I welcome the Minister to the House. Senator O'Sullivan has 12 minutes to propose the motion.
Budget 1994: Motion.
That Seanad Éireann endorses the proposals in the 1994 budget and welcomes and supports the pro-jobs, pro-growth and pro-enterprise thrust of the budget, the significant improvements in take home pay that will arise from income tax reductions, the increases in social welfare payments and other measures contributing to economic and social progress in the budget.
I have great pleasure in proposing this motion and in welcoming the Minister of State to the House. I have no hesitation in saying that this is the best budget ever in terms of its focus on jobs and enterprise and this is the area on which I intend to concentrate.
This budget tackled many of the root problems in relation to jobs, employment and enterprise in our society that were not tackled before. There are four specific areas to which I wish to refer. The first relates to small businesses while the second is the identified need for a shift in taxation. This has primarily been on work and income. It was identified in the Culliton report, the NESC report, the report of the Commission on Taxation and many other reports that we needed to shift some of the emphasis of taxation from employment to other areas. The third area I wish to address is the measures in relation to long term unemployment. I particularly wish to refer to whole communities which are in crisis due to large percentages of the people living there who are long term unemployed. My fourth point is the poverty trap which has been discussed in this House and in the other House on many occasions. There is a sector of the population who appears to be stuck in a situation where, whether people are unemployed or have the opportunity to take up work, they seem to be unable to improve their position and in many cases these people felt they were worse off if they took jobs. These four aspects are at the core of the budget. They are interrelated and aimed at directing this country towards methods and systems which will make it easier for people to create and take up work. They also aim to create a general atmosphere and culture and facilities for employment.
The first area relates to small businesses in particular. The most important change in this area is in relation to the loan fund of £100 million where, at an interest rate of 6.75 per cent over ten years, small businesses can borrow. It was identified over many years that there was a need for low interest loans for small businesses. I note that the private banks are beginning to follow suit in this area. This is also to be welcomed and the initiative came from the budget through the ICC. Many of the recommendations in relation to small businesses that are included in the budget were the result of the small business task force, which was set up by the Department of Enterprise and Employment. It should be noted that the people who are represented in this area were listened to because for many years they were not heard.
I take issue with the amendment tabled by the Progressive Democrats because when that party was in Government, and its Minister was in that Department, there was little movement to deal with the problems of small businesses. Many of these have now been addressed. My colleagues will deal with that in more detail. I want to refer to the reduction in employers' PRSI for incomes under £9,000 and increases in the VAT thresholds, which took many people out of the net. Another important matter is the VAT on cash receipts rather than on invoices — this is of major importance in terms of cash flow for small industries — and there are many other matters which relate to small industries, such as the simplification of the forms that must be filled when they set up small businesses.
There are approximately 100,000 family businesses and this is the year of the family. The concessions in that area, especially where the sons and daughters of owners of small firms can qualify for the PAYE allowance, are very important for these family businesses. These measures are designed to encourage the start up of businesses, to consolidate small businesses and to help in their expansion towards medium and big concerns.
There have been many debates in this House on the service industries, the division of the former IDA and so on. It has been said that many of these changes were needed and I am pleased to welcome them in the budget.
Regarding the need to remove taxation to some extent from income, the Culliton report, reports by the Commission on Taxation and so on have made various proposals to this effect. It was proposed in these reports, and expounded upon by many Members of the Opposition, that these changes were necessary yet, when the property tax, a tax which has been on the Statute Book for a long time, was widened the reaction was over the top. An individual earning £25,000 a year with a house valued at between £85,000 and £90,000 and entering the property tax net for the first time will have to pay a maximum of £125 per year; that person gains £640 per year under the income tax changes announced in the budget.
These new entrants to the property tax net are gaining. I question whether the Opposition is serious when it advocates the need for tax reform because as soon as the Government starts moving in that direction there is an outcry over something which benefits rather than adversely affects many taxpayers.
Regarding the long term unemployed, the budget provides for the community employment scheme which will offer employment opportunities to 40,000 people. It will replace previous similar schemes, will be focused on the communities and will be closely allied to the local development programme within the national plan.
It is important that we focus on local communities, that we listen to them and empower them, especially communities where there is chronic long term unemployment in a high percentage of families. Yesterday I met with a group of people from Northern Ireland, Limerick and Scotland who were involved in a three way project under the EU Poverty 3 programme. They put a strong emphasis on the importance of consulting with people in local communities regarding community schemes. There has been close consultation with local communities. In addition there has been consultation under the National Economic and Social Forum with the various interest groups in relation to these budget changes.
I also note that the proposal by the Conference of Major Religious Superiors regarding community work in return for unemployment assistance has been taken on board in the budget with the establishment of a pilot scheme. It is a proposal worth investigating and the appropriate way to do this is through such a scheme. There has been much discussion about it and the pilot scheme should identify the good points, and possibly the bad points, of the proposal.
A sizeable section of the population is unemployed long term, that is over three years, and unfortunately such people have small chance of getting back into mainstream employment unless they have the opportunity of participation in community schemes to reactivate their skills, to train and to regain contacts with the labour market. This will be possible through these schemes. It is important that there be flexibility in these schemes and that there will be the opportunity for people to stay on longer than one year in certain cases. It is also important that there be a link between these schemes and the possibility of further employment.
The poverty trap, as it is commonly described, has been addressed in the budget in several ways. For those with an income under £9,000 the levies have been abolished, that is the health levy, the youth employment levy and the income levy, which has been abolished for all taxpayers. Exemptions for income tax liability have been raised, the tax bands have been broadened, personal allowances have been raised and the family income supplement has been increased by £6 per week. These measures are geared to help people on low pay and who, in many cases, feel that they would lose out, or have lost out, by taking a job. These measures are also designed to help many who are unemployed and who have the opportunity to get a job but feel that by doing so they would be worse off in terms of take home pay.
These important measures are designed to address this problem. In addition, the tax measures have a number of advantages for middle income earners in terms of raising allowances and widening the standard band. There is a wide range of other measures in the budget in terms of health, education, the public house building programme and so on that address the need to benefit those people who are on low incomes and to stimulate the economy. The public house building programme not only provides houses for the public but it stimulates and helps the building industry.
The budget is focused on work, the protection of people on social welfare and on job and enterprise creation. These are the constant points of reference throughout this budget, a budget which is turning the corner. It is a new direction and it will stimulate the economy in Ireland in the ways that I have outlined.
I have pleasure in proposing this motion.
I welcome the Minister to the House. I second the motion. Many small aspects of the budget have been criticised. In view of this, I will dwell on the positive aspects. The motion mentions "pro-jobs". The Department of Enterprise and Employment will be assisting small businesses to a greater extent because of the provisions in the budget. These include an interest subsidy of 3 per cent on the special loan fund of £100 million; the £800 PAYE allowance being made available to sons and daughters of owners of small firms who are working full time — this is important because this benefit was not available to young people who were employed by their parents in the family business, whereas it would have been available to any stranger employed by the parents; the reduction in employers' PRSI from 12.2 per cent down to 9 per cent on incomes up to £9,000, a positive move towards reducing PRSI contributions for employers. Over the years, employers have been hit hard by PRSI and this move to reduce PRSI contributions will protect jobs, especially for those on low pay; the VAT thresholds have been increased to £40,000 and £20,000, thereby eliminating thousands of small businesses from the VAT net; VAT is to be compiled on a cash receipts basis rather than an invoice basis. Often an invoice which included VAT meant that if the money was paid, it was out of circulation for the person in business, and consequently hindered the growth of the business. Having VAT on cash receipts makes the system more equitable.
Another provision in the budget is the reduction in the revised capital gains tax from 40 to 27 per cent. This 27 per cent is important. A 27 per cent rate across the board is the right amount to pay in tax. When we speak about 40 or 50 per cent, we are going beyond the limit of the ordinary working person. The £100 million granted to the health boards will provide jobs by speeding up payments to suppliers and, in addition, there will be a greater cash flow for smaller firms. There are now single tax registration forms for all new businesses and single tax clearance certificates for all public bodies. Owners may invest in their business under the business expansion scheme.
These are positive steps to develop small businesses. If small businesses in rural areas could be developed, one, two or three jobs could be created and this would be of enormous value in a small village. These jobs would provide money for those who would otherwise be unemployed or who would have to take the boat or the plane across the sea.
As regards the reduction in income tax, this year the single and married allowances and the 27 and 48 per cent tax bands were substantially increased. Although we may criticise these measures because the increases are not large enough, people will only notice an increase in spending money when the budget comes into effect in the new tax year. While people may be hyper-critical of certain issues at present, very often they are talking about future projections which may not come true, for example, the telephone débacle some months ago.
