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, July, 1981.
My main objective in framing this Budget has been to ensure that Ireland remains an independent economy. The piling up of foreign debt to finance daily expenses is the negation of the principle of self-reliance, the principle of Sinn Féin, on which this State was founded.
We must trade and exchange with the countries around us, but on a basis of equality and strength. Current budget deficits, which harm the balance of payments and weaken the currency, deprive us of this strength.
It is only from economic strength that Ireland can provide and protect jobs. It is firm and predictable management of the national finances that provides the essential anchor for the moderate incomes policy which we must have to reduce inflation. Reduced inflation is the sure basis for increased agricultural and industrial production.
Timely action by ourselves now on Irish public finances will avoid enforced deflation later on. We must act if we are to protect essential public and social services, and guarantee real income increases to the needy. No one has a greater interest in the continued solvency of the State than those who depend on it.
These are the declared immediate policy aims in the Joint Programme of the Government, and as I have shown they are mutually interdependent. They are the basis upon which this budget has been built. It is the considered view of the Government that this budget is necessary unless the whole basis for social progress is to be endangered.
The measures I announce today are, therefore, the first stage in the Government's campaign to reconstruct the nation's finances on a secure and durable basis. They mark a positive and determined effort to return to the principle of living within our means, a principle referred to on television by both the present and the previous Taoiseach. This means paying for day-to-day services now instead of charging them up to the taxpayers of tomorrow. This generation does not have an unlimited right to pass on burdens to its successors. Our plan involves much closer examination of public capital expenditure to ensure that money borrowed for investment is spent effectively enough to ensure that an income is generated, directly or indirectly, to repay the borrowing.
The process of financial reconstruction must be gradual so as to avoid dislocation of the economy. The Government's stated aim is to end borrowing for day-to-day purposes over a period of four years. This aim is difficult but not impossible.
BUDGET POSITION
I wish now to comment on the 1981 budgetary situation, past, present and to come. I shall be brief, because the financial and economic situation has been described already at length in the paper "Economic Review and Outlook, Summer 1981" which was released by my Department last week.
In the January budget the overall Exchequer borrowing requirement was set at £1,296 million or 13 per cent of GNP, of which £515 million, or 5¼ per cent of GNP, was intended to finance the current budget deficit.
At the end of June, borrowing for current purposes was £457 million, or almost 90 per cent of the target for the whole year. This has happened because of increases in current spending. Some of these arise from decisions of the previous Government, for example, to have additional agricultural and consumer subsidies, but the majority of them happened because the money allocated was plainly insufficient, without changes in policy, to finance the programme it was supposed to implement. If present trends were to continue unchecked, current spending for the year would be £500 million more than the budget estimate.
Apart from an expected shortfall in Post Office receipts, revenue is generally on target. In fact there is likely to be a modest increase because of the extra tax revenue generated by the higher public expenditure. But that increase falls far short of what would be needed to counteract the excess on the expenditure side. In the absence of corrective action, the current budget deficit would be nearly £950 million, equivalent to 9½ per cent of GNP at the end of this year. This is far above the previous highest level of 7¼ per cent of GNP in 1979, which was artificially increased by the Post Office dispute of that year. Such a deficit would be exceptionally high by EEC standards and far beyond the next highest deficit expected among our EEC partners, the majority of whom are either close to balance or even in surplus.
Excesses also emerging on capital expenditure could, if present trends continued, bring the overall Exchequer borrowing requirement to £1,973 million, or 20 per cent of GNP.
The cost of servicing existing debt is now absorbing nearly all of the revenue buoyancy. The burden of inherited debt interest is depriving us of the ability to finance desirable expenditures without increasing the rates of taxation.
We are committing a fraud on the young people of this country by piling up debts to be repaid by the workers of the future.
It is in the interests of young people, more so even than of the older generation, that action be taken now to put the national finances on a sound footing.
We have had a budget deficit in every year since 1972 and the public debt has grown enormously. If all of this debt were raised at home, this process could in theory continue so long as inflation devalued the currency, because the Government would, in effect, be repaying less than they had borrowed. But it cannot continue indefinitely if money is being borrowed abroad, to be repaid in full in other currencies.
This is what is now happening in Ireland. Since 1974 we have been borrowing abroad on a large scale. For instance, in 1980 47 per cent of all Irish Government borrowing was raised outside the country as against 16 per cent in 1977. Our borrowing needs have become so large that the Government could not finance them all at home without using up the money available for private borrowers.
Big budget deficits are dangerous for many reasons:
— They introduce an air of unreality into politics by making it seem that spending does not have to be paid for and that demands can be made without reference to taxation.
— They pump new money into the economy and thus encourage imports without generating a similar growth of domestic production; instead of encouraging imports in this way, our economic development requires us to export more.
— If deficits are financed at home, they push up interest rates and reduce investment, especially in areas such as housing which rely heavily on borrowed money. If they are financed abroad they carry major financial risks, which I will refer to shortly.
BALANCE OF PAYMENTS.
The scale of over-spending in recent years has encouraged the economy to develop on an artificial and ultimately unsustainable basis. Much of the resultant demand went on increased imports, with adverse consequences for our balance of payments.
The balance of payments deficit this year could, unless we act to correct it, be about £1,500 million, approaching 15 per cent of GNP. This would be above the combined deficits of 1979 and 1980, which were themselves high. It would be of very serious proportions by any standards, Irish or international. Within the EEC, the next highest deficit forecast for this year, as a proportion of GNP, is about half the figure that could emerge here.
Why has the deficit grown to this extent? I have referred to Government over-spending. External factors have also played a part. The oil price increases of 1979-80, aggravated by downward movements in the exchange rates of the EMS currencies, including the IR£ against sterling and the US dollar have increased our oil import bill to about £900 million this year, as against £527 million in 1978. This has happened despite an expected fall in the actual volume of oil imports this year.
The international recession has also reduced the rate of growth of our export markets, especially in our largest single export market, the UK. Although other countries have also been hit by higher oil prices and the recession, their balance of payments deficits have not risen to anything approaching our level. We must therefore face the fact that our problem is to a great extent due to developments at home which we ourselves must rectify. If we do not stop the deterioration in the balance of payments now it will become so large that we will not be able to finance it solely through the normal international markets.
A balance of payments deficit can normally be financed by Exchequer foreign borrowing, or by private capital inflows. If we attempted to rely solely on private capital inflows to finance deficits of the present size, interest rates would have to rise sharply, with a consequent severe deflationary effect on economic activity and investment. Our growing balance of payments deficits have, in fact, therefore, been financed largely by Government borrowing abroad.
There are limits, however, to the extent that international banks are prepared to lend, even to Governments. These limits can be reached suddenly and with little warning. If for some reason the availability of money on world markets were to contract, or if large extra funds were required by other Governments, the bankers would no longer be knocking on our door offering us money.
We would then have to have recourse to the loan facilities of the European Community or the IMF, but the finance which they provide is subject to conditions which can be stringent. Such assistance would be welcome in certain emergency conditions, but it would bring with it an unwelcome limitation on the freedom of our own Government to make decisions about policy objectives. In the interest of our national economic independence, the Government are acting now to halt the growth in Exchequer borrowing and in our balance of payments deficit.
A major difference between the present and earlier periods of economic difficulty is the obligation to defend the exchange rate of the IR£ in the EMS. The Government are fully committed to meeting that obligation. Devaluation would only lead to faster inflation and worsen our problems.
The choice before us is simple, but stark. Either we act now, in a planned way, to reduce the imbalances in the public finances and the external accounts, or we face enforced and severe economic dislocation and contraction, possibly in the not too distant future. In other words we either act now or we risk the loss of much of what we, as a nation, have already achieved.
