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.
Financial Resolutions, 1990. - Financial Statement, Budget, 1990.
The central aim of this first budget of the new decade is to promote more economic growth and jobs at home and a better standard of living for all our people. We now have convincing proof of how this can be done. The policies which are already being implemented — and which are set out clearly in the Programme for Government, together with the Programme for National Recovery and the National Development Plan — are delivering the results. Sustainable growth in the economy has been achieved and, increasingly, this growth is being translated into more jobs. Our objective for 1990 and the new decade must be to intensify this process in order to achieve our national goals.
An increase in jobs will help us to tackle directly the human tragedy of unemployment which is the cause of many of our most pressing social difficulties. We must ensure that all sections of the community will share in the benefits of our economic progress.
Our plans and actions must, therefore, carry an "effect on jobs" assessment with them. Sectional interests must be suborinated to this overriding commitment to a sustained increase in employment. Achievement of the objective of more growth and more jobs requires co-ordinated action on a number of fronts.
The excellent progress which we have made in putting the public finances in order must be resolutely continued. The improvement here has been the central factor in restoring confidence and in facilitating all the progress made up to now. Given the size of our public debt there is no room for relaxation. Further progress is essential.
There must be unrelenting action to control inflation and costs of all kinds in order that we can continue to improve our competitiveness in the more integrated markets which we face as the EC moves towards 1992 and, subsequently, towards full ecomonic and monetary union. Inflation is the particular enemy of the poor.
We clearly need to make further progress in restructuring and reforming our tax system so as to encourage initiative and reward effort and support the process of non-inflationary growth with more jobs. We must also begin to prepare for tax changes in the EC.
Consistent with this overall developmental approach, there is scope too for specific additional measures which can help to promote jobs.
The budget contains important new initiatives in each of the areas I have mentioned. It also brings forward new economic and social measures to help those on low incomes — whether they are young or old. It is my aim that those most in need of help will get it.
In framing the budget the Government are determined to play their part in supporting and developing the Programme for National Recovery. The programme is a pivotal element in our overall policy framework. If we are to realise the full benefits from the actions taken over the past few years, it is essential that the consensus approach, embracing policy and partnership which is enshrined in the programme, should be maintained and indeed broadened in the years ahead.
THE ECONOMY
The Economic Situation
I am publishing today, with other budget documents, my Department's latest assessment of recent economic developments and of prospects for 1990. These take into account the effects of the measures I will be announcing later.
Review of 1989
In the year just completed, we have seen the consolidation and continuation of the recovery which began in 1987. A few short years ago it would have seemed over-optimistic to predict that the Irish economy by 1989, would, be growing as fast as the rest of the EC while continuing to make a major improvement in the public finances. Yet that is the reality.
Real GNP is estimated to have grown by 3¼ per cent last year, with the volume of output rising by 4¾ per cent. A second successive trade surplus of over £2 billion kept the current balance of payments in surplus despite increased profit repatriations. In line with international trends, interest rates and inflation increased somewhat. Our rate of inflation is, however, only half that in the UK.
The latest labour force survey confirmed that the sustained efforts of the past three years are having the anticipated major impact on employment growth. Between April 1987 and April 1989 the number of jobs in the private non-agricultural sectors increased by more than 30,000. Non-agricultural employment is estimated to have grown by some 13,000 in 1989, despite necessary reductions in public sector staffing. By the end of the year, numbers on the live register had fallen by almost 12,000 — standing some 19,000 below the level of end 1986.
International Developments
Economic growth in the OECD area has been moderating, with a more pronounced slowdown in the US and the UK. The outlook for world economic activity in 1990 is, therefore, rather less favourable than in the past two years. Britain's imports, which rose by almost 10 per cent in 1989, seem likely to grow much more slowly this year, although, against this, economic activity in continental European countries should remain relatively buoyant. While we can anticipate a further, if more modest, expansion in our overall export markets, actual and prospective cost develoments abroad re-emphasise the vital importance of cost containment at home.
Prospects for 1990
A number of the factors which increased domestic inflation in 1989 will either be absent or, better still, will work in the opposite direction this year. Taking account of the measures I will announce today, consumer price inflation should fall to little more than 3 per cent on average this year. The weakening of sterling and the dollar and the better outlook for international inflation, will help to bring down the rate of price increase here as the year progresses. If we manage our affairs properly, inflation could be less than 2½ per cent by the end of 1990.
Investment will again be buoyant this year. Against this background, and in the light of the budgetary measures, output in 1990 is likely to grow by about 4½ per cent, with GNP growing by more than 3½ per cent. This should stimulate substantial further job creation and another reduction in unemployment. Non-agricultural employment should grow by about 16,000. A further decline in emigration is expected.
The balance of payments is likely to continue in surplus for the fourth successive year, though at a modest level. Overall, I expect the strong growth in domestic economic activity and the improvement in employment which were such welcome features of 1989 to continue in 1990.
Programme for National Recovery
The Programme for National Recovery, by any standard, has been an outstanding success. The substantial progress made towards the achievement of its objectives has underpinned the economic recovery of the last three years.
With almost a year of the programme remaining, the targets for Exchequer borrowing set in the programme, and the target of stabilising the national debt, have already been more than met. The Government's commitments on tax concessions have been met, and indeed greatly exceeded, as has our commitment to the poorest sections of society.
The pay provisions of the programme, I am glad to say, have been widely observed, ensuring a welcome improvement in the international competitiveness of Irish production and jobs, and helping to secure a continuing moderate inflation rate. This, with the income tax reliefs and other improvements, has resulted in the real take home pay of all workers, and especially the lower paid, increasing significantly over the past two years.
The job creation targets of the programme might have appeared ambitious. However, the target of 20,000 jobs in manufacturing and international services has been met for the second successive year. There is the prospect of a similar achievement this year. In areas of the economy such as tourism and the International Financial Services Centre, the response to the various initiatives has been impressive. There has been a dramatic fall in redundancies which were down by over 40 per cent in 1989. This has meant, of course, that when new jobs were created their beneficial effect in providing employment has been much less diluted by job losses than in recent years. As a result there has been a significant reduction in unemployment, and the latest figures show that the long-term jobless too have begun to benefit from the greater opportunities.
Progress on such a broad front would simply not have been possible without the Programme for National Recovery. Although much has been achieved under the present programme, more remains to be done. The next phase of our development, not least because it will include preparations for completion of the EC internal market, will, in its own way, be even more important and challenging than the last.
It is the Government's wish that when the present arrangements expire, consensus should continue as the basis of economic management and of the development and implementation of policies. We see the provisions of this budget as helping to build a bridge towards a new programme, and hope that the other participants will view the budget in similar terms. Any worth-while accord — which must, above all, be consistent with advancing the long-term welfare of all in our society — has, of course, to come to terms with the basic realities, as did the programme adopted in 1987. It will demand a preparedness, on the part of each grouping, to temper expectations and demands by reference to what is judged economically feasible, and to confront the unavoidable trade-offs between various goals. The same degree of courage and foresight which made possible the transformation of this economy under the current programme will be required in the future.
Review of 1989 Budget Outturn
Last year Government borrowing, at 2.4 per cent of GNP, was at its lowest for about 40 years. In money terms, the amount borrowed by the Government amounted to £479 million, about £580 million below that £1,055 million envisaged in the budget. In the space of one year we reduced borrowing by nearly three percentage points of GNP more than had seemed possible at the start of the year. As recently as 1986, Exchequer borrowing amounted to £2,145 million or just 13 per cent of GNP.
Tax Revenue 1989
The single most important contribution to the excellent outcome last year came from exceptionally high receipts of tax revenue. These were about £430 million, or 6 per cent, ahead of the budget estimate. Virtually all the tax heads performed better than expected. The biggest increase was in indirect taxes. This reflected the sharp pick-up in consumer spending, especially on cars, the sales of which increased by some 25 per cent on a year earlier. The strength of the property and stock markets also contributed significantly to the increase in indirect tax receipts.
Income tax receipts were also ahead of expectations, partly because of higher receipts from the deposit interest retention tax but mainly because of the speedier payover of PAYE tax deductions to the Revenue Commissioners by companies and businesses. This acceleration in PAYE tax payments was a direct result of the more intensive use of computers by the Collector General's staff in the monitoring of tax compliance, as part of the continuing improvement in tax collection and enforcement.
Current Expenditure 1989
Debt service costs last year were about £100 million less than anticipated. This reflected lower than expected borrowing and the fact that a significant portion of fund raising did not take place until relatively late in the year.
For the third successive year, spending on non-capital supply services came in below budget. At £5,566 million the outturn was £29 million below the target figure of £5,595 million. As in 1988, the biggest contributory factor was lower than expected expenditure on social welfare reflecting, in the main, buoyancy in social insurance fund receipts. Spending on health was up by more than £20 million as a result principally of the improvements in hospital services announced in July 1989 and increased spending on the general medical services scheme, but this was offset by savings on the Exchequer pay and pensions bill.
Capital in 1989
Exchequer borrowing for capital purposes during 1989 was some £20 million less than estimated. Capital receipts increased by £67 million which more than compensated for lower than expected transfers from the European Regional Development Fund resulting from timing factors. There was also a saving of £10 million on non-programme outlays.
On the non-Exchequer side, capital expenditure was somewhat higher than budgeted. Lower than expected demand for Housing Finance Agency loans, and lower expenditure by some of the semi-State enterprises, was more than compensated for by an expansion in ACC and ICC activity which in turn reflected higher demand for farming and small industry loans.
Borrowing and Debt/GNP Ratio
The substantial reduction in Exchequer borrowing achieved last year, together with the further economic growth, saw the debt/GNP ratio fall to about 123 per cent, a reduction of some eight percentage points. Given the problems which have beset the public finances for so long, this represents an important turning point.
Notwithstanding this major achievement, it is necessary to remind ourselves once again of the realities of our situation. The fact that we borrowed less than expected in 1989 is gratifying but we still borrowed nearly £500 million just to pay our way. The overhang of national debt now stands at close to £25 billion. This is about twice the EC average in relation to GNP. The costs of servicing this debt continue to constitute a heavy burden on the budget and the economy. This year alone these costs amount to well over £2 billion, the equivalent of virtually all the expected income tax yield from the PAYE sector. They pre-empt large resources which we so badly need for economic and social development.
The sheer size of the debt also leaves us continually exposed to adverse movements in interest and exchange rates. The increases in interest rates which have occurred over the past six months or so bear this out. There is no avoiding the conclusion, therefore, that despite the commendable progress we have made, we must continue to bring down borrowing and debt.
Medium-Term Policy for the Public Finances
Clarity about, and agreement on, Government financial policy over the medium-term is central to maintaining public confidence and providing a framework for progress in the years ahead. As the medium-term targets included in the Programme for Government 1989 to 1993 have been achieved some three years ahead of schedule, it is obvious that new medium-term budgetary objectives are required. Our medium-term policy must also, more than ever before, take account of the increasing convergence of economic policies in the European Community which will require action by the member states to curb excessive borrowing and debt. Progress beyond that envisaged heretofore is possible. The Government are determined to maintain the momentum in improving the public finances, which will continue to be crucial for more economic growth and jobs.
New Medium—Term Objectives
Over the period up to and including 1993 the aim will now be to maintain a significant rate of progress in reducing the debt/GNP ratio towards 100 per cent and, as part of this, to achieve broad balance on the current budget for the first time in 21 years. Borrowing for capital purposes, and the overall Exchequer borrowing requirement, will need to be held to the minimum level consistent with this strategy and with the needs of balanced economic growth and stable monetary conditions.
These are the objectives we must set ourselves. They will not come easily. There will always be tension between the pace of progress in reducing borrowing and debt and the many other objectives we are trying to achieve within our limited resources. In the period ahead our pursuit of competitiveness will require us to face the heavy costs involved in meeting the Government's objective of lowering the standard personal tax rate to 25 per cent and of having a single top rate by 1993, and the implications of tax approximation in the EC.
To fulfil our objectives, therefore, we will need to have a favourable international background and sustained growth. We will also require continued tight control of public expenditure and measures to broaden the tax base. We will be dependent too on a successful outcome to our request to the European Community for measures to help us to deal with the problems posed for us by the approximation of indirect taxes. Notwithstanding the difficulties, we are determined to make further progress on the basis of these objectives over the next few years. It is important that we get back to paying our way.
Structural Funds and National Devellopment Plan
Ireland expects to get over £3 billion from the EC Structural Funds over the period 1989 to 1993. The Community Support Framework adopted at the end of October 1989 by the EC Commission, in agreement with the Irish Government, contains a financial commitment of £2,860 million, in 1989 prices, over this period. Ireland will also benefit from additional funding from the reserve retained for new Community initiatives. This total funding will represent the biggest single financial commitment ever made to this State by the Community.
A total of £539 million in assistance will be available to Ireland from the Structural Funds in 1990. In addition, some £18 million of commitments from the Social Fund in 1989 will be carried forward to 1990, bringing total assistance to £557 million. This compares with an adjusted figure of £462 million for 1989, an increase of over 20 per cent. Commitments for 1988 were £361 million. The 1990 figure therefore shows an increase, in nominal terms, of 54 per cent on the pre-1989 position.
The increased funding from the Community will play a major part in realising our plans for higher investment and more jobs in 1990. It will have a major positive effect on the construction industry which has already recovered well in recent times.
The expected 1990 Structural Funds commitments were taken into account in the Estimates and Public Capital Programme published last November. Commission decisions on the operational programmes will represent the definitive commitment of Community aid. We have reviewed the provision made in the Estimates and Public Capital Programme and are satisfied, in the light of the programmes already approved by the Commission and the continuing work on finalising the other programmes, that the assumptions underlying the provision remain valid.
Opening Position for Main Budgetary Agreement
As I indicated at the outset, budgetary policy in 1990 is aimed at making the economy more competitive so as to advance our economic and social development.
The opening current budget deficit, based on the published 1990 Estimates of Receipts and Expenditure, is £85 million after allowing for the deduction of £25 million for departmental balances. The opening Exchequer borrowing requirement is £251 million.
EXPENDITURE
Central Fund Services and Debt Management
The opening estimate for Central Fund Services for 1990 is £2,690 million, of which £2,345 million is in respect of debt service payments. The debt service provision represents an increase of 9.6 per cent on the outturn for 1989.
Despite the savings arising from the lower than expected borrowing requirement in 1989, interest rate increases during the past year will result in a significant rise of over £200 million in the cost of servicing the national debt this year.
Office for Management of the National Debt
There is continuing emphasis within my Department on arrangements to minimise the cost of debt service which is our second largest overhead after pay. Further new measures were introduced during 1989 to keep costs as low as possible through the further use of the most modern techniques and instruments and by diversifying sources of financing. Debt management has become an increasingly complex and sophisticated activity requiring flexible management structures and sufficient suitably qualified personnel to exploit fully the potential for savings. It is for this reason that the Government decided to establish, under statute, an independent office for the management of the national debt. This development does not alter my statutory responsibility as Minister for Finance for the management of the national debt but I will now have available the resources needed to carry out this function in a more cost effective way.
I expect that the new office will be in place by mid-year and, on this basis, I am providing in the budget arithmetic for a saving on debt service costs of £35 million on the opening central fund services figure of £2,690 million.
Exchange Rate Policy
While on the subject of debt service it is appropriate to make reference to exchange rate policy. The guiding principle has been the stability of the Irish pound in the European Monetary System. The objective is to pursue a strong currency policy within the system and to implement whatever monetary and other measures may be necessary at any time to secure this position. Sometimes it is necessary to maintain a level of domestic interest rates higher than we would wish in order to achieve the vital exchange rate objective. However, the value of a strong currency is such that over time more than compensates for the short-term costs associated with achieving it.
The substantial relaxation of exchange controls from the beginning of 1989 led to increased movement of funds abroad by Irish investment institutions. This was not unexpected. In fact, a large increase in inflows by non-residents, particularly into Irish Government bonds, was sufficient to allow a further repayment of foreign currency debt. These inflows by non-residents are a reflection of the growing confidence in our economic management. The process of phasing out exchange controls will be continued with a view to meeting the deadline of 1992 for elimination of all controls.
Non-Capital Supply Services Expenditure Departmental Spending 1990
In settling the spending allocations for 1990 the Government had to satisfy a number of basic requirements. First, that the progress we had made since 1987 in putting the public finances into better shape must not be undone; second, that overall expenditure in 1990 had to be consistent with continuing downward pressure on the Exchequer borrowing requirement; and third, that there were specific priority areas of spending which we had to target with additional resources. The spending allocations already published are some £250 million below the departmental demands. When coupled with the additional provisions I will announce shortly, the 1990 allocations will clearly demonstrate that a reasonable balance has been reached between the various competing needs.
Opening Position
The White Paper on Receipts and Expenditure published recently included a figure of £5,661 million for net non-capital supply services, the same figure as was published in the 1990 Abridged Estimates Volume in November last year. A final figure of spending in 1989 which was lower than had been expected, other developments since the Abridged Estimates were published, and certain savings which have been made to meet part of the cost of the additional expenditure allocations which I will announce shortly, are all factors which necessitate some adjustments to the 1990 allocations already published. The net result of these adjustments is to reduce the published figure by £84 million. Details of these adjustments are explained in the Principal Features of the Budget, which is being circulated separately.
Taking account of these adjustments the opening figure for non-capital supply services is £5,577 million, or £5,552 million on a budgetary basis when estimated departmental balances of £25 million are taken into account.
Capital Expenditure
The 1990 Summary Public Capital Programme published last November totalled £1,657 million. As with non-capital spending, this figure must also be revised to take account of developments in the intervening period. The net impact of the changes is to reduce the published 1990 programme by £9 million to £1.648 million. Details of these changes are also set out in the Principal Features of the Budget.
Additions to Expenditure
I now propose to make a number of additions to non-capital and capital expenditure starting with:
Welfare, the Elderly and the Disadvantaged
This Government are strongly committed to alleviating poverty and disadvantage. Over the last three budgets, during a time of unprecedented fiscal adjustment, the Government allocated sufficient resources not just to protect the underprivileged in our society, but also to make significant progress in raising the real value of payments to them. I am continuing on that course in this budget so as to ensure that the fruits of the economic improvement are spread right across our society. I will now outline the improvements which will be implemented.
Weekly Welfare Payments
First, weekly welfare payments generally and health allowances will be increased by 5 per cent with effect from next July. This increase is well above the expected rate of inflation. There will be increases of higher than 5 per cent to an even wider range of social welfare recipients than have benefited from special increases in past budgets. Also, and most importantly, I am increasing monthly child benefit payments across the board by 5 per cent or 75p for each of the first four children and £1.15 for other children. These steps reflect the Government's intention that this year more welfare recipients should receive special concessions than was the case with previous budgets. We continue, of course, to give particular attention to the problems of those on the lowest payments.
This will mean, for instance, that the rate of old age contributory pension for a person under 80 years will increase from £58.50 to £61.50 per week. The rate for such a pensioner with an adult dependant over 66 will rise from £102.20 to £107.20. Similarly, the rates of invalidity pension for persons under 66 will increase from £51.50 to £54.10 per week for a single person and from £85.60 to £89.90 for a married couple.
Pensioners, Lone Parents and Long Term Unemployed
I am giving special increases to pensioners and lone parents on long-term means-tested assistance. Thus, I am giving a £3 per week or 6 per cent increase to non-contributory pensioners bringing their personal rate from £50 to £53. A new personal rate for persons under 80 of £53 per week will be made available to widows and deserted wives, unmarried mothers and prisoners' wives, together with widowers and deserted husbands with children. This represents an increase of £4 or 8 per cent for those under 66 and £3 or 6 per cent for those over 66. For widows and deserted wives under 80 years on social insurance pensions, the new weekly rate of pension will be £56. I am giving a £3 per week increase to those on weekly supplementary welfare allowance, bringing their personal rate from £42 to £45 per week. Also, the adult dependant allowance payable to such persons will be increased by £4.10 or 15 per cent to £31 per week. A similar increase of £3 per week or nearly 7 per cent will be made in the personal rate of unemployment benefit and disability benefit, currently at £45 per week: their corresponding adult dependant allowances will go up by £2 to £31 per week. Finally, the long-term unemployed will receive the largest increase, bringing their personal rate from £47 per week to £52 per week. This increase of about 11 per cent demonstrates the continued determination of the Government to assist those on the lowest rates who have little or no alternative to reliance on social welfare. The dependent spouse increase payable to long-term unemployment assistance recipients will also be increased by £2 to £31 per week. The disabled person's maintenance allowance will be brought into line with these rates, giving a new personal rate of £52 and £31 for an adult dependant.
Child Dependants
Last year we introduced a minimum weekly payment of £10 for all child dependants. This provided significant increases to families on the lowest rate of welfare. It also halved the number of separate rates. This year I am providing for a £1 per week increase in the minimum, bringing it to £11 i.e. a 10 per cent increase on the existing minimum. This will also have the effect of reducing further the number of rates.
It is worth-while at this stage to illustrate the value of the package of improvements outlined above. I will take as an example the overall increase for a married man with 3 children on long-term unemployment assistance. The total payment is currently £107 per week excluding non-cash entitlement. The increases I have outlined will give him an extra £9 per week. Similarly, such a person on short-term unemployment assistance or supplementary welfare allowance will receive an overall increase of over £10 per week or somewhat above 10 per cent.
Twenty Year Olds in Full-Time Education
Currently, weekly increases payable to long-term social welfare claimants in respect of their children in full-time education cease to be payable when the children reach 19 years in the case of some schemes, and 21 years in the case of others. As a further step in the rationalisation of schemes, I am raising the 19 year age limit to 20 years from next September.
