Financial Resolutions, 1983. - Financial Statement, Budget, 1983.

We are now moving to Item No. 1, Financial Motions by the Minister for Finance. Before I call on the Minister for Finance to make his Budget Statement I wish to remind Members that none of the confidential information which will be circulated in advance by the Minister to certain Members may be disclosed to anyone until the Minister has revealed it to the House. Premature disclosure of the information is considered a serious breach of privilege. I now call on the Minister for Finance.

On a point of order, will the Minister see to it that every Member of this House receives a copy of his speech at the same time? This was agreed on the last budget.

That is not a point of order.

It was agreed on the last budget that this would be done and I expect that it will be done.

That is not a point of order.

The main objectives of budgetary policy this year are:

—to reduce the overall Exchequer borrowing requirement;

—to reduce and control the current budget deficit;

—to minimise the effects of recession and of the necessary adjustment policies on the low-paid and on those on low incomes generally;

—to achieve the necessary moderation in pay policy so that we can reverse the decline in competitiveness which so endangers our employment levels.

We are in the grip of a severe recession. The natural reaction to this situation would be to prepare a Budget which would give a fiscal stimulus to the economy. After careful reflection and consideration of all the factors affecting and determining our present situation, the Government have concluded that this course is not open to us.

In my view, it is vital that we in this House and the people we represent should understand clearly why this is so. The origins of this budget lie almost ten years in the past. During the sixties, we enjoyed stable, self-sustaining growth which met a sudden shock in the massive oil price rise of 1973. We faced a real choice then, but instead of reducing our living standards to accommodate this transfer of real resources to the oil producers, we decided, in effect, to avoid the new reality and instead to maintain our living standards and finance them by borrowing. This was a perfectly acceptable way of dealing with the problem in the short term, provided we were setting in train measures to increase productivity and production and thereby to adjust to the situation in the medium term. We did, in fact, take some steps towards making the necessary adjustments in the mid-seventies, but unfortunately these measures did not go far enough and the policy was not sustained. This, in retrospect, can be seen as a major policy error, because at a time when economic conditions were favourable and provided scope for further rectification of the Exchequer position, Exchequer borrowing was in fact substantially increased.

When the second oil price shock of 1979-80 arrived, therefore, the margin for manoeuvre in the economy which could, perhaps, have absorbed it, had already been taken up and the nation was, collectively, unwilling to face the severe measures which by then were called for. We continued in the delusion that we could maintain our standards of living by borrowing, even though this second major increase in oil prices had substantially increased the transfer of resources to the oil producing countries. The world recession then became another reason for cushioning ourselves against reality. As a result, we were one of the later countries to feel the effects of the recession in terms of lost output and employment. Borrowing effectively bought us time, but the cost of repaying that borrowing has pre-empted resources for the future. We must now face that reality.

The July 1981 supplementary budget was the first real attempt to do this. The proposed January 1982 Budget aimed at consolidating this turnaround. The March 1982 Budget interrupted progress on this path and was itself undermined by international and domestic economic developments.

It is clear from what I have said that the position we are in today is not the result of recent developments, or of a sudden change in our circumstances. It is the result of an accumulation of drift over a number of years and cannot be reversed overnight. We are, therefore, facing two or perhaps three years of unremitting effort to restore a proper balance between expenditure and revenue and to lay the foundations for growth and prosperity in the future.

As I have said, a beginning was made in July 1981. The most encouraging aspect of 1982 was that expenditure was kept within the limits set in the Budget, even if by belated action. This is the first time for years that this has happened. In the time that has been available to this Government since we took office, we have had to concentrate on making the decisions required to restrain the built-in pressure for further growth in expenditure rather than getting down to the fundamental readjustments which will be necessary. It is very difficult to change the course of expenditure in the short term and the inescapable rise in unemployment expenditure due to the recession inevitably adds to these difficulties. The main impact of today's budget on the current budget deficit will be largely through tax changes, but our intention is that expenditure adjustments will be the primary focus of Government attention during the coming year.

In our Programme for Government we are committed to achieving economic growth and higher employment, while exercising a disciplined financial management and placing special emphasis on competitiveness. This is a difficult target, but the measures which I will introduce today are a first step on the road to genuine progress. This policy will require that we bring about a gradual improvement in the State's finances and eliminate the current budget deficit on a phased basis between now and 1987.

Eliminating the deficit means both extra taxation, on the one hand, and controlling State expenditure on the other. To attempt to close the gap completely by taxation would require levels of taxation which would simply be unacceptable. Cutbacks in services are, therefore, unavoidable. In curtailing services the Government are taking all possible steps to ensure that the poorer sections of the community do not suffer. Eliminating the deficit and reducing the stifling weight of past borrowing on current economic and social policies also means recognising, as a community, that we cannot, over the next few years, sustain the level of expectations as to real living standards that has become so widespread in recent years.

Today's budget is introduced against a background of continuing international recession. More than once in recent years we have glimpsed a false dawn of recovery, only to have our hopes dashed. There is now a cautious optimism that an improvement is likely later this year and I hope that this optimism will prove justified. This cannot be used, however, as an excuse for inaction, more especially since the impact of any world recovery on our economy cannot be felt before the end of this year; it must rather strengthen our determination to bring about substantial improvement.

Successive Ministers for Finance in recent years have indicated their concern to establish a more equitable system of taxation. There has been a widespread recognition that the burden of taxation is unbalanced and is excessive in some areas. The extra taxation imposed in this Budget makes it imperative that substantive progress be made in improving taxation equity, and the Government are totally committed to changes in taxation over the next few years which will result in a demonstrably fairer system. The specific taxation measures in today's budget will bear witness to this commitment.


The Programme for Government recognises the need for reforms in our parliamentary institutions and financial procedures. My principal contribution to this process will be to see that procedures relating to public expenditure and taxation are up-dated and that Dáil Éireann is better informed on expenditure developments.

I intend shortly to publish the results of a pilot exercise which my Department have undertaken, aimed at a new, comprehensive presentation of public expenditure by programme to complement the traditional Estimates volume and other budget publications. This presentation will identify major areas of policy by activity rather than by departmental responsibility. It will show the total costs associated with each area, provide background information on the activities and policies being pursued and will develop measures of output and performance where possible. In the light of reaction to the pilot presentation, I will consider extending this approach to the whole range of public expenditure.

I also intend to introduce reforms aimed at streamlining the Government accounting system. Proposals are under preparation in my Department to standardise the information provided in the annual Estimates and to place greater emphasis on expenditure-type classifications. There will also be a better balance between the amount of detail provided and the size of the various provisions.


Economic commentators are generally agreed on how the economy performed in 1982 and on the pattern of likely developments in the year ahead. The outturn for 1982 clearly illustrates the price of failure to take adequate corrective measures in earlier years. The imbalances in the economy, combined with the continued impact of recession, are now taking a toll in terms of unemployment unmatched since the early thirties.

Despite Exchequer borrowing of £1,945 million, equivalent to 16½ per cent of GNP, growth in output was only about 1 per cent in 1982 and this growth was in any event more than absorbed by the sharp increase in interest payments abroad. Furthermore, output in transportable goods industries remained static, while total investment declined and private investment was down for the third successive year.

This deterioration clearly demonstrates that excessive borrowing is not an antidote for international recession. Far from helping investment and employment, it adds to the burden of debt service and encourages excessive pay claims which undermine our competitive position. It also affects confidence, both domestic and foreign, because it suggests that we lack the will to make the necessary adjustments to live within our means.

There are, admittedly, certain positive features, notably the easing of inflation, the fall in interest rates and the recovery in agricultural output. The year 1982 also saw a worthwhile increase in industrial exports, but unfortunately this rate of increase is expected to weaken in the year ahead, an ominous reminder of the importance of competitiveness in a weak international market.

While a modest recovery in international trade is expected during 1983, it is unlikely to be sufficiently strong to have a major impact this year on industrial exports. Prospects generally for next year are, however, somewhat better: international inflation is coming down, international interest rates have dropped considerably and there are signs of an increasing willingness by governments to co-ordinate their policies in a mutually supportive way.

Clearly, the resolution of our present difficulties will take several years of concerted policy action and it will be essential to ensure that all the resources of the nation are brought to the task. Permanent structures to ensure effective economic and social planning will, therefore, be established and an outline of these planning arrangements has been set out in the "Economic Background to the Budget".


Pay developments will be a critical factor in determining whether the many problems confronting the economy will be eased or worsened.

In a small economy, as dependent as we are on international trade, we have no alternative but to ensure that our unit costs are brought into line with those of our major competitors for the goods and services we produce. Otherwise, existing jobs are lost to overseas suppliers and Ireland's attractiveness as a location for new manufacturing and services jobs declines or could even disappear. A major determinant of changes in our costs is the development of labour costs and, in particular, wages. In 1982, our wage costs per unit of manufacturing output rose by twice the average of our major trading partners in national currency terms. The sad consequence of this is that many factories had to close their doors and jobs were lost on a large scale. Some of these jobs would have been lost in any event, but it is a bitter experience to have added to them because of cost increases imposed at our own discretion.

The latest forecasts for our major trading partners show that their unit wage costs will increase by no more than about 5 per cent on average in 1983. When account is taken of the carry-over effects of increases here last year, the scope for a further pay rise is very modest, even if our aim is no more than to maintain competitiveness in our main markets. We should, of course, be striving not merely to maintain but to improve competitiveness and thereby provide the maximum opportunities for job creation. At a minimum, a more moderate and responsible approach to pay rates is called for. The Government recognise the commitment of the social partners to maintaining and increasing employment. Wage moderation is the only practical way of achieving this on a permanent basis.

As already announced, the Government intend, following the Budget, to have further consultations with the trade unions and the employers on the outlook for the economy and employment, including pay development. Pending the outcome of these talks and in order not to prejudice their results, the Government have asked all employers and unions, whether in the public or private sector, not to take any action which would set a headline for a new pay round.

The Government's ability to provide for additional increases in public sector pay is severely curtailed by the state of the public finances. The Exchequer pay and pensions bill has grown substantially in recent years to a point where it amounted to £2,187 million in 1982. This represented an increase in excess of £260 million or over 13.5 per cent on the 1981 outturn. Furthermore, this increase occurred despite the almost total moratorium on special pay increases arising from the terms of the revised public service pay agreement.

Turning to 1983, the Government were faced with an opening cost for the Exchequer pay and pensions bill of £2,391 million. This represented an increase of £204 million or 9.3 per cent on the 1982 outturn. It includes the cost of the deferred 5 per cent third phase of the public service pay agreement, which was paid from 1 January 1983. The revised public expenditure allocations, which I will deal with later, will reduce this bill by about £16 million. I must, however, make provision today for an extra £60 million to cover the cost of retrospective payments for the period of deferral of the third phase during 1982 and also the cost of special pay increases which were provided for in the renegotiated settlement of the public service pay agreement last October. As a result the Exchequer pay and pensions bill will rise by about £250 million or almost 11½ per cent compared with 1982.

This leaves little room for a further increase, no matter from how late a date, on the expiration of the present public service pay agreement. I am, in fact, making no provision in the Budget for any further pay settlements in 1983. If the outcome of the consultations already referred to necessitates increased expenditure on pay this year, then it will be necessary in turn for the Government to take appropriate measures in order to fund the cost.

Public sector conditions of service, including pay rates, compare favourably with those in private employment. In the current recession, with sharply rising unemployment, most public sector workers would agree that they enjoy a sense of security of employment which is lacking in almost every other area of the economy. This security can be guaranteed only if balance is restored to the national finances, a process which in turn is highly dependent on future developments in public sector pay. The Government, therefore, feel entitled to call on public sector unions to take full account of the imbalance in the public finances and to have adequate regard to their members' longer-term interests in formulating and negotiating pay claims in 1983.

I believe that public sector workers should have regard to the overall interests of the national economy and above all to the employment prospects of fellow-workers, the viability of many of whose jobs is currently at risk. Good industrial relations are also important in attracting industry to this country and in this context I feel that those who have jobs should consider their obligations to those less fortunate. Thankfully, our record on industrial relations in 1982 was a relatively good one even if our cost increases left much to be desired. We must get both our costs and industrial relations right in 1983 to make progress in solving the very grave problems facing us.


