Dáil Éireann debate -
Wednesday, 24 Feb 1993

Vol. 426 No. 6

Financial Resolutions, 1993. - Financial Resolution No. 9: Value-Added Tax.

The Taoiseach

I move Financial Resolution No. 9:

(1) THAT in this Resolution—

"the principal Act" means the Value-Added Tax Act, 1972 (No. 22 of 1972);

"the Act of 1991" means the Finance Act, 1991 (No. 13 of 1991);

"the Act of 1992" means the Finance Act, 1992 (No. 9 of 1992).

(2) THAT—

(a) 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

(b) the rate of value-added tax on certain goods at present chargeable at the rate of 10 per cent. be increased to 21 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

(c) the rate of value-added tax on certain goods and services at present chargeable at the rate of 16 per cent. be increased to 21 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

(d) the rate of value-added tax on certain goods and services at present chargeable at the rate of 16 per cent. be decreased 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

(e) the rate of value-added tax on certain goods at present chargeable at the rate of 21 per cent. be decreased 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

(f) the rate of value-added tax on livestock, live greyhounds and the hire of horses be decreased from 2.7 per cent. to 2.5 per cent. of the taxable amount or value of such goods and services, and

that, accordingly, the principal Act be amended—

(i) in subsection (1) of section 11 (inserted by the Act of 1992)—

(I) by the deletion in paragraph (a) of "(e)",

(II) by the deletion of paragraph (e), and

(III) by the substitution, in paragraph (f), of "2.5 per cent." for "2.7 per cent.",

(ii) by the substitution in sub-paragraph (b) of paragraph (iv) of the First Schedule (inserted by the Act of 1991) of "paragraph (ii) of the Third Schedule or paragraph (xiii) of the Sixth Schedule" for "paragraph (vi) of the Third Schedule",

(iii) by the substitution of the following Schedule for the Third Schedule (inserted by the Act of 1991):

"THIRD SCHEDULE

GOODS AND SERVICES CHARGEABLE AT THE RATE SPECIFIED IN SECTION 11 (1) (C).

(i) Immovable goods being a domestic dwelling for which a contract with a private individual has been entered into before the 25th day of February, 1993, for such supply;

(ii) services specified in paragraph (xiii) of the Sixth Schedule, under an agreement made before the 25th day of February, 1993, and at charges fixed at the time of the agreement for such supply;

(iii) services specified in sub-paragraph (a) of paragraph (xv) of the Sixth Schedule, under an agreement made before the 25th day of February, 1993, and at charges fixed at the time of the agreement for such supply.",

(iv) in the Sixth Schedule (inserted by the Act of 1992)—

(I) by the substitution in sub-paragraph (c) of paragraph (i) of "motor vehicle gas within the meaning of section 42 (1) of the Finance Act, 1976" for "gas of a kind specified in paragraph (i) of the Seventh Schedule",

(II) by the substitution in paragraph (xi) of a semi-colon for a full stop, and

(III) by the insertion of the following paragraphs after paragraph (xi):

"(xii) newspapers and periodicals, normally published at least fortnightly, the contents of each issue of which consist, wholly or mainly, as regards the quantity of printed matter contained in them, of information on the principal current events and topics of general public interest;

(xiii) (a) letting of immovable goods (other than in the course of the provision of facilities of the kind specified in paragraph (viia)—

(I) by a hotel or guesthouse, or by a similar establishment which provides accommodation for visitors or travellers,

(II) in a house, apartment or other similar establishment which is advertised or held out as being holiday accommodation or accommodation for visitors or travellers, or

(III) in a caravan park, camping site or other similar establishment, or

(b) the provision of accommodation which is advertised or held out as holiday accommodation;

(xiv) tour guide services;

(xv) the hiring (in this paragraph referred to as "the current hiring") to a person of—

(a) a vehicle designed and constructed, or adapted, for the conveyance of persons by road,

(b) a ship, boat or other vessel designed and constructed for the conveyance of passengers and not exceeding 15 tonnes gross,

(c) a sports or pleasure boat of any description, or

(d) a caravan, mobile home, tent or trailer tent,

under an agreement, other than an agreement of the kind referred to in section 3 (1) (b), for any term or part of a term which, when added to the term of any such hiring (whether of the same goods or of other goods of the same kind) to the same person during the period of 12 months ending on the date of the commencement of the current hiring, does not exceed 5 weeks;

(xvi) every work of art being—

(a) a painting, drawing or pastel, or any combination thereof, executed entirely by hand, excluding hand-decorated manufactured articles and plans and drawings for architectural, engineering, industrial, commercial, topographical or similar purposes,

(b) an original lithograph, engraving, or print, or any combination thereof, produced directly from lithographic stones, plates or other engraved surfaces, which are executed entirely by hand,

(c) an original sculpture or statuary, excluding mass-produced reproductions and works or craftsmanship of a commercial character, or

