I ask that Members leave the Chamber as quietly as possible.
Financial Resolutions, 1995. - Financial Resolution No. 4: General (Resumed).
The budget introduced last Tuesday is financially irresponsible and fails to meet the objectives set by the Minister for Finance, Deputy Quinn, in his introductory statement. The budget acknowledged the need for some radical action but contained no evidence of this and no plans to deal further with unemployment, taxation and the level of debt.
I asked Members to leave the Chamber as quietly as possible.
The Minister has tried to present the budget as being responsible. However, as Deputy Bertie Ahern has already shown, when allowance is made for the 1994 out-turn in current expenditure of £191 million in special expenditures as a result of the tax amnesty, the increase in budgeted current spending proposed by the Minister is 8.4 per cent above the 1994 level. If the once off use of the £108 million run down in departmental balances and social insurance fund cash balances is excluded against current expenditures as provided for in the budget, the budgeted increase in current expenditures is 9.4 per cent and, based on a number of other 1994 adjustments, results in a true budget deficit of 12 per cent of GNP. It is clear that the budget provides for a 10.6 per cent increase in current spending over comparable 1994 levels. This is not the figure given by the Minister to the House last week. When the creative accounting in Minister Quinn's budget is stripped away, this will result in a 1995 current budget deficit of £470 million or 1.3 per cent of GNP.
The budget has, therefore, weakened the Government finances at a time when they should be strengthened. European Union transfers to Ireland could fall by approximately £500 million per annum in five years. This will have a very severe impact on the economy if the Government has not by then significantly improved its debt finance position and made the economy more competitive.The Minister has moved the country backwards, mortgaged our future and guaranteed higher taxes than would appear to be necessary. He has not set aside the savings necessary to pay higher interest rates on Government debt, to provide for lower taxation during times of recession or to deal with lower transfers from Europe.
The economic prosperity of any country depends on the consistent application of long term prudent policies. In 1986 the results of the bad economic policies of the then Government were obvious to all. At that time the economy was strangled by excessive taxation and crippling Government borrowing. In 1987 the new Fianna Fáil Government set about cutting current expenditure and put a greater emphasis on the private sector for the development of the economy. As has been independently testified to, that programme was extremely successful in establishing a secure basis for growth in the economy and a steady improvement in the Government finances.
When Fianna Fáil were returned to Government almost eight years ago the 1986 current budget deficit was £1.395 million, which was equivalent to 7.9 per cent of GNP. Over the past seven years the current budget deficit, allowing for the economic cycle, has been steadily reduced as a percentage of gross national product, excluding, of course, the effects of the tax amnesty. The current budget deficit was reduced during that time by Fianna Fáil and Fianna Fáil-led Governments from 6.2 per cent of GNP in 1987 to 0.7 per cent in 1994. The poorer economic conditions in 1991 and 1992 led to a set back in that trend in the public finances but the trend resumed in 1993 as economic conditions improved and further progress was made in 1994.
Given the booming economic conditions this year, a current budget surplus could have been achieved if the Minister for Finance had continued the policies adopted in the late 1980s. Unfortunately, and tragically, the Minister decided to reverse course and now claims we have a current budget deficit of £310 million or 0.9 per cent of GNP. However, as I have shown the reality is much worse. He had introduced a budget with a hard-core 1995 current budget deficit equal to £470 million or 1.3 per cent of GNP. I did not get this figure from the Minister for Finance last week but if he studies the figures he will see that I am accurate.
The budget is financially reckless and irresponsible. Having finally introduced a balanced budget, the Minister for Finance decided coolly, deliberately and totally unnecessarily to plunge us back into a deficit. The sad thing is that there was absolutely no necessity for this. After seven years of solid financial and social progress, during which borrowing as a percentage of GNP was hauled down from 125 per cent to 92 per cent, the Minister for Finance now plans to continue the borrowing — a sum of £830 million in 1995 — instead of availing of the growth cycle, an option open to him, to reduce it. Given an enlarged EU of up to 20 members, EU transfers to Ireland, which now run at approximately £2 billion per annum, will probably be reduced after 1999. It is estimated that thereafter Ireland will receive between £500 million-£1 billion less per annum than it currently receives. No account whatsoever is taken of this in the budget.
In addition to the need to provide for this EU shortfall and possible rising interest rates, it makes good economic sense to balance the budget and store up a surplus in times of growth to provide for times of recession when one may have to run a deficit in order to maintain the social services. As Deputy Bertie Ahern pointed out, the planned increase in public spending is well and truly over the 6 per cent suggested and could be three or four points higher. Why is the Government planning to increase public spending by three times the rate of inflation at a time of economic growth, at a time when it is totally unnecessary from an economic point of view? It is verging on financial treason for the Government to embark on this course, and following further study of the budget, economic commentators will see that this is the case. The Minister for Finance and the three party Government have decided to institutionalise the current budget deficit. The sad thing is that there was absolutely no need for this substantial reversal in economic strategy.
Nowhere is the lack of real strategic thinking clearer than in the area of small business. Reducing the corporation tax rate from 40 per cent to 38 per cent will help both large and small businesses. This reduction will cost £43 million per annum. We calculate that this will give approximately £12 million per annum to financial institutions. This measure has been introduced in the same budget which for the first time in memory, gave an increase to old age pensioners which is less than the rate of inflation. When I was chairman of the task force on small business we asked the Minister for Finance to consider reducing from 40 per cent to 25 per cent the rate of corporation tax for the 156 small service companies earning less than £100,000 per annum. This would have cost £16 million, which is much less than the £43 million the Minister has given away. It would have made much more sense, particularly to old age pensioners, to direct some of this £43 million to small businesses where it would have made a real difference rather than to the major institutions which did not ask for it.
The crime is that the reduction has been spread too thinly. I have been told during the past few days that this is the source of major disappointment to small businesses. They had an agenda but the Minister chose to ignore it. For example, if the reduction was confined to all companies with profits of up to £200,000 per annum the rate of corporation profits tax could have been reduced from the present level of 40 per cent to 25 per cent. Increasingly, we look to smaller companies with profits of less than £200,000 per annum to create new jobs but the Minister chose to take the lazier route and apply the reduction across the board rather than target smaller companies which could have done with it.
At current Irish pound-sterling rates small Irish companies have to work very hard to survive and prosper. The Minister has forgotten that in 1992 when we had similar exchange rates small Irish companies found it difficult to survive. He seems to have forgotten also that many Irish owned small businesses find themselves in a difficult position in competing with their UK competitors. It is another mark of the Government's apparent lack of awareness of the realities of world economic conditions such as the trend in OECD countries of increasing interest rates and the weakness of sterling, that it ignored such factors in representing the budget.
The more one examines the residential property tax the more one must decide that it is purely an ideological tax which, unfortunately, my party went along with for too long. Twelve million pounds in revenue is raised by way of this tax per annum. We should compare this with the figure of £30 million which will be raised by way of the 12p increase on cigarettes. It is clear that the sum of £12 million is insignificant in national terms. It should also be taken into consideration that we need an army of Revenue staff to police the thresholds and the valuations supplied, with the result that the sum of £12 million is reduced substantially.
An income of £29,000 is not a rich salary from which to pay this tax. The threshold of £94,000, with rising property values, will soon be reached by thousands of home owners. It makes commonsense to abolish it as Fianna Fáil has now suggested. Fifteen million pounds could be raised by way of a 6p increase on cigarettes — the Minister for Health would also accept this — but instead we have an army of civil servants to measure houses.
We told the Deputy that last year.
I regret that we went along with this tax. Fine Gael gave a commitment in this House to abolish it. The Minister of State should have thought of that earlier.
There is nothing in the budget to reflect, facilitate or encourage the historic peace process in Northern Ireland. There is nothing that I can find to encourage cross-Border trade or closer co-operation between State agencies which would contribute to the efficient working of what the chairman of the Ulster Bank, Sir George Quigley, called "a single island economy". It is a pity the Minister in the first budget since the announcement of the historic ceasefire did not find a way to give tangible encouragement to the peace process. I call on the Government to correct this major oversight in the Finance Bill.
Time will show that the Minister, by the many fiscal changes, has considerably shifted Government policy away from the sound economic policies he inherited. He has now taken an economic course which, if pursued, will lead him to significantly setting back the prospect of economic stability by the year 2000. It is essential that sound economic policies be re-established soon if the reversals are not to prove serious for the economy.
There were several favourable once-off factors, including late 1994 EU receipts and the run down of departmental and Social Insurance Fund balances.If these three factors were excluded the post-budget EBR would be approximately 3.1 per cent of GNP. If the effect of a once-off running down of departmental and Social Insurance Fund balances was ignored the current budget deficit would be £418 million or 1.2 per cent of GNP. On this basis the 1995 budget provides for a 9.4 per cent increase in spending over 1994. The Government coolly decided to increase public spending by about three times the rate of inflation at a time of growth. That is the reason this budget must go down in history as being irresponsible.
