Financial Resolutions, 1984. - Financial Statement, Budget, 1984.

Before I call on the Minister for Finance for 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 to be a serious breach of privilege.

The economy is now poised in a delicate balance. The severe measures that had to be taken in last year's budget are beginning to bear fruit, but have not yet produced their full results. There have, however, been substantial developments on the economic front and significant improvements in the public finances. Industrial exports grew by about 14 per cent in volume in 1983; agricultural exports increased in volume by some 3 per cent. Reflecting the buoyancy of exports, the volume of manufacturing output expanded by 6 per cent. Inflation was reduced to 10½ per cent from the previous year's 17 per cent. These were significant achievements in view of the difficult economic climate.

On the public finances front, borrowing, especially foreign borrowing, has been reduced and the growth in public expenditure, which has been the core of our fiscal problems for a decade, has been curbed.

There is a long way to go before we can claim that we have solved the problems in the public finances, or fully set the economy on the path of growth in employment and output which we all wish to see. But we have made a resolute beginning and within the space of a year the results are already starting to appear.

The steps taken to rectify the public finances during the past year contrasted sharply with the unsustainable excesses of previous years. We are now picking up the bills which our predecessors tried to push off into the future. We cannot avoid this problem. If we do not face it today, it will become more intractable tomorrow. There can therefore be no doubt but that the rectification of our financial imbalance must be a continuing priority in Government policy.

Progress so far on the financial front would suggest that another significant step should be taken this year in the reduction of Exchequer borrowing and the elimination of the current budget deficit. Pursuit of these goals must, however, be tempered with caution.

Inevitably, the overdue change in direction comes as a shock to the economy. While inflation has come down significantly and the balance of payments problem has been greatly alleviated, consumption has declined, investment has fallen, unemployment has risen and growth has been stifled. But there are now clear, if delicate, signs of an economic recovery in Europe and the United States. I want to develop our ability to participate in that recovery, both now and in future years.

We must continue with our programme of greater discipline in public expenditure; we must continue in our determination to reduce borrowing, especially foreign borrowing, and we must continue on the path towards elimination of the current budget deficit. It is for this reason that the Estimates for expenditure, already published, have been so tightly drawn. But 1984 is not a year in which it would be either prudent or constructive to produce a budget which had a major deflationary impact on the economy. On the other hand, a premature and artificial fiscal stimulus would simply mortgage further our future growth. We must use to the maximum the extremely limited room for manoeuvre created by the policies we have pursued for the past twelve months, in order to enable the economy to benefit to the greatest possible extent from the emerging international recovery.

Today's budget therefore includes proposals for some tax concessions and for increased expenditure allocations in certain areas. To finance these changes while achieving the Budget targets means that there must also be increases in certain taxes.

A second high priority for the Government is to achieve a fairer distribution of taxation and to help those on low incomes. Last year's budget and Finance Act represented notable steps in this direction and the changes I will announce in today's budget will secure further progress. Taxation levels generally are now high. The scope for easing the burden rapidly is, however, severely restricted by the state of the public finances, which leaves no room for overall reductions in taxation. Neverthless, it is possible to make some useful progress within the existing constraints.

Until we bring about a considerable improvement in the public finances, we can make litle progress towards a stronger economy and better employment opportunities. Action on this front must be supported by other policies in order to make the best use of the opportunities open to us. Moderation in pay demands remains a critical factor and further job opportunities will be lost if pay awards are made that the country cannot afford.

Financial difficulties notwithstanding, we must ensure that those on low incomes are protected: the measures in today's budget will do that.

REVIEW OF BUDGET 1983 OUTTURN

BUDGET OUTTURN

The outturn on the 1983 Budget is particularly encouraging. Current expenditure was on target, while revenue fell short of expectations by less than 1 per cent. The current budget deficit for 1983 was £960 million, or about 7¼ per cent of GNP, compared with £988 million or 8½ per cent of GNP in 1982. Capital expenditure was £141 million below the budget estimate but this was mainly on the non-Exchequer side. Exchequer borrowing for capital purposes was £29 million below the Budget estimate.

The total expenditure of central Government and of local authorities on current and capital services represented a lower proportion of GNP than in 1982. This was a striking reversal of one of the most persistent long-run trends in the Irish economy. It has been achieved at a time when the upward pressure on public expenditure and consequently on taxation from a growing population and rising unemployment is greater than ever.

The overall Exchequer borrowing requirement for 1983 was £1,756 million, or 13¼ per cent of GNP. This is a reduction of more than three percentage points of GNP compared with the 1982 figure of £1,945 million, and the overall level of borrowing as a percentage of GNP has now been brought back below the 1979 level.

These achievements are significant by any standards. They result from the application of objective budgetary procedures, the exercise of strict controls on expenditure at all levels and quick and decisive action in mid-year when the risk of a major overrun became evident. This performance has restored credibility to the whole budget process. Its fundamental importance can be expressed quite simply by saying that, in 1983, we reduced the rate at which we were adding to the burden to be carried by taxpayers in future years.

BASIS FOR COMPARISON WITH 1984 FIGURES

The pre-budget estimates of receipts and expenditure for 1984 reflect the transfer of responsibility for the day-to-day operation of the postal and telecommunications services to An Post and Bord Telecom Eireann. This change, as I have already pointed out on a number of occasions, has a major impact on the budgetary aggregates. While a straightforward comparison can be made between the 1982 outturn and that for 1983, it is necessary, in order to compare the 1984 figures with the 1983 outturn, to adjust the latter to show what the position would have been had the permanent arrangements now in operation been in effect from the beginning of 1983. The 1983 current budget deficit, adjusted on that basis, is £1,085 million or 8¼ per cent of GNP. The corresponding overall Exchequer borrowing requirement is £1,853 million, or 14 per cent of GNP.

I must emphasise that these adjustments are simply for illustrative purposes and do nothing to alter the actual amount of funds the Exchequer had to raise in 1983 to finance its borrowing requirement. Nor does the change affect the position of the public sector as a whole.

The adjustment do, however, provide a basis for assessing developments in the public finances in 1984.

EXCHEQUER FINANCING

In 1975, 26p in every £, or just over a quarter of tax revenue, was used in the service of Exchequer debt. Last year we had to put aside nearly 37p of every £, or well over one third of an enormously increased volume of tax receipts for this purpose; total debt service costs were £1,713 million. There is no need to spell out the restrictions that growing debt service costs impose on our budgetary strategy. They are, however, the inevitable and painful results of previous years' borrowings, often for projects of dubious value and for needlessly high deficits.

Because we have to borrow to meet our maturing debt obligations, as well as to secure new funds for the Exchequer each year, we are, in effect, paying off no net debt. Instead, we are continuing to add massive amounts to our outstanding debt each year. The only way we can effectively moderate the rapid growth in debt service costs is to reduce our appetite for new funds each year by controlling the Exchequer borrowing requirement.

Domestic Borrowing

Net sales of Government securities amounted to £839 million in 1983. Of this, £579 million was bought by the domestic non-bank sector, an increase of 15 per cent on 1982. Taking small savings into account, the total raised from the non-bank sector showed an increase of 23 per cent, substantially ahead of the increase in nominal GNP. This was, of course, partly due to the continuing slackness of demand among alternative investment outlets.

Receipts from the commercial banks were £225 million, compared with £250 million in 1982. The sale of £185 million in Agricultural Commodities Intervention Bills to finance the purchase of agricultural produce into intervention was mainly responsible for the fall-off in Exchequer funding from this sector. Investment in gilts from outside the State in 1983 came to £35 million, mainly reflecting the need of foreign institutions to cover Irish pound liabilities.

Foreign Borrowing

One gratifying aspect of the financing of the 1983 borrowing requirement was the fact that we were able to reduce our net foreign borrowing. New funds raised abroad totalled £793 million, significantly below the 1982 figure of £1,148 million, which itself was down on the previous year's figure. As a percentage of gross national product, the reduction in net foreign borrowing has been dramatic, down from some 12½ per cent of GNP in 1981 to about 6 per cent in 1983. Net foreign borrowing as a percentage of GNP has thus been more than halved in over two years.

We must maintain that downward trend. The economy cannot afford the continuing drain of resources abroad to service ever-mounting foreign debt when those resources are so badly needed at home for future development. Moreover, while the immediate crisis of confidence in the international banking system appears to have passed and our ability to borrow abroad is, of course, unquestioned, we still face considerable uncertainties in relation to movements in international interest and exchange rates, over which we have no control.

There is another reason why we must continue to reduce our need for new foreign borrowing. Every year, in addition to raising new money abroad to finance the Exchequer borrowing requirement, we must borrow to repay maturing foreign loans which were raised in earlier years. This year, some £660 million must be raised for that purpose, compared to £374 million in 1983. Apart from a drop in 1985, we are facing an even heavier annual burden of maturing foreign debt for the remainder of this decade. Matters would be worse but for the considerable skill that has been exercised in spreading loan maturities. Nonetheless, the sheer volume of foreign borrowing undertaken in the past is now beginning to take its toll. We can best cope with that increasing burden of repayments by curtailing our demand for new foreign borrowing each year and by continuing the progress made in that direction over the past two years.

SMALL SAVINGS

These considerations support a policy of raising as much finance as possible in 1984 from domestic sources, provided this can be done on acceptable terms. In 1983 there was a welcome increase in savings through the Post Office system and the Trustee Savings Banks, which assisted the domestic financing of the Exchequer's requirements. Receipts were, however, still only a small fraction of the total amount needed.

In order at least to maintain the 1983 level of receipts from small savings, and indeed to improve on it, I have decided that a number of changes are justified in present circumstances.

I am abolishing the present age limit of 55 years for Index-Linked Savings Bonds and increasing the maximum holding from £10,000 to £15,000. In future they can be bought by anyone from seven years of age upwards, as is the case with Savings Certificates. For the sake of consistency, a similar change in the age restriction is being made in the case of Index-Linked National Instalment Savings.

I have decided that the tax exemption limit of £120 for an individual and £240 for a married couple which at present applies to the Trustee Savings Banks' Ordinary Account deposits will in future apply also to their Investment Accounts.

I would like to take this opportunity to express my appreciation and thanks to the members of the National Savings Committee who give freely of their services for the promotion of savings in the community. I have recently restructured the committee and given it specific terms of reference, and have every confidence that the members will continue their excellent work to encourage the habit of thrift.

THE ECONOMIC SITUATION

I am glad to say that the economy is now responding favourably to the corrective measures taken last year and to the stimulus provided by the international recovery. The average rate of inflation dropped by over six percentage points in 1983 and the expectation is for further moderation in the underlying rate. Industrial exports and manufacturing output expanded significantly. I am confident that this industrial recovery will continue to gain momentum. The unemployment trend has already improved and I expect that the rate of job loss will continue to moderate with the revival of economic activity.

(Interruptions.)

The international recovery, combined with growing domestic business confidence, should reverse the decline in private sector investment which has been experienced in recent years. Confidence has been considerably boosted by the reduction achieved in the Exchequer borrowing requirement and by the improvement in the balance of payments in 1983. The balance of payments deficit was reduced from over 8½ per cent of GNP in 1982 to about 2½ per cent in 1983.

GENERAL BUDGET STRATEGY 1984

GENERAL BUDGET POLICY

I have already outlined the general policy considerations that lie behind this year's Budget. It is clear that the overall level of borrowing remains excessive. The consequential high level of debt servicing puts an appalling restraint on our ability to create employment and must therefore be reduced.

The critical policy issue is the appropriate degree of adjustment to be aimed at in 1984. I have indicated that overall policy requires a slower pace of contraction in the borrowing requirement than would result from a purely arithmetical approach to the elimination of the current budget deficit by 1987. I must make it clear, however, that this policy stance necessarily involves some element of risk. It may, as events unfold, prove necessary to adopt more restrictive policies in 1985 and later years. I want to avert this possibility, and it is precisely for that reason that tight budgetary management will again be of crucial importance this year.

OPENING POSITION

The published opening current deficit is £1,120 million, taking account of a contribution of £50 million to non-tax revenue by Bord Telecom Éireann which arises this year for the first time. Deducting an estimated £25 million which Departments have in balances from 1983, the actual opening deficit is £1,095 million, compared with a 1983 adjusted outturn of £1,085 million. This represents an actual reduction in real terms, reflecting the substantial curtailment of expenditure already achieved in the decisions on the published Estimates.

The overall opening Exchequer borrowing requirement, taking account of Departmental balances, comes to £1,865 million. This is down by about 1¼ percentage points of GNP compared with the corresponding 1983 outturn.

BUDGET TARGETS

The Government have decided that today's Budget changes will be broadly neutral in terms of their impact on the opening Exchequer borrowing requirement. The balance between the current budget deficit and borrowing for capital purposes is, however, being altered marginally in favour of the capital side. I am also providing for social welfare improvements and other expenditure concessions as well as for some income tax concessions. This is made possible, however, only by some further increases in taxes but on a scale far below those of recent years. Before dealing with the details of the expenditure and tax proposals, I would like to refer to policy on public service pay and incomes policy generally which are critical to the achievement of the Government's fiscal and economic objectives in 1984.

PUBLIC SERVICE PAY AND INCOMES POLICY

PUBLIC SERVICE PAY AND PENSIONS

Public service pay and pension costs will account for about 37 per cent of gross Exchequer expenditure on the non-capital supply services in 1984. Taking account of a pensions concession which I will announce later, the provision for public service pay and pensions in the 1984 Estimates is £2,376 million, 8.9 per cent more than the provisional 1983 outturn.

No Government can bring the cost of public services more into line with the capacity and willingness of taxpayers to finance them unless it contains the growth of the public service pay bill. In the Government's view, it is not unreasonable to ask public servants, who generally enjoy greater protection from risks of unemployment than private sector workers, to have particular regard to the difficulty of the Exchequer finances, on which their very security of employment is based. We are therefore making no provision for any increases under a new pay round in 1984.

GENERAL INCOMES POLICY

Pay settlements in the economy generally in 1983 were more moderate than in 1982. Nevertheless, they were well in excess of the guideline set out in the Government's statement of 10 March last. This guideline was framed to improve the capacity and performance of the economy and, in particular, to protect existing jobs and provide new jobs. The inadequate response by pay negotiators undoubtedly contributed to high redundancies in 1983.

The challenge this year is as great as that posed in 1983. Our trading partners, particularly in Europe, are continuing to reduce the rate of increase in earnings and there is every expectation that their increases this year will generally be in low single digits. If we do not follow suit, our competitiveness will suffer. When there are over 200,000 people out of work, the labour force is increasing rapidly and there is growing competition on international markets for new investment, competitiveness must be a prime concern.

