It is my privilege today to present the third Budget of this administration. At the mid-point of our time in office - and with two Budgets remaining after today - it is timely to review the progress made and set a new vision and strategy for the future.
Our broad budgetary objectives are similar to previous years. We need: - to sustain economic growth; - to reward work and enterprise by reducing the tax burden; - to promote a fairer society - with opportunities for all; and - to prepare for the future.
While these broad objectives remain, as a society we need a new vision - a new set of goals. For two decades we grappled with the problems of emigration, unemployment and a crippling debt crisis. In short, the problems of economic failure.
All this has now changed. Rapid economic growth has transformed our society. This improvement is most evident in employment. Over the last two years, the numbers at work rose by 150,000. Unemployment has fallen and is now heading down towards 5 per cent compared to 10 per cent when this Government was formed. Living standards continue to improve. These are clear indicators that our policies are working.
Tribute is due to all who helped to bring about this transformation. In particular I would like to stress the role Social Partnership has played. The continuation of Social Partnership is a major element of our economic strategy and a key consideration in framing this Budget.
As a society we now face a new set of problems.
Instead of unemployment many sectors now face labour shortages. Unless addressed, these shortages will hinder future economic progress. We also need to raise the capabilities of our workforce. Progress is becoming more dependent on having a highly skilled workforce.
The cost of childcare has also risen dramatically. This places an enormous burden on people trying to raise a family and work outside the home.
Despite increased prosperity and greater opportunities, there is a growing sense that improvements in the quality of life are not keeping pace.
In our towns and cities congestion is increasing - undermining the quality of life for many of our citizens.
House prices have risen rapidly. This risks putting home ownership beyond the reach of many young people and generating a new set of social problems.
We must provide a first class infrastructure - better transport, roads and housing in order to improve the quality of life for all our citizens.
Today's Budget measures complement this longer-term goal. They must be seen in conjunction with last month's National Development Plan which targeted over £40 billion (€50.8) to develop the economy over the next seven years. This is a real indication of our commitment to tackle infrastructural problems.
And we must ensure that all our people share in the growing prosperity. I know that some people can get left behind amid increasing overall affluence. Sean Lemass reportedly said that "a rising tide lifts all boats". However we should not forget those with only small and vulnerable boats - or none at all. Despite the reduction in unemployment - and the improved social conditions that this brings - we must redouble our efforts to tackle disadvantage and promote social inclusion. We must also ensure that our elderly population share in our increased wealth. The Estimates Volume I published recently outlined our plans to tackle our most pressing social priorities. I will add further to these expenditure allocations today.
Our vision for the future must also include a modern and efficient public service. Here also, new thinking is required.
Preparing for the Future
Strong economic growth has greatly improved the public finances. With a substantial budgetary surplus, there is scope for both higher expenditure and greater tax relief.
But here again we must have a vision for the future. We must take care that what we are doing today does not create difficulties in a few years time. One does not have to be a practitioner of the "dismal science" of economics to appreciate that economic conditions will not always be as favourable as they are today. We must ensure that we can maintain a sound budgetary position even when conditions deteriorate. Looking further ahead, we must ensure that we can maintain satisfactory levels of public services and pensions as the population ages in the coming decades.
Public Service Pay
We need to get away from the old system of public service pay determination which is based on rigid analogues and internal relativities. Is it not ironic that the new dynamic, buzzing, technology-driven, "up and at them" Ireland of the nineties is handicapped with a public service pay determination system of rigidities more in tune with the Ireland of the forties and fifties?
We need a new approach which supports the modernisation of the public service, respects the unavoidable limits on public spending and meets the reasonable aspirations of public servants. The best way of doing this is to have a pay system which, instead of compensating people for agreeing to change, focuses on rewarding them for the outputs and outcomes delivered as a result of change. Only in that way can we expect to deliver good services efficiently to the public within an appropriate overall expenditure burden.
The post-Budget current expenditure projections I am publishing today do not include any provision in respect of further pay increases for public servants when the Partnership 2000 Pay Agreement expires in the public service. Discussions on a possible successor agreement are currently underway between the social partners. Public service pay will be a vital element in these discussions. The Government is very anxious to continue with the Social Partnership process, which has played such a major role in the transformation of our economy. However, I am not exaggerating when I say that the chances of negotiating a new programme will be determined in very large measure by the progress made on public service pay.