I pay tribute to the Minister of State, Deputy Burton, on the social welfare aspects of the budget which have provided substantial gains for people on social welfare. There was an increase in disability and unemployment benefits and a 3 per cent rise all round. Last year's budget showed a substantial increase in child benefit which was further increased this year. The family income supplement was also increased. The carer's allowance is gradually coming in line with what may be regarded as a dependence allowance. In the past when a carer took over this job 24 hours a day — they are wonderful people who provide a social and caring service — and stayed in the house, the pensioner often lost his or her free telephone, electricity, etc. However, this is being corrected. The carer should receive extra money and it should not be taken from the pensioner. As far as social welfare is concerned, this measure is important.
The provision of a contributory pension for widowers is also welcome. In the past widowers were ignored. Often those caring for children after a bereavement found it difficult to keep going. The widower's allowance is of immense importance. I am glad the free schemes have been extended to widows over 60 years. Often a husband and wife had free electricity, television and telephone because the husband was over 66 years. If the husband died at 70 years and his wife was not yet 66 years, she had to pay for electricity again. This was a severe burden on someone with a reduced income. The extension of the free schemes to widows is welcome. Perhaps they could be extended further.
People ranted and raved about the tax amnesty but we no longer hear anything about it because we see the work being done with the money collected. The health agencies are getting £100 million, An Post and Telecom Éireann's pension funds are getting £71 million, county roads — we hear a lot about potholes, etc. — are getting £15 million and local authorities are getting £5 million to repay debts. Many other areas have been included in the budget, such as local authority housing where remedial work on bathrooms and window replacement is necessary. If we isolate parts of the budget and say they are bad, we are not doing justice to the good parts. There are many good parts to this budget.
I move amendment No. 1:
To delete all words after "That" and substitute the following:
"Seanad Éireann deplores the attack on home owners and middle and lower income earners in the recent budget, as a result of the reduction in mortgage and VHI tax relief, the increase in the residential property tax, the retention of the Probate Tax and the minimal increase in social welfare benefits; and while welcoming the PRSI relief for lower income earners, calls on the Government to introduce a further extension on a graduated level of PRSI payments."
This budget contained a number of proposals which are welcome, but it contained others of which I would be critical. I welcome the abolition of the 1 per cent income levy imposed in last year's budget. While it represents a distinct turnaround, it is welcome. The allocation of £100 million to the health boards from the tax amnesty to reduce their overdraft is welcome. The provision of an additional £10 million for the hospital waiting list initiative is also welcome. This is essential because many patients have waited up to four years for orthopaedic treatment. I have evidence that this situation still exists. The provision of subsidised loans to small businesses is welcome. This money is coming from the European Union loan fund and is being administered by the European Investment Bank through the Associated Irish Banks. The 6.5 per cent rate over a ten year period will be of benefit and it is welcome.
Last year I strongly recommended a widower's pension. I met an individual who experienced problems in this regard and the case was mentioned by Ms Nuala Ó Faoláin in The Irish Times. I welcome the introduction of a widower's pension; I am pleased the Minister went along with this proposal.
As regards means testing contributory widow's and widower's pensions, I am glad the Minister accepted the reasonable objections and reversed the original proposal. Deputy Gay Mitchell highlighted this on radio. Irrespective of how this came about, this reversal is welcome. If these changes had been made all contributory pensions in future would have been in danger of being means tested.
I believe an anomaly exists in regard to means testing deserted wife's allowance which has not been publicly highlighted. The Minister, who is more of an expert on this. Senator Calnan and others might be able to clarify this. The deserted wife's allowance is based on the contribution of the husband up to the time of the breakup of the marriage. A deserted wife is entitled to an allowance on the basis of his contributions. If she draws deserted wife's allowance, under this proposal she will not be allowed to earn over £16,000. If this proposal is implemented, it will pose a threat to the introduction of means testing contributory benefits. This proposal to means testing for the deserted wife's allowance must be withdrawn. I ask the Minister to examine this because I believe it is a problem. These are some of the positive proposals, but other areas of the budget are disappointing.
While acknowledging the economy is in a stronger position than for some years, the Minister failed to take the initiative in this budget. He was afforded a significant opportunity to improve the level of take home pay and to promote enterprise and job creation. The revision of PAYE allowances is, at best, minimal and, in view of the reductions in tax relief in some areas, will not have much impact on disposable income. Rather than pursuing policies of job creation, the extension of the residential property tax and the reduction in mortgage interest relief will adversely affect employment levels in the construction industry.
The anomalies in the tax have been widely debated and I do not intend to discuss them in detail. However, the Government has been singularly reluctant to specify measures to redress the anomalies which it admits are inherent in the tax. A clear statement of its proposals is urgently required to justify the assurances. The Minister's first attempts at tax reform have been bungled and are not a source of hope for promised reforms. He appears to be at odds with the IAVI and other interested bodies regarding the incidence and yield of this revised property tax. Perhaps greater consideration should have been given to the proposal.
The reduction in tax relief on VHI contributions and the projections for further reductions by 1996-97 will force many people to revert to the public health services, thereby providing an even greater drain on these services. This reduction is short-sighted and will encourage people to become more dependent on State services.
I welcome the moneys which the tax amnesty yielded. Some of the items of expenditure provided for in the budget are financed from funds available on a once off basis from the tax amnesty. Instead of making proper planning provision for the development of the finances of the health boards, the Minister is operating on a safety net basis. When major problems again arise in relation to health boards' finances, will a further tax amnesty be required to finance the next survival package?
The revision of the probate tax is welcome but has not gone far enough because it is levied when people have suffered a bereavement. It must be paid prior to the release of funds from the estate. A grant of administration or probate cannot issue until the tax has been paid. Accordingly, the tax must be paid prior to vesting the benefit in the beneficiary. I again state that this tax is a return to death duties. In its new form it must be paid with capital acquisitions tax and is imposed at the rate of 2 per cent. It is easy to see this being increased to 4 per cent or higher. The tax is inappropriate and dangerous and should never have been introduced. I again call for its abolition.
Non contributory old age pensions are to be increased by £1.80, a great deal has been said about this. However, it is less than the price of a pint. When people look at it in a realistic fashion, they will not think it is sufficient. I looked at some of the increases in child benefits, one of which will be increased by 50p. The reduction of 3.2 per cent in employers' PRSI and of 2.25 per cent in employees' health and employment levies, both of which apply to incomes up to £9,000 a year, are welcome. However, the scale should be graduated to encompass people earning between £9,000 and £12,000 a year because they are penalised. The reductions amount to 5.45 per cent. It may benefit the Government, as well as employees and employers, to provide reductions of 3 per cent on incomes up to £12,000.
I support the amendment and I agree with Senator Enright in relation to the benefits to those earning £9,000. In many areas people earning less than £9,000 are not considered. I do not like people taking credit for measures before they are implemented. The increases and the so-called schemes have not yet been implemented and the different names put on the same schemes time after time annoy me. These schemes have been in place since the social employment scheme was introduced in 1985 by the last Fine Gael-Labour coalition. They were introduced for the long term unemployed, not to take work from people already employed.
The Government in 1987 agreed with the social partners, the Irish Congress of Trade Unions and the employers, that there should be a major reduction in the numbers employed in the public sector. The impression was given that extra jobs would be created but since 1987 the unemployment rate has doubled. People are still giving the impression that a great number of jobs are being created but I do not agree with these schemes as they give the impression that people are getting jobs and should consider themselves lucky. This is demeaning because people should have full-time jobs. We should not give a job to a person for 12 months and then give it to his neighbour for the next 12 months. We should not give the impression these schemes are for trained people. They are for general operatives with shovels in their hands. I do not say this to demean the people engaged in these schemes, I do not like demeaning people or putting them on the side of a street and saying to them they should consider themselves lucky that the State is giving them a job for 12 months. We give people work for 12 months and give the impression that 40,000 jobs are being created but they are not. The number of jobs lost in local authorities between 1987 and 1989 was over 40,000.
I very much resent that the Minister for Finance and the Government give the impression that they are looking after the less well off because the opposite is the case. Members should examine the facts before they put down motions saying that certain measures will be of benefit.
We gave the facts, Senator Cregan.
I did not interrupt anyone. If this motion was put down in 12 months' time stating that some of the budget's proposals worked, I would give credit where it is due. However, people should not seek glory before it is due. The proposals should be implemented before Members on the Government side come here and boast.
