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. I now call on the Minister for Finance, Deputy Albert Reynolds, to make his Budget Statement.
Financial Resolutions, 1991. - Financial Statement, Budget, 1991.
This year, television is bringing my budget address — quite literally — home to people, for the first time.
Over the past 12 months, television has confronted viewers in Ireland with the reality of global change — startling, fast, global change. We have seen major upheavals in eastern Europe and the Soviet Union. We have seen the reunification of Germany. We have seen the impact of Ireland's Presidency of the European Community. We have seen the advance toward the Single Market, towards economic and monetary union within Europe and, right now, we are seeing the tragedy of war in the Middle East. My budget, today, must take account of these developments.
For the coming year, we have got to plan against a difficult and uncertain international background. But equally, we need to look beyond 1991, out over the medium-term and towards the end of the century. When world growth prospects are unpredictable, it is doubly important that we are prudent in the way we manage our domestic affairs. That is why it is a matter of great satisfaction to the Government that a new Programme for Economic and Social Progress has been agreed with all the social partners.
The new programme creates the framework for a ten year national strategy. It is a charter to see us through to the year 2000.
Chruthaigh an chéad chlár gur fíor ar fad an seanfhocal —"Ní neart go cur le chéile". Tá an sprid díreach céanna taobh thiar den chlár nua.
The budget I am presenting today is based on the social and economic philosophy of the programme. It sees growth in employment as top of the list of priorities. It sets out to consolidate and build on the considerable progress of the last few years. That progress must not diminish our resolve to keep borrowing under strict control and maintain the downward pressure on debt. Nothing must be allowed to jeopardise the exemplary containment of annual borrowing we have achieved. Sound economic management of our public finances must go on if we are to continue to create jobs for our people.
The national debt is still a problem, a problem that must not be forgotten, a problem not to be glossed over. Despite the progress we have made in reducing borrowing, there is still a major overhang of debt. The servicing of that debt preempts a huge element of the budget. Why? Because it is one of our largest overheads. The Government have acted to reduce this debt-servicing burden, and to free the resources we need to fund our public spending programmes and our tax reform programme.
I have always stressed that disadvantaged people in our society should benefit from any economic progress we achieve. That, again, is going to be one of my priorities today. A budget must have a social dimension. It must give expression to our responsibility for the welfare of all our people and today's budget will address key aspects of social policy. Of course it is not possible, no matter how much we would wish it were possible, to make progress on all fronts within the limited resources we have. Thus, today's budget is a balanced package of measures designed to make the most of the resources available to us.
In a very real sense, today's budget is a bridge: a bridge linking the progress we made under the Programme for National Recovery with the progress we are aiming for under the new programme.
1990 Budget Outturn
Before I deal with the Government's broad strategy on the economy and the public finances, I want to refer briefly to the 1990 budget outturn.
Tax receipts were about £160 million ahead of the budget estimate — 2.5 per cent over target. A major contributor to that was an excellent corporation tax yield — some 40 per cent ahead of forecast. That happened because of the cumulative impact of the reforms made in the last three years. Stronger employment growth than anticipated helped income tax revenue to come in higher also.
On the spending side, current expenditure was, for the first time in four years, a little over target. Exchequer borrowing for capital was about £34 million more than estimated last year. The main factor in both of these cases was a delay in EC receipts but the key feature of the budget outturn for 1990 was that, in spite of these adverse timing influences, overall Government borrowing remained at its lowest level in over 40 years. The Exchequer borrowing requirement was kept to 2 per cent of GNP. The current budget deficit was at its lowest level since the early seventies. The crucial debt-GNP ratio continued on a firm downward path; the ratio was just over 111 per cent at the end of 1990, compared to 131 per cent as late as 1987.
Economic Situation and Outlook
The immediate economic prospect is an important factor in the preparation of any budget. As usual, I am publishing today, with the other budget documents, my Department's latest economic assessment.
Last year, our economic performance was, again, among the best in Europe. Output rose by about 5 per cent. Our economy has now grown by about 10 per cent in the last two years. Investment moved rapidly forward. Consumer spending continued to expand. Our external competitiveness against the EMS narrow-band countries got even better and the balance of payments stayed solidly in surplus. Prices moved up by 3.4 per cent last year, compared with 4 per cent the previous year, and compared with an EC average of about 5.5 per cent. More significantly, annual inflation up to last November, despite higher oil prices, stood at 2.7 per cent. That is far below the British rate, and the second lowest in the European Community. That is a major achievement, with major benefits right across the board. Low inflation helps everybody.
Our currency maintained a strong position within the narrow band of the EMS and our interest rate differential with Germany has narrowed by 7 percentage points since March 1987.
Definite proof emerged that the improvement in economic fundamentals is yielding substantial employmnent gains. In the year to April 1990, total employment went up by 30,000. Subsequent indicators suggest that employment has continued to rise. It is estimated that the average number at work was up by more than 20,000, compared with 1989. Unemployment, as measured by the live register average, fell by nearly 7,000.
Now, we have to face the fact that the favourble international environment of the last few years is changing. Changing for the worse, not the better. Already, demand in our export markets is being affected, adversely affected. Already international sentiment is being affected, again adversely affected. The latest forecast is that growth in the OECD area may decelerate to around 2 per cent. The European Commission's assessment of Community prospects is similar. The important UK market is likely to be very weak this year.
The international slowdown is going to have repercussions on our growth prospects. There is no avoiding that but I am still confident that we can make progress — economic and social progress — this year. It is just likely to be at a more modest pace than in the recent past.
There are good solid reasons we can maintain progress. First, investment growth here, supported by the EC Structural Funds, should remain relatively strong, as business continues to gear up for the Single European Market. Second, the measures I am taking in this budget, together with the new Programme for Economic and Social Progress, are going to help underpin that investment, and a further rise in consumer spending. Third, I am confident that we can achieve a creditable export performance in 1991, despite modest growth abroad. I am assuming that overseas markets will expand broadly as projected by the EC in December last. While recent trends might suggest lower oil prices than the $29 per barrel the Commission assumed, the greater uncertainty now obtaining may well offset this. Our better competitive position should let us take a bigger share of less buoyant international growth. Finally, inflation will remain low. Taking account of the measures I am announcing today, the rise in consumer prices this year should be quite close to 3 per cent. The sharp reduction in pump prices of oil since last autumn will come through in our next inflation figures. Beyond then we have to hope that oil prices on average will not be much above the mid-twenties.
Taking all factors into account, I am projecting output growth this year of around 2¼ per cent, with real GNP up by around the same. That kind of growth should stimulate more gains on the employment front.
I expect there will be 11,000 more jobs in non-agricultural sectors in 1991. That is not to say that there will not be pressure on the level of unemployment. Demographic factors and reduced emigration will probably result in an appreciably bigger labour force. Emigration is going down because we are creating more opportunities at home, and there are fewer opportunities abroad, especially in Britain and the United States. All of this means that, despite the further growth in employment, we can expect the Live Register average to increase from last year's 224,700 to 228,000. So our key long term objective has to be to create more jobs.
Medium-Term Policy
If we are going to achieve consistent, strong economic growth, if we are going to close the gap in employment opportunities and living standards between this country and the rest of the European Community, then there are a number of things we must do. We must secure our position as a low inflation country within the European Monetary System as a prelude to full participation in Economic and Monetary Union. We must improve our international competitiveness — especially through moderation of income and other costs — right across the economy. We must maintain the best possible climate for investment and job creation. We can only do that by demonstrating continued discipline in the public finances. That is the road to confidence. That is the key to competitive interest rates. We must develop an efficiency culture and make sure that the right incentives are there for effort and enterprise. Reform of taxation, of expenditure programmes and of the regulatory framework can all play a part.
Protecting and improving the living standards of disadvantaged people has to be an integral part of our overall strategy. Now, let there be no doubt, if we do not get continued restraint in public borrowing, if we do not get continued reduction in the burden of debt, all of our aspirations are going to be frustrated.
Just servicing the debt, at the moment, demands more than £2,000 million. Or, to put it another way, nearly 75 per cent of what we get from income tax goes to service that debt. That is more than the total cost of running some of our major spending Departments. We all agree that we need improvements to public services. We all agree that we need improvements to our tax systems. We cannot have those improvements — we certainly cannot have them as comprehensively as we might want — until we cut away some more of this borrowing burden.
Last year, the Government set the target of bringing the ratio of national debt to GNP down towards 100 per cent by 1993. I now reaffirm this objective. We have also adopted a new longer-term aim, that of bringing our debt-GNP ratio more into line with the rest of the European Community. It is against this background that the 1991 budget has been framed and the new programme agreed. A weakening of resolve or the wrong response to unfavourable international development, could very quickly — all too quickly — undo the progress made since 1987. A more difficult world environment may actually require us to be more, not less, resolute in this regard.
Programme for Economic and Social Progress
In the new Programme for Economic and Social Progress, what we have done is forge a powerful shield to protect us in the difficult days ahead. It is a comprehensive charter for our development over the next ten years. Its proposals on pay will help keep our costs in line. Its wider social and economic dimension will provide the means of growth and the basis for distributing the fruits of economic progress. The programme represents the first instalment of a ten year national enterprise. This longer-term partnership will enable substantial progress during the nineties towards fulfilling our main aspirations.
Approval of the programme offers: economic and fiscal stability, assurance about employment costs and a foundation for a further period of industrial peace. These are all crucial.
I am providing today for the priority improvements in social policy agreed in the programme discussions. My budget also includes proposals for further reform of taxation — in pursuit of the tax objectives outlined in the programme. At the same time, it consolidates the improving public finances.
In effect, this budget is the initial Government contribution to a decade-long partnership for linked economic and social progress. But let me make one thing crystal clear: the programme's overall goals will be pursued within the overriding economic and budgetary constraints.
With colder international breezes already blowing, 1991 is going to be the true test of our perseverance on fiscal policy. Be assured; the Government will not fail that test.
Opening Budget Position
The opening current budget deficit, based on the published 1991 Estimates of Receipts and Expenditure is £183 million, after allowing for the deduction of £15 million for departmental balances. The opening Exchequer borrowing requirement is £397 million.
EXPENDITURE
I am now going to look at the public expenditure components of the budget.
Central Fund Services and Debt Management
The estimate for Central Fund Services is £2,787 million; of this figure £2,409 million is in respect of debt service payments and £367 million is in respect of our contribution to the EC budget, an increase of £83 million on the 1990 outturn.
The debt service figure represents an increase of 4.7 per cent on the 1990 outturn of £2,300 million. This increase is mainly attributable to the additional cost of new Exchequer borrowing, together with the higher cost of refinancing maturing debt. In spite of these additional costs, debt service payments in 1991, at 10.1 per cent of GNP, are more than one per cent of GNP less than in 1988.
I did promise in the last budget that a new Government agency would be established to actively manage the national debt. The National Treasury Management Agency is now in existence and is recruiting staff at the moment. The borrowing and debt management functions of the Minister for Finance have been delegated to the agency, as have the related operational responsibilities of the Department. I expect that the agency will make savings of £40 million in 1991; this amount was deducted in arriving at the debt service figure I mentioned earlier.
Exchange Rate Policy
Since assuming office, we have resolutely pursued a policy of maintaining a firm exchange rate within the narrow band of the EMS. That policy has greatly helped to reduce interest rate differentials with other countries and bring our inflation rate comfortably below the Community average. We are committed, without reservation, to a firm exchange rate.
NON-CAPITAL SUPPLY SERVICES
Opening Position
The White Paper on Receipts and Expenditure published last weekend shows net non-capital supply services at £6,189 million. This figure is above that published in the Abridged Estimates Volume last December, mainly because of the inclusion of pay provisions totalling £191 million. This covers the basic pay increase in the draft agreement on pay and conditions under the new programme, and the cost of special pay increases which have to be provided for under the 1987 public service pay agreement.
Pay, of course, is only one of the factors exerting upward pressure on expenditure generally in 1991. The need for us to spend more in areas attracting EC Structural Funds is also contributing to the rise.
Re-Assessment of 1991 Spending Allocations
When the 1991 Abridged Estimates were published last December, I said that the Government intended to review the published allocations, to seek further reductions, and where possible, to redirect resources to areas of greater priority.
The results of this review enable me to reduce the White Paper figure for net non-capital supply services by £33 million. This brings the opening figure to £6,156 million or £6,141 million when estimated departmental balances of £15 million are taken into account. Details of these adjustments are set out in the Principal Features of the Budget, which is being circulated separately.
Capital Expenditure
The 1991 Summary Public Capital Programme, published last December, totalled £1,811 million. As with non-capital spending, this figure must now be revised to take account of developments in the intervening period. The review of spending allocations allows me to marginally reduce Exchequer-funded spending by some £3 million. But this is more than offset by additional non-Exchequer spending of £14 million by the State body sector. The net effect is to increase the published 1991 programme by £11 million to £1,822 million. Again, details of the changes are 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 £35 million in 1991 for non-programme outlays. This is intended to cover any essential financial restructuring costs of State-sponsored bodies and other miscellaneous capital payments.
I now propose to make a number of additions to non-capital and capital spending, starting with Social Welfare.
Welfare, the Elderly and Disadvantaged
The Government have a strong commitment to the poor and the disadvantaged in this country. This budget, like our last three, continues to give effect to that caring philosophy.
Weekly Welfare Payments
There will be a 4 per cent increase, with effect from late July, in weekly welfare payments generally, and also health allowances. This is in line with the basic pay increase for the first year of the programme, and ensures a fair deal for those dependent on welfare payments. But I want to point out that this 4 per cent increase in welfare rates goes beyond the commitment in the programme to match inflation. By way of example, the rate of old age contributory pension for a person under 80 will increase from £61.50 to £64 a week.
The Government are also acting on their commitment to move towards the priority rates recommended by the Commission on Social Welfare by 1993. Thus, people on the lowest payments, especially with large families, will again receive particular attention this year. For example, a married couple with three children in receipt of supplementary welfare allowances are going to get an increase of £10 a week or over 9 per cent; going from £109 to £119 per week.
They will still be below the poverty line.
Child Income Support
I am delighted to announce that the higher rate of monthly child benefit will now be given in respect of the fourth child in each family.
This is going to mean an increase of £7.10 per month, or £85.20 per year, to all families with four or more children.
Bring in the "Flintstones".
In addition, I am making significant improvements in the levels of weekly child dependant allowances. For example, the minimum payment in respect of a child dependant will rise from £11 to £12, an increase of 9 per cent.
Twenty-one Year Olds in Full-Time Education
I am continuing to make more logical the way we treat children in full-time education. The age limit for the payment of child increases will go up from 20 to 21 for claimants of long-term social welfare payments.
Carer's Allowance
Last year, I introduced a carer's allowance for those who take care of certain recipients of long-term social welfare payments.
A Deputy
They never got it.
I am now extending this allowance to carers of recipients of disabled person's maintenance allowance. My colleague, the Minister for Social Welfare, will be announcing the details of just how this extension will work.
It is a Mickey Mouse scheme.
Mixed Insurance
The Government intend to change the entitlement conditions for old age contributory pensions. This will address the position at the moment where some contributors with a contribution record of full and modified cover fail to qualify for contributory pensions. Again, the Minister for Social Welfare will be explaining the implementation of this welcome change a little later.
Family Income Supplement
The family income supplement scheme is aimed at lower income workers with families. These are also the people who most often find themselves in a poverty trap. That is precisely the reason I have improved the scheme, improved it steadily, in recent budgets.
I am therefore providing a further £1 million in 1991 — representing £2.5 million in a full year — to fund substantial improvements in the scheme. These improvements will be designed, among other things, to increase significantly the amount of the supplement payable to beneficiaries generally under the scheme. An indication of the improvements is that existing beneficiaries with two children and on incomes below the present limit of £143 a week will receive an extra £11 of supplement each week.
Particular attention is going to be paid to those on the lowest incomes. The Government have also decided that the scheme will be extended to families with children aged 18 to 21 in full-time education. Every effort will be made, moreover, to make sure that those families who are entitled to payments actually get them; actually benefit from the scheme.
Special Equal Treatment Payments
The special equal treatment payments, introduced originally in 1986, will be continued in 1991. As in previous years, they will be reduced in amount, in the context of the general improvement in welfare rates, but in such a way as to protect recipients of the special payments against a reduction in overall benefit. The 1991 Estimates have already provided for this.
Programmes for Women
Last year I made a special allocation of £0.5 million for programmes for women, in recognition of the fact that the women of this country make a huge contribution to the tackling of major social problems. The bulk of these funds were allocated to locally based women's groups and this scheme was very successful. A wide variety of worthwhile projects were funded, in Dublin, Cork, Galway, Mayo, Limerick and elsewhere. I am making the same kind of allocation in 1991 to let this programme continue.
It should be expanded.
The allocation arrangements will be made by the Minister for Social Welfare. A special grant of £10,000 is being made from this allocation to the Aoibhneas Centre for women with children suffering violence in the home; and a grant of £25,000 is being made to the Women's Aid Organisation which also helps women who are victims of domestic violence. It will also be open to other women's organisations, such as the Rape Crisis Centres, to apply for assistance under this scheme again this year.
They should have a budget.
