Finance Bill, 1980: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. F. O'Brien

Yesterday I dealt with the question of interest rates and their effect on the commercial life of the country. Unless action is taken with regard to escalating interest rates we will have ever-increasing unemployment problems. Businesses that are committed to expansion on the basis of certain interest rates are now finding they cannot meet their commitments. We are all aware of the number of concerns that have gone to the wall and those that are threatened with closure. The situation is catastrophic. It is obvious that there is a split in the Cabinet in relation to this matter because the Minister for Industry, Commerce and Tourism spoke of taking action regarding the banks while the Minister for Finance felt it was outside his control. The latter Minister expressed the view that he was not in a position to do anything. We have a mixed formula in regard to interest rates and no definite policy to cope with such a serious problem. Something must be done to help business concerns that are committed to expansion. We are all aware that once one gets on the slippery slope it is hard to recover. High interest rates also result in an increase in the cost of living index.

The Government seems to be standing aimlessly by without any leadership, letting things happen around them. One instance is house prices which in the past year have gone up 24 per cent. In the public sector housing programme, in the largest local authority area, Dublin, we have an increase of roughly 7 per cent. House prices are up 24 per cent and there is an increase of 7 per cent, and from this one can see the dramatic cut-back in public sector housing. One is told that house building and construction are going ahead but in the Irish Independent this morning the head of the construction industry, who would not be called a critic of this Government is now very critical and talking about a collapse in that industry. This is because high interest rates are crippling expansion. Unless something is done in this sector there will be very serious unemployment.

There is no use in blaming other sections of the community. The Government have a responsibility. There are areas in which they can act but are taking no action whatever apart from some cosmetic exercises. The Minister spoke of a radical improvement in regard to income splitting. That was not something of the Government's making but was imposed on them. One must consider this seriously.

To qualify for an SDA loan one must have less than £5,500 a year but the repayments over a 30-year period are £1,500. One must earn little and yet pay very high interest rates. I am surprised that there is no provision in the Finance Bill for some form of low rise mortgage scheme that would tide people over the few critical years in which they have to borrow. Apparently, no thought was given to that and consequently we are rushing head on into very serious problems.

Wage negotiations were mentioned by the Minister who said he hoped the demands would be modest and that there would be no inordinate pay increases. We all hope that sanity and good sense will prevail but it has to be a two-way exercise. Unless the Government show goodwill and positive leadership and are prepared to take action where necessary to control escalating costs and high inflation, there is no point in them lecturing here.

When one of the backbench rural Deputies on the Government side was speaking yesterday I wondered if it was the policy of the Government now to send in people to attack the trade union movement. On several occasions that movement was used as a whipping boy. We were told the trade union movement should be responsible, that it should be this and that as if there was only one side to any problem. Of course there are two sides. Trying to use the trade union movement as a whipping boy for the Government's problems is wrong and dishonest and will not be tolerated. It is not in the best interests of trying to achieve a national understanding if we have this type of attitude created. We see today industrial disputes in which the Government could involve themselves but are not doing so. They stand by; indeed, some of their actions are responsible for a measure of the industrial disputes we have at present. I very much resent anybody here putting the finger on one side only of industry. This is the kind of talk that will set up divisions and make it harder for people to get together in the best interests of the country. Wherever I find this happening I shall attack it.

The same speaker said that all we did in this area was complain bitterly without making any concrete proposals and if we all worked together the country would be better. I remind the speaker and the House that this party brought out a policy on industrial democracy and industrial relations working together and this was lauded by the trade union movement and by industry. We are playing a responsible role as Opposition and responding very much to the needs in this area. I am surprised at such an attack from the far side of the House. Who prompts it and is concerned with it? I find it hard to accept attacks, whether direct or by innuendo on the trade union movement. Trade union bashing will have to stop. We must get people talking so as to sort out existing problems. Let us not isolate a particular group and say they are responsible for all our ills when we knew well that is not so. We know where responsibility rests. It ill behoves the Government to send in Deputies to engage in that sort of activity.

