TODAY I am presenting my second Budget to Dail Eireann. The Budget is a central part of the way in which we organise our nation's finances. It indicates choices and it highlights priorities, both for ourselves and for our society.
Last year's Budget was a success. The Nation has had a very good year. In fact, Ireland's economic performance in 1995 was better than that of any other economy in the European Union or, indeed, in the OECD. This was achieved through the efforts and co-operation of workers, managers and entrepreneurs in both the manufacturing and services sectors of the economy, including the public service. I want to congratulate all those involved in this success, particularly those who helped to create the thousands of new jobs throughout this island.
This Budget reaffirms the three main objectives of last year. These are:
(i) to reward work, (ii) to promote enterprise, and (iii) to strengthen social solidarity.
Work is central to all our lives. It is one of the ways in which we define ourselves to each other. It is the process that enables us to create wealth as individuals and as a community. People enrich themselves through work. Without it they may not only become impoverished, but remain unfulfilled. Society loses its full potential if it cannot ensure that all of its people are able to work. That is why unemployment affects all of us.
Enterprise creates work and generates wealth. It is the central energy in each of us that develops our society by applying our skills and talents to meet the needs of both our own markets and the markets of the rest of the world. It involves risk, effort and judgment, as well as skill, dedication and integrity. We need to promote enterprise throughout our society in both the public and private sectors. We must recognise that enterprises grow and develop and pass from generation to generation. We now have a growing number of first generation Irish firms that are preparing for this critical stage. We must ensure that they continue to be productive and secure throughout this process.
The work and enterprise of our society enables us to generate the necessary wealth to build and sustain a community. That wealth is the means by which we can ensure that the young and the old, the sick and the disabled, remain part of our community with a sense of purpose and belonging. We have all been young and we are all getting older.
So we are talking about ourselves when we look at how we develop new ways of strengthening the bonds of social solidarity within our society.
We have many needs which require resources. But such resources must first be generated and developed by each one of us working together. Everyone has a contribution to make to the development and growth of our economy. No one who is able, or capable, can be excluded or excused from participating in our society. When normal markets, including labour markets, do not function efficiently, then we must intervene within the economy to correct these market failures. In particular, we must deal with the major problem of structural long-term unemployment in our society.
The Economy in 1995
We have been successful in achieving the objectives which I set for my first Budget.
The results speak for themselves:
(1) employment increased by some 45,000, or 3 per cent;
(2) the overall growth rate as measured by GNP was over 7 per cent;
(3)investment grew by almost 11 per cent in real terms;
(4) private consumption increased by almost 4 per cent in real terms reflecting higher living standards;
(5) mortgage and short-term interest rates are at historically low levels;
(6) export volumes increased by over 13 per cent;
(7) unemployment on the same basis as measured by the Labour Force survey decreased by some 25,000.
The economy has grown by an annual average of 4.7 per cent over the past five years, compared with the EU average of 1.5 per cent. This rate of growth was achieved while inflation was kept 2.5 per cent on average over that period compared with the EU average of 4.1 per cent.
Most encouraging of all, there are clear signals that rapid economic growth is now being translated into very impressive increases in the numbers of people at work. There are now some one million two hundred and thirty thousand people at work, the highest figure since the 1930s.
By improving the conditions for enterprise and work in last year's Budget we underpinned the real improvement in economic prospects and sustainable employment which came through in 1995. Our social cohesion measures have ensured that those who are less well off in our society have been cared for. In fact taking pay, tax and PRSI changes together, the gains for employees in particular, have been ahead of those expected when the Programme for Competitiveness and Work was negotiated.
But I want to say something more inclusive.
This strong economic performance is a tribute to the success of the fiscal policies which have been pursued by different Governments in recent years in co-operation with the Social Partners. The commitment by all concerned to sound public finances has enhanced confidence in the management of the economy. This has helped to secure and maintain low inflation and low interest rates which have contributed to a sustainable expansion in domestic demand. In turn, this has provided the conditions for converting economic growth into additional jobs.
This process has been aided by:
(a) the Programme for Competitiveness and Work which kept domestic cost increases moderate and ensured the maintenance of our international competitiveness; and
(b) the tax and PRSI initiatives in recent Budgets which aimed at improving both the incentives to employers to offer jobs, and to employees to take them up.
The progress which I have just outlined has a message for all of us as politicians, workers and citizens working together is an effective and powerful way forward.
The Outlook for 1996
This year is expected to be one of continuing economic growth, as confirmed by the following indicators:
(1) employment will increase by 31,000;
(2) GNP will grow by 5 per cent;
(3) inflation will average about 2 per cent;
(4) consumer spending will grow by about 4+ per cent in real terms;
(5) an increase of almost 8 per cent in the volume of investment is expected;
(6) the balance of payments will remain in substantial surplus.
Our economic and other policies have brought about our good economic performance.
