I will refer later to the anomalous situation whereby capital gains tax is 20%, share options tax is proposed to be at 20%, unearned income is taxed at 25% but people on very ordinary incomes are paying at the rate of 42%. This will have inevitable consequences. We believe also there should be a move to reduce VAT to 15%. The move in this budget to 1% is very welcome. However, e-commerce will be the way of the future and Brussels has already proposed that the VAT rate charged in e-commerce should be on the VAT of the producer country rather than on the country of last sale. Whatever country has the lowest standard tax rate will have an enormous competitive advantage. Luxembourg is currently at the minimum permissible level of 15%, which is where we should be heading.
The proposal to abolish the employer's PRSI ceiling threatens competitiveness and employment, particularly high earning employment. We will reintroduce a ceiling. We will increase the present 1% set aside for future pension needs to 1.5%, thus making provision for other future contingencies in addition to pensions. Part of our philosophy is now that we have enormous surpluses, we should set aside more to provide for the future so that when the inevitable downturn comes, we will have made contingency provisions. This would also reduce the current surpluses which are contributing to unreal expectations. This Fine Gael package will increase or maintain competitiveness, achieve a quantifiable increase in private savings at a quantifiable cost, increase public savings as a safeguard for the future and not have a savings policy at cross purposes with income tax policy.
There are many worthy and supportive proposals in the Labour Party's economic policy document. However, one proposal which is wrong and even dangerous is the suggestion that the 1% of GNP which is now being set aside annually to meet future pension needs should be reduced to 0.75%. It is dangerous because in less than 20 years there will be an additional 300,000 people entitled to old age pension in the Republic. Taking the present pension of approximately £100 per week, which is equal to more than £5,000 per annum, the additional cost of pensions alone in the not too distant future will be £1.5 billion per annum. The supplementary costs that invariably accompany old age could increase the cost by hundreds of millions of pounds. Therefore, I believe that, far from being too large, the 1% being set aside is too little. Nothing is set aside to meet other future contingencies. While so called budget surpluses are so large as to be increasing expectations and demands and this, in turn, will affect our future economic buoyancy. There is a strong case for reducing budget surpluses by means of increases in public and private savings. Fine Gael's policy is to provide not just for the rainy day, but for the nation and the individual.
I now wish to turn to the emerging labour market problems which are a serious potential threat to our prosperity. There are labour shortages at every level and in every region. These, with budget surpluses, are leading to major pay demands and other inflationary pressures. One of the fundamental pillars of our prosperity – social consensus – is threatened. In more difficult times it has been supported by the trade unions and consensus among political parties. I was Opposition spokesman on labour affairs from 1977 to 1981. Even then the trade union movement was far more prescient, patriotic and far seeing than many other interest groups, including employers. The trade union movement has played an enormous role in bringing about our prosperity and it is right that that should be recorded in this House and repeated frequently. I greatly value the contribution the movement has made and continues to make. The labour market requires a much higher priority from the Government and Opposition. The day may not be far off when the restoration of the Department of Labour may be justified in order that a Cabinet Minister can give his or her undivided attention to this serious threat.
It is a shared policy in the House to reduce the rate of corporation tax to 12.5%. It is a major contributory factor to our prosperity. The rate of capital gains tax has been reduced to 20% and the Minister's decision was more than justified by the greatly increased return. I welcome the proposal in the Bill to tax share option gains at a rate of 20%. Unearned income, such as rental income, is taxed at a rate of 25%. Given these figures, how can it be justified that 509,000 people will pay income tax at a rate of 42%? Social justice issues arise from reducing the top rate of income tax, but they will also arise if it is not reduced. This matter needs careful consideration in the next year or two.
The recent criticisms by the European Union of the Government's budgetary policy are only half right. In part, they are prompted by irritation on the part of our partners that Ireland has drawn and continues to draw down large sums from the EU budget. These draw-downs are diminishing and our capital investment will in future depend largely on our resources. The scale of what must still be achieved is massive. Although we have reached and exceeded average EU levels ofper capita income, this is only a recent phenomenon. Most of our EU partners have had our present levels of wealth for over a quarter of a century. It will take another 25 years of budget surpluses to be invested in economic, social, sporting and cultural infrastructure before we reach the stage of development achieved in most EU member states. We will need to generate significantly higher levels of GNP growth for the next 20 years, at least, compared to our richer EU partners if we are to catch up in terms of economic and social infrastructural development.
The scale of investment needed gives rise to its own problems. There is a danger of providing so much money for capital purposes that the result will be increased inflation rather than output. We need, therefore, to spend our capital funds wisely and prudently. Moreover, we need to urgently address how we can provide greatly increased capacity for infrastructural development in order that the level of investment needed can be made and increases in output achieved and on time. This is a major problem and challenge.
The most important failure of the Government is the creation of a socially just society. I became involved in politics with Fine Gael in the 1960s because of the philosophy of the just society. The gaps in equality today are wider than they were then. I encounter awful problems from the streets of this city in my clinics. A young battered wife lived with a man, a foreigner, for a few years before marrying him whereupon he badly beat her with great regularity. After covering up for a long time she left him and ended up in not one, but two woman's refuges and not one, but approximately six bed and breakfast establishments. She walked the streets from 9 a.m. until 6 p.m. with no home to go to. She has secondary cancer. It was hard to tell her about the Celtic tiger.
If this woman was an exceptional case, allowance might be made, but she is not. This week I met a mother of two children, a sub-tenant of her brother. Her 16 year old daughter has secondary melanoma and needs regular baths during the day and quiet and privacy, but cannot get it because of living in an overcrowded house. This woman has no prospect of securing housing in this wealthy, prosperous city. These are the realities over which the Government presides. It has failed dismally to achieve or even to attempt to achieve social justice.