INCOMES POLICY.
We have to find a way, as a community, of bringing our aspirations and demands in the area of incomes into line with the international value of what we produce. Even in the absence of any further addition, non-agricultural wages and salaries under the present national understanding will this year increase by 17 per cent, which is more than double the average figure expected in other EMS countries.
The Government aim to solve the problem that this poses by agreement. In our programme we have said that free central wage bargaining ought to remain the way to determine money incomes. The welfare of the community requires that such bargaining have due regard to its economic and social effect. There are many not represented in national pay discussions whose position is directly affected by the outcome of those discussions. These include the unemployed, the young seeking jobs, those in precarious employment, the retired dependent on past savings and the farming community. Equity demands that their interests be served by the outcome of central pay negotiations. Therefore the Government's programme provides for a new approach to central wage bargaining, with the aim of reducing inflation. The necessary steps to implement this approach will be taken in the near future.
REVIEW OF 1981 BUDGET
I will now deal with the specific decisions taken by the Government in order to reduce the high budget deficit and to give a better direction to economic and social development. These new measures include
— a revision of expenditure plans and the curtailment of certain expenditures; and
— taxation changes designed to increase the overall tax yield.
These changes are the forerunners of more fundamental longer term reassessments of the financial and fiscal situation. They will be followed, in due course, by proposals to give effect to the Government's 1982 budget and medium-term economic plan.
EXPENDITURE
The Government have spent considerable time in an intensive review of the possibilities for curtailing the excesses on public expenditure. It is not easy at any time to make a quick change in the trend of current expenditure. To do so at a stage when half the financial year has already passed, and commitments have already been entered into, is extremely difficult. The Government have, nevertheless, taken decisions which will reduce non-capital spending in 1981 by £148 million as compared with what it would otherwise have been. I propose to mention the major items comprising this reduction.
The decision of the previous Government to postpone increases in ESB charges and CIE rates and fares, which had been approved by the National Prices Commission and justified by actual increases in costs, severely disrupted the finances of both CIE and the ESB. It would have required the companies to be compensated by the Government if they were not to be permanently damaged by loss of revenue. Given the state of Government finances, there is simply no scope for assuming new and open-ended commitments of this magnitude.
The Government have, therefore, had to decide that the increases in ESB and CIE charges, postponed since early this year, be implemented. In the case of the ESB, a significant amount of badly needed revenue from the postponed increases has already been lost, so the board will be permitted to impose a surcharge to recover this loss over the next twelve months. If the increases had been implemented from their original dates it would not now be necessary for the board to impose this surcharge. As for CIE, the Dáil has already approved a Supplementary Estimate to compensate the company for the revenue lost in the first six months of the year. The increases in rates and fares, approved by the National Prices Commission, will be implemented at the earliest practicable date. These two measures will reduce the projected Exchequer deficit for 1981 by the substantial sum of £67 million.
The Department of Agriculture will be making some adjustments in expenditure so as to fund measures which the Government believe are most urgently required by farmers. The economies being made will require An Foras Talúntais and ACOT to absorb certain staff and other costs for which extra funds had been sought. Also, the terms of the Disadvantaged Areas Scheme are being modified slightly to concentrate available resources on smaller farms.
In the health area, hospital and prescription costs will be borne to a greater extent than heretofore by those users who are able to pay for them. Appropriate changes will be made from 1 August in the terms of the drug refund scheme administered by the health boards and in hospital charges.
Substantial savings will also be achieved by the Departments of Justice, Environment, Education, Defence and others. In all, these various Departmental savings will amount to £31 million in 1981. But, in general, the reductions will leave Departments with allocations not less than the original allocation in the January Budget.
In their examination of the financial situation, the Government identified a number of areas which offer scope for reductions in public expenditure in future years. These will be examined in greater depth in the coming months.
The Minister for the Environment is studying the possibilities of enabling local authorities to gain access to new sources of revenue, other than rates. The Government should be in a position to take decisions on his proposals before the 1982 Budget is finalised.
Expenditure on social welfare payments is rising rapidly, and the opinion has been expressed that some of the benefits may, in certain limited circumstances, act as a disincentive to taking up offers of employment. The Minister for Social Welfare is carrying out an examination of this complex area to determine if reform is necessary.
The health and educational services will also be reviewed in the coming months in order to find ways of reducing the very heavy costs which they impose on the Exchequer.
It is the Government's intention that the studies to which I have referred, and others which will also be undertaken, will help to arrest the long-term upward trend of non-capital spending. The results of the studies will be incorporated in the expenditure programmes forming part of the Government's economic and financial plans.
Public Sector Pay
I referred earlier to the need for a new approach to pay determination. An aspect of this matter which must be improved immediately is that of special increases in the public sector. In addition to pay provisions totalling £1,780 million in the Volume of Estimates, the budget of January last provided £80 million to cover the cost of any additional improvements in pay and pensions arising in 1981. This provision has already been exceeded and the latest estimates suggest that, if current trends continue unchecked, the cost of public sector pay and pensions could rise by more than 25 per cent this year. This is unacceptable, both because it would add to the budgetary imbalance and because it would represent a serious inequity at a time when the majority of employees in private sector employments are receiving only the basic terms of the current pay agreement, and some may not even be receiving these.
Despite the state of the public finances, the Government are prepared to honour special increases sanctioned to date as well as firm offers or formal commitments which have been made before today, and would be anxious to accept, if at all possible, findings in cases currently before the Labour Court, or before an arbitration board or a review body. However it is obvious that this is the limit.
Accordingly, in the case of all other claims, the Government will request public sector employers formally to invoke Clause 6 of the pay terms of the National Understanding. They will seek immediate negotiations with the public sector unions with a view to agreeing an alternative arrangement which will take account of the community's inability to find the resources to meet further special increases without risk to jobs and the viability of the economy. My colleague, the Minister for the Public Service, will also invite the public sector unions to discuss the general question of the present methods of determining public sector pay and, in particular, whether the present arrangements for conciliation and arbitration should be modified or supplemented.
Numbers Employed in Public Sector
Today the public sector in its widest sense employs about 300,000 people — more than at any previous time and an increase of 30,000 in the last four years.
The magnitude of the resultant expenditure reflects a disproportionate allocation of human resources to the public sector. This imbalance in the economy must be corrected and the Government have, therefore, decided that the numbers employed in the public sector will not be allowed to exceed the numbers employed on 21 July 1981. An exception will be made for productive employment where the cost of additional staff is recovered from charges made to the public for the additional goods or services they provide.
It is the Government's intention that the provision of essential new or expanded public services will not be inhibited by this necessary halt to the expansion of the public sector. Existing services will be rigorously examined to ensure the elimination of schemes and programmes which are no longer needed. Increased efficiency will be sought in all services. Resulting staff savings will be used through redeployment to ensure that all necessary new services required to meet emerging national needs are provided.
The policy I have outlined does not mean a cut-back in public employment but an end to its continuous and unsustainable increase. There will still be job opportunities resulting from the replacement of the large number of people who every year leave the public service for one reason or another. The Minister for the Public Service estimates that about 5 per cent of serving civil service staff leave each year. Applying this percentage over the whole public sector, we get a figure of roughly 15,000 vacancies for young people. In addition it is envisaged that a limited number of existing vacancies can be filled where the recruitment process has already reached an advanced stage.
The implementation of these proposals enables the excess expenditure on pay to be reduced by £50 million.
