In accordance with a recommendation made by the Committee on Procedure and Privileges I have to remind Members of the necessity to maintain the strictest confidentiality with regard to budget information circulated to Members in the House prior to its disclosure to the Dáil by the Minister for Finance. Disclosure of any such information in advance of its announcement here by the Minister will be treated as a serious breach of the privileges of the House.
Financial Resolutions, 1981: Financial Statement, Budget, 1981.
Many of the elements of the Government's strategy for the management of the public finances in 1981 have already been published in recent weeks. The proposals for capital expenditure were set out in the investment plan 1981 which I announced a fortnight ago and were expanded last week in the Public Capital Programme. The volume of Estimates for the Public Services for 1981 has already been circulated. A review of the economic situation for 1980 and prospects for 1981 has been set out in the paper "Economic Background to the Budget". It is not necessary, nor would it, I feel, be expected of me to traverse in detail the ground covered by these various documents. I shall, however, point during the course of my statement to the main features in them relevant to the budget which I now present.
The budget must have regard to social as well as economic and financial aspirations, and to our capacity to pursue these aspirations, if it is to make an effective impact in achieving progress and harmony within the community. At the best of times it is difficult to reconcile the expectations and needs of the different elements in society. This year the constraints are especially severe. We are not expectional in finding ourselves in this position. Our EEC partners, most of whom have already introduced their annual budgets, have been faced with the problems of severe recession, inflation, rising unemployment and the need to generate economic activity. These problems extend beyond the EEC boundaries into other countries of the OECD and beyond. They have persisted longer and have been more severe than even the most pessimistic of commentators had earlier predicted. There are some signs that the worst may be over and there are indications that a measure of growth will be resumed abroad this year.
The poor international outlook is both a challenge and a warning to our own relatively small but dynamic economy. The Government have not been prepared to let the economy drift in the prevailing international recession. Active support for investment, development and employment remains at the centre of the Government's strategy. The present lull in economic activity elsewhere must be seen as an opportunity for a breakthrough in the development of the national economy. Consequently, the investment plan aims at concentrating available resources on directly productive investment and supporting infrastructure. This will create the foundation for further, and faster, national growth when more buoyant economic conditions follow the expected upturn in world trade later in 1981.
Concentration of available resources on productive investment can only be achieved, however, if the growth of current public expenditure is curbed. The 1981 Estimates for the Public Services make it quite clear that the Government intend to follow this policy.
THE ECONOMY
The international economy went into recession last year as a result of the massive increases in oil prices, which more than doubled between 1978 and 1980. The growth rate in both the OECD and the EEC slowed to near 1 per cent. World trade grew by 2½ per cent in 1980, little more than one-third of the 1979 rate. The impact here of this international recession was particularly severe, because the decline in output and imports in our principal external market, the UK, was much greater than in any other major country. Against that background, the fact that our growth rate was in line with the OECD and EEC average represents a worthwhile achievement, largely reflecting the impact of Government policies designed to offset the effects of the recession.
Our performance on external account last year was also creditable. Exports rose by over 6 per cent in volume, well above the average for EEC countries. Import volume fell by 5 per cent, a far greater decline than experienced internationally. As a result, our balance of payments deficit was cut from 10 per cent of GNP in 1979 to 9 per cent in 1980, despite an increase of about £200 million in the cost of oil imports. The deepening international recession last year led, however, to an abnormal level of job losses, resulting in a rise in unemployment despite the creation of many job opportunities. Most other countries, both in the EEC and elsewhere, also experienced growing unemployment—in some cases much greater than here.
The Government deplore the growth in unemployment which has been forced upon us. They have acted energetically to contain it, as is shown by the specific employment measures announced by my predecessor last October, and by the Government's investment plan. The Government have also availed of every suitable opportunity to emphasise, at international level, the pressing need to give more attention to unemployment in formulating economic policy.
We have demonstrated in recent years our ability, given reasonably favourable external conditions, to create sufficient employment both to absorb fast growth in the labour force and to reduce unemployment. Figures recently published by the CSO on the basis of its Labour Force Surveys show that new employment was much higher since 1977 than had been estimated earlier. It is now clear that total employment increased by 80,000 between April 1977 and April 1980. The investment plan and the high level of job approvals last year and earlier will result in substantial new employment this year. I am confident that this record of success will be sustained and that we will achieve this year the growth in employment envisaged in the second national understanding. While international economic prospects this year are uncertain, there are grounds for optimism.
The worst phase of the recession has passed and a gradual upturn should soon be under way. The GNP of the OECD area, for example, which fell during the second half of 1980, is forecast to grow at an annual rate of 1½ per cent in the first half of this year, with the pace quickening thereafter. A similar view of prospects for the EEC is taken by the EEC Commission, and recovery in the UK during the year is also possible. Internationally, inflation fell during the course of last year, and this welcome trend seems likely to continue this year. The position in Britain in this respect still has a significant influence here, despite the break in the sterling link, and the expectation there is that prices will rise more slowly this year than last.
The international background should be more favourable this year. We must of course be realistic. Further increases in the price of oil could postpone the expected recovery. So too could over-restrictive economic policies in the major countries, and the Government will continue to exert whatever influence they can to avert this danger.
Take the tax off petrol.
Domestically there are already signs of recovery. The trade figures for December showed a large growth in imports of raw materials and capital goods, pointing towards an upswing in production and investment. Capital formation will be boosted considerably by the investment plan. Industrial exports should also be reasonably buoyant, reflecting the continuing success of the IDA in attracting new exporting industries, and the expected international upturn. Cattle prices should also be higher. Overall, the economy should grow faster this year than last.
Faster growth and a higher average oil price than last year will lead to some increase in the balance of payments deficit this year. This budget is designed to contain that increase. Implementation of the investment plan will generate imports and, if the budget is to contribute to keeping the balance of payments deficit at a tolerable level, progress must be made in reducing the current budget deficit. This need is reflected in the Government's decisions on current expenditure and taxation.
Medium-term Strategy
Looking beyond the period of the present investment plan, the Government will continue to concentrate on a vigorous and programmed expansion of the productive base of the economy as the centrepiece of their medium-term strategy. Continuing priority will be given to investment in the directly productive sectors and to providing and strengthening the productive infrastructure. This is essential if our predominantly youthful and rapidly increasing population is to have the employment opportunities to which it aspires and which it is entitled to expect. The performance of the agricultural sector is of vital importance to the economy but one must look to the other sectors for employment opportunities. There is no defensible alternative to a strategy of growth across the entire economy. This must be pursued with due regard to ensuring social justice and assisting the vulnerable members of society. Social investment, therefore, must grow in reasonable relationship to overall economic capacity.
The investment plan will be followed by a paper dealing with medium-term economic development. In 1982, and subsequently, the Government's plans will be reviewed and updated annually. The administrative arrangements for planning have been strengthened, and, in particular, liaison on planning between my Department and other Departments has been improved.
MONETARY POLICY
We shall soon have completed our second year of participation in the European Monetary System. During this period, the EMS has continued to make a significant contribution to exchange rate stability. There has been a higher degree of stability between the eight participating currencies than at any stage since 1972. This is in marked contrast to the great fluctuations that have affected other international currencies.
The pound sterling has appreciated strongly, outside the System against all the EMS currencies including the Irish pound. This has been due to continuing high interest rates in London and the relative advantage that the UK has in regard to oil. The effective depreciation of the Irish pound against sterling has benefited our manufactured exports, but it has also pushed up the prices of necessary imports from the UK, thus complicating our efforts to reduce the rate of inflation here.
The Irish pound has performed satisfactorily against the other currencies participating in the EMS. The Government are firmly committed to the pursuit of domestic policies that will ensure continued stability of our currency within the system.
The broad objective of monetary policy in 1980 was to ensure an adequate level of external reserves in the context of continued membership of the EMS, while at the same time avoiding the introduction of a deflationary element into economic policy. To this end a guideline of 13 per cent for the increase in private sector credit was adopted by the Central Bank; this was expected to encourage some recourse to external borrowing by the private sector, which would serve to supplement public sector foreign borrowing. It is likely that the growth in private sector credit will be close to the guideline. The official external reserves increased in 1980 by £371 million to £1,346 million or by 38 per cent.
After peaking in the early part of the year, domestic interest rates fell, partly because of the reduced demand for credit and partly as a result of the effects on liquidity of foreign currency borrowing by both the private and public sectors. The prime lending rate of the Associated Banks fell by 4 percentage points since the beginning of July, to its current level of 14 per cent. The launching during the year, on the initiative of the Government, of loan schemes operated by the ACC, the ICC and the Associated Banks, for which the Exchequer gave an exchange rate guarantee, provided credit for agriculture and manufacturing at very competitive rates of interest.
In the case of the building societies, the Government took action in April to prevent an increase in the mortgage rate for householders. Subsequently, following the general reduction in interest rates, the mortgage rate fell for the first time in over two years.
Overall, therefore, interest rates are now lower than they have been for some time. The interest rates of the Associated Banks and the building societies are lower than in most EEC member countries. Although the international financial outlook is rather uncertain at present and although Ireland cannot insulate itself from financial developments abroad, I am hopeful that the satisfactory situation with regard to Irish rates will continue.
As regards 1981, the basic objectives of monetary policy will continue to be the maintenance of the exchange rate and of adequate external reserves. Credit restraint will still be necessary. The detailed monetary policy measures for 1981 will be announced shortly by the Central Bank.
Inflows to building societies during 1980, at £183 million, were almost as high as the exceptional figure of £192 million recorded in 1979. The societies are entering 1981 with a high level of liquidity. The prospects are that they will continue to make a major contribution to housing finance.
REVIEW OF BUDGET 1980 OUTTURN
The 1980 budget was designed to make progress towards a financial balance on domestic and international account, without impeding growth and the creation of employment. There was some optimism at the time that the world economy would emerge in the course of the year from recession. This, in the event, proved not to be so. In the circumstances it was necessary to relax the tight limits on spending in the budget in order to sustain the momentum of the economy, to avoid unacceptable deflation and to provide employment.
And prepare for a general election.
A large part of the additional expenditure was directed to the Public Capital Programme—to provide employment in the building and construction industry and to maintain the rate of development of productive enterprise, in industry and agriculture, through capital grants and credit.
Some of the supplementary non-capital expenditure also went to assist agriculture but the bulk of it was required for general and special pay increases in the public sector and for social welfare payments, including the double-week payment made to most social welfare recipients in December.
Revenue receipts were, in the aggregate, close to the budget target. There was some shortfall in income tax receipts from the self-employed, due partly to the fall in agricultural incomes and partly to the impact of the recession on business. A shortfall arose also in Post Office revenue, partly because of a slowing down in the growth of telephone and postal traffic. Some £42 million of the Post Office shortfall is expected to be collected in 1981.
The current deficit for the year, at £547 million, was £200 million above the budgeted figure and the overall effect of the various changes was that Exchequer borrowing reached £1,217 million, or 14½ per cent of GNP.
The Minister should beat his breast.
Exchequer Financing
Domestic sources, mainly sales of Government securities and the savings institutions, provided £650 million towards financing the Exchequer borrowing requirement. Non-banking support for Government securities was very strong; £336 million of the £650 million came from this source, £130 million more than in 1979. Receipts from small savers, at £52 million, were almost double the 1979 outturn. I would hope that this range and level of support will continue and increase.
The banks put £243 million into Government securities, an increase of almost £140 million on the 1979 outturn. This result, to some extent, reflected the reduced demand from the private sector for bank credit. I believe that private sector needs should not be submerged by public sector borrowing. It will be my concern in 1981 to ensure that the private sector is not deprived of the credit it requires for productive investment.
The policy of improving the range of Government securities available to the public was continued in 1980. Three new short-dated Government stocks were issued as well as £820 million nominal value of tranches of existing Government stocks. The policy is working well and is largely responsible for the satisfactory development of the Irish gilt market in recent years. The range of stocks on offer will be examined regularly to ensure that the needs of potential investors are fully met. An improvement in the underlying rate of inflation and the relatively high yields available on Irish Government securities should continue to make the gilt-edged market an attractive investment outlet.
Apart from the sale of securities through the Stock Exchange, we have a very varied and attractive range of small savings schemes, some with tax-free concessions. In the past these schemes have been a good source of funds. In recent years, however, the total of receipts from the small savings schemes has been disappointing, although, as I have already said, there was a significant improvement in 1980 as compared with 1979. I have reviewed the schemes and have decided that there are two areas in which improvements might be effected.
I consider that the minimum age limit of 65 for the purchase of indexed-linked savings bonds in unnecessarily high and I have decided to reduce this age limit to 55 years. I have also decided to double to £3,000 the maximum amount which a person may hold in the bonds.
The return from sales of saving certificates has been falling for some time. To correct this declining trend I have decided to issue a new certificate which will give a better return to investors.
I feel confident that these improvements will be welcome to small savers and will result in a further increase in receipts this year.
I would like to take this opportunity to express my thanks to the members of the National Savings Committee who, over the years, have freely given of their services in the promotion of savings, particularly in the establishment of savings groups at places of employment. The committee were 25 years in existence in December 1980. They are currently undertaking a large-scale publicity campaign on the theme of savings.
Foreign Borrowing
The European Investment Bank once again made a significant contribution towards financing the Exchequer borrowing requirement. Loans from the Bank last year totalled £156 million. The loans attracted interest subsidies under the agreement reached when Ireland joined the EMS. The bank will continue its welcome and significant support in 1981 and its loans will, as heretofore, attract the EMS interest subsidy.
This and other foreign borrowing of £410 million in 1980 served the dual purpose of financing the Exchequer borrowing requirement and supporting the external reserves.
A considerable amount of foreign borrowing will be required in 1981. This will be undertaken only after the financing needs of the Exchequer and the level of support needed for the external reserves have been carefully considered. The planned participation by the private sector in investments hitherto carried out by the public sector will serve to reduce Exchequer recourse to foreign borrowing.
GENERAL BUDGET STRATEGY 1981
Borrowing Policy
The Government are concerned that borrowing for current purposes must be reduced with all practicable speed and on an orderly basis, consistent with the fiscal, economic and social constraints that are all too obvious. They consider that it would have been wrong in present circumstances to pursue this policy rigidly and without regard to immediate economic and social needs. To have done so would have resulted in increased unemployment and would have added to the difficulties caused by the external economic situation. Having allowed for the present economic situation, therefore, Government policy will concentrate on reducing, progressively, borrowing for current purposes and directing available resources to productive self-sustaining investment programmes. Policy will be elaborated in the paper on medium-term economic development to which I referred earlier.
