VAT Increases: Motion.

Mr. Farrelly

I move:

That Seanad Éireann condemns the increases in VAT announced in the budget which will adversely affect competitiveness and lead to further unemployment.

I am disappointed that the Minister who introduced the budget, the Minister for Finance, is not present to speak in this debate. He had time yesterday to answer his critics; I thought he might had the courage to come here and listen to more of his critics in the Upper House.

When the Minister delivered his Budget Statement on 24 February, I could not help but think of the shady used-cars dealers and their infamous three bridge guarantees. At the lower end of the motor trade there is a well-known back street guarantee which is given to gullible customers when they purchase shoddy vehicles. It is known as the three bridge guarantee. The dealer undertakes to guarantee the car until the person is out of sight and after that it is up to the buyer to deal with any problems that may arise.

The Minister for Finance guaranteed us a budget designed to create and protect jobs. We were told the mechanism was in place to protect employment, that the economy was like a fabulous engine finely tuned to create new employment and to eradicate the scourge of joblessness. To use the analogy of the car, before it reached the front gate of Leinster House there was a knock in the engine, the chassis was a little bent, the wheels began to come off and the Club of 22 were shouting on the front steps saying the budget would not protect jobs. A mere fortnight after its launch the budget is history and we have to pick up the pieces it has left in its wake.

From 1 March 1993 there are three VAT rates which were announced in the budget, the zero rate, the 12.5 per cent rate and the 21 per cent rate. I welcome the fact that the zero rate has remained. The 12.5 per cent and the 21 per cent rates are set to raise a total of £2.349 billion for the Government in 1993. This amounts to 18 per cent of its total income of £12.941 billion, thereby taking a large percentage of potential spending out of the pockets of private citizens and into the quagmire of Government public expenditure.

The logic underlining VAT rates, apart from the zero rate, has always been a mystery as far as the average consumer is concerned. The system is riddled with imbalances and since 1 March 1993 we have a VAT regime which can fairly lay claim to being the worst in Europe. I intend to point out a few of the anomalies.

In 1991 the VAT rate on adult clothing and footwear stood at 12.5 per cent. I am delighted to see Senator O'Kennedy here. He was in the Government that imposed that rate and later increased it to 16 per cent. The 1993 budget has brought the rate to 21 per cent.

Mr. O'Kennedy

I did not put it on children's clothes.

Mr. Farrelly

This amounts to a 68 per cent increase in taxation since 1991. This rate is now known as the luxury rate. From 1 March there will be an extra £42 to pay on a suit of £200. If a man wants to buy a pair of shoes at £30 he will pay £6.30 to the Government in extra VAT for the privilege of wearing the shoes. Is a suit and a pair of shoes a luxury? It is a pity the Minister is not here to tell us, because many hard pressed workers do not think they are a luxury.

Mr. Cosgrave

They are cheaper in the closing down sales.

Mr. Farrelly

From 1 March 1993 an extra £50 will be charged in VAT on a suit costing £200 and a pair of shoes costing £30, that is 20 per cent of the total cost. That is economic madness. It puts the 1982 budget into the ha'penny place. Certain persons in high places found it politically impossible to vote for the 1982 budget; however, they had no problem in supporting this savage measure in the 1993 budget. How times have changed.

The President of the Fashion and Footwear Federation, Mr. Louis Copeland, has stated that this VAT rise will be a disaster for the sector. The chairman of Magee of Donegal Clothing Mr. Howard Temple, has warned that VAT increases will put hundreds of jobs in the industry at risk. He has also warned it will lead to a return to cross-Border shopping and trade where the rate in Northern Ireland continues at 17.5 per cent. The Minister and the Government took note of the price of beer over the Border but did not take note of the price of clothes. As a result they went down one road to save jobs and down another to lose them.

From 1 March, the Minister proposes to move the VAT rate from 10 to 12.5 per cent on a range of holiday and tourist activities. These include letting of holiday accommodation, short term car hire, short term hire of boats, caravans, etc. and tour guide services. From 1 September 1993, when apparently the season ends, he intends moving all these items to the 21 per cent rate, an increase of 110 per cent in the marginal rate of tax within the year.

Who would want to be in the tourism business? It means three different rates of VAT in operation in the one year, three sets of brochures, three sets of charges — the litany goes on. It can only mean the death knell of an industry with massive employment potential which will now not materialise. The President of the Irish Hotels' Federation, Mr. Eamon McKeon, warned recently that the hotel industry has suffered financial devastation in the past six months. Several hotels have closed down, others are fighting for survival and no new jobs will be created in 1993. Instead of the budget helping those people in the tourism industry, it only created hardship for those involved.

The Minister proposes to raise the VAT on Irish newspapers and periodicals from 10 per cent to 12.5 per cent. All Irish print media exist in the private sector and must compete for scarce advertising with RTE radio and televison which is in the public sector and is funded directly by means of a licence which is compulsory for anyone who owns a TV set. Recently the Government removed the advertising cap on RTE. That gives it the equivalent of a second licence to fund its operation.

The proposed VAT increases on newspapers and periodicals can only be a third blow to that sector, leading to ludicrous anomalies. It is ridiculous that Irish newspapers are being sold in the sterling area with a lower retail price than in the Republic of Ireland. It is even more ridiculous when the Punt is valued higher than the pound sterling. I believe that the Government is playing fast and loose with the Irish newspaper industry. It is prepared to let the country be flooded with cheap newspapers from the UK because such newspapers are not critical of Irish Government Ministers. In fact, they hardly even mention them.

The National Newspapers of Ireland — the NNI — supported by the National Union of Journalists, has calculated that the extra imposition will add a further £2 million to the national newspaper costs annually. Because UK newspapers circulate freely in the Republic without the restrictions applied to Irish newspapers, it is inevitable that more jobs will be lost in this area. The President of the Provincial Newspapers of Ireland, Mr. John Kerry Keane, has stated that the industry has been dealt a mortal blow and some jobs are now at risk.

The most narrow-minded and regressive measure in the budget is the proposal to increase the VAT rate on spectacles and contact lenses from 16 to 21 per cent. The Association of Optometrists, Ireland, has stated that it is a tax on the visually handicapped and a reversal of long term policy in a sensitive health area. This measure is particularly ironic coming from the Labour Party which campaigned in the general election for a Minister for the Disabled with a seat at the Cabinet table. Nowhere in the election manifestos of Labour or Fianna Fáil or the agreed Programme for a Partnership Government is any mention made of extra taxation on the visually handicapped.

The Minister told us he would introduce a jobs budget. It was nothing of the sort. It was an anti-jobs, anti-employment, anti-business and anti-worker budget. The Minister yesterday lectured the Dublin Chamber of Commerce about their criticism of the budget. Lo and behold, the day he was there, 60 jobs were lost in the oldest store in Dublin, Clerys; 25 jobs were lost yesterday in a fashion company in Drogheda. How many more will be lost as a result of the increased VAT in the budget?

The VAT increases will take money out of people's pockets to fund wasteful Government expenditure, such as grandiose offices, the employment of advisers and cronies and further nepotism. Because there will be less money in people's pockets to spent on goods and services, economic growth will be curtailed in 1993. VAT increases will fuel inflation which, in turn, will lead to demand for corresponding wage increases from those at work and consequent industrial unrest if such demands are not conceded. VAT increases will lead to job losses because employers are in no position to absorb the additional costs being imposed, when you consider the extra cost on employers over the last four or five months because of the way the currency crisis was handled.

The budget that has been passed in the Lower House will occupy a unique place in the record books. It is the first time a new Government had lost all public support by the time it had presented its first budget. Senators mentioned the 1982 budget but many of those who supported it were re-elected. The Government promised us change.

I have only mentioned a few of the companies who have stated the proposals would lead to the loss of jobs. I have no doubt my colleagues will have further evidence of the situation. I recommend the motion to the House.

