STATEMENT BY MR BRIAN COWEN, TD, MINISTER FOR FINANCE
Good afternoon ladies and gentlemen.
The pre-Budget Estimates that I am announcing today, representing the first stage of Budget 2005, provide €2.5 billion of additional funding for public services bringing gross public expenditure to almost €43.6 million.
This is my first time framing a budget as Minister For Finance and I want to set a very clear context for my deliberations and the decisions that followed. Expectations must be grounded in how sustainable growth is achieved. It is not solely down to the performance of the Minister for Finance or the government as a whole. I have watched many budgets being introduced over the years. I have contributed as a serving Minister to cabinet debate on the content of many budgets and I believe there is a tendency, both in their presentation and in the way in which they are viewed by the general public, to see them as disconnected from the normal day-to-day economic life of the nation. Apart from taxation changes and social welfare payments they are often seen as having little or no relevance to most people's daily lives. These Estimates are based on our judgement of business activity, the commitment of people to their work, their need to pursue improvements in their lives because it is this micro activity throughout the economy that generates economic growth. These Estimates are grounded in that belief.
The book of Estimates is based on the government's priorities and where we are now as a nation. There is a baseline from where we now need to progress and government's job is to steer the economic growth through the framing of the Budget. The Estimates is the first step in that and is about the efficient allocation of our resources. If it is the case that we believe our relative prosperity can be sustained then the Estimates should reflect our ability to spend money on the less well off, the marginalised, the sick, the young, the elderly. This is an important by product of our economic growth. It is the expectation of every man and woman who contributes to economic growth through their energy and commitment.
They are entitled to experience direct benefits from their efforts but also indirectly they want to see the aging members of their families being better cared for, their children having better facilities in which to learn and develop, and to see those who are disadvantaged, progress through tangible improvements in their lives.
It is in this way that government intervention can establish a virtuous economic circle. It is though an efficient and enterprise friendly taxation system we can establish a set of estimates that helps advance these objectives. My colleagues will cover in detail how their departments or other respective agencies will continue to fuel the economic vehicle that has already brought such improvements to our nation. I would also like to say that, as usual, other Ministers will be giving briefings on their own areas after this press conference and will deal with any specific queries in relation to their Votes.
Clearly the management of the nation's finances has been excellent and that is the area where the direct intervention of government has the most profound impact on how things progress. Over the past decade all of these features have been in play. All these elements have contributed to the building up of our economy and we believe that it can continue to manifest in the years ahead.
Before I go into the provisions in detail I would like to briefly set the Economic and Budgetary context in which the pre-Budget spending Estimates for 2005 have been drawn up. I will then focus on the aggregate pre-Budget spending provisions for 2005.
Economic and Budgetary Outlook
The pre-Budget spending Estimates contained in the Abridged Estimates Volume (AEV) have to be seen in the context of the developing social, economic and budgetary position. My aim in preparing the next Budget is to ensure that the economy continues to support economic growth and employment while generating resources for key social and economic public services and investment priorities. A key element is having the right balance in our public finances as between the cost of public services and the resources our taxpayers have to provide.
Turning to the economic and budgetary performance this year, the consensus among most commentators is that economic growth in 2004 will be about 5 per cent. This is a continuation of last year's positive trend. While the world economic outlook is now improving and we are experiencing an economic upturn, our economy will not return to the very high growth rates we saw in the period up to 2001. There are a number of risks to our economic performance next year. These include oil prices, the dollar, and a possible weakening of the US economy. A combination of these events could lead to a slowdown in domestic economic activity. However, despite these risks I would say that the economic prospects for 2005 and beyond facing into my first Budget as Minister for Finance are fairly positive.
Looking at the history of our budgetary performance in recent years very strong economic growth allowed us to grow public expenditure very significantly up to 2001. As growth moderated, our rate of expenditure increase had to take account of that as well. Looking at the budgetary performance the large surpluses enjoyed until the year 2000 are now replaced with a position much closer to balance. 2004 is turning out about €2 billion better than had been budgeted for. Due to the improvement in economic growth and an improved revenue position the Exchequer Outturn for 2004 is now projected to be a deficit of €0.7 billion as distinct from the Exchequer deficit of €2.8 billion for 2004 forecast in last year's Budget. However, we do need to remember that a significant element, some €670 million, of this improvement is due to Revenue special investigation receipts which are once-off in nature.
