I move: "That the Bill be now read a Second Time."
How much time do I have, a Leas-Cheann Comhairle?
Excess Vote Relating to 1991. - Appropriation Bill, 1993: Second and Subsequent Stages.
In accordance with the order of the House today the Minister has 30 minutes.
I understand that has been changed and that 15 minutes has been agreed for each spokesperson.
Does the Minister wish to propose some change to that arrangement?
I am satisfied with the arrangement a Leas-Cheann Comhairle.
Is that agreed? Agreed.
As the House will be aware, the annual Appropriation Bill gives statutory effect to the departmental Estimates for the supply services, both non-capital and capital, including all Supplementary Estimates which were approved by the Dáil since the last Appropriation Act.
The 1993 Bill appropriates to the various services listed in the Schedule the sum of £8,789,118,010. This comprises the original Estimates of £8,548,119,000 set out in the revised post-budget Book of Estimates and Supplementary Estimates totalling £240,999,000.
Following the normal practice, the Bill also approves the use of certain departmental receipts, amounting to £1,006,586,000 — as Appropriations-in-Aid.
This year's Bill also covers an Excess Vote relating to 1991. The minor excess of £10 on the Vote for the State Laboratory arose from a miscalculation of PRSI liabilities. Following established practice, the Committee of Public Accounts has examined this Excess Vote and has no objection to it.
Apart from authorising the Estimates and any Excess Votes, the Appropriation Bill also has another essential purpose. It provides a statutory basis for the calculation of the issues which the Minister for Finance is authorised, under the Central Fund (Permanent Provisions) Act, 1965, to make from the Exchequer towards meeting the cost of the following year's services before the Dáil has an opportunity to approve the Estimates for that year. Accordingly, the Appropriation Bill must be passed by both Houses of the Oireachtas before the end of the year to allow the provisions of the 1965 Act to come into effect.
As we are approaching the end of the financial year, I would like to take this opportunity to review some of the economic and budgetary outturn figures for 1993 and if time permits, to look at the prospects for 1994.
The Irish economy has turned in a resilient performance in 1993. That performance has been all the more remarkable given the currency-related turbulence at the beginning of the year, and the sluggish international environment.
Economic growth in Ireland for the year is now expected to be the highest in the European Union. Over the past three years, GDP growth here has averaged almost 5 per cent per year. This is one of the best growth rates in the industrialised world. In contrast, annual average growth in the European Union was less than 2 per cent; in the United States, it was only 0.5 per cent; and in the United Kingdom, GDP actually declined by 0.75 per cent per annum.
This year our growth rate has slowed down, as it has in almost all other European countries. But Ireland still had the fastest growth rate in the European Union. Irish GDP is estimated to have increased by about 2.5 per cent while it fell by 0.5 per cent in the European Union as a whole.
Our exports have continued to grow at a faster rate than our markets and our trade and wider balance of payments have both remained in substantial surplus.
A particularly positive feature of the last two years has been the continued strong growth of industrial exports despite the international slow-down. Indeed, our rate of export growth has far exceeded the growth of our export markets. In other words, we have been increasing our share of other countries' markets at a significant rate. According to OECD figures, Ireland's markets for manufactured exports have grown by about 5.5 per cent in 1992 and 1993; at the same time, the OECD estimates that the growth in the volume of Ireland's manufactured exports has been over 15 per cent — almost three times as fast as the growth in our markets.
We are sometimes told that Ireland is experiencing what is termed "jobless growth"— that we are failing to convert growth into jobs. We all know that we face an immense challenge on the employment front but perhaps it is not so well known that employment growth here in recent years has more than held its own by international standards. In the last two years, total employment here has been broadly unchanged, while it has fallen by about 0.25 per cent a year in the European Union as a whole and by about 0.5 per cent per year in the United States. And, when you allow for the long-run decline in the numbers engaged in agriculture, non-agricultural employment here has continued to grow — even right through the worst years of the international recession. Not many other countries can say that. According to the latest EU Commission forecasts, Ireland will be the only EU country, apart from Luxembourg, to show any employment growth during the current year.
The budget forecast for the live register was for an average of 309,000 in 1993, an increase of 26,000 compared with the 1992 outturn. It now looks as if the average outturn for this year could be lower than 295,000. Although this is still about 12,000 higher than in 1992, the trend in the live register has improved greatly, with the seasonally adjusted total at end-November some 2,000 less than at the end of last January.
None of this must be taken to imply complacency about the scale of the unemployment problems we face. There are far too many people on the live register; long-term unemployment, in particular, must be tackled as it leads to a cycle of poverty and deprivation. Creating jobs in Ireland for the unemployed is the Government's top priority.
This is not an idle aspiration. The Programme for a Partnership Government 1993-1997 contains a long list of the actions we are taking and propose to take towards this end. Provision for many of these initiatives has been included in the 1994 expenditure Estimates published on 9 December. As I will outline later, the National Development Plan will undertake a major programme of investment designed to improve the potential for growth of the economy and create significant additional employment opportunities.
No matter how committed and energetic the Government is in devising and implementing policies to reduce unemployment, these will not be effective if wage increases are so high that we lose competitiveness against our main trading partners.
While, over the period of the Programme for Economic and Social Progress, hourly rates of pay in the key manufacturing sector, expressed in a common currency, are estimated to have increased more slowly than among our main trading partners, we have no grounds for complacency at all about the future. The annual rates of nominal pay increases in these countries have slowed throughout the three years of the Programme for Economic and Social Progress. The latest EU forecasts point to a continuation of this trend in 1994.
