Before we commence Committee Stage I want to indicate to the House that amendments Nos. 1 to 9 in the name of Senator Fallon are out of order as they could have the effect of imposing a charge on the Revenue.
Social Welfare Bill, 1986: Committee Stage.
An Leas-Chathaoirleach
Section 1 agreed to.
SECTION 2.
Amendments Nos. 1 to 4, inclusive, not moved.
Question proposed: "That section 2 stand part of the Bill."
This section deals with the various rates of increase that have been referred to in the Bill. I accept, as the Chair has told me, that my amendments to this and later sections would impose a charge, but it is no harm to restate the fact that the increases of 4 per cent in some cases and 5 per cent in others will not be a reality because we are talking about eight months instead of a full year. Therefore, these increases are of 2.7 per cent instead of 4 per cent and 3.4 per cent in the case of the 5 per cent. The Government say they are giving 4 per cent and 5 per cent increases but that is not the case. In the meantime, having regard to the various VAT increases which were imposed from day one, social welfare recipients are the real losers.
I thought I had covered that in my reply yesterday. I repeat that for the past few years increases in social welfare rates have been granted from either the end of June or some time in July. We have not only matched inflation but we have outpaced it in these increases every year. The standard time for the commencement of the increases has been the middle of the year. The 1985 increases fully matched inflation up to the middle of 1986 and the increases in this Bill are expected to do the same and, indeed, to outstrip inflation up to mid-1987. Therefore, we are arguing about something with an historical basis.
I accept that this has been done in the past few years, but the Government were breaking with tradition in this respect because Fianna Fáil Governments dated the increases from as early as possible. Therefore, people had come to expect the increases from April.
In planning our expenditure every year we have looked at every possible aspect of Government expenditure particularly with a view to ascertaining how we could ensure that social welfare recipients were more than sheltered against any cost of living increase. We have managed to do that and, as of next week, give taxpayers an enormous boost in their disposable incomes. As I said yesterday, we are talking about considerable extra expenditure. I think I made it clear yesterday also that over the last three years, had these increases been implemented from April, the extra cost involved this year would have been £22 million, in 1985 £32 million and in 1984, £34 million. Those kinds of sums would have more than swallowed up the kinds of increases we have been able to grant, the kind of help we have been able to give taxpayers and the child benefit allowance. While all of these may be very desirable, we must be realistic and ascertain what is the best use that can be made of the resources available to us. I am happy that the increases being given from their date of implementation, and those given in the last couple of years, will have more than protected social welfare recipients against any cost of living increase.
Nevertheless, would the Minister accept, particularly in the case of single unemployed people, that the rates are still abysmally low and bear no relationship to people's needs in order to have any kind of dignified lifestyle? I emphasise single unemployed people. Would the Minister agree that, in spite of the admitted progress made by a number of Governments in recent years, the basic rates for single unemployed people remain abysmally low?
I agree with Senator B. Ryan that the single rates are not by any means at a level any of us in this House would like to see. However, that would apply to many other rates also.
I do not think the Senator was here for the Second Stage debate yesterday when there was considerable ranging over various forms of payment. For instance, Senators mentioned widows, prescribed relatives allowance, a great many rates were mentioned as being worthy of increase. I responded by saying that I agreed fully that such increases were desirable. Therefore, I do not disagree at all with the Senator when he makes his point about the desirability of increasing the single person's allowance. Unfortunately, to implement increases over and above those made consistently over the last few years would put considerable strain on some other element of social welfare expenditure. This is something that has to be balanced. If we could increase the rates for the weaker sections of society, nobody would be more pleased than I. Indeed, the Government would be very happy to do so. It is a question of what is possible.
Question put and agreed to.
SECTION 3.
Amendments Nos. 5 to 8 inclusive, not moved.
Section 3 agreed to.
SECTION 4.
Amendment No. 9 not moved.
Section 4 agreed to.
SECTION 5.
Question proposed: "That section 5 stand part of the Bill."
