Deputy Dukes is in possession.
Financial Resolutions 1988. - Financial Resolution No. 4: 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.)
I am tempted to observe to the Taoiseach that, while it may be true that so far no Minister of this Government has closed the Celtic Sea, the way they are going now it would not be surprising if they got there in the not too distant future.
The budget statement that we heard yesterday represents, without any doubt, a very substantial missed opportunity. The Government have failed to capitalise on a very substantial consensus that exists in this House in relation to fiscal, budgetary and economic policy. The fact is, as the Government should know, that, in my party, as well as among Members of the Progressive Democrats and indeed among some Members of the Labour Party, there is a very strong belief in the kinds of measures required to be taken to get our debt problem under control.
The Government missed an opportunity last year but it is more worthy of criticism that that should have been the case again this year. Last year I suppose the Government could have been forgiven for not availing of that opportunity. After all, they were only a very short time in office last year when they produced a budget. The Fine Gael position had been made very clear and the position of the Progressive Democrats seemed to have been very clear at that time. Those were the days before some Members of that party had had time to be seduced by the charms of opportunism.
I suppose last year, in the particular circumstances of that time, it was understandable that the Government might not fully realise the extent of the consensus that had emerged, particularly since, on the whole, they themselves were very recent converts to that line of thinking. But there is no excuse for that timidity this year. There is no excuse for having missed the opportunity this year because it has been clear throughout the year that, on the issue of mastering our debt problem, there is a very clear majority in this House and among the political parties in favour of the kind of action required.
Instead of having a budget that started off from the base of that consensus we have had a budget this year which almost claims to have built that consensus. It is almost exclusively concerned with dealing with the debt problem; it is almost exclusively concerned with financial problems. It is quite rightly concerned with all of those but it is not right that it should be concerned with those issues to the exclusion of almost everything else.
There is no denying that it is important to bring the Exchequer borrowing requirement for this year to 8.2 per cent of GNP down from 10.3 per cent of GNP in 1987; it is important to bring the current budget deficit to 6.3 per cent of GNP this year down from 8.6 per cent in 1987. But it is going too far to say that those developments, important as they are, are the measure of success, as the Minister for Finance claimed yesterday. They are no such thing. In view of the consensus they are no more and they should be no more than the normal backdrop against which the really fundamental decisions have to be made.
Those fundamental decisions concern, in the main, issues which are not addressed by the budget or issues which are only very lightly touched on by the measures the Minister for Finance brought before us yesterday. The real issues have to do with growth, growth in employment, growth in economic activity, growth in the ability of our economic and social system to serve the needs of our people. So in looking at this year's budget our main concern must be to identify what, if anything, it does for growth, and the only conclusion I can draw is that it does not do much for growth.
The Taoiseach, in a radio interview not so long ago, majored on the fact that, being an optimistic person, he expected growth of around 1 per cent during the course of this year. The budget figures, however, are built on zero growth and the Minister for Finance indicated this yesterday. While it may be welcome that the Taoiseach appears to have lost his propensity for rash optimism which we saw in October 1982, for example, when he assumed growth, it is discouraging nevertheless to find that not only do the Government expect there to be no growth in 1988 but it seems that they spent none of their time in designing budget measures in a way that would make a difference to that situation, because there is nothing in the measures set out in this budget to encourage growth.
Now, it may be that the financial targets in the budget would prevent domestic interest rates from rising. It may even be that the fiscal stance taken by the Government, the targets in relation to borrowing and the current deficit, will actually bring domestic interest rates down. If they do so we will all be very happy to see that; it is a development we all want to encourage. That in itself is not a stimulus to growth. But if domestic interest rates are stabilised or brought down what will be happening in fact will be that we will be moving on a path that brings our real interest rates a little closer into line with real interest rates elsewhere. We will not be achieving a positive advantage for production in this country. We will be reducing a disadvantage under which production and economic activity labour at the moment. Even there the effect which the Government expect to see from that is not great and, in the words of the Minister for Finance himself, it will take time to have effect.
There is nothing in the budget measures here to reduce costs, to reduce costs of production, to improve the competitiveness of our economy apart, perhaps, from one aspect of the measure that imposes VAT on electricity. That measure in itself would be neutral for VAT registered industrial users of electricity because of course they can claim back any VAT that is charged. There will be some advantage if there is a guarantee that the ESB will actually reduce the pre-VAT price of electricity and the Minister for Finance partly justified the measure yesterday by saying he expected that there was a reduction in ESB prices in the pipeline. Of course we must all hope that that will come about.
I would like to hear what measures, if any, the Government are taking to make sure that the pre-VAT price of electricity from 1 March is reduced by 5 per cent, or whatever the margin is so that we actually get a net benefit from that development. Otherwise the domestic consumer will bear the net cost of the application of VAT to electricity. There will be a number of people in the commercial field whose businesses are too small to be registered who fall below the VAT registration limit who equally would have to bear any extra burden that VAT on electricity would cause. As I have said, without a clear measure, without a guarantee that the pre-VAT price of electricity is going to be reduced, there is no benefit whatever to be got from the measure proposed by the Government.
I must say that the rest of what the Government are proposing in relation to the ESB seems extraordinary. If I read the Minister for Finance correctly yesterday, what he was saying was that, instead of getting £2.3 million from the ESB this year in terms of the repayment of advances made by the Exchequer over the years, the Government are going to take £31.3 million this year. In other words the Government are going to take from the ESB this year the payment of advances that would seem to be due over a period of up to 15 years, whatever that period is. The Government are certainly raking into 1988 revenue that should normally accrue over a substantial period of years into the future.
Capital.
It does not matter.
The Deputy said revenue.
The Government are getting income of one kind or another that should normally be coming in over a substantial period of years. There is bound to be a cost to the ESB in making all of those repayments in 1988 rather than making them over a period of years and, of course, that immediately prompts the question: if the ESB are in a position to hand over to the Government this year £29 million more than they otherwise would have, what could they have done if the Government were not grabbing that £29 million? What cost reducing action could the ESB take if they now have the leeway to produce £29 million for the Government?
My colleague, the real Michael Noonan, last night raised a few questions in this connection. I can only re-echo his surprise that a semi-State company who, at the beginning of last year, appeared to have the gravest difficulty in meeting a commitment to make a contribution in lieu of rates of around half of the amount we are talking about here, now find they can hand over £31 million to the Government this year in repayment of advances made to them previously. But the question still stands. If the Government were not raking in this extra £29 million this year what other measures would have been open to the ESB, what other benefit might consumers of electricity not have had if the ESB had been allowed to use funds in their own way? Would it not have been a vital option for the ESB to decide to use whatever leeway they have to reduce the cost of electricity to industrial consumers thereby increasing competiveness, ensuring the continuation of production in a number of units that might otherwise have some difficulty, and increasing employment or underwriting existing employment? That issue has not been addressed in the budget statement but it is one of the areas which has to do with competitiveness of our economy on which we need more details from the Government.
Of course, with the application of value-added tax electricity, the domestic consumer must absorb this extra charge. It is particularly with the domestic consumer in mind that I must again ask that we be given a guarantee that the pre-VAT price of electricity will be reduced so that this particular budgetary measure does not result in a net extra cost to the domestic consumer.
The Government have made some very timid moves on corporation profits tax. We need a good deal more than this. As the Minister himself indicated yesterday, perhaps the measures will not even have the effect they might appear to have on the surface because it will take time for the full effects of the application of advance corporation tax to work their way through the system. The move being made in relation to corporation profits tax takes the form of a phased reduction in accelerated capital allowances accompanied by a phased reduction in the rates of corporation profits tax. That is obviously a sensible way to go, but I think we are entitled to ask if that kind of gradual approach to this type of reform will actually bring about any results in the short term.
It seems that the Government have failed to add to the measures taken what should be logically the next step. What the Government should be thinking of doing is reducing the capital allowances in the profits tax system and using a part of the revenue derived from that to reduce the rates of tax but also using a part of the revenue to act on those cost factors which are most in the way of employment and output expansion.
When we look at the structure of our system of corporation tax it becomes more and more obvious that we need to direct our attention to the cost factors. A reduction in the rate of corporation profits tax is important to companies that are making profits. A reduction in the rate of capital allowances is of importance to companies that are now using those allowances, and basically that means companies which are either in the process of carrying out new investment or have carried out new investment in the fairly recent past. A reduction in the capital allowances has no ill effects on a company which has not recently carried out capital investment, and that is the majority of companies in our economy. A reduction in the rate of corporation tax has no effect on companies in the 10 per cent bracket and for the other companies a reduction in the rate of corporation tax will be important only if they have a significant amount of profits on which this tax is being paid. For companies with low profit levels, or companies which are just breaking even, this tax measure gives no benefit. Those same companies would certainly benefit from a move that used the extra revenue that would come from a reduction in capital allowances to act directly on cost factors in business.
The line we should take there is to make the changes that appear to be possible and feasible in capital allowances and use the extra tax revenue that would come from that to reduce cost factors such as the duty on fuel oil used in industry, and in electricity generation so that we will bring down electricity costs to industry and reduce the duty on fuel oil used in road transport so that we can begin to reduce the cost disadvantage to Irish industry that is inherent in our higher transport costs.
That is the kind of objective we should have in mind when we go about reforming our company tax system because that is the only way we will get manufacturing production and service activity onto anything like an equal footing with our competitors in other countries. That is the kind of orientation that tax reform measures should take in a budget.
There is nothing in this budget to assist growth in agriculture. The Government have again this year taken this very easy way out of a short term revenue problem by reducing the flat rate VAT refund for farmers. The effect of that will be negative as far as any growth in agricultural output is concerned. Again we have seen what I believe to be a very unwise and shortsighted move here. I think this is dangerous.
Are the Government indicating that if they found, for example, in any other sector of activity that there were arrears of tax or that there were difficulties in collecting tax, they would change the VAT system for industrial producers? Are the Government saying that if, in the service sector, they found there were problems collecting tax from some people they would change the basis on which they are entitled to offset the VAT they pay against the VAT they collect and remit to the Revenue Commissioners? I hope they are not, but if they are not saying that, they should not be doing this in the agricultural sector either.
I do not think there is any justice in pleading, as the Government do, that because there are difficulties in collecting health contributions we should interfere with the VAT mechanism in this way because interference in the VAT mechanism affects everybody. It affects those who pay their health contributions as well as those who do not; it affects those who are in the income tax net as well as those who are not; and it affects those who are in the income tax net and pay their bills as much as it does those who are not. This is not the kind of instrument that should be used to make up for deficiencies in the system for collecting income tax or levies of any kind.
The young farmer installation grant is a measure which can be pointed to with some justice as being a development measure in this budget. I am glad to see it there. It should never have been taken away in 1987. What, after all, has been achieved? All that was achieved was that a good number of young people who had farms transferred to them and who wanted to modernise their farms were made to wait. Substantial numbers of applicants had been approved shortly before the decision was made in last year's budget to abolish this scheme. They complied with all the criteria, had all the necessary qualifications and had made arrangements for all the necessary transfer papers to be put together. They were suddenly told that the scheme had ended, that they had not been approved, stamped, signed, sealed and delivered in time to get the installation aid.
Now the scheme is once more in operation. I do not know what the effective date is. I do not know whether I can assume that the scheme is effective from midnight last night or at some date in the near future. The Government will have to look at how effect is given to the scheme. For example, will the people whose applications were cut off by the gate shutting on them last year be considered in this scheme? Can we take it that those who had conformed to all the criteria last year, before the scheme was abolished, will come into the scheme this year? That is not clear from what the Minister said yesterday. However, the Minister should be aware that, if he takes the view that those who qualified last year remain in limbo and do not qualify this year, he will be doing himself a great disservice and, even more important, he will be doing a very serious disservice to those who had geared themselves last year to participate in this scheme.
There is nothing in the budget that shows any concern with expansion or growth in the food sector. God knows, over the past 15 months, we have heard more than enough from the Government about their attachment to the food sector, programmes for its development, initiatives and new research. Granted, we have a Minister of State for the food sector — God bless him — institutes, research programmes and strategies, but there is no growth in the food sector. No opportunity has been taken in the budget to alter the cost environment in any way that would help the food sector — or any other sector — to develop further.
Fishing and aquaculture were mentioned in the Minister's budget speech and this is another sector where we were to expect measures which would lead to a large number of extra jobs. In this area we have another strategy, another institute but no growth. I can see no pearl in this oyster and we will wait a long time for one to appear. Indeed, it is even worse than that in that sector of activity because, in the last few days, my colleague, Deputy Avril Doyle, found that there does not seem to be any pressure from the Government on the European Commission to ensure that we get the kind of assistance from FEOGA that we should get. It appears now that a smaller proportion of our applications for assistance from FEOGA succeeded than was the case in any other country.
I am not sure if we have fully explored the reasons for that. Is part of the reason the fact that the Government are not prepared to show that they will put in the funds required from national sources in order to get these projects going? If that is the case, is it because the Government do not believe that these projects are worth supporting, or have they taken the view that some other forms of activity are more worthy of support in the context of the FEOGA schemes? A great many people around the country would like to know the answers because they have projects — not just on the drawing boards but even further advanced — for the development of aquaculture activities. Indeed, many people are in a position to supply all the equipment requirements of that industry and who now find themselves in difficulty because there has been almost a complete moratorium on any real development in that sector. There is nothing in the budget which will alter the cost environment in any way to promote the development of that area of activity.
Looking at the measures in relation to personal taxation, the only conclusion we can draw is that there is no stimulus to growth. The Minister for Finance was very optimistic when he said yesterday that consumer spending in 1988 could show a small increase. Mind you, he was very circumspect in putting it that way, that it could show a small increase. However, the Taoiseach, ten days earlier, was confident that we would see an increase. I doubt it because pre-tax incomes will show little change in 1988 compared to 1987. If we examine the budget table at the back of the Minister's speech, we see that most of the £91 million in personal tax relief to which the Minister referred yesterday is financed by tax increases which will fall mainly on personal expenditure. The £91 million tax relief will be financed by a series of other taxation measures. The withholding tax on medical fees — £6 million if memory serves me well — will come out of personal consumption expenditure because that is a straight amputation off the top of income of the people concerned.