Capital Expenditure
The Government are committed to the maintenance of a capital investment programme which will stimulate economic growth and provide the basis for the creation of additional employment. Never-theless, during this year there is evidence that, if nothing is done, the amount actually spent will in many areas be much more than was provided for in the 1981 public capital programme. The Government have therefore taken steps to ensure that the Exchequer commitments will be maintained at or around the level provided for in the January budget.
In our review of capital expenditure, the Government concluded that the existing allocation of £116.5 million for local authority housing was inadequate and we have, therefore, decided to approve additional expenditure of some £30 million on the programme in order to maintain that level of housing output in the current year.
The Government will be providing additional funding for the farm modernisation scheme as demands under the Scheme are running at a higher level than was provided for in the January budget. Associated with this will be funds to be made available as required for the EEC interest subsidy for development farmers. Certain changes will however be made in the farm modernisation scheme to bring about savings and to provide funds for investment which will best assist production.
A contingency provision of £70 million was made in the January budget for the additional requirements outside of the public capital programme for loans and share capital for certain semi-State bodies. Potential demands on this provision could amount to about £217 million. The Government have reviewed these demands carefully and have concluded that, in present financial circumstances, these demands must be confined within a total of £82 million; that is, an additional £12 million will be provided to meet the most pressing cases.
REVENUE
The action taken in reducing spending which I have just outlined is very substantial, especially in the circumstances of a mid-year adjustment. It has had the effect of reducing the amount of taxation which would otherwise have had to be raised. But the scale of our problem is such that tax measures must still be significant.
We cannot have recourse to income tax for two reasons. First, the Government's commitment is to a reduction in the burden of taxation on the ordinary worker combined with a special tax credit for the spouse. It would be quite inconsistent with this commitment to impose new burdens on the income taxpayer. Secondly, income tax changes cannot be introduced in the middle of a tax year because of the nature of the tax system and the method of calculating taxable incomes. It is for this reason that, as was always envisaged, I will implement the Government's tax reform proposals, including the £9.60 tax credit for spouses and the new augmented child benefit, from the beginning of the next income tax year.
For similar reasons it is not possible to have recourse to capital taxes in a budget introduced at short notice. Measures of capital taxation are of their nature complex and, if drafted with insufficient care, can have unintended adverse effects on the economy as a whole. The Government are, as indicated in our programme, undertaking a review of capital taxation with special reference to non-productive capital. We are therefore compelled, whatever might be our wish otherwise, to rely today for the most part on indirect taxation.
VALUE-ADDED TAX
My main proposal in this regard is for an increase in the present 10 per cent VAT rate to 15 per cent with effect from 1 September next. This rate band covers by far the major share of expenditure liable to VAT and accordingly must be looked to in a situation where additional revenue is needed urgently. Fifteen per cent as the main VAT rate will still stand comparison with the corresponding VAT rate in most countries in Western Europe. This measure will, it is estimated, yield £28.2 million this year and £188.5 million in 1982. In connection with this change, I should say that I am providing that the effective 3 per cent VAT rate on building, which is related statutorily to the 10 per cent rate, will remain unchanged; and that, because of the importance of agriculture to national production and exports, the flat-rate VAT refund for farmers will be raised to 1.5 per cent in order to offset the consequent increase in VAT on farm inputs.
I will refer later in my statement to the Government's commitment to provide a VAT relief for agricultural contractors.
EXCISE DUTIES
In reviewing the levels of excise duties, I have taken into account the fact that the new 15 per cent VAT rate will apply to the main excisable goods from 1 September.
Beer
I am proposing a duty-based increase of 2p in the retail price of the pint of beer, to take effect immediately. This is expected to bring in extra revenue of £5.3 million this year and £14.5 million in 1982. This increase, together with the VAT change on 1 September, will make for a total tax increase of 5p to 6p on the pint of beer.
Spirits
An immediate duty-based increase of 2p in the retail price of a glass of spirits is proposed. This is expected to yield £2.5 million in 1981 and £4.5 million in 1982. Combined with the VAT change on 1 September, a total tax increase of 8p to 9p would be expected in the glass of spirits.
Wine
I propose to increase by 10p the duty-based element in the retail price of a bottle of wine, to have immediate effect. The increase will be pro rata for stronger wines, and for sparkling wines it will be 20p per bottle. The yield is estimated at £0.8 million in 1981 and £1.6 million in 1982. For a bottle of wine at present costing £3, a total tax increase of 24p would result from this additional tax together with the VAT change on 1 September.
Cigarettes and Tobacco
The duty-based tax on 20 cigarettes will be increased immediately by 4p, estimated to yield £5.4 million in 1981 and £13.1 million in 1982. There will be a pro rata tax increase on tobacco. This tax increase, together with the VAT change on 1 September, will result in an aggregate tax increase of 8p on 20 cigarettes.
Petrol, Road Diesel, Liquid Petroleum Gas (LPG) Used in Motor Vehicles
I am very conscious of the contribution to the balance of payments deficit by expenditures related to motor vehicles, particularly motor vehicle fuels. Accordingly, I propose to supplement the VAT-related increases by immediate duty increases representing 4p per gallon on petrol, 4p per gallon on road diesel and 8p per gallon on liquid petroleum gas used in motor vehicles. Combined with the proposed VAT change on 1 September, total tax increases of approximately 13.4p on petrol and 12p on road diesel will be involved. These duty increases will yield £6.2 million in 1981 and £14 million in 1982. I am arranging that the existing rebate for handicapped drivers will be increased so that the excise duty increase now will not affect them.
Private Motor Vehicles
The purchase of private motor vehicles, which reached record levels earlier this year, represents a large element in the balance of payments deficit. While the VAT change proposed will apply to such purchases, the Government are not satisfied that the impact will be adequate having regard to the serious balance of payments position. I propose, accordingly, to increase the excise duty on private motor vehicles, including motorcycles, from 40 per cent to 50 per cent with immediate effect. The revenue yield is estimated at £8.5 million in 1981 and £32.3 million in 1982.
Road Tax
The abolition by the previous Government of road tax on almost all cars not only narrowed the tax base but ran counter to all balance of payments and energy considerations. I propose, therefore, to reintroduce road tax on cars of 16 horse power and under with effect on and from 1 September at the rates in force in July 1977. As a result of the restoration of road tax, the annual registration charge on these vehicles will be repealed for renewals on and from 1 September. I am also increasing the road tax on cars exceeding 16 horse power by £2 per horse power. These changes will bring in £8 million in 1981 and £27.5 million in 1982.
I should say at this point that I will come later in my statement to the Government's commitment to provide a measure of relief on industrial fuel oil.
The Minister missed bicycles.
STAMP DUTIES
I turn now to stamp duties.
I propose to increase the stamp duty on cheques from 3p to 5p and to impose a new stamp duty of £5 on credit cards issued by banks and on charge cards issued by international companies. I am also increasing the stamp duty chargeable on transfers of property between associated companies from a nominal rate of 50p to an ad valorem rate of 2 per cent. These changes will come into effect shortly. They will yield an extra £0.65 million this year and £2.5 million in 1982.
BANKS
The Government's programme includes provision for a temporary levy on the banks pending the completion of the review of the taxation system affecting banks. I have consulted the Central Bank and have received representations from the Associated Banks about this proposal. I have come to the conclusion that a levy to yield £5 million in 1981 would be an appropriate contribution from the banking sector. In arriving at this amount, I have attempted to strike a balance between what could be regarded as reasonable in view of the need for additional revenue and what would be prudent as a charge on the banks. This measure will require legislation and, subject to this, it is intended that the levy will be payable on 1 December next. The method of assessment of individual banks will be decided after consultation with the Central Bank.
