Financial Resolution No. 9 will be taken on its own and will be brought to a conclusion by a vote at midnight.
Financial Resolution No. 1: Excise— Beer. - Financial Resolution No. 9: Value-Added Tax.
I move:
(1) That in this Resolution—
"the Principal Act" means the Value-Added Tax Act, 1972 (No. 22 of 1972);
"the Act of 1978" means the Value-Added Tax (Amendment) Act, 1978 (No. 34 of 1978);
"the Act of 1985" means the Finance Act, 1985 (No. 10 of 1985).
(2) That—
(a) the rate of value-added tax on goods and services at present chargeable at the rate of 23 per cent. (that is to say, taxable goods and services other than those chargeable at any of the rates zero, 10 or 2.2 per cent.) be increased to 25 per cent. of the amount or value, as the case may be, in respect of which tax is chargeable in relation to those goods and services, and
(b) the rate of value-added tax on livestock at present chargeable at the rate of 2.2 per cent, be increased to 2.4 per cent, of the amount or value, as the case may be, in respect of which tax is chargeable in relation to those goods, and
that accordingly, section 11(1) (inserted by the Act of 1985) of the Principal Act be amended—
(i) in paragraph (a), by the substitution of "25 per cent." for "23 per cent.", and
(ii) in paragraph (d), by the substitution of "2.4 per cent" for "2.2 per cent.".
(3) That—
(a) the rate of value-added tax on the following goods and services at present chargeable at the rate of 23 per cent, be reduced to 10 per cent. of the amount or value, as the case may be, in respect of which tax is chargeable in relation to those goods and services—
(i) food and drink (other than alcoholic beverages, bottled waters, fruit juices, and the like) supplied in the course of a hotel, restaurant, public house, catering, or similar business,
(ii) food and drink (other than food or drink to which the 23 per cent. rate at present applies) supplied by means of a vending machine,
(iii) potato chips supplied hot,
(iv) repairing and servicing movable goods, including laundry and dry cleaning, (v) certain work on immovable goods,
(vi) hairdressing and other services for the care of the body,
(vii) the promotion of and admission to cinematographic performances,
(viii) theatre and musical performances not at present exempt, excluding dances, and
(ix) certain fairground entertainment supplied by travelling showmen, and
(b) the rate of value-added tax on take-away hot food at present chargeable at the rate of zero per cent. be increased to 10 per cent. of the amount or value, as the case may be, in respect of which tax is chargeable in relation to those goods, and
that accordingly, the Principal Act be amended—
(a) by the deletion of section 5 (2) (inserted by the Act of 1978),
(b) in section 11 (4A) (inserted by the Act of 1978) by the substitution of "section 11 (1) (c)" for "section 11 (1) (a)",
(c) in the Sixth Schedule (inserted by the Act of 1985)—
(i) by the insertion of the following paragraphs after paragraph (xi):
"(xia) the provision of food and drink of a kind specified in paragraph (xii) of the Second Schedule in a form suitable for human consumption without further preparation—
(a) by means of a vending machine,
(b) in the course of operating a hotel, restaurant, cafe, refreshment house, canteen, establishment licensed for the sale for consumption on the premises of intoxicating liquor, catering business or similar business, or
(c) in the course of operating any other business in connection with the carrying on of which facilities are provided for the consumption of the food or drink supplied;
(xib) the supply, in the course of the provision of a meal, of goods of a kind specified in subparagraphs (c), (d) or (e) of paragraph (xii) of the Second Schedule—
(a) in the course of operating a hotel, restaurant, cafe, refreshment house, canteen, establishment licensed for the sale for consumption on the premises of intoxicating liquor, catering business or similar business, or
(b) in the course of operating any other business in connection with the carrying on of which facilities are provided for the consumption of the food or drink supplied;
(xic) the supply of food and drink (other than beverages specified in subparagraphs (a) or (b) of paragraph (xii) of the Second Schedule) which is, or includes, food or drink which—
(a) has been heated for the purpose of enabling it to be consumed at a temperature above the ambient air temperature, or
(b) has been retained heated after cooking for the purpose of enabling it to be consumed at a temperature above the ambient air temperature, or
(c) is supplied, while still warm after cooking, for the purpose of enabling it to be consumed at a temperature above the ambient air temperature,
and is above the ambient air temperature at the time of supply;
(xid) promotion of and admissions to cinematographic performances;
(xie) promotion of and admissions to live theatrical or musical performances, excluding—
(a) dances to which section 11 (7) relates, and
(b) performances specified in paragraph (viii) of the First Schedule;
(xif) entertainment services, other than dances to which section 11 (7) relates and circuses, supplied in fairgrounds by travelling showmen where, in any particular case, the total period spent in any one locality in relation to a series of successive performances does not exceed 15 consecutive days and an interval of at least one month elapses before the next performance in the same locality;" and
(ii) by the insertion of the following paragraphs after paragraph (xii):
"(xiia) services consisting of the repair, maintenance or adaptation of movable goods other than services specified in paragraph (xiii) or in paragraph (v) or (xvi) of the Second Schedule;
(xiib) services consisting of work on immovable goods, other than services consisting of such work specified in paragraph (xiv) and services specified in paragraph (iii);
(xiic) services consisting of the care of the human body, excluding such services specified in the First Schedule, but including services supplied in the course of a health studio business or similar business;".
(4) That the rate of flat-rate addition to prices of agricultural produce or agricultural services supplied by unregistered farmers be increased from 2.2 per cent. to 2.4 per cent., and
that accordingly, section 12A (inserted by the Act of 1978) of the Principal Act be amended by the substitution of "2.4 per cent." for "2.2 per cent." (inserted by the Act of 1985).
