Dáil Éireann debate -
Tuesday, 11 Feb 1986

Vol. 363 No. 10

Financial Resolutions, 1986. - Financial Resolution No. 13: General (Resumed).

Debate resumed on the following motion:

That it is expedient to amend the law relating to customs and inland revenue (including excise) and to make further provision in connection with finance.

—(The Taoiseach.)

Mr. McCartin

I trust that I am not the cause of the speedy exodus from the House of the vast majority of Members. On the last occasion I was speaking about the problem of taxation and about the cost of the public service. When we embark on a discussion of this kind it is easy to give the impression that those of us who normally raise this question as being one of our most serious national problems are in some way against public servants, that in some way we regard the services they provide as being inferior or that we regard them as being to some extent a liability on the State. I wish to make it clear that I regard with equal importance the person who processes applications for agricultural or other grants or who opens the door in any of the Departments and the person who milks the cow or manufactures a computer or who works in any sector in our industrial or commercial life. I do not subscribe to the view that one sector creates the wealth while the other spends or wastes it.

It would be difficult to determine how each individual should be remunerated and I have no intention of entering into the argument as to whether people are being paid enough or whether they are being paid too much. All I know is that employees, whether in the State or in the private sector, should be paid as much as their employer can afford to pay them.

The problem about the public service in the first place is that it is very difficult for us to measure its performance against the performance of other groups. There is a monopoly in regard to most of the services supplied by the public service. There are no other groups providing the same services. Consequently it is very difficult to judge whether public servants are competitive. For that reason there is an obligation on this House to monitor carefully the job that is being done and to ensure that in no instance are two people employed to do a job that could be done by one. Down through the years carelessness has crept in, with the result that in many instances two or more people are doing jobs that could be done by one. The additional money is being taken from the taxpayer and as a result jobs in the private sector are being lost.

Our public sector has become very big. The agricultural lobby, for instance, has been considered always to be very strong in Ireland. That was because of the numbers involved, but there are now twice as many public servants as there are farmers. We may not have realised yet how powerful is the political impact of the lobby these public servants can muster. Probably the most powerful ever known in the State. I have noticed in recent years that this lobby works in many different ways. In addition to having a well-organised public relations procedure working for them and to having well-staffed associations and unions, people in the public sector are in a unique position to influence the public.

I have heard of dozens of cases of applicants for grants or some other services being told by State employees that the application could not be dealt with because of Government cutbacks, though there might be no Government cutbacks in the Department concerned. I reject that kind of approach on the part of civil servants. I suggest that they have no right to tell people who are refused some service or grant, though the disentitlement may be only marginal, that they should approach their local TDs because nothing further could be done in the Department because of Government cutbacks. That is the means by which the message is being put across that the Government are cruel and heartless, are cutting back on services of every kind and thereby making it extremely difficult for public servants to render to people services to which they are entitled. It is not the business of public servants to advise people to approach their local politicians and pressure them about matters affecting the workings of different Departments, but I have experience of this happening in the case of a large number of Departments.

On the general question of wages for public servants, as I said at the outset I have never made the case that any individual is paid too much; I would argue that when the Government came to office they should have realised that every penny paid to State employees must be taken from the taxpayer. The annual Bill in that regard is now of the order of £3,000 million. The creation of jobs in the public sector must mean a loss to the same extent of jobs in the private sector. At this point I must part company with Deputy O'Malley, who made a very fine first half kind of speech. However, he did not go on to pursue the conclusions of his argument. He did not tell us in what areas the difficult decisions had to be taken or where the reductions in public expenditure had to be made. The very least a Government must do at present is to say to everyone — Deputies, civil servants, teachers, and everyone else in the public sector — that more money is being paid out than can be afforded and that the argument should not be about the level of pay increases the Government should offer but by how much we need to reduce the pay of all of us in the public sector by way of solving the problem of the huge public sector pay bill.

In Holland, a country three times as wealthy as we are, when their unemployment figures reach 15 per cent they decide, with complete agreement from the trade unions, public services and workers, that they would reduce wages in order to resolve the unemployment problem.

If anybody thinks that unemployment can be resolved without asking those who have work to make sacrifices, he is going in the wrong direction and making a grave mistake, because it cannot be done without making sacrifices. As the first step, long ago we should have frozen wages and salaries and the level of Government spending.

This Government have become unpopular with one sector because they are seen as the cruel, heartless monetarist organisation who have cut everything to the bare bones, but the recipients of State services have become convinced that it is the cruelty and heartlessness of the Government that make it difficult for them. Those who observe the figures and look at them carefully know well that the Government that make it difficult for them. Those who observe the figures and look at them carefully know well that the Government have not done anything of the sort, that they have not been cruel or heartless. If anything, the Government have erred on the soft side and continued to make concessions, payments and services that they could not afford.

If the Government were to concede the wishes of the taxpayers to reduce taxation, and the wishes of the Opposition for reduced borrowing and taxation, the only solution would be to reduce the cost of the services the State provides. I do not believe that there are various Departments — Education, Health, Social Welfare — who have not learned to take some short cuts, to produce greater efficiency, that they cannot improve the quality of the services unless the money be provided by the taxpayers.

In industry increased productivity is being achieved by fewer people. I do not see why that cannot be done in the public service as well. The idea that we will solve unemployment by social employment schemes, earlier retirement, career breaks, is not on. They all look attractive but they are the soft option that is easy to sell politically, but the solution to our problems is greater productivity. That will not be achieved with the levels of taxation we have, with the interest rates now prevalent, with the level of national borrowing here. All of these things reflect on the competitiveness of industry. We will not solve our problems by the brainchildren of individuals who think up all sorts of social schemes that for the moment will provide sedatives for those who sign on for the dole.

Naturally I am very interested in agriculture. It is experiencing many problems. It has become popular — I am a member of a farmers organisation and have been working in agriculture most of my life — for politicians representing agricultural interests and farmers' representatives to demand that the State do this, that and the other for the industry. That demands the spending of vast amounts of money. Those who represent agricultural interests generally argue for deregulation of the economy and withdrawal by the State, but they refuse to acknowledge that one of the most regulated industries is that of agriculture. Most of the regulations were introduced with the agreement of farmers and many of them at the demand of farmers. Personally, I tend to believe that if we had had fewer regulations over the years, here and in the EC, we would now have a healthier agricultural industry which would have been given an opportunity to increase production with lower costs. Then there would be a more competitive position and there would be a greater share for us of the European market, which is really all the market we have.

One of the big problems about agriculture in Europe is that we have too many people involved, first of all, and we have too much land. Therefore, we do not have the opportunities to export our surpluses of food because the production costs in the EC and the price of food are such that it is not possible to sell on the world market unless we dump it, as is being done with our surpluses at present. By "dumping" I mean selling in other countries at lower prices than the prices of food on our own markets.

There are 12 million people employed in agriculture in the EC and we cannot separate the Irish agricultural industry from the rest of the EC. In the US, two million people can meet all the needs of an economy that is almost as big as the EC, and they can provide surpluses for export. An efficient agriculture in Europe could employ between two million and three million people. That means we have to make up our minds, through social schemes or whatever, whether we should keep the extra nine million people on the land of Europe or push up the price of food beyond what it would be if we had a competitive agriculture, which we do not have.

The European agricultural industry would be competitive if we could sell our products on the world market in competition with other producers. We cannot, and there is no point in saying there is a place for European agriculture to supply the needs of the rest of the world. At the prices we produce food, the hungry people of the world cannot but it. We are asking the taxpayers to buy it and pass it for nothing or at very low prices to the people who need it. That is only a short term solution. The long term solution is that those people elsewhere would produce their own food.

Therefore, there is an extremely difficult problem in agriculture throughout Europe and we must appreciate that it has to be changed. However, the British Government and the British farmer get together and chant "no" in response to every proposal for change from the European Commission. We cannot hide from the fact that change is coming. We must realise that it is inevitable and we should be in there trying to design a new CAP.

In spite of all the aid we have got from the EC in the past 13 years, our agricultural production has increased in volume by only 16 per cent and there has been a net drop of 3 per cent in the income our farmers have enjoyed in that period. That failure has been brought about because of weaknesses in our own economy which have created some of the problems in the agri-business in the constituency I represent in the European Parliament.

There we have had two spectacular cases of difficulty in the agricultural sector. From an employment point of view, the biggest is the Bailieboro Cooperative who have their difficulties now. Those in the past few years who asked if there was any point in making an effort in agriculture, particularly in regard to market research, have seen an organisation like Bailieboro and tended to have a revival of confidence. In that instance there was some point and there was hope for us if we carried the example, made the investment, took the risks and provided opportunities for employment and increased production. Of course, like all agri-business, Bailieboro has been walking a tightrope, ground down by production costs, high transport costs, high levels of taxation and high interest rates, to a large extent the result of Government overspending and over borrowing. Things were made difficult for organisations like Bailieboro. It is traditional for the financial institutions to look for sacrificial lambs, instead of blaming the root causes of the problem.

I admire the management in Bailieboro Co-op and I have absolute confidence that the people who brought it this far are capable of resolving the problem if they get their finances restructured. I want to see the management, who had the initiative, courage and foresight to do what they have done there, continue with that job.

Mr. Flynn

Never before has there been such a level of confrontation between a Government and every section of the community as that which exists today. That has been borne out in every debate and public pronouncement by every Minister over the past few months. Never before were the Government in such poor standing. The indications are that the Government have lost their mandate. This budget is an example of the depths of mismanagement to which the Government have sunk. One glaring example epitomises that more than anything else. It is the first time in the history of the State that the tax code does not have a reference to children. The children of taxpayers will not be cherished equally, although the Government have a duty under the Constitution to deal equally with all our children. They have failed in their obligation under the Constitution. Everybody is saying that this is an anti-family budget, and whitewashing will not convince anybody otherwise. The tactic of the Government is to confuse and bamboozle the electorate with figures. The public have been treated to repeated pronouncements of good news about our economic prospects. We had these every month until Christmas last year and they have now been followed by threats of dire consequences if we do not wear the fiscal hairshirt with resignation.

Economists, even independent ones, cautiously suggested in the recent past that a selective reflationary budget was essential if the engine of economic growth was to be restarted. Their advice has not been taken by the Government and the terrible twins of economic stagnation and entrenched monetarism continue merrily on their way to the destruction of our living standards and an unparalleled level of misery for every sector. The political and economic policies of this Government can be loosely termed bingo politics. They are blowing all the numbers about — inflation figures, interest rates, deficits, and borrowing — and they are picking out a selection to try to arrange their prize, that of an electoral success which is daily slipping away, so that now nobody believes that the Government have a mandate to continue governing this country.