In the circumstances, the Government feel that it is vital for pay negotiations this year to have far greater regard than in 1983 to the effects of wage and salary increases on the survival of enterprises and on their long-term growth prospects. Management and unions, both at a general level and in individual firms, must seriously consider whether there is scope for any increase in pay on the expiry of current agreements. As far as the public service is concerned, the Government, as I have indicated, have decided to make no further provision for increases in public service pay rates in 1984.

In the coming weeks, the Government hope to have further meetings with the social partners to explore ways of solving our current economic and social difficulties and particularly our unemployment problem. The resolution of these problems will require joint and co-ordinated efforts by all who are involved in shaping the course of our economic development.

CURRENT EXPENDITURE

CENTRAL FUND SERVICES

The estimate for expenditure on Central Fund Services this year, at £1,940 million, is £237 million or 14 per cent higher than the corresponding outturn for 1983. The cost of servicing the public debt accounts for £208 million of this increase while the balance is accounted for mainly by an increased contribution to the EEC budget. As I have already emphasised, the only way we can moderate the growth in debt service costs is to reduce the Exchequer borrowing requirement and at the same time ensure that the funds which are borrowed are used to maximum effect in opening up sustainable job opportunities.

CURRENT SUPPLY SERVICES

The published 1984 Estimates for the non-capital supply services amount to £5,061 million. Later on, I will announce adjustments to the provisions in the published Estimates, the effect of which will be to add about £84 million to current expenditure. Allowing for this, and for the deduction of £25 million Departmental balances, the post-budget provision for the non-capital supply services is £5,120 million, an increase of over 10 per cent on the corresponding 1983 figure. This is a smaller increase than occurred between 1982 and 1983. There are particularly powerful forces which act to increase current expenditure, notably the continuing rise in unemployment and the continuing growth in population, which put pressure on the social services. In the face of this pressure, the cut in the rate of growth of current spending, and consequently in the requirement for further taxation, is a major achievement.

Taking account of the budget adjustments, there will be a reduction in real terms in the resources consumed by the Government in providing public services, while the resources transferred from one section of the population to another by Government action will actually increase, as is appropriate in a recession.

PUBLIC SERVICE NUMBERS

The Government will continue to promote, as a matter of priority, measures designed to give a more cost-effective public service and one reduced to a size which will be more in keeping with what the country can afford. The numbers serving in most areas of the public service have been falling in the period since 1981 when we introduced restrictions on the filling of vacancies. As a result, there has been a significant overall reduction in the numbers now employed, despite the fact that for compelling reasons there have been increases in the numbers employed in the Garda Síochána and in teaching areas.

The 1984 Estimates have been prepared on the basis that restrictions on public service numbers will continue throughout 1984. This means that the arrangements whereby two-thirds of all vacancies occurring in the civil service and non-commercial semi-State bodies are held open will continue in force. Measures at least equivalent in effect in terms of the number of posts which must remain unfilled and their cost will be applied in the local authority areas and to non-teaching staff in the education area. In the health agencies, measures of equivalent effect in terms of payroll costs will be applied.

In keeping with the policy of reducing the size of the public service, the existing arrangements for the staffing of new or expanded services will continue in operation — that is to say, the provision of any additional posts for such services in 1984 will be on the basis that existing schemes and programmes will be eliminated or curtailed to the extent necessary to yield at least equivalent savings both in terms of the number of posts and their annual cost.

PUBLIC SERVICE PENSIONS

Current practice is to increase public service pensions on 1 July each year by reference to changes in the pay rates of serving officers within the previous twelve months. There has been pressure for many years now for full parity, that is, for pension adjustments to take effect from the same date as the pay increases. Last year, as an exceptional measure the Minister for the Public Service agreed in the course of the pay negotiations that the first phase of the public service pay agreement would, in general, apply with effect from 1 September 1983 to pensions in course of payment on that date. The Government have now decided that in the case of general pay increases such as the second phase of the public service pay agreement, full parity will be implemented from 1 February 1984 onwards at an estimated cost of £2 million. So far as grade or special increases are concerned, parity will be dealt with in the context of negotiations for the next pay round and the new arrangements will be implemented in 1985. Negotiators will, of course, have to take these commitments into account in costing future pay claims.

SOCIAL WELFARE

The Government came to office with a commitment to keep short-term social welfare benefits in line with increases in the take-home pay of workers and to maintain the living standards of other weekly welfare recipients.

We have more than met this commitment. While the living standards of those at work fell, short-term weekly rates of benefit were increased last June by 10 per cent, and other weekly benefits by 12 per cent. The long-term unemployed benefited from a further 5 per cent increase in October and pensioners received a double week's payment at Christmas. These improvements alone will compensate all welfare beneficiaries for price inflation well into 1984.

Long-term Benefits and Allowances

The Government have decided that all long-term weekly welfare rates will be increased by 7 per cent with effect from 5 July. Weekly health allowances will be increased similarly.

The proposed increases will mean an extra £3.15 a week for a contributory old age pensioner who is under 80, bringing the pension to £48.25 a week. A non-contributory pensioner under 80 will get an increase of £2.70 a week, bringing his or her maximum pension to £41.30 a week. Where a married couple are both of pension age and under 80, the new rates of contributory pension will mean an increase of £5.50 a week, so that their total pension will be £84.25 a week. The contributory pension of a widow under 66 years with two children will be increased by £4.45 a week, and her non-contributory counterpart will benefit by £4.10.

Short-term Benefits and Allowances

The Government have also decided that short-term weekly rates of benefit will be increased generally by 7 per cent. These increases will be implemented during the first week of July. This will mean, for example, that flat-rate unemployment benefit and disability benefit of a married couple with two dependent children will increase by £5.30 a week giving them a total of £80.15 a week. This may, of course, be topped up by pay-related benefits.

The Government would not wish to see an imbalance between disposable earnings when at work and income obtainable when not at work, namely, flat-rate and pay-related benefits, combined where appropriate with income tax rebates. During the course of the Adjournment Debate last month, the Minister for Social Welfare announced to the House some modest changes that will help maintain a sensible balance. These changes are already allowed for in the published Estimates.

The Government are extremely concerned at the increase during the present economic recession in long-duration unemployment and at the hardship this imposes on the people involved. I have already referred to the special 5 per cent increase given last October in the rate of unemployment assistance to persons unemployed for at least 15 months. The Government have decided that this group merits some special recognition this year also. Their unemployment assistance rates will be increased by 8 per cent, as compared with 7 per cent for other unemployment payments. This increase, too, will be implemented from the first week in July.

For a single person on long-duration unemployment assistance in an urban area, this will mean an increase of £2.45 per week, bringing the weekly payment to £32.80. Most of those people will enjoy the fact that the rate of inflation has come down substantially below what the Opposition achieved during their period of office. Those in rural areas will receive an increase of £2.35 per week, bringing the weekly payment to £31.75. A married couple with two children resident in an urban area will receive an increase of £5.50 per week, while a similar family in a rural area will receive an increase of £5.35 per week.

Children's Allowances

The Government have decided to increase monthly children's allowances by 7 per cent from August. The allowance for each of the first five children will rise from £11.25 to £12.05 a month, and for the sixth and subsequent children from £17.50 to £18.75 a month.

Family Income Supplement

I have already referred to the Government's concern about the relationship between disposable earnings from work and short-term benefits. Last year I allocated £5 million to help families with low take-home earnings from work, subject to determining the details of a scheme. This process proved more difficult than anticipated at the time. I am glad, however, to be able to tell the House that the Family Income Supplement Scheme, with an annual cost of £13 million, will come into operation in November. The Minister for Social Welfare will announce full details of the scheme in due course.

(Interruptions.)

The scheme will deal with a problem which was totally unrecognised by the present Opposition Party and that, no doubt, is why they find it amusing. The unknown is always amusing to those who are ignorant of the facts.

Equal Treatment

The EEC Directive on equal treatment for men and women in matters of social security is due to be implemented before the end of this year. The matters outstanding, which affect mainly the social welfare entitlements of married women, will entail complex legislation, which will be introduced later this year.

Free Travel

Under an exception to the general rule which restricts free travel to off-peak periods, certain categories of disabled people attending full-time, long-term rehabilitation courses may travel free during peak hours. As some anomalies have come to light, I propose extending unrestricted free travel for the purposes of attending full-time, long-term rehabilitation courses to all blind persons, social welfare invalidity pensioners and recipients of British or Northern Ireland invalidity pension or benefit.

Free Telephone Rentals

The free telephone rental scheme is available to certain categories of welfare recipients living alone. The presence of even a young child in the household automatically disqualifies a claimant. This disqualification will be abolished in respect of children under 15 years.

Voluntary Organisations

In my last budget I provided £0.5 million towards the work of suitable voluntary bodies in the social services area, preferably for "once-off" projects. The Government consider that this was money well spent. We have therefore decided to allocate a further £0.5 million this year for the same purpose, additional to any grants already decided by the health boards for the bodies involved in 1984.

Medical Card Eligibility of the Elderly

In conjunction with today's changes in the social welfare rates for the elderly, the Minister for Health, through the health boards, will provide a special allowance for the elderly in the medical card income guidelines from 1 July:

£5 for a single person aged 66 or over and £8 if over 80; for a married couple, the special allowance will be £10 for those aged 66 or over and £16 if over 80.

The net extra cost of the social welfare changes I have announced is £70.3 million in 1984 and £152 million in a full year.

Pay-Related Social Insurance

For the second year in succession, the social insurance fund contribution rate will remain unchanged, notwithstanding the continuing growth in benefit levels and in numbers of claimants. There will be no change either in the earnings ceiling to which this rate applies. As provided for in the published Estimates, however, the ceiling for the 1 per cent health contribution will be increased from £11,000 to £12,000 next April.

Benefit costs of the redundancy fund and occupational injuries fund are funded solely by employers. The contribution rates to these funds, which were reduced on a temporary basis in recent years in the light of accumulated reserves, must now be increased, broadly to their pre-1981 levels, in order to maintain the funds' solvency. The increase will be 0.49 of a percentage point in the employer's standard contribution rate, effective from next April.

ENTERPRISE ALLOWANCE SCHEME

Towards the end of 1983 the Government introduced an enterprise allowance scheme on a pilot basis. This imaginative innovation, which recognises the initiative and self-enterprise of so many among the unemployed, has already generated a significant response. The Minister for Labour has responsibility for administering the scheme, which is designed to encourage people unemployed for at least 13 weeks to set up their own enterprises. Instead of the social welfare benefits, they are paid a weekly allowance of £50 or £30, depending on marital status, for a period of up to one year. With its introduction on a pilot basis in December 1983 500 places were made available, about 300 for persons over 25 and 200 for younger applicants. Demand has already been very high, particularly from those over twenty-five. In the light of present experience, which is to be evaluated at the end of the pilot phase, the Minister for Labour will consider the desirability of expanding the scheme to ensure the maximum possible contribution to the job-creation process.

AGRICULTURE

Family farm incomes increased by over 11 per cent in nominal terms and by 1 per cent in real terms in 1983. Allowing for the decline in the farm labour force, farm incomes per head increased in real terms by some 3.5 per cent last year. The prospects for the coming year will depend largely on the outcome of the current negotiations on changes in the Common Agricultural Policy and on agricultural prices. The Government are firmly resolved to achieve a satisfactory outcome to the super-levy issue.

In this budget I am providing an extra £5.7 million for the extension of the AI and ground limestone subsidy schemes. These EEC schemes are due to expire on 30 April next and their extension is being sought because of their importance in raising agricultural productivity.

I am also providing £100,000 for the proposed potato co-operative which will aim to improve potato marketing. This assistance is being provided on the basis that the industry will contribute to the cost on a increasing scale from 1985 and will quickly assume full financial responsibility.

OTHER EXPENDITURE

Grant to An Post

I have already referred to the fact that the postal and telecommunications services are now part of the commercial State sector. Even though the finances of the postal service have improved in recent years — the service broke even in 1982 and 1983 — the Government have decided to set aside up to £5 million for the service in 1984. It is intended that the level of payment will be related to the company's financial performance and to their development plan, which is expected to be ready shortly.

Bord Fáilte and Córas Tráchtála

An extra £300,000 is being allocated to Bord Fáilte's promotions budget to enable them to take advantage of the present opportunities in the North American market to attract visitors to Ireland. An extra £200,000 is being provided for Córas Tráchtála which will enable them to spend, overall, £400,000 on their employment support scheme, under which they provide financial assistance to firms to recruit full-time export marketing personnel.

Passports

At present all passports are issued for a fee of £30 and are valid for a maximum of ten years. The Government are aware of the special financial difficulties faced by our young people and our older citizens, and of the particular problems faced by young Irish people living in other countries, many of whom see the choice of travel document as involving an important symbol of national and cultural identity. The Government have, accordingly, decided that persons under 18 years of age, or over 65 years of age, may be issued passports for a fee of £3 for each year for which a passport is required. These revised arrangements, which will take effect from 15 March next, will cost about £500,000. Provision for this has already been made in the pre-budget figures.

Irish Welfare Centres in Britain

The Government also wish to respond more fully to the needs of the Irish community in Britain and have accordingly decided to increase the allocation for the Irish welfare centres from £38,000 to £68,000.

Additional Allocation for Sport

We all recognise that 1984 is a very significant year for sport in Ireland. Two major events will dominate the sporting scene: the Gaelic Athletic Association's celebration of the centenary of their foundation, and Ireland's representation in the Olympic Games.

To mark the GAA's centenary, the Government have decided to contribute £100,000 for specific projects connected with the occasion, to be decided in consultation between the association and the Minister of State at the Department of Education.

I have also decided to make £140,000 available to the Olympic Council of Ireland to assist in the preparation of the Irish team for the Olympic Games. A further £10,000 will be made available to assist in preparing and sending a team to the Olympics for the Disabled.

In addition, I have decided to allocate a further £50,000 to sporting organisations. Of this amount, £35,000 is for five major organisations, including the National Community Games, to enable them to take full advantage of the very high level of interest in sport that will be generated among young people by the 1984 Olympic Games. The remainder of the money will be allocated to three other sporting organisations to help them participate in major international competitions in 1984. The details are set out in thePrincipal Features of the Budget.

Youth Affairs

I am allocating an additional £100,000 to the youth affairs activities sponsored by the Department of Labour. This money will be devoted to further development of the programme initiated last year designed to help young people in various deprived urban areas around the country.

CAPITAL BUDGET

PUBLIC CAPITAL PROGRAMME

The published 1984 Public Capital Programme provides for expenditure of £1,780 million, about 2 per cent higher than the provisional outturn for 1983. The Government have decided that it is possible to accommodate a limited increase in this provision within the overall budgetary targets.

