This is the budget of a Government applying yesterday's ideas to today's problems. The ideas suitable to a society with high unemployment and unused capacity are being applied to a society where there is overheating, widening social inequality, overcrowded infrastructure and a deteriorating quality of life. The budget fails to recognise or tackle the following nine emerging problems: first, the abject failure of vast increases in Government spending to deliver anything but worsening services in infrastructure, public transport, child care, health services and housing; second, the escalation in the level of personal debt of households caused in part by the Government's failure to allow the supply of new housing at a reasonable cost; third, the resultant bubble in house prices which is imprisoning families in an unsustainable lifestyle and fuelling escalating wage claims; fourth, the overheating of the job market, which is creating conditions for a stop-go employment scenario, is drawing young people prematurely out of education and will require immigration levels which may prove infrastructurally and even socially unsustainable; fifth, the individualisation of family life with unknowable long-term economic and social consequences for the next generation; sixth, the high dependence of Ireland on the information technology sector at a time when that sector is beginning to face structural difficulties; seventh, the risk to the Irish economy of its heavy reliance on an overborrowed United States economy; eighth, the exposure to job losses in Ireland following a sudden rise in the euro – which I believe will occur – relative to the US dollar; and finally, the potentially enormous cost of the BSE crisis for a country whose huge beef industry has a unique dependence on exports. None of those nine problems is tackled in this budget.
What should the Government have done in the budget? First, it should have radically overhauled our totally inappropriate planning, compulsory purchase and public tendering procedures which delay infrastructural projects irresponsibly and unnecessarily. Radical reform here could have increased housing supply, improved public transport, and dramatically relieved traffic congestion without the expenditure of any additional money by using the money quickly and more effectively.
Second, the budget should have taken radical action to encourage savings by recognising that interest income should be subject to income tax only if it is real income, in other words, if the interest rate exceeds the rate of inflation. It should have also negotiated that some of the pay increase people have earned should be paid in the form of savings bonds rather than cash. Third, it should have built shock absorbers into our economy by introducing profit and revenue sharing into private and public wages to ensure the maintenance costs structure adjusts smoothly in the event of a temporary economic downturn. Fourth, the budget should have relieved the housing burden on the present generation of young people by promoting two generation or 60 year mortgages. If necessary, the Government should have offered such mortgages. Fifth, it should have stated and worked out how and where, as a result of the immigration levels its policies will generate, additional immigrants are to be housed. Sixth, the budget should have increased student maintenance grants substantially so that students are not lured out of education prematurely by superficially attractive offers of potentially dead end jobs simply to enable them to pay, as they must, exorbitant rents for accommodation. Seven, the budget should have made a substantial contingency provision for BSE costs. Finally, it should have stated that it would make a better qualify of life for this generation and the next its overall goal rather than job creation alone. In that context, it should have stated that it will no longer discriminate, as it does, against families where one member takes time off work to do unpaid work in the home looking after children.
The Government system is not working. All the services it provides – roads, buses, hospitals, everything from the registration of births to the issuing of death certificates – are clogged by delays. If it is run by the Government it is late or delayed. Is it any wonder it cannot provide new services such as child care when the ones it provides are under-performing so badly? In two years' time when people look back at this budget they will say its biggest single mistake was the failure to take any radical action to encourage people to save and that, by failing to do so, the Minister inflated the bubble and built up major economic difficulties.
The problem today is not Government borrowing but private borrowing by individuals and households. For many it is necessitated by the exorbitant cost of setting up home. That is as a result of Government policy failure in planning, water and sewerage, and housing supply. With household income rising so fast, one would have expected household debt to be paid off and the debt ratio to fall, yet debt relative to income is rising fast. People borrowed over £21 billion in the 12 months to June this year. As gross domestic product will be £81 billion, over a quarter of GDP is now represented by borrowing by individuals and households. For the past four years, personal credit has been growing at 20% a year. The Central Bank stated credit grew by 34% in the year to October. Car loans in January this year were up 56% on the year before. Why is that? With inflation running at 7% and deposit interest rates at little over 3%, savers are losing at least 3% per year on deposits. Why should anyone save in those circumstances? With the financial figures it makes apparent sense to borrow and not to save. Look at the results. In 1990, debt was 42% of average household income. In 1997, it was 55%. Now debt is 65% of household income.
