Deputy Dukes is in possession and has 45 minutes.
Financial Resolutions, 1987. - Financial Resolution No. 3: 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.
—(Minister for Finance.)
A Ceann Comhairle, I moved the adjournment of the debate last evening. In accordance with precedent in this debate this is not to be taken as an indication that I would speak first this morning. Indeed your predecessor, Sir, had the same discussion with the present Taoiseach a couple of years ago. My colleague, Deputy J. Bruton, will be taking up the slot at present.
I am calling, then, on Deputy J. Bruton and Deputy Dukes will speak later.
There is no doubt that the economic and financial situation facing a Government in Ireland in 1987 is one requiring fairly serious remedial measures to be taken with a view to reducing public spending so that the debt level which has been constantly mounting in recent years be decelerated in its ascent and ultimately the point reached where the national debt would be reduced. Furthermore, by reducing the pressure of Government borrowing on the domestic market, by reducing Government spending, conditions could be created in which interest rates could be reduced.
I have been very struck in recent hours at the alacrity with which Fianna Fáil spokesmen have referred to the need to reduce Government borrowing in order to bring down interest rates. I have a faint recollection of the present Taoiseach, when on this side of the House, describing measures and ideas of that kind as monetarist. The suggestion that Government borrowing could influence interest rates was castigated by the Taoiseach as monetarism, sometimes indeed with the additional spice of the adjective Thatcherite, referring to it as Thatcherite monetarism.
I never said that in my life.
The Taoiseach may not have used the adjective but he certainly used the noun monetarism. I remember him referring on frequent occasions to the monetarist policies of the then Government.
It is a matter of procedure. The Deputy should not make that sort of mistake. I do not use terms like that.
I will acknowledge the Taoiseach's correction in regard to the adjective Thatcherite — perhaps there were some of his colleagues who used that adjective. My recollection in associating that particular adjective with the Taoiseach may be faulty but certainly I recollect him frequently castigating, in his majesterial fashion, as he saw it, the monetarism of the then Government. I am glad that while neither side of the House ever embraced monetarism as a policy, as far as the effect of Government borrowing on interest rates is concerned, at least the party opposite have seen the sense of what we have been saying for some time, that it is imperative that Government borrowing and spending be reduced so that interest rates can be brought down, so that there can be an increase in productive activity and in job creation on a self-sustaining basis.
I draw considerable satisfaction from the fact that these arguments which were insisted upon forcibly both in this House prior to the dissolution of the last Dáil and in the four weeks of the election campaign by this party have now been adopted, belatedly but with a new found enthusiasm by the party opposite. That is welcome. It is one thing to be able to convert one's own supporters to one's ideas, but it is an even greater achievement to be able to convert one's opponents to one's ideas. That is the achievement we can speak of on this occasion.
We have converted the Fianna Fáil Party, lock, stock and barrel to the ideas we were putting forward as far as the economy is concerned. I do not say that in a carping sense, but in recognition of an achievement, in the sense that at least a consensus has been achieved on certain fundamental economic relationships. However, that being said, I have to make some quite severe criticisms of the budget under three headings. These relate to the areas in which this budget diverges substantially from the budget proposals put forward by the outgoing Government on 20 January.
In most but not all of the ways in which the previous budget has been changed, it has been changed for the worse. There are three areas in which these changes for the worse have occurred. First, this budget represents an increase in income tax and a reduction in the take home pay of workers. That is something against which the outgoing Government set their face. We decided at the very outset of our consideration of the 1987 budget in October that we would not allow increases in income tax to occur. Fianna Fáil in modifying our budget have gone for an increase in income tax. I refer to the reduction in the mortgage interest tax relief which is an increase in the income tax burden for vast numbers of families. That is something we said we would not do but Fianna Fáil have decided to go for this increase.
Contrast that performance by Fianna Fáil in increasing income tax with the promise they made before the election. A Fianna Fáil advertisement prior to the election ran as follows: "Working hard and overtaxed?" On the advertisement was also a very fetching picture of two worried looking people. If they were worried before the election they will certainly be a great deal more worried now having read the Fianna Fáil proposals to further increase the income tax burden although they pretended they would reduce that burden if they obtained the support of the people.
A Fianna Fáil advertisement which appeared in The Irish Times on 16 February 1987 promised a number of things, one of which was “A rapid reduction in the tax burden”. What have we got? We have not got a rapid reduction but an increase in the tax burden for any income tax payer who happens to have a mortgage. That is directly contrary to the policy of the outgoing Government who said at the outset that, whatever we did in making economies, we would not make them by increasing the income tax burden. That is where we in our budget are distinguishable from the party opposite. They were prepared to contemplate a further increase in income tax. We disagree with that.
We also have had, in the course of the justification of the health charge for those in hospital, the argument put forward by the Minister for Health, Deputy O'Hanlon, that people should not really worry about the £10 charge because there will be a VHI scheme available if people want to be covered against having to pay the charge. As any Member of the House knows, VHI contributions are collected in the form of a deduction from the weekly or monthly pay cheque. In addition to having to pay more tax because mortgage interest relief has been reduced, the average taxpayer to be covered against the eventuality of going into hospital will have to pay a further level of VHI and have a further deduction from his pay cheque. This is a budget which is in favour of more income tax from the PAYE sector.
The second area in which I criticise this budget is that many of the figures that have been put in, either for increases in revenue or for savings as a result of measures being taken to reduce spending are, to say the least, dubious and unlikely to be achieved. I fear that in a few months time, because of the dubious and speculative nature of some of the economies and/or revenue increases put into the budget arithmetic, which enables the rather favourable figure for the deficit to emerge, this budget will begin to unravel at the seams and some of the seemingly sound measures contained in it will prove to be miasmas, to be mirages which disappear at the touch. I intend to give specifics as to the figures which underlie this budget which are dubious. I do not say that all of the figures will not be achieved. Undoubtedly some will be achieved, but there is approximately £104.7 million worth of dubious savings or increases in revenue contained in this budget. I propose to give details.
The third area in which I criticise this budget is in regard to a number of specific changes that have been made in comparison with the budget of the outgoing Government. This budget is against employment creation and the wider dispersal of ownership of shares to employees and the community in general. It is against economic democracy. The specifics in regard to this are as follows. The National Development Corporation are a body established by the Government to provide investment funds for productive industry in Ireland, not grants, not free handouts, but investment funds from which the taxpayer would receive a return in the form of a capital gain or a dividend.
The provision for the National Development Corporation, or NATCORP as it is now known, has been so cut in this budget as to represent the extinction of the National Development Corporation. A cut of £3 million has been imposed and I believe the corporation will have considerable difficulty in surviving in the face of that substantial cut in the resources available to them. The last area in which a Government concerned with employment should be making economies is in the area of equity investment by the State in productive industry. I can understand cuts being made in grants and services of various kinds, but where the Government are investing in a firm of proven profitability — and there is no doubt that the National Development Corporation are extremely cautious in assessing projects — that is not an area in which economies should have been made. That, to my mind, represents an anti-employment bias in the budget.
Furthermore, a number of other changes have been made which are contrary to the best interests of employment creation in Ireland. The cutting out of the house improvement grants will depress employment significantly in the construction industry. I know many people will say that the idea of giving State funds to people who have a house already to add on an extension might be giving them something they do not need but I have to contest that argument. Figures show that for every £1 spent by the State under that scheme an additional £2 is spent by the private individual on the extension or other improvement to his house. That makes this form of State expenditure on construction far better value, for example, than Government spending on hospital or school building or any other building where anything between 90 per cent and 100 per cent of the cost is met by the taxpayer and there are very few additional resources brought in from outside. Expenditure on house improvements achieves three times as much additional construction activity, in terms of pounds and pence, as that actually expended by the taxpayer.
Given that there are large numbers of people unemployed in this area, and that house improvements make it less likely that people will have to seek rehousing from the State as local authority tenants, I believe this was, and would have remained if it had been continued, a scheme that was good value for money in terms of employment creation, of improving and conserving the housing stock so that we did not have to renew it at greater public expense in the years ahead, and in reducing the pressure on local authorities for new house buildings. An economy in this area is anti-employment and should not have been made.
I want also to criticise the Government for withdrawing an important tax concession contained in the outgoing Government's budgetary proposals in regard to wider share ownership. Under the provisions of the outgoing Government's budget, a special tax concession was being made available to anybody retiring from a firm to be given, as part of their lump sum on retirement or other gratuity shares in the company in which they had been working. This was a valuable tax concession in two ways. It would increase the number of people who would be shareholders in Irish business, and give them economic democracy and widen the interests of the productive sector in the community but more important, from a human and social point of view, it would enable people who were retiring to retain an interest in the place in which they had spent a large part of their lives. Instead of being invitees to the annual company reunion, they would be shareholders who had some standing in the company. Unfortunately that tax concession, which would have promoted considerable growth in the number of Irish people owning shares in productive business, has been dropped by the Government. That is contrary to economic democracy.
