I welcome this opportunity to address the Seanad today on the 1999 Appropriation Bill. The purpose of the annual Appropriation Bill is to give statutory effect to the Departmental Estimates for the supply services, current and capital, including all Supplementary Esti mates which were approved by the Dáil since the last Appropriation Act. The 1999 Bill appropriates to the various services listed in the Schedule for the year ending on 31 December 1999 the net sum of £14,913.294 million. This total amount comprises the original net Estimates of £14,248.82 million, as approved by the Dáil last June, and net Supplementary Estimates totalling £664.474 million which have been approved by the Dáil in recent weeks. In line with the normal practice, the Bill also seeks approval for the use of Departmental receipts, amounting to £1,397.162 million as appropriations-in-aid of the services listed in the Schedule. As I have indicated, that the Estimates and Supplementary Estimates included in the Schedule to the Appropriation Bill have been approved by the Dáil. The Bill simply seeks to give formal legal effect to those Estimates and Supplementary Estimates.
The Bill includes the same standard provisions as in previous years, apart from the provision in section 3 of the Bill dealing with the payment of the excise duty on tobacco to the Department of Health. This is a technical measure required in order to give the Revenue Commissioners the authority to pay the excise revenue directly to the Department of Health and Children rather than to the Exchequer as is normally the case.
The Appropriation Bill provides an opportunity to review the budgetary and economic position. We are all aware of the exceptional performance of the Irish economy in recent years. We have managed to combine strong economic growth with price stability and large gains in employment. Ireland progressed from having one of the worst performing economies in Europe to having the best. This good performance was maintained this year. Yet again, economic growth is set to exceed expectations. GNP growth of 7.5 per cent is estimated for this year, compared with a forecast of 6 per cent at the start of the year. Employment growth continues to be strong. Employment is expected to increase by 74,000 this year. As a result, the fall in unemployment has continued. The unemployment rate currently stands at 5.1 per cent. This is just over half the rate of unemployment which existed when this Government entered office – quite a remarkable performance in two and a half years.
Meanwhile, prices have remained under control. Inflation is expected to average 1.6 per cent this year – substantially less than the 2 per cent projected at the start of the year. The performance of the economy has transformed the public finances. We are now expecting a general Government surplus for the third year in a row. We are set to have a record surplus in 1999, equivalent to more than 3 per cent of GNP. As a result, the national debt has continued to fall rapidly. It is now projected to fall to 47 per cent of GDP. As recently as 1993, this figure was over 90 per cent of GDP.
The economic outlook for 2000 remains positive. On budget day, the Minister for Finance announced our latest set of projections – real growth in GNP of 6.25 per cent, strong employment growth with an increase of 54,000, unemployment to fall to below 5 per cent, and inflation to average 3 per cent.
In preparing its budgetary policy, the Government is taking account of the longer-term challenges we face. Many European countries face a pensions time bomb in the near future, an issue which the Seanad has been discussing with the Minister for Finance. Demographic developments have left them with an ageing population, with many people reaching retirement in the near future. The cost of providing for increasing numbers of pensioners at a time when the working age population is falling will put a major strain on public finances. Ireland is fortunate in this regard. With the birth rate peaking around 1980 we will not face this problem for another 25 years. However, the Government has already begun to prepare to face this problem. The Government has decided to put aside a sum equivalent to 1 per cent of GNP annually to pre-fund both public service and social welfare pensions. In addition, the bulk of the net proceeds from the sale of Telecom Éireann will be added to this fund, a sum equivalent to almost £3 billion in 1999. This far-sighted measure will substantially reduce the burden on future generations.
As the Minister for Finance mentioned on budget day, rapid economic growth is creating a new set of problems. House prices have risen rapidly, congestion is increasing in our towns and cities and labour shortages are emerging in the economy. These pressures must be relieved if the economic performance of recent years is to be maintained.
