Financial Resolutions 2003. - Financial Resolution No. 5: General (Resumed). – Dáil Éireann (29th Dáil) – Thursday, 4 Dec 2003

Financial Resolutions 2003. - Financial Resolution No. 5: General (Resumed).

Debate resumed on the following motion:

THAT it is expedient to amend the law relating to inland revenue (including value-added tax and excise) and to make further provision in connection with finance.

(Minister for Agriculture and Food)

The Taoiseach

This is a budget for a strongly growing Irish economy. With our massive decentralisation programme, the Government will ensure that growth is properly distributed around the country.

The benefits of the budget changes are concentrated on people and families in the lower income groups, whether at work or in receipt of welfare payments and pensions from the State. This is without argument a socially progressive budget and exposes once again the hollow ideological myth that this is a right-wing Government which cares only for the better-off.

There is strong evidence of a pick-up in the international economy, especially in the United States, which now exercises a significant influence on our economic fortunes. This recovery is taking place against the background of historically low interest rates.

We have come through the international downturn of the past three years in remarkably good shape. Employment here has continued to grow, even if much more slowly. It is estimated that there will be an additional net 17,000 jobs this year, which should increase by 23,000 more in 2004. Unemployment hovers around a quite remarkable 4.5% to 5%; inflation is expected to average no more than 2.5% in 2004, and should fall below 2% for part of it. We are well in line with the rest of Europe. The indirect tax increases in the budget add minimally to inflation, 0.4% next year, or less than half the previous budget; and our public finances are the envy of Europe. We have the second lowest general Government debt/GDP ratio apart from Luxembourg, and borrowing will not exceed 1.1 % of GDP in 2004, or about one third of the permissible Growth and Stability Pact ceiling. The Exchequer returns for end-November were better than expected, and it now appears that the general Government balance this year will come in at around €600 million, which is nearly €300 million less than forecast. While there are always swings and roundabouts in terms of revenue receipts under different headings, tax receipts overall this year will come in some €100 million ahead of budget. This reflects a fair degree of resilience in the Irish economy, but also the particular success of some of the Minister's provisions last year, especially regarding capital gains tax.

The truest line in the Minister for Finance's speech is the one which states: "Borrowing is the real stealth tax". Those who propose a much higher level of borrowing can have no long-term commitment to maintaining the low tax rates we have achieved in this country. They are the key to full employment and competitiveness. It would not be in our national interest to press up against the Growth and Stability Pact ceiling of 3% GDP or to breach it. As a small country, it is not in our interest to have any doubts hanging over the soundness of our economic management. We would still be interested in altering the treatment of the more costly long-term public private partnership projects, which at present are compressed by the European statistics office into a single year's expenditure for general Government borrowing purposes. That is one aspect at present that is a significant constraint. EUROSTAT rules could also be much clearer but that is being worked upon.

Up to 1987, a third of all tax revenue went in debt servicing. Is it any wonder that tax rates then were crippling, with very little money available to improve services or infrastructure or relieve poverty? In 2004, little more than 7% of tax revenue and 7% of net current expenditure will be required to service our debt. That is a dramatic sea-change.

In 1997, the annual cost of debt servicing peaked in absolute money terms at €3.5 billion. Next year, it will be €2.4 billion. Our financial indebtedness, which six years ago was still above the EU average under the rainbow coalition, has improved significantly since, with the general Government debt halved as a percentage of GDP.

What all this means is that we can look forward to entering a period of resumed economic growth, carrying no additional baggage in terms of debt to hamper our progress. Even with the scaling down of EU receipts and a tighter budgetary situation, we are still able to sustain the dramatically increased level of current expenditure on services and of capital spending on infrastructure we achieved during the Celtic tiger years. In the past, more difficult economic circumstances would have brought about sharp retrenchment with a negative impact across the board. What is remarkable about the past two years is how small the adjustments have been compared to previously.

Budget 2004 is a budget of hope but it is also based on economic reality, and it reflects some basic facts. First, Ireland is part of a monetary union where monetary policy is focused on ensuring low inflation and where exchange rates are effectively outside of our domestic control; second, international competition is exerting downward pressures on goods prices and is likely to continue to do so; third, we are one of the most open economies in the world; and, fourth, international competition for jobs and investment is becoming more intense all the time.

Everybody today accepts the vital importance of bringing our infrastructure up to the best European standards. What this requires is not a short extra spurt followed by a hard slamming on of the brakes, as happened in the past, but a consistent high level of expenditure that ensures we get the best value for money. It is a crucial difference between Ireland and Europe's longer developed economies that we have to spend a substantially higher proportion of our national wealth on infrastructure. The Government has committed itself to capital investment of €33.6 billion over the next five years, of which a conservative €2.4 billion will come from PPPs. The 10% leeway, which Departments can carry over, means that the exact timing of payments will not act as a distraction. It is steady, consistent investment that will gradually enable us to overcome step by step our infrastructure deficit. While we may be conscious of how much there is to be done, our neighbours in Northern Ireland are impressed at how much we are now able to do. Once again this situation is different from that of the past.

It is in the nature of capital investment that there is some time lag before we see the full benefits and considerable interim disruption often occurs. The motorway from Dublin to Dundalk is complete and is a major boost for the Dublin-Belfast corridor, which also has an excellent train service. Next week, the Kildare bypass will open and the week after that, a significant increase in public transport capacity will be reflected in the new train timetable. Within two years, the Dublin Port tunnel and the Dublin motorway ring road will be completed.

I remind those commentators and public representatives who are constantly on the ideological warpath against the Government that a high level of public expenditure on investment is the hallmark of an enlightened and progressive Government. It was certainly never a defining characteristic of right-wing Governments, outside of defence. Exchequer capital expenditure next year will be nearly three times that of 1997. The two Fianna Fáil-Progressive Democrats Governments have given priority to the radical improvements we so clearly require.

Schools are as much a vital part of our infrastructure as roads. The Book of Estimates increased expenditure on substandard national school buildings, of which there are many, by €23 million to €190 million. I am glad we have been able to allocate a further €30 million in the budget to both the primary and secondary sector, making available an additional €55 million altogether next year compared to 2003. Our children deserve nothing less.

Our critics inside and outside the House divide into two camps, those in the Fine Gael Party who claim we are, and have been, spending too much and the Labour Party and most of the Independents who argue we have been spending too little.

The gradual slowdown in the public spending profile has had remarkably beneficial effects. A sharp downturn in the economy began in the second quarter of 2001. The rate of public expenditure increase in 2001 and 2002, including the substantial increase in public service numbers, exerted a counter-cyclical effect, as noted by the IMF and OECD in their reports earlier this year, and helped ensure a soft landing. Equally, in their view, the reins were tightened at the right time this year. The bottom line is that as we approach a likely upturn after three years of downturn, we are in a surprisingly strong economic and fiscal position. This should not be a matter of criticism but of praise, which is the case.

I have been conscious of what the IMF has had to say about Ireland for many decades, and I will cite again what it said last August: "Directors commended the Irish authorities for their exemplary track record of sound economic policies, which have resulted in a dynamic, open and robust economy – with growth noticeably above the EU average over the past decade – and resilience to external shocks." One cannot get much higher praise than this from a notoriously tough-minded international body such as the IMF, which is well known for taking no prisoners. Its words carry more weight with me than all the criticisms of Opposition finance spokespersons.

