I am obviously glad to have the opportunity to introduce the 1998 Estimates for the Finance Group of Votes, excluding the Office of Public Works which I will present to the Committee later on today. In accordance with a recommendation by this Committee in 1996, the Estimates for the Office of the Attorney General, the Office of the Director of Public Prosecutions and the Office of the Chief State Solicitor are now taken by the Taoiseach.
The total of the Estimates for the Finance Group, excluding the offices I have mentioned, is over £441 million. The largest Vote in the group is Vote 9, which is the Office of the Revenue Commissioners, with a total net estimate of just over £158 million.
In all there are 12 Votes in the group and Committee Members have already been provided with details of the amounts for which approval is sought for 1998. I will be happy, of course, in our discussions today to provide any further information that Members may require.
Before dealing with some of the individual Estimates in the group, it is customary to outline recent economic progress and the overall position of the public finances. It would be appropriate for me to review briefly the remarkable performance of the economy in recent years and to summarise prospects for the future.
In terms of economic growth, we have outperformed our EU partners for four years in succession. Irish economic growth was the highest in the EU, at around 8 per cent last year. This growth is broad-based and its impact on unemployment has been particularly encouraging. The buoyant economic performance has been translated into record employment growth which has averaged 4 per cent per annum in recent years. Our unemployment rate, according to the latest available comparable data, at 9.6 per cent, was below the EU average of 10.3 per cent on an ILO basis. It has fallen from 15.4 per cent in 1993. The latest CSO figures from the new quarterly national household survey show that the strong growth in employment is being maintained.
This remarkable economic performance has flowed from the prudent budgetary policies of successive Governments, coupled with a decade of social consensus, involving unions, employers, farmers and Government. Our achievements have ensured that we qualify for economic and monetary union.
The establishment of the euro will yield significant further benefits for Ireland. Membership of EMU offers Ireland the prospect of stable economic conditions, based on price stability. The adoption of the euro will consolidate the gains already achieved through the single market and together they will promote further the process of integration and real convergence which should, over time, lessen the risk of major shocks affecting individual countries.
Of course, participation in EMU will also present challenges. In EMU, with the alignment of interest rates and the permanent fixing of exchange rates, the available tools for adjusting national competitiveness and stabilising national output will be limited. The international competitiveness of the economy will have to be secured through other means. If there are shocks in the future which are particular to Ireland, the adjustment process will have to be assisted by a combination of fiscal policy, pay policy and structural reform.
The outlook for the economy continues to be very favourable with further strong growth in output and employment in prospect for the next couple of years at least. Economic growth here is expected to continue to be well ahead of the EU average. With further strong expansion in employment and continuing growth in investment and exports, unemployment is predicted to fall further below the EU average. Overall, economic growth is forecast to average about 7 per cent per annum over the three years to 2000.
The principal danger to this favourable outlook is that inflationary pressures could undermine the present strong growth phase. We must be alert to these dangers. In recent years, the economy has demonstrated its ability to combine very strong growth with moderate inflation. Despite record levels of growth, average price inflation in the past three years has been around 1.5 per cent, though inflation has recently picked up somewhat to around 2.5 per cent. While the strength of sterling over the past year has added to inflationary pressures in the economy, this factor is likely to unwind over the next 12 months or so in line with UK currency movements which have already seen its DM rate fall back recently. The subdued level of international inflation is expected to have a continuing benign impact on inflation in Ireland. Wage pressures are being minimised through the disciplines of the Partnership 2000 agreement. Nevertheless, we must be extremely vigilant about inflation. All the social partners must play their part in ensuring that any temporary pick up in inflation this year arising from exchange rate movements is not internalised here through compensating increases in wages and costs.
The Government's policy on expenditure as set out in An Action Programme for the Millennium is set to limit net current spending growth to 4 per cent and capital spending growth to 5 per cent on average up to 1999 and to reduce overall Government spending as a share of national output.
Controlling public expenditure is essential if we are to ensure that budgetary and economic policy continues to deliver the benefits we have seen in recent years in underpinning sustainable growth, keeping inflation under control and further improving our competitiveness. Successful participation in economic and monetary union will require tight fiscal management. Along with the other member states which have joined the single currency, we have committed ourselves to taking whatever action is necessary to maintain tight budgetary discipline. In deciding the 1998 Estimates, the Government was greatly influenced by these considerations.
If the Government's expenditure plans do not strike the right balance between the requirements of a tight budgetary policy, particularly in the context of our participation in EMU and the need to meet social and economic priorities, it will be all the more difficult to sustain the progress of recent years. We know only too well from past experience that, if public expenditure is not handled properly, economic policy can go seriously wrong. The Government is keenly aware that public expenditure which is allowed to grow too rapidly can place severe constraints on the budget configuration and add to inflationary pressures within the economy. The Government's approach to public expenditure is clearly focused on minimising these risks. These objectives will be assisted by the move to a new system of multi-annual budgeting under which the Government will settle three year financial envelopes or expenditure allocations for Departments in the light of its policy priorities and the medium term budget position.
Delivering Better Government, the 1996 report of the group of secretaries co-ordinating the introduction of the strategic management initiative, recommended that a multi-annual budgeting system be introduced. This Government has firmly endorsed the strategic management initiative and significant progress has been made with the introduction of the new multi-annual budgeting system.
A multi-annual projection of the major revenue and expenditure aggregates on the assumption of unchanged policies was published with the 1997 budget. The expenditure data were in aggregate form, without a breakdown by Vote groups. The Minister developed the approach further by publishing, as part of the presentation of the medium-term implications of the 1998 budget, projections showing expenditure by individual ministerial Vote groups for the period 1998 to 2000. The projections are on the basis of a "no policy change" assessment of the final 1998 expenditure allocations decided by the Government.
