With the agreement of the House I propose to share my time with Deputies Theresa Ahearn, Finucane and Allen.
Private Members' Business. - Clothing and Footwear VAT Rate: Motion.
Is that satisfactory? Agreed.
I move:
That Dáil Éireann condemns the increase from 16 per cent to 21 per cent of VAT on clothing and footwear and calls on the Government to reconsider this measure in view of the fact that since 1991 this particular VAT rate has more than doubled and is now higher than the UK rate and as this will lead to increased clothing imports, substantial job losses, both in the retail and manufacturing sectors, and increased sales of clothing and footwear through the black economy."
Of all the budgetary measures, the measure that has evoked uniform hostility amongst all people has been the decision, in the abolition of the 16 per cent VAT rate, to increase VAT on clothing and footwear. VAT on clothing and footwear is a most contentious issue, as we know from 1982. We are dealing with a necessity for ordinary people. The point that has impacted most severely is the certain knowledge that this measure will destroy about 3,000 jobs. What makes it unacceptable to all segments of this massive industry is its selectivity and severity. VAT has been increased from a 1991 rate of 10 per cent to 21 per cent. The rate has more than doubled in less than two years.
The Minister and his PR machine made great virtue of the fact that labour-intensive industries should be fostered and helped. Before the budget there was a huge protest by hairdressers and their rate was reduced to 12.5 per cent. The VAT rate for garages was brought to 12.5 per cent and the rate for the confectionery industry was also reduced. With regard to all those labour-intensive sectors the argument as to the effect of increased VAT was acknowledged, but in the case of clothing and footwear the rate was increased to 21 per cent. It is this selectivity and severity which is causing such pain.
Later I will detail surveys showing the depression in the industry. Ten footwear units in this city have closed in the last fortnight. This occurs at a time when the clothing and footwear trade is experiencing a severe depression due to the general recession, unemployment levels and the weakness of consumer spending power. There is no doubt that the effects of the multiples in the retail trade are just a crystalising of what is a very painful process of rationalisation.
We are basing this debate primarily on the issue of jobs. There are 16,500 people employed in the manufacture of clothing here. Surveys in the industry indicated that at least 10 per cent of existing jobs are at risk in that sector. That means 1,500 jobs will face the axe immediately. At retail level, a further 10 per cent contraction would result in the loss of 2,000 jobs. It is generally acknowledged that we have 3,500 legitimate outlets employing 20,000 people. The loss of 3,000 jobs which we estimate is conservative.
VAT is normally considered to be a tax on consumption. Given the constraints of the market place which mean that the industry cannot pass on an extra 50 per cent, a 30 per cent increase in the tax, what are they faced with? If manufacturers increase the price of their product for the tax man, they will sell less. They have to absorb this VAT increase.
Given the depressed demand for clothing and footwear products, it would be counterproductive for the trade to raise their prices as it would only result in diminishing returns. This means that the industry, out of their meagre margins, will have to bear the brunt of this tax increase. That can only result in reduced margins, greater losses, more closures and fewer orders for the manufacturing sector.
Further jobs will be lost due to the disparity between the standard rate of VAT here, in Northern Ireland and in the UK. I am sure that when the Minister introduced his budget he was convinced that Mr. Lamont, in the UK budget, would increase his standard rate of VAT from 17.5 per cent to at least 18 or 19 per cent. Mr. Lamont made no such change and now we have this huge disparity in the rates of VAT which means more clothing imports and more jobs lost. When one adds this to the abolition of VAT at the point of entry one can see a huge cash flow benefit for people who source their clothing material abroad. This is a direct job loss. There will be a decline in the market share on the domestic market for Irish clothing manufacturers. It should be acknowledged that the Irish Republic is the largest market for the UK clothing industry, accounting for £314 million of sales, representing 17 per cent of their clothing exports.
The Minister has made great play of the fact that so much of our clothing material is exported and there is no VAT on exports, so that our exports will not be affected. Anyone in the industry can tell us that a viable domestic base, particularly for small manufacturers, is an essential ingredient to a thriving export sector. If we decimate the domestic sector we will jeopardise the export sector. This Government is jeopardising their prospects.
At retail level, there have been constant complaints among those operating in the 3,500 retail outlets paying VAT that they have faced unfair competition from the black economy. This primarily comprises casual traders. In every city and town we have designated areas where once a week or once a month we have casual traders. I do not know to what extent the VAT man or the tax inspector scrutinises their books, as they do any time a draper looks for a VAT refund. With the increase in the VAT rate, the competitive advantage for someone who is not registered for VAT will be even greater. Those that are paying their rates to the local council, their full PAYE, PRSI and VAT will be at a huge cost disadvantage and will lose market share. Similarly, traders operating in the retail sector in Border counties, because of the disparity between the UK and the Irish rates, will see yet again an increase in cross-Border trade, which we thought we had eliminated.
It is always the case when any Opposition party proposes tax reductions that the Government emphasise the loss of revenue if the rate is reduced. In 1992 when the rate was 16 per cent the combined revenue from VAT on clothing and footwear was of the order of £144 million. The breakdown was £118 million from clothing and £26 million from footwear. It is anticipated that the increase of 5 per cent will bring in an additional £30 million. My experience indicates that the level of revenue will not reach £30 million as forecast. Even if that was the case, there is an obligation on Opposition parties who put forward motions of this kind — regarding spending or cuts in taxation — to specify how they will be paid. There is a point of diminishing returns here which I do not believe is £30 million. Leaving that aside I am very concerned about the drift of this Government and the lack of controls by the Minister for Finance. Things are now happening in Fianna Fáil that would never have happened in Mr. MacSharry's time. Every time Labour Ministers speak they commit themselves to at least £10 million. The Minister for Arts, Culture and the Gaeltacht, Deputy Higgins announced a new Irish television station costing in the region of £14 million which will lose £5 million per year. Having won an Oscar we now have to spend £10 million on a film board. Commitments have been made in the area of child care and indeed in each spending Department on a daily basis. All this indicates that we have a tax and spend Government. The people's hard earned money is easily spent.
Out of £10.5 billion of public expenditure there is ample scope for savings. I am convinced I could find savings of £30 million under the headings of waste, duplication, administration, etc., where pertinent questions could be asked. The Tánaiste's office costs £831,000 per annum, not to provide additional public services, but to bolster his ego. The list is endless. During the lifetime of this Dáil I would be happy to name areas where spending can be reduced.
