Seanad Éireann debate -
Friday, 20 Dec 1985

Vol. 110 No. 11

Appropriation Bill, 1985 [Certified Money Bill]: Second and Subsequent Stages.

Question proposed: "That the Bill be now read a Second Time."

Minister for Finance (Mr. Dukes)

The purpose of this year's Appropriation Bill, as in each year, is to give statutory effect to the departmental Estimates for the Supply Services, both non-capital and capital, including Supplementary Estimates that were necessary throughout the year. This year's Bill follows the usual format. It appropriates to the various services set out in the Schedule the sum of £6,151 million comprising the Estimates totalling £6,052 million, as set out in the revised post-budget Book of Estimates, together with Supplementary Estimates of £99 million, which were approved by the Dáil during the year. The Bill also authorises the use of certain departmental receipts as Appropriations-in-aid.

Looking back on 1985, I believe that we can draw satisfaction from the performance of the economy. Inflation this year has fallen to its lowest level since 1968. It is now at a level one quarter of the average rate of over 20 per cent prevailing in 1981. Apart from the benefits which accrue to the individual citizen from lower inflation, it is also of particular importance in enhancing the competitiveness of the productive sector of the economy vis-a-vis our main trading partners.

A reduction in inflation has another central importance in that the reduction in inflation of itself gives rise to a reduction in inflationary expectations. That will induce people, firms and all of those engaged in our economy to act in a way which reinforces the reduction in inflation. Looking at a number of developments in the economy over the last few months, we have begun to see the beneficial effect of a reduction in inflationary expectations.

Impressive progress was made on the external front during the past year, even though international economic trends were less favourable than in 1984. From a situation in the earlier years of this decade when we faced a clearly unsustainable trade deficit of over £1,800 million, or some 15 per cent of GNP, we have now reached the point where a sizeable trade surplus for the year is emerging. Not since the forties have we managed to record a favourable trade balance. This, together with the strong performance of tourism, is showing through in the balance of payments. The first half current account deficit of £398 million was almost £170 million better than in the same period of 1984. Although the balance of payments will improve again this year for the fourth successive year, the persistence of a deficit in the balance of payments is a direct consequence of our excessive reliance on foreign borrowing to underpin unsustainable levels of public spending.

It is also gratifying to be able to report a turnaround in domestic demand. For the first time since 1981, both consumer spending and fixed investment are showing an increase in real terms. The recovery in personal expenditure, while it reflects the benefit to individuals and households from the fiscal measures in the 1985 budget and the substantial decline in mortgage interest rates in the course of the year, has clearly been underpinned by the reduction in inflation. Therein lies an important lesson for us all: improved living standards are possible in the context of moderation in nominal incomes.

The progress on the employment front during the year fell short of our expectations. Yet even here recent indicators provide some grounds for optimism in expecting an improvement in the overall employment situation. Aided by the success of many of the Government's job creation initiatives, such as the enterprise allowance and social employment schemes, the annual rate of increase in unemployment at the end of last month had fallen to the lowest point for over five years. I am confident that this more favourable trend will be consolidated by the stimulatory impact of the employment and taxation measures which the Government announced during last October.

Looking ahead to the new year, I believe we can anticipate further improvement in the level of economic activity. Forecasts for the international economy indicate that potential will exist for maintaining the impressive export performance of the past four years, thereby further improving our balance of payments position. This will, of course, depend on the adoption of a sensible approach to income determination. If this is forthcoming, and I believe the outturn this year should help to ensure it, then we can also look forward to a further winding-down of the underlying rate of inflation next year. Against this background, the labour market outlook is more favourable than for some years past.

Turning to the record of the Government in managing public spending programmes, Senators will be glad to learn that in 1985, for the fourth consecutive year, total expenditure on supply services will be in line with the budget target for the year. The Government have restored credibility to the budget process. We have taken firm and positive action to put the public finances in order and have created the conditions in which soundly based decisions on economic policy and public expenditure can be taken. Our present policies ensure the proper mix of expenditure, investment, taxation and borrowing. Our primary objective must now be to consolidate on the progress already made by pressing ahead towards achievement of the targets in Building on Reality for reducing our dependence on borrowing, thereby contributing to a reduction of the burden currently being imposed on our public finances and the balance of payments by our present debt overhang.

The Estimates for Public Expenditure for 1986 and the public capital programme published earlier this week show that steady progress continues to be made in correcting imbalances in the public finances. They are however only the first step of the 1986 budgetary process. The measures that will be outlined in my Budget Statement next month, taken together with the Estimates, will ensure the maintenance of the growth which has been a feature of the economy in the past year.

I should like to deal briefly with the main features of the Estimates and the public capital programme. The 1986 Estimates for non-capital supply services, at £5,698 million, are very close to the plan target of £5,630 million. Several factors account for the variation, chief of which is the fact that the 1986 pay and pensions bill at current rates of pay amounts to £2,600 million which is £75 million over the plan target of £2,525 million.

In a number of individual areas, there are substantial variations from the 1986 plan provisions. These variations, however, reflect specific decisions taken by Government. For example, the Justice area increase reflects in part increased expenditure arising from the Stardust Tribunal while the provision for food subsidies is £30 million more than the national plan figure reflecting a halving in the subsidies from April 1986 rather than their full abolition in January.

The public capital programme, published this week, provides for expenditure of £1,706 million on public sector capital investment in 1986. Of that amount, £1,237 million will affect the building and construction industry, an increase of 5 per cent on the 1985 provisional outturn.

The allocation for sectoral economic investment is 11 per cent up on the 1985 outturn reflecting the expected better climate for investment next year and the Government's determination to give the maximum possible support to investment and employment in the directly productive sectors of the economy.

The allocation for productive infrastructure is down on the 1985 outturn but this reflects the planned tailing-off of major investment programmes undertaken in recent years by ESB and BTE. Where work in the infrastructural area remains to be done, the Government have made the necessary increased allocations. Bord Gáis will spend an extra £31 million compared with 1985, constructing pipelines to Limerick and Waterford with associated spur lines to industries and coops; the allocations for roads at £130 million is at a level which will facilitate the continuation and completion of existing works and the initiation of a number of major new schemes, including the Newbridge by-pass and the Bray-Shankill by-pass to mention just two.

