Before calling on the Minister for Finance to make his Budget Statement I would like to inform Members that a copy of his speech is being made available to all Deputies following recent arrangements agreed between the Minister and the Committee on Procedure and Privileges. However, may I remind Members of the House that none of the confidential information which will be circulated——
Financial Resolutions, 1994. - Financial Statement, Budget 1994.
(Interruptions.)
This is a very important announcement and I ask for order. I must remind Members of the House that none of the confidential information which will be circulated in advance by the Minister to Members may be disclosed to anyone until the Minister has revealed it to the House. Premature disclosure of the information is considered a serious breach of privilege and Members should not take from the House any part of the Budget Statement before that part has been read out in the House. Therefore, and in accordance with the arrangements agreed by the Committee on Procedure and Privileges, I must request Deputies wishing to leave the Chamber before the Minister has concluded to relinquish their copies of the speech to the ushers on duty.
I now call on the Minister for Finance, Deputy Ahern, to make his Budget Statement.
Introduction
The budget forms part of a coherent medium term strategy designed to give a substantial impetus to sustainable employment in Ireland. That objective remains the Government's and my foremost concern. Real and lasting social progress depends ultimately on its achievement.
Budgets from year to year must complement each other, fitting within an overall framework to this end. This budget builds on the solid foundation for progress already put in place. It is a second major step in the implementation of the strategy for economic and employment growth which lies at the heart of the Programme for a Partnership Government.
The programme sets out the strategic framework for continuing and accelerating the positive performance on employment and living standards of recent years. We intend to keep to the key elements of that strategy as follows: we will keep the public finances on a sustainable course; we will maintain a stable exchange rate within the EMS; we will facilitate a moderate evolution of costs and incomes; we will develop the country's essential infrastructure further and we will make the broad array of public policies still more supportive of employment and investment.
The focus of the National Development Plan 1994-1999 is similarly on employment. Its central objective is to improve the capacity of the economy to grow through many years ahead, and thus to provide the basis for more and better jobs, and solid social progress, into the next century.
The Government's critical aim in the talks on a new agreement to follow the Programme for Economic and Social Progress has been to achieve an overall outcome which will further strengthen prospects for sustainable growth in employment in the years ahead. I am fully satisfied that the budget which I am introducing today is both consistent with and supportive of a satisfactory outcome.
Commentators sometimes focus on the particular taxation changes in individual budgets to the neglect of the ongoing direction of policy. Indeed, limited room for budgetary manoeuvre is the restraining factor on tax reform often ignored by interest groups. Nevertheless, a reform programme of income taxation entailing a broadening of the tax base in order to help improve the net income position of many taxpayers, has been in progress over some years now. By enhancing the take-home pay of workers, this has helped to reduce cost pressures, underpinning lower inflation and better competitiveness. At the same time, it has created a general climate more conducive to effort, enterprise and job-creation. The process is a continuing one. Today's budget will make further significant progress in the same direction, paying particular attention to the position of low and middle income groups, especially families.
Another key strand of taxation reform has been to effect changes in business taxation that stimulate genuine enterprise and promote employment. A major programme of reform of corporate taxation has recently been completed. As well as making possible a reduction in the standard corporation tax rate, this has generated substantial revenues both for income tax relief and a range of new targeted incentives. Last year's budget introduced a new seed capital scheme, enhanced the business expansion scheme, introduced attractive incentives for film production and brought in a new rollover relief for entrepreneurs setting up in a new business.
Supporting enterprise, in the interests of employment, is getting particular emphasis in this budget given that I have more scope this year than in the past few years. The fundamental purpose of these measures is to secure a greater pay-back in employment terms. Indeed, where I do not see a solid return of extra jobs I will not hesitate to abandon the incentive. Resources thus released may fund new measures calculated to achieve better employment results. I will expand further on the Government's strategic approach to taxation reform later.
As well as engaging in these tax reform measures, we have managed the public finances in a way which has been supportive of employment. Debt service preempts resources which could be put to much better use. I will illustrate what has been achieved by taking a simple example. If our national debt as a proportion of GNP were still at its peak level, the extra debt service involved would cost at least £11 per week per household. Having achieved so much by way of management of the Exchequer's finances, it is imperative that we maintain a steady course.
Over the six years of the Programme for National Recovery and Programme for Economic and Social Progress output growth was very strong, averaging about 5 per cent per year. During the Programme for National Recovery, non-agricultural employment rose by an estimated 42,000. During the Programme for Economic and Social Progress period when employment was falling in many of our trading partners as recession took hold, non-agricultural employment again rose very appreciably, by about 36,000. At 2.9 per cent per annum, the inflation rate over the past six years compared favourably with the best performers in Europe.
At the same time, growth in real take-home pay has been significant. Over the period of the Programme for National Recovery and the Programme for Economic and Social Progress real earnings rose by almost 9 per cent. When account is taken of tax changes real take-home pay for a married person on average industrial earnings rose by over 10 per cent. The equivalent increase for a single person was over 14 per cent. Tax changes thus made a significant contribution to the improvement in living standards for wage earners over the past six years.
Against this must be weighed the fact that unemployment, having fallen during most of the Programme for National Recovery period, rose again from the second half of 1990 until some months ago. Though it has stabilised to an extent recently, its present level is completely unacceptable. With an annual natural increase of 25,000 in our labour force we have a daunting task ahead of us. Nevertheless, the Labour Force Survey published this week points to an increase in employment of 7,000 in the 12 months to April 1993 which, in the circumstances internationally, was a very positive achievement.
Review of 1993 Budget Outturn
The Exchequer borrowing requirement — EBR — turned out at £690 million, or 2.5 per cent of estimated GNP. This was £76 million below the budget target despite accommodating several items not provided for in the budget — notably a £75 million equity issue to Aer Lingus and £70 million for the early payment of public service pay arrears. The current budget deficit at £379 million was £146 million below budget. Borrowing for capital purposes was £311 million which, reflecting the Aer Lingus payment, was £70 million above target.
The general Government deficits as defined for Maastricht purposes, is estimated to have been about 2.5 per cent of GDP compared to the budget target of 3.4 per cent. This confirms Ireland's fiscal performance as among the best in the European Union over recent years. The underlying discipline which lies at the heart of these statistics has served us well. It assisted in ensuring that stability and confidence quickly returned to the economy after the devaluation of the currency this time last year. There can be no better endorsement of our sound budgetary management than the response of financial markets in terms particularly in interest rates. Lower interest rates — which encourage investment and should ultimately result in increased output and employment — are a deserved return for the discipline we have shown in recent years. Of course, the translation to employment growth is the ultimate objective underlying all our budgetary measures.
The Economy in 1993
While not seeking to minimise the scale of the problem of unemployment, in many respects Ireland has turned in one of the best economic performances in the industrialised world in recent years. GDP growth here has been much stronger than in the European Union and the OECD, the United States or the United Kingdom. Last year our growth rate slowed down — as it did in almost every other country within the European Union. Once again, the international scene turned out to be less favourable than the international forecasting agencies had predicted. But, despite recession in Europe and the currency and interest rate difficulties at the beginning of the year, Ireland still had the fastest growth rate in the European Union; GDP is estimated to have increased by about 2.25 per cent while it fell by 0.5 per cent in the European Union as a whole.
High inflation is the enemy of the poor. In 1993, inflation averaged only 1.5 per cent, the lowest rate for more than 30 years. In part this was due to lower interest rates but lower inflation internationally was also important. Manufacturing output is estimated to have risen by close to 6 per cent. Our industrial exports continued to capture extra market share abroad. Both our trade and wider balance of international payments remained in substantial surplus. Non-agricultural employment income is estimated to have increased by about 6.75 per cent while agricultural income rose by over 8 per cent.
And, most encouraging of all, there was an increase of 7,000 in employment in the year to April 1993. We can take particular encouragement from this performance. Ireland was among the minority of European Union and OECD countries where employment rose last year. It is heartening to see our jobs policies in particular bear fruit, but more needs to be done. Our employment performance under the Programme for National Recovery and Programme for Economic and Social Progress has been creditable, but it needs to be significantly better.
Medium term Economic Objectives and Outlook
The economic assessment and forecasts on which this budget is based are set out in detail in The Economic Background to the Budget 1994 which is being circulated this afternoon with the other budget documents. Consequently I need only sketch the economic outlook in broad outline here.
According to IMF and OECD forecasts, growth in the OECD area this year is likely to be about twice as fast as last year — over 2 per cent compared with the scant 1 per cent achieved in 1993. The European Union will return to growth after the fall in GDP last year. The latest Commission forecasts are for growth of 1.25 per cent. More important from an Irish viewpoint, the outlook for the UK represents a considerable improvement over recent years and a major opportunity for our exporters.
But successes on the export front will not come automatically — they must be earned through improved competitiveness; our export success in adverse circumstances clearly shows what is possible if sensible policies are pursued. The new GATT agreement should allow a continued strong trading performance bolstered by improved access to overseas markets.
At home, domestic demand is likely to grow more rapidly as consumers respond fully to low interest rates. Investment will also benefit from lower interest rates and from the injection provided by the Structural Funds. While inflation will pick up somewhat from last year's 1.5 per cent it is expected to remain very moderate. Taking account of the measures I am proposing today, the average rise in the Consumer Price Index this year is unlikely to exceed 2.5 per cent. All in all, the outlook for 1994 is for a return to more vigorous economic growth with the volume of GDP increasing by around 4 per cent.
As regards exchange rate policy, 1993 saw the resolution of the currency crisis in so far as if affected the IR£ when the Government devalued its central rate within the ERM by 10 per cent. Later, market turbulence abroad forced a widening of the fluctuation bands of the ERM to 15 per cent. The IR£ has traded satisfactorily in the new environment supported by our strong performance on growth, inflation and fiscal policy.
A return to stronger output growth holds out the prospect of a marked improvement in employment this year. But stability in the numbers unemployed is not enough. The challenge before us in 1994 will be to achieve a better rate of conversion from stronger growth into more jobs. This must be at the top of the agenda of every interest group in our society.
Public Finances
I am confident that the trend decline in the debt/GNP ratio will be resumed in 1994. Indeed, it is central to our policy that this ratio should continue to reduce. Only by consistent downward pressure on the overhang of debt can we release the necessary resources to make desirable progress in other spheres of our national priorities.
The general Government deficit in Ireland has been one of the lowest in the European Union for some years now. I aim to ensure that the deficit in 1994 will similarly be set below the 3 per cent Maastricht level.
However, as I said, there is still the major problem of employment creation facing us. It would not, therefore, be sensible in our situation to pursue debt reduction to the exclusion of all other objectives. It is a means to an end, the aim being faster sustainable economic and employment growth. With this in mind and with a view to achieving the maximum effect on investment and employment, I am not prepared to force the 1994 Exchequer borrowing requirement down unduly as I wish to impart the maximum possible impetus to employment creation in 1994. At the same time, the EBR will be kept comfortably below 3 per cent of GNP, a ratio which has not been exceeded now since 1989, and one which will keep reducing our debt burden.
My medium term budgetary objective similarly is to keep the EBR within this range. Certain large once-off benefits in 1994 must not be allowed to cause a mismatch in the longer term balance of the public finances. With this in mind, most of the significant receipts from the tax amnesties will be used to meet certain old Exchequer liabilities. Similarly, I am making use of some of the carry over of savings on servicing the national debt to provide against interest payments accrued on small savings accounts managed by the National Treasury Management Agency. I will refer to these matters again later.
The budget, with its continued emphasis on keeping our economic and budgetary fundamentals on the right track, will also underpin our exchange rate and interest rate policies. The new environment for our exchange rate policy demands disciplined budgetary management. I am confident that today's budget will further convince the financial markets that the Irish economy and public finances continue to be prudently and sensibly managed.
National Economic and Social Forum
I am aware that the National Economic and Social Forum are undertaking a major examination of the whole question of long term unemployment, including the various non-market work initiatives. The Government recognises that the forum is uniquely placed to provide a new and fresh insight into this complex issue because of its wide ranging and comprehensive membership. We will take full cognisance of the forum's recommendations in the implementation of various initiatives on employment, to which I will refer later, and in the development of policy generally in this whole area.
Funds for Small Businesses.
Availability of adequate credit on reasonable terms is vital for the growth of business. There are repeated complaints about the lack of suitable credit facilities for small business in particular. The banks have operated schemes for some time which are tailored for small businesses and there has been considerable demand for funds under these schemes. I am continuing discussions with the banks about their contribution to the promotion of enterprise and particularly the credit terms — often seen as quite restrictive — on offer in support of new ventures. I am assured by the banks that, should funds under existing special schemes prove to be inadequate, they are ready to provide additional funds up to double the existing ceilings on their special schemes. This means in practice that the total amount of credit available from domestic sources on special terms will be in excess of £100 million.
European Union Subsidised Loans.
In addition, subsidised loans will also be available this year from European sources. Details have yet to be finalised, but the source will be a European Union loan fund to be established by the European Commission. This fund will be administered by the European Investment Bank for on-lending by the banks in the various member states. Further particulars about this facility will be available shortly. The rate of subsidy here is expected to be 2 per cent. Pending the introduction of this scheme, arrangements are being made with the ICC bank to provide loans on a subsidised basis for small businesses. Incidentally, the rate of subsidy will be 3 per cent. Details of this scheme will be announced later.
Credit and interest rate developments.
Irish interest rates are at their lowest level, with the exception of a brief period in 1977, since the early 1970s. Basis mortgage rates from building societies are at their lowest levels for at least a quarter of a century. These interest rate developments have reduced business costs and increased the competitiveness of Irish industry. The fall in mortgage rates is boosting consumer confidence. A 20-year mortgage of £40,000 now costs about £1,000 per year less than it did before the currency crisis. Clearly these developments should assist employment.
Structural and Cohesion Funds.
When account is taken of receipts in respect of previous years, total EU Structural and Cohesion Fund receipts for 1994 are estimated at £942 million. Of this, £145 million will be in respect of the Cohesion Fund and £570 million will come from the Structural Funds under the new Community Support Framework and new Community initiatives. The Community Support Framework is still being negotiated with the European Commission and will not be finalised for some weeks yet. Until it is, a definitive figure for total EU aid in 1994 is not available.
The European Commission has not yet finalised its package of Community initiatives. It is expected that it will be mid-year at the earliest before any programmes under Community initiatives are approved. It is not possible at this stage to say how expenditure or aid under Community initiatives will be allocated between Departments or other bodies. I am making a global provision of £20 million for Exchequer expenditure under Community initiative programmes. This will be allocated between Departments later in the year.
It is anticipated that total public expenditure, by the Exchequer, the European Union and Irish public bodies, related to the National Development Plan, will exceed £2 billion in 1994.
Opening Budget Position.
The opening current budget deficit based on the published 1994 Estimates of Receipts and Expenditure is £61 million after allowing for the deduction of £25 million for departmental balances. This is the position before taking account of the tax amnesty proceeds, to which I will refer later. The opening Exchequer borrowing requirement is £593 million.
EXPENDITURE
Public expenditure comprises services which are met from the Central Fund and the ordinary day-to-day expenditures voted by the Dáil for public services.
Central Fund Services and Debt Management
The 1994 estimate for Central Fund Services is £2,758 million, a decrease of 3.9 per cent on the 1993 outturn of £2,869 million. Debt service payments of £2,229 million account for 81 per cent of this figure and these are down by £161 million on the 1993 outturn. The decrease in debt service expenditure reflects in particular the benefits of the significant reductions in interest rates over the period since the resolution of the currency crisis.
The 1994 debt service estimate also includes £60 million towards the establishment of a reserve fund to meet higher than anticipated payments of interest accrued on savings certificates, savings bonds and national instalment savings. Analogous provisions will be necessary in future years.
Lower interest rates made a substantial contribution to the savings in debt service costs in 1993. A sum of £179 million of 1993 debt savings has been applied towards reducing debt service payments in 1994 and is reflected in the Central Fund Services estimate of £2,758 million published in the White Paper on Receipts and Expenditure. The 1994 estimate also reflects £100 million debt management savings to be achieved by the National Treasury Management Agency in the course of the current year. In the light of their record over the past three years I am confident that the agency will meet this target.
The other major item included in the Central Fund Services estimate is Ireland's contribution to the European Union budget. This will rise from £453 million in 1993 to £492 million in 1994. The increase partly offsets the reduction in debt service payments.
NON-CAPITAL SUPPLY SERVICES
1994 Supply Services Expenditure
Adjustments are now required to the White Paper on Receipts and Expenditure published last weekend, some of which arise from an assessment of the 1993 end-year figures. All of the adjustments are set out in the Principal Features of the 1994 Budget.
I will now mention some of the main features of the changes in the Government's expenditure provisions for 1994.
Public Service Pay
This year, the budget estimate for Exchequer pay and pensions is £4,278 million, an increase of £170 million or 4.1 per cent over the 1993 outturn. This sum covers the carryover cost of restoring the third phase increase of 3.75 per cent under the Programme for Economic and Social Progress which was paid with effect from 1 December last, the outstanding cost of restoring losses incurred by public servants due to the capping of the second and third general round increases under the Programme for Economic and Social Progress pay agreement and the effects on the pay bill of decisions affecting programme spending included in the Estimates and announced elsewhere in the Budget.
It is a source of great personal satisfaction to me that all Government commitments to pay increases to public servants under both the PNT and the Programme for Economic and Social Progress which had to be deferred for budgetary reasons are now being honoured in full.
The House will understand that, given the timing of negotiations on a new national programme to follow the Programme for Economic and Social Progress, I have not been able to make exact provision for pay increases for public servants in today's budget.
Full PRSI for Public Servants
Arising from the Understanding on Public Service Pay reached last year between the Government and the Irish Congress of Trade Unions, representatives of Government and Congress have engaged in detailed discussions on the extension of social insurance cover for public sector employees in modified PRSI classes.
These discussions covered all of the implications of a change in the PRSI status of the employees in question, including effects on occupational pension and sick pay entitlements, employees' take-home pay and employers' payroll costs, and the role of the Exchequer both as employer and as the residual financier of the Social Insurance Fund.
As a result of this comprehensive examination, and earlier consultations with the managements of affected State companies, the Government has concluded that the application of full PRSI cover to all serving staff in modified public sector employments would not be justified.
However, looking to the longer term, the Government is satisfied that there is a convincing case for the phasing-out of modified PRSI classes in the public sector. To that end, it has decided that modified PRSI cover will no longer apply to new public sector employees recruited on or after 6 April 1995.
The new recruits will have full PRSI cover, and their occupational sick pay and pension schemes will be amended to take account of their entitlement to the full range of social welfare benefits. Staff interests will be fully consulted as regards these amended conditions of employment, which will be in accordance with the arrangements applicable to other groups of public servants — comprising a large proportion of the public sector workforce — who already have Class A PRSI status.
Administrative Budgets
The first three-year cycle of delegated administrative budgets introduced in January 1991 for most Government Departments and Offices ended in 1993. This initiative is designed to bring about greater efficiency and economy in the running of Government Departments by allowing local management the flexibility to manager scarce resources more effectively. I am fully satisfied that this system encourages best management practice and has resulted in more effective control in the cost of administering Government services over the past three years. My Department is currently in the process of concluding agreements with Departments to cover the period 1994 to 1996. These will contain the principal features of the original agreements, one of which is the encouragement of medium to long term planning by allowing the carry-over of savings from one financial year to the next. There were savings of almost £8 million on administrative budgets in 1993. Accordingly, I am providing this amount for carry-over purposes in 1994.
The Management Services Unit of my Department will continue its efforts to secure efficiency and cost-effectiveness in the operations of Government Departments and Offices through the provision of expert advice and assistance in relation to management, organisation, systems and procedures. The Efficiency Audit Group, assisted by management consultants and the Management Services Unit, as appropriate, will also contribute to this effort by carrying out wide-ranging reviews of selected areas. In addition, renewed emphasis will be given to the need to improve the quality of delivery of services to the public.
Social Welfare
The Government remains committed to the further development of the social welfare system in an equitable and efficient manner. In particular, we remain committed to the protection and improvement of the position of the least advantaged in the community. The key social welfare priorities in this year's budget are: to maintain the purchasing power of those dependent on social welfare; to bring those payments which currently fall below the priority rate recommended by the Commission on Social Welfare up to that rate; to increase further short term social insurance payments by reallocating resources within the system; to give further assistance to families with dependent children and to provide for equality of treatment as between widows and widowers in the social insurance system.
I will now outline the social welfare measures.
Weekly Welfare Payments
I am providing for a 3 per cent increase, with effect from late July, in all weekly welfare payments including health allowances. This will more than maintain the value of these payments and protect them against inflation.
This increase will cost about £45 million this year and over £100 million in a full year.
Priority Rate
The Government has decided also to increase short term payment rates by an additional 3 per cent in order to bring them into line with the priority rate recommended by the Commission on Social Welfare. The priority rate has, of course, already been achieved in the case of all long term payment rates. This special measure will benefit those on disability benefit, unemployment benefit, short term unemployment assistance and supplementary welfare assistance. It will cost nearly £7 million this year and just over £15 million in a full year.
Further Increase in Disability and Unemployment Benefit
The Government has decided that there should be a reallocation of the overall resources provided within the social insurance system for short term illness or unemployment. Accordingly, with effect from April 1994, pay-related benefit with unemployment benefit will be discontinued for new claimants. However, by way of compensation, the ensuing savings will be directed towards the financing of a further special increase of 4 per cent in the basic personal disability and unemployment benefit rates. This further increase together with the general and priority rate increases will mean that disability and unemployment benefit recipients will see their rates of payment increase overall by £5.40 per week or nearly 10 per cent. This level of increase will bring disability and unemployment benefit rates into line with the long term unemployment assistance rate.
Expenditure on pay-related benefit with unemployment benefit amounts to about £20 million annually. Of those receiving unemployment benefit less than half receive pay-related benefit. The Government, therefore, considers that the restructuring that I have announced will ensure a more equitable and effective use of the resources allocated for the assistance of those on short term benefits.
The restructuring will give rise to a cost of about £3 million this year. Other improvements in the rules affecting unemployment benefit will cost an additional £1 million in 1994.
Taxation of Unemployment Benefit and Pay Related Benefit
The Finance Act, 1992 included a provision to enable specified social welfare benefits to be made reckonable for tax purposes. Disability benefit and injury benefit are already taxable. I now propose that from 6 April next unemployment benefit and pay related benefit will be reckonable for tax purposes. A draft commencement order to that effect will be laid before the House shortly. Initially the system of taxation will operate essentially through taking such payments into account in determining tax refunds which would otherwise arise. In the longer term the Department of Social Welfare will operate a PAYE system with tax, where appropriate, being deducted at source. Persons or couples whose sole income is unemployment benefit will not be affected. Whether a tax liability will actually arise in a particular case will depend on the amount of other income which the person or the person's spouse has in the tax year. The estimated yield from this change is £18 million in 1994 and £30 million in a full-year.
Child Benefit
In last year's budget, I provided for an increase of £4.20 per month in the rate of child benefit for the first, second and third child in all families. This brought the rate for each of the first three children in a family to £20 per month. The rate for the fourth and subsequent children was adjusted upwards to £23 per month.
In line with the Government's policy of assisting families with dependent children, I am providing for a £2 increase in the £23 per month rate, with effect from September next. I am also providing for this new higher rate to be extended to cover the third child in a family. As a result of these changes, the £20 rate introduced last year will apply to the first two children and the higher £25 rate to the third and subsequent children. This new payment structure amounts to a further significant improvement in child benefit.
The improvements will cost nearly £4.5 million this year and close to £13 million in a full year.
The views of the Expert Group on the Integration of the Tax and Social Welfare systems on the issue of child income support will be carefully examined by the Government when they become available.
Family Income Supplement
I am again making further improvements in the family income supplement this year. These are necessary to ensure that the scheme continues to operate as an effective measure in maintaining the incentive to work. Details of the improvements will be announced by the Minister for Social Welfare. The cost of the FIS improvements will be about £1.5 million this year and over £3 million in a full year.
Carers Allowance
The Government has agreed to give further recognition to the important role of carers by relaxing the rules affecting assessment of income. This will be particularly beneficial to carers whose spouse is in employment. Full details of this measure will be announced by the Minister for Social Welfare. It will cost about £1 million in 1994 and £1.5 million in a full year.
Provision of Contributory Pension to Widowers
The Government has been examining the question of contributory pensions for widowers.
Under present arrangements, a contributory pension is payable to widows only. Following examination of the matter, the Government has decided that, as and from October 1994, widowers should also qualify for a contributory pension. As part of this package which will cost £16 million in a full year, the Government has decided that a qualifying earnings limit should be introduced for all recipients of widow's or widower's pension after one year — that is, all widows and widowers will qualify for pensions for 12 months after widowhood without an earnings limit. Existing widows' pensions are not affected by this measure and special transitional provisions will apply to enable men who become widowers within one year of the introduction of the new measure to qualify for pension. Details of the changes and of the new earnings limits will be announced by the Minister for Social Welfare. By ensuring equality of treatment as between widows and widowers the reform marks a significant stage in the development of the social insurance system. It also confirms the Government's commitment to the achievement of greater equality throughout society. It will cost £3 million in 1994 and £16 million in a full year.
Free Schemes
I am also providing for an improvement in the conditions of entitlement to the free electricity and other allowances which are paid in addition to pensions in certain circumstances. At present when a pensioner dies the entitlement to the free schemes ceases. I am now providing that a widow who is aged 60 or over when her husband dies will retain the free schemes provided she continues to satisfy the other conditions of the schemes. The cost of this measure is £1.6 million in 1994 and £3.9 million in a full year.
It should be paid in full to those over 55 years.
On following a review of the lone parent's scheme, the Government has decided to relax the means test which is used to determine eligibility for the lone parent's allowance. This is intended to facilitate single parents who wish to take up employment and to encourage increased involvement in the workforce. The Minister for Social Welfare will be furnishing details of this measure. The additional expenditure will be £1.4 million is 1994 and £3.2 million in a full year.
Single People
I am providing also for an improvement in the minimum unemployment assistance payment made to single people living in the family home. This will be increased from £5 to £10 per week. The 1994 cost of this measure is £200,000 and £450,000 in 1995.
