By his actions in yesterday's budget, the Minister for Finance contributed to the explosion of one of the great myths created around the Government. It is now finally exposed as a high tax Government, only one that taxes under the cover of darkness. Like most of the budgets of the Minister for Finance, Deputy McCreevy, there is a hidden time bomb in this one. It will explode when working people on modest incomes realise the extent to which they have been conned about income tax. Men and women who earn the average industrial income are liable to pay tax at the top or marginal rate of 42% just as if they were millionaires or super earners.
For years the Government has paraded as the one that wants to give the people back their own money. The two political parties that put this budget together have had one mantra in common: they believe in getting Government off the backs of the people. They are, they say, committed to low tax, and enabling people to spend their own incomes. They have been speaking the truth only in one respect. Where the poor, vulnerable or isolated people are concerned, this is a Government that has abandoned them. Fianna Fáil and the Progressive Democrats believe in small government only in the areas where decent government ought to be involved.
Where taxpayers are concerned, this is a Government that speaks with a forked tongue. It is a Government that taxes by stealth and, like a thief in the night, it has succeeded in moving a significant majority of those who pay tax onto the higher tax rate. That is despite the wide range of stealth charges introduced by the Government to try to create the impression that tax rates are low. My colleague, Deputy Burton. yesterday referred to what she called the greatest stealth tax of all perpetrated by the Minister, Deputy McCreevy, when he froze the standard rate band for the second year in a row, thereby at a stroke moving 71,000 taxpayers on modest incomes into the higher rate. The effect of this decision could bear a little more examination.
There has been much publicity about the fact that a third of taxpayers now pay tax at the higher rate as a result of the budget. That third is to be set against the Government's stated objective of 20% of taxpayers paying at the top rate. This is a misleading and incomplete figure. There are approximately 1.8 million income earners in our economy. According to the Minister's figures, nearly 700,000 earn such a small income, they are tax exempt. Of the remainder who pay tax, 579,000 will now be on the standard rate, and 633,000 on the higher rate. In other words, a majority – 52% – of taxpayers will now pay tax at the higher rate. That rate of 42% will apply to the average industrial wage next year, just as it will apply to those with incomes of hundreds of thousands of euro, except that there is a cap for PRSI purposes on the lower or middle income person while there is no cap for those who earn hundreds of thousands of euro. It is important that people understand that, of those who pay tax as distinct from those who endure the serious problem of low pay and are exempt from tax on up to 90% of the minimum wage, something which shows the extent of low pay in the economy, 52% will pay tax at the top rate of 42%.
The number on the higher rate of tax has increased steadily for the past four years while the Minister for Finance, Deputy McCreevy, preached about his commitment to a low tax economy. This is the first time, however, that his actions have resulted in a greater number paying at the higher rate than at the standard rate. In effect, the Minister is moving towards the creation of a standard rate of tax of 42%. The result is that thousands on moderate family incomes will be substantially worse off next year and will pay a much higher marginal rate of tax. That is before they begin to see the increases in rents, utility bills, education charges and other stealth taxes that this perfidious Government has in store for us.
In one respect at least the Minister for Finance gave us great value for money yesterday. Perhaps for the first time ever we had two speeches wrapped into one: a speech that had nothing whatever to do with the annual budget and the budget itself. I acknowledge whoever it was who thought up the classic old-style Fianna Fáil stroke of announcing a detailed and comprehensive programme of decentralistion as an integral part of the budget speech.
It allowed a gloss to be put on an occasion that would otherwise have been very glum for the Government backbenchers. They were waiting to find out if their courage and outrage in confronting their heartless Minister for Finance and his Government colleagues over community employment was about to be rewarded. It is interesting that not one Fianna Fáil backbencher has expressed the slightest concern for any of the victims of the €58 million social welfare cuts announced by the Minister for Social and Family Affairs, Deputy Coughlan. The Taoiseach accused the Labour Party in his script of misleading the public about the €58 million in cuts. In doing so, I presume he includes the 13 organisations that have come forward with data that support the Labour position.
Fianna Fáil backbenchers and Deputy Sexton, however, found no mention of community employment in yesterday's budget, nor any other meaningful aspect of community development. They were soon distracted by the coloured pictures accompanying the decentralisation announcement. As the Minister continued with his speech, revealing a complete absence of imagination, compassion, generosity and innovation in each of his social and economic utterances, the backbenchers were able to busy themselves with press releases to their local newspapers, ignoring the budget entirely and claiming credit for the great achievement of bringing a Department or office to their constituencies.
