Deputy Durkan has 48 minutes left.
Financial Resolutions, 1985. - Financial Resolution No. 9: General (Resumed).
Debate resumed on the following motion:
That it is expedient to amend the law relating to customs and inland revenue (including excise) and to make further provision in connection with finance.
—(Minister for Finance.)
I was speaking about the undesirability of giving vent to frustration and publicising an air of doom and gloom, and the effects that this could have on the morale of the people. The people obviously look to the institutions of the State, the politicians, to show them the way. That is understandable since the politicians are supposed to know what lies ahead by virtue of their budgetary projections. We have reached an undesirable stage in the sense that a great number of commentators spend a lot of time telling the people that the country is sunk and that there is no hope. That attitude can do irreparable damage to the morale particularly of young people. They look to us for an indication as to what the future holds for them and if we tell them that there is nothing for them they will not follow the legislators. I strongly urge all commentators to recognise their responsibilities. We have a platform that allows us to raise or dash the aspirations of our people and we should not resort to extremes.
The budget is positive and progressive. It charts a course which can be followed and which if followed will bring some degree of financial rectitude, economic and social stability and will lead to the light at the end of the tunnel. I listened with interest to the submissions from the opposite side of the House and from listening to them one would wonder if the present Government had been able to produce anything positive at all. The contributions with one or two exceptions were negative. Nobody bothered to chart the areas where the Government under difficult circumstances had been positive and had given leadership. In the budget there is a proposal to increase new house grants by 75 per cent. I would remind the House that over the last couple of months the Government made considerable amounts of money available for housing generally. There has been a lot of criticism of the Government's attitude to the building industry, some justified and some not. A few years ago when this Government came into office the only hope there was for the person living in a mobile home, living in unfit and overcrowded conditions sometimes for five or six years was to stay there and wait under intolerable conditions to get a local authority house.
The Government changed that by introducing the Housing Finance Agency scheme which allows practically everybody whether or not on the housing list within certain income limits to qualify for a loan to provide themselves with a house and provided methods for repayment such as were never available before whereby they could repay on a differential basis. Notwithstanding all the criticism of the Government's attitude to the construction industry, that was the biggest financial impetus given to the building industry in the last five years. The facts speak for themselves. On top of that the Government have increased the new house grant. A person who qualifies, on giving over a local authority house to the local authority can qualify for a new house grant of £1,750, a special grant of £5,000 and a mortgage subsidy of £3,000 payable over the first five years of the repayment of their mortgage. That represents a positive effort by the Government to acknowledge the importance of the building industry and at the same time gives recognition to the fact that there were a large number of people who could not be catered for under the ordinary housing allocations through the local authorities. The Government did a great deal to alleviate the hardships that these people suffered.
The budget is closely linked to the national plan, Building On Reality and its central theme has been the holding of taxation, not allowing it to rise above existing levels, and in fact reducing it. That was the message we got from the business people as well as the workers, and the Government responded to it. Now it is over to the people and the businessmen to respond to the Government's efforts. The crucial question now is whether the public response will be as good as one would hope and will be as good as we have anticipated. That is a very crucial element in any proposals for tax reductions. One will always get support from the people for tax reductions, but the most important factor is to ensure that revenue will not suffer, creating further problems because of the need for further borrowing.
Inflation has shown a downward trend in the past two years. It is no accident because it has been Government policy during that time to try to make the country more competitive, to try to create jobs and continued employment. It can be argued that unemployment is high but can anyone say how much worse it would be if Government measures were not taken? I am not talking about the numbers unemployed now but those who would be unemployed in three years. It is easy for critics to point to the existing position, and the Opposition obviously like to say how good things would be if they were in power. I have not heard them dwelling too long on how bad things might be today if they were in power. A different picture would exist now if their policies had been continued.
There has been a considerable improvement in our balance of payments in the past few years, mainly because of careful monitoring of costs at home, which has allowed us to compete effectively with our competitors in manufactured products. Therefore, our balance of payments has shown consistent improvement. Of course that would be only a long term solution to unemployment but it is a firm foundation on which to build our economy. Our efforts to solve unemployment now must be short term.
In all honesty none of us can be happy with the numbers unemployed. I do not believe there is what is called an acceptable level of unemployment because I do not regard any level as being acceptable. Therefore, we must try to create the circumstances which will change the position dramatically. It is easy for Members of the Opposition not in the business of providing the means to resolve that problem to suggest solutions.