In 1993, Irish wage competitiveness increased but only because of devaluation. If we want to improve our competitive position in 1994, the rate of increase in pay in national currency terms has to be less than among our trading partners. The fact that the average rate of pay increase in the UK is currently very low has to be taken fully into account.
It is also worth noting that our above average economic performance has been achieved without fuelling inflation or resorting to excessive public borrowing. Inflation here in recent years has consistently been below the EU average. In 1993, inflation averaged 1.5 per cent, the lowest for 30 years. The Irish economy has clearly shown its potential for rapid, non-inflationary, market-led economic growth.
At the start of the year, interest rates were at very high levels — as we can all recall — as a consequence of the currency turbulence precipitated by the withdrawal of Sterling from the Exchange Rate Mechanism. Though the exchange rate difficulties facing exporters disappeared following the realignment of the punt within the ERM at the end of January, it was only in March that interest rates started to fall.
The climate of uncertainty which characterised the period of currency instability from September 1992 to early this year had a negative effect on business and consumer confidence at the time. Confidence has since improved in both areas, and the sharp fall in interest rates is a major factor behind this change.
The substantial reductions in mortgage rates this year represent a huge boost to the mortgage borrower. For example, the saving on a £40,000, 20-year mortgage is about £160 per month compared with the levels which prevailed during the currency crisis, and about £80 per month compared with pre-crisis figures. Business borrowers, too, are benefiting from interest rate reductions of up to four percentage points.
I have recently pointed out the importance of the small business sector to the economy and my concern that not all interest rates for small businesses and farmers have been falling as fast as have interbank rates. I have been pleased to see some evidence in the latest round of retail interest rate reductions, and in certain initiatives taken recently by the two largest banks, that banks are starting to address these concerns.
The maintenance of interest rates which are historically low, and which compare well with those of the former ERM narrow band countries, is dependent on both domestic and international factors. The international background is something over which we have only very limited control. However, it is essential that we continue to maintain a disciplined approach to the management of the economy and the public finances to secure the progress we have made so far and to protect the Irish economy as much as possible from the effects of the international recession.
The outlook for 1994 and 1995 is for at least a modest improvement in the international economic scene. Growth in the OECD next year is likely to be at least twice as fast as this year — about 2.25 per cent compared with the scant 1 per cent achieved in 1993. The European Union will return to growth after a fall in GDP this year. The latest Commission forecasts are for growth of 1¼ per cent in 1994 followed by 2 per cent growth in 1995.
In addition, the UK economy is recovering. Following the recent budget, the UK Treasury is now forecasting GDP growth of 2.5 per cent next year. Independent forecasters are, on average, predicting growth of 2.75 per cent. This may not sound very dramatic until one remembers that output in the UK has been falling in recent years — by 2.25 per cent in 1991 and 0.5 per cent in 1992. Against that background, the latest outlook for the UK represents a huge improvement and a vital opportunity for our exporters.
Here at home, domestic demand is likely to continue to recover as consumers become accustomed to the new low interest rate regime. Investment will also benefit from lower interest rates and from the injection provided by the Structural Funds. While inflation will probably pick up a little from the exceptionally low levels we saw in the middle of this year, it is likely to remain moderate.
All in all, the outlook for 1994 is for a return to a fairly vigorous rate of economic growth. This view is widely shared by independent forecasters, as seen for example in the recently published forecasts of the Central Bank and the ESRI as well as in the comments of some other private sector analysts. And, of course, a return to stronger growth holds out the prospect of stronger growth in employment next year, with perhaps a broad levelling off in the numbers registered as unemployed.
I am certain that the relative success of our economy in all the areas I have just outlined has been supported by the Government's stance on the budgetary parameters. The House will be aware that the programme for Government makes clear that budgetary policy will be based on the overriding requirements of the Maastricht Treaty, in particular the condition that the general Government deficit should be kept to around 3 per cent or less of GDP.
It will be recalled that this year's budget had to accommodate a number of very severe pressures, including: costs associated with the inauguration of the Single Market, particularly the change from the imposition of VAT at point of entry for intra-Community trade and the new DIRT tax regime for special savings accounts; the payment of arrears of equal treatment entitlements to social welfare recipients; and a substantial increase in public sector pay following the Government's decision to honour commitments in respect of deferred general and special pay increases so as to maintain the Programme for Economic and Social Progress consensus.
Despite all these pressures, the Government ensured that the EBR target was set at just 2.9 per cent of GNP, in line with the commitment given in the Programme for Government.
In a difficult economic environment, the Government has succeeded in meeting its budget targets. The main features of the 1993 outturn will be as follows: overall expenditure on central fund services should register a saving, as debt service savings will more than compensate for an overrun on the EC budget contribution; despite the shortfall in advance VAT payments and generally slack consumption trends, overall tax revenue will exceed the budget projection thanks to strong direct tax revenue flows and non-capital supply services, as presented in the Abridged Estimates Volume, are showing some overshoot on the budget provision, mainly because of overruns on demandled schemes in the health area and costs associated with the £IR realignment which adversely affected the Agriculture Vote. However, social welfare expenditure has benefited from the lower than anticipated live register average this year and from buoyant PRSI receipts. This will limit the slippage in spending. Accordingly, the current budget deficit will turn out close to the budget target. The capital budget outturn would also have been close to the budget target were it not for the emergence of the Aer Lingus equity issue.
