The main thrust of this budget is simply to grab the income of all taxpayers, whether individuals or firms, and it does that for one purpose which is to maintain public services. I believe that the strategy agreed on is a mistaken one and it will prove costly for all of us. Almost certainly it will raise prices, it will make it difficult for Irish firms to continue to trade and it will depress living standards. It is self-evident even from a cursory glance that it will add to unemployment at a time when it is increasing by a few hundred people per day. It is not a balanced, equitable or fair budget. It seems to move to clobber the PAYE sector, grab the VAT and run. It will have the effect of bringing nearly half of the Irish taxpayers into the 45p taxation band. One out of every two taxpayers will have to pay that rate.
When in Opposition it is easy to suggest that there is nothing right in the budget and that all is wrong. I appreciate the difficulties that this, or any, Government would have in framing a budget where borrowing has got to a dangerous level and where the deficit has got virtually out of control. I appreciate the difficulty in trying to bring some order back into the public finances. To demonstrate the seriousness of the situation, all I need to say is that three-quarters of total State expenditure goes on two items, the servicing of the national debt and on the following three Departments, Social Welfare, Education and Health — what might be called the social services Departments. The figure for economic services is just 9 per cent of total State expenditure. All the money we are taking in and all the revenue we are raising is simply going into social welfare, health, education and the public debt. The cost of servicing the public debt is now 26 per cent of total State expenditure. That is 26p in every £ of state expenditure straight out through the door to pay for the public debt.
Therefore it is with some appreciation of the problems and real difficulties facing the Government that I rise to speak on this issue. I do not propose to be so glib as to suggest that nothing had to be done and that we could carry on with deficits or borrowings of that size. To make such suggestions would not be credible considering the figures in front of us. However, I suggest that the Government had a few options, one of which they failed to take. Without intending to be involved in adversary politics, I suggest that one of the main reasons why they dodged this option was the involvement of the Labour Party in Government. The Government decided on the option of higher taxation. They had the other option of controlling expenditure much more tightly than they did and the Minister for Finance yesterday made this clear when he said and I quote:
The main impact of today's budget on the current budget deficit will be largely through tax changes, ...
He went on to point out that expenditure adjustments will be the primary focus later during the coming year. Therefore, quite clearly he admits that he took option No. 1 which was quite simply to pile on taxation. Option No. 2 is that for which this House and the people have been crying out for a long time, that is, a strict, urgent control of public expenditure. Fine Gael perhaps would have been able to exercise that option. I believe the involvement of the Labour Party in Government effectively made it impossible to have that option exercised. My reading of the situation is that the Labour Party could not countenance a reduction or stronger control of public expenditure. It is clear, therefore, that no significant controls or cuts have been arrived at.
Current expenditure now is nearly 50 per cent of GNP in this year 1983. It is up two points since 1982 and up by an incredible 14 percentage points since 1978. In 1978 current expenditure was 36 per cent of GNP and it is now 50 per cent. The Government took the soft option of simply piling on taxation. I reiterate that I do not advocate a return to stronger deficit budgeting or an increase in borrowing or any turn-about at all from the line that has been embarked on which is to reduce public expenditure, control the deficit and bring about a recovery of the State's finances. I do not advocate departing from that broad strategy, but in this budget as the start to that process the incorrect option, the softer option, was purchased.
I welcome the idea that borrowing may be reduced to 13.5 per cent of GNP by the end of the year, but in welcoming it I predict that we will not reach it because there is no coverage here for the public sector pay deal which I am sure has yet to be thrashed out. When that is done it will put a hole in that borrowing figure.
This budget has had and will have the effect of deflating the already absolutely flattened Irish economy. It has taken £350 million out of the Irish economy in extra taxation. It just put in its hand and whisked out £350 million in 1983. It is an extremely unimaginative budget and an extremely dull way to approach the recovery of the State's finances. It slashes the capital programme without putting forward any suggestions as to how the private sector perhaps could take up that investment or where that money could be found in the private sector or other sources rather than directly from the Exchequer. I reiterate that a reaction to the budget is that there is nothing in it which is positive in the way of a stimulus to the Irish economy. There is no encouragement in it to invest, no imagination, no scheme to help people to invest. One scheme I suggested to the Minister previously, and I do so again, is a scheme which operates in Britain whereby an ordinary individual — you, I, anybody else — if he wishes to invest in small industry, small companies, particularly manufacturing companies, is allowed tax relief for making that investment. That encourages people not just to save but to invest in Irish industry. That is the kind of imaginative scheme that I was seeking in a budget like this. I was looking for imagination which would help the people to get up off their knees and would give them some encouragement. Unfortunately, all I can see in the Minister's speech is an extremely pessimistic and very flattening approach to the whole economy. I find it most disappointing and if that is so the hundreds of thousands of youngsters out there will be extremely depressed by it. They will just brush it aside with one wave of their hands as being more talk from the politicians and will not regard it as a real attempt to tackle the issues. In that regard I see no attempt to tackle employment in the budget.