An Leas-Chathaoirleach

Senator Cosgrave proposes sharing his time with Senator Reynolds. Is that agreed? Agreed.

Mr. Cosgrave

I welcome the opportunity to formally second the motion. While I welcome the Minister of State to the House, I am disappointed, as was my colleague, that the Minister, Deputy Ahern, is not here because it is important that he starts listening to people who will tell him the facts and give him the real information. If it was good news I am sure some of the Ministers would be beating the door down to come into this House.

There is no doubt that the further increase in VAT on many items is going to put more people on the dole queues. We only have to walk around this town and, within a couple of hundred yards of here we see the closing down sales, the number of shops to let and for sale, the empty windows, due to increased VAT rates in these recessionary times. Today, the secretary of the Dublin City Centre Business Association said that over the past ten years 75 per cent of all jobs lost in the State has been in Dublin. VAT has increased by 11 per cent and business rates are up.

What is this Government doing about it? All we have had are increases on many items, particularly clothing, and the newspaper industry. I will come back to this matter shortly. What has happened to this Government who said it was going to do so much to look after the unemployed and create further jobs? All it is going to do is to close down more firms and agencies. Sixty jobs have been lost in Clerys; Senator Farrelly mentioned job losses in a firm in County Louth and there have been job losses in Mayo.

Why were these VAT increases introduced? Were they to fund the many programme managers and advisers? Is this the job creation the Members opposite promised? Was this looking after jobs for the boys and the girls — not to be sexist? I am concerned that mothers-in-law seem to have been discriminated against in relation to the programme manager advisers.

Mr. Magner

I think the Senator should check that out.

Mr. Farrelly

They are the only ones left out.

Mr. Cosgrave

Senator Magner may be able to inform me that mother-in-laws were not forgotten in the bag of goodies given out in recent weeks.

I echo what has been said by the President of the Fashion and Footwear Federation, Mr. Louis Copeland. This 5 per cent is the straw which will finally break the camel's back. How many people can afford an extra £42 on a £200 suit?

In relation to the increases on newspapers, RTE were recently given two extra advantages in a system where they already had an unfair advantage. Those were the removal of capping and the increase in VAT on newspapers. We depend on our national and local newspapers. Articles written about the Government suggest it thinks it can control RTE.

I ask the Minister of State to come back with changes before the Finance Bill is finally agreed. I ask him to remind the Minister of the number of jobs lost at present in this city and throughout the country. I hope the Minister realises the difficulties that many small operators will encounter and that many people will now be claiming the dole because of this shortsighted action.

Mr. Reynolds

I support the motion. It was an unfortunate, bland budget and the increase in VAT has done a lot to make sure there will be no growth in the economy this year. I studied economics and I was always told that economic growth depended on good consumer spending. Therefore, it seems somewhat contradictory — but I suppose it is to be expected — to increase VAT on items such as clothes, newspapers and building materials. The Minister has stated he expects economic growth in this year and then he increases VAT rates. I do not know whether it is the Minister, Deputy Ahern's method of economics or if it is the Labour Party's influence in Government that has brought about these increases.

There is a VAT reduction on cream crackers, wafers and other flour-based products, all very bland products——

Mr. Farrelly

That is what you will be on shortly.

An Leas-Chathaoirleach

Senator Reynolds, without interruption, please.

Mr. Reynolds

I am glad of the help I am receiving from my colleagues but I hope I will be allowed to say a few things. This shows the bland and unimaginative stance taken by this Government in the budget. My colleague, Senator Cosgrave and I ask for these changes to be made to the Finance Bill. I come from a small family-run business in the building industry. That industry is on its knees and there is no confidence in the market. The VAT rates on building materials have been increased. I come from a Border region where the VAT rates are much lower 20 miles away. There is no way we can compete and there is no way that people will build houses because of the increase in VAT. The knock-on effect will have implications for jobs in the building industry and is other sectors where job creation is nearly impossible.

If this budget was supposed to create jobs it certainly failed. I would commend the budget if it maintained the jobs that are already there but because of the VAT increases it will not do that. As my colleagues have pointed out, the number of job losses in the retail industry in the past couple of weeks has been enormous and this trend will continue because, as I said at the beginning there will be no consumer spending. It is appalling that the Government has decided at this stage to discourage consumer spending. There is no confidence; there is an incentive to put money in low tax rate DIRT accounts but there is no incentive to spend in the retail market. We have heard reports of the payments to the programme managers. What is the attitude of the Government to that matter? If they are being paid £40,000, I wish the Government would send £10,000 or £12,000 to Leitrim to keep the economy going there.

VAT increases will not help this economy. We need to increase consumer spending so that economic growth can take place but this will not happen while we have the VAT increases proposed in the budget.

Mr. O'Kennedy

I move amendment No. 1:

To delete all words after "Seanad Éireann" and substitute the following:

"Welcomes the overall thrust, in terms of employment, of the Financial Statement of 24 February by the Minister for Finance".

A Budget Statement cannot be seen in isolation. It is but part of the overall economic policy of Government. An essential part of the whole budget programme is as in any other enterprise, the financial decisions reflected to the expenditure allocations of the Government, which of course, precede the Financial Statement, otherwise known as the budget. The third leg of the tripod, which is yet to come is the Finance Bill which will reflect the Government's overall priority in terms of the tax regime, tax incentives and tax allowances.

To see the overall priority of Government all three must be looked at together, the expenditure allocations, the Budget Statement and the Finance Bill, which will be introduced some weeks down the line. No element should be looked at in isolation and no element in a Budget Statement should be taken on its own and then criticised, much less rejected, on the basis that it is unpopular or unacceptable. That is the attitude of the Opposition this evening. They are selecting just one area of this overall programme, the VAT increases, and saying because of this the whole Government strategy for economic regeneration and for employment should be rejected. I do not think the evidence will be sustained in that case.

Everybody recognises that the one overriding priority, if not the exclusive priority, at this stage is the generation of sustained, secure employment, particularly in the indigenous sector. Those who are engaged in providing employment and in generating economic activity must not only be acknowledged by us but must be encouraged to continue to the highest possible standards. That is what this debate is about. In the past, the reaction to budgets was more simplistic; it was always looked upon as a good or bad budget. It was a good budget if things were soft and easy, if it gave us this or that and did not punish us too much. It was a bad budget if it imposed too much tax on the old reliables or contained other elements that were seen as being too severe.

Mr. Reynolds

Appalling would describe this budget adequately.

Mr. O'Kennedy

Neither of these judgments would be appropriate at this point. A good budget is one which, in conjunction with the other elements of overall policy, public expenditure and the Finance Bill, will impact positively at this critical stage on the overall economy and on investment and employment to secure the stability for young people particularly. There has been a downturn in the world economy, but there are incipient signs of pick-up now in America and Germany and, even in the United Kingdom. We have to maximise for ourselves the benefit of any improvement in the international economy.

The budget contains an overall thrust towards recognising and encouraging those who create employment and, by those standards, one must conclude that this budget is a good one. It was not a budget to win claps, cheers and shouts of hurray the following morning, but on reflection we can see that it has given the right signals and is getting the right response. The reduction in interest rates since the budget, although not entirely due to it, and the market's reaction have been very positive. Even as we speak the indications are that the downward trend in interest rates will continue.

The climate is right for banks and the building societies to play a more vigorous role in achieving a reduction in interest rates. I am glad to see the National Irish Bank leading the pack — its chief executive is from my home county, Tipperary. The signals given by this bank and the confidence shown will I hope be followed over the next few weeks, by the other banks.

Banks and financial institutions in Japan, for example, recognise the obligations of partnership. If the climate created by Government there is positive and reassuring, Japanese banks, in a spirit of partnership, play a vigorous role in generating sustainable employment and economic activity. It is time Irish financial institutions undertook a similar responsibility. They make their profits from the country's economic activity and owe it to themselves — never mind their shareholders — and to the country to make a sustained contribution to economic activity here. The most important contribution banks can make now is to pursue a policy whereby interest rates will be reduced as much as possible and the same applies to building societies. The Government is entitled to expect a response in kind now.