PRICES
The Government would be anxious that price increases consequent on today's taxation proposals should be fully justified and, in the case of items subject to price control, price increases must be notified and, where appropriate, await the making of new maximum price orders. These will be made by the Minister for Industry, Commerce and Tourism who will determine the appropriate size and timing of increases.
These price increases will of course be reflected in the consumer price index. Because of the delayed nature of some of the tax increases, the immediate effect on the index will be slight — less than 1 per cent in the August quarter. The full effect of the tax increases will be approximately 3 per cent. I shall be announcing later measures which will fully protect the weaker sections of the community against this price rise.
The Government would impress on the House and on the community at large that increases in taxation are unavoidable if we are to make a serious attempt to meet the cost of our day-to-day public services. It would be unrealistic to expect or to pretend that the process of phasing down a current deficit of the present scale could be a painless experience for the community. I have already referred to the need for moderation in income trends. All the more so, it would be unrealistic and indeed self-defeating for the community to attempt to compensate through higher incomes for these tax increases. I cannot sufficiently stress the fact that this would merely give a new impetus to the spiral of inflation with consequent losses in employment.
POST OFFICE CHARGES
Post Office revenue for the year was projected in January at £319 million but later estimates suggested a shortfall of £25 million on this figure, because of a slower than expected pick-up in economic activity in the first half of the year which affected the volume of business. More recently, the industrial action affecting the issue of telephone accounts by members of the Civil and Public Services Staff Association in the Department of Posts and Telegraphs is expected to increase this shortfall in revenue by a further £10 million.
In principle, the postal and telecommunications services are expected to pay their way but heavy losses have been incurred on them in recent years. Taxpayers generally should not be expected to carry losses on these services, the costs of which should be borne by the users. The increases last April in postal and telephone charges were insufficient to cover the costs of the services at their present levels. However, recoupment in full of the losses in the remainder of this year would involve unduly high charges.
It is proposed therefore to raise postal charges generally by 20 per cent with effect from 1 September next, the telephone and telex connection fees by £20 from the same date, and telecommunications charges generally by 5 per cent approximately from 1 October. The new charges are calculated to rectify the position over the period to end 1982; but they do not provide for further increases in costs which may arise during that period. They should bring in about £6½ million extra revenue to the Exchequer in 1981 and £29 million in 1982.
FINANCIAL PLANNING AND PROCEDURES
These tax measures are unwelcome but unavoidable. They underline the need to see that the present situation should not prevail any longer. The reform of our financial planning and procedures must be given priority to ensure that expenditures are properly aligned with the means to finance them. I intend to move on this straight away. It is not conducive to proper allocation of resources that proposals for public expenditure are presented to and debated by Dáil Éireann in one-year estimates, and in a format designed more for formal accounting audit than rational planning. We need a new form of estimates document designed to direct attention to the results of public expenditure and the extent to which they meet the needs of the economy and society.
The proposals should also be presented to the Dáil in good time to enable the discussions here to have a real effect on policy.
With these objectives in mind I intend to pursue vigorously the following aspects of the Government's programme:
—the publication of public expenditure estimates in the autumn preceding the commencement of the financial year;
—the correlation of the public expenditure estimates on a multi-annual basis with the public sector section of the national plan;
—the facilitation of specific Dáil debate of the Government's capital expenditure and borrowing plans in the same way as the annual current estimates are now debated;
—the improvement of the format of the estimates;
—a review of conditions governing the classification of expenditure as capital;
—improvement of procedures relating to the format, presentation and debate in the Oireachtas of the various annual reports of State spending bodies.
I intend that these reforms will be accompanied by study of the concept of deficit budget reporting, which will place a special legal onus on Governments undertaking deficit budgets to explain their consequences to the public. I will also study the possibility of linking supplementary estimates with the revenue measures to finance them, which will thereby maintain the original balance of the annual budget. The objective would be to secure that expenditure over and above the agreed budget provision would be paid for from revenue and not from borrowing. Means of ensuring that spending agencies adhere more rigidly to authorised budgeted allocations are very necessary and will be examined.
The new estimates timetable will require the whole process of the preparation of the budget to be brought forward by some months. To avoid excessive disruption, it may be necessary to adopt a phased approach to these changes. At this stage of the year it will not be possible to implement new procedures in the time remaining before the 1982 budget. I am hopeful however that a start at least can be made, perhaps by way of presentation of estimates in November, in time for discussion, as far as the Dail programme permits before the budget.
As a result of this reform programme, there should be increased awareness also of the relationship between the public services and the levels of taxation and/or borrowing needed to finance them.
I hope that the new planning and finance units in Government Departments will play a major role in this reform programme.
I am anxious that steps be taken quickly to reform the procedure of the Dail on a more general basis. Amongst the measures on which urgent study is being undertaken are the enlargement of the powers of joint committees, fuller access by the general public to the legislative process and better facilities for Members to do their work.
The intended effect of the measures I have just outlined will be to prevent the situation we now face from ever arising again. There is no point deploring our present circumstances without advocating specific measures to prevent their recurrence.
PLANNING
The Government programme has made it perfectly clear that economic and social planning will be a high priority. A Minister of State, Deputy B. Desmond, with this special responsibility has been appointed and a National Planning Board will be established without delay. Government planning for some time to come must focus on achieving the economic and financial stability on which sound development, both social and economic, ultimately depends. In drawing up the plan, the Government will consult sectoral and other interest groups concerned.
GOVERNMENT PROGRAMME
I have said earlier that the Government's programme will be implemented on a phased basis. I stress that I am making provision today only for those elements of this programme which were planned to be brought into effect before the end of 1981.
SOCIAL WELFARE
One of the most important aims of the programme is to assist the most vulnerable section of our society, namely those who are dependent on social welfare.
The programme stated explicitly that all old age pensions would be increased by 5 per cent from the beginning of October as a first step towards a substantial continuing improvement in the real level of these payments. Not only will this commitment now be fulfilled and old age pensions, contributory and non-contributory, increased by 5 per cent from October, but the increase will be extended to all other social welfare pensioners over the qualifying age for old age pensions, that is 66 years of age, and also to retirement pensioners. In addition, weekly rates of benefit paid to all other welfare recipients will be increased by 3 per cent in compensation for the effects of the rises in indirect taxes. These improvements will cost £10,500,000 in 1981 and £39 million in 1982.
FOOD SUBSIDIES
The Government's programme said that there would be no further increases in 1981 in the prices of specified key foodstuffs, namely, bread, flour, milk, butter and margarine. In pursuance of this undertaking, the Minister for Industry, Commerce and Tourism announced on 6 July, on behalf of the Government, that he would meet by a subsidy a bread price increase of 5p per 800-gram loaf which had been recommended by the National Prices Commission. The 1981 cost of that decision is expected to be about £6 million.
Further price increase applications in the present year could require up to about £5 million more in subsidies on foot of the undertaking in the programme. I am making the necessary provision for this. This is very important for the weaker sections of the community.
ANTI-POVERTY PLAN
In accordance with the Government's aim of eliminating poverty there is a firm commitment in the programme to constructive community action to tackle poverty, as recommended by the national committee in their final report on Pilot Schemes to Combat Poverty in Ireland. The Government are especially concerned with the problems of the aged living alone and homeless young people. The results of this pilot programme are being examined by a review group who are expected to report shortly to the Minister for Social Welfare. Immediately the recommendations of the review group are to hand, the Government will decide on the nature of the new structures to carry forward the work of the combat poverty team in this area. I am making a contingency provision of £100,000 for this purpose, but a substantially larger sum will be necessary next year.
