This is a Government of achievement. When we came into office two and a half years ago, we set ourselves a series of objectives for the social and economic development of this country. We are achieving these objectives. One of our primary goals was the development of an innovative, enterprising economy which meets the demands of international competition and shares the rewards of effort, initiative and success. We can be very proud of our record on that front.
This Government has carefully nurtured the economic development of this country and our success is evident in the emergence and sustained development of our "celtic tiger" economy which is the envy of many of our EU partners, and other countries worldwide. For example, inflation rates are at an all time low and are remaining low. The number of people at work is at an all time high and continues to grow. The national debt ratio continues to fall. This is firm and concrete proof of the success of this Government's policies on the economic front, a success which is unprecedented in recent experience. Furthermore, the ESRI report published last week forecasts a continuation of growth and prosperity into the next century.
However, strong economic performance is not the only criterion by which to judge a country's performance. We all know that social and other such considerations are as important if we are to achieve a balanced development nationwide where every sector of society benefits equally. As such, in tandem with our economic objectives, this Government is also committed to the implementation of policies to promote the best quality of life for the people generally through measures, for example, to promote health care, justice, housing and education. Our record in these areas is one of solid achievement.
For instance, in the area of social housing, which is a good example of any Administration's commitment to improving the quality of life of its people generally, our record is outstanding. InA Government of Renewal, we promised that public housing and social housing starts would be increased to 7,000 annually. As Minister for the Environment, I am proud that this year the total provision for housing amounts to £400 million. This represents an increase of 9 per cent on the 1996 provision and will allow us, once again this year, to meet the commitment to 7,000 starts. Taking into account the local authority housing programme and the full range of social housing measures, the needs of over 10,000 households will be met in 1997.
I am also proud of our achievements in the environment field. As promised, I have met the goals set inA Government of Renewal on the preparation of a national sustainable development strategy to address all areas of Government policy which impact on the environment. I have also successfully introduced major legislation in relation to waste management.
The policy agreement made a number of commitments concerning local government funding. We all know how contentious the issue of service charges has been over the past ten years or so. However, as Minister for the Environment, I have not been afraid to tackle this issue. InA Government of Renewal, we gave three specific commitments which had direct relevance to service charges. Our first commitment was to amend the 1962 Sanitary Services Act to delimit the power of local authorities to disconnect domestic water supplies for non-payment of service charges. Our second commitment was to grant a tax allowance at the standard rate up to a maximum of £150 in respect of service charges paid in full and on time which was implemented in the 1995 Finance Act.
Our third commitment was to commission a professional study on local government funding to see how a fair, equitable and reasonable system of funding could be introduced. Within months of being appointed Minister for the Environment, I engaged KPMG management consulting to carry out this study. It carried out an in-depth analysis of local authorities' existing and future funding requirements and evaluated the capacity of the system to meet these requirements. It examined a range of funding options. Its underlying conclusion is that there is no one right way of funding local government. Instead, it was a matter for me, as Minister for the Environment, to weigh up the pros and cons of the various options to decide which one was the best fit to the Irish context now and in the future.
As I said, this Government is one of achievement. In just over two years, we have met the three specific commitments we set in relation to local government funding. That is no mean feat. However, we were not prepared to rest on our laurels. Further work was necessary if the overall issue of local government funding was to be comprehensively tackled once and for all to enable this important sector realise its full potential.
Last February I addressed this House on the issue of local government financing and I put on the record my proposals to deal with this issue. As I said previously, I was not daunted by this challenge — it has been one of my top priorities since my appointment as Minister for the Environment. I stated that I did not want this issue to be seen in negative terms as a thorny issue or a political minefield. My objective was to turn the area of local government funding and the focus of local government around so that it would be thought of and seen in a positive light in terms of opportunity.
It is just over two months since I told this House about my plans on local government financing and I am back here presenting the Bill which will give legal effect to these plans. The Local Government (Financial Provisions) Bill, 1997, has two major objectives. First, it will provide local authorities with their own viable source of finance to enable them to carry out the range of functions demanded by their customers in the 21st century. Secondly, it will ensure that local authorities make the best possible use of these resources.
