Seanad Éireann debate -
Wednesday, 1 Dec 1999

Vol. 161 No. 9

Budget Provisions: Motion.

Mr. O'Toole

I move:

That Seanad Éireann notes the budget details and while welcoming the improvements in some aspects of personal taxation as outlined in his budget speech,

–calls on the Minister for Finance to raise the tax free allowance above the proposed minimum wage threshold, and

–with the object of giving ordinary taxpayers a renewed confidence in the tax system following all the scandals, tribunals and enquiries,

–calls on the Minister for Finance to bring forward a proposal in the Finance Bill recognising those ordinary taxpayers who were, and are, at all times compliant and honest and looks forward in particular to the proposals in child care and early childhood education being more fully developed over the coming months.

I appreciate the Minister of State coming to the Seanad so soon after the Budget Statement. It is not possible to assimilate all the provisions in such a short time, but some issues have struck me on initial consideration of the budget. The Minister referred to public service pay when saying the best way to deal with the reasonable aspirations of public servants was to have a pay system which would compensate people for agreeing to change and which focused on outputs and outcomes delivered as a result of that change. He also said we should get away from old-fashioned rigidity, but the old-fashioned rigidity in pay negotiations comes more from the Department of Finance than anyone else. I look forward to flexibility being shown by that Department.

We must focus on some remarkable issues when looking at the impact the new tax measures will have on working people. One is the increase in the threshold to the taxation system. By my calculations, the threshold of taxation is approximately £5,700 per year, which is approximately £112 per week. Last year I said our objective for 1999 should be that people earning below £100 per week should not have to pay tax. I am glad we have reached a stage where people must earn over £100 per week before entering the tax net. That is very important. However, it is in the nature of things that as soon as one target is achieved we must look at the next one, which is mentioned in the motion.

Without being cynical, it was difficult to write a motion three or four days ago to be discussed now, but the motion calls on the Minister for Finance to raise the tax free allowance above the proposed minimum wage threshold. That view would be shared by most people in industry as well as those on the trade union side. If we say the minimum wage should be a certain amount, we should try to get those people out of the tax net in as far as it is possible. In rough terms, that figure would be approximately £160 per week. In the next year we must look at bringing that £112 threshold up to £160 in order to get people out of the tax net.

The tax rate has been reduced by 2 per cent at both the standard and higher rates. I have said before that an improvement in the tax rate alone, without an improvement in the threshold or tax bands, was of no value. I recognise that the tax threshold has been raised, that there is a significant increase in the regular tax band from £14,000 to £17,000 and that that has a significant impact on people in the low to middle income ranges. The 2 per cent reduction in the lower and higher tax rates will give something back to workers.

Wearing my ICTU Vice President hat, what does this budget mean for negotiations? What does this mean in terms of the attitude towards reaching a deal post Partnership 2000? I welcome the budget provisions and I believe that is the position the ICTU would articulate. It would welcome the movements I have outlined. I recognise there is still a bias towards middle income earners, but the budget is better than last year's in that it is more focused on workers at the lower level in terms of those who will gain most. I hope that trend will continue next year.

The budget provides net improvements in workers' incomes ranging from 3 per cent to more than 6 per cent in a small number of cases, which when converted to a gross figure is approximately equivalent to a 5 per cent salary increase. I am a negotiator and I am quick enough to criticise matters, but I acknowledge this is a significant increase as a budget measure. It does not meet the aspirations of workers in the public and private sectors, but it does establish the Government's good faith in this matter.

My message tonight and that of most people in the trade union movement and those who will be negotiating a new agreement is that, to use the Northern terminology, the Government has jumped on this issue and we want IBEC, management and the Department of Finance, as an employer in the public sector, to match that and to move forward in a similar way. This budget opens the door. IBEC should be clear that this measure cannot be a substitute for a decent wage increase, but it shows the Government has played its part. It sets the scene for salary negotiations. For the past six months we said the budget would show the Government's commitment on this matter. The provisions announced today show that the Government is prepared to talk seriously about meeting reasonable wage expectations, but it is only a beginning. For most public sector workers who will be doing their calculations tonight this budget will mean a 3 per cent net salary increase, which is equivalent to a 5 per cent gross increase. Many of them will also calculate the adjustment for the early settlers in the public sector and they will then go into talks. We have set in train what could be – if IBEC and the employers' side respond positively – the route to a new pay deal which will include the public sector. This is the beginning and we have a long route to go. Before IBEC comments on the budget tonight, as it surely will, it should recognise that this budget is the Government's contribution and the taxpayers' contribution, but it is not IBEC's contribution. It cannot hide behind this or believe this is their contribution. We must move forward from here.

I do not want to go into the detail of the individualisation of tax allowances at this stage because I have not had enough time to examine them. The tax band for a couple working outside the home will be set at £34,000 compared to £28,000 if only one spouse works outside the home. That seems to be a reinterpretation of the famous Murphy judgment that gave rise to a constitutional case, leading to changes whereby married couples had to be treated for tax purposes as if both were working. I look forward to an explanation of these different tax allowances.

I welcome the removal of capital acquisitions tax from the family home. We discussed this issue on a number of occasions in this House, most recently during a Private Members debate a fortnight ago. This is a welcome measure and it would be churlish of us not to recognise that.

The budget is not focused on education but we note the indications it contains in that area. Those in the primary sector are in the middle of a serious dispute with the Department about the lack of caretaking facilities and administration support in primary schools. Hidden in the Budget Statement is an indication of the Government's commitment to provide an additional £15 million a year for caretaking facilities, most of which will go to the primary sector, although some will go to the post primary sector. From an INTO point of view, we welcome that. It does not meet our needs, but the people concerned, many parents, school management authorities as well as teachers, would agree that this could form the basis for moving forward in this area. Talks have opened today on that and I welcome the additional £15 million that will be allocated to ancillary services in schools. I imagine that would work out approximately at an additional £20 per pupil per year at primary level and that will help to establish proper maintenance, caretaking and secretarial ancillary services at school level.

We also had a debate recently on the effects of smoking. The Minister has taken a major step in putting an additional 50p on a packet of 20 cigarettes. I do not want to be hard on smokers but that is a good signal. This is important and most people will recognise that such a measure is necessary. I understand this is the only excise increase in the budget, which is a marked change over a period of ten years. The revenue that will accrue from that excise increase should be earmarked for an anti-smoking campaign. It should go directly to support the anti-smoking campaign initiated by the Minister, Deputy Cowen. Perhaps that is the Minister's intention and the Minister of State might clarify if that is the case.

The motion refers to child care proposals. I hesitate to raise this issue because there is a good deal about this in the budget and I have not had time to assess it in the context of the needs in this area. I welcome the movement forward in addressing the needs in this area. I look forward to this issue being developed and a more expanded explanation being given of measures to address needs in this area.

Pre-funding pensions is good housekeeping. As a member of the Public Service Pension Commission established by the Government some years ago, I am aware this is a major problem for the future. A bulge will appear in pension liabilities in 2009-15. I appreciate this measure and it is one we should welcome.

The allocations to the Gerard Manley Hopkins Summer School and the Birr telescope project show that there is still some sense of romance in the Department of Finance and I am glad a few shillings will be allocated to them.

My final words, as my first words, are to IBEC. The Government has shown its commitment to meeting reasonable wage expectations and we now want to see a clear response also from IBEC.

Mr. Norris

I second the motion. I am glad to be asked to do so by my colleague, Senator O'Toole, and I would like to make a few comments. I am standing in for another colleague who could not be here. Senator O'Toole took a bit of a risk putting down this motion because he was anticipating events a little. As I indicated in an aside this morning, I felt that Occam's razor came into play, the well known philosophical principle which forbids the hypothetical discussion of the non-existent. At that stage the budget was non-existent, but luckily for Senator O'Toole the Minister for Finance has not quite reached the targets he was talking about with regard to the raising the tax free allowance above the proposed minimum wage threshold, although there have been movements in that direction which are very much to be welcomed.

I notice an amendment is tabled. I hope we will not need to have a division on this motion. I will be here if a vote is called, but it seems it would be unnecessarily divisive. I see no reason the two cannot be taken together. Senator O'Toole's motion is not harshly critical of the Government, it is exaltational. We could also agree with what the Government says, which is that it welcomes the provisions in the budget. There is no need for a division. If the Members want to have one, that is fine. It will knock up the batting averages and make us all look better in The Sunday Tribune when they count the number of times we have voted in the House, as if this was the most significant element in Senate political life. It seems to be the only indicator some political commentators understand.

