If the committee agrees, we will continue until 2 p.m. and then adjourn. We can resume at 3.30 p.m., if necessary. Is that agreed? Agreed. The Minister will make this statement which will be followed by a statement from each Government and Opposition party which will not exceed ten minutes. We will then move on to a question and answer session on the Estimates. Is that agreed? Agreed.
Estimates for the Public Services, 1995:
Vote 6 — Office of the Minister for Finance (Revised Estimate)
Vote 9 — Office of the Revenue Commissioners
Vote 10 — Office of Public Works
Vote 13 — Office of the Attorney General
Vote 45 — Increases in Remuneration and Pensions.
I am glad to introduce the 1995 Estimates for the Finance group, including the Office of Public Works. The total of the Estimates is nearly £493 million of which nearly £135 million is for the Office of Public Works. There are 15 Estimates in the group and committee Members wil have received the main details in advance of this meeting. I shall be happy, of course, in our discussions today to provide any further information that Members may require.
Before referring to some of the individual Estimates in the group I would like to outline our recent economic progress and the overall position on the public finances. In recent years the Irish economy has performed well. Economic growth, measured by GNP, has averaged over 4 per cent per annum over the three years 1992 to 1994, compared with just over 1 per cent per annum for the EU as a whole. This is a most creditable performance by any standard.
Last year alone GNP is estimated to have grown by 5.5 per cent. Growth was more balanced than in previous years, with domestic demand making a major contribution. This growth facilitated an increase of some 36,000 in employment in 1994. The growth has been accomplished while maintaining relative stability in consumer prices. The rate of inflation last year at 2.4 per cent was one of the lowest in the EU. On the external side of the economy, exports for the first ten months of 1994 increased by 16 per cent, and imports increased by over 13 per cent. Another record trade surplus of approximately £5.5 billion may be achieved for 1994.
Looking to this year, the outlook remains good. The post-budget forecast is for GNP growth of 5.25 per cent. Total employment is expected to expand by about 31,000. Inflation should remain moderate. The latest figures show that consumer prices rose by just 2.5 per cent in the year to 1 February last, a figure which is in line with the budget-time forecast for average inflation of 2.5 per cent in 1995. On the external trade front, the international environment remains favourable and should facilitate further export growth. A substantial trade surplus is again expected this year.
To turn to the public finances, the Exchequer borrowing requirement has been held at about 2.5 per cent of GNP on average over the six years 1989 to 1994. The EBR is projected at just 2.4 per cent of GNP in 1995. The national debt/GNP ratio which declined from 112 per cent to 94 per cent over the same six year period, is set to fall again this year to just under 90 per cent. Debt service costs, which pre-empted over 12 per cent of GNP in 1988, now represent less than 9 per cent of GNP. Ireland's fiscal performance is thus set to continue to be among the best in Europe. This discipline is given focus by the fiscal convergence criteria set out in the Maastrict Treaty, which require adherence to an annual general Government deficit of 3 per cent or less of GDP, and the continued reduction of our gross debt/GDP ratio towards a level of 60 per cent.
The Exchequer returns for the first quarter of this year indicate that the public finances for the year as a whole are on target. Over the rest of the year, I would expect that, given the underlying strength of the economy, the effects of recent increases in domestic interest rates on the public finances will be accommodated within the target EBR set in the budget. I would also like to stress thast the evolution of departmental spending will be carefully monitored through the year to ensure that spending is held firmly within the limits laid down in the budget.
As the committee will know, the Government in its programme A Government of Renewal has committed itself to restrict the growth of departmental current spending. The limit set were a maximum of 6 per cent in nominal terms in 1995 and an average annual increase of 2 per cent in real terms over the years 1996 and 1997. The commitment for this year was fully achieved in the budget. The budget made provisions for an increase of 5.8 per cent in gross non-capital supply services, that is, the current spending of Government Departments.
Following the budget, the Government decided to provide an additional £140 million towards the payment of arrears of entitements of women under the EU Equal Treatment Directive. A sum of £60 million had already been provided in the budget for this purpose. The effect of this decision was to increase gross current spending in 1995 to 6.9 per cent. However, the additional £140 million was of an exceptional, once-off nature, required by the courts to meet an accumulated obligation that had not been met in preceding years when it was due to be paid. If the £140 million is excluded from the figures, as would be proper, and certain post-budget adjustments are taken into account, then the increase in gross current spending in 1995 is 5.6 per cent, actually below the increase on budget day and well within the 6 per cent limit for this year.
These figures confirm the Government's commitment to curb the growth in pubic spending of recent years and to adhere to its programme undertakings in this regard. Only by containing the growth in expenditure, in line with the programme, can we hope to create the scope to achieve the significant tax reductions that are required to help promote employment.
I now turn to the Finance group of Votes, the particular subject of our business here today. As I have already indicated, the group comprises a net provision of nearly £493 million. I shall now comment on some of the principal Votes in the group. Vote 2, the Houses of the Oireachtas, will be of some interest to the committee. The provision of nearly £29 million shows an increase of 4 per cent on the 1994 outturn. There are no major developments in this Estimate. Some greater transparency has been introduced through some minor changes in layout. For example, allowances to Members have been separated from foreign travel expenses and home travel has been separated from foreign travel.
Vote 6 is for my Department, Finance. The Estimate amounts to just over £38 million, an increase of nearly £18 million, or over 88 per cent, on 1994. This substantial increase is not associated with the normal ongoing costs of the Department, but arises from three exceptional sources. First, the Finance Estimate is being used to accommodate or to park some £11 million in funding for special peace initiatives under the EU Fund for Community Initiatives, the Community Support Framework and INTERREG Technical Assistance. Funds from these sources will be available for improving the economies of the Border counties.
Second, a provision of £3 million is included for the Emergency Services Network, a telecommunications network that is being developed and that will be shared by the emergency services, the Civil Service and the noncommercial public service. Thirdly, some £1 million arises for special consultancy services in connection with the proposed reorganisation of the State banking sector and the possible disposal of part or all of the State's remaining shareholding in Irish Life.
A major Estimate in expenditure terms is Vote 9, the Office of the Revenue Commissioners. This amounts to over £141 million an increase of 7 per cent on 1994. The bulk of the Estimate, over £115 million, provides for pay and allowances for approximately 6,200 staff. The Estimate includes provision for the ongoing decentralisation of revenue staff to Limerick. By the end of this year, 550 staff will have gone to Limerick. This in addition to approximately 350 staff decentralised to Ennis and Nenagh since 1992.
As stated in my budget speech, I intend to consolidate the existing legislation for income tax, corporation tax and capital gains tax. Provision has been made in the Estimate to commence this project. An allocation has also been made to continue work on a major computer initiative. When these developments are completed, Revenue will be able to take a consolidated view of the taxpayer's affairs across all taxheads. This will lead to improved service to the taxpayer and more effective combating of tax evasion.
Vote 13, the Office of the Attorney General, is in respect of the salaries and other expenses of the Office. The Estimate provides for nearly £9.5 million, an increase of 7 per cent on the 1994 outturn. In the light of the review of the Office which was recently undertaken, additional staff are being recruited and provision is made for these. Implementation of a comprehensive plan on information technology has also commenced. This plan, when fully implemented, will result in significant benefits in productivity, quality of service and management information.
Vote 45, Increases in Remuneration and Pensions, is an Estimate for £25 million to cover the cost in 1995 of meeting in full the Programme for Competitiveness and Work commitment to negotiations on claims outstanding under the local bargaining clause of theProgramme for Economic and Social Progress. In most cases, negotiations on those claims are ongoing. Provision has already been made in individual departmental Estimates for the cost of paying the general increases arising under theProgramme for Competitiveness and Work pay agreement.
It is vital, in the context of our overall economic targets, that we adhere strictly to the cost parameters of the Programme for Competitiveness and Workpay agreement in both the public and private sectors. The Government expects that the public service negotiations will result in the achievement of genuine change which will raise the levels of efficiency, effectiveness and quality in the public services, in return for improvements granted in pay and conditions.
The final Estimate to which I shall refer is Vote No. 10, the Office of Public Works. The total sought is nearly £135 million, a decrease of over 2 per cent on 1994. Before turning to the Office of Public Works's various programmes, I would remind the committee of two recent significant developments affecting the Office of Public Works.
The first is the transfer of full responsibility for the heritage services to the Minister for Arts, Culture and the Gaeltacht. The Commissioners of Public Works now carry out their functions in relation to heritage matters under the direction of that Minister.
The second development is as a result of the recent flooding problems experienced in large parts of the country, particularly the South Galway region. As part of the Government's response, a broadening of the Office of Public Works's arterial drainage functions is being undertaken and is the subject of legislation before the Dáil at present. The legislation will enable the Office of Public Works to carry out localised drainage schemes where required. Heretofore, schemes had to be for entire river catchments only, and could not be carried out on a purely local basis.
To turn to the individual programmes of the Office of Public Works, a sum of over £71 million is provided for the Accommodation Programme, by far the largest programme. This includes £28 million for erecting new buildings and for adapting and refurbishing existing buildings to meet the State's accommodation requirements. Work on the refurbishment and restoration of historically important State-owned buildings will continue.