Local government financing has been a problem for a number of years with the local authorities experiencing a long-term decline in their fortunes. The effects of too narrow a funding base, compounded by the conferring of new functions without any change in their finances, created a financial stranglehold for local authorities. This position could not be allowed to continue. Already we have seen its effects. In a number of cases services have had to be cut back or have been cut out altogether. We know only too well the reaction of the public to such cut backs in services. Local authorities cannot continue to provide a sufficient level of services if they do not have adequate resources.
This Government acknowledges the important role the local government sector has to play in our society. It is one of the most obvious manifestations of democracy — people power. A local government system which is able to meet the needs of its public in an efficient and effective manner has a pivotal role to play in this context. This is because local authorities are in the best position to identify and respond to local needs. I acknowledge the actions of the local authorities in this context. They have already taken great steps in recent years to improve the way they do business to better meet the needs of their customers. However, we need to build on their work if we are to be confident that this sector will evolve and take on the new functions and services needed for local development into the next century. Local authorities must re-examine their methods of operation and their relationship with the public generally. They must ensure they provide the public with the services it wants as effectively and efficiently as possible. They must suit the needs of their customers rather than themselves. Quality customer service is the key.
I have already taken steps to assist the authorities in the realisation of these objectives. Last December I launched a major new programme for the reform of local government: "Better Local Government — A Programme for Change". This is a comprehensive programme of specific action for the future development of local government. Its objective is to reshape the general approach of local authorities in order to build a new local government which is sharper, more independent and powerful. Central to this strategy is the provision of proper funding for local authorities. The Bill before the House provides the necessary statutory basis for the new local authority funding system. Three key issues are addressed. First, domestic water and sewerage charges are being abolished with effect from 1 January this year; second, the rate support grant which my Department pays to local authorities is being terminated; third, the income foregone from these charges and the rate support grant is being replaced by assigning the full proceeds of motor tax income to the authorities to provide them with their own independent source of income fully protected by legislation.
While the Delimitation Act, 1995, dealt with the issue of water disconnection, it was also necessary to review the fundamentalraison d'être of service charges. Charges can be good as they can encourage the optimum use of resources and promote conservation. Theoretically, if one has to pay for the amount of the service one uses, it is logical that under normal circumstances one will cut down on the amount used to save money. However, this theory does not hold true where the level of the charge bears no relation to the amount used. Unfortunately, this has been the case for domestic water and sewerage charges where local authorities applied either a flat rate charge or a charge related to broad rateable valuations. As a result, the level of usage never entered the equation. It did not matter how much water was used, people were still liable for the same amount in charges. Therefore, an individual living alone in a small house was liable for the same amount in domestic water charges as a family living in a large house with, perhaps, two or three bathrooms.
This was unfair but what could be done to overcome it? Metering domestic supplies was not a viable alternative. We have heard much about this in recent days and weeks. I commissioned KPMG to examine the issue and it published its report last June at which stage I held a press conference about it. KPMG examined the potential for metering supplies and concluded that it was not viable in view of the costs involved and the income generated. The costs were £200 million capital investment and £8 million per year thereafter to monitor, read and maintain. As a result, the Government logically concluded that, as charges for domestic water and sewerage services could not be economically related to usage, they were, therefore, taxes and should be incorporated into general taxation.
Section 12 removes the power of local authorities to levy charges for the supply of water for domestic purposes and for the disposal of domestic sewage with effect from 1 January 1997. A domestic supply in this context means a supply for ordinary household purposes to a dwelling or to a group water scheme. A supply for commercial, agricultural, industrial or other purposes does not constitute a domestic supply. Where a supply is mixed, serving both domestic and non-domestic purposes, local authorities will be expected to apportion between the two. Domestic water and sewerage charges levied before 1 January 1997 remain valid and I expect the authorities to pursue outstanding amounts due to them. Charges linked to usage are a useful and good way of encouraging efficient use of resources. As such, they can have an important role to play in environmental policy generally. Commercial service charges can be related to usage through the use of meters and these charges are, therefore, remaining. So too are refuse charges as these can also be related to usage. For example, a number of local authorities operate a "tag a bag" payment system. Refuse charges are also important in promoting the "polluter pays" principle, which is an important element in our national waste management policy.