Social infrastructure investment will increase by £25 million on the 1985 outturn. The bulk of the increase over 1985 is in the housing area. While local authority housing expenditure is being reduced, reflecting the success of the £5,000 grant scheme for local authority tenants-tenant purchasers giving up their homes and moving to the private sector, an estimated 9,000 houses will still be provided next year, either through building or vacancies. An additional £26 million is being allocated for private housing grants reflecting in the main the expanded house improvement grant scheme and the full year effect of the increased new house grants for first time purchasers announced in the 1985 budget.

The switch in emphasis from direct expenditure on output towards grant-aid expenditure, which has a high level of associated private investment, should be of particular benefit to the construction industry. Indeed, the Government commitment to maximising public sector input into the construction industry within the public finance constraint is well demonstrated in the 1986 PCP with 72.5 per cent of public capital expenditure likely to affect the industry, a significant rise over the 69.3 per cent recorded for this year.

The Government will continue to commit themselves to improving the efficiency and effectiveness of public investment. The process was started in 1983 with the issuing of detailed guidelines to all Departments aimed at:

(i) improving decision-making, by improving the quality of the information on which decisions are based through the use of systematic appraisal techniques and;

(ii) improving management control once projects were initiated.

Considerable progress has been made on this score and there is evidence that a more cost conscious approach to the planning and implementation of public investment is being adopted.

Two other developments in 1985 indicate that the Government are determined to get better value for money from public investment. They are:

(i) consultants' fees are now calculated on the VAT-exclusive cost of projects and discussions are underway with the professional institutes on arrangements for effective price competition on fees and on splitting of fees, and

(ii) new contracts procedures are being finalised at present in my Department. Under these procedures, public authorities are being encouraged to use fixed price contracts wherever possible and to ensure that every aspect of a design is completed before going to tender. The new procedures will largely eliminate the scope for later changes and the consequent incidence of extra costs.

I commend the Appropriation Bill to the House.

Mr. Lanigan

At the end of an Oireachtas session which has been both stimulating and depressing it is a useful exercise to have a look at the figures produced by the Department of Finance. One of our objectives in this debate should be to review the happenings of the past year and preview the coming year. Any review of activities in the last year will not give anybody cause for optimism in the coming year, although the Minister in his statement made much play of the fact that the contents of the Bill before us were satisfactory in that he was very close to the budget figures. Unfortunately, the position throughout the country does not give any of us cause for optimism. In reviewing activities in the last year we must consider the sentiments expressed by people like Senator Brendan Ryan who have consistently expressed concern for those who are not able to get involved in the so-called improvement in living standards.

We have had an overwhelming sense of frustration in this House over the past 12 months at not being able to help the underprivileged in our society. We have not been able to help the people who are becoming unemployed. We have not, in any sense, given to the unemployed or those coming on to the labour market, the sense of hope the Minister gives in his speech this morning.

When we look at the Appropriation Bill we can see that in the only areas in which employment can be created — the industrial and in the farming sectors — there is a downturn in investment in the creation of jobs. The projected outturn of new industry and enterprise development is £77 million for 1985 and the estimate for 1986 is £72 million. I am not sure how one can produce new jobs if one decreases the amount of investment put into the creation of jobs. In the industry sector we see that we have a huge amount of space. What is an advance factory? An advance factory is a building which creates no wealth. A haybarn is more productive than an advance factory in terms of this literature.

At the end of 1985 the IDA will hold 4.149 million square feet of vacant factory space and 5,750 acres of land. They have 1,500 acres of special sites at Ringaskiddy, Ballylongford and Castletownbere. Due to the supply of industrial sites, advance factory buildings are outstripping demand in recent years. That is the kernel of the whole argument. What do we mean by an outstripping of demand? That we have not been able to put people to work in these sites. We have a huge amount of reserved space, space available for promotion. If the Government were not promoting these areas, it would be a disgrace, but the fact that we have 4.149 million square feet of vacant factory space tells its own story. The Government have not been able to create employment; they have failed totally, even though the Minister says that there is a prospect of improvement in the next 12 months. I am afraid he must be the only one who believes that. He must not be living in the real world of commerce.

Over the past 12 months I have seen numerous firms going out of business, daily. They are not being helped by Government policies or by the banking fraternity who are being allowed, by the Minister, to foist upon small and large businesses, the highest rates of service charges, and interest higher than in any other country in Western Europe. Now banks charge you to lodge money and to cash cheques. Their charges should be looked at by the Minister. It might seem that interest rates in banking are coming down, but the real charges that the banks are making upon industry and the individual need to be looked at very closely. While the banks are overcharging their customers, without any control by the Minister for Finance, they are making profits which are increasing at an alarming rate. Their profit ratio is increasing daily and the Minister is one of those responsible for these increased charges.

Over the next 12 months I can see more firms going out of business, even though the Minister will say that inflation is at its lowest level since 1968. What does inflation mean in the real world? It does not mean very much unless one is borrowing and trying to equate the interest rate one is being charged against the inflation rate of the day. Unfortunately, because interest rates have not come down at the same rate as the inflation rate has come down the real borrowing rate has increased. There is no great advantage to the individual in that situation.

It would be easy to stay here all day criticising the Government for the state of the economy. One could fall into the trap of suggesting that everything that is bad in the country should be blamed on the Government. Nevertheless, because of the fiscal attitudes of the Government in areas of taxing employers and employees, there is no will to employ people and there is less willingness to be employed. You have a tax on employment of 12.5 per cent. Who will get involved in employing people with a tax rate such as that? The Government are spending an enormous amount of money advertising the fact that you can take people off the dole, bring them in to work and the Government will pay them. It is a load of rubbish. People are being exploited by the Government under the pretence that they are being employed; they are not. They are getting £35 per week for the privilege of being used by the Government and by employers, in many cases.

According to the Minister we had a good year for tourism. We possibly had a good tourism year for out of the country tourism, but we did not have a good year in terms of our traditional tourism market. The Irish person could not afford to go on holidays this year, or go to the seaside. Our seaside resorts which depend on indigenous tourism had a disastrous year but tourists did come from abroad and fortunately Kilkenny had a magnificent year. This had more to do with the relationship of the punt to the dollar than to the job being done by the Minister for Finance in attracting tourists. It is to be hoped that the dollar will, remain strong during the coming year and that we will be able to attract people from dollar earning countries. If the dollar drops in value our tourism receipts will suffer a similar drop.

