Speech by the Taoiseach, Mr. Brian Cowen TD on the 2011 Budget, Dáil Éireann, Wednesday, 8 December 2010, at 10.45 a.m.
Check Against Delivery
A Ceann Comhairle,
This Budget is being introduced at a time of great uncertainty across the economies of the developed world.
We are living through an economic crisis with few parallels, which is impacting in new and unpredictable ways on people, businesses and entire countries.
Ireland has been affected more than most: partly, because our economy is so dependent on international trade and investment, and partly, because, of the scale of the fall-out from an overheated construction sector.
However, it is the responsibility of those holding elected office to focus their energy on the future - to take action to solve the problems facing the people who elect us.
That is the focus of the National Recovery Four Year Plan and this Budget - the practical, but difficult, decisions which must be implemented to ensure Ireland recovers as quickly as possible.
These decisions are not taken lightly.
The Government is fully aware of the impact they will have on families across the country.
We have carefully considered all options and possibilities.
We have taken these decisions in a way which balances the need to protect the most vulnerable, the need to meet our international obligations, and the need to promote economic growth and employment.
This Budget bears evenly on people, and strives to share the burden fairly. Having stabilized the deficit this year, we have to take an important further step towards narrowing down the large gap between expenditure and revenue, that would have grown again in 2011 from €18.7 billion to €22 billion, if we had taken no action. Our aim next year is to reduce the General Government Balance from 11.6% to 9.4% of GDP. As with paying a mortgage, the later steps will become progressively easier. We the budgets of the last two years we were, halfway along the path with a, €14.6 billion reduction since 2008. We will do the same again spread over the next 4 years, beginning with the budget. Looking back, I doubt that any Government has acted so decisively and with such energy in a short period of time, or done so much political heavy lifting.
It must be clearly understood that, if we are to be in a position to borrow to maintain our public services, State pensions, unemployment benefits, our schools, our hospitals, and to pay those who work in them, we must adhere strictly to the agreed parameters of the National Recovery Plan that we have drawn up and agreed with the EU, the ECB and the IMF. The Plan is the sole basis for drawing down the financial facility they have made available to us. The front-loaded €6 billion cut in the deficit is the first and most crucial instalment.
There is no alternative option of €4.5 billion. If the Labour Party in Government were to attempt to draw back from any aspect of the EU/IMF Programme for Financial Support for Ireland without putting forward a full equivalent alternative, Eurozone Finance Ministers would point out to them in no uncertain terms, as they had to do to another new Eurozone Government last July, that they are bound by the commitments entered into by the State under their predecessors. If not, assistance would be suspended. Deputy Gilmore would do well to recognise his potential responsibilities, and stop pretending to the Irish people in either a naïve or deceitful way that they have some other way.
Despite the adjustments made to date, the economy is emerging from recession.
There have been significant improvements in our competitiveness, as Ireland prices itself back into international markets.
Our exports are performing strongly, and have increased by 7% in the first half of the year. We are moving into a balance of payments surplus in 2011.
Tax returns for 2010 are expected to be €450 million ahead of projections, while economic growth will also exceed forecasts.
Unemployment has stabilised – and the Live Register has fallen for the last three months.
When considering the challenges which lie ahead, we need to remember how far we have come, and the resilience shown by the Irish people over the past two years.
It is that resilience, which gives confidence that we will emerge from this crisis quicker, and more strongly, than many commentators expect.
National Recovery Plan
The National Recovery Plan published by the Government on 24 November is the basis for sustaining recovery.
The Plan outlines a pathway to restore the public finances by returning tax and expenditure levels back close to those of other European countries.
€10 billion - two-thirds - of the budgetary adjustment will be achieved through reduced expenditure, with €3.9 billion of this being achieved in this Budget.
This means that by 2014 gross current expenditure will be back to 2007 levels.
Total Government voted expenditure as a percentage of GNP will be reduced from 49% to 36% by 2014.
The remaining one-third - €5 billion - of the adjustment will be achieved through taxation. The focus will be more on broadening the base than increasing the rates, which is a more effective way or achieving revenue targets.
Tax receipts in 2010 will, nevertheless, be 35% lower than in 2007, reflecting the over-dependence on property and construction-related revenue sources at that time.
