Financial Resolutions, 1998. - Budget Statement, 1998. – Dáil Éireann (28th Dáil) – Wednesday, 2 Dec 1998

An Ceann Comhairle:

I remind Deputies that the principal features of the budget along with the Minister's Budget Statement will be circulated strictly on condition that the budgetary measures remain confidential until the Minister has announced them in the House. I ask Members to respect the confidentiality of the information being supplied.

Minister for Finance (Mr. McCreevy):

The principal aims of the budget are to sustain a vibrant economy, to maintain social inclusiveness, to effect major personal tax reform and to plan for the longer term.

There is no denying that our present economic position is satisfactory. However, success brings its own problems. I am lucky enough to be the first Minister for Finance in more than 50 years to bring in an overall budget surplus. It is not surprising that the very mention of budget surplus has disturbed the economic discipline and restraint which underpin the conditions that led to the budget surplus in the first place.

Fairness demands that we should use this opportunity to benefit those who have not done as well as most of us in recent years, in particular, the old and the lower paid. However, in delivering fairness we must not abandon prudence. We must remember that the world economy is in a volatile state. The open nature of our economy and the high level of foreign investment here are reminders that economic booms do not last forever.

Neither should we allow our success to blind us to the fact that we still have a large national debt. It would be foolish in the extreme not to use this opportunity to reverse our previous habit of simply adding to it year after year. We must maintain low inflation and competitiveness in the new policy environment that EMU will bring when the euro starts next month. As a society, we must accept that this will be a new world.

We must maintain social partnership, the co-operation between all sections of the community for the common good. We must expand our capital investment to meet the considerable infrastructural needs of a rapidly growing economy. We must take advantage of our current favourable economic and budgetary conditions to reduce the net debt burden further and to prepare for challenges that lie ahead in the next century.

The proportion of our population in the older age groups will rise steeply in the decades ahead. We have to consider how we should make provision now for the obligations arising from this which will face us in the next century. We have time to prepare for this now. I look forward to considering the forthcoming reports of the commission on public service pensions and the working group on the pre-funding of social welfare pension costs. We have an obligation to plan ahead in the long-term national interest and I have been conscious of this in preparing my budget.

This has been the fifth successive year of strong economic growth. The general Government budget surplus will be close to 2 per cent of GDP compared with the budget target of 0.3 per cent. This reflects additional tax receipts of £900 million on foot of the improved economic activity. It also reflects, as regards the Central Fund, an outturn for 1998 at £3,436 million or £33 million more than the budget estimate. This forecast outturn includes provision for an additional £107 million contribution to the EU budget and an increase of £149 million in the assets of the capital services redemption account going into 1999.

There are clearly some pressures in the economy which must be watched closely and tackled. First, I am concerned at the acceleration in pay increases this year. Second, I am unhappy at the scale of domestic price increases. Maintaining low inflation has been a key factor in the strategy underlying this budget. Third, labour shortages are emerging in certain sectors and, fourth, the very rapid increase in house prices continues to be a cause for concern.

On the basis of the taxation and expenditure measures I am proposing, the 1999 budget targets are as follows: a current budget surplus in excess of £2.3 billion, a capital budget deficit of more than £1.4 billion, an Exchequer surplus of £925 million and a general Government surplus of 1.7 per cent of GDP.

The Exchequer pay and pension bill increased by more than 10 per cent in 1997 and is expected to increase by a further 9 per cent in 1998. By the end of this year it will be nearly double what it was in 1989. Increases in pay rates have added 60 per cent to the pay bill, whereas aggregate inflation over the same period was 30 per cent. This rate of increase cannot continue. The Taoiseach raised this problem in his address to the social partners last July and he has recently invited ICTU and its public services committee to commence discussions on the issues involved. I expect these talks to get under way in the near future and I believe the outcome will be extremely important in terms of negotiating a possible successor to Partnership 2000.

Control of Public Spending.

The Government's programme includes a commitment to limit the growth in net current spending to 4 per cent a year over the lifetime of the Government. The overriding aim of the Government's consideration of current expenditure in 1999 has been to ensure that this 4 per cent is respected. Taking account of the additional spending I am announcing today, the average annual increase in total net current spending is 4 per cent.

Social Inclusion.

In Partnership 2000, the Government agreed to allocate, over three years, an additional £525 million for current spending on social inclusion. Taking the announcements I am making today into account, the total amount delivered over the three years 1997-9 will be close to £1 billion in full year terms.

The economic success we are currently enjoying does not benefit everybody in our society equally. The Government is committed to creating conditions to ensure this success continues. At the same time, real progress has to be made on social inclusion.

My philosophy regarding social exclusion and poverty is quite simple. To be in a position to make progress means the Exchequer having adequate moneys, distributing these resources to the most deserving and ensuring the resources applied are effectively used for those who need them. The overriding goal must be — the services are for those who need them.

The social welfare improvements which I am about to announce will cost £155 million in 1999 and more than £287 million in a full year. This is the biggest social welfare package ever granted by a Government of this country and includes special provision for low income farmers. In addition to this package, I am happy to announce arrangements to pay pensions for certain previously ineligible self-employed persons and to pay arrears for certain late contributory pension claims costing about £23 million in 1999. I am also announcing other social inclusion measures which will cost £58 million in 1999 and £91 million in a full year.

SOCIAL WELFARE

Older People

In last year's budget I announced substantial increases in the personal social welfare rates for all older people. Today, I am delivering a substantial additional instalment on this Government's pensions commitment. I am happy to announce an increase of £9 per week for a pensioner couple. This is made up of an increase of £6 per week in the full personal rate of old age and related pensions and of £3 per week for qualified adults. As a result, the weekly payment to a couple both aged over 66 years getting a contributory old age pension will increase to £148.90 next year, an increase of £15.50 per week in my two budgets.

Welfare Payments

In general, other personal social welfare rates will be increased by £3 per week and qualified adult allowances will be increased by £2 per week. Additional increases are being provided on the personal rates for those in receipt of short-term unemployment assistance and supplementary welfare allowance thus bringing social welfare rates for all categories up to at least the minimum recommended by the Commission on Social Welfare. These improvements also reflect undertakings given in the context of Partnership 2000.

Child Benefit

Another priority of this budget is to assist families with dependent children. From September next, child benefit rates for first and second children will be increased by £3 per month and by £4 per month for third and subsequent children. These increases will result in monthly payments of £161 for four children families.

Mr. Sheehan:

The Minister should have waited——

An Ceann Comhairle:

Order please.

Carers

Mr. McCreevy:

It is part of Government policy to increase the support for those who care for family members in the home. Accordingly the carer's allowance scheme is being improved as follows: an additional payment of £200 will be paid each year to recipients as a contribution towards respite care; the free telephone rental allowance will be extended to all recipients; the scheme will be extended to cover carers of children in receipt of the domiciliary care allowance; the scope of the scheme will be extended to include care recipients between the ages of 16 and 65 years who are not in receipt of a qualifying social welfare payment; the absolute requirement that carers have to live in the same house as those being cared for will be modified as will the full-time care and attention conditions.

Deputies:

Hear, hear.

Family Income Supplement

Mr. McCreevy:

Family income supplement has been recognised as a valuable support for families in low paid work. In my budget last year, I honoured a commitment in Partnership 2000 to calculate entitlement to FIS on a net as opposed to a gross income basis. On this occasion, I am increasing the weekly income limit by £8.

Farmers

In recognition that many farmers' incomes have been badly affected this year by a combination of bad weather and falling prices, I am providing for a revamping of the smallholders' unemployment assistance scheme at a full year cost of £15 million. The details of the new arrangements will be included in the 1999 Social Welfare Bill. I have also provided substantial additional funds for farming in the 1999 Estimates. An additional £25 million was allocated for on-farm investment programmes. I am allocating £110 million for headage payments next year and I have also allocated £2 million to allow the reopening of installation aid.

Other Improvements

Various other improvements within the social welfare code relating to voluntary, community and family services, as well as to employment and education supports, are set out in the summary of 1999 budget measures.

Live Register

A little more than two years ago, the live register was heading towards 300,000 despite the improving economic climate. The numbers now stand at less than 210,000. There is little doubt that more active management of the live register has made a significant contribution. Furthermore, the employment action plan initiated by my colleague, the Tánaiste and Minister for Enterprise, Trade and Employment, is proving very effective. Although the plan is only operating for a relatively short period, the initial results are, to put it mildly, quite dramatic. The Government is concerned that only those available for, capable of and genuinely seeking work should appear on the live register.

Total Social Welfare Spending

As a result of the measures I have just announced, total spending by the Department of Social, Community and Family Affairs next year is estimated at about £5.1 billion, an increase of 6.6 per cent on expected spending on 1998.

Labour Market Social Inclusion Measures

There is no reason we cannot achieve further substantial employment growth. To do so we must ensure the unemployed have adequate skills, training and assistance to gain employment. I am proposing, therefore, a number of measures at a cost of £11.75 million which take account of these factors; the details are in the summary of 1999 budget measures. These changes seek to get the long-term unemployed and lone parents on to skills training courses, which have the best results in gaining employment. These measures, along with the jobs clubs for which I am also making provision, amount to more than 8,000 additional labour market programme places.

I am also allocating an additional £15 million capital spending for the provision of upgrading of FÁS training and community enterprise facilities in areas of significant urban unemployment bringing the total to £21.7 million.

Health and Children

Taking account of today's measures, total gross expenditure on health in 1999 will be £3.549 billion compared with £3.215 billion in 1998 — an increase of £334 million. This compares with health spending of £2 billion as recently as 1993.

The Government has already responded to the pressures on the health services in the provisions made in the abridged estimates volume published last month. I allocated an extra £264 million for gross spending including additional provision for various medical services such as the acute hospitals, the cancer and cardiac strategies, the opening of new hospital theatres and wards, the improvement of the safety of blood products, nursing home and other services for older people, child care, mental handicap, bringing the total spending in this area to more than £275 million, physical disability programmes and dental services. In today's budget I propose to increase health spending even further. An additional gross current spending allocation of £45.5 million is being provided for further improvement in services including the hospital waiting list initiative, services for the elderly and mental handicap services. Details will be announced by my colleague, the Minister for Health and Children.

Deputies:

Hear, hear.

Mr. McCreevy:

Together with the impact in 1999 of the 1998 Supplementary Estimate, this will bring the increase in spending over the Abridged Estimates Volume allocation to £70 million. I have also allocated a total of £525 million for a capital spending programme in the health area for the next three years. This compares with spending of £400 million in the three years 1996-8.

Medical Card

In addition to the measures of particular benefit to the elderly which I have already announced, I am also pleased to announce, in the context of the forthcoming UN International Year of Older Persons, that the income guidelines used to establish medical card eligibility for persons aged 70 years and over will be doubled over the next three years, beginning with an increase of one third in the coming year.

Deputies:

Hear, hear.

Mr. McCreevy:

This will cost an estimated £3 million in 1999. Of today's health increases, £29.6 million are in the social inclusion area.

Education

The additional money provided today will increase spending on education in 1999 to £2.623 billion, an increase of over 9 per cent on the provision for 1998. The Government is committed to improving opportunity at all levels of education because we see it as a key element in developing children and promoting social inclusion. The published Estimates already provide £205 million more than was provided in 1998 and allow for the largest increase in direct funding of primary schools in the history of the State. In addition, they provide for significant teaching and child care assistant resources to assist children with special educational needs. I am today allocating significant extra funding to education initiatives relating to disadvantage. These additional initiatives, costing £19 million in a full year, will address, for example, the problems of adult literacy, the need to encourage children to complete second level, and the development of the psychological services.

Another important improvement being provided for is the retention of teachers in second level schools who might otherwise be redeployed to provide increased remedial services. This will give a substantial increase in the remedial service and will be focused on pupils with particular needs. I am also providing an additional £1.5 million for the development of the youth service on top of the published provision of £13.3 million. The details of these initiatives will be announced by my colleague, the Minister for Education and Science. I believe that the total allocation to education in 1999 demonstrates clearly that the Government is determined to ensure that education remains a key priority.

Housing

The Government is concerned about the difficulties many people, particularly those on low incomes, are experiencing in relation to housing at the present time. In order to help address this, Exchequer support for the local authority and social housing programmes was set at £269 million in 1999, up £45 million or 20 per cent on this year. The increased funding will, among other things, allow 600 extra local authority "starts", to bring the number of units next year to 4,500, the highest level of local authority housing since 1986.

Almost £28 million of the £269 million has been made available for the redevelopment and refurbishment of local authority housing in Dublin, including the continued redevelopment of Ballymun and a new five year project for the redevelopment of the deprived areas in inner city Dublin. The allocation to local authorities for hostels for the homeless has doubled from £2 million to £4 million on the previous year's Estimate.

Mr. Higgins

(Mayo): Not good enough.

Mr. McCreevy:

I am also providing today an extra £1 million for a Foyer type project for the homeless in Dublin.

Disabled Person's Grant

To meet the increasing needs of people with disabilities, I am increasing the provision for the disabled person's grant scheme. This extra budget provision of £3 million in 1999 will bring spending on the scheme to £8.5 million next year.

Capital Expenditure

I am today allocating £2.308 billion for capital expenditure in 1999 — an increase of about 30 per cent over the 1998 outturn. We must address the large infrastructural gap which still exists between this country and other EU countries with comparable levels of income. Closing this gap will require very substantial investment over a number of years — against the background of reduced EU Structural and Cohesion funding. This investment is essential if the growth potential of our economy is to be maintained.

Preparations for the National Development Plan 2000-2006 have commenced. The amount of EU resources available for funding the country's development needs will decline in the post-1999 period. Notwithstanding this, the Government is determined that the next plan will be structured and resourced to assist more balanced regional economic development, while also addressing national priorities such as infrastructural bottlenecks and social exclusion.

In the published 1999 summary public capital programme, I budgeted for an increase of 27 per cent on voted capital expenditure and I am making a further allocation of £92 million available in the budget for investment. The measures involved are set out in the Summary of 1999 Budget Measures. However, I would specifically like to mention three important items.

Rural Water Programme and Rural Depopulation

Rural depopulation is a serious problem. One way in which it can be alleviated and more people encouraged to settle outside the larger urban areas is by improving the infrastructure of small rural towns and villages. As part of the Government's effort to address this problem, I am allocating £50 million over the next three years to improve water and sewerage infrastructure in rural areas.

Deputies:

Hear, hear.

Mr. McCreevy:

Two programmes are involved. The first is designed to upgrade water facilities in small rural towns and villages. The second programme will be directed towards improving water quality in private group schemes.

Public Private Partnerships

Earlier this year, I announced that the Government would be proceeding, on a pilot basis, with a number of public private partnership projects. My Department is working in consultation with other Departments to identify suitable projects. A number of projects are being considered. One of these is a major new venture in international telecommunications. There is an urgent need to develop Internet links between Ireland and major business centres in the US and Europe. I am therefore providing £12 million in 1999 to support the establishment of a public-private partnership which will build a new high capacity Internet link into Ireland. The Government will work in partnership with Irish and international telecommunications companies. As the private sector becomes more involved, public sector involvement will be reduced.

Year 2000

The Government has been actively addressing the year 2000 problem, which can arise with computers and other equipment. An interdepartmental committee has been addressing the matter, and Departments have been reporting to Government on the steps they are taking to deal with it and on the progress being made in achieving compliance. However, the full scale of the problem in relation to embedded systems, which are common in the health area in particular, and the costs of dealing with it are not yet fully known. However, they could be large. The matter can be dealt with to a degree by the normal process of replacing equipment funded by allocations already made in the 1999 Abridged Estimates. However, it is prudent to provide more in case that course proves insufficient. I am therefore creating a contingency fund of £40 million for this purpose which will only be drawn upon if I am satisfied that it is essential.

Mr. Quinn:

At long last.

Mr. McCreevy:

Provision for the fund will be included in the Revised Estimates Volume.

Overall Capital Increase

The cost of these and other capital measures will add a further £92 million to the capital allocations announced in the Estimates, bringing the total to £2.308 billion in 1999 and giving an increase in voted capital expenditure in 1999 of 30 per cent over the latest 1998 outturn. I am confident that the extra capital measures announced today will further enhance the economy's capacity to sustain continued economic and social development over the longer term. In fact, the total Exchequer capital investment for 1999 represents an underlying increase of £900 million or 65 per cent over the 1997 level.

Northern Ireland

The Government is continuing energetically to pursue the implementation of all aspects of the British-Irish Agreement. We confidently expect that agreement will very shortly be reached with the Northern parties on the six or more areas in which North-South implementation bodies are to be established — we expect and believe that, taken together, these will be significant and valuable public bodies. Detailed work on their functions and structures will then be urgently required to enable them to be established early next year, alongside the other institutions envisaged in the Agreement, including the North-South Ministerial Council. As soon as all the relevant details have been clarified, I will ensure that the resources necessary for their successful operation are made available.

TAXATION

Taxation is fundamentally a matter of political choice. The individual election manifestos of Fianna Fáil and the Progressive Democrats set out clearly and unequivocally our preferences. Despite opposition from many quarters — not just the parties opposite — the people democratically decided the issue.

Mr. Howlin:

And Deputy Jackie Healy-Rae.

Mr. McCreevy:

As I indicated in my first budget last year, I intend to deliver over the five budgets of this Government the tax proposals as agreed by Fianna Fáil and the Progressive Democrats. I have said repeatedly —ad nauseam to some — that high rates in many areas of taxation — corporation, personal, capital and inheritance — lead to disincentive, evasion and lower yield to the Exchequer which ultimately constrains a Government from implementing progressive social policies to which we all subscribe. The cry from the opponents of this view is best summarised as follows: they would prefer less economic activity which would mean no money to implement such policies. I do not subscribe to that view.

PERSONAL TAXATION

Income Tax

Under Partnership 2000 the Government agreed to provide £900 million for personal tax reductions over the three years 1997-9. Taking account of the reductions I am announcing, the total amount provided is almost £1,500 million. The Government is committed to reducing the burden of personal taxation to reward effort and improve the incentives to work.

Last year, I described my budget as the first in a series of five.

Mr. Howlin:

That is optimism.

Mr. McCreevy:

I delivered substantial tax relief to all taxpayers through a broadly-based package, concentrating particularly on cuts in the standard and the top tax rates. This year I am concentrating on a major reform of the tax system to remove as many people as possible from the tax net and maximise the incentive to work. The full year value of the main personal reliefs I am about to announce is £581 million.

