Published on Thursday 6th December 2012

Statement by the Tánaiste, Mr.Eamon Gilmore, T.D. on Budget 2013, Dail Éireann,

Ceann Comhairle

This is a difficult budget.

It is a hard budget

It is a budget that will hit many people’s pockets.

But it is also a necessary budget. An honest budget, and a fair budget.

This budget is not an end in itself. It is step that, as a country, we need to take on the road to recovery.

It is a bridge to the future

For weeks now, all we have heard from the opposition is fairytale economics.

For Fianna Fáil there is no such thing as BC or AD. History begins in March 2011.

For Sinn Fein, what they do in Government in Northern Ireland, has absolutely no bearing on what they say down here.

For the technical group, mathematics is an imperialist plot, and Deputy Donnelly gets more and more confused as he adds apples and oranges to get pineapples.

We would all love to go back in time. We would all love to start again from a different and more favourable place. We would all like to undo and roll back the damage that was done to our people by the greed of a few. It would be wonderful if a small group of other people could pay for everything. Yet the Irish people know that isn’t possible. What we can do, what we must do, is repair the damage, pursue the guilty, and then wipe our feet on the mat and move on.

This budget is a bridge to the future, because it is necessary to get us from where we are, to where we need to be.
Our mission in this Government is simple – to fix the economy so that it works for the people. So that it delivers for the needs of the many, not the greed of a few.
And our means of doing that, is not by shouting at the problem. But by taking the difficult yet necessary decisions that need to be taken.

There are many in this House whose favourite word is austerity. The word is bandied thrown around at every possibility. But we are not engaged in a policy of austerity. We are engaged in a policy of solvency. Our country is in an EU/IMF programme because the last Government reached a point where no-one would lend money to Ireland. After fourteen years of mis-government, and after the fatal mistake of the bank guarantee that Sinn Fein supported, we reached the point where no-one would lend Ireland money, at any price. That is the key point, because a country that cannot fund itself, cannot function. And the economy of that country cannot function either. Once the creditworthiness of the state is undermined, there are profound implications for the rest of the economy, for firms large and small, for families, young and old. The first step on the route to recovery is to restore financial stability and rebuild the creditworthiness of the Irish economy.

This budget is part of that process. Such was the extent of the property bubble, that this year, even after all the consolidation that we have done, the Government will take in €12.6 billion less than it will spend. We will borrow €43 million per day to finance the state. That simply is not sustainable, nor is it just, since we are passing on debt to the next generation. This budget takes us another step closer to closing that gap and bringing our deficit down to a sustainable level.

The Government has been clear, that fiscal consolidation on its own will not solve out problems. We have a three-legged crisis and we need a three-legged solution – restructuring the banks, dealing with the budget deficit, and doing everything possible to promote employment.

Our employment strategy is itself built on a number of pillars, each of which involves major programmes of change and reform.
During the summer, we launched a major stimulus package, progress on which was reported in Minister Howlin’s statement yesterday.

Pathways to Work is nothing less than a transformation of the way in which we think about and deliver social welfare services. Yesterday, My colleague, Minister Joan Burton was able to announce a further ten thousand activation places, which will assist people on the live register.
Minister Richard Bruton is driving the implementation of a suite of supply side and competitiveness measures, and is working with other colleagues to develop a plus-one initiative to tackle long-term unemployment.
Minister Noonan yesterday announced a suite of measures to assist small business and the agri-food sector, including funding for enterprise from the Strategic Investment Fund, to add to measures taken last year.

The domestic economy, which is still a major challenge, is beginning to stabilise. The budget measures announced last year did assist towards the normalisation of the property market that is taking place, and further measures on commercial and residential property are contained in this year’s budget. Allowing early withdrawal of AVCs, which has the potential to stimulate domestic activity, will be provided for the Finance Act. Minister Rabbitte is bringing forward a major programme to promote construction activity in the area of retrofit. In my view, the biggest drain on the domestic economy, is the uncertainty and fear that surrounds the problem of household debt. Before the end of the year, the personal insolvency bill, a massive undertaking, will pass all stages in the House, and the Personal Insolvency Service will go live on the 1st of February. As families begin to sort out their debt issues, and as others see that there is light at the end of the tunnel, we will begin to see an impact on consumer confidence and investment.