In the tax area alone I am concerned that we now have a 10 per cent tax rate on special savings accounts, which are heavily marketed by banks and building societies. There is a limit of £50,000 per person. The only condition is that one must give three months' notice of withdrawal. There are no conditions attached to this money yet if somebody in this House or elsewhere invests in a business and creates jobs and if the three out of ten small businesses which survive get through the jungle of red tape, the difficulties of extracting market share and making a profit, they will be taxed at 40 per cent, having paid PAYE, PRSI and VAT. Do we want to give the message to people that if they win the Lotto or come into money they can put it into guaranteed savings accounts where it will not incur a risk and will be taxed at 10 per cent whereas if they work they will be taxed at 27 per cent or possibly 48 per cent and will also have to pay an income levy, a health levy, a youth levy and PRSI? If we are interested in jobs this is the wrong message to send. There is a multiplicity of waste and the Government should have no difficulty in finding savings of £30 million within the VAT code.
In the context of this debate I have received many complaints about the interpretation of sizes in clothing and footwear for adults and children. The Revenue Commissioners interpreted that anything above the normal size for an 11 year old is adult wear but a big eight year old may require a size for an 11 year old. Because of the interpretation of sizes the vast majority of clothing and footwear products have a VAT rate of 21 per cent. I urge the Minister to reconsider that definition. I have here a list of shops which have closed since January 1993 from the Fashion and Footwear Federation — which was faxed to me today: Boylan's Shoe Shop group — eight shops closed; Nova Shoes — three shops closed; Vive Shoes — three shops closed as well as a number of closures in Walkinstown, Ashbourne, Palmerstown, Dublin 6, Cork, Rathkeale, Abbeyleix, Wexford, Monaghan and Birr. Is this the Minister's message to the clothing and footwear sector? We are all aware that the clothing and footwear sectors are very competitive and this is the first time the clothing industry has got together.
On 23 March 1993 — I think the Minister was out of the country on that day — some 8,000 people filled Molesworth Street and Kildare Street to protest that their livelihoods were being extinguished by this measure. Trade surveys have been carried out during the past 12 months in regard to the decline in the trade. The VAT crisis Futura special report states that the picture which emerged for the first quarter of this year showed that as many as 79 per cent were down on the corresponding first quarter of 1992. Already the devastating effects of the increase have been witnessed in Clerys department store which employs in excess of 400 staff. Last week the store management announced that 60 jobs were being lost.
Every day in the newspapers I read that the Finance Bill will be pro-jobs, the Minister for Finance said that the budget was pro-jobs. This single measure will destroy more jobs than the total of the most optimistic forecast of all the other measures put together. If the Minister is really concerned about jobs and safe-guarding them that is not the way to do it. I realise the Taoiseach in America announced the creation of 2,000 jobs. Later he announced the creation of another 600 jobs but I cannot see how they will be created.
Of all the budgetary measures this is the most iniquitous and negative in relation to employment. Perhaps the Minister now sees the error of his ways. There is no point in doing a little for knitwear or trying to divide the manufacturing and retail areas. This is a crisis in the labour intensive sector. They have a just case and I urge the Minister to respond immediately.
I support my colleague, Deputy Yates, on this motion. The reaction of those involved in the clothing and footwear industry to a nonsensical and illogical VAT increase from 16 per cent to 21 per cent is justified. The Minister is apparently unaware that the industry is going through one of its most turbulent and unstable periods and it should be automatically supported. Instead the Minister dealt the clothing and footwear industry the cruellest blow. This was done by the Government — the Fianna Fáil and Labour Parties — to raise funds that will probably be used to fund their elaborate team to oversee the Programme for Government.
Not one member of the Labour Party is present to hear this debate. It does not take from the fact that on budget night they walked through the lobby in support of this massive hike which, in effect, sounded the death knell of many traders in the footwear and clothing industries in our towns and cities. No notice has been taken of the fact that since 1991 the VAT rate has more than doubled and, unfortunately, it is now higher than the UK rate. Fine Gael strongly opposes this detrimental penalty because it will cause an increase in clothing imports and substantial job losses in the retail and manufacturing sectors. Furthermore, it will cause hardship to those on low wages and to social welfare recipients. All businesses looked to the budget of 1993 for strong and convincing evidence that this Government recognised the need to restore competitiveness in our economy. Business sought a budget which would boost confidence, investment and employment.
For several months the economic and commerical environment has been dominated by the currency crisis and by exorbitant interest rates, and the scope for business to plan effectively has been severely damaged. There was an opportunity in this budget to improve conditions and begin recovery but, sadly, that opportunity was missed. The Government has exacerbated an already difficult situation for the clothing and footwear industry with its inappropriate and unjustified action in increasing VAT by a further 5 per cent. The Minister has the audacity to state that the budget was framed on the principle that the overriding national priority was job creation; yet he introduced a measure that will damage our competitiveness and result in a severely unhealthy environment for business and employment growth.
The Irish clothing industry is going through one of its toughest and most difficult trading periods. We all notice that the annual summer and winter sales are now replaced by discounts, even during what we would normally consider peak trading months, and the volume of stock sold at half price is increasing. As one business person said, it is now even difficult to satisfy the customer at the half price sale. This is an indication of the extent of the problems in the business caused by a decline in disposable income as a result of high unemployment and massive interest rates.
The businesses directly affected by this hike in VAT are in general family run businesses that have never received grant or aid from this State but who are providing many valuable jobs in our towns and cities. They have already been the unpaid and unrecognised tax collectors of this country. Now the Government has used them as an easy and uncomplicated means of providing additional funds to the Exchequer. The people involved in the clothing and footwear industries have been exploited and discriminated against by being singled out for such a regressive and unacceptable VAT increase.
In order to survive the vast majority of retailers have to absorb the VAT increase themselves. They realise that further price increases will reduce sales, thus damaging the future of their businesses. What strategy had the Government in mind by imposing a 5 per cent increase in VAT on clothing and footwear? It is not only difficult but impossible to comprehend. It must have been crystal clear to the Minister that the net result would be a reduction in employment and a decline in the VAT intake. I doubt if this will raise the additional £30 million the Minister estimates. This measure must stand out as the most ill-conceived, illogical and worst notion dreamed up by a Minister for Finance for decades.
The severity of the increase is exceptional. In 1991 the VAT taken on adult clothing and footwear more than doubled. This happened at a time when due to increased costs and static prices the profit margins in those industries are constantly declining. There was a time when new retail shops and boutiques were mushrooming all over the place. That time is long gone and instead numbers of premises are papered with closing down signs.
It is difficult for business people to accept the Government's reasoning in selecting exclusively this sector for such a massive VAT increase. Other business sectors had their VAT rates reduced from 16 per cent to 12.5 per cent on the basis that this reduction would boost job prospects in these sectors. The Minister for Finance must explain why the clothing and footwear industry could not also boost job prospects following a VAT reduction. The Minister should explain why he believes a VAT reduction was not merited by the clothing and footwear industry on the basis of its potential to boost job prospects. I do not believe the Minister can give a convincing explanation of why this industry was selected for this dramatic and unexpected penalty.
