Dáil Éireann díospóireacht -
Thursday, 25 Apr 1985

Vol. 357 No. 9

Finance Bill, 1985: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. Haughey

The Minister for Finance, as I have already said, has had the audacity to say that this Government are achieving their budget targets. This year the same Minister brings in the highest budget deficit ever — £1,234 million, or 7.9 per cent of GNP. This is the Minister for Finance who talked a while ago about reducing the current budget deficit to £700 million. It is totally deceitful for the Minister to talk about achieving budget targets when, in fact, what he is doing is letting the current budget deficit run to an unprecedented height.

As I see it, the Minister for Finance, in particular, and this Government have adopted a totally new tactic so far as the public finances are concerned. What they do is bring out a document, proposal or statement setting themselves the softest of all possible options. In this case it it the current budget deficit. Then their propaganda machine goes to work and their pretty pliable public media accept the soft targets put out — a current budget deficit of enormous proportions. Then the Government and the Minister gives themselves a pat on the back and credit for reaching these soft targets which they set. That is exactly what has happened here. The Minister in his Budget Statement set himself a current budget deficit of practically 8 per cent of GNP — an all time record. Now he comes in and assures us that he is reaching his budgetary targets. Why would he not reach them, since he set them and at the softest possible level of achievement?

In another part of his speech, the Minister said as follows:

The recent publication of the end quarter figures for March led to some wild speculation that a second budget was planned for 1985. There was no basis for this kind of comment.

Later on in the same paragraph, he says:

Should it happen that a significant overrun begins to emerge during the course of the year, then the Government will take whatever steps are required to keep the budget in line with targets.

I want to state that that represents double-speak by this Minister for Finance.

First of all he implies that there will be no second budget. Then the second statement clearly envisages that there may be. When the Minister for Finance talks about "whatever steps are required to keep the budget in line with targets in the event of significant overruns", he is, of course, talking about a second budget and nothing else. It is totally misleading for him to suggest that talk of a second budget is wild speculation. It is nothing of the sort, because the trends shown up in the first quarter Exchequer returns, if they were to continue throughout this year, will certainly require a second budget of some kind.

There is another contradiction in the same paragraph. In one part of the paragraph the Minister says that it is much too early to draw conclusions about trends for the year as a whole, while later on he says that he has "no reason at this stage to be other than confident about the likely outcome". If it is too early to draw conclusions for the year as a whole, how then can the Minister be confident about the year as a whole?

That whole paragraph by the Minister represents, as I say, an audacious piece of double-speak and is totally unworthy of a Minister for Finance, coming into this House purporting to give us a factual outline of the position in introducing a Finance Bill.

This Minister's preoccupation with presentation rather than with straight factual statements is leading him into this sort of self-contradictory statement. We all recall that on introducing the budget this year, he departed from all previous tradition and practice in the manner in which he presented his budget. He did so because his budget speech was being broadcast on radio and he wanted to bring the good news in the budget forward to the beginning so that he could create the best possible atmosphere for his radio audience.

That sort of thing may be what the national handlers require the Minister to do, but it is certainly not in keeping with the dignified and responsible tradition of previous Ministers for Finance from all parties in this House.

We had more of this type of preoccupation with presentation and propaganda in the sort of speech the Minister delivered here on Tuesday. The local elections are coming up and it is necessary to give out some good news and whip up enthusiasm in the Government party ranks. I have no hesitation whatever in accusing the Minister for Finance of distorting the economic and fiscal realities of our situation for party political electoral purposes.

The Minister's most recent claim that we have come through the worst of the recession and that there are some encouraging economic developments is just not credible. This sort of claim has been made at periodic intervals over the last 18 months, especially by the Taoiseach, who has been seeing the light at the end of an awful lot of tunnels and who has turned an awful lot of corners. At the same time, unemployment rises, emigration grows and factory closures continue.

The fact is that in many, if not most, respects our economic situation is much worse than it was two years ago. The Minister's own Fine Gael predecessor, Mr. Richie Ryan, MEP, claimed at the weekend that the situation had become so bad that even the next, presumably Fianna Fáil, Government would not be able to do anything about it. One of the Coalition's State board appointees, an economist from Trinity College, urged this week that the IMF should be called in because the Government have given up on the public finances. Any economist today will tell you that (a) there is no recovery and (b) the Government's attempts to correct the public finances have failed. Indeed, I challenge the Minister to produce one reputable economist who will affirm that the recession is over and that economic recovery is underway. He will not be able to find one because in conscience nobody with any regard for the realities of the situation could make such an absurd proposal.