Under section 3, the full proceeds of motor tax income are assigned to local authorities to replace the income lost through the abolition of domestic water and sewerage charges and the rate support grant. I wish to clarify that these proposals do not involve any new tax but a redirection of existing taxation, which will remain local rather than being paid to the Exchequer. This will provide local authorities with full ownership of the proceeds of a single buoyant tax fully protected by law. They will have full control over this resource and it will be a matter for them to decide how to distribute it. This is what real local government should entail and I am very proud to introduce it by means of this Bill. All local authorities will benefit from this new arrangement and the inbuilt buoyancy will ensure this. For example, the 1996 Estimates revealed that the income from motor tax would exceed the income from domestic water and sewerage charges and the rate support grant combined by approximately £12 million and I believe the difference will be greater this year.
Another reason for using motor tax income is its practicality. Local authorities already collect motor tax on behalf of the Exchequer. All we are doing now is allowing the authorities to retain the income they collect, subject to the payment of a certain amount into the new equalisation fund, the purpose of which I will outline. The new system will, therefore, be relatively simple and practical to implement. It will also introduce a greater degree of certainty into the funding of local government. As a result, the authorities will be able to estimate with greater accuracy how much income they will receive over a period of years rather than relying on the annual Estimates decisions of Government. Forward planning of services will be greatly facilitated. Section 11 allows local authorities to deduct the expenses incurred by them in collecting motor tax before paying into the equalisation fund and before sharing the moneys collected among other local authorities.
The national rates of motor tax are set by central Government and there has been no increase in these rates since 1992 when the Labour Party came into Government. However, is it right that central Government should have such total control over the system of local government funding? It will be recalled that, under the Local Government (Financial Provisions) (No 2) Act, 1983, local authorities had complete discretion over whether to levy domestic service charges and their amount. Such local discretion is essential for the concept of local democracy. If we are to have real, effective local government capable of responding to local needs, it must have some discretion over how it raises the finance necessary to fund its activities.
This is now being provided for under section 9 which provides motor tax authorities with the power from next year to increase the national rates of motor tax on cars and motor cycles by up to 6 per cent, subject to a maximum of 3 per cent next year. Local authorities, at their own discretion, will be entitled to increase motor tax rates for cars and motorcycles by 3 per cent next year and by 3 per cent the following year. After that, they will not be entitled to any further increase unless the base is moved by central Government. This is designed to strike the right balance between the need to give local authorities discretion in raising finance on the one hand and, on the other, the requirement not to impose any significant new form of taxation. Some 6 per cent is the limit to the increase above the national base. Section 9 also provides for consultation between county councils, urban district councils and individual local authorities on the extent of any variation in rates where one collects on behalf of another on foot of an agreement.
Section 4 provides for the establishment of an equalisation fund. The resources of the fund will be used to replace the income from domestic water and sewerage services and the balance will be allocated as equitably as possible, having regard to the needs and resources of all authorities. All local authorities will benefit from this new system. No authority will lose out.
Under section 5, local authorities will be required to pay into the fund 20 per cent of the motor tax collected on cars and motor cycles, in addition to all other motor taxes, driver licence fees and other miscellaneous fees and duties. It was decided, following consideration of each authority's income from rate support grant, domestic water and sewerage charges and each licensing authority's motor tax income, that local authorities should retain 80 per cent of motor tax income on cars and motor cycles. We concluded that this was the optimum retention rate if the authorities were to be allowed to retain the maximum amounts possible of motor tax income collected by them, while at the same time making sure there would be sufficient resources in the equalisation fund to enable it achieve the objective for which it is being established.