As announced in the 1998 budget, the Government has already agreed to implement certain important reforms in regard to multi-annual budgeting which would involve the Government making decisions for resource allocation over a three year period covering the main budgetary aggregates of taxation, expenditure and borrowing. We will be considering the implementation of this framework in the 1999 budget preparations.
I now propose to deal with some of the Votes in the Finance group which are the particular subject of our discussions here today. To recap briefly, the group comprises Votes with a total net provision for which approval is sought for £441.141 million. I propose to comment on some of the principal Votes in the group.
As always, Vote 2 is of special interest to the Committee. The 1998 net provision of £34.434 million shows a decrease of 8 per cent on the 1997 out-turn mainly because of the fact that, because of the 1997 general election, significant pension and termination payments fell to be met in that year. I should point out that additional costs arising from the package of improved allowances for Members of the Oireachtas, which were recently announced, are not included in the 1998 Estimate currently before the committee. These additional costs will fall to be met by way of Supplementary Estimate later in the year.
Vote 4 on increases in remuneration and pensions provides £84 million to cover the cost of settlements in PCW local bargaining negotiations which have not yet been finalised. Although the PCW expired in the public service on 30 June 1997, a number of local bargaining cases remain to be resolved. At this stage, settlements have been concluded with the vast majority of public servants, generally within the established norm. This limit must be adhered to in resolving the remaining cases. Otherwise, there is a risk that other groups might seek to reopen settlements which have already been concluded and that the whole public service pay situation would unravel.
Excessive pay demands in the public service risk undermining the performance of the entire economy by increasing public expenditure without any improvement in the quality of public services being provided. Concession of these demands would pre-empt resources which could be used for the many worthwhile objectives of Government, particularly further reductions in taxation which would benefit the community as a whole. Concession of excessive pay demands would also have an adverse effect on the general pay climate in the economy and on competitiveness. This would undermine our economic performance and ultimately lead to reduced employment which would not be in anyone's interest.
The Partnership 2000 pay agreement came into operation in the public service on 1 July 1997. It provides for general round increases totalling 7.25 per cent plus and a locally negotiated increase of 2 per cent which is conditional on progress in implementing the public service modernisation programme. The Government is prepared to honour its side of the deal and others must play their part. It is essential that the terms of Partnership 2000, including the explicit limit on the cost of local bargaining increases and the commitments to full and ongoing co-operation with change, are adhered to within the public service. This is the best way of ensuring we can continue to manage public services and the economy as a whole in a balanced and responsible way which will benefit everyone.
Vote 6, for the Department of Finance, amounts to more than £37 mill ion, an increase of more than £8 million or 29 per cent on 199 7. The substantial increase arises from the following exceptio nal sources: the administrative budget includes an amount of mo re than £2.9 million for the acquisition of a new computerised p ersonnel system which is required to replace an existing system and facilitate the planned developments in human resources man agement in the Civil Service under the SMI Delivering Better Gov ernment programme; it also includes amounts for the upgrading of computer services within the Department to ensure year 2000 co mpliance and associated consultancy costs.
As in 1997, the Finance Estimate is being used to accommodate some £2.9 millio n in funding for various technical assistance-type activities related to EU 8 Structural Funds pending recoupment, usually at an aid rate of 75 per cent, from the European Commission. The activities which are eligible for aid are those included in the CSF te chnical assistance programme and relate mainly to the evaluati on and information requirements of the CSF, improvements to the management of the CSF and the administration costs of the region al authorities in respect of their functions with regard to EU funds.
A provision of £775,000 has been made for the Euro Changeover Board of Ireland. The Committee will recall that the board was established on 5 May 1998. The board has two basic tasks, namely, to oversee the implementation of the changeover to the euro and to provide public and consumer information about this process.
The payments to promoters of certain charitable lotteries, the national lottery funds scheme, was set up in 1997. A provision of £5.4 million is available to this scheme in 1998. The scheme is a very focused initiative intended to address the circumstances of those private charitable lotteries which have products in the marketplace in direct competition with the national lottery. Prudent provision of some £1 million has been made for special consultancy services in connection with a possible restructuring of the State banking sector.
The other significant Vote is Vote 9 for the Office of the Revenue Commissioners. This amounts to more than £158 million, of which some £129 million is in respect of pay and allowances for more than 6,000 staff. The proposed Vote provision, for which approval is sought, shows a net increase of £10.015 million or 7 per cent on the 1997 out-turn. The two main reasons are pay increases which account for £4.5 million and an increase in computer spending of almost £5 million. The purpose of the latter is to provide funding for major developments such as integrated tax processing which, when completed, will enable a consolidated view of a taxpayer's affairs across all tax headings. In addition, integrated tax processing will address, where necessary, changes required in relation to the year 2000 or the so-called "millennium bug". Funding has also been provided to replace the present, largely manual stamp duty system relating to land and property transactions with an integrated computerised system. Computer technology, by virtue of its increasing versatility and potential for making radical improvements in the way business is conducted, presents unparalleled opportunities to devise new approaches. The investment by the Revenue Commissioners in computer technology over the years has helped the office to implement in an effective way the SMI concepts of delivering better quality service, thus playing an active and positive role in the competitiveness of the nation.
I thank Committee Members for their attention. I shall be pleased to hear their views and will do my best to provide answers to any questions they may wish to raise, including any Votes to which I have not specifically referred in the course of my statement.
