I am sure the Chair will forgive me for commenting that the Taoiseach would be better employed being here for the Order of Business this morning particularly in view of the wage diktat launched by the Government on Monday ——
Finance Bill, 1984: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time".
Will the Deputy relate his remarks to the Finance Bill?
Some years ago a comparable situation made the then Leader of the Opposition, Deputy Garret FitzGerald, hasten home from France.
Yesterday I was speaking about the 2 per cent levy, employment generally and the absence of any incentives or a job creation programme in this Bill or in the budget. I said the majority of people would be prepared to pay an employment levy if they saw that money being used specifically for job creation, especially for young people. Many questions are asked about how this money is being spent, how many new real jobs have been created and how many training places have been created. In reality the number is very small when compared with the amount of publicity involved in getting this levy and the Youth Employment Agency launched.
I dwelt on taxation at length and the insignificant effect this Bill will have on the take-home pay of the ordinary PAYE worker. I also said there was nothing in this Bill to generate an increase in activity. An essential part of this Bill is the tax code and the 2 per cent levy, which is being continued for another year, as they relate to employment. The day has gone when we can isolate taxation and its impact on take-home pay, job creation, training and education. In other words, it is the complete package that counts because gross income is the workers' net take-home pay.
Last Monday's announcement was a diktat to the workers telling them how the Government saw the gross pay guidelines over the next 18 months. That was a very unwise decision because everybody believes, acknowledges and accepts the need for wage restraint. Today's trade union member is as concerned about tax, jobs, education and training as he is about pay because members of his family or his neighbour's may be unemployed or seeking jobs for the first time. I do not understand the attitude of the Labour members in this Government because the Government seem to be seeking confrontation with the trade union movement. No pressure was being exerted within the trade unions for high wage increases——
The Deputy will have to relate his remarks to taxation.
I have already qualified what I started to say and I am within my rights because a worker's gross pay is the same as his take-home pay. No longer can any Government divorce pay from tax, tax from employment, education or training or any other combination. Those elements are fundamentally related and there is only one way we can make progress and that is through consultation and negotiation with the trade union movement and the employer organisations.
The trade union member is concerned about pay, tax, the 2 per cent levy and other issues. He is aware of the necessity for wage restraint and low wage increases but I object to the method employed by this Government which is composed of a number of Labour Ministers who lectured us on our much milder approach when we sought a three month deferment of a 5 per cent third phase payment for the public service. The then Leader of the Opposition, Deputy Garret FitzGerald, hastened home from his holiday in France to restore what he described as industrial chaos and said at Dublin Airport that he was prepared to bring down the Government on this issue, but when this announcement was made on Monday, he hastened to Rome to launch a Christian Democrats campaign.
The Chair heard the Deputy's submission regarding the relationship between pay, taxation and employment and he is prepared to allow a passing reference to pay on the basis that the debate is on taxation and that references to extraneous matters can be only passing references. I cannot and will not allow the debate to be turned on its head into a detailed debate on the nuts, bolts and machinery of fixing pay.
The people who elected me and you would find it very hard to understand how you could divorce pay from taxation. They would think you were irrelevant, not me.
This is a debate on taxation and passing references may be made to the matters the Deputy is raising.
I will try to stay within the order. An immense amount of time was put into the drafting of this Bill but the changes are insignificant and give very limited relief, especially to the PAYE worker. The Government must consult and have discussions with regard to taxation, pay, employment, job creation, education and training. These matters cannot be divorced from each other.
The events of Monday have encouraged militancy where it did not exist and it appears that the Government are seeking confrontation. Everybody recognises the need for restraint but they should not be dictated to as to how that restraint is to be achieved. I would prefer encouragement and incentive through the tax system so that people could more readily accept the need for overall restraint. The Government have made a major mistake but the Minister for Finance seemed on television last night to be watering down what was said on Monday. Perhaps this is because he realises a mistake has been made or it may be due to pressure from the Labour Ministers. I understand there is a Labour Party meeting this morning and I would like to be a fly on the wall in order to hear what the backbenchers are saying to their Ministers who were party to that diktat.
The Finance Bill and the budget have a part to play in determining what the rate of inflation will be. The figure for the quarter ending in mid-February was 2.4 per cent. In the document issued on Monday the Government called it 2.5 per cent and they made a vague statement, for which there are no grounds, that the rate of inflation going into 1985 would be 5 per cent. It is difficult to understand how that has been calculated because the best figures available from the ESRI and the Central Bank show a rate of approximately 7.5 per cent at November. It is a mystery how anyone can convert the existing rate of 2.5 per cent and the projected rate of 7.5 per cent in November into 5 per cent as we go into 1985. I do not understand that kind of arithmetic. It is not the arithmetic of the Minister for Finance or his Department. It is probably the arithmetic of the handlers of this Government who would be more concerned with the image of the Government than the level of inflation.
What is the present position regarding income from the 2 per cent levy and what has been contributed by the various sectors, the PAYE workers, the farming community, the self-employed and so on? I should appreciate that information from the Minister when replying.
I now refer to the danger of the Government following the line adopted in the United Kingdom and the United States of using the weapon of unemployment to depress wages. There appears to be a risk of that happening. The alternative is consultation with the various groups concerned as to the best way ahead combining taxation, pay, job creation, employment and education and training. It could be very dangerous to use the employment weapon to depress wages and I suspect this Government would like to do it. I suspect that was the thinking behind Monday's announcement but I hope the Minister for Finance was indicating a U-turn last night and adopting a more common-sense approach.
The Deputy will come back to the Finance Bill, please.
The Finance Bill has not given much joy and has not dealt with the areas where incentives should be given. I appreciate the need for revenue but we want to see a balance. The greater the level of indirect taxation the more quickly one sees a down-turn in the business affected.
Deputy O'Kennedy spelled out in detail the drop in revenue target figures, and the further extension of VAT on many products can only have a depressing effect and further reduce the level of activity. This militates against employment and job creation. This Government have been contributing in this way to fewer jobs being saved and created. There is an urgent need for the Minister for Finance to review the line he is taking. He must review job incentives with the State boards, even within the terms of the Finance Bill. We must create a better climate and assist risk taking in the interests of job creation. It is easy to extend the 2 per cent levy and collect a certain income but there is no new thinking there. I would ask the Minister to spell out what has been achieved by way of numbers on the ground. I suggest that those numbers will be very small.
We are all aware of the many factory closures. I want to give an instance which was extremely important to a small group of people. A factory closed. A few people were prepared to try to maintain some of the jobs. That small enterprise are endeavouring to get assistance from the various State agencies. The ESB demanded payment of £6,000 in a lump sum. There are between 12 to 20 jobs involved. That kind of cash problem can mean the success or failure of the venture. The maintenance of those jobs should be encouraged. I approached the Tánaiste and asked him to intervene with the ESB to get phased payments. They did not want free electricity. They wanted to make phased payments. They were refused. That is an instance of where we are going wrong in job creation and maintenance. More co-operation and more co-ordination would be welcome.
I wish the Youth Employment Agency every success. I supported them when I was Minister despite the fact that I had serious and grave reservations about the amount of thought which had been given to the agency. At that stage the levy was 1 per cent and I was criticised because the money was not given in total to the Youth Employment Agency for disbursement among the other agencies such as AnCO, CERT, and so on.
The Deputy is dealing with raising money and not dispensing it.
If the Exchequer collects a levy of 2 per cent it does not maintain it. This is a very fine line.
The difference between raising money and spending money is the same as the difference between a debate on the Finance Bill and a debate on the Estimate. The debate on the Estimate affords the Deputy an opportunity to deal with spending money.
I was making a passing reference to it. Please do not make this House a huge joke. It may be irrelevant in many ways. Its format may need updating. I understood that the Minister was in favour of reform of the Dáil. It is tightening the reins a bit too much if one cannot make a passing reference to the spending of the 2 per cent income levy which is included in this Bill. This levy is collected from every PAYE taxpayer. There is no objection to an employment levy if it is used for the proper purposes. It is most unfair, a Cheann Comhairle, for you to say I cannot question how this levy is being spent. I am entitled to do that.
At the appropriate time.
I can read the section for you if you wish. It is one of the earlier sections in the Bill. It continues the 2 per cent levy for another year. Surely I am entitled to say I do not believe it has been a stimulant to employment or used in the interests of our youth to the extent to which it should have been used. Surely it is valid to make that criticism on the Finance Bill and to tell the Minister he is going in the wrong direction.