In the few years since Deputies Ahern, Harney and McCreevy took over, people's borrowing has increased much faster than their incomes. It could be said that those borrowing money to invest in houses and the stock market are saving in another form. However, as the advertisements state, prices can go up as well as down and that is true for houses. Who can forget the Eircom share debacle when the Government and Deputy O'Rourke so enthusiastically encouraged a speculative borrowing binge? This personal borrowing and the boom in spending it is financing is inflating demand in the economy and driving up the price of all services – child care, houses, health care, nursing homes, eating out, drink – and the extra borrowing is putting more cars on the roads. Because there is insufficient road space this is causing traffic jams.
By draining employees from the public sector into private employment, this demand is also creating waiting lists, planning delays and queues for every form of public service. All this competitive private borrowing is putting a squeeze on people's quality of life. People have wide consumer choices but no lifestyle choice. They must work to pay their mortgage and service their debts. They must get up early in the morning and drive long distances to work. They must leave family life to the weekends only. Despite all this effort, they are in a very vulnerable position if interest rates rise or asset prices go down. To a great extent, this problem is caused by escalating house prices. They are responsible for the teachers' strike. They are driving wage claims by young people, young teachers, gardaí and civil servants, who cannot afford a house, not even the kind of house their parents could afford in harder times when they were young teachers, gardaí and civil servants. In terms of ability to put a roof over their heads, young people today are worse off than their parents. That is why they are willing to go on strike. House prices are now rising at 17% when they are already beyond the reach of many middle income couples and when prices generally are rising at 7%. The only way to reduce house prices is to increase supply. Three expert reports have been commissioned by the Government but measures to increase the supply of serviced land for housing remain a virtual dead letter.
Stamp duty continues to penalise the release on to the market of under-used housing in older suburbs. Couples are contracting mortgages that are completely unsustainable if either interest rises further or current growth in income stops. The International Monetary Fund stated earlier this year that while several euro area countries and US regions have sustained property booms in the 1990s without price collapse no property boom has been on a par with Ireland's. In fact, no industrial country in the past 20 years has experienced price increases on the scale of Ireland without suffering a subsequent fall. Mark those words. That report was addressed personally to Deputy McCreevy who paid no attention to it. There is no evidence of it in last week's budget.
Meanwhile young couples are on a treadmill because national and local government procedures cannot increase the supply of houses fast enough to match the demand the Government's policies are stoking. Soaring house prices now mean that both parents have no option but to work outside the home. They had such an option in the past but not any more. Economic freedom for women is being replaced by the tyranny of the mortgage. Both parents must work – neither parent can get sick, neither parent can lose his or her job, they cannot spilt up and neither parent can take a few years off to look after the children because the mortgage will not allow them to do so. Young people get sick, people lose their jobs, couples split and children need time – time which parents do not have any more. Time has been squeezed out of their lives by the tyranny of traffic, the pressure of the mortgage and the tax penalties of individualisation so unnecessarily introduced in the last budget and aggravated in this one. What sort of economic independence is that for women or men? It is economic tyranny, not economic independence.
Traffic problems mean that both parents leave home earlier and get home later. When the time budget is squeezed, children lose out. The quality of life of children is not improving today. Stress in the lives of children today can be traced back to the spiralling cost of houses and all the constraints that imposes. The cost of houses has meant that increasing the number of people in paid work has been enthroned as the sole national economic and social objective.
The National Economic and Social Forum admitted rather weakly I felt in a report published the day before that budget that "It is now widely acknowledged that job creation per se is no longer the appropriate overriding objective of national policy. However, it is not clear what strategic objective, if any, should replace it.” That last sentence is an admission of policy making failure. The forum should have come up with a new objective of national economic and social policy if it thinks the existing one is “no longer appropriate”.
The truth is that thinking cannot keep up with reality in Ireland today. The pace of change is such that we are suffering future shock – future shock that has affected our ability to think things through fully.
The stimulation of the economy is creating paid jobs that simply cannot be filled. The proportion of unfilled jobs and jobs not capable of being filled has more than trebled from 2% to 6.5% in three years. The National Competitiveness Council says that "pervasive skill and labour shortages are increasing the risk of overheating and of a much sharper than necessary economic slowdown". It is these stimulated labour shortages that are slowing down infrastructural developments, driving up house prices and creating queues in hospitals, queues for child care and queues to get on a bus.