The Estimates provide for the payment of benchmarking, which will cost €305 million this year. The principle of the exercise has been praised by the OECD, which has stated we should do more of it. In 2002 it delivered the best year of industrial peace for many decades and freed us at last from the bane of relativities. The verification bodies are active. I cannot take seriously the notion that the Fine Gael Party would repudiate its obligations if it were in government, or that it would ever be allowed to do so by the Labour Party. I remember when Deputy John Bruton opposed the Programme for Competitiveness and Work in 1994, but quickly jumped to attention once he became Taoiseach. No one should be under the slightest illusion that this would happen again under any other Fine Gael Party leader.

Mr. Kenny

How does the Taoiseach know that?

The Taoiseach

Social partnership has served this country well for 16 years. It is a unique and crucial part of our recent economic and social development, which has helped provide stability as well as a consistent and coherent policy framework. It allows us to work together to solve problems. I believe in and remain committed to social partnership and this budget will help to underpin its continuing success.

Together with benchmarking and the tax provisions of the budget, low inflation of 2.5% this year will provide the backdrop to the second half of the public service pay agreement, which remains to be negotiated as part of the current partnership programme. The need to remain competitive is a widely acknowledged concern given current circumstances and there is a perception of some slippage, which will need to be corrected if it is not to have serious consequences.

It is wise and prudent to address the pension arrangements for new entrants to the public service long before the issue becomes acute. Many of the difficulties facing some of the major continental economies today are because they have put off the evil day and allowed the problem to become worse and worse. The prospect of more flexible retirement conditions will, I am sure, be a welcome prospect to today's entrants into the public service, but may also be vital if more generous social provisions for retirement are to be sustainable in the long run.

A major plank of the budget, which also directly affects the public service, is decentralisation to 53 towns and cities. Decentralisation is, or should be, welcomed throughout Ireland as it will relieve some of the significant pressure on Dublin and spread wealth to other parts of the country. Decentralisation is not only directed to hubs and gateways, but also to substantial towns in the hinterland which have attractive but under-utilised amenities and, in most cases, good infrastructure and access. Many of these towns will greatly benefit from the tremendous fillip decentralisation will give them.

There is no town without councillors from many parties and none, and in nearly every case the campaign for decentralisation has been a combined community effort with all-party support. Nevertheless, as Government parties, we are fulfilling with great satisfaction a major and long-standing promise. This will be an ongoing policy with regard to the location of future Government offices or services and we have by no means exhausted all the possibilities. Even in the current round, not all of the locations have yet been decided on. In general principle, new agencies will be directed outside Dublin.

This policy is based on solid experience. Earlier rounds of decentralisation, including 4,000 jobs decentralised when I was Minister for Finance in the early 1990s, were a great success. This initiative is a more fundamental shift. Modern communications make it unnecessary to have all Departments working in Dublin. The move will be voluntary and career possibilities for those who move out of Dublin will be just as good as for those who stay. In many cases, they will also enjoy a better quality of life.

Savings as well as costs are involved from the point of view of Government. The success of the programme will require the co-operation of the public service and its union representatives. We look forward to progressive implementation supervised by an implementation committee reporting to a Cabinet sub-committee.

Arguments are often made that we have a low rate of public expenditure relative to GNP by European standards and that this is the reason our public services are deficient in many respects. On the contrary, the manner in which we have managed our economy has maximised the amount we have available to spend, which has increased considerably in virtually every sector. At the Kenmare economic workshop this autumn it was convincingly demonstrated that when all relevant aspects were taken into account, our level of public spending is fully in line with the European average. These aspects include significantly less defence spending, less debt servicing, a favourable demographic and dependency profile and a low level of unemployment.

The objectives of this budget, as set out by the Minister for Finance, are entirely in line with the priorities in our programme for Government and the objectives we agreed with the social partners in Sustaining Progress. There, we agreed that the central macro-economic objective was to consolidate recent progress, achieve a medium-term growth rate to sustain high levels of employment and facilitate the evolution of a more equal society. This is to be done by securing low inflation, sustainable public finances and social, economic and environmental sustainability.

We have reflected these priorities under Sustaining Progress, in particular in the commitment to fairness in the budget provisions. This is particularly clear from the focus of our resources on those on the minimum wage, which is to be substantially increased next February, reducing the relative burden of income tax on those on average incomes and below, and improving the income position of elderly taxpayers.

The reform which introduced tax credits in 1998 enables us to target tax concessions much more effectively than previously, when the greatest benefit frequently went to the top of the chain. The tax tables in yesterday's budget booklet show an exemplary profile in terms of equity. Having listened to the Labour Party's spokesperson on finance, Deputy Burton, yesterday, what the Labour Party seems to want could invert that profile.

In line with our commitments in Sustaining Progress, this budget makes substantial and tangible progress in ensuring that people have resources and opportunities to live life with dignity and have access to the quality public services that underpin life chances and experiences. In line with this commitment, the Government has already agreed to increase the national minimum wage to €7 per hour, with effect from 1 February 2004. The budget for 2004 ensures that the position we first achieved in 2002, where 90% of the minimum wage annualised was made exempt from taxation, is maintained in 2004 for the higher figure. That is a major achievement which requires substantial resources.

The increase in the employee credit, or PAYE credit as it is also known, in the budget means that, from January next, a single PAYE worker will not pay tax on income less than €246 per week, which is equivalent to €12,800 per year. To put the figures in context, when the Government entered office in 1997, the first €98 of weekly income only was tax free. We have raised the entry point to taxation by more than 150% since 1997, which is more than five times inflation over the period.

The budget for 2004 also raises the age exemption limits under which those aged 65 and over are exempt from taxation for the third year in a row. For 2004, the limits are €15,500 in the case of a single or widowed person and €31,000 in the case of a married couple where one is or both are aged 65 or over. This represents a total increase over three years of almost 44%, which is four times inflation in the same period. In this way, we are more than helping to protect the real value of incomes for pensioners on lower incomes.

As a result of these changes in 2004, 35% of all those on the tax record will not pay any tax. Since 1997, average tax rates have fallen for all categories of taxpayer, including those on lower incomes. After the budget for 2004, the average tax rate for a person on the average industrial wage will be 10% lower than it was in 1997. As a result of the budget for 2004, the percentage of the income tax yield coming from those earning the average industrial wage or less is 6%, compared with more than 14% in 1997. That is a 57% reduction.

This is the answer to our critics, and the comparison does not reflect well on the Labour Party's record in Government in particular. The European Commission has on previous occasions commented that our tax system treats those on low incomes more favourably than any other EU country. It would have been desirable, if it could have been easily done, to extend the standard rate band as well. We hope to catch up on that when circumstances improve further and we have more latitude.

Low direct tax rates, both in personal and corporate taxes, have been a key factor in generating growth and employment. The long-standing Government policy of low corporation tax rates has been vital in attracting foreign direct investment in the manufacturing area. It has also been a big element in making the IFSC in the Dublin docklands area a major success story, with direct employment of almost 11,000 jobs, and also contributing substantial Government revenue. It is important for Ireland to remain competitive in attracting highly mobile foreign direct investment and to develop high quality jobs in multinational domestic sectors. We know the importance of using tax effectively as an economic instrument and thus the importance of retaining national control in this area. The recent dispute between the European Commission and France and Germany over the Stability and Growth Pact was not just about large versus small countries, but also about all EU Governments having the right, within limits, to determine their own budgetary decisions.

