Dáil Éireann debate -
Thursday, 17 May 1973

Vol. 265 No. 10

Committee on Finance. - Financial Resolution No. 10: General (Resumed).

Debate resumed on the following motion:

That it is expedient to amend the law relating to customs and inland revenue (including excise) and to make further provision in connection with finance.

—Minister for Defence.

Mr. J. Lynch

Now that the euphoria on the benches opposite, having heard the Minister introduce his budget yesterday, has begun to evaporate, and now that the Members opposite are beginning to assess what informed commentators have to say about the budget, they must realise that, as in the case of an insurance policy, one should start by reading the small print and, of course, when one does so, one finds that the cover is not nearly as adequate as one imagined at the start. It was naturally the intention and purpose of the Minister to try to present his Budget as a good one. It is equally natural that the Opposition would try to represent it as far from being a good budget. I hope to demonstrate today that it is a bad budget and I hope to demonstrate why we regard it as a bad budget.

This year, of course, everybody knew for a long time that this year's budget ought to be a good one. The main reason for this assumption was based on the saving of £30 million on agricultural subsidies as a result of our EEC membership. Yesterday the Minister tried to suggest—in fact, he said it in rather slurred tones that the £30 million had been lost in the sea of inflation, sunk without trace. This was, to say the least of it, neither honest nor frank because it is obvious that there is a saving of £30 million in the case of the Minister for Agriculture and Fisheries, £30 million that he would otherwise have had to find. This is not a mere unsupported statement; I can prove it from the Estimates published by the Minister himself.

In the agricultural section of the Book of Estimates, under the heading of "Marketing Supports and Aids" at page 104, the decrease column clearly shows under the Bord Gráin grant-in-aid a reduction of almost £25 million, under bacon and pork exports over £4 million, under loans to beef export industries almost £1 million and, under cereals, almost £500,000. That sum exceeds the £30 million the Minister for Finance suggested yesterday were sunk without trace and it gives the lie to his implied suggestion that he would not otherwise have to find that £30 million. Of course he would have it today and it is clear from what was said during the course of the referendum on the EEC, and in the course of the last general election, that this sum was fully committed to social welfare payments and that £30 million is, therefore, a saving of money which otherwise would have to be found by the Minister in this year's budget.

It is not every year that the Minister for Finance is given this kind of bonus to help him. Last night, in some of his public utterances, the Minister tried to imply that he did not have this extra money available, but the Vote for the Department of Agriculture and Fisheries clearly shows that this benefit is available in the current year and we charge that the Minister has used the money both badly and ill-advisedly. But that is not the only reason why 1973 should be a good year. The renewed expansion in economic activity, which got under way last year, is being maintained this year. Unemployment has, for example, been reduced by about 6,000 as compared with last year. These improved trends are confirmed in the forecasts made by independent bodies, such as the Central Bank and the Economic and Social Research Institute. In the latest forecast published last week the institute predict a growth of some 5 per cent this year. When allowance is made for the benefit from improved exports of cattle and other items, the institute suggest, real incomes—that is to say, real improvements in living standards —will be over 6 per cent this year. These are, I think, amongst the highest figures ever recorded. They were matched in the past on only a few occasions, such as the exceptionally good year of 1968. What this means is that the new Government have taken over in exceptionally favourable circumstances. We are, of course, glad that this is the case, but it demonstrates clearly and unambiguously that Fianna Fáil gave the country sound and effective Government, Government which has brought about a dramatic improvement in the living standards of all our people. For these reasons it was to be expected that the budget this year would be a good one in the sense that substantial improvements could be made in social welfare services without any need to increase taxation to meet these improvements. That clearly indicates that this Government cannot be automatically regarded, as the Government appear to think they should be, as a good one.

There are several questions to be answered before deciding whether the budget is a good budget or a bad budget or whether it is best suited to the needs of the country. For example, is the right amount of money being spent? Is it being spent in the right way? Is the money needed to pay for the spending being got by the best means? These are questions that must be answered before one decides the quality of a budget, whether it is a good one or a bad one. In our view, the answers to these questions clearly indicate that this budget is not a good one and that, in several important respects, it is actually damaging to the economy. The social welfare proposals are both wasteful and unfair by comparison with the Fianna Fáil proposals, which were announced early in February.

Children's allowances have been increased for everybody, rich and poor alike. The cost of this scheme is £20 million in a full year, whereas our proposals would have limited increases in children's allowances to those who most needed them, for example, those earning £32 per week with four or less children in family, and to those earning £40 per week in the case of six-children families, and with similar arrangements for farmers. This scheme would have provided much larger increases than those announced yesterday, particularly for big families, and yet would have cost the Exchequer only £11 million a year.

The Minister has tried to meet this criticism by introducing what I would call a clawback in the form of reduced income tax allowances for those whose incomes are £2,500 a year or more. The limited impact which this has is shown by the fact that this clawback will bring in only £2 million or 10 per cent of the total involved. The reason for this is that there are a large number of people who do not fall within the income tax net. What the Minister is, in fact, doing is singling out a small number of people who already pay their full share of taxation and he is depriving them of a benefit which they are willing to extend to others, many of whom are far wealthier than the 10 per cent who are excluded. We do not think that this clawback can be justified either on social or economic grounds.

Other people think so as well. In today's Irish Independent, in its second leading article, in the last paragraph they say:

It must be said that while the community as a whole has a duty to the less well-off, the Government has a duty to ensure that the whole community pays, not just a section. This, as well as a reform of the tax laws, should be a priority from now on. Mr. Ryan has tried to tackle many problems in his first budget, a need, probably, arising from preelection promises. It is not immediately clear what the price of his enthusiasm will be for the taxpayer.

There is a warning that I would like to re-echo especially in the light of our experience of previous Coalition Governments. The Irish Times on its front page has a heading “Most Progressive Budget Yet in State” and a subheading on the same article reads “Main cost falls on middle income groups”. I am not an ideologist in the sense that I want to hammer people who make extra endeavour for themselves and their families, and I would have thought that a progressive policy would not have been designed to inflict hardship on the middle income group, people who bear the bulk of compulsory taxes and the people who contribute most to the economy in the way they work for their families, their firms and the economy generally.

This progressive budget is progressive because the main cost falls on the middle income group. Since I am dealing with The Irish Times I would like to refer to a comment on page 16, under the heading “Business and Finance”. It reads:

"Every citizen will benefit from this budget." This sentence in the budget statement shows the very limited approach towards income distribution taken by the Minister for Finance yesterday. The present haphazard approach to the distribution of income here has placed very heavy tax burdens on low income workers, and given substantial tax reliefs and exemptions to those with higher incomes.

In the last couple of weeks we have been treated to snide remarks by the Minister for Local Government about Fianna Fáil's social conscience. I wonder where did the Minister for Local Government leave his social conscience when he, with other members of the Government, framed this budget?

The same kind of criticism applies to the rates proposals which cost something in the region of £17 million this year. The Government have brought in a scheme where half of this money goes to benefit owners of commercial and similar property, leaving half only to help the householders and tenants, the groups who should be helped. As Deputy Colley pointed out yesterday, these owners of commercial property can claim tax allowances in respect of their outgoings on rates. Therefore, as Deputy Colley rightly pointed out, the cost of this benefit to the better-off people will have to be borne in the extra taxation imposed by the Minister. In contrast, we would have confined rates relief to dwellings alone. Between children's allowances and rates the Government, in our view, are spending £18 million more than is necessary this year in ways which do not benefit the weaker sections of the community. This amount of money would have been enough to double all the increases granted from £1 to £2 to adult social welfare beneficiaries. Perhaps otherwise it could have been used to improve income tax allowances. Perhaps it could have been held in reserve in order to keep down total expenditure for the year to a more manageable level.

I referred yesterday—and I was unfortunately ruled out of order—to what I described as the measly income tax allowances given in this budget. A sum of £30 is granted to a wife who earns an income. I can say that for the years when I was Minister for Finance and during the terms of office of my colleagues who followed me we were pilloried by reason of the level of allowances in the income tax code. We were told that these allowances remained as they were for very many years and, with the depreciation in the value of money, the allowances were, in effect, eroded to a considerable extent.

Last year we tried to meet this criticism and we would have thought that the members of the Government and their supporters would have supported a continuation of that process. I am indebted again to The Irish Times for setting out what was done last year in their “Business and Finance” page under the title. “Thinking Back ... the 1972 Budget”. For the record I will read portion of it:

Income Tax: Allowances raised by £50 to £299 for single people; by £50 to £324 for widows; up £70 to £494 for married couple. Child allowance up £20.

These figures are an indication of our earnest to meet this criticism and to meet what we regarded as a just claim on the part of those who were obliged under PAYE and other forms of tax assessment and collection to pay tax on their normal income. After all this waffle, criticism and uproar, we find this miserable sum of £30 by way of tax relief, and that is confined to married women who work. This is an indication of the insincerity of the parties opposite in approaching this particular problem. We pointed out from time to time, as the Minister now knows, that income tax reliefs of this nature cost a considerable amount of money.

The total concessions of last year given by Fianna Fáil amounted to £11 million in this respect. This year they are to be counted in hundreds of thousands of pounds—again, a miserable performance in the light of what we were legitimately entitled to expect from this Government. Therefore, one point is clear, that the Government in spending extra money are not helping the poorer sections of the community to anything like the extent that would have been possible in this year.

Government speakers are placing great emphasis on the taking of value-added tax from food as one further way in which they have helped the poor but, again, the facts do not support their claims in this respect. The savings from this would, at the very most, amount to 40p or 50p per week for families who rely on social welfare benefits and what will they have to pay in return? The value-added tax rate is increased on all other items— let me hammer this home, on all other items—clothing, fuel, footwear, sports goods, washing powders—almost every other item that the housewife will have to go for in her weekly shopping basket. In fact, the rate is up by 20 per cent on all these items compared with what it was.

Minister for Finance (Mr. R. Ryan)

1.5 per cent.

Mr. J. Lynch

1.5 per cent on 5.26 per cent is a 20 per cent increase. If the Minister wants me to demonstrate, I will do it very quickly—5.26 per cent increased to 6.75 per cent represents, clearly, a 20 per cent rise. That is on petrol, clothes, footwear, books and newspapers. There is an increase from 16.37 per cent to 19.5 per cent on furniture, electrical goods, sports equipment and hardware—again an increase by 20 per cent; and an increase from 30.26 per cent to 36.75 per cent on motor cars, radios, gramophones and records—again an increase of 20 per cent. All that is in return for a miserable saving of about 40p to the housewife. The housewife will recognise in quick time what this so-called bonanza will mean for her.

Even if this 40p or 50p were added to the increase in benefits announced yesterday, these families are still worse off than they would have been under the Fianna Fáil proposals. Apart altogether from paying the higher rate of VAT on everything else they buy, this higher cost of food and clothing will impinge very, very severely on the ordinary people who are trying to improve their standard of living and will more than offset any savings or any benefits they might get on food.

I will come later on to the question of whether or not, taking the removal of VAT on food by itself, this will, in fact, produce a decrease in prices. I believe it will not. I will quote what the Taoiseach, Deputy Cosgrave, said about a similar situation in the past. Fianna Fáil opposed the removal of VAT from food because we believed it was not the best way to help the poorer families. Now we are convinced by the inept efforts of the Minister to have some reasonable impact on the cost of living. The changing of the rate of VAT on other items will mean that prices will change. The last time there was a general change in prices was during the changeover to decimalisation. At that time the then Deputy Cosgrave told us that this would cause a prices explosion and again let me repeat that the then Deputy Garret FitzGerald, now the Minister for Foreign Affairs, said that that was not so. It was only on 20th April, 1972—volume 260, column 689 of the Official Report— that the then Deputy Cosgrave, now the Taoiseach, said:

In the course of a debate here last year I said that the introduction of decimalisation had resulted in a prices explosion.

He went on to say that I, as Taoiseach, criticised that description. At the end of the paragraph he quoted an article by the business correspondent of the Irish Independent entitled “Leap in Food Prices after Decimal Coins”. He wound up his statement in this respect by saying:

I think the description I gave has been proved accurate.

At the time that Deputy Cosgrave said that the change in the system caused a price explosion, the fact was, of course, that we had to decimalise in order to conform to the terms of our entry to the European Economic Community. The prices explosion that will come now, as it will, will not have had to happen because it was not necessary to indulge in this misguided and ill-considered tax change.