In my own portfolio, Minister Noonan announced the extension of the foreign earnings deduction for companies that are sending key personnel to develop new trade opportunities in developing countries and emerging markets. We are expanding support for exporters so that the foreign earnings deduction will now include Africa – a continent home to seven of the world’s ten fastest growing economies. In particular, we are targeting Algeria, the Democratic Republic of Congo, Egypt, Ghana, Kenya, Nigeria, Sengal, and Tanzania.

No-one in this Government is under any illusion about the scale of the challenge that we face. The problem of unemployment, and the tragedy of forced immigration are a huge loss of human and economic potential to our country. We all know that the export sector is performing well, but the domestic economy is still a major issue. Nonetheless, where there are signs of progress, we should acknowledge them.

The notional cost of borrowing as expressed in the bond yield has fallen to new levels. The NTMA is making a phased return to the market and yield on long-dated paper is today approximately 4.5 per cent

Several major Irish banks and companies have been able to borrow money on international markets, our bank deleveraging programme is on target, and we are progressively reducing our reliance on ECB funding.

In the last quarterly national household survey, there are modest signs of recovery in private sector employment.

Export performance remains strong. The economy is growing again, and our balance of payments surplus for this year is expected to reach 3.4 per cent of GDP – a sign that our economy can reduce debt and grow at the same time.

To sustain that progress, there is no alternative to getting our public finances under control. A deficit of 8.2 per cent of GDP, while falling, is still extraordinarily high. We have to reduce it. And there is no good way to do that. The measures contained in this budget will affect many people. But what we can say, is that the budget is fair.

We have protected weekly rates of social welfare, because we believe that, as a people, we have to look to the needs of those on the lowest incomes. To achieve this end, Ministers Howlin and Noonan have found resources to reduce the quantum of measures needed in social protection from €540m to €390m. And while there are difficult measures being taken, we have also found resources to take a number of positive steps, including 6,000 additional afterschool childcare places for low income parents, and an additional €2million for School Meals.

We have also made an important commitment to an area-based child poverty strategy, which will build on a number of highly successful pilot projects that were jointly resourced by the State and Atlantic Philanthropies. I would like to pay tribute to Atlantic, for the vision they have shown, and the results that have been achieved in developing these schemes. I am hopeful that our partnership will continue. And I congratulate Deputy John Lyons for the work he has done in promoting this cause.

Despite the hugely difficult financial circumstances we have managed to find resources to continue providing new social housing units, and to maintain the effort in Urban regeneration.

This fairness agenda was only possible because we found additional resources from a tax package which is manifestly fair, and which asks most, of those who have most. The tax measures in this budget are reforming and progressive. The budget measures contain within them a wealth tax package that amounts to over €500m in full year terms. Several of these measures will take time to introduce, precisely because they are fundamental changes to the structure of the tax system. The wealth tax package includes:

The reduction in the standard fund threshold so that the state will no longer subsidise pensions of more than €60,000 per annum
A progressive structure in the property tax so that houses valued at more than one million euro will pay a higher rate of 0.25%
Changes to PRSI which will mean that unearned incomes will also be liable to social insurance contributions
A higher rate of USC on pensions over €60,000, and a €200,000 cap on top-slicing relief.

Increases in the rates of capital taxes which bring all rates to 33% and a 10% reduction in the thresholds for Capital Acquisitions Tax. These rates now mean that there is a far greater parity between taxes on capital and taxes on labour, ending a distortion introduced by Fianna Fáil.