The external factors are looking better but we must maintain discipline to secure our objectives and to ensure that the pain, suffering and difficult decisions will not have been in vain. I was part of the Government that took the right decisions in 1987 — perhaps they should have been taken four or five years previously — and we were determined to keep to our programme despite the criticisms then aimed at us. We have now laid the basis for a discipline which will mean——

Mr. Doyle

We provided the strategy.

Mr. O'Kennedy

I will come to the strategy. Before one starts building one must ensure a secure foundation; one cannot build on shifting sands. The foundation of the economy is secure. Irish inflation is the lowest in Europe, the climate for investment is buoyant and the reduction in interest rates is benign.

I would say to my colleagues in the Labour Party who are sharing Government responsibility with us that none of us can claim that the initial period of new Government has been an unqualified success. Perhaps, that comes from having to get to know and to accommodate each other. Some criticisms of integrity made on both sides might have been better left unsaid.

Acting Chairman (Mr. R. Kiely)

Your time is up, Senator. A Minister and a proposer of a motion have 15 minutes and a Senator has ten minutes speaking time.

Mr. O'Kennedy

I was wrongly informed. I had gems of wisdom here.

I would like to pay tribute to our colleagues in Government for their vigorous and consistent support in relation to economic policy, that is not always easy especially for new partners in Government. I hope they find that adherence to this policy will reward all those in Government and more importantly those who depend on our common efforts.

The major programme for investment adumbrated in the budget and the contributions towards special rates of 10 per cent for investment in Irish equities are welcome. I was the Minister for Finance who introduced the 10 per cent corporation rate in 1980; that stands as a monument to my contribution to investment. I hope we will see — as the Minister for Finance has anticipated — a major inflow of pension funds to our investment programme.

Mr. Quinn

I welcome the Minister to the House. I do not intend to vote for this motion because I do not think it is right as Senator O'Kennedy has said to consider one measure of the budget in isolation. The budget contains welcome reductions in VAT which will create jobs — I am referring to reductions for the garage, the hairdressing and the confectionery and bakery industries. I agree, however that increases in VAT have employment implications and I would like to highlight their effect on the tourism industry where I started in business. If we are serious about jobs we must be serious about tourism. Yet, we have just increased the value added tax on tourism by a quarter, from 10 per cent to 12.5 per cent. This move has serious implications which we should identify and is hardly the act of a Government that understands the potential of tourism to create jobs. Over the last five years tourism has created more new jobs than any other industry and can create many more in the immediate future. In the short term there is potential for 30,000 new jobs in tourism alone. It would take an enormous number of IDA announcements of 100 jobs here and 50 jobs there to add up to anything like that. Despite this great potential we still regard tourism as the Cinderella of job creation and that error has not been corrected in this budget. Tourism does not get the support it merits. Instead, it seems to get kick after kick like this latest VAT increase.

We have to realise that tourism is extremely price-sensitive. We are already a costly tourist destination. It costs people a lot of money to come here and when they get here they find our prices are high. This is critical in our two biggest markets, the British market and the American market. For British people our prices have already increased by 10 per cent since last year and now we have added a further VAT increase. Of the American visitors, 60 per cent come to us via London. Many Americans put off undertaking that extra leg of the journey because we are dearer than the UK and now we have added another disincentive.

It is true the budget introduced welcome measures that will result in lessening the cost of car hire for visitors. It beggars belief that we do that while, at the same time, creating a disincentive for visitors, the effects of which will far outweigh any benefits from the reduction in car hire. It is almost, dare I suggest it, as if one hand did not know what the other hand was doing.

I fully realise the need to reduce the number of VAT bands but the cost of doing it this way is extremely high, and makes no sense in the long term. To create the maximum number of jobs in tourism, industry should be taxed at a special low rate. May I suggest it be taxed at the same low rate we will be eventually forced under EC regulations, which we have already agreed, to put VAT on food? If memory serves me correctly we are obliged to put VAT on food by 1996. It would make a lot more sense to begin phasing in that VAT on food at a very low rate now and gradually raise it, instead of having to introduce it in one fell swoop in two or three years time with a consequent shock to our cost of living. If that had been done now we could have reduced tourism services to a rate that would make them more comprehensive and more competitive while remaining revenue neutral overall. What has been done to VAT on tourism will prevent us from creating jobs in that sector and we should be in no doubt about that.

Mr. Magner

The speech by Senator Quinn is one which Fine Gael, if they had sense, would have taken on board. Instead of a global motion on VAT they should have had a specific motion on tourism. What strikes me as odd is that for a considerable length of time Fine Gael come in here with motion after motion calling for increased spending. I do not know whether they occupy the same planet as the rest of us but there are only a number of ways one can get money in this country. One way is by direct taxation and the other is by indirect taxation. The former spokesman on Finance for Fine Gael in the Dáil, Deputy Noonan, made absolutely clear that any increase in direct taxation would be a retrograde step and should not be taken. Direct tax increases were out as far as Fine Gael was concerned. Now Fine Gael tells us that we should not raise money by indirect taxes, i.e. VAT. By any reckoning that is a double standard. Where will the funding for the 3,500 houses this Government will build come from? Maybe there is a secret pot of money that Senator Farrelly knows about; if so, he should tell the rest of us. Where will the £8 million allocated to the handicapped in this budget come from? Where will the money come from that Fine Gael are going to come into this House tomorrow and demand on behalf of Aer Lingus? You are going to sit there tomorrow, you are going to——

(Interruptions.)

Acting Chairman

Senator Magner, without interruption, please.

Mr. Magner

I accept it is painful but perhaps a bit of pain at this early stage of the game is a good thing. Senator Farrelly will sit there tomorrow with his party and will demand that the Government injects whatever equity is required to keep Aer Lingus in operation. That could be an enormous sum but that will be the demand. Of that there is no doubt. Where will the money come from? How will the Government find this cash demanded by the Opposition? Even in this day and age you cannot have your cake and eat it. Neither can you have a well educated, highly intelligent electorate and feed them fable. They will not believe it.

Senator Farrelly referred to advisers who were taken on by this Government. I would direct him to read Saturday's edition of The Irish Times where the respected, former Leader of Fine Gael, Dr. Garret FitzGerald, was fully in favour of that structure of administration in order to effectively implement a joint programme.

(Interruptions.)

Mr. Magner

I do not mind if Fine Gael wants to ditch both the legacy and the persona of Garret FitzGerald. That is a matter for them.

Acting Chairman

Senator Magner, we are dealing with VAT.

Mr. Magner

I wish I was dealing with VAT. I am dealing with a fable put forward by the Opposition party in the form of this motion. If they are against direct taxation and against indirect taxation, will they kindly tell us, as quickly as possible, where in Heaven's name we can find the money?

As Senator Quinn said earlier, of course VAT increases affect employment in some cases and business in other cases. There is not a sector in the country on which extra taxation can be imposed without having some detrimental effect. I have no doubt that if we had decided to ignore the clothing sector and put VAT on drink it would now be said that we were destroying the drink industry. Perhaps the Opposition will tell us on what sector of the economy we should levy this VAT? I have no doubt that tomorrow and in the coming weeks and months they will come in here demanding millions of pounds for various projects without indicating where the money will come from. That is a dishonest stance.

The work we spoke of, the 3,500 houses this Government is committed to build, the Tallaght Hospital which is due to start up this year and the increases in children's allowances, costs money and that money must be found from some source. We all know that, the public, most of all. People are intelligent and discerning and no longer believe in fairy godmothers or fairy money.

(Interruptions.)

Acting Chairman

Senator Farrelly, I must ask you to desist from interrupting, please. You are in the Seanad now. It is an orderly House. It may have been different in the other House but you are in the Seanad now and please show respect for it.