Tax Credits

Last year I indicated that I had an open mind on the conversion of the basic income tax allowances into tax credits at the standard rate. The special working group on tax credits under Partnership 2000 has continued its work on addressing the practical and policy aspects of such a move. The attractions of such a move are clear.

It would enable more resources to be devoted to those on lower incomes for a given Exchequer cost. It would do this by equalising the value of the personal tax allowances to all taxpayers at the standard rate of tax. In such a system every £1,000 of an allowance would be worth £240 to each taxpayer.

The Government has decided that we should make a determined attempt to improve the position of the lower paid in this budget and remove as many taxpayers on low income from the tax net as is prudently possible. I am happy to announce that the Government has decided to move towards a tax credit system by standard-rating the basic single and married personal allowances and the PAYE allowance.

Changes in Allowances

The changes I am making can best be looked at in two parts: first, standard-rating the existing basic single and married personal allowances and the PAYE allowance and widening the standard band to offset the effect of this; and, second, providing for a substantial increase in the standard-rated personal allowances and an increase in the standard-rated PAYE allowance. The current single personal allowance is £3,150 per annum, with £6,300 for a married couple. The PAYE allowance is £800. I am proposing to standard-rate and increase these allowances as follows: the single personal allowance by £1,050 per annum, that is, from £3,150 to £4,200; the married personal allowance by £2,100 per annum, that is, from £6,300 to £8,400; and the PAYE allowance by £200 per annum, that is, from £800 to £1,000.

The present tax bands are £10,000 for a single person and £20,000 for a married couple. I am proposing to increase the bands as follows: for a single person from £10,000 to £14,000; and for a married couple from £20,000 to £28,000.

In the history of Irish budget tax changes, these are major innovations. The changes in allowances will result in standard-rated personal allowances for single persons on PAYE of £5,200 per annum. The effect of this, among other things, will be to ensure a single person on PAYE will not pay tax on income below £100 a week. It also means that more than 80,000 taxpayers will be removed from the tax net and that the number of taxpayers on the marginal relief system, who face a marginal income tax rate of 40 per cent, will fall from the current level of 82,000 to just over 24,000. For a married couple with one earner and two children on PAYE on the average industrial wage, income tax will reduce by £10 per week. Under the current system a single person begins to pay tax at £79 per week. Under the changes I am announcing, such an individual will pay no tax on income below £100 per week.

Mr. Allen:

About time.

Mr. McCreevy:

As a result of these changes, the basic single and married personal allowances will exceed the basic income tax exemption limits for those under 65. It is not proposed, therefore, to increase the under 65 exemption limits.

Widows and single parents have a special personal allowance structure and the difficulty of fitting them into a tax credit system has been recognised by the Partnership 2000 working group. Their basic personal allowances will be standard rated and increased in line with everybody else. A more complicated arrangement is needed for their special additional allowances to ensure nobody loses out, particularly in the case of widows with children and lone parents. The changes proposed are set out in the Summary of 1999 Budget Measures.

As will be recognised, I am making a major fundamental change in personal taxation in this year's budget. It is a major and — yes — costly step towards a full tax credits system. It is my intention that my future budgets will complete the changeover to tax credits, but this year's budget change will mark a fundamental departure in personal taxation. It will herald a major seachange in attitudes to welfare and work for many and will unquestionably improve the incentive to work. Due to the cost of this major move to focus resources on the lower paid, it is not possible this year to reduce the rates of income tax, but this will be addressed in future budgets.

Health and Employment and Training Levies

I propose to make adjustments to the health and employment and training levies which apply at a combined rate of 2.25 per cent on income over £10,750 per annum. The employment and training levy of 1 per cent will be abolished from 6 April 1999. The health levy will be increased from 1.25 per cent to 2 per cent from the same date. The result is an overall reduction of 0.25 per cent in the amount taxpayers will pay by way of income levies. The threshold for the payment of the 2 per cent levy will be increased by £500 from £10,750 to £11,250 per annum or from £207 to £217 a week.

Health care spending has been growing faster than any other area of public expenditure. It is important for taxpayers to realise the increasing magnitude of Exchequer health spending, projected to cost £3.6 billion for 1999, and that it is their taxes and levies that are paying for this.

Tax Relief for the Elderly

I made a promise in last year's budget to unify the exemption limits for all those aged 65 and over and increase the limits. I have decided to increase substantially the income tax exemption limits below which those aged 65 and over will not have to pay income tax. The current limits are £5,000 single and £10,000 married in the case of those aged 65 to 74, and £5,500 single and £11,000 married in the case of those aged 75 and over. In the case of all those aged 65 and over, the new income tax exemption limits will be £6,500 per annum for single and widowed persons and £13,000 per annum for married couples. The new exemption limits represent an increase of up to 30 per cent in the current exemption limits. The change will remove 15,000 elderly persons from the income tax net.

In addition to these income tax changes I have increased the old age pension by £6 a week to £89 for contributory old age pensions and £78.50 for non-contributory old age pensions and improved the qualifying conditions for medical cards for the elderly. Last year, I significantly increased the additional tax allowances to blind persons. This is the centenary year of the National League for the Blind. I propose accordingly to increase again the personal tax allowance for a blind person from £1,000 to £1,500 per annum and from £2,000 to £3,000 per annum for married couples where both spouses are blind. This allowance applies in addition to the standard-rated ordinary personal allowances referred to earlier but will continue to be available at the blind person's full marginal tax rate.

Total Cost of Personal Tax Changes

The total cost of these changes to the personal income tax rate structure is £581 million and a breakdown of the cost of the individual components is set out in the Summary of 1999 Budget Measures.

Child care

The Government is conscious of the growing wish for a recognition of child care needs in the tax system. The question of child care tax relief raises important and complex issues. There is the question of equity between parents who stay at home to care for children and those who have to meet additional child care expenses when they go out to work. There is also the need for a balanced treatment of those who are in the tax system and those who rely on social welfare benefits and for finding the right balance between measures to help towards the cost of child care and measures to improve the supply and quality of child care facilities to meet the growing demand.

The Government has discussed this area in some detail and proposes to examine the matter further. In doing so we will take into consideration the recommendations of the Programme 2000 working group on child care which has not yet finalised its report.

As a means of facilitating and encouraging the supply of child care facilities, the Government has decided that the provision of certain cre che facilities by employers will not be subject to a charge to income tax in the hands of employees as a benefit-in-kind. Furthermore, the Finance Bill will provide for capital allowances to allow for the write-off of capital expenditure incurred in connection with buildings or premises constructed or used by employers to provide child care facilities for their staff. This capital allowances regime will also extend to providers of child care services generally in the community.

Mrs. Owen:

What about the election promises?

Mr. D. Ahern:

You are all sick.

Mr. McCreevy:

Those with children will also be helped by the increases in child benefit which I announced earlier.

Carers

The Government has also decided that the position of those families providing care in the home for a member of the family should be addressed by extending the terms of the current tax allowance which applies where a person is employed to care for a taxpayer or his or her spouse in the home. This tax relief, which applies at the taxpayer's marginal tax rate for expenses up to £8,500 per annum, will now be claimable from 6 April next by other family members who employ a carer to look after a totally incapacitated family member. This extension will widen significantly the scope of the relief which is currently claimed by around 500 taxpayers each year.

Job Assist for the Disabled

The new tax initiative I introduced earlier this year to help the long-term unemployed back into employment is generally referred to as the revenue job assist scheme. To date nearly one thousand claimants have used the scheme to return to work. I feel that this scheme has met a clear need. The scheme allows for other categories to be assisted over time. Following consultation with the Minister for Social, Community and Family Affairs, I have decided that persons with disabilities will be able to avail of the revenue job assist scheme. The details are in the Summary of 1999 Budget Measures.

Income Tax Year

Earlier this year I set up a special interdepartmental group to propose a plan for the alignment of the income tax year and the calendar year. The group consulted the social partners and other interested bodies on the proposed change of tax year. It would be more rational to have the income tax year, like other tax years such as VAT, commence on 1 January.

I will be bringing my proposals on this to Government shortly. If it were decided that as from 2001 the income tax year would commence on 1 January instead of 6 April, the year 2000 income tax year in that case would be a transitional year running from 6 April to 31 December 2000. Consideration would have to be given to the necessary arrangements to ensure a smooth transition.

Film Relief

The existing tax incentives for investment in film making in the State will run out on 5 April next.

The Minister for Arts, Culture, Heritage, Gaeltacht and the Islands has recently received a detailed study carried out by an independent consultant. This looks at the operation of the tax incentives from the point of view of the appropriate Government strategy for the development of the film sector and the economic benefits deriving from this. That report is now being examined and in this context a decision will be taken on the future structure of film relief for the Finance Bill, 1999.

Profit Sharing

A number of organisations have called for expanded profit sharing schemes to assist in the promotion of profit sharing and, in this way, more flexible pay structures. This will be a growing issue post-EMU. I am not opposed to reasonable proposals in this area. Indeed, if profit-related pay makes economic sense to employers and employees from a profit and pay point of view, it should need no tax relief from the State to encourage it to be put into practice. It should also be recognised by all that there are tax planning opportunities in schemes of tax-relieved profit-related pay.

I have received a proposal to allow the introduction of a tax-relieved save-as-you-earn scheme for employees to acquire shares in their companies. The new scheme involves employees saving for a fixed period to buy shares in their firm on favourable share option terms. Any gain from the exercise of the share option is free of income tax. I intend to provide for a scheme along these lines in the Finance Bill.

Special Investment Accounts

Last year, I increased the rate of DIRT on special savings accounts from 15 per cent to 20 per cent but I left the tax rate unchanged on special investment accounts at 10 per cent. I now propose increasing the 10 per cent rate on these savings products to 20 per cent from 6 April 1999. In addition, I also propose increasing the £50,000 maximum investment limit for special savings accounts to £75,000, which is the limit that already applies to special investment accounts. These changes will bring in £3 million net in a full year. The full details of these changes and of an anti-avoidance measure in relation to certain accounts are given in the Summary of 1999 Budget Measures.

Mr. Quinn:

All Ansbacher account holders please note.

Mr. McCreevy:

Is that the leader or the president speaking over there?

Mr. Quinn:

Where is CJ now?

Mr. McCreevy:

There is nothing discriminatory about this policy. Ireland will remain attractive to foreign investors, not because we will discriminate in their favour, but rather because we will remain attractive to all investors.

We should make no mistake about the extent to which our economic success is a product of a broad set of policies including taxation designed to stimulate growth and the creation of wealth. It is a policy that has been successfully and consistently followed by successive Governments.

Notwithstanding our confidence, we must be on our guard against any threat to our ability to sustain this growth. We must ensure that the concept of harmonising taxes does not become simply a means of increasing them. Our policy in this regard is fundamental to our economic success. In the past, high levels of taxation led to higher unemployment, no economic growth and mountainous national debt. It was only when Ireland moved away from this nonsensical policy that we began to see higher growth, more employment and less unemployment, and reducing national debt.

The agreement arrived at with the EU Commission last July clears the way for the introduction of a single rate of corporation tax on trading income of 12.5 per cent from 1 January 2003 along with a rate of 25 per cent on non-trading income. It is appropriate following this that the Government should set out now a programme of reductions in the standard rate of corporation tax for the next five years to achieve the 12.5 per cent rate. Accordingly, the standard rate will be reduced from 32 per cent to 28 per cent to take effect from 1 January 1999. The existing 25 per cent rate will remain unchanged but will apply to the first £100,000 of profits instead of the first £50,000 of profits as is currently the position. The full year cost of these changes is £132 million.

It is proposed to reduce the standard rate of corporation tax for trading income by 4 per cent per annum for the years 2000, 2001 and 2002 and by 3.5 per cent for 2003, giving a 12.5 per cent rate in 2003. The lower rate on the first £100,000 of profits will be merged with the standard rate at the appropriate time and reduced thereafter in tandem with the standard rate.

To provide certainty for the business sector, the Summary of 1999 Budget Measures sets out the categories of passive income that will fall to be taxed in the future as non-trading income at the 25 per cent rate. The 1999 Finance Bill will provide for the necessary legal definitions. This 25 per cent rate will apply to all non-trading income of companies for the year 2000 and onwards.

Clawbacks

The reduction in the standard rate of corporation tax is being made at a time when the business sector is experiencing significantly increased profits. The Government is anxious that businesses and owners of capital should continue to make a reasonable contribution to the cost of providing Government services, many of which directly benefit those businesses. For that reason, the Government will continue to look at the scope for clawbacks from the corporate sector and will examine carefully all tax reliefs and allowances which can be regarded as business reliefs, cutting back on those where necessary.

Employers PRSI

No other sector is having a tax reduction programme underwritten for it by Government in the way I have just set out. The Government believes it right in these circumstances that the ceiling on the 12 per cent employer PRSI rate should be increased to £35,000 from the figure of £30,500 already provided for in the abridged Estimates volume. This will bring in £37 million in a full year. The threshold below which the lower 8.5 per cent employer PRSI rate applies will be increased from £14,040 to £14,560 per annum at a full year cost of £13 million. The net effect of both changes is a yield of £24 million to the State — not a heavy burden to the corporate sector.

Withholding Tax on Dividends paid to Individuals

Since owners of capital in the form of shares will benefit from the reduced corporation tax rate on profits, it is right that the Government should accordingly take action to ensure that the tax due on dividends is paid to the Exchequer. The existing tax credit on dividends will be abolished on and from 6 April next under measures taken in my first budget. In effect, this means that after 5 April the onus of the payment of tax on dividends received by individuals will rest on self-assessment and income declaration by shareholders.

I propose, therefore, to introduce on and from 6 April 1999 a withholding tax at the standard rate of income tax on dividends paid to individuals resident in the State and certain non-residents. This tax will have to be deducted from dividends before they are paid out. Those individual shareholders liable to tax at the higher rate will be required as before to declare their dividend income in their tax returns and to pay the balance of income tax due to the Exchequer. The proposed system is explained fully in the Summary of 1999 Budget Measures. It is estimated that the extra yield from the operation of this withholding system will be £15 million in a full year.

Surcharge on Undistributed Corporate Income

The Government will continue to examine such other measures as may be needed to seek a balanced contribution to the national Exchequer from all sectors of the economy. This also includes the extension of the current surcharge on undistributed corporate income of certain closely held companies. While the needs of business for retained profits to fund investment are readily acknowledged, this will have to be balanced by concern that corporate structures can be used to shelter income at low rates of tax while postponing its distribution to shareholders. The need for such surcharges will become more immediate as the standard rate of corporation tax approaches 12.5 per cent. There will be consultation with business and other sectors before any extension of the current surcharge system is put into effect.

Irish Registered Non-Resident Companies

The problems arising from the use of Irish registered non-resident companies for various unlawful activities has been a cause of concern to the Government for some time. I am pleased a package of measures under company law and tax law to deal effectively with this problem is now close to finalisation. The package will be submitted to the Government shortly so that it can be announced with the publication of the Companies (Amendment) Bill in the next few weeks.

Retirement Pensions for the Self-Employed

During the course of last year's budget speech and during the Dáil debate on the Finance Bill, 1998, I signalled my clear intention to make changes in the area of pensions for the self-employed.

It is my intention to bring forward in the next Finance Bill significant changes to the present system to take effect from 6 April next. The changes I plan will be grounded on the following principles: the self-employed person will not be restricted to the one option on retirement of investing his or her accumulated pension fund net of the tax-free lump sum into a traditional type annuity; the self-employed person will have the option of retaining ownership at all times of the capital sum invested on his or her retirement to provide a retirement income; the self-employed person will also have the option of retaining ownership at all times of the market value of the accumulating fund during the contribution period; and the limits on tax-relieved contributions to be increased substantially from 15 per cent to 30 per cent on a sliding scale basis relating to age, as detailed in the Summary of 1999 Budget Measures. I see these principles as forming an integrated package.

There will be appropriate consultation with the Pensions Board and other expert bodies prior to finalising proposals for the Finance Bill. In the context of the increased contribution limits, it will also be necessary to examine the question of an earnings ceiling. The cost of the increase in self-employed pension contribution limits is estimated at £18 million in a full year.

Extension of Deadlines for Various Designated Area Schemes

In response to representations received from various parts of the country I have decided to extend the existing termination dates for the various designated area tax relief schemes and for the transitional arrangements under the Finance (No. 2) Act, 1998, dealing with newly-constructed rental property. Full details are set out in the Summary of 1999 Budget Measures.

Rural Renewal Scheme

As the House will be aware, I introduced tax incentives for a new pilot rural renewal scheme for the upper River Shannon area earlier this year. The residential incentives have been in operation since 1 June last and I am awaiting clearance from the EU Commission for the business tax incentives. When this clearance is given, I will look at the possibility of extending this pilot scheme on a targeted basis to other rural areas.

Relief for the Provision of Student Accommodation

Since July 1992, the special tax relief for the provision of rented residential accommodation has applied only in urban renewal and other designated areas. I have decided to extend the scope of this scheme beyond these special areas for a limited period to encourage the provision of third level student residences, preferably located on or near a third level campus. The details will be contained in the Finance Bill.

New Tax Relief for Convalescent Facilities

I propose that the incentive capital allowance regime for nursing homes will be extended to the provision of convalescent health-care facilities. The provision of such facilities is aimed at reducing the hospital waiting lists by providing short stay facilities for patients to stay in after operations or intensive hospital treatment. Further details are set out in the Summary of 1999 Budget Measures.

Farmer Taxation

I am extending the present stock relief arrangements for farmers for a further two years to 5 April 2001. These arrangements are a general relief of 25 per cent and a special incentive relief of 100 per cent for certain young trained farmers.

In the case of VAT, the flat rate of VAT which may be charged by unregistered farmers on their sales to registered traders will be increased from 3.6 per cent to 4 per cent from 1 March 1999 at a cost to the Exchequer in 1999 of just over £7 million and nearly £11 million in a full year. The associated VAT rate for livestock will also increase to 4 per cent from the same date.

