I welcome the opportunity to appear before the select committee as it considers the 2010 Estimates and annual output statements for my Department's group of Votes. I am happy also to discuss the ECOFIN Council Opinion on Ireland's stability programme update which was published with the budget. The Minister of State, Deputy Martin Mansergh, will present the Estimate and output statement for the Office of Public Works to the committee separately tomorrow so I will confine my comments to a number of significant areas within the Vote group which I consider will be of most interest to the Deputies.
This year, I am again presenting a comprehensive annual output statement for the finance group of Votes. The output statement seeks to show the connection between the resources that are being spent and the services that are being delivered, and naturally I expect that this will be of particular interest to this committee. In preparing the annual output statement, my Department has endeavoured to simplify the document in so far as possible by focusing in on the key headline outputs for each particular area, with a view to making the overall document more concise and usable. The document also now incorporates the annual progress report on the statement of strategy.
As in previous years, I welcome the constructive and critical views of committee members on ways of improving the output statement in the interests of facilitating the important task of Dáil scrutiny and public accountability. By setting out clear performance targets, and reporting each year on success or otherwise in delivering on these targets, the onus is upon all concerned to see that the system is performing effectively and efficiently.
The key element is to relate what we do and how well we do it to the resources used in doing so. This is an area that I intend to build upon in the future to sharpen the focus upon performance and delivery right across Government, and I will listen with particular interest to the views of Deputies in this regard.
In my budget speech last December, I outlined that the most intense phase of the economic crisis was behind us. It is fair to say, and most economic commentators would agree, that the latest data bear this out. Internationally, a modest recovery is under way in many of our trading partners. This will generate demand for our exports, thereby supporting economic activity in this country. Provided that we continue to achieve the necessary competitiveness improvements, I am confident that we can re-position our economy in high value-added export sectors in the coming years.
There is also mounting evidence that economic conditions are stabilising on the domestic front. Consumer confidence is returning, car sales have been strong and tax revenue has been broadly in line with expectations. I am aware that unemployment has risen over the past month or two but this seems to be due mainly to specific seasonal factors and is not necessarily reflective of a setback to underlying labour market conditions.
In summary, therefore, the fall in economic activity is probably past its low point. If we continue to do the right things, we can expect the recovery to gather momentum in the months ahead. As a nation, we have gained considerable international respect for the competitiveness and fiscal adjustments that we have implemented over the past two difficult years. Those who lend us money are quite complimentary about what we have achieved. We have more to do, there can be no doubt about that, especially in the context of tightened financial conditions internationally. We are, however, on the right path and the measures we are implementing are already beginning to pay off.
The past two years have been economically and financially challenging for many countries around the world and Ireland is no exception. We have been particularly affected due to our considerable economic openness, the severity of the global financial crisis and domestic pressures in our own economy, most notably the ongoing recession in the construction sector. Restoring sustainability to our public finances is a crucial element in ensuring that the correct environment for a return to economic growth exists.
The public finances, in particular tax receipts, have been very severely impacted upon by the sharp economic deterioration. Tax revenue in 2010 is expected to be in the region of €31 billion, a decline of almost 35% on the level of taxes received in 2007. The Government was quick to recognise that the gap that had emerged between revenues and expenditure was not sustainable and this is why we have taken such significant measures to restore order to the public finances over the past two years. Starting in July 2008, a series of revenue-raising and expenditure-reducing measures designed to yield about 5% of GDP in 2009 were introduced. Budget 2010 introduced further measures, virtually all on the expenditure side, amounting to another 2.5% of GDP. None of the measures introduced was done lightly but they were necessary in view of the wide gap that had emerged between our revenues and our expenditure and our commitment to restore order to the public finances by reducing the general Government deficit to under 3% of GDP by 2014.
Recent international developments only highlight to us the importance of continuing along the path of fiscal consolidation in taking further firm and decisive action to tackle the challenges our economy faces. This is particularly true in our public finances. Work is already under way to prepare the budget for 2011 and the Government is determined to take the necessary steps to ensure we restore stability in our public finances and, in so doing, place our economy in a position to return to strong and sustainable growth, which will be of benefit to all.
