Deputy De Rossa is in possession and he has eight minutes left.
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.)
In resuming on this debate I should like to refer to the response to the budget from the Combat Poverty Agency which issued a budget analysis on the implications for poverty on 29 January 1988. In the introductory section to their document, they point out quite clearly that the agency consider that the overall policy framework of the budget will not significantly change the existing scale of poverty and that there are a number of reasons for this. They state:
First, the budget will not bring about any major redistribution of income and resources between different groupings of the population; at best, it will effect small shifts here and there in the economy. Secondly, the budget will not significantly reduce poverty because it does not provide a comprehensive programme of reform of the taxation and social welfare systems. Thirdly, the budget will not reduce the continuing high levels of unemployment even if the job targets in the Programme for National Recovery are achieved. A job — the main outlet from poverty apart from emigration — will still remain beyond the reach of many of those who are currently poor.
That analysis of the budget is significant because it has been done, not by an interest group, not by the Labour Party, or the Workers' Party, or any other party, but by a statutory agency established by this House to advise the Government in various ways in relation to the elimination of poverty. In the preface to their document the Combat Poverty Agency point out that they have a statutory obligation to advise the Government on all aspects of economic and social planning in relation to poverty and to promote greater public understanding of the nature, causes and extent of poverty and the measures necessary to overcome it.
Pardon me, Deputy, could I discourage extraneous meetings between Deputies?
It is significant because of the source of the analysis. It is an agency established by this House and the Government in relation to poverty. In the view of the agency, the current budget which we are debating will not significantly improve the position of those caught in the poverty trap. That analysis is significant in view of the apparent welcome that the budget has received from the majority of the public polled recently in that regard.
The point that I made last week at the commencement of my contribution was that the budget was only the gloss on what the Government had already done in relation to the Estimates. Unless you take the effect of the cuts in the Estimates and a whole range of social services into account, obviously the goodies which were distributed on budget day will give the impression that something good and useful has been done. I do not propose to go over the points I made last week in relation to that.
There has been at least one other development since I spoke last week which should be referred to and that is the announcement of the unemployment figures last weekend which showed a furthere increase of something like 2,000 on the register. Unfortunately these State figures do not reflect the real situation in relation to unemployment. They do not take into account the numbers that are continuing to emigrate, the numbers that have been taken off the register because of the Jobsearch programme or the large numbers of people who are no longer signing on because they are no longer entitled to unemployment assistance without means testing. Clearly a major unemployment problem is facing the country and the general opinion of those who are praising this budget is that this budget will not tackle unemployment in the current year and that it will not reflate the economy to any extent and in fact they are of the opinion that it will deflate it even further. There is an unreal sense in Fianna Fáil in relation to the opinion polls. Fianna Fáil would be naïve to believe that they have massive support because of the budget. I am sure Fianna Fáil are realistic enough to recognise that, if not immediately, then certainly in the course of the next few weeks. As people realise the effects of this budget combined with the effects of the Estimates that were introduced late last year their view of Fianna Fáil and Fine Gael who are maintaining them in power will rapidly change. There is a fundamental difference in my view of the budget and that of the Fianna Fáil Party, the Fine Gael Party and the Progressive Democrats who are involved in this consensus of tackling our problems by viewing the national debt as the most important problem. They believe that until the national debt is tackled nothing else can be done. Those of us on the left and I presume at this stage we must include the Labour Party, would argue the reverse.
Gabh mo leithscéal, a Theachta, tá dhá nóiméad fágtha agat.
I would urge those in the Fianna Fáil Party to think hard about the direction they are following and to think hard about the pressures they are under from the Fine Gael Party who because of the position in which they find themselves are pushing them in a direction in which they are instinctively unhappy. Fianna Fáil should recall that by and large their support is support which the Fine Gael Party do not normally draw and that the road which they have taken in recent times, while it may gain the applause and support of the media and economists in the media, will not at the end of the day gain the support of the ordinary people who will be voting in the general election, whether sooner or later. If Fianna Fáil maintain their present course they will have no future other than as Opposition. There is need for them to reappraise what they are doing and where they are going.
The year 1987 will be looked back upon as a watershed; the year in which the Government took firm control of the economy and began to turn it around after a long period of mismanagement. We are now well into the task of overcoming the serious economic difficulties which were steadily destroying all our hopes and prospects as a nation. The first crucial steps necessary for national recovery have been successfully implemented. They are part of a clear overall strategy set out in our Programme for National Recovery. That programme is designed to secure a return to economic growth and increased employment in the 1990s. This budget is a further step along the planned road to recovery.
In 1988 we have to follow through and maintain the process of restoring order to the national finances and reducing the relative size of the national debt, as an essential prelude to future growth. The most difficult stage of all is now immediately ahead of us. What we have started must be seen through to a successful conclusion so that the sacrifices being made will bring the reward of permanent and lasting improvement in the welfare of our people. The complete success we have achieved in managing the public finances in 1987 has, however, brought its own danger because of some feeling among the public that the worst is over and that we can now relax and slip back into the old ways of indifferent management and lack of direction and control. It would be tragic if we were to give in to that kind of weakness now having come this far.
For the moment the overriding priority must be to stabilise the relationship between the national debt and GNP because this is the only basis on which we can secure all the other improvements we desire. We can of course, and we will, within the strict expenditure constraints adopted, pursue active development policies, seek to improve tax equity, maintain the basis standards of our social welfare system and the other public services. However, it is dangerously premature at this stage to be calling for a new agenda or for reflation as if our financial problems were already solved. No one should underestimate the difficult path that still lies ahead, because the only thing that we can say with certainty at this stage is that we have made a good start and have clearly demonstrated that recovery is possible.
Last year we took three major first steps. In the March budget we made a decisive reduction in the level of spending and borrowing. Then immediately after the budget we started a detailed, thorough and comprehensive examination of all aspects of Government expenditure culminating in the publication of the 1988 Book of Estimates which significantly reduced expenditure right across the board. Later on in the year we formulated an agreement with the social partners on a broad and balanced strategy of economic recovery covering employment, the public finances, taxation and social equity which was endorsed by them.
In 1987 for only the second time in ten years the budget strategy was adhered to and the targets met. A large reduction in Government borrowing was achieved, indeed with a significant margin to spare. As a result confidence returned. The Minister for Finance has outlined to the House in detail what was achieved in relation to the public finances in 1987. A few key figures illustrate the dramatic improvement that has been achieved.
This State had been borrowing about £2 billion every year in recent years. Every year since 1984 we have been sending out of the country between £700-£800 million in interest payments on the foreign debt, while the cost of servicing the national debt as a whole has been over £2 billion. The weight of this borrowing was crushing the life out of the economy. Total Exchequer borrowing was reduced to £1,786 million in 1987.
In 1988 we will be making substantial progress in reducing the level of borrowing still further. Exchequer borrowing will be £1,457 million that is £340 million below the 1987 level and £688 million below the level in 1986. In fact, Exchequer borrowing has now been reduced by one-third in just two years. Taking 1987 and 1988 together the two-stage reduction in expenditure has been evenly distributed between the current and the capital side. There will be a further significant reduction in the current budget deficit this year and in due course reduced interest payments resulting from a reduction in the real level of the national debt should allow for sustained reductions in the current budget deficit in future years. Definite and encouraging progress has been made in achieving the objectives we first set out in the financial framework section of our election programme.
Deputies and others may complain about the deflationary and social effects of bringing the debt problem under control but these must be contrasted with what would have happened had we allowed the national debt to keep on growing and growing to the point where it could no longer be sustained. Some people have recently been speaking as if controlling the rise in the national debt was an option, something that might take second place to some other priority. That is just nonsense. There is no option. It is an inescapable, even if unpalatable, truth that we could not go on as we were. It was not a question of choice. The stark reality was that we were approaching the point where the public finances would no longer be able to cope with even the existing social and welfare services we have.
It is a delusion to think that it only needs a political decision to eliminate poverty in Ireland. If it were so, would not every party in the Dáil jump at doing so? In better times when the resources were available Fianna Fáil Governments led the way in building up and developing all our welfare services and we will always point with pride to what was achieved in those days, particularly in giving a new dignity and status to the old and the disadvantaged. I can give a solemn assurance that we will return to that great humanitarian task as soon as possible.
When we came into office last March, the national debt at £25 billion had grown from 133 per cent of GNP to 151.5 per cent between 1985 and 1986. The action we have taken together with healthy economic growth in 1987 meant that the debt-GNP ratio increased by less than 1 per cent last year.
The absolute size of the foreign debt, with the help of favourable exchange rate movements, actually declined slightly to under £9.7 billion. It looks as if the foreign debt may already have stabilised at or below the 1986 level of 60 per cent of GNP, and we are on target to stabilise the overall national debt-GNP ratio by 1990.
For some time before the general election I had been arguing that more active management of the national debt was possible and that this could achieve significant savings in the cost of servicing it. During the past year measures to improve the management of the debt have been actively pursued by the Department of Finance. The resulting savings are reflected in the 1988 provision for Central Fund services, which shows one of the lowest increases for many years. Interest on the debt will increase by only £40 million, compared with a £150 million increase last year.
Among the measures taken have been:
the issues of new borrowing instruments in both foreign and domestic markets, including the ECU bond issue, and the introduction of the scheme of tax-exempt bonds for multinational companies — resulting in some of the cheapest dollar funding that the Exchequer has ever received;
an increase in the volume of Exchequer bills, which are providing funds for the Exchequer at about 1½ per cent below the cost of gilts;
renewed promotion of the small savings schemes so as to obtain more stable funding for the Exchequer;
continuation of the programme for prepaying foreign loans and refinancing them at lower costs. The savings from this programme now amount to about £100 million over the life of the prepaid loans;
the undertaking of a major programme of interest rate swaps, which is giving considerable savings;
regular discussions with domestic and international finance houses on new instruments of debt management.
The cost of servicing the national debt takes such a large proportion of our budgetary resources that we must constantly seek savings in this area and increase the sophistication and efficiency of our management techniques.
One important outcome of controlling the national debt is to give the Government scope for reductions in the burden of income tax especially on the PAYE sector and to introduce measures to reform the system and improve tax equity. Between 1982 and 1986 the main burden of the effort to achieve a better financial balance was borne by the taxpayer, and taxes increased in real terms by 5 per cent of GNP over that period. That approach contributed substantially to negative growth and rising unemployment and this lesson should be remembered by those who are now advocating further increases in taxation for whatever purpose. Last year was the first time for a number of years that tax did not increase as a percentage of GNP. It will not increase in 1988 either. This is a radical change from previous years when the principal instrument of fiscal correction was increased taxation. Today the strategy of our Programme for National Recovery places a joint emphasis on expenditure reductions and economic development, as indeed we proposed previously in The Way Forward.
We can recall the histrionics of January 1983 when Deputy Alan Dukes, as Minister for Finance, sought the adoption in 1983 of a current budget deficit target of £750 million which had been set by the outgoing Fianna Fáil Government but was overruled. For the rest of the lifetime of that Government the public finances got further and further out of balance because of that initial refusal to agree to the proposal of the Minister for Finance.
In the past year it has been demonstrated that if they have the political will to do so a united Government can impose the necessary disciplines on Government spending. Government expenditure has been reduced by almost 5 per cent of GNP from 55 per cent in 1986 to 50.3 per cent in 1988, when allowance is made in previous years' figures for the impact of the technical change in the local loans fund arrangements introduced this year.
Anyone who has wrestled with the task of reducing Government expenditure or who has even studied it carefully knows that the key factor is public service numbers and pay. One half of Government spending goes on pay. In his budget speech, last year, the Minister for Finance outlined the stringent measures which the Government had decided to take to reduce significantly public service numbers. To enable this to be achieved in a fair and just manner we introduced a programme of voluntary redundancy. This programme has been successful in reducing numbers in the public service last year by 7,000. We will press ahead with this programme of reducing the size and the cost of the public service. This year we expect numbers to fall by a further 9,000. The decrease from nearly 189,000 to just over 172,000 represents an 8.5 per cent reduction in numbers over two years. Outside the Civil Service, which constitutes about one-sixth of total numbers, this structural reduction in the country's administrative overheads is a necessary, radical measure which had never before been seriously attempted. What we must do is ensure that substainable jobs can be generated through the right conditions in the private sector to make up for the reduction of the public service to a level we can afford.
Since the mid-seventies, we have been borrowing heavily to continuously improve out health, educational and social welfare systems, so that we now have a highly developed level of public services in relation to national income. We have sought social services on a par with those in much wealthier countries. What the Government are striving for is to make all public services more economic and efficient and by prudent management of resources to maintain the real value of welfare services for those who need them. Everyone concerned should co-operate with us in this sensible objective instead of continuing to demand the supply of services at a level and scope we cannot sustain in present circumstances. To maintain an acceptable level of social welfare payments we must exert control and cut down on abuse. Over £20 million has been saved in 1987 in this way and this went a long way toward helping to provide the modest improvements in this budget.
In the health area the major hospital modernisation programme begun ten years ago has been nearly completed. Since 1978 £500 million has been invested in new, modern, well-equipped hospitals. These new hospitals are to replace old unsuitable ones. What is now demanded is that, having spent vast amounts of taxpayers' funds providing first-class new hospitals, we keep the old ones as well, very often for sentimental reasons only. The numbers employed in the health services grew enormously over the last ten years and the reduction in numbers at present being sought is very modest by comparison.
In education, too, there is a need for realism and commonsense. Education is the second largest estimate. Current expenditure is £1,269 million or over 7 per cent of GNP. There are one million pupils, and 50,000 teachers and other staff. The education of our children is a top priority and we will make every effort to make sure that it is of the best quality we can afford. We are determined in particular to maintain the quality of the education our children receive at primary level. The high standards and achievements of our educational system are recognised at home and abroad. The provision of such an extensive range of educational services from the age of four to third level is no mean achievement in a country of limited resources. In view of important demographic trends for the pupil population at primary level over the next four years, the Government are undertaking a fundamental review of the provision of primary education and the primary curriculum and I welcome the participation of the teachers' union and of the National Parents' Council in that review. Even in the extremely difficult capital budgetary situation the Minister has provided an extra £6.5 million to extend, improve or replace certain primary and secondary schools which are in an unsatisfactory or dilapidated condition, mainly in rural areas. We have always, and will continue, to aim to have an educational system of which we can be proud but our economic circumstances now demand that everybody involved combines to make it cost-effective.