Excise duties will produce £26 million in tax relief but those duties, for the most part, will come directly off ordinary consumer expenditure. Some parts will fall on industrial costs but by far the greater part of the £26 million extra revenue from excise duty is an extra charge on consumer expenditure.
There is a reduction in the flat rate addition to farm prices under the VAT scheme which is to bring in £7 million. Anybody here who represents a rural constituency knows that sum will come straight off the ordinary day to day consumer expenditure on farms. The £10 million extra excise VAT revenue from electricity will all come from the domestic consumer. That all comes off ordinary consumer expenditure. Domestic consumers all over the country will now have to pay that £10 million to the ESB which means they will not have that money to spend on clothes, food or on any other items that go to make up the volume of personal consumption expenditure.
The stamp duty on bank cards is not like most other duties. It is a charge levied on everyone who has a pass card. If you have to pay £10 per annum for your pass card it is money that you will not have to spend on shoe polish, shoe laces, toys or tinned salmon. It comes straight off your ability to finance personal consumption expenditure.
The taxation of pension funds will raise £15 million this year. That money comes out of people's pensions and if they do not receive it, it will not turn up as consumer expenditure. We were also told that £24 million will be collected in tax arrears. I do not know how much of that the Minister expects to collect from corporate taxpayers or from partnerships but inevitably, some part of it will come off personal incomes. When we look at all of that we can find little reason to believe that there is any prospect for an increase in consumer spending this year. We see something else also which is that the £90 million in tax relief for the hard pressed taxpayer is nothing more than a snare and a delusion because the same taxpayer is providing the revenue that makes that possible from another pocket. We do not have a net relief in taxation in this budget. All of the areas I have mentioned as being the source of revenue from which this tax relief would be provided will have, directly or indirectly, effects on the people who are paraded before us as being the beneficiaries of these tax reductions.
There is precious little indication of any scope for growth in this connection. The real way to go for growth — which is what we need to do — is to look at the kinds of reforms in the tax system that will give us the means of changing the cost environment in the economy. That has not been addressed. Before I leave the subject of consumption expenditure I have to acknowledge that the social welfare increases are useful. They will help to maintain the volume of consumer spending but there is little real addition to the overall volume of consumer demand on foot of those increases.
We now turn to what needs to be done in order to promote growth. As I said earlier what we need to do in the corporate sector is to change the burden of taxation, to use the effect of some of the reliefs — or even a large part of the reliefs which are now in place — to alter the cost environment and use the extra revenue to drive down the costs that are making it difficult for firms to operate, expand and change the balance because it would have the effect of changing the balance between the incentive to new investment and the continuation and the working of existing investment. That is something to which we should pay particular attention.
If we look at personal taxation we need to have the same kind of thing in mind. I am sure, a Leas-Cheann Comhairle, that Members on the other side of the House do not need any guidance from me on what the disincentive effects of high levels of personal taxation are. They were eloquent about it in 1983, 1984, 1985 and 1986. They went on and on about it, hour after hour, in the House in budget debates and in Finance Bills. I will do them the honour of assuming that their memories are good enough to remember what they said. I will also do them the honour of assuming that they actually believed some of what they said on those occasions.
(Interruptions.)
I do not need to spend a lot of time convincing them that there are these disincentive effects but what we need to look at is how do we take them away. How do we remove these disincentive effects? I want to put a suggestion to the Government and to the House. The real problem that most of us perceive — the real problem that most people perceive — is the amount that is taken out of our pay packet before we get it. They are not all that worried about the things that go out of their income that are matters under their own control. Of course, nobody likes to pay out more than they have to on a mortgage, a term loan or whatever else it is. They are essentially things that people undertake for themselves. They are not expenditures that are forced on them or levies that are extracted from them without a decision on their part. If we want to reduce the disincentive effects of taxation we need to spend more of our time looking at the direct effect of taxation on their incomes rather than at the role that tax plays in determining how they spend their incomes. Let the Government consider this point.
Would we be far better off, would people be happier, would they have more control over their incomes and would they feel a greater sense of incentive if all the reliefs that apply to taxation were at the point directly between the employer and the employee — the difference between gross pay and net pay — and let people worry about how they use the income that remains to fund a mortgage, a pension scheme, a term loan or whatever else it may be. That is the kind of thinking which needs to be brought in here. My colleague, Deputy Noonan, quite rightly pointed out yesterday that there are two ways of going about tax reform: one is to do it gradually and the other is to do it as part of a package. There is always a question as to how quickly a package can be brought in. As my colleague, Deputy Noonan, said, the record of recent years is that successful tax reforms were carried out in a package. Those that did not succeed were those which were done in little bits and piece by piece. That is something we should look at in this House. It is something which we have time to look at before we come to this year's Finance Bill.
On the subject of taxation the Government produced last evening, by way of explanation of items contained in the budget speech, two documents, one called Incentive To Bring Tax Affairs Up to Date and the other New Arrangements for Tax Returns and Assessment. I think that the Minister for Finance should not content himself with providing these documents just to Members of this House. He would be doing his policy, such as it is, a favour if he were to send bundles of these documents to every accountancy practice in the country. I find that there is already a very brisk demand for them but there is also a demand for an interpretation of these documents. Listening to the Minister yesterday one got a very general impression of the kind of thing he has in mind. Looking through these two documents last night the impression became a bit more specific but they still do not explain everything. I think it would be worth while spending some time examining in detail the scope of these measures and what their effect will be. I know that in many cases it would come down to the conclusion that for a specific case you cannot say what the result will be until the people in question have had the interviews with the Revenue Commissioners which are provided for here. We all know that there are people, who for one reason or another, feel a certain reluctance about having interviews with the Revenue Commissioners. If these measures are to have any effect in speeding up the collection of taxes they need to be explained with more clarity and in more detail than has been the case up to now.
I would like to turn to some of these specific measures that are dealt with in the budget some of which are not mentioned in the budget speech but which come out on a reading of the Principal Features, always a document worth mining in. One of the most interesting things included in the Principal Features, which was not mentioned in the Minister's speech, was a provision of an extra £3.8 million for school transport compared to the Estimates as published last October. I do not know why the Minister for Finance felt that he should not say anything about this in his budget speech because he talked about some other things that are a good deal less important than school transport. Is it perhaps because even the Minister for Education with her well known determination of character and hardness of neck could not bring herself to say what this saving would have meant and that she is so relieved to get the money back that in the words of the old song "she just took the money and ran". This is another case, because there are several of them, where the Government last October and since have caused a lot of worry and a lot of concern to parents and, I know, a lot of worry and concern to members of the Government and members of the Fianna Fáil backbenchers some of whom have been treated with less than proper dignity in parts of Clare, if I hear correctly. They have caused unnecessary chaos, unnecessary suffering, unnecessary aggravation and now they come back and say: "We really did not need to do it after all because we have found out that the money is really there".
Another U-turn.
I must say, a Leas-Cheann Comhairle, if they are doing U-turns on school buses that is one thing, but when they do not have the buses and try to do the U-turns it becomes a difficulty.
We have in education another instance, this one specifically mentioned in the budget speech, which is the restoration of £6.5 million capital provision for building in primary and second level schools. Why in God's name would a sane Government which found that they could make this type of provision in 1988 take it out of the Estimates in the first case and then put it back in? The way it was said yesterday, a Leas-Cheann Comhairle, it was not even that the Government were trying to pull a fast one and do the old Aunt Sally trick, take the money out of the Estimates, let everybody get calmed down over Christmas and then claim credit for putting it back in. It was not even that, and we could understand that. In fact, I could imagine that there are one, or two practitioners of that art on the benches opposite——
Do it yourself.
——one sitting almost in front of me. The Government were not even doing that. This was just sheer ineptitude. They did not know what they were at when they put the Estimates together. It was plain bad management and lack of foresight and what they have done along the way is to cause unnecessary worry and unnecessary aggravation to an awful lot of people all around the country.
Masochism.
In doing so this Government are doing a fair bit to bring the whole process of politics and of expenditure management into disrepute.
There are some other points in the Principal Features of 1988 Budget which deserve more than a passing mention. There is, of course, the substantial enterprise, the change in the local loans fund arrangements which have been clearly explained by the Minister for Finance. I have not heard the Minister for the Environment on the issue but I suppose he is probably relieved that the measure is in place, and of course it is something which, I must remind the Government, must be borne in mind this year and in all future years when making comparisons with the past. I hope it will be the standard footnote in all budget and expenditure tables.
We find under the heading of post primary education a reduction, compared to the Estimates, in the secondary teachers' incremental salary grants, subhead A 1 in the Vote for Post Primary Education which is being reduced by £3.5 million and subhead A.2, Annual Grants to VECs, again teachers pay, is being reduced by £1.5 million. Those all come under the heading: "Estimating adjustments to the provisions contained in the Abridged Estimates Volume for Votes 29 and 31 (not involving any policy change) following a re-estimation of 1988 requirements in the light of the 1987 provisional outturn." This means that the Government think they got it wrong when they put the Estimates together and now they are mending their hand. It also means that in the allocations they made in publishing the Estimates last October, the Government actually had the resources to do more in relation to secondary education than they thought. Now they are taking that back out. I think we deserve an explanation in the House as to why that is actually being done. Is this being done in order to provide the funds for some of the £91 million in tax reliefs? If that is the case, let us know about it. It deserves more explanation than a simple entry in this table on page 4 of the Principal Features of 1988 Budget.
We have on the same page a new subhead for tourism and transport. When are we going to have an explanation of this tourism package and what kind of measures are involved? What is the £4 million going to do and how is it going to be used to promote tourism here? On page 5 of the principal features we have a very mysterious item in Vote 44, Social Welfare. On page 6 we find various subheads — adjustments in the light of the 1987 provisional outturn, minus £15,400,000. There is an awful lot of "various" in £15,400,000 and again I think we are entitled to ask the Government to explain exactly what is involved here. Why are the Government taking £15,400,000 out of the Social Welfare Vote for 1988 and what are these various sub-heads?
In the Health Vote we have a provision of £2.8 million for a scheme of mobility assistance for the physically disabled. The original suggestion for 1988 was that the cost of the scheme as it is now would be £3.3 million. It appears from remarks made yesterday that £2.8 million is the provision that would be appropriate for the remainder of the year. In other words, it seems that already in the first four weeks of January, £0.5 million has been spent on that scheme. That may very well be the case because the scheme as it operates at present is composed on the expenditure side, to a fairly substantial extent, of the excise and VAT rebate on new cars bought by persons who have various physical handicaps and, of course, people tend to change their cars at the beginning of the year.
I would like to know, a Leas-Cheann Comhairle, and this has not been explained at all, why the Government believe there is need for a change in this scheme? Because, certain other things have been happening it is not enough for the Minister for Finance or the Minister for Health to come along and blandly announce to us that the scheme needs changing and that they will discuss it with the organisations affected. We need to know why it needs changing. Up to now a handicapped person buying a car especially adapted for use got a refund of the excise duty and the VAT on the car. Indeed, if you were specially adapting a vehicle for handicapped persons you would get a refund of the VAT on the conversion work. In addition, handicapped persons who qualify in that way get a rebate of excise duty on the first 600 gallons of petrol they use in a year.
We have all heard over the past few weeks of people who bought cars under that scheme on three or four occasions who now find that it is much more difficult to get an application form, to get the application form accepted and in many cases now they are being told that they must fill in a much longer and more detailed application form. Why? We have not been told why. I would like to know how the Minister for Health thinks the health boards are going to operate this scheme more effectively and efficiently than the Revenue Commissioners. It will take a lot of persuasion to get me to believe that eight separate health boards are going to operate this scheme in an even handed way in the eight different health board areas and in any way better than the Revenue Commissioners. I would like to see brought into the House very quickly a full explanation as to why it is believed that this scheme should be changed and of the changes that are being proposed. Let us debate it here and see whether we agree with that before the Minister puts all these organisations who have plenty of other work to do to all the trouble of going through this kind of thing.
In the Estimates provision we have the restoration of the drugs refund and long term illness scheme, another example of pure rashness and folly on the part of the Government where the Government are now mending their hand. I congratulate the Government on having the good sense to mend their hand on this issue but we must ask the question again; why in God's name did they have to create all this aggravation and worry in the first place? This needs a bit more planning and attention to management, and with that we could avoid all the worry that has been caused to people over a number of weeks. People who are not particularly well off were wondering if they would be facing drug bills during the course of 1988 which they could not afford with the refund gone from them.
Then we have the provisions in relation to the public service pay agreement and the early retirement and voluntary redundancy schemes. All has been said that needs to be said about that public service pay agreement. Mind you, the equivalence is not quite working out. The logic of the scheme agreed with the social partners was that an extra £70 million would be paid out on the pay side and £70 million would be saved through the operation of the redundancy scheme. Then we had the deus ex machina, the bright idea, the rabbit out of the hat from the Central Bank. The Government this year are spending four years' non-tax revenue from the Central Bank. They are doing it in another area also. As I said, they seem to be taking 15 years' repayments from the ESB altogether in this year. I hope the Government do not become addicted to that way of acting because if they do we will end up in years to come spending future years' tax income and finding when we arrive at those future years that we have no base at all for expenditure. This approach must be adopted very selectively and carefully, if at all.
There are other matters in these various adjustments to the Estimates that need more teasing out, and this budget debate is the place to do that, but I ask that the Government take this debate a little more seriously than they took it last year. In this House we should be able to get answers and explanations, and I hope that we are going to get those in the course of the next few weeks.
To conclude, I repeat what I said at the beginning. This year this Government have missed an opportunity to build on a consensus that exists in this House on fiscal policy and to move forward from a proper concern with the debt into a more creative policy development phase. They must go hand in hand. It has taken us far too long to bring about that consensus on the essential need to deal with the debt problem. It has taken the Government party far too long to realise that that is an essential component of any sane economic strategy, but now it is there I urge the Government not to be mesmerised by it. In looking at the kind of reform and approaches to reform that I have set out, we in this House can add on something valuable to that consensus that we have built, and that something valuable will be our own contribution to removing the obstacles to growth that plague our economy.
