I recall a saying by a fellow socialist of the old brigade which should have stirred the imagination of the Government on this Budget. The late Aneurin Bevan used to say that socialism is the language of priorities. I suppose that is what this House and politics are all about.
There is considerable complacency and smugness in this House in relation to social priorities. If an increase is given to old age pensioners and a comparable amount to non-contributory pensioners and social security recipients it seems to be the thinking that this is the way henceforward one should continue to operate. Its lack of impact on the budgetary situation is almost laughable. In addition to having a Current Budget and a Capital Budget I suggest we should have a separate Social Budget which would include particulars of all expenditure on the social services as well as, on a comparable basis, the taxes required specifically to finance them. The phrase "Social Budget" may sound gimmicky: this subdivision is essential. It will eliminate many of the platitudes into which too many of our Budget debates degenerate.
Notwithstanding the goodwill expressed from all sides of the House towards annual handouts, as though we were a political Santa Claus giving annual handouts to people in a slightly patronising and almost paternal political manner, I personally detest this approach, exemplified by the contribution of Deputy Burke today, rather than one of people obtaining their basic rights on a contributory wage-related basis. In the light of the £5 a week the old age pensioner will get under this Budget, from a date later in the year, we tolerate standards of social benefits that are an affront to the conscience of this country. Certainly they are an insult to politicians of a progressive democracy. They are a mockery of the ideals expressed in the Proclamation of 1916 and of the democratic programme outlined in the first Dáil.
We are told by the Government we cannot afford better social services. With a gross national product running well over the £1,000 million mark, with an economy that has grown so strong in the past decade, with a dramatic general buoyancy of revenue in recent years, I am quite convinced that, since this can be done in the main only through taxation, we must be prepared to pay more in order that our sick, our aged and our people in want may enjoy greater material standards than otherwise they would have.
This basic political principle should be accepted. It is only hypocritically implemented in this Budget. Until such time as we accept that principle we are being quite ineffectual in our budgetary provisions. I do not accept that the 2½ per cent increase in turnover tax particularly solves the problem. I am amazed at the lack of imagination on the part of Deputy Haughey and the Taoiseach. We are now faced with a very serious situation in which any future attempts to realign the taxation system will be impossible. The impact of extra turnover tax on future attempts to introduce a prices and incomes policy will be great.
The increase in turnover tax will lower morale and will have a substantial impact. It will cause a ripple throughout the economy. So far as the Labour Party are concerned we consider that this Budget has been singularly unhelpful towards the implementation of an effective prices and incomes policy. On that ground alone the Budget stands indicted. It does not help us in assuring the workers that the Government are acting generously or sincerely. The increase in the turnover tax is no contribution whatever towards meeting the warnings issued by the NIEC and the Central Bank and underlined by the staff of the Department of Finance itself. I quote now from the NIEC report on the economy in 1969. One will see the effect of the turnover tax.
The magnitude of the increase in consumer prices which could occur this year is alarming. If it materialised, it could seriously damage competitiveness and therefore put many existing jobs in jeopardy and erode one of the basic conditions for the future growth in output and employment. It would create new social tensions because many social categories could not be adequately insulated from its effects. On the external side, even given the present level of external reserves, the risks associated with the deficit of £90 million are unacceptably large. Our reasons for this conclusion are the extent of State and State-guaranteed borrowing which occurred last year; the likelihood that it might be very difficult to borrow abroad on the same scale this year; the uncertainties connected with capital flows; the fact that the balance of payments has continously deteriorated since the end of 1967; the dangerous expectations that would be consolidated by maintaining the inflationary momentum through 1970 and the serious problems that these would create for the economy in 1971 and 1972.
A British Chancellor of the Exchequer—even the most tight-fisted and reluctant Labour Chancellor that one could find in Britain in recent years—faced with a conclusion of that nature from his own economic advisory organisations would surely regard the Irish 2½ per cent turnover tax with a rather wry smile. Either one means what one says in terms of economic reforms or they are not worth the paper they are written on. This Budget repudiates and disregards the warnings given to the Government which one would have thought would have been heeded substantially by the Minister and the Cabinet.