(d) subject to and in accordance with regulations, an article of furniture, silver, glass or porcelain, whether hand-decorated or not, specified in the said regulations, where it is shown to the satisfaction of the Revenue Commissioners to be more than 100 years old, other than goods specified in sub-paragraph (a), (b) or (c);

(xvii) literary manuscripts certified by the Director of the National Library as being of major national importance and of either cultural or artistic importance;

(xviii) services consisting of—

(a) the repair or maintenance of movable goods, or

(b) the alteration of second-hand movable goods, other than such services specified in paragraph (v), (va) or (xvi) of the Second Schedule, but excluding the provision in the course of any such repair, maintenance or alteration service of—

(I) accessories, attachments or batteries, or

(II) tyres, tyre cases, interchangeable tyre treads, inner tubes and tyre flaps, for wheels of all kinds;

(xix) services consisting of the care of the human body, excluding such services specified in the First Schedule, but including services supplied in the course of a health studio business or similar business;

(xx) services supplied in the course of their profession by jockeys;

(xxi) the supply to a person of photographic prints (other than goods produced by means of a photocopying process), slides or negatives, which have been produced from goods provided by that person;

(xxii) goods being—

(a) photographic prints (other than goods produced by means of a photocopying process), mounted or unmounted, but unframed,

(b) slides and negatives, and

(c) cinematographic and video film,

which record particular persons, objects or events, supplied under an agreement to photograph those persons, objects or events;

(xxiii) the supply by a photographer of—

(a) negatives which have been produced from film exposed for the purpose of his business, and

(b) film which has been exposed for the purposes of his business;

(xxiv) photographic prints produced by means of a vending machine which incorporates a camera and developing and printing equipment;

(xxv) services consisting of—

(a) the editing of photographic, cinematographic and video film, and

(b) microfilming;

(xxvi) agency services in regard to a supply specified in paragraph (xxi);

(xxvii) instruction in the driving of mechanically propelled road vehicles, not being education, training or retraining of the kinds specified in paragraph (ii) of the First Schedule;

(xxviii) immovable goods;

(xxix) services consisting of the development of immovable goods and work on immovable goods including the installation of fixtures, where the value of movable goods (if any) provided in pursuance of an agreement in relation to such services does not exceed two-thirds of the total amount on which tax is chargeable in respect of the agreement;

(xxx) services consisting of the routine cleaning of immovable goods;

(xxxi) cakes, crackers and wafers and other flour-based bakery products other than those included in paragraph (xii) of the Second Schedule;

(xxxii) biscuits, other than biscuits wholly or partly covered or decorated with chocolate or some other similar product similar in taste and appearance.",

and

(v) by the deletion of the Seventh Schedule (inserted by the Act of 1992).

(3) THAT the rate of flat-rate addition to prices of agricultural produce or agricultural services supplied by unregistered farmers be decreased from 2.7 per cent. to 2.5 per cent., and that, accordingly, section 12A (inserted by the Value-Added Tax (Amendment) Act, 1978 (No. 34 of 1978) of the Principal Act be amended by the substitution in subsection (1) of "2.5 per cent." for "2.7 per cent." (inserted by the Act of 1992).

(4) THAT this Resolution shall have effect as on and from the 1st day of March, 1993.

(5) 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 an increase to 12.5 per cent in the rate on 10 per cent rated categories such as building, newspapers and holiday accommodation, an increase in the rate on the supply of poured concrete and concrete blocks from 10 per cent to 21 per cent; an increase to 21 per cent in the rate on 16 per cent rated categories such as telecommunications and adult clothing; a decrease to 12.5 per cent on certain 16 per cent rated activities such as garage repairs, hairdressing and dry cleaning; a decrease in the rate of flour, confectionery and bakery products, as well as non-chocolate biscuits, from 21 per cent to 12.5 per cent and an adjustment from 2.7 to 2.5 per cent in the level of flat-rate farmers' refund, together with a similar change in the VAT rate on livestock. These changes will have effect on and from 1 March 1983.

The Resolution provides for an increase from 10 per cent to 12.5 per cent, with effect from 1 March 1993 on building and building services, newspapers, hotel and holiday accommodation, tour guide services, short term hire of cars, boats, caravans, mobile homes and tents and trailer tents. This increase, while consistent with and partially dictated by the Single Market agreements on VAT rates and structures, will make a positive and necessary contribution to the overall budgetary arithmetic.

The Resolution provides for an increase from 10 per cent to 21 per cent, with effect from 1 March 1993, on poured concrete and concrete blocks. This measure will be of assistance to building enterprises who meet their tax obligations and who face unfair competition from black economy activity within the building sector. The projected yield is £0.4 million in 1993 and £0.7 million in a full year.