Since the Minister presented his budget yesterday facts are beginning to emerge to show the thinking behind the proposals in relation to PRSI. It is timely at this stage to set a few markers in relation to that debate, ask a few questions and draw a few tentative conclusions about what is intended here.
First, it is as well to recall that the impetus for extending social insurance to the self employed is not of recent origin. In 1977 the work was done in a Green Paper on extending social insurance to the self employed. The Green Paper was first published in 1978 and remained effectively on the shelf in the intervening period. Active consideration of extension of social insurance to the self employed once again re-emerged on the agenda in the context of the negotiations between the social partners, leading to the public sector wage deal which has been referred to as the Programme for National Recovery. In that context there was added interest and renewed enthusiasm for the concept of extending social insurance to the self employed. The avowed justification for such an extension was stated to be that the PAYE sector, subject as they are to the PRSI burden, were shouldering an unfairly heavy proportion of the total welfare bill, and it was suggested that correspondingly the self employed and farmers were getting away with shouldering an unduly light section of the tax burden in so far as they pay for social insurance.
We must take a few points into account in relation to this proposal. First, on 10 June 1987 the Minister for Social Welfare approached the National Pensions Board as a matter of urgency to examine the issue of extending social insurance to the self employed. The National Pensions Board had been established, it is fair to say, with an entirely different mandate. They were to deal with the question of transferability of pensions and the general question of the pensions industry with particular reference to corporate and private pension funds. Certainly the terms of reference of the National Pensions Board as framed did not encompass a role as adviser to the Government in relation to the social insurance system, but for whatever reason the Minister for Social Welfare decided that the NPB would be the appropriate forum in which to tease out the implications of extending social insurance to the self employed.
On 29 July 1987, six weeks after he had asked the NPB to examine the issue, the Minister for Social Welfare announced a decision that in principle the Government had decided to extend social insurance cover to self employed people, including farmers, to come into effect in 1988. He indicated then that all self employed persons were to be brought into social insurance from 1988; they were to be insured for retirement, invalidity and widow's and orphan's pensions and contributions would be income related and collected via the tax system. He stated at the time that the Government's proposal would reduce the cost of paying social assistance to the self employed significantly over a number of years and at the same time provide contributory pensions to the self employed as a group.
It is notable that by mid-January 1988 the NPB said they were obliged, in view of the Minister's request and subsequent announcement by the Government, to submit an interim report on the matter. It is fair to say, and as a courtesy I should say, to the people involved in the NPB that the gun was put to their head. They were not asked to comment on the merits of the proposal but merely on its mechanics, in circumstances which effectively pre-empted some of the outcomes of their considerations. In any event, the NPB brought in a report of the issue, and it is of some significance that already there seems to be a flight from the terms and implications of the NPB's thinking on the matter.
The interim proposals of the NPB were, first, to defer a decision on retirement pensions for the self employed on the basis that many self employed people can continue to be economically active after 65. The NPB costed the scheme on the basis of contributory old age pension, in other words that there was no retirement prerequisite. Secondly, they proposed that the whole question of invalidity pensions would be dealt with later, so it is now taken off the agenda. Thirdly, they proposed that the widow's and orphan's pensions in addition to the old age contributory pension should be extended to the self employed. Fourthly, they proposed that that was to be done on a contribution rate recommended by the board of 6.6 per cent on reckonable income. It is important to stress that the NPB specifically recommended that if the costs of the recommended level of coverage were not acceptable it might be necessary to reduce the benefits provided either in amount or extent of coverage. That is at paragraph 2.4 of page 6 of their report.
It was suggested yesterday in some of the comments which accompanied the budget proposals, and it has been repeated this morning on the radio, that in some sense the scheme which is being brought into effect will be self financing on the basis of a 4½ per cent contribution by the self employed. That simply is not true and it is a myth which must be nipped in the bud before it gains currency. What the National Pensions Board said was that the difference between social assistance and contributory pensions would be financed by a 4½ per cent levy on the self employed and farmers if that was fully paid and if their estimate of the income base from which it was to be derived was correct. In other words, there had to be full compliance and a reasonably generous view of the income base on which this 4½ per cent levy would be charged.
This scheme is a very different proposition from that which was advanced yesterday because it does not become self-financing on the basis of a 4½ per cent contribution: it is the difference between social insurance rates of pension and social assistance rates of pension which would be financed by that amount. Therefore, if the moneys collected by the levy on the self-employed in the form of PRSI only amount to 4½ per cent there will be no redistributive element at all. The entire cost of providing social assistance to the self-employed, which is the subject matter of some controversy now, will not in any sense be subsidised out of payments made by the self-employed and farmers. If the 4½ per cent levy pays for the additional costs only, then all the rhetoric and the justification based on defraying the cost of the present outlay for the self-employed and farmers is hot air. Inevitably it means that the same costs which now exist will continue to be borne out of the taxpayers' pockets and in general terms that means — because of the structure of our taxation system — that the majority of the cost will be borne by the PAYE sector.
It is important to go back to the justification for extending PRSI to the self-employed and farmers as a group — that it was unwarranted for them as a group to enjoy social assistance as of right without making any contribution towards it— and to compare that with the mathematical justification now being advanced on this issue. If the only effect of extending PRSI to the self-employed at the rate of 3 per cent, 4 per cent or 5 per cent is to pay the costs involved, then there is no interest in the issue so far as the trade unions are concerned because they have gained nothing. There is no interest in the matter so far as the PAYE sector of the economy are concerned because they have gained nothing either. They continue to have to shoulder the vast majority of the outlay on these social insurance pensions which will become payable in the fullness of time.
It is wrong for this House to proceed on the basis of misinformation. This proposal is not self-financing at the rate of 4½ per cent in the sense that it is not the case that the self-employed and farmers will pay for their pensions fully on the basis of a 4½ per cent outlay. The figures are very dramatically different. It would cost 16 per cent by way of PRSI on the self-employed and farmers to actually pay the full costs of their insured pensions and widows and orphans entitlements as proposed under the scheme. It would cost 16 per cent, and not 6 per cent, 4 per cent or anything like it.
It has been pointed out by commentators who are not biased in the interests of the self-employed or the farmers as a group — such as the article by Mr. O Moráin which was published in The Irish Times a few days ago — that no matter what happens, the Exchequer is going to take up most of the tab for these additional expenditures. The estimates of what it will cost the Exchequer in the fullness of time vary between 60 per cent and 80 per cent of the total outlay. In those circumstances, I suggest that a fundamental rethink on this issue is needed. The justification, based on tax equity and getting the self-employed and the farmers to pay their fair share and to pay their way in society, is completely set at nought if, in effect, what the Government are proposing to do is offer social insurance levels of pensions to those groups for a 4½ per cent PRSI contribution.
The figures of this proposal do not add up. The trade unions feel — and I presume they were the social partners with the greatest interest in extending the PRSI net — that in some sense the PAYE and farming sectors are contributing to the general level of taxation and shouldering the general burden in a manner which is more fair than that which obtained heretofore. But, in fact, all we are now seeing is that an extra layer of social insurance benefits is being made available to these groups and will be only partly financed by the contribution which they will make. It is also of some significance that the mathematics of the 4½ per cent contribution are based on a full compliance assumption. If one looks at the figures, in relation to compliance they show that it is illusory to hope that there will be full compliance in paying the levies which are imposed on the self-employed and farmers.
I want to remind the House of what we were told on 20 October 1987 by the Minister for Finance, Deputy Mac-Sharry. We were told that the Revenue Commissioners had been informed that on 31 May 1987 farmers owed £27 million in health contributions, youth employment levy and income levies and other self-employed people owed £97 million. We were told that, on the basis of previous experience, these amounts would be subject to downward revision on closer examination on appeal and for other reasons would change accordingly. The Revenue Commissioners estimated that as a result of these factors it would be likely that the amounts finally to be collected would be £3 million from farmers and £12 million from the self-employed; in other words, one-sixth and one-ninth respectively of the estimated sums.
Even today it is quite clear that a 3 per cent levy on the self-employed and farmers on the basis of full compliance would yield a figure in the region of £36 million. We are now faced on this occasion with the situation that the estimated yield from the 3 per cent levy is already discounted to a level of £12 million. That shows that there is no faith in the capacity of the system to collect these sums from the self-employed and the farmers and that any assumptions on funding the final payments of social insurance benefits to these groups, which are based either wholly or in part on the idea that there will be full compliance, are misguided and naive to an extraordinary extent and, in consequence, the mathematics concerned and the justification for this measure must be taken subject to a grave degree of scientific scepticism.
It is also worthwhile to look to a number of other features which should sound a warning in this Chamber. The age profile of our population is changing and the recently published Davy Kelleher McCarthy report on Irish demographics suggests that due to various economic and social factors and emigration, we will have an increasingly old population over the next ten to 40 years. That means that to extrapolate from present figures and proportions of the population and to make assumptions on the costings of these schemes is dangerous as a political and economic calculation.
It is suggested that 15,500 farmers who at the moment get smallholders unemployment assistance will receive social insurance without making any contribution at all. If we select a group in society who are at the moment receiving what is colloquially referred to as farmers dole and tell them that when they reach retirement age they will, in substitution for the dole, get the equivalent of a funded pension, we are selecting on an arbitrary basis a section of society to be treated in a special way. We should remember the urban poor or the poor living in small towns and villages who have spent their whole lives on assistance of one kind or another, because they have been marginalised. They do not qualify for insurance level pensions. What is the justification for this proposal? I query the social justice of giving small farmers a higher level of pension in their later years than urban people or rural people who have spent their whole lives on social welfare assistance. This is wrong in principle and it is indefensible as a matter of social justice. What is the sense of saying to somebody in a tower block in Ballymun who has spent his whole life on assistance that he is to get a non-contributory old age pension at a lesser rate than somebody who has been a smallholder all his life and has received assistance on top of his meagre income from his small holding, and of saying to the smallholder that he will get a contributory pension with no outlay on his part. There is no social justice about that. This is not an urban bias on my part because people living in the towns and villages will also be discriminated against on the basis that they do not have a smallholding. There is no valid basis for distinguishing between these groups and for giving one an unasked for leg-up in terms of social welfare status. There has not been a clamour for this from the smallholders. Naturally they will take it but they have not demanded it as of right. They accepted that between one thing and another, to get assistance while a smallholder and to get a non-contributory pension in their declining years was their lot. To identify them as a special group and give them this preference is unjustified. Some member of the Government should try to show that it is fair to give any extra resources we may have to that group rather than to the urban poor or those living in rural villages. There is no justification for it. As time goes by and this House reflects on the unfairness of that proposition, we will arrive at the view that it should be rejected.
Social insurance, conceptually is where people pay into a group fund and from that fund, against known risks, moneys are paid back out. What we have as a social insurance system is not social insurance because it is not actuarially based and costed. Both Deputy Noonan and Deputy Dukes have been asking for actuarial justification for what is being proposed. Since we organised our social insurance on the basis of, "pay as you go", to start bringing calipers and micrometers and actuaries to bear on this proposal to extend the system has no justification or political reality. It is not really fair to hide behind the absence of actuarial evidence by itself to justify withholding some preliminary judgment on the issue. At the moment in relation to social welfare schemes the Exchequer pays 62 per cent, employers pay 25 per cent and employees pay nearly 12 per cent. The social insurance fund is not even paying for itself because if we take it out of those global figures, employers pay 46 per cent of the social insurance fund, employees pay 22.3 per cent and the Exchequer pays 31.2 per cent. If the contribution rate of 6.6 per cent recommendation by the National Pensions Board had been applied, the long term costs would have roughly broken down as follows: self-employed would pay 40 per cent and the Exchequer would pay 60 per cent. That is accepted by the National Pensions Board at paragraph 5.11 on page 30 of their report. Those are the figures on the basis of full compliance and as I said earlier the indications are that full compliance will be illusory in this case. If the IFA's proposal to pay 2.4 per cent of income as a contribution towards the cost were applied, it would suggest that only 14 per cent of the long term cost of these benefits would be borne by the recipients, leaving the remaining 86 per cent to be borne by the State. If 6.6 per cent had been levied the State would still have been paying 60 per cent of the long term costs of the proposals. It might be suggested that that is better than paying 100 per cent of the cost of social assistance, but there are problems with that. First, the Minister is arguing that the 1988 Estimates provided £330 million to pay for long term social assistance schemes and that £286 million was for old aged pensions, £44 million for widows and orphans or people on social assistance and that no contribution was made towards that. It is important to remember that the new scheme will give benefits as of right and do away with means testing. It is significant that 25 per cent of applicants for assistance, as estimated by the Department of Social Welfare, are refused and another 25 per cent get less than the maximum rate. Those two cohorts of potential recipients will be swept into the new system as of right. That is a very important consideration. We are not dealing simply with the same number of recipients but with a greater number.
It is true that in the short term the Exchequer will gain, because we are told that there is a 10 year lead-in period for recipients of old age pensions before they become entitled to their pensions. In the intervening period it can be argued that the net contributions to that extra expenditure are, in effect, in the black rather than the red. I suggest that that must be examined carefully. Now we hear that it will not be 6.6 per cent over those ten years. The National Pensions Board proposed that the moneys be set aside and invested against the contingency of paying out to all the potential recipients. It is quite clear from the figures in the budgetary system that no separate investment fund will be established and that these moneys will be thrown into the maw, if I may use the expression, of general social insurance moneys used to finance the "pay as you go" measures as things now stand.
