First, I would like to extend to the House the Minister for Finance's apologies at being unable to attend today to address the House. He is, unfortunately, tied up with other important business. However, he has asked me to state that he will follow the debate with keen interest.
The purpose of the annual Appropriation Bill 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 previous year's Appropriation Act. The 1990 Bill appropriates to the various services set out in the Schedule to the Bill, the sum of £6,620,550,000 comprising the Estimates totalling £6,452,222,000 as set out in the revised post-Budget Book of Estimates, Supplementary Estimates of £168,327,000 and £1,000 in respect of a 1987 excess on the Superannuation and Retired Allowances Vote.
The Bill also authorises the use of certain departmental receipts amounting to £713,887,748 as Appropriations-in-Aid.
The 1987 excess on the Superannuation and Retired Allowances Vote arose due to, firstly, an upsurge in voluntary retirements in the first half of 1987 arising mainly from the salary increase awarded to principals and assistant principals in the Civil Service which improved retirement lump sum payments and, secondly, because of the difficulty in accurately estimating the pattern of deaths among former officers and spouses which varies widely from year to year.
These excesses were not offset by savings elsewhere on the Vote and even though there were additional Appropriations-in-Aid available which would have more than covered the excess on the Vote, these could not be used as an offset because a Supplementary Estimate had not been moved. In accordance with established financial practice the committee of Public Accounts have examined and approved this excess Vote.
A final important function of the Bill is to provide 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.
The occasion of the Second Stage debate on the Appropriation Bill also offers the Seanad an opportunity of discussing the wider economic developments which have occurred over the previous 12 months.
It is gratifying to be able to report to you today that 1990 has been another very successful year for the Government's economic and budgetary policies. Growth in output and employment has been strong, inflation has been low and further progress has been made in correcting budgetary imbalances.
This year GNP growth is likely to be close to 5 per cent — broadly similar to the growth rate last year and again ahead of the expected EC average.
While consumer spending increased by 5¼ per cent last year, some slowdown in the growth rate is indicated by the trend in retail sales in 1990 to date. Nevertheless, personal consumption is likely to increase by about 3½ per cent this year.
A major aim of the economic policies we have been pursuing has been to lower inflation and to keep the rate of increase in our costs in line with, or below, that of our trading partners. In the period 1987-89, our inflation rate was kept down to little over 3 per cent on average — low by international standards.
Before the Gulf problems arose our inflation rate had been brought down to just under 3 per cent — around the same as the rate in Germany and considerably lower than the high level then prevailing in the United Kingdom. Despite the higher price of oil this autumn, we have managed to keep the lid on inflation.
As Senators are aware inflation fell again in November to 2.7 per cent and the average inflation rate for 1990 remained modest — at 3.4 per cent. Our present inflation rate is the lowest in the European Community and lower now than the German rate.
Investment is again performing strongly in 1990. In the period to September this year, imports of capital goods were up an estimated 8 per cent in real terms on the same period in 1989, a clear indication that business is continuing to invest. Activity remains strong in the construction sector where Structural Funds are having an impact.
This year industrial output has risen by just 4 per cent in the first eight months. The slower rate of growth has been most evident in the high technology sectors. The remainder of manufacturing, which includes the more "traditional" sectors, has, however, maintained satisfactory growth.
In 1988 and 1989 we had a balance of payments surplus of around 2 per cent of GNP and the surplus is being maintained this year despite having to pay more for our oil imports. We are now clearly paying our way in the world.
The most conclusive proof of the success of present policies has been the growth in employment. The preliminary results of the 1990 Labour Force Survey indicated an increase in total employment of 30,000 in the 12 months to April 1990. Since April clear evidence of further growth in employment has emerged: in the three months to June manufacturing employment, seasonally adjusted, increased by over 2,000, giving a net annual increase of 7,000. Employment in the larger private sector firms in building and construction grew by 9 per cent in the first nine months of this year as compared with the same period of 1990. There is also evidence that private sector services employment has grown strongly, particularly in tourism-related areas.