Despite the impact of the Aer Lingus equity injection costing £75 million and the problem with advance VAT payments which led to a loss of £65 million, the final budget outturn will be within acceptable limits. As I announced, I am also providing funds in 1993 totalling £75 million in respect of part payment of public service pay arrears. Under the agreement reached with the Irish Congress of Trades Unions these arrears are due to be paid not later than January 1994. Even with this extra cost on top of the other elements which had to be absorbed this year, I expect the EBR outturn to be reasonably close to 2.9 per cent of GNP as targeted in the budget.
The 1994 outlook, on a no-policy-change assessment, indicates another challenging budget. However, the Government has, in the published expenditure estimates for 1994, shown its resolve to keep the budgetary aggregates within the overall framework set out in the Programme for a Partnership Government. Allowing for the full £75 million in pay arrears brought forward from 1994 to this year, the increase in net supply services spending, that is, net current spending plus net voted capital, is 2.7 per cent. These figures show that we are on course to maintain our position among the top ranking budgetary performers in terms of borrowing in the European Union.
I am convinced of the need to achieve continued progress in reducing the overall level of our national debt so as to free up resources for tax reform and other spending priorities. Strict adherence to the budgetary stance of recent years must therefore be maintained, and the Government, in dealing with the 1994 budgetary position, will continue to keep this commitment very firmly in mind. A change from the prudent approach which has been adopted up to now would undoubtedly run the risk of creating significant additional pressures on the public finances.
Since 1987, we have made substantial progress in bringing order to the public finances. Ireland's Exchequer borrowing requirement, which exceeded 12 per cent of GNP in 1986 has been reduced to about 2.7 per cent in 1992. As I said, recent Exchequer returns indicate that the EBR for 1993 will be close to the budget target of 2.9 per cent of GNP. Against a difficult international economic background, this is a tremendous achievement.
Over the same period, sound management of the public finances has ensured a significant reduction in the burden of the national debt. This has fallen from 122 per cent of GNP in 1986 to about 104 per cent at the end of this year, after taking account of the once-off adjustment resulting from the realignment of the value of the IR£ within the EMS.
The burden of debt service costs has also fallen, from 11.2 per cent of GNP in 1986 to 8.9 per cent in 1992 and a further fall to 8.6 per cent of GNP is projected for this year. A reduction of 2.6 per cent of GNP is equivalent to an annual interest saving of more than £700 million at 1993 prices. This reduction in the burden of debt service has been facilitated by the strict controls on public expenditure and borrowing exercised by Government since 1987, and by measures to improve the management of the national debt.
It is essential that we maintain the momentum of recent years as regards the improvement of the public finances, so as to free up resources for the development of the economy and to facilitate the tax reform measures which will help to improve efficiency and create employment opportunities.
I commend the Bill to the House.
A Leas-Cheann Comhairle, I assume all Stages will be put by one question at 7 p.m.
That is correct.
We will be voting against this Bill as a gesture to outline our opposition to the trend of Government economic policy and its proven failure to deal with the economic and social issues facing the country. I welcome the opportunity to debate economic issues. The whole economic debate — whether it is the tax amnesty or the Book of Estimates — has been totally overshadowed by the important events relating to Northern Ireland. The necessary scrutiny has not taken place and I hope to address that.
In relation to the publication of the Book of Estimates last Thursday, the Minister for Finance gave the impression that his Estimates were tight, prudent and cautious. Here was the man with a steady hand on the tiller ensuring there was tight bookeeping. When we opened our newspapers we read——
There is a crisis in Europe, if the Deputy read yesterday's edition of the Financial Times.
——that the spending Ministers — Education and Health — said they had improved public services — increases in spending — and the Tánaiste said that the Book of Estimates will specifically deal with equality and disadvantage in our society with more spending on social services. How can one do this simultaneously? How can one spend more and at the same time spend less? When the figures are analysed a clever sleight-of-hand is exposed because the Government is not comparing like with like. Let us compare like with like. If we take the pre-budget Book of Estimates for 1993 and compare it with the identical document for 1994 we see that spending which was targeted to be £8.312 billion, actually ran out at £8.789 billion. If we compare like with like, the pre-budget Book of Estimates for 1993 and 1994, we see that spending has increased by 7.6 per cent. The fact is that spending has increased by £632 million.
The Book of Estimates is the first instalment on a three stage journey. On budget day another series of expenditure announcements are made involving social welfare and new schemes are announced. Throughout the year a raft of Supplementary Estimates are introduced which, this year, amounted to £241 million and last year amounted to £294 million. The Book of Estimates, which the Minister published last week, bears no relation to what will be spent in 1994. It is only the first instalment of what will be spent.
That is why it is called the abridged volume and that has been the case for the past six years. I do not want the Deputy to think he has found something.
It is abridged too far.
The level of expenditure and what is put forward in the Book of Estimates bear little relationship to each other. I would like to draw attention to some of the clever conjuring tricks that the Minister for Finance is particularly adept at. For example, if we look at some of the under provisions we see in the Department of Agriculture, Food and Forestry, Vote that £1 million has been provided for the Tribunal of Inquiry into the Beef Processing Industry. At a meeting of the Select Committee on Finance and General Affairs last week we had a discussion on legal fees and the consensus was that the minimum cost of the tribunal will be £10 million. It is up to Mr. Justice Hamilton to decide the question of costs but there is no way we will get away with £1 million.
Teilifís na Gaeilge has to be funded, but by whom? Paddy the taxpayer, as the Exchequer is going to take up this Bill. TV3 was not economic and neither will this venture be an economic proposition. If one looks at the TAM ratings and the advertising revenue from Irish programmes, we know it has no basis in economics. The taxpayer has only provided £3 million for the Department of Arts, Culture and the Gaeltacht. Will there be a levy on the video industry? I would deplore such a move.
