Before this debate adjourned yesterday evening, I had been outlining the Fine Gael goodwill towards this budget given the circumstances of the election. In a critical scrutiny of it I felt that the budget was hastily prepared and cobbled together, that it lacked imagination and vision and was gambling on a strategy that would reduce interest rates which might not work in view of the recent developments in the wholesale money market in Dublin and the increased rates of gilts. I felt very strongly that there had been a degree of electoral dishonesty by the people now in Government relating to the individual insertions in the programme for Government "A Better Way Forward" and the subsequent package that was in the budget.
The budget is particularly unfair in its application to the low and middle income groups in relation to the reduction in mortgage tax relief and increased charges at local authority, health service and school transport levels as well as increased costs for VHI and life assurance. I also outlined that the budget arithmetic would be awry by the order of £130 million in terms of the current budget deficit by the end of the year. I outlined the areas where I felt the wrong estimate had been made. These are the areas of pay, social welfare, tax, grants, health and the withholding tax. This morning, therefore, I wish to deal with other aspects of the budget which deserve special attention.
Certain aspects of this country's financial problems have been ignored in the budget. At a time when the overall drift is to improve the public finances, it seems extraordinary that in the area of massive expenditure, that is the 20 State agencies providing services to industry, training and the whole manpower area, there are 3,400 people employed spending £400 million per annum in grants and administration while there is no analysis of how effective this expenditure is. In times of very scarce resources they seem to have escaped. To say that the Kilkenny Design Centre or the Irish Productivity Centre will be self-financing in two years is totally inadequate to deal with the problems in this area. At later periods during the lifetime of this Government I will outline in detail, as will my party, measures which will give better value for money and provide better services for less money in this area.
Public sector pay is a basic element of the Government's budgetary strategy. At present public sector pay accounts for 16 per cent to GNP. In 1975 the corresponding figure was 10 per cent. There is no doubt that public sector pay is a major consumer of the resources of the State. Members of the public service have certain benefits in terms of low PRSI rates and low deductions for pension. There will be a carryover from 1986 to 1987 of the 5 per cent increase in the public sector pay bill with a 2 per cent increase provided for from 1 May. It is absolutely vital that the Government hold the line on public service pay. The Government are pursuing the wrong path when they seek to have a consensus on pay. I am all in favour of dialogue and consultation but the years during which Ireland lost most competitiveness and became more out of line in terms of costs vis-à-vis our European partners was when we had national pay agreements.
It is undoubtedly true that in terms of competitiveness this economy can only afford pay increases in those areas where the market can pay for them or where there will be no loss of competitiveness. A free for all is a much more prudent approach in relation to pay whereby a factory by factory approach or a sector by sector approach can be taken. If a pay norm were set across the board it would only lead to a major loss of competitiveness for the sectors which simply cannot afford to pay increased claims. I hope at an early stage the Government will state their intent of allowing a free market position on pay.
Another area to which the Government should give special attention in relation to restoring growth in the economy is the £4 billion worth of assets which are held by pension funds. The cash flow of these pension funds is of the order of £400 million per year. Sixty per cent of this investment is in Government gilts and 10 per cent is abroad. It is this money which holds the key to unlocking future economic development in this country and one of the early and major priorities of the Government should be to ensure that these pension funds, £4 billion in all, are used to develop the critical areas of manufacturing, tourism and the other growth sectors such as information technology and biotechnology. I hope at an early stage the Government will try to produce the necessary incentives to develop such an investment strategy which is lacking at present. At the end of the day, you will not have 2 per cent growth per annum simply because you put it in an election document; it will only be created by new companies doing new things and that will not happen unless the incentives and opportunities are provided. It certainly will not happen in a budget such as this which increases taxation in overall terms by 6.4 per cent.
Another area where economic growth can be triggered in the economy is in the semi-State sector. Semi-State companies are a very important part of the economic apparatus available to the Government to stimulate development. They account for in the order of 18 per cent of total public sector borrowing. While in the seventies and early eighties substantial losses accumulated in many of these semi-State companies, over the period of the last Government a substantial improvement was brought about. The Government have to be prepared to use the resources of State companies as a third sector of the economy and must not get tied up in the ideological log-jam of State only or private enterprise only. We should look at the third sector of the economy which is that of joint venture.