More imagination is needed from the Minister and the Government to create the climate necessary to encourage enterprise. I cited a case which is fresh in my mind. I could cite many others and I am sure other Members of the House could cite many too. To have a section in the Bill continuing the 2 per cent levy for another year is not enough. It is not a contribution to employment. It is not the kind of contribution which is appreciated by the people at present.
We will have a long, tough Committee Stage on this Bill. We will put down many amendments to try to get the message across that the biggest single problem of our time is unemployment which is rising at an alarming rate. We will have at least 20,000 young people coming on the books in two months' time. We must never forget that. While I am in this House I will not allow the Government to forget the fact that that is their biggest problem. They made promises which they broke and which can be laughed at with hindsight. The Government are paying lip service to the problem by suggesting that a diktat on pay will create more jobs. It could have the reverse effect. A proper package properly negotiated is the way forward.
Yesterday Deputy Fitzgerald dealt with what he termed the super-levy fiasco and criticised the agreement made by the Minister for Agriculture. I am just making a passing reference to this. He ignored the fact that, allied to the agreement, we got an increase of 1.3p per gallon for our milk.
I do not know what Deputy Fitzgerald said, but a discussion on the milk levy would not be in order.
I am not discussing it. I am answering a point which was made by Deputy Fitzgerald. If you stop me the minute I start, I might as well give up.
The Chair must be consistent.
Deputy Fitzgerald was allowed to deal with the levy for five or ten minutes.
I was not.
I am not aware of that. The Chair is ruling that a discussion on the levy is not in order.
I just want to say that Deputy Fitzgerald's criticism of the Minister for Agriculture was not fair. I will leave it at that. We are all very conscious of the unemployment problem. Deputy Fitzgerald dealt with it at length. The Minister's budget was described as neutral by many economic commentators. I believe the provisions in the Finance Bill are ideal for the situation in which we find ourselves. Recent indications show that there will be an upswing in the world economy as a result of the improvement in the United States economy. Therefore we must be in a position to take advantage of that upswing. The recent announcement in the United States that the United States budget deficit for 1985 will be in the region of $180 billion compared with $184 billion dollars this year indicates that there will be little or no change in American policy this year in what is a presidential election year. After the American presidential election there is a danger that the United States will take measures to cut back on their budget deficit which could have serious consequences for this country. The fact that the most recent budget provisions and those of the Finance Bill now being debated are described as neutral constitutes no condemnation at all. Rather they should be looked upon as constituting an advantage for us.
At present we do not know how long the worldwide economic recovery will continue or what will be its ultimate impact on this country. Therefore, we must take care of the less well-off in our society until such time as that uncertainty evaporates. The budgetary provisions and those of the Finance Bill have taken care of the less well-off by giving the poorer sections increases that would maintain their standard of living in line with inflation. In the last few days we were told that inflation should be in the region of 5 per cent by the end of this year. Therefore, it will be seen that the increase provided will at least be in line with that inflation rate. Those increases may not be as great as some people would have wished but they show recognition of the plight of the unemployed.
In the last few weeks there have been many irresponsible statements made, no greater example of which was a recent interview given in Business and Finance along with calls from the Leader of the Opposition and some of his party's spokespersons for greater increases in all areas at practically every level while at the same time calling for a reduction in taxation rates and an improvement in all types of services. I do not think the electorate will be conned by any attempt on the part of anybody to be all things to all people. We cannot hope for a drop in taxation along with an increase in services; that is just not on. People may be unhappy with the performance of the present Government in some respects. That is natural when unpopular and difficult decisions have to be taken but they are even more dissatisfied with recent irresponsible statements by members of the Opposition. I might deal with some of these comments on the budgetary provisions and those of the Finance Bill now before us. In an article called “The Alternative Budget” the Leader of the Opposition stated that there was need for a reduction in the levels of indirect taxation because ours are the highest in Europe. He said our personal taxation rates have become much too high while total tax this year will increase by £663 million and income tax will rise by 20 per cent in 1984. In that interview he is also on record as saying that the current budget deficit should definitely have been kept below £1,000 million. At the same time he said there was no way in which the size of the public sector could be tackled. Therefore, he implied that we drop taxation rates while maintaining the present level of public sector spending. In the same interview he said that the increase of 7 per cent in social welfare payments was inadequate, that he was in favour of their being increased even more, that he would reduce the upper level of taxation to 60 per cent, would take small farmers out of the tax net to save administrative costs, would abolish the residential property tax and at the same time would plough between £100 million and £200 million extra into the construction industry. I am not contending that such injection into the construction industry is not required but one must ask where would the money come from. The question must be posed: how could the Fianna Fáil four-year plan of investment in agriculture be implemented? How could they arrange financial packages which would bring the Scarriff and Clondalkin Paper Mills into full production, how would the gas pipe lines be extended into Waterford and Limerick at the same time decentralising Government Departments and effecting a drop in taxation. That is impossible.
Defeatism.
Deputy Gene Fitzgerald calls it defeatism; I call it unrealism. Looking at the provisions of the Minister for Finance and the pie-in-the-sky proposals of the Opposition Leader it is clear that the public is left with no choice.
Our main preoccupation must be unemployment. We all agree that there is now an unemployment crisis. There are at present in excess of 215,000 unemployed. Deputy Gene Fitzgerald will agree that our constituency, north and south, is one of the worst affected. I do not need to set out in detail the social consequences of unemployment — they have been well aired in this House on previous occasions — except to say that people today are feeling its effects in many different ways.
My contribution on this Bill will not be negative. I feel strongly that anybody debating the provisions of this Bill must take a positive line. For example, we must talk about how employment can be created. The major problem confronting the programme for job creation is that of very high interest rates strangling recovery from the recession and discouraging capital investment so urgently needed. Opposition spokesperson's criticism of the Government's performance in relation to unemployment has ignored the fact that the Government have been hampered in their approach to unemployment by the need to bring Government spending into line with revenue which, in turn, has meant that labour-intensive projects have been unable to commence. If the Government do embark on major capital-intensive projects in the next year I hope these will have a high labour content.
As I have said already the construction industry has been badly hit. Deputy Gene Fitzgerald and I are aware of the submissions made to us in the Cork region by the local branch of the Construction Industry Federation. It must be remembered that this industry provides vital employment for tradespeople, apprentices and unskilled workers. Another factor to be remembered is that 95 per cent of all household construction materials are Irish which generates more employment in manufacturing concrete products, electrical wiring, fitted kitchens and so on. In the last two-and-a-half years we have seen a net loss of approximately 30,000 jobs in that industry and, but for the record number of jobs created by State agencies, the net figures would be even worse.
The industrial sector has faced reduced consumer demand at home and abroad. Its problems have been aggravated by a wide range of revenue-raising measures on the part of successive Governments who have put many industries in the position of being no longer competitive. Along with the growth in public sector employment this phenomenon has forced the Government to raise more and more revenue. Therefore it is ironic to observe the proposals of the Leader of the Opposition that we maintain a high level of public sector employment. I cannot understand the reasoning behind the recent report published advocating an even greater increase in public sector employment. In so doing one would be ignoring the taxes that must be imposed on the private sector because of the need to pay the cost of a lot of non-productive public sector jobs.
We have the fastest growing labour force in Europe. It grows at a rate of 3 per cent per annum. In order to accommodate that, the economy will have to grow at about 7 per cent. That presents a formidable challenge since the projection for the coming year is for a growth rate of 2 to 3 per cent. If we are to resolve the problem of unemployment inflation must be brought down to the European average and the current budget deficit must be further reduced. If these proposals are implemented industry will have a chance to recover.
High inflation rates affect our exports. It is only through increased exports that we can start to cut our external deficit and reduce our foreign debt which is in the region of £6 billion. The effect of inflation on exports to Britain can be seen from the figures which were recently released. In four years the following was the trend of exports to Britain: Irish exports were up by 30 per cent, German exports were up by 60 per cent, Belgium exports were up by 66 per cent and Dutch exports were up by 70 per cent. Those are the major problems which must be faced up as a matter of priority.
