Dáil Éireann debate -
Wednesday, 30 Jan 1991

Vol. 404 No. 4

Financial Resolutions, 1991. - Financial Resolution No. 4: Value-Added Tax.

The Taoiseach

I move Financial Resolution No. 4:

(1) THAT—

(a) the rate of value-added tax on goods and services at present chargeable at the rate of 23 per cent (that is to say, taxable goods and services other than those chargeable at any of the rates zero, 10 or 2.3 per cent) be reduced to 21 per cent of the taxable amount or value of such goods and services, and

(b) the rate of value-added tax on certain goods and services at present chargeable at the rate of 10 per cent be increased to 12.5 per cent of the taxable amount or value, as the case may be, in respect of which tax is chargeable in relation to those goods and services, and

that, accordingly, the Value-Added Tax Act, 1972 (No. 22 of 1972), be amended in subsection (1) of section 11 (inserted by the Finance Act, 1985 (No. 10 of 1985))—

(i) by the substitution, in paragraph (a), of "21 per cent" for "23 per cent" (inserted by the Finance Act, 1990 (No. 10 of 1990)), and

(ii) by the substitution of the following paragraph for paragraph (c):

"(c) (i) 10 per cent of the amount on which tax is chargeable in relation to the supply of goods or services of a kind specified in paragraphs (ii), (iii), (iv), (v), (x), (xi), (xig) and (xii) of the Sixth Schedule,

(ii) 12.5 per cent of the amount on which tax is chargeable in relation to the supply of goods or services of a kind specified in the Sixth Schedule other than those to which subparagraph (i) of this paragraph relates, and".

(2) THAT this Resolution shall have effect as on and from the 1st day of March 1991.

(3) IT is hereby declared that it is expedient in the public interest that this Resolution shall have statutory effect under the provisions of the Provisional Collection of Taxes Act, 1927 (No. 7 of 1927).

This resolution provides for a reduction in the standard rate of VAT from 23 to 21 per cent and an increase in the rate on the supply of certain goods and services from 10 per cent to 12.5 per cent. The changes will take effect from 1 March 1991.

An Ceann Comhairle

I observe that we have some amendments: amendment No. 1 in the names of Deputies Garland, De Rossa, Rabbitte and Barry and amendment No. 2 in the names of the same Deputies. I am suggesting we discuss amendments Nos. 1 and 2 together. Is that satisfactory? Agreed.

Mr. Barry

I move amendment No. 1:

In page 8, subsection (1), to delete paragraph (b).

We are opposing this resolution on the basis that we are obliged between now and 1992 to harmonise our taxes, and what the Government are doing in today's budget is not harmonising taxes but shifting the burden from one form of taxation to another. There will obviously be serious implications for traders along the Border and for the retail trade throughout the country as a result of increasing the level of VAT from 10 per cent to 12.5 per cent. If the Government were serious about moving towards the harmonising of taxes by 1992 — only one more budget away — they would not have increased the rate of VAT from 10 per cent to 12.5 per cent.

It is difficult to understand the selectivity with which they approached the matter. The increase in VAT will have an effect on inflation. I admit that, in present circumstances, the inflationary effect will probably not be severe but the pressure and trend are in the wrong direction. It is interesting to look at the list of goods subject to the 10 per cent rate as opposed to those on the 23 per cent rate. A considerable proportion of the goods at the 10 per cent rate are not imported and, therefore, the benefit of the reduction in tax will favour imported goods. This does not seem to be a good way of creating employment. Indeed, the whole thrust of the budget is not towards creating employment but to impede its creation. It affects those who are working or who are willing to work in the future. If we do not adopt growth policies to put more people back to work we will not be able to compete in Europe in 1992.

The Government do not have a positive attitude towards the creation of employment. The clear message coming from the budget is that whatever influence the Progressive Democrats had on the Government over the last two years has gone. I was on a television programme earlier today with the chairman of the Progressive Democrats and it was quite clear that he was grievously disappointed with the budget because it did not make any movement towards tax reform or job creation. This resolution, increasing VAT from 10 per cent to 12.5 per cent on a very wide range of goods, will be a disincentive to people to invest in this country and to create more jobs. Therefore, we oppose this Financial Resolution.

Deputies Enright and McGahon rose.

An Ceann Comhairle

I will be calling the Deputies who appended their names to amendments.

Mr. McGahon

I want to express my——

An Ceann Comhairle

Deputy Rabbitte has an amendment tabled in his name and he is now offering.

Mr. Rabbitte

One can understand the proposed reduction from 23 per cent to 21 per cent in terms of our obligations to meet coming harmonisation but I am not clear on the Government's strategy in terms of the special case they are supposed to be making to the Commission regarding the imposition that will be for our Exchequer. Everybody in the House will probably understand the reduction to 21 per cent, but it is the proposed increase in the rate of 10 per cent to 12.5 per cent which particularly concerns The Workers' Party. It is on that matter which we have put down two separate amendments.

The regrettable aspect of this, apart from the considerations which Deputy Barry advanced, is that it will be especially punitive on the lower paid and people on lower incomes generally. We had a good deal of unspecified claims for what this budget does for the lower paid on the television programme to which Deputy Barry referred earlier. On closer scrutiny, of course, that is not the situation because, what is given with one hand is taken away with the other. This will be especially discriminatory against lower income groups because for example, the entire area of fuels and heating generally will now be charged at the rate of 12.5 per cent. It goes without saying that people in the lower income groups use a great deal more of their disposable income on domestic heating than those who are better off. They will be especially hit by this and, as I read the resolution, this year we have dispensed with the formula — which was a bit of a sham in any event — for which the Taoiseach argued very cogently last year, in respect of the proposition to put a 10 per cent rate on the ESB and Telecom Éireann specifically. The instruction was that those two companies must absorb that rate. Most Opposition Members argued that that would not happen in practice and that it would, inevitably, percolate to the consumer. In the resolution before us tonight there is no such proposition as I understand it.