I should like to give some European examples. We had to listen to a lot of nonsense last night from Deputy McDowell. He said nobody would be interested in buying a minority stake in State companies. That is patent nonsense. Royal Dutch Airlines, KLM, are 55 per cent state owned. Deutsch Lufthansa, West German Airlines, are 82 per cent State owned. British Sugar sold 24 per cent in 1981. Associated British Ports sold 49 per cent in 1983. What we must do in companies such as NET, a small fertiliser company who cannot stand alone, is to allow multinational companies in tandem with the State company to move ahead and develop new markets and new opportunities.
What the Government should do as a matter of urgency is, through the Department of Finance, to have a review of the semi-State companies. They should call in the State Merchant Bank and the ICC to carry out an analysis of the State companies who can develop in a joint venture fashion. If these companies have inadequate equity, are over borrowed and need an injection of equity to improve their financial performance, let that equity come from the private sector as the Government will not be able to provide it. Instead of starving them of resources, let them develop with an outside input and give them a cold dose of reality.
To some extent the arguments about Irish Life have clouded the issue. A lot of nonsense has been spoken about Irish Life. Some of the shares in Irish Life are not owned by the State. It is a company which could have shares sold in it. As of December 1983, its equity was £500,000. The fact that it is mutualised greatly negatives its potential. I reject the argument that £600 million or £700 million could be raised from Irish Life. I do not think that is true.
I now want to turn to one of the principles we in Government felt very strongly about. I was very disappointed in some of the changes made in this year's budget. It is a very important principle in politics and in Government that an overall tenet of your administration is that you help people to help themselves. Schemes were introduced by the last Coalition Government such as the enterprise allowance scheme and the housing grants, which facilitated individuals to improve their circumstances, to move from unemployment to self employment and to develop the homes which they owned by providing State incentives. In this budget the enterprise allowance scheme has been cut by £1.5 million and the housing grants have all been but abolished.
I would now like to turn to agriculture because it is of particular significance not only in terms of the rural economy but in terms of its vital exports. I am very annoyed by the sleight of hand of the Government. There was no mention prior to the election of the reduction in the VAT refund to farmers from 2.4 per cent to 1.7 per cent. This will affect all farmers, both large and small, those making losses and those with small turnovers. The rate of VAT refund had been increased over the years to compensate for increased VAT rates on agricultural contracting services, on sprays and other products. That has now been completely undermined. I hope the Government will realise that there are only 1,300 farmers registered for VAT and this area needs to be reviewed. It is most unfair.
Equally unfair is the decision which has been taken in relation to the farm improvement grants. A circular was sent out to farmers who had been approved for large grants under the farm improvement programme. They were told that as and from 25 March if they were over their milk quota they would lose their grant. They received that circular on 30 March. The last day of the production year for milk quotas was 31 March. They went over their quotas because they were encouraged to do so in the national interest by their creameries. They now find they are at the loss of those grants. This is totally unfair. I do not know if it is illegal and I ask the Minister to review it urgently.
The abolition of the installation premium not only will cause chaos to applications in the pipeline but will be a very negative act in the overall policy of trying to develop agricultural education and the incentives which would transfer land to younger and more productive farmers. The work of the farm classification office was worthwhile and assisted in developing profiles for smaller farmers in relation to tax on accounts. They also gave the facility of having a fair basis on which to assess farmers for higher education grants and health benefit entitlements, such as hospital services cards, etc. It is misguided in the short term to abolish this office.
The county committees of agriculture are to be effectively abolished. Because of the cut of £12,500 in their allocation the county committee of agriculture in Wexford cannot hold any more meetings this year. I hope the Minister will give a direction and that the very small amount of money which is necessary will be made available to enable the committee to continue in existence.
The decision to include tourism investment projects in the business expansion scheme is well worthwhile but lip service will not be enough to develop that sector. There is a need to revamp Bord Fáilte to make it a strong authority that can bring together the disparate private and public sector organisations involved in tourism. Too many people are moving in different directions in the tourism area. Access transport operators are fighting to resolve their own problems and everything from signposting and services provided by the Office of Public Works and and Forestry and Wildlife Service are the responsibility of different groups. In the private sector companies involved in the hiring of cabin cruisers, hoteliers, publicans and sporting organisations are all doing their own thing. We need an integrated tourism policy and a strong State agency, not with massive resources but with strong legal resources to pull that product together. That organisation should have specific job and wealth creating targets but those targets are not provided for in the budget.