It is sad that the Minister has under-estimated the importance of the clothing and footwear industry to the Irish economy. A survey conducted by FÁS in 1991 showed that the domestic market output supports 7,000 manufacturing jobs and the Irish market for clothing is valued at £700 million. Fashion retailing employs 15,000 and half of those jobs are directly dependent on the domestic market. It is conservatively estimated by those in the industry that up to 3,500 jobs are threatened by the action of the Minister for Finance on behalf of Fianna Fáil and the Labour Party. Substantial job losses have already occurred, forced by the lack of confidence in the future of this industry, and the list was shown here tonight by Deputy Yates.
The high level of tax will also, sadly, provide an incentive for casual traders to avoid payment of VAT, and an increase in casual trading at the expense of legitimate retailers has widespread commercial consequences. It is estimated that casual traders by their tradition import almost 100 per cent of their merchandise requirements while independent retailers support Irish fashion merchandise. This is a very serious problem. Any growth of the casual trading sector will result in a substantial loss to the Exchequer. The net result of the budget measure may be a reduction in the uptake from VAT on clothing rather than an increase.
The responsible force of action must be to reverse this decision. The Minister for Finance and the Government must dare not to be too proud or too stubborn to change their mind. The stakes are too high, the costs excessive and the livelihoods of too many are at risk. It is not too late to admit that the interests of the industry and of the country will be best served by withdrawing this measure. If the Minister for Finance still wants the overriding national priority to be jobs he now has the opportunity to put his words and his commitments into action. I ask the Minister to withdraw this punitive and regressive tax and allow those in the clothing and footwear industry to survive and grow from strength to strength and thereby recognise their contribution to our economy.
First, I want to compliment my colleague, Deputy Ivan Yates, spokesman on Finance, for introducing this motion. He was reflecting the views of many when he put down this motion and I would regard it as one of the more serious Private Members' motions to be put down in this Chamber.
Surely the Minister realises that he made a serious mistake in raising the VAT rate from 15 per cent to 21 per cent. There was a serious lack of forethought in relation to that decision. I find the Minister's amendment to this motion quite amusing. In regard to the Minister's Financial Statement of 24 February, he praised it in terms of its potential to generate and sustain employment. That has a very hollow ring and is an insincere approach to this very serious Private Members' motion. The Minister must be aware that this measure is not conducive to creating employment and is in stark contrast to a reduction given in other sectors from 16 per cent to 12.5 per cent. We do not begrudge those decreases to the hairdressers, to garages, confectioners, etc., but if the Minister was serious about harmonising VAT rates he would have considered reducing VAT rate on the clothing and footwear industry from 16 per cent to 12.5 per cent and might have given a stimulus to job creation and helped to create the environment that is required at present.
Ministers have told us that job creation is the be-all and end-all of everything and that county enterprise boards are being established on a national basis. There is much speculation in regard to those county enterprise boards, the ultimate objective of which will be to create small pockets of jobs in various counties. A sum of £25 million has been allocated in that regard. This has come about because of a vision the Taoiseach held formerly. He feels he must sustain that vision and the Minister for Finance feels he must implement it in the budget. I would contrast that with the dichotomy in relation to this VAT increase in an industry where jobs have already been lost. The Minister is well aware of the job losses which occurred because of procrastination in regard to devaluation and which drove many clothing and footwear industries out of business. The Minister's talk of job creation rings very hollow and insincere with me and he should recognise that.
I applaud the group of 8,000 retailers, manufacturers and distributors who got together from all parts of the country to march to the Dáil at their own expense. By galvanising their support those company directors and employees showed they had the spirit to maintain and create jobs. Yet it appears their efforts were ignored and have been in vain. The retailer is a significant employer. In every small town throughout the country drapery shop owners have experienced difficulties in regard to other taxes and the Minister has now introduced a further punitive measure in an effort to drive them out of business. The clothing industry is very sensitive. It is prone to large imports from the United Kingdom. We import £340 million worth of clothing from the UK annually; indeed we are the largest importer of clothing and footwear from the United Kingdom. We must also compete with Third World countries and the effects of the Multifibre Agreement. Prior to Christmas a large chain store introduced a premature sale which distorted the whole market-place and had an impact on every retailer here.
If the Minister is serious about encouraging indigenous industries he should reduce VAT to at least 16 per cent. Since 1991 it has doubled and yet we have a deteriorating economic climate. It has been indicated that up to 3,500 jobs are threatened and the Minister will ignore those figures at his peril. If he does not support this motion we will continue to remind him about the job losses in the clothing and footwear industry that will result from this punitive measure.
In regard to the other levies, duties and conditions applying to those industries, we operate a punitive regime as opposed to our counterparts in the UK. As Deputy Yates correctly stated while the Finance Act is intended to be biased in favour of jobs, this has been disproved in regard to the budget. It has been projected that the Minister may introduce a concession in regard to employers' PRSI which would be welcome. But if the Minister believes that will be a palliative for the clothing and footwear industry and will appease their demands for a reduction in VAT on clothing and footwear and our demands in that regard, he is making a big mistake. I attended a meeting of retailers and manufacturers recently in Limerick at which the Minister of State, Deputy O'Dea, and Deputy Kemmy were present. It is symptomatic of Government Deputies to attend meetings and make promises. It is then a case of saying they will do one thing here and doing something different outside. To be consistent they must believe in the approaches adopted by the Minister and avoid being insincere when they meet groups around the country to discuss clothing, footwear and other issues. That is farcical and hypocritical. There is much more I would like to say but I will bow to my colleague, Deputy Allen, who is well aware of the position in Cork. A logic prevails in what has been said and I call on the Minister not to implement the silly decision made in the last budget.
In the short time available I will endeavour to outline the serious position in relation to this matter. I met representatives of the fashion and footwear industry in Cork recently. They were a determined group of people; but it was obvious that behind their determination was a desperation, because they knew that many of their businesses are under pressure and will go to the wall unless the Minister reverses his decision. They were conscious of the contribution their companies are making to the Irish economy and to job creation.
Having listened to ministerial statements and statements from the Taoiseach in recent weeks regarding job creation, I believe the Government's job creation programme is a sham. It is the product of a highly paid group of public relations people. I do not take kindly to the Taoiseach's announcement of phantom jobs faxed home while on foreign visits, jobs which were already in the pipeline from the IDA. The Government is involved in a highly sophisticated and polished exercise, but behind that facade many of the measures it is introducing will destroy jobs here.
