Before the adjournment of the debate I was in the process of reminding the House that the word "realism" re-entered the vocabulary of Irish politics for a short time between June 1981 and February 1982.
Financial Resolutions 1982. - Financial Resolution No. 6: General (Resumed).
Debate resumed on the following motion:
That is is expedient to amend the law relating to customs and inland revenue (including excise) and to make further provision in connection with finance.
—(Minister for Finance.)
That is why the Coalition went out of office so quickly.
We had arrived at a situation where Fianna Fáil had been forced during the course of a general election campaign to accept a current budget deficit of £715 million. That represented a major breakthrough by some in Fianna Fáil against those who wanted to run away once more into fantasy land. Having agreed that that current budget deficit was necessary Fianna Fáil put an election budget before the people. It was quite obvious that the conversion of Fianna Fáil to economic realism stopped short at the acceptance of that current budget deficit. Not content with pretending to accept that deficit on March 25 in the budget we were presented with a lower deficit of £679 million but as one read the Minister's speech it was obvious that the lower deficit had been achieved by means which were inept, dishonest and deeply damaging to the economy. It is true to say that since 25 March the figure of £679 million has been abandoned in the face of difficulty.
In the March budget a device was used to reach the figure of £679 million, the demanding of £200 million in advance from industry by the early payment of VAT at the point of import and the advance payment of corporation profits tax. The device was simple but it will be extremely damaging. It did not solve anything and was a desperate ruse to put off until tomorrow what Fianna Fáil cannot and will not face today, the need for the Irish people to pay their way in the economic world. Economists, commentators and industrialists were unanimous in their condemation of this extraordinary attempt at sleight of hand. The professor of economics at UCD, Brendan Walsh, in the course of an article in the Irish Independent on 26 March stated:
...the ploy of bringing forward the date of payment of VAT on imports and of corporation profits tax is of course an non-recurring item. The underlying deficit is therefore understated this year as will become apparent when the 1983 budget is presented.
That is one of the most mild comments on the device adopted by the Government but it is representative of the type of reaction. Another comment was contained in the Central Bank's statement on monetary policy of 1982 circulated on 17 April 1982 where, in very typical, restrained language, the Central Bank point out that part of the expected improvement in the Exchequer's finances this year is attributable to revenue intake of a non-recurring nature. Put simply, it is basically tomorrow's money.
The extraordinary thing about that figure which it was hoped to raise by this device was the question mark over its accuracy. In February, when Fianna Fáil produced their election budget, the figure for VAT on imports at the point of entry was £45 million. This grew by £100 million and it is expected to obtain £140 million for only three-and-a-half months of imports. These figures which change and shift are, in themselves, questionable and the whole philosophy is damaging.
In February, Fianna Fáil were talking about increased buoyancy which concept the Minister, in his speech on 25 March, very hotly defended as being soundly based. This is a suspect concept at the best of times, but it had doubled to £45 million by March 25, as opposed to the Fianna Fáil pre-election budget.
Fianna Fáil used to use the phrase "self-financing subsidies" instead of "increased buoyancy", but this was greeted with such derision that they had to drop it for the phrase "increased buoyancy". Even this figure of £200 million to be taken out of industry this year is suspect. It was given by the present Minister for Education when he was in the unhappy position of trying to meet Fianna Fáil's demand for an election budget. He must be a happier man in his present position, but God help the school children of Ireland. We are presented with this figure of £200 million — an extraordinarily heavy blow to our industry, which will make the 1983 budget position much worse. Where will the substitute for that crock of gold come from in 1983? The mind boggles at the thought.
It is important to look a little more closely at that figure of £140 million. It is generally reckoned that 70 per cent of that amount of VAT on imports at the point of entry is expected to come from imports of raw materials for industry and capital goods, some would be VAT on capital goods for agriculture, some for construction. That leaves an estimated £70 million or £80 million to be found by manufacturing industry in a period amounting to slightly less than four months. This figure is being demanded by Fianna Fáil from our manufacturing section — the most valuable, most necessary and most shrinking element of our economy. Indeed, it is frightening to consider the effect on employment of that sort of demand. The Minister began his budget speech with the phrase "The greatest problem facing this country today is unemployment and policy must have regard to this", and then proceeded to deal manufacturing industry this extraordinarily heavy blow, an example of the inconsistency which we have come to expect from Fianna Fáil. Where is that money to come from? It will come from borrowing once more, but in this instance the Government are using the company sector as an intermediary for their borrowing, with all the implications which that has for the future of financial stability and, in the short-term, the implications for our interest rates.
