Budget 2018 Statement by Minister of State Michael D’Arcy, T.D.

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Budget 2018: Statement by Minister of State at the Department of Finance, Michael D’Arcy, T.D.

10 October 2017

 

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I am particularly pleased, as a former member of this House, to have the opportunity to contribute to the Seanad’s debate on Budget 2018, which the Minister for Finance and for Public Expenditure and Reform presented to Dáil Éireann earlier today.

The overriding objectives of this Budget are to:

  • Safeguard our national finances and help to rebalance our economy;
  • Provide for steady and sustained improvements in people’s lives, and
  • Make sensible and long term investments to benefit us now and into the future.

The budget is framed in the context of a number of existing and forthcoming challenges – but also looks to create opportunities.  

The Budget is also framed to comply with the Confidence and Supply Agreement between the Government and the main opposition party, Fianna Fáil, and it is appropriate to acknowledge their contribution.

As you are familiar with the details of what has been announced by the Minister for Finance and for Public Expenditure and Reform in the Dáil– I will focus on some of the key themes for this budget – rewarding work, supporting housing, improving services particularly in health and education, increasing investment and Brexit.

I will also address recent developments in International Financial Services and also on the cost of insurance.

 

Economic context

The economy continues to perform well – with real growth of 4.3 per cent expected for this year and 3.5 per cent for 2018.    This is perhaps most evident in the labour market. Employment has increased in each of the last 19 quarters and this has been well balanced across both sectors and regions.

Employment, at over 2 million, is at its highest level since 2008.

Unemployment currently stands at 6.1 per cent and is expected to average 5.7 per cent next year – a significant improvement since the peak of over 15 per cent in early 2012.  At these unemployment levels – we are close to what is considered full employment in Ireland.

 

Fiscal policy

This budget delivers the Government’s long standing target of balancing the books in structural terms next year– by reaching the Medium Term Budgetary Objective – better known as the MTO.

Adhering to our budgets and ensuring continued growth will achieve a reduced debt ratio and will build the resilience of both the economy and the public finances.

The Rainy Day Fund, for which further details were announced today, represents a further important element in this strategy.

 

BUDGET 2018 MEASURES

REWARDING WORK

The Government is firmly committed to ensuring that that work is rewarded.

The point at which an income earner attracts the higher rate of income tax is therefore being increased next year by €750 per annum – raising the entry point for single earners to €34,550. This represents further progress towards ensuring that people on average wages do not pay income tax at the higher rate.

Changes have also been announced to the USC, with targeted reductions in the rates but no narrowing of the base. The lowest rate is reduced by a half per cent to 2 per cent and the ceiling raised to ensure that full time employees on the national minimum wage do no pay the upper rate of USC. 

The reduction in the 5 per cent rate to 4.75 per cent will reduce the top marginal tax rate for those on incomes up to €70,444 to 48.75 per cent.

There are also a number of initiatives to assist small and medium enterprises to deal with the international challenges.

The earned income tax credit is being increased by a further €200 to €1,150 per year from 2018. This will benefit over 147,000 self-employed individuals generating economic activity across the country.

In addition, a new Key Employee Engagement Programme, KEEP, has been introduced to help small and medium enterprises to attract and retain key employees in a competitive International labour market, by providing for an advantageous tax treatment on share options.

The home carer credit is being increased by €100 this year to €1,200 per year assisting over 80,000 families where one spouse works primarily in the home to care for children or the other dependants.

A working group is being established to plan, over the coming year, the process of amalgamating USC and PRSI over the medium term.

 

CORPORATION TAX

The area of Corporation tax has seen substantial reforms in recent years, and Ireland has played its full part.  Ireland offers a stable and competitive corporation tax system, which is internationally recognised as one of the most transparent in the world. 

We are very clear that the 12.5 per cent tax rate is, and will remain, a core part of our offering. You will be aware that the Seamus Coffey Report, published by the Minister for Finance last month, set out a road map for a number of reforms.

