Before the debate adjourned I made the point that the net effect of the budgetary measures will be to extract £730 million from the taxpayer in 1996 over and above what was extracted in 1995. The budget was presented as a tax give-away but if that is a give-away I would like to know the Government's definition of a tax increase.
The increase in the taxation yield for 1996 over 1995 represents an 8.2 per cent increase in the total volume of taxation and is on top of a 7.5 per cent increase in 1995, in other words, in two years of high economic growth, this year and next year, the tax take will have increased by 16 per cent. That money has been and is being frittered away in public expenditure and is the reason record rates of economic growth do not translate into meaningful employment.
The only effect of the budgetary taxation and the so called PRSI concessions was to slow the rate of increase in taxation yield. The reality is the average taxpayer will pay substantially more in taxation this year than he or she did last year. The figure is £730 million in a full year, in other words, £2 million per day or £14 per week for each of the one million taxpayers.
In his speech this morning Deputy Shatter sought to take a warm bath in his own prejudices and rewrite the history of the revolving door. I wish to disabuse him of the notion that the revolving door syndrome became evident as a problem in 1987. It was evident in the 90s when the number of custodial sentences was such that we did not have sufficient prison places to accommodate offenders. The inevitable result was that offenders served a shorter proportion of their sentence. Those who were violent and dangerous often had to be released into the community in order to make places available. In 1993 the then Government decided to include a provision in the 1994 Estimates for £25 million to create 210 extra prison spaces. On coming to office the first act of the rainbow warriors was to cancel this provision. The Government that has added £1 billion to the national debt has failed, after 14 months in office, to find £25 million to honour the commitment given to the electorate by the outgoing Government. The revolving door phenomenon became evident as a problem in the early 90s and immediate action was taken to deal with it. The incoming Government cancelled the provision and 14 months later it grudingly admits the need for extra prison places.
The Taoiseach sought to put the idea across that because it delayed for 14 months the prison spaces will be available earlier. Such nonsense flies in the face of common sense. This must be the only time in recorded history when a decision to postpone action for 14 months will result in the action being taken earlier than would otherwise have been the case. Regardless of whatever spin the media machine in the Government press office wish to put on it that is the reality.
This morning the Taoiseach accused Fianna Fáil of delaying the bail issue by referring the matter to the Law Reform Commission. If he believes the commission does not have any validity or that there is no need for it he should say so clearly. As far as I recall a Fine Gaelled Government established the Law Reform Commission. It has been the practice for successive Governments of whatever hue to refer intractable legal problems to the commission. It is ironic that the Taoiseach makes such an excuse when he and the Minister for Justice justified delays in deciding on the issue of bail by saying the matter was with the Law Reform Commission. If the Taoiseach does not believe it is of use in this area or believes that the previous Government delayed matters by referring them to the Law Reform Commission why did he not take action on coming to office?
The Government's package on crime is belated, grudging, meagre and minimalist. It is badly thought out and funks the major issues such as bail, the right to silence, the move to an inquisitorial system of trying criminal cases and the introduction of different policing method used in the US for the last quarter of a century. As it is largely an instant knee-jerk reaction to get the public off the Government's back it will prove to be ineffective. Deputy Owen's term as Minister for Justice has been, is and will continue to be a smash flop. She will go down the annals of Irish history as the Minister with the "unMidas touch".
The Government announced a number of indirect tax changes that will push up the inflation rate, for example, excise duties on petrol and tobacco will be raised and stamp duty on ATM cards will be increased. While the reduction in employers' PRSI should boost profit margins in some sectors and act as a buffer against inflationary pressures, the recent announcement of an 8 per cent rise in ESB charges over the next three years could have a knock-on effect on inflation. That price increase will occur despite the Government's plans for the ESB which will enable it save £60 million per year.
The decision to raise excise duty on petrol will extract an extra £20 million and recreates the differential in price between the Republic and Northern Ireland. The price of petrol in Northern Ireland has been affected by a price war in the United Kingdom where hyper-markets are involved in selling petrol. That has spilled over to Northern Ireland, specifically Belfast. I am informed by the experts that it will create a marginal difference between petrol prices here and Northern Ireland, but that will be directly affected by the budget. I do not understand how this measure falls into the Government's grand strategy for managing the economy. It is simply a device to fill a gap and justify the increase in public expenditure.