Two major benefits that have flowed from the implementation of our financial policies and action in the 1987 budget have been a substantial reduction in interest rates and a corresponding reduction in the rate of inflation. Interest rates have fallen by about 5 per cent since March, 1987 and this had a very useful effect in counteracting the deflationary effect of budget stringency. Home owners with mortgages have benefited with a saving of around £55 a month. While real interest rates remain high, we are hopeful that reduced Government borrowing will bring home further reduction in the course of 1988.
Our rate of inflation is now down to the level of the sixties. In mid-November the quarterly rise in the consumer price index was a mere 0.1 per cent and, for the year as a whole, inflation was only marginally in excess of 3 per cent. We are now a low inflation country, even in relation to many of our EC partners. In particular our inflation is nearly 1 per cent below the British rate. We hope to reduce it further in 1988 to around 2.5 per cent. The moderate wage increases agreed in the Programme for National Recovery for the next three years should enable us to keep inflation down to these levels and, furthermore, to improve our competitiveness, with obvious benefits in employment and growth.
During the general election campaign I indicated that we would be aiming over the medium term for an annual growth rate of 2.5 per cent. To achieve this level of growth, and, more important, to sustain it, requires that the public finances be put on a sound basis. Corrective fiscal action, of course, has its downside in its deflationary impact. This can, however, be offset and mitigated by lower interest rates, rising exports and increasing our share of the home market. In fact the growth rate achieved in 1987 having regard to the nature of that year's budget was quite remarkable. Furthermore, the recent ESRI review shows that, provided current financial policies are carried through to a successful conclusion, there should be a return to sustained growth, on the scale of last year's outturn, in the nineties.
The past year, in terms of growth, turned out substantially better than anticipated, considerably exceeding the prudent projections we made at the time of the budget. The latest estimates put our growth rate in 1987 at round 3.5 per cent. This was, in fact, the highest growth rate in the EC, apart from Spain and Portugal. There were, of course, elements of rebound in last year's performance — notably as regards agricultural incomes and tourism earnings — and it owned a lot to the exceptional buoyancy of industrial exports. For this reason, and given the less favourable external economic prospect and necessary reductions in public expenditure, the rate predicted for economic growth in 1988 is at present minimal. However, economic forecasting is not an exact science and no one can categorically state that even in the coming year a modest growth rate may not be possible. Whether that is the case, it has no bearing on the correctness of the strategy we are now following.
There were some distinctly positive features in the economic outturn in 1987. Industrial production revived strongly, increasing by 10 per cent compared with less than 3 per cent in 1985 and in 1986. This was the biggest increase in the EC. The performance of the more traditional labour intensive sectors improved but is still unsatisfactory. The volume of industrial exports increased by about 18 per cent in volume. Total exports well exceeded £10 billion, bringing the trade surplus on an adjusted basis to around £1.25 billion. As a result we achieved a small balance of payments surplus in 1987. This was the first surplus since 1967 and compared with a deficit of over £500 million or 3 per cent of GNP in 1986. There is every indication at the moment that the balance of payments are moving into structural surplus and that this will continue to grow in 1988. The country's foreign reserves increased markedly following the budget and now stand at a record level of £2.8 billion providing about three and a half months import cover. In contrast to an almost total lack of growth in recent years, industrial investment also revived by 5 per cent in 1987. It was also a year of strong recovery in agriculture, with a reversal of the decline in farm incomes in 1985 and 1986, and in tourism which had a record year.
The level of unemployment remained unsatisfactorily high. Nevertheless for the first time in eight years there was no rise in unemployment between January 1987 and January 1988. The objective must be that when our financial problems are brought under control and various development measures take effect to steadily reduce the level of unemployment. As the latest EC Annual Report on Ireland states: "The present re-establishment of a favourable environment for growth through further budgetary adjustment is thus an essential precondition for progress in reducing unemployment".
The primary purpose of budgetary strategy this year was to continue to improve the overall state of the public finances and rightly so. But while achieving this objective the Government have prudently and with considerable skill made maximum use of their limited scope for manoeuvre to effect a number of significant improvements in both the level and structure of taxation and in social welfare. The introduction of self-assessment, the reform of the structure of corporation tax, the extension of PRSI to farmers and the self-employed and the reductions in personal taxation are a clear indication of our intention to improve the entire tax system. The structural reforms contained in this budget go far beyond anything attempted since the introduction of PAYE. A worthy effort has been made to help those at the lowest end of the social scale through the social welfare code and otherwise.
It was alleged by the Fine Gael spokesman on Finance that while the 1987 Budget led to a reduction in interest rates there had been no stimulus to investment. That is not correct. For the first time in many years there was strong growth in investment in plant and equipment in 1987 and the signs are that this will continue in 1988; this will lead to new employment in industry.
The budget has also been criticised for failing to provide an economic stimulus. This ignores the simple fact that the improved confidence which has been strengthened by it is in itself a stimulus. The traditional type of stimulus, that which was provided by increased overall Government expenditure and borrowing, is in the main ruled out in present circumstances. But in addition to the real stimulus provided by evidence of sound financial management the budget contains a considerable number of elements that will be conductive to growth, development and employment. These are, further reductions in interest rates resulting from the reduced pressure from Government borrowing on the liquidity of the money markets; the reform of corporation tax, which will shift investment in 1988 from fixed assets to employment; an extra £4 million for tourism; the restoration of the young farmers' installation aid; the two phases of decentralisation of the Civil Service; the tax exemption scheme for profits repatriated to Ireland for investment; the reintroduction of section 23, and the extension of the urban renewal scheme and tax relief on the use of cars for business purposes. This is a considerably larger, more substantial and more potential list of employment measures than were contained in any other recent budget.
The main function of the budget is to set the fiscal and financial framework for the economy. Within the budgetary framework specific measures to promote growth and development should be pursued throughout the year. There are also many activities of Government, either in the form of administrative action or legislation which can have a positive impact on growth and development.
The improvement of competitiveness by reducing costs has been given a high priority by the Government, and acted upon. There is no need for a new agenda because this has been on the Governments agenda since last summer.
Our very low inflation rate which was not significantly affected by budget measures will increase our export competitiveness, as has the reduction in our very high interest rates.
Price controls on petroleum products were abolished by the previous Government, and had to be reimposed in July to ensure that price reductions were fully passed on to the consumers. The price of premium grade petrol dropped 23p between July and budget day. Electricity prices will be reduced for commercial firms who will be able to reclaim VAT and secure a 5 per cent reduction in their energy costs.
The cost of insurance for businesses is a major problem. The Courts Bill, which provides for the abolition of juries in personal injuries cases, the drafting of legislation to give effect to the main recommendations of the Barrington Commission of Inquiry on Safety, Health and Welfare at Work and the promotion of safety audit arrangements by insurance companies are all measures which taken together, should lead to a reduction in the insurance costs at present borne by businesses.
Liberalisation of air transport with consequent cheaper fares for business travellers will also have a beneficial effect. Reductions in international charges for telecommunications, which will help improve competitiveness, will be announced by Telecom Éireann. In the budget we have raised the capital allowances and running expenses by 50 per cent on the use of motor cars for business purposes. All in all considerable progress has been made in the last 12 months in reducing interest, energy and transport costs, but there is a great deal more that needs to be done.
The concept of a consensus on economic and social policy emerged out of the NESC report of November 1986. To set it out in express terms in the form of a written programme, as we have done, represented a major advance in the management of the Irish economy. For the first time ever a comprehensive three year agreement, designed to regenerate the economy and improve social equity was drawn up and agreed by the trade unions, the employers, the farmers and the Government.
The Programme for National Recovery has been widely welcomed. Furthermore the validity of the Government's policy approach has been confirmed by the Economic and Social Research Institute, which shows that current policies should lead within a couple of years to a return to a path of steady growth.
This approach of seeking dialogue and consensus has the complete support of the European Commission. The Commission states in its Annual Report:
Strengthening social dialogue at national and Community levels remains decisive for widening the consensus on the changes of attitude and the economic policy measures necessary for the success of the Community strategy ... However, the will to cooperate shown by the social partners at Community level should also be better utilised at national level.
The current negotiations in the Community on the Delors plan and the outcome of the Brussels summit this week could have an important influence on our efforts to achieve our objectives in a number of sectors of the programme. The increase in the resources, and the changes in the mechanisms of the structural funds, for instance, could be very helpful and it will be essential that we keep the objectives of the programme in mind throughout these forthcoming discussions.
The budgetary measures announced by the Minister for Finance, together with the 1988 Estimates and Public Capital Programme, are designed to meet the Government's commitments in the programme on macroeconomic policies, tax reform, social equity and for development and employment.
I cannot possibly accept Opposition criticisms to the effect that the Government have missed an opportunity this year in the area of tax reform. In fact the Minister for Finance has rightly claimed that this year represents the greatest advance in tax reform since the introduction of PAYE.
One of the specific commitments made by the Government in the Programme for National Recovery was to introduce income tax reductions to the cumulative value over the next three years of £225 million including increases in the PAYE allowance of £70 million. That entire undertaking has been met in this budget as the total cumulative value of the changes outlined last week were £91 million this year, £152 million in a full year and around £400 million over the three year period of the programme.
The PAYE allowance, which was introduced by a Fianna Fáil Government in the 1980 budget, has been improved with the objective of moderating the disproportionate amount of the burden of taxation now borne by the PAYE sector.
Another income tax objective, set out in the programme, is to achieve a situation where two-thirds of taxpayers will pay only the standard rate of income tax. This aim was included in our general election manifesto. The tax changes in this budget will bring us close to achieving that aim, by broadening the bands and reducing from 48 per cent to 37 per cent the percentage of taxpayers paying at the higher rates. The 35 per cent income tax band has been widened by £1,000 in the case of a single person and £2,000 for a married couple, the first major widening of bands since the early eighties. The budget changes will end the unacceptable situation whereby a single person earning less than £10,000 a year can be subjected to a marginal tax rate of 58 per cent. A married couple, with one spouse working, on PAYE with full mortgage relief, will in future have to earn nearly £26,000 a year before reaching the highest tax band. By international standards, our tax rates were particularly penal for the middle income group and for the single person. It is only equitable that they will benefit relatively better from the reliefs being given. While this is a significant improvement in the existing situation, it cannot be regarded as anything more than a first step in the right direction. The very limited resources available ruled out the possibility of any substantial relief for income taxpayers this year, but this must be our continuing objective.
The income tax concessions are still more than three times what could be required for personal and PAYE allowances and the bands to keep pace with the expected rise in the consumer price index. For the first time anyone can remember, income tax is not planned to rise at all compared with the previous year. The anticipated yield for all forms of taxation will be up by only 2.2 per cent, slightly less than the expected rate of inflation. As a result of the substantial increase in tax relief in the budget, any PAYE worker getting the pay increase provided for in the Programme for National Recovery will at all income levels see his or her take-home pay rising ahead of the rate of inflation.
The tax concessions in the budget, together with the moderate pay rises in the programme, reduced interest and mortgage rates and the social welfare increases of £45 million should lead to some modest increase in disposable income. This is important because it can give some lift to personal consumption in real terms this year. The listlessness of consumer spending is a major inhibiting factor in raising the level of domestic economic activity and providing more employment opportunities.
This year two fundamental reforms are being undertaken in the tax system — the introduction of self assessment for the self-employed and major changes in corporation tax. Both will move us towards the objective of a more efficient and equitable tax system.
I made a commitment to the introduction of a system of self-assessment back in January, 1986, very soon after the publication of the Fifth Report of the Commission on Taxation. The issue was taken up later that year by the then Minister for Finance, Deputy Bruton, who organised some preliminary studies on the subject with the help of the IMF. We repeated our commitment as the second main aim of our taxation policy in our election programme.
Self-assessment requires radical changes in procedures both for the taxpayers concerned and for the Revenue authorities. It must be phased in over a period, but the initial key steps are being put into effect this year. These will apply to income tax for the self-employed and to corporation tax. As part of these arrangements for a phased move towards self-assessment, self-employed and corporate taxpayers will have the option of a fuller, voluntary form of self-assessment this year.
These changes in assessment procedures will make a major contribution to improving their efficiency and effectiveness, by eliminating lengthy negotiations with the tax authorities following the initial estimate which may be inflated, and by reducing the huge backlog in the tax system. The new system will work better for the self-employed and farmers, in that it will avoid the confusion which arises when amounts are demanded that are not actually due. It will greatly reduce scope for delays and evasion, and speed up the flow of revenue to the benefit of the country at large. It will create greater equity as between the self-employed and the PAYE sector by the more prompt collection of tax. An inefficient tax system is a definite handicap for the commercial sector and a source of frustration generally. Therefore, this change is in itself an important contribution to improving the climate for business. It has been efficient and successful, for example, in the United States.
The basis on which farmers will pay tax was decided once and for all last year. This must be accepted as final. The other sections of the national community who are paying very high rates of tax cannot be expected to tolerate any further chopping and changing or any further postponement. The only fair and acceptable system of farm tax is taxation on actual income, the same as for every other sector of the community. The income tax system is fair and acceptable not only between different sectors of the community but between different categories of farmers. It is the only system that can take account of good years and bad, of family circumstances, and of whether for instance a farmer has a milk quota. The income tax system for farmers is an integral part of the Programme for National Recovery, and will be adhered to. Sensible arrangements for the administration of the system have been devised, which will be further improved by the reform of the taxation system for the self-employed announced this year. I would ask everyone to accept that this issue has been finally settled.
The withholding tax on professional fees which was introduced with effect from June last yielded £20 million in 1987. The tax is an important innovation in the tax system and it has operated satisfactorily to date. It was another measure designed to improve equity in the tax system as between professional self-employed people and the PAYE sector. It will be further extended this year to payments made by the Voluntary Health Insurance Board in respect of fees of medical personnel. The prediction that the tax would cause widespread disruption has proved to be unfounded. In 1988 the Exchequer will continue to benefit from the cash flow from the tax even though most taxpayers will be able to offset tax withheld against their normal tax liability in 1988. It should be clearly understood that the tax withheld is tax which in almost all cases is due to be paid ultimately. There is no valid justification for opposing this method of collecting tax which is payable, especially as it is a very mild version of the much greater deductions made from the vast majority of taxpayers, namely the PAYE sector.
The effectiveness of the tax collection system became impaired over recent years by the steady addition of an increasing load of functions. A number of administrative and legal steps were taken to improve the situation in regard to arrears and as announced in last year's budget a special task force formed from officers in the former Department of the Public Service was established specifically to tackle the problem. It has had considerable success. By the end of 1987 over £14 million in arrears had been collected compared with the target we set of £10 million. The position is, however, still far from satisfactory.