One of the recommendations of the report – relating to capital and interest allowances for intangible assets – is being introduced with effect from midnight tonight.

The Minister has announced a consultation process as part of updating the international tax strategy.

 

INVESTMENT

The Budget outlines a number of important developments for investment   with the allocation for 2018 being increased by €790 million. 

Total capital expenditure will more than double between 2015 and 2021 – from €3.7 billion to €7.8 billion. This will make Ireland’s public investment levels among the highest in the E.U. and will enable critical bottlenecks to be addressed.

Taking a longer term view, the publication of the National Investment Plan and the National Planning Framework later this year will allow us to identify where we should target resources and capacity to support sustainable growth.

 

HOUSING

The Government’s continued prioritisation of housing is clearly evident in this budget. The allocation of €1.83 million for housing in 2018 will support the continued implementation of the Rebuilding Ireland Action Plan and the new initiatives and targets arising from the review of this plan. 

The increase of €149 million in the allocation for the Housing Assistance payment will enable 17,000 additional households to be supported and accommodated in 2018.  Increased funding for homelessness services will support the provision of emergency accommodation and other supports to those who need them.

Additional funding of €500 million is being provided for direct building of an additional 3,000 social housing units to bring the Rebuilding Ireland target of 50,000 units by 2021. It is expected that 3,800 new social housing units will be delivered by local authorities and approved housing bodies next year.

 

HOUSING FINANCE AND THE PROPERTY MARKET

Further measures have been announced to support an increase in the supply of housing in the coming years.  These include making up to €750 million of the Ireland Strategic Investment Fund available for commercial investment in housing finance, changes in relation to stamp duty on commercial property, the vacant site levy and the new deduction for pre letting expenses.  

 

PREPARING FOR BREXIT

It is clear that Brexit is one of the most significant challenges we face. It will bring with it permanent changes in our trade patterns.

As it represents a structural change – it is important that we respond appropriately. The Minister for Finance has announced a Brexit loan scheme to assist has Small and medium businesses to undertake the innovation and sourcing of new European and international markets that will be needed in response to Brexit.

This loan scheme, developed in conjunction with the Tánaiste and Minister for Business, Enterprise and Innovation, and the Minister for Agriculture, Food and the Marine, will provide up to €300 million at a competitive rate to SMEs, including food businesses which are uniquely exposed to the UK market, to help them with their short term working capital needs.  

In addition, the budget for the Department of Business, Enterprise and Innovation will enable the recruitment of a further 40 staff across the Department and enterprise agencies to bolster our ability to proactively respond to the challenges and opportunities arising from Brexit.

The retention of the 9 per cent VAT rate for the hospitality will help mitigate the Brexit impact on the tourism and hospitality sector, particularly outside Dublin.

 

HEALTH

An effective health service is essential to our wellbeing.  This budget provides additional funding of €685 million for the sector, an increase of 5 per cent. Health funding is now at record levels.  This will support the recruitment of some 1,800 additional front line staff.

It will also provide for an increased allocation to the Access Plan which will ensure that patients can avail of the medical care they need in the most appropriate setting for them.

As part of the Access Plan funding for the National Treatment Purchase Fund has almost trebled. Prescription charges for medical card holders will be reduced. 

Additional funding is provided for primary care.  An increased capital allocation will permit investment in critical health infrastructure including the National Children’s Hospital, and a range of primary and community care schemes.   With the level of resources now being provided – a focus on value for money in the health sector is essential.

Health policy is being supported by increased taxes on tobacco and sun beds, and the introduction of the sugar tax. 

 

EDUCATION

Education is an important foundation for our society and for the economy.

The increased allocation in this year’s budget will provide for additional teaching posts, reduce the primary pupil teacher ratio and increase the number of Special Needs Assistants.  In addition, the National Training fund levy is being increased provide additional funding to the further education sectors next year. Additional capital will address the infrastructure needs of higher and further education sectors.

 

TACKLING CRIME

The Government’s commitment to dealing with crime is evident in the provision of additional resources for the recruitment of an additional 800 Gardaí and 500 civilians during 2018.  