The Resolution provides for an increase from 16 per cent to 21 per cent with effect from 1 March 1993 on telecommunications, adult clothing and footwear, including materials for their manufacture, auto LPG, spectacles and contact lenses, farm accountancy and farm management services, services of auctioneers, solicitors, estate agents and other agents directly related to the sale of agricultural land.

This measure is necessary to comply with EC Single Market requirements. Under the terms of the EC VAT agreements, member states can have only one rate at a level equal to or higher than 15 per cent. As our standard rate is being maintained at 21 per cent on this occasion, it is necessary to abolish the transitional 16 per cent rate.

The proposed increase applies to about 8 per cent of all VAT-able goods and services. The projected yield from this increase is £40 million in 1993 and £65 million in a full year. This increase will result in an estimated rise of 0.29 percentage points in the CPI.

The Resolution provides for a decrease from 16 per cent to 12.5 per cent, with effect from 1 March, 1993, on general repair and maintenance services, e.g. car repairs etc., personal services such as hairdressing, dry cleaning, driving lessons etc., jockeys' services, photographic services, works of art, literary manuscripts and most antiques.

This reduction is being made for most of the categories outlined, which are highly labour-intensive, with the aim of helping to consolidate and promote employment. It is fully consistent with the provisions of the EC VAT arrangements for the Single Market, which allow us retain reduced rating for a transitional period, prior to eventual standard rating, on activities which had been subject to a low rate on 1 January 1991.

The projected cost to the Exchequer is £6.5 million in 1993 and £11 million in a full year. This decrease will result in an estimated fall of 0.088 percentage points in the CPI.

The Resolution provides for a decrease from 21 per cent to 12.5 per cent, with effect from 1 March, 1993, on flour confectionery and bakery products, as well as non-chocolate biscuits. This initiative is aimed at safeguarding employment within the domestic biscuit-making and flour confectionery industries. It is also compatible with EC agreements which permit the option of reduced rating for food. It is also aimed at preserving jobs and ensuring less cross-Border trading.

The projected cost to the Exchequer is £7 million in 1993 and £11.5 million in a full year. This decrease will result in an estimated fall of 0.06 percentage points in the CPI.

The Resolution provides that, on and from 1 March, 1993, the flat-rate compensation to unregistered farmers, which operates as an addition to the selling price of their agricultural produce and agricultural services, will be adjusted from 2.7 per cent to 2.5 per cent. A similar change will apply in the case of the VAT rate on livestock.

The adjustment in the flat-rate will result in a reduced cost to the Exchequer which is estimated at £4 million in 1993 and £6 million in a full year. The flat-rate addition compensated farmers for the VAT incurred by them on their farm inputs.

Farmers will receive in 1993 an estimtated £72 million in compensation for VAT incurred on farm inputs. In addition, about £16 million will be paid to farmers through direct refunds of VAT incurred on the construction of farm buildings and on land drainage and reclamation.

Farmers sell most of their produce to VAT-registered traders, such as creameries and livestock marts, who can reclaim in their VAT returns the flat-rate compensation which they pay to unregistered farmers — there is no pass through to the final consumer.

Farmers are not obliged to use the flat-rate scheme. A farmer can register for VAT, and can then reclaim VAT paid on all taxable inputs. Approximately 2,200 farmers were registered for VAT at the end of 1992 compared with 2,100 at the end of 1991.

The resolution provides for a change from 2.7 per cent to 2.5 per cent in the rate on livestock, including horses, sold by VAT-registered farmers or cattle dealers. This adjustment is linked to the equivalent change in the flat-rate refund paid to unregistered farmers. The rate is traditionally maintained at the same level as the flat-rate refund for ease of buying and selling operations within marts. For instance, cattle dealing would be unnecessarily complicated if one VAT rate applied in the case of sales by registered farmers, while a different level of flat-rate refund applied when sales are made by unregistered farmers. The new rate will apply to all supplies, intra-Community acquisitions and importations of livestock on and from 1 March, 1993. The new rate on livestock will have a negligible effect on revenue yield.

Mr. J. Bruton

I am concerned about the increase in the rate of value added tax on building services. Although the Government has made certain provisions to compensate for that by means of increased housing grants for new house building, no such compensating arrangements are made in respect of reconstruction of existing houses. That is a very anti-social decision.

Many families have an option to build on to an existing house wherein the extended family can, so to speak, stay together; for example, a young married couple can share a house or a complex of apartments with a parent or parent-in-law or they can build a new house. One of the major problems in our society has arisen as a result of the separation of the component parts of the extended family. This decision to favour new house building over reconstruction and extension of existing houses confirms an undesirable social trend which I do not support. There are many families who do not have the option to extend the house but where possible should be encouraged and not discouraged by tax policy.

I am also concerned about the increase of the VAT rate on hotel, guesthouse and caravan park accommodation. We have an opportunity to develop the tourism industry. However, the two complaints most frequently voiced in surveys of complaints made by tourists to Ireland were: first, that this country and its accommodation are too expensive, and second, that the standards of cleanliness in our streets are not good enough. This VAT rate increase will aggravate that situation.