We must consider how the fiscal policies of the Government inhibit the growth of industry and trade. People who are working are taxed to the limit, as are employers, but at the end of the day they are not getting the type of service they deserve.

The Minister mentioned in regard to unemployment that the trend in December was at the lowest level for five years. I wonder what he means by "trend". Does he mean that more people are employed or that fewer people are unemployed? Will he check how many people are trying to come back from England for Christmas? The number of young people attempting to come back might form a basis for a decreasing trend in unemployment. There is not one person in this House who is not waiting for a friend or relative to come back from England for Christmas. If our young people are working in Britain, France, Germany or elsewhere it would be easy to say that the underlying trend in unemployment is downwards. We export our problems. The world is getting smaller. What difference does it make if one's son is working in London, Paris or Rome? He would at least be working within the European Community, but such people should be working in Ireland. The Government have not done anything to provide a longterm solution to our serious unemployment problem.

Traditional industries have been decimated during the past year. I am speaking from personal experience. I have seen firms in the agri-business sector, the motor industry and the building trade close down, many of them well-run firms who had been in business for a number of years. They could not survive under the present regime. I speak as a businessman. We live in business on a day-to-day basis, harassed by banks who are overcharging us for the poor services they provide, harassed by a Government who are incapable of protecting native industry but who will provide enormous amounts of money for foreign enterprises to provide jobs which often do not come onstream.

The Government allow the Revenue Commissioners to charge exorbitant rates of interest on overdue accounts. At a time when inflation is running at 5 per cent, the Revenue Commissioners charge 1.5 per cent per month accounts. This should not be allowed. A recent television programme dealt with money-lending and exorbitant interest charges, but the Revenue Commissioners charge rates which are just as high. The Minister should consider the problems being created for industries and businesses which never cost the state a penny in the creation of a job but who are now being mulcted by the Revenue Commissioners and cast in a role of swindlers and criminals.

A Circuit Court judge has to impose a minimum fine of £800 on somebody who does not send in his VAT returns on time, even if the money has actually been paid by the time the case comes to court. One can find reports in the provincial newspapers every week of justices who say that unfortunately they have no choice but to impose this £800 fine. I would ask the Minister to look at this provision which is doing irreparable harm to smaller businesses who do not have the facilities enjoyed by larger companies. They spend all their time trying to make enough money to keep themselves going, and if they fall behind in payments to the Revenue Commissoners they are charged 1.5 per cent on the amounts overdue and are also subject to this fine in the court. This is one of the reasons for businesses going to the wall.

I would ask the Minister to adjust the interest rate being charged by the Revenue Commissioners. Why should it not be adjusted downwards when inflation and bank charges go down? Why should 18 per cent be charged by the Revenue Commissioners? In many cases that figure is doubled because when one considers the amount of money owed to the Revenue Commissioners it is obvious that the interest exceeds the amounts originally due. Many small businesses are in serious trouble and I appeal to the Minister to consider that element. If he addressed this problem many of the social pressures on the Government would diminish because we would not hear about these inflated figures owed to the Revenue Commissioners. If they were allowed to pay a percentage in terms of interest or by way of penalty, the Government would get much more revenue and many companies would be able to stay in business.

There is an unsustainable trade deficit of over £1,800 million and for the first time there is a trade surplus. However, a trade surplus is of no benefit unless we provide employment. In many cases where there is a trade surplus the profits are not being kept in this country but are sent to the countries from which new manufacturing industries come. The profits which remain here are taxed at 10 per cent whereas the ordinary firm which does not export is taxed at about 45 per cent. Industries, which have export possibilities, should be taxed at the same rate. I make a particular plea for the tourism industry which has a huge export element. I cannot see why the tourism industry cannot be taxed at the same rate as any other manufacturing industry which exports. The Irish Hotels Federation suggested that there should be a 10 per cent tax on all profits generated but I can see that that would create difficulties because every other industry would want the same rate to be applied. Nevertheless, tourism is a special case because of its spin-off effect in terms of employment. There is hardly a service which is not ancillary to tourism. It should be very easy to take out the export element in tourism and tax it at the lower rate than the export manufacturing rate of 10 per cent. This would have enormous potential for generation of profits which would mostly be re-invested in the tourism industry and would benefit the whole economy. If that were done, many hotels and people in the business would benefit enormously. It would not cost the Exchequer anything, indeed they would benefit by the creation of jobs and of revenue from PAYE, PRSI and so on.

The Minister said that it is also gratifying to be able to report a turn around in domestic demand. I do not know if he has walked up Grafton street, High Street, Kilkenny, O'Connell Street, Limerick, or the West Gate in Drogheda because, if he had, he would see "For Sale" signs over many shops. There are also pre-Christmas sales being held which is unheard of. If that is an upturn in domestic demand it is hard to understand. The figures do not justify the Minister's statement. There is a downturn in domestic demand and any shopkeeper will confirm this.

The Minister also said that progress on employment fell short of expectations. He considers, however, that the trend is moving upwards but I do not agree with him. I hope that 1986 will be a better year for business as that would benefit everybody. I wish the Minister success in his fiscal demands for 1986 but I cannot see the objectives which we would like to see being fulfilled by the trends in the Minister's statement and the public capital programme for 1986.

The Minister should try to reduce the cost of employing people because that would automatically increase the number of people employed. Training programmes should not be of more benefit to the people who run them than to those who take part in them. We must also look at the problem of emigration to see which people are going abroad, where and why. Much of the investment is to the advantage of other countries and huge numbers of better educated people are going abroad having had the benefit of one of the best educational systems in the world. Those in many professions are leaving, including doctors, marketing graduates and engineers, including high technology engineers. These people have been educated at enormous cost. I hope that at the end of 1986 I will be able to say to him that things are improving. I wish the present Minister for Finance all the very best in the coming 12 months but I sincerely hope he will not be sitting there with his usual stoic expression looking at me and saying "Lanigan, would you ever sit down?"

