Deputy Yates referred to the battery of civil servants and the Opposition will have to get one of the long life batteries much advertised on television to ensure that we last longer when we embark on the marathon task of debating the Committee Stage of the Bill.
At the outset I would like to borrow a leaf from the Minister's book in respect of his presentation in the House yesterday. It was evident that the Minister felt he needed to place a certain political context on his more technical remarks that were to follow. It seems entirely appropriate that one might begin by doing the same.
I am reminded that it is now 60 years since Franklin D. Roosevelt, when the United States was in deep recession and suffering from massive unemployment, first took the oath of presidency there. He was elected on the notion of a new deal reformist programme designed to confront the problems so evident then in the United States. So great was his zeal and his appetite for this programme that in the first 100 days in office, the Roosevelt Administration left a legacy of reform and radical change that was to become the hallmark of the man and his presidency. He is the only person who went on to serve an historic three terms in the White House as President of the United States. It has become fashionable since to examine US presidencies and Governments in general, on the record of their first 100 days in office.
Last November Irish people thought they were voting for radical change and they expressed, through their voting preference, a strong desire to see such change. The first 100 days of this Administration was dogged by devaluation, Digital, Mullaghmore, Greencore with ADM, Greencore without ADM, Greencore with Davys and close placees, Greencore without Davys and close placees and, most of all, was characterised through its own choice by a budget which talked about making progress but did the reverse and left the Irish public dispirited, deceived and disillusioned.
The two parties in Government are now cosy with each other and are settling down to four long years in this much vaunted partnership deal. In terms of vision, courage and appetite for change this partnership deal is no new deal. It is a paralysed partnership that says one thing but does another, that aspires to intellectual acceptance of various changes but lacks the political conviction to see them through. The Bill we are discussing is the key product of the second 100 days of this Administration. It is, by their own lights, the most substantial yardstick by which we can legitimately measure the worth and the policy intent of this Administration since it has now had due pause for reflection and thought.
The Minister may recall, although he was not in the House at the time, the Tánaiste and Minister for Foreign Affairs coming in here rather limply the morning after the Minister's presentation, having read the truth of the budget in the newspapers being aware that everyone saw it as a dull instrument as it has proved to be. The Tánaiste and Minister for Foreign Affairs said the Government had no option because it was beset with currency problems and so on and that it was not in office very long.
There has been time for reflection on the Finance Bill, and change if necessary. It now constitutes a self-made yardstick with which to judge and beat this Administration. Objectively, it is a measure of the failure to come to grips with the scale and depth of the unemployment crisis or understand some of the key elements which cause, prolong and deepen it.
On the taxation agenda, this paralysed partnership is said to intellectually accept the key tenets of the Culliton tax reform philosophy. That tax philosophy is not so complicated, because Culliton has spelt it out and the ordinary person in the street could follow its two essential tenets. First, tax should be collected on a sufficiently broad base; and, secondly, the tax systems should be drastically simplified, with a programme of phased removal of special reliefs on a consistent basis. That is the prescription. Whatever the detail, the road map is very clear — broaden the base and consistently simplify the system. By doing that it will be possible to dramatically reform the crushing, penal, disincentive, anti-work tax system that exists. Where did the Government choose to broaden the tax base the most this year? The answer to this question is to be found in Chapter 2, section 7 of the Finance Bill, 1993, with the imposition of a new income levy, a fifth tax on everyone's income that exceeds the princely sum of £173 per week, which is only two-thirds of the average industrial wage here.
This tax flies in the face of Culliton, the essence of which is to broaden the base with a view to lowering taxes on work and specifically with a view to ensuring that the marginal and average tax rates fall for the ordinary worker. This paralysed partnership, which one Minister says intellectually accepts Culliton, proceeds to do the opposite to what Culliton recommends. The Government considers it is right and proper to penalise everyone earning less than the average industrial wage by the imposition of this new employment levy. The one let up in regard to this is for those who hold medical cards. I am thankful that I am not running a company's pay office which must calculate who is in or out, reschedule programming and pay clerks's work and check medical card records in order to comply with this ridiculous and anti-work tax which has been introduced by way of the one per cent levy.