This Government will be known as a Government that acts only when it has to. When pressure comes on it responds to events whether a High Court decision or action by some other body. They will then bring in legislation. Until that happens they seem to be prepared to indulge in public relations exercises without any real, positive programme for economic development. Deputy Kelly tried to raise the matter of the White Paper but that White Paper now seems to be ditched and to be an embarrassment to the Government and not what they want. If only we knew what they wanted we might be able to help and advise but we do not know what the Government want. They set up an inter-departmental committee who published a very comprehensive report dealing with the malaise, the social, economic and educational problems of Dublin inner city, and which could be related to all the other cities and major urban towns. It was a very good and refreshing report. The members of the committee put their finger on the problems.

Last year an amount of money was allocated for development. This indicated that something might happen. This year there is no mention of any money being allocated for that development. Therefore, it would appear that the question of urban renewal, or inner city development, or doing something for the people who reside there to improve their prospects of employment and education and their prospects for decent housing is not being dealt with. This all seems to be cast to one side. This is a very serious situation. We also had reports from the Irish National Teachers' Organisation on related issues. The gardaí and sergeants also issued a report on how to deal with certain problems in the inner city.

The Government seem to have no sense of direction. People will become cynical about committees and commissions if they are set up to procrastinate. If that is what they are set up for, it would be better if we did not set them up at all. It would be better to say we are doing nothing. It is better to do nothing than to raise people's hopes and expectations and then dash them. It is farcical to appoint commissions to put off the dreaded day hoping that in a couple of years there will be an election and that will get the Government over the hump.

That is the kind of thinking we have from the Government today. They are not watching the country. The country is of little relevance. They are wondering when the next election will be held and how they can best prepare for that day. That seems to be the Government's preoccupation. That is sad when there is so much to be done and when we need to channel the goodwill of people and organisations to prime our economy to take off and eliminate our unemployment problems and the social ills which are a consequence of unemployment. That is not the question. It is a question of how the Government can get by and work on a day to day basis.

This type of insincerity is bedevilling politics in Ireland. We have had experience of it since the last election. This rubs off and people tend to treat this House with total disregard. It brings odium on this House and people lose confidence in it. This should be put right. We can do that only if we are honest and forthcoming and let people know the hard facts. If the solutions are thought out and packaged properly with the right type of incentives, the Irish people will respond.

Since the last election the Government's attitude has been that their job is to give handouts and to give people what they are looking for. They cannot hope to get any response to that because people feel they have been deluded with false promises and let down. There is no point in lecturing them now about their responsibilities when the Government are not taking their responsibilities seriously. That is why we have the problems we have and that is why we are not getting a response. There is a wave of materialism in our society. People tend to make demands. Can we blame them when that climate was created for them? I do not think we can. The blame rests on the party who inculcated this attitude into the people's minds. Now they have to live with it and face the consequences.

As a result of cutbacks the whole area of local authority activities is totally under-financed. Yesterday mention was made of potholes. They are one symptom of the general breakdown. In a Dublin area 200 jobs were at risk because of the cutbacks. They have been saved because of pressure from the trade union movement and the opposition parties here and in the corporation. As I say, 200 jobs were to go by the board, but political pressure was brought to bear and the Government changed their minds. This is the type of politics we are getting. This is the type of government we are getting, government by response. They take a decision and wait for a response. If there is no response, they go ahead. If there is an adverse response, they do an about turn. That does not get us anywhere.

I should like to see a positive policy on economic thinking in a White Paper so that we could make constructive proposals from this side of the House. There are no proposals. The Government do nothing in the hope that things will get a little better, but they are not getting better. This morning the head of the construction industry was talking about a decline in the whole building industry. If the building and construction industry is in decline that is a barometer showing that the whole economy is in decline. The Government seem to be prepared to sit back and take no action.

The serious cutback in the public sector housing will be felt. This year we got an increase of £2 million on the £30 million we got last year which is infinitesimal. The rate of inflation is 24 per cent and we get a 7 per cent increase. One need not be too bright to understand the effects that will have on the major building works. Interest rates will have serious effects on any development. Therefore, proposed developments will be put back until interest rates are more tolerable than they are. Without wishing to be a prophet of doom, the situation as I see it is very grim. If we are to have regard to the Minister's brief we may take it that it is not his wish to talk about the White Paper because all his brief contained were some remarks on sections of the Finance Bill. He has no blue print for the economy and this situation is leading us into very serious trouble.