The Opposition party's economic policy from 1977 onwards was to expand the public service by increasing the numbers of gardaí, nurses, teachers and civil servants. This policy was unproductive and a drain on the State. State involvement cannot be ruled out because it must be involved in production especially in fishing and food processing and in the provision of infrastructural needs such as roads and telecommunications. This would create thousands of productive jobs in the public sector. We must encourage private enterprise to provide jobs and facilitate employers by means of tax reliefs, grants, subsidies and interest premiums to encourage them to expand and employ more people. The IDA must place an increased emphasis on Irish-owned exporting companies. I am glad to see they have started to do this by setting up the small industries division in the IDA and national enterprise centres in Cork and Dublin.
I am surprised that I have got away with so much in relation to employment. I am devoting some time to it in this debate because it is the major challenge facing any Government in bringing forward a budget or a Finance Bill.
The Deputy should remember that this is essentially a debate on taxation.
I should like to deal with Deputy Fitzgerald's comments in relation to wage restraint and the plea for moderation in wage claims.
Only by way of passing reference. I did my utmost to stop Deputy Fitzgerald from developing that.
An important factor for our economy is the necessity for moderate wage claims if we are to bring down the rate of inflation and make our goods competitive abroad. Any increase in wages and salaries must be allied to increased productivity. Figures are available to prove that 4,000 jobs were lost because of the decline in our competitiveness in the last three years. A recent EEC publication shows that Ireland and Greece have lost out as regards competitiveness in recent times. The competitiveness of our products is determined by a variety of factors — the high rate of inflation, stagnant output and lack of growth in some of our key industries.
In dealing with the budget and the Finance Bill the Minister had to take into consideration the fact that the public sector had increased by almost 100,000 in the last decade while the total labour force has increased by only 4 per cent. The cost of public sector pay is about 20 per cent of our national output. The combination of public sector pay and repayments of Government borrowings abroad absorbs over three-quarters of our tax revenue. A Finance Bill must be accompanied by a detailed analysis of public expenditure to ensure that taxpayers get value for money. As a member of the Joint Committee on Public Expenditure I have seen evidence of the need for greater cost analysis of public projects. The cost of servicing the State is placing an intolerable burden on industry and on taxpayers. The public sector pay bill comprises 50 per cent of current Government spending.
The major consideration for the economy this year remains the need for further progress in moderate wage claims, bringing down the rate of inflation and, most importantly, a rise in productivity. Employment and not the protection of living standards for those at work should be the national priority for a number of years.
Despite what Opposition spokesmen have said, the 8 per cent VAT on clothing will help the Irish clothing industry. Many people I have spoken to in the industry welcomed the measure. The Opposition ignored the fact that 70 per cent of clothing is imported and that anyone bringing in a shipment will now have to pay VAT at the point of entry. There are certain benefits in buying Irish made clothes in that suppliers will not have to pay VAT immediately. This, when cash flow is so important in business, is no minor advantage. Up to now manufacturers had to pay VAT on imported raw materials whereas imported finished products were VAT free. Home produced goods were at a big disadvantage price-wise.
As regards the tourist industry and the provisions in the Finance Bill in relation to it, I was given some figures by a person in that industry which show that we have 700 hotels which employ 23,000 people all year round as well as 3,000 seasonal workers. The total turnover on rooms, food and drink was £255.233 million. This is a labour intensive industry with a huge turnover. Any measures which will help this industry are more than welcome especially in my area, the Cork-Kerry region, which is underdeveloped as regards tourism and needs every possible encouragement. We must also encourage home holidays. I am glad to see that there was an increase in the value of these from £45 million in 1972 to £260 million in 1983.
A survey shows that 73 per cent of Irish people consider the tourist industry vital to the Irish economy and even at this stage 20 per cent of UK residents would not rule out Ireland as a place to come to for holidays. The 48 per cent of people interviewed abroad who turned down Ireland did so because of price factors. Politicians and even the media seem unaware at times of the importance of tourism to the country. Therefore, I welcome the provision which awards £300,000 increased funds for promotional purposes for tourism, which also has been helped enormously by the reduction by 5 per cent of car hire VAT and by the proposed VAT refund scheme on souvenirs and gifts. These items, along with the new range of incentives, will help the tourist industry, and I hope that this trend in increased aids will continue in future years.
I dealt earlier with the importance of the construction industry to our economy and the fact that VAT on concrete has been reduced to 5 per cent. Along with the £8 million for roads, £3 million for SDA housing and the other provisions that will have a very positive effect on the employment situation in the construction industry. That, allied to the announcement of a £2 million allocation for the provision of a deep-water berth in Ringaskiddy, will help that industry a good deal. I have referred to the deep-water berth which I know is not in the Finance Bill but I thought that something in relation to a free port could have been part of the Bill's provisions. It is important that a commitment be made to the concept of a free port zone at Ringaskiddy in Cork which would make the Cork harbour area more attractive internationally.
I hope that at an early date the Minister for Finance, even though he has not done so in the Finance Bill, will consider seriously the concept of a free port in the Cork area. One already established very successfully in the Shannon area covers about 300 acres, employs about 800 persons in about 100 businesses and earns something in the region of £130 million per year in foreign exchange. I realise that a condition of entitlement to operate within a free port is that a high proportion of the produce must be exported. Prior to our entry to the EEC, zone users in Shannon were entitled to relief on all goods imported for processing. Following accession to the EEC, relief was available on goods processed for export to Third World countries only. Membership of the EEC also restricted the incentives which could be offered to firms setting up in the zone and the only fiscal advantage that could now be enjoyed by people setting up in a free zone in Ringaskiddy would be a reduced rate of profits tax applying to exported services.
I will not go into too much detail, but I feel that it is relevant to the Finance Bill, since it relates to duties and VAT, so I will go into some detail on the concept of a free port. Free ports must have certain necessary conditions as follows: the areas themselves must be duty free, and this gives them several immediate advantages. Goods can be processed for export without duty being paid on the components. A free port gets extra-territorial status and this offers relief from regulations which would otherwise impede trading activities. In other words, goods can enter the free port without having to conform to quality, labelling and safety standards of the host country. Re-packaging and re-labelling could be done in the free port area to bring them in line with the host country's standards or the standards of the countries to which they would be re-exported.
The concept of a free port provides a protected environment within which there is freedom to operate and where contact with duties and regulations comes only at the times the goods leave the zone. Goods or components coming from outside the EEC could stop over in a free port just short of a final destination and this pause could allow any exporter to other countries to wait until market conditions are appropriate or until currency changes swing to advantage before the goods are brought out to complete the last leg of the trip.
The Deputy warned me that he was going into some detail but he will have to relate his remarks on free ports to taxation relief rather than to the general details of how a free port works.
A good free port would have facilities for goods to be inspected. They could be sold within the area——
The Chair feels that that end of it would be more relevant to a discussion about industry and commerce.
It is all tied up with VAT.
As the Chair would see it, the idea of a free port is tied up with VAT, but not the day-to-day workings of it.
I will accept your ruling and I will not go into the details, but I must say that on watching a British television programme recently about the free port concept I was frightened by the extent of an operation that is about to commence in Cardiff and which will be a direct competitor to the IDA's promotions throughout this country and especially in my region. I think it is relevant to what we are doing in this House.
It might be relevant on the budget debate.
If we can apply VAT provisions and lift certain duty restrictions on companies coming into a duty-free port we can be more competitive with places like Cardiff and, therefore, reduce unemployment. These matters are all tied up together. We cannot isolate them.
Yes, but we cannot discuss packing and presentation.
I am following the same line as Deputy Fitzgerald did earlier.
You will not necessarily be following a desirable example. I am trying to get the two of you on to the rails.
I will conclude my remarks in relation to a free port by saying that to stay competitive with the rest of Europe we must have more free ports and I am asking the Minister for Finance to consider seriously the setting up of one in the Cork harbour area.
I will go on to deal with the newspaper industry which was referred to previously. Before I deal with the VAT impositions on the newspaper industry I must say that newspaper groups must look at their own operations to find out how best they can adapt to change. Very strong, determined but to date unsuccessful attempts have been made to reduce VAT on Irish newspapers. The imposition of VAT on newspapers here has resulted in the dumping here of British newspapers with a lower VAT rate. While I support the pleas of our newspaper industry, one must ask the fair question of how the British newspaper industry are coping with the difficulties now endemic in that industry. Our newspaper industry must examine their own difficulties and be prepared to go to some lengths to introduce much needed reforms towards bringing the whole industry into the modern era of technology.