The level of unemployment now is of a nature, considering the size of the country, which cannot be tolerated for long. Before people opposite begin to shout "Hear, hear", let me say that they were in the business of trying to resolve this problem for a long time but they failed miserably. I suggest that it is time to begin to take more imaginative measures. Every day we hear about the increasing crime rate, about the need to introduce more stringent measures to deal with it, the need to provide more finance for the forces of law and order so that decent people can walk our streets day and night without fear of attack.
If many of the young people now involved in serious crime had jobs or some prospect of jobs they would have a purpose in life that they do not have now and, I suggest, their whole attitude to authority and to State institutions would be changed. It may seem a simplistic solution to give jobs at any cost and with consequent increased burdens for the taxpayers. However, one must examine the case of young people living in cities and towns, living on unemployment assistance perhaps for two or three years, in some cases people who have never had jobs or only for a short time. Their attitude towards the institutions of the State, to authority and to other people's property have diminished. One of the major contributory factors is that they see no purpose in life. That is very sad.
Perhaps the time has come to consider the introduction of a national minimum wage. Economists would argue that by so doing we would create further burdens for the taxpayers, but is it not worth thinking about? Young people have the right to unemployment assistance, they are entitled to benefits from the State as things stand. Would it not be to much better purpose to provide, say, an extension to AnCO and the youth employment scheme? Would there not be a net gain to the State in this way rather than in the way of extra finance for law enforcement? Would we not be better disposed involving ourselves in prevention rather than trying to cure a problem which has got out of hand?
These are matters that all politicians will have to face up to soon. The Government are doing a very good job in difficult circumstances, but a serious look will have to be taken at unemployment and its effects on the economy and on the morale not only of the unemployed but of those at work. The morale of those unemployed will decline seriously and those at work will be equally affected by a high rate of unemployment. That is at this juncture the largest single issue facing the country. It behoves all politicians to try to pool our resources in an attempt to resolve that problem. If we can resolve it we shall get recognition for that. If we cannot then there is a grave danger that, to an even greater extent than at present and for some time past, people will become disenchanted with what we in this House represent.
The suggestion of a national minimum wage to combat the problem may seem like a revolutionary idea in these difficult times, but I would put it to the House that I have felt for some time that this is a way around the problem. I have indicated that the problem is already costing us money. If it is to cost us, why not give those who are unfortunately affected by unemployment a new lease of life and some indication how they might attain a more fulfilling and rewarding life for themselves and their families?
A number of features of the budget are very welcome — the changes in the tax bands and the removal of a number of VAT rates, which again has been sought by the business sector and rightly so. It had become intolerable for business and industry to cope with the vast number of VAT rates with which they have to deal. Many business people rightly indicated that they spent most of their time administering that system. For every three people they had working they might have to employ somebody to administer the taxation system on behalf of the State. That kind of work was obviously counterproductive. I fully agree with, and support the general thrust of the Minister's proposals in reducing these rates and introducing a number of PAYE tax concessions.
In that area we would all have preferred to see an even greater amount of PAYE tax relief. That sector have been heavily burdened for quite a number of years. They have been feeling the pinch to a very great extent. It would have been nice to have been able to give them more relief than they have got, but one must have regard to the constraints within which the Minister had to operate. I know that he has done all that could possibly be done in the time available to him and in the current year, at least. One would hope that in the future he would see fit to continue along that road and give further relief to that sector.
One effect of taxation which I had come to notice over the past couple of years applied both to house purchasers and to the business and industry sector. That was the system of borrowing to offset against taxation. A few years ago it was quite common for a family to change house for the better three or four times in ten years. They found themselves moving into different tax bands, paying higher taxes and in order to offset some of the burden of taxation they went for a more expensive house, which was helpful to the building industry. They got increased tax allowances in respect of their mortgages. However, the difficulty arose when the recession came and they found themselves committed to repayments which they had entered into when times were better and the outlook brighter. They found themselves with that heavy burden of taxation on the one hand and heavy mortgage repayments on the other. Between the two they were in an intolerable situation.
Fortunately, the building industry has restructured to such an extent that now that industry is catering for the market and is producing very efficiently a house that it is possible for the purchaser, without any major sacrifices, to be able to buy and pay for. That trend should be welcomed. It lightens the pressure on all other agencies. For people living in those circumstances and that taxation situation, their only release was to seek higher wages or salaries. So the vicious circle went on. The same applies to agriculture and to industry generally. They borrowed to offset against taxation and high interest rates during the recession plus high inflation caused a complete bind.