The cost of car hire is a cause of dissatisfaction amongst tourists and that cost will be further increased as a result of the budget. It is important to recognise the impact of car hire cost on tourism. Car hire spreads the tourist spend around. People who hire a car have access to small guesthouses in relatively remote areas. If we continue to increase the cost of car hire we will encourage coach tourism as the predominant form of tourism. However, coach tourism necessarily tends to be concentrated in large centres and is not distributed throughout the country. The northern half of the country benefits little from coach tourism whereas it can benefit, as well as any other part of the country, from car hire as people are free to visit any locality. It is unwise, from the point of view of either taxation or tourism policy, to increase the cost of car hire.

The general trend of increasing the level of tax on services is unwise when employment should be our priority. It is fair to say that while it is possible to automate many manufacturing processes, it is not possible to automate many of the services, particularly human services. There is more employment created per pound spent or per pound collected in VAT in the services industry that there is in the goods. A tax policy which increases VAT on services is inherently anti-employment and that is the trend in the Government's tax policy. That is unwise and does not deserve the support of the House.

Mr. M. McDowell

The changes in value added tax and customs and excise taxes being effected in this budget will increase taxation by £81 million. Who will pay the £81 million? It will be the ordinary people in society, those who buy adult clothing, newspapers and other goods. Ordinary people with ordinary expenditure patterns will pay the increased taxes. Regardless of the rhetoric we have heard about individual exemptions in relation to VAT increases, the fact remains that this is a night of infamy for the two Government parties. It is a night of infamy for the Labour Party in particular because people earning £9,000 per annum will pay 1 per cent extra of their earnings by way of an income levy. Listening to RTE today, I heard a taxation expert calculate that a married couple, with a £41,000 income between them and a full mortgage will be better off as a result of today's budgetary measures. The Labour Party should reflect on that and on what it is doing to people with an income below the average industrial wage who will be only a few pence better off before indirect tax changes are taken into account.

It is a night of infamy for the Labour Party because it has put a tax on labour. It is a night of infamy for the Labour Party because this increase in indirect taxation is yet another way to assault the people who voted for its members.

Mr. Kavanagh

What about mortgage relief?

Mr. M. McDowell

I will answer that question. The people earning £9,000 per year who will have to pay this 1 per cent income levy could not get a mortgage if they tried. They are the working class people that the Labour Party said it was going to represent in Government. They are paying more tax tonight because Labour Party Deputies are going through the lobby to support anti-working class taxation.

Mr. Cullen

Labour Party Deputies betrayed them.

Mr. M. McDowell

The Labour Party is betraying the voters who gave them 33 seats in this House.

Mr. Kavanagh

I asked the Deputy a question and he did not answer me.

Mr. McDowell

I am glad that Labour Party Deputies believe it is their function in this House to represent people on £41,000 and give them an extra £630 per year. If that is what the Labour Party Deputies believe they were elected for, they are in for a rude awakening.

Mr. Kavanagh

The Deputy does not answer the question.

Mr. M. McDowell

Tonight is also a night of infamy——

An Ceann Comhairle

The interruptions should cease. If Members would direct their remarks through the Chair rather than to other Members we might avoid many of the interruptions.

Mr. Kavanagh

I asked the Deputy to answer a question but he could not.

Mr. McDowell

Tonight is also a night of infamy for the Fianna Fáil Party because the Minister for Finance, Deputy Ahern, indicated earlier in the course of the debate that what he did in last year's budget to implement the reform of income tax one stage further was against his own judgment. The Taoiseach, in the course of a bantering exchange in this House, said that income tax reform of the kind proposed by the Progressive Democrats — which the Taoiseach very reluctantly and incompetently attempted to put in place over the last three or four years — was never going to do anything for employment. That is interesting, because the Taoiseach may know something that the NESC, the OECD, The Central Bank and those who compiled the Culliton report do not know about. The Taoiseach has some new theory of economics——

The Taoiseach

Common sense — that is all I have.

Mr. M. McDowell

——which means that the harder work is taxed the more people work. This is what is happening here tonight.

Mr. Cullen

He has found a new speech.

Mr. M. McDowell

Perhaps the Taoiseach has found a second page and all of this is written on the back of it.

Mr. Flanagan

A postage stamp perhaps.

Mr. M. McDowell

Tonight is a night of infamy for these two parties because Fianna Fáil has proven to be our flexible friend. We now hear that what they did for five years to reform the tax system, both as a minority Government at the insistence of the Progressive Democrats and with the Progressive Democrats in coalition, is something which they bitterly regret. Now we hear that the Labour Party have adopted an entirely new form of economics. The Labour Party, elected to represent working class people, increases tax on the lowest earners and gives the greatest relief to those earning most.