I also criticise the Government's decision not to go ahead with the outgoing Government's proposals for the disposal of their shares in Ostlanna Iompair Éireann Teoranta, the former Great Southern Hotels. The opportunity provided by the outgoing Government's proposals to bring outside capital into those very important hotels would have been good for tourism, in that it would have given those hotels an important boost in investment terms to do a better job in attracting tourists to Ireland, and if the shares had been floated on the Stock Exchange, it would have provided an opportunity for many people to become shareholders in a new Irish company. Further it would have brought in substantial funds to the Government which could have been used to reduce the national debt. In abandoning that valuable proposal the Government have shown a lack of moral courage.
It is worth recalling that before the last election the Leader of the Opposition, now Taoiseach, assured the Irish Congress of Trade Unions that there would be no sale of State assets. That promise, given under pressure prior to the election, was a foolish promise. This modest start with Ostlanna Iompair Éireann in disposing of shares in this company would have given an opportunity to test the market, to look at the difficulties and examine the problems in regard to such shares so that additional capital could be brought in by the sale of certain assets to be invested elsewhere or fixed by the State to reduce debt. Instead of going ahead with this proposal, the Government decided to drop it. That was a foolish decision. It was an opportunity lost, an opportunity which the Minister for Industry and Commerce, Deputy Reynolds, would I imagine like to have seen taken, but obviously his counsel did not prevail at the Cabinet table and the apostles of caution, the apostles of not offending any particular vested interest, prevailed over a more sensible outlook which I speculate would have been his if his counsel had been taken.
I regret also the abandonment by the Government of the previous Government's proposal to give Córas Tráchtála the responsibility for marketing Irish fish overseas. BIM, who currently have responsibility for marketing Irish fish, have one overseas office in Paris. One overseas office is not a sufficient basis on which to sell Irish fish across the world. The outgoing Government in their proposals stated that CTT, who have a network of offices in all continents, should be given the responsibility for selling Irish fish products. That would have been a much more sensible way of ensuring the achievement of the export potential of this most important under-utilised Irish resource, namely, fish.
There is no point in talking about catching and processing fish if one cannot sell them. The most sensible way of providing for the effective selling of Irish fish throughout the world, not just in the environs of Paris, would have been, as the previous Government proposed, to give responsibility for fish marketing overseas to CTT. That decision has also been reversed by the present Government under pressure, I am sure from vested interests, in BIM who obviously got the ear of some Government member and said it would not be good for the corporate image of BIM to have CTT taking over this function.
It is regrettable that the Minister for Industry and Commerce, Deputy Reynolds, is talking about the appointment of consultants to tell him how to rationalise State bodies. When he had a proposal before him — to transfer responsibility for fish marketing from BIM to CTT — his colleagues funked the opportunity to do something sensible and to make a rationalisation that would have been good for the Irish fishing industry. I regret that this change has been made. Likewise, I regret the apparent abandonment of the decision to require the Kilkenny Design Workshops and the Irish Productivity Centre to become self-financing entities. That decision appears to have been dropped from the Principal Features of the Budget. Perhaps that is still the case but it does not appear in the Principal Features of the Budget as it did appear in the principal features of a previous one.
From an agricultural point of view the changes in regard to farmer taxation this year are not wise. The proposal of the outgoing Government was for a land tax which would raise about £9 million this year. It would not matter if the farmer produced more as he would not pay any more land tax. The proposal of the Government is different. They do not want a tax on land; they want a tax on production. They want to cut the VAT refund to farmers. Therefore, the more the farmer produces the more he will suffer from the cut in the VAT refund which is the policy of the Government whereas if he produced more under the land tax he would have been unaffected in terms of his tax bill.
As far as smaller farmers are concerned the abandonment of the land or farm tax will result in a large amount of money being used unproductively in fees to accountants validating farm accounts submitted for income tax purposes. The farm tax proposal would have exempted farmers with an adjusted acreage of less than 80 acres from being involved in having accounts validated. They would have simply paid the money which they might otherwise have paid to accountants direct to the Revenue where it could be used to reduce the Government's debt or to finance various services. Instead that money will now be paid, and perhaps more, to accountants. This budget was not designed to please the accountancy profession but one of its results in this case will be to give the accountancy profession lots of unproductive work signing, validating and checking accounts when the same money could have been sent directly by the farmer in the form of a cheque for farm tax to the Revenue without involving this useless expenditure of time and money. That is also a regrettable change.
The abolition of the £5,000 grant for people vacating local authority houses will prove to be very false economy. For a mere £5,000 the State was able to obtain possession of a local authority house which cost approximately £30,000 or £40,000 to build. With that grant now gone if people are to be provided with houses on the local authority housing lists, the State will have to spend between £30,000 and £40,000 on building a new house because houses will no longer be released to the local authorities by tenants under the £5,000 scheme. Therefore, instead of paying £5,000 for a new house for somebody on the housing list, the taxpayers will now under this Fianna Fáil budget find themselves paying between £30,000 and £40,000 for a new house. Admittedly, that will not be felt this year, but it certainly will be felt next year and the year after. Looking at some of the rather dubious figures contained in the budget I wonder whether the party opposite are worried about next year, or the year after, because some of the measures they are undertaking are storing up problems for 1988.
There are one or two other individual items that I might criticise but I said I would give details of the areas in the budget, amounting to approximately £104.7 million, where I contend the figures underlying the budgetary arithmetic are dubious. I am not saying that all of these figures are false but I am simply saying that there is a question mark over each of these figures, a question mark which needs to be removed before one can say with certainty that this is a realistic budget. Some of the speakers who welcomed the budget yesterday — and I am sure it was a welcome sincerely meant — might wish to qualify their welcome on examining the small print which underlies some of the figures. I would like to draw attention to some of those rather dubious provisions in the budget.
The first one I wish to draw attention to is in regard to savings of in the region of £4 million in education. The provision for third level colleges has been cut by £4.5 million instead of the £1.8 million which was the cut proposed by the outgoing Government. The provision in regard to community and comprehensive schools is cut by £500,000. The provision in regard to regional technical colleges is cut by £1 million. How are these cuts to be achieved? According to the Principal Features of the Budget they are to be achieved by — wait for it — this marvellous term "greater efficiency". I remind the House that efficiency is something everybody is in favour of but it is not so easy to find hard money in the short term by measures of that kind.
I would remind the House, for instance, of the famous Rayner scrutinies in the United Kingdom which were designed to achieve greater efficiency in that administration. Over a period of six years all the Rayner scrutinies could find by increased efficiency was 0.5 per cent of all public spending. Yet, in this budget we are asked to believe that at a stroke somewhere in the region of £3 million to £4 million is to be found through greater efficiencies in the third level sector, in the regional technical colleges and in community and comprehensive schools.
Will one of the efficiencies in the higher education sector be higher fees from students? Can the Minister give me an assurance that the third level institutions will not seek this so-called efficiency by increasing the fees for students because, if they do, they will depart from the provisions of the budget. Charging students higher fees is not achieving efficiency and if that is what is going to happen the budgetary proposal is not correct in the way it is presented. The House is entitled to be told what precise efficiencies are involved.
Likewise there are similar provisions in the area of the health services where, we have been told, greater efficiencies will be found. I should like to know what precisely are the efficiencies in that area. There is another area of approximately £15 million worth of savings that are, to say the least, speculative. I refer to the savings under the heading of detection of fraud in the Social Welfare area. We have been told that a nice round figure of £4 million will be saved by an intensive sustained campaign against dole fraud and abuse. I would like to know exactly what additional measures will be undertaken in addition to those already in place. A substantial number of measures were introduced by the previous Government and account had already been taken of the benefits achieved by those measures in the previous figures. What additional measures will have the effect of saving £4 million?
I note that £11.5 million is to be found under the intensified job-search programme. That programme is not an original idea initiated by the Government but is an extension on a national basis of a pilot scheme initiated by the previous Government. I have reason to be doubtful as to whether this full saving will be achieved. We also have another heroic assumption, that £14.4 million will be saved by no recruitments to the health boards. What will happen if a vacancy arises in a hospital for a surgeon? Are the Government saying that a replacement will not be recruited? Will theatres be left empty because people are not to be recruited? I note that the Government say that key vacancies — I presume surgeons will be included in that category — will be filled by redeployments or promotions but what will happen if there is not another surgeon available? One cannot promote a nurse or an ambulance driver to become a surgeon in a hospital in the same fashion as one might promote people within an undifferentiated Civil Service. To have put in £14.4 million in savings in 1987 by not filling vacancies in an areas such as the health services where the skills involved are so narrowly defined, where the facilities in use are so expensive that leaving a post unfilled could be a false economy, is very dubious. We are entitled to much more information than is available on how that large sum is to be found in the health services. I am not saying that I disagree with the idea of a very tight control on the recruitment in health boards and, perhaps, a tighter control than was exercised by the previous Government might be welcome. However, I object to putting in a figure like £14.4 million without giving sufficient evidence of how that saving will be achieved.
I also have to question £25 million in regard to retention tax on the fees for various professional people on two grounds. To put that in as a reduction in this year's deficit is potentially misleading because it is a once-off benefit. Much of the £25 million collected this year will have to be refunded next year. All the Government are doing is bringing forward tax liability from next year into this year, creating a hole in the tax of 1988. That is misleading, cosmetic accounting of the worst kind and should not be used as a means of reducing this year's deficit in any sense in which that deficit is being used to represent an improvement in the underlying financial position.