Grants for Voluntary and Community Organisations
I am responding once again this year to our long tradition in this country of assisting local community development activities. I am allocating £0.5 million from the national lottery for grants to voluntary and community organisations.
Last year, what happened was that this scheme funded a number of community development projects in areas such as Tallaght in Dublin, Knocknaheeny in Cork, Inishowen in Donegal and Louisburgh in Mayo. That is being continued. I am providing additional funds so that it can be extended to projects in areas like Waterford, west Cork, Kilkenny and north Wicklow. This allocation will also allow grants to be made to a number of organisations helping the homeless and disabled, including: The Catholic Social Service Conference, The Irish Wheelchair Association, The National Association for the Deaf and marriage counselling organisations. Fifty thousand pounds from this allocation will go to the Simon Community for their work with the homeless.
Educationally Disadvantaged People
The Government know that the full educational potential of many pupils is just not being realised — cannot be realised — because of their disadvantaged background. The programme proposes initiatives to address this issue, and I have made a point of making provision for them. A further 60 teachers will be allocated to post-primary schools in disadvantaged areas for the 1991-92 school year. These appointments are additional to the 60 posts created last autumn.
Fund for Educationally Disadvantaged People
I have also approved the establishment of a fund to tackle disadvantage at all levels of our educational system. This fund of £1 million is an extra — over and above the various allocations for initiatives to favour disadvantaged people already provided in the Education Votes.
PRSI and Health Contributions
The Government have considered the Report of the Interdepartmental Study on PRSI and Income Tax and the Lower Paid. We have also had discussions with the Social Partners — and these discussions will continue throughout 1991. In the meantime, the employees' PRSI exemption scheme I introduced in last year's budget will continue in its present form. Current rates of PRSI contribution for employees and employers will be maintained in 1991-92.
When it comes to self-employed contributors, the 5 per cent rate will remain in 1991-92, although this will be constantly reviewed. The minimum contribution amounts of £104 and £208 per year introduced in 1988 will be increased in line with changes in money values since then. Thus, their 1991-92 levels will be £117 and £234. For 1991-92, the earnings ceilings for contributions will increase from £17,300 to £18,000 for employees and the self-employed, and from £18,600 to £19,300 for employers.
The Government have decided that in order to help fund the major development of community health services and the extension of eligibility for hospital services envisaged under the programme, and to which I will return, the Health contribution should apply to all income, as is already the case with the employment and training levy. So the income ceiling for payment of the Health contribution will be abolished from the current year.
Social Insurance for Part-Time Workers
This country now has over 70,000 regular part-time workers, that is, 6.4 per cent of all regular workers. A sizeable minority of these workers who are employed for fewer than 18 hours a week are excluded from full social insurance cover. That should not be the case. So the Government have decided to extend full insurance cover, on an appropriate basis, to part-time workers generally. Arrangements will be made to implement this decision from 6 April this year.
As a direct result of that decision, up to 21,000 more part-time workers will have access to social insurance benefits, short and long term, such as unemployment benefit when out of work, disability benefit when sickness strikes, and contributory pension when the worker is old. These benefits will be structured so as to preserve the incentive to work. The detailed provisions will be the subject of legislation to be brought to the House by the Minister for Social Welfare.
Income tax: Exemption for the Low paid
In 1989 I began a process of integrating the social welfare and tax systems to help those on low incomes. In last year's budget I developed that process. People on low pay, especially those with children, have benefited considerably. Resources have gone to where they were most needed.
In the Programme for Economic and Social Progress, the Government promise to give consideration to further adjustment of the income tax exemption limits, and of the child addition to them. Accordingly, I propose to make the following improvements, the general exemption limits will go up from £6,500 to £6,800 for a married couple and from £3,250 to £3,400 for a single person, the special child addition to the exemption limit, which now stands at £300 per child, will go up to £500 in respect of the third and subsequent child, the age exemption limits will also be raised. A married couple aged 65 years or over will pay no tax if their income does not exceed £7,800. If they are 75 years or over, the figure will be £9,000. The figures for single taxpayers will be £3,900 and £4,500, respectively, the marginal relief rate, which applies where income does not greatly exceed the exemption limits, will also be reduced.
The increases in the general exemption limits and in the child addition, mark the third budget in a row in which I have improved the tax treatment of low-paid married couples with children. The changes have been very substantial and have greatly helped low paid families.
For example, in 1988, the general exemption limit for a married couple, regardless of how many children they had, was £5,500. Now, it will be £7,400 for a couple with two children, an increase of nearly 35 per cent, £7,900 for a couple with three children, an increase of nearly 44 per cent and £8,400 for a couple with four children, an increase of over 50 per cent.
This package of measures will exempt an estimated 18,000 taxpayers with 23,000 children from tax altogether, while a further 26,500 taxpayers with 36,000 children will be brought into marginal relief. Some 54,000 taxpayers with 95,000 children, currently in marginal relief, will get a reduction in their tax bill.
Let me give some examples of what these tax changes are going to mean for different categories of taxpayers on PAYE: A married couple with three children and an income of £7,900 will have their current tax liability of up to £265 eliminated. A married couple with four children and an income of £8,400 will have their current tax liability of up to £371 eliminated.
These changes will, again, benefit not only low-paid employees and pensioners, but also low-income farmers and small shopkeepers. Indeed, they are going to benefit low income self-employed people generally.
As usual, the Revenue Commissioners will be making people aware of these improvements. An information leaflet with a short application form built into it is to be sent out with the tax-free allowance certificates to low-paid taxpayers over the coming weeks. The leaflet will alert taxpayers to the family income supplement scheme operated by the Department of Social Welfare and it will tell people how they can obtain details of that scheme.
These exemption limits and child addition improvements, when combined with improvements in the family income supplement scheme, are going to be of substantial help to low-income employees with children. Here are examples of the combined effect of the exemption limit and FIS changes: a married employee with two children, earning £7,400, will gain £9 a week; a married employee on £7,900 with three children will get an extra £12 a week. The total cost of this welfare package, covering cash benefits generally and tax relief for those on low incomes and provision for the educationally disadvantaged, will come to £72 million in 1991, and to almost £168 million in a full year.
I am now going to turn to other social areas where I am allocating additional funds in 1991.
Provisions Linked to Programme for Economic and Social Progress — Long-Term Unemployed.
The Programme for Economic and Social Progress sets out a new, ambitious approach to stimulate an integrated community response, in particular local areas, to long term unemployment. The Government have undertaken to begin this approach on a pilot basis in 1991, in both rural and urban areas. That will allow us to find out what works. The models that work will then be applied nationwide by 1994 as resources become available from a growing economy.
Since the aim is to pull together and make more effective what various agencies and bodies are doing in this area, the bulk of the Exchequer finance in 1991 is going to come from existing published allocations but I am also allocating £0.5 million to cover managerial and other overhead costs of the local companies which are going to get under way this year.
Education
The Government have undertaken as part of the programme a series of important measures in education. At primary level, the overall pupil-teacher ratio will be reduced to 25:1 by September 1992. By next September, the necessary recruitment programmes will be in place.
The allocation of the additional teachers will particularly favour schools in disadvantaged areas. At second level a pupil-teacher ratio of 19:1 will be phased in over 1991 and 1992. Half of the additional posts will be provided in 1991.
I am providing £4.3 million to meet the 1991 cost of the programme undertakings in education. That includes the measures for the educationally disadvantaged I mentioned earlier. We will continue our policy of increasing third level intake of students by at least 1,200 again this year.
Health
Turning now to health, this Government are committed to: a radical overhaul of the health services, an overhaul aimed at providing, for the first time in Ireland, a comprehensive, even-handed and efficient health care system, and an overhaul that centres health care on the patient.
That starts with primary health care and community based services. The developments planned will cover older people who have a physical or mental handicap and psychiatric patients.
What is behind the developments is a determination to allow people to live at home as long as they can, and to operate within the community if they are able to. But it goes further than that. We want to create a situation which lets more people in long-stay institutions move back into the community. We are planning a seven year programme in this area. For 1991 I am providing £8 million, half of that will come from the national lottery.
A fairer deal in the area of hospital services is also on the way. The major change in eligibility will mean that the income limit for Category 2 services will be abolished from 1 June next so that all patients opting for a public ward bed will be entitled to free consultant services.
People cannot get into hospital at present.
(Interruptions.)
I would remind Deputies that on the occasion of the budget speech no interruption is seen as helping the atmosphere or the image of the House.
New arrangements for admission to public hospitals will be phased in so that private patients requiring non-emergency treatment will be accommodated only in private or semi-private beds. What that is going to mean is radically improved access to public beds for public patients.
Deputies
Hear, hear.
The important role of private medicine and of voluntary health insurance is not going to be diminished — the Government will see to that. Health insurance premiums will continue to receive full income tax relief as they do at the moment.
Agriculture and Food
In the Programme for Economic and Social Progress the Government reiterated their commitment to maximise the contribution which the agriculture and food sector will make to the economy. In the meantime, to give substance to the Government's undertakings, I propose to implement measures to support farm incomes and boost activity and confidence in the sector.
First, I propose to bring forward into 1991 the increases in headage rates scheduled for 1992. This, added to the already proposed extension of the disadvantaged areas, will provide an additional £19 million in 1991 and £27.5 million in a full year towards support of farm incomes. I am also proposing to index the standard costings of farm improvements from August this year, adding almost £2 million in a full year to grants for farm improvement purposes. More flexibility will come into play on the attainment of the one labour unit under the installation aid scheme at a cost of about £600,000 this year and £1 million in a full year. One million pounds will be provided this year to help very low income farming families. This scheme will, in due course, be subsumed into the expected EC scheme.
Teagasc will get an extra £1.2 million this year to help them provide the fullest service to farmers. My attitude remains, though, that all services should, wherever possible, be paid for by the beneficiary.
As the Common Agriculture Policy becomes more market-oriented, the effort to market Irish food products has to be intensified. That is why the Government, when finalising the 1991 Estimates, decided to allocate £1.5 million to CBF, a three-fold increase on the original 1990 Estimates allocation. This increase is conditional on a substantial contribution being made by the meat industry and, in accordance with the governing principles running through my farming proposals otherwise, I want this achieved in a manner which will not reduce the return to the farmer.
In order to maintain the status of the national herd, I am providing £2 million in 1991 to depopulate herds affected by BSE.
Non-Thoroughbred Horse Industry
The Horse Breeding Advisory Committee have recommended the establishment of a representative body for the non-thoroughbred industry in order to promote the industry and improve the quality of sport horses. I propose to provide £75,000 in 1991 towards the administrative costs of setting up this body. In due course, it will take over the maintenance of horse registering from the Department of Agriculture and Food.
I am also proposing to provide £10,000 to the Connemara Pony Society to assist them to keep the Stud Book up to date — an important factor when it comes to marketing this very important Irish breed.
They are not the only people the Minister is taking for a ride.
Financing
The costs of the extension of the disadvantaged areas and the increased grant to CBF are already included in the Abridged Estimates Volume. The cost of other elements I have announced today will be approximately £14 million. This will be partly funded by increased receipts from Brussels and other sources of about £9 million.
Farming Taxation
I will cover farming taxation when I come to taxation measures generally.
Social Housing
Now, I want to come to social housing. The programme sets out a broad strategy to meet social housing needs. It takes particular account of the contribution of the voluntary housing sector — we have to acknowledge and support that contribution.
The new initiatives in the programme include: the introduction of a new rental subsidy scheme for voluntary housing, a scheme of shared-ownership for low income house purchasers and a new allowance for people leaving local authority accommodation to move into private housing.
Is the Minister bringing back that scheme?
The expanded voluntary housing programme will cost £11 million in 1991. That covers the cost of significant improvements in the grant levels, as well as the completion of the "Focus" housing project at Stanhope Street in Dublin.
The total capital being spent on social housing this year is over £80 million compared with about £70 million last year. Further details of new schemes will be announced shortly by the Minister for the Environment. These will include increases in loan and grant limits under the local authority house purchase loan scheme and the voluntary housing programme.
In addition to the programme measures, funding of £0.5 million from the national lottery is being provided to the Department of the Environment in 1991 for the provision of communal facilities in voluntary housing schemes grant aided by the State. Dining areas, kitchens, laundry facilities, sittingrooms, are the kind of facilities that will be provided in large projects, so that residents can get on with their day-to-day activities in a community atmosphere.
Tourism
In the light of the prospective difficulties arising for tourism from the Gulf crisis and from the climate of recession in some of our main markets, I am allocating an additional £1 million for Bord Fáilte for marketing and promotion in 1991, particularly in the UK and mainland European markets.
Cork Ferry
In addition, I have already provided for the renewal of the £0.5 million loan to Swansea-Cork Ferries Limited. This service has made a substantial contribution to tourism in the south-west region.
Conservation of State Buildings
Our heritage buildings are beautiful. They are of cultural value, they are of tourism value and we must preserve them. We have progressively increased funding through the Office of Public Works to step up their programme of restoration of State buildings. As circumstances permit, we will assist the restoration and conservation of key privately owned heritage properties fully open to the public. I am allocating £0.5 million this year from the national lottery for this purpose.
Business Start-up Scheme
Two years ago, at my request, the banks agreed to lend up to £10 million for the development of business opportunities of young entrepreneurs. The scheme has been operating with success. I am pleased to see that the Bank of Ireland has recently renewed and extended its contribution. It has committed a further £2 million for its business start-up scheme. I welcome this development and I hope that other financial institutions will follow suit.
Public Service Numbers
Numbers employed in the public service at the beginning of this year are estimated to be 199,000, that is 18,000 fewer than in 1987. The consolidation of that reduction in staff numbers must go on. There will be no general resumption in public service recruitment although recruitment will continue in areas of particular need. The Government have also decided that existing vacancies in the Civil Service, the filling of which have not been authorised, are to be suppressed.
Does that apply to the Minister for Defence?
Administrative Budgets
Departments and individual managers in Departments should have much greater flexibility in the use of administrative resources. That is why I have introduced fixed overall budgets for the cost of administration. That system was introduced in the Department of Social Welfare in the middle of 1990. The Government have decided that this approach should be extended to all Departments by 1 March next.
What it means is that the head of each Department will know the total amount of money available to run the organisation for the years 1991-93. He, or she, will have much greater freedom in the management of resources than in the past, and will have to achieve specified reductions in the cost of running the Department in those years. The great advantage of this approach is that it allows each Department to develop a more efficient and effective management style while ensuring that the overall cost of running the Civil Service is reduced in real terms.
Public Service Pay
The White Paper on Receipts and Expenditure included £3,419 million in respect of the 1991 Exchequer pay and pensions bill. This figure includes the cost of the first phase — 4 per cent from 1 January — of the general pay increases provided for in the Draft Agreement on Pay and Conditions. It also includes a contingency provision to meet the cost of a number of emerging special pay increases which will fall to be met under the elaboration of the 1987 public service pay agreement.
The further expenditure additions I have just announced, and the review of 1991 spending allocations I mentioned earlier, will increase, marginally, the cost of the Exchequer pay and pensions bill to £3,422 million. This is an increase of just over 8 per cent on the 1990 outturn of £3,161 million. The Government are deeply concerned at the rising costs of the Exchequer pay and pensions bill. These costs reflect the Government's willingness, for the sake of stability and industrial peace, to take on board increases arising both from the existing pay agreement and from the new draft pay agreement under the Programme for Economic and Social Progress. That draft agreement sets clearly defined limits to future pay increases in both the public and private sectors. The Government are determined to ensure that these limits will be strictly adhered to in respect of public service employees.
Post-Budget Expenditure Provisions
The net result of the new expenditures and initiatives I have just announced is to add just over £81 million to non-capital supply services in 1991, bringing the total to £6,222 million and they add £11 million to the opening Public Capital Programme bringing it to £1,833 million. As I have said, details of the adjustments can be found in the Principal Features of the Budget.
REVENUE
Taxation Policy
What are our main aims for tax reform over the next few years? Let us start with income tax. We want to reduce the standard rate to 25 per cent by 1993 while moving towards a single higher rate, as stated in our Programme for Government; and we want to relieve the burden on people on low pay by reducing the standard rate and increasing income exemptions and child relief. That is income tax, but there are other taxes too.
We must aim to bring our indirect tax rates and coverage into line with prospective EC requirements as quickly as possible, and as part of that to remove VAT at point of entry; we need an increased yield from capital taxation and the corporate sector. A major contribution here will be the radical reform and streamlining of company taxation implemented in recent years; we have to constantly improve tax administration and enforcement; and, finally, we need to broaden the taxation base generally, in order to support the revenue yield and so give us room to move.
It is the task of Government to judge what steps are appropriate and affordable in the coming year to achieve all this. It would not make sense to seek progress on the taxation front, if this were to put the balance of the public finances at risk. Our medium-term taxation strategy demands continued expenditure discipline, side by side with the broadening of the tax base. It is in the light of all of those considerations that the measures I am proposing have been framed.
The opening current tax revenue position, as revealed in the Pre-Budget White Paper on Receipts and Expenditure, is £8,385 million. Obviously, this leaves me little room for manoeuvre, given the overriding need to maintain budgetary discipline. Even with that limited scope, we have put together a package that accords with our objectives and the needs of the economy and, at the same time, provides a reward for effort, an incentive for enterprise.
