When I concluded last evening I was referring to the depth of the economic crisis facing the Government and the steps being taken by them in a planned and pragmatic way. I was indicating the programme of initiatives being taken by the Government to deal with the crisis. The Government's aim at this time is to lift the national depression and despair and to restore confidence to all sectors of economic activity. The Estimates of realism before us are one of the principal items in the formula of recovery announced by the Government. We are aware of the increase in current expenditure as a percentage of GNP over the years. In 1950 it represented 18 per cent of GNP, in 1960 it represented 19 per cent, in 1970 it represented 26 per cent, in 1980 it represented 38 per cent and it is expected to be 52 per cent or in excess of that figure this year. We are all aware of the intolerable levels of taxation and borrowing as a direct consequence of this expenditure. The Government have declared war on debt and they must succeed if living standards, services and future prospects for employment are to be protected.
We see as the central problem facing us now not just the question of the management of the economy but also the control of public finances. The Government's response is to take decisions and to make choices. Some of those decisions are harsh and difficult but they are across the board and are distributed fairly, affecting every Department, local authority and all the agencies of the State. Savings made cannot be expended on new or enhanced activities and services; they must be used to reduce the deficit and borrowing. To achieve targets, economies must be made in the current and the capital expenditure programmes. All expenditure programmes are being subjected to the same close scrutiny and each programme must justify expenditure before the Government allow it to proceed.
We must be realistic in these matters. It took 15 years of borrowing to bring about the current position in the finances of the State and it cannot be reversed overnight. However, this should not be an excuse for delaying the start of the process. There is no painless solution to the problem enunciated by the Government. We must recognise that the full compensation for efforts made now may take some little time to produce the results we require but we cannot delay the start of the process any longer. We must also recognise that borrowing is taxation and that our priority must be to reduce it. Departments and agencies must now plan for decremental spending until we restore solvency to the public finances.
We must also recognise that other international agencies, the EC or the IMF, cannot solve our problems. We can only do that ourselves. It is easy at this time to be pessimistic but it is also a time for challenge to overcome our difficulties and improve the future prospects for all our citizens. Irish people, whether in the business or sporting world have demonstrated that they can succeed at the highest levels. Therefore, I am optimistic that we as a nation can unite to overcome our economic problems and build a brighter future.
There are definite positive indicators, apart from the public finances and the level of unemployment, that the economy is in a position to respond to Government action. I refer to the low level of inflation, the reduction in bank interest rates — five times since the Government took office — record levels of exports, a favourable balance of payments and a growth in imports of capital goods which is consistent with the expectation of stronger growth in machinery and equipment investment this year. These positive factors along with the recent Programme for National Recovery will assist in the regeneration of the economy.
The Environment area, as one of the largest expenditure areas, could not isolate itself from Government expenditure reductions. When one considers the extent of expenditure incurred by the Department and local authorities — about £1,800 million approximately in 1987 — it was natural that the reductions would be substantial. However, the reductions will be implemented in a manner to ensure that essential services are not affected. I might add at this stage that some reductions would have taken place in any event next year as a result of a reduction in demand in certain areas, past expenditure and following decisions taken in the March budget. For instance, £61 million of the reduction in capital spending relates to the two terminated grant schemes or a quarter of the total reduction in the public capital programme for 1988.
There has been considerable reaction to the 1988 rates support grants allocation of £225 million which I announced recently, some of which has been exaggerated and unduly alarmist. It must first of all be put in perspective against the overall background of both central and local financial resources.
The rates support grants provided by the Exchequer in general amount to less than one fifth of current revenue accruing to authorities. This means, for instance, that the reduction in grants for next year amounts to less than 3 per cent of the estimated current account receipts of local authorities in 1987. Accordingly, talk of draconian cuts and of the survival of councils being in jeopardy is, quite frankly, not correct. Equally, I must reject the contention that cutbacks should have been avoided in this area. In the context of the overall budgetary situation, there is a very large measure of agreement within this House on the necessity for reduced Exchequer spending, and it is simply wishful thinking for any Deputy to expect that local authority expenditure should somehow be immune from this process or that rate support grants, which represent such a large element of current Government expenditure, should have been inviolate.
I have undertaken two initiatives which will help considerably in this regard. Firstly, local authorities were notified some time ago of their individual allocations for the year, the earliest this has been achieved in at least a decade. At the same time, the prescribed periods for deciding annual estimates in all authorities were brought forward and the process is now under way. The authorities have been given ample time to consider and to develop co-ordinated budget strategies for next year, which can be spread over the full 12 month period. Revenue collection can begin from the start of January, thereby greatly improving cashflow compared with recent years.