Minister of State at the Department of the Environment (Mr. Browne,

Wexford): Reflecting our employment needs, the need for competitiveness in the economy is the primary theme running through the Programme for a Partnership Government, and also the main focus of the budget, which is the first major step in the implementation of the programme.

The budget was framed on the principle that the overriding national priority is jobs. It was a pro-jobs, pro-business budget. At its very core were measures to generate and sustain employment by improving the longer-term growth potential of the economy and by promoting local enterprise and wealth creation. The second key element of our budget strategy was to send an unequivocal message to the markets that we will not relax our strict financial discipline, thereby creating the conditions for lower interest rates and stability in the exchange rate markets.

Since the publication of the book of Estimates on 17 February, interbank rates have fallen sharply. The key one month rate has fallen from 15.25 to 11 per cent, a reduction of over four percentage points. This reduction and a fall of almost two percentage points in official interest rates over the same period has allowed for reductions, in two stages, of up to two percentage points in retail interest and mortgage rates. Only one of the four major banks has so far announced the second stage reduction and I urge other banks and the building societies to follow this lead as soon as possible. There is no justification whatsoever in delaying the passing on of reduced interest rates to our already hard pressed mortgage holders by the financial institutions. The economy needs lower interest rates and any delay is damaging to our economic prospects.

The jobs fund was heralded in our Programme for a Partnership Government. The budget provides £260 million for this fund in 1993, comprising £148 million of expenditure related to the Cohesion Fund, £25 million for the new county enterprise partnership boards and an addition of £87 million to the Exchequer funding of the remainder of the public capital programme. In all, the year-on-year increase in capital spending will total almost £500 million — up by more than one quarter on last year's level.

This entails a major expansion in investment in environmental infrastructure and in transport, including roads, rail, commercial ports and airports. These projects as well as giving many new jobs in the implementation phase, will also underpin the longer-term potential for growth in the economy.

The county enterprise partnership boards, for which, as I have already mentioned, £25 million is provided, will have a mandate to support local initiative through assisting the start-up of small enterprises. They will take over responsibility for the promotion and assistance of local development plans in consultation with community organisations, the social partners and the public sector at a local level. The boards will also have responsibility for the promotion of tourism locally. The purpose is to tap into the considerable potential for enterprise, wealth and employment creation that exists at local level throughout Ireland, but which cannot always be harnessed to the fullest extent under existing structures.

In addition to State funds, the Government is making arrangements for contributions to the boards from financial institutions. The Government is confident, on the basis of commitments to date and discussions to be completed, that more than £100 million will be made available in this way.

The combination of the public capital programme, the Cohesion Fund expenditure and the additional expenditure for the county enterprise boards is by any standards a very substantial investment stimulus to the economy and a considerable boost to employment.

The pro-jobs bias in the budget does not end there. On the taxation side also there are measures that are decidedly pro-business. For instance, the business expansion scheme has been extended and improved, with the lifetime cap being lifted with immediate effect. The urban renewal incentives to allow delayed projects to qualify have also been extended. The urban renewal incentives are also available in Temple Bar and the Custom House Docks area until 5 April 1996 and 24 January 1997, respectively. Stamp duty has been adjusted to assist the building industry generally.

As part of the adjustments to the VAT structure announced in the budget, the Government ensured that particular account was taken of our employment needs by reducing the rate applicable to certain labour intensive services, such as garage repairs, dry-cleaning and hairdressing. All such services are now on a reduced VAT rate, which is 8.5 per cent below the standard rate. The rates applicable to flour, confectionery and non-chocolate biscuits were also substantially reduced in recognition of the employment intensive nature of the sectors concerned and of the exceptional rate differential which existed vis-a-vis Northern Ireland for the products involved.

The tourism sector can also be expected to benefit from the initiative in relation to the short term car hire fleet which was announced, as well as from the standstill for the excises on petrol and drink. The continued restraint shown in relation to the mainstream excises reflects the Government's awareness of the need to avoid trade diversion and associated job losses within the radically new environment of the EC Internal Market. I intend to deal separately with those areas where VAT increases were imposed and which have been the focus of much selective criticism.

The budget also contained measures aimed at improving the flow of equity finance to Irish business, such as the introduction of special investment accounts and the extension of the BES. The Government is keenly aware of the importance of equity investment for all Irish companies, whether large or small. The special investment accounts will enable those who invest in Irish equities, either directly or indirectly, to avail of a very favourable tax rate of 10 per cent. To benefit from this low tax rate, the funds will be required to invest 40 per cent of their assets in Irish equities this year, rising to 55 per cent in 1996. To ensure that the funds are not focused completely on larger companies, there is a further requirement that 6 per cent of assets are invested in smaller companies in year one, rising to 15 per cent in 1996. There is no requirement that the equities held have to be in quoted companies. Indeed, there is an extra incentive to invest in BES-type companies as the income and capital gains from these companies will be ignored for tax purposes.

As was pointed out in the budget speech, the largest group of investors in Ireland are pension funds. The total value of Irish pension funds' assets is now approaching £10 billion and their total annual net cash flow and investment income is of the order of £750 million.

The Government believes that Irish pension funds have a national responsibility to take the needs of the Irish economy, particularly the need for more jobs, into account when making their investment decisions and that they should make a greater contribution to the development of employment in Ireland. These funds should, therefore, invest as much as possible of their assets in Ireland and should reverse the trend of recent years, which has seen the Irish share of their total assets dropping from 79 per cent at the end of 1988 to 68 per cent at the end of 1991. Given that employer contributions account for the bulk of the annual cash flow of funds, there should be an obvious self-interest on the part of the pension funds to help Irish business. This will be to the long term mutual advantage of both Irish companies and employees.

In order to assist this process of Irish investment, the Minister for Finance has already set in train a process the aim of which is to set up a suitable mechanism for getting the pension funds to invest more in Irish job-creation projects, particularly in the manufacturing sector. It is his intention that this new initiative will come into operation within the next few months and thereby give an early boost to job creation in the areas selected. In pursuance of this, the Minister for Finance will be meeting with the Irish Association of Pension Funds later this week for further discussions on the matter.

Apart from the capital expenditure and the taxation incentives I have listed, there is a further and pervasive pro-enterprise thread running right through this year's budget, and, indeed through its predecessors in recent years, and it is this: the firm control of the public finances and the steady improvement in the national debt ratio. This firm fiscal discipline is vital to investment, to long term growth, to enterprise and to employment consolidation and creation. In addition to the establishment of a climate conducive to enterprise through the adoption of appropriate taxation and macro-economic policies, the Government is committed to giving a renewed impetus to the task of developing and promoting industrial growth in line with the recommendations of the Culliton report. There have already been changes in the structure of government to give a sharper focus to industrial and marketing policies. Other changes in the structure of the promotion agencies and further policy initiatives are outlined in the Programme for a Partnership Government and will be implemented over a period of time.

Inevitably, attempts have been made to denigrate aspects of the budget. Two areas in particular of the taxation measures announced have been taken out of the context of the balanced overall package and selected as the focus for adverse comment. These criticisms relate to the necessary increases in the VAT rate applicable to certain goods and services and to the implementation of the temporary income levy.

I will deal with each of these areas in turn. First, however, I make the general point that some measures to increase revenue were inevitable if we are to maintain a prudent level of borrowing and if we are to remain on course for full participation in the Economic and Monetary Union. Discipline was also crucial to securing the downward movement in interest rates that has begun to emerge in the last few weeks. In that context, the Government looked mainly to taxes on spending and assets, so as not to impose any unnecessary burdens on the rewards for effort, enterprise and investment.

The primary purpose of the various VAT increases announced in the budget was, of course, to raise revenue. However, the changes involved were also necessary to achieve compliance with Community law and have contributed to a considerable simplification and consolidation of the overall rating structure.

