Financial Resolutions, 1986. - Financial Statement, Budget, 1986. – Dáil Éireann (24th Dáil) – Wednesday, 29 Jan 1986

An Ceann Comhairle

Before I call on the Minister for Finance to make his Financial Statement, I wish to remind Members that none of the confidential information which will be circulated in advance by the Minister to certain Members may be disclosed to anyone until the Minister has revealed it to the House. Premature disclosure of the information is considered to be a serious breach of privilege. Might I emphasise that Members may not take from the House any parts of the Financial Statement before they have been read out? I call on the Minister for Finance.

Minister for Finance (Mr. Dukes)

In preparing this budget, I had to consider and to reconcile three different requirements. The first is: what kind of budget would be most appropriate to the present state of our economy? The second is: the public finances constraint within which the achievement of the budgetary objectives has to be approached. The third is: what shifts in the balance of taxation are required by considerations of equity, efficiency and the need to tackle the black economy?

As far as the first requirement is concerned, the slower than expected growth in the economy and in employment during 1985 points towards a budget that will not depress the economy in 1986.

In relation to the second requirement, it is clearly necessary to reduce the current deficit from the opening figure by holding public spending down to the national plan level and, at the same time, by bridging some two-thirds of the gap between the level of revenue implicit in the national plan and the level of revenue likely to emerge at current tax rates.

In relation to the third requirement, a comparison of our tax structure with those of most other developed countries suggests, in our case, a marked disincentive effect in the structure of our personal taxation system. The combination of these considerations has led me to the conclusion that the broad approach to be followed in this budget should be:

First, to cut back the Exchequer borrowing requirement and the current budget deficit, not fully to the extent implicit in the national plan, because this would sharply deflate the economy, but nevertheless by a significant amount. The Exchequer borrowing requirement will be reduced from 12.9 per cent of GNP in 1985 11.8 per cent, and the current budget deficit from 8.2 per cent of GNP to a level of 7.4 per cent. In addition, total public sector borrowing, already reduced from 20 per cent of GNP in 1982 to 15¾ per cent in 1985, will be further cut to 14¼ per cent of GNP;

Second, as a contribution to the attainment of the objective of reducing the current budget deficit, and in order to contain the need for tax revenue, current spending will be held as close as possible to the implicit national plan level of about £8,030 million, by making such cuts in current spending as may be necessary to accommodate the additional costs of social welfare and public service pay within this broad total;

Third, on the revenue side, a sufficient amount of net additional revenue must be obtained in order to achieve the necessary reduction in the current deficit. This entails increases in excise duties and VAT. In making these increases, however, I will take full account of the needs of some particularly sensitive sectors, such as tourism and services, which are being adversely affected by current tax rates;

Finally, there will be a significant rationalisation of the taxation of financial institutions and a readjustment of the balance between the taxation of investment income from financial assets and that of wages and salaries, in order to improve the incentive to effort and the reward for work.

The following, therefore, are the main components of this budget:

(a) It will make provision for the recent public service pay offer, which, if applied to all relevant groups, will add 2 per cent to the 1986 Exchequer pay and pensions bill, as well as for certain special pay increases previously committed, which fall due for payment in 1986.

(b) It will make provision for increases in social welfare payments from July next, which will maintain the real value of these payments for a further year thereafter.

(c) It will provide for a child benefit payment of £15.05 per month for each of the first five children, an increase of one quarter on the present children's allowance — and the payment of £21.75 for each further child.

(d) It will effect spending cuts of £55 million from the sums set out in the published current Estimates in order to reduce current spending to £8,042 million and will reduce capital spending by a net £25 million.

(e) It will reduce VAT on meals and on a range of labour-intensive services, currently liable at 23 per cent, to 10 per cent from 1 July next. The services which will benefit from this relief include hairdressing, laundry and dry cleaning, electrical and most other repairs, cleaning services, cinema admissions and travelling fun-fairs.

Mr. G. Collins

Say that again. There he goes again.

Mr. Dukes

Deputy Collins is tempting me sorely to answer that.

(f) It will restructure the taxation of financial institutions and income from financial assets in order to remove major anomalies and inequities within the system, while raising sufficient additional revenue to reduce personal income taxes by a total of £121 million, or over twice the amount which would be required for indexation.

The income tax changes will be:

abolition of the 1 per cent income levy

increase of £100 in the PAYE allowance

increases in personal allowances in the 35 per cent tax band and the age exemption limits sufficient to keep pace with inflation

reduction of the top rate of income tax from 60 per cent to 58 per cent

doubling of the age allowance.

(g) Finally, the budget will, as a preliminary to much tougher anti-evasion action — including prison sentences of up to five years — offer to defaulting taxpayers a six-month amnesty from prosecution if they report their evasions, pay their back-taxes and re-enter the legitimate economy. There will also be an amnesty from prosecutions for those who come forward during the same six-month period admitting to earlier or existing irregularities in relation to the social welfare system.

REVIEW OF 1985 BUDGET OUTTURN

The budget outturn was again close to target in 1985, following the pattern established in 1983 and 1984. There was a small overrun on the current budget deficit, caused partly by the fact that the level of unemployment during the year was higher than had been expected, and partly by revenue shortfalls. The higher than expected level of unemployment was due in part to the fact that export growth, including that in certain high technology sectors, suffered a temporary setback. The revenue shortfalls resulted in part from the employment situation, and partly from the fact that last year's tax changes were more concessionary than had been thought at the time. While the current budget deficit at 8¼ per cent of GNP was marginally higher than the previous peak deficit recorded in 1982, the overall level of the Exchequer borrowing requirement has fallen since then from about 15¾ per cent of GNP to less than 13 per cent of GNP last year. Over the same period the public sector borrowing requirement has fallen as a proportion of GNP from 20 per cent to 15¾ per cent. This process of reducing annual net borrowing must be continued in this year's budget as an essential step on the road towards stabilising the ratio of debt to GNP.

Last year we continued with our policy of prepaying some of our earlier foreign loans and replacing them with less expensive loans carrying longer maturities. A total of £1.1 billion was repaid and refinanced in this way in 1985. The prepayment programme has been made possible by the favourable borrowing opportunities in the markets as well as by the high credit standing which Ireland enjoys internationally.

THE ECONOMIC SITUATION

During 1985 we experienced a slowdown in the rate of growth of industrial exports. This was due partly to a lower than expected rate of growth in world trade and partly to a sharp check to the growth of exports in certain high technology sectors. The adverse agricultural situation was a contributory factor also. Nevertheless, gross domestic product rose by over 2 per cent last year. For the first time in several years the volume of both personal consumption and fixed investment increased. There was another substantial reduction in the rate of inflation from over 8½ per cent in 1984 to less than 5½ per cent last year. By end-year, inflation was running at under 5 per cent, a rate well in line with that in our main competitor countries.

There was also a further improvement in both the external trade account and the overall balance of payments. The trade account moved into surplus in 1985 for the first time since the forties. With tourism having an extremely good year also, the overall balance of payments deficit fell to around 3 per cent of GDP, the best outturn for ten years. Although the level of unemployment rose again last year, notified redundancies showed a marked decline on the 1984 level, following five years of a rising trend. In addition, the increase in unemployment moderated again in 1985; this was the best outturn since 1979. The indications are that nonagricultural employment had stabilised by the end of the year.

The outlook for 1986 on the international front is broadly favourable. The depreciation of the dollar exchange rate and the decline in the level of interest rates internationally in the past year will contribute to easing our debt interest burden in 1986, while the marked decline in oil prices in recent months should, if sustained, have beneficial effects on economic activity in Ireland and in the industrialised world as a whole.

The commitment among EC member countries to pursue co-ordinated policies to achieve more growth and employment is encouraging. Given this external environment, we should continue to reduce our balance of payments deficit. Personal consumption, which rose in 1985 in real terms for the first time in four years, should continue this trend in 1986. The rate of increase in consumer prices, taking account of the effect of this budget and the latest falls in oil prices, is expected to be of the order of 4½ per cent. Investment in expected to maintain the upward momentum experienced last year. Prospects for employment, the one area where economic performance has been disappointing, will also improve.

EMPLOYMENT

The creation of jobs both to cater for the continuing expansion in the labour force and to reduce the existing level of unemployment remains the central economic and social priority of the Government.

Since taking office, we have pursued a twin-pronged strategy in seeking a resolution of the problem. First, we have sought, through taxation and incentive policies, to create a better climate for employment. The imaginative measures taken by the Government last October to stimulate building activity are an emphatic illustration of the Government's commitment to providing increased opportunities for employment.

Second, recognising the urgency of the situation and taking account of the fact that tax and incentive approaches must be viewed in a longer-term perspective, we have instituted a wide series of measures which would have an immediate impact on the numbers out of work. Two of the most successful schemes have been the enterprise allowance scheme, which has enabled roughly 10,000 unemployed persons to start their own businesses in its first two years of operation, and the social employment scheme, targeted at the long-term unemployed, which had almost 5,500 participants at the end of 1985.

GENERAL BUDGET STRATEGY 1986

OPENING POSITION

The published opening current budget deficit is £1,350 million. Deducting an estimated £35 million which Departments have in balances from 1985, the actual opening deficit is £1,315 million, compared with the 1985 outturn of £1,284 million. The overall opening Exchequer borrowing requirement, taking account of Departmental balances, is £2,093 million. This is one-half of a percentage point of GNP lower than the 1985 outturn of £2,015 million.

BUDGET TARGETS

The Government have decided that today's budget changes must achieve a further reduction in borrowing as a proportion of GNP. This course is essential for our future economic well-being and for the creation of employment. Therefore, while I am providing for social welfare improvements, income tax concessions and some expenditure concessions, there is no alternative but to provide also for both expenditure reductions and some tax increases. The tax increases, however, will be on a scale which will keep taxation within the ceiling set in Building on Reality.

CURRENT EXPENDITURE

PUBLIC SERVICE PAY AND INCOMES POLICY

PUBLIC SERVICE PAY

The published estimate of £2,600 million for public service pay and pensions in 1986 made no allowance for a general pay increase under the current pay round or for meeting the cost of outstanding special pay increases. In considering the scope for new increases, the Government obviously have had to have regard to the Exchequer's capacity to fund such increases, given that expenditure on pay represents nearly half of expenditure on net current supply services.

Against this background, the Minister for the Public Service has recently concluded a series of negotiations with certain public service groups which have resulted in an offer of a package of pay proposals. This package includes an offer on a 25th round involving a 3 per cent increase on 1 May 1986, 2 per cent on 1 January 1987 and a further 2 per cent on 1 May 1987. As regards special pay increases, the Government were faced with adjudication findings which, in the case of the groups directly concerned, would cost in excess of £70 million per annum to implement. In current circumstances such a figure is simply beyond the financial capacity of the Exchequer. The Government's package therefore provides for these special adjudication findings to be paid on a phased basis, commencing on 1 December next. However, the package allows for superannuation lump sums to be paid as if the special adjudication findings had been implemented on the dates recommended. Finally, the package involves a commitment by both sides to engage in meaningful discussions over the coming months on the machinery for pay determination.

The 1986 cost of the package on offer, assuming its eventual application to all groups in the Exchequer pay bill, plus the cost of special pay increases previously committed, is estimated at £68 million. I must stress that, in the light of all the constraints on the Exchequer, particularly in 1986, this offer represents the absolute limit to which the Government are able to go this year.

PUBLIC SERVICE PENSIONS

The Government also considered certain superannuation matters which arose during the recent pay negotiations with public service groups. One such matter was the issue of full parity on grade or special pay increases. The Government have now decided that, in the context of the phasing arrangements set out in the package, full pension parity in relation to special increases would be introduced with effect from 1 July 1986.

PUBLIC SERVICE WIDOWS' AND CHILDREN'S EX-GRATIA PENSIONS

Ex-gratia pensions are payable to the widows and children of pensionable public servants who retired or died prior to the introduction of the contributory widows' and children's pension scheme. Since 1979 the rate of ex-gratia pensions has stood at 5/6ths of the rate payable under the contributory scheme. Having further considered the position of these widows, and notwithstanding the significant cost involved, the Government have decided to introduce full parity for such widows in two steps, half the difference between the rates being eliminated on 1, January 1986 followed by full parity on 1, January 1987. The cost in 1986 of these two pension concessions is estimated at £2 million.

I shall be referring later to adjustments to the published expenditure allocations. These adjustments include savings of some £18 million to be realised in the pay area. Allowing for these savings and for the additional allocations for pay and pensions which I have announced, the pay and pensions bill in 1986 amounts to £2,652 million.

GENERAL INCOMES POLICY

The Government's pay policy is that pay increases in Ireland should not exceed the rate of pay increase in competitor countries and that, within this framework, the free collective bargaining system should continue to have regard to the ability of individual employers to pay and to the likely impact of pay settlements on employment.

There was a welcome moderation in the level of new pay settlements in Ireland in 1985. This progress must be maintained, especially since the rate of increase in our competitor countries generally is continuing to decline. Given that there is already a sizeable carryover in wage costs into 1986 from previous pay settlements, the scope for new pay increases in Ireland is extremely limited if the capacity of Irish firms to compete at home and abroad is not to be undermined. The achievement of the required moderation in pay settlements should be facilitated by the prospective continuing decline in the rate of inflation.

OTHER CURRENT EXPENDITURE

SOCIAL WELFARE

Expenditure on Social Welfare has reached nearly £2½ billion. While we continue to have an underlying dependency ratio greater than most countries with broadly comparable levels of development, the economic difficulties of recent years have exacerbated this problem. Despite the heavy and growing demands on the Exchequer and the difficult economic background, it remains a primary aim of the Government that transfers to the less well-off keep pace with the cost of living.

We have achieved that aim. Each of the welfare increases given in the first three budgets of this Government has exceeded the following year's increase in the cost of living. Last year's budget increases already ensure that payment rates over the first half of 1986 will be 6 per cent or more above those prevailing in the corresponding period of 1985, at a time when prices will have risen by less than 5 per cent. With inflation continuing to fall, the rate of welfare increase which is necessary to protect the real value of social welfare transfers is correspondingly contained. Accordingly, a general increase of 4 per cent in personal and adult dependant rates of welfare payments and health allowances from mid-July will assure the living standards of those on welfare for a further year. The Government recognise the special position of the long-term unemployed; the long-duration rate of unemployment assistance will be increased by 5 per cent from mid-July. These increases are not being applied to the weekly child dependant payments but the resources thereby saved are being channelled directly into the new Child Benefit scheme which I will outline later.

—Weekly Welfare Payments

The 5 per cent increase for the long-duration unemployed will give the following improvements:

—a single person on long-duration unemployment assistance living in an urban area will get an extra £1.75 a week, giving a total of £36.70, while a married couple will benefit by £3.00 to bring them up to £63.15 a week;

—single persons in rural areas who are long-term unemployed will receive an extra £1.70, bringing their weekly payment to £35.50, and a married couple will get an extra £2.95, thus providing them with £61.30 a week.

