Pre-Budget Outlook: Statements.

Tánaiste and Minister for Finance (Deputy Brian Cowen)

I welcome the opportunity to present to the Seanad my pre-budget outlook, launched on Thursday, 18 October, and I look forward to listening to the views of Members in this regard and examining them in the context of preparations for the budget. I apologise for my inability to stay as long as I would wish because of other commitments during the course of this day. It is an especially busy time with ministerial consultations regarding budgetary preparations and I must meet many organisations during the course of these few weeks. Unfortunately, my schedule for this week is quite full. I will make a statement for the House and hear what people have to say about economic issues in general as well as opinions on my budgetary stance.

This is the second year I have published a pre-budget outlook as part of my initiative to reform the budgetary process to deliver a more constructive and relevant examination of how the nation's finances are run. This year's pre-budget outlook is expanded to include, for the first time, detailed technical pre-budget Estimates for the public services on the basis of maintaining the existing levels of service. This will enable greater transparency and understanding of how taxpayers' money is spent and provide a clear distinction between the pre-budget and post-budget allocations.

As such, this publication represents a critical step in the ongoing budgetary reform process. I announced on 13 September that the Government is moving to introduce a unified budget with effect from this year in December. This means that all the key announcements on both the spending and the revenue side of the budget will be announced on the same day. This will facilitate the Government in bringing forward all our proposals for future service improvements within a planned, progressive and sustainable overall framework and represents a more coherent approach to budgetary policy making.

My Department's assessment for the economic and fiscal picture for the coming years is set out in the first part of the pre-budget outlook. This assessment is based on the latest information to hand and updates the budget day forecast published last December. In the light of later information — international and domestic — and in the context of budgetary decisions, these forecasts will be reassessed and published on budget day.

Since I published the pre-budget outlook, I have commented on how this year represents a turning point for the economy. During the first half of this year the economy performed well, with 6.4% growth in the first six months, but the current indications are that the short to medium-term outlook has changed vis-à-vis that envisaged on budget day last year.

Last December in my budget, gross domestic product growth was forecast to average 4.7% over the period 2007 to 2009, with growth of 5.3% for 2007. I also forecast that taxes would grow by 7.8% in 2007 and that on a cash basis the Exchequer would have a deficit of €546 million. The general Government balance was forecast to remain in surplus at 1.2% of gross domestic product.

At the time others took the view that my tax forecasts were somewhat prudent. However, most institutions that produce regular forecasts for the Irish economy have since revised down their outlook, especially so over the summer and autumn period. Real GDP is now forecast to grow this year by the order of 4.75%. Looking forward, GDP growth is now expected to be 3.25% in 2008. My forecasts for this year and next are broadly in line with those forecasts produced by others over recent months.

The main reason for the more modest growth this year is the prospect of lower output in the new residential housing market. More recent data confirm that output will be considerably lower than the small decline assumed on budget day, which was in line with the prevailing consensus at that time. Also impacting on the outlook are critical factors outside our control. Interest rates are 75 basis points higher since budget day. The current level of oil prices and the appreciation of the euro-dollar exchange rate are also unhelpful developments. Against this it must be recognised that other parts of the economy — such as the exporting sector — are performing well, which is partly offsetting these negative influences.

The main factors underpinning the downward revision of this year's forecasts will also exist next year. The latest leading indicators of future housing output clearly point towards lower output for next year. This will negatively affect employment trends. Lower employment growth is now likely for 2008, with the rate expected to slow from an estimated 3.5% this year to 1.25% next year. Unemployment is forecast to rise from 4.5% this year to 5.5% next year.

While the current level of growth is lower than we have experienced in recent years — with GDP growth forecast to average 3.5% over the period 2008-10 — we must acknowledge that our overall growth performance is nonetheless impressive by international standards and one with which many of our European partners would be very happy. The economy's fundamentals are strong. Provided we manage the economic and budgetary situation well, I expect GDP growth to revert to its trend rate of 4% towards the end of the 2008-10 period.

Apart from setting out the economic position, the pre-budget forecast also supports the emerging budgetary position for this year as signalled at the end-September Exchequer returns. A cash deficit of up to €1 billion is now forecast, somewhat more than forecast at budget time. This reflects the weakness in some taxes, mainly as a result of the weaker property market. However, a general Government surplus of 0.9% of GDP is still expected for this year, which will be the tenth surplus in the past 11 years. The tax shortfall of up to €1 billion that now seems likely for 2007 along with the reduced economic forecasts for the 2008-10 period means that tax revenue over the period will be lower than previously envisaged. Fewer resources will mean that choices will have to be made and actions prioritised.

We have benefited from the extra resources arising from the buoyancy in the property market in recent years. Those receipts were used as a bonus to reduce debt levels. We did not base new services on them continuing. We have taken care not to plan the public finances around the assumption that tax receipts from the property and wider construction sector would continue to grow in future years as they have done in the recent past. Therefore, I refute those who suggest that we have planned public services on the back of the property market.

The pre-budget outlook points to a deficit of -0.4% of GDP in 2008 and 2009 and a balanced budget in 2010. These technical budgetary projections are indicative and will be affected by any change between now and budget day and by any policy decisions taken by me on spending or tax in the budget.

The pre-budget Estimates included in the outlook represent a major innovation in the budgetary process. For the first time, the Oireachtas is being provided with full Estimates-level detail on the cost of maintaining existing high levels of public services in 2008. This detail was provided in October, a month earlier than the previous Abridged Estimates process, and in advance of the policy formulation process for the 2008 budget and Estimates. The Oireachtas is now being provided with a clear opportunity to make a contribution to the budgetary debate. I am looking forward to hearing Members give their views on where our priorities are or where they should be into the future, and on how the allocation of resources next year and beyond should take account of these perspectives.

As the pre-budget Estimates are presented on an existing level of service basis, new policy initiatives and significant improvements on existing policies are not included at this stage. These will be announced together with the tax measures on budget day in December and provided for in full in the budget Estimates.

For now, the focus should be on the level of services that are currently being delivered with the €58.5 billion plus the Government is allocating for 2008. It is worth reflecting on the magnitude of that level of resources. The figure of €58.5 billion represents an increase of almost 30% on the level of spend in 2005. The reason for this unprecedented level of resources is clear. We have been living through times of economic strength, we have had the opportunity to make good on some of the historic challenges in our public services, not only the deficit in our capital infrastructure but also the deficits in our social infrastructure and in the nature and level of public services in their most general sense. We have allocated resources under all of these headings. A preliminary overview will give Senators a sense of the tremendous social benefits that are being achieved with the existing level of public services.

In the social welfare area, the pre-budget Estimates provide for about €16.1 billion in gross current spending in this area. That is an increase of €784 million over the 2007 allocation, and means that total resources in the social welfare area have increased by around one third, or €4 billion, in the past three years alone.

As a result of this level of provision, for example, the State contributory pension has been increased to €209.30 per week, and the weekly non-contributory pension today stands at €200 per week. Among a host of other improvements, the rate of fuel allowance has been doubled to €18 per week and the free electricity and gas schemes have been enhanced. We have achieved our key targets under the national anti-poverty strategy and we have targeted resources at the child care sector, at improving the family income supplement for working families, and at supporting carers.

In the health area, the pre-budget Estimates provide for €15.1 billion in gross current spending in 2008. That is an increase of almost €1 billion over the 2007 allocation, when one factors out the special provision for the long-term repayment scheme, and brings the total increase in the past three years to almost €4 billion or 33%.

The pre-budget Estimates provide for the full range of improvements introduced over recent years. For example, BreastCheck, the national breast screening programme, under which 124,000 women have been screened in the past two years, is being rolled out nationwide and commenced its screening programme in the southern region just last week. The National Treatment Purchase Fund is provided for. This service will have arranged treatment for more than 72,000 patients by the end of this year, and has contributed to a reduction in waiting times for most common procedures to between two to five months, compared to two to five years before the advent of the fund in 2002.

The number of people holding medical cards today stands at more than 1.25 million, representing an increase of almost 108,000 since 2005. The number of persons holding a GP visit card now stands at more than 73,600.

In the education area, the pre-budget Estimates provide for €8.4 billion in current spending. That is an increase of almost €500 million over the 2007 allocation, and brings the total increase in this important area in the past three years to more than €1.75 billion or 27% in additional expenditure.

This has enabled us to reduce the staffing schedule at primary level from 29:1 to 27:1 since 2005, and has thereby reduced the average class size. Nearly 3,400 additional primary teachers have been appointed since 2005. The pre-budget Estimates include provision for an additional 1,100 teachers next year to maintain the improved pupil-teacher ratio and provide for special needs and language support requirements in light of demographic changes. An additional 300 post-primary teachers have been also appointed since 2005 and 2,500 additional special needs assistants have been appointed since then.

In summary, the pre-budget Estimates represent a very significant level of achievement on the part of the Government to date and set the scene for continued progress next year. On the capital side of the budget, the pre-budget Estimates set out the existing level of service position in advance of budget day decisions on spending, and as such they broadly repeat the capital provision for each Department this year. However, full provision for capital expenditure will be announced at budget time, consistent with the multi-annual capital investment framework and the continued roll-out of the National Development Plan 2007-2013. In this regard, the Government will continue to implement that plan as our overarching priority. This is the approach that will underpin continued economic as well as social progress in the years ahead.

