Wednesday, December 07, 2011

BUDGET 2012 UPDATE: Minister Pat Rabbitte's speech on behalf of the Labour Party

A Cheann Chomhairle,

I do not stand up here today to make the claim that this is by any means a great Budget.

I do not seek to pretend that this is a Budget which will instantly fix the problems faced by our economy or the problems faced by so many families across this country who are going through difficult times.

What I do say is that this is a necessary Budget – and that it as good as it can be in the circumstances in which we find ourselves.

That it is a Budget that prioritises jobs.

That it is a fair and balanced Budget.

That it is an honest Budget.

That it is a reforming Budget

That it honours the political commitments the Labour Party made: not to cut welfare rates and not to increase income tax on working people - to protect carers and standardise Child Benefit are considerable achievements.

And that it is a Budget that will move our country closer to economic recovery and the restoration of our sovereignty.

I, like all my colleagues in the Labour Party, believe that the task of Government is to build an Ireland which affords more opportunity, more social solidarity and a fairer society.

But to realise those ambitions, to create that better future, we must first rescue our economy from this crisis, create jobs and restore our economic sovereignty.

History will some day record the full extent of the crisis that this country faced at the time of the General Election earlier this year. The banking system was broken, the public finances were in tatters, Ireland’s reputation was at its lowest ever ebb and national morale was devastated. Hard working families were, and still are, suffering as a result of unemployment, distressed mortgages and loss of income.

At that moment, the Labour Party had a choice. We could have walked away. We could have chosen to sit on the opposition benches and avoid the duties of Government. Or we could roll up our sleeves and set to work in fixing the problem, in the full knowledge that it would take not one Budget or one year, but several over several years before our economic problems would be resolved.

In that situation, there was only one option that the Labour Party would ever take. For nearly one hundred years, the instinct, tradition and spirit of Labour have been to work, day in and day out, to make this a better country.

And that is what we are doing in this Budget. Our over-riding commitment to the Irish people is to restore the economy, promote job creation and restore our economic sovereignty.

A crisis with so many components has required Government to work on several fronts at once. Shortly after coming to office, we re-constructed the banking sector and provided the banks with the means to lend – even if they are still limiting their response. We brought forward a jobs initiative, with a particular focus on tourism and hospitality. We implemented the difficult Budget for 2011 that had been left behind by the outgoing administration and which had significant gaps in its arithmetic. And we reversed the cut in the National Minimum Wage

In addition, we began a major campaign to restore Ireland’s reputation abroad, through Ministerial and official endeavours. At the same time, we brought a new strategic focus to economic governance and management, through the setting up of the economic management council.

Twelve months on from the arrival of the EU/IMF, we have seen some improvement. Our position has stabilised. In fact, while 12 months ago we were Europe’s problem, now the European problem hangs over our recovery.

We are pulling out all the stops to ensure that the decisions we are taking, tough as they are, are as fair as we can make them in the circumstances. We are making progress. Ireland will see a return to economic growth this year, and next. Our exports are performing well. Tourism is recovering. The banking sector is managing to raise modest amounts of funding without Government guarantees and our bond-spread has fallen significantly in secondary markets. Our reputation abroad has been tremendously enhanced.

To move forward now, we must make further progress on a number of fronts.

First, it is clear that the continuing turbulence in the eurozone is placing a limit on our progress. It is urgent that we find a resolution to the crisis at European level.

Second, while the export sector is booming, in order to achieve a broad based recovery and employment growth we need to restore our domestic economy. That requires action to boost both investment and consumption, including direct measures to promote investment and to restore confidence among consumers and investors.

Third, we need to reform our welfare and training systems, so that people who lose their jobs do not drift into long-term unemployment. We need to shift from a passive welfare system to a far more active approach. The Government will shortly publish Pathways to Work, which will set out our approach in this area, and which is designed to ensure that, when recovery comes, those on the live register can take up the work that is being created.

Fourth, we need to continue to rebuild our reputation abroad and to work on expending our trade links into new markets. As the global centre of economic gravity shifts to the east, Ireland must be ready to build new trade links with emerging economies.