The question is, in the long term will the Exchequer gain? That depends on a number of factors. It depends upon how the excess of income under the scheme in the early years has been invested or dealt with. There may clearly be indications now that it will not be invested or accumulated. Secondly, it depends on the excess costs of benefits versus assistance. Thirdly, it depends upon how many more will be entitled to claim in future over those now making claims on the assistance pensions. How much more expensive are benefits over assistance? There have been a number of figures worked out, but it is interesting to note that in 1986 there was 74,000 people with 19,000 dependants receiving £251 million in contributory old age pensions. that, per recipient, averaged at £3,393. Also in 1986 there were 125,000 people with 10,000 dependants, that is a lower rate of dependancy, receiving £284 million in non-contributory old age pensions. They averaged £2,273 per recipient. That means that there is a gap of approximately £1,100 between the average benefit to a social insurance pensioner and a socially assisted pensioner. That is a 49 per cent difference. It is suggested that there is a one-third difference between what is received by somebody claiming assistance and somebody claiming a pension as of right, taking one thing with another. That is a very significant difference.
Much more important perhaps is, how many more people will come into the scheme who are not in it at the moment? There, the figures are again open to huge query. At the moment there are 125,000 people getting non-contributory old age pensions and 17,000 getting non-contributory widows' and orphans' pensions and that costs £330 million. It is that sum of money, that as the Minister said, should be contributed towards by the self-employed and farmers. It is that £330 million that he says is an unwarranted sum of money to be paid for out of the general tax funds since he says that it is being paid for in the main by the PAYE sector and enjoyed by the non-PAYE sector. Let us be clear about one thing. The £330 million in question is not involved in the pensions board's calculation of 4½ per cent self-financing level. It is assumed as an outgoing on top of which the 4½ per cent was to finance the extra entitlement of the self-employed and farmers. There will be no progress made on this proposal towards what was the stated aim of this whole scheme, which is, making those £330 million come to a larger extent than at present from the pockets of the self-employed and farmers.
The standard estimate is that 70 per cent to 75 per cent of the recipients of those assisted pensions are self-employed people. That suggests there are 87,000 to 94,000 non-contributory old age pensioners who were self-employed. It is fair enough to base our arguments and suppositions on 90,000 as an average figure. Nationally, there are 356,000 people in the population who are 66 years of age or older: that is based on the 1986 census. If 90,000 of these are self-employed they account for 25 per cent of the population aged over 66 years, yet the self-employed today account for only 7 per cent of the national population. Ten per cent of the national population are over 66 years of age. The ratio between the self-employed and non-contributory pensioners is 90,000: 250,000, i.e., 36 per cent. The Department of Social Welfare have no record of claimants on social assistance, so that the 70 per cent to 75 per cent figure is only a guesstimate.
Because the present system of assistance is means tested, we do know that 28 per cent of people do not qualify for the maximum rate, that 25 per cent apply and are rejected and that some percentage, obviously, do not apply for any non-contributory pension at all. There are about 200,000 private sector pensioners, some of whom never claim or would wish to claim State pensions. Forty seven per cent of the employed labour force, we are told, are covered by occupational pension schemes and that is about 520,000 people. Given that 310,000 of those are public sector employees, it means that the balance of 210,000 people are composed of private sector people who are privately insured, who are making provision for their pensions through pension schemes. All those figures mean that of the 356,000 people who are aged 66 years and over, 125,000 get non-contributory old age pensions and 74,000 get contributory old age pensions, that is 199,000. One can add 37,000 who are on retirement pensions to that. That leaves a balance of 120,000 people who are unaccounted for. That includes 50,000 people who are receiving State pensions and are not entitled to claim benefit, or assistance, or old age pensions. In the last analysis, at bottom line, will be 70,000 people over the age of 66 years who are either means tested out of the system, or have made private arrangements, or live in destitution or poverty completely known to the authorities.
We are faced with a proposition that was motivated by a desire for social equity but as it is coming out in the wash will, because of our ageing population and because of inadequate funding, involve a liability on the general taxpayers in ten years time. We can never with absolute accuracy estimate the precise extent of that liability. Ten years is not a long time in politics or in the life of the public finances. In ten years time it will be generally felt that the self-employed and farmers have brought a huge extra liability on the State and on the social insurance fund which it will be incapable of meeting.
Sixty per cent of the outgoings from the social insurance fund at the moment is funded from general taxation. There is no reason to suppose that these proposals coming forward will improve the ratio. Indeed, because of the demographic factor to which I referred earlier there is good reason to suspect that the proportion of liability on the State will increase and the social insurance fund will require more and more topping-up in proportionate terms by the general fund of taxation. If that is the case, if the cost of welfare needs to be subsidised to that extent and needs to be subsidised from the tax base, then it will, in effect, in the long term be a transfer from the general taxpayer to the self-employed. To justify paying a series of pensions and making an increased entitlement to pensions ten years hence on the basis of an interim flow of moneys is very similar in concept to borrowing from the self employed. We are now taking moneys from the self employed at 3 per cent, 4 per cent or 5 per cent, strike what rate you may, and in exchange for that we are giving a promise to make extra pension payments in ten years time. If, as appears to be the case, the social insurance fund will not be adequate in ten years time to fund that extra liability, the inexorable conclusion is that it will require more and more of taxpayers' money to keep the social insurance fund afloat.
It will also have a peculiar result and that is that by greatly increasing the number of people in society who will be entitled to contributory old age pensions the cost of any marginal increases, indexation or genuine real increases in the level of that assistance will be increased. It will have the effect of making it extremely unlikely that Governments will be able to use the contributory old age pension as a means of redistributing the wealth of society in favour of those who are in need of support, those who have spent their lives working in society and who are then dependent on a pension. They are a weak group and to greatly increase their numbers does not make them stronger. To greatly increase the number of people entitled to a benefit does not increase the moral force behind that benefit. Children's allowance is a prime example. Very few people stand up in this Chamber and say they want the children's allowance doubled for the reason that a significant number of the recipients are people who do not need the children's allowance and who are not justifiable recipients of it in terms of social justice. It is because it is an unfocused benefit that that is the case. Therefore, the same logic will apply to the contributory old age pension because many people who do not need it and who are demonstrably capable of having their own resources far in excess of their pension income will receive it. There will be a downward pressure on the contributory old age pension. There will be a reason for not increasing it. Therefore, we have this curious paradox that by increasing the numbers entitled to receive the contributory old age pension we will weaken the case for paying it out at all, we will increase the political pressure to minimise any increase in its real value and there will be a vast political deadweight involved in trying to increase the level of social insurance pensions for old age pensioners.
That is a matter we should take on board now because once you give the farmers and the self-employed the "entitlement" to a contributory pension I cannot see the political will ever being built up to take it back from them. I do not believe anybody in this House, no matter how radical, is going to stand up and say that those people's contributions account for nothing and that we have decided, for instance, to reintroduce instead a system of means tested pensions. It should be done and doubtless when the money for the social insurance fund runs out there will be some who will say it ought to be done but there will be a huge constituency of people who claim a moral and legal entitlement to those extra moneys.
The last point I wish to make in relation to extending social insurance to self-employed and farmers is that, no matter what way you look at it, because it is unfunded it involves a redistribution of resources to a group who are not necessarily the have-nots in Irish society. It involves making payments to those who are not being assessed for receipt of those payments on the basis of need. For the Progressive Democrats that represents a fundamental compounding of many errors that have been made in this country. Subsidising the haves can only be done on the basis of very high taxation. This is something which has been the bane of social policy in this country, that the haves in society constantly receive entitlements and benefits when they are capable in many cases of providing the same benefits out of their own resources. This represents one further turn of the screw in unfocused redistribution towards the haves and have-nots equally without regard to need, and we regard it as a step in the wrong direction in terms of social justice.
I cannot see, as a self-employed person — I do not like arguing ad hominem— that asking or requiring me to contribute 6.6 per cent, 5 per cent, 3 per cent or whatever percentage of my income from self-employment to a fund, the benefits from which will be subsidised to the extent of 30 per cent or 40 per cent by the taxpayer, is in the interest of social justice. That 40 per cent subsidy to my pension should be allocated on the basis of need. The extra incurred liabilities which this proposed extension of PRSI will inevitably bring in its stream and that 40 per cent liability would be far better focused on the basis of need. We should articulate a completely different philosophy of redistribution of wealth, focus on those who need it and take from those who have it. This proposal files in the face of that precept of social justice.
When the Social Welfare Bill is discussed in this House it must be discussed at length and the Minister must be able to justify what he is doing not merely in terms of his agreement with the social partners but to the next generation, to those who are on unemployment assistance and to the man in Ballymun who has spent his whole life on social assistance. The Minister must be able to justify a system whereby such people will not be getting contributory pensions while smallholders in some far flung place will be getting them. He must be able to justify all those things and most of all he must show, which I think he cannot by definition show, that the requirements of social justice would permit a State subsidy of 40 per cent to back up pensions to the self-employed and farmers when many of the recipients will not be entitled on the basis of need to receive them.
These are fundamental issues where problems arise with this proposal. The proposal was conceived out of a well-grounded desire to refocus the burden of taxation but because it carries with it a mortagage of the future, a series of benefits payable in ten years time which are going to be unjust socially in their effect and in the liabilities they will create, it is a step in the wrong direction. We await eagerly the justification proposed by the Government for it. As far as we are concerned there is no justification. We will oppose this measure and we will oppose the principle of further extending benefits without any regard to need.
There is a certain difficulty in speaking on yesterday's budget, or endeavouring to speak strictly on the budget. We had a far more important feature of th budget many months ago when the Estimates were published. While there is a certain degree of acceptability or logic in publishing the Estimates early for consideration, also given the drastic nature of the Estimates published last October, a conscious decision was taken by the Minister for Finance and the Government to distance the Estimates from the budget because the impact of both is one which the Government might not have survived.
Many people who will have watched the news coverage last evening and who will be following the commentaries today, in great detail in some of the newspapers, will have to be reminded of the events of October last, of the enormous cutbacks effected in public expenditure in order to realise that yesterday brought about some tinkering with the system, some minor concessions, very minor concessions in certain tax areas, some attempts to change other systems which will be introduced in the course of the Social Welfare Bill and which I believe will prove to be enormously difficult for the Government, as the previous speaker said.
In the context of the Minister's remarks of yesterday, in the context of the commentaries by various experts, economists and gurus around this city on the airwaves in the last 24 hours, while many people may have forgotten about the Estimates for expenditure and the cuts in those Estimates of October last I will remind them, if they need reminding — and certainly they will be reminded as the year progresses — that all those cuts will make themselves felt in every area of public expenditure for the next 11 months. We will still experience enormous difficulties, in health, education, in local authorities irrespective of what the budget provisions announced yesterday promised to do, or the Minister for Finance in delivering that budget.
One has to pick out features of yesterday's budget. The presentation of that budget left a lot to be desired. The Minister for Finance attempted to put a gloss on his contribution. But quite extraordinarily — and I followed the Minister's remarks very carefully — I was amazed that it was not until the last page of that speech — which is in effect the Minister's economic speech to the country for a 12 month period — that there was any mention of employment. There were two references on that last page, one to employment and another to unemployment. How any Minister for Finance, any Government could set out to outline to this House the economic course which the Government will follow for the next 12 months without tackling what must be the most fundamental problem of crisis dimension facing us is beyond me. It means that the Minister for Finance is running away from his responsibility. The Government are running away from their collective responsibility to outline what they intend doing. Have they already forgotten even the projections — which were very difficult to accept or believe — in the so called national agreement of last year? There were glowing reports of thousands of glossy jobs to be created in the different sectors but there has been absolutely no follow through. If those jobs were going to be created then I should have thought that yesterday would have been the appropriate occasion for the Minister for Finance to outline where they would be created, how they would be created and say whether any progress had been made to date in that respect.
When the commentators, analysts and experts have had time to examine the underlying facts of yeterday's budget — those revealed in the Principal Features of the Budget— they will see things differently. If they accepted yesterday's budget as a reasonable one, then they were conned into that acceptance and will see their acceptance as too hasty.
The most obvious example, perhaps the one which will effect most people in the coming weeks and months, is in the PAYE area. In the course of his contribution the Minister gave a number of examples of the effect of the changes in the PAYE system and their impact. Those examples were very carefully selected. Of course, at the time the document, Principal Features of the Budget, was not available to any Member of the House, when, there appeared a certain satisfaction on the back benches of the Fianna Fáil Party in relation to those examples. That satisfaction could not have lasted very long if those Members took the trouble of looking at the true picture revealed in the document, the Principal Features of the Budget. I would go further and say it must have been of considerable disappointment to Fianna Fáil back benchers. They will have discovered that to the great majority of PAYE earners these budgetary concessions range from £1 — if single — to £1.35, if married. We should remember all the ballyhoo in recent weeks, with some benign commentators and newspapers contending there was to be a great giveaway to the PAYE sector. A figure of £75 million was mentioned. Anybody familiar with the budgetary process would know that £75 million would go nowhere towards giving any visible relief to the PAYE sector. In his wisdom the Minister for Finance did attempt to go further than the £75 million, going to £91 million. He informed us that the switch will entail a figure of £152 million in a full year. The Minister might clarify whether that now means that £152 million of the £225 million — said in the so-called national agreement to be given in tax relief over three years — has already been allocated for tax relief. The relief was meant to be cumulative. One can only assume that the Minister has now given well over half the tax relief promised over a three year period, and that he will have something in the region of £35 million to give in each of the next two budgets by way of income tax relief which will not even be visible to any PAYE taxpayer.
If the public have not yet had an opportunity to establish the extent of the trick perpetrated yesterday they will realise it at the beginning of April. The truth will become known fully when they receive their pay packets at the beginning of April. If they felt from the commentaries of yesterday that there was even an attempt to bring about justice in relation to the PAYE sector, that feeling will be thoroughly dispelled when they see the impact on their pay packets, an impact which will be totally negatived by the 8p increase in the price of a gallon of petrol. Certainly, on a weekly basis, it will cost them more than the relief claimed to be given them.
