Financial Resolutions, 1989. - Financial Statement, Budget, 1989.

Before calling on the Minister for Finance to make the Budget Statement, may I remind Members of the House that none of the confidential information which will be circulated in advance by the Minister to certain Members may be disclosed to anyone until the Minister has revealed it to the House. Premature disclosure of the information is considered to be a serious breach of privilege. Members should not take from the House any part of the Budget Statement before that part has been read out in the House.

This budget will build upon the progress of the past two years. It will intensify the trend towards sustained growth and higher employment which is steadily becoming more evident in the economy.

There will be no deviation from the overall strategy set out in theProgramme for National Recovery. That strategy was aimed at the closely related objectives of bringing order to the public finances and of building up the economy. It has been crucial to all the progress we have made to date. The programme will continue to provide the framework for economic and social development.

The problems that had accumulated in the public finances over so many years have been reduced but by no means eliminated. We are still faced with excessive levels of borrowing and debt. We cannot afford to relax in our efforts to reduce them to more manageable proportions; we must further underpin the renewed confidence in the economy.

Within this constraint, we will this year be strengthening the emphasis on the developmental and employment aspects of theProgramme for National Recovery. We will be greatly helped in this task by the new resources that will be available from the European Community Structural Funds as part of the preparations for 1992. This new opportunity must not be lost.

We must also continue to make progress in improving the circumstances of the poorer sections or our community and in reforming the tax system so as to achieve greater equity and reduce the disincentive effects on initiative and work. The creation of the conditions for increased employment is, of course, the most effective way to tackle the root causes of poverty in our society.

The Economy

In accordance with the practice initiated last year, I am publishing today, with the other budget documents, my Department's latest assessment of recent economic developments and an outline of prospects for the coming year. This takes into account the effects of the measures I will be announcing later.

Review of 1988

Last year saw a continuation of the economic recovery which began in 1987. The improvement in many of the key economic variables was better than anyone had predicted at the start of the year. Output continued to rise, export growth was again very strong and the balance of payments surplus increased. Inflation fell to its lowest figure in nearly three decades. Irish interest rates fell in the first half of the year and remained stable subsequently despite upward pressure on interest rates abroad. With the help of the low interest rates and greater confidence in the economy, the volume of both consumer expenditure and private investment recovered and strengthened as the year advanced.

Real GNP is estimated to have grown by 1½ per cent in 1988 and real GDP by 2¾ per cent. The average annual GNP growth rate achieved over the past two years was 3 per cent. This represents a remarkable performance against the background of the budgetary measures that the Government have had to take. Clearly, the economy is responding to the Government's strategy even more positively than we had expected.

Nineteen eighty eight was a watershed in terms of the economy's recent employment performance. The preliminary results of the April 1988 Labour Force Survey, released last October, showed that the total number of jobs in the economy had increased appreciably for the first time since 1980. Later indicators suggest that the improving trend continued during the course of the year. For the first time this decade there was a reduction in unemployment, with the live register at the end of 1988 down some 7,000 on its level a year earlier.

Prospects for 1989

The outlook is for stronger economic growth and an improved employment performance this year. The international environment continues to be broadly favourable for exports. Consumer demand is likely to rise faster than in 1988. Investment is set to turn in the best performance of the decade, boosted by the extra resources from the European Structural Funds which will be received this year. I shall be returning to this aspect later.

Overall, growth of domestic output is likely to accelerate in 1989 to around 3½ per cent, while real GNP should rise by about 3 per cent. This stronger growth should lead to a rate of job creation appreciably faster than in 1988 and facilitate a further reduction in unemployment over the coming 12 months. Although more buoyant domestic conditions will result in higher imports the balance of payments will remain in significant surplus.

Continuing restraint on domestic cost, despite the pick-up in inflation internationally, should ensure that the increase in consumer prices this year will not be appreciably different from the end-1988 rate of 2¾ per cent. The more competitive we can make the economy, the quicker and better will be the results for employment.

Programme for National Recovery

As I indicated earlier, theProgramme for National Recovery, together with Government policy generally, has turned around the economy's performance. Everybody in the country has benefited in some way from the policies pursued. Low interest rates have helped firms, businesses, farmers and householders and have given a major boost to investment and employment. The tax reform measures introduced by my predecessor in last year's budget, going well beyond the undertakings given in the programme, benefited all income tax payers. When combined with the pay agreements associated with the programme, they resulted in a real increase in take home pay for all workers last year. While paying particular attention to the position of the lower paid, the programme's pay provisions were of considerable importance in securing an improvement in competitiveness and a further moderation in the inflation rate. Most importantly, there was a reduction in unemployment.

The Government also went beyond the programme's commitments on social welfare benefits last year. The increase of over 11 per cent in payments to the long term unemployed was an exceptional improvement to help deal with the difficulties of the people concerned.

Against the dismal employment performance of the earlier years of the decade, the programme's targets for job creation presented a searching test for the capacity of the economy and of the job promotion agencies. It is highly encouraging that the target set for 1988, the creation of 20,000 jobs in manufacturing and international services, has been met. A repetition of this achievement is in prospect for each of the next two years. Outside the industrial area, more jobs are being created in tourism, horticulture, forestry and marine activities in response to the various sectoral initiatives taken. Fears that the Government's essential action on the public finances was incompatible with job creation on the scale envisaged have been dispelled by the events of the past year. The Government have been able to bring forward, under the programme, specific measures to help promote the development of important sectors. I will be announcing a number of additional measures today.

All in all, as the half way stage of the programme approaches, it can be seen to be working satisfactorily. In conjuction with overall Government policy, it is contributing significantly to the recovery process aimed at restoring the economy to a sustainable growth path. I am confident that 1989 will see a further advance. The programme will continue to provide the vital framework for economic and social progress.

Review of Budget 1988 Outturn

1988 proved to be an exceptional year from a budgetary viewpoint, with Exchequer borrowing falling to its lowest level since 1958-59. The actual outturn for the Exchequer borrowing requirement was £619 million, or 3.3 per cent of GNP, as against a budget estimate of £1,457 million or 8.2 per cent of GNP. This reflects the success of the Government's economic and financial policies.

Expenditure

For the second year in succession the Government set ambitious spending targets in 1988 and have again brought expenditure in below target. The end-year Exchequer returns showed that issues from the Exchequer in respect of non-capital supply services were some £84 million down on target, £5,576 million as compared with a budget target of £5,660 million. This was due in the main to net savings on social welfare because of lower expenditure on unemployment, tighter control measures and higher social insurance fund receipts.

The capital budget, too, came in below target. Exchequer borrowing for capital purposes at £302 million was £30 million below budget, reflecting lower than anticipated spending and higher capital receipts. On the non-Exchequer side, expenditure was a net £30 million below target with savings on house purchase and improvement loans and on the ESB's capital programme, partly offset by increased spending by Aer Lingus on fleet replacement.

Taxation

Special tax factors were also at work in 1988. Prime among these was the tax amnesty. By the end of the amnesty period some £500 million in additional revenue had come in to the Revenue Commissioners. This was indeed a remarkable outcome which contributed to the Exchequer's dramatically reduced level of borrowing last year.

Welcome as it was, the amnesty benefited only the 1988 budgetary position. Favourable carry-over effects on this year's revenues, arising from some widening of the tax base and a general improvement in timeliness of payment, will be small. Indeed, a considerable amount of arrears, estimated at between £150 million and £200 million, which would have been expected to come in this year, came in last year under the amnesty and is not available again this year.

The other major innovation in 1988 was the introduction of self assessment for the self employed. The results so far have been excellent. Again the remarkable response brought in some £70 million more in income tax receipts than had been expected. Unlike the amnesty, the improved revenue flow from self assessment can be expected to continue in 1989 and therefore can be taken into account in framing this year's budget.

Some observers have attributed all the success of last year's budget to the improved efficiency in tax collection resulting from the amnesty and self assessment and have suggested that no real progress was being made in the fight to restore order to the public finances. I want to refute this absolutely. The figures prove otherwise. Even when looked at separately from the once-off factors, the figures show that in 1988 we not only achieved the targets set in the budget but bettered them significantly.

Borrowing and Debt/GNP Ratio

When allowance is made for once-off receipts of about £500 million from the tax amnesty and improved tax collection generally, the underlying Exchequer borrowing requirement for 1988 came out at 6 per cent of GNP. This compares with a projection of 8.2 per cent in the budget. The factors which brought about this result may be traced directly to the improved economic and business climate and to the continuing tight control of public expenditure. Savings in our borrowing costs, directly attributable to the last two budgets, are one factor. The recovery in indirect tax receipts, on foot of stronger economic activity and more spending power in the hands of consumers, is another. The sizeable expenditure savings, including those from the reduced numbers on the live register, are a third. I could give many more examples of developments that helped in the production of these good results. Even allowing for the once-off effects of the amnesty and other measures, therefore, the 1988 outturn secured a further major advance in the Government's strategy on the public finances. This advance will be continued this year.

The debt-GNP ratio remained unchanged in 1988, partly because of the exceptional tax receipts during the year. The lower borrowing last year will, through reducing interest payments, have a positive impact on 1989 and future years. Overall, during 1988, significant further progress was made towards the goal of reducing the underlying level of borrowing to a point consistent with a stable debt-GNP ratio. However, the basic facts remain that the national debt rose by over £900 million last year and its associated interest costs remain a major burden on the Exchequer and the economy.

BUDGET POLICY 1989 AND OPENING POSITION

The underlying level of Exchequer borrowing has now been reduced by nearly 7 percentage points of GNP in the past two years. This represents excellent progress. Nevertheless, it will be clear from what I have said that we cannot relax in our efforts to bring the public finances under better control. The exceptional overhang of debt and the continuing large addition to borrowing each year, impose major constraints on the economy. The cost of servicing the debt severely limits our ability to allocate resources for social services or economic development. Our foreign debt exposes us to the effects of adverse interest rate movements abroad.

There is thus an overriding need to continue resolutely with the process of reducing borrowing and debt. The action taken to date is the key to the current improvement in the economy. Although the underlying level of borrowing in 1988, at 6 per cent of GNP, was even lower than we had in mind in the 1988 budget — by over 2 percentage points of GNP —the Government would not be satisfied to hold it at that level this year. We are determined to reduce it further.

The opening current budget deficit, based on the published 1989 Estimates of Receipts and Expenditure, is £716 million, after allowing for the deduction of £40 million of estimated departmental balances. The opening Exchequer borrowing requirement is £933 million.

EXPENDITURE

Central Fund Services and Debt Management

I now turn to expenditure. This year the estimate of expenditure on central fund services is £2,555 million of which £2,244 million relates to debt service payments. The latter figures shows an increase of £103 million on the outturn for 1988. This underlines the point I have just been making about the continuing necessity to reduce our dependence on borrowing.

During 1988, conditions for funding the Exchequer borrowing requirement were very favourable. In addition, the unexpectedly high yield from the tax amnesty allowed us to reduce considerably the amount we needed to borrow. For the first time in many years we were in a position to reduce our foreign debt and a total of £443 million was repaid. This is a major advance. The domestic funding programme was very successful, too. The new confidence in the economy was reflected in a fall in gilt yields to their lowest level for many years. We are entering 1989 with a funding credit balance of £527 million and with a high proportion of the 1989 redemption programme for domestic national loans already completed.

Considerable progress has been made in improving the overall process of debt management. The programme of refinancing foreign loans at lower cost through swaps and other arrangements has been sustained aggressively with considerable success and the improving financial position here is, in turn, improving our standing in international markets. On the domestic side some further new instruments have been introduced and, as foreshadowed in last year's budget statement, the contribution from small savings has been brought back to a more appropriate level. I expect that receipts from small savings will continue to make a similar contribution during the course of 1989. Overall, the most satisfactory development has been the lowering of domestic borrowing costs, mainly as a result of the evident improvement in the management of the economy.

The international interest rate climate is not as favourable as it was some months ago. During 1989, however, there will be a continuing emphasis on minimising Exchequer costs through better debt management techniques and I am confident that further progress will be made in this respect.

Departmental Spending 1989

The assertion by this Government of control over public spending has been the single most significant factor in the restoration of confidence in our ability to manage our affairs and the resumption of growth in economic activity. This disciplined approach is apparent, not just in the very satisfactory outturn for 1988 to which I have already referred but also in the 1989 capital and non-capital allocations for Departments published in October 1988. The Government continued with the two stage approach to settling the Estimates which proved so successful in 1987. A policy based review of spending programmes was carried out in early summer, followed by a more detailed examination of all subheads in the autumn to eliminate over estimation and waste. We succeeded in reducing public spending plans by more than £300 million.

In determining the Estimates for 1989 the Government were conscious of the need to ensure that the less well off should not be penalised. We, therefore, concentrated our efforts on the elimination of waste and over provision, on getting value for money for State expenditure, and on ensuring that unwarranted and fraudulent recourse to services supplied by the State should be further reduced. The result of this approach has been a further significant reduction in expenditure without adversely affecting the less fortunate sections of society and without undermining the general development thrust of our expenditure policies.

Non-Capital Supply Services Expenditure 1989

The figure for net-capital supply services published recently in the 1989 White Paper on Receipts and Expenditure is £5,565 million, the same figure as appeared in the 1989 Abridged Estimates Volume in October last year. In the light, however, of the end-year Exchequer returns for 1988 and developments since the publication of the Abridged Estimates, I am making some further adjustments to the published 1989 allocations. The result of the adjustments is to reduce the published figure by almost £26 million. Details of these adjustments are set out in thePrincipal Features of the Budget, which is being circulated separately.

The adjusted opening figure for non-capital supply services is therefore £5,539 million, or £5,499 million on a budgetary basis when estimated departmental balances of £40 million are allowed for.

I now propose to make the following additions to expenditure.

Welfare Measures

All commentators agree that a major cause of poverty is high unemployment. However, it needs to be borne in mind that, despite the sustained rise in unemployment over the years to 1987, the value of social welfare payments to unemployed persons has improved very significantly, both in real terms and in comparison with take-home pay.

The Government have already given, and will continue to give, priority to both unemployment and social welfare. They are acutely aware of the plight of the underprivileged in our society, especially those who have little realistic alternative to dependence on social welfare — that is, the long-term unemployed. A major priority of the budget will be to assist those persons who may not benefit, for reasons beyond their control, from the considerable opportunities which exist for growth and employment in the economy. The Government will ensure that those who must depend on social welfare — especially those with large families — are not denied a reasonable standard of living.

During the past two years, we have not only preserved the real value of social welfare entitlements generally but have increased some of the lowest social welfare rates by amounts well above inflation. These substantial improvements were made during a period which required very difficult decisions on the allocation of Exchequer resources. An example will illustrate this improvement: even before to-day's budget, a married person on the long-term urban rate of unemployment assistance with four children is better off by £10 per week now than in March, 1987 and I intend today to improve his or her position significantly. However, a balance must be kept between the level of social welfare payments and that of take-home pay of those at work. It would be undesirable if the combined effect of the social welfare and tax systems was to create an incentive for people to rely on social welfare payments rather than to work. It is socially and economically better that people are employed rather than remain unemployed indefinitely. For this reason and because the Government recognise that relative poverty can exist at low incomes for those in employment, I am introducing in this budget an innovative and integrated package covering both the social welfare and taxation systems, which will aid considerably those on low incomes whatever the source. A primary focus of the package is low-income families with children.

I will now outline the improvements which will be implemented.

First we will ensure that the real value of weekly welfare payments generally and health allowances will be fully protected by means of an increase of 3 per cent which will come into effect in July. This will mean, for instance, that the rate of old age contributory pension will increase from £56.80 to £58.50 per week for a single person and from £99.20 to £102.20 for a married couple of pension age. The old age non-contributory pension is being increased by £1.50 to £50.00. The widow's contributory pension will also rise by £1.50 from £51.00 to £52.50 in the case of a recipient under the age of 66 years and the non-contributory counterpart will rise from £47.60 to £49.00.

In addition, there will once again this year be special increases for the long-term unemployed of some 9 per cent over and above the general increase. This will give a total increase of 12 per cent or £5 per week, that is from £42.00 to £47.00 a week for a single man or woman on the long-term urban rate of unemployment assistance and from £40.70 to £45.70 for his or her rural counterpart. I might mention that the Government are reviewing the definition of what constitutes an urban area or a rural area, as appropriate, for the purposes of the unemployment assistance scheme so as to extend, where warranted, coverage of the urban rate. The precise details of the revision will be worked out by the Minister for Social Welfare and the new definition will come into effect with the budget increases in unemployment assistance rates in July.

The four different rates of allowances in respect of the spouses of unemployment assistance claimants are being rationalised to two rates, one for long term and one for short term.

Last year we made significant progress in tackling the wide range of different rates payable in respect of child dependants; we reduced the number of rates by half. Further significant progress is again being made this year in this area. The minimum weekly child dependant allowance is being increased to £10 a week. This will mean increases of up to £2 per week each in respect of the third and subsequent children of those on short-term unemployment assistance and supplementary welfare allowance. This is a very significant increase amounting up to 25 per cent in the case of such child dependants.

The special difficulties of larger families have also been identified as being in need of attention in the context of tackling poverty. Accordingly, the higher rate of monthly child benefit of £21.75, which is currently payable in respect of sixth and subsequent children, will from next October be payable in respect of the fifth and subsequent children.

Widowers and Deserted Husbands with Dependent Children

The plight of widowers and deserted husbands who are bringing up their children on their own has been represented as being in need of particular attention. The Government recognise that many such persons require additional financial assistance. Therefore, a new social assistance allowance scheme for widowers and deserted husbands with dependent children, along the lines of the current non-contributory schemes for widows and deserted wives, will be introduced from next October. This new measure will redress a long-standing anomaly in the welfare system. The full details will be announced later by the Minister for Social Welfare.

Eighteen-Year-Olds in Full-Time Education

As a general rule, weekly child dependant allowances are only payable up to the age of 18 years. This can cause some hardship, especially for long-term recipients. To resolve this difficulty, increases for long-term recipients in respect of their child dependants will, from September, be payable in respect of children up to the age of 19 years who are in full-time education.

Free Schemes

I have also decided to address certain anomalies in the free schemes. It is proposed to allow pensioners to carry over unused units from their free electricity allowance from one billing period to subsequent periods, subject to an overall ceiling. This measure will be introduced as soon as possible, following discussion with the ESB on the precise mechanism for implementation. From April next, certain EC pensioners living in Ireland will be entitled to the free electricity and other free concessions. Certain occupational injuries categories of recipients are also being brought within the scope of the schemes.

National Fuel Scheme

Some anomalies in the free fuel allowance scheme are also being resolved. Heretofore, a recipient of long-term unemployment assistance could not qualify for the allowance if there was another unemployment assistance recipient or a pensioner in the household — on the basis that he was not living alone. The presence of such fellow welfare recipients will not in future debar him from qualifying for the allowance. This will come into effect from the beginning of the next heating season in October.

Family Income Supplement

Following a review of the family income supplement scheme undertaken pursuant to the commitment in theProgramme for National Recovery, improvements will be made in the scheme this year. These improvements will be designed to induce greater use of the scheme and to improve further the incentive which it provides for persons with families to remain in employment. The improvements will cost £1 million in 1989.

The overall cost of the social welfare measures will be £57.5 million in 1989 and £135 million in a full year.

Special Income Tax Assistance for those on Low Incomes

I am also introducing an important set of changes in income tax, designed to help those on low incomes, which will play a major part in our co-ordinated drive against poverty.

Firstly, I have decided to increase the general exemption limits from £5,500 to £6,000 for a married couple and from £2,750 to £3,000 for a single person.

Secondly, in recognition of the difficulties faced by low income families, the Government have decided in a major innovation to introduce a special addition of £200 per child to the exemption limits. This will apply to all those with qualifying incomes, whether workers, small shopkeepers, farmers or other self employed. This child element, which will apply exclusively to qualifying low-income families, is intended to target tax relief specifically at a group who have been identified as particularly in need of State support. It will go a long way towards alleviating the tax burden on low-income families and towards restoring the reward for work among parents of such families. I should emphasise that the child element is not a reintroduction of the general child tax allowance which was abolished in 1986. It is, rather, a means of increasing exemption limits so as to take many low-income families out of the tax net, or significantly reduce their tax liability.

Thirdly, I am increasing the age exemption limits by £300 for a married couple and £150 for a single person in the case of those aged 65 years or over and by £400 for a married couple and £200 for a single person in the case of those aged 75 years or over.

The effect of these increases in the general and age exemption limits and the introduction of an exemption element for children will be to exempt 24,000 taxpayers with 46,000 children from tax altogether, while a further 41,000 taxpayers with 90,000 children will benefit from the marginal relief that applies where income does not greatly exceed the relevant exemption limits.

Full details of this major innovation will be set out in advertisements which will shortly be placed by the Revenue Commissioners in the national media.

Let me give some examples of what these changes will mean for different categories of taxpayers. A married couple on PAYE with two children, with an income of £6,400, will have their current tax liability of up to £425 eliminated while a married couple with four children and an income of £6,800 will have their current liability of up to £565 eliminated.

These tax measures will cost £11.9 million in 1989 and £19.9 million in a full year.

Grant to the Society of St Vincent de Paul

The Government have approved a grant of a further £0.5 million to the Society of St. Vincent de Paul in 1989. This money will be used to allow the society to undertake, in consultation with the Minister for Social Welfare, a major development programme which will involve continuing the programme of home management and other courses and allow the society to expand their work employment projects scheme. The payment will be made as soon as practicable.

Samaritans

We are also making a special once-off provision in 1989 of £100,000 for the Samaritans.