I also welcome that the tax allowance for incapacitated or handicapped children was increased by 20 per cent. This is something which only families beset by the sadness of having a handicapped person could appreciate. That was a very progressive measure on the Minister's part and he is to be congratulated on it.
The other measure which generally got approval was the tax relief in respect of interest from savings. It become very obvious in the winter just gone by that many elderly people had taken to the practice of hoarding their savings in cash at home and this was very undersirable. For that reason the Minister rightly decided to double relief in that area. Another positive element of the budget was the introduction of optical and dental benefits for the wives of insured persons during their terms of pregnancy. Incidentally, this is a question that has been discussed on numerous occasions and it was an area of obvious need for action. It is important that, even in times of severe financial stringency, the Government saw fit to give that relief. There has been criticism from various quarters as to the feasibility of having dental or optical work done during pregnancy, but modern medicine has been able to overcome many of the difficulties mentioned by the critics.
There have been general increases in social welfare pensions, benefits and assistance, old age pensions and so forth. That is a recognition of the plight of many of the less well off in our society. There are those who say that these increases could have been greater. That may well be, but the Government must have regard to the resources available and the means they have to raise those resources further.
I was sorry to see the increase in excise duty on petrol and diesel and the increase in motor tax. Those are two things that had to be done in order to provide funds for the more positive proposals of the budget. One always should be prepared to accept the rough with the smooth. One cannot merely accept the palatable parts and dismiss the remainder. If we are to achieve positive developments, we must make some sacrifices. I was sorry to see the increases proposed there because they could have a knock-on effect, creating problems elsewhere.
The reduction in excise duty on electrical goods was a direct response to the promptings of the industry, it having become obvious for some time that there was a large scale smuggling operation going on very detrimental to the electrical industry in the Twenty-six Counties. It had continued for some considerable time. Despite the best efforts to stymie it, it seemed to prosper. It is now over to that industry to take up the challenge which I have no doubt they will do, giving their competitors the kind of race they have been giving for some time. It constitutes a positive step which will prove at least as lucrative in the long run from the Government's point of view as the situation that prevailed heretofore.
I have mentioned unemployment already. I should like to dwell briefly now on the enterprise allowance scheme referred to in the Minister's Budget Statement which has provided a number of jobs. This scheme ensures that a person finding himself or herself unemployed for a certain period of time receives a specific weekly payment over a year, providing themselves with a job, be it in manufacturing or in the service area, which is a good thing. On the one hand it allows a person to be productively employed, either alone, or in manufacturing or service industry, teaching them to be self-sufficient, at the same time affording them a basic allowance from the State, thereby ensuring that if things do not go right for them they will have something on which to fall back. It is a way of allowing people to creep before they walk. It is a progressive scheme and one I should like to see extended further. I know it is still in its infancy and that it will grow to great proportions in the future. That is a scheme that could take up a considerable amount of the slack in our unemployed numbers.
Another feature of the budget was the provision of £9.5 million in respect of pay increases to local authority employees. Having listened to some of the criticism from other quarters over the past few days I could not but think back to a few years when, sitting at local authority estimates meetings, we received a grant in lieu of rates on domestic dwellings from the Department, a specific increase, but received nothing in respect of pay increases. We were supposed to provide for them from our own resources. That practice continued for three or four years. That damage was done over a period of years resulting in local authorities finding themselves now with large borrowings, an inability to carry out the work they were statutorily appointed to do, with a great deal of criticism emanating from the people for whom they administer the services at their disposal. This provision should be applauded. Despite all the criticism emanating from the opposite side of the House, despite all the holes they have attempted to pick in the budget, that element was carefully costed in the charting of the course of the Government's national plan, forming an integral part of the budget, providing for part of the services rendered by local authorities. It was easy in times past to maintain that they should provide for such from their own resources, which is what we were told, but it did not work. That is why the Government are correctly providing a sum of money specifically for that purpose.
Another matter with which the budget deals is the provision for sporting and recreational facilities, a recognition of their importance by way of giving young people something to do in their spare time, giving them financial recognition for some of the wonderful voluntary efforts made throughout the country over many a long day. It has a bearing also on the crime rate, unemployment and associated matters in that if there is an investment in sporting and recreational facilities that will mean there will be some kind of occupation for young people in which to engage which in turn will mean that they will not become involved in vandalism or hooliganism once they have something else to do and that they will themselves provide a great deal of services provided they receive some kind of official recognition or financial blessing. The Government have correctly done that and it will yield rich harvests in the future.