Accordingly two further steps are being taken: a new power of attachment and the incentive of a once-off offer to waive interest and penalties where taxpayers bring their payments up-to-date. The incentive to bring tax payments up-to-date gives every trader, company and self-employed person a final opportunity to put their tax affairs in order before all the new procedures for collection and enforcement become fully operative. It should be availed of now.
It is idle to talk of tax reform as long as the system of collection is defective. All the changes and innovations that have been announced, therefore, have the aim of ensuring that we have a system of collection that works efficiently and fairly. Anything else is blatantly unjust and causes widespread resentment.
The extension of social insurance to the self-employed is one of the most significant developments in relation to social welfare which has taken place in recent years. Up to one quarter of a million self-employed persons will be brought into the social insurance system for the first time. They will now in return for the payment and contributions acquire cover for a pension in old age and, in the event of their death, their wives and children will also qualify as of right. This is a major change for the better in the whole area of social protection and brings Ireland in this regard into line with virtually every other European country.
The self-employed have hitherto had to rely on social assistance pensions financed fully by the Exchequer at a cost of over £300 million to the taxpayer. The self-employed will now for the first time be making a direct contribution to the financing of their own social welfare pensions and over time this will reduce significantly the net cost of these pensions to the Exchequer and, ease the burden on the general taxpayer.
In setting the level of contribution for the self-employed the Government had to have regard to the fact that not all self-employed are in the high income category and to bring in straightaway a high level of contribution would have caused hardship for many. There is also the consideration that it will take some time to get this major change operating effectively and comprehensively. The arguments therefore for phasing it in over a number of years are compelling. For the 1988-89 tax year the rate will be 3 per cent subject to a minimum contribution of £4 per week. Those on low incomes who are not regularly assessed for income tax will be subject to a flat-rate contribution of £2 per week. Smallholders on unemployment assistance will not be required to pay a contribution towards the scheme. The contribution rates for future years will be laid down in this year's Social Welfare Bill, so there will be no doubt about the three years phasing in up to 5 per cent.
This is another commitment by the Government in the Programme for National Recovery which is being honoured and I am fully satisfied that we are doing it in a way that is fair and equitable to both the self-employed and taxpayers in general. It does not make sense for any party to say they will vote against it because it is being phased in. The political reality is that this long delayed reform is at last being implemented and it is less than honest not to recognise what a major step this Government are now taking which so many of their predecessors failed to take. It should be welcomed as something that is long overdue.
This Government can legitimately claim that in the two budgets they have introduced they have now done a great deal to spread more fairly and evenly the burden of tax between the PAYE sector and other sections of the community.
The corporation tax changes which were announced by the Minister for Finance also constitute the first major reform of the corporation tax code for many years. This reform will have important economic and fiscal effects. It is now accepted in several OECD countries that corporation tax rates should be reduced and capital allowances cut back so as to improve economic efficiency and bring about greater equity in the treatment of different firms and industries. Our standard rate of corporation tax at 50 per cent is too high by comparison with many EC countries and its reduction to 43 per cent will be of significant benefit to service companies including construction firms which tend to be labour-intensive. There has been increasing recognition recently that our tax system unduly favours capital expenditure at the expense of employment, and the parallel reduction in the first year of 100 per cent capital allowances to 50 per cent will help to restore the balance. Other changes are designed to increase Exchequer revenue and simplify the corporation tax system and other aspects.
A new provision is being introduced to encourage Irish companies to repatriate dividents from their foreign subsidiaries subject to certain conditions. These moneys will be relieved from Irish tax if they are used here for specified investment purposes. The Government expect that this measure will ensure that progressive Irish companies with international associates which are in a position to do so will repatriate as much of their foreign earnings as possible for new investment and the creation of employment here.
For the second year running the Government have imposed no excise duty increases on beer, wine and spirits which should be of assistance to this important industry and also be of some help to the tourist industry.
The introduction of the 48-hour restriction on cross-Border shopping in this Government's first budget on 31 March 1987 has been highly successful. A grave distortion of trade has been corrected and business restored to its natural centres.
It is difficult to understand why the Commission of the European Communities should take the view that this measure is in breach of our obligations under the EC Treaty, and that they intend to test the matter in the European Court. The situation that had developed was intolerable from the point of view of the Irish Government with the so-called travellers' allowance being the subject of wholesale abuse resulting in an unacceptable loss to the Irish Exchequer and to business in this part of the country. Whatever the purpose of these travellers' allowances they clearly were never intended to support organised shopping expenditions and the distortion of trade. I believe the Commission should think again about this issue.
To achieve the fiscal and social purposes of the budget it was necessary to raise some new revenue. The 8p increase in excise duty on petrol in fact, only offset a single price fall earlier in the month and should be viewed in the context of a fall in the price by 21p since last July. The improved capital allowances for motor cars for business purposes which I have mentioned are something that the motor industry have sought for some time past, and the measure should be of assistance to that trade.
Fianna Fáil Governments have always been deeply committed to social progress and to the improvement of the situation of the disadvantaged within our society. We have never accepted that social welfare is a legitimate target for reductions in expenditure. It is our firm conviction and indeed an essential part of our political philosophy as a party that the poor, the disadvantaged and the old have a special claim on the resources of the community and must always be protected from the impact of economic forces to the greatest extent possible.
We have honoured our commitment under the Programme for National Recovery to maintain the overall value of social welfare payments. We have also had regard to the recommendations of the Commission on Social Welfare. The overall increase of 3 per cent should maintain the general standard of living of social welfare recipients having regard to the projected rate of inflation. The improvement in the situation of the long-term unemployed, the extension to them of the free fuel service and the extension of treatment to the spouses of insured workers are all in line with the trend of the recommendations of the Commission.
Two special measures in the budget give a clear indication of our decision to respond sympathetically to special needs. One is the provision of £3 million over three years for voluntary organisations providing accommodation for the homeless and the other is our decision to retain in full the drug refund and long term illness scheme, because we recognise the hardship that would otherwise be caused. I think there has been a general acceptance that even in the very constrained budgetary circumstances of today the Government have given evidence of their commitment to the welfare of the least well off in our society.
I have often expressed, both in public and in private, my admiration for the quality of our Irish public service. I am very conscious of the debt we ove them for their competence, loyalty and integrity. I understand and appreciate the depth of disappointment among many of those in the higher echelons when it was decided that the special pay award based on sound and objective criteria should once again be deferred. It is important that public administration should be able to attract and retain its share of the best talents that are available by rates of remuneration and conditions that are reasonably competitive having regard to the differences between the public and private sectors. The difficult situation, the need for public acceptance of severe reductions in Government expenditure that have been necessary this year but which inevitably impose hardship have meant that we have had to postpone a little longer the restoration of a reasonable level of reward for the splendid and dedicated service given in these areas of responsibility.
It is an essential part of our economic and fiscal policy that corrective action on the public finances must be parallelled by sectoral development policies. This basic principle has been implemented actively and comprehensively since we came into office. In every sector the Government have been vigorously promoting, stimulating and co-ordinating development. The whole structure of the administration has been reorganised in order to enable development policies to be more effectively implemented. New policies with new mechanisms to implement them are in place over a wide area of the economy. Opportunities for investment and employment are being pursued actively.
The promotion of an international financial services centre at the Custom House Quay is an example of our approach. Progress with this important major project has been swift and satisfactory.
The contract for the development of the Customer House Docks site was formally signed on 25 January 1988, with work commencing immediately. The first offices in the financial centre are expected to be available for occupation by mid-1989. Interest in the centre has been remarkable. Already, 11 companies have received approval in principle from the Minister for Finance for proposals for financial services activities in the centre. The proposals already approved carry an employment content of some 500 jobs. In addition, there are some 50 more companies in serious discussion with the marketing team on potential projects. It is expected that when the development is complete there will be about 7,500 jobs in the centre.
The interest has come from local Irish companies, including our two major banking groups and from leading international companies and financial institutions in the UK, continental Europe, the Far East and the United States. Foreign enterprises with already established links with Ireland are also showing keen interest in the centre.
Approximately 400,000 square feet of office space has already been provisionally booked by companies intending to set up operations in the centre. This accounts for the whole of the first phase of the financial services centre and amounts to approximately half the total office space being provided on the site.
The recent weakness in the stock markets has not had any noticeable effect on the level of interest being expressed by financial institutions in the centre. In fact, this development could well help the centre in that many firms are increasingly conscious of the need for economies in their operations and will look at the economic advantages and low costs that Dublin can now offer, as well as our favourable time zone position; the high quality of the communications services and the skilled highly trained personnel which will be available at the centre.
Nineteen hundred and eighty seven was an important year for Irish industry. It saw a return of business confidence and significant increases in industrial growth, output and exports, Industrial policy has been reorientated to achieve a more targeted and cost effective approach to industrial development. Significant new measures were introduced to improve the cost environment for industry.
Real economic growth depends on confidence, a competitive environment and a willingness to invest and undertake new ventures. From this point of view, 1987 was in many respects a year of departure for Irish industry, a year when industry saw clearly that there was a Government willing and able to tackle our economic problems. Lower interest rates, low inflation, wage moderation and satisfactory growth were all benefits to industry from the new approach.
Despite a very slow start to the year, the number of new projects negotiated by the industrial development agencies improved significantly during the course of the year: 11,000 new jobs on the ground were created in 1987 with assistance from the IDA. In addition, 180 overseas investment projects with a job potential of 12,500 were negotiated by the IDA, while Shannon Development approved 20 projects for the Shannon free zone with a job potential of over 800.
I am happy to say that the IDA have started 1988 with a very strong project pipeline and I am confident that the manufacturing job targets set out in the Programme for National Recovery will be achieved. A number of large projects are once again being secured for Ireland. Last year we had the Goodman Group investment of £260 million creating 660 permanent jobs in the food processing sector, and this year the approval of the Saehan investment in Sligo, a first from South Korea, which involves 800 jobs at full production, is another milestone. Last Friday in Cork I was in a position to announce the establishment of a major new pharmaceutical facility by Merrell Dow Pharmaceuticals Inc.
The Estimates decisions for 1988 already taken encompass a shift in State support from fixed assets to R&D, management development and marketing support. This is in line with the policy direction set out in the Programme for National Recovery.
Some elements of the re-orientation of industrial policy designed to achieve the increased job targets at a lesser cost to the Exchequer are a greater degree of selectivity in the type of projects assisted and the grant package on offer; the strict implementation of performance conditions relating to grant assistance to jobs actually created; increased emphasis on jobs created rather than jobs approved and greater use of repayment forms of assistance.
The main emphasis in the strategy for generating new industrial projects from overseas will be to exploit Ireland's competitive advantages so as to maximise investment and job creation opportunities from new clients in sectors of increasing opportunity, e.g. financial services, and in markets of strategic importance, e.g. the Far East. A related goal will be the attraction to Ireland of key firms in targeted technology sectors in electronics, pharmaceuticals and engineering, including new areas such as biotechnology and micro-electronics. At home the development agencies will work closely with the existing base of over 900 overseas companies, encouraging developments which expand operations to include R&D, purchasing and market responsibilites.
Priority is also being given to the indigenous manufacturing sector which will be actively strengthened through the operation of the company development programme and by ensuring that State support is allocated to meet the specific weaknesses of indigenous industry in areas of management development, marketing and product development. To offset increasing competition worldwide for new investment, a more selective approach is being taken to promoting overseas investment by concentrating on projects and sectors where we can exploit our particular advantages.
Sectoral strategies have been prepared on a number of areas to meet the target of 20,000 extra manufacturing jobs to be created over the next ten years. Fianna Fáil have given greatly increased priority to science and technology, by appointing a Minister with responsibility for science, by creating a new science agency, EOLAS, amalgamating the functions of the NBST and IIRS, and by the establishment of a specific science budget.
There is a comprehensive re-equipment programme under way in EOLAS test laboratories. A biotechnology programme has been established; an advanced manufacturing programme to help industry adapt to the rapid advances in manufacturing technology has been set up and already 21 graduates are being employed in industry funded projects. There is also a teaching companies programme designed to overcome the severe shortage of technically qualified personnel in indigenous industry. The 1987 programme has helped to place 30 high calibre science and engineering graduates in Irish companies, so that they can implement and profit from technologies which would otherwise be beyond their reach. The Government are actively considering how R&D assistance to industry should be allocated so that national priorities in the field of science and technology are fully reflected in State support for industry.
The Government's Programme for National Recovery places considerable emphasis on the key importance of Ireland's export performance as a means of generating economic growth and job creation. The appointment of a Minister with specific responsibility for Trade and Marketing is clear evidence of the high priority that the Government accords to this important area.
A central feature of any export drive must be the adoption of a market led approach by our firms. In the past we have tended to concentrate on developing our productive capacity without always having due regard to changes in demand in the market place. This lack of a full marketing awareness has been a particular handicap to our native Irish firms which have the potential for substantial development if they are willing to address their marketing deficiencies.
When we look more closely at our achievements on the export front we cannot but be concerned at the fact that only 20 per cent of our exports are produced by indigenous manufacturing firms. The remainder is due in large measure to the performance of multi-national companies based here. It is also of concern to note that 60 per cent of Irish firms do not engage in any export activity at all.
Our performance on the home market also leaves a lot to be desired when one considers that in 1986 the value of our total imports of goods and services was equivalent to 53 per cent of our GNP compared with an EC average figure of 29 per cent. We must turn this situation around and I am convinced that Irish companies have the capacity to do so.
A National Marketing Group to provide the best practical advice to the Government has recently been put to work. We have now received EC approval for the Export Trading Houses announced in last year's budget, and we have been developing Irish centres in major cities abroad, which are intended to concentrate in one place all the services of State agencies and promotional bodies.
Legislation has been brought forward to enable semi-State bodies to develop and diversify. A Bill is before the House to provide for a limited extension of the ACC's lending power to the non-agricultural sector. Also before the House is the Electricity (Supply) (Amendment) Bill, 1987, which will, inter alia, enable the ESB to form subsidiary companies, thereby allowing that company to exploit to the full its potential to develop overseas services, to diversify at home and to make full use of the Moneypoint terminal for wholesale coal imports. Other State agencies with the potential to develop overseas services and to diversify their activities are at present exploring how best to achieve this either individually or collectively. For example, the IDA, SFADCo, CTT and ICC are in the process of developing a subsidiary company through which they will undertake joint consultancies overseas. An Overseas Services Committee has been established under the chairmanship of the Minister of State for Trade and Marketing with a view to identifying the scope for the development of consultancy services overseas. Aer Rianta has recently been successful in its bid to provide the Soviet airport authorities with management consultancy services for duty-free facilities at Moscow airport.