Sadly, the Minister for Finance has been tempted from policies which provided the virtuous economic circle which transformed the economy during the past seven years. A mistaken hope of gaining increased popularity for his Government by introducing an irresponsible and imprudent budget has led the Minister into making a serious policy error. It appears that he framed his budget in an attempt to be all things to all men and particularly to embrace big business. It is obvious he felt vulnerable in this regard. He picked the wrong budget strategy. Instead of being prudent, reducing the debt or being bold, favouring either investment or leaving money with people to make their own choices, he chose the worst of all worlds — a bit of everything — and wound up in a mess. He has paid a dividend before he has made a profit and has not realised there is no such thing as a free lunch. The bill for his mistake will only be presented in years to come.
In the budget the Minister outlined his hopes for the year 2010 — his vision of 2010 as he refers to it. It is extraordinary that he did not focus on the well known fact that after 1999 the value of EU economic transfers to Ireland will fall substantially in real terms as a result of three factors — structural changes affecting agriculture, the enlargement of the EU to 16, possibly 20, countries and the fact that Irish GDP per capita is now beginning to exceed 75 per cent of the EU average. This is significant and will affect transfers to Ireland. It is clear the Minister ignored these factors.
The figure of £2.2 billion which Ireland receives from the EU per year by way of £1.3 billion in agricultural price guarantees and £950 million in ESF, Structural and other funds will fall after 1999. It is only a question of by how much. If the Government, for example, has to compensate our farmers for any reductions in these transfers Government spending will have to be reduced or taxes dramatically increased.
EU transfers to Ireland during the five year period after 1999 will be cut by a minimum of 25 per cent in real terms at current levels. At worst, the cut could be as high as 50 per cent. Even a 25 per cent reduction would cost the economy over £500 million per annum. A 50 per cent cut would cost £1.1 billion. In order to avoid a large setback to the economy it was necessary in the budget, given the Minister's vision of 2010, to produce a surplus in time to meet the reduction in funds after 1999. It is obvious that he ignored this major development in this irresponsible budget. I hope history will not show that this budget marked a general retreat by the Government from economic reality towards the economic myopia which dominated the Labour Party's thinking in the 1970s and 1980s.
The Minister's vision of 2010 is sadly deficient. He addressed none of the economic issues facing Europe; he ignored the impact of cuts in EU transfers to Ireland, the issue of a single currency and the effect this may have, the issue of a single political European entity, the risk of increasing interest rates and has not recognised that during a period when OECD interest rates are rising he should have tried to keep inflation down and to temper other pressures for increased Irish interest rates.
The Minister chose to do the direct opposite and reversed economic policy. He has stimulated consumer demand. This is crazy in a rapidly growing economy.Why stimulate an economy which is growing? This constitutes financial recklessness and irresponsibility. He has increased the risk of a higher inflation rate and thus significantly increased the risk of higher interest rates. Taxpayers who briefly benefit from this budget will shortly have reason not to be grateful to this three party rainbow Government when interest rates increase partly because of inaction in regard to certain aspects of this budget.
Taxpayers will have even more reason to be concerned about this budget in 1996. A 6 per cent increase in current spending was proposed because of certain once-off favourable factors, for example, the £108 million draw down on departmental balances. In effect, however, the core 1996 current expenditure level, excluding the once-off factor and deferring the £233 million, will be approximately that level higher than the 1995 budget current expenditure levels. The Minister is heading for a difficult 1996 budget. The 1996 current expenditure level, therefore, assuming EU transfers remain solid for 1996, will be 2.1 per cent in real terms above the 1995 current expenditure levels set out in the Minister's budget. Already this budget has set a level for 1996 current spending which is above the 2 per cent increase for 1995.
The evidence is clear, therefore, that the Minister has no strategy for dealing with medium term economic issues. As I said, this budget fails to address critical EU issues. The plans which the Minister has put in train for 1995 have already set the scene for either a 1996 budget which is made up of cutbacks in public services or real tax increases in 1996. The 1995 budget has failed to tackle the fundamentals. Therefore reductions in public spending or increases in taxes in the 1996 budget are unavoidable because of the failure in this budget to make the tough decisions.
This budget has been financially irresponsible.It is a platform for misery. The Minister has introduced a spend and tax budget, a course of action even worse than Labour's traditional fondness for the other way around, which was to tax and spend. It is serious policy mistake budget and a serious reversal of economic strategy for which our economy and our people will pay dearly, commencing in 1996.
Limerick East): I listened with interest to Deputy Brennan's contribution and it seems to me we should have sympathy for people who find themselves so suddenly in Opposition because they are immediately against every unpopular measure they supported when they were in Government. They are trying to mark out new ground on the political landscape and there is very little ground to stand on. Deputy Brennan went heavy into eyesight metaphors at the end of his speech. He referred to the 20/10 vision of the Minister for Finance and to myopia. What we saw here from Deputy Brennan was 20/20 hindsight. His party spent seven years in Government and he can suddenly prescribe for all the ills of the nation after only seven weeks out of office.
(Limerick East): It was a great performance. I know the Deputy had to make a speech and I sympathise with his difficulty in not having any firm ground under his feet on which to make an economic speech.
I wish to address some of the main inaccuracies in the Deputy's approach to economic policy. First, he accuses my colleague, Deputy Quinn, of being financially imprudent. That is not so. The increase in public expenditure in the budget is 5.8 per cent. That is within the guidelines laid down in the programme which established this Rainbow Coalition when we said we would increase public expenditure to a limit of 6 per cent. We could contrast that with the increase in public expenditure last year by the Labour-Fianna Fáil Government which was 9.6 per cent.
In trying to make a case from a rather weak position, Deputy Brennan said if we look forward to 1996 we get a core deficit of approximately 1.3 per cent of GNP and he quoted a figure of £475 million. I do not know whether that figure is accurate but there is an obvious inaccuracy in the calculation because he is calculating 1996 GNP percentages with a projected current deficit of £475 million, but he is using the 1995 GNP figure as the base of his calculation. Clearly, the correct calculation would be to divide the figure of £475 million into the 1996 projected GNP and the Deputy has not done that.
(Limerick East): This kind of ready reckoning mental arithmetic——
The Minister should not say next year, I did not tell him.
(Limerick East):——leading on to conclusions that somehow Deputy Quinn has been financially irresponsible is ludicrous. We all know the markets would have accepted a higher debt-GNP ratio than 2.4 per cent. The Government could have gone another couple of decimal points.
The Minister knew it years ago.
(Limerick East): We could have gone to 2.6 per cent or 2.7 per cent and that would have been accepted by the markets but the Minister for Finance was deliberately prudent and he has brought in a very prudent budget.
Part of the difficulty of being in Opposition — and I sympathise with the Opposition Deputies — is to put forward various theories but while Deputy Brennan talks about irresponsible increases in public expenditure, every other Fianna Fáil contributor, whether in local papers, on local radio or in the national media, is demanding greater expenditure in every sector.
We found it in 1987.
You were not able to put it into operation.
Let us hear the Minister in possession without interruption.
(Limerick East): We found in 1982 that the national debt had tripled but that was a little before Deputy Ahern's time. It is still being unwound——
It was not, actually.
Deputy Ahern must contain himself.
(Limerick East): There should be a quota programme for restricting the number of “Deputy Aherns” in this House. It should be part of the EU initiatives in which Deputy Brennan is so anxious to get involved.
The provision for the health service clearly reflects the Government's concern that the needs of the health service are accorded the highest priority in the allocation of resources. As Minister for Health I am determined to make significant progress in the areas set out in A Programme for Renewal. The December 1994 Government policy agreement endorses the health strategy as the basis for the Government's programme in the health area. The health strategy reorients our health care system and sets out a four year action plan with targets for reductions in risk factors associated with premature mortality, together with improvements in other indicators of health status.
Our health services are facing new challenges in the 1990s and the performance of this Government will eventually be judged by its willingness and ability to meet these challenges. Our population is beginning to age. The number of elderly people will rise significantly over the next ten to 20 years and we will have to provide increasingly for high dependency groups in the population such as adults with a mental handicap and persons with AIDS.
The series of developments announced by me as part of the 1995 health Estimates and those announced in this year's budget reflect the changing direction and emphasis of health service delivery towards a service which not only seeks to treat and cure but a service which, above all, cares for people. As Minister for Health I am determined to tackle the problems associated with premature mortality due to cancer, cardiac disease and accidents. A national cancer treatment policy will be drawn up as a priority by my Department.
The 1995 net Health Vote, when the additions in the budget are taken into account, is almost £2,000 million. The provision for health represents over one-fifth of all Government spending on supply services this year. The allocation of such a large share of national resources is concrete evidence of the Government's determination to ensure that those who need the public health service most have a right and an entitlement to the highest possible level of care.
There are two main areas affecting the health services in the budget — waiting list initiative and health cash allowances. I would like to comment in some detail on these items. However, this is but a small part of the initiatives being taken by the Government in 1995 to continue the orderly development of services.
The Government is anxious to build on the success of the previous waiting list initiatives in 1993 and 1994. The continuation of the initiative in 1995 with the special allocation of £8 million announced in the budget will enable further inroads to be made in problem areas.
A detailed review is under way on the experience gained during 1994 and the Department will be discussing with the health agencies shortly the arrangements to be put in place during 1995.
I am sure that all Deputies will be pleased with the progress now being made to bring about a reduction in the length of time a patient has to wait for treatment. I am determined to continue with this development and I want to thank everyone in my Department and throughout the service who have made it possible.