I regard this tax as a sneaky one. It is called a 1 per cent levy, but were the Government to choose to use the existing tax system to raise the same amount of money it would have involved imposing 2 per cent on the standard rate of tax, or twice that figure on the upper band. That is what would have been involved if the collection of additional tax had been dealt with in the normal manner under our tax system. Far from simplifying the tax system, this Administration has chosen to complicate it by adding this new tax. It has masked this sneaky tax as a 1 per cent levy when its real and equivalent effect is twice that figure under our tax system. It is a retrograde tax, undoing at a stroke some of the significant tax reforms which the Progressive Democrats were so insistent upon when in Government. What we started is something that has at this point regrettably been interrupted and we have not had the opportunity to complete the reform as we would like. We started to set about a consistent long term rational reform of the Irish tax system. This is a retrograde step in this year's budget, because this so-called temporary levy from those people who intellectually accept Culliton is complicating the system in a most regressive way. It is a regressive tax since it operates outside the normal system of tax free allowances, but if included, it would have mitigated its worse effects upon lower paid workers.
It is a source of wry amusement to read the Programme for a Partnership Government and the wishy washy commitment it has in regard to tax reform. Its commitment to lower paid workers is such that if a person earns £173 per week or more, they are regarded as well paid and it is in order to dip into those people's pockets and extract a fifth tax on their work effort. It is an inefficient tax because it complicates the accounting which must be done at every level for firms and employers who are compliant with the system. Trying to compute employees tax liabilities is much more complicated than if the existing system was properly used for the tax process or the raising of Exchequer revenue. It will be a difficult system to administer and costly for those who must comply with its requirements. It is not a cost borne by the Government and the Government does not appear to give a damn, but that is not enough in the light of the efforts made by those who comply with the tax system and it renders the tax a failure on the test of efficiency also. It is the single greatest measure in this year's Finance Bill of the contempt which this paralysed partnership has put in practice for the Culliton tax reform philosophy. For the ordinary person in the street it is the simplest, most obvious and greatest measure of the phoney rhetoric of this new partnership which promised lower taxes for the less well off but which in its first year in office, after due reflection since the budget and all that has been said, is insisting that this additional tax imposition on the low paid should stand.
The Minister in his Second Stage speech yesterday stood over this inequitous 1 per cent levy with the phrase that he was confirming the revenue dimension of the strategy of fiscal responsibility. There was a somewhat fatuous challenge as to whether his critics would urge him to throw budgetary discipline to the winds. I am a critic of the 1 per cent levy, but I would not urge that the Minister or the Government take such a daft nonsensical and ultimately futile course of action as to throw fiscal responsibility requirements to the winds. In the panoply of adjustment and expenditure curtailment which might be examined this 1 per cent is singularly among the most stupid and misplaced measures the Government might have chosen in terms of fulfilling its objective in regard to fiscal responsibility.
I was amused to note the extent to which the Minister, his script writers and the ever busy people working on the word processers in his office have engaged in a not too subtle revisionism in respect of our recent economic experience. Fiscal responsibility was cast in this budget as the key player in respect of the turn-around of the general economic climate and in particular in relation to interest rates. It seems that the debacle of devaluation, which represented a total reversal by the market for both the Minister and his key advisers, is now to be written out of the emerging state of the Irish economy for the first two quarters of 1993 as if it never happened. In so far as there has been some good news on the horizon, it has emerged precisely because the market prevailed and the Government got it wrong in regard to devaluation.
To the extent that the Minister seeks to make a virtue of fiscal responsibility, he has adopted a budget target in line with the requirements and obligations of the Maastricht Treaty and the practice of every Government in this State in recent years. The concept of fiscal responsibility is one to which virtually everyone in this House subscribes having seen the debt mountain left behind by the long dark night of fiscal irresponsibility which left our resources so depleted.
The distinguishing feature of the changes in the economic climate in recent months is not, as the Minister asserts, in the budget or the Finance Bill, it can be explained by devaluation which was the greatest reversal forced on the Minister since he took up office. The Minister is perfectly correct in arguing that the 1992 budget and Finance Bill made substantial improvements in the all round tax structure. The substantial tax reform introduced last year was not based on an illusion, that tax reform leads, in overall terms, to lower taxation as a proportion of national income. It was clearly founded on the belief that our tax system lacks coherence and is in need of consistent and sustained reform.