It is necessary to spend some time on that aspect, because this budget device of raising tomorrow's money from industry today is central and pivotal to the whole budget. It was the tool used to allow Fianna Fáil to remove everything which was then controversial in the Coalition budget. They removed every fund-raising aspect of that budget which was found to be unpopular or controversial, by the simple device of taking money from next year. Doing so will have a disastrous effect on employment and will take exactly £198 million out of a sector which Fianna Fáil themselves have described as the engine of the economy's growth, a sector on which our future depends.
At this point, it is also necessary to talk about an aspect of this budget which has been brought to our attention in an unprecedented campaign by the Irish Stock Exchange — a body which has never before involved itself in lobbying of the kind which it feels is necessary now. If it were not enough to damage industry, particularly the manufacturing sector, by this kind of budget device, the Minister then turned to the stock exchange. A 60 per cent capital gains tax on short-term gains will effectively remove the stock exchange as a potential source of funds for industry, one of the main areas to which industry could turn for more cash.
On the whole area of capital gains, I am certainly among those calling out for penal taxation on land and property speculation and entirely support capital gains tax in that area. However, in this extraordinarily ill thought-out and heavy-handed budget, the Minister either forgot, or did not care, about the effect of this 60 per cent tax on the stock exchange, a vital tool in the growth of Irish industry.
The stock exchange took the unprecedented step of circularising and visiting TDs and Senators and circularising journalists, because of the extraordinary damage which they feel that this tax will have on the Irish economy. It is worth mentioning some of the points which they raised. It will damage the marketability of shares in Irish public companies. The market in Irish industry and financial companies is not in a position to withstand a gains tax like that proposed. It will also damage, in time, the market in gilts, in Irish Government securities. It will make it extremely difficult to raise additional capital for Irish industry through rights issues. Last year, Irish listed companies raised £110 million by way of new equity. It will discourage further investment of savings in the form of productive assets.
The extent of the country's balance of payments deficit has been recognised as a major problem by successive finance Ministers. This deficit represents an excess of investment over savings, leaving the balance to be borrowed abroad. The proposal to increase the taxation on capital gains, particularly where no indexation relief is allowed at all in the first year, constitutes an additional disincentive to saving.
It will dilute the State's revenue from other forms of taxation, for example, stamp duty on share dealing. There will be a strong disincentive to engage in active short-term share dealing, particularly in one year, and the very narrow tax base in Ireland, which is already narrowing continually, will be eroded as a result. Another important aspect of the effect of this 60 per cent will be the participation of Irish companies in offshore exploration for oil. The potential income to the investor in this area consists solely of capital gains in excess of the rate of inflation. Therefore, if we have to use our money to finance offshore oil exploration this 60 per cent is punitive.
There are many other reasons why the 60 per cent capital gains tax on one year gains is damaging; but we must remember that, quite apart from private shareholders, nearly every working person is an indirect shareholder through his pension scheme or life assurance policy. Therefore, contrary to popular opinion, capital gains tax and the stock exchange are not matters for the very few or not of concern to a great many people. To summarise the fears of people involved in the stock exchange, it is felt that, should the proposals in relation to capital gains tax in the budget be implemented, the stock exchange would cease to be an effective market place, with grave consequent loss to the community and employment. The revenue raising potential is trifling compared to the damage which will be done.
I have given some time to the discussion on the problems facing the stock exchange because I believe it is causing ever-widening circles of concern in our manufacturing industry and in business generally. It was hastily done and I appeal to the Minister for Finance to set up a different scheme to affect only investment in stocks and shares.
There are some other aspects in the budget which are a disquieting sign of the priorities — or lack of them — of Fianna Fáil. A new tax credit system which was designed by the Coalition Government was unceremoniously ditched. This was the first real breakthrough in a review of a generally acknowledged unjust tax system. It was a new and fairer way of spreading the burden of taxation across the community. Why was it ditched? It was ditched because the Minister said it was administratively impossible this year. I would like to give an example of something which was administratively possible last week. The Minister for Finance decided that £45 million would be given back to the taxpayers. Despite major administrative problems involved in introducing this change in the tax code, the Government have shown that any budgetary proposal, no matter when it might be made in the course of the year, is game for a try, but they could not implement the new tax credit system. I suspect the reason is simple and has nothing to do with administrative problems — it is because Fianna Fáil have demonstrated over the years that they cannot bear anybody else to get the credit for a good idea. We have seen it again and again in the legislative process, in Private Members' Bills and in any item that might come up for public discussion. I believe that the reason the tax credit system designed by the Coalition was ditched in this budget was because of the vanity of Fianna Fáil. An opportunity was thrown away to reform the tax system, to set out on a new road towards tax equity and to answer the ongoing anger of taxpayers who feel that nobody knows or cares about their plight.
