When the present Taoiseach was campaigning for the position as Taoiseach within his party and the campaign strategy was being unfolded by his backbencher support in this House, we were assured on all sides that what we were seeing was a man of magic in relation to economic affairs. We were told that he would prove—to use the classic phrase of his backbenchers and campaign managers—in relation to the development of our economy to be an action man. It was freely confessed within the Taoiseach's party that no matter how bad the economic situation might be, unquestionably here was a man of such economic ability, with a fine accountant's brain, that any great difficulty in the economy would be put right. What have we got? The sum total of what we have got in a budget heralded as virtually the toughest budget of this century, is £100 million taken off the motorist and £100 million transferred, by way of benefits, to the better off sections of the PAYE segment of the community. That is about all that we have got. It is, in that sense, almost a non-budget.
We have had no speech this morning from the Taoiseach explaining the rationale behind his assessment. He has simply sent in the Minister for Health and Social Welfare. If you have a couple of dogs, there is no point in doing any barking yourself. We have had no explanation from the Taoiseach since he was appointed as to the basic economic thinking behind his approach to this State. It is extremely difficult to unravel the dishevelled—and I think that is the only word that can be used—arithmetic behind this give-and-take type exercise we had here yesterday from his spokesman, the Minister for Finance, Deputy Michael O'Kennedy. We have had no reference or analysis as to the future growth rate in our economy during 1980. One would have thought that that should be a central feature within any budget contribution.
We have had no reference in the budget to the general employment projections for 1980. We have nothing, just in and out. We add money on to beer and give it out here; add money on to social welfare. We have no economic analysis at all in any depth whatsoever within this budget. We have had no reference in the budget to the credit guidelines which the Government propose to follow in the commercial banking sector in 1980. Are we going to have credit restricted up to 18 per cent or 16 per cent? Where is the general credit guideline available in this budget? There is no indication. Rather have we had a simple series of tax tables and tax adjustments for certain relatively better off segments of the PAYE population in the community and then, of course, we have had the 20p on petrol and the increase in the price of beer, spirits and cigarettes and that is about it.
I do not think that that is a budget as such. It is a rather abysmal strategy and a sad outcome of the vulgar Fianna Fáil manifesto. Deputy George Colley's advocacy of the abolition of food subsidies has been thrown out by the new Taoiseach and several other of the Deputy's advocacies have been thrown out as well. The policy of the former Minister for Economic Planning and Development, Deputy Martin O'Donoghue, is also jettisoned, right down the line. He is in the process of becoming a non-person within the party. His capital allocation of £1 million—which he got through the good offices of the former Minister for Finance, Deputy Colley—for the inner Dublin area has been abolished. We have a new Minister for Finance and the new Tánaiste, Deputy Colley, is allowed to participate, one might say, in the proceedings of a budget in the Cabinet almost on a promise of good behaviour.
The budget strategy is transparent and will not stand up to serious public scrutiny. As the real impact of the budget unfolds in the next four or five weeks and people begin to tot up the pluses and minuses in the budget, it will be clearly evident to the vast majority of the public that, in fact, there is no real gain and no real tax reform, no real relief to any degree within this budget. The irony of it is that the strategy now being followed is what one might call a half Thatcher type budget. Margaret Thatcher came to power in the United Kingdom. She doubled value-added tax; she slashed income tax; she massively jacked up the consumer price index and suddenly, after eight months, she found herself, the British Prime Minister, with a wage explosion on her hands and in the middle of a steel strike and now her economic policy is being jettisoned and is in shreds.
We have had the same type of approach by the Minister. His policy is quite similar, cutting public expenditure—so did Margaret Thatcher. She doubled VAT in the UK. We made a slight increase from 20 per cent to 25 per cent. Mrs. Thatcher substantially reduced the higher levels of income tax. These have been reduced here. If you are earning more than £8,000 you get a real benefit from this budget. If you are under der that you do not get very much. The net effect of the budget will be, as we predicted, to give a direct impetus towards a 20 per cent inflation rate by the end of the year. If we run into that I fear that by the middle of 1980, when wage negotiations must reopen with trade union and employer organisations, it will be extremely difficult in the light of that kind of budget strategy to have coherent, responsible and rational negotiations for another national understanding.
