We have had extensive discussion of a comprehensive amendment. Underpinning that is a comprehensive policy position enunciated by the Progressive Democrats. I support the idea of multi-annual planning and accept the desirability of having three, four and five years planning. It can be argued that the concept of trying to plan an economy flies in the face of the free market thinking normally associated with the Right. Therefore, from our political and ideological vantage point, planning and managing an economy, even an open market one such as ours, is desirable and, if properly handled, as in French planning in the 1950s and the 1960s in marked contrast to what happened in the United Kingdom, can deliver substantial economic gain. Deputy McCreevy is correct when he says we must plan both sides of the equation, that is, expenditure and tax reduction.
While I accept the concept behind the idea of multi-annual planning from the point of view of finance and specifically in relation to a phased reduction in current levels of personal income tax, that cannot be done unless the expenditure side is right, which cannot be achieved until there is a multi-annual budgeting process in place. That is what we are now doing. I remind the House that the colleague on whose behalf Deputy Molloy is now speaking entertained us to an ideological rant last night and a subdued version of the same song during the Committee Stage discussion of the Bill as to the culpability of the Labour Party in the failure to introduce tax reform.
The State was founded just over 70 years ago. As a party we have had control over the Department of Finance for less than 18 months. In that time we introduced a commitment to the multi-annual budgeting process, to which the Opposition is now committed. We also provided for consolidation of the income tax Bill which will simplify the process considerably. Most importantly of all, we introduced a policy of numbers in terms of fixing the establishment size of the Civil Service. That has been agreed at Government and will be announced in due course. Within that we will fix establishment sizes for each of the Departments.
I was restrained in the comments I made to Deputy McDowell on Committee Stage because he was on the sideline, if not on the benches as a reserve, while his colleagues were in Government. Deputies Molloy, O'Malley and Harney as Minister of State were in a Government that presided over an annual net increase of 3,500 people in the public service, between the public sector and the Civil Service, from 1989-92. At an average cost of £20,000, which is the unit cost currently applied by the Department of Finance, we are talking about £70 million gross per annum.
Deputy McCreevy is correct when he says that the room for manoeuvre in budgeting is limited. There are certain fixed given costs: social welfare demanded driven costs of £4.5 billion, the wage bill which is numbers driven and statutory obligations, such as interest payments and so on. The amount of discretionary money in the national budget is limited. For the Progressive Democrats to suggest that we could finance a massive reduction in personal income tax without reducing public services but merely by prudent management or curtailing growth, is fiction. Deputy Upton is correct to challenge the Progressive Democrats. What hospital, school or Department would it close because that is what it would amount to? The scale of numbers implicit in achieving these kinds of expenditure reductions or savings on the income tax side is of that order unless we want to go over the Maastricht 3 per cent reference value. I presume that is not the case. There was a ceiling when we went into Government with Fianna Fáil in 1992 but because the Fianna Fáil-Progressive Democrats Administration reneged on its promises under Programme for Economic and Social Progress and its pay commitments we had no option but to introduce the 1 per cent levy as a temporary measure to meet the pay agreements which Deputies Molloy and O'Malley, as representatives of the Progressive Democrats Party in Government, entered into and at the same time meet the Maastricht reference value of 3 per cent.
In the 18 months we have been in the Department of Finance we have decided to address the questions of multi-annual budgeting and numbers. We have also engaged in a process which, if we are successful, will allow us to say to a specific Department that the size of its team is 15 players and if it wants to improve the game or the delivery of the services it is charged with delivering to the public, it will have to do so, not with 17 or 19 players, but with the same 15. Every company and organisation is learning to do that. The Revenue Commissioners have set an example for the rest of the public service in the way they have improved the quality of their service, but not without considerable number gains as well. There has been a relaxation in relation to some numbers but only because there have been changes in the Internal Market.
The Fianna Fáil Minister for Finance, Deputy Reynolds, introduced a three year administrative budget procedure, designed by the Department of Finance but signed off by the Minister responsible, which was so incapable of managing control in Departments that this time last year we did not know how many civil servants were on the payroll. Secretaries in various Departments continued to hire people after they had received the type of letters from the Department of Finance, to which Deputy McCreevy referred.
The internal control systems are not there, but I propose to change that. If we want to put a multi-annual budgeting process in place and make people accountable, then the Secretary and the Minister of each Department must be accountable for its administrative budget. They will have a salary allocation in terms of numbers and they must decide what type of team they want. They can either have one extra principal officer or four clerical officers, or they can arrange the team in terms of the level of skills and activity required. However, if they do not meet that budget, two things will happen. They will not get any extra money, which is happening at present in that certain Departments have been bailed out, and the Secretary of that Department will be accountable to the Comptroller and Auditor General and to the Committee of Public Accounts. They will have to state why they did not manage their Department within the budget parameters set for them.