Another matter with which I might deal is the free fuel allowance scheme which has also been increased to compensate for the increase in value-added tax being imposed on fuel, the increase amounting to much more than the VAT increase. That scheme exists to aid people in our society who are statutorily entitled to that allowance. I said on one previous occasion that I should prefer to see the scheme administered on a more universal basis in the sense that various local authorities — corporations or whatever — seem to have their own way of interpreting the provisions of the scheme. In many cases I should like to see a more sympathetic appraisal of the circumstances of some of its applicants. I mention that specifically because, as we are all aware, there is a new group of people now applying for this allowance, people who may have been in good jobs up to a few years ago, who may well now find themselves in rather unfortunate circumstances, perhaps out of their job and committed to high mortgage repayments which may have fallen into arrear. Such people may find themselves having to apply for this allowance for the first time ever. Some may have been self-employed in middle and upper management. They will find it very difficult to go to the various welfare centres to seek their statutory entitlement but they should be made feel they are seeking something to which they are statutorily entitled. They should not be made to feel that they are in any way seeking something which is not theirs by right. That scheme is there to serve people who are in need. Great care should be taken to ensure that the dignity of the individual is not eroded in the processing or administration of those claims.
This was brought home to me recently by a person who was in middle management and found himself unemployed. He did not speak to anybody about it for quite some time. He went to the local health centre and sat watching other people being dealt with. He attended at the local health centre for some considerable time before he managed to work up sufficient courage to go to the community welfare officer or the nurse and state his case. Afterwards he mentioned to me the position in which he found himself and his hopelessness and complete inability to come to grips with his own problem. His pride stopped him from explaining the situation at the beginning to the people who were there to help him. Particular attention must be paid to these people in the current climate because in many cases they are suffering unknown to us. Despite the fact that the services are provided to assist them, the trappings of bureaucracy create an atmosphere which scares that category of people and makes it difficult for them to obtain their rights. This is a very worthwhile scheme and I am glad the Minister saw fit to make the increase in the budget.
The theme of the budget provides a certain amount of hope and a certain amount of financial relief by way of taxation, changes in tax bands, and the provision of a number of incentives. That is most desirable because what we need at present is hope and to give recognition to people for their efforts and some indication that, at the end of the road, there is some reward. When people talk about reward whether for an individual worker, a businessman, or a farmer, they mean profit, I suppose. Anybody who is in business for any other reason would not be held in very high regard by his local lending institution.
The budget attempts to create incentives, reliefs and an atmosphere of encouragement which is essential if we are to achieve our potential while working within the tight restrictions within which the Minister had to operate. Despite all the criticisms and the suggestions that the people will cast this Government out at the first opportunity, despite the suggestion that this Government will have to be dragged kicking and screaming before the electorate, I do not think that in a democracy any Government, or any party, or combination of parties, will ever have to be dragged kicking and screaming anywhere.
In their own good way the people will see fit to give recognition to the Government for effort and for the sacrifice in many cases of political popularity, of electoral popularity, recognition that the Government put the needs of the country first and accepted that difficult decisions had to be made and had the courage to make those decisions, and live with the kind of criticism and, for want of a better word, bad publicity one has to expect in the wake of such decisions. The Government did all those things with the right intentions and for the right reasons. When the time comes for the people to make up their minds again, they will have regard to previous experience and past events. They will then make up their own minds about who is capable of delivering. The time has long since gone when the public would accept from politicians vague promises about what they could do, without telling the public where they proposed to get the money to carry out those promises.
Hovering over this budget and the economic situation we are in at the moment are two major sets of figures. One is the unemployment figure of which we are so well aware and which increased yet again within the past week or two. The other is a set of figures set out at column 1123 of the Official Report of 30 January as a supplement to the Budget Statement. The figures are contained in Table 3 of the tables attached to the budget. They are the figures for the Service of Public Debt, Central Fund Services and the interest payable over the past five years. In 1981 the interest payable was £795 million; in 1982, £1,143 million; in 1983, £1,330 million; in 1984, £1,566 million; and in 1985, £1,841 million. Next year when someone stands up to read out the corresponding figure it will have exceeded £2 billion, most of it gone abroad, wasted and largely useless at a time when inflation world wide is falling. Whether this country likes it or not it will be affected by that fact.