We as a Government are determined to ensure all the increased resources we have made available will lead to corresponding improvements in our public services. That is why I have put in place a robust and comprehensive value for money framework in recent years to ensure we can get the maximum value out of every euro spent. In addition, as part of the general focus on what is being achieved with public moneys, annual output statements have been introduced by me for each ministerial Vote group. Early next year, for the first time, Ministers will have to report on what outputs they have achieved with the money they were given this year as well as setting out their output aims for the coming year.

The pre-budget outlook and the pre-budget Estimates envisage sustainable economic growth into the medium term. This is healthy by international standards and reflects our status as a vibrant, maturing economy on the European and global scene. The Estimates are a testimony to the high level of public services we have now attained. It is timely to reflect on what is being achieved with the €58.5 billion in resources that are being made available. We must however keep in mind that as our growth prospects ease we must be more responsive to change and prioritise that spending to ensure the best value is achieved and the right strategic choices are made.

I look forward to hearing the contributions of Senators from all sides in this debate.

Senator Liam Twomey

I welcome this new approach to the budgetary process and I hope it will increase the transparency of what happens on budget day.

Balancing the public finances is always a difficult task, and the Tánaiste has had particular difficulties in this regard. In the past three budgets tax revenues have been grossly underestimated. In his first year in the Finance portfolio his tax revenue forecast was out by €1 billion, in the second it was €2 billion and in the third it was €3 billion. For 2008, we have gone from a pre-election forecast of a surplus of €1.8 billion to a €770 million deficit, a dramatic change. Economic growth for this year is only down marginally, with the Tánaiste claiming it will be at 4.7% when he estimated it at 5% before the general election. Projected economic growth for next year is down from 4.5%, as estimated in January, to 3.25%.

The Tánaiste is providing figures which seem to be setting us up for a negative outlook for the economy in the next several years. Is this for the benefit of the media so that on budget day the Tánaiste can announce a better budget? Some media commentators claim this is part of his grand plan to win the next election in five years. The brakes will be put on for the next two years and then, for the following three years, the Government will loosen the purse strings to repeat what happened between 2002 and 2007.

Some of the Tánaiste's statements were contradicted by what the Minister of State, Deputy Batt O'Keeffe, informed the House yesterday on the housing market. He sounded far more upbeat than the Tánaiste, claiming manufacturing and services are growing well and the housing market's fundamentals are sound because of expected economic growth. The influx of people into the country, especially those aged between 25 and 35 years, and a baby boom will keep pushing the housing market for the future. He also cited rents, planning applications and the national development plan as further proof there is little to be concerned about for the housing sector.

There will be always, however, dark clouds in such a rosy picture. For instance, the Minister of State blamed the banks for overheating the housing market between 2005 and 2006, with 100% mortgages and 35-year terms fuelling a buying frenzy and being the cause of accelerated house price growth in 2005 and 2006. He may not be necessarily correct on this point. I found it surprising that the Minister of State did not have a problem with negative equity. It may not be serious when one considers that Ministers of State are paid more than hospital consultants but it is a serious problem in the housing market.

Surprisingly, the Minister of State had no problem with falling house prices, calling it "moderation". There is no such thing as moderation when house prices are falling between 3% and 5%.

Even if we accept the argument that there is no problem in the housing market, the economy is sound and the decreases expected in housing output can be offset by other parts of the construction industry, there are other parts of yesterday's statements that cause concern. The Minister of State claimed the Government was aware the housing market was beginning to slow down as far back as June 2006 because of the number of planning applications coming into the Department. The Tánaiste took this into account when drawing up the growth figures for last year's Budget Statement. If he was aware of this slowdown, I am surprised he is so negative about the economy. There is no need to paint a negative picture of the economy. By doing so, we run the risk of talking ourselves into a recession. If consumer confidence, a large factor in the economy for the past three years, is in any way affected, problems will arise.

The Tánaiste did not refer to Government policy and how it affects the economy. Benchmarking was a significant factor in increasing the Government's spending over recent years, adding hugely to the budget of every Department. Do we know if benchmarking was a success in changing public service productivity? While public service productivity compares favourably with that in other countries, I am not sure if it has improved dramatically because of benchmarking. Productivity in the economy has disimproved over recent years which directly affects our competitiveness, a significant problem for the future. There is a need for the Tánaiste to outline how we can come to terms with this.

One area where inflation is rampant is in the cost of services provided by the State. For example, levies for developments and other governmental charges are high. The Tánaiste must outline how he intends to tackle these. I recently received the budget for the Houses of the Oireachtas. Three headings in it came to my attention: incidental expenses, office supplies and pensions. These three matters alone have increased the running of the Houses of the Oireachtas by €12 million. The overall budget for running the Houses of the Oireachtas has increased from €113 million to €136 million. There is a loss of control in how we run our own house, so to speak.

The Tánaiste argues we need to start containing costs if we want to maintain economic competitiveness. When Ministers of State pay themselves the same as hospital consultants, senior Ministers pay themselves the same as private hospital consultants and the Taoiseach becomes the highest paid premier in the world, we must ask if we should start at home in containing costs and improving competitiveness.

The decentralisation programme has not worked. Pension provision will be a large issue in the future. Members are well looked after with their pensions, as are those civil servants who work with us. This may lead us to forget about the people who have a serious issue regarding their pensions. The Government's Green Paper on pensions which was published with much fanfare recently is a rehash of several proposals that have been around for years. On behalf of the population with no pension provisions, the Tánaiste must put forward some serious and concrete proposals to defuse this timebomb.

With regard to some of the comments the Minister made on the health service, I realise that this will be a difficult area next year because matters are just not working out as they were supposed to. It is sometimes said that if one says something often enough, people will start to believe it. The Minister said something today that I have heard numerous Ministers assert, namely, that patients are waiting for major procedures for only two to five months, and that they had to wait two to five years in 2002. That is not right.

I shall explain what used to happen. In 2002, when waiting lists were a major problem, a patient could get to see a consultant relatively quickly. However, once the consultant was seen a patient could wait years for an operation and this, obviously, was politically very embarrassing. The Government changed things around somewhat. A patient now has to wait years to see the consultant but afterwards will have his or her procedure carried out relatively quickly. It is not two to five months. Even the figures from the National Treatment Purchase Fund show that. When the number of times procedures and operations are cancelled is taken into account, the waiting period is far more than two to five months. The reality is that matters have not changed so dramatically since 2002. If one considers the waiting period to be from the time a patient attends a GP to the time a procedure is carried out, it is still a matter of months to years. It is not two to five months and I ask Ministers to stop repeating that because it is not true.

As regards information technology, there was a clear figure of €80 million to be spent on IT projects in the Department of Health and Children last year. The Minister set it out clearly in his Budget Statement but it has not happened. Only €49 million has been spent. I am not referring to the PPARS debacle, where €240 million was blown and conveniently reported on after the election. A specific €80 million was earmarked for other projects which were to have a direct impact on patient care and they were not delivered.

On the question of mental health, television advertisements are no substitute for implementing the Vision of Change programme. In my constituency, County Wexford, patients are still being treated in an institution that was built when Queen Victoria was the technical head of this country. Mental health patients in County Wexford are still being seen in the most out-of-date dilapidated building, and again the Minister has done nothing about it. That is the type of initiative on which he will be measured and he should do something about it.

Turning to education, we want to see what will be done about class sizes. The pre-budget figures indicate the same level of service is anticipated next year, yet it is clear there is a problem with class sizes. It was part of the Fianna Fáil manifesto for the election that something would be done about this. We need to see precisely what the Minister will do in the budget to improve that situation.

On the overall issue of the economy, I should like to see precisely what the Minister is talking about. The outlook does not appear to be as negative as he makes it out to be in some of his public announcements. Some of his Ministers of State, especially Deputy Batt O'Keeffe when he addressed the Seanad yesterday, appear to indicate that matters are not so bad. There are some clouds on the horizon, but these have always been there. Global issues can crop up at any time, but they do not appear to be as threatening as the Minister maintains. There is a need for him to be honest here and to point out to the Seanad not just the degree of transparency he espouses in delivering the budget, but rather what has improved as regards how the money is spent.

The Minister has pointed out clearly that €58 billion is a massive amount of money, but is it being spent wisely or foolishly? It is not hard to spend money. Spending it appropriately is a much more difficult question. Those are the matters the Minister should talk about in the Seanad, perhaps pointing out how he arrived at his figures and indicating how seriously he regards his concerns for the future.

Senator Eugene Regan

I want to focus on the Justice Estimate and raise two specific points. We had the introduction of the Coroners Bill some weeks ago by the Minister for Justice, Equality and Law Reform, Deputy Brian Lenihan, and it is now on Committee Stage. That provides for the introduction of a full-time service. In the Bill's explanatory memorandum the financial implications indicate the cost of the service at the moment is around €5 million, which is funded by local government, but the annual cost of a full-time service would be €8 million to €10 million when fully established. There is an increase in the Estimate for the coroners' service of €163,000. Given that it is expected that legislation will be passed shortly, I wonder whether that Estimate is adequate.

An ancillary question is whether central government will be taking over the funding of that service from the local authorities and perhaps the Minister might clarify that. One further aspect to the Justice Estimate is the fact the Minister has mentioned value for money reviews. There is provision for a 43% reduction in the expenditure on the reviews in the Department. Will the Minister explain that reduction, which seems to go against the objective of constant value for money reviews?

Senator Marc MacSharry

I welcome the Minister to the House. This is the first opportunity I have had to wish him well in the new Administration, as Minister for Finance.