In general, the principal danger of our economy currently is greed – because there is money around, everybody wants it. We all want to get our claws on the kitty. While I agree with the second and third clauses about financial scandals and so on, the Committee of Public Accounts has done an extremely good job. It is a much more efficient way to deal with this kind of matter than the tribunals that have been established. Whereas there should be some gesture towards compliant taxpayers, I, as an individual compliant taxpayer, do not want any money back from it. That is a foolish way of looking at it. Whatever money can be screwed back out of miscreants should be put to the general good of the community, and not these sorts of fairly trivial payments to millions of taxpayers which will not make the slightest bit of difference. It would be better to put it into the inner city, education, drugs programmes or special projects. I am not looking for anything personally and the vast majority of people who are in a professional position will not wish to have this money paid back in tiny sums to them because that is a complete waste of time.

I welcome the increase of £7 for old age pensioners. However, the Government might have gone the whole hog and increased it to the ton just for the millennium. It was very generous to increase the amount available to people who reach the age of 100 to £2,000. They will enjoy that and there will be a few good centenarian parties. I can just see my aunt kicking herself because she was born two years early. She is now 102 years of age. She would have loved the £2,000 but she got £500.

There are a number of generous provisions, such as the extra £1,000 for widows and widowers at the time of bereavement. This is generous and I welcome it. That is a time when people are vulnerable, when they need a little bit of extra cash, a little bit of support, and it is a good thing to do.

With regard to the specific motion and the question about education, child care and childhood education, like Senator O'Toole, I have not had a great deal of time to examine these proposals. The increase in child care is not huge but it is welcome. With regard, for example, to Montessori schools, on listening to the radio just now I heard a woman from a Montessori school in the midlands who was very pleased at the 100 per cent allowance for building expansion and the fact that this is to be available in the first year. This is very much to be welcomed. However, she also pointed out that the allowance for after-school care is going to schools other than Montessori schools. She made an excellent point in asking whether parents want their children to be kept in schools until 6 o'clock. Sometimes a change of environment is good and if they can leave the school environment and go to, say, a Montessori school at that age, that is preferable.

While on the subject of children, I will refer to something very obliquely – the Minister will know to what I am referring – that is the Jack and Jill foundation. There are anomalies in the law which have been drawn to the Minister's attention. I hoped he would address them in the budget but apparently he has not done so. I also suggest that in this area there is a need for an increase in remedial teachers, for example, speech therapists. This is a matter I have raised with particular cases in mind in this House. The reason we were given for not providing for a greater increase in this area was always budgetary. I know that significant increases have been made in the health allowance, but there is nothing specified, as far as I know, about speech therapists or remedial teachers. I hope these matters will be considered. Remedial teachers and additional teaching resources are especially needed in inner-city schools in places like Dublin where there is an influx of immigrant children who need special care. Otherwise they will distort the emphasis of the entire system.

I turn to a few other matters in the budget. I welcome the way in which the Minister has dealt with the increase for single and married people. I had to laugh when listening to my colleagues in Fine Gael on the radio lambasting the Minister from a pro-family position. It was a neat political ploy, but as a single person, I welcome the fact that the Minister is moving towards treating citizens as individuals.

On the question of capital acquisitions tax, the change in this area is splendid because, as I read it, it seems that the Minister is meeting the cases we made about people of the same sex living together in terms of inheriting. There were some harrowing, appalling cases and I have just sent the Minister details of another one. There is an awful case about which I wrote to the Minister recently. It concerns a man in Monkstown who is middle-aged and out of work, who looked after his mother until she died. His father died ten weeks ago of cancer and his aunt has Parkinson's disease. This man has been told he has to pay £200,000 – a man with virtually no income – in order to hold on to that house. The aunt is going to be moved into a home which will cost the State a lost of money. I wonder if the Minister will infer that in those cases a direct approach be made to the Revenue Commissioners on an ad misericordiam basis because no person caring for elderly relatives should be put out of their homes.

Mr. Finneran

I move amendment No. 1:

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

"welcomes the Budget measures announced by the Minister for Finance which will sustain economic growth, address spending needs, reward work and enterprise and assist and improve the tax position of all taxpayers in the State.".

I welcome the Minister, Deputy Cullen, to the House. I compliment and congratulate Deputy McCreevy on his budget which is a budget of partnership between Fianna Fáil and the Progressive Democrats. The budget reflects the hard work of both parties for the well-being of this nation. This is a caring Government and it will be a lasting Government.

This is an extraordinary budget, the budget of the millennium. It shows an extraordinary level of progress. This is a very special day for me. It is my honour as Fianna Fáil spokesman on Finance in Seanad Éireann to speak on today's budget, the last budget of the century. The Minister for Finance, Deputy McCreevy, presented the nation with a very comprehensive budget, the most satisfying aspect of which are the excellent figures to work upon. The country and the nation have come a long way since Independence, since the Republic was formed in 1949. In 50 years the growth of our economy and the economic well-being of our people has been a record to be proud of. If we look at today's budget and the background to it, the most striking figure is that over the past two years the number of extra people employed has increased by 150,000. That is an extraordinary figure. At the same time unemployment has fallen and is now heading towards 5 per cent compared with 10 per cent when the Government came to office. Those are extraordinary figures and they clearly outline the progress made. The indicators are that the Government's policies are working. Many factories are now faced with labour shortages.

Personal taxation has been reduced by £940 million, child care has been improved by £46 million and social welfare payments have increased by 20 per cent since 1997 to £5.4 billion. I am pleased the Minister was in a position to address the problems with capital acquisitions tax and inheritance tax. It is a great relief and comfort to those who hope to inherit the family home – and those who are passing it on to their children – that it will not be subject to capital acquisitions tax provided they live there.

The change in the capital gains tax is important. The Minister for Finance was courageous two years ago when, in face of opposition from the left, he reduced capital gains tax on residential land from 40 per cent to 20 per cent. He was lambasted by the left on that occasion. However, it has been proved wrong. The level of the take from capital gains tax has increased dramatically in the past two years. It is now worth in excess of £300 million to the Exchequer. I am pleased the Minister for Finance has extended the 20 per cent rate of capital gains tax to lands provided for the construction of roads, factories and offices. Such initiatives are important for the economic development of the country. The Minister and the Government have adopted a farsighted approach to the economic well-being of the country. The Minister could have allowed things to tick over but he decided to look to the future.

A bold step was taken today in relation to training. I am pleased the Department of Enterprise, Trade and Employment will be involved in training young people. That is necessary if we want to address labour needs in the future.

Personal taxation will be reduced by £940 million this year. It was a bone of contention for many employed people that too much of their income was taken in tax. The Minister has responded to the call to reduce personal taxation. Many people will benefit from savings of more than £1,000. I welcome the reduction in the tax rates from 24 per cent to 22 per cent and from 46 per cent to 44 per cent. Everyone was asking for that and only that the economy was doing well, we would not have been able to respond to those requests.

The Government made a commitment when it took office to raise old age pension payments to £100. That was treated with scepticism at the time but from today the rate for a contributory old age pension will be £96 per week.

Changes have made in the carer's allowance, child benefit, child care, personal taxation, corporation tax and tax on young farmers. I congratulate the Minister on an excellent budget as we go into a new millennium. It puts in place a strategy for the future development of the country. Many elements of the budget will not take effect for some time. These long-term strategies have been the hallmark of the Government since it took office. I commend the budget to the House.

Mr. Cosgrave

I welcome the Minister of State at the Department of Finance, Deputy Cullen, to the House. I welcome the opportunity to discuss the budget and I acknowledge the efforts of my colleagues in arranging for the Seanad to do so. The only problem is that we do not have much time to digest it. The Seanad did not always debate the Budget Statement; it usually kept its comments for the Finance Bill. However, it is important that the Seanad debates it as soon as possible after it is delivered.

I am glad that some of the matters raised by Members are finally being addressed. Successive Governments were often prevented, through financial and other constraints, from doing so. Perhaps the Minister of State might respond to points raised tonight about the budget.

I welcome the extra tax reliefs. For far too long this country had excessive tax rates which penalised people who worked. I welcome the fact that the work of successive Governments, particularly in the past three or four years, is being maintained. There has been much comment about capital acquisitions tax. I welcome the changes which go some way towards meeting people's concerns. However, we must be realistic, particularly when we consider by how much house prices have increased. I would have liked the threshold to have been substantially increased, particularly for brothers and sisters who live together. An increase from £25,000 to £30,000 is not sufficient. I also welcome the reduction in personal taxation.

We are aware of the anomaly in the social welfare system whereby people who made social welfare contributions before 1953 are not eligible for social welfare benefits. Perhaps the Minister of State might explain how that will be addressed in the Finance Bill next year. The special grant to prevent litter is interesting. One would be concerned about the enforcement of that scheme. There can be all sorts of grandiose schemes which urge people to play their part but enforcement of the penalties must be addressed.