I should like to talk about interest secondly. I want to talk about employment first. It is scarcely touched on in the Budget Statement. It is scarcely referred to at all. Listening to the Minister for Finance one would think we did not have an unemployment problem of the most grotesque proportions. One would not think we have one at all. What does he do in some of his provisions in this budget which we are told is getting us off the ground? He takes one of the most sensitive and crucial industries, the construction industry, and doubles the rate of VAT overnight. I understand that last night there was a postponement for two months in the increase of VAT on housing which is about half the construction industry. There is no postponement in relation to the other. That is immaterial because the postponement for two months in relation to housing is absolutely useless. All it does is to encourage somebody buying a house at a fixed price to postpone closing the sale for two months because then he will buy at the same price but get an extra £750 by way of grant. Obviously that is what everybody is going to do, but that is no help to the construction industry. On the other hand, two months is too short a period to enable builders to dispose of property.
We should look broadly at the construction industry and what the effects of this extraordinary provision in the budget will be. Last year An Foras Forbartha estimated that expenditure in the construction industry was £1.85 billion. The increase in VAT from 5 per cent to 10 per cent means an increased tax take in 1985 by the Exchequer of £92½ million. Let us take a round figure of £90 million for the sake of argument because there will obviously be a reduction in activity in this year. That extra £90 million taken out of the construction industry can be roughly broken down fifty-fifty between materials and labour. Therefore £45 million is taken out in wages. If we take the average gross cost of employing a man in the industry at £15,000 and divide that into £45 million, we get a figure of 3,000. As a result of that provision by the Minister for Finance in this year's budget we have a direct loss of 3,000 jobs straightaway. It is very hard to believe that there are about 250,000 people unemployed at present.
In addition to that direct destruction of 3,000 jobs there are the market consequences of the increased cost of VAT on the construction industry. The market consequences are particularly noticeable in the lower price bracket of the housing market where every £50 or £100 is sensitive, where young people especially have the greatest difficulty trying to scrape enough money together to put down the deposit to buy a house, and where an increase of even £100 or £200 may mean the difference between whether they can or cannot buy.
As a direct result of what this Minister did the price of an average house increases by £1,800. That inevitably has the consequence of reducing demand. If the demand for houses reduces by only 10 per cent as a result of these increases — and that is a conservative estimate — this will cost even more jobs. You may ask how many more jobs. On average each builder employs one man per house built per year. Therefore every house not built this year as a result of this fall in demand means the loss of a job for a man for a year. On the basis that 20,000 houses might be built in the private sector this year, approximately 2,000 jobs are lost as a result of the market consequences of that step by the Minister for Finance.
We have to ask ourselves what is the effect on the non-housing side of the construction industry. On the private side the effect very clearly is that the finely balanced investment yield got from commercial projects is completely distorted by the sudden unexpected additional 5 per cent being added to the cost and because the margins are so tight and the calculations are so fine in trying to decide whether to undertake a particular commercial or industrial project, a whole range of projects which might otherwise have taken place, and that might just marginally have been viable, no longer are and therefore they are deferred or abandoned altogether. The consequences of that in terms of employment are very obvious and extensive.
Let us take the public contracts. What will be the effect on them? Output will be 5 per cent less, 5 per cent less work will be done because the 5 per cent is simply added and the local authority pay it back to the Exchequer rather than in wages. It is worth asking ourselves how much is involved. I will give some of the headings as deduced by An Foras Forbartha last year. On industrial building the figure was £196 million; on roads it was £192 million; on agricultural building it was £65 million; on commercial building it was £58 million; on educational building it was £81 million, and on health and all others it was £341 million. Assuming the same amount of money is made available this year, straightaway there is a 5 per cent reduction. This means 5 per cent less of everything will be built and there will be 5 per cent fewer jobs.
I ask the House, and in particular the Minister for Finance, to look seriously at that situation in the context of the enormous unemployment figures and the fact that construction is the industry which can most rapidly pick up in terms of employment numbers. The Minister should ask himself if this was a wise move. The reaction of the builders is one of outrage. Some people may feel they are outraged because they have a vested interest or because it is their own business, but I do not think that is fair. What will happen is what many people said would happen, that is, many of them will close down. Many of them are solvent and can afford to close down. They do not have to go into compulsory liquidation. They can build in Britain, the United States or the Middle East, as a number of them are doing. It is probably a matter of regret to many of them that they did not do that before now. Up to now Irish builders who were building abroad tended to build at home also, but what will happen shortly is that they will only build abroad. In the light of this sort of provision and the way this industry has been treated over the past few years it would be foolish for them to do otherwise.
Ireland is one of the countries where you are penalised in an extraordinary way if you make a profit, and where you are held up as a quasi-delinquent if you try to expand your business or if you try to be a success. The Minister for Finance and his all-seeing Department unhappily were unable to see the consequences of this foolish provision but now they are probably too politically proud to change it and to divert the enormous damage they are doing. Whatever about the Department, I have some hope that the Minister might have sense enough to realise that an error was made and that the consequences of this action were not foreseen but they are now becoming obvious and it should be changed.