The 4 per cent increase for other welfare recipients will bring about the following results:

—a contributory old-age pensioner who is under 80 will get an extra £2.05 a week, bringing the pension to £53.45 a week;

—a non-contributory old-age pensioner who is under 80 will get an increase of £1.75 a week, bringing his or her maximum pension to £45.75 a week;

—where a married couple are both of pension age and under 80, the new rates of contributory pension will mean an increase of £3.60 a week, so that their total pension will be £93.35;

—the contributory pension of a widow under 66 will be £48.10 a week, an increase of £1.85;

—a widow under 66 with a non-contributory pension will benefit by £1.75, giving her a maximum of £44.90 a week;

—the flat-rate unemployment or disability benefit rate payable to a single person will rise by £1.60 to £41.10 a week, while a married couple will get an extra £2.60, giving them a new total of £67.70 a week; these payments may, of course, be topped-up with pay-related benefits.

All the above increases will take effect from mid-July and will cost the Exchequer an additional £36.5 million this year and £79 million in a full year.

—Pay-Related Social Insurance

Despite considerably higher social insurance expenditure, it has been the Government's policy not to increase the rates of contribution to the Social Insurance Fund. The current rates will continue to apply in 1986-87, subject only to an increase in the earnings ceiling from £13,800 to £14,700 as provided for in the published Estimates. Deputies will already be aware of the new scheme under which employers creating additional employment between 23 October 1985 and 31 March 1986 will not be required to pay PRSI in 1986-87 for any additional new jobs created, provided the new employees had been unemployed for the previous six months or more.

Employers alone are responsible for the funding of the benefits payable out of the Redundancy and Employers' Insolvency Fund and the Occupational Injuries Fund. Minor increases in the contribution rates to each of these funds are necessary to ensure their continuing solvency. The redundancy contribution will be increased by 0.1 of a percentage point from 0.5 per cent to 0.6 per cent from April next. The occupational injuries contribution will be increased by .03 of a percentage point from 0.4 per cent to 0.43 per cent. As usual, the ceiling for these two contributions will be the same as that for the social insurance contribution which, as I mentioned earlier, will be £14,700 from next April.

The ceiling for the 1 per cent health contribution will also be increased in April from £13,000 to £14,000. The eligibility limit for free consultant services will be increased from 1 June. The Minister for Health will announce the revised limit in due course.

—Health Services

I should remark at this point that the Estimates allow for almost £1,200 million in 1986 for health services. That is a significant sum in the overall budget context. In line with Building on Reality, the Government's expressed intention is to concentrate resources on the prevention of illness, on community services, on services for the handicapped and on essential improvements. Achievement of these aims will require some rationalisation of services by removing unnecessary and obsolete facilities and institutions which, having regard to recent and projected developments, are no longer necessary in a modern health service.

Allocations to health agencies supplemented by these savings will allow extra expenditure of £250,000 to extend the measles vaccination scheme and funding to open an adult mentally-handicapped 70-place day facility at Belcamp in Dublin, a major new complex at Swinford in County Mayo, a geriatric assessment unit at Ardkeen, County Waterford, and the commissioning of the CAT scanner at the Regional Hospital in Galway.

—Equal Treatment

The legislation to provide equal treatment as between men and women in matters of social security was enacted by the Oireachtas last year. For a number of mainly practical reasons reflecting the complexity of the provisions, the legislation has not yet taken effect. Implementation will start, however, during the first half of this year and has been provided for in this year's Estimates.

—Child Benefit Scheme

The introduction of a full child benefit scheme along the lines envisaged in the national plan will not be possible this year for administrative and technical reasons. In these circumstances the Government have decided to introduce, with effect from April 1986, a new monthly child benefit payment of £15.05 for each of the first five children, as compared with the existing children's allowance rate of £12.05. The present differential of £6.70 in respect of the sixth and subsequent children will be maintained, giving a new rate of £21.75 a month.

This payment will replace most of the existing child support schemes and will involve expenditure of £33.3 million more than would have been incurred on the existing scheme of children's allowances.

The resources for this payment will be provided by adding together

—the funds that would otherwise be used for the children's allowance scheme

—the funds that would have been used for the budgetary increase which would otherwise have been made in the rates of social welfare weekly child dependant allowance

—the extra revenue which will accrue from the abolition, from next April, of the present £100 child tax allowance

—a further allocation of £11.1 million from the Exchequer.

The combination of measures involved in the new payment will ensure that, as intended in the national plan, the effect will be to achieve a more selective distribution of resources. Lower-income families on social welfare or below the tax threshold will benefit while the position of standard rate taxpayers will be protected. It is important, of course, that the new scheme be seen in terms of its combined effect for the family on the taxation and social welfare sides.

—Family Income Supplement

The weekly income criteria which determine entitlements to the family income supplement scheme will be increased in line with today's budget increases in short-term social welfare benefits and changes in personal income taxation. As the child benefit scheme to be introduced in April is somewhat more limited in scope than was envisaged in the national plan, the Government have decided to increase from 25 per cent to 33½ per cent the rate of payment under the family income supplement scheme. These changes will increase the cost of the scheme by about £1 million this year and will enhance the position of low-income employees with dependants.

—Other Social Welfare Adjustments

When the abridged Estimates volume was published last December, certain projections were made regarding the level of unemployment and of PRSI receipts. In the light of the preliminary 1985 outturn figures and other data now available, some adjustments to the 1986 Estimates would be prudent. First, due mainly to a revised assesment of the likely level of participation in special employment and training schemes, I am providing an extra £9.2 million for unemployment payments. Second, PRSI receipts are likely to be about £9 million lower than previously projected. However, end-year savings on other welfare subheads indicate that similar savings will be possible this year, and these, together with certain other adjustments, give a net increased requirement of over £6 million as set out in the "Principal Features of the Budget".

SPECIAL EXPENDITURE PROVISIONS

—National Youth Policy

As indicated in their National Youth Policy published at the end of December, the Government are providing an additional £2 million in 1986 for the implementation of the provisions of the policy. The additional funds will be directed mainly towards continued development and promotion of services for young people, both in urban and rural areas of special need.

—Additional Allocations for Sport:

Olympic Council of Ireland

I am providing a grant of £250,000 to the Olympic Council of Ireland in 1986 towards the preparation of our athletes for the 1988 Olympic Games.

Racing Board

In order to improve the general standard of racing here and to encourage owners and breeders to keep more horses in training and thereby maximise employmenmt in the industry, I have decided to make £250,000 available to the Racing Board towards increasing the prize money for national hunt racing. I am hopeful that this gesture will in turn lead to increased sponsorship from the private sector for this side of racing.

Bord na gCon

I am providing £50,000 to increase the prize money available to Bord na gCon for greyhound racing. I expect the increased prize fund will enable the bord to mount a better racing programme so as to attract greater attendances and in turn to undertake the upgrading of those tracks that need improvement.

Mr. G. Collins

You would not win a long distance with that one.

Other Sporting Bodies

Mr. Dukes

Additional assistance totalling £150,000 is also being provided for other sports organisations to enable them to undertake special developments. The main beneficiaries are outlined in the "Principal Features of the Budget".

Sports Scholarships

I am allocating a further £100,000 to enable scholarships to be awarded to outstanding athletes to enable them to undertake training and competition at the highest level.

—“Women in Business Enterprise”

The Government have decided to maker a special allocation of £150,000 to develop and extend the "Women in Business Enterprise" programme of activities to be pursued by the Minister of State for Women's Affairs.

—Voluntary Organisations Involved in Cross-Border Co-operation

The Government have decided to provide a further £100,000 assistance to voluntary organisations involved in cross-Border co-operation in addition to the £150,000 already in the Estimates. This substantial increase indicates the Government's commitment to encouraging their work, which plays a unique role in promoting dialogue between the divided people of the North and between North and South.

—Limerick Civic Trust

The Limerick Civic Trust is a charitable trust engaged in the restoration and rehabilitation of derelict sites and buildings. It is funded by covenants from local industry. In recognition of their work the Government have decided to make a special contribution of £100,000 to the trust.

—Voluntary Organisations

Last year we increased the allocation for once-off grants to voluntary organisations undertaking projects in the social services area to £650,000. This is a scheme which has had an impact far beyond the resources devoted to it. The Government feel that it would be very much worthwhile to give an additional £100,000 to such projects this year, bringing the total amount available to these organisations from the Exchequer to £750,000.

—Arts Council

I am making a special grant of £100,000 to the Arts Council to enable them to match the very generous assistance of the Calouste Gulbenkian Foundation to the Arts Community Education Project. This project is designed to develop and support projects in community arts and arts education in Ireland.

—Cork Opera House

A sum of £50,000 is being provided to the Cork Opera House to enable it to overcome its financial difficulties and to assist its continuing operation in 1986.

—Cork (800) Enterprise Board

Last year the "Cork 800" proved to be very successful in restoring a sense of confidence to the people of Cork and provided substantial economic benefits for the city. A permanent committee of the Cork Enterprise Board has now been formed with the intention of continuing the work done last year for the "Cork 800". A once-off grant of £50,000 is being provided to this committee to help them get established.

—Irish Labour History Society

The Government have decided to make a grant of £100,000 to the Irish Labour History Society to help towards the establishment of a labour history museum in Dublin. This grant coincides with the celebration of the centenary of the Dublin Council of Trade Unions which is also to be marked this year by the issue of a commemorative stamp.

—National Parents' Council

A sum of £50,000 is being provided for the National Parents' Council which was set up last year on the initiative of the Minister for Education. It is recognised that this council requires some further finance to set up its structures and to be in a position to generate its own funds. This grant is a once-off payment to be made in 1986.

—Gaeltacht Rath Cairn: Comóradh Caoga Bliain

Ceiliúradh anuraidh bunú Ghaeltacht Rath Cairn caoga bliain ó shin. Mar aitheantas ar an sárobair ar mhaithe la caomhnú na Gaeilge mar theanga phobail atá déanta ag Muintir Rath Cairn, tá socraithe ag an Rialtas deontas ar leith £50,000 a chur ar fáil don choinharchumann áitiúil mar chabhair chun tograí fiúntacha a chur chun chinn.

—Welfare of Emigrants Abroad

It has been decided that the grant for the welfare and advisory services for Irish emigrants abroad is to be increased by £50,000 over and above the £150,000 already provided in the 1986 Estimates.

—Irish Society for the Prevention of Cruelty to Animals

The Government have decided to make a special payment of £25,000 to the Irish Society for the Prevention of Cruelty to animals in recognition of their valuable work.

—Irish Youth Orchestra

A sum of £15,000 is being provided to the Irish Youth Orchestra to assist it in its activities this year.

NATIONAL LOTTERY

The National Lottery is to be operated by An Post for an initial period subject to settlement of satisfactory terms. The funds generated will be used for the funding of sports and recreation facilities, national culture including the Irish language, the arts and health services. I will shortly introduce a Bill in this House which will provide for the establishment and operation of the National Lottery. It is not possible at this stage to predict the State's income from the lottery in 1986 and so the budget takes no account of this. The Government are of course concerned to ensure that the good work funded by existing charitable and other voluntary lotteries which operate nationally does not suffer as a result of the operation of the National Lottery and appropriate arrangements are in train to ensure this.

CENTRAL FUND SERVICES

The estimate for expenditure on Central Fund Services this year at £2,290 million, is £76 million or 3 per cent greater than the 1985 outturn. The debt service component, which is up by £53 million on the 1985 figure, accounts for the bulk of this increase. The increase in the estimate is the smallest for many years and reflects in a very tangible way the benefits of the fall in interest rates since this time last year, as well as the weakening of the US dollar. It is still imperative, however, to contain the level of Government borrowing and so reduce the pressure on the public finances and the balance of payments. Interest payments this year will absorb 30 per cent of our tax revenue, as compared with 19 per cent in 1977. Foreign interest payments in 1985, at £780 million, were considerably in excess of the balance of payments deficit on current account.

OVERALL CURRENT EXPENDITURE

These provisions would leave overall current expenditure at £8,097 million, which would be in excess of the 1986 national plan figures.

Work on identifying scope for achieving further reductions in current expenditure has continued in the period since the Estimates were published. This work, and the availability of actual expenditure returns for 1985, have enabled the Government to make net additional reductions totalling £55.2 million on the published figures, inclusive of the net additional requirement of over £6 million for the Social Welfare Vote which I referred to earlier. Details of the changes are set out in the "Principal Features of the Budget".

These reductions, together with the other expenditure matters to which I have already referred, bring the figure for overall current expenditure down to £8,042 million, almost exactly the 1986 national plan figure. Expenditure on the non-capital supply services will amount to £5,752 million. This is equivalent to some 34 per cent of GNP compared with 34½ per cent in 1985. We intend to continue our efforts to reduce the burdern of day-to-day expenditure in the years ahead.

TAXATION

TAXATION POLICY

Last year I introduced radical changes in the structures of income tax and VAT. My purpose was to simplify these taxes, to make them fairer and to remodel the tax system in a manner that would have substantial economic benefits. These changes were generally welcomed. What I propose to do this year is to build on these improvements and sustain the momentum for progress.

In the 1985 budget I also fulfilled the general commitment on taxation in the national plan that there would be no increase in the overall level of taxation over the period of the plan. While there must be some increases in taxation on this occasion, the burden of tax this year will be within the ceiling set by the plan. It remains the view of the Government that the overall level of taxation is as high as it can reasonably go. The emphasis in the period ahead must be on sharing the burden of taxation on a wider basis, simplifying the tax code, improving collection procedures and reducing tax levels as far as reasonably possible.

INDIRECT TAXATION

The achievement of this year's budgetary objectives requires increases in indirect taxes. The ratio of the main indirect taxes to GNP fell from 17.7 per cent in 1984 to 17.4 per cent last year or by the equivalent of about £60 million. While this fall resulted in part from the selective reductions which were made in certain areas last year, a more important factor was that the major VAT restructuring undertaken in 1985 turned out to be more liberal that originally intended. In tailoring today's measures I have been particularly conscious of the needs of the tourist industry and other labour-intensive services as well as the needs of the motor trade.

—Value-Added Tax

Today's VAT changes involve an increase of 2 per cent in the standard rate combined with substantial reductions in tax on key services.

Standard Rate

I consider that the change in the stand-are rate is more justified at this time than an increase in either the zero rate or the 10 per cent rate. The benefit of last year's substantial reduction in the standard VAT rate from 35 per cent to 23 per cent for the many categories of expenditure concerned will still be largely maintained. The yield from this increase will be £76.7 million in 1986 before allowing for the costs of the reductions in respect of meals and certain services.

Meals

At present, meals in canteens, restaurants and hotels and catering establishments generally are liable to VAT at 23 per cent. A very strong case has been made to me concerning the beneficial effects which a reduction in this rate would have for tourism, employment and consumers generally. Expenditure on meals constitutes a significant proportion of tourist spending and I am confident that a VAT reduction can give a significant boost to tourism, both foreign and domestic.