We see further massaging of the figures. The Minister had a little nest egg in the Department of Agriculture, Food and Forestry because 1994 is a transition year for EC headage payments. Previously the headage money from the EC was always paid the following year — the 1992 allocation was paid in 1993 and so on. However, in 1994, the transition year, it will be paid concurrently and the allocation for two years is in the Agriculture Vote. This is, however, a once off measure.
On Vote 40, Department of Social Welfare, item C, there is a cut in non-contributory old age pensions of £7 million. I observe that the Minister has not provided any money for the indexation of social welfare. Are we going to have 2 per cent fewer old age pensioners? All the information tells us that people are living longer. How can this be explained? In the Vote for the Department of Health we see that the money provided to health boards for income maintenance schemes, that is disabled person's maintenance allowance, incapacitated person's allowance, blind welfare allowance and so on is being cut by £2 million. Are we going to have fewer non-contributory old age pensioners and fewer sick people? There is no explanation for this. I submit that these are deliberate under-provisions which will have to be rectified in Supplementary Estimates next year.
To the extent that the Minister has made hard decisions, the Estimates are clearly anti-employment. Where there have been real cuts, they went for the economic Departments, such as the Department of Enterprise and Employment which is down 19 per cent, the Department of Tourism and Trade which is down 26 per cent, and the Department of Forestry which is down 57 per cent. Science and technology, a vital area where we are under-spending in terms of the GNP ratio, is down 9 per cent. The summary table shows where the Government's priorities lie. We have heard all the rhetoric that every decision will be underlined by the pro-employment strategy, but the budget for economic services is down 18 per cent, whereas the totally unproductive social services which provide no return are up 4 per cent. We know where the Government's real priorities are.
Leaving aside all the machinations of moving the IDA from the Department of Enterprise and Employment to the Taoiseach — I see no reason that he should be responsible for enterprise development, but I am sure political factors underline that — its budget has been cut by 25 per cent or £30 million. It is quite clear that these Estimates are anti-employment. The Estimates do not deal with the Central Fund Account, the equity injection for Aer Lingus and the possible assistance for Irish Steel. I am not satisfied that in the preparation of the Estimates there has been any imaginative or creative thinking on value for money or trying to identify waste, duplication and inefficiency in the public service.
The Vote for the Office of the Comptroller and Auditor General is a very small allocation for the work of looking for value for money. He only looks at this in the context of the historic outturn to see if there has been fraud and whether the money has been spent in the way it was supposed to have been. He does not deal with the issue of whether it was supposed to have been. He does not deal with the issue of whether we are getting value for money for the total public expenditure of £10 billion. The Comptroller and Auditor General might do two VFMs in a year but that is wholly inadequate. We do not have a transparent procedure within Departments which shows they are trying to get value for money. We need to establish a new office similar to the Comptroller and Auditor General's Office, such as a public expenditure comptroller, to debate openly the question of value for money.
What are the consequences of a policy of high spending and high taxation for the poor taxpayer? We in Fine Gael believe that the best way to convert economic growth into employment is through the reform of the tax system. Our present layers of PAYE, PRSI and levies make payroll and PAYE costs too high. The difference between gross and net pay is too great. Each year there is pressure on employers to cut the payroll costs and shed jobs.
Not only do we have the well identified problem of the tax wedge but we also have poverty traps. As an ordinary constituency Deputy I find that people are coming to my clinic and saying that it would not pay them to work because of the loss of the medical card and the increase in rent. The take home pay from a job does not match the combined benefits from social welfare. This is utter insanity.
The Government has created poverty traps in which people are condemned to idleness and unemployment. That is the reason the Minister will have to change the tax system, particularly for the low paid. The child tax free allowance has to be restored. The more children one has the more social welfare one receives, whereas somebody with ten children has the same tax free allowance as someone with no children. That cannot be explained logically. It has created the biggest poverty trap. There is no recognition for spouses in the home and there is no proper recognition of adult dependants being cared for in the home.
The exemption limit for low paid workers is far too low. The fact that people earning £75 per week should have to start paying tax at 30p plus in the pound is wrong. A single person earning under £100 per week should not have to pay any tax nor should a married couple earning under £200 per week. In Britain they already have a graduated system of employers' costs which goes from 6.6 per cent upwards and the employer pays lower contributions for low paid workers. In their recent budget they have cut each rate by 1 per cent.
Here the difference between labour cost and take home pay in industrial sectors such as clothing and manufacturing has actually got worse and they have become less competitive. We have heard the rhetoric all throughout the year from both the Minister for Finance and the Minister for Enterprise and Employment on what would be done for that sector.
The Minister made great play in his speech about the fiscal factors being right and that is true. He kept within the 3 per cent range but we need to be honest about how this has been achieved. In the first instance the Minister was very lucky that the CSO told how it had made a mistake in GNP figures and they had to be hiked up. They did not do it once but twice. Obviously if the GNP is hiked up the statistics expressed as a percentage of GNP have to come down. The Minister has been well able to benefit from that.
The Deputy is forgetting what that does to other figures, including the calculations.
If GNP is larger——
The Deputy should look at the other consequences.
Let us look at it as a percentage of the EBR. Let us say that the EBR is £850 million. If the GNP is hiked up £400 million, the ratio will go down.
Some of the other costs would go down, another £100 million on European receipts.