For too long we have been obsessed with people accounting for the honest, not the efficient and effective disbursal of money. We have been blessed — I do not take it for granted — with an extraordinarily honest public service relative to other European countries. However, that blessing has obscured the fact that its scrupulousness as regards accounting for the disbursal of money has, perhaps, blinded them to the need to be efficient in its dispersal as well. The changes we are making will allow Secretaries of every Department to be brought before the Committee of Public Accounts, if necessary, to account for why they did not manage their budgets on the personnel side so as to stay within the existing parameters.
We will not be able to curtail public expenditure or to achieve the consequent improvements desired by everybody unless we introduce such management changes. The Labour Party, despite protestations by the Progressive Democrats, has not been in the Department of Finance for more than 18 months. We are in the process of putting these common sense management mechanisms in place which will enable us to do what should have been done many years ago.
On the bias implicit in the way the proposed reduction in taxes would impact on our society, we would all like to pay less income tax. However, the bias in the schedules set out by Deputy Michael McDowell and endorsed by Deputy Molloy today means that the reduction in tax would favour the rich. That is the niche from which the Progressive Democrats come and at which that party has decided to toss its cap. However, to suggest that reducing tax levels would benefit the 280,000 unemployed and not the 350,000 to which Deputy Molloy referred is misleading. All the studies of long-term unemployment show that we must deal with the tax wedge for the long-term unemployed where it impacts, not at the 48 per cent rate. Deputy Michael McDowell's mantra on Committee Stage was that if an average industrial worker works overtime on a Saturday and gets £10, the State would take £5.70. I stated last night in the House that a single industrial worker pays a total of 30 per cent tax relative to what they earn.
If we want to deliver a system which favours helping the long-term unemployed back into the workplace or, alternatively, ensures that low paid workers do not lose their jobs or that they retain more of what they earn, we must, as I have done in my last two budgets, address the issue in the non-sheltered side of the Irish economy — the class A PRSI contributors. We provided an exemption for the first £50 of income last year and we raised that by £30 to £80 this year. Somebody does not pay PRSI in that sector which he or she paid before.
While I accept the desirability of such five year planning comes naturally from someone from a socialist background who believes that any economy is capable of being managed, even a market economy, it cannot be planned in the way that people tried in the United States or in Britain during the war. A social market economy can be planned and managed in a coherent way. Part of that is to balance the two sides of the equation so that we can get the type of commitments required and the projections on which to base our figures. In that context, there are political and ideological choices about social prioritisation. It is clear from the detailed analysis of the impact which the Progressive Democrats' tax reductions would have on the labour market and on take home pay that their bias is unashamedly in favour of the rich retaining a larger percentage of their money. It would do nothing for the long-term unemployed unless the rich decided unilaterally to employ some of those people.
We have been down this road before of throwing money at the economy in an effort to create jobs — the scatter-gun approach to managing a market economy. It suggests that if we pour enough cash into the economy, it will generate so much activity that people will buy and trade and this will create jobs. In 1987 it created many jobs in Korea, Taiwan, Japan and anywhere else where consumer durables were produced and which the Irish taxpayer subsequently bought. It also happened in Britain. It is the curse of conservative economics which is not thought our properly and which suggests that money should be thrown at people, which they will spend and which will then create jobs. It is like sending an assassin to take out a specific distant target with a blunderbuss. It is guaranteed to fail and it is a costly failure. It happened in the French economy when the socialists took power in 1981. They ran amok with spending and three devaluations later they had to change it. They created many jobs in Italy, Germany and any other place where the French consumer spent their new found wealth.
I reject the Progressive Democrats' proposal on two grounds, while accepting the idea of multi-annual planning. It is biased in favour of the rich and it is dishonest to suggest that it would have a positive effect on long-term unemployment because it will not. By contrast, the Progessive Democrates have frequently made reference to the fact that tax reforms stopped in 1992. What do they call the changes in the capital acquisition tax for small business? If they are in any doubt about it I suggest they get a view from the Small Firms Association or ISME. What do they call the changes in corporation tax? If they are in doubt I suggest they consult the business associations. The former leader of the Progressive Democrats, who was also its founder, was the longest serving Minister for Industry and Commerce, yet at that time small businesses felt they had no voice and were not being heard. When the new Department of Enterprise and Employment was established — I had the honour to serve in it for two years — for the first time small businesses were asked what they wanted and when they made their request through a task force of 14 small business practitioners, it was delivered. Deputies should not take my word but should ask those people how they feel about it.
We have had a long, discursive debate on this issue. The amendment is economically flawed, ideologically biased, politically misleading and does not recognise the changes that have taken place in tax reform, including personal income tax reductions. None of us is talking any more about tax reform but about reducing the rates of taxation where possible and fine tuning their focus and application. This amendment in its present form would result in the closing of hospitals or in blowing us out of the water in terms of the 3 per cent Maastricht figure. It would be an unmitigated disaster for working people because it would increase the income of those who already have a lot of money.