I am not clear — and I do not think one can be clear from the resolution — whether it is proposed that it is the difference between 10 per cent and 12.5 per cent that will not be absorbed or whether the entire amount will be passed on to telephone, heating and ESB bills. In any event, it will disproportionately impact on those in society who can least afford it. It is especially regrettable for that reason; it, of course, minimises the slight advantage to social welfare recipients getting marginally above the probable inflation rate. It certainly does not make any sense in terms of some of the areas which are excluded from VAT in the original Act, for example, the reference to specific share dealings. I cannot understand why that kind of transaction is excluded whereas this proposition is included. For that reason, we will be opposing this resolution.

Mr. Garland

This budget has done nothing for employment and this resolution, which increases the rate of VAT from 10 per cent to 12.5 per cent, is clearly an attack on employment in the service areas such as restaurants, hairdressers and, more importantly, in the repair and maintenance of all classes of equipment, motor cars, household equipment and so on.

I am sure I do not need to remind Members of the House of the importance of making goods which will last. We are in the middle of a major energy crisis and the manufacture of capital goods is a very heavy user of energy. Most of our energy comes from the Middle East which is a very unstable area at the moment and is likely to remain so for a very long time. Anything which would encourage people to purchase a new car instead of repairing an old one is welcome. That is why we tabled these amendments.

Mr. Spring

I want to take this opportunity to outline some of the reasons we oppose this resolution and agree with the tenor of the amendments to the proposal to increase the rate of VAT from 10 per cent to 12.5 per cent on such essential items as fuel for heating, light and power, telecommunications, personal services, repair and maintenance services, adults' clothing and footwear. Those are the items which caused problems in a budget some years ago but it appears that the Taoiseach, the Minister and the Government had no difficulty with increasing the rate on these items.

When the rate of 10 per cent was initially applied to ESB and telephone bills the instruction given was that the cost involved was to be absorbed by the companies. Can we be told this evening whether the whole bill will be paid by the consumer or if an instruction will be given to the companies to absorb the increase of 2.5 per cent in the rate of VAT.

I would say there is some element of discretionary spending in relation to goods to which the highest rates are applied. While one would welcome the reduction in the highest rate, there is certainly more discretion in terms of the purchase of those goods than in the purchase of the goods we are now talking about. The increase in the rate of VAT from 10 per cent to 12.5 per cent will have a far heavier impact on low income families and those families least able to carry the burden as they have no discretion in terms of their heating, light and power requirements. With regard to repair and maintenance services, adults' clothing and footwear, there is minimal discretion as opposed to the position in respect of the white goods area where the high tax rates are applied.

One other salient fact is that the increases in social welfare will take effect from July whereas the increase in the VAT rates will take effect immediately. This will obviously lead to some severe discomfort for social welfare recipients. When one takes into account the increase in local authority rents which will take effect very shortly, one can only wonder how the Government can say that this budget will be of help to low income families when this measure is going to penalise social welfare recipients and low income families.

Should the Minister for Finance have been a bit more forthcoming in relation to what the EC is looking for? He stated that the rate on building and tourism items will not be touched, that the rate will remain at 10 per cent until harmonisation takes effect. Would the Taoiseach clarify what the signals are in relation to harmonisation and if on this occasion we are saying that this is a temporary measure and that the rate for all of these items is going to end up at between 16 per cent and 18 per cent following the harmonisation of VAT rates? We will oppose this measure because we believe it is unwarranted in present financial circumstances and the compensatory factors in the budget will not offset the increase in the rate of VAT.

Mr. McGahon

I am concerned and disappointed that the Government have ignored this opportunity to address the question of harmonisation in a meaningful fashion given that they will have to meet it head on next year. They have merely tinkered with this thorny problem and a reduction of 2 per cent is inadequate. I would have thought, as we approach 1992, that they would have taken the opportunity to close the gap which at present stands at six percentage points. Coupled with the increase in the rate of VAT on items such as clothing and footwear, this will further encourage hordes of people from the South to cross the Border — the bleeding haemorrhage in the sides of retailers who have to eke out a living in the Border areas - and it marks a continuation of the uncaring response of all Governments in the recent past to the plight of the unfortunate and hapless traders who are trying to exist in an economic wasteland, the result of the domestic policies of successive Governments in the recent past. I had expected the Minister to address that problem.

I am also disappointed he has failed to address the problems facing the many people engaged in the customs clearance area. In my home town of Dundalk over 400 people depend on this area for their living. These include many public servants who have lived in the town for many years and are engaged in the customs and revenue offices. It also includes 150 people from the private sector. These people have been pilloried and harassed by the Revenue Commissioners in recent years and have been made to instal very expensive equipment such as computers. They are now going to be left high and dry. The Minister has refused to address their plight. Will they be paid compensation and are the Government going to seek compensation from Europe? Those are very pertinent questions for those living in the border area. I ask the Taoiseach to give me some definite answer to the question of what is to become of those in the public sector who have served Ireland for many years.

Mr. G. Mitchell

In the debate on the previous resolution the Taoiseach stated that road tax for commercial vehicles is three times higher in Britain but if we take into account additional duties and taxes, not all of which can be claimed back — not every road haulier is registered for value added tax — a £56 million penalty has been imposed on the industry according to the estimate of the freight industry.

