The purpose of my appearance before the committee is to introduce the 2000 Estimates for the Finance group of Votes, excluding Vote 10 - Office of Public Works and Vote 44 - Flood Relief, which I understand will be taken at a later date by my colleague, the Minister of State with responsibility for the Office of Public Works, Deputy Cullen. The Finance group of Votes comprises 12 votes amounting to almost £479 million. The Vote of the Office of the Revenue Commissioners is the largest Vote in the group, at almost £183 million. The next largest Vote is for superannuation and retired allowances which amounts to almost £114 million while the Vote for my Department is the third largest at over £106 million, which represents a substantial increase on last year. I will return to this aspect later.
Vote 45 - Year 2000 expenditure, which was a special once-off Vote last year for the expenditure arising from the Y2K computer problem, has been discontinued this year. My Department has already provided members of the committee with background briefing material on the Estimates before it for approval. I look forward to having a constructive discussion with the committee and I will be glad to provide any additional material members may require.
Before dealing with the Estimates for individual Votes, I propose, in line with the usual practice, to summarise recent economic developments and the overall state of the public finances. Ireland's economic performance in the 1990s has been outstanding. GNP is estimated to have grown in real terms by an average of 7.6% per annum from 1994-99. Unemployment has fallen from almost 17% in 1993 to less than 5% now while long-term unemployment has fallen from 10% of the labour force in 1988 to 2.1% in 1999. Between 1993 and 1999 the total number of people at work increased by almost 40%. At the same time, Government finances have improved considerably. The Exchequer borrowing requirement was eliminated in 1998 and surpluses were recorded in 1998 and 1999. Government debt levels have also improved, from 97% of GDP in 1993 to 52% of GDP in 1999.
The contribution of social partnership agreements to this period of economic expansion and fiscal consolidation cannot be understated. The partnership approach has provided a stable background which has encouraged business confidence and investment in the Irish economy. In particular, the period of the most recent programme, Partnership 2000, was one of sustained economic growth against a background of a favourable international economic climate. The aim of the new national agreement is to enable us to sustain the strong economic performance of recent years.
As its name implies, the Programme for Prosperity and Fairness seeks to further enhance living standards and reduce social exclusion on a basis which will prove sustainable over the longer term. The pay terms of the agreement have been well publicised and I will not dwell on them. However, there is a number of features of the public service pay agreement that are worth noting. There is a clear link between the pay agreement and the continued implementation of the public service modernisation programme. Payment of the final phase of the agreement is dependent on the verified progress of this programme, which includes ongoing implementation of statements of strategy and service delivery plans within each sector, the design and implementation of performance management systems and implementation of challenging service standards. The end objective is better service to the public.
Another central feature of the programme is the agreement to establish a public service benchmarking body to undertake a fundamental examination of the pay of public service employees vis-à-vis the private sector and to make recommendations. The benchmarking body will examine and compare job content, duties and responsibilities in both sectors. Its examination will be based on in-depth and comprehensive research and examination and analysis of that. There will be a single report covering all the groups involved, and the programme includes an explicit acceptance that cross-sectoral relativities which have bedevilled public service pay in the past are incompatible with the operation of benchmarking. In addition to the Estimate from my Department, I am seeking the committee’s approval for a token Supplementary Estimate to enable this body to be set up. Details of the proposed Supplementary Estimate have already been supplied to the committee.
In spite of the very impressive economic performance in recent years, we cannot afford to be complacent. Inflation has increased substantially recently. Much of the increase can be attributed to external factors such as higher oil prices and the weaker euro. In addition, domestic inflation has risen. This reflects price pressures, including wage pressures in the economy which are a cause for concern. These must be managed properly if we are to maintain our competitive position. If a dangerous wage-price spiral were to develop, it would represent a serious threat to our future economic prospects. As I have said before, this requires full adherence to the terms of the PPF. This is the best way to contain current pressures and to ensure the recent increase in inflation proves to be temporary.
Controlling expenditure within prudent limits is a crucial element of the Government's economic strategy. The recently agreed Programme for Prosperity and Fairness, together with the national development plan, set out the expenditure priorities, current and capital, of the Government into the medium term. The commitments in both documents will raise spending and they will inevitably impact on public expenditure levels. The programme will contribute to maintaining the competitiveness of the economy and will provide a strong base for further economic prosperity while improving the quality of life and living standards of all. In this context, I am strongly of the view that the benefits which will flow from the new programme will more than justify the additional spending. Anyone seeking to add to these commitments will get no support from me.