The Government have lost their social conscience, unfortunately, although a section of the Government comprises a socialist party called the Labour Party. We saw that last week when one of those Labour Ministers was responsible for the closure of so many health institutions, the very institutions that protect the health standards and services available to the weaker sections. The Government are not defending the rights and living standards of the old, the weak and the infirm and they are reneging on the constitutional demands on a Government.

The Minister for Finance has attracted an enormous amount of public odium with his unhappy budget followed by the actions of his colleagues, the insensitive duo, Ministers Hussey and Desmond, who together have so infuriated and incensed the public with their closure speeches that Government credibility is now only a memory. The hidden extras in this budget will long be talked about because of the level of hardship they are bringing to the people. The social welfare increases of 4 per cent, which will not be applied until mid-July, will not enable those who live on social welfare benefits to maintain their living standards. Inflation this year will be in excess of 4½ per cent. This has been admitted by the Minister for Finance and the Taoiseach in their contributions over the past few weeks in this House. We know that the likelihood is that it will be in excess of 5 per cent, so there will be a drop in the living standards of those whom the Government should be seeking to protect in hard times.

The food subsidies will be removed. There will be an increase in VAT of 2 per cent on the 23 per cent rate. Transport cost increases have been announced in the recent past. Those paying mortgages will have to pay more. The new retention tax will bite very severely into the small resources of small savers; and there are new road tax increases, motoring costs and so on. All that has been offered as a substitute for rising costs is the child benefit scheme which will amount to 10p per day per child. That is poor consolation for the many families who are on that side of the poverty line. The Government have a dismal record in protecting the weaker sections and we must level the charge of incompetence at them on this occasion. The politics and policies of the Department of Finance have obviously superimposed themselves on a divided Cabinet, and this is regrettable. We have Exchequer-driven initiatives that have no human face. In a depressed period of our history surely a Government with a socialist element should have made every effort to protect the weaker sections.

This budget has no vision for any section. There is a lack of direction in it. There is no purpose in it, except to keep the Government in office for a short time until they are eventually forced before the electorate. There is no doubt that this budget will have a very big impact on the middle income group, who have to pay for everything and who received nothing by way of compensation from this budget. Since 1982 the Coalition Government have displayed no fiscal management or skill in dealing with the economics of the country and with our most persistent problem, unemployment. Investment has fallen, living standards continue to decline and one in five of our workforce are now without jobs. The objectives of the Coalition in their Programme for Government, and reiterated in Building on Reality, have been jettisoned. They promised to halt and reverse the rise in unemployment and correct the imbalances in the national finances. They have failed on both counts. They have sown their economic seeds on stony ground and reaped the inevitable harvest — nothing. Worse, they have added to the national misery and they will make our recovery all the more difficult when more realistic policies are eventually applied on the return of Fianna Fáil to Government.

The Coalition track record on job creation is a dismal and sad reflection of Government policy. In 1979, one in 14 of the workforce was jobless and the total number out of work was 87,400. Now, at the start of this year, one in five of the workforce is unemployed and we have virtually 250,000 on the dole. Those unemployed at present exceed the manufacturing industrial workforce by 60,000 persons and it is only when you contemplate the depth of despair that exists in those figures that you realise what a bad job of management of the economy the Government have made. It was always understood that the manufacturing industrial workforce would be in excess of those on the dole, but now we have the reverse position and it is getting worse daily.

The Government's response to the labour market has been ambivalent. They have not provided incentives for investment. They have continued to reduce the public capital programme and sought to distort the unemployment figures by directing the unemployed into part time jobs and dubious training schemes. With the labour force growing at the rate of 100,000 people over the last six years and the reduced demand for labour due to the robotic revolution, it is clear that new initiatives in taxation, pricing and product development are necessary to reduce the national imbalances.

World trade has been growing since 1983 and our export volume growth has increased by 65 per cent since 1979, but this has not been reflected in industries' demand for workers. We have reduced inflation and increased demand for certain Irish goods in an improving world business environment and still our people are without work. I shudder to think of the national catastrophe that would follow another world recession, which could happen at any time. The budget does not seek to take advantage of the more favourable international business climate because it fails to recognise the one ingredient more than any other needed to turn the economy around, that is, investment, public investment for the productive sector and productive infrastructure and the right investment and incentives for private investment.

We have an appalling statistic in so far as our unemployment figures are concerned. There are over 240,000 on the dole and 30,000, most of them young people, parked in part time jobs and time wasting schemes and agencies. I do not use the word "parked" in a derogatory way but that is the new terminology in EC circles when they talk about unemployed people who are on short term jobs. They refer to them as being "parked" somewhere awaiting jobs to be provided by the Government. What a nasty way of referring to young, well educated and dedicated people who want to work, but who are not given the opportunity to do so. The opportunities are not being created by the budget either.

We have the highest unemployment rate in the EC and the Government have no credibility when they talk about what the budget might do. It is only a follow on of the last three budgets introduced by the Minister, Deputy Dukes, and the result will be the same, greater and higher numbers unemployed and increased levels of emigration. The Minister of State at the Department of the Taoiseach during Question Time today said that he had no relevant figures dealing with emigration but he knows that every village in the country has suffered over the past 12 months. There is no mention in the budget of biotechnology or any new horizons that might be sought by the national agencies to bring about job creation. There is no recognition of the role of science and technology when all the commentators agree that it is in that area that the best prospects for job creation exist. The Government seem to be mesmerised by the complexity of technology instead of recognising its possibilities and following it with innovation and investment.

In 1984, 700 award winning science and technology graduates emigrated or are still unemployed here. No new measures were announced in the budget to stop the brain drain. Irish industry has not been motivated to recruit science and technology graduates to the level of our competitors. Similarly, we have not increased the number of our export marketing executives abroad even though each one could be responsible for creating at least ten new jobs at home. These statistics have been critically analysed and proven correct. There is no news of what is to be done to identify new products or markets for our exporters. There is nothing to monitor the changing attitudes and tastes of people with whom we are doing business. There has been no recruitment, and no embargo can justify the non-recruitment of extra marketing executives.

As well as recruiting them we should also have an enlightened tax allowance policy for executives who travel abroad in bona fide selling campaigns for more than three months of the year. These are the kind of incentives which would have encouraged agencies to take on board more marketing executives so that we could develop new markets for our exporters. If so much emphasis is placed on our development in the high technological area, then it must justify greater support to industry to recruit science and technology graduates. The future of our indigenous research and development programmes depends on bright innovators and they are there in large numbers if only the Government would recognise the possibilities and utilise their strength and educational prowess.

In job creation, as with export executives, the multiplier, also applies and if we were to have a positive policy in recruiting science and technology graduates there is no doubt that new products would be developed, new markets could be sought for them and jobs would be created. Not a single paragraph in the Minister's budget speech indicated that he had anything new to offer to the people in so far as the creation of jobs is concerned.

The improvement of the new maximum grant of £3,600 for the first year's salary in a small industry for one of these graduates has been an essential. Science and technology graduates are recruited in the market place and in the young scientists and technologists employment programmes, but an increase in the allowances payable to them should be considered and should be applied to all industry, large and small. Money will have to be provided in some new science and technology initiatives. Government neglect in these areas shows their lack of understanding of the real needs of industry so far as technology and marketing are concerned.

Interest rates play a critical role for manufacturing firms and this budget will inevitably lead to increased rates. Most manufacturing industries are over-borrowed and the increases will lead to further closures, layoffs, redundancies and unemployment. The Minister's comment that there is a marked decline in the level of notified redundancies is incredible and shows an alarming level of naivete on the Minister's part. Is he not aware that his fiscal policies have so weakened the industrial base that we have the continuing haemorrhage of closures and liquidations, and they have so debilitated the whole industrial fabric of the country that there is virtually nothing left to close? The answer to the question on today's Order Paper about the number of liquidations and closures for the past few years would have been enlightening, but, on average, close to 1,000 businesses per year have closed in the past three years. Nothing has been done in this budget to redress that position.

A disturbing statistic is that there are 70,000, or 40 per cent, more people unemployed than there are industrial workers in manufacturing employment. The balance is completely lopsided, and until something is done to stimulate investment and to create worthwhile jobs the crippling tax burden will continue. Despite the unanimous approval of all economists, politicians and commentators that something had to be done to remove the taxation bias against personal and institutional investment, the Government chose to ignore the advice and relentlessly pursued their failed fiscal policies of three former budgets. Commentators and media people should put the Government on notice that fiscal rectitude as a policy has failed and is no longer appropriate to the needs of this economy. If practice makes perfect, then this Government are well practised in wrong decisions and they are a perfect example of stubborn, tunnel vision so far as the economy is concerned.

The overwhelming weight of evidence available suggests that investment in industry needs to be doubled to meet the demands of employment in the economy. Yet that investment level fell 15 per cent below the level of five years ago and the Government have declared a further reduction in their public capital programme for 1986. The indication is that the Government have deliberately chosen to starve the IDA of grant investment and there can be no hope of an expansion in manufacturing industry this year.

There has been no worthwhile effort to reduce cost of money, which is 12 per cent higher than the rate of inflation today, and to transfer investment to manufacturing industry and away from the risk-free Government gilts. The change in capital gains tax from 40 per cent to 35 per cent from April is still out of line with our European competitors and unfortunately there are no proposals for change in the taxation of development land or of short term gains. The business taxation proposal to increase payments on account of corporation tax and income tax to 90 per cent of ultimate liability is a typical hidden thorn of this budget and it effectively reduces the volume of investment allowances from manufacturing firms.

Under the new arrangements for section 84 loans, banks will be required to pay a duty of 12 per cent on all interest received. This, no doubt, will be passed back to the borrower who will find that the section 84 interest charge will be increased by 13.6 per cent of base rate. At present a borrower at 10 per cent now faces an increased interest rate of 11.3 per cent. Nothing has been done to encourage individuals or institutions to invest in new industrial initiatives and risk taking. It is still not an attractive alternative to the £1 billion investment annually in Government gilts. Until such time as the level of investment in Government gilts is chanelled to investment in manufacturing industry, we will not have the level of job creation necessary to meet the demands of the labour force.

The revenue shortfall in 1985 must be a serious source of concern to the Government. At £123 million short of the budget, it meant a shortfall of about 2.3 per cent. The expected buoyancy which was talked about in the 1985 budget did not materialise and the principal reason for the shortfall must be the slower economic growth rate than had been expected. Inflation was also a contributing factor and the weakening dollar added to the price fall in international commodities, particularly oil prices.