With effect from July 1995 an increase of 2.5 per cent will be applied to cash allowances and cash grants such as disabled person's rehabilitation allowance, blind welfare allowance and long term illness schemes. This will maintain the value of these payments for the people relying on these allowances.These are in line with the 2.5 per cent increases in all the schemes organised and administered by the Department of Social Welfare.
This is an aspect of the budget which has come in for an unreasonable amount of criticism from the Opposition.They claim the 2.5 per cent increase in social welfare payments is inadequate and paltry, but the actual figure in the budget is sufficient for a 3 per cent increase which is what was given last year and this is applied by bringing the payment date forward by six weeks. The money, then, is for a 3 per cent increase which is given at 2.5 per cent paid from six weeks earlier in the year. Everybody else in the country who is at work is confined to 2.5 per cent increase this year, but this pay increase is subject to PRSI and tax deductions whereas the social welfare increase is net and, in real terms, 3 per cent, because of the advancement of the payment date.
One can ask what good is 2.5 per cent or 3 per cent. That the allocations are so small is a tribute to the previous Government and the present Government in keeping inflation so low because these small nominal increases are keeping pace with inflation. I compliment the Minister for Social Welfare on deciding to focus on the areas of greatest need by increasing child benefit by £7 per child per month. All the international documentation now suggests that the greatest poverty occurs in families, and the greater the number of children the greater the level of deprivation.I compliment the Minister on targeting families. It is great that as a result of this budget a woman with four children will have an income of her own of £1,400 a year. In the past my party, under the Taoiseachship of Dr. Garret FitzGerald, was criticised for making a commitment to give women at home a separate allowance and the famous £9.60 was trotted up, down, over and back. I am glad to be back in Government when the women through the child benefit system are getting an income into their hands, with no tax deduction, which is far greater than the £9.60. It is true that there was a major increase in child benefit last year but the increase this year is much bigger and great credit is due to the Minister for Social Welfare in that respect.
A sum of £13 million was provided to fund acute hospital developments initiated in 1994 and an additional £4 million is provided to fund new developments.There is also a major expansion in services for the mentally handicapped.Additional funding amounting to £10 million revenue and £2 million capital has been provided for improving services for the mentally handicapped. Included in the additional money being provided is £2 million to cover the cost of increased independency of existing clients and £8 million non-capital and £2 million to develop new services. This funding will enable health boards to put in place a broad range of services including additional residential, respite and day care places and further development of home support services and services for those with disturbed behaviour and autism. It will also enable the boards to continue the programme of transferring persons with mental handicap in psychiatric hospitals to more appropriate care settings. Provision is also being made for hepatitis B vaccinations for staff working in the service. An additional £2.4 million is being provided for training centres and associated support facilities.
Additional funding of £10 million will be provided for child care services. This will enable me to bring into effect key sections of the Child Care Act which will strengthen the powers of health boards, the Garda Síochána and the courts to protect children who are being abused or neglected. The additional funds will be used to finance new services and facilities dealing with child abuse and neglect, improved arrangements for monitoring children in residential care, further expansion of facilities for homeless young persons and strengthening of preventative services and other community-based child and family support services. My colleague, the Minister of State, Deputy Currie, who has responsibility for child care in my Department will be expanding on this further at a later stage.
An additional £9.5 million, made up of £6.5 million non-capital and £3 million capital, has been provided for developments approved under the first phase of the dental health action plan. The extra funding will enable health boards to extend eligibility for services to children up to age 14. At present the cut off age is 12 years and I am glad that the dental action plan will be progressed further in 1995 under my ministry. It will enable all the health boards to further develop secondary care orthodontic treatment. The additional funding will also provide for the further phased introduction of the dental treatment services scheme for adults. All Deputies know that there is now a demand for orthodontic treatment. There has been a difficulty in the past in providing resources and attracting suitably qualified consultant orthodontic staff to certain health board areas. Recruitment is now in progress to hire three consultant orthodontists in health boards which do not have them. Of the allocation for dental care in the Estimates this year, £1 million is dedicated to further improvement in orthodontic care.
In line with the commitments in the Programme for Competitiveness and Work services are being further developed for the care and management of persons who have contracted HIV and AIDS. Drug abusers are a major group at risk of contracting HIV. Additional facilities and community drug teams will be established to help prevent the spread of HIV among this group. Funds are also being provided for palliative care services for people with AIDS in Our Lady's Hospice, Harold's Cross. Provision is also being made for a detoxification unit for drug abusers at Cherry Orchard Hospital. This will relieve the pressure on the existing unit at Beaumont Hospital.
Funding of £7.5 million is being provided to improve services for the dependent elderly, particularly home, community and day care services. In addition, new departments of medicine for the elderly will be opened in Mullingar, Nenagh, Tralee and Wexford Hospitals, Cork University Hospital, Limerick Regional Hospital and Beaumont.Additional funding of £2.7 million is being provided to continue the development of community psychiatric services. It is proposed to develop additional services for disturbed adolescents with psychiatric problems, provide additional old age psychiatric services and rehabilitation facilities.
Last year a pilot diploma course in pre-registration nurse education and training in the Western Health Board, involving a collaboration with University College, Galway, was established. Funding was also allocated for continuing education for nurses. Additional funding of £3 million has been provided to continue these projects and to extend the Galway pilot project to other training schools. Further funding of £1.6 million has been provided to complete phasing in the EU Directive on Nurse Training. I hope that at the end of my time in office the norm for nurse training will be through courses attached to the universities with a university diploma required at registration level and the option of an extra year's study to provide a degree in nursing. Consultations will take place with all the universities to see how best there can be collaboration so that we will continue to have the finest nurses in the world. As an endorsement of their high quality, their qualifications will be underpinned by a university diploma or university degree.
Additional funding has been provided for an expanded measles-rubella immunisation programme which will be aimed at children between five and 16 years. My colleague in the United Kingdom is predicting a major outbreak of rubella and public health programmes have been put in place there to expand their rubella immunisation programme. I cannot say if we will be faced with similar circumstances here but, in the light of what is happening in the United Kingdom, it would be prudent to expand the rubella immunisation programme here and sufficient money has been included in the Estimate to do that.
Funding is also being provided for the implementation of a number of reports, including the review group on infant and maternity schemes and the report on cervical screening. As Deputies know, I intend to deal with the issue of cancer as it needs far more focus and attention and a policy review group has been set up in my Department with a view to reporting some time this year. In that context, cervical and breast cancers are high priorities. Many Deputies have brought to my attention and to the attention of other Ministers for Health, that cervical cancer is a curable disease when discovered in the pre-invasive stage. With a proper screening programme and smear testing, it can be discovered at the pre-invasive stage and is treatable. If that kind of programme were available nationally and 100 per cent successful, the 75 women who died of cervical cancer last year would be alive today. We must progress in that direction as quickly as possible.
Additional revenue and capital funding is being provided to implement the recommendations of the review group on services for persons with a physical or sensory disability. It will provide for the further development of home, day and respite care facilities for the physically disabled. The funding will be used to develop a wide range of services including home, day and respite care, community based therapy, residential care to provide technical aids and appliances and to fund voluntary organisations.A further £4.2 million is being provided for the development and upgrading of training centres for people with disabilities. The increase in funding in 1995 is a concrete indication of this Government's commitment to developing services for people with physical disabilities. I have had a number of meetings with representatives of the Irish Wheelchair Association and I appreciate their concern and the concerns of the people they represent. The physically handicapped will not be neglected during my period in Government. They have received a major increase in funding this year and they, together with persons with mental handicap, will be a high priority of this Government. It is worth saying that the increase this year for the mentally and physically handicapped is the biggest announced by a Minister for Health since the foundation of the State and the allocation in the 1995 post-budget Estimate is the biggest allocation ever for the handicapped. I thank my colleagues in Government, in particular the Minister for Finance, for putting me in the position to be able to make such an announcement.
On the capital side, a total of £103 million, £10 million of it through term loan, is being provided for the capital programme. Provision is being made for ongoing expenditure on major projects such as the Tallaght hospital, where £40 million is being spent this year, Waterford Regional, that is, Ardkeen and Mullingar hospitals. The funding will also enable further progress to be made in the improvement of hospital services in centres such as Cork, Limerick, Galway and Dublin. In addition, funding will also be provided for a wide range of community based services.
As Deputies are no doubt aware, arrangements are being made to transfer responsibility for the National Social Services Board to the Minister for Social Welfare. It is not proposed to change any of the statutory functions of the board and the change reflects the emphasis on its evolving role. It would be appropriate to pay tribute to the work of the board and staff in the National Social Services Board and to recognise the considerable contribution they have made in a very quiet and efficient way to the development of a network of citizens' information centres throughout the country.
The National Social Services Board has been very supportive of the development of the work of the National Council for the Elderly and I have no doubt that the work of the board will be even more productive within the overall community development and information framework which is being developed under the Minister for Social Welfare. I believe this rationalisation of responsibilities is not only desirable in itself but indicative of the growing willingness of Ministers and Departments to work together in providing the most appropriate and efficient public services. In return for transferring the National Social Services Board to the Department of Social Welfare some respite care facilities have been transferred from the Department of Social Welfare to the Department of Health. I think the transfer in monetary terms is £1.2 million from the Department of Health to the Department of Social Welfare and approximately £1.8 million from the Department of Social Welfare to the Department of Health. No doubt the post-budget Book of Estimates will reflect these changes in due course but I think the House should be informed about them at this stage.