Yes, I appreciate that. The point I am making is that the massaging of the figures has worked out very favourably.
The Minister for Finance is in the best position of any Minister in the past 20 years radically to reform the taxation system. The party has the largest majority in the Dáil and a full term ahead. We are experiencing historically low inflation and low international interest rates and we have never had a lower cost of servicing the national debt. All these factors are in the Minister's favour.
We have the famous amnesty. Today's edition of The Irish Times carries the headline “Revenue Challenges Tax Amnesty Entitlement”. It now appears that we have got into such a deep quagmire that the Revenue Commissioners are having to take people to court to ensure they do not avail of the amnesty. The case reported involves £1.5 million. It transpires that nobody knows who will benefit in relation to arrears. Apparently if on 25 May 1993 the case was at the enforcement stage one is not eligible. Does that mean one is ineligible if proceedings were initiated on that date, or when one got a summons or a letter? The Collector General's Office are advising people whether they are eligible, but the courts can turn around and say that the Revenue made a mistake. We do not know who is entitled to it. We have the farcical situation that non-compliant tax-payers, if they win a court case after 21 December 1993, can look for a refund and the compliant taxpayer is left standing there in horror. We will be returning to these issues.
The outcome this year, when one takes into account all the changes, is that the Minister was operating a high tax regime — the 1 per cent levy, the 21 per cent VAT on clothing and footwear and the probate tax. That is the hallmark of what the Minister did for the economy in 1993. That policy must be reversed if we are to encourage initiative and develop enterprise. The present high tax policies of the Government are detrimental to our economic and social needs.
I too welcome the opportunity to have this brief debate. Notwithstanding the momentous events of the week it is worth putting down some markers this side of Christmas in relation to the shape of the economy.
In considering the Appropriation Accounts which mop up the Estimates for 1993, including the Supplementary Estimates, we can see that even since the Book of Estimates was published, not the abridged version referred to earlier, there has been an increase of more than £220 million. A fifth of that is accounted for by extra money made available for public service pay and pensions brought forward to next year. This shows a tendency to manipulate cashflow to make the outturn for one year worse than it might be in terms of the underlying situation, making the opening position for the next year appear somewhat rosier than it ought to be.
In the course of the debate on the Committee Stage of the Finance Bill I objected to another piece of financial engineering. I do not suggest that the Minister has set out to grossly mislead, but the way we present our accounts needs a good deal of cleaning up. The Minister remarked in passing in public recently, on the idea of producing accounts on an accruals basis. We ought to move towards producing a Book of Estimates on that basis. They have managed to do so in the UK. That system avoids the necessity for people to run around trying to add up all the bits brought forward and deduct all the bits that go back somewhere else in order to find the underlying position. In terms of a straightforward transparent easy to understand system we ought to consider the production of some Book of Estimates on that basis, perhaps even starting with next year's budget.
The Minister made the case earlier in the year that he is losing VAT at the point of entry because of the Single Market. That is true but it counterbalances the gain one of his colleagues made ten years earlier on a once off basis. To cover up the once off loss in cashflow terms we introduced a rule to bring in £145 million by early payment of VAT which, because of a recent European court case, we had to change but which will still bring in between £90 million and £100 million. The improvement, in terms of the overall position, which that carries forward to this year, is an illusion, because in January the same 1,087 companies will get input credits and the £100 million will go back to them in effect, or at least they do not pay in the fresh £100 million that they might owe in January. We have written into law that money due in January must be paid in December every year, in other words encourage people to make early payments. It is all due to this non-sensical system of engineering the cashflow presentation of the books.
The Book of Estimates for 1994 boasted that net current overall spending would be up by less than 3 per cent and that that, broadly speaking, was in line with the rate of inflation. Creditable as that performance is, it is not the full story because the Minister already conceded in his speech that tax revenues in 1993, notwithstanding a few difficulties in regard to VAT, ran ahead of schedule. The result is that the Government was presented with the option of borrowing less than the £760 million they included in the budget. If we do better in income we have a number of options but it does not compel us to spend up to the limit. We have the option to borrow less or to retain the margin to manoeuvre it gives for tax reform in the following year.
The extra revenue, however, was not earmarked to reduce borrowing and, in any event, borrowing is nothing more than postponing tax. Nor indeed is it held over or earmarked for greater tax cuts in 1994. Instead, it was used to expedite payment of other things in the system. We get ahead of ourselves in tax receipts and, partly for the cashflow engineering and partly to do with this arithmetic I am describing, we decided to bring forward payments we owe in public sector pay from January to be paid in December. That will make 1993 look more expensive but it will improve the opening position in 1994. There are two illusions built into this, one being that if tax is ahead of schedule, we might as well use it and borrow up to the limit anyway and the other is that it allows us to do things much more easily than might have been the case. That camouflages the true position.
Taking one full year with another, and trying to avoid the fudge and the camouflage, I suggest that public sector pay and pensions in 1994 will be 7 per cent more than in 1993 if we compare the underlying position on a 12 month basis. That level of extra pay in the context of the rate of inflation is staggering when it is presented in plain form without end of year manipulation. I accept the Minister can explain the carryover from Programme and Economic and Social Progress and the Programme for National Recovery with which he had to catch up.
The Progressive Democrats has always held the view that PRSI is simply a payroll tax, another tax on work. If we counted that as an ordinary tax receipt instead of as an insurance receipt, we would see that the underlying position in the book of Estimates is not the Minister's 3 per cent but that it is nearer to 6 per cent. That is more than twice the likely rate of inflation for next year and is not quite as cherry and rosy an outcome as was presented last week in the Book of Estimates. We are entitled to include PRSI as another tax.