The Principal Features of the Budget reveals a remarkable series of facts which were not disclosed yesterday. I am not contending that the Minister would have been in a position to disclose all of the facts but, in terms of the selective nature of his remarks, many facts were not disclosed. It was only on seeing the document entitled Principal Features of the Budget— which many people may never see; I am not sure if all of the details of that document will be made available to the public — that one realised that the contents of that document represent a much different economic picture than that given in the course of the Minister's remarks yesterday over one and a half hours. The Principal Features of the Budget add up to a very different picture of our economic position.
The people will have to realise that the combined effect of yesterday's budget and the Estimates of last October will be severely deflationary. In the time preceding the election and for some short time after the election the Taoiseach spoke about his national agreement and how they would be stimulating economic growth of 3 to 4 per cent on average per annum in what must have been one of the softest interviews ever given to any politician by RTE. The Taoiseach settled for about 1 per cent economic growth but every other economic commentator — and there are enough of them about — spoke about sharply rising unemployment and zero or negative growth. I tried to get the Taoiseach to come into the House to explain his prediction, but the question has been passed down to some other Minister. This House should have a system whereby when the Taoiseach makes such a public statement he should have the responsibility to explain it under less benign circumstances in this House than was the case with the interview in RTE.
On examination of yesterday's budget, one finds that the Government have revised the unemployment figures for next year downwards from 256,000 people to 253,000 and in so doing have written in a saving of £8 million on that account. That is disquieting to say the least. How do the Government propose to actually bring down the unemployment figures? They have not introduced one measure to secure additional jobs, quite the contrary. Are there going to be new policies to encourage emigration? This seems to be acceptable to certain Ministers in the Government. Are the Government perhaps toying with creating schemes like the one aired on the "Late Late Show" the other night to pay people to actually leave the country? There is a responsibility on the Government to tell us how they are going to reduce the unemployment figures, particularly when independent commentators are putting the figure at between 270,000 and 275,000 people unemployed in 1988.
There are other disquieting figures in the Social Welfare Vote. There is a reduction of over £15 million accounted for by the description "various subheads". This needs a great deal of elaboration. I can only assume that "various subheads" means that 15 people sitting around a table could not agree or tie down where this £15 million was coming from and agreed to discuss it at a later date. Obviously the problem will be one for the Minister for Social Welfare as the year goes on to come up with the £15 million which he, no doubt, agreed with his Cabinet Ministers he would find from the various subheads in his Vote. In recent times we have heard about a number of ministerial directives aimed at removing by stealth some well-established rights in the whole social welfare area. We are at present assembling information about these developments. It is time the Minister for Social Welfare made a full statement when he gets the opportunity in this debate, outlining in detail each and every change he has made in the social welfare code in recent months — and there have been many, so many that the people who will be affected by them will only realise it when they go to claim their entitlements.
There is the question of the Education Vote, not mentioned by the Minister for Finance yesterday. He did not mention the further cut in education spending of more than £5 million. He did not outline the impact which this will have especially on second level education. One can only conclude that since the Minister for Finance did not want to explain what most people would consider to be bad news we will have to drag the information from the Minister for Education inch by inch in this House, and we will have a repetition of what happened before Christmas when the Minister for Education and the Government were rocking and reeling in relation to what was being done about Circular 20/87 in regard to the primary school sector.
It would be far more responsible of the Ministers for Education and Finance and better for everybody if they came into this House and told the House that £5 million more was being taken from the education Vote and from where in that vote. What is now going to happen is that within the next 10 or 12 days circulars will be sent out to the education authorities telling them there is a further cutback in education and where it will be implemented. We will start all over again looking for clarification. We will try to get it in the House where it will not be available. In the course of time, pressure will mount up in the Fianna Fáil Parliamentary Party, and the Minister will start trying to solve problems in a fire brigade manner on a constituency-by-constituency basis. It would be far better if everybody knew from day one why the cut is being made and where it is being implemented.
The idea of having any further cut in education is totally unacceptable to me as Leader of the Labour Party. Unfortunately the party which claimed so much for the progress of the so-called free education system 20 years ago are now in the process of dismantling the education system as we know it. The issue in relation to primary education is now over because of the political and other opposition mounted against the Government but we will see now in the secondary and vocational sectors the impact of these new cuts. The fact that the Government can consider any further cuts in the vocational sector is unacceptable because of all the sectors in education the vocational sector is the one that provides the greatest access to education for members of lower income families. This will put even greater pressure on a sector that is already under-funded. The under-funding means a 10 per cent cut in the allocation for community and comprehensive schools, that is, a cut of £10,000 in services per school, a 20 per cent cut in adult education services, a 10 per cent cut in services by the RTCs and a 4.8 per cent cut in the 1986 provision for second level VEC schools.
The serious under-funding which was compounded yesterday amounts to a serious undermining of public sector education and the more we continue to attack public sector and public funded education the more we will create a two-tier system of education similar to what is happening in the health area. The question to be asked in relation to education, as in health, is "do you have the money to pay for it?" That was never the intention of previous Governments in setting up these services. I do not believe Fianna Fáil will be able to stand over this if they persist in what they are doing in education. The inevitable result will be a move towards private education and I do not believe that is a step which Members of this House would agree to. The Government should certainly stop this before it goes too far, if it has not done so already. It is regressive in terms of social policy and will compound and expand the divisions and inequalities which already exist in our society and which have been further compounded by the monetarist economic policies of the Government.
Some Members have spoken of the opportunities missed yesterday by the Minister for Finance. The leader of the main Opposition party suggested that there are many members of the Labour Party who agree with his approach. I have to confess that this is news to me. Perhaps he would give me some more information. I agree that yesterday's budget was a missed opportunity but my reasons would be radically different from those outlined by Deputy Dukes this morning.
Our greatest social problem is unemployment and this Government must come to realise that it will not be solved by irrational swipes at public expenditure. It will not be solved by an economic policy the only purpose of which, we are reminded constantly, is to bring down interest rates. It will not be solved by bromides about improving the climate for enterprise. There are some people in this House — in Fianna Fáil, Fine Gael and the Progressive Democrats — who seem to think that if they can create a climate for enterprise and investment then all our problems will be solved. If we learned anything over the last 50 years we must realise that this reliance on the private sector is not a panacea for the serious problems facing us. Down the years the private sector have failed to produce the goods. In my view this is an empty and sterile approach. We have thrown grants at them; we have perhaps suffocated them with industrial grants but we have not solved the problem.
In my pre-budget submission I called for extra resources to be invested in the public capital programme, and I listened to the Minister yesterday with a mounting sense of dismay. I kept hoping that sooner or later he would turn to the subject of unemployment and that I would hear a range of positive measures being outlined to boost the efforts of the community in the field of job creation, but the Minister did not mention the word until he came to the last page of his speech. As far as the Minister was concerned, the 250,000 people on the live register ceased to exist. Not only will this budget do nothing to increase employment but its effects, and particularly the effects of the real budget, will drive unemployment figures up. I said yesterday the figure would reach 270,000 before the end of the year and from what I have read of the budget and the Principal Features, I see no reason to change that prediction. I believe this will be a fitting testament to the fiscal rectitude which is being peddled by the Government at present.
We had the real budget last October and its effects will become more obvious as the months pass and the PAYE workers who benefited to the tune of £1 or £1.25 yesterday will then discover the price they are being asked to pay. There will be sharply reduced health services, major cutbacks in essential local services and chaos in our education system. Yesterday's budget takes no account whatever of the extra burdens and impositions being put on PAYE workers and other members of the community who, at local level, are faced with increased rents and increases in other charges which will amount to far more than the relief offered yesterday by the Minister for Finance. The PAYE workers who live in areas where local charges were introduced or increased to prevent lay-offs and further cutbacks in services will know only too well how far £50 in PAYE relief will go. Unemployment is not our only social problem. The process of managing our affairs at the expense of the weakest and most defenceless members of the community has led to an increasingly divided and complacent society. Perhaps we are shielded from that in here.
Commentators and experts talk about the public sector borrowing requirements and the current budget deficit as if they were the Holy Grail, but in my view these people are far removed from the impact which these decisions will have on the people living in or close to real poverty. Many of these people are living in Dublin and in small rural communities.
Some weeks ago the OECD issued their report on the economy. Having read that report I wrote inviting the Secretary General of that organisation to send another team here. I did not ask him to come and see the Department of Finance but I asked him to come and see how the real level of poverty has risen in Ireland, how people were struggling to survive and how workers were carrying the whole burden of the national debt while huge sectors got off scot-free. I got a long letter in reply outlining the process they had employed and reiterating most of the conclusion they had reached. He chose not to respond to my invitation to come and see how ordinary people live here. As far as I am concerned that is a tragedy so far as the OECD's study of this country is concerned, but it is a bigger tragedy that the majority of Deputies are so blinded by ideology that they are unable to see how people are suffering.
Every Member of this House will come across, if not daily then weekly, people living in dire poverty. We come across these people most often in the area of health services. I heard with relief the Minister for Finance announce yesterday that he was putting back £11 million into the Health Estimate, a sum which should never have been taken out in the first place. When I highlighted the consequence of taking this money out of the Health budget two months ago the Minister for Health accused me of being an alarmist and of scaremongering. The reality is that there are many people dependent on the refund of drugs scheme. I was glad the Minister for Finance allowed his better judgment to hold sway rather than the mandarins in Finance who wanted those cuts, no matter what happened on the ground. Those people in Finance would never have the experience of dealing with people who are, and who will continue to be dependent on the refund of drugs scheme.
The extent of the deprivation which will persist in the health area, despite the Minister assuring the House that no further cuts will take place, is plain to see. This year about 800 acute hospital beds will be closed, 1,000 long-stay beds, catering mainly for the elderly, will be closed and upwards of 200 to 300 psychiatric beds will be closed. We know there will be massive reductions in staff and closures of units which provide critical medical services.
At this stage one has almost given up hope on public health services being made available to school children. I am sure the position is worse in Dublin, but the list for dental treatment for school children in County Kerry is so long that local dentists can only deal with critical cases. This is especially so in the Southern Health Board area. Some schools in County Kerry have not had a visit from a public school dentist for the last six months, and it appears the Minister for Health can do nothing about it. The Minister for Health would appear to have no responsibility for what is happening in the Southern Health Board area. For the past four years the Minister for Health, for good or for bad, at least came into this House and explained what was happening at local health board level, but now he has chosen not to respond to Deputies' queries about what is happening at local level. I wonder if Ministers realise the stress and strain being put on families because of what is being implemented at local health board level under Government directives. For example, the transport service has been 99 per cent wiped out. One is always reluctant to cite an individual case but I will give one example with which I dealt. It relates to a 13 year old schoolgirl who has to travel from County Kerry to the Regional Hospital, Cork, on a six weeks basis for chemotherapy. She lives with her family in a small village, her father is on long term unemployment benefit and her mother has health problems. They have one other child who also has difficulties. The parents of the child needing treatment were informed that she would have to make her own way to Cork for the treatment she obviously needs very badly. I spent 24 hours dealing with the local health board and eventually the Minister for Health intervened and accepted that there was no possible way in which this family could provide transport for their child. Indeed, they were not able to provide transport for the intervening period of two or three months when the service has stopped and the local community stepped into the breach. However, they could not continue this indefinitely because their resources were minimal.
There are many other examples of what is happening in relation to the lack of provision of health care. I am sure that if that family were listening to the proceedings in this House yesterday in relation to creating the climate for investment and jobs they were wondering if anyone here was worried about their lot or if anyone would offer them relief. They are at the bottom of the heap and are looking for very little, just to allow their child to travel to Cork for badly needed treatment. There are sad — indeed desperate — cases but they are the reality. It is all very fine to talk about macroeconomics but this is how it breaks down in relation to the population. The family to whom I referred are well below the poverty trap and will never see the other side of it.
I get annoyed when I hear the Minister for Health and the Taoiseach saying on radio and television that there is no hardship in the implementation of the Government's policies. There is unbelievable hardship at local level and I am sure the Taoiseach would not have to travel outside his own constituency to find it. If he was doing constituency work he would know that but I do not think he does such work any more. Other Deputies mentioned the risk to lives and there is always a danger that someone will say we are looking for headlines and trying to scare people. However, the reduction in the health services means that people are being put in danger. Pressure is put on consultants to perform operations but the back-up is not available. If a consultant takes a holiday, which he is perfectly entitled to do, a locum is not appointed and yet operations are expected to continue. The Department do not seem to realise that people are at risk. The Minister for Health refuses to accept responsibility in the administrative sense. If they persist in this attitude the end results will be disastrous.
I had hoped, before yesterday's budget, that some attempt would be made to redress the draconian cuts in health, education and local authority services which will unfold over the next 12 months. Those hopes have been dashed and there will be increasing chaos in essential public services throughout the year.
The cuts have been disastrous already.
The only growth we will see over the next 12 months will be in inequality and disadvantage. The Government have been in office for one year and I am sure they have lived to regret posters which were all over the country before the election about their caring nature. Fianna Fáil Deputies will be haunted by those posters when the health cuts are fully implemented. I know lifelong members of that party, who believed in it, and who do not understand what Fianna Fáil are doing to people at local level.
The Minister for Finance has not tackled the fundamental problems. He merely tinkered with the system. He admitted as much last night in relation to the raison d'être behind the budget. On a light note, it is an each way bet, it is a budget that will do if they are in office for 12 months or if they have to go to the country in six weeks time. Unfortunately, it is a massive failure by any criteria which the Government claim to have set for themselves over the last number of years. The poor, the sick, the unemployed and students from lower income groups looking for opportunities will pay the price for the failure of yesterday's budget. The Labour Party voted against it last night and we will continue to vote against it because it is not in the right direction.
I heard Deputy Spring on the monitor before I came down saying that there was quite an amount of satisfied expressions on the faces of Fianna Fáil backbenchers as the speech of the Minister for Finance unfolded. There was a very good reason for that. There was also a very clear degree of political satisfaction on the faces of the vast majority of the Opposition Deputies. When the Minister's speech concluded, I detected a growing sense of frustration because I knew they would find it extremely difficult to put up a realistic, reasoned case against the variety of measures the Minister took in this budget.