I welcome the reduction in DIRT. We must address the concerns of people who have a small amount of money invested which attracts a very low rate of interest. The increases in the interest rates have not been passed on to them. When mortgage rates are increased the lenders pass on those increases but they are reluctant to pass on increases to small investors and savers. A proportion of such savings should be exempt from any tax on interest. The tax free proportion should be increased for people who have a small amount of money saved for a rainy day. They have put that money by to protect themselves against extra expenses.

I notice there is a special grant for the National Rehabilitation Centre in Dún Laoghaire. I would be the first to praise the Minister for granting extra funding for the great work the centre does. Very few of us do not know someone who has been in that hospital where tremendous work is done. Many people go there after serious accidents. Such a grant is welcome and the staff there are to be complimented on the way they use their funding.

There was nit-picking about the motion. This should be a budget debate. The paying back of money lost through non-compliance with the taxation laws should be examined but that is what the tribunals are currently doing. Any money recouped should go to those with mental disabilities. Being parochial, Dunmore House in Glenageary has been campaigning for children with mental disabilities. The parents of those children cannot be compensated by any amount of money.

I welcome this opportunity to discuss the last budget of the millennium. The Minister, Deputy McCreevy, has introduced a reasonably balanced budget. There are areas where more could have been given but the Minister will reply to the queries raised.

Minister of State at the Department of Finance (Mr. Cullen)

I thank Senators for their welcome to the House on this auspicious day. I note the positive comments from both sides of the House. It is a mature way to approach the topic. The Minister's achievements are obvious to all and the budget contains some radical measures.

I am very pleased to have the opportunity to address the Seanad on the budget for 2000 which the Minister for Finance, Deputy McCreevy, has just presented to Dáil Éireann. While Senators will not have had the time to consider the contents of the budget in detail, they will wish to comment on the statement. The performance of the economy in recent times and the new challenges that we now face provide the background to today's budget. I will begin, therefore, by briefly summarising recent developments.

In 1999 the economy grew faster than expected by the Department of Finance and all other commentators. It is expected that GNP will grow by 7.5 per cent in 1999, broadly in line with the average of the exceptional growth since 1994; employment for the year as whole is estimated to have increased by 74,000 or 4.75 per cent; over the last years employment has risen by over 150,000; unemployment has fallen and now stands at 5.25 per cent compared to 10 per cent when the Government was formed; inflation has remained low – although there are some pressures emerging.

The increase in employment, the fall in unemployment and the increase in disposable incomes show that this Government's policies are working. The economy has been transformed and I am happy to say that this Government has built on the economic achievements we inherited. The public finances have also been transformed. The general Government surplus will be over 1.2 per cent of GDP. Our debt-to-GDP ratio continued to fall in 1999 and is expected to be around 47 per cent at the end of the year.

Our current economic situation has created great opportunities for our society. It also presents, however, a new set of policy challenges which this Government is determined to address through the implementation of today's budget and the national development plan announced last week.

Rapid economic growth is leading to problems. Labour shortages are emerging in the economy. Increasing the supply of labour, where possible, is a key objective of the tax changes announced by the Minister for Finance today. The cost of child care has risen dramatically. Congestion is increasing in our towns and cities and house prices have risen rapidly. We must ensure that the benefits of economic growth are shared throughout our society. We now have the opportunity to tackle many of social inequities and create a more inclusive society.

The budget must also prepare for the future. Economic growth will inevitably moderate over the next few years. The Department of Finance forecasts that the economy will grow at 6.25 per cent in GNP terms in 2000, decelerating to 5 per cent by 2002. These forecasts present a very favourable assessment of our future prospects. Of course, a shock to the economy would upset this scenario and adversely affect the public finances. A prudent policy would, therefore, run a substantial surplus now to prepare for a period of slower growth. This is a key element of the Government's budgetary strategy. This approach also ensures that we manage our economy in such a manner as to ensure that current economic success is consolidated and continues in future years.

As the Minister for Finance has stated on a number of occasions, we must prepare the public finances for the costs associated with an ageing population. Estimates suggest that the population over 65 could double over the next 25 years. This will lead to a significant increase in health and pension expenditure. To help to meet these costs the Government has decided to allocate 1 per cent of GNP per annum to two pension funds which will partly fund future pension costs. There has been some confusion about this pre-funding decision, with some commentators suggesting that all the moneys are been allocated for public service pensions. Let me be clear that the Government is allocating two thirds of the funds for social welfare pensions and the remainder for public service pensions.

Today's budget grasps the opportunities and confronts the challenges which we now face. It strikes a balance between reducing the tax burden, encouraging enterprise and employment, boosting labour supply, addressing infrastructural needs, tackling social priorities and preparing for future challenges and an uncertain future.

The budget targets for 2000 set out by the Minster are as follows: a general Government surplus of 1.2 per cent of GDP; an Exchequer surplus of £1,608 million; a current budget surplus of £4,558 million and a capital budget deficit of £2,950 million. These targets also take account of the pension pre-funding programme which I mentioned earlier.

The Government has consistently demonstrated a commitment to ensuring the fruits of growth are shared with the less well-off members of our society. The budget reflects this commitment. The social welfare improvements will cost almost £400 million in a full year. The major social inclusion measures include the following. The full personal rate of old age and related pensions is being increased by a further £7 per week. The free schemes are being extended to all persons aged 75 years and over – this is a welcome decision. Other personal social welfare rates will increase by £4 per week. The qualified adult allowance will increase by a minimum of £3.80 per week. There is a commitment to increase this allowance from 60 per cent to 70 per cent of the personal rate over three years. Child benefit is being increased by £8 per month for the first and second child and by £10 for the third and subsequent children. An increase of £20 per week in the back-to-school clothing and footwear allowance is also being granted.

The budget includes the introduction of an innovative carer's benefit for those who leave employment to look after persons in need of full-time care and attention. This new insurance based scheme will be payable for a period of 12 months to those who meet the qualifying contribution conditions.

An additional £64.9 million is being allocated to the Vote for the Department of Health and Children. This includes an additional £28 million for services for persons with an intellectual disability. There is additional funding to address the needs of people with a physical disability as well as funding to ensure all carers of children in receipt of domiciliary care allowance will receive a respite grant. Funding is also being provided for palliative care, mental health and dental services.

The Government recognises that education plays a key role in economic development and helping to overcome disadvantage. The budget includes an allocation of £17 million for the Department of Education and Science. Of this, £3.5 million will be provided in the year 2000 to meet the cost of a number of targeted initiatives which will improve the quality of education services and improve equality of access for the disadvantaged. These initiatives will cost £10 million in a full year.

I have highlighted the major spending measures included in the budget which are aimed at ensuring the benefits of our strong economic performance are shared by all, especially the most vulnerable groups in our community. These initiatives and other measures included in the budget which I have not mentioned testify to the Government's steadfast commitment to create a society which gives priority to caring for its weaker members.

The shortage of affordable child care poses serious difficulties for many parents. To alleviate this problem a package of measures costing £46 million in a full year is being introduced. This includes £23 million to develop the equal opportunities child care programme administered by the Department of Justice, Equality and Law Reform, a further £10 million to the same Department to administer a grants scheme for child care service providers and £2 million for local child care network initiatives. An allocation of £5 million will be provided for the Department of Education and Science to provide grants for schools which establish and provide after-school child care services. An allocation of £5 million is also being provided for the Department of Social, Community and Family Affairs for community based groups to develop community out-of-school hours services.

I now turn to the budget's role in ensuring the economic progress of recent years is maintained and that enterprise and work are rewarded. Our economic success has enabled us to seriously tackle problems of disadvantage in our society. It is vital to do everything possible to facilitate sustainable economic growth. The tax package included in the budget is designed to achieve these aims. The changes announced by the Minister will remove almost 50,000 taxpayers from the tax net, of whom 10,000 are aged 65 years and over, and 125,000 income earners from the top rate of income tax.

The budget includes personal income tax changes which will cost £942 million in a full year. As a result of these changes the percentage of taxpayers who will be paying tax at the top rate from 6 April next will be 37 per cent. In the absence of these changes the percentage on the top rate of tax would be 46 per cent. The basic single and married personal allowances are being increased by £500 and £1,000 per annum respectively. The PAYE allowance remains unchanged at £1,000. The standard rate of tax is being reduced from 24 per cent to 22 per cent while the top rate is being reduced from 46 per cent to 44 per cent. These reductions mean that a single person on the average industrial wage will pay up to £20 per week less in tax next year while a married couple with both spouses on the average industrial wage will pay almost £40 per week less.