This section provides for the increase from £49 to £58 in the amount of weekly earnings to be disregarded in calculating the amount of pay-related benefit. It is correct to say that over the past three years this increase has risen from a figure of £36 to £58. This must be seen as representing a major loss to those who are unfortunate enough to lose their jobs or become ill. It has to be recognised that this would reduce further any benefits that would be payable to those people who were unemployed, disabled or who were in receipt of maternity or other benefits. It could entail suffering a loss of as much as £2 per week. These unfortunate people are getting little enough, and to reduce their net incomes further can only be unfair. If, on the one hand, we maintain that there is an increase of whatever amount, we should also make the point that there could be losses incurred on the other side also.
If the House will forgive me, I might spend a couple of moments in an endeavour to put this into perspective. Pay-related benefit is calculated as a percentage of a person's reckonable earnings in the relevant income tax year between two fixed amounts — the floor, which is currently £49 per week, and a ceiling, which is at present £220 a week. Pay-related benefit is paid as a supplement with disability, unemployment or injury benefit. It was introduced in April 1974, and since its introduction there has always been a proportion of reckonable earnings disregarded in order to calculate the amount of pay-related benefit in addition to the flat rate benefits. In 1974, the year of its introduction, the disregard was set at £14 — that was over twice the prevailing rate of flat rate benefit, which was £6.55 a week. There was no change at all effected until 1981, even though the flat rate benefit had been increased very significantly in the meantime. The purpose of the disregard is to ensure that the amount of personal flat rate benefit is taken into account in determining the amount of the pay-related benefit. The significant point here is that, if the floor had been maintained at the same level in relation to the flat rate benefit as it was when the whole scheme was started, the floor would now be £84 instead of the £58 we propose. That is a relevant point to make.
A second point I must make is that, of course, the new £58 floor will apply only to new claims being made after next week, 1 April. Existing claimants will not be affected. Their entitlement will continue to be calculated on the basis of the lower floor. As Senator Fallon said, there is some effect, but it is relatively small. The maximum pay-related benefit will be reduced by just over £2 as a result of this new floor. However, had the floor being maintained at the same level since 1974, as was the intention at its commencement, it would now be approximately £84 instead of £58.
I must express some reservations about the movement of the floor and the ceiling with which we will be dealing in the next section. I understand the Minister's rational explanation, but the beneficiaries of pay-related social welfare worry about the philosophy of fiddling with floors and ceilings. Either we accept the principle of pay-related or we do not. Unfortunately, in England they have come to disregard pay-related completely; it has been abolished. Trade unions, employers and others in this country are now beginning to condemn the philosophy of pay-related. Formerly it constituted a tremendous source of sustenance in that people, when they became ill or unemployed through no fault of their own, knew that their pay-related benefit would be in line with their former earnings. The record shows that I have commented on this Bill every year since we began to endanger the pay-related principle that we are now employing floors and ceiling to have it social welfare-related and not related to pay. The principle for which the scheme was intended originally was to relate the income of an unemployed or sick person to the payment that a person had when working. Now we are trying to ensure by manipulating these two figures that the income people get under this heading is related in some way to the social welfare income of somebody else and not necessarily pay-related.
That is a dangerous road to go down. I can see the reason for it. We must remove anomalies and ensure that there are incentives for people to go back to work, but it should be done on the basis of the percentage of the pay-related benefit rather than on the floors. Otherwise we will be tinkering with the whole principle of pay-related as opposed to dealing with a percentage income that people should have when they are unemployed. I do not know if that makes sense to the Minister, but there is a feeling on the ground that people who have no objection to paying pay-related and possibly have objections to paying tax on the pay-related element of their income, when they are unfortunate enough to be sick or unemployed the amount they get from the State should be related in some way to what they were earning, that there should not be movement of floors to ensure that anomalies are removed. I would say the same for the ceiling.