Deputy Molony mentioned earlier that a vital component of the tax credit system was thrown out, the recognition for the first time of the fulltime home maker's share in the family income, the famous £9.60. The Minister not only decided to throw it out, but he did so in very insulting words which were carefully noted by very many people. He said that the £9.60 weekly payment for spouses who work in the home would not be implemented, that the response to the scheme had illustrated clearly that the general public saw no merit in a cumbersome, complex scheme which merely transferred money from one spouse via the Revenue Commissioners to the other. The language barely conceals the Minister's distaste for equity in this area. The Minister does not talk about any substitute for this first recognition of the role of the home maker or any restoration of the principle of that scheme. His speech echoes the calamitous series of advertisements which Fianna Fáil placed in the national newspapers last June which described the scheme as robbing Peter to pay Paula. These were disastrous advertisements which summed up the fact that Fianna Fáil know nothing and have learned nothing about how women in the home feel about their lack of financial and legal status. That £9.60 scheme was introduced as a response to the calls of women's organisations for many years for a first step towards some recognition of the rights of fulltime spouses to family incomes. It was welcomed by women's organisations and by the Council for the Status of Women who felt that, despite the very small sums involved, it was nevertheless a major first step.
It was an insult to any stay-at-home housewife.
I have a parliamentary question down about the number of people who applied for it and my information from the Department of Finance is that the final number of applicants was 50,000. That is a great number of people for a scheme which was derided, mischievously poked fun at and ditched by Fianna Fáil because it had no merit.
It was an insult.
The number of people who wanted to be insulted by Fianna Fáil came to 50,000 and they now find they will not get any recognition whatsoever for any part of the family income.
It was an insult.
I wish the Minister would go on saying that——
The Deputy should not encourage the Minister to say anything because I am about to request him not to interrupt.
I should like to remind the Minister that I am making my maiden speech. The extension of that scheme to the very lowest paid as a family income supplement was also ditched without ceremony by Fianna Fáil. The extraordinary thing was that the Minister said that the £4 million, which was to be allocated for the family income supplement and which was part of the £9.60, would be used as a double payment in respect of the children of those in receipt of social welfare payments. In the subsequent debate on the budget the Minister hotly defended this and said that the £4 million would go to the same people who would have got it anyway, those on social welfare. That was manifest nonsense, but the Minister seemed unable to understand that one of the points about the supplemental payment was that it would go to families of workers at the lowest pay level. It was intended to be part of an incentive scheme to keep people from giving up work because they would be better off on social welfare. The Minister tried to pretend not to understand that. A double payment to the children of people on social welfare is not the same thing as a supplement to the families of the lowest paid workers.
In deciding to ditch the tax credit system, the £9.60 a week system and the family income supplement, Fianna Fáil displayed insensitivity to a first step in the right direction in terms of work attendance, and when we were campaigning in the February election it was a feature at the doorsteps that honest, decent, working people displayed extreme unhappiness about the widespread abuse of the social welfare system. There was a widespread feeling that people would be better off to ask the State to pay them rather than to get up in the morning to go to work: would it not be better for them to have a life of ease because they would have only £9 or £10 more if they were working, and at certain times of the year they would be better off if they were not working? That system has been generally recognised as making nonsense of State finances.
The burden of the State in respect of each person not working is enormous compared to the situation if the State did not have to pay persons because they went out to work. People on the doorsteps were very angry and it became a definite general election issue.
Two actions were taken in the Coalition budget which were eliminated in Fianna Fáil's rush to placate the people. One was the £9.60 family income supplement and the other was the tax on short-term social welfare benefits. Fianna Fáil turned their back on any attempt to cut out the social welfare system abuses because they wanted to avoid displeasing anybody. I should like to draw the attention of the House to a statement by Dr. Andrew Rynne that 250,000 health certificates a month are sent to health boards. He stated that £3 million a month is paid out to those sending in medical certificates. He believes that £3 million a month, £36 million a year, is going out to healthy people who do not need it. It amounts to a positive incentive to people to stay out of work because an untaxed PRSI system means that at certain times of the year people gain if they do not work.
