The Minister for Finance, as I have already said, has had the audacity to say that this Government are achieving their budget targets. This year the same Minister brings in the highest budget deficit ever — £1,234 million, or 7.9 per cent of GNP. This is the Minister for Finance who talked a while ago about reducing the current budget deficit to £700 million. It is totally deceitful for the Minister to talk about achieving budget targets when, in fact, what he is doing is letting the current budget deficit run to an unprecedented height.
As I see it, the Minister for Finance, in particular, and this Government have adopted a totally new tactic so far as the public finances are concerned. What they do is bring out a document, proposal or statement setting themselves the softest of all possible options. In this case it it the current budget deficit. Then their propaganda machine goes to work and their pretty pliable public media accept the soft targets put out — a current budget deficit of enormous proportions. Then the Government and the Minister gives themselves a pat on the back and credit for reaching these soft targets which they set. That is exactly what has happened here. The Minister in his Budget Statement set himself a current budget deficit of practically 8 per cent of GNP — an all time record. Now he comes in and assures us that he is reaching his budgetary targets. Why would he not reach them, since he set them and at the softest possible level of achievement?
In another part of his speech, the Minister said as follows:
The recent publication of the end quarter figures for March led to some wild speculation that a second budget was planned for 1985. There was no basis for this kind of comment.
Later on in the same paragraph, he says:
Should it happen that a significant overrun begins to emerge during the course of the year, then the Government will take whatever steps are required to keep the budget in line with targets.
I want to state that that represents double-speak by this Minister for Finance.
First of all he implies that there will be no second budget. Then the second statement clearly envisages that there may be. When the Minister for Finance talks about "whatever steps are required to keep the budget in line with targets in the event of significant overruns", he is, of course, talking about a second budget and nothing else. It is totally misleading for him to suggest that talk of a second budget is wild speculation. It is nothing of the sort, because the trends shown up in the first quarter Exchequer returns, if they were to continue throughout this year, will certainly require a second budget of some kind.
There is another contradiction in the same paragraph. In one part of the paragraph the Minister says that it is much too early to draw conclusions about trends for the year as a whole, while later on he says that he has "no reason at this stage to be other than confident about the likely outcome". If it is too early to draw conclusions for the year as a whole, how then can the Minister be confident about the year as a whole?
That whole paragraph by the Minister represents, as I say, an audacious piece of double-speak and is totally unworthy of a Minister for Finance, coming into this House purporting to give us a factual outline of the position in introducing a Finance Bill.
This Minister's preoccupation with presentation rather than with straight factual statements is leading him into this sort of self-contradictory statement. We all recall that on introducing the budget this year, he departed from all previous tradition and practice in the manner in which he presented his budget. He did so because his budget speech was being broadcast on radio and he wanted to bring the good news in the budget forward to the beginning so that he could create the best possible atmosphere for his radio audience.
That sort of thing may be what the national handlers require the Minister to do, but it is certainly not in keeping with the dignified and responsible tradition of previous Ministers for Finance from all parties in this House.
We had more of this type of preoccupation with presentation and propaganda in the sort of speech the Minister delivered here on Tuesday. The local elections are coming up and it is necessary to give out some good news and whip up enthusiasm in the Government party ranks. I have no hesitation whatever in accusing the Minister for Finance of distorting the economic and fiscal realities of our situation for party political electoral purposes.
The Minister's most recent claim that we have come through the worst of the recession and that there are some encouraging economic developments is just not credible. This sort of claim has been made at periodic intervals over the last 18 months, especially by the Taoiseach, who has been seeing the light at the end of an awful lot of tunnels and who has turned an awful lot of corners. At the same time, unemployment rises, emigration grows and factory closures continue.
The fact is that in many, if not most, respects our economic situation is much worse than it was two years ago. The Minister's own Fine Gael predecessor, Mr. Richie Ryan, MEP, claimed at the weekend that the situation had become so bad that even the next, presumably Fianna Fáil, Government would not be able to do anything about it. One of the Coalition's State board appointees, an economist from Trinity College, urged this week that the IMF should be called in because the Government have given up on the public finances. Any economist today will tell you that (a) there is no recovery and (b) the Government's attempts to correct the public finances have failed. Indeed, I challenge the Minister to produce one reputable economist who will affirm that the recession is over and that economic recovery is underway. He will not be able to find one because in conscience nobody with any regard for the realities of the situation could make such an absurd proposal.