The corporation tax reduction from 38 to 30 per cent on the first £50,000 of a company's income is welcome, but it is a scatterbrain approach. It is very poorly thought out and represents a gross waste of taxpayers' money. The maximum tax saving from this measure will be £4,000. Part of the effect of the measure will be that companies such as those I picked from the Stock Market report in alphabetical order, AIB, Avonmore, Abbey, Adare, Anglo-Irish, Bank of Ireland, Cement Roadstone, Elan Corporation and Fyffes, will benefit. Is the Minister for Finance aware that the directors of some of those companies are paid that amount every week? What will be the net effect of this measure? How will this expenditure of taxpayers' money help Irish business and industry?
This measure will cost the taxpayer £23 million, not an inconsiderable sum of money. Instead of giving £4,000 to all and sundry, including those who least need it, the measure should have been focused on the small business sector so that the amount of tax foregone would be greater and of most use in terms of maintaining and creating employment.
I believe — financial journalists and economists have made this case very well — that the overall rate of corporation tax must be steadily reduced. The net result of the budgetary measures is that our corporation tax rate is still significantly higher than that of the main overseas territories in which Ireland invests, and that creates a major disincentive. Further evidence that this is a once-off, "top-of-the-head" measure and that it has been very poorly thought out is that it is limited in ways which conflict with the reduction from 38 to 30 per cent. For example, the 40 per cent rate of capital gains tax remains in place as does the 20 per cent surcharge on undistributed investment or rental income of companies. That conflicts directly with the change in the rate from 38 to 30 per cent on the first £50,000 of income.
The standard rate of employers' PRSI is being reduced from 12.2 per cent to 12 per cent. That is, however, largely clawed back by increasing the ceiling on employers' PRSI from £25,800 to £26,800. The Government is giving money away with one hand and taking it back with the other. The reduction in the lower rate of employers' PRSI from 9 per cent to 8.5 per cent will yield a net benefit of, for example, only about £2,500 to a clothing manufacturer employing 50 people. It will be worth about £4,500 to a company employing 100 workers. It is no exaggeration to say that corporate cash flow will not be significantly affected.
Worse still — this measure has also been badly thought out — the impact is uneven depending on the income of the employee. For example, an employer will save £50 per year in PRSI on a gross wage of £10,000 and £30 per year on a gross wage of £15,000, but on a gross wage of £30,000 per year PRSI will cost the employer an additional £68. In addition, there are no transitional arrangements or marginal relief. This leads to the anomaly that even if a £1 pay rise is given to an employee earning £13,000 it will cost the employer £456. The net effect of the changes announced by the Minister on employers' PRSI is that higher earning employees will pay more PRSI and taxation because the PRSI allowance is being abolished — the cost to a person on the 48 per cent rate will be £67 per year.
The second fraud perpetrated by the Government is the implication that the budget is designed to have a significant effect on long-term unemployment. The main weapon in the Government's arsenal to deal with long-term unemployment is the infamous £80 per week subsidy designed to take 5,000 people out of the ranks of the long-term unemployed. A sum of £80 per week amounts to £4,000 per annum, yet the Government has provided £1 million to operate this subsidy, which will take 250 people out of the ranks of the long-term unemployed. If all 5,000 people whom the Government hope will be enabled to return to the labour force again apply together, the money would run out in less than a fortnight. It would cost the Exchequer £20 million to take 5,000 people out of the ranks of the long-term unemployed. Yet there is provision of only £1 million for this subsidy.
This is further financial conjuring to give the illusion that the Government is keeping within a pre-arranged spending target. If the Government is serious about this measure — I assume it is because it is the main measure to reduce long-term unemployment — it will have to add a further £19 million to current public expenditure, on top of the 6.2 per cent by which it grudgingly admits it is increasing it. It has been shown that subsidies are an abject failure. This proposal, rather than achieving an overall increase in the level of demand for workers, will probably result in a relative reduction in the cost of hiring one type of potential employee. In that case, much of the effect of the subsidy will be to increase job offers to long-term unemployed at the expense of offers to new entrants to the labour market and the short-term unemployed. That will merely shift the burden of unemployment; it will not reduce its incidence.
A further 1,000 people are to be recruited to the new pilot community employment scheme proposed by the task force on long-term unemployment. That scheme will be evaluated at the end of the three years to see if the 1,000 jobs are sustainable and if the scheme should be extended. By definition it will not be possible to establish the viability of those jobs in the short-term. Another 1,000 jobs are to go to people entering the VTOS scheme run by the Department of Education. That scheme provides second chance education, not jobs. Because it simply replaces the 1,000 places by which the VTOS scheme was reduced last year, it could be argued that it does not constitute an increase.