From the close contact which I have with our own newspaper in Cork, I am glad to say that it is one of the few which have stepped into that era. At the same time, we must look fairly at VAT rates on newspapers. There have been attempts by the Opposition party to make this subject into a political football, but the Opposition should remember that it was they who put a 35 per cent rate on imported newsprint.
We must look realistically at the problems of this industry. In 1983, the volume sales of English newspapers have increased by 35 per cent, while those of our own newspapers have decreased steadily since the increase in VAT rate which commenced in September 1981. I am heartened that the Taoiseach recently acknowledged the need for a serious look at the problems of this industry. I have never bought these products coming from Britain but just bought them today——
Exhibits are not in order, Deputy.
I am sorry, I did not know that. The products coming from Britain are not of a serious nature, being of the magazine or tabloid type. Some English newspapers are priced at 16p sterling, exclusive of VAT, because there is a zero VAT rate in the UK. When sold in Ireland, they are subject to 23 per cent VAT, which brings the price to 20p sterling. Converted, that price should be approximately 26p on the Irish market. In fact, they are selling here at 20p and 21p, which indicates that the British newspaper industry are involved in a dumping exercise. Not only must we look at our VAT rates, but the Minister for Industry, Trade, Commerce and Tourism must look at the question of this dumping.
Discussion on VAT, in the Chair's opinion, is relevant as is its relation to newspapers, but discussion on the running of a newspaper office in detail is not relevant.
There is need for an industry which treats Irish society in a responsible way, not displaying the attitudes which are becoming more and more apparent. Allied to the contents of the Finance Bill the waste of public money must be examined in depth by the different Departments involved in the Oireachtas Committees. Even if a small percentage of that money were saved, it would go a long way towards resolving some of our problems.
The first matter which needs a comment is the major difference between the Finance Bill and the Minister's budget speech. We are used to regarding the budget speech as the final decisions of a Government, after long thought and discussion and the results of these as being produced in a Finance Bill. In the case of this Finance Bill, a number of items appearing in the budget have now been substantially altered. In his opening speech the Minister made the following extraordinary remark: "I aim to reduce income tax and rationalise VAT". This is extraordinary in the context of the budget of this year and last and the Finance Bill which has evolved as a result of the budget. In the first place, far from reducing income tax or giving any indication that in the future income tax will or can be reduced, it has been substantially increased, some say by 20 per cent, but I understood it to be approximately 17 per cent, by about £288 million.
There has been no attempt to rationalise VAT. The Minister has simply increased the number of items on which VAT must be paid. There is no indication, even in the budget, that he has plans to reduce VAT in the future. He aims to do things but apparently he does not hit.
The Commission on Taxation Reform recently produced their second report. Their first has been lying there for nearly two years and very little notice has been taken of it unless perhaps a decision not to implement their recommendations. A number of items proposed in the commission's first report were actually suggestions made by the Taoiseach some years ago and by both Fine Gael and the Labour Party at Ard-Fheiseanna. Even though these items have come out in the commission's report, they have not yet been accepted by the Minister for Finance or by the Government.
The alterations from the original budget are very significant in that they appeared at the time of the budget speech to be small concessions to the Labour Party in Coalition. In that light, it is extraordinary that these items have now been altered. The £25,000 mentioned in the budget as being capable of use by investment in new ventures — the tax-free item — has now in the Finance Bill been altered to investment in practically anything. Certainly, new ventures are being changed into old ventures: those with £25,000 to spare, perhaps in the £40,000 to £50,000 a year income bracket, or those who have windfalls of some kind.
The Minister tries to make it appear that the provision is for the benefit of redundant workers. There was a time redundancy payments might have been as high as £25,000 but in the light of what happened in Fords and in various other companies in the past year, they are not likely to be anywhere near the £25,000 mark. However, there are very many people in this society whose incomes are in excess of £25,000, £30,000 and even £40,000 per annum. These people make substantial gains whether by way of capital gains as a result of Stock Exchange dealings or of the various other manipulations of the market, whether in regard to property or otherwise. It is to benefit these people that the £25,000 tax-free investment provision was introduced in the budget. At that time the impression was given that this would be a great incentive for the new ventures that are required now that the older industries are closing, but any such incentive seems to have disappeared in so far as the Finance Bill is concerned because of the alteration to extend the benefit to older ventures.
A great deal of publicity was given to the provision in relation to bond washing. Again, this provision was seen to be a gain for the Labour Party in that the bond washers were to be scrubbed, but in the Bill the Minister has altered the provision significantly. Obviously, he has been subjected to strong lobbying in the past couple of months by financial interests, by speculators and so on. The proposal now is that the new measures which are aimed at bond-washing transactions will not apply in certain circumstances, namely, where securities have been held by the same owner for a continuous period of at least two years. That was not part of the original proposal.
Perhaps the greatest change in this Bill vis-à-vis the budget is the section 84 operation. Here again the Minister tries to give the impression that the original budget decision is to apply in respect of section 84 but subject to certain exceptions. That phrase can cover everything. Included are manufacturing companies and service activities as well as agricultural and fishery co-operatives. I should like the Minister to let us know who and what are covered by the original decision in section 84. We know who are not included. I think it was the Minister for Health who said recently that only about £3 million would have been involved in this provision in any case. That is totally opposed to what the Minister for Finance said and to what various economic commentators have said, that is, that the figure for this year would have been £7 million and that the income in the future would have been of the order of £55 million.
The Minister for Health went on to say that the situation had to be changed in the light of 6,000 jobs being at risk. How did the Minister arrive at that figure? There is no indication from any source that that is the situation or indeed that any job is at risk as a result of this provision. The threat of job losses seems now to cover everything. Regardless of which new screw is being turned we are told that it is in the interest of preventing job losses. We are told that if water charges are not paid, local authority jobs will be lost. Labour councillors particularly are active throughout the country in saying that. This is blackmail. The same applies to the proposal I am talking of. So far as the non-payment of water charges is concerned, the people in question will already have paid their taxes to the Government. They would expect local authorities to be refunded in full from the Exchequer the total amount of the domestic rates. That was the guarantee. Therefore, the Government are the ones who will be responsible for job losses and not those who fail to pay water charges. In the case of the proposal in question the Government, too, will be responsible for whatever job losses may occur and not the fact that they closed a tax-evasion loophole that existed in section 84. If one considers the arguments in favour of this change, one realises that it relates to low-cost loans which manufacturing companies and co-operatives can avail of, but surely that is a matter for the Minister for Finance. Is it not for him to decide whether companies should be subsidised in terms of low-cost loans? Should he not put the boot in and tell the banks to reduce interest rates? Instead, the Minister is handing over the decision-making to the banks who can then decide on whether to subsidise manufacturing companies and co-operatives by way of low-cost loans. In those circumstances nobody will be aware of what the hidden subsidy is or of what is the loss to the Exchequer. The banks will be making the decisions in regard to what companies or co-operatives should be helped in this way. The Minister should not hand over his responsibility to banks and other financial institutions.
The Commission on Taxation made precisely this point before the Government made this highly dangerous alteration in the Finance Bill. The commission made the point that where such help is necessary it should be given by way of subsidy and not by way of tax relief or incentives. In the case of direct subsidy we would know exactly what was needed and where the money was allocated to. In other words, the whole matter would be open and above board. When the decision-making is handed over to the financial institutions we are left arguing in this House as to the level of the aid given, as to whether it was £3 million, as the Minister for Health said, or £5 million, which is possibly closer to the truth. Nobody will ever know.
Last year we were promised that the question of abuses in the insurance-linked investment schemes would be tackled in this year's Finance Bill. The Minister says now that he had the legislation prepared but that after discussion with the insurance companies it was decided not to bring in the legislation as they are to produce a voluntary code of practice. Obviously, the Minister has been subjected to pressure and lobbying of various kinds. Now the insurance companies are to tell the Minister that they have made this voluntary code of practice and they do not want him to make any law about it. They are saying they will cover it up this way or that way. The Minister has acceded to this voluntary code of practice. How many workers would get away with saying that they will have a voluntary code of practice about how much they earn and they will have a voluntary code of practice about how many nixers they will do? Would the Minister accept that? They would not get away with anything like codes of practice of that type or agreements with the Minister for Finance to do fiddles in a better way than they had done them before. A more acceptable way to tax fiddle and evasion is what is being done in the insurance companies, the various banks and finance houses.