Our 2004 budget contains several initiatives in the tax area of great importance to business investment in this country. First, there is a proposed new tax credit to encourage companies to increase their expenditure on qualifying research and development activities, which will help to move Irish manufacturing employment up the value chain.

Second, a special exemption is being introduced in the capital gains code where a holding company disposes of a shareholding in a subsidiary company. This relief exists in several other EU countries and the aim behind its introduction here is to encourage multinational corporations to locate their regional headquarters and holding companies in Ireland, which should benefit the IFSC. We will then be virtually the only EU country to have both low corporation tax rates and company holding relief.

Third, the business expansion and seed capital schemes, which are an important source of finance for small and start-up companies, are being renewed for another three years to the end of 2006. The extension of these two schemes for a further three years and the increased company limit of €1 million will continue to help such businesses bridge the financial gap they experience.

The social welfare improvements in this year's budget will cost €630 million in a full year, which is a substantial increase of €100 million on last year's budget package. This should correct the misrepresentation that has been peddled about social welfare cutbacks. The €630 million figure for this year stands in favourable comparison to the €273 million in the rainbow coalition's last budget in 1997. In 2004 the personal rate of disability and unemployment benefit will be increased by €10 to €134.80. In its last budget, the rainbow parties increased this by only €3.81 to €85.73. Other key positives in the budget for 2004 include an increase in family income supplement income thresholds by €28 per week, with a €7 increase in the minimum payment; an increase in the respite care grant to €835 per annum from June 2004; and an increase in the widowed parent grant to €2,700 from budget day.

All our budgets since 1997 have been characterised by measures designed to improve the position of older people in society as regards pensions. After the large increases of the early 1980s, their relative position had fallen back and needed a sustained boost to lift them above the poverty level once again. At the 1997 general election, we promised to increase all old age pensions to at least €127 per week over the term of the Government. We more than delivered on this commitment. At the 2002 general election, we promised to increase the State pension to €200 per week. The budget for 2004 puts us well on track to deliver on this commitment. It provides for a €10 per week increase in the full personal rate of old age and related pensions.

People with short political memories will not forget that, over the three budgets of the rainbow coalition, the Labour Party Minister for Finance and the Democratic Left Minister for Social Welfare gave pensioners an average increase of €2.95. In contrast, the average increase to pensioners under the budgets by the Minister for Finance, Deputy McCreevy, now stands at a substantial €9.75. In monetary terms, the statistics are even more stark. The effect of the increases under Fianna Fáil and the Progressive Democrats is that the rate of old age contributory pension will now stand at €167.30 per week. This is a monumental increase on the €99 per week which was the payable rate on the day the much vaunted champions of social justice in Fine Gael and the Labour Party left office. Other pension increases are, for example, the over 66 widow or widower's contributory pension and deserted wife's benefit which will increase by €11.50 per week.

In 2004 all other personal weekly rates will increase by €10 per week. This will benefit almost 1 million people who claim a weekly social welfare payment, and that will extend to 1.5 million when their dependants are included. I am happy that this substantial increase will apply in full to more than 400,000 on the lower rates of weekly social welfare payment, which is an increase of more than three times the expected rate of inflation. This includes those in receipt of unemployment benefit and assistance, disability benefit and allowance, pre-retirement allowance, one parent family payments, carer's benefit and allowance and supplementary welfare allowance. We are committed to making substantial improvements in the income position of those on the lower social welfare rates, in line with our policy under Sustaining Progress of achieving the income adequacy targets under the national anti-poverty strategy.

Building on the substantial increases we have devoted to child benefit this year, we are announcing an additional €80 million in a full year to increase this vital support further. Child benefit rates will increase by €6 per month for the first and second child and by €8 per month for third and subsequent children. To appreciate the scale of child benefit increases under the Government, it is worth emphasising that, when we returned to Government in June 1997, child benefit was payable at a rate of €38.09 per month for the first and second child and at €49.52 for the third child and subsequent children. The increases and the greater priority Fianna Fáil has attached to child benefit means that, following the budget of 2004, child benefit will now be payable at a rate of €131.60 for the first and second child, and €165.30 for the third and subsequent children. This means that the rate of child benefit payment has increased by three and a half times the figure it was on the day we first took office.

This has been a good budget for agriculture and rural Ireland, also taking into account the Book of Estimates. A lot more money has been provided for REPS and farm forestry. There is now also income tax relief for farm leasing and a number of farm-related schemes are being extended. The new rural social scheme will add 2,500 to the jobs provided under the continuing community employment and related schemes. There were fears that, regardless of the social value of the schemes to the community and the role they provided for older people with limited alternative skills, they were going to be drastically scaled down or phased out because of expert reports. On the contrary, their important role is fully recognised and protected by the Government.

The extension of film relief for an additional four years, with a strong caution about the avoidance of abuse, is a further positive initiative in the budget. We are not in the business of driving high-risk, high-profile mobile investment out of the country, particularly in areas where we have demonstrated we have a comparative advantage and can perform to world-class standards.

In conclusion, I am very satisfied that the 2004 budget fulfils our responsibilities and will set the country a further step along the road to secure greater prosperity, greater social inclusion and a more even distribution of our economic gains between all segments of society. Our programme for Government states, and we believe, that this generation has a unique opportunity to build a fair society of equal opportunity and sustained prosperity. We recognise the need to invest in modernised public services, to develop our infrastructure and to help those who are least well-off. We pledged that in 2007, Ireland would be a country transformed from the Ireland we found ten years before.

Rather than quoting, as I promised, from this centre-left Government—

Ms Burton

That is a joke.

Mr. Naughten

The cabaret is only starting.

The Taoiseach

—I will quote the economics editor of The Irish Times, that authoritative source in Irish life, particularly for those who are considered to belong to the intellectual left. I will quote him exactly, to avoid harming the “old left”. He stated:

The combination of the tax and welfare measures means the gains from budget 2004 are firmly focused on the poorer sections of society. An analysis in the budget documents . . . shows that the poorest 30% of the population will receive increases in disposable income of between 5.7% and 7%. Meanwhile, the top 30% will gain by between 0.4% and 0.9%.

My case stands.

Deputies

Hear, hear.

Mr. Durkan

We will not take that too seriously.

Mr. Rabbitte

That got the stem cells working.

Mr. Kenny

There has been a book of the Taoiseach's quotations in circulation for a number of years. Perhaps he might have done better to choose one of those as many of his quotes are absolutely meaningless.

This is a classic three-card trick, the ultimate diversion. These are real Fianna Fáil tactics. I notice that in the Taoiseach's quote from the economics editor of The Irish Times, on the benefits to the less well-off, that in the final page of the Taoiseach's speech, before the quotation, he refers to, “the increases and the greater priority Fianna Fáil has attached to child benefit”. There is no mention of the keepers of the public conscience who have been abandoned over here and have been left out and forgotten.

The Taoiseach

Check my statement in the Official Report.

Mr. Cullen

The Deputy heard what he said.

Mr. Kenny

I also noticed that in his opening pages—

Mr. M. Smith

Why does the Deputy not talk about the alternative Government?

Mr. Kenny

The Deputy should be quiet. He seems to have become the permanent minder of the Taoiseach in the last three or four months. I am not sure how well the Department of Defence is running in his continued absence.