In congratulating them, I hope it holds fine for them. The Government made many promises before the last election. I will not weary the House or depress Government backbenchers further by repeating them all here but there were supposed to be 200,000 medical cards, 2,000 gardaí, 12,000 child care places and an end to hospital waiting lists, and school after school was to be refurbished. Many of these promises, as we now know, had characteristics in common. They were detailed and specific, they were subject to timescales and they were all broken.
On this occasion at least the Government has learned something. The programme of decentralisation announced yesterday is its first local election promise but this programme has no timescale, no detailed costings and no agreement with the unions involved. There is to be a committee, chaired by Mr. Phil Flynn, that will report to a Cabinet sub-committee. Any property purchased in the new locations will have to be matched to property sold in the old locations. Negotiations will begin with staff but there will be no incentive to move and no recompense for costs incurred while moving. As Phil Flynn knows better than most, those negotiations, at least, should not take long.
The truth is that a detailed and properly worked-out programme of decentralisation, capable of being implemented on a basis of agreement, would have many benefits, not only for the regions but also for Dublin. Indeed, proper decentralisation could be an exciting prospect, especially if the Government ever considered real decentralisation of power and authority as part of the package.
It is impossible, however, to conclude anything other than that the package of decentralisation published yesterday will retain the status of a promise right up to, and through, the local elections. By now everyone in Ireland fully understands the status of a Fianna Fáil promise. It fits exactly into Sam Goldwyn's definition of a verbal contract, not being worth the paper it is written on.
If the Government reneges on its decentralisation package, as it has reneged on so much else it has promised, it will simply drive another nail into its own already well studded coffin. Yesterday it was delighted that it had been able to use the promise of decentralisation to distract attention from a bad budget. After the details of the budget are forgotten, however, towns and communities throughout the country will remember that they have been promised an injection of new jobs and opportunities through this package, and the reckoning will be great if the Government fails to deliver.
We know to date that the Government has broken other promises made for electoral purposes. We know that this decentralisation programme was announced in 1999 and at regular intervals since, especially during election year 2002. We know that next year is an election year, with local and European elections. We also know that the Civil Service has not been consulted and that civil servants are as surprised as the rest of us. The high-handed announcement for purposes of political expediency is the worst possible background against which to start negotiating with the Civil Service. The point has been made that yesterday's announcement disregards the Government's other big idea, the national spatial strategy, in favour of spreading the civil servants to mollify restive backbenchers. Everyone in this House knows that offering junior civil servants the entitlement to opt for transfer to provincial areas is one thing, but to promise the transfer of Departments lock, stock and barrel is another thing entirely. The Government will find that out. When Sir Humphrey agrees, the delay can be long, but when Sir Humphrey is aggrieved, and has not been consulted, the Government will find that its decentralisation plan, as announced, is no more than a mirage.
As to the budget itself, the minor part of yesterday's speech in terms of presentation, what are we to say about it? The Minister's speech ran to less than 6,000 words, and just about half of them dealt with specific budgetary matters. Not one important new idea, not one idealistic initiative, not one significant reform, not one generous act, not one compassionate insight featured in the budget. This is a jaded and dishonest budget, from a jaded and dishonest Government. It is a formula for drift and stagnation, wrapped up in the language of fiscal conservatism. This budget is devoid of vision for the future of our economy and our society. It is equally devoid of compassion, reason and integrity.
It is concerned only with the short-term needs of the privileged and the electoral needs of Fianna Fáil. The public purse is once again being prepared for use as Fianna Fáil's electoral war chest. Let there be no doubt the budget's key concern is not the good of the Irish economy, it is not more jobs or lower inflation and it is certainly not social progress, it is simply paving the way for another pre-election spending splurge, when the coffers will open once again and good news stories from the Government will be plentiful. Fianna Fáil Ministers will struggle to hide their smirks as, with pious faces, they tell us how they made the tough decisions in hard times, and now the good times have returned just in time for the general election.
The Government has once again reneged on its promise to people working for low wages. The minimum wage is to be increased to €7 per hour next year but a large share of that increase is to be clawed back in taxation. What was provided yesterday was the bare minimum that it could hope to get away with in the context of partnership. There was nothing on the thresholds for medical cards, with the Minister of State at the Department of Health and Children, Deputy Tim O'Malley, saying on radio last night he had never heard of them, while the other Minister of State in the Department, Deputy Callely, thinks it is a matter for the chief executives of the health boards.