The vast bulk of these taxes will be borne by those who are better able to bear them. This is a real wealth tax package, in contrast to the make-believe fairy take figures that every Sinn Fein Deputy is ordered to parrot.

The reform of pensions policy comes after years of debate and analysis, which highlighted the inequity of what was once some 3 billion in tax reliefs. By capping relief, rather than standard rating, we are maintaining an incentive for people on middle incomes to contribute to their pensions, while removing the biggest tax shelter in the Irish tax code. The scale of this reform is such that it will bring some €250m into the exchequer and affect some 30,000 higher earners.

The introduction of a property tax will impact significantly on households across the country. I do not expect people to be happy about paying a property tax. But again, it has to be recognised that this is a major reform, which will provide a stream of revenue to local authorities without taxing work, and will enhance the quality of local democracy. Those who oppose it, will have to explain to their electorates, how they intend to provide services on the very same streets that they are canvassing. When combined with the changes to local Government that have been announced by Minister Hogan, we are driving the most fundamental modernisation and reform of local Government since 1898.

This Budget is not just about deficit reduction. It is also about reform. It is not just about building a financial bridge to a more stable future, but about shaping that same future. While this financial crisis imposes real constraints on what the Government can do, it is also true that we are not wasting the crisis.

This budget has prioritised education, by reducing to a minimum the expenditure reduction measures in that Department. In fact, there is an increase in capital spending, to provide schools to serve demographic needs. We are driving ahead with fundamental reforms of what happens in the classroom, including junior cert reform, the national literacy and numeracy strategy and a sensitive reappraisal of the position on patronage.

In social protection, we are developing a system that is far better suited to the needs of a modern open economy, along similar principles to the flexicurity approach driven by social democrats in Scandinavia. Social protection does need to provide income support for those who lose jobs or suffer illness, but we are moving to a system whereby the first day on the live register is also your first day on the route back to education, training and a job.

In health, we are driving ahead with our primary care strategy, and we have published a roadmap, setting out the steps towards universal health insurance. And despite all the financial problems, and the planning issue thrown up by the mistakes of the last Government, we will begin construction of a national children’s hospital.

Despite all the financial constraints, Minister Shatter has been one of the most reforming Justice Ministers of the modern era, making real strides on penal reform, with limited resources, and the Minister for Children is working to end the practice of committing 17 year olds to St Patrick’s Institution.

After a series of hard budgets, we now have an income tax code which is among the most progressive in the developed world. This budget makes it even fairer. The challenge we face, however, is to ensure that when people pay their taxes, the state makes the best possible use of their money. The work that Brendan Howlin is doing in driving reform in the public service, is driven by that principle. As a social democrat I am committed to ensuring that we have the best quality, service driven, public services. To achieve that, we need the best possible use of public funds. And such is our commitment to better schools and better hospitals and better local services, that we are determined to take back control of our financial destiny.

We are also bringing transparency and reform to the system of political funding. I note that no single measure caused as much outrage among the technical group yesterday as the suggestion that they would have to audit their leader’s allowance in the same way as political parties. The hypocrisy we have heard from that quarter now comes with a price attached.

For the people of Ireland, what this budget does, is bring the end into sight. No-one can understate the sacrifices, no one should over state what has been achieved. But we can see progress. And the progress we are making is progress with a purpose. Even in this most difficult times, we have the resources to drive important reforms, and we have protected those who most need to be protected.

This is the centenary year of the Labour Party. The men and women, whom I have the honour to lead in this House, know full well the cost that this budget will bring to the families and communities that they represent. But they know too, that this budget is not about today, or tomorrow, it is a bridge to the future. Delivering this budget is part of our commitment to bringing our country back from the abyss, to a stronger better future. None of this is easy, but it is necessary.

In the future, people will look back and ask three questions of each individual member and party in this House. Did they take responsibility for solving the problem, or did they seek to exploit it. Did they act with fairness? and did they think of the future. In respect of all three, Labour will answer Yes. That is something of which I, for one, am proud.

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