Grants to Voluntary Bodies
The 1994 published Estimates included under the Social Welfare Vote an amount of £4.73 million in respect of grants to voluntary and community organisations. These organisations are involved in work with the elderly, the disadvantaged, the disabled, the homeless and other special groups. The Government has decided that an additional £2.5 million for the support of these organisations should be allocated to the Department of Social Welfare in 1994. Details of the organisations to be assisted will be announced by the Minister for Social Welfare.
Total Cost of Social Welfare Package
The total cost of the improvements in social welfare is about £72 million in 1994 and about £155 million in a full year. Total spending on social welfare, taking account of the budget and the 1994 Estimates, will be of the order of £3.8 billion. This level of spending is very significant. It underlines the Government's caring philosophy and confirms its continuing commitment to the alleviation of distress and poverty in our society.
Employers' PRSI
I now turn to employers' PRSI. There has been much public discussion of the provision of PRSI relief for employers in certain sectors as a means of maintaining existing employment or creating new jobs. A detailed study of the impact of employers' PRSI on labour intensive sectors was undertaken by an interdepartmental group in 1993 and their report has been considered by the Government. That report concluded that a reduction in the overall burden of PRSI would assist employers in maintaining or creating employment. It also concluded that this objective could best be achieved through the operation of a differential employer-PRSI contribution rate structure.
I propose, therefore, to make a number of changes in the operation of the employers' PRSI system which will be applicable to employers in all sectors. The Minister for Social Welfare will be making the necessary provision for these changes in the Social Welfare Bill. From 6 April 1994 a reduced rate of 9 per cent will be levied on incomes up to £173 per week. Above £173 the normal rate of 12.2 per cent will apply on all income subject to a weekly ceiling of £496 equivalent to £25,800 per annum. The restructured system will operate on a weekly non-cumulative basis. The cost of this measure will be £28 million in 1994.
I expect that this measure should help with the competitiveness aspect of employers "PRSI which has been raised by employer groups and by the European Commission in its recent White Paper on "Growth, Competitiveness and Employment". Taken together with other measures which I will come to later, this step should help job maintenance and creation by reducing the tax wedge in certain areas and easing pressure on payroll costs.
The PRSI rates for employees and the self-employed will remain at current levels in 1994-95. The PRSI ceiling applicable to them will increase from £20,000 to £20,900. The Government remains committed to the maintenance of the contributory principle which underlies entitlement to social insurance benefits. These benefits provide cover for a wide range of contingencies, such as unemployment, sickness and old age, at a cost in excess of £1.7 billion in 1994.
Health
I propose to take a major step in the budget to reform the finances of the public health services and to put an end to a highly unsatisfactory situation which has developed in recent years. Every year from 1984 to 1992 budget overruns were incurred by health boards and hospitals. These overruns have been funded by bank overdrafts and by running up extended periods of trade credit with suppliers and family businesses. These liabilities have imposed a burden on trade creditors, many of them small family businesses, who have to wait long periods for payment, and on the health sector, through interest costs and higher prices for goods and services.
The Government has decided to allocate £100 million from the tax amnesty proceeds in order to restore the financial position of the health boards and hospitals. The particular arrangements for allocating funds to the health agencies will be put in place by the Department of Health. A provision of £10 million for running down their debts over time included in the pre-budget Health Estimate will not now be required. That Estimate will also be changed to reflect savings amounting to £5 million in 1994 through reductions in interest costs and through better on-time purchasing arrangements in the health agencies.
I cannot stress too strongly that this allocation of £100 million is once-off and will not be repeated. The Government is determined that the failure of the health boards and hospitals to stay within their budgets, which created the need for it, will not recur. The Government, and the taxpayer, are entitled to make this a binding condition in providing this very large allocation. The Government has therefore decided that legislation will be introduced to strengthen the procedures for financial control in the health agencies and to prevent the agencies from incurring continuing debt overruns in the future. This legislation will be brought before the House early in the year by my colleague the Minister for Health.
Waiting Lists
As the House will be aware, the Programme for a Partnership Government committed this Government to a major action programme on hospital waiting lists and, to this end, a special sum of £20 million was provided in the 1993 budget.
The main areas of hospital treatment targeted for special attention were those where long waiting times were causing the greatest hardship including hip replacements and eye surgery. The programme has been a particular success during 1993 and the target of 17,000 additional medical procedures has been met. In order to consolidate the position and to make further inroads into waiting lists in problem areas, I am allocating £10 million for a waiting lists initiative during 1994. The Minister for Health will outline the details of this expenditure.
Dublin Dental Hospital
I am also providing £1 million in 1994 to commence the refurbishment and extension of the Dublin Dental Hospital in Lincoln Place and Westland Row which will be completed over four years at an estimated total cost of £8 million. This allocation will ensure the future of the hospital as a first-class public dental facility availed of by thousands of citizens each year, many of whom would otherwise have difficulty in getting dental treatment. The hospital also provides essential clinical experience for dental students. This allocation is in line with the recommendations of a recent interdepartmental committee which reported to the Government in the matter.
Equality
In accordance with the commitment in the Programme for Government, I am providing £500,000 through the Department of the Environment towards pilot projects aimed at improving access for people with disabilities, especially those in wheelchairs, to public parks and other outdoor recreational facilities and amenities which lack such access at present. The allocation of funds to projects will be made on the basis of guidelines agreed between the Ministers for the Environment and for Equality and Law Reform. I am also providing £100,000 through the Department of Health to assist voluntary organisations to improve transport arrangements for people with disabilities, particularly for adapting vehicles to facilitate easier transport of people with disabilities to services and facilities. This expenditure will be planned jointly with the Department of Equality and Law Reform. Together with the £1.5 million already provided in 1994 for people with a physical handicap, this extra money will go some way to meet the special needs of this group. In addition, I am making a provision of £2 million for a pilot programme for the sheltered employment of people with disabilities in viable business projects. The programme will be undertaken by the Department of Health in consultation with the Rehabilitation Institute and other interested groups. Finally, I am providing £100,000 under the Education heading to allow in certain circumstances the employment of escorts on school buses for handicapped children.
Year of the Family — Marriage Counselling Services
This year has been designated as the International Year of the Family. In recognition of this, the Government has decided to establish an interdepartmental committee under the aegis of the Minister for Social Welfare to organise and coordinate a programme of events to mark the occasion. The interdepartmental committee will work jointly with the steering committee representing voluntary family organisations which was established in 1992 to undertake preparations for the year.
As part of the general focus on family life this year the Government also recognises the importance of encouraging stability in marriage and the prevention of marriage breakdown.
Members may not realise that the buzz of conversation is obviously making things difficult for the Member in possession——
It was all announced this morning on the radio.
Out of respect for the Member in possession I ask for quiet.
In this regard the Government wishes to acknowledge the valuable work carried out by voluntary and community groups involved in helping married couples who are experiencing difficulties in their relationships. Therefore, I am allocating today a total sum of £750,000 to provide through the Department of Equality and Law Reform an increased level of support in 1994 for marriage counselling services provided by voluntary and community organisations. These funds will also be used to assist the steering committee of voluntary family groups in their preparations to mark the International Year of the Family.
Education.
I am making provision for additional expenditure of £7 million in the education area. I am making £5 million available for the post-primary capital building programme. This will allow significant progress to be made on the programme bringing the 1994 allocation to £37 million compared with £26.5 million in 1993. I am allocating £2 million to allow for improvements in special education for handicapped children in line with the recommendations of the report of the Committee on Special Education.
Sport-Recreational Facilities.
The Government has decided to considerably expand the grants scheme for sport and recreational facilities in 1994 and I am today providing an additional £3 million for this purpose. The scheme will be operated under the aegis of the youth and sport section of the Department of Education. It will provide grants up to a maximum limit of £50,000 per project in the youth, sports and community areas. Further details of the new scheme will be announced in due course by the Minister of State at the Department of Education. Separately, I am arranging for the provision of £250,000 for a new premises for the Sheriff Street youth club and a provision of £330,000 for the relocation of the North Wall Women's Centre.
In whose constituency is that centre?
Where is the application form? Is it in the Department of Health?
The Minister to continue without interruption.
Gaeltacht.
Glacaimíd go léir le tábhacht na Gaeltachta, ár gcultúr, ár dteanga, ár gcluichí agus ár gcaitheamh aimsirí féin.
Ag tacaíocht le mo aidhm faoi an fhostaíocht, tá milliún púnt á chur ar fáil agam le haghaidh scéimeanna oibre agus feabhsúcháin sa Ghaeltácht.
Cumann Luthchleas Gael.
Chomh maith le sin, chun cabhrú le Cumann Luthchleas Gael san obair thábhachtach atá idir lámha acu i bPáirc an Chrócaigh — agus a dhéanfaidh dá chéad caoga postanna — táim chun £5 milliún a chur ar fáil.
Well done Danny Lynch.
Environment: Non-National Road Maintenance.
Non-national roads have a very important economic and social role in Ireland because of the dispersed nature of the population and for reasons associated with industrial development, agriculture, tourism and rural and urban development. Significant resources have been devoted to this area over the past number of years. In order to protect this recent investment and to improve the condition of older parts of the network I am providing an additional £15 million from proceeds of the tax amnesty towards maintenance of non-national roads. This will bring the 1994 provision to £28.3 million, an increase of 113 per cent over the 1993 allocation for this purpose.
Social Housing.
I have already provided increased resources for social housing this year. Social housing output increased significantly last year so that the housing needs of some 7,000 households were catered for. I anticipate that based on the present provision this number will increase to about 9,000 in 1994 when the full benefits of the increased investment in 1993 and 1994 come on stream. I am now providing a further £12 million for local authority housing in 1994. This level of expenditure on local authority and voluntary housing schemes, represents a further significant step in the Government's commitment to deal with local authority waiting lists and the provision of housing for those in need. Of the additional amount, £4.5 million will be provided from the proceeds of the tax amnesty in respect of such housing.
New Dublin Councils.
I would now like to refer briefly to local Government reorganisation in the Dublin area. As the House will be aware the Local Government (Dublin) Act, 1993 provides for the establishment of three new county councils — Fingal, South Dublin and Dún Laoghaire-Rathdown. The three new county councils came into existence on 1 January 1994 and this marks a quite historic change as these are the first new county councils established since the last century. The new arrangements will ensure more relevent and accessible local government in the Dublin area with a stronger focus on the needs of the areas served. In this connection I have sanctioned a general grant of £1 million by way of an increase in the rate support grant which will be distributed in 1994 among the three authorities by my colleague, the Minister for the Environment.
What about the rest of us?
Is that the same £1 million we got already?
This grant is intended as a contribution towards the additional and exceptional once-off costs associated with the start-up of the new councils.
Remedial works in local authority housing
The Programme for a Partnership Government contained a commitment to an accelerated programme of works to provide sanitary facilities in local authority houses where they are needed. The Government has therefore decided to make available an additional £1.5 million, making a total provision of £4 million in 1994 for the provision of bathrooms in local authority homes lacking such facilities. I consider that this represents a significant but very desirable acceleration in the level of activity in this area.
The Programme for a Partnership Government also contained a commitment to accelerate the remedial works programme under which major refurbishments are carried out to dwellings in rundown and older local authority housing estates. I am now providing an additional £2.5 million for the remedial works programme in 1994 thus bringing the Exchequer's contribution to the programme to £12.3 million. The total programme for 1994, including the local authorities' own resources, is now £20.7 million compared to £17.2 million in 1993. This will enable local authorities to speed up work on their existing projects and also allow the Minister for the Environment to designate a number of additional local authority estates for funding under the programme. I am also providing, on a once-off basis, £3 million towards the cost of replacing substandard windows in a number of large local authority flat complexes.
A window of opportunity.
Special Task Force for the Elderly
I have decided to double the provision for the Special Task Force for the Elderly this year. A total of £4 million will be provided towards the improvement of the housing conditions of elderly persons living alone in unfit or unsanitary conditions. I consider that this increase is a practical response to the need to improve the housing conditions of this vulnerable sector of our population. The cost of the additional provisions for the above remedial works for local authority housing will be met from proceeds of the tax amnesty.
Agriculture and Food
The recent reform of the Common Agricultural Policy, or CAP, and the GATT agreement put the agriculture and food sectors under pressure in certain respects. At the same time new opportunities are becoming available which must be grasped. In this context I am providing an additional sum of £5.5 million to Teagasc primarily for rationalisation and for enhancing their research and development capability.
Last year, I increased the level of funding towards Teagasc's small farm development programme to £2 million. This enabled the provision of advisory services to some 14,000 small farms during 1993. For 1994, I have once again provided £2 million for this programme in the Abridged Estimates.
In the new situation following the GATT agreement it will be increasingly important that Irish food products can be sold on competitive and demanding markets. In recent years there has been widespread concern throughout Europe about residues of illegal growth promoters in meat. Accordingly, I am providing £1.5 million for an extended pilot scheme of testing, using new technology, to ensure that Irish meat can be certified free of such residues.
Earlier this month, as part of the CAP reform package, the Minister for Agriculture, Food and Forestry launched a new early retirement scheme for farmers. A sum of £5 million has already been provided for this purpose. In view of the initial level of interest in the scheme, I am now providing an additional £2.5 million to ensure a high level of take-up in 1994.
A consequence of CAP reform was the increased volume and complexity of European Union schemes. Unfortunately this led to the late arrival of payments in many cases. In order to alleviate this problem and move towards a situation where farmers receive payments in a more timely and predictable way, I am providing additional resources for administration in the Department of Agriculture, Food and Forestry of £2 million, offset by European Union assistance of £1 million.
During the summer of 1993, exceptionally bad weather caused difficulties and losses to certain farmers in some eastern counties. I am providing £1 million to assist those horticulture and potato growers who suffered major or total crop losses and whose future viability is at stake.
It is easy to know there is none in Dublin Central.
An outline of this package will be announced by the Minister for Agriculture, Food and Forestry.
This year marks the 50th anniversary of the founding of Macra na Feirme. The contribution of that organisation to Irish agriculture and rural life is well known and needs no further comment from me. In recognition of that contribution, I am pleased to announce that I am providing an additional £50,000 to Macra in this its anniversary year.
Finally, in this section, I am providing £1.5 million for expenditure associated with the winding up of the Dublin and Cork district milk boards and the establishment of a new National Milk Agency.
Office of Public Works: Dublin Castle and Collins Barracks
As the House will know, Ireland will be hosting the European Union Presidency in the latter half of 1996. It will, therefore, be necessary to put in train arrangements to celebrate this most important event. In order to provide the necessary accommodation for meetings of an expanded European Union, I am making available £10 million for the continued refurbishment of Dublin Castle, mainly on the Ship Street buildings. Also, following a major feasibility study by the Office of Public Works on the future use of Collins Barracks, I am happy to make available a sum of £10 million towards the start-up cost of refurbishing the barracks for use by the National Museum. Full details of the plans will be announced shortly. Both of these projects will be funded from proceeds of the tax amnesty.
Communications
The Postal and Telecommunications Services Act, 1983 requires the Minister for Finance to contribute to the super-annuation benefits of Department of Post and Telegraphs' staff for service given before the establishment of both companies on the vesting day, 1 January 1984. The Act also requires the Minister to reimburse the companies for pensions paid to pre-vesting day pensioners. Over 30,000 staff and pensioners are involved. The accured liability of the Exchequer as at the last available accounts for the pension funds in question was £377 million. I intend using just over £70 million of the tax amnesty proceeds to reduce this debt in 1994 and am providing accordingly. Ongoing costs in respect of the liabilities involved will arise in future years.
The Marine
I am providing £3.5 million for ex gratia payments to former Irish Shipping workers who were made redundant by the collapse of Irish Shipping in 1984. The Minister for the Marine will shortly introduce legislation to authorise these payments.
Social Employment Scheme and Community Employment Development Programme
In the Estimates as published, significantly increased resources have been provided for the social employment scheme and the community employment development programme. The Government has now decided that more needs to be done in this area.
Community Employment Programme
The Minister for Enterprise and Employment will shortly be announcing a new programme, community employment, to replace the existing social employment scheme, community employment development programme and teamwork. The new programme will come into operation shortly and will apply nationwide. It will cost an additional £35.3 million in 1994 on top of the provisions already in the estimates for the existing schemes.
Community Employment will enable a greater number of unemployed people to undertake work of public or social value while at the same time providing them with work experience and development training, which will also enhance their prospects for re-integration into the open labour market. The additional money which I am now providing will enable participation on the new programme to grow to 30,000 by the end of 1994, an increase of 50 per cent on the number of participants on the existing schemes.
Views have been put forward by many individuals and groups on how best to deal with the problems of unemployment. The Conference of Major Religious Superiors (CMRS) in particular, have been prominent in the public debate on the issue and have put forward with their own proposals for providing work for unemployed people. I have decided, in agreement with the Minister for Enterprise and Employment that 1,000 places will be allocated, out of the total of 30,000 places, to a pilot programme based on the CMRS concept. The Department of Enterprise and Employment will be responsible for administering the programme. The CMRS, together with the Department of Enterprise and Employment, will design, implement, monitor and evaluate the programme.
The Government is satisfied that these new approaches will go a long way towards addressing the issues which have been raised. It is also satisfied that it will be seen as a welcome advance on existing arrangements.
The new programme is being finalised and consideration may be given to a real-location of resources with a view to increasing the numbers on the programme to 40,000. The views of the National Economic and Social Forum, which is at present considering the general issue of long term unemployment, will also be taken into account.
Youthreach
Youthreach offers young people who leave school at an early age, without any qualifications, an opportunity to obtain a basic vocational training and is currently run jointly by the Department of Education and FÁS. This scheme is a valuable means of equipping young adults with basic marketable skills and enhancing their job opportunities. Provision of £8.1 million is being made in the budget to enable the scheme to continue and expand the number of places by a further 1,000 in 1994.
Vocational Training Opportunities Scheme
The vocational training opportunities scheme which is administered by the Department of Education is designed to assist the long term unemployed to participate in mainstream educational programmes. In recognition of the value of the scheme, an extra 2,500 places will be offered to qualified applicants this year. I am providing for a gross cost of some £10 million for this purpose in 1994.
FÁS
An additional £10 million to that provided in the Estimates is being made available to FÁS in 1994 so as to enhance its general training activities. The above measures in the community employment and training area will cost a total of £63.4 million this year or £36 million after social welfare savings have been taken into account.
IDA Buildings
Having reviewed the IDA's building operations requirement for 1994 in the light of recent project approvals, I am satisfied that extra resources should be made available. Accordingly, I am providing an additional sum of £5 million under this heading to be funded from the proceeds of the tax amnesty.
Tourism
The Government's commitment to promoting Irish tourism is well-evidenced in the National Development Plan. Tourism in Ireland is a major economic growth area and the Government has as its aim the creation of some 35,000 jobs in this sector over the next six years. In order to ensure a successful beginning towards this plan I am making provision in this budget for an additional £5 million to be spent this year on a greatly expanded tourism promotion drive abroad. This special, once-off, marketing initiative will be under the direct control of the Minister for Tourism and Trade.
Arts Council
I am providing an additional £1 million this year for the Arts Council. This will mean that the target for expenditure by the Arts Council envisaged in the Programme for a Partnership Government will be surpassed.
Centenary of Irish Congress of Trade Unions
This is the centenary year of the Irish Congress of Trade Unions. Congress has planned a series of cultural, educational and other events to mark this important occasion in the history of Irish trade unionism. The theme for the year, "Working for Progress" is intended to convey the ongoing commitment of Congress to change and progress through consensus and partnership. I am providing today a sum of £100,000 to help defray some of the costs associated with the centenary celebrations.
Funds for other cultural and community bodies
I propose to provide funding for a number of cultural, community and certain bodies involved in North-South reconciliation. Thus I am providing funds for the restoration of Tailor's Hall in Dublin, for the Irish College in Paris, for the Irish School of Ecumenics and for the Glencree Centre for Peace and Reconciliation. Further details of these and the other bodies involved are set out in the principal features.
European Affairs
Ireland's membership of the European Union affects all aspects of Irish society and the Government is therefore concerned to ensure that the public are as well informed as possible about European Union affairs. I am accordingly providing today for an allocation of £100,000 to fund a new communications initiative in this area. More details on this initiative will be announced by the Taoiseach shortly.
Promotion of Ireland at World Cup
The Government is anxious that the exceptional opportunity presented by Ireland's forthcoming participation in the World Cup is availed of to promote a positive image of Ireland. Accordingly, I propose to make a sum of £150,000 available to support co-ordination of the World Cup related promotional strategies of the relevant State-sponsored bodies.
(Limerick East): The tickets will nearly cost that.
It will just about pay for the Ministers' tickets.
It will certainly not pay for the hotels.
Contribution towards State Security Services
The banks contributed £2 million in both 1992 and 1993 towards the costs of security services provided by the State, such as cash escorts by the Garda Síochána and the Defence Forces. I am arranging for a similar contribution in 1994.
Public Capital Programme
The total provision for capital investment purposes included in the 1994 Public Capital Programme is £2,287 million, up £156 million on last year. The Exchequer funded element of the 1994 Public Capital Programme at £1,149 million provides for an increase of £124 million over the 1993 outturn. The non-Exchequer funding provision for 1994 is £1,138 million, up £32 million on last year.
The very significant impact of the availability of increased levels of Structural Funds, since the implementation of the first Community Support Framework for Ireland was initiatied in 1989, has underpinned the growth in the Public Capital Programme in recent years.
Expenditure affecting the construction industry is estimated at £1,480 million, which is an increase of £124 million or over 9 per cent on the outturn for last year. Private sector investment in construction is responsive to the overall investment climate. The continuing growth of the economy, low interest rates and the National Development Plan should help to create the confidence necessary to ensure a recovery in private sector building activity.
TAXATION
I now come to the subject of taxation.
Tax Reform and Medium-term Taxation Strategy
Before presenting my taxation proposals for 1994, I want to set out the broad direction of the tax reform strategy which this Government intends to pursue over the next few years.
As I said at the outset, the overriding economic and social objective of this Government is to resolve, to the best of its ability, the critical unemployment situation. The three yardsticks against which a "pro-jobs" taxation policy must, in my view, be measured are those of assisting competitiveness, promoting the best economic use of our resources while favouring employment where possible, and being, in a broad sense, as employment-friendly as is practicable given that revenues must be raised.
These yardsticks have to be translated into a set of guiding principles for policy. As I see it these are to: keep the current level of taxation to the minimum consistent with prudent budgetary management; seek to redress the long-run tendency for "earned income" to contribute an increasing share of total revenues; focus the resources available for income tax relief on lower to middle incomes and, within that, to give a particular priority to lifting the threshold for the higher 48 per cent tax rate, the key marginal rate in the system; preserve, and build on, the considerable base-broadening achieved, across the whole taxation code, over recent years, as a means of financing income tax relief on a responsible and sustainable basis; confine tax preferences and incentives to areas where there is a clear economic or social justification, with particular emphasis on encouraging employment and further to ensure that, where special provisions are judged appropriate, the degree of subsidy involved is kept to reasonable proportions and continue pursuing simplication and streamlining of tax legislation and administration where this is consistent with maintaining effective collection systems.
It is important on this occasion to develop a few of these points somewhat. The overall level of tax is, I would emphasise, an issue much wider than taxation. It is for every society to strike its own balance between the extent of public services that it wishes to have and the revenue needs that this implies. It is not in any way to diminish the value of public services and programmes to acknowledge that the trend and level of taxation enter into the complex equation of economic and employment performance. It is also necessary to appreciate that these programmes not only form an important part of the framework of social cohesion but also, in many instances, contribute directly to economic growth and development. Having noted this aspect, I will focus my remarks on the issues within the tax area.
I would have to accept that our tax regime compares unfavourably, in terms of the usual international barometers, at the level of certain individual tax heads. It is indisputable that our income tax regime bears heavily on modest incomes. However, this is much more because tax, and the higher tax rate particularly, comes into play at relatively low thresholds, rather than on account of the rates as such; indeed, following the substantial progress made in recent years, these no longer stand out.
Our mainstream tax rates in other areas are relatively high on the international scale: the standard corporation tax rate is certainly not low and the main VAT rate exceeds the already high EU average, as do our excises. It is a fact however, that we have, more than most other countries, chosen to provide for exemptions, reliefs and preferential tax regimes. These greatly alleviate the impact of taxation in the affected area, but equally they mean that, where the tax code applies fully, it is necessarily more onerous. Moreover, in looking at both income tax and company taxes, it is necessary to take into account that our income support programmes are funded to a greater extent from general taxation than in many other European countries.
There would, I believe, be a wide measure of agreement that altering the balance of our taxation regime to rely less on impositions on earned income would be desirable and beneficial to enterprise and employment. The share of revenues deriving from taxation of earned income — a term which I would apply to all income from productive activity, whether by way of wage or salary, self-employment income or company profits — has increased substantially over the past two decades. Shifting the burden away from earned income and in the same vein, from the returns on business investments requires that other taxes contribute more to the funding of the Exchequer, though in some instances there are obvious limiting factors deriving from the openness of the economy.
We must continue to work systematically towards broadening the tax-base, not as an end in itself, but as the only feasible route in the short or medium term to a tax regime which is lighter in the overall. A great deal has been achieved in that regard over recent years, and it would be unwise to turn the clock back.
While I might differ with those who have objections of principle to tax incentives or special provisions, there is, nevertheless, a careful balance to be struck in that regard. Limited and well-focused tax incentives have a legitimate role to play, but we must be careful to avoid excessive and poorly targeted subsidies. These not only induce behaviour which is driven by tax provisions rather than business logic, but also invite abuses that generate costs without commensurate economic or social benefits.
We have achieved much over the past decade by way of simplification and streamlining of administration. I remain open to constructive suggestions in this area, but there can be no question of sacrificing an essential characteristic of a good tax system, namely that taxes due are collected. I need hardly point out that even-handedness in the enforcement of obligations is fundamental tax equity and public acceptability of taxation.