Clothing Allowance
I am introducing today a new allowance to be operated through the supplementary welfare allowance scheme to assist families in particular difficulties to provide for their children's school and winter clothing. The payment will be made to qualifying families from September. Further details of this important new scheme will be announced by the Minister for Social Welfare.
A New Carer's Allowance
In recognition of the particular efforts made by relatives of permanently ill and elderly persons, I am increasing from £28 to £45 per week the payment made in respect of certain relatives who care on a full-time basis at home for such persons. This measure is intended to provide an incentive to families to care for their elderly relatives in a home setting rather than be forced, for financial reasons, to leave them to institutional care. In this context some changes in the scope of the existing prescribed relatives allowance scheme will be made. Details will be announced by the Minister for Social Welfare.
Services for the Elderly
The Government are concerned that health services for the elderly should be developed further. In addition to the carer's allowance, the Government are now making an extra allocation of £5 million in 1990 towards improving health services for the elderly in general. The allocation will be funded by £2 million from the Exchequer and £3 million from the national lottery; £2.5 million will go to help strengthen home nursing and home help support; £2 million will provide more facilities for increased day care, short-term and long-stay care, and improved treatment of respiratory disorders; and £0.5 million will provide additional nursing home places for the relief of families who are caring for people at home who require constant attention and nursing care. This initial investment of £5 million in expanded health services for the elderly marks the beginning of a wider redeployment of resources towards the support of our older citizens. It is an investment in which we all have a long-term interest.
Free Schemes
Last year, I addressed certain anomalies applying to the free schemes and this year I am glad to make further improvements. Many recipients of the disabled person's maintenance allowance are unable to fully utilise the free travel concession because a companion brought along to assist mobility must pay the appropriate fare. In future, the free travel scheme will allow a companion to travel with recipients of this allowance.
Pensioners over 80 years are to be allowed to retain their free electricity entitlement when people come to live with them.
The anomaly whereby an invalidity pensioner with free scheme entitlement loses this entitlement on transferring to retirement pension at 65 years is also being removed.
Finally, free scheme entitlements are being extended to social security pensioners of states with whom Ireland has signed a bilateral social security agreement.
Fuel Allowance
There are some anomalies in the way in which entitlement to the fuel allowance operates which need to be remedied. With effect from the commencement of the next heating season in mid-October, a long-term welfare recipient will no longer be denied the fuel allowance where a recipient of a short-term means-tested welfare benefit lives with the individual concerned. The allowance is also being extended to persons in receipt of smallholders' unemployment assistance who live alone.
Family Income Supplement
In addition to the funds already provided in the Estimates, I am providing an extra £1 million to finance further improvements in the family income supplement scheme in 1990. The details of these improvements will be announced later by the Minister for Social Welfare.
In the administration of the FIS scheme, the Government are taking steps to ensure that no person loses the medical card as a result of claiming the family income supplement.
Special £0.5 million Allocation for Programmes for Women
There is in recent years an increasing involvement by women, particularly women who work full-time in the home, in tackling problems and issues which affect them. Many such self-help groups have been established in local communities and have become an important source of personal development for participants. They have encouraged women to improve their education and skills and to develop their capacity for leadership and organisation. In this way they can enable the women concerned to contribute more fully to the development of their own communities.
The Government are making a special allocation of £0.5 million for programmes for women. Of this, the sum of £150,000 is being made available to support the work of the Rape Crisis Centres in Dublin, Limerick, Cork, Clonmel, Waterford and Galway. The balance will be used to encourage local self-help groups working for women. The Minister for Social Welfare will make arrangements to allocate these funds.
Grants for Local Enterprise Activities
Local people are in a unique position to identify the needs of their own communities and to tackle them. We have a long tradition in this country of local involvement in social services and community self-help.
The Government have strongly supported the EC Poverty Programme as a means of developing local initiatives. Two large-scale Irish projects based in Connemara and Limerick and a smaller project for travellers based in Dublin are included in the third EC Programme which is now commencing.
These projects can provide a vital resource in their communities. They can initiate a wide range of activities, including local enterprise activities and projects with the elderly, young families, single parents and other groups in need of help and support. An amount of £0.6 million has been provided in the Estimates for grants to voluntary organisations and the Government have decided to allocate £0.525 million of this to support the core activities of worth-while projects of this kind. Allocations from this provision will include amounts for Tallaght Resource Centre, Inishowen Development Group, Knocknaheeny Support Group in Cork, Louisburg Community Development Group, Ballymun Community Development Group, Coolock Parents Alone Centre, Dublin South Inner City Community Development Association and South West Wexford Development Group. The Minister for Social Welfare will make the necessary arrangements to allocate these funds.
Simon Community
£50,000 of the balance is being provided as a once-off grant to the Simon Community.
Child Abuse Prevention Programme
The remaining £25,000 is being allocated for a child abuse prevention programme. This very worth-while programme is being developed on a pilot basis by staff of the Eastern Health Board in a number of primary schools in the Dublin area. The pilot programme has the support of all of the main parties involved in the primary school sector and this special grant will enable the pilot phase of the scheme to be finalised.
The overall cost of the entire social measures will be £78.6 million in 1990 and £181.5 million in a full year.
Special Equal Treatment Payments
The special equal treatment payments, introduced originally in 1986, will be continued in 1990. As in previous years, they will be reduced in amount, in the context of the general budget increases in social welfare rates, in such a way as to ensure that recipients of the special payments do not suffer a reduction in their overall benefit level. The 1990 Estimates have already provided for this.
Services for the Mentally Handicapped
The Government also will provide an additional sum of £2 million in the current year towards the further development of services for people with mental handicap.
The first priority will be to cater for persons in urgent need who have either no services at all at present or a completely inadequate one. A particularly serious situation exists in the Dublin area and it is hoped that the additional funds now being made available will have a definite impact on services in the Eastern Health Board area. Money will also be made available to meet specific priority needs identified in other health board areas.
These extra resources will relieve the anxiety of many hard pressed families, and it is the intention of the Government to continue their commitment to these services in future years.
Dental Services
The Government have decided to make a further £3 million available to the health board dental services in order to further improve services for eligible adults and to treat further top priority orthodontic cases. This follows the additional provision of £300,000 made in 1989 to begin treatment of priority cases.
The health boards will be given a degree of autonomy, subject to agreed targets, with regard to the arrangements they make to improve the services, both the adult service and the orthodontic service.
The health provisions I have listed for the elderly, the handicapped and dental services amount in all to an additional £10 million provision for health services in 1990.
Schools in Disadvantaged Areas
The Government are conscious of the difficulties faced by primary schools in disadvantaged areas and we have decided to treble the allocation for the fund for disadvantaged schools from £0.5 million to £1.5 million. The Minister for Education will shortly announce details of the extra measures to be implemented under this scheme. This increase of £1 million is additional to the 125 extra teaching posts for these schools which were announced recently.
Adult Literacy
I am increasing the allocation for adult literacy from £0.5 million to £1 million, in recognition of the fact that 1990 is adult literacy year. Activities to be funded from this increased allocation will be announced shortly.
Voluntary Housing
I am allocating an additional £1.3 million for developments by voluntary housing associations. This is in recognition of the valuable contribution these associations make in housing the homeless and others of the less fortunate in our community. In particular, £120,000 of this will be used to provide communal facilities for the Stanhope Street housing project in Dublin. This brings the total allocation for voluntary housing to £9.275 million in 1990, an increase of 41 per cent over the 1989 provisional outturn.
Income Tax: Low-Paid
I am continuing this year with the process which I began in 1989 of seeking greater integration between the social welfare and tax systems in tackling the problems of people on low incomes.
Last year I announced important changes in the income tax exemption limits and the introduction of a child addition in conjunction with those limits. These measures were specifically designed to help taxpayers with low incomes, especially those with family responsibilities. The Programme for Government contains a commitment to make further improvements in the exemption limits in order to provide targeted help for the special needs of part-time and lower-paid workers and their families. The Irish Congress of Trade Unions has also called for increases in these limits.
The changes I am now making are as follows:
—the general exemption limits are being increased from £6,000 to £6,500 for a married couple and from £3,000 to £3,250 for a single person;
—the special child addition which I introduced last year is being increased from £200 to £300;
—the age exemption limits are being increased, from £3,400 to £3,750 for single persons aged 65 years or over and from £4,000 to £4,350 for single persons aged 75 years or over. These limits will be doubled, to £7,500 and £8,700 respectively, for married couples;
—I am also reducing the marginal relief rate, currently 60 per cent, which applies where income does not greatly exceed the exemption limits. The new rate will be the same as the new top rate of tax, which I will be announcing later in my speech.
The increase in the general exemption limits and the child addition, which will benefit farmers, small shopkeepers and the self-employed generally as well as the PAYE sector, will mark the second year in succession in which I have significantly improved the tax treatment of low-paid married couples with children. The increases over the two budgets have been very substantial. For example, in 1988, the general exemption limit for a married couple with two children was £5,500; it will now be £7,100, an increase of nearly 30 per cent. For a married couple with four children, the increase will be to £7,700 or 40 per cent.
The overall effect of this package of measures should be to exempt an estimated 31,000 taxpayers with 58,000 children from tax altogether, while a further 65,000 taxpayers with 123,000 children should benefit from marginal relief. I have asked the Revenue Commissioners to undertake publicity measures to bring home to those concerned the availabilty of these concessions. The Commissioners will enclose an information leaflet, incorporating a short application form, with the tax-free allowance certificates which will be issued to low-paid taxpayers over the coming weeks. The leaflet will also alert such taxpayers to the family income supplement scheme operated by the Department of Social Welfare and will indicate how to obtain details of that scheme.
Following are some examples of what these tax changes will mean for different categories of taxpayers:
—a married couple on PAYE with two children and an income of £7,100 will have their current tax liability of up to £420 eliminated;
—a married couple with four children and an income of £7,700 will have their current liability of up to £540 eliminated.
These tax measures will cost £14.2 million in 1990 and £23.7 million in a full year.
Employee PRSI Exemption Scheme
The Government recognise that those persons on very low incomes who are outside the tax net have not benefited from the major reductions in the tax burden introduced in recent years. In this budget I am introducing a new scheme whereby employees on the lowest earnings will be relieved of PRSI.
While operational details of the scheme will be announced later by the Minister for Social Welfare, the essential features of the scheme will be along the following lines. The scheme will operate on a weekly basis and take effect as from 6 April 1990. Employees whose gross earnings are £60 or below in a week will be exempt from employee social insurance in respect of that week. The maximum relief will be £3.30 per week for each employee. Employers' contributions will continue to be payable. The exemption from employee contribution will not affect the entitlement to social insurance benefits of those employees involved.
I estimate that well over 50,000 employees could benefit from this scheme. The cost in a full year in terms of PRSI foregone will be up to £11 million depending on the numbers of employees who actually qualify. I am allowing £8 million for the cost in 1990.
Inter-Departmental PRSI Study
The Government intend to carry out this year a detailed inter-departmental study of the operation of the whole PRSI system.
Welfare of Emigrants Abroad
Some Irish emigrants need advice and assistance in finding work and accommodation abroad, particularly in the large urban areas. Through the DION committee, which operates under the aegis of the Minister for Labour, the Government already support a wide range of organisations working to help Irish emigrants in the United Kingdom. The Government have already provided £0.5 million for this purpose in the Abridged Estimates. The welfare of Irish emigrants in the United States is also of concern to us and accordingly I am providing £200,000 to support groups in the United States dealing with the welfare of Irish emigrants. The assistance will be channelled through the Irish consulates in the United States, working in consultation with the emigrant working committees.
Total Welfare Provision
This brings the total amount of money being devoted to welfare, the elderly and the disadvantaged to £114 million in 1990. The full year cost of these measures is almost £235 million.
Employment Initiatives
Expansion of Social Employment Scheme
The long-term unemployed have benefited from the general improvement in employment. In fact, the latest available figures show a faster reduction in the number of long-term unemployed people on the Live Register than for the shorter duration groups. However, in October 1989, there were still over 100,000 on the register who had been unemployed for 12 months or more. The Government are determined that the improvement in job prospects for the unemployed, and for the long-term unemployed in particular, will be reinforced. Accordingly, we have decided that the social employment scheme run by FÁS, which provides part-time work on community projects for the long-term unemployed, should be expanded to cater for an additional 5,000 people. By the end of 1990, the scheme will be providing around 15,000 places. The additional cost to the Exchequer will be £10 million this year.
New Employment Training Scheme — Pilot Basis
Through the consultative mechanism provided by the Central Review Committee of the Programme for National Recovery, the CII and FIE have recently made proposals for a new employment training scheme. The new scheme would offer participants actual work experience, as well as a substantial element of general skill training. The Government consider that an approach of this kind could be a valuable addition to the FÁS training programme. Provision is being made in the FÁS budget to run a scheme of this type for up to 1,000 people on a pilot basis in 1990. It is estimated that the cost to the Exchequer in 1990 will be £1 million.
These new schemes complement the employment measures taken by the Government last September, including the exemption in the 1990-91 tax year from employers' PRSI contribution in respect of any new employees taken on between 23 October 1989 and 28 February 1990.
Education
I will turn now to the area of general education. I am pleased to be able to announce some significant improvements.
Capitation Grants
The capitation grant payable to primary schools is being increased by £1.50 or 5.7 per cent per pupil on top of the increase of £2.50 given last year. The cost will be £0.9 million a year. This is in addition to the extra £1 million that I have announced for disadvantaged schools. The capitation grant payable to secondary schools has not been increased since 1986 and I am increasing the grant by £10 per pupil from £140 to £150. The cost will be £2.1 million a year.
Increase in Third Level Intake
The Government have accepted the recommendations of a report prepared recently by a working party of officials and university representatives. The universities have agreed to increase their intake of students by 1,200 per annum from next October. Over a period of three to four years, this will result in an increase of about 3,600 student places, or 10 per cent, in the universities. To enable them to undertake this expansion, I am providing an additional £4 million in capital for the colleges in 1990, £1 million for equipment and £3 million for minor capital works. In addition, I am increasing the current grant to the colleges by £300,000 to help defray the recurrent costs of this welcome initiative. The working party recommended, and the Government accept, that a special initiative to strengthen the science and technology and research capability of the universities is very desirable. I am providing £350,000 in 1990 for this purpose. We will continue to seek out private sector support for third-level education.
Tourism
The Government have laid great emphasis on the development of tourism. The results of the last few years, in terms of tourist numbers and revenue, have been most encouraging. In order to maintain this momentum the Government are increasing the provision for Bord Fáilte promotional activities by £2 million, conditional on matching funding from the industry. In addition, a total amount of £1 million is being provided to Bord Fáilte to meet expenses in connection with Ireland's participation in EXPO 90 in Japan. This includes £300,000 already provided in the Estimates.
This year the EC Structural Funds will assist in raising investment in tourism to much higher levels. The new tourism facilities and products which will be provided will help ensure that our tourism industry builds on its past successes and goes on to make an even greater contribution to the economy and to employment in the years ahead.
Cork Ferry
The Government have already decided to make up to £1 million available to Swansea-Cork Ferries Limited to enable the company to provide a summer service in 1990. The payment will take the form of a grant of £500,000 and a repayable loan of £500,000 and the cost is already reflected in the adjustment to non-capital supply services to which I referred earlier. This should benefit tourism development in the South-West region.
Has the Minister the brochure ready yet?
Storm Damage at Arklow and Kilmore Quay
The storms in December 1989 caused severe damage to the coast, harbours and boats on the south-eastern seaboard. I am, as an exceptional measure, providing an extra £950,000 to the Department of the Marine to enable them to give grant assistance for emergency coastal protection works in the area of the North Beach at Arklow. The details of this grant assistance will be the subject of further consultation between the Minister for the Marine and myself. I am also allocating an additional sum of £100,000 to BIM to provide assistance towards repairing and replacing boats damaged in the same storms at Kilmore Quay.
What about the south-west?
Racing Board and Bord na gCon
May I ask Deputies to restrain their impulses?
The Government have given careful consideration to the needs of the horse racing and greyhound racing industries, in the light of the various submissions received. These industries have a long and important tradition in Irish life, and their further development ment is a necessary adjunct to the well-being of the bloodstock breeding industry and to the growth of tourism.
I intend, therefore, to devote a proportion of the revenue from off-course betting to the development of these industries. A sum of £3.5 million will be provided in 1990, broadly equivalent to the proceeds of 1½ percentage points of the 10 per cent duty on off-course betting. These funds are intended to allow the Racing Board and Bord na gCon to accelerate their investment programmes at courses and to enhance generally the attractiveness of, and incentives for, racing. The amount of the grant to be made to each body from this provision will be settled later. Payment of the grant in each case will be subject to conditions, and will be contingent in particular on satisfactory proposals for the use of the funds to be provided being submitted to the Government for approval. I intend to make similar arrangements each year for the next three years and to review the position again at that stage.
Grants for Agricultural Students
Trainees on Teagasc courses at agricultural colleges receive less favourable treatment than trainees on vocational courses assisted by the European Social Fund. Given that agricultural trainees can readily obtain jobs on completion of their training, the Government have decided to pay the cost of fees for residential trainees so as to remove the anomaly that exists and to encourage more young people to undertake full-time training courses in agricultural colleges. The cost will be about £1.7 million annually, of which £1.1 million will be obtained from the European Social Fund.
National Environment Action Plan
As Deputies are aware, the Minister for the Environment announced the details of the National Environment Action Plan. This plan sets out the action the Government are taking to protect and enhance Ireland's natural environment and to improve the quality of life. I am providing an additional £20.1 million to meet the costs of this plan in 1990, of which £13.6 million relates to expenditure, and £6.5 million relates to a taxation measure with which I will deal with later. Of the £13.6 million, £5.65 million is in respect of current expenditure, and £7.95 million relates to capital expenditure, details of which have already been published by the Minister for the Environment. A list of the provisions involved are set out in the Principal Features of the Budget.
PRSI Contributions
The current rates of PRSI contribution for employees will continue to apply for the contribution year 1990-1991. As already provided for in legislation, the contribution rate for self-employed contributors will rise from 4 per cent to 5 per cent in 1990-91. For 1990-91 the earnings ceiling for contributions will increase from £16,700 to £17,300 for employees and self-employed and from £18,000 to £18,600 for employers. The income ceiling for the health contribution will be increased from £16,000 to £16,700. The Minister for Health intends to announce an increase in the income limits for a Hospital Services Card at a later date. With the amalgamation of the Social Insurance Fund, Occupational Injuries Fund and Redundancy and Employers' Insolvency Fund, already announced on publication of the 1990 Estimates, the total PRSI contribution for employers will remain at 12.2 per cent for 1990-91.
Trade Union Rationalisation
Our strike record in 1989 has been the best since this State was founded. It is vitally important in terms of investment that we do everything possible to ensure that this continues. The Industrial Relations Bill, 1989 which has been introduced in the Dáil proposes fundamental changes in industrial relations law as well as procedures and practices. An important element in Government policy is the encouragement of further trade union rationalisation. The number of unions has gone down, from 95 in 1970 to 69 today. From 1 January this year, in an historic merger, the Irish Transport and General Workers' Union and the Federated Workers Union of Ireland ceased to exist and the Services, Industrial, Professional and Technical Union, later known as SIPTU, came into existence. In accordance with the Government's scheme to encourage trade union amalgamations, a grant of up to £1.27 million is being provided for in 1990 in respect of costs arising from this amalgamation.
Public Service Pay
In last year's Budget Statement I expressed the Government's concern at the build-up of special pay increases in the public service, and announced my intention to invite the Irish Congress of Trade Unions to meet me to discuss this whole issue with a view to arriving at a mutually acceptable solution. I met ICTU on 8 March 1989, and this was the first of many meetings out of which emerged a package which set out an agreed basis for the phased implementation of special increases over the years 1989 to 1992.
I am allocating an additional £50 million in a Vote for increases in remuneration and pensions in respect of the cost in 1990 of special improvements in pay and conditions which have not already been provided for in Departmental Estimates. The effect of this, and other adjustments to certain pay allocations which underpinned the published Abridged Estimates Volume, is to increase the Exchequer pay and pensions bill for 1990 from £3,048 million, as published last November, to £3,096 million. This is a sizeable sum in both absolute and relative terms. It is our single largest overhead cost. I would stress once more the need to maintain strict control in relation to it.
Hours
I also referred last year to national discussions which were then in progress, as provided for in the Programme for National Recovery, on a reduction in working hours for employees who work 40 hours or more. These discussions resulted in the conclusion of a framework agreement which affects large numbers of public service employees, entailing substantial costs for the Exchequer. In accordance with the terms of the framework agreement, local discussions on the reduction in hours are under way throughout the public service. These discussions cover all aspects of the change in hours, including the possibility of securing savings to offset some of the costs. On the assumption that agreement will be reached on these matters, I expect the reduction to be implemented later this year.
PRSI for Public Servants
In the 1989 budget also, I announced the Government's decision to extend the social insurance cover of public sector employees currently on modified PRSI rates, and my intention to raise the matter with the Irish Congress of Trade Unions in accordance with the Programme for National Recovery. My colleague, the Minister for Social Welfare, and I have commenced those discussions on this matter with the interests concerned. Although the issues involved are necessarily complex, we hope to arrive at a mutually satisfactory outcome.
Present Policy on Numbers
As a result of the restrictions on recruitment to the public service which have been in force since the 1987 budget, combined with the offer of voluntary redundancy or early retirement to public servants, the number employed in the public service — including the local authorities — has fallen by about 20,000 from 1987 levels to its present level of approximately 196,000. In the coming year the emphasis will be on consolidating the reductions in staff numbers which have already been achieved, and seeking greater economies through improved efficiency and better management. In areas of particular need, recruitment may be permitted to fill key vacancies, but only with the approval of the Minister responsible for the area and the Minister for Finance.