One of the most important projects is the restoration of the Ship Street buildings and the refurbishment and extension of the Clock Tower Building, both in the Dublin Castle complex. Initially, these developments at the Castle will be used during Ireland's Presidency of the EU next year. Following the completion of that, the Clock Tower Building will become the home of the Chester Beatty Library, which will transfer to this central location from its present one in Shrewsbury Road. Another major project in train is the development of Collins Barracks, for use by the National Museum. These projects at the Castle and at Collins Barracks, besides preserving historic buildings, will add greatly to the tourism infrastructure of our capital city.
Under the programme, the Government will continue its commitment to decentralisation. Last year's progress continued with the completion of the Department of Education building in Tullamore. An allocation of nearly £10 million is provided for the National Parks and Wildlife Service Programme. The allocation will cover the cost of general management and maintenance of five national parks, 75 nature reserves and other State-owned lands acquired for conservation. As the committee will be aware, it has been decided that the development of the Burren and Wicklow National Park visitor centres will not proceed. Draft management plans for these parks and their surrounds are at present being prepared. Final decisions on what use should be made of works already carried out will not be made until these plans have been completed, and the public given an opportunity to contribute.
It is intended to appoint consultants to undertake the management plans. The consultants will be overseen by a steering committee which will include representatives of Clare and Wicklow County Councils. It is essential to provide the geneal public with opportunities to experience our natural heritage at first hand. Such experience encourages a greater understanding and appreciation, and brings home the need for conservation. To this end, the Department of Arts, Culture and the Gaeltacht and the Office of Public Works are pursuing a policy of providing appropriate visitor and other facilities under the programme.
Another programme invovles the maintenance, management and development of our inland waterways, with a provision of £8 million. The waterways contribute significantly, directly and indirectly, to our tourism revenue, as increasing numbers of foreign visitors are enjoying canal and waterways-related holidays in Ireland. The restored Ballinamore-Ballyconnell Canal, now known as the Shannon-Erne Waterway, enjoyed an enormously successful first year in operation last year. The waterway will be a catalyst for further tourism development in County Leitrim, County Cavan and County Fermanagh. It is managed by the Office of Public Works in conjunction with their counterparts in Northern Ireland, and is a prime example of what can be achieved in the Border areas with cross-Border co-operation and goodwill.
One of our greatest assets is the River Shannon. The Commissioners have for many years been engaged in a programme of development and improvement of the river's navigation and its facilities. Navigation from the Shannon to Lough Allen, via the old Lough Allen Canal, is being restored and is expected to be open to the public shortly.
The Office of Public Works is also involved in the implementation of a plan for Dublin Zoo. A provision of £1.6 million is included in this year's Estimate to assist proposed capital works at the zoo and to help fund an early retirement scheme for staff as part of a restructuring package.
In conclusion, there are other Office of Public Works programmes which time does not permit me to cover. My colleague, Deputy Coveney, the Minister of State in the Office of Public Works, will respond on matters relating to the Office of Public Works. I understand that the committee will have a meeting on the Office of Public Works Estimate and on those for the Office of the Revenue Commissioners, the Office of the Attorney General and the Office of Director of Public Prosecutions shortly, separate from this meeting, and that Deputy Coveney will be in attendance at that meeting. I wish to conclude by thanking you for your attention. I shall be pleased to hear the views of the committee and to do my best to answer any questions that you may wish to raise.
As the Minister stated in his speech, the committee will not be dealing with the Estimates for the Office of Public Works, the Office of the Revenue Commissioners, the Office of the Attorney General or the Office of the Director of Public Prosecutions today. These will be dealt with at a later meeting. I intend to offer the opportunity for a spokesperson from each party, Government and Opposition, to speak for five to seven minutes. A question and answer session will follow.
I welcome the Minister's introductory statement. There is no point in engaging in a Second Stage speech here. However, there are a number of points I wish to raise. The Minister states:
The Exchequer returns for the first quarter of this year indicate that the public finances for the year as a whole are on target.
This is to be welcomed. The Minister goes on to say that over the rest of the year:
. . . the effects of recent increases in domestic interest rates on the public finances will be accommodated within the target EBR set in the budget.
That is very reassuring at this time because there seem to be indications in the media that we are not staying within set targets. That statement by the Minister is very welcome. He has also given a commitment that Department spending will be carefully monitored through the year, to ensure that spending is held firmly within the limits. That is as it should be and it is good that it be put on record at this time. I also welcome the statement that:
Following the budget, the Government decided to provide an additional £140 million towards the payment of arrears of entitlements of women under the EU Equal Treatment Directive.
While that sum had to be provided for outside the normal state of affairs, it is good to know it has been done without affecting the overall budget strategy. That is a fairly important departure.
It has been stated that the Estimate for the Office of Public Works will be dealt with by Deputy Coveney. However, I would like to refer to a number of points arising from the Minister's address. The Minister referred to "the transfer of full responsibility for the heritage services to the Minister for Arts, Culture and the Gaeltacht." He also stated that:
The Commissioers of Public Works now carry out their functions in relation to heritage matters under the direction of that Minister.
I do not wish to say anything derogatory about my esteemed colleague the Minister for Arts, Culture and the Gaeltacht, Deputy Higgins. However, I believe it might have been better — I am aware of the division of responsibilities among Departments — if this was retained under one Minister from the point of view of dealing with the mechanics of the situation at that level. I accept the situation as it stands.
I welcome the developments with regard to the recent flooding, particularly in the areas of Gort and South Galway. I also welcome the fact that:
As part of the Government's response, a broadening of the Office of Public Works's arterial drainage functions is being undertaken and is the subject of legislation before the Dáil at present.
I understand the Bill will be before the committee next Wednesday. It has already been passed by the Seanad. I welcome the speed with which this has been done and the commitment to have the Bill completed before the summer. Flooding has had a serious effect on people in this area. In spite of good work done at local level, the problem will not be solved before next winter and it is possible that this area, with the exception of where a small unofficial drainage scheme has been carried out, will be flooded again.
All this area is being transferred to Deputy Connaughton's constituency. I will continue to take an interest in the solving of the area's flooding problem. Deputy Connaughton has visited the area and I know he will take the same interest in the problem as I have during my term as a representative for the area.
You travelled in this boat.
I cannot blame the Minister for Finance for the redrawing of the constituencies. This is a fact of life and we will have to proceed to work for the areas we will represent in the future. I regret the loss of this area from my constituency because I took a personal interest in trying to solve its flooding problem. I know this work will be continued by Deputy Connaughton and the others who will be lucky enough to represent the area after the next election. This problem must be solved and perhaps we will deal with it more fully when we discuss the Bill next Wednesday. I will now conclude as there is no point making a Second Stage type speech. I may ask some questions during the questions and answers session.
I welcome the manner in which the Minister introduced these Estimates. They involve a considerable sum of £493 million and they deserve careful attention. I studied the Book of Estimates and I am happy there is no serious overspending in any of these Departments. It is good to know that Ireland's fiscal policy is set to continue to be among the best in Europe and I sincerely hope this will be the position throughout this year and next year.
I welcome the provision of the additional £140 million for the repayment of arrears of entitlement to women under the EU equal treatment directive. This is very much appreciated by all concerned. The Estimate for the Minister's own Department is £38 million more than the Estimate for last year. I welcome the provision of £11 million for special peace initiatives under the EU fund and other schemes.
I would like more information on the increase of £1 million for special consultancy services in connection with the proposed reorganisation of the State banking sector and the possible disposal of part or all of the State's remaining shareholding in Irish Life. This sum appears high to me and I would like the Minister to give us more information on this.
I understand why expenditure of £3 million could arise in relation to the communications network which is being developed and will be shared by the emergency services, the Civil Service and the non-commercial public service. I would like more information on the £1 million allocation for consultancy services.
Accountants are very expensive.
I appreciate that. I note there are 6,200 people employed by the Revenue Commissioners. They have a tough job to do and I am convinced that staff numbers of this order are necessary to cope with the present situation.
There is a slight increase in the funding for the Office of the Attorney General and this is understandable in view of the general review of procedures, quality of service and management information which will take place in that office.
There is a certain amount of confusion throughout the country on the line drawn between the functions of the Minister for Arts, Culture and the Gaeltacht and the Office of Public Works. Many people find it difficult to understand who is responsible for matters such as national parks. In Killarney National Park there is confusion as to which Minister is responsible for the development of Ross Castle and the maintenance and improvement of existing facilities in the park. There is also confusion as to whether the Office of Public Works or the Minister for Arts Culture and the Gaeltacht is responsible for the maintenance and improvement of fisheries in the Laune river, part of which is owned by the Office of Public Works.
I understand that it will be necessary to carry out refurbishment and restoration of Dublin Castle in preparation for Ireland's Presidency of the EU in the second half of 1996 and there will be no objection to spending money on this important development.
With regard to the allocation of nearly £10 million for the national parks and wildlife service programme, there is confusion as regards the functions of the Department of Arts, Culture and the Gaeltacht and the Office of Public Works. I would like to see more maintenance and improvement works carried out in national parks but there will be discussion of the Office of Public Works Estimates on another day.