The Government are not tackling high interest rates, which are crippling various companies all over the country, the self-employed, farmers and industry. The Minister is not taking any decision in relation to that matter. We were promised that the self-employed would be taxed on current year's earnings. This was put before us on a number of occasions over the last few years and it has come nearer and nearer. It could not be done immediately but certainly next year it will be done. This year there is no mention of taxing self-employed on current year's earnings and using the same method as that is used for PAYE workers. This strengthens the argument of the PAYE workers that they are being treated differently, they are being treated unfairly and are being milked for every penny they earn. No decisions are being taken in regard to the self-employed, banks, insurance companies or other people like that.
Quite a number of years ago the Taoiseach gloried in the idea of tax credits. It was his special baby and he pushed it as a marvellous thing. The Fine Gael Party were pushing it and several Ministers for Finance said it was a great thing. The Commission on Taxation then said it was a good thing. The more people are for it now the more Fine Gael and the Taoiseach are pulling away from it. Now they do not want it at all. It is now seen by them as a bad thing because other people are beginning to regard it as a good thing. This year's Finance Bill does not do anything about tax credits instead of tax incentives, reliefs and various devices for evasion and avoidance which the whole system of the Revenue Commissioners is riddled with as well as the various Finance Bills over the years.
Revenue from income tax will increase by 17 per cent this year over last year's figure. The revenue will increase by £288 million. It is against this background that we must look at the various tax concessions made in the budget and in the Finance Bill and see who benefits from the tax concessions and who pays the bulk of the taxes. There is reference to the need for incentives in several sections of the Finance Bill. There are incentives to industry, farmers and the self-employed. What about an incentive to workers? There is no incentive in this enormous tax bill for workers, which is going higher each year. The tax bill has increased by 17 per cent this year. The Government are calling for a pay freeze and are telling PAYE workers they must pay more tax and get less wages. Workers are being told that their wage increases must be less than the increase in inflation. In fact they are being told their wages must not increase at all this year although inflation will increase by approximately 10 per cent.
Capital taxes have been reducing. In theory capital tax this year is the same as last year but in fact, due to a number of measures which have been taken, the income has been reduced from £24 million in 1983 to an expected yield this year of £22 million. The expected income of £10 million from property tax in 1983 became £1 million. The estimated receipts from this tax this year are £3 million, so we will probably get about £500,000.
The January OECD report pointed out that our capital taxes are the lowest in Europe, that our tax base is too narrow and they made several comments on our taxation system which makes it unique. The report said our total capital tax has reduced from 11.2 per cent in 1974 and this fell consistently every year to 4.7 per cent in 1981. The Minister has estimated that it will be about 4 per cent this year. He said 4 per cent is very substantial by any calculations. That is about one-third of what the capital taxation brings in in the UK. The January OECD report says that in Ireland the corporate share of taxes is relatively low and has fallen appreciably since 1970. The report goes on to say that the share of property taxes has decreased after the abolition of rates on houses in 1978 — this is quite true — and this has not been replaced. The report also says that the level of tax on agricultural incomes is very low and it has never accounted for more than 1 per cent of total tax levied on income and wealth in the recent past. The report says that in 1982 it was as low as 0.3 per cent. A total of 0.3 per cent of all taxation came from tax on agricultural incomes in 1982.
Since then farmers have succeeded in getting rates abolished. They took constitutional action in the High Court and they got the valuation system declared unconstitutional so rates have not been levied on farmers since then. The amount of taxation coming from farmers since the abolition of rates is even less than 0.3 per cent. Is it .1 per cent net? We have not got the figure. No one seems to know what percentage tax farmers pay now and what percentage outflow they get from the Exchequer. What percentage of Exchequer outflow goes to agriculture?
The OECD make the point that our tax base is much too narrow and confined to too small a range of people. The report says we have consistently reduced the level of tax taken in in corporation tax, on capital, on property, on agricultural incomes. This is something the Minister must tackle seriously. It is something he should have tackled in this Bill.
It is interesting to note that in 1983 there were 45,000 farmers in the tax net. It was announced last year that — I think it was 90,000 or 50,000, I am not quite sure of the number — a large number of additional farmers were to be brought into the tax net but nothing has ever been done about that. Of course, bringing them into the tax net is one thing, taking tax off them is another. The 45,000 in the tax net did not all pay tax by any means. It is interesting to see the tax form which has been designed for farmers: "Total farm receipts for the year ending 31 December 1982 (where known): State the amount of your total farm receipts for the year or estimate the amount to the nearest £1,000". What kind of income tax form is that? This is what is being sent to farmers. State the amount of your farm receipts or estimate them to the nearest £1,000. On the next page it says under "Farm Receipts", which is the most important and significant item in the whole form, "Completion of this section while optional would help considerably". The tax form which goes out to the worker states that if he or she does not complete the form or completes it wrongly that will cost the worker £1,000, or £2,000, or whatever. The penalty is quite clearly mandatory. If the correct tax is not paid the taxpayer will be penalised but the farmer has an option. The form says, "Completion of this section while optional would help considerably". It is optional. If you do complete it all you need do is estimate to the nearest £1,000. What a joke? Who designs this form? Does the Minister really consider that to be a serious form for reckoning income and collecting tax from farmers in the same way as tax is collected from every other section?
The 8 per cent VAT on clothing has been altered in this Bill. We were told in the budget the scheme was designed for children under ten years of age. Their clothing would be exempt from value-added tax but there would be VAT on all clothing for those over the age of ten. That has been changed. Tax will not now go on the basis of age. It will go on the basis of size. A small person will now be able to avail of zero rating VAT on clothes but the child who is bigger than normal will be caught. In the case of some children of eight, nine or ten the parents will have to pay VAT on their clothes while other children who did not grow to the same extent will be zero-rated. I think the less said about this the better. It is somewhat like the VAT on shoes a couple of years ago. The Taoiseach explained that women with small feet could wear children's shoes and so VAT was put on children's shoes in case women with small feet would get away without paying VAT. We are coming very close to the same situation now. Great difficulties will be created for many parents with this ridiculous VAT on children's clothes.
It is worth looking again at the programme published by Fine Gael in the summer of 1982. Under the heading of "Income tax and Indirect Taxation" the programme stated that the proportion of tax derived from PAYE on wages and salaries will be reduced. Again a joke, of course, but a rather sick joke. It also said that indirect taxes were to be minimised in order to help reduce inflation. Indirect taxes are a major part of inflation but they have also consistently gone up and will be going up again as a result of the budget. Tax credits were to be substituted for tax allowances to secure greater equity between income groups. In regard to the provision of taxation on financial institutions to increase their yield, in fact less tax is coming from corporations and financial institutions. Income from all sources will be subject to tax; that again has to be read against the background of those who evade taxes and who have not been subjected to any new taxes. All income taxation to be on a current year basis in regard to the self-employed. That was the programme in 1982. They did not expect any difficulties to arise. They repeated it again last year but as yet no attempt has been made to make the self-employed pay tax on the income in the current year.
There was reference to anti-avoidance measures and capital taxation measures in particular. It was stated that a sum of £100 million would be realised by 1984. This was Point 6 of the Programme for Government in regard to the measures outlined in the preceding paragraphs and other anti-avoidance and capital taxation measures. This is 1984 and I would ask the Minister to tell us now what has happened to the £100 million.
The last point in this rather dishonoured document is under the heading "Development Plan: a 10 per cent tax on derelict sites will be levied". These were the reforms promised by the people who subsequently took office. One could go through every point in this document and show how every point has been totally abandoned. One of the things which has shocked everybody, even the farmers, in the budget is the failure to bring in a land tax. When domestic rates were abolished it was expected that some new tax would be brought in to replace them. The most obvious was a land tax because it could be designed to bring in specific and easily quantified amounts of revenue which would be equal to the amount the rates brought in. It was widely recommended by agriculturalists and economists as a tax which would ensure better use of our land. Considerable work has been done over a number of years in pointing out the amount of land which is lying fallow and practically unused. As much as 25 per cent of our agricultural land is not being used as it should and a tax of this nature would ensure that people would not neglect the land while taking a job elsewhere or drawing the dole. If they had to pay taxes on it they would certainly use it so that it would yield an income.