Domestic consumers will also benefit through lower prices in staff canteens and other catering establishments. Furthermore, this sector is a significant source of employment and its potential for job creation will be stimulated by lower indirect tax rates. I propose, therefore, to reduce the rate on meals generally to 10 per cent with effect from 1 July next. This will allow price reductions from existing levels of the order of 10½ per cent. While the 25 per cent rate must, because of budgetary constraints, apply in the March to June period, I am confident that the announced reduction to 10 per cent will enable this sector to respond in a positive way in advance of the 1 July reduction. As a rationalisation measure, hot take-away food which is currently zero-rated will also be liable at 10 per cent from 1 July.

Mr. G. Collins

That means 10 per cent on the bag of chips.

Mr. Wilson

A "one and one" equals 10.

Mr. Dukes

If Deputy Wilson has been buying chips at 10 per cent VAT he has been evading tax because he should be paying 23 per cent.

The Taoiseach

The chips are down.

Mr. Dukes

The cost of these changes will be £11.3 million this year and £37.8 million in a full year. As I have said, I expect that this measure will be of considerable assistance to tourism. Almost one-fifth of expenditure on meals in restaurants and hotels is incurred by foreign tourists, while almost one-seventh is incurred by domestic tourists. Two-thirds of the expenditure is incurred by domestic non-tourists. The VAT reduction will enhance the ability of our hotels and restaurants to attract business in these market segments.

We should not overlook the fact that almost 40 per cent of non-tourist expenditure on meals out of the home is accounted for by staff canteens in factories and offices, and that by far the greater part of the remaining expenditure is on everyday lunches, meals and snacks in ordinary restaurants and cafes. The proposed VAT reduction will therefore bring a direct benefit to a great many people during the course of their normal daily activities.

Touring Coaches

As an additional stimulus to tourism, I propose to introduce, with effect from 1 March, a special VAT refund system which will effectively reduce VAT to 10 per cent on the purchase of certain high-cost touring coaches used in the tourist industry. The cost this year is estimated at £250,000.

Selected Services

As a further measure to give a boost to employment, the rate of VAT on selected services will be reduced to 10 per cent which should, as in the case of meals, allow for price reductions from existing levels of the order of 10½ per cent. The main areas affected will be hairdressing and similar personal services, laundry and dry-cleaning, repairs to electrical and most other goods, cleaning services, and cinema admissions and certain travelling funfairs.

Dr. Woods

Did the Minister say "fun-fairs"?

Mr. Dukes

I detect a certain slowing down on the other side of the House. As a rationalisation measure, the reduction to 10 per cent will also be extended to certain entertainment associated with the supply of meals and drink. These changes will take effect on 1 July. The cost this year will be £6 million and £20 million in a full year. The combined impact of this change and the reduction to 10 per cent in VAT on meals will reduce by over two-thirds the services component of the VAT base covered by the present standard rate.

I propose to exempt from VAT from 1 July 1986 the services supplied by dental technicians which are at present taxable. A provision to this effect will be included in the Finance Bill.

As a consequence of the increase in the standard rate to 25 per cent, the flat-rate VAT rebate for unregistered farmers and the associated VAT charge on livestock will be increased to 2.4 per cent.

The net yield from VAT changes I have announced today will be £59.2 million in the current year and £53 million in a full year. The impact on consumer prices of today's proposed VAT changes will be less than 0.2p in the pound. The long-term benefits for tourism and employment generally should be very favourable.

I am proposing increases in excise duties on a number of commodities. The increase in the standard rate of VAT will, of course, affect these commodities from 1 March next. The following excise duty increases, including consequential VAT at the present 23 per cent rate, will apply with immediate effect:

Beer	— 1p per pint.
Spirits	— 3p per glass.
Wine	— 4p per bottle of table wine, with pro rata increases for stronger wines.
Cider and Perry	— 5p per gallon on the ordinary strength cider and perry, with greater increases for stronger cider and perry.
Cigarettes	— 7p on the packet of 20 cigarettes in the most popular price category, with pro rata increases for cigars and other tobacco products.
Petrol	— 6p per gallon, but existing rebates to handicapped drivers will be increased to match this duty increase.
Auto-diesel	— 4p per gallon, but this will not apply to scheduled road passenger services.

I am not proposing any increase in the duty on auto-LPG.

Impact of Increase in Standard VAT Rate

When the increase in the standard VAT rate on 1 March is taken into account, the cumulative effect of the excise duty and VAT increases on these commodities will be of the following order:

Beer	— 3p per pint.
Spirits	— 6½ per glass.
Wine	— 11½ per bottle.
Cider and Perry	— 15p per gallon.
Cigarettes	— 10½ on the packet of 20.
Petrol	— 10.8p per gallon.
Auto-diesel	— 8½ per gallon.

Mr. MacSharry

The Minister will have to give up cigarettes.

Mr. Wilson

The petrol increase is a scandal.

Mr. Dukes

The combined excise and VAT increases on the items concerned have been kept broadly in line with the level of the excise increases which would have been envisaged had there been no increase in the VAT rate.

Yield from Excise Increases

The yield from the excise increases, including the cost of some restructuring of wine duties which I will mention later, is estimated at £38.4 million in 1986 and £44.3 million in a full year.

The excise duty increases will take effect from midnight tonight. There should be no increase in the price of goods already in the shops, as the higher duty will apply only to goods imported or removed from bond from midnight tonight.

There are some other changes I propose to make in the excise area.

Reduction in Duty on Cars

As a concession to the motor trade at a time of difficult trading conditions, I propose, in order to offset the VAT rate increase on cars, to reduce with effect from 1 March next the excise duty on category A motor vehicles. The duty will be reduced by 1.3 percentage points. The cost of this reduction in 1986 is estimated at £6 million. The combined effect on car prices of this excise reduction and the VAT increase will therefore be neutral.

I propose to make a number of other changes designed also to benefit the motor trade.

Reductions in Duties on Motor Vehicle Spare Parts and Tyres

I announced in last year's budget a reduction from 25 per cent to 10 per cent in the duty on motor vehicle parts. Under the arrangements already agreed with the trade, the 10 per cent duty rate is to apply from February 1986. I now propose to phase out the remaining 10 per cent duty and discussions on timing will be held with the trade. I am allowing £500,000 to cover the cost which is expected to arise in 1986. The full year cost of this concession is estimated at about £3 million.

I propose also to abolish the duty on tyres and tubes. The timing of the abolition of this duty, which amounts to about 4 per cent of the retail price, will be discussed with the trade. I am providing £1 million to cover the cost in 1986. The full-year cost of abolition is estimated at about £3 million.

Duty on Made Wine and Fortified Wines

The duty on made wine will be brought into line with that on wine in order to meet EC requirements. I propose also to restructure the duty bands on fortified wines so that a single rate of £2.90 per litre will apply to all such products in the 15 per cent to 22 per cent alcohol by volume category. While the price of some products will increase as a result, there will be significant price reductions for port and similar products.

Duty Rebate Scheme for Table Water Manufacturers

The duty rebate scheme for Irish-based table waters manufacturers is to be phased out to comply with EC requirements. The excise duty on table waters will, however, be reduced by 1.2p per gallon from October next so that there will be no gain to the Exchequer. Full details are set out in the "Principal Features of the Budget".

Betting Duties

I announced last year a reduction in the excise duty on off-course betting from 20 per cent to 10 per cent. I stated that this reduction was intended to be an experiment to test whether the cost would be relatively small. While there has been a significant increase in betting turnover, there has nevertheless been a considerable loss in revenue. As it is too early yet to reach a final conclusion on the success, or otherwise, of the experiment, I propose to keep the duty at its present level.

—Road Tax

I propose to simplify the rates of road tax applying to private motor cars. There will also be increases, broadly in line with inflation, in the road tax on these vehicles designed to yield an extra £4.7 million in 1986 and £5.5 million in a full year. The new table of rates, which will apply from 1 March next, is set out in the "Principal Features of the Budget".

NEED FOR FURTHER MEASURES

As I stated at the outset, the Government have decided that the current deficit must be set this year at a level that will reduce it from 8.2 per cent of GNP to 7.4 per cent but that, nevertheless, there should be substantial relief for personal taxpayers from April next.

To achieve both aims the Government have decided on new tax measures which will substantially alter the overall structure of taxation. Before I come to these, however, I want to turn to the matter of due compliance by taxpayers, so that all will make their fair contribution.

TAX COLLECTION AND ENFORCEMENT

The problems of tax collection and enforcement have been accentuated in recent years by the recession and the resultant trading difficulties for many firms and companies. Nevertheless, this administration have, more than any previous one, recognised the importance from a tax equity viewpoint of a better tax collection and enforcement system. We have, accordingly, introduced a number of important legislative and other measures to improve compliance and penalise default.

Deputies will recall that in October last the Taoiseach announced in this House a number of wide-ranging measures to improve tax collection and enforcement. These included a number of measures directed towards a new organisational emphasis on collection. In particular, the transfer of tax enforcement work from county registrars to sheriffs was decided on. The Revenue Commissioners are now in the process of preparing for the issue of cases for enforcement to the sheriffs as soon as they are appointed, to ensure the effective launching of the new scheme of enforcement which will be introduced on a phased basis in the coming months.

TAX AND SOCIAL WELFARE AMNESTY

The Government are determined that the fight against tax evasion will be intensified. They are also, however, willing to give an opportunity to those who have defaulted in the past to rectify their situation. I wish to announce therefore that an amnesty from prosecution and the application of the penalties provided for tax evasion will be available to those who comply fully with its conditions within a strictly limited period of six months. The conditions of the amnesty are as follows:

Defaulters must within six months from today's date—

(a) disclose to the Revenue Commissioners the fact that they had engaged in tax evasion;

(b) detail the manner and extent of all their evasions;

(c) produce details of their assets, deposits and other holdings; and

(d) make a substantial payment on account of the tax evaded and agree a schedule of payments over a limited period to clear the full amount due to the Revenue Commissioners.

Mr. Haughey

And go to Lough Derg.

Mr. Dukes

Full information about the arrangements for the amnesty will be published by the Revenue Commissioners. I must stress that evaders and defaulters who fail to avail of the amnesty will be subject to the full rigour of the additional anti-evasion measures announced last October and when detected will face a tough enforcement regime including terms of imprisonment of up to five years for serious offences. The amnesty will not apply to cases already under investigation.

The Government have also decided on a social welfare amnesty which will take the form of an amnesty from prosecution for those who come forward within the six months period from 29 January 1986 admitting to existing or earlier irregularities in relation to the social welfare system. This amnesty will not apply to cases already under investigation nor will it extend to a waiver of a requirement to repay any moneys obtained over and above legitimate entitlements.

A number of specific additional measures to help prevent tax evasion will be introduced. As Deputies will be aware, it is now a condition of the house improvements grants scheme that contractors employed on grant-aided work must furnish their tax number. A corresponding condition is to be introduced in relation to the new house grant and mortgage subsidy and suitable arrangements for this purpose are being drawn up in consultation with the Minister for the Environment. The detailed measures for the implementation of this requirement will be announced shortly.

Legislation which is to be introduced shortly by the Minister for Health to amend the provisions of the Act under which the VHI Board operate will provide that the board will be required to disclose information to the Revenue Commissioners as to payments made to or in respect of subscribers on foot of treatment expenses incurred by them.

I announced on 22 May last year, in the course of the discussion in Seanad Éireann on the Finance Bill, that I proposed to introduce legislation to counter abuse of partnership arrangements for tax avoidance purposes. Such arrangements had been used to create losses artificially which were then set off against the general incomes of the limited partners. I served notice at the time that this legislation would have retrospective effect from the date of my announcement. The legislation required will be incorporated in the forthcoming Finance Bill.

The tax collection and enforcement package announced last October in conjunction with the measures announced today will have a beneficial effect on yield, particularly in the longer term. I have allowed for an additional £15 million in 1986.

TAXATION OF FINANCIAL INSTITUTIONS

Existing arrangements for taxation of deposit interest are unsatisfactory. They give undue advantage to some financial institutions and there have been repeated demands for harmonisation. I propose to make a significant change in the direction of equal treatment of the main deposit-taking institutions. This will also ensure more orderly tax procedures, more effective countering of tax evasion and increased revenue.

Accordingly, with effect from 6 April 1986, a retention tax, at a rate of 35 per cent, will be deducted at source out of interest paid or credited on bank and building society deposits in the beneficial ownership of residents. Companies may offset the tax retained against liability to corporation tax and individuals liable at the higher rates will be taxed on their gross interest at the difference between the standard rate and the appropriate higher rate. The present composite rate tax arrangement with the building societies will not apply for 1986-87 and subsequent years and the interest reliefs available on deposits with certain banks and other institutions will be terminated as from 6 April 1986. Returns to the Revenue Commissioners by the financial institutions of interest paid on deposits subject to the retention tax will not be required. To obtain exclusion from the retention tax a new form of declaration, which must be held available for inspection by the Revenue Commissioners, will be required in respect of non-resident accounts with building societies and banks. However, in the case of banks, notices of non-residence exempting interest on existing accounts from inclusion in returns by the banks for tax purposes will, for a period of one year, satisfy the requirement for a new declaration. To deal with bogus non-resident accounts. I propose to introduce legislation in the Finance Bill to empower the Revenue Commissioners to require details of existing non-resident deposits in certain cases. The requirements will operate only in respect of deposit accounts, the balances on which at 29 January 1986 are reduced by more thanm 25 per cent at any time between that date and 5 April 1987. Further details are given in the "Principal Features of the Budget". The net additional yield from these measures in 1986 is estimated at £75 million.

Life assurance companies and their investors benefit from exceptionally generous tax reliefs which are difficult to justify in today's conditions. In particular, much of the investment in these companies is of a short-term nature. The changes in this area were already foreshadowed in my 1983 budget statement. It has now been decided to impose a charge of 15 per cent on the gross investment income and the surplus on the realisation of investments of life assurance companies, with the exception of their pension business and foreign business. The charge will be collected from the assurance companies on an annual basis. The first payment of this charge will be in October 1986 and will be based on the companies' investment income and surplus in 1985. The estimated yield this year is of the order of £38 million.

The bank levy will again apply in 1986 at a level of £25 million.

CAPITAL ALLOWANCES

Capital allowances on plant and machinery are given at present without regard to IDA or other grants paid from State sources. This means that the Exchequer is extending a full measure of relief from taxation on expenditure on plant and machinery which, effectively, the Exchequer itself has incurred. I propose to abolish this anomaly in the Finance Bill with effect from today. This change will yield some £18 million in a full year of operation and will have the desirable effect of correcting to some extent the perceived bias in the tax system, for which capital allowances are largely responsible, in favour of capital and against labour.

The existing arrangements, however, will be continued for capital allowances on plant and machinery in respect of which State grants have already been approved but not paid or which are currently the subject of negotiation with the industrial development agencies, subject to the grants now under negotiation being approved for payment at the latest before the end of this year.

