Yesterday's budget presented by the Minister for Finance is a budget for real social inclusion. It shows how a strong economy can be coupled with real social advance. Wealth cannot be taken as a given. It has to be continuously generated and renewed. When it is, the State can play its role in redistribution in order to foster the stability and social cohesion that are so necessary to underpin growing prosperity.
There are four main headlines: the consolidation of rapid economic progress on a sound non-inflationary basis, which supports a further net growth in jobs; a major rolling programme of multi-annual investment in essential physical and social infrastructure; a marked improvement in social services, with an emphasis on helping those at a disadvantage, particularly people suffering from disabilities; and making the tax system fairer for those on low and average incomes.
Our economic performance has been by any measure outstanding. We have come through a difficult period in good order. Unemployment, to the astonishment of many economic commentators, remained below 5%. The danger of rising inflation was brought under control with the help of the social partners. However, it is still the case that the level of costs we now have leaves us with little margin for error.
The public finances are in excellent order. Revenue has exceeded target by an estimated €2.3 billion, thanks to higher growth and effective tax collection. Rarely, if ever, has an outgoing Minister for Finance been able to leave his successor a more positive legacy. I pay full tribute to the outstanding contribution, which was to the benefit of us all and which will long be remembered, of Charlie McCreevy during his years in the office of Minister for Finance.
By any standards, a general Government debt-GDP ratio of 30%, the second lowest after Luxembourg in the eurozone, and a projected general Government deficit of only 0.8% of GDP, after an unexpected surplus of equivalent proportions this year, is robustly healthy. Many of our EU partners would dearly love to be in even half as comfortable a position. We can look forward to GNP growth in 2005 of the order of 5%, an average inflation rate of 2.5% and a continued increase in employment of approximately 35,000.
From a longer term perspective, the gains have been enormous and have been sustained. Since 1997, employment in Ireland has grown by a phenomenal one third or well over 400,000 additional jobs. That achievement is closely connected to our success in attracting overseas investment. We have moved from only 40th place in the international ranking for overseas investment in the 1994-96 period, to a remarkable fourth place today. Ireland was unique among OECD states for attracting increased inward investment last year. Recent growth has also been generated by rising demand in the domestic economy.
Our strong performance resumed this year, despite international conditions. Employment grew, with 43,000 new jobs in the 12 months to last May. This represents growth of 2.4% and reflects GDP growth well in excess of the European average. Ireland is growing at twice the average for the euro area. As a result, instead of contemplating cutbacks, we are able to continue to develop our public services and invest heavily in our infrastructure without further tax increases.
We are investing almost 5% of GNP in transport, roads, housing, schools and health care. This is twice the European average for public investment. Across the full range of public spending, the resources made available by economic growth will enable us to increase public spending up to three times the European average, without compromising our fiscal stability or adding to inflationary pressure. Most sensible people will accept that a 9% increase in gross public spending in 2005 is close to the maximum consistent with financial prudence and is as much as we can manage in one year. The underspending this year is also a factor in magnifying the apparent increase. Solid sustained progress will deliver infinitely better results for everyone than stop-go policies caused by impatience and trying to do too much too quickly. Even where there are undoubted needs to be met, improvements in capacity and facilities have to be phased in.
We all recognise the importance of economic consistency and stability for confidence and investment. We have avoided as far as possible placing extra burdens on employers, employees or the farming community. We have targeted those factors which will secure our living standards and competitiveness into the future, for example, investment in high value-added industries, such as pharmaceuticals and the software sector. We have incentivised and invested heavily in research and development to underpin higher value-added activity across the economy.
We have encouraged unprecedented output from the housing sector. We are well advanced in the process of transforming our road and public transport networks, the benefits of which are now coming on stream thick and fast. This has delivered real gains for the whole of society. It has been made possible in large measure by the very fruitful social partnership arrangements, which have seen a strong measure of agreement between the Government, employers, trade unions, farming organisations and the community and voluntary sector. They have recognised, as has the Government, that only strong and sustainable growth, facilitated by a consistent policy framework, will generate the resources required to address our social and developmental needs. There is no credible alternative, or foreign model, to the hybrid one that we have developed here in recent years, tailored to the needs of our situation.
The resources made available in the Book of Estimates for the development of public services are a vindication of our approach. Without repeating the main points made by the Minister for Finance and other colleagues regarding the details of increased provision, it is worth recalling the scale of additional allocations. There is an increase of €915 million or 9% for health and an increase of €530 million or 8% for education. Total expenditure on health, education and social welfare now accounts for a little over two thirds of current spending.
The value of social inclusion measures announced yesterday exceeds the cost of the income tax measures by almost €200 million. Such a focus continues a clear and consistent trend that began the day I first led Fianna Fáil and the Progressive Democrats into Government. If anyone doubts that, I suggest they compare the level of employment and unemployment in 1997 with that today. They should compare the level of pensions and child benefit and the substantial real increases in welfare payments. We are long past the time when social welfare payments were pitched around the rate of inflation, be it to compensate for the year past or the year to come, which resulted ten years ago in a miserly £1.80 increase in old age pensions, as part of an exercise in so-called socialism that excluded the old. The economic and social outcomes demonstrate beyond doubt that social progress and competitiveness gains can be pursued in mutually reinforcing ways.