There has been a slow-down in exports in the electronics sector and, for a number of years, there has been a slow-down in agricultural exports, particularly in 1985 due to the poor harvest, but the Minister did nothing by way of compensation nor did he suggest any measures to redress this downturn. The range of indirect taxation increases, together with the increased VAT rate will lead to price rises in every sector and must inevitably have a serious effect on revenue targets for this year.

The selective tax cuts, VAT and excise rates recommended by Fianna Fáil and tried by the Government in a minor way in 1985, have been highly successful in increasing demand, particularly of electrical goods, and had begun to stop the money drain to the Six Counties retail market place. The move also had a positive effect on our balance of payments and stabilised job losses in the manufacture and distribution of electrical goods. Home sales in electrical goods rose by up to 50 per cent last year and whiskey sales by about 15 per cent. The U-turn on this policy announced by the Minister for Finance has to be deplored. Again we are driving thousands of shoppers north of the Border to swell the coffers of retailers, publicans and petrol retail outlets there. We all know that economic desolation exists for retailers many miles south of the Border and it was to be hoped that the lessons learned in 1985 might have been added to, but unfortunately the Minister has chosen to subtract from that effort which will certainly lead to further deprivation of business along Border counties.

Despite the increase in the volume of manufacturing output and exports, there has been a fall in living standards, in consumer demand and employment. The volume of manufacturing output has increased by 29 per cent in the past five years and the volume of exports has increased by 48 per cent in the same period. Our productivity per head of population has increased by 58 per cent in the past five years, but still our living standards have decreased each year during that period. Real earnings have fallen by 2 per cent in that time. Consumer demand has fallen by up to 8 per cent while unemployment has increased by 124 per cent. Surely those figures indicate to any independent observer that the policies of this Government to deal with the economy have failed. Why at this late stage will the Government not make the necessary policy changes in order to stimulate investment and provide jobs that are so necessary for the economy?

Export strength has not resulted in improved living standards or increased job opportunities. There are many reasons that contribute to this regrettable state of affairs such as the repatriation of profits by multinationals. Today the Minister of State indicated that more than likely they would be in the region of £1.2 billion for last year. Interest payments on foreign debt are included also but a major contributory factor is the level of taxation both in the personal and the corporate sector. Whatever Government propaganda may try to convey, the fact is that in 1986 PAYE earners will pay on extra £200 million in tax and taxpayers generally will pay an extra £536 million on all accounts.

Section 84 loans have been hit in the budget and stock relief has gone except for farmers. There are reduced capital allowances for grant-aided machinery and payments on account are increased by 90 per cent. These are some of the items that have not been highlighted in the media but the fall-out will have a major impact on production and business and, consequently, on employment levels during the year.

The lesson and the practice of repatriation of profits by multinationals has not been lost on some of our bigger indigenous concerns. Some major Irish companies are placing their profits offshore and nothing has been done to plug this hole. I have no objection whatever to multinationals making money; that is the reason they came here in the first instance. I would encourage them to make as much profit as possible but it is too much that Irish companies should lodge their profits offshore where they are of no benefit to the national income or to employment. The infamous black hole has passed the £1 billion mark. In order to get some national income and to create jobs from these company profits it is imperative that the leak be plugged. Now is the time for the Government to say to the multinationals and to the Irish companies who persist in removing their profits from the economy that some portion must be made available for specialised purposes in the economy, particularly in the preparation and formation of a research and development programme here. Reinvestment of profits by multinationals and major Irish companies must be encouraged so far as it concerns the development of other structures in research and development. Investment of consumer savings in manufacturing industry must be made a profitable alternative. Risk-taking has not been encouraged by this budget and consequently business stagnation will continue and jobs will continue to be scarce. We must seek ways of attracting money away from the risk-free gilts so that it can be utilised to provide investment for manufacturing industry. Until we recognise that fact we will not be able to create jobs.

The budget has increased tax on manufacturing industry by about £24 million due to changes in tax arrangements for investment in plant and machinery and the special duty on section 84 loans. This will increase interest rates for firms who use such loans. Industrial production is in decline and so far as this budget is concerned there has been no move to halt that decline. That must be regretted. This was a magnificent opportunity for the Government to utilise the resources and investment available if only the proper investment climate and environment existed.

The budget will increase inflation. This year possibly we will have an inflation rate of 5 per cent at a time when our main trading partners expect to have an inflation rate of less than 3 per cent. That will happen if oil prices continue to fall. If the price of crude oil stays at about $20 per barrel, inflation could be at least 1½ per cent below the price expected internationally. If that happens countries such as Germany, which is one of our principal export markets, will have an inflation rate of about 2 per cent and the other EC countries will be less than 3 per cent. Therefore, we will still be adrift by about 2 per cent as compared with the inflation rate of our competitors. We must aim of an inflation rate that is in line with our trading partners. The savings as a result of the drop in oil prices and the strengthening of the Irish pound should be used to reduce inflation, unfortunately, there is no indication from the Government that that will happen. There have been indications to the contrary, that increased revenue will be drawn from the drop in the price of crude oil and that that further money will be sucked into the Exchequer when it should be passed on to industry and to the public.

Personal taxation here is still punitive when compared with our neighbours and our competitors. Our effective tax rate is 10 per cent higher than that prevailing in the United Kingdom before social insurance deductions are made and we are more than 20 per cent out of line with the United States where the effective tax rate is only about 12 per cent. For example, the top tax rate of 58 per cent is reached here by a married couple on a joint income of about £30,000 whereas in the United Kingdom the same couple could earn £80,000 before reaching the top marginal rate of 60 per cent.

The changes announced in the tax bands and in the personal allowances are negligible. Child allowances are terminated and the compensation offered in the child benefit scheme will be clawed back in additional income tax from taxpayers with marginal tax rates over 35 per cent. The increased age allowances and age exemptions do little more than compensate for the withdrawal of exemptions in respect of deposit interest. As a result, the elderly who have modest savings cannot anticipate any great reduction in their tax bills. A mean and sneaky attack on the savings of the old and the very young is the hidden monster of this budget.

This can be illustrated by one or two examples. The child who has a few hundred pounds on deposit which might have been saved from Communion money or birthday money will be denied the right to the full amount of interest that deposit would earn for him. A man should earn £12 on £200 invested for a year but more than £3.40 is now to be withdrawn to help swell the coffers of the Exchequer. It is unfair to tax the small savings of children. Let us consider the case of an old age pensioner whose tax free allowance in normal circumstances might be in excess of £6,000 with age exemptions added. The old age pension for himself and his wife comes to less than £100. One would have thought that he would have been entitled to the exemption set out in the tax tables but any deposit interest he has will be taxed at the 35 per cent rate as well. That is inequitable. The Minister should consider announcing at an early date that deposits from old age pensioners and children will not be subject to the new retention tax.

High-tech industries benefit from the fact that they are exempt from VAT at the point of entry because they export 75 per cent of their output. I have always believed that to be a very good idea. The high threshold of 75 per cent for exemption requires a small indigenous Irish firm to have developed an export market three times the size of their domestic market in order to qualify. That figure is unrealistic. This export percentage level should have been reduced in accordance with the proposed EC VAT directive. This was an ideal opportunity for the Minister to bring us into line with what will have to become a fact of life anyway.

The Minister has made another savage attack on the cost of motoring. The forecourt tax share on the gallon of petrol has risen from 45 per cent in 1980 to more than 60 per cent this year. We pay the highest level of tax on the gallon of petrol in the EC, except Italy. Before the budget the price of a premium gallon of petrol was £2.91 at the petrol pump and the tax content of that price was £1.75. It can no longer be said that a car is a luxury. In most cases it is a family necessity but the rates of excise duty charged on petrol are driving motorists off the roads or driving unscrupulous people to drive untaxed and uninsured cars. This will have a very serious effect not just on the family budget but on transport costs for industry and particularly on our tourist industry. There is once again a price differential of about £1 between a gallon of petrol here and in the United Kingdom. It is difficult for marketing agencies in the tourist industry to sell Ireland as a location for holidays. We have increased costs for motoring, increased costs for beer and increased VAT on all specialised products. It is making it very difficult to promote this country as a tourist destination. The Minister made some effort to improve the position in the tourist industry last year and I compliment him on reducing VAT on meals to 10 per cent, something for which we have been asking for many years. He has spoiled it all by putting these additional taxes on petrol and the cost of motoring generally.

The restriction of motor-running expenses and of writing down allowances continues to be confined to a ceiling of £3,500. This is totally unrealistic. Regrettably, there was no relaxation in the rules relating to the use of company cars this year. Any business seeking to increase its sales requires mobility of staff and promotional activities. The use of 1976 valuations is discriminatory against business. Most car valuations and expenses need to be realigned and at least kept in line with inflation. Capital allowances for motor vehicles must bear some realistic relationship to market values and bona fide business expenses should be allowed. This is a small item but it shows the anti-business attitude of this Government. They could not find it in their hearts to do something positive for the small businessman trying to improve his sales.

Regarding the tourist industry, we are being lulled into a false sense of security by Government statements about growth patterns in the industry. All the problems of the industry have been well identified ad nauseam and it is time for real action. The reduction in VAT on meals in welcome but the other cost increases will make it very difficult for us to maintain our market share this year. We particularly wanted to attract back the motoring tourist from the United Kingdom because this type of tourism was an enormous source of revenue some years ago. There was hope that we were succeeding in our marketing strategies in that area. However, the new cost of petrol and the increases in beer and spirits will deal a further body blow to the efforts of Bord Fáilte in the United Kingdom.

It is difficult to understand why the Government do not recognise that the tourist industry is a major earner of foreign exchange. Internationally traded tourism should be treated in the same way as manufacturing industry and should qualify for marketing support and investment incentives such as funds from the Designated Fund which manufacturing exporters are entitled to. Until such time as the tourist industry is recognised for what it is — an export industry — it will not reach its full potential.

The Government continue to blame today's failures on decisions taken by previous administrations. That has become an unacceptable excuse to the general public for continuing Government inactivity in dealing with the economy. The Coalition were elected on a policy of financial rectitude but this policy has turned sour. Government projections were falsly based in their own documents and laced with woolly economic presumptions which have all gone wrong. The deficit, the national debt, borrowing abroad are all out if line with the state of projections in Building on Reality. By their own yardstick the Government should concede defeat.

The Government are determined to show the public sector borrowing requirement in a favourable light. They are prepared to do it or bust. That is what this economic document, the budget, was all about, to try to show it in a good light when all the projections and presumptions suggested by the Government on coming to office and reiterated in their financial documents have come to nought. The Coalition made their case in 1982. They were elected on their ambitions and they must now accept the level of their failures because we are going to advertise those failures. Failure of this kind should be exposed, particularly when it has accounted for the highest level of unemployment since the foundation of the State.