With regard to telecommunications charges, the Government arranged that value added tax would be added to all telephone bills from I January last but because most commercial enterprises are registered for VAT and their turnover exceeds £15,000 per year they will be able to reclaim VAT. However, private subscribers and those companies with a turnover of less than £15,000 will not be able to do so. Arrangements have been made for Telecom Éireann to meet the 10 per cent charge by making changes in the cost of telephone calls to the private subscriber but these do not take account of any additional increases. For instance, if the rate of 12.5 per cent is applied, a 2.5 per cent penalty will be imposed immediately on domestic users, and God only knows what will happen next year if Telecom Eireann withdraw their support. We would then find that the rate of VAT being charged on the bills of private subscribers and those commercial enterprises with a turnover of less than £15,000 is 12.5 per cent, 2.5 per cent of which will be applied from I March next.

It is extraordinary as we move towards harmonisation that we will now have a fourth rate. At present there is a zero rate, a 10 per cent rate and a 23 per cent rate in existence but the Minister for Finance is proposing to reduce the 23 per cent rate to 21 per cent and create a new rate of 12.5 per cent. That does not represent a move towards harmonisation, rather it is a move in the other direction. A variety of rates is being introduced and I can only presume from what has been said today that the intention is to increase the rate of 12.5 per cent towards 18 per cent and bring the rate of 21 per cent down towards that rate so that eventually the high rate will be applied to almost everything. I presume a new rate would be created which would then be applied to those goods which are at present zero rated.

This increase must be opposed. It is very clear that it will have serious implications not only for industry but also for the private subscriber who has not yet received his or her telephone bill which will carry a charge for VAT for the first time. That charge will be offset to some extent by the reduction in Telecom Eireann charges. However, if Telecom Eireann are able now to reduce the cost of domestic telephone calls by 10 per cent, why did they not do it last year? If they are doing it this year, why do the Government step in and say that is all very well so we are going to stop another 10 per cent VAT — or 12½ per cent as it will now be - and have our share? It is a very undesirable practice that we should pass legislation which will come into effect 12 months hence, because this is a charge on telephone calls. It is being increased here tonight and, I suspect, if it is passed it will be increased yet again in next year's budget.

An Ceann Comhairle

It is clear that a number of Deputies are offering. The Chair is anxious to facilitate the Deputies in question but brevity is essential in that the question on resolution No. 4 must be put at 10.15 p.m. If Members will be brief the Chair will facilitate all concerned. I now call Deputy Eric Byrne.

Mr. Byrne

I want to speak against the proposed increase from 10 per cent to 12.5 per cent VAT on fuel for heating. If my memory serves me right, this time last year we were speaking about the same issue vis-à-vis ESB and Telecom Éireann charges. It is particularly insensitive that at this time of the year we should be arguing for increasing heating fuel costs to the public given the attempts by two Ministers, Deputies Harney and Flynn, to create smoke control zones and a smoke free environment which, on one level, was successful in that air pollution levels are quite satisfactory, but they would be satisfactory if you arbitrarily ban the burning of bituminous coal.

However, when you relate that to the difficulties caused for the consumer, particularly low income and social welfare recipients of whom there are hundreds of thousands, you see the real implications for them will be quite severe. In most areas outside Ballyfermot this year they were forced arbitrarily to stop burning bituminous coal, their traditional fuel which to the vast bulk of people was an expensive fuel, and use an alternative smokeless fuel —"Coalite" or some other brand — which was more costly than coal. These people are to be rewarded this year by having the cost of alternative fuels increased yet again. The media seem to have been taken in to some degree, and this morning we heard the Minister lauding the fact that he has granted old age pensioners an increase. Old age pensioners will get a miserable £2 per week increase. I do not think that is anything to be proud of.

An Ceann Comhairle

The Deputy is straying very far from the motion before the House. I am appealing for brevity so that other Members may be facilitated.

Mr. Byrne

I am dealing specifically——

An Ceann Comhairle

At least when one is speaking one should be relevant.

Mr. Byrne

I am being relevant. I am speaking about a £2 per week increase to old age pensioners who are faced with an increased cost to keep their homes warm. Coupled with that will be the increase in their ESB bill. The kernel of my argument is that it is a farce to praise yourself for giving them an increase of £2 and then to take away the bulk of that increase on the items I have listed — heat, light and power. I thought that was a relevant point in regard to those on social welfare.

Mr. Enright

I would like clarification from the Taoiseach on one point, and perhaps he will give me some guidance in his reply. It is in regard to personal services. At present an accountant's fees for doing farm accounts are rated at 10 per cent, it appears this will be increased to 12,5 per cent. Similarly if a farmer is purchasing land or anything of that nature, the fee is 10 per cent and it appears that is to be increased to 12.5 per cent. Accountants' fees are quite high and a further 2.5 per cent will increase the burden.

Repairs to agricultural machinery, such as tractors, combine harvesters, mowers and so on, is at present subject to VAT at 10 per cent and it seems that figure is to be increased to 12.5 per cent also. I do not intend speaking on the problems facing the farming community, but although an additional 2.5 per cent may not appear to be very much, it can be a strain on a farmer's financial resources. An exemption has been granted for the agricultural community in the 10 per cent VAT rate; will that be increased to 12.5 per cent?

A major problem is confronting the country in regard to disease eradication in farm animals. The Minister mentioned what is required by EC law. I live in a rural area and know veterinary surgeons who, at the moment, have difficulty collecting fees from farmers because they are unable to pay them. An increase to 12.5 per cent will make a bad situation worse for the farming community.