The purposes for which moneys may be paid out of the equalisation fund are set out in section 6. These may include contributions towards the expenditure of local authorities in performing their functions generally, payments in respect of any expenses incurred in promoting the delivery of quality and efficient local authority services and in respect of expenses incurred with the collection of motor tax. Section 6 also provides for the establishment of a committee to advise the Minister on payments to local authorities from the fund.
Given the pivotal role of the equalisation fund in the future of local government funding, it was important that we gave due consideration to how this fund should be managed. Initially, the fund will be managed by the Minister for the Environment. However, as local authorities ultimately own the money in the fund, it is only right that they should have a major role in deciding on its use. If we want real local government capable of responding to local demands and initiatives, the authorities must be able to decide how this money should be distributed. To facilitate this, section 7 provides for the establishment, by order, of a Local Government (Equalisation) Council. This council will manage the fund and decide on payments from it and may also carry out additional functions allocated to it. I expect the council to be established some time next year.
The Bill was carefully drafted to ensure all situations are covered. Motor tax authorities operate only at county or city level. However, the rate support grant was paid to all authorities. Furthermore, all authorities in 1996, with the exception of two, levied some combination of domestic water and sewerage charges. In addition, some authorities collect motor tax on behalf of other authorities. However, all authorities should have a legal right to their fair share of the proceeds from motor tax. It was, therefore, necessary to make provision in the legislation to ensure all authorities enjoy the benefits of the new funding system and that the tax which is not paid into the equalisation fund is shared out on an equitable basis. These requirements are met by section 10 which provides for the sharing of retained motor tax among all authorities. Section 10 also empowers the Minister for the Environment, or the equalisation council when established, to give directions to the motor tax authorities as to how the tax should be shared.
Hand in hand with the provision of a new funding system for local authorities, this Bill also introduces measures to ensure the authorities realise the best possible return from this new system. We must ensure local government is operating as efficiently and effectively as possible so that it continues to aid the development of this country into the next century. With this in mind, we must ensure local authorities have greater regard to the three tenets of efficiency, effectiveness and economy. Of necessity, local government has already become far more professional in its operations over the past number of years.
In this Bill, I require the authorities to go even further along this road by opening up their operations to a greater level of scrutiny and comparison. In particular, the core requirement of value for money is being strengthened in all local government operations. While a value for money — VFM — unit has been in operation within my Department since 1993, section 14 will now formally establish the unit on a legal basis and provide for its role and functions. Section 15 provides that, in addition to the normal regulatory audits, from now on local authorities will also be subject to VFM audits similar to those currently carried out by the Comptroller and Auditor General. Furthermore, the unit will be required to publish full details of the results of its work. A range of performance indicators will also be developed for local authority operations to identify best practice and encourage the authorities to improve their performance.
Section 17 aims to address a serious anomaly in legislation which has existed since 1993 and, in spite of an amendment in 1995 and action in the courts, has not been successfully rectified. I am referring to section 20 of the Finance (No. 2) Act, 1992, under which liability for licensing and payment of motor tax arises from the date of registration of a vehicle in the State. Several Senators will have encountered this difficulty in their constituency clinics. A number of cases have arisen which are clearly anomalous, where the vehicle was never on the road yet the individuals concerned, through no fault of their own, paid arrears in addition to the cost of a tax disc. The amendment proposed in the Bill will ensure motor tax is only payable when the vehicle is first used in a public place, provided the individual, on or before the application for a tax disc, produces evidence that the vehicle was not so used.
This Bill is designed to provide local authorities with a proper financial system to enable them to carry out the range of functions demanded by the general public. In tandem with this, it will also require the authorities to realise the best return from the resources awarded to them. It is, therefore, important legislation of which I am justifiably proud. Its beneficial effects will continue to be felt long into the next century.
I am pleased to present the Bill and I strongly urge Senators to agree its provisions.