ADAPTATION OF PUBLIC BUILDINGS FOR THE DISABLED
It is the Government's policy to ensure that public buildings are easily accessible to the disabled. Suitable facilities continue to be included in the design of new buildings erected by the Office of Public Works. In so far as their existing buildings are concerned, I am arranging for a speeding up of the modification work necessary to afford facilities for the disabled, and am including an extra provision of £50,000 in 1981 for this purpose so as to ensure that no such modification which could otherwise be undertaken this year will be delayed for lack of funds.
EMPLOYMENT OF DISABLED PERSONS
The 3 per cent employment quota for disabled persons in the public sector will be implemented as a matter of urgency.
YOUTH EMPLOYMENT AGENCY
There is a commitment in the programme to set up a youth employment agency to integrate and extend youth employment schemes. The necessary administrative preparations are being put in hands immediately. Funding the agency will, as indicated in the programme, involve a levy of 1 per cent on incomes. Legislation for this purpose will be introduced as soon as the Dáil resumes after the Summer recess.
While on the subject of youth, the Government have already decided that special standing will be given to the National Youth Council and other youth bodies as proposed in their programme.
AGRICULTURE
Our programme includes a wide range of improvements for agriculture. The Government are most anxious to provide the right conditions in which farmers can overcome the difficulties of the last two years and increase production again. In this context, the Minister for Agriculture has had discussions yesterday and this morning in Brussels on the implementation of measures to aid farmers' recovery and the intention is to move as quickly as possible. The Government believe that working in close co-operation with the Community is the way to get the best arrangements for Irish farmers. Clearance by the Commission of the proposed aids will be sought prior to their implementation. I am earmarking £8,500,000 for additional expenditures in 1981 for this purpose. The Minister for Agriculture will, in the course of the budget debate, provide further information in regard to the new measures and the further steps to implement the full Government Programme for agriculture.
EDUCATION GRANTS
Improvements in the grants scheme for higher education have already been announced by the Minister for Education. These improvements are estimated to cost £2.35 million this year and £6.5 million in 1982.
HOUSE IMPROVEMENTS
Details of the new scheme of house improvement grants for certain basic amenities will be announced shortly by the Minister of State at the Department of the Environment. I am providing £3 million for this purpose in the current year.
HOUSING FINANCE AGENCY, ETC.
Meeting the legitimate demands of would-be house purchasers, particularly young married couples, for housing finance under the present system is a problem requiring urgent attention. Discussions with interested parties are already under way and the Government expect to be in a position at an early date to formulate proposals in connection with the establishment of the Housing Finance Agency.
In order to speed up housing and general construction programmes, the procedure for compulsory purchase will be expedited. The anomaly of compensating owners for not developing land adjacent to other serviced land will be removed.
OTHER PROGRAMME MEASURES
I have decided that legislation will be introduced to protect our archaeological heritage and will be presenting proposals to the Government next week. The proposals should have the effect, in particular, of helping to avoid situations such as that at Wood Quay arising in the future.
The Government will also seek to improve economic efficiency by introducing legislation to modify restrictions which impede efficient road haulage.
TAXATION INCENTIVES
The dominant objective in the Government's taxation programme is the reform of the income tax code including the introduction of a tax credit system. Because of the administrative problems associated with income tax changes in mid-year, this reform must necessarily await the beginning of the next income tax year for its implementation. The social insurance and health contribution changes which form part of this reform will come into effect at the same time.
In the meantime other taxation changes in the programme are being implemented.
Industrial Fuel Oil
There is a commitment in the programme to reduce by 50 per cent the tax increase on industrial fuel oil imposed in the 1980 budget. This tax increase was 5 pence a gallon and, in accordance with the commitment, the tax will be reduced by 2½ pence a gallon from 1 December next on purchases by manufacturing industry of oils in the residual fuel oil category. The reduction will cost £500,000 this year and £6 million in 1982.
Small Businesses — VAT
I wish to assist small business in some way through the tax mechanism. There is limited scope at this time because of the cost implications. I will however increase the present registration thresholds for VAT purposes and I would hope to make provision for this in the Finance Bill.
VAT on Agricultural Contractors
The Government wish to encourage and maintain agricultural contracting services throughout rural areas. On foot of our commitment in this regard, I propose to reduce the effective VAT rate on agricultural contractor charges to 3 per cent with effect from 1 September 1981.
Profit Sharing
A further commitment in the Government programme relates to the exemption from income tax of shares given by companies to their workers under profit sharing arrangements. Other European countries have made considerable progress in promoting the financial involvement of workers in their firms. I am anxious that we should move forward in this area, too, with the minimum of delay. I am, therefore, having this matter examined urgently.
SAVINGS SCHEMES
In view of the importance of the contribution which saving can make to financing investment and monetary restraint, I shall be concerned at all times to make national saving in all forms as attractive as possible to investors, large and small, consistent with the costs involved. In this regard I have been examining ways in which small savings schemes can be improved in order to make a greater contribution to Exchequer funding. I am satisfied that there is scope for further improvement and I have decided to introduce modifications in three of the schemes: (1) I propose to increase the rate of interest used in determining the prize fund for prize bonds to 8½ per cent and I shall make an announcement later about the improvements which this will make possible in the range of prizes.
(2) To encourage further investment in savings certificates, I have decided to increase the limit on individual holdings from £15,000 to £25,000.
(3) Earlier this year the minimum age limit for the purchase of index-linked savings bonds was reduced from 65 to 55 years and the maximum amount which a person may hold in bonds was increased to £3,000. I am now increasing this limit to £5,000.
1981 DEFICIT
The current budget deficit which would have emerged this year in the absence of the measures announced today is estimated at £947 million. The various expenditure reductions which I have outlined will reduce this by £148 million and I have proposed additional revenue changes of £77 million, giving a total reduction in the deficit of £225 million. This will be partly offset by the cost, totalling £35 million, of the additional expenditures to implement priority items in the Government programme; by the further shortfall of £10 million in Post Office receipts which I have already mentioned; and by an estimated reduction of £20 million in the underlying general tax revenue buoyancy in order to allow for the effects of this package of measures. The revised current deficit emerges, therefore, at £787 million, or 8 per cent of GNP, a reduction of almost £160 million on what would otherwise have been the outturn.
Expenditure on the Public Capital Programme is estimated at £1,785 million, with a further £99 million being provided for capital expenditures outside the Government programme. The resources available to defray capital expenditure are estimated at £1,034 million, leaving a balance of £850 million to be found by borrowing by the Exchequer itself.
Together with the current budget deficit of £787 million, the total Exchequer borrowing requirement for 1981 is now estimated at £1,637 million, or 16½ per cent of GNP. This figure is £336 million less than that with which the Government were confronted when they commenced their examination of the public finances on taking office.
The Government's immediate concern was to achieve an improvement in the budget position for 1981 because of the unacceptable position which we inherited. In effect we were dealing with a financial emergency. We had to identify and introduce measures with the least possible delay to deal with the situation. Other measures will have to follow with all possible speed according as we are in a position to introduce them. I have specifically in mind the need to finance the elements of the joint programme which are being introduced this year and which have been indicated in this budget. This involves changes in pay-related social insurance which will be put in the form of legislation after the summer recess but they are unlikely to yield any significant revenue until 1982.
BUDGET PROSPECTS 1982
Although we have been attacking the immediate problem of 1981 we have been conscious all along that an even more important consideration has been the need to improve the opening budgetary position for 1982. Had matters been allowed to drift, we would be facing the prospect of a current deficit of more than £1,500 million in 1982, merely to maintain the present level of services.
