Various analysts have described the budget as a non-event, a draw between the Government and the public. The editorial in one newspaper described it as bland and the lead article stated that stealth tax increases were well hidden in the fine detail. The article described it as a budget designed to minimise problems in the run-up to the June elections. It is probably a little more than that. The budget was well designed to create the minimum of opposition and the minimum of disquiet around the country.
The vast majority of decisions about revenue and expenditure had already been made well in advance of the budget. They were published in the Estimates and publicised in various announcements by Ministers and State bodies over the past two or three months. The taxation measures announced by the Minister will have an impact in a full year of approximately €600 million. Total expenditure decisions will be approximately €650 million. That was in the context of an overall budget where total gross expenditure exceeded €43 billion. Budget day decisions only had an impact on not much more than 1% of Government revenues and a similar proportion of total expenditure allocation. The budget is now a non-event, less than 1% of the total consideration.
Normally the budget deals with taxation and social welfare, the areas of most concern to people, depending on whether one is a taxpayer or a recipient of social welfare. People have reason to be concerned on both counts. More than 50,000 people will be pushed into the higher income tax bracket next year, following the Minister's failure to raise the standard rate band in line with inflation. The Minister's decision to leave tax bands untouched means that more than one third of all taxpayers will pay income tax at the rate of 42%. That is a penal tax rate for lower income groups who have now been included in the higher tax net.
The budget will amplify the negative impact of the application of PRSI and the health levy to benefits in kind. This move was announced in budget 2003 but does not come into effect until next January. In many cases the impact of the new system will negate any increases in take-home pay that would otherwise have been created yesterday. This additional PRSI and levy burden will, for example, mean that an individual earning less than the new PRSI ceiling of €42,160, but who has benefits-in-kind of €4,000 or more, will see his take-home pay decline rather than grow next year. The same will apply to employees who earn more than the PRSI ceiling and who have benefits-in-kind in excess of €12,000. The general social welfare increases announced yesterday of €10 across the board will have little impact on the charges and other indirect taxes with which people will be faced. Consequently, they will be less well-off.
The child dependant allowance has come in for particular criticism because the Government has fallen far short of its commitments to address the plight of at least 300,000 children. This problem was highlighted in one of today's national newspapers. The decision has attracted much criticism from anti-poverty groups which claim that the Government has ignored the problem of child poverty. This is the seventh consecutive year in which the child dependant allowance has not been increased.
The tourism industry expected that something would be done about competitiveness in the sector. I am glad the former Minister responsible for that sector, the Minister of State, Deputy McDaid, is present in the Chamber. I am sure tourism is still very close to his heart. The tourism industry is at a turning point in its development and faces a major challenge to regain its competitiveness in light of reduced customer satisfaction ratings, particularly with regard to delivering good value for money. In recent years, there has been a noticeable drop in the perception of good value for money by overseas visitors, which, according to the Fáilte Ireland survey, has declined from 63% in 2000 to 45% in 2002. For visitors the price issue relates not so much to the cost of access and accommodation, which are generally pre-booked, but to the price of eating out, food and drink in shops and the general cost of living when they get here.
The Government can claim, with some justification, that it has eased the burden of personal and business taxation but the same cannot be said of our VAT rates and excise duties, which are among the highest in the eurozone and contribute to unfavourable price differentials in certain key tourism products in Ireland compared with our main competitors such as Spain, France, Italy, Portugal and Greece.
With the introduction of the euro there is now total cost transparency among the 12 eurozone countries. The consumer pricing report, published in May by Forfás, indicated that Ireland could soon emerge as the most expensive country for consumer goods in the eurozone. The report showed that Ireland was now the second most expensive of the 15 EU member states, while it was fifth from the bottom in 1999. It is markedly more expensive compared with Greece, Spain and Portugal. The report also showed that Ireland was the most expensive of the eurozone countries for food and for prices in pubs and restaurants, as well as being the second most expensive for off-licence alcohol and for recreational culture. VAT rates in hotels, which increased by 1% this year, are the second highest in the eurozone after Germany. There was an expectation that the rate would be reduced in 2002. In its pre-budget submission, the Irish Hotels Federation sought a decrease to 10% but the call was in vain.
Ireland's excise duty and VAT on wine is by far the highest in the eurozone, with Spain and Portugal being the lowest. In some countries no excise duty is applied to wine. The tourism industry has been accused of over-pricing but such occurrences are rare. This year, for example, there were discounts across the spectrum and there has never been better value on the domestic front. One Killarney hotel, which normally charges €200 per night, had cut its prices by half and such reductions occurred across the hotel industry. However, Government taxes and local charges are forcing up prices for the tourism industry. I thought these would be addressed in the budget but they have not been.
Taking excise duty and VAT into account and considering the spiralling insurance costs, which according to the Small Firms Association's survey have increased on average by 52%, many companies have experienced increases of over 300%. Energy costs have increased by 21% in the past 18 months. Water charges in County Kerry have risen by approximately 20% and refuse charges by 50%. In addition, business rates will be increasing by at least 7% to 10% this year. All these increased charges are making it impossible for our tourism industry to compete so there will be casualties.
Local councils are underfunded and the local government fund is inadequate to meet the various impositions that are being placed upon councils. Local authorities are not being funded in terms of new responsibilities. The local government fund is not adequate for County Kerry where the rate base is mostly dependent on the tourism industry, which is being fleeced and forced out of business. Most of the county's business is concentrated in the three local authority areas of Listowel, Tralee and Killarney. There is a very weak rate base in the county and the only ratepayers are in the tourism sector. Tourism is losing its competitiveness as a result vis-à-vis the strengthening of the euro against the dollar and sterling. Next year will be a very difficult one for the tourism sector.