Roads

An additional Exchequer allocation of £8 million has been made for improvements on national and major urban roads, bringing the total for road improvements in 1984 to £98 million. A review of the road development plan is now practically completed and will be considered over the next few months in the context of the Government's medium-term strategy. The review will help to determine investment priorities and to achieve greater progress on the more urgent road projects.

Deepwater Berth at Ringaskiddy

The Government have decided to provide financial assistance to the Cork Harbour Commissioners for the construction of a deepwater berth at Ringaskiddy. A provision of £2 million is being made in 1984 and work on the project will commence in the near future.

Galway Airport

Provision for the development of Carnmore Airport, Galway, has been strongly recommended by the IDA as a means of underpinning the substantial industrial development in the area in recent years and of facilitating further expansion. In view of these factors and in view of the strong financial support of local industrial and commercial interests, the Government have decided to allocate £300,000 this year for this project and to hold further detailed consultations with the promoters.

Loan Finance for House Purchase

An extra £6 million is being provided for loan finance for house purchase — £3 million from the Exchequer for SDA loans and an increase of £3 million in the amount which the Housing Finance Agency will have available. The total Public Capital Programme provision for house purchase loans in 1984 now becomes £141 million out of a total housing allocation of £377 million.

Primary School Building

An additional Exchequer allocation of £2 million has been made for primary school building. It will be spent on updating substandard primary school accommodation and replacing prefabricated and other temporary accommodation by permanent classrooms.

Air/Sea Rescue

Contracts have already been placed for five new helicopters which will enable us to provide a more modern search and rescue and air ambulance service, especially at night and in conditions of reduced visibility. In addition, the Government are making a capital provision of £100,000 available for harbour improvements which will enhance the response capability of the marine rescue services.

MEDIUM-TERM CAPITAL PROGRAMME

A major review of public sector investment requirements and resources in the medium-term is now under way. During the year the Government will adopt a medium-term public capital programme. We have also called for five-year corporate plans from all of the commercial State bodies. These will be two important elements in the preparation of our medium-term strategy for economic development.

EXCHEQUER BORROWING REQUIREMENT FOR CAPITAL PURPOSES

Taking account of non-programme outlays, for which an Exchequer provision of £100 million has been made, total Exchequer-financed capital expenditure in 1984 is estimated at £1,066 million. Capital resources at the disposal of the Exchequer will be about £281 million, leaving an Exchequer borrowing requirement for capital purposes of £785 million.

POST-BUDGET EXPENDITURE POSITION

After taking account of the adjustments I have announced to the Estimates and Public Capital Programme as published, the proportion of GNP represented by public expenditure, including debt service, will be about the same in 1984 as in 1983. To contain public expenditure in this way at a time of economic difficulty is not easy; the Government are, however, determined that action on expenditure will play its proper part in bringing balance to the public finances. We are also committed to adhering to the budget's overall expenditure provisions. The Government have already adopted, on my proposal, a system for monitoring and controlling expenditure on a monthly basis, and we are ready to take prompt corrective action should potential excesses emerge.

CURRENT REVENUE

Tax revenue, before taking account of today's adjustments, is estimated at £5,254 million, or almost 12¼ per cent above the 1983 outturn. The estimate for non-tax revenue, which no longer includes Post Office revenue, is £627 million. This figure includes the contribution which I have already mentioned of £50 million by way of a special pre-payment of interest by Bord Telecom Eireann. Further returns will accrue in future years in respect of the massive State investment in telecommunications. No provision is made at this point for any receipts in 1984 from EMS subsidies, which in 1983 yielded some £44 million. The possibility of obtaining some revenue from a continuation of these subsidies in 1984 is being pursued.

Last year, some commentators considered that the budget revenue forecasts were unduly conservative. In the event, however, revenue was marginally down on target. There is, as always, some uncertainty about the revenue forecast, which should be seen as a mid-point within a significant range and is heavily dependent on how the economy performs. I am hopeful, however, that this year, as in 1983, revenue will be reasonably close to the budget forecast.

As I have already mentioned, the achievement of the budget targets which the Government have set requires that there be some net increase in taxation. The increase proposed today is, in fact, the lowest for many years. This change in trend is a first step towards ultimately reducing the tax burden.

TAXATION

MEDIUM-TERM TAXATION POLICY

Before I deal with individual aspects of taxation, I want to summarise the Government's policy on taxation in the medium-term.

The Government hope to receive a draft medium-term plan covering the years to 1987 from the National Planning Board by next April. Taxation must be an important element in any Government economic planning and I understand that the board will deal with this topic in some detail. The Government have already received the First Report of the Commission on Taxation and this, together with the National Planning Board's views, will provide a most useful input into Government thinking on the subject.

It would be premature for me to anticipate what will be in the Government's medium-term plan on the subject of taxation but it would be desirable, I think, for me to sketch the path along which I feel tax reform should go.

The Commission on Taxation have listed three main criteria for a tax system, namely, simplicity, equity and efficiency. Our present tax arrangements can be faulted under all three headings and it must be the Government's priority in the years ahead to take progressive steps, as circumstances permit, to make the system simpler, more equitable and more efficient.

It is difficult to achieve and maintain simplicity in taxation. Since Government policy has multiple objectives and the tax system is a vehicle of Government policy, the system invariably becomes very complicated as allowances, deductions and exemptions of various kinds are grafted on — often, it must be said, for very good reasons. In our case, the result has been an erosion of the tax base which has in turn required steeply progressive income tax rates to raise the necessary revenue. In practice, because many taxpayers in the higher-income groups can reduce their tax liability by making full use of the deductions and reliefs, the degree of progressivity is less than the nominal rates would suggest. It would be desirable in the coming years to set ourselves the objective of restoring the tax base by progressively reducing or abolishing allowances, reliefs and deductions. It would also be desirable to extend the base by bringing within it certain receipts, accuring in money or in kind, which are now excluded. This approach, which would permit progress towards a reduction of tax rates, is generally in line with that taken by the Commission on Taxation. I understand that the thinking of the National Planning Board is on similar lines.

Progress has been made in recent years towards making the tax system more equitable. It will continue to be the Government's objective to ensure that tax is levied fairly and equitably on all taxpayers. An important point to remember is that tax is only one element, although a very important one, in redistributing income. At least equally important is the redistributive effect of public expenditure. In examining the equity or inequity of policies, the tax system should not be judged in isolation from the composition of Government expenditure. It is easy to be critical of specific tax measures and to point to anomalies. We should be equally critical in making assessments of expenditure programmes.

The tax system should also encourage the most efficient use of the economic resources of the community. It should strengthen the incentive to work, to save and to take risks.

There are undoubted conflicts between the three criteria of simplicity, equity and efficiency and these have to be reconciled at any given time. Care has also to be taken that changes do not cause individual hardship or that new anomalies do not emerge as a result.

At the end of the day the most important element is the total burden of taxation. Withdrawal of existing concessions for particular individuals or groups is much easier if the general level of taxation is being brought down. However desirable it might be to reduce taxation, this cannot be done on a significant scale, if at all, until current expenditure is reduced and the current budget deficit eliminated.

This consideration also applies to the proposal for a single rate of tax made by the Commission on Taxation. I said last year that this was not a practical proposition at the time because the rate needed to sustain the direct tax yield would have to be at too high a level. A high single rate of tax would be unfair to less well-off taxpayers. I do not see a prospect of implementing this recommendation until it becomes possible to reduce the burden of taxation to a marked degree.

INCOME TAX

Tax Credits

I said last year that the introduction of income tax credits was being considered by the Government as a longer-term option. A changeover to credits is not, however, a practical option in the short term because the resources required to cope with the administrative task involved are not available. Besides, the introduction of credits would be inequitable when income tax rates are high. The argument for credits is that they equalise the benefit of allowances and reliefs. However, many middle-income earners are now being taxed at high marginal rates and the introduction of tax credits would penalise these people at a time when their tax burden is already severe. I propose, therefore, to retain the existing income tax structure but I will keep the question of credits under review in the light of changing tax levels.

(Interruptions.)

More has been said in the last ten minutes on the matter of tax reform than was said by the Opposition——

Reductions in Income Tax

Despite the budget constraints, I believe it is desirable to provide now for some reductions in income tax. These must inevitably be modest because of the necessity to sustain tax revenue.

The number of people paying tax at a marginal rate of 25 per cent has been decreasing as a result of the effectiveness of the exemption limits in catering for the lower paid. I have therefore decided to eliminate the 25 per cent band and substantially widen the 35 per cent band to £4,000 for a single person and £8,000 for a married couple.

To ensure that taxpayers at all levels are more than compensated for these changes, I am increasing the personal allowance by £350 for a single person and £700 for a married couple. In addition, the widowed person's allowance and the one-parent family allowance will each be increased by £350. A widowed person with children will, therefore, be entitled to the same personal allowance as a married couple.

I am also improving the exemption limits for those on low incomes. The general exemption limit for single and widowed persons will be increased from £2,400 to £2,500 and from £4,800 to £5,000 for married couples. This is the second year in a row in which these exemption rates have been increased. The age exemption limits are being increased from £2,500 to £2,800 for persons aged 65 years or over and from £3,000 to £3,300 for persons aged 75 years or over. These limits will be doubled for married couples. Marginal relief will continue for those whose income does not greatly exceed these amounts. These changes will remove about 15,000 low-income taxpayers from liability.

The changes in rate bands, allowances and exemption limits will cost £40 million in 1984 and £67 million in a full year.

Given the relatively small amount of money available, I have ensured that the benefit in percentage terms is distributed as fairly as possible while ensuring that the amount of tax paid by all taxpayers is reduced.

A special income tax allowance of £700 is available where a person is employed to take care of an incapacitated taxpayer or his spouse. This allowance is being increased to £2,000 at a cost of £150,000 in 1984 and £250,000 in a full year.

Renewal of PRSI Tax Allowance and I per cent Levy on Income

The special PRSI tax allowance and the temporary levy of 1 per cent on income are to be renewed for a further year. The estimated cost of renewing the PRSI tax allowance is £51 million in 1984, whereas the renewal of the temporary 1 per cent levy, on the existing basis, would yield £45 million this year.

The Government recognise, however, that the payment of the income levy is severe on those who are on low incomes, especially as the charge is based on gross income. The Government have therefore decided that from April onwards low-income persons will be exempted from payment of this levy. In the case of employees, the levy will not be payable in any week where income is less than £96. In the case of the self-employed, exemption will apply where income for the year is less than £5,000. The cost of this concession is estimated at £5 million in 1984 and £9 million in a full year. Approximately 350,000 persons will benefit.

Profit-Sharing

In the 1982 Finance Act, a scheme was introduced to provide income tax exemption for shares given by companies to their employees under approved profit-sharing arrangements. This was intended to promote a greater involvement by workers in their employer companies and to aid industrial relations. To date the scheme has made only a small impact. This may be due to the restriction, of 20 per cent of profits, on the amount of expenditure under the scheme which companies may deduct in computing their profits for tax purposes and the ceiling of £1,000 on the value of shares allocated to an employee in any one year.

I will provide in the Finance Bill that the restriction on profits under the scheme will be removed and that the ceiling per employee be raised to £5,000.

Rent in respect of Private Tenancies

In 1982 a scheme was introduced to provide income tax relief for rent paid in respect of private tenancies up to a maximum of £500 for single and £1,000 for married persons aged 65 years or over. With effect from the tax year 1984-85, the age threshold will be reduced to 60 years. This improvement will cost £600,000 in 1984 and £1 million in a full tax year. It is estimated that some 4,000 taxpayers will benefit.

Benefits-in-Kind

I am concerned at the implications for tax yield of the growth of benefits-in-kind as a means of remuneration. Traditionally, such benefits were confined to cars and preferential loans. There is now a much wider and growing range of benefits and these are being introduced, in many instances, as an alternative to remuneration, simply as a means of avoiding taxation. The present legislation on benefits-in-kind needs revision and it also needs to be extended to cover benefits which are not subject to tax at present. This is a complex issue because of the variety of benefits and I am having it examined in detail with a view to considering appropriate taxation provisions next year.

TAXATION OF THE SELF-EMPLOYED

I said in the course of the budget statement last year that I hoped to incorporate the necessary provisions in the 1984 Finance Bill with a view to having a current year basis of assessment of the self-employed in operation for the tax year 1984-85. I made it clear at the time that there could be no concessions involving a net loss of revenue as part of a change-over package.

On further examination of the problems associated with the introduction of a current assessment arrangement, I have reluctantly come to the conclusion that it is preferable to retain the existing system for the time being. In the first place, the change would not produce additional revenue, in the short term at least, even if no concessions were granted. Furthermore, administrative work both for taxpayers and the Revenue would be significantly increased and assessments would obviously be less reliable and more open to challenge if they were based on necessarily tentative estimates of income in respect of a year which was not yet completed. I believe that a more effective return from the self-employed can be obtained by improving the present arrangements rather than introducing a new system which would be unreliable and would create further administrative complications for all concerned. The specified amount of tax payable by self-employed taxpayers who appeal an assessment is, therefore, being increased from 80 per cent to 85 per cent of the final amount due: this measure will relate to assessments made for the year 1984-85 and subsequent years. This is estimated to yield an extra £7 million in tax revenue this year.

CAPITAL TAXATION

The general perception is that the yield from capital taxation in this country is low. In reality, if we take the internationally-accepted definition of capital taxes, which includes stamp duties and property taxes, the yield in 1983 was £193 million or about 4 per cent of total taxation. This is a substantial amount by any reasonable standard.

The yield in 1983 from capital acquisitions tax, capital gains tax and residential property tax was more than £24 million. The corresponding pre-budget estimate for this year is £23 million. This decline in yield does not reflect any reduction in the rates of capital taxation. Indeed, on the basis of the changes made in recent years, a substantially higher yield would in the normal course have been expected this year. The main explanation for the decline is the impact of the recession which has severely affected the number of capital transactions and eroded the capital tax base. Significant buoyancy cannot be expected under this heading until property and other markets recover from the recession. The recession has particularly affected the capital gains tax. I am, however, proposing a number of changes which will close some loopholes and increase the yield.

Capital Gains Tax

Up to now, capital gains tax has not been chargeable on receipts from the sale of a principal private residence. This exemption is reasonable, especially as the receipts are usually required for the purchase of another house. Where, however, a residence is sold for a significantly inflated price because of its development potential, it is appropriate that there should be a charge to tax. Capital gains tax will, therefore, apply in future to such receipts to the extent that they are deemed to exceed the current-use value of the property.

Capital Acquisitions Tax

The capital acquisitions tax provisions are very fragmented and there is need for a reorganisation. I propose to provide in the Finance Bill for a common table of tax rates ranging from 20 to 55 per cent and for aggregation of all gifts and inheritances. There will continue to be differing thresholds for different degrees of relationship. This rationalisation of the tax will yield £1 million this year and £4 million in a full year. The full details of the revised structure will be published in the Finance Bill.

