asked the Minister for the Environment if he agrees with the conclusions in the Report on Impact of 1985 VAT Budget Increase on the Construction Industry published in November 1985, by the Society of Chartered Surveyors in the Republic of Ireland and if he will make a statement on the matter.
Ceisteanna—Questions. Oral Answers. - VAT on Building Services.
28.
I am aware of the report referred to by the Deputy. In connection with the subject matter of the report, I would refer him to my reply to Question No. 12 answered on 25 June last and Question No. 41 answered on 7 November last in which I referred to the effect of the increase in the rate of VAT on building services.
I would also like to point out that since the report was produced, the recent package of measures, comprising financial, taxation and employment incentives in the construction sector, has been introduced. The report does not, therefore, take account of the beneficial effects which these measures should have on both output and employment in the building industry.
Does the Minister agree that the increases in VAT had a serious impact on the building industry and that they have been delivered a death blow? Is he aware that skills which have taken many years to acquire have now been lost to the trade and that in some cases many of the people with these skills have emigrated? I should also like the Minister to give an indication of the number of new house starts from May to November 1984 as opposed to the same period in 1985 so that we could make a comparison, which I am sure will show that there is a definite downturn in the construction industry?
I understand the Deputy's concern regarding the building industry and I share it. However, I am sure he will agree that the state of the building industry is a reflection of the level of economic activity rather than a determining component. Demand within the building industry in respect of large sectors of the commercial area, such as factory and office accommodation and agricultural business accommodation, has declined. Were it not for the enormous contribution made directly by the Government at national and local level — approximately 75p in every £ spent in the building industry comes from the taxpayer — the industry would be even more depressed. The effects of the measures which we announced in the Barrettstown package will generate a lot of activity in the housing sector. There is, quite clearly, a level of oversupply in the other three sectors to which I referred. It is also hoped that, while the increases in the rate of VAT on the construction industry had a direct negative impact of some order, that impact was offset by the reduction in the levels of VAT generally and in the positive effect it had on economic activity, thereby stimulating a certain degree of fresh economic demand within the economy.
I cannot understand the Minister's mathematics when he says that there was a reduction in costs as a result of the changes in the VAT rate. An ordinary house which previously cost £30,000 has now increased by £1,500. Does the Minister agree that a mistake was made in the last budget? If so, would he now encourage his Cabinet colleagues to make positive moves towards restoring confidence in the building trade because, if not, many skills will be lost for ever?
The Deputy did not quote me correctly. I did not say that increases in VAT had reduced the cost of construction; clearly, that would be a contradiction. I appreciate the Deputy's concern: the building industry is in difficulties at present and that is the case in every country in the Community. The Government are contributing up to 75p in every £. The building industry frequently prides itself on being the flag carrier of private enterprise and many of its spokesmen articulate their support for the economic system. The building industry needs a little private enterprise investment from the same people who in the good years made enormous sums of money from the industry with resources which were supplied in the first instance by the taxpayer. The reality is that the level of economic activity in the construction industry is a function of economic demand within the economy generally. Perhaps the Deputies can point to new areas of economic demand in agriculture, industrial buildings or office accommodation — the three main areas of non-residential private sector activity — because there is no area in which the Government are not stimulating construction demand, whether in hospital programmes, local authority housing or roads. We have the biggest construction programme ever undertaken by any Government in respect of house improvement grants, schools and any other areas of the public sector of the economy to which anyone wants to refer.
Sadly, all of that enormous activity which is funded by the taxpayer is still not enough to deal with the requirements for employment and to sustain the skills to which Deputy Nolan referred. I should not like to give the impression that I was not accepting the Deputy's point. It has had a direct negative effect but we believe that effect has been somewhat offset — although it is impossible to measure — by the reduction of VAT levels generally and the simplification of the taxation system. This survey on which the Chartered Institute of Surveyors made their assessment of the construction industry and the economy was made before the impact of the Barrettstown package. While we are concerned about the matter, I believe there is the possibility that their predictions will not be borne out when the full effects of the Barrettstown package are felt.