Income Tax
Yes, there were severe budgetary constraints in the past few years, but we still managed to make considerable progress on income tax. The standard rate was brought down to 30 per cent and the top rate to 53 per cent. There were increases in the personal and PAYE allowances, and extensions of the standard and 48 per cent rate bands. The tax treatment of the lower paid was also substantially improved, and will be further improved this year as I have already indicated.
I propose to continue the process of general income tax reform, which I started in 1989. The existing standard rate of 30 per cent will be reduced to 29 per cent. This rate will 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 £13,000 to £13,400 for a married couple and from £6,500 to £6,700 for a single person. The personal allowance is being increased from £4,100 to £4,200 for a married couple and from £2,050 to £2,100 for a single person, with comparable increases in the widowed, single parent and widowed parent allowances. The top rate of tax is being reduced from 53 per cent to 52 per cent. I am also renewing the PRSI allowance for a further year, at a 1991 cost of £36 million.
Let me give some specifics of how people will gain: a single person on PAYE with an income of £10,000 will gain up to £127; a married couple with an income of £16,000 will gain up to £137; and a married couple with an income of £20,000 will gain up to £254.
Take-Home Pay
Take-home pay increased considerably in real terms under the Programme for National Recovery. This contrasts sharply with the decline earlier in the eighties. The recent improvement in workers living standards came from a combination of moderate wage increases, low inflation and income tax reductions. It is a formula we can repeat.
We got it right the last time, and we can now get it right under the new programme. The pay element is contained in the programme itself. Low inflation is a reality. The tax concessions I have announced form the third element. I have concessions mean a further real increase this year in take-home pay for workers getting the 1991 pay terms proposed in the programme. For PAYE workers on the average industrial wage, the increase in net take-home pay will be comfortably over 4 per cent when pay increase and income tax concessions are combined. Low paid workers with families will do best, proportionately, and that is the way it should be. What is more, they can benefit from the family income supplement improvements I have already outlined.
Farmers Income Tax
I am proposing a number of specific developmental measures in the area of farming taxation consistent with what is envisaged in the new programme.
Leasing Income
Land mobility is important, so is the productive use of land. To encourage both, I have decided to increase the annual exemption for certain income derived from the leasing of farmland. The amount of lease income qualifying for exemption is being raised to £3,000 for qualifying leases given from today. Where such leases are given for seven or more years duration, an exemption of £4,000 will apply.
Stock Relief for Farmers
The present system of stock relief for farmers is being renewed for a further two years. This will complement policy measures to maintain stock levels, and will be of particular help to developing farmers. The cost of the renewal of stock relief in 1991 is £0.9 million.
Farmyard Pollution
The Government have decided, as an exceptional measure, that the 50 per cent rate of accelerated capital allowances, will be continued for two years for investment to deal with farmyard pollution. This extension will apply to spending within the existing Department of Agriculture and Food grant schemes for controlling farmyard pollution. This expenditure is going to qualify for the allowances on a net-of-grant basis where incurred before 1 April 1993 and approved under these schemes. This incentive will help farmers to make the investment needed in anti-pollution measures and it will help protect our precious environment. The estimated cost is £3 million in 1991 and £5 million in 1992.
Other Income Tax Measures Rent Relief For Over 55s
I am increasing the ceiling on relief for rent paid by taxpayers aged 55 or older. The ceiling now is £750 for single and widowed people and £1,500 for married couples. I am raising that to £1,000 for single people and to £2,000 for married couples, and also I am introducing a new ceiling for widowed people of £1,500.
Widowed Parents With Dependent Children
I have been concerned for some time about the position of married taxpayers after the death of a spouse where there is one or more dependent children. The income tax code already provides some recognition for widowed parents; their basic allowances are made equivalent to those of married couples. That is good, but not good enough, given the real trauma of the period following bereavement. I am introducing a special allowance for widowed parents with dependent children, to apply for the three tax years following that in which their spouse died. The allowance will be £1,500 in the tax year following bereavement, £1,000 in the next year and £500 in the year after that. A point to note is that a parent of dependent children whose spouse has died since 6 April last will benefit from the £1,500 allowance in the 1991-92 tax year. I am personally pleased to be able to introduce this new allowance.
PAYE Allowance For Cross-Frontier Workers
People employed and taxed under a PAYE type system in another jurisdiction — an issue brought to my notice by politicians on both sides of the Border — and also taxed here in respect of that employment, do not, at the moment, qualify for the PAYE allowance. I am proposing to grant the allowance where the employment is of the kind that, if within the State, would qualify for the allowance. The people who will mainly benefit from this are people living in this State but employed in Northern Ireland.
Cost Of Reliefs
The total cost of the income tax reliefs, including those I announced earlier, comes to just over £85 million in the current year; in a full year, the estimated cost is £145 million. This excludes the cost of renewing PRSI relief.
Base Broadening
I have had to look to specific reliefs in the tax code for a contribution to the cost of the further reductions in income tax rates. This is consistent with our stated objectives and is within the spirit of tax reform. Reform means, in essence, widening the tax base in order to reduce personal income tax rates. This is important for competitiveness, for incentives, and ultimately for job-creation, which is the Government's primary concern. There is a growing international consensus that countries are best served by low rates of tax with a minimum of specialist reliefs and concessions.
Life Assurance Relief
The tax relief on life assurance costs nearly £18 million in the current year and that is in spite of its curtailment in recent years, to 80 per cent and then to 50 per cent of its previous level. Since it is still distorting financial investment, I am reducing the 50 per cent further to 25 per cent in respect of all premiums paid on or after 6 April next.
I am not changing mortgage interest relief.
Business Expansion Scheme
The cost of the business expansion scheme relief is high. It has been high in recent years, despite the action taken in successive Finance Acts to curb abuses. It is estimated to have cost around £40 million in tax foregone by the Exchequer in the 1989-90 tax year and it will cost a similar amount in the present tax year if action is not taken.
The scheme was all about helping smaller companies in need of seed capital, a valid aim. Small companies have an important role to play in expanding the economy's productive base and, of course, in creating additional self-sustaining jobs. Equity as opposed to borrowing is the best source of capital for such companies but may be difficult to get because of the risk involved. The BES aims to make it easier for small companies to raise equity. Accordingly, the Government have decided to extend the scheme — due to expire on 5 April next — for a further two years.
The changes I have made in the BES over the past few years have sought to curb abuses and focus the scheme more clearly on what it is supposed to be doing. It was never the intention that it should provide income tax relief for investment in secure asset-backed ventures involving little risk, but the reality is that this is frequently how it is operating and in the process, it is creating an unacceptable tax-shelter.
In order to reduce the cost in tax foregone and to focus the scheme more effectively, I am introducing some changes: the scheme will no longer apply to shipping, hotels, guesthouses and self-catering accommodation. It will, of course, continue to apply to manufacturing and international services, special trading houses and advance factories, and to tourist facilities other than those I have mentioned; the total amount a company can raise under the scheme will in future be limited to £0.5 million; and the amount any taxpayer can claim relief on will have a "lifetime cap" on it of £50,000. Where a company or individual has already passed the new limits, there will be no claw-back, but amounts raised or invested up to yesterday will, of course, count towards these limits. These restrictions will apply to all shares issued on and from today. There will be no exceptions, not even where subscriptions have already been sought prior to the introduction of these restrictions.
As well as that, I am planning to include an additional provision in the Finance Bill. This will ensure that where a self-employed taxpayer is basing his preliminary tax payment for the 1991-92 tax year on 100 per cent of his liability for 1990-91, such payment must exclude the effect of any BES investment he may have made in the 1990-91 tax year. Otherwise, such a taxpayer would be gaining on two fronts; getting the benefit of a 1990-91 BES investment in that tax year, and at the same time, using it to reduce his preliminary tax payment due in November 1991, for the 1991-92 tax year. Such a facility would not be available to a PAYE taxpayer who had a BES investment in 1990-91.
Relief for Rented Residential Accommodation
Section 23 — the incentive for the provision of residential accommodation for renting — has been around in one form or another since 1981. The Government have decided that this relief will no longer be available after March 1992, with one special exception.
This one year extension is intended solely as a transitional measure. It means that projects in the course of construction and projects at the planning stage, can still get moving — but with a clear understanding that 31 March 1992 is the final deadline.
The only exception I am making is for the designated areas. Qualifying expenditures there will attract the relief until 1993. This should help to promote investment in the provision of residential accommodation in those areas. That is a good way of redressing the imbalance in the designated areas — an imbalance currently favouring purely commercial development.
This initiative will help to create living communities in our cities and towns — and that is how we should define "urban renewal". You cannot have real urban renewal without the presence of people, without the presence of a living community. As an incentive to restore buildings, the existing relief for refurbishment will be broadened from today. This will let refurbishment expenditure in designated areas be offset against all rental income. At the moment, such expenditure can be offset against the rental income from the refurbished property only.
Both reliefs will apply in the designated areas up to 31 May 1993, except in the case of the Custom House Docks area, where they will apply up to 25 January 1993. The cost of these measures is tentatively estimated at £1.5 million in 1991, and £4 million in 1992.
Abuse or Tax Reliefs for Property Investment
There are a number of schemes being planned with a view to enabling the tax incentives available on the construction of certain buildings to be transferred by way of special arrangements to a large number of investors. Bluntly, these schemes are trying to use reliefs in a totally unintended and unacceptable way. Not only that, they would have a considerable upfront cost to the Exchequer.
If there are any doubts that the application of existing law prohibits the relief sought under the schemes, those doubts will be removed by the inclusion in the Finance Bill of an appropriate provision with effect on and from today.
This provision will restrict the scope of the tax incentives involved, so that in the case of such schemes they apply only to rental income from the property in question. If any other schemes of this nature come to light, I will not have any hesitation in taking similar action.
Overall Effect of Income Tax Measures
The package of income tax reliefs I have announced today will benefit all taxpayers. Low-paid taxpayers will benefit particularly from the exemption limit and child addition improvements. As well as that, employees supporting families on low incomes will benefit from the enhanced family income supplement scheme. The standard rate is being cut for the third year in succession. The top rate is also being reduced. Personal allowances and the standard rate band are being increased. The marginal income tax rate for nearly 700,000 taxpayers will fall. Add all these tax reliefs to the pay provisions and the inescapable bottom line of this budget is that workers will see their living standards improve again this year. This is tangible progress, progress that makes a difference to every taxpayer, progress — even in a year of considerable budgetary constraints.
I want to reiterate, moreover, that our longer term objectives in regard to income tax remain; the Government's aim will be to reduce both the standard and top rates of income tax by 2 per cent in each of the next two years.
Corporation Tax
The impact of the major reforms in the corporation tax code since 1988 will be spread over the next few years. Consequently, I am not proposing any further changes this year — except for the banking sector.
Taxation of Banks
Section 84 loans were restricted by measures in 1989 and 1990, and, as a result, the corporation tax yield from the banks was increased. But this objective can be frustrated by the growth of high interest rate foreign-currency loans sourced through domestic banks. They are much more costly to the Exchequer than Irish pound section 84 loans. To deal with this, I am now introducing a specific measure. On and from today, no domestic-sourced section 84 loan in foreign currency, either new or rolled-over, will be allowed where the interest rate on the loan exceeds a specified percentage of the existing three-month DIBOR rate. Details are in the "Principal Features of the Budget."
Bank Levy
The bank levy is being renewed at its 1990 level of £36 million. I have decided, however, to set up a special working group of officials of my Department and representatives of the banks to examine corporation tax applying to banks and the role of the levy. The results of this examination will be with me before the 1992 budget, and at that point, I will look at this matter again.
IFSC
The International Financial Services Centre in Dublin is a major success story, with over 150 projects now approved. The time limit for approvals of new firms setting up business in the IFSC has been extended to end-1994. I am extending the 10 per cent rate of corporation tax for companies in the centre to 31 December 2005. Analogous arrangements will apply to companies in the Shannon customs-free airport zone.
Capital Taxes
The Exchequer has been doing better out of capital taxes in recent years. The Government are committed to seeking a further increase, while having regard to wider issues. We have decided on a series of measures to help achieve this objective. I will also address concerns about the impact of capital acquisitions tax in certain circumstances.
Capital Gains Tax
Self-assessment is being extended to capital gains tax, so as to speed up assessment and collection. As a result, we expect to collect an extra £9 million in capital gains tax in 1991. The necessary provisions will be in the Finance Bill.
Capital Acquisitions Tax
Though capital acquisitions tax is already on an effective self-assessment basis, there is a need to introduce some further improvements in administration. I am putting the Revenue Commissioners' enforcement powers in this area on the same footing as their powers related to income tax and corporation tax under self-assessment: the power to attach certain financial assets of defaulters will be extended to capital acquisitions tax; the Revenue sheriffs will be given power to enforce capital acquisitions tax liabilities; and audit procedures under the self-assessment system will be intensified. The Government have also decided that an amnesty like that of 1988 should operate this year for capital acquisitions tax. CAT was not included in the 1988 amnesty, which preceded introduction of more stringent enforcement measures for the taxes involved.
Taxpayers will have a once-off chance to pay, before 30 September next, all outstanding CAT liabilities without penalties and certain interest payments. The amnesty will also extend to outstanding estate duty liabilities. Full details and conditions of the amnesty will be available from the Capital Taxes Branch of the Revenue Commissioners.
The new enforcement measures will come into effect from 1 October next on the termination of the amnesty. They will be rigorously implemented. Having considered the practical operation of CAT, the Government have also decided upon certain structural changes. We have concluded that no useful purpose is served by the top two rates. They only come into play in a tiny minority of cases, and may be counterproductive in terms of total yield. The top rate of CAT in future will be 40 per cent. The present structure of thresholds and rates will otherwise be retained.
I am making a few other modifications to CAT, in order: to mitigate the undue burden that can arise in certain circumstances for taxpayers with limited financial resources; to facilitate necessary structural change in agriculture; and to enable people to make provision for an anticipated future liability to gift tax. Therefore, the rate of agricultural relief goes up to 55 per cent, though the present ceiling of £200,000 will be retained. At the same time, the qualifying conditions will be amended to more closely match the objective, which is to facilitate farm transfers. There will be a provision in the Finance Bill to ease the burden that can arise where a dwelling is transferred between elderly brothers or sisters living there together. Furthermore, "Section 60" insurance policies, now confined to the payment of inheritance tax, will be extended to cover gift tax liability.
The CAT changes, with the exception of the change in the qualifying conditions for agricultural relief, will apply with effect from, and including, today; the provisions necessary to give effect to them will be included in the Finance Bill. Overall, the effect of this capital acquisition tax package — including the amnesty — should be to increase the expected yield in 1991 by £5 million.
Indirect Taxation
Turning now to indirect taxes, the challenges Europe will pose after 1992 must be squarely faced. There are 700 days left before the deadline. That is what remains before the completion of the Single Market. After that point, things will never be the same for any of us. The indirect tax measures I am about to announce are another instalment of the adjustment we must make for participation in the new Europe.
Standard Rate of VAT
To move us more into line with our Community partners, I am reducing the 23 per cent standard VAT rate from 1 March by 2 percentage points to 21 per cent. This is the rate applying to most consumer and household goods, and the change brings us closer to the 14-20 per cent rate envisaged by the EC Commission. It does more, it further reduces the potential for cross-Border distortions of trade. But what about the extent to which VAT reductions are passed on to consumers? Last year, some businesses were slow to reduce prices following the VAT cut. I do not want that to happen this year, and I will be working closely with my colleague, the Minister for Industry and Commerce, to see that the customer gets the full benefit.
Responsible action by the business community is good for the business community. Consumers should support outlets that quickly reflect VAT reductions in their prices. And where that quick reflection does not happen, it must inevitably influence the Government's long term approach to this whole area.
Because of the high cost of reducing the standard VAT rate, I must look for compensating revenue increases from other indirect taxes, including VAT.
At present, less than 40 per cent of all consumer goods and services attract the standard rate of VAT. The thrust of current EC policy is to significantly increase this share, and I have decided that now is the time to get this process under way. Therefore, with effect from 1 March, the low rate of 10 per cent will be increased to 12.5 per cent on a wide range of items. Fuel for heating, light and power will be affected, as will telecommunications, personal services, repair and maintenance services and adults clothing and footwear. I am making an exception for building, hotel accommodation, short term car, boat and caravan hire, tour guide services and newspapers. Until final decisions are taken on these at EC level, they will stay at the 10 per cent level of tax. The net cost to the Exchequer of what I have announced will be £37 million in 1991. The estimated full year cost is similar.
Minor VAT Changes
The forthcoming Finance Bill will introduce the taxation, from 1 January 1992, at 12.5 per cent, of veterinary services — because this is now required by EC law. It will also see an extension of the definition of "hotels" to eradicate some anomalies in current practice which militate against legitimate operators, and the taxation of some non-postal services of An Post, to, remove competitive distortions — for example with Telecom Éireann.