In framing the 1995 Estimate, the Government made every effort to provide the best possible standard of health service and to direct additional resources to areas of special need. The provisions made in the budget for the health services are clear evidence of the Government's commitment to the development of such a health service. Strict control of health spending and more accountable management will continue to form key elements of health policy. The health services have a special role to play to ensure that the large proportion of national resources spent on health is used wisely and effectively.
I look forward to a year in which, working together, we will build on the significant progress so far achieved and continue to provide services of the highest standards responsive to the needs of all who depend on our health services.
I take this opportunity to congratulate Deputy Jim Higgins on his appointment as Minister of State and I wish him well during his term of office.
In introducing his budget last Wednesday, the Minister for Finance outlined the main objectives of the Government as being threefold: (1) to reward work; (2) to promote enterprise; and (3) to strengthen solidarity. The opportunity was given to this Government to fulfil those objectives thanks to the leadership and wise decisions taken by the Fianna Fáil Government in 1987 and the Fianna Fáil-led Governments of 1989 and 1992. Those Governments, in which Fianna Fáil played a principal role, created a flourishing economy resulting in Government finances being brought into a sound position, with low inflation and a social partnership of consensus.
The Minister for Finance is, by and large, continuing the strategy of the Fianna Fáil-led Government, but not entirely, and this is where he has gone wrong. The Government has decided to go for a substantial current budget deficit — I think of the days of 1982-87 when the national debt doubled from £12.5 billion to £25 billion, for which we are still paying. If the rainbow coalition Government continues on this path the debt will again soar and future generations will be required to pay for today's borrowings. There was an opportunity to keep borrowings down but the inherent instability of a multi-party Government does not allow for proper decisions to be taken in the long term interests of our country, our children and our childrens' children. The exigencies of keeping this disparate Government together rule the day and in the final analysis the budget turned out to be a damp squib.
From 1987 onwards when the Fianna Fáil Party returned to power we were subjected to bombardment by The Workers' Party-Democratic Left as to how we should treat the less well off in our society. After this year's budget, people will thank us for not listening to their rhetoric. Actions speak louder than words, now we have the opportunity to see the results of the actions in the social welfare increases in this budget and the people, sadly, lost out by the actions of the Democratic Left Minister for Social Welfare, Deputy De Rossa. It is important to be reminded of what that Minister said about social welfare increases during his former life in Opposition. Speaking on the Social Welfare Bill on 1 March 1994 he referred to the 2 per cent increase as "miserable". In March 1993 he suggested that Dáil Éireann should deplore the inadequacy of increases, described as "meagre". In January 1992 he said the Minister for Social Welfare made much of the fact that increases in social welfare would be slightly above the rate of inflation but that a policy of setting social welfare increases on or about the level of inflation would only be satisfactory if basic social welfare levels were themselves adequate. This, he said, was clearly not the case. What will he say after this year's increases?
In 1991 he said virtually the same thing about the 4 per cent increase. On the 1990 budget, where a 5 per cent general increase was given, he said: "The overall level of social welfare increases is quite inadequate in the context of the scale of poverty facing the country". In 1989 Deputy De Rossa was particularly savage about the 3 per cent general increase plus a special 9 per cent increase for the long term unemployed. He said:
Given the appalling levels of poverty which have been widely documented by a wide range of independent groups over the past 12 months the failure to provide adequate increases in social welfare payments is particularly cruel.
One would expect the person who said all that, if given the opportunity, to ensure that social welfare increases would be above the level of inflation. Alas, the Minister failed to match his words with his actions and as Minister for Social Welfare he should do the honourable thing and resign. He has been codding the people for long enough and now he has been found out. Why did the Minister not give reasonable increases to pensioners and to child dependants? Why did he not give more than a miserly 10p increase to recipients of a living alone allowance? He gave an increase of 25 per cent to some welfare organisations. I can only conclude from their silence compared to their vociferous attacks on Fianna Fáil over the years that those organisations were led by people who had been bought off or who were in the hands of the Democratic Left/Workers' Party over the years and many of their protestations were politically motivated.
I welcome the increase of £7 in child benefit. It shows the importance attached to families in this country and continues the policy adopted over the last number of years. There should be a discussion on targeting increases so that the less well off in society get a proportionately greater share-out of what is available. I welcome the increase to £25 in the minimum unemployment assistance for single people living at home. Many young people left home and went to live in flats. If they lived at home they received a maximum of £10. This placed a strain on health board budgets and this increase should reverse that. It is important that people stay at home in their own environment and with their families. Many problems, for example those associated with vandalism, arose from the fact that young people left home and went to live in flats.
The changes in PRSI liability are welcome.The removal of liability on the first £50 will make it less expensive to employ additional workers and it will be easier for many hard pressed employers to maintain their workforce. It is also of benefit to employees as £50 at 5.5 per cent will give them £2.75p extra take home pay. That is a welcome direction in which to go to reduce the tax burden on employees.
The Minister has exempted the first £50 for full rate contributors but has only allowed a £10 allowance per week for the self employed who pay, under contribution class S, 5 per cent of their income towards pay related social insurance. Why is there such discrimination against the self employed? Why does the Minister not continue on his mission statement to reward work and risk taking? He should have gone further down the line and granted a PAYE allowance to propriety directors of limited companies who are subject to tax under schedule E, similar to all PAYE workers. If job creation is the Government's aim it is necessary to give every assistance to small companies to set up and continue in existence. The extension of the £50 allowance against PRSI and the extension of the PAYE allowance is the least that should be done.
The widening of tax bands and increases in tax free allowances are nothing to write home about and the decision to reduce further mortgage interest relief and VHI premium relief will offset any benefits. The decision to increase exemption limits is in line with Fianna Fáil policy over the last few budgets and is welcome.
In his budget speech the Minister stated he would abolish tax relief on covenants from next year. He should clarify the matter of relatives in retirement homes. People are worried that covenants will not be allowed in future and are to be abolished.
In order to direct investment into job creation the Minister should take action along the following lines. BES schemes were set up to provide risk capital for new ventures but over the years they were hijacked into areas for which they were not intended. The Minister should cancel the taxation benefit of asset-backed BES schemes or at least reduce the taxation benefits by 50 per cent.
I wish to share my time with Deputy Woods. Pension funds are the largest investment source available in this country and the State is not getting the maximum benefit of the moneys available in those funds. The Minister should concentrate on offering specific inducements to those funds to invest in Irish industry and should tax cash holdings and off shore investments. He should consider expanding the BES benefits to allow for the setting up of specific venture capital funds with rules for investments in set ups and expanding businesses.Instead of doing away with the bank levy he should develop a fund for bank bail outs and deposit guarantees. He should give consideration to the take over of dormant bank deposits for the benefit of society in general.
The environment and import substitution are two concepts which are very much to the fore and are important to the development of the country. Consideration should be given to the introduction of a specific energy tax which would differentiate between imported and home produced goods and environmentally friendly and unfriendly goods. A reduced rate of VAT should be considered for recycled products which would benefit job creation and the environment.
Specific benefits for groups having Irish holding companies and for groups carrying out research and development in Ireland should be considered as this would ensure that such companies would maintain their presence in Ireland and would not leave the country at the first sign of difficulty. This would maintain jobs and offer opportunities to graduates to apply their expertise for the good of the country.
We must accept that manufacturing is cheaper in the Far East and Third World countries and must concentrate on becoming an international services country. An initial step may be to focus on, and offer incentives for super highway development. In this day and age of impermanent employment there should be a fund, perhaps operated through the PRSI system, 1 per cent contributed by the employee and 1 per cent by the employer to retain people who may become redundant or who wish to change their careers.
The aim of this or any future Government should be to render this a nation of taxpayers which, in the long term, would mean a reduction in the burden for all. It is important that all make their rightful tax contribution to the State, thus lowering the burden on everybody. For example, if everybody paid their fair share I have no doubt that the tax burden would fall from 50 per cent to 30 per cent.
I welcome the relief for farmers, especially the continuance of the 25 per cent stock relief and the special relief for farmers who must de-populate. I also welcome the changes proposed with regard to capital taxation. I await with interest for details of the charter of farmer's rights in which £5 million is to be invested. Our farmers have two excellent bodies looking after their interests, the Irish Farmers' Association and the Irish Creamery Milk Suppliers Association, not to mention Macra na Feirme, the Irish Co-Operative Organisation Society. I question whether it is necessary to invest £5 million in order to devise a charter of farmer's rights when there are many others in our society who need money to an even greater extent, within the health, education, social welfare and hospitals sectors.
I particularly welcome the scheme for seaside resorts, especially in regard to the town of Youghal, which I discussed with my colleague, the former Minister for Tourism and Transport, Deputy McCreevy. I am glad the new Minister for Tourism and Transport, Deputy Enda Kenny, has taken that scheme on board and will implement its provisions, which will be especially welcome in the Youghal area, a town which has been ravaged by unemployment in recent years and is in dire need of a leg-up to reinstate it to its former prosperity.