It has long been recognised that the income level at which single people become liable for the top rate of tax is too low. The standard rate band for a single person is being widened by £3,000 from £14,000 to £17,000. The tax band for two income married couples is being set at double this rate – £34,000 – with transferability of the individual bands between spouses up to a maximum band of £28,000 per annum for either spouse. The married band for one income couples remains unchanged at £28,000. It is intended to individualise the standard rate band over the next three years. This will ultimately involve each individual having his or her own standard rate band. The budget marks the beginning of this process which will reduce dramatically the number of income earners on the top rate of tax.

A full tax credit system will be put in place for the income tax year commencing 6 April 2001 thereby completing the process initiated last year. To further the move towards tax credits while not worsening the situation of those on the higher rate of tax the following personal allowances are being doubled: the age allowance, widowed person's allowances, blind person's allowance, dependent relative's allowance and incapacitated child's allowance.

The budget includes changes to mortgage interest relief which involve simplification of the rules for non-first-time buyers. The maximum level of mortgage interest which can be taken into account for tax relief is £2,500 for a single person, £3,600 for a widowed person and £5,000 for a married couple per annum. First-time mortgage holders are allowed to claim 100 per cent relief at the standard rate of income tax on interest paid up to these limits. These rules remain the same except that the widowed person's limit is being increased to the limit for a married couple of £5,000. I am sure this will be welcomed by everybody.

Non-first-time buyers are entitled to claim relief on only 80 per cent of the interest but even then this is subject to a further reduction of £100 for single and widowed persons and £200 for married couples. The maximum amount of interest on which a single non-first-time buyer can claim tax relief is £1,900 per annum while the maximum for a married couple is £3,800 per annum. The 80 per cent rule and the de minimis deduction for non-first-time buyers will be replaced by a simple ceiling on interest of £2,000 for single persons and £4,000 for married couples with widowed persons at the married rate of £4,000, all of which will continue at the standard rate of income tax.

The threshold at which any person aged 65 years and over enters the tax net is being increased from £6,500 per annum to £7,500 per annum for single and widowed persons and from £13,000 per annum to £15,000 per annum for married couples.

In recognition of the increase in the cost of rented accommodation the rent relief allowance for those aged under 55 years is being increased by 50 per cent from 6 April next from £500 for a single person, £750 for a widowed person and £1,000 for a married couple to £750 for a single person, £1,125 for a widowed person and £1,500 for a married couple per annum. Rent relief for those aged 55 years and over currently available at the taxpayer's marginal rate is being standard rated. To compensate for this change the rental relief for those aged 55 years and over is being doubled to £2,000 for a single person, £3,000 for a widowed person and £4,000 for a married couple per annum.

Mr. Costello

They should apply to everybody.

Mr. Cullen

I thank Senator O'Toole for the positive way in which he dealt with the budget. Last year he raised the question of raising the threshold to ensure no tax would be payable on the first £100 of weekly income. It has now been raised to £110 per week. This is a significant increase and will be welcomed by all. There are issues which should continue to be addressed. The point made by the Senator has merit. Improving the lot of low-income earners in particular must be uppermost in our minds in tackling these issues in the budget. I disagree slightly with him that the budget looked after middle-income earners. Single taxpayers earning between £10,000 and £25,000 per year will receive a net increase of between 6 per cent and 8 per cent, which is significant. If we had been talking about 1 per cent and 2 per cent increases some years ago we would have been pleased. These are real and meaningful changes and they reflect the Government's commitment to share the fruits of our economic success. As a smoker, I smiled as the Senator spoke about the 50p increase on cigarettes, but I suppose I cannot complain too much. The yield this year will be in the order of £130 million and that money will go directly to the Vote for the Department of Health and Children, which is an innovative move.

Mr. Costello

It will add three quarters of 1 per cent on the CPI, which is substantial.

Mr. Cullen

The standard rate of corporation tax, which will apply from 1 January 2000, will be 24 per cent on trading income. This marks a further step in the process of moving to a single rate of 12.5 per cent on trading income by 1 January 2003. In order to assist small and medium-sized firms, however, it has been decided that the 12.5 per cent rate will apply from 1 January 2000 to the trading income of a company where that trading income does not exceed £50,000 per annum.

The current tax incentives for investment in film-making are being extended for a period of five years to April 2005 subject to one modification to meet EU requirements.

A common system for the domestic and IFSC sectors is being introduced for the taxation of returns on investment accruing to policy holders of life assurance companies and investors in collective funds. The new system will be broadly on the lines of that which currently applies in the case of the IFSC. It will include an exit tax on the investment returns received by the resident investor and will apply from 1 January 2001.

The car value threshold for business cars is being increased from £16,000 to £16,500 for the capital allowances for new cars and for the allowable expenses for all cars arising in the course of a business.

The rate of capital gains tax on the disposal of development land for commercial purposes is being reduced from 40 per cent to 20 per cent. The rate of 20 per cent will also apply where the holders of such development land are taxed under the corporation tax or income tax codes and the land in question is sold for residential purposes.

Capital gains tax retirement relief for businesses sold outside the immediate family is being increased from £250,000 to £375,000 so as to encourage the transfer of businesses to younger entrepreneurs.

Senators have shown a good deal of concern with the burden of capital acquisitions tax on many people who would not be classed in the wealthy bracket. I am happy that major changes are being made here to alleviate this burden. I was delighted to participate in a debate recently in this Chamber in which the Government listened closely to what was said on that occasion, as it did in relation to Members of the other House. The capital acquisitions tax thresholds are being increased from £192,900 to £300,000 in the case of gifts and inheritances from parents, from £25,720 to £30,000 in the case of gifts and inheritances from brothers and sisters, aunts and uncles, and from £11,250 to £15,000 for all other situations. There will be a single new CAT rate of 20 per cent instead of the current rates of 20 per cent, 30 per cent and 40 per cent. These changes apply to gifts and inheritances taken on or after today.

From now on the family home will be exempt from capital acquisitions tax where it is either the disponer's principal private residence and-or the principal private residence of the beneficiary and the beneficiary has continuously lived in the house for at least the three previous years and does not have an interest in any other residential property. The relief will be subject to the condition that the beneficiary does not dispose of the property within six subsequent years. This will remove the concern of many who share what is the family home and who may have faced a large tax burden when one partner dies. Senator Norris spoke at length about this the other day and also this evening. All of us in the House will welcome this provision.

The exemption limit for probate tax is being increased from £11,250 to £40,000.

The current expenditure limit for capital allowances under the farm pollution control allowance scheme is being increased from £30,000 per annum to £40,000 per annum. The farmers' flat rate of VAT is being increased from 4 per cent to 4.2 per cent.

On excises, the budget raises the price of cigarettes by 50p per packet of 20, inclusive of VAT, from today, with the proceeds of £132 million being used to help fund the health system. The budget also provides for the abolition of the £5 travel tax from 1 January 2000 – this tax was introduced in 1982 and is under attack from the EU Commission. There is also a cut in the excise rate on kerosene, which is used mainly as a heating oil, to bridge the large gap in price compared to Northern Ireland. I am sure the House will welcome these excise changes and the concerns they address.

Senators will agree that the budget presented by the Minister, Deputy McCreevy, represents a valuable step in sharing the benefits of economic prosperity with those who are most in need of our support. It reflects the Government's commitment to ensure that enterprise and effort, which are essential for the continuation of economic prosperity, is encouraged and rewarded.

Senator Cosgrave referred to the anomaly in the pre-1953 social insurance contributions, with which all of us are familiar. Large numbers of people are affected by this anomaly and I am pleased that the Minister is addressing it. The details of that will be spelled out in the contribution of the Minister for Social, Community and Family Affairs.

I thank Senator O'Toole for putting down the motion and my colleague, Senator Finneran, for moving the amendment. The contributions of Senators have been positive and that is something of which all of us, as practising politicians, can be proud.

The budget represents real tax reform and a considerable reduction in the tax burden for all taxpayers. It sets a strategic direction for the tax system which will consolidate and provide for further growth in the economy and in employment.

Mr. Quinn

I appreciate the Minister coming into the House and giving us an opportunity to debate the motion. I thank Senator O'Toole also for putting down the motion, although I would draw the Clerk's attention to the fact that I did not sign it. I realise my signature is on the motion, but two days ago I was asked to sign something expressing disappointment with one aspect of the budget and when I spoke to Senator O'Toole about it subsequently he said he hoped he would have to apologise and that the Minister would cover it.

Mr. Cullen

He did.

Mr. O'Toole

A visionary approach.