We have almost 18 per cent of our labour force unemployed. In December and January of this winter the numbers unemployed rose by 17,600, the highest rise for any two month period since records began. A slight fall since then does not appreciably alter that picture. Major industrial closures and financial collapses continue. Emigration on a large scale has started again, estimated at as much as 30,000 a year by agencies in Britain, and that does not include the United States.

Investment is at its lowest level since the 1960s. IDA job approvals are running at about half the level of the early 1980s and are in no way counteracting job losses. Real interest rates are at an unprecedentedly high level, about eight percentage points above the rate of inflation. The recent slight drop in interest rates does not even fully restore the situation that existed at the beginning of last December.

Despite our rate of unemployment of 18 per cent, the Finance Bill contains no new measures to promote employment. Unemployment is running at 60,000 above the level that was the starting point when the Government came to office and was the starting point of the Coalition's Joint Programme for Government and it is 10,000 above the peak projected in the document Building on Reality as late as last October. The latest ESRI-CII survey does not anticipate any increase in manufacturing employment this year.

Employment in the construction industry continues to fall and it is only 58 per cent of the level of five years ago. We are told the economy is recovering, but in one of the basic industries employment is at 58 per cent of what it was five years ago. Of all the sectors, building and construction have suffered the most severe contraction. The annual bulletin of housing statistics shows that in 1984 house building fell by 25,000 for the first time in eight years despite an increase in local authority housing. The decision to raise VAT on new houses from 5 per cent to 10 per cent is a piece of lunacy in the light of falling housing construction. We will be putting down an amendment to cancel that increase and we will be looking for support for that amendment when the time comes.

I was intrigued to hear Deputy Allen in his contribution try to defend that increase in VAT from 5 per cent to 10 per cent in respect of new houses. I had the experience of discussing the situation with some people involved in building and construction in Cork, which is Deputy Allen's own city. If he would take the trouble of talking to them I do not think he would dare come into this House and make the kind of case he tried to make today. All Deputies have been circulated with a good document from a firm of auctioneers, valuers and estate agents. Naturally as a commercial firm they are putting forward their own case as best they can but nevertheless their analysis of the situation is a good one. For the benefit of Deputy Allen, I should like to quote some extracts from that document:

However, the announcement of the doubling of VAT on new construction from 5 per cent to 10 per cent in the January budget arrested the improving trends and since then there has been a serious decline in both sales and starts of new houses and apartments. The decision of the Government recently to increase the new house grant from £1,750 to £2,000 will do little to avoid the mass unemployment that will take place in the building industry during May and June of this year.

The document went on to say:

Hundreds of sites throughout the country are in the process of being closed down and in most cases only dwellings which must be completed before the advent of the new VAT rate on 1st May are being completed. The doubling of VAT has dealt a massive blow to whatever confidence remained in the residential sector.

That document reflects the general view of the building and construction industry. The increase from 5 per cent to 10 per cent is quite inexplicable. The kindest explanation is that the Government did not fully understand what they were doing when they were increasing the rate but when they discovered what they were doing to the industry they should have had the courage to change their decision. On Committee Stage we will give them an opportunity to mend their hand and to withdraw this ridiculous imposition on an already seriously crippled building and construction industry.

Deputy Allen also pursued a tactic which is now commonplace among backbench Government Deputies. They come into this House and they demand certain things, they complain about other things and they insist that certain things must be done. However, they conveniently ignore the fact that they are Deputies of the Government parties and if they want things done the right approach for them is to go to their Ministers or to raise the matter at their parliamentary party meetings and to insist that action be taken. It is a rather despicable tactic for Government backbenchers to come in here and complain about this and that, to demand this and that and then to march dutifully into the lobby in support of Government policies that are doing exactly the opposite to what they require. It is parliamentary hypocrisy.

Deputy Allen came here today and spoke about the need for a programme of decentralisation. I found it difficult to believe my ears. He suggested the Government should pursue such a programme, but we in Fianna Fáil had begun a clear specific programme of decentralisation. We set it out. I happen to have with me our press announcement at the time, dated 22 October 1980. We outlined our plans to transfer Government offices to the Limerick-Nenagh-Ennis area, to Waterford, Dundalk, Sligo, Letterkenny, Galway, Cavan, Ballina, Athlone and Killarney. We also proceeded to implement that programme. Sites were bought, plans were drawn up and the whole programme was going ahead. This Government came in and cancelled the whole programme. Perhaps they were right in cancelling it in accordance with their particular economic philosophy. But it is hypocritical of Deputy Allen, who supports that Government and their policies, to come in here and ask for a programme of decentralisation when he knows that our specific programme of decentralisation, which had already been under way, was cancelled by the Government he supports. That is typical of the sort of thing that has gone on in this House over the past two years. Government backbench Deputies, from all parts of the country, come in here, make speeches, insist on this, demand that, complain about something else while, at the same time, marching through that division lobby in support of Government policies doing and achieving exactly the opposite.

