Seanad Éireann - Volume 145 - 20 December, 1995

Appropriation Bill, 1995 [ Certified Money Bill ] : Second Stage.

Question proposed: “That the Bill be now read a Second Time.”

Minister of State at the Department of Finance (Mr. Coveney): I apologise for the unavoidable absence of the Minister for Finance. The annual Appropriation Bill gives statutory effect to the Departmental Estimates for the supply services, non-capital and capital, including all Supplementary Estimates which were approved by the Dáil since the last Appropriation Act.

The 1995 Bill appropriates to the various services listed in the Schedule the sum of £10,398,104,797. This total amount comprises the original Estimates of £10.192 billion set out in the revised post-budget Book of Estimates for 1995; Supplementary Estimates totalling £204,208,000; and an Excess Vote of £1,788,797 for 1993 on the International Co-operation Vote. Following the normal practice, the Bill also approves the use of certain departmental receipts amounting to £963,222,880 as appropriations-in-aid.

When the Bill was debated in the Dáil, certain exaggerated claims were made by the Opposition parties about its implications for the increase in spending this year; they said it would be of the order of 12 or 13 per cent. The Minister for Finance set out the position on 1995 spending in his statement to the Dáil on 14 December in the course of the debate on this Bill. I will summarise and repeat the facts as he presented them.

The Department of Finance's best estimate of the outturn for 1995 current spending is £11.7 billion. This includes £140 million in respect of equal treatment payments which the Government decided to accelerate. When this amount is excluded the current spending outlook for 1995 shows an increase of 6.1 per cent over 1994 or 3.5 per cent in real terms. They are the facts and [1849] claims from the Opposition parties and reports in the media that the increase in spending this year will be in the region of 12 to 13 per cent are simply not true.

The Bill provides for the allocation of an additional £204 million to the original 1995 departmental Estimates. This money is required to enable Departments and their agencies implement their planned programmes of services and activities this year. This is a net expenditure figure which takes account of a £59 million shortfall in departmental receipts by way of appropriations-in-aid. When that shortfall is excluded the additional sum being allocated to gross departmental expenditure is £145 million, of which £115 million relates to gross non-capital spending. The Bill does not highlight savings which have arisen in various Departments.

The 1995 figure for gross current expenditure in the Appropriation Bill before the House is £10,080 million. However, this does not include the gross expenditure from the social insurance fund which is not voted by the Dáil. Taking this into account the gross current 1995 figure implicit in the Bill is £11,774 million. This is the figure for gross current expenditure which is shown in the Abridged Estimates Volume published last Monday. As I mentioned earlier the expected outturn is lower than this.

The Departments with the most significant Supplementary Estimates and the main factors giving rise to those additional allocations are as follows. An additional sum of £89.9 million is being provided to the Department of Health, of which £60 million relates to the establishment of a special fund for payments to people infected with hepatitis C. The balance of £29.9 million relates to additional funding requirements for demand led schemes, mainly drug refund schemes.

An additional sum of £45.4 million is provided to the Department of Education, the main component of which is in respect of a shortfall in appropriations-in-aid as a result of delays in receipt of transfers due from the European [1850] Social Fund. Additional provision is also required for recoupment to the vocational education committees in respect of payments made by them under the higher education grants scheme.

The Department of the Environment receives an additional sum of £23.1 million, mainly in respect of additional funding for the Government's restoration programme for non-national roads. The Department of Social Welfare is being provided with an additional sum of £19 million, mainly to cover the cost of the payment of a Christmas bonus to social welfare recipients.

As Senators will be aware, the Government has decided to use gross — as opposed to net — non-capital supply services expenditure as the measure of public spending in 1995. This has given rise to some comment in recent days. Gross current spending is used as it provides a more accurate and realistic measure of what the Government spends and is a more appropriate and valid basis on which effective overall control on public expenditure may be exercised.

In the annual Appropriation Act, which is the statutory authority for expenditure on supply services, the House approves first, the net amount needed for each service and second, the amount of cash receipts, known as appropriations-in-aid, which may be spent on the service. These two amounts taken together make up the gross amount of each Vote. A gross measure of public spending is a better measure of total Government spending. Net spending reflects receipts which partially fund spending. These include receipts of Government Departments by way of charges for services and certain EU transfers. A modest increase in net spending may mask significant increases in overall spending if there are compensating increases in departmental receipts.

