When the House adjourned last night, I was speaking about VAT on unregistered farmers. I was asking for some information in regard to the increase in the VAT refunds from 2 per cent to 2.2 per cent. There does not seem to be any Minister or ministerial presence for the debate on the Finance Bill.
Finance Bill, 1985: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time."
The House is in session and Deputy Mac Giolla is in possession.
I was specifically asking the Minister if he would explain to me on Committee Stage the whole process of this question of VAT refunds to unregistered farmers. My understanding is that out of 175,000 farmers only 700 are registered. What is the difficulty in getting farmers registered? What are the VAT refunds for? Why have they increased from £6.8 million in 1979 to £22 million in 1981 and £41.5 million in 1982 and £53.7 million in 1983, the last figures available to me? That is a very spectacular increase in VAT refunds to farmers. What is it all about? Is there a big fiddle in it? A number of major farm inputs are zero-rated, like fertilisers. An explanation would be helpful as to why it is necessary to increase VAT refunds to unregistered farmers.
I understand that this was abolished in 1976 but restored again in 1978. I should like to know something of the whole background to this question, There are specific payments from the Exchequer and it would be helpful to have some information as to why they are necessary. In this Finance Bill, under section 43, the raising from 2 per cent to 2.2 per cent of the compensatory flat rate credit allowed to taxable persons purchasing agricultural produce or agricultural services from unregistered farmers comes up again. If all farmers were registered, it would be simple enough to establish the exact amount, but this is a calculation. There is no indication as to whether the figures are justified or unjustified, too much or too little.
On the capital acquisitions tax, again it is very interesting when you come to any question of capital or corporation taxes. In this case, all the sections here are dealing with exemptions, not additions. The capital acquisitions tax brought in only £10 million in the year 1983-84, which is much less than used to be brought in on the old death or estate duties. Yet, this Finance Bill is actually giving further exemptions, rather than increasing the amount of tax from capital acquisitions.
The other area that worries me in this Finance Bill is with regard to section 66. This is a new taxation system. I think it is the first time ever that in a Finance Bill there is a requirement for Bord Telecom to make contributions to the Exchequer over the next three years. That is an extraordinary item to have in a Finance Bill and an extraordinary system of taxation for any Government to bring in, that they just instruct State companies to pay them so much every year and to hell with the consumers. How can he expect Bord Telecom to raise this money each year other than by increasing charges to the consumers? The Minister is doing this to Bord Telecom at an important period of their development. Possibly in the next two or three years they will be in an excellent position to return some of the moneys to the Exchequer but this should be on their annual surplus, not a payment whether they have a surplus or a deficit as the Minister is proposing. In the next few years their annual surplus should be quite considerable but the Minister is too greedy and in too much of a rush to get the money. By his action he is crippling Bord Telecom before they have an opportunity to establish themselves. If they have to raise their charges to make up this money for the Minister, they will damage themselves in the eyes of the public. There will be a reduction in the number of people who will be able to take their telephone and telex services because of the high prices. In turn, this will reduce the income of Bord Telecom and the possibility of their having a surplus.
This is the response of the Minister after a very specific promise in the plan Building On Reality that there would be no further increase in taxation. We were told there would be variations in taxes but there was a specific guarantee in the plan that taxes would not be increased. However, we are told by the Minister that what he is proposing in respect of Bord Telecom is not taxation. The Government just instruct the ESB to give them £25 million and Bord Telecom to give them £170 million over three years. This is a method of taxation by the back door on consumers of electricity and of the telecommunications services.
Incidentally, perhaps the Minister would consider adopting this approach towards the Central Bank. If he can do it to Bord Telecom why not to the Central Bank? He has told the Central Bank to fund whatever losses arise from ICI and if the bank this year pay out £60 million or £70 million to cover the ICI losses they will most likely reduce the amount they give to the Exchequer which was £134 million surplus last year. The Minister could ensure that he will get the same money this year by imposing a specific requirement on the Central Bank that they pay £134 million or £140 million every year and let them recoup that from the banking and financial services, as Bord Telecom have to do in respect of their consumers. That would force the Central Bank into making Allied Irish Banks and the other banks pay for their mess but he has not done that. The Minister has accepted that the Exchequer will lose whatever amount the Central Bank have to pay to cover the losses in the ICI affair and he will be at the loss of that amount because the Central Bank will deduct it from their surplus.
Section 67 deals with the famous "black hole". A specific figure of £660 million has been given by the Minister as the amount of profits and dividends sent out of the country in 1983. Obviously that amount increased last year because we were told there was a tremendous increase in productivity and in exports by the multinationals in 1984. This would lead one to expect that profits and dividends were even greater in 1984.