If we manage our current economic circumstances properly, I am confident we can continue to grow strongly in future. The prospects for the current year are very favourable, despite the inflationary problems to which I have referred. Economic growth in 2000 is expected to be 7% to 8% and 2000 is expected to be another good year for the public finances with the budget day target for the general Government balance likely to be achieved and probably exceeded. Over the longer term, my Department estimates that the economy has the potential to grow by about 5% per annum. This is slower than the recent past due to the labour constraints we now face.
While in recent years the economy seems to have developed a momentum which few would have dared forecast a decade ago, we are not complacent about the challenges which now confront us. If the increase in inflation which has emerged this year were to continue, it could pose serious problems, especially as regards wage demands which, in turn, would have a negative impact on our competitiveness. We are pleased with the economic transformation of this country which has come about in recent years. Some of the problems which have long afflicted us, such as unemployment, have been tackled. However, a few difficulties have emerged. We see ourselves at a stage where the challenge is to ensure we can maintain a level of growth consistent with maintaining full employment while guarding against increases in costs which would erode our competitiveness.
I will now deal with some of the principal Votes in the Finance group of Estimates starting with my Department. The Estimate for my Department amounts to £106.358 million, including the proposed Supplementary Estimate, a net increase of almost £67 million or 170% on the 1999 outturn. The principal reason for this substantial increase over 1999 is the inclusion in the Estimates for my Department of global provisions for North-South co-operation - subheads Q1 to Q3 - and other community initiatives - subhead R. These items alone have added £38 million to the Estimate for my Department in the year 2000. Other significant provisions in my Department's Estimate for the current year include £25 million for a new information society fund - subhead S - and £7 million for subhead T, which is designed to encourage the development of partnership approaches between management and staff in certain sectors of the public service. I will deal in more detail with these and certain other significant expenditures in my Department's Estimate.
Subhead B covers the costs of studies and other consultancy services of a non-adminstrative nature which arise in the course of the Department's work. I have made provision for the retention of advisers on the strategy to be adopted for the future of TSB Bank, ACC and ICC should this prove necessary in light of proposals from the boards. Subhead L, the provision for which is £2.508 million, holds the necessary finance to enable various technical assistance activities related to EU Structural Funds to be implemented pending recoupment from the EU. The increase in 2000 over the 1999 outturn is due mainly to the costs associated with public-private partnership units, the hiring of additional evaluators and additional information costs arising under the national development plan.
The fund for payments to promoters of certain charitable lotteries is held in subhead N. The Government decided in 1997 to set up a fund of £5 million per annum for a period of three years aimed at assisting those charitable lotteries which are competing directly with the national lottery. Following the review I decided to increase the fund to £6 million for a period of three years with effect from 2000 to be reviewed again before the end of 2002.
The costs of the Euro Changeover Board of Ireland are included in subhead O. In less than two years time, on 1 January 2002, euro notes and coins will come into circulation. Since I established the Euro Changeover Board of Ireland in May 1998, it has been very active in carrying out its two basic tasks, namely, to oversee the implementation of the changeover to the euro and provide public information. I will deal briefly with the work of the board under each of these two headings.
In the implementation area, the board has agreed Ireland's cash changeover plan which I launched in April. The plan sets out how the cash changeover will be implemented and outlines the plans of the organisation that will be most closely involved in implementing it. The plan envisages that changeover will be completed in just six weeks, with legal tender status being withdrawn from Irish notes and coins at midnight on Saturday, 9 February 2002. The Oireachtas has the final say on the selection of this date. The cash changeover plan is being circulated widely by both the board and the Forfás EMU business awareness campaign. A summary of the plan will also be distributed to every household in the State.
The board has also been active in the provision of public information. It has a wide range of public information materials - leaflets, posters, paper converters, question and answer booklets, videos, etc., and has been circulating them widely, as well as continuing with the Aertel, website and low call services. The board has also been working to further develop its networks with community and voluntary bodies which have a wide national reach, including those catering for people with special needs. The board will continue its public information activities until the changeover to the euro is complete. These activities will intensify to the introduction of the euro on 1 January 2002.
The sum provided for 2000 in subhead P - the change management fund - is £5 million. Now in its second year of operation, the fund is used to co-finance the cost of implementing initiatives arising from the SMI delivering better government programme of change in individual Departments and offices. Major initiatives being supported in 2000 include the implementation of performance management and a new financial generic model.
The provisions in subheads Q1 - peace programme, Q2 - North-South Interreg, Q3 - special EU programmes body and R - other community initiatives, are global provisions to meet the expenditure and EU co-funded programmes. These programmes are the new peace programme and the Community initiatives, INTERREG, EQUAL, URBAN and Leader, under the new round of Structural Funds for the years 2000 to 2006.