I now turn to taxation of unemployment benefit. Have we any idea what will happen to people on unemployment benefit whose spouses are working? Their pay related benefit will be reduced, indeed the Labour Party agrees it should be eliminated. I heard the Minister say on radio it is right that people who paid contributions towards, for example, widows' pensions should be assessed and means tested. These contributions could have been paid by their husbands or themselves. I have no doubt that during the period of this Government pensions and other social welfare payments will be assessed as in the case of unemployment benefit. These people are now £16.80 a week worse off because of taxation of their basic benefit. I do not want to give the impression I am against anybody doing something which would create a job. However, I am talking about real jobs rather than telling people to pull weeds or cut hedges. We must not forget that when the social employment schemes were first implemented, the Congress of Trade Unions demanded that under no circumstances was this to interfere with a full time job. That was the agreement and this is a big turn about by people who want to take credit for creating extra jobs when this is not the case.
An extra 150,000 people are unemployed because of the policy pursued in 1987. The congress is now given the impression that we can create 40,000 jobs every year. The Taoiseach spoke yesterday about the creation of 60,000 jobs over a three year period by incoming plants. I welcome that and hope it happens because that is real work. Let a person pay real tax on real income.
There has been a rapid deterioration in roads and urban areas in all local authority areas yet nobody is working. For example, there are 550 fewer jobs in my local authority than in 1987. If that figure is multiplied by all the local authorities, how many full time jobs would it create? A general operative in a local authority area is paid less than £9,000 — what is wrong with giving him full time employment and a pension in 20 years' time? Instead, we give him £9,000 for one year and nothing for the next. He will then receive unemployment benefit and be credited with the stamps. If his wife in the meantime does some work he can be taxed on that.
With regard to the property tax, the Senator spoke about the income level being £25,000. Let us not forget that it is not £25,000 earned by one person but £25,000 coming into the home which is taxed. I have no objection to someone who earns £25,000 being taxed but this taxes everybody. Three people in a house could each earn £8,500, which is nothing, and two of them might not contribute anything to the home. A widower could earn £9,000 a year, his two children may each earn £8,000 and give their father £20 a week. Do we really think they should pay such a tax? There is no logic in it. There should be only one tax of this type but other taxes are being collected at local government level. If we are to have a property tax it should be given to local government, instead it goes to the Revenue Commissioner.
Will the Minister reply to my question on taxing unemployment benefit paid to short term workers? Such people lose a great deal of money and I can give the Minister the information if she so wishes.
I welcome this motion because it sums up very well the broad thrust of this year's budget. I commend my colleagues in the Upper House for focusing attention on the important aspects of the budget which affect the vast majority. It needs to be repeated that these important aspects are jobs, income tax improvements for the low paid and general social welfare improvements.
This is a sharing budget founded on the twin pillars of economic growth and social justice. It makes a series of bold and imaginative leaps into the whole area of tax reform and the integration of tax and social welfare. I welcome the changes in relation to social welfare which seek to consolidate the concept of social protection. However, for somebody on a social welfare income the income element is only a part of the total services which they consume. Everybody, including social welfare recipients and the so-called "middle income group", benefits from the provisions in this budget on health, education and housing.
A common theme of Fine Gael and Progressive Democrats' rhetoric in recent weeks is that Labour and Fianna Fáil are running a tax and spend Government. In spite of this, their Senators are here looking for further increases in spending and criticising some small increases in specific taxes. In common with so much else which comes from these sources, the tax and spend claim is rooted more in wishful fantasy than reality.
Although this Government has boosted public spending in many sensitive social areas such as education and health, its overall fiscal approach is very cautious and it has shown determination to keep its annual spending firmly within the agreed European guidelines and to achieve a reduction in the overall national debt. In fact, we are the only country in the EU to have stayed within the Maastricht guidelines while reducing taxes at the same time. Ireland now has the lowest public expenditure as a percentage of GDP in the EU.
OECD figures published this week show that, contrary to general perceptions, Ireland is not a heavily taxed country. In fact, total tax revenue as a proportion of GDP is lower in Ireland than in most EU countries.
Does that include excise taxes?
Its record in 1993 and its targets for 1994 put it in the top league of governments reaching the Maastricht standards. The flow of foreign funds into our currency reflects the level of confidence in the stability of that policy. Every home owner and business is reaping a rich harvest of interest rate cuts which directly flow from it and it is universally recognised that mortgage holders are significantly better off this year than this time last year. That is what counts in practical terms for many families.
Another myth which we hear time and again from these sources is the allegation of the Labour Party's hostility to the self reliant middle income group. It is a curious claim as Senators know that many Labour Party TDs and Senators are from this group — teachers, lawyers, an architect, a chartered accountant, professionals of various kinds. We even have a psychiatrist.
The Labour Party is an almost perfect microcosm of society.
The Minister means smoked salmon socialists.
The Minister, without interruption.
Many of its members have moved into the middle income group through education and the normal upward social mobility brought by economic prosperity and personal ambition. Their political base is heavily rooted in middle class as well as working class votes and it is inconceivable that these TDs — Ministers or backbenchers — or Senators would countenance any policy which would suppress social or economic ambition.
The Minister could have fooled me.
In recent weeks I have been infuriated by the vulgar repetition by Fine Gael and the Progressive Democrats of the myth that the middle income group is asked to pay for everything but gets nothing in return. This is just a barefaced lie. The tax take in a family with three children and a salary of £40,000 a year was reduced from 38 per cent of income in 1986-87 to 32 per cent in 1993-94. That hardly constitutes war on the middle income groups. It is not only in take home pay that the middle income group has gained, but in State services generally. Take education for example, which, understandably, is a subject of considerable concern for all groups in our society. The overwhelming ambition of the middle income group is high standards in public education with affordable access to the highest levels. This is the surest guarantee that their children will have the capacity to maintain and improve their standard of living. The improved level of public spending devoted to education at every level reflects the commitment of the Labour Party in Government to this ambition. Every middle income taxpayer receives a top quality return from this investment in education which their taxes provides.
While third level fees are a major drain on many such families, the tax relief provided through covenants has remained in place at the full rate. There is also a review of the grants system currently taking place. In any case, every individual third level place commands a substantial public subsidy and there can be no doubt that middle income taxpayers are the main beneficiaries, as indeed, they are entitled to be.
Equally the health service uses up vast sums of public money. While most middle income families are careful to take out VHI cover, there is still a large cost to the Exchequer for every treatment given. The quality of the care on offer is the direct result of the taxes paid and invested in the health services. It is nonsense to claim that no benefit comes to middle income taxpayers from the extra resources devoted. Both this year——
The Minister is abusing them.
——and last year, the elimination of hospital waiting lists has been of benefit to everybody using the health services.
Housing subsidies are substantially aimed at owner occupiers. All the studies of these subsidies show that middle and higher income groups gain disproportionately from them. Virtually every home owner in the country has been helped to acquire that status by generous State subsidies. Politicians who feed crude and ill-informed prejudices are beneath contempt. Whatever discomfort the Government in general, and the Labour Party in particular, has experienced in the past two weeks, Ministers can derive some amusement at the sight of erstwhile tax reformers from right and left rushing to shred a decade of speeches and policy documents on calling for a widening of the tax base. I believe the machines have been working overtime.
They will not get away that easily. The basic problem of excess tax on wages and salaries still remains. Last April, a Fine Gael spokesman put a £500 million figure on the scale of the switch to new taxes he would propose to Fine Gael. He highlighted VAT on food, books and medicines and additional local charges as possible sources of such revenue. He referred to tough choices in the interview. I suspect Fine Gael is rather anxious to forget that now. Are we to expect a shamefaced admission that these views, on mature reflection, are no longer operative?
Tax reform comes with a price and Fine Gael's seems to be higher taxes on every family's bread and butter and on school books. As the row over the residential property tax subsides, voters will be looking carefully at the tax options of other parties. I suspect Fine Gael will not be in any rush to let them know too much about its policies.
We must accept that high quality education, health and housing services cost money. We cannot reasonably demand improved services and lower taxation at the same time. We can, however, demand that taxation should be fair and that its impact on income should be consistent. Tax reform is not only tax reduction——
Like the unemployed.
——which is what the Opposition seek.
The public discussion on the budget so far has been dominated by one issue. I want to talk about the real issue, the unemployed and the lower paid. The emphasis in this budget was far from being an attack on the middle income group. Instead, it was designed to improve the climate for employment creation and give greater incentives to lower paid workers. My colleague, the Minister for Enterprise and Employment, Deputy Quinn, announced major incentives for small businesses, which everyone has welcomed. We have encouraged family businesses by changes in CGT and CAT. We have reduced bureaucracy in small firms.
The Government certainly expanded it in Dublin.