That is the main story of this budget. Young people, working families and the low paid are being asked to pay more simply to fill the war chest for Fianna Fáil at the next election. There will be, however, no increase in the rate of capital gains tax so income from work will continue to be taxed at a higher rate than income from speculation. Once again, those who speculate in building land, and make vast fortunes by doing so, will remain untouched.
I refer the House to last night's debate on the tax evasion financial resolution, Financial Resolution No. 2, which outlines the latest loophole exploited by developers and builders. The tax lost to the Exchequer may never be fully quantified but, over the past five or six years, it may have approached €1 billion. The Committee of Public Accounts and its Chairman, Deputy Perry, have had an interest in this for some time. The committee will probe this with the Revenue Commissioners Accounting Officer, Mr. Daly. Quite frankly, if the evasion has been even half that figure, prosecutions ought to be initiated against the worst offenders. It is absolutely obscene that at a time when builders and developers have made profits in excess of their wildest expectations, in a period of boom, they should have resorted to the exploitation of the loophole that was closed off last night. It is an absolute disgrace. Deputy Perry deserves credit for the role he played in causing it to be brought to the attention of those responsible.
We have been subjected in this House in the debate to date on this budget, and in the debate on the Estimates, to a procession of Ministers repeating mantras from the Book of McCreevy: "You can only spend it when you have it"; "Managing the economy is a marathon, not a sprint" and "We do not believe in taking the short-termist populist route." It is like listening to a masterclass in hypocrisy.
We heard the Minister for Communications, Marine and Natural Resources, Deputy Dermot Ahern, lecture us on the need to keep spending growth in line with revenue growth. Even for him, this was breathtaking. Was this not the same Minister whose sole contribution to social welfare reform was to manipulate increases in child benefit to ensure that mothers received large lump sums only weeks before polling day? Was this not the same Government which increased spending at a rate in excess of 20% in the 18 months prior to the election? It has the neck to tell us that spending must grow in line with revenue. That is a latter day conversion. We will know that a general election is coming when that rhetoric is quietly dropped once again.
A price is being paid for all of this. The pro-cyclical policies summed up by the mantra, "You can only spend it when you have it," are bad for growth, for jobs and for inflation. Stop-start economics is a bad deal for taxpayers, as any rational planning which might improve value for money is abandoned in a cycle of crude cuts and blunt-edged vote buying.
This year we have a new commandment from the Minister for Finance. The Book of McCreevy says, "Thou shalt consolidate growth." The Minister seems to think that we have reached the end of history. All Ireland needs to do is to consolidate what has been gained. The expected resurgence in the US economy will bring all good things to those who tighten their public finances. This approach is about as intelligent as telling a child who has climbed up a tree and cannot get down to sit on a leaf and wait for autumn.
As a country, we cannot afford to assume that the model which worked well in the 1990s will simply kick back into gear once the United States picks up. That is to say nothing about the escalating euro against the dollar or today's move by Saudi Arabia to reduce oil production. The mismanagement of the economy by this Government has undermined our competitiveness too much. There are now fewer jobs in manufacturing, one of the key engines of growth in the 1990s, than when this Government came into office. The Government has failed to articulate, in any concrete terms, what its alternative model for economic development will be.
The Tánaiste and Minister for Enterprise, Trade and Employment, realising that her ministry will no longer allow her to drive around the country making job announcements and taking credit not just for her own but for other people's achievements, has tired of it and seeks to depart. Her lack of interest in dealing with difficult times will come as no surprise to those who have suffered redundancy in the last year and looked to her for a response.
Her colleague, the Minister for Finance, however, rambles on oblivious. He is unconcerned that our infrastructural deficit is now a major restraint on future non-inflationary growth in incomes and employment. He sees no difficulty in presiding over an economy which lacks the productive infrastructure commensurate with its level of development, and attaches no urgency to addressing the problem. He sees no role for himself, as Minister for Finance, to take responsibility for the future of the Irish economy, by taking responsibility for funding and managing the national development plan.
It is fair to say that multi-annual budgets are a useful innovation, which should contribute to greater efficiency, and I welcome that. We have, however, long learnt to discount the content of press releases from the Minister for Transport, Deputy Brennan. We were wise to do so on this occasion as well. The billions of euro being promised for roads have, as expected, turned out to be simply the allocation for 2004, extrapolated to 2008, with some modest indexation. An annual average growth of 5.5% in Exchequer funding for roads might just about keep up with inflation. An annual average increase in Exchequer funding for public transport of 1.5% most certainly will not. Some of the difference is to be made up with PPPs but we have been promised much from PPPs before and seen no delivery.