Since 1981 the construction industry has been going through a protracted period of great difficulty. It has proved impossible to sustain the industry over recent years by major public spending programmes. With the exception of the road network the heavy infrastructural demands of the seventies have been satisfied to a considerable extent. A pick-up in the construction industry will depend on a pick-up in the economy as a whole and a growth in private sector demand.
That is a fundamental change.
It is recognised in the industry that the success of current macroeconomic policies particularly in the fall they have brought about in interest and mortgage rates will have a favourable impact on construction activity in due course.
The two phases of the Civil Service decentralisation programme, the Financial Services Centre, the extensions to the urban renewal incentives, the extension of the natural gas pipeline to Dundalk, and the undertaking of the Western Ring Road by the private sector are examples of decisions taken last year, which should have a beneficial impact. Many of these types of initiatives can be carried a stage further within the consultative framework of the Construction Industry Board. In the context of the budget we have restored one of the most successful incentives of modern times, the section 23-type incentive originally included in the 1981 Finance Act. This should give some stimulus to the construction industry, as will the reduction in stamp duty from 4 per cent to 3 per cent on houses in the £50,000-£60,000 price range. The lower rate of corporation tax will also be of special benefit to construction companies.
A key priority included in the programme is the maximum development of our natural resources based on a sound approach which will concentrate on an efficient, economic supply of raw material and securing the maximum return through added value.
I was astonished to hear a suggestion from the Opposition benches that there was no progress in the food industry sector. The exact opposite is the case. In fact there has been tremendous progress since the strategic importance of the food industry was recognised by the establishment of the new Office for the industry and the adoption of an integrated approach to the whole agri-food processing sector.
In 1987 there has been an unprecedented number of substantial investment proposals for the food sector; like the investment by Goodman International of £260 million. A large scale rationalisation and modernisation programme for the pigmeat sector was announced in July and involves an investment of £140 million over five years and a significant investment in cheese production, sheepmeat and poultry processing and in the potato and vegetable processing sectors.
A new National Food Centre which will integrate the former R & D food programmes of the Institute for Industrial Research and Standards and An Foras Talúntais will be fully operational within a few months.
Under the 1987 Finance Act food processing companies can now avail of capital allowances for machinery and plant without regard to any grants received.
A comprehensive development plan for the food and drink industry entitled A Future in Food 1988-92 was published by the IDA in close consultation with the Office of the Minister for Food, on 7 December last. The strategy sets out detailed objectives and targets for the food industry to be achieved over a five-year period resulting in an increase in exports by over £350 million and nearly 5,000 new jobs in processing by 1992 in line with the objectives set out by the Government in the Programme for National Recovery. Central to the strategy is the need to change the industry's emphasis from a mainly agricultural processing industry supplying commodity products to one which is a modern competitive food industry supplying quality foods for the European market. The strategy also includes selectivity with future State investment being reserved for specific development strategies by companies which are market led and which have the required management skills and marketing expertise.
A major reorganisation and expansion of the horticultural industry is under way. A five year development plan for the industry, on a product by product basis is being prepared by An Bord Glas with the aim of regaining markets from imports and increasing exports and, in the process, laying the basis for the creation of 1,500-2,000 jobs.
The same approach is being actively pursued in forestry which has been specifically targeted for restructuring and development. Down in the forest something is definitely stirring.
The Government, in deciding on a vigorous expansion of the forestry sector, were influenced by the existence of a large land bank of submarginal agricultural land in excess of 1 million hectares eminently suited to forestry; the commitment by the European Economic Community to actively encourage the diversion of land from the production of agricultural goods which are in oversupply; the fact that in Ireland many species of trees can grow up twice as fast as in other EC countries; apart from the domestic construction market, in which Irish timber has over the past decade gained a strong market share, there is an assured export market for processed Irish timber in the United Kingdom and in the EC as a whole.
The Government increased State planting last year by 1,000 hectares to 8,000 hectares which, together with private sector planting of 3,000 hectares gave a record national planting level of 11,000 hectares.
An even more ambitious programme has been set for 1988 which will increase State planting to 10,000 hectares. This considerable expansion, which will reverse the declining levels of State planting up to 1987, is being significantly aided by the Government's decision to devote areas of Bord na Móna's cutaway bog to forestry. Of the 10,000 hectares being planted this year, 1,000 hectares is comprised of cutaway bog.
While the Government are pressing ahead with the expansion of State forestry, we are also taking positive steps to secure a sizeable expansion of the private forestry sector. We have increased the domestic grant for conifer planting to £500 per hectare and that for broadleaves to £800 per hectare. In addition, proposals which are now with the European Commission are expected to provide greatly increased incentives for private timber growing.
1987 saw a considerable increase in the volume and value of timber produced from State forests, reflecting the rapid maturing of the State forest estate. Revenue from timber sales rose by £3 million to almost £20 million last year. A further increase is being programmed for 1988.
The process of establishing a semi-State company to manage our State woodlands on a fully commercial basis is well in hand and the preparation of the necessary legislation to give effect to this is at an advanced stage.
The achievements of the Forest Service since March last — record planting levels, increased timber production and market penetration — show that this service, given a commercial thrust, will readily adapt to the challenges of the future and justify the Government's faith in their ability to further develop this great national resource.
Over recent years Ireland's oil and gas licensing terms had become less and less competitive. In response to the cutbacks in oil exploration budgets resulting from the dramatic and sustained fall in the price of oil in 1986 and 1987 the Government announced new oil and gas licensing terms in September 1987 with the objective of maintaining and expanding exploration in the Irish offshore by making the Irish terms once again among the most competitive in Europe. Already the response of the oil and gas exploration industry has been very positive and a number of new drilling commitments have been entered into for 1988 as a direct result of the new terms.
There has been a significant increase in hard minerals exploration activity. It is expected that there could be a threefold increase in the number of new licences issued this year as compared to each of 1986 and 1987.
As part of the Government's Programme for National Recovery, the natural gas grid is being extended northwards from Dublin taking in the towns of Drogheda and Dundalk. Spurlines are planned to population centres and the horticultural industry of north County Dublin. EC Regional Fund assistance of £12 million has been sanctioned towards the estimated £30 million cost of the project. Work on the project will go ahead this year and during the construction phase some 200 jobs will be created.
The Minister for Energy and Communications is actively seeking to reestablish operations at the Whiddy Oil Terminal at Bantry, County Cork. Currently, a number of inquiries embracing both Whitegate and Whiddy have been received. One of these involving the Nigerian authorities is currently the subject of intensive negotiations.
We are seeking 5,500 new jobs in the marine sector through the development of sea and inland fisheries and aquaculture. Bord Iascaigh Mhara has prepared a Five Year Plan designed to meet the targets set out in our programme. The Marine Research Institute will be established in 1988.
As everybody knows, the Government have identified tourism as an industry capable of making a major contribution to economic growth. It is also an industry that can be a major earner of foreign revenue and a source of new jobs. Because tourism is basically a transport industry and the key to its success is good cheap access transport, I brought tourism and transport together under one Department when setting up this Government. This has given an entirely new thrust to the development of tourism.
An emergency package of measures in 1987 which included a range of cheaper air and sea fares, new services, the introduction of a petrol voucher scheme for UK motoring tourists and increased marketing resources brought dramatic results. 1987 turned out to be a record year with overseas visitor numbers exceeding two million and foreign tourism earnings topping £500 million for the first time ever.
We are now concentrating on 1988. The Programme for National Recovery calls for an additional £500 million annually in foreign tourist revenue, through a doubling of visitor numbers, and the creation of 25,000 new jobs in tourism over the next five years.
Already a number of initiatives have been taken; a relaxation of charter rules, a special fares initiative whereby Australian visitors to the UK can travel on to Dublin at no extra cost; aggressive marketing and promoting by Bord Fáilte of special interest package holidays; more reduced access fares and the extension of the business expansion scheme to tourism activities, all these will enhance our 1988 tourist prospects. A tourism forum was held recently at the Royal Hospital, Kilmainham, in which a wide representation from the tourism industry participated. Recently a small specialised task force has been established of top people in the industry to assess the various proposals that were put forward at the forum and to suggest to Government how the extra funds provided in the budget can be used to the best possible advantage.
I think I have, in this outline of economic policy and follow-up action, given clear evidence that the developmental side is being pursued positively and comprehensively.
This budget is an important part of the implementation of our Programme for National Recovery. It contains four principal features: first, it is another major step towards stability in the national finances; second, it provides both tax relief and major tax reforms, with no real increase in the tax burden; third, it demonstrates real commitment to improving the position of the least well-off in our society, particularly the long term unemployed and the homeless; and fourth, it underpins the development and employment strategy of the Programme for National Recovery agreed between the Government, employers, trade unions and farmers.
The budget has received a wide level of acceptance among the public. I believe the people have a good perception of what must be done and what the Government are doing to meet the critical situation in which we find ourselves. A large majority of our people understand what is needed to be done so that the present difficult period can be put behind us. They will support us in our efforts, whatever the difficulties may be, as long as they are satisfied that the Government have a clear view of what they are about and will not be deflected from their course by pressure from any quarter.
I have been nearly 15 years in this House and during budget debates, debates on White Papers and debates on economic strategies and philosophies which fly through the air in graphically designed covers every few months I have often found myself speaking after Deputy Haughey. This is the first time I find myself not having the heart to dine out on what he has said and that is for two reasons. First, if I were to descend from another planet with only paper information about the state of the economy and suffering from total amnesia of the half generation which had led up to that condition I could not fault anything which I have heard in the speech delivered over the last hour and a bit. The same goes for the Budget Statement delivered ten days ago by the Minister for Finance. I would not wish the Government party to be under the impression that it is from the lack of any material ammunition that anyone on this side forebears from dining out and dining out richly on the sight of a party which now preaches discipline with which I agree.
I cannot disagree with a single word the Taoiseach has said on this issue. They now preach discipline having not only preached but insinuated, whispered, whinged and whined indiscipline over the last 15 years, since they left office in 1973. Indiscipline was their message. "Cause trouble for the Government and you will get your way" is the message to some extent they are now having to pay the price of themselves because — and I do not take any joy in this — I observed them running for their lives pursued by pressure groups and doing U-turns. They have taught the people to behave like that. I do not recall Mr. de Valera being downfaced by deputations or by parades out in Kildare Street. I do not remember Sean Lemass being downfaced by them. I need not tell the House that Willie Cosgrave was never downfaced and I do not remember John Costello being down faced.
That is the harvest which the party opposite sowed relentlessly and diligently for 15 years and which they are now reaping themselves. It is because they have come to a recognition of what the State is up against, because they are trying to clean themselves off, that I am willing to make the act of faith that it is so with sincerity. I am not going to try to make things difficult for them and I have not got it in my heart to remind the Taoiseach, and his party, that it was the same Deputy, and his friends, who shouted Thatcherism, monetarism and bookkeeping at Garret FitzGerald's Government when they sat over there. They went around the country telling people that there had to be a better way knowing that every hobbledehoy in the country would understand that as meaning that there has to be an easier way, there has to be a way that I can push my daily responsibilities off on to my neighbour, or if my neighbour will not carry them, on to my children and their children. The insinuation behind the expression, there is a better way, is that there has to be an easier way.
It is not from me that that message was ever preached in the country and it was not from most of the people in this party but from the other side of the House. I could spend the entire of my speech, and several other speeches, reading from the record of how the people were persuaded that it was nothing except the university remoteness of Dr. FitzGerald. It was because of the economists, backed up by the malice of the business class who were supposed to be so solidly behind us although to a man they voted against us in 1977 because of the poor little wealth tax, that a mood built up which became almost ungovernable and, perhaps, is ungovernable. Perhaps the proof of that pudding has yet to be seen. I take no pleasure in the fact that when it is I will not be sitting on a Government bench but I will get the results of it just the same, and my family will, like the families throughout the country. Although I may keep a quiet tone in the rest of what I have to say I do not want the party opposite to run away with the idea that anybody here is under any illusion about what brought us to where we are. I have no illusions; I have explained in the last few minutes that the diligent corruption, the diligent day in and day out corruption of the public sense of responsibility indulged in by the party opposite was a major factor in it.
Another factor in it — I cannot contradict what Deputy Haughey said in this regard — was the shackling of this party to the Labour Party in the crucial years 1982 to 1987. It galls me not to be able to contradict what the Leader of Fianna Fáil has said since I have spent 20 years in politics trying to do them down but I have to agree with the Leader of that party that what he has said is correct. Once 1983 came and went we were goosed as a Government which could hope to revive the economy and to inject some sense into the public finances. I have to bear the chagrin of that personally, and I mean personally, because I pay a certain price for sitting on the back benches. I went to the back benches because I could see that coming. I have to bear the chagrin of that and had to wait to see in power a Government who did their best to destroy the economy of the country with the mood they built up among the people. I had to wait to see them take the first apparently solid step towards regaining the position which they for reasons of political partisanship and greed threw away.
It may be said that they are penitents, they are political Magdalens. A Renaissance painter would depict them with their long hair down over a bare shoulder, politically speaking. I am willing to accept that their penitence is genuine and I am going to take it at its face value but I have not forgotten the old days. I have not forgotten the rhetoric which was launched at the unfortunate Dr. FitzGerald shackled to a party he never ought to have touched with a barge pole politically, nice though they are as individuals. It is easy to have a pint with them but politically they are poison in the eighties. It was pathetic to see him having to deal with colleagues like that and being confronted on the far side of the House not by sympathy, not by solidarity, not by support and not by a party that might have had the generosity to say, "let us close down the Civil War; come over here and work with us or let us cross the floor and work with you and not mind those fellows whole ideology comes from 2,000 miles to the East". I do mean the Parliamentary Labour Party when I say that.
Instead of the solidarity that we might have expected from one section of the old national movement, what we got was rhetoric about bookkeeping. We were told that we were only a crowd of bookkeepers, that there was a better way, an easier way. We were told that we could feed the debt, hang it around somebody else's shoulders and leave it for our children and grandchildren. That continued until 1986, and beyond, when Fianna Fáil industriously supported the teachers' claim for pay retrospection. The Government I supported then said that they could not afford that claim and that they stood on an arbitration agreement which allowed the other party not to pay an increase it could not afford. Nobody wanted to know about that clause. The teachers did not want to know about it. If their leaders had not intended that clause to be taken seriously they should not have signed that agreement and they should have been told that by an Opposition which should have had too much pride to get behind them merely because they are a powerful political voice. No, they were not told that; they were flattered and supported in their claim. That unfortunate wretched, shackled, hamstrung and faltering Government had to give in to them. Now we are discovering what it is like when a Government are not able to afford something. Nobody is going to begrudge the crowds on the doorsteps of the Fianna Fáil Deputies, deplorable though I think it is that a Government should be run by pressure groups and parades. Certainly, I do not feel sorry for them because they made that trouble for themselves.