There is reference in the Finance Bill to export sales relief for the construction related service industry. This is an industry that we have been building up for some time and in which we are doing quite well in selling our expertise abroad, particularly in Middle-East countries. Will this industry be included in the special export tax relief arrangements until 1990 or will it be covered within the 10 per cent corporation tax? We need this information in terms of the future of any new company that may become involved in this industry. Any such company would need to know what incentive they will get. The development of this type of company is a fairly complicated business. The company must draw on various aspects of engineering, electronics and so on. As a relatively new nation we can be proud of our success in this area so far. This service industry has a two-fold effect because, apart from the selling of the actual expertise, the people involved are also selling the country in terms of our export potential. Those people who buy the expertise from us will realise the high technology that is available here and, consequently, would be likely to look to us as a country capable of exporting to them some of the goods and services they need. Having regard to these various factors, I will ask the Minister to ensure that provision is made for the construction-related service industry by way of tax relief. However, this is a matter that we can go into in more detail on Committee Stage.

Another area of our economy that is in trouble is the tourist industry. This is mainly because of escalating costs here. It appears as if this industry will be hit hard this year. The Government, therefore, must examine the whole situation thoroughly with a view to ascertaining what can be done in this area. While there is something to be said for asking our people to spend their holidays at home, if our tourist industry is to survive and be successful we must attract people from abroad. The fact that more Irish people may spend their holidays at home may help the economy to some extent but it involves only a patching-up process and we need more than that. The general attitude of the Government in regard to prices is having an adverse effect on the industry. This is regrettable especially since it is an industry with such a high employment content as well as bringing into the country much needed currency. In view of our very serious balance of payments situation we should be doing everything to improve the tourist industry which might be regarded as one of our invisible earnings but prices are getting out of hand all the time. People are scared by this situation. In these circumstances it is imperative that special concessions be given in respect of the tourist industry.

If our escalating prices situation is not taken seriously and dealt with properly we will price ourselves out of every market. We are living in a very competitive world but unless our price indexing is right and unless we can control inflation we shall continue to be faced with high wage demands and high interest rates, all of which will leave us increasingly less competitive on world markets. This would lead to a serious situation in terms of employment. The ESB have told us that we may expect a 10 per cent increase in the cost of electricity and the price of gas is rising continuously. The same applies to building costs and to food prices. To take a small example, in the past week a bottle of orange increased in price by 20p.

Is it any wonder that people are punch drunk or that there is so much discontent in industry? There is no stability. Without stability in prices there can be no stability in the industrial relations area. It is natural that people would want to maintain the standard of living to which they are accustomed and not see it eroded. At present it is being eroded with consequent demands being made for wage increases, thus causing further industrial relations problems. Unless the Government get the whole problem of price increases under control, no progress can be made. They talk about the Continent but never mention continental inflation rates. Had the Germans a 20 per cent or 25 per cent inflation rate they would have industrial relations problems but they have not because they are careful and monitor what is happening. They can control their incomes because they have controlled their inflation. We cannot control our incomes because we cannot control our inflation. The onus rests fairly and squarely with the Government who must respond to this challenge. I accept that there must be certain price increases but the present rate of acceleration is getting totally out of hand, rendering money values useless and thereby creating more unemployment.

I do not blame the Minister for not discussing his White Paper. I suppose he cannot stand over it, or indeed anything written last year, because the Government have not made any real effort to come to grips with any development whatsoever. They are living merely on a day-to-day basis hoping that the other side of the coin will reveal some improvement. This will not happen automatically. We must ensure that it happens. We must change our attitude, ensuring that we get our own house in order, that we are competitive, that we keep our inflation rate down, when wage demands will be less, which in turn will such time as the Government undertake some active policies in this respect we shall continue in this sad, weary way.

Mr. Crinion

Opposition speakers are having a field day. They are forecasters of gloom. Perhaps some of their criticism is justified, but it should not deflect us from our efforts to develop and expand agriculture and industry. Credit institutions must be confident that they can invest in these areas, particularly in the export-orientated industries so necessary to keep the country going. The Opposition are doing an amount of harm by referring to this gloom throughout the country. This is a good little country with enormous potential for development. We must instil confidence in our people, reassuring them for the future, pointing out that the only way in which we can make progress is through increasing our output thereby lowering our production costs and rendering ourselves competitive on world markets.