(5) That this Resolution (other than paragraph (3) thereof) shall have effect as on and from the 1st day of March, 1986, and that paragraph (3) of this Resolution shall have effect as on and from the 1st day of July, 1986.
(6) It is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).
I do not want to take up the time of the Opposition by speaking to it at this stage. I simply ask for some time to reply at the end of the debate when people have had their say.
We are opposing this increase of 2 per cent in VAT on what is now known as the standard rate, that is increasing the VAT from 23 per cent to 25 per cent. It is very difficult to understand the logic of the Government in proposing these increases. Last year we had quite a performance by the Minister for Finance about his great efforts to standardise VAT, reduce the rates and generally reform the whole VAT system. Throughout the year the Government made a great song and dance about their success in bringing down the rate of inflation. We all know that it came down without any particular reference to them in response to international developments, but nonetheless they attached great importance and significance to a fall in the rate of inflation. Despite all these attitudes and stances by the Government we now have this proposal to reverse the whole procedure and increase VAT rates substantially.
This is the worst VAT rate of all because it affects practically every item in the household budget. This is something that will bear very heavily indeed families which are already hard pressed. There are very few households who do not find it difficult to make ends meet between increasing costs of one kind or another, falling incomes and exorbitant rates of taxation. The Government have decided to make this change where it hits the family hardest and impose this tax on families and the household budget. There are many things in the budget which are objectionable and reprehensible but this is not just detrimental from the point of view of the economy generally and of families, but it is also difficult to understand what is the thinking behind it and why it was opted for by the Government.
I move amendment No. 1 to this resolution.
In subsection (2), to delete paragraph (a).
This amendment relates to the increase from 23 per cent to 25 per cent in the VAT rate on practically everything. There is no use in the Taoiseach telling us that some of these items had been brought down from 35 per cent to 23 per cent last year when some items were at 23 per cent for a long time and will now carry the 25 per cent rate. Many people are on the poverty line today. We have all heard that in the region of one million people exist below subsistance level. There is no doubt that hundreds of thousands of people cannot live a normal life and do not have any prospect of a surplus income, not have any prospect of a surplus income, not even 10p. With them it is a question of whether they should go short of food to buy shoes for the children. An increase of 2 per cent on every item they buy for the house, apart from food which is rated at 10 per cent, will be severe. They must pay an additional 2 per cent for all services and bus fares.
The most miserable part of this resolution is that the increase of 2 per cent operates from the earliest date possible — from 1 March — but the reductions will not come into operation until July. For instance, the reduction on chips will not apply from 1 March but from July. Those who are being hardest hit will not get the miserable increase of 4 per cent in their welfare benefits until 15 July. Therefore, between March and July those people will have to bear the increase on everything they buy.
I should like to appeal to the Taoiseach, if he does not accept our amendment to delete this rate of VAT, to consider those who are unable to pay it and who will have to do without something to pay the increase in their shopping list weekly. At least he should postpone the implementation of the increase until 15 July. That will not be of much benefit to those people but it will help until they get the increase of £1.40 in their allowance. The Taoiseach should consider families who are unable to have a normal existence, who eke out a living daily and must spend a lot of time seeking benefits from the Eastern Health Board to help them pay their ESB bill or borrow money from moneylenders. The Taoiseach, and the Minister for Finance should consider those people in connection with this increase.
The standard rate of VAT is now being increased across the board from 23 per cent to 25 per cent and a lot of essential items will be subject to that rate. My reading of this is that if I buy a part for a tractor it will be subject to VAT at the rate of 25 per cent but if I have the repair carried out by a garage I will pay a 10 per cent VAT rate. There are many parts a farmer can fit to a tractor such as a ploughboard or points. One does not have to be an experienced person to fit them, but a farmer who purchases those items or parts for a combine harvester or other farm machinery will have to pay the 25 per cent VAT rate. The increase in the VAT rate will affect industry, farming and households. There is no doubt that it will result in increased costs. My interpretation is that any items purchased over the counter will be liable to the 25 per cent VAT rate. We are opposed to the resolution because the increase in the VAT rate will affect many people.
In the nature of things the Opposition will go for the down side elements in the VAT increases and the Government will put the other side. It is worth noting in section (3) of this resolution that VAT on a variety of food and drink, potato chips, repairing and servicing movable goods, certain works on immovable goods, hairdressing, promotion of and admission to cinema to graphic performances and the theatre as well as certain fairground entertainment supplied by travelling showmen is being reduced significantly from 23 per cent to 10 per cent. Last year there was a very significant change in the VAT rate from 35 per cent to 23 per cent which brought the system very close to having two rates. We now have a zero rate, a 10 per cent rate and a 25 per cent rate but, effectively, the 10 per cent and 25 per cent are the rates about which most people will be concerned. I am glad that the VAT rate has been simplified and I hope we get to the stage where we will have a single rate of VAT, perhaps somewhere in the region of 15 per cent, to ensure the continuance of the sort of public expenditure which exists at present.
I do not think that the increase in the standard rate from 23 per cent to 25 per cent on inputs for industry will have any significant effect on the industry because they can claim back those inputs against their VAT outputs. It will not have much effect on the consumer price index since inflation predictions for the coming year are minimal. Given the level of continued public expenditure, the variation from 23 per cent to 25 per cent is understandable and the reclassification of a number of items to the 10 per cent rate is very welcome.
With nearly 250,000 people without jobs, taking an additional £60 million in VAT out of the economy will obviously be extremely deflationary, will cost us dearly in jobs and is precisely the wrong policy for the country at present.
