Budget Speech by An Tánaiste and Minister for Enterprise, Trade and Employment, Mary Harney, T.D.

Dáil Eireann, 4 December 2003

Yesterday, the Minister for Finance published this government's second budget and the seventh in a series from the coalition parties.

It is a radical and reforming budget. A fair budget. A pro-enterprise budget.

Our programme of full scale decentralisation is bold and imaginative. No government in the history of the State has acted on this scale for the regions.

Our tax reforms and our social supports are clearly and consistently designed for the less well off.

Our initiatives for enterprise will transform industry through innovation.

Our sound management of public finances will sustain our economic and social progress.

This is a budget for a prosperous Ireland, a fair Ireland, a successful Ireland.

Economic strategy

We have come a long way in this country. Ten years ago this year, a book was published called `The Jobs Crisis', a collection of the Thomas Davis lectures on RTE.

The atmosphere captured in that book was gloom and despondency about jobs.

People wrote of a failure of the labour market, a failure of strategic thinking and a failure of the political culture that settled for mass unemployment.

Ten years on, no-one can suggest that our political culture, led by government, is prepared ever again to accept mass unemployment and emigration.

And with this budget, no-one can be in any doubt about us achieving balanced regional development.

This is a fundamental change in Irish life. I am proud of the role that my colleagues and I have played in it.

We will never again settle for the injustice and hopelessness that seemed impossible to lift in 1993.

We will never again settle for the unfairness and imbalance of an over-centralised State, over-centralised services and an over-centralised economy.

We've shown that there are economic answers, there is political determination, and there is strategic thinking.

Decentralisation

I believe that people elect politicians to get things done.

They choose governments that will confidently pull the big levers of power, make strategic decisions, and implement big reforms.

Our decision to decentralise is right for our country - right in its scale, right in its ambition, right in its results.

Decentralisation can only work as a stimulus to the economic development of the regions if it is large-scale, not piecemeal. It can only work as government leading by example for investors if it involves major government offices. It can only work to inject energy and enthusiasm into communities throughout the country if a big number of people are involved in a lot of locations.

That is why the government is taking the big and ambitious way forward.

Over 10,000 public servants will be involved. It represents a tremendous opportunity for them, for their families and for the communities they will join.

I am fully confident decentralisation will play a major role in improving public services, bringing them much closer to the people.

It will change our mental map of Ireland. From now on, we will go around the country, not just up to Dublin.

We will become much more like European countries with thriving and balanced development around regional cities and towns.

Decentralisation will make our spatial strategy real. Our investment in roads and rail, hospitals, schools and universities will work all the better nationally and regionally.

In my area of ministerial responsibility, over 1,000 employees of the Department of Enterprise Trade and Employment and its agencies will move out of Dublin. Four of our major agencies are moving. Nearly half of our people will be involved. We've already moved some offices, but this is the biggest project yet.

I am very pleased that we will now be able to demonstrate to investors, both domestic and international, that the government leads by example when we encourage investment in the regions.

We can demonstrate the reality that investment everywhere in Ireland is investment in one gateway to the European market.

Economic and financial policies

Our radical decentralisation programme takes place in very best possible context: an economic strategy that is delivering sound finances, sustainable growth and strong social supports.

Our economic strategy works. It has put Ireland to work and it will keep Ireland at work. 1.8 million of us are at work in Ireland now, 600,000 more than in 1993.

The last few years have been tougher. We have made the hard decisions. We have addressed the challenges created by the international slowdown.

Public spending is under control. We are increasing public spending in line with economic growth and our ability to pay. Better expenditure management means we have the resources to target public spending with more fairness and more effectiveness. It means lower borrowing costs by keeping debt low. It means we have the confidence and the competitiveness to grow.

Inflation is lower. This delivers better value for all of us - individuals and families, public and private sector. With the budget increases, low inflation means real improvements for the less well off. It means real improvements in standards of living. It means real protection for savings.