Even as things stand, the Exchequer Pay and Pensions Bill is projected to increase from £4,440 million in 1995 to £6,633 million in 2000, an increase of 50 per cent in only five years.
National Development Plan
As I have said, the National Development Plan is a key element in the Government's strategy for sustained economic and social development. The investment of £40.6 billion is designed to ensure that Ireland remains competitive and that economic growth is shared more equally at regional level and throughout society. The largest share of Plan investment is devoted to Economic and Social Infrastructure. This reflects the Government's determination to tackle infrastructural bottlenecks.
Accordingly, very significant additional capital resources are provided in 2000 in areas such as Roads, Sanitary Services, Public Transport, Housing and Health.
The Government is committed to the full implementation of the Plan over seven years. Implementation will be comprehensively monitored. Particular attention will be paid to the efficient and timely delivery of the major investment in infrastructure provided for in the Plan.
Public Private Partnerships
The Government is committed to using Public Private Partnerships in addressing infrastructural investment needs, with the aims of maximising value for money and improved delivery of infrastructure projects. In the National Development Plan, Public Private Partnerships are particularly focused on the Economic Infrastructure Programme. Provision is included for £1.85 billion of funding. Precise designation of projects or parts of projects for Public Private Partnerships purposes will be decided as the Plan is implemented. If the aims of Public Private Partnership are successfully met, the Plan figure of £1.85 billion will be increased.
Capital Expenditure
Exchequer capital spending in 2000 will be at an all time high. The provision for capital spending next year is 26 per cent up on the projected 1999 out-turn.
This is the third successive year in which the Government has increased substantially the resources for voted capital expenditure. Between 1996 and 2000, voted capital expenditure has increased by 125 per cent.
Housing has been a particular priority. Exchequer capital expenditure on local authority and social housing has increased by 160 per cent since 1996.
The Exchequer spending will be supplemented by expenditure from the Local Government Fund and other sources bringing total spending
on roads next year to £622 million
on water and sewerage projects, which are essential to the provision of land for housing to £413 million
on local authority, social and affordable housing to £718 million.
Pensions pre-funding
Last July, I announced the Government's decision to begin to make provision for the increased social welfare and public service pension costs associated with the ageing of the population in the decades ahead. The Government decided to set aside 1 per cent of GNP annually for this purpose, together with a major tranche of the proceeds of the Telecom Eireann flotation. This is a prudent measure - designed to secure the ability of future Governments to maintain and improve public services as our population ages.
Detailed legislative and other arrangements are currently being worked out. I intend to bring forward the legislation early in the new year.
Review of 1999
For 1999, economic and employment growth was greater than forecast at this time last year. The General Government surplus will be 1.4 per cent of GDP. This includes a Central Fund out-turn of £3,453 million. This forecast out-turn includes provision for an additional £68 million contribution to the EU Budget and an increase of £307 million in the assets of the Capital Services Redemption Account going into 2000.
While the 1999 surplus will be applied towards reducing our debt burden, the nominal debt level increased in 1999 due to a securities exchange programme carried out to ensure that Irish Government bonds remain competitive in the new Euro environment. This increase in the nominal debt level will be offset by reduced debt service payments for some years ahead due to the lower interest coupons on the new bonds. Even with this nominal increase in our debt level, our debt/GDP ratio continued to fall in 1999 and is forecast to be around 47 per cent at year end.
Economic Outlook 2000-2002
I am publishing today our updated Stability Programme which contains economic and budgetary projections out to 2002. Very briefly, we expect GNP growth over the next three years to average about 5 3/4 per cent, with inflation averaging below 2 1/2 per cent a year. Average annual employment growth of 2 1/2 per cent is expected with unemployment to fall to about 4 1/2 per cent of the labour force by 2002. The Budget is projected to remain in substantial surplus throughout the period.