At the outset I want to pay tribute to the management of our finances in recent years. It is almost inconceivable, when one considers where we have come from in the last 20 years, what has been achieved in that period and the level of prosperity being enjoyed throughout almost the whole of society. We owe a debt of gratitude to the many Administrations who managed over that 20-year period. It was predominantly Fianna Fáil in Government, although Opposition parties were also in Government for a period. We can look back with great pride concerning what has been achieved.

I am confused somewhat as regards what Senator Twomey had to say about the pessimism and the outlook. He should not confuse prudence with pessimism. The Fianna Fáil-led Administration looks forward with great confidence to what can be achieved in the 20 years ahead, including in this period in Government, based on good prudent fiscal management and the implementation of policies consistent with those that have been carried out in the past which were the foundation of our present prosperity.

The pre-budget outlook sets out the revised economic and budgetary forecast covering the period 2007-10. The publication represents another major step in the Government's ongoing budget reform process. As well as setting out the economic forecasts, it also indicates in detail the cost of keeping the existing level of public services in place for the next year. The initiative makes it clear to the Oireachtas and the public what is the pre-budget position. It helps the Oireachtas to focus more clearly on the existing overall level of spending and what we are getting for it.

I thank the Minister for giving Members of the Seanad the opportunity to feed into the process in advance of the budget and not just to react afterwards, particularly since this House does not have a formal role in its preparation. It is to be welcomed that this is the first time we can feed in to the preparation of the budget at an early stage. The pre-budget Estimates apply pay and non-pay inflators as appropriate to the cost of services currently in place. They provide for increases caused by the known demographic demands, such as provision for the extra teachers and students we know will be in primary schools next year. The figures reflect, as far as possible, next year's cost of providing the actual level of service on the ground this year.

By co-ordinating all of our decisions and resource allocations alongside the tax take on budget day, the Government will be better placed to roll out our ambitious programme of national development and improved public services within a planned, progressive and sustainable framework. This ultimately is the approach that will deliver better policy outcomes and better value for money for the public whom we serve. The next step in the budgetary reform process is for the Minister for Finance to meet with his Cabinet colleagues and prepare to discuss the priorities for the budget and all the spending and taxation decisions that will be announced on budget day. I am sure he will take into account the many points made today by Senators of all parties and none.

The economic forecast for Ireland seems to be overly pessimistic in tone. It is fair to say the short-term prospects are for lower, but perhaps more sustainable, growth rates than those to which we have become accustomed. There are risks and we must not lose sight of our strong fundamentals. The economic headwind resulting from lower residential output raises a number of important policy issues. On overall fiscal policy, more modest economic growth will result in a normalisation of the growth of resources available to the Government. It is essential that expectations regarding expenditure be adapted accordingly. Let us have a policy debate on these issues but let it be based on a realistic and balanced assessment of both the strengths and weakness of the Irish economy rather than on scare-mongering or blind, ill-informed criticism.

The Government will continue to prioritise spending on those areas crucial to the future development of the economy and especially spending under the national development plan. It will spend over 5% of GNP annually over the period of the plan to upgrade our public capital stock. All along, the Government's view has been that we would achieve considerable value for money from infrastructural spending and we are now seeing the benefits of the roll-out of the plan. The Minister for Finance mentioned the robust framework for value for money that is in place.

The prospect of a more modest evolution of domestic demand highlights the need to find alternative sources of growth to drive the economy forward. I commend the Minister on his prudence regarding the budget of last year and ask that the same policy be pursued in the preparation of this year's budget. I ask the Minister to be cognisant of a number of issues, one of which concerns local government funding. We have high levels of development contributions to such funding and these account for approximately 14% or 15% of the total. There will be a reduction in this funding and perhaps the Minister will consider an increase.

While I appreciate that the Minister has been reluctant to adjust the stamp duty threshold, I believe it may be of benefit to extend it from €127,000 to €250,000. I must declare an interest in that I am involved in the auctioneering industry.

I appeal to the Minister to focus heavily on the disadvantaged when preparing the budget. In spite of the great prosperity we have enjoyed over recent years, many challenges lie ahead and we all strive for the eradication of poverty. I ask that this be accorded priority.

Being from the north west, I have always focused on balanced regional development.

Senator Fidelma Healy Eames

Hear, hear.

Senator Marc MacSharry

The Minister of State at the Department of the Environment, Heritage and Local Government, Deputy Batt O'Keeffe, stated yesterday there would be an increase in the population of the State of approximately 1 million over the coming decades. I believe the north west has the best opportunity to help to alleviate the pressures that will arise as a consequence in Dublin and the main population centres. I would like to see disproportionate levels of investment along the western seaboard, north of the line between Dublin and Galway and west of Mullingar. Towns such as Castlebar, Sligo and Letterkenny have the most scope to alleviate the pressures that exist. Investing in the north west is prudent and in line with the Government's policy in the national spatial strategy.

I thank the Minister for coming to the House and wish him well with his budget preparations. I ask him to be cognisant of what I and other Senators have said, in so far as this is possible.

Senator Alan Kelly

I welcome the Minister to the House. This is the first time I have had the opportunity to discuss the forthcoming budget. I wish to consider the ongoing budgetary assessments and then refer to specific areas the Minister may consider addressing in his response. I welcome the Minister's new approach to the budgetary process as it will bring about more transparency. This year is unique in that we are getting used to it. Unfortunately, the outlook for the budget is far less healthy than was forecast last year. It is predicted that we will have a Government surplus of 0.9% of GDP this year, which figure has decreased from 1.2%, as predicted previously. We face a shortfall in tax revenue of €1.5 billion. In 2008, growth in GDP is expected to be approximately 3.25%. It is expected to be approximately 4.75% this year and therefore we face a considerable drop within a year, in spite of the fact that the average is expected to be over 3.5% until 2010. The unemployment rate is expected to rise from 4.5% to 5% and this must be considered. We are not used to such unemployment rates but there has been an upward trend, particularly in the past year.

The number of new house completions this year will be approximately 60,000. Every time the annual rate drops by 10,000, €1 billion in revenue is lost and GDP growth decreases by 1%. In addition, the Government balance is lowered by 0.5%. We must determine specific ways of addressing the changes in the housing market. Public spending for 2008 will increase by 4.8%. We need to discuss how the money can be spent to the best of our ability.

Various commentators have referred to the somewhat negative tone of the Minister's outlook. We have been assured in this regard, but the tone reflects a consistent style of post-election predictions in this area. The Estimates pertaining to the third and fourth budgets of a Government seem to reflect a different approach. Perhaps this is just coincidence, but it may indicate something else.

The past few months have not been great for the economy. By the Minister's admission, there have been changes. There were warning signs of a downturn but in many cases they have been ignored. The run on Northern Rock was unique and represented a sign of change. Many of the reasons for this were based on sub-prime lending, as I stated specifically in the past. The Minister has considered addressing the matter of sub-prime lending in respect of the MiFID but I still have concerns that might need to be addressed.

The Stock Exchange value decreased by 30% and this is serious. The credit crunch across Europe has affected Irish finances. Last year credit growth increased by 30%, which is serious, while our dependence on debt, which stands at two and a half times the gross domestic product, is far in excess of that of most other European countries. This is a worrying trend. The loss of export market share for four years in a row is very much a cause of concern. In this regard, consider yesterday's announcement on Waterford Wedgwood. The difficulties faced by such a company are indicative of the direction in which the manufacturing industry is going. We need to address this.

The harmonised index of consumer prices shows that the Irish inflation rate, excluding that associated with mortgages, is 50% higher than that in the eurozone. I am sure the Minister is conscious of this figure and a solution to the problem needs to be found. There are a number of reasons for the change in our circumstances, many of which are outside our control, including rising oil prices and the change in the euro to dollar exchange rate. Another contributory factor is the weakening residential housing output and this area must be examined closely. Income tax, excise duty, corporation tax and VAT are all performing well, particularly VAT. However, our economy is overly dependent on the property market. I will not dwell on this issue as it was debated at length in the House yesterday, but approximately 280,000 people are employed in the construction industry. That industry contributes almost 25% to our GDP. The property industry is both the economy's major driver and Achilles heel. It is predicted that 90,000 housing units will be built this year, 70,000 next year, decreasing further from 2008. I have already referred to the economic consequences of this change.

Housing and construction accounts for between 12% and 14% of GDP. A serious drop in activity in that sector will mean other sectors will have to improve their performances to bolster our growth rates. Stamp duty income is 14% below predictions and the tax take is 12% behind current spending, therefore, something will have to give.

We must move the economy away from debt finance and the property sector. The property market is over-valued and in a bind. Productivity growth is at its lowest level for 20 years, reflecting our dependency on the property market. The economic reliance on these sectors has created problems in traditional sectors such as exports, on which an open economy like Ireland is very much dependent. However, I welcome the recent announcement by Enterprise Ireland that it plans to examine how to increase export output in the next few years. The initial approach is promising but we must study the plans in more detail to ascertain how effective strategies can be put in place. I hope Enterprise Ireland will receive budgetary support for this initiative. Irish banks provide property loans at twice the rate of their EU counterparts, which is worrying.

I turn my attention now to the forthcoming budget and the promises made by the Minister for Finance and Fianna Fáil prior to the election. The Celtic tiger is no more. Prior to 2007 we had growth rates of approximately 7%. From 2008 onwards we can expect growth rates to hover between 3% and 3.5% but Fianna Fáil declared before the election that our growth rate would be at 4.5%. The difference is significant.