It would be churlish not to welcome some of the concessions to the tourist industry and the motor trade which we advocated time and time again. However, even with that, VAT as a percentage of gross national product is now over 9 per cent from a figure of about 8 per cent a few years ago. It is clear, therefore, that the burden of VAT on the community has been greatly increased. As it will cost us dearly in jobs it will also cost us dearly in PAYE revenue which will set off the spiral of depression all over again. I have two reservations to which I wish to refer. The 10 per cent imposed on the take-away business should be looked at very carefully for practical reasons. It hits the very young and the lower income groups. It is difficult to enforce and I predict that there will be little or nothing gained in that area when bureaucracy and form filling are taken into account. The State's energies should be exercised in another direction.
I wish to remind the Minister for Finance that two or three years ago I suggested that he would not get £10 million from residential property tax. I forecast that he would get £3 million and in the end he got £2 million. He would not listen to us when we said that that kind of taxation was counterproductive and was not worth the effort of collecting it. This tax will again show a net loss this year. Could the Taoiseach tell the House how much he intends to levy in VAT on the take-aways? What type of estimate is there in that regard?
I also wish to refer to the major error in last year's budget, the doubling of VAT on the building and construction industry. Are the Government aware that housing starts in the country are running 16 per cent below the previous year and that in the city and county of Dublin they are running at 20 per cent below the previous year? Are they aware of the decline of output in the industry for the fourth successive year? Output has declined in our second largest industry. Are they aware that there are a further 12,000 people unemployed in the industry in three years and that the rate is now bordering on 40 per cent compared to a national percentage of 17 per cent in the rest of the economy? If they are aware of those statistics it is hard to understand why VAT was doubled last year. There is nothing in today's statement to indicate that that major blunder will be reversed. We should have seen a reduction in VAT in this industry. I ask the Government to reduce VAT even at this late stage because it is one of our most important industries and, if it deteriorates further, unemployment will get out of hand. The extra tax on building societies further aggravates the problem.
I should like to refer the House to part of the Minister's speech today and I assume it is correct. He said that it remains the view of the Government that the overall level of taxation is as high as it can reasonably go. Immediately after that, the Minister imposed further taxation. The net increases here in VAT are in the order of £60 million but when we are talking about reflation or, as Deputy Brennan said, deflation, in the figures published before today, estimates of receipts and expenditure for 1986, there is an increase of £107 million in VAT plus an additional £60 million as a result of this budget, making a total of £167 million increase in VAT. I do not think that the economy can bear that huge increase. The Minister went on to talk about reductions in VAT and the help it would be to various sectors of the economy, particularly in relation to tourism. However, I cannot understand how any Minister could present these items as being of significance when at the same time they are increasing VAT in almost all those areas from 23 per cent to 25 per cent from now until 1 July. That seems to be a major contradiction of any sort of fiscal policy.
It is also right to refer to the fact that in 1982 the VAT on all these items was 18 per cent, and even that was too high. In some cases since then, these rates have been increased to 35 per cent, reduced to 23 per cent and once again increased to 25 per cent. While it was stated that this was necessary because of the level of borrowing and the budget deficit, even with all the damage that this nonsense which has gone on for the last three years has caused, we still have a 50 per cent increase in the budget deficit and a doubling of the national debt compared with that in 1982.
I would like the Taoiseach to tell the House the amount being taken in from today until 1 July from the VAT increase from 23 per cent to 25 per cent on the items which will later be reduced to 10 per cent VAT. I venture to suggest that what he is doing by increasing the VAT from 23 per cent to 25 per cent from now until July will more or less go the full way to pay for the reductions which will be subsequently made. The Government are making a nonsense of fiscal policy, of the VAT régime. When he adds the additional £107 million which it is intended to take under this heading compared with 1985, it will be another nail in the coffin of the economy and, in my view, will add significantly to the numbers of unemployed.
I concur with my western colleague, Deputy MacSharry. The Government are proposing many changes and are trying to create an attitude that they are doing something to reduce taxation levels. The Taoiseach and the Minister for Finance have said inside and outside this House on a number of occasions that we have reached a point where taxation is far too high. Yet today a budget was introduced which is pushing taxation still further and at the end of the day the consumer is asked to carry the can. The net effect of this budget will be to increase the cost of living.
As far as I am concerned, it is a hypocritical exercise in juggling with figures, particularly when we realise that we will immediately have an increase of 2 per cent on various goods and services, particularly those in the hotel and catering industry. The reduction in the VAT rate for this industry, for which we have all been clamouring so long, will not take effect until 1 July. This means that for six months that industry will be expected to bear a very high level of taxation and for the second six months there will be some reduction. Where is the economic strategy in this type of taxation? Where is the opportunity for the tourist and hotel industry to market itself? We all know the tourist industry is a major contributor to our economic development. How can that industry or Bord Fáilte sell this industry overseas when, for six months, prices will have to carry 25 per cent VAT and for the second six months there will be a reduction to 10 per cent? It seems totally illogical and foolhardy to try to pursue this type of taxation.
The one great hope for this country if we want to stimulate economic growth is the contribution that can be made by the private sector. This Government have failed to recognise that and to realise that it is the private sector which can create the jobs, expand industry and make the taxation contribution the Exchequer needs. Today we see the VAT on goods and services being increased to 25 per cent. A person in the private sector, with a number of employees, will have to pay 25 per cent VAT on goods, he will have to pay staff, who in turn will have to pay income tax at 35 per cent or 45 per cent, and added to that there is something in the region of 10 per cent to be paid by the employer and employees by way of PRSI contributions. Basically the private sector is being asked to carry in the region of 90 per cent taxation on business, or maybe more. No sector of the economy could hope to expand or to create any type of economic growth when it is asked to carry such extraordinarily heavy taxation.
Because of our high taxation, our main problem is that there is little or no disposable income. We have diminishing returns. The economic cycle of activity that is needed to stimulate economic growth is diminishing daily. Consequently we have industries closing down, many of them private companies which are family run. We have companies laying off workers; people are put in the dole queues and the State has to carry the burden. At the end of the day it is the PAYE taxpayer who has to make the necessary contributions and the consumer who has to carry the can for this type of silly economics which is being pursued constantly by this Government.