The use of gross supply services spending as a measure of public spending is not a new concept. The annual Book of Estimates has, traditionally, [1851] provided details of departmental expenditure on a gross as well as a net basis. While the amounts voted by the Dáil and provided for in the Appropriation Bill are net amounts, Government accounting has always been on a gross basis, that is, receipts are not offset against payments. part II of each Vote sets out the gross provision sought by subhead. The subheads of a Vote are the headings under which the Department is required to account for expenditure and determine the items in the appropriation account. The gross approach facilitates the financial control of the Dáil and enables the Department of Finance to exercise control of expenditure.

This year's Bill covers an excess Vote relating to 1993. The excess of £1,788,797 arose from the over issue of funds to bilateral aid project accounts as a result of inadequacies in the system of financial control operated by the Department of Foreign Affairs which have now been rectified. Following established practice, the Committee of Public Accounts has examined this excess Vote and has no objection to it.

This year's Bill includes provision in section 3 for setting up a special account, to be funded from moneys provided by the Oireachtas by way of Supplementary Estimate on the Health Vote in 1995, to be used to pay awards on an ex gratia basis made by the tribunal appointed by the Minister for Health for the purpose of administering the scheme of compensation for victims of hepatitis C.

What the Government is doing, namely introducing a Supplementary Estimate to make available money to be paid into a fund created by the Appropriation Bill, had been decided on some time ago in the light of official and legal advice on accounting procedures and on the best way of supporting the work of the tribunal.

I repeat the assurance which the Minister for Finance gave to the Dáil last week, that there is no question of section 3 having been a last minute [1852] addition. The Appropriation Bill cannot be finalised until all Supplementary Estimates are known. For that reason, the Bill is always one of the last items published and brought before the Oireachtas each year. If the section had been an afterthought, the Supplementary Estimate would not have taken the format it did.

One of the precedents followed in drafting section 3 of the Appropriation Bill was the Air Companies (Amendment) Act, 1993, which created a similar fund to cover the payment of equity to Aer Lingus in the following year. If anyone cares to check the wording of these two Acts, it will be seen they are almost exactly the same.

Apart from authorising the Estimates and any Excess Votes, the Appropriation Bill also has another essential purpose. It provides a statutory basis for the calculation of the issues which the Minister for Finance is authorised, under the Central Fund (Permanent Provisions) Act, 1965, to make from the Exchequer towards meeting the cost of the following year's services before the Dáil has an opportunity to approve the Estimates for that year. Accordingly, the Appropriation Bill must be passed by both Houses of the Oireachtas before the end of the year to allow the provision of the 1965 Act to come into effect.

As we are approaching the end of the financial year, I take this opportunity to comment on the satisfactory performance of the economy over the last year and to look ahead to prospects for 1996.

The economy is performing strongly and it is now clear that economic growth this year will again be strong following last year's exceptional performance when GNP grew by some 7 per cent. The strong economic growth we are now experiencing is well balanced with both the domestic economy and exports contributing strongly to this growth. Improved confidence among consumers is reflecting itself in more buoyant consumption this year and last year, especially in areas such as new car purchases. Low nominal interest rates and [1853] the generally favourable demand conditions have resulted in stronger investment by businesses.

Our good competitive position and success in attracting investment helps us to gain market share with the result that our export performance continues to be exceptional. For instance, the latest figures show that in the first six months of the year, merchandise exports were one fifth higher than in the first half of 1994. Because growth has been both robust and well balanced, employment — which of course is the key measure of economic success — has responded strongly. The Department of Finance estimates that over the two year period 1994-95 employment has increased by over 80,000. In fact, the increase in employment in the year to mid-April last of 49,000 was the highest ever recorded in the labour force survey. This is a remarkable performance by any standard.

Inflation has remained extremely moderate at under 2.5 per cent over the last two years, below the average of our EU partners. Our balance of payments was in surplus to the tune of £2 billion last year and the expectations are that this will be exceeded this year.

This strong performance should continue into 1996. Confidence among consumers and investors remains high, interest rates are low and international economic prospects look generally good. The current growth phase should continue with another year of strong economic growth, albeit somewhat slower than the truly exceptional rates of this year and last. A further strong increase in employment is in prospect as growth is again expected to be well balanced.