It is intended to appoint consultants to undertake management plans for the Burren and Wicklow national parks. I often wonder whether we are moving too far in appointing consultants. Could much of the work carried out by consultants be undertaken by the relevant Departments?
I welcome the proposed development of inland waterways which opens up a huge new area in the promotion of tourism, particularly in the west and in rural Ireland generally. We will discuss the Office of Public Works Estimates in a separate session and I welcome this.
I do not take the same upbeat view of our economy as the Minister. It is not that I think there is an immediate recesion about to hit us or that there is a disaster lurking immediately around the corner, but if one looks at some of the basic facts about our economy, there is no room for complacency and much room for considerable regret on our part as to the way in which it is developing.
Over the last five years, our inflation rate has ranged between 14 and 14.5 per cent. During that period, public spending has increased by more than 35 per cent. Public spending is increasing at a rate of two and a half to three times the rate of inflation and I consider this to be a major problem. In the same period, there has been a huge divergence in the cost of employment in the public service and the private sector. Manufacturing earnings during the last five years went up by 23 per cent. The public sector wage bill has gone up by 50 per cent in the same period. This means there is a complete divergence between earnings in competitive industry and the public sector. It is of note that if, over the last five years, the increase in public service pay had been kept in line with that of private sector pay, which is subject to real competitive forces, there would now be an extra £750 to £800 million for use every year in lightening the tax load for everybody.
This brings me to a point that the OECD has also made, according to newspaper reports of its commentary on the Irish economy. The Programme for National Recovery, the Programme for Economic and Social Progress and theProgramme for Competitiveness and Work are not effective in controlling public sector pay increases. They have allowed a ballooning of the public sector pay bill at a time when the private sector, which is exposed to outside competitive forces, has had to trim pay costs and keep them in line with what our competitive position requires. I find the whole process of the Programme for Economic and Social Progress, the Programme for National Recovery and theProgramme for Competitiveness and Work to be fundamentally flawed. People who style themselves as the social partners come together and conclude agreements which are not in the interests of our economy. In large measure, the divergence between private and public sector pay increases shows that, in effect, industry takes one view of what it can afford but through the mechanism of these social partnership agreements, allows Government to disregard the same requirements to be economical and to give good value for money from the public service.
The public sector has effectively bought industrial peace at a massive price over the last five to seven years. It is an unnecessarily high price to pay. People may say that it is great there are no strikes in the publc sector, and it is. They may also say that this is worth paying some price for, and it is, but it is not worth the price that we are currently paying for industrial peace in that sector.
The Programme for National Recovery, when it was originally brought in, effectively postponed many pay increases. The Progressive Democrats were in office when part of the Programme for Economic and Social Progress was put in place. From what I have been able to gather, subject to the rules of Cabinet confidentiality, the Cabinet had little input at that time into the terms and governance of the Programme for Economic and Social Progress.The matter was effectively delegated to a few people to negotiate and the public interest was not properly looked after on that occasion.
We have now come to the stage where we cannot afford any more of these programmes which do not address the huge divergence in growth rates in public and private sector pay. It would be better if IBEC and such groups opted out of the whole social partnership arrangement rather than give some kind of false endorsement to a policy which is wasteful of public resources. This economy could be in a far healthier state and a far more enterprising climate could have been created here if we had kept public sector pay under control. I know it is easy to be wise to retrospect, but we cannot afford to let our public sector pay bill grow at more than twice the rate of growth in the private sector. Where it may suit some parties and politicians to avoid dealing with this issue, it does not suit the public interest that this huge explosion in public sector pay goes unremarked. I fully appreciate that the public sector unions are powerful and they do the best for their members. Obviously, nobody will refuse substantial increases if they are available, but I would question the bargaining process that has brought us to this stage.
Most people in the public sector would be far more concerned with their net take-home pay than their gross pay entitlements which are, after the ravages of our tax system, almost unrecognisable in the hands of most people. The time has now come to clearly signal that the Irish State has failed for the last five to seven years to face up to one of its biggest problems, that of public sector pay. We need a firmer and tougher line on that subject. We need a Department of Finance that will give a lead, even though the individuals concerned have a slightly split loyalty in that they are the beneficiaries of this high pay policy for a different approach in the future. The time has now come for this country to concentrate on net pay after tax and on getting agreement right across the board that increases in gross pay are not the way forward. It is real take-home pay with which people are concerned.
If, as I said, we had only practised the discipline of keeping public sector pay in line with private sector pay over the last five years, there would be £750 million in this and future budgets to use for tax reductions, and the effect on stimulating growth and employment in our economy would have been massive.
I want to confine my remarks to two areas. If one looks at the Irish economy over the past number of years from afar, one would be puzzled by two factors — I have also been puzzled by them and so have many commentators. We have experienced tremendous growth in GNP, yet we do not seem to have made any dent in our unemployment figures. This phenomenon has been commented upon not alone in this country but also in other developed countries and various terminologies, such as jobless growth, have been applied to it. The minds of columnists and theoreticians have been studying this phenomenon for some time, but nobody has come up with the real answer as to why this has happened.
If one looked at the Irish economy over the past five to six years with the thought of investing here, one might see a wonderful economy on the western edge of Europe with wonderful growth rates, but wonder why it has an average unemployment rate of 16 per cent. This has exercised my mind as well. This is not just applicable to Ireland; I have looked at other countries.
We are not going to solve this problem in Ireland but perhaps we should have another way of looking at this area. Perhaps we do not measure economic success in the proper way. We measure it by increases in Gross National Product but that may not reflect what is happening on the ground. For example, if a major calamity such as an earthquake happened in Ireland it would create great deprivation. However, there would be a substantial increase in Gross National Product in the following 18 months because a huge building programme would have to be undertaken, more people would have to be employed in public services and so on. There would be huge growth in GNP but the country would be absolutely devastated.
I come from the 1960s school of economics in the sense that I was educated in UCD during that period. GNP growth may not be the correct measure of economic success. Many economies are rural based with people working on farms who are self supporting, but with the growth in technology people are being increasingly forced off farms into towns, creating urban slums. However, according to this measure economic activity has increased but people are in worse circumstances. I would be regarded as a stringent economic disciplinarian but I wonder if throughout the world we have been measuring this the wrong way.
At this stage, there should be almost no unemployment in Ireland. In countries such as Great Britain and France over the past 30 years the increase in GNP activity, according to the normal economic indicators, has been colossal, an increase of 80 to 100 per cent. However, unemployment in France has gone from 200,000 to 2 million in a few years, but in terms of GNP measurement they have been very successful. It seems that we will have very successful economies where nobody is working.
When companies want to increase inefficiency they replace labour with machinery. The economic activity and profits of the company increase but more people are unemployed. However, technically, the company is better off — or certain people in the company, such as the shareholders, are better off. That has been the pattern of Western development for some time. I know that the Minister is also concerned about this. I have started to look at it from a totally different perspective and I want to announce my new thinking. While I have not fully developed it yet, I am starting to think about the whole area in a totally different way.
Ireland is on the edge of Europe. In my travels as Minister for Tourism and Trade I learned that, without any shadow of a doubt, the fastest growing region of the world is the Pacific Ring, particularly China. There are approximately 1,180 million people in China which is about 25 per cent of the world's population. Southern China has growth rates of upwards of 30 per cent. The Himalayas have had phenomenal success rates in the past ten years with growth rates between 8 and 12 per cent on average, and sometimes higher. Vietnam, which was devastated when Deputy Quinn and I were protesting on the streets of Dublin about the war there——
On the same side.
Yes, we were on the same side on that occasion. Vietnam will be one of the most successful economies in a few years time. As Minister for Tourism and Trade, I spent a great deal of my time in Brussels as I was responsible for the transposition of EC Directives into Irish law and ensuring that other Government Departments were putting these into effect. Every time I went to Brussels there was a wide range of departments talking about new Directives and regulations, which were all for the betterment of people in Ireland and the rest of Europe. The only problem was that there are parts of the world where these restrictions did not apply.
As an economist/capitalist my view is that capital is like water in that it will not run up a hill but will flow to the point of easiest access. International capital will go to the places in the world where it gets the best return. If the whole world had the same environmental labour laws, then we would all be playing off scratch, in golfing terms, and would all be competing on a fair level. However, we are not.
The manufacturing base of Europe is transferring itself to that region of the world, whether we like it or not. Europe has said that we will have to replace those jobs with a growth in service jobs. I am somewhat sceptical about that theory because I do not think that it will take up the slack. All of the major companies are transferring their resources there. It costs as much to employ 45 or 50 Chinese as one European. Capital will flow to the point where it gets the best return.
We can close our eyes to all of this and in years to come they will have a very developed society. They will then have rules and regulations and the capital will flow somewhere else. However, masses of people will be unemployed in Europe. If the centre of Europe, the great economies of Germany and France, are not able to control this and are worried about these matters, what chance has a country such as Ireland which is on the edge of Europe and further from the market place? We have to accept these facts and stop talking in terms of colossal growth rates which mean nothing. If we continue in this way we will have a wonderful economy in international terms but everybody will be unemployed. That is the long term logic of this scenario.