Uncritical political media have operated in so far as the national debt and deficit budgeting are concerned. That is the way it is now, but it was not always that way. Fianna Fáil were pilloried and ballyragged as profligate during their administration but strangely, now that the Coalition have thrown financial rectitude to the winds, the same criticism somehow does not apply. Commentators outside the House who are not in print are asking why the media are not following this Government in as relentless a way as they followed the Fianna Fáil administration.

The Government figures are worse on every front. It is time that they were at least put on the record here. Borrowing as a national strategy was the brainchild in the 1973-77 Coalition whose chief economic adviser was Deputy Garret FitzGerald at that time. He it was who first urged foreign loans to be used to finance current spending. On any fair-minded economic analysis the economy was in good shape when the Coalition took over in 1973. Foreign debt at that time stood at £126 million and the deficit that year when Fianna Fáil left office was £5 million or the equivalent of 0.3 per cent of GNP. In 1977 after the Coalition had been in Government from 1973 the national debt was £1,040 million and the deficit was £201 million or 4.4 per cent of GNP. In 1985 we had a national debt in excess of £20 billion and a deficit at the end of 1985 of £1,284 million or 8.2 per cent of GNP. In the first oil crisis after the Yom Kippur war and the quadrupled oil prices that followed the Western balance of payments went completely astray with increased inflation, no growth and unemployment rising. The Coalition at that time did not respond and their 1974 national pay agreement gave rises of up to 17.5 per cent which exacerbated the situation much more than people have generally recognised. Year after year the Coalition Ministers for Finance, when Fianna Fáil were putting down markers for them, made it respectable and virtuous to stimulate the economy by budget deficiting, and the Taoiseach, then the leading Government Minister, castigated Fianna Fáil in this House for not supporting his Government's creative use of foreign borrowing. At that time he talked of planning for larger deficits. Even when the deficit was soaring, unemployment rising and the national debt at unprecedented levels, Deputy Garret FitzGerald, now Taoiseach and at that time Minister, still talked of expansionary budgets. In February 1985 he said and I quote him: "If anything we underdid it" and that is on the record here. How the gamekeeper of the seventies has forgotten his poaching days.

We had Coalition Government in 1975 also. The 1975 figures, while they might be history now, make interesting reading. Inflation at that time was 24.5 per cent. Borrowing was 16 per cent of GNP. The growth rate was 0.5 per cent and the deficit stood at £259 million or 6.9 per cent of GNP. Deputy Garret FitzGerald's most famous 1977 mouthful was: "We undertook our budget deficit strategy in the face of enormous pressure from Fianna Fáil and many others totally opposed to the concept of a budget deficit".

The worst year for borrowing since 1975 was 1981, again when Deputy FitzGerald was in office, now as Taoiseach. Again it reached the 16 per cent level. The Coalition with their chief architect set the course for financial decay and he must now answer the charge of the financial recklessness of the seventies. That is admitted even by his present Minister for Finance, Deputy Dukes who admits that all the trouble started at that time when Deputy Garret FitzGerlad was a Minister in a Fine Gael led Government, and supported and willingly thrust upon this country budget deficiting as an economic strategy. The current Coalition policies, while preaching rectitude, have failed to correct their earlier misdeeds.

The Coalition have held office for two-thirds of the last 12 years and their fiscal policies have dominated economic policy over all that period. Their deficit this year is 8.2 per cent of GNP, the highest ever; still they tell us that their public capital programme is being savaged once again and has been reduced by one-third in the past three years. It is the lowest level of investment in the public capital sector in ten years, and it is supposed to create the productive assets that this country needs so badly. State investment has not been given the pivotal role that was suggested for it in Building on Reality 1985-1987. The Coalition have been adding £2 billion per annum to our national debt.

There has been a perceptible switch by the Coalition to borrowing from domestic banks which has dried up private liquidity and the ability of the private sector to invest. The politics of perception and deception are leading to a national depression, and that has taken over this country. The economic media should expose the Coalition for their original sin, mismanagement of our economy.

The building industry has again been hammered in the budget. One could be forgiven for thinking that the Coalition in some way have some old score to settle with the building industry and with the builders. The Government continue to refuse to recognise the possibilities of the construction industry in dealing with the acute unemployment problem. The budget introduced no incentive to encourage increased construction activity. The fallout of the 10 per cent VAT on construction introduced in the 1985 budget continues to depress the industry and is a major contributory factor to the 15 per cent decline in new housing starts in 1985. It is a disgrace that the public capital programme has been reduced by a further £25 million this year.

Let me finish by referring to the retention tax. The abolition of disclosures requirement on bank deposits will start a flow out from the building societies to the banks and this will lead to a shortage of house mortgages and to further difficulties for building this year. The retention tax has caused a real difficulty in many areas, particularly for the insurance area. Nobody knows yet what exactly the Minister has in mind by the 15 per cent retention tax he intends to withdraw from the investment profits made by the life assurance companies. I tell him now that it is causing great concern in economic circles as to what precisely he means. If my information is correct that retention tax cannot be properly or legally applied to the life assurance concerns. I am asking the Minister to make an early announcement that he will withdraw that element of this very foolish budget.

Minister for the Environment (Mr. Kavanagh)

I have listened to almost all the contributions of the previous speakers on the budget with passing interest and a little cynicism. It is amazing how much one can afford to spend when in Opposition but when on this side of the House that does not carry forward. That comment refers to any Government but, in particular, under a Fianna Fáil régime, I can remember listening to their contributions a number of times when I was in Opposition.

Their whole contribution to this debate can reasonably be summed up by the opening remarks of the speaker who said the Government had lost their mandate. The Deputy opposite sat on this side of the House in 1982 when his Government did not receive a mandate and he was prepared to serve on it. The arguments brought forward followed that vein.

In preparing this budget anybody would agree that the Government had an unenviable task considering the conflicting demands and constraints that had to be reconciled. We were faced with an unsustainably large current budget deficit, due mainly to revenue shortfalls and at the same time there were two overriding imperatives that demanded action, namely, unemployment and the PAYE tax burden.

I am happy that the final package of measures which we put together — and that is the original meaning of the word "budget"— would have been very hard to better in all the circumstances. While, naturally enough, everybody will not agree with everything in it — we know that by now — I think it can be shown to contain a good mix of imagination, courage, balance, compassion and realism. The radical widening of the tax base and consequent lightening of the burden on PAYE workers was courageous and imaginative. The modest reductions in the expenditure borrowing requirement and the current budget deficit which we are aiming for showed the right balance for present circumstances. The quality of compassion is illustrated by our determination to see that the living standards of people on welfare are protected. The provisions being made for increases in public service pay demonstrate a sense of realism.

True to form, regrettably, the main Opposition party have condemned the budget from all angles. Believe it or not, they want to cut the current budget deficit, to cut borrowing, to reduce taxes and to increase spending. But they refuse to be specific in case they would offend some interest group or other, although they can sometimes be specific enough when calling for increased spending for some particular sector. How therefore can their criticisms contain any credibility? How can they expect them to be taken seriously?

We hear many glib demands for large cuts in public expenditure. However, there are a number of harsh realities which put these demands in perspective. Well over one-quarter of all current spending goes to service existing debt and not far off one-half of the remainder goes on public sector pay. Again, some 45 per cent of the non-capital supply services is devoted to the health and welfare areas which, of course, also include a substantial pay element. While we have a responsibility to ensure that the health and welfare services are delivered as cost effectively as possible, it would be wholly unacceptable to me and to the Labour Party to have them subjected to the severe cutbacks implied by the demands for expenditure reductions to which I have referred.

To me the most important features of this budget are: the shifting of the tax burden from the PAYE sector by a much needed broadening of the tax base; the double boost to employment, by reducing tax rates selectively on certain labour intensive services and by providing the funding for the special package of measures to stimulate building activity announced last October; protecting the living standards of those who depend on welfare; and the tough anti-tax evasion measures so that tax dodging no longer pays.

The Government have acknowledged that the position of PAYE workers had become intolerable. Some degree of equality was called for in the relative tax treatment of income from the PAYE sector and of other forms of income. The budget has done much to achieve this by lightening the PAYE burden to the extent of £121 million and by introducing the retention tax on interest earnings. These changes in the tax area bring a much needed degree of equity to our whole taxation system and enhance the incentive to work. Much more remains to be done, of course, in this area.

Another factor foremost in our minds in framing this budget was, of course, the unemployment problem. There are substantial concessions to selected labour intensive services such as tourism and everyday services such as laundry, hairdressing, etc. These, together with the substantial package of employment creation measures announced last October, should provide a very worthwhile stimulus to employment during 1986. Already many of the innovations introduced by this Government in the employment area over the past couple of years are giving good results. Two of these have been of particular significance: the enterprise allowance scheme has enabled nearly 10,000 unemployed persons to start their own businesses in its first two years of operation and the social employment scheme had almost 5,500 participants by the end of 1985. The 1986 Estimates make provision for a major increase in funding for this scheme.

I am also happy that the Government have continued their good record in looking after people depending on social welfare benefits. The increases announced in the budget will provide for increases from July next and they will maintain the real value of the payments for a further year. The Government's concern for the long term unemployed is demonstrated in the extra increases for these categories. The 25 per cent increase in the present children's allowance will also favour the less well off. With reduced inflation as a result of Government policies, the increases will maintain, if not slightly improve, standards. Each of the increases given in this Government's earlier budgets has exceeded the following year's increase in the cost of living.

I will now go on to deal in more detail with the budget as it affects my areas of responsibility as Minister for the Environment. I have been allocated very substantial sums of money — both current and capital — to continue our progress in the provision of essential infrastructure and services in housing, roads, sanitary services and other areas. The total sums at my disposal — £564 million current and £640 million capital — will enable us to achieve our objectives in all these areas in 1986. My capital allocation is well over one-third of the total PCP. Straightaway, I want to refute absolutely the allegation by some Deputies and others outside the House that this budget puts a further squeeze on local authority finances. In fact, I will be able to show that in the overall the position of local authorities in preparing their 1986 estimates will be slightly improved as a result of the budget.

This year brings two very important changes in the financing of local authorities. First, the farm tax will come into force for certain farmers and should begin yielding some revenue to the local authorities and, secondly, the onerous supplementary welfare levy is being removed from local authorities.