As the House will be aware, the European Council in Madrid over the weekend took a number of very important decisions in relation to economic and monetary union. The first and most important of these decisions is that the Council confirmed unequivocally that stage three of European Monetary Union will commence on 1 January 1999. The Council also adopted a reference [1854] scenario on European Monetary Union setting out the steps to be taken in the transition to a single currency which, the scenario makes clear, will be completed by the middle of the year 2000. The Council also decided that the name of the new currency will be the Euro.

The decision on which member states fulfil the conditions for entry to European Monetary Union and the single currency will be taken as soon as possible in 1998. This decision will be based on 1997 outturns, although it will also have regard, of course, to the achievement by member states of a high degree of sustainable convergence. This means that the performance of member states in meeting the Treaty convergence criteria will assume an even greater importance from now on.

In recent years Ireland has made excellent progress on convergence. We have kept our general Government deficit below 3 per cent of GDP every year since and including 1989. We have reduced our debt-to-GDP ratio from over 116 per cent in 1986 to under 92 per cent in 1994 — a reduction of some 25 percentage points — and a further significant reduction is in prospect this year. Indeed, Ireland is the only EU member state which will have a lower debt-to-GDP ratio in 1995 than it had in 1991. The Government is determined to ensure that Ireland goes on meeting the criteria so that we will be fit and ready to join European Monetary Union when it commences in 1999. This Government will maintain the discipline necessary to ensure that we will be able to join European Monetary Union when it finally happens.

Mr. O'Kennedy: I welcome the Minister to the House for this debate which enables us to have, at least, a brief analysis of the elements contained in the Appropriation Bill, the expenditure pattern of 1995 and the expenditure allocations for 1996. The Minister's final line, in which he mentioned that “this Government will maintain the discipline necessary to ensure that we will be able [1855] to join European Monetary Union when it finally happens” does not reassure me. If the maintenance of “the discipline” is at the same level and commitment as we have seen in recent times under this Government, then I am afraid it will not be adequate to qualify us for membership of the European Monetary Union in 1999.

The Estimates for public expenditure published by the Government this week lack the credibility essential to maintain international confidence in our economy and the confidence of our partners which, as the Minister has said, has been consistent in recent years. The difficult decisions which the Fianna Fáil Government took in public expenditure control since 1987 are the reasons such a level of confidence has been generated in the economy. It is ironic that that level of confidence accures to the benefit of this leftist dominated Government whose members in Opposition fiercely opposed the essential financial constraints imposed by Fianna Fáil since 1987.

Mr. Coveney: What about the Tallaght strategy?

Mr. O'Kennedy: I will refer to that. I and every member of that Fianna Fáil Government would feel obliged to acknowledge the major contribution made by the Fine Gael Party at that time and the responsible attitude of its then leader, Deputy Dukes. The achievements on which the Fianna Fáil success was based in 1987 would not have been possible without the responsible contribution of Fine Gael towards a common purpose.

My observations will be directed towards the profligate spending pattern of the partnership which my party had to live with, although I was a reluctant supporter of it. My record in this House has been consistent in that regard. Fianna Fáil and Fianna Fáil dominated Governments since 1987 not only adhered to their financial targets but bettered them each year. Public expenditure [1856] allocations and projections are important to give the signal to the market. The realisation of targets 12 months later is significant to domestic and international markets and to our partners in Europe. Each year since 1987 we bettered the targets we set ourselves which were tough and disciplined.

In contrast to that performance by Fianna Fáil since 1987, this Government has already clearly breached its own financial targets for the second year running by a wide margin. This is a matter of regret and concern. That is serious enough but its spurious attempts to conceal this from the public and, perhaps more importantly, from the financial markets and its European partners will do a grave disservice to the people and will damage the economy.

The recent conduct of Government in breaching all the rules of public accounting, such as the spurious transfer of £60 million from next year's Estimate to the 1995 one in respect of the hepatitis C victims, raises fundamental questions of trust for the domestic and international financial markets which has been at the base of the growth to which the Minister referred. That did not happen overnight; it was the result of disciplined control and the achievement of targets.

Mr. Coveney: I accept that.

Mr. O'Kennedy: We seem to have a degree of consensus — perhaps something new is about to break on the political scene.

