Financial Resolutions, 1982. - Financial Statement, Budget, 1982.

Before I call on the Minister for Finance to make his Budget Statement I want to remind Deputies that none of the confidential information which will be circulated in advance by the Minister to certain Members of the House may be disclosed to anyone until the Minister has revealed it to the House. Failure to observe this rule will be considered a serious breach of the Privileges of the House. I now call on the Minister for Finance to deal with Item No. 5 on the Order Paper.

Will the budget proposals be circulated to all Members of the House?

No. The Minister's budget proposals will be circulated to Ministers and ex-Ministers of the House.

Is there any statutory regulation which prevents you from agreeing that the proposals should be submitted to all Members of the House?

It is very hard to listen to a document being read out and then to have to make up your mind. I suggest that the proposals should be circulated to all Members of the House.

I fully agree with the Deputy, but it is long established practice that copies of the Minister's budget speech are given to Ministers and ex-Ministers of the House only.

At what stage will I, as an elected Deputy, get a copy?

The Deputy will have the full details as soon as the Minister has completed his speech.

Did the Ceann Comhairle say he is relying on practice and procedure and that there is no statutory regulation preventing Deputies from receiving copies?

It is a matter for the Minister concerned. The details will be available as soon as the Minister has completed his speech. The Deputy can hear all the details if he remains in the House. Item No. 5.

The Ceann Comhairle said it is a matter for the Minister.

Would the Minister agree to have copies circulated to all Members of the House? There is no justifiable reason why they should not be.

The Deputy has made his point. I am now calling the Minister for Finance to deal with Item No. 5 on the Order Paper.

I must say at the outset to you, Sir, and to Members of the House that I regret the great length at which I will have to address the House on this occasion. This arises from the very large number of measures which have to be taken because of the difficult situation we are facing. However, I am confident that, as a result of this budget, the budget speech I will have to make this time next year will be somewhat shorter than this one.

The Government aim, in this budget, is to achieve five objectives:

—to reduce our reliance on foreign borrowing so as to maintain our national economic independence and ensure that interest payments do not absorb too much of our limited tax revenue;

—to improve Ireland's position in international trade, by increasing our exports and reducing our imports and thus provide self-sustaining jobs for our people;

—to improve, despite the financial difficulties, the living standards of those who cannot help themselves and depend on the community for support;

—to change our income tax system so as to make it fairer and lessen the burden it now imposes on the low paid;

—to improve the incentive to work for people who, now, often find it more profitable to stay at home.

In setting out these objectives we recognise that Government action alone cannot achieve them. Government programmes which do not have public consent and support will not succeed. Even with public support they will fail unless there is a concerted effort by the community.

Each of the five aims of this budget has one common theme. It is that of meeting the enormous challenge of unemployment. In the last six years the number of young people leaving our schools, and seeking jobs, has increased from 53,000 a year to about 67,000 a year. It will continue rising. Yet, at the moment, we are losing more jobs in industry than we are creating.

This is a challenge to every Member here in this House, and to our democratic system. Unless we can meet it, a harsh judgment will be passed on us. I am convinced that the only way to meet this challenge is to change our economy to make it more efficient, so that we can beat our competitors on the export markets of the world. Unless we can export more than we are importing, we will not have the jobs we need. In the end it is not the Government that provide jobs, it is the consumers who buy what Irish workers produce. Consumers of Irish goods, abroad as much as at home, are the guarantee of jobs in this country. We will not sell our goods if the price is wrong, or the quality inferior.

In the last six months the Government have campaigned to bring realism back into economic debate in Ireland. Only by starting from reality can we make our economy efficient and competitive. If the Government are realistic about their own finances, this will inject realism into the economy as a whole. If we are prepared to reform our own financial procedures in the interests of efficiency, it will encourage the same in the rest of the economy. Just as the Irish economy cannot continue spending £1.13p abroad for every £1 that it earns abroad, the Irish Government cannot continue spending over £1.40p for every £1 received.

Budget deficits are demoralising. They encourage the myth that one can spend what one has not earned, and that it is right to ask the taxpayers of the future to pay the price of present weakness and extravagance. It is our duty to ensure that there is a secure and prosperous future for the children of this country. They will have neither prosperity nor security if we continue to spend their birthright.

Current Budget Deficit

The Government are committed to eliminating the current budget deficit over the next four years. Of course a dramatic reduction this year could precipitate a downturn in economic activity. Therefore we seek a balance between proving our determination to reverse the borrowing trend on the one hand, and maintaining economic activity and investment on the other.

PLANNING

There are structural flaws in the Irish economy which make it inefficient. These will only be cured ultimately through consensus and public agreement. As a community we face a new order in the world, an era of easy growth based on cheap energy, which lasted from 1945 — after the Second World War — until approximately 1970, is now definitely over. We must now expand in a contracting market.

The purpose of our national economic plan, which will be published in the middle of this year, will be to set out the economic challenge before our people and seek their consent for the measures necessary to meet it.

The plan will provide a discipline and a clear objective for Government spending. In the past Government plans bore little relation to what the Government were actually doing with their own finances. This plan will be completely integrated with the Government's own financial programme. Thus the Government will be committed to the objectives of the plan, and the plan will provide a solid framework for the national economic effort.

The institutional arrangements for planning will be improved. The National Planning Board, when established, will provide an input for key groups in society. The whole emphasis will be to get the community working together on national and social economic objectives. Consultations on an industry by industry basis prepared us for free trade in the sixties. A similar effort is needed to do what must be done in the eighties. Indeed I believe that these consultations in each industry—which will be undertaken as part of the planning process—will make a major contribution towards saving, preserving and providing jobs.

REFORM OF FINANCIAL PROCEDURES

As Deputies will be aware, I have a very strong personal commitment to the reform of the financial procedures of the State. The Government's proposals were detailed in the discussion paperA Better Way to Plan the Nation's Finances. The public response to this paper has been very supportive of its proposals, and I have been encouraged by the many people and organisations who wrote to me privately.

I hope the time will soon be available for a debate in this House on these matters and I look forward to receiving the considered views of Deputies on all sides. It is clearly desirable that there be broadly-based, non-partisan support for such measures of reform. The reforms are intended to restore the primacy of the Dáil in regard to the scrutiny and control of public finances and to strengthen the role of individual Deputies in consideration of financial matters.

In regard to matters within my own area of responsibility, work has started on the development of a new, more informative presentation of the Estimates and budgetary documentation. Some minor improvements have already been made in this year's Estimates Volume, as Deputies will no doubt have noticed. My Department are also preparing legislation to give effect to some elements of the reform programme.

The discussion paper referred to the need to ensure that the balance of each year's budget — introduced in January — is maintained throughout the year. This has been a major problem in recent years. Up until 1979, although there were budget deficits, the Government at least succeeded in keeping to the planned level of deficit set at the beginning of the year. Since 1979, however, even planned deficits have been dramatically overshot—by 81 per cent in 1979, 58 per cent in 1980, and 62 per cent in 1981. This simply undermines confidence in budgets. The discussion document mentioned the possibility of a regulator tax as a way of tackling this problem. I have decided to establish a special committee, with an independent chairman, to examine the feasibility and implications of instituting a tax of this kind. But I will also be tightening up on public spending to ensure that recourse to such a tax is not actually necessary at all.

I might mention also that a committee to find ways of preventing major cost overruns on State capital projects— which have been a considerable problem in recent years — has been established. I look forward to firm recommendations from this body by March of this year.

THE ECONOMIC SITUATION

There have been some positive features in our economic performance in 1981. The latest data show a recovery in investment and a significant growth in agricultural incomes. They also demonstrate that a start has been made in correcting the budget and balance of payments deficits without damaging the sources of lasting economic growth. This shows the underlying strength of the Irish economy and indeed indicates how unreal is the notion that the Irish economy is so weak that it requires continually increasing Exchequer support and foreign borrowing to prop it up.

There will be worthwhile opportunities for our industrial exporters this year, provided our output is competitive and disruptions to production are avoided. A revival in agricultural exports is likely. Partly because of this, and partly because of the measures being taken by the Government, the significant growth in agricultural incomes achieved last year should be repeated in 1982, in contrast to the very serious fall which occurred in 1979 and 1980. These factors should lead to improved employment prospects in 1982.

If, as expected, the rate of inflation falls abroad, this will have beneficial effects here. The strength of sterling and the dollar in 1981 was a significant force for high inflation here. This is not likely to be repeated in 1982. But it must be stressed — in looking at the optimistic features of our economic situation— that, without a change in policy the benefit of the growth in exports will be offset by the inescapable increase in the cost of servicing foreign debt which we as a Government have already incurred. Thus the action taken in this budget is necessary to our economic recovery. The general hope that the international economy will be on a higher growth path in 1983 makes it absolutely imperative that we act this year to correct the distortions and imbalances in our economy. We must enter 1983 with an economy capable of benefiting to the full from the international upturn, not one still bogged down in the problems which this Government inherited from the past.

INCOMES POLICY

For example, we cannot continue to pay ourselves more than our competitors and still remain in the market-place. This is not merely a question of pay levels. The fact is that our output per person is low by international standards. It is not absolute wage levels but costs per unit of output that determine our competitiveness. Excessive income increases over the past three years are the primary cause of the massive deficits on the balance of payments and on the current budget. They have contributed to inflation and unemployment. Last year Irish wage rates increased by twice the average in the economies of the other countries in the European Monetary System. It is no surprise, therefore, that the number of industrial jobs lost here in the last two years was over 12,000 more than were created.

Proposals have been negotiated by the Minister for the Public Service for a pay agreement between the Government and the Public Services Committee of the Irish Congress of Trade Unions. These proposals will lead to an increase of just over 9 per cent on the charges that would otherwise have had to be met in 1982 in respect of the Exchequer, or the Government's pay bill. They are at the very limit of what is acceptable, in the public service, to the Government. It is important to note that the proposed public service agreement provides for a moratorium on special pay increases. Under the moratorium, apart from certain very limited exceptions, no payment on foot of special claims will arise in respect of any period prior to 1 January 1983. It is essential that the provisions of the draft agreement are not exceeded in settlements anywhere in the public sector, and all public sector employers have been advised by Ministers to that effect.

Pay levels in other employments will be a matter for settlement between managements and unions there. I would hope that they will take full regard of the requirement of competitiveness. There should be a clear recognition, in present circumstances, of the need for flexibility in the interests of job-preservation. I emphasise that the need for moderate pay settlements is as pressing in the so-called sheltered sectors of the economy as it is in manufacturing. Indeed, excessive pay increases in the sheltered areas of the economy—whether public or private—would have to be borne throughout the economy in the form of increased costs.

MONETARY POLICY

The central aim of monetary policy in 1981 was to maintain an adequate level of external reserves in the context of our membership of the European Monetary System. The official external reserves recorded an increase of £127 million or almost 10 per cent to give an end-year level of £1,473 million. It should be clearly understood, however, that the achievement of this level of external reserves is due largely to the extensive foreign borrowing undertaken in the course of the year to finance the Exchequer.

The demand for private sector credit was sluggish in the first half of 1981, but it has since accelerated and it is likely that growth over the year as a whole will be close to the guideline set at the beginning of the year of a 15 per cent increase.

The trends in interest rates reflect the difficulties of the situation and in particular our balance of payments problem. Domestic rates rose significantly in 1981, but are still below the peak they reached in 1980.

The reality here is that the drain of our balance of payments deficit results in a continuing shortage of funds in the Irish money markets and, as a consequence, in a tendency to high interest rates. In other words, we must get our balance of payments under control if we are to avoid the continuance of high interest rates here. It is an exercise in self-delusion to suppose that manipulation of interest rates by the Government, through subsidies, can somehow insulate us from this reality. Only firm action to correct the underlying imbalances in our economic and financial situation can create the right conditions for a stable régime of lower interest rates.

REVIEW OF THE 1981 BUDGET OUTTURN

The targets contained in the original January 1981 budget proved to be meaningless. It became evident in the early months of the year that expenditure commitments had been seriously underestimated, as the Government did not adhere to their published estimates. In addition, substantial extra expenditure was made as the year progressed. As a result this Government, on assuming office, were obliged to introduce a supplementary budget.

At that time, the likely current deficit for 1981 was about £950 million and the likely overall borrowing requirement stood at £1,970 million. The supplementary budget in July reduced these projections substantially. The eventual outturn for the year showed an adjusted deficit of £802 million or almost 8 per cent of GNP and an overall borrowing requirement of £1,722 million or 17 per cent of GNP. Despite the measures taken in July, this outturn represents the largest current deficit and overall borrowing ever incurred in this country. This experience shows that entrenched divergences between spending and revenue cannot be eliminated in a short six months. That requires patient and sustained effort over a longer period.

Exchequer Borrowing

In 1981 only one quarter of the total Exchequer borrowing requirement could be financed at home. Before raising any new money to meet the 1982 requirement, we have to arrange new loans of approximately £1 billion to meet repayments on existing debt. It is frequently forgotten that, besides paying interest on loans, the principal must also be repaid. This year we have to make repayments of not less than £350 million in respect of foreign loans raised in earlier years. On the domestic front, almost £700 million of our national loans are due for repayment this year. The borrowing necessary to finance repayments is frequently at higher interest rates than applied to the loans being repaid, so this adds to the burden of our national interest bill. The real cost of borrowing must take into account not just the interest payments on the loans but also the cost of repaying the principal. The disappointing level of receipts from domestic borrowing sources and the need to maintain the external reserves required an unprecedented £1,285 million of foreign borrowing in 1981. Of this, some £85 million —a relatively small amount—was borrowed from the European Investment Bank. The balance was raised on the international capital markets on commercial terms.