I should like to draw attention to the fact that yesterday evening in the debate the Taoiseach conceded that if it was clear that these professionals did not have a tax liability of that kind during 1987 interim refunds might be made. If that is the case we will not even get the cash flow benefit of the £25 million and that benefit might disappear. We also have another heroic assumption in that £20 million has been put in as the proceeds to the State from restricting the duty free allowances of people who travel overseas or to Northern Ireland for less than 48 hours. That is based on the assumption that people who do not go overseas or to Northern Ireland to buy drink or other goods, will buy the drink at home instead. It is my distinct impression that people who go on shopping sprees to Northern Ireland buy items that they would never dream of buying at home or, if they bought them at home, would never buy them in the same quantity. To assume that we are going to have £20 million more in Excise duty because people from the South who previously bought their whiskey in Northern Ireland will now buy their whiskey in Dundalk is to make an heroic assumption. It is my view that they will not buy the whiskey at all and will drink some other product, perhaps orange juice instead. The revenue on orange juice is not the same as the revenue on whiskey. I do not think the £20 million will be achieved and it is suspicious that such a nice round figure like £20 million has been included. I do not think there is any calculation or basis behind that figure.
We also have savings under the heading of public service pay of £13.3 million, from the non-payment of special awards and from the non-filling of vacancies. In practice it will be necessary, certainly so far as the Civil Service is concerned, to fill many of the vacancies that arise. We had an example recently of a vacancy arising in the secretaryship of the Department of Finance and I should like to know if we are being told that if Maurice Doyle had deferred his retirement——
I would prefer if people who are not Members of the House were not mentioned.
This individual is a public figure and is now the Governor of the Central Bank. If Mr. X had postponed his retirement from the Department of Finance for another two or three months are the Government telling us that they would have no Secretary in that Department for the remainder of 1987 and, perhaps, into 1988? I know they are not and I am sure they will find that they will have to fill many other vacancies that will arise. As a result it will not be possible to achieve these savings. While I hope that the Government will be successful in their intention of paying no special increases they may be a little sanguine in the figures they have included in the budget as representing savings that will be achieved.
There is another very dubious figure, namely the £10 million that is supposed to be found in arrears of tax as a result of people from the Department of the Public Service being put into a task force and told to tell those fellows in the Revenue how to do their job and collect the money. The problem as far as the collection of tax is concerned is not that we do not have enough staff but that the law is not being adequately operated. I do not believe that much can be achieved by bringing in officers from the public service who have no particular experience in the area of tax collection and christening them a "task force", although that title gives an immediate impression of activity and industry which is not necessarily commensurate with performance. This task force is to tell Revenue officials who have been working all their lives at tax collection how to do their job. That this will lead to the nice, round figure of an additional £10 million in tax collected, which would not otherwise be collected, is an heroic assumption. Even if it is true, it is also cosmetic accounting because tax collected this year which would not otherwise have been collected will not be available for collection next year. Like the £25 million in respect of fees, it is simply a cash flow or cosmetic accounting provision which does not amount to a permanent reduction in the deficit. That is not to say that further measures to collect tax are not welcome. I simply do not believe that the figure is one that should be included in relief of the deficit.
I might conclude by referring to a few other promises made in the Fianna Fáil programme before the election and which have not been fulfilled. In a Fianna Fáil advertisement on 16 February they promised better care for the old and the sick. Now if you become sick and go into hospital you have to pay £10 per day. That is the better care promised in the Fianna Fáil advertisement. They promised on 14 February that selective reductions in indirect taxation would be made where the effect would be to increase economic activity. That promise has been forgotten.
Since this is my first time to speak in this Dáil, I take the opportunity to congratulate you on your elevation to high office and I sincerely hope that you will have a long and happy stay in the Chair.
In relation to Deputy Bruton's contribution, I am not in any way surprised at his approach to this budget. I suppose it is only human that there should be a certain element of sour grapes in a contribution by a man who has produced two budgets for this House, neither of which has been passed. His party preached about how they were going to put the serious financial situation in order and at the same time they produced what they believed was the best that could be achieved in relation to reducing the current budget deficit and public sector borrowing. Magic figures of 7.4 per cent and 11.8 per cent were tossed around for a considerable time.
When the first budget of this Government was introduced in this House, naturally there had to be a shock reaction by Deputy Bruton and by the Fine Gael spokesman on Finance, Deputy Noonan, whose display here yesterday I can only describe as a demonstration of belligerent hypocrisy coming from a man and a party who preached about what needed to be done but never had the courage to do it. They knew how necessary it was to rescue this economy but they suffered from the paralysis of analysis and after four years and three months of their Government we ended up with a national debt increased by £12,000 million. I can understand Deputy Bruton trying to cast some doubt on the validity of the many figures he mentioned. Individual Ministers will be taking part in this debate and will take the opportunity to answer clearly the questions raised by the former Minister for Finance, Deputy Bruton.
Good.
He raised very few questions about my area of responsibility, but I will be only too happy to answer any queries. He disregards savings from efficiency. When one looks at the size of current and capital spending in this budget it is evident that any economic management worth its salt would find sufficient savings, not only in the areas pinpointed in the budget but in many other areas. I am quite certain that Ministers in the previous Government knew full well where the fat and inefficiencies were and where additional productivity could be achieved, but it takes courage and conviction for a Minister in any Department to sort out the unacceptable situations that exist in relation to the spending of money. It is tough medicine but it has to be administered. That is the message coming out of this budget.
The current budget deficit from the outturn of 1986 was £1,395 million, representing 8.9 per cent of GNP. The target set by the Minister for Finance in yesterday's budget was £1,200 million, representing 6.9 per cent of GNP. On total Exchequer borrowing, the outturn for 1986 was £2,145 million, representing 13 per cent of GNP. The target set by our Minister for Finance yesterday was £1,858 million, representing 10.7 per cent of GNP. I can understand Deputy Bruton's reaction to the presentation of our budget. It is not that he denies the thrust of the strategy but he has to put the best face on it from his own political standpoint by casting some sort of doubt on the figures.
I want to tell Deputy Bruton before he leaves the House that I have not abandoned the decision in relation to Kilkenny Design Workshops. I am proceeding apace with the previous decision because it was a good decision. I do not scrap good decisions.
It was left out of the Principal Features of the Budget, for some reason.
The Deputy must not have read that document. It may have been left out as compared with the manner in which Deputy Bruton would have put it in, but let me reassure him that the decision to commercialise Kilkenny Design Workshops is proceeding apace. We have taken additional equity, shown in the Principal Features of the Budget, of £225,000 to ensure the equity base of Kilkenny Design Workshops who are in financial trouble because of the late opening of their operations in London which caused them to miss the tourist business. They will be set up with a proper equity base and be commercialised within two years.
Good.
The same applies to the Irish Productivity Centre: they will also be totally commercialised within two years. As I said, I do not reject any decision with which I agree.
It is difficult to understand Deputy Bruton's attitude in relation to the land tax; perhaps he is adopting it for the sake of political manoeuvring. As a former Minister for Finance he knows as well as I do that the whole area of farmer taxation was not well handled over the past ten or 15 years. First, a decision was made and then reversed. We then went in another direction and various Governments have contributed to the situation. Everybody must realise that the Revenue Commissioners need approximately four to five years to get a proper profile on any sector of commerce, to get a feel for it and to be able to work it out. However, they never got that opportunity. We have been consistent in our approach to the land tax but it is an equity principle in any taxation system that the ability to pay must be taken into consideration. When one looks at the principle involved in the land tax, it is clear that all farmers are expected to pay it irrespective of whether they are married or single, with a large or small family or whether they have borrowed money. In any event, there will be a big clawback from VAT.
I can only speculate as to why some farmers are in favour of the land tax but I imagine I would not be too far wrong in suggesting it is because capital allowances which could be written off against profits have now been exhausted. Such farmers should realise they will be paying a lot less. For example, an intensive dairy farmer with 120 acres would pay £1,200 under the land tax system but he would have been making significant profits over the past few years.
If he has 120 acres——
Deputy Bruton seems to doubt this but I checked it with friends in the accounting profession yesterday — they may not be friends today — and, without disclosing confidentiality, I got a nod of approval in relation to my proposals in regard to land tax.
Of course any Government would love to tackle the penal level of taxation which is caused by high Government expenditure and borrowing. First, we must stabilise and reduce borrowing which will be the first step in reducing taxation. We are committed to doing it but this is our first budget after three weeks in office and there was no scope for reducing the level of taxation. During our term of office we will carry out that commitment because we recognise the system is a total disincentive to work and to investment. Good commercial sense dictates that the level of taxation must be brought down.
Some speakers said that the removal of the housing grants would cause devastation in the building and construction industry this year. Grants approved up to 27 March will be paid in full and, therefore, building activity will continue this year. I do not understand Deputy Bruton's argument because we provided £100 million for these grants in the budget which is exactly the same as the amount provided in the budget of the Coalition. If the amount was not sufficient in that budget, how can the Deputy claim that the building and construction industry will be devastated this year?
What about next year?