At budget time we suggested that the HICP would fall by 1.25% cent this year, with the CPI falling by slightly less. Developments to date this year support this analysis. Lower costs boost competitiveness and a fall in prices and pay will also bring about improvements in Ireland's competitiveness. This is a positive development and should be welcomed.
The European Commission expects that unit labour costs in Ireland will have fallen by about 9.5% between 2009 and 2011. This compares with an anticipated rise of 3.5% in the euro area over the same period. The European Commission expects that unit labour costs in Ireland will have fallen by about 9.5% between 2009 and 2011. This compares to an anticipated rise of 3.5 % in the euro area over the same period. Therefore, economic competitiveness is improving.
The Council opinion on Ireland's stability programme acknowledges the significant steps the Government has taken to restore stability to the public finances which have been widely applauded abroad. It recognises that we have succeeded in limiting the deficit on the public finances in the context of a global economic and financial crisis and a very difficult economic environment, and that this is an appropriate course for Ireland. The Council opinion endorses the medium-term budgetary plans which we announced with a view to reducing the deficit on the public finances to below 3% of GDP by the end of 2014. The opinion also points out that we need also to continue our efforts to restore international competitiveness, paying particular attention to wages and costs. We are fully aware of this. The Council opinion refers to the important work of the Commission on Taxation and the special group on public service numbers and expenditure programmes in identifying policy options in the taxation and expenditure areas respectively. These reports will continue to inform our decision making.
The recently announced national pensions framework is also seen as an important component in the development of pension reforms which meet changing needs and can contribute to long-term improvement in the quality of the public finances.
In December 2009, the ECOFIN Council adopted a revised recommendation to Ireland. The Council concluded that Ireland had taken effective action with regard to the earlier recommendation of April 2009. However, due to the worsening of the economic downturn and the scale of the challenges facing Ireland the Council decided to extend the deadline for correction by a year, to 2014. This revised recommendation takes a reasonable, fair and balanced approach. It endorses the measures taken and proposed by the Government and acknowledges that the deterioration of the deficit in 2009 was primarily due to a worse than anticipated downturn. I very much welcome the views of Commissioner Olli Rehn who has confirmed that the correct fiscal target for the Government this year is the figure of €3 billion, contained in the Stability and Growth Pact. As members of the committee are aware, some commentators suggested that some higher unspecified figure would be required of Ireland. The Commissioner has clearly disabused commentators of this idea. The figures in the Stability and Growth Pact are viewed as appropriate for Ireland in the context of the formulation of the budget for 2011. It is important that we understand that is the result of steps taken by the Government to date and the considerable confidence the Commission has in the Irish people, their capacity to pilot a way through these difficulties and their ability to date to hold to their word in the implementation of such a programme.
Deputies will be aware there is a broad understanding that economic governance within the euro area needs to be improved. The Commission recently issued a communication on reinforcing economic policy co-ordination, and the President of the European Council, Mr. Herman Van Rompuy, established a task force to look more closely at reform and consider many of the Commission's proposals. The task force, of which I am a member, has met twice already and is examining a number of issues, including a crisis resolution mechanism for the euro area, addressing macroeconomic imbalances, reinforcing the Stability and Growth Pact and enhanced budgetary co-ordination.
Last week, the European Council received an interim report and a final report will be made to it in October. The interim report focuses on strengthening both the Stability and Growth Pact and the monitoring of debt levels and overall sustainability, and ensuring strong national budgetary frameworks, quality of statistical data and increased surveillance of competitiveness developments and imbalances. There is a proposal also that member states would present their stability and convergence programmes for the following year to the Commission in the preceding spring. This would confirm that budgetary orientations, in the aggregate, are in line with the Stability and Growth Pact. The interim report is just another step in the process, still at a discussion stage, towards deciding on definitive orientations which will enhance economic governance in the euro area. We have no reason to fear such a process. It seeks to ensure that Europe as a whole is on the right path and pulling in the same direction. It is not intended as a sneak preview of the budget nor a usurpation of the rightful prerogatives of Dáil Éireann. The Dáil will be included in the process as the SGP will be presented to it, as currently happens. This process should be seen as helpful, friendly advice from friends, not as a busybody or interfering mechanism.
