I am glad to return to the Seanad and I hope we have an interesting debate. 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 which were approved by the Dáil since the last Appropriation Act.
Section 1 appropriates the various services listed in the Schedule — the net sum of £13,217,471,000. This total comprises the original net Estimates of £12,871,364,000 set out in the revised post-budget Book of Estimates 1998, and net Supplementary Estimates totalling £346,107,000. Following normal practice, the Bill also seeks approval for the use of certain departmental receipts, or appropriations-in-aid, amounting to £1,280,227,000 as appropriations-in-aid.
Before dealing with the implications of these figures for the Government's general policy on expenditure, I wish to explain how and where the additional spending for which Supplementary Estimates, totalling £346 million and approved by the Dáil, arose. Four Departments and Offices accounted for the most significant of them.
The main factors which gave rise to additional allocations in these areas are as follows. The Office of Public Works accounted for £76 million. The bulk of these funds have been provided to enable the office to pursue cost savings which can be achieved by paying off amounts outstanding on a series of contracts under which decentralised offices were built and financed. The Department of Justice, Equality and Law Reform accounted for £81 million. This was largely to cover the Garda pay agreement and additional overtime for both gardaí and prison officers.
The Department of Education and Science was allocated £105 million for first and second level education, the main elements of which were a £30 million additional provision in the scientific and technological education investment fund to cater for the recently announced third level research and development initiative, £23.7 million additional schools capital and £20 million arising from technical difficulties in implementing fortnightly pay for second level teachers. The Department of Agriculture and Food was allocated £36 million primarily because of the package of measures approved by the Government to support farmers.
In An Action Programme for the Millennium the Government defined its spending policy in terms of a limit on the growth in net current spending of 4 per cent. Greater flexibility was envisaged in relation to capital spending where the annual average growth rate was set at 5 per cent. Underlying these targets is the need to ensure that Government spending does not contribute to inflationary pressures and that expenditure commitments are not allowed to become established in a period of economic and revenue growth which could not be sustained if an economic downturn should emerge at some point in the future.
In the 1998 Estimates, the Minister for Finance budgeted for a net increase in non-capital spending of 3.7 per cent over the likely outturn for 1997. The Government is committed to maintaining its annual current spending target of 4 per cent and the pattern of firm compliance which has been established since 1997 is maintained in the post budget spending position for 1999.
Expenditure policy is, of course, only part of the Government's approach to economic management which has been so successful over the past few years. The Irish economy has performed particularly strongly in 1998. Real GNP is estimated to have increased by about 8.5 per cent, employment increased by 65,000 and the unemployment rate now stands at about 7 per cent, the lowest level in two decades and one of the lowest in Europe. Inflation remains low.
By international standards our economic performance remains exceptional. Ireland's growth in 1999 is still expected to be well over three times the OECD average and Ireland is set to top the OECD growth league in 1999 for the fifth year in a row. The Government intends to ensure that this exceptional performance can continue. The budget, which was one of the most radical reforming budgets in recent Irish history, encapsulates the main elements of its approach to achieve this objective. In the next few minutes, I wish to mention some of the issues which lie at the heart of our budgetary strategy rather than go into the intricacies of the budget tax changes themselves.
First, I will deal with the international context. The Irish economy does not operate in isolation from the rest of the world. It can hardly come as a surprise that the budget was framed against the backdrop of a highly uncertain international economic environment. There is little doubt that there has been a slowdown in large areas of the world economy. The most obvious slowdown is in those parts of Asia which face very serious economic and financial problems.
Growth has been slowing in major markets accounting for almost 80 per cent of our exports. In the UK, which is still our single most important export market, the consensus is that growth in 1999 will be below 1 per cent. The euro area may be immune from the international downturn elsewhere. The position in the US is similar although the US economy has strong trading and other economic links with Asia. The often rollercoaster behaviour of international stock markets reflects the pervasive sense of international economic uncertainty. This is the economic backdrop to the 1999 budget, a world economy where we face possibly a year or two of weak global growth with an uncertain future after that.
As a small open economy heavily dependent on external trade and inward investment, Ireland is highly influenced by the international economic environment. Our economic success in 1998 and indeed over the 1990s has been built on and driven by the exceptional performance of the exporting sector of the economy. The capacity to deliver this has been patiently built up over the past decade by the partnership between business, trade unions and other social partners and the Government. The key consideration in seeking to ensure that this can continue is the competitiveness of the Irish economy.
A second major focus in the budget on 2 December was the pressing need to progress the reform of our income tax system. This is essential to ensure that the Irish economy achieves its growth potential in the coming years and to copperfasten social progress and equity. As recently published CSO figures have illustrated, we have been creating jobs in the economy over recent years at a record rate. The level of employment has expanded by one quarter. Last April there were almost 300,000 more people in work than five years ago. This represents a major transformation in the economic fortunes of hundreds of thousands of households in our society. We need to continue on this path.
Employment creation based on firm foundations is the key to our economic success. The central objective of the budget was to maintain this momentum. The strong expansion of the enterprise sector of the economy is continuing to generate tens of thousands of job opportunities. However, the constant refrain we hear from business is that it cannot find the people to fill the jobs. This problem threatens our economic performance which has provided us with the resources to tackle the still pressing problems of poverty and social exclusion in Irish society.