We are talking about this year. It is extremely difficult for a former Minister for Finance, especially when the major part of the budget was drawn up by him, to try to pour cold water on it. The Deputy's arguments have no sound basis or logic. He knows as well as I that the level of jobs created by such schemes was very disappointing. The £200 million provided for home improvement grants did not produce the expected jobs. Of course, the Department of the Environment totally underestimated the requirements to meet all the applications pouring in day after day and it was irresponsible of the Government to allow the situation to get out of control. It was deceitful to accept applications from the public when they knew that provision had not been made for them——
That is not correct, the Minister is making a false statement.
It is not a false statement. The Minister for the Environment will elaborate on this matter. In answer to a question on 20 November last in this House it was admitted by the Government that there was a critical situation in relation to these grants and it got worse from then on.
The sum of £100 million was adequate.
I can make the same accusation in regard to the underestimation for Health and the Minister for Health will take pleasure in giving the facts of the financial position in Health as we found it. Why were the health boards allowed a free run in relation to raising overdrafts? The Minister for Finance did not approve of that course of action but the Minister for Health did. Did the Government take any action in relation to it? It was excess expenditure which was not taken into account or provided for. Apart from the overdrafts, there was overspending in the whole area of Health. We all recall during the election campaign the serious difference of opinion that arose between the then Minister for Health, Deputy Desmond, and the Minister for Finance regarding the correct figures for Health. I will leave it to the Minister for Health to give the full details.
There will be no drop in the level of building activity as a result of the abolition of the housing grants this year. While the £5,000 grant served a specific purpose and was useful, it brought social implications in its wake because the leaders in communities are moving out of their houses and taking full advantage of the incentive to do so. The local authority housing list is not subject to pressure at the moment; in many areas there is no pressure for such houses. Why should a Government in their right senses build more local authority houses when there is no pressure on them to do so? Why should they maintain the grants system the provision for which was totally underestimated? A decision had to be taken to abolish it and try to bring matters back into the realms of reality from which they had been allowed to stray under the previous Government.
I will not use all my time in going back over the empty and fallacious arguments raised here, but there will be plenty of opportunities in the building and construction industry to participate in major infrastructural development throughout this year and they, too, will benefit in a major way by the reduction in interest rates. The major development of the Custom House Dock site involving something in the region of £250 million will be a major constructional development. Therefore, all is not as bleak as people would like to make it out to be for the building and construction industry. It is only right and proper and financially prudent that the State should not be the total catalyst in the building and construction industry but rather that private sector funds which are lying idle should be put to work, but they will not be put to work until they are able to earn a return on investment.
I will leave aside those points and other issues raised but let me mention the area of about £25 million from professional fees or retention tax on professions as a dubious figure. Approximately £141 million is paid out by the State in professional fees every year. That is not an over-estimate. It is a conservative figure.
It is a cash flow.
How does the State operate only on cash flow? Are the national accounts not presented here every year on an income and expenditure basis? That is the way the accounts of the nation are presented and that is what cash flow is all about. Do not try to confuse people who do not seem to understand what you are at. Cash flow is cash flow. It is money coming into the Exchequer this year and any money coming into the Exchequer this year is part of income and expenditure on which to base national accounts.
It is money taken out——
Personally I might disagree with the way national accounts are put together because they do not reflect the true state of the nation's finances but that is what operates and in that context it is legitimate to operate on the basis of income and expenditure. That is how the system works.
I turn now to the budget strategy.
The thinking behind this budget is straightforward. Society must create wealth before it can be spent. It was, therefore, necessary to curb public expenditure, while being sensitive to the needs of the weakest sections of our community. A tough budget did not have to be a harsh budget. Social welfare increases were brought forward to July from November. Medical card holders are exempt from the new hospital charges, and other cases of genuine hardship will also be looked after in relation to the health charges.
The control of public expenditure is only a stepping stone. It is page one of a realistic strategy for growth. It is the necessary step to removing the most important obstacles to the achievement of the country's growth potential.
The progress achieved by this budget in the reduction of borrowing has been more rapid than the pre-budget commentators anticipated. It is a clear signal of this Government's determination to break the trend of low growth and high borrowing. It provides the basis for renewed confidence and dynamism in this economy.
The budget strategy is about much more than the removal of the obstacles to growth. It also puts in place measures to force the pace in achieving that growth. It is positive for employment. The Jobsearch programme will involve offering 40,000 Manpower scheme opportunities to the long term unemployed. This will facilitate a significant reduction in unemployment. The budget also provides for an additional 1,500 places in social employment schemes.
The budget strategy is positive, too, for high skilled employment and in particular, the fast growing area of financial services. We have the capacity and the personnel to develop a strong international financial services sector and this potential will be tapped. We have put in place arrangements for a major international services centre in Dublin.
In addition, the budget strategy is positive for interest rates by reducing borrowing and restoring confidence. It is notable how our determination was already being anticipated in the easing of interest rates last week in Dublin. A reduction in interest rates benefits all sections of the community — householder, farmer, builder and industrialist. The fall in interest rates which we can now anticipate will more than compensate for the restrictions on mortgage interest relief announced in the budget.
Another aspect of this strategy is that it retains the positive outlook for prices. The rate of inflation will not rise and we will maintain our advantage relative to inflation in Britain. It is positive, too, in terms of diverting moneys which are going abroad. This is being done though the curtailment of duty free allowances and through the removal of obstacles to the flow into the country of moneys earned abroad. We recognise the serious problems which exist in Border counties resulting in lost sales and jobs. We are doing something about that. Indeed, the money that is earned abroad should be attracted home. Surely it is right and proper that money earned by Irish people abroad on contract, whether in the financial services area, engineering or whatever, rather than ending up in the Isle of Man or the Channel Islands, should be brought back into this economy and be put to work for this economy. That is the only sensible approach to it.
Deputy Bruton talked about the tax collection system. Everybody knows that it is not working efficiently, but this budget is positive in distinguishing the punctual from the tardy taxpayer. What business could be successfully run with the level of unpaid bills which our tax system experiences? Measures are now being taken to tackle the collection of tax arrears. If any business operating today were owed so much money would they rely on just sending out notices through the post to get their money in? No, they would not. They would take serious action to improve their cash flow.
The budget is positive in extending the business expansion scheme to tourism. All are agreed that tourism has potential for additional export earnings and job creation. This is a positive step to realise some of that potential. This budget is positive for industrial growth. The State's role in supporting industrial growth requires a balance to be struck between direct support and the creation of a positive environment. This budget places priority on tackling aspects of the environment. There is also a need to consider the current institutional arrangements to support industry and the success of approaches in respect of small industry, and of larger indigenous firms. I also intend, if time permits, to refer to the question of a more effective use of science and technology to promote industrial growth.
What all these positive features have in common is that they have been introduced while maintaining a strict financial discipline. We have proved that a budget for growth does not have to be a spending budget. Rather it is a budget of confidence. There has been curtailment of services and subsidies. These reductions, however, are based on the view that individual Irish men and women will themselves seize the opportunities for growth in a less hostile environment. Confidence is difficult to measure. It has one common characteristic, however, when estimated by forecasters. Its positive impact is, almost without exception, underestimated by the same forecasters.
We have heard criticism from the construction industry. I would like to see a more balanced appraisal as I believe that what is widely accepted as good for the economy must be good for the construction industry. There are major opportunities for infrastructure development. During this debate my colleagues in Government will give details of opportunities that will exist for private investment to give a boost to the construction industry.
The budget does involve reductions in the levels of State support for industry which were outlined in the Book of Estimates published by the previous Government last January. For those with tunnel vision these reductions may appear as not being in the interest of industry. This is a mistaken understanding of the way forward to sustainable industrial growth.
Here let me refer to the question raised by Deputy Bruton in relation to the cut of £3.3 million in the capital budget of the National Development Corporation. This is the corporation who took four years of the last Government's time to set up, who were supposed to be given £300 million in equity to invest in this economy. Nevertheless, when they prepared the budget they provided, in the first instance, £20 million and then cut that amount to £10 million. They scream to high heaven when I take off £3.3 million. I have examined the position with regard to the National Development Corporation. The amount already committed to them is about £3.5 million. That is not the kiss of death for the National Development Corporation.
I will be examining in close detail their approach to the whole situation and what efficient and effective contribution they can make to solving some of the problems and correcting the weaknesses of Irish industry. They are many and varied in the area of equity participation, better management expertise and export marketing. I see a role for them there. This is not the kiss of death. This is realistic and should suffice until we get the opportunity to put them into the niche in which they should be as a support and as an investor in equity of small and medium sized indigenous Irish firms, to try to bring them from that level of development up to the next stage of development. That is positive, not negative. Every support agency under my control will be giving positive support to the development of a better industrial environment and will contribute to the new direction that industrial policy will have to take in the future.
From a business perspective, the key achievement of this budget is its contribution to the removal of the obstacles to growth and enterprise in our country. It paves the way for a decline in interest rates and this decline will be further aided as the Government's determination to maintain the course charted yesterday is shown in the coming months. It is a decisive budget which provides the impetus finally to break the spiral of high interest rates, high State borrowing and high tax. It puts us firmly on the road to national recovery.
As this is my first address to the House as Minister for Industry and Commerce I would like to put the strategy of this budget in the context of the three main ways the Government can promote a strong and competitive industrial sector. In the first place the Government have a major impact on the environment for industry. Secondly, the State through its various agencies and other services provides advice to industry. Thirdly, the State provides financial support to industrial projects.