There are a few dangerous ideas which have to be resisted although, in a general sense, I do not fault the Taoiseach's speech this evening. I have declared a sort of amnesia in regard to the years and years of destructive energy which the Taoiseach, and his friends, put into trying their damndest to keep this economy down as long as they could be in the job themselves. There scarcely is a word in the Taoiseach's speech that I could quarrel with or would wish to. Some of that speech I would applaud, such as his reference to the Government's attempts to fight off the European Commission's attack on the 48-hour limitation on the duty-free expeditions. The same applies to the budget.
However, I should like to emphasise that if the Government mean discipline they have got to mean it and enforce it in a way that will stick. They must enforce, in particular, intellectual discipline among their own supporters, among Cairde Fáil, Taca, or whatever other organisations they may have in the background whose names everybody is afraid to utter. I am not insinuating that there are such organisations, there may be for all I know but I am not aware of them. All I am saying is that wherever the Fianna Fáil Party have any kind of intellectual influence it should be deployed, now that they have apparently converted, in support of the discipline they have proclaimed in the budget. We are willing to give them a kind of amnesia and an amnesty in the general political/legal sense. They appear to be reformed desperadoes, or partially reformed, but I do not want them to forget that the amnesty which the Irish people have granted them — I hope that is so and I do not regret the fact that there is a consensus of a kind behind the Government but it is a provisional one — means that they have lifted the conviction of political sabotage from them. They have only suspended it; they are a Government of ticket-of-leave men and that ticket-of-leave Government will have to show and prove themselves day in and day out. If they stumble they will not get cheap jeering from this side of the kind that we had to endure; not from me certainly. They will have to prove that the message of discipline is one which they genuinely believe and they will have to keep teaching the people and telling them that there is no easy way out, that there may be a better way but it is not an easier way.
The first illusion that a Government is under an obligation to repress intellectually — there will be people, of whom Deputy Higgins is a mild and gentle enough representative, who might be anxious to see a sign of the jackboot in the use of the word "repress"— is the idea that we can take a shortcut out of our difficulties by what is called rescheduling our debts, by doing what I believe I heard a junior Fianna Fáil Minister recommend not long before Christmas, that is telling the international bankers to go and take a running jump at themselves. That kind of talk is baby talk. If this country enjoys the topmost grade of international credit rating, it is precisely because no Government here of any colour has ever done that. If a Government here were to say that we are terribly sorry, that we cannot afford the instalment due on 10 March nor the one due on 1 June and that we are unilaterally demanding a rescheduling of our debt portfolio, under threat of non payment, this country would be dragged overnight from its topmost position in the credit rating down near the bottom.
I seem to remember some junior Minister saying that some countries are supposed to have tried that and got away with it, but their experience shows no such thing. I will read from a recent bulletin, issued from a temple of capitalism, which Deputy Higgins would not touch with a tongs. It is the bulletin of the Morgan Guaranty Trust Company of New York and deals with the subject of world financial markets.
A shrine.
The issue of July 1987, dealing with Peru, states as follows:
One approach to limiting financial transfers is seen in Peru's unilaterally decreed limit on debt-service payments, in effect since 1985. Emphatically, this is not the right approach. Peru's debt-service limit has ensured practically no new money inflows from banks. It is virtually cut off from credit.
I do not know why anyone imagines this country's fate would be any different if we were suddenly to say we could not pay the interest or were unwilling to do so and that if our creditors wished to get any money at all they would have to accept lesser instalments and take them later. It passes my comprehension that anyone could imagine that an international bank would be any more understanding about that position than a private bank manager. Let us suppose that any of us carrying a loan or mortgage were to go and say, "Look here, I have decided I am not going to pay the March instalment of your interest and you need not bother putting it on my bank statement because I will not pay it. I cannot afford to pay it and I consider that you are making a lot of money for your shareholders. I do not see why I should make them rich and you will have to wait a great deal longer for your money". What would be the reception any of us would get in our local banks if we were to display that kind of lunacy to the man whom we had politely asked for a loan some time previously? What would his reaction be if we came in again to ask for an extension of credit or a new loan to underwrite a new enterprise? As they used to do in the 19th century, I should apologise to the House for arguing a point so absolutely clear.
I hope nobody on the other side of the House will allow any of his branches, cumainn or comhairlí ceanntair or anywhere within the large organisation which Fianna Fáil control, that kind of talk to be heard without contradiction. It is true that nothing which the Government, through the Minister for Finance, have said tends in any way in that direction and I do not want to be taken as implying otherwise. However, I have heard that kind of talk from the Fianna Fáil benches and outside the House. It is important that it is not left to the Opposition to do the dirty work of rebutting the childlish delusions which underlie it.
One of my own children, when very small, used to say when I said I could not afford something, "but, Daddy, you could write a cheque". He saw me writing cheques and assumed that was the perfectly acceptable substitute for banknotes, that one had no relationship with the other and that it was as easy to pay for something by writing on a scrap of paper as by producing bank notes from one's pocket. When he became a very little older, still very far from the use of what we would call reason, he saw the point. That point still seems to be far too adult for a lot of the people I hear, many of them senile babies over there on the left who think we can take ourselves out of our swamp of debt by telling the international bankers to get lost. The Government have not been guilty of that and I must make it perfectly clear that I am not imputing any such thought to the wiser heads among them.
I want to say, however, that anything in the nature of short-term improvements in the revenue or fiscal situation are almost equally suspect. I am not saying I disapprove of them but I certainly disapprove of a budget or financial strategy being built around them. I mean by that things like the short-term and necessarily once-off pre-emption of future revenue. I understand that the redundancies in the public service, of which the Minister for Finance is trying to get a large number, not a moment too soon, are to be financed by taking in now the supposed future profits of the Central Bank. That is a misconceived policy. If we were to have a totally unprecendented natural or economic disaster which no one could possibly have foreseen and which in the nature of things could not possibly occur again, there might be a reason for a step like that. I do not think that merely because the Government have decided to cut down the numbers in the public service there is justification for a step of this kind. If that is sound financial strategy, how is it that Seán McEntee, Seán Lemas, Paddy McGilligan, Gerard Sweetman, George Colley, Jack Lynch or even Deputy Haughey as Minister for Finance did not go for this option? If it is so easy to lay one's hands on a stray £18 million or £25 million by calling in future profits of one of the State's creatures or organs, how is it that none of these people thought it could be done?
The same goes for writing into the budget the anticipated yield of an accelerated collection of outstanding income tax. Every pound collected by means of crash income tax collection this year will mean a pound less next year. I must not be understood as being against the idea of the prompt and punctual collection of income tax or against the idea of trying to get down the arrears, but that a quick raid on the arrears in order to get over a problem of this year's budget is financially sound or a good move in budgetary terms I do not believe.
The worst financial device of the whole lot, something which my own party introduced, is the national lottery. Deputy Haughey, who likes to be associated with success or what he perceives as success, is up front, not quite on the Champs Elysées but at some more humble address in order to announce the first annual results of the national lottery. The national lottery had exceeded expectations. That is the Government's position on it. I have to say in justice to Deputy Haughey that had there been a Fine Gael Minister there I do not expect he would have acted any differently. I consider it a gross shame that a national lottery exceeds expectations. While I did not care for the way he used to hold the pistol to the heads of the last Government and would say that he would not vote for them any longer unless he got a scheme costing God knows how many millions which would have torn the heart out of the city of Dublin, I have to agree fully with what the former Deputy Liam Skelly said about the national lottery. I must not be taken as adopting this insulting phrase, nor can I even vouch for its authenticity. He quoted the great President of France, Georges Clemenceau, as saying that a lottery was a tax on imbeciles. I do not know whether Clemenceau said that and I would not wish to use language like that in any case about people who play a lottery. I think that language is far too insulting and gross to use about what may be only a small flutter. Nevertheless, I think for a Republic to stoop to a method like this for raising revenue is contemptible and shameful. I am glad to see Deputy Higgins nodding his head. I am amazed. I am beginning to wonder whether I should have studied my brief a bit better before leaving myself open to the charge that he has agreed totally with me about something. I do regard it as shameful if only because it psychologically perpetuates among ordinary people the crock of gold at the end of the rainbow mentality.
Even though Deputy Higgins is looking at what he may think is a smooth rock face of unchallengable material with which he completely agrees in hearing me say these words, I hope he will not find that I am giving him a toe hold when I admit, to what may be a middle class admission that is, that with one exception, I personally have not bought a lottery ticket. I did once buy one in Italy because the old man selling them appeared to be so miserable and it seemed to cheer him up so much when I bought a couple of tickets from him. I have never bought a lottery ticket with the intention or hope or prospect of winning something. I know no one in my family has and I know, but I had better not be too positive, that none of my friends or relations have bought tickets. Going into the post offices in the city, as I have to to buy stamps and so forth, I do notice people buying lottery tickets and while they span a fair spectrum of the population and they are not all the same type of people. My impression, and I hope I am not offending anybody in saying so, I would not be doing my job here if I did not give my impressions whether they were right or wrong, is that the lottery tends to be patronised by people who have the least to spare. I have not checked this and perhaps I should have done so before coming in here to speak about it but I suspect that the big end of the lottery business is done on the days when social welfare payments are made. I think it is a scandal that this State should think of financing necessary services, because that is what it is doing, through this source. By the end of 1988 the State will have paid out £44 million in lottery prize money, but it will have taken in almost £72 million in profits, that is the estimate. This consists of £35 million last year and a projected figure of £36 million for this year. To remove money like that from the pockets largely of the less provident section of the community is a scandal. It is degrading and I do not care and I do not give a damn what other civilised republics may do it. There may be historical local reasons for it. I think lotteries have a very ancient history and publicly organised lotteries go back certainly to the 17th century and perhaps beyond that. It may be that there are historical reasons for it but I think it is a scandal that in the late 20th century we in this Irish Republic should choose to pick this means of raising revenue from the poorest, not only from them but certainly preponderantly from the less provident sections of the community in order to provide services which we should have been providing out of ordinary revenue.
I have here a statement which I think came from the Minister for Finance, in which he gave out the figure I have mentioned of almost £72 million. The statement carries no date but it is from earlier this year, certainly before the Budget Statement. It tells us that the money will be allocated as follows: £26.3 million on sport, youth and recreation; £8 million on arts and culture; £4 million on the Irish language and £6 million on health. Health is going to fall on the lottery, not entirely of course but £6 million worth of health will be financed from the lottery and £700,000 will be used to finance — guess what — The Dublin Millennium.
The "alumenium".
I do not really trust myself to speak on the Dublin Millennium, so I will pass it over. I made a promise to the Lord Mayor that I would lay off that subject until 1989 had arrived and I will keep that promise. I have enough material without mentioning that. If it is necessary for the State to support sport, youth and recreation, and I recognise the value of these and I certainly recognise the value of youth now that it has departed from me, it should not be done in this way. I recognise the value of sport and recreation even though there was a time when the State did not feel that it was among the items on which public revenue had to be spent. Arts and culture, the Irish language and health are matters on which this State since its foundation has spent some money in one shape or form. Myles na gCopaleen, during the war years, when he heard people complaining about the fact that the State was spending £.5 million a year on the Irish language said that at a time when the major civilised powers of the world were spending tens of millions every day on trying to destroy one another, surely it was one of the few humble little boasts this modest little State could make that we spent £.5 million on a relatively urbane object like trying to revive an ancient language. How the money is spent, we need not discuss now. This is not an appropriate debate for discussion of the work of Board na Gaeilge but certainly it has always been something that the State spent money on, right back to the days of the first Government. That expenditure was financed out of ordinary revenue.
To put onto a siding objects such as those that are to be financed from the lottery appears to attribute a second class status — naturally you might not think so if you are getting the money from it — a conjectural, only provisional, really there by the skin of its teeth status to these objects of expenditure. However, that is not the worst aspect of it. The worst aspect is that it is being financed at the expense of people — I am, not saying they are on the poverty line — whom should be trying to train in habits of providence, whom we should be trying to sustain and help to raise to a level relative to the rest of the population, to those who are better placed. I have said enough about it but it is an easy way to collect money at the expense of those who should be the objects of the State's special protection and should not be the targets of its plundering fiscal paws.
The Government's image has been one of firmness. As I have said it is a great chagrin and sorrow to me that I should have had to wait to see showing that firmness a Government who, in my belief, by their operations on the public mentality as much as by their operations when in Government created most of the problems. The firmness, that image, that reputation which they are beginning to develop has to be heavily qualified in the light of the financial measures I have mentioned — the easy options and the kind of talk I have mentioned as for one Government office-holder about the rescheduling of debt.
It appears even more dubious when you look at it in the light of actual or prospective Government retreats. I may not have a complete list in my mind but the Government backed down over the school entry age which they wished to raise to a level which would still have been lower than the European average by quite a bit. They backed down over the abolition of the National Social Service Board. They have backed down over hospital closures and very probably they will be seen to have backed down over the enlargement of class sizes in the schools. None of these, I want to emphasise, are measures that I specially welcome or would necessarily support. However, they are instances in which a Government had decided one day were necessary and decided the next were not.
All I am saying is that they are instances in which a Government decided one day that something was necessary and decided the next day that it was not, not because they genuinely had changed their minds but because they were forced to change their minds by political pressure. What must qualify this image of fairness?
I have had people on to me from the teachers organisations, I have had deputations, letters and telephone calls by the bagful and I can tell the Deputies opposite and the House that not by one word have I given them any encouragement in the idea that the Government were in a general sense wrong in trying to economise. I have not with one word encouraged them in trying to heat up their campaign against the Government. I have, as I believe many Deputies on this side of the House have, taken on to my own shoulders part of the burden which the Government have to carry. I am willing to do that. Naturally I would like to have a say in the formulation of the policies which turn out so unpopular, perhaps in being able to deflect them, to recast them or shape them in some different way. But I am perfectly prepared to do it in a way in which Deputy Lyons's colleagues were not two years ago so that this State should not founder in bankruptcy. If you require that kind of solidarity from this side of the House then you should stand solid yourselves——
We intend to.
——and do not leave Fine Gael Deputies in the situation of having it said about them: "You were the ones who being tough and even Fianna Fáil have now changed their minds". If you want solidarity from people who genuinely wish you well, who do not want to see you making a bags of the economy and care less about their seats than that this State should survive, then you should stand firm too.