Absenteeism from work in Ireland is six times higher than in Japan and twice the rate in the US. Deputy Molony earlier spoke about the problems that are worrying Dr. Rynne and I do not propose to repeat them, but I should like to know what do Fianna Fáil intend to do about the well-founded suspicion of abuse. I do not hope to get an answer because I realise that it is too difficult, too delicate, and would be too unpopular. It is possibly too much like responsible Government to expect Fianna Fáil to do anything about it.
At the other end of the scale we have had a new scheme introduced in respect of company cars. In our budget we tackled the question of company cars and any unfair element in the provision which might give people in managerial capacities too much money outside the tax paying net. The Fianna Fáil adjustment of that has been a matter of overkill. Mr. Seán Condon, the Foras Trachtála head, made a speech, reported in The Irish Times yesterday, about the vital need to attract and to keep managerial skills in Ireland. He particularly emphasised the need to attract managers, whereas I particularly stress the need to keep the managers we have. It is important to look at international figures so that we can compare the disposable incomes of managers here, in the US and in Great Britain. In the US, a top manager on £35,000 a year in 1982-83 would have a disposable income of £25,831, nearly £30,000, including the benefit in kind of a car. The comparable figure in Great Britain is £26,449. In Ireland it is £19,932. Therefore, at the top rate of managerial pay there is a difference in disposable income of £5,000 between a manager in the US and Great Britain and in Ireland. If we follow the rates down the managerial ladder and come to a manager earning £12,000, we find that a manager in the US will have a disposable income of £9,936, in Great Britain £9,448 and here the disposable income would be £8,706, a difference of about £1,000 a year.
That is another blow to management and progress in industry here. In their attempt to put together a budget that would appear to please nearly everybody, Fianna Fáil decided to raise money from an area where it would not appear to be unpopular. In doing so they have laid the seeds of widespread economic damage. The budget provisions which they said would reduce the Exchequer deficit by £679 million has now been completely abandoned, completely let rip, particularly in the £45 million tax scheme which has been a complete leap backwards. But we have also had concessions to keep mortgage interest rates from going up at all. So the Government steps in with more guarantees for foreign borrowing. The threat to interest rates has called forward another Fianna Fáil promise to guarantee foreign borrowing up to £200 million.
It may be helpful to the Deputy if I tell her that she has five minutes left.
It is a budget which turned out not to be a budget at all, a budget which might be described as an attempt by Fianna Fáil to stay in power at any cost because, having spent a lot of time discussing the budget and how one can constructively comment on it, we now find that it is being dismembered by the day.
I see that the Minister for Social Welfare is bringing forward a new rate of children's allowances at a cost of £12.5 million which he describes as a mere drop in the ocean in his budget. This sum is a drop in the ocean of foreign borrowing by Fianna Fáil. That is the sad truth. Well may The Irish Times in an editorial say that any remaining vestige of hope that this Government were going to tackle the very grave financial crisis now afflicting this country has disappeared. It disappeared with the Government's cave-in on the PRSI issue. Indeed, when Deputy MacSharry came into power he used an extraordinary expression. He said he foresaw a time of boom and bloom for the Irish economy. Well may we ask if the kind of measures and the kind of foreign borrowing being indulged in once more by Fianna Fáil will end up with the economy in a state of boom or bust. As Paul Tansey says in The Irish Times, the odds favour the latter result. Fianna Fáil are playing fast and loose with Ireland's economic stability, with our international credibility, with the future of young people who have to live and try to work in the atmosphere which politicians will leave behind them.
But one note of optimism remains. In the February election it was made quite clear that Fianna Fáil are nearing the end of their dominance of Irish politics. There are clear signs in this budget and in its dismemberment since that the country's demands have finally caught up with Fianna Fáil and that the foundations for realism laid by the Coalition Government will pay off in the return of the country to a Government who are not afraid to lead.
I was not as helpful to the Deputy as I should have been. Actually, if you are so disposed you do have another ten minutes.
I see. Well, I do not want my other ten minutes.
While not agreeing with a lot of the content of her speech I would like to congratulate Deputy Hussey on her maiden speech and wish her well in Dáil Éireann.