As a result of the measures we have taken, this 1982 deficit will be reduced by £450 million. This includes £50 million saved on debt interest by the reduction we have made in 1981 borrowing; this £50 million would otherwise have had to be subtracted from the money available for spending next year.
While the action we have taken now will result in a very substantial reduction in the problem facing us next year, the position is still daunting. It has to be remembered that public capital investment has also to be financed next year. Our firm resolve, therefore, is to continue our attack on current expenditure in the coming months in order to protect the availability of resources for capital investment, to safeguard also the implementation of the Government's tax reform programme and to move further towards eliminating the current deficit.
EFFECTS ON THE ECONOMY
The firmness of the Government's tackling of the economic and financial problems with which we are faced will be good for confidence, both domestically and abroad, in the future of our economy.
We have made a start — but only a start — in bringing the balance of payments deficit back to an acceptable level. The deficit this year should now emerge below the £1,500 million that was otherwise in prospect. More important, this budget and our plan for the future will now ensure that the deficit will remain within tolerable limits. A stable basis for continued economic growth will thereby be established.
We need economic growth now, as well as in the future, and I have designed the measures I have announced to guard against any possibility that the economy might be put into recession. I am confident that the steps that will be taken to contain current public expenditure will not have any noticeably adverse impact on growth. On the capital side, the additional £30 million I am providing for local authority housing will support activity in the building industry and, of course, capital expenditure has emerged from the Government's review of the finances with an increased global allocation, even if small, as compared with the original provision in the budget last January.
A growth rate of about 2 per cent, well above the international average, is attainable this year. By acting now to avoid the necessity of harsh economic corrective measures at some future time, the Government are lifting a threat of unemployment on a much larger scale. This lays the foundation for real and sustainable growth which will provide more jobs.
CONCLUSION
This budget is designed to face reality. In the last ten years we have multiplied our national debt by eight. Policies or expectations based on continuing that rate of increase are just not viable. This budget will not reduce the debt but it will prevent it reaching the enormous proportions it would otherwise have attained next year and will improve the way borrowed money is used. It is a start towards building a genuinely secure economic future on the solid foundation of a solvent Exchequer.
Today's adjustments in expenditure and in taxation are as much as, in the Government's view, can be made at short notice. We held back from more drastic remedies, because of the adverse impact they would have on employment. We have gone as far as necessary but no further. We ask public support for this budget so that this country can maintain its freedom to order its own economic affairs and to design its own social programmes.
Our task today is not of course entirely concerned with the problem of correcting Government finances. I have announced today the first phase of the Government's programme to develop the economy and to achieve social justice. The other elements of this Programme will be introduced as quickly as possible.
I indicated earlier that the tax reform measures, including the tax credit for spouses and the new child benefit, will come into effect next April. I have referred to our plans for the Youth Employment Agency. Later this year we will reduce the social insurance costs of manufacturing industry and tourism. We will implement our programme to boost agriculture, restore reconstruction grants and guarantee no increase in the price of certain basic foodstuffs. The other aspects of the programme will also be receiving early attention and the Government's aim is to ensure that in two years from now all aspects of the programme will be under way.
There are grounds for hope that the world economy will strengthen in the coming months. We must make the most of this opportunity. We can do so if we have the will. Ireland has great strengths in its agricultural resources, its modern industrial structure and its young and expanding population. Today's budget is the first step in the planned and determined effort this Government will make to use all of these advantages to the full and for the benefit and future security of the community.
But the Government can only do so much. The decisive factor will be the response of the people. That response will determine whether we overcome our current difficulties and put our economy back on a path of fast but sound advance.
TABLE EXPLANATORY OF REVISED CURRENT BUDGET 1981
|
Original Estimate |
Revised Estimate |
Original Estimate |
Revised Estimate |
||
|
28/1/81 |
30/6/81 |
28/1/81 |
30/6/81 |
||
|
£m |
£m |
£m |
£m |
||
|
1. Tax Revenue |
3,134.7 |
3,230.0 |
1. Debt Service and Other Central Fund Charges |
960.0 |
980.0 |
|
2. Non-tax Revenue |
680.0 |
655.0 |
2. Supply Services (non-capital) |
3,369.9 |
3,851.6 |
|
3,814.7 |
3,885.0 |
||||
|
3. Deficit |
515.2 |
946.6 |
|||
|
4,329.9 |
4,831.6 |
4,329.9 |
4,831.6 |
Revised Estimate following Financial Proposals of 21 July 1981
|
£m |
£m |
||||||
|
1. Tax Revenue |
3,210.0 |
1. Debt Service and Other Central Fund Charges |
980.0 |
||||
|
2. Non-tax Revenue |
6,550 |
2. Supply Services (non-capital) |
3,851.6 |
||||
|
3,865.0 |
4,831.6 |
||||||
|
3. Add: |
3. Deduct |
£m |
£m |
||||
|
Indirect Taxation |
£m |
£m |
Expenditure Reductions |
148.5 |
|||
|
—value-added tax |
28.2 |
4. Add: |
|||||
|
—alcoholic drinks, tobacco |
14.0 |
Food Subsidies |
11.0 |
||||
|
—motor vehicles |
8.5 |
Social Welfare |
10.5 |
||||
|
—road tax |
8.0 |
Agriculture |
8.5 |
||||
|
—hydrocarbon oils |
6.2 |
House Improvement Grants |
3.0 |
||||
|
Stamp Duties |
0.6 |
Education Grants |
2.3 |
||||
|
Special levy on Banks |
5.0 |
Anti-Poverty Plan |
0.1 |
||||
|
Post Office Charges |
6.5 |
35.4 |
113.1 |
||||
|
77.0 |
|||||||
|
4. Deduct: |
|||||||
|
Post Office revenue shortfall |
10.0 |
||||||
|
Industrial Fuel Oil concession |
0.5 |
||||||
|
VAT (agricultural contractors) |
0.2 |
||||||
|
10.7 |
66.3 |
||||||
|
5. Deficit |
787.2 |
||||||
|
4,718.5 |
4,718.5 |
Department of Finance
21 July 1981
SUMMARY OF REVISED CURRENT AND CAPITAL BUDGETS 1981
|
Emerging 28 January 1981 |
Estimate Position end-June 1981 |
Revised Estimate |
|
|
£m |
£m |
£m |
|
|
CURRENT BUDGET |
|||
|
1. Expenditure |
|||
|
(i) Central Fund Services |
960 |
980 |
980 |
|
(ii) Supply Services |
3,370 |
3,852 |
3,739 |
|
4,330 |
4,832 |
4,719 |
|
|
2. Revenue |
|||
|
(i) Tax |
3,135 |
3,230 |
3,280 |
|
(ii) Non-Tax |
680 |
655 |
652 |
|
3,815 |
3,885 |
3,932 |
|
|
3. Current Budget Deficit |
515 |
947 |
787 |
|
CAPITAL BUDGET |
|||
|
4. Expenditure |
|||
|
(i) Public Capital Programme |
1,733 |
1,827 |
1,785 |
|
(ii) Other (non-programme) |
87 |
233 |
99 |
|
1,820 |
2,060 |
1,884 |
|
|
5. Resources |
|||
|
(i) Exchequer |
207 |
202 |
202 |
|
(ii) Non-Exchequer (including private sector participation) |
832 |
832 |
832 |
|
1,039 |
1,034 |
1,034 |
|
|
6. Exchequer Borrowing Requirement for Capital Purposes |
781 |
1,026 |
850 |
|
7. Total Exchequer Borrowing Requirement (3+6) |
1,296 |
1,973 |
1,637 |
|
8. Total Exchequer Borrowing Requirement as % of GNP (estimated) |
13% |
20% |
16½% |
This budget is totally unnecessary at this time.