It is extraordinary that commentators can castigate the Labour Party for being anti-middle class when a Labour Party Minister is introducing the most significant encouragement for small and medium sized businesses.
In the social welfare area, we have increased benefits by 3 per cent and the lower rates, such as unemployment benefit, by 10 per cent. We have introduced a number of other improvements. Fine Gael is criticising what it apparently considers to be too low an increase in social welfare. I looked at the names of the Members on the Fine Gael amendment and I saw Senator Ross's name. I recall him writing in his column in the Sunday Independent less than a month ago about the social welfare monster. Now he is asking the monster to grow by calling for an increase in social welfare benefits. We need to ensure that——
Senator Ross will go along with what I said about the increase of £1.80.
——taxation policy is pro-employment. As the House is aware, this means continuing the process of tax reform——
It is a failed speech. The Minister is feeling the pressure.
——now under way for a number of years, aimed especially at increasing the rewards and incentives for working and reducing the cost of employing workers.
I accept that the proportion of all tax collected from incomes is high. Furthermore, the burden of income tax bears heavily on those with modest incomes because of the speed at which individuals enter the tax net and, more importantly, the speed at which the higher rates of tax come into play. In these respects our current tax system impacts negatively on enterprise and employment and significant changes are essential. I was therefore, delighted that the Government was able to announce significant improvements in the income tax position of all earners in the budget. I was particularly delighted that the focus of the benefits was on low and medium earners.
The budget reduced the overall take from income tax by almost £200 million in 1994 and by over £330 million in a full year. We have removed the 1 per cent levy, significantly increased the personal allowances and widened the standard rate band. We have given the largest single increase in personal allowances since 1984. These combined improvements will mean that the thresholds for the higher tax rate in the case of employees, before any allowance is included for discretionary reliefs, will be increased to £22,200 if married and to £11,600 if single. These measures will help to reduce the tax burden on the low and middle income earners. For example, a single person on £12,000 per year will have a total gain of £314, while a married couple on £22,000 will gain £569. This will also result in over 40,000 fewer taxpayers being on the top rate of tax. I need not of course remind the House that the top rate of tax is now 48 per cent compared to 58 per cent in 1987.
The child addition to the income tax exemption thresholds is being increased by £100 per child. The addition will now be £450 each for the first and second child and £650 each for the third and subsequent children. For example, in future a married person with four children can earn up to £9,400 per annum, or slightly over £180 per week, without having to pay any income tax. In addition, the marginal relief rate at which tax is charged on income slightly above the exemption threshold, is being reduced from 48 per cent to 40 per cent. This significant reduction in the marginal rate of tax faced by many low paid workers will alleviate the poverty trap and increase the incentive to work. The improvements in this area will mean that 38,000 taxpayers will either benefit from marginal relief or be fully exempted. Moreover, the remainder of the 111,000 taxpayers currently on marginal relief will see their income tax bill considerably reduced. Senator Cregan alluded to the fact that about 45 per cent of PAYE workers and 39 per cent of taxpayers earn less than £10,000, in other words, almost half a million people earn less than £10,000, and they are the people who will benefit significantly from this budget.
Two measures are being introduced in the income tax area which are specifically aimed at business. First, the PAYE allowance is being made available to children of proprietary directors and the self-employed, including farmers, who are full time employees in their parents' business. Second, the company value limit for entrepreneurs' investment in their own company under the BES is being raised from the current £150,000 to £250,000. These are measures which have been welcomed on all sides.
By any standards the reliefs in mainstream income taxation are substantial. The overall cost of these measures amounts to some £330 million in a full year. The extent of the relief is borne out by the fact that the total yield from income tax and the levies in 1994 is projected to be £20 million less than last year. The net effect will be to substantially alleviate income taxation for all earners and thereby increase the share of the income available for use by them in the purchase of goods and services.
In addition to the general income tax measures mentioned here, a number of other steps were taken to improve the position of the low paid and to help improve the competitive position of those industries which employ large numbers of low paid workers. The Government has been convinced by the arguments of many employers and their representatives that a reduction in the overall burden of PRSI would assist them in maintaining or creating employment, especially in labour intensive sectors. We have, therefore, introduced a differential employers PRSI contribution rate structure.
From 6 April 1994 a reduced rate of 9 per cent will be levied on incomes up to £173 per week. In addition an exemption from the health and employment and training levies is being introduced for those earning not more than £9,000 per annum. The obligation for employers to pay the cost of these levies for those with medical cards is also being removed. These changes represent a major improvement for the cost structure of firms with large numbers of low paid employees and should improve significantly the competitive position of these vulnerable firms, not least in the clothing sector.
Lower paid workers are also being helped by the improvement in the family income supplement. On a personal note, I am pleased that all the recommendations of the interim report of the working group on the integration of tax and social welfare which I established last year have been implemented and will help to improve the incentive to work for lower paid people. I recall a newspaper article by Senator Ross which asked if anybody would ever read this report. I am sorry he is not here. The report had a target audience of one — the Minister for Finance.
I ask the Minister to refrain from mentioning Members who are not here.
The report was targeted at the Minister for Finance and I am pleased to say he saw fit to implement all the recommendations in the report. The report has had a short but successful shelf life and I am happy about that. Lower paid workers will benefit substantially from this budget and I think there is general agreement in the House that this should be the principal target of relief in this budget.
The Government's and my foremost concern at present is the need to create sustainable employment in Ireland. With that objective in mind, supporting enterprise in the interest of employment has been a central theme of recent budgets. All the measures and initiatives which have been introduced, such as the changes in CAT, CGT and in the BES and the improvements for small and medium enterprises are aimed at making the economy more employment friendly through improving wage competitiveness and further tilting the balance between risk and reward in favour of business investment and entrepreneurial activity. I trust that these measures will both promote employment and help the business community to thrive and expand in today's competitive market.
The Government's economic strategy has at its core the fundamental reality that Ireland's capacity for sustainable growth ultimately depends on our ability to compete successfully in the global marketplace of which we are now a part. It proceeds from the conviction that to deliver sustainable economic and social progress there is only one sound approach and that is to improve the capacity of the economy to grow. These are the policies which have enabled Ireland to perform particularly well while at the same time keeping Government borrowing and inflation well below the European Union average.
Our task now is to build on this foundation and to maximise the growth potential of our economy to enable further progress in tackling the daunting problem of unemployment. This year's budget has taken a major step in this direction. We have clearly shown that responsible budgetary management will be continued in good times as well as bad, that our debt burden will continue to be reduced over the medium term to free more resources in support of growth and that tax reform will continue so as to maximise the employment dividend from growth.
In conclusion, this motion recognises the crucial importance of our efforts to generate more jobs in the economy, to improve work incentives by increasing take home pay, to assist enterprise and investment and to ensure that the less well off in our society are catered for. Accordingly, I fully support the motion.
I understand that I am unable to move my amendment as there is another amendment before the House but I would like to read it into the record. It states:
To delete all words after "Seanad Éireann" and substitute the following:
", while welcoming the PRSI relief for lower-paid workers, deplores the budget's lack of a clear strategy for employment and self-reliance, and in particular denounces the anti family home tax; the attack on employment through the £549 PRSI increase on middle incomes; and the paltry improvement in the standard income tax band."
Scarcely has there been a budget in recent times that promised so much and delivered so little. Far from being a pro-jobs budget, it lacks a clear strategy to tackle the unemployment crisis.
Unlike the Senator's party's policies of years gone by.
It reveals a continued fixation with borrowing; £800 million more is being added to the national debt of £25.8 billion. That mountain of debt is consuming £2 out of every £3 in tax that is collected from the PAYE sector in annual interest payments. While the improvement in the standard rate income tax band is welcome, it will be completely offset for most middle income earners by the increased cost of their mortgage, VHI, petrol and family home tax.
If the purpose of this budget was to improve the climate for employment its effect will be negligible. The effect of the budget's change in employer's PRSI was to add about £550 to the employer's cost of a skilled worker on £25,000 per annum and the employee will also be liable for a further £70 per annum. This means that the great pro-employment budget has slapped an extra £620 in direct levies on employing many skilled and middle income workers. The effect of this will be dramatic.
Guinness in Dublin said that they would have to pay an extra £1.2 million in payroll costs this year because of this change in the budget. If the management of that company decide to make more people redundant to keep their payroll costs down, the blame will fall fair and square on the shoulders of Labour and Fianna Fáil. There are many other companies throughout the country, including many hi-tech companies, with skilled workers where the 1994 budget will do more to damage job prospects than any other budget in recent history.