To add insult to injury in that respect, happening simultaneously with this is an increase which has been forecast of between 1½ per cent and 2½ per cent in building society rates. The implications of this on thousands of families are extremely serious and can hardly be exaggerated. This increase is being brought to a head by two factors, both deliberately contrived as a matter of policy by the Minister for Finance. He has to accept entire responsibility for it because it is not caused by external factors beyond his control.
The two factors are that in the latter part of last year the Minister for Finance decided that he would do all his borrowing for nearly all the last quarter domestically and he forced up domestic interest rates quite severely. To give them their due, building societies tried to resist it for a while or to put off the consequences because they hoped, when the Minister for Finance indicated that he would switch back to foreign borrowing in the first quarter of 1985, that the pressure would be taken off. However, it now seems to have gone too far, or so the building societies tell us, and there is no prospect in the immediate future, so far as they can see, of a reduction.
Why should the price of money here in the last quarter of 1984 be so dear? It was not because of private demand because there is none. The banks cannot lend money to anyone except the Government because there is no demand from anyone else. Only the Government want to spend or to invest. The Government may be spending but they are not investing and that is pretty obvious to anyone who looks at the way things are going. Added to that, we had provision in the budget to slightly increase the composite rate of income tax on building society deposits.
The Minister for Finance apparently is not doing that from a revenue raising point of view and he leaves himself open to the suggestion that he may be doing it for other reasons, perhaps to do with spite, because, curiously, he made it clear when he announced this increase in income tax on building societies that if any society felt that the increase was unwarranted, the Revenue Commissioners would undertake a survey of depositors with a view to determining what the composite rate for that society should be. In other words, if a society can show that the rate is too high, they can have it reduced to its previous figure and the Minister will get no money.
It is fair to suggest that it may not be entirely for revenue purposes that he brought in that provision. However, small as it is — he is talking about a figure of £10 million which is relatively small in the context of the overall budget — look at the effect compounded by the effect of what he is doing in relation to VAT. If there are no changes made in these two provisions, how many more building firms will close between now and 31 December next? It does not seem to matter. Does it mean that unemployment figures rise inexorably month after month after month?
The input of the construction industry is 90 per cent or more Irish. The spin-off effect through the economy as a whole is widespread and rapid. Where are the tax concessions in the budget in terms of VAT? The concessions are in relation to items coming across the Border, white goods, television sets and so on, all of which are manufactured outside Ireland. I am not saying that the VAT rates on these items were not criminally high but they are being forced down simply by the existence of the six-counties of Northern Ireland and not by any other factor. The more that are purchased the higher our import bill. Yet the most indigenous of all our industries is savagely discouraged with awful consequences in terms of general economics and employment.
I now want to refer to the level of interest payments. If a company, Ireland Ltd, or Ireland Incorporated was in the kind of situation that Ireland is in at present it would be in liquidation because Ireland is insolvent. We are not in liquidation because we are a sovereign country and you cannot liquidate a sovereign country for commercial reasons. In any event this company is still trading subject to a very qualified certificate from some auditor and it has these enormous borrowings and interest costs. I have already given the figures in that regard. The cost will be over £2 billion in interest alone next year because another £2 billion is being borrowed this year almost as if it did not matter.
If a company were faced with enormous interest costs they would look around to see what their assets were, particularly if they had a large accumulation of long acquired and cheaply acquired assets. They would ask themselves whether it was wise to continue with these frequently underutilised assets and at the same time pay the enormous borrowing costs that were part and parcel of Government in recent years. The company would immediately come to the conclusion that they would be very foolish to do that and that the only proper course of action which made commercial sense and which might keep the company in existence and viable would be to replace that borrowing, which is so costly, by moneys that could be obtained by the disposal of their assets. I am sure many companies would not want to do this, but in the circumstances they would have no option. Many of us would not wish to adopt this course either but do we have any option if we take a realistic look at how we are going to solve the awful situation in which we are?