I want to suggest that the income tax changes in this budget brought about no significant change in the tax burden of any group except for those in the top tax bracket. Most workers will have experienced little or no increase in their take home pay after 6 April. Indeed many will have had less in their pay packet than they had in the previous week. The Minister, in his press statement of 11 April 1985, accompanying the publication of this Finance Bill, made the unfounded claim that the provisions incorporated in this Bill are a big step forward towards a demonstrably more efficient system of fairer taxation. As far as most people are concerned the changes are so microscopic that they will go unnoticed.

It is generally recognised that one of the major problems facing our economy at present is the depressed state of domestic demand. According to the CII-ESRI survey for February, nearly one in four firms reported that production was being constrained and of these, 73 per cent blamed insufficient demand, that is in an economy which this Minister for Finance had the audacity to tell us is full of of confidence and has turned the corner.

Traditional home industries are continuing to fare badly. The volume of retail sales has declined by 10 per cent since 1980. Most of the decline in the last two years has been the result of direct and indirect tax increases. Reductions in taxation need not necessarily result in any significant fall in revenue given the present depressed state of our economy. Here I want to commend to the Government a process of selective tax reductions designed to promote employment. Whatever arguments may be put up against that proposal of ours in times of expansion, development and increasing output there can be no argument against it at present when, all over the place, we are seeing diminishing returns setting in. The first quarter figures for this year clearly indicate to us that there are diminishing returns throughout our economy on a massive scale. In that situation the logic of selective tax reductions in particular areas, which create employment and remunerate themselves, in my view is overwhelming. Why the Government cannot look at that is beyond me. Is it that they are so blinded by these monetarist doctrines which they have espoused that they cannot look at one single, sensible, practical proposition of that kind? Are they so obsessed with this fiscal rectitude, these monetarist doctrines, which are not even working for them?

Richie Ryan, MEP, in one of his usual outspoken outbursts indicated last weekend quite clearly to us that in his view the Government's financial and fiscal policies are not working. Other economists I have already mentioned said exactly the same thing although it is interesting to note that many economists who were breast high in monetarism and fiscal rectitude, who criticised us for our different outlook, are now all beginning to come round to believe that monetarism has failed and that the policies so implacably pursured by this Government have resulted in failure.

The principal rises in the level of VAT and the multiplication of rates in recent years were decisions of Coalition Ministers for Finance. Are we expected to give this Minister for Finance credit for correcting his mistakes? The top rate of VAT, which four years ago was 25 per cent, having been raised to 30 per cent and 35 per cent, has now been reduced to 23 per cent in a belated effort to compensate for the effects of those decisions. Somewhere in his remarks the Minister for Finance claimed credit for doing this sort of thing. For example, towards the end of his opening remarks on this Bill he had this to say:

One of the central points repeatedly made by the Commission on Taxation in their reports to date is that we must simplify our tax structure. I entirely agree with this and the changes in income tax and VAT which are incorporated in the Finance Bill are a big step forward towards a much more rational system of taxation.

Bravo. Hear, hear. We have a Minister for Finance who will now simplify VAT rates which he and his colleagues complicated in the first place. Since coming into office, in their first, short-lived period, and within this period, they have multiplied taxation in every direction, created a whole new series of taxes of one kind or another, a whole new band of value-added tax rates. Now we are expected to give them credit, to applaud their decision to uncomplicate this system of VAT rates that they made complicated in the first instance.

We warned over the last two years the disastrous consequences the high VAT rates would have in Border areas but only now is any attention being paid to those warnings. Trade lost in those areas will take a long time to recover fully. However, most of the items that prior to the July 1981 Budget were charged at 10 per cent remain at 23 per cent while the 10 per cent rate of VAT applies, for a large part, to items that used to be zero rated or 3 per cent — footwear and clothing, fuel and new houses to name but a few examples.

