Vol. 471 No. 1
19 Mr. Cullen asked the Minister for Finance his views on whether tax reductions combined with a firm control of public expenditure will play a significant role in bringing about a successor to the Programme for Competitiveness and Work with the social partners. [20445/96]
The tax reductions in the years 1994 to 1996 were an important element in securing economic and social consensus over those years, and they will also be important in consolidating and building on that progress in 1997 and the years beyond. The creation of the budgetary headroom for such concessions will require that an appropriate balance be struck between taxation and public expenditure.
In the context of the discussions on a new national programme, it is important that all sides agree on the right mix of policies that will, among other things, deliver a competitive Irish economy and strong economic growth; ensure that there will be positive fruits of economic growth to be shared equitably; allow Government to continue to reduce the level of debt and the burden this places on all members of society through an exorbitant interest bill; allow enterprise, employment and the general wellbeing of our society to grow and flourish; ensure that Ireland is in a position to qualify for economic and monetary union and all the benefits that this, through lower interest rates and transaction costs, will bring to our economy; and allow Government to tackle the problems of social exclusion and to make Ireland a better place for all our citizens.
Notwithstanding the Minister's answer with which we all agree, is tax reduction over the next few years, from his preliminary discussions with the social partners, to be a central plank in a negotiation of the successor to the Programme for Competitiveness and Work? Gross income is irrelevant as a measurement of prosperity or real wealth for any citizen. Net income is the real measurement of wealth because the gap has become so big between the two. We are all of that view. Has the Minister got a sense from his preliminary discussions with the social partners, given the mix he has to deal with, that real effort to change and restructure taxation across a range of issues, not just a simplistic tax reduction which is not really tax reform, is central to what might form a real substantive successor to the Programme for Competitiveness and Work?
At the inaugural meeting in Dublin Castle we had for the first time people who were not part of the traditional social partnership, whose absence had been criticised by different parties on previous occasions. We had groups such as the Irish National Organisation for the Unemployed, CORI and others who said in their contributions to the opening debate that agreement to public sector pay agreements and agreements between employers and employees where they had a tax impact would have a consequence on those social groups which will be affected by what is left in the kitty for social distribution.
We cannot award ourselves large nominal increases if the funding of those increases requires additional or currently maintained levels of taxation. That would disimprove our competitive position in a rapidly increasingly competitive world. If we do this we will have less money available for the things that most of us in this House want to do. The conclusion, irrespective of what point of the ideological spectrum you start from, is that real take home pay will be determined substantially by tax reduction and that space has to be made within the overall macroeconomic parameters for realistic tax reduction.
Within that context, has the Minister some concerns about our competitive position? That is the key element that has improved in the past few years. Concerns have been raised by the governor of the Central Bank and others recently about that position and whether we will be able to sustain it in coming years. I am interested in the Minister's opinion that competitiveness and what we have achieved by that has been largely due to restraining public expenditure and the tax reductions that we have been able to make.
Without competitiveness we have nothing and all the other points he has made, valid as they are, are as naught unless that central competitiveness is achieved to sustain and increase the number of jobs which we must keep creating within this economy. We do not have the space available in other European economics, for different demographic reasons. We must create large numbers of jobs on an annual basis and competitiveness is the key to doing so.
If the measure was simply our ability to create additional jobs, we would not have a problem. We know we have a problem. We have to ensure that those people who are driving this economy and creating the wealth receive more sustained incentives for working as hard and as productively as they do. That clearly is manifest in the wish for an increase in real take home pay. The most effective way to increase real take home pay for all of us, whether we work in the public or the private sector, is to improve productivity by ensuring that our competitive costs do not rise.
This is a complex area, but one of the simplest ways to achieve that is to reduce the overall burden of taxation, specifically the level of income tax, in particular in those sectors of the productive workforce where the cross over between dependency on social welfare in its entirely and gainful employment in the economy is of such marginal benefit that some people choose not to bother to make that change. That is the focus of attention. I will send a copy of the presentation made on behalf of the Government by Michael Tutty, the Second Secretary of the Department of Finance to every Deputy. It outlines in statistical and total terms the progress that has been made. By inference, it gives an indication of the kind of progress that could be made with the next agreement, if we get one and the discipline to which we all subscribe is adhered to.