The Fianna Fáil manifesto promised a 1% cut in the top rate of tax. Where does the Government stand in this regard? The Minister said that such a cut would depend on the economic outlook at budget time but what is the current Government position? Fianna Fáil also promised that over the lifetime of this Government, the standard rate of tax would be reduced from 20% to 18%. What is the Minister's outlook in this regard, given the economic projections for the next few years? What is the situation regarding the PRSI changes that were outlined prior to the election? I am also interested in the Minister's view on the changes that were proposed for VRT and motor tax. All of the proposed changes were to take place in the lifetime of this Dáil and I ask the Minister to clarify the situation in the context of current economic projections.

Tax revenues are down which means there will be no generous budgets for the next few years. The Minister's approach has been, post-election, to put money by for a rainy day which may arrive in four or five years' time. We will see how that works out but, based on the current figures, we do not know if it will be possible.

Ireland has experienced enormous growth in the past ten to 15 years, doubling its national wealth. Now is the time to reflect on what was achieved in that time. There is no doubt much has been achieved, as Senator MacSharry argued earlier. Expansion and development in a number of areas has taken place and is very welcome. However, some areas have slipped through the net. We still have an enormous drug and crime problem. There is, without doubt, a crisis in the health service. Literacy is still a problem, as is the neglect of disadvantaged areas. Unfortunately, there are still children living in poverty and low incomes are prevalent, despite the Celtic tiger. There are many infrastructural problems, some of which are related to the fact that money was not spent wisely. Overcrowding is still an issue in our schools and our emergency services are under-resourced.

I wish to put on the record some areas where money was wasted. Approximately €35 million was wasted on MediaLab Europe, on e-voting — €52 million, on PPARS — pick a figure, Stadium Campus Ireland — €100 million, toll bridges — pick a figure, Luas — €470 million, the Port tunnel — €150 million and decentralisation — God knows how much, but the figure is at least €900 million. Such waste must stop because we will no longer be able to afford it, given the current economic outlook.

According to the latest figures, the budget deficit for this year will be €1 billion, which is €500 million more than predicted at the beginning of the year. An increase in current spending levels means the Government must raise revenue through cuts. We are seeing such cuts at present. There are cuts in frontline services in hospitals, reducing the number of nurses and doctors available. This means, for example, that patients arriving at regional hospitals like that in Nenagh must transfer to Limerick, which is also experiencing cuts. Spending in education has been reduced in the area of the pupil-teacher ratio, which I hope will be addressed in the forthcoming budget.

Slash and burn economics are the fashion for the next few months in order to meet budgetary requirements in the context of the deficit increasing from €500 million to €1 billion. Warning signs were apparent but were not heeded in time.

I will now deal with specific budgetary issues which are of concern to me. The national development plan is a priority for the Government, which I respect and appreciate. However, it is ridiculous that national development plan appraisals are carried out in secret. This must be addressed. Given the changes that will take place in the construction industry, I expect the Minister to include some provision in the budget to assist in the re-skilling of a percentage of the 250,000 workers currently employed in that sector.

Decentralisation has been debated and has been a failure, although some have argued it has been a success in some areas. Semi-state bodies are never going to decentralise, mainly because of specific issues relating to pensions and the transfer thereof. It will not happen. I worked in Fáilte Ireland, which is a semi-state organisation, and not one person applied to move to Mallow. Such a move would be ridiculous for some staff, who have to be in Dublin to meet people at the airport and so forth. Decentralisation will not happen. The Government should bite the bullet on the matter.

There is an anomaly in old age pension provisions whereby a husband receives approximately €209 per week but the dependent woman receives only €173, which must be addressed. Rent allowances must be also addressed because in some circumstances they act as a disincentive to people to take up work, given the money they stand to lose. In the area of people with disabilities, we must examine the funding for the disability federation. It has put together a very good submission to provide a resource centre. Given that we have a weakening economy, the federation will be able to create economies of scale across the board which would be helpful. The manner in which we tax multi-millionaires must be examined, given that thousands of them are paying between 0% and 5% tax, which is a scandal. The Minister must close the loopholes in the stamp duty legislation, which have allowed organisations such as the Ringsend bottle factory to avoid paying up to €30 million in stamp duty.

The budget provision for tourism should be maintained because it is a sustainable economic activity and given the requirement for the review of the TBI brand. Like Senator MacSharry, I believe in balanced regional development, particularly given what has happened in the mid-west. Provision needs to be made for that.

In the area of agriculture, sugar beet growers have a genuine issue. The fact the EU compensation fund is being treated as income rather than capital means they are being charged capital gains tax. This issue should be addressed.

A real worry is employee pension schemes. Defined benefit schemes have dropped from 67% to 37% in a five-year period. This is a very worrying trend. In the next budget, we need to consider reforming employee pension schemes so that in 20 years' time people will not wake up to find they have pensions which do not meet their lifestyles. I appreciate there is a Green Paper on pensions.

We also need to look at the relief available for pension contributions in the next budget. Giving relief at the marginal rate of tax has helped many higher income taxpayers to save for retirement. Between PRSI and other factors, it amounts to approximately 49%. Why can the same encouragement not be given to lower paid workers who are on the standard rate of tax?

I ask that the provisions in place for the emergency services are maintained or upped at the level required.

Senator Déirdre de Búrca

I thank the Minister for his pre-budget outlook. As other Senators have done, the Green Party welcomes the introduction of a pre-budget outlook as part of the overall reform of the budgetary process which the Minister has initiated. This will help in making the budgetary process easier to examine and easier for the public and public representatives to understand how our national finances are run.

In discussing this year's budget, it is important we put the current state of the economy in context. The economy is not in freefall or recession as some might like to suggest. What is happening is that the overall rate of economic growth is slowing down, if anything. The rate of growth of the economy will now experience is more similar that of other EU member states, but there will still be growth. The challenge for those of us in Government is to manage the expectations that now exist after a decade of what has been fairly unusual and quite spectacular economic growth.

Over the past decade the economy has relied, more or less, on the extremely buoyant construction and property sectors. These sectors helped to produce the short-term high rates of growth but a reliance on continued growth of this kind in these sectors is not sustainable in the long run. As far as the Green Party is concerned, the new circumstances in which the economy finds itself provide an opportunity for the restructuring and even reinvention of the economy. In fact, the greening of the economy, which my party would like to see, is not only desirable but essential. Ireland must play its part in meeting the challenge of climate change. If this is done in the right way, it could confer major advantages on our economy rather than presenting obstacles to run away from.

Many of the agreed items in the programme for Government, which the Green Party successfully argued for, are based on the premise that having a different kind of economy can allow us to successfully create wealth while living up to our environmental responsibilities. In order to begin to restructure our economy, we will have to take several important steps which will include, among others, significantly reducing Ireland's reliance on fossil fuels, including oil and gas, putting a price on the cost of carbon, investing massively in public transport infrastructure across the country and strongly stimulating and developing our renewable energy sector. We must also provide economic incentives for businesses, communities and individuals to live more sustainably.

In terms of this country's future economic growth, it is important to define very clearly what we mean by the terms "sustainable" and "sustainable development". Too often they are used to mean that we can continue doing what we are doing without worrying about the environmental costs. Unfortunately, the real meaning of living sustainably is living in a way which has little or no environmental cost. It is very possible for us to prosper economically and, at the same time, live up to our environmental responsibilities. The Scandinavian countries provide a very strong model for how this can be done. The Government will have to show leadership in this regard. The Green Party intends to use its influence in Government in this year's budget and future budgets to ensure the greening of our economy becomes a reality.

Senator Paschal Donohoe

I wish to share my time with Senator Fidelma Healy Eames.

An Leas-Chathaoirleach

Is that agreed? Agreed.

Senator Paschal Donohoe

Like some other Members, I am new to Leinster House and to the practice of politics on a national stage. When I come into the House I am struck by the portraits of great politicians and figures from history. They all grappled with a particular national issue. The issue they spent their time debating and working on was how they would create our national sovereignty and independence as a country in the face of very strong external forces. The issue on which this generation of politicians will be judged is very different. We have moved from a national issue to a global one.

What has happened in the interim is that consciously and unconsciously, politicians of all creeds and colours have opened up this economy to global forces more than any other economy in the world. The issue with which we will have to deal is how we protect our economic prosperity and our social solidarity given that our country, more than any other in the world, is open to forces beyond our control.

I refer to the factors which have led to our economic growth over the past number of years. We could look at our low rate of corporation tax, the economic boom which we have been surrounded by, what has happened in North America and in many parts of western Europe, our currency position vis-à-vis our large trading partners and the amazing educational success our country and workforce have enjoyed. The question we now need to face is, what is the path for our country moving forward given that so many of those factors have changed?

As has been touched on by other speakers, occasionally when these points are raised here, we are told we are shrill, ill-informed, are trying to talk the market down and so on. Nothing could be further from the truth. I strongly believe my role as a Member of the Oireachtas and of the Opposition is to ask what issues the country faces in the future, to hold the Government to account in respect of them and to do what I can to make a contribution to what we want to do differently.

If we look at two of the factors I have outlined, we will see how they have changed the challenges that face our economy and how they most impact on the pre-budget outlook. If we look at what is happening to our currency position, since 2000 our competitiveness in respect of the US dollar has deteriorated by 57%. Our exports to America are 57% more expensive than they were seven years ago.