At the time of the budget even the farmers had accepted that there would be a land tax and were amazed that it was not introduced. They were all set to shout and roar about it, as they always do when they are asked to pay tax, but nevertheless they expected and would have accepted it. How can one be surprised if there is urban-rural confrontation? When you discuss the relationship between farmers' income and taxation with those of the workers you are told by people like the Snipe Healy that this is the politics of envy. It is important for people in this House to realise that it is not the politics of envy but the politics of anger. This anger has been burning slowly but the consequences will be all the greater when the conflagration takes place.
Workers marched quietly and in good spirits but in great numbers almost four years ago and made their feelings very well known without confrontation, open anger or attacking anybody. They simply said they were paying too great a share of taxes and that they could not bear it any longer. There was never a march of so many people seen in the history of the State. On one day 750,000 people came out on the streets, 350,000 marched in the city of Dublin. However, there was a total lack of response to their demands. That was evident when the march was called this year; it was poorly attended and even those who came said they were there just to show solidarity, that they knew it would not do any good. They also said that their colleagues would not come because more than marching is now required. Although the numbers marching were small, politicians should not get the idea that the anger is gone. The anger is greater than ever and a small turnout was just their way of saying that unless they bring everything to a halt no-one will listen. Farmers bring everything to a standstill and they are listened to. Other pressure groups also do this and workers will also do so unless justice is done.
Perhaps the anger of the workers at present will be reflected in the area of local government charges because it is the people who were protesting who are now being asked to pay these charges and who are refusing to do so. Their refusal is not based simply on the amount involved, it is because they know that the huge amounts they have been paying in taxes and which they marched against four years ago were for local government services, education and health services. All these services have been cut back. Medical cards have been withdrawn and services reduced. The health boards are being left short of money and education has been cut back. Every week parents are being asked to pay for heating of schools. They now have to pay for all the services which they previously got by paying their taxes. They are told that nothing is free. They know this but they have already paid large taxes. They keep the State going and they realise that some people pay nothing at all. They can see how quickly the owners of capital and finance houses can change the budget. Section 84 and the bond washing were highly publicised because they seemed to be doing something but we now see that this is being changed. When the ordinary workers marched in their thousands they got nowhere. There was a commission set up to inquire into taxation but nobody heeded that report.
The whole area of taxation and tax avoidance is going to spill over into something which this House will be unable to contain. If anyone was looking at the "Public Account" programme last night they might have learned why nothing is being done about tackling those who are evading tax. The programme was about illegal bookmakers and avoidance of tax by them and also by punters. Two Members of this House, Deputy Brendan McGahon and Deputy Charlie McCreevy, said they would not pay a betting tax, they never had paid it and they have no intention of ever doing so. Deputy McGahon, the great law and order man, said that betting tax is immoral. We have heard from many pulpits that gambling is immoral but to suggest that a tax on gambling is immoral is ludicrous.
The public regard all Members of this House as the Government, not just Fine Gael and Labour. We are all responsible for legislation and here were two Deputies making a laugh of legislation passed here in regard to tax on gambling. They joked about it and said they would not pay the tax. How many other taxes do Deputy McGahon and Deputy McCreevy not pay? How many other taxes do they consider immoral? Do they think that only the taxes that apply to them are immoral? I should say that is about it. To tax other people is fine. They should pay water charges, income tax and so on but a tax on gambling is immoral. All of this tells us a lot about what is happening in this society, why some people get away with it and others are stamped into the ground. It also tells us something about the hypocrisy and the double-think that goes on. What is happening is making people sick at this stage. Everyone has had enough.
In the Finance Bill the Minister is trying to give the impression that he is dealing with the evasion of betting tax but he is not dealing with it. He has said there will be higher penalties on those who do not pay their tax in time, but what he is doing is penalising the handful of honest bookies who are declaring returns and who are paying tax. If those people do not pay in time the penalty is increased but what is the Minister doing about the people whose tax levels he does not know, who are engaging in illegal gambling in pubs? What is he doing about people who are taking £50 bets but who are marking down the bets as 50p? Nothing is being done about all this fiddle. Nothing is being done about the phone calls to London putting down bets of £1,000. The tax is paid in Britain but nothing is done about that.
When a question on this matter was raised here the Minister said there was no evidence that there was any evasion of tax. Yet the total amount taken in respect of tax from 900 betting shops down here was only slightly higher than the total amount taken in the North from 300 shops. The amount of tax taken — I am not sure if this was in respect of last year or 1982 — was £22 million. It is estimated that was only 22 per cent of the amount due; in other words, the amount should be £100 million tax on gambling and betting. In this case there was a hand-out of £80 million.
The Government always ask where will we get the money for various services. There is an endless list of new taxes that could be imposed and an endless list of current taxes that are not being paid. The total amount not paid is equal to the budget deficit but the Minister does not appear to worry about that. Presumably that would hurt the wrong people and, therefore, others have to pay. The same people have to pay for those who avoid and who evade payment of tax while Members of this House are saying it is all right to evade tax, that taxes are immoral. What about the credibility of the House, the Government and the State? It is called into question when two Deputies — one Fianna Fáil and one Fine Gael — make public statements on television to that effect. What is the point of the Minister bringing in a Finance Bill and of this House passing it when Deputies make a laugh and a joke of it and refuse to pay tax.
This Finance Bill is not really tackling the problem of gambling and betting. It is not tackling the matter of the loss of money to the Exchequer, it is not taking into account the farmers who are not paying rates now. Nothing has been put in the place of rates. It is not tackling the problem of the self-employed people who are not being taxed on the current year's earnings. In the manufacturing and services area evasion and avoidance of tax is on a large scale. In addition, there are concealed subsidies as well as direct grants which cost the Exchequer huge sums. The banks and finance companies are making major financial decisions in regard to lending policy and interest rate policy. They are taking over the functions of the Minister in giving relief and subsidies to manufacturing and service companies and co-operatives. They are making the decisions the Minister should make.
The workers are the people who must pay for all. Without their constant and regular payment of taxes the whole apparatus would collapse. There would not be a Department of Agriculture to handle farmers' subsidies; there would not be any subsidies to give. Now the Government are imposing a pay freeze on the only loyal and faithful members of society who have kept the economy going and who will continue to keep it going. They only want justice and fair play. The pay freeze is another attempt to give a further transfer to employers from the workers. It does not matter if it is public sector employers or employers in the private sector. The Government are trying to make decisions before any negotiations take place that workers must take home less pay and employers must get more.
There is no hard evidence for the argument they advance about our lack of competitiveness. There is no evidence of a direct link between pay increases and job losses. In fact, there is a greater link between tax increases such as PRSI increases and job losses. If the Government want to lower pay levels in order to maintain competitiveness as they say, they must lower the taxes. They had that option this time. It was put to them last year and they knew what they could do to keep pay levels down this year. They had to lower taxation levels on personal income but they did not do that.
The argument put forward by the Government and Members on that side of the House in regard to competitiveness was shot down by the Economic Background to the Budget, 1984 which dealt in its opening with the general argument in regard to our lack of competitiveness. It stated:
Hourly earnings in Irish manufacturing industry increased by over 11 per cent in 1983 whereas output prices increased by only 6½ per cent. While the increase in earnings was some three percentage points lower than that recorded in 1982, it was still well in excess of earnings increases in our main trading partners. In the UK the average increase was only 8 per cent (ours was 11 per cent), in Germany, 3 per cent and in the Netherlands, 4 per cent, increases of 4 and 4½ per cent were recorded in the US and Japan respectively.
Up to that point it would seem that we were lacking in competitiveness. I should like to refer to the remainder of that quotation on competitiveness which states:
However, the effect on competitiveness of this relatively high increase in earnings was more than offset by a more rapid increase in output per head which largely reflected the sharper fall in employment in Ireland. As a consequence of this productivity increase, unit wage costs in Ireland fell by about 1 per cent in 1983 as compared with increases of 3½ per cent in our main trading partners and 1½ per cent in the UK.
Our unit wage costs here last year fell by about 1 per cent although they increased in other countries. That is the Government's argument against their own comments about lack of competitiveness. In spite of the fact that we had an 11 per cent increase in earnings we finished with a 1 per cent reduction in unit wage costs compared to our trading partners. That statement is based on Government information.