We intend to.
I do recognise, in spite of perhaps all the disagreeable things I started with, that there is over there somewhere among that ticket-of-leave Government, a will, an embryonic or inchoate will, to try rectitude for a change. It is a nice change but it may be too bracing a change for some of the Fianna Fáil constitutions that have been weakened by a lifetime of political debauchery. Possibly that bracing air of financial rectitude is too much for people who have been sunk in tropical stew of jobbery and of cheap shots — I do not want to be personal about it so I will not say what came into my mind. That change may be too much for some of them but I believe there are enough of them there to try to make that change stick. I urge them not to return to their old triumphalism and not to speak as, for example, Deputy Flynn did last week. I had it in mind to dine out a bit on what Deputy Flynn said here, and not only did he say it——
The Minister for the Environment.
I beg your pardon, the Minister for the Environment. Anyone can be forgiven for saying more when they get to their feet than they had intended to before they got to their feet and I have been guilty of that very often. Deputy Flynn had scripted these remarks and he was so proud of his script that he handed it around to the Opposition as well as to everybody else.
He has a new writer.
He said that it was clear that the Opposition parties in the House had clearly decided to be part of the problem. We are part of the problem. I am part of the problem even though I have defended this damn Government to the people who have turned up on my doorstep in scores. I have tried to stand by them and tried to explain the job they had to do and why they had to do it but I am part of the problem. He said that we are barren of ideas. What kind of ideas has Deputy Flynn given us over the years? Did we never hear from him about Thatcherite policies of monetarism? Was his voice never raised in here in whinging and olagóning about what we were doing to the unemployed, the little children and the old people? I feel so disgusted — and I do not want to make an enemy out of Deputy Flynn and I do not mean him any harm because he may well be part of a new——
You seem to be anxious to devote him a lot of your time.
I wanted to devote a moment to the Minister. He is the only Minister I have noticed adopting this kind of tone in the last while and I hope that his speech will remain isolated. I do not want to get back into this slagging. I am just as good at it as Deputy Flynn is and I will give as good as I get. I do not want to be forced into it because I do not have the heart for it. The conditions in this country are far too serious for it and I urge and beg the party opposite not to drop back into that kind of tone. If they can maintain the tone which on the whole they have maintained here since they came into office I believe they will get a generous and constructive response from this side of the House.
Before I sit down there is one financial measure I would like to propose — and I am departing from the earlier rhetoric — to the Minister for Finance and it relates to the collection of tax. There has been for many years in the State a system which has been operated by the Central Bank for the issue of tax reserve certificates which is really intended as in aid of the self-employed or people who do not pay tax by PAYE.
About 20 years ago when I had a bit of money — and it was a long time ago because I am never out of the red now — I knew I would be getting a tax bill and because I had heard of this system I thought I might as well give the money to the State and let it be in the pocket and earning interest. The system of these tax reserve certificates is that if you pay your money to the State in advance of a demand it credits you, tax free, a certain percentage which can then be set off against your liability when it materialises. I remember that I was told that I had to buy these at the Central Bank. Back in the middle sixties I had to tromp down to the Central Bank in Dame Street, stand at a counter and explain to an official behind the counter what I wanted. The official had never heard of these certificates. Finally, after much kerfuffling an ancient dog-eared application form for a tax reserve certificate was produced from somewhere. I filled it in and the official, looking at me as though I had two heads, took it in over the counter with the couple of hundred pounds I had to spare and in due course it was credited to me when finally I had my tax liability established.
I must say — and I mean it without sarcasm — that the Minister's idea of amnesty in order to allow people to make a short end of their conflict with the Revenue Commissioners in regard to personal income tax — an amnesty that will not be insisted on — is a good idea. I do not like a budgetary strategy being built around it or a sudden assault on tax arrears. That measure is a good idea but an even better idea would be to extend the tax reserve. It is many years since I had any loose money that I might have put into such a system in order to secure myself against a big tax bill and so I have been out of touch with the tax reserve certificate system. However, I inquired about the system the other day and the Central Bank not only very courteously told me about it but actually sent me a form. They accompanied it with the information that the interest which a tax reserve certificate carries is 3 per cent. It has been 3 per cent ever since the scheme started. Who in his senses is going to put money into a tax reserve certificate at 3 per cent? Why not close the system down rather than do that?
The amount of money which the State had taken in in tax reserve certificates in the calender years 1986 and 1987 was published in the 5 January edition of Iris Oifigiúil. In 1986 there were sufficient loonies in the country to voluntarily give to the State money on tax reserve certificates, a total sum of £23,880. In 1987 the amount taken in was £24,090. There have been years when I myself have paid almost as much income tax as that. What is the sense of this system? The idea is an excellent one and it was fine when there was no inflation and low bank interest rates. I hope the Minister will take a look at that system and advertise it. Since it began it has never been advertised. Nobody knows about it. Even the people in the bank did not know about it in 1965 when I went in with my pathetic £200 and offered to give it to them. If that system carried a reasonable rate of interest and if that interest was tax free it would bring in a shoal of income tax from self-employed people who now put it on the long finger because they do not see any advantage to themselves in making things easy for the State.
Another fiscal measure about which I would have liked to have heard the Minister talk, even in an unbuttoned mood — and perhaps he will mention it in some after-dinner speech sometime — is the question of the relationship of VAT to personal income tax. I often inquired from the Minister for Finance — Deputy Bruton, the last time I inquired — whether he would calculate what amount of revenue a 5 per cent VAT rate on foodstuffs would produce when discounted from it a compensatory increase in allowances for children allowances and in welfare payments, so as to relieve the less affluent section of our community of the burden of the extra 5 per cent in foodstuffs costs, and to calculate how much of a relief could then be given in the standard rate of income tax. I got very interesting answers from Deputy Bruton and I would urge the present Minister for Finance to look at them. I do not want to be taken to be advocating the imposition of VAT on food. I am advocating that since VAT on food is imposed in most European countries, a very low rate of VAT on food, even when compensated for by correspondingly increased welfare payments for the poorer sections of the community, might make it possible to have very substantial reliefs in personal income tax, thus allowing people to decide for themselves what they will do with their money. That essentially is the way in which income tax and disposable personal income should be looked at by the State.
In a general sense I wish the Government well and urge them not to expect more virtue from the Opposition than they themselves are willing to display.
I welcome Deputy Kelly's support for Deputy Haughey's speech today even if his support is with a touch of amnesia. I would also tell Deputy Kelly that I do not feel like a reformed desperado——
The Deputy has not been here long enough to become a desperado. He has not won his desperado's spurs yet. The Deputy may get the chance if he sticks around.
Less than a year ago my contribution to the 1987 budget was made in my maiden speech. At that time Deputy Carey noted that my speech was full of optimism and wished that he could share my optimism. Opposition speakers decried the budgetary strategy of the Fianna Fáil Administration then only a few days old. They continued a negative approach which had served the country so poorly during their term of office. The Opposition castigated Deputy Mac-Sharry's forecasts and projections and spoke of a death wish for the Fianna Fáil Administration of Deputy Haughey. I have no doubt but that these experienced parliamentarians had a secret pity for what they saw as the innocence and inexperience of the new Deputy who dared to endorse with enthusiasm and open confidence the budgetary policies of a fledgling minority Government that they thought had at best a tenuous life of some months. Today I can point to the fact that budgetary and fiscal measures put in train by the 1987 budget have brought this country out of the trough of despair in which it had wallowed for the Coalition years to a position where once again people dared to hope and where the economic indicators substantiate that hope.
Last year the economy grew by 3½ per cent. There is every reason to hope. The growth of 3½ per cent is not the only positive indicator. We should look at our record trade surplus of £1.5 billion. These two positive indicators of economic performance are of immense significance. There has also been greatly reduced Exchequer borrowing and the outflow of capital has been halted. The Government have reduced Exchequer borrowing by £300 million. The Exchequer borrowing requirement has been reduced by a significant 2.1 per cent of GNP, from 10.3 per cent of GNP last year to 8.2 per cent of GNP this year. There are other indicators but these alone, taken against a background of doom and gloom and suicidal deathwish forecasts are sufficient reason for me to feel a glow of self-satisfaction for daring to express optimism and for praising the 1987 budget.
This budget is a good budget. That is the opinion of the public at large as reported in yesterday's opinion poll in The Irish Times. One could examine the comments of the political and economic correspondents in our national papers. Paul Tansey writing in The Sunday Tribune on 31 January said in his “Money Matters” column:
Thus the Government has accomplished a major correction of the public finances for the second year running.
He went on:
For 1988, the Government have produced a good budget, warts and all.
I suggest you read his contribution on——
Gulliver in The Sunday Press wrote that Ray MacSharry had introduced an unexpectedly positive and progressive budget. Chris Glennon, the political correspondent of the Irish Independent on Friday, 29 January cited a statement from Young Fine Gael which welcomed the increased tax free allowances. This came from a source never given to generous acclaim for Fianna Fáil measures and it is a most significant pointer to the excellence of this budget and its strategies. In the Irish Independent on Friday, 29 January Brendan Keenan's “Business Independent” page carried a feature on PAYE entitled “How Will Your Fare”. The initial sentence in this feature read:
The Budget gave unexpectedly generous relief to income tax payers.
One can take that as a valid, independent objective appraisal of the PAYE concessions in this budget. Bill Murdock's "Business Opinion" column said that as the budget has created the right conditions to allow a further drop in interest rates business should in general be pleased.
I, too, am pleased that so many independent observers and commentators from the world of journalism, industry and commerce expressed positive views and general approval for this budget. The underlying strategy in this budget is to keep the engine of economic advancement motoring along on the progressive course started in last year's budget. In the Programme for National Recovery the importance of this major task was the very bedrock of this programme. We cannot have national recovery if we luxuriate in a false world of economic pipedreams. At times one must be cruel to be kind, one must be bold to be brave. We have to put the national interest first and foremost irrespective of short-term consequences, however unpalatable these may be.
This budget is all about national recovery. It is all about national confidence. It has been said by an eminent Opposition speaker that this budget ignores the problem of unemployment. In my view, this budget is all about unemployment, it is all about creating a climate of justifiable confidence in the economy, so that the growth of 1987 may be sustained and strengthened into 1988 and beyond. It is about consolidating the very significant advances made in the last year when the upward trend in unemployment has at last been arrested. This is the way that leads to new employment opportunities.
Everyone recognises that high interest rates are a costly burden for those running a business. Since last March, interest rates have dropped considerably. Lower interest rates benefit business people and individual taxpayers alike. Hundreds of thousands of mortgage holders have benefited from the fall in interest rates over the last year and have had many pounds more per week in their pockets because of lower mortgage repayments. However, the climate for investment is of even great significance. This substantial fall is set to continue as the budget has created the right conditions to allow a further drop in interest rates. Investment in plant and machinery is rising and, with the impetus afforded by this budget, will continue to rise.
The reintroduction of section 23 relief is a further example of a measure that has an inherent capacity to re-energise the construction industry, with increased employment very much in prospect. If I may make a comment on that, it is my belief that three years may not be enough for that relief to be seen at its best. People who would now be applying for planning permission for any major site would need two years or a little more from the time that they would plan, get finance and get the construction off the ground.
Why did the Deputy vote against it when I proposed it in an amendment last year?
I hope that we shall see the Minister having a look at the situation, to give a little more time for it to be given its full benefit. We must remember that the rate of inflation is at its lowest level for 20 years and the checks and balances so ingeniously built into this budget will ensure that favourable inflation levels will continue to be a feature of this year and the years ahead.
A prerequisite of the sort of economic growth that leads to increased employment is that we achieve the dual aim of continued improvement in the public finances with a parallel reduction in our dependence on borrowing. If this budget strategy could be likened to an arrow, this policy of reducing borrowing would be at its very tip and increased employment would be its flight feathers, the latter to follow the former as night follows day.
This confidence in our economy, its performance, its potential for growth and its independence of excessive dependence on external borrowings is not just a matter of national concern and interest. If we wish to attract foreign investment we must create a perceivable climate of economic growth and stability. We are a small nation but the position we occupy on the world stage is prominent, important and noteworthy. We would not wish to hide our attractiveness from external attention, neither can we hide our warts. Our economy is not just a national economy, it is part of a world economy. If we are to attract international investment of the kind which can create new employment, such as the increasingly successful Custom House Docks site, we must have an economy as strong and resilient as any other. We are noted and commented on in foreign journals and if we wish to ensure the sort of comment that will attract investment, we must gain an economic standing free from the anchors and chains of borrowing and fiscal outflows. We need to continue fearlessly on the path set out on by this and by previous Fianna Fáil administrations.
The mechanisms built into the strategic framework of this budget will ensure that the significant recovery that characterised industry in 1987 will continue. It was acknowledged by the Confederation of Irish Industry in their last newsletter of 1987 that progress was made in tackling the very high level of Exchequer borrowing and that this was achieved without a significant negative impact on the economy. After taking into account interest payments on our foreign debts, national output increased. In fact, it was the best growth rate for years. This shows clearly that the Government are managing the economy in a way that is very effective, so much so that there was a growth in volume of manufacturing output of some 10 per cent, which represents the best performance since 1984.
I present my own optimism unashamedly, an optimism underpinned by a firm determination to resolve our economic difficulties. This determination has been the hallmark of each and every member of the Fianna Fáil benches over the last year, from the Cabinet Ministers who are bringing forward some of the most radical reforms in the history of the State to the lowliest backbencher who will support what is right for this country. It is heartening to see this optimism spreading, and spreading it is, as is made clear in the survey of chief executives in the post-budget issue of Business and Finance. Not for many years have the captains of industry had such a positive view. I realise that certain members of the Opposition and, I suppose, my colleagues in the Progressive Democrats Party, must be alarmed at this survey. It reveals that their bluff has been pierced. Their early rhetoric about what must be done has not been matched by any consistency. Their prohibition on any cuts in Deputy O'Malley's backyard is the clearest evidence of this. But I digress.
The Deputy does.
Optimism is spreading. The foundation of our optimism is a solid belief in the Irish people, coupled with a determination that what must be done will be done. Others may talk about it. There is a feeling now that there is a Government who can do it.
The year 1987 was also a year in which the benefits of increased cost competitiveness were felt. This Government recognise that the key to job creation for the longer term is competitiveness. This increased competitiveness is well catered for in the budget. There are some who would cynically say that competitiveness is but a handy cliché. Let me disabuse such as might be tempted to be so dismissive. Let me give an example of competitiveness in action. We need look no further than my own constituency, to Aer Lingus and Ryanair. Aer Lingus have taken an aggressive stance in countering the low cost carriers with whom they must compete. They have also decided to meet head on the loosening up of the new European regulating situation. I understand that they have applied for a whole series of inter-European routes and are confident that they will meet the challenge of any carrier with whom they may have to compete. The new routes from Sligo and Galway are only a beginning of what seems to be a bright, confident period of expansion for this semi-State body, by all accounts a highly profitable one, as this year's accounts will bear out.
