During my contribution I would like to address the question of unemployment, which is the most serious economic and social problem facing us, and the transport sector in my capacity as Opposition spokesman on that area. People do not seem to realise the extent to which the unemployment position has deteriorated in recent times. At present 250,000 are unemployed and up to 30,000 people emigrate each year. In addition, between 24,000 and 25,000 young people leave school annually. As a consequence, there is a great need to create jobs. I get the impression from statements made by the Minister for Finance and the Taoiseach that they do not think they can do anything about unemployment and that essentially they have thrown in the towel. They have said that the right economic climate and confidence need to be created if we are to create jobs but there is no direct role the State can play. This is wrong and this issue must be addressed.
As chairman of the Joint Committee on Small Businesses I remember the lobbying of the then Minister for Finance to introduce the business expansion scheme to which Deputy Noonan referred. Over 6,000 jobs have been created since that scheme was set up. We need to look at our tax code and investment policy to see how they can be reorganised to give preference to job creation. I would like to put forward a number of suggestions in this debate because unless we are serious about restructuring our tax code to create jobs we will not improve the present position.
The first matter which needs to be dealt with is the cost of employing a person. Not so long ago I spoke to the boss of CIE, our biggest transport operator, with three holding companies. That group have reduced the number of their employees from 22,000 to 11,000 and intend to reduce it further. If we talk to the personnel managers of large companies we will find that they are equally intent on shedding labour wherever possible. The point I am trying to make is that we have made it very costly to employ people. To put £1 net pay in the pocket of a married man with one or two children costs something like £2.20 in average employment terms. To put £1 overtime in someone's pocket costs £3.10. We have organised our tax affairs by penalising labour intensive industries and people who employ others. There is no need for that. We can tax other things; we can tax profits, turnover and so on, but why do we tax jobs in this way? The Coalition Government's fixation to have two rates of tax, 40p and 25p, misses the whole point of our tax code. We need to address all the focus of tax relief towards the lower end of the scale so that more people will have less gross-net pay differential and the disincentive to employing people will be removed.
I will try strongly to make an issue in the next election of the fact that heads of households with larger families find it less attractive to work because the social welfare system pays you for having more children and the tax system gives no recognition for having children. In other words, I favour strongly the reintroduction of a children's tax free allowance which more than anything else would swing the scales for those it pays to work or not to work. It simply does not pay people to work if they have four children or more and if they are getting anything less than the average industrial wage because their entitlements for house rent and medical card are based on gross rather than net pay, not even taking into account travelling expenses and so on. Unless we reintroduce a children's tax free allowance and re-orientate our tax system to favour the majority of workers by reducing the lower band exclusively and changing the bands and allowances in that regard we will not remove those poverty traps and will not reduce the cost of employment.
Employer's PRSI at 12.8 per cent is a tax on jobs. The more people you employ the more tax you pay. It directly penalises labour intensive industries, and extensive data show that our industrial policy has succeeded in attracting capital intensive industries to Ireland and not labour intensive industries when what we require is exactly the opposite. In other words, we give very substantial allowances and reliefs for capital expenditure. We give substantial IDA grant aid for capital expenditure, and we give virtually nothing only stiff taxation in the form of employer's PRSI to people who create jobs. It is no surprise, therefore, that we have the lowest industrial base in Europe in terms of employment and the second highest rate of unemployment, at over 21 per cent. Therefore, I favour the abolition of employer's PRSI strictly on the basis that that money will be made up by an increase in corporation tax or a new tax based on company turnover, and I urge that we move away from penalising people on the basis of employing them. Until we do that and perhaps introduce exemption at a high level, maybe up to £85 a week, where they would be free of all PRSI and get the full class A1 credit, we will make no serious inroads into the situation.
One thing that has been proven successful is the social employment scheme, the only scheme that will deal with the permanent level of unemployment we have. I do not know whether the figure is 90,000 or 100,000, but it is estimated there is a permanent level of unemployment. What is the best social response in those circumstances? We in Government introduced the SES and it has been successful but it has been limited in a number of respects. After a year people have to leave it. People can get on it only if they are on unemployment assistance. We should extend the scheme to cover a number of voluntary activities. I know many voluntary organisations who could not afford the sponsorship of the SES. I would even favour introducing grants to such bodies to help ensure they can engage people. In the area of personal services, people may employ, for instance, a gardener or baby sitter. There is a huge black economy there. If the SES is extended to include that it would make a meaningful contribution.