Perhaps the Taoiseach and his colleagues think that another prices explosion is the best contribution they can make to price control. In that respect, I was interested to hear the Minister say yesterday that extra vigilance will be maintained on shopkeepers to ensure that the reduction in VAT will be passed on. It has been widely charged that many items have already been increased, so that any cut back, if it is achieved at all, will probably reach the status quo.

The question arises, how is this extra vigilance to be maintained? We were told in the election manifesto that strict price control would be effected, the implication being that the price control methods that had been employed were not effective. We have yet to hear how this system is going to be more effective. Will there be more inspectors? Will the National Prices Commission be re-vamped? Are they not working to the satisfaction of the Government and, if not, in what respect? It is not sufficient to say that stricter price control will be effected. Some indication must be given as to how this can be done.

Apart altogether from the VAT— and I believe that the change in the rates will cause a price increase—it is well known that VAT rates, in any event, have to be changed in the years to come and therefore with this re-shuffle we will have another general re-shuffle and if a re-shuffle in tax rates causes price increases then the Government are deliberately going for two re-shuffles with the inevitable increase on ordinary commodities.

We all know that the process of harmonising our VAT rates with other countries will have to be undertaken in the very near future. Fianna Fáil would have preferred to await the outcome of whatever moves are necessary for this purpose within the EEC before making any major changes. However, if changes had to be made now a greater emphasis should have been placed on bringing our VAT rates into line with those operating in Northern Ireland.

In a few years there will be complete freedom of trade between North and South as tariff barriers and other restrictions are swept away under EEC membership. Any changes made now should help to bridge us whatever gaps remain between the two parts of our country and bring us closer together. This was an obvious means available to a Government who have professed their interest in bringing the two parts of the country closer together in many ways. It is a retrograde measure now to introduce deliberately a system to move us away from co-ordination of the tax rates.

If the Minister wanted a change now he could have achieved co-ordination by imposing the same rates as in Northern Ireland—10 per cent on all but a few luxury items—but unfortunately no such foresight appears to have entered his calculations. As a consequence of those hasty and ill-conceived proposals the budget is wasteful and I hope to illustrate this fact.

Is is wasteful by the size of the increase in expenditure that is proposed. Current spending is estimated at £795 million and when capital spending of some £203 million is added to this the total Government spending for the year is something in excess of £1,000 million. This is a staggering increase—an increase of £170 million or 20 per cent above last year's figures.

When they were in Opposition the Taoiseach and the Minister for Finance drew attention to what they regarded as extravagant increases in expenditure which Fianna Fáil Governments had undertaken. At column 741 of the Official Report of 20th April, 1972, the Minister for Finance said:

The size of the budget and the Government's proposal to increase last year's figures by 10 per cent show the Government to be the most reckless and spendthrift entity in the country. It clearly indicates that the Government believe they can get away with this type of hypocritical policy, a policy of they themselves spending more than they can afford while calling on everyone else to do the opposite.

The Minister has committed himself to being twice the spendthrift he charged the Fianna Fáil Government with being. Where is sincerity or consistency in this kind of approach?

In 1970 the Taoiseach referred to public spending. At columns 2183 and 2184 of the Official Report dated 28th July, 1970, when quoting the Central Bank, he said:

In one of the earliest references in the report it shows that public expenditure, current and capital combined, rose by over 18 per cent in both 1968-69 and 1969-70——

——that is, 18 per cent for two years which is much less than the 20 per cent increase for one year which the Coalition Government proposes——

——which was more than the increase in respect of private expenditure, current and capital, which rose by 14 per cent in the same period. It adverted to the fact that, as has been referred to many times, external borrowing as a method of financing public expenditure is the most costly and most highly inflationary it is possible to adopt.

I shall refer to that later when I speak of the extra borrowings that will have to be undertaken by the Government —borrowings which, if they cannot come from our own resources, will have to come from abroad.

What has happened to the Taoiseach's concern for the rapid rise in public expenditure? Has he undergone such a quick conversion in two short months? Will he tell us which course he believes to be right? However, it is not the only rapid conversion the Taoiseach has undergone. During the election campaign he promised to spend the £30 million of EEC savings as well as at least £11.6 million from normal revenue—this was the amount spent last year on improvements—making a total of £41 million on social welfare benefits. We know this sum has not been reached and, to the extent it has not been reached, it is an indication of a pledge to the electorate that has been broken.

The improvements announced yesterday will cost only £38.9 million but this reduction does not come as a surprise to Fianna Fáil. We pointed out at the time—and the Government have since admitted—their so-called carefully costed proposals were wildly inaccurate. The cost of the proposals in a full year made by the Taoiseach on 21st February—and they were a movement away from the amount mentioned in the 14-point programme announced the previous week—was £51 million, not £41 million as he claimed then. There was a difference of £10 million and naturally economies had to be made. One way of cutting back spending was to delay for some months to 1st July implementation of the increases.

Let us contrast that with the carefully costed proposals of Fianna Fáil which would have operated from 1st April last—a three months bonus to social welfare recipients compared with the Minister's proposals. Another economy measure to make up this deficit is to give only a 50 per cent increase to adult dependants, so that an unemployed man and wife will receive now a total increase of only £1.50 in contrast to the weekly £2 increase they were promised by the Taoiseach in February. This increase would have been given under the Fianna Fáil proposals and with retrospective effect from 1st April.

Not only is the budget unfair, it is a record of some broken and some unfulfilled promises. In addition, it is dangerous to the economy. One highly dangerous consequence of this enormous rise in spending is that Government borrowing for the coming year will have to be increased to the staggering figure of £240 million. This is equal to £80 for every man, woman and child in the country. It is always pleasing to be able to borrow the money to meet one's spending commitments but the danger with this "live now and pay later" approach is the difficulty of finding the money for future repayments. At present interest rates this borrowing will add about £25 million in interest charges alone to the budget for next year and for every other year that the money remains to be repaid.

Some of the borrowing, to be quite frank, is justified and will provide worthwhile assets such as houses, factories and schools. These, of course, will benefit the people in the future as well and it is necessary and justifiable expenditure. Not all of the borrowing, however, will do this. The £40 million which will be borrowed to cover the deficit in current expenditure, and herein lies the greatest danger, will cost taxpayers in the future £4 million each year. This figure is sufficient to double the increase given in old age pensions in each year that it is being repaid.

Many of the Government Deputies who criticised borrowing by the Fianna Fáil Government now have to rethink their attitude to borrowing when this, and I return the compliment, "spendthrift Government", have exceeded any rate of borrowing undertaken by any Fianna Fáil Government. In their first year in office the Government have broken all records in the amounts proposed to be borrowed. In fact, the borrowing by the Government this year will be equal to the amount borrowed by Fianna Fáil Governments between 1957 and 1964. This borrowing is more than 40 per cent of an increase on last year's figures. Deputy L'Estrange, if he did his sums on this matter, would be able to tell us what every man, woman and child would have to pay for this borrowing in the future.

To revert to the "spendthrift" charge. This Government, in its two months in office, already hold the record of being the biggest spendthrift Government ever. Another disturbing feature of such heavy borrowing is that it must aggravate the inflationary pressures on the economy. I have already mentioned the danger, and the difficulty, of borrowing abroad. One cannot be sure of rates of exchange and one cannot be sure whether ones borrowing repayments will be increased over the rate contracted. If such a large amount is to be borrowed the Government will either have to drastically reduce the amount of credit available to business or engage in undesirable borrowing from abroad. If neither is possible bigger amounts of credit will have to be made available from the banking system and we all know what this can do to inflationary trends.

One result of pumping in such huge amounts of extra credit would be the upward trend in the prices of property, land and all other items, all of which will go to inflate building and housing costs. It will more than offset this very limited duty relief of £100 which a person buying a house costing more than £7,000 will save. This must result in a further increase in the price of houses. The higher prices that this extravagant borrowing will cause, coupled with the changes in VAT and the higher taxes on the old reliables such as liquor and tobacco, show that this budget is clearly unsuited to present conditions. Far from doing anything to curb rising prices as they promised in their 14-point programme, the Coalition Government are now deliberately adding to this price increase spiral by their own reckless and careless spending.

Again, I refer to The Irish Times of today which states:

The increase in these items, tobacco, spirits and beer will of themselves have the effect of increasing the cost of living.

The most obvious and direct way in which this budget will worsen the inflation position is through these taxes on tobacco. All of these increases will push up the cost of living index by something of the order of 2 per cent. Now we know what the total contribution of the Coalition Government towards controlling inflation is to be. Far from easing the pressures on rising prices, they are setting out deliberately to worsen inflation in at least three ways. Firstly, their indirect taxes will raise the cost of living index by 2 per cent. Secondly, changes in all VAT rates, if we are to believe the Taoiseach, will cause a price explosion; and thirdly, the reckless and extravagant borrowing will swamp this country in a sea of credit which if it goes on for long, will make the value of money worthless.

At the present time any budget should have as at least one of its major objectives the curbing of inflation because this is necessary to safeguard living standards and to help to create new employment opportunities. Any budget can help to achieve this in two ways. One would be the negative way of avoiding any action which would aggravate inflation, and, secondly, the positive approach of specific action to reduce inflation. I have already indicated how this budget has failed on both counts.

First, it has failed by the upward pressure it will have on prices, and secondly, it has failed because there is no evidence that there is any action contemplated as a result of this budget which will directly help to lower inflation. In contrast, the Fianna Fáil Government last year in their budget improved income tax allowances, to which I have already referred. The effect of this was that the take home pay of the worker was improved.

We all know that the trade unions are fully aware that there are methods other than simple increases in pay rates to improve the value of the pay packet and to ensure that the real living standards of their members can be improved. This was clear from their pre-budget submission to the Minister. We all know what that contained. In particular it cried out for more equitable taxation and more reasonable tax allowances. We would have envisaged talks between the employer groups, trade unions and the Government in this respect. Before the last budget we had such talks and it was mainly as a result of them that we were able to indicate to the trade unions and the employers, that we were going to give better allowances that had the effect of offering them an inducement to moderate wage increases. This was successful.

Now we have the situation when this process seems to have been ignored. It is to be hoped that the Government will pursue this course and, for the sake of the nation, that they will make progress in this respect. However, because of the heavy burden of extra spending which they have now undertaken, it is difficult to see how, or in what manner, or when, improved income tax allowances elsewhere might be given. For example, I do not think that there is any possibility of doing this later this year. The more prudent and sensible course would have been to restrain the size of expenditure until a clearer picture as to the increased or improved, or renegotiated wage rates emerged following the next pay round.

The budget is not all bad. Let me be frank about that. There are good features in it, if we discount the social welfare improvements which were inevitable. and if they caused any surprise, it was by their inadequacy. I welcome the increased aid given to developing countries but this, I think, is a continuation of the process which we had established last year when we doubled this amount in our budget. For all the other reasons which I have enumerated and because I believe that this budget is just a pattern of wasteful spending, because it means a record level of borrowing which will aggravate inflation and impose burdens in future budgets and because it does nothing whatever to improve the situation on prices and incomes but on the contrary, as we believe, worsens it, we regard it as a bad budget.

There is confused thinking right through it. Last year the Minister when speaking on the budget deprecated deficit spending, saying it was wrong, unnecessary and dangerous. We believed then that it was right, necessary and fruitful, and so it turned out to be. I refer only to the 6,000 decrease in unemployment, the new activity generated in building and in industry generally. This was the result of the deficit spending last year because unemployment was at a low level. We believe deficit spending was not justified for the same reasons this year and that is why I charge the Minister with confused thinking, in saying that it was not necessary last year when it clearly was necessary. It is not necessary this year so he goes for a bigger deficit which I have pointed out to the House will have to be met by borrowing at a cost to the Exchequer of £4 millions every year which will have to be met by taxation as long as the repayment obligation lasts. Obviously the Minister this year did not have the courage of his convictions, as expressed by him last year. That is, of course, if he knows what his convictions were them or are now. Therefore, for the sake of the country, it is to be hoped that the Coalition will turn from the hasty and ill-advised policies they have embarked on and will revert to and continue the soundly-based Fianna Fáil practices and policies in this respect which have given our country unparalleled progress in recent years and which, I believe, if continued, would ensure full employment and prosperity in the future.