We have almost 18 per cent of our labour force unemployed. In December and January of this winter the numbers unemployed rose by 17,600, the highest rise for any two month period since records began. A slight fall since then does not appreciably alter that picture. Major industrial closures and financial collapses continue. Emigration on a large scale has started again, estimated at as much as 30,000 a year by agencies in Britain, and that does not include the United States.
Investment is at its lowest level since the 1960s. IDA job approvals are running at about half the level of the early 1980s and are in no way counteracting job losses. Real interest rates are at an unprecedentedly high level, about eight percentage points above the rate of inflation. The recent slight drop in interest rates does not even fully restore the situation that existed at the beginning of last December.
Despite our rate of unemployment of 18 per cent, the Finance Bill contains no new measures to promote employment. Unemployment is running at 60,000 above the level that was the starting point when the Government came to office and was the starting point of the Coalition's Joint Programme for Government and it is 10,000 above the peak projected in the document Building on Reality as late as last October. The latest ESRI-CII survey does not anticipate any increase in manufacturing employment this year.
Employment in the construction industry continues to fall and it is only 58 per cent of the level of five years ago. We are told the economy is recovering, but in one of the basic industries employment is at 58 per cent of what it was five years ago. Of all the sectors, building and construction have suffered the most severe contraction. The annual bulletin of housing statistics shows that in 1984 house building fell by 25,000 for the first time in eight years despite an increase in local authority housing. The decision to raise VAT on new houses from 5 per cent to 10 per cent is a piece of lunacy in the light of falling housing construction. We will be putting down an amendment to cancel that increase and we will be looking for support for that amendment when the time comes.
I was intrigued to hear Deputy Allen in his contribution try to defend that increase in VAT from 5 per cent to 10 per cent in respect of new houses. I had the experience of discussing the situation with some people involved in building and construction in Cork, which is Deputy Allen's own city. If he would take the trouble of talking to them I do not think he would dare come into this House and make the kind of case he tried to make today. All Deputies have been circulated with a good document from a firm of auctioneers, valuers and estate agents. Naturally as a commercial firm they are putting forward their own case as best they can but nevertheless their analysis of the situation is a good one. For the benefit of Deputy Allen, I should like to quote some extracts from that document:
However, the announcement of the doubling of VAT on new construction from 5 per cent to 10 per cent in the January budget arrested the improving trends and since then there has been a serious decline in both sales and starts of new houses and apartments. The decision of the Government recently to increase the new house grant from £1,750 to £2,000 will do little to avoid the mass unemployment that will take place in the building industry during May and June of this year.
The document went on to say:
Hundreds of sites throughout the country are in the process of being closed down and in most cases only dwellings which must be completed before the advent of the new VAT rate on 1st May are being completed. The doubling of VAT has dealt a massive blow to whatever confidence remained in the residential sector.
That document reflects the general view of the building and construction industry. The increase from 5 per cent to 10 per cent is quite inexplicable. The kindest explanation is that the Government did not fully understand what they were doing when they were increasing the rate but when they discovered what they were doing to the industry they should have had the courage to change their decision. On Committee Stage we will give them an opportunity to mend their hand and to withdraw this ridiculous imposition on an already seriously crippled building and construction industry.
Deputy Allen also pursued a tactic which is now commonplace among backbench Government Deputies. They come into this House and they demand certain things, they complain about other things and they insist that certain things must be done. However, they conveniently ignore the fact that they are Deputies of the Government parties and if they want things done the right approach for them is to go to their Ministers or to raise the matter at their parliamentary party meetings and to insist that action be taken. It is a rather despicable tactic for Government backbenchers to come in here and complain about this and that, to demand this and that and then to march dutifully into the lobby in support of Government policies that are doing exactly the opposite to what they require. It is parliamentary hypocrisy.