Excise Duties
With one exception — tobacco — I am maintaining the restrained approach of recent years to the application of duty increases to excisable goods. The old reliables will remain free for another year. The main reason I am making an exception of tobacco is because, having declined steadily for a number of years, the consumption of cigarettes went up in both 1989 and 1990. My colleague, the Minister for Health, is profoundly concerned about this. I am increasing the tax on a packet of 20 cigarettes by 10p, inclusive of VAT, with pro rata increases for other tobacco products, with effect from midnight tonight. The excise duty will be further increased with effect from 1 March so as to leave the retail price unaffected by the standard rate VAT reduction.
Liquified Petroleum Gas
I am cutting the excise duty on auto LPG further by 8 pence per gallon from 1 March, to keep it competitive with other road fuels in the light of the VAT changes. I will be arranging in the Finance Bill for a reduction of 15 pence per gallon on the duty on LPG used in horticulture, to bring it into line with the equivalent duty applicable to heating oil.
Road Tax
Nineteen eighty-three was the last time road tax on goods vehicles was changed. Nineteen eighty-six was the last time the road tax on private cars went up. Since then, the real values of the duty rates have been considerably eroded, so I am increasing them by about 10 per cent on average, effective from 1 April 1991.
I will also take the opportunity to streamline the rating structure, particularly as it affects goods vehicles. The recent inordinate growth in the number of small goods vehicles suggests that the concessionary tax regime in regard to excise duty and road tax is being taken advantage of for private motoring. To preserve road tax revenue, and to be fair to car owners, I have introduced a new minimum rate — and the details are in "Principal Features of the Budget".
Veteran Cars
I am introducing a concessionary rate of road tax of £25 for vehicles over 30 years old.
(Interruptions.)
A little light relief is welcome but let us get back to the budget.
For motorcycles over 30 years old, a rate of £10 will apply. Provision for this will be made in the Finance Bill.
The various changes in excise duties and road tax I have just announced will yield additional revenue of £36 million in 1991 and of £44 million in a full year. The net effect on the cost of living of the VAT and other indirect tax changes I have announced will be negligible; they add only 0.1 per cent to the Consumer Price Index.
Travellers Allowances
Since the decision of the European Court of Justice on the "48 hour rule", the Government have been seeking to negotiate arrangements giving protection against large-scale cross-Border trade distortions. On 17 December last, unanimous agreement was reached by the Council of Finance Ministers that both Ireland and Denmark should be granted the short term derogations they sought. We plan to put the new provisions in place as soon as we can complete discussions with the European Commission on the specifics of the derogation.
Post-Budget Current Revenue Position
The net cost to the Exchequer, in 1991, of the taxation measures I have outlined is £50 million. When this, and the £23 million revenue buoyancy arising from the totality of the measures announced today are taken into account, the post-budget tax revenue estimate comes to £8,358 million. When non-tax revenue is added, the total comes to £8,774 million.
BUDGET OBJECTIVES
Current Budget Deficit and Exchequer Borrowing
Taking account of all the measures I have announced today, the estimate for the current budget deficit in 1991 is £245 million or 1.0 per cent of GNP, and that for the Exchequer borrowing requirement is £460 million or 1.9 per cent of GNP.
Borrowing is now in line with the norm for our Community partners participating in the narrow-band of the exchange rate mechanism of the EMS. Of course, this has to be seen against the background of an exceptionally high ratio of debt to GNP, which the Government are determined to reduce progressively.
In the medium term, we have to accommodate certain priority expenditures, and we face pressures on tax revenues, both from EC harmonisation and the need to relieve income tax. This reinforces the imperative to keep current expenditure on a tight rein.
The longer term aim must be to phase out borrowing altogether, while having regard to economic and budgetary realities. Controlling our borrowing will be the basis for tackling all our other economic challenges.
Irish Life PLC
As the House is aware, the Government have decided to reduce their shareholding in Irish Life from 90 per cent to 34 per cent through a share flotation. The first steps in the process have been completed — the restructuring of Irish Life Assurance PLC and the creation of a new holding company, Irish Life, PLC. The flotation of Irish Life, PLC is planned to take place this year.
It would not be prudent to comment now on prospective share values, so I have not provided in the budgetary arithmetic for the sale proceeds although they will serve to reduce substantially our actual borrowing and the eventual EBR for 1991. What I can say — as I made plain in this House in July — is that the sale proceeds will be used to reduce borrowing and thus help to ease the burden of the national debt and of debt-servicing costs.
Conclusion
This has been an exceptionally difficult budget to prepare. There are few external certainties, and at home we must await adoption of the new Programme for Economic and Social Progress for the added certainty about domestic stability that we so badly need.
I have had to keep constantly in mind the overriding need to persevere with strict overall discipline in the public finances. We have come too far, and there is too much at stake, for us to contemplate any deviation in this regard.
Thanks to the new programme, we have now got a broader agenda for progress than we could have had a few years ago. Back then, our difficulties, and the budgetary problems underlying them, dominated all our thinking.
Now, we have tasted success. We have reasserted our capacity to compete and develop. We have positioned ourselves with a new confidence, to grasp the opportunities of an expanding marketplace.
This budget — supports measures to tackle unemployment; outlines new initiatives in health, housing, education and in agriculture, it increases welfare benefits not just in line with, but ahead of, inflation; it makes progress on the tax reform front and gives real benefits to taxpayers; it helps the less well-off. This budget brings us a step further towards European integration; it makes our economy more competitive; it continues tight control of our public finances; it lays the groundwork for the delivery of more benefits in later years; and it clearly flags investors that this Government's policy is geared to create the right climate for business growth and development. It gives us a sound basis for the year ahead but if any of the various imponderables should develop unfavourably, the Government will not be slow to take whatever action is needed.
There is now a wide consensus in our society on the goals we want to achieve, and on what their achievement demands of us. The future prosperity and welfare of all our people will be best served by maintaining this consensus and adapting it to changing circumstances. Now, there is a new realism, and an understanding that there can be no going back, no deviation from the policies of recent years.
This budget spans the success of the recent past and the challenges of the immediate future.
This bridging budget is designed to make sure we get the hard-won benefits to which the resolute consistent action of the past few years has entitled us.
I earnestly urge its endorsement on all concerned.
TABLE EXPLANATORY OF CURRENT BUDGET, 1991
|
Revenue |
£m |
Expenditure |
|||
|
1. Tax Revenue (including renewal of bank levy, PRSI allowance and stock relief for farmers) |
8,384.4 |
1. Central Fund Services |
2,797.0 |
||
|
2. Non-Tax Revenue (including extra £13.3 million receipts from National Lottery) |
415.9 |
2. Supply Services (non-capital)Adjusted for: |
6,189.0 |
||
|
Net revisions to Estimates* |
-32.8 |
||||
|
3. Income Tax Measures: |
6,156.2 |
||||
|
Reduce 30% rate to 29% |
-37.2 |
||||
|
Reduce 53% rate to 52% |
-7.9 |
3. Welfare, Elderly and the Disadvantaged |
|||
|
Increase personal allowances |
-13.6 |
—Social Welfare improvements |
+62.0 |
||
|
Widen standard rate band |
-12.2 |
—Educationally Disadvantaged |
+1.3 |
||
|
Extend capital allowances for farmyard pollution control |
-3.0 |
—Increase general and age tax exemption limits and child addition |
+7.9 |
||
|
Renewal and extension of Section 23 relief |
-1.5 |
—Reduce marginal income tax relief rate |
+0.7 |
||
|
Miscellaneous reliefs |
-1.0 |
+71.9 |
|||
|
Reduce life assurance relief |
+5.3 |
||||
|
BES restrictions, etc. |
+18.0 |
4. Other PESP-related Provisions |
|||
|
-53.1 |
—Health—Agriculture—Education—Bord Fáilte—Miscellaneous |
+8.0+5.2+3.0+1.0+0.6 |
|||
|
4. Indirect Tax Measures:Reduce 23% VAT rate to 21%Increase 10% VAT rate (part) to 12½%Increase road tax ratesIncrease excise duty on cigarettes and tobaccoMiscellaneous excise reductions |
-98.4+61.3+14.7+21.0-0.1 |
||||
|
-1.5 |
5. Deduct: Estimated Departmental Balances |
-15.0 |
|||
|
5. Capital Tax Measures: |
|||||
|
Introduce self-assessment for CGT |
+9.0 |
||||
|
Introduce CAT amnesty |
+5.0 |
||||
|
Minor Reliefs |
-0.1 |
||||
|
+13.9 |
|||||
|
6. Net effect on tax revenue of tax and spending changes |
+23.0 |
||||
|
7. Current Budget Deficit |
245.3 |
||||
|
9,027.9 |
9,027.9 |
*Includes £10 million receipt arising from the abolition of the Health Contribution ceiling and the extension of PRSI to part-time workers.
DEPARTMENT OF FINANCE
30 JANUARY, 1991
TABLE 1
1990 BUDGET OUTTURN
|
1990 |
||
|
Budget Estimate |
Provisional Outturn |
|
|
£m. |
£m. |
|
|
Current Budget |
||
|
1. Expenditure |
||
|
(i) Central Fund Services |
2,655 |
2,604 |
|
(ii) Supply Services |
5,732 |
5,817 |
|
8,387 |
8,421 |
|
|
2. Revenue |
||
|
(i) Tax |
7,740 |
7,903 |
|
(ii) Non-Tax |
390 |
366 |
|
8,130 |
8,269 |
|
|
3. Current Budget Deficit |
257 |
152 |
|
Capital Budget |
||
|
4. Expenditure |
||
|
(i) Public Capital Programme |
1,670 |
1,661 |
|
(ii) Other (non-programme) |
25 |
23 |
|
1,695 |
1,684 |
|
|
5. Resources |
||
|
(i) Exchequer |
596 |
503 |
|
(ii) Non-Exchequer |
907 |
871 |
|
1,503 |
1,374 |
|
|
6. Exchequer Borrowing Requirement for Capital Purposes |
192 |
310 |
|
7. Total Exchequer Borrowing Requirement (3+6) |
449 |
462 |
|
8. Total Exchequer Borrowing Requirement as % of GNP (estimated) |
2.1 |
2.0 |
TABLE 2
CURRENT GOVERNMENT EXPENDITURE AND REVENUE IN 1990
|
Current Expenditure |
Current Revenue |
||||
|
Item |
£m |
% of gross expenditure |
Item |
£m |
% of total |
|
Service of Public Debt |
Budget Deficit (financed by borrowing) |
152 |
1.8 |
||
|
Central Fund Services (part): |
|||||
|
Interest |
2,107 |
20.3 |
|||
|
Sinking Funds, etc. |
193 |
1.9 |
|||
|
Total |
2,300 |
22.2 |
|||
|
Tax Revenue |
|||||
|
Economic Services |
Customs |
114 |
1.4 |
||
|
Industry and Labour |
221 |
2.2 |
Excise Duties |
1,674 |
19.9 |
|
Agriculture |
407 |
3.9 |
Stamp Duties |
271 |
3.2 |
|
Fisheries, Forestry |
30 |
0.3 |
Income Tax |
3,024 |
36.0 |
|
Tourism |
25 |
0.2 |
Corporation Tax |
474 |
5.6 |
|
Total |
683 |
6.6 |
Motor Vehicle Duties |
161 |
1.9 |
|
Capital taxes |
71 |
0.8 |
|||
|
Employment and Training Levy |
125 |
1.5 |
|||
|
Infrastructure |
67 |
0.6 |
Agricultural Levies (EC) |
10 |
0.1 |
|
Total |
7,903 |
93.9 |
|||
|
Social Services |
|||||
|
Health |
1,377 |
13.3 |
|||
|
Education |
1,302 |
12.5 |
Non-Tax Revenue |
||
|
Social Welfare |
2,896 |
27.9 |
Fee Stamps |
24 |
0.3 |
|
Housing |
13 |
0.1 |
Interest and Dividends on Exchequer Advances |
134 |
1.6 |
|
Subsidies |
168 |
1.6 |
Central Bank — Surplus Income |
137 |
1.6 |
|
Total |
5,756 |
55.4 |
Proceeds of National Lottery Surplus |
57 |
0.7 |
|
Miscellaneous |
14 |
0.1 |
|||
|
Security |
789 |
7.6 |
Total |
366 |
4.3 |
|
Other |
794 |
7.6 |
|||
|
Gross Expenditure |
10,389 |
100.0 |
|||
|
Supply Service Receipts |
1,968 |
||||
|
Net Expenditure |
8,421 |
Total Revenue |
8,421 |
100.0 |
TABLE 3
CURRENT GOVERNMENT EXPENDITURE 1987-1991
|
1987 |
1988 |
1989 |
1990 Provisional Outturn |
1991(1) Estimate |
% change 1991 over 1990 |
||
|
£m |
£m |
£m |
£m |
£m |
% |
||
|
Service of Public Debt |
|||||||
|
Central Fund (part): |
|||||||
|
Interest |
1,935 |
1,962 |
1,956 |
2,107 |
2,194 |
+ |
4 |
|
Sinking Fund etc. |
183 |
179 |
185 |
193 |
215 |
+ |
11 |
|
Sub-Total |
2,118 |
2,141 |
2,141 |
2,300 |
2,409 |
+ |
5 |
|
Economic Services |
|||||||
|
Industry and Labour |
241 |
227 |
209 |
221 |
255 |
+ |
15 |
|
Agriculture |
456 |
403 |
377 |
407 |
423 |
+ |
4 |
|
Fisheries |
14 |
17 |
20 |
21 |
23 |
+ |
10 |
|
Forestry |
13 |
10 |
13 |
9 |
7 |
– |
22 |
|
Tourism |
25 |
28 |
24 |
25 |
23 |
– |
8 |
|
Sub-Total |
749 |
685 |
643 |
683 |
731 |
+ |
7 |
|
Infrastructure |
|||||||
|
Roads |
31 |
30 |
30 |
32 |
34 |
+ |
6 |
|
Sanitary Services |
2 |
3 |
3 |
2 |
3 |
+ |
50 |
|
Transport |
28 |
27 |
27 |
33 |
36 |
+ |
9 |
|
Sub-Total |
61 |
60 |
60 |
67 |
73 |
+ |
9 |
|
Social Services |
|||||||
|
Health |
1,177 |
1,172 |
1,230 |
1,377 |
1,426 |
+ |
4 |
|
Education |
1,154 |
1,162 |
1,233 |
1,302 |
1,348 |
+ |
4 |
|
Social Welfare(2) |
2,675 |
2,701 |
2,744 |
2,896 |
3,001 |
+ |
4 |
|
Housing |
36 |
33 |
24 |
13 |
11 |
– |
15 |
|
Subsidies |
174 |
172 |
167 |
168 |
169 |
+ |
1 |
|
Sub-Total |
5,216 |
5,240 |
5,398 |
5,756 |
5,955 |
+ |
3 |
|
Security |
|||||||
|
Defence |
298 |
310 |
312 |
359 |
381 |
+ |
6 |
|
Garda |
273 |
280 |
283 |
307 |
324 |
+ |
6 |
|
Prisons |
52 |
49 |
55 |
66 |
70 |
+ |
6 |
|
Legal, etc. |
44 |
48 |
46 |
57 |
57 |
— |
|
|
Sub-Total |
667 |
687 |
696 |
789 |
832 |
+ |
5 |
|
Other |
|||||||
|
Central Fund (part): |
|||||||
|
EEC Budget |
269 |
273 |
290 |
284 |
367 |
+ |
29 |
|
Miscellaneous |
16 |
17 |
22 |
20 |
21 |
+ |
5 |
|
Supply Services(3) |
491 |
581 |
512 |
490 |
748(4) |
+ |
53 |
|
Sub-Total |
776 |
871 |
824 |
794 |
1,136 |
+ |
43 |
|
Gross Total |
9,587 |
9,684 |
9,762 |
10,389 |
11,136 |
+ |
7 |
|
Less: Supply Services Appropriations in aid, P.R.S.I. receipts(2) |
1,566 |
1,695 |
1,717 |
1,968 |
2,150 |
+ |
9 |
|
Net Current Expenditure (excluding Local Loans Fund subsidies) |
8,021 |
7,989 |
8,045 |
8,421 |
8,986 |
+ |
7 |
|
Add back:Local Loans Fund subsidies |
302 |
— |
— |
— |
— |
— |
|
|
Net Current Expenditure (including Local Loans Fund subsidies)(5) |
8,323 |
7,989 |
8,045 |
8,421 |
8,986 |
+ |
7 |
|
Exchequer Pay and Pensions included in above(3) |
2,759 |
2,845 |
2,914 |
3,161 |
3,419(4) |
+ |
8 |
(1) The 1991 Estimate corresponds to figures published in the White Paper on Receipts and Expenditure 1991.
(2) In 1990 the Occupational Injuries Fund and the Redundancy and Employers' Insolvency Fund were amalgamated with the Social Insurance Fund. The figures in the above Table for 1991 and prior years have been adjusted to take account of the higher expenditure and receipts under the amalgamated funds.
(3)Includes provision for payments under the Public Service early retirement/voluntary redundancy schemes: £8.416 million in 1987, £95.839 million in 1988, £17.886 million in 1989 and £4.716 million in 1990.
(4) Includes £191 million provided for in the 1991 White Paper on Receipts and Expenditure for pay increases arising under the Draft Agreement on Pay and Conditions under the Programme for Economic and Social Progress and special pay increases not provided for in the 1991 Abridged Estimates volume.