This very high level of dependence on foreign borrowing compares very unfavourably with previous years. I shall give just a few examples of this. About 75 per cent of the Exchequer's total borrowing was foreign in 1981 as compared with 47 per cent in 1980, 50 per cent in 1979 and just 27 per cent in 1975. This level of foreign borrowing exposes us dangerously to international fluctuations in the availability of funds. These fluctuations can occur almost without warning for reasons quite beyond our control in this country. This budget aims to reduce our total borrowing requirement, and thus reduce the need to borrow abroad. We will seek also to ensure a larger share of our borrowing in 1982 takes place at home.

PUBLIC EXPENDITURE POLICY 1982

As I said earlier, the Government want to restore public confidence in the budget estimates as a genuine statement of their intentions. A regulator tax may be relevant in this context in the longer term. But of much more importance now and indeed in the future is the resolve on the part of Ministers to keep spending within agreed estimates. Ministers have been directed to take immediate and specific measures to ensure that throughout 1982 the level of expenditure by Departments and organisations under their control will not exceed the budget allocations.

Specific decisions on individual programmes have also been taken to under-pin departmental allocations and each Minister will be reporting back to the Government by 30 April on the results of public expenditure reviews which are already being undertaken in conjunction with the Minister for the Public Service and myself. Those reviews are designed to identify low-priority programmes which, if curtailed or suspended, could produce a build-up of savings, both in staff and other costs. I have, however —and this is perhaps in contrast to previous budgets—not thought it prudent to make any allowance for such savings until specific possibilities for redeployment and reorganisation have actually been identified. Pending the outcome of these reviews, and the identification of savings, the Government have decided to retain the general restriction on public service numbers, which will partially offset the provision which has had to be made for some additional posts this year in key areas such as teaching, the security forces, the prisons services and the Post Office. Two-thirds of all vacancies occurring generally in the non-industrial civil service from 23 December 1981 are being held open and a system of equivalent effect is to apply, where possible, to other parts of the public sector, with the exception of the commercial State-sponsored bodies. That is not to say that even they are in a position to start recruiting freely. With few exceptions their financial situation is so weak that a restrictive policy on numbers employed must be high on their list of commercial priorities.

Central Fund Services 1982

In the past few years an ever-increasing burden of debt service payments has had to be met out of current revenue. This increasing burden is reflected in the Central Fund estimate for 1982 which is £1,360 million, a 35 per cent increase on the 1981 outturn. Virtually all of this— this very dramatic increase—is due to higher interest payments, which are estimated to rise by some £315 million in 1982, of which some £250 million will be required for foreign interest payments. In effect, £315 million of the increase in revenue this year will be pre-empted, just taken away, by these extra interest payments. This is a very real constraint on the Government's freedom in the management of their economic policies. These interest payments now require 27½ per cent, more than a quarter of all tax revenue—not just income tax revenue —compared with only 17½ per cent in 1975. Moreover, a growing proportion of these payments is a transfer across the exchanges, which represents a real loss of purchasing power to the Irish economy. In other words, it is interest paid abroad which is enjoyed by people abroad rather than at home.

Apart from interest payments, the other main item of increased expenditure in the Central Fund services is our contribution to the EEC budget, which will rise from £118 million in 1981 to £140 million this year.

Capital Expenditure

A superficial reaction to the estimates figure published last week might be that, in general, capital demands for 1982 were being treated less generously than current demands. This criticism, however, does not hold water. In the first place, we already have one of the highest rates of capital formation in the OECD and it is clearly unrealistic to expect it to continue rising indefinitely. Secondly, capital expenditure is by definition non-recurring and the figure in any one year depends, therefore, on the projects which happen to be in train at the time. We are just over the major push in a number of large investment areas— notably transport, telecommunications and State industry — and clearly demands in those areas are now starting to taper off for the time being. Thirdly, as I have stated earlier, much of what is classified as capital is of dubious borrowing merit and is open to retrenchment anyway.

There is one general point I should like to make here. Over the years since the first oil crisis the Public Capital Programme has pumped money into the economy to maintain employment and general momentum at a time when private sector investment was very slack. In a mixed economy, however, it is unrealistic to expect that Government finance can indefinitely substitute for missing private sector investment. Therefore the aim of policy now must be to create the conditions in which private sector investment can grow more rapidly of its own accord.

A stocktaking is also necessary in regard to demands from ailing commercial State bodies for capital injections from the Government to improve their balance sheets. For 1982 the Government have, therefore, decided to allocate an additional £90 million of Exchequer finance outside the Public Capital Programme, to help deal with under-capitalisation in the State trading sector. The exact distribution of this amount will not be decided until the Government have had the opportunity to examine a number of consultancy and other reports, which are now being prepared, on the position of individual bodies.

Here too there must be a general change of approach. Since all injections of equity capital into State companies from the Exchequer must be financed from borrowed money at high and volatile interest rates, State bodies—receiving these funds—will in future be asked to justify their investments not only by reference to the earning capacity and employment creation of the investment, but in a more fundamental way by reference to the financial return expected and its relevance to the company's objectives. Future issues of Exchequer share-capital to State bodies will be accompanied by a set of financial targets which subsequently will be closely monitored within an agreed corporate plan. I am confident that the committee on cost over-runs, to which I referred earlier, will make useful recommendations in regard to cost control in capital projects undertaken by State bodies which, as the House is aware, have been something of a problem in recent years.

OPENING DEFICIT ON CURRENT ACCOUNT

As I have already pointed out, the deficit in 1981 was the highest ever in this country. The opening position for 1982 is even worse. The recently published White Paper on Receipts and Expenditure showed a 1982 deficit of £933 million. This figure does not take account of the maintenance of the present level of services which is the basis on which I projected the 1982 deficit in my July budget speech. To maintain the real level of social welfare benefits at 1981 levels in 1982 would require an additional provision of £68 million to take account of inflation. This provision brings the opening deficit to £1,0001 million.

SPECIAL FEATURES

Before turning to the main budget headings I should like to mention a number of special items for which provision is being made.

National Heritage

Our Programme for Government promised new measures, including legislation, the better to protect our cultural heritage. This legislation will involve wide consultation with conservation interests and the intention is that their views will receive maximum consideration when a first Bill to protect historic monuments is introduced in the present session.

The pressure of development on urban archaeological sites is a particular concern where such sites come to light in the course of building development. I am providing £25,000 this year to enable the Commissioners of Public Works to commission a special report on areas and sites of archaeological significance which require special procedures to be adopted in relation to their development and protection. This will give good advance warning of the areas in or near towns in regard to which special care should be taken and will help both conservationists and potential developers.

There has been concern, too, about the rate at which field monuments are being destroyed in rural areas. I have, therefore, instructed the Commissioners of Public Works to concentrate on publication of monument inventories and to arrange for more speedy completion of the countrywide survey of monuments to this end. This will promote knowledge of national heritage on a county-by-county basis. I am providing an extra sum of £100,000 for this purpose in the current year.

On the taxation side, the Finance Bill will include a proposal to grant income tax relief, in so far as not allowable already, in respect of the cost of maintenance and repair of buildings which are intrinsically of scientific, historical, architectural or aesthetic significance. As indicated in our Programme for Government, a building must be capable of conservation in order to qualify for this relief and there must be arrangements for reasonable access by the public to it. This measure will cover a wide range of buildings, large and small.

Veterans of the War of Independence

In view of the special service rendered to the community by veterans of the War of Independence, the Government have decided to make a number of improvements for them and for their widows at a total cost of £250,000 in 1982. Details will be found in the "Principal Features of the Budget".

Council for the Status of Women

I should also like to mention that since the publication of the Estimates, the Government have reviewed the provision of £65,000 included for the Council for the Status of Women in the Vote for the Department of Labour. They have decided to increase the council's allocation to £95,000 to enable them to operate with greater effect. The extra £30,000 will be found by adjustments elsewhere within the Vote.

Fostering Better Understanding between People North and South

The Government have agreed to provide the sum of £125,000 in this year's budget to assist organisations involved in reconciliation work and in efforts to create better understanding between people North and South of the Border. Some of this money will also be used to provide funds for the extension of the youth incentive scheme to Northern Ireland youth groups who wish to visit this part of the country. Financial provision has also been made for the establishment of an "Anglo-Irish Encounter" organisation as recommended in the Joint Studies carried out by officials of the Irish and British Governments last year.

The Ombudsman

The Government have decided to establish the Office of Ombudsman during the current year and the Minister for the Public Service will bring the necessary resolutions for the appointment of the Ombudsman before the Houses of the Oireachtas at an early date. I am providing £130,000 for the expenses of the Office of the Ombudsman for 1982. The appointment of an Ombudsman in this country will represent a major advance in ensuring the protection of the rights of the ordinary citizen. Initially, he will have power to investigate the actions of Government Departments but it is intended that his remit will be extended next year to local authorities and health boards.

Education

A significant package of improvements at primary and secondary levels has been provided for in the Estimates. This includes £1 million for micro-computers in post-primary schools, an increased capital allocation for secondary schools and at primary level provision for increased capitation grants.

In addition to the £400,000 for pre-school facilities already provided for in the Estimates, I am providing today for a further £600,000. This reflects the importance the Government attach to supporting parents in deprived circumstances in regard to care and development of their children before they enter primary education.

I am also providing £225,000 as additional funding for youth activities. This will allow the honouring of commitments to young people in this area.

AGRICULTURE

The Government's concern at the difficult agricultural situation has been shown in a number of measures introduced since they assumed office. A major incentive to increased output is the scheme of assistance for farmers for the expansion of the cattle breeding herd, for which £5.5 million has been provided in the Estimates.

Other measures include two 5 per cent interest subsidy schemes, a partially EEC-financed scheme for development farmers and a nationally-financed scheme for other farmers. These schemes will cost about £9 million a year. In addition, the Exchequer is bearing the exchange risk on funds provided by the European Investment Bank to the Agricultural Credit Corporation for on-lending to agriculture to finance additions to the basic herd and to assist young farmers to develop farms taken over from their parents.

The July budget contained an important VAT concession in favour of agriculture, in that the effective VAT rate on certain agricultural contracting services was lowered to 3 per cent. These and the further measures I will be announcing today will do much to encourage investment and increase productivity and output.

Horticulture Subsidy

The horticultural sector in Ireland has had difficulty in competing with imports from other countries, particularly because of fuel price differences. Accordingly, I propose to provide relief to the commercial horticultural sector, including mushroom growers, at an estimated cost of £200,000 to help towards countering those differences. The details will be announced shortly.

Farmers in Severe Financial Difficulty

Even with the 5 per cent interest subsidy schemes there are still farmers who are not in a position to meet repayments to the banks but who, with additional help, would be in a position to survive. Discussions have taken place with the banks and the ACC to draw up a scheme which would lead to a substantial reduction in the interest rate on existing loans. These discussions are now being finalised and the Minister for Agriculture will shortly be announcing the details of the scheme.

The cost will be borne by the lending institutions and the Exchequer, but until such time as a clear picture emerges of the total of loans likely to benefit under this scheme, I am not in a position to give a firm indication of the cost. I am, however, making a provision of £4 million in respect of the Exchequer cost which may arise this year.

Taxation of Farming Profits

I think it will be accepted by all that, with the phasing-in of the abolition of rates for full-time farmers, the credit for rates paid against income tax liability must be phased out on a similar basis. Accordingly, I am proposing that the rates credit be reduced by 50 per cent in the income tax year 1982-83 and abolished altogether in the following year. This will increase the income tax yield from farmers by £2.5 million in 1982. The portion of rates not allowed as a credit will be available as a deduction against profits in the normal way this year.

Further encouragement will be given to the expansion of the national herd in line with the undertaking in the Programme for Government. Increased herd numbers will help our balance of payments. This will be done through increasing the rate of stock relief, as it applies to farmers, from 100 per cent to 110 per cent. The new rate will apply to all livestock and not just to breeding animals. This concession will cost about £0.5 million in 1982.

Stock relief is a temporary measure, renewable on an annual basis. While the stock relief provisions for farming are a strong incentive to build up livestock numbers, I am most anxious that the income tax code should include provisions which would give a positive inducement on a permanent basis so that this important national objective of building up and maintaining our herd numbers may be attained. I am, accordingly, examining how this might best be done through changes in the system for valuing livestock. I am examining in particular a system in operation for some years in New Zealand, known as the `nil value' system. Discussions in the matter are proceeding between the farming organisations and the Revenue Commissioners.

Farmers may claim capital allowances in respect of one third of the expenditure incurred on the construction or conversion of their private dwelling houses. No other section of the community enjoys such an advantage and, in the interests of general fairness in the tax system, I propose that it will be withdrawn. The yield will be about £0.2 million in 1982.

The two payment dates for farmer income tax will be retained for another year. This, together with the refund of the resource tax, will improve the position of farmers by £8.4 million this year.