Discretionary Trusts

Last year I said that I was examining what tax measures might be required to ensure that discretionary trusts are not used as a vehicle for abuse. Having examined this matter I am proposing that, in respect of existing and new trusts, there will be a once-off charge of 3 per cent where the settlor is deceased and no beneficiary is under 25 years of age. This tax is directed at those trusts which are set up essentially to avoid tax or delay indefinitely the payment of capital acquisitions tax. However, there will be exemption in the case of trusts which provide for incapacitated persons or for public or charitable purposes. I estimate that the new tax will yield £1½ million in revenue this year.

TAXATION OF FINANCIAL INSTITUTIONS

Building Societies

I propose to alter the timing for payment by building societies of tax on interest and dividends paid by them to their investors. Instead of the tax on interest and dividends payable to investors in 1984 being due for payment in January 1985, one half of that tax will be payable on 1 October 1984 and the other half on 1 April 1985, the normal grace period to apply in the case of both new dates. This will provide an estimated extra yield of £20 million this year. The composite rate for 1984-85 for all societies will remain at 75 per cent of the standard rate.

(Interruptions).

Order, please. Deputies ought to behave as adults.

Bank Levy and Tax-based Financing

I said last year that the bank levy would be phased out over the next few years. I also indicated that I would consider whether, in order to reduce the amount of tax lost to the Exchequer, tax-based financing might be restricted by limiting its scope in accordance with official industrial promotion policy. The levy will remain at £25 million for 1984. It will, however, be reviewed in future years in line with the increase in corporation tax payments from banks which will arise from the imposition of the following restrictions on tax-based financing. With effect from today, new "section 84" lending and artificial preference share financing will not confer a tax advantage. In addition, accelerated capital allowances, that is, free depreciation and initial allowances, will not be allowed in respect of assets leased from today to customers by financial institutions, except where such new leasing forms part of a grant-aided incentive package by the State industrial promotion agencies. The overall amount of leasing will be maintained at about the present level sponsored by these agencies. The Finance Bill will contain provisions to ensure that these measures are not circumvented by the transfer of tax-based leasing to the non-financial sector or by the undue continuation of existing "section 84" loan arrangements. The first significant impact on the tax yield from banks will not arise until 1985. There will be a smaller increase of about £7 million in the yield this year.

Insurance Levy

The insurance levy will be retained this year but, in response to proposals from the industry, a variation in the method of charge in the case of life business will be provided for in the Finance Bill. The revised scheme will be the equivalent of the present scheme in terms of revenue yield.

STAMP DUTIES

Cheques and Credit Cards

As regards stamp duties I am proposing that the duty on cheques be increased from 5p to 7p and that the duty on credit cards be increased from £5 to £10. These changes, which will take effect shortly, are estimated to yield an extra £2.7 million in 1984 and an extra £3.5 million in a full year.

Exemption for Young Trained Farmers

The stamp duty exemption for transfer of land to young trained farmers is due to be terminated in July. In recent months there has been a substantial interest in this concession and the indications are that it is proving worthwhile as an encouragement to early transfer of land. I am proposing therefore that the exemption be extended for one year.

Deputies

Hear, hear.

(Interruptions.)

Order, please.

INCENTIVES

Long-term Risk Capital

Government strategies for industrial development will be outlined in the White Paper on Industrial Policy which is due for publication shortly. Meanwhile, I believe that specific tax encouragements are desirable in certain areas and especially in relation to long-term risk capital. Such investment is urgently needed, particularly to support an expansion of activity in small manufacturing concerns, which have proved to be a valuable source of new employment. I propose to allow income tax relief up to a specific ceiling each year for individuals who provide long-term risk capital for new manufacturing enterprises. The relief will be subject to suitable conditions as to the nature and minimum duration of the investment so as to ensure that it has the intended effect. The details will be incorporated in the Finance Bill.

Capital and Other Allowances

The deduction against profits for corporation tax purposes of £10 per week per additional employee will be renewed for a further year to end-June 1985. I will carry out an assessment of this incentive in the course of this year.

The 100 per cent initial allowance for plant and machinery and the 50 per cent initial and 4 per cent annual allowances for industrial buildings, due to expire at end-March 1984, will also be renewed for another year to end-March 1985. Laboratories used for analysis work connected with mining and oil exploration will qualify for the industrial buildings allowance.

The Finance Act, 1981 introduced certain allowances to encourage the investment of private sector funds in the construction of toll roads, including bridges, under agreements with local authorities, and multi-storey car parks for public use. In order to provide continued encouragement for construction activities, these allowances, which are due to expire on 31 March 1984, will be continued for a further three-year period. The renewal of these various allowances will give rise to no cost in 1984.

Stock Relief

The existing stock relief system was introduced in 1975 and is now in need of revision. The clawback provisions, in particular, have recently given rise to difficulties for traders suffering the effects of recession. Last year, I deferred for one year clawback which would have arisen for accounting periods ending in the year to 5 April 1983, because of the potential adverse effect which payment would have had on firms. I propose to introduce from this year a new system under which relief will apply by reference to price increases only, no account being taken of volume changes. Thus, relief will be granted on the basis of the opening stock shown in the accounts. As regards relief given under the existing system, clawback deferred last year and any liability to clawback for later accounting periods will be waived, subject to safeguards against abuse of this concession which will be included in the Finance Bill. The relief will continue to apply to the same categories of traders as heretofore. In order to control cost, the amount of relief will be restricted to one-third of the price increase in the basis period. The cost to the Exchequer of the new system and the waiver of clawback will be of the order of £3 million in 1984.

ADVANCE CORPORATION TAX

In the course of the Dáil debates on the provisions for advance corporation tax in the Finance Bill, 1983, I indicated that I would consider representations regarding this tax in the context of this year's budget. Representations have been made to me by various affected interests seeking modification and even abolition of the tax. Having weighed carefully the factors involved, including the points made regarding the possible disincentive effects, I have concluded that the reasons underlying the incorporation of this measure in our tax regime remain decisive. Accordingly, advance corporation tax will remain. In order, however, to ease further the implementation of the tax, I am extending the transitional period, within which ACT will be payable at 50 per cent of the full rate, to distributions made up to end-1984. After this the tax will be implemented in full. This relief will not entail a significant Exchequer cost in 1984 but will cost about £5 million in 1985.

TAXATION OF PETROLEUM DEVELOPMENT OPERATIONS

Before I leave the subject of direct taxation, I should like to make a brief reference to taxation of petroleum development operations, the provisions for which were drawn up almost ten years ago. While this is not relevant in the context of today's budget, it is of interest in the light of recent offshore activity. The provisions to apply to the taxation of profits from petroleum production are being reviewed and I hope to be in a position soon to make a statement on this.

That is something to which we shall have to pay attention.

We will be watching carefully. There must be no concessions for the pals.

INDIRECT TAXATION

VALUE-ADDED TAX

Our indirect taxes have increased in recent years in line with the increase in overall tax revenue. Much of the increase has been concentrated on VAT, which has grown from 18 per cent of total tax revenue in 1980 to 25 per cent in 1983. While the main VAT rates are now rather high, it must be said that nearly half of the VAT base is zero-rated or liable at the 5 per cent rate. If VAT were applied equally to all goods and services, the main rates could come down quite dramatically. We cannot maintain a zero or low rate on such a wide range of items without having to impose relatively high rates on other items.

For the longer term, I will be looking at the possibility of a fundamental reorganisation of the VAT structure, with the aim of narrowing the disparity in the rates charged on the bulk of goods and services. I expect that the Commission on Taxation Report on Indirect Taxes, which should be completed soon, will be useful in this review.

Because of our budgetary difficulties, we obviously cannot envisage a reduction in overall VAT revenue at this time. I propose to make the following changes in VAT, involving both increases and reductions.

VAT at 8 per cent will be applied to clothing from 1 May 1984. However, clothing for children up to the age of approximately ten years will be excluded and will continue to be zero-rated. This measure will widen the tax base and help towards a more rational distribution of the burden of VAT. It will yield £16½ million in 1984 and £29 million in a full year. I have excluded all footwear from the increase.

(Interruptions.)

The following item may be of interest to the performers opposite: VAT on theatres and other live performances will be reduced to 5 per cent from 1 March 1984.

I propose to reduce the rate of VAT on the short-term hire of cars, caravans and boats to 18 per cent from 1 March 1984. This brings the VAT on these services, which are predominantly tourist-oriented, into line with that on hotel accommodation.

As a further measure to boost tourism, I propose to introduce a scheme to allow the refund of VAT on goods bought here at retail level by visitors and exported in their personal baggage. Details of the scheme will be announced at a later date. It will operate from 1 March 1984.

VAT on concrete will be reduced to 5 per cent from 1 March 1984. This reduction will not apply to concrete products.

These VAT concessions will cost £3.6 million in 1984 and £4.5 million in a full year.

EXCISE DUTIES

Traditionally, excise duty increases have been a significant source of additional tax revenue in the budget. On this occasion the scope for increases is severely limited. The evidence suggests that we may be near the point of diminishing returns in some areas. This is due partly to price discrepancies on some excisable goods between here and Northern Ireland, which encourage smuggling and legitimate imports by travellers. It is wrong, however, to identify the high level of tax as the sole reason for the drop in consumption. While the level of tax is a contributory factor, the main problem is the continuing recession.

I am satisfied neverthless that some modest increases can still be applied. These are necessary to bring in extra tax revenue. The changes are generally below the rate of inflation and consequently it is reasonable to expect that they will have little effect on consumption or domestic purchases. In fact, since the excise duties are largely specific rather thanad valorem, the real level of excise duty will generally be less in 1984 than in 1983.

—Proposed Increases in Excise Duties

The increases proposed are as follows, including consequential VAT:

Beer

—2p per pint.

Wine

—8p per bottle of table wine, with pro rata increases for stronger wines.

Cider and Perry

—10p per gallon on the ordinary strength cider and perry, with greater increases for stronger cider and perry.

Cigarettes

—10p on the packet of 20 cigarettes in the most popular price category, with pro rata increases for cigars and other tobacco products.

Petrol

—6p per gallon, but existing rebates to handicapped drivers will be increased to match this duty increase.

Auto-diesel

—6p per gallon, but this will not apply to scheduled road passenger services.

Auto-LPG

—6p per gallon.

I am not proposing any increase in the duty on spirits.

The yield from these increases is estimated at £47.3 million in 1984 and £54.9 million in a full year.

The excise duty increases will take effect from midnight tonight, but increases in retail prices must await new maximum price orders where appropriate. These will be made by the Minister for Industry, Trade, Commerce and Tourism, who will determine the appropriate implementation date. Even where price control does not operate, there should be no increase in the price of goods already in the shops, as the excise duty will apply only to goods imported or removed from bond from midnight tonight.

There are also some concessions I wish to make in the excise area.

—Wine

A deferment of the duty on wine will be allowed up to the 15th day of the following month, subject to a catch-up in December. This will apply from 1 March next and will bring the position into line with that on other drinks, where deferment already applies. With the catch-up provision, there will be no loss of tax revenue involved.

—Beer Used in Table Waters

I propose that, where beer is used in the manufacture of table waters, such as shandy, the excise duty paid on such beer will be repaid, with effect from 1 March 1984. The final product will continue to be liable to table waters duty in the normal way. This will place the home-produced product on an equal footing with imports.

—Residual Fuel Oil

The excise duty on residual fuel oil, other than that used by the ESB, was reduced to 4½p per gallon in December 1981. In order to moderate industrial costs, a further reduction of 1p is being made with immediate effect.

—Avgas

Avgas is used in some light aircraft and at present is liable to petrol duty. It competes with fuels which are much less heavily taxed and the differential causes competitive problems for some operators. I consider that a reduction in duty to 50 per cent of the petrol duty is warranted and an appropriate provision will be included in the Finance Bill.

—Foreign Travel Tax

I propose to remove the foreign travel tax from tickets issued in respect of groups of children travelling abroad on educational trips. This will apply from 1 April 1984.

The scope of the tax will be extended to tickets sent from abroad to Irish residents for journeys commencing in the State. This is intended to reduce the possibility of avoiding the tax.

These excise duty concessions will reduce revenue by about £1.3 million in 1984 and £1.5 million in a full year.

Before I leave the excise duties, there are a few other points I should like to mention.

From 1 January 1985, the restrictions we have been allowed to maintain on importations of motor vehicles since our entry into the EEC will no longer apply. This does not mean that there will be any reduction in the level of excise duty on motor vehicles. While I am having the taxation regime for motor vehicles examined at present to see whether any changes would be desirable to meet the new circumstances, the intention will be to maintain the existing overall level of taxation in this area.

As regards smuggling, and evasion of indirect taxes generally, I am examining proposals with a view to achieving better enforcement of existing legislative provisions and I am looking at proposals which may require changes in legislation. The penalties for evasion have been increased significantly in recent years, but I am reviewing these also.

ROAD TAX

Finally, in relation to indirect taxes, I am proposing that the annual rates of road tax on private cars be increased by £1 per unit of horsepower with effect from 1 March. This will yield additional revenue of £6.5 million in 1984.

TAXEVASION AND AVOIDANCE

Last year I announced a series of new measures to deal with tax evasion. Those that required statutory authority were subsequently incorporated in the Finance Act and the other measures were given effect through administrative change. It is too early to make an assessment of results because, of their nature, some of the changes will not have a substantial effect for some time ahead. The widespread public reaction, however, is an indication of the potential impact of these measures in countering evasion. I can assure the House that they will be implemented vigorously. I intend to pay special attention in the coming year to making improvements in collection procedures which should help considerably in catching up with tax evaders.

I mentioned in the 1983 budget statement that I was reviewing the reporting arrangements for payments to individuals and companies by Government Departments and public authorities to ensure that relevant details would be made available to the Revenue Commissioners. One result of this review is that details of public sector contracts are now being provided to the Commissioners, and I am examining the feasibility of requiring the production by firms of a tax clearance certificate as a condition of obtaining such contracts.

BOND-WASHING

Provision will be made in the Finance Bill to counter the practice known as bond-washing whereby securities change hands in a manner designed to ensure that the interest accrues to the holder as a tax-exempt capital gain rather than as income. In respect of sales or transfers of securities made after today, that part of the gain on securities which is attributable to the value of the interest to be paid will be treated as part of the seller's income for the purposes of the taxes Acts.

NON INTEREST-BEARING SHORT-DATED SECURITIES

Provision will also be made in the Finance Bill to withdraw the tax exemption provided in existing law in relation to gains made on Exchequer Bills or other similar non interest-bearing securities. The new provisions will apply to issues of such securities made after today.