The national plan contained a decision by the Government to introduce the farm tax in 1986. Last year I piloted the necessary legislation through the House. The Farm Tax Office has been set up and the first stage of the classification of land is now well under way. Revenue should begin to accrue to local authorities from November next. As with any new tax like this, it is difficult to predict precisely what the early flow of revenue will be. The Government's best estimate at this stage is that £6 million should accrue to local authorities before the end of 1986 and local authorities will be permitted to take this anticipated revenue into account in framing their estimates for this year. When fully operational, the farm tax should, at present tax rates, yield about £70 million for local authorities. The farming community is a heavy user of local authority services — in particular the 46,000 miles of county roads — and I believe that a contribution from that community to the cost of local services is entirely justified.

Since I took over as Minister, local authorities have consistently complained to me about the requirement on them to contribute to the cost of services provided by other public bodies. I am pleased to say that from the beginning of this year local authorities no longer have to contribute to the cost of the supplementary welfare allowances administered by the health boards. This was the most onerous of the statutory demands and it bore disproportionately heavily on some local authorities. The removal of the demand and the consequential adjustment of the rates support grants for 1986 has removed these anomalies and results in a more equitable distribution of the grants.

This budget contained a proposal to remove a rigidity in local authority finances that makes little sense in today's economic conditions. Hitherto local authorities were required to lodge receipts from the sale of houses, mostly annuities, in a capital account of which not more than 40 per cent could be used for revenue purposes such as housing maintenance. The remaining 60 per cent must be used for approved capital purposes — almost entirely SDA loans. However, this restriction means that in some instances these funds remain unused and balances have accumulated either because they exceed an authority's SDA funding requirements or because some urban authorities do not advance SDA loans. In order to reduce the dependence of local authorities on the rates support grant and to give them more flexibility in using spare funds to best effect, it has been decided to allow local authorities to divert some £16 million of such funds to general revenue expenditure this year. I would stress that this will not in any way interfere with the advancing of housing loans since the funds in question are surplus to requirements for this purpose.

The total rates support grants provision, £281 million included in the abridged Estimate for my Department published last December has, accordingly, been adjusted downwards by £6 million in respect of the farm tax and by £16 million in respect of the unused housing receipts. Contrary to comments from some Deputies and others these adjustments will not, in the overall, reduce the financial resources available to local authorities in formulating their 1986 estimates. They are really no more than technical financial adjustments and should not therefore lead to any cuts in employment or in services.

A third adjustment to the rates support grants was also made in the budget in recognition of the extra costs to local authorities of the package of pay proposals negotiated by the Minister for the Public Service with the local authority unions. This gives the local authorities an additional £5 million. The net effect of this threefold adjustment is to reduce the nominal rates support grants total by £17 million to £264 million. After allowing for all the factors already mentioned and comparing like with like the 1986 level is equivalent to an increase of 6¼ per cent over 1985. This keeps local authorities well ahead of inflation and is fully in line with the rates support grants allocations implicit in the national plan.

Turning to the construction industry, present indications are that 1986 will see an end to the decline in the industry. Looking back over 1985 during which output in the industry is estimated to have declined by about 5 per cent over the previous year, it is clear that the key element contributing to the fall off in output was, as in recent years, the continuing decline in private investment. Against this background the Government have maintained public investment in the industry at the highest sustainable levels. The Government's concern in this area is evidenced by the level of public investment in the construction industry, which now accounts for over 70 per cent of the industry's total output. The Government are also concerned to create both the general economic conditions and the appropriate incentives which will lead to increased levels of private investment in construction.

One such incentive is the greatly enhanced scheme of house improvement grants which will provide significant work and job opportunities for the building industry in 1986 and for which a sum of £24 million is provided in the budget. To assess the employment potential of the new scheme one has to remember that each £1 spent on grants generates at least £2 more in private investment. Therefore, an expenditure of £24 million should generate work to the value of £72 million and possibly more. The Government are also seeking to ensure that the taxpayers' money which provides these grants is channelled into the legitimate building sector to give spin-off benefits in terms of increased employment and not diverted into black economy operations. As stated in the Minister for Finance's budget speech, a similar condition will now be introduced in relation to the new house grant and mortgage subsidy whereby contractors employed must satisfy the Department that their tax and social insurance affairs are in order before payment can be made.

As further assistance to the industry in terms of worthwhile building work, grants were also provided for the improvement of facilities at hotels which by extending the tourist season will also boost employment in that sector. A sum of £5 million has been set aside to finance a programme of improved community, leisure facilities and amenities. In addition generous tax and employment incentives are being provided to assist with the revitalisation of certain inner city areas.

My Department's 1986 Estimate will provide for a grant to An Foras Forbartha in respect of secretarial and research services for the Construction Industry Development Council which the Government have decided to set up and which will, I expect, get off the ground within a few months.

I should like to return for a moment to the range of financial and other incentives being introduced to promote the rehabilitation of inner city areas in Dublin, Cork and Limerick by encouraging redeveloped programmes. These incentives are intended to attract development into areas which have generally been perceived as unfavourable for investment purposes and which would probably remain in a run-down and derelict state if left to the normal operation of the property market. Legislation is at present being prepared in my Department which will provide for the designation of these areas, and the establishment of a new statutory authority to secure the redevelopment of one of these areas, the 27 acre Custom House Docks site in Dublin. I am hopeful that the redevelopment of this massive site will do much to enhance the environment and employment prospects of the whole surrounding area and will serve as a catalyst to stimulate redevelopment along the docks and in the north inner city generally. The legislation will also provide for the granting of rates remissions on development on this site and in the other designated areas. In addition, a range of taxation incentives to promote development and reconstruction in the designated areas will be provided for in the Finance Bill. The precise areas in Dublin, Cork and Limerick to be designated will be decided and announced by Government as soon as possible following the completion of consultations which are taking place with the local authorities involved.

The initial response to the announcement of this policy initiative has been very favourable. Positive interest in the operation of the schemes and involvement in them has been expressed by a large number of private sector agencies at home and abroad. I am confident that the incentives on offer will signal a halt to the long decline in the physical fabric of our major urban centres and will bring about a major change of attitude towards inner city living and investment in inner city redevelopment.

The main aim of the Government's housing policy is to ensure that, so far as the resources of the economy permit, every household in the State has suitable accommodation at a price or rent they can afford. The policies adopted to achieve this aim can never be entirely rigid or immutable. We must be ready to change the emphasis of these policies to respond to the needs of the changing housing situation and to the dictates of economic circumstances. Two important developments, involving changes in the emphasis of housing policy, have taken place in the past year or so.

One of these is the new importance we are attaching to the conservation and improvement of the existing housing stock borne out by the huge increase in the funds being made available for house improvement grants this year. The other development of importance is the very large increase in the number of existing local authority houses becoming available for re-letting as a consequence of the £5,000 grant incentive for tenants to give up their tenancies and purchase houses for themselves. This has resulted in a very significant reduction in waiting lists and has taken pressure off the new building programme.

I have referred already to the new emphasis on the conservation and improvement of the existing housing stock. This is being given effect in respect of private housing by the new scheme of house improvement grants and in respect of public housing by the programme of remedial works to local authority houses. To take the new grant scheme first, Deputies will be aware of the widespread interest it has evoked among householders. Some 30,000 applications have already been received in the couple of months since the scheme was announced. An unprecedented sum of £24 million is being made available for house improvement grants in the 1986 Estimate for my Department. I have taken a number of steps in the Department to cope with this quantum leap in the number of grant applications which involves strengthening both the indoor and outdoor staffs. So as to expedite inspections some retired inspectors were recruited due to their familiarity with the particular work and, in addition, an incentive bonus scheme was introduced for permanent inspectors. A number of additional staff were assigned to the processing of applications and the working of overtime by the indoor staff has been necessary also. In order to further improve the position arrangements are at present being made to recruit a number of temporary inspectors and strengthen further the administrative staff.

I notice that, according to newspaper reports, Deputy Flynn who has left the House has referred to the new grants scheme as a "con job". While I do not think that many of the 30,000 householders who have already applied for these grants will be too worried by this typically wild and inaccurate statement from the Deputy. I think I should take this opportunity of correcting any false impression he may have given about the scheme. However, I suppose his chagrin at the success of this scheme is understandable, especially since he is a Deputy whose party abolished all house improvement grants in the not too distant past.

As has been the case always, the inspector's task is to assess the application having regard to the standards and conditions laid down as he is technically qualified to do. I want to deny emphatically the suggestion that inspectors were instructed to be inflexible. Indeed, on the contrary, when the scheme was introduced I specifically enjoined inspectors to be reasonable in their approach. I would like to inform Deputy Flynn also that, contrary to his assertion, grant payments under the scheme have in fact commenced.

I have outlined already the special measures taken or proposed to deal with the huge volume of applications and furthe comment on Deputy Flynn's utterance on this aspect is unnecessary.

Following the success of a pilot project in a 132 house scheme at Kindlestown Park, Greystones, I have earmarked a sum of £5 million for expenditure under the remedial works scheme for local authority houses which will get under way this year. Under the scheme, capital — subsidisable at a rate of up to 80 per cent — is made available to enable local authorities to carry out essential structural repairs to low cost houses built in the late sixties and early seventies and to pre-1940 houses suffering from serious structural deterioration. Because of the extent of the problem and, in the light of the high number of proposals which have been received since the scheme was introduced, the remedial programme will have to be phased over a number of years.

Furthermore, due to the different types of construction and the complexity of the problems from this legacy of low cost housing it will be necessary in the majority of cases to undertake pilot projects to ascertain the best way of remedying the defects. Apart from the Kindlestown scheme, I have given approval in principle to a further ten pilot proposals to date. I hope to give approval to the undertaking of pilot projects in a number of other areas shortly when they have been evaluated by my technical staff.

A high level of local authority housing completions has been maintained in recent years and improved cost control procedures have been developed also. Last year, local authorities completed more than 6,400 new houses. Apart from 1984, when there were 7,002 completions, this was the highest number of completions since 1976. A further 4,000 houses approximately would have become available from existing local authority stock for re-letting in 1985 so that for the second year in succession, the Government's target of housing 9,000 households was comfortably met. I am satisfied that this target will again be exceeded for the current year.

The excellent value for money now being achieved is attributable both to the keen competition at present among builders for local authority housing contracts and to the strict enforcement of my Department's new cost control procedures. This is entirely consistent with the Government's objectives for improved effectiveness in public expenditure.

A significant feature of the housing programme in the past two years has been the shortening of the waiting lists for local authority accommodation. The situation in the Dublin Corporation area illustrates very clearly the remarkable progress that has been made. In the past two years the total number of approved applicants has fallen by more than one-third, from 6,714 in November, 1983 to 4,484 in November, 1985. Indications are that when the next approved list is completed by the corporation there will be a further substantial drop in the number. However, that is not the complete story as many of the applicants could be housed already by the corporation if they did not choose to wait for accommodation in a specific area. The present supply of houses and flats has enabled the corporation to offer accommodation to many two person families and a substantial number of younger single people have been housed also.