It is incomprehensible to me that the Taoiseach, on behalf of the Minister for Finance, should have been so explicit about the difficulty facing the economy and yet so inactive and inconsequential about it in the Budget. The Taoiseach said:
A surplus of £15 million in 1967 gave way to a deficit of £22 million in 1968; last year, the deficit was about £60 million. This year, despite a small improvement in the first quarter, the deficit could be substantially higher. This trend has grave implications for the economy. Unless we abate the excessive increases in domestic consumption and costs, the gains of the past decade and our potential for further progress in the seventies could be put in jeopardy.
That is not a statement of somebody who imposes an extra 2½ per cent turnover tax. It is a rather serious comment on the part of the Taoiseach. He does not seem to have taken his own confession to heart on this occasion. The Taoiseach said:
This year, we must make a start towards this objective by ensuring that the deficit does not exceed £50 million. To attempt deliberately to achieve a much smaller deficit this year might involve excessive disruption in the economy.
One finds admonitions in the report of the NIEC, in the Financial Statement and in the statement made by the Department of Finance itself. This year of 1970 will go down as the year of admonitions of a serious nature and warnings, which the Budget ignored. In the Review of 1969 and Outlook for 1970 it is stated:
In the remaining three-quarters of the year productivity per man-hour in manufacturing industry rose by 2¼ per cent over the corresponding period of 1968. As hourly earnings increased by 13 per cent between these two periods unit wage costs deteriorated by about 10½ per cent. This increase in unit wage costs which was more than double that in British industry in 1969 was an undesirable development following the relative stability of Irish wage costs in the two preceding years and, if maintained, could seriously impair the ability of Irish industry to sustain the expansion of output upon which the growth of the economy mainly depends.
I take this comment from the review because it is mild by comparison with some of the harsh statements in it. There are, then, these two reports. Indeed we have had a plethora of reports from the NIEC in recent weeks, all of them extremely welcome and invaluable in a pre-Budget period.
In NIEC Report No. 27, there is a further statement on an incomes and prices policy. I am putting these on the records of the House because I think they should be there if the Minister comes back here in October with a supplementary budget. Then, even if Deputy Haughey's eyes are less hooded than they normally are and he is much more calm in the handling of criticism, he will have to face these comments recorded in the House. On page six of Report No. 27 there is this comment:
In 1969 money incomes rose again by almost 11 per cent, the volume of production by 4 per cent and over-all prices by around 7¾ per cent. The deficit in the balance of payments on current account is expected to have been in excess of £60 million.
The Taoiseach has reiterated this and has accepted the report. I do not think there is any need on my part to quote the views of the Central Bank: it is sufficient to record that so anxious generally was the bank that its views should be put on public notice that the relevant passage was published before the regular bulletin was issued. The views of the Central Bank, of the NIEC and the comment made by the Taoiseach coincide in general.
One is faced with the fact that the sole response of the Government and their sole reaction has been simply to increase turnover tax by 2½ per cent. I might quote the Taoiseach at page 62 of the Financial Statement as stating that in his view the turnover tax is the fairest method of getting so large a sum. Generally, one might ask if any Cork man could but smile blandly when reading so simple a statement.
It may be repetition on my part, because it was referred to by Deputy Tully and by the Fine Gael spokesmen, but the Taoiseach went on to say that the rise in prices attributable to the proposed increase in turnover tax should be little if anything in excess of the 2½ per cent, that is to say, 6d. in the £. All I can say is that the Taoiseach must be carrying around a couple of shovels of halfpennies in his pockets because anybody conscious of the fact that the halfpenny has been abolished and conscious of the 2½ per cent increase on unit prices, and allowing for the impact of a further 6d. in the £ on consumer prices generally, can only regard the Taoiseach's statement with cynicism. One can say that cigarettes will go up by 2d. per packet. Personally I would have preferred a straight budgetary 2d. on cigarettes rather than have the cascading effect of the turnover tax, and I do not think the Minister for Health would have been too perturbed if the Minister for Finance had acted in that manner.
Then you come to the application of the increased turnover tax to stout, petrol and other commodities, and when one bears in mind that currently the master bakers are looking for an extra 2d. or 3d. on the loaf of bread, exclusive of turnover tax, one finds that the overall net effect will be a 3 per cent, a 3½ per cent and eventually even a 4 per cent increase.
