——and the additional child exemption limits. I support the Government's commitment to maintain the main discretionary reliefs, such as mortgage interest relief and health insurance relief. It is reducing them to the standard rating and I and my party have always supported that. I also support — this may not be too popular — the taxation of unemployment benefit. My party believes all incomes should be taxed equally from what ever source they come.
I support the increase in capital allowances in relation to cars, and the Minister promised that this will be reviewed over the next few years to bring it up to £16,000. I accept many of the measures to encourage small industry and I welcome the special section in the Department of Enterprise and Employment to implement the proposals of the Task Force on Small Business. There are certain positive aspects of the Bill which are welcome.
Because this Government was only in office for a short period before it introduced its budget, this year's budget and Finance Bill have given us a clear indication of this Government's policy. Because of the fact that the Government has had a year to work out its strategy, we may judge this Bill more harshly than last year. This Government has the largest majority in the history of he State and, therefore, it has an enormous political capacity to put through whatever economic strategy it wishes. We have an economic growth rate which is good compared to other EU countries. Predications suggest that there will be further growth in the future and we must welcome that.
Given the large majority this Government has and the good indications regarding the performance of the economy, the real test of this Government will be how it will address the fundamental structures of the economy. The Government must use that to the best of its ability. If it does not do so, these opportunities will be lost.
I do not accept the Government has set out a strategy to remedy the key structural defects in the economy. My party supports tax reform. I do not believe there is tax reform of any substance in the Government's agenda and it is a core defect of this Bill. Recently I read two publications, which I recommend to Senator Kelleher, on successful tax reform, Lessons from the Analysis of Tax Reform in Six Countries by Cedric Sandford and another entitled Key Issues in Tax Reform. They would make very interesting reading and he might see in them what we are talking about in regard to tax reform. A comprehensive blueprint was provided by the Commission on Taxation and we still have not recommended most of the structural reforms suggested by it. Frederick Sandford in his publication looked at the United Kingdom, New Zealand, Australia, the United States of America, Canada and Ireland and he said:
The essential requirement for successful tax reform is a strong political will and such a political will has to come from a champion.
I am looking to the Minister, Deputy Ahern, to be that champion.
He also went on — I did not intend to say this, but as Senator Kelleher referred to the hardship the people suffered from 1987 to date, I will:
The only effort at tax reform in the Irish Republic was in 1989 when the Progressive Democrats joined in a coalition with Fíanna Fáil and promised a complete overhaul of the tax system. This coalition was responsible for the biggest reduction in personal income tax, the phasing out of tax relief on life assurance premiums and the attack on fringe benefits, the reduction in corporation tax from 43 to 40 per cent and the phasing out of accelerated depreciation and for most of the reforms on VAT and excise duty.
I recommend that Senator Kelleher read these books further because there are some other ideas in there on tax reform he might be interested in.
The criteria on which we must judge this budget must be the capacity of the Government to deal with the fundamental problem, which we all agree is high unemployment. Why do we have such a high unemployment rate? Why do we have such a very high dependency rate in this country? Every ten people who are working here support 22 others. Perhaps that explains to some extent why our taxation has to be so high, but there are other reasons. The only way to deal with the fundamental problems facing the economy is to change the high dependency rate, to encourage more people to become self-reliant and to increase the opportunities to participate in the development of the country by creating jobs. We can generate jobs through radical pro-jobs tax reform, but we have seen little of this. Senator Kelleher disagrees with me.
The Minister will ask how are we to fund this tax reform. My party suggests that the easiest way to fund fundamental tax reform is by the sustained control of public expenditure, but that has not happened. The proposed expenditure for this year will see public expenditure rising by 17 per cent. Inflation rose by 1.7 per cent last year and it is expected to rise by 2.5 per cent this year, which is about a quarter of the increase in public expenditure. If we have additional public expenditure we must have additional taxes to fund it. We have to decide how we are to cope with the fundamental problem facing the economy, that of unemployment, and how to use the positive signs that are out there to best effect. Control of public expenditure would enable us to enjoy the fruits of the economic growth.
The Minister and many Ministers in this Government say that unemployment is our greatest problem and everything we do must be related to that. They also say they are supporting the Culliton report and its recommendations. However, Culliton identified tax reform as the major tool with which to tackle the unemployment problem. I do not see any targets or measures set out in this budget. The Minister has not told us what the basic rate of tax is expected to be by the end of the lifetime of this Government, what the higher rate of tax is expected to be, or how he intends to increase the tax bands. Culliton said that no more than 20 per cent of taxpayers should be paying tax above the standard rate. We have to set out how we are going to achieve this and these targets must be publicly stated. Then achievements can be measured as progress is made. I accept that it is very difficult to achieve this overnight, but we must give ourselves targets and then we can see where we are going.