While end-1985 figures for the country as a whole are not yet available to me it is clear that very significant progress in reducing the overall demand for local authority housing has been made. This progress is attributable to the high level of the building programme and to the success of the £5,000 grant scheme available to tenants and tenant purchasers to provide private houses as well as the availability of an adequate pool of mortgage finance which has made house ownership available to low income families.

This fall in demand warrants careful evaluation of the local authority house building programme. In the regard, the Housing (Miscellaneous Provisions) Bill, 1985 which is at present before this House provides an improved basis for the assessment of housing needs. The 1986 public capital programme provision for the local authority housing programme in 1986 shows clearly that I am not complacent nor are the Government, about the need for providing accommodation for people who are unable to provide it from their own resources. In this connection, I am particularly aware of the special needs of disadvantaged groups such as the homeless and travellers. Indeed, the Housing Bill is designed to ensure that such groups will be afforded due priority in the formulation of local authority housing programmes and the allocation of dwellings.

I have just mentioned the £5,000 grant to tenants and tenant purchasers as being a major factor in easing the pressure on the local authority housing programme. A total of 1,950 grants at a cost of £9.75 million were paid last year, its first year of operation. There were about 4,700 applications of which almost 3,500 were approved. Allowing for the time lapse between vacating the local authority dwelling and actual payments of the grant, it is estimated that some 2,300 dwellings became available for re-letting in 1985 as a result of the operation of the scheme. The capital provision for the scheme in 1986 is £11.75 million which will allow the payment of 2,350 grants.

In addition to its effects on the housing lists the scheme has provided a welcome boost for new house building. It is estiamted that over 44 per cent of the tenants who handed back their local authority dwelling bought new houses in the private sector.

There is no doubt that expenditure on this scheme represents very good value for money when one considers the capital and current costs of providing a new local authority house. It also brings home ownership within the reach of many tenants who aspire to this form of tenure.

The continuance of a satisfactory flow of mortgage finance from private and public sources is of critical importance to the housing programme, to house purchasers and to the construction industry. In this regard I am very pleased to say that during 1985 a total of about £600 million in mortgage finance was provided by all lending agencies and I expect that a similar amount will be available this year.

The provision in the 1986 public capital programme for the payment of SDA and HFA house purchase and other loans is £169 million, which will finance the purchase of approximately 9,700 homes. The continued high level of funding from these schemes is evidence of both my own and the Government's commitment to maintaining a sufficient level of mortgage finance from public sources to enable those on lower incomes to reach the desirable goal of owning their own homes. Both schemes are, of course, complemented by the £5,000 house purchase grant scheme for tenants and tenant-purchasers of local authority houses, the £2,000 new house grant and £3,000 mortgage subsidy available from my Department for first time purchasers.

I know that Deputies are aware of the very worth while work being carried out by the Task Force on Special Housing Aid for the Elderly. To date more than 5,000 elderly persons have had their living conditions improved. As evidence of my continued commitment to the task force and in recognition of its progress and indeed value in alleviating substandard living conditions of many elderly persons, I have allocated an additional £500,000 to the scheme giving an overall provision of £1½ million in 1986.

Before commenting on the prospects for 1986 in the roads area, I would like to remind the House briefly of the advances made during 1985. Last year was a particularly good one for road development with the publication of the new road plan and the provision of a substantial increase in State road grants. Progress during 1985 on the programme of major improvement projects set out in the new road plan was very satisfactory. Of the 54 schemes listed to be commenced and or to be completed up to the end of 1987, 28 are already in progress, compulsory purchase orders have been confirmed for six projects and public inquiries have been held for another 15 projects.

Turning to 1986, State road grants totalling £160 million will be made available to local authorities for road improvement and maintenance. This represents an increase of 4 per cent on the 1985 provision. However, it has to be remembered that in 1985 there was a substantial increase in State funding for roadworks which was 14.5 per cent greater in real terms than the 1984 provision. A comparison over a longer time frame helps to make the point even more forcibly. The 1986 provision is 25 per cent greater in real terms than the level of road grants in 1982.

A large part of the State grant for road improvement will be spent by local authorities on the programme of major road projects outlined in the new road plan. These projects consist mainly of bypasses of towns on national roads, new bridges, relief roads and ring roads. Subject in some cases to the outcome of statutory procedures relating to the acquisition of property, major schemes scheduled to commence in 1986 include the Navan road in Dublin, Newbridge By-Pass in Kildare, Glanmire By-Pass in Cork, Shankill/Bray By-Pass in Dublin and Wicklow, Bunratty By-Pass in Clare, Killarney By-Pass in Kerry, Glenmore By-Pass (Phase 1) in Kilkenny, Dublin Ring Road (Western Section) and Blackrock By-Pass in Dublin.

Because of the need to preserve past investment in our roads and because of its high employment content, I have this year paid special attention to road maintenance — the grant for which has been increased to £29.7 million which is 8 per cent up on last year.

The 1986 road grants, which have been recently allocated to local authorities, include a sum of £20 million by way of "block grants" to supplement expenditure from their own resources on the improvement, maintenance and management of non-national main roads and urban roads, on improvement works on county roads and on the implementation of traffic management measures. This "block grant" allocation will be 21 per cent higher than in 1985.

In addition to the heavy public investment in the road building programme the Government are also anxious to attract investment from the private sector in order to accelerate progress. In February 1985 I published details of potential toll road projects and invited a response from private sector interests. Following Government approval in principal to the tolling of the Galway Road-Navan Road section of the Dublin Ring Road, Dublin County Council approved a toll scheme for the project. This toll scheme will shortly be the subject of a public inquiry along with the motorway scheme for the project which the council submitted in December. The possibility of private sector investment in the Newbridge By-Pass is being discussed at present with a group representing banking and building interests. We are also prepared to consider toll proposals which involve funding on a joint public-private basis where projected traffic volumes are insufficient to justify a fully privately financed scheme.

Apart from the more obvious benefits of a well developed roads infrastructure to the commercial and economic life of the country, the road improvements undertaken in recent years have contributed in no small measure to the improvement of road safety. In 1978, 628 people were killed on our roads. By 1985 the number had fallen to 416, a reduction of 34 per cent on that for 1978. Total annual road fatalities are now lower than at any time since the present system of road accident reporting was introduced in 1968, when there were only 500,000 vehicles compared with over 900,000 today. Other factors contributing to the reduction in road deaths include various legislative measures, particularly the stricter drunken driving laws, stiffer penalties provided for under the Road Taffic (Amendment) Act, 1984, and Garda traffic law enforcements, which in 1984 resulted in an increase of 17 per cent in the number of prosecutions.

The activities of the National Road Safety Association have also made a significant contribution. The year 1986 has been designated European Road Safety Year by the European Community. The NRSA's programme for 1986 will highlight aspects of the themes selected by the EC Transport Council as appropriate to the year — alcohol, seat belts, speed, child safety and safety of two-wheeled vehicles. I am glad to be able to include a special sum of £50,000 for the EC programme in this year's grant to the association.

Regrettably, it was necessary to increase motor taxation in the budget. New simplified rates applying to private motor cars, which are broadly in line with inflation, will become operative from 1 March. Taxation rates will now be based on cubic capacity instead of horse power which has been the basis for many years. Against this, the Minister for Finance also proposes to phase out the duty on motor vehicle parts — a reduced rate of 10 per cent will apply from this month. Also the Minister will abolish the duty on tyres and tubes which will reduce the retail price by about 4 per cent. It will also be of some comfort to motorists to know they are getting better value for their money due to the expanded road building programme.

Motorists in the Dublin area will be glad to know that Dublin Corporation, in association with my Department, recently opened a branch motor tax office at Nutgrove Shopping Centre, Rathfarnham, to improve the level of service to the motorist.

Over recent years there has been a considerable increase in capital spending on sanitary services schemes with a corresponding expansion in the level of activity on schemes in progress. Considerable progress has, therefore, been made over these three years in bringing some of the high cost schemes to completion stage. Last March the Greater Dublin drainage scheme which cost in excess of £50 million was commissioned. The 1986 provision of £77 million will meet existing commitments and maintain progress on the remaining high priority schemes.

I am particularly anxious that we continue to maintain the good progress we have made in constructing schemes that abate pollution. It is noteworthy that, of the locations identified by the Water Pollution Advisory Council as areas which merit remedial works, 12 schemes have been completed at a cost of £14.4 million; work is in progress on five other schemes totalling £11.4 million and ten other schemes estimated to cost £18.2 million are at various stages of planning.

I am pleased to say I have been able to increase the provision for the Environment Awareness Bureau which I set up last year, from £100,000 in 1985 to £125,000 in 1986. As a result in 1986 the bureau will be able to strengthen their campaign to promote environmental improvement and education. As the impact of their promotional activities becomes more apparent, a more caring public attitude to the environment will be fostered. The bureau have been successful in attracting some private sector sponsorship and I hope this will increase in the future.

My Department's 1986 Estimate contains a provision of £5 million in respect of the new programme of improved community and leisure facilities and other general amenities. This money is being made available in recognition of the need to provide the recreational and community facilities required — and increasingly being sought by resident's associations and other voluntary groups — particularly in urban areas. The selection of projects to be funded under this scheme is now at an advanced stage and I will be making an announcement shortly.

For a number of years my Department have paid a grant to the Irish Society for the Prevention of Cruelty to Animals for consultancy work in relation to the problem of stray dogs and cats. On behalf of the Department the society have actively encouraged local authorities to provide animal shelters and other arrangements for the reception of unwanted pets and to avail of the 50 per cent contribution towards costs which I make available. The society's efforts are reflected in the number of shelters now available and the proposals which are well advanced for others.

The society's work is not confined to this area. Their inspectors and voluntary personnel throughout the country are also making an important contribution to animal welfare generally. These efforts on behalf of the community should be acknowledged. The special grant of £25,000 to the society announced in the budget is well deserved and will assist the society in maintaining their wide range of services.

I am making a special grant this year to the Irish Architectural Archive to assist them in their work as a repository for architectural archival material and in recognition of their contribution towards greater appreciation of our architectural heritage. The IAA are a voluntary body established to gather records — mainly photographic — of Irish buildings. Since their incorporation in 1976 they have established the nucleus of a national collection of architectural documentation relating to buildings of architectural interests in Ireland, both north and south. The collection is open to the public and is of particular value to architects, architectural historians, geographers, historians, planners, archaeological societies, teachers and the media generally.