The increase in house prices, particularly in Dublin, has been the subject of much discussion recently. Prices have nearly doubled since 1996. This has made it very difficult for many people to afford accommodation. This must be a major cause for concern. However, the Government is taking action. Recommendations made in the Bacon report are being implemented. This is having a significant effect. Record numbers of new houses are expected to be built this year. As a result, the rate of increase in prices has slowed. This trend should continue as the supply of new houses begins to match demand.
Over the last decade, Ireland has benefited from a series of social partnership agreements involving a consensus approach to economic management based on prudent fiscal policy, moderate pay increases and moderate inflation. The Partnership 2000 agreement was the fourth in a series of economic development strategies implemented since 1987. It involves an active collaboration between the Government, trade unions, employers' organisations and the community and voluntary sectors. Partnership 2000 has built on the successes of its predecessors in achieving continued economic growth and employment creation, together with moderation in pay developments in the economy.
The stable framework provided by social partnership has proven very attractive to foreign investment which, together with an emerging indigenous sector, has driven forward growth, employment and real incomes. It has also enabled real and substantial progress to be made in tackling social exclusion.
It is easy to forget how much we have achieved in such a relatively short time. By any objective standard, Ireland's performance in recent years has been impressive, indeed remarkable. Social partnership has contributed significantly to this success. There are advantages for us in using the social partnership process to underpin steady sustained growth in the future. At the same time, the long-term sustainability of social partnership depends on its ability to adjust to changing demands and needs at both national and enterprise levels.
There are many serious challenges facing us both domestically and on foot of globalisation. In the new policy environment which membership of EMU brings, pay levels across the economy, in the public and private sectors, are even more crucial in determining competitiveness and employment. As a small, open economy which is vitally dependent on exports, any loss of competitiveness vis à vis our trading partners would be very serious for growth and jobs. Our recent economic progress has shown us that much can be achieved by all the social partners striving towards a common aim. There is an onus on all of us to meet these challenges in a constructive and innovative way.
The NESC strategy report was prepared in response to a request from the Taoiseach for a strategy report in relation to a new national programme of social partnership. It provides a valuable background and framework for discussions on a new national partnership agreement. The Government remains committed to concluding a new agreement with the social partners. A new agreement is essential to ensure the maintenance and, where possible, the strengthening of the conditions necessary for continued economic and social development in the interests of all the members of society.
We cannot take our current economic success for granted. We are faced with a number of key challenges to ensure that the progress we have achieved to date is sustained into the future. One of these challenges is to ensure that the significant improvement in the public finances which has been a major cornerstone of our success is not put at risk by excessive pay demands in the public sector.
The public service pay and pensions bill has increased substantially in recent years. In the five year period 1995-2000, it will rise by almost 50 per cent. This is before allowing any provision for the costs of a new pay deal to succeed Partnership 2000. As the Minister for Finance said in the Budget Statement, the Government considers that it must overhaul the present system of pay determination in the public service. We need to move towards a system that more clearly links pay to performance and away from the fixed internal relativities and analogues that are a feature of the present system. Too often, we are paying for agreement to change, not for the outputs from the successful implementation of change. The current discussions on public service pay, in the context of the negotiation of a new national partnership agreement, must address this issue. We must also ensure that a new agreement addresses the issue of industrial peace, particularly in relation to essential services.
I will outline briefly some of the detail of the Appropriation Bill before the House today. Section 1 gives statutory effect to the departmental Estimates for the supply services, non-capital and capital, including all Supplementary Estimates which were approved by the Dáil since the last Appropriation Act. On 30 June 1999, the Dáil approved the original 1999 net Estimates for departmental expenditure which totalled £14.249 billion. Since then, the Dáil has approved a number of Supplementary Estimates for various Departments which, in total, come to £664 million. This extra amount brings the total grant for supply services expenditure in 1999 to £14.913 billion. Section 1(1) appropriates this total amount of £14.913 billion to the various supply services or Departments as listed in the Schedule. In addition, Section 1(2) provides for the application of a total amount of £1.397 billion in departmental receipts as appropriations-in-aid of the grants for the supply services listed in the Schedule.