This is rather a stupid thing for the Government to do at this point of time, even in terms of public reaction. The reaction will be that after 1st May there will be continual allegations that the cost of living has once again gone into orbit, and, naturally and understandably, there will be allegations that pensioners and housewives are suffering most and that all this has been done by deliberate Government action in introducing a 5 per cent turnover tax.
The tax itself, of course, is not generally defensible. There is a preoccupation on the part of the Government to extend indirect taxation. I do not know whether that is caused by the fact that members of the Cabinet have been so long earning ministerial salaries so far above those of workers in transportable goods, who take home £22 or less per week, or that they think that it is not likely that the full 2½ per cent will be imposed on the totality of their salaries. Presumably they will leave some of their salaries in the bank; possibly they will invest some of it. A similar opportunity is not afforded industrial workers who, on average, rarely earn more than £22 per week in large urban areas.
Therefore, it is true to say that the broadly based turnover tax covers many necessaries of life in a discriminatory manner. The lower the income, the greater the incidence of tax. Perhaps it may seem almost gratuitous to Members of the House that such elementaries of life are being repeated since they were fully argued in 1963 at the time of the introduction of turnover tax. However, the Government must accept that this particular taxation imposes an additional burden on all lower paid and middle income groups. It certainly bears no relation to the capacity of any particular family to pay tax. These are basic objections to the inherently inequitable approach in this Budget.
This turnover tax will automatically increase the cost of living and, consequently, will give rise to demands for increases in wages and salaries with all the serious implications that such demands can have in relation to cost and in relation to the competitive position of the country. It is foolish to put on this extra 2½ per cent in turnover tax at a time when we are so much concerned about the general competitiveness of Irish exports and when stability of prices should be considered to be the prime objective of the Government. It is a stupid move on the part of the Government deliberately to increase prices on a wide range of consumption. What the Government have done will have undesirable economic consequences. It is important to know that in relation to Budget reaction, a spokesman for the Irish Congress of Trade Unions deplored the increase in turnover tax and said this meant that retail prices during the coming year could now be expected to increase by ten per cent. He said that this action by the Government cannot be regarded as a contribution towards an incomes and prices policy. He went on to say that one expects that the underlying motive in the choice of turnover tax is to begin an aligning of turnover tax with the rates of added value tax in the Common Market.
My view is that the Government should have had more patience and that they should not have been so preoccupied by the added value tax implication of the Common Market. In that regard we might take note of the experience of Italy or that of France. The Government might take a leaf from the book of General de Gaulle in relation to the line he took when he got himself into trouble in relation to his general value added taxation policy. They might have stopped short of imposing general taxation on the lines suggested.
If I have been excessively vocal in terms of criticism of the turnover tax, I consider that criticism to be deserved because this is another big step away from the principle that ability to pay should be the primary consideration governing tax policy. This basic aspect of taxation has been almost completely forgotten by the Government. At page 15 of the Budget statement, Deputy Haughey says:
In December the Taoiseach announced that, in the Government's view, increases in overall income in 1970 should be kept within a limit of 7 per cent. He suggested that, in this year in new agreements, the increase should be limited to about 30s a week per adult male worker.
The only comment I can make on that is that in view of the general increase in prices together with the increase in the rate of turnover tax the Taoiseach will have to have a critical review of his concept of 7 per cent. To say any more than that would be almost irrelevant because that kind of proposition will not have the approval of industrial workers who are faced with increases in the prices of normal commodities.
On page 13 of the Minister's statement we read:
The Government are increasingly concerned about the position of the lower paid and weaker sections.
Further on in the statement we are told that the proposals which will shortly be announced are evidence of the Government's determination to ensure that the weakest do not go to the wall in this process. The Minister for Finance proclaimed 1969 as the year of the lower paid worker but I do not think there is anything in this Budget to suggest that particular approach on the part of the Government in relation to the lower paid workers.
Admittedly, the lower paid worker gets a relief of about 4s 9d a week in terms of income tax but that is no particular exposition of increasing concern on the part of the Government for workers in this category especially when one realises that in terms of general relief, I and others will gain £12. Therefore, the Budget is unimaginative and inconsequential in terms of its making any major impact on the earnings of lower paid workers. I do not wish to labour this point beyond its due role in the Budget Statement.