The elimination of unnecessary or out-dated schemes and programmes and the promotion of administrative efficiency are the cornerstones of the Government's policy in relation to public sector numbers. The foundations of this policy were laid in July 1981 with the decision to contain public sector numbers within the levels then obtaining. Restrictions on the filling of public service vacancies to offset the creation of essential new posts were announced in the Budget Statement of 27 January 1982 and continued in force by the Government statement of 30 July 1982. The Estimates published last November were prepared on the basis that these restrictions would continue up to the end of 1983. The effect on public sector numbers is that, for 1983, the arrangement whereby two out of every three vacancies are held open as they arise will continue to apply to the civil service and many non-commercial State-sponsored bodies. This restriction will also apply in full to the officer grades of the local authorities. Measures of equivalent effect both in terms of numbers employed and costs are being applied in the Defence Forces, the health area and the non-teaching staff in the education sector.

While these restrictions will yield immediate staff savings, the longer-term savings must be achieved in association with the ongoing review of administrative efficiency and of schemes and programmes of all Departments conducted with the involvement of the Departments of Finance and the Public Service. These reviews are being intensified forthwith and will embrace all areas under the control of each Minister. High-level steering committees in each Department will examine, on a continuing basis, all opportunities for increased efficiency and the feasibility of eliminating schemes and programmes or reducing their scope, in order to release staff for redeployment on other more important tasks.

These measures are directed at the improvement of the cost-effectiveness of administration — securing better value for money. Such improvement can be lasting only if it is part of the general improvement in the management of Government Departments. The development of better systems of management in all Departments, systems which will place increased responsibility for results on individual managers, will be an important feature of the programme of public service reform being undertaken by the Minister for the Public Service.


The current budget deficit for 1982 was £988 million, or 8½ per cent of GNP, and the overall Exchequer borrowing requirement reached £1,945 million, or 16½ per cent of GNP. While Central Fund Services cost £39 million more than provided for, due mainly to high interest rates, expenditure on current services was £92 million below the March 1982 Budget estimate, due to a combination of the corrective measures taken in July 1982 and restrictions on recruitment and on the filling of public service vacancies.

Expenditure on the Public Capital Programme and on non-programme outlays was £117 million below the March budget estimate, resulting in Exchequer borrowing for capital purposes being £47 million below the March budget figure.

Contrary to the experience of previous years, the difficulties in 1982 arose from revenue shortfalls rather than expenditure overruns. These shortfalls reflected both the lower growth in incomes because of the international recession and a steep fall-off in the level of real consumer spending. The result was major shortfalls in revenue from income tax, VAT and excise duties.

The overall outturn for 1982 was disappointing. In the event, however, current expenditure for the year was maintained within the target levels set in the March budget, and there was a turnaround in the growth of the Exchequer borrowing requirement as a percentage of GNP.


Five years ago, the Exchequer's debt service absorbed 77 per cent of income tax revenue. In 1982 it absorbed the whole of a much higher income tax figure. We cannot go on pre-empting more and more revenue in the service of debt much of which, to make matters worse, has been incurred on capital investments which have produced little or no return. It limits our options for creating an economic climate for development, it limits our options for social policy and constricts our ability to borrow in future for essential purposes.


In 1982, sales of Government securities were a record £736 million. Sales to the banks represented more than a doubling of 1981 receipts, while sales to the non-bank domestic sector showed an increase of £300 million on the 1981 outturn. Receipts from both sources were heavily influenced by the effects of recession on other investment outlets and we must, therefore, be cautious in assuming that large-scale domestic funds will automatically be available this year to meet Exchequer needs.


Net foreign borrowing was £1,148 million in 1982, some £140 million less than in 1981, a reduction in part made possible, as I have already said, by favourable conditions in the domestic gilt market. We must make further progress in reducing our foreign borrowing in 1983. When we borrow in foreign currencies, the debt must be repaid in those currencies. If they appreciate, the repayment of the loan costs more in Irish pound terms. Foreign currency appreciation alone added £340 million to the Exchequer's total foreign debt during 1982.

In addition, much of our foreign borrowing is on a floating interest rate basis. International interest rates are notoriously volatile, as was clearly demonstrated last year. An increase of just one per cent in the average rate of interest would cost us about £33 million in interest payments over a full year.

Foreign interest charges add considerably to the balance of payments deficit, accounting for one half of it in 1982 alone. This represents a real drain out of the country of resources which we need for our future economic and social development and they must be paid for by increased exports in a difficult international climate.

The position in 1983 is qualitatively different from that in previous years. For most of the last decade, we have been able to regard foreign borrowing as, in a sense, the residual source of Exchequer finance after both domestic sources and the possibilities of extra taxation had been used. This may no longer be the case. Severe strains have become apparent during the past six months in the international banking system. The well-publicised difficulties of a number of major sovereign and commercial borrowers have caused serious funding problems for lenders. There is now a real question mark over the ability of the system to continue expanding at the rapid pace of recent years. While our own ability to borrow is, so far, unimpaired, the international climate of uncertainty underlines the need to reduce our dependence on foreign funds.


We must, therefore, rely increasingly on our own resources. Saving is an aspect of that self-reliance and it is a habit which must be encouraged.

National Savings which are operated through the Department of Posts and Telegraphs and the Trustee Savings Banks, with the advice of the National Savings Committee, have a number of worthwhile schemes for the small investor. In order to keep up the momentum achieved in recent years, I propose to make the following improvements in selected schemes:

(i) I am increasing the maximum amount which persons of 55 years or over may hold in index-linked bonds from £5,000 to £10,000 and I am introducing joint holdings of the bonds;

(ii) I am also increasing from £100 to £150 a month the maximum amount which a person may invest in national instalment savings and reducing from two years to one year the deposit period required to earn an index-linked return on amounts saved under the scheme.



The pre-budget estimates of receipts and expenditure, published last Saturday, show the opening deficit on current account as £956 million. This might suggest that, even before taking any measures in this Budget, we have already a starting-point lower than the 1982 outturn. The reality is, unfortunately, a good deal worse. The £956 million figure is based on the expenditure proposals of the previous Government as published last November and takes account of the excise duties imposed by this Government from 8 January of this year. As I shall explain later, a number of factors would, in the absence of countervailing action, have added a total of some £134 million to this figure, while the £119 million of excises introduced in January is, properly speaking, a part of this Budget. The combined effect of both these adjustments is to add £253 million to the figure, giving a true opening deficit of £1,209 million. In addition, a budgetary provision for increases in social welfare payments must also be made and I will deal with these towards the end of this statement.


The estimate for expenditure on Central Fund Services this year at £1,650 million shows an increase of £250 million on the 1982 cost of £1,400 million. The cost of servicing the public debt accounts for almost £220 million of this increase, with the growth in the size of the public debt substantially outweighing gains from changes in interest costs.


Tax revenue is estimated at £4,572 million, or almost 13 per cent above the 1982 outturn. The underlying rate of increase is not as large as in recent years, reflecting a tapering-off both in inflation and in the rate of increase in incomes. The estimate for non-tax revenue, at £984 million, is 15 per cent above the 1982 outturn. It allows for a modest growth in Post Office business in 1983.

The opening revenue figure does not take account of the impact of today's measures on underlying revenue buoyancy and I will be making an adjustment for this in reconciling the total budget arithmetic. This procedure is a departure from the usual practice, under which the buoyancy impact of the budget was taken into account in the opening revenue figures as published in the White Paper on Receipts and Expenditure. The procedure I am adopting represents more accurately the overall impact of the budget.

I have already referred to the major shortfalls in revenue in 1982. As a consequence, the bases for making tax forecasts have been thoroughly reviewed and I am statisfied that the budget estimates are as accurate as is reasonably possible. This is not to say that there is no uncertainty and that there will be no significant divergences under individual headings. Tax forecasting, particularly at a time of economic uncertainty, is open to a wide degree of error. I am confident, however, that if economic performance comes up to expectations, the overall tax revenue outturn will be close to target.


The borrowing requirement for capital purposes on the basis of the expenditure proposals as published by the previous Government, plus potential overruns of £17 million, came to a total of £1,023 million. If we add to this the true opening current deficit of £1,209 million, it will be seen that I was faced with an opening Exchequer borrowing requirement of £2,232 million. The magnitude of this figure is in itself a clear indication of where the drift of policies over the last decade was leading us and a measure of the size of the task that faces us in rectifying the public finances.


The Government's room for manoeuvre in framing the budget strategy was, therefore, extremely limited. I have already mentioned that in normal circumstances there would be arguments for stimulating demand, particularly from the viewpoint of encouraging growth in employment. The experience of that policy over the last ten years shows that it produces very limited returns. Its impact on the Exchequer finances has, however, been severe and its continuation is no longer a practical option.

The consequences of the position are, therefore, crystal-clear. We must achieve a major reduction in Exchequer borrowing. To defer action for yet another year would be neither prudent nor feasible. The problem would become greater and our capacity to solve it weaker. The Government have, accordingly, decided on major expenditure and taxation changes with a view to reducing borrowing to a more acceptable level.


The budget does not usually change the thrust of public expenditure policy, since it is normally the same Government which present both the Estimates and the budget. The Estimates and the Public Capital Programme as presented to this House were, however, adopted by the previous Government.

The Taoiseach has already said in this House that he has no doubt that the previous Government would have taken the necessary policy decisions in respect of all of the published Estimates, and validated the Book of Estimates in due course by so doing, had the Government not changed, or the election not taken place. But when this Government took office, we found that some of the decisions required to stay within the financial limits implicit in the Estimates remained to be taken.

The main area in which this situation faced us was in relation to the Exchequer contribution to local authority finances. Furthermore, there were decisions taken by the previous Government which we rejected, a step which involved accepting the implication of higher expenditure unless there were off-setting savings elsewhere. Finally, the provision made in the published Social Welfare Estimate for unemployment was based on a view of the likely average level of unemployment this year which the unexpectedly large increase in the live register figure for recent months has shown to be optimistic.

Taking account of all of the factors I have mentioned, expenditure in 1983, current and capital, would, in the absence of countervailing action, have been over £150 million higher than decided by the previous Government. This Government could not accept that position. Our view was that, for the reasons I have already given, it was imperative to reduce total public expenditure, taking current and capital together, below the level decided by our predecessors.

As regards current expenditure, the position as decided by this Government is that, after taking the necessary decisions to eliminate excesses and to provide for inescapable commitments, the total revised provision is £4,891 million, or some £29 million more than the provision of £4,862 million in the 1983 Book of Estimates. Holding current expenditure to this amount has required policy decisions involving some £105 million. Details of these expenditure reductions are set out in detail in the Principal Features of the Budget, which will be available to Deputies at the end of my speech, and the reductions are summarised at column (5) of page 2 of that document. The increase of £29 million does not take account of the additional public service pay cost of £60 million to which I have already referred or of any provision for social welfare increases.

The Government's decisions will be reflected in the full and revised Book of Estimates which will be published in some weeks time. The Public Capital Programme is also being fully revised and will be republished shortly. I will mention a few examples here.

The Government are providing £31 million more for unemployment benefit and assistance payments than was allocated in the published Estimates. An additional £31.5 million is being provided from the Exchequer to local authorities, by way of the grant in relief of domestic rates and the grant in relief of agricultural rates. Legislation will be introduced as a matter of urgency under which local authorities are to raise about £65 million in extra revenue themselves by way of new local charges and increases in existing charges. This they must do on the necessary scale; no further Exchequer aid will be provided this year.

As regards capital expenditure, the position had been reached by end-1982 that spending on the programme was about 60 per cent higher in real terms than in 1977. But large elements of the programme, while adding sharply to the burden of interest payments on the Exchequer and State bodies, were having little or no effect on the country's capacity to produce and sell more goods and services on world markets.

In the light of this experience and having regard to the overriding constraint imposed by the need to reduce the Exchequer borrowing requirement, the Government have decided to reduce the Public Capital Programme, as published, by £220 million in total. This reduction includes the deferment for this year of the global contingency provision, pending the emergence of projects which would meet the necessary investment criteria. A provisional allocation of £120 million was made by the previous Government for this, but was not earmarked by it for any particular projects. Details of the other capital reductions are set out in the Principal Features of the Budget. A new additional provision of £1 million is being made, however, for the task force on special housing aid for the elderly.