Mr. Broughan

We did not slash services, like the previous Government.

Mr. M. McDowell

We will ascertain later how much slashing of services is proposed and what happens in relation to the "dirty dozen" social welfare cuts. It was promised to every Labour Party voter that these were to be reversed.

Mr. Broughan

And we kept our promise.

Mr. M. McDowell

We will ascertain just how valueless a vote for the Labour Party is.

Mr. Broughan

The Deputy should consult the literature — we kept our promise.

An Ceann Comhairle

Please, Deputies. Let us not forget the time factor involved in dealing with this motion.

Mr. M. McDowell

These increases in VAT and excise duty are swingeing increases which will affect the budgets of ordinary families. People who have to buy winter clothes, coats and footwear next autumn will pay more because the Labour Party has increased the rate of VAT on clothing from 16 to 21 per cent.

Consider the ludicrous pretence earlier by the Minister for Finance, Deputy Ahern, that this is a pro-employment budget. We hear that the greatest area for employment growth is tourism. What is the Government doing? It is increasing the tax burden on tourism.

Mr. Dukes

Clobbering it.

Mr. M. McDowell

That is absolutely inconsistent with a pro-employment policy. Every part of this budget is anti-work. The Taoiseach defended the income levy earlier.

The Taoiseach

And will again if the Deputy gives me time.

Mr. M. McDowell

He said that the Fine Gael Party had done worse with the Labour Party between 1982 and 1987.

The Taoiseach

That was the Deputy's party.

Mr. M. McDowell

If the Taoiseach's best defence is to point to something worse that was done in the past it shows that he is not fit to lead a Government and deal with the problems now faced by this country.

The Taoiseach

Sour grapes will get the Deputy nowhere.

Mr. M. McDowell

This is not sour grapes. I am talking about real employment. I am talking about the people who are out of work. I am talking about getting rid of the tax wedge which the Culliton report has highlighted. I am talking about what should have been done today — a pro jobs budget should have been introduced.

I reserve my greatest scorn for the Labour Party, who have come into this House to vote through anti-worker tax proposals and increases. They are putting more money in the hands of the "haves" and less money in the hand of the "have nots". That is what the new form of socialism is apparently all about.

This is a day of infamy for these two parties. Fianna Fáil have abandoned every pretence at understanding the problems they face and the Labour Party have betrayed every voter and every promise they made in the course of the last election.

Proinsias De Rossa

I move amendment No. 1:

In page 7 and 8, subsection (2), to delete paragraphs (a), (b) and (c).

This amendment seeks to delete subsections 2(a), 2(b) and 2(c) of Resolution 9. A number of points needs to be made on the question of VAT. I refer specifically to the fact that increases in the VAT rates apply from tomorrow. These will affect everybody in exactly the same way regardless of income, whether one is earning £100,000 or £5,000 a year. A person who buys a dress or suit will pay 21 per cent VAT, whether their income is £5,000 or £100,000 a year.

The Labour element in this Government should have insisted that if the necessity was to claw in that money, the social welfare benefits — which they are claiming they were responsible for including in this budget would be payable at the same time as the indirect tax increases which are now being levied. However, the much vaunted child benefit increases will not come into effect until September. The other social welfare increases will not come into effect until the last week in July. One presumes that whatever benefits there may be in relation to tax will not come into effect until April. Yet, the VAT rates will be increased from tomorrow.

The Taoiseach has indicated that there are rates which will be reduced, but the net effect will be an increase of £71.9 million in relation to this budget's arithmetic. That is the information in the "Principle Features of the Budget." In addition, there is an expected increase of approximately £170 million in the VAT take during the coming year. It is nonsence for anyone to believe that in some way the least well off in our society are being catered for by this budget. It is nonsense for Deputy Broughan to claim that the Labour Party's promises on health and education are being met by this budget.

The school books and uniforms that parents will have to buy, clothing, gas bills, ESB bills and other goods will increase as a result of the VAT increases. This budget cannot be seen as indicating that the cuts implemented in the supplementary allowance scheme have been reversed. They have not. I made the point here on two occasions and was voted out of this House by Fianna Fáil and the Labour Party a week ago when I protested at these cuts against the weakest sections of society. I protested at the fact that these cuts were introduced in a circular from the Minister for Social Welfare — Circular 14/92 and the so-called clarification Circular 18/92 — which are denied to Deputies of this House.

When I asked the Department of Social Welfare if I could have a copy of the circulars I was told that they were only available to community welfare officers. It is extraordinary that a Minister can issue instructions which have the effect of devastating the income of my constituents and that I am not allowed to see the circulars which the Minister issued to the community welfare officers employed by the Eastern Health Board. I obtained copies of those circulars, but not through official channels and that is not a suitable way for this House or the Government to do business. It is improper that a Deputy of this House should have to covertly collect unmarked envelopes to find out what, precisely, Minister are instructing civil servants to do with regard to the allocation of public funds. It is not acceptable and there should be the strongest protest from all Members. It affects all sides of the House that this covert activity is carried on by Government Ministers.