There should be no ceiling. Everybody should pay pay-related based on income. We should not stop it at a given exclusive rate for people in the higher bracket who suddenly find themselves at various parts of the tax year paying very much less because suddenly their pay-related contributions have stopped, although one would argue that they are the least affected when they are unemployed or sick. The other argument is that people with a fairly high income faced with the trauma of unemployment find it even more difficult than the poor to adjust to having no income. I worry about this believing, as I do, in the principle of a pay-related social insurance scheme based on income while one is earning which should be based on a relation to that income when one unfortunately is not earning.
I can only presume that the Minister's previous experience in these benches was why she noticed my absence yesterday. She keeps a more watchful eye on these Independent backbenchers here than many people would.
I am intrigued that the benefit increases are dated from some time in July while the adjustments downwards are dated from 7 April. The Minister made a plausible case for it if all we are doing is attempting to restore the situation to where it was previously. However, as Senator Ferris said rightly, there is an increasing identification of pay-related benefit by the well identified new Right as one of the areas of public expenditure that could do with some heavy cutting. There is a good deal of talk about disincentive to work and things like that which do not apply to them, but obviously apply to everybody else. Therefore, I would like an assurance from the Minister that all that is involved here is the restoration of a situation. While I might not like the situation, that would at least give us a ceiling above which we will not eliminate or pare away pay-related benefit. Pay-related benefits are one of the more useful, innovative and compassionate benefits that have been introduced in recent years here and they have been beneficial in a number of ways.
We need to be very careful. Many of the people who speak loudest about the disincentive value of the pay-related benefits, particularly disability benefit, in their own employment have the magnificent cushion of having a full salary when they themselves are sick, but they try to prounounce that other people in other areas of employment must have something less than 80, 70 or 60 per cent of income available when they are sick in order to provide an incentive to work. Their pronouncements on disincentives to work identify no such disincentive for themselves. People often make decisions about other people's values, lives and motivations which are entirely different from what they would attribute to themselves. It is a form of very clear cut social snobbery. I would like the Minister to explain, though, why this whole area could not be related to the time when benefits were being paid in July and why it must be done with such urgency.
Senators will forgive me if I am not able to answer in great detail every point they make at this stage. I understand Senator Ferris's concern about what he considers to be the tinkering around with the floors and the ceilings. I will not bore the House by repeating what I said earlier on the question of the foundation of these schemes and what has happened since then to change the relationship of the floor from what it was in 1974 when the scheme was first started. I said that the scheme started in 1974 with a ratio which was just over twice the prevailing rate of flat rate benefit. Nothing at all happened for some reason until 1981. Perhaps it would have been better if the relationship had been kept in tandem in those years, because the level of flat rate benefit, as we know, was increased significantly in that period but the floor was not touched at all. Perhaps it is a pity that it was not kept in tandem.
Senator Ferris stated that there are concerns among various people about changes being made in the floors and ceilings in this area and he mentioned the danger to what is considered to be the very good principle of pay-related benefit. At the same time there are a great many clearly expressed concerns, not always from what Senator Ryan refers to as the new Right, about disincentives to work.
"Always" is a great word. You can always find an exception to "always".
I will rephrase that. A great many people who are not of what I consider to be the new Right are genuinely worried about the real disincentive to work. Let us face it. We know we are talking about people who are at the lower end of the spectrum in our society, and to place extra burdens on them in terms of persuading them by benefits that we have available not to work is not a good thing from that point of view. How one deals with that is obviously a matter for wider debate and there are various ways of trying to do it. Some of the ways might be very attractive but would involve enormous expenditure. Debate on ways of increasing the minimum incomes could be opened.
I think it was Senator Ryan who asked me to give undertakings about not doing away with PRB. That was the general trend of his remarks. Obviously, no Minister in any Department in any Government can give undertakings about what might happen at any time in the future. It is no part of my understanding of my job to embark on that sort of course.
I take the reservations expressed by Senator Ferris and Senator Ryan and I understand the reluctance of the House to give its agreement enthusiastically to this section. If the original relationships had been kept the floor could be much higher. I hope the House can accept what we are trying to do in this section.
Question put and declared carried.
SECTION 6.
Question proposed: "That section 6 stand part of the Bill".