Capital Acquisitions Tax

At present, under capital acquisitions tax rules, all gifts and inheritances taken since 2 June 1982 are aggregated for the purposes of arriving at the rate of tax for a current gift or inheritance. I now propose that for gifts and inheritances taken on or after today, only those previous gifts and inheritances taken since 2 December 1988 will be taken into consideration for tax purposes. Bringing forward the date for aggregation in this way will ease the burden of compliance for both the taxpayer and the Revenue Commissioners. I am also increasing from 1 January next the annual small gifts exemption limit from £500 to £1,000. This limit was last increased in 1978. The cost of these changes is estimated at just over £6 million in a full year.

ENVIRONMENTAL TAX ISSUES

The issue of green taxes has been the subject of much recent comment. I propose to take a number of positive steps in that direction in this budget.

VRT on Cars

I propose to restructure the VRT rates on cars. The new structure will favour smaller cars by raising the VRT rate on larger cars. The current VRT rates on cars are 22.5 per cent for vehicles up to and including 2,500 ccs and 28 per cent on vehicles over 2,500 ccs. I propose that a new three tier structure should be introduced. The current VRT rate of 22.5 per cent will apply on cars up to and including 1,400 ccs, a 25 per cent rate will apply on cars up to 2,000 ccs, and a 30 per cent rate will apply on all cars over 2,000 ccs. These changes will bring in £43 million in extra revenue and will apply from 1 January 1999.

Mr. Finucane:

No small cars over there.

Mr. McCreevy:

It is appropriate to seek to recoup revenue in this way from a sector experiencing record sales——

Mr. McCreevy:

——which are being underpinned by the rapid economic growth we are experiencing. The increases in VRT will also yield a contribution from the motoring sector to meet the additional road use and environmental damage arising from the unprecedented growth in private car usage in the State.

Traffic Related Measures

In addition to the changes in VRT, I propose to take a number of initiatives which have been recommended by various parties to address the growing traffic problem in urban areas. The House will appreciate that the tax system cannot solve the traffic problem on its own but it can play its part in altering the relative prices of different modes of transport in favour of those that create less pressure on road use and the environment.

Park and Ride Facilities

The Government has decided, therefore, that a new tax incentive will be provided for the construction of park and ride facilities in urban areas to encourage motorists to leave their cars outside the congested city centre areas and to complete their journey by public transport. The full details of this relief will be in the Finance Bill.

Monthly Travel Passes

The Government has also decided that the provision of bus and rail passes by employers to their employees which are valid for one month or more will not be subject to tax as a benefit-in-kind. This will take effect from the new income tax year commencing on 6 April 1999.

Mr. Rabbitte:

We will have to get some buses first.

Benefit-in-Kind Tax on Car Parking Spaces

Mr. McCreevy:

The issue of benefit-in-kind tax on car parking spaces has attracted some attention recently. There are many practical difficulties in applying BIK to the use by an employed person of a car parking space provided by his employer.

Nonetheless, and notwithstanding the very obvious delight of civil servants in all Departments, including my own, to really explore this new revenue raising measure for the State, I have asked my Department and Revenue to undertake such a review and to come up with a fair and workable system of applying BIK.

Mr. J. Bruton:

Adjustments to Leinster Lawn were revenue raising.

Mr. McCreevy:

The measures and proposals I have just announced, together with the measures to promote greater use of public transport, will be seen as important initiatives in facing up to the wide-ranging issues in this area.

Green Tax Policy

Tax increases on energy and fuels can reduce emissions and bring about more efficient use of these products. The revenue raised might also be used to reduce taxation in other areas such as labour. However, increases in the price of energy and fuel adds to inflation and affects those on low incomes.

We need to put in place an agreed indirect tax policy which will assist us in meeting our international obligations on CO2 emissions. Such a policy needs the support of all sections of the community as represented by the social partners.

I am proposing, therefore, that the formulation of such agreed policy measures would be part of the discussions on the successor to Partnership 2000. This is the best way to proceed in this matter.

Mr. J. Bruton:

Decisive.

Excises on Tobacco and LPG

Mr. McCreevy:

I propose to raise some extra revenue by increasing the VAT inclusive excise duty on cigarettes from midnight tonight by 5p per packet of 20 with pro rata increases in the price of other tobacco products. On the other hand, I propose that the VAT inclusive excise on auto LPG should be reduced by 1.8 pence per litre with effect from tonight. This will encourage the greater use of this cleaner product as a road fuel. These measures will bring in £13 million net in extra revenue in 1999.

Betting Tax

The net effect of the VRT, LPG, betting tax and tobacco changes will be to raise £32 million in additional revenue in a full year and to add 0.17 per cent to the consumer price index.

Revenue Powers

As the House is aware, both Revenue and my Department have been actively reviewing the existing powers which Revenue have in combating tax evasion. This review involves looking at extra powers in relation to access to bank accounts and the examination of the affairs of banking institutions. Revenue powers were last added to significantly in 1992, with further additions in 1993 and in 1995. I have made it clear that all reasonable or necessary measures will be pursued to counter tax evasion.

The Revenue Commissions have recently made proposals to me on this and I will examine these in the context of the Finance Bill, 1999.

I want to state again the Government's resolve to take such measures as are needed and appropriate to ensure that tax liabilities can be reasonably and effectively pursued.

MEDIUM-TERM BUDGET PROJECTIONS

Following the practice of the last two years, I am including a contingency against all budgetary uncertainties of £300 million in 2000 and £600 million in 2001 as a reserve against unforeseen factors which could impact adversely on the budget.

Mr. Quinn:

Very wise.

Mr. McCreevy:

Taking account of this contingency provision and the measures I have announced today, the general Government surplus is projected at 1.4 per cent of GDP in 2000 and 1.6 per cent of GDP in 2001.

I intend to continue to achieve a general Government surplus for as long as economic conditions are favourable. In the event of significantly less favourable conditions, the necessary action will be taken to comply with the requirements of the EU Stability and Growth Pact.

FUTURE BUDGETARY PROCESS

Multi-annual Budgeting

Last year I indicated that I would consider the implementation of the final phase of the move to multi-annual budgeting as envisaged in "Delivering Better Government". This involves the Government allocating resources over a three year period covering the main budgetary aggregates of taxation, expenditure and borrowing.

As regards expenditure, I am publishing projections showing expenditure by individual ministerial Vote group for 2000 and 2001 on a no-policy-change basis. I have also included an amount for allocation above these levels within the overall expenditure envelope specified in the budgetary tables. I will address the final phase of the move to multi-annual expenditure budgeting which will involve the Government making decisions on the allocation of resources across Vote groups. Decisions on this issue by the end of the first quarter of 1999 will allow Departments ample time to plan their spending in 2000 and 2001.

The penchant of Irish politicians and media persons to regularly use the terms "radical", "reforming" and "major" to describe even the most mundane event has led to the debasing of such political language. I suggest that the phrases "radical", "reforming" and "major" might be applied to this budget, especially on the income tax side.

Mr. Rabbitte:

The Civil Service did not write this.

Mr. McCreevy:

This is the final budget before Ireland enters EMU. While EMU will present us with numerous challenges, none of these is insurmountable as long as we continue the prudent policies of recent years.

Perhaps they earned a few extra pounds or someone paid them money they were owed.

Mr. Belton:

The Minister is not a story teller.

Mr. Finucane:

All we need are days like that.

Mr. McCreevy:

That person has extra money in their pocket, a smile on their face as they walk down the street past all the shops which are full of things calling out to be bought. What will they do?

Mrs. Owen:

Van Morrison said there would be days like this.

Mr. McCreevy:

If they do not have a care in the world they will shop and shop and shop. However, if they have cares and worries and owe money, things would be different. Perhaps they would be wise to hold on to that extra few pounds and put it towards reducing the size of their debt.

Mr. Finucane:

They should not put it on a horse.

Mr. McCreevy:

They might not see any tangible physical results in terms of the presents they have bought, but they would feel better in the long run.

Days, months and years from now we will reap the rewards. We will see that on the day when we had the extra few pounds in our pockets, we made the right long-term decisions, and decisions which in time will be seen to have been our only sensible option — to look at Ireland in the longer term. I commend the budget to the House.

Explanatory Table of Budget, 1999 (a)

Current Budget

Revenue	£m	£m	£m
Pre-Budget Tax Revenue		17,630.0
Deduct:
Income Tax reliefs:
changes in exemption limits, personal allowances, standard tax rate and standard bands	-302.2
other Income Tax concessions	-11.7	-313.9
VAT measures:	-7.2
Corporation Tax measures:	-14.4
Capital Tax measures:	-2.0
Abolish Employment and Training Levy	-134.0
Reduction in Betting Tax	-12.0	-169.5
Add:
Excise measures:	13.3
Increase in Vehicle Registration Tax	43.0
Other revenue raising measures:	7.0	63.3
Net effect on tax projections of tax and spending changes (b)		125.2
Post-Budget Tax Revenue			17,335.0
Non-Tax Revenue			401.1
Post-Budget Current Revenue			17,736

Expenditure	£m	£m	£m
Pre-Budget Voted expenditure [per Estimates for the Public Services (Abridged Version)]		11,938.9
Adjust for:
Net revisions to Estimates (c)		-1.8
Add:
Impact of Social Inclusion Measures
Social Welfare improvements	91.3
Health Developments	29.6
Enterprise, Trade and Employment	11.8
Education and Science	10.00
Other	9.2	151.83
Add:
Increase Health Contribution (1.25% to 2%):	-100.00
Increase levy threshold by £500	4.0	-96.0
Other Health Service development		16.0
Miscellaneous:		5.8

Revenue	£m	£m	£m
Estimated Departmental Balances (d)		-20.0
Voted Expenditure on post-Budget basis			11,994.7
Non-voted (compulsory expenditure charged directly on Central Fund)			3,406.6
Total Current Expenditure on post-Budget basis			15,401.3
CURRENT BUDGET SURPLUS			2,335
CAPITAL BUDGET DEFICIT			(1,410)
EXCHEQUER SURPLUS			925
Net difference between Exchequer Surplus and General Government Surplus (e)			132
GENERAL GOVERNMENT SURPLUS			1,057

(a) This table shows the effects of the implementation of the Budget day measures on the pre-Budgetary position shown in the White Paper on Receipts and Expenditure.

(b) The Budget Measures have an impact on the economy with changes in consumption and investment patterns etc. leading to additional tax buoyancy. It is estimated that this buoyancy will result in an additional £125.2 million accruing to the Exchequer.

(c) The net total of non-Budget day revisions (both increases and decreases) to the Estimates. The main change is on the Vote for the Department of Social, Community and Family Affairs where the original Estimates have been reduced owing to lower Live Register numbers.

The original Estimate for the Department of Health has also been adjusted to take account of the cost in 1999 of a Supplementary Estimate in 1998 and additional buoyancy in appropriations in aid.

(d) Departmental balances are those amounts issued from the Central Fund for departmental spending in one year which remain unspent at year-end and are carried forward to be used in the next year. They have no effect on departmental spending which is governed by the allocation in the Estimates for Public Services.

(e) This figure is explained in Table 6 of the Budget 1999 Statistics and Tables.

TABLE 1

Summary of Current and Capital Budgets, 1998 and 1999 and Projections for 2000 and 2001

		1998	1999	2000	2001
		Estimated Outturn	Post-Budget Estimate	Projection	Projection
		£m	£m	£m	£m
Current Budget
Current Expenditure
Gross Voted (Departmental Expenditure Voted by Dáil)	12,230	13,332	14,157	14,846
Non-voted (Central Fund expenditure)	3,436	3,407	3,267	3,236
Expenditure from Social Insurance Fund	2,033	2,161	2,260	2,338
Gross Current Expenditure	17,699	18,900	19,684	20,420
less Appropriations-in-aid (including PRSI)	Note 2	(3,219)	(3,479)	(3,659)	(3,755)
less Departmental Balances	Note 3	(10)	(20)	–	–
Net Current Expenditure Tables 4 and 4a	14,469	15,401	16,025	16,665
Current Receipts
Tax Revenue	Table 2	16,093	17,335	18,520	19,735
Non-Tax Revenue	Table 2	361	401	367	362
Total Current Receipts		16,454	17,736	18,887	20,097
Current Budget Surplus		1,985	2,335	2,862	3,432
Gross Voted (Departmental expenditure voted by Dáil)	1,950	2,308	2,425	2,545
Non-voted (Expenditure under legislation)	188	52	93	103
less Appropriations-in-aid	Note 2	(85)	(113)	(108)	(112)
Net Capital Expenditure Tables 5 and 5a	2,053	2,247	2,410	2,536
Capital Resources		737	836	576	607
Capital Budget Deficit		(1,316)	(1,410)	(1,833)	(1,929)
Exchequer Surplus before Contingency		668	925	1,029	1,502
General Contingency Provision	Note 4	–	–	(300)	(600)
Exchequer Surplus with Contingency		668	925	729	902
General Government Surplus Note 5		951	1,057	938	1,147
GG Surplus as % of GDP
including contingency	Note 5	1.7%	1.7%	1.4%	1.6%
before contingency	Note 5	1.7%	1.7%	1.8%	2.4%
GDP Value (ESA 95 basis) Note 5		56,675	62,125	67,500	72,925

Notes to Table 1

Note 1. The projections reflect:

(a) — the full year impact of the measures announced in the 1999 Budget;

— an overall net current expenditure envelope of 4 per cent per annum for 1999 to 2001 within which expenditure will be managed;

— interest rates are based on core eurozone rates;

— exchange rates for EMU participant countries are assumed to be the bilateral central rates of the ERM agreed in May last as the basis for conversion to the euro with pro-rata adjustments for other currencies;

(b) under the taxation heading a technical provision for further possible changes in both 2000 and 2001 in personal taxes costing £350 million in a full year — the level of tax changes in these years will be subject to review in the light of emerging economic conditions.

(c) a provision for the cost of reducing Corporation Tax rates by 4 percentage points in each of the years 2000 and 2001;

The figures for GDP and GGB values for 1998 are the ESA 95 equivalent used for defining GDP and GGB values from 1999 on. The ESA 79 equivalent value for 1998 GDP is £60,200 million and that for the GGB is £1,172 million — a surplus of c.2 per cent of GDP.

Note 2. Appropriations-in-Aid are Departmental receipts which, with the approval of the Dáil, may be retained by a Department or Office to offset expenses instead of being paid into the Exchequer Account of the Central Fund. Details of gross voted departmental expenditures are contained in the Estimates for Public Services. PRSI receipts accrue to the Social Insurance Fund.

Note 3. Departmental balances are those amounts issued from the Exchequer Account of the Central Fund for departmental spending in one year which remain unspent at year-end and are carried forward to be used in the next year.

Note 4. A prudent contingency provision is made against factors outside the control of Government that may impact on the Budget but which cannot be foreseen at this stage. Examples are variability in tax buoyancy and exceptional costs arising in areas of public expenditure. While such variations are likely to be both positive and negative, it has been considered appropriate to allow in the projections for a modest negative net impact on the General Government Surplus and Exchequer Surplus.

Measurement of Expenditure Increases

Current Departmental Expenditure

With the introduction of the new Local Government Fund in 1999, £224 million is included in the 1999 Estimates which is not included in 1998 and earlier years. To allow a proper assessment of the annual average increase in current expenditure, £224 million must be removed from the 1999 figures.

	1997 Outturn	1999 Estimate	Annual Average Increase
Central Fund	3,691	3,407	-3.9%
Net Voted Departmental Expenditure	10,335	11,994	7.7%
Total Net Current Expenditure	14,026	15,401	4.8%
Less
Local Government Fund		224
Total Net Current Expenditure (adjusted)	14,026	15,177	4.0%

Capital Expenditure

As in the case of current Departmental expenditure, there is £178 million included in the 1998 Environment Vote but not in the 1999 Estimate. To make a proper comparison between 1999 and 1998, the 1998 outturn must be reduced by £178 million. This gives an increase of 30.2% in gross capital expenditure in 1999 over 1998.

TABLE 2

Current Receipts 1998 and 1999

	1998 Outturn	1999 Post-Budget Estimate	2000 Projection	2001 Projection
	£m	£m	£m	£m
Tax Revenue
Customs	164	158	163	169
Excise Duties	2,818	3,091	3,363	3,656
Capital Taxes	294	316	329	360
Stamp Duties	539	599	648	697
Income Tax	5,719	5,944	6,129	6,275
Corporation Tax	2,051	2,289	2,546	2,743
Value-Added Tax	4,291	4,837	5,329	5,826
Agricultural Levies (EU)	9	9	9	9
Employment and Training Levy	208	92	4	0
Tax Receipts	16,093	17,335	18,520	19,735
Non-Tax Revenue
Central Bank - Surplus Income	99	135	100	100
National Lottery Surplus	121	122	118	110
Interest on Loans & Dividends	75	82	86	86
Other Receipts	66	62	63	66
Total Non-Tax Revenue	361	401	367	362
Total Current Receipts	16,454	17,736	18,887	20,097

TABLE 3

How gross current expenditure will be allocated

1999 Post-Budget	£m	£m	Percentage of Total Gross Expenditure
Service of National Debt
Interest	2,195		11.6%
Sinking Funds	326		1.7%
Other debt management expenses	21		0.1%
		2,542	13.4%
Economic Services
Industry and Labour	667		3.5%
Agriculture	625		3.3%
Fisheries, Forestry	65		0.3%
Tourism	47		0.2%
		1,404	7.4%
Infrastructure		56	0.3%
Social Services
Health	3,371		17.8%
Education	2,603		13.8%
Social Welfare	5,103		27.0%
Subsidies, etc.	142		0.8%
		11,219	59.4%
Security		1,454	7.7%
Other		2,225	11.8%
Gross Expenditure		18,900	100.0%

TABLE 4

Summary of Adjustments to 1999 Net Current Expenditure

Vote No.	Vote	1999 Estimates on Pre-Budget basis (a)	Adjustments in the Budget	1999 Revised Estimates
		£000	£000	£000
1	President's Establishment	861	11	872
2	Houses of the Oireachtas and the European Parliament	39,799		39,799
3	Department of the Taoiseach	17,764		17,764
4	Ordnance Survey Ireland	4,663		4,663
5	Central Statistics Office	17,550		17,550
6	Office of the Minister for Finance	43,790		43,790
7	Superannuation and Retired Allowances	106,558		106,558
8	Office of the Comptroller and Auditor General	3,737		3,737
9	Office of the Revenue Commissioners	157,056		157,056
10	Office of Public Works	80,016		80,016
11	State Laboratory	3,646		3,646
12	Secret Service	735		735
13	Office of the Attorney General	6,572		6,572
14	Office of the Director of Public Prosecutions	8,519		8,519
15	Valuation Office	4,400		4,400
16	Civil Service Commission	5,246		5,246
17	Office of the Ombudsman	2,254		2,254
18	Chief State Solicitor's Office	21,048		21,048
19	Office of the Minister for Justice, Equality and Law Reform	75,608	425	76,033
20	Garda Síochána	553,837	300	554,137
21	Prisons	149,497	1,000	150,497
22	Courts	33,201		33,201
23	Land Registry and Registry of Deeds	17,418		17,418
24	Charitable Donations and Bequests	325		325
25	Environment and Local Government	364,972	1,200	366,172
26	Office of the Minister for Education and Science	116,695	3,000	119,695
27	First Level Education	778,163	3,772	781,935
28	Second Level and Further Education	906,702	4,978	911,680
29	Third Level and Further Education	568,725	1,725	570,450
30	Marine and Natural Resources	61,130	200	61,330
31	Agriculture and Food	376,907		376,907
32	Public Enterprise	135,172	1,600	136,772
33	Health and Children (b)	2,974,939	-40,425	2,934,514
34	Enterprise, Trade and Employment	596,580	14,475	611,055
35	Tourism, Sport and Recreation	97,752	5,550	103,302
36	Defence	476,350		476,350
37	Army Pensions	80,660		80,660
38	Foreign Affairs	64,748		64,748
39	International Co-operation	112,690		112,690
40	Social, Community and Family Affairs	2,754,150	77,930	2,832,080
41	An Comhairle Ealaíon	24,500		24,500
42	Ealaíon, Oidhreachta, Gaeltachta agus Oileáin	91,849		91,849
43	National Gallery	2,133		2,133
44	Flood Relief	–		0
	Increases in Remuneration and Pensions	–		0
	Total Voted Expenditure (c)	11,938,917	75,741	12,014,658
Less	Departmental Balances (d)		-20,000	-20,000
	Exchequer Payments towards Voted Expenditure	11,938,917	55,741	11,994,658
Plus	Non-voted Current Expenditure (i.e. Central Fund)	3,406,660		3,406,660
	Net Current Expenditure	15,345,577	55,741	15,401,318

(a) As shown in the White Paper on Receipts and Expenditure.