And fifth, we need to continue restoring our financial position, in respect both of our public finances and in implementing our reforms of the banking system.

We have been forced to make difficult and unpalatable decisions. But we as a Government are committed to being honest and upfront with people, in the hard choices that we must make.

Our country has suffered the greatest economic crisis in living memory, leading to a huge fall in revenue. Tax revenues fell from over €47 billion in 2007 to nearly €31 billion in 2010, a fall of one-third in just three years. We are now re-building but the truth is that we do not have the resources to fund all the services that we want to provide.

Ireland’s deficit for 2012 stands at €16 billion. To fill the gap between our spending and our revenue, we have had to borrow from the European Union and the IMF. The last Government was forced into that deal because, given their disastrous mismanagement of the economy they had created, no private financial institution would lend to us.

The reality is that the loans that are financing our day-to-day spending are subject to the condition that we reduce our deficit to 3% of our Gross Domestic Product by 2015.

At the moment our deficit stands at 10.1% of GDP. In order to reduce that deficit, the further reality is that we have no alternative but to reduce spending and to raise taxes. And, for 2012, the combined measures must in this Budget add up to €3.8 billion.

Both parties in Government resisted pressure to make additional adjustments to achieve savings of as much as €4.4 billion. This would have been too much for the economy to bear and would have placed too great a strain on people who are already struggling.

So, having identified the need for savings of €3.8 billion, our only room for manoeuvre was to strike the balance between reductions in spending on our public services and increases in taxation.

Of that €3.8 billion, we decided on a reduction of €750 million in the capital programme. That means that projects like Metro North and the A5 road through Northern Ireland will have to be put on hold.

We did, however, prioritise spending on job intensive and vital projects such as school building.

The remainder of the €3.8 billion adjustment is made up of current spending reductions and tax increases.

Fianna Fáil’s plan was for cuts to be double the amount of tax increases – a 2 to 1 ratio.

Labour resisted cuts on that scale, because we believed that doing so would mean we couldn’t provide for necessary front line services.

In the event, the Government decided on a ratio between current spending and taxes of 56% (spending cuts) to 44% (tax increases)

In Budget 2012, the Government has protected the most vulnerable in our society – children, the elderly and people with disabilities – by:

· not increasing income tax for working people
· maintaining core social welfare payments including jobseekers allowance and state pensions
· maintaining FIS, carers’ entitlements and disability allowances,
· maintaining our support for special needs children in our schools
· maintaining the pupil teacher ratio in the primary sector and
· ensuring that disadvantaged schools will be exempt from staffing schedule changes

In deciding this Budget and given our strategic imperatives, the Government has used the resources it has to prioritise Jobs, Reform and Fairness.
Jobs are central to everything we do in Government. Creating more employment is critical to the success of our economic strategy and to improving the position of families in difficulties.

Our job is to get the country to recover – we have stabilised the patient, we now need to get it into recovery and that’s by keeping people working and getting others back to work. Already this year the Government has:

· provided for a Capital Programme of €3.9bn
· restored the minimum wage
· invested €500m in the Jobs Initiative and
· reduced VAT reductions for the tourism sector
· extended incentives for research and development
· increased investment in the Retrofit Scheme – Better Energy

The clear focus of the Budget is on protecting family incomes, as part of a strategy to restore confidence in the domestic economy. It is well known that the savings ratio has increased rapidly in recent years and is now a drag on growth and employment. By protecting family budgets, and by not increasing taxes on work, we providing space for a return of confidence and spending.

While we will never see a return to the construction boom of the recent past, the normalisation of the property sector is still an important part restoring the domestic economy. The measures taken by the Minister for Finance in the Budget will assist that sector on the path to normalisation and encourage a greater level of activity.

The Government has also taken a number of other steps to encourage investment, through its Strategic Investment Strategy. We have established NewERA and the Strategic Investment Fund, which will be the forerunner of a strategic investment bank, and we will work to use these mechanisms to channel investment into the domestic economy.