One of the most talked about features of this budget was the removal of the 1 per cent levy. This was supposed to be a reforming measure. With the greatest of respect, I think everybody accepts that the levy was wrong and anti-work. It was imposed by this Government in their last budget and its removal was nothing more than the correction of a mistake that should never have been made. While its removal is very welcome, the fact that an anti-work levy is imposed in year one and removed in year two cannot be seen as a reforming measure. It once again demonstrates the Government's complete lack of strategy.
In general terms the changes in allowances are not very radical. It is not radical tax reform for a Minister to increase personal allowances in very favourable circumstances. Broadening the standard rate by 6 per cent is not radical tax reform. These measures have been dressed up as major changes but disregarding the abolition of the 1 per cent levy, the real combined effect of the extra PRSI on many middle income workers will far outweigh the effect of the 3 per cent real change in tax bands, a 5 per cent change in allowances, once inflation is taken into account.
Despite all the huffing and puffing in advance of the budget about the need to widen significantly the standard income tax band, what emerged has still left thousands of workers paying the top rate of tax on below average incomes. It could be argued that had the Minister concentrated the resources he undoubtedly had this year and widened the standard tax band by three times the amount he did, and if he had done very little else in this budget, it would have had a far more positive impact on stimulating enterprise and employment in the economy. The reduction in taxation for lower waged workers is a step in the right direction but here also is a lack of a coherent strategy.
The employers PRSI and the employee's 2.5 per cent levy break up to £9,000 means that a new welfare poverty trap is being created at that level. If a worker earns £1 above this threshold he will pay the full levies and his wage attracts full employers PRSI on all the income, not simply on the amount of earnings above £9,000. If the employer pays workers in this section an extra £500 or £1,000 it will cost employers a lot of money in payroll taxes. If an employee in the hard pressed clothing sector is offered overtime next year, the cost for the employer could be enormous. A new ceiling has been imposed on those at the bottom of the ladder.
In view of that the Progressive Democrats proposal to exclude the first £3,000 of everyone's earnings from PRSI would be more balanced and equitable. Real reform of PRSI would transform it into part of the general tax system. If it applied to everyone, including the public sector, at the same rate, there would be an extra £400 million to use in introducing genuine tax reform to exempt low incomes. There has been no hint of that from this Government.
I now come to the infamous residential property tax. It is necessary to put this in context because we have been accused by Fianna Fáil and Labour of being hypocritical on this issue. In 1973 the national coalition parties offered to take the health charges off rates; Fianna Fáil promised to abolish rates completely. In 1977 Fianna Fáil repeated that promise, accompanied by their infamous promise to abolish motor tax. The Fine Gael-Labour alliance also said in 1977 that they would get rid of rates, but over four years.
There was a certain PD man in that Government, if I recall, and I think he was responsible for a vote of——
Senator Honan without interruption, please.
I may be wrong, but I remember him there.
Everyone wanted to shift the tax burden onto income tax, in other words onto employment. In the next Fine Gael-Labour Government, between 1983 and 1987, local charges were introduced and were fought tooth and nail by Fianna Fáil. Residential property tax was introduced. In 1991 both parties contested the local elections with a clear commitment to remove local charges. They both did very well out of that. In 1992, the Government parties used property tax in a scandalous and cynical series of election advertisements. The Taoiseach, Deputy Reynolds, chose to use the property tax scare to attempt to damage Labour, and the Tánaiste, Deputy Spring, denied any such intentions.
The Progressive Democrats have been assailed by this Government for not supporting the extension of the residential property tax. In 1986 at our first conference, we committed ourselves to its repeal. In 1988 we published a tax reform document which again committed us to its abolition. We made the case at all times for radically transforming local government——
You were in Government.
——and shifting some of the costs to all non-agricultural property in the form of a charge that would go to local government. In 1989 we proposed an all party committee of the Oireachtas to examine this issue but there was no appetite for that. We opposed residential property tax because we thought it was arbitrary and unfair. I now restate the reasons we oppose it.
We have always opposed it. It is not a local government tax. It is an extra central Exchequer wealth tax on homes. It is anti-family and anti-urban. If the Government wished to take some of the load off income tax by funding local government differently, the Progressive Democrats will participate in and support that process, provided it is part of a downward shift in taxation and that every penny is used to directly reduce tax on work. This is part of radical transformation and democratisation of local government. This has been our consistent policy since we were founded.
The recent comments of the Minister, Deputy Smith, on the issue of local government suggest that this Government has no intention of tackling the reform of local government funding which is so badly needed. The Progressive Democrats voted last year and this year for aspects of the budget with which we were in agreement. We got little thanks for that, but we will continue to support from our position that which we would do in government. Residential property tax is unfair and arbitrary. Its retention and extension is an error.
In short, we believe that this budget is a missed opportunity. If the Government had gone for radical change instead of the feeble changes we have seen, we would support it. If allowances had been transformed into basic rate tax credit, if bands had been widened and rates cut, if the last two budgets had controlled public spending and kept it in line with inflation and if public sector pay had been controlled, this could have been a budget that was so badly needed, but sadly, none of that was done.
I support the motion in the names of my Labour Party colleagues and to even more enthusiastically repudiate the motion in the name of Fine Gael and the Progressive Democrats. This budget has been made possible by good management of the economy and of the public finances going back to 1957. Far from being a tax and spend budget, as the Minister of State has rightly pointed out, the latest figures from the European Union support the Government's view. These are objective figures. Much else here, understandably, is argument.
The objective data from the European Union shows beyond any doubt that Ireland's public expenditure as a percentage of national output is the lowest in the European Union, and that is an extraordinary achievement. I am glad to say, as the Minister of State has pointed out, that the policies now being pursued and the benefits we are enjoying from them are the policies which have enabled Ireland to out-perform our European partners over the last six years in terms of growth and employment. I am very happy and proud to have been part of the Government that made all this possible.
The decisions we took were not easy. They were difficult decisions because a good Government is not one which takes easy decisions. As a consequence of that we now find ourselves in the strong and healthy state unique in Europe in terms of the level of public expenditure as a percentage of national output. When prudent policies like that are being pursued, priority areas must be targeted in terms of those most in need. As my colleagues have already pointed out, this is precisely what the Government is doing in this budget — targeting within controlled public expenditure those most entitled to support from Government. For that reason I have to totally repudiate the hypocrisy and falsehood in the Fine Gael motion which "deplores the attack on middle and lower income earners" because they have been singled out for special protection and concern in this budget.
Let me give a few examples. Before this budget the existing tax allowance for the single person was £2,175; after the budget it is £2,350, an increase of £175; for married couples it is an increase at that low level of income of £350; and for widowed persons an increase of £175. That kind of social targeting is vitally important when prudent and sometimes restrictive policies in terms of public expenditure are being pursued. That is why the Fine Gael statement about targeting the low income earners does not match the reality of this budget. For example, there has been an increase of £175 in the one parent family allowance. This is evidence of the type of social targeting one would expect from a Government of this composition.
I want to refer to a sector of our community which was not mentioned and with which I dealt for five years during which time I laid the basis for existing conditions. The agricultural and farming community are an important part of this budget and of our socio-economic structure. They will benefit considerably from many of the measures announced in the budget. Additional resources are available to streamline payments of the common agricultural reform premiums and the other direct income supports which were introduced in my time. The aids to farmers in less favoured areas is being increased by £40 million to £126 million. One of the consequences of my work — I must be modest about this — was the extension of disadvantaged areas to cover 72 per cent of the country. I am happy this is being maximised now to benefit low income farmers in particular.
A new fund of £7 million, to be co-financed by the European Union, is provided for institutional research and development in the food sector. This is vital to generate employment in our indigenous sector, and I also endorse the targeting of this area in the budget. Additional resources are provided for investment in dairy hygiene and animal welfare to meet European Union standards. This is the key to opening new markets and to maintaining our place in those enhanced areas and the continued high status of Irish agricultural produce. These things will not change overnight, but such actions and targets guarantee that the future employment prospects of those about whom we are concerned will be secured.
In addition, there is a fund of £7.5 million and £10 million, respectively, for the new European Union assisted farm retirement and agri-environment programmes. Farm retirement schemes are essential to our agriculture sector because they allow our young people to accept the responsibility which older people pass on to them. The agri-environment programmes are also essential and they are part of the agri-tourism programme which I introduced three years ago and which, I am told, is the most successful tourism programme in the country. I would be greatly disappointed if this was not the case. A sum of £2 million is being provided for small farm development services operated by Teagasc.