In this section the earnings ceiling for PRSI contributions is being raised by £900 with effect from 6 April 1986. The point raised by Senator Ryan has been well noted, that what is being taken in comes in almost immediately, but what is being given out is delayed for a further three or four months. It is no harm to say again that not alone have we PRSI contributions being raised by £900 but the Minister for Health told us last week that the income level for the health contribution levy was being increased from £13,000 to £14,000. Whatever one may say about it, it is another form of taxation. The regrettable feature of it is that the unfortunate people paying these contributions are getting less by way of return for their payments than at any other time. In terms of social welfare benefits and health care generally things are quite bad at the moment. The result is that a worse deal is being created for those paying increased contributions generally. That must be noted and it is worth highlighting it again.
It may be because of my lack of experience of the ins and outs and intricacies of either Government or, indeed, responsibility for anything that I have never understood why the income is set at such a relatively low level, less than twice the average male industrial earnings, which seems to me to be an exceptionally low level. I have never understood it in principle and I doubt if there are that many people with earnings in excess of the figure here who become unemployed. Given the class nature of unemployment, by and large it tends to affect the poor worst of all. In the area of disability benefit most people in that sort of earning bracket will have some sort of scheme for payment of full salary when they are sick and I cannot understand why we do not extend PRSI to all earnings and all income levels.
I have never understood why for purely political reasons Governments do not do it. Any good done by a Government in terms of income tax is entirely lost on a large section of the population because that benefit in income tax is entirely swamped from 6 April in the renewed payment of social insurance contributions, as the Government will discover at the end of April. Many people who would have benefited from the income tax adjustments will discover then that instead of their net pay going up it will go down because they are to start paying PRSI again.
I do not understand the rationale behind a modest limit. I do not think it would cost a lot more because the number of people in that income bracket who will be claiming benefit will be quite small. It would introduce a note of equity. It would also distribute the burden fairly and would get rid of a particularly thorny issue which has got every Government in the last five or six years into a lot of hot water at the end of April.
On this issue, I am fully with Senator Brendan Ryan and against the philosophy of Senator Fallon. I mentioned in the debate on section 5 that I had a worry about section 6. If the whole principle of PRSI is to be followed through there should be no such thing as knocking off at the top end and people not having to make a contribution. On the basis of social equity alone we should be able to ensure that people in the higher income brackets continue to pay a percentage of their salary into the coffers for distribution to the poorer sections. Instances of unemployment at that rate of income are much lower than they are at the average income level. The beneficiaries in the higher grades would be fewer in number and the cost to the Exchequer would be minimal, but the benefit to it by continuing the principle of expecting income earners over this limit to pay PRSI would be considerable. The Minister would have more funds at her disposal to do all the things we have been asking for in the other sections.
Obviously, we cannot have it both ways. We cannot call for widespread payments of social welfare, bringing forward the payment dates and so on, without trying to ensure that we get an income from some source to do it. Those in the PAYE sector are at their wits end to know when this spiral of increased taxation is going to stop. We now have a very strong lobby from that side and they are fast running out of patience. That means we have either to extend the capital tax base or increase borrowings. Although we have tried to control borrowings we still have had to increase them to enormous sums. The people who suffer as always are those at the lower end of the scale. I have tried to elicit information privately from Ministers as to why there is a limit beyond which people are no longer required to pay PRSI. If the income limit was abolished at the upper end and everybody was expected to pay his slight percentage increase in PRSI, the gains to the Exchequer would be considerable. There would be more money available for disposal to the lower sections.
The same applies to the point Senator Fallon mentioned which, although not contained in the Bill, is relevant, that people are expected to pay their consultant surgeon when they arrive at a certain income limit. Of course, that is tied up with the vested interests of consultant surgeons who, in addition to their salary, which is pretty substantial and up to three or four times this limit, want the facility of being able to collect fees from people whose incomes are above certain limits. That is where the VHI comes into play. We now find people paying their VHI who will not pay their health board contributions. We have a funny attitude to such things.