In summary, I am suggesting under this Finance Bill in relation to employment that our tax reform be based on reintroducing a children's tax allowance to restore the incentive to work for those who have more than three children, that we gear income tax relief not across the board but to the lower paid to ensure there is not a tax on employment in that way, that employer's PRSI be abolished and replaced by a proportionate increase in corporation tax or a new tax, and that we extend the SES.
The Oireachtas Joint Committee on Small Businesses proposed the introduction of a jobs tax credit, an American idea, under which an employer taking on an employee who was on the dole for a year or more can get a credit of, say, $1,000 in the first year, or $500 in the second year if he retains the person for the full period, to set against any tax bill the company might have, corporation tax, personal income tax for a sole trader, or whatever it might be. It has worked and I believe is worthy of consideration.
There are significant problems in the transport sector in relation to taxation. Our transport costs are double the average in the EC. If you want to bring a container of goods from here to any other part of Europe the average cost is 9 per cent of product price. In Europe the average is 4.5 per cent. That is obviously because of our peripherality and we will have to deal with it. If we are to be competitive in the Single Market let us consider the basics. We have higher insurance costs, certain higher wages costs, we have to cross a couple of seas and so on, but if we look at taxation the implications are very clear. If you buy an articulated vehicle for the transport sector you will pay 6.5 per cent excise duty which is not reclaimable at all in the Republic. There is no excise duty on vehicles of that kind in Northern Ireland. VAT is reclaimable but VAT in the South is 21 per cent and in the North 15 per cent. The rate of excise duty on fuel oil in relation to the price per hectolitre here is one of the highest in Europe, second only to Italy. Similarly, VAT on fuel is 21 per cent here and 15 per cent in the North. These are the cost disadvantages the Irish transport sector have to carry.
Is it any wonder then that we see an increasing proportion of freight out of this country going through Larne? Northern Ireland hauliers can come down here, offer cheaper quotations, come across the Border and sabotage our business. With the development of cabotage whereby there will be total free haulage movements within Europe, we will suffer even further. The legitimate haulier here will see his business eroded by illegal hauliers on the one side and traders from the UK and Northern Ireland on the other. This type of penetration is very damaging to the transport sector and provides no great basis on which it can grow.
The only prospect of resolving this problem is harmonisation of taxation. The only analogy I can use is that this Government's attitude to tax harmonisation is something akin to a child's attitude to the dentist in so far as they are doing everything humanly possible to resist it. They are seeking exemptions and derogations in every direction and are even going so far as to look for compensation if the EC insist. The only way to have a competitive transport sector is by tax harmonisation.
Earlier speakers mentioned the privatisation of Irish Life. We must have a very clear policy in relation to privatisation in the transport sector. No such policy exists. We had the attempted sale of the B & I line for £6.3 million. The strategic interests of transport are so strong that the State must retain an interest in the transport sector. Be it Aer Lingus or B & I, a stake must be retained by the Exchequer. Whether that should be a minority stake, a majority stake or a golden share will vary from case to case. It is wrong, short-sighted and too simplistic for the Minister for Transport simply to wash his hands of the B & I Line after the investment of £100 million. A golden share must be retained because of the vital strategic links. Eighty per cent of all our exports are shipped. Therefore the shipping services on the Irish Sea are vital to the economy. If we completely wash our hands of involvement, what will happen in ten years if Irish Ferries say they cannot make money on the venture and sell it to Sealink or some other foreign owner? Leaving aside the short term interests of the employees, that is not in the long term interests of the economy.
