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FINANCIAL STATEMENT OF THE

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FINANCIAL STATEMENT OF THE

    FINANCIAL STATEMENT OF THE

MINISTER FOR FINANCE

MR CHARLIE McCREEVY TD

3 DECEMBER 1997

INTRODUCTION

    Today I have the great privilege of presenting my first Budget to Dáil Eireann and the first Budget - in a series of five - of a new administration.

    It has been said that those living through radical change rarely appreciate its reality at the time.

    I certainly would believe that is the case when it comes to the Budget.

    Because we still look at the Budget as we used to in the seventies and eighties.

    In the old model, the Minister for Finance could choose to be Santa Claus or Judge Dredd. He could give a present to everyone in the audience, or he could punish the spenders and give lectures on how everybody had to get a grip.

There was high excitement value in the old model.

    High anticipation: people queueing the day before a Budget to fill their petrol tanks or stock up their drinks cabinets.

    The old model might have made some sense for a small nation and a small economy. The new model makes sense for a member State within the EU, and part of a vast and open economy.

    Because we are a Member State, because we are part of a vast open economy, because we are committed to the parameters that will take us into the single currency, the surprise element is more or less gone from the Budget.

    It could also be said, of course, that by Budget Day, a Minister for Finance has no money left to spend: it's all been spent fifty times over, by experts in the newspapers over the previous few weeks.

    The Budget should not seek higher TAM ratings than it deserves. A Budget used to stick up from the rest of the year the way Mount Everest might stand up in the middle of the Curragh. Those days are gone.

    Instead of creative gimmickry and lucky-bag spending to win votes, today's Budget is characterised by three things:

Control of public spending,

Correction of tax inequities,

    Overdue acknowledgement of the elderly.

    In regard to the control of public spending, I would wish to make it clear that I don't believe control of public spending is an end in itself, a virtue of itself.

    Ruthless cutting of public expenditure in some areas might benefit the economy in the short term - but it would have a lethal long-term effect on individuals and families on the margins.

    We will not build an Ireland worth living in by deepening social inequalities Nor will we maintain social peace and progress in that way.

    The control of public expenditure in this Budget, therefore, walks the very thin line between proper rectitude and punitive rigour.

Building on Economic progress

    Ireland has in this decade undergone an economic transformation. I would like to acknowledge the contribution that my predecessors in this Office have made in that period.

    They were supported by the Social Partners - the Trade Unions, Employers and Farmers - as well as the broader community.

    Irish society has joined together over that decade to forge and sustain a coherent and consistent strategy for economic and social progress.

    In that period, the numbers at work have increased by over a quarter of a million. Our public finances are in much better shape.

    There are, however, still many challenges and deficiencies to be faced on the economic and social front and my Budget sets out to deal with these.

We have to do three things:

    First, we must ensure that we create the right conditions to sustain strong economic growth so that more people get jobs.

    Second, we must take steps to ensure that any inflationary pressures are contained.

    Third, we must prepare for the problems we face in the decades ahead.

Partnership 2000 and Progress to Date

    It is now almost a year since the conclusion of a new agreement between the Social Partners - Partnership 2000 for Inclusion, Employment and Competitiveness.

    This included a commitment to personal tax reductions of ?900 million on a full year basis over three years and an action programme for social inclusion and equality involving additional expenditure of ?525 million, again over three years.

    Taking account of the 1997 Budget and the measures I am proposing today, the overall resource commitment will have been delivered in the first two years of the three year Programme.

Action Programme for the Millennium

    This Government's Programme, An Action Programme for the Millennium, outlines our main fiscal objectives for the next five years. Today's Budget addresses these objectives.

    I am projecting a significant current budget surplus each year to 2000.

By the year 2000, Exchequer borrowing will be eliminated.

    On a General Government basis, borrowing has already been eliminated.

My current spending targets will be achieved.

    Overall resources will permit me to invest more in vital capital needs.

    Over the period to the year 2000, Government spending will decline as a proportion of GNP.

    And this Budget delivers the resources promised in Partnership 2000 for tax and social inclusion.

Developments in 1997

    1997 has been the fourth successive year of very strong economic growth. This is once again being translated into substantially higher numbers at work - about 50,000 more this year. At the same time, inflation has remained moderate at around 1? per cent.

    The Exchequer Borrowing Requirement is expected to be about ?280 million or 0.7 per cent of GNP, compared with the Budget target of over ?600 million.

    The General Government Balance is likely to show a surplus of about 0.4 per cent of GDP.

    The General Government debt to GDP ratio is likely to fall to 67 per cent.

BUDGET STRATEGY

    In the separate document "Budget 1998, Economic Background" I have set out in detail the basis for my budgetary strategy and the economic outlook for the next three years.

    In preparing my Budget I had to take account of a number of strategic issues:

- provide for capital investment

- reduce the tax burden

- pursue social inclusion

- prepare for Economic and Monetary Union

- anticipate changes in European Structural Funds

- plan for an ageing population

- reduce our National Debt.

National Debt

As a country we are still deeply in debt.