The Oireachtas Joint Committee on Small Businesses lobbied very strongly for the last two years to get the VAT changed along the lines announced today. The real difficulty when dealing with the black economy arises with unregistered contractors. If there is a low VAT rate on parts it becomes all the more difficult for registered contractors to compete with unregistered people because they have to take into account labour costs and the higher percentage VAT rate. After today the competitive position is improved because the VAT on labour is reduced but VAT on parts is at a higher rate. This obliges the unregistered contractor to become registered.
I welcome the move today to reduce the VAT on meals. This is the only area where the basic input is not rateable for VAT. A retailer or wholesaler buys goods, adds his profit margin and the VAT is added to that, but in a restaurant there is no VAT on food. This means that the 23 per cent VAT for the Revenue Commissioners has to come out of profits.
I would like clarification on two points. First, in relation to general repairs, will motor repairs and general garage repairs be included? Second, when studying the catering industry we were advised in writing by the Department of Finance that take-aways were exempt from VAT if they had fewer than four seats on the premises, that is, if people did not have an opportunity to eat on the premises. We are told that the VAT on chips will be reduced from 23 per cent to 10 per cent but this does not apply to the fast food outlets which does not provide seating on the premises. What is the position of the take-aways vis-á-vis VAT?
This measure deals a severe blow to middle income and low income families in particular. It is very important the Taoiseach should understand just how severely this measure will hit families. The increase of 2 per cent is on essential goods, items a household must purchase each week. Most of what the Taoiseach said earlier is nonsense when one considers the effect it will have on families.
Deputy Brennan spoke about a claw-back of £60 million and this will come principally from families. It cannot be forgotten that families can comprise up to seven persons and the household budget must meet the cost of goods for all these people. This is tied in with the cut in food subsidies and it will affect the weekly budget of families. The Labour Party appear to have forgotten that tied into this budget is a halving of the food subsidies and this will affect bread in particular. I do not know if the Taoiseach realises that the large sliced pan is now 62p — what we can call the Coalition sliced pan — and it will increase further in cost because of the further removal of food subsidies. Where are the Labour Party now? What are they saying about this? These matters affect their people and our people. That is why we will be here making noises about the matter. This is where all the Taoiseach's theories and economic mish-mash go out the window. He has forgotten about the struggle of families in Ireland today. They have been forgotten in the budget. All kinds of smokescreens have been put up but the reality is that there is nothing for families in this budget.
Families who have to live on social welfare benefits will also be affected. The increase in VAT will be applied on 1 March. Once again, the Coalition is what is now their traditional style have pushed back the date of the social welfare increases. We will not forget that. The Taoiseach would like us to forget that social welfare increases which were introduced on 1 April have been put back not just to 1 July but to 15 July. This is an extremely mean, Scrooge-like measure that has been noted outside this House. There is a great silent majority of families who know what the Taoiseach and the Government are doing to them. The Taoiseach can have all the economists he wishes around him but the people know what has happened here. Their action in putting back social welfare payments until 15 July has been mean and uncaring. It is somewhat like the Christmas double week that is not a double week any more; now it is £1.75 a week.
There is a mean, uncaring, anti-social and anti-family streak in the Taoiseach, in his Minister for Finance and in his Government. I tell the Taoiseach that the ordinary people realise what has happened, despite the way it will be presented on television and in the newspapers. The Government are giving with one hand and taking away with the other. Consider what happened with regard to the child allowance of £100. The allowance a family had for each child has gone even though they will be faced with higher costs. They have been deprived of even that small allowance that was not adequate. There is also the example of the unemployment allowance. From mid-July people will get an additional sum of £2.25 per week and even in the case of a family with seven children that amount will remain the same. This is the first time this has happened here. I should like people to note that a major change is taking place here and for the first time people on unemployment assistance will not get an increase for their children——
There has been a 25 per cent increase in children's allowance.
That is given to the Smurfit children, as the Taoiseach said. It is given to the wealthy. The Taoiseach is talking about the children's allowance. Has he forgotten he did not give any increase last year and hardly any increase the year before that? Does he not realise that people outside know that? They know he did not give them anything last year and what he gave the year before was marginal. What has been given in respect of children's allowance will be clawed back by way of the £100 child's allowance. Even on the miserable 4 per cent figure of the Government, people should have got £1.60 per week for four children in addition to their allowance for dependent children. They will realise they are being fiddled. For a husband, wife and four children the sum of £2.25 per week works out at 37p per head. When has there ever been such an increase for families on social welfare?
When did we have an inflation rate of 4 per cent?
When did we have so many unemployed?
These increases will be of little benefit to families. The budget has been disastrous for them, as it has been disastrous with regard to income tax, which we will discuss later. This Government are hell bent on wiping out families. In the case of any who happen to survive to 18, the Government will send them away somewhere else on the boat.
This is beyond the limit of permissible hyperbole.
I know the Taoiseach is uneasy and is squirming in his seat. It is right that he should. He will squirm a lot more when people realise fully what is happening. They will not be fooled.
I agree with Deputy Woods in his statement that this Government are anti-family. However, I disagree with him on one point. At the start of his speech he seemed to imply that the Taoiseach and the Government have some theory about running the country. They have absolutely no theory about running the country. If there had been anything worthwhile in the budget I would have welcomed it. For the past three years the Government have had no idea about running the country and they have abandoned all hope of any semblance of economic sanity.