Mr. McDonald

For the last 20 odd years we have always discussed the Appropriation Bill at Christmas. At this time of the year Senators may feel inhibited from slighting the Government. I would not like the Leader of the Opposition to feel inhibited about this, but we will have an opportunity to go into more detail in the debate after Christmas.

I congratulate the Minister, and the Government, on the report he has given the House this morning. This reflects the initial results of the policy set down in Building on Reality. This is the first time in my long experience that any Minister for Finance was able to report to the Seanad that inflation was down to one-quarter of what it was when he took office, that the balance of payments was in a much healthier state, that exports were up significantly, that interest rates were down, to the relief of all sectors of the community, that there had been an easement of something like £70 per month on mortgage repayments — this is a great benefit to the average householder — and that, for the first time in 40 years we have a sizeable trade surplus. That is a very encouraging way to sum up the Government expenditure and credit is due to the Minister for Finance. This is the most stimulating account any Minister for Finance has given this House. It is a clear indication that Government policies are working for the benefit of all, not just in an airy-fairy way but in a way which provides people with more money in their pockets. If we have an obligation to do something for our community, the people whom we must be prepared to help are those young people who are providing homes for their families.

According to the OECD reports and other publications we are the twenty-fifth wealthiest country in the world, but listening to commentators and politicians and reading the papers one gets the impression that we are the greatest whingers in the world. The cliché about the cutbacks is wearing thin. If one attends a meeting of a health board or a local authority month in and month out the excuse the managers give for not meeting a local demand is that the money is not available because of the cutbacks. If we look at the figures we will realise that the money provided by the Minister for Finance is adequate and that there are no significant cutbacks which are inhibiting progress. Everybody requires services and our people enjoy high quality services which very few developed countries enjoy at present. Listening to BBC Radio 4 one hears letters from people complaining about five or six month delays for hospital services. Sitting on our health board I am reassured that we do not have problems of long waiting periods.

Mr. Lanigan

On a point of information, there are children waiting for dental treatment three and a half and four years and in certain health board areas it would be considered——

An Cathaoirleach

Senator McDonald without interruption, please.

Mr. Lanigan

In the South-Eastern Health Board area——

Mr. McDonald

I cannot be expected to attend every health board meeting in the country.

Mr. Lanigan

Children have to wait three or four years——

An Cathaoirleach

Senator Lanigan, you were not interrupted.

Mr. Lanigan

Obviously, I said nothing that invited interruption.

Mr. McDonald

The Minister and the Government have increased the allocation for the Department of Health from £1,115 million this year to £1,157 million for next year. How anybody can say an increase of £42 million represents a cutback I do not know, and this at a time when inflation has been reduced from 20 per cent when Senator Lanigan's Government were in power to 5 per cent now.

Mr. Lanigan

If I had a goitre problem it would take me 12 months to be treated——

An Cathaoirleach

Thank God you do not.

Mr. McDonald

Our health services are better than those of many other countries and we have a more caring society. If people were to take a more positive attitude to the quality of our public services, they would be much happier. In my view great credit is due to the people working in these services — the administrators, the professionals and so on — who have raised the level of our services so that they are the envy of many countries. Nowadays people want the taxpayer to pay for exotic operations. It does not matter whether they cost £500,000 or £750,000 so long as the taxpayer meets the bill; but, at the same time these same people are not prepared to pay their fair share of taxation.

All members of local government must face reality soon and decide whether they want to preside over the disintegration of a local government system or exercise a greater influence in local government. That can only be done if they have an input into raising finance for their areas.

I accept that the Chair would not be too pleased if I were to deal with taxation in detail but I do not think it transgresses the orders of the House to ask for an easement of the taxation burden. I ask the Minister for Finance to consider introducing a system of tax credits for people who pay local authority services charges. This is a matter councils will have to deal with in the coming weeks. I have been a member of a local authority since the mid-fifties. When we were able to levy our own rates we had a direct input in the way the money was spent. County roads, small drainage schemes and improvement schemes are left short of money at the moment. Because they are not directly provided for with 100 per cent grants from the Department of the Environment, their cost falls on an area about which there is considerable ambiguity, namely, the uncertainty with regard to water and other service charges.

In my county we have had water charges going back at least to the fifties. It is only lately that people have taken some objection to paying them, even though they are only a contribution towards the cost of the service. The three main political parties must look a little further than scoring political points. They must decide whether we want to retain power in the councils, irrespective of which party or combination of parties have a majority. We should consider what kind of local government structure we want and decide among ourselves if we want to have a strong voice in that body.

In recent years there has been too large a political input in local government and the services have suffered as a result. Many members of local authorities are inclined to concentrate on the kind of operations that give them headlines rather than considering the quality of service provided for the people. I hope the Minister for Finance and the Minister for the Public Service can do something to ensure that we have a more up-to-date auditing of local authority accounts. At present in some counties the auditors appear to be two or three years in arrears and that is not good enough. We are entitled to an improvement in that respect.

The Minister might suggest to his colleagues to increase the number of local authority auditors perhaps by five which should be sufficient to get rid of the backlog. Nowadays practically every local authority spend up to £30 million a year and most of their accounts are computerised. There is no excuse why the audit should not be completed within months of the closing of the financial year and I ask the Minister to see if he can do something about that matter.

I understand the measure dealing with land tax will be introduced in the coming year. This is something that will affect local authorities. Taxpayers will get a credit or its equivalent by virtue of paying land tax. However, I must point out that there has been a continuation of the agricultural levies which last year amounted to £83 million. This represents a sizeable amount of taxation.

Credit must be given to the Government and the Department of Labour for their efforts to tackle the problem of unemployment. I do not know if there was ever a period in history when there was complete unemployment. One could count on one hand the number of countries whose unemployment benefit and assistance schemes continue on such a long term basis as is the case in Ireland. As a Christian country we are entitled to look after our people in this way. I do not think it acceptable that any section should demand that they should have jobs. Great credit is due to the Minister for Labour, Deputy Quinn, and the Minister of State, Deputy G. Birmingham, for the many measures they have introduced to ease the situation for young people and to give them experience to enter into the private sector.