The productive sector of this economy is being hammered on a daily basis. Little action is being taken by the Government in regard to the slick manoeuvering in the financial services area where millions of pounds can be made overnight while the productive sector of our economy suffers. The Minister should realise that the cost of preserving a job is far less than that of creating one. If he keeps that in mind he will realise that the decision to raise VAT on fashion and footwear is foolish and shortsighted. The clothing industry has been dealt a double hammer blow this year. It was already reeling under the prolonged recession and from high interest rates, not to mention the high commercial rates operating in many of our towns and cities, and the evidence of that pressure is there for all to see. Many shops have had to close down and the level of stocks in shops in cities and towns throughout the country is very low because of that pressure. Sales were held prior to Christmas and in addition we had the currency fiasco which was the sole responsibility of the Minister, who was negotiating on the power-broking system while the overall economy was going down the tubes. That cost this country not only a great deal by way of foreign debt but thousands of jobs were lost. It also cost the retail fashion and manufacturing industries hundreds of jobs because of the indecision and selfish quest for power by the Government, which left a vacuum here for many weeks. The greatest hammer blow of all came when the Minister announced that VAT would be increased again in 1993. The Irish market is valued at £700 million and home manufacturers make up 30 per cent of that market.
Despite what the Taoiseach said this morning, I ask the Minister for Finance to be his own man and realise that this is a productive sector of the economy which cannot afford to be burdened further with more taxation. More than £3.5 billion is spent on social welfare every year. Some of the money being spent in that area could, with some ingenuity and imagination, be applied to more productive sectors.
The Minister, and the Government, should realise that we cannot continue to dole out money and create further dependency in our society.
I call the Minister for Finance, Deputy Ahern.
We need to create a positive attitude in our society.
I move amendment No. 1:
To delete all words after "That" and substitute the following:
Dáil Éireann welcomes the overall thrust of the Finanical Statement of 24 February in terms of its potential to generate and sustain employment and its financially responsible and balanced nature.
I have stated on numerous occasions that this year's budget was framed on the principle that our overriding national priority is jobs. At its very core were measures to generate and sustain employment by improving the long term growth potential of the economy and by promoting local enterprise and wealth creation. It is policies such as these which underpin real and lasting economic progress. Let us all be clear that there are no popular "quick fixes" to the national problem of unemployment.
I have absolutely no doubt that my budget will enhance the prospect of increased employment creation not just in 1993 but in the longer term. I should like to emphasise, however, that it must not be left solely to the Government to create sustainable employment opportunities. The partnership and consensus approach which has worked so well in recent years —The Programme for National Recovery and The Programme for Economic and Social Progress— must continue. Indeed, now is the time to redouble our efforts and renew our commitment to sustained economic prosperity for all.
A fundamental ingredient in both these programmes was the firm commitment by the Government to adhere to sound budgetary and financial policies. My February budget set desirable and prudent financial targets for the coming year despite an unfavourable economic climate at the time. This key element of our budget strategy sent an unequivocal message to the markets that we will not relax our strict financial discipline, thereby creating the conditions for lower interest rates and stability in the exchange rate markets. This firm fiscal discipline is vital to investment, to long term growth, to enterprise and to employment consolidation and creation.
Recent decreases in interest rates will be of substantial benefit to the economy, including the clothing sector. Since devaluation, and especially since the budget, interest rate developments have been positive. There have been very considerable reductions in interbank interest rates, causing retail interest rates to tumble. The Central Bank's key short term facility, STF, rate has now been reduced some eight times since its rein-troduction in early February to its current level of 8.75 per cent. Irish interest rates are now well below the levels at which they stood prior to the currency crisis, and the differential between key Irish and German interbank rates is only about half a percentage point. This is close to the historically low levels achieved towards the middle of last year, and suggests the markets have quickly and fully accepted the new parities of the Irish pound within the ERM.
The Irish equity market has recovered strongly in recent months. The overall ISEQ index is up almost 40 per cent from last October. In addition, gilt market yields have fallen sharply in recent months, particularly since the budget. The yield on ten year bonds is now just over 8 per cent. More importantly, the gap between Irish bond yields and bond yields abroad has narrowed dramatically since the value of the irish pound was adjusted and particularly since the budget. At the end of 1992, Irish ten year gilt yields were almost 2 per cent above the corresponding UK gilts; this gap is now almost eliminated. The international markets now recognise the fundamental value of Irish gilts and equities and, as a consequence, over IR£1.1 billion of Irish gilts have been purchased by non-residents since the beginning of the year. Strong non-resident interest has also helped to push the equities market ahead.
All this was achieved, while at the same time generating and sustaining employment. The budget provided for the jobs fund heralded in our Programme for a Partnership Government. A total of £260 million is being provided for the fund this year, comprising £148 million of expenditure related to the Cohesion Funds, £25 million for the new county enterprise partnership boards, and an additional £87 million to the Exchequer funding of the remainder of the Public Capital Programme. In all, the year-on-year increase in capital spending will total almost £500 million, up by more than one quarter on last year's level.
This entails a major expansion in investment in environmental infrastructure and in transport, including roads, rail, commercial ports and airports. The expenditure on these projects, as well as giving many new jobs in the implementation phase, will also underpin the longer-term potential for growth in the economy.
The county enterprise partnership boards, for which, as I have said, I have provided £25 million, will have a mandate to support local initiative through assisting the start-up of small enterprises. The boards will also have the responsibility for the promotion of tourism locally. By any standards, the combination of the Public Capital Programme, Cohesion Fund expenditure and the additional expenditure for the county enterprise boards adds up to a very substantial investment stimulus to the economy and a considerable boost to employment.
The pro-jobs bias in the budget does not end there. On the taxation side also there are measures that are decidedly pro-business. For instance, the business expansion scheme has been extended and improved, with the lifetime cap being lifted with immediate effect. As part of the effort to assist the construction industry, the urban renewal incentives to allow delayed projects to qualify has been extended. The urban renewal incentives are also available in Temple Bar and the Custom House Docks area until 5 April 1996 and 24 January 1997, respectively. Stamp duty has been adjusted to assist the building industry generally. The improvements in mortgage interest relief will also be of assistance.
As part of the adjustments to the VAT structure announced in the budget, the Government ensured that particular account was taken of our employment needs by reducing the rate applicable to certain labour intensive services, such as garage repairs, electrical repairs, drycleaning and laundry services, hairdressing, contract cleaning, photographic services and driving instruction. All such services are now on the reduced VAT rate, which is 8.5 per cent below the standard rate.
The rates applicable to flour confectionery and non-chocolate biscuits were also reduced substantially in recognition of the employment-intensive nature of the sectors concerned and of the exceptional rate differential which existed vis-à-vis Northern Ireland for the products involved. The tourism sector can also be expected to benefit from the initiative in relation to the short term carhire fleet which was announced as well as from the standstill for the excises on petrol and drink. The continued restraint shown in relation to the mainstream excises reflected the Government's awareness of the need to avoid trade diversion and associated job losses within the radically new environment of the EC Internal Market. Later I will return to and deal separately with those areas where VAT increases were imposed and which have been the subject of much, selective, criticism.