Long before I was elected to this House I came here to listen to budget debates. I regarded the budget as a serious document setting out a Government's economic and financial policies. If this Minister for Finance has occasion to present another budget to this House I suggest he should do so on the back of a cigarette packet. What is in this budget is ridiculous. In his Budget Statement the Minister gave us the following wonderful piece of information which will go down very well in Kildare. He said:
The ratio of the main indirect taxes to GNP fell from 17.7 per cent in 1984 to 17.4 per cent last year.
Of what relevance is that to the budget? It means nothing. There is no indication in this budget of any semblance of either financial or economic planning. The Government's one theory seems to be that if you do not know where you are going, any road will take you there.
Another change in relation to that which should make a very big impression in such places as Newbridge and Naas is that travelling funfairs are to be exempt from this tax. That will have an extraordinary impact on the unemployed people of Kildare and elsewhere.
This change is to enable those operations to survive.
The people will be thrilled to hear that the Government have decided to introduce VAT on chips at the rate of 10 per cent. One hears the expression sometimes, "Let them eat cake". Perhaps the Government's answer to the unemployment problem is "Let them eat chips". Surely a budget should give some idea of what the Government are doing. The announcement of a £50,000 grant to this or that society could be made during an Estimate debate or by any Minister at any function. Instead, such announcements are included in the budget in an effort to give the impression that something big is happening. This merely reflects the lack of any thinking on the part of the Government. We would be making a laugh of ourselves if we were to think that the people would be fooled by such nonsense. I am sure that Bord na gCon will be delighted with their subvention but there was no need to make the announcement in the budget.
The increase in VAT from 23 per cent to 25 per cent will apply from 1 March and will represent a 2 per cent increase for the year but the social welfare increases of 4 per cent will not apply until mid-July. Therefore, people will be worse off rather than better off as a result of this budget. There is provision in the Estimates for the raising of £107 million by way of VAT. Today's proposals will have a net effect of £59.2 million. This means that a total of £167 million will be taken out of the economy. That is deflation and will cause a worsening of the unemployment problem because it will mean that there will be less money available.
I welcome the reduction in the VAT rates on meals from 23 to 10 per cent and also the reduction in respect of other items such as hairdressing and so on but this is taking more money out of the economy. Any child in secondary school and studying basic economics could devise a budget such as this. If a fellow wrote an essay for his leaving certificate examination based on today's budget he would fail.
Perhaps the Taoiseach would pass him.
I am very much aware of the country's problems but I would prefer that instead of what has happened today the Government had told us that instead of concentrating on the public finances they would do something about unemployment and about emigration. That would be a legitimate political objective. On the other hand, if for each of the past three years they had told us that they intended putting the public finances in order, something I advocated in 1982, and allowing unemployment to increase but would then tackle that problem when the initial objective had been achieved, that would have been fine but they have not taken either line. Nothing has been done in regard either to sorting out the public finances or regarding unemployment in respect of which the figures have increased. The number has increased by 70,000, that is 70,000 officially unemployed, since 1982. There are another 70,000 in training schemes while a further 30,000 have emigrated. At the same time, borrowing is at a higher level than ever before, both in percentage and in absolute terms.
That is not so. The Deputy is usually accurate but he should have regard to the figures.
The current budget deficit was greater in 1985 than was the case in 1982.
It is higher than it ever was before. We have never before owed more money than we owe now.
Borrowing is down from 20 per cent to 14½ per cent.
Perhaps more than anyone else here, the Taoiseach knows what I am talking about. As one who was critical on occasion of Fianna Fáil economic policy, a matter that was harped on by those who are now on the Government side, I am entitled-to comment that there are neither politicians nor representatives of the media saying now the Taoiseach is running the country into the ground, despite the fact that the position is worse than ever now. What is good for the goose is good for the gander. I may have faults both as politician and on a personal level but a lack of a sense of fair play for everyone is not one of those faults.
The budget represents the opposite of the line that a thing of beauty is a joy forever. The economic and financial policies of this Government are a disaster. We know that our problems cannot be solved overnight but even allowing for the fact that the Government have at most about one and a half years remaining in office, I would have welcomed from them any sign of sanity in regard to the problems of that economy.
Resolution No. 9 relates to the reduction in VAT on various items and these include food and drink other than alcoholic beverages. What kind of drink would not be an alcoholic beverage or a fruit juice or something of that nature? Perhaps there are drinks in Dublin 4 that we have not heard of in Kildare.
Vinegar and gall.
Tea, coffee or cocoa.
This will be big news to the unemployed who can hardly afford to drink water, let alone coffee.
I am merely answering the question.
Regarding the reduction in VAT to 10 per cent on the touring coach business, I should like the Taoiseach to tell us how this will be put into operation. It has been a bone of contention with the majority of those people that because they are exempt specifically they cannot register and consequently cannot claim back VAT on inputs by way of purchases of vehicles, parts and so on. Is it intended that it will be a once-off thing? How will it work in the general sphere?
We have seen the standard rate of VAT increased from 23 per cent to 25 per cent and the agricultural refund has been increased from 2.2 to 2.4. This is the most anti-rural, anti-farmer budget that has ever been introduced here. Will farm machinery repairs be included in the low rate of VAT in the same way as the other services the Taoiseach has mentioned?
They already are.
They are not in it already.
The 10 per cent rate.
The Taoiseach is totally out of touch. It is very obvious that he comes from Dublin 4 where there is no green grass. Agricultural expenditure has been cut by £6.5 million. The new scheme which was introduced for the glasshouse industry——
That happened in 1983.
——is being cut from £300,000 to £100,000. This country can ill afford such a retrograde step in view of our high level of imports, especially vegetables. This was regarded as one of the brighter areas for further development but the Government have a total lack of commitment to it. The farm modernisation scheme has already been cut. The money is being extracted from agriculture and nothing is going back in by way of VAT refunds. We were told that incentive aids for agriculture would amount to £8.2 million but the figure is now to be a mere £2.9 million. This Government are anti-rural. They are a totally Dublin-oriented, Dublin 4-Government.