Our tax strategy has been one of the important ingredients in this success story. Since 1997, approximately €6 billion has been applied to reducing the burden of taxation. That has been achieved in such a way that €20 billion has been generated in additional day-to-day spending and a further €4 billion for additional public investment. This additional revenue has been generated at the same time as the average tax rate for nearly all PAYE workers has been falling year on year.
The total tax levied on the average industrial wage has fallen from 27% in 1997 to just under 17% following yesterday's budget. This reducing burden has been implemented with a clear eye on the distributive impact. The share of the income tax yield from those on or below average industrial earnings has fallen from over 14% in 1997 to less than 6% in 2005, following the budget. Our decision that those on the minimum wage will be fully outside the tax net as a result of the budget measures represents a landmark development. Through the confidence generated by the strong commitment of the Government to maintain our existing standard corporation tax rate, as well as a capital tax regime that generates activity, we can continue to maximise our revenue from these sources, while maintaining a low tax burden on those on modest incomes.
The measures contained in the budget mean that we have met the expectations of the social partners that there would be significant real increases in take-home pay, when the combination of tax and pay changes under Sustaining Progress are taken together. Together with the anti-inflationary strategy on indirect taxes in this budget, we are creating the conditions for moderate wage growth in the period ahead. This is of real assistance to employment.
The personal taxation tables in this year's budget booklet speak for themselves. They show a focus on equity. They show the benefits of tax relief concentrated on low and middle income earners, and on the largest segments of the workforce. This is a budget for hard working citizens, both men and women, and it continues a trend since 1997 of falling average tax rates.
Equity in the tax system is a legitimate concern of compliant taxpayers. An extremely vigorous pursuit of tax evasion is taking place, which yielded an extra €650 million in the Exchequer this year and will yield an expected €200 million, at least, in the coming year. It is not acceptable that even a few of the wealthiest who live here and use public services like the rest of us are able to arrange their affairs as to pay no income tax contribution whatsoever.
Many reliefs and exemptions are of benefit to a large number of taxpayers, such as mortgage interest relief and exemption of the family home from tax. Yet many property incentives have been instrumental in transforming the physical appearance of our towns and cities and tackling dereliction. Most of them will expire in the next two years and the tax base will be broadened as a result over time. Where incentives are unlimited and open-ended, they are clearly open to question. It is important that Ireland remains a home to success in many different fields and an attractive place for capturing mobile investment and enterprise.
I regard housing policy as particularly important. We have had significant success in increasing housing output to close to 80,000 housing units this year. There are genuine concerns about affordability for young buyers. The modifications in stamp duty applied to second-hand housing purchased by first-time buyers as well as the increase in rent relief on private accommodation are intended to ease housing costs for those likely to be most affected.
The Minister for the Environment, Heritage and Local Government is determined to give new impetus to the social and affordable housing programme, as provided for in the Estimates, and will seek the active co-operation of local authorities in overcoming, in some cases, the hesitation of builders.
A particular emphasis in this year's budget is on the most disadvantaged individuals and families in our society. In its totality, it is a powerful statement of commitment to the welfare of those in greatest need. The benefits of the changes are targeted at those on the lowest income levels, whether at work or dependent on State support. Our ability to compete in the labour market will be strengthened by recognising that a competitive economy is the essential enabler for an inclusive and cohesive society based on full employment or the nearest approximation to it.
Over the past eight years, the Government has directed huge efforts and resources towards the less well-off. The introduction of the national minimum wage and the achievement of close on full employment testify to policies that are targeted centrally at the care and welfare of our people. While clearly great progress has been made, I have always acknowledged that not everyone has benefited in full measure from the growing national prosperity. That is why a clear focus on interventions in favour of the most needy permeates this budget.
I am very proud of our achievements on child benefit and old age pensions. Building incrementally on the significant increases of more than 270% since 1997 until yesterday, child benefit will rise by €10 per month for the first and second child and €12 for the third child and subsequent children, bringing the respective totals to €141.60 and €177.30, which are close to target.
We have an equal concern too for the older generation. All our budgets since 1997 have included measures to improve the income and situation of those on pensions. At the last general election we promised to increase the State pension to €200 per week. Last year's budget provided for a €10 per week increase while this year's budget provides for a further €12 rise, showing clearly that we will deliver on this commitment. There is another substantial rise in the level of tax-exempt income for pensioners, up to €33,000 for a married couple. The issue of medical cards to all those over 70 years was to ensure that they would have peace of mind, without having to worry about the possibility of rising and unquantifiable medical expenses. Major progress has been made on a number of fronts over a short period.
We value older people for their invaluable contributions, both past and future, to the well-being of this economy and society. I assure this House that we will always uphold that ideal.
A particular effort has been made in this budget to address the needs of those on the lowest rates of social welfare. They have seen real increases in recent years somewhat below those of others. The increase of €14 per week, four times the expected rate of inflation and a rise of 10%, is a significant step to enable recipients to live life with dignity, in line with our commitments under the national anti-poverty strategy and Sustaining Progress.
Some valid concerns expressed last year regarding particular social welfare changes, for example, rent supplement and funding of crèches, have been addressed by the Minister for Social and Family Affairs, Deputy Brennan.