This is being done through the various training schemes. Almost £5 million has been spent on the employment incentive scheme and £92 million has been given to the Youth Employment Agency who also administer the teamwork scheme. The enterprise allowance scheme has been given £10 million and the social employment scheme expends about £51 million. Together they are doing a marvellous job. I agree with Senator Lanigan that it is not giving full employment, but we are giving people an opportunity to work and not to feel ashamed of doing whatever job is available. It is extremely important that people should have a chance, even on a temporary basis, to engage in work. The various schemes have encouraged many young people to set up small industries of their own. These people are facing up to the challenges of the times.

I am not so sure that the IDA have bent their backs to meeting the challenges. There should be great emphasis on small cluster units. If people have an idea and want to try it out, the facilities should be available to help them. These small industries are of great benefit particularly to smaller towns and it is an option that is much preferable to dreaming of a huge multinational corporation coming in to provide employment for all. There has to be a greater focus on self-help. The vast majority of young people have benefited from the educational system. We should rejoice in that and be positive in our support for them and I hope the IDA will concentrate more on assisting young people who have ideals and who are prepared to try to break into the service sector particularly, youngsters who might be able to carve a niche for themselves in business. We must be prepared to take risks with our young people, and the way to do it is to trust and encourage them.

We must consider more the accountability of certain sectors of the public service. I referred earlier to the huge cost of education this year, £900 million. When we think in figures of that kind and if we do not get a satisfactory service, we must conclude that there are middlemen who are not pulling their weight or who are sleeping on the job. I will give an instance of a problem in my area. Children from south Laois go to school in Athy. In the mornings they are provided with transport, but on the return journey at night their parents have to collect them. I do not know of any other area in which CIE provide half a service of that kind. I am sure that some "bucko" responsible for the school transport service is making money out of this and consequently 20 or 30 children attending school in Athy must be collected by their parents, although those parents are contributing the full amount demanded of them.

I suggest that the root of the problem is that management at local level are not doing their job properly. There is a supervisor or a manager for each school transport area, and why the situation I have described should arise is beyond me.

Throughout the year we have had many problems and it is to the credit of the Government that they have tackled them with determination in a very open way. The polls show that the Government have the people's support for their policies. It is clear now that people have begun to notice the open approach of the Government to their problems. The people obviously want this Government to continue with the actions they have been taking.

I hope that among the Government's Christmas and new year resolutions will be to lighten the tax burden for the people who are working and paying tax. In the coming budget I hope it will be possible to ease the tax burden so that people will be encouraged to go on working. Particularly I should like to suggest that those who do overtime will not get just 28p or 30p in the £ from their overtime pay. The higher rate of taxation is prohibiting, and even if a way cannot be devised in the 1986 Finance Bill to ease the burden on general taxpayers, I hope the Minister will be able to try new ways and means to reduce the tax burden in a way that will encourage people to do their best, not just for themselves but for the economy.

As we move closer to the festive season I should like to express my wishes that my colleagues here will have happiness at Christmas and a successful New Year. I add the Cathaoirleach and the Minister for Finance to this expression. I hope that when the Minister comes back after his Christmas rest he will devote all his energies to encouraging the diminishing few who are carrying the tax burden by lightening their burden. I have every confidence in his ability to turn the economy around and to ensure that all of us will be given high hopes for a bright future.

Mr. O'Mahony

I will open my remarks by referring to food subsidies. The Minister did so and I note that the national newspapers referred to the fact that they would be halved when the new child benefit scheme becomes operative. As I understand that scheme, originally what was intended was to provide £30 per month by way of child support. This would be subject to tax and would be a substitute for the range of child support payments now in existence. The new scheme would be a realignment and would be of a redistributive nature, paid to lower income families. The consequences would be that families with children who have incomes in excess of £15,000 would lose some income and that families with lower incomes or with incomes rising towards £14,000 or £15,000 would have a net gain. Welfare recipients with children would, in fact, suffer a neutral consequence. In other words, there would be no improvement in their situation because child dependants' allowance in the social welfare system was to be integrated into the scheme. That is worrying. I can see benefits in the notion of trying to consolidate child support systems and trying to make them more redistributive than they are but, as I understand it from the studies that have been done, the distribution would have been from those on high incomes to those on low incomes whereas people on social welfare would have suffered a neutral consequence. In that sense the scheme was not redistributive across all classes. When one hears that this scheme is intended in part at least to compensate for cuts in food subsidies then it becomes, I think, regressive. The integration of the two together forms a regressive scheme.

We know from the one definitive study that I am aware of that has been done on the consequence of food subsidies by Professor Kieran Kennedy and Tom Healy and published in The Irish Times on 3 March 1982, that the elimination of or reduction in food subsidies can be seen as a regressive form of taxation. This is because families on low incomes spend a far higher proportion of their income on the food items concerned than families on high incomes spend in this way. If you combine this child benefit scheme with the halving of food subsidies from April next the consequences for low income families will be detrimental and the total inpact will be regressive. I would, therefore, ask the Minister and the Government to ponder very carefully before they proceed down this road. It would be highly regrettable indeed were the Government to contemplate a movement of the kind I have outlined for the reasons I have outlined.

I understand why food subsidies were introduced. They were introduced during a period of high inflation in the economy to try to bring down the price of essential food items but the reduction now is regressive and acts firmly against low income families much more heavily than against families on high incomes. I would urge the Minister not to go down this road unless it is shown clearly that the consequence is redistributive and does not lead to cuts in the living standards of persons on social welfare who are already, as we all know, stretched to the pin of their collar to get by.

I would add to this, too, a note of concern I have arising from chapter 6 of Building on Reality to the effect that it is proposed, when computerisation allows, to tax short term social welfare benefits. I would like to make a number of points on this. If this proposal is added to the matters I have talked about earlier then the whole package becomes highly regressive.

Secondly, I do not see why it is necessary to focus on making sure that taxation on low incomes and welfare is equalised when we are making no attempt whatsoever to ensure that the taxation system as a whole is equalised across classes. In other words, I do not see why the Government feel compelled to bring about equalisation of tax burdens across low income groups.

Acting Chairman (Mr. McGonagle)

The Bill is about expenditure, not taxation. You can make a passing reference to taxation but not in depth, please.