I turn to the particular Votes before the committee. I present the Estimate for Vote 6 — the Office of the Minister for Finance, which provides for both the administrative and non-administrative costs of the Department of Finance. The gross estimate for Vote 6 amounts to some €77 million, a marginal increase of less than €1 million on the 2009 outturn. The net estimate is €70.2 million, an increase of some €5 million on the 2009 outturn. The net increase is accounted for by efficiencies achieved on the administrative budget of €3 million. This arose primarily in the area of pay, reflecting the reduction in pay rates introduced in budget 2010 together with the various schemes such as the incentivised scheme for early retirement, the shorter working year scheme, etc. The reduction also reflects ongoing savings arising from the efficiencies sought by the Government. Offsetting this were new, once-off funding requirements in regard to the banking Inquiry of €2 million; increased funding requirements on the Peace-INTERREG programmes of some €3 million, as new programmes gain momentum; and a reduction of more than €4 million in appropriations-in-aid arising primarily from reduced reimbursements from the European Union in respect of our funding of the Peace-INTERREG programmes. These reimbursements are linked to our prior year funding on these programmes and the level of funding in 2009 was substantially reduced as certain programmes reached a natural conclusion.
The largest single area of programme expenditure in the current year is provided on the charitable lotteries programme under the budget, taxation and economic heading, at €9 million. This subhead was established in 1997 and payments are made from it to supplement the income of certain private charitable lotteries whose lottery products are in direct competition with comparable national lottery products.
Recent events in the economy and financial sector have put huge pressure on the resources of the Department and we must consider, on an ongoing basis, how the Department should respond to the lessons of that period. The Department's staff are hugely committed individuals who want to deliver best outcomes for the country. An examination of how the Department goes about its work is worth considering. The purpose of such a review would be to benchmark the Department against international standards and do whatever redesign is necessary to achieve the best possible outcomes, taking into account the lessons of the past.
Regarding Vote 9 — Office of the Revenue Commissioners, the net Estimate for the office, at €339.051 million, is down 14% on the 2009 outturn and reflects Government decisions related to overall reduction in spending. The 14% nominal reduction must be seen in the context of the impact of the pay adjustments and for that the real cut to the Revenue Vote is in the region of 9%. A significant element of this reduction arises in the area of IT-related expenditure where the estimate is down in the region of 27% in regard to last year's outturn. Very significant sums of money have been invested over the past number of years and this year in the Revenue information technology infrastructure. This investment, as well as providing better service for the taxpaying public, has been a major driver of productivity growth in Revenue assisting it in providing an excellent service through times of huge growth in business volumes without a commensurate increase in resources. It will also assist Revenue to continue to deliver in these more straitened times.
Revenue, through its frontier management activities, continues to respond to the threat of contraband and drugs smuggling by promoting co-operation and exchanging intelligence with relevant national and international law enforcement agencies and strengthening its risk assessment, targeting and profiling frameworks. In late 2009, Revenue received delivery of an additional customs cutter and a second mobile X-ray scanner, doubling its capacity to use cutting edge technology in the fight against drugs and contraband for 2010 and onwards. On the staffing front, mindful of the need to ensure that the Revenue Commissioners are properly staffed for the very important work of collecting taxes, I recently approved the filling of up to 200 posts in that office through a combination of redeployment, selective recruitment and promotion measures. The process of the filling of these posts is already in train.
I turn to Vote 16 — Public Appointments Service. The budget of PAS has been cut by 40% since the end of 2008 to reflect the new hiring situation. During 2009, PAS achieved a 29% reduction in staff numbers, from 153 to 109, through the temporary transfer of resources to other Departments and offices with sanctioned vacancies and the non-filling of posts. The service has been in discussions with my Department on the operation of the proposed redeployment scheme for the public service. The purpose of this scheme is to ensure that public service resources are fully engaged and that all essential services are adequately maintained.
Regarding the other Votes in the finance group, members of the committee have been provided with background briefing by my Department on all of the Estimates presented today for their approval. I thank the committee for its attention and commend the Estimates to the members. I will be glad to supply any further information or clarification they may request.