(Interruptions.)
Why is it that I have not received a copy of the speech?
It is a matter for the Minister, not for the Chair, to decide who will get a copy. But the practice of the House has been that Ministers and ex-Ministers only get copies.
The practice of the House has been as the Ceann Comhairle has said. I am following the same procedure as was followed last year by making copies of the speech available to Ministers, former Ministers, Ministers of State, former Parliamentary Secretaries and former Ministers of State. I have adhered to previous practice in this matter to the full.
Do I take it that I will now get a copy of this matter? Thank you.
I asked one of the ushers for a copy. I came to the conclusion that while all Members of the House are equal some are more equal than others. I want to bring up this business of giving out copies to certain Members. Everybody should get a copy.
(Interruptions.)
I fully agree with Deputy Kemmy but it is a matter for the Minister for Finance and the practice has been such.
(Interruptions.)
As I said, I believe this budget is totally unnecessary at this time. If corrective action is needed the January budget time is the time to take it. I will go into greater detail on that later.
The figures mooted by both the Minister here in the House today and by the Taoiseach on television on Friday night of £950 million are not in accordance with the facts as we knew them a very short while ago. The figure then was substantially lower than that mentioned now and last Friday. The Taoiseach was the first to laugh but perhaps he would also be aware of the statement made by his Minister for Finance on 2 July last, just three weeks ago, when he said that the present figure would be in the order of somewhat more than £100 million less than the figure now being mooted. In other words what this Government are doing is taking the advice given them by a national newspaper to paint the picture as black as possible and propose difficult measures now so that they can gain the benefits later. That is purely a political exercise or alternatively perhaps one of panic as we have seen already in the three weeks that this Government have been there. But it is one of those two reasons and nothing else.
Let me talk for a moment about the scenario that led up to today. As far back as December last, January of this year and even right through the election campaign we had the present Taoiseach lamenting and complaining about the problems of our financial situation. Yet it was he who introduced a programme for an election campaign that was costed at about £1,000 million. Where is the responsibility here? I say that was all part of the beginning of the backdrop. With the election over, the two parties met to formulate a further programme. The Government was formed. Then the wheels of publicity got into operation and the scenario was created for what we have seen here today. The scenario today indeed is no different. I would ask the Labour Party Members in particular where is there one item of help for employment? The Minister, by his own admission, agrees that this is a deflationary budget. He says that Post Office revenue that he is taking into account will drop by £20 million simply because of a drop in activity. We are seeing deflationary measures by a Government in their first week of office.
We, by sound policy decisions in Government, decided to aid areas like employment, agriculture, food subsidies and social welfare. Is anybody saying that we should not have done it? I certainly believe that as a Government we were right to do it and I would say to all Members of this House, particularly to new Members, that it is their duty to read carefully the comments of the present members of this Government, their Leader, their Minister for Finance, their Tánaiste and all the other Members, and their contributions to the budget debates in January, February and March of this year. There they will see the greatest about turn by any group of people in such a short time. There is only one reason for this and that is pure political expediency. They are aware that their tenure of office will be a short one. They are also aware that their tenure of office is insecure. They will try to use that publicity dishonestly and it is calculated to mislead people in order to try to secure a stronger base within the community. Their efforts to date have been futile.
On the budget tables one could almost say we had so much noise all week—we had ministerial broadcasts, state of the nation speeches—that one would have expected major decisions to be taken here today. But what are we talking about? We are talking about a budget deficit still there of £767 million, not far away from what the real and not the imaginary one would have been. This Government are already using hypothetical figures and certain assumptions which cannot stand up. The Minister has projected a certain budget deficit into 1982. He knows, as does everybody on the benches opposite, that it is absolutely misleading to project a deficit into 1982 without telling the people, without telling the media what assumptions were being taken into consideration. It is a hypothetical figure until all these asumptions are laid down and spelled out clearly and the Minister opposite knows that well.
(Interruptions.)
Let me come to some of the measures that were introduced today.
(Interruptions.)
On a point of order, we heard the Minister for Finance make his speech for quite a long period without interruptions from this side of the House. Surely our spokesman is entitled to the same courtesy.
(Interruptions.)
What about Deputy Crowley? Will he shut up too?
That is a very vulgar statement to make.
I apologise.
(Interruptions.)
A little order, please, for Deputy Gene Fitzgerald. Will Deputy Crowley please yield to his colleague, Deputy Fitzgerald?
The Ceann Comhairle should be impartial.
I think we should show courtesy to Deputy Fitzgerald.
I will go from there to some of the comments by the Minister in his speech to the House and will deal first of all with the balance of payments. He has referred to the current position and he has projected it forward to 1982. He is now trying to claim for this Government something that was about to happen because of Fianna Fail policy. He does not have to take my word for this and neither does the House. I can refer them to two recent surveys published, one by the OECD and one by an American business review group, saying that because of the policies—I am talking about the policies that existed under Fianna Fáil—our exports would increase substantially in the latter part of this year and more especially in 1982, thus giving a very substantial drop in the balance of payments. The Minister here today in this House is trying to claim credit for a foundation that has already been laid for the measures here before us. If the balance of payments is high, Members of the House, particularly new Members, should know that an investment plan of the magnitude launched by Fianna Fail earlier this year was bound in the short term to affect the balance of payments and increase imports. I would wish dearly that every item of expenditure under the investment plan would be available within our own shores, but alas that is not so yet at any rate. While in the short term it would increase the balance of payments, in the longer term, because of the investment in infrastructure and industry, because of the building up of our exports, our balance of payments would be reduced.
The Minister referred to incomes policy and he went on to talk about public sector pay and numbers employed in the public sector. I am sorry to understand from the Minister that there appears to be an embargo placed on recruitment into the public service. If it is an embargo similar to that imposed by the last Coalition Government in the mid-seventies then one has to ask if we are further taking away from the employment opportunities for young people. The Minister referred to 50 per cent of our population being under the age of 25. Are there for the time being under this Government no further opportunities for any of those boys and girls in the public service? Was it a wise decision in 1975? A further proof of my earlier point is that there is not one whit of help or support for employment in the package before us today. It can be said that it contains more promises and plans than real content.
Regarding prices, the Minister tells the House that his measures will mean a 3 per cent increase in the CPI. Again I am afraid that he is not telling the full story. In his statement he has said that there will be an imposition of ESB and CIE charges. How much over and above the 3 per cent are those charges? Perhaps it is another way of not telling the full story to the House despite the claims at some point in the statement of honest presentation and admissions.
Mention of CIE reminds me that the Dublin public have not had a bus on the streets for three weeks now. Provincial and city services have been disrupted while a Government sit in power who claimed in Opposition days to have all the answers to problems of this nature. I merely mention that in passing.
I have referred to the ESB. If there is a surcharge here it can be described as penal on the ordinary social welfare recipients and the lower paid people and, of course, it is a problem for industry also.
I referred to the embargo on recruitment to the public service and then the reference to public sector pay. It is not clear what the Minister has in mind here. He talks about reviewing the conciliation and arbitration scheme and consultation with the trade unions. The conciliation and arbitration scheme has served the various Governments and the public service well, but again it appears that there is now some popularity to be gained in attacking a certain group in our society. That group is a very wide one consisting of gardaí, teachers and many others as well as civil servants. One must ask again how beneficial was the second embargo imposed by the previous Coalition Government in the mid-seventies.