Our task now is to adapt them as necessary to the rapidly changing economic conditions facing us over the rest of this decade. We will continue to pursue a stable exchange rate for our currency in order to ensure the maintenance of low inflation and competitiveness. The full details of the performance of the economy in 1995 and our economic forecasts for the year ahead, are contained in the Economic Background to the Budget which is being circulated today.
Review of the 1995 Budget Outturn
The 1995 Budget outturn showed an Exchequer Borrowing Requirement of £627 million, or 1.9 per cent of GNP as against our Budget target of 2.4 per cent. In fact:
(a) the outturn was £186 million below the EBR target of £813 million set in the 1995 Budget;
(b) the General Government Deficit, calculated in accordance with the Maastricht Treaty, is estimated at just over 2 per cent of GDP, compared with the Budget estimate of 2.5 per cent; and
(c) the General Government Debt declined as a proportion of GDP from almost 92 per cent at end 1994 to about 85 per cent at end 1995.
The outturn for current expenditure was only slightly ahead of that targeted in the Budget, despite our having set up a fund of £60 million for Hepatitis C sufferers, and the extra cost of higher than anticipated numbers on thee live register. This overall result, reflects the Government's commitment to keeping expenditure levels under strict control. The budgetary outturn once again places Ireland among the strongest in terms of fiscal performance in the European Union in 1995.
I want to say a few words about the General Government Deficit, which is rapidly becoming dominant in the context of our qualification for EMU, our Maastricht Treaty obligations and our continuing eligibility for the Cohesion Fund. This measurement also gives a better indication of the underlying trend of the budgetary balance than our traditional measure, the EBR. Accordingly, while I still propose to use the Exchequer Borrowing Requirement, it has to be recognised that the General Government Deficit as a ratio to GDP will be focused on more in the future. This measurement is attractive because it tends to level out the effects of once-off factors as it is wider and partly based on an accrual system of accounting. This is in contrast to the EBR which is simply a cash figure, but which has been an important focus for the financial markets. For the same reasons, the General Government Debt as a proportion of GDP will, in the future, be used more rather than the National Debt as a proportion of GNP.
Economic and Monetary Union
When Ireland voted for the Maastricht Treaty, we, the citizens, voted for Economic and Monetary Union (EMU) which includes the single currency. The Madrid Council confirmed the starting date for EMU and decided that the new currency will be known as the Euro. EMU will be introduced on January 1st, 1999, and Ireland intends to be among the initial group of EU member states who qualify for membership. The policies required to ensure our successful participation within EMU are already being implemented, and will need to be intensified in the lead-up to January 1999.
EMU will be good for Europe and for Ireland. It will provide us with a stable currency, low interest rates and low inflation. It will also remove currency risks as well as reducing transaction costs.
EMU also provides challenges, particularly as regards the relationship between the countries taking part from the outset, and the other member states.
I have commissioned a study of the economic implications of EMU. This study will be completed by mid-year and its findings will be made public. The purpose of the study is to provide us with more detailed information which can be used for decision-making purposes. This will facilitate "better planning for EMU, both in terms of qualifying for it and being successful in it.
Public Service Renewal
One of the challenges which we face, in this regard is the modernisation and renewal of our public service. The Government will soon decide on a programme, based upon the report of the Coordinating group of Secretaries of Government Departments, on how to proceed with the Strategic Management Initiative.
The SMI process has the full support of the Government and the programme is designed to empower and energise the public service, devolve decision making band make the entire process more transparent and accountable to the citizen as customer and client.
There will be full consultation with the staff associations involved and with other interested parties as the process evolves.
Such a transformation is necessary if we are to achieve our goal of having the most efficient public administration system within the European Union. This reform is essential to improving our economic performance.
Tax Administration
Tax compliance costs are always a source of concern to business and to small businesses in particular. The Revenue Commissioners have made considerable progress in this area. They have assured me that they plan to introduce further important measures to simplify and streamline tax collection procedures, Details of a number of planned measures are given in the Principal Features.
Public Service Pay and Pensions
This Government are committed to the process of social partnership. It has worked well for the Nation in the last 10 years. We must build upon its success. We are confirming here and now that we are meeting all of our commitments in the PCW Pay Agreement. Accordingly, the 1996 Estimates include provision for the cost of the general increases in the Public Sector of 1 1/2 per cent from June 1st, 1996, and 1 1/2 per cent from October 1st, 1996. They also provide for the estimated cost in 1996 of the settlement of claims under the local bargaining or restructuring provision of that Agreement.
It remains crucial that all negotiations under this latter provision adhere to the cost parameters underlying the pay agreement and that they have regard to the need for flexibility. change and improvements in efficiency and effectiveness. The need to contain overall pay costs is also being tackled through a rigorous approach to the creation of new posts within the civil service and certain restrictions on the filling of vacancies arising in 1996 as part of a wider strategy to stem the growth in numbers employed in the public service.
The effect of meeting our pay agreement commitments along with other costs such as increments and the carry-over effects of extra employment in 1995, has been to increase the cost of Exchequer Pay and Pensions by £249 million to an estimated £4,813 million in 1996 an increase of 5.5 per cent.
