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.