowances will help restore the balance in favour of badly-needed jobs as against investment in fixed assets. These changes are playing a part in the better employment prospects that are now emerging, as confirmed by recent statistics.
The most radical changes have, however, occurred in the area of tax administration. The success of the tax amnesty has already been well documented. The move to self-assessment, too, is little short of a revolution in the approach to tax assessment and collection for the self-employed in this country. It will place the responsibility squarely on individual taxpayers to meet their tax obligations in a timely manner. The charade of high levels of estimated tax and of appeals as the normal course of events will be ended. The aim is to eliminate the red tape that has for so long been clogging up the system — both in individual businesses and in the office of the Revenue Commissioners. Efficiency will be improved and everybody concerned will have more time to get on with their real business. The indications to date suggest that self-assessment is working very well with its benefits being conferred on both the taxpayer and the Revenue Commissioners.
The Programme for National Recovery has been operating now for just over one year. I am pleased to say that the spirit of co-operation and realism which characterised the discussions leading up to the negotiation of the programme has continued to be evident during this period. All participants have contributed significantly to the work of the Central Review Committee set up to monitor progress in implementing the programme and in achieving its targets and objectives. I would like to express on behalf of the Government, their sincere appreciation of their efforts.
I have already referred to the substantial further progress made this year towards achieving the programmes's central objective of bringing about a stabilisation in the national debt-GNP ratio. The benefits which have accrued from this in terms of reduced interest rates, and an improved environment for growth and investment, are there for all to see. The considerable stepping up in the rate of job creation over the past year both confirms the correctness of the programme's strategy and underlines the Government's commitment to the pursuit of their employment goals. The recent report of the Central Review Committee on progress in job creation at the sectoral level during 1988 is welcome and reassuring. The creation of almost 15,000 new jobs in manufacturing and international services in the first three-quarters of the year is itself good news, but the fact that the industrial promotion agencies estimate that 20,000 jobs will be created over each of the next two years is even more encouraging. The report also brings out the significant contribution, in terms of extra jobs created, from the tourism, construction and natural resources areas. These developments show that the positive actions taken by the Government are bearing fruit. They indicate also the widespread nature of the economic recovery now taking place.
In concluding I would like to say that the Government can look back on 1988 with a good deal of satisfaction. For the second year running the Government set themselves very ambitious budgetary targets and will more than achieve them. We have made very significant strides on tax reform and have radically overhauled tax administration. There is no doubt that these measures are going to lead to a much more efficient and effective tax assessment and collection system for the future that will be welcomed by everyone except the tax defaulter.
The Government and all of us are grateful to the outgoing Minister for Finance, Deputy Ray MacSharry, for his great leadership and co-ordination and the great work he did in the area of tax reform and in the area of tax collection in co-operation with the Revenue Commissioners. I am sure Senators will be pleased to know that this morning he has been confirmed as Commissioner for Agriculture and Rural Development in the European Community.
The first part of the Government's 1989 budgetary strategy has already been put into place with the publication of the Abridged Estimates Volume and Summary Public Capital Programme last October. The reductions underpinning these Estimates represent the third substantial phase of fiscal adjustment since the Government took office and clearly demonstrate to the public and the financial markets that the Government are resolute in their commitment to firm management of the public finances. In settling the 1989 expenditure allocations the Government adopted the same comprehensive searching expenditure review approach that had been used so successfully in deciding on the 1988 Estimates. All programme areas were again closely examined to see where savings could be secured.
In deciding on the 1989 allocations the Government were guided by the principles that programmes essential to the wellbeing of the less fortunate should not be cut back, that waste and over-provision should be eliminated, that fraud, abuse and unwarranted recourse to State services should be controlled and that those who can afford to contribute to the cost of certain State programmes should be asked to do so through the introduction of or increases in charges. With this approach the Government have managed to maintain the downward pressure on public expenditure without restricting the access to public services of those groups in society who must turn to the State for support and without reducing the effectiveness of our development policies.
The budgetary strategy will, of course, be completed early next year when the new Minister for Finance, Deputy Albert Reynolds, introduces his 1989 budget. We wish him every success in his new position. We are confident that he will do an excellent job.
The Government's faith in their ability to put together a well thought out strategy for recovery and more important to see this strategy through is now being rewarded. Things are coming right—the evidence is there for all to see.
I commend the Appropriation Bill to the Seanad.