Such profits and dividends of the multinationals is the added value created by the labour of the Irish workforce on imported raw materials which are then exported. The only benefit to our economy is the jobs the multinationals create. The wealth created could be an additional asset to the country but all of that goes out to the parent companies. I think it was Deputy Cosgrave who said we cannot quibble with that, that companies have this right. However, they do not have that right in every other country. They have that right here because our Ministers for Finance and for Industry, Trade, Commerce and Tourism and the IDA gave them that right. It is one of the incentives given to multinationals, it is why they want to come here rather than to other countries. They have been given the right to export all their profits and dividends but it is not necessary that they do that. They are not allowed to do this elsewhere.
The Minister is now proposing that multinationals be given tax free incentives if they invest in Government gilts. In other words, he will enable them to make further profits in Ireland by inviting them to invest tax free in Government securities. However, all that is required is an alternation in the IDA grants and allowances given to multinationals when they come here to ensure that a certain percentage of their profits are invested and used in Ireland. That does not mean taking the money from the multinationals — it is still their profits — but it would mean it would be invested in the Irish economy rather than sending it back to the parent company who decide where to invest. That would be a very simple arrangement, one that would be for the benefit of the Irish economy and would create better relations between Ireland, the other Irish companies and the multinationals. Rather than putting out some bait in the hope that the multinationals will take it, the Minister should give specific directives as to what they can do with the profits.
In the course of the debate over the last two days, particularly in comments emanating from Fianna Fáil speakers, there were many fine suggestions on how jobs could be created, budgetary policy changes, the possibilities of new methods of investment and so on. There were also suggestions for reduction in taxation in various areas. They talked about incentive schemes, greater tax allowances to be given, reduction in taxes, or allowing entrepreneurs to make more profit, thereby creating more jobs. That was the general thrust of their remarks — it being argued that to offer such incentives one did not need to increase but rather possibly reduce corporation profits tax, property tax, wealth tax, etc. All of those suggestions for job creation would cost money. We have not heard from Fianna Fáil speakers how they would propose raising such money. For example, one must ask do they intend to increase further taxation on PAYE workers or to increase further the amount of returns from value-added tax. If not, where is the money to come from? They have not told us what they propose to tax. They contended they would do a better job in bringing in the money outstanding, the taxes which the Comptroller and Auditor General said last May were collectable. He listed a total amount of £677 million falling into that category, those are taxes that have already been assessed but have not been paid.
Fianna Fáil speakers have not outlined what is their policy, their budgetary policy, where they would find extra moneys. If one does not find extra moneys then one must reduce services — this is what the Government are contending — that one must reduce health services, educational and local government services or else one charges for health, educational or local government services. That is a further method of taxation this Government are introducing which Fianna Fáil rightly oppose, as they opposed the cutbacks in education over the past couple of days. But, if one does not do that, where is one to find the extra money to pay off the national debt? Where is one to find the money to create a real jobs programme, to put back more into the economy, particularly in the construction industry where more funding is needed? It should be remembered that 75 per cent of that comes from the Exchequer. Therefore one needs more money put in to have more emerge. We agree absolutely with that policy.
It is absolutely essential that we get away from the negative policy of this Government which is destroying the whole base of our economy to the extent that when we return to viability and want to lift off there would not be the base there to do so. We agree that money is needed for a viable jobs creation programme to put life back into our economy. But we say specifically where that money can be found. First we go into the area of taxation already assessed, ensuring that that is collected from the self-employed and farmers. According to the Comptroller and Auditor General that amounts to £234 million, that there is outstanding in corporation profits tax £279 million — that is without there being any increase — capital gains tax outstanding, £9 million, capital acquisitions tax outstanding, £10 million; health levies not collected £9.8 million; residential property tax, £1 million, etc., plus PAYE contributions of £39 million outstanding from employers and £41 million outstanding in PRSI. That is what the figure of £677 million is made up of. The first thing is to attack that area and bring in those outstanding amounts, but one must hurt people in so doing.
The second goal is to impose further taxation in this area, an area that is under-taxed. The Government keep contending that generally we are overtaxed. Certainly PAYE workers are overtaxed but the country generally is not overtaxed. Capital is not overtaxed, wealth is not overtaxed, in fact it is not taxed at all. It will be seen that property is not overtaxed when it brings in merely £1.8 million while water charges in Dublin alone bring in £4 million. What a joke. There is wide scope for further taxation in that area.