The ESRI had estimated prior to the budget that the economy was going to grow by 5.1% per year in the period 2000-05 and that employment was going to grow by 2.1% as a result. That was manageable. Five years from now on that prediction, 176,000 more people would be working here than now. However, by putting his foot on the accelerator, the Minister for Finance is now seeking to increase labour shortages. For every 1% that is now added to growth, 92,000 more jobs will be created here and will have to be filled. From where will the people come?
How many more married women or retired people are there who can be conscripted into the work force. Not many I suggest, given the increased hassle involved in getting to and from work unless, of course, individualisation of allowances and other bands and other tax penalties are so intensified that it becomes financially impossible not to go out to work if one is over 15 years of age or under 85 years of age. That may be where Government policy will eventually lead.
Will immigration solve the labour shortage? The Government has already estimated that gross immigration to Ireland will have to be 336,000 people between now and 2006 – 336,000 more immigrants between now and 2006 on the basis of a 5.1% growth rate. The Minister for Finance in this year's budget is now going for an 11% growth rate – twice that. That growth would, if sustained, require far higher levels of immi gration. Where will all the immigrants be housed if we cannot even house our own people?
If we were to add say 2% to the projected 5.1% growth rate by stimulatory economic policies of the kind lauded by the Taoiseach in his speech and practised in this budget, that would add 184,000 to the number of jobs, all of which would have to be filled by immigrants. That would bring gross additional immigration to Ireland by 2006 to more than 0.5 million instead of the 336,000 derived from pre-budget estimates.
One has to question our country's ability to absorb that level of immigration without social and political tensions. This is not an easy issue to raise and one is liable to be misconstrued. Ireland should have more immigration. Immigration enriches the country culturally as well as economically but I believe societies are like people – they can absorb change but they cannot absorb shocks.
We must allow immigration to grow naturally rather than be driven forward by economic forces artificially stimulated by Government that are so rapid and so vigorous that they make cultural acclimatisation impossible. A country or a locality with a strong social fabric welcomes new arrivals. A country or a locality with a weak social fabric does not. A country or a locality will accept radical change without reaction so long as the change is gradual and people see the benefits coming from it.
I do not believe everybody in Ireland today sees the benefit of immigration equally clearly or as clearly as I see it. Better off people can see the benefit, they can see the possibility through immigration of buying labour services more readily. Less well off people see fewer benefits for themselves from immigration. As the income gap is deliberately widened between rich and poor so too is the gap in perceptions of immigration between two sections of the people.
Unless the housing shortage affecting lower income groups is solved very quickly, I can see major problems arising from the competition between native born and immigrant for scarce accommodation. That would be bad for social cohesion in Ireland. It will undermine the social fabric of our country. Unless we solve the housing crisis, present economic policies are completely unsustainable.
Labour shortages also mean that young people are losing out educationally. Third year students are being recruited out of universities without completing their degrees by greedy employers. Rents are now so high that paid work is dominating over studies in many of our colleges. Second level students are taking up full time jobs rather than completing their leaving certificate. These young people might ultimately prove to be the most deceived victims of the Ahern-McCreevy boom.
Strengthening the social fabric of Ireland, creating a sense of community and improving the quality of the lives of this and future generations should be the overriding objective of national policy. It is from that standpoint that I criticise the income tax provisions of the budget, particularly the further steps towards individualisation of income tax.
The Fianna Fáil-Progressive Democrats Government clearly believes that the individual, not the family, should be the unit of taxation. I disagree. For tax purposes, children do not exist. The only people recognised now by the tax code are adults and if present individualisation trends continue, soon the only adults recognised by the tax code will be adults in paid employment. Individualisation can, in some senses, be seen as the logical follow up to the abolition of child tax allowances and the freezing of dependant relatives allowance at a mere £220 per year. The dependant relative allowance under the tax code is worth 85p per week to somebody who supports a dependent relative. Let us analyse where this individualisation tax policy is leading.
If, as the Minister for Finance claims, it is right to say that a married couple should not be free to transfer their standard rate band between them, then surely it would also be right in principle to prevent them transferring their personal allowances. There is no logical distinction. That is where individualisation leads. That is what it means. This is wrong and the family, not the individual, should be the preferred unit of taxation. There should be horizontal equity between families at the same income level. I say this because I believe unpaid work within families is not negligible and it should not be discouraged by progressively individualising the tax code as was done last year and this year.