As long as we allow the room for manoeuvre in the economy — if tax revenue, for example, runs ahead of what was scheduled — to be whittled away by extra public spending, we condemn the taxpayer to a tax burden which is a huge disincentive and is anti-employment. That is the choice being clearly made in the presentation today of these Appropriation Accounts and was made last week in the Book of Estimates from this partnership Government.
The scope for dramatic tax changes which we need is already circumscribed for next year by the drift we have allowed this year notwithstanding the reports that there will be some room for manoeuvre. We have one of the worst tax wedges in the OECD. If we take labour intensive industry and the clothing sector here and compare like with like, we will see that there is a minimum wage in both Ireland and the UK. In the UK the minimum wage is lower than the Irish minimum wage but in Ireland the take home pay is lower than in the UK by a significant amount. That extra burden of taxation in a vulnerable labour intensive sector, where jobs are vital, is whittled away by the scale of the tax wedge. In turn, the tax wedge is whittled away by allowing an upward drift in spending fill the gap when tax runs ahead of schedule in receipt terms, as was the case this year.
The labour intensive argument does not apply only to the clothing industry. I spoke recently to a senior manager in the financial services sector here who talked about the comparative gross costs, including the tax wedge, of running offices here and in the UK. The same argument applies to the services sector where there is a high degree of labour intensity, a sector in which Ireland could develop a competitive edge. There will have to be a dramatic assault in next year's budget on the level of taxation as it affects labour intensive industry. In particular, I hope we will drop the myth that PRSI is an insurance fund, not a tax, that we cannot interfere with PRSI on the grounds that it is an insurance scheme when, in reality, one would only be manipulating a labour tax rate. We must break that psychology. My party and I have argued for some time that there is validity in regarding social security tax as simply another tax and it should be treated in that way in next year's budget. It should be reduced for the labour intensive industry, where it hurts most.
The Minister stated that economic growth in Ireland for the year is now expected to be the highest in the European Union and that over the last three years GDP growth here averaged almost 5 per cent per year. He went on to say that such growth compares well with the United States, the European Union and the United Kingdom and that our exports have continued to grow at a faster rate than our markets. He stated that a particularly positive feature of the last two years was the continued strong growth of industrial exports despite the international slow down. I accept that is what the figures show. However, there is a problem in that regard which the Minister dealt with later, but he did not take on board fully the consequences. He referred to "jobless growth" and stated that our growth is not entirely jobless. He said that by international standards we have managed to do reasonably well and that total employment in Ireland has been broadly unchanged while it has fallen by 0.25 per cent in the European Union as a whole. Total employment has remained unchanged, but we have had real growth of 5 per cent per annum in GDP for three successive years. That requires a fundamental explanation. The only person from an economic establishment who spelled it out with any clarity recently was Maurice Doyle in his famous speech for which he will be remembered for other reasons. Perhaps this is the reason for which it should be remembered most. Mr. Doyle said that, by way of any conventional measure, there was little evidence of a recession in Ireland. He is correct. He examined some of the alternative growth measures which should be considered because when the Minister, the Taoiseach or the European Union uses GDP figures they should carry a health warning. They are incorrect and give a false sense of reality in Ireland.
There are two economies here, one being the export-led multinational-led high performing sector. It is a Ben Johnson economy, pumped full of steroids in performance terms, it is an enhanced performer. It even wins gold medals occasionally although it is somewhat false. The rest of us live and work in the Community Games economy. We are producing Olympian results which we wear as badges of honour at international meetings when in fact it is far from the Olympics we were reared; rather we are living in the Community Games undergrowth. In terms of future planning for employment, we must find alternative measures to the GDP and GNP figures. They should not be dismissed and I do not propose we cook the books, but those figures do not work as an explanation. How could we achieve real growth of 5 per cent and end up with employment unchanged? The Minister quoted estimates of European growth as given by Mr. Delors at recent meetings but I am sure the Minister will agree that these are not very good. Jacques Delors is probably an agnostic about his growth plans if those growth figures are anything to go by.
Finally, to bring some sanity into the matter, I wish the Minister a Happy Christmas and hope he does not get up to the things Ministers and Governments frequently do when we are all away. I welcome the Minister's stance on public sector pay and on pay in general, but I hope he does not go soft on us over Christmas.
The other Opposition spokespersons devoted a considerable amount of time to talking about book keeping and the presentation of the annual Appropriation Bill. In the absence of any provision for an adjournment debate, which was previously provided for by the Whips, I would like to regard this mopping-up operation as some kind of a review of the performance of the Government in the economic area as it approaches the end of its first year in the Dáil.
As stated by Deputies Yates and Cox, much of 1993, especially the later half, was dominated by the affairs of Northern Ireland. I am sure nobody would dispute the urgency of the Northern Ireland position or that it merits a place at the very top of the Government's agenda. Neither, I am sure, would anybody deny the Taoiseach credit for the manner in which he concluded one stage of the negotiations yesterday nor begrudge him his day of glory. We must all hope that the document will receive the response it deserves.
However, there is a negative side effect of the political and media preoccupation with Northern Ireland, namely, that urgent economic problems have disappeared from the agenda. I hope there is an early political settlement to the problems in Northern Ireland, not only because the people there deserve peace, but because a settlement would refocus political and media attention on those economic problems which, in some respects, are wreaking almost as much havoc on communities in the Republic as paramilitary violence is on similar communities in Northern Ireland. Many people in my constituency who are facing the miserable prospect of yet another Christmas on the dole, who have seen their communities decimated by crime and vandalism, want to see peace in the North, but they also want to see an end to the economic violence inflicted on them by the neglect and inaction of this Government. If there is one feature of the first 12 months of this Government that has surprised me more than anything, it is the failure of the Labour Party to exert any influence in the key economic area.