Budget Targets for 2000
Taking account of the measures I am announcing today, the Budget targets for the year 2000 are as follows.: a General Government surplus of 1.2 per cent of GDP
an Exchequer surplus of £1,608 million
a current budget surplus of £4,558 million
a capital budget deficit of £2,950 million.
These targets take account of the pension pre-funding provisions.
Social Inclusion
Partnership 2000 indicated that social inclusion would be pursued as a strategic objective in its own right and that the National Anti-Poverty Strategy would be a central feature of the Partnership. The wide range of targeted initiatives taken and relevant programmes developed over the period of the Partnership, underpinned by an allocation of resources almost double what was promised, confirms this Government's commitment to tackling poverty and disadvantage.
Today's Budget will consolidate this progress and advance matters considerably in other respects. The policy is to ensure that the more vulnerable sections in our community share in the benefits of our successful economy. The needs of disadvantaged individuals and communities continue to pose a collective challenge for us and we will be rightly judged as a caring society by the adequacy of our response. In line with my previous Budgets, the needs of the elderly, disadvantaged families and children, the disabled, carers and those who need to be assisted on the path to greater economic and financial independence were of particular importance in formulating my financial proposals, as was the need to expand programmes targeted on disadvantaged areas.
Social Welfare
The social welfare improvements I am about to announce will cost almost £400 million in a full year, compared to £215 million in the 1997 Budget. This is by far the largest social welfare package ever in our history, and many of the increases will be payable earlier than previously.
Next year, total spending by the Department of Social, Community and Family Affairs will now be almost £5.4 billion, or 20 per cent above the 1997 level.
I am also announcing other social inclusion measures which will bring total additional Social Inclusion current spending to £485 million in a full year.
Earlier Date of Payment
In my first Budget, I stated my intention, over the term of office of this Government, to bring forward the implementation date for budget welfare increases to coincide with the start of the tax year in early April. The weekly payment increases which I am about to announce will take effect from the first week of May next, or 4 weeks earlier than this year, and I will complete the process in 2001.
Pensioners
The priority which this Government accords to older people was illustrated by the increases given to pensioners in my first two Budgets. They remain a priority. On this occasion, I am increasing the full personal rate of old age and related pensions by a further £7 per week. When the increase in the qualified adult payment is taken into account, a contributory old age pensioner couple both aged over 66 will receive £160.60 per week from next May, compared with £133.40 in 1997.
Weekly Welfare Payments and Qualified Adult Allowance
In general, other personal social welfare rates will be increased by £4 per week. For some time now, the qualified adult allowance has been set at roughly 60 per cent of the personal rate. I propose to move this to 70 per cent over 3 years, commencing next year. As a result, qualified adult allowances will be increased next year by a minimum of £3.80 per week, with substantially higher increases for those currently below 60 per cent of the personal rate. These rises are well ahead of the corresponding increases in recent years.
Child Income Supports
This Government appreciates that Child Benefit is an important financial support for families with dependent children, and a key instrument in combating child poverty. The Child Benefit rate for first and second children is being increased by £8 per month and by £10 per month for third and subsequent children. These increases will raise monthly payments to £197 for four-children families. In addition, a £20 increase in the Back to School Clothing and Footwear Allowance is being granted.
Work Incentive Measures
I am taking a number of steps to improve work incentives further and to ease remaining unemployment traps. Firstly, to ensure that the financial incentive for work is maintained for low-income families, I am increasing the weekly income threshold for the Family Income Supplement by £13, which will increase by almost £8 per week the average FIS payment. Secondly, a tapered withdrawal arrangement of rent and mortgage supplement will be introduced for those returning to work and improved conditions will apply to those attending training courses and to part-time workers. Thirdly, improvements and extensions are being made to the tapering arrangements for withdrawal of the Qualified Adult Allowance where that person has earnings from employment. Also, an additional 5,000 places are being provided on the Back to Work Allowance Scheme.
Bereavement Grant
We are all aware of the particular grief that families experience on the death of a spouse and parent. In special recognition of the difficulties arising for widows and widowers with children in the immediate aftermath of such loss, I am introducing, from today, a special additional grant payment of £1,000.
Carers and Carer's Benefit
This Government recognises the significant contribution which carers make in our society and I propose to develop the supports available in this area.