We have opposed all the impositions of taxes in the budget yesterday and have given some of the reasons why we believe these taxes were unnecessary and unfair—unnecessary and unfair in that they hit the section of the community which is always hit, the man who drinks his pint, the man who takes his half of whiskey—an enormous increase of over seven old pence per glass which would have caused an explosion in itself a couple of years ago. There is also the doubling of the cost of driving licences. Let me say that there is one undesirable aspect of this. We all know that it is not easy for a person to pass his driving test, that he has to come not only twice and three times but four times. On each occasion, having failed his original test or the subsequent tests, he will have to renew his temporary driving licence at double the cost. We always had—and I am indebted to one of the newspapers today —the Minister for Local Government, Deputy Tully, bleeding for the poor man who has to drive his car from a rural area into the neighbouring town for industrial employment. I think that the increases in this respect, the inevitable increases in petrol, the increases in motor taxation and the driving licence and the increase in the cost of cars—and again may I refer to the cost of new cars and the adverse effect which the increase will have on the motor assembly industry, in so far as it must deter people from buying cars and either carrying on longer with their existing cars or, if they want to change, changing to a secondhand car—all these will hit the poor man for whose welfare Deputy Tully's heart bled only a few short years ago. It is anti-social and damaging to our economy because we know that in many parts of the country now people live in smaller towns and villages and regularly go to employment in the bigger towns close to where they live. This is going to affect the take-home pay of each and every one of these men.

There are so many inequities in this budget that these will be highlighted repeatedly from these benches over the next week or so and then we will indicate to the people that they have been completely misled by the promises of the Coalition Government. The most disillusioned people, perhaps, are the farmers who expected that rates of death duty were to be reduced. In fact, as Deputy O'Malley pointed out yesterday, they are going to be increased and doubled in some respects. We know already of very disillusioned farmers throughout the country who openly campaigned, sometimes in contra-distinction to their previous political affiliations, for the Coalition on this score alone and now we are promised that consultation is going to be had with the various groups. It is one of the important factors that possibly swung the election in favour of the Coalition but this promise in now being put on the long finger.

I think it was immoral of the Government to make promises of this nature. It is, as indicated earlier on, a live now and pay later budget. I hope the Coalition Government will find it possible to pay their debts and not allow to happen what did happen during the reign of the two previous Coalitions, that Fianna Fáil were left to clean up their financial and economic mess. We will do it and we will take all the contumely that will have to be borne as a result of it. But the people will know, at any rate, that no matter how spendthrift, how profligate this Government are going to be, there is always the Fianna Fáil Party ready to take up the bits and pieces and put the economy together again and let it move forward as it was doing, steadily, which now I fear will be reversed as a result of the introduction of this budget.

The Taoiseach

It is important in considering the expenditure in the budget to get it into perspective. We know that gross national product, equivalent to the total income and earnings of all persons in the State, is estimated at £2,553 million in 1973. The total amount of this budget is just short of £1,100 million, including £305 million on capital account. We are, therefore, pre-empting through the budget a significant proportion of the total resources of the nation. The question we must ask ourselves is: to what purpose are we doing this, and what is there in this concerted spending on behalf of the public which cannot or will not be achieved by spending by individuals in society?

The first objective of the budget is to expand the economy and to provide increased employment.

This is a duty of the community as a whole which individuals, or any set of individuals within it, cannot fulfil. In considering the methods which we have adopted to achieve our objective, we have taken into account the recent OECD report on the economy which, as Deputies will remember, suggested faster rates of Government expenditure as an appropriate stimulus. The report went on to say that expenditure of this character would have a greater initial impact on domestic output and employment and can be applied more selectively than tax or monetary changes.

The House will be aware that, in the capital budget, which is the main instrument of this policy, we have increased the provision for building and construction by 36 per cent to some £111 million. This is a very large increase. It outstrips any comparable increase on any occasion. The increase alone is greater than the total spending on building and construction from the capital budget some years ago.

The total expenditure on the industry is now running at substantially more than £300 million annually. Through the incentive effects of building grants and loans financed from the budget, we can obviously influence strongly the total output and employment in the industry.

Substantial additional sums are also being provided for expenditure on roads which, in addition to being a significant source of employment, can increase efficiency in transport and, in this way, help to reduce costs as a whole. There has been some criticism from the Opposition benches of the increase in motor taxation. Indeed, one Deputy was concerned that he would not be able to drive around his constituency because of the increases. I want to relate these increases to recent increases in two Fianna Fáil budgets.

In 1966 there was a flat increase of 25 per cent in each of the rates applicable to cars. In 1970, in the supplementary budget, the increases ranged from 23.1 per cent to 33.3 per cent. On this occasion there is a distinct difference. In 1966 and 1970 the increases did not accrue to the benefit of the Road Fund but were retained by the Exchequer for general Exchequer purposes. These increases, therefore, were not defended on the grounds that they were regarded as desirable and productive and useful for the purpose of improving the road network, or for the purpose of providing employment on improvements to the road network as well as the consequential employment involved.

I mention this because it is important to realise that in this budget there is a substantial increase in capital expenditure in respect of roads. I mentioned the construction industry because it has been traditionally the industry or certainly among the industries—with the highest rate of unemployment. If we are to reduce unemployment we must tackle it where it is occuring. Of course, the effects of our policy will not be confined to one industry. Builders and their workers buy from other industries and, if their industry is buoyant, the effects are felt far outside it.

It is important here to mention the Government's aim of improving housing conditions generally. Substantially more than a figure of £100 million is now being spent on new houses, and many times that amount is being spent on older houses which need to be reconstructed and may satisfy the needs of persons looking for housing just as well as new houses. The housing market has now become so big that the Government cannot, from their own resources, finance it entirely or even a substantial portion of it. Therefore the Government must seek to provide the conditions in which it can grow and prosper as well as continue and expand the system of aids and direct financing both for private and local authority houses.

The capital budget this year provides a sum of £64 million for this purpose in addition to about £13 million to provide the services and other infrastructure without which housing of a reasonable standard or any other form of building cannot be continued. In addition, the current budget provides some £9.36 million for housing subsidies, to keep rents low for the lower income households. This provision is additional to the sums which continue to be borne on the rates for the same purpose by local authorities.

In this context, it is important to emphasise the concern expressed by the Minister for Finance yesterday and, at an earlier date since the Government were elected, by the Minister for Local Government, that the flow of finance into the building industry should continue. In that regard I want to say that we propose to monitor with constant and continuous exactitude the situation in which the total flow of money into the building industry operates so that our aim of achieving worthwhile expansion in housing construction and of meeting the needs of families and individuals and persons living in overcrowded and unsuitable conditions will be realised as rapidly as possible.

The second aim of the budget is to provide conditions in which the rate of price increases can be moderated.

As all the public statistics and data indicate, much of the increase which has taken place has been due to an increase in the price of food, which it is difficult, if not impossible, to control. However, this increase benefits in particular the farming community and, ultimately, by increasing the money flow, may benefit the economy as a whole.

As Deputies will know, and in fulfilment of the undertaking which we gave prior to the election, we are removing value-added tax from food, thus helping to moderate the rate of price increases in this sector, which affects everyone, but most of all the poorer sections.

I do not know precisely—and I do not think they know themselves—where Fianna Fáil stand on this matter. A short time ago the Leader of the Opposition, Deputy Lynch, suggested a 10 per cent increase. Our decision, which was endorsed by the electorate, was to remove value-added tax from food on the basis—I mentioned this last night and it is available for anyone who wants to see it—that the Household Budget Inquiry—admittedly this inquiry was conducted some years ago but it is still valid enough for comparison purposes, I believe—indicates that those in the lower income group—the particular table is Table 11 on page 24 —spend over 40 per cent of their total income on food whereas when you get up the scale those in the upper income bracket spend only about 23 per cent on food. This Household Budget Inquiry was conducted by the appropriate officers of the Central Statistics Office. It shows clearly that it is not correct to say that the advantages of the removal of the tax from food are only felt by those who can afford to buy in large quantities.

From the table in the Review for 1972 and Outlook for 1973, you can estimate the average industrial earnings at the end of 1972 at perhaps £26 per week. The increase that will flow to that individual with three children as a result of the increase in children's allowances will mean an increase in their average earnings of about 4 per cent. For an agricultural worker, because of the lower rate of agricultural wages, it will mean an increase in household earnings of over 5 per cent. It is obvious that the decisions which were taken, the switch from taking VAT off food and putting it on to the less essential items, is the right one economically and socially in particular and there is no detriment to the economy.

The Deputies opposite have been complaining about the tax on sports goods and articles of that sort. Deputy O'Kennedy spoke about household goods produced in Nenagh. People do not buy pots every day and they do not buy football boots every day or every week but they have to buy food. It is our view, and is confirmed by this impartial investigation, that the benefit that reacts most effectively is the reduction in the outlay in respect of expenditure on essential items, particularly for families in the lower income group.

It is true, of course, that the increase in prices has not been entirely due to VAT. There are factors outside this country which have accounted for some increases. I have often said from the Opposition benches as well as from these benches that some increases in prices are due to the cost of imports and other factors outside our control and to that extent we are the victims of worldwide trends and conditions.

We want to ensure—I believe this is in the interests of every one of those on fixed incomes which are not capable of being rapidly increased— that changes in incomes and in wages and salaries governed by pay agreements will allow for whatever compensation is possible for price changes. Every wage and salary earner wants the prospect of a reasonable growth in his real income, not adjustments which are swallowed up by price increases. In the past where increases occurred which were not accompanied by increases in productivity it increased the rate of inflation. Deputies will have noted that in this we have outstripped in recent years increases in a number of other countries in which we are competing.

I know employers, trade unions, the Government and the people at large are conscious of this situation. I know they are aware that unless we can moderate the rate of price and wage increases we can achieve none of our aims. We cannot increase employment because the goods and services we produce will not be competitive and no factory, shop, hotel, office or building organisation can continue to exist if people will not buy what they are attempting to sell. We cannot increase the real wealth of the people if price increases negative increases in wages and salaries and we cannot help the poorer sections of the community to the extent we would like because inflation hits them worst of all, swallowing up a substantial part of the increase made annually in welfare payments. They have not the means available to others by which the worst effects of inflation can be moderated.

I stress these points now because the Government are conscious that the national wage agreements are coming up for review later this year. In 1972 wages and salaries at an estimated £1,086 million represented over 60 per cent of our total national income. What happens to them will obviously govern the future of the economy as a whole.

The choice, therefore, for those working on the agreements is a vital one. I know they will approach their task with care and responsibility. At a meeting recently with congress they expressed that view and also expressed their concern that the interests of the economy as a whole, not only those they represented, was a prime concern with them. The Minister for Industry and Commerce, through the officers of his Department and the other powers available to him, will operate a system of effective price control and if possible improve on it to ensure that no unjustifiable price increases are permitted and in particular that the full reduction resulting from the removal of value-added tax from food is passed on to the consumer.

It is important to re-emphasise what has already been said. This is a complicated system. It was put into operation and if it is not to be more complex and more difficult for traders, particularly for small traders who have not the resources larger concerns have, it would be impossible to have value-added tax removed from food at an earlier date. In fact, the co-operation of those concerned is essential if it is to be removed and if the transition in respect of the change in tax rates on other commodities is to operate smoothly.

The third objective of the Government in this budget was to improve the lot of people in the lower income group and it is again important to emphasise that we are providing a total of £38.9 million in the current financial year, plus changes in taxation which will benefit lower income families. This compares with the figure of £8.30 million in the 1972 budget for increases in social welfare payments, plus taxation changes made at that time.

I want to give a general indication at this stage—the Tánaiste and Minister for Health and Social Welfare will give fuller details next week in talking on the budget of what the actual increases are but what is significant this year—and I propose to give only rounded figures—is the number of persons who will benefit from budget increases in respect of social insurance and assistance, the adult beneficiaries in respect of old age contributory pensions, the adult dependants and the children, those with retirement or invalidity pensions, widows' pensions, widows' contributory pensions, widows' non-contributory pensions and deserted wives' allowances as well as children in these categories. The average weekly number of long-term beneficiaries is 327,000. If we add to that the shortterm beneficiaries in respect of disability benefit, adults, adult dependants and children, maternity allowances, unemployment benefit for adult beneficiaries, adult dependants and children and unemployment assistance we get a figure of 389,000. Therefore, the total number of beneficiaries under the budget, short and long-term is over 700,000.