Mr. O'Mahony

I take your point. The substantive point I wanted to make then was that no Government who are concerned with equity should begin by trying to streamline the tax burden at low income levels so that it is equitable across low income groups when at the same time they are not prepared to ensure that the tax system as a whole is equitable across all classes. Again, I would ask the Minister to have a look at that, if it is proposed to go ahead with it as contained in the plan.

In terms of the Estimates, it has been noticeable in recent years that there is, in the context of the Social Welfare Estimate, a significant shift in numbers from unemployment benefit to unemployment assistance. As we know, this occurs after people have been unemployed for 15 months or more. The shift which has taken place in the past year and which will continue again next year obviously reflects the long term trend of unemployment that we have had in the past five or six years. We are ending up with increasing numbers on unemployment assistance. The reality, as we all know, whether persons are single or have families on unemployment assistance, is that they are living very close to the bone in terms of their ability to get through the week and to cope with the essentials of living. By the time people reach the unemployment assistance stage, such resources as they had accumulated while working have been dissipated during the 15 months they were on unemployment benefit so that they are really in bad shape then.

In the context of the budget I would urge the Minister to pay special attention in the context of social welfare recipients to those who are on unemployment assistance. Obviously all categories on social welfare must be looked after to the very best ability of the Government at this time but I would express a special note of concern for those on unemployment assistance.

I am glad to see that in the Estimates provision has been made for the National Development Corporation. It might be useful to reiterate the purpose of this body because I am not at all sure that it has sunk into the consciousness either of some members of the Government or of the population as a whole. The National Development Corporation is designed to do one thing and one thing only. It is designed to generate investment funds to develop medium and large scale international trading domestically owned companies. It is designed to redress the balance within our industrial structure between the preponderance of foreign owned companies which we have at the moment in the international trading sector and the small number of Irish owned companies. In other words, it is designed to develop a stronger and more comprehensive Irish owned industrial sector which can trade internationally. All of us in the House are aware of the need to do this, not least because while many international trading companies are operating from this country, most of them are foreign owned and most of the benefits which they gain tend to go out of the country. We know about the black hole phenomenon. It is clearly desirable that we set about creating Irish companies who can trade internationally and who can have the opportunity of retaining their earnings in the economy for follow-on and linkages. That is what the National Development Corporation is about.

It has been interesting to note in recent weeks that some of the best private sector venture capitalists' have now come around to understand the value of this institution. I heard two of them the other evening say, "Yes, this is objectively necessary in the context of an economy which has not been able to generate sufficient investment funds to allow the development of large scale Irish owned companies for whatever reason." They have come to understand its value for reasons which are different from mine perhaps, but nonetheless they understand its value. I hope the Government show greater urgency than they have to date in getting this institution off the ground and making it work for the purposes for which it is intended.

I deeply regret that it has taken three years to get legislation to this House despite the fact that it was agreed in the Joint Programme for Government. Those who opposed it ideologically were wrong on objective grounds for the reasons I have given. I hope there will not be further delays because the reality about this economy is that we are not generating enough wealth creation which is retainable inside the economy to service the other social and service needs which we have. That is the fundamental reality which anyone outside looking at the economy can see immediately, particularly if they have a sense of what is commercially necessary in any economy. That is what this institution is for. It is designed to compensate for the failure of the private sector to generate the kind of wealth we need to sustain the population we have at a level which they are entitled to expect.

I will also refer to a matter which arises out of the Health Estimate, that is, the question of Beaumont Hospital. This hospital has been built for three years now and since then has been maintained empty at a cost of £1.2 million a year. It is in an area which urgently needs a general hospital of this kind. I am deeply appalled at the attitude of the medical profession in refusing to move to this hospital from the Richmond and Jervis Street Hospitals respectively. This is a scandal. Their failure to move derives solely from the fact that they are prepared to put their selfish interests above the interests of a very large population on the north side of the city who, in the absence of this hospital, are forced to traipse all over the city, in many cases to hospitals which are substandard and which were intended to be replaced by the new Beaumont Hospital.

The medical profession have had enough opportunity to debate their position. They have been offered various promises by the Minister for Health over the past three years, the latest being that they could build their own consulting rooms on the site if they wished to do so. That is the end of the road as far as the Minister is concerned. I urge him to indicate to the IMO that the negotiations are over and, if the relevant consultants are not prepared to move, those in the Richmond Hospital will be instructed to move since that hospital is directly under the control of the Minister, and those in Jervis Street who do not wish to move will just have to find alternative employment. There are no shortages of highly skilled consultants in this society. The people in north Dublin or any other area should not be forced to wait for a tiny minority of self-interested self-seeking people to agree to do what their public duty requires of them.

As far as the economy generally is concerned there is no doubt that we operate a dual trading economy. Unless we can come to grips with that, we will not come to grips with the problems. The international trading sector underwent a slowing down of activity in 1985. Hopefully this has turned around to some degree because the international economy will turn around in the course of next year. This is to the good, with the reservations I expressed about the fact that a great deal of the international trading sector here repatriates its profits and, in that sense, the overall impact is less than we might expect. I am afraid the domestic trading sector is in really bad shape and I am not convinced that the more optimistic forecasts of recent weeks about output growth in this area will be met because it is difficult to see from where the demand on the domestic side will come. Certainly, the fall in oil prices will stimulate the demand, but beyond that it is hard to see from where it will come.

Public sector pay will be settled apparently somewhere below or at inflation. Private sector pay settlements seem to be running around 7 per cent or 8 per cent gross, but given our higher marginal tax rates, the real effect of this will be something of the order of 4 per cent which will be around the rate of inflation, so it is hard to see from where we can increase consumer demand. This is another reason why I urge extreme caution in the area of what happens to the real incomes of social welfare recipients. Already, with the fairly substantial shift both onto the unemployment benefit list and off the unemployment benefit list to the unemployment assistance list, the incomes of social welfare recipients will fall, unless something significant can be done in the budget.

In terms of the domestic trading economy I am not as hopeful as many people who commented on these matters for the reasons I have mentioned. The economy needs a stimulus of some kind. I am fully aware of the great difficulties in giving that stimulus because of the mismanagement of previous administrations in particular. If the Minister and the Government are not focusing on this duality in our economy I would urge them to do so, because most of the Irish owned small and medium sized companies with which I am in contact are in deep trouble. They do not see any sign of progress because of the difficulty we are having in stimulating demand on the domestic market.

