(Dublin Central): This Bill is one of the most important to come before the House. During the past few weeks we have been discussing Bills of a financial nature. We are part of the way through the Capital Gains Tax Bill and I understand that next week we will have the Wealth Tax Bill and, shortly afterwards, the Capital Acquisitions Tax Bill. By and large some of these types of taxation are necessary if introduced at the right time, but considering the state of the economy during the past couple of years and the state of industry generally, some of them are inappropriate at this time.
I know that we cannot discuss during this debate other capital proposals but some of these are entwined with this Bill. People were looking forward to the budget and the Finance Bill to see how they would boost the economy. We know the economy has been sagging in the last 12 months, that business firms have had difficulties and have been forced to let people go.
In the 1960s and the early 1970s there was confidence in the economy and this was because there were good budgetary proposals and a positive Government policy. Under the leadership of Seán Lemass in the 1960s the country prospered. The Government have an obligation to instil confidence in the business sector and they are also obliged to give leadership. That is now more necessary than ever since we are in a time of crisis with regard to unemployment. It was generally thought the Government would put forward practical proposals to help industry.
What do we find in the budget or in the Finance Bill? We find £12 million deferred for income tax but this will not help industry. Many industries made very little profit in the last two years but instead of having a proper financial policy to help them the Government have put forward legislation with regard to additional taxation. Evidently the Government believe that will help the economy.
As I said already, I would welcome some of the legislation at another time but not in our present financial situation. Our country is under-capitalised in comparison with other EEC countries. Countries such as Germany, Luxembourg and Belgium have had a long tradition of industry and wealth has been invested in them for many generations. We seem to think we must have the same taxation policies as the other developed EEC countries; but it is about time we considered our own economy not that of other countries. We should not always follow suit in our taxation policy. We should make up our minds what is best for us and let the European countries figure out their own taxation policy. We should decide how we can best expand the economy, give employment to the maximum number and give a better standard of living to social welfare recipients. We should do what we can afford rather than bring in legislation with regard to capital tax, wealth tax and other taxation measures.
Although I have said I welcome capital gains taxation in the modified form we put forward, this is not the time to introduce it. We should allow the country to develop to a greater extent and, at a later stage, we could go ahead with the kind of taxation the Minister has introduced. It is a mistake to try to do things too quickly. It is rather like the man who, in his first year of business, decides to take a cruise in the Caribbean. With such a mentality that person will not last long in business. We should have allowed the country to develop and perhaps in ten years' time this kind of taxation would be acceptable and welcome.
In his budget speech and on the Finance Bill the Minister stated he has granted £12 million by way of deferred taxes to industry. That is all right for firms who made substantial profits last year but many companies had little profits and the deferred tax will not benefit them. I should like to point out to the Minister that the £12 million will be more than offset by the increased contribution the employers will have to make towards the social welfare stamp. I am told that the entire contribution from the employers and the employees will amount to £31.62 million and that the employers will pay 59 per cent of this sum, amounting to £19 million. The provision regarding income tax is only on a deferred basis but the increased contribution for the social welfare stamp will cost industry £19 million. I do not know how the Minister can claim he is helping industry.
Firms are well aware they are not getting the necessary reliefs. All businesses, irrespective of their size, are experiencing a difficult time with regard to cash flow. They are being placed in an impossible situation. Recently I spoke to a man who employs about 55 people in a factory that deals completely in the export market and he explained his difficulty with regard to cash flow. He has to pay cash on delivery for ore and metal. He is exporting to European and Arab countries and also to Australia but the earliest he can get cash for his goods is three or four months later, although he has to pay cash on delivery for the raw materials.
One can see the situation with which he is presented. He has credit to the extent of £300,000 and he must meet his commitments from the point of view of his raw materials and paying his employees every week. Only last week he received a notice from the ESB for £1,000 for electricity used in the two month period. He overran the time allowed by about one week and he was politely informed that if, within six days, the ESB had not received a cheque his supply would be cut off. That was bad enough but they also demanded a deposit of £1,000 surety for any future supply. If this is the kind of approach by semi-State bodies to struggling industries, there is not much hope for these industries. This man told me that if the ESB insisted on this £1,000 surety he would close down. That kind of dictatorial approach should not be used. This particular industry employs 50 people and the margin of net profit at the end of the year is very little.
There is no help in the budget for this kind of industry. The £12 million will be offset by the £19 million to meet the increase in stamp contributions which will work out at roughly £20 per employee. The Minister in his budget statement said that he intends to transfer the amount the State contributed over to the employee and employer. That gives one an idea of the burden that will be placed on a highly intensive labour factory. It will be a major factor in the years ahead. Let there be no question about that.
Another matter that requires consideration is the deferred payment of VAT. We tabled an amendment to the Finance Bill last year asking that the two months be extended to three months. We know what happened to the Finance Bill last year. About a quarter of it was discussed by five o'clock in the morning. We never got around to discussing our amendment. It is no good people standing up here and saying this will be done, that will be done and the other will be done. People are sick and tired of talk. All we see coming into this House are taxation measures. Is this the new formula designed to expand industry? To me it is a kind of doctrinaire socialism. I doubt very much if this kind of philosophy will work.