I wish to welcome the proposals which are contained in this budget of 25 March, the main outline of which was accepted by the electorate in the election of 18 February last. That is a fact which is conveniently forgotten by many people when commenting on the budget. An election was fought and won by Fianna Fáil on the major content of this budget and certainly on any item of principle. Never before was an election fought with so much detailed knowledge of the alternative budget an Opposition Party were prepared to introduce. Fianna Fáil were returned to Government following the outcome of the electorate's judgment on the merits of the proposals put before them. It is quite evident from the election results that the endorsement of the electorate was overwhelmingly in favour of the Fianna Fáil proposals.
During the course of the election campaign Deputy O'Leary and his colleagues sat around the Cabinet table and pronounced that the proposals of the January budget were sacrosanct and could not be changed. Nevertheless when their Government was defeated in this House and a general election ensued the Labour Party members quickly distanced themselves from the more obnoxious proposals which had been contained in that budget. Fine Gael and Labour, until the downfall of the Government, were totally united in imposing these tax proposals on the population at large, but as soon as the defeat occurred in this House they diverged rapidly. Statements were issued by the leader of the Opposition, Deputy Fitzgerald, and the then Minister for Finance, Deputy Bruton, that the proposals they had introduced were unalterable and that no detail of them could be changed. The campaign wore on and the facts of life began to dawn on those gentlemen and we saw a feat of acrobatics that would do justice to Duffy's Circus. I have no doubt that if there are ever any vacancies in that esteemed establishment the two gentlemen in question, by their performance, would easily qualify to take them up. In contrast, Fianna Fáil spelled out clearly and positively the proposals they intended to introduce when returned to office, emphatically stating that they would not countenance the Coalition proposals to impose VAT of 18 per cent on clothing and footwear or to impose the draconian measure of removing subsidies from foodstuffs, measures calculated to hit the very poorest sections of the community mosr severely. Nor were we prepared to engage in the penny-pinching exercise of Deputy Boland in continuing to prohibit the entry into our schools of four-year-old children. The electorate were fully aware of the alternative proposals and accepted them overwhelmingly.
This budget, even though its broad outline was clearly drawn during the course of the campaign, nevertheless contains a number of innovative features which have been widely welcomed. I would submit that the job of any budget is to introduce measures to secure and expand employment in the medium and long term, to bring order into the public finances and to promote equity in the tax system specifically to assist the low income families. These are attributes one would wish for but the achievement of these objectives differ depending on which side of the political divide one stands at a given point in time or how one sees that these objectives should be achieved. On this side of the House we believe they should be accomplished in a humane, caring fashion. This is where the two budgets in question, the one which never became fact and this one, differ greatly. Items which have been widely welcomed include the double payment of social welfare benefits on specified dates in respect of the children of social welfare recipients. I shall comment later on a point made by Deputy Hussey and others on that matter. Other items were the issuing of medical cards to recipients of old age pensions, ratification of the situation regarding interest rates on SDA loans, decentralisation of Government Departments and the complete removal of VAT from books. During the course of my submission I will refer to these and other matters and put before the House the philosophy behind the Fianna Fáil thinking in introducing these measures.
There is no doubt that the budget was constructed in such a manner as would instil confidence into the community at large and at the same time introduce order into the nation's finances. Its impact and scope have been so designed that the burden will not fall unevenly or heavily on any section of the community. It has been described by some of our more notable commentators in the media as an election budget. That is a charge I do not deny. It was an election budget. It was proclaimed before the election and the election was fought and won on it. It was a budget in which Fianna Fáil and the Minister for Finance, Deputy MacSharry, are fulfilling their commitment to the electorate having received their endorsement. They are carrying out their proposals in full.
Without question or doubt, and a matter which was admitted by the Opposition parties in the subsequent inquests of their defeat, the major item in the election and the factor which influenced the decision of the electorate—it also brought about the downfall of the previous administration — was the ill-conceived attempt to impose a rate of 18 per cent VAT on clothing and footwear. This above any other measure was an indication of the complete divorcement from reality which members of the previous administration's cabinet indulged in. Had they been in touch with reality they would never have attempted this measure. The impact of this measure on a working class family would have been catastrophic and would have brought about a reduction in their standard of living which would not have been compensated for in any way by any alternative measure. It was as clear a demonstration as was ever needed of the political naivety of Deputies Bruton and FitzGerald. I am certain these Deputies are now well aware that the political pulse of Ireland does not beat very well in the ranches of County Meath or the mansions of Donnybrook whose respective inhabitants, I would hazard the guess, could have afforded these measures without undue concern and could have afforded the luxury of advocating that they should be introduced. However, these people are a small segment of the population. I have no doubt that they encouraged Deputies FitzGerald and Bruton to continue to live in their dream world totally unaffected by the reality of the ordinary individual's struggle to make ends meet. This would have been made doubly difficult had these proposals been implemented.