The Minister for Finance announced in his budget speech that the Government are making a special grant to the Limerick Civic Trust. The organisation is a charitable trust in existence for two to three years. It is mainly engaged in restoration work on derelict sites and buildings. It is funded by way of convenants from local business and grants from the corporation towards specific projects. Among the work carried out by the trust is the restoration of a site beside St. Mary's Cathedral, including the building of a boundary wall to match the stone work. The trust is currently engaged in restoring an old potato market.

This budget will make an important contribution to the economic recovery that is so necessary for the future employment and well being of our large young population. It is a good budget — good for employment, good for PAYE earners, good for people on social welfare and good for the economy as a whole.

Mr. McCreevy

If Deputy Flynn were here he would have some comments to make about the Minister's reply regarding new house grants. Deputy Flynn would welcome any increase in the grant, but the point he made was that he wanted to know how many people were approved for the full rate of grant. It is going abroad that some of the grant inspectors are deciding that certain works only can be approved for the grant at the full rate. A further point made by Deputy Flynn was that the temporary inspectors would be employed on a fixed rate for the first couple of months and then on a rate of £7 per house for each application disposed of. What does "disposed of" mean? Perhaps the inspectors would refuse as many as possible. I know the Minister has encouraged these inspectors to take a broad view of the work to be done, but that was the point being made by Deputy Flynn.

The budget is one of the most overrated political events of the whole year. The tax changes announced particularly in the last three budgets represent only a tiny proportion of any changes in Government finances. The current total expenditure this year will be of the order of £8,000 million. Even 10 per cent added here and there makes very little difference since 1 per cent represents £80 million. We are merely tinkering with finances because the major decisions have been made long before the Minister comes to the House. They have been made by the Government or forced on them because of economic circumstances.

Pay for the public sector this year will be in the order of £2,600 million and interest on servicing the national debt will be about £2,100 million, a total of £4,700 million out of a total expenditure of £8,000 million. Therefore, 50 per cent to 60 per cent of budget expenditure is already planned before the Minister for Finance in any Government can turn his attention to other matters. The budget is a non-event. It is not realistic to regard the budget as the major economic speech of the year. It is irrelevant for the Minister for Finance to announce that he is giving a grant of £50,000 to Bord na gCon or some other organisation because it would not represent one-thousandth of total Government expenditure — it is only window dressing. I know that the temptation is to bring in some good news on budget day, but that sort of announcement makes a laugh of budgetary procedure.

There was no strategy in this or previous budgets introduced by the Government. Perhaps that has been the case for many years — perhaps we are just moving the deckchairs on the Titanic. The Government do not seem to have any plans, good, bad or indifferent in regard to the economy. If the budget were pursuing a monetarist, Keynesian or any other theory of economic policy, it could be judged in that light; but, unfortunately, there does not seem to be any policy. There must be a budget every year to enact the tax laws, but it would be more honest for the Minister to come into the House and say that everything will be the same as last year and then to sit down or to leave the House. The Government should admit that they have lost direction in regard to the economy.

It is reasonable to judge the Government on their own strategy and to analyse it. However, it is hard to know what their plan is because it has been changed so often. When they came into office they promised to set the finances of the country in order and to solve the unemployment problem. They were ambitious targets, and in a free enterprise economy it would be very difficult to solve these two problems simultaneously. However, the Government must be judged on their own words. They promised to create jobs and to wipe out the current budget deficit by the end of 1987. When those aspirations fell by the wayside they produced Building on Reality. The first objective of the plan was to increase employment, but at present 240,000 people are out of work. The second objective of the plan was to halt the rise in taxation, direct and indirect, but that also failed. Regarding public finance objectives, the plan stated that the current budget deficit as a proportion of national output would be reduced from 7½ per cent to 5 per cent of GNP. Exchequer borrowing was to be reduced from 12¾ to 9¾ per cent of GNP. Public sector borrowing, which included borrowing by State enterprise, was to be reduced from 17 per cent to 11¼ per cent of GNP by the end of 1987. This was the plan of the Government who were going to eliminate all these problems on being elected, but of course they had to be more realistic in regard to their targets. We are now into 1986 and they have not lived up to the objectives set for 1985.

It would have been legitimate political objective for any party coming into power in 1982 to have said that there were two major problems to be dealt with in regard to running the country — unemployment and the public finances. They should have tackled one to the exclusion of the other, even though that might not have suited everybody. When one had been satisfactorily solved they could then have turned their attention to the other. If the Government had said they would tackle the public finances and try to put them in order and allow unemployment to rise, as the British Prime Minister, Mrs. Thatcher, has done, that would be a legitimate objective. On the other hand, the Government could have said they would tackle employment, reflate the economy, borrow more and to hell with the public finances, get more people working, which would create more taxation, and then we would get the public finances in order. That, too, would be a legitimate objective.

But what have we done in the last three years? In my opinion we have ended up with the worst of all worlds. Officially we have 240,000 people unemployed, another 70,000 people in AnCO training and youth employment schemes and many others doing temporary work. In 1984 it was estimated that at least 30,000 people emigrated and in 1985 at least another 30,000 emigrated. In the last two years, therefore, 60,000 people have emigrated. That means that the real level of unemployment is around 370,000. Even the 240,000 people officially unemployed represent 18 per cent of the work force, the highest in the EC. While our competitors have been solving these problems, we have been going in the other direction.

Let us look at the public finances. As someone who has attracted a small amount of infamy in the last five years because of my approach to the public finances, I would like to put a few points on record. In this State people find it very easy to label others. People do not always listen to what one has to say, but they get an impression of what they think one has said and then stick a label on one. That is helped by the media, because it means they do not have to think either. I have been pilloried in certain quarters and used by the Government parties during the election campaign as someone who criticised Fianna Fáil policies in the area of public finances. Through skilful media manipulation everybody in the country thinks that the public finances are in dire straits because of Fianna Fáil when in office — and they think Charlie McCreevey has been saying this for years.

There was a small current budget deficit in 1972 but we had what can be called a real current budget deficit since 1973. Between 1973 and 1986 Fianna Fáil were in Government for four years eight months; the Coalition have been in power for almost nine years. This proves that this problem was not created solely by Fianna Fáil. The people in Government for two-thirds of this 13-year period have been the Fine Gael and Labour Parties. In 1982 the impression was given that the problem of the current budget deficit would never have developed if we had had responsible Government down the years, and that Fianna Fáil created this problem. I want to show that this was not so. As someone who on occasion has been identified in the media as a man who has been critical of a Fianna Fáil leader, I want, in the interests of fair play, to put on record that of the four years eight months of Fianna Fáil rule only two years were under the leadership of Deputy Charles Haughey. These matters need to be put in perspective.

One of the amazing things about Irish people is that they like things made easy. They like to be told who are the good lads and who are the bad lads. They do not like to have to analyse the problem. As most Deputies will acknowledge, people's perception of things is probably more important than reality. People think it is more important to shout about what needs to be done rather than doing anything about it. Similarly, if a person gets a reputation for doing something, he will be blamed whatever happens, and nobody will examine the facts.

I will now deal with the current budget deficit. An American President once said that he would prefer a one-handed economist — for obvious reasons: every economist says "On the one hand, it could be done like this and, on the other ...". When running a country there is nothing wrong in trying to experiment; but, if it does not work, that experiment can be cancelled. The purpose of our current budget deficit was to overcome the crisis which followed the hike in the oil prices, but there is also an old theory about why there should be a current budget deficit. A current budget deficit means you pay out more in current expenditure than you take in in taxation. This means you help galvanise demand which should create more jobs. Like every idea followed by a Government, this policy was tried out and continued; but everybody forgot the original purpose. It can be shown that the current budget deficit does not create jobs in the Irish economy. It does create jobs in Japan, Hong Kong, Germany and everywhere else; but not in Ireland, because Ireland has a very open economy and the propensity to import is very high. This policy did not work economically, yet it was continued.

We are not prepared to pay for the level of services we enjoy. In my view the level of services we provide are very desirable because we need good health services, good education and different types of infrastructure, but the cost of this level of services is too great for the level of production we enjoy. Let us take a simple analogy. There might be a poor person with eight or nine children who would like to have a washing machine; but, while that machine would be very desirable, if she cannot afford to pay for it she cannot buy it. Yet we are saying the level of services we need is too high, but we do not acknowledge that the cost is too high. In the past 12 or 13 years we have been engaged in a national programme of self-delusion. We have fooled ourselves that we were as well off as America or Germany and could enjoy the same standard of living. It is Irish society who have fooled themselves. It is not the politicians because they have just responded to the needs of the people. It is time we realised what has been happening in the past 13 years.

The net effect of this self-delusion has been that, at the end of 1985, the public finances were in a worse state in absolute and percentage terms than at any other time in our history. At one time it was broadcast throughout the country that the then Fianna Fáil Government were the most reckless Government of all time but now, after all the hardship we have endured, the situation is worse than it was in 1982. Tricking around with the figures will not prove otherwise.

More than all income tax collected is needed to service the national debt. Total borrowing is of the order of £20 billion while in 1982 the figure was £1,200 million. In the same three years the current deficit budget has come to over £3,400 million and total borrowing has come to nearly £5,700 million. In that period total direct foreign borrowing has amounted to £2,250 million. This is after all the talk in the past three years that these matters would be rectified.

If there were justification for having a current budget deficit and public borrowing to revitalise the economy and to create employment in capital works, now would be the time that a Government should embark on that course. Now would be the time to reduce taxation and to take measures with regard to borrowing in order to reflate the economy in a time of recession. However, we cannot do that now because we have used the seed corn and we are up to our ears in debt. We have ended up with the worst of all possible worlds. We have about 350,000 people unemployed — I am counting those on the official list and elsewhere — and we have an enormous public borrowing figure.

Confidence in the country has been eroded in all walks of life. It has permeated the consciousness of business people, farmers, farm workers, factory owners and employees. Nowadays worry about the economy has replaced the weather as a topic of conversation. Even reasonably successful business people are worried and many say they are sorry they did not emigrate years ago. People are convinced that things are desperate and that they will get worse. They are shellshocked. It is my view that people would not be surprised if an announcer came on the radio tomorrow morning and announced that someone had thrown a big rope around the country, had towed it to the South Pacific and sold it. Confidence has been eroded even in the case of reasonably successful business people.

We should have a kind of national reawakening programme. We must believe in ourselves. We must believe we can do something about the situation. There is an old saying that there is nothing to fear but fear itself. It is the job of political leaders, and particularly of the Taoiseach and the Government, to give the necessary lead. We have many assets. We have a large well educated young workforce and we have many other advantages not possessed by other countries. I must admit that, in trying to identify weaknesses in the public finances and other related matters, perhaps I have contributed to that loss of confidence. There is no point in telling people things are bad. They are well aware of that, but they want to know what the Government will do about it. It is the job of great statesmen and political leaders to give the necessary encouragement. It is what the job of Government should be about. In the past leaders were able to instil confidence in the people to overcome national crises. That is what Ireland needs today but this Government have not helped in the matter. They have told us things could not be worse.