Through Pathways to Work we will provide more and better opportunities for people who lose their jobs to re-train and re-skill. Building on that in this Budget, the Government has decided not to increase income tax for working people and to ring fence €20 million for a new Labour Market Activation Fund targeted at the long-term unemployed. This fund, which will be specifically targeted at the long-term unemployed, will deliver upward of 6,500 places next year. What is critical in this area, however, is the implementation of a new and integrated approach to service delivery.

Reforming how Government works to reduce costs and protect front line services is also a guiding principle. This Government is a reforming government. Several key decisions have been taken as part of our reform agenda while reducing costs and protecting front line services. Already this year the Government has:

· reduced the pay of the Taoiseach and Ministers
· abolished severance payments for retiring Ministers
· changed pay and conditions for senior public servants
· Introduced a significant programme of agency rationalisation
· cancelled many parts of the ill-conceived decentralisation programme and
· announced the most ambitious programme of Public Service reform since the foundation of the State, to improve customer service and reduce costs.

Throughout the budgetary process, the Government has been determined to ensure that, despite the difficult decisions that must be made, those decisions are fair. The burden of recovery must be shared fairly and we need to maintain social solidarity in the face of difficult times. The Government has therefore decided not to reduce any weekly rate of social welfare payments and not to reduce the rates of child benefit for the first and second child. The core child benefit remains intact at €140 per month.

We have delivered on our commitment to maintain social welfare rates. There have been no income tax increases for working people and we have removed the lowest paid from the USC. Pensions have been protected and people with disabilities have received top priority from this government.

Expenditure Cuts
The vast bulk of the Government’s current spending is accounted for by the departments of Health, Education and Social Protection. Together the three departments make up over 80% of total current spending and it is therefore impossible to make the kind of necessary savings needed without touching these sensitive policy areas.

The demand for health services has increased, and the number of medical card holders has increased by more than 400,000 since 2007. While reducing spending, the Department of Health will reduce the negative impact on front line services while allowing real reform of services. Doing so will improve the quality and quantity of services in the coming years.

In the Education sector, demographic pressures mean that we need more teachers and more class rooms, to accommodate more children. This is unavoidable. The Department of Education is committed to prioritising its limited resources on programmes that will deliver the best results for children and parents from all backgrounds. Capital funding has also been promised for over 200 schools.

The pressures on our social welfare budget are enormous. The financial allocation for jobseeker’s payments alone has increased from €1.4 billion in 2007 to €3.9 billion this year: an increase of 176%. The provision for State Pensions has increased from €3.75 billion in 2007 to €4.7 billion this year. We will need to continue to increase this financial allocation year-on-year due to our demographic profile. In 2012 an additional allocation of €175 million will be required.

This Budget also marks a new direction in the approach to taxation. One of the great lessons of the boom years is that good public services must be based on sustainable tax revenues. The dislocation of our economy and the curtailment of services in recent years have been the direct result of enhancing public services on the back of unsustainable revenues. For the future, we must move to a revenue base that is both economically and environmentally sustainable.

Fairness and sustainability also require that we broaden the tax base so as to keep rates as low as possible, while ensuring that everyone makes a reasonable contribution to society. Above all, the greatest inequality in our society is the divide between those who have work and those who do not, or who have had to leave the country to find a job. By re-building our revenue base in a more sustainable manner, we can support work and employment creation, now and in the future.

This Budget marks a significant departure in Irish tax policy, towards a broader and more sustainable revenue base. At the same time, the Budget includes a number of important measures to enhance the fairness of the tax code.

There is a tendency in discussions of taxation to focus solely on rates of tax, as though that were the only measure of fairness. By that rubric, the Irish tax code is now strongly progressive. The key issue, however, is to ensure an equality of treatment of different income sources and to ensure that high rollers cannot shelter their income from fair taxation.

While reducing spending and increasing the tax take, we have a duty to protect the most vulnerable in our society and to provide the safety net of social protection in what these challenging times. In order to do so difficult choices must made to help reduce the budget deficit.