Civil Service Numbers
There has been a reduction in civil service numbers from over 32,000 serving in 1981 to the present more sustainable and affordable figure in the region of 27,000. There will, as I have said, be limited scope for the filling of some of the vacancies arising this year where it can be clearly demonstrated that this will lead to tangible, immediate and continuing net benefits to the Exchequer. In addition, the scope of the career break schemes has been extended and future vacancies arising under these schemes can be filled where this is required by the needs of the work. These elements should generate significant employment opportunities. Any recruitment will, of course, be at much more junior levels than those at which persons took early retirement, so there is not, and will not be, any question of replacement of staff who were paid enhanced terms to leave the service. There can be no question of undermining the savings already achieved — many at considerable initial expense under the early retirement scheme.
In addition to this limited recruitment, there will be continuing efforts to improve the efficiency and effectiveness of public services so as to ensure that the taxpayer gets the best possible value for money.
In this context, there will be an increasing need for better management information to improve decision-making and the quality of service to the public. The widespread application of information technology has a central role in the process and will require continuing significant investment by the Government. This is reflected in the provisions totalling £35 million in the Estimates.
Redundancy Package
Over the period 1987 to 1989 a total of approximately 9,600 people left the public service under the voluntary redundancy and early retirement scheme. The terms will be available in 1990 on a very restricted basis, namely, only to staff who have been identified as surplus to requirements; £5 million has already been provided for this purpose in the Estimates and the numbers involved will not be large.
New Management Initiatives
Last year in my Budget Statement I said I was examining the possibility of fixing administrative budgets on a three-year cycle at a level which would involve a real reduction in funding each year because of greater efficiency but which would allow managers to manage with greater flexibility within their budgets.
Much useful work has gone into advancing this project over the past year. Considerable progress has been made in working out the practical changes necessary in discussions between my Department and the line Departments chosen to take the lead in this initiative — the Office of the Revenue Commissioners, the Department of Social Welfare and the Department of Energy. I expect to conclude formal agreements shortly with the two Ministers and with the Revenue Commissioners. These will cover the details of the flexibility being allowed and the size of their three-year administrative budgets. The process of extending the new arrangements to other Departments has already commenced and I anticipate that the new system will be operating throughout the Civil Service within a relatively short time.
Realisation of the full benefits of this initiative now depends on the capacity of Departments, and in particular their top managers, to take on board the best management practices as applied by business and to adapt these as necessary to achieve the more efficient delivery of public services. These changes must, of course, be brought about against a background where the need for further reductions in the overall cost of public service administration remains. It would be foolish to imagine that it is possible to have the greater freedom associated with delegated administrative budgets without the discipline associated with a commitment to a three-year cycle within which real reductions must be achieved. I wish to take this opportunity to stress that I am seeking such reductions in the cost of running the Civil Service and that I am determined that Departments will achieve worth while efficiency gains over the period 1990-92. The provisions for Civil Service running costs incorporated in the 1990 Estimates are quite adequate, and I expect these to fall in real terms in 1991 and 1992.
Post-Budget Position on Non-Capital Supply Services and Capital Expenditure
The net result of the changes and initiatives I have just announced is to add £170 million to non-capital supply services in 1990, bringing the total to £5,722 million, and to add almost £18 million to the opening Public Capital Programme bringing it to £1,666 million. Details of the adjustments to the allocations for individual Votes as published in the Abridged Estimates Volume, and to the Summary Public Capital Programme, are set out in the Principal Features of the Budget.
Non-Programme Outlays
I have already included in the White Paper on Receipts and Expenditure a provision of £25 million in 1990 for non-programme outlays. As in previous years this allocation will allow the Government to meet the essential financial restructuring costs of State-sponsored bodies, if these are required, along with other miscellaneous capital payments.
Sale of State Assets
There has been significant growth in recent years in the proceeds of the sale of State assets. These sales have been carried out in pursuance of the Government's view that it is not in the best interests of the State — any more than it would be for a business — to continue to hold assets which are not providing an adequate return, in particular when the national debt and debt-service cost are so large. I have, therefore, made a prudent provision in the White Paper on Receipts and Expenditure for a further increase in such sales in the current year. This is the first phase of a new five-year programme of such sales so as to help to reduce the national debt.
TAXATION
Current Revenue Opening Position
The current tax revenue projection, as shown in the White Paper on Receipts and Expenditure, is £7,870 million. This projection takes account of the broadening of the tax base which has occurred over the last two years, reflecting the measures taken to improve collection and increase fairness in the system. I must, however, allow for some once-off cash flow gain in 1989 resulting from the speedier tax payments to which I referred earlier. The revenue will not be available to me in 1990.
Before outlining this year's measures, I would like to point to a fact that is sometimes forgotten. The Exchequer cost of tax concessions does not arise only in the year in which they are given. The full-year cost is greater than that of the initial year the additional cost of income tax concessions given in last year's budget is £80 million, which has to be met along with the net cost of the tax changes which I am about to outline.
Overall Thrust of Tax Policy
Considerable progress has been made in the past couple of years in the restructuring and reform of the tax system. Last year I was able to begin the process of reducing our excessive rates of personal taxation which are an obstacle to initiative and to job creation. Last year's standard rate reduction from 35 to 32 per cent was the first such reduction in 20 years.
The Programme for Government commits us to continuing this process by reducing the standard rate of income tax to 25 per cent by 1993 and by moving towards a single higher rate of tax. To meet part of the cost there must be a further broadening of the tax base. As I said earlier, we must also begin the process of adapting our tax system to the needs of the EC internal market.
I am, therefore, today announcing a significant and balanced package of reform measures affecting income tax, indirect taxes and corporation tax, as well as other tax areas. The package has been formulated so as to ensure the continuation of a healthy balance of payments position and its objectives are fully in line with the Programme for National Recovery and the Programme for Government. These objectives are: to give substantial further tax relief to workers, so as to underpin the pay moderation provisions enshrined in the Programme for National Recovery and the related agreements on pay; to support the overall efforts of the Government to reduce inflation in the economy; and generally, to continue the process of improving the tax system so as to make it work in favour of an increase in jobs. Tax reform is a complex task requiring a balanced approach. The solutions are not always simple. Very often simplicity is the enemy of equity.
Income Tax: General
I turn first to income tax. The Programme for National Recovery contains a commitment by Government to introduce income tax reductions to the cumulative value of £225 million over the period of the programme, including increases in the PAYE allowance costing £70 million, and in the context of this provision to make significant progress towards having two-thirds of taxpayers on the standard rate. These commitments have already been more than fulfilled. The cumulative cost of income tax reliefs introduced since 1987, at over £700 million, is more than three times the £225 million commitment in the programme. On the same basis, the cost of the £100 increase in the PAYE allowance in 1988 is over £90 million, compared with the programme commitment of £70 million. The percentage of taxpayers paying tax at no more than the standard rate in the current tax year, at about 63 per cent, is a significant improvement on the figure of less than 56 per cent in the 1987-88 tax year. In addition, the standard rate itself has been reduced to 32 per cent.
As I have said the Government recognise that, notwithstanding these substantial improvements, more needs to be done. I propose, then, to continue the process of reducing income tax rates by making the following changes: I am again reducing the standard rate of tax. The new standard rate will be 30 per cent. This reduced rate will, of course, also apply to the withholding tax on professional fees and to the deposit interest retention tax; The standard rate tax band is being widened from £12,200 to £13,000 for a married couple and from £6,000 to £6,500 for a single person; The 56 per cent rate is being reduced to 53 per cent. In view of the Government's objective of moving towards a single higher rate I have left the 48 per cent rate unchanged. Persons on this rate will, of course, benefit from the further substantial reduction in the standard rate and the widening of the standard rate band.
Let me give some examples of what the changes will mean for different categories of taxpayers: a single person on PAYE with an income of £10,000 will gain up to £194; a married couple with an income of £16,000 will gain up to £216; a married couple with an income of £20,000 will gain up to £388. Further details of the income tax changes, showing their effect on different income categories, are contained in the Principal Features of the Budget.
These measures are expensive and I have looked to specific reliefs in the income tax code for a contribution to their cost. I am, however, making only one change. The tax relief on life insurance permiums is estimated to cost over £35 million in the coming tax year, despite last year's curtailment of the relief to 80 per cent of its previous level. It is also a cause of distortion in financial investment. I propose, therefore, to reduce the figure of 80 per cent further, down to 50 per cent, in respect of premiums paid on or after 6 April next. Taking account of this restriction, the total cost of the income tax measures which I have just announced is estimated at £106.2 million in 1990 and £177 million in a full year.
I should add that the PRSI is being renewed, at an estimated cost of £51 million.
This package of income tax reliefs will have a substantial impact. All taxpayers will benefit. There will be a particular benefit to lower-paid taxpayers with families from the measures I announced earlier. The percentage of taxpayers on the standard rate will be maintained at 63 per cent. Most important of all, the marginal tax rate faced by some 700,000 taxpayers will fall: this is the second year in a row in which the Government have cut marginal tax rates for the majority of taxpayers. The package marks our determination to force down tax rates and reduce the burden of income tax. It also marks our commitment to the Programme for National Recovery: on a cumulative basis, it means that the cost of income tax relief introduced in the three budgets covered by the programme will be well over £800 million, as compared with the £225 million commitment contained in the programme. The package also represents a substantial step toward achievement of the income tax targets set out in the Programme for Government.
Take-Home Pay Aspects
The personal tax concessions which I have announced will ensure that the take-home pay of the generality of workers in receipt of the basic terms of the Programme for National Recovery will more than keep pace with expected inflation this year. Moreover, there will be substantial increases in disposable income for lower-paid workers with families, mirroring the special recognition of their circumstances in the pay agreements.
The provisions of this budget mean that workers can look forward to a further improvement in their living standards in the coming year while, at the same time, pay increases will remain moderate, thus protecting competitiveness and employment. This comes on top of the significant gains they have already made over the past couple of years, through the combination of tax reliefs, realistic pay settlements and low inflation. I am sure there will be widespread agreement that, besides increasing employment, the Government are doing what they can to ensure the wage and salary earners generally share in the benefits of the progress made under the Programme for National Recovery.
Indirect Taxation and 1992
In determining my approach towards indirect taxation I have, of course, to bear in mind the continuing discussions at EC level on the harmonisation proposals which are an integral part of the process of completing the internal market of the Community.
Progress in the discussions is slow, but this is hardly surprising given that the issues involved in tax harmonisation are extremely sensitive for many member states, including ourselves. There have, nevertheless, been a number of significant advances during the past year.
Decisions taken at last month's Council meeting of Economic and Finance Ministers yielded a consensus on an outline framework for VAT rates. It was agreed that member states whose standard rate already falls within the range 14-20 per cent will not move out of that range between now and 1 January 1993. Member states whose standard rate is outside that range have agreed not to diverge further. Essentially, these decisions formally enshrine the concept of convergence. Deadlines were also set for further decisions on the format and level of the proposed standard rate, on the scope and levels of the reduced rates and on the products which will continue to be zero-rated, from 1 January 1993. Clearly, therefore, while much remains to be debated and decided, the post-1992 position as far as VAT is concerned is beginning to take some shape.
By contrast, little detailed discussions have yet been held at Council level on the revised Commission proposals on excise duties and we are still a long way from decisions on a new Community-wide regime. During our Presidency, I am taking initiatives to make progress in this area as well as in regard to other aspects of indirect tax harmonisation.
Another significant development is the recognition which has been given at Community level to the potential budgetary difficulties posed for Ireland by the harmonisation proposals. Deputies will be aware that, on the basis of certain reasonable assumptions, the Irish Exchequer could incur unsustainable revenue losses of the order of 3 per cent of GNP. During the past year of EC discussions, I made it clear, repeatedly, that while we were strongly in favour of the completion of the internal market, including the tax harmonisation dimension, and while we wished to avoid long-term derogations, our budgetary difficulties with the proposals needed to be recognised and addressed. I am pleased to be able to tell the House that, at the December ECO/FIN Council, a declaration relating to Ireland was recorded whereby the Commission will study and bring forward measures to deal with our difficulties. I understand that this study is getting underway and I hope it will provide the basis for Ireland's effective participation in the process of completing the internal market.
VAT
As an indication of our commitment to this process, I propose today to make a number of changes to the VAT regime consistent with the emerging 1992 framework and with the Government's desire to point clearly towards lower inflation.
Standard Rate
The standard rate of VAT is currently 25 per cent and its importance in overall fiscal terms is reflected in the fact that it accounts for almost three-quarters of our VAT revenue. It is self-evident that a sizeable reduction in this rate, in the context of EC approximation, will prove extremely costly. I propose today, however, to initiate this process of convergence by reducing the standard rate from 1 March next by 2 percentage points to 23 per cent. This will cost some £76 million in 1990 and an estimated £125 million in a full year. The reduction will lower the prices of a wide range of consumer goods. I have asked my colleague the Minister for Industry and Commerce to monitor the situation so as to ensure that the benefit is passed on to the consumer.
VAT on Electricity
With the exception of electricity, which attracts VAT at the 5 per cent rate, all other fuels used domestically for heating and lighting are 10 per cent rated. I propose, therefore, to raise the VAT rate on electricity to 10 per cent. This will take effect on 1 March next and will yield £11 million in 1990 and £18 million in a full year.
(Interruptions.)
In order to ensure that prices charged to domestic consumers do not increase, I am arranging that the additional costs involved will be absorbed by the ESB.
(Interruptions.)
Deputy Carey must restrain himself.
Charges for VAT-registered businesses will remain unchanged as they will be able to reclaim the VAT element of their bills.
VAT on Telecommunications
Since the inception of the VAT system, the telephone service has been exempt from the tax. In recent years, Bord Telecom Éireann has made rapid progress in achieving profitability and, in this light, it is considered that the VAT exemption is no longer appropriate. Taxation of this service would also bring us into line with the majority of our European partners. Accordingly, I propose to levy VAT at 10 per cent on telephone and related services provided by BTE with effect from 1 July next. Allowing for the fact that BTE will now be able to reclaim VAT on its inputs, the charge will yield a net £3 million to the Exchequer in 1990 and £11 million in a full year. I am confident that this initiative can be implemented without increased costs to telephone users——
Do you want to bet?
——both households and VAT-registered businesses, bearing in mind the ability of BTE to recoup VAT on inputs and that businesses registered for VAT can also reclaim the VAT element of their bills.
Higher bills.
Farmers' VAT Refund
I am continuing the process which I initiated last year of restoring the flat-rate VAT refund to farmers. From 1 March next the flat rate will be increased to 2.3 per cent. This will cost the Exchequer £6 million in 1990. The associated livestock rate will also increase to a similar level.
Excise Duties
In the last three budgets the Government have adopted a restrained approach in the application of duty increases to excisable goods. Such increases as there have been were applied on a minimal basis. This has made a significant contribution to the holding down of prices. The proportion of tax contained in the final price of many excisable goods has actually fallen as a consequence. I propose to continue this policy of restraint this year by not taxing the "old reliables".
Fair play to you.
I will be looking to the trade interests involved to match this restraint, since otherwise the effect of the Government's measures could be nullified.
While, as I have said, no agreement has yet been reached in EC discussions on excises, I am beginning the process of adjusting some of our less important excise duties to accord with the pattern of harmonisation likely to emerge from the EC discussions. These measures will also help in the efforts to combat smuggling from across the border.
Table Waters
The soft drinks industry is an important part of our food processing industry and table waters are also a useful source of revenue to the Exchequer. The yield from this source in 1989 was £19.7 million. There is, however, no excise duty on table waters in Britain and this leads to problems of competition from across the Border. In the EC context, the future of this particular duty will depend on the extent to which it creates problems for controlling trade across frontiers. With these considerations in mind I have decided to reduce the excise duty on table waters by 20 per cent.
Televisions
I propose a number of changes in the excise duty payable on televisions. Firstly, I have decided to abolish duty on black and white televisions. I have also decided to abolish duty on colour televisions with screens up to 17 inches. Duty on larger televisions will be reduced, from £49 to £30 on sets with screens between 17 and 24 inches, and from £60.05 to £45 on sets over 24 inches.
Videos and Camcorders
I have decided to reduce the duty on videos and camcorders by 50 per cent. These changes respond to many representations I have received from trade interests and representatives of Border regions and I hope that there will be a beneficial effect in increased trade south of the Border as well as some offset to the Exchequer cost as a result of the curbing of illegal imports.
I am also making further excise changes as follows:
Gramophone Records
At present, excise duty is payable on gramophone records and compact discs but not on pre-recorded cassettes. The total amount collected in 1989 was £1 million. In order to help the music industry generally, which is labour-intensive, and to clear up the anomaly to which I referred, I have decided to abolish excise duty on records and CDs.
Matches and Lighters
The yield from excise duty on matches and lighters has been steadily declining in recent years. There is widespread evasion of duty in the case of mechanical lighters. This evasion is unfair to legitimate traders. Better enforcement would be costly relative to the yield in duty. For this reason, I have decided to abolish duty on matches and mechanical lighters.
Lead-Free Petrol
Lead-free petrol has received favourable treatment in the last two budgets. The excise duty is currently set so as to allow it be sold at 5p per gallon cheaper than leaded petrol. This year, as part of the Government's Environment Action Plan, I have decided to widen this price differential to 10p per gallon by reducing the tax on lead-free petrol by 5p. This move should provide the incentive for many more motorists to use lead-free petrol.
Auto-Liquid Petroleum Gas
Another environmentally friendly alternative to standard leaded petrol is auto-liquid petroleum gas. The consumption of auto-LPG has fallen from a high of 8.5 million gallons in 1983 to only 2.5 million gallons in 1989. Some service stations have ceased stocking auto-LPG. In order to ensure the continued use of this fuel, I have decided to reduce the excise duty on auto-LPG by 50 per cent.
All of the excise changes I have mentioned will take effect from midnight tonight.
The cost of these excise measures, including the reduction on lead-free petrol, is estimated at £16 million in 1990, and £20 million in a full year.
A significant feature of the reduction of indirect taxes is their favourable effect on inflation. The changes in VAT and excises which I have announced will, in the overall, have a downward effect on inflation of 0.7 per cent. This will be of considerable assistance in our efforts to moderate costs generally in the economy.
Corporation Tax
The yield from corporation tax in 1989 was £303 million or 4 per cent of total tax revenue. This yield is still very low by international standards. Some improvement in the yield will result from the reforms introduced in the corporation tax system in the last two years. The ending of export sales relief and the Shannon tax exemption scheme on 5 April next will also produce increased revenue from the corporate sector, though the full effect on the yield is not expected to materialise until 1992. I am, accordingly, now introducing a number of other measures which will increase the corporation tax yield and will continue the process of corporation tax reform begun in 1988.
I mentioned last year that I would review for the 1990 budget the position in regard to accelerated capital allowances and the standard rate of corporation tax. These accelerated capital allowances for plant, machinery and industrial buildings were reduced in the last two years from 100 per cent to 50 per cent. The 50 per cent regime is guaranteed by legislation until 31 March 1991.
As a result of this review, I have decided to reduce these accelerated allowances from 50 per cent to 25 per cent from 1 April 1991 and from 25 per cent to nil from 1 April 1992. The standard rate of corporation tax will at the same time be reduced with effect from 1 April 1991 from 43 per cent to 40 per cent, a reduction which is in line with international trends. These measures will further the process of creating a broaderbased corporation tax system with a lower standard rate. The lower rate will be helpful in particular to the services sector of the economy which is such an important source of job creation. The elimination of 100 per cent accelerated capital allowances will remove the bias in favour of capital intensity rather than employment.
It is estimated that the changes will result in a net yield to the Exchequer of about £45 million a year on average for the period 1992 to 1995, declining somewhat after that. The tax rate reduction will mean that the gap between the standard corporation tax rate and the special 10 per cent rate for manufacturing will have been narrowed from 40 per cent to 30 per cent since 1988. As already mentioned, the ending of export sales relief and the Shannon tax exemption scheme will also produce increased revenue in future years.
I should say that I am concerned about the fact that the 10 per cent rate now applies to a wider range of activities than was originally intended, as a result of decisions by the courts in particular cases. As I indicated recently, I am having the implications of these decisions examined.
The normal annual wear and tear capital allowances will, of course, continue to be available in all cases. The reduction in accelerated capital allowances will not apply to qualifying service companies in the International Financial Services Centre and in Shannon customs-free airport.
The reduction will not apply either to the special building incentives for areas designated for urban renewal. I have decided also, as a further impetus to the development of these areas, to extend the time limit for the designated areas incentive package to 31 May 1993.
Taxation of Financial Institutions
Measures were introduced in the 1989 Finance Act to limit the cost to the Exchequer of domestic-sourced section 84 loans. The net cost of these loans has greatly increased in recent years, mainly because of a big increase in the volume of such loans and because a much greater proportion of the total is now accounted for by special high interest-rate loans which are more costly to the Exchequer than normal Irish-pound loans. I have decided therefore to continue the process of reducing the cost of these loans by lowering the loan volume ceiling introduced last year. This ceiling was fixed in the 1989 Finance Act at 110 per cent of each lender's loan volume as of 12 April 1989. From today this ceiling will be lowered for new lending from 110 per cent to 75 per cent. No new funds can be lent or drawn down except within the confines of the new ceiling of 75 per cent. Further details are set out in the Principal Features of the Budget. The change will result in a significant increase in the corporation tax payments from the banking sector in 1991 and subsequent years. Because the change will have scarcely any effect on corporation tax revenue in 1990, the bank levy, which has been at £36 million for the last two years, will be continued at this level for 1990, but I will review the position in future years in the light of the results of the measures I have taken.