(b) The reduction in net expenditure for the Department of Health and Children arises from the decision to increase the Health Contribution rate from 1.25% to 2%. The resultant increase in appropriations-in-aid on the Vote means that net expenditure is reduced. Gross expenditure has been increased by £70 million.

(c) Departmental expenditure net of Appropriations-in-Aid. These are Departmental receipts which with the agreement of the Dáil may be retained by a Department or Office to offset expenses instead of being paid into the Exchequer Account of the Central Fund.

(d) Departmental balances are those amounts issued from the Exchequer Account of the Central Fund for departmental spending in one year which remain unspent at year-end and are carried forward to be used in the next year.

TABLE 4 (a)

Current Expenditure Projections — 2000 and 2001

MINISTERIAL GROUP	2000 Net	2001 Net
	£000	£000
01 Taoiseach	31,056	27,497
02 Finance	496,398	504,614
03 Public Enterprise	138,810	140,437
04 Justice, Equality and Law Reform	852,277	859,310
05 Environment and Local Government	371,456	378,262
06 Education and Science	2,483,320	2,490,972
07 Marine and Natural Resources	60,532	59,181
08 Agriculture and Food	371,251	367,055
09 Enterprise, Trade and Employment	644,635	644,617
10 Tourism, Sport and Recreation	76,227	75,254
11 Defence	562,650	601,875
12 Foreign Affairs	203,910	222,160
13 Social, Community and Family Affairs	3,003,920	3,120,193
14 Health and Children	3,044,211	3,165,241
15 Arts, Heritage, Gaeltacht and Islands	121,001	123,169
Unallocated current expenditure (1)	296,346	649,163
Total Voted Expenditure (2)	12,758,000	13,429,000
plus Non-voted Current Expenditure (i.e. Central Fund)	3,267,000	3,236,000
Net Current Expenditure	16,025,000	16,665,000

(1) This is the amount within the limits of 4% average annual growth in net current expenditure which is available for allocation across Vote Groups above the projected expenditure for those groups on a "no-policy change" basis as shown in this table.

(2) This is the net voted current expenditure total consistent with the Government's limit of a 4% average annual increase in net Current Expenditure (i.e. net voted plus non-voted current expenditure).

(3) The above allocations are subject to the outcome of the National Plan and Community Support Framework negotiations.

TABLE 5

Summary of Adjustments to 1999 Capital Expenditure

Vote No.	Vote	1999 Estimates on Pre-Budget basis (a)	Adjustments in the Budget	1999 Revised Estimates
		£000	£000	£000
3	Department of the Taoiseach	13,500	200	13,700
4	Ordnance Survey Ireland	1,720		1,720
5	Central Statistics Office	645		645
6	Office of the Minister for Finance	355		355
9	Office of the Revenue Commissioners	9,950		9,950
10	Office of Public Works	71,024		71,024
16	Civil Service Commission	250		250
19	Office of the Minister for Justice, Equality and Law Reform	3,815		3,815
20	Garda Síochána	26,860		26,860
21	Prisons	30,982		30,982
22	Courts	13,261		13,261
25	Environment and Local Government	928,268	18,579	946,847
26	Office of the Minister for Education and Science	75,642		75,642
27	First Level Education	59,033		59,033
28	Second Level and Further Education	58,783		58,783
29	Third Level and Further Education	45,997		45,997
30	Marine and Natural Resources	49,617	3,200	52,817
31	Agriculture and Food	72,916		72,916
32	Public Enterprise	101,553	12,000	113,553
33	Health and Children	155,000		155,000
34	Enterprise, Trade and Employment	235,439	16,500	251,939
35	Tourism, Sport and Recreation	38,236	500	38,736
36	Defence	18,550		18,550
38	Foreign Affairs	1,790		1,790
40	Social, Community and Family Affairs	9,000		9,000
41	An Comhairle Ealaíon	3,500		3,500
42	Ealaíon, Oidhreachta, Gaeltachta agus Oileáin	77,093	840	77,933
43	National Gallery	263		263
44	Flood Relief	163		163
–	Y2000	–	40,000	40,000
	Total Net Voted Capital (b)	2,103,205	91,819	2,195,024
Plus	Non-voted Exchequer Capital	51,675		51,675
	Total expenditure	2,154,880		2,246,699

(a) As shown in the White Paper on Receipts and Expenditure.

(b) Departmental expenditure net of Appropriations-in-Aid. These are Departmental receipts which with the agreement of the Dáil may be retained by a Department or Office to offset expenses instead of being paid into the Exchequer Account of the Central Fund.

TABLE 5 (a)

Capital Expenditure Projections — 2000 and 2001

Vote No.	Vote	2000	2001
		Net	Net
		£000	£000
3	Department of the Taoiseach	13,500	–
4	Ordnance Survey Ireland	1,700	1,750
5	Central Statistics Office	558	436
6	Office of the Minister for Finance	475	375
9	Office of the Revenue Commissioners	6,290	7,000
10	Office of Public Works	79,293	68,856
19	Office of the Minister for Justice, Equality and Law Reform	2,082	356
20	Garda Síochána	11,398	8,096
21	Prisons	28,183	28,685
22	Courts	11,700	9,410
25	Environment and Local Government	930,843	880,036
26	Office of the Minister for Education and Science	75,617	617
27	First Level Education	51,006	30,579
28	Second Level and Further Education	51,272	41,400
29	Third Level and Further Education	45,117	42,063
30	Marine and Natural Resources	49,243	37,480
31	Agriculture and Food	42,261	41,277
32	Public Enterprise	108,127	112,146
33	Health and Children	165,000	205,000
34	Enterprise, Trade and Employment	243,187	227,841
35	Tourism, Sport and Recreation	30,574	22,089
36	Defence	32,860	17,200
38	Foreign Affairs	1,000	–
40	Social, Community and Family Affairs	5,500	5,500
41	An Comhairle Ealaíon	3,500	3,500
42	Ealaíon, Oidhreachta, Gaeltachta agus Oileáin	68,039	69,270
43	National Gallery	2,263	1,263
		2,060,588	1,862,225
	Unallocated Capital Expenditure (1)	256,176	570,300
	Total Voted Net Capital (2)	2,316,764	2,432,525
Plus	Non-voted Exchequer Capital	93,120	103,355
	Total Capital Expenditure	2,409,884	2,535,880

(1) This is the amount available for allocation across Vote Groups consistent with an annual increase of 5 per cent over the 1999 Budget allocation. These allocations are subject to the outcome of the National Plan and Community Support Framework negotiations.

(2) This is the total net Voted capital expenditure consistent with an annual average increase of 5 per cent over the 1999 Budget allocation.

TABLE 6

Explanation of Net Difference between Exchequer Surplus and General Government Surplus.

The Exchequer Surplus is the traditional domestic budgetary aggregate which measures Central Government's net surplus or borrowing postion. It is the difference between total receipts into and total expenditure out of the Exchequer Account of the Central Fund.

The General Government Balance (GGB) measures fiscal performance of all arms of Goverment, i.e. Central Government, Local Authorities, Health Boards, Vocational Education Committees, non-commerical State-sponsored bodies, as well as Funds such as the Social Insurance Fund which are managed by Central Government Departments. It thus provides a more accurate assessment of the underlying fiscal performance. However, it does not reflect the position of commercial State-sponsored bodies as these agencies are classified as being outside the general Government sector.

The GGB is calculated in accordance with ESA95, a consistent standard, developed by the EU to facilitate budgetary comparisons between EU member states in accordance with their obligations under the Maastricht Treaty.

Details of the variation between the Exchequer and the General Government measures is set out in the table below.

Data are in IR£ million	1998	1999	2000	2001
	Estimated Outturn	Post-Budget Estimate	Projection	Projection
	£	£	£	£
Exchequer Surplus	668	925	729	902
Interest adjustments (a)	211	145	65	45
Exclude equity and loan transactions (b)	83	50	43	48
Net (Borrowing)/Surplus of non-commercial State-sponsored bodies	-2	-7	–	–
Miscellaneous Adjustments	10	–	–	–
Adjustments for Transactions between the Exchequer and Government Departments/Offices and Extra- Budgetary Funds (c)	29	-55	2	–
Accrual Adjustments (d)	-46	-25	–	–
Net (Borrowing)/Surplus of Central Government	953	1,033	839	995
Net Surplus of the Social Insurance Fund	31	24	99	152
Net (Borrowing)/Surplus of Local Authorities	-33	–	–	–
General Government Surplus	951	1,057	938	1,147
Net Difference between Exchequer Surplus/Deficit and GGS/(Deficit)	283	132	209	245

(a) This adjustment reflects the requirement, under ESA rules, that changes in the assets of the Capital Services Redemption Account and capital gains or losses on foreign exchange contracts, swaps, etc., should be excluded from the interest to be .recorded for the purposes of calculating the General Government Surplus.

(b) Equity and loan transactions are excluded from the General Government Surplus on the basis that they affect the composition but not the level of assets and liabilities.

(c) Transfers between units within the General Government sector do not affect the General Government Surplus.

(d) This adjustment is required in respect of certain property transactions recorded on an accruals basis in calculating the General Government Surplus.

Mr. Sheehan:

It is a masterpiece for the gambler.

The Taoiseach:

It does not get any easier.

Mr. Noonan:

The folksy bit at the end of the Minister's speech gave the game away. The Minister's admonitions to people to keep a few pounds in their pockets and not to spend highlight the biggest fear the commentators will have about this budget — the fear of an inflationary consumer boom. The Minister has not dealt with it by any instrument of policy, but he has covered himself with a bit of folksy pub talk at the end of his speech.

In just four weeks Ireland will join EMU and the responsibility for monetary policy in Ireland will pass from the Government and the Central Bank to the European Central Bank. Interest and exchange rate policies for Euroland will be the responsibility of the ECB. As a consequence, fiscal policy will be the only instrument of policy entirely in the hands of the Government.

Budget day has always been an important day in the political calendar. It is now more important than ever because budgetary policy is the only major policy instrument left in the hands of the Government. In the past, if a budget was either over expansionary or restrictive, the Central Bank could either raise or lower interest rates. If there was a major loss in competitiveness the Government had the option to devalue. This was done successfully in both 1986 and 1993. These options are no longer available and a greater responsibility than ever before rests on the shoulders of the Minister for Finance.

There is also a further difficulty. The problems facing the main European economies, such as Germany and France, are different from the situation in Ireland. The interest rate policy, which will be followed by the European Central Bank in 1999, will be designed to cater for the fundamental needs of our European partners which are different from our current needs.

The Minister has unprecedented and virtually unlimited resources at his disposal today. His task can be summarised as having a duty to ensure that the economic boom continues and that the country has the capacity to continue to grow so that the resources can be generated to enable the Government to wage war on poverty and disadvantage. There is widespread agreement those were the objectives when the Minister set about the task of compiling this budget. Today's announcement is the end of a process.

The effects of the budget can be assessed only by taking the Book of Estimates and the budget together. In the Book of Estimates the Minister planned to spend an additional £1 billion. He has added £581 million in a tax package to that today and he has also made extra expenditure announcements in excess of £300 million. This is an extremely expansionary budget. It will add significantly to consumer demand at a time when the economy is booming and consumer demand has been significantly stimulated in the past two months by huge decreases in interest rates.

The European Central Bank advised the Minister to be prudent. The Irish Central Bank advised him that tax cuts in the budget should be offset by tax increases elsewhere. The Minister has ignored all the advice and is now steering a dangerous course. He is fuelling an economy which is already moving like a bush fire and has taken no counter steps, apart from the folksy advice at the end of his speech, to reduce consumer spending.

The Minister's first mistake was in the Book of Estimates. He should have required line Ministers to show savings in programmes of less priority so that funding in programmes of greater priority could have been increased. He should have dampened down consumer spending and he could have done so without dropping any of the positive elements of the budget or without raising tax.

I would like the Minister to consider two proposals between now and the introduction of the Finance Bill. In any privatisation programme in 1999, he should offer a significant tranche of shares to the public. If a significant proportion of potential consumer spending is invested in the shares of privatised State companies rather than in consumer goods or in the housing market, the advantages in calming the economy are obvious. The Minister should soak up consumer spending by issuing tradable paper to the public and not consigning his privatisation programmes to the institutions.

Another method the Minister could use to soak up additional consumer demand is to raise the ceiling on private pension funds for tax relief purposes from 15 to 20 per cent for young people, up to 25 per cent for middle aged people and from 20 to 30 per cent for those over 55 years of age. He could justify doing so on the merits of the case, but it would also be a mechanism to dampen down consumer spending.

Mr. McCreevy:

How will we finance it?

Mr. Noonan:

In present circumstances it would be better if he could take some consumer spending out of the economy and put it into pension funds, widespread share issues and State companies so that the consumer thrust forward can be reduced and people will have options other than the housing and property markets if they want to invest their savings.

Mr. McCreevy:

I have already done that.

Mr. Noonan:

Nothing that I am suggesting runs counter to anything the Minister may include in the Finance Bill, and he should do so.

The Minister always talks tough about controlling public expenditure but his actions always fall short of his rhetoric. In this budget he is taking serious risks with the economy, not so much by the measures announced today but by those in the Book of Estimates. The increase in current expenditure is well over 8 per cent, year on year. The Minister always seeks to hide what he is actually doing. He is a master of creative accounting. The House will be familiar with the story of the accountant whose young son asked what was 9 plus 7. His father replied, "What would you like it to be?" The Minister's budgetary arithmetic reminds me of this approach. The only reason I can see for the changes announced in the health and employment levies is to move money around from the two sides of the balance sheet so that the Minister can disguise the fact that he is spending more.

The Minister is stimulating the economy while, at the same time, not taking sufficient measures to increase the capacity of the economy to grow. The country is running out of workers and a radical income tax policy would increase the labour force. If the gap between welfare and wages were sufficient, many of the long-term unemployed would return to work. If the tax regime were more benign and if child minding were more affordable, many married women would return to work. If the tax take was lower many more emigrants would return to work in Ireland.

In a total reversal of the policy pursued last year and the tax policy on which the Government fought the last election, the Government has moved to a position pursued by the rainbow Government parties and ICTU. However, the Minister still has a difficulty in terms of what he is doing with income tax.

It is worth looking at the income tax package in some detail. Three fundamental changes have been announced. Personal allowances are being raised and calculated at the standard rate. People on the standard rate are winners but those on the higher rate are losers. To compensate losers on the higher rate who will now get their allowances at the standard rate, the Minister proposes to extend the band by £4,000 for single people and £8,000 for married people. This neutralises the loss experienced by the losers and gives them some additional gain.

There are minor modifications in levies and an increase of £200 in the income tax allowance to be paid at the standard rate. That is the totality of what is happening. There is movement and some commitment to tax credits, and I hope the Minister will move in this direction. However, it is interesting to look at the overall effect of what the Minister has done. For example, a single person on PAYE earning £96 per week will gain £2.38. A single person on £135 will gain £3.33 and a person on £192 will gain £4.48. The single person on the average industrial wage will get £6.71.

There was one radical proposal which the Minister might have introduced and let us hope his colleague the Minster for Social, Community and Family Affairs may do so in the Social Welfare Bill. For years the social welfare fund was in deficit but for the past two years it has been in significant surplus. With the latest CSO figures showing that in the 12 months to April last 95,000 extra persons joined the labour force, it is now time to set up a statutorily based independent social insurance fund. This would be a radical measure and would have a real impact on the question of funding pensions for PRSI payers.

Paid work is the best antidote to poverty, but there are always boats that the rising tide will not lift. Any attack on poverty should address the needs of the elderly and of children. Families with large numbers of children are usually less well off and when the head of a household is unemployed they are usually poverty stricken. The response in the budget to the needs of the poor is half hearted. There is no radicalism, the increases barely cover inflation and there is very little extra.