Taxes are low. Keeping taxes both low and fair continues to be at the heart of our economic strategy for jobs and growth.

Tax measures

Our tax policies are a means to an end. They work for fairness, for jobs and for growth.

In the budget this year, we are again keeping taxes low across the board and we are keeping taxes fair.

Our tax reforms are designed first and foremost for the lower paid. 90 per cent of the minimum wage will be kept out of tax net. And this is the new, higher, minimum wage of €7 per hour that comes in next February.

We have made our tax system more progressive and more fair.

In 1997, the average industrial wage was the equivalent of €19,372. A single person earning this wage paid 14 per cent tax of it in tax.

In 2003, the average industrial wage has risen to €28,171, itself a mark of the economic progress we have made in six years. A single person on this wage paid just 6.8 per cent in tax.

In our time in government, earnings are up and taxes are down.

Our tax reforms and our tax cuts have delivered real benefits for the people on low and average incomes.

There has been criticism that we have not increased the standard rate band this year.

I do recognise concerns about the number of people paying the 42 per cent rate on marginal income. And I believe this should be addressed in future budgets.

But I will take no lessons about keeping taxes low from people and parties who bitterly opposed every hard-fought reduction we made in the top rate of tax - every single step of the way down from the infamous 65 per cent rate.

From some of the ill-informed comment, you would think we had actually lowered the standard rate band. Let me assure the House of the simple fact that no PAYE taxpayer will lose money from income tax policies in this budget.

People who earn more, pay more tax. You only pay at a higher rate if you increase your earnings, and on those higher earnings.

It used to be that people lost more than half of their overtime in tax. We've done away with that, permanently.

It's fair. It's socially just. And it's what a low tax approach delivers.

Business initiatives in the Budget

For those who are working hard to start up, manage and develop businesses, we are saying, `We're with you. We understand you. We value what you do.'

True to our economic strategy and against the advice of others, we have not increased PRSI on jobs. We have not doubled capital gains tax. We have not increased corporation tax.

Instead, we have introduced a series of new measures so that the tax system further supports initiative, risk-taking and innovation.

R&D tax credit

The new tax credit for incremental research and development will give clear support to our strategy of transforming industry through innovation.

Innovation and research is the key to our future and to becoming a knowledge economy. It's a European priority and an Irish priority. But up to now, we invest less than 1.5 per cent of GDP in research and development. That's less than the shared European target of 3 per cent, and a lot less than some leading countries like Finland and Sweden, with R&D investment already over 3 per cent.

The R&D tax credit complements our direct programmes of growing Ireland's research performance through the third level colleges, Enterprise Ireland and Science Foundation Ireland, along with the sectoral research agencies.

It dovetails with our major investment of over €340 million of public resources in R&D announced in the Estimates for 2004. In my Departmental vote, investment in research and development is up 36 per cent.

Patents

We are also removing stamp duty on the registration of patents. The encouragement of patents is also a European and national priority. We want to give all possible support to the generation of new ideas and products. We are underlining that Ireland intends to become a world leader in converting ideas into jobs.

BES and Seed Capital

We are supporting new business start-ups and development by extending and improving the Business Expansion and Seed Capital Schemes. This will continue the practical support in the tax system for the real financing needs of these businesses.

Section 481

And by keeping Section 481 film relief until 2008, we will continue to build up expertise and employment in the film industry here.

Headquarters activities

We are also improving the attractiveness of Ireland as a location for headquarters activity.

These initiatives show again how important the role our tax system plays in shaping the environment for enterprise and employment in our country.

It is an integrated system that we shape for the needs of our people and our economy. It is an essential part of our mix of policies that take account of our skill base, our location and our infrastructure needs.

Our low corporation tax rate will deliver over €5 billion in tax revenue next year. This is equivalent to nearly all our capital investment.

For these reasons as well as for our democratic life, it's vital that we keep national control over our direct tax policies in all aspects. This is the firm stance Ireland is taking at the negotiations over the new EU constitutional treaty.