The proposed land tax does not come within the ambit of the Minister for Finance or this Bill. Rather is it the responsibility of the Minister for the Environment who is waiting until the local government elections are over before he introduces his Local Government (Finance) Bill in which we understand this land tax is to be included. It is only right that rates, which had obtained for 150 years and were abolished three years ago on a constitutional issue, should be replaced. I should like a guarantee from the Minister for the Environment that when he introduces this land tax as a method of local government financing he will abolish the water rates. Let him tell us now that as soon as this land tax is introduced water rates will be abolished, because they were introduced to replace agricultural rates which the courts contended were unconstitutional on a valuation basis.
A number of explanations will be required of the Minister for Finance and the Government on Committee Stage, particularly with regard to the Minister's dismissive attitude in his miserable speech introducing this Bill. It contained no economic or budgetary strategies. He did not explain in any way what was the Government's viewpoint. It is to be hoped that in the course of the Committee Stage debate we will be given much more information about what the Minister proposes doing.
Public demand last year among different groups was that we should create greater incentive to work, aiding business in every way possible. It is my belief that these budgetary proposals will improve the incentive to work, creating a high level of business activity. I refer to the restructuring of the value-added tax rates which will alleviate enormously the problem of cross-Border traffic and the smuggling of goods from the North. I believe it will also reduce costs to industry and improve their cash flow because of the imposition of VAT at the point of entry which was announced in the course of the 1982 election campaign.
The reduction of VAT on tourism from 18 per cent to 10 per cent has resulted in an increase in anticipated visits from abroad this year. As a Deputy representing a constituency that is a gateway to a tourist area, I welcome those proposals. I have been told by tourism interests in recent times that the level of business from the United States alone this year is anticipated to rise by over 30 per cent. I know that cannot be laid entirely at the door of the Minister for Finance in that the strong dollar has attracted much of that business here. The tourism industry has welcomed the decision and as a Deputy from a tourist area I welcome it.
In relation to the incentive to work, that is a problem and will remain a problem for a long time. However, the new income tax bands and the elimination of the 65 per cent rate will have a positive effect in that area. It will be an incentive for people to take on additional responsibilities. A major reform of the taxation system is still required because the levels of personal taxation are still having a detrimental effect on the incentive to work. Employees are becoming steadily more dissatisfied with gross pay increases because of the effects that that increase will have on net pay. There is an unwillingness to accept extra responsibilities and an unwillingness among hourly paid workers to do overtime because many prefer to get involved in the black economy in activities which cannot be accounted. The high levels of personal taxation are causing difficulties for business in recruitment and motivation of staff. I know people in Cork working for multinational companies who have requested transfers to their associated companies abroad and I have one or two friends working abroad with multinationals who are reluctant to come home because of high taxation levels. That is a serious situation which must be tackled.
The VAT changes will create more jobs in tourism-oriented industries, it will reduce cross-Border traffic and manufacturers could benefit from the reduction in VAT at the point of entry. More important is the fact that the Government for the first time have reversed the trend in upward taxation. That must be welcomed even though the number of taxation decreases is small. Unfortunately no matter who is in power the Government will be faced with high taxation levels and a justifiable demand for a reduction in taxation. They will be caught in a vicious circle. Deputy Yates put it simply by saying that as long as we are spending £1.20 and only taking in £1, we are in trouble. If we attempt to reduce services to the public the public will protest and the vested interests operating those services will protest in some cases unjustifiably as we have a lot of inefficiency and duplication in the public service.
The public service is an area where the vicious circle can be broken once and for all by creating more efficiency in our public spending and in our services to the public. This will be a major task because of the vested interests involved. There should be greater emphasis in this area. The massive wastage of public moneys is a national scandal. I as a member of the Oireachtas Committee on Public Expenditure am appalled at the amount of public moneys being wasted over the last few years. Despite our best endeavours this massive wastage is continuing. The duplication for example in the National Manpower Service, the Youth Employment Agency, AnCO and the Department of Social Welfare should be tackled. The amount of duplication of effort in one small area such as the cataloguing of the unemployed is colossal. Each agency is doing its own thing involving the expenditure of vast amounts of moneys and the use of vast numbers of staff. This problem should be seriously tackled by the Government. One of our few growing industries is the service industry to service the unemployed.
Another area which the Committee on Public Expenditure reported on to this House some time ago is the massive amount of money being wasted on the renting of office accommodation and this is continuing despite statements made and investigations carried out, and we do not seem to be able to control it. A draft report from the Committee on Public Expenditure will identify areas where massive amounts of money are still being wasted in the renting of office blocks. That is something which the taxpayer cannot tolerate any longer.