Housing for Homeless

Homelessness is the most acute and tragic form of poverty afflicting modern societies. Last year the Government approved a special additional allocation of £3 million over three years to finance the provision of accommodation for homeless persons by voluntary bodies, of which £1 million was spent in 1988. Activity last year increased in response to the Government's encouragement and I have therefore decided to provide an extra £1 million this year for accommodation for homeless persons, making a total provision of £2.5 million in 1989 for housing the homeless.

Total Welfare Provision

This brings the total amount of money being devoted to welfare measures to £71 million in 1989. The full year cost of the social welfare and tax measures is of course much higher, as I have already indicated. The Government are confident that this major initiative will go a considerable distance towards easing the problems of the most needy in our society.

Rape Crisis Centre

We have decided to provide £100,000 towards the restructuring of the Dublin Rape Crisis Centre.

Special Equal Treatment Payments

Special alleviating payments were introduced in November 1986 in order to ensure that the implementation of equal treatment did not result in hardship for certain categories of beneficiary. These payments have been continued since then. In 1988, the payments were continued for the whole of the year with some reduction in their level applicable from the same date as the implementation of general budget increases in rates. The number of persons benefiting from these special payments has fallen significantly since their introduction. However, in order to continue to avoid hardship for the remaining beneficiaries, the payments will be continued again this year. There will be reductions in the amounts of these payments on similar lines to the reductions which were applied last year; however, this will be done in such a way as to ensure that none of those affected will suffer a reduction in their overall benefit level. The 1989 Estimates have already made an appropriate provision for this continuation.

PRSI Contributions

The current rates of social insurance contributions for employers and employees will continue to apply for the contribution year 1989-90. As already provided for in legislation, the contribution rate for self-employed contributors will rise to 4 per cent in 1989-90. The earnings ceiling for contributions will rise in 1989-90 from £16,200 to £16,700 for employees and for self-employed contributors. As regards employers, the Government have reconsidered their decision, announced on publication of the 1989 Estimates last year, to increase the ceiling for employers' social insurance contributions to £20,000 in 1989-90. In the light of representations made in regard to the likely impact of such an increase on industrial costs and, in particular, on employment, the Government have decided to increase the employers' ceiling to £18,000 rather than £20,000.

The ceiling for the health contribution will be increased from £15,500 to £16,000. The increase in the income limits for a hospital services card will, as usual, be announced by the Minister for Health at a later date.

As is normal, the new ceiling for employers' social insurance contributions will also apply for purposes of their contributions to the Redundancy and Employers' Insolvency Fund and to the Occupational Injuries Fund. The rate of contribution to the Occupational Injuries Fund is currently 0.5 per cent and this is not being changed. The Redundancy and Employers' Insolvency Fund is funded solely by contributions from employers. In view of the satisfactory state of the fund at present, the Government have decided to reduce the employers' contribution from 0.6 per cent of PRSI to 0.4 per cent with effect from April 1989. It is estimated that the saving to employers will be around £10 million in the contribution year 1989-1990.

PRSI for Public Servants

Finally, the Government have decided in principle to extend the social insurance cover of public servants and public sector workers currently on the modified rate of PRSI. These contributors, who number about 160,000 and are in the public service and certain semi-State bodies, qualify at present for widow's and orphans' contributory pensions and deserted wife's benefit. It is the Government's intention, in keeping with the approach of theProgramme for National Recovery, to raise their proposals in the matter with the Irish Congress of Trade Unions with a view to implementation on an agreed basis from April 1990.

Child Benefit

The Government have been concerned for some time that the present child benefit scheme is entirely unselective. In order to introduce a measure of targeting of resources under the scheme, the Government propose that, as from early next year, child benefit would be confined to families with incomes below a certain level.

That is disgraceful. It is a shame. It is typical of Fianna Fáil. The Minister is talking about women at home.

This level will be decided so as to ensure that those higher income families who, by reasonable standards, do not need a State subsidy towards the cost of rearing children do not receive child benefit. The date of introduction of these new arrangements is being set for next year so that the necessary administrative preparations, in particular the matching of child benefit and income tax records, will have been completed before implementation of the measure.

The Minister will reconsider that too.

Social Employment Scheme-FÁS Training Allowances

The social employment scheme run by FÁS is intended to help older, long term unemployed persons by giving them work on projects of benefit to the community. To ensure that the scheme continues to be attractive, the Government have decided that there should be an increase of £5 a week in the allowance paid on the scheme for single people and £7 a week for married people. In keeping with the usual practice, those FÁS training allowances which are linked to social welfare rates will rise in step with the general increase in social welfare rates. The cost of these increases, amounting to £1.805 million in 1989, will be met from savings elsewhere in the FÁS budget.

DION — Committee on Welfare Services Abroad

The Government are very aware of the needs of Irish emigrants abroad. They have therefore decided to double this year the allocation to DION — the Committee on Welfare Services Abroad, which works under the aegis of the Minister for Labour. This will give a total allocation of £500,000 which will permit a substantial expansion in the work of the various organisations assisted by DION.

Education

It has been decided to increase the basic capitation grant for national schools from the current rate of £24 per pupil to £26.50 per pupil from 1 January 1989. This is the area of greatest need in the education sector. The increase, which is over 10 per cent, will cost £1.5 million per annum.

Special Pay Increases

An allocation of £30 million will be made for 1989 in a Vote for increases in remuneration and pensions in respect of special pay increases. This is in addition to the £12.5 million cost of the package of increases agreed for the Defence Force which is already reflected in the adjusted position for non-capital supply services which I referred to earlier. I will return to the question of special pay increases later in my speech.

Sectoral Initiatives

As I mentioned earlier I propose to build on our success to date in developing various sectors of the economy by announcing a number of new, carefully targeted, initiatives. They will give a further stimulus to economic activity and job creation, and will complement the broad sectoral strategies already in place. In particular, they will complement the development impact to come from the major expansion of programmes aided by the European Structural Funds which I will deal with later in my speech.

Environment and Tourism

The preservation and enhancement of the natural environment we live in, and the encouragement of our highly important tourism industry, are interlinked objectives.

Last year's budget was the first budget to make real provision for the solving of environmental problems. I have decided to include in this year's budget a number of additional measures which will assist in the improvement of our environment, as follows:

—I am setting aside £500,000 for a special programme of major amenity and environmental improvement works by local authorities at some of our larger beaches.

—I am making available £250,000 as a major boost to schemes for the recycling of materials such as glass, cans, paper and plastics.

—I am providing £2 million so that private sector works generated by the urban renewal programme can be complemented by a modest scheme of public works directed at upgrading the general environment in the designated areas.

—When I come to the main taxation changes, I will be announcing a further measure to encourage the use of unleaded petrol.

With tourism specifically in mind, I am announcing the following initiatives. These are in addition to the measures already announced last week in relation to Cork-Swansea Car Ferries for the development of tourism in the south and south-west.

King John's Castle, Limerick

I am providing £100,000 to allow a start to be made on the restoration of King John's Castle and the surrounding "medieval quarter" in Limerick. The total cost of the project is put at £3.6 million and most of the funding will come through the European Structural Funds — £1.2 million of aid has already been announced — and the national lottery. The project is expected to be a major tourism attraction and a boost to business activity and employment in Limerick. It is envisaged that it will be completed by 1991, the 300th anniversary of the Siege of Limerick.

(Interruptions.)
Tourism Data Base

Still in the tourism area, I am providing an additional £250,000 to enable Bord Fáilte to develop a data base on tourists coming to Ireland, including details of type of holiday taken. The intention is to boost tourist numbers by increasing the number of return visits. Tourism businesses will be able to use the data base in order to target their marketing, thus making part of their promotional efforts cheaper and more effective.

There is not much for tourism in that.

Racing Facilities

Last year a special allocation of £500,000 was made to the Racing Board to assist in the on-going programme of refurbishing certain race-courses. The investment programme is designed to improve facilities at race-courses for the general public and tourists. The Government have decided to make a further special allocation of £500,000 to the Racing Board this year.

Other Sectoral Initiatives

While on the subject of sectoral initiatives I want to mention certain measures I am taking to help growth and development in the areas of industry and agriculture.

Merging of Firms

Traditionally, Irish firms have been small family owned concerns. In order to meet the challenges facing Irish industry, particularly in the post-1992 era, many firms will have to develop in scale so as to complete successfully on the export and domestic markets. To this end, the relevant State agencies are being directed to pursue actively all opportunities towards encouraging the merging of existing businesses where this will help create units which can achieve increased competitiveness by economies of scale. Existing legislation already contains incentives in this regard. Progress will be monitored by the Minister for Industry and Commerce.

Bank Loans for Young Entrepreneurs

At my request, the main banks have agreed to make available about £10 million at preferential rates to support the development of business opportunities by young entrepreneurs. Details will be announced by the banks shortly.

While the precise lending and eligibility criteria will be determined by the individual banks, the loans will incorporate the following features:—

—the banks will not seek personal guarantees or security over private residences,

—suitable moratorium arrangements will be made for repayments,

—while allocations will be at the discretion of the banks, each application will be considered sympathetically,

—funding will be advanced at AA rates, which are normally available only to established business, and are below what would otherwise be charged.

The principal objective will be to select projects which have a reasonable chance of success and, in addition to funding, advice and expertise will be provided to the recipients to maximise their prospects for survival and growth. Loans will be targeted towards those projects which have the best chance of creating sustainable employment. Special arrangements will be put in place in the banks for the promotion and management of this scheme.

Community Development

While the Government are intensifying their efforts to alleviate poverty and increase employment, it is important that the business community who are early beneficiaries from the recovery in the economy should themselves demonstrate a direct concern for the most deprived amongst us. With that in mind, I am today inviting the business sector to launch an initiative which would promote community development projects so as to help create jobs in areas of particular need. I am already aware of a number of indications of significant support for such a move. I look forward to learning of early developments with the proposed initiative which will be organised and operated by the business community themselves.

New Technology in Agriculture

Following difficult years in 1985 and 1986 the agriculture sector enjoyed a marked improvement in incomes in the last two years. The Government expect that with the improved confidence and increased resources farmers now have, they will increase the rate of investment in their enterprises.

They must not be listening to the two farming organisations.

A pilot scheme designed to encourage farmers to use the calf-twinning techniques available under new technology is to be introduced by the Department of Agriculture and Food. Under the scheme a subsidy of £20 per cow treated, up to a maximum of 1,000 cows in 1989, will be available to farmers approved by the Department of Agriculture and Food. The scheme will enable an assessment to be made of the feasibility of applying the technology at farm level.

The new measures I have announced today are indicative of the Government's continuing commitment to the development of the economy and its key sectors, with the fundamental aim of increasing employment. The creation of sustainable jobs is at the centre of this budget and indeed of all our economic policies. The Government remain alert to all new opportunities for development. I will be returning to this theme shortly when I am dealing with the European Structural Funds.

Adjustments to Non-Capital Supply Services

The net effect of these various changes and initiatives, in so far as non-capital expenditure is concerned, is to add almost £93 million to non-capital supply services, bringing the total to £5,592 million. I will be making one further addition at a later stage which will add £3 million to this figure. Details of the adjustments to the allocations for individual Votes as published in the Abridged Estimates Volume are set out in thePrincipal Features of the Budget. These changes will be incorporated in the revised post-budget Estimates Volume which will be published shortly.

Administration Costs in the Public Service

The sheer size of the Exchequer pay and pensions bill at almost £3 billion and the significant extra costs which arise in relation to such items as travel and subsistence, accommodation, office machinery and computers require the Government to exercise strict control over the administrative or running costs of the public service. They have been successful in keeping these costs down by determined action to reduce staff numbers, by measures to achieve greater efficiency and to end overlapping and duplication between agencies, and by negotiating a public service pay agreement which recognises the realities of the Exchequer's position.

Staff Numbers

The embargo on recruitment to the public service, which was originally announced in 1987 and repeated in 1988, will continue in force in 1989. Only key vacancies may be filled and the filling of any vacancies requires the consent of the Minister for Finance and the Minister responsible for the area concerned.

The scheme of voluntary redundancy and early retirement, which was introduced by the Government in July 1987, has been highly successful. Over 1,100 people left the public service, including the local authorities, in 1987 and about 7,500 more availed of the terms during 1988. The offer of early retirement to certain public service employees over the age of 50 has now been terminated, and the voluntary redundancy package will be available in 1989 only in those specific areas where a surplus of staff has been identified or where further significant reductions in numbers are required to meet savings decided on in the Estimates.

Public service numbers fell by an estimated 9,500 during 1988, in large measure because of the impact of the voluntary early retirement scheme and I expect that they will fall by a futher 3,000 during 1989.

Efficiency

The significant reductions in staff necessitated by our financial constraints make it imperative that the public service be organised and managed in the most efficient way. For the foreseeable future, the public service must, like all other sectors of the economy, "do more with less" by continuously raising its standards of performance. The key role in this process has to be played by management.

In his speech on the Adjournment, the Taoiseach referred to the contribution being made by the Efficiency Audit Group to the development of an efficiency strategy for the public service. I believe that a crucial element in any such strategy will be to find imaginative ways of getting organisations and individuals to manage better and of rewarding those who do. I am proposing fundamental changes in the financial procedures governing administrative and running costs. My aim is to try to find the right balance between, on the one hand, ensuring that expenditure does not begin to creep upwards and, on the other, allowing greater delegation of responsibility to, and encouraging greater cost consciousness on the part of, Departments and managers. I am examining the possibility of fixing administrative budgets on the three year cycle at a level which would involve a real reduction in funding each year because of greater efficiency but which would allow greater managerial flexibility within those budgets. I believe that this could lead to greater motivation and release some of the dynamic talent that is widespread throughout the Civil Service.

Public Service Pay

The published Estimates for 1989 include £70 million in respect of the cost of the second phase of the 1987 Public Service Pay Agreement which was negotiated in association with theProgramme for National Recovery. In broad terms the agreement provides for general increases of around 2.5 per cent per annum, with a minimum increase of £4 a week. It also provides for the phasing of any special increases.

When this Government took office in 1987 they were extremely concerned, as indeed were the previous Government, with the growing cost of special pay increases in the public service. In his 1987 Budget Statement, my predecessor said:

What happens to the (Exchequer) pay bill over the next few years will have a crucial bearing on the scope for re-orienting the balance of public expenditure more towards promoting growth. The greater the share of State resources that the pay bill absorbs the less will be available, against the background of the overall budget constraint, for other purposes.

The 1987 Public Service Pay Agreement recognised the Government's concern to ensure that the evolution of public service pay did not put at risk the budgetary and financial targets underpinning theProgramme for National Recovery. Since the agreement was negotiated, significant increases in pay have been recommended for key groups in the Civil Service, local authority and health services to take effect on a phased basis in accordance with the agreement, and other major claims are in the pipeline.

While the processing of claims such as these is in accordance with the provisions of the pay agreement, the Government are nonetheless increasingly concerned about the build up of additional special pay costs and the resultant burden on scarce Exchequer resources, immediately and in the longer term.

The £30 million allocation for special pay increases, to which I have already referred, will meet the cost in 1989 of settlements which, however, could ultimately cost £150 million a year.

A situation cannot be allowed to develop where there would be an unrealistic roll-up of increases both generally and for particular groups. I have decided, therefore, to invite the Irish Congress of Trade Unions to meet me to discuss the whole issue of special increases with a view to arriving at a mutually acceptable solution.

I should mention that the cost in 1989 of the package of increases for the Defence Forces recommended by the inter-departmental committee, whose report was adopted in full by the Government with one small adjustment, will be £12.5 million and that the annual cost of the package when fully implemented will be £25.7 million. These costs are in addition to the costs I have already mentioned and are so substantial that offsetting savings including the closure and disposal of military barracks have to be made. It should be clear to all that, in the general context of public service pay, the Defence Foreces have been treated as a special case.

I want to emphasise, however, that containing the public service pay bill remains a key element in the overall strategy on public expenditure. It would be in nobody's interest to allow a return to a situation where the amount of resources going on pay inhibited growth and made it impossible for the Government to achieve the necessary improvements in social welfare and taxation to help those most in need and create opportunities for employment. We cannot throw away all the gains we have made over the last two years.

The provisions for the Defence Forces pay increase and other special increases, together with some minor adjustments to certain pay allocations which underpinned the published Abridged Estimates Volume, result in an increase in the Exchequer pay and pensions bill for 1989 from £2,948 million as published last October to £2,995 million.

I must refer here to the national discussions which have commenced on the proposed reduction of one hour where the working week is 40 hours or more. This proposal could affect upwards of 65,000 people in the public service and its implementation would have major implications for public organisations, particularly in the health area.

The group examining this issue are continuing their work and I would hope that a resolution of this matter can be found which will be in accord with the budgetary and other constraints that have to apply in all areas of the public service.

CAPITAL BUDGET

The 1989 Summary Public Capital Programme published last October set PCP expenditure at £1,319 million. As in the case of non-capital expenditure, developments since the publication of the summary PCP require an upward revision to be made to the published figure. The net impact, including those capital expenditure items in the initiatives I outlined earlier, is to add £15 million to the published figure, bringing the opening 1989 public capital programme position to £1,334 million. Details of these changes are also set out in the "Principal Features of the Budget".

County and Regional Roads

The Government consider that county and regional roads are extremely important for all aspects of rural development, including tourism, industry, agriculture and forestry. For this reason, I am announcing a targeted three year programme totalling £150 million for works on these roads. The published Estimate includes £37.4 million Exchequer funding for the improvement, management and maintenance of these roads and I am adding £10 million to this for additional capital funding, making a total of £47.4 million in 1989. We will explore with the EC Commission the question of the extent to which Structural Fund moneys will be available to assist these programmes.

This change adds a further £10 million to the opening position, and the revised PCP is, therefore, set at £1,344 million, excluding the additional European Structural Fund measures which I am about to outline.

Non-Programme Outlays

For 1989 I have decided to make a provision of £30 million to cover non-programme outlays. This allocation will allow the Government to meet essential financial restructuring costs of State-sponsored bodies where these prove necessary, as well as other miscellaneous capital payments. The reduced need to provide for financial restructuring of State enterprises is clear evidence of the improved financial management and performance of the State sector in recent years.

DEVELOPMENT PLAN

The preparation of a development plan designed to enable us to accelerate the development of our economy in partnership with the European Community is nearing completion. The plan will set out the Government's strategy for maximising use of the increased funding which will result from the decision to increase the resources of the Structural Funds. It will play a pivotal part in the building up of the economy over the next five years.

While Ireland is classified as a single region for European Structural Fund purposes, the Government decided to set up an extensive local consultative process on the preparation of the sub-national programmes which will set out the detailed implementation of the development strategy adopted in the plan. The purpose of this is to ensure that local interests will have an input into the programmes. Through the Department of Finance, who provide the chairmanship and secretariat for the seven working groups that are drawing up the sub-national programmes, the local interests have a direct line of communication to the Government.

The national plan will be formally submitted to the European Commission not later than 31 March next. The proposals in it will then have to be examined by Commission staff to ensure that they comply with the regulations governing the three Structural Funds. The Commission will then establish what is known as the Community Support Framework which will set out the priorities for Community assistance and an indicative financing plan.

Given the need to avoid any delay in the commencement of the development measures to be undertaken, the Government have had consultations with the Commission in advance of the completion of the development plan. These discussions were held under the special procedures agreed between the Taoiseach and President Delors last October. The general approach proposed was outlined to the Commission and their agreement obtained to it, including the objectives to be set and the particular sectors on which the development measures would concentrate. The Commission also welcomed the arrangements for the preparation of sub-national programmes which I have already described.

The Commission, understandably, could not give any formal commitment to the level of funding which will be available to Ireland in 1989 or future years in advance of consideration of the full plan. However, the increased resources which have been provided in the Community budget for 1989 for the Structural Funds, and the commitment to greater concentration of these resources on the less developed regions, including Ireland, provide a basis on which we can prudently expect an increase of not less than £75 million in commitments for Ireland for 1989 from the European Regional Development Fund. This will bring our total commitments this year from that fund to about £200 million.

This expected increase in commitments was not taken into account in the Estimates and Public Capital Programme published last October, since the Community budget and the new regulations governing the Structural Funds had not been finalised at that stage. I am, therefore, making the necessary financial provision in this budget to enable additional development measures which we propose to undertake this year under the plan to go ahead. The additional expenditures relate to measures which come under the Regional Fund. It would not be appropriate this year to provide for additional resources coming from the Social Fund or FEOGA Guidance Fund, since these two funds will not be changed over in full to the new regime until 1990.

I am, therefore, providing for additional direct Exchequer expenditure of £60.5 million this year on measures which we are confident will obtain approval for increased aid from the European Regional Development Fund, as follows; £34 million for road improvements; £10 million for sanitary services; £11.5 million for industrial promotion and for marketing support for industry and technology development; this includes a special development programme for the Tallaght area; £3.5 million for tourism projects and £1.5 million for fishery harbour development. Of the additional expenditure of £60.5 million, a sum of £3 million, relating to marketing support for industry, is non-capital.

In addition to the tourism measures which I referred to earlier, it is proposed that a new scheme of grant assistance for the tourism sector will receive funding of £14.5 million direct from the ERDF without involving the Exchequer. This will help the development of new tourism products, such as outdoor pursuit and activity centres, recreational facilities in resorts, marine facilities and cultural centres.

This allocation of additional resources in 1989 constitutes a mixture of infrastructural and directly productive measures. The additional expenditure on roads will meet a widely perceived need to improve our road network and will facilitate the movement of goods within Ireland and to destinations abroad. The expenditure on sanitary services will support industrial development as well as improving the environment. The tourism measures are an indication of the importance which the Government attach to this growth area and their determination to achieve the job creation potential of this sector. In the case of industry most of the additional funds will be devoted to marketing and technology development. This will enable deficiencies of Irish industry in these two vital areas to be tackled, with major beneficial effects on job creation and exports. The allocation for fishery harbours will enable necessary development works to be undertaken.

