Vol. 410 No. 3
14 Mr. Gilmore asked the Minister for Finance if he will outline the tax returns for the first six months of this year; the way in which they compare with budgetary projections; whether it is intended to introduce a mini-budget; and if he will make a statement on the matter.
22 Mr. Taylor asked the Minister for Finance if he will outline the basis of receipts for the first six months of 1991; and whether they are in line with budgetary targets.
28 Mr. Noonan (Limerick East) asked the Minister for Finance if he will outline his plans to ensure that the Exchequer borrowing requirement is no greater than that estimated by him on budget day; and if he will make a statement on the matter.
I propose to take Questions Nos. 14, 22 and 28 together.
Total tax revenue in the first six months of 1991, as shown by the end-June Exchequer returns, was 1.3 per cent higher than in the same period of last year. This compared with the 5.8 per cent increase projected for the full year in the budget. I have repeatedly pointed out that the revenue trend was expected to improve as the year advanced, having regard to the implications of "carry-over" costs and other foreseeable factors for the figures in the early months. Nevertheless, the outturn for the half-year was below the budget profile.
As I made clear in the statement I issued with the returns, the shortfall in tax revenues was effectively confined to a few specific areas; trends otherwise were fairly satisfactory. I said that it mainly lay "with indirect tax receipts, which are running somewhat behind target — particularly on account of the decline in car sales — and with stamp duties, mainly from property transactions". I also pointed out that "payroll taxes, taking into account the effect of income tax reliefs, are well in line with the budget profile which was based on the expectation of continuing employment growth". In relation to Deputy Taylor's wider question, other Exchequer receipts — non-tax revenue and capital resources — have performed in line with expectations over the year to date.
While I remain confident that we will see a distinct improvement in tax revenues in the second half, I have acknowledged that the shortfall to date will not be fully recovered. I must, of course, point out that, on account of the weekening in international economic activity, very many countries have found that revenue buoyancy this year has been less than anticipated in their budgets. Nevertheless, the tax returns confirm, as I said in my statement, that "the Irish economy is performing very creditably in difficult international circumstances".
The poor performance of consumption taxes, and especially revenue from vehicle sales, must be seen in the light of the impact on consumer confidence of the continuing background of international economic uncertainty.
The international recession has also had a major impact on spending. The shift in migration patterns which has occurred because of the lack of employment opportunities in the UK has pushed the numbers on the live register well ahead of budget projections, and this in turn has increased the level of social welfare expenditure. This single factor is the major component in the expenditure slippage this year.
The improvement in competitiveness which has been achieved through continuing low inflation and moderate wage agreements has left us well placed domestically to mitigate the effects of the international downturn, and to benefit from any upturn. Nevertheless, the Government are determined, now that the half-year figures have become available, to take steps to deal with these emerging pressures on the budget targets this year. In that regard, the scope for taxation adjustments are very limited, and it is quite clear that the burden of adjustment will have to fall on the expenditure side of the budget. Measures in this area are currently under consideration, so that it is not possible at this stage to indicate to the House what specific steps will be taken.
I can, however, assure the House that the issue is being very actively pursued, and that in accordance with the undertaking I made in my Budget Statement last January, the Government will not be slow to take any action that is needed.
(Limerick East): Will the Minister inform the House of his estimate of the overrun for the year? Will he categorically state that he is ruling out any tax increase by way of a supplementary budget and that he will confine whatever corrective measures he intends to take to the expenditure side? Will he also give a commitment to the House that capital expenditure will not be cut and that, if cuts are announced by the Minister on behalf of the Government, they will be real cuts with underpinning policy decisions and not estimating cuts of a cosmetic nature?
I could not give an undertaking to the House or elsewhere that capital expenditure will be excluded from any examination of the whole area. I clearly said that every element of expenditure, line by line, will be gone through systematically by the Government. That process already commenced at yesterday's meeting and it will continue at next Friday's meeting. I have already put a list of proposals before the Government for each member's consideration and, as I said, we will continue that procedure next Friday. It is not possible, as I am sure the Deputy and the House appreciate, to say what areas may be affected. There is a problem and it is for the Government to decide in what areas expenditure savings will be made. I will not speculate on the areas involved.
(Limerick East): What is the estimate for the overrun?
The estimate given by the Department of Finance officials was between £190 million and £200 million. Of course they will be affected by the adjustments the Government make.
I want to pursue that very point with the Minister. We are heading towards the dismantling of the Common Agricultural Policy and there has been a disastrous decline in consumer spending, which will be confirmed by anyone in the retail trade. How can the Minister make a further prediction in that regard? Indeed, it has been challenged by most independent commentators from all sides of the political spectrum.
As I mentioned earlier, the OECD report will come out this evening and it will confirm our projections. Indeed, those of the Department of Finance and mine are less than those the OECD will confirm. Everybody agrees that there will be a recovery but people are not predicting when. Reports from the United States indicate that it seems to be under way although it is patchy. The economy is more buoyant on the west coast of the United States than on the east coast. I was in London on Monday and there is real concern there because of the fact that businesses have been collapsing at the rate of 900 per month for the last six months.
Because of Thatcherism.
I am simply stating the facts. Our economy is closely linked with the economy in the UK and, inevitably, we feel the backlash as 35 per cent of our exports are sold in that market. The question of high interest rates round the world is another factor and I was glad to see that Japan moved to reduce its interest rates this week; I hope that it is preparation for G7.