When the Programme for Government was published last January Democratic Left remarked immediately that it largely reflected Fianna Fáil economic policy while the influence of Labour was strongest in the social or liberal content. Perhaps one should not have been surprised because the prize ministry of Finance was there for the taking at that time. In saying that I do not intend any disrespect to the present holder of that office. The Taoiseach would have bargained anything, except the Premiership, for a partner. The fact that the Labour Party demonstrated no interest in capturing the main economic portfolio demonstrates its lack of confidence in having any alternative economic strategy to that pursued by the present Minister for Finance or by Fianna Fáil in general. The cosy complacency that is so evident between the partners since then bears out the fact that the Labour Party is happy not to have to confront the economic problems but to tinker around at the edges of a social agenda which is important, but which the majority of that party's supporters take for granted.
Would the Deputy offer them an amnesty?
I would offer them more than an amnesty if the opportunity presented itself but this is unlikely in the short-term.
At the end of 1993, therefore, the economic dominance of Fianna Fáil is clearer than ever. I concede that the Labour Party has made some progress in securing useful reforms on the social agenda but when it comes to the key economic issues, poverty, unemployment and tax reform, not only does it appear to have no influence but it appears to have given up any hope of making an impact.
When in Opposition the Labour Party rightly harassed and harried the former Fianna Fáil-Progressive Democrat Government on its failure to deal with unemployment crisis. A recent edition of the priority it deserved. As Deputies will recall, in the middle of August last year the Tánaiste, Deputy Spring, called for the recall of the Dáil because of the unemployment crisis. A recent edition of the Sunday Business Post published an audit of the Government's performance in this area and commented as follows:
This is an issue on which the Labour Party won much electoral support in the 1992 General Election. There were 281,746 people out of work then. Now, the figure is 286,185.
The method of calculating the figures has been changed somewhat so the real figure is considerably higher. That is the net contribution of the Labour Party, which has its largest ever number of Ministers at the Cabinet table.
No one expected the Labour Party to wave a magic wand or achieve an instant miracle in seeking a solution or partial solution to the unemployment crisis but the source of sickening disappointment for those who voted for the party must be the failure of the party to ensure that this problem was given additional urgency. The sense of disappointment must be intensified by the knowledge that a Labour Party Minister has had his hand on the tiller at the Department most concerned with job creation strategies, the new Department of Enterprise and Employment. The prospect of changing a conservative Progressive Democrat Minister in this area caused bonfires to be lit in the strongholds of the Labour Party only a year ago, but now could anyone tell the difference? What has been the value of exchanging a Labour Minister for a conservative Minister in the new Administration.
Last year's Minister was progressive.
Has the Deputy read this week's edition of The Phoenix?
I have and it will make interesting reading in the context of the ethics Bill.
Justice in politics.
No, it is justice in economics — the amnesty Bill.
On the front page reference is made to a nice little earner which I am sure will come back to in the debate on the ethics Bill. I should not be diverted by such levity from making the point that the Minister for Enterprise and Employment, Deputy Quinn, in his 12 months in Cabinet cannot point to one single novel idea which has contributed to a reduction in dole queues. He has failed to take his courage in his hands in regard to the implementation of the Cullition report. Despite the rhetorical commitment to the Culliton report, all the Government has done is waste three valuable years, dedicated to a revamp of industrial strategy, by doing the opposite in most respects to what the report recommended.
There is chaos in regard to the industrial agencies. The Culliton report recommended that we put in place a streamlined industrial agency system but there is such chaos that all we have is uncertainty and paralysis. The IDA way is now rethinking its strategy. Presumably the new organisations will be vested by 1 January in order to put the memory behind them but it looks as if Forfás will become a think tank under the aegis of the Department. The chief executive who was appointed changed his mind and is now the chief executive of IDA Ireland. Last week we finally got around to appointing a chief executive for Forbairt. We now have a multiplicity of agencies and there is one more significant agency to come — An Bord Bia. Despite the explicit recommendation of the Culliton report that we should avoid fragmentation in regard to our export sales drive, because of competition within the Cabinet and the efforts of the farming lobby An Bord Bia is to be established.
The only proposal that has been implemented is the establishment of the county enterprise boards, admittedly on a less elaborate scale. This was a Fianna Fáil idea which the Minister, Deputy Quinn dismissed out of hand when in Opposition. He would have nothing to do with it. He has been hiding behind the soutane of Fr. Seán Healy and the CMRS. One is safe behind its clerical robes in the sense that one could promise the unemployed another scheme in respect of which the CMRS would be the intellectual driving force. Sadly, that is the net contribution of the Government at the end of the first year.
In his contribution Deputy Cox referred to a particular athlete — I cannot remember his name——
Ben Johnson.
He also referred to the dual economy and the inflated performance of the exports sector. The Deputy is right and the Minister's speech does not change this. There are two economies the first of which is the enclave — the multinational companies and its extraordinary performance — and the other the indigenous sector which is a different kettle of fish. At least one major report has been produced recently on the relationship between the growth rate and the number of jobs created. We made an order of the House to refer that report to the Select Committee on Enterprise and Economic Strategy but it has yet to come before it. If the Minister is serious about addressing this matter adequate time will have to be made available to debate that report. It continues to be a mystery that we have a healthy growth rate by comparison with the figures for the rest of the countries in the OECD and the European Union, yet the jobs are not being created.