Reliefs on the Transfer of Farm Property

As indicated in the Programme for Government, the stamp duty liability on transfers of land to young trained farmers will be removed for a two-year period. This exemption will be granted to gifts of farmland where the donee or recipient is under 35 years of age at the date of transfer and has a recognised farm-training qualification. It will apply to transfers made in the two years following the date of enactment of the 1982 Finance Bill. The transferor must indicate before 1 December 1982 that he intends to avail of this provision. The cost of this concession is estimated at about £0.5 million in a full year and about £0.25 million in 1982. The concession is designed to effect early transfers of land to young farmers and thus help improve efficiency in agriculture. The strict time limit on the concession is designed to get land quickly into the hands of young farmers at a time when their contribution is much needed. The Finance Bill will also contain a provision increasing by £50,000 to £200,000 the upper limit on the special agricultural relief in capital acquisitions tax for farmer beneficiaries in relation to gifts and inheritances taken after 1 April next.

This represents a doubling of this limit compared to the position in 1975, when the tax was first introduced, and is in line with the increase in land prices since that year. In a very difficult budgetary situation, this is a significant step towards the fulfilment of the commitment given on this matter in the Programme for Government. The cost of this change will be about £0.25 million in a full year and about £0.2 million in 1982. It, too, will encourage land transfers to younger farmers.

TAXATION

Government policy places a high priority on a more equitable system of taxation and we intend that a greater burden of taxation will be borne by those who can best afford it. This will require a large-scale re-structuring of the taxation system, particularly as regards income tax, which I will deal with later.

Any such re-structuring is a major undertaking and it is not possible to implement immediately all of the reforms included in the Programme for Government. The difficult financial situation is the principal constraint, but some of the proposed reforms of their very nature can only be put into effect gradually. I propose, however, to introduce some changes today which will go a considerable way towards fulfilling the Government's commitments.

First it must be said that the present tax base is too narrow. This is, in part, a result of deliberate policy choice—principally to ensure a favourable tax régime for industry and agriculture—but the inevitable result is a higher incidence of tax than would otherwise be the case on those remaining liable. The effectiveness of the tax system as a means of raising revenue—which is its main purpose—has gradually been weakened over the years by tax reliefs to special interest groups. This, again, has had the effect of ultimately increasing the level of tax on those who cannot get full benefit from the reliefs.

Avoidance and Evasion

I turn now to tax evasion and tax avoidance. It is my responsibility to ensure that taxation is spread as equitably as possible and that every person with a taxable income should carry his share of the burden.

Before I deal with my proposals, I would like to point out that tax evasion has moral implications. What is at issue is the payment of a fair share of the cost of common services which all enjoy. Unless, as a community, we face up to the the moral implications of tax evasion, and cease to be privately tolerant of it, we will not stamp it out. Statutory regulations, no matter how detailed, will only be partially successful without changed public and private attitudes. More effective action can, however, be taken in the regulatory sphere and a number of new developments are proposed which will make the path of the tax evader less smooth in future than it has been in the past.

In a number of cases, earnings are escaping taxation because they are being paid by way of fees or commissions and are not subject to deduction of tax under PAYE. This loophole will be closed. I will provide in the Finance Bill for an increase in the monetary penalties or fines for tax evasion.

When back duty cases are settled, the level of the settlement must be such as to compensate the Exchequer for the tax of which it has been deprived and to impose a sanction which will act as a deterrent to evasion. Where a back duty settlement covers a period of, say, ten years it is totally unrealistic to think that a tax liability of £500 evaded in 1972 is now made good to the Exchequer by payment of £500 in 1982. Indeed, that tax bill of £500 is, in 1982 terms, the equivalent of about £1,800.

This means that in an inflationary period the tax evader, even when caught, may continue to profit from his evasion by paying his debt in a depreciated currency. This will be coped with in two ways. The Revenue Commissioners in future, when arriving at a settlement in back duty cases, will take into account what the underpaid tax for past years would represent in real money terms at the time of the settlement. This will apply to any settlements made after today. Secondly, it is proposed to include a provision in the Finance Bill raising the rate of interest in back duty cases from its present level of 1¼ per cent per month to 2 per cent per month. This higher rate of interest will be applicable only to back duty cases and not to ordinary cases of assessment where there is simply delay in paying the tax assessed. In order to encourage people to finalise settlements in the immediate future I am deferring the introduction of the higher rate until 1 November 1982.

Action will be taken to make more effective the present legislation which counters tax avoidence by dividend stripping. In relation to dividends paid after today, I am extending from six to ten years the period of application of that legislation. This is intended to prevent substantial losses to the Exchequer from artificial arrangements designed to exploit the tax reliefs for trading losses and the payment of tax credits. The necessary amendments will be included in the Finance Bill.

Income Tax

The most radical proposal on taxation in the Programme for Government was to change the income tax structure. With the full realisation of the extent of our financial difficulties, the Government are unable, as they had intended, to introduce the new programme in full at this time, especially as the cost of any such reduction must be matched by increases in indirect taxation. We are, however, taking a major step towards the full implementation of the new system. We have provided in the Finance (No. 3) Bill, 1981 for the replacement of the personal allowances by a new system of tax credits.

The introduction of tax credits will result in a much fairer system of income tax. It will eliminate the bias in the present system in favour of the better-off taxpayer which is a serious weakness in the present system. Credits, unlike allowances, will be of equal worth to all taxpayers. For instance, the present married allowance of £2,230 is worth only £780.50 to a person paying tax at 35 per cent, whereas it is worth £1,338 to a person paying tax at a rate of 60 per cent. Under the new system the credit will be £1,000 for all married couples, irrespective of their tax liability. The tax credit provides a basis for an entirely new and progressive approach to taxation.

Another innovation being made in the Finance (No. 3) Bill, 1981, is the payment of half the married tax credit to the spouse working in the home. The married tax credit is intended for two people anyway. We believe that the non-working partner, usually the housewife, should have direct benefit from her share of this credit if she so wishes. Those who have opted for this arrangement will receive £9.60 a week, equivalent to £500 a year, from April next. For most couples this does not mean an increase in family incomes, but simply a transfer from the working partner to the spouse at home.

Provision has been made, however, for a positive income supplement for low-income families. A minimum supplement of £4 a week is guaranteed where the taxable income does not exceed £4,000. Where the taxable income is as low as £2,000, or roughly £40 a week, the family income will be increased by £500. This family income supplement is intended to be of particular value to those poorer families who do not have access to social welfare benefits and it will increase the incentive to work.

Because of the unsatisfactory state of our public finances and the overriding need to reduce the current budget deficit, there is no option but to defer some elements of the tax reform programme. Regrettably, it is not possible on this occasion to adopt the 25 per cent rate as the standard rate of tax immediately, because of the cost of this change and the consequent increases in indirect taxation that would be required to pay for it.

Where is the tax package now?

I realise the Minister has the advantage of having microphones in front of him but we are finding it extremely difficult to hear him. Will he please raise his voice a little?

The Government have been advised by institutions such as the International Monetary Fund and, at home, the Economic and Social Research Institute to defer, or at least phase in, the programme because of the poor state of our public finances. We believe this advice to be given in the best interests of the economy.

In addition to the matters to which I have already referred, we propose to introduce some further aspects of the programme today as a major step towards its full implementation.

The programme envisaged that the existing social welfare children's allowances and the income tax child allowance be amalgamated and replaced by an enhanced system of child benefit. This proposal was made in the context of a 25 per cent basic rate of income tax. As I indicated earlier, I am not in a position to reduce the basic rate to 25 per cent this year. In that situation the proposed full withdrawal of the income tax child allowances would mean less favourable treatment for middle-income families with between two and five children. To avoid this, I propose to retain the income tax child allowance at a reduced level of £100 and to provide that the new child benefit will be payable from July next, with retrospective effect to April, at the monthly rate of £11.25 per child for the first five children and £17.50 for each child thereafter.

These rates compare very favourably with the existing allowances of £6 a month for the first child and £9 a month for the second or subsequent child. As an illustration of the substantial benefit involved, a mother with four children will receive £45 monthly compared with a previous £33, and with six children she will receive £73.75 monthly compared with £51 up to now. The improvements in child benefit will cost £37.50 million in 1982 and £50 million in a full year. The income tax allowance for an incapacitated child will not be reduced from its present level of £500.

I am also providing for an improvement for widowed persons and single parents. It was indicated in the Government programme that widows, widowers and single parents would be treated for tax purposes in the same way as married persons. While it is not yet possible to implement this commitment in full, all single parents, including widowed persons with dependent children, will in addition to the £500 tax credit qualify for an allowance of £1,500 which will be deductible in computing taxable income. This allowance will replace the present one-parent family allowance of £650 and the child housekeeper allowance of £165. For technical reasons it is not possible to provide this year that single parents will have the same tax credit of £1,000 as married couples, but the approach outlined will achieve substantially the same effect in terms of reduced tax liability.

The allowance of £1,500 will improve significantly the position of widowed persons and other single parents with dependent children. For example, a widow with two dependent children will now, generally speaking, be free of income tax on an income of £77 a week, or about £4,000 a year, a saving of £255. These gains are, of course, in addition to the improvements in the child benefit and other measures in the social welfare code to which I will be referring later. In the case of widowed persons without dependent children, an additional allowance of £500 will be provided. Benefits similar to those at present available will be provided for widows in the year of bereavement.

This is as far as we can go for the present in the implementation of the tax reform programme. The existing tax rates and tax bands are being retained, but so also is the special PAYE allowance of £600. Certain features of the exemption limits will also be retained. The cost of these changes, including the improved child benefits, will be £80 million this year and £113 million in a full year.

Because of financial circumstances, we have had to be selective in the implementation of the programme, but we have gone ahead immediately with those elements of the programme which will most benefit low-income families. This is in keeping with our policy of achieving a fairer distribution of taxation.

There will also be improvements in the secondary allowances. I am increasing the age allowance to £100 in the case of single and widowed persons and to £200 in the case of married couples. The blind allowance is being raised from £400 to £500 and, where both spouses are blind, from £1,000 to £1,200. An allowance of £500 is available where a person is employed to take care of an incapacitated person or his spouse, and I am proposing to increase this to £700.

The dependant relative allowance is being improved by £15 to £110. Since the introduction of income-splitting in 1980, which provides substantial benefits for married couples, couples can qualify in the year of marriage for three times the entitlement of single persons. In this situation, I consider that the nuptial allowance of £115, which also applies in the year of marriage, is no longer appropriate and I propose to withdraw this allowance. I am also introducing a number of other significant measures in the income tax system which are designed to make it fairer.

Social Welfare Benefits

There is no reason in logic why short-term social welfare benefits should not be charged to taxation. As far as the recipient is concerned, they constitute spendable cash just as any other income. The fact that these benefits are not regarded as income for tax purposes, however, can result in certain circumstances in a person being better off not working than working. This is clearly undesirable and I am arranging that, with effect from the beginning of the next tax year, these benefits will be charged to taxation in the same manner as all other income. For convenience of administration, there will be an initial 20 per cent tax on the pay-related element of these benefits, withheld at the point of payment. Subsequently, the correct liability will be determined by the Revenue Commissioners and refunds made where appropriate. This arrangement will yield £10.5 million in 1982.

On a point of order, is it appropriate for me to call on the Tánaiste to resign, since he was so vehement——

The Deputy is embarrassing Deputy O'Malley. He looked for it last night.

Personal Interest Reliefs

Our income tax code provides relief in respect of interest paid on personal borrowings. The terms of this relief are generous: an individual taxpayer may claim up to £2,400 interest for each tax year and a married couple up to a ceiling of £4,800. The cost of the relief to the Exchequer is now running at over £50 million a year, of which more than two-thirds is attributable to mortgage interest.

There is no sustainable justification for allowing income tax relief for personal loan interest. It is unreasonable that the tax system should encourage personal borrowings, at such substantial cost to the Exchequer, by reducing their real cost. The inevitable result is excessive growth in demand for these borrowings, which merely fuels inflation, adds to interest rate pressures and restricts borrowings for other purposes. It is proposed therefore to limit the present benefits somewhat.

There is an obvious case for a distinction between the treatment of interest on mortgage loans and interest on borrowings for other purposes. People usually have no choice but to raise a mortgage in order to establish a home and there are good reasons of public policy why they should be encouraged to do so by means of tax relief. Non-mortgage borrowing, or personal borrowing, on the other hand, is often used to finance consumer spending on imported goods.

I consider that there should be no tax subsidy of non-mortgage loans and, accordingly, I am providing that relief will be disallowed for 1982-83 and subsequent years on any such loans taken out after today.

Mortgage interest is, as I have said, in a different category and it would be unreasonable to discontinue relief in respect of such interest because of the severe impact this would have on many houseowners. There is, however, a need for some restriction because, while there is a case for assisting the general house-purchaser, there is no case for saying that the better-off he is, the more he should be assisted, as in fact happens under present arrangements. The following changes are therefore being made.

In the case of new mortgages taken out after 5 April 1982, the following rules in respect of income tax relief will apply:

(i) relief will be allowed only in respect of the borrower's only or main residence;

(ii) relief will be allowed only at the 25 per cent and 35 per cent tax rates, as appropriate; and

(iii) the capital limit for relief will be £35,000.

There will be no change in the tax relief provisions in respect of existing mortgages.