The American view is well known and as international rates begin to come down pressure will be reduced on our interest rates. Indeed, our market is very liquid at the moment. There are shortfalls in the areas of unemployment and health. Nobody can foretell the cost at the beginning of the year and, as I said, cars and sales suffered in the first half of the year. Employment is quite clearly holding up because of the additional receipts from PAYE and PRSI, which is very satisfactory at a time when jobs are being lost wholesale in other economies.
It looks bad for Tallaght hospital.
In view of the fact that at the time of the budget debate and on Second Stage of the Finance Bill, the Minister's assumptions on economic growth for 1991 in relation to employment were challenged, not only by Members of this House but by economic forecasters and commentators outside the House, has the Minister any plans to change the personnel who gave him the minority advice on which his budget was constructed? Does he propose to augment the economic forecasting section within his own Department in the light of the clear minority position to which he clung right through the first five months of this year and which has now been manifestly shown to be inaccurate?
I did not cling to any minority advice at the time of the January budget. The budget was based on the economic data available not alone to Irish commentators but to international people also. The Deputy should not shake his head but should let me finish.
I do not think that is true.
Let me put the facts and the Deputy can then accept or reject them as he wishes. In the month of December the forecast for the British economy was a 1 per cent growth but by the time the British budget was delivered in March the figure was minus 2 per cent. A month or six weeks after the Irish budget was produced the IMF and the EC came forward with projections which were as close as made no difference to the Irish budgetary position. As I have said already, today the OECD produced more optimistic forecasts for the Irish economy. The output growth was forecast in the budget at 2¼ per cent. At this stage the best information available suggests that it will be 2 per cent or so little less than 2 per cent as makes no difference. I want to reject totally the suggestion of a minority view at budget time. The forecasts on which the budget was based were not from the pessimistic or the optimistic end but from the centre. Many economists still say that on the best available advice what was prudent was done.
(Limerick East): May I ask a final supplementary question?
I will call Deputy Quinn, then Deputy Garland and a final question from Deputy Noonan.
The Government will be making decisions next Friday in relation to expenditure cuts. Am I to take it that time will be made available to this House next week to announce where those cuts will be made?
I have never said that the Government will be making decisions on Friday; I said that the process will continue on Friday and for whatever period it takes to get an appropriate response to the matter.
I think everyone in the House realises that we must do something about the over-run on the budget deficit. I am appalled that the Minister seems to be totally excluding the possibility of taxation increases. He assured everyone in the House that expenditure was pared to its absolute minimum in the budget but now he is going to cut it further. Would it not be better to at least consider increases in excise duties or VAT on luxuries, or perhaps taxation increases in the corporate sector or on wealthy individuals? Can the Minister give an assurance that he will at least consider these options?
As I have already said, this Government will not approach the subject by increasing taxation at this stage. The philosophy of this Government has been to reduce expenditure and correspondingly reduce taxation, and we have reduced taxation on every front. We have reduced personal taxation at the top end from 58 to 52 per cent and at the bottom end from 35 to 29 per cent. We have increased the standard rate band by 40 per cent. On the indirect side we have reduced VAT from 25 to 21 per cent and we have reduced excise duties also in preparation for the approximation of taxes.
Not to mention corporation taxation, property taxation and wealth taxation.
On the corporate side we have reduced tax from 50 to 40 per cent and indeed we have also reduced capital taxation. Our philosophy is "down with taxes".
What about your partners?
We know that the question of responding to this type of situation with increased taxation was tried and failed by the Fine Gael-Labour Government. They destroyed this economy with high taxation——
(Limerick East): The filibuster is in progress again.
——in trying to correct the foolish mistakes they made for four and a half years. That did not work then and I have no intention of going back to a failed policy of higher taxation.
The Minister is proving he is——
The Minister should forget about the history lesson.
It is usual to listen to a Minister's reply with courtesy and respect in this House.
Get on with expenditure, that is what the Minister is saying.
(Limerick East): I wish to ask a two part supplementary question. Is the Minister aware of the opinion of many independent economists that the over-run will increase the differential between Irish interest rates and German interest rates? Would he consider as part of the package tying the Irish pound to the German mark on a fixed basis to reduce that differential? Secondly, arising from the Minister's previous reply, I would ask him to rule out cuts in capital expenditure. We all appreciate that cuts in capital expenditure are politically easier than cuts in current expenditure but they have a very adverse effect on employment.
Where is the Tallaght hospital now?
As I have said already, I am not ruling out examination of every aspect of expenditure. The Deputy will be aware and will appreciate that at the half year mark the effect on many areas of current expenditure would be limited. As regards his solution, I am amazed at the negative approach being taken by all sides of the House towards our economic situation——
I thought it was an economic miracle. The man sitting behind the Minister said it was a miracle.
——when we are performing much better than any other economy.
(Limerick East): No wonder Gerry is smiling.
They want to downtalk this economy.
The Minister likes to call it a miracle——
I have listened to all the Deputies. Perhaps I could now have the courtesy of the House. In relation to the quick fix solution of Deputy Noonan, who talked about tying the Irish exchange rate to the Deutsche Mark, I would remind him and the House that, having taken over the disastrous differential of 9 percentage points that existed in March 1987 between the Deutsche Mark and the Irish exchange rate, we have now reduced the differential to 1.1 per cent. That is the differential that exists, and it is not the panacea to the problems that Deputy Noonan or others might suggest. We expect that differential to be eliminated over the next 12 to 18 months as the good economic management of the Irish economy by this Government continues.