I do not think people have vet realised the full impact of the budget. In the weeks ahead when they go out to fill up their cars with petrol and find themselves paying £12 or £14 for their weekly quota of petrol the budget's impact will be realised, or when they face what has yet to be announced, a 25 per cent increase in Post Office charges, or when they face what was announced this morning by the Minister for Health and Social Welfare, the increase in pay-related social insurance. This morning that Minister announced another budget when he said that pay-related social insurance was going from 3.4 per cent to 3.5 per cent and that, more significantly, the income levy band was being increased from £5,500 to £7,000, which is substantial, and when he also announced that the employers' contribution will be increased from 7.8 to 8.5 per cent. We can immediately see the inflationary impact of that.
I have a question down for next week because I asked the Minister what was the yield from pay-related social insurance added this morning for both employers and employees. He said he would tell me but he did not. I suggest that it is in the region of another £20 million, because with the increase in earnings throughout the year the most significant effect of what has happened is that pay-related insurance is now payable at 3.5 per cent for the employee up to £7,000—as against £5,500 previously—and 1 per cent for health contributions is now payable up to £7,000 as against 1 per cent up to £5,500 until yesterday's budget.
The analogy I drew earlier between the situation in the UK is reasonable and fair. The net effect of the policy followed in the UK has been to increase unemployment to about 1.5 million people. It is predicted by all the economic journals generally that by the end of this year unemployment in the UK will have reached about 1.6 million. That is a direct result of the industrial and economic policy followed by the British Premier. It is significant that we had to wait, I think, until about 5.20 p.m. yesterday before there was any mention in the budget of anything relating to employment. The budget is notable for its dismissal of aspects of employment policy. It is obvious that as far as the new Taoiseach is concerned previous White and Green Papers and documentation issued by the former Economic and Planning Department which dealt with employment projections and targets are jettisoned and that there is no longer any interest in their strategy. Rather are we dealing with ad hoc budgets from now on.
What we had yesterday was budget No. 3. We had the current budget quite recently. The Book of Estimates came out and in many ways that was the real budget. The true effects of the amounts of money provided for in the Book of Estimates will not be felt until the final quarter of this year because it is then the screws tend to be put on in terms of Supplementary Estimates being sought by Departments. If the money is not there we have a procession of Supplementary Estimates in the final quarter of the year.
The Estimates for Public Services for 1980 show a massive reduction in public expenditure in real terms. In my opinion they constitute a very serious attack on public services. The Book of Estimates for 1980 shows that the Government have handled the basic finances of the State in the past three years with complete incompetence. We are now being asked to pay this year for the budgetary strategy followed in 1977, 1978 and 1979 by Fianna Fáil. According to the Book of Estimates expenditure on nonpay services will grow this year—that is the proposal of the Government—by a mere 5 per cent in cash terms. Capital provisions generally show an increase of 6 per cent. When one remembers that inflation this year will be at least 16 or 17 per cent and could easily drift into the 20 per cent range, the extent of the real cutback in public expenditure is quite evident.
I am a member of Dublin County Council and it is quite obvious to me from a cursory examination of our own estimates and our programme for 1980 that expenditure on services provided by the Department of the Environment is down about 8 per cent in real terms. Health expenditure is also cut back by about 10 per cent in real terms notwithstanding the increase in social insurance rates announced this morning by the Minister for Health and Social Welfare. There are other areas where similar considerations apply. We have already had major public comment on the school transport service and its prospects. There is no need for me to stress that in areas like bilateral aid to the Third World the cut has been a massive one of some 30 per cent. Therefore, it is the Book of Estimates that must first be considered in the context of the budget presented yesterday. In the first budget of the year a few weeks ago the capital services provisions also showed massive cutbacks. It is fair to say that capital expenditure by local authorities throughout the country this year will be reduced by about 20 per cent in real terms. Capital provision for primary and secondary education will be reduced by about 18 per cent in real terms.
Is it any wonder that we are so very critical of the budget presented yesterday afternoon? There is a feeling throughout the country that it does not matter where the money comes from as long as one has a bit more in one's pocket. Quite a number of those who marched in the PAYE demonstration were not a bit preoccupied about who would pay for the PAYE tax relief as long as this relief was provided. It is now provided through massive cutbacks on the current expenditure side and massive cutbacks on the capital expenditure side so that one can have current consumption at the expense of long-term investment in the country.