(5) The figures for 1987 to 1989 reflect actual audited expenditure.
TABLE 4
RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES 1968-1991
|
Exchequer |
Local Authorities (a) |
||||
|
Current Revenue |
Non-capital Expenditure |
Expenditure |
Revenue (b) |
||
|
State grants received |
Rates collected |
||||
|
£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 |
170 |
|
1988 |
7,690 |
8,007 |
2,388 |
1,762 |
195 |
|
1989 |
7,756 |
8,019 |
2,558(c) |
1,935(c) |
230(c) |
|
1990(d) |
8,269 |
8,421 |
2,742(c) |
2,106(c) |
239(c) |
|
1991(d) |
8,788 |
8,986 |
2,828 |
2,189 |
248 |
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 1991 White Paper on Receipts and Expenditure.
(Limerick East): Níorbh é a locht a laghad ar aon nós. Budget day, traditionally, is a day of drama in this House. We have photo calls, the Minister is photographed with his battered brief case arriving at the House and various gurus make predictions on what might be in the budget. Today that sense of drama is heightened given that this is the first Budget Statement to go out live on television. I am delighted that all the Fianna Fáil backbenchers have put on their new suits and are looking so well. Indeed, they will look extremely well on television.
(Interruptions.)
(Limerick East): I am afraid that this is a phoney drama. The drama is more apparent than real because there is nothing in the budget that we did not know already. There was a time when the Minister for Finance came into the House on budget day and announced fundamental policy changes which affected the future of the country and when the admonitions of the Ceann Comhairle on budgetary secrecy meant something but the Minister came into the House today with a budget the details of which were widely known for the last week and not simply because of the leaks on the budget. In terms of leaks, this must be the wettest Government ever.
I understand that the Taoiseach wants to call the new Programme for Economic and Social Progress, PESP which is a dramatic name in keeping with his attitude to marketing. He could well call the budget the MILDEW — the most intentionally leaked document ever in the world — as we knew every detail of it before the Minister came into the House. It could be called that name for another reason because it is going to have an extremely corrosive effect on national life.
Modern budgets, even if the details are not leaked, are not dramatic. We are aware before budget day how the Minister intends spending approximately 98 pence out of every pound. Therefore, it comes down to a matter of what a Minister will do with £200 million or £250 million out of a budget in excess of £9 billion. Furthermore, we know in far greater detail since last week when agreement was reached on the Programme for Economic and Social Progress what the intentions of the Government are. We knew last December that the Government were planning a budget three times the rate of inflation and we know, since the announcement of the Programme for Economic and Social Progress, and the conclusion of negotiations with the social partners, what the details of public expenditure will be.
I have begun my contribution in this way to demystify the budgetary process. There is something else I want to say to Members on all sides of the House and that is that I do not think it is a good idea that the House should merely assemble on budget day to rubber stamp decisions which have been taken elsewhere. I do not think the House should be reduced to the level of a rubber stamp in relation to decisions taken by other people regardless of the merits of those who have taken them. A very important principle is involved here. Article 17 of the Constitution places an obligation on this House to consider the Estimates on an annual basis and to make a decision on them. On this occasion, however, we will not give them any consideration; they will be presented to us, and the Government majority will walk through the lobbies having given them little consideration. As a matter of principle, that is fundamentally wrong.
I am not against the idea of wage agreements by consensus or with the social partners participating in the negotiations but if the consensus is to mean anything it needs to be broadened, deepened and widened and this House must be involved. That applies to everybody on this side of the House and to the backbenchers on the Government side. We are nearing the point when this House will have no say, and the day which used to be the most dramatic in the history of Dáil Éireann, budget day, will be no more than a day on which the drama is spurious and the news limited as the real decisions will be made elsewhere. As a matter of principle, the Taoiseach should seek to involve the leaders and the representatives of the Opposition parties, either through the NESC or otherwise, if this consensus approach is to continue.
We have had wage agreements before and I have no problem with them being negotiated by those who represent the interests of those at the negotiating table but this agreement is fundamentally different. Not only is it a three year agreement but it seeks to underpin policy on public services for the decade. As a matter of principle, this House should be involved and should not be asked simply to rubber stamp it. I accept the bona fides of everybody at the negotiating table and even if the Taoiseach rejects my argument that it should be done as a matter of principle there is a sound pragmatic reason for my suggestion. There has been a change of Government following each general election since 1969. If the fundamentals of a consensus approach to the economy are to survive throughout the decade this House has to be involved in that decision-making process and in underpinning the fundamentals.
Despite the Taoiseach's intimations on political immortality, Governments will change, and when he faces the electorate again there will be a change of Government. It would be wise to have any consensus approach which is supposed to span a decade in matters as fundamental as matters of public expenditure to be endorsed by a wider group of people than the 15 people in the Cabinet negotiating with the social partners.
I have great respect for the social partners. They represent the interests of their members very well indeed, but who actually is represented at the table? Who represents the parents of the mentally handicapped child in the negotiations? Who represents the mother of six children whose husband is on long term unemployment? Who represents the Irish boys sleeping rough in London? Who represents the thousands of emigrants in every city we can name across the Western world? I suggest the people in this House represent them. We meet them every day in our clinics. We get their representations all the time and I think the consensus approach, if it is to last, certainly will have to be widened and deepened. I accept the bona fides of the social partners. I think they do an excellent job for their members but the interests of those who are not represented at the table are not very high on the list of priorities of the people negotiating.
When we take away what we knew already from the Book of Estimates, when we factor in what was leaked in regard to this budget and when we read the details of the Programme for Economic and Social Progress, we find that what we have here today is a speech which took the Minister an hour and a half, full of sound and fury, to read but which signifies nothing. It is dramatic only in one respect in its failure, its failure to take decisions, its failure to address the real problems of the country, its failure to take the national case one iota forward from what it was yesterday.
We are all very familiar now with a new vocabulary of war and the Minister for Finance today has launched a Scud missile into the Irish economy. There are military experts now everywhere you go. It is impossible to buy a pint without meeting military experts, but all will recall that the Scud missile is a very imprecise type of weapon. It has the capacity to make noise, to terrify, even to kill, but it lacks targeting, I tell the Minister, and its effect from a strategic point of view is very limited indeed. We all know in this House that the twin problems facing us are unemployment and emigration, yet in this budget there is not one specific measure which will lead to one extra job in the country. As a matter of fact, one of the great ironies was when the programme for the decade was announced on Tuesday of last week: on Friday the Minister pulled out the White Paper and had to revise the figures for unemployment. After the programme was published the figures for the live register had to be estimated upwards from 221,000 to 228,000 and I believe they are still underestimated. Certainly this budget will have an adverse effect on employment. It will not create a single job. We all know the answer to the problems of unemployment and emigration. We must create jobs, and the fundamental fault in this budget with all its one and a half hours of detail, all its tricking around, all its taking money out of one pocket and putting it into another, is that there is not a single strategy in it which will create a single job.
I always think the present Government led by the Taoiseach are like a group of cartoon figures trying to start an old banger of a car which is up on blocks.
(Interruptions.)
(Limerick East): Maybe even a new car but a banger certainly, it is up on blocks, back firing, belching smoke, the Minister for Finance is under the bonnet fine tuning it with a hammer, the Taoiseach is in the driving seat revving away, shouting instructions in all directions, doors and windows tightly shut because he is not that interested in where the car is going any more, his one interest is in assuming that nobody else climbs into the driving seat.
(Interruptions.)
(Limerick East): I think that before long the Taoiseach will be handing the car over to the Fine Gael garage to fine tune it properly.
I do not think they have blocks.
(Limerick East): This budget is based on very shaky foundations. We warned the Government in this House last year that they were expanding too fast, spending too much in the 1990 budget, that it would run them into difficulties, that the limited success in the economy was due to the buoyancy of revenue and that changing circumstances domestically and internationally would take away some of that buoyancy. They succeeded in coming out of 1990 with respectable figures because of the buoyancy of revenue but now they are faced with changing international circumstances and their problems are much more difficult. They are hoping that their estimates here which are increasing expenditure by three times the rate of inflation will be covered again by a buoyancy or revenue but that is to assume a growth in the economy which no independent economist would agree with. The Government are claiming there will be 2.25 per cent growth in the economy. I believe they will not get that.
We all know there is a war on. We do not know how long the war will last but we know what the effects of war are. First, people get nervous in war times, even non-participating nations. They tend to save more and spend less. People who make investment decisions tend to defer the investment decisions until the war is over or until they see a possibility of its ending. Increased savings and reduced investment are going to lead to a situation where the flow of revenue which is calculated here by the Minister will not come back to the Exchequer. I believe the Minister is seriously over-estimating the amount of revenue which will come into the Exchequer in 1991. I think he knows that and his officials know it also but when they were faced with the problem of what to factor in from a war they decided, as economists sometimes do, to assume there was no war at all and to proceed as if there was no war and they can correct it later. I mentioned that we were all becoming familiar with military terminology now, watching TV frequently and hearing our friends discussing the war.
When the allied nations were bombing Iraq intensely in the first days of the war there was a great deal of surprise that the Iraqis were not retaliating. I saw an American general suggesting one night that this was probably a "rope a dope" strategy. A "rope a dope" strategy was a new one on me but I think this is a "rope a dope" budget because it is gulling the taxpayer and making certain assumptions about growth which are not valid in present international circumstances. We already have the threat towards the end of the Minister's speech that he will introduce a supplementary budget if necessary later in the year. This "rope a dope" strategy will fall apart. I suppose it will last until the local elections but once the local elections are over we will see what will happen. Even if we accept the figures the Minister has given at face value, he has an Exchequer borrowing requirement of £460 million. Do you know this will add £7,660 to the national debt for every child who will be born in 1991? That is some birthday present for the children of 1991. I would say it will nearly cancel out the sixpence a day increase in children's allowance which the Minister is giving to each child in his adjustments to child benefit.
These are the kind of problems we face in this budget. It is based on very shaky foundations. I am doubtful if the Minister will achieve the targets he has outlined today because the assumptions on which the budget is based are over-optimistic and seen to be over-optimistic by every independent economist, and, I strongly suspect, his own people in the Department of Finance because they, not being able to factor in the depressing effect of the war at this stage decided to ignore it for the time being and advise the Minister that he can take corrective measures in mid-summer if corrective measures are necessary.
It has been fashionable over the last few days to criticise public service pay, to blame the increase in public service pay for the difficulties in which the Minister finds himself. We should examine that criticism because there is a lot of begrudgery towards the public service. We should ask ourselves: who are we talking about anyway? We are talking about teachers, the Garda Síochána, civil servants, firemen, local authority and health board officials, nurses, junior doctors and postmen. They are not some kind of saboteurs ganging up to undermine the national interests. Yet some recent comment would suggest that they were irresponsible people grabbing more than they were fairly entitled to. I do not agree with that contention for one minute. The reason there is a problem with public service pay this year is that the negotiations in the pay agreement in 1987 deferred public service pay special increases. They all accumulated, snowballed, and must be paid in 1990 and 1991.
I blame the Government for exaggerating the progress they made in controlling the public debt, for not stating quite clearly that some of that progress was temporary because there were IOUs out there, particularly to public servants, who patriotically and in the national interest, agreed to deferment of their pay increases and who must now receive them. That is not the problem at all with public service pay. Rather the problem with the public service, and public service pay, is the lack of a Government policy to reform the public service or do anything at all with it. Over the last three years the Government, the Minister, and his predecessor, the present EC Commissioner for Agriculture, Mr. MacSharry, spent £127 million to buy out 9,500 public servants. Indeed, they received the lump sum element of that from the Central Bank.
Now we have a programme signed and a Government policy again expanding the public service without any evaluation of the policy that I can perceive. No private company that would have introduced a redundancy scheme, say, in 1987, 1988 and 1989 to reduce their workforce would begin increasing that workforce without evaluating need or anything else; I say that in terms of lack of reform in the public service.
A good public servant is worth his or her weight in gold. I contend that a good teacher, nurse or junior doctor working, say, 80 hours in a hospital is worth anything he or she can be paid. The problem with the public service at present is that it is almost detached from the real economy. There have been no targets set by the Government or the Minister, no career structure, no merit pay; promotion is still tied into seniority in very many cases. If people are pointing the finger at the public service then the Government should go back and reform the public service so that the really able people in the public service get recognition and are not dragged down by a very small minority at whom the finger of criticism can be pointed. We are all receivers of the services supplied by the public service; public servants themselves receive the services supplied by other public servants. The increases in public service pay — especially the special increases — are justified, fair and give a good reward to public servants. Now that the suppliers of the services have been rewarded their consumers must be taken into account also. I call on the Minister to reform the public service in a way which would integrate it fully into our economy, allowing all those very able people who man our public services play their full role in national life.
I say that by way of preliminary to the details of the budget proper. We should remember we are talking today about £250 million out of a total budget of £9 billion. Many of the issues which will affect our national life for years to come have already been decided outside this House and it is appropriate to refer to them in this context.
I should like to move now to some of the specifics of the budget and look first at income tax. In the first instance it is fair to recite what the Minister has done. He has reduced the top income tax rate by 1 per cent, from 53 per cent to 52 per cent, but has not touched the 48 per cent rate. The Minister has reduced the standard rate of income tax from 30 per cent to 29 per cent; that is fair enough so far. Then he goes on to remove the ceiling on the health contribution which means that 1.25 per cent is added to everybody's total salary. To date, health contributions were paid up to a ceiling of approximately £16,500 and now it will be paid on the full tranche of income. Therefore, if we are talking about marginal rates of income tax we must now add back 1.25 per cent; so we deduct 1 per cent and we add back 1.25 per cent. This means that a person on the 53 per cent band goes down to 52 per cent but, out of the other pocket, he goes back up to 53.25 per cent.
That is no reduction in the marginal rate of tax.
Let us examine the position of people on the 48 per cent income tax band. If we look at the ceiling, cut-off point, we see that people on the 48 per cent rate will exceed the present ceiling for health contribution. This means that henceforth they will pay, on the last tranche of their income, a marginal rate of 49.25 per cent. Therefore, the Minister is actually increasing the rate on those most affected — that is middle income people — who are being sucked into that 49 per cent band at much too low a level and whose marginal rate is being increased.
The Minister does another couple of things as well. He indexes the bands. When one calculates what he does with the bands it amounts to an adjustment of about 3 per cent. He says inflation will be approximately 3 per cent for 1991 and, for the sake of argument, we will accept his figures. He does not index the personal allowances which are increasing by slightly more than 2 per cent, which is less than indexation. The public really are interested in the bottom line only; they do not fully understand the complex manner in which their tax is calculated. The PAYE allowance of £800 and the PRSI allowance of £286 are not indexed; there is no allowance made for inflation there. Therefore, when one combines the bands, the personal allowances, the PRSI and PAYE allowances, one realises this amounts to a lot less than indexation. This means that the taxpayer who would normally expect that his allowances and bands would be lifted automatically for inflation purposes has this kind of fiscal drag and brake put on to claw back what he had had formerly.
In addition the relief on life insurance premiums is being reduced from 50 per cent to 25 per cent, affecting everybody; it is now difficult to find the head of a household who is not insured. Whether that householder be taxed at the standard, middle or high rate that relief is reduced. When one takes into account the swings and roundabouts there is neither tax reduction nor tax reform. I am concerned particularly about the 48 per cent rate. The arguments advanced, particularly by the Progressive Democrats, if they apply at all apply more to the 48 per cent rate than to the other. People move from the standard rate of income tax to the 48 per cent rate at too low an income. The disincentive in the economy is not that the standard rate of income tax was 30 per cent and is being reduced to 29 per cent; it is not that one's overtime earnings will be charged at 29 per cent rather than 30 per cent or that one's Christmas bonus will be subject to tax at 29 per cent rather than 30 per cent. The disincentive is that if one does overtime or gets a Christmas bonus, or works harder one will jump from the standard rate of 30 per cent to 48 per cent. Now with the Minister's adjustments one will jump from the standard rate of 29 per cent to 49¼ per cent. The Minister is increasing the marginal rate where the most damage will be done. That is not to talk about the merits or demerits of any of the increases or decreases.
It is difficult for a Minister to beat the figures, because the information is freely available to everybody now. In the White Paper which the Minister published at midnight last Friday, he estimated that £255 million extra would be taken in income tax, almost all from the PAYE sector in 1991 as against 1990. The income tax relief amounts to £85 million but including the take-aways it is about half that. It comes out in my estimation at £54 or £55 million. The Minister is admitting that he will take £255 million extra in 1991 as against 1990. That is a tax reform that suits the Minister who thinks that he can blind people with figures and that they will not understand the implications of the ministerial announcements. I can assure the Minister that although people may not be able to follow them in detail or argue them up and down the scale with the Minister, in every factory this evening, they will know what the change means and they will know that in terms of income tax, like everything else, this is a do nothing budget. At this stage I wonder what is the role of the Progressive Democrats in Government?
A Deputy
They are gone.
(Interruptions.)
They are propping up Doctor Doolittle.
(Limerick East): They were there as a kind of purge on the excesses of Fianna Fáil. They were to be the corrective factor in the Cabinet. Yet, they accepted a budget last year which in terms of public expenditure showed a dramatic increase in public spending, certainly an increase which the Fianna Fáil minority Government when Mr. MacSharry was Minister would not have accepted. Yet, when the Progressive Democrats went in we saw this huge increase in public expenditure.
