The record speaks for itself. If it were permitted on an occasion like this I should love to have a direct debate with Deputy O'Kennedy. I could take notice from his speech today which would indicate to me the approach Fianna Fáil suggest the Government should adopt, or that they would adopt if they were in power. Fianna Fáil published the document The Way Forward at the end of several years in office. For the greater part of that time Deputy O'Kennedy was Minister for Finance.
I want to put it on record that I am sorry Deputy O'Kennedy is leaving the House. We listened to nonsense from him criticising the Minister for Finance for leaving the House having listened to Deputy O'Kennedy for an hour and a half. That is typical of the Fianna Fáil approach to economic matters. Deputy O'Kennedy knows well that he never sat through a full finance debate when he was Minister for Finance. He knows that is standard procedure. He also knows that, until the rules of this House are changed and contributions of two hours in Second Stage debates are ended, that will continue. I do not believe the Minister for Finance would have gained anything or that anybody would have gained anything by spending two hours here listening to what Deputy O'Kennedy was saying.
I am sorry Deputy O'Kennedy is not here because Fianna Fáil must be brought back to their last cogent statement. I appeal to Members of the House to look at this document The Way Forward. It is mind-boggling stuff coming from the party who are making some of the proposals they are making. I said I will be brief and I will also be selective. Fianna Fáil said:
Public services cannot be provided on the basis of what is desirable. They must be based on what can be paid for by taxation.
We listened to Deputy O'Kennedy suggesting that this and that tax should be reduced and that the awful burden of taxation should be lifted. Nobody is quicker than I to agree that the burden of taxation is intolerable. Did we have one suggestion from him in the past two hours about what services he would abolish in order to facilitate a reduction in taxation?
He complained about the lack of public servants in Departments and about the embargo introduced by this Government. In The Way Forward Fianna Fáil said:
We must decide that the numbers employed in the public service, their pay bill and public expenditure generally cannot continue to grow on the basis of ever-greater taxation and borrowing in an economy at our present level of output.
I will say no more than that about their last cogent statement on the economy. If we want to find a cogent statement after that we need only go to the Official Report and pick out specific points made by Fianna Fáil from time to time and identify them. I found it difficult to identify anything cogent in what Deputy O'Kennedy said this afternoon.
I want to mention public service pay. I could not agree more with what Fianna Fáil said in The Way Forward in this regard. I would love to see everybody with a good deal more money after they have paid their tax than they have at present. I recognise that people in the PAYE sector, farmers, housewives and others are crippled and scourged by the restraints on their resources. When the Government published their views on public service pay in the national plan, Fianna Fáil took the extraordinary step of going to meet the Irish Congress of Trade Unions. They agreed to congress's proposals on public pay at that time. Had the Government taken Fianna Fáil's advice, the additional cost would have been £322 million. That is the extra amount Deputy O'Kennedy was suggesting we should spend on public service pay in this year alone.
Specific motions were brought into the House by Fianna Fáil. A couple of companies went into liquidation because of their financial positions and I mention the Verolme operation in Cork, Irish Shipping and Clover Meats as three examples. Had we taken Fianna Fáil's advice on that, it would have cost us an additional £2 million. Other tax concessions sought by Fianna Fáil were abolition of agricultural land tax and water rates, which items were proposed by Fianna Fáil when in office themselves and the introduction of which was promised when they got back into Government. They are running far from that now. They made proposals for greater resources towards eradicating bovine TB and wanted to introduce mortgage subsidies. The House will recall that they were going to increase by about £200 million the public capital programme. Deputy O'Kennedy said that they were going to eliminate the current budget deficit by 1987. The total cost of all of this would have amounted to about an additional £700 million or £800 million. The figures are on the record and the Deputies can add them up.
In order to facilitate that sort of spending, if they do not believe in borrowing money for current expenditure, as mentioned by Deputy O'Kennedy, in order to finance the Fianna Fáil Party's proposals, over the past 12 to 18 months taxation across the board would have had to be increased by 22 per cent. These proposals are on the record of the House and in public statements. Why did Deputy O'Kennedy not look at the reality today, as he was so fond of telling this side of the House to do? Why did he not tell us how they proposed to raise taxes by 22 per cent? Why was he not realistic and sensible in his approach to this debate, instead of giving us two hours of utter hogwash, in which he painted himself and his party as pure Holy Marys whose only interest was to reduce the burden of taxation and increase employment? They must imagine that Santa Claus would deliver the goods.