It is against that background that the Government are maintaining a relatively high level of borrowing this year and have drawn up a programme of investment on the scale set out in the investment plan.
Capital Expenditure 1981
The 1981 investment plan provides for an unprecedented investment expenditure of £1,733 million, an increase of 36 per cent on the 1980 level. I stress two aspects—
—The Government have assigned a major role to industrial development in the plan; £334 million has been allocated this year to industrial credit and promotion.
—A major role has also been assigned to infrastructural investment programmes: a total of £781 million has been allocated to expand our capacity to meet energy requirements, improve telecommunications, road and transport facilities and provide improved sanitary services.
The overall level of Government investment in 1981 will result in a substantial increase in employment. Most of this will occur in the building and construction sector and in firms associated with the development of infrastructural projects.
In addition to the investments which I have outlined, the Government have under consideration the possibility of making additional capital available to certain State-sponsored bodies and in this connection I am making a contingency provision of £70 million.
Private Participation in Public Investment
In our mixed economy there has always been a close supportive relationship between the State and the private sector. The Government have decided to strengthen this relationship by inviting a more active participation from the private sector in capital development. The Government believe that this policy will be to the maximum benefit of the economy and will advance the pace of national development.
Discussions have already been held with a range of private sector interests in order to explore the extent to which their support might be forthcoming, particularly for investment in infrastructure. These preliminary soundings have been encouraging and, as a result, the Government have adopted a target of £200 million as the extent to which this year's Public Capital Programme might be financed from private sources.
The form of this proposed participation will, of course, vary with the nature of the assets and services being provided. For activities that are essentially commercial, arrangements may be appropriate whereby the public sector will be relieved of the responsibility for both the provision of the new asset and its subsequent operation. In other areas a less prominent role for the private sector is envisaged. Final arrangements have not yet been worked out but I am determined that the terms of participation will at the same time represent reasonable value for the State and provide new and different investment opportunities for the private sector.
Current Expenditure 1981
The recently published expenditure Estimates for 1981 represent an integral part of the Government's overall budget strategy. They have been determined on the basis that the strong upward trend in current expenditure must be halted. It is virtually impossible, however, because of the committed nature of much of the expenditure, to reverse its trend radically in the space of a year or two.
Nevertheless, the total of the non-capital Estimates for the supply services —generally speaking the ordinary day-to-day expenditures on salaries and services by Departments—shows an increase of only 9 per cent in cash terms in what was actually spent in 1980. Non-pay services have been severely pruned. The estimates for these services total only 3 per cent more than actual expenditure on them in 1980.
Public service pay and pensions—to which I shall refer at greater length later- —involve commitments which the Government, as employer, must meet under the terms of the national understanding. Standard increases alone are expected to cost the Exchequer well over £200 million in 1981. The cost of special claims adds to the pay bill. However, even here the determination of the Government to restrain the growth in expenditure is evident.
Central Fund Services are estimated to cost 27 per cent more in 1981 than in 1980, largely because of higher debt service charges which must be met. As Minister for Finance, I will have the support of my colleagues in special measures to ensure that the allocations for these services will not be exceeded in 1981, apart from the additional expenditure to which I will refer later.
The new practice introduced last year of the preparation by the National Board for Science and Technology of a science budget based on the requirements of the public sector institutions in science and technology has been continued this year in accordance with the relevant legislation. The science budget recommendations have been taken into account in fixing the provisions for these institutions. In fulfilment of the Government's commitment to the promotion of science and technology as key factors in development, I have found it possible, in the main, to give increases above the general average in the provisions for science and technology.
Revenue Buoyancy 1981
Revenue receipts for 1981, before today's adjustments, are estimated at £3,654 million, or 16 per cent more than the 1980 outturn. Tax revenue is estimated at £3,009 million, 15 per cent above the 1980 receipt. This rate of increase is not as large as in recent years, mainly because of the incidence of the full year cost of the extensive income tax concessions given in last year's budget.
The estimate for non-tax revenue, at £645 million, is 20 per cent above the 1980 outturn. It makes allowance for further recovery of outstanding Post Office receipts, growth in the number of telephone subscribers and resumption of normal growth in other areas of Post Office business in 1981.
Opening Deficit on Current Account
The estimated expenditure of £4,178 million on current services and the revenue estimate of £3,654 million give an opening deficit on current account of £524 million.
INCOMES POLICY
Because of its predominant influence on the expenditure side of the budget, I propose at this point to comment on incomes policy and its effects on the cost of public sector pay.
Earnings last year grew much faster here than in most of our competitor countries. They rose, for example, at over three times the rate experienced in Germany and the Netherlands, countries with whom we participate in the EMS and whose products compete with our exports, not only on home markets but, more importantly, on the British market. In a wider context, the rate of increase in real labour costs here was exceeded only in one other OECD country.
The trend of incomes will be crucial in determining to what extent this country can share and exploit the expected international economic upswing. After a pronounced recession, over-capacity internationally will be slow to disappear. Competition will remain very tough. Further, growing unemployment has led to intensified competition for internationally mobile investment and our prospects of attracting it will be diminished if income increases here continue to run ahead of the international average.
The national understanding provides the framework for the development of incomes this year. The basic pay terms of the understanding are generous. Without any other additions they will lead to an average increase per head in non-agricultural wages and salaries of over 14 per cent. By comparison, single digit figures are becoming the norm for new settlements in most of our main trading partners.
The national understanding provides for a meeting of the Employer-Labour Conference to discuss the position in the event of an increase in consumer prices of more than 10 per cent from mid-May last to mid-February and, having regard to the economic circumstances prevailing, to consider an upward adjustment in the amount of the second phase of pay increases under the Agreement on Pay Policy. This provision does not impose an obligation on employers to negotiate a particular level of increase.
Measures to increase revenue which I shall announce later have an effect on the Consumer Price Index. The question as to whether pay increases should compensate for increases in taxation on nonessential items has been frequently raised in recent years. Obviously much depends on the purpose of the increased taxes. In any case compensation through pay increases could have highly undesirable consequences for prices, costs, competitiveness on home and foreign markets and, in particular, for employment. The effectiveness of the Government's action to support employment through the investment plan would be eroded through a further loss of competitiveness. It could be damaging therefore, and self-defeating, to seek compensation for indirect taxes imposed for social welfare and other socially defensible purposes. I would hope that these points will be to the forefront of any further consideration of the existing national understanding provisions on wages and salaries.
Industrial Relations
The national understanding is regarded too often as simply an agreement on pay. It is much more than this, dealing as it does with wide-ranging economic and social issues of fundamental importance. The Government are determined to do everything in their power to maintain progress in all areas embraced by the terms of the understanding despite the present unfavourable external pressures on our economy.
The benefits of the Government's efforts will not be fully realised unless all the parties to the national understanding fully discharge all their obligations under it. This will call for discipline and leadership on the part of both management and workers. I would stress in particular the need to make full use in settling disputes of existing procedures agreed between management and employees. If discipline and leadership are absent severe damage will be done to the community. This damage will show itself in rising unemployment and all the hardship which that entails as well as in disruption of production and services.
I am keenly aware of the importance of preserving industrial peace in the public sector. When jobs are at risk in so many areas of the economy it is incumbent especially on public sector employees to take no action that would present an even greater threat to employment in the economy at large. There is a special responsibility on those dealing with essential services to guarantee continuity of service by observing the terms of the national understanding.
Public Sector Pay and Pensions
The cost to the Exchequer of pay and pensions increased from £1,158 million to £1,555 million, or by 34 per cent, between 1979 and 1980. They are estimated to cost £1,780 million in 1981. That sum no more than covers the cost of the 1980 National Understanding Agreenent on Pay Policy and the carryover effects of other pay awards already made. That brings me to the question of the treatment of claims for special increases.
Special pay increases in the public sector give rise to grave concern. In the past two years alone such increases cost the Exchequer about £260 million. Almost all public servants received an award of this kind in this period, in addition to the increases provided for under the standard terms of national agreements. These awards were made under the special increase clauses built into such agreements. The frequency with which such clauses are availed of in the public service must become the subject of special scrutiny when the time comes to review arrangements at national level. It is very disquieting to learn that further special claims are already in the pipeline. The Government fully appreciate the contribution that public servants are making to national development, but in the present critical situation they would hope that public servants would have regard to the greater degree of security attaching to their employment and be prepared to moderate, or not to press, claims which they otherwise would consider justified. I would earnestly ask all concerned to consider the matter seriously in the national interest. Failure to respond to this appeal will regrettably mean the imposition of further taxation and reduction of services.
While I can affirm that the Government will honour their commitments under the National Understanding Agreement on Pay Policy, I must say that every such claim will be subjected to close scrutiny and processed strictly in accordance with the provisions of the pay agreement and with established and agreed procedures. Reluctant as I am to make any provision for special pay increases in the public sector in 1981, it would be imprudent of me not to allow for the probability of some settlements this year. I am therefore allocating in the budget a further sum of £80 million to cover any increases in pay and pensions for which provision has not already been made in the Estimates Volume.
I must warn however that, if the cost of pay increases in the public sector continues to develop on the lines of recent years, it will call into question the future of national pay agreements. Over the past two years the cost to the Exchequer of special pay increases has been in excess of the cost of the standard national agreement increases themselves. This is unacceptable. It raises doubts about the arrangements at national level which result not only in generous standard increases but also in the negotiation of special claims at such high cost.
Rationalisation in the Public Sector
The sheer size of the public sector and the amount of finance required to sustain it suggest that there is considerable opportunity for savings by rationalising its programmes, administrative machinery and structures, staffing and systems. An interdepartmental task force is being established to make a critical appraisal of the scope for such action and to draw up proposals as a matter of urgency to achieve savings this year of at least £25 million on the Estimates figures. On the basis that these savings will be identified and implemented, I am making a deduction of £25 million from the budget expenditure.
SOCIAL WELFARE
The Government's over-riding concern for the more vulnerable sections of our society, particularly social welfare recipients, has been demonstrated in a positive way by the substantial improvements made in welfare payments in recent budgets. The Government intend that those in need should not suffer by reason of changing economic conditions over which they have little or no influence. The measures I shall now announce will not only prevent this happening but will, in fact, improve further and significantly the position of those dependent on social welfare payments.
Social Welfare Payments
The Government have decided that from next April personal and adult dependant rates of long-term weekly payments—such as old age and widows' pensions, invalidity pensions, deserted wife's benefit and allowance, and health allowances—will be increased by 25 per cent. The corresponding short-term weekly rates—which include unemployment benefit and assistance, disability benefit and supplementary welfare allowances —will be increased from their present level by 20 per cent.
These increases will mean an extra £6.15 a week for the contributory old age pensioner who is under 80 and £5.25 for the non-contributory pensioner. For a married couple, both of whom are of pension age and under 80, the new rates will mean an increase of £10.75 a week in the present maximum contributory old age pension.
(Cavan-Monaghan): Fuel and gas will use almost all of it.
For a contributory widow under 80 there will be an extra £5.65 a week and for her non-contributory counterpart £5.25. A married man on flat-rate unemployment or disability benefit will get an increase of £6.75 a week.
The Government have also decided to increase from April next weekly social welfare rates in respect of child dependants by amounts varying between 40p and 75p per child depending on the particular benefit. In addition, general children's allowances, which are payable monthly, will be increased by £1.50 in July next to £6 per month for the first child and by £2 for the second and each subsequent child to £9 per month.
As a result of all these improvements, a contributory widow with three children will receive an increase of £9.15 a week, while a non-contributory widow will get a weekly increase of £8.30. For a married man with three children on flat-rate unemployment or disability benefit, the weekly increase will amount to £9.60.
Full details of the various changes are to be found in the Principal Features of the Budget.
Paid Maternity Leave
I am also glad to announce, as foreshadowed in the national understanding, a new scheme of supplementary social insurance maternity benefit. The new scheme will effectively apply to women who are in employment and entitled to approved maternity leave under legislation being prepared by the Minister for Labour. As a result, much improved benefits, which will be substantially pay-related, will be payable for a basic period of 14 weeks.
Free Fuel Vouchers
In July last the Government approved the introduction of a national fuel voucher scheme to provide assistance towards the purchase of various forms of fuel for the less well off sections of our society. The present value of the weekly fuel voucher is £2. As a further measure to aid these groups, principally the old and alone, the Government have decided to increase the value of the weekly fuel voucher by £1, to £3, with effect from a current date.
Cost of Welfare Improvements
In aggregate the cost in 1981 of the social welfare and health changes I have announced is estimated at £144 million. Social insurance contributors' normal share of these costs would be £64 million. The Government have decided, as an exceptional measure this year designed to mitigate the burden on employers and employees, to raise only £33 million in 1981 from contributors, the balance of £111 million being met by the Exchequer.
Aid for Disabled Persons
I shall be referring later to improvements in allowances and reliefs related to disabled persons.
Abuse of the Social Welfare System
The Government are much alive to the question of abuse of the social welfare system and in integrated series of measures has been adopted to combat such abuse. If these measures are to be successful and to have public support, we must of course create a climate of confidence among the public generally that genuine claims are being dealt with in an efficient and sympathetic manner. The campaign against abuse is a continuing process that is steadily achieving its objectives. It will be further developed as necessary, thereby ensuring that the maximum amount of resources are available to meet the genuine entitlements of beneficiaries.
AGRICULTURE
I come now to agriculture. Throughout most of the period 1970 to 1978 Irish agriculture enjoyed very favourable conditions. These were reflected in an unprecedented advance in farmers' incomes. In that period family farm incomes per head grew at an average annual rate of almost 9½ per cent in real terms. This growth was in large measure due to the benefits of the common agricultural policy of the EEC. It was generally recognised that income growth of that magnitude could not continue indefinitely. However, in place of a slower rate of increase, or even a standstill, there has been a substantial drop in farm incomes over the past two years.
The Government view the decline in farm incomes with the deepest concern. This concern extends not only to the situation of the individual farmer and his family but also to the impact of a weakened agricultural sector on the rest of the economy. The importance of agriculture to the economy is illustrated by the fact that in 1980 agricultural output represented 17 per cent of national output compared with an estimated average of about 4 per cent for all the EEC countries. For the farm family the substantial fall in income which has occurred over the last two years has involved a reduction in living standards and has reduced their ability to finance the development of the farm and increase production.