Further details are set out in a separate table in the "Principal Features of the Budget". The necessary provisions will also be made in the Revised Estimates and Public Capital Programme to be published in the next few weeks.

The development plan will give a major impetus to employment over the next few years. The implementation of the Structural Fund measures announced today will, in itself, provide a considerable stimulus to employment in the near term. Taking account of the spin-off benefits to domestic activity at large, the increased expenditure should result in the creation of an extra 3,000 jobs in 1989.

Even when support from the Structural Funds has been committed, some timelag is inevitable before the full European contribution is received. It is, therefore, necessary, in allocating funds from the Exchequer, to assess for budgetary purposes the future pattern of Community payments. I am satisfied that, on the basis of the new Structural Funds Regulations now adopted and the additional expenditures being undertaken, Exchequer receipts from the ERDF will increase by £48 million as compared with the pre-budget estimate. I have also allowed, in the current budget, for revenue bouyancy effects. The estimated impact of the expanded activities of the ERDF in 1989 on the budgetary arithmetic is, therefore, neutral.

With the expansion of the resources of the Structural Funds we are now embarking on an exceptional new phase which will greatly assist the Government in their efforts to increase growth and sustainable job creation in the economy, and to prepare it for the completion of the internal market in 1992. The Government are determined to make maximum use of this opportunity.

TAXATION

I will now deal with the overall thrust of tax policy. Considerable restructuring and reform of the tax system have taken place in the past year. Tax administration and collection have been greatly imporved. We were also able to make significant progress, in line with the commitments given in theProgramme for National Recovery, in reducing the burden of personal taxation. More, however, needs to be done. There is now widespread agreement, both within this House and outside it, that the level of income tax is acting as a major disincentive to initiative and hampering the drive to increase employment. It is also a definite cause of emigration for many of our young skilled people who, if they remained here, might be able to create jobs for others at home.

It would be naive to think that we can solve this problem quickly. The money is simply not available to do so. The progress we have made in reducing borrowing and stabilising the debt burden has been hard-won. The Government will not contemplate any reversal of this progress. Nevertheless, in the interest of employment and of equity we must move now to ease the tax burden. The room for manoeuvre is narrow and, therefore, some of the cost must be met by offsetting changes within the income tax area. The balanced package of changes that I am announcing today represents substantial progress within the overall context of reducing the Exchequer Borrowing Requirement again this year.

INCOME TAX

I have already indicated the significant changes we are making to help those on low incomes. The Government have decided also that the time has come to start reducing our excessive rates of personal taxation. The changes we are making are as follows:

the standard rate of income tax, which has stood unchanged at 35 per cent for more than 20 years, is being reduced to 32 per cent. This reduced rate will also apply to the withholding tax on professional fees and deposit interest retention tax;

the standard rate tax band is being widened from £11,400 to £12,200 for a married couple and from £5,700 to £6,100 for a single person;

the 48 per cent tax band being widened from £5,800 to £6,200 for a married couple and from £2,900 to £3,100 for a single person;

the 58 per cent tax rate is being reduced to 56 per cent.

Let me give some examples of what these changes will mean for different categories of taxpayers:

a single person on PAYE with an income of £10,000 will gain up to £235;

a married couple with an income of £16,000 will gain up to £324;

a married couple with an income of £20,000 will gain up to £470.

Further details of the income tax changes, showing the impact on different income categories, are contained in the "Principal Features of the Budget".

These income tax measures are expensive and I have had to look to specific reliefs in the income tax code for a contribution to their cost. Mortgage interest relief is estimated to cost some £165 million in terms of tax revenue foregone in the 1989-90 tax year. When the 90 per cent limit was introduced into this relief in 1987, the mortgage interest rate was 12.5 per cent. It is now 8.25 per cent. I, therefore, propose a further small reduction in the cost of the relief by reducing the limit from 90 to 80 per cent. This will mean a small reduction in the relief available to all claimants; the greatest reduction will be for those who are currently benefiting most. The relief will still be very generous and at the present mortgage rate will be, at maximum, the equivalent of full relief on a loan of nearly £39,000.

The relief on life assurance premiums is also expensive. It is estimated to cost some £48 million in the coming tax year, despite a number of existing restrictions on it. The tax treatment of life assurance is generous and I propose to curtail the current income tax relief to 80 per cent of its existing level in respect of premiums paid on or after 6 April next.

The specified interest rate, currently 12 per cent, used to calculate the benefit-in-kind from loans at preferential rates of interest, is being reduced to 10 per cent for mortgage loans to take account of the reduction in commercial interest rates.

The total cost of the income tax measures I have just announced is estimated at £109.7 million in 1989 and £182.9 million in a full year. I should add that the PRSI tax allowance is being renewed at an estimated cost of £51.1 million in 1989.

The impact of this package of income tax reliefs will be dramatic. All taxpayers will benefit. There will be a particular benefit to lower income taxpayers with family responsibilities. The percentage of taxpayers on the standard rate will be maintained at nearly 63 per cent. Most important of all, the marginal tax rate faced by over 600,000 taxpayers will fall. It will support the income moderation measures agreed in conjunction with theProgramme for National Recovery, will increase the reward for initiative and effort and will put more people at work.

INDIRECT TAXATION

I have had many representations about the 1992 indirect tax harmonisation proposals put forward by the European Commission. These proposals have received considerable publicity and many trade interests as well as members of the general public are naturally wondering how they should begin to accommodate to the expected changes in their future planning. In particular the need for phasing-in any changes has been stressed to me, in the interests of orderly planning and marketing, particularly in such areas as car sales and leasing.

The Government are fully conscious of these concerns and will be anxious to do everything possible to facilitate planning for 1992. The fact remains, however, that there is no agreement at this stage at Community level even on the degree of harmonisation needed to enable the internal market to function effectively, never mind on the specific rates or bands to apply to particular taxes. Discussions are to resume shortly but it is clear that we have a considerable distance to go before agreed proposals for indirect tax harmonisation emerge. It would be premature, therefore, for us to commence any general restructuring of our VAT and excise regimes on the basis of the existing proposals. The likelihood is that considerable change will occur in the present proposals in order to accommodate the difficulties and problems of the various member states. As is well known, any move in the context of 1992 to rates of VAT and excise based on EC averages will entail for the Irish Exchequer very substantial revenue losses. The excise proposals create particular problems for us.

In the forthcoming discussions we will expect the Commission to put forward suggestions as to how the difficult transition to a new regime can be eased for us. Contrary to suggestions that have been made, the Government are not basing their approach to this problem on seeking long term derogations from the proposals. We do not want to opt out of Europe or fall behind in the opening up of the internal market. The internal market presents great opportunities for this country and some degree of tax harmonisation or approximation is an essential part of it.

We will be anxious to secure early settlement of the package. I would like, however, to emphasise that any changes to our indirect tax regime arising from these proposals will be made so as to minimise disruption to producers, distributors, consumers and the public finances. There will be no overnight changes. I envisage in particular that any substantial fall in excise duties finally agreed upon will not be precipitate but will have to be phased in over a number of years along with any offsetting measures to replace lost revenue.

General approach this year

Given the priority we are according to reducing further the burden of income tax, there is an obvious temptation to meet part of the cost by imposing substantial increases in indirect taxes. I have, however, resisted this because of the implications for 1992 and for the general level of costs in the economy. The approach I have adopted is to minimise the increases, which in fact will apply mainly to excise rates.

EXCISE

In two successive budgets there have been no increases in the excise duties applicable to alcoholic beverages. This has been a very positive contribution by the Government to the holding down of prices. Nevertheless, prices have continued to rise as a result of trade increases, including some quite recently. I have decided that the time has come to increase the duty on these items but to confine the increase to what is required to index the duty in line with the current rate of inflation. The adjustments which I propose, inclusive of the consequential VAT element, are as follows:

Pint of beer

1p

Glass of spirits

2p

Wine (bottle)

4p

In the case of cider, I have decided that a larger increase than that warranted by indexation is appropriate, and I am, accordingly, proposing an increase of 25p a gallon on regular-strength cider, withpro rata increases on other strengths.

I have also decided on the following increases on tobacco and petrol:

Cigarettes (20)

4p

Other tobacco products

pro rata

Petrol (gallon)

5p

(Interruptions.)

These changes will take effect from midnight tonight. The yield will be £28.5 million in 1989 and £33 million in a full year.

A price reduction that would otherwise be warranted by price movements in the oil market will offset the duty increase on petrol. The duty increase will thus leave the price of petrol to the motorist unchanged. Because of the increase that has recently taken place in the price of auto-diesel on foot of world price movements, I am not increasing the duty so as to avoid adding further to industrial and other costs.

Excise Licences

I have decided to update and rationalise the system of excise licences applicable to various activities, with a view to preserving their value in real terms. The changes proposed will be provided for in the Finance Bill. I expect the changes to yield about £2 million in 1989.

Driving Licences

Ireland is obliged by EC directive to introduce shortly a standard format Euro-driving licence. I have decided to avail of this opportunity to introduce at the same time a ten year driving licence for which the charge will be £20. The option of three year licence at a fee of £12 will be retained for the time being. Appropriate provision will be made in the Finance Bill for the introduction of the ten year licence in the latter half of 1989. This measure is expected to yield an additional £1 million this year.

Road Tax/Motor Insurance Evasion

As part of the drive towards reduction of evasion in all areas of tax the Government intend to bring down evasion of road tax. Similarly, evasion of motor insurance is a cause of concern. Accordingly, I am taking this opportunity to inform the House that my colleague, the Minister for the Environment, will be announcing measures designed to bring about a substantial reduction in the amount of evasion of road tax and car insurance. I anticipate that the road tax measures will yield £5 million in 1989.

Lead free Petrol

Last year's budget introduced an excise duty differential in favour of lead free petrol which allowed it to be sold at the same price as leaded petrol. This year, as a complementary step to the measures being taken by the Minister for the Environment, to increase awareness among the public generally of the advantages of this fuel, I have decided to go further. The increase of 5p I have announced in the excise duty applicable to petrol will not apply to lead free petrol. This will enable unleaded petrol to enjoy a favourable price differentialvis-á-vis leaded petrol and will, I hope, encourage a further stepping-up by the industry of its programme of expanding outlets for this fuel.

The Minister will encourage people to cross the Border.

VAT

Since its introduction, value-added tax has proved a highly successful means of levying tax and it now forms, after income tax, the biggest generator of revenue for the Exchequer. The existing rate structure, which has remained virtually intact for four years now, is, I am satisfied, a well-balanced one and, for the reasons already explainaed, I do not propose today to make any major changes to it. I have, however, a couple of amendments to the existing scheme.

VAT on Works of Art

There has been considerable concern expressed in recent years about the steady outflow of works of art for sale abroad and particular mention has been made of the impediment which VAT at 25 per cent represents to their reimportation. In order to facilitate the retention and relocation in Ireland of works of art over 100 years old I propose to reduce the VAT rate on their sale and importation to 10 per cent. A new zero rate is not possible under EC rules. The reduction to 10 per cent will take effect from 1 July next and will cost the Exchequer £0.3 million this year.

Farmer Taxation

There has again been discussion in recent weeks about the type of taxation system that should apply to farmers. The Government considered this question at length prior to the 1987 budget and decided that the only equitable solution was to treat farmers in the same manner as other sections of the community, that is by taxing them on actual income. This is now settled policy. The Government are satisfied that it is the correct approach and there will be no departure from it. We have taken steps to extend the income tax system to all farmers who are likely to have taxable incomes, to simplify the procedures for farmers as much as possible and to improve the assessment and collection arrangements. In 1988 the yield from income tax on farmers was about £80 million. This is more than double the amount for 1987. A large part of the increase in yield over the 1988 budget estimate of £42 million is a result of the clearance of arrears under the tax amnesty.

In the last two budgets the Government reduced the level of flat-rate VAT refund paid to unregistered farmers on their sales. The rate is now 1.4 per cent as against 2.4 per cent in 1986. The reduction in the 1988 budget was made because of the amounts of arrears of health contributions and levies outstanding from farmers. My predecessor promised to review this reduction in the light of performance through the year on the payment of these arrears. I am satisfied that as a result of the amnesty and improved tax collection generally a significant improvement has occurred in this area. Following the promise made by my predecessor to review the position, I am increasing the flat-rate refund to 2 per cent with effect from 1 March. This will cost £12 million this year.

You are reneging on your commitment.

Stock relief for farmers is being renewed for a further two years and the clawback period in respect of destocking is being reduced from ten to seven years in respect of increases in stock values which occur after 5 April 1989. I am taking these measures to give a stimulus to the increase already under way in the size of the national beef-cattle herd. This will both increase farm output and help the meat processing industry. The cost of the renewal of stock relief is estimated as £0.8 million in 1989.

Corporation Tax

Major changes were made in 1988 in the corporation tax system involving in particular the reduction in the standard rate of tax to 43 per cent from 1 April next and a parallel reduction in the rate of first year accelerated capital allowances from 100 per cent to 50 per cent. No further changes in the tax rates and accelerated capital allowances are at present envisaged but I will review the position in the 1990 budget.

The threshold for capital allowances and for allowable running expenses in respect of motor cars used for business purposes is being increased from £6,000 to £7,000. This increase will apply to capital allowances for cars provided after today and, in the case of running expenses, to expenses incurred after today. The cost of the change in 1989 will be £0.3 million and the full year cost, which will not arise until 1991, will be £7 million. The change will be of benefit to the motor industry.

Almost all the corporation tax from life assurance companies is paid at a special rate of 35 per cent, which rate has been linked in legislation to the standard rate of income tax. This is 8 per cent lower than the rate of corporation tax that will apply to banks and building societies from 1 April next. This 35 per cent rate was not increased in the reform of the corporation tax system carried out last year in recognition of the special circumstances of life assurance business. There will, therefore, be no change in the 35 per cent rate for life assurance companies as a result of the reduction in the standard rate of income tax to 32 per cent.

The bank levy is being continued for 1989 at its 1988 level of £36 million.

Tax Administration and Enforcement

In 1988 there were dramatic improvements in tax administration and enforcement. For many years there has been a widespread perception of the tax assessment and collection system as being ineffective. Decisive action was needed. The two pivotal measures introduced in 1988 — the tax amnesty and self-assessment for self-employed taxpayers—have been dramatically successful. The overall effect has been to clear huge amounts of tax arrears, improve the timeliness of payments and generally to place the tax assessment and collection system on a much sounder footing.

The Government are intent on further development of the self-assessment system. It has been decided, therefore, that self-assessment, which at present applies only to the self-employed, will be extended to companies this year. The effective date of this extension will be announced later; it is likely to be towards the end of the year.

As things stand, self-computation of final tax liability is optional rather than mandatory for the self-employed under the self-assessment system, and this will also be the case for companies in the first instance. In a fully developed system self-computation of final liability would be mandatory for all taxpayers. The Government hope to move towards such a system in 1990. In the meantime, to facilitate voluntary self-assessment; the annual tax return form will be redesigned to have a section for self-computation built into it: the objective is that the new form will be in use for the 1989-90 tax year.

It is recognised, of course, that the complexity of the tax system makes self-computation difficult for many taxpayers at present. The absense of a single year basis of assessment of all income and reliefs means, in particular, that more than one tax return is nearly always required to settle one year's tax liability. By contrast, a single year basis of assessment would generally allow liability to be settled each year in one return. This would greatly facilitate the operation of a mandatory self-assessment system. A move to a single year basis of assessment could, of course, have significant implications for taxpayers and their agents as well as the Exchequer. Discussions will, therefore, be held with interested groups to explore the possibilities for further development of the self-assessment system.

The success of last year's measures in clearing arrears of tax now gives a great opportunity to individuals and firms to keep their tax affairs up to date. I appeal to all concerned to keep up to date with their payments. Timely payment of taxes will avoid trouble and expense later and can only help the long term viability of any business.

As for those who try to exploit the rest of the community by defaulting on tax payment, they can expect to be confronted with the full rigours of the much tougher enforcement measures now available to the Revenue Commissioners. The clearance of arrears in 1988 and the freeing of resources as a result of self-assessment will enable the Revenue to devote more time and effort to this task. Those who meet their liabilities in a timely fashion need have nothing to fear.

I want to place on record in this House the Government's appreciation of the efforts of all those who contributed to last year's historic breakthrough in tax collection. The Revenue Commissioners and their staff are deserving of special congratulations.

I will now indicate a number of changes I am making in regard to tax administration.

Remittance of PAYE/PRSI and VAT

At present employers are required to remit PAYE/PRSI deducted from employees' wages on a monthly basis. Traders are required to remit VAT on a two-monthly basis. Concern has been expressed at the compliance burden which this imposes on very small-scale business. The Government have, therefore, decided to relieve the burden in such cases by permitting small scale employers and traders to opt for an annual remittance basis for PAYE/PRSI and VAT. This change will operate from 6 April next in the case of PAYE/PRSI and from 1 September next in the case of VAT. This facility will greatly ease the administrative burden on the small traders and employers concerned. It will also lead to administrative saving in the Revenue and will release resources in the Office of the Collector General and thus lead to more efficient tax collection.

Application of the new procedures will be at the discretion of the Collector General of the Revenue Commissioners. They will not, however, be mandatory and employers or traders may opt to remain within the existing system if they so wish. The Revenue Commissioners estimate that some 43,000 employers on the PAYE/PRSI register and 35,000 traders on the VAT register will be eligible for the new procedures. Many concerns will, of course, benefit on both counts.

Capital Acquisitions Tax

Since the middle of 1987, a pilot scheme has been in operation for the self-assessment of capital acquisitions tax. In view of the success of this scheme and the potential gains in terms of additional yield and greater administrative efficiency, the Government have decided to introduce self-assessment of capital acquisitions tax on a mandatory basis. Provision will also be made for increased penalties and powers of enforcement. It is expected that the introduction of mandatory self-assessment will lead eventually to an annual increase of £2 million in the yield from capital acquisitions tax.

Anti-avoidance provisions

In the light of a decision of the Supreme Court in July of last year, it is clear that the means to counter tax avoidance schemes must be fundamentally reviewed. I am advised by the Revenue Commissioners that the potential loss of revenue to the Exchequer because of such schemes is sufficiently large to warrant action being taken in the overriding interests of preserving equity in the tax system and ensuring that the expected yield of revenue each year is realised.

The Government have, therefore, decided to introduce, in the 1989 Finance Bill, measures to counter the avoidance of tax. The precise scope and the effective date of the measures are being actively considered.

BUDGET TARGETS

Following the various expenditure and tax changes which I have announced today, the target for 1989 for the Exchequer borrowing requirement is £1,057 million or 5.3 per cent of GNP. This is a reduction of three-quarters of a percentage point of GNP on the underlying level of Exchequer borrowing in 1988 and a reduction of 4.7 percentage points on 1987. The estimated current budget deficit for this year is £819 million, which at 4.1 per cent of GNP represents a reduction of 2.5 percentage points on 1987.

These targets will ensure a continuation of the significant progress made in the past two years in controlling borrowing and debt and provide a firm basis for the achievement of a lasting improvement in the economy and the public finances.

Conclusion

The past two years have been great progress towards resolving the economic and financial problems which confront this country. Difficult decisions have had to be made — and accepted. Attitudes have changed. As a nation we have come to grips with the reality that the old ways of spending and borrowing excessively were wrong, and that a new direction was needed. That new direction is embodied in the policies and partnership agreed between the Government and the social partners in theProgramme for National Recovery. An essential element is continuing tight control of the public finances and prudent management of the economy.

Recovery is in train—of that there is no doubt. The evidence is there for all to see in higher output, increased investment and the long awaited improvement in employment. The spirit of the nation has been rekindled. The national effort is succeeding. We have emerged from the past two years leaner but fitter for the challenges ahead.

(Interruptions.)

It is essential that we continue to act in a mature way. The problems have not gone away. The borrowing and debt, which brought us into such difficulty, are still far too high. They will need continuing and resolute attention.

Which Fianna Fáil brought us into——

Deputy Barrett, Deputies will have ample time to discuss the budget. In the meantime, they must restrain themselves. Deputy Barrett please desist.

We must also redouble our efforts to improve competitiveness if we are to create the sustained increase in employment that we all so badly need.

Today's budget has been focused on three dominant priorities; the alleviation of poverty, the maximisation of employment and relieving the burden of personal taxation. Far from there being a conflict between these priorities, there is a close identity of interest. It is beyond dispute that unemployment is the major factor in poverty, and it is primarily through protecting and increasing viable employment that the Government can hope to alleviate poverty. All the main features of today's budget focus on one or other of these priorities:

—the major improvement in social welfare provisions,

—the major innovation with the income tax exemption limits which will reduce hardship and improve the incentive to work,

—the income tax improvements in marginal rates and income bands, which will begin to improve the incentive to work and will reduce pay pressures,

—the major increase in development programmes aided by the Structural Funds,

—and above all, the further reduction in Exchequer borrowing which will consolidate and enhance confidence in the economy, underpin interest rates and improve the overall climate for investment and job creation.

This budget should encourage all sections to persevere in the programme we have laid out. It shows that, if we all exercise control and restraint, we can make progress towards our national objectives for greater social equity, fairer taxes and more jobs, while still reducing borrowing. We have a successful formula for future progress. We must not be deflected.