I said that I was especially concerned to make our tax system more employment-friendly. This consideration applies most forcefully to income taxation and the Government's priorities are framed in that light. However, there are wider areas to consider. In last year's budget, I took the strategic step of applying the reduced VAT rate across as many as possible of the broad range of labour-intensive services to encourage employment in these areas. In doing so, I availed in a major way of the flexibility afforded by the EU VAT Directive for the transitional period. It is this Government's intention to retain these services on the reduced rate in the medium term. Subject to budgetary considerations and parameters, it would be my intention to maintain the status quo similarly for the construction sector. Of course, we have to abide by the terms of the EU Directive in this regard. Having said that, I will be pressing in the Community's review of the VAT regime for the option to maintain the current position of labour-intensive services beyond the current transitional period.
It is obvious that substantial costs are involved in making any significant improvement in the mainstream income tax code. Clearly, if these are to be sustained they must be fully funded. It should also be clearly understood that even if the Government were to exploit to the fullest extent conceivable the possibilities for raising revenues elsewhere, the prospect of major income tax relief over the medium term depends critically on the prospective need for tax revenues overall.
If substantial improvements are to be made in income tax, some difficult taxation options have to be made and entertained. The main options for major revenue-raising, in the interest of relieving mainstream income tax, are well-known. I need hardly point out that there are unavoidable trade-offs to be faced in this context.
There can be the danger — if one loses sight of the reality that the same total revenue has to be raised at the end of the day — of arriving at an exaggerated view of what might be achieved in terms of addressing the tax-wedge to, inter alia, alleviate wage pressures. It must also be accepted that the consequences of taxation reform cannot be uniformly favourable. Reform in taxation must necessarily affect those who derived particular benefits from the status quo.
Looking out over the next few years, there is no basis for expecting any more than a normal progression of real tax revenues in line with domestic growth. A repetition of the surge of revenues from the corporate sector that was so valuable in recent years is not on the cards. This was the net result of wide-ranging reform of company taxation, even after lowering the standard rate. I would like to emphasise that the Government view the reform carried out during the past number of years in this area as a major improvement from an employment viewpoint, and has no intention of rowing back on it.
There has to be a concern, against the background of our pressing employment needs, that the favourable treatment of property in our tax code does not put investment in this area at an undue advantage over alternative possibilities for investment that would be supportive of long term employment creation. We also have to look at this position in terms of how it narrows the potential tax-base, thereby adding to tax pressures otherwise. Changes I will be announcing later reflect those concerns.
Looking at the indirect tax area, we have achieved a situation that, on a broad front, seems quite sustainable in the context of the Single Market. Yet there are prudent limits in terms of the impact on trade and inflation to how far we can avail of this area to pay for income tax reliefs.
As regards the area of income tax itself, there is scope in my view for a curtailment of some of the remaining discretionary reliefs in the code, and I will be pursuing this process today.
To conclude my remarks on the subject of tax reform, I want to reject the suggestion that this is an agenda yet to be addressed. Successive Governments, in recent years, have pursued policies designed to make the tax system simpler and less of a burden on enterprise and employment, in order to strengthen our economic performance. Some very significant improvements have been brought about across the tax system in that process. I am confident that these will bear fruit in time.
Nevertheless, I would have to caution against an exaggerated view of what tax reform on its own can achieve in resolving our economic problems. It must be appreciated that, however influential taxation may be, there are definite limits to what reshaping the tax system can do. Tax reform does not provide a panacea for economic problems — no more than tax incentives could ever live up to the wild claims often made for them. They can, at best, be only a part of a wider response to the employment challenge. But this is still sufficient reason to justify continuing progress along the road of reform.
Tax Amnesties
As already mentioned, I have applied the proceeds of the tax amnesties to restructuring the finances of the health boards, to meeting part of the accrued liability of the Exchequer in respect of the pre-vesting day pensions liabilities of An Post and Telecom Éireann, and to some once-off items of expenditure amounting in total to about £49 million to which I have already referred.
I consider it appropriate and correct that "old" liabilities of the Exchequer in particular should be charged against the proceeds of the amnesties which are in effect old credits due to the Exchequer. Further, given their once-off nature, it would be quite inappropriate to apply such receipts either to underpin continuing Government expenditure or to tax reliefs that would affect future revenues.
I am pleased with the outcome of both amnesties and wish to reiterate the clear message conveyed during the passage of the legislation. The Revenue Commissioners have considerable enforcement powers which will now be used to full effect.
Personal Income Tax
Income Levy
The circumstances which obtained at the time of last year's budget forced the Government to introduce a temporary income levy. I stressed at the time I announced the levy that it would be a temporary measure. I did not up to recently anticipate that the total abolition of the levy would be feasible in this budget. The improvement in the budgetary situation since late 1993 has given me sufficient resources to do so and I am pleased to say that I can now affirm the levy will be abolished this year. This measure will cost £83 million in 1994 and £135 million in a full year.
Health and Employment and Training Levies
As part of the Government's concern to improve the position of low income earners, I am introducing an exemption from both the 1.25 per cent health levy and the 1 per cent employment and training levy for those in receipt of incomes not greater than £9,000 a year for the self-employed, and £173 per week for employees. Moreover, in order to reduce employment costs for lower paid jobs, I propose to accept the recommendation of the expert working group on the integration of the tax and social welfare systems and remove the obligation on employers to pay these levies in respect of employees with medical cards. The overall cost of these measures is £25.6 million in 1994 and £43 million in a full year.
Allowances and other aspects
In line with the Government's stated priorities on income tax, I am proposing the following measures today: the personal allowance is being increased by £350 for a married couple and £175 for a single person, with comparable increases in the widowed, single parent and widowed parent allowances — this is the largest single increase in the personal allowances since 1984 when the standard rate was 35 per cent and the top rate was 65 per cent and the standard rate tax band is being extended substantially from £15,350 to £16,400 for a married couple and from £7,675 to £8,200 for a single person.
Together with the improvement in personal allowances, this means that the thresholds for the higher tax rate in the case of most employees will be increased to £22,186 if married and £11,636 if single.
The child addition to the exemption thresholds is being increased by £100 per child for all children. This means that, in future, the addition will be £450 each for the first and second child and £650 each for the third and subsequent children. The marginal relief rate of taxation, which is the effective marginal tax rate for many lower-paid people, is being reduced by 8 percentage points, from 48 per cent to 40 per cent.
Taken together, these last two changes will be very beneficial to those on relatively low incomes; this will considerably alleviate the poverty trap and improve the incentive to work.
I am also renewing the PRSI allowance for a further year, at a 1994 cost of £37 million.
Details of the mainstream income tax changes, and their benefit to different income categories, are contained in the Principal Features of the Budget.
PAYE Allowance
Up to now, the PAYE allowance has not been available to the children of proprietary directors and the self-employed. The Government has reviewed this position and has decided to make the PAYE allowance available to children of proprietary directors and the self-employed, including farmers, who are full-time employees in their parents' business. Legislation to give effect to this decision, and to ensure that only those in genuine employments qualify, will be included in the Finance Bill.
Preferential Loans
The current specified interest rates used to determine the benefit-in-kind charge for preferential loans made to employees by their employers were set in the Finance Act, 1992, by reference to then prevailing commercial rates. At that time I stated that I would review the level of the specified interest rates each year before the budget, to see if a change is warranted having regard to developments in commercial interest rates. Rates were reviewed in the 1993 budget but I decided, in view of the exceptional circumstances then prevailing, not to increase the specified rate to commercial levels. Since then commercial interest rates have dropped considerably. I propose to reduce the specified rates from 11 per cent to 7.5 per cent in the case of mortgage loans, and from 15 per cent to 11.5 per cent in the case of other loans. These changes will cost £0.9 million in 1994 and £1.5 million in a full year.
Discretionary income tax reliefs
I will now turn to the question of discretionary tax reliefs. At present, the value to individual taxpayers of the tax reliefs to which they are entitled depends on their marginal rate of tax and the degree to which their income is exposed to that rate of tax. For example, the value of a £1,000 tax relief to an individual with an income of £50,000 is £480 and the value of the same relief to an individual on £10,000 is £270.
The Government has decided that, in future, the tax relief in respect of mortgage interest and health insurance premiums should be given at the standard rate in all cases. However, in order to mitigate the impact on the affected taxpayers, this change will be phased-in over a period of years.
In arriving at this decision, the Government has been swayed by the following general arguments: that all taxpayers should be on an equal footing. Irrespective of income, as regards the extent of support given through the tax system for these purposes and that, in the context of our strategy of improving mainstream income tax, the funds raised through curtailing selective reliefs and allowances have an important role to play.
There has indeed been no more consistent or repeated recommendation from every expert group that has looked at our tax system — including the Commission on Taxation, the European Commission, the IMF, the OECD, the Culliton group and, of course, the NESC — than that these discretionary reliefs should be sharply curtailed.
That will go down well in Templeogue.
As regards mortgage interest relief, we have also had to recognise the argument that conferring significant advantages on housing investment, through extensive interest relief in the absence of a general tax on residential property, is not consistent with encouraging a greater flow of savings into industry and business generally. Though other countries give similar relief, it is as a rule associated with broadly-based taxation on owner-occupiers. From that standpoint, there is a clear case for putting mortgage interest relief on this more equitable basis. Indeed, I recall that this was a positive recommendation in the recent NESC report.
Standard-rating when fully implemented will yield in a full-year some £80 million, or some £66 million more than in 1994-95. Subject to overall budgetary parameters, my priority is to widen the standard rate band, in order to increase on a broad front the threshold for the higher tax rate. The budget makes a very substantial improvement in this aspect of the income tax system, and by way of illustration, if the additional amount of funds above were applied wholly to the standard rate band, this would finance a further increase of over £1,000 for a married couple.
Mortgage Interest Relief
The estimated cost of mortgage interest relief in 1994-95, on the basis of the increased ceiling introduced last year and the restriction of allowable interest to 80 per cent already in legislation, is about £150 million. This cost has been significantly reduced by the sharp fall in interest rates, which of course, has also been of major benefit to borrowers.
I propose to phase in the change in this instance so that full standard-rating will not apply until the 1997-98 tax year. This measure will only affect those taxpayers who currently claim interest relief at the 48 per cent rate. For married couples with a mortgage of £20,000 the maximum loss will be £57 in the coming tax-year, rising to £227 three years later.
(Interruptions.)
A prime reason for the existence of mortgage interest relief is to assist people to buy their own first home. In this context, for first time buyers, I propose to add a further two years in which interest will be allowed at 100 per cent to the three years at 100 per cent which I announced last year and, in addition, with effect from the coming tax year, they will not be subject to the de minimis threshold of £100-£200 for the first five years of their claim.
A suspended sentence.
This means that people who start to claim mortgage interest relief from 6 April next will benefit from these measures for five tax years. This special arrangement will also be of some benefit to people whose first mortgage relief claim was as long ago as the 1990-91 tax year. They will be entitled to 100 per cent relief for the coming year. This special arrangement is, of course, subject to the standard-rating provisions which I have just outlined.
A sting in the tail.
VHI Relief
The estimated cost of VHI relief in 1994-95 is £70 million. I propose to phase standard-rating in this instance such that it will become fully effective in 1996-97. VHI relief is available on a previous year basis and there will be no impact on taxpayers in 1994-95. The impact of this restriction will, of course, only be on higher rate taxpayers. For a typical married couple with two children on Plan B cover the cost will be £62 in 1995-96 and £124 in 1996-97.
Medical Expenses Relief
The Government has also reviewed the relief which is available in respect of unreimbursed medical expenses and concluded that standard-rating would not be appropriate in this case given the unpredictable nature of the expenditure covered by the relief. However, in view of the fact that the threshold in excess of which this relief may be claimed has remained unchanged since 1967, when it was set at £50 for an individual and £100 for a family, I propose to raise it to £150 for an individual and £300 for a family in respect of expenditure incurred in the coming tax year, 1994-95.
We will not be able to afford to get sick.
Covenants
On the question of tax treatment of covenants, the amount of which is deductible at the taxpayer's marginal rate, obviously arises in the context of standard-rating of discretionary reliefs. The Government has decided to defer making a decision in this instance pending consideration in the context of the wider issue of third level student support.
Residential Property Tax
Residential Property Tax is payable at present in respect of houses exceeding £91,000 in value, where the household income exceeds £28,100. I propose to reduce the market value threshold to £75,000 and to reduce the income threshold to £25,000.
That is £750 a year in rates.
It is outrageous.
Does the Minister want to put them all on the housing list?
The Minister to continue without interruption.
In the interests of equity in the incidence of the tax, I propose to replace the current tax rate with two new rates of 1 per cent and 2 per cent. Houses valued between £75,000 and £100,000 will be taxed at 1 per cent on the value in excess of £75,000. Houses valued in excess of £100,000 will be taxed at 1 per cent on the value between £75,000 and £100,000 and at 2 per cent on the value in excess of £100,000. I propose also to introduce, in the interests of simplifying the tax, a value banding system for houses valued at up to £100,000. The extra yield will be £5 million in 1994.
Overall effect of Income Tax measures
This budget gives major relief in income taxation to the general body of taxpayers. The package of mainstream reliefs I have announced will cost £198 million in 1994 and £333 million in 1994-95. Even after allowing for the full eventual contribution from standard-rating, there will still be very substantial income tax relief.
In line with this Government's priorities the improvements have focused in particular on the lower-paid. The reduction in the marginal relief rate, with the increase in child additions, will be of considerable benefit to lower-paid taxpayers, especially those with larger families. On foot of the improvements in this area, some 38,000 taxpayers will either benefit from marginal relief or be fully exempted; moreover, the remainder of the 111,000 taxpayers currently on marginal relief will see their income tax rate reduced by 8 percentage points. The new income thresholds for the remaining levies will also be of major benefit to people on low-incomes.
Probate Tax
The probate tax was introduced last year to broaden the inheritance tax base by applying a modest charge of 2 per cent on the majority of estates passing on inheritance. The probate tax does not apply to joint property, pension benefits or, in the case of surviving spouses, to the family home. These reliefs are intended mainly for spouses. Nevertheless, I am conscious that, in particular situations, the probate tax can impose a burden on the surviving spouse. Accordingly, I am proposing to fully exempt spouses from the probate tax. This is estimated to cost about £3 million in a full year.
I am also proposing to provide for a 30 per cent reduction in the market value of agricultural land and buildings for probate tax purposes, in recognition of the high market value of land vis-à-vis its economic return. This relief will cost about £1 million in a full year.
As the tax has only been in operation since 18 June 1993. I propose, for reasons of equity, to make the exemption for spouses and the relief for farmers retropective to this date. Those qualifying for these reliefs who have already paid probate tax will thus be eligible for an appropriate refund of tax. This will involve an estimated once-off cost of £1 million, bringing the overall cost of the reliefs in 1994 to about £5 million.
Residence for Tax Purposes
In the Dáil last year I promised a review for the 1994 Finance Bill of the detailed arrangements governing the question of residence for tax purposes. The Revenue Commissioners have in fact already initiated such a review. The current rules on residence are quite complex and there is a case for clarifying and simplifying them to ensure that the legislation provides certainty. As part of this review, discussions will be held with the appropriate taxation and accountancy bodies about the various technical aspects.
Tax measures to assist business and employment
This year I have decided to group together for the first time tax measures which are aimed at helping business to boost employment. The measures I am about to announce span all the tax areas and are directed at helping business. I did not have scope to introduce such measures in other years but I am prepared to do so now since I have room for manoeuvre. As I indicated earlier, I will keep all such business measures of this and previous budgets under review to assess their performance in employment terms. Regardless of the boost to profitability these measures entail, if they do not deliver on jobs I will not hesitate to terminate them and examine the scope for alternative, more effective measures on employment.
BES
In last year's Finance Act, as part of a package of measures aimed at encouraging enterprise, I removed the restriction which prevented owners of companies worth up to £150,000 from benefiting from the BES relief in respect of their own investments in their own company.
In the light of experience with the BES since then and to give a further boost to entrepreneurship I propose to raise the company value limit in this respect under the BES to £250,000. In this context, I would like to emphasise the Government's commitment to the primary aim of the BES which is to encourage outside investment in those companies which have both difficulty in securing investment from other sources and the potential to create additional employment.
Urban Renewal Scheme
The present urban renewal scheme has been in existence since October 1985. It has been very successful in stimulating construction activity and revitalising various run-down areas in the designated cities and towns. It is due to terminate on 31 July next. The Government has decided to replace it with a more targeted scheme, which will commence on 1 August 1994. In response to the view that the existing designated areas in the five county boroughs are too large, a more focused approach will apply to existing areas and some new towns.
This new scheme will contain two new features which will be of particular assistance to balanced urban renewal. First, in order to promote employment in inner city areas, there will be accelerated capital allowances for industrial buildings, which will be at 50 per cent for owner occupiers and 25 per cent in the case of lessors. Second, the existing residential owner-occupier allowance for construction expenditure will be doubled in the case of refurbishment work.
In the case of commercial buildings, the maximum capital allowance will be 50 per cent which is the rate at present applying generally in Dublin. However, in view of the over-capacity in the office market, there will be no capital allowances for office development except where it is ancillary to other developments. Rates relief will also be available on a sliding scale for the first ten years. As regards the other features of the scheme, the double rent allowance and the section 23 allowance for rented residential accommodation will be continued.
Further details of the new scheme and of the cities and towns in which it will apply are contained in the principal features, along with details of the transitional arrangements that will apply in respect of developments currently in progress under the existing scheme. In regard to the latter, where developments meet the relevant conditions before today, the closing date for qualifying expenditure under the existing scheme is being extended from 31 July to 31 December 1994.
Finally, there is to be a new pilot initiative aimed at encouraging people to live in the upper floors of business premises which are at present vacant in the centre-city areas of the five county boroughs. It is the Government's aim to make these areas real living centres. A maximum of three suitable streets in each of the county boroughs will be designated for this initiative which will commence on 1 August next.
Under this initiative the urban renewal residential incentives will apply in the case of refurbishment work carried out in the floors over the business premises subject to all the necessary criteria being met. In addition, the capital allowances for refurbishment and the associated rates remission can be availed of for the business premises itself if the building has qualified for either of the residential incentives.
International Financial Services Centre
I now wish to say a few words about the International Financial Services Centre which is almost seven years old. The centre is important because of its contribution to the Irish economy generally and to employment creation in particular. It is a flagship project which is a showcase of what is best in Ireland in terms of expertise of the workforce, quality of telecommunications and support services available. The Government recognises these positive aspects and is committed to its continued development and success.
New job commitments associated with the current 220 active projects amount to around 2,800, with over 1,400 of those now in place. In addition, IFSC companies have also contributed substantial employment in the accounting, legal and general services sectors in the Dublin area. The Exchequer has also benefited from sizeable payments of corporation tax from IFSC companies.
This year is an important one for the IFSC. Under the existing approval arrangements set by the European Commission, new entrants to the centre can be approved up to the end of this year. It is important, therefore, to attract as many new entrants as possible before this deadline. A number of legislative changes will be introduced very shortly to facilitate the continued development of the centre. These will include legislation for the regulation of foreign trusts, closed-ended investment companies and investment limited partnerships. The Finance Bill will contain necessary tax provisions including provisions of a technical nature which will be helpful to the development of the IFSC.
A new futures and options exchange is due to commence operations in the IFSC in 1994 which will add to the range of services at the centre. Also, other new areas of activities which are appropriate to the IFSC will be targeted by the IDA as part of an accelerated marketing effort which includes participation by the private sector.
This year will also be important for the physical development of the Custom House Docks area. Space in all the existing buildings has largely been taken up at this stage. I understand that most of the space in the next office building is committed and I expect its construction to commence early this year. This, with the commencement soon of work on the significant residential apartment complex and the leisure development, will mark the start of the next phase of the development of the area and give rise to many jobs during the construction phase. It is with confidence, therefore, that I look to the future of the IFSC.
Euro Bearer Bonds
With a view to improving the operation of the financial markets, I propose to review the taxation code as it relates to Euro bearer bonds. The measures I am considering for the Finance Bill would have the important additional benefit of facilitating the retention in Ireland of the employment associated with the issue of these bonds.
Capital Taxes
In response to the case that can be made that the capital tax code should give more encouragement to the development of enterprise and business, I have decided to make a number of changes in both capital acquisitions tax and capital gains tax.
Capital Acquisitions Tax
In the case of capital acquisitions tax, I am introducing a new relief for business. This new relief will involve a reduction in the market value of business assets used in or deriving their value from trading activities, subject to the interest in the business held by the beneficiary after the gift or inheritance being a minimum of 25 per cent, The relief will be at a rate of 50 per cent for the first £250,000 of qualifying assets and 25 per cent for the remainder. This relief will be of particular benefit to family business.
As a consequence of this new relief, I am making certain improvements in the relief for agricultural assets. In the case of land and buildings, the relief will be at a rate of 80 per cent for the first £300,000 and 30 per cent on the balance in the case of gifts, while for inheritances the relief will be at a rate of 65 per cent for the first £300,000 and 30 per cent for the balance. Relief will also be extended to livestock, machinery and other agricultural assets; in such cases the relief will be at a flat rate of 25 per cent for both gifts and inheritances.
These changes will greatly improve the tax environment for transfers of business and farms, and encourage the transfer of assets to the younger generation.
The existing relief where elderly brothers and sisters share the family home will be increased from 50 per cent to 60 per cent of the value of the house subject to a ceiling of £60,000.
It is estimated that these various relieving changes will cost about £4 million in a full year and in order to recoup some of this cost it will be necessary to obtain extra revenue from other changes within the capital taxes area. Having considered various options, I consider that the most appropriate way of doing this would be to abolish the 35 per cent rate of capital acquisitions tax and reduce the band covered by the 30 per cent rate from £40,000 to £30,000. I also propose to increase the initial once-off discretionary trust tax from 3 per cent to 6 per cent.
The various changes in capital acquisitions tax will come into effect on the date of publication of the Finance Bill. Further details, including the intended conditions on the reliefs and the new rating schedule, are given in the Principal Features.
Capital Gains Tax
In order to improve the climate for equity investment in small and developing Irish companies, I have decided to reduce the rate of capital gains tax from 40 per cent to 27 per cent on the disposal by individuals of shares in Irish trading companies which were unquoted and had a market value of £25 million or less at the time the share investment took place. This new rate will apply in addition to indexation relief. The relief is subject to certain conditions, including a minimum holding period of five years prior to the disposal. The new rate will apply to disposals on or after 6 April next, which is the start of the capital gains tax year. This new relief is aimed in particular at increasing the incentive for entrepreneurs who invest risk capital in setting up their own business, and it will also benefit family businesses.
In addition, I am enlarging the scope of the existing roll-over relief for equity investment by entrepreneurs in unquoted trading companies. The relief is currently restricted to the BES sector and I am extending it to include most trading activities in the wider services sector. The details will be included in the Finance Bill.
Capital Allowances for Hotels
The importance of the hotel sector as an area of investment which gives rise to significant long term employment creation has been recognised in the tax code by the provision of capital allowance arrangements which are much more favourable than is the case for industrial and commercial buildings.
Given the role played by hotels in the tourism sector I propose to provide for an improvement in these allowances so that investments can be written off for tax purposes over seven years as opposed to the existing ten years. The new provisions will apply in respect of capital expenditure incurred after today.
Pension Fund Investment in Venture and Development Capital
Last year I launched an initiative with the aim of improving the availability of equity finance to smaller Irish companies by asking pension funds to make available on a commercial basis a small venture and development capital funding facility for such companies. A consultancy study on the issue, which was completed in mid-November last, confirmed the existence of a funding gap in the venture and development capital market that needed to be filled. It also concluded that pension funds could respond to that need on a commercial basis thus meeting the prudential obligations of pension fund trustees.
I have been assured by the representative organisations involved that the reaction to the initiative is positive and that there is now widespread commitment to it. I understand that the trustees of several of the larger pension funds have in fact already given the go-ahead to their investment managers to commit funds to the initiative when investment vehicles are launched. In that regard, I also understand that a number of investment bodies are in the process of setting up special investment vehicles to enable this to be done.
Arising from the study, I agreed to examine whether there was a need for a new venture capital investment vehicle to ensure that no incremental taxation would be incurred by pension funds as a result of their investing in venture capital through an intermediary vehicle as compared with investing directly. Having considered the matter, I am satisfied that structures already exist which meet this requirement and that there is no need to make changes in the tax legislation to accommodate pension fund investment in venture capital.
I remain confident that given a genuine response from all in the pension funds sector and the venture capital industry, this initiative can work. By a genuine response, I mean that funds are made available for investments in venture capital to provide equity finance for projects which have the potential to generate wealth and jobs but which cannot obtain finance from conventional sources. I have sought to avoid restrictions on the freedom of the venture capital sector to choose appropriate avenues of investment. However, what is undertaken with these funds must, I stress, be clearly in the spirit of the initiative and I will be keeping a keen eye on its progress.
Motor Vehicle Taxation
I will now announce reductions in the rates of vehicle registration tax on cars designed to provide a boost to the motor industry sector. These cuts will complement the excise duty rate reduction implemented in my 1992 Budget and consolidated into the rates of vehicle registration tax which have applied since 1 January 1993. From midnight, I propose to reduce the rates involved by 2.55 percentage points. The new rates will be 23.2 per cent for cars under 2012 ccs and 29.25 per cent for cars over this threshold. These measures, which are estimated to cost £21 million in 1994, should enable price reductions in excess of 3 per cent to be made across the entire new car market: the cost of a £12,000 car should fall by some £400. As far as I am concerned, this approach is a far more effective way of assisting the sector than some of the artificial and legally questionable proposals which have been put forward. The VRT rates on motor cycles are also being reduced; details are in the Principal Features of the Budget.
Motor Cars used for Business Purposes
The car-value threshold for calculating capital allowances and allowable expenses in respect of motor cars used for business purposes was last increased in 1992 and currently stands at £10,000. It is recognised that the present level of the threshold is well below the average cost of a standard business car with the result that for tax purposes a legitimate business expense is being unduly restricted.
To alleviate this situation I propose, therefore, to increase the threshold now to £13,000 and to £14,000 in the 1995 budget, with a view to making any final adjustment necessary to align the threshold with the average cost of a standard 1.6 litre car in the 1996 budget. I am further proposing that the car value threshold be reviewed annually after 1996 in the light of movements in the cost of this car-type. While I would like to make this alignment in full in the 1994 budget, other priorities and the overall budgetary situation rule this out.
