As a former Member of this House I am delighted to be here this evening on this historic occasion of a budget debate taking place in conjunction with the Lower House. I compliment the Leader on organising today's affairs in such a manner as to allow this debate to take place and I also compliment those who tabled the motion.
I welcome this opportunity to make a statement to the Seanad on the financial statement my colleague, the Minister for Finance, Deputy McCreevy, has just presented to the Dáil. As Members of the House are aware, the Minister has just finished making his speech and by now I am sure you are aware of the principal elements of the budget. While I do not intend to repeat what the Minister has already said, it is important to set out the economic background to the budget, the overall strategies it addresses and the main policy decisions which have been agreed in the 1998 budget.
This year has been another year of strong growth for the Irish economy. GNP growth this year is now expected to be 7.7 per cent, the fourth year in succession of growth of this magnitude. We are broadly acknowledged as being Europe's economic success story of the l990's with increased prosperity, stable prices and a level of employment growth — more than 50,000 this year — which is the envy of many larger countries. In spite of continued strong output growth and employment increases, inflation has remained moderate at around 1.5 per cent. The Exchequer borrowing requirement for this year is expected to be approximately £280 million or 0.7 per cent of GNP, compared with the budget target of more than £600 million. The general Government balance is likely to show a surplus of approximately 0.4 per cent of GDP. This is based on a number of factors which I would like to outline.
The reasons for the continued success of the Irish economy are the subject of some discussion. However, it must be acknowledged that it has resulted from the confluence of a number of significant developments. These include: prudent management of the economy which led to lower interest rates and increased investor and consumer confidence; the consensus approach in successive agreements with the social partners which resulted in moderate pay increases, industrial peace and the maintenance of competitiveness; the reduction in the debt burden; an increasing labour force; investment in education and training over a number of decades; strong foreign direct investment; the contribution of EU structural and cohesion funds to improving infrastructure and productive capacity and, reform of tax regimes for individuals and business.
These reflect a policy focus on the longer-term benefits of getting the fundamentals right. It is important that we should bear this in mind in our approach to policy development. I will illustrate how this thinking underlies this year's budget.
This Government's Action Programme for the Millennium outlines the main fiscal objectives for the next five years. Today's budget addresses these objectives. A significant current budget surplus is projected each year until the year 2000. By the year 2000, even when account is taken of a significant capital deficit, Exchequer borrowing will be eliminated. Over the period to the year 2000, Government spending will decline as a proportion of GNP. This will be achieved while providing for the investment needs of our developing economy.
At this stage of the economic cycle we must use the opportunity of strong growth to run surpluses and reduce the debt burden. Ireland's debt is still very high. The key to reducing the debt, and thus to putting the economy in the best position to meet the challenges of the future, is to run a budget surplus when the economy is doing well, as at present.
This approach is consistent with the terms and with the spirit of the stability and growth pact which is an integral part of EMU. The stability and growth pact states that budgets should be kept in balance or in surplus in normal economic conditions. By any standards, current economic conditions are better than normal and the case for running a budget surplus in these favourable circumstances is compelling.
I will now set out the economic background, some of the key factors which have influenced the budgetary strategy and the main budgetary provisions announced by the Minister today.
As I have already stated the economic outlook remains favourable. GDP is expected to grow by 8 per cent in 1998 and GNP by 7 per cent. This will be reflected in employment with the number of people at work projected to increase by 48,000. Unemployment is expected to fall by about 15,000 as continued high rates of labour force growth take up a significant proportion of the new jobs created. Inflation is expected to remain moderate at about 2 per cent.
The budget presents clear evidence of the Government's intention to deliver on its commitments under Partnership 2000. Taking the 1997 Budget and the measures announced today into account, the overall resource commitment to reduce personal taxation by £900 million on a full year basis over three years and to spend £525 million on social inclusion and equality measures over three years will have been largely delivered in the first two years of the three year programme.
There are, however, still many challenges to be faced on the economic and social front, and this budget addresses these. It sets out to create the right conditions to sustain strong economic growth so that more people get jobs, and to ensure that inflationary pressures are contained. It also aims to position the public finances to address investment needs of the economy, reduction in the tax burden, social inclusion, preparation for economic and monetary union, post-2000 Structural Funds, long-term demographic changes and reduction of the national debt. The conclusions to be drawn from this view of our longer term needs are clear. We must adopt more ambitious budgetary targets than have been achieved over the last decade so we can address longer term needs from a position of financial strength.
On the basis of taxation and expenditure measures announced by the Minister for Finance, the targets for the 1998 budget are a current budget surplus of £1,109 million, a capital deficit of £1,198 million, an Exchequer borrowing requirement of £89 million and a general Government surplus of 0.3 per cent of GDP. Control of public spending will be central to the achievement of the budgetary targets. The Government is committed to ensuring that, over the lifetime of the Government, the growth in net current expenditure will be limited to an annual average increase of 4 per cent. Controlling current expenditure is a key element of our budgetary and economic policy.
A balanced approach is adopted in the budget which takes account of the need to improve social inclusion measures while at the same time keeping control of public spending and creating an environment in which business can flourish and which encourages investment.
I wish to focus on some of the key measures announced in the budget. The range of social inclusion measures is designed to deliver on the undertakings aimed at combating disadvantage set out in the Government's programme; to make further progress towards meeting the commitments on social inclusion in Partnership 2000; to continue the reorientation of the social welfare code in a work friendly direction and to contribute towards the achievement of the strategic aims of the national anti-poverty strategy.
Last year's budget allocated £273 million in a full year for social inclusion and this budget allocates a further £282 million on a full year basis. Resources which had been promised over three years in Partnership 2000 will now be more than provided in two years. This illustrates the Government's commitment to ensure that economic growth is accompanied by real social advance for those in need.
The social inclusion measures include the following. In general, personal rate social welfare payments will be increased by £3 per week while qualified adult allowances will increase by 3 per cent from the first week of June next.