TAX-BASED FINANCING

I am not happy with the system of tax-based financing as it operates at present. It now costs the State over £170 million annually despite the restrictions I imposed in 1984. The exclusion of any State grant in determining capital allowances on plant and machinery will have an inhibiting effect on tax-based leasing and I do not propose at this stage to introduce any further restriction on that form of tax-based financing. As regards the other form of such financing, known generally as "section 84" lending, under which interest received by the lender is not liable to corporation tax, I am imposing a special duty at a flat rate of 12 per cent on all such interest received after today under section 84 loan agreements. The duty will come into effect under a Government order made today. It will be payable on a half-yearly basis and the first payment will be due in August 1986. The estimated yield in 1986 is £6 million.

Mr. E. O'Keeffe

More job losses.

Mr. Prendergast

Either we go after the tax avoiders or we do not. We cannot have it both ways.

STOCK RELIEF

Mr. Dukes

Stock relief was introduced in the Finance Act, 1975 as a measure of relief against inflation. Now that the rate of inflation has been reduced to a low level, there is no justification for the continuation of this relief and so it will not be renewed this year for companies and traders. The present stock relief arrangements for farmers will be continued in view of recent adverse trends in agriculture and the forthcoming change-over to the farm tax system. This will cost £0.5 million in 1986.

TAX INCENTIVES FOR BUILDING AND CONSTRUCTION

Preparations are going ahead for the implementation of the tax incentives for development of the Custom House dock site and other inner-city areas in Dublin, Cork and Limerick announced by the Taoiseach in this House on 23 October last. The details of these incentives will be incorporated in the Finance Bill. The initial response to this policy announcement has been most encouraging and it is confidently expected that it will lead quickly to a substantial increase in building activity in depressed inner-city areas. In the longer term, it will bring a new vitality to these areas as they are redeveloped.

Mr. Gene Fitzgerald

It is about time.

Mr. Lenihan

Is there not anything else for the construction industry?

IMPROVING THE INVESTMENT CLIMATE FOR IRISH INDUSTRY

Mr. Dukes

I will introduce in the Finance Bill an incentive to increase the share of private investment in research and new product development. Personal investors in partnerships set up specially for research and development will be allowed to write off relevant expenses against general income for tax purposes.

The 10 per cent rate of corporation tax on profits of manufacturing industry and certain services has proved to be very effective as an incentive to attract foreign investment projects to Ireland. Unlike export sales relief, however, the incentive has limited value to the Irish investor relative to investments in other, nonindustrial areas. I believe that this has been an important factor in the weakness of Irish-owned industry, which has been manifested in a lack of equity investment and a low number of new entrepreneurs and projects coming forward.

I propose to introduce a scheme to increase the attractiveness to private investors of taking shares in companies qualifying for the 10 per cent rate, by reducing the tax take on income from dividends paid by these companies. There will be specified limitations on the application of this relief and the details will be incorporated in the Finance Bill.

CAPITAL GAINS TAX

The rate of tax on longer-term capital gains is being reduced from 40 per cent to 35 per cent in respect of gains arising on or after 6 April next. Gains on assets held for three years or more are not speculative in nature and, consequently, it is reasonable that the rate of tax on them should be lowered to encourage longer-term investment.

DISCRETIONARY TRUSTS

There will be a 1 per cent annual charge on property held in those discretionary trusts which were made subject to the 3 per cent once-off charge introduced in 1984, that is, trusts where the settlor is deceased and no one of the principal beneficiaries of the trust is under 25 years of age.

INCOME TAX

The commitment in the national plan in respect of personal taxation is to adjust bands and allowances so that the overall income tax burden will not be increased. The income tax changes in this budget go far beyond this commitment. Despite the difficult financial situation and the pressures for higher tax revenue, the Government recognise the pressing necessity to reduce the burden of income tax significantly for all taxpayers. To give effect to this reduction I propose a range of changes which I will now outline to the House:

—the income levy of 1 per cent, which I introduced as a temporary measure in 1983 and which I moderated in both 1984 and 1985, is being discontinued;

—the personal allowance is being increased from £3,800 to £4,000 for a married couple and from £1,900 to £2,000 for a single person; the widowed allowance, the single parent allowance and the widowed parent allowance are also being increased by £100 to £2,500, £2,000 and £1,500 respectively;

This will provide additional revenue of £18 million in 1986. This will, however, be more than offset by the improvements in direct payments for children which I have outlined earlier.

The PRSI tax allowance is being renewed at an estimated cost of £49.6 million in 1986.

—Farmer Taxation

Arrangements are going ahead for the introduction of the farm tax. An announcement will be made later as to the level of adjusted acreage above which the tax will apply in 1986. Since this level will not be lower than 80 adjusted acres, the income tax system will continue to apply to all farmers for the income tax year 1986-87. The Finance Bill will provide that farm tax paid will be allowed as an income tax credit, as provided for in the national plan.

—Taxation of the Self-Employed

It has not been possible to introduce a current year basis of assessment for the self-employed. Some of the reasons for this are administrative, and some are inherent in the very concept itself. Self-employed persons will continue, therefore, to be taxed on a previous year basis. This carries advantages for them. In exercising their right to appeal, self-employed taxpayers are required to pay an amount equivalent to 85 per cent of the final amount due in order to avoid an interest charge. For companies, the specified amount is 80 per cent. I am proposing that this specified amount be increased to 90 per cent both for individuals and companies. The new figure will apply for income tax for 1986-87 and subsequent years and for corporation tax for accounting periods ending in 1986-87 and subsequent accounting periods. The change will produce additional revenue of £8.4 million in 1986.

—Age of Majority

The age of Majority Act, 1985, reduced the age of majority from 21 to 18. Provisions will be incorporated in the Finance Bill to bring the appropriate provisions of tax legislation into line with the provisions of the Act. One effect of this change will be that a parent will be in a position to covenant part of his or her income in favour of a child aged 18 years of over, subject to a limit of 5 per cent of income and for a period of six years.

PUBLIC CAPITAL PROGRAMME

The published Public Capital Programme for 1986 at £1,706 million is consistent with the medium term framework for capital investment set out in Building on Reality. The Government are committed to a strategy of balanced national investment to stimulate growth and employment in the economy and are determined to keep the focus of Departmental capital spending on the achievement of plan targets. Within these parameters, end-1985 expenditure returns from Departments, together with lower inflation indicate that there is scope for reducing published cash allocations while maintaining the impetus of the programme. The Government have, accordingly, made net reductions totalling £25 million in these figures, and details of these changes are listed in the “Principal Features of the Budget”. There is one special extra provision incorporated in this figure which I wish to mention.

SPECIAL AID PACKAGE FOR BANTRY REGION

The Tánaiste announced last December details of the arrangements under which Chevron Ltd. transferred ownership of the oil terminal at Whiddy to the State. The Tánaiste said then that the Government were examining the prospects of promoting additional investment in the Bantry area. The Minister of State at the Department of Foreign Affairs, Mr. Jim O'Keeffe TD, is conducting this examination on behalf of the Government. Details of the precise projects to be undertaken are now being finalised. The Government have decided to allocate £15 million over a four-year period for development in the west Cork area with particular emphasis on Bantry as its development centre. I am making provision for £3 million of capital expenditure in 1986. Details of the projects in this provision and in the total development will be announced in the very near future.

EXCHEQUER BORROWING REQUIREMENT FOR CAPITAL PURPOSES

These revisions, coupled with the latest estimates of Exchequer capital resources, reduce the Exchequer borrowing requirement for capital purposes to £751 million.

POST-BUDGET CURRENT REVENUE

The net effect of the tax proposals which I have outlined will be to raise £154 million this year. This includes a net loss of £25 million from renewal of temporary tax measures and takes account of the abolition of the temporary income levy at a loss to the Exchequer of £45 million this year. The budget as a whole will have a neutral impact on total revenue buoyancy but the composition of buoyancy as between direct and indirect tax revenue will be altered as compared with the pre-budget forecast. Total tax revenue in 1986 is now estimated at £6,117 million, some 36.2 per cent of GNP, and thus remains within the ceiling set in Building on Reality. Today's tax proposals involve a significant shift in the distribution of the tax burden away from direct taxation of wages and salaries. They mean higher net take-home pay for workers. While the proposals will raise the consumer price index by about one-half of a percentage point this still leaves the projected inflation rate for 1986 at about 4½ per cent. The Government firmly believe that it is beneficial to alter the balance of the tax burden in this manner. Total current revenue is estimated at £6,792 million.

DEFICIT AND BORROWING REQUIREMENT

The estimated current deficit for 1986 is £1,250 million or 7.4 per cent of GNP and the overall Exchequer borrowing requirement is £2,001 million, which is 11.8 per cent of GNP. The outturn for 1985 on the deficit was £1,284 million, 8.2 per cent of GNP and for overall Exchequer borrowing £2,015 million, 12.9 per cent of GNP. The total public sector borrowing requirement for 1986 will be £2,394 million, 14.2 per cent of GNP compared with a figure of 15.7 per cent in 1985.

CONCLUSION

Today's Budget is designed to make further progress in dealing with the imbalance in our public finances while avoiding any overall deflationary impact on the economy. The post-Budget figures for expenditure, revenue, the current budget deficit and the Exchequer borrowing requirement have all been drawn up on that basis.

I believe, however, that there are grounds for taking a more sanguine view than that conveyed by the budget figures. The shift in the balance of income taxation brought about by today's changes in personal taxation and in the taxation of financial institutions and financial assets will, in my view, tend to shift the pattern of expenditure in a way which will be favourable to the expansion of economic activity. I believe that today's Budget will have a positive effect on economic behaviour which is not immediately measurable but which will add substantially to the growth potential of the economy.

There is a general expectation that there will be a continuing decline in the dollar exchange rate and in international interest rates. Since the national plan was published, changes in these two key variables have exceeded our expectations. We cannot rule out the possibility that that will continue to be the case.

There is an even stronger expectation that oil prices will continue to decline, perhaps even more rapidly than had been expected up to recent weeks. The combination of these factors through the year could release expenditure into activity-generating areas, with consequent benefits in terms of employment and overall economic activity.

It is not possible to quantify any of these effects, and the budget arithmetic makes no allowance for them. Nevertheless, they could add up to a useful further impetus for expansion. This year's budget will allow us to capitalise on them to the maximum possible extent.

TABLE EXPLANATORY OF CURRENT BUDGET 1986

Revenue			£ million		Expenditure
1. Tax Revenue (including excises imposed from 8 January 1986)	5,963.0	1. Debt Service and Other Central Fund Charges		2,290.0
2. Non-Tax Revenue			675.0	2. Supply Services (non-capital)			5,697.8
			6,638.0				7,987.8
3. Add Temporary Tax Measures to be continued:			3. Add New Expenditure:
Income Levy	Not renewed			Social Welfare	70.8
Bank Levy	25.0	25.0		Public Service Pay	70.0
				Other	3.7	144.5
Less:
PRSI Allowance	49.6
Stock Relief	0.5	50.1	-25.1
4. Add New Tax Increases:				4. Deduct:
Excise Duties				Expenditure Savings	55.2
—alcoholic drinks	10.5			Estimated Departmental Balances	35.0	90.2	54.3
—tobacco	12.9
—hydrocarbons	15.0
—road tax	4.7
VAT	76.7
Income Tax
—child allowances	18.0
—self-employed	7.0
—retention tax	75.0
Corporation Tax	1.4
Financial Institutions —tax based lending	6.0
Life Assurance Companies	38.0
Anti-Evasion and Avoidance Measures	15.0	280.2
5. Deduct New Tax Reliefs:
Excise Duties	7.5
VAT	17.5
Income Tax	76.0*	101.0	179.2
6. Deficit			1,250.0
			8,042.1				8,042.1

*The combined cost of these income tax adjustments (£76 million) and of non-renewal of temporary income levy (£45 million) in 1986 is £121 million.

Department of Finance

30 January 1985

Summary of Current and Capital Budgets 1985 and 1986 _____

	1985	1986
	Provisional Outturn*	Post-Budget Estimate
	£m	£m
CURRENT BUDGET
1. Expenditure
(i) Central Fund Services	2,214	2,290
(ii) Supply Services	5,401	5,752
	7,615	8,042
2. Revenue
(i) Tax	5,581	6,117
(ii) Non-Tax	750	675
	6,331	6,792
3. Current Budget Deficit	1,284	1,250
CAPITAL BUDGET
4. Expenditure
(i) Public Capital Programme	1,693	1,681
(ii) Other (non-programme)	68	70
	1,761	1,751
5. Resources
(i) Exchequer	317	328
(ii) Non-Exchequer	713	672
	1,030	1,000
6. Exchequre Borrowing Requirement for Capital Purposes	731**	751
7. Total Exchequer Borrowing Requirement (3+6)	2,015**	2,001
8. Total Exchequer Borrowing Requirement as % of GNP (estimated)	12.9%	11.8%

*The 1985 Provisional Outturn figures for the Public Capital Programme have been adjusted in line with the 1986 reclassification of certain Bord Telecom Éireann expenditure.

**Excludes a payment of £100 million which was made available to the Exchequer by the Central Bank for on-lending to the Insurance Compensation Fund.

SUMMARY OF CAPITAL BUDGET REQUIREMENTS (INCLUDING CURRENT BUDGET DEFICIT) AND RESOURCES, 1985 OUTTURN AND 1986 ESTIMATE

REQUIREMENTS	£ million
1985	1986
Budget Estimate*	Provisional Outturn*	Estimate
1. Public Capital Programme	1,776	1,693	1,681
2. Non-Programme Outlays	1,279	1,352	1,320
of which
Exchequer-Financed
(a) Current Budget Deficit	1,234	1,284	1,250
(b) Miscellaneous	45	68	70
3. Total Requirements	3,055	3,045	3,001
RESOURCES
4. Non-Exchequer Resources	730	713	672
of which
(a) State Bodies	695	679	637
(b) Local Authorities	35	34	35
5. Exchequer Internal Resourcesof which	227	241	248
(a) Loan Repayments	58	71	66
(b) Sinking Funds	150	154	163
(c) Appropriations-in-Aid	19	16	19
6. European Regional Development Fund	79	76	80
7. Exchequer Borrowing of which	2,019	2,015**	2,001
(a) Net sales of domestic securities
(i) to the public including non-residents		763
(ii) to domestic licensed banks		240
(b) Small Savings	2,019	371	2,001
(c) Foreign Borrowing		806
(d) Decrease in Central Bank's holdings of Government securities		–l109
(e) Miscellaneous including change in liquidity of Departmental Funds		–56
8. Total Resources	3,055	3,045	3,001

*The 1985 Budget Estimate and Provisional Outturn figures for the Public Capital Programme have been adjusted in line with the 1986 reclassification of certain Bord Telecom Éireann expenditure.

**Excludes a payment of £100 million which was made available to the Exchequer by the Central Bank for on-lending to the Insurance Compensation Fund.