I am introducing a new insurance-based Carer's Benefit for people who leave employment to look after persons in need of full-time care and attention. This new benefit will be payable for a period of 12 months to those who meet the qualifying contribution conditions. Legislation will be introduced to protect fully the person's employment rights over the period.
Last year I introduced an annual payment of £200 towards the cost of respite care. This is being increased to £300 from next June.
Also, the free schemes relating to electricity and the television licence are being extended to recipients of the Carer's Allowance.
Older People/Centenarian's Bounty
As well as the substantial rate improvements which I have already referred to, other measures are being taken which will benefit older people. These are:
a reform of the capital assessment arrangements applying to social assistance pensions
an extension of the Free Schemes to all persons aged 75 years and over.
I have also decided to increase the Centenarian's Bounty for the year 2000 from £500 to £2,000.
Pre-1953 Social Insurance Contributions
Certain people fail to qualify for social welfare old age pensions as insurance contributions that they paid prior to 1953 are not taken fully into account in assessing title to pensions. It is intended that the Social Welfare Bill will contain measures to address this issue.
Other Social Welfare Improvements
A range of other social welfare improvements are set out in the Summary. My colleague, Mr Dermot Ahern TD, Minister for Social, Community and Family Affairs, will announce the full details.
Other Social Inclusion
Health Measures
This Government is particularly conscious of the need to put in place the modern health service that the public have a right to expect. The extent to which the Government has increased spending on the health services bears repeating. Having reached just £3 billion by 1998, the Estimates Volume published recently provided over £4 billion for the Health and Children Vote in the year 2000 and, after my Budget, this figure will be £4.2 billion. Thus, the level of health spending has increased by over one-third in two years.
The Estimates Volume already allows for substantial extra funds next year across a range of key areas, including £35 million more for services for Older People; £23 million to Child Welfare Services; over £10 million more each for Physical Disability, Mental Handicap and Dental Services and almost £8 million for Mental Health; and £25 million to commence a Group C Meningitis Vaccination Programme. We have also allocated over £23 million to deal with Hospital Waiting Lists and another £11.5 million to commission new Acute Hospital Units.
These existing allocations also allow for the further increase in the income guidelines for medical card eligibility, which, as I announced last year, are being doubled over three years for persons aged 70 years or over.
I propose today to add a further £64.9 million to these allocations, to support the development of the health service in the year 2000. The additions - which have a full-year cost of some £105 million - include £12 million for the initial phase of the Cardiovascular Strategy announced earlier this year; an extra £7 million for Physical Disability, plus £2.25 million to ensure that all carers of children in receipt of Domiciliary Care Allowance will receive a Respite Grant; and additional allocations for Palliative Care, Mental Health, Child Welfare and Dental Services.
Other measures are included in the Summary.
Mental Handicap
Since taking up office, this Government has clearly indicated its commitment to the ongoing development of services to persons with an intellectual disability and their families. The development of these services has been one of the priorities of the Minister for Health and Children. The overall level of additional funding, £53 million up to the end of 1999, which he has already allocated to these services, is concrete evidence of his commitment to this disadvantaged group.
However, more needs to be done if we are to meet the needs of this group and their carers. I share with the Minister a concern to be of practical assistance to both individuals with an intellectual disability and their families by further enhancing the overall level of residential, day and respite services throughout the country.
I am, therefore, very pleased to inform the House that an additional £28 million, with a full year cost of £35 million, is being allocated to the services for persons with an intellectual disability.
Local Development
Provision for Local Development has been increased substantially in 2000 to £33 million from just under £17 million in 1999. This has been provided to augment the valuable work currently undertaken by the Area-Based Partnership Companies and community groups throughout the country in implementing local action plans drawn up specifically to counter social exclusion and address the needs of people living in disadvantaged areas.
Environment and Local Government
I am providing an additional £5.7 million of capital next year to increase the maximum grant under the Disabled Persons Grant Scheme and under the Essential Repairs Grant Scheme. This brings the total provision for next year to £18.4 million.
In addition, I am providing an extra £1 million of capital for the Task Force for the Elderly, increasing the provision in 2000 to £8 million.