In many respects what happens to those businesses will impact on the unemployment levels. I would be inclined to try to focus on this sector increasingly in the coming weeks if possible in the hope that some increase in consumer demand can be put at the disposal of the people who need it to purchase from the domestically owned enterprises. Perhaps the most important of my comments were the set of points I made at the beginning. I urge extreme caution on the Government in their intention to halve food subsidies from April. I have no doubt that the impact of that will be regressive and unfortunate.

Minister for Finance (Mr. Dukes)

I thank Members for their contributions and, if I may, I should like to comment on some of the points made in the course of the contributions.

I do not really believe that Senator Lanigan has any reason to feel what he called an overwhelming sense of frustration during the course of the year. For example, he seems to be under the impression that we have not been able to help the under-privileged or the unemployed. In fact Senator Lanigan would see very clearly, were he to go through the accounts not only for 1985 but for 1984 and 1983 as well, that we have over that period — I think alone among the countries of the European Communities — managed not only to protect those who rely on social welfare for their income but to increase the real value of social welfare payments both to the unemployed and to other groups who rely on social welfare payments. That has been quite a considerable achievement in a period of severe financial constraint, in a period of some economic difficulty particularly in relation to the public expenditure complex. That increase in real terms in the level of social welfare assistance of various kinds demonstrates the commitment of this Government to protecting the people concerned.

Senator Lanigan also felt that there has been a downturn in investment. I simply have to point out to him that that is not the case. During the course of this year private investment in plant and machinery rose appreciably in real terms for the second successive year. Indeed, we discussed the matter in the House some time ago. If Senator Lanigan were to inspect the trends in various categories of imports he would find that the statement I have just made in regard to the improvement in the level of investment is indicated by the performance in relation to imports of machinery and investment goods generally over the last two years. It is not an answer to analysis to give us anecdotal evidence, as Senator Lanigan did, and really to say: "Damn the figures. I know a fellow around the corner who is selling his shop, so there must be a downturn in investment." That is not the proper way to go about a discussion like this. If Senator Lanigan feels that I am misrepresenting the figures, which God forbid I would never wish to do, let him say so; but let him not base the rest of his argument on this folksy, down home kind of stuff that really simply ignores the figures.

In relation to the provision being made to assist industrial development, Senator Lanigan has rightly pointed out that we have an amount of vacant IDA factory space. Indeed, the IDA have a land bank available to them. Between the end of 1984 and the end of this year the amount of available IDA vacant factory space will have been reduced by approximately 500,000 square feet, so that the IDA, through their active promotion policy, are finding clients for some of the factories which Senator Lanigan mentioned. I would also make the point that during 1985 £22 million were spent on the construction of factory space. This again indicates that, although the pace is not as rapid as we would wish, the IDA, in spite of the difficult climate for international investment particularly, are succeeding in carrying out their job and making progress on our behalf.

I might also refer Senator Lanigan to a number of features of our industrial policy which assist in attracting and in stimulating investment. For example, we have introduced the national linkage programme designed to develop a successful sub-supply industrial base in this country. The IDA themselves have introduced and are developing what they call the company development approach aimed at building up strong indigenous companies. Over 100 companies have participated in this effort so far. That is designed to encourage overall planning by companies in a way which gets the financial and non-financial resources of all of the various State agencies in behind the development of those companies. As the House will be aware, the small industries programme has been regionalised. That regionalisation was completed last June. We are setting up one stop shops in order to facilitate and simplify the approach of the entrepreneur to the State system.

On the export side CTT have taken a number of initiatives to assist exporters in developing market expertise. We have the market entry and development scheme designed specifically to help exporters with the various expenses involved in breaking into new markets or in further developing existing ones. Indeed, there is a provision in the 1986 Estimate for that scheme. We have the business expansion scheme which we discussed here last year during the course of the debate on the Finance Bill. No doubt we shall have a word or two to say about it during the course of the Finance Bill debate next year.

We have the National Development Corporation, referred to by Senator O'Mahony. I should like to avail of this opportunity of setting Senator O'Mahony's mind at ease. He appears to be under the impression that not all members of the Government are fully aware of the purpose of the National Development Corporation. I can assure the Senator that he need have no worry on that score, that each and every member of the Government is fully aware of the purpose for which the NDC was set up.

Senator Lanigan suggested that reductions in expenditure in the economic areas are not conducive to increased employment and picked — rather selectively I thought — a number of figures out of the Estimates and drew a comparison with this year to support that point. The fact is that expenditure that will directly support employment and production will increase substantially in 1986. On the current side, expenditure on economic services — the classification will be found in the early pages of the Estimates booklet — will increase from £727 million in 1985 to £790 million in 1986. On the capital side, in the same area of economic services, expenditure will increase from £384 million in 1985 to £427 million in 1986. Taking the two years together there is an increase of £106 million in expenditure in those areas, an increase of approximately 10 per cent, which in real terms is certainly a fairly substantial increase. These increases reflect our determination to support the development of activity in the economic services area in order to support and expand employment and production.

Senator McDonald also expressed his particular concern with the support for Irish entrepreneurs. The programmes I have just mentioned indicate the lines on which we are responding to that concern and for the very reasons Senator McDonald mentioned: because it is important that we assist the development of every part of our productive machine to the maximum extent possible.

A number of comments were made about the effects of our taxation and social insurance system on employment. I must remind the House that we have the lowest level of social insurance contributions in the EC. Most of the debate about PRSI contributions in this country is totally unreal because it ignores that fact. One result of that is the simply verifiable fact that the total amount of social insurance contributions by employers and employees is inadequate to meet the cost of the social insurance scheme so that the general taxpayer provides somewhere around 28 per cent — I am speaking from memory — of the total cost of social insurance expenditure. It is not enough simply to say year in, year out, in one debate after another, that we have high social insurance contributions. We have not. However, bearing that in mind, in order to give stimulus to extra employment during the course of this year the Government announced on 23 October last, as part of a package of measures, a special scheme in which in respect of new employees taken on between October and the end of March next employers will be relieved of the employer's contribution for social insurance for the 1986-87 tax year.