We have very definite fundamental and economic problems, some of which have been addressed very successfully by this Government, but some of which have not, in my view, been addressed with sufficient enthusiasm. I shall return to those later. I am anxious to refer to some specific points in the Finance Bill which are important. Deputy O'Kennedy referred to the black hole in the economy but that is not something which happened last year. He seems completely unaware of the fact that the black hole was always there and that what happened was that our system of maintaining returns, of statistical control, in effect was inadequate. It had not accounted for or allowed for this. For as long as Deputy O'Kennedy has been a Member of this House and during every year in which he was a member of the Government, the money has been going out through the black hole. He suggests that somehow he discovered the black hole last year and that this Government were responsible for its creation, but that is arrant nonsense that would not be attributed to a two year old. I express the hope that the proposal by the Minister for Finance in the Finance Bill will help to solve that problem, but I am not convinced of that. I find it hard to believe that an international company with all sorts of investment programmes would be happy to leave money lying around in Government securities here. Perhaps I am wrong. There are certain tax advantages in doing so, but I should imagine that companies with spare cash like that would be more interested in using it to carry out development work and increase their activities.
Ultimately, the only way in which we can encourage foreign companies to invest in this country and keep their profits here is by having an economic climate which is attractive to them. That is what we must strive to attain, but it is not going to be easy to do. I hope that the proposals in this Finance Bill will assist in some way, but it would be naive to believe that they would solve the problem that quickly. This is a problem which goes to the core of our present economic situation and it can only be addressed if we adhere to targets which we set to bring public finances under control, to increase the cost competitiveness of Irish industry and so ensure that those who are going to invest here in industry, the service sector or whatever will have the opportunity of making money. That is the one way of getting foreign companies who make profits in existing companies to reinvest and keep their money here.
I welcome the VAT and income tax changes in the budget, confirmed by the Finance Bill. It has been, without question, an extraordinarily difficult time for business over the past few years. The increase in VAT rate has made it very difficult for companies to survive. From contacts which I have and indicators since the budget, there is increased business activity. I hope it continues to the extent that the loss of revenue will not be significant and that, as Deputy O'Kennedy has said, the law of diminishing returns will pay up. It is not certain yet that that will happen, but we can hope that it will.
There is another welcome aspect to the changes in income tax and VAT. That is that those systems are being simplified. We constantly underestimate the administrative and bureaucratic burden which we throw on business, particularly small businesses, by our awful taxation system. The number of rates of VAT alone caused headaches to business people, particularly those operating in a small way. When one considers VAT, PRSI, income tax controls, stamp duties which must be paid, records which must be kept, VAT at point of entry and reclaiming VAT elsewhere, it must be extraordinarily expensive, not only on the business sector trying to maintain that system but also on the Revenue Commissioners. We must go further in attempts to simplify our tax system. The Commission on Taxation have made recommendations which I believe the Government will follow through in the course of the next two or three budgets and Finance Bills. I urge the Government to do that. Even if it is not possible continually to reduce the level of taxation, it is critically important, in order to help businesses, that the administrative burden of managing the present system of taxation be relieved.
I welcome also the provisions in the Finance Bill relating to the inheritance tax. I never saw any justification for charging inheritance tax for inheritances between spouses. I cannot believe that there is justification for charging tax on any significant basis on transfers of property between husband and wife, whether in the lifetime of one spouse or, as in the case of relief in this Bill, on death. Obviously, with our present economic difficulties it is not possible to do everything, but I urge the Minister, if possible next year, to abolish any form of gift tax on any transactions between husband and wife. I put in this caution that where transfers of property between husband and wife are being used to avoid or evade other legitimate taxes, transfers between them should not be so facilitated; but from a social point of view taxation on property transfers between husband and wife should come to an end.
I also specifically welcome the proposal in the Finance Bill to allow people to insure against large inheritance tax bills which can arise. I was astonished to read — I think in last Sunday's Tribune— a very strong criticism of this proposal. A suggestion was made there that the rich were getting away with it again. It seems that any capital tax can only have two main purposes — first, to raise revenue and, secondly, to redistribute wealth. In their own right these are laudable. I wonder how anybody could complain if somebody insures against a tax liability and will be able to pay that liability off through a policy of insurance. All this Bill does is ensure that the yield from the insurance policy will not be caught by inheritance tax. The payment on premia by the policy-holder throughout the years will not in any way be relieved of income tax. It will be a very expensive payment for people. Effectively what it amounts to is payment of a heavy capital tax by instalments throughout a person's life and I can see absolutely nothing wrong with that. The same wealth will be redistributed. As the Minister pointed out, it will mean that inheritance tax will be paid more quickly. It will also mean that businesses— we are talking of operations of a moderate size— may not have to be broken up because of a liability to pay inheritance tax. A business worth £500,000 might yield very little profit today, depending on how it is structured and its area of activity. A lot of money can be tied up in a small amount of machinery. There is a considerable liability for inheritance tax arising in respect of a business valued at £500,000. It would be quite impossible for the inheritor of such assets to discharge any inheritance tax bill without selling or disposing of part of the equipment or diluting his shareholding in the company. It might make it impossible for the company to continue or to yield a reasonable income for a family. The proposal of the Minister is sensible and reasonable. It will ensure that wealth will be redistributed and it will also give an opportunity particularly to those who run small to medium sized businesses to ensure that after their death the undertaking concerned can remain in operation.