The dairy and beef industries will suffer under section 84 by the extraction of about £10 million from the agri-business sector. It will reduce he price of milk by 1p per gallon. This budget will put jobs in jeopardy and stall the efforts being made to diversify in our dairy and beef industries. Our beef and dairy exports have been worth about £2 billion in the past year. This is the pride of our export area. This Government talk about incentives and development but the budget totally lacks imagination and is unacceptable to the productive sector. If we do not have a change of Government and if the Taoiseach does not vacate his chair there will be nothing left in Irish agriculture or industry. They have failed miserably during their years in Government. This budget is a further failure.
Regarding disease eradication, the figure of £23 million has been reduced to £19 million. We can ill-afford a shortfall of £4 million when we have 6,500 herds now locked up and 5,900 reactors in that area. There will be sufficient money for disease eradication only until the late autumn of this year.
I accuse the Government of being totally anti-rural and anti-farmer, the worst Government for farmers ever in this country. I ask them to resign and get out of office.
I have offered three times.
Deputy Harte is offering now. It is agreed that the Taoiseach will get in at 11.45 p.m.
I do not mind coming in a little after that.
I do not want to become too involved in this debate because the speeches from the Opposition benches have not impressed me in the slightest. The way some Fianna Fáil Deputies are talking would suggest that they were never in Government. I remember the former Fianna Fáil Leader, Deputy Lynch, speaking on television immediately after the general election in 1977. He was asked if he could fulfil the promises of the manifesto and he said he could because the economy was buoyant.
(Interruptions.)
Before you returned to the Chair the Leas-Cheann Comhairle called a list of speakers. Deputy Harte's name was not on that list but my name was.
The Deputy should keep cool. If somebody offers from the other side——
I am making a valid point of order. It is on the record of the House that the Leas-Cheann Comhairle called a list of Deputies. Deputy Harte's name was not on that list and he is obviously trying to keep out other speakers from this side of the House. I respect entirely the Taoiseach's entitlement to time for reply but your handling today has been a little unfair to this side of the House in many instances. The discretion is very interesting.
Fianna Fáil have been in Government almost continuously except for two short spells since 1957. The economy was in their hands during all those years. The present economic crisis is not as a result of this Government. They are trying to blame this Government for bringing in measures to get the economy right. Fianna Fáil could not govern the country over the years.
I am calling the Taoiseach.
On a point of order, Fianna Fáil were in Government for four of the last 14 years.
That is not a point of order.
The Leader of the Opposition has spoken very briefly and generally, leading into his party's general criticisms of the budget. In the earlier discussion here I said it was my recollection that the first budget to have a deficit was in 1972. The Leader of the Opposition has since assured me that it was in fact 1971 and that he was the last person to prepare a budget that balanced. I want to accept that since I think he is correct.
Deputy Mac Giolla was anxious that we should postpone the VAT increases until July. The cost of that would be about £38 million. That money simply is not available.
Deputy McCreevy accused us of having no strategy at all as a Government and no plan in this budget, but the opening of the Minister's speech makes it clear that we have to consider what is most appropriate for the economy at this stage of its development and this led us to the conclusion that we should try to avoid a deflationary budget, even if that meant having a larger deficit than in the plan. Secondly, we have to accept that there is a public finance constraint and while this constraint has been relaxed for this reason, it can only be relaxed to a limited amount. Thirdly, we have shifted the balance of taxation so that the burden is being borne more by taxation on receipts from deposits in financial institutions rather than by the taxation of the individual, particularly the PAYE worker. It is a very significant shift of the order of £120 million in taxation between those two areas which I think will be very widely welcomed in terms of its social equity, although that has not come through in the debate here. That represents the general strategy of the budget but it is not possible for us to do what Deputy Mac Giolla suggested. We cannot reasonably allow for a deficit in excess of £1,250 million and the excise duties and VAT increases have been necessary in order to hold the deficit down to that figure, while the income tax reductions are financed by the new forms of taxation in relation to bank deposit interest and insurance companies. That is the strategy of the budget and should be very clear to everybody.
Deputy Gay Mitchell welcomed the reductions in VAT to 10 per cent on services. I think Deputy Yates did so too and pointed out the value of these reductions in terms of their effects on the black economy. It is important to do that. We tried to identify areas where the black economy is biting more severely and to reduce significantly the incentive to people to be in the black economy as well as to give them a strong incentive to get out of it by way of the tax amnesty procedure.
Deputy Séamus Brennan claimed that the budget was extremely deflationary. The Minister in his speech said that the budget was neutral in respect of total revenue buoyancy. It is not an extremely deflationary budget. Had we adhered rigidly to the targets in the plan, disregarding the shortfall of revenue that has taken place, both tax and non-tax, then the budget would have been deflationary. And there are people — though their voices have not been raised significantly here tonight — who might say that we should have stuck to that and that to depart from the plan in those circumstances has been a mistake. I do not think it has been. On the whole I think the sense of the House is that we were right to relax the constraints to a degree here.
Deputy O'Malley would not agree with that.
It was not clear to me what policy Deputy O'Malley was advocating, in terms of what cuts in spending he was proposing. No doubt that will be revealed to us in due course when the policies of his party are produced and when people can make their own judgment on them. But it was not very clear here tonight.
On the question of growth in the building industry Deputy Séamus Brennan was suggesting that the building industry situation in 1986 would be extremely bad with further reductions in output. All I can say is that the independent views that have been expressed by, I think, the Central Bank, the ESRI and our own advisers suggest that the fall in output in the building industry should level off in the current year. Indeed there was one projection, I think that of the ESRI, of an increase of 2 per cent in output, although that is not one I am particularly standing over. If one takes the different views that have been expressed they do suggest either a halt in the decline or perhaps the beginning of a recovery in the building industry. Deputy Séamus Brennan was expressing a view which probably is held within the industry where there are still fears of a further decline, but the general economic view seems to be that the industry is levelling off at this point.