Voluntary Early Retirement Scheme for the Defence Forces
At this point I want to announce that the Government have accepted in principle thee conclusions of the Efficiency Audit Group on the need for reform in the structure and organisation of the Defence Forces. These reforms will give the Defence Forces the capability and flexibility to meet and adapt to their roles in the most efficient and effective way. They will also bring best practice to bear on the management, organisation and operation of the Defence Forces. I am providing £13 million for a voluntary early retirement package for the Defence Forces to facilitate the implementation of these reforms.
Debt Management
The 1996 debt service estimate of £2,310 million takes account of £119 million in savings carried over from 1995 and a target of £100 million in savings to be achieved by the National Treasury Management Agency in 1996.
Public Finances
In referring to Economic and Monetary Union earlier, I acknowledged the need to position ourselves for entry to the third stage of EMU. One essential ingredient in this regard is to ensure that our public finances are in a healthy condition. I am pleased to be able to confirm that they are.
The real increase in current. supply spending for 1996 at 2.5 per cent contrasts with an annual average of about 5 1/2 per cent over the past five years. Despite restraining the growth in expenditure, this Government:
(1) introduced free third-level fees;
(2) secured the highest rates of pupils remaining in the education system to leaving certificate level;
(3) approved the largest programme of capital spending in the Health area; and
(4) introduced, for the first time, a comprehensive programme for womens' health.
This Government are committed to firm management of the public finances. A prudent and cautious approach is necessary with current supply spending as with other budgetary aggregates. Indeed, the prudent approach over the last few years is evident from the fact that each year since 1993 the budgetary targets have been more than achieved. Keeping the General Government Deficit below 3 per cent of GDP each year is of course crucial in the context of the Maastricht criteria.
Accordingly, in framing my targets for 1996, I have adopted a similarly prudent approach to that adopted in other years. The opening EBR, having allowed for Departmental balances of £38 million, is £583 million. Having made provision for the measures I am announcing today, my targets for this year are:
(a) Exchequer Borrowing Requirement: £729 million (2% of GNP);
(b) Current Budget Deficit: £82 million (0.2% of GNP);
(c) General Government Deficit: 2.6% of GDP.
I also wish to confirm that the Non-Capital Supply Services expenditure figure for 1996 will, as a result of my Budget day proposals, remain unchanged at £12,087 million, the figure I announced with the publication of the Estimates in December. I have maintained that figure intact despite the many pressures for increased expenditure. To the extent that any expenditure measures I announce today are not already provided for in my post-Budget target, their cost is being met from savings elsewhere in supply spending. Full details are set out in the Principal Features of the Budget.
REWARD WORK
I now turn to the first of my objectives, namely, rewarding those at work.
Employees' PRSI
Last year, the Government announced a series of measures to reduce the burden of income tax and PRSI and to direct relief to those on low incomes generally, especially those outside the current income tax net. These initiatives were favourably received and have contributed significantly to reducing the tax and PRSI wedge on lower incomes.
The principal innovation was the allowance for full rate PRSI contributors, under which the first £50 of weekly wages is discarded in the calculation of PRS contributions. I am happy to announce that this allowance will now be increased to £80 per week. To part fund this increase, it has been decided not to renew from April 6th next, the existing £140 per annum income tax PRSI allowance available to full rate contributors.
This increased allowance will result in gains of up to £86 per annum or £1.65 per week for those full rate PRSI contributors who are exempted from income tax or on marginal relief.
It has also been decided to increase the corresponding allowance to those on the modified PRSI rate and the self employed by £10 to £20 per week. These groups do not get the income tax PRSI allowance and are thus not affected by its non-renewal.
The PRSI ceiling applicable to employees and the self-employed will increase from £21,500 to £22,300.
Income Tax
The Standard Rate Income Tax Band is being widened by £1,000 to £18,800 for married couples and by £500 to £9,400 for single persons.
The Personal Allowance is being increased by £300 to £5,300 per annum for married couples and by £150 to £2,650 per annum for single parsons with an increase of £150 being applied also to widowed, single parent and widowed parent allowances.
The general income exemption limits below which no income tax is payable are being increased by £400 to £7,800 per annum for married couples, or £150 per week, and by £200 to £3,900 per annum for single persons, or £75 per week, with a similar increase in the age exemption limits. This will remove around 18,000 persons who would otherwise be in the tax net.
The thresholds for payment of the Employment and Training Levy and the Health Levy are being raised by £500 to £9,750 per annum or from £178 to £188 per week.
The impact of the Tax/PRSI package on a family with two children and only one spouse earning £15,000 on full PRSI and PAYE, will be to leave them better off by £129 per annum or £2.48 per week. For the same family on £10,000 per annum the increase is £246 or £4.73 per week.
Taxation of Unemployment Benefit/Disability Benefit
The special tax relief on Unemployment Benefit payments to systematic short-time workers introduced in the Finance Act 1994 is being extended for a further year. The exemption of the first £10 per week of Unemployment Benefit from tax, introduced in last year's Finance Act, will also continue at its current level.