Within the last year, a number of new investment products have been launched on the Irish market. Some of these products are marketed here from abroad by reference to their substantial tax advantages. In certain cases the foreign investment products can be structured so that the proceeds will be free from all corporation, income and capital gains tax liabilities both here and in the foreign country. This involves a loss to the Exchequer and gives these products an undue advantage.
In order to promote a more level playing field, I have decided to introduce two measures to help correct the position. First, the 3 per cent levy, which now applies to new life-assurance-linked investments, will be extended to new investment by Irish residents in all foreign and domestic unit trusts and similar investment funds in the period commencing 1 February. As in the case of life-assurance-linked investments, the levy will be collected from the unit trust and the other investment funds. Where this is not practicable, it will be collected from intermediaries or other agents. The charge will not apply in the case of unit trusts or other investment funds set up for charities and pension funds. The detailed arrangements for the charge will be contained in the Finance Bill. This new levy will be reviewed at a later date in the context of future developments towards harmonisation of the treatment of cross-Border investment flows within the EC, as well as other developments in the taxation system.
Second, I am introducing with effect from 6 April next a special measure for foreign unit trusts or similar funds selling investment products to Irish investors. If the foreign fund fails to distribute to its Irish investors each year 90 per cent of the investment income relating to these investors, the capital gains arising on the disposal by the investors of units or shares in the fund will be taxed under income tax instead of under capital gains tax. As well as yielding revenue to the Exchequer, this measure will also remove an unfair advantage some foreign funds possess vis-à-vis their Irish counterparts in that the Irish fund withholds tax on all the income it receives whereas in the case of the foreign fund only the income it distributes is taxed.
I should, of course, stress that none of these taxation changes affecting financial institutions will impinge on the existing taxation provisions applying in the International Financial Services Centre or in Shannon custom-free airport.
Other Tax Changes
Farmer Taxation
Disease Eradication and Stock Relief for Farmers
In order to assist farmers whose herds have been subject to compulsory disposals due to disease eradication measures, I have decided to extend for such cases the period allowed for restocking before claw-back of stock relief comes into effect. Accordingly, for disposals of diseased animals arising after 5 April next, the relevant period will be extended by a further year. This will be of assistance where postponement of restocking is required under the statutory disease eradication schemes. I will keep the position under review in the light of changes in those schemes.
Stamp Duties
It is fair to say that the present law in relation to stamp duties is highly technical and complex. The basic legislation dates from the last century when many of the transactions which today fall within the charge to duty simply did not exist. This is particularly true of transactions in the rapidly-developing field of financial services. Against this background, officials of my Department and the Revenue Commissioners have met the Financial Services Industry Association to discuss the impact of stamp duty on financial services. I will be bringing forward in the Finance Bill a number of measures to clarify and simplify how stamp duties are to apply to various financial services and transactions. I will also be introducing a number of minor reliefs but the overall package of measures will be roughly revenue-neutral. The main aim of the changes is to simplify the administration and collection of duties for the taxpayer and Revenue alike. It is also intended to encourage the execution in Ireland of transactions which are at present being effected abroad to avoid a charge to stamp duty here.
Over the years a practice has developed whereby the intending purchaser of a new house can reduce his exposure to stamp duty by entering into separate agreements for the purchase of a site and the construction of a house on it. I am concerned at the loss of revenue which results from this practice and I propose to introduce legislation in the Finance Bill to ensure tha the full amount of duty is paid in future. This measure is designed to counter the avoidance of duty on the sale of houses in up-market housing estates. It will not affect grant-type houses, which are exempt from duty. The anticipated full-year yield from this measure will be of the order of £2.5 million.
Apart from a relatively minor adjustment made in the 1988 budget the rates of stamp duty on transfers of lands and houses have not been adjusted since 1975. At present there are 14 rates, 10 of which apply to transfers of property valued at less than £10,000. It is clear that some updating and rationalisation of the rate structure is required. The additional revenue generated by the above measure will be used to commence this process in 1990. This will involve a restructuring of the rates applicable to property valued at less than £25,000.
Companies Capital Duty
Companies capital duty is a stamp duty payable on the issue of share capital. It is imposed under the terms of an EC Directive. I am conscious of the difficulties that imposition of the duty can pose for collective investment undertakings, particularly those located in the International Financial Services Centre, and the question of a concession for such bodies is being pursued with the EC. A favourable outcome is expected shortly.
Residential Property Tax
The recent surge in the value of residential property has resulted in a significant increase in the numbers of people subject to the residential property tax. When this tax was introduced, provision was made to give relief in respect of children. This provision was, however, allowed to lapse when the income tax child allowance was abolished in 1986. The Government have decided that the residential property tax child relief should be restored. This will cost £1 million in 1990.
Capital Gains Tax
As I indicated earlier, the top rate of income tax will now be 53 per cent. Experience has shown that it is important to maintain the rates of tax on capital gains broadly in line with those applicable to income. I propose, therefore, to abolish the 60 per cent rate of capital gains tax which applies to disposals of assets which have been held for less than 1 year. The top rate of capital gains tax will now be 50 per cent. This change is not expected to have a significant effect on revenue receipts.
Capital Acquisitions Tax
The thresholds for capital acquisitions tax have remained unchanged since 1978. Having reviewed the position, I have decided that in future the thresholds will be adjusted each year to take account of inflation. For 1990, based on the average annual increase in the Consumer Price Index for 1989, they will be increased by 4 per cent to £156,000, £20,800 and £10,400. The revised thresholds will apply to all gifts and inheritances taken on or after 1 January 1990. The full-year cost of this measure will be of the order of £1 million.
The point has been made that the tax system acts to discourage the transfer of property owned by one spouse into the joint ownership of both spouses. I propose to address this situation by exempting gifts between spouses from capital acquisitions tax and also by exempting from stamp duty transfers of property from one spouse to the other where such transfers have the effect of creating a joint tenancy in the names of both spouses. The full year cost of these measures will be of the order of £1 million.
Business Expansion Scheme
It will be recalled that last year's Finance Act contained a number of measures aimed at curbing abuses of the business expansion scheme. I regard this as a valuable scheme and I do not wish to see it diverted from its proper function of generating genuine venture capital for qualifying companies in the sectors of the economy to which it applies. Concern has been expressed in a number of quarters about certain developments which have been taking place in relation to the scheme. I have therefore asked the Revenue Commissioners to examine these developments in the context of the existing legal framework, which I strengthened last year. I am determined to ensure that use of the scheme is not distorted by its exploitation for purposes for which it was not intended. It is a scheme to provide risk capital and I want to see it remain as such.
Tax Administration and Enforcement
There has been a much more effective system of tax administration and enforcement in the past two years. This has added greatly to revenue receipts. While the tax amnesty played a major role in 1988, other measures — of both a policy and an administrative nature — have contributed significantly to the better compliance and increased tax yield. Deputies can be assured that the battle against tax defaulters and evaders will be continued in 1990. It cannot be emphasised strongly enough that those who cheat on their tax obligations only serve to increase the burden on the rest of the taxpaying community.
One of the policy measures which has been very successful is the introduction of the self-assessment procedures for the self-employed. The procedures were extended to companies from 1 October last. These new procedures, which include a voluntary self-assessment option, have increased the tax yield from the self-employed. They have also had beneficial administrative spin-offs for both the Revenue and complying taxpayers.
In my Budget Statement last year, I indicated that the Government would like to move to a fully-fledged self-assessment system, under which self-computation of final liability would become obligatory for all taxpayers. I also indicated that the absence of a single-year basis of assessment of all income and reliefs greatly inhibited the development of such a system, since more than one tax return is nearly always required to settle one year's liability. A switch to a single-year basis of assessment would be a major advance because it would simplify the system, reduce administrative costs for both taxpayers and Revenue, and, as I have said, enable us to make progress in developing the self-assessment system.
The Government are, therefore, committed in principle to the introduction of a single, current-year basis of assessment for all income for tax purposes. The major implication of this change is that the self-employed will be assessed on the profits of the accounting period ending in the current rather than in the preceding year.
Arrangements for the change have been considered by officials of both my Department and the Revenue Commissioners who had the benefit of preliminary views submitted by certain interested groups. Further detailed discussions with these groups are required on the legislative and implementing arrangements. These discussions will be held immediately with the objective of making provision for the necessary legislation in the 1990 Finance Bill if possible, so as to allow the introduction of the change in the 1990-91 tax year. It is only fair that I should place on record the Government's appreciation of the commitment and co-operation received from tax accountants and advisers in relation to the changes introduced to date and I have no doubt that they will approach the discussions on the switch to a current-year basis in the same spirit.
The tax forecast for 1990 takes account of this proposed change as well as other efficiency and collection measures.
Post-Budget Current Revenue Position
The net cost to the Exchequer in 1990 of the taxation measures I have outlined is £221 million. When this and the £91 million increase in tax revenue buoyancy arising from the various measures announced today are taken into account, the total post-budget tax revenue estimate comes to £7,740 million. The total post-budget estimate for current revenue, which comprises both tax and non-tax revenue, is £8,116 million. The non-tax revenue includes an additional payment of £5.5 million to the Exchequer by Bord Gáis Éireann over and above the provision already included in the 1990 White Paper on Receipts and Expenditure. The most up-to-date projections now available suggest that the board's profits in 1990 will be appreciably greater than originally estimated.
BUDGET TARGETS
Current Budget Deficit and Exchequer Borrowing Requirement
Budget Targets
Following the various expenditure and tax changes which I have announced today, the estimate for the current budget deficit in 1990 is £261 million or 1.2 per cent of GNP, and that for the Exchequer Borrowing Requirement is £449 million or 2.1 per cent of GNP. These targets consolidate last year's excellent figures of 1.3 and 2.4 per cent respectively. This represents a major achievement given the additional costs arising this year, the special factors which boosted revenue last year and the important package of measures I have announced today which are needed to promote competitiveness, growth, employment and social equity.
Exchequer borrowing has now been reduced to less than one-fifth of its 1986 level in percentage GNP terms. As a consequence, it is, as I have pointed out earlier, at its lowest level in forty years. It is worth noting also that it is now in line with the average level of Government borrowing in the EC narrow-band EMS countries.
It was against this background of rapid progress in the past two years, and of the need to develop the economy with the measures I have announced today, that the Government decided on the budgetary targets this year. The priority is to consolidate the considerable gains achieved to date and to continue the downward pressure on borrowing and debt. This will have the beneficial effect of ensuring the firmest possible financial foundation for the planning of the next phase of the Government's programme for economic and social development.
Resumé of Progress since 1986
The economic recovery of the past three years is, let there be no doubt, the outcome of the strategy and policies set down in the Programme for National Recovery. Through the existence of this clear statement of intent and, even more importantly, through the adherence to its provisions, both on the part of Government and of the other participants, all those involved — investors, business, farmers, workers and consumers — have been able to bank on a consistent and sensible set of policies being followed, with no back-tracking or deviation. The Programme for Government confirms the Government's commitment to continue, and to develop in the light of changing circumstances, the policies which turned around the economy, and restored the growth in employment. With the adoption of the Community Support Framework for Ireland, we are now in a position to utilise the additional resources coming from the Structural Funds to reinforce our own efforts to make the economy more competitive and to expand its capacity, particularly to create jobs.
The approach of the Programme for National Recovery has been shown to be the right one. A consensus approach, if it does not shrink from facing realities, can work to the benefit of us all. As I said earlier, it is the Government's hope that when the current arrangements expire, we can evolve, in discussion with the social partners, a follow-up programme which reconciles the legitimate concerns and aspirations of the various interests with the requirements for sustained economic and social progress, particularly in terms of increased employment. This budget makes a significant contribution to creating the right environment for future development.
Conclusion
I began this Budget Statement by referring to the evidence now clearly available to us as to the correct path that we must follow. It would be fatally easy to slip back into the bad habits of the past — demanding lower taxes at the same time as higher public spending; expecting better public services before they can be sustained by higher growth; seeking excessive nominal pay and profit increases in the short term at the expense of longer-term competitiveness and jobs. Ultimately, that road only leads back to the higher borrowing, rising inflation, worsening competitiveness and declining employment from which we have so recently and so painfully escaped.
Employment is responding to the new and better conditions which have been created. Living standards have improved, through moderate income increases combined with the tax reductions which budgetary policy has made possible. Real welfare increases have been possible for those who have to rely on the State. It is essential to the future of us all that we continue with our economic strategy. This is the only way to ensure that we will be in a position to look after, on a permanent basis, the less well-off and disadvantaged in our society.
Progress on these fundamentals is made all the more necessary by developments abroad, both within the European Community and further afield. A new and wider Europe will open up in the 1990s. It will reflect the imagination, the initiative and the energy of the people of Europe freed from existing barriers and restraints. The nineties will be a decade of opportunity for those with the wisdom and courage to prepare for the new conditions.
In conclusion, this budget advances further the Government strategy for: continuing the improvement of the public finances; consolidating the economic recovery; promoting competitiveness; generating as much self-sustaining employment as possible; continuing the process of tax reform; caring for the elderly and for those who are less well-off or disadvantaged; protecting the environment; and reinforcing the adjustments needed for 1992 and for economic and monetary union.
The national morale was never as high. Everybody in the country must take satisfaction from what has been achieved to date. With the continued commitment and co-operation of all concerned, so much more can be done. Our prospects are good. We can face the new decade with confidence, which is a good word on which to close.
TABLE EXPLANATORY OF CURRENT BUDGET, 1990
|
Revenue |
£m |
Expenditure |
|||||
|
1. Tax Revenue (including renewal of bank levy and PRSI allowance) |
7,855.0 |
1. Central Fund Services (including £35 million saving on foot of new National Debt Office) |
2,655.0 |
||||
|
2. Non-Tax Revenue (including extra £5.5m. from BGE) |
376.1 |
2. Supply Services (non-capital)Adjusted for: |
5,661.0 |
||||
|
Net revisions to Estimates |
- |
84.0 |
|||||
|
3. Income Tax Measures: |
5,577.0 |
||||||
|
Reduce 32% rate to 30% |
-72.0 |
3. Add: |
|||||
|
Reduce 56% rate to 53% |
-19.6 |
Welfare, Elderly and the Disadvantaged * |
|||||
|
Widening of standard rate band |
-22.5 |
—Social Welfare improvements |
+ |
78.6 |
|||
|
Reduce life assurance relief |
+ 7.9 |
—Change in PRSI arrangements for lower paid |
+ |
8.0 |
|||
|
-106.2 |
|||||||
|
4. Indirect Tax Measures: |
—Health ** |
+ |
7.0 |
||||
|
Reduce 25% VAT rate to 23% |
-76.0 |
—Disadvantaged Schools |
+ |
1.0 |
|||
|
Miscellaneous excise reductions |
-9.5 |
—Adult literacy |
+ |
0.5 |
|||
|
Partial restoration of farmers' flat-rate rebate to 2.3% |
-6.0 |
—US Emigrants —Increase in general and age tax exemption |
+ |
0.2 |
|||
|
Increase VAT on electricity to 10% |
+11.0 |
limits and in child addition |
+ |
13.1 |
|||
|
Impose 10% VAT rate on tele- communications |
+ 3.0 |
—Reduce marginal income tax relief rate |
+ |
1.1 |
+ |
109.5 |
|
|
-77.5 |
4. Environment Action Plan (including 5p reduction in unleaded petrol) *** |
+ |
12.1 |
||||
|
5. Miscellaneous (incl. stamp duty, residential property tax and other capital tax changes) |
- 1.7 |
5. Employment Initiatives |
+ |
11.0 |
|||
|
6. Net effect on tax revenue of expenditure and tax changes |
+91.0 |
6. Other Expenditure Measures: —Special Pay Increases |
+ |
50.00 |
|||
|
7. Current Budget Deficit |
261.1 |
—Other Education Measures |
+ |
3.65 |
|||
|
—Tourism Measures |
+ |
2.70 |
|||||
|
8,397.8 |
—Trade Union Rationalisation |
+ |
1.27 |
||||
|
—Teagasc |
+ |
0.60 |
|||||
|
+ |
58.2 |
||||||
|
7. Deduct: Estimated Departmental Balances |
- |
25.0 |
|||||
|
8,397.8 |
* A further £1.3 million for housing the homeless is included in the capital budget.
** A further £3 million will be made available from the National Lottery in 1990.
*** A further £7.95 million is included in the capital budget.
Department of Finance, 31 January 1990.
TABLE 1
1989 BUDGET OUTTURN
|
1989 |
||
|
Budget Estimate |
Provisional Outturn |
|
|
£m. |
£m. |
|
|
Current Budget |
||
|
1. Expenditure |
||
|
(i) Central Fund Services |
2,555 |
2,453 |
|
(ii) Supply Services |
5,595 |
5,566 |
|
8,150 |
8,019 |
|
|
2. Revenue |
||
|
(i) Tax |
7,009 |
7,443 |
|
(ii) Non-Tax |
322 |
313 |
|
7,331 |
7,756 |
|
|
3. Current Budget Deficit |
819 |
263 |
|
Capital Budget |
||
|
4. Expenditure |
||
|
(i) Public Capital Programme |
1,392 |
1,414 |
|
(ii) Other (non-programme) |
30 |
19 |
|
1,422 |
1,433 |
|
|
5. Resources |
||
|
(i) Exchequer |
491 |
501 |
|
(ii) Non-Exchequer |
695 |
716 |
|
1,186 |
1,217 |
|
|
6. Exchequer Borrowing Requirement for Capital Purposes |
236 |
216 |
|
7. Total Exchequer Borrowing Requirement (3+6) |
1,055 |
479 |
|
8. Total Exchequer Borrowing Requirement as % of GNP (estimated) |
5.3 |
2.4 |
TABLE 2
CURRENT GOVERNMENT EXPENDITURE AND REVENUE IN 1989
|
Current Expenditure |
Current Revenue |
||||
|
Item |
£m |
% of gross expendi- ture |
Item |
£m |
7 % of total |
|
Service of Public Debt |
Budget Deficit (financed by borrowing) |
263 |
3.3 |
||
|
Central Fund Services (part): |
|||||
|
Interest |
1,956 |
20.2 |
|||
|
Sinking Funds, etc. |
185 |
1.9 |
|||
|
Total |
2,141 |
22.1 |
|||
|
Tax Revenue |
|||||
|
Economic Services |
Customs |
132 |
1.7 |
||
|
Industry and Labour |
210 |
2.2 |
Excise Duties |
1,638 |
20.4 |
|
Agriculture |
374 |
3.9 |
Stamp Duties |
279 |
3.5 |
|
Fisheries, Forestry |
32 |
0.3 |
Income Tax |
2,810 |
35.0 |
|
Tourism |
24 |
0.2 |
Corporation Tax |
303 |
3.8 |
|
Value-Added Tax |
1,943 |
24.2 |
|||
|
Total |
640 |
6.6 |
Motor Vehicle Duties |
148 |
1.8 |
|
Capital taxes |
60 |
0.7 |
|||
|
Employment and Training Levy |
117 |
1.5 |
|||
|
Infrastructure |
61 |
0.6 |
Agricultural Levies (EC) |
13 |
0.2 |
|
Total |
7,443 |
92.8 |
|||
|
Social Services |
|||||
|
Health |
1,241 |
12.8 |
|||
|
Education |
1,240 |
12.8 |
Non-Tax Revenue |
||
|
Social Welfare |
2,695 |
27.8 |
Fee Stamps |
22 |
0.3 |
|
Housing |
24 |
0.2 |
Interest and Dividends on Exchequer Advances |
||
|
Subsidies |
167 |
1.8 |
Central Bank — Surplus Income ((a)) |
99 |
1.2 |
|
Total |
5,367 |
55.4 |
117 |
1.5 |
|
|
Proceeds of National Lottery Surplus |
48 |
0.6 |
|||
|
Security |
699 |
7.2 |
Miscellaneous |
27 |
0.3 |
|
Other |
780 |
8.1 |
Total |
313 |
3.9 |
|
Gross Expenditure |
9,688 |
100.0 |
|||
|
Supply Service Receipts |
1,669 |
||||
|
Net Expenditure |
8,019 |
Total Revenue |
8,019 |
100.0 |
(a) Includes £25 million for 1989 under the arrangements for advancing surplus income to finance the exceptional lump sum and related payments arising from the Public Service early retirement/voluntary redundancy schemes.