On the fourth page of his speech the Taoiseach said, "there are those in Fine Gael who claim that we are, and have been, spending too much". Who are these people? Where did we say the Government has spent too much?

They call it boot boy tactics.

The Taoiseach

We will be quiet.

Mr. Kenny

All we ever said about benchmarking was that it should be renegotiated. If there is one thing the Irish people will face, it is the truth. This was done in secrecy without publishing the verification figures and without being able to identify what the increases in efficiency and better value in public services would be. It is the cause of the whole rumpus in this House. It is going to cost €1.2 billion a year. The Government says it will pay it, but I am disappointed there has not been openness and accountability on the value of the public money that the taxpayer is raising.

I notice the Taoiseach says he is worried that a Fine Gael-Labour Government might repudiate this. On the fifth page of his speech he seems to be assuming that this change is about to take place, would that it will in the shortest possible space of time.

This budget should have addressed three fundamental issues. It should have protected and improved the competitiveness of this economy. It should have delivered reforms that would ensure value for taxpayers' money, and it should have targeted available resources where they are needed most. Has the Minister for Finance measured up to these criteria?

Competitiveness is not a vague concept. It is critical for the creation and retention of jobs. Where do we stand now on competitiveness? One of the best sources the Taoiseach could have cited is the Government's own competitiveness council. What did it conclude on where we stand? It stated we are 15th out of 16 countries on prices and wages; 15th out of 16 on infrastructure; 11th out of 16 on IT; 15th out of 16 on transport; and 12th out of 16 on research. It also stated that Ireland is the joint most expensive country in the eurozone for consumer goods. This is perfectly evident from the hundreds of replies and comments we have been received on a website we ourselves launched on this subject – www.ripoff.ie– where consumers are now giving evidence of their stories on a daily basis.

On a per capita basis, we are ranked as the fourth most expensive country out of 16 for insurance premiums. Our industrial electricity costs are the third most expensive out of nine countries. These are not my words but the comments made by the National Competitiveness Council, which was set up by the Government. I did not notice any mention of this in the remarks of the Minister for Finance or the Taoiseach.

This is a damning indictment of the way the Government has conducted business on behalf of the people. Incompetence in financial management is the hallmark of the Government. The waste of taxpayers' money on capital projects that are far over budget and behind time borders on the negligent. Every week the Committee of Public Accounts calls in groups, organisations and Departments about taxpayers' money that has been wasted on projects that were delivered neither on time nor on budget. For example, €20 million was wasted on accommodation for asylum seekers which has never been used. Who authorised that? The Punchestown investment was rushed through in the Department of Finance with the Department's own guidelines bulldozed aside. There was no supervision of costs, which increased by more than 100% from the €6.9 million estimate to more than €14 million. It was a debacle.

There has been a distinct inability to get to grips with big capital projects. For example, the cost of a kilometre of motorway has doubled from €5 million to €10 million in two years and the cost of the Luas light rail project has more than doubled to €770 million. The value for money ethos has never been spread around the Cabinet table, never mind around the Civil Service. It gives a new meaning to waste management – the Government's gross financial incompetence in respect of the taxpayer. Tax increases, particularly indirect taxes and charges, hit everybody. The increased cost of living has meant that the gains of the Celtic tiger for people on the average industrial wage have now been eaten up. Stealth taxes do not discriminate. Bus fare increases, bin charges and so on are a burden on everybody but they have a disproportionate impact on low and middle-income groups.

The second item on which the Minister should have delivered was the reforms ensuring value for money for the taxpayer. Dealing with the issue of his failure on competitiveness, the National Competitiveness Council recommended a series of measures to promote entrepreneurship and enterprise development, stimulate innovation and creativity, support the enhancement of our skills base, improve our economic and technological infrastructure and relieve some of the administrative burdens associated with the business and work environment. I recognise that some small impact has been made in the area of business but it is not enough.

On none of the fronts mentioned by the Government's own competitiveness council has this budget taken any strong action. With the swathe of new and hidden taxes and the increase in fuel costs and the wage pressure arising from this, our competitiveness will be damaged further. This budget has not addressed the council's principal recommendation, which was to achieve value for money across the board and eliminate the poor project management which has led to waste and delays. Disregard for taxpayers' money has become pervasive as the capacity to plan and anticipate costs has buckled in the rush to make a good announcement.

What has been achieved? The scheme to provide medical cards for those over 70 was rushed through to provide a budget day announcement. The plan was out by 80% on the number of beneficiaries and 300% on the cost per person. A pension concession for pre-1953 contributors, pushed through as an item costing less than €10 million, is now running at 12.5 times its original cost. Five properties acquired in a panic reaction for asylum accommodation lie idle, at a cost of almost €20 million, because they could not be used. A 50% share-out of the cost of the Residential Institutions Redress Board with the congregations was frozen at €127 million. Meanwhile, the State's exposure has climbed from that figure to one close to €1 billion, while the State's legal officer was kept out of the loop.

Expensive hospital facilities have been built but never opened in Mullingar, Blanchardstown and Birr. I do not know whether the Taoiseach has visited the community facility in Birr, but I was recently there. It was built with 90 bedrooms at a cost of almost €20 million, but it is lying empty, its patients occupying a 200 year old obsolete building further down the town. It cannot open because it needs €500,000 from the health budget to employ nurses. The same applies to Mullingar Hospital, which has been unfinished for the last seven years and, as the Taoiseach knows, there is a unit to open in Blanchardstown. This is only a sample of the many instances around the country in which lack of planning and strategy has resulted in expensive facilities being built but never opened.

The Luas light rail system will provide less capacity than 100 buses and will cost three times the original estimate. The routes do not connect and the project has been interrupted and delayed by Government inactivity. Can anybody believe, with that record of incompetent financial management, that the affairs of the nation next year, with an expenditure of €41 billion, will be well managed? Does the budget give us any assurance that the reforms being put in place will ensure value for money? What innovation was evident in yesterday's budget to prevent cost overruns and bad management? Given the Government's appalling record, examples of which I have just mentioned, is there any evidence in yesterday's budget that next year will be any better?

We heard the big announcement of the five year spending envelopes. We had this before under a Fianna Fáil programme of spending systems but it disappeared. Then we had the seven year envelope of the national development plan, which seems to have ended up in farcical non-implementation. We are now told that we will have financial envelopes with multi-annual planning for five years either to replace this national development plan or as an addition to it. When representatives of the Community Games, which does not have a permanent home in Mosney because of lease arrangements, met with the Minister for Arts, Sport and Tourism three weeks ago he was not able to give any commitment beyond 2005 because, he said, the Department could not engage in multi-annual budgeting programmes. The new system has made a mockery of this. Every year 500,000 children participate in the Community Games. The Minister should meet the organisation again and include it in its multi-annual plans. The concept is a good one but it has not been followed through in terms of the national development plan. That is evident from the way projects have run over time and budget.

The Minister for Finance referred yesterday to an increased concentration on public private partnerships. Page C31 of budget 2004 refers to a stealth tax which he did not mention, a €100 million charge every year for public private partnerships. This must result in tolls or charges of some kind.