The budget also contained measures aimed at improving the flow of equity finance to Irish business, such as the introduction of special investment accounts and the extension of the BES, which I have mentioned already. The Government is keenly aware of the importance of equity investment for all Irish companies, whether large or small. The special investment accounts will enable those who invest in Irish equities, either directly or indirectly, to avail of a very favourable tax rate of 10 per cent. To benefit from this low tax rate, the funds will be required to invest 40 per cent of their assets in Irish equities this year, rising to 55 per cent in 1996. To ensure that the funds are not focused completely on larger companies, there is a further requirement that 6 per cent of assets are invested in smaller companies in the first year, rising to 15 per cent in 1996. There is no requirement that the equities held have to be in quoted companies. Indeed, there is an extra incentive to invest in BES-type companies, as the income and capital gains from those companies will be ignored for tax purposes.
I indicated in my budget statement that the Government was anxious that pension funds, in making their investment decisions, should take the needs of the Irish economy into account so as to make a greater contribution to the development of employment. With the current unemployment situation, it is vital that every possible effort be brought to bear on assisting employment.
Pension funds are one of the main players in the area of providing non-debt finance to Irish industry by way of equity investments. However, like life assurance funds and unit trusts, their main interest in this area has tended to be in blue chip stock with the area of venture and development capital being served only to a minimal extent. My budget day initiative has to be viewed against the background of pension funds assets of close to £10 billion, the recent trend which has seen them increase the share of their total assets in overseas equities and the very favourable tax regime which they enjoy.
Both my officials and I have been having discussions with the pension fund representatives over several weeks and these discussions are continuing. While the Government would be anxious to see and would encourage pension funds to localise a greater percentage of their investment in Ireland generally, our specific concerns in relation to this initiative is to get a constructive unity of purpose between the pension funds and the Government to help address the problem of a lack of equity finance in the small and medium company sector.
Given this specific target area, it is clear that a very small percentage of the pension funds' assets properly focused would make a considerable difference to the availability of equity funds. All told, I am pleased with the way discussions with the pension funds' representatives have been progressing and I expect to reach an agreement with them very shortly.
I am hopeful that this initiative will provide a worthwhile avenue of investment for the pension funds while helping to address the funding problems of developing indigenous business, thereby promoting employment prospects in the Irish economy. Indeed, my ultimate wish would be that the success of the initiative would of itself encourage the long term development of the Irish venture capital market, which all institutional investors will come to see as a part, even if a modest one, of their normal investment activity.
I mentioned earlier that two areas, in particular, of the taxation measures which I announced in the budget have been taken out of the context of the balanced overall package and selected for adverse comment. These are the necessary increases in the VAT rate applicable to certain goods and services and the introduction of the temporary income levy. I will deal with each of these areas in turn. By way of introduction, however, I would like to make the general point that some measures to increase revenue were inevitable if we were to maintain a prudent level of borrowing and if we were to remain on course for full participation in Economic and Monetary Union. That discipline was also crucial to securing the downward movement in interest rates that has already emerged. In that context, the Government looked mainly to taxes on spending and assets, so as not to impose any unnecessary burdens on the rewards to effort, enterprise and investment.
As I stated in my Financial Statement, the primary purpose of the various VAT increases was, of course, to raise revenue. However, the changes involved, which were also necessary to achieve compliance with Community law, have contributed to a considerable simplification and consolidation of the overall rating structure.
Among the areas previously taxed at 10 per cent were hotel and holiday accommodation, newspapers, building services and short term car hire. These are taxed at the 12.5 per cent rate from 1 March. In the majority of these areas, measures were taken to cushion the impact of the increase. For example, the increases in respect of accommodation and short term car hire will not apply to contracts entered into prior to 25 February last. In the case of building, account was taken in the provisions in the Public Capital Programme to ensure that the local authority new house building programme and the voluntary housing programme will not be adversely affected by the rate increase. Because of the effect that the increase will have on the cost of new homes, the grant to first-time house buyers was increased from £2,000 to £3,000. And, finally, where house building contracts with private individuals existed prior to the budget, the earlier 10 per cent VAT rate will apply.
(Interruptions.)
The Minister may as well speak about tomorrow's match.
These measures demonstrate the Government's determination to implement the increases as sensitively as possible and with the minimum of disruption to all concerned.
The Minister without interruption.
When will he mention clothing and footwear?
The Minister has another record.
I think——
I am interrupting the Minister, a Leas-Cheann Comhairle, because——
If I could have the Deputy's time?
——he has read seven pages of notes without mentioning footwear and clothing.
Thank you, Deputy. We shall now have the Minister without interruption.
The House is being given a rehashed speech that comes from a word processor at the Department of Finance. We are hearing a repeat of the budget speech——
The House shall hear the Minister for Finance without interruption.
Deputy Carey did not hear me mention those items because, unfortunately, he was not listening to the debate. Perhaps he should listen to the debate. I did mention clothing and footwear. The Deputy should also be aware that a budget is not about one item.
I am a very good listener.
At least, he might be aware of that. I realise that he has never held a position in which he has had to do anything about a budget.
As Deputies will be aware, the European Community agreements permit the application of only one VAT rate in excess of the agreed Community standard rate minimum level of 15 per cent. Thus, our 16 and 21 per cent rates could not continue to co-exist legally. Budgetary circumstances dictated that the standard rate should remain at 21 per cent on this occasion and that certain categories such as adult clothing and footwear and telecommunications services, previously taxed at 16 per cent, should also be taxed at that rate.
And all the war there was over the 2 per cent rate.
While it would have been possible from a legal standpoint to shift those activities temporarily to the lower 12.5 per cent rate, as was done in the case of certain labour-intensive service industries mentioned earlier, thereby benefiting more than 50,000 jobs, it was simply not possible because of the budgetary cost. A reduction from 21 per cent to 12.5 per cent for clothing and footwear alone would cost the Exchequer nearly £48 million this year in lost revenue and £77 million in a full year.
And the Minister is going to get another £167 million from the 1 per cent levy.
Biting into pay packets last week.
The Minister without interruption, please.
I hope, a Leas-Cheann Comhairle, that you might find some time to allow Deputy Carey to try to make a constructive speech at some stage of his life.
Every time people open their pay packets this year they will remember the Minister.
Furthermore, in all fairness, it would have to be acknowledged that in my 1992 budget statement——
The Minister is taking half a week's pay from them to fund this.
——I clearly stated that the 16 per cent rate was temporary and that the activities in question were destined to be liable at the standard rate.
Deputy Carey, please.
