Budget 2018 Statement of the Minister for Finance …

1 Budget 2018 Statement of the Minister for Finance and Public Expenditure and Reform Mr. Paschal Donohoe 10 October 2017 INTRODUCTION A BALANCED Budget A Cheann Comhairle, Budget day offers the opportunity to reflect on a journey made, to recognise both what our country has achieved and what we want to achieve. On this Budget day we build on progress that would have looked impossible only a few short years ago. But, today, we redouble our efforts to rise to the challenges that exist while mapping out our national response to the new risks but also to the new opportunities of tomorrow. We should do so, and I do so, with optimism. With confidence in what we can achieve, in where Ireland can still go. Upon my appointment as Minister for Finance and Public Expenditure and Reform by our new Taoiseach, I articulated the economic pillars of this journey. Budget 2018 sees their delivery.

2 This Budget will: Safeguard our national finances and help to rebalance our economy; Promote fairness and provide for sustained improvements in people s lives; and Make sensible and long-term investments to benefit us now and into the future. It has been framed to comply with the Confidence and Supply Agreement between this Government and the main opposition party, Fianna F il. Their representatives are making their contribution to Ireland achieving more. I want to acknowledge that now. 2 THE ECONOMIC AND BUDGETARY POSITION Before moving on to the strategy and measures in relation to both revenue and expenditure, I will outline the economic and budgetary position of the Irish economy. The economy continues to grow strongly with real growth projected to be per cent in 2017 and per cent in 2018. The benefit of this economic growth is best illustrated in the employment figures that show 19 consecutive quarters of employment growth, with gains visible across most sectors and well balanced across the regions.

3 Unemployment is now at its lowest since 2008, at per cent and is forecast to fall to per cent on average in 2018. This is close to the level considered to represent full employment in Ireland, just six years since we had an unemployment rate at over 15 per cent. But there remains much to be done and our challenge is to maintain this progress and use the benefits of this growth for a better, fairer Ireland. BALANCING OUR BOOKS In this context, the Budget I am setting out to the House today will deliver this Government s long held objective of balancing our books in structural terms by achieving the Medium-term Budgetary Objective, or MTO as it is known. Achieving the MTO is not an end in itself. But sticking to careful budgeting, through adherence to the fiscal rules agreed by the Irish people in the referendum on the fiscal compact, will not protect us from every crisis.

4 However, it will help reduce the chances that future crises are home grown and will mean that our economy and public finances are in a better position to weather crises stemming from external factors beyond our control. The list of potential external risks is lengthy. It includes Brexit, potential changes in US trade policy and various geo-political threats that could have impacts on the global economy. Crucially, balancing our books in 2018 will also mean that we can devote additional resources to tackling the needs of the Irish people and the economy in 2019 and subsequent years. In headline terms, the projected deficit for this year is per cent of GDP and taking account of the Budget package, the forecast deficit for 2018 is per cent of GDP. 3 In structural terms, the metric by which our obligations under the Stability and Growth Pact are set and measured, we will deliver a structural deficit of per cent of GDP, thus achieving Ireland s Medium Term Objective.

5 Reducing the debt burden we face is critical. Ireland s debt to GDP ratio has come down impressively in recent years. But it is still too high, and we must not ignore the level of debt we leave for our future generations. Sticking to our budgetary plans, avoiding overruns and protecting our solid economic growth will continue to reduce the debt burden in the coming years and re-inforce the resilience of both our economy and our public finances. It means that we will be doing the right thing at this point in our economic cycle, the right thing for those who want sustained investment in public services and the right thing by those who will bear the burden of our debt in the future. THE RAINY DAY FUND To further protect the economy and the national finances, I propose to establish the Rainy Day Fund in the coming year and transfer at least billion to it from the Ireland Strategic Investment Fund to start it off.

6 As set out in the Summer Economic Statement , the annual contributions of 500 million will commence in 2019 after we have achieved the MTO in 2018. This is another important step in strengthening the national finances in a changing and risky world, especially in light of Brexit. To progress this initiative, I am publishing the consultation paper on the establishment of the Fund today and I look forward to hearing the views of the Oireachtas in due course. SUSTAINABLY GROWING INVESTMENT I wish to confirm that total voted expenditure in 2018 will amount to just over billion. This equates to 12,700 for every person living in our country. Of that sum, nearly billion has been allocated to current expenditure to ensure the continued delivery of sustainable and high quality public services. This reflects the Government s continued commitment to rebuilding and investing in public services.

7 4 Total voted capital spending for 2018 will amount to over billion, an increase of 790 million on the 2017 allocation. However, unlike in previous Budgets, I am announcing additional an allocation of capital expenditure of billion over the next four years, up to the end of our existing Capital Plan in 2021. This is central to our response to Brexit and will allow our State and its agencies to properly plan major infrastructure projects over the medium term while also ensuring communities and businesses can plan ahead. This will result in capital expenditure doubling between 2015 and 2021 - from billion to billion Gross Voted Capital. This will bring Ireland s public investment levels to among the highest in the and ensure we can deliver key priority projects in areas such as social housing, roads and schools. A number of key projects are already having a real impact on improving people s lives.

8 To give just a few examples; last month the new M17 was opened between Gort and Tuam ahead of schedule; a new Emergency Department was opened at Limerick University Hospital; as was the renovated Pairc U Chaoimh in Cork. In Dublin, the Luas Cross City will soon begin to carry its first passengers. This increased investment will deliver better public services, promote regional economic growth, and help address challenges such as Brexit and climate change. But we cannot repeat old mistakes. Ramping up capital expenditure by too high a level, for example, would be a dangerous and simplistic policy. It would very clearly risk excessive inflation and the overheating of the construction sector. Which in turn would result in poor value for money for the taxpayer. BUDGETARY STANCE The guiding principle in my macro-economic choices is choosing the right budgetary stance.

9 At the time of the Summer Economic Statement , I announced that the unallocated fiscal space for 2018 amounted to a little over 500 million in nominal terms and 180 million of this has since been committed to the Public Service Stability Agreement. 5 To augment the resources for distribution in the Budget , I am raising additional revenues of the order of 830 million, giving a total Budget day package of billion. Expenditure will receive an additional 898 million. 684 million is being used to fund additional current expenditure and an additional 214 million is going to capital expenditure. I will also be introducing tax reductions on income worth 335 million. The Budget increases gross voted current expenditure by over billion or per cent compared to the expected outturn for 2017 excluding the water charges refund. This growth in current spending is less than the forecast real growth in the economy of per cent.

10 This is dramatically different to the levels of increases in current expenditure the last time this country was in a full-employment situation between 2000 and 2007 when the average annual increase in current spending was an unsustainable 12 per cent. I am increasing voted capital expenditure by 790 million from billion this year to just over billion in 2018. This is an increase of over 17 per cent. All this means protecting our country s economic future while investing in education, health, childcare and housing. HOUSING And housing remains a priority for this Government. I am very aware of the corrosive impact on Irish society of homelessness. I am also aware that many people living in the private rented sector wish to find more appropriate accommodation or move to their own home, but at the moment cannot do so. Our actions to support the housing sector, though, are bearing fruit.