POST-BUDGET CURRENT REVENUE

The tax proposals which I have set out are estimated to raise a total of almost £75 million this year, including £14 million from the continuation this year of certain temporary tax measures. This is considerably less than the amounts raised in the budgets of recent years, particularly since 1980. Taking account of the nature and timing of the tax and expenditure measures announced today, I am also adding £15 million to the revenue forecast by way of increased tax revenue buoyancy, giving a revenue total of £5,971 million, or more than 13½ per cent up on the 1983 outturn. The tax changes in today's budget will raise the consumer price index by less than 1 percentage point.

DEFICIT AND BORROWING REQUIREMENT

The estimated current deficit for 1984 emerges at £1,089 million, or 7½ per cent of GNP. This compares with the adjusted 1983 outturn of £1,085 million, or 8¼ per cent of GNP.

Taking the current deficit of £1,089 million together with borrowing for capital purposes of £785 million, the estimate of total Exchequer borrowing for 1984 is £1,874 million, or about 12¾ per cent of GNP. This compares with the adjusted outturn of £1,853 million, or 14 per cent of GNP, last year. It shows a reduction of about 4 percentage points of GNP, or almost one quarter, on the peak point of actual borrowing incurred in 1981. Indeed, it brings borrowing as a percentage of GNP back in line with the 1978 level.

The Government consider that the overall level of borrowing now planned is the maximum feasible in current circumstances. There can, therefore, be no question of accepting any significant overrun on this figure. Developments will be monitored very closely throughout the year and the Government will act quickly to deal with any emerging problems. Success in achieving this year's budget targets and, in particular, in ensuring that expenditure does not exceed the budgeted allocations is critical to the achievement of the Government's medium-term fiscal objectives. Equally, it is critical to the whole process of preventing further escalation of the total tax burden and of making leeway for rationalisation of our tax system.

MEDIUM-TERM PLANNING

The broad development of the economy needs to be planned over the medium term. The Government have taken a number of steps in this regard.

We have established new planning structures, as promised in theProgramme for Government, to provide better economic and social planning. The Government Task Force on Employment was set up early in 1983 to formulate policies to ease unemployment. The National Planning Board was established and is preparing a draft medium-term plan which it intends to submit to the Government by April 1984. This draft plan will provide an important input into the Government's planning for the medium term. A further part of this process will consist of medium-term planning focusing on the Public Capital Programme and on the current expenditure consequences of capital projects in a number of areas. As I have already mentioned, a White Paper on Industrial Policy will also be published.

The system of sectoral consultative committees has also been expanded. Members of these committees are drawn from Government, employers and trade unions, and they are already making an important contribution to the identification of development opportunities in various sectors of the economy.

CONCLUSION

This budget will keep us on course towards improving the public finances and strengthening the economy. We are still in a difficult situation. There are no quick solutions but there is much that we can do ourselves, irrespective of developments internationally, to improve our circumstances. We can create more self-sustaining and productive jobs if we keep income expectations to a realistic level. We can make room for more employment by adopting a prudent and balanced approach to public expenditure, matching our demands to our resources on a realistic basis.

There is a common belief that preaching empty confidence will bring about better times and that, conversely, an attitude of caution will discourage initiative. The truth is somewhere in the middle. It does not lie in an approach which identifies all of the negative aspects of our situation and focuses exclusively on them. That approach produces a level of pessimism totally unjustified by reality and totally out of line with the undoubted progress which we made on many fronts during 1983. Let us be optimistic by all means but let this optimism be founded on realism and on a balanced appreciation of the difficulties and opportunities before us. Of course a positive approach is necessary, now more than ever before, but we must get our priorities right. Some would have us attempt to spend our way recklessly out of recession. This option, even as a temporary expedient, is no longer available if only for the simple reason that our borrowing capacity would not support it. In any case, the consequences of such an approach for taxation in future years would be unacceptable.

There is another way, which is a disciplined approach to public financing coupled with modest pay increases and modest tax improvements. This is the approach being adopted in today's budget.

TABLE EXPLANATORY OF CURRENT BUDGET 1984

Revenue

£ million

Expenditure

1. Tax Revenue

5,254.0

1. Debt Service and Other Central Fund Charges

1,940.0

2. Non-Tax Revenue

626.9

2. Supply Services (non-capital)

5,060.5

5,880.9

7,000.5

3. Add Temporary Tax Measures to be Continued:

3. Add New Expenditure:

Income Levy

40.0

Social Welfare

70.3

Bank Levy

25.0

65.0

An Post

5.0

Agriculture

5.8

Less:

Public Service Pensions

2.0

PRSI allowance

51.0

14.0

Other

0.9

84.0

4. Add New Tax Increases:

4. Deduct:

Excise Duties

Estimated Departmental

—alcoholic drinks,

Balances

25.0

59.0

tobacco

31.0

—hydrocarbons

16.3

—road tax

6.5

VAT

16.5

Income Tax

—Self-employed

7.0

—building societies

20.0

Capital Taxes

2.5

Stamp Duties

2.7

Financial Institutions

—tax-based lending

7.0

Impact of Budget on Tax

Revenue Buoyancy

15.0

124.5

5. Deduct New Tax Reliefs:

Excise Duties

1.3

VAT

3.6

Income Tax

—rates and bands

40.0

—other

0.8

Stock Relief

3.0

48.7

75.8

6. Deficit

1,088.8

7,059.5

7,059.5

Department of Finance 25 January 1984

SUMMARY OF CURRENT AND CAPITAL BUDGETS 1983 and 1984

1983

1983

1984

Provisional Outturn

*Adjusted Provisional Outturn

Post-Budget Estimate

£m

£m

£m

CURRENT BUDGET

1. Expenditure

(i) Central Fund Services

1,658

1,703

1,940

(ii) Supply Services

5,013

4,637

5,120

6,671

6,340

7,060

2. Revenue

(i) Tax

4,681

4,681

5,344

(ii) Non-Tax

1,030

574

627

5,711

5,255

5,971

3. Current Budget Deficit

960

1,085

1,089

CAPITAL BUDGET

4. Expenditure

(i) Public Capital Programme

1,748

1,748

1,798

(ii) Other (non-programme)

124

124

117

1,872

1,872

1,915

5. Resources

(i) Exchequer

266

259

281

(ii) Non-Exchequer

810

845

849

1,076

1,104

1,130

6. Exchequer Borrowing Requirement for Capital Purposes

796

768

785

7. Total Exchequer Borrowing Requirement (3+6)

1,756

1,853

1,874

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

13¼%

14%

12¾%

*Adjusted, on the basis of the permanent arrangements now agreed, to illustrate the impact on the budgetary figures of the transfer of responsibility for the day to day operation of the postal and telecommunication services to An Post and Bord Telecom Éireann.

SUMMARY OF CAPITAL BUDGET REQUIREMENTS (INCLUDING CURRENT BUDGET DEFICIT) AND RESOURCES, 1983 OUTTURN AND 1984 ESTIMATE

REQUIREMENTS

£ million

1983

1984

February Budget Estimate

Provisional Outturn

Estimate

1. Public Capital Programme

1,890

1,748

1,798

2. Non-Programme Outlays

1,020

1,084

1,206

of which

(a) Exchequer Financed

(i) Current Budget Deficit

897

960

1,089

(ii) Miscellaneous

76

67

100

(b) Non-Exchequer Financed

47

57

17

3. Total Requirements

2,910

2,832

3,004

RESOURCES

4. Non-Exchequer Resources

907

810

849

of which

(a) State Bodies

878

781

820

(b) Local Authorities

29

29

29

5. Exchequer Internal Resources

211

208

207

of which (a) Loan Repayments

62

68

59

(b) Sinking Funds

121

117

129

(c) Appropriations-in-Aid

28

23

19

6. European Regional Development Fund

70

58

74

7. Exchequer Borrowing

1,722

1,756

1,874

of which(a) Net sales of domestic securities

(i) to the public

614

(ii) to the commercial banks

225

(b) Small Savings

1,722

142

1,874

(c) Foreign Borrowing

793

(d) Miscellaneous including change in liquidity of Departmental Funds

-18

8. Total Resources

2,910

2,832

3,004

CURRENT REVENUE 1983 AND 1984

1983

1984

Outturn

Post-Budget Estimate

£m

£m

Tax Revenue

Customs

78.1

88.0

Excise

1,182.0

1,261.0

Estate etc. Duties

1.6

1.0

Residential Property Tax

1.0

3.0

Capital Taxes

24.0

22.5

Stamp Duties

103.9

109.7

Income Tax

1,664.2

1,952.2

Income Levy

40.3

74.0

Corporation Tax

215.0

246.0

Value-Added Tax

1,192.6

1,380.9

Agricultural Levies (EEC)

11.4

18.0

Motor Vehicle Duties

93.7

108.5

Youth Employment Levy

73.8

79.0

Total Tax Revenue

4,681.4

5,343.8

Non-Tax Revenue

Post Office

416.5

Other

613.1

626.9

Total Non-Tax Revenue

1,029.6

626.9

Total Current Revenue

5,711.0

5,970.7

HOW CURRENT EXPENDITURE WILL BE ALLOCATED AND FINANCED 1984

Where current expenditure will go

How current expenditure will be financed

Item

1984 Post Budget

% Total Gross expenditure

Item

£m

% of total

Service of Public Debt

£m

Borrowing

1,089

15.4

Interest

1,578

19.0

Tax Revenue

Sinking Fund etc

132

1.6

Customs

88

1.2

Excise

1,261

17.9

1,710

20.6

Stamp Duties

110

1.6

Economic Services

Income Tax

1,952

27.7

Industry and Labour

195

2.3

Income Levy

74

1.0

Agriculture

408

4.9

Corporation Tax

246

3.5

Fisheries and Forestry

41

0.5

Value-Added Tax

1,381

19.6

Tourism

24

0.3

Motor Vehicle Duties

109

1.5

Youth Employment Levy

79

1.1

668

8.0

Capital and other taxes

44

.6

Infrastructure

91

1.1

5,344

75.7

Social Services

Health

1,000

12.1

Non-Tax Revenue

627

8.9

Education

894

10.8

Social Welfare

2,167

26.2

Housing

178

4.4

Subsidies

366

2.1

4,605

55.6

Security

569

6.9

Other

643

7.8

Gross Expenditure

8,286

100

Supply Service Receipts

1,226

TOTAL

7,060

7,060

100.0

PRE-BUDGET TABLES

1984

INDEX

TABLE 1. Summary of current and capital budgets 1983.

TABLE 2. Summary of main heads of current government expenditure and revenue 1983.

TABLE 3. Functional classification 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 1984”.

TABLE 1

SUMMARY OF CURRENT AND CAPITAL BUDGETS 1983

1983

Budget Estimate

Provisional Outturn

Adjusted Provisional Outturn*

£m.

£m.

£m.

Current Budget

1. Expenditure

(i) Central Fund Services

1,650

1,658

1,703

(ii) Supply Services

5,005

5,013

4,637

6,655

6,671

6,340

2. Revenue

(i) Tax

4,730

4,681

4,681

(ii) Non-Tax

1,028

1,030

574

5,758

5,711

5,255

3. Current Budget Deficit

897

960

1,085

Capital Budget

4. Expenditure

(i) Public Capital Programme

1,890

1,748

1,748

(ii) Other (non-programme)

123

124

124

2,013

1,872

1,872

5. Resources

(i) Exchequer

281

266

259

(ii) Non-Exchequer

907

810

845

1,188

1,076

1,104

6. Exchequer Borrowing Requirement for Capital Purposes

825

796

768

7. Total Exchequer Borrowing Requirement (3+6)

1,722

1,756

1,853

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

13%

13¼%

14%

*Adjusted, on the basis of the permanent arrangements now in operation, to illustrate the impact on the budgetary figures of the transfer of responsibility for the day-to-day operation of the postal and telecommunications services to An Post and Bord Telecom Éireann.

TABLE 2

SUMMARY OF MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE AND REVENUE 1983

Current Expenditure

Revenue

Item

£m

% of gross expendi- ture

Item

£m

% of total

Service of Public Debt:

Budget Deficit(financed by

960

16.8

borrowing)

Central Fund Services (1)

Interest

1,330

17.1

Sinking Funds, etc.

126

1.6

1,456

18.7

Tax Revenue

4,681

82.0

Economic Services

Customs

78

1.4

Industry and Labour

185

2.4

Excise

1,182

20.7

Agriculture

364

4.7

Stamp Duties

104

1.8

Fisheries, Forestry

40

0.5

Income Tax

1,664

29.1

Tourism

23

0.3

Corporation Tax

215

3.8

Value-Added Tax

1,192

20.9

612

7.9

Motor Vehicle Duties

94

1.6

Capital and other taxes

78

1.4

Youth Employment Levy

74

1.3

Infrastructure

81

1.0

Social Services

Health

974

12.5

Education

837

10.8

Non-Tax Revenue

1,030

18.0

Social Welfare

1,917

24.6

Housing

141

1.8

Post Office

417

7.3

Subsidies

347

4.5

Other

613

10.7

4,216

54.2

Security

531

6.8

Other

511

6.6

Post and Telegraphs

376

4.8

Gross Expenditure

7,783

100

Total Revenue

5,711

100

Supply Service Receipts

1,112

Net Expenditure

6,671

(1)In previous years' tables, debt service costs paid from the supply services were included under this heading. As part of the revised functional classification of expenditure, these costs, (e.g. Exchequer subsidy on service costs of loans for local authority housing) are now included under the appropriate functional categories. The total debt service costs in the Central Fund and Supply Services in 1983 was £1,713 million of which £1,554 million related to interest and £159 million to sinking funds.

TABLE 3

FUNCTIONAL CLASSIFICATION OF CURRENT GOVERNMENT EXPENDITURE 1980-1984

1980

1981

1982

1983 Provisional Outturn

1984Estimate (1)

% change 1984 over1983

£m

£m

£m

£m

£m

%

Service of Public Debt

Central Fund Services (2)

Interest

583

795

1,143

1,330

1,578

+19

Sinking Fund etc.

78

89

106

126

132

+5

Total

661

884

1,249

1,456

1,710

+17

Economic Services

Industry and Labour

76

98

138

185

195

+5

Agriculture

206

255

278

364

402

+10

Fisheries

9

11

13

12

13

+8

Forestry

19

22

27

28

28

Tourism

14

18

19

23

24

+4

Sub-Total

324

404

475

612

662

+8

Infrastructure

Roads

18

21

24

26

26

Sanitary Services

12

16

22

29

37

+28

Transport (3)

17

16

18

26

28

+8

Sub-Total

47

53

64

81

91

+12

Social Services

Health

656

764

883

974

1,000

+3

Education

470

604

730

837

894

+7

Social Welfare

897

1,202

1,639

1,917

2,097

+9

Housing

64

87

109

141

178

+26

Subsidies (4)

214

277

324

347

366

+5

Sub-Total

2,301

2,934

3,685

4,216

4,535

+8

Security

Defence

170

207

244

258

276

+7

Garda

117

163

187

208

224

+8

Prisons

21

26

30

33

35

+6

Legal, etc.