In the light of that particular experience this year's expediency is most to be regretted. In pointing out the substantial reform made last year, the Minister has confirmed a theory which my party advanced in Government and brought through last year with the Minister's assistance and acceptance, that one needs a consistent view of how to reform the tax system. In regard to the challenge he threw out yesterday and the challenge of the Taoiseach last weekend during the course of a party political address, I do not feel the need to explain to the Minister how tax reform does not mean lower tax for everyone in all circumstances. Why should I undertake such a burden of explanation? I have never argued to the contrary. When in Government my party argued that tax reform needed to be funded mostly from within the system by adjustments in the tax system itself and, where possible, by curtailments in expenditure. The Minister knows that. Therefore, I do not feel the need to take up the burden of explaining a point which the Progressive Democrats Party has never stood for, has never made and in which it does not believe.
We are entitled to ask the Minister for an explanation of some of the measures over which he is standing. For example, both he and the Government refer to this levy as a temporary imposition. The Minister, the Ceann Comhairle and Members know that the public are deeply cynical when Governments talk about temporary taxes. We have seen the results of other temporary impositions which remained on our Statute Book for a decade and longer. On behalf of a jaded and cynical public, I want to ask the Minister about this temporary imposition. What is unique and temporary in the budget circumstances he faced this year which will not arise next year? I wish to anticipate some of the reasons the Minister may give although I may not necessarily accept some of them.
Our currency had to be devalued earlier in the year and of course, this imposed a cost on the Exchequer. If we believed the propaganda about devaluation in the bulletins from the bunkers in the Department of Finance — it is interesting that the Minister's name did not appear on them — which appeared to indicate, if one did not know better, that devaluation would cost us £800 million, one would say: "God bless the Minister or any Minister stuck with framing a budget this year; he has an enormous gap to fill and, of course, he needs to introduce temporary measures to do this, even though the 10 per cent levy will raise nothing like £800 million in a full year". However, when we questioned the Minister after his officials had done the sums on the cost of devaluation, which was very substantial, we found that the net cost to the Exchequer, on the Department's estimate, was £15 million, less than one-tenth of the full annual revenue from this fifth tax on work. Therefore, devaluation is not a temporary phenomenon. The figures from the Department of Finance indicate that the 1 per cent levy will raise vastly more than the net cost to the Exchequer arising from devaluation.
The Minister may say that this year we have the unique event of the abolition of VAT on imports at the point of entry. As the Minister knows, section 83 of the Finance Bill proposes to add a new subsection 19 (6) to the principal VAT Act which will have the effect of substantially, and almost entirely offsetting the potential loss of revenue in the current year arising from VAT changes. The Government would have suffered a cash flow loss this year as a result of the abolition of VAT on imports at the point of entry, but it proposes to change section 19 (6) of the Principal VAT Act to bring forward payments, which will give it a cash flow gain this year. Broadly speaking, the two measures cancel out each other and are not a temporary phenomenon.
The Minister may put forward another argument, for example, the fear of capital outflows through the European Single Market and the free movement of capital forced the Government to reduce the deposit interest retention tax rate for the standard rate of 27 per cent to 10 per cent, which represents a grievous loss of income to the Exchequer. One is entitled to ask the Minister what is temporary about that measure. This measure will not be done away with next year. The 10 per cent DIRT rate was introduced because the Government does not want capital outflows, with free movement of capital to the European Community. This measure will last forever, unless the Minister changes it. Barring that, we are stuck with this feature until the rate of tax changes.
The three reasons given by the Minister for this temporary phenomenon were devaluation, VAT changes and the DIRT rate reductions. None of these reasons stand up to analysis. They do not explain why the Minister has to meet a temporary requirement this year which will not be repeated in future years. This temporary levy has not been introduced in response to any particular or identifiable temporary budgetary problem. It is a hamfisted, unfair example of the worst kind of expediency which lacks rhyme or coherence. The only thing I can see which has changed significantly is that this year the Labour Party, which is meant to be the agent for change is a new ingredient.
I do not know whether the Minister is indicating that that will be the temporary little arrangement to be removed from the equation; but, barring that particular formula, I cannot conceive of a sound explanation of how the Minister can say that the gap in finances to meet fiscal responsibility is explained by some temporary phenomenon this year that will not exist next year. That is one question to which I want a clear answer. I do not expect to get a very clear answer to it but I would love to know what is the temporary little phenomenon. Perhaps it has to do with the people with whom the Minister shares Cabinet responsibility but, who can tell?
I want to say this much to workers in this country. If the Progressive Democrats were around the Cabinet table I can assure them that this incoherent, anti-work levy is something we would not stand over. It is something that should not be argued for or stood over. Yesterday the Minister went to some lengths to say that he was being misrepresented, that the 1 per cent income levy was not a tax on employment. He said it was "nothing short of misrepresentation."