In respect of the benefits in pension rates it shows that for old age contributory and retirement pension from 1st July this year in respect of the personal rate of a person under 80 years of age with an old age pension, the new rate will be £7.20. The present United Kingdom rate is £6.75. It is true that there is a proposal to insrease the UK rate by another £1 by 1st October but it is significant that this budget shortens the gap between our rate and Britain's. This is the first time that these benefits are being paid on 1st July; in the past it was either in August or, in most cases, October.

The increases in children's allowances are considerable. We have confined the benefits to those most in need. The Opposition proposal suggested means test at different levels. We confine our proposal to those in need and, as has been said, it will be clawed back from those who can afford it because they are over the £2,500 limit.

The effect of the changes we are proposing in welfare payments can be seen in the document to which I referred but I may take one which is probably as near average as possible to illustrate the point I am making. Most couples with three children will qualify for £8.75 a month or £4.50 a month or more in children's allowances alone, not counting the benefits accruing from the transfer of value-added tax on food and the other changes I have mentioned in respect of relief of rates. In this redistribution and our aim to improve the lot of the weaker sections of the community I believe we have fulfilled, and more than fulfilled, the undertaking we gave prior to the election.

I have spoken of the need to reduce unemployment, stabilise prices and distribute income more equitably and fairly. Each of these aims is linked with the others: we cannot reduce unemployment if, as a result of our policy, prices increase; we cannot sell the goods produced by our workers, in competition with what is produced elsewhere if our prices are not competitive; we cannot redistribute income in any worthwhile way if we do not first get it in, which implies stepping up production in manufacturing industry, agriculture and the service industries. Increasing employment by increasing national wealth will naturally increase our ability to do this and to help those in need. By helping those in need in present circumstances we help to create markets for persons producing goods and services. In this sense each part of the budget will support and reinforce the other parts.

One of the criticisms of the budget is that we did not, as Fianna Fáil promised, abolish local rates on houses. Deputies will recall that this was an election promise and I must remind Deputies, and through them the country, that in the Local Finance and Taxation White Paper published in December, 1972—that was before the Dáil had been dissolved—and which we assume represented the considered view of the outgoing Government, in Chapter 4 the rating system was spelled out. In paragraph 1.4.1 the then Government said:

It is essential that local authorities should have power to levy local taxes.

It went on to say that the rate is a local tax.

The Government have decided that only the local rate satisfies the criteria required—

in relation to a number of things about providing money for local expenditure

—and that the real issue is not the abolition of the rating system (with all the consequences this would involve for local financial independence and, indeed, for the taxpayers) but the reform of the system so as to eliminate its undoubted defects.

That was considered Government policy, but when we said in the course of our published policy before the election that we proposed to transfer over a period of four years the health and housing subsidy charges from the local authorities to the Central Fund, the outgoing Government then panicked and promised they would abolish the rates on houses in flat contradiction to the published statement and a White Paper, prepared and produced after exhaustive study by the Department of Local Government, and considered and presented as Government policy of a definitive kind.

Deputy Lynch, in the course of his speech, expressed concern at the magnitude of the amount being spent in this budget; he said it was profligate and reckless and that we were borrowing too much. Now I want the House to appreciate the precise percentage of the deficit this year expressed as a percentage of current expenditure and the precise percentage last year. In 1972, the deficit as a percentage—that is, money borrowed—of current expenditure was 5.35 per cent. This year, with greater budget spending, increasing rapidly and substantially the amount for building in the capital budget, the percentage in the current budget is 5 per cent. With a larger budget, more money for housing, more money for road development, more money to stimulate the economy in line with the advice tendered in the OECD Report, as the most beneficial and the most practical—nobody has ever suggested that the advisers who produce these reports in the OECD are anything but responsible and reasonable people—this year the actual deficit as a percentage of the total budget is 5 per cent as compared with 5.35 per cent last year.

The Opposition have criticised the budget on the ground that particular benefits are given in respect of industry and the better-off sections of the community from the point of view of rates. Office blocks, hospitals, hotels and so on have, for a variety of reasons, to be constructed.

It is significant that the yield in rates from blocks of offices, often replacing dilapidated and no longer serviceable houses, is eight to ten times higher than it was from the houses these new buildings replaced. An inquiry was conducted some time ago by the Department of Local Government. That inquiry showed that one particular road which gave a yield of £29,000 in rates yields, as a result of the construction of office blocks, a sum of about £300,000 in full rates. This enables local authorities to get more money from rates and also relieves the central authority. This is a definite advantage. If building of this character were not undertaken in urban areas the rates would be much higher than they are. We decided in this budget, because of the ability of those responsible for these buildings to pay more, to increase the tax.

As I said, this budget has increased by the unprecented amount of 23 per cent in the capital budget and by 36 per cent, to £111 million, in the building and construction sphere, and increases in social welfare mean a substantial increase in the demand for goods and services, as well as contributing to the general expansion of the economy and alleviating the difficulties of those most in need.

Last year, agriculture, after years of comparative stagnation, had a substantial increase in net output, estimated at £81 million. This was mentioned by the Minister for Finance. This should help farmers to equip themselves for a further expansion in output, an output which EEC prices and conditions make so advantageous. We have more land per person than almost any country in Europe. Most of our land is suited to the production of food products, for which world demand and demand within the EEC is now so strong, and this is an opportunity we should grasp to the fullest extent in order to avail of the advantages. EEC membership has enabled us to increase the income of the farming community and, following on that increase, the community as a whole will benefit.

I should mention at this stage our proposals in respect of estate and death duties. It is clear from the Minister's statement, from the resolution and from estate duty legislation that this benefit is not confined to farmers alone. There has been some criticism that the benefit was not more lavish and that it was not accompanied by a wealth tax. The Minister made it quite clear that this matter will be considered as a matter of urgency and a White Paper will ultimately be published on it. In addition to that, the NFA, when they saw the Minister prior to the budget, specifically asked that no decision in these matters would be taken until they had been consulted. Obviously they made that request because they recognised the complexities of the problem. They also realise that they have benefited substantially from price increases as a result of EEC membership. They obviously understood that this is a matter of considerable complexity requiring careful examination.

It is important here, I think, to direct the attention of Deputies to an article entitled The Cost of Good Government which appeared in The Irish Press on Monday, 14th May, written by a Mr. Joseph Charleton, who is described as a leading tax consultant. He is recognised as such. He said in that article:

If Mr. Ryan were to achieve even half of what is expected of him this year he would set a pattern for Irish society for a long time to come. Quite obviously he can no longer fall back on the old policy of copying British legislation twenty years or more later. For one thing he will not introduce the British tax system for farmers, for another his freedom to abolish death duties, if that were really contemplated, must be limited to the Irish financial commitment to keep close to British lines on capital control. It is a truism of international money that it seeks death duty havens and we are just that much too near London to become such a haven.

Besides action of that kind could have a very damaging effect on the national ownership of Irish farm lands. In the same way, if we were to rush into capital gains legislation the repercussions on our efforts to attract foreign investment and push forward our development programmes which are so necessary could be quite serious. We already lag behind in good company taxation arrangements which is all equally vital for international conventions for the avoidance of double taxes, an essential requisite for an open economy.

The article also said:

A Government which hoped to handle them all would need a mandate for ten years and even then it would most likely be overtaken by developments elsewhere, such as in the EEC.

In other words, in that article the writer endorsed the decision of the Government to move with caution in this matter and to publish a White Paper before doing so, after consultation with the interests concerned.

The budget contains substantial provision for expansion in respect of industrial production. Last year the growth rate was about 4 per cent for transportable goods as a whole. It was nothing like the rate of expansion in respect of agricultural production. Most of our hope for increasing employment lies in the manufacturing industry, including construction. With the higher growth rate which is expected to result from the budget as a result of the higher incomes generally, including both agriculture and industry, and the higher incomes of the social welfare recipients and the stimulus given to the construction industry, we hope to achieve a level of demand which will draw increased output from manufacturing and from service industry.

The IDA are continuing with great success to attract new industry. Deputies opposite and people elsewhere have mentioned events in the North and the slackness in the British economy which have had an effect here in recent times.

The size of the budget in relation to the total resources of the nation is a very big one. We hope through what we hope is a correct distribution of the public spending to get the maximum advantage out of it and to push forward, as the Minister for Finance said yesterday, with forward planning and budget management on the basis of programme budgeting.

The budget contains a number of specific provisions to remove anomalies or injustices and to avoid the evasion of tax mentioned in one part of the budget. This will be dealt with in detail in the discussion on the Finance Bill.

One of the important aspects of this budget is the fact that the changes in the VAT rate—and this is particularly important when there is talk about the effect of these changes—and the changes in respect of spirits, beer and tobacco mean that there will be, overall, as a result of the budget changes, between three-quarter per cent to 1 per cent increase in the consumer price index.

In respect of the change in VAT there will be a net reduction of about a half per cent. This is specifically of the greatest benefit to the lower paid sections of the community. This is demonstrated conclusively by the household budget survey, reinforced by the figures in the survey for the review of 1972 and the outlook for this year in the white booklet published by the Department prior to the introduction of the budget. We recognise this as an essential part of a real contribution towards a conscious effort by the Government to stabilise prices or, at least, to make a contribution in as effective a way as possible.

The changes in the estate duty system are designed to relieve those most severely affected by it and those least able to meet it. We have, as is clearly shown from the figures, relieved the people most severely affected, those in need. That, I believe, is sound policy. It is sound economics.

In addition, we have announced our intention to tighten up in respect of tax evasion or allowances where abuses exist. The national pay agreements which recommended certain increases on the basis of the Employer/Labour Conference for certain public servants will be implemented. There will be, in addition, help for house-buyers through the remission of stamp duty on lower-priced houses. The extra earned income allowances for working wives will make a contribution towards reducing the shortage of female workers, particularly skilled workers, noted in the recent survey conducted by the Confederation of Irish industry and the Economic and Social Research Institute, and commented on as one factor holding back industrial production.

Deputy J. Lynch, when speaking, criticised the fact that we were spending so much and criticised the amount of the expenditure and the amount of the deficit, although as I have shown that the deficit is a lower percentage of the total than the percentage of the smaller budget that was introduced last year in which the deficit was regarded as desirable and tolerable when it amounted to 5.35 per cent of the total current expenditure compared with 5 per cent this year.

In addition to that, it is common knowledge and the Deputies opposite are aware, that to increase the personal allowances even to the modest extent suggested would cost a total of £7 million.

This budget is designed to help those most in need. It is designed to assist the lower income groups, those with larger families, those on fixed incomes, those who are buying houses, either newly-weds or others, those worst affected by estate duty. It provides that by raising the money in a way in which it has least effect on those who are affected by increases of any kind.

As I said here earlier, we have increased the rates of motor duty but the revenue is being devoted towards road construction; it is not being absorbed into the Exchequer for ordinary Exchequer receipt purposes.

I believe that the people recognise that it was a wise decision to get the necessary money by an increase in spirits, in beer and the other things because the consumption of these items has shown a very considerable rise. There was an increase in the consumption of beer last year of 102,000 standard barrels.

The other improvements in respect of social welfare, which will be dealt with in detail by the Tánaiste, include a provision which will assist disabled persons, will assist children to continue their education from 16 to 18 years of age. This is all designed to show that this is a budget not only of social reform but of social concern, that we have endeavoured to relieve those most in need of relief, to tax those who can pay. There is no obligation to buy a number of the items that are taxed or, certainly, if one has to compare the essential needs in respect of food and of items for human consumption, is it not better to relieve those and to tax the least essential items?

I heard Deputy Colley yesterday say that Fianna Fáil would have given bigger benefits and it would have cost less. No pyramid operation would promise more than that. It just could not be done. There is no way in which it could be done. We have used the money available for what we consider the most desirable and humane aims as well as those most likely to expand employment, to provide houses and hospitals for our people, to increase the efficiency of the road network and to reduce transport costs involved in it and to increase employment on it. I believe that that was a sound economic, social and national aim covered by the various proposals.

Deputy Colley said that we had missed opportunities. If that is so why did the party opposite rush an election if these opportunities were there? Was it not a fact that they were overwhelmed by the fact, as the Minister for Finance said, that they had disposed of the total saving in respect of EEC subsidies to agriculture in a sea of inflation, lost without trace, that they had run away from their responsibilities, that they denied the younger people the opportunity to express their view on it, that we have since given them the right as a result of legislation passed here to express their approval, not only of this policy but of all the policies for national, economic and social development that is enshrined in the activities of this Government and that is described in a heading in the article I referred to as: The Cost of Good Government? Even a writer in The Irish Press recognises that that is what the country is getting.