Mr. Quinn

A very visionary approach.

I remember a lovely seanfhocal from school days: Éist le fuam na habhann mar gheobhaidh tú íasc; listen to the sound of the river if you are going to catch a fish. In this case, the Government has listened to the sound of the people in an attempt to identify and solve as many problems as it can. I was particularly impressed by the Minister of State's statement that the objective of the budget was to maintain the economic progress of recent years.

A major concern of mine, and one which has been expressed clearly in this House, is the position with regard to the family home, and I am glad it has been addressed in the budget.

I will not go over the areas on which others have complimented the Minister of State. That is not difficult to do when one has £1 billion with which to be generous. Does the budget achieve the objective outlined by the Minister of State? Will the economic progress of recent years be maintained? One aspect with which I am disappointed concerns a proposal on corporation tax I made in this House last year. It is the Government's intention to reduce this to 12.5 per cent over the next four years. It has been reduced from 28 per cent to 24 per cent on this occasion. My suggestion was that the Government should deal with the smaller companies in the first year.

This would have given the Minister some pleasure. He could have taken in exactly the same amount of money but the big companies, for which the Minister does not show particular fervour or enthusiasm, such as the banks, would be the last ones to get the benefit of a 12.5 per cent rate. I suggest the Minister might consider that the 12.5 per cent rate be applied to smaller companies, as he has applied it to companies making less than £50,000 in profit, that is to say, that the rate of 12.5 per cent be related to the size of company rather than reducing the rate automatically each year in the way he has proposed. By doing this a rate of 12.5 per cent would still be reached in five years but in a different way.

It is not my style to rain on a person's parade, but I am going to do so tonight by sounding a dissenting note. Before doing so, I wish to draw attention to one thing for which I compliment the Minister, namely the funding of future pensions. This is necessary, historical and courageous but he will get no thanks for it this year. He has set a standard which in future will be followed. There are no votes in providing funds for pensions which will be paid 30 years from now, but it is, in the words of the Minister of State, Deputy Cullen, a matter of sustaining the economic progress of recent years. I applaud the courage and determination which the Minister has shown in this provision and future generations will thank him. It sets a precedent for the future which others will have to follow – in future no Minister for Finance will be unwilling to fund future pensions.

The problem I have with the budget is that we are still mindlessly uttering such slogans as "sustaining growth" and "creating jobs". We seem reluctant to realise that unless we reign in the current uncontrolled and unsustained speed of the economy we are doing nothing more than rushing towards the edge of a cliff. Unless we change gear we will be the architects of our future troubles. It is hard to realise, after a generation of pursuing growth above all else and pursuing jobs at any price, that it is possible to have too much growth and for it to happen too fast. It is hard to realise there is no point in lashing out money to create jobs when we do not have people to take up such employment.

Let us take a moment to consider the economy of the United States. For the past five or six years the biggest worry of Alan Greenspan, the head of the Federal Reserve in the US, and of President Clinton and his economic advisers has been that the economy might overheat. Their concern is focused on their constant fear that the economy is going to grow too fast. We have become obsessed with growth for its own sake – we had every reason to be ten or 20 years ago – but it is worth seeking the reason behind the concerns expressed by Alan Greenspan and President Clinton. It is very simple – an economy does not gradually run out of steam and slow down to a lower rate if it grows too fast at a rate which is difficult to sustain. If that was the scenario there would be no real problem about an economy moving too fast. What happens is that if an economy grows unsustainably fast, the situation is corrected by a falling over the cliff. The concern is that it is not a gradual, comfortable decline with a soft landing, but rather a headlong rush into recession. As we remember, it takes a long time to recover from recession and it takes a lot of pain to reverse it. This falling over the cliff occurs because growing unsustainably fast results in everything going wrong at the same time. The negative factors start feeding on each other creating a viscous downward spiral. Suddenly one is playing against a wind which quickly turns into a hurricane. That is why all the considerable talents of Alan Greenspan are focused solely on preventing the US economy from overheating. Would that one per cent of his energy was devoted to the same task in this country, which unfortunately is not the case.

The word "overheating" is not mentioned once among the thousands of words in the Minister's Budget Statement, despite the fact that for the first time this is a big concern in the United States. We have done nothing about it despite the specific warnings of economists at home and abroad, including those of the OECD, the World Bank and Professor Brendan Walsh who wrote in today's Irish Independent. Despite the warnings the Department of Finance, the Minister for Finance and the Government think they know better. I think this is a fallacy which will cost citizens very dearly in the future. The real problem is that we foolishly allowed unreasonable expectations to develop to the extent where the Government lacks the political courage to administer the difficult medicine.

Successive Governments have become so obsessed with the need to maintain the chain of partnership agreements they refuse to bargain properly but cave into pressure even before the process begins. Even that is not working – we heard Senator O'Toole say that although we will have more money in our pockets we should not think it will let IBEC out of the difficult position in which it finds itself in terms of weakening the resolve of unions. I think the Government is terrified of the social partners and forgets it is one of the partners. I am sorry if I prophesy doom, but the realities are there for everybody to see.

There are some visionary aspects to the budget, such as the pension funding which is to be admired. In the short term it will do much good and will make many people happy. However, tragically I suggest that through its sins of omission it lays the foundation for future disaster and decline. I urge the Government to take a longer term and tougher view to ensure, as the Americans have, that the economy does not overheat.

An Leas-Chathaoirleach

I am anxious to facilitate the six or seven Members who are hoping to contribute and I would appreciate if people did not speak at length.

Mr. Dardis

I will be guided by what the Leas-Chathaoirleach has said and I will try to be brief. I welcome the Minister of State, Deputy Jacob, to the House. I regard the budget as a major step forward. It was stated that we need some time to digest it – I think the budget is eminently digestible. I congratulate the Minister for Finance on his Budget Statement and I congratulate the Government on the measures contained in it.

I wish to pick up on the point made by Senator Quinn about overheating and the worries that the sustainable economic growth might end in tears. When the Government took office I was one of the people who worried about growth being too high and about over-spending. However, there is a cap on current budget spending – we are living within our means. The budget refers to a growth rate of 6.25 per cent in 2000, 5.75 per cent in 2001 and 5 per cent in 2002. This indicates a slowing of growth. I do not think the officials in the Department of Finance would produce such figures lightly. I believe they think that the Budget Statement was totally consistent with this.

It was suggested following the three budgets introduced by the Minister, Deputy McCreevy, that they would lead to an overheating of the economy, that there would be too much spending, that inflation would increase that we would once again find ourselves on the road to catastrophe. However, this has not happened and orthodox economists and prophets of doom, who at the outset predicted these things, are now scratching their heads wondering why they did not happen. Among the reasons for this is the existence of social partnership, the fact that we are keeping current spending under control and because we are allocating a very large amount of the surplus to future spending in terms of public service pensions.

I understand Senator Quinn's fears, but I do not share them, although at the outset I would have. I do not see evidence that the Greenspan scenario is developing here. It is desirable that we have growth of 5 per cent to 7 per cent, but I agree it should not be excessive because there are problems inherent in that.

The figures in the budget have been given to us by the Minister of State, Deputy Cullen, and several speakers have gone through them in great detail. I do not need to deal with them other than to say that the objective of Government policy – Progressive Democrats and Fianna Fáil – is to ensure people obtain employment. The figures exist in that respect in that it is predicted that 125,000 jobs will be created over the next three years and 150,000 have been created over the past two to three years.

Another objective is to ensure that those who go out to work have a reasonable income and that they will be able to decide how to dispose of that income. It is the responsibility of Government to ensure that people are not taxed excessively. When I became a Member of the House ten years ago, one of the predictions of gloom was that if personal rates of taxation were reduced, health services, education and all other services provided by the State would be reduced because the money would not exist to fund them. We reduced income tax rates and capital taxes and revenue increased. I recall that few people listened when that message was preached ten years ago.

The next objective of Government, which is critical, is that the wealth be distributed to those most in need. In that respect, the budget bears favourable scrutiny because it directs assistance to the groups in society who are most in need, especially those on old age pensions, the disabled and carers. It fulfils a stringent test with regard to that objective of Government policy. From the point of view of putting people to work, allowing people to decide how they will use their money and caring for the disadvantaged in society, the budget passes examination.

The difficulty is that we are in uncharted waters. We had to deal for a long time with the policies and economy of failure and now we have to deal with the economy of success. I concede that it is a difficult task for Government and the Department of Finance. The budget presented today keeps us on a steady course and allows us to negotiate safely those uncharted waters.