The Government's inability to manage public private partnerships is exemplified in the case of the Cork School of Music. The city has been chosen as the European city of culture for 2005, millions have been spent in architects' fees for the design of a building but, under the PPP system, this has not seen fruition. When it was raised in the House with the Minister for Finance, Deputy McCreevy, on a number of occasions, he said the blockage was due to the EUROSTAT office in Brussels, yet it appears nothing was done to sort this out. If there is to be a concentration on public private partnerships for the next five year envelope, we should have some evidence as to how this will be released by the Department of Finance and how these blockages, if they are in Brussels, are to be dealt with. The Government could borrow money more cheaply than it can be made available under public private partnerships. This needs to be addressed by the Minister for Finance.

The third major objective of a budget should be the targeting of resources to where they are most needed. The Taoiseach referred to the measures taken in social welfare. We must care for the poor, the ill and our children. As was pointed out yesterday by Deputy Richard Bruton, the increase for children in the budget is 20 cent a day. The failure to increase medical card limits will result in thousands losing their medical cards. It will mean extra expense for these people in terms of school activities, medicines and medical treatment. There is nothing in the budget for the sick.

More than 60,000 people will move from the 20% to the 42% rate of income tax. That is in addition to the 53,000 that went into the higher tax net last year. That is the major stealth tax in the budget. In the past two years, more than 100,000 people have been moved from the standard to the higher tax rate. A retired civil servant told me yesterday he now draws €38,000 on his pension and he will be taxed at the 42% rate when he receives the 4% benchmarking increase. Between that and the 21 cent on a gallon of petrol, he is left with little out of the budget. That is made worse for civil and public servants in the 42% tax bracket. While they will receive their increase, they will also have to pay PRSI and be taxed on the remainder at the rate of 42%. The increased benefit they receive on paper is removed by almost 50% taxation on that basis.

The Minister for Social and Family Affairs, Deputy Coughlan, said today that the €58 million in cutbacks in the Estimates for her Department have not yet been finalised and that she will listen to members of the Fianna Fáil Party. We know the Government listens to the Fianna Fáil parliamentary party because 40 of them signed a petition the other day led by the Minister of State at the Department of Enterprise, Trade and Employment, Deputy Fahey, who I understand received a standing ovation at the first meeting but, along with a number of others, was severely denounced by the Taoiseach at the last meeting of the parliamentary party. The Taoiseach informed them that he would lead them out the gate, just as he led them in, but he used much more colourful terms.

What is the Minister for Social and Family Affairs talking about? Is she talking about restoring the dietary allowance? Will she amend the child benefit allowance or reverse the 16 savage cuts she has introduced in her Department? What does this mean? She is now going to listen to the Fianna Fáil parliamentary party and make up her mind by the end of the year. We have had the Estimates from whence most of the pain has been inflicted, yesterday's budget did little to alleviate matters and she is now talking about reconsidering the issues raised by Members in the House. We understand she is now going to find out the truth from members of the Fianna Fail parliamentary party.

It is worthwhile reflecting on the type of country in which we live. The following are the increases in 13 stealth charges introduced last year: VAT, 8%; motor tax, 12%; hospital charges, 26%; drug refund scheme, 31%; VHI, 18%; cigarettes and alcohol, 15%; bank and card charges, 108%; bin charges, 29%; ESB bills, 13%; college fees, 9%; parking fees, 25%; bus fares, 9%; and television licences, 40%.

The Estimates in November of this year mean that the drugs payment threshold is raised by €8 to €78 per month, the accident and emergency charge is increased to €45 from €40, and there is a 15% increase in the cost of private beds in public hospitals and a €5 increase on the cost of an overnight stay to €45 per night with a cap of ten nights per year. The third level student registration fee is to increase by €80 to €750, the fee for the junior certificate examination by €10 to €82 and the leaving certificate examination fee by €10 to €86. Development levies of between €6,000 and €30,000 are likely to raise €700 million from first-time house buyers. That is the reality of what they face. The minimum contribution that all recipients of supplementary welfare allowances and rent and mortgage supplements are required to make towards their accommodation will be increased by €1 to €13 per week. The fee for a standard ten year passport has gone up to €75. Motor tax is up by 5% as per the Estimates when it had always been announced in the budget, previously. That is the reality of what people face.

Despite the gloss put on the budget yesterday, the smiles will be wiped from the faces of Government Deputies when this reality begins to bite and local authorities have decided on and implement their charges. The fact the Minister for Finance allocated €30 million into the local authority fund without specifying what it is for begs the question as to whether it is a sop towards the recognition that local authorities can only raise their benchmarking requirements by shedding jobs, increasing charges, dropping services or by seriously increasing commercial rates. No explanation was given about this.

The big diversion in the budget was the decentralisation announcement. Depending on one's point of view and what one supports, there are either few more exhilarating or nauseating scenes than the sight of Deputies clambering over Government benches to get out to be interviewed by the local radio station and say: "I did it. We are saved. I have delivered. Decentralisation is on the way."

I support the decentralisation concept. One of the first major decentralisation initiatives took place in my town, Castlebar, during the years of the Cosgrave Government. Undoubtedly there are economic, social and regionalisation benefits from the decentralisation concept. I recognise that, but what is at stake here is the credibility of the plan announced by the Government: 53 towns in 25 counties to be completed inside a two year period. The Minister for the Environment, Heritage and Local Government, Deputy Cullen, said on the radio this morning that there would be no physical movement next year. If it is to be completed within three years, that means it will take place within a timescale of two further years.

As Deputy Naughten has pointed out, Roscommon is an outstanding example of how a programme like this can be disrupted. Twelve years ago the announcement was made about decentralisation to Roscommon and it still has not happened. While I am sure the people there will welcome the announcement of 200 jobs, the credibility of the plan is at stake. Deputy Connaughton pointed out that, to get 100 jobs out of 10,000 for Ballinasloe when the Tánaiste made a major announcement about decentralisation and without any plan being in place after the Square D plant closed there some time ago leaves much to be desired.

The credibility of the Government's decentralisation plan is at stake because only 2,183 of the proposed 10,000 decentralised jobs will be located in towns designated under the national spatial strategy. That means that the strategy announced with great fanfare in Kilmainham has been torn up. Even if all the pages have not been torn out, it has been seriously disregarded and cast aside.

The scheme is to be implemented on a voluntary basis. I recognise that a great number of people from provincial Ireland work in Departments in Dublin. It may be that people from Gweedore, Kanturk or other locations would want to go back to their home place. While the Department of the Environment, Heritage and Local Government is to be transferred to Wexford, it may not be possible for some staff to go to Wexford because of family ties, location or whatever. If the scheme is to be implemented on a voluntary basis, it may be that a relatively small number would want to locate in Wexford. This could give rise to the serious danger that this and other Departments relocating elsewhere could suffer the loss of experienced personnel.

Will the Secretaries General of the eight Departments to move have to lead by example and live in these locations? Will Ministers lead by example and confine themselves to where their headquarters will be located? If, as the Taoiseach said last night, there have been consultations and discussions about the issue, where is the evidence of a planned strategy? The Minister for the Environment, Heritage and Local Government, Deputy Cullen, said this morning that it is not a question of funding because it is available. Where is the money? If the Government cannot build schools, open hospitals or carry out even the smallest infrastructure projects, how can a plan to shift 10,300 public servants out of Dublin within two to three years have any credibility? While the announcement is welcome in principle, it amounts to nothing more than a diversion. The Taoiseach knows that in the run-up to the local elections, his party members are being hounded on the doorsteps because of the way people have been let down in respect of the delivery of services and the fact that the Government cannot be believed. He also knows that the central issue of trust in Government has dissipated.