I am delighted the Minister has confirmed that he has a large amount of money left for tax reform. We look forward to this with anticipation. In his speech he listed all of the measures which have been strikingly successful which leaves him in the happy position that he will have much money for tax reform in the budget at the end of January. If he follows the advice given to him by Deputies Yates and Cox on the question of public pay I look forward to the most radical and far-reaching package of tax reforms that has ever been introduced in this House in the hope that this will make a contribution to job creation.
I join with Deputy Cox in wishing the Minister yule-tide felicitations and promising that we will see him on budget day.
Since we started the debate the consumer price index for mid-November 1993 was released, about an hour ago. In the year to mid-November the index rose by 1.5 per cent. This is the lowest annual rate since 1960. We are going to come in again this year with the Exchequer borrowing requirement on target, the lowest inflation rate——
The Minister cooked the books and got more tax than he expected.
The Deputy would want to forget this year.
——holding employment growth. Clearly it is a recipe for an unhappy Christmas for some of the Opposition who seem very upset about it.
The underlying growth in public expenditure is now more dramatic and out of line than we thought.
I cannot accuse Deputy Cox of loving to cut expenditure at the Cabinet Table. His colleagues used to talk about it but one could never get them to agree to cut anything.
Always the bitter word.
There are no bitter words. The first thing a Minister has to listen to are appeals from pressure groups and lobbies to put up expenditure. I have yet to see a Minister who acted differently no matter what party he belongs to. If Deputy Rabbitte was in he would definitely have to put up expenditure because he has many suggestions to make.
I want to wish all the Members present in the House a happy Christmas and to thank them, particularly Deputies Yates, Cox and Rabbitte who spent many hours in this Chamber and on committees during the year, for their constructive but friendly opposition during 1993. I look forward to resuming with them again after a rest.
I am now required to put the following question in accordance with an Order of the Dáil of this day: "That the Bill is hereby read a Second Time, that sections 1, 2 and 3, the Schedule and the Title are hereby agreed to in Committee and the Bill is accordingly reported to the House without amendment, that Fourth Stage is hereby completed, and that the Bill is hereby passed."
Question put.
The Dáil divided: Tá, 61; Níl, 41.
Tá
- Ahern, Bertie.
- Ahern, Michael.
- Ahern, Noel.
- Aylward, Liam.
- Bell, Michael.
- Bree, Declan.
- Brennan, Séamus.
- Broughan, Tommy.
- Browne, John (Wexford).
- Burton, Joan.
- Callely, Ivor.
- Coughlan, Mary.
- Cowen, Brian.
- Dempsey, Noel.
- Doherty, Seán.
- Ellis, John.
- Ferris, Michael.
- Flood, Chris.
- Foley, Denis.
- Gallagher, Pat.
- Haughey, Seán.
- Hilliard, Colm M.
- Howlin, Brendan.
- Hughes, Séamus.
- Hyland, Liam.
- Jacob, Joe.
- Kavanagh, Liam.
- Kemmy, Jim.
- Kenneally, Brendan.
- Kirk, Séamus.
- Kitt, Michael P.
- McCreevy, Charlie.
- McDowell, Derek.
- Moffatt, Tom.
- Morley, P.J.
- Moynihan, Donal.
- Moynihan-Cronin, Breeda.
- Mulvihill, John.
- Nolan, M.J.
- Ó Cuív, Éamon.
- O'Dea, Willie.
- O'Donoghue, John.
- O'Keeffe, Batt.
- O'Leary, John.
- O'Shea, Brian.
- O'Sullivan, Toddy.
- Pattison, Séamus.
- Penrose, William.
- Power, Seán.
- Ryan, Eoin.
- Ryan, John.
- Ryan, Seán.
- Shortall, Róisín.
- Smith, Michael.
- Stagg, Emmet.
- Taylor, Mervyn.
- Treacy, Noel.
- Upton, Pat.
- Wallace, Dan.
- Walsh, Eamon.
- Woods, Michael.
Níl
- Ahearn, Theresa.
- Barrett, Seán.
- Boylan, Andrew.
- Bradford, Paul.
- Browne, John (Carlow-Kilkenny).
- Carey, Donal.
- Connaughton, Paul.
- Connor, John.
- Cox, Pat.
- Crawford, Seymour.
- Deasy, Austin.
- Deenihan, Jimmy.
- De Rossa, Proinsias.
- Dukes, Alan M.
- Durkan, Bernard J.
- Finucane, Michael.
- Fitzgerald, Frances.
- Flanagan, Charles.
- Gilmore, Eamon.
- Harney, Mary.
- Harte, Paddy.
- Hogan, Philip.
- Kenny, Enda.
- Keogh, Helen.
- Lowry, Michael.
- McCormack, Pádraic.
- McGahon, Brendan.
- McGinley, Dinny.
- McGrath, Paul.
- McManus, Liz.
- Mitchell, Jim.
- Molloy, Robert.
- Nealon, Ted.
- Noonan, Michael.
- (Limerick East).
- O'Donnell, Liz.
- O'Malley, Desmond J.
- Quill, Máirín.
- Rabbitte, Pat.
- Sheehan, P.J.
- Timmins, Godfrey.
- Yates, Ivan.
Tellers: Tá, Deputies Dempsey and Ferris; Níl, Deputies E. Kenny and Boylan.
Question declared carried.