TABLE EXPLANATORY OF CURRENT BUDGET, 1989

Revenue

£m

Expenditure

1. Tax Revenue*

7,062.8

1. Central Fund Services

2,555.0

2. Non-Tax Revenue (including £15m. carryover of National Lottery receipts)

322.0

2. Supply Services (non-capital) Adjusted for:

5,564.9

3. Temporary Tax Measures:

Net revisions to estimates due to re-estimation of 1989 requirements in light of 1988 provisional outturns

–25.6

5,539.3

Add: Bank Levy

+36.0

Less: PRSI Allowance

–51.1

———

Stock Relief for Farmers

–0.8

3. Add:

———

15.9

Welfare Measures**

4. Deduct:Income Tax reliefsIncrease in VAT flat-rate addition to farm prices

–126.2

—Social Welfare increases —Increase in general and age income tax exemption limits and introduction of child addition

+57.5

VAT Concession on works of art

–0.3

–12.0

—Other items

+11.9

+0.6

+70.0

Increase in capital allowances for cars

–0.3

4. Add: Other Expenditure Measures: —Special Pay Increases

+30.0

Reduction in specified rate for preferential mortgages

–0.3

–1.0

—Supplementary Development Budget

+3.0

Concession on unleaded petrol

–0.1

—Revision to employers' PRSI ceiling —Increase in National School Capitation Grants

+3.0

———

–139.2

+1.5

5. Add: New Tax Increases

—Miscellaneous

+1.1

Excise Duties (incl. VAT)

+28.5

———

+37.6

Excise licences

+2.0

4. Deduct: Estimated Departmental Balances

–40.0

Improved collection of motor vehicle duties

+1.0

New ten-year driving licence

Income Tax

—Reduction in mortgage interest relief

+11.0

—Reduction in life assurance relief

+5.8

———

+53.3

———

6. Net effect on tax revenue of expenditure and tax changes and Supplementary Development

8161.9

Budget

+60.0

7. Deficit

818.9

———

8,161.9

*Includes £5.75 million from duty on the transfer of assets to Coillte Teoranta.

**A further £1 million for housing the homeless is included in the capital budget.

PART IV: BUDGET TABLES.

TABLE 1: SUMMARY OF CURRENT AND CAPITAL BUDGETS 1988 AND 1989.

1988 Budget

1988 Actual Outturn

1989 Post Budget

£m

£m

£m

Current Budget

1. Current Expenditure

(i) Central Fund

2,500

2,431

2,555

(ii) Supply Services

5,660

5,576

5,595

Total

8,160

8,007

8,150

2. Current Revenue

(i) Taxation

6,635

7,322

7,009

(ii) Non-Tax

400

368

322

Total

7,035

7,690

7,331

3. Current Budget Deficit (% of GNP)

1,125 (6.3)

317* (1.7)

819 (4.1)

Capital Budget

4. Capital Expenditure

(i) Public Capital Programme

1,376

1,337

1,416

(ii) Other (non-Programme)

40

25

30

Total

1,416

1,362

1,446

5. Capital Resources

(i) Exchequer

431

437

491

(ii) Non-Exchequer

653

623

717

Total

1,084

1,060

1,208

6. Exchequer Borrowing for Capital Purposes

332

302

238

7. Total Exchequer Borrowing Requirement (3+6) (% of GNP)

1,457 (8.2)

619* (3.3)

1,057 (5.3)

*The underlying figures for 1988, i.e. taking account of the once-off impact of the tax amnesty and related factors, are as follows:

£m

(% of GNP)

Current Budget Deficit

817

(4.4)

Exchequer Borrowing Requirement

1,119

(6.0)

Table 2:

SUMMARY OF CAPITAL BUDGET REQUIREMENTS (INCLUDING CURRENT BUDGET DEFICIT) AND RESOURCES: 1988 OUTTURN AND 1989 ESTIMATE

£million

REQUIREMENTS

1988

1989

Budget Estimate

Provisional Outturn*

Budget Estimate

1. Public Capital Programme

1,376

1,337

1,416

of which:

(a) Exchequer

723

714

699

(b) Non-Exchequer

653

623

717

2. Non-Programme Outlays of which:

1,165

342

849

(a) Current Budget Deficit

1,125

317**

819

(b) Miscellaneous

40

25

30

3. Total Requirements [1+2]

2,541

1,679

2,265

RESOURCES

4. Internally generated financing of which:

766

834

859

(a) Exchequer

331

343

353

(i) Loan Repayments, etc.

124

126

144

(ii) Sinking Funds

195

200

188

(iii) Appropriations-in-Aid

12

17

21

(b) Non-Exchequer

435

491

506

(i) State Bodies

411

455

491

(ii) Local Authorities

24

36

15

5. European Regional Development Fund

100

94

138

6. Total [4+5]

866

928

997

BORROWING REQUIREMENT

7. Public Sector Borrowing Requirement — PSBR [3-6]

1,675

751

1,268

Less

8. Borrowing by State bodies and Local Authorities of which:

218

132

211

(i) State Bodies

214

130

209

(ii) Local Authorities

2

2

9. Exchequer Borrowing Requirement — EBR [7-8] of which:

1,457

619**

1,057

(a) Net sales of Domestic Securities to

—the public including non-residents

1,080

—domestic licensed banks

1,457

–173

1,057

(b) Small Savings

–339

(c) Foreign Borrowings

–443

(d) Miscellaneous including change in liquidity of Departmental Funds

–184

10. Total Resources [6+7]

2,541

1,679

2,265

* The 1988 outturn figures are based on end-year Exchequer issues.

** See footnote to Table 1 of Part IV of Principal Features of Budget.

Table 3:

SUPPLEMENTARY DEVELOPMENT BUDGET

Additional Capital Expenditure provided for in Budget, arising in the context of the Development Plan prepared for the expanded EC Structural Funds.

Post-Budget provision, prior to adjustment

Additional provision in the Supplementary Development Budget

Augmented PCP inclusive of additional provision

£m

£m

£m

1. Public Capital Programme of which:

(a) Exchequer

642.15

57.50

699.65

(b) Non-Exchequer

702.25

14.50

716.75

1,344.40

72.00¹

1,416.40

2. PROGRAMMES TO RECEIVE SUPPLEMENTARY FUNDING AS PART OF SUPPLEMENTARY DEVELOPMENT BUDGET:

Exchequer

Construction and Improvement of Public Roads

130.00

34.00

164.00

Sanitary Services

52.50

10.00

62.50

Tourism (OPW)

Nil

3.50

3.50

Technological (a) S+T

4.25

5.00

9.25

Support for (b) IDA Industry

108.85

3.50

112.35

Fisheries Harbours Development

1.60

1.50

3.10

Non-Exchequer

Tourism

Nil

14.50

14.50

Sub-Total

72.00¹

1 Marketing Support Expenditure totalling £3 million (current) is not included in these figures.

Table 4:

CURRENT REVENUE 1988 AND 1989

1988*

1989

Outturn

Post-Budget Estimate

£m

£m

Tax Revenue

Customs

108

121

Excise Duties

1,481

1,535

Capital Taxes

62

45

Stamp Duties

198

212

Income Tax

3,055

2,697

Corporation Tax

334

320

Value-Added Tax

1,805

1,815

Agricultural Levies (EEC)

13

13

Motor Vehicle Duties

140

146

Employment and Training Levy (a)

126

105

Total Tax Revenue

7,322

7,009

Total Non-Tax Revenue

368

322

Total Current Revenue

7,690

7,331

* Inclusive of receipts under the tax incentive scheme (amnesty).

Table 5:

HOW CURRENT EXPENDITURE WILL BE ALLOCATED AND FINANCED 1989

Where current expenditure will go

How current expenditure will be financed

Item

1989 Post-Budget

% of Total Gross expenditure

Item

1989 Post Budget

% of Total

£m

£m

Service of Public Debt

Borrowing

819

10

Interest

2,048

21

Tax Revenue

Sinking Funds, etc.

196

2

Customs

121

2,244

23

Excise Duties

1,535

Capital Taxes

45

Economic Services

Stamp Duties

212

Industry and Labour

210

2

Income Tax

2,697

Agriculture

383

4

Fisheries, Forestry

56

1

Corporation Tax

320

Tourism

21

Value-Added Tax

1,815

670

7

Agricultural Levies (EEC)

13

Motor Vehicle Duties

146

Infrastructure

61

1

Training and Employment Levy

105

7,009

86

Social Services

Health

1,182

12

Non-Tax Revenue

322

4

Education

1,231

13

Social Welfare

2,692

27

Housing

28

Subsidies

166

2

5,299

54

Security

697

7

Other

813

8

Gross Expenditure

9,784

100

Supply Services Receipts

1,634

TOTAL NET EXPENDITURE

8,150

Total

8,150

100

(Limerick East): The Minister for Finance has had the opportunity which no other Minister for Finance has had in recent years. Unlike all his predecessors in recent times his opening position not only allowed him to take further corrective action on the debt but left him with money to spend as he saw fit. I am afraid the Minister in front of an open goal has kicked the ball wide. The budget is strong on presentation, as we would expect from this Minister, but I am afraid it is very weak in performance.

A Deputy

That is last year's script.

(Interruptions.)

Please, Deputies. Deputy Noonan is entitled to be heard without interruption.

(Limerick East): I think the Minister is suffering from the same fatal flaw that bedevilled the actions of the present Taoiseach in the late seventies. The overpowering desire to be popular has put him on the wrong side of the argument once again. He has attempted to be all things to all men. He has made every target a desirable aim. He is like the man who jumped up on his horse and rode off in all directions at once. He has missed most targets here. It is a budget of lost opportunities and it is certainly a budget of lost jobs.

A Deputy

That is last year's script.

(Limerick East): Just wait, you will hear a few things before you face your constituents. Fine Gael believe that this budget should continue the adjustment of the national debt which we began and which Fianna Fáil have belatedly adopted as their policy. Fine Gael believe that the twin scandals of unemployment and emigration are not only our greatest economic problem but also our greatest social problem. We believe that these problems are not susceptible to easy solutions. We believe there is a solution and that we should all work together to put that solution in place.

Fine Gael believe that our tax code and our social welfare system must be reformed radically and fundamentally if we are to make any progress in putting our people back to work. We are not talking simply about a tax code which puts more money in people's pockets, even though that is desirable. We are not talking simply about a social welfare code that puts more money in people's pockets and that is desirable, we are talking about fundamental and radical restructuring of the tax code and the social welfare system to encourage jobs and put our people back to work.

That is what you did.

(Limerick East): Fine Gael believe that this economy is out of kilter with most of our partners in western Europe. There is no doubt but that costs in our economy, particularly transport costs, are out of line with our main trading partners. Fine Gael will not accept a divided society, we stand for social justice and equality of opportunity. There is no justice if significant numbers of our people are condemned to continue in poverty. We expect any and every Government in this country to address this problem both directly and indirectly. Fine Gael expect detailed sectoral policies which contribute to growth and development. We expect explicit and detailed policies especially for agriculture, tourism and manufacturing industry. Fine Gael believe that preparation for 1992 should have begun today, if not earlier. We need a statement of intent on tariff harmonisation from the Minister for Finance, but we did not get it today. We need a proper integrated plan to ensure that the doubling of the EC Structural Funds is not wasted, as the money that became available in 1973 was wasted and as the money that was borrowed in the late seventies and early eighties was wasted.

I propose to measure this budget against those criteria but first I want to draw attention to the increasing trend in Government speeches — a trend which the Minister for Finance indulged in today — to put forward the idea that economic life began in this country two years ago. The Minister for Finance has again recited a litany of successful economic statistics with which we are all now familiar. Again, as in the past, the pretence that all these improvements originated with the change of Government in 1987 is trotted out. I appreciate that the change of heart and mind in Fianna Fáil was of such cataclysmic proportions that, as is common in such occurrences, there is a tendency for them to date all time from the commencement of that great event so that in effect the year of the Fianna Fáil conversion becomes year one of the new calendar. We are now coming into, as we might say, year two of ADC. I want to refer to those years, however, which I will refer to as BCFF, that is before the conversion of Fianna Fáil. We had brought inflation down from 17 per cent to 3 per cent. We had turned a massive trade deficit of £1.8 billion to a huge surplus of £1.6 billion in 1987. When Fine Gael came to Government in 1981 the level of Exchequer borrowing facing the new Government for 1982, on the basis of Fianna Fáil policies, represented 23 per cent of national output. When Fianna Fáil took over in 1987 and adopted our budget the figure they were facing was 10 per cent.

The debt was double.

(Limerick East): We had halted the drop in unemployment in the manufacturing industry by 1986. Cost competitiveness in Irish industry had leaped in our period of Government and manufacturing output had gone up by 45 per cent so let us have no further talk about economic life beginning in this country when this Fianna Fáil Government came into power. The propaganda and presentation is very good indeed but it does not correspond with the facts. I would like to say to those whose position depends on the Government that they should have no fear of going on television programmes and saying that and not pretend the contrary.

When I add to this, the Government's opening position when they came to power, the fact that the Minister had money to spend when he came into this House today and that this party in Opposition and the Progressive Democrats have constantly over the two years supported the main trust of Government policy for the corrections that were necessary, the budget is a very poor performance.

We know that over the past two years real progress had been made by the Government. Fine Gael and the Progressive Democrats, but especially Fine Gael, have openly supported the action necessary to correct the debt problem, but the problem we face now, as we reach a threshold when the debt and GNP ratio has been stablised, is that the progress is being confined to the economic statistics. The progress is being confined to debt control and the filtering down effect into the real lives of the people in terms of jobs and reducing emigration has not occurred. There was an average number of 243,000 on the live register for 1988 while 32,000 people emigrated — or at least that many — in each of the past three years. The real rate of unemployment, if we include emigration, is in excess of 30 per cent and that problem has not been addressed directly in this budget.

The Government claim they have created jobs in the past year. These are dubious enough claims. The final quarterly report of the Central Bank states as follows:

Identification of the trend in employment in 1988 is subject to considerable uncertainty because of difficulties in reconciling data from the labour force survey with those from quarterly employment series and because of the paucity of data on the services sector. Recent labour force estimates for April 1987 and April 1988 suggest a stronger employment performance than was indicated by quarterly employment data for these periods. The extent to which the higher employment numbers in the labour force survey represent the increasing incidence of part-time employment and/or the influence of Government temporary employment schemes is unclear. As a result, estimates of employment for 1988 and forecasts for 1989 must be seen as tentative.

We know the way the Central Bank write their reports. We know the diplomatic language they use when they are criticising the Government. What they are saying to the Government in this instance is, "we do not believe your figures for job achievement targets". If we look at the live register, there is a lot of evidence to suggest that the Central Bank's suspicions are absolutely correct. If we look at the live register and divide it into those who are under 25 years of age and those who are over 25 years of age, you will find that in the past two years the rate of unemployment in the over 25 age group has gone up by 6,900, but it certainly has gone down in the under 25 age group. Of course we know why it has gone down in the under 25 age group. They are in Camden Town, Manchester, Boston, Australia and elsewhere.

They are not here.

(Limerick East): They are not here and those commentators — good commentators who were friends of the Taoiseach — who in the past talked about the death of Irish towns, should have a look at Kiltimagh and some of the towns in the west. They should also look at some of the suburbs of Dublin city and of all of our cities from where our young people are leaving in droves.

At Question Time today there was an oral question about the levels of jobs created by the Government and the Taoiseach gave a fudged answer. However, together with Deputy Jim Mitchell I took the precaution of putting down a question for written answer about the number of redundancies notified to the Department of Labour in the past 12 months. There were 23,037 redundancies notified to the Department of Labour. The Minister for Labour gave us that answer. The reply goes on to say that not all of the redundancies eventually ended up in people being unemployed but if we adjust the figure downwards there were 21,400 people who actually took redundancy. It further says that the Department have no information on non-notifiable redundancies so we cannot take account of that in the figure. The Government are claiming to have fulfilled the targets in theProgramme for National Recovery that 20,000 extra jobs would be created when the figure for the redundancies is somewhere between 21,000 and 25,000.

I put down another interesting question today asking for the numbers of departures and arrivals by all means of transport. In the figure for 1987, the difference between the number of departures and arrivals was 30,000. That is in line with the estimate, as we all said emigration was between 30,000 and 32,000 but when we take the figure for 1988, we find that the difference between departures and arrivals is 73,000. I appreciate that that is not meant to be an accurate statistic on emigration but it is the best we have in the absence of anything else. If it was accurate in 1987 maybe it is accurate today. From those figures we can see that 73,000 people left the country and did not come back. Now where are we going? Is that budget an adequate response to those levels of unemployment and emigration? Spreading money around thinly throughout all the constituencies that demanded action before the budget is no answer to the fundamental problems facing this economy.

Everthing I say from now on I want to measure against the criterion of job creation. I will start with the progress that has been made on the national debt. We know progress was made in the past, but even on the figures presented by the Minister the progress today is small enough. It has come down three-quarters of 1 per cent. He started with 6.1 and is down to 5.4. Three-quarters of one per cent is not a big drop in Exchequer borrowing requirement, but it is the kind that could easily be eroded if the Minister has not got his figures right and there is any kind of overrun at the end of the year. I am not interested in controlling the debtper se but I am interested in controlling it because we cannot afford it. It costs over £2 billion in interest charges to service it and we will never create jobs or keep the young people at home while the level of debt continues.

On the totality of the figure the Minister goes just over £1 billion on the debt — £1,057 million is the figure he has come in with. I know the sentiment in this city among the people who will be funding this deficit, who were saying during the week that if the Minister passed £1,050 million they were going to get very uneasy and if he passed £1,100 million the game was over. The Minister is very close to the fringe particularly when we look at the balance sheet at the back of his Budget Statement and see the figures for buoyancy he has put in from unknown sources. We will give him the benefit of the doubt. Some progress was made on the debt and while we are still paying over £2 billion in interest we will have to continue controlling that debt. However, now we have arrived at a threshold: sometime in 1989 the debt-GNP ratio will be stabilised, we need medium-term targets and the Minister should have provided us with them today. Unless targets and objectives are set and the means to arrive at those targets is spelled out, the consensus in the community at large, who are stuck with hard measures to eliminate the problems of the debt, will not be maintained and the consensus which exists in and outside this House will crumble.

The Minister should have come into this House today and said he was going back to traditional budgeting. He should have said he was going to separate the capital budget from the current budget in real terms and to eliminate the current budget deficit over a set period; I suggest three years. The current budget deficit is £819 million with a reduction of around £250 million a year, he could have eliminated the current budget deficit. The public, financiers, politicians, we in this House, do not know the Minister's intent for the next three or four years regarding debt control, and that creates the kind of uncertainty that causes problems. The Minister should mend his fences and when the Taoiseach comes in tomorrow he should set medium-term targets for the control of the debt and see if he can get general agreement on them. In the absence of targets the consensus will crumble and we will be going nowhere, stuck dead in the road, and we will make no further progress.

I am not surprised the Minister is not making much progress on the debt. We said when the Estimates were brought in last year that not much progress had been made and the Minister would not be able to make much progress on debt control in this budget. I see he has included £26 million of further cuts unspecified, which he says he will specify subsequently, because his Department's balances were high when he came in so he thinks another £26 million is there. Maybe it is, maybe not. Maybe he spent £26 million and had no other way of finding it so he said we would knock another £26 million off the general Estimate and it can be spread over Departments subsequently.

We on this side of the House have argued consistently that there is a relationship between the high level of marginal taxes and jobs. We have pointed out consistently that we have one of the most benign tax régimes in the world as far as capital, machines and plant are concerned but when it comes to people and jobs we are taxing jobs out of existence. We are not talking just about the overall burden but about marginal rates. I am glad the Minister has taken some of the message on board and has moved on the marginal rates but, again, he had far more scope and he seemed to be responding to the political pressure to deliver lower tax rates rather than concentrating on the kind of reform which will deliver jobs. He can do the two together and I suggest he has done less than half the job. We have pointed out on previous occasions in this House that in manufacturing industry to give an extra £1 to an employee paying the top rate of tax costs the employer £3.30. If an employer in manufacturing industry wants to give £1,000 to a key worker, it costs him £3,300. The Minister has changed that only marginally; he has taken 2p off the top rate, 2p off the middle rate and moved the marginal rate down to 32 per cent.

The Minister has not dealt at all with our young graduates who are emigrating and being sucked out of the economy because of a more benign tax régime not only in the UK but in West Germany. They will have very little benefit from the changes the Minister has made. The rates which affect them most are the 58 per cent and principally the 48 per cent rate, and we are talking about these rates with no reference at all to PRSI. Of course, you must add 7.75 per cent to all these rates, so we are talking about percentages of 65.75, 55.75 and 39.75 and the Minister has raised the ceiling again. I do not know whether the Minister realises it, but not only are our young graduates leaving who could get jobs but shortages of skilled people are beginning to emerge in certain areas of the economy. There is a shortage of electronic and mechanical engineers, key computing people and, when we move to the factory floor, of toolmakers. There is a shortage of a range of skills and they are moving to more benign tax régimes. I claim that the mobility of the bright young Irish graduate is faster than the international capital is coming back to create jobs in this country. The Minister has not done enough for people like that.

Increasingly, key industries in this economy find it impossible to get suitable management and pay them commensurate with their skills. Again, we are talking about the 58 per cent rate. However, you have moved in that direction. We welcome your move. It is in line with what we have been saying. You have moved on the marginal rates, but you have done so rather like someone who is responding to the mood of the moment and in a fashion which suggests you may or may not know where you are going because you have given no indication whatsoever of where you are going to go next year, what your ultimate target is, whether you are going to continue with marginal rate decreases or go back to increases in allowances and what not.