I will outline briefly the main factors which have given rise to additional expenditure and the requirement for Supplementary Estimates this year. Six Departments and offices accounted for £634 million or 95 per cent of the total Supplementary Estimates of £664 million. The main factors which gave rise to the additional allocations in these areas are as follows. A net additional £179 million was granted to the Department of Health and Children Vote. Of this, £107 million was required to cover the cost of settlement of the dispute on nurses' pay and allowances. A further £90 million was needed to deal with under-provision over a number of years in the GMS payments board in respect of services to medical card holders and £21 million was required for additional costs arising on the demand-led drug schemes. These excesses were partially offset by buoyancy in the appropriations-in-aid of the Vote.
An extra net allocation of £159 million was granted to the Department of Education and Science. A total of £47.5 million was provided for additional capital for schools and third level institutions, £44.5 million covered an expected shortfall in EU receipts, £21.5 million was for pay settlements, including arrears of pay in the universities and institutes of technology, and £20.25 million was allocated to cover the cost of a greater number of teacher retirements at primary and second level than originally anticipated.
Net additional funds of £107 million have been approved for the Department of Public Enterprise. An additional £80 million was provided for CIE's rail safety programme and £40 million was required to cover extra costs associated with the Telecom Éireann public flotation.
In regard to the Office of Public Works, the purchase of the Farmleigh Estate and Lansdowne House, in addition to a number of other properties held on long-term leases, required the provision of additional net funds of £103 million to the Office of Public Works Vote.
Net additional funds of £52 million were provided to the Department of the Environment and Local Government to fund accelerated development of the national roads network. An extra net amount of £34 million was provided for the Department of Agriculture, Food and Rural Development, most of which was required to meet additional animal health compensation and related costs and for higher headage payments.
I now turn to section 2 of the Bill. Article 17.1.2º of the Constitution requires that the Financial Resolutions of each financial year must be enacted into law by the end of that financial year, that is, by 31 December 1999 in the case of the financial resolutions passed on budget night, 1 December. However, Article 17.1.2º also allows for the 31 December deadline to be deferred if an Act to that effect is passed before the end of 1999. This section makes provision for this deferment option to be invoked. The provision in this section of the Appropriation Bill will maintain the normal statutory deadlines for passing budget measures into law, that is, 84 days for the completion of the Second Stage and four months for enactment of the Finance Bill. Identical provisions were included in the 1998 and 1999 Appropriation Acts.
Finally, I will deal with section 3 of the Bill. The Minister for Finance announced in the budget that the excise duty on cigarettes was being increased by 50p per packet of 20, with corresponding increases in other tobacco products, and that the resulting revenue increase of £132 million in a full year would be paid as an appropriation-in-aid to the Department of Health and Children. The increase in the rate of duty was provided for in the Financial Resolutions passed in the Dáil on budget day and section 3 of this Appropriation Bill now provides the statutory authority required to assign the proceeds to the Department of Health and Children Vote.
These proceeds will, as indicated in the Bill, be paid by the Revenue Commissioners to the Minister for Health and Children, who will take them to account as an appropriations-in-aid of the Vote. The dedication of this substantial tax increase to support health spending will drive home to smokers the message that the habit is directly harmful to their health. Smoking is a major cause of lung cancer, chronic bronchitis, emphysema and heart disease and thus creates very significant costs for the health services. In accordance with the "polluter pays" principle, smokers should make a particular contribution towards those costs.
As we approach the end of this year and this millennium and look forward to the start of a new millennium, we can feel justifiably proud of the substantial economic and social progress that has been made, particularly over the last decade. This Government acknowledges the contribution which has been made at all levels of Irish society in helping to make this happen. Crucially, the fostering, through the social partnership model, of a consensus approach to dealing with economic and social issues, has played a hugely important role in bringing about our current favourable position.
The successful conclusion of a new national agreement with the social partners, together with the implementation of the ambitious national development plan and a continuation of the prudent economic and budgetary policies which have underpinned progress to date, will help to ensure that our current economic success continues well into the next century.
I commend the Bill to the House and I wish you, a Chathaoirligh, and all your colleagues a very happy Christmas.