Brian Cowen's speech - part 1

Text of Minister for Finance Brian Cowen's budget speech (Part 1)

INTRODUCTION

I am honoured to be with you again to present the 2006 Budget to the House. This Budget reflects the priorities of the Government; and I believe it reflects the needs and hopes of the Irish people as well.

We are living in the midst of the longest and strongest era of sustained prosperity in all of Irish history. This didn't happen by chance. This involved careful planning. It involved investment in infrastructure development where we had considerable ground to make up. It involved a commitment to educate our children so that they could be a match for their peers across every discipline. It involved careful fiscal management and the creation of an economic environment that would attract investment. And, of course, it represents the hard work of the Irish people themselves.

As a nation, we now enjoy a much enhanced quality of life. We are a prosperous country. More of our citizens are in work than at any time in our history. More enjoy a decent quality of life than ever before. We are welcoming more and more new people to our shores - citizens of the new Europe - and we are providing for them too.

It is a new Ireland also. Prosperous but not without challenges. This Budget is largely about two key objectives:

We have made our choices in the light of a simple, but powerful principle: we cannot take prosperity for granted. We will not put at risk the prosperity the Irish people have achieved.

In last year's Budget I made one simple statement that is often taken for granted and perhaps fails to get the right resonance as a result. Let me restate it now. Economic prosperity is a means to an end and not an end in itself. We must strive for economic success and we must insist on prudent fiscal management in order to achieve the establishment of a better society for all.

SUPPORTING OUR ECONOMIC SUCCESS

We are right to focus on our economic success and to talk about it. It is correct, not in order to congratulate ourselves, but because the better we understand it, the more we are likely to know how we can sustain it. The deeper our economic success and the longer it is sustained the greater the challenge to keep the forward momentum. While we work to maintain it we need to carry out reforms that will introduce greater opportunity for even more people to become involved in our economy and to benefit from its success.

This Budget brings the Government closer to fulfilling the public promises we offered when the people gave us their mandate. We had first to build safeguards and act to sustain the economic growth and stability long into the future and we had to work to find ways of sharing more evenly the benefits of our economic success.

My aims for this Budget are straightforward. I want to improve equality and opportunity for all in our society. I want to help those on lower incomes and to support families at all levels. I want to develop our infrastructure so our firms can compete better while helping to secure our environment and our heritage. I am also determined to pursue value for money for consumers and for taxpayers.

This Budget is rooted in the belief that Irish people can continue to achieve extraordinary things provided Government creates the right environment for them to do so. It is rooted in the need to make that environment more inclusive so that fewer of our people feel excluded.

Education

Education is critical to this ambition. It is accepted that the quality of our educated young people has been at the heart of the economic success of the past 15 years. The world has not stood still in the meantime. We face new challenges in the education sphere. This is about access and about the strength of an offer to the young people coming through the system. I will be announcing a major new initiative in this Budget to address that challenge.

Infrastructure

Infrastructure continues to be a priority and while we have made considerable advances in recent years there is still much to be done. The Transport 21 initiative is a major plank of our budgetary policy and correctly so.

Supporting the Family

We are committed to supporting the family as the cornerstone of our society. The place of the child, mother and father within the family unit needs protection and support. The balance to be achieved between the need to work outside the home and the costs associated with care of the youngest of our citizens needs attention by Government. Budget measures alone cannot achieve this balance but I have taken steps to deal with the issue.

Reaching Full Equality

We are committed to reaching full equality and opening the doors of opportunity for every citizen in Ireland. We want as many of our citizens as possible within the workforce. This is about the minimum wage and about taxation and for those on social welfare, it is about increased payments that can improve their quality of life too.

And we are deeply committed to ensuring value for the hard earned money that millions of our citizens pay in taxes. Taxpayers have a right to a Government that spends their money for the right reasons and in the right way - wisely and efficiently - and the choices we have made at every point in this Budget and the protocols we have put in place reflect the deep responsibility that I and my colleagues in Government feel when it comes to getting value for every euro spent.

Budget Measures

I plan to achieve my aims by a series of measures that involve:

Budget and Economic Outlook

We have the resources to do all these things because our economy is healthy. We have to make sure it remains so by pursuing the right policies. This will be a challenge, given the major external threats of oil prices, higher interest rates and shifting exchange rates and trade patterns. We will be best placed to meet this challenge if we all work to secure the competitiveness of the economy.