In the Programme for Government we undertook to establish a National Development Corporation, which would have a major innovative and developmental role directed towards growth areas of the economy. Consideration is already being given to the legislative and other measures which need to be taken to establish the corporation. In the meantime, I am providing £7 million capital for any new projects which the corporation may undertake this year. This amount is additional to the £3 million capital which has already been provided for projects to be undertaken by the National Enterprise Agency.

A net reduction of £43 million has also been made in the Exchequer provision for capital restructuring of commercial semi-State bodies. The final allocation of the reduced sum will be settled by the Government after they have considered further the position of a number of these bodies.

As a consequence of these steps on capital spending, and taking credit for an increase of £4 million in internal resources, the Exchequer borrowing requirement for capital purposes has been reduced from the £1,006 million associated with the published Public Capital Programme to £825 million.


Given the severe constraints under which we must operate, control of public expenditure is vital. Every organisation financed out of public funds must give greater emphasis to expenditure control and reduction. Every public sector manager, including those in the civil service, must regard this as a key aspect of his work.

As I have already mentioned, an intensified systematic examination of the use of State funds by Government Departments and State agencies is being undertaken forthwith. It is also the Government's intention to achieve closer monitoring of the plans and performance of commercial State-sponsored bodies while still recognising their independence in day-to-day operations. In general, the financial performance of such bodies has not been good and in some cases has deteriorated markedly in recent years despite major investment. The recession has been a contributory, but not the sole or even the major cause of this; it has merely accentuated existing problems and weaknesses.

Improved procedures for planning and controlling capital expenditure generally are being prepared. The Government have already eliminated in their review of the Public Capital Programme expenditures which appeared to them to have insufficient justification.


I referred earlier to the Government's commitment to achieve a better distribution of taxation and I will now turn my attention to the individual tax measures which form part of today's budget. Before doing so, I should like to outline briefly the Government's overall approach to taxation and to comment on the First Report of the Commission on Taxation.

There is understandable concern at the present burden of taxation, a concern increased by a widespread feeling that this burden is unfairly distributed. Unfortunately, the imbalance in the State's finances does not allow tax concessions on any scale in this budget and, indeed, it is necessary to raise additional taxation if current services are not to be curtailed to an unacceptable extent. We can, however, begin to tackle the problem of tax inequity immediately. This Budget contains a number of measures which will improve the equity of the tax system and which will, I think, be seen and accepted in this light. It will be the Government's principal aim to devise tax arrangements under which the heaviest burden will be carried by those who are best able to pay.


The First Report of the Commission on Taxation was published last July. It deals with various aspects of direct taxation and puts forward numerous proposals for change in the present system. Before turning to the proposals themselves, I should like to congratulate the members of the commission on the excellence of their work. The report contains a well-researched and well-presented analysis of our taxation arrangements and it will serve as a most useful reference point for the future.

The report outlines a blueprint for a radical overhaul of the direct taxation system as we know it. Some of the more important proposals are long-term in nature: it is never easy to overhaul a long-established system. Fundamental to the Government's approach to the proposals of the commission, no matter how well-founded these may otherwise be, must be the maintenance of an adequate tax revenue yield; otherwise, our public finances would be in disarray.

The costing of the commission's proposals is, therefore, a critical factor. This costing shows that a combined single rate of income tax and social security tax levied on all personal and corporate income at a relatively low level, as envisaged by the commission, is not a practical proposition at this time because of the loss to the Exchequer. This loss could be made good only by introducing the single rate at a level which would be unacceptably high for the majority of taxpayers. In these circumstances action towards implementing the main thrust of the commission's proposals cannot be undertaken for the time being at least. I intend, however, to keep the matter under review.

Some of the commission's recommendations do not depend on the adoption of the general package put forward and can be considered on their individual merits. I am satisfied that changes should be made without further delay in a number of areas along the lines recommended by the commission and I will refer to these later. The commission are continuing their work and I look forward to receiving further reports from them later this year.


There will be no major changes in the income tax structure of personal allowances against income tax. The question of introducing tax credits is being considered as a longer-term option; it would not be administratively possible to change over to a full tax credit system by April next.

Most rate bands and allowances will remain unchanged this year. Moreover, because of the very serious budget situation, I have no option but to impose further taxation on incomes. I am, therefore, introducing a temporary 1 per cent levy on income. It will apply to the same income categories and will be collected in the same manner as the youth employment levy introduced last year. This should yield £47 million in 1983 and about £80 million in a full year.

I think it appropriate also that the better-off be asked to make a further contribution. I am, therefore, providing for a new top rate of 65 per cent in addition to existing rates. The 60 per cent band will be £4,000 for married couples and £2,000 for single persons. This change should yield about £7 million in 1983 and £11 million in a full year.

I recognise that income tax levels are high at present and I would hope that, as our public finances are improved, it will be possible over the next few years to reduce the burden on the average PAYE taxpayer in particular. For the moment, however, there is no scope for major concessions.

PRSI Allowance

Last year a special PRSI tax allowance was introduced as a temporary measure to improve the take-home pay of those who pay the higher rates of contribution. This allowance of £312 was intended to apply for the tax year 1982-83 only. As there is no opportunity for improvements in rate bands and allowances generally, I am renewing the allowance for a further year subject to a minor modification. To ensure that lower-paid families derive greater benefit, I am providing for a new social welfare family income supplement to which I will refer later. To balance the cost of this supplement, I am reducing the PRSI allowance by £26 to £286. This renewal of the allowance at the reduced level will cost £55 million in 1983 and £84 million in a full year.

Year of Marriage

Since the introduction of income-splitting in 1980, couples have, in the year of marriage, enjoyed very favourable tax treatment in that they can, in effect, qualify for three times the allowances and rate bands to which a single person is entitled. The Commission on Taxation point out that this is anomalous and recommend that in the year of marriage both spouses should be taxed as single persons with the right to elect for joint assessment. In such cases the tax repayment should be reduced in the proportion that the period of marriage bears to the full year. I intend to adopt the Commission's recommendation for 1983-84 and subsequent years. This will yield £6 million in 1983 and £8 million in a full year.

General Exemption Limits

The general exemption limits will be increased from £2,200 to £2,400 for single and widowed persons and from £4,400 to £4,800 for married couples. These improvements and the retention of the PRSI allowance will remove over 21,000 persons from liability to income tax and many more will benefit from marginal relief. The increase in the general exemption limits will cost £4 million in 1983 and £6 million in a full year. There will be no change in the age exemption limits.

Personal Interest Relief

The existing wide and generous range of income tax reliefs involves a substantial loss of tax revenue. This factor has been highlighted in the Report of the Commission on Taxation. Frequently, two taxpayers of equal means pay widely differing amounts of tax because one of them makes the maximum use of the reliefs available.

In the budget proposals of last year, major changes in personal interest relief were announced. The intention at the time was to curtail this relief considerably, but in the event only modest changes were made. This was largely because of administrative problems. I am now proposing that in the case of loans taken out after today, other than a mortgage in respect of the borrower's principal private residence, there will be no income tax relief for personal interest for 1983/84 or subsequent years. In the case of existing non-mortgage loans, or existing mortgages on second homes, no relief for interest will be allowed after 5 April 1985. Tax reliefs incurred on borrowings for personal and less essential purposes further narrow the tax base, provide a disproportionate benefit as income increases and are very costly to the Exchequer.

Mortgage interest is an unavoidable and severe burden for many householders and it would be unfair in the context of my other budgetary proposals to consider the abolition of tax relief in respect of such interest. The overall ceiling for interest relief, however, at £4,800 for married couples and £2,400 for single persons, is generous and is of particular benefit to the better-off taxpayers who are on the higher marginal rates of tax. I have considered the possibility of limiting this relief to the standard tax rate, but this is not a feasible option at this stage for a number of practical and administrative reasons.

I have decided instead to reduce the ceiling to £4,000 for married couples, £2,900 for widowed persons and £2,000 for single persons with effect from April next. These new limits will apply to both new and existing loans. This still allows a generous concession and at current interest rates it should cover a mortgage up to about £30,000 for married couples. Interest on borrowings which are applied in the purchase, repair or improvement of a taxpayer's principal private residence will continue to be equated with mortgage interest for the purpose of tax relief.

These changes in interest relief should yield about £4 million in 1983.


The question of placing the PAYE sector and the self-employed on an equivalent basis of assessment for income tax has been under consideration for some time and there have been indications in earlier Budget Statements that this problem would be resolved without delay. The Commission on Taxation have recommended that the self-employed should be assessed on a current year basis and I intend to provide accordingly. This change, however, raises extremely complex administrative difficulties and it is not possible to bring it into effect at short notice.

I hope to incorporate the necessary legislative provisions in the 1984 Finance Bill with a view to having the new basis of assessment in operation for the tax year 1984-85. In the meantime, I will welcome the views of interested parties on the mechanics of the proposed change, but I want to make it clear now that there can be no concessions, involving a net loss of revenue, as part of a changeover package.


Public perception of tax equity demands that all income earners should be liable to tax on an equal footing. Up to now, however, only one third of the farming population has been included in the tax net. There is no longer any justification for excluding the greater number of farmers from tax liability and I believe that the farming community itself accepts this viewpoint.

Accordingly, from April next all farmers will be liable for income tax. Due to the relatively low level of many farming incomes this extension of liability is not expected to lead to a substantial increase in tax yield in the short term. Because of the absence of statistics it is difficult to calculate the additional yield and the best estimate is that the removal of the threshold will result in an increase of about £2.5 million in farm taxation in 1983.

I appreciate that the extension of liability may cause problems for farmers who are brought into the tax net for the first time, particularly as many of these will have no liability because of their low incomes. The Revenue Commissioners are considering various means of phasing in this arrangement, including the provision of a simplified form for statement of the farmer's circumstances. I will return to this later.

Farmers paid an estimated £24 million in income tax in 1982 and the amount due in rates in the normal course in respect of 1982 would have been £18 million, giving an overall estimate of £42 million due in 1982. Rates for full-time farmers have now been abolished and the income tax yield for 1983 would be about £29 million if no other changes were made. I think it is fair to expect more than this from the farming community. Accordingly, it has been decided not to renew the present system of two payment dates for farmers, so that farmers will now be required, like other self-employed traders, to pay income tax in one instalment on 1 October. In addition, the rates credit against tax will not apply in respect of the income tax year 1983-84. These changes, together with the extension of income tax liability to all farmers, should bring the total income tax yield from farmers this year to about £47 million.

The 1982 budget provided a stock relief rate of 110 per cent for farmers. I propose to renew this special concession for a further year, in line with the Government's commitment to treat the recovery of the national herd as a major priority.


In the Programme for Government there is a commitment to establish a committee of enquiry containing representatives of small business and the Revenue Commissioners to recommend a simplified tax regime for family businesses. I will take steps shortly to establish this committee as a matter of urgency and I intend to extend its remit to consider also the scope for simplified arrangements for smaller farmers. To this end I will invite farming representatives to participate in the work of the committee.


I now turn to the question of capital taxation. It is important in the interests of equity that capital taxes should make a reasonable contribution to the overall tax requirement, provided of course they do not act as a disincentive to investment and economic growth. The yield from capital taxation is relatively low; existing taxes will yield only some £25 million this year. On the other hand, there is only limited scope for increases and it would be unrealistic to suggest that a large-scale redistribution of the tax burden can be achieved simply through the imposition of higher capital taxes.

In the Programme for Government there was a commitment to a review of discretionary trusts to eliminate the use of these trusts for tax avoidance. In line with this commitment, I am examining what taxation measures may be required to ensure that discretionary trusts are not used as a vehicle for abuse. This is a complex problem and I must take care that any tax changes do not result in a penal imposition on trusts which are set up for genuine purposes. There are situations where trusts are necessary to guarantee the transfer of property under fair conditions and it would be unreasonable to impose a special tax in such cases.

I am also looking at the whole area of capital acquisitions tax and its impact on the transfer of property from one generation to another. I wish to assess the social effects of this tax and to consider whether the effects might be more worthwhile if the tax were structured differently. In any event there is an obvious need to simplify the present system which has a confusing multiplicity of tax rates and classes.


A new income-related residential property tax is being introduced and the full details will be published in the Finance Bill. In accordance with the provisions in the Programme for Government, there will be minimum thresholds of £20,000 income and £65,000 property value for liability for the tax. Those whose income is above the £20,000 threshold will be required to state the market values of their residential properties. The tax will be at a rate of 1½ per cent on the excess value of taxable property over £65,000.