Following the announcement yesterday, evidence should be presented to the House on a monthly basis outlining the progress being made by the implementation committee. I have serious doubts about the Government's capacity to implement the programme. While a Cabinet sub-committee has been set up for a number of years to examine this issue, it must be borne in mind that it has taken three years to build a motorway in Kildare because of problems over a species of snail. Senior civil servants have a way of demonstrating that they constitute the permanent Government. Many Members on the Government benches will soon begin to understand that while this announcement may be deemed to be the panacea for all Fianna Fáil ills, not to mention the Progressive Democrats, the reality of implementing it will be much more difficult than envisaged.

I ask the Minister for the Environment, Heritage and Local Government, who appears to have the answer to everything, to explain to the House where is the money in his five year envelope for decentralisation? How will it operate on the basis of swapping sites and buildings? Does it mean that if a developer decides to provide public offices in Clonakilty, he will get in return part of the buildings in Marlborough Street currently occupied by the Department of Education and Science? What sort of arrangement is being put in place? Who will pay the development charges given that Departments do not pay rates to local authorities? A myriad of questions need to be answered. If secret consultations and discussions have been held over the past three years we deserve to know about them.

Having said that, I do not want Members opposite to misconstrue our words. We recognise the value of decentralisation in principle, but we question the credibility of the plan for delivery. The announcement has been made before the Government takes up the EU Presidency when the Taoiseach and his ministerial colleagues will be very busy. The announcement has made done to encourage, comfort and provide some psychological succour to Fianna Fáil local election candidates who will canvass the country in the belief that they will be saved by the programme.

What is the position regarding those towns that have not been chosen for decentralisation and, as a result, are very disappointed? What is being done with the health services and the IT sector, which make up a couple of thousand jobs? It is ironic that the Government is compensating for the abolition of the regional health boards to allow for centralisation of services in Dublin by making this major announcement on decentralisation. Given that the country ranks behind Peru in terms of broadband access, the Minister for the Environment, Heritage and Local Government must outline the capacity of the designated towns in terms of infrastructure capacity in such areas as water, sewerage, electricity, roads, broadband.

When a radical announcement of this magnitude is made, the House must be informed about the back-up planning that has been made in terms of its feasibility. The Minister, Deputy Cullen, in particular will consistently come under the spotlight from this side of the House to see that he backs up his fine words with monthly progress reports and so on.

Tax reliefs were referred to. Last year the Minister for Finance announced to great fanfare that they would be abolished. However, he has not done so, which is evidence of the lobbying power of some groups to ensure that they continue and that new reliefs are introduced. As I said on the Order of Business, a number of these reliefs will require notification to the EU Commission. I understand a number would be deemed to be state aid of one kind or another, therefore, they will require Commission approval. What evidence is there that the Commission will approve either the new tax reliefs or the continuance of the other reliefs?

On public pensions, from next April anyone joining the Civil Service at the age of 17 will have to work for 47 years to qualify for a pension. Perhaps someone will explain how the pension payments will be calculated. At present, they are calculated on a 40/80ths basis in terms of years of service. Will that now be 47/96ths, or what will be the new criteria? Until now the Government has been trying to shed people from Departments, but this proposal will lock employees into a contract of service where they must work longer to qualify for a pension at 65 years of age. Does this mean there will be a change to the proportion of a pension a public servant can draw in the intervening period? Will there be a change to the proportion payable to them if they leave the service after 20 years or whatever? Does it mean that bright and healthy retired public servants who are over 65 can get back into the service because they left under a previous arrangement? What moneys are in the departmental public pensions account for next year and in the envelope for a number of years in the future? What are the implications for spouses and children under this new arrangement?

I do not know if the announcement in respect of Members of the Oireachtas means that the Taoiseach will shuffle the group opposite because the Tánaiste is anxious to get out of her Department. It means that if he does this before April and appoints a couple of new people they will qualify, but if he leaves it until after April they must wait for many years to qualify.

A Deputy

They can always reshuffle.

Mr. Hayes

The Taoiseach could be reshuffled before the end of the year.

Mr. Naughten

He could be looking for his own pension soon.

The Taoiseach

I signed up. I cannot claim it until I am 55 years of age.

Mr. Hayes

We could all be fooled.

Mr. Kenny

The Taoiseach has set up a problem for all future Governments. From that perspective, the budget has not moved us forward to the point it could have. It has been clouded over by the smokescreen of decentralisation. There are serious questions to be asked and answered about the credibility of delivery. The feeble effort at looking after the disadvantaged and those on the margins leaves much to be desired. The reality of life on the streets is very different. The budget has not dealt with those faced with cost of living increases, the difficulties of normal everyday living and pressures on their time and income. Given all the money generated in recent years, I am struck by the social scandal that there is still evidence of women having to wait 18 months for an analysis of a lump on their breast to determine whether it is benign or malignant. One cannot appreciate the pressure, trauma and stress they must endure. Politics has failed to deliver access to a service in that sense. Fianna Fáil Ministers in particular appear to regard it as a badge of honour that they can spend billions of euro in their Department without any regard for the value for money it should deliver. The central thesis is that the Government should be in a position to deliver value for money for those it looks after.

In the three central areas of dealing with competitiveness, targeting resources where they are needed most and the delivery of reforms to drive value for money, the Government has failed seriously. The Taoiseach can take it that, following the announcement by the Minister for Finance yesterday about these three areas, we will seek to pressurise the Government and demand answers from the Minister for the Environment, Heritage and Local Government, Deputy Cullen, on how he proposes to deal with the decentralisation programme. I question his ability to deliver on a programme on which there is no evidence of consultations, discussions or the money available to him to do it.

Mr. Rabbitte

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.

Ms Hanafin

An extra €1 million was allotted.

Mr. Rabbitte

Deputy Kenny mentioned pensions. The subject bears examination, but in circumstances where some of these disadvantaged areas are already finding it very difficult to retain teachers, and given the critical importance of the quality of teachers in such areas, the new arrangements for retirement age might well have a very adverse effect on the same disadvantaged communities bearing the brunt of all the other cuts.

This budget delivered the bare minimum of social welfare improvements. Any fewer, and even what passes for social partnership these days would have been doomed. There has never been a budget with less in it for children. Child benefit is to be increased by €6 per month. Where are the pre-election promises on child benefit? Fianna Fáil poured money into child benefit only weeks before the last general election, and promised that there was more to come. The child benefit rate for first and second children was meant to increase to €149 in 2003. Instead, in 2004 it will have reached €131.60. So much for the commitment to tackling child poverty or dealing with child care costs. There is nothing in this budget for child care. The cost of crèche places will continue to rise. Pre-school education will continue to be neglected.

Similarly, there is nothing in this budget to tackle child poverty. Increasing child benefit is the best way to address child poverty, but failing that, child dependant allowances could have been increased. They remain untouched. A family living in poverty will get less than €1.50 per child per week. That is the measure of Fianna Fáil's commitment to the less well-off.

Fianna Fáil has abandoned the less well-off in Irish society. Affluence is a wonderful thing. The new aristocracy in Fianna Fáil has abandoned the ordinary working family and the less well-off. They have made their bed with the nags and Jags brigade, and intend to lie there with them. There is now a new form of poor law being developed. For all the rhetoric about the best route out of poverty being a job, this budget will condemn thousands to remain on the welfare rolls, trapped in poverty. Community employment has been cut and the back to work allowance has been effectively dismantled. One has to be on the live register for so long now to qualify for that scheme that about the only people eligible will be Sinn Féin candidates.