The Taoiseach exhorted all of us to be more innovative. He asked for more innovation in Irish industry and in all of our lives. He asked Irish industry to set about innovation. There is no innovation in this budget, no incentive for people to adopt that approach. That point must be stitched in at a time like this. Having said that there is no incentive to Irish industry, I will go the other way and say that the budget will have a directly opposite effect. For example, it has introduced an advance corporation tax. It has put VAT up from 18 per cent to 23 per cent which, by the way, is an increase of 28 per cent. That is a cost to Irish industry. The cost structure of Irish firms now will go extremely wrong following these increases. On this theme of cost to industry, PRSI is now 11.6 per cent for industry and 6.5 per cent for the employee. Individual companies who employ more people pay more tax. Is that not a tax on jobs, on employment? Costs in Irish industry will be much higher as from today. In specific terms it is the increase from £9,500 to £13,000 in the PRSI limit which will have this effect. I suggest that it will cost a firm the sum of £400 per annum for every employee paid over £13,000. Is that not a beautiful State policy? You employ someone to whom you pay a very good salary, over £13,000, and this budget now asks you, an employer, to pay another £400 in PRSI on top of the salary which you are already paying. To the extent that there is an average firm that one change of the PRSI will cost the average firm between £50,000 and £100,000 a year. Therefore, what would you do if you were the owner of a small factory or company today? What would you do on sitting back finally and looking at the difficulties besetting your industry? I suggest that you would reduce staff pretty fast. You would say, "If that is what the State are doing, putting an extra £400 or so on every employee I take on and increasing my costs in this way through VAT of 28 per cent and bringing in this advance corporation tax, I will simply turn around to my board of directors and ask them to reduce the number of people we have employed in this firm". Is that not the logical conclusion for any manager to reach today?
Having said that, I welcome the VAT on imports change. It will be a relief to the small firm. I welcome also the stock relief which too will be a relief to industry.
However, overall in terms of employment not only has the budget not come in with some imaginative schemes to increase employment, it has gone out of its way, it would seem, deliberately to prevent firms who want to expand doing so. It has devised a whole list of extra costs for Irish industry which will simply have them throwing their hands in the air and saying that if it is to cost them so much more to employ so many more people they do not want to know anything about it. In that regard it was wise of the Government to include a provision — if I am wrong in this I can be corrected — for the first time ever specifically for unemployment, which I see in a table at the end of the Minister's speech, of £31 million. It is wise to provide that type of money, but it is also an admission that these costs loaded on Irish industry will drive more people on to the streets and the dole queues. It cannot have any other effect. It is quite logical that that will be the effect of it. This is borne out by the figure the Government have of £31 million to pay for what they call increased unemployment. This is perhaps one of the first budgets in which a Government have actually said there will be extra unemployment. Most Governments throughout the years have said: "We expect a reduction this year in unemployment because of this scheme or that scheme". This is the first time we have a Government saying officially that unemployment will rise and they are providing money to pay for it. They are virtually saying that one of the causes of that is the sheer severity of this budget.
There is a figure in the budget of £75 million for negative buoyancy. It says "buoyancy" in the Minister's statement, but when you do your sums on it you see that it is negative buoyancy. I am a relatively new Member of the House but this must be the first time a Government have actually said that because of the severity of this budget they expect a negative buoyancy. They are saying they expect to get in £75 million less than they budgeted for. Every other Minister for Finance regarded buoyancy as something on the way up, not something on the way down. I do not know what the opposite to buoyancy is, perhaps it is sinking fund or something like that. That is precisely what is in that statement we heard in the House yesterday. The Government are admitting, with the £31 million, that unemployment will rise and they are also admitting they will not get in the amount of money they have budgeted for because of the severity of the budget. They are simply saying it is a very severe budget, they have put on a vicious VAT increase and because of that they know consumer demand will fall and they know they will get in less than they planned for. There is a lot of admission in the Minister's statement yesterday.