I have stated on a number of occasions since the budget that I recognise that the increases concerned will, in some instances, add to difficult trading conditions. However, a significant contribution towards budgetary correction from the indirect tax area was unavoidable on this occasion. Naturally, the sectors facing rate increases feel aggrieved. The Government, however, have to take a view of what is best for the economy as a whole in terms of promoting economic growth and the sustainable jobs which flow from it. I do not deny that the clothing sector is a labour-intensive industry at both retail and manufacturing levels. I must stress that my decision was not taken lightly and, since the budget, I have re-examined it thoroughly following consultations with representatives of the trade. However, if the budgetary strategy is to remain on target, I cannot rescind the VAT changes at this stage as the consequential Exchequer loss cannot be made good elsewhere.
Concern has been expressed that the higher VAT rate will only encourage retailers to import cheaper supplies and that this will adversely impact on domestically manufactured clothing. Unfortunately, high import penetration is already a well established feature of the Irish fashion trade: almost 80 per cent of the total clothing market was already being imported before the budget — a figure which has not changed much in recent years. I should emphasise that the standard rate of VAT applies to all clothing sold here, regardless of country of origin. On the other hand, some 65 per cent of Irish manufactured clothing is exported and, of course, will be unaffected by the VAT change here.
I recognise particularly the need to sustain a strong indigenous manufacturing presence as a base for developing export markets. It is for this reason that at a recent meeting with representatives of the industry, while ruling out any change on the VAT front, I invited them to put forward proposals which would address their cost competitiveness concerns. These proposals, which are wide-ranging, have been received recently and are under consideration. Time does not allow me to go into the detail of those discussions other than to say that, despite increases imposed on the trade, very useful submissions were put forward to me by the assistants. I have given a commitment that I will examine those submissions.
All of the shop assistants have to give up half a week's pay to look after the Minister.
Finally, I am also well aware that established traders in the clothing sector are concerned about unfair competition from casual operators. Last year's Finance Act gave the Revenue greatly strengthened powers, including the power of arrest and confiscation of goods, to deal with such traders. The effectiveness and use of those powers is under constant review, but early indications are that they are working well, particularly in relation to hotel sales. I know that that is creating major problems for various groups that I met, and I shall return to that issue on another occasion when I have more time.
The Government did not easily decide on the introduction of the income levy. The levy became unavoidable only at the end of long and difficult consideration of the budgetary provisions. I look forward to going into some of these measures in more detail during debate on the Finance Bill.
As I am sharing my time with Deputy Liam Lawlor, I say in conclusion, that high interest rates damage confidence and investment and lead to a deterioration in employment levels. The responsible and balanced nature of the budget this year has already been a major contributory factor in getting interest rates down. Let us be clear about this. A hospitable interest rate environment is vitally important for business and for the availability of equity finance. It is only in stable economic conditions that real sustainable jobs will be generated in our economy.
The first quarter Exchequer returns published at the beginning of this month are strongly supportive of the overall budgetary projections of the trend in revenue and expenditure. This has given added and objective credibility to the budget strategy. The returns are also encouraging in the indication they give of the continuing ability of the Irish economy to accommodate the adverse interest rate and currency environment we faced during the early months of the year. Recent economic developments are indeed encouraging. Underlying unemployment has fallen for the last two months. The decline in interest rates represents a substantial improvement in the climate for investment. The latest inflation figures confirm the price stability of goods and services. Official figures on industrial output indicate a relatively robust performance by Irish manufacturing during the period of currency-related turbulence. Our exporters are now enjoying the benefits of devaluation.
I remain fully confident in the strategy underlying the budget. As I have said, unfortunately there will be ups and downs, some items having to be increased and others decreased. Approximately 80,000 jobs will benefit from the decrease. I know that the clothing industry came out on the wrong side. In spite of what Members opposite say, in all of the friendly, straight discussions I have had with the industry they have made the point continually to me about the PRSI rates helping their competitiveness, because competitiveness is what keeps them in business. Perhaps that would not help all retailers. But I must take into account the personal services sector, garage services and so on, in which sector all of the work is generated within our own economy as against the retail end where 80 per cent of what is being sold represents imported goods. I know of the difficulties being experienced and I have agreed to examine some aspects in this and future years.
I might add that the budgetary objective of reducing interest rates and stimulating growth and investment is clearly working. I look forward to the support of this House for the forthcoming Finance Bill, which will complement the broad thrust of the budget and give further incentives to the clothing industry in addition to others. That Finance Bill will address a number of specific issues which will benefit enterprise and employment and which were raised by representatives of the clothing industry. I might stress that there is no question of departing in the Finance Bill from the overall thrust of the budget and the general thrust of tax reform of recent years.
I agree with Deputy Carey in one respect, that is there is no real need to have a rehash of the budget debate here this evening. It demonstrates how futile is the purpose of tabling this Private Members' motion this evening when the predictability of the outcome is so obvious from the Opposition benches.
The Finance Bill is due to the circulated next week, when Deputy Yates will have every opportunity to table amendments and suggest changes in budgetary policy. Hopefully he may be somewhat more pragmatic than he was when quoted, perhaps incorrectly, in the Irish Independent yesterday to the effect that there was a potential of £30 million which should be found elsewhere within the overall budgetary system. The Minister has informed the House this evening that the amount will be £48 million in this financial year and £77 million in a full year.
Just to bring it back to 12.5 per cent.
We cannot leave it at 16 per cent.
I would have thought that these good potential Christian Democrats, who may be having a change of name, would be very conversant with the workings of Europe and what they should be doing by way of compliance with regulations under the Single Market. The reality is that a decision had to be taken to move the rate upwards or downwards in order to comply with the Single Market guideline. I do not for one moment not share other Members' concern that the clothing industry is caught up very much in the whirlwind of international competition. Since some 12,000 people are working in the manufacturing sector, I sincerely hope the Minister will examine the PRSI issue or some other selective support for them.
Another conversion on the part of the Minister.
It is difficult to listen to the bleating opposite that it will affect exports. I should stress that export manufacturing in the clothing sector will not be affected. Bearing in mind the other budgetary changes, the progressive features of our fiscal policy and the drop in interest rates, hopefully the possible negative effects on clothing sales, where some difficulty might be experienced, will be offset by the overall improved financial climate.
The House must recognise how useless is a debate on such a Private Members' motion a week in advance of the circulation of the Finance Bill, when all of these matters can be thrashed out again by the Finance spokespersons on the opposite benches. I would have thought that the time had passed for political party posturing and opportunism, endeavouring to pander to a particular sector by tabling simplistic amendments, knowing full well that we cannot find one penny of alternative funds outside the framework of budgetary policy. I would have thought also that these would be an end to the practice of Opposition Members coming into the House and talking in millions about housebuilding, health services, social welfare and so on without advancing any tangible solution to the problem of where savings could be made. I do not disagree with the contention that the manufacturing sector warrants careful handling and support in the matter of international competition.