CURRENT REVENUE 1985 AND 1986

	1985	1986
	Outturn	Post-Budget Estimate
	£m	£m
Tax Revenue
Customs	96.8	104.0
Excise Duties	1,316.1	1,377.7
Capital Taxes	32.6	35.0
Stamp Duties	119.5	167.0
Income Tax	2,103.1	2,356.4
Income Levy	74.0	34.0
Corporation Tax	217.2	249.9
Value-Added Tax	1,402.3	1,562.4
Agricultural Levies (EEC)	14.5	13.0
Motor Vehicle Duties	122.1	130.7
Youth Employment Levy	82.9	87.0
Total Tax Revenue	5,581.1	6,117.1
Total Non-Tax Revenue	749.8	675.0
Total Current Revenue	6,330.9	6,792.1

HOW CURRENT EXPENDITURE WILL BE ALLOCATED AND FINANCED 1986

Where current expenditure will go	How current expenditure will be financed
Item	1986 Post-Budget	% Total Gross expenditure	Item	1986 Post-Budget	% of Total
	£m			£m
Service of Public Debt			Borrowing	1,250	15.5
Interest	1,864	20
Sinking Funds, etc.	156	1	Tax Revenue
	2,020	21	Customs	104	1.3
			Excise Duties	1,378	17.1
			Capital Taxes	35	0.5
Economic Services			Stamp Duties	167	2.1
Industry and Labour	274	3	Income Tax	2,356	29.3
Agriculture	428	5	Income Levy	34	0.4
Fisheries, Forestry	45	—	Corporation Tax	250	3.1
Tourism	26	—	Value-Added Tax	1,562	19.4
	773	8	Agriculture Levies (EEC)	13	0.2
			Motor Vehicle Duties	131	1.6
			Youth Employment Levy	87	1.1
Infrastructure	105	1		6,117	76.1
Social Services			Non-Tax Revenue	675	8.4
Health	1,130	12
Education	1,003	11
Social Welfare	2,524	27
Housing	208	2
Subsidies	278	3
	5,143	55
Security	654	7
Other	778	8
Gross Expenditure	9,473	100
Supply Services Receipts	1,431
TOTAL NET EXPENDITURE	8,042		TOTAL	8,042	100

PRE-BUDGET TABLES

1986

INDEX

TABLE 1. Summary of current and capital budgets 1985.

TABLE 2. Summary of main heads of current government expenditure and revenue 1985.

TABLE 3. Functional classification of current government expenditure 1982-1986.

TABLE 4. Certain current receipts and expenditure of the Exchequer and of local authorities.

TABLE 5. State expenditure in relation to agriculture from 1982.

Detailed tables relating to public capital expenditure will be found in the separate publication entitled “Public Capital Programme 1986”.

TABLE 1

SUMMARY OF CURRENT AND CAPITAL BUDGETS 1985

	1985
	Budget Estimate	Provisional Outturn
	£m.	£m.
Current Budget
1. Expenditure
(i) Central Fund Services	2,250	2,214
(ii) Supply Services	5,384	5,401
	7,634	7,615
2. Revenue
(i) Tax	5,704	5,581
(ii) Non-Tax	696	750
	6,400	6,331
3. Current Budget Deficit	1,234	1,284
Capital Budget(¹)(²)
4. Expenditure
(i) Public Capital Programme	1,776	1,693
(ii) Other (non-programme)	45	68
	1,821	1,761
5. Resources
(i) Exchequer	306	317
(ii) Non-Exchequer	730	713
	1,036	1,030
6. Exchequer Borrowing Requirement for Capital Purposes	785	731(²)
7. Total Exchequer Borrowing Requirement (3+6)	2,019	2,015(²)
8. Total Exchequer Borrowing Requirement as % of GNP (estimated)	13.0	12.9

(¹) The 1985 Budget Estimate and Provisional Outturn figures for the Public Capital Programme have been adjusted to take account of the reclassification of certain Bord Telecom Éireann expenditures.

(²) Excludes a payment of £100 million which was made available to the Exchequer by the Central Bank for on-lending to the Insurance Compensation Fund.

TABLE 2

SUMMARY OF MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE AND REVENUE 1985

Current Expenditure	Current Revenue
Item	£m	% of gross expenditure	Item	£m	% of total
Service of Public Debt:			Budget Deficit (financed by borrowing)	1,284	16.9
Central Fund Services (1)
Interest	1,827	20.4
Sinking Funds, etc.	140	1.6
Total	1,967	22.0	Tax Revenue
Economic Services			Customs	97	1.3
Industry and Labour	243	2.7	Excise Duties	1,316	17.3
Agriculture	412	4.6	Stamp Duties	120	1.6
Fisheries, Forestry	45	0.5	Income Tax	2,103	27.6
Tourism	27	0.3	Corporation Tax	217	2.8
			Income Levy	74	1.0
			Value-Added Tax	1,402	18.4
Total	727	8.1	Motor Vehicle Duties	122	1.6
			Capital taxes	33	0.4
			Youth Employment Levy	83	1.1
Infrastructure	103	1.1	Agricultural Levies (EEC)	14	0.2
			Total	5,581	73.3
Social Services
Health	1,094	12.2
Education	950	10.6	Non-Tax Revenue	750	9.8
Social Welfare	2,315	25.9
Housing	204	2.3
Subsidies	332	3.7
Total	4,895	54.7
Security	628	7.0
Other	637	7.1
Gross Expenditure	8,957	100
Supply Service Receipts	1,342
Net Expenditure	7,615		Total Revenue	7,615	100

(1) Prior to 1983, debt service costs paid from the supply services were included under this heading. As part of the revised functional classification of expenditure, these costs (e.g. Exchequer subsidy on service costs of loans for local authority housing) are now included under the appropriate functional categories. The total debt service cost in the Central Fund and Supply Services in 1985 was £2,197 million of which £2,043 million related to interest and £154 million to sinking funds, etc.

TABLE 3

FUNCTIONAL CLASSIFICATION OF CURRENT GOVERNMENT EXPENDITURE 1982-1986

	1982	1983	1984	1985 Provisional Outturn	1986 Estimate (1)	% Change 1986 over 1985
	£m	£m	£m	£m	£m	%
Service of Public Debt Central Fund Services(2)
Interest	1,143	1,330	1,566	1,827	1,864	+2
Sinking Funds, etc.	106	126	139	140	156	+11
Sub-Total	1,249	1,456	1,705	1,967	2,020	+3
Economic Services
Industry and Labour	138	184	209	243	282	+16
Agriculture	278	360	390	412	436	+6
Fisheries	13	12	13	14	14	—
Forestry	27	28	29	31	32	+3
Tourism	19	23	24	27	26	–4
Sub-Total	475	607	665	727	790	+9
Infrastructure
Roads	24	26	26	29	31	+7
Sanitary Services	22	29	36	46	48	+4
Transport	18	27	28	28	28	—
Sub-Total	64	82	90	103	107	+4
Social Services
Health	883	973	1,022	1,094	1,135	+4
Education	730	804	881	950	1,014	+7
Social Welfare	1,639	1,909	2,103	2,315	2,456	+6
Housing	109	143	173	204	210	+3
Subsidies	324	346	357	332	289	–13
Sub-Total	3,685	4,175	4,536	4,895	5,104	+4
Security
Defence	244	254	268	294	301	+2
Garda	187	208	233	253	265	+5
Prisons	30	33	35	41	49	+20
Legal, etc.	30	34	32	40	46	+15
Sub-Total	491	529	568	628	661	+5
Other
Central Fund items
EEC Budget	144	194	208	237	260	+10
Miscellaneous	7	8	15	10	10	—
Supply Services	376	353	413	390	476	+22
Sub-Total	527	555	636	637	746	+17
Gross Total	6,491	7,404	8,200	8,957	9,428	+5
Less: Supply Services Appropriations-in-aid, P.R.S.I. receipts	916	1,095	1,250	1,342	1,440	+7
Net Current Expenditure excluding expenditure on Posts and Telegraphs	5,575	6,309	6,950	7,615	7,988	+5
Post and Telegraphs	355	378	—	—	—	—
Net Expenditure Including Posts and Telegraphs(3)	5,930	6,687	6,950	7,615	7,988	+5
(Exchequer Pay and Pensions included in above excluding Posts and Telegraphs)	1,982	2,175	2,319	2,484	2,600	+5

(1) Based on the Estimates for Public Services for 1986 published on 18 December 1985.

(2) See Note (1) at foot of Table 2. The total debt service costs in the Central Fund and Supply Services are (figures for 1982-1983 include Post and Telegraphs costs) (£ million):

	1982	1983	1984	1985	1986
Interest	1,323	1,564	1,743	2,043	2,085
Sinking Funds, etc.	137	149	157	154	170
Total	1,460	1,713	1,900	2,197	2,255

(3) The figures for 1982 to 1984 reflect actual audited expenditure.

TABLE 4

CERTAIN CURRENT RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES

	Exchequer	Local Authorities(a)
	Revenue	Non-capital Expenditure	Expenditure from revenue (b)	State grants received	Rates collected
	£m	£m	£m	£m	£m
1966-67	273	272	99	51	32
1967-68	305	306	107	57	35
1968-69	345	354	121	66	38
1969-70	411	412	145	77	43
1970-71	482	490	174	94	50
1971-72	569	572	196	115	60
1972-73	659	665	240	138	70
1973-74	793	803	298	183	71
1974 (April-Dec.)	651	744	292	190	61
1975	1,091	1,350	481	332	84
1976	1,470	1,669	567	404	109
1977	1,757	1,944	684	504	111
1978	2,023	2,391	831	670	82
1979	2,384	2,893	1,007	820	91
1980	3,155	3,696	1,318	1,065	103
1981	3,973	4,741	1,575	1,291	102
1982	4,908	5,930	1,883	1,592	95
1983	5,711	6,687	2,109	1,759	104
1984	5,952	6,950	2,322	1,911	122
1985	6,331	7,615	2,535(c)	2,082(c)	144(c)
1986	6,638(d)	7,988(d)	2,629(d)	2,144(d)	142(d)

NOTE:—(a) Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.

(b) The revenue of Local Authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g. rents and fees.

(c) Approximate.

(d) Estimate.

TABLE 5

STATE EXPENDITURE (a) IN RELATION TO AGRICULTURE FROM 1982

	1982	1983	1984	1985	1986
	£000	£000	£000	Provisional	Estimate
				£000	£000
1. Aids reducing production and overhead costs and production incentives (b):
Grant in lieu of rates on agricultural land	89,087	113,999	115,000	118,000	123,300
Non-EEC interest subsidies	1,633	2,170(c)	2,866(c)	3,620(c)	1,501(c)
Assistance for extra breeding stock	2,558	7,027	8,296	4,900	1
Reduction of land annuities and deficiency of income from untenanted land	5,545	5,642	6,619	6,649	6,561
Sheep grants, etc.	5	2	2	—	—
Weather damage relief schemes	—	—	—	3,000	19,650
Winter fodder schemes	2,454	3	1	—	—
Glasshouse heating conversion grants	—	—	—	200	300
Promotion of shared use of farm machinery	—	25	—	—	—
TOTAL	101,282	128,868	132,784	136,369	151,313
2. Schemes operated under EEC regulations and directives:
Farm modernisation	47,301	28,790	30,197	13,059	22,222
Farmers' retirement	1,737	931	377	624	104
Aids to farmers in less favoured areas	21,889	17,580	20,280	30,138	26,035
Market intervention	7,204	14,645	14,832	11,554	18,231
Programme of special measures	10,719	6,137	2,205	(–)3,241(d)	171
Grants for individual projects and for marketing and processing	111	143	143	104	283
Aids for horticultural producers' organisations	22	—	—	—	30
Dairy herds conversion and suckler cow	4	—	—	—	—
Scheme for cessation of milk production	—	—	—	476	1,030
TOTAL	88,987	68,226	68,034	52,714	68,106
3. Education, research, advisory and inspection services:
Education (e)	14,729	16,236	17,390	17,710	16,653
Research	17,244	18,093	18,351	19,809	19,761
Farm advisory services (f)	13,523	15,215	15,937	15,007	14,960
Technical services	4,578	5,957	6,146	6,005	6,514
Inspection services	8,976	7,608	8,638	7,848	7,530
Rural organisations (e)	241	378	405	431	451
TOTAL	59,291	63,487	66,867	66,810	65,869
4. Disease eradication:
Bovine T.B.	13,483	15,070	16,948	22,282	19,000
Brucellosis	7,100	7,593	4,607	5,001	4,250
Hardship Fund	500	350	550	1,750	1,250
Other, e.g. leucosis	10	102	116	70	1,322
Less: Farmer contribution and EEC receipts	(–)5,702	(–)1,724	(–)7,012	(–)13,107	(–)13,402
TOTAL	15,391	21,391	15,209	15,996	12,420
5. Long-term development aids (b):
Arterial drainage	12,580	10,667	12,727	11,793	9,212
Water supplies, land project and farm buildings	1,094	572	606	564	605
Improvement of cattle, pigs, horses, sheep and poultry	2,478	2,349	2,492	2,612	2,840
Rural electrification	4,043	2,165	3,006	2,789	3,103
Restructuring and improvement of holdings by Land Commission	5,021	5,014	5,378	3,222	3,374
Promotion of long-term leasing of land	—	25	28	25	25
Other rural improvement schemes and grants	1,928	2,214	1,243	1,370	1,370
TOTAL	27,144	23,006	25,480	22,375	20,529
6. Marketing aids:
Meat	772	757	785	787	1,100
Potatoes	—	—	37	75	50
Glasshouse products	—	19	15	45	100
Export co-ordinating group	3	—	—	—	—
TOTAL	775	776	837	907	1,250
7. General administration and overhead costs	36,002	36,236	37,263	41,000	43,034
GRAND TOTAL	328,872	341,990	346,474	336,171	362,521

NOTES—(a) The figures are composed of both capital and non-capital expenditure and are net of appropriations-in-aid which include recoupments from EEC for schemes listed in the table.

(b) Further similar aids are given under EEC schemes—see section 2.

(c) Does not include tax loss element relating to the scheme for farmers in severe financial difficulties.

(d) EEC receipts under this heading exceeded Exchequer expenditure in 1985.

(e) Includes Youth Employment Agency funding.

(f) Includes part of the grant in relief of rates borne on the Environment Vote.

Footnote: Irish agriculture also benefits from the Common Agricultural Policy which is largely financed from the EEC Budget (to which Ireland's estimated total contribution in 1986 is £260 million):—

	1982	1983	1984	1985	1986
				Provisional	Estimate
	£m	£m	£m	£m	£m
FEOGA GUARANTEE SECTION	342.7	436.7	649.7	834	834
FEOGA GUIDANCE SECTION	59.6	63.2	45.1	52	58

Mr. O'Kennedy

The greeting to the Minister from the assembled benches behind him reminds me of the greeting given by the gladiators to the Roman Emperor before they perished. It is a final salutation to the Minister from those whom he is causing to perish. It is not just those behind the Minister who will pay the consequences of the latest in this series of cold, miserable analyses by way of budget but, much more important, those who are listening and waiting for some hope, encouragement or incentive. They have waited yet again but all they have found is a cold, detached, uninspiring analysis for the fourth year in succession.