I have said in and outside the House and repeat that neither I as Minister and my party nor this Government claim ownership of the economic success we are currently enjoying. It is the product of successive agreements and the full participation of all the social partners. Unless we continue to recognise that ownership of that success is shared by all of us we will not be able to build a secure foundation for a future agreement. It is quite clear that a reduction in personal income tax depends, among other things, on the stabilisation of public expenditure. We cannot have increased levels of public expenditure, including high levels of public sector pay on one hand and tax reductions on the other, and fit within the macroeconomic framework to which we all subscribe.
The question posed was whether a combination of public expenditure control and tax reduction would play a significant role in formulating the next Programme for Competitiveness and Work. The Minister has said here and on other occasions that there must be firm control on public expenditure. Will the Minister agree that in reply to an earlier question he said the commitment as laid down in the programme, A Government of Renewal for the lifetime of this Government will not be met? It was not met in 1995, it will not be met in 1996 and, in reply to Question No. 16, the Minister said it will not be met in 1997. The Minister must agree that without firm control of public expenditure and if commitments made in the programme for Government are thrown out, it gives very little credibility to any commitments to long-term improvements in the economy.
I am glad the Deputy asked that question because I answered this clearly in an extensive reply to the second priority question. Regrettably, there was no chance to put supplementary questions but there is nothing to stop the Deputy putting those questions again. I itemised the areas, approximately £200 million out of £12,087 million, very clearly. Of that extra £200 million, 15 per cent went on pay, mostly for policing the Border for BSE and for the Garda Síochána in relation to the crime package this year; £72 million of that £200 million went on EU fines, for which we had made provision elsewhere for £50 million. In accountancy terms, and I bow to the Deputy's superior knowledge in this area, the full £72 million comes into that £200 million.
The Christmas bonus of £38 million for social welfare which we have built into regular policy will be funded from the buoyancy of that area. The additional costs we incurred above and beyond what I provided for the Government in last year's budget have largely arisen because of the BSE crisis and the crime package. If an Opposition Deputy thinks the Government should absorb those additional costs for the farmers and the citizens on crime and at the same time stick to the figures from last budget day by reducing current account costs in health, education, environment or anywhere else then he or she should show me where to reduce them. I openly say there is an overrun of £200 million and have given the reasons. If someone feels we should not have that overrun or that we should have found it somewhere else to balance our books in accordance with the position on budget day, then that person should show me where.
It is unusual to hear the Minister for Finance appealing to the Opposition for ideas on how he should live up to his own political commitments.
We have not let him down.
It is a nice idea that we should be asked how the Minister should deliver on his commitments.
That is not what I said.
In relation to the talks with the social partners, does the Minister agree that he should regard the money available for taxation as a residual? Instead of saying that if there is so much money available for public sector pay then there will be less available for taxation, why not invert the process to say that this will be the tax package and that the money available for public sector pay and increased public spending is now the residual. The Government should be committed to this tax package over the life of the programme. Why does the Minister not turn the argument around and point out to the public sector unions that public sector pay increases take second place to tax reductions to which the Minister is committed?
Every Government since the Minister and I entered the House has faced unusual expenditures every year.
Expect the unexpected.
Other Governments have had to make decisions in the middle of the year to cut back on other areas. There is a firm commitment in the Government's programme that "expenditure on current supply services would be constrained to a maximum of 6 per cent in nominal terms in 1995 and to an average annual figure of 2 per cent in real terms over the following two years of the programme". Is the Minister now telling us that commitment is not worth the paper it is written on and that for as long as we have good economic times, we will spend and spend, not caring about the consequences? There will be consequences and a future Government will have to take drastic measures in that regard. The pain will be suffered in the main by those for whom the Minister's party expresses concern. People at the lower end of the scale bear the brunt of corrective measures. The Minister's party is spending and spending.
The Deputy is making a speech.
It is a stupid policy.
Perhaps I should apologise to the House. This Government has got it wrong by underestimating the growth in economic activity this year.
That is not what the Minister said a few minutes ago.
We did not recognise that we would be as successful as we have been. Therefore, I apologise for getting my figures wrong.
Such modesty.
Because we got it wrong, as Deputy McCreevy said, for the first time since he and I entered the House in 1977 we have overruns for unforeseen circumstances but we have the additional resources to pay for those overruns and still record a projected current budget surplus of over £200 million.
And it costs less than the Fianna Fáil-Progressive Democrats Government.
What about the Labour-Fianna Fáil Government?
Written Answers follow Adjournment Debate.