Benefit-in-Kind Cars
I propose to introduce a focused relief in regard to the taxation of car benefit-in-kind.
The present tapering relief pro.visions for high mileage create difficulties for company representatives, particularly in urban areas, who use their cars intensively and indispensably in their work, but who do not accumulate enough mileage to avail of the present reliefs. In recognition of the imbalance in the current provisions I propose to introduce a 20 per cent relief from BIK on cars for those company representatives who spend 70 per cent or more of their time on business away from their place of work This relief is an alternative to the existing high mileage tapering relief and will be available only where the business mileage exceeds 5,000 miles per annum This concession will cost £1.7 million in a full year.
Cross-Border Workers
Cross-Border workers who work in Northern Ireland but reside in the State are liable for the Health and Employment and Training Levies at 2 1/4 per cent. Arising from the report of the Special Inter-Departmental Committee which I established, I propose to exempt their Northern Ireland earnings from these levies. For a person with yearly earnings of £15,000, the saving is £337.50 per annum.
Cost of income tax and employee PRSI measures
The total cost of the income tax and employee PRSI measures, after taking account of the non-renewal of the annual £140 income tax PRSI allowance, is £119 million in 1996 and £204 million in a full year. This includes the cost of a number of further income tax reliefs I will mention later.
PROMOTE ENTERPRISE
I now turn to ways in which I propose to fulfil my second objective, that of promoting enterprise.
In order to enhance the capacity of the economy to create self sustaining employment over the longer term, it is necessary to build on the progress made in last year's Budget in reducing corporation tax and PRSI on businesses.
Employers' PRSI
With that aim in mind it has been decided in the case of Employers' PRSI
to reduce the standard rate from 12.2 per cent to 12 per cent and to reduce the lower rate from 9 per cent to 8 1/2 per cent and increase the threshold below which this lower rate applies from £12,000 to £13,000 per annum, or from £231 per week to £250 per week, in terms of weekly earnings.
The ceiling on Employers' PRSI will rise from £25,800 to £26,800 broadly in line with wage inflation.
The object of these reliefs is to target reductions on lower paid employments in order to secure a competitive reduction in non-wage labour charges. The cost of these measures is £31 million in 1996 and £51 million in a full year.
Corporation Tax
In my first Budget, I cut the standard rate of corporation tax from 40 per cent to 38 per cent. I made it clear that the Government intended to reduce this rate further to bring our structure into line with overseas competitors. The Government have given careful thought as to how this objective can best be achieved.
I am conscious of the demands being made for a special low rate of corporation tax for small firms in the services sector of up to a certain size of turnover and profit level.
The Government believe that the calls for a reduced rate on small companies profits and the need to continue progress in getting the standard rate down can be met by the introduction from April 1st, 1996, of a new lower rate of corporation tax of 30 per cent on the first £50,000 of taxable income for all companies or groups irrespective of size. Such a rating structure means that for service sector companies the effective rate of corporation tax will be between 30 per cent and 38 per cent depending on the size of taxable income.
This measure will cost £1 million in 1996, £23 million in 1997 and £31 million in a full year.
To benefit certain smaller firms, I am also reducing from 20 per cent to 15 per cent, the surcharge on the undistributed trading profits of professional close service companies. Full details are in the Principal Features.
Business Expansion Scheme (BES) Relief
The current BES scheme will terminate in April 1996 unless renewed for a further period. The operation of BES has been subjected to a thorough analysis by my Department in conjunction with the Department of Enterprise and Employment and the Revenue Commissioners. In addition the Tax Strategy Group has been consulted as have the main interested parties the Small Firms Association, ISME, the major designated funds and the Dublin Business Innovation Centre.
As a result of this review it has been decided to retain the current BES, including the limits of £1 million per company and £25,000 per annum per investor, but to introduce a statutory certification system for all BES projects which raise over £250,000 in total under the BES. The certification process, which will be undertaken by the main development agencies is aimed at ensuring a better jobs return from the significant Exchequer relief under the Scheme. Further details of changes to the IBES are set out in the Principal Features and in the Financial Resolution, to be moyed later in. the House, to come into operation on and from today.
Film Relief
Because of its importance to the Irish film industry, the Government have decided to continue Section 35 Film Relief for another three years. However, certain modifications designed to improve the targeting of the relief and to make it more cost-efficient from the point of view of the Exchequer are being introduced.
This amended relief will be given effect by a Financial Resolution which will be moved later in the House and will also come into operation on and from today. The more important changes to the relief include:
(1) a reduction in the amount of expenditure on larger films which qualifies for relief;
(2) a significant increase in the limit for corporate investment;
(3) restricting the tax deduction to 80 per cent of the investment; and
(4) substituting a one-year holding requirement for capital gains tax purposes for the current three-year holding period for investments.