The concern with which the Government view the situation is clearly demonstrated by the extent of the measures to aid agriculture which were implemented over the past six months or so after close and frequent consultations with the farming organisations. These measures included an increased allocation for farm modernisation grants, a doubling of the rates of grant under the disadvantaged areas scheme, a national supplement to the EEC suckler cow scheme and additional rates relief. They cost an extra £39 million in 1980. In addition, the Government arranged for the provision of £100 million in reduced interest loans for agriculture.
As well as these national measures, the Government authorised the Minister for Agriculture to seek EEC aid for a special range of measures for Irish farmers. Negotiations on these are continuing in Brussels and the Government are hopeful of a satisfactory outcome.
The forthcoming review of EEC farm prices will also provide an opportunity to compensate farmers for rising costs. There are well-known constraints in this area arising from the limitations on the EEC budget and the surplus of some products. Within those constraints, the Government are determined to obtain the best possible deal for Irish farmers. There are, in fact, good grounds for expecting that the price increases this year will be more realistic than those of recent years.
They would want to be.
Notwithstanding what may be achieved on the EEC front the Government are resolved to ensure that agricultural production and exports are expanded with consequential benefits for farmers' incomes. The Government have considered, in the light of the measures already taken in recent months and the prospects for special EEC aid and price increases, how best this objective can be achieved. They have decided in favour of a number of direct reliefs as the quickest and most effective way of compensating farmers for income erosion and of providing finance for, and generating confidence in, further farm development. These measures involve the disease eradication levies, income tax, agricultural rates and the introduction of special aid for seed potatoes.
Disease Eradication Levies
The Government consider that it is appropriate that the agricultural industry should make a contribution to the enormous cost of the disease eradication programmes which, in themselves, yield such benefits to farmers. However they recognise the exceptional difficulties which farmers are undergoing at the present time. The Government have decided, therefore, to suspend the levies for the time being with effect from 1 February. This will represent an increase to farmers of ½p per gallon of milk and £3 per head of cattle without affecting prices to consumers. The resultant loss to the Exchequer is estimated at £9.65 million in 1981. The Government will review the position at the end of the year and decide in the light of prevailing conditions whether the levies should be reimposed.
Aid for Seed Potato Industry
During the past few years the seed potato industry has been going through difficulties to which storage and marketing problems have been added. As a result there has been severe pressure on the resources of the industry. The position has not been helped by the fact that a common organisation of the market for potatoes has not yet been introduced by the EEC. The seed potato trade is an important one for this country and affects the livelihood of a large number of small farmers mainly in disadvantaged areas.
There are definite possibilities for expansion of exports, particularly in the light of promising new varieties recently developed by An Foras Talúntais. In this connection suitable grading and storage facilities are of vital importance. I am, accordingly, providing a sum of £250,000 for financing measures to assist the development of the seed potato industry and alleviate some of the main problems arising at present. The details will be announced later by the Minister for Agriculture.
Farm Taxation
In the context of farm taxation generally I shall now refer to income tax as well as rates. In the 1980 budget farm income tax, rates on land and the resource tax were estimated to yield about £86 million on the basis that farm incomes had fallen in 1979 by some 4 per cent. We now know that such incomes actually fell by about 11½ per cent in 1979 and are thought to have fallen by a similar amount in 1980. This has inevitably been reflected in the yield from farm taxation. Income tax, which had been estimated to yield £32 million, yielded only about £25 million last year because of the decline in farm incomes. For the same reason the Government waived the second half of the 1980 rates due from farmers in the valuation range £40-£60 at a cost of £6 million. The Government's request last year to local authorities to adopt an "understanding attitude" to individual farmers who had temporary difficulties in meeting their 1980 rates liability has naturally meant that payments of rates have been slower than normal.
(Cavan-Monaghan): Does the Minister intend to pay back what he collected?
The Government decided earlier that the resource tax would be discontinued after one year and I am now confirming this decision. The consequent saving to the farming community is over £6 million a year on the basis of the tax provisions introduced last year. Resource tax due last year and not yet paid remains due and must be collected in the course of the year.
Deputies will recall that last year's budget established a system of farm income tax, based on accounts, which is broadly similar to that which applies to other small businesses. I do not propose to make any major changes in that system. I do, however, propose to make a further change in the stock relief provisions as they apply to farmers.
Last year's Finance Act considerably improved the stock relief provisions for farming. While other sectors get relief in respect of 75 per cent of the increase in stock values over 20 per cent of net profit, farmers were allowed full relief in respect of the increase over 10 per cent of profit. In view of the vital need to encourage the expansion of the national herd I propose to remove the 10 per cent restriction completely so that farmers will now get full relief in respect of increases in stock values. This will cost about £500,000 in 1981.
(Cavan-Monaghan): Restitution.
As the Government decided last year that the threshold for liability to income tax would remain at £40 RV for the following three years, the number of farmers within the scope of income tax remains unchanged. Last year, too, it was decided that farmers should have two payment dates rather than a single payment date. In view of the situation in which farmers now find themselves, I propose to continue the two payment dates of 1 October and 1 January for a further year. This will improve the position of farmers to the extent of £5 million in this difficult year.
My predecessor indicated in his Second Stage speech on the Finance Bill last year that technical discussions on the question of income averaging for farmers were proceeding between the farming organisations and the Revenue Commissioners. These discussions are continuing and I expect to be able to fulfil the commitment to introduce income averaging in the Finance Bill 1981.
Farmers have been critical of the rates system and there have been demands that farmers should not be required to pay both income tax and rates. As more and more farmers come into the income tax system and pay amounts of tax appropriate to their income, the burden of rates, which are not so related, is being reduced.
In view of the difficult income position of farmers, however, the Government have decided to introduce a further concession on agricultural rates leviable this year. This will involve full relief from rates in the case of farmers with land valuations under £50 RV and 50 per cent relief in the case of farmers with land valuations of £50 or over but under £70. This concession will cost the Exchequer about £19.6 million in 1981. It will mean that farmers will pay only £31 million in rates leviable this year together with the carry-over of rates from 1980 as a result of the "understanding attitude". The Minister for the Environment will introduce the necessary legislation in due course.
Future Outlook
The measures which I have announced will cost the Exchequer £35 million in 1981. These measures have been designed, as I have already indicated, to provide immediate help for farm incomes. Together with the other national measures implemented recently, the outcome of the negotiations for special EEC aid and the forthcoming EEC price review, they should stimulate and increase the confidence of farmers and put Irish agriculture back on the path of growth.
It is crucially important that farmers should regain the drive and determination to expand production. Increased output is the only sound and long-term solution to present problems. Injections of Government or EEC aid on their own will not provide the answer. If the farmer does not increase production he will become increasingly dependent on such injections to which the scarcity of resources, at both national and EEC levels, places obvious limits.
There is potential for increasing Irish agricultural production both through better management and through additional investment. In many cases, higher output can be achieved without costly investment through improvements in farm management effected with the help of the education and advisory services. Efforts by farmers in this respect will be greatly assisted by the reorganisation of those services under ACOT, for which the Government have allocated £15.2 million in 1981. As indicated in the investment plan, investment grants and other capital aids totalling £141 million are being provided this year to encourage and support higher agricultural production.
TAXATION
Taxation is expected at one and the same time to provide an adequate revenue base, to encourage economic and social development and to be distributed equitably. Considerable dissatisfaction has been expressed in recent years with the taxation system. This dissatisfaction has focussed on two aspects—the overall level of taxation and the manner in which different sections of the community are taxed.
The fact that our level of taxation is relatively low by EEC standards is not generally acknowledged. In 1979, for instance, it was 33 per cent of GNP compared with an average of 41 per cent for other EEC countries. There are other factors which also require to be considered.
The high level of borrowing required in recent years in order to finance the annual budget deficits underlines the need for a wider tax base. Expenditure restraint alone will not eliminate these deficits. It seems inevitable that the aggregate level of taxation may have to be increased in real terms over the next few years as part of this process. Every community has to accept in the long run that it must pay its way on current account. The desirable balance between tax increases and expenditure curbs in order to close the budget gap over the next few years will be discussed in the context of borrowing policy in the forthcoming paper on medium-term economic development.
The problem of how to secure equitable tax distribution is, if anything, more difficult. Solution calls for compromise between apparently irreconcilable sectional assessments of what is fair and equitable; between the competing requirements of economic growth and equity; and between different approaches to the merits of direct and indirect taxation in the apportionment of the tax burden. The Government's commitment to achieving a more equitable system has been stated repeatedly. Significant advances in that direction have already been made in recent years and particularly in the 1980 budget. The commitment of the Government is incorporated in the national understanding.
Commission on Taxation
The Government decided last year that the time was ripe for a comprehensive review of the taxation system and established a Commission on Taxation for this purpose. The commission is undertaking a thorough investigation of all aspects of taxation policies, including the machinery for assessment and collection of taxation. Its report will, I trust, be a landmark in the evolution of a more equitable and effective system of taxation. I know that the commission is thankful to the various organisations and individuals who have made submissions to it.
The Government look forward to having the benefit of the commission's advice and recommendations as soon as possible. My predecessor, speaking about this matter last year, did not preclude the possibility that the commission might find it feasible to provide interim reports on specific areas of taxation. The Government would welcome any such reports, but it is of course for the commission to decide whether interim reports would be practicable.
Income Tax
Last year's budget introduced a radical change in the income tax structure with the decision of the Government to implement in full the principle of income-splitting for married couples. That change and other reliefs and concessions were made at a cost to the Exchequer of £227 million in tax revenue in a full year. Those concessions represented a major step forward towards a more equitable distribution of taxation pending the outcome of the work of the Commission on Taxation.
The Government carefully considered whether the objective of reducing the budget deficit would justify an increase this year in the rates of direct taxation. They were satisfied that such action would represent an economic disincentive of considerable danger to the economy at the present time and would be likely to neutralise in whole or in part the stimulus to private sector effort provided by the investment plan. Apart therefore from a proposal involving the timing of tax payments rather than the rates of taxation. I have no major proposals for increasing direct taxation.
—Special PAYE Allowance
A special allowance was introduced last year for PAYE taxpayers generally in order to improve the tax progression of those taxpayers and to take account of the fact that the self-employed, and others assessed under Schedule D, enjoy advantages within the taxation system which the PAYE taxpayer does not share. In line with the Government's commitment in the national understanding, I now propose to increase this allowance from £400 to £600. Where a husband and wife are both within PAYE, each spouse will, as before, be entitled to the increased allowance. The increase will cost £40 million in 1981 and £60 million in a full year.
—Rate Bands
Under the present structure of allowances and rate bands a single person with basic allowances only would enter the 45 per cent rate band with a weekly income of £125. Because of the income-splitting provisions the corresponding income for married couples would be about twice that amount. I am anxious to avoid the situation where a single person with an income not a great deal more than the average industrial wage could enter the higher rates of tax. The increase in the PAYE allowance which I mentioned earlier will have the effect, for the great majority of taxpayers, of raising the point of application of all rates of tax. I am also increasing the 35 per cent rate band from £4,000 to £4,500 for single, and widowed, persons and from £8,000 to £9,000 for married couples.
As a result of these two proposals a single person with an income of £100 per week from a PAYE employment will get tax relief of £70 a year. A married person on £100 per week and paying tax under PAYE will also benefit by £70 annually. On an income of £140 per week, the gain to a PAYE taxpayer will be £140 if single. The gain will remain at £70 for married persons as they benefit from the double rate bands.
Where a husband and wife are both in PAYE employment, the gain will be greater because each will qualify for the increased PAYE allowance. The effect of these improvements, and of the other changes which I propose, can be seen in greater detail in the Principal Features of the Budget.
—Exemption Limits
The introduction last year of an income tax exemption for those on low incomes was a particularly significant development in that it provided a worthwhile relief for the less well-off while at the same time ensuring that the relief was directed to those most in need. I now propose to increase the general exemption limits from £1,700 to £2,000 for single and widowed persons and from £3,400 to £4,000 for married couples. Marginal relief will be available for those whose incomes do not greatly exceed these amounts.
A single person on £38 per week will have no liability to tax; this represents an annual saving of £115. A married couple earning £76 per week will be relieved of all their income tax, amounting to £330 per year.
I also propose to raise the age exemptions which apply to the elderly. For those aged between 65 and 75 years the limits will be increased from £2,000 to £2,300 for single and widowed persons and from £4,000 to £4,600 for married couples. For persons aged 75 years or over the limits will be increased from £2,500 to £2,800 for single and widowed persons and from £5,000 to £5,600 for married couples. A married couple where either spouse is aged 75 years or more will pay no tax on an income of £107 per week or, in the case of a single or widowed person aged 75 years or more, £53 per week. The corresponding weekly amounts for those aged between 65 years and 75 years are £88 for married couples and £44 for single and widowed persons.
These new exemption limits will remove 37,000 persons from liability to income tax and marginal relief will benefit many more.
—Subsidiary Allowances
An additional tax allowance for one-parent families was introduced in 1979 and increased last year. I appreciate that the difficulties, financial and otherwise, of providing for a family are particularly acute when the burden falls on one parent. I am therefore proposing to increase the one-parent family allowance from its present level of £500 to £650.
—Relief in Respect of Residence-Related Work
A scheme of tax relief to encourage residence-related employment was introduced in 1979 on a temporary basis. It was decided last year to continue it for another year because the postal dispute of 1979 had seriously disrupted its operation. In view of the unemployment situation I am proposing that the scheme be further extended for another year.
—Taxation of Self-Employed
In the course of his Financial Statement last year, my predecessor indicated that he was examining the possibility of bringing the PAYE sector and the self-employed to an equivalent basis of assessment. An arrangement which would be effective and equitable poses difficult and complex problems. The Revenue Commissioners are continuing their examination of the technical aspects of this matter.
The total cost of the income tax changes which I have outlined, inclusive of the cost of the extended PAYE allowance, is £60 million in 1981 and £93 million in a full year.
I recognise the burden which is borne by PAYE taxpayers in particular. Naturally, I would have preferred to have been able to grant them greater relief. However, given the financial realities which I must take into consideration and especially the need to provide substantial improvements in social welfare payments, I have gone as far as I can on this occasion.