I am not enamoured of the contents of the budget. The long-term repercussions of it will become quite evident as the year progresses. We have had five budgets this year. We have had a cutback in the current capital budget, a cutback in the capital budget itself, increased health and social welfare and pay-related social insurance contributions and very shortly we will have an increase in postal charges. Therefore, I take an entirely jaundiced view of the strategy followed here by the Taoiseach. The so-called magic of the new administration will be extremely shortlived. It is quite transparent and in many respects it is quite unfair.
There are a number of aspects in the budget that I welcome. I certainly welcome the long overdue abolition of the notional farm taxation system but that is a bit irrelevant now. I doubt if there are much more than about 8 per cent of farmers who opted for a notional system in the past tax year. The notional system for all practical purposes in terms of farm taxation has gone. I remember fighting here, three, four and five years ago and being pilloried when I strongly opposed the introduction of the notional system. It was a crazy system and should never have been brought in. I am not sorry to see the notional system of farm taxation being abolished. Its abolition was long overdue.
I am not very perturbed about the increase in the price of cigarettes. I smoke but I try to cut them down. It is not easy. I would not have been averse from a greater increase than 10p on a packet of 20 cigarettes, which should have been done on health grounds. We had, instead, increases in other areas particularly in petrol. The increase of 20p on a gallon of petrol is quite unfair. It goes right across the board and, in particular, hits workers who have to commute into Dublin and to other places around the country. There are thousands of workers who come to Dublin every day from Wicklow, Kildare and Meath. They get no tax allowance for doing this. They use at least a gallon of petrol a day coming into work and another gallon going home in the evening. This means an increase of up to 65p a day when one takes into account the recent increase of 5p a gallon. This amounts to an increase of at least £3 a week and £150 a year in relation to transport costs for a worker who commutes from 30 miles outside the greater Dublin area. If the Government wanted to resort to indirect taxation measures some better method could have been devised besides the massive increase in the price of petrol.
It is time we gave a decent burial with flowers and with the republican flag wrapped neatly around it to the promise of Fianna Fáil in relation to the abolition of car tax. The increase in the price of petrol was not put on in the interests of conservation because even when the former Minister for Finance, Deputy Richie Ryan, tried that in 1973 by putting an extra 15p a gallon on the price of petrol the groans of derision from this side of the House from the then Fianna Fáil Opposition were so great that I thought the roof would come in on top of us. The extra 20p was put on yesterday simply to pay for the PAYE relief. If one adds up the annual consumption of petrol by the average motorist and adds on to that the extra £5 increase in motor vehicle registration for those under 1600 c.c. and the increase in driving licence charges it is quite obvious that whatever small gain was available to motorists in the Fianna Fáil manifesto in 1977, that has been completely wiped out now.
Fianna Fáil when contesting the next general election can say they abolished car tax. They did intend having it in their last election manifesto until the former Minister, Deputy James Gibbons, went down on his knees to the front bench and told them they would have to have something for the young men down the country who did not pay farm tax or income tax. He said they would have to give them the car tax because there was nothing else with which to appeal to them. The ruse has now been exposed and car tax has actually been put back on in a very obvious way by increasing the price of petrol. This is being done in a very unfair way because there are many workers who depend on a car to earn their livelihood such as commercial travellers, self-employed and many others who will find that increase in the price of petrol to be quite regressive. The car tax was somewhat progressive because if one had a big car one paid a higher car tax and the greater the cubic capacity of one's car the more one paid in car tax. Now, unfortunately, this situation has changed. As the months go by we will undoubtedly see a sharp reaction from the motoring public and from the public at large.