I do not wish to repeat what other people have said, but an increase of 2.5 per cent on items such as heating oil, turf, briquettes and all types of fuel, will cause many serious problems. The cost of fuel is very high. Elderly people in particular will face difficulty and hardship trying to pay their bills to keep warm, especially in March and April when this increase is introduced. I will be voting against this measure.

The increase will also apply to clothing and footwear for adults and will also affect boys and girls of 17 and 18 years of age perhaps from big families, who are still attending school. As a result this increase will cause hardship for many people. In addition to the zero rate, there are two VAT levels at the moment. On the last occasion the Government made a virtue of reducing the rates to 10 per cent and 23 per cent. The Taoiseach has gone from virtue to I now not where. I oppose this proposal. It was correct to have two rates but to add a third and then a fourth is wrong.

Mr. G. Reynolds

As I come from a border area, let me say that reducing the high rate of VAT from 23 per cent to 21 per cent may be laudable but it is not realistic if we are talking about VAT harmonisation for next year. We will have one more budget to bring the VAT rate down another 6 per cent. Excise duty on top of that will mean unfair competition for traders in the border area. Also the increase from 10 per cent to 12.5 per cent VAT on certain items will increase overheads for business people in all areas, but specifically in border areas. In County Leitrim alone the largest employer is the service industry, the section of the business community that will be affected by the harmonisation of VAT. Unless action is taken immediately the few people endeavouring to survive in business in border areas will not remain. It is a very serious problem which must be taken on board immediately.

Dr. G. FitzGerald

I wish to make a couple of points. First of all, the Minister's notably chatty speech for television has led to some obscurities in the stylistic change. For example, I am not clear what is meant when he said the following:

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.

I do not know what that means. Perhaps we could be enlightened in that regard. Moreover, it is not clear what is meant by the following:

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...

I am not sure how this is to be achieved because raising the lower rate does not increase the proportionate standard share. This raises the whole question — which is not made clear to us — as to what is the objective of this. Are we aiming, as would appear to be the case — perhaps I am wrong in this — at moving over three stages to a 17 per cent or 17.5 per cent rate, merging the two rates? Is that what is implicit? Surely we should be told what is this movement referred to in such an odd style in the Minister's remarks. If that is the case, then how do we reconcile the net cost of this — estimated at £37 million for this tranche — with the figure of £600 million for the whole exercise, admittedly including excise duties, in our discussions with the EC? It would appear that if one can move a third of the way towards bringing the two rates together at 17 per cent or 17.5 per cent at a cost of £37 million, one could do the whole job for approximately £100 million but that is not the kind of figure that is spoken of; hundreds and hundreds of millions of pounds have been spoken of as the cost of this harmonisation. I accept that part of that is comprised of excise duties — and that we are not going to harmonise excise duties — but we need some clarification of that. The Minister does not explain what this exercise is about. We ought to be told that.

Mr. S. Barrett

Part of the problem we face and inherent in the whole budget is that we do not know the strategy behind the Minister's tactics. As Deputy FitzGerald has said, we should know what is the ultimate aim. Also, part of our problem has been that we hung around since 1987 waiting for the EC to take decisions without forcing the pace ourselves. Now we are endeavouring to cram everything into the last couple of years.

One of the greatest disincentives to the creation of jobs and wealth is our level of personal taxation. Without more personal incentive we will not be able to create more employment opportunities. When one examines today's budget one sees that the ordinary household will now be faced with increased charges for heating, light and power in addition to telecommunications. If one is in business one can reclaim VAT but, at the end of the day, we must remember that the ordinary consumer will be caught for these increases. Equally, if one examines how the Minister proposes to fund the reduction in the standard rate of VAT from 23 per cent to 21 per cent, one discovers he is adding 2.5 per cent, VAT on certain goods and services, increasing road taxes and the price of cigarettes, so that consumers will carry the entire burden. There is no point in talking about the miserable reductions in personal taxation when, with the other hand, one must give away such benefits straightaway.

When one talks about an inflation rate of 2 per cent, ask any housewife going to the supermarket to shop at the weekend, when she will tell you she does not perceive inflation at 2 per cent because the cost of living, affecting the ordinary person in the street, is way above the inflation figures quoted on a daily basis. Again, we are faced with circumstances in which the consumer must carry everything, including extra road tax; if one smokes, an extra 10p on a packet of 20 cigarettes and, in addition, 2.5 per cent extra for heat, light and fuel. If one has a telephone one will be charged also. One will even be charged an extra 2.5 per cent for a hair cut in the future.

I do not think this has anything to do with VAT harmonisation or with a policy of reducing the load on the ordinary taxpayer. Once again the Government saw fit to interfere with commercial State bodies, imposing a tax and then expecting bodies such as Telecom Éireann and the ESB to carry such charges. Surely we have reached the stage at which commercial State companies should be allowed operate in a commercial manner and, if they can absorb this extra charge, why did they not reduce their prices before now? I am sure we will be told later that they will be able to absorb this additional increase. That is no way to run any company. A company should be enabled to run on its own two feet, make a profit and provide a service at the cheapest possible rate, thereby helping our economy.

I join my colleagues in opposing this increase in VAT of 2.5 per cent, from 10 per cent to 12.5 per cent.

Mr. Shatter

I spent a little time this evening engaging in some political reminiscing. We should not move away from this issue this evening without recognising the fact that we are celebrating something of an anniversary. It is, I think, just nine years ago that a general election was called, when the Fianna Fáil Party - as a major plank of that election - opposed the imposition of VAT on shoes and clothing. We have seen a number of conversions on the Road to Damascus in the past three years. I suppose the imposition from zero rating to 12.5 per cent rating of VAT on shoes and clothing in this budget must be the ultimate, one of the remaining U-turns this Taoiseach needed to take to give the lie to the approach adopted by Fianna Fail to fiscal issues during the early eighties.