We have additional resources available to us now because we have followed the correct tax path of lower rates yielding more revenue. It is the tax take that counts, not the tax rate, as this year's record Capital Gains Tax yield shows.

Economic growth in 2005 is projected by my department at 4.6 per cent in GDP terms, that is the value of all goods and services produced in the State, and 4.8 per cent in GNP terms, that is the income we earn from producing these goods and services.

The success story of 2005 has clearly been the very strong growth in employment due to the correct policies followed by this Government. The latest labour force data show that employment grew by 96,200 or 5 per cent in the last 12 months. Nearly 71,000 of this increase represents additional full-time jobs. The live register at 150,000 is 14,500 lower than two years ago.

This employment record is far ahead of the rest of the EU and is a testimony to the enterprise and effort of our workforce.

My department is forecasting that for 2006:

This is a continued strong performance especially on employment. In money terms, it means a GDP of over €172 billion in 2006 and a GNP of just under €145 billion. In order to maintainour levels of employment it is particularly important that we all play our part in securing the competitiveness of the economy.

As regards the Government's finances we have set a target for a General Government Deficit next year of 0.6 per cent, as measured by the EU, together with a debt ratio of 28 per cent of GDP. This debt ratio is one of the lowest in the EU. Next year total gross voted public spending will rise by over €5 billion or just over 11 per cent to €50.6 billion, of which €43.8 billion is current day-to-day spending. Day-to-day spending in 2006 is 9.9 per cent above the projected outturn for 2005, excluding the exceptional provision of €400 million to meet the cost of repaying nursing home charges. Spending on capital, to provide roads, public transport, housing, hospitals and other major projects, will come close to 5 per cent of GNP - the highest public investment rate in the EU.

Overall Gross Voted Current Public Spending

Of the €43.8 billion in gross voted current spending more than one in every four euro, or €12.2 billion is spent on Health. The spending on Health at this stage amounts to €3,000 for every citizen in the State or over €9,000 for every taxpayer.

The other major current spending Departments are Education and Science, Social and Family Affairs. Education day-to-day spending accounts for one in every six euros and spending on Social and Family Affairs accounts for one in every three spent. Taken together day-to-day spending on Health and Children, Education and Science and Social and Family Affairs accounts for three in every four euros required to fund total day-to-day voted spending.

It is not just a matter of the quantity of spending but the quality as well. Does it meet current needs and also provide for our future? Do we get full value for it? Could we achieve the same for less? These are issues which are rightly to the fore in the debate on public spending.

A vital element in addressing these issues are the actual processes we use to secure value for money at all levels. I am determined to pursue this issue of the quality of public spending. I have recently put in place a series of specific measures to do so. I intend to build on this. In particular, I plan to roll out new forms of construction contracts in 2006 aimed at providing greater cost certainty, better value in spending and more cost effective delivery of capital works projects.

BUILDING THE NATION'S CAPITAL STOCK

In seeking value for money, we must also build up our capital stock to improve our competitiveness and help the economy to develop and expand. This is vital if we want to lay the platform for future growth and good quality employment. I am today providing some €43.5 billion for capital investment over the period 2006-2010 of which €38 billion is Exchequer funded and €5.5 billion is PPP funded.

This will also support strategic improvement in our education sector to deepen and widen our store of human capital; major improvements in health facilities; a very significant programme of social and affordable housing; and important new initiatives in the arts, culture and leisure aspects reflecting our development as a mature economy and society.

Third Level Investment

I mentioned earlier that any budget represents a moment in time on where we stand economically and where our priorities should be in light of the prevailing fiscal conditions. I referenced too the particular focus I want to give to education.

Many of those - both in Ireland and more particularly externally - who have commented on our economic success tend to attri-bute a disproportionate amount of the cause to our taxation policy. Clearly this has been beneficial to attracting inward investment. However, it is my belief that the single biggest contributor to our economic success has been the exceptional wealth of intellectual capital available to both our indigenous and overseas investors. Ireland has become synonymous with the quality of our graduates.

The investment in and reform of primary and secondary education through the 60s and 70s with the support of third level in its wake has been pivotal to what has been achieved in Ireland over the past 15 years. That job is continuing and we will continue to deal with very real needs across both the primary and secondary levels.

The basis for future growth and prosperity is investment in the knowledge, skills and innovation capacity that will drive economic and social development in an increasingly competitive global environment. The higher education system must deliver people who will expand knowledge-based business located in Ireland. This will require substantial change and quality improvement in universities and centres of higher learning and the promotion of system-wide collaboration that can draw on the collective strengths of these institutions.