The semi-State bodies both commercial and non-commercial have been referred to in recent months and we on the Committee on Public Expenditure have taken time to look at the operations of SFADCo and the IIRS. The arrogance of some of the executives of these bodies must be seen to be believed. They have the impression that they can spend money without accounting to anybody and when they are asked to account for it they get upset. We had examples of that in recent times and in fact, the Sunday Independent last Sunday mentioned that the chief executive of one of those bodies complained to the Taoiseach about the manner in which questions were being put to him about his operations. What is upsetting the public is not the questions being put but the answers being received by committees like ours. The Government must take immediate action to eliminate wastage in these areas.
The question of the duplication of effort and the wastage of money because of the failure of successive Governments to tackle the question of decentralisation must be considered. The greater Dublin area is one of the fastest growing cities in Europe, its population increasing by 2 per cent over the last decade. The problem is that while most European countries have attempted to devolve control and responsibility to regions we seem to be doing the opposite. There seems to be an obsession to keep everything in Dublin and administer all schemes from the capital. Next week the Minister for Social Welfare will be asked questions about people not receiving social welfare payments and in that regard I believe that the amount of time involved in considering such cases, the number of telephone calls to the city and the cost of postage to Dublin is a waste of public money.
A passing reference to decentralisation and so on is in order and acceptable but it is not acceptable for the Deputy to go into detail on the matter, as the Deputy appears to be doing.
The Deputy must be aware that his Government cancelled our decentralisation programme.
I do not agree with that at all.
I know the Deputy does not, but why is he supporting them?
I do not agree with the Deputy's statement. What decentralisation programme did Fianna Fáil put forward.
We had 20 centres selected and plans were prepared for Cork, Killarney and so on.
Will the Deputy go into detail about that programme?
I will give the Deputy a list of the centres.
The Chair would prefer if the Deputy did not go into detail about this matter.
The Government are selling off the sites.
To announce such a plan without informing the unions and just before an election is not a proper decentralisation programme.
We had the sites purchased and the Government are selling them off.
The sites were not purchased.
The Deputy in possession should be allowed make his speech.
I am anxious to put the record straight. Decisions were not made in regard to decentralisation for Cork. A statement was made before an election and the unions were not informed. Sites were not purchased.
Sites were purchased.
The site Deputy Haughey is referring to was one that was being developed by private enterprise. I should like to conclude my passing reference to decentralisation—
It will not be a passing reference if the Deputy remains stationary.
The failure to decentralise in areas such as social welfare is causing a lot of suffering to people because of inefficiency. The Minister for Social Welfare should try a pilot scheme of decentralisation in his Department.
That is a matter for the Estimate for the Department of Social Welfare.
The Deputy should continue that argument at the Fine Gael Parliamentary Party meeting. That is where the Deputy should be raising this matter.
I do not want any further interruptions.
I do not interrupt Opposition speakers and the Deputy opposite should grant me the same courtesy.
If the Deputy would like to invite me along to the next meeting I could help him.
Our main preoccupation must be with unemployment. We all agree that there is a major crisis in that area with in excess of 225,000 people unemployed. The southern region is one of the worst affected regions with unemployment at almost 25 per cent. The social consequences of unemployment, the increase in the crime rate and mental stress are well catalogued. We are all aware of the alarming increase in suicide rates in recent years. Since 1980 there has been a dramatic increase.
The Deputy will have to relate all of that to taxation. He may be able to do that.
I am trying to develop a point, if the Chair will permit me. The emphasis must be on catering for the long term unemployed. Short term solutions will not help those people. Unfortunately the major problem facing the programme for job creation is the relatively high interest rates which are strangling recovery and discouraging capital investment. Criticism by Opposition Members of the Government's performance in regard to unemployment has ignored the fact that the Government have been hampered in their moves by the need to bring Government spending in line with revenue. I have outlined a way in which the Government can provide some relief in that area.
We have the fastest growing labour force in Europe, climbing at a rate of 3 per cent per annum, and to accommodate that labour force our economy will have to grow at about 7 per cent per annum, a major task for any Government. To resolve the unemployment problem we must reduce our inflation rate to the European average and the budget deficit must be further reduced. I should like to refer to the criticism by the Construction Industry Federation of the effect the higher VAT rates will have on the construction industry. I accept that the higher rates will affect that industry but the criticism has ignored a number of factors. It has ignored the fact that the grant to new house purchasers has been doubled from £1,000 to £2,000. The decision to give a grant of £5,000 to local authority tenants who surrender the tenancy of their homes has helped the house construction programme enormously. In my region alone up to 100 people have applied for that grant. That means that 100 new homes will have to be built in the Cork city region. I have no doubt that countrywide thousands have applied. While the building industry have grounds for criticism in some areas the whole truth has not been told.