The urgent need for VAT reform arose directly from the savage rate increases introduced by Coalition Governments. The reform which we introduced — levying VAT at the point of entry — was the only real major one, a decision which incidentally two years later was copied by the British Government. We all recall the ferocious onslaughts made on us at that time by the present Taoiseach and other leaders of the Fine Gael Party about that major reform we brought about.

Section 11 of this Bill provides for the continuation of the 1 per cent income levy introduced by the Coalition in the 1983 Budget and justified by reference to what they described as the very serious budget situation. The fact that this 1 per cent levy is being continued leads us to the conclusion, despite all the cutbacks and hardship imposed by the Coalition, that we are still in a very serious budget situation. That was why that 1 per cent income levy was introduced in the first place — because of a very serious budget situation. It is now being continued. Therefore, ipso facto, we must still be in a very serious budget situation. But the Minister for Finance tells us that we are reaching all our budgetary targets, that we have turned the corner and the worst is over. The amount of inconsistencies on the part of this Minister for Finance certainly will merit a major entry in the Guinness Book of Records, that is if they have any paragraph in that publication for inconsistencies. I am not sure that they do. But if they do not the Minister for Finance and his Coalition Government would merit a very special heading in that book for a massive parade of inconsistencies of one kind or another.

As everybody knows, very high rates of taxation are to be continued through the medium of this Bill. We on this side of the House believe that the only way to give our economy a fillip, in an endeavour to attempt to turn it around, is to secure a very significant reduction in taxation levels. One of the ways in which people could hopefully look forward to achieving a reduction would be from revenues from offshore oil when it comes on stream. Therefore every taxpayer has a real interest in what will happen in regard to the taxation of those who will be reaping the benefits from offshore oil when it comes on stream. We are unhappy with the way this is being dealt with by the Government; it arouses our suspicions. This is a potential source of revenue.

There are a number of things in this Finance Bill which were not mentioned in the Budget Statement. That is not exceptional. It has happened from time to time over the years that things occurred to Governments and Ministers after the budget, and they were included in the Finance Bill. But, why was there nothing in the Finance Bill about the taxation provisions governing offshore oil when it come on stream? Would it not have been a natural thing to do if we are going to have a change in the royalties and the taxation provisions, so that we could discuss them on Committee Stage so that every Member would know what exactly was involved and so that we could decide on whether the taxpayer was getting a fair deal? That is not the way in which it was done. We have had a sudden announcement about changed conditions and a complex statement was issued by the Government through the Minister for Energy about new provisions. Some people on this side of the House are reasonably intelligent and got honours maths in school in the leaving certificate but none of us could make head nor tail of the statement put out by the Minister yesterday evening, and when he came in here today he certainly did not make the situation any clearer. In due course we will have to try to get experts to tell us exactly what is involved and what is going on behind this complex statement which the Minister put before us. Are some commercial concerns being singled out for favoured treatment?

My colleague, Deputy Reynolds, drew attention to the doing away with royalties and the changes in the tax provisions. The royalties, as Deputy Reynolds pointed out, were one way of ensuring that we could avoid any cheating or any creative accountancy for which some people in this area are well known. The taxpayer could be certain that the royalty was a fixed sum per barrel of oil and that he would not be cheated out of the return. That is being done away with and we are left with complicated algebraic formulae. As yet none of us have been able to decipher it but we will make it our duty to get to the bottom of it.

A statement in the Minister's speech today sends signals to us and it starts the alarm bells ringing. He said:

I will, of course, be prepared to consider, on a case by case basis, any requests from the holders of existing licences to have the new arrangements made applicable to their current licences, but it may be necessary to seek appropriate adjustments in work programmes in such cases.

That is what it is all about.

Mr. O'Kennedy

I wonder who they are talking about?

Mr. Haughey

The phrase that causes me to raise my eyebrows is "on a case by case basis". That gives the Minister of the day a fair amount of scope to make suitable arrangements as he thinks fit. Surely the whole point of bringing in new conditions is to attract new investments, to encourage people to start drilling wells. Why should these conditions at the discretion of the Minister be applied to people who are already drilling? They have carried out their drilling and development under the terms that were available at the time, so why should these new arrangements be applicable to people with current licences? The House, the public and the taxpayer are entitled to know that, particularly the hard-pressed PAYE sector. If there is any suggestion that the overburdened, hard-pressed taxpayers will not get the maximum possible return to which they are entitled from the development of this natural resource, we will have to sit up and take notice.

