I will take this opportunity to comment on some of Deputy Quill's remarks which were provocative to say the least.
To suggest that there is no mark of Fine Gael in this budget shows a deep misunderstanding both of Fine Gael's role in Government and of its policies. This budget has been put together with the national interest at heart. That is not confined to some niche of interests with which the Progressive Democrats seems to identify. We have achieved an extremely well balanced package. There is provision for substantial tax reform for business, substantial increases in take-home pay for workers and increases in welfare payments well in excess of the rate of inflation for those who are at the margins of society. If that is not achieving the objectives of Fine Gael, I am not a fair representative of Fine Gael. Those values are at the heart of Fine Gael, and Progressive Democrat and other commentators who seek to confine the role of Fine Gael to that described by the Progressive Democrats are selling Fine Gael far short, and I have little time for that sort of comment.
It is also important to state that this Government has had the needs of the long-term unemployed at the heart of its consideration in framing both this and other budgets. Contrary to what Deputy Quill said, this Government has succeeded in reducing long-term unemployment by 26,000 in the past two years. That is a significant reduction which has been overlooked by Deputy Quill.
Obviously, long-term unemployment is one of the most difficult issues for any Government. It is a challenge which is facing every country in Europe and the western world. It is clearly a difficulty which has been created both by rapidly changing technology and skill requirements and that poses significant challenges.
Deputy Quill was a member of the National Economic and Social Forum which recommended the approach, which this Government has implemented, of introducing the employment service in 14 black spots. I am surprised she suggested that the Government has not been addressing this because she put her name to recommendations which this Government is implementing. It shows that Deputy Quill's contribution was a political one rather than an honest attempt to look at the problems we face as a society and see how we can make those measures work even better. They are already working significantly as is evident from the reductions in long-term unemployment but they are by no means satisfactory or the end of the response. These are areas which we must refine continually and we must improve the measures and instruments to bring more people who have been excluded into the workplace.
One can see the measures which are being introduced in this budget to do precisely that, such as the reform of the family income supplement which was introduced by the Minister for Social Welfare, Deputy De Rossa. These measures are targeted at low-paid workers to ensure they see proper rewards for their efforts. That is an important part of the response to long-term employment and it is part of the way in which we can address these needs. We must remove unemployment and poverty traps which have been a feature of the tax code and that has been a central element of the last number of budgets.
It is only right that we should review what has been achieved in the last three budgets. That would provide a more realistic backdrop to this debate. We, as a Government, have done what we set out to do. We have delivered on the core objectives of making it cheaper to create a job and more rewarding to take up employment.
We have seen the fruits of that delivery. In the last two years 100,000 net new jobs have been created and 100,000 extra people are at work. That is almost an 8 per cent increase in the number at work in just two years. That was a very significant achievement. Indeed, the projections indicate a further record performance on employment in 1997 with the creation of a further 45,000 jobs. Therefore, on the key test of employment creation, the Government strategy has been working.
We have also seen tangible progress in reforming the tax code which has been a shared objective of parties in this House. Again, it is worth reflecting on what has been achieved in three years. The tax free allowance, for example, has been increased by 23 per cent which is way ahead of inflation in that period which amounted to about 6 per cent. The tax band has also been expanded by 21 per cent which is also far in excess of the 6 per cent level of inflation.
The impact of that on a worker earning the average industrial wage is extremely significant. The tax take from a single industrial worker on the average industrial wage has been reduced by 5 percentage points from 31 to 26 per cent. That has been achieved in three budgets, not through flamboyant change but as a result of steady progress across the board. We have sought to share the benefits in that way and, therefore, we have concentrated on changes in the allowances, the bands and, this year, the standard tax rate and personal PRSI rate. That approach has ensured that the benefits of tax reform have been spread fairly to benefit the broad mass of workers and have not been confined to any particular group of workers. That conscious approach by Government has been rewarded by positive employment performance.
It is also fair to say that part of the economic success which we have enjoyed in recent years has been secured by the partnership approach which has been adopted for ten years. People who have been willing to accept more moderate pay settlements as part of a shared approach to planning the economic future of this country rightly expect, and are getting, a dividend for that effort in this budget and over the last number of budgets. I am pleased to be part of a Government which is carrying out such broad-based reform of the tax code and which has already brought down the tax take on an average industrial wage by five points in three budgets.
That is the sort of progress we want to consolidate for the future. This is an important time when the Partnership 2000 agreement, which sets an equally good framework for the future, is being assessed and decided on by the social partners. This budget has given a clear signal of the Government's commitment to the approach embodied in the Partnership 2000 agreement, an approach that sets a clear vision for the economic and social aspects of our community. That can be achieved by working together. For its part, the Government is committed to reforming our tax code and delivering on the commitments which amount to £900 million in respect of income tax and £100 million in respect of business tax. In this budget the Government has shown its commitment in terms of substantial progress being made towards both of those figures.