The December quarterly report by the ERSI forecasts that the progress towards achieving the policy aims of stabilising unemployment and improving the public finances will be slow in 1985. It suggests that the Irish economy is largely reflecting the wider European experience and that where unemployment is concerned the chances of any substantial improvement here are slim. It forecasts that the European average will increase above the 11.6 per cent present figure. The report expects the economy to grow by about 2¼ per cent in real terms during 1985 with inflation falling to below 6 per cent. It forecasts that disposable incomes will rise, for the first time in a number of years, by more than 2 per cent, thus ensuring an improvement in living standards. That must be viewed as good news.
I should like to be parochial in regard to VAT rates and refer to the Government's decision last year to introduce a duty free port in Cork. That will be a major advantage to the Cork area. Unemployment in the greater Cork area is about 20 per cent and in the city it is up to 25 per cent in certain areas. The rise in the last quarter in Cork is similar to that experienced in 1983-84 and, overall, the rise in unemployment in 1984 was less than half of that of the previous two years. As the rise in unemployment is approximately the same as the expected rise in the labour market it means that we are off-setting job losses with the creation of new jobs in that region. We can take up the influx into the labour market in that region if we are allowed to sell the region properly. The Minister for Finance should introduce the legislation to establish a duty free port in Cork in this session and implement it before the autumn.
Last year when speaking on the Finance Bill I referred to the threat facing the newspaper industry. I welcome the decision to reduce the VAT rate applying to newspapers which was announced in the budget.
I should like also to make specific reference to the section dealing with relief for expenditure on the improvement of flats in multiple dwellings. It is important in the context of urban renewal to encourage as many people as possible to live in inner city areas. Cork, like Dublin, suffers from having a large amount of under-utilised accommodation over shops in the city centre. The provisions in the Finance Bill which give a tax allowance for the reconstruction, development and improvement of multiple dwellings will be a major benefit to the urban renewal programme.
Taxation is of immediate concern to us all because of its effects on every-day living. Most of us pay tax in one form or another. Recently the subject of tax equity has been frequently in the news because of the high rates of taxation. We all accept the need for improvement, even the Government, but the question is how to bring about that improvement. I heard Deputy Mac Giolla speaking on this subject but he did not put forward many solutions to the problem. The high levels of taxation have stirred up ongoing agitation about tax equity. The nucleus of the problem is that tax rates are high because public expenditure is high. I put forward suggestions earlier as to how we could get out of that vicious circle. The Government must make every effort to widen the tax base.
I welcome the announcement last year of the decision to introduce a land tax. There are certain groups who can put forward their case in a very professional manner but we must not overlook the fact that an unjust system has been operating for years and that everybody must pay his fair share of taxation. I hope that the proposals announced by the Government will be implemented. In recent weeks there has been a further lobbying campaign by the farming organisations and cases have been made in relation to people who could not meet the demands which would be made on them under a land tax system. Unfortunately all businesses face the same problem. Small businessmen have to pay rates on their premises and are also taxed under the income tax system. There cannot be exceptions. If an individual's circumstances do not allow him to pay there must be an examination of the efficiency of his operation. The ceilings are reasonable.
I welcome many of the provisions of the Bill, especially those in relation to VAT rates. I hope that the downward trend in taxation levels will continue in forthcoming budgets.
The budget which this Finance Bill is intended to implement has four principal features. Firstly, it involves the highest current budget deficit ever, £1,234 million, all of which will have to be borrowed. Secondly, its arithmetic is very dubious. Thirdly, it makes no contribution whatever to solving the appalling problem of mass unemployment. Fourthly, it can already be seen to be substantially off target.