This is a creative, commonsense and caring budget. It is creative in that it introduces major efficiencies in the tax system, extends the tax base, provides generous tax reliefs, recognises economic realities, reverses the tax bias from capital investment to labour and provides for new initiatives to help construction, tourism and fishing. The budget recognises the financial constraints and the need to build on the climate of confidence that this Government created during 1987. It is a caring budget in that it makes provision for the less well off and is part and parcel of the fundamental philosophy which this party, in and out of Government, have always advocated. It provides for social welfare increases in excess of the expected inflation rate while giving special recognition to the most deprived, the homeless and the long term unemployed.
The economic climate and outlook are a great deal brighter now than they were when we introduced the 1987 budget. There is a renewed sense of optimism and confidence in the economy, largely as a result of the measures taken in that budget. It is this restoration of confidence, this new spring in our step, the conviction that we are on the right path that gives us the strength to press ahead. Twelve months ago, who would have believed that a minority Government could have effectively tackled the serious economic problems that confronted us? Who would have believed that we would so quickly have achieved success in bringing order into the public finance and restoring business and investment confidence? Let me list some of our achievements. The outflow funds from the State ceased and indeed were reversed. As a result, interest rates have dropped by 5 per cent. Compared with an almost total lack of growth in recent years investment by manufacturing industry in 1987 increased by around 5 per cent. Manufacturing output increased by between 8 and 10 per cent which was three times the rate of growth in output in the previous two years. Industrial exports experienced dramatic growth, increasing by 15 per cent in real terms compared with 1986, giving rise to total exports of £10.7 billion for 1987 and an historic trade surplus of around £1.5 billion. Despite a very slow start to the year with few projects in the pipeline the number of new projects negotiated by the industrial development agencies improved significantly during the course of 1987. Eleven thousand new jobs on the ground were created in 1987 with assistance from the IDA. One hundred and eighty overseas investment projects with a job potential of 12,500 were negotiated by the IDA. Shannon Development approved 20 projects for the Shannon free zone with a job potential of over 800.
Our budget for 1987 was based on the realisation that confidence in the economy and real economic growth depended on a clear demonstration of Government determination to manage the public finances properly. Public spending was too high and has been too high for far too long. The inevitable consequences of this had been high taxation, high borrowing and large outflows of capital from the economy with intolerably high interest rates. All of this had been a serious deterrent to productive investment and employment generation. One of the problems that had hindered economic recovery in the past had been the lack of resolute action by previous Governments. Tentative half-hearted steps had merely depressed demand and ruined confidence without tackling the real underlying problems. In tackling this problem you had to make it quite clear at home and throughout the world at large that you really meant business. That is what we did and what we will continue to do. The strategy initiated in 1987 is being continued in the budget of 1988.
The targets for 1988 set in this budget are for a current budget deficit of £1,125 million representing 6.3 per cent of GNP and an Exchequer borrowing requirement of £1,457 million representing 8.2 per cent of GNP. To set matters in context I should say that the current budget deficit as a percentage of GNP will be the lowest since 1980 and the Exchequer borrowing requirement, as a percentage of GNP, will be the lowest since 1973-74. In 1987 the Government exceeded the targets they set for both the current budget deficit and the Exchequer borrowing requirement. The outturn for the Exchequer borrowing requirement was 10.4 per cent, the lowest level since 1977 compared with a target of 10.7 per cent which compared with an Exchequer borrowing requirement of 13.2 per cent incurred by the previous Government in 1986; what a dramatic turnaround. Resolute action on the part of the Government ensured that our targets for 1987 were met and there should be no doubt that similar resolution will be maintained in keeping to the targets set for 1988. We are now well on the way to achieving the 1990 target we have set ourselves of stabilising the national debt to GNP ratio and when the Exchequer borrowing requirement can be reduced to between 5 per cent and 7 per cent of GNP.
Every sincere politician knows full well that you have to get the Government finances right and borrowings reduced before you can get the pay back in extra jobs. That is the reality. In the contradictions expressed here by speakers for Fine Gael, and the Progressive Democrats, too, they are ignoring their own policy and their own philosophy which they have perpetrated and sold to the Irish people for four and a half years, that the first key to economic recovery was to get the nation's finances in order. The serious situation existing in this country calls for better and more progressive thinking and, indeed, more realistic speeches by the people who know what the real position is.
The restoration of confidence which has followed the clear demonstration of the Government's determination to manage the public finances properly has already led to a significant improvement in the environment for industry and enterprise. Interest rates are now 5 percentage points lower than they were 12 months ago. The annual inflation rate is reduced to an average of about 3 per cent and the estimate for 1988 is approximately 2½ per cent. There was no increase in electricity, postal or telecommunications charges in 1987. The effect of the 5 per cent reduction in electricity charges for industrial consumers announced by the Minister for Finance will further reduce balances between Irish charges and those of our competitors abroad. The groceries sector will see fairer trade with practices such as below cost selling and "hello-money" which caused particular problems for Irish suppliers being outlawed. The Fair Trade Commission will be producing reports on the engineering and legal professions following the one on the accountancy profession which was published recently.
This budget is designed to bring about durable economic recovery over the next few years. This year it may be felt that growth prospects may be limited but the conditions for sustained high growth in future years are now being created. Last year the growth forecast on which the budget for 1987 was based was 1 per cent. We heard what all the economic commentators said but the economy grew by 3½ per cent. With inflation set to decline further, coupled with the improvements in disposable incomes arising from both the personal tax reliefs and the drop in mortgage rates, personal consumer spending should increase and I confidently expect that it will. Capital investment is also on the increase and we will once again confound our forecasters as we did in 1987 because we look forward to increased consumer spending and to growth in the economy during 1988. We also recognise that one of our greatest markets for most of our indigenous Irish industries is across the water in the British market. We recognise the bouyancy and strength of that market, the very strong consumer demand and we expect that to reflect in our exports from indigenous Irish industry.
I heard Deputy Dukes this morning make considerable play on what he believed would be a no increase in consumer spending this year. He was using as the basis for his argument the budget table. I disagree with him. When one takes the PAYE reliefs into account and when one adds to that — or indeed does not take out but substract from — the taxation measures that have been levied such as on the banking system, would anybody sensibly argue in this House that taxing banks will reduce consumer spending? Would anybody sensibly argue in this House that taxing pension funds, on a once off basis, would reduce consumer spending; no, it will not. Taking a realistic appraisal of where the taxation measures are being levied and allowing for those that will impact on consumer spending I confidently expect from this budget that there will be, at least, 1 per cent increase in consumer demand. That is my view. Deputy Dukes is entitled to his view but if you want to do a realistic assessment the evidence is there. When you add to that the additional money by way of reducing mortgage repayments that has been put into the pockets of ordinary people who have mortgages, and we know of the hundreds of thousands who have, another boost has been added. We were proved right in 1987 when we confounded the forecasters and we confidently expect to confound the forecasters again in 1988. As Mr. Seán Lemass once remarked, "from the experts may the good Lord deliver us."
This budget is creative by way of introducing new radical measures into our taxation system. Many people talked about this for years, many commentators wrote about it, people on the far side of the House talked about it. We have never forgotten the £9.60 that was to be put in every housewife's pocket in order that she could stay at home. We have heard about the tax credits systems, the creative and innovative measures that were promised when Fine Gael with their Coalition partners, Labour, came into Government but at the end of four years it was all sweet talk but no action. This Minister for Finance has grasped the nettle and grasped it in a realistic and commonsense way. He realised that if he went to turn the whole taxation system upside down in the one year, the system could not cope with it. He took the measures that were realistic and commonsense because he knows from the chair in which he sits that those measures are indeed possible to effect and that is what is sensible about his approach in this regard.
Many complaints have been made in the past about the unfairness of the income tax system. The PAYE taxpayer feels he is carrying an undue share of the burden. Businesses may feel that the assessment methods are unduly complicated, that they are blamed for the defaults of a minority and that there is a continuing problem of massive tax arrears whether based on estimated assessments or agreed liability on the Schedule D side. The fundamental changes in the tax assessment and collection system announced by my colleague, the Minister for Finance, probably the most radical since the introduction of PAYE some 25 years ago, will attack these problems. Under the self-assessment system a greater responsibility will be placed on the individual taxpayer to meet his tax obligations. Estimated assessments will be on a more realistic basis and tax liability will be settled faster. Hand in hand with these arrangements will come a much stiffer collection regime and a speedy cost effective response to default. These arrangements should be welcomed by both the PAYE taxpayer and businessmen alike. Businessmen who pay their tax on time can feel just as aggrieved about the tax default by other businesses and the activities of the black economy, particularly when they are in direct competition with them. The measures proposed will help level the playing field for them.
The proposal to offer on a once off basis an opportunity to settle outstanding tax liabilities without payment of certain interest or penalties is particularly to be welcomed. The reality is that the collection machine had become clogged up and this offer which could gain up to £30 million, and I believe even more extra money for the Exchequer will provide the breathing space to ease the introduction of the new tax collection procedures. I would hope that during the course of this debate many Deputies in this House, both urban and rural, will come in and say quite clearly and honestly that one of the major problems they have been encountering in their constituency over the past six months or so has been that when the tax collection people set about their business seriously one of the major problems that ordinary people, those with small and medium sized business, had was trying to meet the interest that had accumulated over the years. I will not go into the details but every Deputy in this House knows that this type of initiative had to be taken. With this creative type of initiative the system will gain, the Exchequer will gain and the people will feel they have got a fair chance and an incentive to put their house in order. I know the people will respond to it.
The standard rate of corporation profit tax at 50 per cent is too high in comparison with other countries. However, our system is very complex and there is too much room for loopholes and tax avoidance. Rationalisation was overdue. Many non-manufacturing companies on the 50 per cent tax rate have large work-forces and the existing tax incentives were weighted too heavily in favour of plant and machinery vis-àvis the employees. Those reliefs also gave much room for abuse. The reduction in the standard rate to 43 per cent coupled with the phasing down of the accelerated depreciation allowances will lead to a fairer deal all round and bring us more into line with other countries. The reduction in capital allowances will not apply to qualifying service companies in the international financial services centre or the Shannon Free Airport Development Company customers or to the special building incentives in the designated areas for urban renewal.
While the reductions in the first year's capital allowances may not be welcomed by some manufacturing industry, I believe that on balance it will be acknowledged and already has been acknowledged that such changes are sensible as the old arrangements tended to encourage the substitution of capital for labour. I know that some will only be too well aware of the avoidance that existed, where, for example in a group company situation a subsidiary operating in the UK could make profits, take them back here and set them off against accelerated capital allowances. The Irish Exchequer should not have to bear that type of expense. This is the reality of life. Some people may not know it but some people know it only too well.
Furthermore, the changes in the corporate tax structure are in line with recent trends in other countries. The changes reflect the reorientation of industrial policy which involves a shift in support from fixed assets to marketing and management development. There will be reasonable transitional arrangements to the new system so that current investment decisions will not be adversely affected. We expect that the combination of the changes in industrial policy and corporate taxation will have a positive impact on employment generally. Projects under negotiation will not be affected by the change in the accelerated depreciation allowance as expenditure under contracts already signed will be eligible for the existing allowance as will expenditure on projects which have been negotiated with the industrial development agencies and approved for grant assistance before the end of 1988.
The construction industry has gone through a very difficult period. I have heard remarks in that regard today. I will leave it to my colleague Deputy Flynn, the Minister for the Environment, to elaborate on what the incentives introduced in this budget package will do for the building and construction industry and I will not say any more about it, but they are positive, creative and recognise the reality that while we may have too many houses and an over-supply of commercial property there are niches in the construction market which can be addressed. Both the Minister for the Environment and the Minister for Finance have clearly recognised those and addressed them. The Minister will give full details in his contribution to this debate.
The very substantial personal tax reliefs provided for in the budget which are far and above those to which we committed ourselves in the Programme for National Recovery will contribute substantially to an increase in disposable income. The tax savings from the budget will range form £327 annually for a single person on PAYE to £596 for a married couple. I have heard some Deputies throw cold water on the proposals, but I would point out that a single person on £9,000 to £10,000 will get approximately £200 extra in his pay, which is £4 per week. Indeed if we take the case of a young married couple where both are working and have a joint income of £25,000, which is fairly normal, their tax relief will be £650 per annum or £13 a week. I have heard Opposition speakers say already both outside and in this House that the concessions were miserly and were not what they were put out to be. However, the tables are there for everybody to see. I can only describe such reactions from Opposition speakers as ostrichlike in that they fail to recognise the reality of what is here, but naturally from their viewpoint they would like to reduce the impact on them substantially.
People who are paying tax will know full well what exactly their own personal reliefs will be. Substantial progress has also been made in achieving the Government's target of getting two-thirds of taxpayers back down to the standard rate of tax at 35 per cent and as a result of this budget we have gone more than half way with 93,000 taxpayers moving from the marginal rate of 48 per cent to 35 per cent. Another 55,000 will move out of the 58 per cent rate back to the 48 per cent rate. The increase in exemption levels will take another 16,000 out of the tax net while a further 5,000 will become entitled to marginal relief. The reliefs are there to be seen. I have heard people express surprise that in the difficult times in which we found ourselves we were able to recognise the heavy burden on the PAYE sector and to produce such generous reliefs.
On social welfare, here again, despite the difficult financial situation, the Government have produced a caring budget, recognising the realities we have to face. While keeping to budgetary targets, the Government decided to provide a real increase in the level of social welfare payments to the less well off sections of our society. The particularly difficult situation of the long term unemployed has been recognised in the decision to increase the weekly allowance of a single person living in an urban area from £37.80 to £42 and a married couple from £65 to £70. The Minister for Finance would dearly like to have done better, but he recognised they needed something extra and gave them what the situation could afford. In the case of the long term unemployed living in rural areas the increase is from £36.60 to £40.70 and £63.20 to £68.10 respectively. The special plight of the homeless has been addressed by the provision of £3 million over the next three years to finance accommodation for homeless persons by voluntary housing organisations beginning with £1 million in this year's budget. There is clear recognition of a caring philosophy that has always been and always will exist within the Fianna Fáil Party.