Regarding duty impositions, VAT has increased from a 10 per cent rating to 15 per cent. Did the backbenchers on the Government side hear about that 50 percent penal increase? Did they hear that properly?
(Interruptions.)
The 10 per cent rating covers non-luxury and semi-luxury goods and it contains 60 per cent of the whole range of goods covered by VAT. That 10 per cent is now increased to 15 per cent, an enormous and very penal increase of 50 per cent. It is followed by increase on beer, spirits, wine, cigarettes, tobacco, petrol, road diesel and liquid petroleum gas.
A wealthy bachelor's budget.
There is no give for the ordinary housewife. The £9.60 promised to her at every door has not come yet. It may come next year or later. Meanwhile the ordinary housewife going into a shop will know that she has to pay 15 per cent VAT — not 10 per cent VAT — from 1 September because of the Government who have now taken over.
I would remind those new Deputies in the House to read particularly what the present Tánaiste had to say when he was replying to the budget debate in April. He spoke then about the imposition of indirect taxation and he said that this was inflationary, that it was increasing the cost of living and that workers should be compensated for every percentage point in those increases. How does the Tánaiste feel now in the light of his speech then and the 3 per cent plus introduced by way of CPI increase by the Minister today? In the Minister's words the budget is deflationary. Here it is inflationary and contributing to inflation. We will have a cutting down and a slowing down in activity on the one hand and increasing costs on the other.
Regarding the increases, the Minister said that some of the policies are being implemented. I would say it is a very minute portion, made even more minute in the way it was presented, for example, the rebate promised on fuel applies from 1 December — the latest possible date. We will be questioning these figures later because they do not seem to add up to what we believe is the real figure involved. On the Financial Resolutions we will have a greater opportunity of questioning the assumptions the Minister is making about revenue from the various increases mentioned.
I was under the impression, as was the public, that the Government were introducing a 5 per cent increase across the board to social welfare recipients. Others are getting a 3 per cent increase. Surely the Minister will not try to persuade me that the recipients receiving a 5 per cent increase will be compensated for the increased costs imposed in the budget? Therefore, there is no chance that recip ients in receipt of a 3 per cent increase could be compensated.
On the question of the restoration of private motor tax, I smile when I look at the Minister for Fisheries and Forestry and recall his comments on these benches when we had a modest increase in registration fees a few short months ago. Now the Minister for Finance is restoring road tax. Has he some specific complaint against the motorist? Is he anti-motorist? He has increased petrol and road tax, in addition to all that has been imposed on them already. He has often said in this House how essential the motor car is today both in rural and urban areas. It is certainly essential in Dublin city since this Government came to power because there are no buses to take people to and from their destinations.
The financial statement presented to the House is so vague that it is difficult to understand parts of it. The Minister said hospital and prescription costs will be borne to a greater extent than heretofore by those users who are able to pay for them. Who are those users? The Minister and I might not agree on the interpretation of who might be able to pay for them. He may have one category, I may have another. It should be spelled out very clearly who those people are. The Minister goes on to say appropriate changes will be made from 1 August next in the terms of the drug refund scheme administered by the health boards and in hospital charges. Is the Minister saying that the PRSI contributor is going to have further impositions levied on him? He has already had indirect taxation. Is there now going to be a further imposition for health charges? The Minister should be honest and tell us what it means. He goes on to say that substantial savings will be achieved by the Departments of Justice, Environment, Education, Defence and others. What kind of savings? Will there be cutbacks?
That is what we all want to know.
The Minister said all these various Departmental savings will amount to £31 million in 1981. In what areas? In general, reductions will leave Departments with allocations not less than the original allocation in the January budget. We will be watching that very carefully.
The Minister for the Environment is studying the possibilities of enabling local authorities to gain access to new sources of revenue, other than rates. We are aware the present Minister, at a seminar in Donegal late last year, said he was personally in favour of restoration of rates on houses. Since he has assumed this portfolio, will rates be put back on private dwellings?
"Other categories" were the words used.
I am pointing out what the Minister said publicly in Donegal.
, Cavan-Monaghan): Fianna Fáil were putting it back by instalments.
I appeal to the Minister and to other Deputies to allow Deputy Fitzgerald to make his contribution without interruption.
Postal charges are to be raised by 20 per cent from 1 September next. Telephone and telex connections fees will be raised by £20 from the same date and telecommunications charges generally will be increased by 5 per cent approximately from 1 October. This will cure the list of telephone applications where my colleague had been making such progress in installing telephones. It is an enormous continuing imposition on business firms. There is nothing in the budget to help the business sector. We have a budget that contains taxes on expenditure, no capital taxation, although the advocates on the other side of the House have said they will introduce it. How soon? This was a very good exercise in publicity but remember there is more to governing than presentation. There are references to figures and they are very important. It is also very important that the finances of the country be guided in the right direction. We have always supported the idea of curbing the current deficit, but over a period and commencing at the appropriate time. The appropriate time is not now. When we were in office we succeeded in bringing the economy through the worst ever world recession in far better shape than the other EEC member states. All the evidence is that the second half of this year will see a marked upturn in world trade from which we can substantially benefit because of the policies of the previous government. That improvement in world trade will be enhanced enormously next year. The 2 per cent growth rate which the Minister claims was projected on Fianna Fáil policies. On those same policies the OECD projected a growth rate next year for this country of not less than 2½ per cent.
This budget is deflationary, on the Minister's own admissions. There is no whit of enjoyment for those seeking employment. There is no joy for school leavers whose main aim in July of any year is to get a job.
Will they now have little or no hope from a Government without a commitment to the greatest single problem in our community? I do not deny that unemployment is a problem. However, we can hold our heads high in comparison with conditions across the water because of the monetarist policies which, I fear, are now being adopted by this Government. Because of these policies in the UK unemployment there has soared to new heights. We have a growing work force, increased numbers going on the labour market. Through all our time we succeeded, despite the world recession, in keeping unemployment at reasonable levels.
That is my first, immediate reaction to this unnecessary budget which, purely for low-down political expediency, is presented by the Minister to this House this evening. There will be many reactions during the coming days. All Members of this House have an obligation and a duty to examine what I have said here and to ask themselves: was this budget really necessary, was it the right time to introduce the measures which have been introduced? Half of our population is under 25 years of age and this percentage is growing. They are well educated and deserve everything the country can do for them.
Government is not all about sums all the time, although sums must be done accurately and correctly. Government is mainly about people. If there is a difference between us and the parties opposite it is that we were always flexible and could adjust our situation to cater for the greatest needs of our people at any time. The greatest need of our people during a recession is to create jobs and to keep people in jobs. In this, our performance was a good one. We are now moving out and I hope that the deflationary measures adopted today will not be the beginning of monetarist policies.
Today's budget is a very poor reflection on the Government. It will set back the progress which has been achieved. It is incredible that a Minister for Finance should admit that the budget effect will be deflationary. This can only mean major unemployment, less opportunities for our young people. We had made arrangements for the recruitment of substantial extra numbers of gardaí. Has that decision now been shelved? These are all serious questions which every Member must ask himself or herself before voting on the tough resolutions imposing additional financial burdens on the ordinary people and not giving one single bit of compensation, other than a promise to bring in legislation to deal with youth employment, a promise to bring in, possibly next April, some of this £9.60 mentioned for women in the home. Perhaps when April comes for some other reason it will be postponed until September or April 1983. That is the kind of cloudcuckoo land idea this Government will be trying to convey, through the media, in this House during their short tenure of office.
Debate adjourned.