A major initiative within this Budget is a commitment to the establishment of a new PhD level of education, a fourth level. Earlier this year my colleague the Minister for Education and Science signalled the Government's intention to create a multi-annual Strategic Innovation Fund for higher education. To achieve what we have to achieve will require a commitment to substantial change in all our third level institutions. We must strip out unnecessary duplication. There must be an appetite from within the sector itself for greater collaboration. This is a small country. It is not sensible to have our third level institutions pitched against each other across all key disciplines. Instead what we need is the promotion of a system-wide collaboration that can draw on the collective strengths of all of our third level institutions.

I am confident that such a commitment will be forthcoming. It must be if we are to deliver the required compliment of people with PhD level qualifications or fourth level Ireland. We are competing in a global world and to compete and to retain the strength of our "offer" demands an investment in the knowledge, skills and innovation capacity of this nation. Our edge in education is being challenged not just by the established sources of excellence but also by emerging nations across the globe. This Government believes such a programme is fundamental to our economic and social development.

This then is a major plank of this Government's policy. I am therefore announcing the allocation of €300 million to the Strategic Innovation Fund for higher education over the next five years. Competition for the new funds will stimulate excellence through collaboration and change. Details of the administration of the Fund will be announced by the Minister for Education and Science over the coming days.

In addition, it is essential that investment in modern facilities is maintained in university and institute of technology campuses around the country. As a result, we are committing €900 million to the third level sector over the next five years as part of the Department of Education and Science capital envelope. Of this €630 million will be exchequer capital funding and €270 million PPP funding. The physical development will have to reflect the changed approach where there must be greater co-operation between the institutions involved.

This brings planned investment in capital spend and the Strategic Innovation Fund for third level to €1.2 billion over the period 2006 to 2010. These strands of planned investment in higher education form a core element of the Government's strategy for developing skills and competencies. This will be an important element of the investment strategy for the new National Development Plan.

National Development Plan 2000-2006

Under the current National Development Plan there have been unprecedented levels of investment in our economic and social infrastructure. This investment is delivering real outputs which are improving the quality of life for our citizens.

Investment in roads will see the completion of over 70 major schemes by the end of the plan with a major focus on new Motorway and Dual Carriageway Roads linking key population centres.

We have significantly enhanced public transport in the Greater Dublin Area through investment in suburban Rail, Dart, Quality Bus Corridors and the Luas, a totally new fixed line system with a capacity of 20 million passengers per year.

We have reversed years of neglect of our National Rail System by investing €655 million in making our national network safe.

Investment in social and affordable housing by the end of the plan will have delivered some 56,000 new units.

Our NDP investment in Childcare will have created about 30,000 new places by end 2006.

There have been other major enhancements in the quality of infrastructure in areas such as water services, broadband, education and health.

Transport 21 was launched a month ago with a 10-year roll out horizon and a €34.4 billion investment cost. This is an unprecedented commitment on the part of the Government and recognises the importance of a world- class public infrastructure in securing the competitiveness of the economy and enhancing the economic and social gains made in this country since 1997.

Today's Budget underpins that commitment and sets out the capital funds allocated to transport over each of the next five years. Next year's allocation will get Transport 21 off to an excellent start. 2006 will see the continued roll out of the motorway programme and construction of more bypasses across the country. Work will begin on the building of a new Docklands railway station and the Kildare rail route upgrade. New rolling stock will be delivered and there will be further investment in regional airports. Work will also commence on the Cherrywood Luas extension. Planning and design work on the Western Rail Corridor will get underway as the start of the process leading to its reopening. Planning of other major transport infrastructure projects will also be advanced. In addition, the new transport authority will be established to implement Transport 21 in the Greater Dublin Area and critically to ensure joined up thinking and the delivery of projects on time and on budget.

National Development Plan 2007 - 2013

The next National Development Plan, which will cover the period 2007 to 2013, will set out a coherent and integrated strategy for investment in economic and social infrastructure. This will be done within a framework of budget sustainability and will be informed by key objectives of enhancing national competitiveness and promoting better balance in regional development. My department will shortly commence a major consultation process on the next NDP.

Public Service Pay

To support this level of activity we need a professional and well motivated public service. The numbers employed reflect the fact that many of these services are labour intensive, particularly in areas such as health, education and the security forces. Consequently, a large part of public spending goes in the form of pay. We have an obligation to ensure that value for money is central to how we reward our public officials.