17

24

30

32

34

+6

Sub-Total

325

420

491

531

569

+7

Other

Central Fund items

EEC Budget

94

118

144

194

215

+11

Miscellaneous

4

5

7

8

15

+88

Supply Services

251

298

338

309

430

+39

Total

349

421

489

511

660

+29

Gross Total

4,007

5,116

6,453

7,407

8,227

+11

Less: Supply Services Appropriations in aid, P.R.S.I. receipts

568

697

916

1,112

1,226

+10

Net Current Expenditure excluding expenditure on Posts and Telegraphs

3,439

4,419

5,537

6,295

7,001

+11

Post and Telegraphs

257

322

359

376

Net Expenditure Including Posts and Telegraphs

3,696

4,741

5,896

6,671

7,001

+5

(Exchequer Pay and Pensions included in above excluding Posts and Telegraphs)

1,392

1,729

1,982

2,181

2,374

+9

(1) Based on the Estimates for Public Services for 1984 published on 14 December 1983.

(2) See note (1) at foot of Table 2. The total debt service costs in the Central Fund and Supply Services are

Interest

699

938

1,323

1,554

1,760

Sinking fund

93

116

137

159

151

Total

792

1,054

1,460

1,713

1,911

(3) Excludes CIE subsidy.

(4) Includes food subsidies, rates support grant, CIE subsidy.

TABLE 4

CERTAIN CURRENT RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES

Exchequer

Local Authorities (a)

Revenue

Non-capital issues

Expenditure from revenue (b)

State grants received

Rates collected

£m

£m

£m

£m

£m

1965-66

241

249

91

46

30

1966-67

273

272

99

51

32

1967-68

305

306

107

57

35

1968-69

345

354

121

66

38

1969-70

411

412

145

77

43

1970-71

482

490

174

94

50

1971-72

569

572

196

115

60

1972-73

659

665

240

138

70

1973-74

793

803

298

183

71

1974 (April-Dec.)

651

744

292

190

61

1975

1,091

1,350

481

332

84

1976

1,470

1,669

567

404

109

1977

1,757

1,944

684

504

111

1978

2,023

2,391

831

670

82

1979

2,384

2,893

1,007

820

91

1980

3,155

3,696

1,318

1,065

103

1981

3,973

4,741

1,594

1,288

101

1982

4,908

5,896

1,891

1,568

93

1983

5,711

6,671

2,071(c)

1,743(c)

110(c)

1984

5,881(d)

7,001(d)

2,188(d)

1,818(d)

110(d)

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

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

(c) Approximate.

(d) Estimate.

TABLE 5

STATE EXPENDITURE (a) IN RELATION TO AGRICULTURE FROM 1980

1980

1981

1982

1983

1984

£000

£000

£000

Provisional

Estimate

£000

£000

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

Grant in lieu of rates on agricultural land

43,509

61,585

89,087

114,000

115,000

Non-EEC interest subsidies

13

1,633

2,170(c)

6,000(c)

Assistance for extra breeding stock

2,558

7,000

8,000

Reduction of land annuities

3,596

4,031

4,445

4,757

4,877

Lime and fertiliser subsidies

86

Sheep grants, etc.

502

412

5

2

Small farm incentive bonus

22

10

Winter fodder schemes

600

2,872

2,454

3

Promotion of shared use of farm

machinery

25

TOTAL

48,315

68,923

100,182

127,957

133,877

2. Schemes operated under EEC regulations and directives:

Farm modernisation

56,133

46,272

47,301

28,023

30,607

Farmers' retirement

249

1,612

1,737

1,016

640

Aids to farmers in less favoured areas

19,657

24,547

21,889

19,182

20,455

Market intervention

9,036

5,153

7,204

15,206

21,797

Programme of special measures

5,041

10,719

5,955

(-)39

Grants for individual projects and for

marketing and processing

17

111

170

300

Aids for horticultural producers'

organisations

13

30

22

25

Dairy herds conversion and suckler cow

(-)66

24

4

Socio-economic advice and vocational

training of farmers

3

(d)

(d)

(d)

(d)

TOTAL

85,025

82,696

88,987

69,552

73,785

3. Education, research, advisory and inspection services:

Education

9,394

11,555

14,729

15,067

15,423

Research

12,570

16,206

17,244

18,311

18,297

Farm advisory services (e)

7,548

12,964

13,523

16,095

17,717

Technical services

4,642

6,635

4,578

5,957

5,996

Inspection services

3,550

5,112

8,976

8,043

4,910

Rural organisations

183

223

241

254

266

Farmer contributions to education, research and advisory services

(-)4,493

20(f)

TOTAL

33,394

52,715

59,291

63,727

62,609

4. Disease eradication:

Bovine T.B.

10,968

12,691

13,483

14,425

12,800

Brucellosis

13,436

12,679

7,100

7,506

7,200

Hardship Fund

300

500

350

1,000

Other, e.g. leucosis

566

199

10

31

32

Less: Farmer contribution and EEC receipts

(-)13,769

(-)1,900

(-)5,702

(-)1,723

(-)6,154

TOTAL

11,201

23,969

15,391

20,589

14,878

5. Long-term development aids (b):

Arterial drainage

8,526

9,145

12,580

14,138

15,299

Water supplies, land project and farm

buildings

1,401

1,372

1,094

572

1,514

Improvement of cattle, pigs, horses,

sheep and poultry

2,250

2,463

2,478

2,430

2,438

Rural electrification

2,446

3,049

4,043

2,165

3,649

Restructuring and improvement of

holdings by Land Commission

4,268

4,978

5,021

5,050

5,293

Promotion of long-term leasing of

land

25

25

Other rural improvement schemes

and grants

2,098

1,659

1,928

1,354

1,330

TOTAL

20,989

22,666

27,144

25,734

29,548

6. Marketing aids:

Meat

320

371

772

757

785

Potatoes

250

120

Glasshouse products

30

25

Export co-ordinating group

73

72

3

TOTAL

393

693

775

787

930

7. General administration and overhead costs

25,060

30,287

37,102

37,618

39,054

GRAND TOTAL

224,377

281,949

328,872

345,964

354,681

NOTES—(a) The figures are composed of both capital and non-capital expenditure and are net of appropriations-in-aid which include recoupments from EEC for schemes listed 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

(f) Refund.

Footnote: Irish agriculture also benefits from the Common Agricultural Policy which is largely financed from the EEC Budget (to which Ireland's estimated total contribution in 1984 is £215 million):—

1980

1981

1982

1983

1984

£m

£m

£m

Provisional

Estimate

£m

£m

FEOGA GUARANTEE SECTION

380.4

302.8

342.7

435

435

FEOGA GUIDANCE SECTION

26.4

39.8

59.6

68.3

61.8

There has been a growing tendency in this country, of which all of us are aware, to question the relevance of the politician. There has been a growing feeling that those of us engaged in Parliament are unaware of the real issues, problems and the crises facing our people whose interests we are here to represent. Unfortunately this budget will underline that alienation. The 210,000 unemployed and their families may be listening to us now — we saw a tragic example of unemployment on a television programme from Cork last night — many of them because they are trying to find something to do with the day, trying to while away the time, to give the impression of activity, trying somehow to believe that their life is not a waste, when otherwise they would be actively engaged in work. There will be an additional 30,000 listening and hoping in vain for some sign of hope but that sign has not emerged in this budget. They must have wondered if the Minister is aware that to them unemployment is a cancer. Is he aware that there is a recurrence of the feeling that existed in the 1950s, that our sense of direction and purpose has gone? Now we are pre-occupied with tinkering with and adjusting the system when our obligation is to create conditions in which investment, employment and the work ethic can be encouraged and the great potential of this nation realised.

Today those of us with any experience in this House have witnessed the greatest non-event of a budget for many years. At least last year's budget put forward four objectives. I wonder if anyone remembers them? I do, but I do not expect many others to remember them because not one of the objectives was realised. This budget did not set one single general economic objective apart from adjustments to the deficit and the borrowing requirement, both matters with which I shall deal in a moment. This is evidence that the Government have dropped their stated fiscal targets. There is no general directive in the budget this year. Last year there were four and they bear repeating.

The first was to reduce the Exchequer borrowing requirement. Twelve months later we find that for this year the Exchequer borrowing requirement will be £1,874 million by comparison with an outturn of £1,853 million. Here we are 12 months later and the Minister can proclaim to the House that the Exchequer borrowing requirement will be over £20 million more than the outturn. Surely that signals the abandonment of the first objective in last year's budget's strategy.

The second objective has also been thrown by the wayside. That objective, which was not put in percentage terms but was put in absolute terms, was the reduction of the current budget deficit. They did not say it was as a percentage of GNP. We now find that the current budget deficit which the Minister is now adopting is £1,088, by comparison with an outturn of £960 million. So much for the reduction of the current budget deficit.

And rectitude.

So much for the financial rectitude that this Government have made their special virtue.

What is that word — rectitude?

Even then, it must be acknowledged that at least today the Minister is honest enough, as will be appreciated on making his statement, to give the first definite statement that the elimination of the budget deficit for 1987 is now a forgotten dream and will not be part of the Government's programme at all.

That is the state of things.

At least we now know what it is that we are not trying to achieve. What the people really want to know is what we are trying to achieve. What are this Government doing to create conditions in which we can help ourselves, whether in industry, in the work-place, in agriculture or at school? What signs are they giving to this nation at this time to demonstrate that not only can we succeed but that we shall and must succeed?

There were two other primary objectives last year, by contrast with the lack of objectives this year. I wonder if anyone can recall what they were? The first was to ensure that the adjustments of budget policy would protect the interests and incomes of the low income groups. They were given such a guarantee. I do not wish to engage in arguments on this. I just leave it to those who are low paid, to those outside who may be listening to us now and to the public at large to answer the question — have their incomes been protected, having regard to the increase in inflation last year, with more to follow this year as a consequence of the budget policies of this Government? They have the answer and know quite well, as do all the Government members, that those who feel every day that they are bearing the brunt of the so-called necessary fiscal adjustments are the lowly paid who, frankly, have and always will have first claim on us in our activities as public representatives. If we cannot create conditions in society under which those who can achieve will achieve and protect and provide for those who cannot — namely the old, the sick and the unemployed — we have no right to be here. Clearly, the third objective of last year has been abandoned and not even referred to in the Budget Statement of this year.

Finally, as the fourth objective of last year, they were going to maintain or improve our competitiveness. Having regard to the indirect tax levels, highest of all in this country, and the indirect tax levels as a result of today's budget, which will aggravate the situation beyond any comparable level in Europe, we have succeeded in undermining whatever competitiveness we had up to last year. The extra impositions of VAT and excise duties will drive us way above the average of our competitors and customers in Europe and elsewhere. Before this budget, indirect tax as a percentage of total current receipts was 18 per cent. We are already 4 per cent over the average of the European Economic Community. Our inflation rate, which was increased last year by a very significant 4 per cent, will be increased further this year by the extra VAT and excise duties now being imposed. And we are told that we are going to maintain our competitiveness. The reality is proved in a simple way. Our competitiveness has been undermined by the fact that we have lost so many jobs. I shall not go through the dreary list or litany now, but we have all seen factory closures, business liquidations, insolvencies. How can any Minister today imply that competitiveness is still there?

Last year there were at least stated objectives, even if conditions finally meant that those objectives were not realised. The first priority of this year's budget should have been to undo the damage of last year's, to create the conditions in which employment would be generated again in this community, above all else, to create the conditions as a means to generate employment and hopeful investment in this economy. These should have been the twin targets of today's Budget Statement — investment and employment, hope and enterprise, encouragement and activity. Instead, we have a dreary apologia in the old sense of a defence — and a weak one at that — always of the progress towards the necessary adjustment. That is the kind of euphemistic economic jargon which may mean something to the Minister but means nothing to those who await a signal that this country is going to be on the move again.

It gives me no pleasure to say that whatever objectives it may have — and I cannot trace any in terms of economic management or the fundamental role of Government, which is not just fiscal adjustment — this budget has already failed, for two or three obvious reasons. A budget should be but an instrument of overall policy, but we do not have an overall policy. The Central Bank, NESC and the OECD have all called for a policy from this Government. They started with no policy, they still have no policy and we are now being told, towards the end of the budget speech, that perhaps by April of this year some of the plethora of various committees, of planning boards, of sectoral committees, will have something to report to this Government on a strategy for industrial development, for manufacturing industry, or whatever industry it may be about which the Government are concerned. Nowhere is there now, 18 months after this Government came into office, a general comprehensive plan for development of our resources and how to manage them, as a signal for people that they can now respond to what the Government are doing. If one is running a sweet shop, a small contractor's business, a small industry, a farm or any enterprise — and some Members opposite must have some experience of this themselves — one will at least have some idea of what one wants to achieve this year, next year and the following year. One sets it out in terms of a plan, and if that is true of sweet shops it certainly should be true of Governments. Still we wait for any signal as to where we go and how we should help to achieve it.

It is surprising, then, that the Government can actually indicate that in the absence of such a plan we will have an addition to, unfortunately, the only growth area we have at the moment apart from the black economy, which is the spiralling number of unemployed. The Government are making provision already, and perhaps not enough, for increased benefits at a rate costing each taxpayer at least £5 million for increased benefits — unemployment benefits and unemployment assistance — for the extra numbers, 30,000 or 40,000, of our citizens who by this time next year will be added to the list of the unemployed.

Since this Government came into power 38,000 of those who were gainfully employed in dignified work have become unemployed. The current figure, even giving them the benefit of all doubts, is 208,000. They now provide for a figure, by their Estimates, of an average over the year of 225,000. It was acknowledged that it would be at least 240,000 by year end.

We are awaiting some signal as to how we shall create the opportunities for improving our economic conditions. Today there has been no meaningful reference to employment or unemployment. There has been no reference to what this Government plan to do to face the greatest single cancer in our society. Certainly there is no signpost to anybody with any spirit of enterprise, be he farmer, businessman or worker, as to how this Government propose to create the conditions to enable him make a contribution to the development of the well-being of this nation.

The present position is that the level of investment in this country now is 22 per cent of GNP only, the lowest it has been for 16 years as a consequence of this Government's policies. This budget will mean a further drop. The tax adjustments the Minister has introduced today in direct taxation, in income tax, will mean that, when one takes account of the maintenance of the 1 per cent levy, the maintenance of the 65 per cent tax band and the inflation which will occur over the year of up to 10 per cent, income tax will actually take in a bigger percentage of total tax revenue at the end of this year than has been done in any previous year.