The Government should make up their mind about the local tourism product, whether they intend to strengthen the regional tourism organisations or abolish them. At present those groups are in no man's land. The functions should be given back to the county councils and tourism officers appointed or a programme should be prepared for the regional tourism officers. On the marketing side we need to develop the role of Irish handling agents, those who develop Irish package holidays sold through travel agents in Amsterdam, London and other major centres of population. Those agents can sell the Irish tourism product and a CTT-type policy of directly assisting Irish handling agents is overdue and necessary.
The construction industry is very disappointed with the budget. The Government's response to the construction industry was very poor when one considers what they promised in the election campaign. It is no harm to recall what Fianna Fáil said they would do for the construction industry during the election campaign. They told us they would restore a section 23 type incentive to stimulate private sector investment but when they were elected to Government they abolished the modest relief provision under section 29. In the campaign they told us they would reduce the VAT rates on construction projects from 10 per cent to 5 per cent but that has been ignored in the budget. They told us they would release, as soon as possible, school, harbour and other projects at present being held in different Departments but that has been forgotten. Specific promises were made in regard to county roads but they were not honoured. In spite of all the promises made during Private Members' time in the past four years we find that in places like Wexford the road strengthening grant allocated by the previous Government has been suspended. In fact, this grant was called back two weeks ago. That is unacceptable. The construction industry has a strong added-value factor in relation to the use of Irish products and the direct use of Irish labour and while I accept that we will never return to the heady days of the late seventies there is a need for a balanced approach to the construction industry with long-term planning. However, plans in regard to that industry have been thrown out the window. I hope the Government will see their way to restoring confidence in that sector.
It is important that the Government get their act together with regard to the manufacturing sector. A priority I would suggest is the early approval of the NBST proposals to set up infrastructure for research and development and science and technology. In 1984 the NBST submitted to the Government a private and public financing programme to establish companies on the campus of universities and to establish different research units to assist companies. In the areas of advanced manufacturing technology and biotechnology a £6 million programme was suggested but I have not heard anything about that suggestion. Other countries in Europe spend 1 per cent of GDP on research and development and on science and technology and there is no doubt that that is where the new jobs will be created. We must get our act together in regard to those areas.
I hope the Government, following on the publication of the document which dealt with industrial performance by the Government in 1986, will provide a loan guarantee scheme, similar to the scheme in the UK, to give the resources to equity starved and under-capitalised small firms anxious to expand. There is a problem on the export side and large engineering firms cannot get industrial export credit insurance at a reasonable price. There is a lack of bonding facilities here. I hope that through CTT or Fóir Teoranta specific policies are developed. I hope that designation, about which the ESRI and the NESC produced reports, will be brought forward so that counties with the highest rate of unemployment will be earmarked for the highest rate of industrial aid.
With regard to tax reform, it is interesting to note that the PAYE take will rise by 9½ per cent as a result of provisions in the budget. No new initiatives are planned. I would like to see a number of small and inexpensive changes made. Employers who take on new employees should get, as they do in the US, a tax credit against the company's tax liabilities whether it is in the form of a reduction in employers' PRSI, in VAT payments or corporation tax. Companies should be given credit for two years in the region of £1,000 in the first year and £500 in the second year. That would be a clear signal to the business community that the Government want them to employ new workers.
The emphasis on marketing is necessary and lip service from the Minister of State with responsibility for trade and marketing, or having his picture printed in the newspapers is not enough. Special tax facilities should be arranged for marketing personnel who spend more than 60 days abroad. I would like to see a renewal of the PRSI exemption for new employees which proved successful. I hope the Government will ensure that specific measures are taken in the marketing area to help establish trading corporations, private and public sector joint ventures, that will provide a selling presence across Europe which small firms cannot afford. All small firms are finding it hard to survive with very low profit margins. The IDA estimate a 1 per cent gross rate of return on assets and it is hard for firms with that return to be able to afford an export presence. Those firms need a vehicle to be able to sell their wares on the export market. There should be an expansion of the personnel scheme. We should have trading corporations that will sell wholesale the goods of firms abroad on a commission basis and utilise the diplomatic resources available to the State through the Department of Foreign Affairs to the maximum advantage.
