I am delighted to have this opportunity to address the Seanad on the 1999 budget, which the Minister for Finance, Deputy McCreevy, has just finished delivering in Dáil Éireann. While Senators are now aware of the main contents of the Financial Statement delivered by the Minister, I am certain they will welcome the opportunity to comment on it. Budgets do not exist in a vacuum — they are influenced both by the condition of the Irish economy and by what is going on in the European and world economy. I, therefore, intend to begin my statement by outlining briefly what sort of year the Irish economy has had in 1998 and what is expected to happen in 1999.
This is the fifth year in succession the Irish economy has experienced strong growth in both GNP and GDP. In 1998 GDP is expected to increase by 9.5 per cent and GNP to increase by nearly 8.5 per cent. Employment growth is continuing strongly in 1998 and the general Government budget balance was in surplus in 1998, close to 2 per cent of GDP. While the reasons for the strong growth in the Irish economy have been widely debated, there is a general consensus that the following have contributed to this performance: the continued prudent management of the economy which has led to lower interest rates and increased investor and consumer confidence; the consensus approach in successive national agreements with the social partners; the reduction in the debt burden; investment in education and training; strong foreign direct investment; the contribution of EU Structural and Cohesion Funds and reform of tax regimes for individuals and business.
However, I sound a note of caution. The performance of our economy has given rise to heightened expectations of what the Government can achieve. This is reflected in the level of demands for additional expenditure measures and also in the demands for tax cuts and extra tax reliefs. In addition, the performance of the Irish economy is generating certain pressures which, if not dealt with properly, could undermine the recent excellent performance of the economy. These pressures include public sector pay, the tightness of the labour market, increasing house prices, less transfers from the EU in future, the need for further infrastructural investment, slower labour force growth and increased competition both in general and for foreign direct investment. While I am confident we can overcome any problems that emerge in the Irish economy, this can only be achieved if we all pull together rather than in separate directions. We need to ensure we have sufficient resources to meet any challenges in the future, whatever their cause. The conclusions to be drawn from this are clear — we need to adopt more ambitious budgetary targets than have been achieved over the last decade so that we can address our longer term needs from a position of financial strength.
On the basis of taxation and expenditure measures announced by the Minister for Finance, the targets for the 1999 budget are a current budget surplus in excess of almost £2.3 billion; a capital deficit of over £1.4 billion; an Exchequer surplus of £925 million; and a general Government surplus of 1.7 per cent of GDP. Control of public spending and public sector pay will be central to the achievement of the budgetary targets. The Government is committed to ensuring that, over the lifetime of the Government, the growth in net current expenditure will be limited to an annual average increase of 4 per cent.
For the remainder of my statement, I intend to concentrate on the main aims and achievements of the budget. The social inclusion measures are designed to build on what has been committed in recent years. Partnership 2000 committed the Government to spending £525 million over three years for current spending on social inclusion. The actual amount that has been committed over three years will be close to £1 billion. This shows yet again this Government's commitment to ensuring that all parts of society can benefit from the continued strong performance of the Irish economy.
The major social inclusion measures include the following. In general, personal rates of social welfare payments will be increased by £3 per week. The dependants' allowance will increase by £2 per week. Additional increases are being provided for personal rates for those in receipt of short-term unemployment assistance and supplementary welfare allowances, thereby bringing social welfare rates for all categories up to at least the minimum level recommended by the Commission on Social Welfare, which I think will be warmly welcomed by everyone in both Houses.
This year, the personal rate of pensions and related payments is being increased by £6 per week. This follows the significant increases announced last year. We are also increasing the rate of the adult dependants' payment by a further £3 per week. These increases again go a long way towards meeting our promises to the older members of our community. Child benefit will increase by £3 per month for the first and second child, and by £4 per month for the third and each subsequent child.
The carers' scheme is being considerably improved. An extra £200 is being paid each year to recipients as a contribution towards respite care. The scheme is being widened to cover the carers of children in receipt of the domiciliary care allowance. The residency conditions will be relaxed, as will the requirement that the carer must provide full-time care and attention. The family income supplement income thresholds will be increased by £8 per week. A new scheme of unemployment assistance will be introduced for low income farmers. It will have child related income disregards and will assess other income at 80 per cent.