Mr. Briscoe

I always endeavour to be temperate in my remarks in this House, but there is only one word that can be used to sum up this budget, the word "horrible". This is the biggest confidence trick ever played on the Irish people. The people will be able to judge that themselves pretty shortly.

As has been said, those hardest hit in this budget are the middle income groups and also the newly-weds, the couples buying a house. Building materials will be increased by 3 per cent. That will add to the cost of the house. The price of all the commodities that go to furnishing a house will be increased.

The Minister referred to the stamp duty being reduced on secondhand houses valued at £7,000. The majority of young persons getting married today do not buy secondhand houses. They buy houses in new estates. These persons will be hit hardest by these increases.

I am amazed at the cynical approach of the Government to the younger people generally.

Mr. M.E. Dockrell

They gave them the vote.

Mr. Briscoe

They have been very vocal in telling the young people how they were deprived of their vote in the general election, that Fianna Fáil had done this wicked thing to them, without, of course, telling the young people that it was Fianna Fáil who put the legislation through the Dáil in the first place to give them the vote at 18. Apart from that, this Government have given nothing to the young people. I work with quite a number of youth leaders and know the efforts they make to raise funds to equip recreational centres and sports clubs. In many cases voluntary youth workers spend every day of the week working for the young people. There is nothing for them in this budget except an increase in the cost of sports equipment.

Mr. R. Ryan

There is an increase in the provision of funds for sports clubs.

Mr. Briscoe

A £40,000 increase. There is an increase in the cost of the various items these people have to buy in the building of youth clubs, recreation centres, equipment and so on.

Mr. R. Ryan

There is no increase in the cost of materials for building.

Mr. Briscoe

Building materials——

Mr. R. Ryan

Are not increased. The Deputy should, perhaps, sit down and come back later when he has studied the budget.

Mr. Briscoe

"Building materials" is the term that is used. The Minister should not try to mislead the people on this. The VAT is being taken off food and put on to other non-food items.

Mr. Esmonde

Does the Deputy object to taking it off food?

Mr. Briscoe

Yes, I do. I will tell you why—because the housewife is not going to see it. I remember going into a shop not long ago and the shopkeeper said he would charge what he liked, that if people did not want to shop with him that was their affair. There are many shopkeepers who have that mentality. The Minister for Industry and Commerce would need an army of inspectors to check on what is happening. As soon as the inspector has left the shop the shopkeeper can remark the prices.

Mr. Creed

The Deputy must think the shopkeepers are all crooks.

Mr. Briscoe

There is no profession on earth that consists entirely of saints. Within a short time any benefit the people may think they will get initially by the removal of VAT from food will disappear and we will be faced with a higher rise in costs.

Mr. Creed

Nonsense.

Mr. Briscoe

Time will tell. This is an inflationary budget that will add to the cost of living. The Taoiseach told us we were largely dependent on what happens abroad and that the prices of imports affect greatly our cost of living. When conditions abroad deteriorate or when there are recessions in other countries the reaction of our Government will be very important. Whenever recessions occurred Fianna Fáil never over-reacted or under-reacted and this is a difficult course to adopt. Recessions will come. It is one of the facts of life that the greater the prosperity the greater will be the recession. It is important for a government not to panic when things go wrong——

Mr. Esmonde

They find themselves on the Opposition benches when they panic.

An Ceann Comhairle

The Chair requests that the Deputy be allowed to continue without interruption. This has been the pattern of the debate up to now and I wish to maintain order and decorum in the House.

Mr. Briscoe

Because of the reaction of the last Coalition they found themselves in Opposition for 16 years and the Deputy should take adequate warning from that experience. I hope they will not repeat the mistakes they made then because the effect on the lives of our people would be too traumatic. One might wish that this would happen the Government so that they would be put out of office but I do not wish misfortune on this Government because that misfortune will fall on the people. That is the last thing I want.

Listening to the Minister yesterday answering certain questions on the resolutions, it was obvious he did not understand what he was delivering in his budget. He found it difficult to explain how people with incomes in excess of £2,500 will have to pay back £42 this year and £50 next year to the Exchequer in respect of children's allowances. The Taoiseach spoke of 700,000 social welfare beneficiaries in this budget but how many of those people will be handing money back to the Exchequer? How much of the money will be clawed back?

A government should always endeavour to pay for social services out of revenue. We should not be in a position of borrowing from abroad to pay for these services. That mistake was made before by a Coalition Government; I hope it will not be repeated. When money is borrowed from abroad it must be used to invest in industry or schools—in sectors where we will get a return from the point of view of profits or education. It must not be spent as before when Marshall Aid was spent on musical instruments.

One of the big disappointments was that no rates relief on private dwellings was given for income tax purposes. We all agree the rating system is bad in that it does not take into account the ability to pay. There are many people on fixed incomes who have a substantial rates bill. It would have been of considerable benefit to them if their incomes had been taken into account. I should like the Minister to tell us how much it would cost to implement such a scheme.

The Minister referred to the fact that although health charges on rates have been taken off businesses they will be asked to pay more for the employers' stamps. I understand the amount of the stamp will be based on the earnings of the person concerned. This may put the jobs of older people in jeopardy because, in order to avoid some of this extra cost, management may be tempted to dismiss those people and employ younger staff at a smaller salary. The system may be abused in this way and the Minister should have regard to this aspect.

Children's allowances were one of the biggest disappointments in the budget. I was not clear if it was meant £2,500 net or £2,500 before tax was deducted. This was not made clear. I know that the Revenue Commissioners use the word "total" for net income but this is not clear to the man in the street.

I am glad we are increasing our foreign aid. However, a few mornings ago I heard a programme on the radio about conditions in Benburb Street where the conditions were described as Dickensian and where there are the most horrible slums in Europe. I wonder what right have we to give money when people are living in this country in conditions of such squalor. I would have thought it called for an emergency injection of capital of something in the order of £250,000. I am not saying we should not help less fortunate people in other countries, but if we are aware that conditions exist which were described by the Parliamentary Secretary to the Minister for Social Welfare as ante-Dickensian, we have a duty to do something about it immediately.

I share the disappointment of a number of Deputies at the Minister's refusal to implement the Devlin Report on salaries in the public sector. Either a thing is right or it is wrong. The last Government submitted to the Devlin Committee the task of finding out what the salaries should be in the public sector. This included Members of the Oireachtas who have always been in the invidious position of having had to award themselves increases. It is a position which no one likes to be in. Members of the House have always been reluctant to speak about their salaries. It has always been embarrassing.

I do not know why it should be. Either a man is worth the money or he is not. I am wondering to what extent our lack of action in this respect is encouraging people of independent means to stand for the Dáil. We have many lawyers in the House. Deputy Ryan, the Minister for Finance, has a good business firm—he has no shortage of business. He has been a part-time TD. The only time he became a full-time TD was when he was appointed Minister. There are some full-time TDs in this House who do not have independent means. They cannot be in two places at once. There are medical doctors who find it very difficult to run a practice because of their membership here. There are among us people in the skilled and unskilled labouring professions who are, if you like, victimised by the failure of the Minister to implement the Devlin Report and by the inadequate salaries being paid here.

As I have said, either the work is worth the salary or it is not. If a man has other income outside this House it is well known that he is taxed very heavily. I think it was wrong of the Minister to have gone against the wishes of the Employer/Labour Conference which in effect has the force of the Labour Court but whose rulings are not binding. I had thought at one stage of bringing this to the Labour Court before I appreciated that the Employer/Labour Conference had the same force. There are people, like Sir Anthony Esmonde, who are victimised by this inaction of the Minister. There are former Deputies like Paddy Burke and Michael Hilliard who will be victimised in the matter of their pensions because of failure to implement the Devlin recommendations in this matter. Those people, who have given excellent service to the nation, have been to use a common expression, done out of their just entitlement. What the public generally do not realise, and only one or two Press commentators have been sympathetic, is that it is five years and one month since Members of this House got an increase. I do not wish to take up the time of the House speaking about this but I would point out that the Minister has set out to break the terms of the national wage agreement by refusing to implement these recommendations. I appeal to him to take another look at it.

When announcing the change in VAT, the Minister appeared to me to have been in a state of beautiful euphoria. He said:

The cost to the Exchequer of the relief will be £16.755 million in a full year and £8.35 million this year. This cost, together with a modest contribution towards reducing the current account deficit this year will be recovered within the value-added tax system by increasing the existing rates on other items.

In other words, we have increased VAT to realise an extra £2.6 million and the cost of living on items such as clothing, electricity, gas and so on has gone up by that margin on top of other increases.

I wish to refer particularly to VAT in relation to medicines. I fail to understand why it has been removed from oral medicines and not from others. Why did the Minister pick oral medicines. Many people suffer from skin ailments and require ointments. Many medications are required other than oral medicines. For instance, I should be interested to know if suppositories come under the category of "oral medicine". There are people who need these kind of things, so why discriminate against them?

I suggest that the wife's earned income increase is completely inadequate. Deputy Lynch dealt with this and I will not delay the House by repeating his remarks. I think the £30 increase is worth mentioning. Women will have to continue to make their case for getting an increase in this allowance.

It was interesting to hear the Taoiseach speak about death duties and estate duties and of how the Government had been advised to look at the matter very carefully in case they might encourage people to come in here and buy land. It is fine to say that now, but before the election when the Coalition parties were going around the country they said they would do away with death duties. They knew quite well then what the difficulties were.

During the election campaign the Coalition spokesman on Finance was Deputy Garret FitzGerald. After the election we found Deputy Ryan being appointed as Minister for Finance. I was reminded of a Brendan Behan saying—to plagiarise him—that he was something of a financial eunuch. In other words he could tell you how to do it, he could tell you when you are doing it right, tell you when you were doing it wrong but he could not do it himself. It seems to me that Deputy Ryan is somewhat of a financial eunuch. We shall see.

A question was asked last night in relation to the increased motor taxation. The question was asked whether it applied to school buses. We were told it does not apply to CIE buses and the Taoiseach, who answered that question—he had his advisers with him—did not do so specifically. He did not mention school buses. This is the kind of question the Minister should be able to answer on the spot and I hope he will deal with it when replying.

There are many other points which some of our Members will be dealing with in the course of the debate. The increase in motor taxation is one which will certainly come in for criticism, together with the increase of 3p or 7½ old pence on 20 cigarettes. Maybe this is a sign of the times. There are things in the budget which I welcome and one of the decisions which I most welcome is the extension of the age from 16 to 18 for school children's allowances. This is an excellent move and I am very glad of it. Overall it is not a good budget. The Government had an opportunity and they did not grasp it. However, I hope that next year they will be in as good a position to do good as they were this year and that their experience this year will enable them to produce what I would consider to be a more just budget.

Minister for Industry and Commerce (Mr. Keating)

This budget has been characterised in a number of ways. It seems to me to be a budget for the silent people, the people who have no pressure group, who do not usually write letters to newspapers, who do not appear on television, the most disadvantaged. But there are threequarters of a million of them and they are one-quarter of our whole population. These have experienced by far the largest step forward in social welfare in the whole life of this State, a leap in social welfare of a most extraordinary kind.

It could of course be argued that it is too much too soon. One might perhaps have phased this great increase to social welfare recipients for cosmetic purposes in later budgets, but whatever this Government does in future, and I hope it will do many creative things, for myself I can envisage no act it will ever carry out that will give much greater pleasure and of which I will be more proud than this transformation of the situation in regard to social welfare. I propose to spend a little time later indicating how vast that transformation seems to me and how important it is.

Social Welfare recipients—the old, the widowed, the disabled, people with all sorts of disadvantages—are not the most vocal, the most coherent, the most organised, but for any Government which claims to be a Government of social justice they are the most important. It is a budget for them. They may be much less vocal in expressing their opinion of it than small pressure groups who have enough resources to employ public relations officers, but it seems to me to be an extraordinarily important action and I am immensely proud to be a member of a Government that has done it, and has done it so quickly and so resolutely.