For the first time we heard the Minister mention today the lowest figure that any of us on these benches can recall of those who will escape the tax net as a consequence of his budgetary provisions today. He says that 15,000 will escape the tax net as a consequence of this relief of tax liability. The Minister must know that in any previous year, because of the adjustments necessary to take account of the inflation impact on direct PAYE income tax payers, at least 25,000 and many more each year are exempted from tax liability. We find this year that the lowly paid, about whom the Minister is so concerned — the 15,000 of them — will be exempt from income tax as of now. But by the end of the year most of those who may have escaped the net at the beginning of the year, at that end of the tax scale, will be dragged back in halfway through the year. Even that what seems to be a marginal relief will prove as illusory as any other hope mentioned in this budget.

On tax generally might I mention also a matter of very considerable concern, that is, that clearly now the Commission on Taxation, which I established as Minister for Finance over three years ago and their recommendations, are being totally ignored and cast aside. The Minister indicated today that he will now refer the issues on tax reform to the National Planning Board because, as the Minister indicated, tax is an integral part of economic development and the National Planning Board are concerned with economic development plans. Surely he would acknowledge that the whole system of taxation, by everyone's recognition, has been so complex, so overloaded as to be an active disincentive. Surely the Minister will acknowledge that only the recommendations of the commission, who have been sitting and dealing with this matter for three years and who have made very positive, far-seeing recommendations, should be taken into account. But nothing they have done has been in any way heeded by the Minister. We have the clear sign today that their recommendations will be considered now is the context of the National Planning Board, whenever they arrive at any conclusions as to what will be their role or function.

If the National Planning Board do report in 1984 will they make recommendations in respect of tax and the overall tax levels or do we wait for another 12 months or perhaps two years? Is the Minister not aware that one of the most constant anxieties is this disincentive level of taxation in our economy? Is the Minister not aware that the Central Bank and many others have pointed out that the disincentive level of the tax impositions in last year's budget, being increased in today's, constitute a very dampening influence on the whole prospect of our economic development. The reality is that the Minister is so aware because he made one other honest admission today at the very beginning of his Budget Statement. If I opened with these lines one might wonder was I actually overstating the case. The Minister said:

... consumption has declined, investment has fallen, unemployment has risen and growth has been stifled.

That is the Minister for Finance in his own Budget Statement acknowledging publicly what every other independent authority has acknowledged already: that this country has been pushed into a deep recession by policies that have not in any way gone near achieving their stated targets. Incidentally, this has occurred at a time when no Minister over the last number of years has had such a favourable international climate to assist him and this country in regenerating our econimic activity.

The Minister must be aware that for the first time in a number of years the projections for the international economy are for a 3½ per cent to 4 per cent growth in the OECD countries in the coming year. The Minister also must be aware of the buoyancy in marketing opportunities for our exports. Incidentally, he has claimed some credit in relation to export buoyancy which is solely attributable to the industries established by Fianna Fáil in Government, the high technology industries, now proving to be the base of the export buoyancy for which the Minister has claimed credit during the year. The fact of the matter is that at a time when we do see a very clear recovery in the international economy this Government have no plan to avail of the opportunities in that buoyant international economy in order to create conditions to underpin employment here.

There has been an 18 per cent decline in total investment since 1980. This has been commented on as being a matter of very serious concern by independent commentators such as the National Economic and Social Council. There is the most passing and ineffective references in today's budget to the capital programme — an extra £5 million for roads, an extra few millions for housing. Is that the Minister's idea of an enhanced capital programme, which has already been scaled down by him and his Government at a figure below what was being provided by the Fianna Fáil Government two years ago? If an extra £5 million for housing and £x million extra for roads is his idea of a Government contribution to enhancing our investment climate, the reality seems to be that we live in different worlds. As a consequence of this budget and the nugatory provisions in the capital programme the level of total investment in this economy will fall further this year at a time when there is buoyancy in the international economy, at a time when we have the opportunity for renewal and redevelopment.

Let us examine some areas where this might be done and what the Minister had to say about them today. Take our base activity, agriculture — and the Minister has had some association with that area as an economic adviser. At a time when we become even more conscious of reliance on our own resources, the very resource that can, if developed, supported and maintained make a major contribution not just to employment but to our balance of payments and every aspect of well-being here, in no way figures in any provisions of this budget today.

We are going to maintain the ground limestone subsidy and the AI programme. But it seems there is no need for farm modernisation. Apparently, in the Minister's eyes, we are too modern. There is no need for farm development programmes or increasing the national herd. He ignores the potential that agriculture represents, not just for the farmers but for all who rely on the downstream industries, the dairy and meat processing industries and the people in towns. There is no signal or proposal from this Government for agriculture. There is no plan for economic development in any event. We are all expected to listen to and to be satisfied with adjustments which tinker at the edges. What does all this jargon mean when there are no jobs and the existing opportunities are not being exploited? The management which is necessary for every enterprise, especially for Government, does not exist. There is no hope and no direction.

I wonder what the construction industry will say about this budget. Like agriculture, almost all of the component elements in that industry are native, there is little or no raw material imported. The marginal gesture which the Minister has given to the construction industry will not even maintain the present position where half of the labour force in that industry are unemployed.

That figure is incorrect, there are only a quarter in the industry unemployed.

I want to remind Deputy McLoughlin that I am quoting precisely from the figures of the Construction Industry Federation and their federated members submitted those figures to the Minister and to me.

(Interruptions.)

It is terribly frustrating to be in Opposition when one sees all that can and should be done. We are confined to pointing out what might be done and are forced to watch nothing being done. There are an extra 15,000 unemployed in the manufacturing industry this year and the Minister makes a token gesture to that industry, which will probably cost the Exchequer something in the order of £1 million or £2 million in a full year, towards the promotion of investment in the manufacturing industry. When the Minister was doing that he should have considered changing his mind on the nonsensical decison last year to abolish the very small tax allowance for shareholders in publicly quoted Irish companies which had been in existence since 1930. When he abolished that, those shareholders were getting less for their commitment to Irish companies than they would have got by putting their money into safe investments like pension funds, building societies or other groups that would have given a better return. The Minister did not see fit to reintroduce it this year but, more significantly, he confined that token incentive to the manufacturing industry. If we are concerned with unemployment, the manufacturing industry, important though it is, can make only a limited contribution to generating employment.

The Minister might be aware that in the United States the number employed in the manufacturing industry now is the same as it was in the late forties whereas the numbers employed generally in the service industries and business generally have increased at a rate of 2 per cent each year over the last 20 years. Is the Minister so blind that he cannot see that wherever permanent sustainable jobs can be created, the function of Government is to create the incentive for investing in those jobs? Does he not know that the IDA are relying on a ratio of — some say — 15 to one? That figure is extraordinarily high; let us bring the ratio down to five to one, five jobs in the service and downstream industries for every job in the manufacturing industry. The Minister must know that the manufacturing industry has a very limited capacity in generating and maintaining employment. How can he justify not making some contribution to investment in any Irish enterprise to assist people who are prepared to put their money in a venture capital support effort? That is obviously a consequence of the Government lack of planning.

I note, incidentally, that the plan when it comes may be confined to industry. If so, the Minister might as well recognise that sustainable employment, which is a feature of the most advanced economies like Japan, the United States, Germany, the Netherlands and Switzerland is and has been for some time focused on the new era of technology, on the service industries and the downstream activities and not just on the manufacturing industry. I wish the Minister had shown some awareness of that and given an incentive in that direction.

Prior to today, income tax represented 38 per cent of total tax. Has the Minister listened to anybody? He must realise the impact that taxation is having on the incentive to work. Has he not heard people saying they are better off unemployed in terms of money if not in terms of satisfaction? Last year he brought the level of taxation to an unprecedented level and it is increasing. Those levels are killing the most important thing this country has to offer — the incentive to work and the work ethic. Does he not care? I would not accuse the Minister of deliberately trying to undermine incentive and work ethic but I have to say that I would fail in my duty if I did not charge him with deliberately introducing policies which can only have the inevitable consequences of growing unemployment, less investment and undermining the work ethic which we have witnessed last year and of which we will see more this year.

A Government's role is to create opportunity and employment, incentive and investment, but it must also be demonstrated in our attitude to those who cannot help themselves. If that is the obligation of Government, this Government and this Minister do not know or care about their obligations to those who depend on our efforts to provide some benefit for them in their sickness, unemployment or old age.

Achievements of the Minister's predecessors will live in the memory of the Irish people — such as a shilling off the old age pension. I thought we had long since passed that kind of approach where those who need most will pay most, but we have come back to that today. I thought we had all reached the stage where we recognised that one of the main reasons for our being here was to create conditions where those who cannot help themselves will be looked after. What do we get from this Minister today? We get 7 per cent increases from July, August and November — an income maintenance supplement from Santa Claus in November. The Minister might as well have waited until next year's budget.

Three short years ago a Government with a social conscience provided 25 per cent increases for old age and long-term social welfare recipients. Some might say that was a little high, but if we are to err let it be in the area of providing comfort and security for those who cannot provide for themselves. They will suffer on with inflation running at 10 per cent for the rest of the year. Last year the Government were boasting that they were giving increases of 10 per cent to these categories but this year they are giving only 7 per cent. I will not mention the figures because they are an offence when one considers our obligation to the old, the sick and the unemployed. People are surving longer but unfortunately many more people are becoming unemployed. All this is happening although one party in Government used to parade a social conscience. How can these Deputies face the old people?

(Interruptions.)

Deputies, please resist the temptation to interrupt.

That ball will not hop.

Certain Labour Deputies used to be available to the public to complain about what Fianna Fáil were not doing when we were in Government. No one sees these Deputies anywhere. We do not see their names in the papers. They may not even be available in their own homes.

At least they live in their own constituencies.

(Interruptions.)

After this budget the unemployed, the old and the needy will go a long way to seek out a Labour Deputy to find out how they can say this budget will benefit them.

There will not be a Labour Deputy shortly.

Deputy O'Kennedy, without interruption from Deputy Lenihan.

There was a time when we took a pride in the fact that Ireland attracted foreign investors. In the sixties many foreigners invested here. What is happening now? If there are a few foreign investors — and they are getting fewer every day — they are matched by the number of our business people who are investing abroad. There are more Irish people investing abroad than there are foreigners investing here.

If the Minister is not aware of that trend, he should go to Shannon Airport where he will see very buoyant activity in the lounge. Small Irish businessmen are going to America to pick up the profits that are available in their buoyant economy. President Reagan said the American economy has been experiencing an economic miracle for the last few years. The only hope for our people in this time of economic miracle is to invest abroad.

Some people might say the Minister is a man of some resolution, that he is cool, calm and will not be flustered. Perhaps he differs from most of us because it is hard to be cool or calm in face of the tragedy we are witnessing here, it is particularly hard in the light of the fantastic potential there is in this country. If the Minister had no other suggestion to make except that in support for the manufacturing industry, then there is little hope for us.

Does the Minister not know that the pension funds, building societies and gilts are flowing with funds from people who want to invest but who will not and cannot take the risk of investing in productive activity because of our present high taxes? Can he not see there is scope for encouraging people to move out of that safe haven investment which is not giving a return in terms of sustainable employment?

Where does Deputy O'Kennedy stand onThe Way Forward?

Deputy O'Kennedy, without interruption, please.

This 8 per cent VAT on clothing will be a mortal blow to an industry which already is on its knees. The Minister must have met a deputation from the Confederation of Irish Industry about the same time that I did. They told us that they spoke with "the authority of knowledge", the knowledge that indigenous manufacturing industry in Ireland was beaten to the ground, that the buoyancy in manufacturing activity was attributed almost solely to high technology and pharmaceutical industries which this party introduced in the sixties and seventies. This has resulted in a falling off in employment of 20,000 people. What does the Minister do? He imposes an extra tax on the clothing industry which is already under great pressure from abroad because of a lack of competitiveness.

One regrets having to point to all this, but the fact of the matter is that in the climate in which we live the budget has a function as an instrument of policy. Fiscal adjustments are necessary. It is an instrument of policy on one day only to create and encourage the conditions which can be implemented throughout the year by a Government with a policy. This Government have not got that policy. They are preoccupied with what are seen to be budget adjustments. They are so preoccupied that it is guaranteed that this year like last year the targets they hope to achieve are defeated before they start.

There is one other place where there is a preoccupation with a budget, and the Government are well aware of that. Another Government have forced the European Community to be preoccupied with a budget and budget adjustments. That Government have forced the European Community so much in that direction that they have killed the very spirit and direction of the Community. The Government preoccupied with a budget here are our own Government and they are killing the spirit and enterprise of this nation. For those outside who wait for a hope, or a sign, or a signal, this budget contains no signal other than the fact that the Government do not know their problems and have no way——

Forward.

——out of them.

One thing that is very clear from this budget is who is in charge of the Government. Fine Gael call the tune and the Labour Party must dance to it. There is no concession whatever to the Labour Party in this budget. The income levy stays. PRSI is as it was. The allowance is the same as it was. There is no family income supplement until November. The VAT rate on clothes is 8 per cent and they are calling for a wage freeze in the middle of all this in the public sector and in the private sector. In last year's budget the Minister seemed to have some new ideas with regard to tax credits and other initiatives, but they were all killed off in this budget. Last year he said he would do something else in the next budget, but in this budget he has done nothing. There is no initiative in it, no idea. Any civil servant could have written it and probably did.

There is a lack of any change in capital taxes. There is a total lack of reference to the Commission on Taxation. After three years of marches all that was conceded to the PAYE workers was the Commission on Taxation. They reported a year and a half ago. I would not agree with their report or accept their recommendations, but I would have thought the Minister would have seen the quiet protests by the taxpayers. They have not yet revolted but they are about to. The report of the Commission on Taxation should have shown him that there is a need for a drastic change in the whole system. Even Brendan Dowling, who is generally regarded as a pro-Coalition economist, has said clearly that the tax system is antiquated, out of date, inefficient, inequitable, unjust and in need of drastic and radical change. Some such changes were expected in this budget but none has been forthcoming. Those projected last year were shot down this year.

Despite juggling with the figures for income tax, the burden still remains on the shoulders of the PAYE workers. The total personal income taken in this budget will be over £400 million more than last year. The total PAYE take will be at least £300 million up on last year's take despite juggling with changing allowances, tax bands, rates, and so on. The same people will carry the burden under this budget.

There is no reference to the removal of water rates in this budget. That is one area where the urban workers have revolted. They are specifically saying that they are refusing to pay these charges and this tax. They have been calling for the abolition of these charges in this budget. There is no reference to any land tax or any taxation for farmers. There is no reference whatever in the whole budget speech to farmer taxation. Last year farmers paid less taxation than ever before because of the abolition of rates. Through their own work they got them abolished by the Supreme Court. There is no point in the Minister hiding behind the Supreme Court or the Constitution and saying it is not his fault rates were abolished.