Further details are contained in the Principal Features. The Minister for Arts, Culture and the Gaeltacht will be making a more detailed statement on the revised relief and on the Irish film industry.
Mining Tax Relief
The Finance Bill will provide for a new tax relief for companies in respect of the costs incurred by them in closing down a mine and returning the site to a greenfield state in accordance with the mining licence requirements. The proposed relief will cost about £1 million, on average, in a full year. This is a welcome environmental measure which was recommended by the National Minerals Policy Review Group.
Capital Acquisitions Tax Business Relief
Last year, I increased the business relief under capital acquisitions tax to a flat 50 per cent on all qualifying assets. I have decided to increase the flat rate to 75 per cent in order to reduce further the tax impact on the transfer of family businesses. As before, this increased relief will also apply to agricultural property. However, the new relief will be subject to a revised clawback arrangement to ensure that the full 75 per cent will only apply if the assets concerned are retained in the business for 10 years or more. Full details are in the Principal Features.
Capital Gains Tax Reliefs
As regards capital gains tax, I am relaxing a number of restrictions on the application of the 27 per cent capital gains tax rate and on the availability of roll-over relief for equity investments'. The details are in the Principal Features.
Science Technology and Innovation Advisory Council Report
The report on Science, Technology and Innovation published last March was the most fundamental appraisal of this critical area ever undertaken. Since its publication, the report's recommendations have been examined by a task force and a Cabinet sub-committee under the chairmanship of my colleague, the Minister for Commerce, Science and Technology.
Many of the recommendations relate to better ways to plan and manage State funding and programmes relating to science and technology so as to make them more effective in improving competitiveness and generating new jobs. A number of recommendations have financial implications and I am allocating a sum of £4 million to facilitate implementation of such recommendations.
Dublin Docklands
I have been concerned for some time that the Dublin docklands area, which is no longer required for its original purpose, should be developed and planned in a coherent way.
The Custom House Docks Development Authority has made an impressive and successful contribution, but there is a large area, on both sides of the River Liffey, which is now in transition. A substantial portion of the land is in the ownership of State bodies.
The Grand Canal harbour basin, a key amenity resource, is also located in the heart of this area.
The entire area, at the centre of Dublin, has great potential for the continued redevelopment and rejuvenation of the city. But it requires a planned and coordinated approach. To this end, the Government have established a task force to be chaired by the Secretary of the Department of the Environment to consider the arrangements which should be made to develop an overall master plan for the docklands, including the appropriate implementation and co-ordination arrangements in co-operation with the local authority concerned.
Cost of Business Measures
The cost of these business measures is £35 million in 1996 and £88 million in a full year.
Farmers' Flat Rate VAT
The level of the farmers' flat rate addition, which is a mechanism to compensate unregistered farmers for the VAT borne on their farming inputs, is being increased from its present level of 2.5 per cent to 2.8 per cent with effect from March 1st, 1996. There will be a corresponding increase in the associated VAT rate for livestock which will also increase to 2.8 per cent with effect from March 1st, 1996. This change, which is based on a calculation of the level of VAT on farming inputs, is in keeping with the Government's statement in the Programme for Competitiveness and Work to retain the flat-rate arrangements on the existing basis as provided for by EU legislation. The cost of this increase to the Exchequer is £6.3 million in 1996 or £9 million in a full year.
In the case of farming, I also propose to increase the current tax exemption limits for income from certain farm leases and to remove a disincentive in the treatment of the value of farm stock in transfers under the early retirement scheme. These measures will cost a half million in 1996 and 1 million in a full year.
SOCIAL SOLIDARITY
I now turn to ways in which I propose to fulfil my third objective this year, that of strengthening social solidarity.
Employment Measures for the Long-term Unemployed
Despite the success of the Government's overall economic and employment strategy in creating jobs in this country, the Government believe that the intractable nature of long-term unemployment is unacceptable. The Government are determined to ensure that the long-term unemployed share in the benefits of economic growth along with other sectors of society.
The following new measures have been agreed by Government on foot of recent-proposals which have been made in this area:
(a) a recruitment subsidy of £80 a week will be paid to employers in respect of new employees who have been unemployed for at least three years. Up to 5,000 places will be provided under this arrangement;
(b) an additional 1,000 full-time places will be provided on Community Employment, on a pilot basis, for people over 35 years of age who have been unemployed for at least 5 years;
(c) 25 per cent of the 40,000 part-time places on Community Employment are to be reserved for those over 35 years of age and unemployed for three or more years, with up to 75 per cent of places reserved for those over 21 years and unemployed for at least 12 months;
(d) a scheme of work trials lasting five weeks will be introduced with a target of 5,000 places. Participants will be unemployed for over six months and in danger of drifting into long-term unemployment, or be long-term unemployed but considered to be ready for employment. They will continue to be paid their social welfare entitlements and in addition receive a contribution towards out-of-pocket expenses;
(e) persons who have been unemployed for at least one year will retain their medical cards for three years after entering employment; and
(f) special measures will be introduced for 18- and 19-year-olds after six months on the live register, there will be a requirement to register with FAS or the Local Employment Service, or to participate on a work progression programme consisting of intensive counselling and progression to a job, a training option or a youth employment option. Details of the measures will be announced by the Minister for Enterprise and Employment in consultation with the Minister for Social Welfare.