Deputy Allen came here today and spoke about the need for a programme of decentralisation. I found it difficult to believe my ears. He suggested the Government should pursue such a programme, but we in Fianna Fáil had begun a clear specific programme of decentralisation. We set it out. I happen to have with me our press announcement at the time, dated 22 October 1980. We outlined our plans to transfer Government offices to the Limerick-Nenagh-Ennis area, to Waterford, Dundalk, Sligo, Letterkenny, Galway, Cavan, Ballina, Athlone and Killarney. We also proceeded to implement that programme. Sites were bought, plans were drawn up and the whole programme was going ahead. This Government came in and cancelled the whole programme. Perhaps they were right in cancelling it in accordance with their particular economic philosophy. But it is hypocritical of Deputy Allen, who supports that Government and their policies, to come in here and ask for a programme of decentralisation when he knows that our specific programme of decentralisation, which had already been under way, was cancelled by the Government he supports. That is typical of the sort of thing that has gone on in this House over the past two years. Government backbench Deputies, from all parts of the country, come in here, make speeches, insist on this, demand that, complain about something else while, at the same time, marching through that division lobby in support of Government policies doing and achieving exactly the opposite.
I want to suggest that the income tax changes in this budget brought about no significant change in the tax burden of any group except for those in the top tax bracket. Most workers will have experienced little or no increase in their take home pay after 6 April. Indeed many will have had less in their pay packet than they had in the previous week. The Minister, in his press statement of 11 April 1985, accompanying the publication of this Finance Bill, made the unfounded claim that the provisions incorporated in this Bill are a big step forward towards a demonstrably more efficient system of fairer taxation. As far as most people are concerned the changes are so microscopic that they will go unnoticed.
It is generally recognised that one of the major problems facing our economy at present is the depressed state of domestic demand. According to the CII-ESRI survey for February, nearly one in four firms reported that production was being constrained and of these, 73 per cent blamed insufficient demand, that is in an economy which this Minister for Finance had the audacity to tell us is full of of confidence and has turned the corner.
Traditional home industries are continuing to fare badly. The volume of retail sales has declined by 10 per cent since 1980. Most of the decline in the last two years has been the result of direct and indirect tax increases. Reductions in taxation need not necessarily result in any significant fall in revenue given the present depressed state of our economy. Here I want to commend to the Government a process of selective tax reductions designed to promote employment. Whatever arguments may be put up against that proposal of ours in times of expansion, development and increasing output there can be no argument against it at present when, all over the place, we are seeing diminishing returns setting in. The first quarter figures for this year clearly indicate to us that there are diminishing returns throughout our economy on a massive scale. In that situation the logic of selective tax reductions in particular areas, which create employment and remunerate themselves, in my view is overwhelming. Why the Government cannot look at that is beyond me. Is it that they are so blinded by these monetarist doctrines which they have espoused that they cannot look at one single, sensible, practical proposition of that kind? Are they so obsessed with this fiscal rectitude, these monetarist doctrines, which are not even working for them?
Richie Ryan, MEP, in one of his usual outspoken outbursts indicated last weekend quite clearly to us that in his view the Government's financial and fiscal policies are not working. Other economists I have already mentioned said exactly the same thing although it is interesting to note that many economists who were breast high in monetarism and fiscal rectitude, who criticised us for our different outlook, are now all beginning to come round to believe that monetarism has failed and that the policies so implacably pursured by this Government have resulted in failure.
The principal rises in the level of VAT and the multiplication of rates in recent years were decisions of Coalition Ministers for Finance. Are we expected to give this Minister for Finance credit for correcting his mistakes? The top rate of VAT, which four years ago was 25 per cent, having been raised to 30 per cent and 35 per cent, has now been reduced to 23 per cent in a belated effort to compensate for the effects of those decisions. Somewhere in his remarks the Minister for Finance claimed credit for doing this sort of thing. For example, towards the end of his opening remarks on this Bill he had this to say:
One of the central points repeatedly made by the Commission on Taxation in their reports to date is that we must simplify our tax structure. I entirely agree with this and the changes in income tax and VAT which are incorporated in the Finance Bill are a big step forward towards a much more rational system of taxation.
Bravo. Hear, hear. We have a Minister for Finance who will now simplify VAT rates which he and his colleagues complicated in the first place. Since coming into office, in their first, short-lived period, and within this period, they have multiplied taxation in every direction, created a whole new series of taxes of one kind or another, a whole new band of value-added tax rates. Now we are expected to give them credit, to applaud their decision to uncomplicate this system of VAT rates that they made complicated in the first instance.