So too with education and the environment. Exchequer capital spending on education is to increase by 0.4% per annum and on environment by 1.8%. None of these will keep pace with inflation and the record of delivery on PPPs, even if they could produce a fair deal for the taxpayer, is pathetic. Only two years ago this Government was promising to spend 5% of GDP on capital spending. In 2004, it is €1,500 million behind on that commitment. There is no commitment in this budget to increase the spending level in real terms. Some roads will stay un-built and others will be slowed.
Public transport will continue to be a mess. Traffic in this city will continue to defy human endurance. The regions will remain undeveloped. Pity the poor civil servants who elect to move to the regions, if they have to travel to Dublin regularly on business.
It is interesting to note that we did not hear quite so much spin this time from the Minister for Health and Children. That is because Exchequer funding for health is set to increase by only 0.5% per year between now and 2008. We are left to wonder what has happened to the health strategy. What has happened to the €1,100 million or so in additional capital funding per annum for the health strategy that was promised at the last election? Where are all the extra beds to come from? How is the Hanly report to be implemented, or is the Minister for Defence acting authoritatively on behalf of the Government?
Neither the Minister for Finance, nor the Government to which he dictates financial terms, is concerned about health, education, housing or crime. They are certainly not concerned enough to formulate policies and deliver the resources that go with them. It is one thing to devise a manifesto full of promises that they have no intention of delivering. It is quite another to formulate a coherent policy to see it through.
At the last election, for example, Fianna Fáil promised an additional 2,000 gardaí. Anyone who failed to match that commitment was accused at that time of being soft on crime. Now we see that there are not 2,000 extra gardaí, nor will there be. Where is plan B? If 2,000 extra gardaí were needed but are not to be recruited, what is the Governments alternative strategy for tackling crime? How is it going to deliver better policing? How is it going to put in place a juvenile justice system which stops youngsters growing into gangsters? Where is the multi-faceted approach which stops gangland killings and does something for the children who live in those areas? The sum total of the Government's response in the criminal justice area is to cut funding for the probation and welfare service. Shaving a few pennies off a subhead is what passes for a strategic approach.
The Minister for Health and Children, on the other hand, does not lack strategies. He produces them with the same industry that the Minister for Transport produces press releases. What Deputy Martin lacks is the ability to see any of them implemented. Where is the money in this budget to tackle hospital waiting lists? Where are the resources for the treatment purchase fund and what of the promise to deliver 200,000 extra medical cards? That was a clear commitment, one that is a mystery to Minister of State at the Department of Health and Children, Deputy Tim O'Malley. It was an easy promise to make, and it would be a comparatively straightforward one to deliver.
Why is there no line in the Budget Statement which announces significant real improvements in the income thresholds for medical card qualification? The percentage of the population holding medical cards has fallen to an all-time low. The working poor will suffer as a result. Parents on modest and low incomes will face the decision as to whether they can afford to bring a sick child to the doctor. In the post-Celtic tiger era, despite all the growth and all the success, we still have parents who have to make that decision. It is shameful and wrong, and it is this Governments doing.
The last decade has seen an economic transformation of an historic scale, which has placed our economy among the richest in the world. The Minister for Finances idea of consolidating that growth is an attack on the most vulnerable in our society, in the form of the "savage 16" social welfare cuts. He may have found it amusing to take advantage of the hapless Minister for Social and Family Affairs. The victims of these cuts find it hard to share the joke. For a mere €58 million, he has cut off avenues to employment in the back-to-education allowance, made it harder for lone parents to return to the labour force, condemned young people to homelessness, and sent others to treat with moneylenders. In his Victorian zeal, he has effected a substantial policy shift away from an active welfare system which eschews poverty traps, towards a new poor law mentality of sweating the poor. The only welfare which will not be touched is the equine welfare for tax exiles.
When did the Minister last visit a school in a deprived area? There are schools in this city, only a few minutes walk from this House, where he can see real educational disadvantage if he cares to look. He will see children who live in chaotic homes and come to school with empty stomachs. He will also see the positive impact which school meals programmes have had on every aspect of school life. We know the Minister does not listen to argument, but he could try opening his eyes for once. This budget should have included provision for a new school meals programme, but it did not.