Vocational Training Opportunities Scheme
In addition, I am providing for an increase of 1,000 places under the Vocational Training Opportunities Scheme run by the Department of Education. This will provide more opportunities in education for people who might otherwise drift into long-term unemployment. The cost in 1996 is estimated at about £5 million, which will be partly offset by savings on the Social Welfare Vote.
Social Welfare
The primary objectives underlying this year's social welfare budget changes are:
(1) to help the long-term unemployed obtain work;
(2) to make the social welfare system more work-friendly; and
(3) to improve the position of families, pensioners and carers.
Pro-Employment Social Welfare Measures
While increases in payment rates are an essential element in assisting the unemployed, the Government believe that there must also be accompanying changes which facilitate them in seeking and taking up employment. Towards this end, we have reviewed the existing range of social welfare work-related incentives. In the light of this review, we have decided to make a number of modifications and improvements in the Family Income supplement (FIS), Child Dependant Allowances, in the assessment of earnings from employment for Unemployment assistance purposes, and in the Back to Work Allowance Scheme. these changes are inter-related, particularly those in respect of FIS and Child Dependent Allowances. Overall, they constitute a significant package of pro-employment measures.
Family Income Supplement
The Family Income Supplement is aimed at increasing the disposable income of families in relatively low paid employment. At present, nearly 12,000 families are receiving payments under the scheme.
In order to improve the attractiveness of the scheme and hence its incentive value, the Government have decided that the existing income thresholds used to calculate entitlement to FIS should be increased by £10 a week. This will mean that FIS recipients will get an additional £6 a week and that the average payment will increase to over £37 a week. Other improvements will reduce the qualifying period of employment from six to three months, extend the scope of the scheme to include job sharers for the first time, and relax the eligibility criteria used to determine entitlement to allow more part-time and casual workers with dependent children to claim FIS.
Child Dependant Allowances
In a related move designed to increase the take-up rate of FIS, the Government have decided that, in respect of people unemployed for 12 months or more, any full-rate Child Dependant Allowances which they currently receive as part of their weekly social welfare payment should be retained by them for a period of 13 weeks after they take up employment. The Government see this initiative as providing an important bridge to cover the period of uncertainty which arises while the person is waiting for a decision on whether he/she is entitled to a Family Income Supplement payment. The expectation is that this change will help to smooth further the transition to work.
Unemployment Assistance
The Government have decided to simplify greatly the basis for calculating entitlement to Unemployment Assistance by moving from an approach based on a day of unemployment to one based on a week of unemployment. This will enable those who can avail of part-time and casual employment opportunities to calculate more readily their overall income position, and will improve the incentive to take up such opportunities.
Back to Work Allowance Scheme
In addition to these facilitating measures which I have just announced, the Government have decided to extend the availability of the Back to Work Allowance Scheme. Under this scheme, a long-term unemployed person or lone parent who is at least 23 years of age can retain, in addition to their wages, a certain percentage of their previous social welfare payment at a reducing rate on taking up employment or, on becoming self-employed. At present, there are about 10,000 participants on the scheme. The scheme has been successful in encouraging many long-term unemployed people to move into paid employment. Accordingly, the Government have decided to provide for an increase in the number of participants from 10,000 to 15,000 during 1996.
Taken together, these measures represent a cohesive and focused approach to providing real opportunities to break the cycle of long-term unemployment for many people.
Weekly Welfare Payments
In addition to these employment related measures, I am providing for a 3 per cent increase in all personal social welfare weekly payments and adult dependant allowances from mid-June 1996. In consequence, the weekly personal rates will be increased by a minimum of £2 and the adult dependant allowances will be increased by a minimum of £1 a week. A special £3 a week increase will apply in the case of carers giving an overall increase of £5 a week for this category. These changes will ensure that the value of the weekly payments is, more than protected against inflation.
Child Benefit Last year's Budget saw a major improvement of £7 a month in Child Benefit rates. On this occasion, I am providing for an increase of £2 a month in these rates with effect from September next. This will increase the rate to £29 for each of the first two children and to £34 for the third child onwards. Combined with the general increase of 3 per cent which I have just announced, the enhanced Child Benefit should result in a real increase in the income position this year of all families dependent on social welfare.
I am increasing the grant payable on the birth of twins from £200 to £500. In addition, I am providing for a new grant of £500 to be paid in respect of twins on their reaching four and 12 years of age.
Miscellaneous Improvements
I am also providing for a number of other improvements in the social welfare system which are aimed at meeting the particular needs of certain categories. These include the following:
(a) an increase to £6 a week in the Living Alone Allowance payable to Pensioners;
(b) the extension of the Free Schemes to certain low income occupational pensioners who do not qualify for these benefits at present;
(c) the extension of the Free Travel companion pass to visually impaired children;
(d) improvements in the Back to School Clothing and Footwear Allowance; and
(e) additional funds for the Community and Voluntary Services operated by the Department of Social Welfare.