Secondly, I am not happy — nor was I when I was in Government and before that — with the accuracy of our official statistics. I am on record as questioning this for a long time and I am more unhappy now than five years ago, notwithstanding the caveat about how we measure GNP. This is not the direct responsibility of the Minister for Finance because it comes under the aegis of another Department. Various subcommittees and experts have looked at this and I know that the measures of statistics which we use are the ones used internationally. However, I think that the Irish context is different with the high level of transfer pricing by multinationals. I know that is taken into account, but we should not use the same measurements as other countries use. I do not pretend to be an expert on statistics, but in my view, for many years the statistics have not reflected what is really happening in the economy and I put this suggestion as one way of solving that problem. We should take out that area of econmic growth and measure the real economy in the other way. In the last 24 hours an OCED report on this matter has been released which bears out what other politicians and I have been saying for some time.
I cautioned the Minister on budget day. One has to make political points on budget day; I like to think that I make political points only when necessary and that I do not make them obvious. Perhaps I should make them more often but I do not. I have long believed that it is economic madness to have inordinate levels of current budget deficit and to put the public finances into such disarray. It has cost me a lot in political terms to take that view.
I will not harp on various things I have said in the past but the Irish electorate is not going to thank any of us for going down that road again. People were prepared to accept the economic stringency we had to inflict upon them from 1987 onwards on the basis that we would not do it again. Stringent measures will not be popular with the public, no matter what party is in power. I know how difficult it is for any Minister for Finance to control public expenditure, but I caution the Government that it is in nobody's interests to depart from the road we had been travelling on. We have been departing from that road for some time now and the latest OECD report bears that out.
I am delighted that somebody else agrees with me in relation to economic activity, growth rates and so on. Despite GNP averaging a 4 per cent growth rate over the past three years and exceeding 5 per cent last year, I have never met more people who feel that they are excluded from the fruits of economic growth. This growth does not reach rural Ireland. People in rural Ireland feel marginalised and excluded. It is heartening to hear Deputy McCreevy agree with me, even if he is a late convert to my views.
It is not possible to build castles without foundations. Very often rural communities are excluded from the benefits of economic growth while everything seems to be concentrated in large urban areas. These concentrations allow for economies of scale and for infrastructural development. However, we are often unable to reach the people in rural areas who feel excluded. That is why if community employment schemes and the former social employment schemes are excluded, there has been very little development in rural areas and those living there are still untouched by the fruits of this economic growth which has been much heralded by various Governments for the past five to seven years.
A simple example I have often given, and with which I have probably bored the committee to tears, is one that I will hold to. It is very important in a time of evolving economic views to think that some principles remain standard. I know how to make an impact where people have felt excluded over the past 15 years. I have proposed a motion at a meeting of my own county council which calls upon local authorities throughout the country to embark upon an expansionary employment programme, although these views might be contrary to those which some people have expressed about the public service.
Local authorities have much to offer as vehicles for employment generation. Not every rural area can have a factory or a major industry. That is accepted. These areas can, however, be given hope. When the service of local authority employees was bought off in the early 1980s and they were given effective redundancy it had a major impact upon rural areas. Employment in rural areas is significant in ensuring that rural communities are kept alive, that the rural shopkeeper remains in place, that people marry and remain in rural areas, that the local post office is kept open, that local schools are kept intact.
I do not see any sustained effort to address this problem in a positive way. That is why I proposed a motion at a meeting of Westmeath County Council, which asked that these matters be examined. The Minister and his officials as well as all politicians should dwell upon the fact that it costs a local authority £5,000 net to employ one person. That figure does not take into account the value of the work done by that employee. Every day councillors and Deputies come to the local council and to the Department of the Environment with problems about roads, such as pot-holes, trimmings, hedges, overgrown briars and environmental works which need to be done. The value of this work is not taken into account in the figure of £5,000.
The Department of Finance, the Department of the Environment and the Office of Public Works should examine the possibility of starting a pilot scheme to carry out these works so that people would benefit from having employment in their local area. A cost benefit analysis could be done which would show that the cost of employment of this nature is less than £5,000. This price tag would dwindle sharply because those employed by councils and local authorities could carry out preventative maintenance programmes on roads in rural areas. It will cost about £100 million extra per year to maintain county roads to desirable standards. I have no doubt that it will cost at least £1 billion over ten years to maintain county roads. This is because not enough people are employed by the local authorities to carry out preventative maintenance programmes.
Local authorities do not have the resources necessary to sustain this kind of programme. Therefore an interdepartmental group should be set up to examine the measure. I have no doubt that a cost benefit analysis would show that the money would be well spent in the medium to long term. We should look at these matter in the medium to long term because nothing looks financially sound in the short term. The balance sheets of all the successful projects looked bad over a three year period, but over the medium to long term they proved very positive.
I appeal to the Minister to examine this. It is one way of ensuring that the fruits of economic growth are directed to areas where they are needed; it would be the salvation of rural areas. That is why people like Deputy McCreevy have said that it is possible to have great growth rate figures and booming economies which have no material effect upon employment. I am explaining exactly why it is not having an effect, I am explaining how to make it have an effect. The officials might not like to hear it but I have to say it because I come from a rural area where local authority employment was the only possibility. There was Bord na Móna, local authority employment and the ESB. It is time to reconsider what was important to us in the 1960s and 1970s. We should not be ashamed to look at the positive elements of that period.
I have studied economics and I know it is important to adhere to the economic parameters as set out by the Minister for Finance in the budget. However, as Deputy McCreevy said, what happens to those economic parameters if something exceptional happens? If £50 million is required does one cut £5 million from every programme? This is a serious matter because if the budget programme has led to expectations people are entitled to believe it will be carried out.
The £50 million will have to be found. The Minister did well to find the £140 million which had been deferred for a number of years. It is no use saying spending has increased by 6.9 per cent; that money was due to be paid and the Minister found a way to do so. It was right to pay it because it should not be deferred ad infinitum.
Nonetheless, what happens in cases of exceptional items, of which there are a number in the pipeline? The economic markets will watch the Minister to ensure he adheres to the economic parameters as laid down in the budget, but exceptional items must be dealt with as they arise. For example, I feel the house building programme is the minimum necessary to tackle the waiting lists which increased astronomically between 1987 and 1992. I would not countenance one penny being taken from that programme; in fact, more money should be given to it.
A number of other matters have been mentioned. We will be dealing with the Arterial Drainage (Amendment) Bill, which is a meritorious change to the existing legislation and I look forward to contributing to that debate. It provides a mechanism for carrying out works on a local basis as opposed to a catchment areas basis, as was the case heretofore. Agencies could not react and carry out works which should have been done immediately because they were precluded from doing so by the Arterial Drainage Act, 1947.
The Chairman's view of the decentralisation programme may be different from mine because some Dublin Deputies feel too much has gone to the rural areas, as they would describe County Westmeath. I think decentralisation is an important development but I note that one of the major towns in the midlands, my home town of Mullingar, has been excluded from the programme. I appeal to the Minister to ensure that the town is considered favourably in any further decentralisation programmes.
The allocation for inland waterways is highly significant. The Royal Canal is an important waterway. I hope that one day the Royal and Grand Canals will be linked, to provide the ideal holiday. This is a great development for tourism and has tremendous potential. It is appropriate to pay tribute to the many volunteers on the Royal Canal and inland waterways amenity groups who kept this dream alive when it was not fashionable to do so. In my county and in Dublin, these people were the catalysts for development.
Deputy McDowell spoke about the Programme for Competitiveness and Work, the Programme for National Recovery and the Programme for Economic and Social Progress and has held that view for a number of years. All such agreements have imperfections but they have played an important role in providing stability on the industrial front. They allow prospective employers to view our country as a stable environment for investment. It is because of the certitude that provides that we have been successful in gaining a number of important industries, even within the last year. They have played a useful role and I support this type of bargaining.
I will say a few words before I call Deputy Wallace. Some Members asked about the accuracy or otherwise of national statistics. When I was Chairman of the Committee on Public Accounts last year we raised this with the Central Statistics Office. We were told an interdepartmental group had been set up to look at the trade figures because there is a widespread view that these are distorted, probably by the pehonomenon of inter-company transfer pricing. If they are distorted and our trade surplus is exaggerated, that could have a knock-on effect of exaggerating our GNP growth. I ask the Minister if any progress has been made by this interdepartmental group. Does he share the concerns of Members of the committee about the accuracy of national statistics?
As Deputy Penrose said, there is no "feel-good" factor in the villages of his constituency and although he thinks it is different in the capital it does not exist in my constituency, Dublin Central, either. Many people read about 5 to 5.5 per cent economic growth with an average of 4 per cent over three years and feel everyone else is benefiting from the growth but they are not. Something is amiss because there is no "feel-good" factor and there should be. It is important to focus on this point because if we quote statistics which are distorted it could undermine the veracity of our planning and outlook.
Many will be relieved by the Minister's statement that — apart from the once-off social welfare equality payments to women — it is expected the growth in public expenditure will be slightly less than the budget target of 5.9 per cent. However, I share the view expressed by a number of Members that our public debt remains a major problem. If we do not run budget surpluses at times of economic growth, what happens when we have a downturn?