In this budget the emphasis has been on the first aspect, that is, improving the environment for industry. An improved environment is both a necessary and urgent requirement for the promotion of sustainable growth in employment and living standards. In itself, however, this would not be sufficient so I will also touch on aspects of the advice and the financial support areas.
The Government cannot legislate for enterprise. They can, however, create an environment which supports it or which contributes to its suffocation. Sometimes the obstacles to enterprise may come in the guise of apparent support. There is a dangerous line of reasoning that industrial growth is directly related to the level of subsidies for industry. To adopt this approach, however, would be self-defeating. It leads to the vicious cycle of increasing expenditure requiring increased taxation and borrowing and further increasing the need for subsidies to overcome a negative environment for investment and growth. It would be like taking the view that the patient must always be hospitalised and that the objective is limited to financing the cost of medicines. We must be much more ambitious. That is what this budget is about.
There is a large amount of enterprise in both the public and private sectors which is constrained by the symptoms of the current imbalance in the public finances. During recent years Irish industry has faced a difficult set of conditions. There has been the positive fact of the major decline in the rate of inflation. The benefits which could have been expected from this decline were severely reduced, however, by the lack of a similar decline in interest rates. Current interest rates are now more than 10 per cent above the rate of inflation. This combined with a lack of confidence in the determination of Governments to tackle the nation's problems has become the single most important block to investment in the growth in the economy.
A further difficulty for industry has been the volatility in exchange rates. The movements, in particular against the pound sterling, have had serious implications for the cost competitiveness of the large and relatively labour intensive segment of Irish industry which has a high exposure to competition from UK producers. It is for these reasons that the strategy for a determined reduction in expenditure and borrowing provides the way forward for economic growth and employment. It is when we recognise the importance of the environment for industry that the need for cuts which include the levels of direct support for industry becomes fully apparent.
The impact of the budget will be beneficial for investment not only in terms of facilitating lower interest rates. It will also provide the other key ingredient for investment which is confidence. This renewal of confidence together with the more favourable treatment of remittances by expatriates will support an increased flow of investment from abroad.
An improved environment is a necessary but not sufficient condition to building a stronger industrial sector. Direct State support for industrial development provides, in the appropriate form, a very worthwhile return to the Irish nation. The reasons support is desirable relate to the structure of existing industry seeking to develop in competition with longer established competitors from overseas and, also, to the value of attracting new projects overseas. In both of these areas there are basic features of the economy which act as constraints. It is necessary to develop and innovate with the mechanisms of State support for industry in line with the rapidly changing environment facing Irish industry. Many of the State agencies were established in very different circumstances and while they have all sought to adapt to changing circumstances it is now desirable that we review the total system in terms of its effectiveness in supporting the achievement of the central objectives of industrial policy.
This budget has imposed strict expenditure limits on the State industrial support agencies. As with Irish firms which are exposed to international competition, the agencies will also have to maintain the pressure to constantly streamline their structures and to look for increased productivity. For an agency, an objective of increased productivity would be to have a greater positive impact at less cost to the Exchequer on the growth of Irish industry. It is a challenge which I am confident the agencies will embrace as consistent with the objective we all share of promoting increased employment and living standards through industrial growth.
The support system requires radical evaluation. The recent "Review of Industrial Performance 1986" published by my Department in the last week or so contained a comprehensive assessment of the state of Irish industry. It showed a broad outline of the way forward for industrial policies. I am not setting in train aspects of detailed implementation. The report outlined the extent and the value of the support which the State provides for industry through its many agencies. It is clear, however, that the organisation of this support system requires radical evaluation.
I believe that the present institutional arrangements give rise to unnecessary problems of duplication and co-ordination. A survey of the attitudes of senior executives in Irish manufacturing industry, carried out for my Department, showed a concern among industrialists with the overlap between the agencies. Eighty-six per cent of those surveyed agreed that there were too many agencies in the industrial support system. These views were expressed notwithstanding the general indications in that survey that most industrialists had a very positive attitude towards the services provided by the agencies.
There are currently some 20 separate institutions involved in supporting industry with a combined staff of more than 3,400. This large number of public officials represents a valuable benefit to industry, but it must be realised that it is also a cost to the Exchequer and therefore indirectly on industry itself through its impact on the level of public expenditure.
My Department are currently looking at ways to improve the efficiency and the effectiveness of the overall system of State support for industrial development. The objectives of this examination are to focus industrial support, for the latter half of this decade and beyond, more efficiently and more effectively in terms of objectives.
A too narrow view has often been taken of the State's role in industrial development. It is sometimes equated with grant aid. Grant aid is only part and oftentimes not the most important instrument of State support. A large amount of resources is also devoted to advisory and other services. The importance of these other services is illustrated by the fact that, last year, direct subsidies to industry only accounted for one half of total expenditure on industry. In addition there are the tax incentives, and, as I have already stressed, the vital importance of the business environment.
We must ask whether we are making the best use of the advisory services for industry. A generous State grant can never substitute for a project properly designed in terms of marketing, technology and other key aspects. A well designed project, with or without advice from the State agencies, in a suitable environment will be able to raise finance without recourse to the State finance.
I do not intend to under-estimate the immediate difficulties faced by Irish industry. Nevertheless, I believe it is necessary constantly to question the extent to which fixed asset grants can be displaced by support for companies seeking to build strengths in marketing and technology, or by equity investment, or even just by good advice.
The key building block to a strong and growing industrial sector is indigenous Irish industry. In the past 15 years it is foreign owned firms which have made the largest contribution to the growth in output and exports in the economy. This country has over-relied on foreign and multinational investment to do the job for it. We live in a changing world in that regard, in that international investment has now become a scarce commodity. We are faced with much stiffer competition from many other areas putting up very expensive incentives to try to attract the scarce investment that is around. That is why it is vital to turn and to examine and build on our own industrial base which will be a far safer and sounder industrial base on which the future of our economy can grow. At the same time, foreign firms will continue to make a major contribution and it is necessary for the IDA to be continually innovative in winning a large share of new investment for Ireland. This will not be sufficient to realise our ambitions for growth and employment. As a priority, we must create the conditions for rapid growth in indigenous Irish firms.
It is indigenous firms which generate the greatest linkage and other spin-off benefits within the economy. The identification of their key role is not new. It was a theme of the Telesis Report in 1982, of the White Paper on Industrial Policy in 1984 and of many other reports. We must not, however, confuse diagnosis with solution. It is the development of these firms which has posed the greatest difficulties over recent years.
There are two potential sources of strong indigenous exporting firms — established medium sized firms and new start-ups or other small firms. During this year my Department will look at both of these areas in an assessment of how effective current arrangements are and whether there is a need for changes in approach. There are many who believe that it is large scale multinational investment that can solve our problems. I would remind these people that it is small industry which is the backbone of the American economy, one of the strongest in the world and that, indeed, it is small industry growing to a certain size in multiple numbers all over the place that can make the greatest and most significant contribution to growth in the future. My philosophy has always been that the small man of today can be the big man of tomorrow.
The small industry sector has been the only area of industry to record a net growth in employment since the beginning of this decade. Nevertheless, I am convinced that there is a potential for more output and more employment growth from this segment of industry. While there has been notable growth, this growth has been confined to new start-ups. The worrying feature is that the new firms created are not continuing to grow and, indeed, there is evidence to indicate that the average employment per project has declined somewhat since the start of this decade.
It is worth outlining just how comprehensive assistance to small industry can be both for the expansion of existing operations and for start-up situations. Small industry projects can, as for other industry, avail of non-repayable cash grants in all the other areas available to it.
In addition, small industry projects uniquely have the options of, first, applying for employment grants in lieu of a capital grant for fixed assets and, secondly, for management training grants. The first of these is specifically designed to address the cashflow bottleneck that can be created by the need to devote scarce resources to the acquisition of new equipment, while management training grants will ensure that individual entrepreneurs who have the drive and ability to set up new projects do not falter for lack of the necessary financial, marketing and other expertise so necessary in today's business environment.
Small industry projects which can also avail of research and development and technology acquisition grants are eligible to participate in the very comprehensive enterprise development programme and can benefit from, inter alia, 10 per cent corporation tax and the business expansion scheme.
In summary it is not a lack of will, or indeed of resources, in the State support system that militates against successful development of this sector. I will return to the question of a new approach to small industry later in the year after my Department have completed a detailed consideration of this area. This study will look for the factors which will influence a greater proportion of small firms to grow into medium sized firms. It must also identify conditions whereby a greater proportion of equity investment will take place in small firms.
It is also necessary to ensure that the State system is integrated in its support for individual projects and that those who deliver the services are, in so far as possible, close to small firms in spirit and in geographical terms. Thus, I will be looking at progress and prospects in the operation of the one-stop-shops of State support.
The small number of strong indigenous exporting companies is a notable weakness in the Irish industrial base when compared with the structures of other small and strong European economies. In identifying the prospects for growth among medium to large indigenous firms it is necessary, however, to recognise the limited potential for growth of many of the firms involved.