The increase in the old age pension of £6 per week is disappointing. The signals from the Government before the budget caused me to expect a more significant increase. Inflation is almost 3 per cent. An increase of approximately £2.50 is needed to cover that. The Minister for Health proposes to take an extra £10 per month, or £2.50 per week from the elderly who are ill. There are 145,000 people in that category. People who are old and ill will need £2.50 per week to cover inflation and £2.50 to pay the Minister for Health and Children. They will be left with £1 which I am sure the local authority will take when they review differential rent allowances.

Mr. Belton:

Pensioners will not be going shopping.

Mrs. Owen:

Or betting on horses.

Mr. Belton:

Or buying fags.

Mr. Noonan:

The increases of £3 in child benefit and £4 for additional children in the family are very small. The Government has failed to meet expectations in the area of social welfare. Significant changes are being made in the income tax code but there is no matching approach to social welfare and, as always, the poor must wait. They will continue to wait for as long as this Government is in power.

This was to have been the budget by which the war on poverty would commence. We were told this would happen. I cannot believe the meagre and paltry increases in social welfare benefits against the background of the propaganda which preceded the budget.

Any war on poverty must remember the plight of the poor in the Third World, overwhelmed as they are by debt and frequently visited by natural disasters and famine. No one would grudge an increase in overseas development aid to relieve hunger, to keep children alive, to teach them to read. There is nothing in the budget for them. When the Estimates were published three weeks ago the Minister of State with responsibility for overseas development aid, Deputy O'Donnell, threatened to resign if the Minister for Finance did not provide additional resources for ODA in 1999.

Mr. Barrett:

She had a rush of blood to the head.

Mr. Noonan:

He did not and she did not. She must have found it difficult to press her case. She only woke up after the Estimates were published. She provided a meagre £300,000 for the Honduras crisis despite the enormity of the events which occurred there, and in the White Paper on receipts and expenditure published on Monday of this week I notice that she has £1.3 million of her ODA budget unspent at the end of the year. Could she not have given that money to the people of central America? Does the Minister ever visit her Department?

Mr. Belton:

She got a little attention which is what she wanted.

Mr. Noonan:

Her recent announcement of extra resources in 2000 and 2001 AD, fall very far short of our international obligations and the commitments made by this Government in its Programme for Government. The Minister should fulfil her threat and resign; the Progressive Democrats might miss her but nobody in the Third World would.

The health crisis has again been almost ignored in this budget. Despite the Private Member's Bill and the Supplementary Estimate, we heard yesterday that hospital waiting lists have increased by more than 1,000 people. The Minister has given an additional £8 million to solve the problem of waiting lists.

Mr. Quinn:

It is chickenfeed.

Mr. Noonan:

The last time waiting lists exceeded 40,000 was when the Progressive Democrats and Fianna Fáil left Government in 1992. They are heading in that direction again. This additional £8 million will have little effect on waiting lists.

Mr. Belton:

The champagne is getting sour.

Mr. Noonan:

I do not understand the Minister for Health and Children. The changes on the drugs refund scheme show savings of almost £20 million, yet he contributes £8 million of that to the waiting lists. Does he have any concept of what public patients are suffering? Does he have any idea what is happening in hospitals? He funds the problems of those on waiting lists by asking those with severe illnesses to pay an additional £12 per month for their essential medicines. I have heard of the blind leading the blind but the idea of the sick paying for the sicker is a novel experiment.

The Minister for Finance has indicated additional spending on education. Something unusual is also happening here. Despite the propaganda of the Minister for Education and Science, I noticed in the White Paper on Monday that the total education Vote in the 1999 Estimates is £4 million less than was pencilled in last year in the multi-annual budget for 1999. How could the Minister be spending all this additional money when his Vote is £4 million less than the Minister for Finance thought he would need this time last year? That is on a no-policy change basis but there are additional costs because of the rate of increase in pay. On the face of it, the Minister for Education and Science would have needed additional money. I do not understand how he will fight the war on educational disadvantage without bullets in his gun.

Despite our excellent education system, one in five children leave school functionally illiterate. That fancy phrase means they cannot fill out normal forms or read the labels on medicine bottles. That is what is meant by "functionally illiterate" and it affects one in five children. Some 200,000 children in primary schools are in classes of more than 30, and 500 primary schools have no remedial teachers. It is easier for a camel to pass through the eye of a needle than for the child of an unskilled manual worker to enter university. Despite the much hyped programme on education, examination of the figures shows that the commitment does not exist. The Minister for Education and Science made a great deal of noise about the increased capital programme. What use will it be if he does not have enough in his current account to pay for the additional teachers to provide the extra service to eliminate educational disadvantage?

Farmers have had a frightful year and the Minister for Agriculture and Food has done little for them. There is nothing to help farmers who were swamped by the deluge of the summer and nothing additional to help with fodder costs. The people of rural Ireland are ignored again in this budget. Farmers experiencing a significant income crisis are not being treated like other citizens. The Minister has not extended the family income supplement to farmers on low incomes. Instead, he has consigned them to the dole. This is to be expected from a Minister for Finance whose only public reaction to the plight of small farmers was to accuse them of hyping their problems. His response to the Minister for Agriculture and Food when funding was needed to avert a fodder crisis was to grant £10 million, which is inadequate to meet needs. With such a huge surplus available to him today, I thought the Minister would have dedicated funds to the crisis and would have at least spent more than the £15 million he announced to support poor farm families. I also thought he would have found a better mechanism for doing it than telling hard working people who have worked all their lives in farming that their status will be changed and that they will be drawing the dole from now on.

Occasionally, a politician is in the right place at the right time and events present him with enormous, historic opportunities. The former German Chancellor, Helmut Kohl, had such an opportunity to unite Germany, and he took it. The Government and the Minister had an historic opportunity to eliminate poverty and disadvantage and to reform this country beyond recognition. On the basis of today's budget, history will be very hard on the Minister for Finance and the Government.

Mr. McDowell:

As I was coming to the House this morning, I was approached by a radio reporter who asked me if the Minister for Finance was about to introduce the Labour Party manifesto and if I was expecting him to apply for membership of the Labour Party, given how often he or people speaking on his behalf have been using the words "social inclusion", "poverty" and "low pay" in recent weeks. Based on what he said this afternoon, he has a different idea of social inclusion from ours and he should save himself the stamp.

The budget statement is unique because the Minister is in a unique situation. It is not reasonable to compare what he has done today with what was done in preceding years because, in our economic experience, his situation is unique. No Minister has ever had the opportunity the Minister, Deputy McCreevy, had today. Never before has a Minister for Finance started a budget day with an opening surplus of £1.37 billion or even a tenth or twentieth of that figure. Never has a Minister had a genuine opportunity to radically restructure the tax system or the opportunity to make a serious impact on disadvantage, poverty and inequality. Never before has a Minister had a genuine opportunity to set out his vision of the type of society he would like to see created in Ireland and to take tangible steps towards achieving it. That opportunity has been lost and it is because the Minister, Deputy McCreevy did not want to take it. He has not reformed the system because he does not believe it needs to be reformed. He has not done anything to tackle inequality because he does not believe in a more equal society. This is the Minister who disparagingly uses the term "poverty industry" and who used a large part of the resources available to him last year to give a tax giveaway to the rich.

Ultimately, and we should be grateful for it, the choice of the type of society we have is not just that of the Minister, Deputy McCreevy, nor of the Government. It is a choice all citizens are entitled and obliged to make and which was denied to many previous generations. We can decide to channel our new found wealth into public wealth or private consumption. We can decide to invest in the type of services which are the hallmark of a modern European society at the start of the 21st century. We must ask if we really care about the health service offered to older people and about the standard of education provided for young people. Do we want to pay off the national debt early or use the resources to invest in the future? This is a different way of asking the questions the Minister put in a folksy manner at the end of his speech. Do we want to save for a rainy day or invest in the infrastructure necessary to sustain economic growth in future?

The Minister, Deputy McCreevy is clear on this. In last year's budget, he spoke about reducing Government spending as a percentage of GNP and, in the supporting documentation supplied, he is projecting a continued reduction in the percentage of Government spending over the next three years. In simple language, he has committed himself as a matter of principle and ideology to spending proportionately less on public services. The consequences of this policy are unambiguous. Additional resources are to be used in creating private wealth at the expense of services on which all citizens depend. Our investment in public services as a percentage of GNP or GDP, whichever measure one may care to use, is already one of the lowest in the European Union. The Minister, Deputy McCreevy, wants to see this state of affairs continue. Nothing he has done suggests otherwise and his medium-term strategy, as set out in the supporting information, confirms this.

What we have seen today is a piece of elaborate theatre. The real decisions were taken during the Estimates process and published in the Book of Estimates. Some of those decisions merit further elaboration and I will return to them later.

I will comment briefly on the overall picture. The Minister provided for a general Government surplus of close to £1 billion next year, £950 million, on top of the £800 odd million he has this year. In the current economic circumstances we should budget for a surplus. That is the fiscally and economically sensible approach to take, but we must ask ourselves whether we should budget for a surplus close to £1 billion when hundreds of hospital beds in various parts of the country lie idle because we cannot afford to keep them in use. We must also ask ourselves whether we should budget for a surplus of that magnitude when the Minister for Health and Children only last evening announced a cutback in the drug refund scheme. It is intended to take an extra £10 per month from those people who rely on medication.

A Deputy:

Shame on him.

Mr. McDowell:

Should we budget for that measure of surplus when we have a record housing waiting list? Nearly 40,000 people are on the local authority housing list and nearly the same number are on hospital waiting lists. Those figures are higher than they have been for five or six years. We can and we should run a surplus. We have that choice, but we should not run that measure of a surplus if it stops us from dealing with the genuine social problems. Running such a surplus will have a real impact on potential patients, those people who should be using those hospital beds that are lying idle, and on those on the local authority housing list, who should be housed. Today the Minister did not answered that question, much less address it.

Regarding the income tax measures announced by the Minister, only 18 months ago Fianna Fáil and the Progressive Democrats sought and got a mandate from the electorate based on a policy of reducing the two rates of income tax. The Minister, and I suspect the Taoiseach, when in Opposition played no small part in devising that policy. Whatever about the Taoiseach, the Minister genuinely believed in that policy and he has scarcely tired of telling us so since. How many times have we heard the Minister lecture those of us on this side of the House for the damnable sin of political correctness? How many times have we heard him say he always believed it was right to concentrate on reducing the tax rates and that he has believed that for 20 years, if not more? How often have we heard him defend himself against the self-evident fact that his policy favoured the better off? How often have we heard him say he would not be bound by the terms which underpin the Partnership 2000 agreement? Suddenly it has all changed. The Minister has seen the error of his ways and he wants to introduce a budget which favours those on low and middle incomes. Is it unreasonable for us to point out that this is inconsistent with everything he said over several years and probably over a much longer period? Is it unreasonable to point out that this is inconsistent with the mandate the Government sought and got from the people only 18 months ago? Are we to take it from the Minister's capitulation today that he now accepts that last year's budget was a serious mistake? In short, today's budget is the longest act of contrition we have heard for quite a long time.

There can be few other countries in the developed world where a Minister could reverse what he said with such ease and stay in office. The Minister is not the first Minister to change his mind and no doubt he will not be the last, but we should not forget a crucial fact. Nothing has materially changed in the past year except apparently the willingness of the rest of the Government to accept the notion that give-aways to the rich filter down to the rest of us. This is and always was manifest nonsense. If the Minister accepts that, and I wonder if he does, his credibility is shot. If he does not accept it, then he is still trying to delude himself or the rest of us, and probably both.

Dr. McDaid:

The Minister is confident he will be in office for another three years.

Mr. Quinn:

The former Taoiseach, Deputy Reynolds, has the same illusion.

Mr. Sheehan:

There is many the slip between the cup and the lip.

Mr. Quinn:

Remember Harry Whelehan.

The Minister has produced a much fairer system than he did last year but he has not produced anything like as fair a system as he could have produced and he certainly has not rebalanced the effect over the two years. I suspect that what we have heard from him today has more to do with optics than reality. The Minister has used some of the language of reform, but he has taken relatively little action to back it up. He is on the right road, but he has taken relatively few steps. Since he was travelling full speed on a different highway only a year ago, we must suspend judgment and wait to see whether he is serious about the pathway to reform.

I will refer briefly to some other income tax measures which were not included but which I had hoped would have been included in the budget. There was an increase in the levy threshold, but there is still a problem in that regard. It imposes a step into the income tax system which is unhelpful. If one earns less than the income threshold, one does not pay the levy, but if one earns more than the income threshold, one must pay the levy on the entire income. That introduces a disincentive effect which is unhelpful. The Minister should have done something, given the opportunity he had to do something about that. I was also disappointed that there was no increase in the PRSI exemption figure introduced two years ago. It started at £80, the Minister extended it to £100 last year, but there has not been an increase in that figure, which is unfortunate.

The social welfare changes are the test of whether this was a budget for social inclusion. After a number of budgets in which income tax rates were significantly reduced, the case for improving the real level of welfare payments was strong today. The case was made cogently by the ESRI only a few weeks ago and it is very disappointing that the Minister has made very little progress in that direction. An increase of £3 per week in most social welfare payments is a real reduction, and the Minister knows that. It will not keep pace with wages and will scarcely keep pace with the rate of inflation.

In recent weeks we heard sound bites that the Minister would seek to tackle poverty and the problem of social exclusion. When income is rising much more rapidly than prices, it is not enough to adjust social welfare payments to the level of inflation. That is what the Minister did in last year's budget and, predictably, it led to a relative worsening in the standard of living of social welfare recipients compared to the general standard of living. The Minister will no doubt recall that the anti-poverty strategy sets an explicit target for poverty reduction over the next decade. In light of our current economic success, those targets are extremely modest and there is a strong case for revising them, even at this early stage. It is clear that if the Minister was to pursue his current policy, he would have no chance of meeting even those modest targets. To have any hope of achieving the current targets, future increases in social welfare need to be on a much more generous basis than simply compensating for price changes. The bottom line on poverty is relative. How can one possibly describe this budget as one for social inclusion if the majority of those who depend on social welfare are relatively worse off as a result? That argument is strongest in relation to people who are most dependent on social welfare, be they the long-term unemployed, people with disabilities or old age pensioners.

It is all very well to ask somebody to live on £83 a week for a short period, but it is something else to ask him to spend the rest of his days on that level of income. I accept that the Minister is aware of this problem and I agree he has taken some measure — although a disappointing one, given the hype we heard earlier — to deal with the problem. We need to do a great deal more.

The Minister and the Taoiseach will be well aware that last year a great deal of disappointment was generated when people were told they would get a flat £5 per person increase and did not get it. Instead they received the dependant allowance which was a good deal less than that. Although there is an improvement on last year, the same sleight of hand is being continued this year. I suspect there will still be a cost to pay on that and the Taoiseach was disappointed.

The Taoiseach:

The adult dependant's allowance has been there for 40 years.

Mr. Quinn:

It was said last week that every pensioner would get £5.

The Taoiseach:

Not one Member of this House raised it on that day. The Deputy understood it.

Mr. McDowell:

I agree with the Taoiseach that with the resources available to us we must significantly increase the old pension. Six pounds a week is not bad, but it is not great.

The Taoiseach:

It is £9.

Mrs. Owen:

It says £6 in the script.

Mr. McDowell:

We could have done more. This is not the way to do it, however, because it will be seen by most people who receive a pension, however long established it is, as sleight of hand. We need to do a bit more about pensions in future years. I will comment on the medium term in relation to that. The Taoiseach will be aware that the Pension Review Group reported earlier this year and recommended that the level of the old age pension should be progressively increased to approximately 34 per cent of average incomes and tied to that level for the foreseeable future.

We are uniquely fortunate in Ireland in that our demographic structure is different from that of most other European countries. Most of our European partners are already facing a crisis of funding pensions because their dependency ratio is increasing all the time. We have at least 15 or maybe 20 years before we are confronted with this problem arising as it does from the fall in the birth rate in the 1980s.

It is important that we recognise this impending problem and take action now to ensure that we are well prepared for the change when it happens. It would be entirely appropriate for us to set aside a fraction of our surplus for the next few years into a dedicated fund to finance pension liabilities in years to come.

We know there is a problem coming at us some distance down the road. We should act now to assure the pensioners of 2015 and beyond that their needs will be catered for. To put it bluntly, it is not a matter of ideology as to how this fund will be managed. I would be quite happy to have it managed either by the private sector or by the NTMA or any other State body.

Dr. McDaid:

One way would be to reduce the national debt.

Mr. McDowell:

I genuinely believe it is important that we take action to set up a dedicated fund to do it. Perhaps people are wrong, but they will not trust us as politicians to ensure that our liabilities to them as pensioners in 20 years time are met. There is a considerable political advantage, if none other, in setting aside a dedicated fund which would assure future generations that their needs are being catered for.

Dr. McDaid:

If one reduces the national debt, one is helping pensioners as well.

Mr. Quinn:

No. It is not the same thing at all.

Mr. McDowell:

It is important that neither the State nor the private sector should engage in reckless gambles with our future and, to that extent, we require a considerable a measure of transparency in how the fund is managed.

Last Saturday, there was a demonstration in Dublin lead by people who these days are generally described as carers. In some ways, this was an unusual public demonstration by people who are normally the invisible backbone of our health and social welfare services. They are people — mostly, though by no means all, women — who spend hour after hour, day after day, year after year looking after an elderly or infirm relative. It is a job for which they get precious little thanks or recognition from the State despite the fact that they save the State untold millions of pounds by providing a standard of care which would otherwise cost the Exchequer a minor fortune. Many of these people act with little or no back up services.

It is important for us to do something to improve the lot of carers and, indeed, those they look after. The Minister knows what has to be done. A fine report was sent to the Department of Social, Community and Family Affairs only a few months ago, setting out a check list of recommendations, some, but by no means all, of which the Minister has acted upon today.

It is extremely disappointing that he has not acted on the income disregard that would have made a significant improvement in the standard of living of most carers. We also need to look at the broader structure. We need to ensure that back-up services are available to carers. We cannot expect elderly women themselves to look after other elderly people without any back up from the State.

A single weekly visit or a visit every two or three days from a community health nurse is not sufficient. There needs to be a substantial back-up service involving whatever is needed, be it physiotherapist, community health nurse or psychological service. We need to redress the situation where community care is still very much the Cinderella of our health services, and carers are just one part of it, albeit a particularly sensitive one.