Despite the gains in employment, unemployment is still a major problem. We expect an average reduction of about 7,000 in unemployment, as measured by the live register this year. This is less than we had thought at budget time and reflects a slowing of emigration because of the deterioration in the UK and US economies.
I think Senators will agree that the progress made in recent years in correcting the imbalance in the public finances has been nothing short of dramatic. Just four years ago, in 1986, Government borrowing stood at nearly 13 per cent of GNP. By the end of this year, borrowing will have been reduced to less than one sixth of this. The EBR is now lower than it was any time within the last 40 years. The Debt-GNP ratio which rose by 41 percentage points over the period from 1980 to 1986, and stood at 131 per cent as recently as 1987, fell to 119 per cent at end-1989 and the expectation is that the 1990 figure will show a further significant reduction in the ratio.
This year's budget represented a further step along the path of responsible financial management. It was welcomed as a sympathetic and balanced response to the needs of those seeking jobs, of taxpayers and of the least well-off in the community, through a well thought out package of measures.
In particular, the budget made a significant further reduction in the burden of personal taxation, so as to improve incentives to work and facilitate pay moderation; reduced VAT and other indirect taxes so as to bring our rates closer to European levels, and to help keep inflation down; continued the fundamental reform of the corporation tax system, initiated in 1988; further developed the self-assessment system by placing self-employed taxpayers on a current year basis; provided for a 5 per cent general increase in all social welfare weekly payments with a further supplement for the long term unemployed; gave special assistance to those on low incomes, by exempting from PRSI contribution employees whose gross earnings were £60 or below a week, and by increasing the general exemption limits for income tax and the child addition to these limits.
These measures in conjunction with the steps taken in 1988 and 1989 not only met the commitments given by the Government in the Programme for National Recovery, but actually went further in many respects.
Looking at budgetary performance this year, I am glad to say that for the fourth year in succession the indications are that Exchequer borrowing will come in below the budget target.
The buoyancy of tax revenue is once again the main contributory factor to the good budgetary performance this year. Corporation tax revenues are well ahead of expectations and PAYE receipts are also set to come in ahead of projections.
Corporation tax receipts indeed could end up over 50 per cent above the budget estimate. This reflects the introduction of self-assessment for companies as well as the cumulative effects of the changes made in the corporation tax regime over the past few years.
The improvement in PAYE receipts reflects the impact of better collection from employers and a better employment performance than had been expected at budget time. At that time the expectation was that non-agricultural employment would increase by 16,000. In fact, present indications suggest that the actual figure could be over 20,000.
As evidenced by the sum of over £168 million in Supplementary Estimates included in this year's Appropriation Bill, there will be some overruns on the expenditure side of the 1990 budget. However, let me say at once that the figure of £168 million in Supplementary Estimates overstates the position somewhat and should not be viewed as indicating a loss of control on expenditure on the part of the Government.
Some £70 million of the total provision for Supplementary Estimates arising on the Second and Third Level Education votes relates to the possibility that timing factors relating to the receipt of EC ESF aid might result in a failure of these receipts to materialise this year. These supplementaries are therefore precautionary in nature and were moved to avoid the possibility of major excess Votes if the ESF receipts do not come in until next year. The expectation is that this money will come in in 1990 and the authority to spend more, conferred by the Supplementary Estimates, will not in fact be required. This coupled with offsetting savings on other Votes in 1990 which of course do not show up in the Appropriation Bill will ensure that the actual expenditure overrun this year will be considerably lower than the £168 million suggested by the Supplementary Estimates.
Despite these overruns and the prospect of a shortfall in EC receipts generally this year, mainly, down to timing factors, the improved tax revenue receipts will compensate, with the effect, as I have said, that the budget target should be bettered for the fourth year in a row.