Now we must look at the benefit to taxpayers. Naturally, when tax is changed in this fashion it has to be paid for. You are reducing the mortgage interest benefit and the benefit on life insurance. You have threatened to tax child benefit even though you have not said at what level the tax imposition will commence. You say you are going to put full PRSI on all public servants, 160,000 of them. Therefore, there is a price tag on this. You gave the raw figure for the mythical man who has nothing except tax deducted from his salary. The figures you gave are for the man with no mortgage, no children. He cannot be a public servant and he had better not have life insurance. In the total sum those figures begin to come down dramatically and the benefit given has not been very real at all. I notice that in the case of child benefit you put your toe in the water, you said it would be next year and you did not know at what level.

And not to tax.

They are not taxing it, they are taking it away.

(Limerick East): They are taking it away, but you have not told us at what point you are going to remove it. I suggest that that toe you put in the water is going to come out of the water smartly before very long when the women of Ireland get after you and point out to you that in many houses this is the only income they have, regardless of the nominal family income. You were very careful. You just felt the water. I think you will find it very hot water indeed and will move back from that position.

As fast as you can.

Let me ask the Deputy to address the Chair. It is a well-known practice here that we address the Chair.

(Limerick East): I am sorry if the Chair felt left out of things.

I prefaced my comment in anticipation of the Deputy making such a remark. The Deputy will be aware that Standing Orders require that he should address the Chair and it would be better if he would do that.

(Limerick East): I should like to move to another serious point about child benefit. In any treatment of families, and in any treatment of children, we must look at horizontal equity as well as vertical equity. It is not enough to put an income table on one side and families with children on the other. I would argue that no matter what the gross income is, whether it is £20,000, £25,000 or £30,000, if a family have many children, four, five, six or seven children, that family have very little disposable income. Certainly, they do not have much disposable income while those children are teenagers and moving on to college. I should like to ask the Minister, who has only made a suggestion without spelling out his proposal, to look at the concept of horizontal equity between families as well as the idea of vertical equity. To advert to that type of equity might change the Minister's mind. I should like to ask him to have a look at it because it is my belief that he will get into extreme difficulty there.

The Minister has suggested that he will be taxing the misfortunate public servants by imposing full rate PRSI on them. Public servants have taken things fairly hard from the Government. The Minister has given very little credit to them for the good work they do and, secondly, he has treated them as a species that should be eradicated with various embargoes and early retirement schemes. There are sections of the public service where there is a very low feeling of self worth. On top of that, and without any preliminary discussion, the Minister is saying that he will put full rate PRSI on public servants. Public servants, with all their levies included, pay a rate of 3.15 per cent while the full rate is 7.75 per cent. If the Minister follows up what he has announced there will not be much left in the houses of the civil servants, teachers, gardaí, nurses, county council workers or members of the Army. There will not be much left out of the tax package when the full rate of PRSI is introduced. How will they benefit? They cannot be dismissed and, therefore, the idea of redundancy and pay-related does not arise. They qualify for pensions, whether they are contributory or not and, therefore, the idea of further contributory pensions does not seem to arise. They already have widows and orphans benefits from the 3.15 per cent they pay. Where is the benefit for them? Are we suggesting that the much maligned public service should again pay for the Minister's largess on this occasion?

I should like to deal with social welfare. We are all familiar with the arguments that there is a lot of poverty in our community, and I accept there is. The ESRI report on poverty suggested that there are three areas where poverty is heaviest. The first is households where the head of the house is unemployed. The second is households where there are many children and the third is the category of rural households which are well below the poverty line. The Minister's response to that report is to give an increase of 3 per cent on all social welfare benefits and to top that up with a further 9 per cent for the long-term unemployed, those on the live register for a long time. Percentages are great, especially if we do not know the rates. Let us take the contributory old age pension which is £56.80 from last July and which the Minister proposes to increase by 3 per cent. That means that the Minister intends to give £1.68 to an old age pensioner to relieve poverty. Does the Minister know what one can buy for £1.68 on my check list? One will get ½lb of Barry's tea for 95p and a bag of sugar for 70p. That will be the effect of the increase.

And the Government put the minimum rent up by £3.

(Limerick East): They put the minimum rent up £3 last year after giving the misfortunate old age pensioners less. Unemployment benefit stands at £43.60 and the 3 per cent increase on that will mean an extra £1.40. Let us see what a person will get for that amount of money. If the man smokes he will not be able to afford an extra 20 cigarettes because, before the Minister added a further 4p, the 20 packet of Benson and Hedges cost £1.95. He may be able to afford 15 cigarettes from the Minister's major attack on poverty. He would not make the fourth packet of soup because at 39p each four packets of soup will cost him £1.56. A litre of milk costs 52p and the best a person can do with this increase is to buy an additional two litres of milk and one tin of beans.

To be producing a package, talking in millions of pounds on the macro side and in percentages on the micro side and suggesting that that is a response to poverty in our community is cod. I welcome the fact that the Minister has gone beyond the 3 per cent for the long-term unemployed and that it will be increased by 12 per cent. That increase will amount to about £5 per week but then the Minister, as he did in many parts of his speech, fudged the information given to the House. It is not clear from the paragraph which followed the announcement of that increase whether it will apply to the dependent spouse or not. It looks to me as if it will not. One could read into it that it was 12 per cent across the board and applies to the children, but to my mind it is part of the con job. The issue is fudged in several parts of the Minister's speech. What the Minister is talking about is a £5 note whether the man is single, married or has children. There are some marginal benefits at the other end of the scale for children.

I do not think that is adequate. It is misdirected and it does what we warned about on previous occasions, it throws money at the problem. That is being done by people who have not analysed the problem. Far be it from me to say that £5 will not make a difference to a person who is in receipt of £40 but I know that the filtered down effect will not reach certain sections of the community, no matter what economic growth we have. It is a lie to say that rising tides lift all boats. They do not lift boats with holes in them and there are a lot of boats around, representing families, with holes in them. Poverty has to be addressed directly along the lines we have advocated. What the Minister has done, while it may be good when one talks about £70 million or 12 per cent, when it is reduced to pounds, shillings and pence and applied to a list of items from any supermarket, much less the small shops where many of the unemployed and the old have to shop, it amounts to very marginal relief.

Deputy Jim Mitchell, our spokesman on Labour, in an article in theIrish Independent last week pointed to one of the problems when one seeks to reform the social welfare system. He referred to poverty traps and put a table together which showed that a person on the average industrial wage of £201.88 was very little better off than a person on long-term unemployment assistance of £107. By the time one reached the bottom line there was about £2 between them. The Minister's £5 will erode that. The person with four children on long-term unemployment benefit will be about £3 a week better off than the person on the average industrial wage. That cries out for reform. The Taoiseach is shaking his head at that statement but I will supply him with the table I am referring to. Some of his Cabinet colleagues have been discussing it and telling us privately that we have illustrated very well one of the main anomalies in the social welfare system. It is not enough to go after poverty directly or to try to organise a system to alleviate poverty; we must look at the poverty traps. The Minister has tried to do that in one small measure, by giving an extra child allowance to people on very low levels of income. I do not understand why the Minister is taking that road to achieve a particular end when the family income supplement scheme is in place and could have been used. The Minister has made minor changes in family income supplements, to the total value of £1 million, but he did not specify what they are in his speech. We do not know to what category of low pay they will apply, what the cut-off point will be or whether they will be graduated. The Minister should explain why he did not use the vehicle which is in place to eliminate poverty traps.

In my league table of the factors which inhibit jobs, closely following on the PAYE/PRSI scandal, is the problem of undirected social welfare and the system under which it is impossible for certain people to go back to work, even if their job is available, because social welfare is worth more to them than their net pay when all other deductions are taken into account. The OECD has said that Ireland has a tax-cum-social welfare system most biased against labour. The Minister did not address that problem. He gave money to certain categories but it will have no structural effect on the economy and will not contribute one iota to job creation. There is a very good chance that we will lose rather than create jobs.

The problem of poverty will not be eliminated by direct application. Those that are poorest are in houses where the head of the house is unemployed and any moves which make it more difficult for the heads of households to get back to work is going counter to what the Minister intends. I suggest that, like in many other areas, it is because the Minister does not understand the difficulties of the system. That is one of the great tragedies of this budget. In budget after budget the Opposition parties have openly offered to back the Minister and his predecessor if they took the radical steps necessary to restructure our economy, to get the 30 per cent levels of unemployment and emigration down to the levels that are the hallmark of modern west European economies. Yet, the Minister has spread himself so thinly over three constituency targets here that he has ended up by doing very little.

Cost factors in our economy are causing job losses. We know that on average the cost of energy here is higher than for our European neighbours and that the cost of telecommunications is higher here. In those areas, improvements have been made over the last four or five years but one area which is totally out of kilter relates to transport, whether it be internal lorry transport or access transport. Because we are the peripheral nation in the EC, the only island nation after the completion of the Channel Tunnel, this problem should have been addressed in this budget and it has not been. It costs 40 per cent more to move a metric tonne in this country than it does in the UK. The cost factors are simple to identify. First, there is excise duty on the article, then there is the cost of fuel and it is mostly the excise duty on auto diesel and, thirdly, there is the state of the roads. The Minister today has put another 4p on petrol and he has allowed the 6p which was put on auto diesel a week ago to remain.

We all knew since 1 January that there was going to be a reduction in the price of petrol. Did not the Minister for Industry and Commerce instruct the oil companies not to bring in an increase on 1 January so that he could do the trick-o'-the-loop effort in the budget today and cancel out an excise increase with this increase at the pumps? The Minister delayed a reduction for a month so that he could balance things today and come in and announce that he was taking 4p but that there would be no increase at the pump.

In taking that 4p, the Minister indicated that he does not appreciate what a problem transport costs are in this country and the Minister is also making it harder for himself when it comes to harmonising export duties. If the Minister was going to hoover up the 4p reduction in excise duty, he should have given it back on auto diesel. The Minister could have reduced the price of auto diesel by 25p or 30p. That would make a big difference in all distributive trades. It would make a big difference in any company exporting and a big difference in any company transferring goods or services by road in this country. That would have made a difference to employment, but, of course, the Minister did not do that because it was easier to come into the House and tell the people that he was taking it with one hand but giving it back with the other.

That is the second time that has happened. Last year it happened in relation to the 5 per cent VAT on electricity. We were told that there would be no increase in our ESB bills because there was a reduction of 5 per cent in electricity anyway. We have been getting our bills since then with the 5p itemised as a separate item and now we have a 5p VAT rate on the cost of electricity.

I will move on now to some other sectors, because macro-economic policies alone will not solve our problems. We should have strong sectoral policies. In one of the primary areas, the area of agriculture, we have no policy at all. Nothing is being done and we have no plan. I wonder if we even have a Minister. The new Commissioner went to Europe and went native. The present Minister said before Christmas that he was going to exercise the veto if the events which occurred yesterday occurred. They occurred and the Minister came home and he was there smiling today.

A Deputy

He got cold feet.

(Interruptions.)

"Be nice to MacSharry" week.

(Limerick East): The Minister also told us that he did not even know that they were going to close the sugar factory in Thurles while he was away.

He said he will keep it open.

(Limerick East): Who closed it? The chairman of the board was in the Caribbean, sailing. The Minister was in Brussels and did not know about it. Taoiseach, was it closed in Kinsealy some late night over a bottle of wine?

(Interruptions.)

(Limerick East): It is a marvellous factory. It must be fully automated because it seems to have closed itself automatically.

(Interruptions.)

(Limerick East): The family farm is in decline and the Central Bank in a report which came out last week said that employment in agriculture continued its trend of decline. That is Central Bank speak for saying that family farms are becoming a rarity in certain parts of rural Ireland and that people are moving off the land. Sometimes I wonder what is going on or does the Taoiseach and his Ministers think that we are all fools on this side of the House?

I came across an interesting piece of paper which minutes a decision taken at the OECD ministerial meeting in Paris in May 1987. I presume the Minister for Finance was there in his capacity as Minister for Industry and Commerce. In my time it was always nice to get the weekend in Paris and the OECD Council was a nice place to go. I presume the Minister for Finance was there and perhaps the Minister for Agriculture and Food returning from Brussels. Part of the minute says that in the immediate future the most pressing need is to avoid any future deterioration of the present market imbalances, that action must be taken to influence demand and supply, on the demand side by improving prospects as much as possible inside as well as outside the OECD area and on the supply side by implementing measures which would prevent any increase in excessive supply, and that such measures may include reducing guaranteed prices and other types of reduction incentives by imposing quantitative production restrictions or by other means. That was a minute of May 1987 talking about agriculture in the OECD when our Minister was present. Yet, the Minister for Agriculture and Food expressed amazement at the dirty carry-on in Brussels and he was going to veto it before Christmas. The Minister was at that meeting in May 1987 so who is codding who? Is it any wonder that the farmers are on the streets marching?

There will be more marches after today.

(Limerick East): The family farm in Ireland is under threat and there is little in this budget to withstand that threat. I welcome the fact that the Minister restored the VAT rate from 1.3 per cent to 2 per cent. The Minister should have gone higher. Independent surveys communicated to the Department of Finance and agreed by the Minister's officials would suggest that the appropriate rate is 2.6 per cent. Even if the Minister brought it back to 2.4 per cent, we would have been happy. It was reduced in the first instance on the basis that farmers were not paying their youth employment and training levy and the second tranche of the reduction was tied into the payment of the health levy. The Minister's figures show that the farmers availed of the tax amnesty not only to pay tax but to pay their levies as well, including the health levy. They are up to date now and the Minister got more from both those levies than he expected when he reduced the VAT rebate. That VAT rebate should be at least 2.4 per cent and I will put down an amendment to the Finance Bill to make sure of it because fair play is fair play and the Government made a commitment.

I should like to turn now to the tourist industry. The Taoiseach will remember when he went to the Royal Hospital in Kilmainham in 1987, when the Government were about to produce a major strategy document on tourism showing how the targets of theProgramme for National Recovery could be achieved; I am sure people up there remember it as well. What has happened since? There has been no programme, no strategy and no tourists. The Minister for Foreign Affairs is the best asset of the Minister for Tourism. He spends most of his time in America endeavouring to get extra visas for Irish immigrants so that the Minister for Tourism can take account of them in the tourism statistics when they return for Christmas. The same people coming into Shannon Airport are being counted as tourists nine times in the one year——

And a fiver collected from them going out.

(Limerick East):——and a fiver collected from them going out. What is the response of the Minister for Tourism? Where is the sectoral policy on tourism to create jobs, to distribute income from tourism throughout the country — probably the most efficient distributor of income of any industry because it goes to the four corners of the country? Frequently the most desirable tourist attractions are in places where the productivity of the land is very low. Those constitute great opportunities, all of which have been lost.

For the first time in years tourism has had a negative effect on our balance of payments. According to the Central Bank Report, Fourth Quarter 1987, the balance of payments position on tourism is plus £13 million, in other words, £13 million was the net contribution of tourism to our economy. In 1988 with all the bogus tourist statistics, all the emigrants counted, the net contribution of the tourist industry was minus £61 million. What kind of sectoral policy is that when there are more people leaving this country as tourists than there are coming in, and that includes all the emigrants? The Taoiseach would need to call aside his Minister for Tourism and tell him that, if he is fooling him, he is not fooling the remainder of us and it is about time that position was redressed.

He is running for the Park.

(Limerick East): I have a fundamental belief that there is no better injector of investment, no better distributor of income, than the tourist industry. Nonetheless it has been grossly neglected.

All of us in this House last year agreed to extend the provisions of the business expansion scheme to the tourist industry. We thought it was a good idea and backed the Minister. We asked him for the details. The Minister replied: we cannot give you the details, they will have to be arranged between the Minister for Tourism, Bord Fáilte and the tourist industry. They were arranged all right; it is an absolutely disgraceful scam. I will be putting down amendments to the Finance Bill to have that scheme removed from the tourist industry. The business expansion scheme was introduced to encourage people to put their savings in risky investment. They put their money into manufacturing industry when all they received was paper representing shares in that business. For example, if one invested £25,000 — the maximum for any one individual — in effect one's exposure amounted to something over £10,000 because if one's top rate of tax was 58 per cent one got a tax rebate on that amount. That was fair enough because one could lose the whole lot, including the £10,000, starting up in manufacturing industry because it is a high risk. The provisions of that scheme were directed at the creation of jobs. That was the scheme introduced by Deputy John Bruton.

What happened when its provisions were extended to the tourist industry? Its provisions were applied effectively on extensions to hotels but immediately the scam merchants came in and now the provisions are being applied to holiday villages which must consist of a minimum of nine houses. I do not mind if such villages are located in Deputy Sheehan's constituency, in Connemara, in Donegal, or anywhere else in rural Ireland where there is a tourist industry, but there are now tourist villages in Dublin 4 being advertised openly. It is an absolute disgrace.

There is no risk whatever involved. One invests £25,000, one receives a tax credit of approximately £15,000, and the whole operation is backed up by bricks and mortar in the most valuable property zone in the entire country. Is it any wonder that there are people marching on the streets? Is it any wonder that income tax payers are upset when this ready-up is allowed to continue? In our foolishness we trusted that the Minister for Tourism would do the right thing. I do not blame the Minister for Finance's predecessor; he took the scheme on the basis on which it was offered as well. But it is a scam and should be changed. Indeed, it is worse than a scam because any available funds which would have been put into manufacturing industry are being diverted into the tourist industry. Some builders have said to me recently: we have no problem now because the last nine houses of any scheme cannot sell we will call a tourist village and we are home on a boat. Mind you, this, in circumstances in which job creation is supposed to be an absolute priority. There is not a sectoral policy in place in any of the key sectors which would make any difference to jobs.

If we look at manufacturing industry we see that we have reverted to the old practice of releasing bogus figures. I saw the new Minister for Industry and Commerce on television recently; I think he was in Midleton in Deputy Hegarty's constituency. He made a great announcement and everybody was happy. But I noticed one significant detail, that the job figures had reverted to the old five-year projection. When we were in Government we told the IDA we would not accept job projections over a period of five years. We told them they must revert to a three-year period. In modern manufacturing industry, with changing technology, it is difficult enough to go down to the third year, once one goes beyond the third year, inflates the figures and shoves the large numbers into the back year of the programme, such projections became bogus and are a waste of money. If the people in charge of the IDA have convinced the new Minister for Industry and Commerce that this is a way to behave, then he has been sold a pup again.

I have dealt already with the number of jobs promised in theProgramme for National Recovery and how they match the figures for emigration and notified redundancies. There is now huge interest being shown by the United States in Europe, massive interest; they know there is something extraordinary happening in Europe. On the one hand, the business community fear it because they are afraid a fortress Europe mentality is about to break out while, on the other hand, they perceive it as affording a huge potential for investment. Anybody I meet from the United States who is connected with business says it constitutes a huge interest that we should not miss. I predict that there could be a bigger influx of American investment here in manufacturing and service industries than there was in the years from 1973 onwards when we first joined the EC. Is there any word of that in the Minister's speech today? Not one iota.

There was nothing about health in the Minister's speech either. I had not expected very much because the Minister for Health is one of the most obstinate people in Ireland. He is like the boy who stood on the burning deck, he will go down with the service; the ship will sink but he will still be roaring: everything is all right, lads, do not panic, the health service is grand, everybody is being treated, there is no problem. We all know the reality of the positionvis-à-vis the health service now and we shall have an opportunity to debate it next week.

The Minister talked about the issue of pay. There is not much scope to comment on this subject because that pay scheme is in place — apart from special awards — resulting from theProgramme for National Recovery. I should like to talk about one aspect of Government pay policy, that is Army pay. The Army has served this country since the foundation of the State in 1922 and its members have served with distinction at home and abroad. The Army has remained loyal to the State and its Constitution through many changes of Government. That was very easy in recent times but was not so in the twenties.

In the final analysis the Army underpins the Constitution and the democratic institutions of the State. It is now being treated in a disgraceful fashion. The widespread dissatisfaction within its ranks arising from inadequate pay and long hours of duty, especially on the Border, is turning to open anger and resentment resulting from the decision of the Minister for Defence to dramatically increase the cost to soldiers of buying themselves out of the Army. Having failed to deal with the Army pay crisis, having eroded to a great extent the affection of all soldiers for their uniforms, and the pride in the Army in which they serve, the Minister endeavours now by compulsion, to do what he cannot achieve voluntarily. In effect he is attempting to commit unwilling soldiers to periods of service in the Army by rendering it impossible for many to buy themselves out. They are effectively prisoners of peace, not prisoners of war, prisoners of an inept Minister for Defence.

I say to the Taoiseach that he should not damage the Army by act or omission. He should instruct his Minister for Defence to mend his fences fairly quickly. The Taoiseach should intervene personally — there are a lot of politics abounding on budget day, but this is not a political appeal — in the embarrassment of the Army who are left with no option but to send out their womenfolk to fight their battles for them. It would be dangerous to let it continue. The Taoiseach is much better briefed on security than anyone on this side of the House and he should not endanger our last line of defence by allowing a hamfisted Minister for Defence, in his inept fashion, to make a bad problem worse. The Taoiseach should take this matter up — I know he can do so if he puts his mind to it — and sort it out before the weekend.

One of the purple passages of the Minister's speech related to the problems we will face in 1992. It was very hard to make sense of it. I am aware that the officials in the Department of Finance can write very clearly when they are instructed to do so. I do not believe the Minister knows where he is going. He referred very briefly to the harmonisation of VAT and excise duties but did not refer to the harmonisation of banking taxes. When DIRT is removed there will be a big hole in the balance sheet. What will the Minister do then, as no reference was made to this matter. What we needed was a statement of intent. Before the effects of 1992 hit us we will have three more budgets in this House. I am not calling on the Minister to put VAT on food or clothes or to reduce the price or cars by 30 per cent but he should have made a statement of intent. One of the main problems is that the Minister has not reached a watershed where he has stabilised the debt-GNP ratio. We were expecting a three year plan and for the Minister to face up to the real problems confronting this country but he has failed to do so.