In this budget the Government abolished the bank levy and during the week the Minister of State to the Government, Deputy Rabbitte, explained how it would be Exchequer-neutral. It will only be Exchequer-neutral because the Minister for Finance is bringing forward corporation profits tax payments from ensuing years. The reason for so doing is the Government is well aware it will not be in office in the years ahead. The Exchequer will lose £12 million per annum from the abolition of the bank levy, on top of which the Government is offering a 2 per cent reduction in corporation profits tax to the banks. No wonder the banks are happy today.
There was a famous baker here known as "Pat the Baker", whose bakery distributed dough nationwide. We now have "Pat the Banker" who has distributed the dough to the banks rather than to those everybody might have expected the Minister for Finance and his colleague, the Minister for Social Welfare, to look after. It is a shame coming from the so-called socialist parties, Democratic Left and the Labour Party.
For understandable reasons this Government failed to grasp the opportunities available in drawing up its budget — there were too many cooks. It is unfortunate for future generations that we have a Government which because of its different philosophies and ideologies does not allow for brave, courageous, job-creating decisions to be taken. It is unfortunate that Fianna Fáil do not remain in office to take such decisions based on the results of our good Government in recent years, contributed to by, among others, my colleague, Deputy Woods to whom I now give way.
I congratulate Deputy Jim Higgins on his appointment and wish him the very best. He has been a very vigorous representative of the west in this House.
In debating this budget I hoped we could have said many good things about its proposals, that we could all have been very pleased with its provisions due to the resources available, the work undertaken in recent years to ensure our economy remained in a sound state and because of the direction in which the country was going. I am afraid this budget has been a bitter disappointment for those dependent on social welfare and it completely ignored the targets set by the Commission on Social Welfare. Instead, this Government set out to woo the middle income voter, giving the lowest increase in 30 years to pensioners, disabled people, the homeless, the unemployed and carers. This is the first occasion in 27 years on which a surplus was available to the Government, yet the Democratic Left Minister for Social Welfare, Deputy De Rossa, granted the lowest increase in recent memory to those for whom he is constitutionally responsible. Reminiscent of the old Cumann na nGael right-wing Ministers, who took a shilling from old age pensioners, it did not take the Minister for Social Welfare, Deputy De Rossa, and his colleague at the Cabinet table long to let down those who thought they could depend on them. Deputy De Rossa spent years protesting on the opposite side of the House but it took him a mere matter of weeks to forget his alleged principles and the people who put him there. One might well say: "Tomás Mac Giolla, come back, all is forgiven, let us resurrect The Workers' Party and get back to concern about the real people on the ground".
The Taoiseach has said that his rainbow Coalition Government is giving these historically low increases to enhance the incentive to work among people on social welfare. Both the Labour and Democratic Left parties have supported this approach but, one might well ask: since when did the old age pensioner, widow, invalid, or the homeless person need an incentive to work? It is well established that what they need is adequate, basic payments and the support of all the community if they are to survive. They are entitled to that support but did not get it from this rainbow Coalition Government. Those who are genuinely unemployed, or families at work in receipt of low pay also deserve our support but neither did they receive it.
We should contrast the miserable 2.5 per cent increase granted this year with what happened in former years. Many Deputies here including Deputy De Rossa complained when we granted increases of the order of 3 per cent, plus a 9 per cent special increase for the long term unemployed. Deputy De Rossa complained it was not enough, it was totally inadequate. Yet, then real progress was being made on the targets set out by the Commission on Social Welfare.
Looking back to 1977, when I first became a Member of this House, we can observe increases having been granted of 14 per cent, 10 per cent, 12 per cent, 20 per cent and, for old age pensioners, in 1981 and 1982 three consecutive 25 per cent increases. Of course, that was given by a Fianna Fáil Government. The increases were always well ahead of inflation and, in more recent years there was always an extra provision for those in receipt of particularly low payments to bring their entitlements up to the targets set by the Commission on Social Welfare. I hear people here speak about the 3 per cent granted last year, which was an overall, general increase, in addition to which there was a 6 per cent increase, to continue to raise people's income levels, followed by a 10 per cent increase in unemployment and disability benefit, selectively supporting those in receipt of lowest payments.
The Minister for Health, Deputy Noonan, earlier endeavoured to justify the 2.5 per cent increase on the grounds of the child benefit payments but what he and this Coalition Government forgot was that not everybody on social welfare will gain from child benefit, pensioners being a very obvious example; they will not benefit at all from the increase in child benefit. An old age pensioner, on assistance, will receive an increase of £1.50 per week; on insurance, a pensioner will receive 30 pence more but, if that pensioner has a dependant spouse, and they are in receipt of assistance, between them they will receive £2.40 per week extra, or £1.20 each on the basis of equal treatment.Similarly, somebody in receipt of a disabled person's maintenance allowance will receive the princely sum of £1.50 per week extra.
To put these increases in context, I met some pensioners on Saturday last who did not perceive their increase buying even one extra pint a week. As they said, obviously if they are on assistance, they will have to seek a subvention from their sons and daughters to raise the £1.50 to £1.89 or, if on insurance, to raise the £1.80 to £1.89. That is how the public view the budget and what I outlined puts it in the context of real life outside this House.
People on invalidity pensions and those in receipt of benefit under the social insurance fund get 10p more than a person in receipt of a disabled person's maintenance allowance. Widows, deserted wives and the homeless also get an increase of £1.50 per week as do carers. The unemployed and those on sickness benefit are also held down to an increase of £1.50 per week. Those people want to work. There is no need to subject them to the new concepts introduced by the Taoiseach — to "Brutonise" them. The Government showed in this budget that it is out of touch with reality. There is no increase in child dependant rates and, in any event, payments are now taxed. Did the Minister for Social Welfare forget that when he accepted a reduction? Did he forget that payments to unemployed adults are taxable?He could have argued for more on that basis because the net cost to the State of such welfare benefits is much lower. The point of that taxation procedure was to reduce the disincentive to work so that the Government could give improved payments on basic personal rates. The Minister for Finance will claw back part of the welfare increases for adults.
The Commission on Social Welfare set out the targets for social welfare payments. The previous Fianna Fáil-led Government with Labour had exceeded the priority rates in current terms and had achieved over 90 per cent of the main rates for all payments. In this budget the commission's main rates were to be achieved as promised by Fianna Fáil and Labour in Government, but the rainbow Coalition has reneged on it. Those rates for all benefits could easily have been achieved this year. I cannot understand why the Government did not pursue that.
The rainbow Coalition has made a virtue of begrudgery. It set out to improve the incentive to work by freezing welfare payments to the children of recipients, by tying increases to adults strictly to the expected rate of inflation and by taxing the miserable 2.5 per cent increase in social welfare. One million adults have been cheated in this way, including 250,000 retired people on social welfare pensions, more than 100,000 widows, disabled people, lone parents, the homeless, carers and the 280,000 unemployed. Only fewer than one-third of social welfare recipients are unemployed and of those only 36 per cent have dependent children.
I ask Members to accept that the rainbow Coalition's figures have gone tragically wrong. The Government has made a serious error in thinking that child benefit would compensate people who depend on social welfare. The number who will be compensated is relatively small considering the total involved. It is principally the unemployed and some widows. Only 36 per cent of the unemployed have dependent children. The Government must realise what it is doing and be conscious of the fact that it is impossible for the vast majority of social welfare beneficiaries to avail of child benefit. Even though the increase in child benefit is excellent, it does not reach enough needy people because they cannot avail of it.
I welcome the rainbow Coalition's commitment to the previous Government's programme for encouraging enterprise, rewarding work and initiative and reforming the tax system. I welcome the tax and PRSI reliefs and support given to families in general through increases in child benefit allowances. I particularly recognise the work done by the committee on child benefit chaired by Dr. Finola Kennedy which prepared the valuable report on which that development is based. That valuable and effective report was produced quickly.
The current healthy financial strength of the social insurance fund has made it possible for the Government to follow the lead given last year and give further PRSI relief to both employers and employees. It also made it possible to set aside for this year the expected charge on the Exchequer arising from the Fine Gael-led Government's failure to implement the equal treatment directive of 1984. I am dismayed and deeply disappointed at the rainbow Coalition's failure to provide the funds needed to tackle stark inequality and disadvantage in our society. People with disabilities have been largely forgotten despite what the Minister, Deputy Noonan, said about the Estimates, not the budget. Those people cannot wait any longer for real support and recognition. They have listened too often to expressions of sympathy without getting a real share in the nation's prosperity. This year was to be the year in which a surplus was available to ensure that development was possible.With 87 per cent of people in wheelchairs not in open employment and 74 per cent not involved in education or training programmes, surely it was time for real action and a financial commitment to tackle their needs. The global and poorly researched restriction on covenants will, unless more clearly thought through and reversed, have disastrous consequences for many serious disabled or incapacitated adults and children.
I call on the Minister for Finance to review the position of those people as a matter of urgency and address their grave concerns. There is no equality for the old, widows, the sick, people with disabilities, the homeless or travellers in this budget. Consequently, I cannot support the 2.5 per cent increase in social welfare especially in cases where there are no child dependants.
I take the opportunity to publicly congratulate Deputy Jim Higgins on his appointment as Minister of State at the Department of Finance.I know he will play a very worthwhile role in that Department and an important one as a member of the economic and budget committee of the Cabinet.He will help us reform many areas and I look forward, with enthusiasm, to working with him.