TAXATION OF BUSINESS
—Corporation Tax
I turn now to business taxation. The Finance Act, 1980, provided for the introduction of the 10 per cent scheme of corporation tax for manufacturing industry generally with effect from 1 January last. The scheme replaces export sales relief, which has been our major industrial incentive for many years, and should be of special benefit to firms selling on the home market. It will assist the IDA in the increasingly competitive task of inducing mobile international investment to locate manufacturing projects in this country. Corporation tax accounted for only 5 per cent of tax revenue last year and corporation tax paid by manufacturing industry for only an estimated 1 per cent.
In the course of the debate on the Finance Bill last year, my predecessor indicated that the Government intended, depending on the outcome of discussions with the EEC Commission, to make provision in the 1981 Finance Bill for the extension of the 10 per cent scheme to certain of the non-manufacturing activities which had benefited from export sales relief. These activities are the repair of ships, the production of fish on a fish farm and the cultivation of mushrooms. He also indicated that it was intended to extend the scheme to non-manufacturing services at Shannon. Discussions with the Commission are continuing and I would hope to include the necessary provision in the forthcoming Finance Bill.
—Payment Dates for Corporation Tax
Companies are required to pay corporation tax in two instalments. The first payment is due nine months from the end of their accounting period while the date of payment of the second instalment can vary as between companies from nine to 21 months. This is an exceptionally generous arrangement compared with the treatment of personal taxpayers either under PAYE or Schedule D. It can mean, when account is taken of the two-month period of grace in relation to interest on overdue tax, that the second instalment of tax might not be paid, in the extreme case, until 23 months from the end of the accounting period in which the relevant profits have been earned. The case, on grounds of tax equity, in favour of bringing forward the dates of payment of tax by companies has been well recognised for some time.
I have considered the question carefully and I now propose that the date of payment for the second instalment of corporation tax for all companies should be brought forward by three months, but not so as to make the due date fall earlier than nine months from the end of the accounting period.
It is a body blow to employers.
This change will apply in respect of accounting periods ending on or after 6 April 1980. For companies affected in this financial year, the payment date will in general be brought forward from early 1982 to late 1981. For instance, in the case where a company's due date for the second instalment is at present 1 January 1982 the new due date will be 1 October 1981. The normal period of grace will continue to apply. This change will also mean that the timing of tax payments by companies will be brought more into line with that applicable to unincorporated traders with the same accounting periods.
That is no help to employers.
What is involved is a three months' advancement in the date of payment. It is an increase neither in the rate of tax nor in the amount of tax payable by companies. It will have the effect of increasing Exchequer revenue in the closing months of 1981 by an estimated £66 million.
New Special Incentives for Capital Development
I spoke earlier of the Government's policy to encourage greater participation by the private sector in capital development. With this objective in mind, and also to generate employment, I propose to introduce a new special allowance of 100 per cent in respect of expenditure incurred on the construction of moderate-cost rented residential accommodation. The new allowance, which would be set against rental income, should increase the attractiveness of investment in a sector where a recognised need exists, especially in our major towns and cities and in areas affected by the Government's plan for public service decentralisation. The allowance will apply to qualifying expenditure incurred after today and will be subject to review at the end of a three-year period. Details will be announced at a later date.
I am also considering whether an incentive might be appropriate in relation to the provision by the private sector of multi-storey car-parks and toll roads and bridges. Allowance in those cases could act as a positive inducement to the private sector to become more actively involved in some essential infrastructure requirements.
It is a speculator's charter.
—Capital Allowances on Industrial Buildings
Also with a view to encouraging greater private sector investment in capital development, I have decided that in cases where industrial buildings are leased to State-sponsored industrial promotion agencies and subleased by them to industrial occupants, an initial allowance of 50 per cent will be available on the expenditure. This brings the position of lessors in these cases into line with cases in which the lessor contracts directly with the industrialist.
There will be no cost to the Exchequer in 1981 as a consequence of the proposed new allowances.
—Stock Relief
Stock relief is a temporary measure, renewable on an annual basis, providing relief to traders in certain sectors to compensate them for the effects of the increased cost of replacing stock in an inflationary period. Under present legislation the relief is available for companies in respect of accounting periods ending before 6 April 1980 and for individuals in respect of the year of assessment 1980-81. I have decided that stock relief should be continued for a further year. This extension of the relief, which for trades other than farming will be at the present 75 per cent level, will cost the Exchequer £3 million in 1981.
—Taxation of Financial Institutions
The Commission on Taxation is investigating in depth the question of the taxation of financial institutions. Because the commission is examining the matter, I do not propose any changes in existing arrangements this year.
—Indirect Taxation
The increased social welfare benefits and the other concessions and improvements which I have just announced clearly require additional revenue to finance them. It would, as I have already explained, be contrary to Government policy to increase the rates of direct taxes at the present juncture when private sector enterprise, particularly of individuals, is all important. Bearing in mind also that rising prices have the effect of reducing the real level of those excise duties which are charged on a flat-rate basis rather than on an ad valorem basis, I am turning to such duties as the principal source of the additional revenue needed. An added factor influencing this decision is the discretionary and less-essential nature of a large proportion of the consumption involved.
—Petrol, Road Diesel and Liquid Petroleum Gas (LPG) used in Motor Vehicles
Revenue, balance of payments and energy conservation reasons all point to the appropriateness of an increase in the duty on petrol and hydrocarbon fuels used in motor vehicles.
Accordingly I propose a tax increase of 15p per gallon on petrol and road diesel, and an increase of 10p per gallon on LPG used in motor vehicles in order to preserve the present tax relationship with diesel. Bus fares will not be affected because there will be a rebate for diesel oil used in buses on services scheduled in accordance with the relevant legislation.
(Cavan-Monaghan): What about the 25 per cent increase that is coming?
I am particularly concerned about the special case of the handicapped, a topic to which I shall turn shortly. In order to avoid imposing additional taxation on them, I am arranging that the existing rebates to handicapped drivers will be increased to match the duty increases which are now being introduced.
We will all be handicapped.
The yield from these increases is estimated at £50 million in 1981.
We will all be jogging.
—Other Oils
I am not proposing any increase in the rate of duty on other hydrocarbon fuels. Instead, I would draw the attention of large-scale energy users in the manufacturing sector to the new energy conservation incentive scheme in the 1981 Estimates.
I am proposing one very specific concession by way of partial rebate of the existing duty. Sea fishermen are substantial users of hydrocarbon oil and I am satisfied that a measure of relief is warranted in their particular circumstances. Accordingly, I propose to provide in the Finance Bill for a partial rebate in their case of 2p per gallon and for the necessary procedures and controls under which the rebate will be operated.
—Tobacco Products
I am proposing a tax increase of 10p on the packet of 20 cigarettes in the most popular price category with pro rata increases for cigars and other tobacco products. These increases are estimated to bring in extra revenue of £23 million in 1981.
—Beer
An increase of 6p in the tax element in the retail price of the pint of beer. This is estimated to bring in extra revenue of £32 million this year.
—Spirits
I am aware that home distillers are facing difficulties at present but I must nevertheless, for the sake of revenue needs and having regard to the taxation of beer, propose an additional 12p tax in the retail price of a glass of spirits. This represents an extra 6p on the normal half-glass measure. This is estimated to bring in extra revenue of £14 million in 1981.
—Wine and Made Wine
A tax increase of 25p is proposed in the retail price of a bottle of table wine. The increase will be pro rata for stronger wines, and for sparkling wines the proposed increase is 50p per bottle. The extra revenue expected this year is £3 million.
The Minister will tax holy water.
—Televisions
I propose to increase the specific duty of £79 on the top category of colour TV sets by £10, with pro rata increases for all other categories of colour and monochrome sets. The increase is estimated to yield £0.6 million in 1981.
—Table Waters
I do not propose to increase the duty on table waters. I intend however to make a change, which perhaps is long overdue, by extending the duty to squashes and cordials.
(Cavan-Monaghan): That will cure the cough.
In order to aid further the smaller manufacturers of table waters, I am considering some improvements to the rebate scheme. I intend to bring forward these proposals in the Finance Bill.
The tax increases I have announced will take effect from midnight tonight; but increases in the respective retail prices must await new maximum price orders where appropriate. These will be made by the Minister for Industry, Commerce and Tourism who will determine the appropriate level and timing of increases.
—Motor Vehicle Duties
Finally in relation to indirect taxes, I propose to increase the initial and annual registration charges for cars of 16 horse power and under from £10 to £20. The new rate will apply from March and will yield an extra £6 million in 1981.
The total estimated revenue receipt this year from the increases in indirect taxes amounts to £129 million.
TAX EVASION AND AVOIDANCE
Tax avoidance and tax evasion are subjects which arouse strong feelings in the general body of taxpayers, who rightly condemn such activities which clearly operate to their detriment. Sometimes much is made of the legal distinctions between these two areas, tax evasion being defined as a straight-forward breach of the tax law while tax avoidance is a careful and well-planned exploitation of that law and is defended on the ground that the letter of the law is not breached. As has been stated before, the margin between avoidance and evasion in many cases is no more than hairline. This is particularly so where the device used by the tax avoider involves the use of artificial and legalistic arrangements which serve no economic or commercial purpose but are entered into for the sole purpose of avoiding tax.
There is no justification for ambivalent thinking on this subject. The taxes payable are imposed in the name of the community and are expended on purposes determined by the community in a democratic process.
Whatever merit the distinction between evasion and avoidance may carry in law, it carries none for the general body of taxpayers who must bear, in addition to their own share of the total tax burden, that part of the tax load of which the evader and the avoider have divested themselves.
In these circumstances it behoves the Government and the Minister for Finance to take such steps as will ensure that all citizens pay their appropriate share of tax. To achieve this objective two requirements are essential. First, the system must contain adequate measures which not alone will provide for the detection of evasion but will act also as a deterrent to evasion and avoidance. Secondly, adequate Revenue staff is needed to apply the tax system effectively.
In recent years action has been taken to meet these requirements. Large numbers of additional staff have been made available to the Revenue Commissioners and, as Minister for the Public Service, I have taken a personal interest in ensuring that staffing in this area is adequate. The additional staff, even allowing for such factors as the time needed for training, have already achieved results. The new resources enabled the Revenue Commissioners to strengthen their staffs, particularly in the tax districts where counter-evasion is part of the day's work. Specialist divisions were also set up to deal with the more difficult cases. In the past year the number of staff—inspectors and accountants—attached to the Taxes Investigation Branch has been doubled and the number of cases referred to that branch for investigation has doubled also.
The special inquiry units set up in 1979 to seek out those not already on record brought in 14,000 cases. Over 8,000 of these have already been brought into charge and the remainder are under investigation. In 1979 alone, £2.75 million was recovered in back duty. Court proceedings were initiated in over 900 cases, the majority for failure to make returns. Penalty proceedings in connection with under-payments of tax were taken in a number of cases. In recent years, the Revenue Commissioners have been asked to place more emphasis on legal proceedings, rather than on agreed monetary settlements, in cases where there have been false declarations and fraud. They have this course of action very much in mind when looking at the back duty cases which come before them.
The penalties in the Income Tax Acts for various offences have remained unchanged for many years. I will be looking at them to see how best they may be adjusted so that they will be seen as an effective deterrent.
A major problem in relation to tax avoidance schemes is that, traditionally, the corrective legislation applies only from a current date, so that the tax avoider will already have secured the benefit of his avoidance devices for an extended period. I am concerned that greater control should be exercised to ensure that our taxation system is not subjected to this abuse. I would advise tax planners and tax avoiders that they should not assume that future anti-avoidance legislation will invariably apply from a current date.
I wish to refer now to post office charges. These are classified as non-tax revenue. In principle, the postal and telecommunications services are expected to pay their way but, in fact, they have been incurring heavy losses. In 1978 and 1979 — years that were particularly difficult because of lengthy strikes — the deficits on these services were £19 million and £42 million respectively. Although charges were increased in 1979 and again in 1980 to meet sharply rising costs, there was a deficit of about £27 million last year. It is expected that there would be a further large deficit this year if present rates of charge continued in force.
The deficits on Post Office services have to be met from general taxation. It cannot be expected that taxpayers generally should continue to carry such heavy losses. It is proposed, therefore, to increase postal and telecommunications charges by an amount sufficient to produce a cash yield of £35 million during 1981. The Minister for Posts and Telegraphs will announce the details later.
(Cavan-Monaghan): That will be known as the Albert Budget.
The Government are concerned about the position of the disabled and the handicapped. Many of these members of our society have special needs and are particularly deserving of support and sympathy.
I propose, therefore, to make a number of improvements in existing reliefs and allowances. It is particularly appropriate to do so since 1981 has been designated by the United Nations as the International Year for Disabled Persons.
I have already announced that long-term weekly social welfare payments will be increased by 25 per cent from next April. This increases will, of course, apply to the disabled person's maintenance allowance. The payment of allowances in respect of dependants of disabled persons is also being reviewed in accordance with the undertaking given in the national understanding. The details of a new scheme for such allowances are being worked out and will be announced later. I expect that the new arrangements can be implemented in the autumn and a provisional allocation has beeen included in the global provision of £111 million for social welfare and health improvements which I have already quoted.
I am making separate provisions for a number of other improvements and reliefs.
I am raising the blind person's tax allowance from £330 to £440.
Include the Cabinet.
Where both spouses are blind, the difficulties are more than correspondingly increased and accordingly I propose that, in such a case, the allowance will be increased from £660 to £1,000.
I propose to increase the incapacitated child tax allowance from £390 to £500.
A tax allowance of £330 is available where an individual or his wife is totally incapacitated throughout the year of assessment and is obliged to employ someone to take care of him or his incapacitated spouse. I am increasing this allowance to £500.
I have also been considering the position of the disabled under the VAT code. I propose to provide complete relief from VAT on certain medical aids such as wheelchairs, orthopaedic appliances and the like.
The domiciliary care allowances payable by the health boards to parents of handicapped children who require constant attention at home will be increased from its present level of £35 to £45 a month, effective from April 1981.
Also from April, the mobility allowance of £150 for severely handicapped persons will be raised to £200 and will be extended to persons in certain institutions who fulfil the standard criteria for entitlement. The ceiling on the motorised transport allowance for the disabled will be increased from £1,000 to £1,500.
I also propose that, from April, the free telephone rental scheme will be extended to include recipients of the disabled person's maintenance allowance under the same conditions as apply at present but with no age limit.