In regard to the Structural Funds I do not know where the Minister is going. I do not want to be unkind to the civil servants who went out to Brussels with the best possible intentions to meet their contacts there and who came back and made promises to Ministers which did not work out subsequently, but when five ministers and 26 civil servants come home from Brussels with their tails between their legs, we know that something went wrong. I do not like to name names in the House but I could do so if I wished——

Name them.

(Limerick East): Do not provoke me to blackguard a civil servant when a Minister is at fault.

The Deputy is bluffing.

(Limerick East): I think I am wise to what is going on. The intention was for the Minister to come into the House today to announce a list of schemes under the Structural Funds. Of course such an announcement would have far more effect in March in advance of the European elections. Therefore, that cannot be the reason. The question that has been bothering me is why did he do it and suddenly make an ass of himself? What was the point? We found the answer in the middle of the Minister's speech. For every £1 the Minister will make available an extra £3 will be made available from Europe. The buoyancy effect as a result of capital expenditure is one quarter. Therefore this will allow the Minister to spend money which is off the balance sheet. The net effect on tax revenue of expenditure and tax changes and supplementary development budget is £60 million. About £12 million of this figure is legitimate with about £48 million readied up. If the money is spent there will be buoyancy. If the Minister receives a commitment from Europe, which he has not got to date, there will be buoyancy. If the councils and agencies around the country gear up and make sure that this money is spent there will be buoyancy by the end of the year but at this late stage, because of the inadequacy of the planning the spending agencies are not so geared up. That figure of £48 million will drive the Minister over the figure of £1.1 billion and once we pass that figure we are in dangerous territory. I hope this does not happen but the Minister has given us no reason to be confident in his treatment of the Structural Funds.

Recently the Minister claimed he never read his party's 1977 election manifesto. He should read it or else consult with some of those who wrote it.

They are sitting next to him.

(Limerick East): They are also sitting on this side of the House. I am not being facetious when I say that he should read it, as there is one important reason for doing so. The key economic Ministers then were the former Deputies Colley and O'Donoghue and Deputy O'Malley and the economic policy was encapsulated in the phrase, arising out of a total misinterpretation of Keynesian economics, “digging holes and filling them up again”. The theory was that it did not matter how one spent the money. One could dig holes and fill them up again with the result that the economy would take off. This is a theory the Taoiseach did not agree with. He never believed that the country could be pulled up by its own boot straps but others did. The Taoiseach should get his Minister for Finance to read the manifesto as I believe the approach being adopted towards the Structural Funds is along those lines. The theory that if one spends money on a capital project there will be a bang off it in the economy and the quality of the product does not matter is false. Unless a proper integrated plan is put in place we will not receive our fair share of the cake. If the Greeks, Spanish or Germans put forward a better plan for their disadvantaged regions we will not receive the full amount we are entitled to. The promise is that projects will be funded up to 75 per cent of the cost but this does not mean that this percentage will be paid in respect of each project. The Minister's approach should be programme-based rather than project-based. The amount of money we will receive will depend on the quality of the projects and their value to the economy will also depend on their quality.

In recent times we have twice failed to spend money properly. Following our entry into the EC in 1973 a lot of money was made available to this country. This money was used to raise our standard of living but very little was done to encourage investment and the children of that era are now feeling the effects. There should have been investment in the early seventies in order to provide jobs for those young people who are now emigrating in the late eighties. Towards the end of the seventies money was borrowed but it was distributed to the winds. Does the Taoiseach remember the time when he was in a position to announce a 45 per cent pay increase for nurses and a 36 per cent pay increase for teachers while at the same time issuing an instruction to the public service to increase the numbers on the payroll? I am sure Deputy Desmond would be able to regale the Taoiseach quoting letters which were sent to the health boards and the replies thereto such as "dear programme manager, why have you not taken on the extra 50 staff as instructed?". "Dear Minister, we cannot take on staff as, first of all, we have no office space for them; secondly, we have no chairs or tables or desks at which they can sit; and, thirdly, we do not want them any way"; and a further letter "dear programme manager, take them on anyway". That is what happened and we wasted money we borrowed on those schemes.

I have gone on for a long time but not as long as the Minister. The point I am making is a serious one. This is our last chance this century to encourage a level of investment which will result in the creation of jobs. When the integrated plan is published I will have only one question to ask; what economic disadvantage in this country will have been removed at the end of the period of the plan which will make us more like other parts of Europe? That will be the test. It will not be the provision of a road up the side of the mountain or a lighthouse in another bog but rather can we make permanent changes in the structure of our economy and can the money be used to remove disadvantages. If that can be done I will be happy.

I would like to conclude by sounding one note of caution. The Minister may remember that during the last election campaign both he and I appeared on television together. At that time the model economy was that of Denmark. One could not go out to RTE because they had discovered Denmark. One needed to be able to speak Danish before one could go out there. Even the little girls who would take you to hospitality were on about Denmark. The Danes managed to get their debt problem under control very quickly and they did so by hard action. They faced down a public service strike which went on for about three months. They got the debt under control through very harsh measures. Following this, consumer spending began to pick up. As it did so, confidence began to rise and there was a consumer boom with the result that imports got sucked in. As imports got sucked in pressure was applied on the Danish kroner and interest rates went up. I would have a small worry about the Minister's budget in that respect and also when one adds what the Minister has done today to the expectations from Europe. Fair play is good sport and we all like to see people spending a bit of money. We are all in favour of extra consumer spending around and about.

However, there are a number of factors. First there is the feeling that people have a bit of money to spend. The Minister has encouraged that today. Second is the fact that our savings ratios have been extraordinarily high. They ran up to about 20 per cent and they are around 18 per cent now. As people feel better about the economy they will reduce their savings and start to spend. There is a third factor. As property prices go up people's collateral increases so their borrowing capacity increases enormously. That happened in the south-east of England. One can look at certain States in America, and the Massachusetts miracle, as it was called. When they halved property taxes there was a boom in the property market and everybody began to borrow against the value of their house which was enormously inflated and this transferred itself into consumer spending.

There are three things at the moment pointing towards greater consumer spending in 1989. The projections from the Central Bank and ESRI would suggest that even conservative estimates of consumer spending — we are talking about increases of 6 per cent or 7 per cent gross — would not take a whole lot to switch the emphasis from a debt problem which was beginning to come under control to a balance of payments problem which would run interest rates up as pressure came on the pound. Ireland's economy and our influence on world events is like a cork bobbing around on the ocean. We have to be very careful indeed. I do not want to over stress it, but I want it on the record that there is a problem ahead and the Government should certainly be aware of it.

The Minister faced three political constituencies when he was preparing this budget. First there was the financial rectitude constituency. A lot of people think that the debt is still the most important thing and that is where the Minister should have spent the money to reduce it more and more. There is the tax reform constituency; a lot of people thought that the Minister should have concentrated his resources there. Then there is a very strong constituency which says there are disgraceful levels of poverty in the community and that resources should have been put in there.

The Minister, being a very astute politician, sought to satisfy the three constituencies. I suggest that by doing so and the manner in which he has done so, he has missed the main targets which should have been job creation, the elimination of unemployment and the reduction of emigration.

We are at a point where it is still not too late. When we move all the detail aside from every sector and look at the economy, the problem is on the supply side of the economy. We need to put together a strategy that will enable us to produce more and sell it more competitively. If we do that there will be extra jobs. That is what this budget should have been about. It should have been a plan, over the next three years, to enable Irish people at home to produce more and to enable them to go abroad and sell it more competitively. If the Minister had done that, in the area of macro economic policy and in the area of sectoral policy, this would be a very significant budget indeed. As it stands it will pass into history as the budget which massaged three major problems and made some people feel better temporarily but did nothing to address the fundamentals of the economy.

This is the first budget of the Minister for Finance, and he is to be congratulated on that account; but it is also the third budget of this Government. It marks more than the half way stage in the life of this Government set out in budgets. Now is the time to evaluate where they have gone in terms of budgetary policy. This is the moment at which this House can look fairly and squarely at this Government and ask if it is a Government of potential, of recovery, of growth, of economic hope for the country, or a Government of disappointment, rudderlessness and lack of cohesive strategic intent. It appears more and more obvious to those who are looking at this Government that on this occasion they have finally let loose their hand from the economic tiller.

There is talk in this House and in the media of consensus, that three of the parties in this House belong to a broad consensus. That consensus, as I understand it, was one in which it was agreed by all parties to the consensus that the national debt had to be got under control. That consensus does not go any further than that and it is wrong to speak in terms of an economic consensus of which this budget forms part. It most certainly does not. This budget is auto-pilot politics. It is a reflection of the complacency that is afflicting the country now, the feeling that things are better, that recovery has arrived, that we are now on the threshold of a great economic leap forward. The simple fact is that this country is under-performing by comparison with any OECD country; we are doing worse than all of them. The simple fact is that this country in terms of consumer spending last year went down.

In the real economy where ordinary people live and work failure is confronting us every day. It confronts us in the form of 600 people leaving to go abroad. They do not go for better social welfare benefits. They go for the opportunity to work, because they want to provide their services in an economy which has the capacity to absorb them and because they have to go. We live in a country where there are 240,000 people on the dole and, in the last three years about 120,000 people have left our shores. There are 50,000 people on training schemes in a kind of economic limbo. That means there are 400,000 people that our economy has failed in the last three years. It is an enormous number, an enormous index of failure, and the responsibility for that failure lies four square with this Government.

Of course, they may indicate that they have had to take on board very difficult financial constraints. That is true but, as they were sick and tired of saying to the Government who were in power from 1982 to 1987, bookkeeping is not what it is all about. There is a second half to the agenda which every Government take on board, that is, the agenda of growth, of employment, of wealth creation. The simple fact is that in the real economy — as opposed to the paper economy the hothouse of the Financial Services Centre and places like that — where ordinary people are trying to live, work, bring up their children, save, invest and employ others, things are getting worse. The burden of taxation is growing not shrinking.

There is an urgency about our situation too, because although the debt/GNP ratio has been stabilised that, of itself, does not switch off the alarm bells; it does not avert a crisis. There is nothing in this budget which suggests that the Government have any long-term goal in relation to the debt/GNP ratio. Serious-minded economists are asking whether by 1995 they will have reduced it to one and a quarter times our annual GNP. Others suggest that that could be achieved by 1990 and that by 1995 we could have a debt GNP ratio of one. The one thing that is absent in the Minister for Finance's first budget, on the occasion on which he came in here to put his stamp on the style of Government that will prevail while he remains Minister for Finance, is long-term thinking. There is none apparent in this budget or even implicit in any of the terms of the budget.

Look at 1992: that requires planning now. The Minister's approach to 1992 and indirect taxation is weak to the point of total flaccidity. There was not a single statement of intent or of policy in the budget. There is a political reason for that. His advisers have told him that if we start to put in train any of the measures which would be required to equalise and harmonise the VAT régime in this country with that of other member states, we will weaken our leverage with the European Community. No planning or preparation is being made for 1992.

In regard to 1992 — I make this point with a good deal of hesitation — no one is more committed to the process of European integration and achievement of the Single European Market than the Progressive Democrats, but the simple fact is if we approach 1992 without preparation in the area of tax reform, industrial policy or indirect tax harmonisation, it could turn out to be a great disaster for this country because there are many dangers inherent in it which only planning done well in advance can obviate and minimise.

When theProgramme for National Recovery was first implemented it was described as a major economic plan. Many of us on the Opposition benches described it at the time as a public sector pay deal to buy this Government breathing space. The truth of that is now coming home to roost. The Minister for Finance said that £150 million of special pay awards have accumulated during the lifetime of this agreement. We prefer not to talk about that or even to think about it. The fact is the Government are sailing into a huge confrontation with the public sector unions on the question of special pay. All these special pay awards were put in abeyance and this is now coming home to roost. The Government face a crisis on the public sector pay front.

The job targets which were trumpeted in that document are illusory and propagandist in nature. The number of reported redundancies seems to equate with the jobs created under that document. Of course, it suited the public sector unions and the Government at the time to talk in terms of 20,000 jobs a year, but when that turned out to be 20,000 gross jobs, nothing when compared to the extent of redundancies and job losses in the economy, the truth began to emerge. In the recurrent war between the Government, who are busily trying to create a sense of confidence in the economy — I salute them for that — and those who criticise what is happening, who are aware of the extent of deprivation and misery in the economy, truth has been the first casualty. On all sides there is exaggeration but none so much as on the Government side when they exaggerate their achievements and their targets and they underestimate the extent to which they are failing to achieve many of the things they promised.

This budget in particular must be one which holds out no hope for those who are excluded from the economy. I am talking about those who went into economic exile — the emigrants. They have been economically extradited. I am talking also about those who are frozen into ghettoes of unemployment, who are in internal economic exile, those who are the occupants of our own internal economic gulag. There is nothing for those people in the budget. There is the illusion of tax reform and of a comprehensive attack on poverty but there is none of the substance of these matters.

If we look at the glossy pink tables which accompany this budget we will find that a person on £3,000 per annum, as a result of the whiff of tax reform which Deputy Reynolds has passed under their nose, will be better off to the extent of £10.92 a year. That is what somebody on the lowest rung of taxable income will get from tax relief under this budget. That is pathetic. It is an insult. It is most unfair when compared with the £648 this document promises to somebody on an income of £30,000 a year. It is outrageous that a Government who say they are concerned about getting those 240,000 people off the dole and into work give somebody at the most abject and slave rate of labour — £3,000 per annum — an incentive of £10 extra a year to get into the workforce. It does not make sense.

One of the things the Taoiseach conceded over a year ago was that PRSI is a form of taxation on work. If PRSI and income tax are both taken as taxes on work, obviously it would have been much better for any Government, faced with tackling the problem of such a large number of people who are excluded from the economic life of our country and confined to the misery and injustice of poverty on the dole, to tackle PRSI. The people on £3,000 and the people who can avail of the upper income limits for income tax, which the Minister has broadened in the budget, are still paying PRSI at 7.75 per cent. They are paying tax when they do not have a living wage. It is about time we focused our reforming zeal where it really would have an effect, that is, people on low incomes paying PRSI.

Another curious feature in the budget speech delivered by the Minister is that finally the great old propaganda lie on which the 1987 election was fought, that this Government would put two-thirds of taxpayers on the standard rate, has finally been abandoned for the rubbish it always was. When it was first promised it could have been achieved by changing the marginal tax rate of one taxpayer in ten. It could have been achieved today by changing the marginal tax rate of three taxpayers in 100. It was so insubstantial and so stupid a goal that at least I have to commend this Minister for abandoning the propaganda on which an election was won. It is worthwhile to stitch into the record that the Government finally agreed that it is not a worthwhile target, that it has had no effect, that it was what I would call candy floss economics thrown at the electorate with the appearance of substance, with the taste of sweetness, but which amounted to nothing when it came to consumption.

Bearing in mind that this is a tax reform budget, few words have to be addressed to the whole area of tax reform. Firstly, tax reform of a radical kind cannot be achieved in one budget. One thing is absolutely certain; tax reform of a worthwhile kind cannot be achieved unless and until there is an accepted strategy which a Minister for Finance is willing to set out in his budget speech. The Minister, Deputy Reynolds, has come to this House, spoken about tax reform and accepted finally that the diagnosis that tax is a major inhibition to economic participation, and therefore to economic growth, is correct and I commend him for that.

The Minister has not spelt out his intentions regarding tax rates over a three to five year period. That would be too difficult and too politically fraught. He has not specified in any way any intention to widen the tax base because there is a political downside to that. He has indulged in what I believe is the somewhat self-serving and slightly less than politically honest device of suggesting that this budget contains radical tax reform, when it most certainly does not.

Let us look at the position of a family on £15,000. When the so-called tax savings in this budget resulting from the widening of the tax bands and the changing of some of the tax rates are put side by side with what will be lost in relation to budget and life assurance payments, normal to a family of that size, the family will be worse off. An average family will be worse off under this budget rather than better off. There is no incentive for a man in those circumstances to work harder.

For a civil servant, for instance, who will be liable for PRSI and who will have a higher VHI bill this budget will prove a disaster. Let us suppose that such a person has one or two children. When the truth is revealed of the Government's intention in this regard, if he suffers a clawback of any substance he could be £500 or £600 worse off. That is the extent of tax reform, it is giving tax reform a bad name. There is no point in incremental, gradualist tax reform which burns up people's goodwill. Real tax reform requires consensus. However, it requires a sense of determination, a plan that people understand, the willingness of people to concede a widening of the tax base which in one sense will adversely affect them if, on the other hand, they can see tangible benefits for the economy in another direction.

An ordinary, average family, at the end of Deputy Reynolds' ministrations arising out of this budget when encapsulated in the Finance Act, will be far worse off and that is the very antithesis of tax reform. It is designed to discredit the whole process. This is illusion without substance, a whiff of radical policy without any reality. It is dangerous on that account because it discredits those who come forward with proposals designed fundamentally to change the way in which our economy is run.

It should be said in that context that it is easy to talk about a consensus in relation to the need for tax reform but consensus means different things to different people in this House. To The Workers' Party it seems to mean somebody else paying, except anybody likely to vote for them. To the Labour Party it means that you can talk in terms of a 25 per cent tax band but that that is only in relation to taxable income covered by their standard tax credit. To Fine Gael it appears to mean — and I say this without any rancour — that there should be radical tax reform but that others must pay the political price for that, not Fine Gael. To the Government it appears that you can talk about consensus in favour of tax reform but on this occasion all they will sell is the packaging. When the voters tear off the tinsel, pull away the ribbons so neatly stuck on in the Minister's speech, they will find the package empty and themselves worse off.

It was stated in the budget speech — this is an echo of what this party have been saying in the three years since their foundation — that employment is the key to social justice. If that is the case and if poverty is to be fought through employment — and I believe that it must be — then we must have a very different response from this Government if they accept that diagnosis. They must lump together employment taxes such as they are and do something about remedying the situation of Ireland having the highest initial tax rate and the most anti-work biased tax system of any of the OECD countries.

Let us look at the reality of what is left in place if the budget measures announced here by Deputy Reynolds are implemented.

I am sorry to interrupt the Deputy but he should refer to the Minister for Finance.

With standard allowances of £3,136 which is the PAYE allowance, the PRSI allowance and the standard personal allowance, a person who earns £9,236, which is significantly less than the average industrial wage, hits a marginal tax rate not, as Deputy Noonan said, of 53 per cent but of 55.75 per cent, including PRSI. The 48 per cent rate has not been reduced. This represents a viciously anti-work tax system. The marginal alterations in bands and allowances cannot disguise those facts if the result is that somebody earning, say, £15,000 or £16,000 and married is slightly worse off and, when taking into account the additional PRSI payment liability because of the raised ceiling at £16,700, the single person is a couple of pence better off except for some of the clawbacks, for example, in relation to mortgages and the like. This budget turns out to be a puff of smoke, an illusion.

We have proposed as an alternative two rates of taxation, a 25 per cent and a 40 per cent rate. We have accepted that PRSI must be brought into the equation if one is to do justice to those at the lower end of the scale, those to whom the Minister is giving a tenner to get into the labour market. It is nonsense and also insulting. Talk about Norman Tebbitt and his bicycle. We have acknowledged that the financing of local government must be faced up to. As long as it remains to be financed by the general tax fund, and particularly out of income tax, it is a huge imposition on work. There must be a regime of a radically different kind in relation to corporate taxation and corporate Ireland must assume a greater share of the burden. We have accepted that tax credits as opposed to tax allowances are the way forward. Where on any of these issues is there any indication on the part of the Government that they accept any of those propositions, or any view or philosophy as to whether we are right or wrong on those strategic options?

This budget was long on irrelevancies such as the suggestion that the banks had agreed with the Minister to make favourable loans available to young entrepreneurs. I do not know what budgetary significance that has, except as aquid pro quo for the banks not having to pay more by way of stamp duty. It is not a proper part of a budget speech but of illusory showmanship, thought up more by a PR department than as a serious minded part of a budgetary strategy.

One of the huge areas where this budget and the Minister's expansive dilation on the economy totally goes silent is that of privatisation. No programme is set out for the management of State assets which must be a significant portion of any strategy to get out of the present difficulties. Why is that? It is because privatisation has implications for the role of Government, for economic costs and, above all, for creating an entreprise environment which is the engine of growth. In terms of the role of the Government it is worthwhile noting that the Government at the moment act as banker through ACC, ICI, and Irish Life; they act as a transport concern through Aer Lingus, Aer Rianta, CIE and B & I; they act as communications invester through An Post and Telecom Éireann and are now encouraging Telecom Éireann to purchase assets from another State monopoly, RTE's Cablelink network, in order to consolidate this monopoly. They act as a broadcasting proprietor, although in a diminishing and competitive environment; they act as an energy monopolist in relation to electricity, gas, peat and oil. They act as an insurance invester through ICI, PMPA and the VHI and as a primary production investor through forestry, sugar, steel, fertiliser, mining and many other areas.

Those are functions which the Government over a period of 30 to 50 years have accreted about themselves but which are seen in this day and age as obsolete so far as the Government is concerned. They distract Government because they require that Government should capitalise, supervise, rescue, co-ordinate and direct all these agencies. Now is the time for some Government Minister to spell out clearly the Government's intention in relation to this huge area of State industry and State investment which requires to be used and pruned, where necessary, and also directed, where necessary, not only to create an enterprise environment but also to get off the back of the Government and allow Government to do the real business of Government, which is addressing the competitive and enterprise environment that must be created.