The non-changing of the tax bands, the 1 per cent levy on incomes and the abolition of the interest allowance for personal borrowings will have a devastating effect on disposable income. Disposable income, which the economists are fond of calling it but which to most of us is simply what we take home when the State has had its share, is taking a nose dive. Our disposable income will be so small that we will not have many items to spend it on. This will have a consequent effect on the amount of VAT the State will collect. I predict today that the State's view of what it will get in extra VAT is grossly exaggerated. I believe VAT collection in the next 12 months will collapse because of the small amount of disposable income the average person will have when all of this is taken into account.
I would like to make a brief comment on the property tax, which is supposed to take in £10 million this year. I have no objection in principle to this but there are enormous practical problems. Any Minister for Finance would be very wise indeed to be aware of those practical problems.
I notice from the Minister's statement yesterday that the person owning a house valued at over £65,000 is in fact the person who will make the statement to the Revenue Commissioners of the value of his or her house. It seems to be a very liberal approach to taxation to be allowed to state the value of your house. I believe, unless the Minister can convince me to the contrary, that this is a nice idea but it will not work. By the time he gets the people with over £20,000 with houses of £65,000, he adds both of those figures together and by the time those people's accountants, tax experts and lawyers as well as property valuers have dealt with it there will be nothing like £10 million left for the State. I would be very surprised if that brings in more than £3 million in the current year. I believe there will be an enormous shortfall. I can see the Minister for Finance saying next year that due to administrative difficulties it was impossible to collect the full figure announced in this year's budget.
I should make it clear, in order to get into perspective what has happened here, that 18 months ago the rate of VAT was 10 per cent and it is now 23 per cent. That is where the State is getting its money. That demonstrates the size of this increase and the way it has crept up in that period. There is a tremendous burden on the ordinary family today and this will lead to great social pressures on them. Let us take a middle income family earning £11,000. Before the budget that person paid £1,800 in tax. After yesterday's budget he will pay an extra £250 in taxation and PRSI. This is a married couple with three children paying on a mortgage of £20,000 repayments of approximately £3,000 per annum. It does not stop there. It is admitted by the budget that the consumer price index will go up by approximately 3½ per cent but most economists today suggest it will be about 5 per cent. If you apply that to a person's disposable income, then after the person I have in mind pays his tax and by the time he pays VAT on petrol, post office charges, losing interest on overdraft reliefs and the various other items and applying this percentage to it that person, without an increase in salary, will end up being out of pocket by approximately a further £1,000 as a result of this budget. Yesterday that person earned £11,000 but today he is earning only £10,000. His costs have not gone down. He still has the ordinary home expenses to look after. That person would need a substantial increase to even get back to where he was before the State moved in yesterday and took approximately £1,000 out of his salary of £11,000. That is a Robin Hood type of operation.
There is a clear need for reform in the personal taxation system. The report of the Commission on Taxation, which we all put such faith in, is still lying on the shelves with so many other State reports. There has not been any serious attempt made to implement it in any way. We must get down to doing that pretty soon. The personal taxation system is unfair. If you are paying tax at 65 per cent you get your reliefs at 65 per cent. If you are paying tax at 35 per cent, you get your reliefs at 35 per cent. That is not tax equity. It means that if you are lucky enough to be in the higher bracket then the particular allowance you get against your income is worth correspondingly more to you. It is also quite clear that the tax system for the ordinary person is too complicated. We will have to devise a very simple system of personal taxation where a person can virtually account for his or her own taxation. Each person should be able to get a sheet of paper, simply lay everything out on it and know where he or she stands. The present system is far too complicated. It is unnecessary and should be simplified for the ordinary individual who can see the effect of all those things.
Overall, there is an enormous imposition of taxation in this budget. To take one example, though it may not be a regular example, a single person who is lucky enough to be earning £15,000 per year will pay almost £7,000, that is, about 45 per cent of his income, immediately in taxation. That is no way in which to encourage people to do their best for their country. By the time one will have his direct taxation paid, he will not have enough money left to enable him to pay very much by way of indirect taxation and that situation will mean less for the Exchequer by way of VAT. In other words, the stage of diminishing returns has been reached in our taxation. This budget has brought that concept out into the open.
I wish to refer briefly to the cuts. The capital budget for the Housing Finance Agency is being cut by £13 million. I understand that is based on the fact that the building societies have more funds available now so that there is no need for the £13 million so far as the agency are concerned, but that is crazy thinking. There is no comparison between borrowing money from the Housing Finance Agency and from the building societies. The agency were set up to facilitate people with smaller incomes. The mortgages are repaid over a longer period than is the case with the building societies. There is no point in thinking that we can cut the budget of the agency in this way and still expect to house the same number of people. I would ask the Minister to reconsider his decision in this matter. Otherwise, what will happen will be that the number of people both in this city and throughout the country who are unhoused will continue to increase.