Another of the descriptions of the budget was that it was a Robin Hood budget and that is not a bad description. I note in passing that I never heard that Robin Hood was a conservative. This is a radical budget, a budget of redistribution, and I will talk about that too in terms of not just the extent of the social welfare gains but also the effect of the removal of value-added tax from food. I am sorry that Deputy Briscoe said explicitly that he disapproved of it, because as you go to poorer and poorer sections of the community, poor in relation to money income, you find that a larger and larger part of their income is spent on food, so that relief in the price of food is relief for the poorest. That seems to me not just the implementation of a promise but it was a correct promise to have made and it was correct to have done it, and the value-added tax adjustments are redistributive to the advantage of the poorest sections and it seems to me that in our society income tax should be redistributed.

Before talking about the budget, however, if we are to judge it and say serious things about it, it had a whole number of purposes. Money has to be gathered to carry on certain things but a budget has an objective, a strategy, and it fits into an existing economic circumstance, and I want to put on the record what that existing economic circumstance which was inherited by the new Government in the middle of last year was because it has been presented to us now by spokesmen of the Opposition that we were handed a situation of unparalleled advantage. I do not want to use a tendentious source of information to indicate what I consider to have been the economic environment we inherited. I want to use a most important report, a report which I commend to every Deputy. It is the report of the OECD economic surveys—the survey of Ireland—which came out in March, 1973. One cannot claim that there was any influence by reason of the change of Government because that change had not occurred. It was published in mid-April. This is a world organisation—not of the whole world but of very many of the involved countries, such as the United States, Japan and the Nordic countries as well as countries of the enlarged Community—which is of the highest repute economically. In so far as it is possible to find unbiased and objective data in economics, I think that people will generally agree that OECD documents are like that. They have to be, or they could not retain the goodwill of national governments when they come to make this sort of report on the economies of member states as they do periodically.

I want to quote from the first paragraph of the introduction and if position in a document indicates the importance of the contents, what occurs in the first paragraph of the introduction is presumably of some importance. On page 5 it is stated:

The unemployment problem worsened in 1972, partly because of the depressed conditions in Ireland and partly because poor employment opportunities in England discouraged emigration.

There were two inputs into that worsening of the situation but one of them was the depressed conditions in Ireland. That is a quotation—it is not my opinion but that of OECD. If we turn to page 10, we find, quoting from the bottom of the page:

The slack demand conditions and weaker productivity performance over the same period...

I should say in parenthesis that that is the period which started in 1969—

...have also contributed to the marked deterioration in Ireland's relative cost position.

Turning to prices and quoting from the same page of the same document we see:

In 1972 prices again rose faster in Ireland than in any of the major OECD countries.

That is not a post-election figure, not an Irish figure. It is the nearest thing to an objective figure you could get. Inflation was raging and was the worst in any of the OECD countries. We had slack in the economy. We had a deteriorating cost situation. We had a worsening unemployment problem.

Let me talk about the credibility of the Opposition in regard to this matter of prices. I heard Deputy Lynch today expressing economic thoughts with the sound of confidence, as if he understood what he was talking about. From February, 1972, to February, 1973, our rate of price increase was 10 per cent. That figure is in the statement by the Minister for Finance. It is a figure with which nobody can quarrel. It was not gathered by politicians but by people whose job it is to draw up cost of living indices. All through last year we had a raging price inflation, running sometimes at 8½ per cent, sometimes 9 per cent, sometimes 10 per cent and sometimes 10½ per cent. Everybody with an atom of nous knew that it was like that.

Last year on the Estimate for the Department of the then Taoiseach, Deputy Lynch, summing up at the end of term, as one might say, before going off for the summer, as reported in volume 262, column 1551 of the Official Report of 13th July, 1972, said:

In the case of prices the most recent figures show that the increase is now at an annual rate of about 6 per cent.... This downward trend is expected to continue....

It was not 6 per cent: it was 10 per cent, and it was not a downward trend. The new-found economic expertise in Opposition of somebody who can say something as silly as that when he is Taoiseach is a little thin and a little unconvincing, because that was a ridiculous statement, with the most serious consequences for Ireland. If you believe it is 6 per cent and going down when it is 10 per cent, you do not do anything to relieve it. We are the inheritors of a whirlwind in regard to inflation which was created by the blindness and incompetence of our predecessors.

We might agree that it is difficult to check inflation in an economy as open as ours, but I find it a touching compliment to the abilities attributed to the new Government when they are criticised for not doing something in two months which their predecessors were not able to do in much longer than two years. Certainly prices are a complex problem, but the pretence that we came to power in a very advantageous situation is just that. It is a pretence, and people who are uttering it either do not understand, or they do understand and are concealing their knowledge.

It is also touching to see the new-found social conscience of Fianna Fáil. It is marvellous what a crossing of 20 feet from one side to the other of this Chamber can do for the dormant social conscience of people who probably started their lives with a social conscience and who found that the realities of office obscured it. It is nice to see it emerging again in Opposition. It is welcome whenever it happens and why ever it happens. The stridency of that new-found social conscience at this moment is more than a little ridiculous. It is hypocritical.

If one talks about strategy, this budget should have had two objectives, and I believe it did have them. The two objectives are growth and social justice. I do not propose to reiterate the OECD analysis of the slack in our economy and of the fact that our growth rate was less than our objective circumstances made possible. We need growth for a number of reasons. One is that if you do not produce more, in the end you cannot have more. The only way to make people better off is to get growth up. It is fashionable in some economic circles in very rich countries at this time to talk about going exgrowth. Perhaps that is all right for the United States, or the Swedes, or the Dutch, or the Danes, but not for the Irish. We need growth, and all the growth we can get for a decade, because it is the only way in which in reality we will level our standard of living with the standard of living of other countries in the Community which we have now joined.

There is another economic reason for wanting growth. When you have slack, it is very hard to retain price competitiveness. I have quoted the OECD report on our deteriorating position in regard to costs and competitiveness. It is interesting to see the British getting their productivity up on the basis of getting their production up and this is the way, in any circumstances in fact, that you retain your cost competitiveness and increase your productivity. We need growth just to be richer and just to have more to give to everyone.

Of course we share the desire of the Opposition to distribute largesse in all directions but we did not have that largesse for all directions. We had to make a choice. We made a very clear socially-motivated choice. Of course it would be nice to have more to give to other sections as well, but growth is the only way to get that. Also growth is the only way to stay competitive. We need growth, not of 3½ per cent or 4 per cent but, if we can get it, 5½ per cent, and it is thinkable that we could go even higher than 5½ per cent without over-heating our economy. So, you want to do that, and you want social justice, and you want redistribution, and you want to make an end to what Deputy Briscoe referred to just now as the Dickensian conditions of one-quarter of our people who, in the seventies of this century, in the Northern hemisphere, still live as they do.

The target is simple: growth, re-distribution and social justice. That is what the budget had to provide. As I said, I do not propose to reiterate the arguments in the OECD document. I want to make the point that the OECD opinions economically are not radical. They are very balanced and realistic in the viewpoint they take. They discussed this problem of growth and they suggested that we should go for growth. They suggested, I think correctly—there are lots of variations possible—that, by and large, in order to attain that growth there were three main strategies, three things that we could do. One would be to secure the stimulus of a reduction in taxation, direct and indirect. That would be a stimulant. In many ways, it would also be attractive to a population and certainly attractive if one were playing Presidential politics with the budget.

The second strategy would be to have an easier monetary policy, and the third strategy would be an increase in Government expenditure, both current and capital. You can think of variations on those, but those are the three strategies. In an economy as open as ours stimulus by relief of taxation, direct or indirect, on the public or in industry does not produce as much stimulus as it would in a closed economy because much of the increased spending power leaps away into imports. Therefore, it stimulates one's own industry less than one hopes for, but it also sharpens a balance of payments difficulty. I am satisfied, with one reservation that I shall make later, that, although it might be electorally attractive, the decision not to ease the rates from direct and indirect taxation was a correct one. If anybody wishes to assess this budget in electoral terms, or in popularity terms, it was a courageous decision. If one talks about the stimulative effect of monetary policy, of a greatly increased money supply, this of course is inflationary and inflation is a worry; but it is also a sort of blunderbuss instrument. Because of the nature of our industrial incentives for productive investment, while money is not easy, it is gettable and increased money supply without restrictions or correction on it produces a consumer boom which to a large extent sucks in imports. This is like the previous point I made about direct and indirect taxation.

It also may produce socially disruptive effects in regard to land prices, house prices and things like that, but it is not possible to gain the benefit of this stimulus in any socially valuable way. I am making arguments here which people can look at in a cold, non-party way and which they will find set out in the OECD Report. On page 44 of that report they will find many cogent arguments in favour of the course which the Government chose which is that of increased Government spending. This has the advantage that it is directable, that it has some regional merit, that it gets a quicker and a more advantageous response for Irish industry than the more blunderbuss methods of reduced taxation or increased money supply.

I am satisfied that, since there was a strategy to be pursued with approximately those three choices, we chose the right one. But, having made that choice to increase Government expenditure, we had the good fortune that that dovetailed with the social commitment to redistribute wealth and to look after the silent quarter of our people who are the disadvantaged ones. They are the people who are so easily forgotten because they are the silent ones. They have been forgotten for a long time.

There are some concessions to middle income groups. Indeed the most important concession to them is already passed and is less fresh in people's memory. This was a concession of an on-going kind in regard to rates. One might say that the bit of the budget for the middle income groups was already water under the bridge; but if one is assessing the budget as a whole and its effect on different sectors it is fair to add that rates consideration into the matter of the way in which middle income groups have been treated.

I do not want to reiterate what other people from this side of the House have mentioned but I wish with the use of a few figures to try to put into perspective the really large, determined and resolute move in aid of social welfare recipients. I want to put that into two categories. The first is the number of people. For historical reasons we in this country have a peculiar age and demographic structure, so that these sort of aids are inevitably expensive, as indeed the people who are now in Opposition often pleaded in their time. We argue about lots of things but that is a fact that neither of us can escape.

I want to try to put the number of benefitted people into some sort of perspective in our population and then I want to put the scale of benefit into perspective vis-á-vis the United Kingdom. I listened earlier to Deputy Lynch talking about the possible effects of our value-added tax decisions on the economic unification of this country but he presumably knows that harmonisation of value-added tax is something that the community pays lip service to but has moved very slowly towards doing anything about. That is in the womb of time. What is immediate is the level of social welfare benefits on either side of the Border that exists in this country. That is not about the future; it is about now. Since he is concerned, as we are concerned, with the removal of the economic causes of Partition then a move towards harmonising social welfare benefits is much more important than a move towards harmonising VAT.

What sort of numbers are there? Let us say the population is slightly under three million. The total number of people who significantly benefit is about 716,000, that is one-fourth of the population. Approximately 300,000 are participants in social welfare benefits on the basis of age, with the exception of deserted wives. Those are long-term beneficiaries, whose payments, because of their social status, continue month in, month out and year in, year out. Those are the contributory old age pensions, invalidity pensions, retirement pensions, widows contributory pensions, non-contributory old age pensions, non-contributory widows pensions et cetera.

There are 67,000 people receiving contributory old age pensions. There are 113,000 non-contributory old age pensioners. Therefore, that is, firstly, an act of major re-distribution, an act of social awareness and social commitment. Surely it is obvious, since all of that money coming in is spent on immediate necessities, most of them produced in Ireland, it is a very immediate and real stimulus to the economy. It is nice to find an action that is socially, morally and economically right, and this is one such action. If you go through unemployment assistance, unemployment benefit, maternity allowance et cetera you come out with one person in four in the country—disorganised, silent, often unaware of their rights, geographically scattered, not articulate, not a pressure group and, therefore, all too often liable to be forgotten. I do not want to be too melodramatic but I do not anticipate anything in my own political life which will give me as much pleasure and as much sense of doing right as this contribution to social welfare in this budget has done. I put it as high as that in all seriousness.

Those of us who have been talking about national unity all our adult lives recall a serious argument which went: Who wants to be worse off? Who wants national unity on the basis of increasing poverty? A powerful argument. It is always easy psychologically and emotionally to separate people who are on different incomes. This was a powerful weapon of disunity and disharmony. What did we say when people pointed out that the standard of social welfare in the North of Ireland was much higher than in the Republic? If we were sophisticated we gave arguments about the size of the hundreds of millions from the Exchequer in Westminster sent to Northern Ireland and we said this was not an earned income that it was a United Kingdom subvention. This was a poor argument to the recipient or non-recipient however true. We knew what an embarrassing thing that was down the decades.