TABLE 3
CURRENT GOVERNMENT EXPENDITURE 1986-1990
|
1986 |
1987 |
1988 |
1989 Provisional Outturn |
1990 Estimate |
% change 1990 over 1989 |
|
|
£m |
£m |
£m |
£m |
£m |
% |
|
|
Service of Public Debt |
||||||
|
Central Fund (part): |
||||||
|
Interest |
1,818 |
1,935 |
1,962 |
1,956 |
2,143 |
+10 |
|
Sinking Fund etc. |
171 |
183 |
179 |
185 |
202 |
+9 |
|
Sub-Total |
1,989 |
2,118 |
2,141 |
2,141 |
2,345 |
+10 |
|
Economic Services |
||||||
|
Industry and Labour |
266 |
241 |
227 |
210 |
218 |
+4 |
|
Agriculture |
465 |
456 |
403 |
374 |
357 |
-5 |
|
Fisheries |
14 |
14 |
17 |
19 |
20 |
+5 |
|
Forestry |
17 |
13 |
10 |
13 |
9 |
-31 |
|
Tourism |
26 |
25 |
28 |
24 |
22 |
-8 |
|
Sub-Total |
788 |
749 |
685 |
640 |
626 |
-2 |
|
Infrastructure |
||||||
|
Roads |
31 |
31 |
30 |
30 |
32 |
+7 |
|
Sanitary Services |
4 |
2 |
3 |
3 |
3 |
— |
|
Transport |
27 |
28 |
27 |
28 |
32 |
+14 |
|
Sub-Total |
62 |
61 |
60 |
61 |
67 |
+10 |
|
Social Services |
||||||
|
Health |
1,154 |
1,177 |
1,172 |
1,241 |
1,297 |
+5 |
|
Education |
1,013 |
1,154 |
1,162 |
1,240 |
1,313 |
+6 |
|
Social Welfare |
2,513 |
2,616 |
2,641 |
2,695 |
2,742 |
+2 |
|
Housing |
27 |
36 |
33 |
24 |
20 |
-17 |
|
Subsidies |
232 |
174 |
172 |
167 |
169 |
+1 |
|
Sub-Total |
4,939 |
5,157 |
5,180 |
5,367 |
5,541 |
+3 |
|
Security |
||||||
|
Defence |
306 |
298 |
310 |
311 |
341 |
+10 |
|
Garda |
276 |
273 |
280 |
285 |
307 |
+8 |
|
Prisons |
54 |
52 |
49 |
57 |
63 |
+11 |
|
Legal, etc. |
52 |
44 |
48 |
46 |
51 |
+11 |
|
Sub-Total |
688 |
667 |
687 |
699 |
762 |
+9 |
|
Other |
||||||
|
Central Fund (part): |
||||||
|
EEC Budget |
254 |
269 |
273 |
290 |
325 |
+12 |
|
Miscellaneous |
10 |
16 |
17 |
22 |
20 |
-9 |
|
Supply Services |
484 |
491(1) |
581(1) |
468(1) |
498(1) |
+6 |
|
Sub-Total |
748 |
776 |
871 |
780 |
843 |
+8 |
|
Gross Total |
9,214 |
9,528 |
9,624 |
9,688 |
10,184 |
+5 |
|
Less: Supply Services Appropriations in aid, P.R.S.I. receipts |
1,350 |
1,507 |
1,635 |
1,669 |
1,833 |
+10 |
|
Net Current Expenditure (excluding Local Loans Fund subsidies) |
7,864 |
8,021 |
7,989 |
8,019 |
8,351 |
+4 |
|
Add back: |
||||||
|
Local Loans Funds subsidies |
261 |
302 |
— |
— |
— |
— |
|
Net Current Expenditure (including Local Loans Fund subsidies)(2) |
8,125 |
8,323 |
7,989 |
8,019 |
8,351 |
+4 |
|
Exchequer Pay and Pensions included in above(3) |
2,625 |
2,759(1) |
2,845(1) |
2,916(1) |
3,048(1) |
+5 |
(1) Includes provision for payments under the Public Service early retirement/voluntary redundancy schemes: £8.416 million in 1987, £95.839 million in 1988, £18 million in 1989 and £5 million in 1990.
(2) The figures for 1986 to 1988 reflect actual audited expenditure.
(3) The Exchequer pay and pensions figure for 1990 reflects a reclassification of Education ESF receipts into pay and non-pay elements. Previously, all such receipts were classified as non-pay. Figures for previous years have also been adjusted for comparability purposes.
TABLE 4
RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES 1968-1990
|
Exchequer |
Local Authorities(a) |
||||
|
Current Revenue |
Non-Capital Expenditure |
Expenditure |
Revenue (b) |
||
|
State grants received |
Rates collected |
||||
|
£m |
£m |
£m |
£m |
£m £m |
|
|
1968-69 |
345 |
354 |
121 |
66 |
38 |
|
1969—70 |
411 |
412 |
145 |
77 |
43 |
|
1970—71 |
482 |
490 |
174 |
94 |
50 |
|
1971—72 |
569 |
572 |
196 |
115 |
60 |
|
1972—73 |
659 |
665 |
240 |
138 |
70 |
|
1973—74 |
793 |
803 |
298 |
183 |
71 |
|
1974 (April-Dec.) |
651 |
744 |
292 |
190 |
61 |
|
1975 |
1,091 |
1,350 |
481 |
332 |
84 |
|
1976 |
1,470 |
1,672 |
567 |
404 |
109 |
|
1977 |
1,757 |
1,958 |
684 |
504 |
111 |
|
1978 |
2,023 |
2,420 |
831 |
670 |
82 |
|
1979 |
2,384 |
2,906 |
1,007 |
820 |
91 |
|
1980 |
3,155 |
3,702 |
1,313 |
1,062 |
103 |
|
1981 |
3,973 |
4,775 |
1,565 |
1,284 |
102 |
|
1982 |
4,908 |
5,896 |
1,878 |
1,560 |
95 |
|
1983 |
5,711 |
6,671 |
2,093 |
1,749 |
105 |
|
1984 |
5,952 |
6,991 |
2,302 |
1,888 |
122 |
|
1985 |
6,331 |
7,615 |
2,493 |
2,066 |
141 |
|
1986 |
6,710 |
8,105 |
2,633 |
2,160 |
153 |
|
1987 |
7,151 |
8,331 |
2,699 |
2,223 |
172 |
|
1988 |
7,690 |
8,007 |
2,409(c) |
1,860(c) |
193(c) |
|
1989(d) |
7,756 |
8,019 |
2,569(c) |
1,848(c) |
222(c) |
|
1990(d) |
8,241 |
8,351 |
2,701 |
2,047 |
239 |
NOTES:—(a) Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.
(b) The revenue of Local Authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g. rents and fees. Only State grants and rates are shown herein.
(c) Provisional.
(d) These estimates are consistent with those in the 1990 White Paper on Receipts and Expenditure.
(Interruptions.)
I ask the House to give Deputy Noonan the same attention which has been given to the Minister. Deputy Noonan without interruption, please.
(Limerick East): I am sure that you, a Leas-Cheann Comhairle, and the House are familiar with the phrase that a camel was a horse put together by a committee. This budget has all the signs that a very divided committee worked on it because there are various additional lumps in it which would indicate the presence of outsiders on the design team.
(Interruptions.)
The camel is a splendid animal. It is an animal of dignity.
(Limerick East): I am afraid that this budget is a very poor response to the problems facing our country.
(Interruptions.)
(Limerick East): It is an over-cautious and under-caring budget and the Minister, rather like Leanbh Machree's dog, has tried to go a bit of the road with everybody and succeeded in satisfying nobody. This budget will create no jobs and do little for the poor and hungry. There was little in the Minister's speech to suggest that he understands the problems of people on social welfare or of those on low pay.
A sum of £221 million——
(Limerick East): This budget is almost anti-family in its pitch. There are minor concessions in it but very little social concern.
A Deputy
The Deputy should read the script.
(Limerick East): This budget increases the national debt——
Whether one agrees or disagrees with the Deputy in possession it is disorderly to interrupt in an attempt to either assist or challenge him. I ask that Deputy Noonan be afforded absolute silence.
(Limerick East): As I was saying, this budget increases the national debt once again and leaves the country dangerously exposed to the vagrancies of national events. It is minimalist in its approach and illustrates a conflict within the Cabinet. There are many instances in the budget where it is clear that the only acceptable decision was one to do nothing whatsoever and, of course, that is what the Government have done about the question of PRSI.
The budget has no coherent policy thrust and there are very few coherent decisions in it. When the Minister makes decisions he is like the man who jumped on his horse and rode off in all directions at once. It is going to be an eminently forgettable budget except for the harm it may do. It will be remembered more for the leaks that have preceded it than for the announcements which were made today. The Minister spoke for two hours and it was like listening to a fifth reading of a budget speech which we have read on at least four other occasions in the national press during the past fortnight and which has been freely discussed in the best hostelries in town.
I do not think a budget has been greeted in this House with less excitement. I heard a rumble in the middle of the Minister's speech and for a moment I thought it was the new leased jet landing on Leinster Lawn to take the Minister for Foreign Affairs back to Brunei but I believe now it was the snores from the assembled accountants and bankers in the public gallery who went to sleep after a quarter of an hour of the speech because they knew what was in the budget anyway.
This budget should have had three objectives. It should have continued to reduce our borrowing requirement, stabilise and reduce our national debt and reform income tax and PRSI.
While the budget addresses the income tax question it does so in a very predictable fashion and one which has been announced on several occasions since Christmas. It fails to address the combined effect of taxation and PRSI and the tax measures will have very little effect on job creation. It fails to introduce any supply-side strategies for job creation and one wonders whether the Government are aware that there are still 230,000 persons on the live register and that since the last budget was introduced in this House 12 months ago the historically high emigration figure of 46,000 was announced, an all-time high since 1922. During his two hour speech the Minister never mentioned emigration and did not put forward any proposals for job creation.
This budget fails to attack the problem of poverty even though it contains measures which will change the manner in which the social welfare code is applied. I will deal with that issue in detail because I do not believe the budget addresses the problem of poverty in a direct way which will relieve the burden on the poorest and lowest paid. The budget will not relieve the poverty traps which are inhibiting employment and the social welfare measures contained in it will have little or no impact on job creation either.
I should like to refer first to the national debt. The Minister has set rather soft targets for the future but we should remember that our national debt is now £25 billion, which is a sizeable sum of money. Our national debt has gone up every year and will go up again this year. It would have gone up by about £270 million this morning but by the close of play tonight it will have gone up by about £470 million. Our debt will rise again and the concessions given by the Minister here today have been given principally because he is borrowing more to do so. He has lifted the EBR marginally under the 1989 outturn. I am not saying progress has not been made; no one knows better than the people on this side of the House how difficult it is to make progress. I agree with the main thrust of the policy to control our national debt but we have to look at what will happen this year.
In the Minister's Estimates for 1990 which were published in November there were increases for major programmes in the Department of Justice of 8, 14.1, 15 and 13 per cent; an increase of 16 per cent in the Vote for the Department of Foreign Affairs; an increase of 15 per cent in the Vote for the Attorney General's office; an increase of 19 per cent in the Vote for the Office of the Director of Public Prosecutions while the Department of Health Vote, which accounts for 21 per cent of all expenditure, was increased by 8 per cent. Expenditure was seriously wound up this year but it was hidden because the amount put in for the social welfare fund was smaller as a result of the extra revenue due to buoyancy in the PRSI receipts.
The progress made by the Minister both this year and last year in reducing borrowing has been achieved principally by the buoyancy in revenue. In 1989 alone the Minister collected £430 million more from the Irish taxpayer than he estimated when he came into the House this time last year would be the case. Four hundred and thirty million pounds is serious money. The Minister was able to bring the EBR down by 3 per cent but this progress has been dependent on tax buoyancy. If this tax buoyancy goes into reverse the Government and the economy will be dangerously exposed because little or no attempt has been made in this budget or in the Estimates already announced to restructure this debt.
I want to refer to the latest survey on the Board of Works. Will the Minister accept the recommendation that the activities of the Board of Works should be confined to the management of public property? Will there be any restructuring of the way in which the health boards spend 21 per cent of all Government income? Will our large hospitals still be left with budgets of £35 million, £40 million and £50 million and be run notionally by junior officials with the title of hospital manager while the main managers are miles away in central offices? Are we going to do anything about the situation in local authorities? It would pay the Government to hand over every local authority house to their tenants because what is collected in rent does not go more than 60 per cent of the way towards paying for the repairs to local authority houses. Because of the way the scheme is administered at present even if the Government gave the houses away they would make money. Will anything be done about the Land Registry?
We proposed that that body should be taken out of the State sector and made a semi-State organisation. The same could apply to the Ordnance Survey Office. Are the ICI going to continue as a State insurance company and will the PMPA be maintained and underpinned by the State? What is the status of the proposed joint venture for Irish Steel? Will the Irish Life Insurance Company have their capital base restructured this year? Will Aer Lingus continue to replace their fleet from their profits and from the Government Capital Programme or will they be allowed to go to the public for funds? Where do the Government stand on the disposal of State assets?
The debt can certainly be reduced by running budgetary surpluses and the Minister indicated that this may be his strategy from now until 1993. It can also be reduced by dedicating the proceeds from the sale of State assets to reducing the debt. I welcome the soft new target the Minister has set. It is certainly better than the redundant target of reducing the EBR to 3 per cent of GNP by 1993. That was redundant the day it was put into the Programme for Government and the people who put it in knew it was redundant. I believe we should aim for a balanced budget by 1991 and there should be surpluses or, alternatively, funding from the sale of State assets after that.
The present level of debt is the highest among EC countries. It is twice the EC average and, as I said, if anything goes wrong with buoyancy — and there are enough signs to make one worry at present — or if it winds down the Government will be dangerously exposed because all the programmes are still in position. They have been geared up, but this has been cleverly disguised in the Book of Estimates. We would give a better service if we were to restructure public expenditure particularly by the high spenders. However, the Minister has failed to bring about any fundamental reforms. He should be modelling this country on the narrow band EMS countries and should be aiming for a debt GNP ratio of about 75 per cent by 1995. That is the kind of target he should be aiming at and I have indicated how he could achieve this.
It must be a record for a Minister to succeed in giving a two hour speech without making any mention of interest rates. This is significant because interest rates are going to knock the stuffing out of this mildly expansionary budget. It is mildly expansionary, but what the Minister did in the past, for which he was personally responsible, in many instances is going to act as a major brake on the budget. Last spring retail sales were up by about 10 per cent on the previous 12 months. By November this had flattened out and there was no increase for the 12 months to November. The reason for this is obvious.
In his Budget Statement last year the Minister said there would be no increases in interest rates but they went up four times. I do not blame him for the first three increases, but I blame him for the last one. It was in his hands to introduce a different policy to keep interest rates down but he has failed to address this problem today. Interest rates are knocking the stuffing out of this economy at present and will continue to do so. Our rate is four points higher than the rate in the economy to which our currency is tied. Interest rates in Ireland across the range are four percentage points higher than those in West Germany. The margin was 2 per cent but the Minister, by not intervening in the autumn of last year, has allowed interest rates to go up. Our rates are 1 per cent higher and quite likely 2 per cent higher than they should be. The authorities should have intervened last year and should have borrowed Deutsche Marks short term and put them into the money market here. This would have indicated a clear commitment to our EMS position, but the Minister is now trying to ride two horses and we are going to end up with the worst results as a result of being tied to a hard currency. We are going to be left with very high interest rates.
Interest rates are not just esoteric things which affect very wealthy people and bankers. We all experience their adverse effects in our daily lives — anyone who runs an overdraft or a business or a farmer who owes money. Mortgage holders in particular have had it very hard and have obtained no relief at all in this budget. The average new mortgage has gone up by about £100 per month since the Minister last introduced a budget in this House. That is a colossal increase. The banks left the door open by deferring the last increase in the mortgage rate until the beginning of the next tax year. They said they would take no decision until April. The invitation was obvious and I called on the Minister on several occasions to restore mortgage interest relief to the full amount, but he has given no response today.
In the estimates of receipts and expenditure no separate figure is given for the amount to be collected by way of DIRT but I understand the Minister has calculated that the receipts from DIRT will go up from a figure of £190 million in 1989 to a figure of £294 million in 1990. It is no wonder the Minister did not refer to interest rates here today because with that increase in the Government's calculations there is no expectation by the Department of Finance that interest rates will go down. The figure is based on an interest rate which will remain at its present level or alternatively, edge up slightly in the course of the year. The Minister has let down the young couples who are trying to house themselves and those people who entered into commitments to raise money to house themselves and their families. Last year he justified the reduction in mortgage interest relief by saying that interest rates were down and that they would stay down. They have gone up and the Minister has been proved wrong. He is personally responsible for not taking action to prevent the last increase in interest rates and he is doubly responsible for not taking action today.
If the Minister wants interest rates to come down in the short term to those which apply in West Germany he will have to remove certain exchange controls immediately. The Minister is well aware that there is about £4.5 billion of German money in Irish Government paper at present and if he removes exchange controls to allow money to come in to be invested in the interbank market he will get interest rates down but, of course, he would not take that decision here today no more than he would take the decision last autumn. The Irish business community, farmer and consumer are going to pay the penalty over the next few months.
The Minister has increased child benefit by 75p per child per month. The last time I heard a figure like this bandied about was when a jury in London gave The Sunday Times 60p in a libel award. I was reminded of that today because any man who would come into this House to give 75p per month per child to alleviate poverty thinking he was doing a great job and be applauded for it by the people on his backbenches certainly does not understand how ordinary families live. I am not surprised by this because when the Minister came into the House last year he was not going to increase child benefit at all. As a matter of fact, he intended to introduce an arrangement to cut it off from certain families and give them nothing.
The child dependant allowance is being increased by £1. I welcome this as it is a significant increase. In his Budget Statement the Minister says that the minimum rate will be increased by £1. I wonder is there a hidden clawback for those who are not on the minimum rate? Can we receive an explanation for this later tonight? No attempt has been made to do anything about a child tax allowance. The main thrust of this budget is anti-family in the way it targets certain sectors and ignores the problems facing large families. A head of household in prudence would insure himself. Tax relief on all insurance premiums paid after 6 April is being reduced from 80 per cent to 50 per cent. On first reading one might think that this will apply only to new policies but as we will all be renewing our premiums after 6 April we can see that it will not apply to new policies only but to all policies. This will also lead to an increase in the cost of endowment mortgages as they contain an insurance element. Rather than relieving the burden on mortgage holders, the Minister has increased it. He may not have understood what he was doing as he does not seem to understand how ordinary families on low incomes live. That is what happened.
This budget does nothing at all for jobs. I am surprised by this. I am aware we have gone from the days when there were major management initiatives, that can be taken, but there is a whole series of things on the supply side that the Minister could have done, but he does not address these at all. One would think that the events of the last month would have sharpened him up to do something about employment. There are 238,000 people on the live register and 46,000 people have emigrated according to the figures available — an historic high — yet the Government are inactive when it comes to creating jobs.
I put down a question to the Minister for Labour as to the number of redundancies notified to him during the past 12 months and he replied that almost 13,000 redundancies were notified in 1989. Of course many other redundancies, outside the scope of redundancy legislation, do not have to be notified. We have been told that 400 jobs are on the way out at Nixdorf, 1,000 jobs at Sunbeam, 160 jobs at the Skerries shirt factory and 60 jobs at the Coca-Cola factory in Tuam——
Not true.
(Limerick East): There is one other computer company I know of, and although it is profitable in this country it has been taken over, an event which will cost 400 jobs. My total of the number of redundancies publicly announced — and which have been a matter of public controversy — is 2,500 and that is not taking into account the threes, fours, tens and 15s never reported in the provincial papers.
What is the Minister's response to the problems of job creation? As far as I can see, there has been little or no response. The tax changes are his response to the theory that marginal rates are more important when it comes to job creation than average rates of tax, and he has reduced the standard rate from 32 per cent to 30 per cent, very good, and I appreciate that, but God knows, that has been announced every day since Christmas. The top rate has been reduced from 56 per cent to 53 per cent; fair enough. There is a reasonable extension of about 6 per cent in the scope of the standard 30 per cent band, as it is now, and that is welcome.
However, let us look at the overall tax picture. The total tax concession for 1990 is £104 million; in this little book the total receipts from income tax estimated for 1990 is £2.8 billion. What fraction is £104 million of that? It is roughly one twenty-eighth. It is not even indexed for 1990; it does not even match inflation for 1990. You are looking at something less than 4 per cent — about 3.5 per cent. That is the totality of the income tax concession. It is very cleverly done. The jam was spread with much publicity, but very thinly.
Let us look at the income tax concessions and see if we can relate them to jobs. How did the magician do it? First, he ignored all personal allowances and the tax bands, and indexed nothing. Since we all start with an inflation rate of about 4.5 per cent we are that much worse off. Second, he increased the 35 per cent band by about 6 per cent and left the 48 per cent band as it was. When people go from the standard rate to the next rate they will move up 18 points. That is one of the greatest disincentives to job creation, it is one of the greatest traps. That has caused much consternation in manufacturing industry because it comes into force at a point just above the average industrial wage. That problem has not been addressed.
I know the Minister does not have the resources to do everything, but he has given no indication of where he is going after this. This is a once off measure. He is heading for a tax rate of 25 per cent, but there is no indication that he understands the traps within the system and the connection between job creation and a low tax rate. If he did he would have taken the advice of his colleagues in Government and incorporated PRSI with income tax. He failed signally to introduce a tax reform package because he has taken income tax reductions and income tax reform as an independent issue from PRSI. PRSI is paid on every £1 from the first £1 and the Minister has done virtually nothing in this regard. He has a couple of million pounds to exempt people with an income of £60 or lower from paying PRSI, but that does not address the issue. All it will do is help kids doing part-time jobs in supermarkets and pubs — provided the supermarkets and pubs are in the white economy rather than the black economy. Fair dues to them, they will have a couple of extra pounds pocket money going home. However, this is really addressed to the part-time workers and will have no effect on job creation.
If the Minister had been serious he would have looked at the two issues together and exempted at least the first £2,500 of income from PRSI for everybody. I know the cost would be heavy but I know where it could be got — the other side of the spectrum. That is the kind of reform that is necessary. If you do not address the PRSI and income tax problems at the same time all you will have is lower marginal rates of tax. Winners will be reasonably happy if they are on the high tax rates and the losers will be unhappy if you eliminate the allowances to pay for it, and it will have no impact on the job market. That is the biggest fault of the Minister's tax reform proposals.
I say to the absent Progressive Democrats Ministers that I presume the leaked documents were presented to Cabinet. They had it right and the Minister had it wrong. He should have taken PRSI and income tax together and moved in tandem on them. He has made a political decision to massage some of the electorate but it will have no effect whatsoever on the job market. If he continues with this next year it will have very little effect either.