We have no policy in relation to Aer Lingus, which will lose £40 million on air transport this year. When the market is liberalised in 1993 there will be complete deregulation. We have seen spectacular collapses of some of the largest airlines in America and we need to be very careful that Aer Lingus is not left behind. Other airlines such as British Airways, KLM, Lufthansa, Swissair and SAS have taken cross-investments in different airlines. They have set up a European quality alliance and have taken shareholdings in each other because they see an interdependence and globalisation of shareholdings. Aer Lingus is still on its own, the bachelor of Europe which will be left on the shelf, adding to our problems of peripherality. We must have a clear aviation policy. A minority of the shares in Aer Lingus should be sold to different airlines to give us marketing and cost tie-ups, links to the Far East and Australia and strong transatlantic links. Unless this is done and there is clear thinking about that element of privatisation we will be left behind.
If anybody has a good case for spending money it is the motorist. Having gone to considerable lengths to get the figures from the Department of Finance, I discovered that the driver of a truck, an articulated vehicle, a van or an ordinary car spends £1,260 million on VAT, excise on vehicles, fuel, tax, road tax and fines. That is a great deal of money. It is not unreasonable that the motorist should ask for a little bit of that money to provide reasonable roads. It is agreed by the Department of the Environment and by the EC Commission that at 1987 prices it will cost us £3.3 billion to bring our roads up to European standards. I am not talking about the roads around Ballybay or the backstreets of Ferns and Camolin or Lyrecrompane. I am talking about the inter-city radial routes. To bring our roads up to standard by the year 2010 would require the investment of £200 million or £250 million per annum. The level to which the Government are committed is much less. They have not even set up the national roads authority, only an interim body which has acted as another layer of bureaucracy. There is no clear thinking by the Government with a view to resolving this problem. It must be borne in mind that the motorist is paying £1,280 million in taxation.
Apart from the national routes, there is the question of the potholes competition being held through the media to find the largest and the worst. It is a joke. The problem of non-national roads will only be resolved by more resources. Deputy Boylan's constituency of Cavan is regarded as the capital of potholes. It is unacceptable that the people of that area and other places, such as Clare, should have to put up with roads in this condition. My constituency of Wexford is not the worst but is certainly not the best We will shortly be putting forward radical proposals in this regard.
Total motor tax receipts by local authorities are estimated to amount this year to £161 million. The level of grant paid by the Government is £68.13 million for non-national roads. The idea is that the national roads authority will deal with all national primary and secondary routes, that is 6 per cent of all roads carrying 37 per cent of all traffic. The remaining 94 per cent of roads must have a new financing scheme. Motor tax revenue should be retained by the local authorities. This would make available an additional £41 million. Some may say that all the money will go to Dublin. It would be possible to devise a scheme whereby no local authority would get an increase in their road fund of more than 30 per cent and a transfer of resources would then take place to counties like Clare and Cavan to ensure that this problem is dealt with. We need also a road audit to ensure that local authorities are performing, that the work is being done and that no money is wasted. We must have uniform costings per kilometer for the restrengthening and resurfacing of our roads. Until we have a real plan to get to grips with our pothole problem there will be no resolution of it. This will be a major issue in the local elections and our party will have a sound and well thought-out solution.
It is a tragedy that in the operational programmes to deal with peripherality within the EC the funding received by the railways is derisory. It is virtually nonexistent, apart from some diesel cars to Dundalk. At a time when the British Government and the Northern Ireland authorities are prepared to expend very substantial resources in upgrading the Dublin-Belfast link, this Government have dragged their feet and have not put any money into it. They are looking for more studies, more reports and more reviews. It is not right that the transport company, Irish Rail, should have to bear the total cost of the permanent way, the railway track. No motorist has to pay for the cost of the roads in that form. The cost of maintaining and upgrading the permanent way, which I understand ranges from £41 million to £45 million a year, should be included in the Public Capital Programme. The Public Capital Programme for both roads and railways should be included under the auspices of the Department of Transport. This has been done in Denmark where they have been very successful. They have an integrated transport policy involving air and sea, roads and ports and railways.
The lack of investment in upgrading our railway line means that the Government have to make a decision either to abolish or retain the railway. If they want to abolish it, let them say so. If not, then why allow the situation on the line from Sligo or Ballina to Dublin, where the train has to travel so slowly for safety reasons because the rolling stock is run down and the permanent way is run down that fewer and fewer people will use the slow and unreliable service. That is unacceptable. The Government have no clearly thought-out policy. They have not even approached the EC for aid towards the cost of maintaining the permanent way.