The Supplementary Estimate for the Department of Health in 1995, to which the Minister referred in passing, was presented to the Dáil on a false basis because it states that it is the amount required in the year ending 31 December 1995 for the salaries and expenses of the Office of the Minister for Health and certain services administered by that office. It is abundantly clear that the £60 million is not required this year as the Estimate suggests because no individual liabilities will be processed, much less determined, by the [1857] tribunal before next year. The Estimates for next year should properly include the £60 million provision. Some might say that it is Government expenditure one way or the other, whether it is for 1995 or 1996, but we all know that these Estimates, the outturn and the expenditure on the Estimates together, become the key which influence the markets and financial services.

To attempt to deceive the other House is serious but I would not worry about it — that is not to say that I do not have respect for the Oireachtas — because here we engage in political debate and argument. Everyone makes the best of the case they are presenting and the other side makes the worst of the case presented; that is the nature of political argument. However, to attempt to deceive the markets is much more damaging; the hard won confidence in which I acknowledge Fine Gael — in Opposition, significantly — played such a positive role in gaining and which has been exhibited in the Irish economy since the control actions of 1987 is now being recklessly forfeited. There is a terrible irony in the fact that Fine Gael, which played such a positive role in Opposition, is having that role undermined by the left dominated elements in this Government, to which I propose to refer somewhat more in the course of this brief contribution.

I take issue with the Minister in regard to the alleged overall target of an average 2 per cent annual increase in the current supply services for the reasons I have given. It is a false target. The underlying rise in 1996 is now likely to be nearer 3 per cent, which is a reasonable estimate, not a wild one, on my part. I will quote another authority on this, someone with whom I served in the Seanad when we both came here first in 1965. I am the only survivor of those days. I am the only survivor of those days. I am speaking about the former Taoiseach, Garret FitzGerald. He said rightly of practices which had been current in Fianna Fáil's time but which he acknowledged were no longer current, that “The best thing the Government could do now [he was talking of [1858] this Government earlier this year] would be to bury quickly this unhappy and, I believe, uncharacteristic piece of creative accountancy.” It is to be expected that he would say nothing else than that it was uncharacteristic of a Government in which his own party was involved, but he said a few months ago that the best thing would be to bury it quickly. What happen has happened? Instead of burying it quickly, the Government has resurrected it and paraded it as being a major achievement in discipline and control.

For the second year in succession the Government has breached its own financial targets in advance but, even worse, it is anxious to conceal this fact from the public and the financial markets. Any notion that the financial markets can be decieved by that kind of creative accounting shows extreme naiveté. The net result of all of this is that in this current year, the Government which reaped the rewards in 1995 of sound fiscal policy constructed by Fianna Fáil, has presided over a real growth of public expenditure in 1995 of the order of 13 per cent. The Minister may say that it was not 13 per cent but many people will demonstrate that, taking account of everything, it was. Public expenditure growth was the highest since 1978 and it was far in excess of the rate of inflation.

It is even more serious that this has cast grave doubts over the credibility of the Government's Estimates for 1996. The consensus which existed at least between the two main parties in the other House from 1987 was very important and helped to bring about discipline and control. During my years in Government, that consensus was probably one of the most positive and encouraging initiatives with which I was privileged to be involved.

It became apparent in 1987 that it was necessary to effect a major reduction in the number of staff in the public sector. At the first meeting of the Cabinet that year it was realised the days of the easy option were at an end. In a formalised agreement with the trade unions, [1859] employers and farming organisations we managed to achieve a discipline, understanding and common purpose that enabled us to reduce numbers in the public service. Since that agreement, those numbers have again mushroomed to the point where maybe we should not have undertaken that necessary exercise. Perhaps I should withdraw that last remark because, if we had not undertaken it at that time, Members can imagine how many people would be employed in the public service at present.

I want to pay particular tribute to the current leader of Fianna Fáil, Deputy Bertie Ahern, for the role he played in achieving that understanding. It is appropriate that I pay him tribute because he could hardly do so himself. The goal that was reached in convincing the national trade union movement to accept a reduction of numbers in the public sector of the order that was achieved was a tribute to his relationship with that movement and the trust it placed in him. Other Ministers at the time were able to build on this achievement and benefit from it.