I welcome the changes on the corporate side and the Minister's intention to trim the impact of section 84 loans. I welcome also the fact that accelerated depreciation has been discontinued, but I deplore the discourtesy to this party and their finance spokesman in the Minister's churlish decision to refuse to answer questions I put down to him for written answer — questions dealing with accelerated depreciation, the abolition of export sales relief, section 84 loans and reductions in the top rate of corporate tax. Three of these subjects were mentioned in the Budget Statement today. The reply I got from the Minister was:
It is proposed to take these questions together. Owing to the pressure of work arising in connection with the budget it has not been possible in the short time available to provide the information requested.
(Interruptions.)
(Limerick East): That is shabby. Just because it was in the budget and I had to get up as soon as the Minister sat down to reply, he deprived me of the essential information to be able to debate this section of the budget adequately.
Does the Deputy expect me to publish things?
(Interruptions.)
(Limerick East): That was a shabby trick. I have other resources apart from the resources in the Minister's Department.
Do not play a cheap game.
(Limerick East): I will be able to debate this with the Minister right up to midnight, so he need not worry about that. Apart from the lack of impact on the job market of the changes in the tax régime, there is no attempt whatsoever to have any kind of sectoral strategy to introduce jobs. For example, the tourist industry is dismissed in a paragraph. The rod licence dispute is still decimating the industry. This was a live issue here last year and we heard a great deal about it in the course of the year. What is its status now? Is that going to keep the tourists away for another 12 months? Tourism had relatively no attention, yet it is one of the industries that in the nineties could keep a cohort of young people in rural Ireland within active communities. It is sad to go around rural parishes and meet old people and two or three farmers with a son at home and everybody else gone, but it is a joyful experience when they are all at home at Christmas. In the absence of anything happening in agriculture the tourist industry could change the pattern of rural Ireland. The tourist industry as well as being a good income earner is a great distributor of income into the remotest areas. There is nothing in the Minister's speech in that regard.
We are on the periphery of Europe. If our future is to be based on export led growth we must take our goods to the marketplace and sell them as competitively as the people who are nearer the marketplace. It follows from that that we must have a competitive transport system which we do not have at present. We are the only country in the EC that still has excise duty on articulated trucks — at 6.5 per cent. The Minister should remove it. We are farthest from the centre of the market and we are still putting excise duty on articulated trucks.
We have failed to improve the road network in an effective way. Most of the improvements seen around the country were commenced when we were in Government. We have been bombarded with announcements about the Structural Funds, yet there will be no new main road projects commenced anywhere in 1990, despite the fact that the Structural Funds are available. Our road infrastructure is in rag order by any standards. You do not have to go far from this country to make comparisons. Not only are no funds being made available for reasons best known to the Minister for the Environment, but funds are being diverted to other projects which have not such a high priority. There will be no new starts in any road programme in 1990.
Much of what we transport to the marketplace has to be transported in containers. At present, Northern Ireland carriers are carrying 185,000 units across the Border northwards. They are collecting as far south as Cork and are delivering into Britain as far south as London, yet they can charge a cheaper rate than a carrier from the Republic travelling via Rosslare or Dublin. The reason for this is very simple. They can do it a lot cheaper. When the proposed changes in the cabotage rules are introduced by the Community, Northern Ireland carriers will be able to collect in the Republic and deliver anywhere in Europe. Again, they will have the major cost advantage. Are we serious about export led growth? If we are to lift this economy by trading competitively in goods and services and enjoy the spin-off of sustainable jobs from this export led growth, our internal and access transport must be priced competitively. Otherwise we are doomed to failure and all the spurious talk about the convergence of Irish and European living standards is poppycock. I ask the Minister and the Taoiseach to address the problems of transport in this country and to this country both at home and in Europe. The infrastructure and the problems of access transport at the ports need to be addressed as they are making it extremely difficult for Irish exporters to compete now and in the future. These problems are being hidden by the fact that we have been running a trade surplus since the past year and a half of our period in Government. However if one looks at the composition of the trade surpluses, both in volume and money terms, they can tell a different story. If we do not take action on the transport issue we will have more serious problems. The Minister has ignored this issue as if it did not exist. I do not think that is good enough. The Budget Statement which lasted two hours purports not only to announce Government decisions but to set a framework for the life of the Government and they expect to last for at least four years.
Agriculture used to be the great industry in this country. There are two references to agriculture in the Budget Statement: first the modest restoration of VAT rebates to farmers to fulfil the commitments made three years ago by the former Minister for Finance, Commissioner MacSharry. I suppose one should say thank you on behalf of the farmers in the same way as one would thank the hangman for slightly loosening the noose around one's neck. The second reference to agriculture was when the Minister announced that he would remove one anomoly in inheritance tax and index the levels of relief beginning this year. However, it is no good indexing the levels unless a major change is made in the threshold level of relief. The Minister must first raise levels by a significant jump and after that he can index them. As things stand it will have little or no impact whatever——
It is a joke.
(Limerick East):——but it served the purpose that the Minister did not have to make the whole speech without referring to agriculture at all.
When the Taoiseach entered his third or fourth manifestation some years ago on a very public occasion he and Mr. Goodman announced an enormous investment in the beef industry in Ireland. However, the price of beef collapsed last autumn. The price of sheep meat has dropped disastrously as has the price of pigmeat and the only man who did well during the past year was the dairy farmer, but predictions suggest that the price of a gallon of milk will drop by between 10p and 16p per gallon as early as April or May this year. Interest rates are also rising. When we begin the new milk quota year I have no doubt the price of calves will drop by between £90 to £100 but there was not mention of any of this in the Budget Statement. Agriculture used to be the main industry in this country and was a great stabiliser of the social structure.
Black sheep for Fianna Fáil.
(Limerick East): It is the industry which keeps rural communities alive and is the mainstay of rural towns when it is going well.
The farmer is forgotten.
(Limerick East): How sophisticated Fianna Fáil have become— they do not mention the farmer any more unless he is at the upper end of the spectrum and benefits from the tax strategies for farmers. I think it is time the Taoiseach paid attention to the grassroots or the week before the next election he will get as big a surprise as he got the week before the last election on the depth of feeling about health cuts. I am not surprised that the Fianna Fáil backbenchers have left the House because at every public meeting at the run up to the last election every farmer, most of their wives and half their children whom they met were told that all their land would be classified under the disadvantaged areas scheme.
The Deputy promised jobs during the election of 1987.
(Limerick East): I know farmers and, as Deputy Sheehan said, if you walked over their fields at night and happened to drop your stick, you would not be able to find it in the morning because the grass would have grown over it but these farmers, too, were included in the promises. There is now a great reluctance to announce the extention of the disadvantaged areas and the expenditure of the Structural Funds. Fianna Fáil backbenchers, not noted for their modesty or shyness, are staying away from meetings organised by the IFA. They are too modest to deliver the good news in person and they are allowing the Taoiseach and the Minister for Finance to deliver it but anyone who looks at the figures for the Structural Funds will know that over the next five years only £19 million is available for the disadvantaged areas, which is less than £4 million a year.
Peanuts.
(Limerick East): Of course, one can respond to the pressures, and increase headage payments because pressure is coming from that side, one could upgrade category B to category A because of pressure from that side or one could extend the scheme, but I would hate to be the midwife delivering the news to the IFA. Very few will be satisfied.
A Deputy
Portumna here we go.
(Limerick East): If the Minister thinks he will have difficulties with the IFA, he should talk to some of my friends in the ICMSA and he will have bigger troubles.
That is the reason the Minister has not sent the scheme to Brussels.
(Limerick East): I thought the Minister would avail of the opportunity to announce the extra 11 million gallon milk quota to be distributed among the smallholders and the quotaless men of Ireland. Under the criteria laid down, the Minister will have a problem. The extra allocation will be given to people with small quotas or to those without quotas or first time entrants. If the allocation is spread among 10,000 farmers each will get a 1,100 gallon quota, the milk of a decent cow. However if as is more likely, it is spread among 20,000 farmers each will get a 550 gallon quota, the equivalent of the milk of five or six goats or half a cow. This was one of the great election promises.
It is amazing that one of the main planks of Irish life, the principal plank of rural life, one of the most stable elements in society, is being treated with contempt by the Minister who did not refer in the course of his two hour speech to agriculture as an industry.
The food processing industry is in a tragic state. Just ponder on these figures for a moment: 48 per cent of all cattle killed in this country were killed in the eight week period between October and the first week in December. The EC was not self sufficient in beef this year. It was 98 per cent efficient and beef had to be imported from outside to maintain the supply on the supermarket shelves. Yet 50 per cent of all Irish beef goes into intervention. The Taoiseach had announced that one of his main strategies if he got back into Government would be the development of the food processing industry. I am not being facetious when I make these remarks. If we have a natural resource and some of the best farmers who can produce the best quality beef why is it going into cold storage? Why can we not develop that industry so that this seasonal glut is taken out of the system, so that there will be an even supply with jobs being created not only for farmers' sons in rural Ireland but for their neighbours families as well? The Minister has the resources but he is doing nothing about it. Rather he is treating agriculture with contempt. Indeed, in this budget he is treating everybody living in rural Ireland with contempt.
I welcome the Minister's action in reducing VAT. I had called on him to do so on innumerable occasions. I said that if the rate was reduced from 25 per cent to 22 per cent it would reduce the consumer price index by 1.3 per cent. I said that was the way the Minister should position himself in the negotiations on the national wage agreement that we on this side of the House hoped would be successful during the course of those negotiations from September onwards in 1990. I welcome that decision.
I do not welcome the decision to increase VAT on electricity and telecommunications. But, more than the actual decision to increase them, I deplore the jiggery-pokery that pretends there is some way of financing them which does not hit the consumer.
Deputies
Hear, hear.
(Limerick East): I thought we had learned enough from the past, that we, as a party, had established ground rules for behaviour in public office, that the Taoiseach and his Ministers would no longer interfere in the running of commercial State organisations. The last balance sheet available from the Taoiseach's friends in the ESB to the public shows a profit of £5 million. I wonder how they will absorb £18 million in VAT increases from a profit of £5 million or has their profitability risen enormously since the last figures were published? If the ESB are profitable to the degree that they can absorb — to suit their political friends in the Government — £18 million of VAT increases, why would they not pass on that £18 million by way of a reduction in prices?
Deputies
Hear, hear.
(Limerick East): Is it not an absolute confidence trick to come into this House, when the price of oil has remained down for quite some time, when there is activity in the economy, with the rate of electricity consumption increasing, pretending that the ESB are some kind of official Santa Claus with private resources other than what they receive from the consumer who pays the bills, who can absorb a VAT increase to the extent of £18 million so that the consumer does not lose out?
I am glad to note from the Minister's remarks that he did not find it as easy to twist the arms of Bord Telecom. I am glad they have a bit of gumption. I know, from the tenor of the Minister's remarks, that he is still twisting arms. I am glad he was not in a position to come in and announce more today. I was glad to note that there is still some level of self-respect obtaining in major State organisations. The Minister should not mix Exchequer returns from VAT impositions with the day-to-day running of commercial State organisations. It is dangerous to do so because one does not know what is above or below the line. If the Taoiseach wants to put that vulgarity — which he is exercising sotto voce to his Minister for Finance — on the record——
A subtle sotto voce.
(Limerick East): We will table a special amendment this evening to have that included as part of the budget as well.
Ráiméis, that is what I say.
(Limerick East): Taoiseach, you are showing a certain sensitivity.
Perhaps Deputy Noonan would address his remarks through the Chair.
(Limerick East): A Leas-Cheann Comhairle, the Taoiseach is showing a certain sensitivity.
Deputy Noonan knows he should address the Chair. It would be better for himself because normally we do not get retorts when speakers address the Chair.
(Limerick East): A Leas-Cheann Comhairle, I am not surprised the Taoiseach is being fairly sensitive because it must be difficult for a great statesman to return to this House, on a day when people are making noises, are being generally boring, when his Minister for Finance is reading out stuff with which he is familiar, which he has read in the papers on innumerable occasions; it must be difficult to take the Executive jet, return here and listen. It is bad enough to listen to his putative successor and having serious doubts about him——
(Interruptions.)
I read the Deputy's remarks in the Express.
(Limerick East):——but to listen to a pretender from the Opposition benches must be frightful on the Taoiseach.
(Interruptions.)
(Limerick East): A man of his “capernosity” and function must be horrified to have to put up with me.
Less of the histrionics.
(Limerick East): Despite the Taoiseach's sensitivity and the fact that he is outrageously hyping his position as President of the Council of Ministers — as a matter of fact I think it is the Minister for Foreign Affairs who is President of the Council of Ministers but nobody knows that — I should like to wish him well. If he handles his position with dignity it will redound to the benefit of us all. Rather than chasing high profile events and causes — with which the Taoiseach would not have shown any great familiarity until recent times — he should address his considerable talents to the real issues facing the Community and this country——
Does that mean the Opposition will pair Ministers going to the meetings?
The Taoiseach walked into that. That was of his own doing; he can get out of it.
Will Deputy Noonan please address his considerable talents to the budget.
(Limerick East): I am addressing the budget. I am making the point that the Minister spoke for two hours and never put this budget in the European context. That is the point I am making. I am developing my point and wishing the Taoiseach well in the course of so doing, which is quite reasonable.
One of the major issues facing this country is that of European monetary union. We have certain preparations to make if we want to subscribe to a régime, which is a European Central Bank — which will naturally be dominated by the Bundesbank — and which will also give us a European currency. I know why the Taoiseach is inventing causes because the fall of events — without any responsibility on the part of his Government — has brought about a very thin agenda for the Presidency over the next six months. In a very strong burst of activity in the last three weeks of 1989 the French Presidency cleared a lot of outstanding items on the agenda. There was reference to one of them already today by the Minister for Finance when, for the first time, he said there was agreement on harmonisation of VAT. Even though it was not a full agreement, at least progress was made. Many other items were removed from the agenda as well.
The issue which should be of greatest concern to us should be that of European monetary union, which has been put back to the Italian Presidency. The meeting of Heads of State which will deal with that issue will be within the term of the Italian Presidency. So the Taoiseach puts a green cloak around himself. I would suggest that the Taoiseach, in his career, showed much greater familiarity with a different kind of green than that which is now encompassing all the environmental issues.
I also think that in the course of preparation for European monetary union there is a great chance this country will get stuck in the middle of the river. We have one chance only in Europe — that is to front-lead, as the NESC report advised, to shape policy to suit our interests, then we will have some chance. But, if we proceed, as we have done since 1973 on many occasions simply to react to the proposals of others, in particular to the proposals of the Commission, then we will experience great difficulty. There is serious work to be done in preparation for European monetary union. It is very low profile work.
Can we go to the Council meetings now?
(Limerick East): It is very low profile work.
(Interruptions.)
The Taoiseach has walked straight into it.
The Deputy has some audacity even talking about the European Community.
(Limerick East): I know the Taoiseach prefers to perform on a well-lit stage but, if his officials get down to it, the Irish Presidency might deliver something to this country because at present what he is chasing are public relations considerations.
I have not the foggiest idea what the Deputy's remarks are all about except to obstruct; that is all he can do.
(Interruptions.)
(Limerick East): I shall conclude by saying that if the Taoiseach and his officials were engaged in the low profile work to prepare this country for the very difficult problems of the midnineties in a changing Europe, it would be of far more benefit to the country. The Taoiseach's reputation would be more enhanced than proceeding, as he is now, a bheith ag sodar i ndiaidh na n-uasal, making a general clown of himself on the European stage——
What is the Deputy talking about?
The Deputy might like to rephrase his political charge against the Taoiseach.
What about the independence of the Chair?
(Limerick East): Because of the Taoiseach's behaviour, I have been provoked into making a charge I did not intend to make.
The Chair can give his interpretation at any stage of what might or might not be a political charge and in doing so he is not going to take dictation.
No, Sir.
The Chair would protect the Deputy himself if such a charge were made against him. I did no more than suggest to the Deputy——
The Chair should also be independent.
He is always independent. I suggested to Deputy Noonan that he might wish to rephrase the political charge. If he chooses not to do so that is the business of Deputy Noonan and I will let him proceed.
(Limerick East): I regret if I gave offence to you or to the Taoiseach.
The Chair is not concerned at what the Deputy might address to the Chair personally but he is concerned that any charge made against any Member of the House would always be on a political basis. I do not want any submission beyond that and I would ask you to proceed.
(Limerick East): I regret if I gave offence to the Taoiseach but the Taoiseach barracked me for the preceding five minutes and provoked that kind of remark.
I did not.
He is at it again now.
(Limerick East): If he continues barracking he will provoke me further and I will go further.
The Deputy can go as far as he likes but he is afraid to talk about the budget.
(Limerick East): Deputy Mitchell, my colleague on this side of the House, brought a very serious issue to the attention of the Irish public, both by means of Dáil question in this House and in an article in The Irish Times, that is the whole question of poverty traps and the tax and social welfare systems and how that works counter to job creation. There is very little attempt in this budget to address the question of poverty traps. As I mentioned already in my remarks on the reform of income taxation, the main poverty traps arise not from income tax in particular but from the combination of income tax and PRSI. In so far as PRSI creates poverty traps, the question has not been addressed at all.
This is a serious problem. The creation of jobs is naturally the best cure for poverty but obviously the social welfare system must cater for people who cannot return to work or who cannot get jobs. I want to draw the attention of the House to those people who cannot afford to return to work, even though they want to, because they are trapped in poverty. This arises because they are better off on social welfare than if they are working. Low paid people are taxed and they pay PRSI on every pound, usually at 7.75 per cent, if we include the levies. Low paid people do not get income tax allowance for their children and therefore large families are not treated under the income tax code any different from families without children. If these people have a high gross wage they lose many of the benefits to which they would be entitled if they were on social welfare and therefore they are trapped in poverty.
In this budget the Government should have exempted the 11 to 18 per cent of low paid people whom the ESRI economists consider to be below the poverty line. What is the point in taxing people who are below the poverty line when we are trying to invent other schemes, whether supplementary welfare allowance, family income supplement or some other scheme, to supplement their income? I believe that the first tranche of income, say £2,500, should have been exempted from PRSI payments. If that meant putting up the ceiling at the other side to get the money for it, so be it but there would be a far more progressive taxation-PRSI scheme which would directly address one of the greatest inhibitors in the labour market and one of the factors which makes it impossible for people on low pay to return to work.
The means tests will also have to be changed. We have made a very reasonable proposal, that if one is being assessed for family income supplement it should be done on net pay rather than on gross pay. We have made an equally reasonable proposal that if one is to qualify for a medical card, the assessment should be on net pay rather than on gross pay.
We have made another proposal, that differential rent should be based on net pay rather than on gross pay. One of the proposals for social welfare is that all rates will go up by 5 per cent. We would welcome that. Last year there was an increase of 3 per cent but of course inflation was at about 4.5 per cent. People on social welfare last year were not indexed against inflation and at the end of the year they were worse off than at the start of the year. There was at least a 1 per cent clawback which, in all fairness, had to be given to them. The expectation for inflation next year is probably around 4 per cent for those on social welfare, according to the consumer price index. Those people are not into importing televisions from Northern Ireland or getting recorders or the higher rated VAT items. Even though the reduction in VAT from 25 per cent to 23 per cent will reduce the consumer price index, it will not reduce the effect of inflation on the lower paid and on social welfare recipients. These people will get an increase of 5 per cent from July next but that will do nothing more than compensate them for rising prices. Food prices have increased a lot. I would like somebody to price a basket of groceries for the normal family on social welfare and see what the consumer price index is on those items on which people spend their social welfare money.
There has been some targeting of different categories and I welcome that. However, at first glance this seems to result in creating a new disadvantaged class. Those on unemployment benefit and on disability benefit now receive around £47 or £48. The increase in that category is very small. Unemployment benefit is temporary and one could justify the low rate of increase by saying that the people in that category will get a bigger increase when they go into the unemployment assistance category but people can be on disability benefit from three to five years. These people will now be at the bottom of the social welfare league — the rate for a single person being about £47.50 or £48 a week. That is not very good targeting and it should be addressed between now and the introduction of the Social Welfare Bill, but in so far as there is an attempt to target, I welcome it.
Announcements have been made already this year that rents are to be increased by £1.50 a week. If we include in that the unemployed and the aged living alone, these people will be left in a very poor position. I do not believe there is only a certain quantum of work available for which the labour force competes. If the labour market is freed up by the elimination of poverty traps it will not result in the displacement of one set of workers by another; it will result in an increase in the number of jobs available because there are always jobs available at a particular wage. It is one of the great fallacies of job creation to say there are only X number of jobs available and if you eliminate poverty traps for those on social welfare, all that will happen is that they will go back to work and displace people who are working already. That fallacy resulted in the Minister not targeting sufficiently in the budget.
I want to raise one final issue and the House should take note of it because it is extremely serious. Our labour force is growing very dramatically and will continue to grow until about 1998. We may quarrel about the actual growth but if we talk in terms of school and college leavers, the number is about 25,000 a year and we have to add to that those who are leaving the land. With the state of the beef industry, the pig industry, the sheepmeat industry and the drop in the price of a gallon of milk, more people will leave the land next year and the year after. In the absence of anything being done by the Government, they will feed into the labour force as well.
On top of that all the work that has been done on income tax and the connection between income tax and the labour market would suggest that if one moves to reduce the top rates of income tax more women will return to work. So there has to be a quantum included there in that respect. On top of that we have about 200,000 recent emigrants and naturally if jobs are advertised here they will apply for them, too. The real figure for increases in the labour force is about 35,000 a year. If everything I have said here today and the collective wisdom of this House is applied to job creation, we would be doing very well if 15,000 to 20,000 net jobs a year are created. That leaves a situation where the live register will not come below 200,000 right through the decade, and 15,000 to 20,000 people will still emigrate.