Last year, the Minister framed his budget around a highly conservative interpretation of the EU Stability and Growth Pact. This provided him with the opportunity to claim the necessity of underinvestment, or cuts in services, under the terms of the pact. At the ECOFIN meeting last week, however, he voted for the most liberal possible interpretation of the pact. He was prepared to see France and Germany run deficits in excess of 3% of GDP, yet he is not prepared to see Ireland, which has a more compelling case for increasing its borrowing level, invest properly in its future.

The Minister claims that borrowing is deferred taxation. Underinvestment actually means deferred jobs, deferred sustainable growth and deferred social justice. The point is lost on the Minister that our capacity to service debt depends on growth in income. Borrowing to invest, provided that money is well spent, increases the productive capacity of the economy and our capacity to service that debt. It is growth over the last decade that in large measure lowered the debt-GNP ratio.

When the national development plan was first launched, we were living through a period of record surpluses in the public finances. Even though those surpluses could never have lasted for ever, there was no substantive national debate on how the national development plan was to be funded. This Government decided that capital spending would be funded from current resources and effectively decided to reduce the quantum of resources available for day-to-day spending.

However necessary our capital programme may be, it makes no sense to fund it entirely from day-to-day resources. The upgrade required in our economic infrastructure has a large once-off element to it. There are considerable demands for extra capital spending in the short-term, but those demands will ease once new infrastructure has been put in place, and the pay-off will come over a much longer duration. That is why it makes sense to borrow a significant proportion of the capital funding requirement. That is what the Labour Party has been saying for several years, and it is the view increasingly endorsed by commentators such as the ESRI.

Instead of adopting this course, the Minister has chosen to cut capital spending and to squeeze current spending even harder. In his determination to further lower what is already the second lowest debt-income ratio in the EU, he is not only imposing unnecessary hardship, but undermining competitiveness.

The ESRI has also repeatedly pointed out the merits of the approach used in the UK, where two fiscal rules are applied to public borrowing. These are the golden rules whereby borrowing over the economic cycle is limited to the amount of public investment, and an upper limit is put on the debt-income ratio. Adherence to these rules provides a transparent and stable fiscal framework while providing for adequate public investment.

Rather than listen to the vacuous statements which the Minister of Finance and his fellow Ministers make about the era of massive deficits, I would like the Minister to tell us what level of debt-income ratio he considers to be high, and the level he considers low. I would like to know what his target debt-GNP ratio is for the remainder of the lifetime of this Dáil. That would at least provide a basis for a coherent discussion on the funding of capital spending.

There is no reason Ireland could not adopt a borrowing approach similar to that in the UK, within the context of the Stability and Growth Pact or a reformed pact. Ireland should actively campaign for a new pact which would take account of the situation of countries with low debt ratios and major capital spending requirements. There is considerable acceptance of that situation in Europe already. Rather than turning a blind eye to breaches of the rules, it is vital that the rules should be reformed so that Europe has a credible and workable rules-based system.

The Taoiseach, the Tánaiste and the Minister for Finance have spoken of the need to reform the pact, though for now they are not prepared to adopt anything other than the most conservative interpretation of it. Doubtless they will be content to see reform come in time for more grandiose promises to be made in advance of the next election.

This is the budget of a Government which lacks the vision to invest in the Irish economy and people. It wants education on the cheap, so much so that increases in capitation grants are not included in the printed version of the Book of Estimates. Perhaps the Minister for Education and Science, Deputy Noel Dempsey, balked at the prospect of another public humiliation at the hands of his colleagues. The Government speaks of building up capacity in the area of scientific research, but turns the funding tap on and off at a whim. It will not deliver on basic economic or social infrastructure. It wants our children to be educated in substandard schools, some in which the Government would certainly not house a horse.

This Government is short-sighted and mean-spirited. It is rudderless, hanging onto power with no idea of where it wants to take the country. It will not even begin to fulfil the promises made to the electorate, since to do so would be to spend money earmarked for its next mindless pre-election spending splurge. The Government is worn out and clapped out. The "Punchestown Kid" has consolidated Ireland as a society of friends – friends of the Government. In the meantime, those on middle incomes will bear the brunt of the cost of running the services of the State, and the very poorest will suffer acute hardship because the paltry figure of €58 million must be pared off programmes targeted at the most needy in our society. This is not the way to run an economy and certainly not the way to run a society.

Caoimhghín Ó Caoláin

I wish to share time with Deputies Joe Higgins and Sargent.

Acting Chairman (Cecilia Keaveney)

Is that agreed? Agreed.

Caoimhghín Ó Caoláin

The Minister for Finance, Deputy McCreevy, has repeatedly asked us to judge him on his budgets, and there should be no mistake about it, we certainly do so. Since 1997 the Government has increased inequality in Irish society and widened the gap between rich and poor. In 1997 18% of people were living on incomes of less than half the average. The figure today is nearly 21%. After six years of unprecedented economic growth, that should have been reduced to a single figure. This is a budget of inequality which does absolutely nothing to narrow the gap between wealth and poverty maintained by the Minister, Deputy McCreevy, in every budget since 1997.

The Government's national action plan against poverty and social exclusion states that nearly 25% of children, approximately 300,000, are living in poverty. Some 70,000 children are living in consistent poverty where there is real daily hardship such as the lack of a hot meal or proper clothing. That is obscene in a small country like ours where there is so much conspicuous wealth. This reality was denied by the Taoiseach in the days leading up to the budget and in the face of all the agencies which are working on a daily basis with marginalised communities. That denial of the reality of economic hardship for so many in our society was clearly manifest, once again, in the budget presented yesterday.

The Government has broken its promises to deliver substantive increases in child benefit and old age pensions to levels that will meet the national anti-poverty strategy targets. An increase of less than €1.50 and €2 per child per week is an insult from a Government that has repeatedly claimed to be addressing child poverty. Increasing child benefit for the first and second child to €142 per month and to €176 per month for the third child and subsequent children would have cost an estimated €216 million. The totally unnecessary and gratuitous cut in corporation tax from 16% to 12.5% will cost the Exchequer €305 million this year, according to the Government's figures. The contrast in those positions speaks volumes about the thinking that dominates this right-wing coalition.

The social welfare increases in the budget are totally inadequate and are undermined by stealth taxes such as local authority charges, the savage 16 cuts to welfare entitlements and the cuts in community employment schemes. It is disgraceful the Government did not use its increased revenue to reverse these cuts, especially the miserly and, I emphasise, dangerous rent allowance cut. The rent allowance cut is a Fianna Fáil-Progressive Democrats catch-22 in that one cannot get rent allowance if one has not been in a flat for six months but one cannot afford to rent a flat if one does not have rent allowance.

The social welfare increases have been undermined by inflation, stealth taxes, the savage 16 cuts which remain in place and the loss of community services provided with the help of community employment schemes. The budget was delivered on the very day when the Government voted against a Dáil motion to reverse those community employment cuts.

The minimal tax measures in the budget have been presented as good news for the lower paid, but they are no such thing. The Minister has done nothing to reform, to target the highest earners or to tackle multi-millionaire tax exiles or tax evasion. There will be more people on the higher rate of PAYE after yesterday's budget. There are huge variations within that tax band, from workers on the average industrial wage to the top executives who awarded themselves wage increases last year in the order of 50%.