These new rules should not affect the position of the average taxpayer, as they still allow a generous relief. There will be some reduction in relief, however, for those who incur borrowing, whether by mortgage or otherwise, up to the limit of the present reliefs, especially where these taxpayers are on higher tax rates.

In view of economic circumstances and the high cost of these reliefs, the aim is to concentrate on giving more or less the same relief to people at all levels of income. Up to now, those at higher levels have tended to derive the greater benefit.

It is estimated that the changes in the personal interest reliefs will yield £2 million in 1982.

Business Entertainment Expenses

The allowance for business entertainment expenses for tax purposes was restricted two years ago to 50 per cent of expenditure.

It is hard to justify a tax relief, at a cost to the Exchequer, for entertainment in present financial circumstances. It is accepted that, in the course of business, entertainment expenses must be incurred from time to time, but in view of the substantial Exchequer-funded assistance given to business generally and to industry in particular, the subsidisation of entertainment bills must have low priority. Moreover, it is known that abuse of this allowance is relatively easy. Accordingly, I have decided that in future entertainment expenses will not be allowed in the calculation of income tax and corporation tax. There will be no yield to the Exchequer in 1982 but the full-year yield will be about £3 million.

Rent on Private Tenancies

The Government Programme proposes a tax allowance for private tenancies up to a maximum of £1,000 rent. The full implementation of this would, it is estimated, cost in the region of £15 million to £20 million in a full year, in tax forgone. In present Exchequer circumstances this could not be afforded. In order to focus attention first on the area of greatest need, the allowance will be made available to taxpayers aged 65 and upwards who live in private rented accommodation. Relief will be allowed in the tax year 1983-84 in respect of vouched expenditure on rent incurred by those people during 1982. Details of the relief will be announced in due course. For the present, I would advise those who consider that they are eligible for this to retain receipts for rent paid this year so that they will be able to claim it later.

TAXATION OF SELF-EMPLOYED

In the course of the Budget Statements of 1980 and 1981, my predecessors have drawn attention to the desirability of devising a uniform treatment of employed and self-employed taxpayers. They have given notice that the question of bringing the PAYE sector and the self-employed to an equivalent basis of assessment was under examination. At present, self-employed persons are normally taxed in any year on the basis of profits earned in the preceding year and, especially in a period of high inflation, this results in a significant advantage. The main reason for introducing the special PAYE allowance was to compensate the PAYE sector for this.

I propose, starting in the tax year 1983/84, to take steps which will place the self-employed on a current basis of assessment. This is the only practical solution of the problem. The precise mechanics of the change have yet to be determined but the aim will be to put all income taxpayers on an equal footing.

CAPITAL TAXATION

Capital taxes contribute a very small proportion only of our total tax revenue and the position is similar in other western democracies. Despite this fact these taxes are important, primarily because they help to achieve a more equitable tax system. It would be a mistake, however, to believe that there is a huge fund of untapped revenue to be collected from this area. The reality is that short of introducing penal measures, which would be both unfair and economically disruptive, there is no prospect of dramatic increases in the yield from capital taxes in the short term at least.

The Government are committed, however, to increasing revenue from capital taxation and, in accordance with this commitment, a number of changes are proposed. Because of the way capital taxation operates, some of these changes will not produce much additional revenue this year, but they will provide a significant increase in the yield from capital taxation over the next few years.

First, I propose to abolish the tapering relief in capital gains tax and to increase the rate of this tax by one third from 30 per cent to 40 per cent. Tapering relief involves a reduction in the rate of tax for every three years of ownership of the asset disposed of, leading to complete exemption after 21 years. This is unnecessarily generous, since indexation relief is also available. No other country in the EEC has both of these reliefs. These changes will take effect after today and will yield an estimated extra £3.5 million in a full year and about £0.5 million in 1982.

The Government share the public concern about the large windfall gains made on the sale of development land. A special capital gains tax for disposals of development land, is therefore, being introduced to ensure that an appropriate part of these windfall benefits will be paid in future to the Exchequer. After today, gains from the disposal of development land will be liable to capital gains tax at a new special rate of 45 per cent and indexation relief will be allowed only in respect of the appreciation in the then existing-use value on the date from which the gain will be computed. Thus, for instance, indexation relief will be allowed for that portion of the gain which would enable a farmer to replace a farm sold for development by a farm of similar agricultural value. In addition, roll-over relief will not apply and losses on other disposals will not be allowed for off-setting purposes. Where the gain arises as a result of the compulsory acquisition of the property, the rate of tax will be 40 per cent, as I believe a lower rate should be charged in such instances because of the circumstances involved. It is estimated that these measures will bring in about an extra £3 million in a full year and perhaps up to £1.5 million in 1982.

I am proposing two important changes in capital acquisitions tax which will both increase revenue and combat tax avoidance. First, there will be a new aggregation basis for the tax. Under existing arrangements, only gifts and inheritances acquired by an individual from the same disponer or donor, as a gift, are added together. This enables someone to obtain, for example, £150,000 from both of his parents free of tax. In future, all gifts and inheritances received by a beneficiary from all sources will be aggregated to determine the tax liability on each benefit. This will reduce avoidance possibilities and will tax the accumulation of property.

Second, I am introducing a special capital acquisitions tax on discretionary trusts. At present, the tax is not charged on the transfer of property into a discretionary trust and no liability arises until payments are made eventually out of the trust. Because of the way they operate, these trusts are difficult to monitor for capital acquisitions tax purposes and may be used as a mechanism for tax avoidance. The new tax, which will be additional to any tax liability payable by the beneficiaries of the trust, will be charged on the market value of the trust property. The rate will be 3 per cent on the setting up of the trust and 1 per cent annually thereafter. These initial and annual rates will also apply to existing trusts and the 3 per cent charge in their case will be levied on the property in the trust on 28 January.

The legislative provisions for these capital acquisitions tax changes will be contained in the 1982 Finance Bill. The tax on discretionary trusts will come into effect tomorrow and the commencement date for the new aggregation basis will be the date of enactment of the Finance Bill. Payment of these new charges will fall due after the Bill becomes law. These measures will increase the yield from capital acquisitions tax by almost 50 per cent and will yield about £4½ million in 1982 and a similar amount next year.

Stamp Duties

I am proposing to make a number of changes in stamp duties which will come into effect shortly. The stamp duty on new life insurance policies will be doubled from 0.5 per cent to 1 per cent, while the duty on new non-life policies will be reintroduced at a flat rate of £1 per policy. There will be a change in the relief for transfers between certain close relatives, which at present are charged at a concessionary rate of 1 per cent, This type of transfer will in future be liable at half the normal stamp duty rates. Finally, a number of fixed duties of 25p or 50p which have remained unchanged for many years will be increased to £5. It is estimated that these various changes will yield an extra £3 million in a full year and an extra £2.3 million in 1982.

COMPANY TAXATION

Rate of Corporation Tax

The standard rate of corporation tax is at present 45 per cent having been reduced from 50 per cent in 1977. In order to increase the yield from this tax, I am restoring the rate to 50 per cent with a corresponding change in the small companies rate from 35 per cent to 40 per cent. The change will take effect as from 1 January 1982. The reduced effective rate of 10 per cent for manufacturing companies as provided for in the Finance Act, 1980 will remain as it is.

There will be no yield effect in 1982 and an estimated increased yield of £10 million in a full year.

An employment incentive scheme, details of which I will announce later, will mitigate the effect on firms which increase employment levels.

Stock Relief

Stock relief will be continued again on the existing basis for another year, at a cost in revenue forgone of £6 million in 1982.

TAXATION OF BANKS

In my budget of last July 1 I announced a special levy of £5 million on the banking sector. This approach was adopted pending the outcome of a comprehensive review of the taxation system affecting banks. I am not yet in a position to announce proposals in this area so there will be a further levy of £15 million to be paid this year. Details of the levy will be announced later.

I believe it is urgent that long-term decisions be taken as soon as possible on taxation of financial institutions. This is a complex matter bearing on industrial development and in this regard the Government await with interest the report of the Commission on Taxation. While we believe that the bank levy is justifiable as a temporary measure in order to obtain tax revenue from the banking sector, we do not believe that a levy of this type should be a permanent feature of the tax system. The Government are resolved to make a decision on a permanent system within the year and therefore will not be introducing taxes in the form of levies on the banks in any future years. The future system will be based on normal business taxation rather than on special levies.

INDIRECT TAXATION

I come now to indirect taxation. In arriving at the following package of increases and reliefs, I have been particularly concerned to achieve an equitable spread as between discretionary and less discretionary items of expenditure.

Value-Added Tax

Four changes in the value-added tax system, involving all the main tax categories, will be made. In distributing these changes across the system, an attempt is being made to reduce some of the anomalies which exist and to avoid adding to the complications of the system.

Low Rate of VAT

The low rate of VAT was increased to 15 per cent from 1 September last. In normal circumstances one would be reluctant to increase this further but, in view of the severity of our financial problems, I have decided that an increase in this rate is the most appropriate course of action. Accordingly the 15 per cent rate will be increased to 18 per cent with effect from 1 March 1982. As in the case of the previous increase, provision is being made for the effective 3 per cent VAT rate on building to remain unchanged and also the 3 per cent effective rate on agricultural services. The flat-rate VAT rebate for farmers will be raised to 1.8 per cent in order to maintain the existing offset for the increase in VAT on farm inputs.

On the occasion of the last increase in this rate, because of the special situation in the tourist industry, a deferment of the increase as it applied to accommodation, car and boat hire provided to non-residents under the terms of fixed price contracts entered into before 1 January 1981, was allowed. A similar deferment up to 31 December 1982 in respect of the present increase for such services provided under fixed price contracts entered into before 1 January 1982 will be allowed. Discussions will be held with the trade regarding implementation. Appropriate legislative arrangements will be made in the light of these discussions.

This increase in the low rate of VAT will yield additional revenue of £80 million in 1982 and £120 million in a full year.

Clothing and Footwear

We have an exceptionally large zero-rated category in our VAT system, covering some 27 per cent of all items. This is far larger than in any of our EEC partners apart from the UK, which also has a large zero-rated category. While these zero-ratings are doubtless welcome to the consumer, they are naturally at the expense of higher taxes in other areas. The major zero-ratings, particularly clothing and footwear, therefore have been reviewed.

Clothing and footwear are undeniably necessities of life. Yet this category covers everything from the most simple garments to the most expensive and ephemeral creations of fashion. Substantial expenditure on high-cost clothes should not be allowed to continue untaxed. A high proportion of clothing and footwear is now imported—when the zero-rating was introduced in 1975, more than half of the clothing and footwear purchased in this country was produced domestically, while now the balance has swung far in the opposite direction. The rate of increase in the value of imports of clothing and footwear in recent years has been far in excess of the figures for imports generally, thus contributing to the widening of the balance of payments deficit.

The latest information available on household expenditure patterns suggests that a tax on clothing and footwear will, not alone in absolute terms, but also as a proportion of average total household expenditure, bear less heavily on lower and lower middle-income households than on higher-income households.

It has been decided, therefore, that clothing and footwear do not warrant continued zero-rating in present financial circumstances. It is proposed to apply the increased low rate of 18 per cent to clothing and footwear from 1 March next.

Deputies

Come off it.

What about large families?

The possibility of omitting children's clothing and footwear from this increase has been considered. I am aware that this is done in the UK, but I am aware also of the major difficulties which it poses in practice and of the anomalies it has created. I consider it preferable therefore to compensate parents directly through the new child benefit scheme.

This measure it is estimated, will yield £67 million this year and £106.6 million in a full year.

Exempt Services

The range of services which are at present exempt from VAT has been reviewed. Most of these are exempt compulsorily under EEC law and this cannot be changed unilaterally by us. However, there are some services which are at present exempted at our discretion and which merit reconsideration at this stage. Unless there is a strong reason for such exemption, all services should be subject to VAT. Accordingly the new 18 per cent VAT rate will be applied to the following services which are at present exempt:

—solicitors

—barristers

—debt and rent collection agents

—accountants and actuaries.

Auctioneers are already liable for VAT on their sale fees to a limited extent. Liability will now be extended further to include, in the main, fees on the sale of exempted property. The existing treatment for auction sales of horses and grey-hounds, livestock and vegetables, fruit and fish, etc., is being maintained. This measure will yield £2.5 million in 1982 and £7.5 million in a full year. The necessary provision will be made in the Finance Bill for implementation with effect from 1 July.

25 per cent Rate of VAT

The standard rate of VAT is already quite high, at 25 per cent. Furthermore, the rate applies to many goods which are essential to everyday living. On the other hand, the rate undoubtedly covers many items on which expenditure is in part, and in some cases entirely, discretionary. In the circumstances, I have decided to increase the rate from 25 to 30 per cent and transfer furniture and joinery, soft furnishings, bed linen, blankets, rugs and floor coverings generally, including carpets, to the new low rate of 18 per cent. These combined measures will, it is estimated, yield a net £13.5 million this year and £20.2 million in a full year.

That is right — bring business to a halt.

EXCISE DUTIES

I turn now to the excise duties. I am aware of the difficulties at present being experienced in the drink sector. While a case has been put forward for no tax increases on these commodities, it has to be appreciated that expenditure in this area is discretionary and, notwithstanding the fact that the sector is a valuable employer and user of Irish raw materials, regrettably the level of taxation has to be increased somewhat when so much additional finance is needed to fund the level of public services required by Irish society. The increases have been kept to the minimum possible.