Finally, I propose to provide for an increase in the weekly spending allowance for physically and mentally handicapped persons in long-term residential care. The increase will have the effect of raising the average allowance from £2.50 a week to £4 a week. It will take effect from April next. The total cost of these special improvements will be £1.4 million in 1981, that is £0.7 million for tax reliefs and £0.7 million for additional expenditure.
Consultations have commenced with regard to the Green Paper, referred to in the national understanding, on certain aspects of services for the handicapped. Publication of the paper is expected in the course of the year. The national understanding also referred to the Government's commitment to increase employment opportunities for disabled persons in the public sector and confirmed their aim to achieve a quota of 3 per cent as quickly as possible. I am pleased to say that the Government have been assured of the full co-operation of the Irish Congress of Trade Unions in working towards this goal. I am confident that significant progress will be made during 1981.
I hope that these measures will be seen by the disabled as a positive gesture by the Government, on behalf of the community, showing their concern.
Veterans of the War of Independence
In a somewhat similar context, I turn now to veterans of the War of Independence. Because of the very special service which they have given, it is fitting that we should do our utmost for them and their families, especially where they are in difficult circumstances. I propose, therefore, to provide some improvements for them and for their widows.
I propose to increase the rate of military service pension by 20 per cent, subject to a minimum of £500 a year for a pensioner, or £250 a year for the widow of a pensioner.
I am increasing in each case the appropriate annual sum payable to special allowance holders by £60.
I propose to raise the allowance payable to widows of special allowance holders from £185 to £225.
Finally, I intend to extend the free telephone rental scheme to the widows of veterans.
These concessions will come into force with effect from 1 July 1981. The estimated cost in the current year will be £0.5 million.
Creidim go daingean sa tseanfhocal "Mol an óige agus tiocfaidh sí". Tá an taos óg thar a bheith tábhachtach san lá atá inniu ann agus ba mhaith liom rud speisialta a dhéanamh ina leith.
I propose to make provision for a national awards scheme for youth which will give due recognition to the abilities, initiative, achievements and excellence of our young people. The scheme will be introduced this year. For this purpose I am allocating a sum of £100,000 to the Minister of State at the Department of Education.
The award scheme will be open to all our young people. It will provide an incentive for them to develop personal excellence through voluntary involvement in such activities as physical fitness programmes, community service activities and outdoor pursuits.
Where are the hurleys?
When the various expenditure and taxation proposals which I have outlined are brought together, it will be seen that the expenditure proposals will result in a net addition to the expenditure side of the budget of £197 million while the revenue adjustments add £161 million net to the receipts side. This will increase the opening deficit on current account by £36 million but Departments have on hands an estimated £45 million in balances from 1980 which reduce, to that extent, the amount which has to be issued from the Exchequer. The estimated current budget deficit emerges therefore as £515 million, or 5¼ per cent of GNP. This compares with a deficit of £547 million, or 6½ per cent of GNP, last year.
Expenditure on the public capital programme is estimated at £1,733 million. To this has to be added a sum of £87 million comprised of the contingency provision of £70 million which I mentioned earlier and £17 million for other capital expenditures outside the public capital programme. These bring total public capital expenditure in 1981 to £1,820 million. The resources available to defray capital expenditure, including the projected £200 million from private sector participation, are estimated at £1,039 million, leaving a balance of £781 million which will be found by borrowing.
Together with the current budget deficit of £515 million, the total estimate of Exchequer borrowing for 1981 is £1,296 million, or 13 per cent of GNP. This compares with borrowing last year of £1,217 million, or 14½ per cent of GNP.
Yes, but that was 4 per cent more than the Government's target last year.
The Government have for a considerable time now been concerned with the problems of vulnerable and sensitive industries. The change to fully pay-related contributions in funding social insurance expenditures, while principally taken for other reasons, was, in practice, of major assistance to these industries, which are mainly labour-intensive. It will also be recalled that the employment maintenance scheme and its successor, the employers' temporary subvention scheme, made a further major contribution towards securing employment in the textiles, clothing and footwear sectors, but had to be terminated following objections by the EEC Commission that they represented a distortion of competition through State aids contrary to the Treaty of Rome. In view of these EEC objectives, it must be recognised that the difficulties involved are very great. The Government are, however, continuing to examine the problem to see if firms with a prospect of long-term viability can be helped through temporary difficulties.
I might add that the services of Fóir Teoranta are available to any firm which may be experiencing temporary or cyclical difficulties but which is potentially viable in the long run. Fóir Teoranta has adequate funds to enable it to ensure that any industrial undertaking with reasonable prospects of profitability will not go under for want of financial assistance to see it through a difficult period.
They can tie a yellow ribbon around their manifesto now anyway.
The circumstances of this year called for a budget which would support economic activity, protect and generate employment, reflect social concern, and observe financial responsibility. With these objectives firmly in mind, I have framed this Budget.
Since taking office, the Government have striven to achieve a fast rate of national growth and to provide employment for all our people.
With 150,000 unemployed.
The setbacks to the world economy over the past two years have made achievement of these aims exceedingly difficult. I am confident, as a result of the investment plan and this budget, that growth in 1981 will be significantly higher than last year and higher than the average expected in either the EEC or OECD.
What is higher than zero?
I am confident, too, that the growth in employment envisaged in the national understanding will also be achieved this year.
It was not last year.
The fiscal policy followed in the budget will help to contain the balance of payments deficit. Unnecessary increases in current expenditure have been eliminated, without cutting back on essential services. The tax adjustments have not been excessive and should be beneficial to the balance of payments.
The indirect tax changes will have only a moderate effect on the consumer price index. In the case of most people this impact will be offset, wholly or partly, either by the direct tax reliefs I have also announced, or by social welfare increases.
The national understanding restated the Government's commitment to increase social welfare payments at least in line with the cost of living. That commitment has been generously honoured by the increased benefits which I have announced today.
The budget recognises the difficulties of the farming community and, to the extent feasible, seeks to relieve them.
Government policy must seek to strike a balance between what is theoretically desirable and what is, in practice, achievable; between economic and social needs and the pursuit of strict financial balance.
There has been a lot of loose comment about so-called disorder in the national finances.
All out of step except our Johnny.
Lenihan is the only one who could read this speech.
Much of it has been irresponsible and partisan, but to those commentators who are genuinely concerned I would say this: the supplementary expenditures sanctioned last year represented for the most part deliberate and considered departures from budgetary policy to meet the needs of the emerging economic situation. The relevant borrowing was fully justified by reference to those needs.
On the general issue, borrowing may be high but there is no question of Government complacency about it. Exchequer borrowing will, as a result of this budget, be reduced from last year's figure of 14½ per cent of GNP to 13 per cent this year. This represents substantial progress. It might be argued that, ideally, the reduction in the current deficit — and consequently in the borrowing requirement — should be greater. However, harsh measures could cause severe hardship and unemployment at any time, but particularly at this time of world recession.
Facing a general election.
That, obviously, is also the view of the more responsible commentators. They also recognise that appropriate remedial action should be effected over time. That is why Government policy must be related to and will be presented in its medium-term context.
This year's reduction in the borrowing requirement as a proportion of GNP does not of itself give the full picture of the improvement in the public finances. Within the expenditure programmes covered by that borrowing requirement, there has been a major shift to productive capital expenditure. The investment, and the growth which will follow from it, will greatly increase the financial resources of the economy and assist in the eventual elimination of the Exchequer current deficit. The growth potential of the investment will be supported by a uniquely beneficial tax régime over a large area of private industry, by reasonable levels of personal taxation, by competitive interest rates, by abundant credit for viable entrepreneurial enterprise and by an independent, stable currency by reference to all the mainland European currencies.
Where is the punt?
The achievement of growth and prosperity depends on the degree of response to this investment and the favourable fiscal and monetary environment.
There is, I believe, a growing realisation in our community of the problems facing this country in today's world. This realisation must be turned to practical effect. I believe that our people are now open to conviction that rising living standards cannot be expected without effort and discipline. Today's budget provides a strong impetus to economic growth while at the same time marking a step forward in social progress.
Ba mhaith liom focal scoir a rá as Gaeilge. Is cúis bhróid dúinn uilig go bhfuil daonra na hÉireann ag méadú arís agus go bhfuil neart daoine óga éirimiúla sa tír anois. Is iad na daoine óga seo an mhaoin náisiúnta is tábhachtaí atá againn. Ní mór dúinn gach duine acu, atá in aois chuige, a chur ag obair — ar mhaithe leis féin agus ar mhaithe na tíre. Tá sé ar chumas gach éinne againn cabhrú go pearsanta agus go héifeachtúil le sin a dhéanamh. Ní gá ach earraí déanta i nÉirinn a lorg go dúthrachtach sna siopaí agus diúltú roimh earraí gallda a ghlacadh ina n-ionad. Má dheinimíd é sin beidh an báire linn.
TABLE EXPLANATORY OF CURRENT BUDGET 1981
|
Revenue |
£ million |
Expenditure |
|||||
|
1. Tax Revenue |
3,009.0 |
1. Debt Service and Other Central Fund Charges |
960.0 |
||||
|
2. Non-tax Revenue |
645.0 |
2. Supply Services |
3,218.1 |
||||
|
3,654.0 |
4,178.1 |
||||||
|
3. Add: |
3. Add: |
||||||
|
Indirect Taxation |
Social Welfare |
111.0 |
|||||
|
—hydrocarbon oils |
50.0 |
Public Service Pay |
80.0 |
||||
|
—tobacco, alcoholic drinks and table waters |
72.4 |
Agriculture Disabled Persons |
29.5 0.7 |
||||
|
—motors vehicle duties |
6.0 |
Veterans of the War of Independence |
|||||
|
—televisions |
0.6 |
0.5 |
|||||
|
Corporation Tax |
National Awards for Youth |
||||||
|
—payment date |
66.0 |
0.1 |
|||||
|
Post Office Charges |
35.0 |
||||||
|
230.0 |
221.8 |
||||||
|
4. Deduct: |
4. Deduct: |
||||||
|
Personal Income Tax |
Savings from Public Sector Rationalisation |
||||||
|
—allowances, rate bands and exemptions |
60.0 |
Estimated Departmental Balances |
25.0 |
||||
|
Disabled Persons |
45.0 |
||||||
|
—tax reliefs |
0.7 |
70.0 |
151.8 |
||||
|
Farm Taxation |
|||||||
|
—income tax |
5.0 |
||||||
|
—stock relief |
0.5 |
||||||
|
Tax on Business |
|||||||
|
—stock relief |
3.0 |
||||||
|
Indirect Taxation |
|||||||
|
—hydrocarbon oils (fishermen) |
0.1 |
||||||
|
69.3 |
160.7 |
||||||
|
5. Deficit |
515.2 |
||||||
|
4,329.9 |
4,329.9 |
Department of Finance
28 January 1981
SUMMARY OF CURRENT AND CAPITAL BUDGETS
1980 AND 1981
|
1980 |
1981 |
|
|
Provisional Outturn |
Post-Budget Estimate |
|
|
£m |
£m |
|
|
CURRENT BUDGET |
||
|
1. Expenditure |
||
|
(i) Central Fund Services |
758 |
960 |
|
(ii) Supply Services |
2,944 |
3,370 |
|
3,702 |
4,330 |
|
|
2. Revenue |
||
|
(i) Tax |
2,620 |
3,135 |
|
(ii) Non-Tax |
535 |
680 |
|
3,155 |
3,815 |
|
|
3. Current Budget Deficit |
547 |
515 |
|
CAPITAL BUDGET |
||
|
4. Expenditure |
||
|
(i) Public Capital Programme |
1,270 |
1,733 |
|
(ii) Other (non-programme) |
39 |
87 |
|
1,309 |
1,820 |
|
|
5. Resources |
||
|
(i) Exchequer |
182 |
207 |
|
(ii) Non-Exchequer (including private sector participation) |
457 |
832 |
|
639 |
1,039 |
|
|
6. Exchequer Borrowing Requirement for Capital Purposes |
670 |
781 |
|
7. Total Exchequer Borrowing Requirement (3+6) |
1,217 |
1,296 |
|
8. Total Exchequer Borrowing Requirement as % of GNP (estimated) |
14½% |
13% |
SUMMARY OF CAPITAL BUDGET REQUIREMENTS (INCLUDING CURRENT BUDGET DEFICIT) AND RESOURCES, 1980 OUTTURN AND 1981 ESTIMATE
|
REQUIREMENTS |
£ million |
||
|
1980 |
1981 |
||
|
Budget Estimate |
Provisional Outturn |
Estimate |
|
|
1. Public Capital Requirement |
1,160 |
1,270 |
1,733 |
|
2. Non-Programme Outlays |
376 |
586 |
602 |
|
of which (a) Exchequer Financed |
|||
|
(i) Current Budget Deficit |
347 |
547 |
515 |
|
(ii) Miscellaneous |
10 |
19 |
76 |
|
(b) Non-Exchequer Financed |
19 |
20 |
11 |
|
3. Total Requirements |
1,536 |
1,856 |
2,335 |
|
RESOURCES |
|||
|
4. Private Sector Participation |
— |
— |
200 |
|
5. Other Non-Exchequer Resources |
466 |
457 |
632 |
|
of which (a) State Bodies |
440 |
433 |
601 |
|
(b) Local Authorities |
26 |
24 |
31 |
|
6. Exchequer Internal Resources |
127 |
136 |
155 |
|
of which (a) Loan repayments |
43 |
44 |
55 |
|
(b) Sinking Funds |
84 |
92 |
100 |
|
7. European Regional Development Fund |
47 |
46 |
52 |
|
8. Exchequer Borrowing |
896 |
1,217 |
1,296 |
|
of which (a) Net Sales of Domestic Securities |
|||
|
(i) to the public |
336 |
||
|
(ii) to the commercial banks |
896 |
243 |
1,296 |
|
(b) Small Savings |
52 |
||
|
(c) Foreign Borrowing |
566 |
||
|
(d) Miscellaneous Borrowing |
20 |
||
|
9. Total Resources |
1,536 |
1,856 |
2,335 |
PRE-BUDGET TABLES
1981
INDEX
TABLE 1. Summary of current and capital budgets 1980
TABLE 2. Main heads of current government expenditure
TABLE 3. Certain receipts and expenditure of the Exchequer and of local authorities
TABLE 4. State expenditure in relation to agriculture.