The Irish economy is being Americanised. Whatever happened in America yesterday will happen in Ireland tomorrow, only at a faster pace because the Irish economy is growing much faster than the American economy grew in the past 30 years. The Council of Economic Advisers of President Clinton has recently analysed the impact on families of changes in the structure of the American economy. Last year it published Families in the Labour Market 1969-1999 analysing the time crunch. This year it published Teenagers and their Parents in the 21st Century – an examination of the trends in teenage behaviour and the role of parental involvement. These two reports give some insight into the negative social impact of the sort of trends this budget is seeking to encourage. It also gives an insight into the value of unpaid work within families for which this Government has such little regard. If figures were collected in Ireland, they would tell the same story as President Clinton's two reports do about America, only it would be a story at a much faster pace, because we are fast-forwarding trends that took them 30 years to develop.
From 1969 to 1996 American families saw a 22 hours per week cut in the time available for parents at home with their children. This time crunch fell most heavily on women who have had their time budget severely reduced. Work and commuting time have expanded and they have been forced either to cut back on free time for them selves or on time with their children. The potential consequence of the loss of these 22 hours per week for parental time was analysed in the second of President Clinton's reports. That study measured parental involvement with teenagers on two basics – subjective, where the teenagers said they felt close to their parents and, objective, where the teenagers ate a meal with either parent more than five times a week. The statistical record comparing those who did and those who did not show more or less the same trend for both. They showed that teenagers who had more time with their parents and who were close to them were: three times less likely to have suicidal thoughts and half as likely to attempt suicide; half as likely to use marijuana between the ages of 15 and 16; half as likely to engage in under age drinking; and significantly less likely to be involved in violent incidents or to smoke cigarettes.
I believe every one of those findings would be true of Ireland today. These findings demonstrate that it is wrong for the Government to pursue policies which penalise parents who reduce the time they spend at home with their families in order to work longer hours to contribute to the GDP or to pay a mortgage forced upon them by the Government's mismanagement of the housing market. The Taoiseach should reflect on the importance of the figures I have quoted because there is a tendency in the Department of Finance and everywhere to say that things you cannot count do not count. If there are not any figures on the importance of parental time spent at home it does not exist, it has no importance because you cannot count it. President Clinton's economic advisers have put figures on that and I have put those figures on the record. I hope people will pay some attention before they proceed with the destructive policy of individualising the tax code in a way that will drive children away from their parents and drive parents out of the home.
Parents in Ireland today are being forced to choose between time for children and time for themselves. That is not fair. The Irish housing market also forces them to live further away from their own parents and also from their extended families. They have no supports. They have less time for unpaid work with voluntary organisations. Their lives are being individualised just as their taxes are and they are losing out. They are in an even more vulnerable position if they lose their jobs, as the workers in Mororola did on budget day. Ireland has put a great number of its eggs in the information technology basket. Motorola is not the only story.
A week before the budget, Gateway Computers shocked investors when it said that revenues during the fourth quarter, traditionally the busiest of the year, would be flat compared with 1999. The group's shares immediately fell by 35% dragging down the shares of IBM, Compaq and Dell. The price of memory chips has fallen by half in the past three months. Intel has recently warned that fourth quarter sales will miss the forecast because of large cancellations by customers worldwide. Other personal computer manufacturers such as Dell, Apple and Gateway have also warned of slowing growth in sales. The problem is that computers are getting faster and faster but the basic broadband telecommunications network is not keeping pace. Most Americans who want a computer already have one. They will not buy an upgrade because they cannot use them given that the phone lines are not up to it.
To the extent that people in Ireland today are taking out personal loans on the basis of the perceived strength of the IT sector they are leaning on a weakening reed. There are other worries on the horizon. Some 18% of Irish exports go to the United States, soon they will overtake our exports to the UK. Given that the American economy is grossly over borrowed and depends on the savings of the entire world to sustain its stock market what happens if the other parts of the world start to do better and the people want their money back? Where will Irish exports to the US go? We have been told in the past that we were over dependent on the British market, we are now over dependent on the American market. We were told in the past we were over dependent on agriculture, we are now over dependent on IT but the Government does not see that.