The most important aspect of these cuts was referred to by Deputy Rabbitte in his contribution earlier today. People in working class areas of this and other cities are living in fear of having their heat and light turned off by the ESB. All the Government's claims that promises are being met will not solve those people's problems. This budget, if implemented in full, will not solve the problems. Constituents of mine have received ESB bills which they cannot pay and as they got a single payment from the community welfare officer since last July of, say, £20 or £40, they cannot get any further assistance. That has not been addressed in the budget, and if the Labour Party has any conscience it should put whatever pressure it can on the Minister for Social Welfare, to reverse these cuts.

My main objection is that these VAT increases come at a time when those on fixed incomes, whether they are low paid or on social welfare, will have to pay them months before any additional benefits are paid to them as a result of this budget.

I wish to make one final point in relation to VAT, concerning a refund to unregistered farmers. This issue, is a hardy annual which I raised on many occasions since I came into this House. Unregistered farmers may claim, as of right, VAT refunds varying in amounts from year to year depending on what the Minister for Finance decides in the budget. This year the amount they can claim is reduced from 2.7 per cent to 2.5 per cent and it is claimed that this change will yield £4 million to the Government. Will the Taoiseach indicate how much the unregistered farmers claim as a result of this 2.7 per cent or the reduced rate of 2.5 per cent? What is the basis of that claim and how do they get this money?

Mr. Dukes

They do not get it, they are alleged to get it.

Proinsias De Rossa

Has this matter been referred to the Comptroller and Auditor General for an investigation into how the system operates. I know at least one trader who, over a period, has been in touch with me, and alleges that the system is open to abuse involving tens of millions of pounds. On one occasion it was announced in the Dáil that this refund system involves about £70 million. Is this a book-keeping exercise? Is £70 million being claimed illegally? If it is a book-keeping exercise, how can the Government claim that it will gain £4 million as a result of a reduction from 2.7 per cent to 2.5 per cent?

An Cean Comhairle

I hesitate to interrupt the Deputy but other members are anxious to participate. The Taoiseach should be afforded an opportunity of replying to the debate.

Proinsias De Rossa

I am about to conclude. Will the Taoiseach indicate the Government's position in relation to that refund system? I also ask the Labour Party to bear in mind the people who thought they were voting for change in the election.

Mr. Dukes

One good thing this Government has done regarding VAT is to reduced to two the number of rates — 12.5 per cent and 21 per cent. A reduction in the number of rates is welcome. The negative aspect is that this is being done at the expense of extracting £72 million more from taxpayers this year.

Fianna Fáil and the Labour Party have a perverse notion of what constitutes tax reform. The same could be said about their income tax proposals. It is like a torturer telling his victim not to worry too much as he will not pull out all the fingernails but will pull out a few toe nails instead.

If one examines this Resolution and all the changes in VAT rates, one can almost hear the sound of holy grails being smashed one by one. The VAT rate on hotel and holiday accommodation is increased from 10 per cent to 12.5 per cent. When I heard that today I thought of my friends in the Labour Party and, in particular, of the late Deputy Frank Cluskey who fought long and hard to make sure that there would not be a VAT rate of more than 10 per cent on hotel and holiday accommodation and tourism services for the reasons Deputy Bruton mentioned earlier. The Labour Party has turned its back on that.

The VAT on newspapers is to increase. I remember a campaign here and the hysteria on the Fianna Fáil benches when they thought that VAT on newspapers would not be further reduced. Most of all I remember the Fianna Fáil ballyhoo when it was proposed to put VAT on construction. Now VAT on building services is going up from 10 per cent to 12.5 per cent and even though Fianna Fáil used to say that the way to get the country moving again was to reduce VAT on construction. There was a lot of sympathy for that point of view in the Labour Party but that has been abandoned.

It seems all that matters this year is to get another £72 million so that the Government does not have to make one decision about the real source of the problem, the inability of Fianna Fáil and the Labour Party to agree on anything that will prioritise public expenditure and thereby take some of the weight of Government expenditure off the backs of the taxpayers.

Let us look at the VAT increases from 16 per cent to 21 per cent. I will talk about telecommunication services because we are already suffering under that increase.

VAT on adult clothing and footwear is being increased from 16 per cent to 21 per cent. I wonder — he is not in the House now — what Deputy Kemmy thinks about this increase. I remember him in 1982 moralising from the backbenches about a very modest proposal in relation to VAT on clothing and footwear. Where is he now? He has been giving out to the Government for the last couple of days about other issues, but there is not a word out of him when it increases the VAT rate from 16 per cent to 21 per cent. In fact, it increased the tax on clothing and footwear by over one-third compared to what it is today.