From the leaks, we all know that the Minister has gone through another fortnight of trauma looking for expenditure cuts in Cabinet. Today's news is that there is to be £33 million extra in cuts and £95 million in extra expenditure decisions. The Minister should have quit while he was ahead in December, because he lost another £65 million by looking for further cuts. I wonder where the guardians of public expenditure were — and they are not here now either — the people who talked tough in this House in Opposition and always voted soft? Where were they when they were needed? I thought they would have been there to press the case for tax reform. Where is the tax reform? This is the old soft shoe shuffle — we will give you £85 million extra in income tax relief but we will put 10 per cent onto car tax, 10p onto the packet of cigarettes, we will not index allowances and we will pretend that the PAYE and PRSI allowances are fixed amounts. We will take away benefit and relief on insurance policies, and then we will increase tax on your clothes and shoes. This is tax reform, the new tax reform by Fianna Fáil and the Progressive Democrats. It will not win very many races.
In relation to indirect taxation the Minister has reduced the standard rate of VAT from 23 per cent to 21 per cent as we expected. We were told by various commentators that this news had been widely released. What was less widely known was that the Minister is increasing the lower rate on a selection of items to 12½ per cent to pay for this. What is Government policy on tax harmonisation? We are supposed to have our taxes harmonised with those in Europe very shortly. What is the intention? I understood the Commission proposals to be that we would have one high rate at around 15 per cent and a lower rate and that items like food could be exempt and there would not be an EC obligation on us to put VAT on them. I cannot see that the Minister is doing that or where he intends going. The Minister is reducing the 23 per cent to 21 per cent. I understand from previous debates in this House that the Minister is contemplating a standard 17 per cent rate. If this is the Minister's way of doing it, by increasing the lower rate on certain items, are we to presume that in next year's budget the 12½ per cent will go up to meet that and that we will have a rate of 17 per cent? The idea of harmonisation was that we would have two rates but the Minister has complicated the VAT system by introducing another rate of 12½ per cent. The Minister has threatened everybody who remains on the 10 per cent rate that if there is a policy change in Europe that will be increased also. It seems inevitable from what the Minister has announced today that VAT on adults' shoes and clothes will go from 12½ per cent to 17½ per cent or 18 per cent over the next two budgets, that VAT on electricity will go from 12½ per cent to 17 or 18 per cent, that VAT on fuel oil and on home heating oil will go to 17 or 18 per cent and that VAT on telephone calls will go up to 17 or 18 per cent. When we go back to the meagre reliefs being given to the income tax payer we can tell mothers organising family budgets that they will get income tax relief that does not even allow for inflation, that they will pay extra VAT on every pair of shoes they buy for themselves, their husbands or tall children, that their electricity bills will go up by 2½ per cent, with a promise of it increasing by another 5 per cent over the next two years, that their telephone bills will go up by 2½ per cent. When taxpayers look at the tax relief they were getting on insurance they will see that they are losing relief there as well. The relief on a husband's life insurance policy is also gone. That is tax reform. I wonder what the policy on harmonisation now is? There are fundamental questions to be asked about the Minister's intentions. We know the Minister intends pulling the standard rate down to 17 per cent but we have no idea what he will do with the rest of the VAT. Is the zero rate safe? Will next year's announcement at the back end of the budgetary speech be that there will be VAT on food, medicine, animal feeding stuffs, pharmaceutical supplies and so on? Will next year's announcement be that all those things the EC will not allow him raise from 10 per cent on this occasion, will be raised?
The Minister also has a commitment to harmonise excise duty. We all thought that harmonisation would bring reductions on the very high rates of excise duty which pertain in this country, which are the highest in Europe. Thank God, this year the Minister had the good sense to leave petrol alone, but how can 10p on a packet of 20 cigarettes be justified? Do not try to sell us the story that the Minister was advised by the Minister for Health that this should be done as a health measure. They were making up this budget until the middle of the day yesterday. When they came to the last £21 million somebody said, "We will give the fags a bang and it will bring it in fast and nobody will notice". The mother of the four children in Dundalk when she is making up the family budget tonight and factoring in the 6p per children per day extra, which the Minister in his generosity is giving her, can factor out the 10p per day on the packet of 20 cigarettes which she will have to pay from midnight. She will probably go to Newry to buy her cigarettes.
What is the Government's policy on the harmonisation of export duties? The Minister or the Taoiseach might address that question tomorrow. What is the Government's policy on the harmonisation of deposit interest tax? There is a figure of about £280 million for DIRT. The Minister is committed to removing all exchange controls by the last day of 1992. We have this budget and the next budget to take action. Does he think that when all exchange controls are removed a person in this jurisdiction with money on deposit will leave it here and pay tax at 29 per cent on the interest when that person can open a deposit account in Newry, Nurenberg, Brussels, Luxembourg or anywhere else? I would suggest Luxembourg where it is zero rated. I am sure the friendly local bank manager will suggest it also and will arrange the transfer. There will be a flood of money from the country, yet it is not referred to in the Minister's speech. A huge amount of revenue is at risk and the Minister has no policy on it. We should not be surprised at this. What has happened in the past is happening again.
Each Minister of the Government goes to Brussels without any policy whatsoever. An Irish policy is never put on the table. They always react to the proposals coming from the Commission and consequently we always get caught out. There is not an Irish position on any major item that comes before the Council of Ministers, and there is no Irish position on the harmonisation of VAT, excise duty or DIRT. They are being dragged along in the wake of other people's decisions.
I am glad the Minister for Finance acknowledged that the reductions in VAT last year were not passed on to the consumers. I was glad he rapped the Minister for Industry and Commerce on the knuckles over the issue and I welcome his insistence that the reductions will be passed on this year. On the other hand, I do not think he can insist because the mechanism is not in place which punishes people for price fixing. Until the Bill is brought in to enshrine in domestic legislation those provisions of the Treaty of Rome which outlaw cartels, monopolies and price fixing, the Minister's reductions in VAT will not be passed on to the consumer. It will look well on paper but will not look well in the shops where people will find that the price of the hardware remains the same. I can give an absolute guarantee that the increase in VAT from 10 per cent to 12.5 per cent will be passed on very quickly indeed.
The section on social welfare is extraordinary. There is a 4 per cent increase across the board but when we take into account the very small sums paid to people on social welfare, the percentge amounts to very little. We are talking about pennies. There is no targeting whatsoever. I often think that Fianna Fáil like a dependent society. In every town and village they encourage dependency and those who are most dependent vote Fianna Fáil. They march them down to the polling booths and they vote them in a despicable fashion. There is this problem with the whole ethos of the main Government party. We on this side of the House are the party of the hand up, not the party of the handout. If more people could be provided with jobs, proper increases in social welfare could be provided for those in most need.
The Minister's provision for children is laughable. He extends the provision for the fifth child to the fourth child. With four children in a family, it is less than 6p per day per child. It is absolutely derisory and I am not sure why the Minister bothered.
I should like the Minister to target the social welfare provisions and to pay more attention to the many poverty traps in the system which are preventing people from returning to work. PRSI is paid on the first £1 of income, whereas tax is not paid until allowances and exemptions are taken into account. The Minister should have done something about PRSI for the lower paid. He could, for example, have taken the first £2,500 out of the PRSI net, as we proposed.
I welcome the modifications in the family income supplement but it should be based on net rather than gross income. The Minister should make this change.
Changes will have to be made in the means test as well. There will have to be one national means test and the benefits deriving from that will have to be graduated. If people go back to work they are cut off from everything. Their rent goes up, they lose their medical card, they have to join the VHI, they have travelling expenses going to work and they have to pay union again. The poverty traps are ensuring that people, especially heads of households, family men with three or four children, cannot afford to go back to work because they will lose out.
The provisions in relation to health, education and housing simply echo the announcements made last week. My colleagues on the front bench will take up these points in the course of the budget debate.
The major flaw in this budget is that there is no strategy for jobs. It is a constant theme that should be echoed through this debate. There is a kind of hopelessness in Government about jobs. They spent since last June negotiating a social programme and the first announcement after its signature was that the social welfare provision for the live register had to be increased by 7,000. There are 228,000 people unemployed and the last official figure for emigration was 46,000. There are strategies which can provide jobs. We know what the total solution is. If we produce more goods and services and sell them competitively abroad, this will require extra people. Yet we insist on leaving in place a whole series of road blocks which make it impossible for our economy to thrive.
I have referred previously to the lack of a transport policy. A total of 125,000 containers are carried by Northern Ireland carriers every year, representing a loss to this economy of £56 million. They collect as far south as Cork and take them as far as London. We still have no statutory roads authority. Even the commitment to a statutory roads authority has been omitted from the new programme. We still charge 6.5 per cent excise on articulated vehicles. Our port costs for container traffic are over 200 per cent higher than those at the port of Larne. Is it any wonder that hauliers take what could be described as the geographically illogical route when transporting goods from this country? Petrol and diesel costs are massively in excess of those which pertain in Northern Ireland. Even when we leave the shores of this country, the UK roads serving Fishguard and Holyhead are a disaster. I know that the Cabinet fly from country to country in the executive jet. Nobody begrudges them that — it is a perk of office.
Deputy Noonan will accept that his imagination is taking him a little bit beyond his brief.
(Interruptions.)
We are making up for the lack of imagination in the Minister's speech.
The Chair was about to make the submission to Deputy Noonan, not to his colleagues, that it is customary on the budget for the chief spokesperson to make a brief reference to the budget and I was only going to say to Deputy Noonan that his comments in the last few minutes may have strayed beyond what is in the budget. We will have economic policy on the Finance Bill.
This is all about economic policy.
(Limerick East): I accept your criticism, a Leas-Cheann Comhairle. You are as entitled to be on live television as any of us. I accept your intervention.
Deputy Noonan, take it from me I do not envy you your television performance and I do not want to be on on Saturday morning either.
(Interruptions.)
(Limerick East): I would like to make one suggestion to the Taoiseach about a decision which I understand he is about to make, and I make it seriously. One of the major problems in transport policy in this country is that responsibility for transport is spread over three different Departments. The Department of the Environment are responsible for roads. The Department of the Marine are responsible for ports while the Department of Transport are responsible for the State agencies like Aer Lingus, Aer Rianta, B & I, CIE, all to do with transport. Even the Department of Justice are responsible for the administration of policy on the roads through the justice policy. Is it any wonder that we do not have a national transport policy when there is actually nobody responsible for it? In all humility, a Leas-Cheann Comhairle, I would suggest to the Taoiseach that in the course of his reshuffle it might be a good idea to create a Minister for Transport who actually has responsibility for transport.
Our industrial policy has failed. There is no reference to jobs in the budget. I am trying to be helpful and show how the Government could create jobs if they were serious. Do you realise, a Leas-Cheann Comhairle, that over the last decade the State agencies have spent £5 billion in the promotion of industrial jobs here and that there are 20,000 jobs fewer at the end of the decade than there were at the start of it. I am sure the House realises that the Department of Industry and Commerce, who were mandated by this House to report on industrial policy, in a report recently made a whole series of recommendations which the Minister for Industry and Commerce, Deputy O'Malley, has ignored. Is there any evaluation of the job creation policy of the Government or have the Cabinet accepted the kind of Dickensian view of life of the Progressive Democrats that nothing can be done, that we must go through the nineties with a live register of 230,000 and massive emigration, that all we can do is try to keep up the standards of those at work, try to look after three quarters of the population and write off the other quarter? This Dickensian view is expressed by the chairman of the Progressive Democrats quite frequently, and I am afraid it has infected the Government because, as far as I can see, there is no strategy for job creation in the budget.
I would like to dwell at greater length on other sectors, particularly the agricultural sector, but I will leave that to Deputy Deasy who is so capable. We are disappointed at this mish mash of a budget. It is impossible to grasp any policy direction in it. Not alone is it not going anywhere, it is not even treading water. It is a budget that will be off the rails by mid-June and, certainly, no party on this side of the House could be satisfied with it.
Fine Gael would expect to do far better. Fine Gael want a society where lack of educational opportunities will not prevent social mobility, where deference and forelock touching and tuppence looking down on a penny are replaced by a democracy of educated equals building towards the future.
We want an enterprise society where the efforts of the people and their enterprise is rewarded, where the tax system encourages work, where people who work are properly rewarded, where people who invest get the full fruits of their investment and where everyone has a stake in the country, not just three quarters of the people having a partial stake.
Fine Gael want an employed society resulting from this enterprise, a society where a job in Ireland is the normal expectation of a school leaver and where periods on the dole are intervals between work and not a permanent way of life. We believe in the society of the hand-up not the society of the hand-out. We believe in an energetic society, a society which addresses its problems and works to solve them. We reject the benighted views of the two parties in Government that one million of our people must be condemned to poverty through massive unemployment, emigration and leading unfulfilled lives.
We believe in a European society. We want Ireland to be a modern European democracy equal to any of our partners in Europe in terms of dynamism and enterprise. We want our living standards to be European standards and our way of life to surpass the European way of life. We make a pledge that we will work towards the economic, monetary and political unity of Europe. Fine Gael in Government will be a fully participating member of the European Community solving our problems in the European family, accepting our responsibilities as members of the European family and bringing Irish proposals to the table and not forever reacting to the proposals of others. We will reject the kind of Ireland frequently portrayed by Government Ministers, an Ireland of moaners and whingers where even the Taoiseach when he was President of the European Council could always be relied on to pull the begging bowl out from underneath the emperor's robes.
The budget will achieve nothing. It is the first budget of the decade but it fails dismally to address the problems of the nineties. It plays for a draw when we badly need a win. Its financial foundations are suspect and it will send the Government into terminal decline. Let us all hope that it does not do the same for the country.
A former distinguished leader of the Fianna Fáil Party, Sean Lemass, the father-in-law of the Taoiseach, was famous for his phrase that a rising tide lifts all boats. There are, however, 100,000 Irish citizens who are so firmly beached by the crisis of long term unemployment in our country that even a spring tide in full flood could do nothing for them. Many of those citizens will never again work in this century unless present policies are changed to positively discriminate in favour of the people who are long term unemployed. Instead in the budget the Government have again told the long term unemployed that they must wait until extra resources become available. That is the real fundamental indictment of the budget that the Labour Party want to put on the record of the House this evening.
Against this background of the misery of long term unemployment the budget represents a failed opportunity. I will give our reaction to the specific aspects of the budget, and the order in which they were announced by the Minister. The additional commitment the Minister has made to backing the crisis of long term unemployment is the enormous sum of £500,000 for managerial coherence and administration. Social Welfare increases are poor having regard to the base on which they are calculated and also taking into account the Government's alleged commitment to the report of the Commission on Social Welfare. The Minister has not done nearly enough, for mothers and children in this context. Consequently his changes will do little to end the poverty trap about which the Government talk so much.
The changes in regard to education are welcome so far as they go, but they will do little more than undo some of the damage of the past three years. We still have a long way to go before ending the disadvantage and inequality that this Government have made a feature of the system. The changes announced in the pupil-teacher ratio for example, will do little to change average class sizes.
The Minister has tinkered with the PRSI system, and in my view, ended up with the worst of all worlds. The system, as at present structured, will do nothing to promote either equity or equality and will certainly not improve prospects for employment. It is long overdue for fundamental reform but tragically the Minister has shirked making that reform in favour of protecting those on high incomes. They remain unscathed.
The changes in tax exemption limits will do little or nothing to relieve the tax burden on PAYE workers. The number of low paid workers taken out of the tax net is, according to our calculation, the smallest in several years. The total cost of changes in this area announced by the Minister this afternoon will be less than £10 million this year — we had sought £28 million as the bare minimum for this year.
The aim of a comprehensive health service is laudable in principle but it cannot be achieved without negotiation and, above all, without resources. The proposals outlined by the Government will add to the waiting lists, lengthen them, rather than reduce them. The crisis in residential accommodation for the mentally handicapped with which every Deputy in this House, including the backbenchers of the present Coalition Government, are familiar, cannot be met on the basis of their small share in a seven year programme.
The absence of any increase in local authority housing programmes, especially in the light of the already acknowledged housing crisis, is an extraordinary scandal coming from a party like Fianna Fáil who have such a historic record in the area of public authority housing.
The marginal changes in the tax rates and bands were hardly worth the Minister's effort. In fact, the average PAYE worker will find himself or herself carrying a higher tax burden this year. Without any change, based on the calculations we have been able to make, the total take from income tax, which is principally PAYE, would have risen this year by approximately £225 million, but it will rise by £200 million. The Minister has given with one hand and taken back with the other where VAT is concerned. The Minister has signalled that everything now on the 10 per cent VAT rate will go to the higher rates which will follow from EC harmonisation; he has put a stop in relation to construction and other related services, but it is only a temporary stop, and in due course they too must expect to follow the items in the 10 per cent band which have gone into the 12.5 per cent band, which we presume will soon increase up to 15 per cent.