Deputy Bruton showed scant regard for the consequences of these proposals, either for the unfortunate people who would have had to bear the impost when purchasing clothes and footwear or for the clothing and footwear industries. Coming from a constituency where many people are engaged in these industries and having been until quite recently an employee of a clothing company, I assure the Minister that his proposals to abolish these measures are widely welcomed especially by those whose jobs would have been jeopardised under the Coalition's proposals and whose children faced the prospect of having to make do with hand-me-downs as regards clothing and footwear. Deputy Bruton appeared to be quite keen to adopt the role of Dr. Who, a popular television character, who travels around in space from time zone to time zone. In that role Deputy Bruton was prepared to put his time machine into reverse and catapult us all back into a time zone when it was quite common to go to school without shoes. The only problem was that his colleague, Deputy Boland, wanted to ensure there would be no schools to go to.
I am delighted that their respective ridiculous measures have not succeeded and that the electorate were wise in their choice. As a result we are debating the introduction of alternative more realistic and caring proposals. The imposition of VAT at the point of entry on imports is a welcome measure. I was amazed that it generated such a lot of irrational and uninformed comment. During the course of the election campaign I listened to a radio broadcast when Deputy Bruton was commenting on the Fianna Fáil proposal to introduce this measure. I was astounded to hear a person who was a Minister for Finance suggesting that these proposals would jeopardise the jobs of workers in the clothing and footwear industries. I was amazed that he should make such a suggestion or that a Minister for Finance should be so ill-advised and show so little knowledge of the value added tax regulations as to suggest this. Had he taken a very cursory look at the regulations he would have seen that all component parts of clothing and footwear goods, with the exception of zip fasteners and in some cases fur trimmings, are at present zero-rated and not subject to VAT, so the situation did not arise.
There is no proposal in this budget, nor was there any proposal in the election programme, to alter the categories of items attracting the various rates of VAT and it is unbelievable that Deputy Bruton should have made such a nonsensical suggestion. I have to presume that, like the proverbial coward, he was whistling past the graveyard, being fully aware of the impact his proposals had made on the electorate. At the stage when he made his comments he probably was fairly certain of the outcome and was making a last bid to persuade people by some means or other that the Fianna Fáil proposal was dishonest or unworkable. Neither was true. This proposal is very honest and workable and should be welcomed by all who have concern for Irish industry and the welfare of our economy at heart.
I would have imagined that these proposals would be welcomed more readily and enthusiastically than they would appear to be by some commentators. In particular I refer to a comment in The Irish Times of 26 March from a spokesman on behalf of the CII. This gentleman was not particularly consistent in his approach but I have to presume that, like a number of other people at the time, it was a case of wanting to have his cake and wanting to eat it. He stated that they would support the imposition of earlier VAT payments on imports of finished goods but pointed out that these accounts were only one-third of the total imports while the remaining two-thirds comprised materials for further production. I think that everybody is fully aware that we must import the necessary raw materials for processing into finished goods for consumption on the home market and re-export. But a cursory glance at the accounts of a number of companies, either private or public, would demonstrate clearly that one of the factors affecting Irish industry and business at the moment is the level of over-stocking that is taking place and a reduction of these levels of stocks should be welcomed by these companies as well as by everybody else. This new system will force people into deciding whether it is really necessary to carry stocks as large as they have been carrying in the past, and ultimate benefit will result to the companies themselves.
That is not to ignore the fact that the Minister in his speech acknowledged that a problem might arise in certain industries and to that end he stated that he was prepared to consider — indeed, he gave a commitment to — looking at alternative financial arrangements for any company who might face financial difficulties due to these regulations. If the company is being provided with the facility of the additional interest necessary to finance the payment of VAT at point of entry I cannot see where any valid objection arises. I would have imagined that the CII, having seen this, would have welcomed a positive move which when implemented would go a long way towards curbing the escalating import excesses. People on all sides of the House have paid lip service to the need for such measures over very many years and have acknowledged the desirability of reducing this import excess, yet no positive measure has been taken until now to accomplish that.