A fundamental principle of the reform outlined in this Plan is that all taxpayers must contribute according to their means. Those who can pay most will pay most, but no group can be entirely sheltered.
The changes in the Plan will bring the income tax structure back nearer to what existed in 2006.
This Budget is the first phase in this fundamental restructuring of the public finances – bringing them back to a sustainable position, while maximising the economy’s potential to grow and create jobs again.
We cannot afford delay. Parties opposite - as of now - are not agreed on how much needs to be done or how it is to be done. We do not have the luxury of time to allow all that to be worked out. Completion of the first steps towards the agreed target deficit of 3% of GDP by 2014, (or at the latest, 2015) will create the necessary breathing space, so that an election can be held and a new Government formed. We will not shirk our responsibility for the welfare of our people in the meantime. All sides of the House and people outside need to be aware that restoring our country’s credibility, including re-building the confidence which is essential to recovery, depends on our being able to follow through swiftly on the commitments we have made.
If we are to learn any worthwhile lessons from the recent past, we will have to become a lot more dispassionate in our analysis, as our former President Mary Robinson was at the weekend. She referred, not just to the responsibility of Government, but also to the collective responsibility of an Irish society.
As a society, we became over-optimistic about our recent, seemingly spectacular, economic success, and badly overshot the mark. People became impatient with restraint. If one examines the records of the Dáil and Seanad between 2002 and 2007, one will see on a weekly basis non-stop proposals by the Opposition in private members’ motions, questions and adjournment debates, to increase expenditure further, to reverse savings decisions, and to eliminate, lower, or freeze taxes and charges of all kinds. None of this was remotely balanced by muted reservations expressed by one opposition party about benchmarking, or calls from the other to hasten the termination of construction-related tax reliefs.
In any case, the property bubble had much more to do with cheap credit and reckless competition for market share than with tax incentives. The general attitude was that we could afford to ramp up spending, while simultaneously being a low tax country, as if there were few hard choices to be made.
The Government was more cautious in its spending policies. Thankfully, before the crisis broke, we had reduced the national debt to a very low level, and put billions aside into the National Pensions Reserve Fund. Regrettably, we were not nearly cautious enough.
Despite selective warnings that can be picked out from largely upbeat commentary, neither the economic institutes, the financial media at home or abroad, the international organisations, governments, nor other parties in the Dáil, with very few exceptions, foresaw in time the grave dangers to the Irish, the European, or the global economy. The global financial crisis, which broke in September 2008, found us and indeed other countries seriously exposed. The main task of the Government I have led, from the beginning, has been to try to get a grip on the situation. We have made hard choices and taken unpopular decisions in the interests of the security and well-being of our people, however little understood or misrepresented that might be.
As a Government, we did our level best to resolve both the banking and the deficit situations ourselves. The interdependence of the modern world as well as our membership of the Eurozone and large market movements have in the end put some of the solutions beyond our control. Indeed, both the EU and the Eurozone are themselves facing fundamental challenges in devising a fair and equitable response to a financial crisis situation, present and future, that can in a chain reaction adversely affect several member countries. Because our domestic measures did not prove sufficient does not mean they were not necessary. It was essential for us to make the maximum effort, which will now be supported by the EU, ECB and IMF.
We are in a different territory from when such interventions were made in the past, for example, when Britain in 1969 and 1976 made application to the IMF, at a time when we shared a common currency with it. For a small country, particularly, economic sovereignty has in practice always been somewhat circumscribed.
If we are to recover greater freedom of action in the future, as we all wish, it will not be done by a foolish and petulant unilateral repudiation of our obligations, for which there is no successful precedent anywhere, nor by a refusal to accept any share of responsibility for our collective actions in the boom years. Our situation will only be improved by following the route set out in the National Recovery Plan, of which, as I have said, the Budget is the critical first instalment.
What we principally have to do to put our economy and our finances back on an even keel is to correct the overshoot wherever that occurred. A limited sacrifice in recent improvements in living standards will put us back on a path that we can sustain. It is not about reverting to where we were 10 or 20 years ago, but in most cases only to where we were just a few years ago.