The budget which the Minister for Finance put before this House on 30 January last, even on the basis of its own very doubtful arithmetic, projected a deficit of £1,234 million, which, as I have already said, is the highest ever and which amounts to 7.9 per cent of GNP. This amount will have to be borrowed and added directly to our national debt. This, of course, is the worst type of borrowing; borrowing to pay for current expenditure, borrowing which adds to our overall national indebtedness without creating any corresponding assets either by adding to our infrastructure or improving our productive capacity. Not alone is this current budget deficit a record in size, in absolute money terms, but it also represents a very high proportion, almost 8 per cent of GNP. At 7.9 per cent of GNP, it is one of the highest ever and compares with 7.2 per cent last year. In 1985 the Minister is going for a higher percentage of GNP as a current budget deficit than he did in 1984. These figures, as many people have already pointed out, make a complete nonsense of any claim by this Government that they have got either their budgetary situation or Exchequer borrowing under any kind of control. That was the reality of the figures in the budget itself before any allowance is made for the way in which those figures are now being significantly changed for the worse.
I do not know if there is much point any more in talking about the Government's document Building on Reality at this stage. There is now fairly widespread agreement that it is, in fact, a dead letter. It is almost impossible to believe, looking back now, that it actually proposed a current budget deficit for 1986 of £1,079 million. I believe the Government must now acknowledge that that is totally unrealistic. It was unrealistic to begin with and the way the budgetary situation is emerging this year and particularly having regard to the static nature of the economy it is by now totally outside the realms of possibility.
During the debate that took place here on the budget itself, we expressed again and again our doubts about the validity of the arithmetic in the budget. It is becoming increasingly clear that those doubts were well-founded and that the budgetary arithmetic is not going to stand up as the year unfolds.
A nicely rounded estimated figure, for instance, of £30 million was put in for savings on pay. To say that this was optimistic is to put it mildly.
There was also a figure of £28.6 million put in for non-pay savings. Three months later, we are told that these savings are incorporated in the revised Book of Estimates which has just been published. The handling of this important aspect of the budget was highly suspicious. Why were we not given a clear itemised list of these projected savings? Why have they been concealed in this way so that one has to carry out a detailed examination of the Estimates to find them?
The figure in the budget to cover the cost of unemployment was calculated on the basis of an unemployment figure of 217,000 for the year. Again, experience to date shows quite clearly that this figure was seriously understated and that the amount provided was inadequate. Unemployment is running at 10,000 above the figure projected. Every Deputy in this House knows from his or her own personal experience in his or her constituency that the Department of Social Welfare are making unprecedented efforts to reduce the overall size of the bill for social welfare in the current year by arbitrary administrative action. These efforts are not being confined to the elimination of fraud and abuse, but are causing real deprivation and hardship to many people who are perfectly entitled to benefits which are being delayed or reduced, through one type of administrative device or another. The Government are cheating in this whole area of social welfare.
Going into this debate we have available to us the figures for the first quarter of the year, that is the Exchequer returns to 31 March 1985. These figures disclose a very serious and worrying situation. The Minister seeks to suggest that it is not possible to come to firm conclusions on the basis of the returns for one quarter, particularly the first quarter and that there are special features which distort the situation. That may well be, but even allowing for that, there is enough evidence available from the figures as published to indicate that the budget is very seriously off course already.
The total revenue for the year as a whole was projected to increase by 7.5 per cent. In the first quarter, however, total revenue has increased only by 2.7 per cent. If this result is continued throughout the rest of the year, the outcome from the point of view of the current budget deficit will be catastrophic.
The details of the main headings of revenue for the first quarter reveal a very disquieting picture so far as income tax and VAT are concerned.
The position in regard to income tax is particularly alarming. The budgetary projection was for an increase of 8.4 per cent in income tax receipts for the year as a whole. The returns for the first quarter show an actual decrease of 3.8 per cent. In assessing this serious falling-off in income tax receipts, it should be borne in mind that, in fact, in the first quarter, the increase should if anything be greater than the 8.4 per cent average projected for the whole year, because people are pushed into the higher bands towards the end of the fiscal year. Instead, it is seriously and alarmingly down. The figures are apparently affected by a timing change in receipts of income tax from building societies of £40 million. That does not really affect the seriousness of the picture. It is not just that the projected rate of increase in receipts has failed to materialise, but there has been an actual decrease on the corresponding quarter in 1984, a decrease of 3.8 per cent.
The situation in regard to VAT, while not as catastrophic as that revealed in the case of income tax, is still very serious. VAT receipts for the year were projected to increase by 9 per cent. In the first quarter, the increase has been only 4.8 per cent. That is a serious falling off in what was projected.
If these trends in regard to income tax and VAT are maintained at anything like the same level throughout the year the current deficit could be significantly higher than even the already record deficit projected in the budget.