It does not matter what the opinion polls state. Last year I put a question to the Minister for the Environment suggesting that opinion polls should be banned, particularly in the period between the calling of a general election and the election date. If I were ever in the position of running affairs I would tell Ministers that the first time one of them came to me quoting the findings of opinion polls it would automatically be grounds for dismissal. If a Government make up their minds regarding a course of action they should get on with the job. At this stage no matter what the Government do the people have lost confidence in them. The greatest service they could give would be to resign and give somebody else a chance to try to do something. When confidence is lost in a Government it is impossible to recover.

We are deluding ourselves when we talk about industrial and economic growth. Figures have been trotted out about the volume of exports last year but quite often we talk of myths. I am not the only one who thinks in this way. I shall quote from an article by Dr. Antoin Murphy in The Sunday Tribune of 5 January 1986:

The statistics suggest a Japanese level of industrial performance, yet the economy is in a depressed state. The reason for this is that a large input into these statistics comes from the activities of multi-national companies in areas such as chemicals, pharmaceuticals and computers. These companies are using Ireland as a tax avoidance base.

They carry out their research and development programmes outside the country and use Ireland simply for low grade processing and assembly operations. They minimise the price of imported inputs and maximise the prices of exports, thereby creating the impression that there is a massive amount of value-added created in this country by super productive Irish workers. The reality is that most of the value added has been created by corporate accountants, rather than Irish workers, anxious to maximise the benefits of the low tax rates on manufactured exports from Ireland.

Anybody involved in the accountancy knows that to be absolutely true. It is a myth that there is an industrial boom involving exports etc. At the end of the accounting year for any of these multinationals, before the auditors come in, the accountants are at a wonderful level of production for night and day, pushing through all kinds of debits and credits and fictitional entries in order to maximise the profits or do certain other things. These extraordinary profits and exports really do not amount to anything. Some economists have been amazed that the economy is enjoying a boom yet employment is stagnant. It is quite easy to understand it in the terms I have outlined. These profits and growths are a myth created by accountants who maximise the tax advantages. This is the kind of "boom" we are living through. It is not a boom at all. The real economy is not growing. That fact must be got home. This so-called boom will be short-lived because we have not done anything about creating a real industrial base. We have natural resources but they are in the field of agriculture and mariculture. These are the areas where the State agencies should be devoting their energies in order to maximise output.

We have had factories in my constituency which were supposed to produce cameras. Cameras can be produced as easily on the Rock of Gibraltar as in County Kildare. There is no special reason why cameras or Black and Decker equipment should be made in Ireland. These multinationals do not come to Ireland for love of the country or love of the people. They come for strategic reasons at a particular time, perhaps for tax avoidance reasons. We have created a fictitious industrial base while we have allowed indigenous industry to go by the way. We have not maximised our own resources. We have not done anything in the area of added value in the food industry. This is where the real potential is. Small Irish businesses employing five to ten people are the ones which will stick and create jobs. If a fellow starts a little business in Fermoy and has to mortgage his house and employ two people, he will not run away when things go bad but will have to stick at it. That is the kind of business we have to be creating, particularly in the area of agriculture and mariculture. We need businesses with an indigenous base, run by Irish people, not multinationals. I would not discourage multinationals from coming here but I am glad that the IDA have recognised that the whole emphasis of growth should not be on the multinationals.

Anybody wanting to create employment here is faced by high tax rates, layers of bureaucracy and the attitudes of the banks and their lending policy. I have come to the conclusion that the banks might as well close up and put all the money in Government securities etc. Effectively that is what they have been doing. Some years ago they shed crocodile tears because they were forced by the Central Bank to keep a certain percentage in Government gilts. They are required to keep something in the order of 13 per cent or 15 per cent in Government bills and so on, but in 1985 figures show that the reserves ratio of the associated banks was at 34 per cent in Government securities.

It is easier to lend money to the Government and be sure of the return than to lend to Joe Soap starting up his industry. Joe Soap will be operating in such a competitive environment and will have to pay such taxes that he will hardly be able to make his business pay. The banks have been taking the easy option. they are not lending for productive purposes. I question the wisdom of what the banks are really at. They are private institutions to maximise profits for their shareholders but that could not be ad idem with Government policy. No matter what grants the Government may introduce to stimulate growth here and there, most people have to go to the banks or to lending institutions to get the money to start up business. Interest rates have increased by 5 per cent since 1 January and part of the reason is the high level of Government borrowing. The Government have a voracious appetite to take up all funds to finance the current budget deficit. This has the effect as well of keeping up bank interest rates. We must look at the raison d'etre of the banking institutions. We have to create institutions which give farmers or business people the wherewithal to go about business.

I am something of a climatologist with regard to economics. The free enterprise system is the one that works best. It creates maximum levels of output so that people at all levels in society can have a reasonable standard of living. Perhaps I am wrong; perhaps the way to do it is to have total State involvement. I am totally convinced that we get the worst of all possible worlds with a mixum gatherum approach of neither one nor the other. We are supposed to be a private enterprise economy.

If the Government have such a percentage of gross national output taken up in debt, taxation etc., that makes some of the Communist countries look like free enterprise havens. We are nominally a free enterprise country, but in fact we are not and we have gone the other way and I outlined the reason for that earlier. We must do something about it, and the role of Government is to allow free enterprise to work as well as possible but with a caring social system and within our means. That is the way Irish people would prefer to have the State and successive Governments have tried to achieve it, but we have got the thing on its head and we must redress it. Instead of the Government talking about redistributing wealth and taxation the job here is to create wealth. I will not be vulgar; 50 per cent of nothing is still nothing. There is another way of saying it and it adds up to the same thing. You must create wealth before you start to redistribute it. Government is about getting people into the frame of mind that they are going to achieve that, they are going to work harder for a reasonable reward and the Government are there to regulate things so that no section of society suffers. That is the way it should be. We should create wealth, not fight about how to give it away. There is nothing in this budget or in the programme Building on Reality 1985-1987 about how to create more wealth and put more people in employment.

Building on Reality 1985-1987 basically is a cash flow forecast. It is not a plan of any kind. In the fifties and sixties we had programmes for economic expansion and the creation of this wealth. This document is about how we are going to spend it, not about how we are going to create it. It can be likened in accountancy terms to a cash flow programme. There are advantages in having cash flow forecasts as a key to targets etc., but the cash flow of any business is irrelevant unless the firm produces the goods, sales, etc. The sales and wealth must be created before the cash flow forecast is produced. If you are not producing wealth then spending targets are irrelevant. Therefore that document is not an economic plan: it is a document with a few vague aspirations which are totally out of date, a few lines here and there, about this that and the other and with no economic plan.

I would like to say a few words about some of the budgetary measures in the Minister's statement. I have read all kinds of budget speeches down through the years and farming used at least get a mention in the context of increasing production etc. The only mention in this Budget Statement regarding farming is a few lines about the land tax telling us what we all knew a year and a half ago, that despite all the hullaballoo it will not be operational in 1986. That was no mystery to anyone who knew anything about it a year and a half ago. The president of the IFA and anyone who knew anything about it said that it would not be operated in 1986 anyway. Without going into a long speech, I must declare an interest before I say more in that I happen to be in the accounting profession, and I would like the Minister to tell us what is to happen regarding farm taxation in 1986-87. Since 1983-84 all farmers are supposedly in the tax net but at that time only farmers with £40 valuation or over were concerned. Since that budget all farmers are to be in the tax net but only a small percentage of them have been assessed because of a strike in the Revenue Commissioners. Yet all the time we hear of farmers not paying their tax. What will happen in 1986-87? Are those people now to be brought into the tax net or just left out there? Furthermore, I believe that the income tax collected from farmers in the tax year 1986-87 will be less than last year. Farmers pay tax on the basis of the previous year, so they will be paying on their profits for 1985. Since 1985 was such a poor year for a large number of farmers, particularly the grain producers, the tax yield in 1986-87 will be quite small.

Regarding the tax amnesty, I ask the Minister when he brings in the Finance Bill to make it a real tax amnesty. We have tried previously to give the idea of an amnesty which really was not an amnesty at all. I ask the Minister to give a real tax amnesty allowing people to pay, say, 40 per cent of undisclosed income, bring it back, put it into the system and deal with it in that way. The amnesty in 1976 did not work. It brought in just a few people. The amnesty in the sixties was similar and if the proposed amnesty is the same then it will not work either.

Regarding retention tax, old people particularly who would have no tax liability under the present system will now have to suffer tax at 35 per cent which they will not get back. There are positive aspects to the retention tax proposals in the Budget Statement, but it should be possible to bring in some amendment to the Finance Bill to allow people to claim back tax, particularly people who would not be liable in the first place. A number of charities within the State have put large amounts of money on deposit in order to utilise it to the best advantage of their society and they will be hit by this. I ask the Minister to try to devise some amendment which will solve that problem.

It has been suggested that retention tax will result in the collection of a great deal of money from banks and other institutions. It is not a tax on the banks at all. It is income tax on the savers. It is an illusion. It will take income tax from people who are receiving interest on deposits and it is bringing back income tax that will be collected in future years because of the way the income tax system works. Therefore, it is bringing income tax that would be collected in 1987-88 back into 1986 and it will have a distorting effect on future budget calculations. It has positive aspects. Many people will go along with it particularly in regard to nondisclosure. However, some amendment should be introduced so that people who would not have a tax liability and now have to pay this 35 per cent may be relieved of this.

The tax on life assurance policies represents another myth that has been created presumably to give the impression that we are taking tax from the big institutions, life assurance companies, banks etc. This is a tax on people who save in those companies. It will not come out of the profits of life assurance companies; it will come out of the dividend or return that they pay to people with policies. Be they bonds or ordinary life saver policies, it will come out of the return made to them. Therefore, we are fooling ourselves or trying to create the impression that we are tackling the big institutions. We are not tackling any institutions. This is more income tax out of the pockets of the individual saver or depositor with the banks. That myth must be exploded.

Regarding the tax allowances in this budget, the Minister would have been nearly as honest to give no tax allowances at all rather than the miserable ones he has given here. Let me point out that a married man with a family, with the abolition of the tax free child allowance, will have a smaller allowance now when he goes to work. This will be made up in the children's allowance which will be paid to the wife, but the net effect to a person having one child is that one makes £1 in a whole year. That is absolutely ridiculous.

Debate adjourned.