One of the issues on which the Minister kicked to touch today was that of child care.

Mr. Sheehan:

Terrible.

Mr. McDowell:

The Minister, and the Government as a whole, have made a point of discarding election commitments on a regular basis since they came to power. This appears to be just another one. We always said, and it is fair to repeat it, that the issue of child care is a complex one. We have to keep an eye on some things and I will deal with them in a moment.

The Minister has made no effort to fulfil a quite explicit commitment given in the manifesto of the Fianna Fáil Party and in the programme for Government to introduce a tax free allowance or tax credit for people who make use of child care.

I will put down a few markers on this issue. Tax allowances in themselves would be a disaster. We have to acknowledge the basic and obvious fact that a good deal of the child care sector is in the black market. There is a very real risk that if we simply introduce tax free allowances or tax credits the supply of child care services will be reduced. That is something that is counterproductive and not desirable. We need to ensure that the supply and standards of child care are improved. The Minister's detail in terms of the allowance that he will make available for cre ches, play-schools or other child care facilities are extremely scant. It is difficult for us on this side of the House to comment on it on the basis of the details he has given. It is appropriate, however, to give capital allowances and tax incentives to those providing child care facilities to ensure that they are up to standard.

We have to be extremely careful to ensure that child care does not become the preserve of the middle classes or those who can afford it anyway. There are scant child care facilities of whatever nature in many areas of disadvantage in Dublin. It is a responsibility of the State and of the Department to ensure that those facilities, be they cre ches, play-schools or more elaborate child care facilities, are provided either directly or by the provision of grant aid.

When dealing with this issue, we must explicitly acknowledge that some women choose to stay at home, as do some men. Some men or women choose to take career breaks to look after their children. It is inappropriate that they should be cut off from any assistance from the State. They should be given direct assistance.

An obvious way of giving direct assistance is by way of the universal child benefit system. In that regard, it is disappointing, to say the least, that the Minister has not taken this opportunity to increase it by a significant amount. When we were in Government, firstly with Fianna Fail and more recently with Democratic Left and Fine Gael, we increased child benefit every year by a significant amount. Unfortunately, this policy appears to have been expressly reversed by the current Government.

Dr. McDaid:

The previous Government increased it by £25 million, but it has now been increased by £40 million.

Mrs. Owen:

By three pounds a week.

Dr. McDaid:

It was £25 million in Deputy Owen's period in office.

Mrs. Owen:

It was £100 a week.

Mr. Quinn:

No individual is getting £40 million. I know he is the Minister with responsibility for sport, but he should not take it literally.

Mr. Howlin:

What will each individual get?

Mr. McDowell:

I turn now to corporation tax. For many years, we operated a 10 per cent rate of corporation tax aimed specifically at the manufacturing sector. In 1987 we sought and received permission from the EU Commission to extend a similar rate of tax to the IFSC. Three years later the Commission approved an Irish application to extend this concession to the end of 2005. It does not appear to have occurred to anyone, either in Dublin or Brussels, that the operation of differential rates of corporation tax might constitute a state aid as defined by the EU treaties. That said, we know that the EU did later come to that view, and it was in that context that the Rainbow Government announced its intention to introduce a unified rate of 12.5 per cent last year.

This move was opposed at the time by the current Minister. He announced that Fianna Fáil in Government would pursue a single rate of 10 per cent. On taking office the Government took not the slightest action to pursue its stated policy, and in last year's budget the Minister finally and formally abandoned the election commitment he had given. We are now led to believe that the Government has concluded a deal with the Commission, and the Minister's announcement today is clearly intended in that context.

The Labour Party signed up in Government to a 12.5 per cent unified rate, and that remains its position. However, there is more than one way in which we can deliver on that commitment, and I believe the Government has got it wrong in that respect. The 32 per cent rate of tax, the so-called standard rate, is paid by a small minority of corporate taxpayers. That said, these corporations are, by definition, the most profitable companies in the State. Many are in the financial sector, most notably the banks. Some are in the retail and construction sectors. By contrast, over 90 per cent of companies qualify for the 25 per cent rate in that their profits do not exceed the current threshold of £50,000. Some of these companies are struggling and could do with a tax break. The Minister should have reduced the low rate only and progressively increased the threshold. He should have postponed the benefit to the banks and other highly profitable companies until the last possible time in 2003. God knows, who would want to bestow any privileges on the banks after the revelations of recent months? Moreover, this makes sense on grounds of equity. There is no persuasive reason why we should be looking to confer a huge windfall profit on the financial sector at a time when it is already enormously profitable. It is worth pointing out that the Minister's decision announced today is worth millions of pounds to the large associated banks. There is something very wrong in giving an increase of a couple of pounds a week to pensioners and at the same time reducing the tax liability of AIB and Bank of Ireland by millions of pounds.

Quite apart from the fact that it would be fairer to postpone the benefit to the banks, there is also a certain logic to it from the point of view of the Exchequer. The Exchequer will benefit considerably from raising the current 10 per cent rate to 12.5 per cent. Yet this increase will only come into play at the last stage of the process. It makes sense then to delay the windfall to the financial sector, and the banks in particular, until the last possible moment.

This is not to accept that we should confer a windfall on the banks. I strongly believe that we should use all possible means to claw back some of this windfall and ensure that it is retained by the Exchequer. I accept that we need a low headline rate of corporation tax in order to attract and retain foreign direct investment, although the link between the two may not be as strong as it once was, but I find it very difficult indeed to accept that we should tax bank profits at little more than half the standard rate of income tax. Is it really acceptable that a single person on £5,000 will pay 24 per cent tax on each and every additional pound he earns, but the Bank of Ireland will pay just 12.5 per cent? If we cannot change the headline rate, and I accept that we cannot, we must ensure that the base is as wide as possible, that avoidance measures are closed down and that quirks in the system are dealt with.

In his budget last year the Minister reduced by half the tax credit attaching to dividends. I supported that measure then and I also support his decision to complete that process by eliminating the credit altogether. I also support the decision to abolish accelerated corporation tax. However, there are other areas to which we must look as a matter of urgency. The agreement with the European Commission and the announcement made by the Government last year distinguishes, or attempts to distinguish, between trading income and non-trading income. In his announcement today, the Minister looked to define that further and, in the short time I have had to check the back-up information, I found that there is an attempt made to define the difference. I do not find it very convincing because it refers to tax laws established by Statute and by precedent. As I understand it, the Statute and precedent are themselves very unclear and there are still more than sufficient grounds for avoidance. That is something that will clearly have to be looked at.

There has been much speculation in recent weeks about the attitude of our European partners to Ireland and in particular to our corporation tax regime. Let me say in the first instance that I believe the agreement with Commissioner Monti will hold good, and I would be very surprised if any effort were made in Brussels to revisit what is effectively a done deal. Having said that, we are heading for serious trouble down the road unless we fundamentally change our attitude to the European Union and do so quickly. It is time we put away the begging bowl. If we do not, it will shortly be flung back in our collective faces.

For much of the past month we have been engaged in fancy cartography and spurious management of statistics in order to extract a few extra euros from the European taxpayer. We have been hell-bent on proving just how poor we are or, at very least, how poor some parts of the country are. We should just stop for a moment to see how this washes with our partners. Take Germany for example. Parts of Eastern Germany are a good deal poorer than Ireland. Taxes in West Germany were raised so as to pay for reunification. Unemployment in some eastern Lander is more than 20 per cent and in some cases nearly 30 per cent.

Our partners know we are progressively reducing all taxes, bar excise duty on cigarettes. They know we have close to full employment. They know our GDP per capita is already in excess of the Union average. Yet we are juggling counties, and figures from several years ago, in order to drag as much out of the Union as we can at a time when all concerned know right well that the figures are of little more than historical interest and bear no relation to the current reality which is that no one region in the country, howsoever we put it together, will be under the 75 per cent threshold by the time the next tranche of Structural Funds comes on stream, and all of this for the sake of £20 million extra per year? Let us face the fact that £20 million is only a small fraction of the total surplus which the Government returned this year, and an even smaller fraction of the surplus which is projected for 1999. The Government has jeopardised friendship and influence in Brussels for the sake of a few pennies more at a time when the Exchequer is awash with money. This is short-sighted, it is stupid, and we will rue the day.

It is time for us to take some responsibility for our own development. We cannot expect others to invest in Ireland if we are not prepared to do it ourselves. We cannot use foreign money to pay for our roads and put aside our own money for a rainy day. In short, we are trying to be too cute by half, and if we do not change our attitude all of us will live to regret it.

There is a consensus in this House and among commentators that we need to invest a great deal in infrastructure. I wonder, however, whether the figures support the Minister's rhetoric. I do not believe they do. The figures suggest to me a virtual freeze on capital spending over the next few years. They do not suggest that the Minister is approaching this with the radical thinking that is required. Let me give an example. Deputy Noonan mentioned the question of public transport in Dublin. It is true that a few months ago the Government, when redistributing the Luas money, provided for an additional 100 buses in Dublin, and there is provision for another 50 in the Estimates which were published a few weeks ago. That is 150 buses to replace 150 clapped-out busses. Dublin Bus has a fleet of 900 buses. Do we really think this is the scale of change that will encourage people out of their cars and into public transport? If Dublin Bus is allowed to renovate one sixth of its total fleet, is that going to persuade people?

Dr. McDaid:

How many did the Deputy's party buy?

Mr. Howlin:

This is old Fianna Fáil.

Mrs. Owen:

We were not sitting in traffic jams five years ago like we are today.

Mr. McDowell:

There is a failure of imagination, a failure to address new circumstances. The Government has the capacity, which was not there three or four years ago, and there is also a greater problem, because economic success has in part generated this problem and it will not be resolved by giving Dublin Bus the capacity to renovate one sixth of its total fleet. The Taoiseach knows this. There is a quality bus corridor running through my constituency up the Malahide Road. There is another in Lucan. These are causing a good deal of distress to car owners, and it is going to take more than the renovation of one sixth of Dublin Bus's fleet to persuade people that they should use public transport.

I agree with the policy of quality bus corridors. I agree with the Luas strategy. However, this is a failure on a scale to do the sort of thinking, to put in place the sort of planning that we need, because the money is available but we are using it to pay off the national debt.

Mrs. Owen:

They will not arrive until a year from now anyway.

Mr. McDowell:

The Taoiseach knows there is a lead in period, which is perhaps too long, between planning major projects of this nature and implementing those plans. However, we are still discussing two Luas lines in Dublin with the possibility of a third when every Dubliner can confirm that what is needed is a comprehensive system. Without a comprehensive system it will not be possible to tempt, cajole or force motorists to use public transport and without considerably increased usage of public transport, this city will grind to a halt and, with that, the economic success we are currently enjoying will reverse.

Éamon Ó Cuív:

When will the Deputy talk about the two thirds of the population who live outside Dublin?

Mr. McDowell:

I am well aware of rural poverty.

Mr. Enright:

The Minister of State has not done much for them up to now.

Éamon Ó Cuív:

They are in good hands.

Mr. McDowell:

Poverty occurs all over the country.

Mrs. Owen:

What about the farmers who had to march through Dublin?

Mr. McDowell:

I have no problem accepting that poverty exists in rural Ireland and that elderly people live alone on farms which are long distances from villages or towns. They are living in real poverty. Where is the plan to deal with that? Do Deputies think the Minister for Finance has even looked at the national anti-poverty strategy? Does he have any concept of how to deal with poverty, rural or urban?

Éamon Ó Cuív:

If the Deputy looks at the budget he will see that he has.

Acting Chairman (Mr. Kirk):

Deputy McDowell must address his remarks through the Chair. He is inviting a response.

Mr. McDowell:

I am responding to the Minister of State. I do not believe this Minister has any concept of poverty, rural or urban, and there is no determination on his part to come to grips with it.

The Taoiseach:

He did not give the old age pensioners only £1.50 like the last Government.

Mr. McDowell:

The Minister of State uses this argument as a political point but it is a real problem which we must tackle. The opportunity to do so is now available. It was not available five, 15 or 20 years ago.

I will discuss some other aspects of the Estimates. Vote 39, which refers to overseas aid, is startling. I am aware that the Estimates do not give the full story but the gross total for overseas aid is just 1 per cent higher than in 1998. Taking inflation into account, it amounts to a reduction and when one considers that a pay and pension increase of 7 per cent is also provided for in that Vote, the reduction is even greater.

It is important to put this figure in context. When the Labour Party entered Government in 1993 it agreed with Fianna Fáil to progressively increase aid until the UN target of 0.7 per cent of GNP was met. The real value of overseas aid increased every year from 1993 to 1997 both as a gross figure and as a percentage of GNP. When the current Government came into office, it stated its intention to increase aid to a medium term target of 0.45 per cent of GNP. The Minister of State, Deputy O'Donnell, was given responsibility for meeting this target.

One is entitled to ask what went wrong. Why is the figure frozen? Has the target been forgotten or abandoned? Is the Government still committed to meeting its own target or is this just another election promise which has been discarded? Were the Minister, Deputy Andrews, and the Minister of State, Deputy O'Donnell, simply distracted by other things or has the Government changed its policy?

For many years Irish people have voluntarily contributed to development in the Third World. Even when times were not good at home, we have always been aware of our moral and political obligation to assist people in the developing world. Since 1993 that moral obligation has been given tangible official expression in a progressive increase in our ODA budget. I do not doubt that this represents the firm wish of the people. We acknowledge our obligation to those who are a great deal less well off than ourselves and, as a people, we genuinely want to help them.

It was obliquely suggested that taxes on energy use would be increased, the polluter would be made to pay, cars would be banished from city centre streets and free parking spaces would be taxed as a benefit in kind. Where is the beef, Minister? The evidence suggests that the Minister, Deputy Dempsey, could not tax his way out of a plastic bag. Whatever happened to that commitment?

When I asked the Minister for Finance about green taxes a few weeks ago he treated me to a Charlie McCreevy special, if he will forgive me for thus describing it. It was one of those long, rambling answers which tell one nothing other than that the Minister would prefer if one had not asked the question in the first place. By the time the Minister finished I regretted asking the question. One thing was pretty clear, the Minister is less than enthused about the whole notion of green tax. This is hardly surprising since anyone who has taken any interest in this issue knows the officials in the Department of Finance are implacably opposed to green taxes. I do not imagine the Minister is the man to upset that apple cart.

The official Government line, as opposed to the Custom House line, is that we will consider a carbon energy tax if our European colleagues agree to do the same. As an aside, might I suggest to the Minister that relying on European tax harmonisation to stymie green taxes, while arguing against it elsewhere, is a chicken which is bound to come home to roost. The current line was agreed some years ago when we were sure the UK Government would block any possible agreement at EU level. There is a real danger that our hypocrisy will soon be laid bare. The British Government has recently received a report which concludes that a shift to green taxes would be good for the UK economy. The newly elected German Government has already announced its intention of introducing further tax on energy use.

In all seriousness the Government is running out of time on this issue and will shortly be required to make a decision. We are entitled to be told who represents the Government on this issue. Does the Minister for the Environment and Local Government represent anyone other than himself?

Mr. Howlin:

He is flying so many kites now.

Mr. McDowell:

If the Government intends to do anything about this issue it should get on with the job. If not, it should say so and quit the hypocrisy. It cannot have it both ways.

On the issue of CO 2 emissions, the Department of the Environment and Local Government has had its own way. Ireland has signed up to freezing our level of emissions at the 1990 level, plus 13 per cent before 2008. This is not just a target, it is a legally enforceable limit. The problem is that that limit has already been exceeded and without a significant policy shift, a shift in energy use, we cannot meet the target. Either we close down most of the existing power stations and convert to nuclear energy or take measures deliberately intended to slow economic growth.

The strange thing is that the Department of Finance seems to have no view and has done no work on the economic consequences of meeting our Kyoto obligations. Governments in other countries have devoted a great deal of time, money and effort to devising plans intended to meet their obligations. Only a few months ago the Government in Norway lost a vote of confidence on the issue. Yet nobody here appears to take the issue seriously, despite an ESRI report which sets out clearly the potential consequences for us in doing what we have signed up to do.

It is time for the Minister for Finance to wake up to the issue. The Kyoto obligations are not soft targets. We will be in real trouble economically in a few years' time if we do not get our act together and devise a genuine plan to meet our obligations.

The Minister announced a package of £15 million to restructure the smallholders' unemployment assistance scheme. In as much as that is all we know about it, I welcome it, but the sum involved is not great. We have got to state a simple principle clearly. The vast bulk of direct aid to farmers is going to the better off. Some threequarters of the aid is going to a quarter of the farmers. That is not acceptable. At the start of next year we will renegotiate the CAP in the context of Agenda 2000. We need a clear statement of policy that the Government will seek to redress that balance, that it will look to direct aid as income support rather than price support at people who need it rather than people who do not need it. That is a fundamental principle which should underpin the renegotiation as part of Agenda 2000. The £15 million for restructuring does not appear to be a huge sum. Given that there are no details on it we will withhold judgment until such time as we hear further.

Bhí rogha agus deis ag an Aire seo nach raibh riamh ag Aire Airgeadais sa tír seo ó bunaíodh an Stáit. Bhí fíor seans aige dul i ngléic le míbhuntáiste, le bochtannas, le easpa forbartha pé áit sa tír ina bfhuil teacht air, san Iarthar no san Oirthear, i gceartlár Bhaile Atha Cliath no i gceartlár Connemara. Bhí an seans aige feabhas thar cuimse a chur ar ár seirbhisí poiblí, ar an gcoras leighis, ar an caighdeán oideachais a chuirtear ar fáil go háirithe go páistí go bhfuil riachtanais faoi leith acu. Ach theip air an deis a thogáil. Dhiúltaigh sé leis an ndúshlan a ghlacadh. Níor mhaith liom a thabhairt le tuiscint nach bhfuil rudaí maithe le fail sa cáinfháisnéis. Tá rudaí maithe ann gan dabht agus molaim na tairiscintí sin agus molaim an tAire as ucht iad a chur i gcríoch. Ach i ndeireadh na dala níl amhras ar bith ann ná go mbeidh díoma ar a lán daoine anocht. Gealladh a lán roimh ré. Bhí na hachmhainí ann chun athraithe faoi leith a chur i gcríoch agus bheartaigh an tAire gan é a dhéanamh.