I take the view that this budget is a patently dishonest one. The imposition of VAT on shoes, clothing, telecommunications and the other services has ensured that, whereas in the context of income tax the Minister has been pretending to give relief, what he has given with one hand he has taken back with the other. Within the context of the imposition of VAT on shoes and clothing it is quite clear that that section of the community it is alleged will benefit from social welfare increases in reality will not benefit at all. It is those people dependent on social welfare, be they married couples, or elderly people, who will find whatever benefits they receive on the one hand are taken back by the State on the other. This will extend to the widow living alone in Kerry with a young married daughter in Dublin, whose only contact with her is by way of telephone and who will be taxed every time she makes a telephone call simply to maintain contact with her daughter and perhaps grandchildren living in Dublin.

I am concerned at the phraseology of what we are at in the context of the VAT impositions, in particular with regard to clothing and footwear because I am not sure how the Government intend to implement this. Perhaps the Taoiseach or the Tánaiste could enlighten us.

The Minister in his speech referred to the imposition of VAT at 12.5 per cent on adults' clothing and footwear. Could the Taoiseach indicate how this provision will apply? When will an item of clothing be designated as being for an adult or a child? Will it depend on the size of the foot or the size of the clothing? Will small adults not pay VAT on their clothes while tall children will? Will children with big feet pay VAT on shoes while adults with small feet will not? Perhaps the Taoiseach could clarify all this for the House this evening, because I am not sure where the dividing parameter is. I am not sure how it will apply. Will we have VAT inspectors hanging around shoe shops looking for the birth certificates of the purchasers of shoes to check the age of the purchaser or the age of the person——

The Taoiseach

Fine Gael did that.

Mr. Shatter

——who will wear the shoes? What about clothing? What happens to the teenager who is between 5'6" and 5'8" who goes into an adults clothes shop to buy, for instance, a size 14i shirt which size his father also buys? How can we designate what VAT applies to? We should clarify this.

I recall the Taoiseach on this side of the House and on the hustings in 1982 raising these questions and causing great roars of mirth from the ranks of Fianna Fail supporters on every election platform on which he stood. We now have the Taoiseach saying that we will have zero rating on clothes and shoes for children and a 12.5 per cent rating for clothes and shoes for adults. Prior to a vote on this issue it should be clarified in the House: will clothes be determined on the basis of style, size, type of materials used or cost? Are particular shoes more prone to be worn by teenagers as opposed to young adults? I do not know the answers to these questions but it is certainly not clear from the resolution before the House how we will give effect to implementing the measure the Minister for Finance has announced. That should be clarified because the shopkeepers on I March 1991 will have to implement this. Apparently at the exhortation of the Minister for Finance, the Minister for Industry and Commerce will send his minions out to promptly police the measure. In fairness to the Minister for Industry and Commerce he should know what he is policing. These are issues which are sufficiently serious in the fiscal area to deserve clarification before we vote on them.

Gestures from the Taoiseach do not clarify matters one way or the other, no matter how insulting the Taoiseach may try to be in making gestures that no doubt he regards as suitable to make off camera but not appropriate on camera. I am raising a serious issue, an issue that deserves clarification, an issue that is not clarified in the resolution which is the legal matter before the House which will determine the imposition of VAT on those items.

If VAT was to be imposed on these items, an imposition of VAT on these items, to protect the poorer sections, should have required from this Government a greater increase in social welfare than has been provided and greater reliefs in the tax area for those who are in employment with incomes below the basic industrial wage. This proposal clearly indicates that the Taoiseach and the Government are not coming to terms either socially or fiscally with the impact of the measures that are required for harmonisation of taxes as we head into 1992.

Mr. Dukes

The tax side of this budget is a dreadful muddle and nowhere is that more clear than in relation to this proposal on VAT. By my calculations the Minister relieves taxation in the budget today to the tune of £170 million. I am talking now of the taxes that effect people's spending power - income tax, indirect taxes, capital acquisitions tax and capital gains tax. On the other hand, the Minister put new impositions of about £134 million so that in fact what the Minister gave back net, in terms of taxation, comes to a total of £36 million. That will not have a great effect one way or the other on economic activity or anything else.

It is when we look at how that is composed that we see just how big the muddle is and what little strategy there is in any of this. We cannot see where the Government are going on indirect taxation of any kind, least of all on VAT. When one looks at the overall tax picture and the detailed measures there is not any apparent benefit in prospect for either consumers or producers. Consumers are getting little back out of it and there is no benefit for producers because there is no plan that will make our VAT system or indirect tax system any less onerous on the competitiveness of industry. We are advised by the Commission of the European Communities that neighbouring states that have a common land border can sustain differences between them in VAT rates of around 2 per cent or even more without that causing any distortion of trade. Our nearest neighbour has a VAT rate of 15 per cent which suggests that we should be heading for a VAT rate of 17 per cent as a standard rate long term, taking account of all the other issues that have to be dealt with while we get there. Is that what this is heading for? We do not know. The Minister did not make any statement about this today.