Some years ago a message of confidence and optimism was addressed to the people from this House. This message said:

Today is not a time for despair or for hopelessness in the face of the magnitude and complexity of our problems. I have faith in the Irish people's ability to set themselves with courage and determination to the task in hand and I have no doubt that we can succeed.

This quotation is from the Official Report of 9 February 1983 and the speaker who gave that message of hope is none other than the speaker who, for the fourth time, delivered the same helpless, hopeless message, the current Minister for Finance, Deputy Dukes.

We were told that February 1983 was not a time for despair and hopelessness. If it was not, then what is the position on 29 January 1986? Those who were facing misery three years ago are now facing chronic despair and their only consolation — if consolation it is — is that there are many more sharing their misery and despair today. The main reason for this is the uninspiring attempt by this Minister and Government to give any direction for renewal or development based on the real rich resources of this nation — our people, our land, fisheries, forestry, tourism and so on. By investing in the right priorities, we could create a base for activity and regeneration which would ensure that budget day is not just another in a series of what one might call annual crucifixions.

Not even the Minister's colleagues could whip up enthusiasm to show anything like the response which is ritually given to a Minister for Finance by his own backbenchers. This year, above all years, they would like to have had some chance to lift their spirits and to convey the message to those listening that they are of good heart, but we all know that the Government backbenchers have lost confidence in this Minister and are broadcasting it in every corner and parish in the country.

An Leas-Cheann Comhairle

Order, please.

Mr. O'Kennedy

Deputy Coveney, for instance, seemed to take issue with that. Is that the same Deputy who very recently referred to our tax levels and taxation procedures as institutional robbery?

Mr. McLoughlin

Deputy O'Kennedy said that.

Mr. O'Kennedy

If that description applied to taxation before today, the description which will be applied to it by members of the Coalition parties after today will warrant instant execution, not just trial for institutionalised robbery. In April 1983 the Minister said he had no doubt that the Government would succeed, but his only success to date has been to spread dispair and hopelessness like a plague into every home in the land.

In his speech today he mentioned the priorities he set himself. None of the three priorities he mentioned has any relevance to the fact that it is the people who will change the face of this nation. His first priority is: what kind of budget would be most appropriate to the present state of our economy. The people must ensure that they will have a better future for themselves and their families, not just fiscal aggregates and figures. The second priority is: the public finance constraint within which the achievement of the budgetary objectives has to be approached. His third priority is: what shifts in the balance of taxation are required by considerations of equity, efficiency and the need to tackle the black economy? There is no reference to the real priority, that is, to end this misery, to give new hope and to demonstrate a sense of purpose and direction by investing in the real wealth of the nation.

The tax allowances he should have introduced would have inspired that response but instead we are still blocking holes, sealing gaps and wondering why the nation is in such a state of depression and low morale.

In the euphoria that followed the Minister's presentation of the budget last year the Tánaiste in a message to Labour Party activists — and there cannot be many of them left now — pointed to the contribution of the Labour Party last year in making what he called a creative and imaginative effort to begin to solve some of the major problems and injustices in our society. Last year's budget increased our unemployment figure by 20,000 and increased the taxation burden——

Mr. McLoughlin

What about Bruce Arnold's article? The Deputy should deal with this budget and he should put forward his own alternatives.

An Ceann Comhairle

Order, please. Deputy McLoughlin must cease interrupting.

Mr. D. Gallagher

He should make the best use of the time he has. He will not be here much longer.

An Ceann Comhairle

We must have order.

Mr. O'Kennedy

First, I shall refer to the targets in relation to the current budget deficit and which the Government set for themselves as being a main priority. In 1983 the current budget deficit was £897 million or 6¾ per cent of GNP. A Government who were determined to eliminate the budget deficit in four years have allowed the figure to increase in annual increments with the result that after today the opening target of the Government will be £1,250 million or 11.8 per cent of GNP, an increase of almost £400 million on the figure the Minister inherited on coming into Office and of almost 5 per cent in terms of GNP. The commitment of the Government on that occasion was the commitment outlined in the Joint Programme for Government.

Minister for Fisheries and Forestry (Mr. O'Toole)

The Deputy is confused.

Mr. O'Kennedy

There was a proposal in the Joint Programme for Government to eliminate the budget deficit in four years but when it became clear that instead of the deficit, which this Government always insisted was the main problem, being eliminated, it was being increased. The next stage was an adjustment in the Building on Reality targets. The programme was then thrown out the window and the plan was introduced, the purpose of which was to reduce the budget deficit to 11 per cent, 10½ per cent and finally in 1986 to 5 per cent of GNP.

The Taoiseach

1987.

Mr. O'Kennedy

We find today that the Minister is in line with the original targets, reducing the budget deficit by increasing it to £1,250 million or 11.8 per cent of GNP.

Minister for Communications (Mr. J. Mitchell)

The Deputy is wrong again. The figure is 7.4 per cent. He is confused.

An Ceann Comhairle

The Minister for Communications must allow Deputy O'Kennedy to continue.

—— plus at least an extra 1 per cent today, it will become clear that the belated bow towards tourism in the hotel and restaurant sector will not be nearly as effective as it should be. I acknowledge it to be a step in the right direction and it would be were the Government sensible and prudent enough not to proceed with these foolish, short-sighted, unjustifiable increases in excise duties announced today.

They are getting a quarter more than present children's allowances. The party opposite will not confuse people about that, though they may try.

Mr. Flynn

Would the Minister for Industry, Trade, Commerce and Tourism come down and give the Taoiseach a hand.

Mr. O'Kennedy

The sad fact is that there are 50,000 more people in this nation unemployed at present that there are engaged in total manufacturing industry. What have we to say to those people? Instead of giving a boost to manufacturing industry, to programmes of marketing, research and development, investment — by way of signals of new hope and direction — what we have to say to them is that they will have a 4 per cent increase in unemployment benefit or assistance as a consequence of the generosity of this Government and of their concern for them and their families. That is one of the stigmas attaching to this Government.

If we want to achieve a sense of national purpose then I suggest to the Taoiseach that we can do so only by way of well established principles of social concern and justice. Any Government that ignore the plight of the growing numbers of unemployed, sick and dependent on our economy, in the way this Government have done, can expect an angry response not merely from those social welfare dependants but from all of society. While I am at it, I might say that, even in terms of the old, the Government have not provided in full for those who will become eligible for old age pension next year, bearing in mind the Government's assumption that there will be 4,000 less people eligible for old age pension next year than there were this year. Surely that is being suggested only as a means of reducing the Government's commitment to the old and needy in our economy? Similarly with regard to the unemployed, the Government in their figures have provided for unemployment benefit and assistance for 236,000, whereas unfortunately as of now that figure is increasing and it is probable that the number with which we shall have to cope will be of the order of 240,000.

When what we needed today from the Minister was actions across the range of taxation, of incentive measures, social action, imaginative proposals, all we got was more of the same dreary catalogue of additional impositions on the old reliables, juggling with the income tax bands, in consequence of which taxpayers will pay at least 9 per cent more next year. The problem that has bedevilled this nation for the last three years will remain. The hope we had awaited is again postponed.

When we need investment we frighten it away. Even taking into account the budgetary proposals relating to the financial institutions and insurance companies, including the levies of approximately £113 million this year, it will be seen that those proposals ignored two fundamental things. First, they ignored the recommendations of the Commission on Taxation, whose proposals go in the opposite direction. These budgetary proposals ensure that the Report of the Commission on Taxation, as far as this Government are concerned, was a mere academic exercise of no concern whatsoever to the Government and particularly the Minister for Finance. Rather than moving in the direction advocated by the reports of the Commission on Taxation the Government have moved in the opposite direction. The Government have also ignored the fact that the financial services sector constitutes one of the growth areas for employment in every advanced economy in the world. Instead of encouraging employment in those sectors the Government have added another £113 million to the levy or tax imposition on the banks and insurance companies as a consequence of today's budget. This Government's mounting appetite for increasing taxation is consuming more and more of the available resources and wealth of this nation. They are now managing over 60 per cent of the total wealth of the country. When one takes that amount of wealth from people it is not good enough to tinker at the edges of the economy and adjust a little here and there. What is required is to base one's tax proposals on the immense potential of our resources, for example, in agriculture which has been ignored totally in this budget ——

Deputies

Hear, hear.

Mr. O'Kennedy

——in fisheries, which has been totally ignored in this budget, in forestry and its development, totally ignored in this budget, in our education programmes, particularly in research, development and marketing essential to any future priority development of this nation, all totally ignored in this budget. All of the areas of wealth, potential and real growth have been ignored by this Government. They have ignored all of the areas that might yield an extra £1 million without any concern for the effect that extra £1 million would have on the level of activity and economic endeavour. Is there any hope for an agrifood industry in this country? If so, where is there to be seen today the incentive for the development of a marketing strategy for that industry?

Our real resources, particularly those that we in Fianna Fáil focused on for so long, and the development of the added value through the knowledge based industries are ignored by this Government as if they were of as little consequence in 1986 as they were in 1386. We are dealing in an era of technology. We have a new challenge for our young people and we have young people well equipped to face that challenge, but the Government turned their back on them as they have done so often in the past.

A budget does not always have to be an instrument of oppression, a dreary catalogue of new tax measures imposed with each passing year. It can and should be an element of economic policy, an element that would point directions in terms of the priorities we would put in our tax adjustment policies. When are we going to encourage real investment in industry through effective equity participation without the limitations and qualifications that the Minister proposes to introduce again today? When are we going to start to encourage the development of our services sector in tourism by encouraging investment in that sector? When are we going to start to encourage those who are investing their money abroad, be they builders, industrialists or even those who are leaving us to invest their skills abroad, and to signal to them that it is no longer a shame to succeed in this nation? It may be perceived up to the moment that the only credit we are prepared to give is a credit for success abroad. For the countless thousands of our people who are leaving us to achieve success abroad today's budget has no other message but that success at home is still a matter of shame and indignity as far as this Government are concerned.

I want to turn finally to the Government's own direct interventions——

The Taoiseach

That is a relief.

Mr. O'Kennedy

—— by way of the capital programme. When we find a Government who can borrow on a ratio of 70 per cent for the current programme as against the capital programme, who reduce investment in the road programme by £10 million from that announced in the Building on Reality 1985-1987 illusion — as it is now — coming into the House today and reducing further the public capital programme by £25 million while increasing current budget expenditure by over £200 million, then we realise why under this Government there will be no development, no direct and effective Government action for infrastructural development, for a new dynamism and a new opportunity in the economy. After today the position facing those who would invest in the country is even more depressing than it was before we trooped into the House to hear the Minister's message. When we could save so much from EC allocations through the Regional Fund for our road programme, for building programmes, 50 per cent direct contributions plus depreciation over a period of five to 20 years, instead of investing in putting our people to work we prefer to invest in keeping our people idle and we drop the investment programmes even for the budget.

It is fairly clear that after today's budget, with the increases of 10 per cent on income tax, the increases in over £500 million in total taxation, the miserable addition of 4 per cent to those who are unfortunately dependent on social welfare payments, looking at those in the round we must say that this Government have no sense of concern for the poor and no sense of hope or purpose for the young and able. Until such time as this Government take the only course open to them to make a really effective contribution to this nation, namely face the people who are waiting to judge them, we will continue to wallow in the misery that has been a consequence and characteristic of their actions over the last three years.

An Ceann Comhairle

Deputy Desmond O'Malley.

I thank the Chair for calling me to speak on this occasion particularly as it is clear that there is some fairly vehement opposition to my making a speech at all. Remarks were made in the course of the last half hour one or two of which I would like to comment on. I would make it perfectly clear that when I and my three colleagues were elected to this House, we were elected by the only people who can elect somebody, the Irish people. That applies to every Member of this House and will continue to apply to every Member of this House. I am glad that we have been able to clarify our position in regard to speaking and so on, a month after the formation of the Progressive Democrat Party, because Deputy Blaney has been here as an Independent for about 15 years and appears to have failed to make his position clear as yet. I am in the unusual position in these benches that the two Deputies who would have been our neighbours here are not here as one is in jail and one has been suspended from the service of the House. I hope that the havoc that has been wreaked on those who occupy these benches has now come to an end. After that half hour or so of diversion on irrelevancies, which is such a feature, unfortunately, of the procedure of this House, I will get down to talking about the matters which we are here to discuss today, namely the budget.

The first thing about the budget is how very little is in it, how unimportant are the long lists of provisions and how totally they fail to come to grips with the real problems paralysing us. We had in this budget most unusual lists of small provisions of small amounts of money for some of the most obscure objectives of which I have heard in a long time. The Budget Statement has been reduced to an unusual level when we see sums of money set aside for expenditure in a particular constituency on the advice of a named Deputy on the Government side. Is the Budget Statement not the principal annual statement of the fiscal and economic strategy of the Government for the year? Is that not what it should be? What do we find? We see it used, among other things, for the Fine Gael Party to express preference for one of their Deputies in a particular constituency, as against another. That is trivialising the situation in a way that is scarcely good enough today. It is rather unhappy for us all that at a time when we are literally crucified and paralysed into inaction these matters come up.

I do not propose to spend a lot of time on the detail of the budget because very little of it is of any significance, in my view. On the income tax side the only thing that has any significance is the fortunate abolition of the 1 per cent gross income levy. Everything else is really a repetition of the sort of things that were done last year, where all kinds of figures were changed but where the reality on the following 6 April was that most people paid more tax. The situation is summed up if one looks at the yields that are proposed. For example in income tax for next year the yield will be 6 per cent higher than it is this year. There will be a 6 per cent higher yield in income tax with a smaller working population, fewer taxpayers and at a time when the forecast rate of inflation is 4½ per cent. I am afraid that even with the welcome abolition of the 1 per cent levy unhappily income tax payers at all levels will find themselves in the same unfortunate position that they found themselves in for quite a number of years, paying more tax each year. It should be remembered that there are fewer of them now to pay more and their incomes are under more and more constraint in that regard.

At a time when we have more than 75,000 fewer cars on the road than we had four years ago we find ourselves in the position that motor vehicle duties and so on are up again. We are the only country in Europe unable to avail of the bonanza that has hit everybody else of decreased oil prices. In those circumstances I wonder how that industry can survive at all. The index of our tax on beer within the EC is 335 while the EC average is 100, and we have had further increases although we are being advised by the Commission in Brussels that we have to harmonise with the general level of EC taxes in respect of alcoholic beverages.

To address the budget for this year in terms of the Government's initial policies of 1982, or even of the drastic revision of 1984, is not merely to make a somewhat hackneyed political point. It is also to emphasise what is in some ways more alarming than any single statistical index of economic decline; that the apparent ability of the Government to set and achieve even modest economic targets for the management of the nation's affairs is non-existent.

