Vol. 575 No. 4
41 Mr. Allen asked the Minister for the Environment Heritage and Local Government when he will inform local authorities of the financial allocation for 2004; and if he will include a provision to pay for the cost of the benchmarking award. [28497/03]
44 Mr. Gilmore asked the Minister for the Environment Heritage and Local Government the additional funding which has been provided in the Estimates for 2004 to allow local authorities to meet their obligations under the benchmarking process; and if he will make a statement on the matter. [28500/03]
I propose to take Questions Nos. 41 and 44 together.
Local authorities fund their expenditure, including expenditure on pay, from a variety of sources, including specific State grants, commercial rates, rents, fees and charges for services and general purpose grants from the local government fund. The issue of benchmarking costs in 2004, as with other current expenditure demands, will be dealt with by local authorities in the context of their annual budgetary process.
The recently published Abridged Estimates Volume, AEV, indicates that €1.118 billion will be available to the local government fund in 2004, an increase of approximately €38 million over the amount available to the fund this year. In accordance with normal practice, I intend shortly to notify local authorities of general purpose local government fund grant allocations for 2004 in the light of this position, updated by end-November data for motor tax revenues and by other end-year expenditure reviews across my Department's programmes.
I am satisfied the increases to be provided in general purpose grants from the fund will make an appropriate contribution to meeting the increased costs of local authorities in 2004 and will avoid the need for undue increases in rates, fees and other local charges in 2004.
In accordance with normal practice, I intend to notify local authorities of non-national road grant allocations for 2004 early in the new year. All the extra revenue, estimated at €34 million, generated by the 5% increase in motor tax from 1 January will be assigned to the non-national roads programme.
Given that the increase in funding to local authorities next year is not in line with inflation and is the same as, if not less than, the amount allocated this year, does the Minister agree that telling local authorities they must meet the cost of benchmarking from their own resources is like telling a non-swimmer he must swim in a river without a lifebuoy? Does he further agree the only options open to local authorities on this issue are to increase local charges and commercial rates or reduce their payrolls by paying workers by the hour? The Minister has announced a new development levy and the Chambers of Commerce of Ireland have commented on new rates for businesses. What other options are available to local authorities? Does the Minister think they have a magic wand to pay the major benchmarking awards? This was a national deal but local authorities have been asked to pick up a bill of approximately €161 million. Will the Minister outline how he expects local authorities to fund this major award without resorting to the options I have mentioned?
The finalisation of the Estimates for local authorities is not complete and I am confident there will not be a need for an excessive increase in rates or charges other than the normal annual increase. These, rightly, are matters for the local authorities themselves. However, the local government general purpose allocation represents 19% of current income of local authorities. Other sources of income include specific State grants, 28%; charges for goods and services, 29%; and commercial rates, 24%. The allocations are 85% higher than in 1987. It is premature to pass judgment until we see the final outcomes. I do not know what they will be. I am conscious of all the issues with which local authorities must deal and the increase in the range and quality of services they deliver. I want to ensure those services continue to develop at the same pace and are enhanced as we move forward, including in the current year. Benchmarking is not the only issue.
The Minister said local authorities should not increase commercial rates or charges by more than the norm. Is the Minister's guideline for local authorities in terms of such rates and charges that the increase should not exceed the rate of inflation? By how much does he estimate local authorities should increase commercial rates and charges? Given that he said local authorities should raise the balance of the money required for benchmarking and other purposes from their own resources, has the time come for local authorities to charge rates to Departments and State agencies that have offices and buildings within their areas? It is difficult to explain to a small shopkeeper, who must pay considerable rates, why a Department housed in a substantial office building in the same area should not pay rates on it. If local authorities must raise moneys from their own resources, the exemption that applies to State property in regard to rates should cease.
I will take the last point first. I believe it was with Deputy Gilmore – perhaps it was not he – I discussed this on the Valuation Bill when I held that view very strongly. Two issues arise in that regard. First, effectively, it involves the State charging itself – that is the net effect of it. One is really creating a circular motion in money. I agree with the principle of what the Deputy has said and I made that clear in the debate on the Valuation Bill, in which I made provision for such an eventuality to be capable of falling into place without the need for further legislation. Accordingly, in a previous existence, as Minister of State at the Department of Finance, I provided that this could happen in future. Second, it does not really give an even benefit across the country, as I believe the Deputy would accept. It would have an enormous impact in Dublin and an enormous benefit to local authorities in the Dublin area in particular. Cork is probably the only other area in which it would have a big benefit.