If we believe in the principle of PRSI there should not be a stopping of the payment for a selected group of people who earn more than £14,700. There are quite a few of them in the country, such as members of the Government, officials of semi-State bodies, people in the private sector and directors of companies. They all have pretty substantial incomes. However, at £14,700 they stop paying PRSI. PRSI should be at the same level for every employee, members of Government, civil servants or the ordinary fellow on the road, the road sweeper working for the county council. They should all in fairness be paying the same contributions. Those who earn the high income should pay more and those on a lower income pay less, but the principle should be intact. I do not know why there has to be a limit at this level which is indexed every year to move slightly up. Is there some reason? Are we ever to have a national pay-related pension scheme for everybody, farmers, self-employed and business people?
People should in some way have to contribute to the State to ensure their entitlement by law to a pension at 60 or 65. At the moment we have this odium of means testing for non-contributory pensioners while property owners legally divest themselves of everything they have to their relatives and descendants in order to qualify for a State pension. There is only a limited purse available to us. Let us be honest with one another, everybody should pay something and should not be requested to stop paying it because they are fortunate enough to be earning £14,700 or more a year. Many people in this country are earning more. I think I mentioned everybody except trade union officials, so I want to mention them now, because some of them are in a very high income bracket, too. They are the people with a vested interest in ensuring that there are percentage-related increases. Naturally if you are a negotiator for increases the greater the percentage the better it is for you. We must be honest with one another because we are dealing with 240,000 people, unemployed, or sick, or otherwise dependent on the income that we can get into this pool. We want to do something further and in the process of taking that income into the State, we should not be giving any privileges to people on higher incomes.
There has been quite a wide-ranging set of remarks on this section and I would like to make a few remarks in reply.
Senator Fallon said yesterday that he considered the service available to people in the health and social welfare areas was very bad and getting worse. He must be aware that health, social welfare, education and housing are the huge spending areas. The money which we expend on them is not met by what the taxpayer contributes and that is why we have current budget deficits. The Senator always seems to be making proposals which involve enormous amounts of extra spending without actually saying where he intends to get the money from. In fact, the people who are paying PRSI, income tax, or in other ways contributing to the Exchequer are only paying for a small amount of the public services being provided and these are provided, unfortunately, far too much on borrowed money. That is the kernel of the country's problems and there is no other way of looking at it.
We have a range of social services right across the field — social welfare, health, housing, education, all those big spending areas — which is far more than the country can afford. This is the basic problem which has been realised by the Government over the past several years. Indeed, it was this realisation which caused the electorate in the last election to say finally that they had had enough of free spending which got us into this mess in the first place. I cannot accept that the services available to the public are inadequate. They are about twice as much as we are actually paying for out of our income tax or any other form of contribution to the Exchequer.
I am not a dogmatic person in any respect on any issue and I am not dogmatic about there not being any ceiling on PRSI contributions. I would say however, that apparently over the years Governments have looked at the position regarding our tax levels generally. People above a certain income are paying huge amounts of tax about which they constantly complain and to ask them to pay PRSI above a certain limit on all their income might be considered to add too much to their enormous tax burden. The Government have to look at that situation and the overall tax burden.
Remarks have been made about abolishing the ceiling. If one abolishes the ceiling for PRSI contributions presumably then one is talking about abolishing the ceiling for the actual pay-related benefit as well. Senators have remarked that very few people in a particular income group become unemployed. Many of us deal with advice clinics in our constituencies and it is becoming more and more a feature that people who were earning higher wages find themselves redundant or unemployed and the question of also extending the full pay-related benefit to that group might be an extremely expensive proposition.
Senator Ferris also mentioned that well off people were divesting themselves of all their means in order to benefit from State pensions. This is something that I have come across consistently as a TD and, since I became Minister for Social Welfare, it has come up in terms of people complaining about it, but it is not only well off people who divest themselves of anything they have. It is apparently happening right across the board and particularly in an area we discussed at length yesterday — the area of smallholders where decisions are made to transfer the whole farm to somebody else, whether or not he or she is capable of running the farm, in order to qualify for State pensions.