I accept the argument that we have to start at the top. The Taoiseach’s salary is being reduced by a third compared to what it was in 2008, with net pay down 45%. The President’s salary, some of it presently foregone on a voluntary basis, will be set for her successor at the new public sector ceiling of 250,000 euro, which, when existing top level contracts in the semi-State’s expire, will apply across the public sector, including judges. Ministers will have seen their net take-home pay reduced by 36%, while TDs’ net salaries will have been reduced by a third.
Pension lump sums will be taxed above €200,000, and the public service pension will be reduced by an average of 4%. New entrants will enter at a 10% lower starting income. With the important exception of education, public sector numbers will fall back to lower levels by 2014, though much of the improvement in services will be broadly maintained. A more competitive economy has to reduce its overheads.
The cumulative impact of Budgets since Budget 2009 has been highly progressive, taking welfare and tax changes together. Changes in the pension régime are mainly focused on the highest earners.
24 reliefs and exemptions are being terminated or restricted, including property reliefs.
The cap on employees’ PRSI is being removed, which has long been advocated.
In making the adjustments in this Budget, we have protected the vulnerable as much as possible while continuing to incentivise work, jobs, and growth, on which their incomes depend. Everybody pays something, but the better-off pay the most.
At the moment, the top 8% of earners pay 60% of the tax. After this Budget, the top income earners will continue to pay proportionately the most. Much criticized tax breaks which mainly benefit high earners will be largely eliminated.
While it has been necessary to cut working age welfare payments (by 4%), the 2011 rates will still be more than double (almost 117%) the 1997 levels, compared to a CPI or price increase of 45%. Child benefit rates will be three times higher than in 1997.
To put all this in context, the tax measures over the 4 years of the National Recovery Plan will bring us back to 2006 levels. 38% of people will still be outside the tax net. The new minimum wage level, designed to increase the availability of jobs, will not be in the tax net. €306 for a 40 hour week compares favourably with a single person’s, job-seekers benefit of €188.
Despite the reduction, the minimum wage will still be considerably above the level in the UK and Northern Ireland.
In the debate, I cannot overlook the fact that the Labour Party is seriously at odds with Fine Gael as to the proportion of the adjustment that would be met from additional taxation. In fact, Labour’s tax policy is closer to Sinn Féin than it is to Fine Gael.
Fine Gael’s commitment is to confine tax measures to one-third of total cuts from 2011-2014. Labour is proposing that half of the adjustments will come from more taxes.
It is worth pondering what the outcome of Labour’s proposal of increased taxes might mean for average working families. If Labour had their way on raising €2.5 billion in taxes, and they have voted against our proposals, it could, for example involve a 2% increase on the standard rate of income tax, or a 5% increase on the higher rate, or 1% on the lower rate and 3% on the higher, in addition to a further 2% increase on the standard VAT rate to 25%, with implications for competition across the border, as well as a Site Value tax of €400, not the €200 average. Despite the claims that the target would be the well-off, experience shows that the average PAYE taxpayer has always fared worse when Labour were in Government.
A priority for this Government is to protect the most vulnerable in our society, while ensuring that those of us who can afford to carry the heaviest burden, do so.
An additional €10 million has been provided for the disability sector. We have also prioritised the free pre-school education programme. We have not reduced the contributory old age pension, so that our elderly community who are unable to work to improve their incomes are protected. We have also increased funding by €8 million to allow for more home help packages in 2011.
We have provided increased funding of €115m for an additional 120,000 medical cards next year, and additional funding for the following key priority services:
Older People €14m
Fair Deal (€6m)
Cancer €8m
Child Protection/Ryan Report €9m, and
Suicide €1m.
We are helping the unemployed.
We are keeping those who have lost their jobs as close to the labour market as possible.
We are providing 15,000 extra activation places at a cost of €200m – a skills and internship programme, a work placement programme, and a community work placement scheme.
We are extending the employer job (PRSI) incentive scheme to the end of 2011 and transforming the Business Expansion Scheme to incentivise firms to employ staff.
We already have jobs and growth plans in place.
We are undertaking a number of key, strategic initiatives to create new jobs and to get people back to work:-
At almost €35 billion, we are maintaining proportionately one of the largest capital investment programmes in Europe.