I have read with interest of the joint approach between management and unions in Aer Lingus to this competitive challenge. New salary rates, while lower, have enabled the company to take on marginal extra business that otherwise would not be viable. The result of this joint approach had been an almost unprecedented series of recent advertisements in the national press for pilots, clerks, hostesses and stewards, operatives and trainee programmers. I understand that Aer Lingus will be taking on literally hundreds of new staff within the next few months. Indeed, I have observed young men and women converging on my own town of Malahide recently for interviews in response to the various advertisements I have mentioned. I believe that the people in Aer Lingus have got together and pointed the way forward for us all. They are creating major employment by contributing enormously to our tourism programme. Here I must commend them on their recent initiatives on new lower fares for European routes next summer. The tremendous response to their cheaper UK fares initiatives helped to create a record tourism year in 1987 and I know that we are in for a better 1988. Aer Lingus have thrown down the gauntlet in the aviation field. Perhaps we should look at other sectors of our economy that are wringing their hands in despair. They should pick up the gauntlet, meet their problems head on to have a bright and confident future.
So much for Aer Lingus, but let us not forget Ryanair. Here is an example of recent Irish enterprise. They are a company in the same business as Aer Lingus, competing with Aer Lingus and terrierlike, ready to compete with all comers. This is another example of competitiveness at its best. You can apply the concept of competitiveness with small firms competing locally to the major companies competing worldwide, from the micro-economy to the macro-economy. The Government must provide the conditions at both micro and macro level. This budget has within it the ingredients to accomplish these ends. Competitiveness grows out of the confidence. Let me say again that the 1988 budget is all about confidence. The Government in drawing up this budget were acutely conscious of the need to generate confidence. They are aware of a growing confidence in the nation. It would be worth mentioning, as the Taoiseach did today the success of Aer Rianta in their bid to provide the Soviet Airport authorities with management consultancy services for the duty-free facilities at Moscow Airport.
It is also worth mentioning that Dublin Airport, two years ago catering for 2.5 million people, now caters for 3.5 million passengers, and it is reckoned that 4 million passengers will come through Dublin Airport in 1988. In a short space of time the airport has gone from being the size of those at Birmingham and Glasgow to being the size of those at Berlin, Hamburg and Geneva. It is a tribute to the progressive management there that they have adapted to this new business in a most professional way.
Once again, it is my view that the Government's budget is successful and this is pointed up clearly in the latest Small Firms Association's survey reported in the current CII newsletter. This report states that 41 per cent of the 127 firms sampled in the poll stated that they were more optimistic for the coming year; that this is an increase of 29 per cent on the last survey which was carried out in February 1987. At that time only 12 per cent of the respondents expressed themselves as more optimistic about prospects for trade. In the latest survey 46 per cent of respondents indicated that they are planning to invest more over the next 12 months in contrast with a figure of 10 per cent of respondents who envisaged reduced levels of investment.
It is important to note and honestly acknowledge that the decision not to increase PRSI for employers is a positive one reflecting the constructive employment-generating ethos of this budget. It is generally acknowledged that PRSI can act as a disincentive to employment and the value of holding the line here must surely have a very advantageous spin off on the jobs front. It has been said that there are major reforms of the taxation code which will gradually have a positive, persuasive effect on the economy. The increased emphasis on our natural resources and the parallel act of pursuit of development opportunities, for example, in food processing, tourism etc. are beginning to show results. To all who say that this budget does nothing for unemployment, I would put the positive perspective that the Minister, Deputy MacSharry's budget has introduced and say that this budget is about employment.
Let me turn for a moment from employment to the specific issue of the self-employed. The decision to extend PRSI to the self-employed is a most progressive measure. The self-employed, numbering approximately 230,000, represent about one-fifth of the working population. It is absolutely correct that all citizens should have access to retirement benefits on an equal basis, and I welcome their inclusion. The greater the inequalities between groups in our society the greater the possibility of antipathy between them. We see this at times in the farmer/PAYE area. Indeed, it is not unknown for certain politicians in less broadly based parties to lament such antipathy for their own ends. The great majority of farmers and the self employed do not live easily with this. The honest citizen paying his taxes does not deserve the tax dodger lable so liberally dispensed by those serving other ends. The extention of PRSI, in so far as it removes one major distortion between self employed and the PAYE sector, is to be greatly welcomed. One more area of social division is going.
The non-contributory pensions bill, £320 million in 1987, is a massive Exchequer burden borne by the taxpaying public. It is only right that the self-employed should make a significant direct contribution to this. Some Opposition spokesmen have criticised the initial rate of contributions at 3 per cent. Would they so easily call for 6.6 per cent additional contribution from any other sector? Any group needs time to adapt to a new levy of this order, and the phasing arrangements outlined by the Minister to be included in the Social Welfare Bill are an imaginative solution to a difficult problem.
Since the Deputy relied on Paul Tansey in relation to his speech perhaps he would still rely on him in relation to this. He contradicts the Deputy flatly.
Indeed this reform will eliminate one major paradox from our society. The self-employed, the most independent among us in terms of earning a livelihood, are the most dependent on the State in old age. Many decide not to make any personal provision for retirement because to do so might disqualify them from the non-contributory pension. Now they can provide in advance from their own resources, confident that the State will provide the basic retirement benefits. No longer must they sacrifice one for the other. Another poverty trap will be eliminated.
One other possible consequence of this change may need attention in due course. The non-contributory pension has in the past stimulated farm succession. The farmer handed over to his son and qualified for the pension himself. There is a danger that, now qualifying as of right, some might delay the handover to the younger generation. That would be disastrous. If this begins to happen it must be tackled. Indeed it is more worthy of the attention of the farm leaders than their attack on the recommended level of PRSI contribution as determined by an independent body, the National Pensions Board, a recommendation based on very sound reasoning.
The contribution from the self-employed this year will be small at £12 million, but it will grow and its introduction is very important. Is it not extraordinary that other parties talk of breaking moulds and building on reality and when it comes to the crunch Fianna Fáil are in reality the true mould breakers in Irish society?
The budgetary provisions in relation to the PAYE sector should have brought a cry of "well done" from the Opposition benches. But not so. Promises of relief for the hard-pressed taxpayer are customarily greeted with some cynicism. This stems from the raw experience of having heard successive Ministers for Finance make such promises only to find that the pay packet is further diminished by the tax take. However, in this budget reliefs have been worth up to £596. Added to the mortgage savings most families have experienced, this makes for a very healthy situation in family finances. In the day following budget day the reaction to the Minister's proposals on taxation received a favourable press and two headlines in the same page of the Irish Independent of that day are indicative of the positive response. One headline read “First steps to Major overhaul of Tax System” and the other read “Promises to taxpayers to be honoured”.
The corporate tax system was set on a path of reform through the decision that will lead to the replacement of the present seven rates of corporation tax with a special rate of 10 per cent and a 43 per cent rate. This long overdue reform is but one of the budget measures which will help to rationalise the public finances. It is acknowledged that our tax system is too complex. It has far too much leeway for the clever tax loophole merchants and the less subtle tax avoiders. The Commission on Taxation has very useful pointers towards rationalisation and we all agree that this is overdue. So full marks to the Minister for Finance, Deputy MacSharry, and the Government for grasping the nettle.
The Minister has kept faith with the PAYE sector by increasing the PAYE and personal allowances and by widening the tax bands. This has resulted in 93,000 taxpayers moving out of the 48 per cent rate to the 35 per cent rate. It also takes 55,000 from the top rate of 58 per cent to safer ground at 48 per cent. And very significantly it takes 16,000 lower paid workers out of the tax net altogether. The PAYE sector should be greatly encouraged by the Government's undertaking to make significant progress towards having two-thirds of tax payers on the standard rate. They should see in this budget the evidence of the Government's good faith. In this regard I do not propose to reiterate the actual figures for the increases afforded in this budget. I do, however, ask the public at large to compare the treatment they have received at the hands of this Government with their sorry experience of recent Coalition budgets when they were progressively bled white in budget after budget. Yet, Deputy Noonan had the temerity to say that this was a dull and uninspiring affair. His sterile political analysis of the budget was unworthy of a person who has accused the Government of being bereft of ideas, even in the face of an avalanche of ideas; one can only conclude that Deputy Noonan is bereft of even a minimal shred of constructive thought.
I have already referred to PRSI in another context. I would like on behalf of the vast majority of citizens to compliment the Minister for Social Welfare for the steps he is taking to eliminate abuses of the social welfare system. We are all victims of the dishonest practices in this area. Some employers encourage dishonest practices by failure to deduct PRSI and thus facilitate those who would work and sign for welfare benefits at the same time.
Some other unscrupulous employers collect PRSI and fail to remit it. This conspiracy of fraud by evasion, collusion and co-operative theft from the public purse is a crime against every man, woman and child in this State.
The Minister for Social Welfare Deputy Michael Woods, has set up a new Joint Investigation Unit to crack down on these. The majority of employers and employees operate legitimately and discharge their obligations honourably. This House should by acclamation endorse the actions of the Minister, and those who would stand back should forever hold their tongues and be judged at the bar of public opinion.
The determination of the Minister for Finance to clamp down on tax evasion is another important strand in the campaign to ensure equity right across the total spectrum of public finance in both the giving and the taking. It is to be welcomed that we are finally coming to grips with these matters.
The dilemma facing any person charged with ministerial responsibility for social welfare is a very difficult one indeed. The needs of social welfare recipients have to be balanced against all the over-riding budgetary considerations that are especially acute in an economy where there is a major problem of national indebtedness. Notwithstanding the immense difficulties and seriously limiting constraints, one has to concede that in this budget the Minister did an excellent job. The Combat Poverty Agency in their commentary on the budget have noted, and I quote:
It is within the social welfare system that the most socially progressive and welcome changes have been made.
The CPA go on to mention the 3 per cent cost of living increase with effect from July and note that there are also a number of additional measures that represent significant new departures in policy. It is important to note that this appraisal comes under the heading "Progressive Measures". The CPA analysis goes on to acknowledge that the single most important of these new policy measures is the extra 8 per cent increase in unemployment assistance and supplementary welfare payments, on top of the 3 per cent indexation addition. One can readily agree with the CPA observation that breaking with the across-the-board percentage increase system, coupled with the concept of additional payments for the lowest paid, is a good thing. The latter is, of course, a strong feature of the Programme for National Recovery.
The CPA also laud other features for example, (a) simplification of the child dependent allowances; (b) 6 per cent increase for the children of unemployment assistance and supplementary welfare allowance recipients; (c) favourable treatment for families with six or more children. I am well aware, as the Minister is, that there is still a long way to go in reforming social welfare but at last this budget has made a very substantial start to help the least well off in society.
We have had reams and reams written and said about the homeless. Here, at last, in this budget we have some positive action instead of the unending verbiage. This Government are serious about the plight of the underprivileged. The homeless are the lowest rung in the ladder of underprivileged society. One million pounds per annum for the next three years is a positive contribution to the alleviation of the plight of the homeless. It is heartily to be welcomed. I hope the Minister for the Environment, Deputy Flynn, will bring forward the legislation on the homeless as quickly as possible.
Any tax on pension funds has the potential to be highly emotive and is easily misrepresented. It is an area in which to tread carefully. It is not the economic panacea for all our ills that those who shout "Pension Funds could pay £300 million" claim. Generally such commentators have little or no understanding of the operation or financing of pension funds and are blinded by big figures. Taxes of the order suggested, whether on fund values, fund income and contributions, could seriously inhibit the ability of employers to fund adequate pensions for their employees. They would inevitably lead to higher payroll costs as contributions were forced up, or more seriously and as is more likely, to greatly reduce benefits. We want to improve rather than disimprove the position and comforts of our elderly. We want those comforts for ourselves when we are of an age to need them. We do not want to widen the gap in terms of pension provision between State and non-State employees — pensions perhaps being the one area where the State employee has an advantage over his fellow citizens at present.
We must not undermine the ability of funds to provide adequate benefits. For that reason the Minister has been most emphatic that his 6 per cent levy, quite a modest tax, will not be repeated. It is a once-off. I wholeheartedly welcome this commitment. As a once-off it is justified by the exceptional investment returns of recent years. Real rates of return have been, and indeed still are, exceptionally high, well above what actuaries to pension funds could have anticipated. The funds should be well able to absorb this one-off tax and, on the basis of the Minister's commitment, the trustees, the managers and the actuaries can proceed confident in the knowledge that it will not be repeated.
However, those same trustees, managers and actuaries have other responsibilities. They should ensure that these excess earnings are not totally applied to reduce funding rates. Account must be taken of the needs of their retired members, their pensioners, and the moral duty to protect their living standards in so far as their funds allow. Too many pensions are frozen at the point of retirement and pensioners are condemned to creeping impoverisation. Of course many of the better funds do index pensions but too many do not. I call on the trustees of such funds to apply investment profits to this end, to raise pensions in payment where they have not been fully indexed or not indexed at all. The special tax treatment of pension funds is only justified where they fully discharge their trust.
I would like to mention the setting up of the agency, FÁS, for which the Minister for Labour, Deputy Bertie Ahern, must be congratulated in his first year in Government. For many years it has been recognised in the House that all the agencies should be one and the Minister, in his first year, has implemented that. FÁS is further evidence of the ongoing refinement and rationalisation of State agencies which is a central theme in Government policy. The taxpayer is entitled to services that are excellent in quality and delivery of service but which are also managed and organised to give the best possible return for the expenditure incurred by them.
FÁS have a very important role to play in the Programme for National Recovery. The close co-operation of the Departments of Labour and Education is a most desirable and indeed a very essential prerequisite in getting value for money in the areas of training and education. The marginal ground between education and training has often in the past been a bone of contention. The Minister for Education and the Minister for Labour are both very conscious of this and it is likely that the dovetailing of these two Departments in these essential areas where they mesh will be noted for co-operation rather than contention.
A very recent statement on education and training from the Business and Industry Advisory Committee to the OECD has some very pertinent points to make on current trends and needs. BIAC make the point that the responsibility for the further education and training of the workforce lies primarily with companies. They advocate that it should be left to enterprise to decide the structure and financing of the continuing education of the workforce. This is a debate that could be taken up in this country and one would hope that FÁS will impartially facilitate this debate.