One-Parent Family Payment
The Government have decided to proceed with the introduction of a new One-Parent Family Payment Scheme, with effect from January 1997. This will replace the existing Lone Parent's Allowance and Deserted Wife's Benefit Schemes. Payments under the new scheme will not be conditional on claimants having to prove that they have been deserted. The scheme will be available on an equal basis to men and women.
Details of the full range of social welfare measures are being announced today by the Minister for Social Welfare.
Total Cost of Social Welfare Package
The total cost of the social welfare package which I have outlined today is £80 million this year and £161 million in a full year. This is a significant level of additional resources. It brings the full-year level of gross spending on social welfare to almost £4.4 billion. It also underlines, in a very real sense, this Government's continuing concern for the disadvantaged in our community.
Total Cost of Current Expenditure Measures
The total cost of the current expenditure measures I have announced is about £182 million. This total is offset by savings on various Votes of some £54 million and by Departmental Balances totalling £38 million as detailed in the Principal Features document.
Income Tax Allowances
As regards income tax allowances for carers and others, I propose to increase to £7,500 from £5,000 a year the maximum allowance which a person can claim against tax where they employ a person to care for them or their spouse. I also propose to increase from £600 to £700 a year the tax allowance in respect of an incapacitated child. The blind persons' tax allowance will also be increased by £100 single and £200 married where both are blind.
Alarms for Persons aged 65 and over
I propose to introduce a tax relief of up to £800 at the standard rate of income tax for persons aged 65 and over living alone for the purchase cost of alarm systems. This relief will be available for a period of two years.
Tax Relief for Donations of Works of Cultural Importance
Last year, I introduced a relief for donations to the major cultural institutions of important heritage items. An annual cap of half a million pounds was put on the maximum value of the donations which could be accepted under the scheme. This will now be increased to £0.75 million for 1996.
INDIRECT TAXATION
The initiatives announced by me earlier require that certain revenue raising measures be taken. Accordingly, in the excise area, I propose to seek an additional contribution through a VAT inclusive tax increase of 19p on 20 cigarettes, with pro-rata increases on other tobacco products, and a VAT inclusive increase of 1p a litre on petrol and diesel, all of which will take effect from midnight tonight. I propose to increase the VAT inclusive tax on super plus unleaded petrol by a further 3.1p a litre with effect from September 1st, 1996, subject to obtaining the necessary EU approval. This will bring the duty rate into line with that of leaded petrol and reflects environmental concerns over the use of this product as against ordinary unleaded petrol. These increases will raise £40 million in 1996 and £47 million in a full year.
I also propose to increase the stamp duty on ATM cards from £2 to £5 a year with effect from February 1st, 1996. This will raise £1.7 million in 1996 and £3.4 million in a full year.
On the positive side, I propose to cut the excise duty on Non-Automotive LPG for consumer and industrial use by 0.44p a litre with effect from July 1st next. This will be of assistance to industrial users of LPG, such as the production and processing of poultry, and glass making.
I also propose to make a small reduction in the duty on certain gaming machine licences and certain other minor VAT and VRT adjustments. The details are contained in the Principal Features.
Environmental Tax Policy
The proposed increase on super-plus unleaded petrol, the reduction on LPG and the mining tax relief mentioned earlier are all environmentally sound initiatives. This Government are fully committed to improving the environment. The tax system can clearly play a key role in environmental policy and in eliminating activities which destroy our environment and deplete natural resources. I have therefore directed my Department, in conjunction with other relevant Departments and agencies, to examine the strategic impact of taxation on environmental policy and to bring forward specific tax measures for the 1997 Budget which will have due regard to competitiveness considerations.
I am determined that this process will be delivered in the form of concrete and well thought out measures for my next Budget. I will welcome any input environmental and other groups may care to make.
Post-Budget Expenditure and Revenue Position
The cost of the various taxation and capital and current expenditure measures is some £247 million. Details of all the measures are contained in the Principal Features. The Budget targets already indicated take into account these costs, along with certain estimating savings, Departmental balances and the effects on revenue buoyancy of the totality of the measures introduced today.
The Budget targets are prudent, and reflect the Government's full commitment to maintaining firm fiscal control in the light of the clear economic benefits from doing so.
Budgetary Procedure Reforms
I have already made some changes in the traditional budgetary procedures and I intend to make more. To begin with, the Government, when completing the Expenditure Estimates, also agreed on the final Budget day figure for Non-Capital Supply Services expenditure. I subsequently published that figure in conjunction with the Book of Estimates.
Following this Budget, I intend to publish within a couple of weeks an outline of the main features of the Finance Bill so as to enable interested parties, both inside and outside the House, to prepare for the detailed discussions and debate of these provisions when they are published in the Finance Bill.