Detailed tables relating to public capital expenditure will be found in the separate publication entitled “Public Capital Programme 1981”.
TABLE 1
SUMMARY OF CURRENT AND CAPITAL BUDGETS 1980
|
1980 |
||
|
Budget Estimate |
Provisional Outturn |
|
|
£m. |
£m. |
|
|
Current Budget |
||
|
1. Expenditure |
||
|
(i) Central Fund Services |
765 |
758 |
|
(ii) Supply Services |
2,752 |
2,944 |
|
3,517 |
3,702 |
|
|
2. Revenue |
||
|
(i) Tax |
2,582 |
2,620 |
|
(ii) Non-Tax |
588 |
535 |
|
3,170 |
3,155 |
|
|
3. Current Budget Deficit |
347 |
547 |
|
Capital Budget |
||
|
4. Expenditure |
||
|
(i) Public Capital Programme |
1,160 |
1,270 |
|
(ii) Other (non-programme) |
29 |
39 |
|
1,189 |
1,309 |
|
|
5. Resources |
||
|
(i) Exchequer |
174 |
182 |
|
(ii) Non-Exchequer |
466 |
457 |
|
640 |
639 |
|
|
6. Exchequer Borrowing Requirement for Capital Purposes |
549 |
670 |
|
7. Total Exchequer Borrowing Requirement (3+6) |
896 |
1,217 |
|
8. Total Exchequer Borrowing Requirement as % of GNP |
||
|
(Estimated) |
10½% |
14½% |
Note: This table incorporates the reclassification of current and capital expenditures introduced in 1981.
TABLE 2
MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE
(£000)
|
1976 |
1977 |
1978 |
1979 |
1980 |
1981 |
|
|
Provisional |
Estimate |
|||||
|
Service of Public Debt |
337,043 |
403,318 |
510,042 |
622,181 |
792,078 |
984,071 |
|
Central Fund Services |
||||||
|
Interest |
217,030 |
278,615 |
361,389 |
449,974 |
582,616 |
748,300 |
|
Sinking Fund, etc. |
61,239 |
55,475 |
56,839 |
64,437 |
77,889 |
87,000 |
|
Supply Services |
||||||
|
Interest |
51,173 |
60,649 |
80,612 |
95,226 |
116,907 |
133,705 |
|
Sinking Fund, etc. |
7,601 |
8,579 |
11,202 |
12,544 |
14,666 |
15,066 |
|
Social Services |
722,983 |
841,813 |
987,333 |
1,209,824 |
1,564,442 |
1,698,220 |
|
Social Welfare |
246,948 |
274,510 |
314,365 |
375,369 |
485,895 |
476,635 |
|
Education |
223,603 |
260,123 |
302,123 |
378,934 |
461,383 |
577,570 |
|
Health |
252,432 |
307,180 |
370,845 |
455,521 |
617,164 |
644,015 |
|
Economic Services |
197,172 |
213,427 |
245,908 |
298,961 |
346,842 |
366,114 |
|
Agriculture |
106,289 |
108,124 |
116,786 |
125,903 |
141,066 |
148,080 |
|
Industry and Energy |
28,831 |
36,142 |
48,954 |
68,080 |
70,744 |
87,853 |
|
Tourism and Transport |
53,311 |
59,576 |
67,027 |
90,063 |
112,349 |
104,426 |
|
Forestry and Fisheries |
8,741 |
9,585 |
13,141 |
14,915 |
22,683 |
25,755 |
|
General Services |
261,478 |
297,145 |
350,420 |
417,171 |
563,219 |
624,539 |
|
Post Office |
81,357 |
89,097 |
105,398 |
122,236 |
181,133 |
202,429 |
|
Defence |
71,792 |
85,218 |
98,913 |
111,622 |
142,052 |
140,455 |
|
Justice, including Gardaí |
59,812 |
66,941 |
81,446 |
105,103 |
140,344 |
162,844 |
|
Public Service Pensions |
48,517 |
55,889 |
64,663 |
78,210 |
99,690 |
118,811 |
|
Other Expenditure |
145,066 |
195,814 |
306,457 |
354,721 |
435,518 |
505,121 |
|
EEC Budget |
14,598 |
24,710 |
44,874 |
69,282 |
93,792 |
120,000 |
|
June 1975 Consumer Subsidies |
41,434 |
53,999 |
66,052 |
44,201 |
43,352 |
42,002 |
|
Dept. of Environment grant in relief of rates |
— |
17,243 |
79,342 |
91,827 |
106,565 |
120,805 |
|
Miscellaneous |
89,034 |
99,862 |
116,189 |
149,411 |
191,809 |
222,314 |
|
TOTAL |
1,663,742 |
1,951,517 |
2,400,160 |
2,902,858 |
3,702,099 |
4,178,065 |
|
Public service remuneration included above (a) |
584,475 |
667,373 |
800,727 |
996,586 |
1,349,326 |
1,535,720 |
|
Current Government Expenditure as % of GNP |
36.9% |
36.5% |
38.4% |
40.3% |
44.5%(b) |
NOTE: The figures in this table have been revised to reflect the reclassification of certain expenditure items as capital in 1981. These are (i) Local Improvements Scheme (Agriculture), (ii) Scéimeanna Feabhsúcháin sa Ghaeltacht (Miscellaneous) and new works and additions (Defence).
(a) Includes all pay in the health area but does not include the pay element in grants to noncommercial State-sponsored bodies, universities and colleges, etc.
(b) Preliminary estimates.
TABLE 3
CERTAIN RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES
|
Exchequer |
Local Authorities (a) |
||||
|
Revenue |
Non-capital issues |
Expenditure from revenue (b) |
State grants received |
Rates collected |
|
|
£000 |
£000 |
£000 |
£000 |
£000 |
|
|
1962-63 |
163,478 |
168,335 |
67,379 |
32,725 |
22,776 |
|
1963-64 |
184,419 |
186,638 |
71,323 |
34,871 |
24,466 |
|
1964-65 |
219,045 |
222,011 |
82,973 |
41,210 |
26,061 |
|
1965-66 |
240,761 |
248,542 |
90,588 |
46,465 |
29,761 |
|
1966-67 |
272,843 |
272,051 |
98,959 |
50,676 |
31,533 |
|
1967-68 |
305,409 |
305,621 |
107,430 |
57,472 |
34,702 |
|
1968-69 |
345,480 |
353,849 |
120,675 |
65,808 |
38,294 |
|
1969-70 |
411,012 |
411,550 |
144,540 |
76,927 |
42,953 |
|
1970-71 |
481,506 |
490,429 |
173,652 |
93,803 |
50,086 |
|
1971-72 |
5$9,402 |
571,602 |
196,359 |
115,473 |
59,753 |
|
1972-73 |
659,070 |
664,541 |
239,542 |
138,133 |
70,068 |
|
1973-74 |
792,913 |
803,339 |
297,661 |
182,610 |
71,335 |
|
April-Dec. |
|||||
|
1974 |
651,407 |
743,712 |
292,086 |
189,875 |
61,327 |
|
1975 |
1,091,226 |
1,349,987 |
480,958 |
332,109 |
84,041 |
|
1976 |
1,470,197 |
1,668,733 |
567,120 |
404,344 |
109,004 |
|
1977 |
1,756,884 |
1,955,058 |
683,798 |
504,299 |
110,899 |
|
1978 |
2,023,352 |
2,416,550 |
831,407 |
669,953 |
81,599 |
|
1979 |
2,383,919 |
2,899,329 |
1,015,946 |
821,283 |
91,000 |
|
1980 |
3,155,265 |
2,944,139 |
1,290,846(c) |
1,064,950(c) |
103,000(c) |
|
1981 |
3,654,000(d) |
4,178,065(d) |
1,426,312(d) |
1,158,729(d) |
122,000(d) |
NOTE:—(a)Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.
(b)The revenue of local authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g. rents, fees, etc.
(c)Approximate.
(d)Estimate.
TABLE 4
STATE EXPENDITURE (a) IN RELATION TO AGRICULTURE FROM 1977
|
1977 |
1978 |
1979 |
1980 |
1981 |
|
|
£000 |
£000 |
£000 |
Provisional |
Estimate |
|
|
£000 |
£000 |
||||
|
1. Aids reducing production and over-head costs and production incentives (b): |
|||||
|
Relief of rates on agricultural land |
40,733 |
38,341 |
39,800 |
43,725 |
42,252 |
|
Lime and fertiliser subsidies |
5,654 |
3,313 |
885 |
86 |
— |
|
Reduction of land annuities |
2,305 |
2,757 |
3,274 |
3,591 |
4,118 |
|
Sheep grants, etc. |
701 |
401 |
147 |
534 |
117 |
|
Small farm incentive bonus |
339 |
147 |
47 |
25 |
10 |
|
TOTAL |
49,732 |
44,959 |
44,153 |
47,961 |
46,497 |
|
2. Schemes operated under EEC regulations and directives: |
|||||
|
Farm modernisation |
25,815 |
28,900 |
33,492 |
57,340 |
34,690 |
|
Farmers' retirement |
2,073 |
1,489 |
855 |
243 |
1,085 |
|
Aids to farmers in less favoured areas |
15,227 |
17,746 |
13,673 |
20,472 |
16,588 |
|
Market intervention (c) |
(-)3,053 |
194 |
6,368 |
10,100 |
3,520 |
|
Socio-economic advice and vocational training of farmers |
149 |
167 |
188 |
4 |
(d) |
|
Aids for orderly marketing of cattle |
34 |
— |
— |
— |
— |
|
Grants for individual projects |
— |
— |
— |
7 |
17 |
|
Aids for horticultural producers' organisations |
19 |
32 |
29 |
14 |
30 |
|
Dairy herds conversion |
76 |
60 |
6 |
(-)65 |
— |
|
TOTAL |
40,340 |
48,588 |
54,611 |
88,115 |
55,930 |
|
3. Education, research, advisory and inspection services: |
|||||
|
Education |
7,827 |
9,391 |
10,625 |
9,997 |
14,816 |
|
Research |
8,112 |
8,929 |
11,031 |
14,271 |
15,303 |
|
Farm advisory services |
4,019 |
6,385(e) |
7,622(e) |
7,104(e) |
9,505(e) |
|
Technical services |
3,011 |
3,306 |
4,077 |
4,656 |
5,764 |
|
Inspection services |
1,699 |
1,517 |
1,838 |
1,837 |
3,071 |
|
Rural organisations |
103 |
140 |
174 |
183 |
136 |
|
Farmer contributions to: |
|||||
|
education, research and advisory services |
— |
— |
(-)10,400 |
(-)4,500 |
— |
|
TOTAL |
24,771 |
29,688 |
24,967 |
33,548 |
48,595 |
|
4. Disease eradication: |
|||||
|
Bovine T.B. |
7,651 |
7,769 |
6,789 |
10,760 |
11,040 |
|
Brucellosis |
4,231 |
6,060 |
7,440 |
13,650 |
14,200 |
|
Hardship Fund |
600 |
1,200 |
1,500 |
— |
600 |
|
Other, e.g. leucosis |
— |
11 |
209 |
565 |
245 |
|
Less: Farmer contribution and EEC receipts |
— |
— |
(-)2,717 |
(-)12,914 |
|
|
TOTAL |
12,482 |
15,040 |
13,221 |
12,061 |
11,534 |
|
5. Long term development aids (b): |
|||||
|
Arterial drainage |
3,392 |
5,262 |
8,399 |
8,680 |
8,736 |
|
Land project, farm buildings and water supplies |
3,663 |
1,640 |
2,353 |
1,401 |
5,400 |
|
Improvement of cattle, pigs, horses, sheep and poultry |
1,356 |
1,978 |
1,225 |
1,577 |
1,393 |
|
Rural electrification |
2,049 |
2,205 |
2,364 |
2,446 |
2,450 |
|
Restructuring and improvement of holdings by land Commission |
3,168 |
3,521 |
3,601 |
4,289 |
4,914 |
|
Other rural improvement schemes and grants |
1,618 |
1,586 |
2,784 |
2,111 |
2,157 |
|
TOTAL |
15,246 |
16,192 |
20,726 |
20,504 |
25,050 |
|
6. Marketing aids: |
|||||
|
Dairy produce |
25 |
— |
— |
— |
— |
|
Meat |
530 |
608 |
642 |
320 |
371 |
|
Potatoes and cereals |
2 |
— |
— |
— |
— |
|
Export co-ordinating group |
— |
— |
— |
75 |
75 |
|
TOTAL |
557 |
608 |
642 |
395 |
446 |
|
8. General administration and overhead costs |
12,945 |
14,987 |
18,971 |
24,940 |
28,372 |
|
GRAND TOTAL |
156,064 |
170,062 |
177,291 |
227,524 |
216,424 |
NOTES—(a) The figures include both capital and non-capital expenditure and are net of appropriations-in-aid which include recoupments from EEC for schemes in section 2 above.
(b) Further aids of these kinds are given under EEC schemes—see section 2.
(c) Expenditure and receipts for market intervention are as follows:—
|
1977 |
1978 |
1979 |
1980 |
1981 |
|
|
£m |
£m |
£m |
Provisional |
Estimate |
|
|
£m |
£m |
||||
|
Expenditure |
18.3 |
28.6 |
30.1 |
36.7 |
32.7 |
|
Receipts from EEC |
21.3 |
28.4 |
23.7 |
27.6 |
29.1 |
(d)Provision transferred to ACOT in 1981.
(e)Includes part of the grant in relief of rates borne on the Environment Vote.
footnote: Agriculture also benefits from EEC aid under the Common Agricultural Policy (the figures include intervention receipts at (c) above):—
|
1977 |
1978 |
1979 |
1980 |
1981 |
|
|
£m |
£m |
£m |
Provisional |
Estimate |
|
|
£m |
£m |
||||
|
FEOGA GUARANTEE SECTION |
245.1 |
366 |
397.9 |
377.4 |
350 |
|
FEOGA GUIDANCE SECTION |
|||||
|
—receipts under individual project scheme |
2.2 |
2.6 |
2.4 |
6.4 |
5.0 |
|
—Receipts for structural schemes |
5.1 |
6.7 |
14.1 |
19.3 |
34.5 |
This budget aggravates our ecomomic situation and represents the continuance of the policy of drift and expediency on the part of the present Government. On the two basic issues facing this country this budget will do nothing but harm. This budget is bad for employment and will increase the cost of living. It administers a crippling blow to industry. All incorporated business will, as a result of this budget, have to pay one and a half year's tax in one year and at current interest rates and given the fact that many of them are deep in debt at the moment this burden imposed upon them this year by the Minister for Finance will drive many of them over the brink into bankruptcy and will create many redundancies and aggravate our already acute unemployment problem.