The 1994 increase will apply to capital allowances in respect of new cars provided after today and, in the case of allowable expenses, to expenses incurred in respect of new or second-hand cars after today. The capital allowance threshold for second-hand cars will, however, remain at the current £10,000 level.
The cost of the increase in the threshold from £10,000 to £13,000 will be £400,000 in 1994 and the full year cost, which will not arise until 1996, will be £9 million. Additional costs will arise of course in relation to the later adjustments.
The higher allowances will reduce the cost of providing and using cars for business purposes. When taken in conjunction with the VRT rate reductions already announced, they will also be of significant benefit to the motor industry by boosting new car sales.
Single Registration Form
To simplify tax compliance and thereby reduce costs, especially for small enterprises, the Revenue Commissioners have prepared a single registration form, which will be available shortly. This form will enable a newly-formed company to register for all taxes, corporation tax, value-added tax and PAYE/PRSI, in a single operation. The form can also be used to register an established business for any of these taxes.
Single Tax Clearance Certificate
Any person or company seeking a public sector contract of £5,000 or more must have a tax clearance certificate from the Revenue Commissioners. Currently a separate certificate is required for each public body. I have asked the Revenue Commissioners to prepare a single tax clearance certificate which will be renewable on an annual basis.
VAT
I turn now to VAT. As well as reflecting domestic considerations, the restructuring of VAT rates in recent budgets was undertaken within the framework of agreements reached at European level and against the background of our participation in the Internal Market. The current rating arrangements are fully consistent with our obligations under the VAT law of the European Union and, while the position will continue to be kept under review, I do not intend to make any changes in the mainstream rates or their coverage today. Similarly, the level of the farmers' flat-rate refund will remain at 2.5 per cent, a level which will continue to provide full compensation to farmers generally for the VAT borne on their purchases. There are, however, a number of adjustments to the VAT regime which I propose to introduce and which I will now outline.
Registration Thresholds
VAT registration thresholds are reviewed regularly bearing in mind the desirability of reducing the administrative burden on both small undertakings and the Revenue authorities, as well as the need to avoid undermining tax compliance or causing competitive distortions. Our current levels of £32,000 in the case of goods and £15,000 in relation to services were set in 1989. In the forthcoming Finance Bill, I will be proposing that these thresholds be raised to £40,000 and £20,000 respectively. This initiative is in line with the thrust of the recommendations of the Task Force on Small Business.
Cash Basis of Accounting for VAT
As an extension of the current cash basis of accounting arrangements for VAT, it is my intention that this facility should also be available to businesses whose turnover is less than £250,000 annually. This initiative, which is in line with the recommendation of both the Task Force on Small Business and the Task Force on Jobs in Services, will provide a useful cashflow boost to many small firms with considerable employment potential.
Extension of the Tax Base
On extension of the tax base, in the forthcoming Finance Bill, I propose to provide that, from 1 September next, the services of loss adjusters employed by insurance companies and others to estimate losses subject to a claim should be taxable at the standard rate. This will put loss adjusters generally on the same footing as motor assessors.
Monthly Control Statement
During the course of last year's Finance Bill debate, I indicated that the operation of the VAT monthly control statement, introduced in 1992 as an antifraud measure, would be kept under review. I can confirm that the Revenue Commissioners are giving this matter special attention and any adjustments deemed necessary will be addressed in the context of the Finance Bill. This analysis will include consideration of whether there is trade distortion between those currently subject to the monthly control statement requirement and those who are not.
Concessions
Before leaving the VAT area, I propose to indicate a number of small, but highly significant, concessions to the areas involved.
In the case of the VAT treatment for certain luxury coaches used primarily in the tourist sector, I intend to grant full relief on such vehicles where only partial relief has been available up to now. This initiative should provide a substantial fillip to tour bus operators here. I am extending the present refund arrangements relating to donated medical equipment to cover donated research equipment used in the medical laboratories of universities and similar institutions.
Excise Duties
Turning to excise duties, I propose, on this occasion, to seek an additional revenue contribution from the mainstream excise area. Accordingly, from midnight tonight, the following tax increases are being implemented:
—8p per 20 cigarettes, with pro rata increases on other tobacco products ——
What did the Minister say about creating employment?
——3p per pint on beer and cider, and the same amount per half-glass on spirits;
(Interruptions).
Close down Clonmel altogether.
(Interruptions.)
Where is Deputy Davern?
The Minister without interruptions, please.
Deputy Davern has run for cover.
(Interruptions.)
Deputy Teresa Ahearn was obviously not listening during the briefing session which she attended with me some weeks ago.
(Interruptions.)
——10p per bottle on wine; 1½p per litre on petrol and road diesel.
It is appropriate that I should say a few words about some of these increases. In the drinks area, this is the first excise increase on alcohol products generally since 1989 and only the second since 1986: it should be noted, moreover, that the VAT rate on drink has been cut twice in recent years. In highlighting and continuing this restraint in my budget speech last year, I commented critically on the sharply contrasting pricing behaviour in the retail sector, particularly as regards the on-licence trade. I warned that the Government would not allow the industry to take advantage of this restraint, while, at the same time, pressing me to be lenient on the taxation front in an Internal Market context. Against that background, I am sure the House will appreciate my acute disappointment at the further sizeable trade-induced increases which occurred over the past year. Therefore, I am imposing the modest but fully justifiable increases I have just announced. I see no reason these increases, coupled with a reasonable progression of trade prices, should result in the price of drink exceeding the rate of inflation during 1994.
As far as road fuels are concerned, the increases proposed will partially absorb the recent falls in oil prices, without giving rise to any significant cross-Border implications.
God help the motorist, he pays for everything.
I now wish to announce some technical adjustments in the fuels area. In order to respect the EU minimum rate requirement, the duty on heavy fuel oil is being increased by 85p per 1,000 litres. Following clearance by the EU, excise duty on oil which results from the recycling of waste oil is being removed with effect from midnight tonight. Following a review of the position, a duty relief on fuel used by mobile cranes and well-drilling equipment will be introduced in the Finance Bill. No other excise duties are being changed, nor am I varying the charges on excise licences on this occasion.
It is estimated that the excise measures I have just outlined will result in an Exchequer yield of some £69 million in 1994. Taking account of the VRT rate reductions already announced, they will add 0.3 per cent to the Consumer Price Index, bringing the projected increase in the Index in 1994 to 2.5 per cent.
Enterprise and Employment Initiatives
Many of the features in the general income tax reform package are designed to improve competitiveness and thereby contribute to better employment growth. The measures I have outlined to help business development represent a major package of improvements. Some of the measures seek to improve the competitive position of small businesses; others are designed to help develop certain sectors of the economy.
The measures span all the tax areas and involve both legislative and administrative changes directed at helping businesses. Included in these are a number of the measures recommended to me by the Task Force on Small Business. In introducing these measures, I am of course aware of the natural tension between the requirement that taxation be as equitable as possible and the need to focus the tax system in the best overall interest of the economy.
The main features of this major package for business, enterprise and employment which I have outlined are as follows:
— A new tax relief for the transfer of business assets is being introduced into capital acquisitions tax. The relief will also cover the transfer of shares in a business.
— A new 27 per cent capital gains tax rate is being introduced for the disposal by an individual of holdings of shares in trading companies which were unquoted at the time of investment.
— The special roll-over-relief in capital gains tax which I introduced last year for entrepreneurs investing in BES sectors will be extended to the wider services sector.
— The capital allowance ceiling for new business cars will be increased progressively to cover the cost of a standard 1.6 litre car by 1996.
— The company value limit for entrepreneurs' investment in their own company under the BES is being raised from £150,000 to £250,000.
— The PAYE allowance will be allowed to children of self-employed and proprietary directors who are full-time employees in their parents' business.
— The requirement that employers pay the employment and training levy and the health levy for their employees who have a medical card is abolished.
— Employers' PRSI is being reduced by about 25 per cent in respect of low-paid employees.
— The VAT registration thresholds for both goods and services are being increased significantly.
— Businesses whose turnover is less than £250,000 a year will be entitled to account for VAT on a cash receipts basis.
— The Revenue Commissioners will shortly produce a single registration form which can be used by businesses to register for all taxes.
— The tax clearance procedures for public sector contracts are also being simplified.
In addition to all these general changes, a number of focused measures are being taken to help certain sectors of the economy. The following measures are being taken to help the tourist, motor and building sectors:
— Capital allowances provisions for hotel buildings are being improved with the write-off period being reduced from ten to seven years.
— Full VAT relief is to be allowed for luxury touring coaches.
— The VAT rates for cars and motorcycles are being reduced.
— A new urban renewal scheme will be introduced in the Finance Bill. The new scheme will be more limited in scope than the old one and will be focused on residential, industrial and small-scale commercial developments.
— A provision of £5 million is being made to assist the promotion and marketing of Irish tourism.
I am convinced that all these measures, taken together, will make a significant contribution to the development of businesses and, in this way, help in creating real and sustainable jobs.
Farmers
As regards the farming sector, farmers will, like other income taxpayers, gain significantly from the general income tax relief package. In regard to capital acquisitions tax, farmers will benefit from the increases in agricultural relief for gifts and inheritances, as well as from the new relief for livestock and machinery. In the case of probate tax, they will gain from both the introduction of agricultural relief and from the spouses exemption. They will also benefit as a result of the increase in the capital allowances limit for new cars. In regard to VAT the present arrangements for unregistered farmers will continue.
Post Budget Current Revenue Position
The cost of the taxation measures I have outlined is £162 million. When this and the effects on revenue buoyancy of the totality of the measures announced today are taken into account, the post-budget tax revenue estimate comes to £10,371 million including the proceeds of the amnesty. When non-tax revenue of £388 million is added, total revenue comes to £10,759 million.
Budget Targets
On the basis of the various provisions which I have announced, the targets for borrowing for the coming year are as follows:—
Current Budget Deficit: £262 million (0.9 per cent of GNP)
Exchequer Borrowing: £798 million (2.7 per cent of GNP)
General Government Deficit: 2.7 per cent of GDP
This is now the sixth successive year in which the EBR has been held below 3 per cent of GNP. We aim to ensure that this consistent disciplined budgetary policy which has already served us well is continued over the medium term. Indeed, I have taken particular care to ensure in framing this budget that, notwithstanding a number of once-off favourable factors this year such as the tax amnesty receipts, the budget is consistent with that discipline.
Conclusion
As I said at the outset, no single budget can solve all our economic and social problems.
This one will not, anyway.
Individual budgets lacking an overall policy stance can result in dissipated effort. Our budgetary policy has been clear and consistent, as is evidenced by the figures I have just given. That policy is aimed ultimately at creating the conditions without which we will not achieve sufficient jobs for our people.
For those who do not have jobs, the measures I announced today both promise better prospects for employment growth and provide extra places on various community employment schemes. Those on social welfare payments have not been neglected, with increases higher than inflation between last year and this year. Social housing and other assistance schemes serve to ensure that the less well-off in our community are provided for.
Every measure in this budget and in all recent budgets is focused in one form or another on job creation and social justice.
Like the 1 per cent levy.
Financial stability and confidence are essential pre-conditions for stronger investment, increased output and more work opportunities. It has frequently been said that there are no miracle cures for unemployment. Ours is a relatively small, open economy and we must adapt to world market conditions to generate greater economic activity. Improvements in competitiveness and productivity will enable us to build on the relatively strong performance of our economy over recent years. The real prize is the translation of this economic growth into fuller employment.
This budget will assist in this process by developing further the coherent strategy of recent years which has yielded and is continuing to yield positive results. As well as seeking to create the right fiscal and economic environment for the translation of output growth into more employment, I have focused this budget in both the expenditure and taxation areas on boosting employment. I have taken the step in this Budget Statement of grouping together the tax measures aimed at assisting business and the financial markets. These measures, with other measures of recent years comprise a wide range of supports for business but they must deliver on their ultimate objective of more jobs in our economy.
I have also taken the opportunity, which the reasonably benign financial outlook has presented, to do all I prudently can to further social progress. This Government's commitment to the themes which I outlined at the outset is single-minded and this budget has considerably advanced these themes. This is a budget through which: the great bulk of taxpayers receive substantial relief; the low paid are especially catered for; social welfare recipients, between last year and this year, receive increases higher than inflation; the long term unemployed have additional places provided for them on the new Community Employment programme; the opportunity is created to secure greater wage competitiveness; growth in the economy will be helped by developments in competitiveness and the substantial enterprise measures; confidence will be encouraged, generally and in financial markets, by a continued strong budgetary performance and fiscal discipline; demand will be boosted by greater spending power; investment should be further encouraged by the existing schemes and new measures announced today; infrastructure essential to economic progress will be further improved, via the Public Capital Programme which has been maintained at a high level.
This budget lays the ground for further economic and employment progress and at the same time displays a true social concern.
Accordingly, I commend the budget to the House.
TABLE EXPLANATORY OF CURRENT BUDGET, 1994
|
Revenue |
Expenditure |
||||
|
£m |
£m |
||||
|
1. Tax Revenue (including renewal of PRSI allowance, and Amnesty Proceeds). |
10,415.0 |
||||
|
1. Central Fund Services |
2,7576 |
||||
|
£m |
|||||
|
2. Non-Tax Revenue (including extra £5.0 million National Lottery receipts) |
388.4 |
2. Non-Capital Supply Services |
7,933.6 |
||
|
Adjusted for: Net revisions to Estimates |
-29.4 |
||||
|
—— |
7,9042 |
||||
|
3. Deduct: |
|||||
|
Income Tax reliefs: |
£m |
||||
|
Rate reductions, extension of standard band, and increased exemption limitsAbolition of Income LevyThreshold for Employment and Training LevyVAT measuresCorporation Tax MeasuresCapital Tax Measures |
-89.9-83.0-11.5-6.6-2.4-1.0 |
Add:3. Non-Capital issues associated with Tax Amnesty (see Table 2)4. Social Welfare Improvements5. Employment Initiatives |
36 2 |
1915 |
|
|
—— |
-194.4 |
New/expanded schemes [net expenditure change]Sheltered employment for the disabled |
362 |
720 |
|
|
4. Add: |
—— |
380 |
|||
|
Other Income Tax measures |
21.0 |
||||
|
Excise Duty Measures |
48.0 |
6. Contribution InitiativesPRSI Rate adjustments |
28.0 |
||
|
Threshold for Health Contribution |
14.0 |
||||
|
—— |
420 |
||||
|
5. Net effect on tax revenue of tax and spending (Current and Capital) changes |
81.0 |
||||
|
7. Health Waiting Lists |
10.0 |
||||
|
6. Current Budget Deficit |
261.9 |
||||
|
Hospital Charges — restructuring |
2.0 |
||||
|
—— |
120 |
||||
|
8. Other |
|||||
|
—Tourism Marketing Development Programme |
5.0 |
||||
|
—Teagasc (research and rationalisation) |
5.0 |
||||
|
—Education (capitation grants) |
2.0 |
||||
|
—Ex-gratia payments to ex-Irish Shipping staff |
3.5 |
||||
|
—Early retirement for farmers |
2.5 |
||||
|
—Arts and Culture |
1.3 |
||||
|
—Various |
9.3 |
||||
|
—— |
286 |
||||
|
9. Estimated Departmental Balances |
-250 |
||||
|
11,020.9 |
11,0209 |
TABLE 1
1993 BUDGET OUTTURN
|
1993 |
||
|
Budget Estimate |
Provisional Outturn |
|
|
£m. |
£m. |
|
|
Current Budget |
||
|
1. Expenditure |
||
|
(i) Central Funds Services |
2,903 |
2,869 |
|
(ii) Supply Services |
7,580 |
7,650 |
|
10,483 |
10,519 |
|
|
2. Revenue |
||
|
(i) Tax |
9,485 |
9,704 |
|
(ii) Non-Tax |
473 |
436 |
|
9,958 |
10,140 |
|
|
3. Current Budget Deficit |
525 |
379 |
|
Capital Budget |
||
|
4. Expenditure |
||
|
(i) Public Capital Programme(of which, Exchequer PCP |
2,3231,008 |
2,1311,025) |
|
(ii) Other (non-programme) |
67 |
125 |
|
2,390 |
2,256 |
|
|
5. Resources |
||
|
(i) Exchequer |
834 |
839 |
|
(ii) Non-Exchequer |
1,315 |
1,106 |
|
2,149 |
1,945 |
|
|
6. Exchequer Borrowing Requirement for Capital Purposes |
241 |
311 |
|
7. Total Exchequer Borrowing Requirement (3+6) |
766 |
690 |
|
8. Total Exchequer Borrowing Requirement as % of GNP* |
(2.8) |
(2.5) |
* This ratio is calculated on an estimated GNP outturn which reflects CSO revisions announced subsequent to the 1993 Budget.
TABLE 2
CURRENT GOVERNMENT EXPENDITURE AND REVENUE IN 1993
|
Current Expenditure |
Current Revenue |
||||
|
Item |
£m |
% of gross expenditure |
Item |
£m |
% of total |
|
Service of Public Debt |
Budget Deficit (financed by borrowing) |
379 |
3.6 |
||
|
Central Fund Services (part): |
|||||
|
Interest |
2,159 |
16.5 |
|||
|
Sinking Funds, etc. |
231 |
1.8 |
|||
|
Total |
2,390 |
18.3 |
|||
|
Tax Revenue |
|||||
|
Economic Services |
Customs |
159 |
1.5 |
||
|
Industry and Labour |
322 |
2.5 |
Excise Duties |
1,757 |
16.7 |
|
Agriculture |
589 |
4.5 |
Stamp Duties |
227 |
2.2 |
|
Fisheries, Forestry |
36 |
0.3 |
Income Tax |
3,712 |
35.3 |
|
Tourism |
28 |
0.2 |
Income Levy |
79 |
0.7 |
|
Corporation Tax |
952 |
9.1 |
|||
|
Value-Added Tax |
2,332 |
22.2 |
|||
|
Total |
975 |
7.5 |
Motor Vehicle Duties |
238 |
2.3 |
|
Capital Taxes |
87 |
0.8 |
|||
|
Employment and Training Levy |
151 |
1.4 |
|||
|
Infrastructure |
75 |
0.6 |
Agricultural Levies (EC) |
10 |
0.1 |
|
Total |
9,704 |
92.3 |
|||
|
Social Services |
|||||
|
Health |
1,904 |
14.6 |
|||
|
Education |
1,733 |
13.2 |
Non-Tax Revenue |
||
|
Social Welfare |
3,762 |
28.8 |
Fee Stamps |
27 |
0.3 |
|
Housing |
4 |
0.1 |
|||
|
Subsidies |
170 |
1.3 |
Interest and Dividends on Exchequer Advances |
94 |
0.9 |
|
Central Bank — Surplus |
|||||
|
Total |
7,573 |
58.0 |
Income |
182 |
1.7 |
|
Proceeds of National Lottery Surplus |
88 |
0.8 |
|||
|
Security |
946 |
7.3 |
Miscellaneous |
45 |
0.4 |
|
Other |
1,087 |
8.3 |
Total |
436 |
4.1 |
|
Gross Expenditure |
13,046 |
100.0 |
|||
|
Supply Service Receipts |
2,527 |
||||
|
Net Expenditure |
10,519 |
Total Revenue |
10,519 |
100.0 |
TABLE 3
CURRENT GOVERNMENT EXPENDITURE 1990-1994
|
1990 |
1991 |
1992 |
1993 Provisional Outturn |
1994(1) Estimate |
% change 1994 over 1993 |
|
|
£m |
£m |
£m |
£m |
£m |
% |
|
|
Service of Public Debt |
||||||
|
Central Fund (part): |
||||||
|
Interest |
2,107 |
2,149 |
2,142 |
2,159 |
1,987 |
-8 |
|
Sinking Fund etc. |
193 |
204 |
213 |
231 |
242 |
5 |
|
Sub-Total |
2,300 |
2,353 |
2,355 |
2,390 |
2,229 |
-7 |
|
Economic Services |
||||||
|
Industry and Labour |
220 |
246 |
286 |
322 |
254 |
-21 |
|
Agriculture |
409 |
494 |
551 |
589 |
592 |
1 |
|
Fisheries |
21 |
25 |
29 |
29 |
33 |
14 |
|
Forestry |
8 |
5 |
5 |
7 |
7 |
0 |
|
Tourism |
24 |
26 |
27 |
28 |
31 |
11 |
|
Sub-Total |
682 |
796 |
898 |
975 |
917 |
-6 |
|
Infrastructure |
||||||
|
Roads |
32 |
33 |
34 |
34 |
37 |
9 |
|
Sanitary Services |
2 |
2 |
1 |
1 |
1 |
0 |
|
Transport |
33 |
36 |
40 |
40 |
30 |
-25 |
|
Sub-Total |
67 |
71 |
75 |
75 |
68 |
-9 |
|
Social Services |
||||||
|
Health |
1,377 |
1,535 |
1,722 |
1,904 |
1,963 |
3 |
|
Education |
1,302 |
1,415 |
1,569 |
1,733 |
1,854 |
7 |
|
Social Welfare |
2,892 |
3,186 |
3,534 |
3,762 |
3,879 |
3 |
|
Housing |
13 |
8 |
5 |
4 |
5 |
25 |
|
Subsidies |
168 |
167 |
167 |
170 |
169 |
-1 |
|
Sub-Total |
5,752 |
6,311 |
6,997 |
7,573 |
7,870 |
4 |
|
Security |
||||||
|
Defence |
359 |
389 |
395 |
402 |
422 |
5 |
|
Garda |
304 |
333 |
362 |
391 |
404 |
3 |
|
Prisons |
65 |
79 |
85 |
90 |
97 |
8 |
|
Legal, etc. |
56 |
50 |
57 |
63 |
71 |
13 |
|
Sub-Total |
784 |
851 |
899 |
946 |
994 |
5 |
|
Other |
||||||
|
Central Fund (part): |
||||||
|
EEC Budget |
284 |
348 |
354 |
453 |
492 |
9 |
|
Miscellaneous |
20 |
22 |
17 |
26 |
36 |
39 |
|
Supply Services(2) |
517 |
557 |
577 |
608 |
740 |
22 |
|
Sub-Total |
821 |
927 |
948 |
1,087 |
1,268 |
17 |
|
Gross Total |
10,406 |
11,309 |
12,172 |
13,046 |
13,346 |
2 |
|
Less: Supply Services Appropriations in aid, P.R.S.I. receipts |
1,970 |
2,236 |
2,373 |
2,527 |
2,655 |
5 |
|
Net Current Expenditure |
8,436 |
9,073 |
9,799 |
10,519 |
10,691 |
2 |
|
Exchequer Pay and Pensions included in above(2) |
3,160 |
3,392 |
3,761 |
4,108 |
4,260 |
4 |
Notes:
(1) The 1994 Estimate corresponds to figures published in the White Paper on Receipts and Expenditure 1994.
(2) Includes provision for payments under the Public Service early retirement/voluntary redundancy schemes: £4,943 million in 1990.
(3) The figures for 1990, 1991 and 1992 reflect actual audited expenditure.
TABLE 4
RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES 1971-1994
|
Exchequer |
Local Authorities(a) |
||||
|
Current Revenue |
Non-capital Expenditure |
Expenditure |
Revenue(b) |
||
|
State grants received |
Rates collected |
||||
|
£m |
£m |
£m |
£m |
£m |
|
|
1971-72 |
569 |
572 |
196 |
115 |
60 |
|
1972-73 |
659 |
665 |
240 |
138 |
70 |
|
1973-74 |
793 |
803 |
298 |
183 |
71 |
|
1974 (April-Dec.) |
651 |
744 |
292 |
190 |
61 |
|
1975 |
1,091 |
1,350 |
481 |
332 |
84 |
|
1976 |
1,470 |
1,672 |
567 |
404 |
109 |
|
1977 |
1,757 |
1,958 |
684 |
504 |
111 |
|
1978 |
2,023 |
2,420 |
831 |
670 |
82 |
|
1979 |
2,384 |
2,906 |
1,007 |
820 |
91 |
|
1980 |
3,155 |
3,702 |
1,313 |
1,062 |
103 |
|
1981 |
3,973 |
4,775 |
1,565 |
1,284 |
102 |
|
1982 |
4,908 |
5,896 |
1,878 |
1,560 |
95 |
|
1983 |
5,711 |
6,671 |
2,093 |
1,749 |
105 |
|
1984 |
5,952 |
6,991 |
2,302 |
1,888 |
122 |
|
1985 |
6,331 |
7,615 |
2,493 |
2,066 |
141 |
|
1986 |
6,710 |
8,105 |
2,633 |
2,160 |
153 |
|
1987 |
7,151 |
8,331 |
2,699 |
2,223 |
170 |
|
1988 |
7,690 |
8,007 |
2,387 |
1,862 |
194 |
|
1989 |
7,756 |
8,019 |
2,552 |
1,931 |
231 |
|
1990 |
8,269 |
8,421 |
2,761 |
2,116 |
239 |
|
1991 |
8,776 |
9,076 |
3,000 |
2,342 |
252 |
|
1992 |
9,360 |
9,806 |
3,287 |
2,590 |
265 |
|
1993(c) |
10,140 |
10,519 |
3,385 |
2,681 |
280 |
|
1994(d) |
10,605 |
10,691 |
3,508 |
2,787 |
298 |
Notes:— (a) Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.
(b) The revenue of Local Authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g. rents and fees. Only State grants and rates are shown herein.
(c) Provisional.
(d) These estimates are consistent with those in the 1994 White Paper on Receipts and Expenditure.
The Minister had an open goal and missed.
My first reaction is that it sounded much better from Michael Ronayne and Cliff Taylor on "Morning Ireland" than during the past two hours. We have all said repeatedly that this would be no ordinary budget, that it would provide the best opportunity in 20 years to make radical structural changes in the economy and to make a real difference for the school leavers who are looking for jobs. An economist said to me last week that the Exchequer returns at the end of the year were so favourable that not even Bertie could screw this one up. On reflection, I am not so sure.
He did not.