It is less than four years since it was solemnly declared by those who have introduced this budget that the abolition of the current budget deficit within four years was both a vital necessity and an attainable target. Subsequently, in a document whose title Building on Reality seems itself a criticism of the previous programme, this target was altered to the reduction of the deficit to 5 per cent of GNP by next year. It has, in fact, risen last year to 8.2 per cent — and is well over 7 per cent even on the figures projected here. It is unnecessary to add that the targets in relation to unemployment have likewise proved impossible of achievement.

The targets in these two areas reflect the Government's own frontiers in economic policy. They were selected, no doubt, with a view to their perceived feasibility and their attractiveness in political terms. The Government's credibility is linked to their performance in these areas more than in any other. It is for this reason that these particular failures evidence the near total impotence of Government to shape economic policy. This impotence is curious in that there is widespread agreement about what requires to be done, at least in private discussion. But this agreement has not been translated into action at the political level. Thus, even in the programme which isolated the twin objectives to which I have referred, a great number of spending proposals were also outlined. Many of these were of secondary importance and some were downright eccentric. But they were felt to be politically necessary and were included at the cost of abandoning at the very start the Government's freedom of action.

It is a political curiosity that aspirants to ministerial office should foresake, in the attempt to gain it, the very power to work significant change which makes it desirable in the first place. But this is precisely what has happened. In the lead up to this budget, and all recent budgets, a growing murmur was heard from Government sources that there is very little the Minister can do because a number of factors, mainly foreign debt and the interest on it, have tied his hands. This distortion justifies inaction from year to year. But the reality is that the Government have failed to curb the expenditure within their power to control so that current spending, excluding debt servicing, has increased substantially in real terms since 1981. This fact quite simply reflects the failure of political will. It has meant that in a time when every worker and housewife in the country is at least 15 per cent worse off in real terms than they were seven years ago, the State has simply exempted itself from these constraints. This exemption is financed by destructive levels of taxation which severely threaten the capacity of the economy to recover its momentum.

There are, however, two other approaches to our budgetary situation which lead to still gloomier, and broader, conclusions. To place our economic position in the context of other developed economies is to realise that ours is uniquely threatening and to consider the specific measures of this budget in the context of the magnitude of the deficiencies and problems in specific areas is to realise the utter inadequacy of the measures we heard today.

I propose to follow both of these approaches in commenting on the Minister's statement. Before doing so, however, I should like to attempt to take my comments a little outside the usual run of political debate. There are immense shortcomings but there are certain aspects of Government policy which require favourable notice. It is right that they should receive this in an attempt to dilute the party political spirit which does so much to render these discussions ineffective and to further convince the public that the House is quite incapable of contributing to the solution of our immense problems.

By far the most important such aspect is the realisation of the very great importance of misplaced capital expenditure as a contributor to our present ills. Had the criteria of the 1984 public capital programme been defined and implemented earlier our position would now be very much easier. Even now there is a widespread laxity about their implementation but they constitute the only evidence that any one of the major underlying causes of our economic malaise is understood and is being attacked. Secondly, there is some evidence that the potentially crippling growth in the public service, by contrast with the sectors which support it, continues to be restrained, though in a somewhat haphazard and politically expedient way. Thirdly, discussion on the concepts contained in “A Better Way to Plan the Nation's Finances” and the superior presentation of the facts of public expenditure in the comprehensive public expenditure programmes alike show an improvement in the approach to, if not the resolution of, economic questions.

The publication by the then Minister for Finance, Deputy John Bruton, of the White Paper entitled, "A Better Way to Plan the Nation's Finances" in November 1981 was a landmark inasmuch as it was a genuine and serious attempt to face up to the huge problem that confronted us. Unhappily, little if any attempt has been made to put into practice the tenets in that document and we are suffering as a result of that failure.

Considerable institutional changes are unquestionably necessary. The control of public expenditure cannot even begin to be achieved within the structure of our present public service. There is no accountability for value and there is no cost conscious line management. For example, it is a feature of the approach of Departments and public agencies that they display towards the end of the financial year a considerable anxiety to spend money at all costs. A civil servant is in far greater trouble if he leaves part of his budget unspent than if he spends it all or even if he overspends. He is never encouraged to save. It is not uncommon for public bodies to ring up in December people who are doing work for them to ask if they could pre-pay some of next year's bills so that they will use up their current allocation which they would otherwise be unable to spend within the financial year.

The dominance of the bureaucrat as opposed to those directly dealing with the public, such as doctors, nurses and gardaí, is frightening. Some months ago the Minister for Defence announced a proposal to spend £20 million on new offices for his Department. There was not one murmur of protest. Dublin, like Cork and Limerick, is full of empty offices. Will this ridiculous expenditure be of any value to the Army, to our external defence or to our internal security? Who will benefit from it?

Apart from the matters which I mentioned earlier under the three headings of the approach to capital expenditure and general expenditure, where I recognised the efforts of the Government to move in what I thought was the right direction, there is little else that one can endorse in Government policy or in the statement which we heard today. To study our position in the international context of comparable economies is alarming. To some extent this exercise has been performed for us by the managing director of the International Monetary Fund in a recent paper aptly entitled "The growth of Public Debt and the need for Fixed Discipline". This revealed that even in 1984 our debt to GNP ratio was twice the average of an array of comparable economies, that the external component of our debt was two and a half times their average and that our ratio of interest payments to GNP was two and a half times their average.

The consequences of these figures in terms of domestic taxation are very severe. Quite apart from the gross individual inequities which exist, the overall level of taxation seriously prejudices our chances of creating employment and stimulating production. It has become quite usual for ordinary workers to pay tax at the top rate. In the United States only 0.3 per cent of taxpayers pay at a rate of 60 per cent and in the United Kingdom only 1.3 per cent pay such tax. The Irish figure for the higher rate of tax is 16 per cent. A legislative change in the mid-seventies did away with the term "surtax" but the reality remains. In 1976 there were 60,000 surtax payers, by 1983 the figure was 363,000 and the present figure is higher again. When these people protest at this oppressive system by supporting, for example, the Progressive Democrats, they are criticised by the left and others for being right wing, middle class or part of the fur coat brigade. They are entitled to protest at a system which has given us more surtax payers on low income than in any other country examined by the Commission on Taxation.

Last year the Minister claimed credit for taking 65,000 taxpayers from the 45 per cent rate to the 35 per cent rate, thus cutting by one-sixth the number of people paying tax at the higher rate. However, even on the Minister's figures it soon became obvious that the relief for these taxpayers would be short lived because of the way the allowances were adjusted. We have exactly the same situation this year with narrow expansion of one band and small increases in personal allowances which are more than wiped out provided some increase in wages in or about the level of inflation is achieved. For 1985-86 there will be 140,000 taxpayers on the 60 per cent rate, although they will be changing for 1986-87 to a rate of 58 per cent. Those people comprise 25,000 who were previously on the 55 per cent rate, 55,000 who remained on the 60 per cent rate and 60,000 who were previously on the 65 per cent rate.

The figures quoted point out the savage unfairness of the present tax system. From a national economic point of view, however, the salient figure is that taxes account for 44.9 per cent of GNP. Only the Scandinavian and Benelux countries rival our levels, but their economies have income levels nearly three times ours. More significantly still, they have neither current deficits nor large public borrowings so that taxes raised can be applied for the direct benefit of the taxpayer in those countries, unlike here. In this sense we have succeeded in inflicting on ourselves all the drawbacks of a socialist economy without any of its benefits.

Perhaps the saddest result of this spiral of taxation is the astonishing fact that last year a single man on average industrial earnings — £191.78 per week — had a marginal tax rate of 68.5 per cent on any additional income which he earned. Any such person reaches the top rate of tax on a taxable income of a mere £7,300. In last year's budget, the Minister cultivated a bogus reputation as a tax reformer by fiddling with tax thresholds so as to appear to reduce its burden. So trifling were these reforms that their effect was almost wholly eroded in a matter of months by wage increases and the taxation which such increases attracted. Thus, at the very bottom level, a married man with three children earning £5,300 per annum was taken out of the tax net altogether but on his next £700 of income he paid £414.90 in tax which means that at £6,000 he was on a surtax marginal rate of 59.3 per cent.

I have not had time to go through the tables issued after the budget but, from my initial glance at them, it seems that the same situation will arise again. The figures will be slightly higher but wages will also be slightly higher so that people in effect are no better off. Their marginal top rates will become operative at ridiculously low figures. It may give point to the above illustration to emphasise that if the same person — the married man with three children to whom I referred — was in receipt of unemployment benefit he would have received a figure of £5,021.75 so that the surtax threshold for him was only £279 or 5.5 per cent above his social welfare level. This is a direct result of non-indexation over the years of tax bands and it is quite ludicrous that a man receives social welfare benefits totally free of any tax up to a particular point but if he earns £279 a year more than he got in social welfare he then becomes a surtax payer at the top rate of 60 per cent on his marginal income. Such indexation would change nothing in real terms but it would at least encourage fiscal honesty and avoid such obvious absurdities as that which I mentioned. To compare these figures with those which apply to our nearest neighbour would be to risk encouraging emigration. It is manifest that the tax bands require very significant broadening, but there was only a minor broadening of one of the bands today.

If the term "standard rate" is to retain any meaning, it is clearly the rate that should apply to standard or average industrial earnings. It is an ironic commentary on a Government with some members describing themselves as socialists that they have brought surtax to the masses. The response to attacks on the level of taxation is to deny that there is scope for the economies necessary to change it significantly. I believe there is. Views to the contrary take too little notice of the expensive absurdities of much public spending and none of the economies possible by an exercise of political will.

I turn now to capital expenditure. To a significant degree this is a misnomer due to the application of funds to current purposes. To the extent that the expenditure is truly capital, it is widely and notoriously misapplied in two separate ways. First, there is no objective assessment of the projects undertaken leading to white elephants. Secondly, there are gross and apparently inevitable cost overruns. All this is well known but what may be surprising is the extent to which years of bungled capital programming have contributed to our difficulties.

Accumulative current budget deficits since 1973 account for about one third of our national debt of £20 billion. The remaining two thirds are accounted for by capital projects which since 1950 have failed to remunerate their investment. One financial advisory firm in Dublin recently estimated that if the public capital programmes since 1973 had consisted of viable projects we would now have a substantial current budget surplus of about £600 million available for tax reductions.

In 1983 the Government recognised the problems. They said in the capital programme of that year that investment ratio, that is, investment as a percentage of GNP, is one of the highest in the OECD countries. The results in terms of growth and net employment creation have been disappointing. In the same document the Government said that public investment would not be undertaken unless it can be clearly shown on realistic assumptions that it would yield a sufficient return. The 1984 public capital programme set out a detailed scheme for the appraisal of capital investment. It set out guidelines for the definition of objectives and alternative projects. Six criteria were listed in respect of each alternative and a recommended test discount rate of 5 per cent was included.

The 1985 capital programme stated that some progress, but not enough, had been made during the year in having Departments and agencies apply the Department of Finance guidelines, and the Department of Finance were pressing forward on this point in consultation with them. In the 1986 programme we are told that during 1985 extensive discussions took place between the Department of Finance and other Departments aimed at assessing the degree of implementation of the guidelines and encouraging their more widespread use. It is obvious therefore that no progress has been made in the 1986 public capital programme. A substantial economic problem was diagnosed in 1983. Plans to tackle it received widespread recognition from economists and others when published in 1984 and action on the problem has been postponed until 1987 at the earliest. That is precisely why we have a tax and employment problem in Ireland today.

Capital investment appraisal is not an unknown part of economics. Manuals and books on it are widely available. The Minister for Finance has a public expenditure division whose function it is to carry out such studies and there are budgetary sections in all spending agencies and Departments. It should not be difficult to solve a major problem in the Irish economy. Bad investments leave a continuing tax and debt burden which reduces employment and increases taxation long after the first temporary boost has gone. The inability of a Government to tackle the problem after they recognised it correctly and drew up the correct approach in 1984 is the sign of their inability to tackle the problem of their own spending. That excessive spending, taxation and borrowing are at the heart of our high unemployment problem.

Having seen that situation over the last number of years, one would have thought that the lesson might have been learned, but according to the latest Central Bank bulletin published within the last week the volume of public Government spending continues to rise. According to the Central Bank Winter Bulletin the volume of net current public expenditure rose by ½ per cent during 1985 and the Central Bank predict it will rise by a further 1¼ per cent in volume during 1986, after inflation and so on have been set aside. That is a very sobering thought.

In these circumstances it will hardly come as a surprise that the Government have failed to reach any of the budgetary targets, which they considered so important just three years ago. Last year's budget deficit, equivalent to 8.2 per cent of GNP, was the highest on record both in absolute and proportionate terms. At the same time, the Exchequer borrowing requirement rose from 12.4 per cent to 12.9 per cent of GNP. It will be recalled that the Government's initial commitment, given freely in the Programme for Government, was to eliminate the current budget deficit within five years. As Government resolution faltered, this was soon replaced with another and easier set of targets published in the autumn of 1984. Those targets are wholly unattainable. More ground has been lost and the deficit announced today will be higher apparently in proportionate terms than that recorded in 1984, the year the plan was launched. In so far as it still exists, all concerned would agree that that plan deserves a decent burial.

This unfortunate record of failure, this catalogue of unfilled targets and array of false dawns, have not materialised by accident. I believe they are the result of confused thinking within the Cabinet on economic and fiscal policy. Two principles seem to have governed this Government's approach to economic policy, although I am sure they would not agree. The Government believe that Government spending on the current side is unreservedly a good thing. I believe the Government came to office believing that taxes were too low. Of course, these sentiments are not expressed by the Government. They too complain of excessive public spending and an excessive tax burden, but Governments must be judged by their actions, not their words. Between the end of 1982 and the end of 1985, current Government spending rose somewhat faster than inflation and is set to rise significantly more rapidly than prices again this year.

Taxes too have risen more rapidly than inflation, particularly on the income tax side. Between the end of 1982 and the end of 1985, taxes on income rose from £1,493 million to £2,260 million, representing an increase of 51.4 per cent. This is almost twice the accumulated inflation rate of 27 per cent recorded over these three years. There is more, however. Over the last three years, the Government have collected more than £1,000 million from employees in the form of pay-related social insurance contributions. In all, some £2,631 million was collected in taxes and levies on incomes last year. This is equivalent to a personal tax bill of almost £2,400 for each person working in this country.