We have already had to take decisions that none of us ever thought we would have to make, but progress is being made.

We will see a return to economic growth this year. We have drawn a line under the banking crisis. We have renegotiated the interest rate on Ireland's bailout, even though some said that was impossible. We have ring-fenced €17 billion for investment in capital projects, including the National Children’s Hospital and over 200 primary and secondary schools. We have ensured that the trend for exports remains positive. We have introduced Labour Activation measures in training and education which will continue into next year, with a focus on the long-term unemployed. And we have stimulated the job-intensive sectors of the economy such as tourism and services and energy efficiency.

Despite the tough decisions we have had to take, we have not increased income tax for working people. We have maintained core social welfare payments including jobseekers allowance and state pensions. We have maintained the Family Income Supplement, carers’ entitlements and disability allowances. We have maintained our support for special needs assistants in our schools and the pupil teacher ratio in the primary sector. And we have ensured that disadvantaged schools will be exempt from staffing schedule changes.
Turning briefly to my own Department in respect of which gross provision of some €437m has been made. As regards capital spending some €76m, inclusive of €13m carryover, is provided for energy efficiency measures in 2012 and will support 4,500 direct and indirect jobs.

I am especially pleased to have secured funding for the rollout of 100mbs broadband to second level schools. I believe that over the coming years this scheme can make a real contribution to the promotion of a knowledge society by equipping our 2nd level students with the necessary digital skills and in the process improve overall competitiveness.

For 2012 we have preserved the split in licence fee revenue as between RTÉ, TG4 and the Sound and Vision Fund. However, during 2012 I will have completed the review of funding public sector broadcasting. The big project next year is the switch off of analogue on October 24th and €3m is being provided to ensure a comprehensive information campaign to promote a smooth transition to digital terrestrial television.

It should of course be noted that the vast bulk of capital investment in Energy and Telecommunications comes from our State energy companies in the case of the former and the private sector in the case of the latter. In the specific case of broadband whilst real strides have been made we have a deficit, especially in relation to the availability of high speed broadband, which must be addressed. The Task Force on Next Generation Broadband which I chair - and also comprises the CEOs of the major telecommunications companies - will report very early next year. There is a strong commitment in the Programme for Government to rollout high speed broadband nationwide. Informed by the work of the Taskforce I will bring proposals to Government early next year on implementation of the commitment in the Programme for Government.

Fianna Fáil has discovered a shiny new clean-cut spokesperson with an accountancy degree. He can’t believe the scale of the crisis visited on the country and nobody has explained to him how it happened. But he sticks to the new Fianna Fáil mantra: this Government can no longer blame Fianna Fáil. Why not? Does he seriously suggest that this Government would introduce a Budget such as this if we were starting with a clean sheet? We are attempting to cope with the disastrous legacy left behind by Fianna Fáil and their alternating partners, the PDs and the Green Party.

Of course, the battered clapped out remnants of the once great Fianna Fáil Party is under siege from new improved Sinn Féin. Beneath the radar, Sinn Féin is beginning to shed the wilder reaches of what has passed for their economic policy. Apparently no more does Sinn Féin advocate abandoning the Euro and walking away from our debts. While retaining the populist rhetoric, the new Sinn Féin now accepts that €3.8 billion must be taken out of the economy even if they have no credible idea of how it should be done. The nasty mean spirited speech by Deputy Doherty was a diatribe of criticism and abuse without a single positive idea other than raid what’s left in the National Pension Reserve Fund and soak the rich. And what do we do next? Something will turn up – hopefully things will get worse because the worse they get the better for Sinn Féin. Or so they hope.

Yesterday the country waited with bated breath to see who would be selected from the dolly mixture that is the Technical Group. Which brand of competing eccentric populism would emerge to respond to the tax measures? In the event it was Deputy Mick Wallace – it could only happen in Ireland.

This Government had better succeed because the Pick ’n’ Mix assortment on the opposite side of the House have nothing to offer.