The public need to know how things have improved. They need to know about the windfalls the Government are benefiting from, unlike any other Government in the past two decades. For every 1 per cent reduction in international lending rates the Government saves £285 million but what has it given the PAYE sector today — a paltry £194 million. It could not even give them the equivalent of a 1 per cent saving on servicing the national debt. The savings are about half. Four years ago in servicing the national debt we were paying about 10 per cent whereas this year the figure will be 5.5 per cent. There is growth in the economy due to the international pick-up in the United States and the United Kingdom. A "do nothing budget" would have seen taxes rise by 5 per cent. The Minister has faced the lowest opening deficit for many years and despite the botched handling with Jacques Delors we had the £1.1 billion in EU transfers which will not go on forever.
There is a huge Dáil majority and, theoretically, the Government have four years to run. Yet, while the fundamentals are very good, the realities for ordinary people are very bad. We have the highest emigration rate in Europe; the second highest rate of unemployment and the highest dependency ratio; for every ten people at work there are 25 people depending on them. Therefore this country is at a crossroads. In the new GATT era can we seize the opportunities for international trade to increase our share of world services and goods?
What are we to do? Is this generation, the class of 1994 — the schoolleavers — to be faced with the grim choice of emigration or a life of dependency on the dole? What is the response? We have a budget of mediocrity, a budget for renewed emigration. It is a severe anti-climax and represents a minimalist approach. It is a question of the same old failed policies without imagination or creativity.
Mr. Byrne
When did the Deputy write his speech? Last week or yesterday?
The underlying trend of the budget is an increase in unemployment and emigration. What I can say, and Deputy Byrne may be particularly interested in this, is that what we expected was Bertie's bonanza but it has turned out to be the begrudgers' budget against home ownership. The budget that promised so much has delivered so little. Many home owners will not sleep easy tonight when they look at the details of these provisions.
Rates are back.
We had the presentation of the budget as if there were to be huge changes in bands, allowances and reliefs. Members may not have read the simple table at the end of the Budget Statement — the Minister did not read it out — but the important question that we have to address is what will the net figures be. The figures will change little. The changes in income tax will result in a cut of £194 million at a time when income tax was due to increase this year by £251 million. Let us put this in simple terms: for the average PAYE worker this will mean a cut in taxes of £3.41 per week or £14.75 a month — such excitement.
The Minister will collect more in income tax this year than last year. In the process he has launched an unprecedented attack on the home owner. This is a double-whammy. The first hit is to restrict the mortgage relief from 48 per cent to 27 per cent; the second is a creeping start to carrying out the hidden agenda of the Labour Party, to introduce a residential property tax. There are 320,000 taxpayers claiming mortgage relief at present. Of the 800,000 people who own their own home half of them, 400,000, will be asked by the end of the lifetime of this Government to pay a property tax. The traditional policy of successive Governments has been to support young couples, to support people who want to find a home for themselves. In the early years of a mortgage many young couples have great difficulty in meeting their obligations. This is the Labour Party policy, it does not like self-reliance or people doing things for themselves. It believes in dependency on the State, in putting people back on the waiting list for housing. Despite what Minister Stagg might lead one to believe about housing, it is not commonly known that there are now 20 per cent fewer new house starts than in 1980; housing has never been in a more fragile or weakened state arising out of the currency crisis. I calculate that mortgage relief is worth £2,064 to a taxpayer claiming at the full rate of 48 per cent. That will now be reduced to £1,161, a loss of £20 a week. This is the thin end of the wedge because we heard this morning that the ceiling would also be reduced. We have escaped that, but for how much longer? When I heard it on "Morning Ireland" I thought it would be no harm to recollect what was said during the election campaign about mortgage relief. The November election was fought in the teeth of high interest rates when it became an issue for middle income earners. I would like to draw the Minister's attention to the six point plan for national progress published by Fianna Fáil, the Republican Party. It stated that it would maintain the basic reliefs such as mortgage interest and VHI. The Labour Party went much further. Under a more ambitious title of putting justice into economics and trust into politics it advocated an increase in the amount of mortgage interest that could be claimed by way of tax relief to 100 per cent of £5,000 in the case of a couple and 100 per cent of £2,500 in the case of a single mortgage payer.
(Interruptions.)
The sum of the parts is less than the whole.
I reflected on the Minister's own performance, and thankfully, the Library facilitated me this morning. In the middle of the election he suddenly announced that Fianna Fáil would increase mortgage relief. My colleague, Deputy Noonan, said it was a deathbed conversion. He wrongly said that people would not be fooled by this. The most interesting quote I could find was in relation to what Minister Quinn said about this death bed conversion of Fianna Fáil, that Fianna Fáil's difficulty was that its credibility had been "so damaged that even this latest conversion to good sense would do them no good whatsoever." Where is Minister Quinn tonight? Where there is a single fixation on the rate of tax and there was progress made on the rate of tax — income tax payers paid more. The same thing is happening here. Switching around allowances, people's gross pay and net pay, makes people no better off; they are only £3 a week better off.
Ultimately the most serious blow is the introduction and extension of the residential property tax. I have read the NESC report, the ESRI report and the Culliton report all advocating further property taxes. They have a theory called "elasticity" that is, that because property is immovable a tax will have no effect on it. We are told a residential property tax is efficient because it has a zero effect on elasticity. However, during the election campaign in 1992 when members of the Labour Party creamed off the votes in Dalkey, Killiney Hill, Castleknock and the Hill of Howth——
And Ailesbury Road.
——they did not tell the people about the theory of elasticity. They did not tell the middle classes that they intended to increase residential property tax. Today the message must be clear to the middle classes, particularly those in Dublin who will be affected by the change in the residential property tax, that the Labour Party in Government always means higher spending and higher taxes.
There is another bogus theory doing the rounds in relation to property tax, namely, that in our tax mix there are not enough taxes on property. Unfortunately, people who make such statements do not bother to check the facts. An OECD table published in 1991 compared property taxation rates in Ireland and other European States. That table illustrates that as a percentage of our total taxes property is 4.6 per cent compared with a European average of 4.4 per cent. We have the fifth highest taxes on property in Europe and the fourth highest as a percentage of GDP.
Through Michael Ronayne and others I learned that the threshold was being reduced to £75,000 which means that an extra 40,000 people and 100,000 homes will be included. This is only the first step and it will not create one extra job except in the Revenue Commissioners. The home owner will have a bitter pill to swallow. I am sorry the Minister, Deputy Higgins, has to leave the House because I have some interesting remarks to make about the Labour Party.
(Interruptions.)
, Carlow-Kilkenny): Silence, please. Deputy Yates only.
I am glad to note that the remnants of the Labour Party will battle on.
So much for culture.
Even though one of the core values of my party, self-reliance, has been dismissed as a cliché but it is important on a day such as this. Nowhere could that be more apt than in relation to VHI. There are 1.3 million people insured under the VHI, approximately 365,000 taxpayers, the majority of whom are paying the higher rate of tax. I can give some practical examples of the effects of the VHI changes. To put it simply, if one is married with two children and on plan E, under the Minister's proposals the taxpayer will lose £7 per week. What will that do? It will force people who are just over the limit for a medical card back on dependency of the State on the waiting lists for hospitals and all other health care facilities. That will develop a two-tiered health service, public and private. The Labour Party, not satisfied with that, went further in regard to health. The Minister for Health, Deputy Howlin, stated repeatedly that he will charge the full economic cost for a private bed in a public hospital. Having already increased the charge to £152 a day, he wants to charge the full economic cost. We will now have a double effect, namely, higher expenses in the VHI and fewer members because of the tax changes.
The Government is now taxing illness.
(Interruptions.)
The Opposition when in Government introduced a property tax ten years ago.
The more the Taoiseach grins the more suspicious I become. Let us look at the performance of Fianna Fáil since 1990 — the Taoiseach was Minister for Finance at that time. Since then there has been an explosion in spending and taxes. I could give the House the yearly figures but, put simply, on average spending has increased by 9.6 per cent for each year since 1990.
I was there in 1988 and 1989.
Taxes have increased by 7 per cent year after year at a time when we have had low inflation. The significance of this is that there can be a worthwhile outcome and a low Exchequer borrowing requirement, but there is a major difference between a nil all draw and a six all draw. With a six all draw one might consider sacking the goalie or the manager, and we have had many six all draws. Taxes and spending have been increasing at a rate which is stultifying enterprise and preventing individuals from creating and taking up jobs.
The improvement in public finances has been brought about by a fairly savage increase in taxes; the Government will now take another £2.50 from the £100 in one's wallet. The Government has rifled people's pockets with higher VAT rates, three times more corporation tax the abolition of reliefs and because the bands and allowances have not kept pace with the movement in incomes people pay more income tax every year.
I want to draw two clear dividing lines between the Opposition and the Government. The Government believes in high spending and believes the State can solve more problems but — and this is most important — they have not included in the Programme for Government any commitment to lowering the percentage tax take of GNP of national income over the lifetime of this Government. We are committed to progressively reducing the tax burden on everyone.
What would be cut?
The number of Labour Party seats.
In a short time I will deal with the Labour Party in detail.
If I were a Labour Deputy I would stay quiet.
Acting Chairman
The Deputy cannot be heard with all these interruptions. I ask for silence.
My party does not believe in fostering more State dependency and State bureaucracy.
Tell us about agriculture and the state of dependency in farming.
That is the first difference and it is a clear and simple one. The second difference is that we believe in an enterprise economy and the Labour Party believes that profit is excess.
Not for farmers.
We believe that profit is the symbol of success. That is a clear difference in our two parties. Deep down the Labour Party believes that the private sector are a shower of chancers. Fianna Fáil, make no mistake. People say that Fianna Fáil is a policy led party.
Other people's policies.
(Interruptions.)
That may be true, but that policy is driven by whoever is its partner in Government.
The Deputy should be asked to withdraw that accusation.
(Interruptions.)
In this case Fianna Fáil is a partnership with high tax junkies in the Labour Party and it is no wonder they overdosed with an extra £800 million in taxes last year.
It is no wonder the few bob was needed for Sheriff Street.
In fairness to the Labour Party, we must say it is leading by example. Having cosseted their friends as programme managers and special advisers involving extravagant expenditure of £15 million last year, its leader has set a proper example. He has engaged in the most extravagant world tour by any Minister. He has travelled from Warsaw to South Africa, from Australia to Mexico and coast to coast in the States.
We expected better than that from the Deputy.
Listen.
Wherever it is, our hero has been there. I am glad to note that the Tánaiste paid one of his fleeting visits to the House today. I am sorry he could not stay longer to listen to this budget debate. But he does recognise the importance of the budget.
Bring back Michael.
We now have a Tánaiste whose television performance resembles that of a Clive James postcard, sending us dispatches from all over the world as he and Charlie Bird sample worldwide delights and engage in an extravagant Zooropa style world tour. He has now graduated to the extent that he could nearly host his own bon voyage, but, I fear that the product might be a little too pricey for the PAYE sector because of the Waldorf Astoria set.
If it was good enough for Dev, it is good enough for Dick.
During the last election the Labour Party had a slogan, "trust into politics and justice into economics". We have confirmation today that the spin doctors have a new slogan for the European elections, "join the Labour Party and see the world".
And be thrust into the air.
The ordinary people of this country know that the cost of this Government is rising. This can be seen through local government with increases in rents, rates, household charges — refuse and water charges — and with increases due in respect of television licences, bus and train fares and telephone and electricity charges. This Government cannot engage in radical tax cuts and tax reform because it is committed to high spending.
They do not provide schools.
Fine Gael has a simple philosophy. We believe in more jobs and less taxes. In simple terms, the fruits of economic growth, the good times we are about to experience because of the extra money flowing into the Exchequer, should be used to reduce taxes instead of being absorbed in more spending.
The most fundamental issue facing this country and all parties is unemployment. With the decline in the agricultural population and 24,000 school leavers annually coming onto the labour market by the end of the decade the unemployment figure will approach 400,000. This is a budget for renewed emigration. It relies on the UK to pick up those jobs. When the National Development Plan was announced, Dame Eithne promised that the budget would be the element of policy that would deal with jobs. I am not sure if people recall that work of economic fiction — the National Development Plan.
It has been implemented.
I wish it was. I draw Deputy Broughan's attention to Part V of the Budget White Paper that considers the stark shortfall in EC funds having regard to what was anticipated. Most people believe politicians can do nothing about jobs but politicians can do something about jobs and Fine Gael believes there are three areas that can be addressed.
First, the tax system could be reformed. The tax system is anti-employment; it deliberately discriminates against employment. If we had the same record of converting economic growth into job growth as the European average, we would have created an extra 24,000 jobs in this economy during recent years based on our economic growth and good fundamentals. The creation of those additional jobs would have solved the problem of every school leaver every year, but we have failed to create those jobs. Second, three out of every four jobs created in Europe are within small businesses. There is a truism that large corporations cut costs but small businesses create jobs. The third area which the Minister somewhat hamfistedly tried to deal with today is that of sectoral development. I will deal with the three areas individually.
How is the tax system anti-employment? It taxes labour very heavily. We have PAYE, PRSI, health contributions and a training levy. Last year, under the Finna Fáil-Labour Government personal taxes rose twice as fast as personal incomes; in simple terms, the tax wedge worsened. One of the effects of this is that it adds to payroll costs. It is a signal to employers that they must cut payroll costs to stay in business and be competitive. One can get lost in figures.
I will give an example of the manufacturing, footwear and clothing industry which employs approximately 15,000 people. It is sad to relate that in recent years 3,000 jobs have been lost in that industry. During the last year one can recall the firms — household names — that closed — Jimmy Hourigan, Beeline and Wexman. I met representatives of the clothing industry recently and they were very articulate about their problems. Their main problem is that they are not competitive because labour costs are high. The net take home pay of the Irish manufacturing workers in Dublin against that of shirt factory workers in Birmingham, London and Manchester is lower. The problem is not that Irish workers are overpaid but that they are overtaxed.
A second problem is that the differential between gross and net pay is high because of the tax take, and this has created a huge disincentive to work. When people calculate their income position taking into account social welfare, their medical card and rent, which is assessed on gross income, they find they lose out when they take up employment. It does not pay them to work because the tax wedge is so high. The Culliton and other reports clearly state that position. Since the Culliton report was published, a further 50,000 people have become unemployed and nothing has been done.
Regarding PRSI the Minister has done something clever — I thought he would do it and he did — he has given the impression that the employer and the employee will pay 9 per cent employer's PRSI instead of the existing 12.2 per cent in respect of those in receipt of an income of under £9,000 or £173 per week. That seems similar to the British tiered rate system; on the lower income one pays a lower rate and so on. Fine Gael advocated that system. The reduction in the PRSI operates in a similar way to the income levy. If one earns £1 over the threshold, say £174 per week, one does not pay tax on the £1; one pays 12.2 per cent PRSI on the first £1 of one's income. What the Minister has done is cheap and limited because the number of people in full-time jobs who receive less than £180 per week, which is below the average industrial wage, is small. The Minister had many options. He could have tiered the rates similar to the UK system. We favoured a £120 million package where the employee and employer rates would be cut by 3 per cent. That is a graduated tax for those on A1 tax up to £9,000 graduating to the higher rates. The Minister adopted the worst of all options; it is minimalist and will not work.
Regarding small business development, we have a low rate of entrepreneurship here. A person may be fortunate and benefit from a capital sum through inheritance, a redundancy lump sum, etc., and may wonder where to invest the money or he may even decide to start up a business. If one invests in a bank or a building society one will pay tax at 10 per cent, but if a person sets up a business, be it a garage, a pub, a shop, etc. — most likely it will be a service business — that person is one of the three of the ten who will succeed. However, if he manages to get through the hoops and make a profit, he will pay 40 per cent, not 10 per cent, corporation profits tax and before today, 40 per cent capital gains tax, but I will deal with those provisions later. The people in our service sector are glorified tax collectors, they collect 21 per cent VAT, 21 per cent PRSI, 40 per cent capital gains tax and 40 per cent corporation tax.
Capital gains tax is no longer 40 per cent.
I will deal with that later and the small print.
I was speaking to a restauranteur recently who told me that for every pound he takes in, he gives the Government 40p and after paying his debts he has 2p to 3p left for himself. Is it any wonder we have such a low rate of entrepreneurship here? I am referring to the indigenous sector. One of the false fundamentals we have is the huge GDP figures, but all the profits are being repatriated abroad. Irish people can only repatriate the profit at home.
The third area is the investment industry. The Minister said a great deal about the insurance industry and the investment industry in the last two budgets. We are told that the pensions funds have £14 billion and the life assurance companies have £10 billion to invest. The problem is that 35 per cent of all their investments is going abroad. Last year we had a lecture from the Minister. He told us he would tax pensions unless these companies invested £100 million in Ireland. A working party was set up to look into the matter and it concluded that it was the tax system that was driving that money out of the country and that that accounted for the lack of opportunity here.
In the 1992 budget the Minister changed the position and this very complex area will be dealt with in the Finance Bill. Unrealised gains were taxed, reliefs were abolished and purchases were spread over seven years. In 1992 provision was made for special investment accounts but they were a failure because they were bound up in red tape. The seed capital scheme was introduced, another joke because you would need to be Houdini to get out of the shackles that surrounded it. The effect is that small businesses are not attracting seed capital and venture capital. Here again there is a stark contrast between the Fine Gael approach and the Government approach.
Before the Culliton report was published there was a number of quangos and State agencies in the job creation area — the IDA, CTT, SFADCo, county development teams, Údarás na Gaeltachta, FÁS and Eolas. One of the central themes of the Culliton report was that these organisations should be streamlined and rationalised, but what did Labour and Fianna Fáil do? They added to the number of organisations setting up Forbairt, Forfás, 36 enterprise boards, 16 Leader companies, 14Pro- gramme for Economic and Social Pro- gress companies and eight regional authorities, all of which are falling over themselves to create jobs.
Jobs for the boys.
What we need to do is help enterprise to make a profit, to move ahead and to invest. We proposed that a special package of measures be introduced for small firms. I am glad the Minister, Deputy Brennan, is here because he had a part in the implementation of some of the task force recommendations for small busineses. However, some of the main recommendations were not implemented, such as the exemption of the first £7,000 of dividend income for full-time directors and the recommendation that firms with profits of less than £80,000 should have a reduced rate of corporation profits tax.
Not only is the tax code in disrepute but the State is also in disrepute. If you are late with your payments to the Revenue Commissioners you will pay an extra 1.25 per cent and perhaps you will also be brought to court. However, if the Midland Health Board, Westmeath County Council or the Office of Public Works — I do not single them out for any particular reason — are late with payments, it is tough luck on the small firms. We need to introduce a code of practice that will ensure that people are paid on time, say within 30 or 40 days, and that the same interest penalties apply to all.
The worst defaulter is the State.
There is a particular problem for the self-employed in terms of pensions. It has been proved that these people would provide their own pensions, but like employees, they are limited to 15 per cent of their income, yet an employer can top up an employee's pension fund without any tax liability. A self-employed person is both employer and employee. It is acknowledged that these people are contributing too late, but nothing has been done about it. This is another missed opportunity.
In relation to jobs I would like to focus on some sectors of industry. Tourism has been the most successful in creating jobs. There are 100,000 people employed in the tourism sector and it is estimated that an extra 5,000 jobs a year can be created. This is a wealth creating sector which brings in overseas revenue. Annual tourism receipts are £1.8 billion and rising. For every pound spent in a hotel 87p is spent on Irish materials. It is estimated that for every two jobs created in a hotel one spin-off job is created.
The Minister missed the opportunity to reduce corporation profits tax to 10 per cent, as was sought, although we would have accepted as an interim measure the standard rate of 27 per cent. Let us not forget that in recent years, with the abolition of reliefs and allowances, corporation tax has come tumbling in. A few short years ago corporation tax amounted to £300 million and it is now more than £900 million. The problem in this regard relates to capital allowances. If a person invests in a new restaurant or a 20 bedroom extension, that development creates not only construction jobs but also permanent jobs. The change made by the Minister in this area is so marginal that it makes little or no differences.
The motor industry is punch drunk with the tax burden it has to bear. This industry pays 13 per cent — about £1.3 billion — of our total take. Not many people realise that the motor trade is in serious decline. Car sales last year were at their lowest level since 1989. The Minister has made only a marginal change in vehicle registration tax. The real crippling effect on the motor industry was the benefit in kind provisions introduced in the 1991 budget which took effect from 1992. I have met car sales representatives who said that total pay increases will be wiped out because of the tabular increase in benefit in kind. Previously if a person had a company car 20 per cent of the purchase price was taxable at the marginal rate, but that figure was increased to 30 per cent. Sales representatives are now telling their bosses they do not want a company car. They go to Northern Ireland where they can buy a second-hand car — when a car is bought in England or Northern Ireland VAT is paid at the point of purchase.
It is significant that the one tax that under-performed last year was excise duty, the bulk of which comes from drink and vehicle registration tax. We have reached the point of diminishing returns and we are losing out on VAT. This is a very serious problem. Last year 30,000 second-hand cars were imported. Nothing has been done in terms of benefit in kind. In this regard the budget is particularly anti-Dublin. We have had diminishing returns because people are not opting for company cars. This means the Government is losing out. Today's budget was modest, conservative and unimaginative.
As regards the construction sector, it was predicted that 15,000 extra jobs would be created as a result of the budget. I am glad the Minister did not make those predictions because last year he predicted that there would be an extra 9,000 jobs in the construction sector but only 3,000 were created. Such promises should carry a Government health warning because they are not credible. About 100,000 people are employed in the construction sector, taking into account those involved in building materials, architects and those working directly in the industry. General contracting declined by 25 per cent in 1992 and 1993. Is it any wonder that a giant such as Kentz is in liquidation considering the cash flow difficulties and problems being experienced by the construction sector which is operating at 55 per cent of capacity?
Before the Minister for the Environment leaves the House I wish to say that the position in relation to county roads is a farce. Every Deputy knows that the infrastructure on minor roads is breaking up. The resurfacing cycle is now 30 years. This is not a parish pump issue; it is a central Government responsibility. The £75 million included in the national plan for minor roads was pocketed by the Exchequer and local authorities received a cut in their funding for the maintenance of minor roads. One thing Fine Gael supported in relation to the amnesty proceeds was that a large portion of it would be allocated, on a once off basis, to restructuring and resurfacing of county roads. A paltry £15 million would not be adequate for one region.
The construction industry would benefit more than any other industry from a boost in capital allowances. To explain that point, a person who invests in a hotel extension, etc. can write it off against tax but under the rules he must spread it out over ten years, which means he is caught for tax and cannot recover his investment. The one fundamental economic statistic which has not gone well for the Government is the fixed investment by the private sector, which has decreased in each of the past two years.
I should like to refer to the position of the ordinary man in the street, the people in the PAYE sector, a sector close to my heart. This sector has experienced nothing but woe under this Government. People in the PAYE sector now pay more in tax than ever before as a percentage of their income. Over the past decade the value of tax free allowances has fallen sharply. In real terms, a single person is now paying 10 per cent more in tax than he did a decade ago. A married man with three children in Ireland now pays the fourth highest rate of income tax in Europe. I want to refer to the position of a married man with three children. In 1981 his tax free allowance was equivalent to 64 per cent of the average industrial wage, while today it is 44 per cent. There has been a huge drop in his tax free allowance. The Government has not introduced any meaningful changes in this area. The changes introduced by the Government are pathetic. I am referring in particular to the single person's allowance which has been increased by £175 and the widening of the standard rate tax band, about which we heard so much.
Under the six point plan for national progress, it was proposed that a person would pay the standard rate of tax up to the first £8,200 earned. Approximately one year ago the Government promised that a single person would not pay the higher rate of tax on an income of less then £20,000 and that a married couple would not pay the higher rate of tax on an income of less than £40,000. The Government has not gone very far down this road — the limits are now £16,000 instead of £40,000 and £8,000 instead of £20,000.
The Minister said that as a result of the changes in the exemption limits a number of taxpayers had been taken out of the tax net altogether. I ask him to clarify whether the people who will now be taken out of the tax net include the 13,500 people he said would be taken out of the tax net last year or the 73,000 people we were promised would be taken out of the tax net during the last four budgets. Will they include the 75,000 people taken out of the tax net by the then Minister, Senator O'Kennedy, in 1980? If we add up all the people we were told would be taken out of the tax net since 1980 we would find that 313,000 workers are now exempt from income tax. It is a wonder there are any taxpayers left in the tax system. The measures introduced by the Government have had a yo-yo effect — as incomes increase the people move back into the tax net. Therefore, these figures are a cosmetic farce.
The Labour Party gave a tepid welcome to the proposals in regard to the 1 per cent tax levy — the applause faded away rather quickly.
(Interruptions.)
I am glad Deputy Bhamjee has managed to fit us into his busy schedule.
A Deputy
He is welcome.
He has stayed away longer than the Tánaiste.
This is my——
He has taken a few days leave from his other job.
The points made by the Deputy on IRN were far more interesting than what the Minister had to say. The usual scare tactics, for example, the imposition of VAT on food, were totally mischievous. The less said about the 1 per cent income levy the better.
Is the Deputy not happy that it is being abolished?
The overshoot on income tax last year was £149 million and the levy yielded an additional £79 million. The levy was totally unnecessary and was an insult to the PAYE sector.
There are no changes in relation to covenants and no relief for expenditure on higher education. Reference was made in the newspapers to a measure we have strongly advocated. Any analysis of the tax code shows that the cost of rearing a family has not been acknowledged in the tax system. The abolition of allowances has brought about a situation where a person with ten children receives the same allowance as a person with no children. This is patently unfair. We have advocated the restoration of the tax free allowance for children at a rate of £400 per child a year, a measure we have costed. There is no recognition by the Government of the role played by spouses who work in the home on a full-time basis caring for dependants.
Absolutely.
We have advocated that the working spouse should be given a tax free allowance of £1,000——
The £9.60 went astray.
A Deputy
The Government did nothing.
The Taoiseach is being disorderly. He should lead by example.
The Taoiseach is grinning again, and that always worries me. The fact is that our tax system is distinctly anti-family. A person who minds his or her granny at home gets £2 per week tax free allowance. Is the Taoiseach proud of that? That allowance should be raised to £1,000 a year——
Is the Deputy proud that his party took away the child allowance?