Speaking to the Fianna Fáil Ard-Fheis before I was aware of the figures for the first quarter of 1985, I indicated clearly what was happening in the economy and in the public finances as a result of Government policies. Speaking of the policies pursued by this Government in the past two years, I said:
They have pushed us steadily downward in an inexorable spiral of falling output, higher and higher taxes, mass unemployment, reduced public services and social deprivation.
The present depressed level of output cannot support the burden of taxation imposed on it and the services we need as a community. What the present Government are doing is adjusting everything downward.
That is exactly what the figures published for the first quarter of 1985 show. The falling level of economic activity is now being reflected in the diminishing returns from both income tax and VAT.
It will be recalled that the budget table on the credit side included an item of £58 million which was optimistically attributed to extra income arising from the impact of the budget on tax revenue buoyancies. The first quarter Exchequer returns clearly indicate that no such buoyancy exists and therefore cannot be relied on. We must, therefore, at this stage, discount that £58 million as extra income during the course of this year.
What does it all add up to? When the dubious nature of the budget arithmetic — the non-existent revenue buoyancy of £58 million, the unrealistic figure of £58 million for savings, the underprovision for social welfare — is added to the downward trend in receipts which has now manifested itself, an increase in the size of the current deficit emerging at the end of the year is inevitable and that increase could be of substantial proportions. It will almost certainly not be less than £100 million and could be twice that amount. Some people might have been looking to offset the factors I have outlined for some improvement in the figure for expenditure on the Central Fund services because of changes in either interest rates or exchange rates but the Minister in a reply on Tuesday does not envisage any change in that overall figure. In any event, that is speculative territory. In my view, therefore, we must look forward to a current deficit of £1,350 million and that must, of course, have serious implications for the level of Government borrowing during the current year.
In the budget, the requirements of the Public Capital Programme, £785 million, were added to the current budget deficit of £1,234 million, to give an overall Government borrowing figure of £2,019 million for 1985.
In the first quarter of the year, of that £2,019 million, the Government have already borrowed £834 million. This means that 41 per cent of the total allocation for the year has already been used up in the first quarter. This figure of 41 per cent clearly raises the possibility that borrowing for the year will, in fact, be greater than the £2,019 million stipulated in the budget.
At 31 March, 1985, the total national debt was £19.1 billion. At 31 December, 1982, just at the time when this Minister for Finance took over, the total national debt was £12.7 billion. In other words, Deputy Alan Dukes, as Minister for Finance, in just over two years, has increased our national debt by 50 per cent.
His record in regard to foreign borrowing is worse. At 31 December, 1982, when he took over, our foreign indebtedness was £5.3 billion. It is now £8.6 billion. Deputy Alan Dukes, as Minister for Finance, in a little over two years, has increased our foreign debt by 64 per cent. He has increased the foreign debt of this country by more than any of his predecessors.
How interesting it is today to recall the massive campaign engaged in by this Government about borrowing, and foreign borrowing in particular, in their obsession to attack Fianna Fáil and undermine us politically. They turned it into a long playing record. One recalls that old ladies who, up to then, had only been concerned with the amount of their old age pensions or whether they were going to get an increase were worrying about our foreign indebtedness. Now we find that this Coalition Minister for Finance has turned out to be the biggest spender and borrower of them all. It is not only that the present Minister for Finance is borrowing more than any of his predecessors. The unfortunate truth is that he has been guilty of major errors of judgement in the manner in which he has borrowed. After making a major mistake in relation to dollar borrowing in 1983, he tried to switch from foreign borrowing altogether in 1984 and as a result, drove up domestic interest rates in this country to record levels.
This Finance Bill makes provision for a new type of Government borrowing, whereby multinationals operating in this country will be invited to invest in Government bonds, the interest on which will be free of tax.
As is the case with practically everything this Government do, it was misleadingly presented and duly welcomed in the media on the basis of that misleading presentation. We were told by the usual faithful scribes that the Government were taking measures to deal with the "black hole". The impression was conveyed that it was a real attempt to deal with something about which there was genuine public concern, namely the sending out of the country of their profits by multinationals and the failure of these multinationals to reinvest in manufacturing activity here and thereby create employment. From that point of view, what is proposed will not really meet the situation. The multinationals are now being offered the opportunity to invest in Government bonds and that, of course, is no substitute for actual industrial reinvestment. Furthermore, this is an entirely voluntary measure and its success will depend on the response from the multinationals. It is doubtful whether multinationals will place much of their funds in Government stocks, however attractive the stocks may be.