    By the end of this year, it is likely to exceed ?30,000 million - about ?22,000 for every person at work in the country. The interest cost alone will be over ?2,300 million.

    We must free up these resources. Think of the alternative uses we could make of them:- in increased investment, improved social services, or a reduced tax burden.

    We did not thank earlier administrations for spending their way into our pockets. Our children would not thank us for spending our way into their pockets.

    We must not and will not lose control of our finances just because of our strong economic growth.

1998 Budget Targets

    On the basis of the taxation and expenditure measures I am announcing today, the targets for the 1998 Budget are:

? a current budget surplus of ?1,109 million;

? a capital deficit of ?1,198 million,

? an Exchequer Borrowing Requirement of ?89 million; and

? a General Government Surplus of 0.3 per cent of GDP.

    I am projecting General Government surpluses in 1999 and 2000 also. The General Government Debt ratio will fall from 67 per cent of GDP in 1997 to 58 per cent of GDP in 2000.

    I might mention that from the 1999 Budget on, our targets will be set in terms of the EU measure, the General Government Balance, rather than the Exchequer Borrowing Requirement or EBR.

Public Service Pay

    The public service pay and pensions bill - ?5.6 billion - is expected to increase by 6 per cent over 1997 on top of an increase of 10? per cent in 1997 itself. This is totally unacceptable.

    Two main factors are driving up the pay bill - numbers employed and pay rates.

    In future, all proposals to Government for new or expanded services will specifically identify any implications for the Pay Bill.

    The main problem, as far as pay rate increases are concerned, has been cost drift under the local bargaining provisions of the PCW such as the increases secured by a number of major groups in the health sector. The nurses' settlement alone is adding 1? per cent to the pay bill in 1997.

    We need to finally put the PCW to rest. It is essential that the remaining PCW local bargaining cases be resolved within the PCW cost norm. The groups concerned cannot expect to follow the higher settlements secured, on the basis of certain unique considerations, by nurses and a small number of other groups.

    We must ensure that the efficiency and effectiveness commitments made by public servants in return for local bargaining increases under the PCW are fully honoured.

    There must be no repeat under Partnership 2000 of the cost drift under PCW. The 2 per cent limit on local bargaining in the Partnership must be adhered to strictly. The Government has decided to introduce new arrangements which will involve giving each Department an annual allocation to cover the cost of all the Partnership 2000 increases, including the 2 per cent local negotiations increase. These allocations will represent the total funding available for all improvements in pay and conditions during the period of the Partnership.

    There is no point in having national programmes unless we all honour them. The last Government negotiated Partnership 2000 and this Government is committed to implementing its terms. Those who signed up for the pay and industrial peace terms of the agreement must keep their part of the bargain if this Government is to be able to deliver on social inclusion and tax measures while continuing to manage the economy in a balanced and responsible way.

I now want to turn to Social Inclusion.

SOCIAL INCLUSION

    The continued strong performance of the economy provides the resources for an improvement in the position of the more disadvantaged members of our community.

    I am confident that the range of measures I am proposing today in social welfare and other social policy programmes will result in solid progress in these areas.

These measures are designed to:

    - deliver on undertakings aimed at combating disadvantage set out in the Government's Programme,

    - make further progress towards meeting the commitments on social inclusion in Partnership 2000,

    - contribute towards the achievement of the strategic aims of the National Anti-Poverty Strategy, and

    - continue the reorientation of the social welfare code in a work-friendly direction.

A special emphasis is being put on helping the elderly.

    The Government undertook to spend ?525 million on social inclusion measures over the three years of Partnership 2000. Last year, ?273 million was committed for this purpose. This Budget commits a further ?282 million in a full year, so that resources which had been promised over three years will now be more than provided over two. This is a concrete expression of this Government's desire to see that economic progress is accompanied by real social advance for those in need and of our commitment to the social partnership process.

    The social welfare improvements which I will announce in a moment will cost ?125 million in 1998 and ?225 million in a full year.

    In addition, I will be announcing other social inclusion measures which will cost ?39 million in 1998 and ?57 million in a full year.

Weekly Welfare Payments

    From the first week of June next, I am providing for a real increase in the weekly payment rates for all welfare categories. In general, personal rates will be increased by ?3 per week, while qualified adult allowances will rise by 3 per cent. These increases are well above the expected rate of inflation. Moreover, the new rates will be payable for 31 weeks in 1998 as compared with 29 weeks in recent years. It is my firm intention that, over the term of office of this Government, the implementation date for budget welfare increases will be brought forward to early April to coincide with the new tax year.

Elderly

    Our older citizens have persevered through the bad years, and have done so much to create the boom time in which we live.

    But not only have they worked in times that were more difficult than the present - they now face old age in a radically changed Ireland, an Ireland busier and less supportive, in some ways, than the Ireland of earlier days.

    Older people should be able to face the years after they retire with confidence.

    As an indication of the Government's determination to ensure that the older members of our society are well provided for, I am pleased to announce that the full personal rate of all old age and related pensions will be increased by ?5 per week. This will give increases ranging from 6 per cent to almost 7? per cent, or at least three times the expected rate of inflation. The weekly pension for a typical elderly contributory couple will rise to almost ?140.