Why is it that Government Ministers and Members on that side of the House put up the argument about our lack of competitiveness because our workers got an increase in earnings when they did not take account of the increase in productivity achieved in recent years in industry? The argument about lack of competitiveness is not on for this year. It will not be accepted by workers and will be seen for what it is, an effort to transfer further amounts from workers to employers. We are a low wage economy unable to compete for some reason with the highest wage economies in the world, those in Western Europe. Workers in those countries enjoy higher wages and a higher standard of living than us. We are the poor relation out in the Atlantic and we cannot compete with other countries even with low wages. What is wrong? There is something else wrong apart from wage levels. There is something wrong in management, marketing and in the amount of investment in industries where workers are trying to cope with obsolete plant and are expected to produce the same quantity as workers in other countries using high technology. That is the area where the Government should put the boot in. They should not be putting the boot into the workers who are producing the goods.
The previous speaker no doubt articulated the views of the large number of farmers in his constituency and a number of other interested groups. His comments highlighted the growing division between urban and rural communities. The only warning I will give to people embarking too freely on that kind of policy is that eventually they can fall victims to the creatures they create. We should address ourselves to this in the future. This division has become more apparent in recent times particularly in relation to the whole issue of taxation. Politicians seem to be able to row in behind what they consider to be the strongest lobby in their constituency and they support and pursue the objectives of those lobbies regardless of the consequences. That is a very dangerous policy. I am not suggesting that PAYE workers are not feeling the pinch in respect of taxation. That is accepted, but we should be careful not to tell those unfortunate people that there is a hidden crock of gold around the corner there for the taking and that we can all get it if we go the right way about it. That would be deluding the public and the Members of the House.
Reference was also made by the last speaker to local charges. I was sorry to hear the old platitudes about blackmail. Those of us who said such charges should be introduced because it otherwise would militate against the workers who are employed were accused of using a form of blackmail. Whether we like it or not many workers are employed in the local authority system and if a method is not devised to permit those bodies to continue in existence and finance themselves, the reality is that there will not be any jobs. There were 35,000 jobs in that area last year and there is considerable scope for the creation of more jobs.
There is a story going around that people are being taxed twice for these services, they are taxed by direct charge and through general taxation. A lot of people are beginning to believe that. That may appear to be the case at first glance but, whether we are taxed once or twice for the services, the fact is that we do not have sufficient funds to provide the services.
Why is that the case?
The reason is that the cost of providing the service has increased. We should address ourselves to that now and stop avoiding the issue.
I agree that it is the duty of the Government, and the Minister for Finance, in the budget and the Finance Bill to create the right type of climate for enterprise and, through taxation policies, to attract investment and get across to workers the advantage of being in gainful employment. Many workers in my constituency have expressed concern that the average person who tries honestly to make a living, pays all taxes and gets involved in a legitimate business, is under threat by those operating in the black economy or, in some cases, by those who are in the early stages of unemployment. This is typical of the way workers look at it. They ask whether they would be as well off to be unemployed instead of continuing to work in employment that would not be highly remunerative but would cause them all the hassle involved in short time or casual employment.
Many people these days have concluded that they are better off if they opt out of the system, go out of the taxation net and become engaged in the black economy. Some of our European partners have remained economically viable because of their large black economies. What we must do is revise our taxation system so that it will be more attractive for people to engage in the labour force or in legitimate business, rather than outside it.
The Bill provides many changes from proposals in the budget about which there had been considerable concern in regard to the effect such proposals would have had. I dealt earlier with stock relief and it is hoped that the Finance Bill provisions will ensure that the highest possible level of investment will be embarked on and that that effort will be allowed to continue unhindered. In regard to section 84, in these straitened times we should be very careful to ensure that nothing will be done which will have the net result of creating further problems for those who are now employed or who hope to become employed. For that reason I welcome the changes in section 84.
The section in relation to long-term risk capital will have the same effect. It is there to encourage those prepared to invest, and the more encouragement they get the better for the open economy we have. There are some in the House who would find themselves idealistically opposed to incentives for those in the risk business or in ordinary investment undertakings on the ground that the objective ultimately of those people is to make profits. But all business is about profits — if it does not make a profit it will not exist. All the competitors that Irish industry has to face up to are in the business of making profits. The more efficient the business the more profit that will be made. Such competitors are putting our production at risk because they are able to make such profits and if we are to compete with them in an open market the only way we can help them is to give an even chance to native investors.
I do not intend to deviate from the terms of the Bill but I wish to stress that with our economic climate at present it is important we appreciate that our taxation policy should be generally geared towards improving employment levels, towards encouraging those who are now unemployed or whose jobs are at risk towards the belief that their position will not get any worse and that the situation in relation to the burden of taxation will not get worse. Because of our open type economy we must not do anything that would result in a reduction of revenue from taxation, but we must take a risk and try to blaze a trail by encouraging employers. In our type of economy we should rely more on the private sector to take risks and carry burdens but we must give them incentives through the tax system. We should particularly give incentives to firms who employ 100 people in the production sector, perhaps exporting companies, provided they have a good record over the years and provided they will take on more employees through improving their marketing and sales. That would not cost the Exchequer a penny because the people absorbed into the labour force would be paying tax.
This should be given favourable consideration. There is another good reason why it should be done. Most employers are concerned about the increased administrative burden of taking on even a single worker. It costs between £1,200 and £1,400 to put one person on the payroll. If my suggestion was followed it would help to reduce the overall impact of that burden on the general labour force within a company. In the course of the year I suggest that the Minister and the Government might give some consideration to initiating such incentives. Employers would welcome such an opportunity and, as I said, it would not cost the State anything. I spoke about incentives for major companies who could show good track records, good marketing organisations because they would be in the best position to capitalise on such proposals.
I have suggested many times that the local authority system is another way to absorb the unemployed. I refer to this on the Finance Bill because any measures we can take to increase the level of employment will have a bearing ultimately on the general level of taxation. Last year approximately 35,000 people were employed by local authorities and that figure could be doubled without a great deal of ingenuity. I have felt for a long time that many unemployed people — trainees, technicians, architects, landscape artists and so on — could be absorbed into the local authority system provided money was transferred from the Department of Social Welfare. We could have them employ people in receipt of social welfare benefits who are costing the working public a considerable amount of money. This could have a dramatic impact on the level of taxation to be paid by the PAYE and other taxpayers. It would also be a positive response to the people who have been unemployed for a long time and who see little prospect for the future. It would be a positive response to those who are now employed but who are paying very high rates of taxation and see no let up for the future.
I do not believe it is possible for any one sector to carry the burden of responsibility to take the initiative which will rejuvenate our economy. There should be a combination of the measures I have already outlined and which many other speakers have mentioned on numerous occasions in the past. It behoves us all to come forward with any constructive suggestions we have. I am not suggesting that one side make more constructive suggestions than the other. My colleague, Deputy Power, is not here at the moment but on the last occasion he slightly misinterpreted what I had to say on this matter.
If we do as I suggest we will be doing ourselves as public representatives a good turn because the general public are fed up listening to hackneyed phrases day after day and week after week from politicians generally and from those who see themselves as future politicians. They are tired listening to people who give the impression that they have discovered the panacea for all our ills. Nobody has that remedy because if he did he would put it into operation.
I would like to deal with the simplification of the procedure in relation to casual work. I mentioned this already in the context of overheads for the employers and the prospects of a potential employee hoping to obtain employment in a small firm, taking into account what he or she is faced with from the employer's and from the employee's point of view. The employer knows the present taxation will lean very heavily on him; the potential employee knows the present taxation will lean very heavily on him too. I would like to see some kind of simplification which would remove this grey area as well as the area for tax evasion and involvement in the black economy. A potential employee should have some kind of record system assuring him that his deductions will be made from day one and the employer should recognise that his liabilities were from day one also. I say this because there is a great need for a simplification of the PRSI and PAYE deduction systems. In the old days there was a stamp system but that was changed because it was difficult to operate, but as far as I can see, there were not nearly as many abuses of the system as there are today. Every employee knew that one of his basic rights was that his card was stamped. If that was not done his statutory entitlement should he become unemployed would not be paid. Now we have a complicated system which very often leaves a sour taste in the mouths of many people who suddenly find themselves redundant but learn that their contributions have not been paid to date. This matter should be looked at very carefully. I do not think it would take an Einstein to come up with a better system.