Most severe criticism has been made about the effects of the abolition of the 10 per cent and 16 per cent rates. Among the areas previously taxed at 10 per cent were hotel and holiday accommodation, newspapers, building services and short term car hire. These are taxed at the 12.5 per cent rate from 1 March. In the majority of these areas, measures were taken to soften the impact of the increase. For example, the increases in respect of accommodation and short term car hire will not affect contracts already entered into prior to 25 February last.

In the case of building, measures are being taken to ensure that the local authority new house building programme and the voluntary housing programme are not adversely effected by the rate increase. To cushion the effect of the increase on the cost of new homes, the grant to first-time house buyers was increased from £2,000 to £3,000. Finally, where house building contracts existed prior to the budget, the earlier 10 per cent VAT rate will continue to apply. These measures demonstrate the Government's awareness, despite pressing budgetary demands, of the need to implement the increases as sensitively as possible and with the minimum of disruption.

Under EC law, only one VAT rate may now exist in excess of an agreed Community standard rate minimum level of 15 per cent: this meant that our transitional 16 per cent rate had to go. Budgetary circumstances dictated that the standard rate should remain at 21 per cent on this occasion and that certain categories such as adult clothing and footwear and telecommunications services, previously taxed at 16 per cent, should also be taxed at that rate. While it would have been possible from a legal standpoint to temporarily shift these activities to the lower 12.5 per cent rate, as was done in certain cases of certain labour-intensive service industries mentioned earlier, it was simply not possible because of the very difficult budgetary situation. Furthermore, in all fairness, it would have to be pointed out that, in his 1992 Budget Statement the Minister for Finance clearly stated that the 16 per cent rate was a temporary one and that the activities in question were destined to be liable at the standard rate.

The Government recognise that the increases concerned in some instances will add to difficult trading conditions but a significant contribution towards budgetary correction from the indirect tax area was unavoidable on this occasion. Naturally, the sectors facing rate increases feel aggrieved: the Government, however, has to take a view of what is best for the economy as a whole in terms of promoting economic growth and the sustainable jobs which flow from it. It is unreasonable for those who focus solely on the increases involved to do so without having regard to the wider employment-supportive nature of the budget or to say how they would have chosen to raise the additional revenue involved. There are no longer any easy options in that regard.

The Government did not lightly decide on the introduction of the income levy. The measure became unavoidable only at the end of a long and difficult budgetary exercise, in which both the expenditure and revenue aspects of the deficit equation were subjected to rigorous scrutiny. In the end, it was not possible to identify a realistic alternative to the temporary levy. I totally reject the argument that the levy represents a tax on employment to a greater degree than any of the other taxes, whether on income or expenditure, which are already applied throughout OECD countries in order to finance the range of State services which are essential to the maintenance of the social and economic fabric of modern society.

In reality, the levy will impact on employment only if taxpayers seek to compensate themselves through higher charges and wages rather than accepting that they should make a limited contribution towards the exceptional employment and other costs incurred through the protracted slowdown in the international economy. That would be an entirely illogical reaction and I am confident that, taking account of the universally accepted need to maintain our international competitiveness, the limited sacrifice involved will be accepted as such, particularly when viewed against the background of the substantial increases in real take-home incomes that have been secured under the Programme for National Recovery and the Programme for Economic and Social Progress.

I conclude by saying that high interest rates damage confidence and investment, and disimprove employment. The responsible and balanced nature of the budget this year has already been a major contributory factor in getting interest rates down. It is only in such economic conditions that real sustainable jobs will be generated in our economy. Unemployment and other problems can and will be tackled. I look forward to the support of the Seanad in our endeavours to provide the framework in which such progress takes place.

Members have put forward many interesting suggestions during this debate. Senator Quinn put forward some radical and positive suggestions on tourism, as Senator Magner has acknowledged. If there were more radical suggestions such as that from the other side of the House they would be more important and productive than criticising one area of VAT reductions first for the sake of criticising.

Mr. Farrelly

I did that last year in the other House and the Minister did not take them on board.

Mr. Doyle

People were expecting a pro-employment budget and they got the opposite. Taxation is higher than ever. Business viability has received what will be the fatal body blow. To compound the error of economic misinterpretation VAT has been increased without regard for the employment consequences. That is why we are debating this motion. One can only ask, does the Government care about the consequences of its actions? We must hope it does care.

Any economic analysis must start with the obvious question: why are these increases imposed? An increase in Exchequer revenue must have been the reason and the Minister has confirmed that in his speech. Given the already penal levels of taxation, this reflects the Government's unwillingness to tackle the problem of public spending. At a time of dire economic conditions, much of which has been caused by bad Government, tax increases on soft targets are deplorable. The Government's lack of judgment, its inability and lack of imagination to solve our fiscal problems is frightening.

If the proposed increases in VAT are applied the impact on the economy can take two forms. First the VAT increases will be passed on to the consumer and we have seen that happen in the case of newspapers. That sector is in a difficult trading situation due to the fact that newspapers from abroad have a zero-VAT rating. Second, the price increases are being imposed at a time of weak consumer demand and this will result in manufacturers and retailers having to bear the cost. Should the first course of action take place essential items such as footwear and clothing will be liable to an increase in VAT from 16 to 21 per cent and this will increase the cost of living. In turn, this will put pressure on wages and social welfare payments. In current economic conditions neither can be increased significantly; therefore, there will be a decline in real wages and living standards.

Economic law predicts that if prices increase, the quantity sold will fall. This, in turn, will reduce the demand for labour and cause more unemployment. As many businesses are already operating below their break-even volume of activity, a volume decrease will cause a major surge of business failures and unemployment. Our ability to attract tourists to Ireland will be limited as Ireland gets priced out of the tourism market. This point has been made by Senator Quinn and I agree with it.

If the second option is adopted, competitive industries such as the clothing industry who operate on low margins, will not be able to pass on most of the increases because of the purchasing power of the major chain stores. This will eliminate manufacturers' margins and, because of business failures, increase unemployment. Businesses that have suffered already due to the Government's mismanagement of the currency will not be able to sustain a second blow and jobs will be lost.

The Government has made no effort to reduce VAT rates in labour-intensive industries and that is an unforgiveable oversight. At a time of economic difficulty the costs arising as a result of increased VAT will place unjust burden on honest businesses. Such increases indicate an arrogant disregard for the true wealth generators in the economy, our domestic businesses.

For example, employment in the clothing industry has dropped by 24 per cent over the last ten years. The clothing industry is a labour intensive industry and it is usually city based. In the last few days we have seen a number of closures in the city of Dublin. If the Government's solution is to raise VAT on clothing that is like throwing the business to the wolves. Traders can no longer absorb the increases. They have no option but to close because the industry cannot compete with products from south-east Asia. In the last 12 months the fashion industry, has seen VAT increases from 12.5 per cent VAT to 16 per cent and now 21 per cent.

I read the speech made by the Minister for Finance in support of his budget to the Dublin Chamber of Commerce yesterday. He defended the 1 per cent levy. He stated and the Minister of State, Deputy Browne, reiterated tonight:

In the final analysis the levy or any other tax option

and I am sure the Minister for Finance meant VAT when he said "tax-option"

will only impact on employment if taxpayers seek to compensate themselves to higher charges and wages rather than accepting that they should make a limited contribution towards the exceptional unemployment and other costs imposed by the protracted slow down in the international economy.

I believe the Irish taxpayer was prepared to make that sacrifice and the Minister missed that opportunity.

We have 300,000 people unemployed and any Minister for Finance should have framed a budget with a view to resolving the unemployment problem. The Minister failed to do that. He failed to challenge the people, a challenge they were prepared to accept. The Minister failed to be radical. If you are not radical you must become redundant and, I am sorry to say, after only a short term in office this Government has become redundant.

Mr. Cassidy

I am sorry to hear my colleague express this view. If I was running a business and the chief executive and his staff were presenting their accounts or proposals for the first year I would have a more positive attitude than that.