Beer

There will be a duty-based increase of 2p in the retail price of the pint of beer, to take effect immediately. This is expected to bring in extra revenue of £11.8 million this year and £14.4 million in a full year. This increase, together with the VAT change on 1 March, will give a total tax increase of 4p to 4½p on the pint of beer.

Spirits

There will be an immediate duty-based increase of 4p in the retail price of a glass of spirits. This is an extra 2p on the normal half-glass measure and will bring in extra revenue of £7.8 million this year and £8.9 million in a full year. Taking account of the VAT change on 1 March, this amounts to a total tax increase of 8p to 8½p on the glass of spirits, or about 4p on the normal half-glass measure.

Wine

I propose to increase by 30p the duty-based element in the retail price of a bottle of wine, to have immediate effect. The increase will bepro rata for stronger wines. For sparkling wines it will be 60p per bottle. The yield is estimated at £3.9 million in 1982 and £4.3 million in a full year. Combined with the VAT change on 1 March, this will give a total tax increase of about 42p for a bottle of wine at present costing £4.

Cider and Perry

There will be an immediate excise duty increase of 6p per gallon for ordinary cider and perry. The increase will bepro rata for higher strength cider and perry. This will yield extra revenue of £60,000 in 1982 and £70,000 in a full year. Together with the VAT increase on 1 March, the total tax increase will be about 5p on the ordinary 2 pint flagon of cider.

Cigarettes and Tobacco

The duty-based tax on 20 cigarettes will be increased immediately by 8p, with apro rata tax increase on tobacco. This is estimated to yield £19.5 million in 1982 and £23 million in a full year. This tax increase, together with the VAT change on 1 March, will result in an aggregate tax increase of about 11½p on 20 cigarettes.

Petrol, Road Diesel, Liquid Petroleum Gas (LPG) used in Motor Vehicles

I am conscious of the cost of motoring at present and aware that for many people it can no longer be considered a luxury. Nevertheless, we cannot ignore the fact that expenditure on motoring and hydrocarbon oils is a major contributor to our balance of payments deficit. There is still scope for conservation and more efficient use of these fuels, particularly by urban users. Accordingly, immediate duty-based increases of 8p on the gallon of petrol, 8p on the gallon of road diesel and 8p on the gallon of liquid petroleum gas used in road vehicles are proposed. The practice, by making appropriate arrangements, of ensuring that the excise duty increases will not affect handicapped drivers or scheduled road passenger services will be continued. These duty increases are estimated to yield £27.5 million in 1982 and £30.2 million in a full year. Together with the VAT changes on 1 March, the total tax increases will be about 14p on the gallon of petrol and about 13p on road diesel. LPG is not subject to VAT

That is the one we were waiting for. Top of the league again.

That is not the full story; what about the retailer's share?

Video Players

Expenditure on video players has been soaring in the past few years and this trend seems set to continue. In present circumstances I consider it appropriate to impose additional taxation on these players, both to reduce the burden on the balance of payments and to add to the Exchequer contribution from this highly discretionary expenditure. I propose to introduce an excise duty of £20 on video players with immediate effect. The yield is estimated at £0.6 million in 1982 and £0.7 million in a full year. Together with the increase in the VAT rate to 30 per cent, this will add £66 to the price of a video player now retailing at £1,000.

Televisions

There will be an increase of £17 in the specific duty on the top category of colour TV, withpro rata increases for all other categories of colour and monochrome sets. The increase, which comes into effect immediately, is estimated to yield £1.2 million in 1982 and £1.5 million in a full year. Together with the increase in the low VAT rate to 18 per cent on 1 March, this will add about £36 to the price of a top category colour TV set now retailing at £600.

IMPLEMENTATION OF PRICE INCREASES

These excise duty increases will take effect from midnight tonight, but increases in retail prices must await new maximum price orders where appropriate. These will be made by the Minister for Trade, Commerce and Tourism, who will determine the appropriate implementation date. Even where price control does not operate, there should be no increase in the price of goods already in the shops, as the excise duty will apply only to goods imported or removed from bond from midnight tonight.

EXCISE DUTY CONCESSIONS

Before I leave the main excise duties there are a number of related concessions to be mentioned:

Non-alcoholic Beer

It is being arranged that the duty on beers which do not exceed an alcohol content of 0.5 per cent by volume will be reduced to the level now applying to table waters.

Hydrocarbon Oils

I am making a limited concession on the hydrocarbon oil duty for non-automotive use. The general rate of excise duty on residual fuel oil used by industry was reduced to 4½p with effect from 1 December 1981 and this will be of benefit to manufacturing industry. It is now proposed to allow a concession for manufacturers by refunding them the excise duty paid on oil contained in exported products.

These two concessions, which have immediate effect, will cost an estimated £400,000 in 1982 and £460,000 in a full year.

MINOR EXCISE DUTIES

There are some minor excise duties where increases are warranted on this occasion.

Gaming Machines

I propose to increase the licence duty on gaming machines, colloquially known as slot machines, with immediate effect by £50 for a full year or £12.50 per three-month period. The weekend licence will be increased by £34 per machine or £8.50 for a three-month period.

Special Exemption Orders etc.

Special exemption orders, club extensions and the like are required for drinking at discos and other functions outside normal hours licensed for drinking. The duty payable in these cases will be increased from £25 to £50. This new rate of duty will apply immediately to all exemption orders, etc. issued in respect of dates on or after 1 July 1982.

Dance Hall Licence Duty

In regard to the ordinary dance hall licence, I am anxious to provide encouragement to community organisations running dances in their own halls for community purposes; accordingly there will be a reduction in the duty by £25 to £75 for the annual licence and by £5 to £10 for the monthly licence. The reduction will take effect from 1 October 1982. I will make the necessary provision in the Finance Bill.

These changes in minor excise duties will yield a net £0.6 million in 1982 and £1.1 million in a full year.

FOREIGN HOLIDAY TAX

An area of discretionary expenditure which I consider does not bear its fair share of tax at present is expenditure on foreign holidays. It is a measure of the unreality of our living styles that, not-withstanding the recession in the economy generally, more people than ever before were able to take their holidays abroad in 1981. It is not many years ago since tourism was a major invisible contributor to our balance of payments. Now the amount of money being spent abroad by Irish people on holidays is roughly equal to the amount spent here by foreign visitors and is rising at a much faster rate. It has to be recognised that this growing expenditure abroad places a considerable strain on our balance of payments.

In these circumstances a tax of £10 will be charged in respect of each person leaving the State on and after 1 April 1982 on a chartered aircraft where the charter originates in Ireland. It will not apply to small aircraft, which are used generally for business purposes. Children under two years of age will also be exempt. Apart from these, I cannot consider any exemptions because it would make the scheme unworkable. It is estimated that the tax will yield £2 million in 1982 and £2.5 million in a full year.

I appreciate that this tax will not apply to all foreign holidays, but it has not been possible to implement a wider scheme at this stage. I intend, however, to examine the possibility of extending the scope of the tax in the future.

MOTOR VEHICLES

I am proposing a number of changes in respect of the tax on motor vehicles. These are designed both to increase revenue and to bring about a more rational approach to the taxation and use of these vehicles.

Last year, imports of motor vehicles and spare parts totalled an estimated £320 million and the impact of this on the balance of payments is self-evident. We have no indigenous motor manufacturing industry and it is only commonsense that we should take steps to reduce the rate of imports and encourage longer usage of cars, provided of course that we can satisfy safety requirements. In addition, the small size of the country and the relatively short distances that need to be covered, as well as energy conservation and cost considerations, all argue for weighting tax more heavily on the larger, expensive cars rather than on smaller more economic cars.

As well as the VAT increases already announced and some increases in road tax, which I will deal with later, I am proposing, therefore, some changes in both the excise and income tax arrangements in regard to motor vehicles which reflect these considerations.

I propose to reduce the excise duty on motor vehicle parts by one-third to 25 per cent from the present level of 37½ per cent. The duty on tyres and tubes will also be reduced by one-third, to 5 per cent for domestically produced tyres and 10 per cent for imported tyres. This change will apply from 1 October 1982, in order to allow the trade to run down their stocks of parts, etc. to which the higher duty has already been applied. This measure will cost an estimated £1.5 million in 1982 and £5 million in a full year.

I propose to recover part of the cost of this concession by increasing the excise duty on private motor vehicles above 16 horse power from 50 per cent to 60 per cent with immediate effect. This will yield additional revenue of about £1.3 million in 1982 and £1.6 million in a full year.

The primary purpose of these changes is to alter the incidence of tax in a direction which, I hope, will lead to smaller cars being purchased and cars being retained for longer periods. The value-added tax proposals which I have announced will affect all parts of the motoring trade equally.

The present tax arrangements for employees who have the use of a car for private as well as business purposes as part of their conditions of employment are extremely generous. The use of a car is, in effect, a substantial additional remuneration and, under existing arrangements, it is completely undervalued for the purposes of assessing tax. I am reviewing these arrangements with a view to arriving at a more realistic procedure for assessing tax due. For the present I am providing that, in reckoning the annual value of the use of a motor car, the rate will be 20 per cent of the cost price instead of the rate usually adopted up to now which has been 12½ per cent. This change will only have a minimal effect on those, such as commercial travellers, who have little private use of a company car.

ROAD TAX

I am proposing increases of £1 per horse-power on the annual rates of road tax on cars not exceeding 8 horse-power, £2 per horse-power on the rates which apply on cars from 9 to 20 horse-power inclusive, and £3 per horse-power on cars exceeding 20 horse-power.

The road tax rates re-introduced last year for motor cycles were originally fixed in 1973 and ranged from £2 to £15. I propose to double the present rates to provide a new range of charges of between £4 and £30. In the case of taxis and hackneys I propose to replace the present maximum rates of £16.50 and £30 per annum respectively, which have been in force for a long time, with more realistic maximum rates of £30 for taxis and £50 for hackneys, together with corresponding increases in the lower rates of tax on these vehicles.

These increases are to apply on and from 1 March 1982. The additional revenue from these measures is estimated at £13.3 million in 1982 and £15.9 million in a full year.

I intend to provide in the forthcoming Finance Bill for the option of paying road tax on a two-year basis in order to facilitate motorists in the payment of tax. In this context I am also reviewing the penalties for road tax offences, several of which were fixed some years ago.

While on the subject of motor cars, I might mention that a wide-ranging investigation is at present being conducted into the cost of motor insurance in Ireland. This investigation, which will be completed by the end of the year, will cover every aspect of motor insurance and, in particular, the premiums and other charges made and the methods of providing such insurance.

POST OFFICE CHARGES

I refer now to post office charges. These are classified as non-tax revenue. In principle the postal and telecommunications services are expected to pay their way but in recent years they have been incurring significant deficits on their commercial accounts. A deficit of £23 million occurred in 1981 and a further deficit of £57 million is projected for 1982 if present rates of charges continue.

In order to avoid burdening the general taxpayer with deficits of that magnitude it is proposed to increase postal and telecommunications charges by 20 per cent on average with effect from 1 April 1982. This would all but close the projected deficit on commercial accounts and is expected to yield £38 million in revenue to the Exchequer in 1982. The Minister for Posts and Telegraphs will announce the details later.

REVISED EXPENDITURE ALLOCATIONS

I will now deal with the expenditure side of the budget in which the Government propose to make additional provision for social expenditure and to provide extra funds to support growth in employment and in the economy generally. However, to finance this expenditure while reducing the budget deficit to an acceptable level requires, in addition to the taxation already proposed, further measures to reduce expenditure and otherwise limit the burden on the Exchequer.

Food Subsidies

At present the Exchequer provides subsidies on bread, flour, margarine, milk and butter in order to reduce the price of these commodities to all consumers. The benefits of the subsidies are available to everybody, from the very well-off to the very poor. Indeed because the well-off are bigger buyers than the needy can afford to be, they derive a bigger cash benefit from the subsidies than those in less fortunate circumstances. The food subsidies are therefore a somewhat wasteful mechanism for transferring resources.

The Government have accordingly reviewed their policies in relation to food subsidies. They recognise that for some of the items the complete abolition of such subsidies would give rise to unacceptable price rises which could bear heavily on some sections of our people.

The following new arrangements are proposed:

—The existing Exchequer subsidy on butter will be reduced by 8½ pence to a new level of 14 pence per lb. and will be set at that level.

—The subsidy on milk, which, on average, is 4.25 pence per pint, will be eliminated. However, an Exchequer subsidy of 2.4 pence per pint will be paid on milk supplied under the new school milk scheme, thus attracting an EEC subsidy of 9.7 pence per pint for such milk.

—Subsidies on bread, flour and margarine will remain. They will be set at levels equal to those now in force for these commodities.

It is intended that the cut in the butter subsidy will be effective as from tomorrow. The cessation of the milk subsidy will take effect from Friday. The necessary maximum retail prices orders in respect of milk and butter will be made by the Minister for Trade, Commerce and Tourism, to take effect as from Friday. The new food subsidies arrangements will result in a major net saving for the Exchequer of some £47½ million in 1982.