The idea of cutting capital expenditure is somewhat new in Irish economic philosophy. There was a time when both Ministers and Opposition spokesmen would regard capital expenditure as being sacrosanct. The idea was that to cut capital expenditure would damage employment. However, I notice a major policy change in this budget. That sacred cow is being slashed. The Government are taking £18 million off telecommunications and £6 million off the IDA. I wonder if this is the first time in the history of the IDA that their capital budget has been reduced. I suspect it is. The same goes for SFADCo and the Údarás na Gaeltachta development agencies. The transport budget is to be cut by £4 million on the capital side while there is a cut of £18 million in the capital budget for roads and sanitary services. I do not object to the cutting of capital expenditure in some area, in areas where one will not be able to see a return for his investment but to take £6 million from the IDA at a time when, as the Government admit in the budget, there are no clear plans for Irish employment is lunacy. We cannot cut capital programmes without creating difficulties. For years the IDA have shown a clear return for their investment. They should be given the necessary money to continue their work. The cutting of the sanitary services programme by £18 million is not very clever either.
This is one of the dullest budgets I have ever read. Does it make any sense to include a figure of £31 million to provide for additional unemployment while at the same time taking £18 million off road and sanitary services because we cannot afford that this year? Would it not be a lot better to switch into roads and sanitary services some of the £31 million that we are providing for additional unemployment? Then we could afford the £18 million. I realise that that is a simple argument and that there are more complex problems involved, but does it not make some sense? The Government's approach is totally defeatist and is an admission that they expect increased unemployment. I implore them to put some thought and imagination into what they are doing. There are hundreds of thousands of people unemployed and I am confident that if there was some imagination on the part of the people opposite, we could reduce those numbers by a large figure.
In addition to admitting that unemployment is increasing, the Government admit also that they will not get the VAT they are asking for because of the severity of the budget. At the same time they are cutting the capital expenditure programme. This is not fair to the thousands of young people seeking work.
The Government are saying to them that it is preferable to pay unemployment money and to leave capital projects undone. Why not go ahead with the capital projects, perhaps through the Youth Employment Agency, and give these young people some of this money for doing the work?
Many speakers from the Government side have been challenging people on this side all day to say what we would do in regard to reducing the deficit. I am not attacking for the sake of attack. All I am saying is that I cannot find any ideas in the budget that would lead to a reduction in unemployment and I am suggesting that if the capital projects to which I have referred are restored to the agenda and are financed by way of reducing the unemployment money provided for in this budget, we would be doing a good day's work. That is a specific suggestion and I trust that at least it will be considered seriously.
Generally, my main point is to suggest that the strategy this Government have adopted is wrong. Reducing the deficit, bringing down expenditure and bringing public finances into control are moves in the correct direction but it is within that direction that the Government have taken the wrong option in this budget. They should have controlled expenditure more tightly and brought in some imaginative schemes to boost industry. There should have been only a modest increase in taxation to allow people more disposable income and thereby help to boost the economy. At the outset of his speech yesterday, the Minister said that we are on the brink of a severe recession, that the natural reaction to this situation would be to prepare a budget which would give a fiscal stimulus to the economy. In other words, he admits that that would be the obvious course to take at a time of recession. Then he says he does not have the money but that is not good enough. I know he does not have the money but there is money on the other side of the balance sheet which can be diverted to give him the kind of budget he knows he should have brought in, a budget which would give a fiscal stimulus to the economy.
Mortgage relief changes, VAT, PAYE changes and so on, hit young people more than settled people. By now, settled people have bought their cars, furniture and houses and hopefully are getting their mortgages under some control, and their salaries are beginning to rise as they get into their middle years. That is the theory, although I am aware it is not the case for every family. On the other hand, young people who are not settled have to pay this extra VAT. Their mortgage relief is being cut — a person who bought a house ten years ago does not have that problem — and they have to pay VAT on their cars and furniture and their salaries are small. This budget hits at young people, half the population, in a particularly hard way.
This budget will ensure weak consumer demand throughout 1983. Inflation will probably be of the order of 11 per cent or 12 per cent and output in growth will be nil. This is a very bleak prospect. The Government admit they will not be the engine of growth because they have cut back the capital programme and resorted to being a tax collector. That seems to be the new role of the Department of Finance. I remember when that Department saw themselves with a broader role, a role for providing the engine of growth for the economy. Where is that enterprise, where is that engine of growth to come from now that the Government and the Department seem to have abdicated from playing that role?