There are cases where elderly persons decide to sign over their houses and whatever small amount of property they may have to their family and then apply to the State for a pension. The Department have to take a very serious view of these decisions and are considered to be severe in their judgment. I am making the point that one comes in for great criticism from some people for not giving that person a State pension and, on the other hand, one is accused of giving State pensions to people who do this. It is something of which I and the Department are acutely aware.
On the question of pensions generally, as Senators will be aware, a National Pensions Board was established recently because the Government recognised the anomalies and complications of the whole pension area. This board will be an extremely useful adjunct to our Department and to the Government in looking at the whole range of pensions from whatever source they are funded, to see how we can make sure that citizens are well protected in their old age and that the State is not faced with an impossible burden, not having received contributions from taxpayers.
The net point I want to make, in case there is any misunderstanding, is that there will be an overall decrease in the PRSI contributions payable by people with yearly earnings of £14,700 because the increase in the ceiling for health contributions and the abolition of the 1 per cent income levy together amount to a decrease of £1.68 per week in the maximum PRSI contributions, so in April they will not find themselves having to pay more. People on an income of £10,000 will have a more dramatic decrease in their contributions and, at the same time, the workers will be getting a return from the income tax concessions announced in the budget which, taken together with the decrease in their PRSI contributions, will mean that they will have considerably more disposable income in their pockets at a time when inflation is at an all time low, certainly by modern standards. Senators should not be too concerned about this section which might seem on first sight to penalise people but, in fact, does not.
On the Minister's final point, at the end of March and beginning of April people above the limit will see their PRSI contribution going up because they will have paid none for the last couple of months of the year when they were in excess of the limit. They will see a decrease in their take home pay at a time when they are being told that they are better off. A sensible Government should find some way of changing that because it eliminates any credit they will get from reductions in the taxation burden. In March people have a certain take home pay and in April, when they are told they will be better off, they discover that their take home pay is gone down, which demolishes forever any goodwill the Government might hope to get from changes in the income tax code. It is not one that will burden me too much, but I wish we could stop saying it is the burden of health, social welfare and education that creates the gap between income and expenditure for Government purposes because it is the total level of Government expenditure which exceeds taxation.
It is just as valid to say that it is the servicing of the national debt which creates the gap between income and revenue for the Government and it is just as valid to say we cannot afford to pay that if international interest rates go up as it is to say we cannot afford to pay higher levels of benefit because of the state of the public finances. Our overall level of national taxation as a percentage of GNP, given the enormous levels of dependency we have in this country, is not particularly high. Our problem is that we have a massive debt and it is not fair to say that the problem of our expenditure level is caused by social welfare, education and so on. It is the total level of public expenditure, a large proportion of which is debt service. Debt service is causing the problem, not social welfare and we will never refuse to pay an increase in debt service, irrespective of what happens to the currency or interest rates. We can say that we cannot afford to pay anything else, for instance teachers' pay or social welfare payments, but we will always agree that we have money to pay our national debt. That is why it is rubbish to say there is no more money in the kitty. If we need more money to pay our national debt we will find it.
We could spend the rest of the day and several other days discussing the question of the national debt, how it got there and what we should do about it and whether we should decide one fine day that we are not going to pay it at all.
We should send for the Minister, Deputy Bruton.
The Minister, Deputy Bruton, is not here now so there should be no remarks about him. I do not intend to go down that road, the prospect of which was opened up so attractively by the Senator.
An Leas-Chathaoirleach
Perhaps I should not have let Senator Ryan go down that road.
I will co-operate with you and will not go down it. I appreciate Senator Ryan's concern that the Government are not making themselves as popular as they might because of the problem of reducing the take home pay. It certainly is an administrative quagmire and I agree that we have this problem which causes perception difficulties which make people generally fed up and reduces the incentive to work.
I did not say that.
The Senator did not say that but that might be an interpretation of one of the reasons. Because I do not intend to go down the road of the national debt I ask the House to accept my assurances on this section and to pass it.
Question put and agreed to.
Section 7 agreed to.
SECTION 8.
Question proposed: "That section 8 stand part of the Bill."