(Interruptions)
It is so long since we were in power that people do not even remember it any more.
It will be twice as long before the Deputy's party is in power again.
The Taoiseach can rest assured that the long playing record of citing the Opposition for the Government's failure——
The way the Deputy's party is going it will never be back in power again.
Fine Gael will not be in power for a long time.
Acting Chairman
Deputy Yates without interruption, please.
This budget should have introduced some creativity and imagination into the tax code. There was nothing in the budget for families.
I wish to refer to value added tax, which will increase by 9 per cent this year. With regard to the Minister's comments about value added tax, there was much to be endured and little to be enjoyed. I think it is true to say that the higher the level of VAT the lower the level of activity. Last year a very strong case was made in this House, particularly during Private Members' time, that the 21 per cent VAT on clothing and footwear would destroy those sectors. What have we seen since then? We have seen 1,500 job losses, people put on part-time work and people laid off. There has been a loss of confidence in the design and fashion sectors — people in this sector have pulled out of Ireland. The Government did not take into account the fact that the rate of VAT on this sector is 17.5 per cent in the UK, Holland and France, 12 per cent in Italy and 15 per cent in Germany and that it is time something was done to reduce the rate here. This issue was not even mentioned by the Minister today.
One cannot blame the EU for the top rate of VAT — Governments are entitled to have one standard rate of VAT over 15 per cent and the rate is their business. People seem to forget that by 1 January 1996 we will have to finalise the harmonisation of VAT rates. This means that lower rates will have to be increased to the standard rate of 21 per cent. The VAT rates in the construction industry and for hotel accommodation have to be increased to the standard rate. Woe betide both these sectors if the Minister has not made any progress in reducing the 21 per cent standard rate before the January 1996 deadline. If he has not reduced the standard rate by that time the curtains will be drawn, so of speak, on those sectors. There is no forward planning or reform of the VAT rates in the budget. I could put forward a litany of products which are subject to the 21 per cent VAT rate — child care products, products for incontinent people, etc.
There has been no reform of the 12.5 per cent VAT rate. Since 1980 4,000 jobs have been lost in the confectionary and baking industry. Growth in this sector in Northern Ireland is 7 per cent a year, yet there is a decline of 7 per cent in this sector in the South. No progress has been made in regard to VAT on house building and newspapers at a time when virtually every newspaper company is experiencing losses as a result of imports and increased advertising on RTÉ since the removal of the cap.
We then move to the old reliables. The Minister saw fit to increase by 3p the price of a pint or a glass of beer. He also increased the price of cider, and we are all aware of the problems in Clonmel. Deputy Ferris is not in the House——
He has gone to make a further announcement of jobs.
I am told that the price of a pint of Guinness in the Dáil bar is £1.80. The Government's tax take of that is 37p in excise and approximately 33p in VAT, a total of 70p or 40 per cent. That represents the highest level of such taxation in the EC. It is double the British rate, 17 times the German rate and 50 times the French rate. No country in Europe taxes alcohol as heavily and a further increase is being imposed today.
What about the vintners?
I am about to refer to them. I know Deputy Broughan regards vintners as fair game, too.
They have increased prices savagely in the past few years.
Despite a reduction last year in alcohol sales — especially in regard to spirits — the Government has decided to increase its take from this source. Publicans outside Dublin have very low profit margins. One third of the total number of those pubs produce turnover of less than £500 per week while three quarters of them have turnover of less than £2,000 per week. As they are barely surviving one must ask how much worse off they will be as a result of the increases being imposed today. There will be no headlines but, as has happened in so many other sectors, there will be a gradual increase in unemployment. Staff will be either offered only part-time work or told they are not wanted anymore. They will then apply for the dole or emigrate. That is the effect of a high tax policy.
I wish to refer now to the increase in the price of petrol. Of course, 1.5p on the litre sounds very little but let us call a spade a shovel because, in real terms, we are talking about an increase of 7p a gallon. In recent times there has been a reversal of the trend whereby people from the North were coming south to buy their petrol instead of the traffic being in the other direction. We know that some of the price reductions in petrol are due to currency variations and the appreciation in the value of the punt, but what happens if that position is reversed? Would the Minister then remove the latest increase? For many a car is a necessity. This increase in the price of petrol will increase also the cost of travelling to work. It will affect competitiveness too, in the absence of harmonised tax levels on petrol in the EC.
The fiscal arithmetic of this budget at 2.7 per cent GNP exchequer borrowing requirement, we would broadly agree with but I would put down a marker that the Maastricht guidelines of 3 per cent are redundant. We are now on a virtuous circle. Because of the benign economic factors I outlined earlier, because of the likely revenue growth, we should forget about the 3 per cent and focus solely on the debt-GNP ratio. We must make good progress by reducing it to 90 per cent and working towards 60 per cent because 70p of every pound of income tax collected goes to pay interest on the debt. We must reduce that ratio in the long term. Given that the Minister has allowed the current budget deficit and the Exchequer borrowing requirement to increase, the PAYE sector has very little to gain from this budget.
I now wish to turn to social welfare. The changes in this area were really self financing when one considers the tax changes also. No doubt the 300,000 unemployed were delighted to hear that the Minister was thinking about them but he was thinking about them in a slightly different context. He had in mind taxing them, taxing their pay related benefit so that he will take £18 million from them now and £30 million in a full year while none of the anomalies in the social welfare code are being rectified.
Our social welfare system has within it an anti-family core. Old age pensioners are told that once their son or daughter has reached the age of 18 they should get them out of the house or they will lose their free electricity allowance, free fuel allowance and free telephone rental allowance. In the meantime young people are being told that if they continue to live at home their board and lodgings will be assessed for the purpose of unemployment assistance eligibility. They are being told that if they leave home and get a flat they will be given £40 per week rent supplement. The system is riddled with anomalies, it is costing the State money and it needs radical reform. Nothing was done in that regard today. The increase in payments to pensioners will not come into effect until mid July. In Britain, the social welfare increases take effect in the week after the budget while here there are delays of several months.
We are told that the Minister for Social Welfare is to make improvements in regard to the carer's allowance. A radical change in the income disregard is what is needed because the majority of the 60,000 women, principally, who care for their relatives are denied the carer's allowance because their husbands' incomes are taken into the assessment for eligibility purposes. That must be changed.
In Britain, Kenneth Clarke's budget proposed a radical change in relation to the incentive for lone parents by introducing a child care allowance to encourage those parents to go back to work. But the Labour Party here does not believe in any such move; it believes in dependency and keeping people in the social welfare system.
If there was little imagination in this budget there was certainly little compassion. A very modest request was put forward for a new mobility allowance for the 1,200 people who are disabled and whose quality of life would be greatly improved by such payments. Nothing has been done for them and little or nothing has been done for the self employed who still have not received their proper pension entitlements.
The change the Minister has made in relation to raising the threshold of medical expenses for disabled persons is mean in the extreme. A family must now have medical expenses of over £300 before they can get a penny back, and the VHI will be out of their reach. But the most dangerous development of all — is that there is a total reliance on the voluntary sector to provide for the disabled. What is happening to them? With the success of the national lottery they have seen the moneys they collect from their own lotteries and from other fund raising activities decrease by £20 million a year. The money they receive from the national lottery is only £8.3 million. They have lost out heavily. The MS Society had to cease operations recently because of financial difficulties, its fund raising draw had been dropped. The Rehab Lotteries are in severe difficulties and yet the Minister has made no reference to levelling the playing field and increasing the ceiling prize fund of £10,000 per week for those who are running private lotteries. Another problem is that revenue from the employment levy is not being diverted to the disabled. There has been no mention of allocating specific moneys in this area which continue to be used up by FÁS. It would take very little to amend the corporation tax regime so that donations to charities could be exempt from corporation profit tax.
I wish to turn now to the probate tax, that most injudicious, iniquitous and unfair tax on death that was introduced last year. The position whereby there is no provision for credit against inheritance tax liabilities has not been rectified. One cannot administer to the estate of a person who has died unless one takes out a grant of probate and one cannot do that without having a certificate from the Revenue Commissioners confirming that the liability to probate tax has been discharged. This means that a person could have £20,000 in a bank account but would be unable to have access to it to pay the probate tax. This probate tax should be abolished. The Minister, in making changes today in the agricultural sphere in relation to relief for spouses, something he would not accede to in the Finance Bill, having spent a whole day on the subject last year, has admitted he was wrong. Now the tax is meaningless. The exemption level of £10,000 is quite appalling and should be abolished.
I know the Minister is more interested in Sheriff Street and pet projects in his own constituency than in the farming sector but there is nothing in this budget for farmers. There was nothing to encourage transfers of land to young farmers — no stamp duty exemptions, nothing about headage payments to which there have been references in the context of the Programme for Economic and Social Progress and nothing on the capital acquisitions tax threshold for inheritance tax. People with milk quotas and so on are devastated; they cannot transfer their land because of the low threshold, despite promises by both Fianna Fáil and Labour during the general election campaign. My own constituency was very severly affected by crop damage. The provision of £1 million in respect of fruit and vegetables will have little impact.
There has been no special package for alternative enterprise. Our mainline agricultural products are capped to the hilt. People are now looking at alternative enterprises, agri-tourism and so on but there has been no special package for them.
I am sorry the Minister is not present because I wanted to conclude by commenting on his performance in introducing this his third budget. Perhaps I will have an opportunity later this evening to do so.
Today we had confirmation of this as the most boringly drafted budget for some time, illustrating that the reason this Minister gave up a career in accountancy was because it was too exciting. We know that the Minister is a prisoner of the mandarins in Merrion Street. Next year I predict that what he will do is what is done at the Ard Fheis, put in the glass panels, put it on auto-cue and feed the text straight in from Merrion Street so that the Minister will know exactly what to say.
The Deputy should never point the finger at civil servants, Ministers carry the responsibility——
I have absolutely no criticism to express of civil servants. Indeed, they are doing a constitutional job very well in the Department of Finance. I have the height of regard for them; they are paid more than any other civil servants but deserve it. However, I do not believe the Minister for Finance should be their prisoner.
When pint drinkers raise their glasses in rueful regret to the Minister——
The last cheap pint.
——they might reflect on this budget. When the Minister is finished his ministerial career, he should not endeavour to take out a stockbroking licence. Over the past year he dabbled on the stock market. Interestingly enough he did not do so today. Perhaps that is because it is not an important election year. The Minister did not sell any shares in Irish Life, but he was warned last year that the Stock Exchange was moving ahead, that all equities, having been in the doldrums for three years, were ready to move ahead. He persisted in selling Greencore shares at £2.75 per share. He very nearly did not succeed in selling them; the sale practically collapsed in his face, but he raised £69 million from it. Had the Minister taken advice and held on to those shares — we know how much money was over last year — the taxpayer, looking into that expensive pint this evening, would not have suffered the cool loss of £28 million arising out of the sale of them at £2.75 per share when they stand now at £3.90 per share.
Not satisfied with that, our Bertie proceeded to sell shares in Irish Life at £1.90 while today those shares stand at £2.50, another cool shortfall of £33 million. Therefore, the financial wizadry of this Minister should be reflected on by those pint drinkers this evening, that there was a cool loss of £61 million to the taxpayer arising out of his dabbling on the stock market. As Arthur Daly would say, "a nice little earner" for those who bought the shares so cheaply. But, if we do not have "Bertie the broker" certainly we have "Bertie the stroker". We have today seen his penchant for developing projects in his constituency such as a centre at the North Wall and another centre in Sheriff Street, not to mention the £5 million for Croke Park.
This Minister has developed a new art form of monkeying around with the public finances. Yes, past Ministers have pulled the odd stroke, such as VAT being imposed at the point of entry and so on, but this Minister has developed a new art. For example, last year the National Treasury Management Agency saved £279 million on the national debt, more than had been anticipated. One would expect that that would be put into last year's accounts but only £100 million was and £179 million has been put into this year's accounts. Might we expect that the £179 million would be allocated to reduction of the national debt this year? No, rather there is to be another wheeze, a change in the system of meeting payments on Post Office Savings Certificates.
I could bore the House with further detail. There are two systems of accounting; either one utilises a cash system or one engages in an income and expenditure system based on accruals. For one, we have one system and for another, yet another system. Therefore, we now have the credibility of the financial system not being based on a cash system, or on another system, but rather based on whatever the Minister says it is to be to meet the needs of the day. This is not a general election year and the Minister does not need the money. Similarly, there was a tax amnesty in 1993 but its receipts went into 1994. We have had pay arrears, a veritable yo-yo, transferred in the last week of each year, and brought foward from one year into another. In addition, we have had the old practice of Supplementary Estimates being restored, with £538 million involved. This year again there is no provision for pay in today's budget. Rather there is an open cheque waiting to be picked up by the poor, unfortunate taxpayers who received no relief today.
I should now like to consider the fiscal performance of this Minister. Since he assumed office, over three successive budgets, the national debt, by the end of this year, will have risen by £4 billion, the unemployment figures will have risen by 30,000, with taxes and spending having reached a record high, at £1.8 billion and £2.2 billion respectively.
We have no exchange rate policy. God help us if sterling falls through the floor, and their fundamentals in the United Kingdom are not so strong, bearing in mind their balance of payments deficit and public sector borrowing requirements. If that occurs I expect we will jack up interest rates and devise a policy as we go along.
We have a Minister who tried to wrap the green flag around him in relation to the currency crisis but ended up raising the white flag. We have a Minister who had to raise the white flag in Europe when it came to the botched handling with Monsieur Jacques Delors of the Structural Funds. It is no wonder that Monsieur Delors was reduced to expletives when it came to Bertie's creative accountancy.
Despite all the opportunities that obtained uniquely at the time of its drafting, we have today a budget that does not offer hope, that shows no leadership, no vision and no focus. I fear that the chickens will come home to roost over the lifetime of this Government when they reflect on the higher taxes and on the fact that there is no medium term planning. This country, and particularly the school leavers of 1994, deserve better. Therefore, we will be opposing this budget.
Of all the budgets of recent years probably this is the one about which there was the greatest, most intense speculation with regard to just how radical it might be because, for the first time in almost two decades, the Minister for Finance had considerable room for manoeuvre.
The Minister's presentation of his Budget Statement was more "fudge-it" than budget in terms of what one might have expected. I was minded of a television advertisement as the Minister drearily read his Budget Statement earlier sponsored by Black and Decker many years ago which claimed to make boring exciting. Certainly, whatever happened today by way of budget policy was no Black and Decker performance.
We must remember that we are now one year into the life of this Coalition Government. Therefore, this budget affords us a chance to stand back and assess their strategic view of where we are, indeed where they want to take us over the medium term. One year ago, after presenting an appalling budget in many respects, one that contained quite a lot of error of judgement, the Government asked what could it have done bearing in mind that we were emerging from a currency crisis, reeling from it and, anyway, it was only fresh to office.
This budget bears the fingerprint of this Administration. Indeed, it affords us the ability to test where it wants to go over the medium term. In that regard it is a "steady as she goes" kind of budget, more of the same, very conservative. One of its key deficiencies is the absence of a clear, medium term strategy. That may emerge in ensuing days in a comprehensive manner on pay policy but it is not paralleled in other significant respects with clear, measurable, targeted performance so that we, in Opposition, or the public in general could stand back and assess where it wanted to take this country and how far it had gone towards that achievement.
This budget was framed against an international outlook showing signs of recovery in the United Kingdom, within the European Union, and in the United States. There is a presumption about growth rates here, too. We are entitled to use any analysis of today's budget as a critical test of how progressive and radical this partnership Administration is prepared to be in the medium-term. The Government has had a year to reflect on its long term view and this budget sets the markers.
To start, we will look at the Government's fiscal stance. If our economy is to go anywhere, those responsible for putting policy together must ask themselves what are the major structural defects in our economy over which they can exert real and substantial control and by so doing, try to generate more employment, which is the key issue. As a first test, we should look at Government spending and the continuing growth in current expenditure. In the 1990s we are in a spiral of expenditure growth in current expenditure — much of it driven by the first Programme for Economic and Social Progress. At its most basic, more spending means more tax, or more borrowing and more tax deferred. Public spending means that the Government spends more and taxes more or where it borrows it will impose more tax tomorrow. Tax increases put more pressure on marginal jobs and added pressure in terms of competitiveness; it also results in larger dole queues. It is a good starting point to look at the stuctural defects and ask ourselves where we are going in terms of the growth in current expenditure. In 1990 the gross total non-capital expenditure was £7.8 billion but after today's budget the estimate is over £11 billion. The planned increase in current spending from 1990 to January 1994 is 41.2 per cent. This has occurred over a period when the sum of the inflation rates — whatever about the compound rate of inflation — is around 9 per cent. We have a structural flaw and we must ask whether it is being addressed or will be addressed in the medium-term. Let us look at the Government's performance in this area. This partnership administration produced two budgets — in 1993 and in 1994 — which have added £1.5 billion to current expenditure. The expenditure of an additional £1.5 billion requires additional taxation of £1.5 billion or additional borrowing. Over the two years the increase in expenditure has been 17 per cent. Indeed, the increase in expenditure last year, taken against the rate of inflation of 1.5 per cent, was probably one of the most significant increases in the 1990s. I have looked at the figures and the increase for this year is almost 8 per cent. The Minister told us that the rate of inflation will be approximately 2.5 per cent, having been fuelled by the excise increases and other indirect tax changes which will be voted through by the Government majority later today, but against that the growth in public expenditure is three times greater again this year. That is a major flaw in the budget and in the direction the Government is trying to lead this country. Since 1990 we have spent £3.2 billion more and this means we must raise an additional £3.2 billion in taxation. This has brought us to a point where 40 per cent more are unemployed today than in 1990. It is the assertion of the Progressive Democrats Party that there is a direct link between the flawed continuous growth in public expenditure and the enormous growth in the level of unemployment. In the target set by the Minister in today's budget the Exchequer borrowing requirement, the more traditional budgetary measure, is going up. This is happening in the context of the National Economic and Social Council setting a medium-term strategy for the economy in which it says precisely the opposite should happen. In this budget the Government rejected the essential agreed strategy recommended by the National Economic and Social Council of arresting the continuing growth in public expenditure through cuts in current expenditure. This is not just what the Progressive Democrats recommend but the precise formula that the National Economic and Social Council recommended in its medium-term strategy.
In terms of fiscal discipline, the Maastricht guidelines of keeping the general Governmental deficit within 3 per cent GDP is only one part of the Maastricht equation, the second is that the combined debt to GDP ratio should be not more than 60 per cent. It would be wrong to suppose that the Maastricht guideline is, in fact, a targeted policy, it is simply a guideline beyond which we should not go. I cannot understand that in a year when all the predictions for the international — and our — economy are for greater dynamism in terms of performance we had to add to the growth in current public expenditure at a stage of the business cycle when we could get away with the exact opposite or a neutral budget.
There has been a major strategic error. In the good days you make provision for the bad days but the seed corm for dealing with the bad days has been ruined by failing to exercise due prudence in better times. This budget is going in the wrong direction in terms of its fiscal stance and I criticise the Government for rejecting the essential strategy recommended by the National Economic and Social Council. The Progressive Democrats set one fence and not a very difficult fence to jump — a measure that would tell us where this Government is going.
The NESC in its medium-term strategy says that we should set a minimum target for the debt-GNP ratio of around 95 per cent by 1996. When I looked at the Minister's speech I did not see a medium term target. I also looked for specific targets on tax and other areas but they are not there, because the Government wants to make them up as it goes along. We have defined one significant structural defect crushing the capacity to sustain competitiveness and to create more jobs at the rate required, that is, the continuous and excessive growth in public spending. In this regard the budget fails the first test.
In regard to structural defects in the economy, the Government has been in office for a year and has had a chance to stand back, to set targets and to take a long view. How is it that Irish economic growth is not being translated into actual jobs? We had it rehearsed here today that there are basic achievements of which we can all be very proud. I wish to get back to basics on aspects of the Irish economy. During the three years of the Programme for Economic and Social Progress— now expired and due to be replaced — GDP growth averaged 3.5 per cent per annum as against 0.5 per cent for the European Union and a fall of 0.25 per cent on average in the United Kingdom. Today the Minister again rehearsed this familiar refrain about how well we were doing.
Irish growth is fuelled substantially — not exclusively — by export growth. We have had a very impressive growth record in merchandise exports of over 11 per cent. Such figures are not just peculiar to the period of the Programme for Economic and Social Progress. We have to stand back and take a long view. We continue to say that job creation matters most. What is wrong with Irish growth that it fails to deliver? Between the years 1980 and 1992 the economy, as measured by standard national income statistics, increased by almost a half. During the same period the volume of exports increased by 168 per cent. The national cake was half as big again at the end as at the beginning and the export slice had grown enormously. What was the jobs dividend during that 12 year period? There were 3 per cent fewer at work in the Irish economy in 1992 than there were in 1980 although our wealth, measured in conventional terms, had grown by a half. At the core of wealth generation is manufacturing industry and, although output doubled during that decade, one in seven manufacturing jobs was lost.
One does not need to be a keen observer in terms of examining the Irish economy or international statistics to know that these so-called achievements, of which we are very proud, carry a very hollow and superficial ring when judged against the scale of our continued unemployment crisis. Growth without jobs needs more than the odd nod or passing reference. Judged by standard measures, there is almost no evidence of recession in Ireland. If you take all the best ways of collecting statistics on national income, which we follow assiduously although we change the sums every now and again, there is little evidence of recession.
A significant part of our growth is phantom growth, a complete illusion. The growth figures have been puffed up through multinational export-oriented firms engaged in transfer pricing. One study which compared export statistics and output statistics for 1990 for two sectors was very revealing. In 1990 the chemical industry in Ireland exported more than half as much again as the output statistics said they had produced in terms of value. The office and data processing equipment sector exported a third more in value than the sector is supposed to have produced. In getting back to basics, I started with public finances. Now I wish to turn to the issue of growth. Let us stop clapping ourselves on the back for achievements which commonsense, economic analysis, the man in the street and anyone in the Department of Finance or elsewhere knows to be an illusion. We talk about fundamentals but they are totally phoney. The so called fundamentals of the Irish economy measure a vibrant pulse but the pulse is measured for the wrong patient. There are two Irish economies and they have modest linkages — more modest than some of our official rhetoric might suggest. Our official statistics are distorted by the super performing tax-induced Olympic gold medal firms. We pin these gold medals on our chest and say how well we have done in performance terms. Meanwhile much of the Irish economy actually belongs to the community games. We are conducting a debate on public policy based on an illusion and we are producing prescriptions for our community games economy as if the fallacy of our being Olympic gold medalists were true.
The Central Bank statistics of our growth, measured in GNP terms, from 1989 to 1992 produced a very interesting figure. They found that during that period, measured in the standard way, our economy grew by almost 19 per cent. Based on an alternative indicator which they developed, they said that the reason for such bad results on the jobs front was that perhaps we were examining the wrong pulse and we ought to try something else. They arrived at an alternative indicator which mirrors the cycle of economic performance in Ireland extremely well and that reduced the growth and the illusion from 19 per cent during the three years to 7.7 per cent. An article in the Central Bank quarterly bulletin for winter 1992 by two staff members, Messrs. Fagan and Fell, deals with the second basic flaw in the way we do our economic business and analysis. It states:
It was once said that Andrew Carnegie, the steel tycoon, had his own private leading indicator of business activity, which was simply the number of factory chimneys blowing smoke. Mr. Carnegie reasoned that if the number was high, business was good. However, in today's economy, the Environmental Protection Agency probably would have rendered the indicator obsolete. This story highlights two important aspects of Leading Economic Indicators: (a) they are easy to understand and (b) every indicator needs periodic review.
We come into this House and we talk about an illusion. We should refocus the way we talk about this economy. We are not an Olympic gold medal performer. We are a community games economy that would like to get some people through to the Olympics, while others would settle for a decent run in Belfield or in the Mardyke in Cork on a Sunday afternoon. We have got to refocus or we will always take the wrong pulse and we will prescribe for the wrong patient.
I wish to turn again to the issue of translating growth into jobs and to incomes policy, another significant medium term area in which we have real control and where something real can be done. I want to look at the Programme for Economic and Social Progress and ask what is its reality. We are now through the first full cycle of the Programme for Economic and Social Progress. We know that the Programme for Economic and Social Progress has made us less competitive compared with many of our trading partners and that it has increased our unemployment by 40 per cent.
Last year public service pay accounted for 53 per cent of net current spending on public services. More than half of all public spending was accounted for by public service pay. From 1990 to 1993, the period of the Programme for Economic and Social Progress, the public service pay bill went up by £880 million from a base of £3.16 billion. It was an increase of 28 per cent when the cumulative inflation was 8.2 per cent. That is not sustainable.
One of the big transmission mechanisms to encourage growth is our incomes policy. However, in the past our policy in that regard resulted in more unemployment. Leaving aside all the rhetoric, our incomes policy has delivered unsustainable high levels of unemployment. We are increasing spending to combat unemployment, necessitating more taxation which costs more jobs. That is the outcome of the first Programme for Economic and Social Progress and it does not work as a formula. The Government had the option to recast the Programme for Economic and Social Progress or enslave us to a model which we already know does not work.
This House might imagine that we have some kind of sovereignty in relation to public policy but that is not the case. The key medium term decisions for this economy in respect of pay are virtually already made or being made behind closed doors by people who are neither elected nor publicly accountable. Occasionally elected people encourage them to even more excesses of the sort that caused unemployment to rise by 40 per cent since the beginning of the 1990s. I have the strong impression that for the people behind closed doors, cutting a deal that suits their own interests and gives them a quiet life is one of the key reasons for the kind of product that emerges.
Unfortunately over the next several years the economy under this new administration is doomed, in the matter of pay policy, to repeat the economic performance of recent years rather than to learn from it. That is a failure. The elite included in this process go into the Taoiseach's Department and, judging from the film clips, fill their nostrils full of the heavy scent of cigar smoke from Havana, while the unemployed for whom we shed crocodile tears are totally excluded from the process. The unemployed have their own forum, the national economic and social forum and they do not inhale the scent of Havana cigars. They only inhale fresh air and blow it out again, that is what they get on the dole queue and what they will get out of the Programme for Economic and Social Progress as it is not really concerned with the unemployed.