Let us today compare some of the figures in some of the categories here and in the UK. I shall not go into details. Take children's allowances. If you accept that a typical family is a family with three children the current UK rate is £8.23. The UK rate is going up on 1st October but this particular rate stays at £8.23 in the UK and Northern Ireland. It is fair to say that costs are a little lower here in many ways than in the UK. Perhaps it is a fair comparison between Dublin and London; it is not, in fact, much of a comparison between Dublin and Belfast. Let us assume the costs are exactly the same in the two parts of Ireland at the moment. The children's allowances in the case of three children are £8.23 in the North, even after 1st October next, and £8.75 here now—not the same but more here.

One can go on through the columns comparing disability allowances, unemployment benefit, old age contributory pensions, widows' contributory pensions and so on. One finds that the old age contributory pension personal rate under 80, that is the new rate from 1st July, will be £7.20 here while it is currently in the North £6.75 but going up to £7.75 on 1st October. It will be 55p more then in the North but that is 55p in £7.50, very little more. You find in going through the columns that a gap still exists. It would be nice to have the gap reversed and be able to reflect increased industrial growth and agricultural wellbeing in a reversed gap. It would be nice to argue about unity on the basis of money and not just on the basis of Nationalists and Unionists and say that the argument from the wellbeing point of view is in favour of unity.

We all know that both parts of the island economically could do better as a unit than they could do separately. But it is nice to have figures like this. This is a milestone. It is not simply the number concerned, which is a quarter of our people; it is also the scale. It is a matter of closing the gap that has made nonsense of many of our unification arguments for all of my adult life. That is also a milestone. In two ways it is not possible to over estimate the significance of the social aspect. But it was also economically correct and fitted the strategy of getting growth by increased Government expenditure which is the correct way to get it. We did not have an enormous bonanza to distribute; we did not inherit an economy of thumping health but we certainly did have a piece of good fortune in being able to do what was socially and morally correct and which was also economically correct. That was fortuitous but not necessarily the most popular thing to do in votes terms.

Let me now comment on what one might call the small print of the budget. I spoke of the economic incorrectness at this time of income tax relief however politically desirable it might be. That is how the economic argument comes out to me, with one exception— and here I think we might get consensus across the floor—that the people who have an overwhelming argument for relief of income tax are married women going out to work. Here there is an economic as well as a justice argument. There is an increase from £74 to £104 in their allowance. If people say it is not enough, that point has much sense in it but an increase of £30 on £74 is of the order of 40 per cent, a big increase. Whether it is enough in terms of long-term evolution is another matter. I do not think it is. Any budget is made within the framework of the possible. The £74 about which great moral indignation was expressed across the floor was there after 16 Fianna Fáil budgets. It was too low at one time and there was a decision to increase it next time and the next time and the next time. I need not repeat myself 16 times but there was plenty of opportunity to improve it. We did not put it at that baseline; we inherited it. I hope the allowance will go on rising. I know the argument is that the increase is only 40 per cent but at least it is that much.

I want to mention estate duty because it seems to me that this matter is being commented on without analysis. At least the response and the reactions I hear to the Minister's speech on death duties arise, I think, from people not having read it properly. First, there is the reiteration in formal terms—and what is more formal than the budget speech of the Minister for Finance?—not in the heat of a pre-election situation but in the cold of the Dáil record of the budget speech, of a promise. Let me read a sentence from the Minister's speech which seems to be the crucial one: "The Government, before taking up office, undertook to abolish estate duty ..." The remainder of the sentence reads "and to replace it with a new form of taxation of capital". That is an important sentence. It says two things. It reiterates the promise in regard to estate duty and the following sentence says: "This commitment will be honoured".

There is, I think, an impression at large that people sit down about a week before Budget Day, with a clean sheet of paper, and start drawing up certain proposals. I do not suggest that in a country of this size our budget-generating mechanism is as expensive as that of the British but, if anyone wants to get a picture of how budgets are framed, there is a book called The Treasury under the Tories in which Samuel Brittain describes the method. The thought starts in the previous autumn. One does not pull budgets out of a hat. While we are pleased, as a Government, and, it seems to me, the public at large are pleased, which is more important, at the rate with which we are moving and the momentum we have attained, we cannot produce legislation out of a hat. This is a complex area affecting land prices, investment, where people of wealth reside, and so on. There will be no instant solutions. The promise of a new form of taxation of capital is reiterated specifically. More than that, let us look at some of the levels of relief granted because one can diminish or increase the level of charge, easily and quickly, or one can recast the whole structure of a tax, an exercise which is both slow and difficult. One must not do it quickly or without proper thought.

Lest we appear to be acquiescing in the charges that we have not given serious consideration to those disturbed about death duties—this relates in particular to farmers because, though their incomes are not very big, recently they have become bigger, what is not big is the asset they are sitting on—we know now that an equipped farm worth £10,000 five years ago will, if one values it now, fall within the death duty bracket. In round figures the 40 acre or 50 acre farm is worth £40,000 today and, of course, people suddenly gathered into this net because of increasing values become worried.

Let us look at some of the immediate reliefs given. Personal estate duty abatements in the case of widows are £2,000 and £4,000. That is a doubling. It is an increase of 100 per cent in the level of a concession. With children, it is £1,000 to £2,000. Again this is a doubling of the concession. If one worked it out, as the Minister has done, with notional figures, the exemption ceiling in the case of a widow with one dependant is raised from £21,000 to £33,000. That is a great deal more than 50 per cent at one stroke in the size of the estate that is exempt. Those are big concessions and they have been granted within a couple of months. If there were to be any irresponsibility or any reneging in this area one would certainly show that. One would show failure to live up to what was expected by rushing a major recasting. That major recasting has been explicitly reiterated in the most formal way possible open to any politician to make a promise on the records of this House on the occasion of this important debate. The size of the concessions given immediately, concessions of a stop-gap kind, is in some estates of a typical kind of the order of a 50 per cent increase. I wonder what one has to do in certain circumstances for people to be satisfied.

In relation to the possible new forms of taxation, to which the Minister refers in the most general terms when he says the Government undertook to abolish estate duty and replace it with a new form of taxation of capital, this is something which will have to be looked at very hard and fairly quickly and I am personally pleased with that unequivocal reiteration of that commitment, because this is an important area for a Government to look at, and it is also a delicate area. It is something that has to be done, but it has to be done carefully and deliberately.

There are some things that are quite small in terms of the amount of money involved at this moment, but they seem to me to be imaginative things. We had a sort of tradition which separated what one might call "pure science" from more mundane things concerned with business, productivity and industry. There has been a concession in regard to the endowment of University Chairs of a pure science kind. I am pleased in terms of logic and also in terms of the area of my own responsibility. I am pleased in terms of the breaking down of barriers between different sorts of knowledge and the ending of the compartmentalisation of knowledge. Now, this concession is not large in terms of money but, hopefully, it is a significant feature. It is an extension of the tax deductible aspect, not just for scientific research but also in areas like marketing and industrial relations, things concerned with a Department like mine. This is both welcome and sensible, though it is not major in financial terms.

Hopefully, larger in financial terms and larger in terms of contribution to production, is the tax relief to inventors. Again, there is a sort of logic in this because I do not believe creativity of one kind is different from creativity of another kind. I think invention is not very much different from a work of art in that sense; both are works of creation and imagination. The invention has, of course, an aspect which the work of art has not. We can, I think, expect an expansion of interest on the part of innovators and inventors here. I say "expansion" because we have had one or two very heartening examples of people who have chosen to live in Ireland, either Irish people who emigrated and have come back or people who are not of Irish origin and take advantage of the incentives we offer, who are showing industrial, scientific and technological innovation of a very high quality. If we do not get right at the frontier of innovation in our own economy we will be, in the long run, ultimately depending on the technology of other people.

This, again, is not big in terms of money now. I would hope that so many people would avail of it that it would become a big concession in the future. Whether it is big in money or not, it is imaginative. It is imaginative in the direction of strengthening our industrial base and in strengthening the technical and technological quality, and the scientific quality, of that industrial base. It is something that I, personally, found in the budget which pleased me.

Perhaps I should say something on an area which is not mentioned in the budget since I made reference to the forms of taxation on capital. Many farmers expected to be taxed. Many forces outside agriculture, such as trade unions, called for taxation on farmers. At a time when I was concerned with agricultural broadcasting, I was very concerned about one aspect of it. It was not simply the technology of agriculture. I was concerned, as any serious agricultural broadcaster is, with the relation between the countryside and the city, and with the understanding of agriculture by urban people, whether workers or employers. There are, potentially, always social divisions in the growth of hostility between town and country.

In the budget speech of the Minister for Finance a number of estimates have been made. We have witnessed a time when there has been a very rapid growth in the income of farmers and when some farms are, by Irish standards, quite big businesses. I have heard with interest, and with some respect for their courage, the expression of the point of view of some farmers that, provided it was equitable and provided it was a tax designed to encourage investment and intensiveness, they were not in principle opposed to the idea of taxation, correctly designed, on farmers. There is not any taxation on farmers in this budget. Speaking for myself, wearing another hat as a farmer, I am pleased to that extent.

It seems to me that we have heard opinions from politicians on all sides and from farmers themselves and other sections of society recognising that people who have large assets and significant profits should be taxed across the board in the same way, whoever they are, and that this distinction between wealth and profit accruing from land and farming and wealth and profit accruing from industry, a distinction which has grown up historically, is one that may need to be looked at. Many people expected a tax on farmers in the budget. It is to be hoped that this subject will not become a political football. Farmers already pay indirect taxes. When one looks at taxation one must examine this point carefully.

The budget was well advanced in many of its aspects when the new Government came to power. There was a very significant change of emphasis in regard to growth and in regard to redistribution and social justice. This change of emphasis is not necessarily the most popular thing but in my view it is absolutely correct, sometimes courageous and always radical and redistributive. This is the sort of budget I am glad to see. I am proud to be a member of a Government who were able to introduce it. In areas which required not just Government decision but lengthy consultation with other interested parties where there were legal delicacies, where one had to listen to the views of interested people and where one hoped to form a consensus, the time was just too short. I hope this Government have started as a Government of consultation and will so remain.

I am proud of this budget, but I would like to make it clear that it is the budget of people who have had very little time. In no sense does it represent the last word in the thinking of this Government in regard to the whole area of taxation or the whole area of the use of the moneys gathered by taxation. The fundamental changes, if they are to be made in a way that will be equitable and will be the result of discussion and consensus, if they are to be decisions which will face the test of practice and stand up to it, can only be made slowly. It is only fair that I should record the opinion that I would wish this budget to be judged as courageous, redistributive, economically correct in its judgment. Because of the scale of the attention paid to social welfare recipients, it is a budget that I am extremely proud of. On the other hand, it is not an evolved budget, where one would have had nine or ten months to work out exactly the forms of taxation and the balance one would wish. It was inevitable, in the circumstances of a new Government coming into power shortly before a budget was due, that this should happen. It is now for the Government to continue the process of mature and carefully thought out change that it has started, and of which this budget is part.

Ruairí Brugha

Speaking as a new Deputy and bearing in mind that I am on the Opposition benches and speaking as reasonably, constructively and as critically as is my function, it seems to me that people in general believed that this Government were showing great promise. We have had the publicity concerned with the opening of new buildings and schools which existed anyway and were paid for by the taxpayers. We had Ministers going here and there. By and large, over the past six or eight weeks, people, even on this side of the House, were expecting some really worthwhile news. Watching the faces of backbenchers behind the Minister for Finance yesterday, I could not help feeling that they were waiting for something to come, but that it did not come. Perhaps it is that the realities of being in Government are coming home to the two parties on the opposite side. Perhaps it is that the Coalition machine is beginning to run out of fuel and is falling back on the launching pad. Certainly, listening to the Minister for Finance yesterday I could find no radical thrust forward in his budget proposals.

I should like to deal with an aspect of the budget proposals which I think is important in the context of the standard of politics that we have in this country. There was a 14-point programme put forward before the election and some of us had some difficulty in dealing with those proposals. The line that I took was that no Government in power made promises without having some idea of how they would fulfil those promises. Perhaps this was rather naïve.