Trade Union tax relief

I am pleased to highlight today the government is increasing tax relief for contributions to trade unions by members. Trade unions have made a strategic contribution to our economic success in successive partnership agreements. They have helped create stability, fairness and reform in our country while vindicating the rights of their members.

Pensions and social welfare payments

Every civilised society honours, respects and cares for the older generation.

Our commitment to older people is fundamental to justice in our society. Our older people have worked to build our country. They have educated and reared the next generation. They have paid their taxes.

That is why we give top priority to the real value of pensions.

In 1997, my party colleagues and I first set an ambitious target of a £100 per week pension. This was adopted with our coalition partners in the Programme for Government in 1997. Our commitment was not alone delivered on, but exceeded, within four budgets.

The government set a new commitment to a €200 per week pension. And we are meeting that commitment too. This year's budget again increases pensions again, by €10 per week to bring the contributory pension up to €167.30 per week.

In every budget that I have been involved in, the government has increased pensions substantially, and well in excess of inflation.

On 1 January next, the weekly pension will be up by €60 in five years. That's an increase of 59 per cent, nearly three times price inflation of 22 per cent in those five years.

This is real economic progress, delivering real increases for pensioners, and real improvements in standards of living.

We have also prioritised resources to support people with increased social welfare payments. The social welfare rates will be increased by €10 per week.

Again, in five years, the 55 per cent increase in unemployment assistance far outstrips inflation in that time. This year, the lowest social welfare rates are increasing by more than three times expected inflation.

Overall, we are providing for €750 million more in social welfare payments than in 2003.

A visitor to Ireland who asks about our public priorities need only look at our Budget and Estimates. The largest single area of spending is social welfare. The next is health. Third is education.

We invest in fairness, we invest in our people, we invest in our services.

Child benefit

Parents are in the best position to make childcare choices for their children - be it in a crèche, at home, with family or neighbours, part-time or full time.

The fair way to support all parents, and particularly mothers, is child benefit.

From next year, a family with two children will receive €3,158 in child benefit. A family with four children will receive €7,125.

Five years ago, a family with two children received just €960 and a family with four received €2,240.

Child support has been increased more than three times over in that time.

This is real, sustained support for all families. And it puts the naysaying about the standard rate tax band in perspective.

Disabilities

I am particularly pleased that the government has agreed in this Budget to provide a further €25 million for services for people with disabilities. This underlines our commitment to constant improvement here, recognising that, as a society, we are still building our services and supports, after a somewhat late start.

I am pleased also with our further €100 increase in the respite care allowance and a 19 per cent increases in the income disregards for the carer's allowance.

Conclusion

Our economic and social strategy works.

It has already resulted in the population increasing in every county in Ireland. It is a strategy that has resulted in employment increasing in every county in Ireland. And now it will result in government and public services working in every county in Ireland.

This is a budget for big change. It is a budget that makes a decisive step forward for balanced regional development. It is a budget that will change the face of Ireland and change our mental map of Ireland.

Our economic strategy is not to bring back the Celtic Tiger or to bring back anything else. It is forward looking.

It's about innovation, reform and change. We have designed the strategy, we are making the policies, we are taking the actions.

It is about the constant renewal of jobs and opportunity in our country. It is about finding new ways of succeeding, neither repeating the mistakes of the past nor simply repeating the successful formulas of the past.

It is about public sector modernisation, how public servants work, where they work, what they work at.

This Budget shows that our economic strategy is the whole of society and for every part of the country.

It is for people at work, people wanting work, and people who have completed work;

• in the public sector, the private sector, and the voluntary sector;

• in every county of our land.
• For the young, for the old, for those in-between;
• for those who need an extra hand;
• for those with the ideas and energy to build our wealth;
• and for those who enrich us with creativity and artistry.

Our budget is for all society, for a fair society, for a successful new Ireland of the regions.

ENDS/ETE 1168