Many firms are engaged in activities which do not have significant export potential and are therefore constrained by the limitations of a small domestic market. Others are still engaged in the low cost segments of manufacturing activity which cannot be defended in the long term against competition from low wage countries. Many firms do not have either the management capacity or resources for strategic development.
The company development programme, which was pioneered by the IDA to address this issue, has now been in operation for nearly three years. The programme involves IDA, in co-operation with other State agencies, particularly CTT and IIRS, working closely with selected companies to help them identify and implement strategic initiatives and programmes. The programme involves mainly indigenous companies. The CDP is regarded by the IDA as their principal tool to encourage the development of strong internationally competitive indigenous companies. Fortyfive company development exercises were completed in 1986, bringing to almost 150 the number of companies which have participated in the programme since its introduction. The operating target for 1987 is that a further 50 companies will be covered.
I have asked my Department to examine the effectiveness of the measures currently in place to support the development of strong exporting established firms. The operation of the company development programme will be an important part of this examination.
The importance of integrating competitive technology with the needs of industry is well recognised. The need to upgrade the technological capacity of Irish industry is also evident. We shall be looking at ways and means of making a detailed evaluation and assessment of how the money spent in various agencies in the area of science and technology and in research and development can be most effectively used to produce the most cost efficient results.
In the time available to me since becoming Minister, it has not been possible for me with my Minister of State for Science and Technology whom I am glad to see in the House here, to get a full appraisal of the whole area of science and technology and the role this can play in the whole area of industrial growth. The growth in employment and living standards is crucially dependent on the development of a strong and competitive industrial base. As a people we strive for prosperity in terms of employment, support for the weaker sections of the community and higher living standards for all. In just the same way that a business must have a clear goal at which to aim, so must this country compete for prosperity. This competition takes place on the international stage.
This budget is the first step along the road to national recovery. It charts a course which this Government are determined to follow. Everybody, or almost everybody, knows that there are no instant solutions. Anybody looking forward to miracles should not be in politics or in business.
I should congratulate the Minister for Industry and Commerce on his appointment and also on a fairly hasty ending there, although he managed to cram quite a bit into the last minute or so. I watched his performance with great interest.
All of us in this House on all sides should welcome the spirit permeating this budget. Obviously different parties from different standpoints will have reservations about matters of detail but then we always do. The essence of it is that for the first time in many years a Government have decided to take on the fundamental problems and seek to do something about them. That is not to say that the budget, from the standpoint of my party, is ideal or that it would be ours were it our task to write it. Nevertheless the budget now helps to create universally in the country a much clearer approach, based on economic realism, to some of the answers that are necessary if we are to meet the challenge of tackling our economic problems in a fundamental way.
The sad situation all of us were faced with until the last day or two was the perception by the people, fuelled massively by the Government during the election campaign, that somehow there were soft options and miracles despite what the new Minister for Industry and Commerce has just said. I recall, with a combination of regret and bemusement, the billboards proclaiming that health cuts would hit the sick, needy and handicapped, and then I look at the budget introduced yesterday. That is a double standard. There is no doubt but that it can be said that this Government have no mandate whatsoever for what they did yesterday. Nevertheless what they are doing in this budget, in broad terms, is in the national interest and must be welcomed as such and I am somewhat bemused by some of the criticism emanating particularly from the Fine Gael Party.
The budget, as presented, nevertheless seems to me to suffer from all of the hallmarks of an exercise undertaken hastily, which was cobbled together very much as an exercise in arithmetic rather than addressing some of the fundamental problems our party sought to address in our documents published last year. Those fundamental problems remain. Therefore the budget, while clearly focusing on the outgoing Government's targets in relation to borrowing and expenditure — presumably deriving some degree of satisfaction, if not glee, from the fact that those targets have been slightly clipped in this budget — perhaps missed the fundamental point, that it is not about arithmetic but rather a whole way of doing business, of addressing fundamental imbalances in the role of the State versus other areas of commercial activity which had been allowed to grow up over the year that must be addressed if we want to deal honestly and openly with getting our economy right. The change of heart that has arisen in Fianna Fáil, the extraordinary somersault which has occurred, I suppose, one would have to chalk up to a combination of political experience and expediency.
Today all of that is history. It is today with which we must deal and the parameters today are represented by the budget as presented. For the first time it is a budget that makes a strong attempt to deal with expenditure and other areas of our economy, a budget which shows a prospect at least of getting through this House. Nothing else really matters. I might remind the House that there was not a Fine Gael budget, nor was there going to be a Fine Gael budget like this; there was a Fine Gael set of Estimates and I shall revert to that in a few moments.
In broad terms the budget is and has to be welcomed by any fair-minded person despite the temptation to which we all succumb now and again to indulge in political point scoring. There are no free meals and there never were. I will probably get a bucketful of abuse for saying this but I wonder whether in some areas the budget has gone far enough. The kind of approaches it has taken in some aspects of its presentation — indeed some of the comments of the Minister for Industry and Commerce when he rushed in to defend the fact that none of the State agencies lost any money for their task of job creation when perhaps they should have — represent one of the fundamental questions we would pose, namely, whether the plethora of State and semi-State agencies operating as they do at present, loaded with talented people but completely without leadership or clarity of remit, should be allowed to continue in that fashion.
On fundamental issues the budget has missed the mark. For example, it has not done anything at all to imbue anyone with any degree of confidence or hope that a serious attempt will be made to deal with the employment crisis. A vague gesture, a prayer or a hope that interest rates will be reduced and that, therefore, employment will follow is not sufficient for a Government who should be giving leadership. The area of tax reform, which would bring about some degree of alleviation of the pessimism, gloom and depression out there, should have been incorporated in this budget. It would have helped everyone to have come a little of the way in facilitating the passage of this budget and its acceptance by the people.
It is very regrettable, but perhaps understandable, to hear inevitably predictable spokespersons for the same range of organisations fighting their corner and theirs alone. I want to exhort this Government to stand up to every one of those sectional groups, to say that the whole is bigger than any individual group. When I hear people already threatening not to co-operate, people who have no interest beyond their own blinkered interest, then I am encouraged to exhort the Government to do all that is necessary. They can expect, at least from this party, as much co-operation as is possible in the political circumstances presenting themselves in taking on those interest groups provided the greater good of the people is truly what they are about and not appealing to or appeasing any sectional interest. To that extent the comments of the Government thus far in their short term of office, in the manner in which they faced their day of appointment, their comments and much of the content of the budget are encouraging.
However, in the area of employment and tax reform there is need for immediate remedial attention. There is no point in saying to a people increasingly heavily taxed, people who in the budget are being expected to endure an additional income tax burden over last year of 14 per cent, or a figure of £333 million, that no attempt can be made to bring about tax reform. To those who say: "Yes, but how can that be done; would it not need more cuts?" with respect, the answer is that we published a comprehensive document setting out how those proposals could and must be funded over a phased programme of four to five years, beginning the process of redressing what is now the most brutal tax regime in Europe. If that is not attended to there will not be the public will to accept the very severe trickle down effects of this budget, on full employment, which is not yet fully comprehended, and the full economic severity of which will not be experienced for months to come. The budget speech yesterday was shorter than usual. There was a relatively superficial presentation of the budget, a budget which had severe and significant cuts.
The State still has the biggest involvement in our economy compared with any democracy of which we know. About two thirds of every pound spent is spent by the State. There is an inability or a lack of will in this House for us to say to some of the rash of State agencies that they are no longer needed, that their work is done or to say to more of them that the time has come to change their terms of reference and to rationalise organisations. That incredible area of consumption still remains, drawing extremely heavily on the public expenditure purse. The systematic inefficiencies, the wasteful practices, the duplication and the overlapping have not been tackled though they are highlighted every year in the report of the Comptroller and Auditor General. This report shows that Department after Department have incredible instances, not just of the occasional fraud and abuse which will occur from time to time, but of systematic inefficiencies leading to incredible waste.
I would draw the attention of the Government to the fact that in his introduction to this year's report the Comptroller and Auditor General has indicated that for the first time, due to his staffing situation he is not now in a position to guarantee a proper audit of what the Government spends of taxpayers' money. I chaired the Committee on Public Expenditure in this House for four years and week after week we saw examples of inefficiencies. Nothing has changed. There is no point in trying to claw in from every corner increasing revenue if we continue to waste it. It is questionable from any point of view, political, economic and moral, that we should continue to pursue that line. There was not even a gesture in the budget towards remedying that position. Indeed, the only suggestion for increased efficiencies were in areas outside of the direct control of the Government, such as in the VEC's which I know from personal experience are run very efficiently, relatively speaking.
I would be interested to know how we can find £16.2 million in unspecified efficiency cutbacks in the areas mentioned, when under the Government's nose, outlined in 26 different reports from the Committee on Public Expenditure and in reports from the Comptroller and Auditor General, there are examples where tens of millions of pounds are being wasted. None of this has been tackled because we lack the will to take on those who work in the executive branch closest to ourselves who cocoon us from the real world. I hope that the cocoon of unreality which gradually enveloped the last Government will not envelope this one and that they remain in touch with the real world of people and commerce, ordinary people with ordinary problems. We are there to serve the real world, and there are too many of us serving the real world, in this House, in the Civil Service and in the public service. Unless that is tackled this war will not be won and there is not even a gesture in the budget.