Social welfare is targeted throughout this budget because the Government remains, committed to the further development of the social welfare system. I want to mention a few points which will highlight this fact. There has been a general rise of 3 per cent in social welfare levels which, like last year and the year before, will be above the expected rate of inflation. This is how one secures the position of the old, the sick and the disadvantaged. By keeping their levels above inflation, we are continuing the policy of increasing lower payments to priority rates. In addition, we are increasing the child benefit to £25 for the third and subsequent children. The means test is being relaxed for carers and lone parent allowances. I am only highlighting a selection of enlightened measures in a regulated public expenditure system. This shows community awareness because lone parent and carers allowances will encourage people to look after their own people in their own homes.
I want to talk about small businesses because my colleagues have dealt with this issue. It is fair to say that this budget is a charter for small business. There are so many elements in it that I will not have time to discuss them now but I understand they have been put on the record. Small businesses have been targeted in order to generate the employment opportunities we require. Instead of attacking the lower paid, workers will gain most in this budget through exemption from employment and health levies on earnings of £9,000 or less.
Priority is also being given to health boards and public voluntary hospitals, particularly those in debt, who are at risk of liquidation. They will also gain from a £100 million contribution to help restore their finances. This will be a once off payment. A sum of £10 million will be made available to reduce hospital waiting lists.
Two million pounds is being provided for handicapped children and £5 million for secondary school buildings, the base of any enlightened socio-economic policy. This is what all sections of our community and all parties expect from this Government and it is being done. There is evidence that those who have the greatest social need and claim on our resources are being given special support in this budget. In relation to our housing programme, improvements have been made to substandard housing as a result of the work done by the task force for the elderly in particular.
In relation to the infrastructural base of the overall economy, the additional £15 million from the tax amnesty, which is being provided for the maintenance of our non-national roads, is an essential element of enlightened policy. I find it extraordinary to hear people say there is no targeting of priority groups. There is no evidence to support that case made by the Opposition. The elimination of the 1 per cent levy, the 7 per cent increase in the tax bands and the large increase in personal tax allowances represent a major reduction in taxation to one of the lowest levels in Europe.
I welcome the Minister of State, Deputy Burton, to the House and I support the amendment which shows how this budget has and will affect so many people in the weeks and years ahead.
Initially, I want to deal with the residential property tax and to point out the dishonesty of the party which promised to put trust in politics. They seem to be the biggest tellers of untruths — I do not know if I am going too far to call them liars — in relation to what they said at the beginning of their term in office. It is no harm to put on the record the message sent in those heady days in November when the Labour Party was doing reasonably well, when it conned a number of people some of the time, particularly during the weeks leading up to polling day.
Is the Senator talking about yesterday?
I want to put on the record what the Labour Party said in the heat of the campaign: the Labour Party has no plans to introduce a new property or house tax——
It is not a new tax.
Fine Gael introduced it.
——the Labour Party will not reduce mortgage interest relief — I will discuss the threshold later; the Labour Party will increase the relief while interest rates remain high, but it will not introduce a wealth tax or reduce VHI tax relief. The residential property tax was brought in in the 1980s to deal with houses of reasonable size. The plan was that the value of houses would increase in line with inflation and that the salaries of those affected would also increase so that people on a fairly good income, living in a reasonably priced house, would pay a certain amount of tax. What happened? I am sure the Minister is aware from her own area — as I am sure her colleagues Ministers Fitzgerald and Bhreathnach are aware from their areas — that this tax is now hitting ordinary two and three bedroom houses which were originally bought, perhaps 30 years ago, for relatively modest sums and which, because of their location, now fall into the tax bracket. It also hits families where parents may be earning a fairly modest income but when their children's income is added to the total the household comes quite easily into the net. The tax also operates where a mother or mother-in-law's pension brings the whole family's income over the threshold. This measure was introduced by a party that made great play of trust and truth but it has been shown to be as bad, if not worse, than its colleagues in Fianna Fáil. It has demonstrated that not only does it not tell the truth but that it told outright lies during the last election campaign.
I am glad that the Labour Party, despite other attractions in the last few days, brought this issue back to centre stage because it will continue to be centre stage, and even more so when people have to start finding considerable lump sums to pay the tax. Average house prices in Dublin are quite high, even for people trying to buy a new three-bedroom, semidetached property within a few miles of here. People on modest incomes who decide to buy a house in a certain area will now be hit. They will also be hit by the reduced mortgage interest relief.
They gain a lot more in income tax changes than they lose in either of those.
They will be hit and I hope the Labour Party will be hit in June because people will not forget it, either this year or next. Perhaps, eventually, council houses will be in the net. I can see a gradual extension of the tax because already houses valued at £75,000 are included. I am sure this Government will continue to reduce the house price and income thresholds so that, eventually everyone will be caught. This is the start of the reintroduction of rates by the Government which will begin slowly and gradually increase. This so-called "caring" Government which — if it is not going after hard-pressed young couples or people on modest incomes trying to raise their families — is telling people to throw out their mothers, mothers-in-law or other elderly relatives. That is the action of the Government who promised to tell the truth and put truth back into politics. It is important to point out, as the amendment tabled by our group does, that the effects of this budget will hit various people very hard. It is important that the Minister and his colleagues remember this because the electorate certainly will remember it in the days to come.
I would like to share my time with Senator Maloney.
Is that agreed? Agreed.
This is not just a good budget, it is a great budget, the best in many years. It is good for the low-paid and for small business, people in receipt of social welfare and those on local authority housing lists, people on hospital waiting lists as well as children attending primary school. A lot of misrepresentation, gross hypocrisy and downright lies have been told about the property tax which I would like to counter. The property tax is not new, it has been there for ten years. The most that any person, brought into the property tax net for the first time this year, will have to pay is £150. A good number of people will hardly pay anything and I will give an example. A person with a £90,000 house and an income of £27,000 will pay the enormous annual sum of £15 in property tax. If that person has two children he or she will pay the enormous sum of £1.50 in a year. That is hardly a crucifixion of the middle classes.
I wish to discuss the question of people with mortgages, not just those with mortgages on large houses worth over £75,000 but the ordinary person with a £30,000 mortgage over 20 years. If the interest rate in that case goes up 1 per cent repayments will increase by £19 a month or £225 in a full year. If we are really concerned about mortgage holders then we must do our best to keep interest rates down by all possible means. That is how we can help. If someone has a 20-year mortgage at 8.5 per cent, then for every £1,000 that a house might increase — if someone enters into a new mortgage — they would pay £8.60 a month or £103 a year extra. So, if we are worried about home-owners and mortgage holders we must try not to let house prices go wild, as well as trying to keep interest rates down.
Some 45 per cent of all PAYE workers earn less than £9,000 or £173 a week and will be substantially helped by this budget. Social welfare increases, especially widowers' pensions, are welcome as is the provision whereby a widow under 66 years of age will now be allowed to keep her social welfare entitlement. Wonderful improvements have been brought about for the small business sector in this budget and I will list some of them. The interest subsidy of £100 million, whereby people will be able to borrow money at a fixed interest rate of 6.75 per cent for ten years, must be of great assistance to many small companies.
The £800 PAYE allowance being made available to the sons and daughters of small firm owners and farmers brings justice to the system. The reduction in employers' PRSI contributions from 12.2 per cent to 9 per cent on incomes up to £9,000 is of benefit and is a response to the complaints that it is too expensive to employ workers. Increasing the VAT thresholds from £20,000 to £40,000 will take thousands of small businesses out of the VAT net and will help small business generally. There are many other aspects of the budget which will help small business.
The budget's strategy is already working in spite of comments to the contrary. The lending institutions are offering mortgages at fixed interest rates for up to ten years. Bank of Ireland today announced that it, too, will provide money at long term fixed interest rates.
I thank Senator Townsend for sharing his time and I welcome the Minister to the House. It must be a proud occasion for her as this budget has seen increases higher than the rate of inflation in social welfare which is her area of special interest. There are increases of almost 10 per cent in some areas. Disability benefit, unemployment benefit and child benefit have been increased. I welcome those increases and I congratulate the Minister on her input to the budget.
This motion is welcome. As a trade union leader in the health services — a sector which has many low paid workers —I have attended union meetings where there has been an unbelievable reaction to the budget. It is the first time I have attended meetings at which members no longer complain. People used to talk about the "lunatic left". However, it is the lunatic right which has now gone mad in its rantings and ravings about the residential property tax. An accountant in Letterkenny did some calculations on the tax for me. For a family with two children, a house worth £90,000 and an income of £30,000, the tax will amount to £15 per year. We have definitely gone mad. I received only one representation on the matter in Donegal.