Deputy MacSharry quoted from the Minister's Budget Statement but, with respect, a little out of context and a little unfairly. He quoted what the Minister said about tax being as high as it can reasonably go. If I may put the two sentences together, what the Minister said was:
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.
Deputy MacSharry should not take that out of context. What the Minister was saying was that in the plan we fixed 36½ per cent. We have held to 36½ per cent of GNP——
Two different sentences with different meanings.
No, they are not.
They are.
It is quite clear there what is involved, that we have committed ourselves to holding taxation to a maximum of 36½ per cent of GNP. We have, in this budget, held it there even though — because of the way the economy developed last year — this means a higher deficit than was envisaged in the plan.
So the plan is scrapped.
In that respect I think the other side of the House, with the exception of Deputy O'Malley, is generally in agreement with us.
Again, Deputy MacSharry raised the question about the postponement of the social welfare increases to July. I have already answered that. Deputy N. Treacy came back again to the point of our saying that taxation has been too high and should be held. We are holding it at the level we said we would hold it at. He said the budget would increase the cost of living——
Reduced, not held.
I think the Deputy said that the budget would increase the cost of living, not reduce it.
Of course.
Yes, that is what I said. The effect of the budget on the cost of living is about 0.5 per cent. With the rate of inflation now falling below 4 per cent in the current year the net effect will be a rate of inflation — including the tax increases allowed for in the budget — of 4½ per cent. When did we last have, after any budget in this House, of any Government, Fianna Fáil or Coalition, a 4½ per cent inflation rate after the tax increases in the budget? Frankly I do not remember whether it was in the sixties or the fifties but it is well before the political memory of most people in this House that that happened.
I do not think anybody can maintain that this budget is inflationary given the very minimal effect on the cost of living index, and given the very low level of inflation reached. While one Deputy opposite made the point that the low level of inflation owes a good deal to external factors, or indeed suggested that it was due entirely to external factors, that is not the case. External factors have certainly helped. But a very important element has been the manner in which this Government, by reducing inflationary expectations, have gradually persuaded those involved in pay negotiations on both sides of the table to moderate pay claims to such a point that their domestic cost in pushing up inflation has been reduced to a small fraction of what it was when we came into Government. That has not been easy. It has involved very fine negotiations and the Government giving a leadership that has been followed and accepted by both sides of industry. I want to pay tribute to the leaders of the trade union movement who have faced up to the realities of the importance of getting inflation down, who have co-operated in this whole process of wage pauses and pay increases of an increasingly moderate amount. We are a very long way now from the time in 1980 when the increase in public service pay in one year was 34 per cent when Deputy Haughey first took up the reins of office. We are down now to a stage at which the increase in public service pay, including indeed significant sums of back payments of special pay increases of several years ago is about one-fifth only of the figure it was in 1980.
The Taoiseach should be correct, 1980 saw a combination of factors arising between 1977 and 1980, just to be correct.
The reason it was as high in 1980 was because of the general operations of the Government over that period. What really went completely wrong in that year was the giving up of all control on pay, the offering, for example, to one particular important group in the country of increases well beyond the arbitration award in order to get a settlement at all costs. At that stage everything was blown and we had this massive 34 per cent increase in public service pay. We have worked it down from there to the point at which the pay increase at present being considered by the trade unions involved for the current year is one of 3 per cent for eight months or 2 per cent year on year over and above the carry-over from last year in special pay claims. That has been a very major factor in the reduction in inflation. I would not accept that they were external factors alone though those also have helped.
Deputy Yates raised several points, as did serveral other Deputies about VAT on general repairs. I understand these are already subject to VAT at 10 per cent. On the question of take-aways he raised a point it is important to clarify. Under the present system take-away food, whether hot or cold, except chips, is zero-rated if no facilities for consumption are provided on the premises. If there are facilities for consumption provided, as he said, the 23 per cent rate applies. After 1 July next all hot take-away food will be liable to VAT at 10 per cent regardless of whether facilities for consumption are provided. Cold take-aways will be liable to VAT at 10 per cent if facilities for consumption are provided and they will be zero-rated if no facilities for consumption are provided. The Deputy has been helpful in clarifying a point which perhaps was not entirely clear before. I have been glad of the opportunity to clarify that.
The Government are taxing the one and one for the first time ever. The Taoiseach should admit it.
The net effect of all this is that there is, I think, a £.9 million increase on the take-aways and £.7 million reduction approximately on chips — I have not the relevant figures in front of me at present. The net effect, taking one with the other, is a fractional increase only in the overall cost.
Why do it at all, then?
In order to remove anomalies and distortions I am proposing——
(Interruptions.)
Taoiseach, you should conclude now. With the permission or agreement of Deputy Haughey I will give you a minute.
Provided he uses it sensibly.
Deputy Woods said there is nothing for families in this Budget, but if you look at the income tax tables you will see significant improvements. For example, a worker on the average industrial wage, if single, has his tax bill reduced by 7.5 per cent and if married by 10 per cent. That is something for families in the case of married people. Taken together with the child benefit, the net amount taken in tax offset by children's allowances in the case of a family with three children is reduced by about 15 per cent. These are very significant benefits for families. It is worth while emphasising that point as it has been controverted here.
On social welfare increases, Deputy Woods raised the point about operating from mid-July. I would like to make the point that the increases we gave last year, as in every year that we have been in Government, were in excess of the rate of inflation of the succeeding 12 months. The increases given——
(Interruptions.)