As Senators know the 1991 Abridged Estimates Volume and Summary Public Capital Programme were published on 7 December last. The later than usual publication of the Estimates this year stems from the difficult task which faces the Government on the expenditure front in 1991, and the painstaking and detailed way in which the Government set about the job of determining the Estimates, line-by-line, so as to keep expenditure at its lowest practicable level in 1991.
A number of factors are putting upward pressure on expenditure in 1991, such as the £100 million carryover cost of this year's budget welfare increases, the need for us to spend more on programmes attracting EC Structural Funds, and the carryover cost of sanctioned special pay increases. Despite having to provide for these factors, the Government managed to restrict the increase in the provision for both non-capital spending and total Exchequer-funded expenditure, current and capital, in 1991 to 4 per cent, marginally above the projected inflation rate for next year of about 3 per cent.
In recent years the Government have found that a policy based review of spending programmes followed by a detailed line by line analysis of spending demands is an effective approach to expenditure determination and this is how they approached their task this year also. For the 1991 campaign, the Expenditure Review Committee were reconstituted and their recommendations were considered in the autumn along with the detailed spending bids from Departments.
As in previous years, the Government's approach in settling the Estimates was firmly based on the principle that there must be continuing constraint on expenditure. Allocations for 1991 were allowed to increase only where there were decisive economic or social arguments for it. As the Minister for Finance stated in the Dáil on the Estimates "take note" motion, public spending is, and will remain, under firm control. The Government intend to review the published Estimates allocations before budget time to seek out further reduction possibilities in the light of the emerging outturn figures this year and the changing domestic and international economic environment.
I have already mentioned that the small increase in spending in 1991 is partly due to the need for us to spend more in order to draw down our EC Structural Funds aid. The Structural Funds now have an important influence on our spending and investment programmes. Already nine of the operational programmes under the Community Support Framework for Ireland have been approved and the remaining three programmes, rural development, vocational training infrastructure and training of trainers, and Objective 4 — occupational integration of young people — are expected to be approved shortly. The commitments to Ireland under the funds for 1991 will amount to almost 767 MECU or £591 million, an increase of 21.5 per cent over the commitments relating to 1990.
Monitoring of the implementation of the Community Support Framework is vitally important and the Government are devoting considerable resources to it. Monitoring committees at both the CSF and operational programme level are operating well. An extensive range of instructions on monitoring and reporting has now been sent by the Department of Finance to all lead Departments responsible for implementation of programmes or measures. The commitments mentioned above do not take account of the additional funding which has yet to be allocated to Ireland under the new Community initiatives. The full list of initiatives and the resources to be devoted to each have now been decided by the Commission. There are 12 initiatives in all, of which ten are applicable in Ireland.
The member states have six months from the publication of the approved initiatives in the Official Journal of the European Communities to submit programmes. Only three of interest to Ireland have so far as reached this stage: the others are still at the discussion stage. Our ENVIREG programme, which deals with measures to combat pollution in coastal areas and toxic waste management, has already been submitted to the Commission and is being discussed with them. Our programmes under STRIDE, which deals with science and technology, and INTERREG, which deals with cross-border development and which we are preparing jointly with the Northern Ireland authorities, will be submitted early in the new year. We are continuing our negotiations with the EC Commission on these new initiatives to ensure that the maximum possible share of aid is obtained for Ireland.
Looking ahead to next year there are many reasons why 1991, more so than recent years, will prove to be a difficult one on the budgetary front. The difficulties are evident even from the published Estimates figures. Given that we have to provide for special pay increases, a new general pay round and welfare improvements it is clear that there will be very limited room for manoeuvre next year. It is absolutely critical that we remain on course to achieve our medium-term goals in relation to the public finances and the debt-GNP ratio.
It is imperative, therefore, that the successful policies we have been pursuing on the economic and budgetary fronts are maintained and built upon. The Government's task will be to continue to foster confidence in the Irish economy by the firm pursuit of sound economic and fiscal policies. I commend the Appropriation Bill to the Seanad.