We must encourage industry. The numbers engaged in agriculture are the highest in Europe at the moment but there is bound to be a decline in numbers. Some positive step will have to be taken towards expanding our industrial arm to absorb those leaving agriculture. I was in the west over the past week and I can appreciate now the urgency for a regional policy. I was in the lovely little village of Cleggan just beside Clifden. I was told there is a crying need there for a fish processing industry. Here is an area in which positive action could be taken. There are hundreds of similar areas around our coast. Proper research should be carried out to find out how people can be valuably employed. The majority of people want a decent, respectable job. Giving increased benefits is nothing to boast about. That is merely an interim measure to tide people over difficult times. The positive approach is establishing appropriate industries to generate jobs. There is nothing in this Bill which will do that.
There seems to be some queer idea that if we pursue these pseudosocialistic policies all will be well; industry will expand and there will be more employment. More than that is required. People must be encouraged to expand along the proper lines. That was recognised by the British Government yesterday when they gave certain reliefs to the oil companies. They recognised that a return on capital is very important. A philosophical approach may look well on paper but it very seldom works in practice. The facts of business are cruel. Great difficulties are involved. In an industry which is expanding one invariably finds that the employees are doing well. There is an air of confidence. There is no air of confidence in many of our companies at the moment and those employed in them are more concerned about whether or not they will have their jobs this time 12 months than they are about tax Bills going through this House. They know these Bills will not build one factory. Saying what one would like to see happen is of no benefit because the realities of business are not that simple. We should direct our minds towards positive action in regard to regional policy. Great play was made last year when the 14th round was being negotiated about the income tax allowance that should be given.
Before the budget last year the 14th round was negotiated. The Minister for Finance and the Minister for Industry and Commerce met the trade unions on several occasions and promised them big increases in tax free allowances and personal allowances. Last year they were disappointed. That was brought home forcibly not by Deputies but by spokesmen for the Congress of Trade Unions. If they were not satisfied with the concessions given in last year's budget, I doubt very much that they will be saisfied with the tax free allowances in this budget.
The Minister is increasing the personal allowance by £75.80. Roughly that will give a person a saving in income tax of £19 a year. As I have already said, industry will pay 59 per cent of the social welfare payments. When you deduct the substantial contribution which will be demanded from the employee, it will work out at £16.50 per year. That is the first thing to be deducted from the £75 which the Minister tells us he is giving in the tax free allowances. It is only fair that this deduction should be made. It will be in the region of 32p a week. That will be the additional contribution and his tax free allowance will be down to £59.50. That is not a very substantial increase. If we were speaking about tax free allowance five or six years ago, the figure might be over £1.10 or £1.15 a week and I would say that was a reasonable allowance, but today we are experiencing an increase in the cost of living of 20 to 25 per cent.
Look at the price of petrol today. The average man does not consider a car a luxury. How many people have to travel ten, 15 or 20 miles into Dublin every morning to work, where public transport is not available and where it is available, it is to be curtailed very shortly according to last night's papers? With petrol at its present price, would a man who has to drive into Dublin to work every morning agree that an increase in the free allowance of £59.50 is a generous allowance? Of course he would not. The prices of electricity and food are running at astronomical figures.
The Minister will say that this concession is costing him so many millions of pounds per year. This is all cod. The Minister knows perfectly well that these figures were based up to 31st December. He also knows that there was a 10 per cent increase in wages on 1st January for a considerable section of the community. He further realises that people will qualify for the remainder next month. The 10 per cent increase in wages more than offsets what the Minister has given in his tax free allowance for 1975. That is quite obvious. The 10 per cent increase in the cost of living to certain sections of business which I know of ran at between £3 to £3.10 a week. That is over £150 or £160 a year. The Minister will be taking his 26 per cent on that. With the way incomes are going he will be into a higher bracket very shortly.
There is no good in saying that a tax concession has been given on the personal allowance. There was a time when people were not au fait with the income tax system. They did not know exactly how it worked. I can assure the Minister that today very few wage earners do not know their exact net earnings and that is what they will look for when negotiating the next national wage agreement. How can you expect wage earners to be moderate in their demands when the Minister has not been reasonable about the tax free allowance?
He talks about an increase of £75 in the allowance for wage earners. That is about £1.44 a week. To keep up a reasonable standard of living and to keep up with prices, the average worker will more than likely be looking for an increase of 25 per cent in wages. As the Minister is aware, in some industries last year it far exceeded that figure. Basing it on that, it would not be unusual for a man earning £36 a week to get an increase of £9 a week. What does the Minister allow him on that additional increase in wages? He allows him 144p a week.
No one will believe that the Minister has made any tax concession to the workers. Until we take some positive action to give the worker real relief we will have a spiral of wage increases. There is no doubt about that. In their negotiations the workers will try to make up for what is being taken from them by the Government. The Minister should have given well over that figure. On the gross amount the relief works out at about 15 per cent only, before taking into consideration the deductions which I say are quite valid.