All aspects of taxation have been gone into in great detail in this Finance Bill. Many long hours were spent before the budget emerged and now the Bill itself. As an example of how thorough was the study in these areas, it was discovered that tax was being paid on matches with none on cigarette lighters, even though a substantial number of cigarette lighters have been purchased in recent years. It is indeed heartening to see people putting such effort into the establishment of equality of taxation in as far as such is possible. The Commission on Taxation set up will be reporting on this matter. I suspect that by the time their work is completed we shall have an equitable system of taxation here. The cause of most of the trouble in this area is that it is felt some people get away with paying no tax while others pay for them. This Bill constitutes a first step towards equalisation.

The last speaker mentioned the building industry being in a bad way at present. When builders were given a free hand in the past couple of years house prices shot up. At the end of last year when the certificate of reasonable value was introduced there were certain restrictions on the upper limit, which was £30,000 for building society loans. Then the sky became the limit in house prices. When those restrictions were imposed the price of houses came down somewhat, in some cases by as much as £3,000, as was stated in a report published at the end of last year. This time last year there was free access to money for bridging loans when the banks issued practically their whole allocation, which was an increase of 18 per cent on the previous year. Some building took longer than expected.

In their guidelines this year—14 per cent higher than the 18 per cent to which I have referred—they are being more rational, ensuring that people can get loans. The money is there but they will ensure that it is spread over the entire year. It is unfair to criticise institutions endeavouring to meet their commitments, as directed by the Government and the Central Bank, and which are also endeavouring to keep costs within reasonable limits. Many builders who formerly built a normal-priced semidetached house when they found they could built luxury type houses without having issued a certificate of reasonable value moved into that market. Prices escalated and it became fashionable to buy a house in certain areas without purchasers realising they were paying through the nose.

I should like now to refer to farmer taxation. In this budget the farmer with a £40 valuation is being brought into the net. It has always been accepted that a £50 valuation farm was an economic one and that anything below that valuation was not. It should be welcomed that the Minister is giving farmers with valuations between £40 and £50 the option of having simplified forms of accounts they can manage themselves and which will be accepted by the inspectors of taxes.

Many people in the bracket of £40 to £50 valuation are really worried regarding extra rates that they fear they will have to pay. If they simply add 10 per cent to last year's rates, that is what they have to pay this year. In most cases, this would range from £100 to £150, perhaps as high as £200 according to their county and this amount can be offset against their tax. Most farmers knew that the valuation would eventually come down to £50. There is the need to pay an auditor but some will be exempt. It is unfair to talk about how much extra farmers will have to pay, being in the tax net and a target for the inspector.

The Minister should be complimented on providing a mobile unit service throughout the country to eliminate the farmers' fears. Farmers are very conservative and are afraid of what they do not know. If they know exactly the position, then it is not too bad; they realise how much they must pay and calculate accordingly. People should take advantage of these mobile units in asking for helpful information. The staff will not be taking down details to be used against the farmer at a later date when he supplies his tax return. These are completely different people. The farming organisations are doing reasonably well in their dealings with the Minister and with the Revenue Commissioners regarding the problems which concern farm valuations.

When the Coalition Government were in office and cattle prices went up roughly £100 a year, in their last three years, a farmer had the same number of cattle on his land but had that much extra capital tied in. That extra £100 was counted as income and he was paying tax on what was really capital that went into the increased price of his stock. He was not paying tax on what he had earned. The difference between what was sold and what replaced it is counted as the farmer's profit margin for income tax purposes. The Coalition Government did nothing to relieve the farmers of that burden.