This is the first time I have seen in a Budget Statement a deliberate admission that unemployment will rise, that a particular figure was provided for that increase, while admitting there will be no growth in the economy next year. There has to be growth in the economy. If the Government cannot tackle these capital projects which they say they are abandoning why not look elsewhere and find someone else who can — private or even foreign investment? For me the most depressing aspect of this budget is the fact that the Government say all these projects need to be undertaken but they cannot undertake them because they do not have the money, while on the other hand they are paying out millions of pounds in social welfare and other benefits.
What do I tell the young people I meet when they ask me what is going to happen to them next year? Am I to tell them I am sorry but that all the projects for this year have been cancelled but that they can relax because extra money has been provided by way of social welfare benefits which they can collect on the appropriate days? As for enterprising growth, the Government admitted they cannot do anything this year and have not allowed anybody else to do anything either. If they cannot tackle these capital projects, they should call in somebody who can. I have heard from this side of the House the philosophy of the State company as being a body which fills a gap the private sector could not fill. Has that role been reversed? Are we at the stage where we will have to ask the private sector to fill the gap the public sector cannot fill? If so, we should admit it. All the Minister said yesterday was that when the Government got the public finances under control all else would follow. All else does not follow from that. You have to create the atmosphere for enterprise and initiative and this budget clearly does not do that.
There have been cuts announced on the current side which I welcome. Unemployment benefit has been reduced from 40 per cent of pay for the first six months to 25 per cent starting in April; the overall benefits ceiling for disability benefit purposes has been reduced from 100 per cent of income to 80 per cent, and the restriction on short time working payments have been reduced from three to two days. These measures are welcome. This is an attempt to get back to a social welfare philosophy which means that the people who need social welfare get it, but the people who abuse the system rather than show some spark of enterprise do not get State funds.
I hold a very strong belief that nobody should get State funds unless he needs them. A person should not get State funds because he happens to qualify technically under some Act, because it is in that technical area that we are losing a great deal of money on the social welfare front. Let us get our economic and social philosophy clear. We should say there is a point below which we do not allow our people to fall and that point should be clearly defined, but I wonder are we wise to put an upper limit as was done yesterday when we introduced a tax rate of 65 per cent. By doing this senior executives, entrepreneurs, managers and so on will be less inclined to take risks, establish firms or open the factories we need to get the taxes to run the social welfare services.
I want to comment briefly on the National Development Agency for which the Government have provided £10 million this year. As I said on a number of occasions, I regard this agency as an albatross. I do not see it filling the role this economy vitally needs. In years to come we will be faced with a National Development Agency costing this State probably more in annual subvention than CIE are costing us at present — this year £100 million. This is another layer of bureaucracy which will probably employ more public servants than the workers who will be employed directly in industry. This may be seen as a defeatist attitude but I do not agree. I think the Government are going in the wrong direction and this is the wrong time.
While I applaud the effort to reduce the current budget deficit to £897 million, the Government do not have a chance of getting anywhere near that figure. The deficit will be higher at the end of the year than it is now. I do not say that with any gladness because I would like to see it reduced, but the Government have not allowed for an increase in public service pay. They assume it will be 0 per cent but we know it will not. When pressure is exerted the Government will cave in, a settlement will be arrived at, a Supplementary Estimate will be introduced and later in the year there will be a supplementary budget. Has it been worth all this trouble to depress the economy for the sake of ending up with a current budget deficit next year approximately the same as we have this year? As for managing to reduce it over a four or five year period, I am very pessimistic about any Government, whoever they are, being able to do that. It is very easy for us to write it down, but not so easy to do it.
The Government in this budget had the option of controlling public expenditure instead of going for the soft option of increased taxation. They went for the option of increased taxation. The budget includes a figure of £75 million which is a negative buoyancy figure — an admission by the Government that consumer demand will be so small next year that they will get in less than they have budgeted for in value-added tax. They admit that they have taken so much from people in direct taxation leaving them with such a small disposable take-home income that they will not be able to spend it on the value-added tax items on which the Government are relying. Most pressingly, I stress that the capital project which has been shelved could have gone ahead by seeing how the unemployment figures could be matched with the cancelled projects. I express my total despair at the completely negative approach towards trying to boost our economy and put an engine of growth into it. The Government say the State cannot do it and, with a dog in the manger approach, they have no ideas, no imagination as to who else can. I totally support the Government's efforts to reduce the deficit and foreign borrowing, but in the process to pay a price for which the young people will not thank us by the time this year is out is foolish.