The intention is that the tax will be payable in one instalment annually and the first payment will be due next October. The income threshold will be increased by £1,000 in respect of each child from the fifth child upwards so as to provide a relief for larger families and there will be provision for marginal relief where incomes are only just above £20,000. There will be special arrangements for houses of historical or architectural significance where there is reasonable provision for public access.

Because of inadequate statistics on the numbers likely to be liable for the new tax, it is not possible to estimate precisely what yield can be expected. I am including in the budget arithmetic a provision of £10 million for 1983.


The exemption from stamp duty which applies where property is transferred to a person in consideration of his or her marriage is being removed. The yield from this change is estimated at £0.25 million in 1983 and £0.5 million in a full year.


There is an obvious need for rationalisation of tax arrangements in relation to the different financial institutions. I have examined the tax provisions for the various institutions and I now intend to bring forward a number of changes which will represent a movement towards a fairer system of taxation of deposit interest.

Interest on deposits with certain financial institutions is exempt from income tax up to certain specified limits. This exemption has led to considerable friction: in particular, those institutions which enjoy no concession argue that it is discriminatory. As a first step towards putting the tax arrangements on a more equal basis, I propose to reduce this exemption. The existing ceiling of £70 will be reduced to £50 and the ceiling of £150 to £120. In the case of a married couple where both spouses are in receipt of interest, each will continue to qualify for a separate exemption. The new limits will apply in respect of interest assessable for 1983-84. This change will yield an estimated £1 million in the current year.

The special arrangements for taxation of investors in building societies will be continued for 1983-84. The deposit ceiling below which a special reduced rate of tax applies was raised last year on a temporary basis to £30,000. That ceiling will be restored to £15,000 for 1983-84. The Revenue Commissioners have a statutory obligation to verify this reduced rate, which is known as the composite rate, and to adjust it, as necessary, in order to ensure that the correct amount of tax is paid on building society interest as a whole. Accordingly, they will extend the arrangements for 1983-84 to those societies which agree to a survey of their investors to enable a true composite rate to be computed for the future. Where such agreement is not forthcoming, the composite rate for 1983-84 will be 75 per cent of the standard rate of income tax, rather than 70 per cent of that rate as at present.

As regards the general question of taxing financial institutions, the bank levy must be retained for a further period, because there is no prospect of an alternative which would provide anything approaching the equivalent tax yield in the short term. The amount of the levy for 1983 will be £25 million. I envisage, however, that the levy will be phased out over the next few years in line with policy changes regarding the taxation of these institutions.

I am aware of the widespread criticisms made in recent years regarding the level of the contribution to taxation by banks. Tax-based financing, which is the underlying cause of the present reduced level of tax payments by the banks, has fulfilled an important role in reducing the financing costs of industrial and other borrowers. The amount of tax being lost to the Exchequer, however, has been growing every year and this cannot be allowed to continue. Accordingly, consideration will be given as to whether the tax loss can be reduced by restricting these facilities to investment which is in line with the priorities of official industrial policy.

The insurance levy of one per cent on gross premium income will be continued on the same basis as at present.


Income tax is not deducted from dividends paid by Irish resident companies but the tax liability of the recipients of those dividends and other distributions may be reduced by a tax credit and, in certain cases, the tax credit may in fact be paid by the Revenue to the share-holder. However, due to the availability of tax reliefs, many companies who make distributions may not pay sufficient corporation tax to cover the tax credits or indeed may pay no corporation tax at all.

In order to remedy this defect in corporation tax, I propose to change the present system so that companies will be required to make a payment of corporation tax sufficient to cover the tax credit attaching to distributions made on or after today. This payment will be known as advance corporation tax and will be equal to the tax credits attaching to distributions made by a company in an accounting period less the amount of tax credits attaching to any distributions received by the company during that period. Subject to certain limitations, details of which will appear in the Finance Bill, the payment of advance corporation tax will be available for set-off against the paying company's corporation tax liability in respect of its income. The set-off will be allowed against the full amount of such corporation tax and will not be confined to the proportion of that tax which is imputed to shareholders by way of a tax credit. A corrective measure on these lines has been recommended by the Commission on Taxation and similar provisions form an integral part of the tax systems of other countries. In order to minimise the impact on companies, the payment will be due six months after the end of the accounting period in which the relevant distribution is made, that is, on the same date as payment of the first instalment of normal corporation tax.

Advance corporation tax will materially affect only those companies who distribute profits but do not pay sufficient corporation tax to cover the tax credit applicable to their distributions. Manufacturing companies whose dividend carry no tax credit or a low tax credit by virtue of the export sales relief, Shannon and 10 per cent schemes will be largely unaffected by the introduction of advance corporation tax. The new measure will result in a small yield to the Exchequer this year and an increase of about £10 million in 1984 in the overall yield from corporation tax.

Distributions under both existing "section 84" loan contracts and such contacts which are now under negotiation and are finalised within three months from today will be excluded from advance corporation tax.

As a consequence of the increase in the corporation tax rate which was introduced in last year's Finance Act, the tax credit attached to distributions made on or after 6 April 1983 will be increased from 30/70ths to 35/65ths of the distribution.


I am extending for a further year the present arrangements for stock relief on an unchanged basis, at an estimated cost of £1 million in 1983. I have taken this decision after careful consideration of the representations which have been made for an easement of the clawback provisions in view of the current recessionary difficulties. The present budgetary difficulties, however, leave me with no alternative but to continue the existing arrangements unchanged.


The existing incentives for capital investment, in particular accelerated capital allowances for plant, machinery and industrial buildings, are substantial. They compare very favourably with those available in other countries and entail a high cost to the Exchequer in terms of tax forgone. I am concerned that a proper balance should be achieved between incentives for capital and for employment and I will be examining this in detail.

Last year an incentive was introduced for companies creating additional employment in the year to end-June 1983. As this period is not yet ended, it is not possible at this stage to assess the effect of this incentive. I am extending it for a further year in its present form.

I am terminating as from today the 20 per cent income tax relief on dividends for shareholders in certain publicly-quoted companies. This relief, which dates from 1932, has been superseded by the major reliefs introduced in more recent years which, by much reducing their tax burden, enable companies to distribute a greater proportion of profits than previously. The full-year Exchequer saving from this change will be about £0.5 million with a very small saving in 1983.

The 1981 budget announced the introduction of a special allowance of 100 per cent in respect of expenditure incurred on the construction of moderate-cost rented residential accommodation. This allowance, which has come to be known as the "section 23 incentive", is subject to review at the end of a three-year period. I will consider whether the continuation of this incentive beyond the current expiry date is warranted when I come to prepare the Finance Bill.


The bulk of our tax revenue comes from indirect taxes, particularly excise duties and VAT. While our reliance on indirect taxes has traditionally been, and continues to be, relatively high by international standards, present circumstances demand that we must look to them for additional revenue this year. In allocating the increases between different areas, the Government have been concerned to spread the burden as equitably as possible. I would stress, however, that the overall thrust and impact of the budget as a whole should be the focus of attention, rather than the impact of each individual measure.


Increases in the main excise duties have already been introduced from 8 January 1983. The products involved are beer, spirits, wine, tobacco, petrol, road diesel and Liquid Petroleum Gas used in road vehicles. This step was taken in order to maximise the revenue gain this year from the increases and it is estimated that an additional £10 million revenue will accrue as a consequence. The total yield from the increases will be £118.7 million in 1983 and £125 million in a full year. I propose later today to move a motion noting these changes, so that the House can have the opportunity to debate them.

I propose now to increase some of the other excise duties.


The general rate of excise duty on hydrocarbon oils and LPG used other than in road vehicles was set at 7p per gallon in 1980 and has not been adjusted since. I propose to increase this by 1p per gallon to 8p with immediate effect. This increase will not apply to residual fuel oil used by the ESB, nor will there be any change in the concessionary rates already applying to residual fuel oil used by industry and to oil used by fishermen and horticultural producers.

Foreign Travel

I propose to increase the foreign travel tax to £5 in respect of tickets purchased from 1 April 1983. This new rate will apply to travel by both sea and air.


There will be an increase of £15 in the excise duty on the top category of colour TV, with pro rata increases for all other categories of colour and monochrome sets, with effect from midnight tonight.

Video Players

I propose to increase the duty on video players by £20, with immediate effect.


There will be an increase with immediate effect in the duty on excise licences required in connection with gaming. I also propose, in the forthcoming Finance Bill, to increase the duty on excise licences on firearms, dogs, auctioneering and bookmaking. The details are set out in the Principal Features of the Budget.

The total yield from the excise duty increases set out above is estimated at £7.4 million in 1983 and £9 million in a full year.

Oil Price Developments

Because of the world market situation, it is expected that there will be a significant fall in oil prices in the coming months. In addition, changes in the INPC's contractual arrangements and in the sources of crude oil refined by it will result in substantial cost reductions. The Government propose to absorb some of this reduction at the retail level by increasing the excise duty on petrol and other road vehicle fuels. Because of the varying factors which will influence the timing and the size of the fall in oil prices, I am not in a position at this time to state what the precise excise increases will be, or when they will apply. I am providing for a yield of £15 million this year from this source. The Dáil will of course be given an opportunity to debate these increases.


Value-added tax has the advantage of applying to a wider range of goods and services than the excise duties, which bear rather heavily on a small number of specific products. The scope for imposing substantial real increases in excise duties is very limited at this stage, so the necessary additional revenue must be sought from increases in the existing VAT rates and widening the coverage of VAT.

Standard Rate

It is proposed to increase the standard rate of VAT from 30 per cent to 35 per cent.

Low Rate

The low rate of VAT will be increased from 18 per cent to 23 per cent. However, the effect of this increase on beer, spirits, wine, cigarettes and tobacco will be offset by a corresponding reduction in the excise duty, so that in general there will be no change in the retail price of these goods.

As in the case of other recent increases in this rate, an effective deferment of the increase to 31 December 1983 will be allowed in respect of accommodation and car and boat hire provided to non-residents under the terms of fixed-price contracts entered into before 1 January 1983.

3 per cent Effective Rate

The 3 per cent effective rate of VAT, which applies to building and certain agricultural contracting services, will be increased to 5 per cent.


Fuel, which is zero-rated at present, will be charged to VAT at 5 per cent, apart from the supply of electricity. The existing rebate of VAT for fishermen will be extended to cover VAT on fuel.

The flat-rate VAT rebate for unregistered farmers will be increased from 1.8 per cent to 2.3 per cent.

These increases will take effect from 1 March 1983, apart from the 5 per cent rate on fuel which will operate from 1 May 1983. The net additional revenue, after allowing for compensating excise duty reductions on beer, spirits, wine, cigarettes and tobacco, is estimated at £131.4 million in 1983 and £227 million in a full year.

I am aware that many questions arise in respect of the present VAT structure, which was designed at a time when the VAT rates were much lower. I expect that the Commission on Taxation will be covering VAT in one of their further reports and, in the light of their recommendations, I will review the system in detail. I accept also that high VAT rates may affect the competitive position of registered traders compared to unregistered traders. I propose to examine this problem with a view to including any necessary legislative changes in the Finance Bill.


I am aware of the problems which the changes introduced last year in the arrangements for payment of VAT on imports have caused for industry and business generally. The Government are committed to resolving these problems as soon as it is feasible to do so. While there is little continuing revenue yield from the new system, there would be a substantial loss of revenue were it dismantled. Given the present financial constraints, it is not possible to make major changes in this area at this stage.

I propose, however, to make a concession for those who are primarily involved in manufacturing for export. Firms who export 75 per cent or more of their production will be allowed to import their raw materials and components without payment of VAT from 1 April 1983. This will reduce Exchequer revenue by £12.3 million in 1983. Details of how this concession will operate will be announced by the Revenue Commissioners.


I am proposing increases in road tax rates for a number of categories of vehicle. The annual rates of road tax on cars not exceeding 12 horse-power will be increased by £2 per unit of horse-power, while the rates for cars over 12 horse-power will be increased by £3 per unit. Rates for goods vehicles will be increased by about 10 per cent, on average. There will also be increases in the rates applying to a number of other categories of vehicle. In addition, I propose to double first registration charges for all vehicles. Charges for trade licences will also be doubled. Finally, annual driving licence fees will be increased by £1, with corresponding increases in the fees for three-year and provisional licences. Details of all these increases are set out in the Principal Features. The effective date of these changes will be 1 April 1983, except for trade licence charges which will apply from 1 January 1984. The additional revenue from these road tax measures is estimated at £16 million in 1983 and £21 million in a full year.