This budget does nothing for agriculture. All that we can see here are a few inconsequential crumbs offered to the farming community which bear no relation whatsoever to the magnitude of the problems being faced by our primary industry at this time.
There is nothing in the budget for the PAYE taxpayer. In fact as a result of the budget and as a result of the normal trend in incomes over the past 12 months the real burden of income tax after this budget will be greater than it was 12 months ago and this is an incontrovertible fact which I shall demonstrate. The position is that for a married man the thresholds and bands cumulatively will have been increased between 4 and 9 per cent as a result of this budget in a year in which inflation has increased by 18 per cent. So, in fact, we have not had indexation of the tax free allowance and the increases in the allowances which have taken place will not prevent a larger slice of the real income, the real take-home pay of the man or woman in PAYE employment, being taken as a result of the policy of drift in taxation which is occurring here.
As I have said, the concessions for the farming community are mere crumbs. It has been calculated that to bring farmers back to the income position that they enjoyed relative to the rest of the community in 1978, a transfer of resources to agriculture of approximately £645 million would be needed. What does this budget do? It offers them £29 million, a mere 5 per cent of what is needed.
There has been no increase in this budget for the PAYE taxpayer in his basic personal allowance. Only one of the tax bands, the 35p band, has been raised. So there has not been indexation of tax for the PAYE sector of this community this year. This budget will also increase the cost of living. I estimate that it will increase it directly by a mimimum of 2 per cent and that the consequential increases in the cost of living by the normal operation of the knock-on effect that occurs when an initial price is increased will bring the total increase in the cost of living resulting from this budget up to, at a conservative estimate, 3 per cent, We now have a situation where this Government since they came to office have increased in tax the price of the pint by 15p; we have a situation that since they came into office the Government have increased the price of a gallon of petrol by almost 30p. All of this has happened with no improvement in our finances. In fact, despite all of these burdens being imposed on the community our financial situation is getting worse. This State was founded 60 years ago on a policy of self-reliance, a policy of Sinn Féin. But now, as a result of the utter and irresponsible policy of the present Government, continued and aggravated in this budget, our economic future depends not on ourselves but on the good will of the international banking community. In economic terms we are less independent now as a country than at any time since this State was founded.
This Government started in 1977 with a strategy contained in their election manifesto. That strategy, in every measure that it set itself, has been a complete and abject failure. Government policy is not about figures, it is about giving leadership, about helping people to understand what can be done and what cannot be done and helping them to achieve what can be done. Economists have no magic solutions. What is needed is a government with courage and conviction and this Government have neither.
Some might argue that the most important fact about this budget is that it is not to be trusted because of the proven unreliability of the figures underlying the budgets of 1979 and 1980. I do not share that view. To my mind a most important fact about this budget is that it retains the economic strategy which has quite simply failed. This strategy, first announced by the Government in 1976 and amplified in the 1977 manifesto and pursued right up to the present, has achieved none of the targets it set itself. Both the men and the measures have proved failures and both should be changed. Let me illustrate. According to the Government's declared economic strategy in 1977 unemployment should now be down to 32,000; it is 122,000 and rising. According to their declared plan in 1977 the rate of price increase in 1980 should have been 5 per cent; it is 18 per cent. According to their plan the gross national product in 1980 should have risen by 7 per cent; it did not rise at all. According to their strategy a campaign would be initiated which, over three years would transfer 3p in every £ spent in Ireland from imported goods to Irish produced goods. We are now at the end of three years and instead of transferring 3p in the £ from imported goods to Irish produced goods we have had a move in the opposite direction. Now 2p more in every £ is spent on imported goods than was spent when this Government initiated their programme. On practically every index they have abjectly failed to meet their own self-declared targets.
It is not only as against their own targets that they have failed. In absolute terms the situation is much worse than it was in 1977. The level of unemployment fell in 1977 and in 1980 it rose by 34,000, the highest ever recorded rise in unemployment in one year, since figures were kept. In 1977 our economy was growing at a rate of 5 per cent a year, not adequate but very significant. In 1980 our economy did not grow at all. Agricultural output in 1977 rose by one-third; in 1980 it fell. In terms of real money the average worker is now paying £120 more a year in income tax, and the situation will disimprove when this budget comes into effect, than he paid in 1977. Yet after all of this we owe more than we did in 1977. In 1977 our net debt to foreign banks was £170 million but it is now almost ten times that amount—it is £1,600 million. This is the result not merely of incompetence and the failure of men but of the failure of the policy of the Government. The Government's economic strategy in 1977 has collapsed and they do not know what to do. They are lurching from one expedient to the next hoping that something will turn up. It has not yet and this budget has not improved the prospects of finding a solution. The experiment with Fianna Fáil's economic theories has cost us dearly. About 80 per cent of all the Government collected in income tax last year will now simply go to servicing the debts of the Government. Our external reserves, the foundation upon which our currency, our creditworthiness and our economic stability rests, have been depleted to half their effective level of 1977. This Government have mortgaged our future.
It is time for us to ask ourselves some awkward questions about economic strategy. After almost ten years of Government budget deficits incurred deliberately so as to create employment we now have almost twice as many people unemployed as we had in 1970 when this policy of budget deficits was initiated by the present Tánaiste. The lesson we have failed to learn is that deficit budgets, spending more than we earn, may make sense in a closed economy with spare capacity but in an open economy which imports so much, such a policy does not work. It creates jobs but the jobs are not in Ireland. The latest example of the error of this strategy is to be found in the so-called investment plan announced a short time ago by the Minister for Finance. Under it, Aer Lingus, who are laying off staff, are to get £19 million. This is to be spent on buying a jet. The purchase of that jet will create jobs but the Minister forgot to tell us that they will not be in Collinstown, County Dublin, but that they will be in Seattle, Washington. That is the type of job creation that we have as a result of much of the material contained in the investment plan. Government investment and Government spending involve taking money from one person and giving it to another. The Government now spend 61p of every £ produced here and of that 61p 39p is being taken from the taxpayer of today and 22p is being postponed to be taken from tomorrow's taxpayer. There is no doubt that we are not getting value for the 61p that the Government are spending out of every £. That is why Fine Gael have put forward and will amplify detailed plans to reorganise the entire method whereby public money is disbursed, and will introduce a new long-term system of budgeting to give much greater public control over the way in which expenditure is sanctioned in this State.
The most important aspect of this budget is not that it is based on unreliable figures but the fact that it represents an economic strategy which has abysmally failed. I cannot but refer to the manifest unreliability of this budget and of the documents upon which it rests. One of the first requirements of any budget is that it should be honest. I am afraid that this budget does not live up to that requirement. In the past this Government have got their figures so wrong that one could only have scepticism about the figures in this budget. In 1979 they spent £130 million more than they promised to spend having made a solemn declaration that they would maintain the level of expenditure at no more than what was budgeted for. In 1980 they were worse, they spent £300 million more than they had solemnly declared in their budget would be spent.
If the Government without consulting the Dáil or anyone else can simply abandon spending targets set out in the budget this exercise that we are going through is virtually useless. It deprives and has deprives the words uttered by Ministers for Finance on budget day of their meaning. I will give a few examples of the incredible utterances of Ministers on budget day. In 1978 the Minister for Finance said that his target for pay in 1978 was 8 per cent and he underlined this by saying that the Government's commitment to this was unequivocal and that they should take the necessary measures to ensure that excessive increases, if any, were recovered from those who achieved them. As everybody knows, in 1978 pay went up not by 8 per cent but by 16 per cent and the Minister did not do anything. In fact when 1979 came around the Minister tried to take credit for what happened when he said that this was amongst the largest rises in living standards ever recorded in this country, and he forgot about what he had said the previous year. In 1980 the same thing happened all over again. The Minister set aside £100 million for further pay increases in the 1980 budget and he said that if this had to be increased he was determined that it should not be paid by borrowing. Of course, it was increased to £182 million and it was paid by borrowing. This year's figures are equally bizarre and unreliable. The Department of the Taoiseach, the Department of Foreign Affairs, the Department of Transport, the Department of Defence, the Department of Social Welfare and the Stationery Office are very important departments, and, according to official estimates, they will spend £750,000 less on telephone calls and letters than they did in 1980. Did they consult the Minister for Finance about the increase in postal charges before they put their Estimates in? If the Government believe there will be this saving of £750,000 on sending out those letters in this year above any other year they will believe anything.
Various Departments, according to official estimates, will actually cut their travelling expenses. Did they consider the increase in the price of petrol that was to be introduced? They are to save £1.2 million in travelling expenses according to the figures upon which the speech of the Minister for Finance today was based. The gardaí will obviously stay in the stations because they are supposed to save £500,000 in travelling expenses this year according to the figures on which the budget is based. It gets better the deeper one goes into it. The Army and the Navy are to save us £9 million by running down their stores. When it comes to December, if a man has torn his uniform he will be told he has to sew it himself because there is no replacement. The Government will run down the stores of the Army and the Navy but those stores will have to be built up next year so there will not be any actual saving. We see how incredible the type of figures are that the Government have based this budget on.
A number of Departments are to reduce their expenditure on fees to international organisations. I have not heard of any international organisation which have reduced their fees. If any member of the Government has heard of this I would be delighted if we could be told which one it is. According to official figures put before us by the Minister for Finance a number of Departments will actually reduce the fees paid to international organisations. The Government should have told us if they plan to resign from any international organisations during 1981. I do not believe they do and I believe that the figure for reductions in expenditure under that heading is bogus.
We will, according to the Book of Estimates, cut back on school transport. The Minister for Education has left the House but, according to the Estimates presented by his Department, there will be a saving of £500,000 on school transport. We all know that the cost of running a bus this year will be more than it was last year. The Government can only save this money by putting the children off the buses or providing additional money later in the year. I believe they will do the latter and the cut of £500,000 is a bogus cut inserted in the estimates for the purpose of deceiving the public about the balance of the budget. If they intend charging for school bus services or putting the children off the buses I hope they are honest enough to tell us that straight away. It is clear from the few examples I have given of the type of figures the Government are asking the House to accept that they are not honest. There are examples in the budget of reckless misestimation of expenditure. This must stop if there is to be any attempt at honest budgeting.
The Government seem to have very little regard for truth in the economic figures they present to the House. One example of this I can give is very serious because it possibly involves deceit by the Government in relation to the social partners. The national understanding was published last October. According to the Government in the solemn understanding they entered into with the social partners the national understanding tells us that the number of jobs in manufacturing industry up to the end of 1980 would increase by 25,000. Now, scarcely three months later, we have this budget. In paragraph 19 of the national understanding we are told that it is estimated that on average during 1980 there was very little change on the 1979 level of employment, an increase in service employment being offset by a decline in agricultural employment and a decline in industrial employment. I do not know if the trade unions were taken in by what the Government put in the national understanding but there seems to be a great contrast between the economic background to the budget and the national understanding. This seems to indicate that the Government were trying to deceive the social partners in the national understanding or they simply did not know what was going on in the country.
The Taoiseach was very badly misinformed about the economic situation when he delivered his speech on 17 August last year at 12.45 p.m. at a Fianna Fáil meeting held in the West County Hotel, Ennis. They came in early to meet him but they did not get a lot for their trouble. The Taoiseach told the people at that meeting that the financial strategy of the 1980 budget had been successful, the financial target set had been generally adhered to, the balance of payments situation had stabilised and our external reserves position was maintained and even improved. Everybody knew then and everybody knows now that the financial strategy of the budget was not successful. The financial targets had not been adhered to, as far as expenditure and borrowing were concerned; they were grossly exceeded and the balance of payments situation got much worse during last year. The Taoiseach in that speech in Ennis was able to give this deceptive balm to the supporters who had come to hear him.
(Interruptions)
Will Deputies please permit Deputy Bruton to continue without interruption.
I am very disappointed with certain aspects of the budget. Before I refer to them I would like to say on my own behalf and on behalf of my party that the provisions in the budget in regard to the increases to social welfare recipients are very welcome. They are very necessary. I realise they cost a considerable amount of money and nobody should attempt to minimise the cost of them. The Government are to be commended for the increases they have introduced for this very deserving sector of our community. There are many misunderstandings inside and outside this House about the position of people in receipt of social welfare. I know — and I am sure members of the Government know — that their situation is far from good. The increases introduced on this occasion are all the more welcome for that reason.
Having said that, I must express my disappointment that the Government have done nothing significant about the position of large families. I am sure the Taoiseach and the Minister for Finance are aware of the recommendations made in Reports Nos. 37 and 47 of the National Economic and Social Council on the position of large families. In those documents it has been made quite clear that in recent years the position of large families has worsened gravely. While the position of a married couple may have improved, and the position of a married couple with two children may have been maintained at more or less the same level vis-á-vis previous years, the position of a married couple with a family of six children or more has worsened gravely as a result of the fiscal changes made in recent budgets.
The Government accepted in the national understanding that something should be done about this. In paragraph 30 they undertook to examine very carefully the question of family income support, and accepted that the relevant NESC reports to which I have referred provided a basis upon which this might be done. Therefore, I am very disappointed that they have done nothing about most of the recommendations made in the reports. I will itemise the recommendations and the costs, and we will see that something should have been done about them. There was a recommendation for £1 per week extra for children over 12 years of age which would have cost £3 million. It takes account of the fact that children in the age group between 12 and 16 years are at the most expensive period so far as the outgoings of the parents are concerned. In view of the relatively modest cost and the relatively significant benefit of that concession, the Government should have done something along those lines.
The NESC report also recommended an additional clothing grant for poor families in the month of September to allow children to be clothed going back to school. It was estimated that that would cost about £1.35 million. The Government did not see their way in this budget to do anything about that, and I must express my disappointment.
Furthermore — and perhaps this is the one I am most disappointed about — the Government were asked by the NESC to give an extra £1 per month per child to families where the number of children exceeds six. It is well accepted that the incidence of families of that size is largest amongst the poorest sections of the community. While one might criticise the children's allowances provisions in general on the grounds that they are indiscriminate, any additional benefit given to large families, given to families with over six children, would undoubtedly go in large measure to the poorer sections of the community and would exclude most of the families who do not really need it from getting whatever extra help was being given.