Our strategy is not based solely, as people would like others to believe, on principles of financial rectitude. We realise that an appropriate budget strategy must also involve developmental measures which attack the weaknesses in Irish industry in order to reduce the high rate of unemployment we have suffered in recent years. The Government's strategy for industrial development is set out in the Programme for National Recovery. That programme is now agreed by our social partners. The strategy has been developed on a sectoral basis, concentrating primarily on areas such as the marine, food, tourism, horticulture and forestry, where we can create real and sustainable jobs based on our own natural resources, our own strengths and identified opportunities. In his budget speech the Minister for Finance gave details of a new initiative to develop the potential of the fishing and aquaculture industries in the provision of £4 million for a special package of measures for tourism in 1988.
The Programme for National Recovery sets out a strategy for the creation of industrial jobs. The target is to create 20,000 extra jobs each year. The IDA and SFADCo are positioning themselves to meet the industrial objectives set out in that programme.
The following job opportunities were identified in that plan, and, indeed, need repeating here today. In the food industry in the beef sector 1,000 jobs over five years; pig processing, 1,000 over five years; sheepmeat, 200 jobs over five years; other manufacturing areas: toolmaking, 1,000 jobs over five to eight years; automotive components 3,000 jobs, electronics 4,500 jobs over five years; clothing 3,500 jobs; craft products, 1,000 jobs; "do it yourself" growth sector in the UK and continental Europe, 300 jobs. It is hoped to create in horticulture 1,500 to 2,000 jobs; in forestry, 750 to 1,000 jobs over the next eight to ten years; the marine, 2,000 full time jobs and 2,000 part time jobs in general fishing and 1,500 jobs in inland fisheries.
The sectors I have mentioned represent those which have been identified and set down in the Programme for National Recovery as areas with substantial potential. It does not end there. The programme is quite clear in that there is further scope. The task I am now engaged in is to develop strategies for those other areas and to proceed swiftly towards their implementation. The budget involves reductions in the levels of State support for industry which have already been outlined in the Book of Estimates. What has developed in this country over the years was an over-interventionist approach involving the State agencies and various schemes and programmes. This inevitably led to overlap and duplication and all that was beginning to have a stifling effect on enterprise and initiative. Enterprises were becoming more concerned about getting the grants they could get and qualifying for schemes and programmes rather than getting on with their business and going out there fighting for markets. For that reason I make no apologies for the cuts being applied within my Department's areas of responsibility. These cuts amount to close to 10 per cent in 1988 without taking inflation into account. Apart from the contribution this is making in improving the national economy and the positive impact on the business environment, these reductions will force us to have a more critical look at how and where we are spending our resources. They give a more meaningful effect to our stated industrial policy objectives and will ensure better value for money for the Irish taxpayer.
The key objective of our industrial policy was to develop strong internationally trading, home grown risk companies which will generate new wealth and create new jobs. The job the Government and my Department have to do is make this objective a reality by appropriate policy measures. I do not favour the State itself becoming involved in what has been loosely described as "picking winners". Industry has a job to do for itself. The markets are there. We live in a real world of competitiveness and, as I have often remarked, there is no second prize for industry competing in world markets today. We cannot rely on gaining a silver medal. You must go for gold. You cannot be second best. You have to be the best. Quality is what the new game is all about, and this small economy, this small industrial base of ours, will gear itself to quality and to doing the job just that little bit better than our competitors.
The Financial Services Centre is another new concept which was only a concept in our election programme. In the very short time since then it has been transferred into reality with the high level committee set up under the Taoiseach's Department. They have brushed aside all the unnecessary bureaucratic obstacles that can come in the way. The idea was to bring all the people and Departments concerned around the table and, instead of writing reports to one another, all the problems were put on the table and teased out and decisions were taken. This is a headline as to how concepts can be transferred into realistic projects within a short time. This is part of the philosophy expressed by the Taoiseach on many occasions, that his new Fianna Fáil Government would approach the whole difficult situation as economic managers. There are many instances to show how that philosophy has succeeded.
The IDA are responsible for marketing the centre and already some 18 projects have been sent to the Minister for Finance for certification as eligible under the tax rates. In addition the IDA are currently in active negotiations with a significant number of other companies and they except many of these to be translated into important projects for the centre. The recent crash of the stock markets on Black Monday in October has had no impact on the enthusiasm and interest being shown world wide in this new concept of the international Financial Services Centre.
The year 1987 saw reorientation of industrial policy and this continues in 1988. Significant changes are taking place in State agency structures to bring a more coherent approach to policy performance. The IDA and SFADCo have recently announced changes in structures, personnel and priorities to position themselves to meet the industrial objectives in the Programme for National Recovery. SFADCo are ready to commence their integrated, economic development role in the mid-west, a new approach to integrated regional development where the industrial and tourism functions and the functions of the county development teams were all merged under one company. It will be interesting to see how the mid-west will benefit over the years to come.
The reorientation of industrial policy of which I have spoken is designed mainly to achieve the increased job targets at lesser cost to the Exchequer. These include a greater degree of selectivity in the type of projects assisted and the grant package on offer, the strict implementation of performance conditions relating grant assistance to jobs actually created rather than grant assistance to jobs approved, increasing emphasis on jobs created rather than jobs approved, and greater use of repayable forms of that assistance.
On exports, a consequence of yesterday's budget proposals will be an enhancement of the positive economic climate enjoyed by our exports during 1987. The buoyancy of the British market and the confidence and optimism expressed by manufacturers during the later part of 1987 should expand and translate into increased export sales during 1988.
The impact of lower tax payments for the majority of taxpayers and the mortgage interest relief that people are now enjoying from the very significant drop in interest rates will stimulate an increased demand on the home market. Consumers will have higher levels of disposable incomes which will boost local sales opportunites, particularly for our indigenous firms. The proposals now contained in the budget will supplement the range of new initiatives already introduced by the Government to stimulate export growth and mome market penetration. The potential for further development has already been clearly identified in the Programme for National Recovery. Attention has been focused by the Government on improving Ireland's marketing and trading prospects.
The appointment of a Minister with specific responsibility for trade and marketing has succeeded in highlighting the importance of getting our manufacturers to adopt a market-led approach. Many reports and studies in the past have identified a lack of marketing as a major deficiency in Irish firms. Through the efforts of the Minister of State with responsibility for trade and marketing and the work of Córas Tráchtála and the Irish Goods Council, Irish firms are now developing their marketing expertise as is evidenced by the successful trade figures for 1987. We will continue to build on these achievements.
The Government established the National Marketing Group last week with a specific mandate to bring forward hard-nosed business proposals to identify how Irish firms can be supported in securing increased market shares on home and overseas markets. I expect that the group which is under the chairmanship of the Minister of State, Deputy Brennan, will bring early and valuable proposals to the Government. That Minister is also engaged in the preparation of a national marketing plan which will provide a strategy for improving the marketing performance of Irish firms. It is intended that the work of the National Marketing Group will provide an input into this strategy. The Government have also agreed to my proposals to give Irish firms a fair crack of the whip in competing for public sector contracts. The level of public sector purchasing is and will continue to be substantial. The public sector is the biggest single purchaser in Ireland. This business offers great opportunities for Irish firms. However, in the past the level of involvement by Irish firms in this area of business has been disappointing. There may be some reasons for this: the relatively small size of many of our firms; our reluctance to become involved in what may be perceived as excessive bureaucratic requirements or a perception that the State is in some way unreceptive to local products. Each of these factors may have played a part. However, I am satisfied that Irish firms have the capacity to make a much greater contribution to supplying the needs of the public sector on a competitive basis. Consistent with our international obligations, I now intend to see that Irish companies are given their fair chance in this area. The sooner we recognise the purchasing habits of our consumers and buyers in our major areas of industry, the sooner we will realise that the only way they can make their contribution to a revived Irish economy is for them to source all their supplies as far as possible at home. We can no longer afford to export money out of the country to purchase many of the goods we could manufacture at home; exporting money is exporting jobs which we badly need at home.
Furthermore, the Government have agreed to my recommendations on the subject of counter-trade. The public sector is a substantial purchaser on the international markets. In the past we have failed to capitalise on the strength this gives us. We have been shy to follow the example of other trading nations. Happily the situation has now changed and public sector purchasers will be looking for counter-trade arrangements in the case of all substantial overseas Irish contracts.
The combined results of all of these initiatives will be to develop greater opportunities for Irish firms at home and abroad. Increased sales will generate increased employment opportunities and wealth and allow firms to become more internationally competitive. Government policies are providing the right economic climate and support for firms. On the basis of their performance in 1987, firms are responding to these policies and are creating the growth needed to get our economy growing.
The improvement during the past year in the business environment is reflected in the increasing importance which the venture capital industry is playing as a major provider of funds to industry. It has been estimated that the Irish venture capital pool of invested or available funds now amounts to £180 million. As a proportion of GNP, we are estimated to be ahead of many other countries with a larger established venture capital industry.
Is there a script available?
Yes, there is one available. However, this is part script and part you know what.
Made up.
The Minister is using his creative abilities.
I never lose the opportunity to get more and more creative as I get into my speech.
Like organic farming.
This growth in the availability of venture capital funding has important implications for the State's direct financial support for industry. In the past, industry relied excessively on the State to provide in a large part the finance needed for capital investment, with much of the balance made up by loan finance. Indeed it could be said that the State, through an over generous grants regime, contributed much to this over reliance. One of the major weaknesses identified in the financial make up and structure of Irish companies was that they were over reliant on loan capital and because of very high interest rates during the past few years many of them failed to make it and, went under.
However, a combination of factors, including the recognition of companies of the advantages of outside equity capital investment and the inability of the State to continue to blanket support industry has done much to redress this balance. We now have a considerably healthier situation in that innovative companies are able to obtain a mixture of private and public support. They have the opportunity to accelerate growth through judicious and selective State support and the advantage of the stability and added expertise which is offered by outside equity investment.
The private investor, as well as the venture capital companies, is a barometer of confidence in the correctness of Government policies. Private funds invested through the business expansion scheme amounted to over £8 million in 80 plus companies since last April. I expect that the level of investment will exceed £10 million by the end of the financial year. This will almost double the level of BES investment in 1986-87 and demonstrates that investment in industry is now accepted as a productive and prudent use of funds. The tide has at last turned.
The Government have continually emphasised and have geared their policies towards reducing the many costs which beset industry. It would be remiss of me to encourage greater equity participation in industry without at the same time addressing the need to reduce costs for companies taking the ultimate step of seeking such a Stock Market quotation. To this end, I recently requested the Stock Exchange to examine ways and means of reducing the many varied costs, particularly to small companies, of obtaining a quotation. One possibility I have put to the Stock Exchange is the establishment of a panel of legal and accounting firms who would be willing to manage floatations for a predetermined price. There should also be room for a reduction in stockbrokers' quotation costs but the final choice of selection will always remain with individual companies. I have already taken the initiative of bringing the Stock Exchange and the IDA together to heighten awareness of the advantages to companies of a public quotation. This approach will in time enable a reduction in the level of State expenditure on grants while creating a sound financial springboard for companies with growth ambitions.
What response did the Minister get from the Stock Exchange?
Very positive. They came to meet me twice and have taken my suggestions and have got together with the IDA. I have taken the responsibility of continually keeping in touch with them and monitoring progress.
Are they going to take up your suggestion in relation to fees, fixed term investment and so on?
They are discussing it with outside accountancy firms to try to get groups who will take up this initiative. All accountancy firms may not be interested because they may have too much business but the point is that an effort is being made to try to put groups together to take up this initiative.
When do you expect this to happen?
It is only a recent initiative and I do not expect a result overnight. I will keep you informed.
The Minister has three minutes remaining
In the time remaining I will not be able to go through all of the other aspects I had in mind. There is a further restructuring of agencies in the coming together of the NBST and the IIRS. It will be their remit to identify the areas of science and technology, and indeed to bring Irish industry into the modern world of technology. One of the major weaknesses in industry relates to technology. They will also have a major input in devising policy with the Office of Science and Technology in my Department for approving and directing where funds should be spent. They have already embarked on a very enlightened programme in bio-technology development in 1987 and that programme will continue in 1988.
In the short time in which we have been in Government we have tackled the fundamental problems. Everybody knows there are not quick solutions, that one cannot get payback in jobs overnight. What is fundamental is the course we are on and that out of this House goes a clear message that the consensus that exists outside this House is continuing to be reflected here. We are on the only road to success. The paybacks will not be immediate but most politicians in this House, especially in Fine Gael and in the Progressive Democrats, know that what we are doing is right. They have to do their thing politically but the country needs stability to continue on the road to success on which the Government have embarked. Already, we have seen some of the fruits of the sacrifices that have been made. Sacrifices are necessary in the short term for the rebuilding of our economy in the medium to long term.
This budget is a major disappointment. It has not taken advantage of the consensus that exists in relation to Irish politics. It has failed to relate to the ordinary people in enterprise, in employment and out of employment and it has failed to address their problems seriously. In so far as the budget deals with the financial problems facing the State it continues on a path charted by the previous Government, which is currently being underpinned by the fiscal policy of Fine Gael. This Government are only as strong in this House as Fine Gael will allow them to be. There is no ambiguity in the determination of Fine Gael to ensure that the public debt is brought under control. We have no future unless it is brought under control. Interest rates, taxation rates, unemployment rates and our emigration rates all stem from the vicious cycle of debt in which we are held. The budget yesterday failed to deal with the central problem of tax reform, to improve the disincentive problems where by those with large families would be better off not working and it failed to provide any stimulus for growth in the economy. Unfortunately this Government suffer from some of the problems from which the previous Government suffered, one being a paralysis in dealing with the public finances in isolation to such an extent that productive sectors are not being developed as they should be.