The only hope in the budget is that all going well interest rates will come down. That remains to be seen. Undoubtedly there will be some improvement in interest rates but we are not convinced that that will be adequate to deal with the unemployment problem. That problem was focused on in yesterday's budget by a device which the Minister in his speech this morning referred to in a little more detail than in yesterday's budget statement, that is the search for employment. It is an incredible suggestion that there will be 40,000 manpower scheme opportunities and that they will be provided simply by interviewing the people who are presently unemployed. Every one of these people is interviewed every week, though perhaps not in detail, when they go to draw their dole. Probably every one of them has registered with one, two or three different agencies, the Department of Social Welfare, AnCO or the National Manpower Service and all their details are presently on files which in the context of one of the inefficiencies may not even be inter-related. The Minister said that this will facilitate a significant reduction in unemployment. That is a lot of nonsense. One cannot create employment by going over the rules again. What this is about, and it would have been better had the Minister said so clearly, is his perception and perhaps the perception of many in this House that many people are abusing the system and that if they are called in they may not show up or if they do it will be seen that they are not really available for work. It is a depressing view of the unfortunate people on unemployment assistance or benefit to imply that most of them are cheats. I know there is abuse and if this helps to stop abuse it cannot be a bad thing, but let us not pretend that it offers some hope to the unemployed. That was the high point of yesterday's budget in relation to jobs. If that is the high point in relation to jobs creation we have cause to look out.
The arithmetic was interesting. The budget provided a degree of one upmanship. It went beyond the Fine Gael proposals. Certainly many of the cuts are tough and will be hard to sustain and will cost a lot of people money and will also impose hardship on many others. One somehow gets the feeling that it is very much an exercise like moving the chairs around on the Titanic but that the ship is on the same course, because the underlying causes of our problems have not been tackled. It will take fundamental institutional reform, and structural reform of the system of Government to deal with it. I am not sure that that appetite is there, based on yesterday's budget presentation. Even if it had been addressed as something that could be done later this year, in perhaps a second budget, one might have said they were thinking along these lines, but that was not said.
I was interested to note, despite the obvious support for the approach of the Minister for Industry and Commerce, Deputy Reynolds, in relation to the commercial area and the general reliance the Government are placing on the private sector by encouraging them with a drop in interest rates, the careful avoidance in the budget of any reference to public ownership or privatisation. The economic climate has been fundamentally changed in the last six to nine months by virtue of the establishment of the Progressive Democrats. Privatisation was the dirtiest word possible a year or two ago. Indeed it is still not a nice word. There are differences between the approach we wish to adopt and privatisation which is basically about auctioning off State assets. We would not support that.
We are asking the Government to accept that there is very great potential in joint ventures between Government and private interests in developing areas of State activity, and in re-equipping areas of State activity where at the moment there is not a prospect of getting development and investment over the next number of years. There seems to be an almost religious barrier about this. It is not mentioned. It will inevitably come more and more into focus as the common sense of that approach becomes clear. I would simply ask the Government who adopted a kind of kneejerk reaction to it during the election campaign, to reconsider. There is just a glimmer that they might be doing so in relation to the sale of some afforestation but there are many other areas where they could raise substantial sums. One estimate last week from a private sector source suggested £200 million in one area alone, which would help the State and would not lose them control, if that is what it is all about, of that State asset. It is possible to sell shares and yet not lose control of State assets. I do not think the State as a corporate entity acting on behalf of all citizens has an automatic right to assume it has to have control because control is exercised on behalf of all. As far as I am concerned, the State should justify any action it takes.
The area of public ownership, or privatisation, is one the Government should address. They seem to have refused absolutely to consider it, but I forecast they will be looking very strongly at it this time next year, if they have not done so before then, and that they will be backing away from yet another election commitment they made when they said in their precipitate, too hasty and ill-judged reaction to the Irish Congress of Trade Unions that in no circumstances would that happen. I am not saying such a measure should be rammed through because there has to be consultation, but consultation does not mean talking until the other person comes round to your point of view. Consultation means sitting down, listening and then making a decision, even if it does not please everybody. That is another major omission in the underlying strategy of this Government.
In the area of tax reform it is extremely regrettable that the Government could find no option other than another extremely punitive layer of tax levied on income tax without any glimmer of hope that there would be tax reform. One line in the Minister's statement referred to the possibility of tax reform; yet an additional £333 million was levied in yesterday's budget. PAYE workers were hit by mortgage charges, health charge increases and so on. In an effort to make the arithmetic fit the occasion — and I agree with Deputy John Bruton in this respect — these figures seem a little strained.
There is a doubt about the Government's proposed duty free policy. I see nothing wrong with it in principle. In fact, it would not cost me a thought if that concept went out the door because I have often wondered why a certain elite who could afford to travel were entitled to duty free goods but if one could not afford to travel, one was not entitled to them. I believe this duty free facility has been abused. I hope the Government's measure works, although I have some doubts about it. I am told there are doubts about its legality and administrative feasibility. At present it is apparently impossible to stop ordinary smuggling across the Border and I shudder to think what it will take to administer a scheme which expects people to prove they have been more than two days outside this jurisdiction.
The £25 million withholding tax on fees is an exercise in doing it with mirrors. It brings forward money from next year and is very likely simply to be passed on in many cases. There are some anomalies in the system, because that fee will be levied only if more than half of that person's activities is with the State. This is extraordinary. Maybe we will hear more about this in the next day or two.
The Government owe the House an explanation of this £16.12 million in unspecified extra economies in the VECs, the regional colleges and AnCO. I am familiar with the VECs and the regional colleges and I am sure they will be told to introduce these efficiencies. In many cases they appear to be strained and their annual estimates have been pared back. I want to know exactly what these extra economies would involve, or are they simply part of a wish list?
I doubt the social or economic sense in abolishing one or two of the housing grants schemes. The construction industry were expecting a great deal more from this Government. From dialogue prior to the general election they did not expect anything if our party were in a position of influence, because we told them the money was not there, but that is not what every party said. The Government have some explaining to do in that respect.
I want to discuss the £10 charge for hospital beds. There is a political mood being engendered in the country which shows that most of us are accepting the inevitability that tough measures need to be taken. In the rush to toughness this party will not support any measure which would affect the poor. There is no need for the poor to be affected because they are not the problem. If some kind of blunt instrument is introduced in this House and nodded through by a House which does not represent poor people but seeks to redress national imbalances and political omissions over the years by using it on people who are inarticulate and under-represented here, they will not have our support, and there is some indication of that in yesterday's budget.
Surely it is not right that people who are genuinely ill and need hospitalisation, but who earn a few pounds above the medical card limit, should be so frightened by a charge of £10 per day that they may run the risk of not going into hospital. Surely we have not sunk to this level. I am looking for a complex of exemptions but I want the Minister to examine this again so that people who are genuinely unable to pay will not be expected to do so and that those who can pay will. That is where the abuse is. We know where the health cutbacks have fallen. They have not fallen on the consultants, the doctors, the professional staff or even the hospital administration. They have fallen on the nurses and the patients. Of course, the patients are not organised and nobody rang them yesterday asking for their views on the budget. As I said, I hope the Government will look again at this proposal.
I want to take up a point raised in Deputy Noonan's speech yesterday. Over the last week or so my party have been subjected to an unprecedented venomous attack by a number of Fine Gael spokesmen who lectured us on our political lineage, the purpose for which we are in public life, our approach to this budget, our standing on the political spectrum and a variety of other matters. I am very saddened by that display of hurt, although I understand it. It is a cry from people who feel very hurt by the recent electoral events and refuse to blame themselves but seek to blame everybody else. I suggest, with a fair amount of respect, that they should get that out of their system as quickly as possible.
That kind of abuse, coming within hours from the newly appointed Leader of Fine Gael — not the Leader of the Opposition — is not the hallmark of a statesman, does nothing to further the national interest and does not augur well for the future. Deputy Noonan did what I would call the bootboy on it, but we are getting used to that. However, what I cannot take is the allegation from these gentlemen that the Government have stolen their clothes, the grand larceny reference. That is a lot of nonsense. Fine Gael policy is that of the past four aimless lost years, not a document which was cobbled together as an election programme. I am astonished at how glibly that deceit has been accepted by commentators, that somehow the last four years have been written off. It takes some neck to come into this House and bleat about hardship cases when both Deputy Dukes and Deputy Noonan — and indeed the Labour Party who are regularly in the business of lecturing us also — were members of a Government who over the last two Christmases when there was money lying uncollected, as this Government have already shown, succumbed to clawing back a few lousy pounds from old age pensioners. They also abolished food subsidies for the elderly without compensation. I do not mind that if that is the policy but what I will not take is being lectured and being told that we are on the right — whatever that means.
In our modest attempts to bring a degree of economic realism into the debate in the past six to nine months we produced documents.
Frauds.
In those documents which were fully costed we explained how we would fully compensate people in the social welfare categories for the abolition of the food subsidies. Therefore, let us cut out this nonsense and this continuous attack which is not helping anyone but which convinces us we are getting to many people in this House.