Is the Deputy taking into account the increased children's allowances?
I am saying that an additional increase was recommended by the NESC over whatever level was being given at the time. I am quoting from Report No. 47. The Government could have done something extra for the large families. Perhaps it is not too late to do something about them between now and the announcement of the final arrangements by the Minister for Social Welfare. If my words have any impact in that direction I will be only too pleased. Indeed, I am glad the Taoiseach is paying such attention to what I am saying in this regard. In view of the report presented to the Minister for Social Welfare by the Society of St. Vincent de Paul I am sorry that more has not been done for people who are living alone, old people without the basic amenities of water and proper sanitary facilities in their houses. Something extra should have been done in this budget to help those people.
I am particularly disappointed at the increase in postal charges. These increases are above the rate of inflation and above the rise in pay costs in the Post Office. Obviously some inefficiency is disclosed by the fact that they were necessary. I should also like — and this is a very important point — to draw particular attention to the claim made by the Government that they would reduce the borrowing requirement for this year. I believe that is not true, because they are deducting from the borrowing requirement the £200 million which is to come from the private sector.
Given the type of investment and the way in which it is being financed under this heading, the money which will come from the private sector, that £200 million, if it ever comes, will cost the Government more than if they had borrowed the money elsewhere when all the costs to the Government are analysed finally and worked out. All this £200 million from the private sector represents is borrowing under another name. Far from reducing the borrowing requirement if one were to include this £200 million as borrowing, as I believe it is, there would be no reduction in our borrowing requirement but, in fact, a marginal increase this year on the figures presented by the Government which I have already indicated are highly dubious.
As I said at the outset — and I can do no better in conclusion than to repeat what I said — in this budget the Government have increased the cost of living and done nothing about employment. In every respect, when the balance is taken into account they will aggravate our already alarming unemployment situation.
We must look at this budget against the background of the economy, things which are happening in the economy, things which have failed to happen in the past year, and the way the economy is likely to fare during the coming year as a result of decisions taken in recent weeks. What the Minister had to say here today is an illustration of the fact that the Government wish to escape from the toils of the manifesto programme. They are prisoners of the economic recipes in the manifesto, and they have been unable to escape from the ridiculous policies in the manifesto and the borrowings resulting from it. That programme was the gloomiest recipe ever foisted on our electorate.
Features of the serious situation with which we are faced are a depressed agricultural industry and a stagnating industry which make the recession more serious than the recession facing the country in 1974-76. If we take the critical state of agriculture in conjunction with falling output in industry, the present recession is likely to last much longer than did that of 1974-76. What we heard here today would suggest that no remedy has been adopted to shorten the length of the recession and to hasten the day when our industry will begin to recover.
This budget repeats the errors of last year's budget by relying once more on increased indirect taxation. This brings into action the clause on inflation in the national understanding which will see a very high rate struck by the unions in bargaining on the second phase. No Government Minister, and certainly not the Minister for Finance, can gainsay the fact that unemployment in 1981 will be an even more formidable problem to deal with than it was in 1980.
The ESRI predict that before the end of this year there will be about 135,000 on the live register. We understand that almost one quarter of those on the live register at the moment are under the age of 25. This gives us a real figure of the order of 50,000 unemployed who are under the age of 25. I am sure everybody here will agree that unemployment is the major social evil in our society. Any of us who appreciates that inflation is worsened as a result of increased reliance on indirect taxation cannot be in any way confident that this serious social evil is being tackled either in the first part or in the latter part of this year. The level of redundancies in 1981 will cancel any gains made by the IDA in the area of grant-aided industrial job increases.
There is, too, the critical position of public finances. The Minister has suggested a new borrowing target for the current year and he compared the target adopted this year in this respect with the actual outturn in borrowing last year. The comparison suggested that there was an improvement, a pruning down and a more prudent pose adopted in the area of borrowing this year. However, the Minister forgot to mention what was mentioned by his predecessor as his borrowing target and which was exceeded. Consequently, there is a new law which we might refer to as Fitzgerald's law and which tells us to compare what happened last year with the projection for this year instead of comparing this year's projection with the projection for last year. The Government are forced to live in this topsy-turvy world because of their having inherited the looney economic recipe of the manifesto.
From 1977 on we have been pointing out the madness of adopting those policies. The excess borrowings of 1978-79 were undertaken at a time when they were not absolutely necessary. That so-called pump priming referred to in the manifesto was not necessary. The result of the excesses and the mistakes of those years has left us in the position of having no manoeuvrability to deal with the worsening employment situation and this is at a time when we are facing perhaps a lengthier recession than that which we experienced in the years 1974 to 1976. Therefore, though our capital programme was increased last week, a case could be made for an even sharper increase in the capital programme. But the exigencies of the situation will force the unions to seek higher wage increases than would have been the case otherwise.
I would remind the House that last year's budget had the effect of increasing the inflation rate in the quarter to mid-May by 7.4 per cent. About 50 per cent of this increase in consumer prices was attributable directly to the action taken by the Minister in the budget for last year. The indirect tax increases announced today will add about 3½ per cent to the consumer price index, that is including the Post Office charges, increases and the increased excise duties. I am confident that when the consumer price index figures for the period up to mid-February are made available, they will show an increase of 10 per cent or more for the previous nine months. This increase will have been triggered by the indirect taxation imposed in this budget and the unions will have to react by seeking compensation in the second phase of the national understanding. So far consumer prices for the period in question have increased by 6.1 per cent. If I am correct in my estimation, it is clear that the increases in some of the items mentioned today will be the cause of forcing the unions to seek corresponding compensation by way of higher wages and that will be a fillip to inflation in the early months of this year, a situation which must have an impact on the prospects for employment creation in the second part of the year when, according to many experts, there will be a revival in international export markets.
The borrowing programme of the Government has resulted in a serious balance of payments situation. We can surmise that these increases which will add to the cost of living will mean that the Government must bank on any increase in employment being based on this revival in the export market rather than on any expansion in home demand. We cannot try that policy road. It has been tried in years when it was not absolutely necessary but it is being denied to us now in times when a case might be made for it.
I would be surprised if the Minister, in the light of his experience in the Department of Labour, would have penned that part of his speech in which he said that the trend of incomes will be crucial in determining to what extent we can share and exploit the expected international economic upsurge. In other words, there is a recognition of what I am talking about. The Minister admits that measures to increase the level of revenue will have an effect on the CPI and he says that the question of whether pay increases should compensate for increases in taxation on non-essential items has been raised frequently in recent years.
The Minister knows that the adoption of this elderly statesman pose to these questions is no substitute for a recognition of the reality which he knows is inherent in the increases being imposed in the budget. The reality is a fat claim from the unions in the second phase of the national understanding. There is no point in hoping that this will not happen.
I agree that the Government have very few options in dealing with the situation. They are forced, at least in theory, to suggest that borrowings must be wound down because while there are some who suggest that anxiety about indebtedness is a matter which may be simply the concern of only a few people, the reality is that for the past year we have been approaching the point where the servicing of our debts is almost equal to the entire take from income tax. One would not need to know much about the situation to realise that is a road down which we cannot continue to travel indefinitely.
It is clear that such has been the borrowing mistakes of the past few years that the weight of that borowing is now a burden and an impediment to taking the right measures at home. In the two recessions we have faced — that of 1974 to 1976 and the present one, which will be longer — the effort of the Government lay in preparing the economy for the upturn internationally. Their decisions were such that they were geared to ensure that when foreign markets were in a position to take our goods once again they would be as good as possible to avail of the openings on those markets. Mistakes were made during that time and our opponents were not averse to pointing out our errors. Nevertheless the borrowing requirements of 1977, the national understandings and wage agreements signed and looked for by the Government in the latter period of the 1973-1977 Government, were such that we had secured free agreement from the unions on moderate pay agreements. Therefore we were in a position to avail of the opportunities accorded by the expansion on the foreign markets.
I do not deny the fact that we were helped in those years and that the life of the recession was shortened because agriculture was in a buoyant state. That is something which is absent now and is obviously retarding economic recovery. I take the point, as one not known as a great friend of the farmers as we are categorised in politics, that Irish agriculture is in a paralysed condition. Some effort was made to assist agriculture today but, if I am to believe what a farmer's spokesman said in recent days, their situation is far more serious than the help offered to them in the budget would suggest. There was a catastrophic drop of 24 per cent in their income last year. There is no likelihood of an improvement in the common agriculture policy. Anyone in the European Parliament or Commission knows that there are no increases or bonuses coming to Irish farmers from Europe.
The state of agriculture in 1974-1976 had a lot to do with our recovery. Any fair-minded person looking at that period would accept that the Government attempted to hold the line and preach economic reality. From the first day of the present Government's arrival back in power the promises in the manifesto, which elected them all and which still limits their actions, had to be financed from borrowing, which was unnecessary in the years of economic upturn. The manifesto programme was responsible for the kind of expectations that arose in 1978 and 1979. When they were satisfied we were robbed of the possibility to cope efficiently now in these dark days of reality with bringing the economy back on its feet and expanding employment once more.
The budget cannot be supported on the basis that it does not enhance the increased possibility of employment later this year when the foreign markets return to take our produce once more. As a small open economy we have expensively realised in the last few years that the exercise of pouring cash out on to it means that the imports bill rises and jobs do not increase in number as a result of that kind of misunderstanding in the late——
But they did, that is the important thing.
It did in certain sectors of the economy which we are paying for now and the Minister knows that as well as I do.
Perhaps the Labour Party think it should not have happened.
I am talking about jobs in industry — the only kind of jobs that will last year in year out into the future. I do not blame the Tánaiste for having a bad conscience for his part in the present mess—.
I am very proud of my part.
His hands are not clean. He was one of the chief members of the chorus, the gang of four, who introduced the manifesto in the first place. They still live with the illusion that the manifesto did something for the economy. I described it as the looniest economic document ever foisted on the Irish electorate. It won an election, but at great cost.
Talking about increases as a result of indirect taxation, the Minister for Finance said that the extra fuel charges would not be passed to CIE, but CIE are already cut £5 million in their Exchequer subvention and are busily preparing for an increase in their fares system. Without any action taken here today CIE will be looking for increased fares. Electricity charges are on the way up. The ESB have applied to the National Prices Commission for an increase under the fuel variation clause. We cannot blame the ESB for that. The increase in the price of oil is not something we can lay at the door of the Government, but the increased duty and the increased price of petrol today will have folow-on effects in the economy. We do not have any information about the size of the ESB increase. Last August the price rose by 19.5 per cent. The increases in ESB charges are on the way.
Looking at the budget we cannot be hopeful that the rate of inflation will drop to 15 per cent, as is expected this year. We had an inflation rate figure of 18 per cent last year. If the budget has the effect of forcing the unions to look for compensatory wage increases under the 10 per cent increase in the consumer price index to mid-February clause, the figure of 15 per cent may be on the conservative side. The Minister has brought in, as he undertook to do in accordance with the national understanding, an increase in the tax free allowance of £200, from £400 to £600. He has altered the bands for single people. It would be a mistake to conclude that because the demonstration in Dublin last Sunday was not of the same proportion as demonstrations were when the Tánaiste was egging them on, making speeches on the morning and so on——
The Deputy knows that statement is not true. He has said this before, but it is not true. He should arrange to hold it on a Monday next time.
The demand for tax reform goes very deep and it is to be doubted if the changes made here in the tax code will in any way dampen down the strong feelings there are throughout the work force for fundamental changes in the tax system. From the figures given in the estimates for receipts and expenditure the Government will take almost £200 million extra in tax this year. Even with the allowances given under the tax changes in the budget they will be the net gainers from the PAYE sector.
It would be a mistake to conclude that because there was not the same number of demonstrators on the streets in Dublin last Sunday that people are satisfied with the existing tax system. Part of the legacy of the manifesto philosophy is that nobody is satisfied in the country today. The Government are like a group of people beleaguered by demands, many of which they brought into being. It is not so long ago since the former Minister for Economic Planning and Development was going around the country telling us that the miracle of European economies was our own. In that type of situation he was largely responsible for bringing a great air of unreality into the expectations of many of the electorate.
The national debt at the end of 1980 amounted to £7.5 billion, or almost £12,000 per PAYE taxpayer. A very disturbing feature is that the total of our foreign debt has increased sharply under Fianna Fáil. Foreign debt at the end of 1980 was almost £3 billion, or almost £5,000 per PAYE taxpayer. By the end of this year, as a result of the proposals in the budget, every PAYE taxpayer will owe in excess of £6,000 in foreign currencies. Unemployment is at the highest figure ever in the history of the State. During 1980 it rose by 34,000, the greatest rise in a single year. We cannot say positively that the budget brings the day any nearer when unemployment will be reduced.
The budget will probably be the last chapter in the manifesto saga. I do not imagine this administration will be introducing another budget. The budget may fail when it comes to the question of preparing the ground for expanding employment, and it may fail when it comes to the test of bringing some responsibility back into public finances. As a budget it is framed to present the best picture possible for a Government anxious to test the will of the electorate. The Government should accept that it would be best from the point of view of the country to exorcise the ghost of the manifesto. They should say that this is the end of the manifesto policies and test the popular will. In the last few days a leading industrialist in his annual report said he expected realism to be reintroduced after the coming election. Let us have realism and responsibility. That realism should be directed to expanding the possibilities of employment. That should be the major economic objective of any Government. The criteria by which Seán Lemass judged the effectiveness of any Irish Government was the number of jobs created in the economy. That criteria will stand the test of time, no gimmicks or dressing of facts to suggest otherwise. A test of the effectiveness of Irish Governments on the ground is the number of people put into gainful employment——
80,000 more in three years.
——not in artificial employment but in employment in industries involved in exports, the only sustainable jobs in the Irish economy. Others have an artificial life as was pointed out recently by economists. We cannot get that realism from a Government trapped in the promises of their manifesto. We cannot expect it in any further budget from the Government. I hope the Government will be encouraged to go to the country soon. I also hope that the Government formed after the election will accept the responsibility of bringing control into our public finances and direct our economy once more into the creation of new jobs. Our young people are described as our great challenge but it often strikes me that "challenge" is the word used by perplexed politicians to describe something for which they do not have an answer.
Debate adjourned.