I have always advocated a national wage agreement and a responsible approach to wages and income. If the Government want an agreement accepted, they should give a substantial increase in the tax free allowance. It is obvious that inflation will help the Minister. If we take a 25 per cent increase in wages, it is obvious that there will have to be buoyancy in revenue. This will lead us nowhere if we are to continue on this merry-go-round. It will not bring inflation under control. We will have wages following prices in a vicious circle to the detriment of the entire economy. The Government will have to give a lead in curbing inflation and in containing the cost of living.
They cannot expect the workers to do it if the example is not set by the State. The Minister for Finance should have made a more positive approach this year regarding income tax allowances which could help greatly in negotiating a new national wage agreement. You cannot sell it to people that you are giving them £75 and ask them to be good boys because that is a very generous contribution. The Minister for Industry and Commerce, being a realist, would not, I think, agree that in today's inflationary situation an increase of that amount was sufficient. We shall see what the response of the Congress of Trade Unions will be. I sincerely hope we will have another national wage agreement.
By and large, the taxation system is not encouraging economic expansion. With business on one side and workers on the other we now are one of the highest-taxed countries in Europe. Directly and indirectly, the State is taking too much taxation to allow for economic expansion.
We find the same is true regarding availability of money for the private sector. This also became apparent last year. The Government, through the Central Bank, took a substantial amount of the money or the banks had not confidence in the economy; certainly money was not in circulation and anybody who got money paid high rates, sometimes above the rates currently obtaining in the associated banks. With all this pressure on workers and on business—the Government taking too much and high interest charges—we are reaching a stage where it is practically impossible for business to operate on a profitable basis, a stage where people are becoming depressed, asking if it is worthwhile, if they will succeed in a new business.
We shall have to instil confidence in our economy and in business dealings. We must encourage workers and show them that it is worthwhile working. If we reach the stage—I hope we never shall—that it pays you better to stay idle, that will be the formula for economic destruction. We must be very careful about this. When deductions are made for income tax and stamps the margin is very small to encourage men to work. This is something that could drive us to bankruptcy. We must go in the opposite direction and encourage people to work by paying them more and the more they work the more they should be paid, not with fictitious pay to be taken away in income tax or the cost of living. We must give them a real standard of living.
I like to see a man doing overtime and being paid for it. Too much taxation is a great deterrent. A man who works overtime does so for a reason, either to get something for his wife and family or for his personal pleasure. I doubt if our policies in the past few years were on these lines; they were otherwise oriented—to keep certain types of people happy. The Government will have to look seriously at this, especially in the case of the business community for whom I can speak personally. Deputy Esmonde made his case for the farming community; I can speak of businessmen in a different line from my own and they have told me of the problems they encounter. There is no sign of improvement in this regard, certainly in the coming year. Inflation can very well run at 25 per cent and I doubt if the cost of living will be under 20 per cent. I do not know what the national wage agreement negotiations will produce but this will have a vital bearing on our economy.
The Minister and the Government have not laid any solid structure to contain the present situation. We all agree that a reflationary budget was necessary unless we were to have complete economic chaos. The borrowing, both on the capital and current budgets was necessary but if we had realistic budgetary proposals in the past few years we would not have accumulated the deficit entailed in the current budget. It was quite obvious how that deficit could have been reduced but that is now water under the bridge. Even in the capital budget the Minister is only running around 19 per cent more which will not create any expansion in industry. It will not produce employment. It will barely measure up to last year's performance —and many economists believe it will not even do that and that there will be a shortfall compared with last year.
It will be interesting to see how the Government will finance the capital budget in the coming year. We do not yet know where the Minister will borrow abroad, whether from the Arabs, from the World Bank or the European Bank. It will also be interesting to see how they regard the Irish economy, what restrictions they will apply or what guarantees they will need as regards future borrowing if this country is allowed to run into debt. It may be much more difficult to get loans. We all know how closely one is scrutinised when seeking an overdraft. The World Bank and various other financial institutions will look at the policies we are pursuing and will ask themselves if we are a safe bet.
They will look at this totally un-capitalised country pursuing capital taxation more suitable to a highly developed nation. There is nothing wrong with this type of taxation in a country which has been developed industrially for two generations. But it will take another 15 or 20 years for this country to make any headway in industry using the same methods.
We all welcome the benefits under the social welfare code. Nobody on this side of the House has ever complained about them. When we were in Government it was always our policy to try to look after the weaker sections of the community, especially old age pensioners, widows and orphans. We could not give too much to these people. They need security and help in the evening of their lives.
There is a big difference between the standard of living of an old age pensioner living with a member of his family and the old age pensioner living in a furnished room. The former does not have to pay rent or buy fuel. These are two major factors. I am aware that old age pensioners have free electricity, but fuel and gas must be taken into consideration. Today's allowances to old age pensioners do not give them a normal standard of living. Many old age pensioners in Dublin city rent rooms in tenement houses. Their standard of living is not all it should be. Therefore any help that can be given along these lines would be very welcome.
As I said, electricity is free but there are many old houses in Dublin which have only gas, especially for cooking purposes. The pensioners get no allowances for this. I was talking to an old age pensioner about two weeks ago who had a gas bill for £40. She must keep herself warm in her chalet. I do not know how she could pay this bill in her present circumstances.