The Minister for Health, Deputy Howlin, has done sterling work in the health sector. A total of 17,000 extra operations have been carried out due to the allocation of £20 million last year and £10 million is being provided this year for similar operations. That showed the greed of the consultants who allowed the waiting lists to grow. As a result of the attack on the waiting lists people are now getting what they paid for many years ago. The Minister has also secured over £100 million to address the long running financial problems of health boards. Some health boards overran their budgets while others did not — I feel sorry for those that did not. They probably would have been better off if they had because they would have got more money in the budget.
A total of 3,500 houses were built last year and another 3,500 will be built this year. This is a massive attack on the housing waiting lists. Our party gave a commitment on going into Government that it would ensure that every local house in need of a bathroom would get one. Progress has been made in that regard. In addition, the Minister of State, Deputy Stagg, announced last week that weather-proof windows and central heating will be provided in new houses from this year forward. That is a welcome announcement. The commitment given by the Minister for Education to provide extra moneys for school extensions and new school buildings is welcome too.
As the members of my union have said, this is one of the best budgets in years especially for the less well off and the low paid workers in our society. I welcome and support the motion.
I worry when I hear about trade union meetings at which nobody complains and at which members praise the budget. I do not know if the Senator is trying to talk us out of a job, but it is a new approach to trade unionism and I would be prepared to put up with some of it for a while. The Senator should video-tape those meetings and show us how some union meetings are conducted.
The Senator's members are well off.
The Labour Party always stuns me. I have to admire its audacity in moving a motion to congratulate the Government on its budget.
We have something to boast about.
I look at the budget from a balanced point of view.
The Senator was on the radio recently and had nothing bad to say about it.
I recognise that there are good and bad elements in the budget and there is not enough time to discuss all of them in detail. However, my first comment is complimentary. I compliment the Government on recognising its error in imposing the 1 per cent income levy last year and on abolishing the levy in this budget. That was the most positive aspect of the budget and was a major move forward.
I have reassessed my point of view on one issue since I commented on the budget. At the time I thought the tax on unemployment benefit was a regressive move. However, on reconsideration I believe it is a positive move. It had to happen. It will have a positive impact on the figures during the year.
The property tax is a total mess. Incidentally, I am not aware of a cap of £150 on property tax. Perhaps the Government has made another decision and stepped further away from it. The problem with the property tax has nothing to do with the amount of money involved; it has nothing to do with people's worry that it will be more next year. The fact is it will affect the same people who are trying to pay their taxes all the time and it sparks a reaction of, they are at it again, they are hitting us in another way.
I am not a county councillor and I am not a member of a political party so I can discuss the issue of rates in an objective way, unlike other Members of this House, with the exception of the Independent Senators. Rates were abolished in the 1977 budget. It was a disastrous error. Members of local authorities recognise that. Rates were abolished on the basis that the money would be provided out of taxation. I regret that the Minister in his budget did not say he would reduce taxation by x per cent. He could have told the taxpayers that they would not get that money back but would pay it through local charges or rates. The money will come back one way or another. Only Independent politicians can say this because they are not seeking votes in local authorities. What is happening in this area is disastrous.
The property tax is unfair inasmuch as it hits the wrong people at this time. I support the idea of a property tax. Any country in Europe with a fair system of taxation must have a form of property tax in its tax system. The way it was introduced and the pressures it puts on people have caused the current reaction. It was handled in a hamfisted way and the Government has paid, and will continue to pay, for that. There must be some acceptable way of taxing property.
I do not agree with those who think no tax is best. There must be taxation. A good budget does not necessarily mean a reduction in the amount of tax; it means a fairer system for the payment of tax. The Minister made every effort in this budget to spread the burden away from income taxation. That approach must be welcomed. However, it did not work. The idea of reducing VHI and mortgage interest reliefs would be fine if, at the same time, there was an extension of the 27 per cent tax band so that at least three-quarters of the taxpayers were paying at that rate. People could not then argue about getting the kickback for the same amount. However, there will be a problem until those two things happen.
One matter is a cause of regret to me. I have seen its effects and have tried to raise it with Ministers. It is an issue that affects people with children in third level education and is, the threshold for qualification for third level grants. The cost for parents of a child in third level education is approximately £4,000 per year: £2,000 for fees and £2,000 maintenance. For people like myself who might have to pay that three times in the year it represents a cost of £12,000 after tax. For those who are paying it means a gross earning figure of £24,000 per year to have three children in third level college.
I have come across cases of teachers and other taxpayers who retired early so that they would be out on pension and thereby qualify for the third level grants for their children. Others have taken career breaks, stopped working in other words, when they could not afford to do so to let their children go through college. Worst of all, I have seen people gladly sell their retirement lump sum to pay for their children to go through college as it is an investment in their future and in the future of the country.
However, the threshold can never be raised enough. The policy of the two parties in Government is for access to third level education to be improved. The reality is that it cannot be delivered overnight but surely we can take steps in that direction. As well as increasing the threshold could we not extend the scope of covenants? I accept that covenanting is a regressive form of tax relief inasmuch as the higher the income the more one can qualify. If it is only 5 per cent of income then a person on £100,000 can claim £5,000 whereas somebody on £20,000 can claim only £1,000. Therefore, it is not to be encouraged as a fair form of tax relief.
However, instead of extending the percentage in covenant we could extend the scope and vouched third level fees could be offset against tax. That would be fairer. People like me, who are earning good salaries should not be able to demand that the State put our children through college if we can afford to pay for it — I can make the principled argument for and against — in practical terms. I resent that one is paying double the amount in terms of one's gross salary and, therefore, covenanting should be extended to allow its scope to include vouched third level fees or costs. That is within the Government's policies and would be welcomed on all sides. It is the kind of tax break that is as good an investment as a BES scheme or any other investment.
I know a parent who is not badly off, he earns nearly £30,000 — almost as much as a TD — and he has two children in college. He has told his third child that if she wants to go to college she will have to take two years off so that the others can finish. He simply cannot afford it. There is something wrong with that and it could be addressed by extending the scope of covenants.
The most significant statement in the budget was in the background to it and dealt with unemployment. It gave an indication that this year the Government expects the unemployment figures to be reduced by 5,000. I did not see that reported in any paper, and I can understand that the Government would not be jumping with joy at the idea as 5,000 is a drop in the ocean of the 300,000 unemployed. I look at it from the trade union point of view and if that marks a turnaround from annual increases in unemployment then it is a major move forward. This budget is full of flaws and I have pointed out some of them, but there are also good things in it. If at the end of this year we have turned the tide and unemployment starts to reduce by 5,000 this year and more next year, then the Government can take credit for it. If not, they will get plenty of criticism from this side of the House. I hope that the optimism of the Minister for Finance as indicated in the budget is justified. The economic indicators at all levels are solid. The objective in income taxation has to be to get at least three quarters of our taxpayers into the 27 per cent band.
I will focus on unemployment and highlight an aspect that has not emerged fully in the debate. We are all agreed that unemployment is the main social and economic problem facing the country. The budget significantly addresses the question of job creation and shows a sensitivity in the provisions for the long term unemployed. I welcome the community employment programme which will increase the places in the existing social employment scheme and the community employment development programme by 50 per cent, and they are to be replaced by the community employment programme. These schemes provide valuable work experience and developmental training that should help people to integrate with the workforce.
I specifically want to refer to work for the unemployed and the action proposed in the budget on the proposal of the Conference of Major Religious Superiors. This proposal was first enunciated by the Oireachtas Joint Committee on Employment, which I had the honour to chair, in 1992. We came to an agreement at that time across party lines, with the exception of Fine Gael — every other party was on the Committee and a variety of interest groups from outside the Oireachtas on the subcommittees — that there had to be a better way than paying £1 billion a year to unemployed people who had to prove that they were doing nothing and that they were chashing nonexistent jobs to get that benefit.
We got cross-party agreement to look at alternatives and one of those was the question of identifying work in local authorities and in community and voluntary organisations where the public funds paid out in benefit could be paid on an optional basis to people who would take up that work. I stress the optional element. This is an option to work as envisaged in the pilot scheme in the budget. There is no question of compulsion, politicians know that literally thousands of people want to work and would welcome it tomorrow. I do not see the need for compulsion in any case. Under the present system we are saying, in effect, here is the money but thou shalt not work. I look forward to the 1,000 places in the pilot scheme where people would work for the unemployment benefit on a voluntary basis. This should also help to deal with the loss of dignity and self-worth that unemployed people face.
The money pumped into education has been referred to on a broad level and I welcome the increases in the budget. The vocational training opportunities scheme has proved a valuable exercise in getting long term unemployed people back into mainstream education with a view to increasing their job prospects. There is a long established link between educational attainment and jobs.