I welcome very much this measure of imposing VAT at point of entry. No bona fide manufacturer or importer should have any fears from this decision. I believe that the State will gain a tremendous amount of revenue by this mechanism, revenue which under the present system is not making its way into the Exchequer and not contributing to the betterment of all sections of the community. One would need to be living in a vacuum to be unaware of the — I hesitate to use the word but feel it is necessary — rampant abuses of the VAT system and the collection of this revenue, particularly in relation to imported goods, and the advantage that these goods have at present as against the home-produced article. These proposals to impose VAT payments at point of entry will now confer an advantage on our home-produced products which has been sought and advocated for very many years. Now that it will be a fact I hope sincerely that those manufacturers at home will take full advantage of their new-found position and avail of the undoubted opportunities which will arise from the slowing down of imports and the creation of additional markets for their products due to the necessity for importers to pay this VAT at point of entry. While I welcome the proposals, I hope that the Minister for Finance when introducing his Finance Bill, the mechanism governing the implementation of these proposals, will arrange a system which will ensure that abuses will not be capable of perpetration under the new system.
The proposal is to make VAT payable on the 15th day of the month following the month of importation. I submit that there is scope here to introduce in a number of instances a system of bonding to ensure that if all the bona fides of the importers are not in order the State will not in any circumstances be deprived of revenue. At present, once the goods are cleared through the docks, if an importer is not bona fide he may escape scot free and the State will be at the loss of all of the revenue which would have accrued from such transaction.
I now refer to the question of import deposit schemes generally. This is not a system which is to be advocated in normal circumstances but many industries vital to the development of the State and its infrastructural facilities are being placed in some difficulty by foreign competition due, perhaps, to an illegal subvention being received by these companies in their native lands. I refer particularly to Cement Limited, a company of national importance which has a large plant in my constituency. There is at present a danger to this firm due to the importation of cheap cement of doubtful quality from doubtful sources. Without contravening EEC free trade regulations, the relevant Minister might be in a position to introduce a scheme of selected import duty deposits in order to protect a native company from unfair competition. I say this in the full knowledge that certain Deputies or persons outside the House may object to any curb on trade but we must take cognisance of the fact that this company have invested heavily in plant and equipment in my constituency and in the Limerick constituencies to gear themselves to be capable of producing 100 per cent of the cement and concrete needs of our building and construction industry. I hope the Minister will consider this suggestion.
There has been a suggestion by some Deputies opposite that there was some sleight of hand involved. Deputy Hussey made this comment. It shows how little they are aware of financial matters, how small were the attempts they made to understand these matters and also the magnitude of the attempts they made to confuse the electorate by making such suggestions. The fact that the Minister for Finance intends to introduce these proposals from 1 September means that revenue will accrue to the State and will continue to accrue in the years to come, provided that the Minister or one of his successors does not decide to alter the regulations. These proposals are fully welcomed on this side of the House in that they will have the double effect of raising revenue which is required to provide social services and infrastructural facilities and will lead to a large reduction in the import excess.
I now refer briefly to the income tax proposals in the budget and to a number of comments which have been made about them. The system as advocated by the previous administration of introducing tax credits has been abolished in this budget because of the administrative difficulty and because they may not be inherently correct for the situation existing here. It begs the question why the previous administration were not prepared to await the report of the Commission on Taxation before rushing into a system which would not have conferred any great benefits on the majority of people. I went through the exercise of trying to work out the benefit which would accrue to me under these proposals and I found them incomprehensible. I could not work it out. Conveniently it was not stated clearly enough to most people that the income tax allowance in respect of children was being abolished and under the proposals for child benefit allowance I or, more correctly, my wife would have had a net gain of 92p per month. These proposals would not have been of great benefit to anybody and therefore I support the Minister's contention that the time was not correct and that he is right in eliminating the proposals and awaiting the report of the Commission on Taxation. In the light of that report we will see what can be done.