Deputy Finucane made a point with regard to equity for the jobs fund. I was deeply involved in assessing the need for equity for jobs. Apart from Fine Gael, there was all-party agreement on the dearth of financial equity, particularly for small industries. It would be an absolute tragedy if that issue were not taken on board and confronted. It arose in the first instance through consultation with the IDA, the many banking institutions, the private sector and various representatives of Government Departments. They discovered that anybody in the small business sector attempting to start up or run their businesses with equity possibly had to put their homes on the line, to take out second mortgages and so on, because of the problems they encountered in finding equity. When we discussed with the four main banks how this might be alleviated, they were very frank with us. The AIB said they had a network throughout their branch system which had not taken off, even though they had allocated £10 million to provide high risk equity for jobs. The Bank of Ireland had a different formula. They had a small team located at head office who collected all refusals and assessed them. They said they had supported 99 small industries, 11 of which had failed. Nonetheless they felt it had been a worthwhile exercise. The other main banks were also examining how best they could address this issue. It is totally ridiculous to suggest therefore that that £25 million did not constitute a positive, pragmatic step in the right direction. Perhaps if Deputies opposite had been involved in the Jobs Forum before the last general election they might have reached the same conclusion as did all other political parties.
Unemployment has risen since.
I contend that within the budgetary framework and against a difficult international backdrop the Minister took the right decision. This is the one political soft spot on which Fine Gael think they can concentrate and use the very precious Private Members' time to do so.
There is much more — the probate tax and the income levy.
I look forward to Deputy Yates tabling amendments to the forthcoming Finance Bill.
The Deputy wants the poor shopkeeper to pay a year's wages in addition to the 1 per cent levy.
Deputy Yates can come into this House, table amendments and introduce measures to raise the requisite money. Deputy Carey is now in the old backwater of selectively making political promises to a particular sector——
Deputy Lawlor was not here for my speech.
(Interruptions.)
The Deputies opposite should stop wasting the time of the House this evening. Rather they should proceed by tabling pragmatic amendments to the forthcoming Finance Bill, setting out clearly the manner in which they propose to raise this money.
I am surprised at Deputy Lawlor.
I would ask Deputy Lawlor to bring his contribution to a conclusion now.
The Members opposite, experts on VAT, footwear and the clothing industry, know all about those difficulties and the hamfisted way they dealt with them when they endeavoured to manage the economy.
On the question of timing here this evening, it is entirely appropriate that Private Members' Time be the choice of this side of the House.
Deputies
Hear, hear.
Whatever it may be that the Opposition chooses to put down, they do so without any apology to the Government benches since it is in the nature of Private Members' time that they are enabled to do so.
The second point I wish to make is that frequently when legislation, such as the Finance Bill, is presented by the Government after much planning and thought it is as if it is a tablet of stone and almost immutable. Some times it is worth signalling our concerns in advance to indicate to those who prepared the Bill where the concerns of the marketplace lie. Therefore, the debate tonight and tomorrow night is timely.
Theoretically, 1 January this year marks the completion of the single European market. Unanimity is required in respect of taxation matters and because of that it has taken much time to complete the dossier on taxation, in particular indirect taxation. We have not moved towards harmonisation but rather towards approximation as agreed last October by the Minister for Finance on behalf of Ireland at the relevant ECOFIN meeting. It was agreed by the Council of Ministers that a EC directive should be introduced in respect of indirect taxation. Not surprisingly, it is being argued — this was repeated again tonight, in my view, incorrectly — that the reason the rate of value-added tax on adult clothing and footwear has increased from 10 per cent to 21 per cent in recent budgets is that we wish to be consistent with the relevant EC directive.
That EC directive, which was agreed rather late in the day, provides for a transition to the agreed levels by 1996 by which time the Finance Minister will have to decide again on the direction the system should take. At that time we will have a chance to iron out many of the creases which we have identified already.
The first question I wish to ask therefore, in relation to the rate of value-added tax on adult clothing and footwear, is whether this increase was the necessary and inevitable consequence of the tax arrangements agreed to by the Minister for Finance at EC level in October 1992. Since the EC directive provides for a process of transition, whatever about his ultimate choice in this matter, in the current year and potentially for the next few years the Minister for Finance has discretion not to insist that VAT on adult clothing and footwear be charged immediately at the highest rate.
In case anyone is in any doubt about this matter the fact that the Minister exercised discretion in respect of other services, such as garage services, repair and maintenance services and various personal services, including hairdressing, confirms that he has discretion and that in this case both he and the Government chose to make a decision which was not in the essential interests of the clothing and footwear industry.
For the uninitiated, it is easy to argue that the Europeans decreed that we should charge VAT at a standard or upper rate of 21 per cent, but this is not the case. The agreement reached last October provides for the maintenance of the zero rate on a limited range of goods, a reduced rate and a standard or upper rate. The only requirement in the EC directive is that the standard rate or upper rate should be 15 per cent at a minimum. Therefore this is Irish budgetary policy. As the Minister said tonight, and in his Budget Statement, the needs of the Exchequer dictate that the standard rate of VAT should be 21 per cent even though the EC arrangements specify that it should be 15 per cent at a minimum. It is clear that the blame for this ill-timed, damaging and excessive imposition on the clothing and footwear sector rests unequivocally with the Government and the Minister for Finance and not with the European Community.
At Question Time recently the Minister acknowledged implicitly that he currently has discretion in this matter and he explained to the House the reason he used this discretion to protect employment in certain other sectors. He made the argument once again tonight that, on balance, both he and his advisers in the Department believe that the risk to employment is minimal in the clothing and footwear sectors. The Minister, and his advisers, are wrong in that regard. On behalf of the Progressive Democrats, I reject the Minister's assertion that the clothing and footwear industries, both the retail and manufacturing sectors, will not suffer grievious and unnecessary job losses as a result of this year's budget.
There is a strong inter-action between domestic clothing manufacturers and the existence of a healthy, independent retail sector. However, this was lost on the Minister in his analysis of the market place tonight and there is a profound gap in the logic he applies. The Minister mentioned that imports account for 80 per cent of clothing and footwear sales in Ireland but the remaining 20 per cent cannot be dismissed lightly in terms of the consequences for jobs and the potential for job creation. Irish clothing manufacturers and, to a lesser extent, footwear manufacturers who have been devastated depend on the survival of a healthy, independent retail sector. A significant portion of imports are supplied by the large multiples which specialise in the sell-and-wrap technique. They import large volumes and make a very small profit in terms of the number of units sold. It is largely a sell-and-wrap business. What the Minister and the Government have chosen to do is to give greater encouragement to those companies and in the process diminish the capacity of the retail sector to survive which provides the critical link for Irish manufacturers who wish to find a space for their products on Irish shelves. That was the missing link in the Minister's presentation tonight.