Last year in our budget submission Sinn Féin asked the Minister for Finance to undertake a survey that would expose the minuscule tax take from the super-rich in Irish society. The Revenue Commissioners carried out the survey, as they had done in 1997, and the results for 2002 were just as damning. Of the top 400 earners surveyed, 117 had an effective tax rate of less than 30%, in a system where more than 500,000 PAYE workers are paying the top 42% rate of income tax. Some 18% of the top earners were paying less than 15% tax and some, as has been repeatedly recorded in this House, were paying no tax.

It is appalling that there are 20 tax relief schemes where the exact cost to the State of the lost tax revenue is not known. In many cases these schemes simply put money into the pockets of the wealthy such as the millionaire operators of the bloodstock industry. There is no proper assessment of the benefit to the economy of reliefs or an evaluation of whether direct State investment of funds in many cases would provide a better social and economic return. We are aware, however, of the benefit of section 481 relief for the film industry and I welcome its retention.

Workers on average and below average incomes are being hit hardest by stealth taxes. For those taken out of the tax net with great fanfare yesterday, that benefit is wiped out by stealth taxes, including increased health charges, motor tax and fuel rises where they depend on or enjoy the use of a car.

The budget has again spurned the 200,000 people who were promised inclusion in the general medical services scheme. Fianna Fáil's pre-election promise has come to nought. Is there any realisation at Cabinet of the dreadful choice faced daily by many families, struggling to make ends meet, when a child shows the first symptoms of illness, of whether to consult a GP? Many are choosing not to do so for the sole reason that they cannot afford to do so. Children's health, through no fault of their parents, is being placed at risk. The budget offers only silence to those families – silence on health.

The budget is equally silent on housing. What is there in the budget for the 50,000 household units on local authority housing waiting lists, 85% of whom depend on an income of less than €15,000 per annum.

An increase of €25 million in current expenditure in support of people with disabilities is to be provided in 2004. Of course, I welcome that increase, but much more was needed. This was presented, documented and pressed for time and again by people who deal with disabilities. The Government has failed in its financial commitment to the disability sector and particularly in its promised rights-based Disability Bill. It has failed to meet its commitment to increase disability allowance to the level of contributory old age pension and even to recognise a key requirement of people with disabilities, namely, a cost of disability payment scheme to help meet the many extra costs people with disabilities incur as a result of their disability. These people are still assessed on the basis of means rather than needs.

The budget was an empty package wrapped in tinsel paper marked "decentralisation". Decentralisation is not a budget measure but something which has been promised by the Minister, Deputy McCreevy, every year since 1999. While I welcome plans to move Departments out of Dublin having lobbied for a meaningful decentralisation programme since my election to the House in 1997, how long will it take to deliver these promises? There is no timescale for the programme, but it is obvious that the main period the Government has in mind is the run-up to the local elections of June 2004. When we will see delivery of the promised decentralisation programme is another question. The surprised reaction of trade union representatives is ominous. The Fianna Fáil backbenchers who believe they have been given this shiny present by Santa McCreevy would do well to think on how early the shine might rub off.

Will the Minister and the Taoiseach explain why the decentralisation programme, which was announced yesterday and was piggybacked on the budget measures, was not married to the objectives of the Government's national spatial strategy? That question requires an answer. People are analysing the programme as announced and there are many questions about the choices made. I would appreciate a response from the Minister at the conclusion of this debate.

Mr. J. Higgins

Yesterday's budget oozed cynicism from every paragraph and page. Much has been made of the decentralisation of public services. I do not wish to deal with that except to warn the good people in the regions and rural communities that this is one bog I suspect will be drained repeatedly in words over the next few years and that, in the end, most of the water will probably still be lodged in Dublin city.

The budget was the most recent instalment in the programme of the Government which began with the publication of the Book of Estimates a few weeks ago and the provision therein for stealth taxes together with savage cuts in some key areas of expenditure. The budget and Estimates are a continuation of the policy adopted by the Government since first coming to power six and a half years ago, namely, to facilitate the transfer of wealth from working people and working class communities to speculators, bankers and big business.

I noted how in his speech the Taoiseach was defensive about his Government being described as right-wing. He tried to defend it from that charge. Some of his learned advisers should inform him that one of the major criteria for judging the character of a Government, whether it is right, centre or left, is the manner in which it presides over the division of wealth in society. The truth is that no Government in the history of the State – and there have been some very right-wing Governments – has presided over such a shift of wealth from working people to the wealthy, capitalists and financiers.

All one need do is study the housing market where the Government stood back and allowed an unrestrained orgy of speculation, profiteering and even racketeering by landowners, developers and financiers. The most basic human need for shelter was seen and allowed to be used as an opportunity to enrich them. In doing so, young people were enslaved to mortgage payments and all that goes with it for 20 or 30 years of their lives so that there could be a continuation of profits going to bankers, developers and speculators. At the same time the Government slashes the taxes on speculators by 50%, but there is not one iota of support in the budget for those attempting to buy a home for the first time.

This is a Government that also endorses an ongoing weekly and monthly robbery of tenants by private landlords, many of whom are every bit as greedy as their landed counterparts in 19th century Ireland. Despite this, the Government yesterday raised a further €243 million in extra taxes on petrol and cigarettes, a burden which will mainly fall on ordinary working people, including those trapped in poverty.

The reduction in corporation tax for big business in the last two budgets, which makes it the lowest in Europe, will hand back to the major corporations a massive €634 million every year from now on. The multinational corporations have been given a further concession in the budget as if they did not have enough profits already. It is a subject with which the media no longer deal. Last year the multinationals sent out of this country €15.25 billion in profits earned by the labour and the brains of Irish workers, and the figure for repatriated profits for the year before was €15.03 billion. Despite this, there is yet another concession to this sector.

At the same time the Government has cruelly, deliberately and cold-bloodedly slashed €58 million in social welfare cuts from the hardest hit sections of the community. This is an incredible situation where landlords and developers have created a burning accommodation crisis and the Government hits their victims who cannot put a roof over their heads and will now be denied a roof if they cannot demonstrate that they have been six months in rented accommodation.

The cuts in community employment schemes threaten to rip apart an important part of the social fabric of our community as services in the community for children, young people and the disabled come under pressure. The naive saw a slight flicker of hope that the community employment schemes might be safeguarded when the Fianna Fáil backbenchers began to roar like lions, but at one crack of the whip, the pride of lions was transformed into a scattering of whimpering mice with not even a bit of imitation cheese to show for their trouble.

The people are subjected to cuts and stealth taxes while the prize millionaire stallions prance around their exercise yards on the plains of County Kildare. No doubt when their tax-free millionaire stud farm owners clatter over the Minister for Finance's mansion in their helicopters, they will tip their caps to this man who has yet again let them off the hook. However, a working class woman in west Dublin or anywhere else who drags herself from her bed in the dark on a winter morning to clean offices and other buildings to put bread on the table for her family is reckoned for every penny in taxation.

A continuing scandal is that the millionaire and billionaire tax exiles are no doubt jetting off to their luxury hideaways in Bermuda, Monaco and other places this weekend—

Mr. F. McGrath

Donegal.

Dáil Éireann debate - Thursday, 4 Dec 2003