We had to keep a tight rein on public spending in recent years. This year public expenditure is expected to grow by 7.5% measured against a projected growth rate of 5% and an annual inflation rate of 2.2%. Accordingly, we have reduced the gap between revenue and public spending growth and managed to consolidate our fiscal position. Managing public spending growth in line with the growth in resources and in a manner sustainable in the medium term remains essential. We intend continuing with this general approach so as not to undermine the hard work of the past few years, which ensured that we are now better placed than most to take advantage of the current international economic upturn.
A key part of our successful management of the public finances and the economy has been to avoid large scale borrowing and increased taxes. The result has been a major reduction in the debt burden, with the General Government Debt falling from a level close to 100% of GDP in the early 1990s to its current level around 31% of GDP. Similarly the cost of servicing debt has reduced very significantly in terms of the resources available to us. The cost of servicing the national debt in 1990 took up 29% of tax revenue: it is expected to take up in the region of 7% of tax revenue this year.
I intend to maintain this balanced approach. An expenditure spree in a buoyant economy would simply overheat our economy, lead to inflationary pressures and excessive wage demands and cause serious damage to our international competitiveness. We have come too far to expose ourselves to such a threat. Public spending growth must, therefore, be correlated with revenue growth in order to remain at a sustainable level over the medium term. For that reason we need to strike a necessary balance between allocating additional resources to priority needs while continuing to promote sustainable economic growth and avoiding inflationary pressures.
2004 Forecast Spending Outturn
Day-to-day current expenditure was agreed for 2004 at €35.7 billion with capital expenditure for road development, housing, educational and health facilities, amongst other demands, agreed at €5.6 billion. On the current side spending in 2004 is pretty close to the original Estimate figures. On the capital side, as things stand today, the estimated underspend is some €330 million of which approximately €250 million will carry-over into 2005.
Capital Carryover
Last year we introduced for the first time an agreement on multi-annual expenditure on capital. This is the first year of the operation of that agreement which is a radical departure from the previous system of annual capital allocations which were usually exhausted and spent as a means of justifying a similar annual allocation for the following year. This multi-annual approach is a much more strategic planning method and it allows a carry-over provision of up to 10% of a Vote's overall capital allocation to be carried forward to the following year. In the first year of the operation of the programme the total amount of capital carryover is estimated at €250 million or 4.5 per cent of the 2004 Voted Capital allocation. It is clear to me that a multi-annual approach with a carry-over provision is a far more sensible way of disbursing funds. As a result, significant funds that would have been surrendered to the Exchequer under the old arrangements will now be retained for spending on investment next year.
Table 3 of the AEV shows the areas in which there will be carryover.
I would also draw your attention to the fact that the 2004 Forecast Outturn as shown in the summary tables in the AEV is based on projected Exchequer Issues and, in the case of capital, is inclusive of the capital carryover. In order for the capital carryover to be available for spending by the relevant Departments next year, these amounts will actually issue from the Exchequer in 2004 to Departments.
2005 Estimates
I will now turn to the main spending allocations in the 2005 Estimates. The Government's approach to formulating the 2005 Estimates has been to allocate resources to priority needs while being consistent with an overall public finance position that promotes sustainable economic and employment growth.
We must also get better value for money from the substantial levels of spending being allocated for public services. I have emphasised to all ministerial colleagues that we must continue to seek better value for money in delivering public services. The taxpayer and citizen demand no less. Departments and Offices must intensify their efforts to prioritise spending and to continually re-evaluate spending on existing programmes, projects and services in order to ensure that available resources can be directed to the areas of greatest need.
2005 pre-Budget Allocations
I am today announcing an overall increase of nearly €2.5 billion for public services bringing the total cost to €43.6 billion for the year. This represents a 6% increase.
The allocations include:- nearly €11 billion for Health - an increase of €915 million or 9 per cent; and €7.1 billion for Education - an increase of €530 million or 8 per cent.
As I have already mentioned, as usual the pre-Budget Estimates do not include any provision for increases in social welfare payment rates next year. These will be announced on Budget Day. The present estimate as published for social welfare provides for an existing level of service (ELS) based on projected average unemployment for 2005 of 4.5% which is the same as average unemployment rate this year.