I have waited patiently for the past two or three years for the Government to introduce some measure to deal with a piece of taxation that arose from the NIEC physical planning report No. 26. This report was available in the second half of 1969 and there seems to be no good reason why the recommendations made in that report could not have been implemented in Government taxation policy. The report pointed out that there was a growing demand for sites in major urban areas and for property within these expanding areas. The report points out:
The increase in values may be caused by a community's growth or may depend on whether or not a variety of services is provided by some community agency; the benefit accrues to the owners of land and existing property. When existing owners take their capital gains by selling their land or property, there is a transfer of money from the purchaser to the seller associated with increases in the prices and rents of houses and other buildings.
The report then goes on to make a very strong statement indeed:
The arguments against the enjoyment by individuals of gains created by the community's efforts are as much moral and social as economic. Such gains hit at a basic tenet of any philosophy of incomes policy— namely, that there should be some recognisable relation between continuing efforts and productivity on the one hand and reward on the other. These capital gains breed cynicism and envy and engender expectations of monetary rewards that cannot be realised outside the narrow field of speculative dealings. These reactions are the greater because the gains and their effects on house prices and rents are widely known and there is a widespread acceptance that they cannot be justified. The case for the community appropriating at least a part of the increment in land and site values has already been recognised in the Finance (Miscellaneous Provisions) Act, 1968, under which income tax is charged on profits arising from the business of dealing in or developing land.
It goes on to recommend:
...that further steps should be taken to ensure that at least a substantial part of the increment in land values following new urban development should accrue to the community at large. The introduction of a betterment levy, i.e., a charge in respect of the increase in the value of land arising from central or local government action, presents considerable difficulty. A procedure for consideration is that followed in Craigavon and other similar developments in Northern Ireland as well as in new towns in Britain.
Were I, or any other member of the Labour Party, to talk in the same terms as the NIEC about the community appropriating at least a part of the increment in land and site values we would be branded as dangerous. We would be denounced at every chapel gate. I suggest that the Minister for Finance, Deputy Haughey, has had considerable experience in this field. The Taoiseach is aware of the development. The Minister for Local Government is equally well aware of the implications. We in the Labour Party believe that a land development tax or a land betterment tax should have been introduced in this Budget. The impact of such a tax from the point of view of total State revenue might be marginal. I would not suggest such a tax as an alternative to the 2½ per cent increase in turnover tax, but I firmly believe such a tax should have been incorporated in the Budget.
The report goes on to say:
In the case of Craigavon an order was made vesting the full area required for the new city's development...in the Minister for Development, the land to be taken up by the Craigavon Development Commission as required. The compensation to be paid was fixed by reference to the market value, at the vesting date in 1966, of the land in its existing use, subject to allowance being made for such increases in its value as seemed likely to occur without the full Craigavon development. Interest is paid at 8 per cent for the period between the date of vesting in 1966 and the date when compensation is settledelthis procedure ensures that the full increment in land values after the vesting date accrues directly to the community itself.
NIEC then suggested that a similar procedure could be applied here for new developments by local authorities or for new towns. They pointed out that this would require legislative change. They went on to say:
As an interim measure, while the need for statutory change is being explored, local authorities should continue to be encouraged to acquire land at its existing value well in advance of their need and of the announcement of their development plans; it would also be desirable if a means could be found to speed up compulsory acquisition procedures.
The only comment I have to make on that, apart from expressing my very deep disappointment that there was no effort made to incorporate in this Budget any of these proposals, is that the alleged outward-looking Fianna Fáil Party, the party which is to transform the country in the 'seventies, has certainly not lived up even to its own pretensions in this Budget. The growth centres have yet to be designated. It is inevitable that Fianna Fáil property speculators, and other property speculators, too, will take a very keen interest in the hinterlands of these centres with a view to making a capital gain. It is time we took steps to prevent that kind of evolution.
I know there will be snide comments from Fianna Fáil, or from some members of it, at any rate, about the suggestion that a capital gains tax should be introduced. We, in the Labour Party, would like to see a development tax on land. Comparing our tax structure with Britain's the result is unimpressive. In Britain, six new taxes have been introduced in recent years: corporation, capital gains, betting, selective employment, land betterment and special investment levy. All these have been introduced and none of them has had the same regressive impact as the turnover tax itself.