I am amazed at the attitude of many who still have the view that there are many people here with massive wealth. I am sure there are some but they are very few. When one considers the changes that have taken place in the fortunes of businesses in the past number of years, one can easily accept that what might have appeared a considerable amount of money a few years ago appears like little money today and what was on paper quite substantial wealth is now anything but substantial wealth.
We have to make a decision here as to whether we recognise the country for what it is. After all, we are a capitalist society. In so far as we have an engine of activity to generate wealth and output which we need so badly to pay our bills, we must rely on the business and industrial sector. If we are constantly complaining that these people want profits or have wealth of some kind, it is time we reviewed the kind of country we want. If we want a different kind of country, one that is entirely socialist or communist or anything else, that is fine and let us have it. However, if we want the type of society we have and if we want to encourage growth in economic terms, we will have to come to terms with how we do that.
There are a number of more minor proposals in the Finance Bill that are to be welcomed particularly. I welcome the tax relief proposed for income from certain farm leases where people of 55 years or more give a lease of their farms for at least seven years. The Government have been positive on the question of land lease to break the land structure system away from the inadequate use of land. Such a purpose can only be achieved by the type of policy being pursued by the Government and I compliment them on that. I wish also to compliment them on the increased rent allowance for tenancies for older persons. It is good social legislation, as is the increase in tax-free interest in banks for elderly persons. I welcome what the Government have done in that regard.
One matter is absent from the Finance Bill which I thought might have been included. Perhaps the Minister will consider the point I am about to make and see if he can introduce an amendment if that is appropriate on Committee Stage. I am especially concerned about the cost incurred by people who are financing their children attending colleges of higher education, particularly third level education. I know it is a burden on any parent in any part of the country to send a child to college now, particularly those who are just outside the means test limit and who cannot benefit from a higher education grant but I wish to point out a difficulty that exists for people who do not live in Dublin, Cork or Galway or in towns that have a third level educational establishment.
People in Dublin and in the areas I have mentioned frequently forget that the greatest cost in sending a person from the country to a third level educational institution is the cost of maintaining them in the place where that institution is situated. The fees remain the same but the burden on a family from, say, Tipperary of sending a child to Cork or Dublin is infinitely greater than the burden on a family living in Donnybrook, Ranelagh, Dundrum or on the north side of Dublin who send a child to college in Dublin. The student can live at home and the cost of maintaining him or her in third level education is nothing like what it is for people in rural Ireland.
One measure existed that was of some benefit, namely, the income convenant that parents could enter into with their children over a certain age. If a parent had a child over 21 years who was attending an educational establishment, it was and is still possible for the parent to covenant with that child to pay, say, £1,000 per year. This gave a tax benefit to the parent for that expenditure. Since the Bill dealing with the age of majority was passed, the age of majority has been reduced from 21 years to 18 years and I should have thought it would have been appropriate in this Finance Bill to extend the facility of convenanting money from a parent to a child of 18 years. This would be of considerable assistance to people, particularly those in rural areas who have to face a heavy cost. People with incomes from £10,000 to £12,000 may find themselves outside the scope of the higher education grant scheme. I ask the Minister's advisers who are present to take note of that point. If I am wrong in what I am saying or if I misunderstand the position, perhaps the Minister will tell me. However, if there is a lacuna there that has been caused as a result of the Bill dealing with the age of majority, I ask that the matter be dealt with.
The budget and the Finance Bill will contribute to a more positive economic climate and this is essential. Already there is evidence of an increased incentive to work and there is a stimulus to business. Perhaps the VAT changes are the biggest contributor in this regard. Nevertheless, there are still some deep-seated fundamental problems in our economy that are not being addressed sufficiently.
Current Government spending is slightly increased this year and effectively this means, albeit by only a small amount, that we are still somewhat less in control of the financial situation this year than we were 12 months ago. This strategy was set out in the national plan but I urge the Government to ensure that in the next two years of the national plan the targets in that plan be adhered to rigidly. It is only if we control current expenditure that we will solve our economic problems that exist to such a frightening extent.