However, this increased spending is contingent upon a commitment to drive reform throughout the organisation. 

 

SOCIAL PROTECTION

Fairness is important at all times particularly for the more vulnerable members of society.   All weekly social welfare payments, including disability allowance,  carers allowance, jobseekers allowance and benefit and the State pension, are being increased by €5 per week from the last week in March. 

Measures have also been announced to facilitate working families in receipt of One Parent Family payment, Jobseekers transitional benefit, the Family Income Supplement and the qualifying Child payment.

 

OTHER INITIATIVES:

This budget has introduced a broad range of measures – I have touched on some of them.  And, at the request of the Seanad Leader’s Office, to facilitate more time for debate in the Chamber I will not elaborate on their detail.

However, significant increases were announced for the Child Care, Child protection, and tackling crime along with measures for the Arts, Climate Change, and Agriculture and Food and Rural Development, all of which will bring about real progress. 

 

INTERNATIONAL FINANCIAL SERVICES

Ireland has a strong track record in winning Foreign Direct Investment and one of the key pillars of this success is the growth of International Financial Services (IFS) over the past three decades.

 

IFS2020

This Government is fully aware of how competitive the global financial services environment is, and launched the International Financial Services Strategy 2020 or ‘IFS2020’ in March 2015 in response. 

IFS2020 aims to grow the numbers employed in the sector by 30% to 45,000 over the five-year period to 2020.  I am pleased to say we are well on track. By end-2016, there was a 13% growth in employment since 2015 with around 40,000 now employed across 400 indigenous and multinational firms.

 

IFS in Regions

The industry is nationwide with 30% of jobs outside Dublin in locations such as Donegal, Galway, Limerick, Cork, Kerry, Louth, Kilkenny and Wexford.

As part of my role as Minister of State for Financial Services and Insurance, I have undertaken a number of regional outreach visits and witnessed first-hand the attractiveness of Ireland’s regions for International Financial Services.

 

Opportunities

Ireland will continue to compete for investments in the International Financial Services sector.  A number of firms have already announced the creation or expansion of operations here.

Ireland is a fully committed member of the European Union and we will be the only English-speaking common law jurisdiction in the EU after the UK withdrawal from the EU.

 

INSURANCE

The recent surge in non-life premiums particularly on the motor side has had a significant impact on society as a whole as many people struggle to afford what is, after all, an essential requirement for day-to-day living.

While average motor insurance premiums have begun to stabilise this year, prices increased by almost 70% from 2011 to their peak in July 2016.

It is against this backdrop that the Cost of Insurance Working Group was established by the Minister of Finance last year.

This resulted in the publication of the Report on the Cost of Insurance.   The recommendations include the establishment of a national claims information database and the establishment of a Personal Injuries Commission.

Since the publication of the Report, the responsible bodies have been implementing the actions assigned to them in the detailed Action Plan.

 

Second phase of the Working Group: Employer and Public Liability

The second phase of the Working Group, which I chair, is considering the impact of the cost of Employers Liability and Public Liability insurance on the competitiveness of particular business sectors.

Given the complexity of issues in this area, it is expected that a final report will be published during the autumn/winter term, rather than the end of September as originally indicated. 

 

CONCLUSION

In conclusion, while the overall fiscal and economic backdrop is positive, we nevertheless face challenges both domestically and internationally.

The government is addressing these challenges within the available resources available– domestically in relation to housing, continued improvements in services notably in Health and Education, rewarding work and making the investment necessary to support a growing economy.

On the international challenges –additional resources are provided to address Brexit and to increase our footprint in the broader global stage. We are also addressing our infrastructure requirements through the capital programme. 

We must also look to opportunities and I have outlined our approach in relation to financial services. I have also outlined the continuing progress in reducing insurance costs – which affect both households and businesses.

This budget has increased the amount of resources available and has continued the pattern of making steady incremental progress on a broad range of issues.  It will bring about improvements in our services, and in opportunities in our country. I commend the Budget to the House.

ENDS

 

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