The second factor is corporation tax. Many of the countries with which we compete have learned from what we have done. Corporation tax in Estonia, for example, is 0%. In some of its neighbouring countries, such as Lithuania and Poland, corporation tax is as at least as low as ours, if not lower, and they have wage rates which are far lower than ours.

The pre-budget outlook shows that net receipts to the Exchequer from exports are beginning to decline substantially. The housing market has been the subject of much comment in the media and in these Houses. It is undoubtedly a significant factor but it is being commented upon to the virtual exclusion of discussion of other factors which are significant. It is telling that today, the World Economic Forum has published its competitiveness league. For the second year in a row, Ireland's position in the league has slipped, this time from 24th to 26th place in the world. Two factors which have contributed to this deterioration are the level of innovation and standards of transport and infrastructure in particular. These issues deserve at least as much attention and probably more than the ongoing discussion on the property market and its impact on Exchequer returns.

We need to identify new goals and new peer countries by which to measure progress. We must find ways of being competitive in a globalised economy. We must begin to measure our progress against countries such as Poland, Lithuania and east Asian countries and no longer against the larger countries of western Europe as was the case in the past.

The budget should prioritise education and infrastructure. A recent FÁS report outlined that Ireland will probably need to re-skill between 500,000 and 600,000 current workers in our economy as we deal with the transition to a global economy. I question whether we are suitably set up to do this.

We need to change how budgets are discussed. Time is spent talking about how much money we spend but not enough time is spent talking about the outputs of that expenditure. We need to examine how more choice can be introduced into the delivery of services and empower consumers to ensure they are getting best value for money from either the private or public sector. We must create the competition needed to ensure taxpayers' money is being well spent.

I will end with a question. The national debt is half the EU average. We have significant infrastructure and skills deficits. Should we consider changing our debt position to address these challenges so that in the longer run we can enjoy the economic results of prosperity?

Senator Fidelma Healy Eames

I welcome the Minister of State to the House although I regret the Minister for Finance is not present. However, I appreciate the Minister of State will communicate my thoughts to him.

I hope some priority issues which I raise will be taken into account on budget day when it comes to allocating the finance that will make a difference. There can be many policy positions and aspirations but unless resources are committed, nothing will happen.

I wish to raise the issue of integration. Will the Minister for Finance be investing in integration through the provision of funding at local and national level? I see glaring needs in this regard in County Galway.

When I speak to local service providers and consumers I am reminded every day that integration is the greatest challenge this country faces in the next ten years. A total of 250,000 people are speakers of other languages and they require English language support to be able to integrate successfully. Currently only €10 million is being committed and this is a minuscule sum; we should be committing €25 million to even match the EU average expenditure in this area. I would like to see a change in policy in this area.

It is time to consider a pilot scheme of five or six centres for the establishment of multicultural centres in areas of high multicultural density. The aim of such centres would be to enhance integration by providing information, mother and toddler groups, activities based around English language classes, classes in Irish culture to help people become familiar with their new country and, most important, such centres could help develop leadership among these new people. The cultural differences are significant and need to be addressed.

Concerns are emerging in the field of education due to lack of understanding and a failure to address the issue of integration. Irish families, white families, are concerned about a lowering of standards of education as a result of the multicultural nature of classrooms. I refer to a pressing local issue in Galway city. East of the city is an area called Doughiska which in 2000 had a population of approximately 300 people but which now has a population of 8,000 people, consisting of 36 nationalities, 20 new estates and no primary school. This is unbelievable and unacceptable. Children from these areas are feeding into other local schools.

I raised this issue with the Department of Education and Science which responded that there are sufficient places in the surrounding schools for the period up to September 2008. This is an unacceptable answer. If people are to integrate into a new community, it must have a primary school at its heart. The only group currently addressing this issue is the Catholic Church which has set up a new parish, the Good Shepherd parish, headquartered in a GAA complex in Castlegar community centre. The situation is appalling. Investment in a primary school in this area of Doughiska and its surrounds needs to be given serious consideration in the budget.

As the Fine Gael spokesperson on education and science, I wish to raise the issue of class size. The Minister referred in the pre-budget outlook to class size being a ratio of 27:1. We all know this is not real. Moycullen national school has a class size of 36. When small classes and large classes are taken together, the Minister is taking an average class size of 27:1. I recommend that a flat class size would be implemented, beyond which no class would go. I suggest the Minister should not quote the national average size as this makes no sense in reality. I ask the Minister to fund a flat class size of 27:1 in the budget. The Government in 2002 promised a class size of 20:1. The INTO campaign for smaller class sizes was looking for a lower ratio. I ask the Minister to ensure that no class is bigger than a ratio of 27:1. This would be a landmark decision.

I also ask the Minister to increase the primary school capitation grant from €163. School fundraising is funding primary schools and it is a feature of every school in the country. Compared with OECD countries, Ireland's investment in education is low. I ask the Minister to prioritise integration. I look forward to him coming to the House. The introduction of a flat class sizes and an increase in primary school capitation are two issues from my list.

Senator John Hanafin

I welcome the Minister of State to the House. He comes with a fine reputation as a politician who has very high standards.

The support of employment, research and innovation and the application of this research and innovation at home should be the top priorities in the budget. Countries such as Denmark and Finland have home-grown multinationals and continue to pay themselves at very high rates and have a high social economy. There is a mix and a balance in achieving this. It is a mix and a balance that we have got right, with low taxation and a high social economy. It is something I would like to see continue but to do that will take application.

We must continue to look at maintaining jobs and improving exports. We are working within a global environment where the price of oil has increased significantly and growth rates have decreased. By any standard, when Japan and America have 2% growth rates, the rest of the Europe has 1.9% and we have 3.5% growth, we are still looking at a very positive performance. With that in mind I would like to see an improvement in our exports because that is the key to growth in the future, and competitiveness is an essential part of it. Competitiveness does not necessarily and solely lie with wages, although it is an important aspect of it. It is equally important to look at infrastructure.

Let us take a practical example. If I need a plumber and he has to travel 45 minutes across town to fit a faucet which takes ten minutes and has to spend another 45 minutes travelling back, that adds to the cost of the job. The same applies to the economy. Investing in infrastructure, as stated by a previous speaker, is an investment and should not be looked on as a capital spend. If we need to borrow on this occasion to proceed with the necessary infrastructure which will maintain our competitiveness, we should do that. There are other aspects of investment that should be looked at such as investment in education and health. The reason is that a great deal of foreign direct investment comes into this country. Any person considering investing or working in Ireland or coming to live in Ireland will naturally look at the areas of the world that offer low cost production. For their families and themselves, the education and health systems are regarded as being of a high standard. They are also elements of infrastructure.

While admitting that wages are an element, I continue to support foreign direct investment to ensure Enterprise Ireland can continue to do its job well to ensure there are jobs, because there is a creeping trend, noticeable first in America, of unemployment, which we would do well to avoid. The budget will play a necessary part in that. As part of that budget I would like to see more being done for green alternatives. I am encouraged that it was to an Irish company the Germans looked to supply a large amount of electricity for the German market — 1.5 times the amount Ireland uses. It is setting up a wind farm, which is not new technology to this country, in that small grid which Germany has in the North Sea. When one considers the resources that are so plentiful and available to us, it would make sense to continue to look to and, perhaps, have a European-wide grid because part of the problem with wind energy is that it is intermittent and the supply may not be available at all times, in which case we could feed into the European grid.

In regard to the budget, I want whatever is necessary to maintain growth in the economy to ensure the less well-off will continue to be looked after by the Government and to ensure social harmony so that those who need a step up the ladder will get it and the divergence in pay does not become too vast so that there is inequity in society. Our pay rates and tax rates have achieved a certain balance and I hope that will continue. I look forward to the budget on 5 December. I am sure the Minister in categorical style will ensure the less well-off are well catered for while ensuring our economic growth continues.

Senator Paul Bradford

I am pleased to have the opportunity to contribute to this debate which we sought some weeks ago and thank the Leader for facilitating it. I welcome the Minister of State, Deputy Sargent, to the House, congratulate him on his appointment and wish him well in his new position.

Deputy Trevor Sargent

I thank the Senator.

Senator Paul Bradford

Budget Statements during the course of the history of the Republic of Ireland up to 1990 were generally bleak affairs. It was a question of what was the next cutback or tax increase or the next paragraph of bad news. Fortunately, the regeneration of the economy and the boom and gloom years of the Celtic tiger, for which we are all thankful and for which every political party can claim a small degree of credit, means that when we listen to the Minister for Finance outline his financial statement to the House on budget day, people have high expectations. We have had increases in public expenditure across all Departments, generous reductions in taxation and an economy on the up.

An interesting factor during the course of the previous general election was that in one sense the economy never became part of the debate, at least not until very late in the day. There was the view among many commentators which eventually the electorate accepted that the outgoing Government, especially the major party, Fianna Fáil, had some magic formula for economic growth which other parties did not seem to share. There was the view that only Fianna Fáil in Government could keep the good times rolling. I wish it were so simple. We have seen in the past two to three months with external factors that when the harsh winds of economic storms hit us, it does not matter who is in charge of Government because tough decisions have to be taken. Probably for the first time in ten or 12 years the Minister for Finance faces touch choices and the Budget Statement will not be the rosy picture it has been in recent years.