We are looking at a current budget surplus of £4.5 billion. Not long ago all income tax revenue went towards servicing the national debt. Now it is theoretically possible to abolish income tax completely and still fund the necessary services of the State. I do not suggest it should be done because we would then certainly be over the cliff. No one suggests it should be done, but that is the scale of the change taking place.

Mr. Costello

The Senator should not preach that too loudly.

Mr. Dardis

I said it was possible but I did not say it should be done. Not even the Labour Party in its wildest excesses would believe it should be done. I welcome the Senator's provocation. I am always anxious to debate these matters with Senator Costello.

I brought the issue of capital acquisitions tax to the attention of the Minister, Deputy McCreevy, last year during the Finance Bill, especially regarding the severe penalties for siblings and near relations who lived in property which had become valuable. He said he would try to do something about it, and I am pleased that the appeal I made last year was heard and that substantial progress has been made to alleviate that burden on elderly people. It reminds me of the old death duties because there was a provision under the tax code then that on a lifetime transfer the disponer of a property would have to survive for three or five years if such taxes were to be avoided. There is a similarity. That change in CAT is significant and is to be applauded. It will alleviate a significant burden.

On this evening's six o'clock news bulletin, Mr. George Lee, the eminent RTE correspondent, said that the individualisation of standard tax rates is Thatcherism. If Mr. Lee wants to put forward opinions of that nature—

Mr. Finneran

He should stand for election.

Mr. Dardis

—he should at least do what Senator Costello does and raise the matters and have them debated.

Mr. Costello

He made a mistake. He meant to say Progressive Democrat.

An Leas-Chathaoirleach

Mr. George Lee has not been proposed to appear in the House.

Mr. Dardis

If Mr. Lee wants to put forward those opinions, let him stand for election.

An Leas-Chathaoirleach

While I might share the Senator's sentiments, Mr. Lee has no right of audience in the House.

Mr. Dardis

I welcome the budget. It fulfils commitments made in the agreed programme for Government. It delivers on many things which society requires and it will not have the negative effect Senator Quinn fears.

Mr. Caffrey

I wish to share my time with Senator Coghlan.

An Leas-Chathaoirleach

Is that agreed? Agreed.

Mr. Caffrey

A certain writer in the previous century of whom I am sure we have all heard wrote a book entitled A Tale of Two Cities. If I remember rightly, the opening lines were: “It was the best of times, it was the worst of times.” This budget is a tale of two sections of our society, the rich and the poor. It is the best of a budget and also the worst of a budget. I do not want to be negative for the sake of it, but the Minister for Finance had an opportunity this year to close the gap considerably between rich and poor. There are five levels of society: the super rich, the rich, middle income earners, people on the average industrial wage and people on social welfare. There was no attempt in the budget to give people on social welfare a reasonable increase in their standard of living. A £4 increase will buy a half bag of coal if one is lucky. Old age pensioners expected a minimum of £100 per week. They received an increase of £7 per week, the cost of a bag of coal. The country will not be overheated with one bag of coal.

The Minister of State said that GDP next year will average 5 per cent and will decline the year after. We have reached the stage where we now have labour shortages. This will result in wage inflation which will impede growth. An economy cannot expand without people. Senator Quinn referred to the American economy. One of America's great strengths is that it can draw on people from throughout the globe. We are running out of people to take up jobs. An employer whose order books are full and who needs additional employees steals them from an employer down the road and offers them more money. That employer, in turn, does the same and a spiral of wage inflation begins. Those factors are not referred to in the Budget Statement.

The housing crisis is reaching alarming proportions but there is nothing in the budget which will ease it. Farmers are currently going through a very difficult period but the area of agriculture was not mentioned anywhere in the Minister's speech, although I did not read it in its entirety.

I do not know how RTÉ's economics correspondent assessed the budget on the six o'clock news, but the standard individualisation of the tax bands will throw up amazing anomalies. Single income couples will enter the top tax band at £28,000 whereas double income couples will eventually only enter the top band at a cumulative total of £56,000. That will force people out of their homes and into the workplace, but that is not any way to solve our current labour shortages. I do not know whether that serious anomaly will be challenged in the courts but I cannot understand how the Minister could introduce such a measure.

I will not have time to address the positive aspects of the budget. However, I concede that the Minister's one imaginative stroke relates to the abolition of capital gains tax on land sold for development purposes. The IDA and other State agencies are trying to acquire land on which to build factories but they are not succeeding in their efforts because people will not sell land at a 40 per cent tax rate. I thank the Minister for this imaginative measure.

The budget contains other good measures but I will not have an opportunity to address them this evening.

Mr. Coghlan

This is a controversial budget in spite of its good points. Shakespeare, in his play Julius Caesar, wrote that the good men do is oft interred with their bones but the evil that they do lives long after them.

Ms Cox

The Fine Gael Senators were all reading books before they came into the House.

Mr. Coghlan

The increase to £5,700 in the standard rate of personal allowances will exempt people from tax who earn up to £110 per week. This will not take sufficient numbers of the low paid out of the tax net. I thought the Minister would exempt people at least up to the minimum wage level, particularly in view of the economy's success. Although they are smiling, I think the Fianna Fáil Senators may also have expected that.

There is an anti-family aspect to this budget in so far as women may be forced out into the workplace. A constitutional question could arise here in regard to Article 41. I welcome the exemption of the family home from capital acquisitions tax but I do not welcome the sting in the tail that it must be the beneficiaries' only residential property and that they must own it for a period of six years. The increases in the thresholds have not kept pace with inflation; those applicable to gifts and inheritances from parents are totally inadequate.

Senator Caffrey referred to the fact that there is nothing in this budget for farmers. We are all aware of the crisis which exists in the sheep and pig farming sectors and the difficulties being experienced with large numbers of people continually leaving the land.

The biggest disappointment in the budget relates to the elderly. The contributory pension will increase to £160.60 per week whereas the non-contributory pension of £78.50 will only increase by £7 per week. The threshold at which anyone over 65 years of age will enter the tax net will be £7,500 which allows them an income of approximately £144 per week before tax.

This year was designated The Year of the Elderly but the Government has done very little to mark it. The Government should have done much more to mark this significant year and to relieve the acute financial strain experienced by many elderly people. The Government has not made any significant gesture as a mark of respect to those who developed the society and economy so many are now enjoying and from which so many are benefiting. That represents the greatest lost opportunity in the budget. The proposed pension rates are totally insufficient while the cost of living continues to increase. The Government should have introduced a minimum payment in excess of £100 for those who qualify for non-contributory old age pensions. Such a figure would have been a significant improvement on the paltry £7 increase on £78.50 which is expected to support many elderly people. The Government stands condemned on this issue. It is immoral for any Government to preside over a booming economy and society which does not recognise the dignity and well-being of its senior citizens, the people who gave us what we have today. There is a collective responsibility on the Government to ensure the elderly can live in a society which respects their age and the role they play. Our Constitution claims to protect children and we must equally protect the elderly and ensure they can live in peace and comfort among their families and friends.

Ms Cox

I am amused to hear Fine Gael Senators stating that the imposition of a £28,000 limit on a single income family will force women out to work. That is incredibly naive on their part. The imposition of such a limit is not the kind of thing which forces people out to work.

Mr. Caffrey

It is an anomaly.

Ms Cox

The Minister's measures in this regard recognise the additional costs incurred in people going out to work. There are many positive aspects to this budget. However, there is one aspect which disappoints me. In spite of the fact that the Government is allocating £150 million to the area of child care, that this substantial investment is very welcome and more than fulfils the Government's pre-election promises, I am saddened to stand here as a mother of three young children and say we still have not got it right. I do not know why allowances could not have been introduced on a per child basis. That would not discriminate against anybody. Single income and double income families alike could avail of the allowance. Even if the allowance was only provided for children up to five years of age, at least the cost of child care could be written off against it. In the case of people who look after their children in their own homes because they do not go out to work, the working partner would benefit from having additional take home pay because they would have a higher allowance.

How simple does it have to be for the men in suits in the Department of Finance to get it right? That is the only negative comment I will make on this budget. Having tried to convey this message in this House and to the Minister and other members of Government on numerous occasions, I am disappointed that we still have not got it right. That is not to detract from the important measures which will be put in place from a total child care package in excess of £150 million.

As one of the female Members of this House, it is something which needs to be said and I am taking this opportunity to do so. I do not know if those deciding policy have heard the message. Two people go out to work, two people pay the mortgage and two people are in need of child care, but this has not been recognised except perhaps – I will expand on this with the Minister for Finance – the Minister felt the £6,000 between £28,000 and £34,000 in terms of the tax band will make up the difference. I hope that is what he intended and maybe next year we will address the issue of an allowance for each child.