The total spend on health, education and social welfare this year is a little over two-thirds of the total day-to-day spending by Government. Social and Family Affairs: The gross allocation for Social and Family Affairs is €11.4 billion on a pre-Budget basis. I think it is important to point out that spending by the Government on the activities of this Department alone will have doubled since we took office even though the Unemployment Rate has fallen from over 10 per cent to less than 5 per cent in the same period. This represents a very significant improvement in real terms in the level of social welfare provision. No serious observer of politics can suggest that this Government is not mindful of the needs of the people who are in receipt of social welfare payments, or in need of supplementary welfare assistance, when the basic fact of the matter is that Social Welfare expenditure has doubled while unemployment rates have more than halved. The provision of Child Benefit expenditure, which has been identified as a key mechanism for reducing consistent poverty in Ireland has been supported hugely by this Government. Expenditure on Child Benefit has increased from under €500 million when Ruairi Quinn was Minister for Finance to a pre-Budget allocation of €1.8 billion this year.
Health and Children: The gross Health and Children allocation next year will increase by €915 million or 9 per cent to just under €11 billion. The cumulative increase in gross expenditure on health over the period 1997 to 2005 will amount to an increase of 205% representing an extra €7.4 billion. Staffing levels have increased by almost 50% from a base of 66,000 in 1997 to almost 98,000 this year. This major increase in staffing levels has included a significant increase in frontline service staff; an additional 6,500 nurses (representing 21% of the increase in staff numbers) with further additional staffing increases in the provisions of therapists, dentistry and orthodontic services, medical professionals and social care professionals. I should also point out that there has been a concomitant increase in service delivery with an increase of 30% since 1997 in the number of patients treated in hospitals as in-patient and day-care patients; a reduction in waiting lists with 80% of patients now waiting less that one year - which we will improve upon further; an increase in the elective surgery rate in public hospitals of 85% between 1995 and 2002. Furthermore there is a marked improvement in the wide range of community services provied by the health services.
New service developments and initiatives will be announced by my colleague, the Tanaiste and Minuster for Health and Children, Mary Harney,TD, during her own press conference which will follow shortly in her department. I have had discussions with the Tanaiste on the priorities we have identified and there will be initiatives on improved access to primary care, high priority disability services such as day-care facilities, respite services and dedicated units and other initatives in acute hospital service. These are further evidence of our commitment to provide a better health service.
It is also important to recognise that the reform of the delivery of health services through the Health Service Executive and other structural reforms brought forward by this Government, following the most extensive consultation with all stakeholders in the health services, will continue. It is imperative that all of us with an interest in a better health service enthusiastically embrace the reform programme on the basis that the common good demands that we make the necessary changes that have to be made to minimise and avoid the situations that have arisen in the past where the quality of service sometimes has not been what we hoped or expected.
Education and Science: The gross Education and Science allocation will increase by €530 million or 8 per cent to €7.1 billion in 2005. The cumulative increase in gross expenditure on education over the period 1997 to 2005 will amount to €3.9 billion, a 218 per cent increase over the period. Since 1997 there has been a very significant increase in the numbers of teachers employed in our primary and secondary schools. The provision of educational services for our children with special educational needs has been transformed since 1997. From a base of 400 in 1999 we now have over 4,000 resource and learning support teachers. In addition there are almost 6,000 special needs assistants employed in our schools. This should be measured against a base of fewer than 300 in 1998. Capital investment in our schools has also been transformed with the introduction of focused schemes to redress the historic underinvestment, by Governments of all complexions, in our schools: initiatives such as the summer works scheme and the programme for the development of small schools have been introduced to ensure quicker delivery of improved schools. At third level this Government has ensured that the Programme for Reseach and Technology in Third Level Institutions (PRTLI) has been funded to provide a firm foundation for our future economic success, a programme which complements the trojan work by Science Foundation Ireland in the whole research and development area.
Provision for services for people with disabilities I want to make a specific announcement regarding the Disability Sector. As a former Minister for Health associated with efforts to improve the lot of people with disabilities - work which was followed up on by Minister Micheal Martin and the Tánaiste and supplemented by the work of Willie O'Dea when he was Junior Minister with responsibility for Disability Services at the Department of justice Equality and Law Reform.
When the Disability Bill was published, the Government committed itself to the introduction of a multi-annual investment programme for high-priority disability support services which would involve both capital and current spending.
I am in continuing discussions with ministerial colleagues regarding the prospect of some further Exchequer funding for capital investment in addition to their allocations in the multi-annual capital programme announced by my predecessor last year.