Deputy Hussey referred to an item which has gained undoubted notoriety since June 1981. The infamous £9.60 per week is probably the joke of the century and its elimination in this budget is unlamented. I believe this was the greatest fraud ever perpetrated on the electorate. Many people foolishly believed that if they were housewives performing the duty of staying at home fulltime the Coalition parties would by some magical means confer on them the benefit of £9.60 per week. I suppose that to many hard-pressed housewives this was manna from Heaven until their husbands enlightened them that they were getting a commensurate reduction in income. I have no hesitation in stating my belief that the vast majority of people shed not one tear for the elimination of this ludicrous item which was included in the January budget. It was unasked for, badly thought out and put across to the public in an improper fashion, and nobody laments its passing. An indication of the contempt in which it was held was the very poor level of application for it and had there been an opportunity to do so many people would have withdrawn their applications
In the income tax proposals there is an item relating to the taxing of benefit in kind. Some Deputies opposite have expressed indignation at this proposal, suggesting that in some way it would impinge on the ability of industry to recruit the proper calibre of staff for managerial positions. I think this is an untenable point of view. If there is to be tax equity we cannot have a situation where a person who is in the privileged position of being provided with a car by his company, and probably with the means of running it, does not pay the appropriate rate of tax on that benefit. On a conservative estimate that benefit would cost a person between £2,000 and £2,500 per annum. This kind of situation gives rise to claims of injustice in relation to the operation of the income tax code and has done so during many years. It is only proper that when people receive benefits of this magnitude they should pay the appropriate rate of tax.
I wish to refer to two other items included in the budget and to ask the Minister to consider the points I put forward. The first refers to relief on personal interest. This facility has been used extensively by those in a position to do so, namely, by the better off section of the community who had the highest tax bills. It was a mechanism to reduce their tax liability by incurring as many loans and as much interest as possible within the limits of their resources. Effectively such people reduced their commitment to society. Of course people who were not able to do this could not avail of this facility under the income tax code. It may be said that this is the politics of greed and envy but I do not agree with that. It is only right that those who can afford to pay should be asked to pay.
I ask the Minister to make more clear in the Finance Bill the proposal with regard to mortgage interest. I understand and accept the thinking behind the restriction in the budget whereby income tax relief will be allowed only in respect of the borrower's only or main residence and that relief will be limited to the 25 per cent or 35 per cent rate as appropriate. However, I put the case of a person currently claiming relief on an existing mortgage who, of necessity, is obliged to extend his living accommodation because of family size, disability or some other feature. I ask the Minister to ensure that a person who extends his house for genuine and bona fide reasons will be allowed to claim interest relief on any loan he may have to take out to finance the building of this necessary accommodation. Loans and grants are available through the local authorities to persons in certain categories of disablement for the provision of bathroom and toilet facilities suitable for invalids and those suffering from multiple sclerosis. It is only right that these people should be allowed to claim on the interest that will arise on the repayment of such loans. I have no doubt that the Minister will take due notice of this kind of situation and take the appropriate measures.
The 25 per cent increase in social welfare benefits has been welcomed by all. All parties in this House are agreed that the old, the sick and those incapable of looking after themselves are entitled to the best treatment the State can give and are entitled to an amount that will enable them to live in dignity. I welcome the implementation of the increases proposed in the budget, particularly the intention to provide a double week's payment in September or October for the child dependents of weekly social welfare recipients. I welcome the abolition of the tax credit proposals and also the £9.60 per week. In my opinion, and this view was shared by many, these proposals were nothing but an administrative extravaganza. They would not have contributed one iota to the benefit of the social welfare classes or those in need.
However, I must raise a matter which is the subject of considerable comment among the public and one that gives rise to heated debate in many cases. I want to make it clear that I am not suggesting that those in need should not receive a wage that will enable them to live in dignity. In my early childhood I was reared on a widow's pension. I know that everyone is entitled to a sense of pride and dignity. People are entitled to be treated courteously by the State when they fall into circumstances not of their own making. Having made that clear, I want to refer to a situation well known to all Deputies but which is one that many do not refer to because of fear of misrepresentation or misinterpretation. I am talking about the situation that arises during the course of payment of disability benefits, particularly when the flat-rate benefit is coupled with the pay-related element. I ask the Minister, in conjunction with the Minister for Social Welfare, to re-examine this area. I ask him to ensure that the system will not allow a person to obtain more in take-home pay than he would normally receive if he was gainfully employed in his normal occupation.
I want to stress that under no circumstances am I suggesting that social welfare benefits should be taxed. The proposal by the previous Administration was wrong because it would not have discriminated between those genuinely in need and those who are not. Therefore, I would not support the introduction of any system of taxation on social welfare benefits, but I ask the Minister to examine the situation very carefully to ensure that a person in receipt of disability benefit does not receive more in take home pay than if he were working normally. I acknowledge that a person who is genuinely sick is entitled to get the same amount of money he would get if he were in work but it is quite wrong — and many people agree with me — that people should get more money when they are in receipt of disability benefit.
Debate adjourned.