The Irish, down the centuries have always been a positive race. Bearing in mind the worldwide recession I believe this country is operating its financial controls exceptionally well compared with ten years ago. As other Senators said, there were many demands on the Government in this budget. In an attempt to tackle the problems and improve our lot, the books have been balanced in a fair and positive way.

One positive growth area mentioned by Senator Quinn is the tourism industry. If I had anything negative to say about the budget it would be in relation to the 2.5 per cent VAT increase on tourism. The reason for this is that there are going to be two VAT bands. Given the importance of this industry, such measures had to be taken. The opportunity to create 30,000 jobs in the tourism industry has been mentioned. The Government and politicians on all sides agree that the future of tourism in this country is second to none. We cannot market the favourable climate of which Spain, Orlando or Miami can boast. We must follow the example of the French. They market Paris without mentioning the weather. We must emphasise our fabulous national resources, fishing, golfing, etc. There will be an increase in revenue as a result of this increase of 2.5 per cent.

Ireland and the UK are the only countries in the EC where there is no VAT on food or children's clothes. This will change in 1996, but as a result of the recession and the difficulties facing us, the Government spared the consumer from having to pay VAT on food and children's clothes.

The confectionery industry was concerned about the 21 per cent VAT imposed on it. This has been reduced to 12.5 per cent and that has helped the industry greatly. Clearly, the confectionery industry was feeling the pinch.

I am sure hard pressed garage owners welcome the reduction in VAT as do those engaged in the hairdressing industry, which lobbied the Government.

The opportunity for growth and job creation is limited when America, Australia, Canada and England, which account for 78 per cent of our export markets are experiencing difficulties. However, there is a light at the end of the tunnel. I watched CNN's main evening news last Sunday. It said that 360,000 Americans returned to work last month and twice as many new houses were purchased in February of this year than the same month last year. This may not be relevant to our discussion on VAT but it can be a marker for what may happen here within the next six to 12 months.

We had a general election a few months ago and we now have a new Government. Everybody has suffered as a result of decisions made over the last five or six years and we have all made sacrifices to strengthen the economy. The destiny of our economy is in our own hands; it is no longer in the hands of our EC partners. Growth in other countries, including Britain, will help our own economy. The Irish worker is welcome everywhere because he is committed and dedicated.

Perhaps the media could play a more positive role in the future because the spoken word is the winning word. Ninety per cent of what one reads or hears in the media is negative. We all know that a kind word can go a long way and I call on the media to take a more positive approach and to give credit where credit is due. The editors of television, radio and the national and provincial papers have a major responsibility to motivate people along the road to recovery. The Government is doing its part. Editors should not dwell on negative aspects but provide a lead that has not been forthcoming for sometime. Thank you for allowing me to speak in support of the amendment.

Ms Honan

I welcome Minister Hyland to the Chamber this afternoon. I would like to share my time with Senator Sherlock. The Minister, Deputy Brennan, said earlier that, reflecting our employment needs, the budget was framed on the principle that the overriding national priority is jobs. It was a pro jobs, pro business budget. The Minister for Finance on budget day made the same statement in the other House. I fail to see however, that what has been said in the intervening period has anything to do with the creation of jobs. Given the VAT increases and the income levy imposed in this budget, I cannot see how anyone could think that it was a pro jobs budget. Senator Magner asked whether Fine Gael wanted direct or indirect taxation. The budget contained increases in both; in indirect taxation through VAT increases and in direct taxation through the income levy.

The Government is going to get extra funding from an increase in VAT from ten to 12.5 per cent on all goods and services with the exception of poured concrete and concrete blocks. The rate on short term car hire will be further increased to 21 per cent on 1 September. I cannot understand how, by increasing VAT on short term car hire, Senator Cassidy can believe we are going to improve our tourism industry. The current ten per cent VAT rate on concrete blocks is going to be increased to 21 per cent yet we have always talked about the importance of the building industry to Ireland, its effect on job creation and how, if one gets the building industry going, everything else will fall into place. Given the increased VAT on building products, how can we hope to increase employment in that sector?

I welcome the reduction from 16 per cent to 12.5 per cent VAT on personal services, repair and maintenance services. However, the cost of that reduction to the Exchequer — £6.5 million — is small in relation to the anticipated yield of £40.4 million from the other two VAT increases mentioned. Government is also talking about increasing the 16 per cent VAT rate on goods and services, such as telecommunications, adult clothing and footwear, LPG and certain professional services to 21 per cent from 1 March. The cost of telecommunications to Irish industry was mentioned in the Culliton report and the Minister has referred to the impact of service costs on our competitiveness. I do not see how the Minister's decisions in this budget can make us more competitive or create more jobs.

I welcome, with Senator Quinn the reduction of the 21 per cent rate on flour and confectionery to 12.5 per cent, but the cost of that reduction to the Exchequer is only £7 million. The yields from VAT increases far exceeds concessions. The total yield from increases in VAT will amount to £84 million while the cost to the Exchequer from VAT reductions will be £13 million, giving the Minister an extra £71 million over the year from VAT.

The one per cent income levy now being introduced cannot hope to increase employment. The Minister mentioned earlier the setting up of county enterprise partnership boards and the allocation of £25 million to these boards to support and I quote, "local initiative through assisting the start up of small industries." The Minister also said the boards would have responsibility for the promotion of tourism locally. At the moment incomes are subject to a 48 per cent marginal rate of tax, a 7.75 per cent PRSI deduction and a one per cent levy. We are talking therefore about a marginal rate of tax of almost 56.75 per cent. How can anybody talk about setting up local initiatives or starting up small enterprises if it will cost an employer £2.54 to put one pound in a worker's pocket? I cannot understand that.

I welcome the setting up of the enterprise boards but we have to be consistent and enable them to create jobs. The budget's extension of the business expansion scheme through the lifting of the lifetime cap and the extension of delayed urban renewal projects is to be welcomed. Anyone undertaking urban renewal however is going to do so with the idea of letting their premises to businesses which sell goods and/or employ people. Therefore, if we increase the cost of employing people or the cost of goods to be sold, additional premises will not be taken up. Nobody is going to set up a business without the expectation of a reasonable return.

The Minister said it was not possible to fund the services we want to provide in this State without the introduction of a temporary levy. We introduced a youth employment levy in 1982 and it is still with us. I do not think anyone believes that this is a temporary levy. The Minister, Deputy Brennan, said we have to increase taxes in order to finance the range of State services which are essential to the maintenance of the social and economic fabric of modern society. We are talking about a society where 21 people depend on every ten people in employment. We are trying to reform tax law to make it attractive for employers to increase employment for employees to work, so as to reduce the numbers of people dependent on the State and finance the range of State services essential to maintaining this economy.

Mr. Sherlock

The increase from 16 to 21 per cent in the VAT rate on clothing and footwear in the budget must be opposed on the grounds that people involved in retail and manufacturing businesses say their viability is directly threatened by the VAT increase and that that increase will undoubtedly lead to redundancies. The budget was expected to create jobs, not redundancies. The VAT increase will be passed on to low income earners and small farmers as well as to people on social welfare. There are in excess of 20,000 employees in the retail clothing and footwear sector, working in more than 4,000 shops. It is reasonable to assume that the VAT increase will result in a ten per cent rate of job losses or 2,000 redundancies. We saw the first of those last evening with the announcement from Clerys.

The Minister for Finance may have used figures provided by the Central Statistics Office for the month of October, 1992 which indicate an increase in clothing sales. The fact is that there has been a decrease in sales in the past month. In the 1982 budget it was proposed to increase VAT on clothes and footwear by 18 per cent and the Government was defeated on that issue. Since then more and more people have become unemployed and consequently, marginalised.