At present the cost of funds to the Government varies between about 14 per cent at the lowest to 17 per cent at the highest, depending on the duration for which they require the money. How many of our assets have the equivalent of yields of only 4 per cent, 5 per cent or 6 per cent? Is it not crazy to continue to borrow money and not to realise some our our assets? One example is the case of an office block built by the Government today at a cost of funds of about 15 per cent but rentable at about 5 per cent or 6 per cent. Why should the Government own any such assets if the cost of ownership is two or three times the cost of sustaining the borrowing in order to own them? It is now much better to rent them rather than to borrow money on that basis. If you have assets that are saleable on the basis of a yield of 5 per cent, why should you retain those assets if the cost of part of your Exchequer financing is 15 per cent cost on funds?
Another example is in the area of forestry. We have considerable State forests now but, unhappily, we are not making great use of them. Apparently there are all sorts of difficulties about their utilisation and they are not looked after properly. They are not thinned or harvested when they should be, but they are still a major capital asset. They could be sold on the same basis as they are sold in the UK on a yield of about 5 per cent provided the thinnings taken out in the first 20 years were tax free as a repayment of capital. This has worked extremely well elsewhere. There are many institutions which would be prepared to purchase them as an investment. They would still be just as valuable to the country and possibly more so because they would be looked after with greater care by private owners. Why not contemplate some programme dealing with the sale of part of our forests and use the proceeds of such sale to reduce our borrowing? That would make good economic sense. That is becoming increasingly obvious to other countries whose economic position is nearly as serious as ours.
CIE is the biggest lossmaker of all our enterprises. Look at the assets it has and at the buildings which are underutilised or not utilised. There are substantial amounts of property in this and other cities which are capable of being developed but which at present are not utilised. What is the capitalised value of Bord Gáis Éireann at present with its very substantial profits? Why should it not be realised? It would make a substantial amount of money and at the same time its rate of profit in private hands could be controlled by the price control mechanism. Why not avail of the assets it represents and as a result make a substantial reduction in our borrowing?
These are practical suggestions as to what could be done in the short term. The Minister for Finance has given a somewhat simplistic presentation of the proposition by saying that it is impossible to reduce borrowing while at the same time maintaining necessary current expenditure. That is not so. If we look at the matter in a slightly different and more commercial way than has been our wont up to now we may well see other ways out of the dilemma that faces us.
The issue which faces us is our survival as a viable economy and therefore as a democracy. It is worth looking at some of our extremely successful companies, both public and private, and seeing what they have in the way of assets. Some of the biggest of them have hardly anything. This may have contributed to their success. I will not name individual companies but one does not need to know a great deal about the commercial scene here to know that this is true of most of our successful companies.
One of the features of the budget — I am sure not many speakers will deal with this aspect of it — which will do a lot of harm to employment is the manner in which the Minister for Finance and the Government have capitulated on the question of public sector pay. Despite the national plan's insistence on only a nominal increase in 1985, it now looks as if the public sector pay bill will overshoot its target by £100 million this year. If this buys industrial harmony in the public service it will only be at the cost of unemployment in the private sector. That the Government failed to keep their own pay bill under control is hardly surprising given their extraordinary negotiating stance prior to the budget. They told the public service unions that if pay limits were exceeded the excess would have to be recouped through extra taxation, higher charges for services and more borrowing. These measures spread the cost throughout the community with public sector employees as the main beneficiaries. These are ineffective threats. Would you accede to my wishes if I threatened to cut off someone's else's nose to spite your face?
Most private sector workers especially in the least sheltered industries have come to understand that excessive pay rises cost jobs. This understanding was born of bitter experience. Unfortunately the public sector have a less direct mechanism. When its pay rises too quickly jobs are not lost there but in the private sector. It is worth remarking that the excess over what was announced a few months ago as the public sector pay bill for this year, approximately £100 million, is the same amount that has been taken out of the construction industry with the 100 per cent increase in VAT. I dealt with that earlier and showed what the consequences would be in terms of job losses and the demise of companies.
There are many bits and pieces of the budget that anyone would agree with. I welcome the aspect of the budget which deals with tourism and the reduction from 18 per cent or 23 per cent VAT in respect of different services to 10 per cent. The single exception unfortunately was restaurants which still labour under the penal rate of 22 per cent. I congratulate the Minister for Finance and the Minister for Industry, Trade, Commerce and Tourism who possibly persuaded him, for what he has done.