It is the thesis of the Progressive Democrats, having reviewed the first Programme for Economic and Social Progress, that the level of unemployment is a consequence of the Programme for Economic and Social Progress and the medium term income strategy. The path on which we are again headed, which will lock this Government for future budgets into cycles of continued growth in expenditure, is not what the economy really needs if jobs are the priority. For the Programme for Economic and Social Progress, unemployment is the residue which is dealt with at the end of the day. If we are serious about tackling unemployment, locking everyone into the rigidity of a new Programme for Economic and Social Progress is the last thing we need.
Last Monday, partly to prepare for this exercise, I visited a small clothing firm called Eurostyle in Cork city and leaving aside the high view about the National Economic and Social Council strategy, Central Bank reports and playing around with economic statistics, I discovered that the management there did not want another Programme for Economic and Social Progress. They regard it as a straitjacket because they are in a viciously competitive market place which can change for all sorts of reasons, exchange rates or because Kenneth Clarke in Britain reduces PRSI for the clothing trade to half what it is here in respect of PRSI. They have to respond in the market where 60 per cent of their product which yields 55 full time jobs has to be sold.
When one discusses this strategy with people with jobs, one finds that they do not want what is being visited upon them. If we look at the public spending consequences that will emerge from this we will find that the rest of the public may not want it either. However, it does not seem to matter what people want because the decisions are made behind closed doors. We will get a deal which will be brought in here as a package, we might get an opportunity to discuss it or make statements on it and that will be the beginning and the end of it. Thereafter we are locked in for the medium term come hell or high water. That is not the way to do business in an economy where there are 300,000 people or more unemployed and whom we say are our first concern. They are not our first concern if a rigid incomes policy is the outcome of the current round of negotiations.
These negotiations are another major structural defect that has now been stitched up away from this House, which will keep revisiting us like Banquo's ghost, which will haunt us every year for the balance of the life of this Government. We will be told that the agreement must be honoured, I accept that we must honour our agreements, but when one has tried a formula and has found it wanting, it is wrong to use it again. There again, the Progressive Democrats part company with this Administration's choice which in the end will prove not to be the proemployment push that should have been given and that should be evident from today's budget. That is missing, another silent partner lost in all the bits and pieces that have been changed by this budget. There are some good changes but there is no fundamental strategic sense of change in direction. We know what that policy has delivered by way of employment. If there is not a fundamental strategic change in direction we know what it will again deliver.
It is the contention of the Progressive Democrats that more take home pay is the real issue on which we should focus in relation to all workers in the public and private sector. The Progressive Democrats believe that the medium term strategy of this Administration on incomes policy is flawed because it is a repetition of a formula which has been tried and failed. The Government should have held a tough line on pay to afford an even more generous line in favour of competitiveness. It has failed in that task and we will pay the price in the medium term, in the context of jobs. The Progressive Democrats believe it is excessive tax and, indeed, it is public spending rather than inadequate pay which is crippling the economy in terms of its performance.
In addressing the question of why are we so bad in translating growth into jobs I would like to touch on taxation. The tax wedge — what it costs an employer to take someone on and what an employee takes home — can be used as a yardstick against which one can evaluate today's budget. Clearly, going on the budget, the position will improve and if there is a move in the right direction I will welcome it.
The first item to come up for review is the 1 per cent income levy. Since it was announced in the budget last year, and in every subsequent debate in this House — the Progressive Democrats consistently and ardently opposed this levy on income. It was a fifth tax on work although this was denied by the Minister. It was equivalent to a 2 per cent increase in the standard rate of tax although this was not mentioned by the Minister until he decided to do away with it. It was nothing more than a crude "smash and grab" tactic to raise money. As the Exchequer returns at the end of the year showed, it was unnecessary from the point of view of the public finances.
The Progressive Democrats does not applaud the abolition of the 1 per cent income levy; rather we acknowledge it. In all probability the Minister, who announced it with ashes on his forehead on Ash Wednesday last year, returned to the House today to complete an act of repentance before the public for a sin he should never have committed against the PAYE sector. When the Minister announced that he was going to remove the 1 per cent income levy he got a little round of applause——
It did not last.
—— from the buachaillí and cailíni of the party that was going to put justice in economics and trust in politics. However, the Minister did not deserve a round of applause; his decision represents no advance because all he has done is put the clock back. The removal of the income levy does not amount to tax reform but to an act of repentance.
Receipts from the tax amnesty amount to £240 million. According to the reply I received to a parliamentary question earlier today £231 million is included in the figures for the budget. It is interesting to note that £190 million was raised by way of the 15 per cent Albert amnesty and the balance by way of the general amnesty. I am glad — my party and I made this point during the course of the debate on the amnesty — that once-off receipts are to be dedicated to once-off expenditure. This should be welcomed and acknowleged. It would be a double travesty if recurrent spending was to be met from once-off immoral earnings.
The amnesty receipts are an illusion in that, I think, some payments that we might have received were brought forward and in other instances we received less than we would have because we settled on the cheap. In talking about our achievements over the past decade the Minister said: "I need hardly point out that even-handedness in the enforcement of obligations is fundamental to tax equity and public acceptability of taxation". The tax amnesty breached and reversed the concept of even-handedness and amounted to an insult to taxpayers.
I observe from the reply to another parliamentary question today — this is significant in terms of justice and equal treatment — that in 99 cases where the people concerned paid income tax after 14 July 1993 to the Collector General and the amounts paid were not disputed, that they are to get their money back and will be allowed to offset it against other taxes. They have paid approximately £100,000 whereas the amount to be offset against other arrears is £95,000. Even though the amounts were not in dispute and they had paid over the money they were able to say that they thought they had made a mistake, that they could have availed of Albert's amnesty. Those who availed of the amnesty got away with blue murder in terms of equity. It amounted to the most savage attack ever made on the integrity of the tax system and the baloney in the Minister's speech should never have been uttered from the lips of a man who promoted a travesty of justice with vehemence in this House and its committees during the past 12 months.
I notice that many reports appeared in the newspapers about the property tax in which concern was expressed by the socialist members of the administration about the implications for some of its members in south County Dublin and elsewhere. I am not sure whether I heard it in Michael Ronayne's report — many accurate reports appeared in the media — but I thought the Minister was going to set up a committee to review the property tax. I will have to read the Budget Statement again but I do not think the Minister mentioned it. I thought the hot potato was going to be given to a committee to be put on the top shelf or in the bottom drawer.
I do not want to advocate wholesale property taxes but, as we all know, there is a need to broaden the tax base in view of the fact that the income tax system cripples enterprise, effort and employment. However, this courageous Administration with the largest majority in the history of the State cannot even set up a committee to consider whether something should be done some time in the future so great is its commitment to radical reform of the tax system.
The residential property tax is interesting. Following the changes made today, for every £100 in residential property tax a person will have to earn well over £150 gross. Given the proposal to allow mortgage interest relief at the standard rate, to increase residential property tax and the possibility, because of financial constraints, that service charges will be introduced the property sector will become the new piggy bank into which those involved at every level of public administration will dip. Perhaps by the time the Finance Bill is presented the Minister will be radical and adventurous and set up a committee to review the matter even if in the end he chooses to ignore its findings.
On the question of probate tax, I welcome the decision not to tax spouses. The decision to reintroduce that tax last year was disgraceful. I welcome the very modest provision for the market value of agricultural land. However, the tax itself is a mean-minded disastrous no-good tax. It should not be on the tax book. Probate tax is the old estate duty dressed up in a new Sunday suit, given a new name and put there to raise a few bob last year with the levy and all the rest — smash and grab, take what you can and to hell with the consequences. The probate tax itself was replaced by a whole gamut of taxes in the area of capital taxation which were designed after a Government White Paper to replace death duties. After today's budget we still have the gamut of capital taxes that replaced estate duty and we will have estate duty as well.
As I read different sections of today's budget I wondered what it will be like for the people who are going to live on Ireland's new golden mile. I would like to be the Minister for Finance once, the night before the budget, in order to slip a few things into the constituency — for Sheriff Street Youth Club, £250,000; for a new premises for the North Wall Women's Group, £330,000 — the total spend in a particular constituency — if my boundary presumptions are correct or at least in near neighbours if they are not — is £580,000. We will get to Croke Park and Hill 16 in a minute.
That is the first time I heard a Progressive Democrats Deputy talk about Sheriff Street.
Wait until you hear what is going to happen to Sheriff Street.
That is not the first time. The Minister should listen to me more often. Under the same heading for sports and recreation facilities there is £3 million for the rest of the country. Would it not be lovely to be able to operate one's politics inside the golden mile and sort out a few things? While I am on the golden mile, what about another beaut? I am sorry I did not see the Principal Features of the Budget earlier because it is usually a goldmine of information. I regret to say that I have not had the chance to dine out on it up to now, but I found one little nugget about the golden mile that was interesting; the Government is going to extend the designated area allowance and all that goes with it to a site "guess where" in Sheriff Street — and now the Minister has heard it mentioned by a Progressive Democrats twice in one night.
It is too much.
Luxury flats are to be built.
While I am talking about constituencies——
National or European?
Let me express one concern to the Minister about my own Dáil constituency in Cork. The Minister is responsible for providing a range of marketing and other incentives for regional airports. Good luck to the regions who want to develop an infrastructure and let it take off and be a vital part of their own development. With that I have no argument. Good luck to people who get subsidised air fares to link into what networking is done out of Dublin Airport. However, there is one thing I want to say in respect of Cork to the Minister for Transport; there is a sense there that, in what has been agreed so far in terms of marketing provisions that is taxpayer-financed and in terms of subsidised costs for traffic between those airports and Dublin, there is a lack of a level playing field.
Look at the passenger numbers and you will know the exact story.
The system is not fair. What the Minister is doing is giving taxpayer finance in some neighbouring areas to fund a beg of my neighbour policy for some of the traffic that will come. That is an irrational and wrong approach to take to long term management of that kind of interest.
Wrong.
There is one example I want to give tonight. Take someone earning £30,000, who has been living in a home worth £100,000 for a number of years, and has a mortgage of £30,000. I give this example because I want to do some of the sums arising out of the budget. This person gains a little in the 48 per cent band because of the changed allowances; he gains on the 27 per cent band and in respect of the levy. The gain is £678 on an income of £30,000 but he loses on mortgage interest relief, VHI and he must pay the extra residential property tax, a loss of £331. This means the net gain, good news for the household, is £349.
To come back to the question of jobs with which I began, the bad news is that the extra employer's PRSI for someone in that wage bracket is up by £549. To hire a person at £30,000 the employer will pay the Exchequer, for no change in circumstances, an additional £549 but after all the tricks and sums are done, the employee will be £349 better off. That does not make sense in terms of overall employment. The Progressive Democrats believe that PRSI should be integrated into the income tax code. It is an argument we made in Government, and that we still make. It is a point in terms of difference of approach which I would emphasise after what I have seen in today's budget which again explicitly defends a separate social security tax. We need radical reform on the PRSI front in terms of reducing rates and of having a medium term strategy to integrate with income tax so that we get a tighter focus on what it is doing to employment, competitiveness and employers costs, and that is not evident in the reforms that were mentioned here today.
Last year the public pay bill went up by £347 million, a rise of 9.2 per cent in a year when inflation was 1.5 per cent. Whether public servants should get their pay is not the issue. I ask myself what else could one do with such an amount of money. Public spending means more taxes. If the Government was not spending, what could it take off tax. If the Government had £347 million to spend but decided to put it into cutting taxes, on a full year basis the standard rate of income tax could be reduced from 27 per cent to 22 per cent, five percentage points. The top rate of tax could be reduced by ten percentage points from 48 per cent to 38 per cent, or the standard rate of VAT which is crippling so many industries could be cut by a full four percentage points. Imagine what any one of those changes could do if we chose to cut taxes rather than increase spending.
This is a Government which has chosen to increase spending. There are now 297,000 unemployed on the live register, approximately 35,000 on FÁS training programmes and various schemes, nearly 18,000 over 55 year olds signing on and 6,500 on short-time, an enormous total of 350,000. Of those, 85,000 are under 25. I do not believe the programmes and schemes contemplated today will address the problems of those people. Last week my party launched a programme initiative in respect of the unemployed under 25 which I hope will be looked at in detail before we deal with the Finance Bill later this year.
When one looks at the post-Culliton appetite for agency creation by this Administration — and the point was also made by Deputy Yates — one sees that we are going entirely in the wrong direction. Agencies will have public spending budgets so there is already a push to spend more and I do not believe that agency-driven solutions are the answer to what is wrong with the Irish economy. The Progressive Democrats are agnostic about the agency-driven approach. Culliton said to cut the number of agencies; this Administration responded by increasing them.
It is the basics of the Irish economy that are wrong and the basics of this budget will give the service sector, where most jobs are created, very little by way of good news. There is little reference to the construction sector, except a brief example of how the State could gain by tackling the black economy in construction. On a project costing £4,500 including labour, contents, VAT and so on a legitimate contractor will pay the Exchequer £1,384 whereas a black economy operator will pay £250 in VAT and a person doing a nixer will receive £525 in dole. The gap is £1,659 of Exchequer interest in tackling the black economy in the construction sector.
The motor industry will regard the announcements in today's budget as better than nothing. I put forward arguments last year for changes in capital allowances and I welcome the changes in that regard; they are meagre but better than nothing. In 1973 when they were introduced one could have bought a Ford Granada but with today's changes one could not buy even a Ford Fiesta. That is an idea of how far out of kilter those measures have gone.
The core argument in all this relates to our ability to rely on ourselves as a nation, to identify the blockages in creating jobs out of growth and to address them coherently in the medium term. That is lacking in today's budget. Between current and capital receipts in 1993 we received £2,241 million from Europe and we repay a similar figure on our national debt mortgage. We are spending the equivalent of what we called the Structural Fund bonanza redeeming our national mortgage each year. Because of our high level of unemployment, our high spending and high taxes, our dole bill is approximately £1 billion per year and because of our mismanagement the combined cost of dole and debt was £1 billion more than the inflows from the European Community last year.
How far has this budget gone in tackling the structural defects in the Irish economy? I welcome some of the changes but it has hardly even scratched the surface. Public spending has continued on a path of increasing current Government spending at a multiple of the rate of inflation, precisely the opposite to that recommended as a medium term strategy by the National Economic and Social Council. Also, the budget does not set any medium term targets.
What will it achieve in regard to real growth or the illusory growth for which we clap ourselves on the back? It will do very little. What will it achieve in regard to pay? It is not very explicit in regard to pay because those who devise public policy do not belong here. We are about to repeat a formula that increased unemployment by 40 per cent in the nineties. The budget proposes some changes in regard to taxation, poverty traps and the low paid, but they are very conservative. There is no danger of any big bang or even a little fizzle from the Minister for Finance. There is a plethora of schemes and programmes for the unemployed and a belief in agencies. However, what we really need is a sturdy belief in self-reliance versus the self-induced hypnosis that goes with the dependency on European handouts outlined in the development plan. We did not signal any medium term targets of substance on spending or tax. We are still spending too much and ignoring the NESC formula.
Today's budget is a disappointment because for the first time in two decades we could have brought off losers by rejigging a highly imaginative radical package. Listening to the Minister's speech was about as exciting as watching paint dry. It was certainly not worth waiting 20 years to hear.
I would describe this as a buckshot budget with the Minister for Finance scattering available resources all over the place in a way that avoids the need for an overall economic strategy and dilutes the attack that might otherwise have been mounted on unemployment and poverty. If the Minister, Deputy Ahern, is to be depicted as the modern day Robin Hood, he has assured us that there is something for everyone in Nottingham, including the Sheriff of Nottingham, not to mention Sheriff Street. However, when the froth is blown off the top of this budget it will be seen as a missed opportunity and will incite fury from middle income earners.
When it comes to managing this economy, the Government resembles the set of a Hollywood movie. From a distance the facade appears solid but up close there is nothing behind it. Last year the excuse for introducing the most non-descript budget in 20 years was that there was not sufficient time for preparation. As a result, valuable time was lost in tackling unemployment, poverty and social exclusion. The average monthly employment figure in the first 12 months of this Government increased by 10,000 people. The new partnership that was designed, in the words of the Tánaiste, to change forever the face of Irish politics decided to postpone change for another year. The Labour Party's sheer hard neck allowed it to co-operate with Fianna Fáil in introducing a further penalty levy of 1 per cent on compliant taxpayers while at the same time introducing a "write-your-own tax bill" amnesty for big time tax cheats. Taken together with the mishandling of the currency crisis the effect has been paralysis.
Despite a larger national cake the right to work of the unemployed has been ignored while the benefits of a growing economy, including the benefit of tax reductions, such as they were, have been enjoyed exclusively by those who are better off. As far back as 1986 the Commission on Social Welfare, to whom the Minister referred in his speech, recommended a minimum living income for everyone. Since 1986 we have had four Governments, two published programmes for Government, the Programme for National Recovery, the Programme for Economic and Social Progress and the National Development Plan. What has been the net effect of all of that? More people are out of work, more people are living on or below the poverty line and there is an increase in marginalisation and social exclusion. Despite the depth of the crisis the Labour Party was happy to sing from the same hymn sheet as Fianna Fáil. After all, what is another year?
We were told not to judge the new partnership Government on last year's budget. Apologists for the inactivity promised a radical and reforming budget in 1994 aimed at eliminating poverty, tackling social exclusion and returning people to the workplace. We were told the 1994 budget would demonstrate the real mettle and character of the new partnership Government following which politics would never again be the same.
The climate of expectation has been heightened further by the financial outturn for 1993 described by the Minister for Finance as among the best fiscal performances in Europe. This has led to well placed sources close to both Government parties vying with each other to leak positive aspects of the budget during recent days. In fact, this Government is the only vessel I know that leaks from the top. No other Minister in recent memory has had so much finance at his or her disposal and still remained within reasonable Exchequer borrowing requirement parameters. Indeed, the crescendo of propoganda initiated by the Minister and stoked by the rivalry between the Government parties reached such a peak last week that a campaign to rein in expectations was amounted by the Department of Finance.
In fact, what we have is a Government living off immoral earnings. First, it received income from the shameful amnesty for big time tax cheats, the majority of whom were already in the sights of the Revenue Commissioners, second, it extracted a contribution from honourable taxpayers through the unnecessary and counterproductive 1 per cent levy and, third, the return of emigration in 1993 meant less pressure on the social welfare budget than was anticipated. Add to this mugging of the Irish taxpayer, the first year receipts from Jacques Delors, even if we do not know how to count them, and the Minister finds himself in the happy position of having unprecedented capacity to launch a telling assault on poverty and unemployment.
What has the Minister done? This has been the most hyped budget in the history of the State. Given what everyone acknowledged to be the uniquely favourable fiscal situation and a sustained period of economic growth, it was inevitable that the Minister would have plenty of goodies to dish out. The Minister has done that but there is one major omission, the unemployed. In the Economic Background to the Budget the Minister projects a net result at the end of the year of reduction in the live register of 5,000. That is the totality and effect of the measures announced today.
That figure includes the phoney job schemes.
It would be interesting to know if that includes the new make work scheme. If we did not have 300,000 unemployed this budget might merit a mild welcome but with 300,000 unemployed any budget which fails to make job creation its absolute priority must be regarded as a let down and a major disappointment. What does the much heralded new job training scheme which is supposed to create 30,000 new places involve? The Minister borrowed the title of a policy document published by the Democratic Left — which was sent to our office — but the title is the only thing he seems to have borrowed. I received a sheet of paper in the last few minutes, circulated by the Minister for Enterprise and Employment, which sets out details of the local enterprise scheme. It simply announces the merger of the existing SES and CEDP schemes. The major shortcoming of those programmes was the lack of any real training element. The people who participated on those schemes were happy to be off the dole queues for 12 months but when they are dumped from the schemes their prospects of securing a permanent job were no better than a year earlier. The Minister announced a myriad of tax concessions for business but there is no evidence to suggest they will be any more effective in promoting job creation than the range of tax concessions and allowances that already exist.
This budget puts the final nail in the coffin of the insurance based social welfare system. People are paying more and more in PRSI but the enhanced level of benefits to which this payment entitles them has been taken apart bit by bit over the years and now the Minister has finally buried it. In this budget the Minister has made clear to unfortunate people facing the prospect of unemployment that they will no longer qualify for pay related benefit. The idea of pay related benefit, the dismantling of which has already commenced, was that for people in receipt of a reasonable income during their working lives faced with the appalling trauma of unemployment it would act as a cushion for a limited period before their income increased to the unemployment benefit rate.
The Minister has now abolished pay related benefit. The special features of the budget reveal that the abolition of pay-related benefit is designed to yield a saving of £30 million in a full year at the expense of the unemployed. Despite the payment of full PRSI by workers in the private sector, they will be taxed now on their unemployment benefit. This measure does not only mean they are losing pay-related benefit but they will also be taxed on their unemployment benefit. That is one element of the froth that should be blown off this budget. People would not understand that to be the position from the way the Minister presented it.
The Government deserves no credit for finally — six years after the publication of the report of the Commission on Social Welfare — pledging to introduce the priority rate recommended in 1989, then called the emergency rate by the Commission on Social Welfare. The basic increases in welfare at 3 per cent will barely enable social welfare recipients to keep their head above water. The imposition of tax on more social welfare benefits is not acceptable in the absence of progress towards the integration of the tax and social welfare codes. Those modest increases of 3 per cent for social welfare recipients do not take effect until next July while other measures, such as the tax on unemployment benefit, will take effect from 5 April.
The Minister in his speech deliberately gives the misleading impression that the income tax concessions he has made total £198 million, but that is not the case. It is important to nail the lie. The last page of the Minister's script — which he did not put on the record of the House — indicates that the total saving in income tax is £89 million, not £198 million. The figure of £198 million includes the plethora of reliefs he has given to other sectors. The total concessions in the income tax area is £89.9 million from which £21 million must be subtracted. The figure for other income tax impositions outlined on the same page is £21 million. The net concession by the Minister on income tax is £69 million. This budget was supposed to be the big opportunity to reform the income tax code but the total concessions gained by income tax earners is £69 million. Many people on middle incomes will be badly hit. They are not wealthy and they are not the people who should be targeted. A married couple, both on the average industrial wage, living in a semi-detached house in many parts of this city and other cities will now be liable for the residential property tax.
This Government deserves no credit for abolishing something as unjust and regressive as the 1 per cent levy. It should never have been imposed in the first instance. Why has no effort been made to extract a reasonable tax take from the banks when the two main banking groups returned profits of more than £500 million?
It is a scandal that the Minister should have provided additional tax relief for farmers when successive Governments have spectacularly failed to extract anything even approaching a fair contribution. The position in regard to farmer taxation is a joke. Successive Governments have paid lip service to the principle of tax equity. While the fiscal thumbscrew has continued to turn on the PAYE worker, farmers have been allowed to get away with paying less than their fair share. Between 1989 and 1992 the average tax paid by the PAYE worker increased from £3,122 to £3,622 — those are the Minister's figures — an increase of 17 per cent and more than twice the rate at which wages and salaries increased in the same period. In the same period the average tax paid by farmers fell by £72 or 9.3 per cent and the average tax now paid by farmers is less than one-fifth that paid by people in the PAYE sector. I accept that many farmers are on low incomes and that these tax figures do not reflect the reality of the income levels of both categories. However, Irish farming has been experiencing an economic boom with aggregate farm income, net of interest payments, having increased by 37 per cent in 1992-93. Workers are asked to accept low single figure wage increases while bearing a crippling tax burden and, at the same time, farm incomes soar and the farmers' tax contribution remains a fraction of that of most workers.
How do today's modest reforms for income tax payers compare with the tax breaks still in existence for the wealthy and the powerful? For example, the special savings accounts and special investment funds introduced in 1993 give a tax rate of only 10 per cent on investment income and gains. The investor has no further tax liability. For all other investments, income and gains arising through bank accounts or investment funds, a maximum income tax levy of 27 per cent applies. These preferential tax rates compare with a marginal tax rate in 1993-94 of 57.7 per cent on earned income of PAYE workers. In other words, on earned income the effective rate was 57.7 per cent whereas the rate on investment income was either 10 per cent in the special savings accounts and special investment funds or the standard rate of 27 per cent in other investment income.
It was zero in post office savings certificates.
When we encourage unproductive investment is it any wonder we do not stimulate the kind of enterprise that everybody in this House has argued for? Not only do amounts invested enjoy preferential tax rates but they also enjoy confidentiality — there is no disclosure to the Revenue. I defy the Minister to tell me the last occasion on which a bank depositor was asked for an RSI number.
In theory the rationale behind the current amnesty was to encourage the repatriation of moneys invested offshore, outside the Irish tax net. These were estimated by the Central Bank, financial institutions and independent commentators to amount to several billion pounds. The amnesty has largely failed in its stated objective and the tax evaders continue to invest overseas with impunity. This represents a continuing loss to the Exchequer of at least £150 billion per annum. In reality the amnesty proved an escape chute for those tax evaders who are coming under increasing Revenue scrutiny as a result of the revenue audit programme. This group obtained total absolution for having completely broken the law and were rewarded for their criminal activity with a preferential tax rate of 15 per cent, with no questions asked. When was the last time a PAYE worker had a tax rate of 15 per cent? If you break the law of the land and do not pay your taxes you can be sure that another tax amnesty will be introduced and the effective rate will be 15 per cent. The entire tax amnesty idea threatens to undermine the efficacy of the tax collection system. It was argued against by the public service, yet the Minister went ahead with it.
Disability benefit is now subject to tax and today the Minister announced that unemployment benefit will also be subject to tax. These benefits have been paid for by PAYE workers out of their after tax income. No tax relief is given for the insurance premiums paid. This is done in the name of "rationalising the tax and social welfare codes". This is one of the few areas of the tax system where rationality is to be the criterion rather than self interest. In reality, it is a pretext for taking more money from the PAYE sector. Where is the equity when investment income is taxed at 10 per cent and undisclosed income is taxed at 15 per cent while the unemployed and the sick pay 48 per cent on their social welfare entitlements?