An anomaly has arisen with the abolition of VAT at the point of entry affording an advantage to retailers who will source their business or products abroad now because they only pay tax when they sell. However, the person who buys the product at home has to pay when the invoice is written out. Our crippling rates of direct and indirect taxation have bedevilled economic development here. I am not talking off the top of my head; I have had more recent representations on this issue than ever before. May I just read one small paragraph from a letter sent to me by a person in a small business in my home town of Mallow? I quote:

I have a ladies clothes shop in Mallow, County Cork, and am most distraught about the impending VAT increase. The retail business is suffering enough in the current economic recession with job losses, closures, etc, all over the country. I do not want to go out of business and like many other independent retailers have worked very hard to build up my business from scratch. I beg you, on my behalf, please do not let this go through. Things are bad enough. The increase in VAT will lead to increased retail prices, a decrease in sales in the present price conscious climate and a decrease in profit margins and ultimately job losses.

That is what the retail business is saying. This VAT rate should not be imposed on the retail business.

Mr. Crowley

Everybody knows that the function of the Opposition is to oppose. However, it is to oppose constructively and not just for the sake of it. There is a responsibility on us all to take the national finances into consideration and to make sacrifices. I agree with some of the points raised by the Opposition Members about the effects of the VAT increases, we cannot spend what we do not have. We cannot live beyond our means any longer; therefore, it will take some radical changes in the tax system to bring about any sort of equity in the financial scene.

There are some positive points in the budget. First, there are the special investment accounts that are being set up to encourage Irish pension funds to invest their money in Ireland and to help businesses, particularly smaller enterprises. Money was given to the county enterprise boards which is where, I think, our future lies. We have to return to community-based development and encourage the local community to spend more within and give more to their community. If we continue in this way, we will create more labour-intensive employment in areas such as hairdressing, garage repairs, dry cleaning and confectionery.

It is important to realise that this is not going to happen overnight. It will take many changes, not only in the system itself but also in people's thinking. Unfortunately, we tend not to give enough encouragement to entrepreneurs who employ many people in small industry and small businesses. There are some Members on the Fine Gael benches who are providing considerable employment in Cork city in small businesses. They are providing local employment and money is being spent locally.

It is important to look at the incentives for the building industry especially the grant increase from £2,000 to £3,000. When the building industry is booming the economy as a whole is booming. The more encouragement that is given to the building industry, the better for the economy. Again, this is a labour-intensive industry.

When making decisions we have to take account of our EC membership. Our ultimate ideal should be European monetary integration and to be part of that integration we have to bring our taxes into line with the rest of Europe. This requires sacrifice from everybody initially but the rewards are there to reap in the future. We have to decide that we are not going to make it easy for ourselves in this generation but by making sacrifices we can make it easier for future generations.

Mr. Cregan

I welcome the Minister to the House. I hoped when I returned to the House that I would not speak negatively. However, I am particularly worried by people who give the impression that the problems are going to be solved whereas a few months ago they were saying quite the opposite. That is not good enough. I hope I am a realist. I am so interested in making sure that people go to work I would go to great lengths even for one job. It is that serious.

I really thought there was going to be radical change in the budget. The Irish, as Senator Doyle has already said, were ready for change but that did not happen; indeed, it was quite the opposite. Last September I was very annoyed at the way the possible devaluation of our currency was handled. Look at the cost to us. We were given the impression by the other side of the House that interest rates were coming down but they increased by 3 per cent. The monthly cost of money to businesses in October, November and December was in the region of 40 per cent. No business can carry that. It was because of bad thinking and bad management in Government. Britain was prepared to go outside the ERM; now they have interest rates of 5 and 6 per cent while our rates are treble that. Any realist would have to ask where are we going.

People on the other side of the House say things are all right. I really do not understand it; I have never seen things so bad. I am just not saying that because we are not in Government. Irrespective of who was in Government, if I thought things were bad I would say they were bad. There is no incentive for business. It is said that hairdressers are going to gain but if one asks anyone working in that area they will tell you there is nothing happening in the hairdressing business. Perhaps that is what we want; perhaps we do not want people to spend their money on getting their hair done. We try to give the impression that everything is going to be fine but the money is not there for people to spend. That is why I wanted radical changes in the budget.

The impression was given that the so-called "golden circle" would be hammered in the budget. Who are they? The Minister mentioned people in pension funds. The Government said it was worried that interest rates were not coming down faster but, at the same time, it gave incentives to people in pension funds which allowed them to make a lot of money in the months of September to January. What was the Government doing? It was not the "golden circle" that was caught. It was ordinary people and the Government is not prepared to face up to that. That is what worries me. Now the impression is given that there will be economic progress as a result of money from these pension funds. People should be realistic about this matter. I will come back here in 12 months and prove that nothing has been done.

A previous speaker made a point about the VAT on shoes. I have seven children and three of my daughters take a bigger shoe than my wife. My wife pays no VAT on her shoes but we pay VAT on our daughters' shoes. There is no sense in that. When are we going to face facts and treat all people equally? Senator Cassidy made a valid point. It is obvious that in time we are probably going to see one level of VAT in operation, perhaps during the lifetime of this Government. Then, again, maybe not because the Government may go to the EC and say we cannot do it. Is the Government saying there will be VAT on food? If so, then face up to it, but do not play around with it.

Senator Magner referred to an increase in the children's allowance. The policy of the Labour Party, before entering Government, was to propose an increase in the children's allowance of £4 a month but it did not mention that it would recoup it in increases in VAT. Magees are a great company in Donegal but the Government proposals will affect them drastically. They will have to compete on unfavourable terms with imports from countries such as Taiwan, Korea and elsewhere. Where is the incentive for a company to stay in Ireland? Will we soon reach the stage where highly motivated Irish people will go elsewhere? VAT is not charged on foreign newspapers and it could well reach the point that domestic newspapers might be forced to print elsewhere. That is a genuine cause for concern. Anyone who claims that there is a real incentive for business in the budget must be suffering from illusions.

Creating even one job is important to me. Indeed, I supported the concept of the social employment scheme in 1985. Every possible incentive should be given to get people working, even if it is only on a part-time basis. I would also like to give help to anyone who does not want to go out to work, and I do not apologise for saying that. It is radical and socialist thinking, but why do I not hear it from the other side of the House? I am annoyed that they are claiming in their speeches that they have given a motivation to people to engage in business. They are suffering from illusions. The opposite is the case. Everyone in this House knows there is no motivation. Approximately 52 per cent of our population is under 25 years of age and the Government is creating a welfare state for them. There are no incentives for them. I am not saying we should give too many incentives. A previous speaker said that every £1 to an employee costs the employer another £1.50 when account is taken of tax at 48 per cent and PRSI at 7 per cent. You would not hear of this anywhere else in the world. The reason is because the Government is not prepared to tell the people that these are the facts. Senator Magner asked where else could the money come from. Four months ago, the money was coming from everywhere, particularly the "golden circle".

Mr. Calnan

I support the amendment which welcomes the overall thrust, in terms of employment, of the Financial Statement of 24 February by the Minister for Finance.

The motion before us is a small part of a 31 page document, the address by the Minister for Finance, on 24 February. Taking a small part of the budget in isolation and criticising it is not the best way to deal with it; a budget must be taken in its entirety. I want to compliment the Minister of State, Deputy Browne, who presented the case in favour of the budget very well.

There was a politician in my constituency for 30 years whose name was Michael Pat Murphy. At meetings he often heard complaints about high taxation levels, irrespective of who was in office. He said that one should remember that when the Minister for Finance devises his budget, he has to decide where he is going to get tax from and to whom he is going to give money. If VAT is taken in isolation we are not doing our job right. If we were to remove the VAT as is proposed here, we might be able to build only 1,000 houses instead of 3,000.

I come from West Cork, an area where there are about 160 people on the housing waiting list and they are at present living in very bad conditions. There are old people, single parents, deserted wives and unmarried mothers looking for houses and the Government plan to build 3,000 this year. These houses will not be built for nothing so we will have to get the money from direct or indirect taxation. We have no other choice. If you remove or reduce VAT, are you going to take the money to be used for building houses?