This Bill is bringing in a 30 per cent limit on free depreciation. The Opposition Members, and very often the farming press, have not spelt out in detail what is involved. Before this one could completely write down a tractor in one year, just as an industrialist could write down new equipment or machinery completely in one year. The idea of giving this facility to the industrialist was to create more employment. New equipment would normally last from ten to 15 years, at least. In the case of a tractor which is used quite a lot, it would be used up in perhaps three years, possibly four, through heavy work. People began to use this as a tax avoidance system. They bought tractors and machinery, like combine harvesters, just to evade tax. All those machines were imported, which worsened our balance of payments. One tractor bought by a farmer in 1978 has not yet had its second service. If it were a car, it would be serviced every thousand miles. This tractor was bought purely and simply to avoid paying tax. A person with only 100 acres of corn bought a £20,000 combine harvester, just to evade tax.

One thing which has not been spelt out is that if you depreciate under normal circumstances, 25 per cent for a tractor and so on down the line to 12½ per cent for ordinary machines, you can exceed that limit. This year the Minister has brought in a higher rate of depreciation for farm buildings and land drainage. Both of these are labour intensive and will give higher production. Cattle will thrive during the winter and more land will be made available for higher production through drainage. That is the way this Government are trying to increase farming output under this Finance Bill and it is important that this message be got across to the farmers.

I was speaking to a farmer at the Maynooth sales last Monday who said he had arranged a development programme and had stopped it because he did not know the position as regards cattle for the present year. He did not realise that our Minister was fighting a battle to get an extra 5 per cent which, in effect, would mean 3p in the £ at the end of the year. He did not realise that farmers were paying too much last year for their cattle. He said that he had bought a few cattle and asked his normal buyer what he thought of the cattle. He was told that they were very nice cattle and would do very well for export but that £100 too much was paid for them. That was in 1979. He asked why that was and was given a simple reason. English farmers at that time were unable to buy cattle here because they were priced out of the market. That would result in a surplus of cattle towards the end of the year, with a resultant lowered price. This position was aggravated, to a certain extent, by our factories in November dropping prices completely so as to get farmers to buy 8 cwt cattle, feed them in their yards and then put them out on grass so that the factories would have these cattle in June and July of last year. The people in the mobile advisory office who supply the information will be able to alleviate the anxiety which people have because we need to get confidence in agriculture and in industry. This is the only way we will be able to make our country into what we would all like it to be.

The Minister in the budget increased the figure liable for capital acquisitions tax from £100,000 to £150,000 in relation to land. If a farmer signs half of his farm over to his wife it means that his son can inherit up to £300,000. Any person inheriting more than that in land should pay a certain amount of tax. We have to remember that in the case of inheritance tax it is the person who gets the money who pays the tax. One son may get the property and other members of the family may get smaller portions. If they are liable for inheritance tax they will only pay it on what they have actually received.

In the case of farm land there should be some basis of valuation on the PLV. In the case of the capital gains tax there is a percentage increase for each year. Something like this should be worked out in the case of the inheritance tax. I know of a farmer who is two years trying to get his farm transferred to his son. He is travelling between the Valuation Office and the Land Registry trying to get the matter cleared up. This man was very disheartened it was taking so long to settle. We should have the same system for capital acquisition tax as we have for capital gains tax. A person like that farmer should have the option of going for the PLV or the real value of the land. He would then know how much he could legally hand over without paying tax to his son who might be getting married and has an interest in the land. A farmer likes to know exactly what he can do. He hates the haggling which can go on for months between solicitors and the Valuation Office. Sometimes this can be caused by an inflated price because of ten acres or even 20 acres sold nearby at a very high price. That may be quoted to the solicitor and the valuer, who is usually the local auctioneer. Although there are discrepancies in the PLV it is about 95 per cent accurate.

I ask the press to stop publishing the amount which people leave when they die as it gives a false impression in relation to town and country. People in towns think that farmers are worth very large sums of money. The press should only publish the idle cash which estates have, which is usually quite small. When the value of estates is published the amount of money bears no relation to the income those people are getting. I can give an exaggerated incident in relation to this matter but it is a true one. I refer to a farm of approximately 200 acres. About six years ago the family had a lot of sickness and the farmer came to me and said they were unable to meet the bills. I approached the health board and said I felt that those people were entitled to a medical card. The health board allowed that family a medical card for a year. The farmer was doing very badly on the farm.

Dáil Éireann debate - Wednesday, 14 May 1980

Finance Bill, 1980: Second Stage (Resumed).

Dáil Éireann debate -
Wednesday, 14 May 1980