However, in the overall context of the local government system throughout the country, the benefit would be very marginal. The effect would be to greatly enrich a few local authorities, while achieving nothing across the system. Those are the two questions which need to be resolved and with which we need to grapple. I do not wish to pre-empt the entire current review of the financial base of local government. That may be one of the issues on which there will be submissions and ideas which will feed into the process. I do not have an estimate of the increases. Without wishing to be disingenuous, I have not got the final figures and do not know what they are. We are trying to get them together to see what capacity there is in terms of the final allocation I will make on an individual basis to all local authorities.
The Minister referred to a review of local government finance which he is currently undertaking. I presume, without being disingenuous, he will not have the results of that review until after the local elections.
To be honest, it is of no consequence to me as to when the review comes in. I want that review to be right and I believe it will have to engage all of us in this House. I sincerely hope it will be a very worthy and worthwhile look at the entire local government system. Whenever we get it, its implementation will involve a great deal of political discussion and debate in this House and input from the representative bodies of the local authorities throughout the country. It may take up to a year. My basic tenet in all this is that I want the entire picture to unfold, rather than just part of it. I want a good quality analysis internationally so that all of us know what we are talking about in the context of local government vis-à-visnational government, taking account of all the different funding resources. That will take some time to do. The timing is not an issue with regard to local elections.
When does the Minister expect to get the report?
As I said, I believe it will take about a year.
I am finding it difficult to understand the Minister's arithmetic. As I understand the position, he is providing an extra €38 million for local authorities this year. When inflation is taken into account, that is probably a net increase of about $18 million. It is my understanding that about €140 million is required to meet the benchmarking costs alone. If, as the Minister said, local authorities are not going to increase commercial rates or charges, except by what the Minister described as the normal—
It is the excess.
The Minister used the term "normal". In ballpark terms, it is at or around the level of inflation, perhaps a couple of percentage points wide of inflation, but fairly close to it. If the Minister does not expect local authorities to increase commercial rates and charges by more than approximately the rate of inflation, where will they get the additional €120 million to pay the benchmarking awards?
I will answer the question in two ways. First, as I tried to convey to the Deputy the other day, the €38 million is the gross figure and shows a 3% increase. However, I intend that the €38 million will go directly into the local government fund, representing, in effect, a 6% increase on the basis that I am taking out the roads portion as I have introduced a 5% increase in motor taxation. That AEV bottom line will not apply to motor tax – I am putting it into the local government general purpose area.
The public will pay for it.
The Deputy is right. The motor tax increase will go directly towards non-national roads. Of the €38 million for LGF general purposes, a 6% increase has been announced already. Buoyancy also has to be taken into account, having regard to new rateable properties in the system – that will be of some help to local authorities.
A lot of old properties are being eliminated from the system, on the other hand.
I understand the difficulties facing our colleagues at local government level. This is a real challenge.
What will the Minister do about it?
I have explained that to the Deputy. I accept the figure of €140 million and I have put €40 million in the AEV. There is also the extra 5%, which amounts to €34 million. I am ring-fencing that for roads. However, I have not yet finished the process as to the eventual outcome. Deputy Allen, as a former Minister of State, will be aware of the situation. When the full picture is clear to the local authorities, their estimates process can be completed. I am confident that when they work through the process, within reason, across the system, we will not have to seek excessive increases.
They will be doing that within the next ten days.
Order, please.
The timeframe for final decision by local authorities is now December-January, rather than October-November as was formerly the case. I am well aware they want to make decisions. I am also aware of the ideas some of them are considering and I am very pleased with the level of inflation they might build into some of the increases, which is very reasonable.
It was the chambers of commerce which came to me last year – there is a myth to be dispelled in this regard – and requested the removal of the cap I had in place on the rates system, which was done in this House. This year, they have come back with a request to restore the cap once again. I cannot act like a jack-in-the-box in response to requests to have the cap off one year and on the following year.
We must move on to the next question.