In terms of industrial policy, as the State tries to promote indigenous industry it would be folly to suppose that the domestic market, small as it is, is not of the utmost importance, especially for many small and medium enterprises in the clothing sector. This is true in the case of successful export oriented small and medium firms which made forays into the export markets once they had rooted themselves in the Irish market. I do not accept the logic behind the analysis which the Minister presented tonight but in his proposals he has clearly signalled that something will be done in the Finance Bill to alleviate some of the tax burden on Irish manufacturers. If this happens and it is efficient I will welcome it but this will not be of benefit to the small independent retail sector. The key, in terms of the structures in Ireland, is to open the Irish market to domestic manufacturers. This is particularly important for the small and medium enterprises in that sector. That forms the basis of the Government's industrial policy.
In relation to his general remarks on the fundamentals of the economy, the Minister said it would cost £48 million this year and £77 million in full year to reduce the rate of VAT on the clothing and footwear sectors to 12.5 per cent. I was surprised by his figure having regard to the implications this would have for jobs in these vulnerable sectors. I wish to ask a specific question because I am not certain if the Minister has discretion and I ask him to give a response before the debate closes. Is it possible to hold any class of intermediate rate this side of 1996 under the EC Directive or is the Minister automatically obliged to catapult goods on to either the lower or standard rate of VAT? I do not know the answer but if there is any room for discretion I plead with the Minister to explore it and seek to use it.
On the question of how the Minister might make good the budgetary shortfall, I cannot say where he might find the money but he has enough people employed to look under stones, carpets and other places where the money might come from. I listened with great care and attention to the Minister's speech on budget day and he said that he hoped that as a result of the budget and the devaluation of our currency, interest rates would eventually come down to much lower levels some time later this year. I have no doubt that the Minister and his advisers, no less than myself, are pleasantly surprised at the speed and scale with which basic interest rates have tumbled in this economy. That is bound to have a positive effect on the budgetary arithmetic. I would like to know before the close of this debate exactly what effect this will have because certainly it was not argued with the same vigour by the Minister when he spoke to this House on budget day. It is right that we have this debate tonight and that we point to the flawed logic in ignoring the importance of the independent retail sector and the role it plays in clothing manufacture. It is right that we try to explore any degree of discretion that he may have in terms of the budgetary arithmetic, improved interest rates or EC potential. It is wrong to assume that the EC must carry the burden of explanation for a set of choices determined primarily at home.
It is folly in terms of trying to encourage an indigenous sector which has a low share of the total domestic market that we should say to hell with it and cast it aside. That is not logical in the context of encouraging and sustaining indigenous industry.
With your permission a Leas-Cheann Comhairle, I wish to share my time with Deputy Martin Cullen.
Is that agreed? Agreed.
I appreciate what the Minister says; and that he cannot please everybody at budget time. I am sure everybody in this House could take up the fight for every single aspect covered by the budget because somebody is bound to be dissatisfied with it. What is particular to the clothing and footwear industry is that from the moment the increase in VAT was announced, there was an immediate reaction throughout the entire industry and across both sides of the House. It is most peculiar but it is becoming a feature of debates that when any difficulty arises the Labour Party absconds from the House. The party which Deputy Spring and his merry men led on such a merry dance during every Private Members' debate does not now seem to have an interest in turning up to find out what is happening. It is regrettable but in my view it shows the interest that party has when it comes to the real issues.
Unquestionably the increase in VAT will cause job losses. It was most interesting to hear the Minister admit tonight that his first criterion is to balance the books, in other words this supersedes the impact on job losses or creation. The constant reiteration that the Government's priority is jobs and that everything is screened on that basis has been clarified. The Minister clearly stated that this is not the case when considering the massive 30 per cent increase in the rate of VAT on the clothing and footwear industry. That is regrettable but at least it is honest.
We have spoken about county enterprise boards and the need to create jobs in the community. We, more than any other country in Europe, were to the forefront in creating small family businesses. These family-run businesses created sustainable jobs because the people running them had an interest in business and were highly successful in running them for decades. This has changed in recent times. We have seen the growth of the multiples and chain-stores which has had an effect on small family-run businesses. Now we see artificial barriers being created by the Minister which will ensure the further demise of family-run businesses and the jobs that go with them will decrease at an ever increasing pace. There is something wrong with the policy being laid down by the Government which this Minister represents. Retailing in the clothing and footwear business in every city and town throughout the country is mainly carried on by independent family-run businesses that give good employment in small communities. I cannot understand why we need county enterprise boards and other community-based information bodies to tell us how to create jobs when we know what is required to sustain jobs in the market place. We are actually cutting out jobs that can be sustained in the economy. That is an extraordinary tragedy.
We may ask where the Minister would find the money to make up the shortfall if he were to change the VAT rate. The Minister had a windfall because of the rapid reduction in interest rates. A large proportion of the £30 million required could be found in the provision that the Government made for mortgage interest relief which will no longer be required because of the drop in interest rates over the past number of months. I suspect that in this area alone we would find substantial savings within the provision the Government had made. This area could be looked at. I do not accept that the budgetary arithmetic on the day the Minister delivered his speech pertains today. The arithmetic has been totally thrown out of gear by factors in the past number of months. If the Minister can benefit from windfalls, surely he can alleviate the enormous pressure building up in such areas as the clothing and footwear industry.
I do not understand why the relationship between manufacturing and retailing, particularly in the clothing and footwear sector, is not being taken on board by the Minister. We are struggling in terms of creating indigenous industries and the clothing and footwear industry offers the opportunity for growth on the manufacturing side. The Minister rightly pointed out that some £300 million of UK clothing exports come into this country, which is some 17 per cent of the UK total. Surely there is an opportunity to replace those goods with Irish manufactured goods, which in my view far outstrip the quality of goods imported from the UK. Surely the Minister should be encouraging growth in manufacturing as this creates growth in jobs which would have a knock-on effect in the retail sector. By his own admission none of this was considered in the budgetary arithmetic some six or seven weeks ago.
An opportunity exists to look at the changed situation. Nobody on this side of the House will berate the Minister for making changes. It is good that the Minister should be flexible, given the changing circumstances in the past number of months. The Minister hinted that some movement may be made with regard to PRSI. I, as indeed do most Members, have a copy of the submission made to the Minister by the clothing and footwear industry. If he is not going to make changes in the VAT area I can only surmise that he will reduce the employer's rate of PRSI. Certainly we in this party welcome that, as we have felt for a long time that this has been one of the greatest barriers to creating and sustaining employment. If the Minister is considering such a move I certainly welcome it, not alone for the clothing and footwear industry but for all industry. I will be interested to see the Minister's arithmetic in this regard. Obviously he has flexibility but he should exercise it imaginatively in trying to create and sustain jobs in this economy.
Debate adjourned.