I wish to refer to a few of the issues I hope the Minister of State will take on board. The competitiveness of the economy, which we discussed in the House recently in the context of job creation across the regions, is a major issue. I listened to my colleague, Senator Donohoe, speak about competitors, especially Estonia, Poland and other countries in eastern Europe, which offer all manner of incentives for investment. Firms which might have looked to Ireland five or ten years ago are looking at other options for investment. We must ensure our competitiveness is as good as that of those other economies. Unfortunately, inflation in Ireland has increased in the past three to four years and is at the wrong end of the European scale. No doubt energy costs have played a major role in that. There is no light at the end of the tunnel in regard to oil and electricity prices.

The party of which the Minister of State is a member makes great play of green energy. Everybody supports the concept but we will need more than words — we need action. The previous speaker mentioned wind farms which are another alternative source of energy. We must redouble our efforts to make real progress in the generation of electricity from natural resources and in keeping down energy costs if Irish industry is to prosper.

While our education service is of the highest international standard, we need to improve it further. Without rehearsing everything that Senator Pascal Donohoe said, he referred to the amount of retraining necessary. The biggest political decision to impact on the development of the country was the decision in the 1960s to introduce free second level education, which gave everybody the opportunity to increase their qualifications and to enhance their future prospects. Having made second level education accessible to every child 40 years ago, we must now ensure every second level student not only goes on to complete second level education, but also obtains a place in a third level college or institute.

A fortnight ago we heard figures mentioned here, I believe by Senator Doherty, indicating that in one county, County Donegal, a significant number of second level students were not completing second level education. We must ensure that is the exception rather than the rule. I hope the budget, through its spending parameters, will ensure access to third level education will improve. We will not be able to compete with countries not just in eastern Europe but also in China, India and other Asian countries from a wage perspective. However, we can certainly compete from the point of view of training, skills and education which will require major investment.

I refer to our road and rail infrastructure. The Transport 21 plan has very lofty ambitions, which we all share. We seem to be very slow at implementing these plans. Without wanting to be entirely parochial, two roads of major economic importance to the north Cork region — the Mallow to Mitchelstown road and the Mallow to Fermoy road — have been on everybody's list of priorities for the past 40 to 50 years and yet have not received the attention or investment required. There have been 2,000 to 3,000 job losses in the past five or six years. We cannot encourage industrial investment in regions such as north Cork and towns such as Mallow, Mitchelstown and Fermoy, with second-rate roads. Bizarrely those two roads are not on the Transport 21 map for road investment. For the umpteenth time I ask the Minister of State to point out to the Minister for Transport the urgent need for investment in those roads.

The Minister of State, Deputy Sargent's, party would be supportive of the rail network. While everybody is in favour of the Cork to Midleton railway line and the extension to Youghal, for which plans are in place, we are not seeing the required progress. The development of our rail service is very cost effective by comparison with road projects. However, it requires serious political attention and I hope the Minister of State will advocate more investment in our rail infrastructure, which is key to the infrastructure base the country requires.

While I presume the budgetary options on taxation are limited, it is important not to fall into the trap into which we fell in the 1960s, 1970s and 1980s of increasing taxation in a crisis. We need to keep all levels of personal and corporate taxation as low as possible. The formula has worked, not just in Ireland, but also across the globe. The reverse is also true in that increases in taxation penalise the public and industry and result in economic slowdown. I hope the Minister will not propose any level of taxation increase.

I look forward to improved social welfare provisions for the less well-off in society. Last week saw the "People In Need Telethon" on RTE, which is very laudable. I congratulate everybody who participates in such a programme and contributes. In the Ireland of 2007 we should not need such programmes to address the needs of the poor and marginalised. We still have a booming economy with a significant budget available to us. We should ensure our social welfare provisions look after the real people in need who should not be dependent on charity groups alone. That is the responsibility of the Minister for Social and Family Affairs and the Minister for Finance. I hope the Budget Statement will bring meaningful progress in that regard.

Senator Fiona O’Malley

I welcome the opportunity to discuss briefly issues relating to the budget. I welcome the Minister of State. It is nice to see him here.

Even though it is not an issue for the budget, Senators Bradford and Hanafin highlighted the question of Ireland's competitiveness. While we have held our own on the competitiveness index published this week, our position now at 22nd compared with our position in 2000, when we were fourth, is of concern. We need to keep an eye on the issue.

The greatest threat to our competitiveness is the possibility of tax harmonisation. While it is not a direct issue for the budget, as Senator Donohoe pointed out we live in a global economy and we cannot ignore the threat from certain European Union countries and other countries where the cost of wages is so much lower. I am concerned at the threat of a drive for tax harmonisation by many member states. I know the Minister for Finance is gallantly trying to hold it back. However, I fear he represents only one of two or three countries. As one of the smaller countries we are up against it. Our low taxation regime has been a key driver of the economy. We need to be very careful to ensure we maintain that competitive edge in future. We are on the periphery of Europe. Everything is far more expensive. We are an island nation. We need to have something to attract investment into the country and the low taxation regime has formed part of our attractiveness. That low-taxation regime is under threat. When the budget has been dealt with, I hope we will get the opportunity to discuss tax harmonisation, which I believe is happening under the radar. People need to be considerably more au fait with it because it poses a serious threat.

In his speech, the Minister said the economy is reaching a turning point, which presents a challenge. As was said previously, this will be the first time in recent years when a Minister for Finance is faced with more challenging circumstances and it is not the bounty we have become used to. A favourite phrase of the Minister's is "to suppress expectations". He will need to do so in the budget. Previous speakers have alluded to the need to make investments in infrastructure. A report published yesterday indicated that the level of infrastructure represents a threat. While I appreciate that the Minister of State, Deputy Sargent, might not be a great fan of our improved road network, I pay tribute to those responsible for it. It is phenomenal. I travelled throughout the country during the summer and it is great that people and goods can be moved swiftly and easily, although I look forward to the day I will no longer have to pass through Moate on the Dublin to Galway road, as that is the only bottleneck left. However, a motorway will soon be finished between both cities, which is only right. I agree the rail network should be developed.

I refer to the new process outlined by the Minister which will give us the opportunity to have an input. In suppressing expectations, he is trying to keep various Ministers and Departments on the existing level of service train. One of the hallmarks of the previous two Governments was the recognition of the need for reform and an attempt was made to do that. Today is a sad day for the health services because of the debacle over light bulbs. This highlights how bad people's resistance to change can get with operations cancelled over who will screw in light bulbs. It is outrageous but this presents the Minister with a challenge.

Existing levels of service in a newly reformed context should surely be about better levels of service which should be achieved at a rate of between 5% and 10% through reform and benchmarking. This must happen and the Government cannot run the economy in isolation in this regard. It must have the co-operation of workers and that is why we all need to pull together to get the best out of our economy so that we can keep pace with the changing competitive environment.

I would like more detail on the new value for money framework. I hope it is transparent so that the added value generated through the existing level of service or new service can be clearly identified. I hope the annual output statements, which are welcome, will be meaningful. As Senator Donohoe stated, it is important that such statements are examined and the budget does not happen in isolation so that we can ascertain the outcomes, what was achieved and where the Government was right and wrong.

What will be the context for such statements? Will Ministers lay them before the Houses of the Oireachtas or will such statements simply list achievements so that Departments can cover themselves? I hope it will be an engaging process and we can identify clearly where added value was achieved.

In these changed circumstances, Members and the public need to see reform and better value for our services. Elements of public spending have run out of control and been treated as a gravy train, which can no longer be sustained. We need to realise this is a changed time and salaries in the public sector, in particular, must be realigned with those in the private sector. It will be a challenging period but given the Minister's prudence, for which he is well known, and the value for money framework, benefits will be provided.

My pet project is the science bus in DCU, which will be of interest to the Minister of State. Schoolchildren in his constituency will be interested in it because it is part of the knowledge economy and science and innovation. Modest investments in this area will reap significant rewards. Investment in education in the 1960s reaped rewards and big brave steps in this regard are needed. I hope I have the Minister of State's support.

Senator Pearse Doherty

Cuirim fáilte roimh an Aire Stáit agus gabhaim comhgairdeachas leis.

The Government parties in their programme for Government in 2002 claimed, "We will keep the public finances in a healthy condition". Interestingly, no such commitment appears in the new programme for Government. With lower growth projected for the years ahead, the focus needs to be put on what is required to ensure the public finances remain in a healthy condition to enable the State to meet its obligations in the delivery of public services and social protections. It needs to be ensured the Government does not go further down the road of a low tax-low public services model that will inevitably result in the downgrading and dismantling of public services and social protections. The proposed commission on taxation will need to examine these issues in detail and must focus on the need to create a fairer taxation system. The explosion in stealth taxes and charges over recent years will have to be addressed.

Dr. Alan Barrett of the ESRI put forward the view that limited tax increases "would not be economically damaging" and would provide the Minister for Finance with "wriggle room" on the expenditure side in December's budget. Dr. Barrett is right to initiate a debate on these matters because crucial decisions on the direction the State takes must be faced. Government decisions to raise or reduce overall taxation revenue must be made on the basis of what is needed to meet social goals and other spending demands. The reduction in tax receipts as a consequence of the slowdown in the property and construction sectors means the tax base needs to be examined.