Increases in heating, ESB and telephone costs announced today will eat into the small increases awarded to social welfare recipients. Another VAT rate will add to the red tape and bureaucracy faced by many small businesses. There has been no real attempt made to reform taxation at it applies to companies. The Minister's failure to address the need for reform in this area unnecessarily limits the scope for PAYE relief and does nothing, in our view, to bring Irish corporation tax up to the OECD average of 2.7 per cent of GDP. Last year corporate profits amounted to £6,000 million. We are suggesting that it would not be unreasonable to have an average tax take from that profit level of 10 per cent, which would yield £600 million. The Minister has failed, tragically in our view, to achieve that very modest objective which we set out in our pre-budget submission.
In summary, this budget, in our view, is boring and unimaginative. The long term unemployed, the people who suffer most from the reality of poverty and those who would have hoped to benefit from tax reform will have to wait for another long year. This is a timid budget by a Minister and a Government afraid to tap the consensus they have tried to create. The Labour Party believe that Ireland is bursting with idealism, hope and optimism. It is made up of individuals seeking fulfilment and self-development and communities fighting to improve their future. It is their priorities we believe this budget has failed to address.
I do not want to sound totally negative and critical of this budget but, regrettably, I find I am forced to do so. However, I have carefully gone through the Minister's speech and listed the things I thought were good, and I want to put them on record now. There are positive proposals to alleviate the suffering of women to the value of £0.5 million; there are positive proposals to assist voluntary and community organisations in their work at local level to the value of £0.5 million; there are proposed changes in the education system on the margin which will improve the delivery of education services in some area to the value, as I calculate it, of £1 million; there is an excellent proposal to extend pay related social insurance to part-time workers combined with the legislation which has been circulated already and which will affect 70,000 workers. It would be churlish of the Labour Party not to recognise this measure, which we welcome; there is a recognition that tourism targets will not be easily met this year — a major effort has been made to increase the budget for advertising and promotion of Bord Fáilte to attract European and North American tourists, by an extra £1 million. The cost of the election campaign of the Fianna Fáil presidential candidate last November was more than £1.5 million, to put things in context.
There is a recognition that as the Common Agricultural Policy is brought closer to market forces and away from guaranteed payments for production, CBF will have to get additional funding to promote Irish food products to the value of £1.5 million — the same amount of money to sell Irish beef was spent to sell Fianna Fáil's presidential candidate.
There will be £3 million to £4 million made available for what is termed voluntary housing. There are also good proposals for the conservation of State buildings and an excellent proposal, in my view, to give all Departments a degree of autonomy in the management of their affairs on a three year rolling programme. There is also a good and welcome proposal to extend rent relief for people over 55 years. However, I would have suggested to the Taoiseach that it would have been more effective if the Minister for Finance had agreed that everybody who is a tenant of a private landlord should be entitled, as of law, to the right of a rent book, which they still do not have, and people under the age of 55 seeking a rent allowance from the community welfare officer, in the absence of a rent receipt, find it impossible to get the type of assistance they need.
The Labour Party believe that if this country is to develop and grow we need to have real economic growth. We need to get a consensus in our society that will bring that growth about and we need to learn from the mistakes of the past. I want to say what the Labour Party believe and what we know we can no longer do, not that we ever indiscriminately advocated it in the first place. Because of the way in which society has developed and moved on, things have changed and there are now constraints on us which did not exist as they did in the past. We cannot, for example, revert to simple pump-priming of the economy by the State. All interventions by the State in the economy need to be made in the context of a plan and focused to achieve specific results. We do not think this budget is moving in that direction. We further recognise that we cannot revert to devaluation of the currency to deal with trade imbalances nor can we set interest rates at whatever level suits our short term purposes. The reality is that these areas are really determined for us by the international financial system. These are the constraints but I want to focus on the things we can do.
Basically, we can establish a consensus and national objectives and the means to achieve them through economic and social planning. The real question here is whether we go for the maximum achievable objectives or settle for agreement based on the lowest common denominators. We can radically reform our taxation system to promote enterprise and efficiency and to ensure equity. This requires courage and a political acceptance that there are losers as well as winners in tax reform. We can target our tax incentives and grants to industry to get the best return for Ireland in terms of jobs and wealth repaid. We can build political alliances with other peripheral regions of the European Community and fight alongside them to have the Community's resources expanded and policies changed so that Irish people can benefit to the maximum extent from integration and the creation of a new Europe to which the Labour Party are committed. Finally, we can reduce unemployment and eliminate poverty if we are prepared to make difficult, hard, tough, political choices. Basically, the choice is to place people who are disadvantaged on an equal footing in the Government's priorities with the more fortunate in our society who have made regular employment, a reasonable income, a hope for a better future. We need to make the commitment, starting with Government but including trade unions, employers and every sector of our society, that unemployment on the scale which we are experiencing is not acceptable, is not inevitable and will be overcome.
We accept that in many respects this budget is a political statement; so too is the recent Programme for Economic and Social Progress, which we welcome. We welcome the concept of a programme and we welcome the concept of a social partnership. I want to point out that so far as the Labour Party are concerned there is a weakness in the entire process by which this budget and this programme were formulated. It has been, in effect, negotiated and agreed to the exclusion of almost all the Oireachtas Members, including Government backbenchers as regards having any input to the discussions prior to both agreements. There is also, unfortunately, little evidence in this budget that either tax reform or unemployment are to be tackled within the programme with the urgency which we require and which we regard as necessary.
I suggest to the Taoiseach if he wants to get support on a long term basis — and he will have it from the Labour Party — for the concept of social partnership enshrined in some form of ongoing dialogue, leading to successive programmes over the ten year period, where the Irish Congress of Trade Unions have put on the table of the various negotiations that have taken place then the Oireachtas will have to be involved in a meaningful way. That meaningful way would involve the Members of the Oireachtas in some form of ongoing economic and social committee. If this Government, or any other Government over the next ten years, fails to recognise the dimension of the Oireachtas in giving legislative effect to many of the proposals, which are aspired to in the PESP, then such programmes will be at risk and that in our view would not be a good thing.
I should like to turn to the question of unemployment and the focus that this party want to bring to this debate on this occasion, at the beginning of this decade. We do so deliberately before we come to tax reform and the relief for PAYE workers or, indeed, the extra benefits that have been allocated to social welfare recipients because unemployment and long term unemployment is the greatest single evil afflicting our society. In today's issue of The Irish Times the details of a survey on behalf of the Economic and Social Research Institute are published. Members of this House may already have heard part of an interview on “Morning Ireland” this morning. It is there for the House to see and I will not read it into the record. Unless we can focus the resources of our society to deal with the reality of over 100,000 people who would appear to be permanently long term unemployed, then all of the other provisions of the budget and the Programme for Economic and Social Progress will have little or no relevance to them.
There are at this moment as we speak 47,000 people in our society who have not worked for three years or more. There are an additional 20,000 people who have not worked for the last two to three years, and there are 37,000 people who have not worked in the last year to two years. Why does this crisis exist? The answer is both simple and complex: simple in that the long term unemployed must compete in the marketplace with those currently at work and those entering the labour market for the first time. That simple reality masks a whole series of complex difficulties and issues. The majority of unemployed men are in the 25 to 45 year age group and in the case of the long term unemployed over half are the heads of households. Among women there is a much higher level of unemployment in the under 25 year age group than men. To some people — some of whom are in this House — there is a doubt about whether the unemployed want to work. In my view that is asking the wrong question even if for some they find it a convenient one. The real question is whether the unemployed have an opportunity to work. The upturn in the economy in the past two years has seen a welcome reduction in redundancies which in turn has seen a fall in the number of people claiming unemployment benefit from a peak of 98,000 down to the figure of 65,000. International evidence, provided by the OECD, suggests that only one of every eight vacancies in the labour market is filled by a person from the ranks of the long term unemployed. Because our labour force is growing by 25,000 per year, the employment chances of the long term unemployed are even worse in Ireland than in other countries.
Against this background I have no objection — indeed I welcome the recognition of the problem — to the Government proposals to concentrate on areas of high unemployment. Pilot surveys and local community initiatives funded by the additional sum of £500,000 do not even begin to get near recognition of the extent of the problem. It simply is not enough. All the tinkering, welcome as it may be for the immediate recipients, people on the edge of the social welfare system, including the long term unemployed, is no substitute for a real job. We have the reality, as we speak here tonight, of children who are living in houses where they are facing a third generation of people who will never work in their lifetime. We are talking about people in their thirties who will never work in this century because our society is incapable of providing them with a job. We can provide them with some kind of an income, marginally adjusted, called long term unemployment benefit but it is no substitute for real work and that is where this budget fails.
I could go on at some length to indicate what the Labour Party would have wished this budget to do. In deference to the time constraints which are upon all of us I simply draw the attention of the House to the detailed submission which we made before this budget to the Minister for Finance and which was given out to the media.
In addition to the problem of the long term unemployed, there are difficulties encountered relating to the proverty trap in terms of getting people on the margin of employment back into full employment if they can overcome the disincentives our tax and social welfare system are to them and which prevent them from returning to work. The poverty trap with all the expertise, all the computer models of the Department of Finance, all the brilliance of the various research institutes, still exists. Tomorrow morning the independent experts will tell us that the poverty trap in real terms still exists. We still have crippling PRSI rates at the bottom level of the payments scheme. We still have the nonsense of an exemption up to £60 a week for PRSI. The reality is that if you earn £61 a week you wil have to pay PRSI. This budget does not deal with the poverty trap. The poverty trap compounded with long term unemployment is an obscenity that does not have to happen in our society. We are not a poor people. Yet this obscenity will continue though 1991 because the Coalition Government have failed to avail of this opportunity to eliminate it in its entirety or severely dent its negative social impact.
Our expectations of tax reform and progress in this area were so great that they were comprehensively leaked. There was not one bit of surprise or element of imagination in what was read into the record of the House this afternoon by the Minister for Finance. As I have already indicated, the people who pay the highest amount of direct tax from their incomes, the PAYE workers, will in real terms pay £200 million more this year before they start to come to terms with the other increases the Minister has outlined. The changes are simply tinkering with the margins of the system and do not address the fundamental problems we identified in our submission to the Minister prior to the budget.
We have already said that in a system of real tax reform there are winners and losers. One cannot have it both ways and pretend that tax reform will affect everybody positively and nobody negatively. The Labour Party certainly do not support the view that tax reform, as proposed originally by the Progressive Democrats, can be financed by tax cuts where the people who pay for the tax reform of people on high incomes are those dependent on public services.
The Labour Party believe there are three basic elements which are essential if tax reform is to take place in a meaningful way in our society. First, the tax base needs to be widened. This means more tax would be collected from those who are paying less than their fair share and the special exemptions from tax which erode the tax base would be reduced and eliminated. Secondly, taxes should be collected on time and, thirdly, the benefits of various allowances to income taxpayers should be equalised by converting them all into tax credits.
If ever there was a time to continue some of the good work done in the area of tax collection and in shortening the time for bringing in taxes, which this Government and previous administrations had instituted, now is the time to do it, 700 days before the reality of 1992. Yet this budget does little or nothing to effectively improve the tax base in any meaningful sense. As has already been said by a previous speaker, the budget does not make any allusion whatsoever to the problem of substituting the £180 million revenue from DIRT tax with some other form of revenue after 1992.
I want to refer again to the failure of the Government to significantly take any kind of increased take of revenue from the corporate sector in Irish society. The Programme for National Recovery, which was built on the contribution of workers in the public and private sectors who had foregone legitimate increases in their wages, enabled a large number of Irish companies and corporations to make healthy profits to the tune of £6,000 million last year. We could, and should, have moved to the European or OECD average of 2.7 per cent of GDP take which would have brought us up to about £600 million. We have failed to do that. Yet the corporate sector are capable of paying that kind of tax level. This is a missed opportunity which the Government will rue as we move towards next year's budget and the one after that.
The Labour Party believe there was a strong and legitimate argument for increasing the take from the taxation of assets. Notwithstanding the difficulties which have afflicted the farming community over the past year and a half there is a very strong argument for the reintroduction of the straightforward, simple to comprehend and easy to pay land tax which the 1987 minority Fianna Fáil Government abolished and which would have been charged at £10 per adjusted acre.
The budget references to health and housing need to be addressed very firmly tonight. My colleagues in the Labour Party will have a lot of detailed and incisive points to make during the debate tomorrow and over the coming weeks. Over the past year or so, and certainly during the conclusion of the negotiations on the Programme for Economic and Social Progress, various Government spokespersons spoke extraordinary nonsense about health and the provision of taxpayers money for the health services. Indeed, the Taoiseach who previously admitted on radio that he was not aware of the extent of the health crisis in the real world, should be advised that that crisis has not gone away.
Having promised increases across the board in the programme the Southern Health Board, whose services have already been pared to the bone, have effectively been told to cut another £6 million off their services this year. This is happening against a background of improvements. A health board who are down to the basement level in terms of thrift and parsimony have been told by the Minister for Health to find another £6 million. According to the members of the health board — presumably there are Fianna Fáil members on the board who still have contact with the Minister for Health and can tell him this — these savings of £6 million can only be achieved by increasing waiting lists to a point where lives will be put in danger and untold hardship will result. We already know that there will be no capital investment in the health board area next year and there will be cuts in current spending, which will lead to the inevitable loss of further beds and a reduction in staff.
I have been told reliably today that the Minister for Health has instructed the board of Tallaght hospital that, notwithstanding the fact that all the necessary contract documentation is available and that the construction contractors on the short list were told they might receive an invitation to tender, there will be no invitation to tender issued to construct that hospital in 1991. If that is not true I would be happy to be corrected but I have been so reliably informed.
It is appropriate that the Minister for the Environment should be in the House when the topic of housing is being discussed. As I said before the Minister joined us, giving every tenant of a private dwelling the legal right to a rent book would be a greater contribution to security of tenure and equity in the housing market than the welcome additions in terms of tax relief which the Minister for Finance has announced for people aged 55 years and over in private rented accommodation. The public authority housing crisis here will become progressively worse as emigration tails off and people can no longer flee to Britain to seek employment because of the failure of the Irish economy, particularly in urban areas. I am not so sure that the Minister is aware of the seriousness of this problem.
There are many other areas which require mention in the context of this budget debate but I do not think it is appropriate to do so in view of the time available to us except to say that if we are to survive in this decade as a people we have to have a common consensus and common objective. The Labour Party believe that that common consensus, components of which have been slowly put together at some cost over the past three to four years, must be built upon. In that context we see a major role for the Irish State both in the negotiation rooms of the Councils of Ministers in Brussels and the way the State intervenes in the Irish economy. There is no point in the Irish taxpayer funding at great cost inducements and incentives for industry to be established or to expand in this country or for foreign industry to be attracted to this peripheral part of Europe if at the same time there is an absence of an industrial policy for the whole of Europe. I am informed that the IDA on a number of occasions in recent times have gone as far as negotiating the entry of foreign companies into the Irish economy based on the package of incentives, tax reliefs and grants that we as a peripheral nation in Europe are able to offer but have been scooped at the end of the day by a central region within the European Community that can offer even a bigger incentive. That is nonsense and it has to be negotiated away.
There are 20 tax-free corporation, investment and industrial zones in the centre of Europe and as long as they stay there the IDA in Ireland or their counterparts in Spain, Greece, Scotland or Wales will have an impossible task. The Government appear in the economic area to have no coherent economic policy in the context of 1992. We must move beyond the context of the begging bowl and of believing that if we produce any food and sell it into intervention that will be sufficient. We have to move to a position where we can learn to earn our own living in a manner that is fitting to all of us. One of the ways we can do that is to construct a new political alliance within the Europe of 1992 that will link those countries on the periphery of Europe and demand, in cohesion, that there is produced within the halls of Brussels an industrial policy that will allow the peripheral areas to develop and grow. We are not looking for handouts but for European equality that will enable this country, with its advantages and disadvantages, to compete equally with other better positioned economies in Europe.
That is the other side of the 1992 project. It is not just about harmonisation of tax rates, which will be very difficult. This Government have lost an opportunity to achieve some of that harmonisation in this budget. It is about creating, within the framework of a single market, a valid economic policy which will enable the blocked energy of the Irish economy to be released. To do that you need economic leadership and vision. One of the few set-piece debates during the course of our political calendar is the budget speech by the Minister for Finance. There is no vision; there is no hope, there is no perspective and there is no sense of what is going to be done in the next 700 days, between now and 1992. There is no sense of where the Minister for Industry and Commerce wants to go. There is no sense of where the Minister for Transport wants to move in relation to harmonising or reducing the cost barriers that are there for Irish goods and services.
This is a tired Government that have run out of ideas and have produced a timid and unimaginative budget. Those people who are at work, who are fortunate enough to have good jobs, are now living in a country where there is no sound economic leadership from the Government. For those people who are not at work through no fault of their own there are very marginal social welfare increases. The increase is not 4 per cent per annum. That is a nonsense. It is 2 per cent per annum because the increase will not be given until July. Therefore it is not ahead of inflation but is just barely in line with it.