Even those of us who are not Dubliners know that it is taking longer and longer to get to the city centre. It now takes 40 minutes for people to get to work when it used to take 20 minutes. The problem of congestion will get worse and because 40 per cent of the population live in the greater Dublin region. Frankly, this problem requires a solution.
Having looked at various options, such as guided bus ways, which are dedicated routes on which only buses can run, light rail and the possibilities offered by road development, it is my considered view that we must embrace the option of light rail in a planned coherent way, encompassing two or three phases over the next five to ten years, for example, starting with the Harcourt Street line, then developing a route to the airport, a route to Cabra and another to the south-west. Unless we have a concerted policy of investment in light rail, for which we seek EC funding, we run the risk of seeing Dublin's traffic congestion problem get completely out of hand. That simply is unacceptable.
The advantage that light rail has over any other mode of transport is its exclusivity, in other words, it will not be caught up in traffic jams. This is where Dublin Bus has failed; even though there are bus lanes, there have been problems with illegal parking. The fact is although buses are very efficient and carry up to 80 passengers at a time, they get caught up in the same congestion as the motorist. Therefore, that is not a solution. I understand that for an investment of something in the order of £350 million we could provide a very high quality light rail system. In over 300 major urban centres, some of which are of a similar size and have similar problems to Dublin—such as Manchester—they are now opting for a light rail system.
There will be EC support for the development of light rail routes and there is a 75 per cent grant for national primary route development. If we put together a concerted expenditure programme of £350 million, we could actually achieve results similar to those achieved on the DART corridor, in other words, more than half the people who go to work from Howth to Bray go by public transport; less than half go by car. On any other route where Dublin Bus operate, less than one third of the commuter traffic to and from work use public transport. Here we have an opportunity to solve the problem but we cannot have a half hearted commitment. You cannot reopen the Harcourt Street line only; you must have a concerted approach to the development of light rail transport. From the point of view of the environment, transport, bringing greater life to the inner city and sound investment, this is the way to go.
I would now like to deal with the two growth areas of transport where there is enormous potential. I referred to cabotage earlier, but I believe we must look at international haulage as an export traded sector and give it the preferential corporation tax treatment that applies to other internationally traded sectors. The second area of growth is in shipping. It is undoubtedly the case that Fianna Fáil made a special case of the shipping sector in 1987. They promised grant-in-aid, that the business expansion scheme would apply and that they would restore the whole fleet—this was after the difficulties of the Irish Shipping Company which had been put into liquidation. What do we see in 1991? The grant scheme has been gutted and virtually no container can now get grant-in-aid.
The situation is quite unacceptable because people's hopes were raised. For no reason the business expansion scheme has obliterated the shipping sector. There was no evidence of abuse or of the asset based schemes in this sector as there were for hotels and golf clubs, but for some mysterious reason the business expansion scheme no longer applies to shipping. I think this is very unfair. The modest Irish shipping sector for container traffic, less so for deep sea traffic, are disappointed at the way they have been treated. This is shameful and runs totally in the face of what was promised by Fianna Fáil earlier. I do not wish to detain the House, but these are some of the transport issues that need to be dealt with.
The most important issue at the end of the day is employment. If we are serious about dealing with the problem of unemployment we will have to move away from the climatology approach where if interest rates and inflation are OK, jobs will be created. The fact is that inflation has been very low by European standards over the past three years but we have not seen the jobs. Real interest rates are too high. The rate of return on an investment when you pay interest rates of 15 per cent is simply unacceptable, and even an interest rate of 13.5 per cent is unacceptable.
The differential between deposit interest returns and the lending rate is out of line and is too high. That will retard growth. We can only convert economic growth into jobs by abolishing employers' PRSI and increasing corporation tax proportionately, reducing the lower rates of income tax and reintroducing the children's tax free allowance so that it pays people with families to go to work; to reintroduce a jobs tax credit, as they have in America, to give a direct incentive to create extra employment, and to extend the social employment scheme way beyond its present frontiers so that it will cover new services and many voluntary organisations. I believe that up to 70,000 jobs could be created by the voluntary sector who are doing unpaid work ideally suited to people working one week in every fortnight.
This budget is disappointing but I will return to some of the issues that I have raised in the future.