I listened to the Fianna Fáil speakers, Deputies Michael Ahern and Woods. Deputy Michael Ahern quoted the Old Testament in referring to the instability of inter-party governments. He conveniently forgot that the only instability in inter-party Governments we have experienced was under Fianna Fáil stewardship when not on one or two occasions, but on three occasions a Fianna Fáil Taoiseach succeeded in causing an election through issues of trust and inability to make a partnership Government work. I will not be accepting lectures from Deputy Michael Ahern on the instabilities of inter-party Government.
It is enough to make a cat laugh to listen to Fianna Fáil Deputies attack the social welfare provisions of the budget. It hardly escapes their memory that it was a partner in a Government that introduced the infamous dirty dozen cuts. Only last year a Government of which it was a partner was going to means test widow's pensions. Those matters seem to have been erased from their memory but they have not been erased from the memory of many of those who were affected by the dirty dozen cuts. Many people have been only able to keep their heads above water due to receiving assistance with the payment of their electricity bills and they are still ruing the reforms brought in by the so-called caring Fianna Fáil administration. To be honest Fianna Fáil are extremely grudging and it has latched on to something very small amidst the overall social welfare provisions which are very progressive.
Many of us have long awaited reform in the area of child benefit. It is great that a Minister for Social Welfare has taken bold steps in that direction. I am very pleased also about the changes affecting those at the lowest end of the scale and the important reforms in the supplementary welfare system and for people who are trying to keep their head above water in meeting their rent payments and mortgage repayments. These are valuable changes.
The Minister for Social Welfare has made good provision for the carer's allowance and I am pleased that the means test criteria in regard to it has been eased significantly. This is an area where many people are struggling to provide care for their elderly relatives or for their children with disability and this recognition is long overdue. I am glad the Minister for Social Welfare has availed of the opportunity to make reforms in this area. There are many worthwhile aspects to the social welfare side of the budget. It is important that we not only roll on the system from year to year but introduce the reforms which the Minister for Social Welfare has had the courage to take on. After three years we will see a much improved social welfare system which encourages people to take up new opportunities.
I wish to say a few words about the enterprise and employment side of this budget. None of us understates the challenges we face in dealing with the problems of unemployment which have dogged our country for many years. Our unemployment rate of 280,000 is the second highest in Europe. Of particular concern is that during most of the recent economic recovery the numbers of long term unemployed continued to grow. The most recent quarter showed, for the first time, an interruption in the continuous growth of long term unemployment.We face the continued threat of long term unemployment at the same level despite growth. That is an issue we all have to take very seriously.
Another major challenge is the number of young people who leave school without the qualifications necessary to get and sustain a job of quality. Every year, almost 16,000 young people leave school with either no qualification or qualifications at a level insufficient to equip them for the challenges of a modern competitive economy. Similarly, we face serious problems of unemployment among people with a disability. Reported figures suggest that unemployment among those with a disability is as high as 80 per cent. I do not know whether those figures stand up but clearly that is the magnitude of unemployment among those with a disability. We also have to address a serious skills gap which probably underlies many of our unemployment problems. The recent NESC report showed that Ireland has twice as many people in the industrial workforce with no certified skills compared with other countries, particularly West Germany. It has also shown serious defects in the management of companies in important areas such as marketing and product development and design which must be addressed and we are working to get to grips with them. A number of measures flagged in the Programme for Government have been initiated through the budgetary provisions.
The Government is determined to move from rhetoric in the area of unemployment to putting in place practical policies that will achieve change. Our overriding aim is to secure a higher employment content from growth. We are in a period of good growth, we must ensure we exploit that opportunity to the best of our ability and turn high growth into employment. The Minister for Finance has addressed that issue by a series of reforms in the tax wedge. For many years the issue that confronted employers is that to put a pound in the pocket of their worker they would have to pay out £2.70 for all the different taxes—the 48 per cent income tax and the 20 per cent PRSI. This has been a major obstacle to employment growth in our economy.
It is strange that as an economy we tax most heavily the provision of employment while we provide the lowest taxes in areas such as investment or low risk activities. We must change that. This budget has made the first significant move in tipping that balance by encouraging employers. There has been reform of PRSI paid by the employee. For the first time we have a very radical reform, the introduction of a £50 allowance against PRSI. Under the old regime the lowest paid in our community paid tax at 7.75 per cent. This is a significant change. It means those on the lowest rate of pay will not pay tax or PRSI on the first £50 of their earnings.That will benefit everyone but the benefit will be concentrated on those on low pay. This change which introduces an allowance of £2,600 against PRSI will, over time, allow us to move along the path of strategic reform of the income tax and PRSI codes. After all PRSI has become a tax. That is the reality and we must structure it in an equitable way. If tax is to be equitable it must be related to ability to pay. A tax which for so many years has been levied on the first pound of earnings breaches all principles of fairness and relating tax burden to ability to pay. I am pleased to have been a member of a Government that addressed that issue in its first budget.
This change is significant for the employer who pays the tax wedge between the cost to him of taking on a person and that person's take home pay. If the three tax changes are aggregated, namely, the reform of PRSI for employees, reform of PRSI for employers and the reform of the income tax code they will have significant effects on the tax wedge. For example, for a single person earning £12,000—a standard industrial wage earner—the effect of the three changes has been to reduce the tax wedge for an employer of such a person by £600 in one budget. We make no apology for concentrating those changes on that type of worker and that person's employer. The reality is that people working in industry on the standard industrial wage are under threat. They experience competition not only from Eastern Europe, which is well documented, but also from particular regions in the UK where they have the advantage of lower tax rates because they have not had an anti-employment tax system, which we have had to endure for so long, and a lower PRSI rate. The Government has unashamedly said it must address the needs of such employers and workers. I am pleased we will be in a position to say it will be cheaper for those vulnerable employers to take on workers and they will send them home with more money in their pocket. That is a worthwhile achievement of this budget.
Another benefit, the effect of which we will see for a long time to come, is reform of child benefit. For many years we have had to live with the notion of a serious unemployment trap and a serious poverty trap. That has built up because unemployed people are subjected to different treatment from people earning gross pay from employment.That must be changed. The change in child benefit is one of the most significant ways in which that can be achieved. The real problem for persons who are working is that no recognition is given for the cost of rearing a family. Up to now they received only the meagre child benefit whereas persons in receipt of social welfare get a child dependant allowance as well as child benefit.
This Government has started to increase the general provision of support for those who have to rear children. They are providing such changes not only for those on social welfare, which would increase the poverty trap, but across the board. It is clearly stated in the Programme for Government that this measure is only a first step. The next step is to create a system of child support that balances the position for those on relatively low pay at work with that of those who are out of work. When that change is in place it will revolutionise the poverty traps we have had to live with for so long. This is a very important issue, the benefits of which will be evident for many years to come. The rather grudging recognition of this measure from the Opposition benches does not do justice to a very worthwhile change.
Changes have been made in this budget that will benefit small businesses which are at the heart of providing employment opportunities for our people. A very important measure is the change in capital acquisitions tax. Many of us know people who have worked hard to build up a small family business and as they advance in age they face the prospect that if they hand on the business to family members a massive payment will have to be made to the Revenue Commissioners in the form of capital acquisitions tax. Up to 40 per cent tax is payable when a person passes on a business to their family. Nobody wants to see small family businesses treated in such a way. In this budget the Government has significantly reformed the capital acquisitions tax as it bears on small business.
Under the new provisions a small business which is passed on to a family member, instead of being subject to a 40 per cent tax bill, will be subject to only half that amount on acquisitions up to £425,000. By reducing the interest rate payable on such taxes from the penal 15 per cent to 9 per cent, the small business person will have a chance to plan for the hand-over of their business as a going concern to the next generation. That will be seen as a very worthwhile change and one that will support small business, which is the seed potato of the provision of employment.
Another measure introduced in the budget relates to what was an irritant to certain small businesses, that is the 20 per cent surcharge payable on top of company tax in certain circumstances. This surcharge, which was seen as a penal rate of tax, was introduced as an anti-avoidance measure. The Minister is reducing the amount of income subject to the surcharge, and that will be welcomed by the small businesses affected.
Another important measure which I hope will help to change the climate in which enterprise is conducted is the increase in the annual value of shares which may be allocated to an employee under the profit sharing scheme from its previous limit of £2,000 to £10,000. When the former Minister for Finance, Deputy Ahern, slashed that allowance in the budget a couple of years ago there was widespread dismay. Profit sharing schemes can be an important element in building a partnership at enterprise level. We are moving into an era where Irish business is no longer seen as "them and us". Increasingly high quality employers are willing to share information, profit and plans and to work as teams in addressing management issues. The trend in recent times towards world class manufacturing is built on the notion of teamwork in companies to achieve quality and it is important that such team work be recognised in our tax code. I am pleased to be a member of a Government that recognises that in a very practical way by providing tax relief for profit sharing. That measure will bear fruit for many years.