Finally, excluding Spain we have the highest rate of unemployment in the entire Community, and that problem will not easily go away. The rising tide will never come near these people. Their boats are so far up the beach that they will not even see the tide. Market forces, the great god of the Progressive Democrats and perhaps the born again Fine Gaelers and some of the Fianna Fáilers, will not on their own bring that tide near enough to the long term unemployed. If we cannot get the tide up to them, then all the tinkerings on the social welfare side, the dependency culture, the payouts and the hand-outs, the begging bowl syndrome of our society, which may take away some of their hurt and their pain, will not give them what they are entitled to in the last decade of this century — the right to go out in the morning to a job and for their children to see them going out to work. In that sense this is a failed budget.
As other speakers have emphasised, this budget is disappointing. As Deputy Quinn has said, it is unimaginative, and it is a failure. It fails in almost every test. It does nothing for the unemployed and leaves job creation once again to the market forces which have never delivered jobs in the past. It does nothing for the poor. Increasing social welfare payments generally in line with inflation is simply accepting the status quo. There is no real tax reform. The adjustments are derisory and will still leave the PAYE sector crucified by tax while the rich will continue to benefit from loopholes. It does nothing for the homeless. The 20,000 people who are officially on our housing lists have little enough to hope for out of this budget and indeed the young people who are living rough on our streets have nothing at all to hope for from the budget. The Minister seems to have entirely ignored the likely impact of the external factors on the Irish economy. In this budget he has constructed a house of economic cards which could be brought down by the insane war in the Gulf.
Deputy Reynolds opened his speech by making a ritual nod towards unemployment when he said that growth in employment was a priority for the Government. He then proceeded to ignore the unemployed for the remainder of his speech. It is hard to identify one initiative, reform or suggestion which will create even a single additional job. The unemployed are to be abandoned for another year to their own devices. The Minister for Finance has shown that he has feet of clay when it comes to making any effort to even reduce unemployment. Indeed the admission from this Government is that unemployment will rise in the coming year.
While the Minister claims that the general increase in social welfare payments at 4 per cent will be above the rate of inflation, many economists expect that inflation will rise rapidly as a result of the Gulf situation, and this could leave those on social welfare even worse off at the end of the year. The 4 per cent increase could only be considered adequate if the basic rates of social welfare were sufficient to protect those in need, but this is clearly not the case. The 4 per cent increase in social welfare will mean about £2 per week for a person on short term unemployment assistance. He or she would still be getting less than £50 per week, more than £10 below the level recommended by the Commission on Social Welfare.
Once again payment of the miserly increases is being deferred until the end of July while, for instance, the VAT increases will come into effect in March. The increase of £1 million in the money allocated for the family income supplement is an insult to those who negotiated the Programme for Economic and Social Progress, who clearly expected a far more substantial allocation to help families in need.
There has been no tax reform and no widening of the tax base. Virtually all tax reliefs for special interest groups have been maintained. Once again the Minister has resorted to the three card trick of juggling around the rates but the benefit of this will be minimised for most taxpayers by his failure to adjust the allowances or the bands in line with inflation.
The Minister made much of his decision to increase the tax exemption levels. The increase in tax exemptions will still leave tens of thousands of people in the tax net who are officially categorised by the Combat Poverty Agency as poor. The exemption should have been increased to at least £100 per week for a single person and £200 a week for a couple. This would have been real tax reform, but Fianna Fáil and the Progressive Democrats have ducked it once again. In addition, many of the 18,000 taxpayers who the Minister is claiming will be taken out of the tax net will find themselves back in the net within a matter of months if they get the 4 per cent wage increase promised in the PESP.
Once again the Minister has made some changes to tax avoidance schemes like the business expansion scheme, section 84 and section 23. I have no doubt that the tax experts are already looking for new loopholes. Given the damning indictment by the Comptroller and Auditor General, I am surprised the Minister has not moved to end the BES scandal.
There is no doubt that the budget comes at a time of great uncertainty and the whole budget speech we have just heard could, quite literally, become meaningless and irrelevant should the Gulf War continue and lead to an interruption in oil supplies or indeed to a substantial increase in oil prices. Apart from the appalling loss of life and suffering inflicted on the Middle East, nobody should doubt that the gung-ho militarism we are now witnessing in the Gulf can do enormous damage to the economies of countries like Ireland.
At home the Government's self-proclaimed economic miracle is fading fast; unemployment, emigration and homelessness are still unacceptably high. The recent increase in interest rates will raise the inflation rate, hit mortgage holders and add to job creation difficulties. There has been a major outflow of funds and the reserves fell sharply towards the end of last year. The health services are still inadequately funded and many health boards are forced to consider yet more cuts in services. Local authorities, likewise, are being starved of sufficient finance to provide even basic services. The gap in income between the rich and the poor in Irish society has not been narrowed and it is generally recognised that the benefits which flowed from the recently expired Programme for National Recovery were unevenly and unfairly distributed.
Trade unionists at the moment are preparing to ballot on the new Programme for Economic and Social Progress. No doubt, they will have to weigh the advantages and disadvantages of the proposals, balancing a disappointing level of wage increases against possible benefits from promises of tax reform, promised improvements in health services and promises in many other areas. They will bear in mind that, so far, they are only promises. This budget cannot be viewed in isolation from that programme. Indeed, in recent years, the annual budget has taken on less and less importance although it is always hyped up into a big political media event. However, the budget has not been used as a vehicle for promoting industrial, economic or social development and has been, primarily, an exercise in book balancing and creating an illusion of benefit for people outside this House. What is given by one hand is, generally, taken away by the other.
This Government have never believed in comprehensive long term economic and social planning as distinct from programming. The Programme for Economic and Social Progress is not a comprehensive, long term economic plan; it is far too vague, too generalised and too conditional for that but it does give some indication of the Government's strategy in the longer term. There is much in the PESP which is commendable but there is also much in it that is vague and woolly. I want to put the Government on notice that if the trade union movement accepts the programme The Workers' Party intend to be the political watchdog in this Dáil and will be insisting that the commitments are honoured to the letter.
This budget reflects the politics of wishful thinking; once again we have been treated to generalisations of the type we heard before about creating the right climate for investment and so on and we know that this has never worked. After decades of creating the right climate for investment, we still have the highest rate of unemployment in the European Community and the numbers on the dole queues are going up again. The Minister has taken a colossal gamble in this budget. He seems to have ignored the Gulf War, rising interest rates, increased inflation and higher unemployment although all these factors could result in his figures and assumptions, many of which are over-optimistic anyway, being way off the mark. If this is so we will be picking up the pieces and paying the price for many years to come and indeed we may well face a mini-budget before too long.
The other huge fiscal problem we continue to face is the massive outflow of funds from this country. The economy has sprung a leak, the annual repayment on our national debt — at around £2 billion — is equivalent to the total tax take from the PAYE sector. The annual profit repatriation by foreign companies amounts to £3 billion per year, well in excess of the total tax take on all incomes. The country is producing wealth but it is flowing out at a massive uncontrolled rate. We simply cannot afford to endure this massive financial haemorrhage. There is no mystery about the location of the black hole in our economy; the black hole can be found in the vaults of the foreign banks. Virtually every worker and unemployed person in this country has been asked to make sacrifices to get the economy in order. Why have the international banks and the foreign multinationals not been asked to make similar sacrifices? Why are we still waiting for measures to tax repatriated profits? Where is the £3 billion in Structural Funds which, we were told, would make such a difference to this country in the period between 1989 and 1993? Where are the major infrastructural projects across the country which we were promised?
When the Estimates were published the Government claimed an increase in the 1991 public capital programme of £118 million or 7 per cent over 1990. While this is technically true it is only part of the picture; the public capital programme, which is crucial to job creation for 1991, is virtually the same as it was nine years ago in 1982. When allowance is made for inflation this represents a reduction of around 50 per cent and there is no evidence of any increased private sector investment either.
The Government have admitted that average unemployment in 1991 will be about 8,000 higher than last year. Many independent economists believe that the figure will be even worse. Market conditions at home and abroad are deteriorating, the safety valve of emigration is being closed. We continue to spend vast sums of taxpayers' and EC money in subsidising industry and agriculture but we are not getting value for money. There must be proper reporting and accountability. Subsidies and tax breaks, which are not producing jobs, must be withdrawn and the money saved used in alternative job creation strategies. We need a proper job creation industrial development plan with medium and long term objectives. Just as there is a special debate on the budget each year in this House, there should also be a special debate on unemployment and job creation each year. Unemployment and poverty — and the social problems which flow from them — have never been seriously tackled in the annual budget and this budget is no different.
Our social system is increasingly a two-tier one. In health, education and social welfare our children are suffering from social apartheid. The children of the poor must endure overcrowded classes, often in semi-derelict school buildings, while the sons and daughters of the rich benefit from private fee-paying schools. The children of the poor must take their chances on hospital waiting lists while the sons and daughters of the rich can walk into the Blackrock Clinic and have their medical needs attended to instantly. Those on social welfare must fight an endless demoralising battle to feed and clothe their children while the wealthy elite agonise over the destination of their foreign holidays.
It is entirely to our shame as a State and as a people that, 70 years after independence, one-third of our population still live in poverty and that almost 50 per cent of our children are in need. This budget does not tackle the underlying problem. Indexation of social welfare in line with inflation is not enough, it is simply a form of standing still. We are still way off target in regard to figures set by the Commission on Social Welfare and the Government's promise in the new programme to meet the commission's recommendations by 1993 is, quite simply, a confidence trick. It is now clear that what the Government have agreed to implement by 1993 is what the commission described in 1985 as the minimum priority rate. In 1985 that was £45 per week and even if this is updated in line with inflation it will leave people little better off than they are now. The Government should implement the general recommendation of the commission which was a minimum payment of between £50 and £60 per week. Updated for inflation that would now give an average of around £62 per week. That should be the minimum payment for an adult on social welfare. It is a modest enough sum and represents approximately one-quarter of the average male industrial wage. People cannot live on the rates of social welfare they are now getting. I challenge the Minister to try to live on the existing basic rate of unemployment assistance not just for a week but for a period of a few weeks or months to see how well he would be able to survive when the bills start to build up or to see if he could survive on the £62 per week the commission proposed.
The Minister and his colleagues seem to be ignorant of and indifferent to the plight of those on social welfare, especially the long term unemployed. Has the Minister any idea of the demoralising, soul-destroying, spirit-sapping impact of unemployment? Only today the ESRI published a report which shows that unemployed people are five times more likely to suffer from high levels of psychological distress than those at work. Unemployment has an impact on mental health in two major ways according to the authors of the report. It can be damaging because the self-esteem of the individuals affected is lowered as a result of their being denied the opportunity to participate in society in a manner which preserves their dignity. Unemployment also has an effect arising from a deterioration in day to day economic circumstances and, ultimately, through the grinding consequences of poverty. They write further that the most effective way of increasing an individual's self-esteem and feelings of personal control and improved mental health is to create jobs and to remove people from poverty.
None of this will come as any surprise to those who have any knowledge of unemployment and its consequences but apparently to judge from this budget it is a matter of total indifference to the Government.
There is also an urgent need to look at the levels paid for child dependants. It is time the Government recognised that it costs more to feed and clothe a teenager than a young infant and introduced higher payments for older children. Given our levels of child poverty we need to substantially increase the level of child benefit which is among the lowest in Europe. We believe that it should be doubled in view of the significant numbers of children in our society who are living in poverty.
Since the campaign for tax reform began in the seventies the tax system has actually become less progressive. The revenues from capital, inherited wealth, property and the farming and corporate sectors have actually fallen as a percentage of the total. Various subsidies and reliefs have been increased or introduced even though their value in terms of agreed social and economic priorities is repeatedly questioned. We are not arguing for a reduction in overall tax take and do not regard those who do as socially irresponsible. The priority must be to share the tax burden more fairly on the basis of ability to pay. This means bringing into the tax net all those who have incomes, wealth and property on which no real contribution is levied. It also means reducing the scope for minimising the contribution, more effective capital gains thresholds and the introduction of a minimum rate of corporation tax to ensure that every profitable company make some social contribution which should be not less than 10 per cent of profits. At present six out of seven companies pay no tax at all and for those who do the effective rate is only 7 per cent to 8 per cent.
Tax reform also means that the various loopholes provided by the section 23 and business expansion schemes must be closed tightly. It must also mean an increased tax take from wealthy farmers and an increase in the rate of PRSI charged to farmers and other self-employed people for their pensions from the 5 per cent to the 6.6 per cent recommended by the National Pensions Board.
Particular attention needs 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 a week or more. A real effort must be made to remove a substantial number of low paid from the tax net entirely and as an initial step The Workers' Party have argued that the level at which tax should begin to be deducted should be increased to £100 per week before allowances for a single person and £200 for a couple. Of course this budget goes nowhere near those thresholds.
Tinkering with the income tax rates and bands does not amount to tax reform. Indeed I disagree fundamentally with the statement made by the Minister that reform means in essence widening the tax base in order to reduce personal income tax rates. The big scandal in the tax system is the number of wealthy people and sectors who pay virtually no tax whatsoever. The Government must honour their commitment to removing many more low paid workers from the tax net and shifting some of the tax burden off lower and middle income tax PAYE workers. However they must not try to pass this off as tax reform. Tax reform is always welcome for the overtaxed and they certainly deserve it but a restructuring of the system is equally as important and in the long term is probably more so.
No attempt is made at fundamental tax reform in the budget. Fundamental tax reform is promised in the Programme for Economic and Social Progress and is what is called for by the National Economic and Social Council, the Commission on Taxation and by virtually all the political parties. Is it the mandarins in the Department of Finance or the men in their Porsches in the Financial Services Centre who have a veto over fundamental tax reform or is it simply that the Minister has not got the political will to tackle it?
The entire tax system is balanced in favour of the well off. Workers on the average industrial wage can lose 60p in every extra pound earned in overtime, yet an article in last week's edition of Sunday Business Post quoted a recent paper by Donal de Buitléir, head of group taxation at AIB, in which he explained how someone on a salary of £60,000 per year could protect £27,000 of his or her income from any tax liability by the clever use of tax exemptions. When we compare these with a man or woman who earns less than £70 per week and is still caught in the next net under PAYE it is nothing short of a scandal.
The wealthy have an endless array of devices to enable them avoid their fair share: deeds of covenant, capital allowances on property investments, BES gimmicks, tax free dividends from tax free companies, tax free capital gains and confidential accounts. There is not one single redundant worker or local authority tenant in the State who can have a confidential account but the wealthy can have all the confidential accounts they like. The list goes on and each year the Minister moves to close off a few loopholes but no sooner is the ink dry on the Finance Bill when the tax accountants and lawyers are pouring over it to find new loopholes. Indeed, the stakes are so high that they can pay for months of work and effort to find these loopholes. The only way to deal with this is to phase out the allowances providing the loopholes, especially those which deliver nothing in terms of job creation or other social benefits. Despite some small improvement in recent years the rate of company taxation is way below the level in most other countries. There is considerable scope for additional taxation revenue from business and industry without in any way damaging their competitiveness.
If we are serious about having a fair tax system we also need to look at the administration of the system. The numbers employed in the Revenue Commissioners have declined steadily while the workload has grown enormously. When self-assessment was introduced for the self-employed we were promised that there would be strict policing of the system but according to the Secretary of the Irish Tax Officials Union the self-employed can effectively write their own tax bills. The Minister admitted to the House on 11 December last that while there were 210,000 self-employed taxpayers on the books of the Revenue Commissioners only 563 returns or about a quarter of one per cent were actually audited. Many taxpayers had hoped that this budget would see the beginning of tax reform but what we have got instead is another round of fiddling at the margins.
Before I conclude I want to draw attention to another scandal in the budget and that is the scandal of the failure to deal with the plight of the people in our society who suffer from mental handicap and the parents who are trying to cope with that problem. It has been pointed out on numerous occasions by the parents of the people who suffer from mental handicap that the shelter, the physiotherapy and speech therapy facilities and physical education available to them is under resourced and in many cases non-existent.
There are parents in our society who are afraid to get sick because they have sons or daughters now in their thirties or forties who have nowhere to go. There are elderly parents who fear to die because they have nowhere for their mentally handicapped sons or daughters to go, and there is nothing in this budget, despite all the pleadings of the parents and the submissions they have made, to help them cope with that problem.
The parents have estimated there are at least 1,000 young men and women with mental handicap who need shelter and they do not have it. They have pointed out that in the last year alone the numbers in the Eastern Health Board area needing such shelter have increased by 100. They have pointed out that in most cases the health boards do not even have the statistic to plan for the future development of the services for people with mental handicap, and there is nothing in this budget to deal with that problem. As far as I am concerned it is one of the greatest scandals that the Minister can stand up in this House knowing the facts, knowing all the lobbying that has gone over the past year, and yet he has done nothing to deal with that real human problem in our society.
I ask you, Sir, under Standing Order No. 40 to use the discretion open to you to allow me as a spokesman nominated by a party in Opposition to contribute to the budget debate.
I am surprised at Deputy Garland. I replied to you this day in connection with this matter you raise now and I had to tell you in that letter, which is in your possession I presume——
Yes, I have it.
——that in respect to the Standing Order under which this debate takes place, Standing Order No. 41, no other Member may make a statement now. A party in Opposition has to consist of at least two Members before being called on for the purpose of this debate. A single Deputy has never been regarded as a party. I have already told the Deputy this.
The sitting is suspended for at least half an hour.
Sitting suspended at 7.22 p.m. and resumed at 7.55 p.m.