Before I leave this subject, I wish to refer to the question of evasion of road tax. The maximum fines for evasion were, on average, doubled last year. The Garda Síochána will vigorously pursue their campaign to detect evaders. The effectiveness of this campaign will be enhanced by recently introduced regulations which tighten up the provisions governing registered ownership of vehicles.


Considerable progress has been made in recent years in countering tax evasion and avoidance and there have been some notable successes. While it is not possible to estimate the precise extent of these practices, it is evident that they are widespread. There seems little doubt that many of the problems associated with raising adequate taxation would be overcome if evasion and avoidance were brought under control.

There is considerable public disquiet about the level of tax evasion in particular. It is important that this disquiet should be matched by a determination to counter evasion effectively. The strengthening of legal powers for dealing with evasion should certainly yield results but this approach must be balanced against the necessity to protect the interests and privacy of the honest taxpayer. I would prefer that we would beat this problem through the weight of public attitudes but this alone may be insufficient. I am therefore introducing a number of measures today which will help to counter evasion.

Tax avoidance has become an industry in its own right and it is clear that there is a considerable loss of revenue from artificial transactions designed to avoid tax. Tax planners who engage in these activities can expect that greater attention will be given in future to closing off loopholes which they exploit. They would be unwise to assume that anti-avoidance legislation will invariably apply from a current date only.

The Revenue Commissioners have recently set up a special anti-evasion branch which will be responsible for the overall co-ordination of anti-evasion work. In the new branch the emphasis will be on prosecutions rather than monetary settlements. I am confident that the new organisation will improve significantly the effectiveness of the campaign against evasion and I shall be monitoring its progress with interest.

Last year the monetary penalties for many of the tax offences were increased. I am not satisfied, however, that the present code provides adequate sanctions against those who deliberately provide false information about their tax affairs or deliberately submit incorrect returns or accounts. For this reason I intend to provide in the Finance Bill for a term of imprisonment of up to two years, in addition or as an alternative to a heavy monetary penalty, on conviction on indictment for major tax offences involving deliberate fraud. Where a company has committed an offence, the new penalties can be applied to the officers of the company involved in the offence.

I am introducing a number of other changes which will help to curb evasion and avoidance.

For the future the purchase and sale of government securities must be disclosed in tax returns. In addition, nominee holders of Government securities will be required to disclose particulars of transactions to the Revenue Commissioners.

In order to counteract evasion through the practice of spreading deposits over a number of accounts, the disclosure limit for bank interest is being reduced from £70 to £50. The new threshold will apply in respect of deposit interest paid in the 12-month period ending today. I am also providing that, in future, declarations of non-residence will have no effect where the bank is not satisfied as to the bona fides of such declarations.

Because of the favourable tax concessions available, there is a considerable market for investment schemes linked to life assurance or purchased life annuities. In some instances, however, these have led to blatant abuses where schemes are simply tax avoidance devices. I want to serve notice in good time that provisions will be included in the 1984 Finance Bill to counteract these abuses. These provisions will be designed to ensure that reliefs are available only in respect of investments linked to genuine life assurance policies or annuities.

In order to speed up the processing of tax appeals, which are now frequently subject to undue delay, I am introducing a change in the existing procedures. There will be stricter provisions for the admission of late appeals and the appeal commissioners will have the power to determine that an assessment has become final and conclusive where evidence, such as returns, accounts or statements, has not been submitted to the inspector of taxes by a date previously specified by the appeal commissioners. Where an assessment has become final and conclusive in such circumstances, the appellant will not have a right to a re-hearing by the Circuit Court.

Tax evaders have up to now been protected by a cloak of anonymity except where convicted in open court. I think this is unfair to the large majority of taxpayers who comply with the law. Accordingly, I propose that for the future the Revenue Commissioners will publish annually a list of persons and companies who have been convicted of a tax offence or with whom settlements have been reached in the larger back-duty cases involving default by the taxpayer. Publication will not apply where settlements are made and agreed amounts paid before the end of 1983 or where there is a full and voluntary disclosure in advance of any investigation. To some, this may seem a radical innovation but in fact it is accepted practice in a number of countries.

I am also reviewing the reporting arrangements for payments to individuals and companies by Government Departments and public authorities to ensure that the necessary details will be available to the Revenue Commissioners so that those who benefit directly or indirectly from such payments will pay the appropriate tax on such income.

The package on evasion and avoidance which I have outlined will, I expect, have a major impact and will increase tax yields substantially. While it is not possible to make a precise estimate of what additional yield might result this year, I would expect it to be not less than £20 million.


The Government are very concerned about the growing number of consumers who are legitimately buying goods outside the State, either "duty-free" or otherwise. This transfer of purchasing power outside the State reduces the level of domestic economic activity and is having a particularly severe impact on certain trades. It also reduces Exchequer revenue and means that taxation generally must be set at a higher level than would otherwise be necessary.

The basic cause of these developments is undoubtedly the difference in prices, with the level of tax being a major factor for many goods. Our tax level, however, and its distribution between the various sectors must be determined primarily in the light of our own needs and preferences rather than by reference to tax rates elsewhere.

There is one specific measure which I propose to introduce in this area. The amount of goods bought in duty-free shops which travellers arriving from other EEC countries may bring in with them without payment of tax will be reduced from 1 April 1983 to the same level as that now applying to travellers arriving from non-EEC countries. This means in particular that the allowance for spirits will be reduced from one and a half litres to one litre and for cigarettes from 300 to 200. Most other EEC countries already apply this reduced allowance. It is estimated that the gain to the Exchequer from additional purchases in the State because of this measure will amount to £7 million in 1983 and £10 million in a full year. This change will not affect the amount of duty-free goods which departing travellers, including tourists, may purchase. This is determined by the tax-free allowance in the country to which they are travelling.

Smuggling is becoming an ever-greater problem. The Government will give urgent attention to combating it with all the resources at their command. I will be glad to receive any proposals which the various trading groups directly affected may wish to put forward as to practical means of overcoming this problem and will be available for early discussions on such proposals.



It is proposed to increase telecommunications charges to coincide with the next quarterly accounts to produce £23 million extra revenue in the current year. Details of the increases will be announced separately by the Minister for Posts and Telegraphs.


The profits of Bord Gáis Éireann may, under its legislation, be applied to the benefit of the Exchequer. I am exempting from corporation tax the profits earned by the board in its current accounting period and future accounting periods. This will enable an additional amount of approximately £21 million of the board's estimated 1983 profits to be paid into the Exchequer in the current year.

The foregoing revenue proposals are expected to raise a gross total of £277 million this year and £432 million in a full year in additional revenue. This, combined with the earlier excise duty increases, will raise the consumer price index by about three and a half percentage points.


Even in the depths of economic depression and financial cutbacks those who must rely on welfare payments ought to be helped. Total outlay on social welfare benefits and health allowances in 1983, as contained in the published Estimates, will be £1,771 million. Since these Estimates were finalised the unemployment live register has risen by almost 22,000. While £425 million is already committed to the cost of unemployment payments, the Government consider that prudent management warrants a higher provision. I am, therefore, adding £31 million to finance the additional costs of potentially higher unemployment. This will bring total expenditure on social welfare and health allowances to £1,802 million before any provision is made for an increase in current rates of benefit.

All long-term weekly welfare rates will be increased commencing in the last week in June by 12 per cent. This will mean, for example, increases of £5.15 a week for a contributory old age pensioner under 80 years and living alone, giving a total pension of £48.10 a week; £4.45 a week for the corresponding non-contributory pensioner, bringing that pension to £41.60 a week; £8.45 a week for a married couple, both of pension age and under 80 years, on contributory pension, giving a total weekly pension of £78.75; £8.10 a week for a contributory widow under 66 with three children, giving a total weekly pension of £75.40; and £7.40 a week in the case of a non-contributory widow with three children, giving a total weekly pension of £69.40.

The Government would wish to give bigger increases and from an earlier date also, but we simply cannot afford to do this because of the additional taxation that would be required. Last April personal and adult dependant rates of pensions and of other long-term benefits were increased by as much as 25 per cent. Since then the trend in inflation has improved, so that price rises between April 1982 and June next will come to substantially less than 25 per cent. The measures I have announced today should protect pensioners and other long-term beneficiaries from the effects of inflation up to June 1984.

Recent years have seen a very considerable growth in short-term weekly welfare rates. There is a need for a more modest approach on this occasion to increases in short-term rates of benefit. The short-term rates will be increased from end-June next by 10 per cent. This will, for example, mean an increase in flat-rate benefit of:

—£3.15 a week for the personal rate of unemployment and disability benefit; and

—£7.50 a week for a married couple with three children on unemployment or disability benefit.

Of course, pay-related benefit may also be payable with flat-rate disability benefit, unemployment benefit or maternity allowance; and, in this connection, the Estimates allow for an increase in the earnings ceiling for pay-related benefit purposes, to £11,000.

I should explain that this increase in short-term welfare rates will not apply to those smallholders whose means were assessed using the notional PLV basis. This follows the High Court decision declaring the use of the PLV system to be unconstitutional. However, the smallholders in question have the option of having their means assessed on a factual income basis, and those who qualify for assistance on this basis, as very many will in fact, will benefit from the rate increase that I have announced.

The recent improvements in short-term payments have narrowed, and in some instances completely closed, the income gap between those at work and those drawing unemployment or disability benefits. The work incentive is suffering and there is an unacceptable inducement to exploit the social welfare system. To help restore a sensible balance between disposable earnings when at work and the level of maximum benefits when sick or unemployed, an adjustment to the rate of pay-related benefit, together with certain other limitations, has already been provided for in the published Estimates giving rise to a saving of £27.2 million. I am adding to this saving a further £7 million, arising from the application of a 25 per cent maximum rate of pay-related benefit. These adjustments will apply from April next.

At the same time, there will be a concerted drive to eliminate the wrongful claiming of social welfare benefits by people who are actually employed and in receipt of an income from work. This is an abuse which, I regret to say, is condoned and even used for their own profit by some employers who, it would appear, employ such people at lower than normal wages. In this way, such employers join in the fraudulent exploitation of the social welfare system.

Details of the social welfare adjustments not already provided for in the Estimates are set out in the Principal Features of the Budget.


The Government recognise that in some instances the narrowing income gap between those at work and those on benefit may reflect low rates of take-home pay, which rarely take account of a worker's family circumstances. As a result some workers with family dependants may be only marginally better-off working than on benefit; and those on benefit can have little incentive to take up relatively low-paid employment. The Government wish to alter this situation and to restore the incentive to work.

The Programme for Government foreshadowed specific measures to supplement low take-home incomes. A number of possibilities were considered and the Government have decided that on balance the most appropriate way forward is to introduce a supplement for low-income families in the active labour force. Details of the scheme and how it will operate, will be worked out as quickly as possible. In the meantime, I am allocating £5 million for this purpose in 1983. It is envisaged that about 20,000 families could benefit from this scheme. The net extra cost of the adjustments to the published Estimates that I have announced today, including the extra provision to meet higher unemployment, is £107.3 million in 1983. Of this sum, £88.6 million is accounted for by the improvements in weekly payments together with the family income supplement provision.

As long as there is sufficient growth in public revenues it is possible to maintain and improve social welfare payments. In recent years our sources of revenue did not increase in line with welfare expenditure. This imbalance was corrected to an extent last year when there was an increase in pay-related social insurance contributions. I have ruled out for this year a further increase in the PRSI rate of contribution. However, the published Estimate for the Department of Social Welfare was based on an increase in the PRSI ceiling for contribution purposes from £9,500 to £13,000.


I should now like to mention a number of special features which form part of this budget.


The youth employment and related services of the Department of Education have been transferred to the Minister for Labour who, with his Minister of State, is now responsible for matters affecting youth. Special recognition has already been given to youth through the Youth Employment Agency. In further recognition of the scale of youth needs I have now decided to allocate an additional £250,000 for youth services. The details of this allocation will be made public in due course.