I wish to refer also to the question of the public wage bill. It is very easy for me to sit on the back benches and criticise the Government for not sticking to the cash limits they set out for themselves in their national plan. I want to stress that I believe this to be a key problem in our economy at present, one we do not keep to the forefront sufficiently often. I do not begrudge anybody in the public service the best in terms in wages and benefits to themselves. But it is the value of money that matters at the end of the day and not the nominal amount one is given. Unless this problem is tackled we shall merely ensure that whatever nominal amount we give to public servants, people in private industry, or the people who are unemployed will be worth a lot less than it is now. It is acknowledged that, relatively speaking, our public servants are better paid than public servants in many other countries. In terms of our economic welfare at present certainly they are not badly paid. I would urge that the Government adhere to the limits they set out in their national plan. It comprises a very large part of current Government expenditure. It is critical that we ensure that we maintain the controls we set out in that national plan.
I was amused, listening to a radio programme the other morning, the "Morning Ireland" programme, when a former Minister for Finance, now a Member of the European Parliament, Richie Ryan was interviewed. It is an interesting programme sometimes. I must say also that probably we are very lucky to have those chaps on that programme every morning because they know a lot about everything and very frequently bring in people to get a comment on what is their own view on something rather than allow a person express a comprehensive view. It was put to Richie Ryan the other morning that the proposal he had made a few days earlier — that we had to get current expenditure under control — was impossible, that one could not reduce the current budget deficit, that one could not reduce current expenditure by Government. I was astonished. It occurred to me suddenly that perhaps this view was more prevalent in this House and country than should be the case. The fact is that at present this Government absorb 50 per cent of the gross national product for their own spending.
There are two issues involved here. Some people would argue — particularly those on the left politically — that high public expenditure is a good thing. I do not agree with that. But what is lost in all of this is the fact that much of our public spending is not perhaps good in itself, that we are not getting a return on it, that it is not effective, that some of our public expenditure programmes are not efficient. We are still an under-developed economy. Given the type of private enterprise economy we have, the Government must resist absorbing the sort of money they do absorb. If we are to proceed economically at all, more resources must be made available to the private sector.
The elimination of the current budget deficit by 1987 has now been deferred, a decision which I am sure was not taken lightly by the Government. Obviously it poses difficult economic and social problems. One thing I have not seen a great deal of in the past couple of years is the desire that appeared there a few years ago, specifically when Deputy John Bruton was Minister for Finance, that we needed to examine much more closely the public expenditure programmes we had. Many people get annoyed and become upset when they hear health boards having to close a ward because of cutbacks. I heard one story published by a health board official that because of cutbacks patients who had been getting three sausages with the tea would get only two. This type of policy playing is utterly irresponsible. A proper examination of the whole administrative structure of our health boards that absorb so much money has not been carried out. In any discussions that take place in public at health board level about cutbacks the emphasis is on the service finally delivered to the patient because it carries a high public profile and because pressure is better applied that way on a Department of Health if one can cause hassle and problems.
When the Minister for Health took a firm stand with health boards — on which I compliment him — it was interesting to note that they were able to manage cutbacks that did not affect the service ultimately delivered to patients. I believe that if there was a proper examination carried out of the activities of all health boards — I do not confine these remarks to health boards, they apply across the board — there are many areas where savings could be effected, where programmes are seen to be inefficient or ineffective and where greater controls should be introduced.
I mentioned health boards because they occurred to me as I spoke as something which I have thought and worried about before. There are many expenditure programmes, some of which have been highlighted by the Committee on Public Expenditure of this House, which show the folly of some of our expenditure, for instance, Department of Justice spending of £13 million on prisons never built, the Minister for Health having indicated that in the Cork area alone there were 600 or 700 surplus hospital beds. I am not talking of hospital beds only but of accommodation as well that is not needed at all. I wonder how that arose. There were instances I raised in this House before of the Institute for Industrial Research and Standards and the IDA changing offices and that sort of thing, going wildly in excess of their authorised budgets.
There are other areas in which our programmes do not appear to be very effective in what they do. For example, I recall a report in respect of higher education grants, specifically in regard to people who attend our universities. We introduced higher education grants to benefit people of all backgrounds so that they could attend college. We introduced free education in secondary schools to achieve that same sort of purpose but, when the analaysis was done at the end of the day, it emerged that the only people who enjoy third level education, specifically in our universities, are people from middle income backgrounds or upwards of middle income backgrounds. Therefore the truth is that despite all the money we have spent we have failed to deliver to those people in most need. Has there been any examination carried out since that report was published of the operation of our higher education grants scheme?