Looking at the figures before us and quickly calculating, it seems that to move down from the 23 per cent rate costs in a full year about £58 million per point reduction. We could probably take that on a straight line basis because we are dealing with a single mass of products taxed at the single rate. To move up from the 10 per cent rate, for the products that are covered by the change that is being proposed, nets the Exchequer about £29 million per annum per point. It seems that if we were to move from where we were just before this budget to a 17 per cent single VAT rate, the total cost of moving down from 23 per cent to 17 per cent would be about £350 million in a full year and the total gain from moving up from 10 per cent to 17 per cent would be £200 million in a full year giving a net cost to the Exchequer in a full year of £150 million. That seems to be at least an arguable basis on which a strategy for VAT could be put forward here, but we see nothing of that. All we see are two apparently unconnected measures, the one a move from 23 per cent to 21 per cent to give the appearance of movement in relation to VAT, the other a move from 10 per cent to 12.5 per cent that is not justified by any other consideration but the fact that that will net the Exchequer £61.3 million this year. There is not a plan behind it or a strategy of any kind.

Will the Taoiseach tell me and the House if there has been any consideration of what our strategy might be for harmonising our VAT rates to a level that would leave us competitive in the border areas and elsewhere, to a level that we could sustain in competition with the rest of the European Community and in a way that would allow our tax system to be taken into account when we are looking at the effects of the inevitable move upwards on people with less ability to bear the cost that would be associated with that. There is not a strategy here at all. I would like the Taoiseach to tell us if there is even a glimmer of a view in the Government about what such a strategy might be, in the event that they decide to take this seriously.

Mr. Finucane

The Minister for Finance set a long term objective to reduce income tax by a certain percentage over a period of time. It is regrettable that he did not state his objective in relation to VAT. VAT harmonisation will be necessary in the near future and I regret that he did not say what percentage he is aiming to achieve. It is frustrating that we do not have this information. People have stated why they are opposed to the increase from 10 per cent to 12.5 per cent. At Listowel races we have a famous person called the "Three Card Trick Man" who arrives with a collapsible table, asks one to find the lady and, exercising skill and manual dexterity with cards, it is a matter of 'now you see her, now you do not'. It is the same in relation to this budget. What the Minister giveth the Minister taketh away very quickly.

The Minister said that previous VAT reductions were not passed on to the customer and that some businesses were very slow to reduce prices. What type of businesses were these? What percentage did they represent? Did they ever pass on the VAT cut? What mechanism was used to monitor them? All these questions need to be answered. We are hearing a lot of pious old nonsense. It has been said that consumers should support outlets which quickly reflect VAT reductions in their prices. I am sure consumers will be bewildered unless this is properly monitored and effectively policed from the beginning. The increase from 10 per cent to 12.5 per cent is a retrograde step which is anti-employment.

Mr. Cotter

Financial Resolution No. 4 is entirely unsatisfactory. At one stage today I heard the Minister mention 20 per cent as if he were thinking of another little jump to 20 per cent next year. Perhaps the Taoiseach will clarify the position. I understand two bands were suggested for the Single Market, namely 4-9 per cent and 14-19 per cent. I understood from informal contacts that we were considering the high rate to be pitched here at 19 per cent. Studies would suggest that that would be tolerable. A 5 per cent difference in VAT, all other things being equal, would be tolerable in the economy vis-a-vis our near neighbours. We really do not know what is happening here. Are we moving from the new 12.5 per cent rate towards 19 per cent next year and moving from 21 per cent back to 19 per cent? We do not know and there is a lot of confusion. That should be clarified.

The cut of 2 per cent in the top rate is not at all acceptable to me, Deputy McGahon, Deputy Gerry Reynolds and others living in the Border counties. It is simply a knee-jerk in the direction of a problem we have had for years. I notice when discussing these matters with Ministers that they alternately agree and disagree with regard to the nature of the problem. They disagree here in debate, yet they run to Brussels asking for special concessions to prevent people crossing into the North to do their shopping. There is a credibility problem there.

That reduction of 2 per cent would be quite interesting and acceptable but for the major cost penalities in our economy which have not been addressed. VAT at point of entry is a running sore in the Border counties because it adds three-quarters of I per cent to the cost of a product. That is unacceptable. We have all sorts of other cost penalties. Wholesalers in our area are now crossing the Border, buying their goods there, bringing them back quite legally and selling those products far cheaper than if they had purchased them in this economy. For a long time that did not happen because people were afraid to do so. It would have been thought to be non-Republican to move into the North and buy goods in that economy for transport south. However, they are certainly doing it now. I know it because I have regular contact with them. The reduction of 2 per cent will not help us in our difficulties. The Government know that well. The Minister mentioned today that the 36-hour rule or whatever new rule he has in mind has been agreed for implementation. That makes it obvious to everybody that the problem is still festering. On that basis I have no option but to oppose Financial Resolution No. 4.

Mr. Gregory

I will also be opposing Financial Resolution No. 4 which exposes an element of hypocrisy which runs through the Minister's Budget Statement. During his speech the Minister stated:

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.

The Minister stated that protecting and improving the living standards of disadvantaged people has to be an integral part of the Government's overall strategy. He also said:

I have always stressed that disadvantaged people in our society should benefit from any economic progress we can achieve. That is again going to be one of my priorities today.

It is important that the Government and the Minister for Finance see fit to emphasise the need to protect the disadvantaged, of whom there are very many. Financial Resolution No. 4 exposes what will happen as a result of this budget, namely, that the very small increases given to the old, to widows, to people on social welfare will be taken back by the VAT increases, particularly on fuel, clothing and other commodities. Old people in particular must buy fuel, especially throughout the increasingly harsh winters. Deputy Byrne clearly stated that as a result of Government policy the fuel people use has become more expensive. I know from representing an area where there are very many disadvantaged that people already have great difficulty in affording fuel. What is the message going out from this caring Government today? They intend to increase the cost of fuel yet again. If for no other reason, that ensures my opposition to Financial Resolution No. 4.