I do not want to suggest there is nothing good in this budget and that everything in it is bad. Far from it. It is perfectly fair and reasonable to judge this budget not in terms of the standards of what went before or on the standards of last year but in terms of the unique position in which the Minister found himself. We are entitled to look to what might have been and to the resources and opportunities which the Minister had and to judge him accordingly.

I wish to finish with a few personal words to the Minister, although unfortunately he is not present. He had an opportunity today, an opportunity which comes rarely in public life, which never comes to most of us. He had a chance which was denied to most of his predecessors — to make a real difference to many people — but he did not take it. Most of us in time will rue that fact and I suspect he will too.

Mr. Rabbitte:

Not even the Irish rugby team could fluff the introduction of this year's budget. Even a Finance Minister as accident prone as Deputy McCreevy could not fail to introduce a good news budget, given that the State's coffers are awash with money. For whom is it good news and has the Minister managed to undo some of the damage of last year when he flagrantly skewed the benefits of economic growth in favour of the better off and aggravated the divisions in society? The rich do spectacularly well again today. There should be no doubt, amidst all the brouhaha about the long awaited tax changes. For example, corporation tax is reduced by 4 per cent, which gives relief of the order of £132 million in a full year to the better off.

Dr. McDaid:

That is what the Deputy wanted.

Mr. Rabbitte:

The better paid are included in the tax concessions. The lower rate of corporation profits tax at 25 per cent is chargeable to a threshold of £100,000 rather than £50,000 as heretofore. There is a new raft of capital allowances permissible and the date and duration of certain of the designated schemes and some of the incentive schemes have been extended. The Minister has not reversed last year's big mistake in respect of cutting capital gains tax in half in the middle of an economic boom. He could at least have reduced it to the corporation tax level of 28 per cent. That puts a great deal of money in the pockets of a small elite.

Deputy Rabbitte without interruption.

I am entitled to comment on the budget.

Acting Chairman:

Will the Minister, the Minister of State and other Members on the Government side of the House refrain from interrupting?

Mr. Rabbitte:

I am entitled to comment on the budget as I see fit. The £3 increase to the generality of people on social welfare is indefensible. The people who are hanging their heads on the Government side are aware of that and they will find out a great deal more about it in the weeks ahead.

Mr. C. Lenihan:

Does that mean Deputy Rabbitte will be appearing on even more television shows than usual?

Mr. Rabbitte:

Mr. Rabbitte:

Given the resources at his disposal no Minister for Finance has been so fortunate in introducing a budget. The Minister had the opportunity to undo some of the damage done by his deeply flawed budget of last December. It is symbolic that the Government has repartitioned the country between rich and poor. It has divided the country into rich and poor. There is no such thing as a poor county but there are poor people in every county with a great many concentrated in large urban unemployment blackspots in counties designated as wealthy by the Government.

The Minister's first budget produced a more unequal society. He deliberately redistributed the benefits of unprecedented economic growth to the better-off and boasted about it. He said that he was only doing what Fianna Fáil and the Progressive Democrats promised to do in their election platform. As a result the gap between rich and poor has widened as the take home pay of the better-off increased significantly at a time of economic boom. The Minister slashed capital gains tax in half making the fat cats fatter. Having decided to exclude building land from this windfall in his Budget Statement he changed his mind and reversed this decision earlier this year. He blatantly exploited the housing crisis to extend this huge tax advantage to those obscenely profiteering from it. Those dependent on social welfare have fallen behind those in receipt of incomes and those on lower incomes have benefited least from last year's tax changes.

A budget framed against the background of unprecedented economic growth that does not mount an assault on poverty is a failure. By that yardstick the budget is a failure. Side by side with great affluence is deep poverty. Poverty and deprivation is mainly but by no means exclusively the experience of the long-term unemployed and welfare recipients. There are not tens but hundreds of thousands on low pay, despite our fantastic jobs performance during the past five to six years.

For many on low pay poverty is a reality exacerbated by the taxation system and the loss of protections such as a medical card. The Combat Poverty Agency has highlighted the fact that "despite the economic boom nearly one third of Irish children live in poverty — the second highest rate in the EU". We have more people homeless on our streets and more of our communities are ravaged by drug addiction. This is the face of hidden Ireland. The shakers and movers in the land of the Celtic tiger do not know much about the hidden Ireland, they rarely encounter it and some do not want to know about it.

How much of the damage done last year to the fabric of society by the Minister has been undone this year? What has he done for the huge concentrations of unemployed clustered in a limited number of urban jobless blackspots? As distinct from our returning immigrants who are most welcome, how many of the long-term unemployed can hope to land real jobs as a result of the budget? For those on lower incomes who have paid more than their fair share of tax during the years what precisely is the value of the changes to them? How does the man or woman on average industrial earnings fair?

If child poverty is as serious as the Combat Poverty Agency asserts, how much has the Minister done? In granting an increase of £1.50 in child benefit last year he reversed the process initiated by Deputies Quinn and De Rossa — Ministers for Finance and Social Welfare in the previous Government — as part of which resources were focused on child benefit. They acknowledged that poverty is concentrated among children. The Government reversed this process last year and has only made a token concession this year despite the fact that the coffers are awash with money. How much has the Minister done to tackle hospital queues and attack the housing crisis?

These are some of the questions that those listening to the debate want answered. Have they a better chance of a hospital bed as a result of the budget? By how much has their take home pay improved? Will their child be in a smaller class? Will the local school finally receive a remedial teacher? Will they finally get a real job?

Dr. McDaid:

There were 43,000 on hospital waiting lists when the Deputy was in Government.

Mr. Rabbitte:

Do they have better prospects of owning their own home? Does their family have a better chance of being allocated a local authority house? Has the Minister eased the burden on the shoulders of carers in the home and what has he done for the disabled and mentally handicapped?

Let us examine what the Minister has done against these criteria. People are getting a little weary of Minister after Minister being trotted out to tell us that we have never had it so good. According to the Taoiseach at the Árd Fheis, Fianna Fáil are "living in the future". That makes a change but I can tell him that most of my constituents are living in the present. Many of them have wearied of the Celtic tiger — a mythical beast as far as they are concerned. For many ordinary people it is a struggle to get to work in the traffic gridlock and a struggle to rear a family on their take home pay.

Access to hospital care is a slow and painful experience and individual families will lose out again on the revamp of the drugs refund scheme, details of which were dragged out of the Minister for Health and Children yesterday. This decision on the drugs refund scheme is typical of the kind of measure sneaked in but not advertised on budget day. Last year, for example, the Minister did not refer to hospital charges in his Budget Statement, yet the next day his colleague the Minister for Health and Children, Deputy Cowen, slipped it out that hospital charges were being increased. For example, the Minister raised the charges from £12 to £20 for self-referrals to accident and emergency departments and in-patient charges from £20 to £25.

The same is happening to people who are trying to rely on their own resources who do not have a medical card and for whom the drugs refunds scheme was a good idea and a significant assistance. That was tackled by the Minister yesterday. Only for the brouhaha in this House it would not have been admitted to. It is a deterioration for people. The Asthma Society of Ireland said that as a result their members will be dependent on less than quality care.

The Minister succeeded last year in attracting unprecedented criticism from right across the social partners in terms of the choices he made. The trade union movement felt especially cheated in the manner in which the Minister flagrantly skewed the tax reductions in favour of the better off. He had been put on notice this year that the cornerstone of our economic progress, social partnership, would be at risk if he failed to deliver on outstanding Partnership 2000 commitments. The employers' organisation IBEC, fully aware of the value of social partnership to their member companies, rowed in behind Congress.

There is hardly any mystery about why IBEC would want to support Congress on this. If workers are asked to accept a decade of moderate pay increases and pay restraint, by comparison to profits performance in this economy, then it is natural they will accept tax and other improvements in the social wage. Fair access to education and health care are two such elements of the social wage. The earlier implementation of the promised national minimum wage on a phased basis is the subject of an ongoing campaign by the Dublin Council of Trade Unions. In other words, the trade union movement is demanding a fairer redistribution of the benefits of economic growth.

In their pre-budget submission to the Minister, the unions asked him, in return for the continual reduction of corporation tax to bring in the national minimum wage earlier than the date promised. I understand why corporation tax is headed in that direction and how it is pivotal in terms of the jobs performance in this economy in recent years. However, in this budget there are significant gains to business for the second year running. It would not be an imposition at all if the Congress demand to bring forward the implementation of the national minimum wage was agreed to by the Minister.

I welcome the tax changes in so far as they go. It will take us some time to depart from what Deputy Noonan described as the very favourable best example cases that are listed. If the Minister is promising to go down the road of tax credits, I welcome that. The lower and middle income earners will benefit disproportionately — it is about time as they have consistently lost out in the past.

I refer to the front page headline in yesterday's Irish Independent—“Foreign Workers Sought in Job Boom”. At the same time that foreign workers are sought in a jobs boom, more than 200,000 of our people unemployed. Almost half of these are long-term unemployed and the majority are clustered in urban blackspots. If there really is a labour, as opposed to a skills, shortage then surely resources should be targeted on this stock of human capital to bring these people into the workforce. That will require the kind of investment in training and education and in the employment services that we have seen neither in this budget nor in the Book of Estimates.

The Government's Employment Action Plan supports my argument. It says:

The sheer task of gearing up our employment services, which for a variety of historical reasons have been modestly resourced, to engage systematically with the numbers involved is a major challenge. That challenge is exacerbated by the fact that these services have a moral, social and economic responsibility to seek to respond to those who are already long-term unemployed.

It is clear than those are no more than words on paper. Clearly the Government does not believe the policy plan it was obliged to produce as a result of EU intervention in the Department of Enterprise, Trade and Employment. I welcome a Government statement saying it has a moral imperative to respond to the needs of the long-term unemployed. However, this Government has not done it and as I pointed out in the debate on the Estimates, it has cut the provision for the training of the long-term unemployed by 3 per cent. That is the contribution to people for whom unemployment is a fortress without a drawbridge — people who are caught in intergenerational unemployment in unemployment blackspots and cannot find a way out, people for whom poverty is a landscape of the mind as well as financial and monetary deprivation. Yet the Government passes over it.

The National Economic and Social Council also support my argument. It says:

. the Local Employment Service, the LES, is a litmus test of the Government's Strategic Management Initiative in tailoring employment services effectively to the needs of the customer. The council would like to stress the goal set out for the LES of becoming the gateway to a full range of progression, integration and employment options for the unemployed .. and that responsibility, budgetary resources and data must be devolved to the LES.

That is the view of the NESC, which includes us all, to which there has been no response. I make no secret of my view that the LES should concentrate on the blackspots. We should be careful about the balance between the community and voluntary sector on the one hand and State delivery on the other.

The LES should offer integrated, intensive counselling and placement services delivered by professionals. The LES should require obligatory registration by all claimants in a blackspot and it should require obligatory registration of vacancies by employers. It should offer optional registration to the employed in the blackspot clusters to enable them to better themselves in the jobs market.

I accept, as Deputy McDowell said, that there is rural poverty. We all know that. However, there is nowhere in rural Ireland that I know of — and I know it as well as anybody in this House — where being unemployed equates with the phenomenon of being unemployed in a conurbation of 30,000 to 40,000 where the unemployment rate is about 60 per cent.

Éamon Ó Cuív:

I agree with the Deputy — I have said that for years. That it is why it is crazy to push people out of rural Ireland into those conurbations.

Mr. Sargent:

There was not one penny for rural resettlement.

Mr. Rabbitte:

I welcome Minister Ó Cuív's agreement and I accept his sincerity, but it is a great pity — I know he is not at the Cabinet table — that he did not persuade the Minister for Finance to take on board the obvious lessons, if that is our agreed analysis.

It is interesting to note that it is not possible, even by way of parliamentary question, to establish how many long-term unemployed benefited from the scheme introduced by Deputy Quinn as Minister for Finance and Deputy Noonan in the Rainbow Government to allow the long-term unemployed to keep their medical card for three years after they took up employment. That tells something about the permanent government, for whom I have high respect. The permanent government resisted that measure at the time. It did not want it to happen, and it has certainly been successful in ensuring that it is not promoted. It is a major concern for the long-term unemployed that they do not lose the medical card when they get back into work. That has implications for their family. Illness is a function of poverty. There is a higher instance of illness in these unemployment black spots. It is the great failure of this budget that this phenomenon of poverty is alien to the experience of the Minister for Finance. How it could be alien to the experience of his Taoiseach, who has a good deal of knowledge from the constituency which he represents of the phenomenon which I am describing, escapes me?

Mr. D. Carey:

He is never in it.

Mr. Rabbitte:

He does a great deal of travelling nowadays. I accept that. If there is an envelope to open or a book to launch, whether he is involved in it or otherwise, in any part of the country the Taoiseach will be there to do it.

I reiterate the remarks by my colleague, Deputy McDowell, about the question of child care. In the programme for Government there is a specific commitment to the introduction of tax allowances for child care. Child care is an issue which affects thousands of young parents who are juggling the responsibilities of work and family. The high cost of house mortgages demands that both parents, in many cases, have no option but to work even when the children are small. Great concern has been expressed by parents and organisations about the failure of the Government to address the issue in the last budget. We all know that it requires a multi-faceted response, that tax allowances are only part of a wider picture which includes tax relief, structural supports for disadvantaged women, as well as recognition of the role of the parent in the home. Yet, shamefully, the Minister for Finance has refused to live up to the expectations generated by his own party and the programme for Government.

The expert working group on child care has done its work in briefing the Cabinet. It made crystal clear that, as a minimum, £5 million needed to be set aside in the budget to make a start on the implementation of the strategy on child care when it is published. Other than the benefit-in-kind, the Minister has made no concession.

This budget also scores low marks for how it deals with education, and especially education at the basic level, including facilities for socially marginalised communities. At a time of bulging coffers, primary education is again told that it must wait. There is no substantial closing of the gap in funding between primary schools and the other levels, no expansion of the innovative breaking the cycle scheme to all disadvantaged schools, no prospect of a reduction in the class sizes of 36 and 38 which I hear about in my constituency. For adult and literacy education there is a Green Paper, but only small change by way of resourcing.

Why is primary education still waiting? It waited in the 1960s because resources went into the welcome initiatives taken in respect of second-level education. Primary schools waited in the 1970s because second and third-level building and enrolments grew. In the 1980s primary schools were among the victims of spending cuts. Is it not time in the late 1990s for the unprecedented level of State assets to be reflected in the largest and most basic sector of our education service, the primary schools?

Primary schools have waited too long for a closing of the gap in funding as compared with other levels; a maximum class size of 30 students; extension of schemes like Breaking the Cycle, early start and teacher counsellors to all schools designated as "disadvantaged" which, under the Rainbow Government, where implemented with some considerable success, as is acknowledged by all sides of this House now; extending access to remedial teaching to all schools; and special supports for pupils at risk of early drop-out.

Parents and teachers will not give a great Christmas report to this budget; their patience is running out. Many primary teachers confront disadvantage when many of our kids come out of primary education. Now was the time for significant investment in pre-school and primary education. Incremental improvement of a minimal kind is what we have got. It is a missed opportunity.

The problem with housing is not just one of shortage. House construction and output has grown. The problem is not just one of density either. Higher densities have applied for some years now in the centre with the biggest housing problem, that is Dublin. The problem is not really lack of serviced land, zoning or incentives. Dublin and many other towns and cities, are awash with incentives, urban renewal, designation, infrastructure, etc. Councillors are quite facilitating, so much so that the system is the focus of inquiries. Yet we are told we have a shortage.

What we really have is a panic, which is something very different. We have a panic among house buyers which was intentionally created by developers and builders. Developers and builders have undue market power and are using this power to create an inflation. The inflation is intended to enrich themselves first. Second, the purpose of the inflation is to cause a self-sustaining panic among citizens so that inflation also becomes self-sustaining. The situation is a cynical conspiracy among developers, builders and estate agents to enrich themselves at the expense of everyone else. In addition, of course they now have in power Fianna Fáil, the builder's friend.

The Bacon report is no answer to the panic and conspiracy. Higher densities, higher grants, more reliefs will not work. Demands for voluntary restraint by builders are unreal. Talk of a social market is almost incidental. We have an inflation because we have a panic, and we have a panic because builders and developers actually set out to create these conditions. To make matters worse builders, developers and estate agents, an essential leg of the three-cornered stool, also got together to create a speculation and a new landlord class in Ireland. They have already done it in this city. You are nobody now unless you own a half a dozen houses in my constituency and that has been deliberately contrived.

Fianna Fáil, the builders' friend, has overseen it all. Minister Dempsey, other than wringing his hands, does not intend to do anything about it. The true description of the housing crisis is not in the pages of the Bacon report. It is in the vaults of Dublin Castle and the proceedings of the Flood Tribunal.

The Minister's response to overseas development aid has been niggardly. Organisations like Trócaire and Concern have demonstrated that there is a moral and humanitarian obligation on Ireland to reach the UN target of 0.7 per cent of GNP as quickly as our public finances allow. We, as a country, have failed to meet the earlier stated aid target of 0.4 per cent of GNP for 1997 — 0.31 per cent was achieved. This is embarrassingly low in the context of Ireland's new found affluence. The Irish aid allocation for 1998, at 0.32 per cent of GNP, is the most marginal of increases. Given our own history as a people it would be a travesty of that history if we were to join the complacency of the "rich person's club" rather than taking a progressive role with some of Europe's smaller, more enlightened countries in using development policy to make our contribution towards tackling dire poverty in the world.

Nor is there any relief for the poverty options into which Minister O'Donnell has now thrust herself. I bear the Minister no ill will, but I must confess that I look forward to Deputy O'Malley being elevated to the ministry of ODA.

This is a crucially important day in the life of the country. It is the one day in the year when politics is clearly shown to have enormous effect and consequences for everyone. This is the one day on which political beliefs, instincts and ideology impact in a very real way on the lives of everyone living in the State. Some journalists and commentators tend to promote the idea that the budget is old hat and that it is even a non-event, a bore. It is not.

At one level the budget is a technical exercise. It is another piece of the accountancy jigsaw for the public finances. It is the revenue side of the equation with the Book of Estimates and the public capital programme representing spending decisions. This is true but it is not the full story. On budget day the Government also changes policy. The Book of Estimates is cast on the basis of no policy change. Budget day sees the policy changes on the spending side but also on the taxation side. This is what puts budget day and politics at the centre of everyday life.