Multi-annual Budgets
It is also my intention, in accordance with the Strategy Statement drawn up by my Department in the SMI context and the recommendations of the steering group, to begin to provide for multi-annual budgets. This will involve a three-year cycle and will be based, initially at least, on a projection of the budget position assuming existing levels of programmes and services along with existing tax rates.
This new arrangement will enable us to move away from the restrictive straitjacket of much of the ritual which tends to characterise our Departmental expenditure estimates each year. Already, many companies and organisations are involved in multi-annual budgetary arrangements. It makes good sense for us to do the same, because of the complex and ongoing nature of budgetary commitments.
Pre-Budget Submissions
The number of pre-Budget submissions being sent to the Minister and the Department of Finance has increased enormously in recent years. It continues to grow and it is not possible to comply with the requests from all of the groups for meetings. Where meetings are arranged, the process is unsatisfactory as the dialogue is one way, with each group stating what they wish to have included in the Budget to meet the interests of their organisation or association.
I am therefore proposing that the Finance and General Affairs Committee of the Oireachtas, currently chaired by Deputy Jim Mitchell, should be the forum within which such submissions would both be heard and discussed. The committee members would have an opportunity to probe the reasons for the submissions and to evaluate their contents. I envisage that these Budget submission hearings would take place in September.
I do not propose that the Minister for Finance would attend the meetings at this committee. but would leave the task of debate and analysis to the members of the committee. In due course, the committee would send a report to the Minister for Finance with its recommendations concerning the submissions. This committee is the same Oireachtas body which takes the Committee Stage of the Finance Bill, which is the annual piece of legislation to give legal effect to many of the provisions of the Budget. Indeed, last year, new ground was broken by the committee when, in the context of the Finance Bill, they met with representatives of both the legal and accountancy professions.
I do envisage, however, that the Minister for Finance would, in the normal way, still be available to have full pre-Budget discussions with the official representative groups of the Social Partners.
Timing of Budget
Finally, we must consider the merit of bringing forward our budgetary arrangements, in line with our European Union partners, so that the Budget process is completed before the commencement of the year for which it is intended. Such a reform will impose new pressures and strains upon existing arrangements and procedures. We need to move carefully, but move we must.
Because of the need to plan fully for this change, and the pressures which will arise from the EU presidency in the second half of this year, I envisage the 1998 Budget as the first to be brought in under this timetable. In other words, the Budget for 1998 should be delivered in late autumn of 1997.
The benefits which we will derive from these changes will improve our efficiency and our effectiveness. Ireland will be a better place for these reforms. They are a part of the objective of ensuring that we have the most efficient and effective public administration system in Europe.
CONCLUSION
Social Partnership
Ireland is now entering an exciting new phase of European development. The Inter-Governmental Conference, which begins in March, will consider changes in the European Union Treaty now that developments arising from Maastricht are well underway.
Ireland will take up the challenge of the presidency of the European Union from July 1st to the end of the year. We remain committed to Economic and Monetary Union and are one of the few member states that continue to meet the Maastricht criteria through our efficient and effective management of our economic and social affairs. But we have only been able to manage these affairs successfully because of the way in which the social partnership has developed in our country. We have had three national agreements since 1987. The present one, the PCW, is coming to a close at the end of this year.
The Government believe that we must continue to build on the consensus approach to managing the economy which has served "the country so well in recent years, underpinning high levels of "growth, improvements in competitiveness and, above all, substantial employment creation. We are committed to commencing work on the follow-up to the Programme for Competitiveness and Work and we look forward to an early dialogue with the Social Partners on the strategic issues which arise for all sectors of the economy in that context.
The Government believe that their development of a three-year, multi-annual budgetary scenario will provide a fresh context for these deliberations.
The deliberations with the Social Partners would be informed by the features of the medium-term budgetary position, including capital and current expenditure. Such deliberations would, of necessity, include discussions on the priorities of social? expenditure as well as numbers and remuneration in the public service.
It would be our objective to attain a balanced current Budget in the follow-up to the present programme, so as to strengthen the economy and position our society to face the new century with both optimism and flexibility. The strengthening of our economy and the development of our society require the sound and prudent management of our public finances, the necessary modernisation of all of our public services and the efficiencies which will be brought about by the Strategic Management Initiative. But we may only achieve that desirable goal if we ensure that the Social Partners can achieve a consensus on how those objectives are to be achieved. The result, if successful, would provide us with a certainty and a security which would be invaluable.
If there is to be a new agreement, then its timetable will take us past the launch of EMU and the present phase of Structural and Cohesion Funds, right to the threshold of the 21st century and the next millennium.
We need to prepare. We need to analyse, and to propose new ways of enabling all of our people to position themselves, as individuals and as a nation, so as to ensure that they are ready to meet the challenges of the next century.
We will only do that together if we know where we want to be. We will only start to get there, if we begin to take small steps together. This Budget is one of those steps.
Let us take it together.
Accordingly, I commend the Budget to this House.