Where is the promised legislation to tackle currency speculation in the event of another currency crisis? Where is the necessary legislation to stop corporation tax and stamp duty scams which were evident in the case of the Telecom deal? Clearly the Labour Party hopes that everyone has a short memory, as clearly that party has, and will forget the demands and promises it made when these scandals were exposed. Where, for example, is the Government's response to the rezoning controversy in Dublin? Where is there practical evidence that the Minister for the Environment, Deputy Smith, was as troubled by the controversy as he claimed during the summer? At one stage it appeared as if there would be as many acres of print devoted to the Minister's concern about the rezoning activities of county councillors as there were acres rezoned. Everybody agreed that rezoning in Dublin was developer led. The orgy of rezoning is driven by the enormous speculative profits to be made from rezoning decisions. Millionaires are created overnight at the expense of the environment and of considerations of good planning.
A straightforward tax on windfall profits would halt this frenzy of rezoning and exert some control over the cost of housing. The Labour Party was prominent in highlighting the damage being done to Dublin. Leading the indignation decibels was the Minister of State, Deputy Burton, who apparently has not yet grasped the fact that she is in Government. Why have she and her party colleagues not persuaded Fianna Fáil to dust down the Kenny report on the price of building land? Where is the tax on land speculation that would bring rezoning under control? What is the point in being in Government if issues cannot be addressed that caused one so much agitation in Opposition?
I am delighted to welcome the Minister, Deputy Mervyn Taylor, to the House. Deputy Taylor is no mean performer, judging by the indignation scale. I heard him in my constituency saying that he cannot sleep at night because of the activity of rezoners. He could easily introduce a constitutional amendment to deal with this matter along with the constitutional amendment on the family, but unfortunately this will not happen. The family that rezones together becomes clones of each other.
As chairman, Deputy Rabbitte could have stopped it.
The most serious blow to the Irish economy, Government policy and our attempts to create employment was undoubtedly the ERM debacle. At that time the Minister identified our vulnerability to currency speculators, to the financial and currency markets, to the quick profiteering now possible on the capital markets and stock exchanges. He made many threats and promises of action to protect the fundamentals of our economy, yet nowhere in this budget can I find any such initiative.
If there is a lesson to be learned from the recent past, it is that in liberalising capital markets, removing all Central Bank regulations and in the complete absence of any regulatory environment such as compulsory information disclosure, a transaction tax or an effective capital gains tax on short term profiteering, job creation will continue to be the poor relation. The reality is that these activities in Ireland, Europe and the global markets are now so lucrative that the combination of high interest rates and exceptional profits on currency transactions makes it more attractive for those with money to avoid risking their money in any productive or service enterprise. Capital accumulation through the financial institutions, without penalty or regulation, must be contrasted with the range of penalties in job creation, borrowing from banks and financial institutions, insurance costs and the responsibility of running an enterprise or actually working for a living.
Is it any wonder that when we had 6.5 per cent growth from 1988 to 1990 and 3.5 per cent in 1993 in aggregate terms unemployment continued to rise? The recent returns of the banks and other financial institutions point clearly to profit making at the expense of all borrowers, industry, services, workers and the State itself which has to pay exorbitant rates. We subsidised the financial speculations last year with an ill-advised currency policy. We paid for the currency crisis. We paid for ICI when the banks made a blunder. We picked up the tab for the wheeling and dealing on the Telecom site. Yet we take no serious returns from that sector. We make no distinction between short term and long term capital gains and at the same time we tax social welfare payments.
The Governor of the Central Bank recently managed to deliver his thoughts on a wide range of economic matters, but the one matter on which he did not touch is the one for which he has direct responsibility — the exchange rate for monetary policy. Yet at the height of the currency crisis in an intervention he argued for a tax on speculative gains on the world's stock markets. Having had a year to reflect on it, the Government had the opportunity to introduce such a tax. However, there is nothing in the budget which refers to it.
Again today the Minister demonstrated the power of lobbyists. Prior to budget day every newspaper carried several articles arguing for special interest groups and various tax reliefs. The public evidence of this is no doubt only the tip of the lobbying iceberg. Lobby groups have been working overtime and to good effect. The best effect and evidence of this in the budget are the concessions made in the area of capital taxes.
There is a myth perpetrated by individuals working for certain firms of chartered accountants and others that a tax break is all that is necessary to solve issues as diverse as high unemployment, why firms fail and why successful indigenous industry is so rare. Unfortunately, this view is so widespread that spokespersons for the pensions industry and other financial institutions, which benefit to the greatest extent from these tax reliefs, state that they will only increase investment in Irish industry if additional tax breaks are forthcoming. The Minister responded to this view today, and what he said was a plea to the pensions industry to come forward. We know from experience that that plea will fall on deaf ears.
What we need are entrepreneurial firms which have the capacity to produce products which can compete on international markets, the flexibility to adapt to changing circumstances and the vision to anticipate trends in products and services. Such firms are not a function of tax reliefs. Tax reliefs can damage such firms because they are a distraction — the focus becomes one of minimising payments; tax experts take over; the slogan is "cut costs"; wages are too high; social security payments are too high and the focus is off producing products and services people will buy. No individual can develop an enterpreneurial firm; it requires co-operation among employees, co-operation at some level between different firms and governance structures alien to many Irish firms dominated by a hire and fire mentality.
I wish to take as an example the Minister's easing up on the terms for qualification and eligibility under the business expansion scheme. Some firms benefit under the scheme, but the bulk of funds raised are invested in property and as a form of medium term asset finance. The scheme, in effect, becomes analogous to deferred no risk loans. The Cooley Distillery scandal presents the BES in its worst light. This viable, enterprising and successful project was built up at a huge cost to the taxpayer in terms of the tax foregone. The cost per job was huge but the future was so bright that Irish Distillers moved quickly to take it over, shut it down and put it out of business. Approximately 30 jobs were lost in the process, but a new millionaire was created overnight. The question is: was this the game plan from the outset? The principal beneficiary has an unenviable track record as a shares raider and asset stripper. His full role in the County Glen saga has yet to emerge, but what is certain is that this is the kind of parasitic behaviour this economy does not need. I am not opposed to the principle of the business expansion scheme, but we have never managed to use it effectively as a source of badly needed investment for genuine enterprise. Some firms have managed to protect themselves through exploitation of the tax loopholes to ensure that the scheme is effectively asset backed. We then find that an enterprising project like Cooley Distilleries is sold off and shut down in a disgraceful fashion, with all the money taxpayers have foregone going for nothing and approximately 37 people losing their jobs.
Democratic Left has clearly outlined the priorities and choices it would make in this budget based on two published documents entitled Ending the Poverty Trap and Community Enterprise Programme — Strategies for Hope and Useful Work. The first document argues for a fundamental recasting of the tax and social welfare codes so as to tackle the poverty and unemployment traps and to make it feasible for people to re-enter the workforce even on modest incomes. The second document challenges the value of a proliferation of subsistence make work schemes and urges the funding of a structured programme of community enterprise designed to take 25,000 people off the dole queue and give them full-time useful jobs and place a further 25,000 people in part-time jobs. The cost to the Exchequer, after taking into account social welfare savings, tax revenues and European Union subsidies, would be £50 million. I am convinced that, irrespective of the merits of the macro economic policies of any Government, there is a necessity and desperate urgency for separate strategies focused on the unemployment black spots of this city and other cities throughout the county.
As long ago as August 1992 the then all-party Oireachtas committee came up with such a scheme. If my memory serves me right, the Minister for Enterprise and Employment, Deputy Quinn, was the chairman of that committee. That was in August 1992 and finally today, in January 1984, we are getting from Minister Quinn a repetition of the subsistence level make work scheme which will not, as he has sought to do in this two page document circulated tonight, create 40,000 part time jobs. Rather it will take on the existing 15,000 people employed on SES and CEDP schemes at present and provide for an additional 15,000 places. The net effect of this long awaited assault on unemployment, this long awaited strategy focused on the black spots where the unemployed are unfortunately concentrated, is 15,000 additional people on schemes picking choc ice papers off bushes and doing other soul destroying work, with no genuine element of training built into it and no provision for training structured in the programme itself.
I wish to outline how our scheme differs. The programme we published would be restricted to the public and voluntary sectors, incorporating a strong training element and concentrating on work which has long term economic developmental potential in jobs which would not compete with other services or be used to undermine existing or future employment in the public and voluntary sectors. CEP employees would be full workers in every respect, with the protection of the labour and social welfare codes. Only such a programme as we propose will break the cycle of long term unemployment. The usual make work schemes which the Minister has announced tonight with an illustory training component only serve to get some people off the live register for a short period — in this case one year — and massage the unemployment figures.
I wish to outline how our proposal to fundamentally recast the tax and social welfare systems differs from the tinkering around at the edges we have got from the Minister this evening. Our argument to integrate the tax and social welfare systems has, admittedly, been taken on board in the Programme for Government, but unfortunately this Government always appears to be one committee or one task force away from making a decision. The interim report of the committee established by the Government is an especially harmless and contradictory document which would have been better left unpublished. However, I understand it was published at the behest of the Minister of State at the Department of Social Welfare, Deputy Burton, who wanted to show something for her year in office. The result is pathetic. I wish to quote the following from the report published on 13 January:
There is no simple policy prescription which will remedy the traps in the context of a 1994 Budget. In choosing items for inclusion in the interim report the group confined itself to measures which could be achieved in the short term, i.e. the 1994 Budget. The group also excluded issues which could not be adequately analysed in the time available.
The kindest comment I can make about that is to observe that it is just as well Minister Burton is not paid on the basis of productivity because if she were she would soon learn what it is like to live on social welfare rates. Regardless of the ineptitude of the performance of Minister Burton and her senior Minister, Deputy Woods, it did not prevent them from coming into this House repeatedly and seeking to give the wrong impression concerning the infamous "dirty dozen" cuts in social welfare. They gave this House the impression that these had been rolled back but my colleague, Deputy De Rossa, persisted in highlighting the hardship and hurt caused to thousands of people as a result of the infamous "dirty dozen" cuts. Incidentally, the term "dirty dozen" cuts was coined by members of the Labour Party. Now, after one year in Government they are quite happy to implement virtually all those "dirty dozen" cuts on social welfare recipients.
Democratic Left acknowledges that poverty and unemployment traps create work and promotional disincentives. Poverty traps exist where people in employment on particular incomes are faced with a reduction in net income as their gross income increases. This is usually because, as their earnings rise, benefits such as medical cards, dependent allowances, fuel vouchers and so on are withdrawn. Unemployment traps relate to the disincentive for unemployed people to take up employment or for people on low paid employment to retain it. Usually the reasons are similar, withdrawal of certain benefits. People in very low paid employment, for example, women in the contract cleaning industry, are exempt from PRSI for the first £60 earned but if they earn £61 they become liable for PRSI on their total income. Therefore, the challenge facing the Minister in the budget was the number of people he could lift out of the tax net. Surely it is acknowledged by everybody in this House it is outrageous that a single person should become liable to tax at a rate of £69.23? It is absurd that a single worker in receipt of less then £70 per week or a couple earning £138 are liable for income tax.
It was in this context that we advanced the concept of a minimum adequate income from the Commission on Social Welfare in 1986 by fixing a living income of £70 per week. Nobody would argue that is over generous. We then proposed that the various child income support schemes be integrated into a single, comprehensive child benefit which should be increased to £17.50 per week. We then fix the income tax threshold at £4,000 for a single person and £8,000 for a couple, these figures to incorporate personal PAYE and PRSI tax allowances. Our approach, therefore, is different from that of the Government and would seriously attack the poverty trap. At present when a single person or a couple exceeds the absurdly low threshold they are liable to tax on their total income, in other words, income below the general exemption tax threshold. In our proposals income below the threshold would be exempt.
Of course, abolishing poverty and unemployment traps will be expensive and opposed by wealthy vested interests. It is a question of political courage and priority. Tough political choices must be made. In so far as the thousands of our people trapped in deprivation and despair exercise their vote at election times, in the last general election they voted overwhelmingly for the two parties that now form the Government. So far this new partnership Government has written them off. Fianna Fáil has traditionally made an art form of winning the votes of the poor and the campaign funds of the rich by promising to protect each from the other. Well, now they must choose between the currency and land speculators, the deal makers and the asset strippers and the trapped thousands who cannot get work, who do not know how the unexpected bill will be paid, who fall into the clutches of moneylenders, mothers who damage their own health in the struggle to give their children one nutritious meal a day.
These people come to my clinics every week, desperate to avoid the electricity being cut off or pleading for work to keep their marriages together. I am certain they come in even greater numbers to the clinics of the Minister for Finance and I disagree with those who say that the Minister is out of touch, that he does not know the reality of unemployment. The Minister knows the hardship, he understands the despair and humiliation of unemployment but his party, in a new coalition era, has calculated, like the Tories did in Britain, that they can write off the unemployed and still stay in power. Our society and past Governments have managed to plan our cities so that the unemployed are concentrated in great, sprawling urban estates. Here, entire streets, neglected and run down as a result of the near disintegration of the local Government system are unemployed, where frustration breeds endemic social problems and winning the lottery is the only hope of escape.
The new, revived Labour Party preached a gospel of hope and renewal before the last election and the people responded in their tends of thousands. However, they did not vote for Labour to join Fianna Fáil. I understand that one junior Minister remarked: "I did not realise I would have so little power". Unemployment has increased on average by 10,000 for every month since Labour warmly embraced Fianna Fáil. It must now look to many typical Labour voters that the Labour Ministers are merely guests in power. Nobody expected Labour participation in Government to eliminate unemployment at a stroke but it was expected that an assault on unemployment and poverty would be the new Government's priority. Instead, the unemployed person is expected to exist on an income per week that would not pay for room service in the Waldorf Astoria.
I want to refer now to a question that concerns a great many women. The whole area of the implementation of EC regulations on equalisation of social welfare is complex and has been the subject of several court cases in both Irish and European courts but the Department of Social Welfare is now using the complexity of the issue in an attempt to deprive tens of thousands of women of substantial arrears of payments which are required under EC rules. The action of the Department is forcing many women to employ solicitors to secure money to which they are entitled and allowing the legal profession to earn fat fees.
The Department of Social Welfare is implementing some of the findings of the European Court on this issue, it is making payments in three phases of arrears of certain benefits to women for the period from December 1994 to November 1986 and has made a reasonable effort to alert women who qualify for these benefits. However, these payments are not the issue although the Department is trying to use them to convince the public that all the requirements of equalisation are being met, which is not the case.
A separate case was taken on behalf of two Irish women, Anne Cotter and Nora McDermott, claiming that they were also entitled to the alleviation payments which had operated between 1986 and 1992 but which have been paid to men only. The matter was referred by the Irish courts to the European Court which found in favour of the two women. It referred the matter back to the Irish Supreme Court but the Government settled the case on 6 June of that year before the Supreme Court could consider it and paid the two women in question, but only the two women. It clearly follows that if Cotter and McDermott had a valid case and were entitled to alleviation payments, tens of thousands of women in similar circumstances were also entitled to these payments.
However, since then, the Department has not done anything to make other women in similar circumstances aware that they may qualify for these payments. In fact the Department has done everything possible to withhold information, and is paying up only when solicitors acting on behalf of qualifying women threaten or initiate legal action. Women in my constituency will suffer greatly from the fact that the Minister for Equality and Law Reform is no longer able to represent them in this area. There are, I understand, approximately 2,000 women in Dublin and 800 in Cork who have already received arrears when solicitors have intervened on their behalf. In some cases the payments are reported to have been as much as £6,000. Information is hard to come by as a condition of the payment has been that women will not disclose the amount paid.
The treatment of women entitled to these arrears, particularly the attempt to keep them in the dark, is an outrage. What is the value of having a Minister for Equality if he turns a blind eye to women still being treated as second-class citizens? Is this the best the Labour Party can achieve in Government, especially when they have a Minister of State at the Department of Social Welfare who would claim to be particularly committed to women's rights?
The combination of very high levels of unemployment and low levels of employment growth appears to have paralysed the minds of this Government. It appears to have become accepted that there is no intellectually respectable argument that unemployment can be reduced significantly. If we do not properly weigh up the costs of unemployment, poverty, psychological distress, high taxation, crime, social strife, we may tip the scales towards inaction and fatalism, thus threatening the very stability of our democracy.
Recent Governments have relied far too much on training and make work schemes as their main policy response to unemployment. Today's budget continues that preoccupation. Probably this has something to do with the fact that policies, like demand management, income policies, employment subsidies and public works, have been abandoned throughout the European Union rather than any convincing case being advanced in favour of these kinds of training schemes.
Training will reduce unemployment only when unemployment is due to a mismatch between the skills of the unemployed and existing job vacancies. Since only a fraction of unemployment in Ireland, or indeed in Europe, would appear to be of this type, training will reduce unemployment only if it is accompanied by policy measures which increase the demand for the labour of those undergoing training. The central development task is the maximisation of employment growth in Ireland. We must think and plan in terms of a consciously employment-oriented growth strategy. The growth of employment is closely related to the rate of growth but, as a recent NESC study makes clear, the employment intensity of Irish growth relative to other countries has been very disappointing. There is no evidence in this budget that the Minister for Finance has given the slightest consideration to any of this.
Taxation proposals are critical in providing a suitable environment for enterprise and innovation but, as usual, attention is being focused exclusively on what should be the level of taxation. I believe it should be admitted that, under current conditions, there can be little hope of significant reductions in the overall tax take for quite some time.
The Minister, in his statement of philosophy about taxation policy, said something similar. I travel a very long way down the road with him but, unfortunately, when it came to making changes to follow through on that philosophy, again he took the soft option — a bit for you, a bit for you and scatter it all over the place. The result is that it will be very sweet for a very short time but, as soon as people begin to understand that there is no radical reform of the tax system, they will become cheesed off with a Government which at the same time is dragging them into the residential property tax net and depriving them of mortgage interest relief.
If one looks at the principal features of the 1994 budget outlined by the Government, one will note that on the question of the modification of mortgage interest relief, the yield is £8 million in 1994 but that in the tax year 1994-95 it is £15.6 million. What will it be in the tax year 1997-98? I will tell the House what it will be — £81.6 million. That will be the year after the next general election. Presumably it will not be in the minds of the electorate but that is the effect of this. It means that hard-pressed, middle income earners will be severely punished as a result of that change.
Add to that a change in the area of VHI. The VHI arrangement is again typical of the fuzzy approach of the Labour Party. The ordinary VHI member is being hit unnecessarily when the Labour Party could have argued, as it did in Opposition, for the subsidisation of payments for those who enjoy the luxury private facilities of such institutions as the Blackrock Clinic. They could have avoided hitting the ordinary VHI member who will be extremely sore about this because that cover constitutes a safety net if and when people fall ill. They have been forced into health insurance and thought they had protected themselves. Now the Minister seriously diminishes the tax relief available but, at the same time, takes no cognisance of the fact that we, the taxpayers, are subsidising disproportionately the super rich who avail of the private clinics. It is interesting to note as well that the threshold for tax relief for medical expenses has been increased by 200 per cent. I do not know what the sick and unemployed ever did on the Labour Party that they end up hitting them in this manner.
There is nothing in this budget that understands taxation as an incentive system. What is more important than the overall level of taxation is how the incentive structure of taxation is geared to the needs of society and how effectively the tax revenue is spent. Kieran Kennedy of the ESRI points out that taxation in Ireland always has been regarded as a disincentive. He points out that taxes can also be used as incentives to achieve social goals. If we are seriously committed to employment growth, then any budgetary proposals regarding taxation must reflect this. For instance, if we agree that it is plausible to plan for economic growth, led by the services sector, or the labour-intensive manufacturing industry, we should use the tax system to encourage these activities and discourage others.
The Minister's problem is that he wants to be the nice fellow to everybody. He wants to have everybody feeling good but, of course, that is kindergarten economics. I welcome the change he has effected in reducing PRSI contributions of workers in receipt of an income of less than £9,000 per annum. There is no doubt that there is a competitiveness problem between the industrialist who has a plant in, say, Donegal and who has another doing precisely the same thing in Derry, especially in the case of the rag trade — which is the one I am thinking about — where we export a lot of our product to the United Kingdom. Clearly we are at a competitive disadvantage. I welcome that change by the Minister.
Other than that, the Minister has managed to convince the Department of Finance, presumably with the assistance of the Labour Party, that he should spread the butter thinly all over the place. As a result, the opportunity that obtained to devise a strategy that would be a boost to unemployment has been missed.
I find it very strange that the Government should come out with another of these mock training schemes since this Government is particularly hostile to investment in science and technology. It has set its face against funding basic research and channels minuscule finance towards applied research. For example, the Danes spend £50 million on scientific research compared with our £2 million. The accepted target for investment in science and technology in industrial countries within the OECD is 2 per cent of GDP. Ireland's figure is 0.8 per cent but that figure includes the alleged contribution by the multinationals of £250 million to fund research. We know that that figure does not exist, that the multinationals are playing it off for transferpricing reasons, that much of it is illusory. If one approaches the multinationals one finds that they are indeed engaging in extensive research and development, but not in Ireland. They are doing so in the country of origin and do not want to know about putting down research and development roots in this country. Ireland has the lowest per capita expenditure of GDP within the OECD in this area of science and technology. It is scarcely a coincidence also that we are virtually at the bottom of the OECD league in terms of performance industrially.
We know that extensive research and development is the lifeline of multinational companies. Let us take for example the case of Digital, a huge corporation which had very little difficulty in pulling up its tent and closing down its production lines in Galway and Clonmel. However, it did not find it so easy to close down its research and development facility and I am delighted to say that I have been advised that the research and development facility in Galway has, in fact, grown. Surely that is a salutary lesson for industrial policy here, yet for some reason the Government does not want to know about investment in science and technology. Until quite recently a Minister of State had responsibility for science and technology but I understand that science has been taken out of his title. Indeed, having regard to all the progress he is making one might as well take technology out of the title too. We are the only European country that does not have such a policy.
I wish to refer to a sentence in the scientific magazine Nature of 19 August last where it was noted:
Science has no champion in the Irish Government. There is no Ministry with special responsibility for Science, no research Council, not even a major lobby...
and it concluded:
allowing its research base, such as it is, simply to fade away will seed a much greater potential for economic failure in the future.
This neglect of science policy now requires the urgent establishment of a national science council. If we can have an Arts Council why can we not have a national science council? I am all in favour of the Arts Council and I suspect that the Minister for Arts, Culture and the Gaeltacht would be all in favour of a national science council if that were his portfolio but unfortunately it is not. We do not have a national science council and this has to be a policy priority of any Government that professes to be seriously interested in coming up with a co-ordinated plan to develop the potential of this industrial economy.
The Minister has decided to use some of the proceeds from the tax amnesty to clear the historical debt of the health boards. I am sure that will be much appreciated by the health boards and we all know how badly needed it is. However, why was it not possible for the Minister to apply a similar rule of thumb to clear the historical debt of the local authorities? The Minister pointed to the fact that he awarded £1 million to the three new county councils established in Dublin, but that is not as much as he has given to Croke Park — which I fully support — or to some of his other pet projects. When the citizens of County Dublin find that it is proposed to levy each house with a charge of almost £100 for water services after the Minister has gone around dishing out chocolate sweets to all his pet projects I think the Government will get a response it did not expect. This give-away budget is an effort to try to soften up the electorate before the European elections but when the middle class and middle income earners, many of whom are already hard pressed, learn that the amount in tax relief is a fraction of what was conveyed here this evening and that in return they are hit by the decreases in relief on VHI payments, an increase in residential property tax and medical expenses there will be fury.
The Minister has made some changes in the urban renewal scheme. It is necessary to look at this scheme closely because it seems the Minister has the freedom to hand pick a few favourite areas for electoral advantage or whatever. It is time we carried out a value for money audit of the scheme. The Minister for Equality and Law Reform, Deputy Taylor and I represent a constituency where without its designation as an urban renewal area we might not have a great deal of the development that has taken place, but there is something wrong with a scheme that channels the entire benefit to the developer and not to the unfortunate tenants who are striving to conduct business in it. This needs to be looked at especially in the light of the changes the Minister announced today.
I wish to comment on the attempts to introduce a local tax by the back door, residential property tax. The average cost of a new house in Dublin today is £61,000 whereas the average price of a new house in all other areas, including Dublin is £56,000. The average price of a second-hand house in Dublin is £60,000 whereas in all other areas, including Dublin, it is £52,000. The implications of the new residential property tax are evident. It would have been a great deal more honest for this Government which refuses to face up to the financing of local government to look at radical reform of the tax burden on the average householder at the same time as they looked at the question of local tax rather than dishonestly bringing it in by the back door with minimal changes in the tax system.
At the weekend I had the honour to be the guest of the Mayor of Rouen, a French town that is the model of what local government could be. What happens there is that a percentage of the national tax take is allocated to local government according to certain criteria. One can see the impact of that. Local government here is facing dereliction and the new councils established in Dublin three weeks ago are facing abolition already because they cannot match the budget. Yet the Minister can go about dishing out money to every pet project that falls within the boundaries of his constituency. He then tells us he is making great progress on housing. We know the extent of the housing crisis in this city and throughout the country.
The Minister expects us to pat him on the back for the fact that he is making an additional allocation of £12 million available for housing — £12 million will not build 300 local authority houses. He provides £10 million to renovate Dublin Castle. I have no objection to renovating Dublin Castle but it is a strange sense of priorities when people are coming to his clinic and mine every week who are desperate for a house because they are living in overcrowded conditions or in damp private accommodation and children have to suffer unnecessary illness because of the absence of suitable housing. We can find £10 million to continue the renovation of Dublin Castle to receive foreign dignitaries while at the same time we allocate £12 million to housing.
Finally I will draw a comparison between a statistic for Ireland and Denmark. In Ireland every ten workers are required to support 22 dependants; in Denmark every ten workers are required to support nine dependants. That is the fundamental reason for the poverty trap here. We cannot continue to shoulder the number of unemployed as a proportion of the workforce. It cannot go on and this budget was the first opportunity in more than ten years for the Government to make a serious impact on the dole queues and put people back to work but it has failed miserably to do that.
Sitting suspended at 9.20 p.m. and resumed at 9.50 p.m.