The Government are anxious to ensure that recipients of weekly social welfare benefits are not adversely affected by these subsidy changes. Accordingly these changes have been taken fully into account in the very generous increases in social welfare benefits and assistance to which I shall refer presently, and which go well beyond the level of prospective increases in living costs. The introduction of the family income supplement and the new child benefit will also be of assistance to many low income families.

Not at all.

Social Welfare

The Government came into office with a strong commitment to protecting and improving the living standards of social welfare recipients, despite the need to check the growth in expenditure.

We have already acted on this resolve in a variety of ways—for example the increases last October in weekly payments, the double payment at Christmas for pensioners, and the increase in the value of vouchers under the free fuel schemes.

In recent years welfare recipients have experienced increases in real terms which have been significantly higher than the growth in real take-home earnings or in economic output.

In reviewing the present levels of welfare payments the Government have had to consider current developments in the general field of incomes. This has been necessary both from the point of view of the work incentive and of the ability of the taxpayer to finance welfare payments.

In the final analysis, however, the Government remain determined that this year's budget increases in such payments will go beyond what would be needed to match expected increases in living costs and will therefore be a real improvement for recipients.

Nonsense. Ridiculous.

Social Welfare Payments

The Government have accordingly decided that, from April next, personal and adult dependant rates of weekly payments should be increased by 25 per cent. This will also apply to health allowances. This will mean an extra £8.05 a week, for example, for a contributory old age pensioner who is under 80 and £6.90 per week for a non-contributory pensioner. For a married couple, both of pension age and under 80, the new rates will mean an increase of £14.05 a week in the maximum contributory old age pension. For a widow under 66 on contributory pension there will be an extra £7.25 a week, and £6.75 for her non-contributory counterpart. A married man on flat-rate unemployment or disability benefit will get an increase of £10.45 a week.

In revising the weekly dependency payments for children of social welfare recipients, the Government have decided that account should be taken of the substantial increases in payments under the new augmented child benefit scheme, to which I have already referred. Total payments in respect of a child dependant of a social welfare recipient will thus be increased by 25 per cent with effect from April next, the child benefit element for the months April to June being payable retrospectively in July on commencement of payments generally under that scheme.

Taking all these increases together, a widow under 66 years with three children on a contributory pension will receive an extra £15.06 a week; and a non-contributory widow will receive an extra £13.96 a week. Again, for a married couple with three children on flat-rate unemployment benefit or disability benefit, total increases will amount to £16.61 a week.

Financing Welfare Improvements

All in all, the Government are planning to spend very substantial extra sums of money this year on social welfare, including health allowances. The full cost of the improvements I have announced, including the child benefit, will be £238.8 million in 1982.

Wait until we hear who is paying for this.

They would prefer jobs rather than social welfare.

It goes without saying that, if no action were taken on social insurance contributions, this amount would have to be financed in full from general taxation on the ordinary taxpayer. On this basis the gap in the social insurance fund between expenditure and income would grow to nearly £320 million or 36 per cent of fund expenditure, an intolerable demand on the taxpayer at any time but in particular in present circumstances. The Government have decided therefore, that, in 1982, contributors will meet 75 per cent of social insurance expenditure, and statutory provision will be made that any shortfall which might emerge on this figure will be recouped later from contributors.

This decision will require an increase in the standard rate of pay-related insurance by 3.5 percentage points from April next, with commensurate increases in other modified rates of contribution. In order to moderate the impact of social security contributions on employers, the Government think it right that on this occasion employers should not be required to meet more than one-half of the increase in social insurance contributions, with employees meeting the balance.

The Government have also reviewed in the normal way the income ceiling on which contributions are levied, which is £8,500 at present. To take account in broad terms of increases in earnings, the ceiling is being increased to £9,500.

Social insurance contributors will thus meet £102.1 million of the 1982 cost of the total improvements in social welfare, and the balance of £136.7 million will be borne by the Exchequer.

Other Improvements

In addition to the foregoing measures, the Government have also decided on a number of lesser, but nonetheless significant, improvements in the social welfare code. For instance, there will be an easing of the means test for single parents; there will be higher death grants; and there will be an extension of the prescribed relative allowance scheme to invalidity pensioners under 66 years of age.

I am also making provision, of £1.6 million, to finance the increase already announced in fuel vouchers for this month because of the abnormal weather conditions.

A full list of the various improvements will be found in the document the "Principal Features of the Budget".

Decontrol of Rents—Contingency Provision

The Government are making a contingency provision of £6 million against the eventuality that help may be required from public funds in 1982 to assist tenants affected by the recent court decision in regard to the decontrol of rents.

Development of the Economy

As part of the longer term strategy for the development of the economy, I am making a number of provisions which are designed to encourage industrial expansion and a stronger export performance. If we are to achieve the levels of economic and social reconstruction to which the Government aspire, then we must give particular attention to the productive areas of the economy and we must provide the means whereby they will grow and prosper.

While the main impetus must come from those who are directly engaged in producing and selling goods, the State must also make a contribution. It is already making a very substantial contribution by way of financial incentives. There are of course other means whereby the State can encourage development. It can encourage greater harmony at work, it can help create a climate which will improve our prospects of competing in international markets, and there are situations where it should become directly involved in the actual business of production and marketing.

Export Marketing

I would like to turn first to the very important matter of export marketing. Last autumn I approved an allocation of £1 million to Coras Tráchtála Teoranta from the Employment Guarantee Fund to finance a special one-year scheme designed to assist firms in Irish industry to increase the number of export salesmen working abroad. CTT have been actively implementing that scheme and the response by firms has been very encouraging. I therefore propose to allocate it an additional sum of £500,000, bringing the total cost this year to £1.5 million. Arrangements have been made to secure that, within the extra sum now allocated, CTT will give special priority to assisting the expansion of the export selling capability of the drinks industry.

I have also decided that a further sum of £500,000 will go to CTT to fund a series of immediate order-winning promotions; CTT have set a target of achieving additional exports of the order of £60 million or so by this means. The series of promotions for this end will include:

—the bringing into Ireland of additional overseas buyers covering the consumer and industrial products sectors;

—efforts to win additional orders in the Middle East and Africa through a special sales task force and the organisation of extra sectoral sales missions; and

—the organisation, for small firms, of three regional trade exhibitions in Ireland to generate additional orders.

I am conscious that new working capital will be needed by small and medium-sized enterprises in order to fund a higher level of performance in export markets. Accordingly, I have arranged that funds for this purpose will be provided by the Industrial Credit Company on advantageous terms. For this new facility, an initial sum of £10 million will be available. The precise details of the incentive will be announced shortly by ICC.

NATIONAL DEVELOPMENT CORPORATION

Existing policies have failed to keep pace with the employment requirements of a young and fast-growing population. This is not in any sense to belittle the tremendous work done by the industrial promotion agencies, which have produced remarkable results in world economic conditions that are not conducive to growth in internationally mobile investment. Nevertheless, we have failed to date in our efforts to realise the full development potential of the economy. Radical structural initiatives are required if we are to improve employment opportunities for all our people. The Government are committed to a process of structural change which will have as its primary focus the expansion of investment and output in the directly productive sectors of the economy thereby creating additional viable long-term jobs.

The Programme for Government envisaged that a National Development Corporation would be set up which would engage in new projects with the objective of productive employment creation particularly in potential growth sectors of the economy, either on its own or in joint ventures with other public, private and co-operative enterprises. The Government are giving detailed consideration to the organisational set-up and functions appropriate to the Corporation with a view to the introduction of legislation at an early date. I am, accordingly, providing £250,000 to meet the administration and general expenses of the Corporation in 1982 and £20 million for its capital requirements. These funds should enable the Corporation to make an effective start in 1982 and will be added to in later years.

SECTORAL DEVELOPMENT COMMITTEE

Further reflecting this Government's concern to promote viable economic growth, I am providing £220,000 to finance the work of the tripartite Sectoral Development Committee in identifying the growth potential of individual economic sectors and seeing how these growth potentials can be realised. This provision is in addition to the £600,000 already allocated for this purpose from the Employment Guarantee Fund.

DELAYS IN PLANNING DECISIONS

In the interests of employment the Government are concerned that unwarranted delays in planning permissions do not hinder legitimate development. The Minister for the Environment is, therefore, undertaking a general review of planning legislation with a view to facilitating speedier decisions.

PROFIT SHARING

I mentioned in my Budget Statement of last July that I was having an urgent examination made of the question of exempting from income tax shares given by companies to their workers under profit sharing arrangements. The necessary provisions to give effect to this commitment in the Government Programme will be included in the Finance Bill. This concession should help in promoting a greater involvement by workers in their employer companies and, in a substantial way, contribute to the attainment of more harmonious industrial relations and increased employment.

DEFICIT AND BORROWING 1982

I started with an opening deficit in this budget of £933 million, or £1,001 million if one provides for the maintenance of the real level of social welfare benefits. Starting from £933 million, the expenditure proposals will result in a net addition of £102 million, and the revenue concessions add £60 million. Taking account of an estimated £50 million which Departments have on hands in balances from 1981, which reduce, to that extent, the amount which has to be issued from the Exchequer in 1982, and the increase in revenue in the budget of £330 million, the estimated current deficit emerges at £715 million, or 5.9 per cent of our GNP. This is a significant real reduction and represents the first step in implementing the Government's commitment to eliminate the deficit over the next four years. It accords, moreover, with the recommendation of the EEC Commission. It compares favourably with the 1981 deficit of £802 million, or 7.9 per cent of GNP, as against the projected 5.9 per cent for this year; indeed, it compares favourably with the deficits recorded in 1979 and 1980 of 6.9 per cent and 6.3 per cent of GNP, respectively. It also marks a step in bringing us into line with the position found among practically all our EEC partners, many of whom have virtually no current budget deficits or are even in surplus.

Taking account of the additional capital provisions of £110 million which I have made today, the Exchequer borrowing requirement for capital purposes comes to £946 million. Together with the current budget deficit of £715 million, the estimate of total Exchequer borrowing for 1982 is £1,661 million, or 13.8 per cent of GNP compared with about 17 per cent in 1981, 16.9 to be precise. This compares with borrowing of £1,722 million in 1981. The reduction in borrowing marks a major step on the road to reconstructing the public finances on a secure basis and making our economy more self-reliant.

While the substantial progress made today will result in a marked improvement in the Government's finances, the underlying position remains difficult. To illustrate: if borrowing in 1983 were to be at the same absolute level as now planned for 1982, the cost of Central Fund services in 1983 — that is, basically debt services — would rise, because of debt charges alone by almost £340 million. There is, therefore, simply no room for deviation from the broad targets set in this budget and the Government must continue the process towards the elimination of the current budget deficit for the remainder of the four year period.

CONCLUSION

It may be argued by some that the budget increases the cost of living. It does. But it does so with a clear purpose in mind, that of restoring stability to our national finances and thereby ensuring that such tax increases will not be necessary on such a scale in future years.

It may be argued, as it was last July, from the other side of the House, that this budget is not necessary. I wish that this were true. Indeed, it would be true, but for the fiscal policy followed in recent years. Let me take a somewhat controversial example, that of the period between 1977 and mid-1981. In that short period alone, £5,000 million was added to our national debt and 25,000 people were added to public service numbers. This has resulted in an additional £550 million on the annual cost of debt service which we have to bear now in 1982, and about £250 million additional on the public sector pay bill again, which has to be borne in 1982. The sum of these two figures deriving from 1977 to 1981 more or less equals our current budget deficit and it is clear that, were it not for this burden, if what happended in those years had not happened, I can assure the House I would be introducing a very different budget today. Indeed our national debt and public service numbers have been increasing at an ever-accelerating pace since 1970.

In the opening words of this statement, I outlined the objectives of today's budget. These are to reduce our dependence on foreign borrowing, to strengthen our position in international trade, to improve living standards for the poorer sections of the community, to achieve a fairer system of taxation and to improve the incentive to work. The proposals which I have announced represent substantial progress towards the achievement of each of these objectives. We have taken the major first step in reducing our dependence on foreign borrowing and on foreign banks.

Ireland's position in international trade will be helped in a number of ways. The lower budget deficit will reduce spending on imports, and the reduced debt will cut the need to pay interest out of this country to foreign banks. The tax measures themselves have been particularly chosen so as to reduce our spending on imported items such as videos, motor cars and foreign holidays.

The living standards of those who cannot help themselves will be raised by the budget to an extent which more than matches the prospective rise in the cost of living. Not only are social welfare benefits incresed by 25 per cent; a new family income supplement is being introduced for those on low pay at work, giving a minimum gain of £4 per week to many families, and a new child benefit scheme is being introduced.

The first steps have been taken in a major reform of our income tax system. Tax credits, a payment to the spouse at home and child benefits have been introduced. They help those whose interests are neglected under the existing tax system.

The incentive to work has been increased. The new income tax relief for the low paid, the family income supplement, the new profit sharing arrangements and the taxation of some social welfare benefits will all tip the balance in favour of those who go out to work to help support our community in this difficult time.

(Interruptions.)

The most important part of this budget is the fact that it strengthens our economy. The drag of foreign debt has been diminished. The State's capacity to support, not just temporary jobs, but long-term self-sustaining employment has been greatly enhanced. An employment tax credit has been introduced and new job-creating agencies—a National Development Corporation and a Youth Employment Agency—are, being established. As a well-managed, strong community we will now be able to offer a much more secure future to our young people.