Likewise there has been a great to-do with Fianna Fáil because an increase of 20 per cent has been given on short-term social welfare benefits and 25 per cent on long-term social welfare benefits. Such an increase is not an exceptional event. In the period of the last Government increases were given—admittedly they were divided in terms of increases in April and an increase in October—of well over 20 per cent and, in 1975, they were up to 22 per cent. What has been given here is no more than a general matching of social welfare benefit rates with inflation, because unless further increases are given next October the benefit of the increases given in social welfare will be massively eroded. Let me emphasise that in the past six months the bulk of price increases have related to food and to heating. The cost of coal, turf, briquettes, bottled gas, ESB bills, bread, butter, milk—all basic items of those on social welfare benefit—has gone up very exceptionally in the past six months. Therefore the 20 per cent and 25 per cent, which might superficially look like a large amount, just about compensates for the very substantial increases in prices over the recent two or three months. Therefore, if Fianna Fáil expect any feeling of gratitude I suggest to them that no such gratitude is deserved nor will it be forthcoming.
A glaring omission in this budget is that there has been no effort to broaden the general taxation base. It is true that farmers are going to pay an extra £50 million. The total estimated yield for 1980 is £86 million. They should have been paying that in 1972 and 1973. At long last this has happened. It is a matter of regret that Deputy Colley bungled it because it should have been brought in effectively last year. It is a matter of greater regret that by virtue of bungling it he gave another two or three votes to the present Taoiseach—several of the rural Deputies switched off and they voted for Deputy Haughey. Deputy Colley blew not just the question of farm taxation last year but also his prospects of becoming leader of his own party, so he has only himself to blame. I welcome the carry-through of the commitment entered into last year by the then Minister for Finance because there is no doubt in my mind that, despite all the wailing that has gone on and will go on and despite the backlash Fianna Fáil will suffer as a result in the next general election, they have done the right thing. We got a particularly vicious backlash in the last general election for bringing a system of farm taxation into operation. There is no doubt that the correct thing to do was for the Government to stick to their guns as they did in relation to this matter in this budget. That they have done so in 1980 rather than 1972 or 1973 does not reflect particular credit on them. It is about time it was done. It was long overdue and, as far as I am concerned, there is no great credit to be given to Fianna Fáil for doing what in fact was started by the former Government.
I remember well the days when one had to go on television and defend the 1975 Finance Bill, when about 8,800 full-time farmers were levied for taxation—and they had to have a valuation of over £100 before we could get tax at that stage. I remember being pilloried by Fianna Fáil and it is ironic that, five years later, the valuation is down to £40,000 or £45,000 and 35,000 farmers are being brought in under the 1980 Finance Bill. That speaks volumes for the moral courage of an Opposition then and the fact that they were able to wear entirely different clothes some five or six years later.
I referred to the question of capital taxation. One of the reasons that the Government have had to revert to such massive indirect taxation increases in this budget is because of their ideological blockage in relation to what one might call reasonable capital taxation measures. There is no doubt whatever that there should be a measure of capital taxation. I would argue strongly that to have just PAYE taxation and farmer taxation and to have motor taxation but not to have capital taxation is inherently inequitable. It is disgraceful that somebody can speculate on farm land and make massive property gains, short and long-term, and the ordinary farmer who stays on the land is caught for ordinary taxation. Yet there is no effective system of capital taxation in operation. Tax on capital should make an appropriate contribution to Exchequer revenue. I consider it entirely reasonable to expect that capital taxation would contribute at least 2 per cent or 4 per cent of capital revenue, something in the region of £45 million, £50 million or £60 million. There is no reason in the world why there should not be a capital taxation programme. In particular I strongly feel that short-term capital gains should be treated as ordinary income and they should be taxed at the appropriate income tax rate. This House will recall that in 1975 death duties were abolished and they were replaced by three different taxes at the time—wealth, tax, capital acquisitions tax and capital gains tax. At the time they were allegedly designed to yield an amount equivalent to death duties. After a while it became obvious that they were not going to yield that amount and, as a result, when the wealth tax was abolished in 1977 the only taxes remaining were the capital gains tax and the capital acquisitions tax. We recall what happened to the capital gains tax in 1977-78. It was almost totally emasculated. The capital acquisition tax in 1977-78 was massively modified so much so that Senator Whitaker recently said that it would nearly be as well to abolish the two taxes because the yield from them was almost irrelevant.
The Government are relying on indirect taxation. The tax revenue process has been narrowed to such an extent that now we have only petrol, cigarettes and drink as well as income tax as a source of revenue. Of course we will have a couple of million pounds from the farmers——