On unemployment, it is generally accepted that one of the most serious difficulties we have is the supply of labour. I laughed when I heard Deputy Noonan in his response to the Minister for Finance talk about social welfare payments being linked to wages. One of the most significant things we have tried to do over the past three years is to remove disincentives to work. We have tried to encourage people to come back to work. One way to discourage people from going back to work is to create a social welfare system in which social welfare increases are linked to the wage increases people get and the benefits they earn through increased productivity and as a result of an increased contribution to the economy and the welfare and well-being of the state.

It is probably indicative of our sense of well-being but it is funny that at this stage of the debate nobody has really spoken about the reductions in our tax rates to 22 per cent and 44 per cent for the higher rate. Is this not remarkable and welcome? Tax bands have also been widened. A single secretary earning £14,000 or £15,000 will receive the first £6,000 minimum tax free and will pay only 22 per cent up to £17,000, which is well above the average wage for a single person working in an administrative lower grade civil service job or in a lower grade administrative-accounts clerk-secretarial job. That is tremendous. When I started to work – I am not as old as many Members of the House – I paid tax at 35 per cent in the £1. We are looking at a budget which has brought our lower rate of tax down to 22 per cent and our higher rate down to 44 per cent. That is something which is welcome and I am delighted to see it.

On some of the visionary measures the Minister has introduced, looking at this from a macro viewpoint, I welcome the continuation of tax relief for the film industry to 2005. It is important we continue to develop this industry. I welcome the contribution film and television companies have made to Galway, the west and the economy in general. The Minister took a small step last year by extending it by one year, but this year I am delighted he obviously followed the recommendations in the various reports and has extended it to 2005.

Corporation tax will be reduced to 12.5 per cent. We talked about this last year and one of the nice things about this budget is that small and medium sized enterprises with a turnover of £50,000 will, from 1 January next year, pay tax at 12.5 per cent on their profits. That is great and it means a lot to the small shop holder and those running businesses with one or two people. They will feel their contribution is being recognised and the taxation they will pay is fair, and they will be happy to contribute.

Let us not forget the movement towards the earlier payment of these additional benefits to May 2000 and April 2001. When this Government came into office, people got these benefits in July, August and September. Perhaps the Minister might think about bringing child benefit back to next April as well. I look forward to seeing that increased benefit in my pocket. It is welcome that these additional benefits will be paid in May 2000 and April 2001.

The additional bereavement grant of £1,000 to widows and widowers on the death of their spouse and where they have dependent children is welcome. I also welcome the increase in the marketing fund of regional airports from £0.7 million to £1.2 million. That makes a huge difference to smaller airports outside Dublin and the offices of Aer Rianta. I recognise the additional funding for caretaking in schools and the contribution by the Minister's Department to the Terryland Wood project based in Galway. That is welcome and will make much difference to the environment in the city. I thank the Minister for including it in his budget speech.

The points I made on child care will, no doubt, be taken up by some members of the Opposition. I welcome this budget which is a move forward and is what we have come to expect of this Government. It moves us forward in a progressive and visionary manner.

Mr. Costello

I am disappointed copies of the Minister's speech were not available to Senators until at least a half hour into the debate.

Ms Cox

Hear, hear.

Mr. Costello

It is outrageous that Senators did not have a copy. It was at least half way through the debate before the Leader got a copy of the speech. It is an insult to us. Everybody in the media and the Distinguished Visitors Gallery had a copy but, at the beginning of the speech, no Member had a copy – some Members did not even have a copy at the end of the Minister's speech. I hope this is rectified next year and that we should not experience that insult again.

I compliment the Independent Senators on their prescience in getting it right in terms of the motion they tabled. They were critical of the Minister for Finance and in their anticipatory remarks they called on him to raise the tax free allowance above the proposed minimum wage threshold and looked forward to him doing something decent in relation to child care and early childhood education but, unfortunately, none of those three targets were met. I listened to Senator Dardis who was gleeful about what a fine budget this is. This is, however, a Progressive Democrats budget and reflects what it has been saying and what it said in its manifesto. It is a budget whereby the rich will get richer and the gap between the rich and the poor will widen disproportionately.

Senator Quinn was quite right in that there is a danger of overheating the economy. This budget has been lopsided in the manner in which it has given out the goodies. I suppose one could say that never has so much been squandered on those who do not need it. Those who need it and who would have had no impact on inflation levels are getting a disproportionately smaller amount of the cake.

Why was the 12.5 per cent corporation tax not introduced gradually, which would have disproportionately benefited the smaller company as distinct from the larger corporations? The banks will benefit in the same way as any corporation with a trading income of £50,000, which is nothing in this day and age. It should have been quadrupled or increased tenfold to £500,000 at least so the benefit would accrue to small operations rather than massive corporations, many of which have been in the public eye because of the manner in which they have behaved.

There is also the question of how we will deal with the labour market. There were 95,000 new people at work in the past 12 months and yet no measures have been introduced to ensure we can increase the labour force other than the anti-family measures about which I will speak in a moment. I agree with the additional tax of 50p on the price of tobacco and cigarettes. However, as the Minister said, that will increase the consumer price index by 0.75 of 1 per cent. That is huge, considering inflation is around 2 per cent. In one fell swoop we shatter our inflation rate.

I will now give an example of the disproportionate manner in which this budget is providing benefits. A low income family with two children on an income of £10,000 per year will benefit to the tune of £112 per year. A similar family with an income of £40,000 per year will benefit by as much as £2,244. That is hugely disproportionate. If the low income family got more money there would be no pressure on inflation because locally produced goods and necessities would be purchased, but when a consumer orientated family with a large income receives a major give away in this budget then inflation will take place in that sector.

It is outrageous that tax deductions will commence when someone earns £110 per week. The minimum wage will be set at £4.40 per hour, equivalent to £176 per week. Therefore, tax will have to be paid on £60. This wage should be tax free. These are the areas where the benefits of the budget should be introduced. Almost £1 billion more is to be spent yet it will be spent so badly that it will cause major problems. I agree with Senator Quinn because I envisage that these tax changes will result in disaster. The standard and top rates of tax have been reduced by 2 per cent. There has also been a massive reduction in corporation tax for large corporations. We will also continue to give multinationals and the International Financial Services Centre a 10 per cent tax rate. On the one hand, that money will overheat our economy and we will have lots of problems. On the other hand, we have major problems as regards social justice and how the money should be spent in terms of securing a more egalitarian society.

These tax reliefs are anti-family. They have been directed at getting the spouse in the home out of the home. That is a dangerous measure because there has been no provision for child care facilities. Child benefit will increase by only £2 per week. There is no payment per child, which Senator Cox talked about, that could be taxed. Such a scheme would be desirable because it would encourage a spouse to stay at home. Unfortunately, there is no encouragement to do that at present. The only concession that has been made is the provision of capital relief for crèches in the commercial sector. That measure will not benefit that sector and it is not a solution.

The Minister for Finance had so much money to spend but he decided to spend it in such a way that those who are already well-off are to get a disproportionate amount of it. As a result he is likely to fuel inflation. I predict that by the end of the financial year we will find it difficult to keep within the inflationary levels that he has indicated. There is nothing in this Budget for hospital waiting lists, the housing crisis or child care. It is hard to say it but this is the first time Fianna Fáil has introduced a budget that is anti-family.

Miss Quill

The SIPTU people were delighted. The chairperson said this was a great budget which would hallmark everything. Someone has to speak on behalf of SIPTU.

Mr. T. Fitzgerald

She said the same last year.

Miss Quill

Someone has to represent SIPTU.

An Leas-Chathaoirleach

I appreciate that but I am slightly surprised at Senator Quill. I wish to remind Members that Senators Farrell, Henry and O'Toole have a right to reply and we have only 12 minutes left.

Mr. Farrell

I congratulate the Minister for Finance, Deputy McCreevy, one of the greatest Ministers for Finance that this country has ever had. There is no doubt that he is the Minister of the millennium for the new millennium.

Mr. O'Toole

Millennium man.

Mr. Farrell

What the Minister has done is unbelievable. A previous speaker criticised him for not circulating his speech before he spoke in the Dáil.

Mr. Costello

Everyone else could read it except Senators.

Mr. Farrell

The Senator should realise that when his own boss was Minister for Finance he did not give it out either. When a junior Minister gave it out he lost his halo.

Mr. Costello

No. That was before the speech was delivered.

Mr. Farrell

The Minister is not entitled to do it. The Labour Party wrote the same speech three times and they have been wrong every time. This is the greatest budget that we have ever had.

(Interruptions).

An Leas-Chathaoirleach

Senator Farrell without interruption from Senator Tom Fitzgerald.