In addition there are State assets and State support services such as the Office of Public Works and the services provided by local government. Apart from the role of Government, there are the economic costs of holding such assets. They involve capitalising loss-making concerns but there is also the opportunity lost of applying the money which is tied up in these enterprises. Those moneys and the interest debt on them could be well used in other places. If £400 million can be realised by disposing of Irish Life, that amounts to approximately £400 million saved in annual interests outgoings. If a five-year programme of sustained privatisation of assets and of semi-State concerns were embarked upon now, this Government could very simply and easily put in place an annual saving of at least £150 million in debt costs. That £150 million could be very significant in giving the Government the leeway to tackle some of the more difficult problems on other fronts.

Much more important is the third role of privatisation, this creation of a competitive environment. We need a sustained programme for competition and enterprise. We need to reach the stage where monopoly power is, wherever possible, dismantled, where competitive forces are, wherever possible, unleashed, where restrictive practices in the professions, the labour market or wherever else are tackled. Above all the creation of a competitive environment must be built into our laws. That is why the Progressive Democrats will be putting forward a radical proposal to incorporate into Irish law competition laws and principles such as exist in America and in the European Community to give Irish business men and workers who are adversely affected by uncompetitive, anti-competition action on the part of others the right of recourse to our courts to prevent those factors from doing economic damage.

A number of other factors are inhibiting the creation of employment: transport costs, energy costs, employment costs in the form of taxation to which I have adverted, communication costs, the cost of capital and the cost of risk taking. In all those areas we need to plan for 1992. The Ministers response in budgetary terms to the implications of VAT harmonisation seems to be abjectly inadequate bearing in mind the possible consequences for this country of failure to meet the challenge of 1992.

This is a budget, or so it seems. With a great fanfare of publicity we have Ministers with briefcases posing for cameras. We have secrecy about a document and a build-up in public anticipation lasting for days and weeks. We have a huge panoply of press, politicians and ordinary punters all concerned about how today's events will affect them. They will get a land this evening when they realise that tax reform means more tax bills for some and more hopelessness for those who are really excluded from the economy. This House is not just at the races when it comes to its constitutional role as a budgetary and financial controlling agency. The whole principle of Parliament is that this House is supposed to be in a position to reflect on, think about and control the disbursement of public moneys in a coherent and competent manner. We come to this House every year in the most extraordinary circumstances where the Minister presents his plan to ambush the Opposition. Nobody can know what he is about to say and people must make an instant response to it. Why should that be? Why all the secrecy surrounding what has been announced in this budget? I do not see any great secret. If it had been put in a big advertisement inThe Irish Times the day before yesterday there would have been no difference in terms of implications for the Exchequer.

The Constitution requires that the Estimates, on which one leg of this budget rests, should be presented to the Dáil and considered as soon as possible after presentation. It is noteworthy that Deputy Bruton put forward a White Paper,A Better Way to Plan the Nation's Finances which contemplated the introduction of Estimates in October of any given year. There is a perfunctory weeklong debate nothing those Estimates in bulk while the implications of most of them still ramain obscure. Let us take one small example. It is proposed to take £6 million off the allocation for school transport. We are told by the Minister for Education that this will not affect the provision of school transport for the rest of the school year. This seems to imply that half of the £12 million left for the second half of the school year will not be expended by the Government. It appears that half the costs in the next academic year will be borne by some other source. We were asked to note that Estimate without any of those implications being made clear to us. By the time the Estimate has effect, this House will not have contemplated or considered the Estimate itself. It will never have been explained and no responsibility will attach to any Member of this House because, like all Estimates, it will be implemented before it is even considered. That flies in the face of the Constitution and it is wrong. It was never contemplated that the Central Fund (Permanent Provisions) Act would allow in any given year the Government to go on auto pilot and dispense 80 per cent of total expenditure last year on the same things. It was never contemplated that the Act would permit this House lazily during the summer months to rubber stamp in retrospect the decisions of the Executive. It is about time this House took its budgetary role seriously and had a budgetary committee to deal with, for instance, the Committee Stage of the Finance Bill in circumstances which would give rise to the possibility of dealing with it in a responsible and accountable fashion.

I noted in the Fifth Report of the Commission on Taxation that the commission asked the Department of Finance and the Revenue Commissioners whether the Finance Bill in each year got proper and sufficient examination by the Dáil. Both announced that it certainly did and both discounted the criticism made by others that on many occasions by a series of guillotines the provisions of the Finance Bill go unconsidered and undebated. The Estimates process suffers the same fate. Is it not remarkable that this suits the Department of Finance because they are the Executive? It suits them to have the House forced into the position of approving the nod what has already been done. Is it not strange too that the Commission on Taxation, a fairminded group of people by any standards, rejected the view of the Department of Finance and the Revenue Commissioners on that matter and said the evidence pointed the other way. They said they were wrong on these matters and that there should be a fiscal affairs committee of this Parliament to enable the Finance Bill to be properly considered. What applies to the Finance Bill also applies to the Estimates. It is quite absurd, as Deputy Bruton's White Paper pointed out, to suggest that a long rambling debate held in the dog days of the summer months on the Estimate for the Department of Education, in which every Deputy is given free rein to expatiate on every irrelevance that comes in to his mind, as long as it has some vague connection with education, amounts to a proper exercise of this House's democratic constitutional, not only right, but duty to take an active part in the budgetary process.

It is about time that this House had available to it — and not to the Executive — expert economic advice. It is great to have independent economists — whatever that phrase means — depending on what letters you read inThe Irish Times available as consultants to the Executive but why are they not available to this House and to a committee of it? Why are the Revenue Commissioners immune from being brought before this House to explain why they have fallen down in this or that area in relation to tax collection? Why does this House have to take on faith, in the form of a speech which is kept under wraps in the most absurd Gilbert and Sullivan style until budget day, that the options the Minister puts before us are the best in the circumstances? It amounts to an abdication of constitutional function and the encouragement of irresponsible politics in which the Opposition are effectively excluded from any meaningful role. I need hardly dwell on the ridiculous rule of the House, which is not required by the Constitution, that you cannot even propose from an Opposition bench any measure which might have the effect of moving the tax burden from one person to another because that is the sole prerogative, under the Standing Orders of the House, of the Government. That also makes for irresponsible politics and forces the Opposition merely to propose tax alleviation without costing or how the difference could be made up.

The Dáil needs to take itself seriously as a financial and budgetary body. It should stop delegating its functions to the Government and to the Executive, it should stop taking from the Government and the Executive holy writ as if it was unchallengable and infallible. The High Court has shot one volley across the bows of the Government saying that they cannot impose customs and excise duties without reference to this House. I hope that is the beginning of considerable judicial activism to put manners on the Executive and to force this House to live up to its responsibilities.

The Central Fund (Permanent Provisions) Act should be struck down next and the Act which apparently we intend to employ this evening — the 1927 Act — which also amounts to an impermissible delegation by the whole of the Oireachtas to one of its Chambers as a function of temporary legislation, should follow suit so that this House will stop the business of ambush budgets and surprises being sprung on it like rabbits out of a had by Ministers. I remember the withholding sections introduced under the 1927 Act and what was most apparent about the debate was that the measure which this House approved was more complicated than any of the Members of this House could understand on the night it was put before them. No effort was made to explain it to them and that kind of rubber stamp legislation has no part in a democratic and accountable parliament.

Today's budget is the third introduced by this Government and the first by this Minister. It marks the first steps in a process of abandoning any perceived strategy on their part. There is no strategy apparent or implicit in it. Nobody could guess, looking at this budget, what the shape of next year's budget will be. Nobody who has to plan, one way or another, for three or five years hence can see any clear message as to how the Government see taxation changing or how our debt-GNP ratio will alter with the passage of the next few years. This lack of strategic intent is a huge weakness in the budget.

I know that the Minister may claim — as his predecessor did on one occasion at least — that he had very little time in which to form his own strategic views and that, in effect, he had to carry out decisions which had already been made. However, I do not see the mark of a reforming Government in the budget, I do not see the mark of a Government which have a sense of purpose. I see all the sings of confusion, I see all the signs of a lack of stated priorities, I see all the signs of trying to please everyone in every possible way instead of a coherent strategy which may have some downsides to it but which will also have political and economic benefits for the community.

The major economic problem is — and will be the same for the next five years — the question of involving people through employment in the real economic life of the country but this budget marks nothing except standing still. It is a marking time budget, it has not done what is claimed for it, it is not a pro-employment budget. At the very lowest margins of earnings — at the figure of £3,000 to which I referred — it has nothing to offer. At the average salary of £15,000, a family will be worse off as a result of the budget. Those are the realities which fly from the pages of the budget speech. There is no point in fooling ourselves that this is the stuff of radical tax reform, directional economics or the kind of budget which spells out a better future for the community. It does none of those things, it is much more concerned with appearance than substance and will be judged as that as time goes by.

The people who run into higher PRSI payments, lower mortgage and life assurance relief and higher VHI liabilities over the next few months and who see the children's allowances clawed back — although it cannot be revealed in what way this will be implemented — will realise that the price of the first budget of this Minister for Finance is that they are worse off. They will realise that, despite all the bluster, like so much of what this Government do — the propaganda is effective — the gesture to the Samaritans, St. Vincent de Paul and all the other things in the budget lard it with a veneer of concern. However, veneer cracks very rapidly and what is left is another monument to what is becoming increasingly apparent, that the Government have no plan, do not know where they are going and are incapable of bringing the country where it should go.

I commend the Minister on the introduction of his first budget. I appreciate that he had very little time to work himself, so to speak, into it. It is akin to the match last Saturday between Ireland and France. The Irish team were playing on their home ground and they had the crowd well and truly behind them. They had plenty of fire and passion and the wind behind them in the first half. Indeed they were a bit shocked by the score they achieved in the first half. We had a lingering suspicion that perhaps they did not have the stamina to last the whole match. Creative opportunities were missed very near the touch line. In the second half they were in the frozen grip of the French as distinct from the frozen grip of the Deparment of Finance. They lost the match after a heroic effort.

This budget is also a chance that has been missed. It is the third lost opportunity. I know, in charity, that that can happen. The Taoiseach has not had an opportunity of putting all his creative ability into the budget, which is a matter of regret but quite understandable. He lost a Minister for Finance who was a one track Minister, a person who cut but who was not creative. The incoming Minister and the Taoiseach suffered from that but there are yardsticks by which we must judge the budget. Is there creativity by way of tax reforms? I know from bitter experience it is easy to say those words and difficult to put them into practice. While one Government abolished child tax allowances, they are back again under basic exemption limits, contrary to the particular admonition of the Commission on Taxation and contrary to the determination of everybody to simplify the tax system. They are back and they will start drifting in again. It is like giving Swansea Car Ferrry £500,000 and another £500,000 later and before you know where you are, you are running another State company.

There is no effort at harmonisation of VAT in this budget. I will be going to the launching of the manifesto of socialist parties of the European Community on 9 and 10 February. I can see my socialist colleagues looking at me saying: You are going to get £3 billion between now and 1992 and what have you done on harmonisation? We have a minority Government. Ministers will be going back and forth. Any reductions in taxes, or changes in tax rates in this budget, should have been introduced as the first stage in a major reform of the entire indirect taxation system. That should have happened. The Taoiseach, has a unique budgetary strength in this Dáil whereby he could virtually do anything and not cause a General Election. In some extraordinary stupidity last Sunday Deputy Dukes gave leeway whereby you could have ten forwards on the line scoring a try and the full back would not be in sight. That was the leeway given to the Taoiseach. Therefore, on tax harmonisation, the bullet should have been bitten. The achievement of a Single European Community Market requires greater harmonisation of indirect taxation. We all know that and if we are to get our £3,000 million a price has to be paid. The price is not just that which was given to Jacques Delors when the Taoiseach met him and said we would get rid of exchange controls. That is fair enough. There was aquid pro quo on that too. There is the other quid pro quo that we are going to be asked in the Community for the years 1990 up to the end of 1992 what we are doing on harmonisation. There is a need for that and nothing has been done. There has been no reciprocation. It will be noted in the Community and it will make it more difficult in 1990, 1991 and 1992.

There is no fundamental reform of capital taxation in this budget and the dogs in the street are saying that the imbalance lies there. There is a huge imbalance on capital taxation. I do not want to weary this House with capital taxation as a percentage of GNP. We all know how minuscule it is but there is no reform. There is no fundamental reform of corporation tax, other than the implementation of the 43 per cent rate proposed last year, and beyond that there is nothing very much in tax changes in the budget. Therefore, I want to comment — I do not want to delay the House unduly — this evening on some of the proposals being made here.

First of all, there is an obligation and a direct responsibility on the Government to show their hand on child benefit. If the Government have decided to clawback child benefit from persons above a certain income level from early next year, then that Government decision should be disclosed. There are 475,000 families in this country, I happen to be one of them. There are 1.163 million children in the country. We paid £205 million in 1988 on child benefit. If child benefit is clawed back from people with an income of over £17,500 a year there will be a saving of £38 million; if the money is clawed back from people with an income of over £15,000 a year, child benefit will be cut by £54 million. I had the figures riveted in my brain for four years as I tried to convince the former Government not to do it. I passionately believe that this is about the only social transfer expenditure which we give to women in Ireland. There are women of substantial means whose husbands would not give them the price of a pair of stockings, a bar of soap or money to buy a bar of chocolate for their children, therefore there is a social policy decision to be taken. I am sick and tired of the Tony O'Reilly editorials in theIrish Independent saying the Labour Party are not being responsible in refusing to have child benefit taxed. Why should we, the rich get child benefit? Rich is a very relative term as regards the distribution of family income and it is something which the Government should re-examine. They made the announcement today, presumably on food of a Government decision, because the budget arithmetic for 1990 involves a huge input of a minimum of £35 million to £40 million and we need clarification in that regard because I am worried about that decision and it requires clarification by the Government. The figures I have given are ones which I am well aware of and which are available to the Government. Presumably they had a special working document in that regard.

The other aspect I would stress is social welfare. It is not correct to say that we are giving the long term unemployed 12 per cent, no more than it was correct last year. We are giving single adults 12 per cent. I thank the Taoiseach who took the decision last year, which was 11 per cent. Presumably, and with no disrespect to the Minister for Finance, he took the same decision this year and I commend it. For a husband and wife it was 7 per cent last year and it has risen to 8.6 per cent this year. We should put the record straight. I am pleased that a £70 benefit in 1988 is being increased by £6 for a husband and wife in 1989. I welcome that increase and it is the least we might do. In that regard the Government are to be commended. I would also make the point that the carryover cost is not substantial. I remember having that argument way back in 1983 when I did it first as Minister for Social Welfare. We did it again in 1984 and 1985 and we had the rates higher than the general level of inflation at the time. While I do not have the working papers and the exact costs now, I remember the carryover effect was substantial but the individual cost per annum was not that great. I do not cavil, I am very pleased that that has happened. My own party, and individual Deputies in the House from other parties, and many social organisations, have stressed in trenchant terms the need for increases of that nature.

I would like to deal briefly with a number of other aspects of the budget. On the taxation side, I cannot understand the Government's decision to increase the flat rate refund to farmers to 2 per cent with effect from 1 March, and at a cost of £12 million. Frankly, I do not know where in God's name we are going on that issue. In 1986 this refund stood at 2.4 per cent as I well remember but the Government decided in their wisdom to bring it down to 1.7 per cent in the 1987 budget and in the 1988 budget it was brought down to 1.4 per cent. The then Minister, Mr. MacSharry, waved the stick at the farming community and said it they did not pay up, we would abolish it altogether and they would get nothing. The income tax take from farmers in 1987 was £35 million and £9 million was clawed back on the tax refund scheme. In 1988 the income tax take from farmers went up a little to £42 million and £7 million was clawed back in the tax refund. I had thought that in 1989 with farmer's incomes up 17 per cent on last year and 13 per cent on the previous year that a handback of £12 million in 1989 would be totally unexpected.

It was not unexpected.

The farming community are voting for the Government because they have had two years of extraordinarily good weather and of extraordinarily good prices, particularly for sheep and milk, the two basic high earners. The farmers have done extraordinarily well so we are in a situation where the Government should say, "even if you did pay up £60 million, including tax collected during the amnesty, so what, you have had magnificent increases in income over the past two years, you are voting for us now and are not going to desert us on the basis of the decision not to touch the refund". It could have been left as it was at 1.4 per cent and indeed that would have been important. I appreciate that from next April farmers will be paying 4 per cent PRSI, plus employment and health contributions of 2¼ per cent for their social welfare pensions, but those rates are relatively low. I pay 6½ per cent as a voluntary contributor up to the ceiling maximum, but I have to pay it if I want to get cover for my wife and children and to have a death benefit in the event of my departing from the scene in an explosion of rhetoric.

I want to deal briefly with the supplementary EC programme. Again, and I do not want to be unctuous about the matter, I think the Taoiseach has not had the opportunity of lashing about in an effective way on the question of Community aid. He probably made a fundamental error in embroiling the Minister for the Environment in that particular exercise in the first instance. He should have left it to the Minister for Finance. If I had been Minister for Finance, I would have had a very trenchant argument with the Taoiseach of the day on the line that as Minister for Finance I was going to Brussels, that I would not mind if he sent a few altar boys or Ministers of State or perhaps altar women with me, but that I was not going to have this plethora of other Ministers, particularly the Minister for the Environment who, incidentally, has subsumed some vague, ambitious, undefined overlordship of community activity. I expect that was a way of keeping him quiet when he wanted to be Minister for Finance.

The recent ministerial delegation that went to Brussels was designed, as we know, to put pressure on the Commission to make extra funds available but the result was one of confusion, a slight degree of humiliation which the Taoiseach can rectify at a summit meeting because his relationship with Mr. Delors and presumably with the current Irish Commissioner,et al is excellent. I have no doubt that he can rescue the situation. However, it was a dangerous exercise, and one which did not do us any good, particularly when we are £3 billion supplicants to the Community between now and 1992. Equally it does not do any good to walk into the House and state that the Government are putting an extra £10 million back into sanitary services from Community funds, when we all know and anybody in the Commission can read in the Government's abridged Book of Estimates that £7.5 million was taken from the Estimates for 1989. That kind of sleight of hand does not cod anybody.

Equally there has been massive reduction in expenditure on roads in terms of the provision for 1989 in the Book of Estimates and we are reinstating Community money to jack the figures back up for 1989 on the basis that the Community might not be particularly cognisant of the fact. The Community is well and truly aware of what we are doing. That sleight of hand might have worked from 1974 to 1979 when we would have got away with it in the earlier days of the Community, but not now. The codology of an automatic transfer of 70 to 75 per cent to this country is not a correct analysis of the overall position.

I would like to refer to thePrincipal Features of 1989 Budget and the item on health. There is another sleight of hand here. The Government have reinstated — and I am delighted to see it — £8.1 million of an additional allocation to health. After all the argument the money is put back again. It is like last year. Deputies may remember the abolition of the long term illness scheme and also the community drugs scheme which cost £11 million but which was reinstated on budget day. Fair dues, the trick has been done again. There is the straight disclosure of the deferment of measures to increase income for agencies in the health sector. The £8 million involved was to come from charges such as the charge of £5 to make an application for a refund of drugs, or £10 to apply for a form F111 to go abroad or the increases from £10 to £12.50 for each day in a public bed or for out-patient services. All this has gone. In fairness, my colleague, the Labour Party spokesman on health, Deputy Howlin, highlighted this and the Government had enough sense not to create more trouble for themselves in the health sector, where they are in dire difficulty already. I commend the Minister for Health for reinstating the £8 million. It is difficult enough at times to decipher what precisely he is up to but I commend his effective style in camouflaging what exactly he may be up to. However, he has got the money.

The Minister for Education should follow his example because all she got out of the totality of the relationship with the Cabinet and the Taoiseach is £1.1 million — a miserly couple of pounds in capitation fees. The Taoiseach would spend that in an afternoon meeting delegations. He would throw them a few bob. He would give the St. Vincent de Paul Society £.5 million and the Federation of Emigrant Organisations would get £.25 million to keep them quiet. The Irish Embassy in Britain is doing a good job. In fairness I am glad that the Taoiseach has made that allocation. I am also delighted that he has made an allocation to the Rape Crisis Centre but these should not be budget matters and should not even require an announcement from the Minister for Finance. They are matters for individual Ministers.

In relation to education, it is not just £1.2 million, it is a cut of £5.8 million in school transport, and all hell will break loose, as the Taoiseach knows well. He has received the correspondence from the transport union, my union, and I have received copies of it. Although I am not quite sure of the name of the new union I will be joining, I welcome warmly the decision of both unions to amalgamate, to the betterment of the country. Unquestionably, the Government will run into dire trouble because 150 people are to be laid off throughout the country on the school transport scene and many of the 6,500 routes will have to be slashed unless the £5.8 million is reinstated. It is time Deputy Mary O'Rourke, Minister for Education, got up on her bicycle and rode from Marlborough Street to the Taoiseach's office and put in her spoke to get the money, because this is going to be a major issue. It is a serious cut in education which cannot be accepted.

Public service pay, a delicate subject, is the Achilles' heel of every Government — I am not sure whether it includes the remuneration Vote for early retirement. I presume the £25 million is subsumed and it now hits the historic £3 billion mark. We recall only too well that we in Government had several confrontations on special pay, but now £47 million, not £30 million, is lashed into the budget, as much as is given in social welfare, to meet the exigencies of special pay.