I am glad there are some reductions, but our VAT system is still full of the most appalling anomalies of which I will give one example, because I know other Members wish to speak. I have been investigating horse riding services. If I want to go for a ride on a Sunday morning and hire a horse from a neighbour's establishment, I will be charged 2.5 per cent VAT, from today, if I go out on my own. However, if I am restricted to riding the horse within the confines of her establishment — she has a substantial piece of land — I will pay 12.5 per cent VAT.

Mr. M. McDowell

Indoor riding.

Mr. Dukes

If, on the other hand, I ride the horse outside the confines of the establishment, unsupervised, I will pay 2.5 per cent VAT; if I got trekking with somebody in charge from the riding establishment, in a non-public area, that is, staying on my friend's land, I will pay 12.5 per cent VAT, but if I venture out amid the potholes of County Kildare, I will pay 21 per cent VAT.

The Taoiseach

The answer is to have your own horse.

Mr. Dukes

That is absolute nonsense and absurdity.

Miss Quill

That is horseplay — the Fianna Fáil version of horseplay.

Mr. Dukes

I have attempted to find out what the Government and Revenue Commissioners, in their wisdom, will do about this. I was assured by the chairman of the Revenue Commissioners and the Minister for Finance — while they do not admit that it is nonsense — it is rather inconvenient and that, as an adminstrative measure, they will apply the 12.5 per cent rate.

An Ceann Comhairle

I hesitate to interrupt Deputy Dukes, but time is running out. I imagine the House will wish to hear the Taoiseach's reply.

The Taoiseach

I am supposed to get a few minutes.

Mr. Dukes

This example shows the nonsense of our VAT system, the Finance Act 1992, and the changes which it made in value added tax in relation to various sporting and recreational activities. However, as an administrative measure the Minister and Revenue Commissioners say they will apply a 12.5 per cent rate. I do not believe we should do these things as an administrative measure. I would like the Minister or the Taoiseach to put this properly into a Finance Act which will clarify the situation and apply one rate of value added tax to all these items. The Government made a mess of a basically good idea, that is, to reform our VAT rates, but it has been hoist with its own petard because it was Fianna Fáil in March 1982 who decided that the deus ex machina, the rabbit out of the hat, which would solve their budget problem that year, was VAT at the point of entry. The Minister for Finance today whinged that he cannot do without the revenue. In order to solve a problem which they created themselves — and that was supposed to be the boom and bloom year, but they have seen damn all boom and bloom in the meantime — VAT at the point of entry was imposed; because they did that in 1982 the Irish taxpayers will pay £72 million more in VAT this year as the Government has not got a way out.

Mr. Flanagan

I defer to the Taoiseach but the Minister for Tourism and Trade might explain the meaning of this document for the tourist industry.

Mr. Noonan

(Limerick East): The Taoiseach has only a page.

The Taoiseach

A few very quick responses.

An Ceann Comhairle

There is only a minute left and we want the Taoiseach to reply.

The Taoiseach

One page got me where I am, I see where the Deputy is with 100 pages. I am amazed at Deputy Dukes; although it was fully explained to him, he spoke about the chairman of the Revenue Commissioners and the Minister for Finance for the last five minutes, wasting the time of the Dáil. I know why — as Minister for Finance he raised the standard rate of VAT to 35 per cent and it is now down to 21 per cent. We do not take lectures from Fine Gael and Deputy Bruton is the man who says——

Mr. Dukes

There was no VAT on riding in my time.

The Taoiseach

I allowed the Deputy a free run.

Proinsias De Rossa

Talk about reality.

The Taoiseach

Gas, fuel and ESB bills are not affected by the VAT changes despite what Deputy De Rossa would like people to believe. School uniforms and school books are not affected. Why try to misrepresent the whole situation here? In reply to Deputy McDowell, the income increase as determined by the macro-economic estimates of the Department of Finance is 6.3 per cent for this year. We are asking for 1 per cent of the 6.3 per cent increase in income this year from those who are at work to support those who are not at work.

Mr. M. McDowell

That is a sick joke.

The Taoiseach

We do not think that is unreasonable. If Deputies think that reducing the standard rate of tax to 25 per cent and the upper rate from 48 per cent to 44 per cent will put 300,000 people back to work, tell me how it can be done because nobody believes it except themselves. I do not think even they really believe it.

Miss Quill

It is a tax on newspapers.

The Taoiseach

Ninety per cent of the VAT on services is either at the lower rate or the exempt rate, despite the impression which Deputy Bruton would like to give. Tourism incentives and car hire are a big factor in the industry; the building and construction industry never received as big an injection in any budget in recent years as it received in this one. If I had time, I would discuss the rest.

(Interruptions.)

Miss Quill

The Taoiseach is trying to put Irish newspapers out of business — is he trying to put down a Fianna Fáil paper?