TABLE EXPLANATORY OF CURRENT BUDGET 1982

Revenue

£ million

Expenditure

1. Tax Revenue

4,036.0

1. Debt Service and Other Central Fund Charges

1,360.0

2. Non-tax Revenue

817.5

2. Supply Services (non-capital)

4,426.6

4,853.5

5,786.6

3. Add:

3. Add:

Capital Taxes

6.5

Social Welfare

Stamp Duties

2.3

—child benefits

37.5

Bank Levy

15.0

—other

99.2

Income TaxFarm Taxation

13.52.7

Rent decontrol—contingency provision

6.0

VAT

163.0

Agriculture

4.2

Excise Duties

Export marketing

1.0

—alcoholic drinks, tobacco

43.1

Pre-school facilities

0.6

—hydrocarbon oils

27.5

Other

1.3

149.8

—road tax

13.3

—foreign holidays

2.0

—other

3.7

Post Office Revenue

38.0

330.6

4. Deduct:

4. Deduct:

Personal Income Tax

42.5

Food subsidies

47.5

Farm Taxation Tax on Business

9.4

Estimated Departmental Balances

50.0

97.5

52.3

—stock relief

6.0

Indirect Taxation

—motor vehicle parts

1.5

—other

0.4

59.8

270.8

5. Deficit

714.6

5,838.9

5,838.9

Department of Finance

27 January 1982

SUMMARY OF CURRENT AND CAPITAL BUDGETS 1981 AND 1982

1981

1982

Provisional Outturn

Post-Budget Estimate

£m

£m

CURRENT BUDGET

1. Expenditure

(i) Central Fund Services

1,008

1,360

(ii) Supply Services

3,767

4,479

4,775

5,839

2. Revenue

(i) Tax

3,315

4,269

(ii) Non-Tax

658

855

3,973

5,124

3. Current Budget Deficit

802

715

CAPITAL BUDGET

4. Expenditure

(i) Public Capital Programme

1,784

2,030

(ii) Other (non-programme)

103

123

1,887

2,153

5. Resources

(i) Exchequer

224

254

(ii) Non-Exchequer

743

953

967

1,207

6. Exchequer Borrowing Requirement for Capital Purposes

920

946

7. Total Exchequer Borrowing Requirement (3+6)

1,722

1,661

8. Total Exchequer Borrowing Requirement as % of GNP (estimate)

16.9%

13.8%

SUMMARY OF CAPITAL BUDGET REQUIREMENTS (INCLUDING CURRENT BUDGET DEFICIT) AND RESOURCES, 1981 OUTTURN AND 1982 ESTIMATE

REQUIREMENTS

£ million

1981

1982

January Budget Estimate

July Budget Estimate

Provisional Outrun

Estimate

1. Public Capital Programme

1,798

1,850

1,784

2,030

2. Non-Programme Outlays

582

866

905

838

of which (a) Exchequer Financed(i) Current Budget Deficit(ii) Miscellaneous(b) Non-Exchequer Financed

4957611

7678811

8027132

7159330

3. Total Requirements

2,380

2,716

2,689

2,868

RESOURCES

4. Non Exchequer Resources

859

859

743

953

of which (a) State bodies(b) Local Authorities(c) Private Sector Participation

62831200

62831200

60429110

91637—

5. Exchequer Internal Resources

173

168

169

188

of which (a) Loan Repayments(b) Sinking Funds(c) Appropriations-in-Aid

5510018

569418

579418

5610626

6. European Regional Development Fund

52

52

55

66

7. Exchequer Borrowing

1,296

1,637

1,722

1,661

of which (a) Net Sales of Domestic Securities

(i) to the public

174

(ii) to the commercial banks

120

(b) Small Savings

1,296

1,637

76

1,661

(c) Foreign Borrowing

1,285

(d) Miscellaneous

67

8. Total Resources

2,380

2,716

2,689

2,868

CURRENT REVENUE 1981 AND 1982

1981

1982

Outturn

Post-Budget Estimate

£m

£m

Tax Revenue

Customs

58.5

68.0

Excise

1,060.4

1,207.3

Estate etc. Duties

2.2

1.0

Capital Taxes

16.4

22.3

Stamp Duties

67.4

90.1

Income Tax

1,243.4

1,580.8

Corporation Tax

200.0

154.0

Value-Added Tax

619.9

1,023.9

Resource Tax

.6

Agricultural Levies (EEC)

6.8

8.0

Motor Vehicle Duties

38.9

73.3

Youth Employment Levy

40.0

Total Tax Revenue

3,314.5

4,268.8

Non-Tax Revenue

Post Office

282.0

393.0

Other

376.2

462.5

Total Non-Tax Revenue

658.2

855.5

Total Current Revenue

3,972.7

5,124.3

PRE-BUDGET TABLES

1982

INDEX

TABLE 1.

Summary of current and capital budgets 1981

TABLE 2.

Summary of main heads of current government expenditure and revenue 1981

TABLE 3.

Main heads of current government expenditure

TABLE 4.

Certain current receipts and expenditure of the Exchequer and of local authorities

TABLE 5.

State expenditure in relation to agriculture.

Detailed tables relating to public capital expenditure will be found in the separate publication entitled “Public Capital Programme 1982”.

TABLE 1

SUMMARY OF CURRENT AND CAPITAL BUDGETS 1981

1981

January Budget Estimate

July Budget Estimate

Provisional Outturn

£m.

£m.

£m.

Current Budget

1. Expenditure

(i) Central Fund Services

960

980

1,008

(ii) Supply Services

3,350

3,719

3,767

4,310

4,699

4,775

2. Revenue

(i) Tax

3,135

3,280

3,315

(ii) Non-Tax

680

652

658

3,815

3,932

3,973

3. Current Budget Deficit

495

767

802

Capital Budget

4. Expenditure

(i) Public Capital Programme

1,798

1,850

1,784

(ii) Other (non-programme)

87

99

103

1,885

1,949

1,887

5. Resources

(i) Exchequer

225

220

224

(ii) Non-Exchequer

859

859

743

1,084

1,079

967

6. Exchequer Borrowing Requirement for Capital Purposes

801

870

920

7. Total Exchequer Borrowing Requirement (3+6)

1,296

1,637

1,722

8. Total Exchequer Borrowing Requirement as % of GNP (estimated)

13%

16½%

16.9%

NOTE:— This table incorporates the reclassification of current and capital expenditures introduced in 1982.

TABLE 2

SUMMARY OF MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE AND REVENUE 1981

Current Expenditure

Revenue

Item

£m

% of total

Item

£m

% of total

Service of Public Debt

1,054

22.1

Budget Deficit (financed by borrowing)

802

16.8

Interest

948

19.9

Sinking Funds, etc.

106

2.2

Tax Revenue

3,315

69.4

Social Services

2,026

42.4

Customs

59

1.2

Excise

1,060

22.2

Social Welfare

695

14.5

Stamp Duties

67

1.4

Education

607

12.7

Income Tax

1,243

26.0

Health

724

15.2

Corporation Tax

200

4.2

Value-Added Tax

620

13.0

Economic Services

444

9.3

Motor Vehicle Duties

39

0.8

Capital and other taxes

27

0.6

Agriculture

209

4.4

Industry and Energy

88

1.8

Tourism and Transport

121

2.5

Forestry and Fisheries

26

0.6

Non-Tax Revenue

658

13.8

General Services

693

14.5

Post Office

282

5.9

Post Office

206

4.3

Other

376

7.9

Defence and Justice

363

7.6

Public Service Pensions

124

2.6

Other Expenditure

558

11.7

TOTAL

4,775

100

TOTAL

4,775

100

TABLE 3

MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE

(£000)

1977

1978

1979

1980

1981 Provisional

1982 Estimate (a)

Service of Public Debt

403,318

510,042

622,181

791,953

1,053,529

1,422,361

Central Fund Services

Interest

278,615

361,389

449,974

582,496

795,413

1,110,000

Sinking Fund, etc.

55,475

56,839

64,437

78,008

89,373

104,100

Supply Services

Interest

60,649

80,612

95,226

116,790

151,896

188,533

Sinking Fund, etc.

8,579

11,202

12,544

14,659

16,847

19,728

Social Services

841,813

987,333

1,209,824

1,576,913

2,026,400

2,297,802

Social Welfare

274,510

314,365

375,369

488,346

695,484

744,677

Education

260,123

302,123

378,934

464,424

606,642

715,038

Health

307,180

370,845

455,521

624,143

724,274

838,087

Economic Services

213,217

245,588

298,631

344,456

444,127

545,082

Agriculture

108,124

116,786

125,903

142,191

208,617

260,105

Industry and Energy

36,142

48,954

68,080

71,296

87,947

124,299

Tourism and Transport

59,366

66,707

89,733

110,493

121,354

129,386

Forestry and Fisheries

9,585

13,141

14,915

20,476

26,209

31,292

General Services

290,145

341,820

407,271

550,528

692,762

843,750

Post Office

82,097

96,798

112,336

167,406

205,992

242,073

Defence Justice, including

85,218

98,913

111,622

142,958

166,251

214,813

Gardaí

66,941

81,446

105,103

140,735

196,790

233,031

Public Service Pensions

55,889

64,663

78,210

99,429

123,729

153,833

Other Expenditure

195,814

306,457

354,721

432,191

557,791

677,629

EEC Budget

24,710

44,874

69,282

93,792

117,590

140,000

Consumer Subsidies

53,999

66,052

44,201

42,849

72,828

119,472

Dept. of Environment grant in relief of rates

17,243

79,342

91,827

106,346

124,230

138,000

Miscellaneous

99,862

116,189

149,411

189,204

243,143

280,157

TOTAL

1,944,307

2,391,240

2,892,628

3,696,041

4,774,609

5,786,624

Public service remuneration included above (b)

667,373

800,727

996,586

1,344,086

1,665,461

1,965,000

Current Government Expenditure as % of GNP

36.4%

38.3%

40.2%

44.4%

46.9%

NOTE: The figures in this table have been revised to reflect the reclassification of certain expenditure items as capital in 1982. These are (i) telecommunications and postal building in the Post Office and (ii) electronic equipment in the Transport Vote.

(a) No departmental breakdown of the global provision of £193 million for Increases in Remuneration and Pensions (Vote 51 of Book of Estimates) is available as yet; in the meantime the estimate has been broken down over the various headings on a statistical basis.

(b) Includes all pay in the health area but does not include the pay element in grants to non-commercial State-sponsored bodies, universities and colleges, etc.

TABLE 4

CERTAIN CURRENT RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES

Exchequer

Local Authorities (a)

Revenue

Non-capital issues

Expenditure from revenue (b)

State grants received

Rates collected

£000

£000

£000

£000

£000

1963-64

184,419

186,638

71,323

34,871

24,466

1964-65

219,045

222,011

82,973

41,210

26,061

1965-66

240,761

248,542

90,588

46,465

29,761

1966-67

272,843

272,051

98,959

50,676

31,533

1967-68

305,409

305,621

107,430

57,472

34,702

1968-69

345,480

353,849

120,675

65,808

38,294

1969-70

411,012

411,550

144,540

76,927

42,953

1970-71

481,506

490,429

173,652

93,803

50,086

1971-72

569,402

571,602

196,359

115,473

59,753

1972-73

659,070

664,541

239,542

138,133

70,068

1973-74

792,913

803,339

297,661

182,610

71,335

April-Dec.

1974

651,407

743,712

292,086

189,875

61,327

1975

1,091,226

1,349,987

480,958

332,109

84,041

1976

1,470,197

1,668,733

567,120

404,344

109,004

1977

1,756,884

1,944,307

683,798

504,299

110,899

1978

2,023,352

2,391,240

831,407

669,953

81,599

1979

2,383,919

2,892,628

1,015,946

820,848

91,000

1980

3,155,265

3,696,041

1,334,405

1,064,730

103,000

1981

3,972,706

4,774,609

1,561,020(c)

1,294,300(c)

103,000(c)

1982

4,036,000

5,786,624

1,734,791(d)

1,436,480(d)

100,000(d)

NOTE:—(a) Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.

(b) The revenue of Local Authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g. rents, fees, etc.

(c) Approximate.

(d) Estimate.

TABLE 5

STATE EXPENDITURE(a) IN RELATION TO AGRICULTURE FROM 1978

1978 £000

1979 £000

1980 £000

1981 Provisional £000

1982 Estimate £000

1. Aids reducing production and overhead costs and production incentives (b):

Relief of rates on agricultural land

38,341

39,800

43,509

61,585

89,087

Lime and fertiliser subsidies

3,313

885

86

Reduction of land annuities

2,757

3,274

3,596

4,031

4,778

Sheep grants, etc.