The bovine disease eradication scheme is a scandal referred to dozens of times and I shall not go into it again. Something is now being done about it but for years millions of pounds were being spent by the Department of Agriculture virtually to none or little effect. Probably one could go through every single Department, every single public expenditure programme, and one would discover that many of them are trundling along without any examination to see how cost effective they are, or how effective they are in achieving the purpose for which money was passed by this House in the first instance.
The problem is not just how much the Government spent but how badly some of that money is spent. I might refer to the fact that in other countries they have managed to deal with this problem quite well. I do not want to create the impression — lest anybody might take it from what I am saying — that there is no control. There is a control over public expenditure here but it is reserved almost exclusively to a legal control, the Comptroller and Auditor General being charged under the Constitution with ensuring that moneys passed by this House for a purpose are spent on that purpose. The net effect of that control is that we can spend money stupidly if we want to as long as we are honest about it and it is done legally. But we can be stupid or insane in spending as long as we stick to the strict letter of the Vote passed by this House.
In the United Kingdom nationalised industries are obliged to publish regularly performance indicators which enable the Government, economists and other interested parties to compare the performance of that industry with other industries or similar ones abroad to establish how they are going. That is something that would certainly be of great value in our State-sponsored sector. I would urge that we consider the introduction of such obligations on semi-State bodies. There was a House of Commons paper published, I think, in 1981, on the efficiency and effectiveness of the civil service which contained some excellent ideas as to how one could streamline the operation of one's civil service and have identified areas of waste that existed. Have we undertaken any such examination here? In 1981, when Deputy John Bruton was Minister for Finance I recall an excellent document published entitled "A Better Way to Plan the Nation's Finance". There was one proposal in that document adopted, that was the establishment of the Committee on Public Expenditure of this House. That committee may well have brushed the wrong way some members, executives or boards of semi-State bodies. That is part of the normal tension that takes place in this sort of examination. But we cannot expect that committee to achieve all of the purposes set out in that document.
That document contained other suggestions to which I want to refer. For example, I want to ask the Minister for Finance whether consideration has been given to these suggestions. One was the establishment of a Public Expenditure Commissioner. The concept of the Public Expenditure Commission was explained in the report. The commissioner would have the role of reviewing public expenditure programmes as to their effectiveness and perhaps recommending the elimination of wasteful or obsolete programmes of activities. One of the advantages of having such a commissioner was that he would have the freedom of operating independently of this House and of the Minister and he could establish, away from a political environment, where programmes were perhaps failing to achieve what they should and where savings could be made, or where perhaps more money could be spent in a more effective way.
There was also a proposal to introduce new controls for deficit budgeting, not that it would be impossible for a Government to indulge in deficit borrowing, because it is clear that for the foreseeable future Governments will have to rely on deficit budgeting, but to ensure that there is control over it and that it cannot be done easily and so that there will be greater restraint on Governments engaging in deficit budgeting when balancing their budgets. The point was made in that document that what Governments are doing when they are engaging in deficit budgeting is spending money that has to be earned by future generations or by the generation who will be in this House in a decade or so. I do not know if these matters have been followed up but this document should be reread by every Member of the House. It would be of advantage to us all to do so and to bear it in mind when we make contributions to debates like this and in participating in our ordinary political activities.
During my years here I have grown more conservative economically. When I look at the economic difficulties I am forced to face the simple fact that if we are to overcome our difficulties we must ensure that Government and industry are side by side in tackling the problems. When I say that they should be side by side I am not talking about the Government throwing out benefits to industry or distributing handouts. Unfortunately our attitude to political economic life has descended close to the gutter in that type of approach. Over the last eight or ten years since I have become involved in politics I have noticed a lack of understanding in industry of Government problems and a lack of understanding in Government of industrial problems. A lot could be done to overcome that. I was in touch with the Minister for the Public Service some time ago about a specific company who were asking for an exchange of a senior member of their staff with a member of the Department of Industry. I gather that that exchange has since taken place. Programmes like that, involving the exchange of personnel, can be extremely valuable in the long term. They will certainly improve the level of trust and understanding between Government and business.
If we are to push on further the economic well-being of our country we will have to ensure that there is greater economic activity in business. To do that the Government will have to tackle the cost of essential services. I welcome the proposed reduction in ESB charges to certain industries. That sort of approach is of assistance. The Government have been outstandingly successful in relative terms in dealing with the problem of inflation. If the Government can push that further to deal specifically with the very high cost of essential services facing key industries a great deal more can be achieved than we imagine at the moment. I urge the Government to go in that direction.
I am convinced that something has to be done to address the problem of over-centralisation. This issue is frequently thrown around here on a political basis. But considering all the problems in Dublin it is quite clear that very——