The Government remains committed to reducing the burden of personal taxation. This is being done to reward effort and improve the incentives to work. Including the personal tax package of £581 million announced today, so warmly welcomed by Senator Ross, the total amount provided for reducing personal taxation in the last three years is nearly £1,500 million, a significant improvement on the Partnership 2000 commitment of £900 million.
The major taxation items in the budget included the following. After careful consideration of the matter, the Government has decided to move towards a tax credit system. This year this will involve the standard rating of the basic single and married personal allowances and the PAYE allowance. To ensure there are no losers from the move to standard rating, the standard rate income tax bands are being increased from £10,000 to £14,000 for a single person, and from £20,000 to £28,000 for a married couple. The new standard rated personal allowance for the single person will be increased by £1,050, from £3,150 to £4,200 per annum, and by £2,100, from £6,300 to £8,400 per annum, for married couples. The standard rated PAYE allowance will be increased from £800 to £1,000.
The effect of these changes will be, among other things, to ensure that single people on PAYE will not pay income tax on any earnings under £100 per week. Again, I think all Members of both Houses will welcome this achievement. It means almost 80,000 people will be removed from the tax net and the number of people on the marginal rate tax system facing a marginal rate of tax of 40 per cent will fall from just over 82,000 to just under 24,000, a considerable reduction.
As well as increasing personal rates of the old age pension by a further significant amount, the tax exemption limits for those people aged 65 years of age and over are being unified and substantially increased to £6,500 per annum for single people and to £13,000 per annum for married couples. This will mean married couples aged 65 or over will be exempt from income tax on income up to £250 per week, a tremendous step forward.
The blind persons' allowance is being increased and will continue to be available for a qualifying person at the marginal rate of taxation. Where a taxpayer or his or her spouse is blind, the allowance is being increased from £1,000 to £1,500 per annum. For married couples where both spouses are blind, the allowance is being increased from £2,000 to £3,000 per annum.
The Government is conscious of the growing wish for a recognition of child care needs in the tax system. The question of child care tax relief raises important and complex issues. The Government has discussed this area in some detail and proposes to examine the matter further. In doing so it will take into consideration the recommendations of the Partnership 2000 working group on child care, which is expected to finalise its report shortly. We anxiously await the report. As a means of facilitating and encouraging the supply of child care facilities, the Government has decided that the provision of certain créche facilities by employers will not be subject to a charge of income tax in the hands of employees as a benefit-in-kind. Furthermore, the Finance Bill will provide for capital allowances to allow for the write off of capital expenditure incurred in connection with buildings or premises constructed or used by employers to provide child care facilities for their staff. This capital allowances regime will also extend to providers of child care services generally in the community.
The Government has also decided that the position of those families providing care in the home for a member of the family should be addressed by extending the existing employment of a carer tax allowance. This tax relief, which applies at the taxpayer's marginal rate for expenses up to £8,500 per annum, will be claimable from April next by other family members who employ a carer to look after a totally incapacitated family member. This extension will widen significantly the scope of the relief.
The existing general 25 per cent stock relief for farmers and the special incentive stock relief of 100 per cent for certain young trained farmers are being extended for a further two years to 5 April 2001. I met representatives of Macra na Feirme and I am sure this move will be warmly welcomed because they were very concerned about this issue for young farmers.
The Government is committed to reducing the corporation tax rate to 12.5 per cent on trading income and to 25 per cent on non-trading income from 1 January 2003. This year the standard rate of corporation tax will be reduced from 32 per cent to 28 per cent. The lower 25 per cent rate will remain unchanged but will apply to the first £100,000 of profits rather than the current £50,000.
The Government has also announced that the standard rate of corporation tax will be reduced by 4 per cent in each of the years 2000, 2001, 2002 and by 3.5 per cent in 2003 to give a standard rate of 12.5 per cent. I was surprised at Senator Ross's questioning in this regard because the move towards a single rate of 12.5 per cent had been flagged for some time. I am sure the Senator will agree that this is essential to underpin the economy.