The Minister for Finance rightly pointed to enterprise as a key theme for the budget and made a number of changes that will assist in that area. He made changes in the seed capital scheme, a scheme whereby people in the PAYE sector who decide to set up a business of their own are refunded tax paid over the previous three years, up to a maximum of £75,000. The Minister has increased that sum to £125,000. That is a significant change in that it allows people previously in the PAYE system who take the risk of setting up a business to get their hands on money previously paid in tax for use as a capital base for their new enterprise. This is an important recognition of the value of people who take such chances to start up enterprises in our economy. I am disappointed there has not been a better take-up of that scheme. There are issues as to the way it is being run and I hope the Minister will consider that matter. This measure is a very important change which allows a much better start-up dividend for small companies run by people who were previously in the PAYE system.
We are very concerned that the difficulty in getting investment capital be addressed on a much wider scale. I compliment initiatives from the private sector which help the start-up of business. The Smurfit Job Creation Enterprise Fund and First Step are two organisations with whom I have had contact in the context of helping people to set up enterprises. These are worthwhile initiatives where money is channelled to people who for one reason or another find it difficult to access equity or loans from the conventional sources of funding.The Government is very anxious to build on the success of those initiatives taken primarily due to a charitable approach by those private organisations.
Under the operational programme for industrial development which I recently launched provision is made, with EU funding support, for the establishment of joint venture funds whereby the Government will put up half the money and private financial houses will put up the other half. We hope to use that money to target the many areas which venture capital has not reached. We have seen the emergence of a venture capital industry, but it is focused on the larger projects and those with a gilt edge character. It is our intention to put money into venture funds in areas that have not been tapped by those funds.
There is a provision of £33 million for such funds, of which £6.5 million will be provided specifically for seed capital. It is important to make provision in this area. By getting matching finance from the private sector we will generate much more activity than with the straight provision of grants. This is part of the shift away from the grants culture which we want to encourage. In line with our commitment in the Programme for Government we will consider the establishment of venture funds on a very wide basis.
I wish to refer to the changing attitude in the banking system to small business. One of the objectives of the Programme for Government is to encourage financial institutions, including the banks, to adopt a more strategic and long term approach to financing business. The banks have accepted that they must make changes in this area. In the past they were not regarded as friendly to small businesses but they have begun to change that attitude. A number of them have set up loan schemes which offer money to small and medium businesses at a lower rate and for a longer term than was the case in the past. I welcome these changes and intend to meet with the banks to discuss further initiatives which can be taken in this area. I am very pleased that they have given the Minister for Finance a commitment to enhance their support for small and medium sized enterprises. I hope we can build on the developments in this critical area. Banks must realise that by supporting the small businesses of today they are building up clients in big businesses in the future. They must be willing to sacrifice short term gain to have longer-term good secure clients and, from the point of view of the economy, good vibrant businesses.
I pay tribute to the previous Government and, in particular, the then Minister for Enterprise and Employment, Deputy Quinn, and his then Minister of State, Deputy Séamus Brennan, for establishing the worthwhile loan fund scheme which provided £100 million for business expansion. The rate of 6.75 per cent for loans under this scheme was well below the existing AA rate and there was a huge demand for funds. We have been involved in detailed negotiations with the European Commission with a view to the introduction of a scheme which will build on the loan fund scheme and address some of its weaknesses, for example, the exclusion of the service sector and the setting of loans at £50,000 initially and then £40,000 which clearly ruled out of consideration many small businesses. This issue will be addressed in the near future and I hope to announce a worthwhile scheme which will build on the success of the previous one.
I am anxious to develop the county enterprise boards so that they will have a more dynamic role in the creation of enterprise in the economy. Over the past 18 months county enterprise boards have put forward many worthwhile projects and approximately 5,000 jobs will be created if the proposed projects are brought to fruition. I would like to develop the role of those boards so that instead of just being grant giving bodies they will also create enterprise by focusing on the strengths of their regions and building up opportunities. Having spoken to their chief executives, I am aware that the county enterprise boards are very keen to take on this role.
I wish to refer to the services sector. When in Opposition I published a policy statement on the problems of that sector.The budget has made a start in giving the service sector a fair crack at the whip. All of us know service sector employers who, having paid 40 per cent profits tax, 20 per cent PRSI and 21 per cent VAT, are lucky to have 3p left out of every pound to keep their businesses going. This is the reality experienced by many service sector employers who regard themselves as victims and the poor relation in terms of incentive schemes and policies. The Government has recognised that the service sector can no longer be treated as the poor relation. Many of the exciting opportunities for business development are in the service sector and the Government is determined to assist that development.I will examine the industrial supports to see how the service sector can be assisted in certain areas. The Minister for Finance has made significant changes and has begun the process of reform of the corporation tax code. It is very strange that we would tax service business at four times the rate for manufacturing business. This is not commensurate with the practice in other countries and it does not contribute to a good employment creating economy. The Minister has flagged his willingness to make changes in this area. This change will be built on in future years and will yield good returns.
In the coming months I will seriously examine policy so as to ensure that the Department has a coherent strategy which will span not only the traditional areas of foreign industry and Forbairt but which will also embrace the county enterprise boards, small businesses and, very important, community employment and the role communities can play in providing enteprise in their regions. I am glad we have reversed the very serious cuts imposed in the community employment scheme by the previous Government. If that Government had had its way, community employment would have dropped from its present level of 40,000 to 26,000 by the end of the year. This would have had a devastating effect on many community enterprises and schools which employ caretakers and provide useful employment and services in their communities.
This is the first of three budgets which the Government will introduce. It has made very significant reforms in important areas such as PRSI and has taken a number of steps on a much greater reform agenda. I look forward in the coming years to describing the further progress we make in this area.
(Wexford): I wish the Minister for Enterprise and employment, Deputy Bruton, and the Minister of State, Deputy Doyle, well in their portfolios. The Minister, Deputy Bruton, said that this was the first of three budgets to be introduced by the Government. If my memory serves me correct, two years ago Deputy Bertie Ahern said that the 1993 budget was the first of five budgets he intended to introduce.
We had to give him a hand.
They will be two mini budgets.
(Wexford): Given the nature of politics, perhaps the Government should have made all their changes in this budget.
We all hoped the Minister would introduce a radical and inspiring budget. It was said that he had £300 million or £400 million to give away and we all hoped for miracles. Unfortunately, the budget is not very radical, particularly in the area of social welfare. When Fianna Fáil was in Government the then Deputies Proinsias De Rossa and Pat Rabbitte said the increases of 3 per cent, 4 per cent and 5 per cent in social welfare were totally inadequate. I may be naïve but I expected those Deputies in Government to ensure increases of 5 per cent or 6 per cent for social welfare recipients. The increase of 2.5 per cent for social welfare recipients is very disappointing and an insult to thousands of families on such benefits.
This is the lowest increase in 30 years. Fianna Fáil in Government provided for increases of 4 per cent and 5 per cent and for extra allowances for the long term unemployed. Provision has not been made for any such allowances this year. Old age pensioners over 80 will receive £1.90 and those under 80 £1.80 while widows and persons in receipt of unemployment assistance will receive £1.50. The Minister for Social Welfare, Deputy De Rossa, and the Minister of State, Deputy Rabbitte, have failed the people they claim to represent. Different parties made different promises and failed to deliver on them in Government but one expected Democratic Left to look after the people it claims to represent.
The Minister for Enterprise and Employment, Deputy Bruton, said that we should not be negative. I welcome the increase in the back-to-school clothing and footwear allowance. Any such increase should be welcomed. Many parents find it difficult to purchase clothes and footwear when their children return to school.
I would welcome any increase in the carer's allowance. Many people are caring for elderly persons on a long term basis for little reward. This allowance is means tested with the result that a person in employment on low wages can find themselves above the limit. It has been said that it would cost them £500 to £600 per week to have the elderly person cared for in a hospital or home. I welcome the decision to provide a free companion travel pass to all carers.
In general the social welfare increases are derisory and an insult to those on social welfare. They should be increased considerably in the Social Welfare Bill.
The banks have made gains in the budget. The levy of £36 million will be phased out over a period of three years while the rate of corporation profits tax is to be reduced from 40 per cent to 38 per cent. The Minister should have been more selective. As can be seen from the figures issued this week by AIB, there has been a massive increase in the profits made by the banks. They would not receive any sympathy from me. Bank charges are excessive and put severe pressure on small businesses and ordinary customers. A person has to pay £30 to £40 to have a chat with a bank manager; an overdraft also costs money. I do not support the Government's decision to phase out the levy of £36 million over a period of three years. It is an insult to those on social welfare who are not being given the increases they deserve.
The Minister for Enterprise and Employment, Deputy Bruton, also referred to the need to create jobs. Approximately 250,000 are unemployed.In some housing estates in my own community the unemployment rate is between 60 and 70 per cent. Any measures to create employment and to help the low paid should be welcomed.
I welcome the tax changes, which are a step in the right direction. We will have to remove those on low incomes from the tax net. The leader of my party, Deputy Ahern, suggested that there should be a special 20 per cent tax rate for low paid workers. This should be seriously considered.
There is a plethora of county enterprise boards, partnership and Leader programmes as well as FÁS schemes—there are four such schemes in Wexford. We should seriously consider placing all these bodies under one umbrella to avoid bureaucracy and red tape. All have made a contribution but they would be more efficient if they were operating from the one office where people with a good idea could seek finance and back-up services.
I wish to share my time with Deputies Hughes and Aylward.
I am sure that is satisfactory and agreed.