The new leader of Fine Gael was Minister for Finance for a number of years. In his budget of 1983 he made a number of comments about what he was going to do and it is in the context of how well he achieved the targets he put forward that we should now judge his approach to this budget. I am not going to stay too long on this but it is worth putting this point on the record lest there be the assumption that one side of the House had it right all along and that suddenly Fianna Fáil whipped it from under their noses. In his Budget Statement of 9 February 1983 Deputy Dukes said, and I quote from Column 1473 of the Official Report:
The Government are totally committed to changes in taxation over the next few years which will result in a demonstrably fairer system. The specific taxation measures in today's budget will bear witness to this commitment.
He went on to say:
My principal contribution to this process will be to see that procedures relating to public expenditure and taxation are updated and that Dáil Éireann is better informed on expenditure developments.
I also intend to introduce reforms aimed at streamlining the Government accounting system.
In 1984, he introduced another budget and at Column 801 of the Official Report of 25 January he said:
There is a long way to go before we can claim that we have solved the problems in the public finances, or fully set the economy on the path of growth in employment and output which we all wish to see. But we have made a resolute beginning and within the space of a year the results are already starting to appear.
He went on to say:
We must continue with our programme of greater discipline in public expenditure; we must continue in our determination to reduce borrowing, especially foreign borrowing, and we must continue on the path towards the elimination of the current budget deficit.
In conclusion he said:
This budget will keep us on course towards improving the public finances and strengthening the economy.
In 1985, Deputy Dukes in introducing his budget said at column 1073 of the Official Report of 30 January:
This year's budget is designed to bring us towards the objectives set out in the national plan, Building on Reality. It is part of the three-year policy framework set out in that plan.
He said reform of the taxation system was needed and went on to say:
Today's budget measures will ensure that developments in the public finances will be in line with the targets set out in the national plan.
You voted for all those budgets.
Please allow Deputy Keating to proceed.
In 1986, at column 973 of the Official Report of 29 January, Deputy Dukes said:
I believe that today's budget will have a positive effect on economic behaviour which is not immediately measurable but which will add substantially to the growth potential of the economy.
It is not possible to quantify any of these effects, and the budget arithmetic makes no allowances for them. Nevertheless, they could add up to a useful further impetus for expansion.
Correct.
He was wrong in every one of those and every target he put forward failed. He achieved none of them. That is human and I do not fault him for it. People can make mistakes but what I do fault him for is then pretending they have a monopoly of virtue or wisdom and start accusing——
No one has that, least of all Deputy Keating.
(Interruptions.)
Will Deputies stay quiet? They will get their chance to speak in due course. Let them sit and take it and if they do not like it they can leave.
By their achievements you shall know them. The reality is that Deputy Dukes's record is an extremely poor one. His cumulative budgetary strategy has brought this country to the verge of an economic crisis. I am not saying he did not do his best and I am not saying the Government did not try. Perhaps they were hamstrung. All I am asking is that they do not hypocritically lecture others. Let them get on with the job of building up what is clearly an extremely demoralised organisation and remedying in whatever way they can the hurt they have endured and which is obviously venting itself in the kind of spleen to which I have referred.
That is not to say we have had not this from other Members of the House. One does not expect a great deal from The Workers' Party. They can be against everything all of the time. The same is true of the Independents. They can vote against anything which requires political courage. The Labour Party ran away from the budgetary process and did not even try. The previous Government discovered all of this a few months before the inevitable general election and after three or four years of bringing in the kind of budgets I referred to in the comments I made earlier.
This budget is not perfect. It is not the budget we would have introduced. We would have aimed at the fundamental reforms we spoke about. We certainly would have introduced a four or five year tax reform programme whatever it cost and however it was to be done. We have shown how that was to be costed. We certainly would have introduced rationalisation among State and semi-State bodies because that, too, is essential. We all know it. We certainly would have endeavoured in a number of ways to tackle the unemployment crisis. We would have used a twin approach by the State to ensure that the mechanisms which it uses in a corporate way are focused on key areas of the economy from where it is clear the jobs can come. These are the areas the Taoiseach focused on when he appointed Ministers of State to deal with horticulture, marketing and so on, areas where it is clear there is going to be a return on investment.
However, that implies you cannot continue to spend the same amounts of money in every other area. The problem has been a lack of courage to say "no" to anybody. That would have been part of our budget. It would have been part of our budget to introduce employee share-holding in State and semi-State agencies wherever possible. It is time to revert to ownership of State assets by the people. In the first instance I am talking about workers in semi-State bodies owning shares in those agencies. There is no point in pretending that the people own these assets by virtue of their being lodged in the hands of the State. Quite often a citizen will not even get a reply from one of those bodies. Such a proposal would have been part of our budget but there was no reference to it by the Minister for Finance.
With regard to the area of tax evasion, and the tax system generally, including farmer tax, I hope that the new simple profile form approach the Minister is introducing will be put in operation simultaneously with the ending of the land tax. If that does not happen we will continue to see the spectre of the farming community getting away with murder. There is no denying that. It is an absolute injustice that a shop assistant working for a few pounds per week in Dublin, Cork, Limerick or Galway is taxed to the hilt while substantial farmers are not paying any tax. That is wrong. The policy of my party is taxation by accounts but that is not to allow a lacuna of a year or two to develop between the abolition of one tax and the introduction of another system. That should not happen.
Ultimately this is all about creating the conditions in our economy which will allow people to believe in themselves again, to believe that there is a point to working, that there is a point to investing and putting new ideas into practice in terms of small businesses, investing and re-equipping larger businesses and so on. That is not occurring now and instead people are taking the emigrant ship. The budget seems to create a framework in which a stop is being put to rampant uncontrolled expenditure in every Government Department. Despite all the promises made not one Government Department over the last four or five years had less money to spend in one year than it had in the previous year. That is not controlling public expenditure. The budget seems to create a climate in the public service in which there will not be pay increases or vacancies created although I remain to be convinced about the latter. It is preposterous, obviously, to draw a blanket negative right across the board particularly in regard to certain key areas such as security and medicine. I presume there will be exemptions in regard to certain key areas but they were not spelled out yesterday. In the area of public expenditure the budget seemed to say that there will not be any further easy rides, that the honeymoon is over.
There is a need to get a climate in which jobs will be created, a need for institutional reform here and in the way Government operates. What an area of challenge for anybody willing to take it up, a huge sprawling bureaucracy extending its tentacles into every activity of citizens? A person who runs a small shop told me that he has to complete 60 different forms annually. That is incredible and we have to deal with it. I hope that in future budgets the Government will tackle those areas. If they do that in a fundamental way they will have our support. From our point of view we wish them success in at least beginning the task. The budget is not perfect from our point of view but at least it represents a beginning and is better than has been done for some time.
I have listened with interest to what has been said on the budget and I welcome the broad support given to it. While that support has not been total nevertheless it is unusual for a Government to have been given the amount of support that they have been given in this instance. That is to be welcomed. I agree with some of the points made by Deputy Keating. It has been said that the argument about interest rates was thrown in to be the solution to all ills but that was not the philosophy outlined by the Minister for Finance yesterday. In the budget our priority is to try to restore confidence in this damaged economy of ours as quickly as possible. We are seeking to open new opportunites for employment and to achieve that objective we must encourage investment. In order to do that we must bring down interest rates, something that will have the effect of encouraging capital back into the economy. If we are to make any progress that is an essential precondition. Yesterday the Government demonstrated emphatically their determination to improve the budgetary position and reduce spending. There were no give-aways or concessions and our whole strategy was to turn the economy around rather than satisfy the wishes of individual interest groups. I am glad that that is in line with the thinking of Members of the Opposition parties.
I agree with Deputy Keating that we face a major challenge. All Members in recent years have referred to the necessity to control expenditure and to make savings but nobody has done anything about it. Such proposals have always merited a line in the speech of the Minister for Finance on budget day but, for example, in the past four years the national debt doubled. Yesterday we saw the first real sign by any Government in the past ten years that they proposed to take harsh measures in the interest of the country. We are trying to make the country a better place to live in, to give our people a better quality of life and some prospects for the future. It would have been nice for the Government to say that after three weeks in control they were able to reduce Government expenditure, were in a position to control the current budget deficit, the public capital programme and public sector borrowing while at the same time being able to introduce a number of incentives, handouts or grants to reduce unemployment but that was not possible. Needless to say that was considered. In that regard I cannot do any better than Deputies Bruton and Keating did in their contributions. It was not possible to embark on such a programme because of our financial position.
It is easy to criticise the Government for not adopting certain measures but at the end of the day after all the tightening of belts, cutbacks and savings we will still be borrowing more than £1,800 million. That is a figure people should bear in mind. Responsible people will see that in the last few weeks we have tried to call a halt, to bring in controls and to get it across to people that the gravy train has arrived at the final station. We must look for areas of real growth and encourage investment back into the country. We must convince people in the commercial sector that it is worth their while risking investing money here. Very few in the past four years have even thought about investing their hard earned money here because of the level of interest rates. They will not invest it until they are convinced that the Government are prepared to live by the figures outlined in the budget. In the past Ministers may have attempted to bring in a tight budget but they allowed the figures to overrun left, right and centre. We will have failed if we allow that to happen. We must stick firmly by the figures and indicate to the financial world that we have stabilised our money markets.
Debate adjourned.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.