Those who remember the first budget introduced by the Minister, Deputy Dukes in 1983 will recall that it introduced particularly harsh tax increases. The apparent reasoning behind this approach — and it is one that has characterised the Government stance ever since — was that it was only a matter of putting up taxes to raise additional revenue and close the deficit. Arithmetic may work like that; economics do not. Prices and taxes act as signals to which individuals and enterprises respond. In the face of rising marginal tax rates, people do not simply stand still and pay up. They adjust their behaviour to the new environment where taxes are higher. Rising marginal tax rates weaken the incentive to work, particularly where the workload can be readily adjusted. Thus, employees refuse overtime or extra shifts on which penal rates of marginal tax are levied. Managers refuse promotion where the extra responsibility is not recompensed adequately by the gains in after-tax income. Absenteeism increases. Many employers and employees drift into the black or grey economy, thus escaping or evading the tax authorities.

Increasing tax rates is not a simple mechanism for raising additional revenue. Instead, the process triggers off a chain reaction which displaces economic resources, distorts the pattern of economic activity and suppresses economic growth. The Government have used taxation as though it were an answer to the budgetary problems that confront them. Taxation is part of the problem, not part of the solution.

Expenditure and revenue raising policy have not been approached in concert. One is led to the inescapable conclusion that the Government first decide how much they want to spend and then sets taxes at the highest level the public will bear. Expenditure has been allowed to dictate the level of taxation. It has not worked.

There is another way, one which sets a tax framework that will promote output, initiative and enterprise, a framework that will be fair to different groups of taxpayers as well as in aggregate. Having set realistic taxes, expenditure is then accommodated to what can be raised in taxation and whatever deficit is thought appropriate. In this way taxation can dictate expenditure rather than allowing a continuation of the present system which permits the level of expenditure to dictate penal impositions of taxation.

To achieve what I regard as desirable, of having taxation dictate expenditure rather than vice versa, a whole new approach is needed on how the Government and individual Departments approach the question of their requirements for the coming year. At present we have the meaningless annual ritual of Departments sending in huge demands in the spring and early summer, having these predictably cut by the Department of Finance and then cut again by the Government in the autumn. A more meaningful approach would be for the Government to decide in June of each year the levels of taxation and revenue that would apply from the following January, then divide the revenue between Departments and agencies on the basis that the revenue would not exceed a certain amount and, therefore, that their expenditure would not exceed a certain amount, and then give them freedom to operate within that limit. I am aware that this would entail reversing the present system, indeed of turning it on its head; but I wonder if anything less radical will work, given the inherent self-protection tendencies of bureaucracy and the vigour with which it defends its own institutional welfare. The time has come to assert stringent political control and to take a grip on a system that is choking not just itself but, more importantly, choking the productive sectors of the economy that are the only ones capable of supporting it.

I think I can sum up best the faulty approach of those who have let the present vicious circle of expenditure and taxation paralyse them by saying that they believe money comes from taxation. The truth is that money in the real sense comes only from production and output. If taxation and expenditure are geared towards that objective, no longer will they be the instruments of paralysis that they are now.

An Leas-Cheann Comhairle

Deputy Mac Giolla.

Proinsias De Rossa

On a point of order, has live broadcasting been restored yet? I understand it was interrupted at 6.30 p.m. and that it had not been restored at 6.50 p.m.

An Leas-Cheann Comhairle

I am sorry. I am not aware of the position.

Proinsias De Rossa

Perhaps the matter could be clarified before we proceed. I make this point because the House agreed by unanimous resolution that none of the contributions would be interrupted.

An Leas-Cheann Comhairle

I am told we are now live.

Tomás Mac Giolla

I am tempted to go down the road followed by Deputy O'Malley but I think it is better to deal with the budget. His objective appeared to be to abolish taxation or to bring it down to minimum levels — a very popular policy.

What has been clear prior to this budget is that the policy of the Government to achieve financial rectitude has been a total failure. There has been a huge increase in the current budget deficit and in Government borrowing and that is the most clear proof of the failure of the Government's policy and philosophy which was pursued at the expense of the living standards of our people. Even though living standards declined, the books are in a worse state than ever. In autumn 1982 we said the policy would fail because it was the negative policy of cutting expenditure which was reducing jobs and production. We pointed out that what was needed was to increase production and thus increase earnings and income.

What the economy needs is a production plan. We had hoped that in this budget the Government would have exerted real pressure on those sections of the economy that have received massive subsidies but who have failed to increase output. Deputy O'Malley thinks these enterprises are the backbone of the economy because they are the productive sector, but in spite of the subsidies they receive they do not respond in the way that possibly they respond in other countries. Subsidies and tax concessions should be linked to specific output targets in order to force private enterprise into productive activity. It is also necessary to encourage the expansion of productive activities by State enterprises rather than restrict them by an ideological commitment to private enterprise.

Unemployment is the greatest blight and it is the greatest crime of this Government. The Government's economic and taxation policies have contributed to the loss of jobs. Instead of creating employment this Government are creating unemployment. We had hoped there would be a fundamental change in those policies. What is required in this connection is a U-turn but that has not happened in this budget.

The section on employment comprises just 20 lines of absolutely nothing. This makes the point that has been reiterated constantly by the Taoiseach, namely, that it is not the job of Government to create jobs but to create the climate in which private enterprise can operate and thus eventually to create jobs. In fact, the job of Government is to direct the economy towards the creation of new wealth that would be available for savings investment, spending on goods and services and so on.

Multinational companies here are creating new wealth but they are exporting it. In 1984 some £900 million of their profits were exported to their own countries and it is estimated that in 1985 this figure will increase to £1,200 million. There has been a jump of 30 per cent in the profits of the multinationals in the past year and it is expected there will be a further rise in their profits this year of over 16 per cent. However, it will not benefit our economy. Rather it will benefit the economy of the USA or their country of origin.

Despite the profits that have been made on the Stock Exchange, by the industrial companies and by multinationals who had their greatest year ever, the Taoiseach talks about creating a climate for the private sector to increase their profits which he says will result in the creation of jobs. We have ended a year in which we experienced the highest unemployment levels since the foundation of the State.

Of course those who were making the money were laughing all the way to the bank and those who were laughing most were the banks themselves. However, the unemployed were not laughing during the last year when their figures increased to 240,000. In particular, the long term unemployed were not laughing because during that time 122,000 were on unemployment assistance. There was no joy either for their dependants who numbered 190,000 making a total of 311,341 living without pride or hope on subsistence levels.

After this budget I do not wish to hear the FUE, the CII, the IFA and the new self-employed association moaning about not getting such-and-such a grant, tax relief or some other handout. I want to hear them say at last that they realise their responsibility to this society, that they will pay their fair share of taxes just as all those in the public service must contribute their fair share and as all their own workers in the private sector contribute their fair share. If these organisations tell us they will no longer be parasites, that they will help to make this country great, as it can be great, that they will work together to develop our resources and make the country prosper we would all benefit, including the moaners and the groaners. But to bring about that sort of situation and that type of thinking some leadership is needed. Unfortunately, there is no such leadership forthcoming from this Government who in their Budget Statement today devoted only 20 lines to the matter of employment.

Deputy O'Malley spoke at length about taxation. Indeed, I do not recall him speaking about anything else. It is difficult to know precisely what he might do about reducing the level of surtax. Is he advocating that the amount payable by those in the top bracket should be reduced while those at the bottom pay more? If not, does he mean someone else should pay, or does he mean that we should cut the taxes at the top and that no one should pay? If we cut a whole range of taxes who is to be left short? Do we take from those 1,300,000 of our people who are on social welfare benefits? Do we tell them there is no more money for them? Deputy O'Malley should tell us precisely what he has in mind.

There is a need for a spectacular move towards tax equity. The Government have recognised the anger and the rebellion, almost, that is seething among the PAYE workers and have responded to that in this budget though in a very minimal way. Six years have passed since the first tax demonstration in 1979. In the meantime the tax system has become more unfair and inequitable to the extent that in 1985 the PAYE worker paid, on average, three times more than the farmer or, one might say, the few farmers who are paying income tax. The average figure for the PAYE worker was £2,270 while for the farmer the corresponding figure was £790. Only 36,000 farmers were in the tax bracket in that year. More than 100,000 farmers were not in it. That inequity in the system is not being solved by this budget. The reductions are minimal when one has regard to the enormous burden that has been imposed on the PAYE sector in recent years. That burden is so great that 16,000 CIE workers paid more by way of taxes, levies and PRSI in 1982 than was paid by the 180,000 farmers. The CIE workers get nothing but abuse from everyone, farmers and self-employed alike, and from anyone else who benefits from the hand-outs. These handouts are provided for from the taxes paid by those 16,000 CIE workers and by everyone else who pays his tax.

While the minimal increase in tax allowances is welcome it should be recalled that the PAYE allowance which applies exclusively to workers has not been increased since 1981. The minimal increase announced today is a recognition of the need in this area but it is not adequate. The PRSI allowance which also is confined exclusively to workers has been reduced since 1983. The refusal to index allowances and to reform the tax system resulted in a greater proportion of workers' wages going in tax and in more loopholes being created for the wealthy and for the private sector in order that they would be paying less tax.

In their Joint Programme for Government, the Coalition promised tax reforms. They promised a system of tax credits but that has not materialised. They promised that there would be £100 million by way of capital taxation by 1984. In 1973-74 capital taxes amounted to £14 million. If we maintained that year's taxation levels in this area they would amount today, merely by increasing them by the inflation levels since then, to £55 million. If it were increased, as it should have been, by the same amount as taxes generally were increased, without any new taxes, that figure should be £108 million today. Yet the actual amount taken in capital taxes was £30.1 million last year. In the meantime the wealth tax was abolished and the property tax was almost abolished since it brought in only £1.6 million. We have neither wealth tax nor property tax and capital taxes have been reduced to one-third of their level in 1973-74.

There have also been tax reliefs of all kinds in recent years. There are tax reliefs for acquiring apartments for renting, for building toll roads, bridges and multistorey car parks. There is an increase in the flat rate VAT refund to farmers, which is just a handout. There is tax exemption for land leasing and tax relief for profit sharing schemes or for investing in manufacturing, etc. All the methods of reducing taxation on the private sector, the self-employed and so on, have been added to over the years.

Tax evasion is referred to in the budget in the context of the Taoiseach's statement last October. He made a major statement on tax evasion and collection. This budget simply endorses the Taoiseach's statement and adds only that there will be an amnesty. The Taoiseach's statement was made on 23 October and he was admitting for the first time that there was a major problem in tax evasion. He set out a series of measures to tackle the dodgers. He said these would be a major step forward. Special inquiry units were to be expanded; small local collection units of four each were to be established; sheriffs were to be appointed throughout the country in order to enforce seizure of goods, etc. Three months later not a single thing has been done. There has been no expansion of the special units, no establishment of the special collection units. It can be seen from reading the Budget Statement that the new sheriffs have not been appointed. Not one person has been appointed to enforce the measures on which the Taoiseach made a major statement. He got massive publicity for his new crackdown on tax dodgers, yet nothing has been done about it. The Minister for Finance said the same thing. But will anything be done about it? I doubt it very much because the budget prediction for collection from tax dodgers this year, with all the amnesties, crackdowns and so on is £15 million. Yet on 31 May last year £707 million was due in taxes, this after paring the estimates down to the bone in regard to the amount collectable in back taxes. The figure had gone up from £677 million in 1984 to £707 million in 1985.

The black economy has been estimated by the ESRI to be earning about £1,500 million. If they were paying taxes there would be a further tax yield of between £350 million and £400 million. If that sum is added to the £707 million in unpaid taxes, the real amount of unpaid taxes would be £1 billion. The Taoiseach knows there is a problem and that those who are paying taxes are very angry about it. Not alone are sufficient taxes not imposed on these people but then they are not expected to pay them. We are expected to believe that all this hype and publicity will do something about tax evasion.

Why is there not a suggestion in the budget to do what every city and county manager is doing to collect the water rates? If somebody who owes water rates applies for a grant for a house, it will not be paid until the water rates are paid or else that amount will be deducted from the grant. They will give no concession to anybody. They will not allow tenancies to be taken up or to be transferred until the water rates are paid. If the Taoiseach accepts that there are uncollected taxes which are properly due to the State, why does he not make grants or handouts dependent upon the payment of taxes? No more VAT repayments should be made to traders unless they forward the PAYE and PRSI contributions which they have collected from their employees. Instead of that the Government hand out the money while these people still owe £700 million to the Revenue. Of course the PAYE workers have to make it up and the Government know they can always find the money from them.

The Workers' Party in their campaign against tax rates have always rejected attempts to use demands for equity in the tax system to reduce the overall levels of taxation. We have never requested a reduction in the overall levels of taxation in other sectors which have clearly not met their obligations to the community. We say the rate of tax on PAYE workers is too high; but lowering the taxes on the PAYE workers means that the amounts must be made up by increases on the wealthy, by improved collection systems and by taking strong action against tax evaders.

Approximately £900 million could be gained in taxes but for the unemployment of 250,000 people. Instead of contributing to the Exchequer, they represent a loss of £600 million in payments of unemployment benefit and assistance. By investing money in job creation the State could gain massive tax yields in return, could save on social welfare payments and provide scope for increased public services and reductions for taxpayers. This is what we advocate.

I want to mention some points which should have been tackled by the Minister. Magazines should have been rated at 10 per cent VAT, the same as newspapers, and I hope the Minister will consider this in the context of the Finance Bill. The exemptions from tax on stud farming should be ended. TDs' salaries should be subject to tax on the same basis as those of other PAYE workers. There should be no special allowances.

Mr. G. Mitchell

Would the Deputy give TDs the same travelling expenses as everybody else in the public service?

Tomás Mac Giolla

TDs already get their travelling expenses.

Mr. G. Mitchell

The Deputy is misleading the House.

Tomás Mac Giolla

Deputy Mitchell is misleading everybody else. They do get expenses, as he knows.

Every week the payment of these increases is put off represents one-fifty-second loss — in other words, every week their payment is put off represents a 2 per cent loss to recipients. The fact that such increases have been put off a further week this year represents another 2 per cent loss in 1986. The Minister for Finance is fooling this House and the public, telling them that the Government are raising the level of social welfare benefits to the level of inflation when they are not going even halfway toward doing so. Probably next year the payment of such increases will be put off to 22 July or the end of July. This is supposed to be the Government's recognition of the long-term unemployed, the 122,000 now on the poverty line. The Government's recognition of their plight is to give them 1 per cent extra. One might well ask: what is 1 per cent extra to the unemployed?

Mr. Haughey

But their children are not getting it. They are not giving it to their children.

Tomás Mac Giolla

And they are not giving it to dependants. But the single unemployed person will get 35p a week extra, 1 per cent.

The Taoiseach

25 per cent extra.

Tomás Mac Giolla

The Taoiseach

There may have been consultations between the Whips and I understand that agreement has been reached on this proposal because we are something like two hours later than usual at this point. While it is not convenient for everybody, I think it desirable that the House should have ample time to discuss matters, so I propose that we sit until 2 a.m.

Dáil Éireann debate - Wednesday, 29 Jan 1986

Financial Resolutions, 1986. - Financial Statement, Budget, 1986.

Deputies

Deputies

Dáil Éireann debate -
Wednesday, 29 Jan 1986