In accordance with the Government's Programme, the National Community Development Agency is not being retained and this will save £1.8 million on the Vote of the Department of Health. This sum is being earmarked for the Department of Social Welfare pending the establishment of an anti-poverty agency and the settlement of its financial allocation for 1983. Some £500,000 of the transferred funds will be used in the current year towards the work of suitable voluntary bodies in the social services area, preferably for "once-off" projects. The grants will be decided after consultation with the health boards and will be additional to the grants already decided by the boards for such bodies in 1983.


The overall provision for Ireland's official assistance to developing countries is being increased by £3 million above the sum decided upon by the previous Government. Many under-developed countries are suffering severely from the world recession and we are still a relatively high income country by world standards.


As I mentioned earlier, the pre-budget estimates show an opening current deficit of £956 million. This, however, does not tell the full story. Adjusting this figure for the excise increases introduced on 8 January and for a number of factors affecting expenditure, the true opening current deficit amounted to £1,209 million. The excise increases and expenditure reductions have brought this down to the published opening figure of £956 million.

Starting, therefore, from £956 million, the expenditure proposals will result in a net addition of £178 million, while the revenue changes will result in a net reduction of £277 million. Taking account of an estimated £35 million which Departments have in balances from 1982, and allowing for an estimated reduction of £75 million in underlying tax revenue buoyancy in order to take account of the effects of today's measures, the estimated current deficit emerges at £897 million or 6¾ per cent of GNP. This compares with £988 million or 8½ per cent of GNP in 1982.

Taking account of the net reduction of £181 million which I have announced today, the Exchequer borrowing requirement for capital purposes comes to £825 million. Together with the current budget deficit of £897 million, the estimate of total Exchequer borrowing for 1983 is £1,722 million, or about 13 per cent of GNP. This compares with borrowing of £1,945 million, or 16¼ per cent of GNP, last year.

These reductions in the level of both the current deficit and the overall Exchequer borrowing requirement are substantial. The reduction in the borrowing requirement accords with the recommendations of the EEC Commission as adopted by the Council on 17 December 1982. The targets set, and the measures taken today to attain them, demonstrate beyond question the Government's resolve to bring the public finances under control.

As the experience of recent years has amply shown, the mere setting of targets, and the introduction of proposals to achieve these targets, are not in themselves any guarantee that the targets will be reached. The Government are strongly committed to avoiding any major overrun this year. This is critical if confidence in our ability to manage the public finances is not to be jeopardised. The Government are, therefore, acutely conscious of the need to adhere strictly to the budgeted expenditure allocations, to monitor closely the evolution of the finances throughout the year and to act quickly to deal with any emerging problems.


I said at the beginning of this statement that we are in the grip of a severe recession. We can see its effects in the continuing increase in the numbers of our people who are unemployed. We can see its effects in the change in their standards of living and in their growing fears for their children's future prospects.

But we cannot blame all of our problems on the international recession. We must accept a part of the responsibility ourselves. I speak not only of us, the Members of this House; I speak also of our whole community. For it is we ourselves, as a community, who have insisted on and pursued standards of living higher than those which could be justified by our levels of production. It is we ourselves, as a community, who have insisted on and provided higher levels of service than we could sustain. It is we ourselves, as a community, who have failed to identify properly our real priorities and to choose among them within the limits of our capabilities. Finally, it is we ourselves who are, in large part, responsible for the inequities in our society, and particularly for the inequity of depriving, by our excessive expectations, many of our neighbours of the opportunity to work and to make their own way in the world.

It is not too late to change all this. The problems which we ourselves have created can be resolved by our own actions. Today is not a time for despair or for hopelessness in the face of the magnitude and complexity of our problems. We have met and countered inflation before this. The Irish people have in the past suffered cruel unemployment and surmounted it. For decades we have been making progress, slow though it might often seem, against inequality. We can do all these things again if only we have the will. We can do them if our leaders show the resolve required to motivate our community, and it is as a community that we must face our problems.

What I have presented today is this Government's first step in attacking these problems. It shows clearly the difficulty of our task but, even more importantly, it shows our determination to shoulder fully the responsibilities of Government and to guide our actions as a community over a period of years, so that we can all participate in a real and constructive way in the betterment of our community.

I have faith in the Irish people's ability to set themselves, with courage and determination, to the task in hand, and I have no doubt that we can succeed.





1. Tax Revenue (including excises imposed from 8 January 1983)


1. Debt Service and Other Central Fund Charges


2. Non-Tax Revenue


2. Supply Services (non-capital)




3. Add:

3. Add:

Excise Duties

Social Welfare



—provision for higher

—road tax






—improvements in benefits and





Income Tax


Public Service Pay


Income Levy


Environment — Local

Farm Tax




Bank Levy


Official Development

Residential Property Tax





Stamp Duty


Duty Free Restriction


Tax Evasion and Avoidance Measures


4. Deduct:

Post Office Revenue


Other Expenditure Changes

Bord Gáis Revenue





Estimate Departmental Balances




4. Deduct:

Income Tax


Tax on Business—stock relief


VAT on Imports


Impact of Budget on Tax Revenue Buoyancy




5. Deficit




Department of Finance

25 March 1982




Provisional Outturn

Post-Budget Estimate




1. Expenditure

(i) Central Fund Services



(ii) Supply Services





2. Revenue

(i) Tax



(ii) Non-Tax





3. Current Budget Deficit




4. Expenditure

(i) Public Capital Programme



(ii) Other (non-programme)





5. Resources

(i) Exchequer



(ii) Non-Exchequer





6. Exchequer Borrowing Requirement for Capital Purposes



7. Total Exchequer Borrowing Requirement (3+6)



8. Total Exchequer Borrowing Requirement as % of GNP (estimated)




£ million




March Budget Estimate

Provisional Outturn


1. Public Capital Programme




2. Non-Programme Outlays




of which

(a) Exchequer Financed

(i) Current Budget Deficit




(ii) Miscellaneous




(b) Non-Exchequer Financed




3. Total Requirements





4. Non-Exchequer Resources




of which

(a) State Bodies




(b) Local Authorities




5. Exchequer Internal Resources




of which

(a) Loan Repayments




(b) Sinking Funds




(c) Appropriations-in-Aid




6. European Regional Development Fund




7. Exchequer Borrowing




of which

(a) Net sales of domestic securities

(i) to the public


(ii) to the commercial banks


(b) Small Savings




(c) Foreign Borrowing


(d) Miscellaneous including change in liquidity of Departmental Funds


8. Total Resources








Post-Budget Estimate



Tax Revenue







Estate etc. Duties



Residential Property Tax


Capital Taxes



Stamp Duties



Income Tax



Income Levy


Corporation Tax



Value-Added Tax



Agricultural Levies (EEC)



Motor Vehicle Duties



Youth Employment Levy



Total Tax Revenue



Non-Tax RevenuePost Office






Total Non-Tax Revenue



Total Current Revenue




Where current expenditure will go

How current expenditure will be financed



% of total



% of total

Service of Public Debt









Tax Revenue



Sinking Fund etc






Social Services






Stamp Duties



Social Welfare



Income Tax






Income Levy






Corporation Tax



Value-Added Tax



Motor Vehicle Duties



Youth Employment Levy



Economic Services



Capital and other taxes






Non-Tax Revenue



Industry & Energy



Tourism & Transport



Post Office



Forestry & Fisheries






General Services



Post Office



Defence & Justice



Public Service Pensions



Other Expenditure (a)



Less Departmental Balances








(a) Includes Budget day provision of £60 million for increases in public service pay in 1983




TABLE 1. Summary of current and capital budgets 1982

TABLE 2. Summary of main heads of current government expenditure and revenue 1982

TABLE 3. Main heads of current government expenditure

TABLE 4. Certain current receipts and expenditure of the Exchequer and of local authorities

TABLE 5. State expenditure in relation to agriculture.

Detailed tables relating to public capital expenditure will be found in the separate publication entitled “Public Capital Programme 1983”.




Budget Estimate

Provisional Outturn



Current Budget

1. Expenditure

(i) Central Fund Services



(ii) Supply Services





2. Revenue

(i) Tax



(ii) Non-Tax





3. Current Budget Deficit



Capital Budget

4. Expenditure

(i) Public Capital Programme*



(ii) Other (non-programme)





5. Resources

(i) Exchequer



(ii) Non-Exchequer*





6. Exchequer Borrowing Requirement for Capital Purposes



7. Total Exchequer Borrowing Requirement (3+6)



8. Total Exchequer Borrowing Requirement as % of GNP (estimated)



* The original March Budget estimate for Public Capital Programme expenditure was £2,088 million; reclassification of ICC/ACC working capital loans reduced this by £94 million to £1,994 million. Non-Exchequer resources figure is reduced by a corresponding amount.



Current Expenditure




% of total



% of total

Service of Public Debt



Budget Deficit(financed by borrowing)






Sinking Funds, etc.



Tax Revenue



Social Services









Social Welfare



Stamp Duties






Income Tax






Corporation Tax



Value-Added Tax



Economic Services



Motor Vehicle Duties



Capital and other taxes






Industry and Energy



Tourism and Transport



Forestry and Fisheries



Non-Tax Revenue



General Services



Post Office



Post Office






Defence and Justice



Public Service Pensions



Other Expenditure
















1982 Provisional

1983 (a) Estimate

Service of Public Debt







Central Fund Services Interest







Sinking Fund, etc.







Supply Services Interest







Sinking Fund, etc.







Social Services







Social Welfare





















Economic Services














Industry and Energy







Tourism and Transport







Forestry and Fisheries







General Services







Post Office














Justice, including Gardaí







Public Service Pensions







Other Expenditure







EEC Budget







Consumer Subsidies







Dept. of Environment grant in relief of rates





















Public service remuneration included above (b)







Current Government Expenditure as % of GNP






NOTES:— (a) Based on the Estimates for Public Services for 1983 published on 18 November 1982.

(b) Includes all pay in the health area but does not include the pay element in grants to non-commercial State-sponsored bodies, universities and colleges, etc.




Local Authorities (a)


Non-capital issues

Expenditure from revenue(b)

State grants received

Rates collected


































































1974 (April-Dec.)




























































NOTE:—(a) Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.

(b) The revenue of Local Authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g. rents, fees, etc.

(c) Approximate.

(d) Estimate.



1979 £000

1980 £000

1981 £000

1982 Provisional £000

1983 Estimate £000

1. Aids reducing production and overhead costs and production incentives (b):

Grant in lieu of rates on agricultural land






Non-EEC interest subsidies




Assistance for extra breeding stock



Reduction of land annuities






Lime and fertiliser subsidies



Sheep grants, etc.





Small farm incentive bonus




Winter fodder schemes










2. Schemes operated under EEC regulations and directives:

Farm modernisation






Farmers' retirement






Aids to farmers in less favoured areas






Market intervention






Programme of special measures




Grants for individual projects and for marketing and processing




Aids for horticultural producers' organisations






Dairy herds conversion and suckler cow





Socio-economic advice and vocational training of farmers












3. Education, research, advisory and inspection services: Education












Farm advisory services (e)






Technical services






Inspection services






Rural organisations






Farmer contributions to education, research and advisory services










4. Disease eradication: Bovine T.B.












Hardship Fund





Other, e.g. leucosis






Less: Farmer contribution and EEC receipts












5. Long term development aids (b):Arterial drainage






Water supplies, land project and farm buildings






Improvement of cattle, pigs, horses, sheep and poultry






Rural electrification






Restructuring and improvement of holdings by Land Commission






Other rural improvement schemes and grants












6. Marketing aids: Meat








Export co-ordinating group










7. General administration and overhead costs












NOTES:—(a) The figures include both capital and non-capital expenditure and are net of appropriations-in-aid which include recoupments from EEC for schemes included in the table.

(b) Further aids of these kinds are given under EEC schemes—see section 2.

(c) Does not include tax loss element relating to the scheme for farmers in severe financial difficulties.

(d) Service transferred to ACOT in 1981: provision included in farm advisory services in section 3.

(e)Includes part of the grant in relief of rates borne on the Environment Vote.


Footnote: Agriculture also benefits from the Common Agricultural Policy which is financed from the EEC Budget (to which Ireland's estimated total contribution in 1983 is £174 million):—























Figures for 1979 to 1982 have been revised.