A number of key vulnerabilities in the economy were evident in advance of the general election. Chief among these was the implication for tax receipts of a widely predicted decline in the construction and property sectors. The tax strategy papers prepared in advance of the last budget show there was a clear awareness of this within the Department of Finance. The argument made by Sinn Féin in the run-up to the election that the Government could not, with the slowdown in economic growth and the developments in property and construction, afford to cut taxes and maintain, let alone improve, public services has been shown to be correct. The Government was wrong to cut the higher tax rate from 42% to 41% last year. This resulted in high income individuals receiving the largest increases in weekly income as a result of the 2007 budget. It was wrong to promise to cut the top rate by another 1%. I welcome the fact that Dr. Barrett also echoed Sinn Féin's position in saying he was "not entirely convinced" that the proposed reduction in the top rate of income tax from 41% to 40% was the most pressing change required in the tax code, given it is not.

This revenue would be better directed to many other areas, including improving public services and social protections. It is incredible that the Government is proposing to proceed with further cuts and, in particular, the additional cut in the top rate of tax, given a projection for tax collection in 2008 that is €2.2 billion lower than predicted last year on budget day. The Taoiseach still insists the Government will implement its tax and PRSI cutting proposals despite the evidence these are not viable.

Sinn Féin would like a number of specific tax measures to be included in the 2008 budget. We call on the Minister to increase the restrictions on the use of specified tax reliefs to ensure high income individuals pay their fair share of taxation. No high income individual should be able to write off more than 10% of his or her income through such exemptions. Another minimal step that needs to be taken is the standard rating of discretionary tax expenditures, many of which will have to be examined by the commission on taxation to asses whether they play a useful role.

I would like to deal in detail with the proposed cuts in PRSI as there will have far-reaching implications. The main conclusion of the latest actuarial review of the social insurance fund published last week is that the fund's net cash flow position is projected to decline rapidly after 2010 and that the surplus is projected to be exhausted by 2016.

The programme for Government commits to reducing employee PRSI from 4% to 2% and the rate for the self-employed from 3% to 2%. Sinn Féin pointed out when these proposals were first mooted in advance of the election that they were being made without any consideration of whether the social insurance fund was sufficient to meet current and future demands. We highlighted that there were already serious concerns about the adequacy of the fund based on the findings of the first review. The latest review has reinforced these concerns with its finding that contribution rates would have to increase substantially if the fund income was to support the benefits being paid from it into the future.

The situation would be far worse if Fianna Fáil's proposals to cut PRSI contributions were implemented. The fund is set to face additional demands in the immediate term as unemployment is predicted to rise next year from 4% to 5.5%, or an additional 10,000 unemployed. This has significant implications for the social insurance fund and is a further reason the PRSI reductions are a non-runner.

Tighter finances represent a significant test for the Government. Cutbacks in public services — whether obvious, as in budget 2003, or more discreet, as is likely to be the case next year — cannot be tolerated. Neither do we want to see key infrastructural projects under the national development plan being tactically delayed to reduce costs in a given year, with those costs being pushed forward to a future budget. A far more sensible approach would be to borrow for these projects, thus ensuring their early delivery and helping to improve our competitiveness, which is currently negatively impacted by our infrastructural deficiencies.

Members have heard of several instances where increased funding is required for specific infrastructural projects. For example, I have raised on numerous occasions the need for a high-speed dual carriageway from Dublin to Derry. There is also a need to reintroduce rail services in the north west, particularly with a view to closing the loop between Derry and Sligo through a full reopening of the western rail corridor. These are additional projects that should be included in the national development plan and Transport 21.

There is nothing in the pre-budget outlook to indicate the Government is taking action to prevent a recurrence of the disgraceful situation where end of year budget overruns have been overseen by the HSE, with the result that services to patients have been curtailed. The claims by the Minister for Health and Children, Deputy Harney, and the chief executive officer of the HSE, Professor Brendan Drumm, that the so-called saving measures would not and should not impact on patient care have proven to be totally worthless. Even if they believe their own claims, neither the Minister nor Professor Drumm did anything to ensure the so-called savings would not be at the cost of patient care.

The most fundamental issue regarding health spending is not how much is spent but how it is spent. This must be addressed by the Government in the forthcoming budget. If the Government has not already been awakened by the public in recent months to the failings of the health service, I invite Ministers to come to the north west and talk to people there. They should speak to patients in Letterkenny General Hospital who must travel to Dublin for radiotherapy service. They should visit Sligo to assess whether the cost-saving measures are affecting those on the front line of the health service. Their eyes will be opened if they accept my invitation.

Senator Brian Ó Domhnaill

I am pleased we have been afforded the opportunity to express our views and concerns in regard to the pre-budget outlook. I welcome the Minister of State, Deputy Sargent, to the House. Cuirim fáilte roimhe. Tá a fhios agam go bhfuil suim mhór aige sa Ghaeilge fosta.

I welcome the decision taken by the Tánaiste and Minister for Finance, Deputy Cowen, as announced on 13 September, to put forward a unified budget. This is a positive development, particularly in regard to business development and economic growth. The cornerstone of recent budgets has been the development of a social justice policy and the maintenance of low, competitive rates of taxation. I was awed to hear Members on the other side of the House declare that the Government should reconsider its objectives of reducing taxation and helping workers by providing incentives to allow them to continue to work and thus fuel economic growth. It is vital we have a vibrant economy that allows us to look after the more vulnerable members of society. We must ensure the tax take continues to be strong into the future. I do not share the views expressed by Senator Doherty on his party's taxation policy, which would drive the country into bankruptcy.

I welcome the Minister's statement that he supports this opportunity for Members to put forward opinions on the forthcoming budget. As a Senator from the Border county of Donegal, I am particularly interested in the Government's review of the tax incentive schemes. I understand many of these schemes, including those relating to urban and rural renewal, are being phased out and are due to be terminated by July 2008. However, the Finance Act 2007 made special provision for the introduction of a new tax scheme aimed at encouraging the development of tourism infrastructure in the mid-Shannon region.

A town renewal scheme was introduced in Donegal in 2000. However, the scheme was restrictive, covering 217 sites in five specific towns. Of those sites, only 14 certificates have been issued to date. As such, this scheme was not entirely beneficial to the county. A new scheme must be introduced to encompass a positive incentive for business investment in Donegal, particularly in the manufacturing, farming, fishing and tourism industries. A clear incentive is required to assist those who create jobs in Donegal. Given the relatively poor economic climate in Donegal and other Border counties and the significant job losses we have experienced, the case is clear for a new tax incentive scheme to ignite, encourage and promote sustainable development.

This proposal for a Government intervention through the designation of a special tax incentive scheme for Donegal has been already prepared by Donegal County Council's planning and economic development special policy committee. It is made against the background of the sustained and exceptional performance of the economy, with low unemployment and high economic growth. The proposal is confined to County Donegal but I would welcome a wider tax incentive scheme that would encompass some of the other Border counties. These counties have significantly underperformed economically in comparison with the rest of the State. Government intervention is now required in Donegal to stimulate investment and economic activity, to redress the imbalance that exists and to support the Government's policy of balanced growth and development in the regions, as set out in the national spatial strategy in 2002.

Donegal has experienced significant job losses due to factory closures, including Fruit of the Loom, UNIFI, Hospira and Comer Yarns. Owing to their geographical location in proximity to the North, Donegal and other Border counties have suffered greatly as a result of the Northern conflict for some 30 years. It is imperative that the Government redress this situation now that the power-sharing institutions are up and running. It must avail of the opportunity in budget 2008 to introduce a special measure. Government intervention through a tax incentive would demonstrate its commitment to addressing Donegal's' economic difficulties and would be an important factor in kick-starting economic revitalisation in the area.

A special tax designation for Donegal would increase the county's attractiveness as a location for enterprise development, investment and job creation. This was proposed in the report of the interdepartmental group, chaired by the Department of Enterprise, Trade and Employment, which was published in July 2006. It would promote regionally balanced and sustainable development as outlined in the national spatial strategy.

I know there are many demands on the Tánaiste in specific areas. I welcome the move in 2007 to introduce a special tax incentive for the Shannon region, which I believe is working very effectively, having spoken to people in the region. The Tánaiste must be applauded for introducing such a measure.

I am of the very firm view that as we progress from the economic imbalance experienced in the Border counties, especially in Donegal, owing to the conflict, there is a golden opportunity to introduce a special dispensation for those counties to regain the jobs we lost. We could revitalise farming, tourism and the manufacturing sectors in Donegal and help those creating jobs in that area.

I would be grateful if the Minister of State, Deputy Sargent, would bring some of those proposals to the Tánaiste. It is important they be considered in the overall context of balanced regional development. If the Government is to be remembered for such balanced regional development, the Border counties and Donegal in particular will be looked at in five, six or seven years' time to see what dividends have been created. I know the Minister of State will do this and I thank him for coming to the House.

Senator Cecilia Keaveney

I welcome the Minister of State, Deputy Sargent, to the House. We did not get many opportunities to discuss issues when we were in the Dáil but it is good to get such an opportunity here in the Seanad.

I can take up where Senator Ó Domhnaill left off because I come from the same county. I support his aspiration for the area to get some form of special dispensation, although I would say the officials from the Department of Finance are probably horrified. I will re-emphasise the case.

Over the past ten years, Ireland has come to what is seen as being at the forefront of economic development. People from eastern Europe in particular would ask how little Ireland became such an economic success story. My case for special dispensation for the north west is partly because access to the area has always been dependent on travelling through the North. It has not been a place where people wished to go. Tourists arriving from any ports or airports were told to stay away from the area of Ulster and as Donegal was north of the North, it left us worst hit.