The Government missed a major opportunity to deal with Irish Life and its potential for the taxpayer. I have no doubt from the point of view of the Exchequer that it could benefit by £300 million from the sale of the shares of the Minister for Finance in Irish Life. It is in the interests of the staff and the policyholders and all connected with Irish Life that it be taken out of public ownership. I am aware that already there have been consultations with the staff and that they support such a change. The dilemma is that the type of international expansion that Irish Life requires in the US market as well as in Europe and in the UK is stunted by lack of available capital. It could be easily organised through the courts to set up a proper structure to get a capital equity value on each of the shares of Irish Life plc which unlike other State companies already has minority shareholding outside of the hands of the Minister for Finance. A multitude of opportunities could be seized with both hands by Irish Life if the Government took this courageous decision. When we were in Government the previous Minister for Finance, Deputy John Bruton, appointed a review group in the Department of Finance to consult with Irish Life to pursue this issue. Their report is gathering dust in the Department of Finance although it requires urgent Government decision. I admit that money from the sale of those shares amounting to £300 million would not be available every year but this money could provide an engine for growth.
Our problem is that we have a two-tier economy in relation to manufacturing industry. On the one hand we have glowing trade statistics which show that in 1987 there was a trade surplus of £1.5 billion. That conceals the real state of native Irish industry. Native industry cannot repatriate profits abroad, it can only repatriate the profits at home. Therefore, the type of problems from which native industry suffers will not be reversed until we tackle their urgent needs. Let us face it, a lot of the multinationals here are only involved in transfer pricing when it comes to export sales and they are maximising their sales and profits to avail of the minimum corporation tax rates. A front page headline in a recent newspaper referred to a major boost to Government budget strategy by the trade figures. Unfortunately those trade figures bear no relation to the economic well-being of this country or to the net well-being of the economy.
We need to help native industry urgently. We must realise that less than 1 per cent of GDP at present is spent on research and technology. The life of any industrial product now is put at less than five years. The products on the shelves today will be different in five years, time. They will be made in a different way because of technology and because we are investing less in technology than the rest of the western world we will lag behing in new product development. Any expert on marketing, setting up an export trading house, will say that he is looking for a product based on new technology. We must get a proper technology programme going and supported through the new amalgamated State organisation to build up a proper infrastructure and once we have that we must follow the Japanese example. They have provided to the world an economic miracle in terms of industrial growth, jobs, trade surplus and success. They have done that by borrowing and copying other countries' technology and by investing more in technology than any other country in the world. They have also pioneered share ownership by employees, something this Government have done nothing to advance in this budget, in terms of further tax concessions, building on what Deputy John Bruton did in a previous Administration.
We must establish a cohesive and effective marketing organisation. In Japan, Mitsubishi, Toshiba and other large companies are now exporting everything from cameras to cars, from televisions to videos, a whole complexity of products, and they are now getting into fish development. This is because they are very well resourced marketing corporations. In this country 80 per cent of small manufacturing companies, 5,000 in number, do not export at all, not even to Northern Ireland. We must radically address this problem. I am very disappointed the Minister for Industry and Commerce did not bring forward one new proposal to advance the cause of new employment and industrial growth in that sector.
Another area in our economy which is extremely significant is agriculture. This Government's record on agriculture, it must be said, is abysmal. It amounts to nothing more than economic withdrawal. First, they were not satisfied with dismantling everything put in place by the Coalition Government for young farmers, their additional grant aid, stamp duty concessions and installation aid, which decision has now been acknowledged by many as a botched job, leaving the Government's credibility in tatters. They have savaged the farm improvement programme, restricting the grants by half. They have butchered An Foras Talúntais and ACOT with a proposal to reduce the staff by 1,100. When it comes to a reduction of staff, it is always the frontline services the Government go for, whether nurses in hospitals, agricultural advisers at the farm gate, or teachers in classrooms, instead of the administrators and fat cats in centrally heated south city offices. Agriculture requires an injection of research and development, like any other sector. While I am in favour of the Cashman report and of amalgamation, I regret what is happening. In my own constituency, the research institute at Johnstown Castle and Clonroche Horticultural Research Station will, I hope, be fully preserved and kept operating.
The Government have taken money from farmers for two consecutive years by reducing the VAT refunds. This is totally unfair because it has no regard for farmers who have paid taxes and those who have not, those who have not a tax liability and those who have, those who farm ten acres of land and those with 1,000 acres. The VAT refund scheme was introduced to compensate for VAT rates on agricultural contractors, on buildings and a whole series of areas in which farmers had to purchase goods and services liable to VAT payments. This was to compensate the farmers because they were not registered. The whole intricate system that was built up has now been virtually scrapped. More money has been brought in under VAT than would have been brought in under the total land tax for the past two years. The Government have hit the self-employed and the farming community at a time when the Minister was negotiating a 7 per cent reduction in the income of cereal farmers.
I turn now to the proposal of the Minister for Social Welfare to introduce PRSI for the self-employed. One of the reasons for our public finances being in such imbalance is the extent to which we have a welfare state which we cannot afford. I am not saying that individual widows or pensioners, sick or unemployed people are being paid too much, but we have a welfare state mentality that at a certain stage it does not pay people to work. There is a total dependence on the State which is affecting the whole ethos and is causing demoralisation. To extend the welfare state further strikes me as a move in the wrong direction and I would be opposed to it.
It is folly that the State should try to intervene in an area where people have been happy to provide for their own pensions. It is particularly unfortunate that there have been different leaks about different rates from different sources over the past two months. It started with the double-dealing by the Taoiseach in terms of saying one thing to Mr. Joe Rea and another to Mr. Cassells. That was followed by the National Pensions Board setting out in some independent way a true rate of what would be required to service pensions. We have not been given a proper actuarial assessment. I call on the Minister to ensure that this House gets the full information to which it is entitled, so that future Governments in the nineties and at the turn of the century will not inherit another legacy of unnecessary increased social welfare payments.
I would hope that people would be entitled to opt out of the scheme if they did not want to draw a pension, that they would be entitled to provide for themselves. These are people who have never asked the State for anything and are quite happy to get on with earning their living without interference. Enforcement of collection of previous health contributions, youth employment and tax levies was not satisfactory. Now the Government propose putting another layer on top and a profile form has gone to many farmers of whose income there is no idea. There is no systematic way of estimating how much the proposal will yield. The people will end up in a couple of years receiving letters from the Revenue solicitors, in an attempt to draw in a very small amount of money. What will happen if these people are entitled to medical cards and find that they are exempt? Will there be such exemption? All these points need to be clarified, so that the Exchequer does not inherit another liability and so that there is some real progress.
I welcome the announcement of £4 million for tourism. Tourism in 1987 was worth about £800 million. It is a Cinderella industry about which the State has never got its act together. The private sector has been moving in so many disparate ways that industry has not been able to sell a cohesive, singular product which foreigners want to buy. We have cabin cruisers on the Shannon, restaurateurs in Dublin, particular type holidays in Killarney, hoteliers, CIE, all promoting different products. There has been no attempt at integrating policy. This £4 million should not go to Bord Fáilte. That organisation have not served the State well. They have been ineffective in direct proportion to the way in which the IDA have been effective, although I have some criticism of the latter body. The IDA at least get action. The Office of Public Works deal with monuments and different tourist attractions. Forestry deal with wildlife walks, local authorities deal with signposting, harbour authorities and transport bodies deal with different aspects of access transport — so many different bodies. There are 12 different departments and Bord Fáilte are not able to knock heads together and come up with an integrated tourist policy. They have singularly failed to get a uniform tourism policy across the country.
I hope this £4 million goes to specific projects. I will name a few that are worthy of special consideration and that will give a direct return. We need a national tourist discount card, say to the extent of £50, which would entitle the tourist to discount on CIE public transport, on theatre tickets, in restaurants and hotels. We must ensure that every tourist invests more money here. Cheapskate tourists, while welcome, are not contributing to the national economy. We must go for the middle end of the market and maximise tourist spending.
We must extend the tourist season. No tourists visit here in the months of April, May and June. The tourist season is shrunk into the last two weeks of July and the first two weeks of August. Similarly, the September-October period sees very few tourists. There is no reason for the shoulder end of tourism not being developed. Bord Fáilte, or some other organisation dealing with tourism interests and the private sector should get together in the workplace — in Waterford Crystal, in the public sector — to produce a discount package, similar to the VHI group scheme. There should be group rates in the workplace, and factories for cheaper holidays, and this £4 million should help specific market-related projects like that. That would give a direct corresponding increase in tourism revenue and, naturally, if more people spent their holidays at home the position would further improve. Figures in recent times show that those taking their holidays abroad were only slightly larger in number than those holidaying at home. A special effort needs to be made to give cheaper holidays in the offpeak periods and that can be done by offering more package holidays.
The treatment of the ESB in this budget is most intriguing. In the past I have said that the ESB were a very arrogant, and in some respects a very inefficient, State organisation. In the late seventies, due to no fault of their own, they increased their electricity capacity to a point which was unforgivable. They sank the Irish electricity consumer into debt to pay for Moneypoint and for different projects, based on a forecast increase in electricity consumption of 8 per cent per annum. That has not been achieved in any country in Europe except Germany in the immediate post-war period. The ESB took on 2,000 extra staff with the result that staffing went up by 9 per cent and output went down by 1 per cent between 1979 and 1981. Grave decisions were made. I have had rows with their public affairs spokesman, saying that their pricing was out of line with the rest of Europe and that this was a factor which had resulted in the exporting sector of the economy suffering loss of market share and increased unemployment.
The ESB argued defiantly all along that they were doing a good job, that they were as lean and as trim an organisation as they could be and that they were moving in various different directions, they were cutting out much of their wasteful and inefficient shops, they were cutting down on staff and they were going ahead with voluntary redundancy but there was no scope for a reduction in the cost of electricity. When they were quizzed specifically in relation to the international price of a barrel of oil visá-vis the dollar and the glut of oil on the market due to the breakdown of the OPEC agreement they said there was still no scope for a reduction in the price of electricity. Now, at the stroke of the pen of this Minister for Finance they can come up with not their £2.3 million capital repayments but with 15 years capital repayments one year in advance. They can say that there was going to be a 5 per cent reduction in electricity prices which the Government have swiped. I have my doubts about that.
I know the ESB are well capable of double depreciation in their accounting system. They were well capable of moaning and groaning with previous Governments when it came to meeting rate demands. I would like to hear from the ESB some public statements about how they can now come forward with this package and reconcile it with statements they made in the latter half of 1987. Their credibility is at an all-time low. It is most unfortunate that Irish consumers of electricity will still have to pay more than any other country in Europe. It is unfair and wrong to hit households in this way.
One of the biggest disincentives in the economy at present is for anyone crazy enough to employ people. Recently I spoke to a person who has just taken on three people, one of whom is a married man with four children. He had been receiving £112 per week on social welfare assistance. To many business that is a lot of money to have to pay a person in a non-managerial position and there was no way the employer could compete with it. However, he wanted the person and decided to take him on. He also took on a girl and decided, as they were both unemployed, to avail of the employment incentive scheme which gives a subsidy of £30 a week if the employer keeps the person in employment for six months. He told his accountant that he could not expect those people to work for less than they were getting on social welfare and decided to give them £2 more than they had been getting. However, when PRSI was taken into account he found he had to pay an additional £49 a week. Neither employee was going to be subject to any PAYE but they were subject to this form of PRSI. That is a direct tax on jobs.
Is it any wonder that it pays employees and employers to do a nixer? The cost of employment is great, not by what goes into the employees' hands but by what must go to the State. Whatever priorities we have in tax reform, surely we should not penalise employers and employment in this way. As the Commission on Taxation rightly said, there should be an immediate policy decision to get rid of employers' PRSI, not because employers should not have an obligation to their staff but simply because it means that those people who are most labour intensive are faced with the highest tax bill. Those who can get rid of people and replace them with machines have every incentive in so doing by virtue of the fact that the State will penalise them for taking on people and they will give them a grant for the machine to replace them. That is totally anomalous.
There is a family income supplement scheme in operation to which the Minister made no reference yesterday. It is the best scheme in operation to help bridge the poverty gap for those at work and it greatly needs revamping and improving, even at the expense of the social welfare code. There was no mention whatsoever in the Minister's speech of employers' PRSI. I call on the Government, as a matter of urgency, to address that problem. The issues of a proper industrial policy to develop native industry, a proper commitment to agriculture and in both areas to have proper research and technology and proper marketing corporations is the way to create jobs. The marketing-type package that I put forward for tourism will also directly create jobs and tax revenue. There is no doubt that even though the employment in tourism in other countries such as Spain and Portugal is seasonal, you can see what a significant input it makes in their economy.
I would like to turn to some of the budget submissions that were made to this Government to which they have given scant disregard. Drink consumption since 1981 is down by about 28 per cent. That has obvious implications for employment, both in public houses and in the sector itself. If it were not for the fact that there has been substantial growth in exports, drink manufacturers would be facing problems. There was a request from the vintners association not to reduce the amount of tax that the public pay on drink but to change the system so that VAT levels would be reduced and excise duty would be increased. Many vintners are in severe difficulties with the Revenue sheriff at present. It was argued that a reduced VAT rate and an increased excise duty rate would reduce the arrears on the two-monthly returns. It would also deal with the anomalies that currently exist between off-licences and public houses. There would have been a cashflow benefit to the State because the Government would have got their money sooner. I ask the Minister for Finance to give more detailed consideration to this matter in the Finance Bill. As we all know, publicans have gone through a very difficult time and are deserving of further consideration.
Another area of deep concern is that of smuggling. There is no doubt that the economic border has moved to a line from Dublin to Galway as opposed to the Six Counties Border that existed in the seventies. It strikes me that the case put forward by those in the brown goods sector was responded to by the Minister last year. He did take on board a reduction in excise duties. Examining the returns released on Friday last for the year's end, particularly in relation to brown goods, I believe that experiment was successful. So far as I am concerned it resulted in an increase of television sales in the South from 67,000 to 103,000. In my view that was a positive return on a positive decision. At present there are illegal imports of 12,000 colour televisions and 7,000 videos. It is a disgraceful situation.
Debate adjourned.