We need reforming strategy to assist families, and particularly those on low pay and on social welfare. I welcome the fact that some targets have been set out with regard to those who are on low pay, because many people in this country who are on low pay feel they would almost be as well off unemployed. People start paying tax at such a low level that it could be a disincentive, particularly to families with large numbers of children. I recognise the fact that family income supplement and other measures were introduced to try to combat this, but it is still a major problem.
People will ask where specifically public expenditure can be cut. One of the major problems that has contributed to the increase in public expenditure in this country has been centralised pay bargaining. The ESRI and Kieran Kennedy of the ERSI have suggested pay cuts and have said that the economy could not sustain another central pay bargaining round such as the Programme for Economic and Social Progress. During the lifetime of that programme, unemployment rose in this country by 40 per cent. This year alone the public sector pay bill will rise by £250 million. Last year it rose by something like £347 million.
I am not suggesting that we should reduce public expenditure and embark on tax reform by implementing a policy of low pay for public servants. Civil servants should be paid more and we should get much higher productivity from them, but the numbers in our public service are the problem. No effort is being made to change this. Instead of giving the extra £250 million this year and the £347 million last year, we could have used that money to introduce tax reform. This tax reform would have particularly benefited lower paid public servants, who, we are often told, provide the reasons for the public sector needing large pay increases.
There are many civil servants, particularly women, especially in the lower grades, who are very badly paid. Tax reform would benefit them greatly. We have the highest level of tax on work of all the OECD countries and we must address this if we wish to tackle our unemployment problem.
Some issues in the Finance Bill need to be examined. One of them is the withholding tax. This matter was raised and I raised it at the time Senator Kelleher talked about the Task Force on Small Business. It was recommended that withholding tax be abolished. My party has tabled an amendment proposing this, because the basis on which that tax was introduced is no longer with us.
There has been self-assessment in this country since 1987, and taxation on the self-employed is now assessed on an actual year basis rather than on the basis of previous year's figures. People who are subject to withholding tax do not benefit from the actual year basis on which income tax for the self-employed is assessed. This amendment was also put down in the other House. I do have an interest in this amendment, but I did not suggest it. My husband is a GP, he has a big GMS practice and he pays quite a bit of withholding tax.
I suggested to the Minister, Deputy Brennan, when he was talking here on the Task Force on Small Business that the Government, by eliminating the withholding tax over a period of years, could use that as an incentive to people paying withholding tax to create employment. For example, very few GPs in this country employ secretaries and nurses. In the United Kingdom the situation is different. Withholding tax could be used as a bargaining tool to get business people to employ more. The task force said that the withholding tax had a particularly negative effect on professional practices with employees pursuing activities such as engineering consultancies, architecture and the rest. Withholding tax could be used to encourage them to employ more people. I accept that there would be a cashflow problem were the Minister to do this and go back to an actual basis, but perhaps he could introduce it over a number of years, particularly as we are hoping for buoyancy in the economy.
I welcome the extension of urban renewal relief, but it has to be more transparent, particularly when decisions are being made on the areas that are to qualify for urban renewal. Some of the urban renewal schemes have displaced businesses in traditional areas. My own area in Portlaoise is one example. It is appalling that urban renewal status was given to a green field site on which a shopping centre was built. The main centre of the town was as a result transformed into an area that will need urban renewal in the future. This should not be allowed to happen. We are learning as we go along with this scheme, but that was a scandal.
I welcome the efforts, as mentioned in this Bill by the Minister, to encourage small firms and service industries. I have a problem with just one other area there. Provisions were introduced in last year's Finance Bill regarding trading operations that qualified for tax relief on seed capital. The two agencies that were given authority to authorise this were the Industrial Development Authority and Bord Fáilte. At the time the county enterprise boards were not set up. The county enterprise boards do not qualify for this, so somebody who obtains funding under the county enterprise boards cannot get a refund of income tax under this section. I have raised this with the Minister, Deputy Quinn, who is very concerned about it. I have talked to officials in the Department of Finance and they have been very helpful and understanding, but they did not change it.
I cannot understand how the Government will give funding to county enterprise boards to support small industries which believe they will qualify for this tax refund scheme and not allow them qualify. I have tabled an amendment on this matter. I have discussed this with the Minister for Enterprise and Employment, Deputy Quinn, and with the Minister of State, Deputy Brennan, but not with the Minister for Finance, Deputy Ahern. The growth in jobs will come from small firms.
With all the positive points I made to Senator Kelleher I am now out of time. The Progressive Democrats would like to see tax reform. We are looking to the Minister to champion this cause and we would like to see the buoyancy created by the improved economic circumstances used to reform the tax system and to make it more employment friendly.