The Minister announced policies today that affect the balance between rich and poor, high earners and lower earners, the low paid and the millionaires, the unemployed and the captains of industry and finance. The Minister made changes today that affect the conditions of life in urban blackspots and in the salubrious suburbs. He has instituted policies and measures that do or do not make life better for the home hunter and the homeless and affect the balance of power between such people and our new landlord class. The basis on which all of this power and influence is effected by the Minister is his political beliefs and ideology and the beliefs and ideology of his colleagues in Government.

What, in summary, can we say about the political beliefs of this Government on the basis of today's Financial Statement? Where does it stand on the issues of poverty and wealth, the lower paid versus the big earners, the unemployed and the owners of wealth, the homeless and home seekers versus the builders and new landlord class? Well, we know what the Minister has done — I detailed it earlier — for the rich people and the elite in this society. The people at the bottom, those who are marginalised, poor and struggling to exist on allowances which many of us in this House would not survive on for one weekend, are invisible. They are part of the hidden Ireland about which the Minister does not know anything and about whom the Government does not care.

Mr. Gormley:

Last year's budget was a mission statement on behalf of the Government and set the tone for this Administration. It deliberately and self-consciously set out to create an economic elite of super citizens, and it has succeeded somewhat. The number of people whose income exceeds £50,000 per annum has increased from 24,000 to almost 45,000 in recent years. The number whose income exceeds £100,000 has increased from 4,000 to almost 7,000, while the number whose income exceeds £250,000 per annum has trebled from 400 in 1994 to almost 1,100 today. The Revenue Commissions informed me that they do not have accurate figures for the number earning upwards of £0.5 million per year but it is substantial. This is marvellous news for those concerned. They are the real beneficiary of that terrible cliché, the Celtic tiger. There are, however, 60,000 people who subsist on incomes which have yet to reach levels recommended by the Commission on Social Welfare some 12 years ago.

The pre-budget hype was all about how this budget would help those people — those on the margins of society. It is an obvious attempt to correct the serious flaws of last year's effort. It tries to put a human caring face on a Government whose primary task, it would seem, is to help the better off in society. Members of the Government were clearly stung and embarrassed by the criticism heaped on them last year but it did not faze the Minister, who in his own brusque and populist manner dismissed the criticism as coming from what he called the poverty industry. This is what some psychologists refer to as projection because nobody belongs to the poverty industry more than the Minister. In fact, he is the chief executive of poverty plc. This budget shows that his policies continue to widen the gap between rich and poor creating inequalities and perpetuating poverty. It is a budget for the contented by the contented. Fianna Fáil is an expert at gauging the political climate. It knows we have a culture of contentment and that those alienated and marginalised simply do not vote, so why bother too much with them?

Above all, this is an accountants' budget. Fianna Fáil is the party of accountants. Apparently, there are more accountants than any other profession among the ranks of Fianna Fáil TDs, including the Minister for Finance and the Taoiseach. Accountants are fond of the bottom line. I notice Deputy Ardagh, another accountant, has just left the Chamber. The bottom line for the Minister is that he does not buy any of this nonsense about the redistribution of wealth. He is an unreconstructed Thatcherite, a politician who is more PD than the Progressive Democrats themselves. As I learned today, he is something of a homespun philosopher as well.

Those who expected real change in this budget will be bitterly disappointed. This budget is about business as usual — big business as usual. This is a budget which will keep the funds rolling into the coffers of Fianna Fáil from the contented and the well connected. There is no vision of an inclusive, sustainable, well educated and healthy society because like his mentor, Margaret Thatcher, the Minister does not really believe in society. He believes in markets, GDP and what were once known in this House as the fundamentals.

This budget makes a mockery of the phrases "people before politics" or "partnership with people" because it will not tackle in a meaningful way the problems which confront people in their daily lives. It merely tinkers around the edges of such problems as social exclusion, long-term unemployment, housing, the chaos in our health services, the underfunding of our primary schools, the terrible and worsening pollution and waste problems and our huge traffic problems, many of which stem from the so-called success of our economy.

The Minister accused some journalists of being somewhat liberal in their use of words like "innovative" and "radical". I do not suffer from that problem. There is no long-term vision, innovation, radical or fundamental change. This is not a budget which will improve quality of life, although it may superficially improve the standard of living for some, and this is a crucial distinction to which I will return. Budget 1999 should not be judged by the yard stick of previous budgets. It must be judged only in the context of the unprecedented opportunity the Minister enjoyed today to remedy many of society's ills. Using this criterion, he has failed.

The budget's social welfare package is presented as an adequate intervention by the Government which has recorded a £1.3 billion revenue surplus for the year just ended. When examined carefully we see that the increases, while marginally ahead of inflation, are well below wage increases and the rate of economic growth, which means social welfare recipients will remain well behind in the economic prosperity stakes. Clearly, the rates announced today define what in the eyes of this Fianna Fáil-PD coalition Government is its acceptable level of poverty. What is even more disappointing is the position of those TDs who fooled the electorate in June of last year into voting for them as independents and who now support the Government's acceptable threshold of impoverishment as defined in today's budget.

I welcome the additional expenditure for the elderly but we must ask if it is enough. These people contributed substantially over their hard working lives to the phenomenon of the Celtic tiger. Many belong to the hard pressed PAYE sector and in stringent times they had to tighten their belts and carry the burden for society. These increases do not come close to repaying them. More than one third of the Exchequer's revenue in 1998, as in many previous years, came from the PAYE sector. It is simply indefensible that such revenue, when it is plentiful, should not generously support our elderly population.

The Green Party stated that pensions should be increased to £100 per week and that the Christmas bonus should be paid at 100 per cent. This is an immediate practical step on the way to creating the universal base line of the guaranteed basic income. What about those who look after the elderly and the sick — the carers who save millions in Exchequer spending annually? Last year they got a bus pass, which showed the Minister's gratitude. This year we see slight increases. My party believes it is time to abolish the means test for the carer's allowance. That must be the bottom line, a phrase accountants are fond of using.

A fundamental change in the social welfare system and in the attitude of the 1940s, which still informs so much of the social welfare law, is required. This can only be done by prioritising the accelerated integration of the tax and social welfare systems to create a guaranteed basic income which provides full economic citizenship to all.

What is the reasoning behind the wildly varying rates of child benefit for those parents dependent on social welfare payments? Apart from being set at a low level, the range of child dependent increases is unequal. An unemployed person receives a weekly child benefit rate of £13.20, while a person on a non-contributory widow's pension or deserted wife's allowance receives £15.20 and a person on a contributory widow's pension gets £17 child benefit per week. The Green Party believes child benefit should be paid into the child's post office or credit union account once they are 16 years of age to familiarise them with prudent management of money.

Many of our citizens are denied full citizenship through economic exclusion. Their voices are not heard, their spending power is low and remedying their situation comes as an afterthought when the rich have been looked after. Their housing, educational and occupational needs are neglected with the result that they are excluded from society and given a further sense of hopelessness.

The Green Party's proposal for a guaranteed basic income would do away with means testing and restrictions and create opportunities. We welcome the move to introduce tax credits. However, this is just one reform in a line of reforms and the logical extension would be the introduction of a guaranteed basic income. A guaranteed basic income would provide every citizen with the needs to live comfortably. The ending of means testing would mean the stigma and the seemingly inevitable cycle of poverty would be broken. It would be the most equal and radical way to tackle unemployment, social exclusion and poverty. It would lead the way out of the bureaucratic tangle which involves social welfare means testing, tax exemption thresholds and employment subsidies.

The estimate of receipts and expenditure documented for the year ending 31 December 1999 shows personal income tax revenue is likely to produce £6.3 billion. That is more than one third of the total expected take of £17.6 billion. Whatever happens in the economy over the next 12 months, the PAYE sector is paying more than its fair share towards financing it, whether it is subsidies to multinationals locating here or the cost of tribunals into crooked land deals in north Dublin.

On the revenue side, income tax reforms do not benefit those whose income is too low to pay income tax in the first place. That is why the Green Party sees tax credits as just one reform in a continual process, the logical extension of which is the introduction of a guaranteed basic income scheme. This should and could be achieved in the year 2000 budget. With public finances currently in a healthy state, it is vital to introduce new reforms which will provide the basis for social equity and economic democracy in the future, including full citizenship for all as a central pillar of that economic policy.

I will address the issue of widening the tax bands and lowering the tax rates. I acknowledge that the Minister is heading in the right direction. However, the Green Party believes it is ludicrous that a single taxpayer pays the top rate of tax, PRSI and income levies on an income of less than £20,000. The equivalent tax band in the UK is £32,000. The Exchequer is too heavily dependent for its revenue on taxes levied on employment and on the creativity and ability of individuals. Taxation must be shifted progressively and determinedly off the backs of working men and women and towards non-renewables, such as carbon and phosphate taxes and green taxes in general.

While the Green Party fully recognises the need to attract suitable businesses to Ireland, we do not accept that income earned by all companies should be taxed at the present tax haven rate. Companies which set up in Ireland must respect our people, environment and practices. We would like to see the introduction of two rates of corporation tax, which would reflect the current tax rates paid on income.

We would like to see Ireland develop as a world leader in green business where companies which meet the criteria on social and environmental issues would pay the lower rate, while those which do not take social and environmental issues into account would pay the higher level of tax. We suggest a form of social auditing report which companies would have to publish every second year. This would reflect the real impact companies have on society and it would produce the type of environment we have espoused for some time.

The Government expected us to support many of its measures on green taxes. The Minister for the Environment and Local Government has spoken for a long time and made the right noises about green taxes. Green taxes are not an additional burden on the economy. They reflect a shift in the existing tax burden. Green taxes are not intended to increase taxation. Simple measures would show that when the Government talks about the environment it is not dispelling hot air but is prepared to take action.

The Green Party believes there is an urgent need to recognise that the environment needs green taxes. The yearly tinkering with fuel prices is only skimming the surface of eco taxes. Environmentally disruptive activities, such as landfills and heavily pollutant industries, should be liable to a code of green taxes, whereas ecologically beneficial and socially responsible businesses should be encouraged by a low tax regime to promote entrepreneurship The burning of fossil fuels and oils should be subject to special taxation to discourage the use of these pollutants.

Introducing green taxes on environmentally disruptive activities would give the financial incentive to use alternative sources of energy and move away from using landfill sites for waste disposal. The State should encourage the use of and research into alternative energy sources. By eliminating VAT and excise duty on renewable energy, such as hydro, biomass and wind power, more producers and consumers would jump at the chance of using green methods to produce energy.

The lip service currently paid to the traffic crisis does not come close to changing the mind-set of the car culture. As house prices rocket, the car has become the ultimate status symbol. This status symbol spends most of its time belching fumes and stuck in traffic jams with its owners demanding greater space and bigger roads. By offering financial incentives and eliminating VAT and excise duty on public transport, the Government could make a firm statement on the need to move from private to public transport.

A few green measures were outlined in today's budget which the Government, particularly the Minister for the Environment and Local Government, believes are good. Vehicle registration tax on cars is a revenue raising exercise. I do not have any qualms about it, but is it a green tax? Will it mean fewer people will drive cars? I have no doubt we will raise substantial sums of money. If we had hypothecated taxes and used them to invest directly in public transport, we could talk about green taxation.

We have to invest heavily in public transport but I see no such commitment in the budget. One of the figures often given is that we waste about £1.3 billion annually because of gridlock in Dublin. We need radical measures but I do not see such measures in the budget. Deputy Dempsey has spoken about these issues and there is a committee on green taxation. The Minister is sincere but the stumbling block appears to be the Department of Finance.

There is a need for a carbon tax. This may be introduced at the insistence of the European Commission, but we are slow to take this issue on board. We are slow introducing such measures at out peril. Deputy McDowell has shown that we face huge liabilities if we do not meet our commitments under the Kyoto agreement. The Deputy plagiarised me a little when he said that Deputy Dempsey could not tax his way out of a plastic bag. However, he is correct when he says that if we fail to meet our commitments under the Kyoto agreement, we will be forced to trade carbon credits. There are various reports from the ESRI which state that we will exceed carbon emissions by about 25 million tonnes. The penalty is $40 per tonne so one can see that we will owe between $500 million and $1 billion. This will place severe pressure on the Exchequer and we need to sort out this problem very quickly. It is not being addressed in the budget and I hope the Minister will not put this on the long finger. We must sort out this problem between 2008 and 2012.

I welcome the park and ride facilities. The monthly travel passes are also welcome but we should go further and offer these free travel passes to ordinary commuters who could offset this benefit against their taxes. This would be a better move. However, today's announcement is a move in the right direction.

I understand the Minister's difficulties concerning benefit-in-kind on car parking spaces. This is always a contentious issue. The Minister referred to the fact that his civil servants were enjoying certain privileges. One need only look at the so-called temporary car park on Leinster Lawn. I doubt if this is temporary and believe it will be permanent structure. However, this issue must be tackled. We will not solve the environmental crisis by small measures. We have to make hard decisions which will be uncomfortable for people but that is the situation.

I welcome the move on LPG but I wish it had been extended to compressed natural gas. I also hope that all such excise duties will be reduced, including those on public transport. This is the sort of encouragement which the public transport sector requires but has not received. We are moving very slightly in the right direction and it would be churlish of me not to welcome that move. However, there is also the issue of a tax on plastic bags which has not been tackled. Deputy Dempsey has to rattle the cages a little more.

Mr. D. Wallace:

I am glad the Deputy is acknowledging that the Minister is going in the right direction.

Mr. Gormley:

Of course and I am happy to do so. I am not in Opposition for the sake of it. I believe in constructive opposition and I hope my comments will be taken in that spirit.

We need leadership which will tackle these problems. We need someone with the vision to introduce this tax which must be introduced to comply with the international commitments Ireland signed up to in Kyoto. The Government said it would reduce emissions of six greenhouse gases, including CO2, CFCs and methane. We need to see action now.

A green tax regimé would make the use of alternative sources of energy much more viable and likely to make an impact on the environment. The Minister claimed that these taxes could fuel inflation. However, that is not the case. There are numerous studies, such as those by the Wupperdahl Institute and the ESRI, which indicate that such a tax would dampen the overheating of the economy. This has been referred to by Dr. Garret FitzGerald. This is a new idea of which people are afraid. Economists need to look at this issue and the fact that the overall effect of green taxation would be enormously beneficial.

We have seen what happens when farming becomes big business — animals suffer, disease is rife and confidence in the products from our land is shattered. Farmers who decide to move from mass production and chemically-dependant forms of modern farming and convert to certified organic, bio-dynamic farming should be encouraged by additional incentive tax credits over five years. Phosphates need to be taxed because of the damage they do to the environment and to our lakes and rivers. The idea of a land tax should also receive serious consideration in the interests of economic stability and sustainability.

Deputy Ó Cuív stated that the movement of people to cities was contributing to many social problems. This is an important point but there is not a single penny for rural resettlement in the budget. This means that we will get more people coming into the city; a greater housing crisis and more gridlock. Rural resettlement was one of the founding principles of Fianna Fáil but has been thrown to one side. Fianna Fáil should go back to the drawing board for next year's budget and invest in rural resettlement.

As regards housing, we need to recognise the link between income and the living environment. It comes as no surprise that pockets of poverty have the poorest surroundings. We need to create a healthy living environment for all, regardless of income or social status. The right to inhale safe air and drink fresh water should not be confined to those who have cash to buy a healthy environment.

The Green Party believes that there is a need for capital funding for housing associations providing long-lease tenure according to the European model. This would mean giving people in rented accommodation an alternative to uncontrollable private landlords who can pick and choose between prospective tenants, leaving the poorest and most vulnerable in untenable situations where rents are high and the quality of housing is low. Many people are coming on to housing lists because landlords are getting good prices for their houses and put up the rent from one day to the next. I have raised this issue with the Minister for the Environment and Local Government on many occasion but I see no commitment in the budget to deal with this massive crisis.

The issue of child care has been disgracefully ignored despite the Government's commitments prior to the election. We do not see that investment. All of these problems are interrelated because there are so many situations in which both parents must work to keep up with mortgage repayments. However, what are they to do with their children? The situation is scandalous and very little attention has been paid to this issue. The Minister of State at the Department of Tourism, Sport and Recreation, Deputy Flood, by appearing at a march in which I took part some weeks ago, indicated that this issue would be addressed in the budget. However, it has not been properly addressed.

There is an urgent need to increase the level of funding for the personal assistants scheme to make the service available to all who need it. This would go some way towards ending the isolation of disabled people who are trapped in their own homes. Personal assistants receive a paltry financial return for their hard and crucial work and are often forced to work outside health and safety regulations because the funds for aids and appliances falls far short of what is crucially needed.

Half of the country's students are in primary schools but Government funding does not reflect this. Only a quarter of spending on education goes to primary education. Class sizes affect the way children learn. We must guarantee that the pupil-teacher ratio will be kept as low as possible. When pupil numbers fall teachers should be redeployed to lower the teacher-pupil ratio even further rather than being forced into retirement. To create an environment in which children can learn well, the need of every schoolchild must be taken into account.

The Green Party is committed to an increase in teacher support services. Remedial teachers should be shared by no more than three small schools. The failure to provide safe routes to schools leads to the practice of parents driving children to school adding hundreds of cars to our roads. Lack of support for primary schools is a huge problem in my own constituency and particularly in disadvantaged areas. The Breaking the Cycle programme has not been extended and other support programmes have been ignored. At the present rate of investment it will take at least 30 years for funding for the primary sector to catch up with that for secondary schools.

The Minister for Finance had an unprecedented opportunity to deal with the problems I have outlined but he has not dealt with them adequately. The Minister gave us some homespun philosophy but he must consider concepts such as quality of life. The Government of the United Kingdom has introduced indicators which will measure quality of life. The Minister has concentrated on the standard of living and has only measured economic factors. We need to take account of what some economists now refer to as sustainability indicators and quality of life indicators to see how well we are really doing. If we examine the indicators for areas such as the environment, housing and education we may find we are not doing as well as we would like to think.

The Government may put a spin on its achievements and congratulate itself but many people are not benefiting from the country's success. This budget has not achieved as much as it might have done.

Dáil Éireann debate - Wednesday, 2 Dec 1998