One would like to see their concern for tourism extended to their colleague, the Minister for Communications. In this morning's newspaper I read that he is going ahead with the Air Transport Bill. Apparently a number of amendments were made to this ill-fated legislation which the Government agreed to — the emergency loophole plugger of last June — and it is to be brought in again. What was the point in the Minister for Finance coming in here at a time of great financial stringency and making these very welcome and substantial cuts in VAT to aid the tourist industry while, after a lapse of eight months, this Bill is to be reintroduced, the main purpose of which is anti-competitive and anti-tourist? Much of the good that will be done by the VAT reduction in the budget will be undone because of the inability of people to get into this country at a reasonable price in order to avail of what we hope will be somewhat lower prices. Perhaps the Minister for Finance and the Minister for Industry, Trade, Commerce and Tourism would prevail on their colleague, now that this emergency Bill has been allowed to lie fallow for eight months, to let it lie fallow for eight more months. It is sad to see unnecessary damage done for all the wrong and most silly of reasons in terms of the introduction of anti-consumer legislation just at the time when our major competitors in Europe are moving in the opposite direction. It is worth reminding ourselves that as well as having low VAT rates for tourism in countries such as Britain, Holland and Germany, those three countries have entered into bilateral agreements with one another to reduce substantially the cost of flying between their countries. Even in a matter of months that has resulted in a substantial increase in the number of tourists travelling between Holland and Britain and between Britain and Holland. In addition, the effect in the coming year on travel between Britain and Germany will be even greater.
Our tourist industry has been doing badly for a number of years, partly as a result of high VAT rates. That matter has now been rectified in the budget but are we going to see that rectification set at nought because of the foolish policies that apparently are being followed in this part of the island and nowhere else in Europe? The whole tendency elsewhere is to break down the cartel system of keeping up airfares artificially and keeping out new airlines from routes between various countries. Unfortunately, we will have the opportunity to speak at length about that matter in the weeks and months to come. I should prefer not to have to speak about it because, unfortunately, the Bill will undo much of the good that has been done as a result of the budgetary provisions. It is running entirely counter to what is happening in the rest of Europe and to what was proposed by the EC in their second memorandum on air transport last year.
The deficit in the budget has been increased still further by the unfortunate failure of the State at the end of 1984 and the beginning of this year to resolve in a satisfactory way the question of its investments in the Bula company in the Navan ore body. We saw an announcement — technically it was a leak rather than an announcement — in newspapers after Christmas from which it appeared that the Government had turned down a proposal by the Minister for Energy and his Department whereby an independent mine would be set up at a total cost of £95 million to develop separately and independently what has been described as the Bula part of the Navan ore body. Apparently the Government debated the matter for some time and turned down the proposal. I congratulate them on that because it was a wise decision. It was a proposal that should never have been put to them by the Minister for Energy. Having done that, they then tried to cause the parties involved to talk to one another and to come to some resolution of the problem.
There was an announcement, or at least an indication, in the newspapers of what the State proposed to do, namely, taking over the existing Bula company in which it already has nominally a 49 per cent share but in effect 24 per cent and selling it, apparently at cost, to Tara Mines Limited, the only company operating there. After it became apparent at the beginning of January that this was what was in mind, I asked why the State found it necessary, at expense ultimately to the taxpayer, to reimburse the private shareholders of that company in respect of losses sustained during the past eight futile years and not to see that the State was reimbursed in any way. I asked that question at some length on radio and it was printed in the papers but I have not seen any reply. It is a question worth repeating because it has no small bearing on the amount of deficit that has to be dealt with in the budget and it has no small bearing on the overall approach to mineral development here and to allied matters.
One gets the feeling that the almost perverse anxiety of the Government to see that those private shareholders should not be out of pocket in any way as a result of the past eight futile years is due more to historical ideology and an anxiety to try to cloak up the errors of a previous Labour Minister for Industry and Commerce in the mid-Seventies than having anything to do with commercial reality or sound accounting or economic practice today. I wonder if the Minister for Energy or the Minister for Industry, Trade, Commerce and Tourism — I think he has not spoken in this debate — would indicate to the House why the Government took this extraordinary step, or at least they propose to take it.
Even though this matter was publicised early in January, I understand agreement has not yet been reached. I have heard a rumour — I do not know if it is true — that when these announcements were being made in late December the Government took it upon themselves, apparently with no publicity, to make a further substantial payment to a number of banks who were owed money by the private shareholders as part of interest due by them. That is a matter which should be clarified. Already more than £10 million has been paid to or on behalf of the shareholders concerned. It would be very disturbing if it were shown to be true that further payments have been made in recent weeks for the same reason. As far as the State and the taxpayers are concerned, I regret to say it is money down the drain. Under the arrangements proposed the State will get nothing back although the private shareholders, whom one might reasonably say were perhaps the cause of the present situation because the State was not actively involved in the running or management of the company, will be at no loss as a result of the failure and the consequent insolvency of the company.
Debate adjourned.