Here we must look with some surprise at what the Minister said in his speech about these bonds. He said that he had no estimate as to what impact a new investment facility on special terms would have on this outflow. He also said that he could not specify what the precise terms of the security issued under this section might be. He does not know what type of bonds there will be even though the problem of the black hole has been with us for many months now and he has a provision in the Finance Bill purporting to deal with it.
What is needed is a scheme which will encourage and motivate multinationals to reinvest their profits in extensions of their existing business or in new manufacturing projects, not in Government bonds. In that way, there would be a very positive multiplier benefit in the form of extra employment and increased output. It would not be very difficult to formulate such a scheme which would encourage and make it attractive for multinationals to reinvest their profits in this country in the form of additional manufacture, thereby creating employment.
Deputy Mac Giolla was inclined to criticise us on two grounds. He said that most of what we proposed was on the basis of offering incentives and I accept that. However, he should understand that in this country we are dealing with a free enterprise economy. He would probably prefer us to be dealing with a totalitarian regime which would have complete control over the economy but we on this side of the House, as practical people, believe that we have to live in the real western world, which is a free enterprise economy. We have to work and operate in that environment and, therefore, we believe that we must offer financial incentives, direct financial grants of one kind or another or taxation incentives. I find it odd that Deputy Mac Giolla and his colleagues are still trying to sell — and this came out very clearly in the recent Ard-Fheis — the people of this country the old style Marxist-Leninist totalitarian regime type of economy when they know that those economies have totally failed. They might be very nice, desirable, intellectual concepts but their practical outcome in Russia and in Eastern Europe is that, whatever else they may do, they do not improve the material welfare of the people involved. In fact, it is fascinating that the Chinese have now publicly stated that they are going away from the whole idea of a Marxist-Leninist philosophy and approach to the economy because they believe it is not relevant to today's circumstances and they propose to try some other approach. Although that is the position, Deputy Mac Giolla and The Workers' Party are still advocating these old-fashioned approaches and philosophies which have not worked anywhere.
He also seemed to fall for the Fine Gael tactic of confusing the public mind about the Fianna Fáil approach to the economy. We believe that there must be a new approach, a turn around. In my Ard-Fheis speech, I said that we must take an economic leap and try to break out of this vicious downward spiral in which we are trapped by the policies of the Government. Deputy Mac Giolla said, as Fine Gael have also said, that many of the things we propose would cost money. He made the mistake of saying that that means increased taxation. We are talking about getting economic development from more taxation; we see clearly that it is the present crushing burden of taxation which is depressing the economy. We are talking about capital investment and it is rather naive to say, when we advocate programmes of capital investment, that that means more taxation. Of course it does not and I dealt with this at some length in my Ard-Fheis speech. I pointed out that we had to take in the short term this risk of reducing taxation and raising capital investment so that, in the medium term, our investment will both repay the tax which we have foregone and remunerate the investment.
The proposal set out in the document Building on Reality 1985-1987 whereby Bord Telecom Éireann will make a contribution of £50 million, £60 million and £70 million in 1985, 1986 and 1987, a total of £180 million to the Exchequer, is extraordinary. Deputy Mac Giolla was right to point out that it is extraordinary to find that proposal enshrined in the statutory provisions in section 66. It is very difficult to understand why a statutory provision is needed for what is really only a bookkeeping entry of that kind. It was an unfortunate proposal even as it was originally put forward in that it placed this arbitrary levy of £180 million on BTE in their early years when they would be short of finance and struggling to build up their organisation. It appears now from what the Minister said in his speech that the £180 million involved will be subsequently repaid over the next ten years. This is clearly a manipulation of public finances because the £180 million is a contribution. It will not appear as Government borrowing and it will also make the deficit look smaller than it is. Why should this £180 million be borrowed by the Government from a new board when they need every penny they can get, and then repaid later when presumably the board will have achieved profitability and will not need the repayment? No matter how you look at it it seems to be very much a device to manipulate this area of the public finance in order to make the Government's finances and position in the years immediately ahead better than they would otherwise be.
I wonder if the Minister for Finance has any notion, any concept of the degree of cynicism with which his speech here on Tuesday was greeted. It was a very dishonest speech. It attempted to give a completely misleading picture of both the state of the economy and the public finances. The Minister had the audacity to say yesterday that there is growing confidence in the economy. What economy is he talking about? It cannot be the Irish economy where there are mass unemployment, an increasing level of emigration, falling revenues and falling consumer demand. There is no confidence anywhere, no new investment, no new enterprises starting up. The Minister says that the Government have achieved their budget targets. This year the Minister plans for the highest budget deficit ever. I have already given the figure.
Debate adjourned.