The fundamental restructuring of the Irish taxation system initiated in this Government's first budget last year by cuts in both the standard and top tax rates was accelerated in the budget on 2 December by the measures announced to further transform the income tax system. These measures will remove more than 80,000 taxpayers from the tax net but, even more significantly, will improve the incentive to work for the 200,000 people still on the live register and also for the large number of people who are not currently in the labour force but who are interested in taking up a job.
The tax changes introduced in the budget will help motivate the unemployed and those now outside the labour force to take up the tens of thousands of unfilled vacancies which now exist in the Irish economy. For those who, for social or economic reasons, cannot be part of the labour force, the budget also contained a substantial social exclusion package to ensure that the benefits of economic growth are spread throughout all sections of society.
The taxation policy initiatives reflected in the budget will, therefore, tackle a variety of problems. The personal taxation reductions will enhance competitiveness of the economy, encourage more entrants to the workforce and strengthen social partnership by concentrating significant tax reductions on the lower paid. By so doing, they will make a vital contribution to securing Ireland's economic performance into the first half of the next century. The reform will improve the lot of the lower paid and, by sustaining our current economic performance, will generate the resources we will require to ensure that the standards of public provision in the Irish economy in health, education, infrastructure, care for the elderly and tackling poverty are at least maintained and preferably improved as far as possible.
In current circumstances where we are benefiting from such strong economic growth with correspondingly strong revenue flows and where, in the nature of things, the economic future cannot be certain, common sense dictates that the benefits of our remarkable economic performance in 1999 should not just be confined to the issues which have been tackled — investing in the economy's infrastructure, looking after social needs and reforming the taxation system. We must also follow the example of every prudent household by seeking to put something by for the rainy day. The national debt is expected to fall this year. Reduction in the burden of debt will position the country better to sustain growth and enable us to respond more fully in the event of adverse economic developments.
I have laid some stress on the vital contribution which the partnership approach has played in underpinning and sustaining our recent economic performance. In the past two years, however, an undesirable trend in pay developments has emerged. The Exchequer pay and pensions bill has shown substantial increases of over 10 per cent in 1997 and an estimated 9 per cent in 1998. The budget forecast shows a further increase of over 6 per cent in 1999. This has been occurring against the backdrop of inflation rates of less than 3 per cent per year.
A major factor in the public service pay increases in the past two years has been the effect of local bargaining pay settlements under the PCW. The PCW local bargaining clause has ended up costing public service employers far more than was envisaged at the time the PCW was agreed. At this stage, the PCW local bargaining process in the public service has, to all intents and purposes, drawn to a close.
As we move forward from here, the Government is determined that the terms of the Partnership 2000 pay agreement will be fully adhered to. The 1999 Estimates make provision for the payment of the terms of the Partnership 2000 pay agreement, including the 2 per cent local bargaining clause, but no more. The Taoiseach has spoken of the need for new arrangements for public service pay in the period beyond Partnership 2000, which link pay more closely with performance while maintaining the unavoidable limits on public spending. Discussions with the Irish Congress of Trade Unions on this matter will commence shortly. All sides recognise the problems of the existing system and it is in everyone's interest to work towards a new system to address those problems.
Another major plank in building on the capacity of the country to sustain continued economic growth is the National Development Plan 2000-2006. This will seek to consolidate and build on our progress in economic and social cohesion through an investment programme which will seek to maximise our economic potential, contribute to the continuing growth in sustainable employment and to tackling social inclusion and achieve a better spatial distribution of economic activity throughout the country.
Preparations for the National Development Plan, which is being developed in partnership with regional authorities and the social partners, are well under way. The ESRI have been engaged to carry out an ex-ante evaluation of investment priorities for the next round of Structural Funds. They will be expected to quantify the levels of investment required to close the gap in key areas of infrastructure relative to more developed regions of the community and to review international and other developments which might be critical to Ireland's economic growth in the 2000-6 period.
Actual drafting of the National Development Plan will not commence in earnest until the outcome of the external evaluator has been received and the consultation process is complete. The plan will not be finalised until the outcome of the negotiations on the financial framework for the next round and the amount of Ireland's Structural Funds allocation are known, probably around the end of spring 1999.
Section 2 of the Bill is intended to ensure compliance with certain constitutional requirements which come into play due to the fact that the budget timetable has been brought forward, with the budget now being taken in December of the year preceding that to which it relates rather than in January of the same year. Article 17.1.2 requires that the financial resolutions of each financial year must be enacted into law by the end of that year, i.e., by 31 December 1998 in the case of the financial resolutions passed on budget night, 2 December 1998. However, Article 17.1.2 also allows the 31 December deadline to be deferred if an Act to that effect is passed before the end of 1998.
Section 2 makes provision for the deferment option to be invoked. The alternative would be to seek to rush through the Dáil and Seanad, in the period between the budget and the Christmas recess, detailed tax legislation which could at times be complex. The approach provided for in this section of the Bill, which was also adopted last year, will maintain the normal statutory deadlines for passing budget measures into law, 84 days for the completion of the Second Stage and four months for enactment of the Finance Bill.
We have made excellent economic and social progress in recent years, particularly the past two years. This progress has been built on prudent economic and budgetary management and the social partnership which has been established. The budget seeks to foster and strengthen that partnership approach. It also seeks to maintain the measured rate of expansion in Government spending which has regard to the capacity of the economy, in terms of revenue generation implications in future years to sustain it, and to absorb the spending envisaged without fostering higher rates of inflation. I commend the Bill to the House.
I wish to take this opportunity to convey to the Cathaoirleach, his fellow Senators and the staff of the House the compliments of the season.