Interest rates assuredly will go up eventually in the cycle. Our national debt is of the order of £30 billion. I realise it is not this simple but if there was a 1 per cent increase in interest rates across the board, that would cost us £300 million; if the increase was 3 per cent it would cost £900 million. That eventuality would greatly reverse the improvements in public finances achieved over the last number of years.
There is a compelling reason to address the public service debt more seriously than we have in the past number of years. Rather than having modest EBR requirements of 2.4 per cent, as the Minister indicated, we should think in terms of budget surpluses in order to reduce the debt. Otherwise, in a few years' time when the buoyancy of revenue is not as good, less money is coming in and interest rates have increased, the budget deficit will also increase.
Deputy Penrose asked what could be done if there was a disaster or a special once-off payment such as equality payments. There was a contingency provision in the budget figures to meet such things, but that was abandoned approximately ten years ago. Consideration should be given to the development of a contingency fund over a period of years so that the budget targets are not distorted by once-off factors such as equality payments.
I want to take up the point made by Deputy M. McDowell about public service pay. Public service pay can increase by increases in salary, numbers or both. One cannot look at public service pay and say it is disgraceful that it has increased. It is disgraceful if there has been no consequential improvement in public service performance. One area which this committee must look at in more detail — we have already decided we will do so from the autumn — is public sector efficiency. We must decide if many of the services provided could be done better or if we could use public service assets and skills to generate other income for the public sector. This area needs more attention and the committee must start looking at these questions in more detail to see how we can encourage greater public service efficiency in the future.
Another area I want to briefly address is long term finance in five, ten or 20 years' time. Politicians are infamous for their short term views because they think only as far as the next election. However, we have a duty to look ahead. I am glad the committee accepted my suggestion that we should start looking at long term finances from the autumn. I was startled at the Minister for Finance's statement on Committee Stage of the Finance Bill, 1995, that in 15 years' time we would have twice as many old age pensioners as we have today.
They will double.
That is a startling figure. We should also look at other projections for ten or 15 years' time and the cost implications of existing policies. How many people will be in third level education? How many single parents will there be? We should consider the issues we can reasonably predict on the basis of present trends and determine the consequences of present policy and the type of policy changes which might be necessary. This forum is a good place to take a medium to long term look at those finances.
Deputy McCreevy mentioned employment, which I have been concerned about for some time. Many people who get a job are often worse off than they were on social welfare. I am not saying that people living on social welfare are well-off. Anyone who depends solely on social welfare for their income is living in poverty. However, our tax, social welfare and means testing systems interact in such a way that a family will be worse off at work on the average industrial wage than on low social welfare. This is not an attack on social welfare as it is sometimes construed to be. On the contrary, we must address the grinding poverty which exists among many of those who depend on social welfare.
We must also address the issues of poverty traps which is one of the reasons why we have jobless growth. Why is every 1 per cent of economic growth not creating as many jobs as it would have done ten or 15 years ago? Other factors, such as increased female participation and the advance of technology which did not exist 20 years ago, must also be taken into consideration. The question posed by Deputy McCreevy about jobless growth is one of the key concerns of many people. The problem cannot be resolved by changes in taxes, social welfare, social insurance levies and means testing, but they can be improved. We cannot expect people on social welfare who are living in poverty to make their circumstances worse by taking a job.
As regards poverty, some improvements have taken place in the past few years, but they have not been enough. Further changes must be made, including a dramatic reduction in income tax, as I said on Committee Stage of the Finance Bill. We, as politicians, must contemplate alternative taxes. We overtax everything which is dynamic in this country and undertax everything which is static. We overtax labour and undertax property. That is not a fashionable view, but if we are serious about addressing the unemployment problem we must address this issue. If we do that in a sensible way, we will be able to restore a certain amount of local democracy. Changes in taxation, social insurance, social welfare and means testing could achieve a 2 or 3 percent reduction in unemployment. More people would be employed, thereby contributing to the Exchequer, and fewer people would need to draw from it. That, in turn, would have its own knock-on benefits for the public finances.
We should look at a decisive decrease in payroll taxes and we must find alternative sources. Property could be used because many people who own extensive properties are paying no taxes. People shout——
There are such schemes.
——about the existing property tax and I have received a few letters in that regard. I am not defending the existing property tax, but I want an extensive property tax. I do not want a small minority of people who are already paying income tax to pay property taxes when other people, who may own 30 or 40 houses in flats, are paying no property tax. My constituency is full of such people who are getting significant incomes from these properties. Residents who own one house must pay property tax, which is unfair. Support for property tax does not mean we support the existing property tax. We must be serious about this issue. I also support the idea of more carbon taxes as a means of reducing payroll taxes.
I want to speak about social insurance levies, although one could ask if they can be called insurance anymore as a result of the changes. However, because of the change in unemployment throughout the European Union, there is a strong and urgent case for an alternative base for social insurance levies other than the payroll. I have often quoted the example of two companies. One of them is CIE, which has a turnover of £500 million per year. It employs approximately 13,000 people and pays almost £50 million in social insurance levies for the privilege. The other company, which shall be nameless and is in the private sector, employs a little over 100 people, has a larger turnover than CIE and pays less than £0.5 million in social insurance. A large, capital intensive company pays a very modest amount in social insurance, while a smaller, but labour intensive industry pays a huge amount. The former is taxed for employing people.
This makes no sense in the context of the present unemployment situation here and in other countries in the EU, where the base for social levies on the payroll, is much the same. If we acted unilaterally, for example, by changing the base partially to include company turnover, it might push companies out of our jurisdiction to others. We must, therefore, press for change across the EU. The issue is so serious and fundamental that it is a proper subject for inclusion in the reviews which will take place under the Intergovernmental Conference next year.
Apart from payroll taxes, another aspect of the poverty trap is the question of means testing, an issue I raised in the Dáil over the past seven to eight years. Indeed, I raised it privately as a Minister up to 1987. Anyone applying for a means tested State service is assessed on gross pay but nobody can spend their gross pay. A policy decision was made in the UK in 1984 that all means testing would be on net pay. Such a policy is resisted in this country because if it was implemented today at present limits there would be a cost implication. However, if we are to seriously tackle the poverty trap and the reason economic growth is not turning into jobs, we must address the question of means testing. For example, there are 17 or 18 means tests in the State sector where there should only be one. It is ridiculous that different State agencies, indeed sometimes different sections in them, assess means differently.
Net pay should be the only criterion for defining means. It should include offsets, for example, transport costs in work, pension contributions or, in rural areas, an allowance for those living in remote places. There should, therefore, be benefits and liabilities in kind, and no dispute over defining the means of a person. It can then be decided at what level of means entitlements arise. The means test should be conducted at the local health centre, not at the corporation, the Department of Social Welfare or the health boards. It is an area where bureaucracy has gone mad, taking up official time in Departments. If people become unemployed they sometimes have to go through five or six different means tests to get their entitlements when one certificate of means based on net pay, from the local health centre should be sufficient.
When Mr. MacSharry was Minister for Finance, he told me in reply to a parliamentary question that an interdepartmental group had been established to consider this issue. I have raised it repeatedly on the Committee of Public Accounts over the past two years. The group is either on strike or in abeyance, or the question has been abandoned. The matter must be taken in hand and a policy decision made that people's means are their net means, not notional gross pay. At present, the issue contributes to people being worse off employed than unemployed.
Some of our social welfare spending, which is a huge growth area, is causing or accentuating problems. For example, in my constituency, the alarming growth in rent subsidies means that more and more houses formerly family homes, are being converted into multi-occupied dwellings. Rents are being increased because the health boards provide subsidies of as much as £65 per week, sometimes more. The subsidy means that many young people living at home with their parents take advantage of it and seek flats. In consequence, the subsidies contribute to an over development of multi-occupied dwellings in areas where, if there are too many of them, communities can be destroyed.
This problem is accentuated by the fact that young people at home are assessed for unemployment assistance on their parents' income although this was changed in the budget, which is a step in the right direction. However, to obtain full unemployment assistance, people leave home where they will also get a medical card and rent subsidy. It is a public expenditure area that is causing many problems. It is breaking up families, increasing the price of housing and costing the Exchequer a fortune. I urge an immediate review with a view to taking action in next year's budget. The provision for the subsidy has increased from approximately £3 million to approximately £45 million in a few years and it will grow further if action is not taken. It is an area where we are causing problems in the way we spend social welfare money. We should not abandon the subsidies completely, but it must be much more focused on those genuinely in need.
There are several other areas of public expenditure in the social welfare area where problems are caused in the way it is spent and the way in which people qualify. One of these is the sensitive area of the single parent. Nobody would support a change in the arrangement which would mean that single mothers in genuine distress would not be properly supported by the State. However, if the scheme is applied in a way that accentuates and encourages the development of an adverse social trend it is time to consider it in a sensitive way. Two or three years ago I suggested that in interdepartmental task force should consider the matter to see how arrangements could be better focused to address the problem as intended, but without having the adverse, and avoidable, knock-on effects.