In my constituency problems have arisen since the Government took office. In the past four years a most expansive house construction programme was embarked on by local authorities. In my home town 163 houses were built but it is not envisaged that any houses will be built by the local authorities in Wexford this year other than those already committed. Similarly, there seems to be a goslow on main drainage projects in Enniscorthy and Wexford town. When I was a Government backbencher. I was harangued after every budget in regard to money for coastal protection and harbour development at Rosslare but there is not the same appetite for lobbying now. I should like to warn my Wexford colleagues — I am disappointed they have no ministerial responsibility — that I will be pressing them to ensure the necessary resources are allocated. I specifically asked that the IDA be allowed to acquire the Edermine site in Enniscorthy and that the necessary finance be made available. I hope the proceeds from the national lottery will be used to finance outdoor pursuit centres. There is one in Shielbeggan and New Ross. The meeting between the Minister of State for sport and the recent deputation was inconclusive in this respect. As regards Wexford hospital, on which the Government have a dubious record. I hope the necessary finances will be made available to ensure that there is early progress with the planned construction there.
We must create jobs and economic growth. These jobs must pay for themselves and not be phoney State jobs which will prove a burden on the wealth-creating sector of the economy and will be paid for through high taxation. We are a small economy. We have a population of 3 million people. Ireland accounts for a half per cent of world trade. We must set an ambitious target of 1 per cent of world trade by 1990. We must have a strategic plan to do that. In the short term that involves improving public finances and our competitive position. More than that it requires pressing the accelerator of the engine of development in the economy. We must single out the sectors of the economy which can grow and develop and those which have suffered deep depression such as the construction industry. We must see how standards can be raised in order to improve our exports.
Interest rates are only one component of an overall economic strategy. Ireland should be run like a limited company. We should be a Mecca for investment. We must increase our exports. For example, if we were to sell as much to the West Germans as we do to the Dutch we would create £1 billion of extra trade. There is no reason why we cannot sell more Waterford Glass, Irish liqueur drinks, Guinness or any of our front runner products. However, it will not happen by itself. It requires skill and investment. There is 50 per cent less mobile investment coming into this country for many reasons. As a result of the international recession many multinationals are restricting themselves to their core business in the US and Japan. We are on the periphery of Europe and other countries are giving the same rates of grants as we were. We are not as attractive now given that there is an additional 10 per cent transport cost to export out of Ireland. With labour costs and so on it is now better to invest in Korea, the Far East and Latin American countries. We must fight harder in an increasingly competitive environment. We must have a cohesive strategy and ensure that entrepreneurs who take risks and mortgage their homes are rewarded. There is nothing in this budget in relation to taxation which would give an incentive to such people. We must realise there is only one way forward. We must ensure that those who have the capacity to bring about growth are brought back to Ireland and given an opportunity to expand and develop.
For too long we have paid lip service to the black economy. It is my information that on a number of public sector construction projects, in some cases a majority of employees are working and signing on. We all know about the lump system and different abuses. We must realise that if we are to reduce taxation and maintain essential services everyone must pay their fair share. The resolution of this problem lies in the public attitude. There is a very thin line in our history between civic spirit and being an informer. We must change attitudes to ensure that abuses are brought to the attention of the State. This would reduce the level of resentment felt by those who feel they are penally treated.
I hope my comments have been constructive. I have tried to show through my observation of the last Government that there is more to running a country than improving the public finances. I welcome the change of heart by Fianna Fáil. In 1980 and 1981 the public sector borrowing requirement jumped to 20.3 per cent of GNP. It is a pity that happened because we would not have our current pain if such a mistake had not been made.
There was an element of electoral dishonesty which will result in the people being cynical as far as politicians are concerned. The Taoiseach would not talk about cuts during the election. As a result the people believed there was an easier and better way. This budget has proved that the policy of the previous Government in terms of improving the public finances, having a sustained programme for growth and getting better value for money, is the only way forward, and provided the Government stick to that strategy they will continue to have the goodwill of my party.