This section makes provision for the PRSI exemption scheme which was announced some time ago by the Taoiseach. That is important because of the huge amount of unemployment benefit that forms part of the total £2.5 billion for social welfare. Unemployment is obviously important and anything that would help to create a greater incentive for people in the private sector to take on permanent staff should be welcomed. I have been saying this for some time and I was naturally pleased with the Taoiseach's announcement last October.
As I understand it, under this scheme people in the private sector who took on additional staff on a full time basis from October last until 31 March this year will be exempt from their portion of PRSI contribution for those employees in each week of the income tax period 1986-87 in which the increase in the workforce is maintained. In view of the fact that this scheme will cease next week, can the Minister tell me if it was a fruitful exercise and, if so, would the Government consider its continuance? If it was fruitful I am sure we would all advocate its continuance as every possible encouragement should be given to employers to take on extra permanent staff.
I join Senator Fallon in welcoming this provision and I would also like to ask the question he asked, which was foremost in my mind as we approached this scheme. When an employer loses a part time employee — an employee who works for half of every day — and the employer replaces that employee by a full time employee, is the full time employee deemed to come within the ambit of this section? Does the employer benefit from the operation of this section by virtue of the fact that a part time employee has been replaced by a full time employee?
This section is a bending to the Right in employers' minds because it has been used over a number of years when most of us were involved as public representatives in trying to coax people to take on employees and talk to them about their national responsibility to do so. Employers had got into the habit of complaining about too much paper work and they did not want to get involved in PRSI and PAYE regulations. I was completely taken aback when we announced the social employment scheme which could be used by community-based organisations, religious, schools and others who were being paid by the State to take on people on a short time basis. The number of people clamouring to sign on, whom we accuse at times of having no incentive to go to work, was so extraordinary that it confounded all the experts' views on the attitude of those who were unemployed.
I have been a public representative for a long number of years, longer than I care to put on the record of this House, and I have never come across an unemployed person who did not want to work. I have come across people who were sick and unable to work and who had to go on bended knees to prove their inability to work, but I have never seen people who did not want to work because of the pay-related benefits or otherwise. People are happier when they are working. I have known people who applied under the social employment scheme in the knowledge that they would actually lose some money every week. But they are happy to be out working with their fellow man on the street through social employment schemes, through county council schemes and otherwise.
I know some employers who said that the PRSI system was a disincentive to them to take on people. Because they felt there was some substance in that, this Government decided that they would give exemptions under this heading. It will be interesting to see at the end of the month whether or not it was a disincentive to employ people. I sincerely hope that it has been of some benefit. We handed State money directly to employers to take people off long term unemployment. They used that money almost as a total payment for people.
I know of people who were employed under the youth employment schemes and who were not paid one penny extra by employers during the six months they had accepted State funds. When the six months were up they let them go and brought in others. That is a manipulation of State assistance to stimulate employment. I would like to know whether this scheme has been successful to date. If so, we should consider whether in fact this whole area is a disincentive to employers. We should be extremely careful that we do not go down the same road as Mrs. Thatcher when she abolished the principle of PRSI.
I am concerned that what is fundamentally a good scheme has now turned out to be unpopular with employers. This scheme was set up not for employers but in the interest of employees. I would like an assurance from the Minister that if full time employees who are brought in under this scheme become unemployed or sick, they will be beneficiaries under the whole principle of the scheme. Are there sufficient funds within the PRSI system to ensure that all these new employees will also be protected in the event of unemployment or sickness? As the redundancy contributions are also excluded by this exemption can the Minister confirm that, if people who are employed in this period become redundant, they will be protected by the State?
I am glad I took part in this debate. Having squabbled over the years on so many occasions with Senator Ferris it is nice to find myself and himself agreeing about so many things for a change.
The Senator was always wrong about them.