I am also providing an additional £5 million of capital over two years to fund hostel facilities in Dublin for homeless persons with drug and alcohol addiction problems. This brings the provision next year to £6.5 million.
Education and Science
This Government has shown an unmatched commitment to investment in our education system at all levels. We recognise the central role of education to both economic and social progress and have already provided for a major increase in education funding in the Estimates. Next year alone will see an increase of £385 million over the 1999 Estimates provision. The gross spend provided in the Estimates for Education in 1997 was £2,301 million. Next year, the equivalent sum will be £3,244 million, or 41 per cent higher.
On the current side, I am today providing an extra £17 million in programme spending on top of the allocation in the Estimates Volume. Of the £17 million, £3.5 million in 2000 and £10 million in a full year is for a number of targeted initiatives which will enhance the quality of the education services and improve equality of access for those who are disadvantaged. This is on top of education measures to promote social inclusion which have already been included in the Estimates Volume. I am also providing for significant additional administrative support and caretaking services in schools.
An unprecedented increase of 75 per cent in capital funding is being made available for Education services next year. This will see the largest school building and renovation programme in our history getting underway. Details are given in the Summary.
Training Fund
I turn now to the issue of training.
The labour market in Ireland is changing dramatically. Unemployment is heading below 5 per cent and is predicted to fall further. Competitive pressures are increasing and Irish companies have to respond, domestically and in the global marketplace.
In this new environment, employers have to redouble their effort to raise the skills of their existing workforce and to attract qualified staff. Similarly, for those currently in employment, the concept of a job for life is becoming obsolete.
The State and employers need to work together to meet this challenge and to share the cost of so doing if Ireland's current prosperity is to continue.
We need a new funding structure to achieve the goal of improving skills and facilitating lifelong learning. I am therefore initiating a significant reform of the way training is funded.
Central to these reform proposals is the establishment of a new National Training Fund. The fund will be resourced through a National Training Levy payable by all Class A and H employers.
The levy will be charged at a rate of 0.7 per cent on the same income base as Employers' PRSI. This will yield about £120 million in a full year.
There will be no additional financial imposition on employers. The introduction of the levy will be balanced by a corresponding reduction of 0.7 per cent in Employers Class A and H PRSI contribution rates. Existing sectoral and apprenticeship levies paid to FAS will be abolished.
The levy will be collected by the Revenue Commissioners and the Department of Social, Community and Family Affairs and will be paid into the National Training Fund which will be under the control of the Minister for Enterprise, Trade and Employment. The Fund will be dedicated to a range of training measures to upskill staff and give prospective employees relevant skills in response to the needs of business.
Structure of PRSI and Levies System
I am very conscious of the need to keep tax and levy systems as simple as possible. The PRSI regime has become complex over time, adding to overall administration costs in the economy. I intend to review the structure of the system with a view to its simplification.
Decentralisation
Since 1987, 4,000 civil service jobs have been transferred from Dublin to provincial locations. The Government considers that the time has now come to start a further round of decentralisations, which will involve, for the first time, the semi-state sector.
The Government intends that the next round of decentralisations will be more radical than those to date. We intend to transfer the maximum possible number of public service jobs from Dublin. In pursuit of this policy, we will transfer almost complete Departments of State and other public bodies to provincial centres.
Childcare
Earlier this year, the Government set up an interdepartmental committee to examine the important question of childcare. The Government has considered the report of the Committee and has accepted their recommendation that the most urgent task is to increase the number of childcare places. I have decided to implement a major package of measures recommended by the Committee to increase the supply of childcare places significantly. These measures will cost over £46 million in a full year. The measures are:
£23 million to expand the small Equal Opportunities Childcare Programme;
£10 million for a grant scheme for childcare service providers, caring for up to 20 children, towards the capital upgrading of premises.
£2 million per annum for local childcare network initiatives;
£5 million to provide grants to schools that set up and run after-school childcare services;
£5 million for community based groups to develop community out-of-school hours services;
£1.4 million for the establishment of an advisory service by Health Boards.
In last year's Budget, I introduced a number of tax reliefs to encourage the provision of creche facilities. As I will announce later, I am enhancing some of these provisions again this year.