There is no point in pretending that the unemployed rest on the live register for a time before they go back into jobs. There is movement in and out of the live register but there is a substantial cohort of people, frequently the heads of families, middle aged men, who have no prospect under present policies of getting back to work. Their problems will have to be addressed directly. The problems of the long-term unemployed and of their families will not only have to be addressed by transferring income to them through the social welfare system, but there will have to be an inter-disciplinary approach where the services of the State in health, education and social welfare will have to address their needs. The long-term unemployed are increasingly becoming unemployable. The system is ensuring that they cannot do anything worthwhile. They certainly cannot work and in most places they cannot avail of full-time education. It is impossible for their families to have fulfilling lives, the kind of fulfilled lives that those who work can have. There is a danger that the problem will be transmitted to the next generation and not only will the long-term unemployed be unemployable but their children will be unemployable as well.
This budget should have addressed to a far greater extent the question of health, education and the integration of the various schemes, and should have considered how an integrated approach by the State can help the long-term unemployed and improve their standard of living not only in monetary terms but in terms of lifestyle. It is a very serious issue and things have not been improved very much by the paltry gesture on the part of the Government to the crisis in the health services. Nothing is being done by the announcements made today in the budget about waiting lists in hospitals. Plenty of Members on my side of the House will be able to expand on the deficiencies of this budgetary announcement, but it certainly does not lessen our demand one iota for a special debate on the health services.
And on free legal aid.
(Limerick East): The problem of the unemployed is frequently disguised by the statistics. The national unemployment rate is about 18.5 per cent. That disguises far more disturbing statistics such as one would find in the large urban housing estates. One of the largest urban estates in my city which is no different from Cork or Dublin has an average unemployment rate of 80 per cent. In relation to young people between 18 and 25, a recent survey showed that 91 per cent of the men were unemployed in a very large housing estate. Naturally, some of them are on the fringes of crime and all are in the depths of boredom and frustration. Some of them have emigrated without high skill levels so they are not highly employable in the UK either. We will have a very serious problem in such communities and it will be aggravated by the imminent recession in the UK where there will be a shake out of the less skilled Irish emigrants who will come back to our communities.
It is late in the evening to get involved in the repercussions of that level of unemployment, but we as public representatives know our own constituencies, and without fear of contradiction I can say that there are levels of unemployment of up to 80 per cent in certain communities and that among young men it is between 90 per cent and 100 per cent. These truths are disguised by the national statistic which is still a horrific statistic. There are some communities where the unemployment level is 1.5, 2 or 3 per cent. Society has become increasingly segregated not by social class but by housing policy. As a consequence we are developing serious situations in which whole communities are unemployed and whose children are also becoming unemployable.
The budget today was a failure. The Minister and the Government by attempting to address all problems, spread everything so thinly that the budget will have no particular impact. The fact that the budget has been announced several times in the past three weeks in the most outrageous breaches of budgetary secrecy that I have ever witnessed certainly reduces the impact of the budget today. It was the first budget of a Government who claimed to have a life of four and a half years or longer. They could have afforded to be daring. There could have been real structural reform leading to a solution to our problems, rather than an attempt to massage problems. This is not a prudent budget. It is a moribund budget without imagination or a sense of vision. It is a totally disastrous response to the problems of unemployment and poverty. It is an indictment of the Government, that so early in their life, they have become so out of touch with the ordinary people of this country.
Some reference has already been made to the leaking of the provisions of the budget. It is a remarkable factor, of which the Ceann Comhairle should take note, that on this morning's radio programme on RTE every single provision relating to income tax, VAT, social welfare and so on in this budget, was announced on the radio. This is a most serious matter and it rather ridicules the Chair's announcement that Deputies could not leave the House with information before the Minister's speech had concluded. It casts a very poor reflection on this Government that they allowed leaks, so clear and so definite, to take place so that the budget was literally announced on the morning radio rather than in this House by the Minister. It is equally clear from the conflicting leaks by the Progressive Democrats Party and by Fianna Fáil that they are vying with each other to try to claim what benefit they can from this Coalition Government. That is something the public must deeply regret.
There is no doubt that many of the items in today's budget are welcome, but in overall terms the budget just tinkers with many of our social problems rather than addressing them in any fundamental way. The budget does not seriously attempt to address the unemployment and emigration cancers that affect us and it does not do nearly enough to address the growing crisis in health.
If one was to sum up this budget it would be to say that it is a rich man's budget. The disposition of what is available for distribution goes to the largest extent to the wealthy. The clearest indicator of that is the reduction in the top rate of income tax from 56 per cent to 53 per cent. The effect of that is to give a couple on £30,000 a year a net tax reduction of £15 a week. A person paying tax at the top rate and on £40,000 a year will gain £20 a week. A person paying tax on £100,000 a year, of which there are many in this country, will benefit by £60 a week. Contrast that with those on the lower rates of pay. A person on £10,000 or £12,000 a year is getting a miserable £3 or £4 a week in tax reduction. Where is the equity in that? Where is the fairness? The whole thrust here, clearly orchestrated by the Progressive Democrats Party, leaves the major part of the budget to the Thatcherites provisions of directing the bulk of what is available to the wealthey who do not need it and who are paying inadequate taxation.
The most serious defect in the budget is that it lacks a strategy to lay out a plan for the economic development of this country over the next four years. The budget does not show from where the growth will come in the years 1990-93. It does not indicate what finances will be required to fund this growth, what the sources of this finance will be and where exactly it will be spent to ensure that we get the growth and jobs we need. It has been said that we will need an economic miracle to compete in the nineties with the UK, Germany, Japan and the United States. Where is the plan in the budget to chart the way forward?
The Minister has undoubtedly succeeded in balancing the books. He has done the job of a book-keeper-accountant well enough, but he has failed to do the job of an economic planner and innovator. The essential role of the budget should be not just to balance the books but to make major inroads into the problem of poverty which has been shown by independent reports to affect about one-third of the population, about one million people. It clearly fails that test. In a country with one of the highest unemployment rates in Europe and with emigration draining the life's blood of this country year after year, the role of a budget should be to provide funds for direct Government intervention in the economy to create jobs. It clearly failed that test.
In a country where 80 per cent of the wealth is owned by 5 per cent of the population, the role of the budget should be to introduce a taxation system on income and capital that would begin to reduce the gap between the rich and everyone else. Clearly, it also fails that test.
When the Minister for Finance introduced his first budget last year he complimented himself and the Government — prematurely as it turned out — on the fact that inflation then had fallen to its lowest level for many years. Deputies will recall that the rate of inflation was 2.1 per cent in 1988. Since then, however, it has more than doubled and is currently at about 5 per cent. Low and stable interest rates were another item for which the Minister claimed credit in 1989. He said that low interest rates were helping householders with mortgages and loans, business people and farmers. Since then the Minister and the Government lost their grip and interest rates have taken off. There were no fewer than four increases in interest rates since then and another is clearly in the pipeline. These steady increases in inflation and interest rates are putting many jobs and people's homes at risk. Mortgage repayments are escalating and further mortgage increases are in store. Many householders cannot meet these increases and their homes are liable to be repossessed. They face another year of mortgage misery and the Minister has done nothing for these families. The interest rate increases are also pushing up the cost of loans, household goods, farm equipment and many other items. People's living standards as a result have been adversely affected. On the one hand the Minister is giving income tax cuts but, to wipe out these gains, mortgage rates are rising.
One of the most serious situations we face at present is the continuing upward spiral in interest rates. We have one of the highest interest rates relative to the rate of inflation, in recent history. The prime interest rate is 8 per cent to 9 per cent above the rate of inflation. The rate being charged to small businesses is 11 per cent to 12 per cent above the rate of inflation, the rate to personal borrowers is 12 per cent to 13 per cent above the rate of inflation and 15 per cent to 16 per cent in the case of borrowers from finance companies.
There remains the near certainty that the mortgage rate will be increased by another 1 per cent in the next month or so; increases of this magnitude will give rise to considerable hardship and add to inflationary pressures. The repayments on the average mortgage over the last year have increased by between 25 per cent and 28 per cent. Living standards would have been helped somewhat if the benefits from the increased value of the punt had been passed on to consumers, but very many importers and suppliers of goods and services failed to pass on the benefits and substantially increased their own profits instead. The Government accepted that situation and did nothing to deal with it. Price controls were — and are — clearly necessary on a wide range of goods and services but the Government refused to introduce any.
As I said, inflation in 1989 ran up to 5 per cent but the Minister's 1989 budget gave an increase of only 3 per cent in social welfare, and then only from July 1989. In this way the Minister and the Government reduced the living standards of the weakest section of the community. The living standards of workers have also declined because the Programme for National Recovery confined wage increases to just 2.5 per cent. The economic policies of the Government have attacked the living standards of pensioners and people on PAYE. However, many categories have benefited. For example, the banks have marked up massive increases in profits and the multi-national corporations are all busy taking their profits abroad.
The scandal of the section 84 loans goes on. I do not accept the very doubtful and limited way in which the Minister proposed to tackle it in his budget speech. The banks and the financial institutions — as they do with the BES schemes — find their way around controls very quickly. As we speak they are busy with their schemes and plans in the accountancy offices working out how they will avoid and evade that one. You can be sure their circulars will be out tomorrow morning as they will be on the printing presses tonight. It is not surprising that the Minister for Finance does not cost in his budget speech how much more in taxation he expects to get from the banks and financial institutions as a result of the limited attention he proposes to give to the section 84 loans.
The 1984 loans are an absolute scandal as they enable the banks and financial institutions to take in — as they did last year —£98 million. I obtained this information in a written reply from the Minister for Finance. Only one thing should have been done about that, not to restrict the loans ratio level to 75 per cent but to abolish them. The banks and financial institutions, who have been making vast amounts of money at the expense of the taxpayer and the Exchequer, should have had these loans cancelled as there is no justification for them. Tinkering around the edges, as the Minister has done, is totally unacceptable.
As I said, and as the Irish Congress of Trade Unions pointed out, the beneficiaries of the policies of this Government have been companies, the corporate sector, banks, big farmers and big business, whereas the workers who, by their efforts, contributed most to producing their increased profits are the people who benefited least. Pay increases were set at a level of 2.5 per cent and it is interesting to note that there was no such level set on profits. If one looks at the profits of the banks and the big corporations one will see that they were not constrained at 2.5 per cent or 5 per cent. If one looks at their figures one will find that their profits increased by between 20 per cent and 40 per cent.
Millions of pounds in profits were made last year and there was no constraint on the companies. There was no 5 per cent constraint as in the case of social welfare payments or 2.5 per cent constraint as in the case of pay increases. The banks, and big corporations, were given a free rein on a very favourable tax base and that enabled them to run away with profits in the last year. They took full advantage of their position but workers, on the other hand, made enormous sacrifices in 1987 and 1988. They saw their living standards eroded by inflation and higher interest rates. The unemployed and those on low pay suffered from Government policies in recent years in regard to health, education and other Government services. They expected the budget to make substantial advances and provide for a sharing in the benefits of economic recovery, but I am afraid they will be disappointed. They will not thank the Government for the £3 and £4 per week reductions in their income tax when they see the profits that companies and the well-off have been garnering to themselves.
The level of tax relief for the PAYE sector is totally inadequate having regard to the developments that have taken place in the economy and the level of profits being earned. The Minister could have, and should have, broadened the tax base and raised more from farmers, the self-employed and companies and applied the proceeds to larger tax reductions for PAYE workers. Instead the Minister has increased the tax concessions to companies and corporations. He has reduced their tax rates. There has been a lot of talk over the years about fair taxation. I thought the Government had conceded to the Irish Congress of Trade Unions that there would be a sensible balance introduced but there is no change in balance in the budget as between the massive amounts paid by the PAYE sector and that paid by the corporate sector.
The corporate sector contributed 9.1 per cent of total tax in 1965 and that was down to 4 per cent in 1987. There is nothing in the budget that will alter that proportion in the slightest degree. The Minister for Finance, in the course of his contribution on the Adjournment debate on 15 December last, said that what the Opposition wanted were better services and lower taxes at the same time and he told us that we could not have both. The Labour Party say that we can have adequate health, social welfare and education services paid for by those who can well afford to do so from the vast profits of the corporate sector. Those services can be paid for by those who take full advantage of the tax breaks, schemes and devices provided for and maintained by the Government. They should be paid for by the companies who repatriate their massive profits on which they pay little or no tax.
I am not at all impressed by the Minister's statement that he intends having discussions about these matters with the Revenue Commissioners to see what can be done. That is not good enough. There is little use making speeches describing one of those schemes as Disneyland. We are not talking about one scheme; there are one dozen Disneylands alive and thriving in Ireland, and it is clear from the Minister's speech that he does not intend to do anything about them. The business expansion scheme is rolling on in full flow and if the Minister thinks that the little constraints he brought about, setting a limit of £2.5 million and so on, will do any good he can forget it. Details of those schemes are put through my office letterbox weekly. There are dozens of them in operation. Those involved in them have got around all constraints with little difficulty. They have separate companies funnelling in £2.5 million each. Those involved in them are very smart and the constraints the Minister has introduced will not do anything to control the tax scam that the BES is. The view of the Labour Party is that that scheme has failed and it should be abolished. The tax due by the companies from their profits should be paid to the Exchequer. Projects considered important and in need of help should be grant-aided by the Government on an individual basis. The BES is one of the many tax devices that the wealthy are using, with the connivance of the Government, to reduce their tax bills. Those on an income of £100,000 per annum are doing very well out of that scheme. Each week six or more new companies are set up under that scheme.
Profits from manufacturing are supposed to be taxed at 10 per cent but many of those companies do not pay anything. We are all aware of the legal decisions under which some of this nonsense, so-called manufacturing, takes place. I am referring to the ripening of bananas, the grading of coal by CDL and so on. They come under the 10 per cent manufacturing rate and the best the Minister can do is consult with the Revenue Commissioners to control them. He should have announced in his speech that he will not tolerate it and that the profits of those companies will be taxed at the full corporation tax rate as and from today. He should have put them on notice that that is his intention. However, I do not think he intends to do anything about those companies. Will we hear any more about the discussions he proposes to have with the Revenue Commissioners on how to control those companies? Is it any wonder that those in the PAYE sector who see such tax devices in operation complain bitterly at the disproportionate part of the total tax revenue they are forced to bear year on year?
The Labour Party's policy document on the economy suggests an appropriate way to deal with many of the company scandals. We say that all companies should pay a minimum of 10 per cent tax on their profits — that is little enough — irrespective of the Disneyland tricks and allowances they take advantage of. The Labour Party also support the proposal of the Irish Congress of Trade Unions that there should be a levy on the profits of companies not reinvesting in Ireland. People should note that the Minister chose to ignore that worthwhile proposal and in doing so gave a clear licence to those companies who are making massive profits from the efforts of Irish workers to withdraw their profits from the country on a tax free basis. The bulk of the investment by such companies in Ireland in the first place was IDA grant money which comes from the taxes of Irish workers.
The Minister is quoted as saying that there is no such thing as a free lunch but the facts of life in Ireland today are that for some lunch is a pleasant dream involving four courses with wine while for others putting food on the table for the family is not a dream but a nightmare from day to day. These inequities cannot be tackled as long as the Government fail to undertake a fundamental reform of taxation, particularly capital taxation. Once again they have failed to do that.
There is still no fair or adequate taxation on capital, on companies, on business or on farmers. If these reforms were introduced it would be possible to provide a proper health service, as well as relief for the hard-pressed PAYE sector and improved benefits for people on social welfare. The banking, business and farming sectors are doing very well out of this budget, although their profits have gone from strength to strength. As before, it is the middle and low income groups who bear the brunt.
During the Adjournment debate before Christmas the Minister for Finance told the Dáil that the private sector was responding positively to the needs of the nation. On the other hand, not long before that speech the Minister for Labour, Deputy B. Ahern, was publicly castigating the private sector for failing to do just that. One does not have to be a professional economist to see which Minister is correct. The Minister for Labour at least recognised a serious problem, even though the Government of which he is a member is responsible for it. His colleague at Finance is less than helpful in refusing to face up to the fact that all the policies and all the plausible talk from this uninspired Government have failed to make any impact of substance in the creation of employment for those who need it and those who have been forced to take to the boats in search of it. It is clear that the Government have no coherent industrial policy aimed at translating the growth we have had into wealth retained in Ireland and into jobs for Irish workers.
We need radical changes in industrial policy to ensure the concept of value added in the economy and to maximise investment. We know that radical changes in industrial policy cannot be achieved overnight. It would take a medium term programme to build up a strong indigenous manufacturing sector based on the concept of added value and involving a dynamic public sector as well as a competitive, quality conscious private sector. We want a recognition that our industrial policy to date has been a failure and we want a commitment to begin the policy of change. The problem is the almost total reliance placed on the private sector. At no time ever in the history of this State, either in good times or bad, did that private sector so cherished by Fianna Fáil and Fine Gael ever provide anything like the level of employment needed to sustain our increasing population. Cherished it was and is.
The Estimates for 1990, for example, provide £108 million for IDA grants for the private sector. Contrast that with the grant of only £4 million to the National Development Corporation. Can it really be that after all these years of failure the message has still not sunk in, namely that a radical change of policy and direction is called for and that the tired, worn out, discredited policy of reliance on multi-national companies has not done the job for us in the past and is not doing it now? It is high time we organised to do the job for ourselves. The Telesis report spelled it out some years ago but we ignored it. Minister Ahern warned about it recently too but he has been ignored as well. This budget could have signalled something new in this regard and set out a new industrial policy to create larger Irish companies which could by reason of their size compete on equal terms on the international market. The budget could have provided for changes in taxation which would reward companies who created more jobs and penalised those who did not.
If this Government were really interested in boosting employment they could have provided funds in the Estimates for building council houses which are so desperately needed. A major new housing programme is essential to tackle the growing problem of homelessness. In 1983, £214 million was allocated for public housing compared to £6 million in 1990. The Minister could have been more specific in dealing with the embargo on recruitment to the public service in order to give some hope of employment to young people coming out of school. Grants and tax breaks on machinery could have been converted into grants and allowances for the creation of new employment. The Government were not interested. They did nothing.
The Taoiseach recently called in the CEOs of the semi-State bodies for discussions. That is to be welcomed, as far as it goes, but it means very little unless the Government signal a clear change in direction in the area of job creation by channelling the massive funds available in this programme away from more grants and handouts to foreign companies in favour of creating and supporting indigenous industries, in both the public and private sectors and in joint ventures. They will not do it, of course, because they have an ideological objection.
We did it with Aer Lingus.
They continue to put their faith in private enterprise, even though, to paraphrase a favourite saying of the Taoiseach, it is a failed economic entity. If it were successful our unemployment rate would not be the second highest among EC countries and so many thousands of our people, including our youth, would not have had to emigrate. If it had been a successful programme the population of Ireland would be 500,000 higher than it is and the living standards of our people would not be about 40 per cent lower than the average living standards in most other EC countries. The Programme for National Recovery has certainly produced high profits and high growth rates for many companies but it was supposed to have gone hand in hand with the creation of sufficient new jobs. That has not happened. At the current rate of job creation 200,000 people will still be unemployed in 1992. The 100,000 long-term unemployed have benefited virtually not at all from any of the job creation measures. The Irish Congress of Trade Unions have repeatedly called for the introduction of special employment and training measures for the long-term unemployed but on this issue also the Government have failed to respond.
It must be remembered that many of the jobs that have been created are only part time, while many more are low paid jobs in which young people in particular are being disgracefully exploited. Each of these jobs is included in the job creation figures as if it were genuine, full time and properly paid. Many young people were hoping for an announcement today from the Minister setting a minimum wage to protect them from exploitation. Part-time workers were hoping for measures to protect their jobs and improve their rights. The Minister has given them all a very straight thumbs down
The social welfare increase of 5 per cent is scandalously low. A fraud was perpetrated on people receiving social welfare in 1989. They were given an increase of 3 per cent from July 1989, by which time the level of inflation had already overtaken that figure, standing at 4 per cent. The inflation figure ended the year at almost 5 per cent. The cost of living index on food, which is such a key factor for people on social welfare, was a percentage point higher at 5.7 per cent. This Government gave 3 per cent. Those families stricken by poverty and the hundreds and thousands of children involved had their living standards set back and reduced by the Government in 1989. The 5 per cent increase in this year's budget will not make up for that. Already they have had rent increases from Dublin Corporation, Dublin County Council and the other local authorities. Even taking the case of the long-term unemployed who will receive £9 per week, already £2 per week approximately is gone because of the rent increase. Inflation which is running at approximately 5 per cent puts them back to square one. The cost of food is running at an increased cost of 5.7 per cent. Where is there regard to those independent reports of the Combat Poverty Agency and the Conference of Major Religious Superiors who are calling for at least an announcement from the Government over a two or a three year period that they would provide the basic minimum necessary to give some kind of dignity and support for those families on the breadline? There has been no indication of it except for a miserly 5 per cent — a few pounds per week — which goes nowhere towards maintaining living standards. We know the basic minimum for a family now should be well over £100 per week if we are to take the report of the Commission on Social Welfare into account and indexing it for the inflation that is taking place.
The Minister's response on health is welcome in some respects and in some of the things it does but I am afraid it goes nowhere towards meeting the shortfall in the health services. Those services have been cut not by the £2 million here and £3 million there but by £200 million, 1 per cent of GNP. That kind of decimation will not be made good. What is given is a crumb from the table and it will not go anywhere towards resolving the appalling level of the health services in this country. They are in crisis and have been for three years.