Returning to the unemployment problem, which is fundamental, many State companies have greatly improved over the past ten years and there are ongoing reviews. This week alone we have read the situation in An Post and the ESB. Many State companies could be the base of indigenous multinational companies, a role we have never assigned them. In Sweden, each of eight indigenous companies employ more than 50,000 people, between them they employ 500,000 people which, in turn, leads indirectly to another 500,000 jobs. This is a total of one million people, or one eighth of the population of Sweden. Companies such as the ESB, Telecom Éireann and RTÉ, could well be the base, by way of joint venture and otherwise, of Irish multinationals. Everybody now accepts that we should not place too much credence on foreign multinationals. Small is beautiful.
Everybody believes in small companies and the findings of the Telesis report. Another dimension must be a greater role for State companies. Their mission should be restated so that they seek out investment and joint venture opportunities to increase employment. Unemployment remains the major problem facing the country after the peace process in Northern Ireland.
Committee Stage of the Finance Bill received very little coverage in the newspapers yet the debate over the three days was one of the most edifying I have seen in the House. The contributions made by Opposition Members and Members of all parties were good. I pay tribute to the way the Minister listened to the points made and took so many of them on board. I have never seen a Minister for Finance so willing to listen and generously accept the views of others and I congratulate him. It got no mention in the newspapers, although I thought it would, and it is only fair that we should pay that compliment to him.
I concur with the remarks about the Minister accepting a number of the amendments and the contributions of Members, particularly Opposition Members. We endeavoured to be as constructive as possible. I was glad the Minister listened carefully to some of the points and I have no doubt we will see the benefit during the year.
We have had an interesting discussion this morning. Perhaps we have moved away slightly from the normal procedure in relation to Estimates but that may be no harm and may be in everybody's interest. Deputy McCreevy raised a number of important issues which have been on my mind for a long time in relation to the whole direction in which we are going and how we arrive at certain situations. GNP is the subject we are referring to here.
I want to know how we arrive at our figures. There is no doubt the area of the multinationals, in particular, needs to be examined. I do not think the figures are accurate. We must investigate the way multinationals present their figures, both externally and in Ireland, because they create a false impression.
The excitement and expectation prior to the budget is changing too, not because of the leaking of information but because the media have covered all the possible outcomes. There must be new directions and thinking. The old system is conservative.
In my constituency, Cork North-Central, there are huge problems which successive budgets have not addressed. Unless there is an overall plan, which involves the local authorities, the health services or whoever, we are not going to come to grips with the problems in those areas. My constituency should get between £100 million and £150 million from the Structural Funds by all these sectors coming together and working out a plan to deal with our problems: crime, drugs, bad housing and unemployment. Resources are being directed to specific areas, but we are not coming to grips with the problems. While they get a little in the budget, we see the stronger get more than the weaker. That is evident this year and the committee will not divide on that. It is the reality. If people have a strong voice, they do better than those with a weaker one.
We must all sit down and see where we are going. The situation is getting worse. In my constituency, there are young people coming out of primary school who cannot write a letter. It is hard to believe there are people leaving school illiterate but that is a fact. I have seen that information. We are not doing enough in this area. We can talk about the extra number of resource teachers or home-school links but the fact is that in this budget we have again directed our resources at third level education. I have no objection to that but the most vulnerable in the community are left behind again. We are doing that at our peril. We are not listening to the people most in need.
Unfortunately, the people making the decisions do not understand. Too many of them are in ivory towers. I had one or two experiences recently with the Department of Finance. I was absolutely amazed at the attitude. They could not see sense and use modern thinking in relation to the issue.
The public may read that the number of unemployed has gone down 5,000 or 10,000 or 15,000 but if it does not affect them, they are not interested. There are young people in my constituency who have never worked and have no reason to believe they will ever work. The only source of employment for some of them has been the community employment scheme. This is the experience in other parts of the country also. The point I am trying to make is that we have serious problems. There are areas we are not tackling. We are not addressing the area of prevention. We are not developing the community care services and we ignore these problems at our peril.
It is all very fine to give increases to people on social welfare, but the people do not see it as a benefit to them. We must find other ways to deal with these people in order to assist and support them. This is not only applicable to the Minister for Finance. We all have a role to play and if we do not come to grips with this, we will suffer for it.
There should be an income for every individual over 18 years of age. People will say we are looking after the fellow who is able to look after himself but we have seen the negative side of taking away from a young fellow or girl leaving school. In the past they were given an income, £40 or £50 or whatever. They were given something. We took it from them and now we can see the cost to the State. They now move out of home to get a housing subsidy and an income. If they stayed at home, many of them would not get a subsidy because they would not qualify for it. They would not even have a medical card because they would be covered by their families. It is costing the Minister more at the end of the day because of the direction we took. We thought we did the right thing by having a means test but it drove people out of home because their father was working and earning too much to entitle them to assistance from the State. We do not take into consideration that the father may have a couple of children in college or still in school. That area needs immediate attention because we are really losing out as a result. These people are going into unsuitable housing. As the Chairman said, people have taken advantage and put up the rent because there is a rent subsidy. Some people get up to £60 or £70 per week in rent subsidy for these houses which, in some instances, are substandard.
There are many points I want to make, Chairman, but I do not want to delay the meeting. We do not have a plan in relation to the direction in which we are going. We talk of all we have achieved but over £4 billion is going into social welfare every year. That assistance is not going to those most in need. We cannot run away from the fact that many people are abusing the system and depriving others. If they were not abusing the system, the Minister and others could redirect assistance to those most in need.
I mean these comments to be of assistance to the Minister and I know he agrees with many of them. We need to rethink and redirect. The £150 million I mentioned should be directed to my constituency. I put a plan to the former Taoiseach, the former Minister for Finance and the Tánaiste, Deputy Spring, in relation to the UCC development at Our Lady's Hospital, Cork.
UCC has a £70 million development plan. I had worked out a plan where the different sections could play a role in relation to the needs of the people in my constituency. I met the President of UCC and told him he could spend £35 million of it on the north side of Cork which is a time bomb which will affect us all when it goes off. It took a long time to convince him of the idea and I do not know whether it will come to fruition.
Elections are used by people to promote their cases but the promises are forgotten when the elections are over. However, that was an area where I believed a contribution could be made by a State agency in the educational sector. I do not know if it will work out because there was much resentment and opposition to it. If it took off it would be worthwhile.
The Minister dealt at length with the public finances in his opening remarks. He referred to servicing the national debt and that has to be a matter of fundamental importance for us all. It should be addressed, particularly at a time when the economy is buoyant.
At the time of the budget there was a surplus of £15 million and the Government decided to budget for a deficit of £310 million. Might that be reduced with a buoyant economy? The Minister also referred to increased spending under 6 per cent. He said that, leaving aside the £140 million for the equality payments, he hoped to reduce the public spending increase from 5.8 per cent to 5.6 per cent and that there would be strict guidelines for Departments between now and the end of the year to enable them live within their spending limits.
If the Minister reduces the increase in spending, some Departments will have to reduce their spending. How does he intend to make the reduction from 5.8 per cent to 5.6 per cent? Will there be a tough embargo on some Departments from now until the end of the year, particularly the high spending Departments and those that have recently advertised many jobs?
It is only right that the debt should be addressed. We do not have the right to spend money to provide a high level of public services for ourselves and leave the bill for our children to pay. There were reasons that may have occurred for the last generation — people may have been caught out by the oil crisis and there was an erroneous perception that one could borrow one's way out of trouble. However, we know now it is an important issue to address.
Related to that issue is the size of the pension bill and that it will double in 15 years time. Is the Government making plans to deal with that eventuality? The public service pension bill is paid out of current expenditure. What plans are there to deal with what will be a major problem for the nation's finances?
Another related issue is that of European funds, particularly the European Social Fund. In 1999 there is a danger we will lose our Objective 1 status and we may lose funds. What percentage of those funds goes on current as distinct from capital expenditure, for example, in ESF areas such as FAS and on training schemes for people with a disability? What plans are being made to meet those needs from Exchequer funds post-1999 if necessary?
With regard to the Border areas and the question of positive discrimination or a special focus on them in the light of the peace process, speeches by various Ministers have indicated a strong commitment to the Border areas in recognition of what has happened over the past 25 years and in recognition of the peace process, to underpin the peace process and help bring about reconciliation. However, there has not been much practical application of that commitment.
The EU has always recognised the problems of frontier areas by providing INTERREG funds. It has particularly recognised the problems in Ireland following the 25 years of violence, by establishing the fund for the peace initiative. The US, Canada, New Zealand and Australia have recognised the special problems by establishing the International Fund for Ireland. The US recently held the successful investment conference. It is appropriate to pay tribute to President Clinton and the American Government for initiating that conference. The Minister and I were there and it was a tremendous success politically, in that it brought political parties of all shades of opinion on this island together under one roof, and in terms of the opportunities it created for business, industry and tourism to develop in the North and the Border counties in the South.
There needs to be a greater commitment to the Border areas from the Government. I would like to see Ministers take a more personal interest in focusing attention on the Border area. At present we do not have a Minister or Minister of State from any Border county. The question of funding provided from outside the State specifically for the Border areas should be addressed. When I mention positive discrimination I do not mean at the expense of other taxpayers or other areas such as my colleague Deputy Dan Wallace referred to. I mean funds provided by the German and French taxpayers specifically as additonal funds for the Border areas through INTERREG.