There are many other ways in which taxes could be raised from farmers other than on the valuation system. There has been no attempt to recoup from them the equivalent sum to what would have been gathered under the rates system had it been still in force. Everybody, including the Labour Party I am sure, expected the Minister to produce something in that regard to ensure that in 1984 the urban workers would not still be paying for the farmers. That is precisely why water taxes and other local authority charges were imposed. Local authorities were not getting rates from farmers and that had to be made up by the Exchequer, in other words by the taxpayer, in other words by the PAYE workers.

At the moment inflation is about 10 per cent. Putting off a social welfare increase of 7 per cent until the month of July, and August in the case of children's allowances, is a despicable insult to people on social welfare benefits. In the meantime, how are they to make up for the increases in prices due to inflation, and the lowering of their standard of living? There is a shortage of food on their tables and clothes on their backs, but the VAT on clothes will come in immediately. The increase in welfare benefits will not come in until July or August and then will be only 7 per cent.

The Minister says he must get his priorities right. His priority is said to be the rectification of our finances. This is a clear indication of how much a Fine Gael budget it is. It is a books versus people budget. No attempt was made by the Minister to get his priorities right. The priorities are the people of this nation. They are the people who put us here and who expect us to fight their battles for them, who expect the Minister to produce a caring and equitable budget which will benefit them and improve our economy and improve the efficiency in the running of the nation at the same time. There are no plans in this budget for a recovery in the economy.

All the budget says is that the Minister, the Taoiseach and the Government are hoping to gain some benefit from the recovery they think is coming in the United States and in Europe. In the old phrase, they hope that that rising tide will lift all boats. I am afraid this one has sunk so low that no tide from abroad will lift it unless the Government come up with specific plans for the economy to lift it. While the concession to PAYE workers in regard to personal allowances will benefit a small group of lower paid workers in some areas, a higher amount of tax is being taken from them in indirect taxes than they are gaining.

In regard to capital taxation the Minister stated:

The general perception is that the yield from capital taxation in this country is low. In reality, if we take the internationally-accepted definition of capital taxes, which includes stamp duties and property taxes, the yield in 1983 was £193 million or about 4 per cent of total taxation. This is a substantial amount by any reasonable standard.

That is an extraordinary statement when the yield from capital taxes has been falling year by year since 1974 when 11.2 per cent of the tax taken was in capital taxation. It fell to 9.6 per cent in 1975 to 8.8 per cent in 1976, 8 per cent in 1977, 6.1 per cent in 1978, 6 per cent in 1979, 5.2 per cent in 1980, 4.7 per cent in 1981 and now it is 4 per cent. It has fallen continuously and is now about one-third of the percentage taken in 1974.

The OECD recently issued a report which appeared in the newspapers on 14 January. They state that we have the lowest capital taxes in the OECD area and that Ireland's tax base is very narrow by international standards. They point out that corporate taxes in Ireland were only 4.7 per cent in 1982, while in the United Kingdom they amounted to twice that amount at 9.7 per cent. In the United States corporate taxes were 8.6 per cent and in Canada 9.3 per cent. Except for Sweden our corporate taxes were the lowest in the OECD area.

In property taxes we were also the lowest at 3.5 per cent of the take. In 1965 the figure was 15.1 per cent, while in 1970 it was 12.2 per cent, coming down to 3.5 per cent in 1982. It is nearly four times that amount in the United Kingdom at 12.8 per cent, while it is 9.6 per cent in the United States and 8.6 per cent in Canada. It cannot be said that any of these is a socialist country. They are the most highly capitalist countries in the world. We have the lowest property taxes, the lowest corporate taxes and the lowest capital taxes of any of the capitalist countries in western Europe or the OECD. That is the answer to the Minister's extraordinary statement that our capital taxes are high by international standards. They are, in fact very low by international standards and there is a need to increase capital taxation if we are to have any equity in our taxation system. There must be a move from personal income tax to the general area of capital taxes as well as property and corporate taxes.

Why could the Minister not have introduced a wealth tax? Fine Gael do not like it and do not want it, but surely that is the way to raise revenue. When the wealth tax was in operation it brought in about £10 million and in today's terms would probably raise about £20 million. That would be the return from a relatively low rate of wealth tax. Would the Minister see people die for lack of hospital care or health treatment or lack of food on the table rather than tax the wealthy friends of the Government and of Fine Gael? Could he not have considered removing the indexation for capital gains? Had he done so he could have increased the take from £11 million to about £36 million, thus gaining an extra £25 million. That would not hurt anybody or take the food from the table or prevent anyone from receiving decent hospital treatment under the Health Acts. He could have lowered the threshold for capital acquisitions tax which can be up to £150,000 or even double that for agricultural land. He could have doubled the take from £13 million to £26 million. He could have made certain adjustments to the property tax and raised the take from the projected £3 million to at least £10 million, thus gaining another £7 million.

Everybody, including the farming organisations, expected that he would impose a land tax on farmers to replace the rates and annuities which have nearly expired now. Such a tax would not have to be at a very high rate to bring in an amount between £80 million and £100 million. The whole country was expecting that the Minister would at least replace the rates system and bring in the equivalent of what the farmers were paying in rates, particularly when the 90,000 farmers who are supposed to be in the tax net are not paying tax. Apparently the Revenue Commissioners are not geared to collecting tax from them. Certainly they are not doing so. In those circumstances, when neither income tax nor rates is being collected from the farmers, surely the Minister could have set his mind to deciding what would be the best form of taxation on land which would give the greatest incentives to those who are prepared to work the land and at the same time bring in an income to the Exchequer, avoiding the situation whereby urban dwellers are still having to pay to local authorities the amount which is not now coming from farmers' rates.

Very little attention was paid by the Minister in his budget speech to the question of tax evasion, to the fact that the health and youth levies are not being collected from the self-employed, farmers and so on and the fact that the general taxation system is behind in its collection by hundreds of millions each year. This means that more money must be collected each year in income tax in order to cover the services which are falling behind as a result of evasion, avoidance and the deliberate refusal to pay taxes which are properly assessed and levied on people.

We are well aware that the law, the courts and the Constitution protect landlords, farmers and property owners from paying tax. All they have to do is go before the courts and claim that a certain kind of tax is unconstitutional. The courts tell the landlords that they are right, that they have a right to their property and should not be taxed on it in that fashion or should be allowed to charge whatever rent they like. The farmers claim that it is unconstitutional to have to pay rates on land and the courts agree with them. This is a fault in our law and Constitution. It upholds the rights of property above those of the people. If the Minister has any difficulty in imposing taxes because of a fear that the courts will declare it unconstitutional, then he should do something about changing the Constitution. It is not a great difficulty as he will have noticed from last year. The Constitution can be changed or amended and if the Minister has any difficulty he should look at the possibility of introducing a constitutional amendment which will ensure that the Minister for Finance has the freedom to impose tax in order to provide the services that people need and to ensure that certain people do not get away with making big money and paying no tax because of a certain constitutional provision.

The budget deficit a year or so ago was one of the sacred aims of the Coalition. I suppose they have — they do not admit it — made a U-turn. I said on the Adjournment Debate in December that it would be good if the Minister did a U-turn. The Government attacked Deputy Haughey for doing a U-turn onThe Way Forward and changing his mind. There is nothing wrong with making a U-turn when one is going in the wrong direction. Over the past few months the Minister seemed to be tentatively beginning a turn. He has continued this on in the budget and it would be as well if he completed the turn and made the definite decision that the budget deficit is not the be-all and end-all of running the country, improving the economy and raising money.

There was an excellent booklet produced by the Department in the past few weeks called "Economic Background to the Budget 1984". The opening line in that document states that "led by a strong recovery in the United States, economic activity in the OECD area gathered momentum during 1983." Paragraph 3 states that "with the notable exception of the US, fiscal policy in most of the major economies remained restrictive with continued emphasis being placed on reducing public sector deficits." All of them except the US were doing this but the only one showing strong recovery was the US. Within the OECD there was a particularly marked deterioration in the US deficit at the very same time as there was a strong recovery in the United States. Surely the Minister should learn something from that. The only one that was not worrying about the budget deficit was doing best of all.

These facts expose the bogus nature of the claim that the reduction of the current budget deficit will cure the economic ills of this State. In reality it is the balance of payments deficit which is the real constraint on economic policy not the budget deficit. In the past year that constraint has eased to the extent that it has almost disappeared. The document points out that the balance of payments deficit showed a substantial improvement, falling from £1,041 million or 8½ per cent of GDP to around £350 million or 2½ per cent of GDP in 1983. That is excellent. It shows economic recovery. We would argue that for economic development, even at the expense of a small short-term rise in the balance of payments, if money is spent wisely on investment, expansion and the creation of jobs no great harm is done to the economy.

The spending cuts the Minister persists in pursuing are indicated primarily in the capital programme which I will deal with later. It is spread right across the State services including health and education as shown in the Book of Estimates. By imposing a cash limit approach in the Department of Health, to be administered by the health boards, they are pursuing a course where our services are being cut indiscriminately while the waste which constitutes the real scandal is allowed to fester on causing continual losses of taxpayers' money. The Minister for Health has opted out of his responsibilities and left it to each health board to decide where to cut back. Naturally they will cut back their services to the sick and elderly but will not cut back on the waste of money to doctors, consultants, pharmacists, drug companies, special treatment and facilities for special private patients. No, that is not where the cuts will be made. People will die in 1984 for lack of health care because the Minister is shirking his responsibility by not cutting expenditure where the waste is and just telling the health boards they will get £3 million or £5 million less and to do the best they can on it. Why does the Minister for Finance not insist on the self-employed and farmers paying health contributions to avoid the Minister for Health having to make these cuts in hospital treatments and health care? This goes back some years. There is no mention in the budget that any extra effort was being made to bring in money from farmers or ensure that health contributions are paid so that proper hospital services and health care is given in the coming year.

I referred to the Public Capital Programme because this is the area which deals with jobs, job creation and employment. The allocation for this programme of £1,780 million is down by 6 per cent in real terms compared with 1983. That is the total allocation. According to the Minister's figures the amount provided this year in the Public Capital Programme will be 20 per cent less than in 1982 in real terms. This reduction of one-fifth in State investment is taking place at a time when there is a crying need for economic development and a need to pursue the aim of job creation. When referring to the size of the Public Capital Programme I am not saying that we should be spending money indiscriminately or anything of that nature. Quite a lot of money has been squandered and wasted in various handouts to different people and millions of pounds continue to be squandered. I do not hold any brief for waste of public money but I am attacking the overall cutback of one-fifth in investment at a time when we have 200,000 people unemployed.

In our policy document, issued in November 1982, we set out a solution to the jobs crisis in the form of a plan to improve efficiency and output in order to create wealth. For that investment is a necessity. The cut in the Public Capital Programme is a measure of how far the Coalition Government stand apart from us in this area. Table 3 of the Public Capital Programme indicates the expenditure section affecting the building industry. The position in regard to that sector is even worse. In 1983 10 per cent less money was provided than in 1982. Taking inflation into account that meant a 22 per cent drop in real terms between 1982 and 1983 in public capital expenditure for the building industry. There will be a further cut for 1984 of 2 per cent for that industry. Taking inflation at 10 per cent this will mean a 12 per cent cut in real terms. Within two years there has been a drop of more than one-third in the public capital allocation to the construction industry. It is interesting to note that since 1982 more than one-third of all building workers lost their jobs. Deputy McLoughlin told us that only one-third of building workers were out of work but more than 40 per cent of them are out of work. In Cork the figure is more than 50 per cent. Unemployment is worse in that city than anywhere else and more than 50 per cent of building workers are unemployed.

The figures I have quoted indicate the immediate impact investment has on job creation in the construction industry. It is clearly related to investment. If money is invested jobs will be provided and output and wealth increased. If one does not invest jobs are lost. That is what has happened in the last two years. One-fifth of all those who are unemployed belong to the building industry. If the Minister examines the budget he will see that one-fifth of the budget deficit, £200 million, is spent to keep those building workers on the dole. It is interesting to note that the budget deficit figure of £960 million is almost the equivalent of the amount that will have to be paid out to unemployed workers. That does not prove very much but it indicates that one of the best ways of reducing the budget deficit is to increase employment. If more jobs are created the budget deficit will be reduced and greater wealth created.

The final point I should like to make is in regard to the Minister's statement on the need for pay restraint. He did not use the term "pay freez" but he did not make any money available for an increase in pay in the public sector. He expressed the view that there should not be any further increases in the private sector. One of the great features of the past year has been that manufacturing output increased by 6 per cent and there has been a strong growth in exports. The volume of exports grew by 10 per cent and industrial exports were up by 14 per cent. Export prices were up by more than 8 per cent while industrial export prices increased by 9 per cent. According to "The Economic Background to the Budget", produced by the Minister for Finance, total non agricultural wages and salaries were up by 7.5 per cent in 1983 as against 13½ per cent in 1982. The Minister said he was unhappy with this, that it was too much, but I should like to draw the attention of the House to a statement in "The Economic Background to the Budget", under the heading, "Competitiveness". It states that the effect on competitiveness of the relatively high increase in earnings was more than offset by a more rapid increase in output per head. The workers worked harder because of the state of the economy last year. They worked so hard that they more than offset any increase in pay they got. I did not see that headlined in any papers. The statement continues, "as a consequence of that productivity increase, unit wage costs here fell by about 1 per cent in 1983 as compared to our major trading partners where there was an increase of 3½ per cent in unit wage costs". In the United Kingdom there was an increase of 1½ per cent in unit wage costs.

That is the most significant piece of information contained in that booklet and an account has not been taken of that by the Minister in his speech. With the increase in exports, and export prices, and the lowering of unit wage costs by 1 per cent, workers in 1983 have produced high profits for their companies on the export markets. Today the Minister suggested to the House that those workers should not get any increase, not even an increase sufficient to cover inflation. The 1983 performance by workers proved that they were the backbone of the economy last year and the people on whom we must depend for recovery. We should give those people an incentive and allow them an increase to cover the cost of inflation because they will produce the goods and increase productivity. They did so last year but they did not get any thanks. They got abuse from the FUE, the CII, the organisation representing the self-employed and the farmers. They have been told that they are dossers, lay-abouts who do not do any work but the document produced by the Minister proves that they were the people who led the recovery in the export markets last year against all the odds. The Minister should take account of that. He should give them some credit for that performance and withdraw his call for a wage freeze in the budget.

Sitting suspended at 6.30 p.m. and resumed at 7 p.m.