I will provide an example to illustrate the case. When I entered Government in 1987 as Minister for Agriculture there were two agricultural advisory and research organisations, namely, ACOT and the Agricultural Institute. The total Estimate for 1986 for those organisations was in the region of £35 million to £36 million. My colleagues in Government, as a measure of what I was to do to take part in the sacrifice and discipline, made a sum of less than £30 million available to me for the following year. The reduction was allocated toward essential advisory and research services and was achieved on the basis of the agreement for redundancies and displacements. I negotiated long and hard with the agricultural organisations — the IFA and the ICMSA, for example — to agree to those reductions and pay contributions toward advisory services. I informed those organisations at the time, in [1860] relation to such services, that if they are worth getting, they are worth paying for. That breakthrough was achieved but the numbers in Teagasc, which has replaced ACOT and the Agricultural Institute, have returned to the level they were at before I achieved the reductions referred to earlier.

That is the kind of nonsense over which the current Government has presided.

Mr. Coveney: That has been going on for five years. We are doing something about it now.

Mr. Burke: It did not begin in 1995.

Mr. O'Kennedy: The Minister stated that it has been going on for five years but it has only taken place in the past two years.

Mr. Burke: An embargo is being put in place.

Mr. O'Kennedy: I acknowledge the less than benign influence of the Labour Party in the Fianna Fáil/Labour Government which preceded the current Administration. That influence was felt at that time, but not to the same extent. I hope it is clear that a policy exists, on the part of the Labour Party and the Democratic Left — which Fine Gael is unable to resist and which my own party did not succeed in resisting in the way I would have wished — of public expenditure growth. We are currently receiving statements of their intent.

I will illustrate exactly how spurious are those statements. The Democratic Left has managed to ensure that its Minister in Government retains the same level of back up service, advisers and researchers as the Taoiseach and the Tánaiste. We are informed that this is justified because the Minister requires that level of service. The Minister for Social Welfare is, effectively, his party's only representative in Government — although an arrangement exists which permits one of his colleagues to attend [1861] Cabinet meetings. I find it totally unacceptable that he needs that in order to have the same degree of information and research as the Taoiseach and Tánaiste, particularly when it means increasing his personal staff by five and when he demonstrated that the real job of Minister for Social Welfare does not mean that much to him when he gave a paltry 2 per cent increase to the old age pensioners last year.

People will look at this kind of public expenditure control with a degree of cynicism. I find it not only sad but outrageous that all the reductions which were achieved by us in Government have now been thrown aside and the numbers in the public service are at an even higher level than when we tackled them in 1987. There will always be a difficulty controlling current expenditure in particular, but it is important that the priority targets, be they the old, the sick, the young and those in education, will not suffer and that the administrative mushroom is cut back to the bone. I have no confidence in this Government's capacity to state that, having totally repudiated it in the last few years, they will now suddenly reduce the numbers in the public service. It is a belated dawn; it is outrageous.

Throughout his speech, the Minister made reference, not surprisingly, to the continued strong economy. We are agreed on the reasons for that. That economic growth will not last forever, certainly not with these policies. What we should be showing is discipline and control instead of the profligate and spendthrift actions which are evident in these expenditure allocations.

Expenditure allocations should also indicate Government priority. Last week, we had a long debate on the Courts and Court Officers Bill, 1995, and we are all agreed that the control of crime is important. We need more judges, courthouses, prisons, etc., but despite all that, there is a 1 per cent reduction in the 1996 Estimates over 1995 for the courts system and 2 per cent for the provision of courthouses. Where is the consistency there?

[1862] Mr. Burke: Is the Senator saying there should be an increase in public sector spending?

Mr. O'Kennedy: Clearly the minority parties in Government are not only getting extra staff to ensure they will be able to engage in battle with the other parties in Government, like the Minister of Social Welfare, Deputy De Rossa's, toy soldiers — he got a great Christmas bonus in his stocking from Santa Quinn while others, like the Minister for Justice, Deputy Owen, pay the price for it. I find that reprehensible.

I do not believe there is any cohesion in economic policy in this Government and I think I can identify the differences immediately. Even with parties which have no cohesion of economic policy, there is one common interest, and it has nothing to do with economic policy or the national interest. It is the common interest of securing the survival of Government in the interest of its individual members, irrespective of the interests of the nation. Regrettably, I must disagree with the Minister who talks about Ireland's capacity to quality for entry into European Monetary Union in 1998. With the pattern which we have seen in recent times and despite all the solid work of Government and Opposition up to recently, rather than qualify for European Monetary Union we will find ourselves risking being rejected for the first time by our partners and the financial markets.