The Taoiseach

I should like to make a few fundamental points in regard to this discussion. The net effect of these two changes is to give £37 million back to the consumers. The Minister is not in these two changes taking any more money from the consumers. They are the net beneficiaries of £37 million. Everybody seems to be forgetting that the standard rate is the one which affects consumers most and the Minister is reducing it by I per cent. The Minister could not attempt to do that if he did not increase the other rate from 10 per cent to 12½ per cent.

I distinguished two main trends in the discussion here. One is the argument about harmonisation and the other is about lower income families. Deputy Gregory is very eloquent about the poor and the disadvantaged. I just want to gently suggest to him that this Government, in the last few years, have done more for the poor and disadvantaged overall than any other Government. He was talking about old people and their fuel needs. He is talking to the person in this House who introduced very special provisions to provide heating and fuel for the older people in this country. So I do not particularly want or value any lectures on caring or charity or provisions for the old and disadvantaged from Deputy Gregory.

Mr. Byrne

We have a society with one in three on the poverty line.

The Taoiseach

I just want to make a point about the effect of this on lower income families as this seems to be a main argument put forward. I will begin with Deputy Rabbitte's argument. The simple facts are that the average shopping basket of the lower income family is about 40 per cent food, and food is zero rated. Of the remaining 2 per cent reduction in the standard rate will be far more important to the lower income families than to anybody else. Of the remaining 60 per cent, by far the largest proportion of the lower income family will benefit from the 2 per cent.

Mr. Rabbitte

You do not put televisions into your shopping basket.

The Taoiseach

Let us not talk rubbish. By and large, this change will benefit lower income families and the average household budget. These are facts.

The other thing I want to talk about is harmonisation. This is a direct process towards harmonisation in accordance with the pending EC requirements and I really believe that the Deputies are misleading themselves to suggest otherwise. It could not be clearer. On the one hand we are bringing the top rate down from 23 per cent to 21 per cent to get near what will ultimately be the standard rate. On the other hand we are bringing in a range of items, which ultimately will have to go into that standard rate, up nearer the standard rate and achieving a reasonable balance so far as the consumer is concerned by giving him or her back £37 million. The position with regard to harmonisation at EC level at the moment is not by any means clear, it is not by any means definite, but we do know the general thrust of what is happening. It is likely that the standard rate will finish up somewhere between 14 per cent and 20 per cent and the lower rate somewhere between 4 per cent and 9 per cent and there may or may not be a zero rate. In so far as the standard rate will be somewhere between 14 per cent and 20 per cent, everybody must surely agree that by bringing our top standard rate down we are moving somewhere near where we should be. On the other hand, certainly the majority of items we are putting up from 10 per cent to 12½ per cent will ultimately have to go into the standard rate category. There are ones we are leaving at 10 per cent and there are ones that are likely to go down to the 4 per cent to 9 per cent bracket. All in all it is a totally logical progression towards the harmonisation that will eventually emerge.

The other main argument put forward was by the Border area Deputies, and I really think they are just attempting to mislead the House completely on this matter, particularly Deputy McGahon who said successive Governments did nothing for the Border traders. Did you ever hear such a fundamental misstatement of the position in this House?

One of the first things Deputy McSharry as Minister for Finance did was to deal with that situation. Let me remind Deputy McGahon that it was the Government which he supported and the Government of which Deputy Dukes was a Minister which piled on tax after tax down here which caused a total disruption of trade between here and the North, so let him please not lecture me on the Border areas and who does anything for them and who does not.

(Interruptions.)

The Taoiseach

Moving back to the back benches should not cause Deputy Dukes to lose his manners.

An Leas-Cheann Comhairle

Deputy Dukes, you will appreciate the Taoiseach is endeavouring to answer questions.

(Interruptions.)

Mr. Byrne

He forgets the budgets of 1980 and 1981.

The Taoiseach

The Fine Gael Deputies in particular are demanding answers and clarifications and now, when I try to tell them something, when I try to answer the points they have sought clarification on, they will not let me speak. They indulge in bouts of bad mannered interruptions.

(Interruptions.)

The Taoiseach

At least the parties of the Left who are not supposed to be the nice people in this House——

(Interruptions.)

The Taoiseach

These are supposed to be the nice party, the good people, the bourgeoisie, and all they can give us is bad manners. Poor Deputy Shatter does not really understand very much about the situation. He seems to have overlooked the fact that it was his Government that brought in the distinction between children's footwear and clothing and adult footwear and clothing. It was that Government that did it.

(Interruptions.)

The Taoiseach

Please, have a little manners if you cannot have common sense. That division has been there since and there will be no change in that division as a result of these budget changes. All that is happening is that the 10 per cent rate which has up to now applied to a well established category of adult clothing or footwear will be increased by 2½ per cent. It is nothing to do with the difference between children's clothing and footwear and adult clothing and footwear, and all the Deputy said was completely irrelevant.

Mr. S. Barrett

A heartless Taoiseach. No feeling for the ordinary people.

The Taoiseach

Deputy Enright asked me a number of questions about the farming situation but as he is not here now I will pass the information on to him.

Mr. Dukes

He is watching you on live television, Taoiseach.

The Taoiseach

One particular question was asked which I think is significant and that is about the increase of 2½ per cent with regard to the ESB and Bord Telecom. We had a big discussion on that point last year and we indicated that the 10 per cent should be absorbed, and it was absorbed. We are not asking those two companies this year, in spite of what somebody was saying over there, to absorb the 2½ per cent. Whether they can or not is a matter for themselves in accordance with their commercial requirements, but there is no reason the existing 10 per cent which has been absorbed should be changed in any way. That is the answer to that particular point.