Thousands of young children leave primary school every year with major literacy problems. I am informed that in 90% of cases they are avoidable. All that is needed to reduce the problem are proper resources for schools and home-school liaison. Each one of these children is embarking on a life of permanent disadvantage and poverty.
The Minister has reduced the top rates of capital taxes because of the problems in those areas, but they are nothing compared to the problems on the ground. I make no apologies for getting angry about the failure to address these problems and the indifference of our economic and media commentators. There is a job to be done, but it will not be done by the Government.
The lack of a coherent policy for the elderly who require long-term care, especially those who depend on the charity of neighbours and friends, is another chronic failure of the Government. It will not go away; the magnitude of the problem will increase ever year. Yet, there is no plan to ensure those who built our economic prosperity by their sacrifices are able to live out their final years in dignity, comfort and security. Headline figures about tax give-aways and rate reductions ignore these realities. It behoves us all to evaluate our economic policies in a new and deeper way.
My party is opposed to the Minister's individualisation programme. In introducing this measure he has focused on rewarding women who go out to work. The reality is that the Government is not thinking of women as citizens, it treats them as units of the labour force. Individualisation is a naked attempt to increase female participation in the labour force and to coerce women, who might otherwise opt to work at home while their children are young, into the labour force. That is not to say there should not be recognition of the costs of going to work. There are costs involved in going to work, not only child care costs, although they are very significant. What happens when the woman has to or wants to give up work or where one of the spouses loses his or her job? Not only do they lose their salary but they lose £11,000 of the tax allowance. They suffer a double whammy. That is when the chickens will come home to roost. When there is a downturn in the economy, when people start to lose their jobs or leave work to care for relatives or for whatever other reason, they suffer cruelly not just the loss of one salary, but also the loss of £11,000 of the tax allowance.
As citizens, many women choose to pursue careers while many others choose to work in the home. The reality is that many women whose preference is to work in the home have been forced to work because of the abject failure of the Government to deal with the accessibility of housing. A starter house is now outside the financial capacity of even a two income family, both on the average industrial wage or, indeed, above it. It is socially unacceptable that women are forced to work merely to meet the monthly cost of today's basic mortgage. Today's reality is that the housing crisis has become so critical that both spouses are forced to work not to meet a mortgage on a home they own, but to meet the cost of rent.
It is an insult to taxpayers to tell them how much this budget and previous budgets presented by this Minister have benefited them. Are a couple who leave their children in a crèche at 7.30 a.m., travel for over an hour to work, travel a further hour home in the evening and pick up their children at 6.30 p.m. better off? This is the new way of life for many. It is a lifestyle which requires both parents to work and which entails seeing their children for less than an hour each weekday. It is a way of life where home ownership is the aspiration of the few and the financial struggle to meet rental costs is the lot of many.
What has the Government done to address the quality of our citizens' lives? It can continue to fool itself that reducing the tax take is enough, that the cost of accommodation, the crisis of child care and the hours spent in commuting do not matter, but quality of life matters. The Government does not see this and has done nothing to help improve it.
In pure monetary terms, taxpayers are better off. In disposable income terms, taking account of housing costs alone, they are worse off under this Government. Furthermore, if they are sick, they must wait longer for treatment. If their elderly parents require care, they must struggle harder to find a way to let them live their lives with dignity. By any measure, the quality of life for many citizens has disimproved significantly, and the Government seems completely oblivious to the reality. Good government requires vision and leadership to plan for a fair future for all, but this budget has no such vision, awareness, equity or leadership.
Ireland has changed dramatically over the last decade. Our society and way of life have changed even more. Much of this has been driven by economic prosperity. We can be proud of these achievements but to pretend that all is well would be a grave mistake. Some 20 years ago we judged the budget by how much our income had increased. Ten years ago our assessment was based on how much our income tax was reduced. Today, we are still using the same yardstick to decide whether a budget is good or bad. It is convenient to do so. A standard rate of income tax of 20% sounds good. What does not sound as good is that under this Government, the percentage of taxpayers paying tax at the standard rate has increased by a mere quarter of one per cent, from 38.75% in 1997-98 to 39% in 2001-02. It is convenient to use old guidelines because they ignore new realities.
This year's budget provides a gain of about £15 per week for a single person on the average industrial wage. The new reality is that because of the Government's failure to deal with the housing crisis, that £15 will be absorbed by rent increases. While the Minister can trumpet a reduction in tax of £15 per week, the reality is that disposable income is not increased when the cost of accommodation is taken into account. The reality is that for many citizens, the benefits of this budget in real life terms are illusory.
I refer briefly to some of the items the Minister mentioned. He announced a reduction in stamp duty for investors in new homes. In so far as that goes, I welcome it because there is a major and growing problem in the rental sector. However, it must be clear to the Minister that the first, second and third Bacon reports, individually or collectively, have not resulted in an improvement in the position. It is still the case that two young people on good incomes trying to buy a starter home find it extremely difficult to do so. In this city alone, hundreds of acres of land, which has been identified by Dublin Corporation, is in the ownership of the State, and that includes health board land, Department of Defence land and CIE land. Nothing has been done to marshal Government land for housing purposes. There is land in my constituency which was to have been sold by CIE each year for the past six years. Department of Defence land at Clancy Barracks was to have been sold each year for the past six years but it is still there. There are many other such examples.
When one has lots of money it is very easy to give away lots of money, but it must be clear that the Government is getting poor results and little value for that money, whether in education, health, social services, housing or traffic. There is a better way. I hope that when the election comes, whether in three months or six months, there will be a clear alternative for the people – the current Government or, alternatively, a Government committed to social justice and to the effective running of the country.