Our five-year integrated plan for trade, tourism and investment will generate 300,000 jobs, and boost exports by one third.
We have set up a €500 million Innovation Fund which will support enterprise development and job creation by drawing top venture capitalists to Ireland.
€360 million is being invested in research and innovation, involving third-level institutions that will create jobs and new enterprises
A €32 million Labour Market Activation Fund is targeted at specific priority groups amongst the unemployed, and is supporting almost 60 projects and 11,000 participants this year.
The Employment Subsidy Scheme is supporting 1,697 companies, and maintaining over 100,000 employees in jobs.
Under the Four Year Plan, we will use monies from the national pension reserve fund for projects such as the water metering programme (€500 million) and retrofitting.
Our low corporation tax of 12.5% is the cornerstone of our economic policy. Foreign direct investment supports 240,000 jobs in this country.
Both AIB and Bank of Ireland are making €12 billion available to SMEs over the next two years.
We have remained true to our ambition for make Ireland a global innovation hub - a country which can support high value jobs based on innovation and knowledge.
Despite the budgetary pressure, we will invest €570 million in science, technology and innovation next year.
With these funds:
Science Foundation Ireland will maintain 29 top-class research centres in 2011, and continue to work with over 400 industry partners
Enterprise Ireland will help approximately 1,200 companies with reseach and innovation activities in 2011
Enteprise Ireland will also support 85 High Potential Start-Up companies next year, rising to 100 by 2015
the number of industry-led competency centres will be doubled to 16 by 2015
Innovation Fund Ireland will grow to €500m, attracting leading international venture capital companies to Ireland
IDA will attract new investments, nearly half of which were R&D related this year
Ireland is developing a strong international reputation for innovation and high tech start-ups. The Smart Economy can be an important part of our economic recovery, and the Budget positions us to take advantage.
We are introducing incentives to bring confidence to the housing market, including: a reduced flat rate 1% stamp duty rate on residential property transactions up to €1m, an improved tenant purchase scheme, measures to help registered tax compliant contractors, and tax incentives for retrofitting home energy efficiency measures.
We are supporting tourism by reducing the air travel tax to €3, and the DAA will be incentivising carriers to bring in additional airline passengers.
We are investing €4.7 billion in 2011 in the productive capacity of the economy - on roads, water, energy and communications. Importantly, we have prioritised spending to support enterprise and job creation.
The Government remains convinced that North/South co-operation is a central element in the push for economic recovery.
Budget 2011 has maintained overall funding levels for North/South co-operation, with a total allocation of over 110 millions euros.
The increased allocation of €14 million for cross-border transport initiatives will help promote jobs and economic recovery in border communities and the wider economy. This includes the necessary funding to meet the Irish Government’s commitment to the joint projects to upgrade the cross-border road network.
The Budget also includes funding of almost €80 million for the North/South bodies. Of course, like all other public sector bodies, they will see reduced budgets, but this substantial funding will enable those bodies to continue their essential work.
The future prosperity of the island economy is essential to building on the peace we have achieved and to creating economic opportunities for a new generation that can enjoy that peace.
We will not let our economic difficulties distract us from that.
As well as the work of the North/South bodies, areas of co-operation such as health and education, and join investment projects, there is an increasing range of shared economics concerns between North and South, in areas such as banking, energy and research development.
I look forward to discussing these issues with colleagues from the Northern Ireland Executive at the British-Irish Council meeting next week and at the next meeting of the North/South Ministerial Council, which I expect to be held shortly.
Our economy retains very significant strengths:
we have the youngest population in Europe, with one in three under 25;
we have the highest proportion of graduates amongst the 25-34 age group in the EU;
our exports are performing strongly;
we are the ninth best country worldwide, in which to do business (World Bank);
Ireland’s stock of direct inward investment is five times greater than the OECD average;
our competitiveness has significantly improved;
we have clusters of the world’s leading multinational companies, and continue to attract high levels of investment. Almost 1,000 companies – including household names such as IBM, Google, eBay and Facebook– have chosen Ireland as the hub of their European operations.
A fair and effective budget will boost confidence and jobs. We need, particularly in the public arena, to start believing in ourselves again, and to communicate that to the outside world.
I will commend this Budget to the House.