If I take the example of the removal of value-added tax on food, it is not because I quarrel with the principle; what I quarrel with is the practice. There was a promise to remove the value-added tax on essential foodstuffs. Now that we have seen the budget we realise that, in order to do this, either the value-added tax in all the three areas is being increased or the value-added tax on food is being paid for out of a deficit or is being paid for—which, perhaps, would be legitimate—out of the increased cost of tobacco, spirits, beer and other items. Certainly, there was no indication in the election speeches that it was proposed to increase the rate of tax on clothing, footwear, books, newspapers, all services, hotels, laundries, cinemas, et cetera from 5.26 per cent to 6.75 per cent—an increase in the tax of 28 per cent. Nor did we have any indication that the removal of VAT might cause an increase from 16.37 per cent to 19.5 per cent in the middle range of taxable items, an increase of 21 per cent in this area, covering such items as furniture, furnishings, cleaning materials, sporting equipment, kitchen equipment, and so on. Nor did we realise that the tax rate on luxury items would be increased by 20 per cent, from 30.26 per cent to 36.75 per cent, on motor cars, motor cycles, television and radio sets, and so on, as is set out here.

The Minister, referring to the value-added tax, said that it is not in conflict with Community legislation. As far as I can understand, over the past 18 months the approach by the then Government was that value-added tax at a minimum rate would be applied to foodstuffs as was being done by the other seven members of the Community, excluding Britain, and that this was in the spirit of the Community idea in relation to a rationalisation of taxes.

I would not argue against the removal of a tax if I really believed that the consumer would get a real benefit. I do not want to reflect on manufacturers, wholesalers or retailers. The fact is that the value-added tax system as applied across a range of goods is much more simply applied to all goods at one rate or another and when a wholesaler or retailer is paying his two-monthly bill he is merely paying a tax bill that he has to pay and since he has to pay his expenses, including the cost of the goods, the wages and all other overheads, including the value-added tax, he will try to get competitively the best price that he can get for the goods that he is selling. I cannot honestly see how, outside of the range of controlled foods —bread, butter, milk, tea—the Minister can expect that this very large and significant figure of £16.75 million in value-added tax on food will be regained by the consumer. When I say that, I do not think it is a reflection on those who are selling goods, either the manufacturer or wholesaler or retailer, because most of the items on sale in this country are not subject to rigid tax control and I do not know of any system on this side of the Iron Curtain that can ensure that the whole range of goods in any area can be effectively controlled, unless you are prepared to bring in literally thousands of inspectors. Even if you do that, at a cost to the taxpayer, I do not see how it is possible to differentiate between a price today and a price in three months time where the manufacturer produces his costs, the wholesaler produces his costs and the retailer sells at the price that the public are prepared to pay. That is leaving out of consideration the probable effect of inflation in many areas of consumer goods between this and September next.

I could give the Minister details of prospective increases in many areas I know about already from the forward invoice cost prices—I am not referring to foodstuffs. Consequently, when one looks at the 5 per cent which is the exclusive tax price of VAT that percentage is merely a small part of the overall cost of the item. As has been said this morning—and this has been admitted on this side of the House— the cost of foodstuffs has increased much more than by 5 per cent in the last 18 months. Where we differ from the Taoiseach, who was so strong last night on the subject of VAT, is that we do not believe the consumers will get the benefit of the £16.75 million. This amount will be found in future out of other taxation or out of deficit.

I am sure Deputies on the Government side, whether Fine Gale or Labour, will agree it is difficult to find new taxation and that the decision of the former Government, despite strong pressure, to adhere to a VAT rate of 5.26 over a wide range of goods was taken in the belief that it should be done in view of our membership of the EEC and the overall range of taxable areas from which money could be found.

It is not my function to point to benefits in the budget. In any event, many of them are benefits that would have been made available. I should like to deal with problems that have been created by the budget. One of them is the increased cost of housing because of the increased VAT charges and also the increased cost of furnishing the houses. A correspondent referred to relief for the middle class. Perhaps there is some relief for those in the middle class who bought their houses years ago and have paid for them but there is little hope for young people in the so-called middle class who are thinking of getting married. All they can see is an ever-increasing cost cycle and it is no wonder they despair and say it is no use trying to buy a house here. No incentive has been given to them.

It is all very well to talk about the essential cost of foodstuffs. We know people have to buy food every week but we also know that people must have houses. If people do not want to beg or borrow from the State, if they do not want to wait in a queue on a points system where they will not qualify if they are above a certain income, they must scrape together the money for a deposit on a house, they must think in terms of washing machines and so on. In that sense this budget is a major discouragement to some of our energetic young people.

A reference was made by the Minister for Industry and Commerce to estate duty and to the promise of the Minister to deal with this problem. The one aspect one can commend is the £7,500 life insurance exemption but there is another aspect of estate duty that has not been brought out, namely, as soon as the estate falls outside the exemption limit the full rate of tax is applicable. If the Government are thinking seriously about this matter they must begin on the basis of some exemption at some level. I welcome the fact that the £7,500 lump sum insurance policy will not be added to the estate, but if people have gone to the expense of buying their own homes and if the house is included in the estate, thereby bringing them over the exemption limit, they are being charged a penal tax.

I cannot understand why the Minister decided to double the rate of succession duty when one considers the small amount involved. There are many people, particularly farmers, who for one reason or another have not got married; either they could not get wives or, as has been the tradition in many areas, they were not encouraged by their parents. Why should the rate of succession be doubled for these people? What will the Exchequer obtain as a result of this measure? Is the Minister trying to encourage them to sell out?

In the area of earned income there is admittedly, an increase of £30 for a married woman who goes out to work but there is widespread disappointment amongst those who pay income tax that the level of earned income was not raised. These are the people in our community, leaving aside the agricultural population but including the agricultural labourers, who are productive, earning their way and paying their taxes.

I need only refer to a remark passed by a young girl in an office this morning to express the feelings of the people. This girl remarked that "it does not pay to be respectable any more" I am sure the Minister for Finance knows what she meant. If a person has to pay taxes there is nothing that person can do about it. I am one of those who have been seeking to have the earned income rate raised. Being a new Deputy I can afford to say that one of the greatest disincentives that we have got—I am one of those who have been seeking as a trade unionist is aware of it—is the low level of income relief. This is one of the greatest disincentives towards growth and increased prosperity.

I do not know how this comes to to the Minister from the worker or trade union side but I do know what the employers are saying about it and the effect it has by the time it comes to Thursday or Friday when the workers realise the amount of tax they are paying. This is a great disincentive. There is even a greater disincentive and there has been for some considerable time, to that section of our community who seek to provide homes for themselves. I would ask the Minister for Finance how much money he could expect to put aside to put a deposit on a house if his tax starts after £7 per week? It is no wonder that so many in our city spend their money rather than save it.

I would have expected the Minister, if he was not prepared to do anything about the earned income level at least to enable young people to invest money in building societies or in a home by giving them direct tax relief on such saving.

Another area that the Minister has not touched on, although he may say that it pertains to the Minister for Justice, is that of ground rents. I would have expected from a very radical administration a new approach to the unjust system of creating new ground rents which amount to rack rents and which are making fortunes for developers. There is no mention either in the Minister's statement of any plans by the Government to deal with the escalating cost of land values, again to the exploitation of young people who need homes.

There is no mention here of any curb on speculation which has made a small number of people wealthy in recent years. The Government who were in office appointed a commission to deal with these matters. This commission have now reported and I should like to know if the Minister intends to do something about land valuation and the implementation of the views of the commission on this matter.

On the rates side there is no real relief for householders of limited means who do not qualify for rates relief. The previous administration put forward a proposal to wipe out rates on living accommodation. Perhaps this proposal was a bit broad but at least it would have provided some measure of relief for many retired people. Some of them, during the last twelve months, had to borrow to pay their rates. Otherwise they would have had to sell out and look for alternative accommodation.

I do not see any proposal in the budget to relieve the plight of the " deprived house owners ". This may come under the Minister for Justice but it should be borne in mind that there is a section of society who did not put their money into land speculation or into stocks and shares. These people put their money into houses which are now rent-controlled. If the Minister would like an example of the misfortune which comes to people who save during their working lives to provide for themselves in old age I can give him one. I know of a couple who, before we ran into our inflationary cycle 15 or 20 years ago, bought three houses which they let. The total amount of the rent which they receive is £624 per year and this is the amount this couple are expected to live on. These three houses are rent-controlled. The value of them has been put at £25,000, but the couple cannot sell them and they can not increase the rent.

I do not want in any way to be a harbinger of gloom but at present a £40 million deficit cannot be good. One has to ask oneself what credibility does a Government or a country have which budgets for a deficit of this nature and puts £40 million on the future, on the "never-never". Together with the £40 million there is the necessary increased capital budget but what everyone must have regard to is the inflationary effect of such a large amount of money being poured into the economy. I hope the Minister has had regard to the effect that inflation caused by this budget may have on the cost of goods and therefore on the ability of the Irish export industry to hold and increase markets.

I am afraid the picture is a rather depressing one for an economy that was prosperous and expanding. I hope the Minister will have regard to and will take responsibility for the effects of some of the price increases on, for instance, the hoped-for improvement in the tourist industry to which he referred.

Finally, I would refer to the increases in Post Office charges and, again, this is merely part of the picture. I agree that the previous Administration increased these charges but I feel that here again we have one of those increases which, along with the other items in the budget, tend to create a situation in which we may find ourselves in another wage spiral. I hope we do not because the expansion of the economy is far more important than the fortunes of any political party. I would hope that the effect of some of these increases will not be to upset our economy because we all have, over and above party political issues, an interest in the progress and future of this country.

Minister for Defence (Mr. Donegan)

The first thing we have to look at broadly in relation to this budget is what was it that had to be done, what was the desideratum that had to be achieved, the most pressing item which could not be neglected. I would say that the first thing which anybody would have to admit is that attention to the social welfare recipients was the item that had to be considered first. and I would use only one set of figures to prove conclusively that that is so. The cost of living in this country over three years has increased on average cumulatively by 9 per cent and when one applies the increase cumulatively, one finds that the cost of living over these years has increased by between 32 and 33 per cent. In the light of that, those on fixed incomes, as well as social welfare recipients, are the people who were really hurt. Those who were in employment covered by national wage agreements did receive increases over the period commensurate with the increase in the cost of living and they got certain other allowances to compensate them for the completely unprecedented increase in the cost of living. The social welfare recipients had been waiting each time until October or August to get the miserly and meagre increases afforded to them and by the time they got them, the galloping inflation had eroded what they were to receive so much that on the first day they received it they were probably worse off than the day they heard about it.

I want to take the Leader of the Opposition severely to task for his blatant statement this morning that if they had stayed in Government, on 1st April, there would have been increases to meet this dreadful situation for the social welfare recipients. I have been privileged to be a member of a Cabinet for eight short weeks and I know the pressures exerted and the efforts made, and the very earliest date on which it was possible to make the changes, because of the administrative matters that had to be attended to, was 1st July. That is what decided the Government in relation to when these recipients would receive their money. It was not a question of how much it would cost in this financial year but of when the administrative difficulties could be set aside and it was physically possible for these people to receive their increases. When I find somebody who served as Minister for Finance, as Minister for Industry and Commerce and Taoiseach standing up here and telling the House what was nothing but a deliberate political untruth, I find myself horrified but not surprised by where I find myself and him.

He could not have done it on 1st April. That is an untruth and let the people know that the Leader of the Opposition is prepared to come in here and tell the House and the nation that he could have increased social welfare benefits on 1st April when the best he ever did for some of them was 1st August. The usual time was 1st October and if the administrative difficulties could have been ironed out, we would have done it from this moment of time or from last night but the best we could do was 1st July, and that we did and for it we shall be thanked. It is highly important, when reflecting on our social welfare increases, that there will be only the short six weeks during which any continuing inflation that may occur will erode these benefits. There will be only six weeks for that to happen rather than the long period of hot summer until 1st October. The people getting our increases will get real increases and it is just not true to say—it is easy for somebody in Opposition to say it but not so upright for somebody who has been so long in Government to say it—that he can do something on 1st April which I know perfectly well could not be done.

The Taoiseach has instanced the number of people who will benefit from these increases. It is the staggering number of 700,000 in our small population. That was the limiting feature in relation to whatever increases we could give, that the demands and the needs were such and the position of these unfortunate people was such that all along the line there had to be increases, whether in the nature of social welfare increases or, perhaps, increased children's allowances or the extension so well received of the children's allowance being paid up to 18 years in the case of children still at school or not earning. These were the things that limited us, but even within our limitations we did well. It is an honest budget, a fair budget, a budget in line with OECD recommendations, a budget which met first the first demands, the demands of the people who had been left behind by the previous Government.

Progress reported: Committee to sit again.