I am beginning to believe that. There is a coven, and I choose this word carefully, of economists somewhere in this country with a hit list of various areas which they have identified as disincentives to employment. One after another they are paraded out and a superficially plausible case is put forward for abolition, reduction, minimisation, introduction of means test or whatever they regard as the appropriate response. So far where their recipe has been tried out it has failed gloriously. Most of these things have been tried out across the water and they have not created employment. In fact, they have done the direct opposite. They have created unemployment throughout the public service without any consequent generation of employment in the private sector.
Incidentally, the distinction between public and private sectors in this country is a load of nonsense. The private sector gets far more money from the State in subsidies, grants, training assistance and various other schemes than the public sector. If we add in the deferred and unpaid tax or exemptions from taxation they probably get three quarters of what would normally be the revenue of the State. Irish employers pay virtually the lowest level of social contributions in the OECD and definitely the lowest in the European Community. If I am wrong the Minister can correct me. Perhaps employers in Greece pay less. I know that employers in Spain, which has just recently passed us out in per capita GNP, actually pay substantially more in social contributions per hour than our employers do.
Again we have let the economists stampede us. The problem is probably not so much the level of payment of social insurance but the amount of paper work associated with it. You could keep the level of social insurance if you could simplify the administrative side of it. The real problem for employers is that they are the most cost beneficial part of the taxation gathering system. They pay the cost of gathering much of these taxes which, if it had to be paid by the State, would make many of these taxes non beneficial to the State because the cost would be enormous.
I do not agree with reducing employers' social insurance contributions. I do not believe that in the longer term it would generate any sustainable employment. We would be as well off to maintain and, indeed, increase to a reasonable level employers' social insurance contributions and simplify the procedures by which paper work has to be done and by which payments have to be made. We have some evidence of what is happening. In 1985 the top 40 companies on the Irish Stock Exchange increased their profits by 65 per cent over the previous year. At the same time unemployment went up and employment went down. Increased profitability does not necessarily mean increased employment. We are now looking for some method of increasing further the profitability of many Irish employers. So far they have proved themselves singularly unwilling to increase employment when profitability goes up.
I should like to thank Senators for their welcome generally for the efforts being made to increase employment and to test out ways of seeing how one can encourage people to take on more employees. The scheme as announced last October by the Taoiseach had certain provisions and regulations. In the three months up to the time we announced changes about 300 employees were taken on. It was decided at that stage to make changes in the scheme in order to remove some of the problems which were stopping the scheme from being taken up. For example, one of the excluding factors was that employers who received some form of assistance or grants in the previous years were excluded. That is no longer the case.
There was a stipulation that the new employee had to be on the live register for a full six months. That has been reduced to 13 weeks. Since the changes were announced recently and since more publicity was given to the scheme — we have not got the final figures yet — we have seen a considerable upsurge in the take-up of the scheme to around 1,000. To people who ask if the scheme will be extended, the only answer would be that I do not think the Government would have any reason to oppose an extension, but we would have to see if it had evoked the kind of response we wanted in order to have it extended further.
I would like to reassure Senator Ferris that people coming under this scheme are covered, the same as any other employee, for insurance, redundancy and all other benefits. There is no problem there. Senator Durcan raised the question of part time or full time employees. The scheme as designed at the moment applies only to a new full time employee. It does not envisage somebody working part time going full time. I do not feel it is something that could not be changed if the scheme was being renewed and extended. That is the position at the moment.
Senator Ryan mentioned that employers' contributions in Ireland are low compared with other countries; that is correct. At 11.3 per cent it is the third lowest in the EC but our taxation rates are among the highest in the EC. One advantage of the relatively low PRSI contributions is that it is a help in establishing our competitiveness for selling abroad. Anything which assists that must be welcomed. As Senator Ferris said, it is a matter for discussion and investigation to see if the level of PRSI is a disincentive to employers. This scheme will be very valuable in establishing whether that is the case. I hope the take-up of the scheme — we are hoping the take-up will be 1,000 with the recent changes — will show we are making progress in this area because it is one of many different ways the Government have devised over recent years to get people to work. At every possible opportunity we must bend our minds to ensure we get as many people as possible into permanent employment in the commercial, manufacturing and exporting sectors.
Progress reported; Committee to sit again.