Vol. 436 No. 1
2 Mr. Yates asked the Minister for Finance if he has received the budget submission from the clothing industry in relation to their difficulties in maintaining competitiveness and, consequently, employment; and if so, the proposals, if any, the Government has to protect employment in this sector.
10 Mr. Molloy asked the Minister for Finance if he has received representations from the clothing manufacturing industry regarding the disastrous effect of PRSI and VAT; and if so, the action, of any, he proposes to take in the matter.
42 Mr. J. O'Keeffe asked the Minister for Finance his views on whether substantial job losses have occurred in the clothing sector following the increase of VAT to 21 per cent; if he has any plans to reverse the decision; and if he will make a statement on the matter.
67 Mr. Creed asked the Minister for Finance if he has received a submission from the Irish Clothing Manufacturers Federation recently; and if so, if he will make a statement on the matter.
78 Mr. Haughey asked the Minister for Finance the tax changes, if any, he proposes to make to assist the clothing industry which is going through a very difficult period at present.
I propose to take Questions Nos. 2, 10, 42, 67 and 78 together. I have received a pre-budget submission from the Irish Clothing Manufacturers' Federation in which the views of the organisation on the impact of VAT and PRSI on the competitiveness of its member firms are explained in some detail. I will bear the points made in mind in the run-up to the forthcoming budget. However, I have indicated on a number of occasions that, for budgetary and other reasons, I do not intend to reverse my decision to place adult clothing and footwear on the standard rate of VAT.
The clothing industry's submission refers to tax levels on low income workers. The essence of the Government's tax strategy is the adoption of definite priorities and we have set these down in our programme. In relation to income tax, we have made it very clear that our attention will focus on two goals:
—firstly, alleviating the burden of taxation on workers with low incomes, particularly those with families;
—secondly, raising the income threshold at which the higher rate comes into play.
Obviously, these priorities are of particular relevance to the clothing sector.
The Government's record since 1987 is tangible proof of our ongoing commitment to meaningful tax reform, pursued within responsible budgetary parameters. Very significant progress has been achieved. Over that period, income tax rates were reduced substantially on a broad front — the standard rate being cut from 35 per cent to 27 per cent and the higher rates consolidated in a single 48 per cent top rate. Substantial improvement was also made in the exemption limits and the standard band was widened. While lesser progress was made in other areas of the income tax code, the net result was still very considerable improvement.
That being said much remains to be done. High marginal rates still affect single taxpayers — who face a marginal rate of 48 per cent on income above £10,936 — a figure somewhat lower than the average industrial wage. The high marginal rate does not impact on married workers until they reach income above £20,786 based on a married couple with one spouse working.
The Government attaches great importance to the competitiveness of the clothing industry. Under a scheme announced earlier this year the State is providing additional finance of up to £5 million to finance an initiative specifically targeted at the clothing and footwear sectors. Under this initiative the IDA is providing help to companies who can demonstrate their ability to address competitiveness in the key areas of quality, design and production processes. In addition FÁS is providing assistance under the training support scheme. This enables companies to address skill weaknesses which may exist with the aim of achieving the highest international standards. I urge all firms in the sector who feel that they can benefit from their scheme to contact the IDA and FÁS. Their very survival may depend on their availing of these initiatives with a view to improving their competitiveness.
An interdepartmental working group is currently examining the impact of employers' PRSI rates on low-paid employment in the manufacturing sector, including clothing, and considering whether there is a need to reform the current system. The working group includes representatives of my Department as well as officials from the Departments of Enterprise and Employment, Social Welfare and the Revenue Commissioners.
I expect to receive the report of the working group in the very near future. The Government will consider the group's report when it becomes available in the context of the 1994 Budget. I should point out that the employers' PRSI system will raise in the region of £1,000 million in 1994 and a reduction of 1 per cent would cost about £80 million in a full year. Accordingly, while not wishing to pre-empt the Government's consideration of the issue, the budgetary room for manoeuvre in this area will be very constrained.
Is the Minister aware that the clothing sector considers he is totally out of touch with its problems and will he accept he must take his share of the blame for the 2,000 jobs lost in the clothing manufacturing sector in recent years? Will he acknowledge there is not a competitive edge to this sector when labour costs are 20 per cent higher than those in the UK and Northern Ireland and that a direct contributory factor is the double employers' PRSI rate? In view of the special difficulties experienced by that labour intensive sector, will the Minister introduce a selective package in the budget to ensure there are no further major job losses there?
As I stated in my reply, a working group has been examining for some time now the issue of the PRSI level raised by Deputy Yates. I am glad the Deputy used the word "selective" because the costs involved would prohibit it from being done any other way. I had discussions during the year with members of the clothing industry. The discussions have been useful for my Department and the clothing industry because we managed to focus on the difficulties of Irish manufacturers, to highlight the fact that 80 per cent of clothing sold here is imported and that 65 per cent of that manufactured is exported at a zero rate of tax. The increases in VAT on clothing in the past few years have not helped the sector and has made it more expensive for individuals to purchase clothing and footwear. Statistics show that for the first six months of this year sales in clothing have increased whereas sales of footwear have decreased substantially but, unfortunately, there are very few footwear manufacturers in Ireland. Difficulties in regard to competitiveness in the sector have been highlighted in recent reports, but they are not all tax related. The non-tax issues of design, competitiveness, quality, rates of pay and so on should be addressed urgently by the industry. I met members of the Irish Clothing Manufacturers' Association, which has recently been set up, members of IBEC and small business firms and have undertaken to examine the question raised by Deputy Yates.
I will accept a brief question from Deputy Yates because of the time factor involved. I am anxious to dispose of the five questions involved.
Will the Minister agree that the VAT hike from 8 per cent to 21 per cent in a short number of years has greatly depressed demand for clothing and footwear at retail level? Instead of trying to console the sector, will the Minister give a specific commitment in regard to what he is prepared to do about PRSI and VAT so that the 30,000 people employed in the retail and manufacturing clothing sector can have an assurance they will have jobs this time next year?
If I did that there would be no point in having a budget and I am sure Deputy Yates will appreciate that. We are examining the clothing and footwear sector, but the issues of design, productivity and management must also be to the forefront. As I stated in my reply, since 1 August we introduced a research and development scheme through the Department of Enterprise and Employment which will assist many clothing companies. FÁS has also undertaken training initiatives. The Government will do its utmost to assist in that area. I am sure Deputy Yates is aware that although we introduced the standard rate of VAT on clothing sooner than we were expected to under EC law, we would have had to introduce it within two years anyway.