The provision for 2006 to fund public service pay and pensions is €16.4 billion, an increase of €1.1 billion or 7 per cent. It makes full provision for the final phase of Sustaining Progress and includes some €430 million for improvements in services and extra staff to deliver these. I do not intend to prejudge the outcome of negotiations on a further public service pay agreement so I am not making any special provisions in the estimates for public service pay in 2006 other than what is provided for in the current agreement.

Total employment in the public service in 2005 is just over 290,000. We will continue to control and regulate numbers in the public service within agreed ceilings. We are allowing limited increases in staff in some key non-administrative areas particularly in health, education and the Gardaí to improve the delivery of important frontline services to the public. This is the correct strategy to follow.

HELPING FAMILIES AND THOSE ON LOW INCOMES - SOCIAL WELFARE

I believe that a primary function of Government is to protect and support the weaker sections of our society. The sustained economic growth over recent years has led to a welcome increase in employment and general income levels. However, there are many people who are not in a position to fully avail of the increased employment potential that now exists. At present, there are 970,000 people in receipt of a weekly social welfare payment and many of these are on old age or related pensions. In addition, there are a further 490,000 people who also benefit from these weekly payments.

I believe that the opportunity now exists to make substantial further progress in this area. Last year, I provided for significant increases in social welfare rates and now, in this Budget, I will build on this progress.

I intend to target the following groups for particular improvement this year:-

At the same time, recognising the value to individuals themselves of being employed, not only in terms of income but also self-worth, the Government wishes to enhance the employment opportunities open to social welfare recipients in general. These themes are the basis for the improvements in the social welfare system which I am announcing today, which will cost €1,120 million in a full year.

Old Age Pensions

This Government has a proud record of improving income support for pensioners. Today, I am increasing the full personal rate of old age and related pensions by €14 per week - an increase of almost 8 per cent. This will bring the Old Age Contributory pension to €193.30 per week, which means we will be well on the way to achieving the Programme for Government commitment to increase the State pension to €200 per week by 2007.

The Government is increasing non-contributory pensions by €16 per week, an increase of 9.6 per cent bringing the maximum rate to €182 per week. In addition, we recognise that many non-contributory pensioners want to work beyond retirement age but the means test system stops them doing so. We intend changing the non-contributory pension system so that earnings from employment up to €100 per week will be disregarded for means test purposes.

Other Weekly Welfare Payments

All other personal weekly social welfare rates will be increased by €17 per week. This will bring the lowest full personal social welfare rate to €165.80 per week - an increase of 11 per cent. The increase also represents substantial progress towards the implementation of our commitments in the Programme for Government and in Sustaining Progress.

Child Benefit

In 2006, the monthly rate for the first and second child will increase to €150 and the rate for third and subsequent children will increase to €185. This completes the transition to a higher rate of child benefit as promised last year. The monthly rate for the first and second child in 1997 was €38. In 2006 it will be almost four times higher.

Other Social Welfare Measures

The Budget Summary contains a wide range of other social welfare improvements, the full details of which will be announced by the Minister for Social and Family Affairs. However, in the light of my opening remarks on the Social Welfare Package, I would like to highlight the following improvements planned:

In addition, in line with commitments under Sustaining Progress, the rate of Maternity Benefit will be increased from 75 per cent to 80 per cent of reckonable earnings.

CARING FOR OLDER PEOPLE

This Government has always given high priority to supporting older people.

Respect for older people and the dignity of older people are at the heart of our policies.

Many older people have active and fulfilled lives. Others have increasing needs for health care and support.

Most older people and their families want to live and be cared for at home.

While previous governments have aimed to support this desire, this Government has decided to make a step-change in the level of care and support service for older people in their home or community.

The Tánaiste has discussed with me the need to take an important initiative in this area. The Government has decided to fund an additional package of measures at the level of €150 million in a full year to kick start this.

This will include new home care packages, substantially more home help, more day care support and additional palliative care. This will help people avoid unnecessary residential care and prolonged stays in acute hospitals. For people who need residential care in nursing homes, we are also improving nursing home subventions.

The Tánaiste and Minister for Health and Children will set out the full details of the new services tomorrow.

In passing, I might mention that I will also be examining issues in relation to certain limited circumstances where adult individuals may require to be cared for outside their own homes because of particular care needs.