The second development involves direct assistance to authorities. I have already announced details of a new local authority voluntary redundancy scheme under which additional finance will be provided to authorities where reductions in expenditure lead to voluntary redundancy or early retirement of staff. This further aid will cover the full cost of all lump sum severance payments under the scheme. However there is an onus on the authorities to maximise savings on manpower costs next year through measures such as natural wastage, redeployment, nonreplacement of staff taking career breaks and economies on expenditure such as travel costs and overtime.
In summary therefore, it is now up to each elected authority to determine their priorities having regard to the funds available to them and they must allocate the available resources accordingly. Before leaving this area, I want to make it clear that I am neither complacent about nor satisfied with the present system of funding local authority current expenditure. Deputies will be aware that some time ago I initiated an in-depth review of local finances within my Department with a view to developing proposals for long term reform of the system. The review is almost completed and once I have considered the outcome, I will put proposals to Government involving changes designed to assure authorities of an adequate and stable level of funding. I might mention that the future of service charges is being considered in the context of this review and will be decided upon in due course.
The construction industry has experienced major difficulties in recent years caused by declining levels of private investment. Despite this it is our largest industry, with the exception of agriculture, directly employing over 70,000 persons. Construction output in 1987 will exceed £1.7 billion and account for almost 10 per cent of GNP.
Government policy in relation to construction must be dictated by the realities of the marketplace, the scope for action offered by the state of the public finances and the need for public investment. Public investment without regard to need is counterproductive and wasteful. Expenditure and investment programmes must be subject to careful examination and appraisal. The curtailment and termination of programmes, some of which impact directly or indirectly on the construction industry, are largely related to progress already achieved and changing levels of needs as well as the need to reduce the Exchequer borrowing requirement. Clearly, the constraints on Exchequer finances have necessitated radical economies in many investment areas. While economic considerations are a factor in social infrastructural investment, the need for such investment is also dictated by demographic and social trends. Major structural adjustments in our population profile necessitate a re-appraisal of capital expenditure over the whole range of the Public Capital Programme.
I am confident that Government economic policy will boost business confidence and create the conditions necessary for a revival of private investment in construction. This policy has already produced results. Interest rates and mortgage rates have declined significantly and growth forecasts for the economy as a whole have been revised upwards. Output in the commercial and retail sectors of construction in 1987, which is a key indicator of private confidence in the industry, will record its first increase in volume since 1981 and a further rise is forecast for 1988. Development on the Custom House Docks site, which will commence in the near future, will provide a major boost to the industry as a whole over the next three to five years.
In recognition of the key developmental role of the construction industry in the economy and the priority of achieving higher levels of private investment in the industry, I established in July 1987 a Construction Industry Development Board representative of a broad range of interests in the industry. The function of the board is to advise and make recommendations to the Government in order to encourage development, improve efficiency and competitiveness and enable the industry to contribute effectively to national economic and social policies. The Government value highly the work of the board and will consider all recommendations addressed to them by the board.
Demand for housing has been in decline for a number of years now. This depressed demand is reflected in the demand for house purchase loans. Having regard to the latest trends in house purchase and improvement loans advanced by local authorities I am satisfied that the 1987 provision of £175 million for this purpose will be more than adequate and that, in fact, some savings in this provision are likely to arise this year. Furthermore the number of local authority house purchase loan applications on hand at the end of 1987 is expected to be lower than the 1986 figure of 11,000. The 1988 provision of £155 million is, therefore, a realistic assessment of the likely requirement for local authority house purchase and improvement loans for next year.
It is not generally appreciated that local authorities provide one in four of all house purchase loans advanced in this country. This is a very large market share either by historical standards in this country or by international norms. Local authorities were empowered under the Small Dwellings Acquisitions Acts to provide loans for house purchase since late in the last century. It must be said that these house purchase loans, or SDA loans as they are still commonly referred to, have played and continue to play a vital role in the national housing programme. Annuity loans remain the preferred choice of the vast majority of these borrowers and, in fact, in recent times there has been a shift away from the income related loans. However, we must recognise the fundamental changes that have occurred in recent years in the housing finance market, particularly since the emergence of the commercial banks as major providers of house purchase loans. In the first six months of this year the commercial banks advanced mortgage loans valued at over £126 million compared to only £20 million in a full year in 1983.
