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Financial Resolution No. 15: General (Resumed) (Continued)

Thursday, 6 December 2012

Dáil Éireann Debate
Vol. 785 No. 3

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(Speaker Continuing)

[Deputy Eamon Gilmore: Information on Eamon Gilmore Zoom on Eamon Gilmore] That is the key point as 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 and for families young and old.

The first step on the route to recovery is to restore financial stability and rebuild the creditworthiness of the economy. This budget is part of that process. Such was the extent of the property bubble that this year, even after all the consolidation we have done, the Government will take in €12.6 billion less than it will spend. We will borrow €42 million per day to finance the State. That is simply not sustainable or just, as we are passing on debt to the next generation. This budget takes us another step closer to bridging 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 our problems. We have a three-dimensional crisis and we need a three-dimensional solution involving 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 the statement by the Minister for Public Expenditure and Reform, Deputy Howlin, 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, the Minister for Social Protection, Deputy Joan Burton, was able to announce a further 10,000 activation places to assist people on the live register. The Minister for Jobs, Enterprise and Innovation, Deputy Bruton, is driving the implementation of a suite of supply side and competitiveness measures and working with other colleagues to develop a plus-one initiative to tackle long-term unemployment. The Minister for Finance, Deputy Noonan, yesterday announced a suite of measures to assist small business and the agrifood 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 assisted 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 additional voluntary contributions, AVCs, which has the potential to stimulate domestic activity, will be provided for in the new finance Act. The Minister for Communications, Energy and Natural Resources, Deputy Rabbitte, is bringing forward a major programme to promote construction activity in the retrofit area.

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 1 February. As families begin to sort out their debt issues and as others see 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, the Minister for Finance, Deputy 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, Senegal, and Tanzania.

Nobody in this Government is under any illusion about the scale of the challenge we face. The problem of unemployment and the tragedy of forced emigration are a significant 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 low levels. The National Treasury Management Agency is making a phased return to the market and yield on long-dated paper is today approximately 4.5%. 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 European Central Bank funding. In the last quarterly national household survey, there were 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% of GDP in 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% of GDP, while falling, is still extraordinarily high and we must reduce it; there is no good or painless way to do that. The measures contained in this budget will affect many people but we can say the budget is fair. We have protected weekly rates of social welfare because we believe that as a people we must look to the needs of those on the lowest incomes. To achieve this end, both Ministers, Deputies Howlin and Noonan, have found resources to reduce the quantum of measures needed in social protection from €540 million to €390 million. Although difficult measures are being taken, we have also found resources to take a number of positive steps, including 6,000 additional after-school child care places for low income parents and an additional €2 million 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 pay tribute to Atlantic Philanthropies for the vision it has 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 in particular on the work he has done in promoting this cause.

Despite the immensely 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 a wealth tax package that amounts to over €500 million 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. There is a progressive structure in the property tax so that houses valued at more than €1 million will pay a higher rate of 0.25%. Changes to PRSI will mean that unearned incomes will also be liable to social insurance contributions and there will be a higher rate of universal social charge on pensions over €60,000 and a €200,000 cap on top-slicing relief. There will be 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 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 tale figures that every Sinn Féin Deputy is ordered to parrot.

The reform of pensions policy comes after years of debate and analysis that 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 €250 million 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 it must be recognised that this is a major reform that will provide a stream of revenue to local authorities without taxing work and will enhance the quality of local democracy.

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