    I am also raising substantially the tax exemption thresholds which I will refer to under my taxation proposals. This is in line with our election commitments to the elderly and is an unashamed and deliberate targeting of resources.

Commission on Social Welfare Rates

    As a result of these measures, the rates for all but two categories will be brought above the minimum rate recommended by the Commission on Social Welfare and the two exceptions will be brought to within 2 per cent of this level. This will increase the living standards of all those dependent on welfare support.

Child Benefit

    From September next, Child Benefit rates are being increased by ?1.50 per month for the first and second children and by ?3 per month for third and subsequent children. A mother with four children will then receive monthly payments of ?147 or almost ?34 per week.

Child Benefit - Twins

    I have also decided that, from September next, Child Benefit for twins will be paid at 150 per cent of the usual rate.

Family Income Supplement

    The Family Income Supplement has long been recognised as an important income support for families in low paid work - by ensuring that there will be a reward for working as compared with being unemployed. A commitment was given in Partnership 2000 to calculate entitlement to the Supplement on a net rather than gross income basis. The first move in that direction was made earlier this year by excluding PRSI contributions and Health and Employment levies from the calculation.

    On this occasion, I am completing this process by removing income tax from the basis of assessment with effect from October next. Moreover, the current family income thresholds are being increased by ?7 per week from June. As a result, the average weekly payment for existing FIS claimants will rise by ?11, to ?50.

Back to Work Allowance Scheme

    The Back to Work Allowance Scheme has been very successful in re-integrating large numbers of the long-term unemployed into employment. I have decided to increase the number of places on this scheme by a further 5,000 to 27,000 in 1998. The Area Based Allowance is also being extended to the entire country.

Other Improvements

    As well as the initiatives which I have just announced, I am targeting certain other areas within the social welfare code. I am allocating an additional ?1.2 million in 1998 for Marriage and Child Counselling and the Family Mediation Service. I am extending eligibility for the Companion Travel Pass to benefit people over 75 years who are unable to travel alone. I am also providing a Free Travel Pass to all recipients of Carer's Allowance. Finally, additional grants are being made towards voluntary and community services. A list of these grants is included in the Summary of 1998 Budget Measures.

    My colleague, the Minister for Social, Community and Family Affairs, will be announcing full details of these various measures.

Social Welfare Abuse

    While the Government has amply demonstrated its readiness to provide support and assistance where it is most required, it is equally determined that spending should only go where it is genuinely needed. The results of a special Live Register survey published last year gave rise to serious concern regarding the possible extent of fraud in the unemployment payments system.

    Let me make it clear that we will clamp down on social welfare abuses with renewed vigour. In this way, we can free up greater resources to invest in the genuine social needs at the heart of Partnership 2000.

Health

    An additional ?36.8 million is being allocated for the development of health services in 1998. This, with other technical changes, brings the gross Estimate for the Health and Children Vote to ?3.1 billion next year - representing about one fifth of all Supply spending. This is ?1 billion higher than the 1993 spending figures of ?2.1 billion. The 1998 provision is 11 per cent higher than the 1997 figure of ?2.8 billion.

    I might at this stage mention that ?16 million of these new initiatives relate to Social Inclusion measures, including an extra ?7 million for the mentally handicapped; a further ?2 million for the elderly; and ?1.5 million for Psychiatric Services both for the elderly and for young people.

    Despite a considerable expansion of our child protection services since 1993, under which additional annual expenditure is now ?45 million, Health Boards remain under pressure. The budget for child care services in the Health and Children Vote in 1998 will be ?8 million higher than in 1997, including ?2 million for new developments which I am providing today. In addition, a further ?2.2 million is being provided to expand family and community development services on the Social, Community and

    Family Affairs Vote. This allocation will support the Government's child care programme.

People with Disabilities

    Today is European Day for People with Disabilities. I want to underline our commitment to the development of services for people with disabilities. This Government is the first to appoint a Minister of State with special responsibility for Disability issues, Ms Mary Wallace TD. The Government decided recently to establish the National Disability Authority of Ireland as recommended by the Commission on the Status of People with Disabilities.

    Today I am glad to be able to allocate, as part of the Social Inclusion package, a further ?3 million for people with physical or sensory disabilities.

    Further details are set out in the Summary of 1998 Budget Measures.

Community Employment

    Community Employment is currently being reviewed in the light of recent labour market developments. Pending the outcome, I have accepted a recommendation of the Social Partners and agreed, as an interim measure, to make funding available for an additional 1,000 places on the Part-Time Jobs Option and 1,000 places on the Jobs Initiative. The gross cost of these places will be ?11 million in 1998 and ?17 million in a full year. Savings in social welfare payments will reduce these costs substantially.

    Furthermore, in line with the improved social welfare payments, the allowances payable under Community Employment will also be increased at a cost of ?6 million in 1998, and ?10 million in a full year.

Other Social Inclusion Measures

    I have set out in the Summary of 1998 Budget Measures a number of other improvements.

OTHER EXPENDITURE MEASURES

The Millennium

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