Mr. Burke: The Appropriation Bill, 1995, brings most of the work to a close at the end of the year. It is a simple Bill and I do not intend to speak for as long as Senator O'Kennedy but, I do not have his great experience which stretches back to 1967.

The Appropriation Bill comes before this House every year. I remember Senator O'Kennedy making a lengthy contribution to the 1994 Bill also. The Bill is mainly about setting up a special account into which £60 million will be paid for people entitled to awards as a result of contracting hepatitis C. The [1863] Bill also states where the account will be and its purpose. It will enable people who have contracted hepatitis C to go before the tribunal set up by the Minister for Health and secure their awards rather than have to wait many years for them. Does Senator O'Kennedy believe that people with hepatitis C should wait six or seven years before they receive the payments to which they are entitled?

The Government decided to establish a tribunal under the aegis of the Minister for Health to administer a special compensation scheme for those affected by hepatitis C. Compensation will be paid speedily and without lengthy court proceedings to those who are found to be entitled to it. The tribunal will be formal, flexible and private. It offers the best way of meeting the needs of those affected by hepatitis C. It was agreed that a special fund would be created to meet the cost of compensation to show the Government's continuing firm commitment to this policy. Above all, setting up a specific fund into which Exchequer money would be paid as soon as possible is the clearest way of showing that the Government will do all it can to ensure that the tribunal is effective.

There is nothing hidden in what the Government has done. Its policy on hepatitis C has been stated by the Minister for Health on many occasions. Equally, in so far as accounting for public funds is concerned, there is nothing hidden. The Minister of State, Deputy Coveney, has made absolutely clear to the Dáil and the Seanad the amount of money involved and how it will be administered. In the first place, a Supplementary Estimate of £60 million has been provided in the 1995 Department of Health Vote to provide the necessary funds. Parts II and III of the Supplementary Estimate explain that the money will be paid to a special account for the compensation tribunal.

The Appropriation Bill before the House provides for the creation of a special compensation fund into which [1864] the money voted in the Supplementary Estimate will be paid. Section 3 of the Bill provides for the creation of the account and the rules under which it will operate. Again, there is nothing underhand in what the Government is doing here. The Government's decision to introduce a Supplementary Estimate for money to be paid into a compensation tribunal fund was made some time ago in light of official and legal advice on accounting procedures and advice on the best way of supporting the work of the tribunal set up by the Minister for Health. There is no question of section 3 of the Bill being a last minute addition.

The Bill cannot be finalised until all Supplementary Estimates are known; that has always been the case. For that reason, this Bill is always one of the last items published and brought before the Houses of the Oireachtas each year. Senator Roche is looking at me with suspicion.

Mr. Roche: It is just wry amusement.

Mr. Burke: That has been the case every year. The Government has performed exceptionally well over the last 12 months. I congratulate the Government, the Minister for Finance and his Minister of State the way they have conducted the affairs of the country. A 0.5 per cent reduction in interest rates was announced last week. This will give confidence to the country and to the Government. This time three years ago people were paying up to 46 per cent in interest rates. The present Opposition leader was the Minister for Finance at the time and his inability to make a decision caused interest rates to escalate to the highest and most unprecedented levels we have ever seen. Hard pressed business people had to pay unprecedented interest rates of up to 46 per cent. We now have low interest rates of approximately 10 per cent. I compliment the previous Government for their great work in bringing interest rates under control.

Senator O'Kennedy mentioned Deputy Dukes and the stance he took [1865] as Leader of Fine Gael in 1987. He must be complimented for what he did as Leader of the Opposition at the time, even though this was not in the best interests of Fine Gael, but Fine Gael has always put the country first——

Mr. Roche: Not now.

Mr. Burke: ——and is doing so now. We bore the brunt of the criticism for the hard decisions which were made at the time. Senator O'Kennedy stated that Fianna Fáil in Government reduced the numbers employed in the public service and this is true. However, he now suggests that over the last 12 months the numbers have been restored to their original level. More people were employed in the public service at the end of 1994 than in 1987. Fine Gael supported the work of the Government in 1987 but it is sad that the achievements of that Government were rapidly eroded by 1994. The present Government has to tackle this problem.

It is important to note that the rate of growth of public spending during 1995 and 1996 will be substantially below that achieved in earlier years, particularly by the Fianna Fáil/Progressive Democrats Government.

Mr. Roche: That was when we used real and not bogus accounts.

