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Dáil Éireann debate -
Wednesday, 28 May 2003

Vol. 567 No. 6

Priority Questions. - Price Inflation.

Richard Bruton

Question:

46 Mr. R. Bruton asked the Minister for Finance his estimate of the impact on inflation of indirect taxation, service charges imposed by public authorities and price increases granted to State-owned companies. [14735/03]

There has been much comment in the past few days about inflation in this country. Last week, Forfás published its consumer pricing report and the National Competitiveness Council published a statement on inflation. I welcome to the debate these contributions to reducing inflation.

The fact that in Ireland our rate of inflation is higher than that of our main trading competitors is a cause of concern to the Government. As I have said on many occasions, our inflation rate must be reduced to that of our EU partners if competitiveness, which has been so instrumental to our economic success, is to be maintained. The Government is working with the social partners to focus on the sources of inflationary pressure under the auspices of the anti-inflation initiative which forms part of Sustaining Progress. For example, I have noted that among the individual expenditure categories, Forfás estimates that inflation in the pubs and restaurants category accounted for nearly 30% of inflation.

In addition, ensuring that wage increases are limited to those set out in Sustaining Progress will also contribute to further reducing inflation. I am also of the view that keeping public expenditure to target has an important role in moderating our inflation rate and I have put in place management and control mechanisms to ensure this. It is true that indirect taxation and administered price increases have had an impact on the rate of inflation. It was estimated that the indirect tax changes announced in the budget added approximately 0.85% to the CPI. However, these increases were necessary to generate revenue to fund the cost of providing public services while keeping the direct taxation burden low.

Since the budget, there have been some price increases in services provided by public agencies. However, not all of these increases require Government approval. For example, electricity increases are sanctioned by an independent regulator and are not subject to Government control. It is important to stress at this point that inflation is falling. According to the most recent CSO data, inflation fell to 4.3% by end-April, representing the greatest fall in the annual rate since early 2001. Services sector inflation is also moderating. The challenge now is to ensure that we reduce inflation as quickly as we can and the Government is committed to this objective.

Does the Taoiseach – I am sorry, I am being premature—

By a few decades.

Does the Minister dispute the CSO figures – 2.2% of the 4.3% – that indicate that more than half, close to 60%, of inflation comes from Government indirect taxes and charges? Does he agree that that Government contribution this year is five to six times what comparable Governments in the EU are adding to inflation? Does he further accept that if one took the Government contribution out of the equation this year, inflation here would be in line with the EU average and we would not have competitiveness problems?

Does the Minister accept that there is something fundamentally wrong when the services for which he is responsible are seeking price increases of 15% and upwards at a time when private manufacturing industry is having to take 7% cuts in their prices? Does he agree that this poses huge challenges to him and his Ministers in managing their services to deliver value for money? Will he say, specifically, what he, within his Department, plans to do as part of this much-vaunted anti-inflation strategy? What are the Minister's specific proposals within his area of responsibility?

The anti-inflation initiative is part of the new national agreement, Sustaining Progress, drawn up by the Government and the social partners. They have met on a number of occasions and are reviewing all areas.

It is true to say that indirect tax increases would contribute somewhat to the rate of inflation. This was estimated at budget time to be in the region of 0.85% in respect of the CPI. It is also true that at budget time other areas are competing for increased expenditure and that the Government has to decide on a variety of expenditure measures and some taxation changes. There have been some increases in the areas to which the Deputy refers, but the VAT and excise increases announced on budget day put them at 0.85%.

What is unusual about the 0.85% figure is that 0.65% of it relates to indirect tax increases on cigarettes and alcohol. I was lobbied by Deputies on all sides of the House to considerably increase the price of alcohol and cigarettes, but I did not hear anyone take it into account during the wage talks. People advocate increases in indirect taxes but do not take them into account when they affect inflation rates. Had I done what Deputies asked, budget day increases would have contributed to considerably in excess of 0.85%.

We must address certain areas of competition. Deputy Bruton referred to our position vis-à-vis that of our partners. We have a higher growth than our partners and have lower unemployment rates than those of our competitor partners.

I hope I will be permitted to ask a supplementary question. What we are hearing has nothing to do with inflation.

The Deputy will get a chance to do so. Our unemployment levels are lower than the EU average of 10%. Things could go the other way and we could have greater unemployment but I do not think anybody would welcome that.

Will the Minister accept that he is raising a red herring in relation to tobacco and alcohol. If he had wanted to increase tobacco and alcohol prices, he could have reduced the VAT rates instead of increasing them twice in the past 12 months resulting in every household in the country having to pay more just to get by. This is filtering through to every business trying to survive. The reality is that the Minister is adding to inflation five times more than other EU Ministers for Finance. He is then demanding that we move to the EU average. It is the Minister for Finance who has it within his power to do so, yet he has not come forward with a single proposal to address the specific question I raised.

The Deputy will remember that a couple of budgets ago I reduced the top rate of VAT from 21% to 20%, with the proviso that I would like to see this passed on to the consumer. All the evidence suggested that nearly none of it was passed on by the retailer to the consumer and in the following budget I properly put it back up to 21%.

An Leas-Cheann Comhairle

We must move on to the next question, Question No. 47.

We may expect more of the same. That subtext is there will be more of the same.

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