There have been significant achievements in the area of business taxation in the past three years. We had a very difficult position in our tax code some years ago where, effectively, a 40 per cent tax rate was being demanded by all those who were not in manufacturing or internationally traded services. Clearly it was unreasonable to demand such a tax take from service industries. We have started to wind it back progressively in each budget. We have reduced the corporation tax rate and introduced a new corporate tax rate for small companies for the first £50,000 profit. We have reduced those rates to 28 per cent on the first £50,000, a dramatic change from the 40 per cent tax rate of three years ago.
Equally, the overall tax rate of 40 per cent has been reduced to 36 per cent. This is clearly sign-posting the way forward where we have a fairer tax take from corporate as well as personal income which allows enterprise to be rewarded, particularly small businesses who are the backbone of our employment growth. That approach, a hallmark of the Government's business tax policy, is being rewarded by employment performance.
We have tackled also other areas of business taxation, which have been of particular concern. Those Deputies who have worked closely in family businesses will be aware of the particular burdens which capital acquisitions tax could impose on small businesses. When the owner-manager of a small business died the business was often at its most vulnerable and capital acquisitions tax wrought a substantial bill on that business. We all recognised that was an unfair imposition and the Government has substantially modified it. Three years ago only one quarter of the business assets could be disregarded. Now 90 per cent of the business assets can be disregarded for the purposes of capital acquisitions tax. In practice this means no tax would fall due on a business transfer between a parent and his or her child where the business assets did not exceed £1.85 million. That is a substantial threshold and protects most small businesses from erosion by capital acquisitions tax at a time when a difficult transition is being undertaken.
The tax changes in the small business tax and capital acquisitions tax have made a significant difference to small businesses. There is a significant concession in the budget for start-up companies where the costs incurred by a small business, prior to corporation tax, will be allowed against corporation tax. The cost in a full year will be in the region of £4 million which will go directly to small start-up companies, to help them through that difficult start-up phase. In this key area it is important that the Government eases the burden and supports development. Business start-up is a difficult road on which to embark and it behoves the Government to make it as easy as possible.
My Department, through the various agencies, has put in place substantial supports to help businesses through that period. It is appropriate that that be matched by this type of change in the corporation tax structure, which gives particular concessions to business start-up.
The most significant concession to business which the Government has achieved has been the sustained reduction in the tax wedge. The constant theme of businesses, large and small has been the gap between what they pay in gross pay and what the worker receives in take-home pay. The progress made in respect of a reduction of 5 percentage points for the average industrial worker on the income tax code has been matched by the progress made in reforming PRSI, the social insurance code so that two thirds of all workers are on the low rate of 8.5 per cent PRSI. Three years ago the vast majority of workers were on the 12.2 per cent rate. The drop of 3.7 per cent for most workers has been a significant reduction in the wedge that employers have to pay.
Equally there have been significant reductions in the employees share of the social insurance. Three years ago a rate of 5.5 per cent applied to all income. Now the first £80 per week is exempt from PRSI and the new rate is 4.5 per cent. That amounts to a reduction of about two percentage points on incomes of about £20,000. For the vast majority of workers, the employee PRSI has been reduced by the equivalent of two percentage points. When employers' PRSI, employees' PRSI and the income tax code is totted up, it shows that significant progress has been made in reducing the tax wedge which had been a barrier to employment creation. The Government can rightly say it has made it cheaper to create a job and easier to take up a job — a core objective of the Government.
We have succeeded in creating unrivalled strength in our public finances. The most telling measure of that progress can be seen from the Government debt as a proportion of national income in 1994. The proportion of national income mortgaged in public debt in 1994 was 88 per cent. It was reduced this year to 73 per cent and by the end of this year is expected to be around 69 per cent. We have taken close to 20 percentage points off the proportion of our income mortgaged in public debt. That is a remarkable achievement and shows the strong healthy state of our public finances and is in accord with the Maastricht criteria — a core value the Government is committed to achieving. The current borrowing level is well within the Maastricht criteria of 3 per cent and, more significantly, for the first time in memory we are planning for a current budget surplus. We are no longer borrowing to meet day-to-day expenditures but rather are using revenue from day-to-day expenditures to pay back debt. This significant turnaround is a symptom of the very healthy state of the economy.
These figures are the real test of the healthy state of the public finances. Some people have criticised the level of public spending, but it is very significant that the Government has succeeded in keeping public spending below the growth in national income every year it has been in office. We have consistently reduced the take of public spending from national income and also reduced the public debt and taxation. In addition, we have been able to provide much needed services in the health, social welfare and justice areas within a very healthy overall public finance framework.