Mr. Fitzsimons

That scheme will be very welcome.

Mr. Dukes

I had anticipated that it would be welcome, which is one reason why it is there. Apart from being welcome, it will be useful in facilitating an increase in employment.

Senator Lanigan claims, in relation to some of the special schemes, that people are being exploited on the pretext that they are being employed. He said that they are being used by employers and, in some mysterious way he did not illustrate, that they are being used by the Government. I cannot for the life of me see how he concludes that people are being used by the Government if they are involved in a scheme like this. In my experience of meeting people who are involved in these special schemes, I do not think that any of them feel that they are being used, except to the extent that an employee is always used by an employer to do a particular job. Certainly most of them whom I have met did not feel used or exploited. They felt quite happy that they had an oportunity to be involved in some productive or gainful activity.

Senator Lanigan objected to what he called the exorbitant charge of interest by the Revenue Commissioners on overdue amounts of tax. He painted a very moving picture of the people who are now being charged with this interest as people who are mulcted by the system, who are being cast as swindlers and criminals, people who, he claims, never cost the State a penny in job creation. I had some difficulty in restraining my tears for these people. However, that is not the case of most people who are charged interest on overdue tax. The Senator objects also to fines for non-submission of returns.

I feel that if Senator Lanigan had gone on for long enough he would have taken out of our taxation every instrument there to encourage people to keep their affairs in order, to make their returns on time and to pay their taxes when due. Of course, nobody likes to do that if it can be avoided. But the vast majority of taxpayers take the view that, whether they like the legislation or not, it is there and they live up to their obligations. We know that people will not always do it and we provide for penalties, which indeed were written into the legislation when another party were in Government who were neither of the present Coalition parties. Those provisions have been there for 20 years, if not longer, in our taxation system and they were brought in for the reason I have just mentioned. It is a little unwise of Senator Lanigan to suggest obliquely that we should do away with all of these features of the system which are designed to make sure that the system works properly and brings about the result it is intended to achieve.

Senator Lanigan came very close to saying that there was not much point in having a trade surplus. He did not pursue the point very far. But, if you want to be gloomy, then you must go to extraordinary lengths in your desire to be gloomy to reach the point where you will say that trade surpluses are not all that great anyway. I cannot see the point of making an argument along those lines. He suggested that we should tax all industries who export or who have an exporting capacity at the same rate and that we should include tourism in that. He suggested that we should in some way take out the export element of tourism and tax the profits at 10 per cent. I know the objective that he has in mind in making that proposal, but he ignores completely the reason why we have the 10 per cent corporation tax system. That system was introduced as a direct replacement for the export sales relief system which was found to be in contravention of our obligations under EC law. Now to expand substantially the scope of that 10 per cent system would again get us into a problem in relation to our obligations as an EC member. Apart from anything else, I cannot offhand see the practical possibility of taxing some of the operations of the tourism operator at 10 per cent, because they are claimed to be exports, and some of them at a different rate of tax because they are claimed not to be exports.

Senator Lanigan disagrees with my statement that there is an upturn in domestic demand. We can go through all of the indicators, but I do not intend to detain the House with that. Again, it is not enough simply to say that the shopkeeper around the corner does not think that there is a big upturn in demand and conclude the argument on that basis.

Senator McDonald has raised a number of issues which I will pursue separately with him, apart from the industrial matters to which he referred. I take his point about the importance of ensuring that we keep the auditing of local authority accounts up to date as far as we can. I assure the Senator that that problem is occupying a number of us who are involved in it to see in what way and how quickly we can bring about the kind of improvements that he has in mind.

I do not intend to say a great deal about the food subsidies and the child benefits scheme because I intend to make an announcement about those matters in my Budget Statement on 29 January. I take it that Senator O'Mahony's main concern is to ensure that the effect of any change is that the benefits should be redistributed and that in bringing about redistribution we should ensure an advantage in terms of redistribution for social welfare recipients. Anticipating Senator O'Mahony's request, we have pondered those points very deeply and they are very much to the forefront of our minds in designing a course of action that we will set out.

Let me be allowed a brief reference to taxation as Senator O'Mahony was. Perhaps he is a little overconcerned about the basis of the suggestion in the plan that we make short term social welfare benefits taxable. The difference between the status of taxability and the degree of taxability can be very wide and, of course, it will be only in the case that income is above a taxable threshold that any tax will be paid. The net impact would not be huge, taken overall, but in specific cases it could be rather important. Those would tend to be specific cases where the difference between social welfare payments and income at work is so little as to create a positive disincentive for work. I would have to say that I do not for one moment accept the Senator's contention that we are making no effort to ensure that taxation applies equally across all classes of society but that is a matter that is best left for discussion at a time when we are talking about taxation.

Mr. O'Mahony

I should like to clarify the point I was making. One can see clearly that all incomes should be taxed equally, that taxation should apply equally to all people on equal levels of income, but I worry about the fact that we try to get reforms of this kind into play at low income levels when we are not doing as much as we should to get an equitable taxation system operating for all incomes and classes.

Mr. Dukes

The Senator has confirmed for me that my understanding of what he said was right. I have come to the same conclusion. The Senator will find in many of the anti-evasion, anti-avoidance enforcement measures we have taken since 1983 and for which the Senator will remember, I have been wrongly critised in this House by various Members, that if one adds those together one will see that it indicates clearly that our intention is to make the taxation system apply equitably and, indeed, efficiently across all the base of taxable income. That is defined in our legislation.

I should like to conclude by thanking Members for their contributions and commend the Bill to them. Members will see, looking through the Bill, that what we have done is to observe and adhere to the instructions given to us by the Legislature in relation to expenditure this year. Both current and capital expenditure this year will be very closely aligned with the targets we set out at budget time, with the targets approved by the Legislature at that time, with the allocations drawn up, submitted to the Legislature and approved in the context of the Estimates discussions, and those that we finally brought before the Legislature before the end of the year in regard to Supplementary Estimates.

Question put and agreed to.

Agreed to take remaining Stages today.

Bill put through Committee, reported without recommendation, received for final consideration and ordered to be returned to the Dáil.