Housing mortgage finance is now more freely available from commercial lending agencies than it has been for many years and the cost of this finance in terms of interest rates has fallen significantly since the 1987 budget. Information available in my Department shows clearly that building societies already advance a considerable proportion of their mortgage loans to applicants who would otherwise qualify for local authority house purchase loans. At present bank loans tend to be concentrated in the upper income groups. However, I believe that both banks and building societies have considerable scope for providing loans to many applicants who would otherwise consider they had no alternative but to approach their local authority for a house purchase loan. Deputies will be aware that my Department have initiated discussions with the commercial lending agencies in order to encourage these agencies to make additional mortgage finance available to low income house purchasers. In recent years there has been a marked trend in other European countries towards greater reliance on private sector funding of the mortgage market, and we must recognise the scope that now exists for positive developments in this direction in this country.
I am confident that the outcome to these discussions will allow a significant reduction in Exchequer expenditure on house purchase loans in the coming years and, at the same time, secure an adequate supply of mortgages for all income groups in all areas. I would also be concerned to ensure that any new arrangements do not reduce the capacity of any potential house purchasers to secure home ownership or lead to increased pressure on the local authority housing programme. I hope to be in a position to make a detailed announcement on this matter within the next week or so.
Notwithstanding public expenditure constraints, the Government are committed, as indicated in the Programme for National Recovery, to give special emphasis to the housing needs of disadvantaged groups. Recognising the appalling conditions under which travellers sometimes live, the 1988 provision for residential caravan parks for travellers will be maintained at the same level as 1987. This will enable about 20 parks to be provided in 1988.
Voluntary housing organisations play a significant role in providing housing for the elderly and disadvantaged people. Between 1984 and the end of 1987 voluntary organisations will have provided around 350 units of accommodation with a total of £5.5 million in assistance under the scheme of assistance operated by my Department for such bodies. The Government recognise the special contribution which voluntary organisations can make and intend to facilitate the development of that role. I have, therefore, considerably increased the capital available for the provision of housing by voluntary groups. The original 1987 provision for voluntary bodies was increased from £1 million to £2.5 million during the year and a sum of £3 million is provided for 1988.
During the past few months I have had discussions and correspondence with a number of voluntary and representative organisations concerned with homelessness on legislative proposals for the accommodation of the homeless. I intend to introduce a new housing Bill in the present session which will, for the first time in housing legislation, provide statutory recognition for the homeless and will ensure that the needs of the homeless will be recognised by housing authorities in the allocation of dwellings in future years. A provision of £400,000 is also made in the Estimates in anticipation of the enactment of the Bill for the recoupment to local authorities of expenditure incurred by them in securing accommodation for homeless persons by voluntary organisations and other means.
Over the past few months, I have carried out a comprehensive review of the road development programme. Arising from the review, I have decided to publish within the next few months a blueprint for road development over the next 20 years. The blueprint will contain:
(1) an outline of the assessment of medium/long-term needs relating to national, regional, urban and county roads:
(2) an outline of the proposed long-term strategy, including the funding from the State, local authorities, the EC and the private sector: and
(3) a tentative list of major improvement schemes to be commenced between now and 1997.
I recently announced my intention to set up a new body which will be responsible for the improvement of the national road network. The blueprint will provide the benchmark for this body in formulating its plan for future national road development.
The provision for road improvement and maintenance works in 1988 is £150 million, £120 million for improvement works and £30 million for maintenance. This is a substantial sum especially next year when in order to improve the public finances reductions have had to be made in most public expenditure areas. However, progress will be maintained in 1988 at a reasonably satisfactory level on several major improvement schemes including:
Tallaght Road/Galway Road section of the Dublin Ring Road and the Lucan and Chapelizod by-passes in Dublin;
Glanmire by-pass and Southern Ring Road in Cork,
by-passes of Athlone, Bunratty, Cahir, Killarney and Newtownmountkennedy and
bridges in Limerick and Sligo.
In addition to state funded projects, construction will also start early next year on the Galway Road/Navan Road section of the Dublin ring road which has a rolled up cost of £30 million and which will be fully funded by the private sector at no cost or risk to the State. In June last, I gave my approval in principle to Dublin County Council's proposal to enter into an agreement with West Link Toll Bridge Limited for the construction of this project. This agreement was signed by both parties on Friday last and I expect to be giving my formal consent to the agreement within a matter of days. This partnership between the State and the private sector marks the beginning of a new era in public road construction. I am hopeful that private funds will be forthcoming for other projects in the future especially with low inflation and reduced interest rates as a result of Government policies.
The national roads authority, the details of which I will be announcing shortly will have as part of its brief the attraction not just of further private finance and investment but it will also seek further funding from the EC and further funding from tolls and any other method they can find particularly in order to inject further investment into the building of national primary and secondary roads. It is my intention that we will meet the deadline to accommodate the EC requirements over a limited number of years. That will be the task of the national roads authority and I expect that initiative to be welcomed by all concerned.