It is crucial that the Government sustains this position into the medium term. We are facing economic and monetary union and all the financial aggregates must be in a healthy state. It is important for businesses to address EMU in a timely way. It is very easy for people to regard economic and monetary union as another currency move which will not greatly affect their businesses. However, this is not the case. Membership of economic and monetary union will fundamentally change the way in which people do business. For example, they will have to return their accounts in euros and will have to change their software programmes so that they can trade in euros and in both euros and punts for a time. Membership will require a radical change in the way companies organise themselves and it is very important that they move in a timely way to address these changes. If they do not address these changes until the eleventh hour they will have to pay much more and there will be more disruption to business.
My Department, supported by the Departments of Finance and Tourism and Trade, is leading an awareness campaign to help business plan the transition to economic and monetary union. I am very pleased that many business organisations and associations are participating in the programme as it will enable us to disseminate the information to businesses in the various sectors. The message is very clear: Ireland intends to join EMU and there are real benefits and opportunities available if businesses prepare for them. Businesses must prepare for EMU now, not when it looms before them and they are not in a position to deal with the various challenges presented by the transition in the cheapest and the most effective way.
I wish to refer to the extremely strong performance by the industrial development agencies. The IDA and Forbairt turned in record performances in terms of net job creation last year. Most significantly, Forbairt has achieved the best turnaround in net employment since 1979. This justifies the decision to split the IDA and Forbairt and to give both agencies a clear focus. The IDA had its best year ever in terms of the creation of net employment in the overseas sector. Forbairt, which has gone through its transition, is successfully addressing the needs of indigenous business and also had a record year.
The figures in regard to the detail of its performance are also very heartening. Last year there were record figures for the linkage programme, with purchases by overseas companies of Irish raw materials and services outstripping the growth in sales from overseas companies. In other words, the share of Irish materials used by overseas companies is increasing. This is a heartening indication of the way in which the indigenous sub-supply sector has come of age and is delivering quality materials and services to the overseas sector. It is only correct to draw the attention of the House to this particularly gratifying aspect of its performance over the past 12 months.
I wish to refer to aspects of the social welfare code which have been a significant feature of the budget. The increase in the family income supplement is very welcome and will help to remove poverty traps which have been a feature of the interaction between the tax and social welfare codes. The increase of £10 in the family income supplement will extend the benefits of the scheme to significantly more workers. If one looks at the budgetary tables one will see that the highest gains are focused on low-paid families who have achieved increases far in excess of any other group on the social welfare or employment side. This is as it should be.
We have been fortunate this year in that we have been able to provide very good increases, twice the rate of inflation, to those on social welfare. However, it is equally important to offer strong inducements to people to return to work. The interaction of the tax changes and the increase in the family income supplement show that very substantial gains can be realised by those taking up employment, even at low incomes. That aspect of this and previous budgets is part of the long-term reform process being undertaken by the Government to make it more rewarding for unemployed people to take up work. We must continue to build this incentive into the tax reform and social welfare reform packages.
We have significantly modified another trap in the social welfare area through the introduction of a tapered withdrawal of the adult dependant allowance. At present in cases where one spouse earns more than £60 and the other spouse is claiming social welfare they lose the adult dependant allowance which is worth approximately £40 per week. As and from 1 April the Minister for Social Welfare will introduce a tapering relief so that there is no sudden loss. This will remove a barrier which has been a bone of contention and a significant poverty trap in the tax code. I commend the Minister for Social Welfare for the improvements he has introduced in this and other areas.
I wish to refer to a very important change which will make capital more available to business and, in particular, emerging business. It has always been important that the stock market take a more active role in supporting smaller indigenous companies in providing their capital needs. Sadly, in the past the stock market has not been a particularly accessible vehicle for indigenous Irish business. I welcome the measures being introduced to help the proposed developing companies market of the Irish Stock Exchange. This will only work if the overall cost of access to the market is reasonable. It is important that the fee structure for access to the market responds to the needs and financial reality of growth companies. Our continued support for the market through measures such as those announced in the budget will have to be called into question if it is not shown to be. The stock market has the capacity to be a more significant supporter of the capital needs of business.
It emerged this morning that the price of beer, a very emotive topic in many people's minds, is set to go up by 5p to 6p per pint. This occurs against a background where the Government has shown enormous restraint in not levying extra taxation on beer in any of the past three budgets. The last time a Minister for Finance increased the price of beer was in 1994 — a 3p increase imposed by Deputy Bertie Ahern. I am concerned about the reason for this apparent widespread and substantial increase and had discussions with the Chairperson of the Competition Authority this morning. We share concerns about the possible anti-competitive features of the market and are considering the next most effective response in the circumstances. I am concerned at increases of this scale occuring on such a widespread basis. It is important that the industry be aware that the Government has kept down excise duties in this area to allow competitive pricing. It would not be in the interests of the industry to allow increases beyond what is reasonable in a given year after such restraint on the part of the Government.