Yesterday I got a reply to a Dáil question from the Minister for Health dealing with the question of dental treatment in the Eastern Health Board area. There are 11,000 adults and adolescents awaiting dental treatment in the Eastern Health Board area for a year or more. A special list of particularly urgent cases has been set up for pregnant and nursing women and the elderly. They are privileged and are on a special list. The Minister informs us that the waiting time is currently only ten months for people who need that treatment. They are in the special category. It is an absolute disgrace and a scandal. If the Minister thinks the paltry sums he has provided for here will go anywhere towards meeting the cost, I am afraid he will find he is sadly mistaken.
There has been a failure to provide for essential expenditure in the area of primary education. The President of the INTO said recently in a comment on the Estimates for 1990 that many schools will continue to be in serious financial trouble because of inadequate grants for the maintenance of schools. Many primary schools are on the poverty line already particularly those on local authority estates. Parents had been hoping for an improvement this year but there was no improvement. A programme of special measures for schools in disadvantaged areas should have been singled out for substantial additional funding. I am afraid the figure of £1.5 million provided by the Minister in his budget speech today on this issue will not meet the needs of the situation. The figure provided under this heading in 1986 was £750,000, that figure was reduced to £500,000 in 1988 and even then that amount was not allocated for use in full. While the provision of some additional teaching posts is welcome it is too little, too late. The INTO called for ex gratia payments directly to the schools to eliminate their existing debts and the Labour Party support their demands.
The two-tier society gets hardened and more clear-cut as year follows year and the policies of this Government repeat themselves year on year. In health and in education there is a two-tier society and this is becoming very dangerous.
The legal aid position has been referred to. The Judicial Separation Act provides a real need for so many people but the overwhelming bulk of those who need to avail of it are unable to do so. The Minister for Foreign Affairs, Deputy Collins, former Minister for Justice, gave a half commitment that he would try to arrange for sufficient legal aid funds to be provided to the board to meet the needs of the new Act. Nothing has been produced and the crisis in the Legal Aid Board has worsened and we have a two-tier society once again. The rich and the wealthy have no problem as they have access to health, education and to the law but others are thrown on the scrap heap as far as this Coalition Government of Fianna Fáil and the Progressive Democrats are concerned.
The children's allowances are an absolute insult. There has been an increase of 19p per week per child, after all these years when there was no increase whatsoever, when research shows that it costs £20 per week to maintain a child. To those on social welfare, those on the lowest end of the scale, the Minister is giving only an extra 19p on top of the £10. It is any wonder so many of the children of poorer families are undernourished and do not have the basic requirements of food and clothing that they need?
The Minister said that the morale of the country has never been higher. I invite the Minister to go on a short journey — he will not need the Government jet which costs £1.3 million; he will not even need his ministerial car for this journey — to go out of the cosy warmth of Leinster House and walk down past Dublin Castle which has been renovated at a cost of £17 million, converting it from a luxurious centre into a super luxurious centre to accommodate the ego trip demands of the Taoiseach and his Ministers who are flying all over the world at the expense of the Irish taxpayer. The Taoiseach has told us that we are getting a cheap deal at £1.3 million for the jet. It would be better if the Minister did not go to the trouble of visiting Brunei, and God knows where else at the other ends of the earth, but stayed in this country and tried to help those in the poverty trap. The sum of £1.3 million spent on the jet could go towards providing a health service and eliminating poverty. The Government would be much better employed doing that rather than trying to emulate President Mitterand in his Presidency. They should look at the GNP of France and compare it with the GNP of Ireland before trying to emulate the activities of that country and other wealthy states.
I invite the Minister who has said that the morale of the country has never been higher to go around the corner from Dublin Castle and into an employment exchange. There he should talk to the thousands of people at the exchange and hear what they say to him. Let him ask a parent what it is like to watch their children growing up with no prospects of a job. Let him talk to people who are terrorised by crime and drugs. Let him go into a hopsital and see the chaos in the accident room. Let him go to Dublin County Council or Dublin Corporation and have a look at the waiting lists. Let the Minister go down to the docks or to the airport and talk to the families emigrating; and he tells us that morale in the country has never been higher.
The Labour Party will be opposing this budget. We will be fighting the cuts. We will be fighting the régime that this Government espouses by every means at our disposal. This is precisely what we intend to do.
It can be truthfully said, given the amount of press speculation and what I suppose could be described as inspired leaks over the last weeks, that we have had a fairly predictable budget. It can also be said, having listened to the two hour contribution made by the Minister, that it is a fairly unimaginative one with no particular overall shape or substance. Despite the fact that it is one of the longest speeches in recent years, we do not see any coherent Government strategy to tackle the major problems of Irish society — unemployment, emigration, poverty, deprivation and tax equity.
There is a lot of talk about creating the right climate but there is nothing specific. It is quite striking that the paragraph devoted to jobs talks specifically about training schemes and there is nothing about the specific involvement of Government in the creation of jobs and direct investment in the creation of jobs.
When the public relations veil is pulled aside and the small print of the tax and social welfare reforms is examined in detail, most people will find that they are no better off than before. Most disappointing and shocking is the complete absence of any initiatives to reduce the level of unemployment. It appears from this effort that Fianna Fáil and the Progressive Democrats are quite prepared to tolerate the continuation of unemployment and emigration at their present appalling levels and to leave it to the free market, as the Progressive Democrats would describe it, to try to solve the problem.
While some of the social welfare measures aimed at dealing with long standing anomalies are welcome, particularly the significant increase to the people, mainly women who care for elderly relatives — it would be churlish not to welcome that important increase which is something that all Deputies have sought over many years — the overall level of social welfare increases is quite inadequate in the context of the scale of poverty facing the country. These increases are only generally in line with inflation. Indeed, the Minister referred to inflation and tried to talk it down to 2.5 per cent. There are, however, widely differing predictions as to what the inflation rate will be for the coming year. One significant prediction, that of the Central Bank, puts it at 4.5 per cent. The principle of increasing the benefits in line with inflation would only be acceptable if the basic levels themselves were adequate, and this is clearly not the case. Many of the increases will simply be eaten up by price increases and rent increases in the local authorities which are already coming into effect.
The extra increases for the long-term unemployed are, of course, welcome; but even with this increase a single person on unemployment assistance will still be getting about £10 per week less than the 1990 equivalent of the minimum levels recommended by the Commission on Social Welfare. The increase of 75p per month in child benefit can only be described as a joke. It would not even buy an apple a week for a child.
The failure to initiate a serious programme of tax reform will be a particular disappointment to the PAYE sector. Ten years after the historic marches we are still indulging in minor juggling around with the tax bands instead of genuine tax reforms. The overall level of tax take from the PAYE sector will not go down and, despite all the promises, the question of ensuring a fair return from corporation tax has again been put on the long finger. Despite the fact that the banks are expected to make profits of up to £500 million this year, this Government are apparently content to accept a derisory £35 million in the form of the bank levy. Indeed, there is a signal in the Minister's speech today that if the corporate tax from the banks shows an increase over the next few years as a result of various changes in the legislation dealing with section 84, then he will look favourably at the bank levy. That is a deplorable state of affairs. What we should be looking for is an increased take from the bank, not a decreased take or even a levelling out of the take. In addition, the tax changes will be far more beneficial to the well paid than to those on low pay. Indeed, this is the effect of having allowances rather than tax credits, a reform which virtually every party in this House said they were in favour of many years ago and which has disappeared now completely. While the middle level earners will benefit from the reduction in the upper rate of tax, the multimillionaires in our society, of which there are a significant number if we are to believe the reports in the business magazines, will benefit to an even greater extent, that is if they pay any tax at all on their income.
A married couple with four children and one spouse earning £30,000 per annum will benefit to the extent of more than £500 from the tax changes while a similar couple earning £11,000, the average industrial wage, will benefit to the extent of £116 and, of course, will drift without any doubt at all, into the 48 per cent band before too long, particularly if they get any kind of slight increase in wages.
I am shocked that, despite all the talk of tackling our environment and pollution problems, the Government have decided to actually increase the level of VAT on electricity, one of the few pollution free sources of energy available to us and which we generate ourselves. Again, despite a commitment to end the sale and distribution of smokey coal by October next, no steps have been taken to reduce the level of VAT on smokeless fuels. Are we going to have another budget before October or are the Government simply going to take no action to bring down the price levels of smokeless fuels?
The level of additional funding provided for the health services is derisory and suggests that the Taoiseach, once again, either does not know the extent of the health crisis or simply does not care. Despite the virtual collapse of health services in many parts of the country this winter no extra funds are being provided. The case of the young woman, Samantha Webb, which was publicised in this morning's newspapers, graphically illustrates the plight of the mentally handicapped and their families in our society. Given the extent of their problems the allocation of £2 million is an insult. Those who care for the mentally handicapped — the voluntary organisations, the health boards and the families themselves — indicate that something like 1,000 residential places are needed for mentally handicapped men and women. If all of the £2 million provided were to be spent providing that kind of accommodation, we are talking about £2,000 per person for a residential place, to provide staff, equipment and buildings.
Despite the praise that the Government have been lavishing upon themselves for this so called economic miracle, no area illustrates the utter failure of successive Governments to meet the needs of the people as much as the area of job creation. It is quite clear that the small reduction in the numbers on the live register in the past year has been due to the continuing extraordinary high level of emigration. It is a scandal that unemployment continues to be in excess of 230,000, despite annual emigration now approaching 50,000.
The climate for enterprise this Government are so fond of proposing, the previous Government also proposed this — the creation of a Shangri-la — and which has been dreamed and spoken about for so long by private sector employers, conservative politicians and economists, has arrived. We have booming exports, profits, growth and productivity, modest inflation and industrial peace, but where are the enterprise and jobs? They simply are not there. What are we doing wrong? Why are the people who are making these vast profits, who have been provided with this industrial peace and who have been given the opportunity they have demanded for so many years, not investing in job creation? The State spends more than £1,000 million in grants for the private sector, in industry, agriculture, tourism and fishing, yet the return in terms of new jobs is derisory.
At the end of last year the Minister for Labour acknowledged that the private sector employers had failed to take advantage of the favourable conditions, implicitly admitting that the Government's job creation targets were in tatters. The Government's claim of 10,000 net new jobs in 1989 is not only totally inadequate but is based on questionable data on the creation of jobs in particular in the tourism area and are guestimates rather than real jobs. These figures are produced by taking the assumed amount of money spent by tourists in different areas and dividing it by a particular factor so that we get X number of jobs in the tourism industry. There is no evidence to show that the number of jobs being claimed for tourism actually exist.
Thirty thousand net new jobs would be needed each year simply to stand still. Successive independent examinations of industrial policy, from the Telesis report commissioned in the seventies to the NESC report on Ireland and the European Community published last September, have pointed to the need for a change in strategy, but successive Governments have persisted in doing nothing more than throwing more and more money at the private sector with little to show for it in terms of sustainable jobs with linkages to the economy. There has to be a change in Government strategy if there is to be any hope of reducing unemployment and emigration. The Workers' Party support the concept set out in the NESC report published last September of a far more active and interventionist role for the Government. If the Government are serious in their declarations of concern about jobs and the level of unemployment — it must be said that they have only begun to express this concern fairly recently — then they must adopt a policy of direct intervention in investment in areas where jobs can be created and products produced.
The Workers' Party believe that the massive debt which reached one and a half times Ireland's gross national product and consumes all income tax in interest payments should never have been run up to such a level. The practice of borrowing to fund current expenditure which was started by Fianna Fáil in 1972 and continued by them and the Fine Gael-Labour Coalition, every year to the present time was a total disaster and a financial scandal of staggering proportions which will be viewed harshly by future generations. We should borrow to fund current spending once or twice during a recession but to have done so every year until the national debt rose to £25 billion was a criminal act of economic and political irresponsibility. A far worse crime was to try to rectify that irresponsibility on the backs of the poor and the ordinary people with penal taxes and the unplanned hacking to bits of our health, education and local authority services while at the same time extraordinary levels of company profits, capital and wealth went untaxed. The extent of tax evasion and avoidance by the wealthy was only finally acknowledged in 1988 when a tax amnesty brought in more than £500 million. I was told repeatedly in this House by various Governments since 1982 that this money did not exist.
Nobody in his right mind would advocate a return to the profligate borrowing levels of the seventies and eighties. However, judicious and carefully controlled borrowing to fund investment and capital projects is justifiable on economic and social grounds. The Public Capital Programme published with the Book of Estimates was widely welcomed by ill-informed commentators because it increased spending over last year's level by a nominal 19 per cent, but they neglected to point out that overall public spending on investment is 55 per cent below the 1982 level. The Public Capital Programme has to be a central element in any real attack on unemployment. The figures provided for this year are inadequate and should have been increased by substantially more than the £9 million announced by the Minister today.
As I pointed out already it is exactly ten years since 750,000 workers marched in the biggest political demonstration ever witnessed in this State demanding tax reform. In the period since then there has been much tinkering with the tax system but there has been little or no fundamental tax reform. The underlying philosophy of successive Governments is that wage and salary earners should pay most of the tax while the owners of wealth and capital should pay as little as they like. There has been much ingenuity, double-talk and double-think invested in justifying this position.
Some progress has been made in relation to the self-employed in the past few years largely as a result of the tax amnesty and the introduction of self-assessment. However, the situation in relation to farmers remains abysmal. They paid only 1.6 per cent of the total income tax take in 1988 compared to the 79.3 per cent paid by the PAYE sector. In the years between 1984 and 1988 the average tax paid by the PAYE sector rose from £2,289 to £2,942 while the average tax paid by farmers fell from £703 to £664.
Those on PAYE have had enough promises and they now want action. Particular attention needed to be paid to the plight of the tens of thousands on or below the poverty line who are paying tax. It is ludicrous that between 11 per cent and 18 per cent of those living in poverty should be paying income tax which in more than half the cases amounts to £20 or more per week. A real effort needs to be made to remove a substantial number of the low paid entirely from the tax net. Between 1986 and 1989 successive Ministers for Finance claimed to have moved 52,000 people totally out of the tax net, yet the overall number of taxpayers has remained virtually the same. The reason for this quite clearly has been that a tiny wage increase of even a few pounds a week has been enough to bring these workers back into the net. Indeed, the claim made by the Minister today that his proposals will take 30,000 out of the tax net will prove to be untrue within months when people drift back into the tax net because they receive very small increases in income.
Tinkering with rates is not tax reform. What is needed is a three pronged reform of the system which will adjust tax rates, tax bands and allowances. As I said earlier, these allowances should be converted to tax credits which would be a much fairer way of applying allowances to taxpayers. This would ensure that all taxpayers would have the same benefit from an allowance and bring a real measure of relief to low and middle earners.
We have never argued that the overall level of the tax take should be reduced. The badly needed concessions to the PAYE sector have to be made up by increasing the tax take from those who have paid so little to date. This will mean substantial increases in company and capital taxes and the reintroduction of a wealth tax. If the wealth tax had been reintroduced at a rate of 5 per cent it would have brought in more than £50 million, according to the Minister's reply in this House.
The level of corporation tax, which is a major fiscal problem and is highly dependent on multinationals which have low linkages into the domestic economy, is laughable. Indeed what the Minister has done today makes this an even greater joke. Corporation tax as a proportion of the total tax take in this State is way below international levels generally. Figures I have with me show that apart from Greece, Ireland has one of the lowest levels of corporation tax as a proportion of gross domestic product. The rate of corporation tax paid by companies in this country amounts only to 1.4 per cent of gross domestic product. The figure is higher in every other country. In Belgium the figure is 3 per cent; Denmark, 2.3 per cent; France, 2.3 per cent; Germany, 1.9 per cent; Italy, 2.9 per cent; Luxembourg, 7.1 per cent; the Netherlands, 3.7 per cent; Spain, 2.3 per cent and the United Kingdom, 4 per cent. The figure in this country is way below that in every other country with the exception of Greece where the figure is the same. Therefore, there is a lot of ground to be made up in company taxation.
The argument of course is that if you tax companies they will not invest and will go elsewhere. Clearly, the rate of tax is not penal and we have a long way to go before it could be considered penal. The growth in allowances, especially in capital allowances, has guaranteed the continuing decline in the returns from corporation tax. The present total tax levels are necessary in order to service the national debt and reduce the Exchequer borrowing requirement. However, the main burden is borne by the PAYE sector. Since the existing 10 per cent rate on the manufacturing sector almost invariably works out in practice at a zero rating, only one in seven companies pay any tax at all.
The effective tax rate, that is the percentage of profit actually paid in cash in tax by those companies who do pay tax, is about 7 per cent or 8 per cent. I have already referred to the banks and what is particularly galling to the PAYE taxpayer is that, despite their massive profits which, as I said, are expected to be in the order of £500 million this year, having made in the region of £350 million last year, the banks are effectively paying no tax at all. They certainly put tax in their accounts and set aside money to pay tax but when do we ever hear of them paying any? They manage to do this by using tax avoidance schemes. I understand that the section 84 scheme enabled them to claim tax relief of £98 million in the past year. This is extraordinary at a time when we are only taking something like £36 million from them by way of the bank levy. If they were paying taxation at an effective rate of 20 per cent on their profits, half the rate on non-manufacturing industry, we would be taking £90 million from them instead of giving them £98 million by way of tax breaks.
What is also extraordinary is that the Government, despite being fully aware of what is going on, are prepared to turn a blind eye because of pressure from these staggeringly profitable enterprises. If an effective tax rate of 20 per cent was applied we would get £100 million from them. It is time that the Government decided to take tax from that area rather than continue to bleed the PAYE sector.
I want to make a number of points on the question of PRSI. A number of groups, employer groups as well as conservative political parties in this House, have demanded a reduction in employers' PRSI contributions to create more jobs. This is a dubious argument at the best of times but it is important to bear in mind that this is virtually the only contribution that the multi-national companies in this country, who will repatriate £3,000 million this year in profits, make to the Exchequer. The rate is one of the lowest in the world and it forms part of the social wage. Any cut in the rate would effectively be a cut in all workers' wages.
The argument is that if we cut the employers' PRSI contribution they will be more inclined to employ labour. The reality of course is that no employer will employ anybody over and above the strict number they feel they need to do the job. Employers would be crazy and out of their minds to do so. Therefore how can any of these people, that is, the economists and politicians, argue that by doing away with, or reducing the employers' PRSI contribution this would act as an incentive for them to create jobs? The mind boggles as to what exactly they are at. Of course what employers and those who support them really want is a deregulation of the labour market. They want to get out from under their social responsibilities. If I was to welcome anything other than the meagre increases in social welfare it would be the Government's failure to succumb to the pressure to reduce the employers' PRSI contribution.
I referred earlier to the health services and the case of Miss Webb who is severely mentally handicapped. That woman has had to be brought home by care workers as there is no place available for her. I ask the Minister or some other Minister to indicate to me in this House tomorrow how quickly the money allocated in the budget today will be used to rectify this immediate problem. This woman is not the only person to find herself in this position. There are hundreds, if not thousands, of elderly parents around this country who do not get a night's sleep because of the problems they face with adult mentally handicapped persons and their worries about what will happen when they themselves die and who will care for their son or daughter. In some cases there is more than one mentally handicapped son or daughter in a family. I want to get an indication from the Government of how quickly they intend to rectify this problem.
Many points have been made on various aspects of the Budget Statement and I do not propose to go over any of them in detail, but a number of points need to be made before I conclude. For instance, the question of the pupil-teacher ratio in our schools has not been addressed in the budget. Last night I attended a meeting in my constituency where it was pointed out that because the number of pupils in a school has fallen from a figure of something over 500 to 495 the school will lose a guidance teacher. It is probable that the school will lose other teachers also depending on redeployment to other schools. No doubt the increase in the capitation grant to £10 will be of help, but the reality is that, despite a 490-pupil school getting some £5,000 extra, they will still have to service a debt which costs them around £20,000 a year and will for the next ten years. How are they going to deal with this? This is but one example in the voluntary second level sector which can be duplicated in many other parts of the country. This problem has not been dealt with in the budget.
The damage which has been done to our health, education and local authority services has also not been addressed in the budget despite being told that the national debt has been stabilised and the Exchequer borrowing requirement has been virtually eliminated. The need to achieve these targets was the excuse given for not attacking these problems. Despite being told that the national debt has been stabilised the budget has failed to deal with the damage which has been caused by the cuts during the past few years.
The Minister referred to the family income supplement. First, I welcome the proposal that the Revenue Commissioners include in the certificate of tax-free allowances a notice to employees that they have a right in certain circumstances to claim family income supplement. I have been arguing for this to be done over many years and I could not understand why it was not done. We were told that 30,000 people were expected to avail of the FIS, yet something less than one-third of that have ever taken it up because, in my view, people did not know about it. They did not know their rights. I welcome the fact that the Minister has finally arranged for this notice to be included in employees' wage packages.
There is also the question of the medical card for those claiming the FIS and it has come to my attention, and I am sure that of many other people in the House, that many people refused to apply for the FIS either because they feared they would lose the medical card or because they knew they would lose their medical card. The Minister's statement today that he intends to eliminate that anomaly and therefore eliminate that poverty trap is welcome.
The Minister in his speech presented a distorted picture of the job situation today. The labour force survey indicates that for 1989 there were 1,000 people fewer at work in the economy than in 1988, yet the Minister claimed today that there is an increase in the numbers of people at work. Whether the Minister has deliberately misled the House or is misreading the statistics I do not know, but he needs to answer the question whether he is simply trying to present the best possible view of the economy and distorting the figures to prove it.
I will leave it at that. I do not believe this budget is going to do anything significant on the question of job creation in tackling the question of the vast loss of young people through emigration. I do not believe it is going to lift the hundreds of thousands of people living in poverty out of it. The Workers' Party will be voting against this budget tonight.
Sitting suspended at 8.10 p.m. and resumed at 8.45 p.m.