I thank Deputy Browne for sharing his time with me. Unfortunately, the Minister for Enterprise and Employment has left the Chamber but I am sure the Minister of State, Deputy Doyle, will convey my comments to him. In his speech he referred to the county enterprise boards. These have been in operation for over 15 months. While I accept the Minister's claim that these boards have the potential to create 5,000 jobs, the figures I have received in the past two weeks in reply to a parliamentary question cause some concern. Only 20 per cent of the funds approved during the past 15 months have been drawn down. It seems that projects are being approved despite the fact that their sponsors do not have the ability to draw down the funds approved within a reasonable time span. In August or September last year in County Mayo the moneys approved ran out with the result that genuine projects, the sponsors of which would have been able to draw down funds at an early date, were not approved for a period of one or two months until the matter was rectified by the Department of Enterprise and Employment providing additional funding. This matter needs to be considered carefully to ensure that the approach adopted throughout the country is consistent and that the sponsors of projects have the ability to draw down funds at the earliest possible date.
The Minister also made reference to the potential of the service sector. This is recognised by all parties in the House and the figures are there to prove it. Total employment has increased from 39 per cent in 1961 to 60 per cent at present. It is unfortunate that the main recommendations of the report of the task force on small business that the service sector should be the engine of growth and that the rate of corporation profits tax should be reduced from 40 per cent to 25 per cent—this has been costed by the Department of Finance at £27 million in a full year—have not been implemented this year. It has been decided to reduce the rate from 40 per cent to 38 per cent. This is a start but small businesses which have the greatest potential for growth will not receive the full benefit of this recommendation. Instead we have bent the knee to the banks which will record their largest profits ever, as can be seen from the figures reported yesterday by AIB.
I welcome the decision to widen the tax bands and to increase personal allowances. This is an ongoing process. It has been noted that the beneficiaries were not shouting on the streets last Thursday or over the weekend. The aim is to ensure that a large number of taxpayers will pay tax at the standard rate and an increasing number will be removed from the tax net. It has to be recognised that the total tax take is set to increase again. Despite the concessions worth in the region of £200 million this does not mean that taxpayers in 1995 will pay £200 million less in income tax as against last year. When pay increases and higher prices are taken into account the tax take will increase.
Even allowing for increased public expenditure, as indicated, and considering that inflation and interest rates are set to remain static or, at the very most, predictable, more could have been done this year than in previous years. That would have increased public confidence and consumer spending and Exchequer revenue returns would have been enhanced.
Despite income tax concessions, this budget has been perceived by the general public as a damp squib. Following its delivery and the ritual examination in the media, it has now been forgotten by the tax paying public. I was in my constituency last weekend and not once was I asked by any member of the tax paying public what I thought of the budget which attempted a lot without achieving anything of significance. The scatter gun effect ensured that the budget lost what should have been its primary focus as an engine of economic growth.
The Minister for Finance stated in his budget speech that the annual budget is about establishing priorities. It reflects choices and affirms values. I welcome the emphasis on rewarding work but I question its intended purpose to strengthen social solidarity. All the economic commentators and others tell us that this country is enjoying sustained economic growth, falling unemployment, etc. and will continue to prosper for the foreseeable future. This was not achieved overnight but by prudent management of the economy over the past number of years. The fruits of this labour are not being distributed in an equitable way when large financial institutions gain more from measures in this budget than the 14 per cent of the population over 65 years of age. Added to that number of elderly are the single unemployed and childless unemployed couples. The 2.5 per cent increase is best described as miserly and uncaring but the spin doctors try to equate and justify the level of increase to the rate of inflation. I question the rate of inflation and its method of calculation, particularly for an old age pensioner living in a rural area whose food is purchased from shops other than national supermarket chains and who invariably must depend on private hackney services to travel in and out of small towns and villages.
This budget will be remembered as the anti-senior citizen budget which gives the smallest increase in social welfare for approximately 30 years. Those who have contributed a lifetime of work and service to the State are the forgotten sector of society. As the Minister for Finance said, the budget reflects choices and affirms values but in regard to social welfare, Fianna Fáil rejects the choices made and does not subscribe to the values indicated in the social solidarity portion of the budget. I am pleased that our Leader, Deputy Ahern, will be putting down an amendment seeking a 3 per cent across the board social welfare increase.
Last year, our party provided £4 million for housing aid for the elderly scheme which ensured that the severe backlog in the scheme was tackled. That was the usual provision and there was an additional £2 million from the proceeds of the tax amnesty. It would have been asking much if the same provision had been provided this year. Instead, a 100 per cent, reduction in this worthwhile scheme, in addition to the derisory level of social welfare increase, should send out a clear signal to the elderly in regard to the choices made on their behalf by the Government. The elderly do not feature to any appreciable extent in these choices.
The phasing out of the bank levy over three years and the reduction in corporation tax to 38 per cent seems perverse compared to the level of social welfare increase. I heard the Minister of State, Deputy Rabbitte, stating that the removal of the bank levy was Exchequer neutral but it will certainly improve their cash flow for longer than usual. If the Government is in the business of removing levies, why does the insurance levy of 2 per cent on all insurance products remain? Will the Government remove it at least from the sector of society who can ill afford it, namely, those over 65 who must have home, public liability and car insurance? I am satisfied that the sum of money involved would be very little and would help to rectify the blow to this sector of our community.
I thank Deputy Browne and Deputy Hughes for sharing their time with me. I too congratulate Deputy Doyle on her appointment as Minister of State. I will not outline her various responsibilities because I would use up all of the time available to me but as she comes from a neighbouring county, I am delighted about her appointment and she can keep tabs on her two senior Ministers. Unfortunately, there is not any Minister now in my constituency. I also congratulate Deputy Burton on her reappointment.
When I was a young fellow a local man, who was a bit of a poet, was fond of quoting an old saying: "The mountain laboured and brought forth a mouse". That is very appropriate when one considers this budget, indeed no budget in living memory received as much attention as this year. Long before the Minister's announcement to the Dáil, the budget features were available to anyone who cared to read a national daily newspaper. In fact, when the Minister stood up to announce the budget details, all his audience knew exactly what to expect. This was bizarre and not the manner in which to treat the most important annual statement to the House by any Minister, especially by a Minister for Finance. In my constituency of Carlow-Kilkenny, the tragic consequences of the deluge of leaks surrounding this year's budget cost our Minister of State dearly. These issues must be of concern to all who have adhered to and upheld the traditions attached to the preparation and presentation of such a serious set of proposals affecting the lives of our citizens.
As far back as January, I tabled a number of questions to various Ministers including the Ministers for Finance, Social Welfare, Agriculture, Food and Forestry, Education and Environment.I wanted to raise matters of concern and I hoped that my submissions might have been included in the forthcoming budget. These were raised not only by my constituents and the public generally but in the many pre-budget submissions which we received. I hoped these submissions would provide some relief for the sectors of society in need of our support at this time. I will outline some of the proposals in due course but I will first reveal the trend of the replies I received to my questions.
During the first two days of this month the Minister for Finance and the Minister of Social Welfare, separately, informed me that it would be inappropriate for them to give any indication or to make any comment in advance of the budget. In light of the revelations made to those outside the House, who have no mandate, I must question the use of the term "inappropriate" when answering the legitimate questions of elected Members of the Oireachtas.
I wish to turn now to the provisions of the budget. It has always been my belief that a budget must allow us provide for those who have no resources while, at the same time, ensuring that employment and productivity within the State are fostered and encouraged. The Minister for Finance maintained that as a Labour Minister his main concern was work and those people at work. I would remind him, since he seems to have had a lapse of memory, that while the numbers of those in receipt of wages and salary are of the greatest concern to all of us, large numbers of our people have no weekly wage or monthly salary. Some of those people are too young to work and others are now too old and at the end of their working lives, they should have the support of a nation which they supported loyally in the past. Others are farmers and the self employed who contribute daily to the economic life of the country and a large number, unfortunately, are unable to find work in a society where rationalisation for international market forces plays a dominant role.
How have these diverse yet equally important sectors of society fared under the banner of socialism? In spite of all the hype and hysteria, the fact remains that we have seen much ado about little. In particular, the Minister for Social Welfare, Deputy De Rossa, and his party members and colleagues, who made their political careers on the backs of the poor, did not do very well in his first test.
"Very little" is the only comment we can make about the £1.80 extra per week with which old age pensioners must face the future. The £1.60 was a very small increase for those on invalidity pensions and less still is the £1.50 given to those on disability or unemployment benefit. Less is given to an entire range of people whose lives depend on payments from the State. What can we say about the 10p per week increase allowed those who live alone? There appears to be a greater willingness among the liaison of the Left to provide the media with material than there is to provide proper care for those most in need of our help.
There are features of the budget which I welcome but that should be the case because we left the economy in a strong position. There have been Fianna Fáil dominated Governments since 1987 and we should expect positive measures in this budget. The increase in child benefit of £1.75 a week sounds better when translated into a monthly payment of £7 a month but it still boils down to a modest increase. The changes in PRSI contributions which, coupled with changes in income tax liability, may well mean a gain of almost £300 a year to the single person on £20,000 but will mean an extra £144 a year or £2.77 a week to the person on £5,000 a year. The £384 gained by a married couple with two children on £7,000 a year still falls far short of the £682 gained by a similar couple earning £40,000.