Aquid pro quo is put up that 160,000 modified PRSI public servants, if I may classify them as such, will be called upon to pay a higher rate — we know that is only a blind — subject to agreement with the ICTU. If congress does not agree, has the Taoiseach ever said “no”? Congress will not agree unless the Taoiseach provides full contributory pensions on top of public service pensions. I do not believe the terms of that decision will be implemented because all sorts of pressures will be brought to bear. Not only are the Government now confronted with £3 billion, but they have decided — for what reason I am not sure — that another 3,000 public servants have to go in 1989. From which area are they going? Mostly health but presumably some will go from the education area too. There is talk about a second round in education——

Teagasc.

Admittedly it will never reach the level of lunacy suggested by a former Minister for Finance — that people leave at 45 years of age. He was brought back from the brink of that farcical cut. From which area will these 3,000 people go? Will they be from local authorities, health?

Teagasc.

There will be only 400 or 500 there at the most, but the Government will lash out another £25 million for early retirements. Last year we spent £96 million, tax free, between accelerated pensions and lump sum payments on early retirement. We now have 52 year old civil servants walking in the Dublin Mountains wondering what in the name of God they are going to do next as they contemplate their early retirement. We even have the ludicrous example of a former officer of the Department of Finance, with full pension and lump sum, taking up a position in a public service organisation, wholly State funded, because somebody forgot to include an abatement provision in such a decision. If another 3,000 public servants are to go, the Minister for Finance might consider at least including an abatement provision.

The Minister is unique among Ministers for the Public Service in Europe in that respect. Recently at a meeting in Spain — admittedly dealing with tobacco, and the Taoiseach was warmly complimented on the work he had done from 1978 onwards — I explained to some Ministers there the kind of provisions we had for early retirement, public service lump sum payments and the way we were dealing with them, and they found it incredible. They assumed we had a GNP and GDP availability of resources which, to judge from our submissions, was never in evidence to them. The Government should review the decision to let another 3,000 public servants go because in the health services it means more bed closures in public wards, the VHI will have more pressure brought to bear on them, we will have another increase in contributions at the end of 1989, and the current chaos with accelerating increases in the non-elective and elective waiting lists will only get worse. I do not propose to elaborate further on that because the House is only too well aware of the overall crisis in that regard.

I am prepared to support the increase in the price of cigarettes as proposed in the Budget Statement. In Government I managed to convince the Government in 1983 to increase the price of cigarettes by 10p, in 1984 by another 10p, in 1985 by another 10p, and in 1986 when finally they got sick of me I made it 7p, but it is a matter of record that in the past three budgets, 1987, 1988 and 1989 it was 4p. The Taoiseach knows from the mayhem caused on public health by the appalling habit of smoking and the need to curb the extension of that habit among our young people, particularly young women of fertile age, that there is an urgent need to ensure that the price of cigarettes is as penal and punitive as possible. If the increase was doubled today I would not cavil at that as one who knows only too well the harm cigarettes can cause.

I congratulate the Minister on his work in bringing in his first budget. If I am being critical, perhaps the Minister can be excused because he did not have a full year's run at it. I hope he will not suffer the occupational disease of the Department of Finance of a frozen elbow in terms of the ability to sit down and write out the basic reforms that are necessary. We will receive from the Revenue Commissioners 55,000 reasons why it cannot be done. When we wanted to bring in a standard rate for mortgage interest of 35 per cent, a standard rate for VHI of 35 per cent and a standard rate for life assurance of 35 per cent, we were told it could not be done. We would have to recast completely the PRSI system, and after a short, cryptic note from the Revenue Commissioners it was dropped. It should not be dropped.

Admittedly mortgage interest relief has been tailored downwards today. It may sober up some of those in my constituency who are paying £120,000 for houses which, in some cases, are a load of rubbish. I would not pay £50,000 for some of them but the people concerned have money. In some cases it is hot money from the UK which is being sent home. The Minister's move may dampen some of the excess demand at the top end of the market from which the only people to benefit are the auctioneers. Their percentages are increased as the market is hyped up. To that extent I do not cavil with the Minister's move although it will hit some people.

The Commission on Taxation have argued that such allowances should be phased out, or at least brought down to the standard rate. The same could have been done in relation to VHI premiums. The £10 million or £12 million saved in that exercise could have been used to reopen beds in public hospitals which are being crucified by the cuts. They will not receive any help from the budget. I understand that some of them are reduced to charging visitors 50p to park a car in the grounds of the hospital from which they hope to raise £40,000 or £50,000 annually. They are doing that in desperation to try to run some wards.

I should like to tell the Taoiseach that the budget exercise has somewhat depressed me. There are many reasons why that is so. The budget does not have creativity, reform or flair and above all, does not have courage to take difficult decisions. The Minister gets this opportunity once a year and once he passes it up the problems become more difficult to deal with.

After four hours of speeches on the budget I am sure Members, and those listening on the radio, do not have the stomach for much more. However, there are a number of points that need to be repeated. It is clear that the budget is fairly big on illusion, on giving the impression that it is dealing with major issues such as unemployment, poverty and tax reform, which the Minister declared as his objectives when he opened his speech today. If one looks closely at what is in the budget one will find that while it may be big and colourful it is somewhat like a stick of candy floss, when one bites into it there is virtually nothing there. In my view it is more of an exercise in public and political relations then a real attempt to come to grips with the major social and economic problems facing the country, problems like poverty, low pay, emigration and unemployment. It is a budget drafted with the specific objective of protecting Fianna Fáil's position in the opinion polls and ensuring the continued support of Fine Gael and the Progressive Democrats in the Dáil. In that regard it would appear to have been quite successful because, despite strong speeches from the spokespersons of those parties, they indicated that they do not propose to oppose the budget.

I should like to advise people to examine the small print of the budget. If they do they will find that virtually nothing has been done to improve the plight of those most in need. They will see that many features of the budget will worsen their position. Those who take the trouble to examine the budget will find that inside the velvet glove of the ministerial scriptwriter is the iron fist of the new Minister for Finance. The most disappointing aspect of the budget must be its failure to make any attempt to tackle the problem of unemployment.

After speaking for more than 90 minutes the best the Minister could offer was that the money we hope to get from the EC just might create an additional 3,000 jobs. Later in his statement he outlined his policy in relation to the public service and it will ensure that at least 3,000 more jobs will be lost. Effectively, we have one effort at proposed job creation being cancelled out by the Government's policy in relation to the public service.

Even if the money from the European Community creates 3,000 jobs it will represent a decrease in the live register of 0.1 per cent. What the unemployed want more than increases in social welfare benefits, welcome as they are, are jobs but the Government have not given them anything to hope for. As a result many more will have to take the emigrant boat. It is interesting to note that the Minister of State at the Department of the Taoiseach indicated today that on the basis of figures available to date it was expected that emigration will increase during the year 1988-89. Deputy Michael Noonan indicated that emigration may have been as high as 73,000 last year.

The increases in social welfare are not adequate given the level of poverty. In many cases a big portion of the increase will be clawed back by rises in such items as differential rents. The implementation of the increases have been pushed back to July and people will lose a part of their mortgage interest relief and relief on their insurance policies. That may not be a big problem for those on high incomes but there are many people on incomes which may seem substantial in terms of what those on social welfare have to exist on who have to pay for virtually everything they seek, whether it is education or health, and such a loss in mortgage interest relief for them is significant.

There is not anything in the budget to help mortgage holders who become unemployed. No effort is made to ensure that the mortgage relief they had while employed is converted into a form of subsidy so that they can remain in the house they are trying to buy. A significant number of houses are being repossessed at present because people cannot maintain the repayments as a result of unemployment.

In the area of taxation there is the impression of much activity but the benefit for most taxpayers will be negligible. Looking at some of the figures issued with the budget one will see that a single person on an income of £80 per week will gain an extra 50p in tax relief while a person on £600 per week will gain £17 per week in tax relief. There are grave anomalies in the way our tax system works. Clearly, the way those reliefs work in the budget, the more one earns the better off one will be in terms of relief. The PAYE sector will continue to bear roughly the same share of the overall tax burden. Farmers, despite paying virtually no income tax, have been given additional reliefs and no attempt has been made to increase the rate of tax take from the business sector despite massive increases in their profitability.

The Workers' Party have consistently opposed the economic policies of the Government from their first budget when it became clear that they had betrayed every commitment made to the electorate while in Opposition and during the 1987 general election campaign. We are opposing this budget as it represents a continuation of that economic policy which can be summarised as simply a philosophy of making the poor bear the cost of balancing the books. There is no dispute about the need to bring order to the financial affairs of the State, and particularly to the cost of servicing the huge levels of borrowings. We have never believed, however, that it was acceptable to deal with that problem by increasing the poverty of the poor or intensifying the disadvantage of the disadvantaged. The policy of cutbacks at any price, cleverly referred to these days as savings, has wreaked havoc on our health, education and welfare services, all areas of vital importance to those surviving on middle and low incomes, whether they are on social welfare or in poorly paid jobs.

The objective of any reasonable Government should be a more even distribution of wealth and resources but the impact of Fianna Fáil has been to accentuate the gap between the rich and the rest and to create a two tiered society. Given the appalling levels of poverty which have been widely documented by a wide range of independent groups over the past 12 months, the failure to provide adequate increases in social welfare payments is particularly cruel. The practice of increasing social welfare in line with inflation, as the Minister has done today except in so far as he gave an extra increase to the long term unemployed, can only be acceptable where the levels of social welfare are already adequate. This is clearly not the case and is a fact recognised by many organisations, including the Commission on Social Welfare, the Irish Congress of Trade Unions, the Combat Poverty Agency and by an increasing number of church bodies such as the Catholic Social Services Council, the Council for Major Religious Superiors and the Irish National Organisation of the Unemployed. There is also a host of other organisations dealing with the homeless who agree that social welfare is not adequate.

In 1985 the Commission on Social Welfare recommended a basic minimum income level of between £50 and £60 a week for a single person. In 1989 terms that would be the equivalent of between £55 and £65 a week. Yet, a recent report of the Combat Poverty Agency revealed that one-third of the population are living on incomes below £48 a week per adult. That is an average figure. There are many unemployed people, particularly young unemployed people, who have no income whatsoever because they are means tested out of the system. Even with the increases announced by the Minister, welcome as they are, an adult on long term social assistance will still be asked to survive on less than 80 per cent of the amount the Commission on Social Welfare identified as the basic minimum requirement. We must keep in mind that minimum means are just that. In most cases such income will do no more than keep people in a kind of twilight zone life of never being able to do more than live quietly in frugal misery. Any budget which fails to address the problems of poverty in all its guises cannot be accepted by The Workers' Party.

It is surely a savage indictment of almost 70 years of self-Government under successive conservative Fianna Fáil and Fine Gael Administrations that so little progress has been made towards eliminating poverty and achieving the sort of social equity envisaged by leaders like James Connolly or envisaged in the democratic programme of the First Dáil. In many respects the situation seems to be getting worse. The Combat Poverty Agency found that more than three-quarters of a million people were now living in some degree of poverty, that children currently made up a higher proportion of the poor than they did 15 years ago and that the top 20 per cent of Irish families still enjoy 44 per cent of gross income in the State while the bottom 20 per cent have to do with less than 5 per cent of the gross income of the State.

Poverty is more than simply the absence of adequate income. Many with a reasonable income are impoverished because of the absence of access to adequate health and educational facilities. This has been worsened in recent years due to the policy of cutbacks pursued by this Government and indeed by a previous Coalition administration. The two tiered nature of our health system has never been more obvious, with those who can afford luxurious private hospitals receiving prompt and effective treatment while all others must face longer and longer queues and rapidly deteriorating facilities.

This budget has made no reference to the question of the VHI and whether the drug refund scheme for VHI subscribers who suffer from long term illnesses will be retained or whether the Minister intends to push ahead with abolishing it. The budget does not refer either to the fact that there is tax relief for schemes D and E in the VHI which effectively are schemes for luxury private hospitals. The taxpayer is subsidising those who avail of hospitals like the Blackrock Clinic, the Mater Private and other private hospitals around the country. Taxpayers are subsiding these, and the Government have made no attempt to eliminate that anomaly.

The advances made in the sixties and seventies in first and second level education which were a potent force for progress towards social equity have been whittled away by cutbacks. The Minister will expect that the extra £2.50 capitation grant to primary schools will be welcomed and I have no doubt that it is welcome, but when compared with the fact that the pupil/teacher ratio has been increased, that many schools simply do not have adequate buildings in which to teach children and that some schools do not have adequate teaching staffs, the nod in the direction of education in this budget is more of an insult than an advance. Third level education in the universities in particular has remained virtually inaccessible to persons from low income families, with only 1 per cent of children from low income families in some areas making it to third level education while 44 per cent of children from more affluent parents make it to third level education.

The Workers' Party have always urged that one of the principal causes of poverty was long term unemployment and that a major part of the solution was therefore a massive job creation programme. Fianna Fáil came into power promising to put the country back to work but have made no serious effort to deliver on their promise. In fact, they have put many more on the emigrant boat than they have put into jobs. When Fianna Fáil came into office in March 1987 unemployment was at 249,000 or 19 per cent. Two years later the number on the live register was 243,000 or 18.7 per cent. In the same period an estimated 60,000 people have been forced to emigrate and tens of thousands more have been taken off the register and forced to participate in pointless training programmes, pointless and demoralising programmes, because those participating know that they are being trained for jobs that do not exist. The real level of unemployment is clearly very much higher than the official figures suggest.

It is clear from the Estimates and from this budget that this Government are not going to do anything serious about unemployment or emigration. The Government will do less this year about unemployment than last year and even less than was done eight years ago when unemployment was at less than half its present level and emigration was quite low. This was revealed by the shocking cuts in capital spending. They are shocking because with capital spending one could directly reduce unemployment, particularly for the most vulnerable and less skilled and because reductions in capital spending are extremely short-sighted. In 1989 the nominal amount of Exchequer funded capital spending will be less than in 1980. Unemployment was far lower then, yet £660 million was invested by the State in the economy compared to the mere £617 million spent this year, a year in which every economic indicator except employment is at its most favourable for decades.

Surely now is the time to invest for those who believe in what I choose to call economic witchcraft, the people who believe in climates for enterprise, in atmospheres for enterprise and in environments for enterprise and other nebulous concepts, who seem to think that if one uses these as the guiding lines for progress, all will be well. If real capital spending in 1989 is to be maintained at the same level as in 1980 then it should be at the level of £1,393 million, more than twice the level planned.

The Workers' Party do not believe that investment policy should be determined by so-called climates but must be active and planned, particularly in a small, peripheral and late-developing economy such as ours. However, one cannot but be struck by the very favourable so-called climate for investment here. Growth is at 2 per cent, having been a minus figure for several years, manufacturing output is soaring, productivity is high, industrial disputes are rare, exports are booming, imports down and we have the highest balance of payments surplus within the EC. The Government say the national debt is under control, largely, let it be said, as a result of tax dodgers having availed of the amnesty. Farmers' incomes are rising speedily, interest rates are down and profits are booming. Yet, despite those factors — all the things Governments and business interests have told us year in, year out were necessary for job creation — there is no significant increase in investment by private enterprise here, certainly nothing like the level necessary to make any serious impact on unemployment. In fact the most successful Irish companies are investing in jobs abroad.

Surely, when interest rates are low, profits booming and the so-called climate is right for enterprise, the Government should be taking the lead in investment, particularly when so much needs to be done? One cannot create jobs merely with climates; one has to do something; one has to invest. The forecasted level of investment this year is up on last year when it was almost nil. Nevertheless it is much lower than in the seventies when double figure percentage increases were the norm. The Government are making a grave mistake in effectively making savage cuts in the most job-creating area of our economy. Much investment will have to take place eventually and these cuts constitute merely postponements; roads, sewers, drainage and local authority housing along with new school buildings are needed. Why not build them now when work is so desperately needed, when interest rates are low, when the debt is more manageable and when such work would boost the economy?

The miserly tax concessions announced by the Minister are quite inadequate given the disproportionate share of the tax burden the PAYE sector has borne for so long. Despite the tax marches many years ago there has been no real progress made in this area of tax reform. In the past five years the position of PAYE workers has deteriorated significantly, especially when compared with farmers and other business interests.

An analysis of official figures shows that in the period 1983 to 1987 the average tax paid by PAYE workers increased from £1,911 to £2,920, representing an increase of £1,049 or 55 per cent. In the same period the average tax paid by farmers decreased from £705 to £585, a decrease of 17 per cent. What this means is that the average PAYE worker was paying £56 per week in tax in 1987 while the average farmer was paying £11.25. Incredibly the average tax paid by farmers has actually decreased in each of the past five years. Last year we are told that £42 million was received by way of farmers' income tax while unregistered farmers received something like £80 million in VAT refunds. Now we are told that the refund to unregistered farmers will be increased which will mean an additional £12 million to them.

There has been no significant improvement in the position of the self employed. In 1983 the average PAYE worker payed £401 per annum more than his average self-employed counterpart. In 1987 the gap remained at £394. Given that the self-employed category includes so many high-earning professions, such as medical consultants, engineers, lawyers and accountants, it is an outrage that the average return from this sector should be £2,526 only compared with £2,920 from the PAYE sector. Let it be said that the budgetary provisions do not change these figures at all.

The position in relation to farmer taxation has reached the stage of being a scandal of enormous proportions. The Workers' Party accept that many farmers are living on or below the poverty line but there are also many large scale, intensive farmers making very substantial profits who clearly are not meeting their tax obligations to the rest of the community.

Successive Governments, Fianna Fáil and Coalition, have paid lip service to the principle of tax reform while they have continued to lift more and more from the pockets of PAYE workers. The tax concessions granted under theProgramme for National Recovery have made no impact on the position and much more drastic action is needed in order to give PAYE workers a fair deal. A start should have been made in this budget by transferring a substantial portion of the burden — at least 10 per cent — from wage and salary earners to farmers, the self-employed and companies. That would not have meant an overall reduction in the tax take but would have meant that the burden would have been more evenly shared.

We must ask why this Government have failed yet again to make progress towards ensuring that the business and corporate sectors are required to pay a reasonable share of taxation? For example, taxes on corporate income as a percentage of total taxation fell from more than 9 per cent in 1965 to 3.6 per cent in 1987 and increased marginally only last year to just over 4 per cent. It must be remembered that four out of five companies pay no tax at all; in other words, one company in every five only pay any tax. Irish business has the best tax environment in Europe. Employers' PRSI is the third lowest within the EC and the European OECD countries. Yet we continue to hear demands for a reduction on tax in business. It is virtually impossible to give further tax concessions to business without formally exempting them from payment of any form of taxation. Despite the softest tax regime in Europe the business sector has failed dismally to create any form of real employment. There is scope to increase rather than decrease tax on business.

We must ask also why this Government have made no progress in eliminating the sort of tax avoidance schemes highlighted by the Supreme Court decision in the McGrath case. We heard the Minister promise, in the course of his speech, to do something about it in the Finance Bill, contending that such proposal is being actively considered. I would pose the question as to why the Minister has chosen to signal to those engaged in tax dodging in this way that he intends taking action. It is outrageous that, at a time when people on relatively modest incomes are paying up to 58p — to be decreased to 56p — in the pound by way of PAYE, a small, wealthy élite should be permitted to avail of artificial devices to avoid payment of tax on very substantial gains. The fact that it is admitted by those involved that these schemes are designed specifically for the purpose of tax avoidance infuriates worker who see their paypackets decimated by tax deductions each week. The fact that — as a result of the McGrath case — these extremely wealthy individuals not alone had the tax refunded but also had interest paid on it by the State, simply adds insult to injury. Tax avoidance has become almost an industry in its own right, with those who have the wealth to employ accountants and tax consultants availing of every possible device and loophole to limit or totally eliminate their tax liability while the overall tax burden on workers grows each year.

Tax avoidance schemes are in total conflict with the commitments given in theProgramme for National Recovery to the effect that greater tax equity should be achieved. The Government give a specific commitment in that programme that, in the tax area, they would make whatever changes were considered necessary whether administrative or legal. I regard the Minister's statement today that he intends introducing some from of restriction in the Finance Bill as a clear signal to those people who are using the law to avoid legitimate tax liability to get their act in order or they will be caught. The Workers' Party now insist on action in this area to close off these loopholes and we insist that the relevant legislation be retrospective.

This budget has failed to tackle in any serious manner the issues of unemployment, emigration, poverty, low pay or tax reform, the crises in our public health service, or indeed the issue of equal access of all our children to quality education or of proper funding of local government. All of those issues have been dodged. The provisions of this budget condemn hundreds of thousands of men, women and children to continue living on the edge of desperation. The Workers' Party will continue their vigorous opposition to this Government and will do everything possible to mobilise public opinion in support of an alternative approach to the economy.

In that regard I have sought to bring together all those agencies concerned with the quality of people's lives and who have come to conclusions similar to ours. There has been a positive response to my invitation to those groups to consider a rainbow coalition to oppose the current Right wing consensus and to mobilise people into constructive, coherent support for an alternative political strategy. A rainbow coalition, consisting of The Workers' Party, the Labour Party, the trade unions and the various groups concerned about the levels of poverty in our society in all its forms, could create a demand for radical political change. The limited objectives of such a rainbow coalition could include the implementation of the report of the Commission on Social Welfare, the genuine tax reform needed, a statutory minimum wage, which has been dodged by all the conservative parties in this House, a genuine job creation programme based on our resources and investment by Government in job creation, the protection of part-time workers and guaranteed access — it has to be equal access — to high quality health and education services.

The Workers' Party will be voting against this budget tonight. It is notable, despite strong speeches made by their spokesmen, that the Fine Gael Party and the Progressive Democrats have indicated they will not be voting against it. I urge them to reconsider and to follow us into the opposition lobby tonight to defeat the Government and to let people speak about how they feel about the policies of the Fianna Fáil Government.

Sitting suspended at 8.30 p.m. and resumed at 9 p.m.