The revised envelopes to be announced on Budget day will contain details of the capital element of the disability investment package. Budget 2005 will also include details of the additional current expenditure which the Government will provide in the years 2006 to 2009 for high-priority disability support services.
As far as resources in 2005 are concerned, the Estimates being published today provide over €2.8 billion for disability specific services. €230 million in additional funding over the period 1997 - 2004 has been provided for the maintenance and development of services to people with physical and sensory disabilities. Furthermore, an additional 1,700 residential places for people with an intellectual disability have been provided since 1997, and almost 3,000 new day places also provided.
The overall figure of €2.8 billion for next year represents an increase of €290 million or 11 per cent on the 2004 provision compared to the general overall increase in expenditure, on a pre-Budget basis, of 6 per cent. Given that we are focusing first of all on the high priority areas on the Disability Bill the increase is primarily provided for in the health and education sectors. The Tánaiste and Minister for Health and Children, and the Minister for Education and Science will provide further details of the services which will be provided on foot of these extra resources.
When account is taken of the increased funding being provided today and the funding that I will announce on Budget day, I am confident that the Government will be seen to be delivering on the commitments it has given to people with a disability.
This combined multi-annual capital and current expenditure package for disability will represent a radical new approach to investment in public services. It will provide much greater transparency and assurance than has been available hitherto in relation to how spending in these particular services will progress over the medium term.
ODAI am providing an additional €60m for the Vote for International Cooperation which provides the bulk of the funding for Ireland's Overseas development Aid. This represents an increase of 15 % on the current years figure and has been accorded a very high priority by the Government, and will bring our ODA contribution to some €535m next year. Contrast that with the figure for 1997 of €158m, and you see an increase of 240%. I have made an agreement with my colleague, the Minister for Foreign Affairs, Dermot Ahern, TD, for the purposes of clarifying what is possible for the remainder of our term to show an incremental improvement in the resources allocated by Government to this particular area. I have agreed that an additional €65 million will be provied both in 2006 and 2007 which we estimate should represent, based on present calculations, at that stage 0.5% of GNP. This will rank us joint seventh of twenty-two of the world's richest countries as a percentage of GNP.
Public Service Pay and Numbers The gross provision for Exchequer funded public service pay and pensions [Screen 5] is €15.3 billion, an increase of €1 billion or 7 per cent on 2004.
The increase makes full provision for: •
the carryover of the first phase of Sustaining Progress; •
the payment of the final tranche of Benchmarking; •
the increases due in 2005 under the mid-term review of Sustaining Progress; and
the cost of additional employment in the Health and Education areas.
Capital spending
The 2004 Budget saw the introduction of rolling 5 year multi-annual envelopes for capital investment. The 2004 budget envelope provided for total investment in 2005 of €6.3bn, comprised of €5.715bn Exchequer and €0.585bn PPP funded by annual Exchequer payments. The Exchequer figure included an unallocated reserve of €120m. On Budget Day I will be distributing that €120m. In addition to the 2005 AEV provision, Departments will also have available to spend in 2004 some €250m of carryover savings from 2004. When taking this into account, Departments will have some €730m additional cash for capital spend or 14% higher than in 2004. It is now clear that there will be a major shortfall on the 2005 PPP component of the existing envelope. On Budget Day 2005, I will be announcing a new 5 year envelope encompassing the period 2005 - 2009 which will take into account the cash already available to Departments in 2005, the PPP situation and the overall budgetary situation. It will also include a multi-annual provision for disability services.
Slide 4 shows the main components of Exchequer investment in 1997 and 2005. The rolling 5 year multi-annual capital envelopes announced in Budget 2004 will ensure that sufficient investment funding is available in the medium term to maintain progress under the National Development Plan in addressing the country's infrastructural needs.
ConclusionTo summarise :-
• The 2005 Estimates provide for an extra €2.5 billion bringing total planned expenditure on services to over €43.5 billion.
• I have provided substantial additional resources for current spending in health (€950 million) and education (€540 million).
• I will deal on Budget Day with the issues of social welfare rate increases, the capital envelope for 2005-2009 and a multi annual disability package.
• I will continue to allocate resources to priority social and economic needs as resources permit.
• My forthcoming Budget will ensure that the right conditions for social and economic development and employment growth are sustained.