Why am I stating this in the context of an economic debate? Given that Ireland has experienced a rising tide and most counties have gained from it, many issues are handled by Departments, especially the Department of the Environment, Heritage and Local Government, through co-financing. This is not a problem for many counties because they have businesses and a good turnover of indigenous and outside commerce. I have often given statistics comparing what Donegal County Council can raise on its rate base with what Cork City Council can raise. They are not comparable.

We have not had a tradition of big business in Donegal for various reasons. We have been in the wrong location for everything because of the Troubles so we have been as economically deprived as Derry, Limavady and Strabane. One could consider their statistics and the east-west divide which exists in Ulster.

We are now told the rising tide means we can well afford to contribute to our own basic infrastructural development, but this is incorrect. One small example is Fruit of the Loom in Buncrana. That town relied on Fruit of the Loom for 52% of its rate base, which it lost when the company shut its operation there, but the town is still expected to co-fund projects. There is much small indigenous industry in the town and I hope other industries will locate there, but they are not there at the moment.

I ask the Minister of State to bring this back to the Tánaiste for him to think about it. We seek this dispensation because we need it rather than want it. Historically, we have not had investment for real reasons. We did not have the ability to develop the A5 road because we had no jurisdiction over it and we had no ability to implement a Derry to Dublin air service. We could not put a public service obligation on that because we had nothing to do with the service.

In recent years we have worked together to try to maximise the north west as an entity, and much of this is taking place because of the new dispensation in the North. We are in a new scenario which I would like the Department to recognise. It can then help us to help ourselves. We are not putting our hand out, indicating we are a basket case. We have great potential in the north west but it is not getting a chance to be realised.

In the small amount of time I have I wish to raise a few other issues. These matters concern those who work, those who do not, those who are unable to and those who are too young to work. With regard to those who work, we heard some Senators looking for people to be taxed to the hilt. This is very wrong because while we require an income as a financial basis for Government business, we could tax people out of working.

There are difficult cases where people do not work because a medical card, for example, is too valuable to lose. If these people lose their medical card, they lose access to doctors, medicines, the free leaving certificate, the clothing allowance and others. The associations with the medical card are so vast that unless we continue to incentivise people to get into work, we will be doing a disservice to everybody.

Next week we will debate the issue of child care with the Minister for Health and Children. The question is whether we need another category, as some people are on the dole, some require family income supplement and everybody else is over a certain limit. Regardless of whether these people over the limit earn €40,000, €70,000 or €120,000, they are all be treated the same. Any reasonable examination would indicate this is not a fair system.

Data must be obtained so people can assess who are the people we are talking about. It again comes down to the potential of discouraging people from working. It is important that people can work. I advise community groups that although it is very difficult to gather this information, it should be done in the interests of creating a case. There may be a requirement to create a new category within the child care issue for people with medical cards but I would baulk at this because everything is linked back to the medical card. Certain people are just over the threshold and may be disenfranchised.

People on a relatively low income may still be over the FIS threshold and we must ensure they do not throw their hands in the air and decide it is easier to stay at home. If these people choose to do so, that is fine, but we must find a mechanism where all the pain is not levelled on one category of person.

Many people are unable to work. Old age pensioners and widows have found their cases being improved through pension rights and medical cards. My contribution seems to be geared around medical cards at this stage. I would like to think such action would continue and we would look after the people who had a hand in creating the Celtic tiger.

I would like to think the Minister will continue to focus on those who are disabled, especially with regard to mental health. The matter has had much attention in the Seanad since I was elected and has been to the forefront in my work, particularly as a former chair of the Oireachtas Committee on Arts, Sports, Tourism, Community, Rural and Gaeltacht Affairs. Considerable work is being done in this area in the provision of voluntary and sheltered housing, on which I must commend the relevant Departments. Sheltered work programmes also exist. The facilities required to tackle substance abuse and misuse, be it food, alcohol or drug abuse, need to be addressed. However, I hope other issues in the mental health sector will be addressed as we approach the introduction of budget 2008.

Many people commence work at too young an age. Coming from Donegal, which has suffered a high number of job losses due to the loss of the textile industry that was based there, which was predominantly female oriented, we are at risk of suffering job losses in the construction industry, which will impact on employment among the male population. We must examine how to maximise job opportunities for our children.

Early interventions in the child care sector are required. The child care debate should focus not only on money but take account of the educational content of programmes in which children participate in the child care sector. The use of music therapies and art therapies in early childhood to assist in the bonding of mothers with their children would help prevent problems developing later. They would result in us not having to pay as much to deal with dysfunctional children in the education system at a later stage. We need to examine provisions for children up to the age of six. While I could focus on many other issues, if we focused on the provision for children up to the age of six in terms of educational content and mother and child bonding, children would be much more capable of dealing with the world around them, be it from a health, educational, justice or other perspective.

The value for money aspect of this process is important. I wanted to talk about the health services, but I do not have the time to do so. In regard to the decision that money will be allocated to hospitals that succeed in putting through patients as opposed to money being allocated to hospitals that do not do their jobs properly, we have started on the right road. While there will be teething problems, payment on the basis of results in the health sector is not a bad idea. As to whether the same principle should apply to educational qualifications, that might be a debate for another day.

Minister of State at the Department of Agriculture, Fisheries and Food (Deputy Trevor Sargent)

Go raibh maith agat, a Chathaoirligh, as ucht seans a thabhairt dom freagra a thabhairt ar cheisteanna a d'ardaigh Seanadóirí le linn na díospóireachta.

I thank the House for its constructive engagement with the debate on the pre-budget outlook. The Tánaiste and Minister for Finance regrets he could not stay for the entire debate and he has asked me to make a closing statement on behalf of the Government.

As regards questions on tax rates, VRT, PRSI, even if the Minister for Finance were here, he would be restricted in what he could say, as he cannot pre-empt the Budget Statement. His officials have noted every issue that has been raised by way of question and those views will feed into the process, whether they related to the sugar beet workers, lower paid workers, the flat class size issues in education, language integration or the rail network. I would say to Senator Bradford that I also stood on the platform of Midleton train station and I look forward to the day when I can catch a train from there.

Senator Cecilia Keaveney

I look forward to there being a train to Donegal.

Deputy Trevor Sargent

I look forward to catching that train with the Deputy.

As the Tánaiste mentioned, this publication represents an important step in the ongoing budgetary reform process which aims to deliver a more constructive and relevant examination of how the nation's finances are run. The inclusion of the pre-budget Estimates in the outlook in particular represents a major innovation in budgetary process in the context of the Government's move to introduce a unified budget with effect from budget 2008 next December.

The pre-budget outlook shows GDP growth in the economy of the order of 4.35% is expected for this year. GDP growth is expected to be 3.25% next year and to average 3.5% for the period 2008-10. In general Government terms, a surplus of 0.9% of GDP is still expected for this year. This means that in ten of the past 11 years we will have achieved surpluses on the general Government account.

As the Tánaiste pointed out, while 2007 represents a turning point for the Irish economy, we must not lose sight of the fact that our overall growth performance is still impressive by international standards. In light of the news reports today, and in recent days, of oil prices heading for $100 a barrel and higher, and given Ireland's far greater oil dependency per capita than the EU average, our economic well-being requires cross-party co-operation if we are to make that inevitable and urgent transition to a post-oil economy. Many comments have been made about the harnessing of wind power, green energy and renewable energy, but our first focus must be on saving energy. It is far more expensive to make energy than it is to save it. If we are serious about budgetary outlooks and spending money wisely, our investment must be on reducing the level of waste we produce and saving our energy resources to ensure less energy generation is required. As for talking about nuclear power as a panacea to address our needs in this area, it involves a huge cost and is a very expensive option. That is the first point I would make about that proposal.

The pre-budget Estimates are a testimony of the high level of public services we have now attained. It is timely to reflect on what is being achieved with the €58.5 billion in resources that will be made available in 2008 and to keep in mind the economic policies that will enable us to sustain further social improvements in the years ahead. We as a Government are determined to ensure all the increased resources we have made available will lead to corresponding improvements in our public services. That is why the Government has put in place a robust and comprehensive value for money framework in recent years to ensure we can get the maximum value out of every euro spent. This framework includes various measures, including the new 2005 guidelines for the appraisal and management of capital expenditure proposals in the public sector, the value for money and policy reviews and the reforms to public procurement. In addition, as referred to by the Tánaiste in his opening statement, annual output statements have been introduced for each ministerial Vote group, which will be examined by the relevant Dáil committees. Early next year for the first time Ministers will have to report on what outputs they have achieved with the money they were given in 2007 as well as setting out their output aims for 2008.

The pre-budget outlook and the pre-budget Estimates for 2008 envisage economic growth which must be sustainable into the medium term at a level that is healthy by international standards and that reflects Ireland's status as a vibrant, maturing economy on the European and global scene. As our growth prospects ease, we must be responsive to change and prioritise our spending to ensure that the best value is achieved.

Ba mhaith liom mo bhuíochas a gabháil le gach Comhalta de Sheanad Éireann a ghlac páirt sa díospóireacht seo. Beidh orthu, cosúil liomsa mar Aire freagrach as bia agus gairneoireacht, fanacht go dtí lá na cáinfhaisnéise i Mí na Nollag chun freagraí a fháil ar ár gceisteanna.

An Cathaoirleach

When it is proposed to sit again?

Senator Marc MacSharry

Next Wednesday at 2.30 p.m.

Seanad Éireann díospóireacht - Thursday, 1 Nov 2007

Pre-Budget Outlook: Statements.

Seanad Éireann díospóireacht -
Thursday, 1 Nov 2007