Mr. Farrell

The health budget has been increased from £3.6 billion in 1998 to £4.2 billion. That is some amount of money to be spent on health. I would like this money audited properly. It is hard to believe that we have waiting lists when this amount of money is being spent, particularly when we consider the number of people who are in the VHI, BUPA, the Civil Service and in various companies that have private insurance. Why does it cost so much to service the public sector? Why can we not give them a good service? People are on waiting lists. I know what would happen if their Aunty Maggie or Uncle Joe came home from America mid-week and told their relatives that they would pay for treatment in the private health service. That person in the same hospital with the same doctors and nurses would be taken in as a private patient and have his operation on the following Monday morning. That patient would only have to wait three days. I want to see how this allocation of £4.2 billion will be spent. I appeal to the Minister to set up an audit system to check how this money is spent.

I pay tribute to the Minister for Health and Children, Deputy Cowen, for allocating £1 million to the National Rehabilitation Hospital, Dún Laoghaire. Funding has been provided to establish a hostel which can be used by post-operative patients and by families who wish to visit their sick relatives.

Mr. T. Fitzgerald

Hear, hear.

Mr. Farrell

This has been a bone of contention in rural areas. When people had serious accidents they were transferred to the rehabilitation unit. Then when their relatives wished to visit them they had to look for bed and breakfast accommodation and pay for it. Many of these people could not afford that type of accommodation. Who says this is not a caring Government? Here we have allocated £1 million that will cater for those people in an up to date hostel. That is important and it is something we should and can be proud of. This measure also proves how caring this Government is.

Mr. Costello

There are 3,000 homeless people.

Mr. Farrell

Yes, we heard about the homeless.

An Leas-Chathaoirleach

Senator Costello had his opportunity.

Mr. Farrell

Many of the homeless are on our streets because of alcohol abuse or psychiatric problems. The revolving door system in the mental hospitals needs to be re-examined because there are many people incapable of looking after themselves who should be institutionalised and not sleeping in a cardboard city.

Mr. T. Fitzgerald

Hear, hear.

Mr. Farrell

That is what we need to do.

Mr. Costello

We need a good Minister.

Mr. Farrell

The liberal agenda needs to be examined because it is does not care for people who cannot care for themselves. We cannot do it because we introduced certain laws. We must carefully examine that political correctness.

Mr. Costello

We need a new Minister for Health and Children.

Mr. Farrell

Some 100,000 people aged 65 years and over will be taken out of the tax net. They can have over £300 per week in their pensions and still not have to pay tax. Who says that old people are not catered for? Who says they are not looked after? This is the most progressive budget ever. These measures will put positive money into their pockets. When the liberal man was in office he gave £1.50 per week. The great De Rossa, the great socialist and liberal, gave £1.50 per week, which would not even be the price of five cigarettes if they were sold in packets of five.

I must refer to comments that were made. A widow or widower will get the same mortgage relief up to £5,000 as if they were still married. That is taking care of people who are in difficulties. The threshold at which persons aged 65 enter the tax net has been increased from £6,500 to £7,500 and from £13,000 to £15,000. That is where there are big increases for old age pensioners. There is a 50p increase on a packet of cigarettes, but I am sorry it is not more.

Dr. Henry

Well done.

Mr. Farrell

I am not against cigarettes that much, but I am sorry there is no increase in the price of alcohol. Alcohol abuse kills and damages many people. The Minister should look at drug and alcohol problems in his next budget. A sum of £722 million has been allocated to roads, £413 million for water and sewerage and £718 million for housing. It is a boom time and a boom budget. It is the greatest budget we ever had. Long live the Minister and long live the Progressive Democrats and Fianna Fáil in Government.

Dr. Henry

It seems to be my fate to follow Senator Farrell in debates, but I am delighted to agree with him on one of his last points. I welcome an enormous amount of the budget's provisions, but some of them are quite contradictory. The Minister has given an enormous amount of money – £12 million – to the cardiovascular health strategy while putting only 50p on cigarettes. Our cigarettes must be among the cheapest in Europe – 20 cigarettes are £1 cheaper here than in Northern Ireland. We could halve the number of cardiovascular deaths in Ireland if smoking was not as prevalent. It is unfortunate the increase is so low when we have to spend so much money on dealing with cardiovascular disease. I am delighted money has been given to a hostel at the Rehab centre in Dún Laoghaire, but that centre is used by a large number of amputees whose legs have been cut off because of the amount they smoke. These provisions are contradictory.

I am very pleased by the amount of money being given to homeless children, as this serious problem has not been addressed properly. I also applaud the efforts being made to reduce the levels of teenage pregnancies. As I have pointed out, this figure has reduced in the Eastern Health Board area by 30 per cent in the last few years, which is quite dramatic. However, I regret that the level before which people have to pay tax was not increased dramatically. As President of Cherish, which deals with single mothers, I know that one needs to be able to show a dramatic difference between being on social welfare and being in paid employment. I constantly try to encourage people to get into paid employment, as that is far more desirable.

Child care has not been properly addressed. It has only been addressed from the point of view of trying to get women with children into the workforce, while the situation of those working in the child care industry has not been addressed at all. Many of these workers are not well paid and should not have to pay tax until their income is at a much higher level. I regret the Minister did not seize this opportunity to address the child care situation more comprehensively.

Mr. O'Toole

I thank all speakers. We have used our Private Members' time for the last three years for a debate on the budget, with the agreement of the Leader of the House at those times, and this debate should be part of the business of the Seanad. I agree with a point made by Senator Costello. Those of us who were speaking first got a copy of the budget at the same time as Deputies and I appreciated that, as it was important. However, without being mealy-mouthed about it, I do not accept that journalists in the press gallery should have a copy of the budget before Members of this House. That is not having a go at the Government because, as has been said, it also happened previously. It is wrong and we should ensure it will not happen again. We understood it would be sorted out for this year and had we known the situation we could have dealt with it, but we must ensure it does not happen in the future.

Child care has not been dealt with in this budget. I said so at the beginning of the debate when I had just received the budget and before I went through it. The more I look at the budget the less happy I am. I see it as a beginning and it is not acceptable in solving the problem.

The individualisation of tax bands will be the headlines in tomorrow's newspapers and will bring out pro-family and anti-family opinions. I want to look at it pragmatically. My understanding is that there is a tax free allowance of £28,000 for a married couple. If both of them are working, however, it goes up to £34,000, a difference of £6,000, which I presume is in lieu of or as a support for child care costs. This works out at approximately £110 or £120 per week and can be looked at as either half full or half empty. One could say that those staying at home or who do not leave home to work are being penalised as they are not getting the same as those who leave the house to work. However, I regularly speak with retired people and the reality is that those who do not have to go to work have fewer costs. There is a question of equity involved. As politicians we can agree or disagree with the measure, but we should not be sucked into deciding if the issue is pro-family or anti-family. It is either right or wrong for its own reasons.

Miss Quill

Hear, hear.

Mr. O'Toole

We must recognise that when people leave home to work there are additional displacement costs such as eating out, travelling and so on. It is a matter of getting it right and we should not be sucked into a debate on the principles of whether it is pro-family or anti-family. The question we should look at is whether it is fair or unfair. I do not know the answer and do not pretend to know, but I have always felt it unfair that those who leave home to work, given the costs of running a car and minding children, for example, do not get additional recognition for that. Every Member has said so. As for whether it is pro-family or anti-family, I do not know, but we should look at this as a question of equity.

Most workers got a net increase of approximately 3 per cent or upwards, perhaps 7 per cent or 8 per cent. An average net increase figure of 3.5 per cent or 4 per cent would equate to a gross increase of half as much again. I recognise that as the Government's contribution to sharing the wealth. That has nothing to do with pay nego tiations except that it puts in place the Government's openness and positive approach to them. It is not acceptable to workers anywhere for IBEC to claim that as being in some way part of their salary negotiations with the workers of Ireland. Workers will proceed with their pay claims and they will deal with IBEC in order to get a decent salary increase, while the public sector will deal separately with the Department of Finance. I said at the beginning of the debate, having said so many times before, that we look to different ways of increasing our income. The budget is one way. The negotiations which are next week's work make up another. I hope the Minister supports that position.

I welcome this debate. It is good that people can give their views so quickly after the Budget Statement. The most important part of tonight's debate is the opportunity of offering our views on the budget. It should become a consistent part of the House's business.

An Leas Cathaoirleach

Is the amendment agreed to?

Mr. Costello

No.

Amendment put and declared carried.

Motion, as amended, agreed to.

An Leas Cathaoirleach

When is it proposed to sit again?

Mr. Farrell

At 10.30 tomorrow morning.