A global provision for the new programmes in respect of all the partners has been included in the Estimate for the Office of the Minister for Finance pending the agreement of the European Commission to proposals regarding the content and funding of these new programmes. In the normal course of events, it was expected that Community guidelines would be issued in the early part of this year relating to the principles, objectives and priority topics which will be eligible for funding under the new programmes. This would allow member states, including Ireland, to draft new programmes and submit them to the European Commission for approval for implementation in 2000. However, delays in the European Commission timetable have meant that the guidelines for the new programmes were only issued on 28 April 2000. This may result in some delay in the agreement of the new programmes but I propose to maintain the allocated level provided in the revised Estimates volume.
The provision in subhead Q3 will fund the estimated expenditure of £2 million in 2000 on the special EU programmes body. This funding will cover pay and non-pay costs, including capital costs of equipment and payroll costs of the 20 or so staff envisaged for the body which will administer the EU co-funded programmes formerly administered by the Civil Service.
I welcome the restoration of the North-South institutions by the British Government. It will facilitate the development of co-operation between North and South for the operation of the implementation bodies, including the special EU programme bodies. Further areas of co-operation are to be endorsed by the North-South Ministerial Council.
We have a marvellous opportunity to press forward now with a wide range of initiatives which will be of mutual benefit to all the people on this island. I look forward to working with my Northern counterpart, Mr. Mark Durkan, the Minister for Finance and Personnel. I had already had discussions with him on a number of issues of mutual interest prior to the suspension of the institutions and I shall be renewing these contacts at an early date.
The divided society fund is designed to support projects identified under the Government's action plan. Projects submitted by Departments for funding are assessed by an evaluation team chaired by my Department. The fund also bears the cost of additional temporary staff allocated to the Department and to the action plan projects. I will give a practical example of the projects supported by the fund when I speak on the Vote for the Office of the Revenue Commissioners.
There is £7 million provided for the promotion of partnership structures in the public service. Of this amount £2.8 million is for the local authority sector, £2.8 million for the health sector and £1.4 million for the education sector. The funding isprovided to encourage a continuation of the progress towards a partnership approach between management and staff which is at various stages of development in the three sectors. The net Estimate for the Office of the Revenue Commissioners is £182.9 million, which is an increase of almost £18 million on 1999, reflecting mainly a pay increase of some £13 million and an increase in computer spending of almost £2 million.
Revenue's integrated tax processing programme, or ITP for short, continues to be the linchpin for tax administration in a dynamic and increasingly electronic business environment. Whether dealing with the registration of various taxes, intervention in problem cases, sectoral or other analyses or the processing of payments or tax returns, these solutions share a consolidated view of taxpayer affairs rather than taking a single tax head approach. ITP has operated successfully since April 1999 for the collection of PAYE and PRSI. It is being extended to VAT from April 2000 and work is currently in progress to incorporate the other major taxes. The latest version of ITP allows for speedier processing of VAT returns, more automated repayment and a facility to offset credit arising from repayments and refunds against other outstanding tax liabilities more quickly. It also brings other customer service benefits to taxpayers and tax practitioners, including detailed statements of account that show customers their financial status with the Revenue. It is intended that these will in time replace the individual payment receipts.
Revenue's integrated solutions will underpin the planned Internet service for the processing, returns and payment as well as the provision of various outputs such as statements of account via the Internet. The ROS, or Revenue on-line service, is scheduled for introduction in September 2000. It will allow customers to make their tax returns and access their Revenue account information via the Internet. Next September, filings of monthly and bimonthly VAT and employer PAYE returns can be sent to Revenue by the Internet. From April 2001 income tax and corporation tax returns will be added to the system. The ROS will be one of the most significant customer service developments facing Revenue in recent years and will put Ireland at the forefront of tax administration in Europe. The ROS project, which is a keynote project in the Government's information society action plan, is being funded mainly by the information society subhead in my Department's Estimate.
Apart from investment in electronic transmission processing, my Department has recently approved significant increases in Revenue staffing resources to deal with its investigation, enforcement, taxpayer service and other work and these will be coming onstream as soon as possible. As I have said in the past, we have seen a major transformation over the past ten years in the way Revenue carries out its functions. This more business-like approach is affecting theamount of tax revenue now being collected and in the way in which Revenue Commissioners interact with a more client-oriented manner.
That concludes my summary of the issues arising from the finance Estimates. I thank the committee for its attention and I will endeavour to supply any further information Deputies may require.