We warned over the last two years the disastrous consequences the high VAT rates would have in Border areas but only now is any attention being paid to those warnings. Trade lost in those areas will take a long time to recover fully. However, most of the items that prior to the July 1981 Budget were charged at 10 per cent remain at 23 per cent while the 10 per cent rate of VAT applies, for a large part, to items that used to be zero rated or 3 per cent — footwear and clothing, fuel and new houses to name but a few examples.
The urgent need for VAT reform arose directly from the savage rate increases introduced by Coalition Governments. The reform which we introduced — levying VAT at the point of entry — was the only real major one, a decision which incidentally two years later was copied by the British Government. We all recall the ferocious onslaughts made on us at that time by the present Taoiseach and other leaders of the Fine Gael Party about that major reform we brought about.
Section 11 of this Bill provides for the continuation of the 1 per cent income levy introduced by the Coalition in the 1983 Budget and justified by reference to what they described as the very serious budget situation. The fact that this 1 per cent levy is being continued leads us to the conclusion, despite all the cutbacks and hardship imposed by the Coalition, that we are still in a very serious budget situation. That was why that 1 per cent income levy was introduced in the first place — because of a very serious budget situation. It is now being continued. Therefore, ipso facto, we must still be in a very serious budget situation. But the Minister for Finance tells us that we are reaching all our budgetary targets, that we have turned the corner and the worst is over. The amount of inconsistencies on the part of this Minister for Finance certainly will merit a major entry in the Guinness Book of Records, that is if they have any paragraph in that publication for inconsistencies. I am not sure that they do. But if they do not the Minister for Finance and his Coalition Government would merit a very special heading in that book for a massive parade of inconsistencies of one kind or another.
As everybody knows, very high rates of taxation are to be continued through the medium of this Bill. We on this side of the House believe that the only way to give our economy a fillip, in an endeavour to attempt to turn it around, is to secure a very significant reduction in taxation levels. One of the ways in which people could hopefully look forward to achieving a reduction would be from revenues from offshore oil when it comes on stream. Therefore every taxpayer has a real interest in what will happen in regard to the taxation of those who will be reaping the benefits from offshore oil when it comes on stream. We are unhappy with the way this is being dealt with by the Government; it arouses our suspicions. This is a potential source of revenue.
There are a number of things in this Finance Bill which were not mentioned in the Budget Statement. That is not exceptional. It has happened from time to time over the years that things occurred to Governments and Ministers after the budget, and they were included in the Finance Bill. But, why was there nothing in the Finance Bill about the taxation provisions governing offshore oil when it come on stream? Would it not have been a natural thing to do if we are going to have a change in the royalties and the taxation provisions, so that we could discuss them on Committee Stage so that every Member would know what exactly was involved and so that we could decide on whether the taxpayer was getting a fair deal? That is not the way in which it was done. We have had a sudden announcement about changed conditions and a complex statement was issued by the Government through the Minister for Energy about new provisions. Some people on this side of the House are reasonably intelligent and got honours maths in school in the leaving certificate but none of us could make head nor tail of the statement put out by the Minister yesterday evening, and when he came in here today he certainly did not make the situation any clearer. In due course we will have to try to get experts to tell us exactly what is involved and what is going on behind this complex statement which the Minister put before us. Are some commercial concerns being singled out for favoured treatment?
My colleague, Deputy Reynolds, drew attention to the doing away with royalties and the changes in the tax provisions. The royalties, as Deputy Reynolds pointed out, were one way of ensuring that we could avoid any cheating or any creative accountancy for which some people in this area are well known. The taxpayer could be certain that the royalty was a fixed sum per barrel of oil and that he would not be cheated out of the return. That is being done away with and we are left with complicated algebraic formulae. As yet none of us have been able to decipher it but we will make it our duty to get to the bottom of it.
A statement in the Minister's speech today sends signals to us and it starts the alarm bells ringing. He said:
I will, of course, be prepared to consider, on a case by case basis, any requests from the holders of existing licences to have the new arrangements made applicable to their current licences, but it may be necessary to seek appropriate adjustments in work programmes in such cases.
That is what it is all about.