Earlier I mentioned the need for incentives to attract foreign investment. Some speakers suggested free ports, free areas and so on, and in my view a little thought should be given to this. I am not suggesting that we create a tax haven, but the fact remains that as a society and as a workforce we are very heavily taxed in order to provide the services we operate at present and to which we aspire for the future. For that reason we should look further afield and try to utilise funds which are afloat because people want to invest and make a profit. There is nothing wrong in giving people an incentive to invest here if it means that we will have a better standard of living; more people will be employed and our economy will be more vibrant. There is nothing wrong in making a profit provided the country in which the profit is made is the net beneficiary.
Deputy Mac Giolla referred to the proposals on bookmaking in this Bill. He spoke at length about two Members of this House who mentioned their preferences on a recent television programme. I come from a county which has a considerable interest in the betting business and all I can say is that the proposals in this Bill were sought to a considerable extent by legitimate bookmakers. They did not want the system which prevailed up to now where illegal betting was easily available. People were using premises for illegal betting and there appeared to be little or no chance of the authorities taking any action against those people. There are provisions in this Bill which will militate against people who organised that system and who have been putting at risk the jobs of the people involved in the legitimate bookmaking business. What people do after that is their own business but when a Ministry feel certain changes should be made by way of legislation it is the job of the Government to meet those requirements. That is being done and I welcome the proposals in the Bill. Under the relevant section there will be a refusal to certify as to the suitability of premises which have been used for illegal betting purposes. The legitimate bookmaking industry has been very concerned about this matter and I hope the section will have the desired results.
We should never have a taxation policy which kills off incentive and investment in the private sector. This sector is very mobile and people who have funds for investment purposes can invest in other parts of the world where it is more remunerative. It is up to us to make the investment climate attractive and to improve our economy in order to alleviate the burden of taxation and improve employment prospects. All revenue from taxation originates in the private sector. Taxation also applies to the various services run by the State but in many cases State enterprises are the recipients of subventions. The money for those subventions must be raised internally or externally by loans or by taxation within the State from the productive sector. The burden of providing the revenue originally is borne by the productive sector. Where the money is circulated afterwards is incidental. When the productive sector is under pressure the tax-paying public are also under pressure because sufficient revenue is not being generated.
A number of speakers have mentioned farm taxation. In the past there was a strong lobby among the farming community for change in the taxation system. They probably will not like my views on this matter but one should always be prepared to push out the boat and express a constructive point of view. Up to ten or 12 years ago before taxation was introduced farmers having up to 100 acres were paying rates. This was an inequitable system because it did not take account of ability to pay or production from an individual farm unit, but the fact remains that money was coming from that sector into the local authority system and it was a fairly solid and useful support. Now we have a changed system whereby all farms, regardless of size, are within the tax net. This is in response to a call for this system from the farming community and also from the large urban communities. The urban communities were misled and misguided because now a farmer with 40 or 50 acres has to employ the services of a tax consultant and the net result is that neither the local authority nor the Exchequer benefits. It would be far better to have a system whereby those with under 100 acres would know in advance their tax liabilities for the year. Liability for tax would be determined on the basis of the productive capacity of a farm. This information is fairly readily gleaned from the Agricultural Institute or other institutions. Many farmers would probably opt for such a system on the basis that they would only have to pay once and would not incur expenses of £500 or £1,000 for the services of a tax consultant and would be better off paying tax directly to the local authority. The country would also be better off. Many of my friends who are accountants and tax consultants, among whom are some of my political colleagues in Kildare, will not like this suggestion. Revenue in that area is not necessarily being put to the best use because it is being absorbed in administration costs. It would be better to eliminate that and have the money paid directly to an institution such as a local authority to enable them to provide essential services.
A number of services have come under increased pressure due to the burden of VAT. The Minister is well aware of this problem, having met numerous deputations since the budget. Let us take, for example, the hairdressing business. A large number of people are employed in that sector. Many girls who have completed their apprenticeship are in a position to provide employment for themselves or obtain jobs in salons. However, the scale of VAT is now so high that it is driving them out of the legitimate arena and into the black economy. Those who are trying to carry the burden of meeting their statutory obligations are at a disadvantage. It would be better to consider a reduction of VAT in that area which would result in making it at least as attractive for people who hope to become involved in that industry to become so involved in legitimate aspects of the industry rather than in the black economy.
In relation to services I should like to make one final point. Yesterday Deputy Fitzgerald or Deputy O'Kennedy referred to the vast area of services as a possible means of resolving our unemployment and general economic problems. That is quite true up to a point. It is particularly true in relation to services such as the tourist industry which can be supported by those from outside the State. The degree of services any economy can carry is closely related to the extent of the productive sector.
If you have not got production in the first place, if you have not got a healthy productive sector, it does not matter what services are available. There will be no demand for them for the simple reason that people will not be able to pay for them. That applies whether we like it or not. While I accept that there is a certain amount of scope for an improvement in the service area we can improve only along the lines of what we can afford. It would be ridiculous for us to delude ourselves into thinking otherwise.
Over the next 12 months I hope people on all sides of this House will come to grips with the fact that they are, or should be, trend setters in recognising our taxation and unemployment problems. They should face up to their full responsibility and, instead of deluding themselves and the public, they should come forward with something reasonable and constructive. We should put aside the kind of throw-away remarks and the public posturing which have come to be associated with politics in recent times. We will do ourselves a great injustice if we pursue that course for too long.
In view of the serious nature of the unemployment problem in our society today, speakers in this debate have very rightly concentrated on the Finance Bill as it relates to employment and the possibility of raising the level of jobs and dealing with this very fundamental problem. I should like to set the Finance Bill in the context of the fact that we have heavy job losses, growing unemployment, a lack of commitment by the Government to capital investment which would raise the level of public investment, and also the lack of taxation incentives to raise the level of private investment and to create a growing environment for a further expansion of the economy and the creation of further jobs.
Unfortunately there has been a cut in capital expenditure in vital areas, particularly in the building and construction industry and the services associated with it. In the building industry we could trigger off employment fairly quickly. There is a pool of skills available and a high labour content. There is a high utilisation of home manufactured materials to the extent of 70 per cent to 80 per cent. We see an amazing neglect of and lack of commitment on the part of the Government to a vital industry which could trigger off activity in other productive enterprises in the State.
Side by side with that lack of commitment to the capital investment programme in building and construction there is a lack of commitment in the Finance Bill towards the necessary incentives across the board to stimulate investment not just in the building and construction industry but in various other areas and particularly in the area of small and medium sized firms.
The Minister for Finance may say that in Chapter III of his Bill he is making an effort in that direction. From section 11 to section 27 we have over 21 pages of the most cumbersome drafting. A new provision is introduced for an exemption tax relief where a person invests up to £25,000 a year over a three year period in a manufacturing enterprise. Here is the first classic limitation. It is narrowed down to manufacturing enterprises, and no more than that, when in fact future employment in modern societies generally, and not just in Ireland, will be in services whether building and construction services, hotel and tourism services or other productive services.
The whole pattern of investment throughout the world, and not just in Ireland, relates to manufacturing industry. There is a reduction in the number of people employed and a greater emphasis on machinery in regard to the improvement and expansion of manufacturing enterprises. Straight away the Minister is narrowing down this relief to a small, though important, segment where there will be the lowest job increase possibilities. Most of the cumbersome drafting later on in the Bill is designed to ensure that that narrowed down version of the incentive is implemented.
Why did the Government, through the Minister for Finance, not get out of their neutral stance, or neutral corner, make an act of faith and say, "We will give this incentive, income tax relief up to £25,000 a year, right across the board, right across the whole range of industry and services" and, if necessary, build into it, as suggested by Deputy Durkan, some form of extra incentive whether by way of grant, or interest subsidy, or further tax incentive related to employment and jobs?
If and when unfortunate applicants qualify, after wading through the sections in Chapter III of the Bill, they will be confined to a narrowed down manufacturing industry sector and that will be largely related to taking on more machines and more equipment without the necessary emphasis on employment. The incentive does not apply to the basic service areas where the new jobs will be, where the new expansion in jobs will be, and where the future employment will be.
I will mention two en passant. There are a number of other growing service areas in our community, but the two big ones are the building and construction industry and the tourist industry, both of which are deliberately excluded. The idea is right but, unfortunately, it was truncated and cut down by narrow considerations and by an excessive attention to the importance of ensuring that there is no avoidance aspect involved. They should have experimented with a provision which applied across the board to all industries and all services, tried it for a three-year period to see how it worked.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.