An Ceann Comhairle

I am required to put the following question in accordance with the order of the Dáil of this day: "That the amendment to Financial Resolution No. 9 is hereby negatived and the Financial Resolution is hereby agreed to".

The Dáil divided: Tá, 92; Níl, 56.

Tá

• Ahern, Bertie.
• Ahern, Dermot.
• Ahern, Michael.
• Ahern, Noel.
• Andrews, David.
• Briscoe, Ben.
• Broughan, Tommy.
• Browne, John (Wexford).
• Burke, Raphael P.
• Burton, Joan.
• Byrne, Hugh.
• Callely, Ivor.
• Collins, Gerard.
• Connolly, Ger.
• Costello, Joe.
• Coughlan, Mary.
• Cowen, Brian.
• Davern, Noel.
• Dempsey, Noel.
• de Valera, Síle.
• Doherty, Seán.
• Ellis, John.
• Ferris, Michael.
• Fitzgerald, Brian.
• Fitzgerald, Eithne.
• Fitzgerald, Liam.
• Flood, Chris.
• Foley, Denis.
• Gallagher, Pat the Cope.
• Gallagher, Pat.
• Geoghegan-Quinn, Máire.
• Haughey, Seán.
• Higgins, Michael D.
• Howlin, Brendan.
• Hughes, Séamus.
• Hyland, Liam.
• Jacob, Joe.
• Kavanagh, Liam.
• Kemmy, Jim.
• Kenneally, Brendan.
• Kenny, Seán.
• Killeen, Tony.
• Kirk, Séamus.
• Kitt, Michael P.
• Lawlor, Liam.
• Lenihan, Brian.
• Aylward, Liam.
• Bell, Michael.
• Bhamjee, Moosajee.
• Bhreathnach, Niamh.
• Bree, Declan.
• Leonard, Jimmy.
• Martin, Michael.
• McCreevy, Charlie.
• McDaid, James.
• McDowell, Derek.
• Moffatt, Tom.
• Morley, P.J.
• Moynihan, Donal.
• Moynihan-Cronin, Breeda.
• Mulvihill, John.
• Nolan, M.J.
• Noonan, Michael (Limerick West).
• Ó Cuív, Éamon.
• O'Dea, Willie.
• O'Donoghue, John.
• O'Hanlon, Rory.
• O'Keeffe, Batt.
• O'Leary, John.
• O'Rourke, Mary.
• O'Shea, Brian.
• O'Sullivan, Gerry.
• O'Sullivan, Toddy.
• Pattison, Séamus.
• Penrose, William.
• Power, Seán.
• Reynolds, Albert.
• Ryan, Eoin.
• Ryan, John.
• Ryan, Seán.
• Shortall, Róisín.
• Smith, Brendan.
• Smith, Michael.
• Spring, Dick.
• Stagg, Emmet.
• Taylor, Mervyn.
• Treacy, Noel.
• Upton, Pat.
• Wallace, Dan.
• Wallace, Mary.
• Walsh, Eamonn.
• Walsh, Joe.

Níl

• Ahearn, Theresa.
• Allen, Bernard.
• Barrett, Seán.
• Barry, Peter.
• Boylan, Andrew.
• Bradford, Paul.
• Browne, John (Carlow-Kilkenny).
• Bruton, John.
• Bruton, Richard.
• Burke, Liam.
• Carey, Donal.
• Clohessy, Peadar.
• Connaughton, Paul.
• Connor, John.
• Cox, Pat.
• Crawford, Seymour.
• Creed, Michael.
• Cullen, Martin.
• Currie, Austin.
• Deasy, Austin.
• McGinley, Dinny.
• McGrath, Paul.
• McManus, Liz.
• Mitchell, Jim.
• Molloy, Robert.
• Nealon, Ted.
• Noonan, Michael (Limerick East).
• O'Donnell, Liz.
• Deenihan, Jimmy.
• De Rossa, Proinsias.
• Doyle, Avril.
• Dukes, Alan M.
• Durkan, Bernard J.
• Finucane, Michael.
• Fitzgerald, Frances.
• Flaherty, Mary.
• Flanagan, Charles.
• Foxe, Tom.
• Gilmore, Eamon.
• Gregory, Tony.
• Harney, Mary.
• Higgins, Jim.
• Hogan, Philip.
• Kenny, Enda.
• Keogh, Helen.
• Lowry, Michael.
• McDowell, Michael.
• McGahon, Brendan.
• O'Keeffe, Jim.
• O'Malley, Desmond J.
• Owen, Nora.
• Quill, Máirín.
• Rabbitte, Pat.
• Shatter, Alan.
• Timmins, Godfrey.
• Yates, Ivan.

Tellers: Tá, Deputies Dempsey and Ferris; Níl, Deputies E. Kenny and Keogh.

Question declared carried.