Will the Minister ensure that for the next few years those funds are channelled to where they should rightly go as additional funds to improve the infrastructure in the Border counties? My constituency is caught between the pale and the plantation. There is an area between the highly developed greater Dublin area and Northern Ireland where we do not have the necessary infrastructure to develop.
While we would like a special focus on the Border counties I ask the Minister to at least ensure that the additional money provided by European taxpayers finds its way to the Border counties.
There are critical matters being discussed at the Committee of Public Accounts and Deputy McCormack and I have duties as Members of that committee.
Scheduling several committees at the same time creates a difficult situation. The Chairman will remember his experience as the former distinguished chairman of that committee.
The problem of the greater Dublin region is that until this Government took office, it consistently had the least per capita expenditure on structural funding and that is still the case. If the Members from Border areas represented some parts of the pale, they would know what it is like to struggle with inadequate funding — the worst in the country. I congratulate the Minister on some of the provisions be introduced in the support framework to help Deputies to carry out their work. What further plans does the Minister have in this area?
There are still unsatisfactory matters in the way we do our business, as the Minister is aware. We do not have a single room in Leinster House where we could interview a delegation or take a group of children or teenagers to explain the workings of Dáil Éireann. The whole back up system for Deputies is extremely poor. The 12 Members of the Committee of Public Accounts and the Members of this committee do not have the resources commensurate with the resources allocated to other parliaments for carrying out their specific functions such as research. What other measures can the Minister take to support the work of Deputies? We are increasingly being asked to spend time at the central business of legislation and investigation rather than solely representing our constituents.
We had an interesting private discussion a few weeks ago in relation to the Chairman's programme of action for the year. We noted the fact that the budget of 1996 is now under way and the basic framework is close to being laid down, give or take a few million here and there, and we made the proposal that we would try to have as much input as possible to that budget. I am particularly interested in provisions for senior citizens and representations have been made to me and other Labour backbenchers on that area. At what stage is the 1996 budget and what are the Minister's hopes for it? Will we be wearing hairshirts or will we be, as is the Minister's style, more expansionary and imaginative?
I will afford the Minister the opportunity to reply to that debate and then Members can ask specific questions. Is that agreed? Agreed.
I have, self-evidently, the support of a substantial number of Members here. I have taken notes of a number of the questions and if I cannot answer specific points, I will endeavour to send the details later because all the questions asked where pertinent. I will deal with the macro issues first and I will then get to the specifics. There is a mistaken view by commentators and some politicians that public expenditure is out of control. Concern has been expressed about public expenditure increases over the last number of years and it is true that since 1990 the growth increase has been of the order of 8 per cent per annum on average.
This administration, which does not satisfy some commentators and newspaper proprietors, is committed to reducing growth in public expenditure. The target figure set in the programme A Government of Renewal was 6 per cent in nominal terms. In real terms that is just over 3.5 per cent, allowing for inflation of 2.5 per cent. The target is being met. After the budget, we had made provision for £60 million for the anticipated legal obligations — no an optional extra — in respect of social welfare equal treatment payments. Because the judgment was given only on the Friday before the budget on Thursday, 8 February, we were not in a position to respond. The extra £140 million was found through the proposed securitisation of local authority mortgages which bring the total increase up to 6.9 per cent on the previous year’s outturn.
As we heard before, the Devil can quote scripture for his own needs and statistics for his infinite purposes. It depends on where you want to start. You can knock out all sorts of once off items from here and there and constuct a base, as I heard Deputy McDowell do, which is fair because he is a politician. Other commentators who are no longer Members have discounted all sorts of extra items in last year's receipts, constructed a lower base than is factual and then concluded that if we look at what we are spending this year against that selectively reduced base — the figures are transparent — there is an increase of 9 to 10 per cent. I do not mind that in an economic political debate or argument. All is fair in love and war but it is not fair and not in the national interest that people then start to construct an image that this country's finances are out of control and that the administration has lost the run of itself. It is not in the interest of the parties in Opposition because they may find themselves, in two or three years' time, having to share responsibility for the management of our affairs. I am happy to argue vehemently and vigorously in favour of our actions and decisions, provided that we agree on the facts. When we start to cloud the facts with assumptions and selective deletions from the base figure, we are doing nobody any good.
The growth in the numbers of jobless was raised by a number of people and Deputy McCreevy referred to it. Our labour force is growing at an average of 25,000 per year and over the last year, the figures have come down. When the previous administration was formed in 1992-93, the projected level of unemployment from the Department of Finance financial model, taking one year with another and making the same assumptions, was for an outturn of an average of 310,000 persons unemployed for the year 1993. We all know that is not the case. Figures have come down — most recently last Friday — and, notwithstanding that people have left the land, in terms of agricultural employment there has been a net increase in the labour force of an average of 25,000 persons per annum. In addition, there has been an increase in the Community Employment Programme participation from approximately 26,000 or 27,000 persons in 1993 to the 40,000 who will participate this year. It is not true there is a growth in jobless numbers — we are in fact creating additional employment. However, we are not creating enough and in some areas we are effectively hitting what the jargon refers to as "labour market rigidities", "structural long term unemployment" and, as the Chairman observed — the poverty trap. For some people, especially those with large families of four and more, it is not worth their while to take up certain kinds of employment. The Chairman has done extensive calculations on this. At one time, four children did not constitute a large family in this country but, given the current levels of fertility and birth rates, it is now considered a large family. These people, relative to their skills level and the job that is on offer and when you put everything into the pot in terms of butter vouchers, medical cards and so on, can find themselves worse off. We have committed ourselves to addressing those poverty traps or barriers in this budget and in the next two budgets, which I hope I will be in a position to introduce before the election scheduled for 1997. This year's budget will go some way towards that. How fast we can move depends on how fast the economy grows and how much of that growth we can retain for ourselves, to give back to citizens in the form of reduced levels of taxation.
That brings me to the second point — the pay factors that Deputy McDowell addressed. I believe in the social partnership, consensus and inclusion is the way this country should move forward but there are costs associated with it. In some cases one gets the lowest common denominator in terms of paying that bit extra to ensure that everybody buys into the deal. Deputy Michael McDowell was prepared to pay a certain amount but he considered the price too high. He invited IBEC to disassociate itself and to disengage from the social partnership. This macho attitude disappears like snow off a ditch when a specific employer finds that a public sector strike affects, for example, air traffic control or the transportation ferry. This type of macho employer or commentator will advocate that this sector of the economy or the work force be taken on but as soon as there is disruption in a sector that directly affects the operation of their business, they want the Government to intervene and to pay whatever is necessary to settle the dispute.
There has been a massive sea change in the thinking of the social partners, especially in the thinking of the trade union movement, since the middle of the 1980s when I was in Government as Minister for Labour. They are committed to world class manufacturing and to efficiency. In the private sector, the trade unions have taken a lead in many cases in promoting and arguing for improved quality standards such as the ISO 9002 and ISO 9002. The strategic management initiative is designed to transfer that level of productivity and pay increases — there have been pay increases in the private sector — into the public sector.
The importance of the strategic management initiative in the public sector is that first and foremost, it must be owned, by the people in the public service. There are rigidities in every group both in the public and private area. The SMI and the Programme for Competitiveness and Work is concerned with implementing solid measurable change. An example of this is the way the system of arbitration and comparison used by the public arbitrator for public sector pay awards has been changed in the context of the Programme for Competitiveness and Work agreements. Many of the increases, for example, the increase of approximately 50 per cent for the period 1989 to 1995 inclusive, referred to by Deputy McDowell, was attributable, in part, to catch up pay claims between one group of workers and another, set by an arbitrator who took no account of the ability of the State to pay in the context of the overall parameters of the economy. In consequence, there was a sense that lawyers such as this arbitrator were not living in the real world.
With the agreement of the social partners, especially the public service unions which were directly affected, we have replaced the arbitrator with a tribunal of three people. The ability to pay and the state of the public finances is now a factor which must be brought into the equation. We will not see the benefits of this factored into the equation very quickly, but we will see them in time. It is a welcome development.
On the question of the statistics and the interdepartmental committee, when we moved to the internal market 18 months ago, concern was expressed, not only in this State but in other EU member states in respect of the accuracy of statistics, especially trade statistics and the time lag in their compilation, now that frontier controls and VAT at the point of entry — one of the mechanisms for measuring trade flows — has been removed. In 1994 the Department of the Taoiseach established an interdepartmental group. Its terms of reference were to examine the external trade statistics and their impact on national income statistics, to consider technical issues arising from the basis of compilation of the statistics and the underlying economic trends and to consider the implications for economic performance and policy and provide an analysis of the statistical resources and procedures. The report of the group is expected shortly and as soon as it is available I will submit it to the committee for perusal.
In the interim the concerns addressed by the Chairman and by Deputy McCreevy have been brought to the attention of the Central Statistics Office. We are assured that the national accounts have not been overstating GDP or GNP and in compiling the statistics for both, the Central Statistics Office adheres to the conventions of the European system of national accounts as required by our membership of the EU. In addition, the accounts are subject to the scrutiny of Eurostat, the statistical arm of the EU Commission.