BIAC also advocate that higher education should strive to contribute more actively in the area of training so that enterprises will be able to absorb and make use of new developments and new technologies more rapidly. In the area of training younger persons for the workforce, one would hope that all young workers would be given the advantages of a training contract system so that the status of apprenticeship could be more widely spread. The links between the workforce, the school leaver and the school need to be strengthened especially in relation to vocational and educational counselling. FÁS open up all sorts of exciting possibilities and the return to a fuller employment situation is clearly encompassed in their remit.
I have already referred to the Government policy of promoting growth through the utilisation of natural resources. I would like to deal briefly with tourism, fishing, forestry and food production and processing. The world markets are waiting for food products that have the green clean label that is so uniquely our heritage and our great national asset. The advantages inherent in this budget for the business sector offer encouragement to those who would enter this potentially great wealth and employment producing segment of the industry.
Before I make a few points about forestry, I would like to say that the late Seán MacBride was a man who had a passionate interest in our forests as a national resource that produces wealth, provides magnificient natural panoramic vistas for our citizens and our tourists, a habitat for our wild life, a source of wealth for the agricultural community and those wise enough to invest in the growing and processing of timber. It has great potential to provide employment. This latter aspect of the forestry business can be and should be exploited to the full through the processing of raw material in the furniture and related industries. It also has vast potential as an energy source if modern biomass techniques are applied. To come back to the late Seán MacBride, a man whose passing is greatly lamented, I would like to see on some future suitable occasion that we should name a major forestry development in his honour.
We have mountains of butter and mountains of beef. We have wine lakes clogging up the economic viability of the EC. The wood industry is a noted exception to this over-production fiasco. In the wood industry within the EC, there is only 50 per cent sufficiency. As a result of the cutbacks in the agri-sector in the European Community brought about by the aforementioned oversupply in the food sector there are very real opportunities for forestry as an alternative land use.
The trials and experiments and the large-scale fieldwork developments of the Forestry and Wildlife Service have been instrumental in identifying those species which grow best and are most suited to the climate and varying soil types in Ireland. Look at this for a major point of advantage that Ireland enjoys. Our average growth rates are twice the European Community average and four times that of Scandinavia. Bearing in mind the 50 per cent shortfall, the only conclusion one can logically reach is that we would be remiss, indeed irresponsible as a nation, if we did not capitalise on this ready market in the face of our other natural advantages. Ireland has the least afforestated land area in Europe, a mere 5 per cent. We have one million hectares of marginal land suitable for forestry.
It seems to me that forestry is an industry which could be greatly facilitated and encouraged by appropriate tax incentives and a land leasing scheme that would ensure the release of land for forestry. For example, we should entrust Eolas, with its great reservoir of scientific and technological know-how, with the task of doing a major investigative study on a short-time scale to put forestry and the wood processing industry at the forefront of economic development. We should not just grow timber. We should process it and harness its raw material potential to create a great new value-added export trade to timber-starved Europe. The new semi-State company administering the industry on commercial lines is very desirable and should be implemented with haste.
I should like to deal now with a subject very dear to me and my family, that is the fishing industry.
The potential for further development of both the fishing and fish farming sectors of the sea food industry is considerable. This has been fully recognised in the Government's Programme for National Recovery.
The establishment of Roinn na Mara, together with the proposed establishment of the new Marine Research Institute will effect greater cohesion in the implementation of radical, comprehensive and progressive fishery policy and research.
The huge employment potential of the fishing industry in the catching, processing and aquaculture sectors, and in ancillary industries, can no longer be ignored. The social and regional development value of the seafood industry, with its impact on the economy of coastal regions, and indeed the national economy, cannot be over emphasised. The spread of income to less developed regions constitutes a particular value of this industry from a social and economic perspective.
The performance of fishing and fish farming industries over the next four years will largely determine whether Ireland can secure improved terms when the Common Fisheries Policy is reviewed in 1992. It is imperative, therefore, that we extract maximum benefit from our fishing and fish farming resources in preparation for that review. Performance is the best preparation.
There is a significant upsurge of confidence in the industry. I find that both at local level and nationally. An Bord Iascaigh Mhara have a large number of applications on hand for new vessels which is a further indication of that upsurge in confidence.
The improvement in the fishing industry is reflected in the improvement in the level of repayments on fishermen's loan accounts financed by An Bord Iascaigh Mhara. The current ratio of repayments to instalments for the year ended 31 December 1987, in respect of operational vessels, stood at approximately 84 per cent. This compares with a level of approximately 50 per cent in the year ended 31 December 1984. For larger vessels with loans guaranteed by An Bord Iascaigh Mhara, I understand it is as high as 92 per cent. An Bord Iascaigh Mhara are to be congratulated on achieving this improved performance in the area of loan repayments within such a difficult and relatively short space of time.
Allied to all these positive signs is the new EC structures policy with a budget of £654 million which provides Ireland with a financial opportunity to revitalise our fishing fleet and develop fish farming. Also incorporated in the EC structures policy is financial aid for exploratory fishing, scrapping of old vessels, port development and measures to improve the marketing of surplus and underutilised catches.
Ireland's seafood products are world famous and have found ready acceptance with discerning seafood consumers in over 30 counties worldwide. Continuous intensive market promotion drives on global markets have resulted in Irish sea-food exports growing in value from IR£73 million to IR£104 million in the last four years. Ireland's fish processing and exporting industry, working with An Bord Iascaigh Mhara, must continue and expand this important sector. The industry is also committed to the development of new seafood techniques and processes, developing new products and responding to change in consumer demands and lifestyle. Now, more than ever, innovative processors and exporters are looking to more imaginative and sophisticated profitable added-value products which, more than anything else, will secure the future. I was delighted to hear the Minister say in his budget statement that An Bord Iascaigh Mhara have prepared a draft development strategy, now the subject of consultation. The objectives of any new plan or strategy must be to realise the growth potential of our seafish industry, both at sea and ashore, to enable it make its full contribution to the economy of coastal regions and the country as a whole. Incorporated in the strategy must be a commitment to significantly increase annual fish production on present-day value and volume to research, develop and promote an increased market share of Irish sea-food products on national and international markets and further expand the existing employment level from 13,000 jobs. This development strategy must extract maximum financial benefit from EC structural funds.
The time is now opportune to build and reinforce the achievements of previous fisheries development programmes. Considerable progress has been achieved in stimulating increased fish landings, currently valued at IR£76 million, through the implementation of a comprehensive programme of fleet development and investment in shore processing. A firm base has also been laid for the further development of fish farming, which has made major strides since the beginning of the eighties and offers a tremendous potential for increased fish production in the future.
We must maintain this momentum and consolidate and expand the gains we have made to date.
In any analysis of our economic problems which the Government are undertaking at present, it is clear that, in the short term, tourism represents the best opportunity for achieving growth.
Since coming to office less than a year ago this Government have given tourism an unprecedented priority. Progress has already been achieved in relation to access fares and increased competitiveness above what was previously thought possible. The Government realise that more needs to be done. Our air fares from continental Europe, and particularly from Germany and France, are excessive, as are fares on cross channel routes where real competition has not yet been introduced and where the same cosy relationship exists between national carriers to the detriment of the consumer.
I know that the Minister for Tourism and Transport will be following up vigorously the matter of new fares and increased competition. We sometimes forget that we, the people of Ireland, own the national transport companies which have been paid for and subsidised, where necessary, by the taxpayer. It is right that they should have commercial freedom. But it is not right that they should follow their interests against the national economic and tourism interests or against the consumer. Now that we are at last sorting out some of the historic problems which have affected these companies, they have seen the benefits of competition. I have faith that the professional managements of these companies can and will respond. I welcome the provision of an additional £4 million for tourism in the budget. As the Taoiseach has already pointed out, growth has been too sluggish and we have not been maintaining market share in an expanding market. These £4 million are rightly targeted on short term growth. I hope that it will be added to by the industry itself by further vigorous and creative campaigns in pursuit of growth.
This is a special year in Dublin as the city celebrates its millennium, which has helped to focus the attention of the world on Ireland affording superb opportunities for publicity, including Eurovision. I hope the Minister for Communications will bring home to RTE the national importance for Ireland in the way our country is projected and which has been done so effectively by others. In many areas the tourism product we sell in Ireland leaves a lot to be desired in terms of standard and terms of development. This budget provides for the continuance of the business expansion scheme introduced last year for the industry. I would be glad to see more prominence given to the promotion and publicity of this scheme as I have met many people who are unaware of it or its benefits for their enterprises.
The budget offers much to all sections. I stand over the main theme of what I have been saying this evening — that it has helped create confidence within all sectors of the community. Hopefully it will be seen as such by the opinion polls and by the captains of industry.
I rise to speak on this debate when it has been well flattened. Most budget debates become very boring within a short period. This one was worn out even before the Minister for Finance made his Budget Statement. Having gone through the process of publication of the Estimates in October last, with political parties and various organisations knowing what was in store, the details emerged only on budget day itself. What has happened since has constituted merely a series of repetitive expressions of views. I am not sure who writes the speeches on the Fianna Fáil side of the House. It appears to be a lucky dip, depending on how fast one can read or of how little conviction one has in what one reads. God knows what one might get from the floppy discs emanating from the machines on the far side of the House.
I want to devote my remarks to three areas and to express a few things that are on my mind relative to the general position obtaining. I want to refer to my specific area of responsibility, the Gaeltacht and the Irish language. I also want to refer to the west of Ireland, where I and the Minister of State, Deputy Gallagher, live, and which needs some attention.
This is a budget of contradictions. It is a contradiction for the Fianna Fáil Party to have brought it in. According to a recent poll they have 52 per cent support in terms of what people perceive as the budget being a good thing for the country, and that translates roughly into 44 per cent support for the party. Between 1982 and 1986 we were lectured daily in this House from the Fianna Fáil benches, which were awash with floods of tears of nationalism and patriotism, in terms of emigrants fleeing from our shores, the soul of Ireland going away and so on. We were lectured in every committee throughout the country and sensitive political issues were raised to bring the Government down at every opportunity. It is a complete contradiction for the Members opposite to speak so vociferously in defence of this budget which was brought in by the Minister for Finance, who is in a straitjacket because of the economic issues which face the country.
I have spent 12 years in this House and the repetitive performance of the Fianna Fáil Party never ceases to amaze me. When they are in Opposition they do all in their power to tear down the Government and when in Government faced with rough decisions, they hang their heads and hide behind the national flag and the language. These two topics are always wheeled out when Fianna Fáil think they are necessary.
The only consistent thread in this House in the last 12 months was that put forward by the leader of this party, and this was at some political cost. We have had recriminations from our supporters in terms of our political performance but what we do for the good of the country does not seem to be appreciated by large segments of the community. They have very short memories. There was not one occasion between 1982 and 1986 when the Leader of Fianna Fáil told the then Taoiseach he was doing the right thing for Ireland and that his party would back the Coalition Government. Not once did the then Deputy Haughey stand up and say the Coalition were doing the right thing for Ireland and that Fianna Fáil would back them. They chose the other road of wrecking the Government at every opportunity. Now Fianna Fáil have done a turn around in terms of their stated philosophy. The better-way brigade have arrived and they have to try and appease their supporters.
Because this party agree with the broad thrust of the economic activities of the Government we are slated by the public, but the wheel will turn. The leader of my party does not have any personal animosity against the present Taoiseach but such animosity was very obvious when the last Government were in power. Our leader's vision is of a bigger and broader Ireland with a better standard of living for all — that is, those who will be left when he gets into office. As I said, the wheel will turn and when people see the relevance of what the Fine Gael Party proposed when in Opposition they will appreciate that we did not make liars of ourselves because there will be a consistency in our arguments when in Opposition and when in Government.
One could be forgiven for assuming from the fine media language after the presentation of the budget that the perception abroad is that the national debt has been sorted out, that everything in the garden is rosy, that unemployment will be drastically reduced, and that hundreds of thousands of people are about to be employed. We used to hear talk of Utopians, but in my view members of this Government are inverted Utopians. A Utopian cannot produce what he visualises, but an inverted Utopian cannot visualise what he is producing.
What will happen if the present Government activity continues? Any good gardener will tell you you can only prune a tree so far. If the present level of Government activity continues, if the cutbacks continue to be foisted on certain sections of the community, within a very short time we will have a reasonable vision of what will happen in relation to the national debt because we will have neither the initiative nor the engine to provide growth, employment and the standard of living we all consider necessary.
At present the capital debt is of the order of £28 billion. If we were to repay that over 50 years without interest it would cost in the region of £500 million per year, but if we were to pay it at an average interest rate of 10 per cent we would have to add £2,800 million to the capital sum, making repayments of £3.3 billion a year. This shows the problems have not gone away and they must be faced in the years ahead. The Government do not seem to have put that fact across in such strong language as they used when in Opposition. Then they vociferously lectured us about monetarism, Thatcherism and all the other things the Government were doing wrong, but not once in those four years did the Taoiseach, then Deputy Haughey, stand up and say that what we were doing was right for the country and that his party backed us.
We could not.
He had the opportunity on more than one occasion to stand up when in Opposition——
The previous Government talked about financial rectitude but that was all.
——and say we were doing the right thing for Ireland and that on that issue Fianna Fáil would back us. Instead, he sent us into the highways and byways——
The previous Government spoke about financial rectitude but did nothing about it.
Fianna Fáil used every opportunity to tear down everything Deputy Garret FitzGerald, the then Taoiseach, tried to do.
The Minister announced he has gone into the business of rescheduling the loans, getting the rates of interest down, cutting public expenditure and the public capital programme, and the result of all that is merely a boost in the unemployment figures and in the number of those on the emigration boat.
There are various matters in the budget for which the Minister must be given credit. I accept the decentralisation programme which is first class. It provides an opportunity for young people working in the public service in our capital city to get back to their home bases and do their job nearer home. I also agree with the tax amnesty, but a little clarification is required because many of those who might avail of it may not be aware that all the VAT must be up to date by August of this year, otherwise Revenue will be empowered to go back prior to December 1987. That is broadly acceptable. Revenue might collect more money from that system because the VAT returns would be up to date, whereas in the normal way they might be a year or more behind.
With regard to the deductions from doctors and consultants, I wonder if this will lead to a doubling of assessed incomes in earlier years. Once the first claims are in, if a doctor made £25,000 or £50,000 the previous year will Revenue ask what he made in the previous year? Many GPs are hard pressed and they may be afraid that the first level of deductions might lead to a doubling back on the system with further claims from Revenue.
Debate adjourned.