401

147

502

414

11

Small farm incentive bonus

147

47

22

10

Interest subsidies

13

5,000

Assistance for extra breeding stock

5,500

Winter fodder schemes

600

2,874

3,100

TOTAL

44,959

44,153

48,315

68,927

107,476

2. Schemes operated under EEC regulations and directives:

Farm modernisation

28,900

33,492

56,133

46,895

40,953

Farmers' retirement

1,489

855

249

1,618

1,955

Aids to farmers in less favoured areas

17,746

13,673

19,657

24,750

19,277

Market intervention (c)

194

6,368

9,036

4,835

12,391

Socio-economic advice and vocational training of farmers

167

188

3

(d)

(d)

Grants for individual projects and for marketing and processing

17

167

Aids for horticultural producers' organisations

32

29

13

30

25

Dairy herds conversion and suckler cow

60

6

(-)66

24

Programme of special measures

5,069

16,178

TOTAL

48,588

54,611

85,025

83,238

90,946

3. Education, research, advisory and inspection services:

Education

9,391

10,625

9,394

11,322

12,641

Research

8,929

11,031

12,570

15,324

14,507

Farm advisory services (e)

6,385

7,622

7,548

13,086

14,139

Technical services

3,306

4,077

4,642

6,353

5,210

Inspection services

1,517

1,838

3,550

5,762

7,186

Rural organisations

140

174

183

223

251

Farmer contributions to education, research and advisory services

(-)10,400

(-)4,493

20(f)

TOTAL

29,688

24,967

33,394

52,090

53,934

4. Disease eradication:

Bovine T.B.

7,769

6,789

10,968

13,848

13,105

Brucellosis

6,060

7,440

13,436

11,533

10,205

Hardship Fund

1,200

1,500

300

1,150

Other, e.g. leucosis

11

209

566

199

10

Less: Farmer contribution and EEC receipts

(-)2,717

(-)13,769

(-)1,925

(-)5,930

TOTAL

15,040

13,221

11,201

23,955

18,540

5. Long term development aids (b):

Arterial drainage

5,262

8,399

8,526

9,287

10,218

Land project, farm buildings and water supplies

1,640

2,353

1,401

1,171

1,350

Improvement of cattle, pigs, horses, sheep and poultry

1,978

1,225

2,250

2,143

2,632

Rural electrification

2,205

2,364

2,446

3,150

3,715

Restructuring and improvement of holdings by Land Commission

3,521

3,601

4,268

4,979

5,023

Other rural improvement schemes and grants

1,586

2,784

2,098

2,229

2,142

TOTAL

16,192

20,726

20,989

22,959

25,080

6. Marketing aids:

Meat

608

642

320

371

965

Potatoes and cereals

250

Export co-ordinating group

73

72

TOTAL

608

642

393

693

965

8. General administration and overhead costs

14,987

18,971

25,060

31,198

36,672

GRAND TOTAL

170,062

177,291

224,377

283,060

333,613

NOTES—(a) The figures include both capital and non-capital expenditure and are net of appropriations-in-aid which include recoupments from EEC for schemes in section 2 above.

(b) Further aids of these kinds are given under EEC schemes—see section 2.

(c) Expenditure and receipts for market intervention are as follows:—

1978 £m

1979 £m

1980 £m

1981 Provisional £m

1982 Estimate £m

Expenditure

28.6

30.1

36.4

24.5

34.6

Receipts from EEC

28.4

23.7

27.4

19.7

22.2

(d) Provision transferred to ACOT in 1981.

(e) Includes part of the grant in relief of rates borne on the Environment Vote.

(f) Refunds.

Footnote: Agriculture also benefits from EEC aid under the Common Agricultural Policy (the figures include intervention receipts at (c) above):—

1978 £m

1979 £m

1980 £m

1981 Provisional £m

1982 Estimate £m

FEOGA GUARANTEE SECTION

366

397.9

381.1

305

305

FEOGA GUIDANCE SECTION

—receipts under individual project and marketing and processing schemes

2.6

2.4

6.4

5.6

7

—Receipts for structural schemes

6.7

14.1

20.7

29.6

47.8

We have just listened to the most appalling statement from the Minister for Finance. It is appalling not just for the savage tax increases which it imposes but also because it is a clear catalogue of broken promises and back tracking on all the things that the people opposite, from both parties, were saying to the people just a few months ago. They are not only back tracking on what they said so recently but are giving, again, a message of pessimism.

Where is the element of hope for the future for any of our young people in what they heard this afternoon? It is nowhere. Above all I have to say that if all of these things were in any sense justified by our circumstances we might be willing to tolerate them. But they are not because this budget is quite clearly the wrong budget for the circumstances of Ireland today. We listened to a long recital of numbers and percentages and statistics. But a budget is not simply arithmetic. A budget should be concerned with and should deal with the real, economic and social problems before the country.

Yet, the Minister managed to go right through his speech without anything more than a passing reference to unemployment. He did not even tell us what he expected to happen to employment this year, and rightly so, because if we look into the details of the budget we all know that it must mean thousands more on the dole queues before this year is out, and I say that without fear of contradiction. The Minister managed to go through his budget without saying anything about the cost of living, and rightly so, because this budget adds at least 5 per cent immediately to prices. So we already know, before another day passes, that the country is condemned to inflation in excess of 20 per cent this year.

This Minister said nothing about how he hoped to cope with what is a very substantial problem, our balance of payments, our ability to pay our way in the world. Again there were passing references but not a single, clear, cohesive statement of a policy in that area. The fact is of course that they have no policy. Why do I say that? I say it because in so far as they claimed to have a policy six months ago we were told that they were going to cope with the Government's budgetary problem by a cutback or curb on the Government's day-to-day spending, that in doing that they would ensure that they would maintain, if not increase, spending in productive capital areas and that there would be no recourse to heavy taxation. We heard the Taoiseach, Deputy FitzGerald, saying in the weeks just before the election that extra heavy taxation was not the way forward at this time. What have we seen? We have seen, between July and today, tax increases of more than £800 million inflicted on the Irish people, an incredible, staggering increase. At the end of all that what have we to show for it? There is no real improvement in the Government finances, contrary to what the Minister is claiming. There is certainly no prospect of improving our real economy because anyone who thinks that we are going to get Ireland out of trouble by worsening inflation and by damaging our ability to attract investment and our ability to provide jobs must be living in an incredible cloud-cuckooland of his own.

(Interruptions.)

I will get to my solutions in a few minutes. First, I want to summarise — more clearly than the Minister did because I know he did not wish to summarise—what the budget is doing. For the average family it is going to inflict more heavy increases in their ordinary day to day expenses. We are told that the basic VAT rate is going up from 15 to 18 per cent. We are told that clothing, even children's clothing, is going to jump from a nil rate today to 18 per cent. We are told that the average worker is going to have to dip into his pocket and find another 1¾ per cent — that is roughly another £2 a week on the average man's pay packet — to pay for social welfare benefits. We are also told that the subsidies that exist, such as they are, are going to be wiped out this week in the case of milk, so there is more than 4p a pint on the price of milk this week for the ordinary family. Butter is jumping up by at least 9p a pound at the same time. Those reductions in subsidies and increases in ordinary VAT spending will more than wipe out any benefit which the Minister might think the average family would enjoy as a result of his much emphasised increase in the child welfare benefit. It will do no such thing. Even the increases on children's clothing and on children's footwear will more than cancel out any extra benefit from the child increase. So let us be quite clear. The average family will be quite definitely worse off as a result of what the Minister has done here today. They are not being made worse off in order to provide a job for anybody because, although we heard a lot of talk especially from ther Labour Party with their famous slogan "We want jobs, not promises", we could not even get a promise today of any job. We hear talk from them and we have the setting up of more bodies and more agencies. We know already that we are setting up some sort of youth employment agency and we are collecting the money for it but we did not see any reference to even one person being employed as a result of this levy. That has a horribly familiar ring because this Government swept into power saying, among other things, that they knew how to find the right cures for all our problems and part of that recipe of course was to set up other bodies. We had the famous committee on prices and incomes, more quickly known as "The Three Wise Men", and they were to tell us how much we could afford to pay ourselves this year by way of wage increases. But what happened to them? They were disowned the day they were reporting and of course the policy which they put forward has long since been dumped into the waste paper basket. Instead we had a rather indecent rush to buy off some sort of pay deal in the public sector without the slightest regard to what that would do to employment prospects or costs in every private firm, in every manufacturing firm throughout the country.

So, in a nutshell, because I know we will have opportunities as the debate continues in later weeks to develop on all these things, we are going to have these savage tax increases worsening the position of virtually every family in the country and there is no prospect of this solving our problems. The other side of the coin that we are told about, apart from the fact that all these tax increases are necessary to cope with our situation, is more or less the argument which says that there is no alternative and what else can we do.

What else can we do? First, if we look at the world around us today we can see that inflation is coming down very rapidly. There is no suggestion that oil prices are going to go up this year the way they did over the last two or three years. In fact, overall, the expectation is that there might even be a slight easing off in the price of oil for the year as a whole. But let us at least say that there is no inflationary threat from that source. Likewise, it does not seem that there will be any serious risk of import inflation through the American dollar or the British pound going up in value and affecting the cost of our imports. This year our EEC partners can look forward to and think in terms of an inflation rate of 10 per cent or less. That is the kind of figure we must aim for. We would be able to aim for it if we went about our business in the right way.

Keep your fingers crossed.

I will keep my fingers crossed and I suggest the Government keep their policies straightened out.

(Cavan-Monaghan): He kept his fingers crossed for the last 18 months.

If we end up with an inflation rate greater than that it must be as a consequence of what happens in Ireland. Today's budget will add 5 per cent to prices this year. As regards the wage agreement, surely the sensible course of action for the Government to have taken when they were faced with a difficult situation on the wage agreement front last autumn—we had enough hard, sound and fighting speeches from them, words again but no action—would have been to enter into discussions with unions and employers. They should have promised to commit more money to subsidies in order to keep down the cost of living for everyone and not just give increases to the privileged few who enjoy secure employment. If more money had been put into subsidies we could have held down our inflation rate to close to 10 per cent. The cost of financing such a subsidy scheme would have been met by a very large saving on the public sector pay bill and on the cost of maintaining the living standards of those on social welfare benefit.

Those two areas would have provided the Government with 60 per cent of the cost of any subsidy package. The other 40 per cent could have been raised more selectively than the Minister did today when he imposed social welfare contributions on all workers and employers including those in the weaker firms in industries which are struggling to stay open and compete against foreign firms who enjoy lower inflation rates. He should have gone about collecting the money he needed by levying higher contributions on more fortunate firms, banks or other financial institutions, which can reasonably expect to survive and meet higher charges of this kind. In that way he could have allowed manufacturing industry to get away with little or no increase. That is the bones of an alternative which would open the door to a lower inflation rate and better employment prospects.

The committee which the Government established to inquire into these matters looked at the evidence in this area and suggested that every lowering of our wage costs of 1 per cent could bring about an improvement of several thousand jobs this year and a bigger improvement in each subsequent year. If prices had gone down or even if they were to end up 5 per cent lower than what the Government put forward we could look forward to 10,000 more people at work this year in productive jobs. That is the bones of an alternative policy. I am not suggesting it is an immediate, overnight cure for our ills.

We are still suffering from the Deputy's cures.

It would have given young people and workers a more realistic prospect of hope for a future in their own country. Instead of that, we already know that we are going the wrong way. Despite all the increases which were imposed today the Minister is still in the position where he claims that the current budget deficit is £714 million. He should forget about the £50 million departmental balances and say that it is £750 million. In other words, there is virtually no change on last year's. If the Minister thinks he will eliminate the current budget deficit by his policy over the next three or four years, he is already telling us he is condemning the country to inflation which must continue to be worse than that of any of our EEC competitors and which will guarantee that our unemployment situation will worsen rather than improve.

The Minister promised us a plan to cope with this situation within four months of assuming office. That is another broken promise along with the one for tax reform and the one to hold down current Government spending and avoid savage tax increases. I could go on and on cataloguing all the broken promises but we will have more leisurely opportunities to spell those out. The Minister is on the wrong road. Our problems cannot be solved in the way the Minister has started to tackle them. There is a clear choice——

(Interruptions.)

The Deputy had his day and his fun.

The Deputy had his fun too.

I will debate the merits of their policies with the Deputy at any time.

Deputies

Hear, hear.

I want to spell out clearly to the erstwhile Socialists and others who seem to feel they are doing better by supporting the viewpoint put forward by the Coalition that they are not supporting the policy put before the people last May. They are not supporting the programme that emerged from the famous show in the Gaiety Theatre because that has been abandoned. Above all, they are not supporting a policy that can solve the employment problem for our people or the problem of inflation so that we can pay our way in the world. They have a choice. They can go ahead and vote for this. I hope the people will rightly condemn them at the first opportunity. They have an alternative which we will gladly elaborate on and debate with them in front of the people. Do they really believe they are doing the right thing by supporting this infamous budget? Vote against it. Let us have a general election. Let us ask the people to elect this Government on what they are doing now which is very different from what they conned the people into believing six months ago.

That is the message I have today. The Independents and so-called Socialists in the Labour Party, which is concerned for workers, should make up their minds. They should go out and campaign on this package. We will debate the alternative with them. That is my summary at this stage. I do not care whether there is an election or not but I care what the Government do to Ireland and its future. I suggest that the Government call off the policy they have started on and renegotiate it. There is an important precedent for that because the last time we were facing a serious inflation situation which was made worse by the Government's policies was at the beginning of 1975. At that time we in Opposition campaigned for the introduction of subsidies. The Government opposed it bitterly for over six months until they were forced into this policy by combined pressure from the trade union movement and other interests outside the House. Please go out again and talk to the trade unions and other independent groups. I hope once again they will force the Government to adopt the policy we put forward from this side of the House. Do it for the sake of Ireland. If the Government do not do that they should go quickly to the people and sort this issue out once and for all.