I think this is a very sensible change. It is a very definite move towards the sort of situation we envisage as likely to emerge from the present negotiations on harmonisation. It is an intelligent move in anticipation of that from both directions. In particular, I want to again say that the Minister is giving back £37 million to consumers in this area. So far as the lower income families are concerned, my estimate of the situation is that by the reduction of the 2 per cent in the standard top rate the vast majority of lower income families will in fact benefit.

Question put: "That the amendments put down to Financial Resolution No. 4 are hereby negatived and that Resolution No. 4 is hereby agreed to".

The Dáil divided: Tá, 79; Níl, 76.

Tá

• Ahern, Bertie.
• Ahern, Dermot.
• Ahern, Michael.
• Andrews, David.
• Aylward, Liam.
• Barrett, Michael.
• Brady, Gerard.
• Brady, Vincent.
• Brennan, Mattie.
• Brennan, Séamus.
• Daly, Brendan.
• Davern, Noel.
• Dempsey, Noel.
• Dennehy, John.
• de Valera, Síle.
• Ellis, John.
• Fahey, Frank.
• Fitzgerald, Liam Joseph.
• Fitzpatrick, Dermot.
• Flood, Chris.
• Flynn, Pádraig.
• Gallagher, Pat the Cope.
• Geoghegan-Quinn, Máire.
• Harney, Mary.
• Haughey, Charles J.
• Hillery, Brian.
• Hilliard, Colm.
• Hyland, Liam.
• Jacob, Joe.
• Kelly, Laurence.
• Kenneally, Brendan.
• Kirk, Séamus.
• Kitt, Michael P.
• Kitt, Tom.
• Lawlor, Liam.
• Lenihan, Brian.
• Leonard, Jimmy.
• Leyden, Terry.
• Martin, Micheál.
• McCreevy, Charlie.
• Briscoe, Ben.
• Browne, John (Wexford).
• Burke, Raphael P.
• Calleary, Seán.
• Callely, Ivor.
• Clohessy, Peadar.
• Connolly, Ger.
• Coughlan, Mary Theresa.
• Cowen, Brian.
• Cullimore, Séamus.
• McDaid, Jim.
• McEllistrim, Tom.
• Molloy, Robert.
• Morley, P. J.
• Nolan, M. J.
• Noonan, Michael J. (Limerick West).
• O'Connell, John.
• O'Dea, Willie.
• O'Donoghue, John.
• O'Hanlon, Rory.
• O'Keeffe, Ned.
• O'Kennedy, Michael.
• O'Leary, John.
• O'Malley, Desmond J.
• O'Rourke, Mary.
• O'Toole, Martin Joe.
• Power, Seán.
• Quill, Máirín.
• Roche, Dick.
• Smith, Michael.
• Stafford, John.
• Treacy, Noel.
• Tunney, Jim.
• Wallace, Dan.
• Wallace, Mary.
• Walsh, Joe.
• Wilson John P.
• Woods, Michael.
• Wyse, Pearse.

Níl

• Ahearn, Therese.
• Allen, Bernard.
• Barnes, Monica.
• Barrett, Seán.
• Barry, Peter.
• Bell, Michael.
• Belton, Louis J.
• Boylan, Andrew.
• Bradford, Paul.
• Browne, John (Carlow-Kilkenny).
• Bruton, John.
• Bruton, Richard.
• Byrne, Eric.
• Carey, Donal.
• Connaughton, Paul.
• Connor, John.
• Cosgrave, Michael Joe.
• Cotter, Bill.
• Creed, Micheal.
• Crowley, Frank.
• Currie, Austin.
• D'Arcy, Michael.
• Deasy, Austin.
• Deenihan, Jimmy.
• De Rossa, Proinsias.
• Doyle, Joe.
• Dukes, Alan.
• Durkan, Bernard.
• Enright, Thomas W.
• Farrelly, John V.
• Fennell, Nuala.
• Ferris, Michael.
• Finucane, Michael.
• FitzGerald, Garret.
• Sheehan, Patrick J.
• Sherlock, Joe.
• Spring, Dick.
• Stagg, Emmet.
• Flaherty, Mary.
• Flanagan, Charles.
• Foxe, Tom.
• Garland, Eamon.
• Gilmore, Eamon.
• Gregory, Tony.
• Harte, Paddy.
• Higgins, Jim.
• Higgins, Michael D.
• Hogan, Philip.
• Howlin, Brendan.
• Kavanagh, Liam.
• Kemmy, Jim.
• Kenny, Enda.
• McCartan, Pat.
• McCarmack, Pádraic.
• McGahon, Brendan.
• McGinley, Dinny.
• Mac Giolla, Tomás.
• McGrath, Paul.
• Mitchell, Gay.
• Mitchell, Jim.
• Moynihan, Michael.
• Nealon, Ted.
• O'Keeffe, Jim.
• O'Shea, Brian.
• O'Sullivan, Gerry.
• O'Sullivan, Toddy.
• Owen, Nora.
• Pattison, Séamus.
• Rabbitte, Pat.
• Reynolds, Gerry.
• Ryan, Seán.
• Shatter, Alan.
• Taylor, Mervyn.
• Taylor-Quinn, Madeleine.
• Timmins, Godfrey.
• Yates, Ivan.

Tellers: Tá, Deputies V. Brady and Clohessy; Níl, Deputies Flanagan and Howlin.

Question declared carried.