On the question of small businesses I am glad that the serious problem of access to capital has been addressed. I welcome the assistance towards capital in the £100 million of cheap loans that are to be provided at 3 per cent below market rates. I particularly welcome the reduction in administration for small businesses. Excessive bureaucracy is the enemy of enterprise and any such measure within the control of Government should be simplified to facilitate firms who want to get on with the job of creating work and developing their businesses.
The National Economic and Social Forum is the successor to the joint committee on employment and I am an Oireachtas Member of that body. We are currently examining all the schemes for dealing with unemployment. We are exploring new ideas, including international thinking in this area, and we plan to produce a report in May on the question of the long term unemployed with specific proposals for consideration by Government. I hope that our report will be taken seriously and taken on board as a serious input to the formulation of Government policy.
Time is short and I wager that by the time I get through listing the provisions in this budget which are in favour of business and the family the Cathaoirleach will call me to order because there will not be enough time to go through what is, without doubt, one of the best budgets produced for many years.
It is appropriate that this pro-family budget should be produced in the international year of the family. Fine Gael and the Progressive Democrats must follow the Chinese calendar, under which this is the year of the dog, because they have taken a dog in the manger approach. They said the budget is not good enough, that it is taking money from some people and not giving enough to others.
Who agrees to tax property at a certain level? Fianna Fáil and Labour do, so does Fine Gael because the former Minister, Deputy Dukes, introduced property tax.
With the Labour Party.
Obviously, because Fine Gael would not have been in power without Labour.
Labour also agreed to tax children's shoes.
It has been a fundamental policy of those trapeze artists, the Progressive Democrats, since their inception. It was also the policy of Sinn Féin The Workers' Party, which is now Democratic Left. The opposition to this has been so fraudulent that Houdini or Richard Nixon should have signed the amendment to the motion.
I quote from the Sunday Business Post:
Almost a dozen members of the Fine Gael front bench were at the gates of Leinster House last week to greet a delegation of modest men from ACRA, the householders defence group. Whatever about John Bruton's concern for equity in taxation, it is clear the party is desperately seeking a political lifeline.
What is the name of the paper?
It continues: "Within hours party deputies were summoning up the ghost of James Connolly in an effort to chastise the Labour Party over taxes and unemployment——"
That reminds me of the Aer Lingus workers.
"——while the Progressive Democrats and Fine Gael were whipping up middle class wrath over the adjustments to the residential property tax." The leading article goes on:
For voters to think clearly and dispassionately about what is proposed the Government proposes to impose the RPT on incomes in excess of £25,000 whose houses are worth £75,000. Where incomes slightly exceed the threshold, marginal relief will apply.
Can the Senator not write an original speech?
Too many papers are being read. Deal with the facts.
The article says:
This is hardly the slaughter of the chattering classes and the Minister is likely to make sensible arrangements at the time of the Finance Bill. But it is positively nauseating to see Mary Harney trying to make political capital out of this matter, given the Progressive Democrats' clamour for a general property tax in the past and their relentless demands for a broadening of the tax base. The spectacle of General O'Duffy's followers promoting socialism on the floor of the Dáil, meanwhile, merely reinforces our belief that the difficulties faced by the Fine Gael party are deeper than was feared.
On a point of order, a Chathaoirligh, is it in order to name Members of the other House?
God be with the red rose; smoked salmon socialists.
I do not know what Senator Norris is talking about. If there is a protected species in this country, it is university lecturers. If there is a species to which the normal strictures on people's lives do not apply, it is within the hallowed walls of academia, to quote a member of the transport union.
What transport union? It no longer exists.
Senator Norris might be affected by the property tax but he has a substantial property and I am sure he will not mind.
I made sure I will not be affected.
I hope Senator Norris is not considering dodging the property tax by renting half his house, a Chathaoirligh.
I would not believe it.
I will pay only what is required by law.
In this budget the business community especially small businesses have benefited. How could those who opposed this budget oppose the measures for small businesses announced by the Minister, Deputy Quinn? In America, the amount of employment generated by small businesses supersedes that from major companies. We must encourage small businesses. I thought that was favoured by the Opposition but obviously it is not. Its tactic is to oppose something with which they agree. It is a difficult position.
Where is the opposition? There is nothing in the amendment about that.
I know that and it is because the Opposition has no point to make. When it ran out of excuses it turned on Deputy Bruton. The budget is relevant and contains more provisions for the welfare of people than any budget I can remember.
The Government is taxing the unemployed.
Senator Magner, your time is up.
In this House the Opposition got everything wrong so far this year. It said we would close Aer Lingus down, we would not give the company money and that it would never fly a plane again.
If Government Ministers were not flying around the world Aer Lingus would have gone out of business. The Government jet is extremely busy. The next Labour Party conference is in the Waldorf-Astoria Hotel in New York.
We heard the same about Telecom Eireann. We were told people would surrender their telephones and bills would increase by 700 per cent as a result of the actions of this Government.
The Government sold out Aer Lingus and Telecom Éireann.
A Chathoirligh, I appeal for your protection. This is a classic example of the mental agility of Fine Gael. If we sold out Aer Lingus we did so with the assistance of its workers and management.
Senator Magner, your time is up.
I ask for another minute or two because of these interruptions. The Opposition was proved wrong on the 1 per cent levy. Fine Gael would have gone to the gallows saying that levy would never been removed. If one applied the Trades Description Act to this Opposition its Members would be put in gaol.
- Belton, Louis J.
- Burke, Paddy.
- Cosgrave, Liam.
- Cotter, Bill.
- Cregan, Denis (Dino).
- Dardis, John.
- Enright, Thomas W.
- Farrelly, John V.
- Honan, Cathy.
- Howard, Michael.
- McDonagh, Jarlath.
- Naughten, Liam.
- Neville, Daniel.
- O'Toole, Joe.
- Ross, Shane P.N.
- Taylor-Quinn, Madeleine.
- Byrne, Seán.
- Calnan, Michael.
- Cashin, Bill.
- Crowley, Brian.
- Daly, Brendan.
- Fahey, Frank.
- Farrell, Willie.
- Finneran, Michael.
- Fitzgerald, Tom.
- Gallagher, Ann.
- Henry, Mary.
- Hillery, Brian.
- Kelleher, Billy.
- Kelly, Mary.
- Ormonde, Ann.
- Roche, Dick.
- Townsend, Jim.
- Kiely, Dan.
- Kiely, Rory.
- Lanigan, Mick.
- Lydon, Don.
- McGennis, Marian.
- McGowan, Paddy.
- Magner, Pat.
- Maloney, Sean.
- Mooney, Paschal.
- Mullooly, Brian.
- Norris, David.
- O'Brien, Francis.
- O'Kennedy, Michael.
- O'Sullivan, Jan.
- Wall, Jack.
- Wright, G.V.
I move amendment No. 2:
To delete all words after "Seanad Éireann" and substitute the following:
", while welcoming the PRSI relief for lower paid workers, deplores the budget's lack of a clear strategy for employment and self-reliance, and in particular denounces the anti-family home tax; the attack on employment through the £549 PRSI increase on middle incomes; and the paltry improvement in the standard income tax band."
- Byrne, Seán.
- Calnan, Michael.
- Cashin, Bill.
- Crowley, Brian.
- Daly, Brendan.
- Farrell, Willie.
- Finneran, Michael.
- Fitzgerald, Tom.
- Gallagher, Ann.
- Henry, Mary.
- Hillery, Brian.
- Kelleher, Billy.
- Kiely, Dan.
- Kiely, Rory.
- Lanigan, Mick.
- Lydon, Don.
- McGennis, Marian.
- McGowan, Paddy.
- Magner, Pat.
- Maloney, Sean.
- Mooney, Paschal.
- Mullooly, Brian.
- O'Brien, Francis.
- O'Kennedy, Michael.
- O'Sullivan, Jan.
- O'Toole, Joe.
- Ormonde, Ann.
- Roche, Dick.
- Townsend, Jim.
- Wall, Jack.
- Wright, G.V.
- Belton, Louis J.
- Burke, Paddy.
- Cosgrave, Liam.
- Cotter, Bill.
- Cregan, Denis (Dino).
- Dardis, John.
- Enright, Thomas W.
- Farrelly, John V.
- Honan, Cathy.
- Howard, Michael.
- McDonagh, Jarlath.
- Naughten, Liam.
- Neville, Daniel.
- Norris, David.
- Ross, Shane P.N.
- Taylor-Quinn, Madeleine.
When is it proposed to sit again?
It is proposed to sit again at 10.30 a.m. on Thursday, 17 February 1994.