On a point of order——
It is not a point of order.
How can you tell?
Because you are going to contradict someone.
I gave an increase in real value in social welfare benefits. That point I am entitled to make.
(Interruptions.)
I am putting the question.
You always put an increase on the last year's inflation.
Deputy Woods, please have some regard for order. When the Ceann Comhairle rises the Deputy should sit down.
(Interruptions.)
That is another sleight of hand.
Silence, please. Financial Resolution No. 9, amendment No. 1 in the names of Deputies Mac Giolla and De Rossa. The Question is: "That the paragraph proposed to be deleted stand". On that question a division has been challenged. Will Deputies supporting the call for a division please rise in their places?
Deputies Tomás Mac Giolla and Proinsias De Rossa rose in their places.
Question declared carried.
In accordance with Standing Orders the names of the Deputies dissenting will be recorded in the Journal of the Proceedings of the Dáil.
Question put: "That Financial Resolution No. 9 be agreed to."
The Dáil divided: Tá, 80; Níl, 72.
Tá
- Allen, Bernard.
- Barnes, Monica.
- Barrett, Seán.
- Barry, Myra.
- Barry, Peter.
- Begley, Michael.
- Bell, Michael.
- Bermingham, Joe.
- Birmingham, George Martin.
- Boland, John.
- Bruton, John.
- Bruton, Richard.
- Burke, Liam.
- Carey, Donal.
- Cluskey, Frank.
- Collins, Edward.
- Conlon, John F.
- Connaughton, Paul.
- Coogan, Fintan.
- Cooney, Patrick Mark.
- Cosgrave, Liam T.
- Harte, Patrick D.
- Hegarty, Paddy.
- Hussey, Gemma.
- Kavanagh, Liam.
- Keating, Michael.
- Kelly, John.
- Kenny, Enda.
- L'Estrange, Gerry.
- McGahon, Brendan.
- McGinley, Dinny.
- McLoughlin, Frank.
- Manning, Maurice.
- Mitchell, Gay.
- Mitchell, Jim.
- Molony, David.
- Moynihan, Michael.
- Naughten, Liam.
- Nealon, Ted.
- Noonan, Michael. (Limerick East)
- Cosgrave, Michael Joe.
- Coveney, Hugh.
- Creed, Donal.
- Crotty, Kieran.
- Crowley, Frank.
- D'Arcy, Michael.
- Deasy, Martin Austin.
- Desmond, Barry.
- Desmond, Eileen.
- Donnellan, John.
- Dowling, Dick.
- Doyle, Joe.
- Dukes, Alan.
- Durkan, Bernard J.
- Enright, Thomas W.
- Farrelly, John V.
- Fennell, Nuala.
- FitzGerald, Garret.
- Flaherty, Mary.
- Glenn, Alice.
- Griffin, Brendan.
- O'Brien, Fergus.
- O'Brien, Willie.
- O'Donnell, Tom.
- O'Keeffe, Jim.
- O'Leary, Michael.
- O'Sullivan, Toddy.
- O'Toole, Paddy.
- Owen, Nora.
- Pattison, Séamus.
- Prendergast, Frank.
- Quinn, Ruairí
- Ryan, John.
- Shatter, Alan.
- Sheehan, Patrick Joseph.
- Spring, Dick.
- Taylor, Mervyn.
- Taylor-Quinn, Madeline.
- Timmins, Godfrey.
- Yates, Ivan.
Níl
- Ahern, Bertie.
- Ahern, Michael.
- Andrews, David.
- Aylward, Liam.
- Barrett, Michael.
- Barrett, Sylvester.
- Brady, Gerard.
- Brady, Vincent.
- Brennan, Mattie.
- Brennan, Paudge.
- Brennan, Séamus.
- Briscoe, Ben.
- Browne, John.
- Burke, Raphael P.
- Byrne, Seán.
- Calleary, Seán.
- Collins, Gerard.
- Conaghan, Hugh.
- Connolly, Ger.
- Coughlan, Cathal Seán.
- Cowen, Brian.
- Daly, Brendan.
- De Rossa, Proinsias.
- Doherty, Séan.
- Fahey, Francis.
- Fahey, Jackie.
- Faulkner, Pádraig.
- Fitzgerald, Gene.
- Fitzgerald, Liam Joseph.
- Fitzsimons, Jim.
- Flynn, Pádraig.
- Foley, Denis.
- Gallagher, Denis.
- Gallagher, Pat Cope.
- Geoghegan-Quinn, Máire.
- Harney, Mary.
- Haughey, Charles J.
- Hilliard, Colm.
- Hyland, Liam.
- Kirk, Séamus.
- Kitt, Michael.
- Lemass, Eileen.
- Lenihan, Brian.
- Leonard, Jimmy.
- Leonard, Tom.
- Leyden, Terry.
- Lyons, Denis.
- McCarthy, Seán.
- McCreevy, Charlie.
- McEllistrim, Tom.
- Mac Giolla, Tomás.
- MacSharry, Ray.
- Morley, P.J.
- Moynihan, Donal.
- Nolan, M.J.
- Noonan, Michael J. (Limerick West)
- O'Connell, John.
- O'Dea, William.
- O'Hanlon, Rory.
- O'Keeffe, Edmond.
- O'Kennedy, Michael.
- O'Leary, John.
- Ormonde, Donal.
- O'Rourke, Mary.
- Power, Paddy.
- Reynolds, Albert.
- Treacy, Noel.
- Wallace, Dan.
- Walsh, Joe.
- Walsh, Seán.
- Wilson, John P.
- Woods, Michael.
Tellers: Tá, Deputies Barrett(Dún Laoghaire) and Taylor; Níl, Deputies V. Brady and Browne.
Question declared carried.