Mr. Burke: The Government's policies will ensure that we are in the first rank of the countries which will qualify to take part in the EU single currency zone. This task has not been made any easier by the high spending of the Fianna Fáil-Progressive Democrats Government during which Senator Roche was a Member of the Dáil. The Government's policy of keeping borrowing and spending within prudent limits means that interest rates can be maintained at low levels. During the past week interest rates were reduced by 0.5 per cent and I have no doubt the Minister expects further reductions over the next 12 months.

[1866] The increase in current spending for 1996 has been kept close to the target of 2 per cent which is contained in the Programme for Government. This is exceptional. I compliment the Government and the Minister for Finance for their good work and I ask them to continue along those lines.

The Bill provides £60 million for the tribunal established by the Minister for Health. People who have contracted hepatitis C will be able to obtain awards from the tribunal rather than waiting for six or seven years.

I commend the Bill.

Mr. Quinn: I am not happy with the level of spending set out in the Estimates published last Monday. I compliment the Government for setting spending targets in the first place. That was a new and welcome departure, in spite of the fact that many people believed a 2 per cent increase in spending over inflation was still too much. The spending target, however, has now turned out to be a hostage to fortune because the Government has missed it by a kilometre. I appreciate the Minister's honesty in providing us with a menu of interpretations as to how far the target has been missed. That degree of honesty has not been a common practice in the past. A target which was too high in the first place has been missed.

We are now beginning to get a clear picture of the spending policies of the Government. We have had one budget and half of the next one. The decisions being taken reflect a view of reality which I, or many business people, do not share. Every penny provided for in the Estimates is being spent on a worthy cause. However, the question is whether we can afford particular outlays at this time.

Since I came into the House I have considered every Bill as if I was at a board room table assessing it from a business point of view. When a business sets out its plans it wants to hold on to its best people by paying them more. It wants to ensure that it trains them properly by spending more on education and [1867] it wants to ensure that its customers remain healthy, as it were. However, as it is restricted by what it has to spend, it must look carefully to see if it can do all it wants to do. We are attempting to live beyond our means and that is a road that leads to trouble. It pushes further away the day when we can afford to do all the things we want to do. However, the Government seems to have decided to take that road.

The management of our public finances is all wrong. We concentrate on spending and then we try to find the resources to meet that spending. It makes much more sense to approach it the other way around. When one is devising a household budget or involved in business, for example, one does not start on the basis of what one would like to spend, but on the basis of how much income there is to spend. Then we ask how we might divide that amount among the various demands. However, in the case of public finances, we ask what we would like to do and then how we might raise the money to make it happen.

The way businesses and households approach budgeting makes much more sense. A business taking a long term outlook looks at budgetting in a much different way from one that is taking the short term outlook. In a book entitled “A Better Way to Plan the Nation's Finances”, in which the Taoiseach was involved as Minister for Finance in 1981, it is stated at section 1.18:

The need to look beyond a single year stems from the fact that the cost implications of new services and, indeed, of existing services may not be fully reflected in the estimates of the immediate budget year. There may be implications for later years in relation to the use of resources which are highly relevant to the wisdom or feasibility of the decision taken in the immediate budget year. Ideally, therefore, expenditure estimates should include, in fairly simple terms, [1868] projections of the cost of Government programmes.

I have not had a chance to look at this carefully, but I will do so to see if the Taoiseach has followed through on what appears to make a great deal of sense. When we return to this issue in the new year I have great confidence that it is so worthy of being followed that it will be followed. However, I wonder if it has been adhered to on this occasion.

In the interest of jobs we should take a long term outlook and consider long term projections. If we are really serious about creating jobs, and I hope we are, we must realise that taxation is a big factor in the number of jobs created. Taxation is not the whole answer, but it is a very important part of the solution.

If our top priority is jobs we should be asking what type of tax regime will help create the most jobs? What are the barriers to job creation in the present tax regime? If we did this and acted on it, there would be a cost. I am not one of those who believe that tax cuts can be completely self financing. I would like to think this were so, but it is unlikely to happen too often.

However, do we not owe it to those without jobs to create the tax regime that would be the most favourable to putting them at work? More jobs means more income for the Government, and this means less tax per taxpayer. This is one example of a “win win” situation, so concentration on tax in order to create more jobs is likely to benefit, before we start to decide how we will spend it.