The background to this year's budget is a catastrophic unemployment situation. In the past two months the figure climbed again, going up by 17,000 to an awesome total of 170,000. It is hardly possible for any of us to comprehend fully the accumulation of misery, hardship, frustration and despondency represented by that figure. Economists and financial experts will analyse the budget for us and give us their assessment from many different aspects but for thousands of individuals and families the key question will be whether the budget offers them any hope of obtaining employment or whether they must resign themselves for the foreseeable future to the degradation of the dole queue. By that crucial yardstick this budget must be judged a total failure. Far from offering any prospect of improvement or new employment opportunities, the whole series of measures seriously and perhaps disastrously make the situation worse.

The primary economic and social objective of our plan. The Way Forward, was to reverse this upward trend in unemployment. We planned to achieve this by a comprehensive and integrated programme of measures designed to achieve greater competitiveness and to stimulate productive economic activity in manufacturing industry, in the building and construction industry and in the private services. The Government should not have rejected our plan without having something to put in its place. The result is that this budget can be seen only as having isolated objectives related to the management of the public finances for one year instead of being an integral part of overall, long-term strategy for employment. I say to the Government that since they have no plan of their own, they should be mature enough to adopt the one we left.


Hear, hear.

That plan was produced with great care. All the best available expert opinion was mobilised and all the relevant institutions contributed to its formulation. It was based on detailed analysis and scientific projection. If the Government are statesman-like enough to acknowledge that The Way Forward represents the right approach, I assure them there will be no smallmindedness on our part. Instead, we will applaud the Government for doing so because that plan offers the only possibility of reversing the trend in unemployment and putting us into a position where we can provide the jobs needed for our increasing population.

The basic strategy of this budget is fundamentally wrong. The Minister is borrowing to meet current expenditure by a greatly increased amount, somewhere between £200 million and £150 million depending on one's starting point while borrowing for capital projects which would provide employment is down by £220 million. That will have an incalculable effect on the unemployment situation. Such level of reduction in capital investment in the coming year cannot but lengthen the dole queues. I draw particular attention to the fact that £43 million is being taken off the £119 million of Exchequer investment in State companies. That represents a reduction of one-third in the amount we provided for those State companies for the purpose basically of procuring increased economic activity from them and of course of increasing employment. The reduction in this instance must result in some of the State companies closing down. I challenge the Minister to tell us why he did not say in his budget statement what the £43 million would cover and why he had to leave it to another day to give us that information.

The budget is littered with postponed decisions and with the deferment of vital issues. For instance, there is no decision on the key element of public service pay. Neither is there any decision on the various proposals of the Commission on Taxation with the exception perhaps of the mean little decision in regard to married couples. There is no decision for action on the discretionary trust proposal and neither is there any decision on the section 23 building concession. Likewise, there is no decision in respect of tax on the self-employed just as there is no decision on the acquisition tax. In his statement the Minister left more of such matters in abeyance than he dealt with.

Now that most of the key figures and indicators for 1982 are available it is fair to say that on 14 December 1982 we handed over to our successors an economy that had been well managed during last year.


Order, please.

Very grave problems still exist but major improvements in some of the principal economic areas enable us now to take a more optimistic view of the situation than would have been possible even a few months ago. A crucial indicator of this is the balance-of-payments situation and the major reduction from 14 per cent of GNP in 1981 to 8 per cent in 1982. That exceeded the most optimistic forecasts of this time last year and it is anticipated that the figure will fall further though less dramatically this year. This result reduces the worst of the pressure on interest rates and on exchange rates and gives a clear signal to the international financial market as to the stability of our currency.

Another major achievement was the reduction by almost one-half in the space of 12 months in the rate of inflation — from 23 to 12 per cent. The underlying rate of inflation is probably down now to single figures. Our success in rigidly controlling Government expenditure in 1982 set a good headline for the Minister for Finance and gave him a very good starting point for his 1983 budgetary exercise. For the first time for many years the final expenditure outturn for 1982 was below the budget estimate, some £15 million below it. That was achieved mainly due to the maintenance of rigid expenditure control and of the corrective measures we took in July last year. When we were returned to office in March last, an accumulation of public service pay commitments, especially in regard to special pay increases, hung over the financial horizon like a dark threatening cloud. The brilliant achievement of Deputy Gene Fitzgerald in re-negotiating and securing a major review of the public service pay agreement in the autumn of last year vastly improved that whole situation and enabled this Government to come into office with the decks already cleared. The reduction in the expectations in this area is probably one of the most valuable legacies handed over to the incoming Government. I must point out that that improvement in the situation was brought about with the full co-operation of the trade unions concerned. It is to be hoped that this co-operation will be continued by the present Government despite the dangerous signs in this area that have emerged in recent weeks.

Our action in bringing forward for the first time ever the Estimates for the coming year, well before the end of last year, in November, gave this Government another valuable aid in preparing today's budget. In 1982 net agricultural output went up by 6 per cent to 7 per cent and real farm incomes also increased. There are indications that the decline in manufacturing output has bottomed out. Our exports have been increasing remarkably well and we can look forward to another improvement in exports and in the terms of trade in 1983. Falling oil prices, falling international interest rates and an upturn in the US economy in the latter half of this year will all contribute to a more favourable international climate this year.

Has the Minister in his budgetary strategy taken full account of these developments at home and abroad? I doubt it. I cannot see any indications of a development strategy of any kind, a strategy which, recognising the harsh realities of our situation, would nevertheless be flexible enough to respond to any opportunity or any upturn on the economic front. That is the major weakness of this budget. No framework is set out in which development, if it becomes possible, can be accommodated and employment increased.

It is now clear that the continuing recession and the falling off in consumer spending as a result brought about the increase in the 1982 budget deficit over the planned figure. This was an entirely new fiscal development in our situation in that an increase in the budget deficit was not caused by excesses in expenditure. In the event, the deficit of £988 million or 8.5 per cent of GNP was broadly similar to the 1981 outcome. The size of the budget deficit and the period within which it is to be phased out, has been the subject of considerable division, I believe, within the Government parties. In The Way Forward we indicated our belief that the current budget deficit should be set at £750 million and phased out over four years. This is clearly the conscientious view of the present Minister for Finance also.

The absence of an upturn in the economy during 1982 and the overrun on the current budget deficit by £300 million, made it imperative that no further time should be lost in setting out and acting upon a firm time table. Our view has been reinforced by the EEC Commission in their annual economic review where they said that the current policy stance must not only be maintained but must be vigorously pursued. They suggest that the current budget for 1983 should be set at £700 million. It is a matter for considerable regret that when some weeks ago the Minister for Finance expressed his belief that the current budget deficit for 1983 should be set at £750 million, the Taoiseach and the Government saw fit to administer a public rebuke to the Minister for Finance in discharging his duty and they have forced him to go against his better judgment and against the Fine Gael policy as put before the electorate.

Rapidly rising numbers of unemployed, the erratic performance of this Government since coming into office and the absence of any clear economic or fiscal strategy are all continuing to reduce confidence in our economy. The decision to plan for a considerably higher budget deficit than was generally accepted as necessary may well undermine confidence in the resolution of this Coalition to tackle our problems, particularly because of the likelihood in adverse economic circumstances that budgetary targets may not be met.

It must be clearly understood that this higher current budget deficit of £900 million, allied to the decision to phase out the deficit over a longer period of years, will add significantly to Exchequer borrowing despite all that the Fine Gael Party have preached to us about the need to reduce Exchequer borrowing. We estimate that this Government by their decision to extend the period over which the budget deficit is to be phased out from four years to the five years, the five years we proposed, will add £500 million to the total Exchequer borrowing in that period, and that was on the basis of an opening budget deficit of much less than the £900 million the Minister has been forced to settle for.

The extraordinary thing about the Minister's budget and arithmetic is that there is no provision whatsoever for any increase in public service pay in the coming year. The Government have not yet revealed or discussed with the trade unions their approach to this issue. So far they have limited themselves to formalities. It is essential if understanding and co-operation are to be maintained with the unions that the Government take us into their confidence.

Our policy was laid down in The Way Forward and was generally accepted as reasonable. We said that excluding carry-over effects from 1982 into 1983 public service pay should not rise by more than 5 per cent. It remained to be determined, given the provision in the Estimates of the 7.7 per cent rise in public service pay, what scope there is, if any, for any future pay increases in 1983. But this is not an issue the Government can avoid. I do not think it is good enough for the Minister for Finance in this House on budget day, when he is supposed to be giving us the whole economic and financial strategy for the coming year, to leave this matter in abeyance and to say he is providing nothing for a public service pay increase in 1983 and if there is some increase, further action will have to be taken. That is a serious piece missing from this budget and it is a very suspicious attitude for the Minister to take.

This budget with its heavy extra impositions on working families is hardly likely to be helpful to pay moderation. People are seeing their real incomes and wages inexorably reduced. It is regrettable that the measures taken early in January and in today's budget, and all the extra changes that have been or will be shortly imposed, are not conducive to creating the right climate for any new understanding on pay.

The Fine Gael Party fought the election 18 months ago on a dishonest programme of tax reform which was stated to be the most pressing problem of the moment. It is interesting to note that this has now been shelved, and that so far from relieving the income tax burden the Government have today increased in a number of ways the burden right across the taxpaying public. The Taoiseach made many election promises about tax reform concessions, the most notorious of which was the promise to pay £9.60 per week to housewives working in the home. But there were others, tax credits and so on, and they have all been abandoned one by one. Instead there is a further imposition of a 1 per cent levy on income today and that is going to fall mainly on the PAYE sector; the PAYE allowance is being reduced by £26 million; mortgage interest relief is being curtailed, and certain higher incomes will be subject to 65 per cent tax. With that record of broken promises in this area of taxation, I believe I am entitled to put to the electorate the perfectly legitimate question: "Would you ever again buy an election promise on taxation from this man?"

There is widespread popular demand that abuses in the social welfare system must be prevented. Among those at work in particular, those paying PAYE, there is a sense of outrage about these abuses. Our approach was to tackle this in three ways: to limit unemployment benefit for short-term workers to a five-day working week without pay-related benefit; to put a ceiling of 80 per cent on reckonable weekly earnings and overall benefits for disability benefit purposes; and to reduce the levels of pay-related benefit from 40 per cent to 30 per cent for six months and 20 per cent for the remaining nine months. That was a reasonable proposal. The Government today, I understand from a quick scrutiny of this budget paper, propose that that 40 per cent be reduced to 25 per cent. Why have we not had these proposals before now? When we left office, we left legislation ready to be enacted. Is it that the Coalition Government cannot reach agreement on these proposals? I find it very difficult to understand the failure of the Government to announce the extension of the operation of section 23 of the 1981 Finance Act beyond the end of this year.

Employment in the construction industry is at a disastrously low level. In March of last year, we re-allocated some £50 million to building and construction. It was to be expected that the incoming Government, of whatever party, would mobilise some of the capital reserve to this purpose today. However, it has to be recognised, and it was recognised in The Way Forward, that there is a limit to how long one can sustain the high level of net capital formation that we have. The construction industry cannot rely on public investment alone. That is all the more reason why the Minister should have given a clear indication, today at least in his budget, that section 23 would be extended. That section has been quite successful in its operation.

I now turn to the part of the budget which was implemented in advance by the imposition in early January of extra excise duties to raise £119 million. On this side of the House, we question the legality of an imposition of duties of this size outside the House, particularly when the Dáil was in recess. The imposition of substantial additional excise duties in this way, without prior Dáil approval, undermines our parliamentary system. It is difficult to reconcile this draconian, executive procedure with Deputy John Bruton's frequently expressed wish for greater control by the Dáil over the public finances. Are we now to have a situation where the Government can raise much of the money it needs by way of excise duties without recourse to this Parliament? According to press reports in January, the Government made these decisions at a time when they did not have the full picture as to how they could control expenditure and what other sources of revenue there were.

The Minister for Finance may be too optimistic in projecting that extra £119 million from the increase in excise duties announced early this month. The revenue from excise duties increased by only £70 million in 1982, against £160 million anticipated in the March budget. The biggest increase in excise duties is on petroleum products, imports of which increased by only 2 per cent in value in the 11 months up to November, implying a considerable fall in volume. It is likely that sales of petrol and related fuels will further drop in volume this year as a result of this budget. The sales of most other goods subject to excise duty have also fallen, particularly beer and spirits. The Minister is anticipating an increase of 10.5 per cent in the excise yield this year, a figure close to the anticipated average rise in the cost of living. Last year, there was a drop in real personal consumption of about 6 per cent and, according to some latest economic reports, it is suggested that there will be a further fall in personal consumption in the region of about 2 per cent. This will be consistent with likely developments in incomes and public expenditure.