In Deputy McCreevy's conversion to a new form of economics which he has not yet labelled, he is calling into question a view that a certain level of economic growth resulted in a certain level of employment creation. I share with him the view that the traditional relationship, in ratio terms, between a percentage increase resulting in a certain consequential employment increase in the labour force automatically occurring, appears to be weakening. We are not getting the same level of employment creation for the level of economic growth we have at present.
An additional factor is that the type of jobs now being created in our society require skills. In the electronics area, through the work of the IDA and the Department of Enterprise and Employment, we have been remarkably successful in attracting inward investment, especially from North America, which wants to have a foothold in the EU market. Some of the people employed by Cegate which will have a plant in Clonmel may well return to this country from abroad. Many of the workforce now working for Intel Ireland Limited in Leixlip could return home from the USA and elsewhere because they had the required skills. Great concern was expressed to me by officials from Hewlett Packard Ireland Limited, whom I met as Minister for Enterprise and Employment, that they did not believe we had a labour force capable of meeting their specialist needs. It was only in California, under the aegis of the IDA when they were introduced to the graduates network that they were reassured that the capacity was there. We must continue to refine the collection of our statistics but I assure the committee that the manner in which the statistics are accumulated and the standards applied to them are in accordance with the conventions, and they are the subject of scrutiny by Eurostat.
The issue of taxation on property as against labour will doubtless be addressed on another occasion. I answered a Parliamentary Question by Deputy Sargent on carbon taxes. There is much to be said in favour of shifting the base of taxation in Europe away from employment taxes. We must be careful that in shifting the problem away from one area we do not create anti competitive problems elsewhere. I am in favour of a move towards carbon taxes provided it is done within the context of the OECD. As Deputy McCreevy remarked in his contribution, if there was a level playing pitch for everybody and we were all starting from scratch, one could then argue for a shift in the taxation system.
Deputy O'Hanlon, the Chairman and others raised the issue of long term financing. What forward plans are we making with regard to our management of these affairs?
After 1999 the level of European Structural Funds will possibly decrease. Certainly, our entitlement to Cohesion Funds, in their present form, will be changed. The whole country will no longer qualify for Objective 1 status. However, parts of rich states within the Union such as France, Germany, Spain and Italy qualify for Objective 1 status and it is probable that, in the context of moving towards 1999, we will look at that way of dealing with our entitlement to the benefits of full membership of the Union. Work in that area is being examined within the Department.
Likewise the section on public service within the Department of Finance is acutely aware of the long term implications. By "long term" I mean the relatively short period of 15 years. We are looking at the pension fund and funding implications. It affects a number of areas and Deputy O'Hanlon as a former Minister for Health will be aware of this. We have a falling birth rate which has implications for health care. Health care is costly both at the early stages and the later stages of life. Our population profile is changing. People are fortunately, living longer and require greater health care. That has a cost implication.
The pension provisions for public servants are being addressed in a way that was not previously the case. Again I acknowledge one of the positive outcomes of the Programme for Competitiveness and Work. This was the agreement of the social partners, and in particular the public service unions, that new entrants into the public service, whose personnel previously did not pay full PRSI, would pay the full rate of PRSI. Over time we will introduce provision for pension funding. We will have to do more in this area. It was for that reason that claims by some sectors of the teaching unions for early retirement flew in the face of the statistical data we had on hand about the real cost of pensions over time.
We must have a debate on these issues. However, the debate will only be fruitful if the agreed and shared facts are on the table. Unfortunately, that is not the case at present. It is the type of thing for which we should be planning. As Deputy O'Hanlon pointed out, we have no right to live it up in our lifetime and leave debts for the next generation. That is not in keeping with the spirit of the people who made this State an independent republic. Certainly it is not my intention to make such a contribution to public life, nor is it the intention of anybody else in this House.
Deputy Broughan spoke about support for the Houses of the Oireachtas. I will address my comments to a large extent to the journalists. The Vote provides approximately £29 million for the operation of the Houses of the Oireachtas. The gross current supply figue for the operation of our services is £11,950 million. The cost of running Leinster House is about 0.25 per cent of the cost of the entire operation of the running of this republic. To look at and listen to the way in which commentators and journalists, all of whom enjoy better expenses than Deputies, comment on the affairs and the minutiae of our busienss, one would think that it cost an enormous amount of money to run the democracy of which we are all proud to be a part. I acknowledge the point made by Deputy Broughan. I will come back with the representatives of the parties in the House, including the Independents, to see how we can achieve improved efficiencies in the running of the Oireachtas, within the cost parameters we have set.
I realise I have not dealt with all the points made but we can return to some of them later if necessary. I wish to refer to a final point — the changes and adjustments that might be made in public expenditure. I said in my Budget Statement on 8 February that meeting our target of a 2 per cent real increase in 1996 would be difficult. We are now starting the six month of the calendar year and we have taken stock of where we are. We have carried out forward projections and it appears that we might overshoot the gross current supply figure of £11,950 million by about £77 million or 0.7 per cent of the total amount. We are taking stock in order to take whatever corrective action we can in 1995 to ensure that we meet the target we have set in 1996. That is a prudent and reasonable thing to do.
Could you explain the last figure of £11,950 million?
If we take our commitments and our current position and simply extrapolate them through into 1996, instead of having an increase in real terms — excluding inflation — of 2 per cent for the coming year we would have a real increase of approximately 2.7 per cent. We are now seeing what corrective measures we can take, seven months before next year, to ensure that we get back on line. This is normal, prudent and corrective cash flow and credit control management which any financial controller would carry out in any business. The 0.7 per cent translates into a gross figure of approximately £77 million. If that is set against the total spend of £11,950 million, it can be put in context.
We are doing what we promised when the Government was formed. We are taking steps to ensure that we meet our targets. I have no doubt that we will receive the co-operation of the high priests of fiscal rectitude, the Progressive Democrats, who will undertake to introduce no proposals between now and next December to increase public expenditure. We will monitor carefully every Private Members' Bill and every question. I am not being party political in this respect because Deputy McCreevy has indicated his position on a number of occasions. However, if people say we must reduce expenditure and at the same time put forward proposals to increase it, we will expose that contradiction. If a case is to be made for net additional expenditure in certain areas we will certainly look at it but only against the background that we have set a ceiling for ourselves to which we intend to adhere. That is not unreasonable.
Some specific questions were asked and we do not have the information to hand. The Vote provides for some of the concerns expressed by Deputy O'Hanlon in relation to INTERREG and the Delors peace package. I share his view and support his acknowledgement of the concentration the President of the United States gave to investment.
There is positive discrimination to a certain extent. The INTERREG programme, which is a European Union programme for frontier areas, provides funding for the six Border county regions of the State and the Delors peace package does something similar. The details of the operational programmes within INTERREG have become available although those of the Delors package have not yet been finalised. As soon as they are, it is our intention to improve, specifically with regard to INTERREG, the level of communication and community involvement at local level. It was a fair criticism of the first INTERREG programme that there was not as good communication as there might have been. The Commission itself recognised that that had to be addressed.
The funds are substitutions.
There is still positive discrimination. The Deputy's party colleague, Deputy Wallace, would love to have part of Cork North-Central moved north to one of the six Border counties to get a slice of some of those funds.
I thought Cork was twinned with Derry.
We have a few minutes for questions.
A question was posed by a number of speakers and I do not know what the response was. Considering the 5 to 6 per cent increase in growth and the fact that the economy is booming, is it not time to look at reducing the national debt?
Under the Maastricht criteria, to qualify for participation at the first available opportunity in economic and monetary union, our debt must be 60 per cent of our gross national product or, alternatively, rapidly approaching 60 per cent. This year it will move from 90 per cent to 85 per cent. As the economy continues to grow and as we borrow less, we will automatically reduce the debt as a percentage of our total income. We also hope to reduce the Exchequer borrowing requirement as we approach 1999. The combination of those two factors means that we will be borrowing less and possibly borrowing nothing for current account supply. Any borrowing should be done purely for capital purposes.
So the Minister is planning balanced budgets.
On the current account. Through additional items last year, technically speaking we had a balanced budget on the current side.
Do the assumptions which underlie the £77 million projection for next year include an indexation of social welfare?
It makes the normal assumptions.
What are the assumptions about interest rates?
International interest rates have come down and our interest rate has gone up 1 per cent. There are no domestic inflationary pressures at present and consumer credit has increased above the recommended normal figure — about 9.5 per cent. The Central Bank sets interest rates but I have no reason to believe they will increase.
Is the Minister assuming there will not be an increase in foreign or domestic interest rates?
We have very professional personnel, Dr. Michael Somers was here last week. The National Treasury Management Agency can manage a mix of currencies, borrowing in areas where interest rates are lower than ours. Interest rates on the continental mainland have reduced and, therefore, I have no reason to believe that, apart from the initial increase in February-March, there will be an increase in interest rates.
What is the annual cost of a 1 per cent across the board interest rate increase?
It does not work like that. The debt is constituted of a myriad different loans maturing at different times and at different interest rates. It is virtually impossible to calculate and I certainly could not give a clear figure now. It is not a single mortgage that goes up or down. It is a portfolio of loans.
I thank the Minister. The meeting is concluded. We note the Estimates we discussed today and we will consider the other points with the Minister of State in the next week or two, at a date to be decided.
The Select Committee adjourned at 1.35 p.m.