In the construction of houses, we will give employment to the smaller builder. I am parochial about this because I know the situation on the ground. There are small builders in my area waiting to give employment, not only to themselves, but to one or two young men also.

If we are going to have 3,000 houses built this year, as the Minister of State mentioned in his circular to the county councils, work will have to be started soon. We do not want any delay; the 3,000 houses must be completed this year. We are hoping for another 3,000 houses next year, so the level of construction work will continue. However, someone has to pay for this. We had a 3.5 per cent increase in social welfare payments and funds must be found for that.

There were some reductions in VAT, but they were not mentioned. The 16 per cent rate was reduced to 12.5 per cent and the 21.5 per cent rate was reduced to 12.5 per cent.

A rather snide remark was made by a Fine Gael Member about programme managers. We are now in a position to get money from the EC and we want to use it properly. In the Cork County Council, where I am chairman, members continuously say that there is money in the EC, but we do not know the right way of getting it. If professional people are employed to do this work not only will we get the maximum amount from the EC but we can also get the best return for the money spent.

We had no increase in the old reliables in the budget. I refer particularly to the pint. Many were expecting a 10p to 20p increase but it did not happen. Putting up alcohol prices now would not be good for the drinking trade. We would also reintroduce cross-Border trafficking in alcohol.

Mr. Cregan

What about Irish clothing?

Mr. Calnan

I did not interrupt the Senator when he was speaking.

There was no tax increase on alcoholic beverages because it was felt that they have been taxed sufficiently. It would have been easy to add another 10p but it was not considered appropriate. Tax on petrol was not increased for the same reason. The budget was balanced and I welcome its overall thrust in relation to employment, the building trade and so on. I fully support the amendment.

Mr. Farrelly

I thank the Members for their contributions to this debate. I am delighted to see that in a short political life some of the Opposition have been converted from poacher to gamekeepers.

I quote from the Offical Report of the Dáil, 29-30 January 1992, Vol. 415, col. 42. The Deputy Leader of the Labour Party when speaking on last year's budget in the other House said:

Essentially my message this year is that what was needed above all on the issue of unemployment was leadership and hope — leadership from the Government and hope for the unemployed. I have some good news for the unemployed who may be dismayed by the contents of this year's budget. Labour have given a lead in that we have shown, as we did last year, that polices can be put in place which will offer work to the unemployed provided we have the political will to tackle the issue.

That speaks for itself. That statement was made last year.

Mr. Magner

Did he say nine weeks?

Mr. Farrelly

Two weeks after the budget was passed 30 jobs in Drogheda and 60 jobs in Dublin were lost because of budget increases in VAT. Senator Calnan mentioned that there had been no increases on the old reliables because of the Border situation. Why was the effect of a 5 per cent VAT increase on clothing on Magees of Donegal not taken into consideration? If we increased the 15 per cent rate to 17.5 per cent and reduced the 21 per cent rate to 17.5 per cent, making it the same as in Northern Ireland, it would help to reduce the hardship experienced by companies throughout the country. It is not right to say on the one hand the old reliables were not increased if on the other hand we put the clothing industry in jeopardy.

The budget reduced VAT on hairdressing and car repair. Representatives of those trades lobbied outside Leinster House and demanded action to avoid the loss of hundreds of jobs. A lesson may be learned from the Government's response on VAT: if one lobbies the Government before next year's budget there may be no increases and if one lobbies hard enough there may be reductions. We are now asking employers, in addition to providing a service or manufacturing a product to lobby Ministers and TDs for reductions in VAT. It is evident from this year's budget that lobbying achieves results.

Proposals to invest £25 million in county enterprise boards have been welcomed throughout the country and I cannot wait until those boards are established. Prior to the general election, however, £50 million was allocated for the boards. Given the four or five counties recently devastated by the loss of 15,000 to 30,000 jobs, how much money will be left for other counties such as mine with over 6,000 people unemployed in three major towns and others in the surrounding rural areas. The county development teams should be expanded immediately. This £25 million is only a drop in the ocean; £50 million might have had a more positive effect.

There are many people who want to set up businesses but are hindered from day one. We have heard the case of a politician's relation who started a business within the last seven months and had nine different calls from Inland Revenue officials and others. People expected change in this budget. It is not good enough for the Government to say that they have only been in office for nine weeks. Sufficient time was spent putting packages together and those should have dealt with the realities of which as politicians, we are all aware.

A building programme for 3,500 local authority houses has been mentioned. I cannot believe the Government has not introduced a once-off reconstruction grant of approximately £4,000 which could be used for house extensions to accommodate single parents. In my county there are 168 single parents. I am not saying that every house should have an extension but the labour and materials used to construct extensions would generate jobs and VAT revenue. Let nobody say that the increase in new house grants from £2,000 to £3,000 is a bonus. It will only cover the VAT increase.

People expected the budget to contain radical measures to stimulate employment. It did not. As I tabled this motion last week I wondered why there had been no radical change of approach. Upon consideration, I realised that of 15 Cabinet members only one or two have been self-employed or have employed others. The majority worked for the State or in service industries. The bottom line is that in order to create employment the present system must be changed.

Senator Quinn said he would not vote for the motion as it was selective. For ten minutes he complained about neglect of the tourism industry. Two years ago, as Fine Gael spokesperson on tourism and industry I pointed out what should be done to create employment in tourism, yet this major industry has been hit in every budget.

Difficulties were encountered in the operation of the business expansion scheme. However, it should have been possible to rectify these problems and close the loopholes, thereby allowing the scheme to continue. The scheme has been reintroduced on a small scale this year.

The budget has done nothing to lift the hearts of Irish people who want to work. Instead, we have increased VAT from 16 per cent to 21 per cent instead of bringing the 21 per cent rate into line with the rate in the UK and Northern Ireland. That mistake may be corrected in 12 months but in the interim, jobs will be lost as a result.

I thank Members for their contributions. I do not agree with Senators on the matter, but a few months ago many of them would have agreed with me. That is the way the cookie crumbles, and I am sure they will agree with us again because the proposals in the budget will not produce the goods.

I recommend our motion to the House.

Amendment put.

The Seanad divided: Tá, 27; Níl, 18.

Tá

Byrne, Seán.
Calnan, Michael.
Cashin, Bill.
Cassidy, Donie.
Crowley, Brian.
Daly, Brendan.
Fahey, Frank.
Farrell, Willie.
Finneran, Michael.
Fitzgerald, Tom.
Gallagher, Ann.
Hillery, Brian.
Kelleher, Billy.
Kiely, Dan.
Kiely, Rory.
Lanigan, Mick.
Lydon, Don.
McGennis, Marian.
McGowan, Paddy.
Magner, Pat.
Maloney, Sean.
Mullooly, Brian.
O'Brien, Francis.
Ormonde, Ann.
Roche, Dick.
Wall, Jack.
Wright, G.V.

Níl

Belton, Louis J.
Burke, Paddy.
Cosgrave, Liam.
Cotter, Bill.
Cregan, Denis (Dino).
D'Arcy, Michael.
Dardis, John.
Doyle, Joe.
Farrelly, John V.
Honan, Cathy.
Howard, Michael.
Naughten, Liam.
Neville, Daniel.
O'Toole, Joe.
Reynolds, Gerry.
Ross, Shane P.N.
Sherlock, Joe.
Taylor-Quinn, Madeleine.

Tellers: Tá, Senators Mullooly and Magner; Níl, Senators Cosgrave and Neville.

Question declared carried.

Question: "That the motion, as amended, be agreed to", put and agreed to.

An Cathaoirleach

When is it proposed to sit again?

Mr. Mullooly

It is proposed to sit again at 10.30 a.m. tomorrow.

Seanad Éireann debate - Wednesday, 10 Mar 1993