According to the labour force survey, if unemployment were to be eliminated by the year 2000 we would need a net gain of 412,000 jobs, in the region of 100,000 jobs per annum. The Minister for Finance predicted that jobs will increase by 31,000 in 1996, but that modest target will depend on continued growth in the economy. Even if it is reached, as the Minister admitted, unemployment will fall by only 9,000. It is, therefore, fair to conclude that the vast majority of long-term unemployed people will still be unemployed when next year's budget is presented. Nobody was surprised that the immediate reaction to the budget of the national organisation representing the unemployed, reported in The Irish Times on Wednesday, 24 January 1996, was that, with economic growth surpassing that of all our EU counterparts, it is an utter shame that the Government did not make a genuine effort to tackle the problem of the long-term unemployed. That is a damning indictment.
Another fraud was perpetrated by the Minister who sought to create the illusion that the Government was reducing public expenditure. The process of reducing public expenditure was begun by the previous Government. For the first time in more than a quarter of a century the then Minister for Finance, if he had continued in office, would have started with a current budget surplus in 1994, but that was immediately turned into a deficit by his successor. After the mammoth task of eventually making ends meet the rainbow Coalition changed the ends.
The Government's strategy appears to be to add a stimulus to the economy at a time when it is growing at a higher rate than at any time in our history. The Minister has provided for the Government to borrow £730 million this year. Current expenditure will increase by 6.2 per cent — a figure far removed from the 2 per cent target set by the Minister when the Government was formed. The general Government deficit which has fluctuated between 2 per cent and 2.5 per cent since 1990 is now at its highest level ever, 2.6 per cent. The 6.2 per cent increase in current public expenditure this year comes on top of a net increase in the order of 10 per cent last year. That does not take account of the creative accounting by which £60 million was slotted into last year's accounts to allow a tribunal to allocate payments to those affected by hepatitis C. If that £60 million is counted, the real net growth in public spending this year is likely to be in the region of 7 per cent. The increase in the deficit is 2.6 per cent of GDP compared to a little more than 2 per cent in 1995.
Another indication of the deterioration in the underlying public finances is the fall in the primary surplus, the surplus of Government revenues over spending before interest payments on the national debt are taken into account, from 4.2 per cent of GDP in 1993 to 2.6 per cent this year.
The Minister for Finance and his Government colleagues insist on continuing to make a virtue of the fact that they are keeping, if only barely, within the terms of the Maastricht Treaty. That demonstration of financial virility is no more than a delusion. As my colleague Deputy McCreevy said on budget day, even if we qualify technically to become part of a single currency, we will be dangerously near the margins and there will be no room for slippage. If we were to qualify, that would only be the beginning. What is at issue is not only a matter of qualifying to participate in a single currency but being able to live with the economic consequences that would require us to take the opportunity to achieve unprecedented rates of economic growth and secure unprecedented financial assistance from Europe to reduce taxation and create real jobs to strengthen the economic base of this country. That can only be done by reducing public expenditure.
The left's participation, indeed at present it appears dominance, in Government will ensure that Ireland will continue to live far beyond its means. The left generally is irrevocably wedded to fiscal incontinence. It has no choice; it must adhere to its mandate. It is its raison d'être. In practice that means that while the Government remains in office the Irish people will continue to have inflicted on them a policy of unsustainable public spending leading inevitably to high tax and high unemployment.
Economic policy is being dictated by a party which got less than 3 per cent of the vote in the last general election and, I suspect, would get considerably less if one were held now. Presumably the 97 per cent of the electorate who did not vote for Democratic Left do not support its economic policies, but those are the policies being implemented. That is an abuse of democracy. If those policies were put before the people in a referendum they would be overwhelmingly rejected.
I have said very little about Fine Gael. The reality is that the left is in charge. It will continue to spend with all the gay abandon of the French aristocracy before the revolution. Fine Gael has been neutered. Members should not take my word on that. One of its prominent members, with whom many party colleagues agree, stated that Fine Gael has been castrated. Those who represent 3 per cent of the electorate are in charge. To use Marxist jargon, they have seized the commanding heights of the economy. Never since the Bolsheviks seized control of the Soviet economy in the aftermath of the 1971 revolution has so much been inflicted on so many by so few.
The budget is lack-lustre, it is directionless and downright fraudulent. The late George Orwell said that political language was designed to make lies sound truthful, murder respectable and give the appearance of solidity to wind. As a result of the difference between the rhetoric the Government used when in Opposition and its performance in Government, nobody takes politicians seriously today. All the Government has achieved in the 14 months since it came to power is the institutionalisation of cynicism about the Irish political system and process.