This should be our starting point, and only afterwards should we turn our attention to spending. We should approach spending on the basis of what we have left to spend after we have created a tax regime to encourage the greatest possible level of job creation. When it then comes to spending decisions, it is a question of a limited amount of money to distribute among all the claims on it, similar to a business and a household. While, for example, acknowledging the need for Teilifís na [1869] Gaeilge, one asks if it can be afforded this year or, while acknowledging that the abolition of university fees for middle class people is good, again one must ask if this is the year to do that, if it might not be better to spend half the money on increasing grants to working class students who need much more than the abolition of fees to make university education a viable proposition for them. We look at spending first, instead of looking at what we have to spend.

The other way in which we have it backwards is in our attitude to cutting spending. I note we are back to the embargo on recruitment in the public service that we heard of so often before. For every three vacancies that arise, only one is to be filled. Let us make no mistake about it, that is a very crude and counterproductive tool. It is a cowardly way of cost cutting because it neatly side-steps any confrontation with the existing vested interests involved. As such it is understandable but it is certainly not defensible.

I recommend the technique of zero budgeting with which I am sure the Minister is familiar. Traditional budgeting, which I hear is very much alive and well in the public service, is based on examining the previous year's expenditure and assessing how much extra is needed in the current year. Zero budgeting starts from a different premise and asks, at every line of spending, whether we can dispense with the item involved. It starts from scratch every year and it is interesting to observe how it operates in a business.

One starts by saying, for example, there will not be any spending on electricity this year. Immediately everybody howls that we must turn on the lights. One then says that the lights need only be put on for a certain time and that we do not need all the lights. Before one knows it, instead of saying our electricity expenditure will be the same as last year plus a little for inflation, one starts from scratch and almost begs for every lamp bulb. However, it has an [1870] amazing effect on costs. One does not assume that one will spend what one spent last year, with a little addition. One starts by justifying the first pound spent rather than just the extra pounds. This has a dramatic effect on costs.

It is a useful discipline and a much more effective tool than crude approaches like employment embargoes which are a little like cutting off one's nose to spite one's face. It is time to recognise that this is indeed a spending Government and one that, in my opinion, is spending beyond our means — note I use the first person plural. There is still work to be done on how we structure our approach to Government spending. I am not convinced that our present approach gives the best value for money and I am still less convinced that it is appropriate when the national priority is creating more jobs. I urge the Government to give that serious consideration.

Minister of State at the Department of Finance (Mr. Coveney): I thank the House for its interest in this Bill and particularly Senators O'Kennedy and Quinn for their contributions. I also thank Senator Burke for his supportive comments. There was reference to a couple of common themes on which I would like to comment.

The fact that we are arguing about whether the Government will spend plus 2 per cent or 3 per cent in real terms next year speaks for itself. This is not because I want to make an excuse about missing a target but because I want to contrast it with the spending levels of the past four or five years when, everybody agrees, the economy was well managed. From 1991 through to 1995, the real increases were 6.5 per cent for the first of the three years, dropping to 4.8 last year and 3.5 this year. We will drop well below that next year.

I do not find any joy in defending the non achievement of a target of 2 per cent. I take issue with Senator Quinn's view that the target was too high. Historically, it is a very low target. This is a [1871] little different from a business. One can do things in business that one cannot do as easily in Government. We have substantial commitments in the Programme for Competitiveness and Work where, for example, in 1996 the public service pay bill will increase by between 6 and 6.5 per cent. In that context it is difficult to work within a 2 per cent real increase.

We are supposedly working in good times, but it was a tough three months working with the Minister for Finance, Deputy Quinn, and the line Ministers towards lowering expectations at a time when the public has high expectations. It was not a question of one Minister getting the better of another. The Minister for Finance placed a strong restraint on all Departments and I participated in that move. It was not confined to one Department over another.

Inevitably, Departments such as Health, Education and particularly Social Welfare, which are demand driven, are by far the most difficult areas in which to enforce an increasing level of discipline. However, the Government, and the Minister for Finance in particular, is committed to maintaining a level of discipline which will meet the Maastricht criteria and go close to meeting, if not precisely, the targets set by the Government. This was not done before and the targets were considerably lower than the achievements of the previous five or six years which people now appear to admire.

I thank Members for their contributions and I extend to them the compliments of the season.

Question put and agreed to.

Agreed to take remaining Stages today.