There was fairly general surprise when the White Paper on Receipts and Expenditure was published, between the figures of receipts and expenditure and the opening deficit. They were much better than we had all been led to anticipate. I must question the projected figures in this budget, on account of last year's experience that, as real incomes were further squeezed, discretionary spending progressively declined. The limits on many forms of indirect taxation are near to being reached and the Minister for Finance must be certain that he is being realistic about the likely revenue yields of particular forms of taxation. Any further substantial slippage on the budget deficit, because of over-estimation of revenue of the kind which occurred in 1982, must be avoided because it seriously undermines the whole budgetary strategy. That is particularly so because the Minister and the Government have taken this soft option of going for a budget deficit on current account of £900 million, instead of the £750 million that we proposed or the £700 million proposed by the EEC.

This 1983 budget was expected to be severe—that was widely accepted. Getting the current budget and the level of public borrowing down could not be achieved without major pruning of public expenditure and other similar painful measures. Our policy, which was set out in The Way Forward, represented a balanced, integrated approach over a five-year period. It was carefully measured combination of corrective and developmental measures. The Way Forward set realistic long-term targets for improvement in the public finances, a reduction in inflation and the rate of unemployment. The present Government has no such strategy. The Way Forward concentrated on competitiveness, import-led growth in employment and the restoration of the public finances. This Government have abandoned that rational approach and have brought in here today a budget which will rock the economy to its foundation. There is no balance. It is oppressive and inflationary beyond anything justified by the requirements of our situation. It will not solve our problems, it will exacerbate them. It does not fit into any long-term plan or programme, as we had planned that our 1983 budget would.

We, in the outgoing Fianna Fáil Government, formulated a plan, a specific programme for the years ahead. Fine Gael and the present Taoiseach criticised us. Now that they are in Government, they have nothing to put in its place. This budget does not look beyond this year. It is not part of any long-term strategy. It represents the worst type of economic and fiscal policy, ad hoc measures dealing with the immediate situation in a heavy handed, blunt instrument fashion, but not related to any long-term plan. In particular, the budget, as I have said, offers no hope whatsoever for those young people throughout our country who today are so desperately and so anxiously looking for employment opportunities.


Hear, hear.

This is a book-keeper's budget, as cold and as impersonal as a computer print-out. There is no humanity and no compassion in it. Instead, there are more burdens and more impositions on that section of the community least able to pay the bill.


Hear, hear.

There is no evidence so far, and least of all in this budget, that this Government have any understanding of the situation of the old, the disadvantaged, the under-privileged, the unemployed, or any appreciation of the desperate struggle of lower income families to get by from week to week——

Hear, hear.

—— or even by the majority of householders to meet their basic commitment. Of course, the public finances are in a difficult state ——


They are.

—— and corrective action must be taken. Services must be cut back, expenditure curtailed, borrowing reduced, but those who are worst off, who are in need, should have been excluded entirely from this process and they have not been. This budget will press down on them in a variety of different ways, not least this new introduction of 5 per cent VAT on the fuel to which they, more than anybody else, have recourse.

The totally inadequate social welfare increases of 12 per cent and 10 per cent cannot possibly compensate for the increases that this budget is going to impose on the poorer and weaker sections of our community. I am sure that the House has already noted that even these inadequate rates of 12 and 10 per cent will not come into operation until next June. What are this section of our community to do in the meantime? We protected that section of the community and no matter what else we had to do or what we had to forego and despite all the economic and financial difficulties of the past three years, we made sure that that section of the community were adequately looked after and catered for. I say to the Ministers of the Government, Fine Gael and Labour, that they have failed in their primary responsibility. They have not protected those who should be their special care, whose welfare should be their first concern. Because they have failed these people, both they and their budget stand condemned before the nation.


Hear, hear.

I believe that their budget and their entire strategy are completely wrong, that they fail totally to meet the urgent needs of this situation, that they make no contribution whatever to the central problem in Ireland today, namely the problem of rising unemployment. The budget, in all its implications, far from helping to promote new employment opportunities, in fact introduces a series of measures which will have a totally detrimental effect on our employment prospects. Therefore we believe that this is a bad budget and should be rejected by this House.


Hear, hear.

There are still some on that side not clapping. The Deputy had better watch them.

A Deputy

Not as many as over there.


Order, please.

I think that got home.

Deputy Mac Giolla, Order, please. May we have order, please.

I must say that I would have to agree with most of the remarks of Deputy Haughey in his attack on this budget. I am amazed that it appears he was able to have a prepared speech as if he knew in advance exactly what was going to be in the budget. In fact when he made the point that he would have reduced the budget deficit to £750 million I hesitate to think what his budget would have been like.

I must describe this budget as unbelievably bad. In modern parlance I suppose one could call it a GUBU budget. Certainly I found it shocking. What stands out immediately is the 1 per cent income levy to bring in £47 million this year from the PAYE worker and £80 million next year. I might stress that in addition to that 1 per cent income levy there is no indexation of the PAYE tax bands which means that an enormously increased amount in PAYE taxation will be taken in as a result of inflation and increased incomes. Therefore again the PAYE worker, who had expected that there would be no increase or, at the very worst, that his tax would be maintained at the terrible rate it was last year, is now burdened with this enormous increase. This is in addition to the huge increase in VAT, affecting the worker also, all of whose income is spent every week. Value-added tax is a tax on spending and will bear more heavily on workers' incomes than on the incomes of those who have large amounts remaining to invest in capital which is not taxed at all in this budget.

Indeed this budget is a joke when it comes to capital taxation. The Minister's statement, written and issued in this bland manner, makes one wonder whether the Minister for Finance has any idea how the public at large will receive this unbelievably bad budget. Again the Minister's statement which refers to the Commission on Taxation, talks about the need to have a fairer taxation system, but that is all. This budget blandly makes it worse, increasing the burden on the PAYE worker by way of excise duties imposed a few weeks ago — as Deputy Haughey said without any reference to this House while in recess. One might well ask: why not bring the whole lot in while the House was in recess at the same time as the Minister for Education introduced the cut-backs on education? Yet a couple of weeks later the Minister for Finance introduced excise duties which will bear more heavily on workers than anybody else because a higher percentage of their income will go in this direction, everything they earn being spent. Therefore they pay more in excise duties, more in VAT and now more under PAYE under this savage budget which in addition to having no indexation of the tax bands has raised the highest tax band while adding a 1 per cent income levy.

The very minimum increase in social welfare benefits this year should have been 15 per cent merely to hold the line. It must be remembered that these are the people suffering from the poverty trap, the people whose incomes will be reduced because the increase in benefits will be 12 per cent only and, in the case of short-term benefits, by 10 per cent only. There is no reference whatever to the poverty trap in which long-term unemployed people find themselves, which is becoming an increasing problem year by year. I think this case has been submitted already to the Minister for Finance by the Irish Congress of Trade Unions, pointing out that its alleviation constitutes a grave need. Yet it has not even been referred to in this budget.

Then there is the miserable £2.5 million increase in farmer taxation which is a joke because — as I have said already — the 1 per cent income levy on PAYE workers will bring in as much this year as all of farmer taxation.

When it comes to capital taxation the Minister blandly says that the yield therefrom is relatively low and that the existing taxes will yield only some £25 million this year. Twenty-five million pounds is only chicken feed; children would spent it on sweets in this day and age. The Minister continues to say, in regard to capital taxation:

On the other hand, there is only limited scope for increases ...

and finishes by saying there is no scope whatever for increases.

It was announced in this morning's papers that four of the top companies in this country — the Rohan Group, Jefferson Smurfit, Independent Newspapers and Cement Roadstone paid dividends to their shareholders in advance because of the fear that the Minister for Finance would introduce advance corporation profits tax. None of them had to worry. They should have known that, whatever Government were in power, they would not have to worry about this. It did not happen last year, it has not happened this year, nor the year before last. We are told all the time that it might happen. We are told there is a need to increase capital taxation. Now we are told there is no scope for its introduction. There is ample scope for it. There was a higher amount of capital taxation paid in 1974 than there is now. Death and estate duties had been in operation for years. They were abolished in 1974 and, since then, there has not been the same yield for capital taxation. In fact in the year 1980, in real terms, the capital taxation yield dropped by 50 per cent. Yet the Minister for Finance in 1983 can tell us there is no scope for increased capital taxation. There is no scope because the Minister does not want to find scope, because the Fine Gael Party do not want any scope for increasing capital taxation.

The result is that they hit the same people all the time. How long do they think they can do this? In the next few days, workers will realise the enormous attack made on them in this budget, with no effect whatever made to hit the rich, the people who pay up to £50,000 for a motor car, who own two houses. The workers see these things happening, they see the great wealth being paraded. Now they see the Minister for Finance making no effort whatever to take any taxation from these wealthy people. Does he think that the worker will sit down and take this for ever? A few years ago they marched in a peaceful manner. They thought they had made their point, that they were paying too much taxation. Every Minister agreed they were paying too much.

The Commission on Taxation was established and has reported, in my view a very poor report, referred to here and there in the course of the Minister's statement today, when he attempted to give the impression that he was introducing part of their recommendations. The whole Report of the Commission on Taxation called for a reform and restructuring of the whole of the taxation system. That is not being done by the Minister for Finance. It was not done by his predecessor. Neither have we had any information from the Minister as to whether the Government will implement any of the ideas contained in the Report of the Commission on Taxation, nor if they have any intention in the future of easing the burden on the PAYE worker.

The Minister refers also in the course of his remarks to tax evasion. It sounds great. We get the impression that something will be done at last. I am glad that he intends to publish the names of those evading tax. The Minister expects that £20 million will be taken in by the Exchequer as a result. That was an extraordinary statement because the Comptroller and Auditor General published a report last year in which he stated that £450 million was not paid over to the Exchequer. We have regular bankruptcy in companies such as that in Carrigaline where it was discovered that they were not paying PAYE or PRSI to the Revenue Commissioners. We have clear evidence that companies and people have been evading tax to the tune of £200 million. The Minister expects to bring in only £20 million so I wonder how serious he is about tackling tax evasion.

I am most disappointed that the budget, as Deputy Haughey said, is a book-keeping exercise. I had hoped that the Minister would indicate the strategy of the new Government, give some indication of a Government plan and give some hope. If people, particularly young people, had some hope today and could see something happening in two or three years time to which they could look forward, they would accept almost anything. There is no hope whatever in the Minister's speech. There is no indication of any plan to develop the country's resources, create jobs or see some way forward out of this morass except to tax more and hope that in the long run we will get out of it somehow.

There is absolute need for a plan. Young people need to be shown that there is a way forward. Have the Government looked at the Telesis Report? Have they given any indication that they believe there is anything in it? Have they looked at the manner in which our resources are wasted as was shown in that report? Could they not have a positive way to balance the budget? Our problem is we spend more than we earn. The Government say: "Let us cut back on our spending". Surely increasing our earnings would be far better. There should be a positive plan for developing and increasing our output. We would need to increase output by 5 per cent per year. The people would be willing to do this if there was a plan and if there was leadership. If we balanced the budget in that way we would be in a better position when the recession ends. In the present position we are going further down the slippery slope each year and even if the international recession ends and the economic climate improves, we will not be in a position to take advantage of it.

The Minister gave no indication of plan or hope for the future. I see very little expectation that people will accept this. They would accept it if there was hope for the future, but that is not there. I am very disappointed. There are one or two features of the budget which I welcome but they are relatively minor. One which is welcome is the increase in the general exemption limits for single, widowed and married couples. However, widows should have been given the same exemption limits as married couples. That is something which is long overdue.

The self-employed are to be assessed in the same manner as PAYE workers. This is to be welcomed but why is it not being done this year? I hope it will be done next year as is stated. VAT on the imports of raw materials is being removed and that is welcome. There are some welcome minor features in the budget but the major part of it will not be acceptable to the vast majority of the people.

In accordance with the Order of the House the sitting is now suspended for 30 minutes.

Sitting suspended at 6.05 p.m. and resumed at 6.35 p.m.