This Government are now two and a half years in office and it is evident that their economic strategy has failed. Nobody could deny that the country is in a far worse state since they came to office: our difficulties have increased rather than diminished, borrowing has accelerated and the public finances are far more in imbalance than they ever were. The monetarist approach has failed. The economic doctrines of the new right which are only old nineteenth century policies resurrected have created mass unemployment and driven more and more people to emigration. We cannot afford to continue on this downward path. We must make an economic leap in order to break out of the vicious circle of depressed demands, closures, growing unemployment and high taxation. A turn around is needed urgently but unfortunately this Finance Bill and the budget it implements only offers us more of the same mistaken, misguided policies that we have had to ensure now for two and a half depressing years.

Mr. O'Kennedy

I should like to inquire if on the Order of Business an order was made that during the course of the debate on the Bill the Labour Party are to be prevented from supporting the measure?

An Ceann Comhairle

I am calling the next speaker, Deputy Durkan.

Mr. O'Kennedy

Will we have a representative of the Labour Party to support the Bill? Was an order made about that?

An Ceann Comhairle

That is not a matter for the Chair.

Mr. O'Kennedy

Was an order made by agreement preventing them from doing so? They will vote for the measure, I have no doubt, but the question is: will they support it?

Mr. N. Treacy

They have gone to their habitat.

Mr. Durkan

I am sure my colleagues in the Labour Party will appear shortly to give a good account of themselves, like all Members on this side whether voting or not. The Leader of the Opposition was critical of Government backbenchers and accused them of being guilty of parliamentary hypocrisy by demanding things that we should be in a position to have implemented by virtue of the fact that we are in Government. I reject that criticism. It is the duty of Government backbenchers to be critical, if necessary, and to contribute and demand as often as is necessary. That is parliamentary democracy and it should apply to the Government parties just as it has always applied to Opposition parties.

Mr. N. Treacy

Defending the indefensible.

Mr. Durkan

The attitude of Government backbenchers should be compared to that of Opposition Members who repeatedly demand things they know cannot be delivered. They had ample opportunity to do many things when in Government two and a half years ago but they were incapable of doing anything. I will always strongly defend the right of backbenchers to make demands and pursue their case vigorously. That is what parliamentary democracy is all about and all Members must have a high regard for that and the right of backbenchers to contribute at any time.

The Leader of the Opposition said that the country after two and a half years under the Coalition was in a worse position than when we took office. I reject that assertion. If all the suggestions by the Opposition were the panacea to resolve all our problems why is it that Fianna Fáil did not implement them when in Government? Had they done so we would not have any problems today.

I welcome the introduction of the Bill. Many will say that the Government could do a lot more, and I have no doubt that if other parties were in Government in an election year a lot more would be given, but that would not be in the best interests of the people or the economy. The Government have a responsibility to bear in mind at all times that concessions given in a budget must be paid for. As has often been pointed out, there are two ways of paying for give-aways. We can either borrow or increase taxation. After all the discussions that have taken place here on the economy in the last five or six years politicians must surely recognise the need to be realistic. There is no sense in trying to mislead the public and convince ourselves that what we are saying is true if we cannot in cold figures illustrate that what we are proposing can be done.

There is a classic example in regard to the local charges imposed by local authorities. Members of local authorities would not of their own volition introduce a local charge but something had to be done so that services could be provided. The Opposition have announced that they will replace that system with a restructured local authority financing system. I would love to know what that means. Will the Opposition tell us what it means? In my view it means a local taxation system of some type or other. The people who will be voting on 20 June have a right to know what Fianna Fáil mean by "a restructured local authority financing system". The public should be told if it will mean an alleviation of the burden of existing taxation. I do not think it will mean a reduction in taxation, and when all the tinsel and the wrapping is removed I have no doubt it will mean that there will be a greater burden on people. I am not saying that the existing system is the ideal one.

In times of economic difficulty, even in an election year, it is hard to be flamboyant in the budget. However, a number of worthwhile changes have been announced in the field of personal taxation. I accept that they are only minor changes, but they are needed. The increase in the total income tax allowance for married people from £3,600 to £3,800 was welcome. There has also been an increase in the personal allowance for widows from £2,300 to £2,400 and for the year when widows are bereaved from £3,600 to £3,800. The increases are only marginal but they are sufficient to keep in step with inflation. They are an indication that somebody is aware of their plight. The allowance for single people is being increased from £1,800 to £1,900 and there have been a number of other increases along similar lines.

There is no doubt that the biggest issues in the minds of the public are unemployment and taxation. Unemployment is a serious problem but great efforts are being made to do something about it. Direct and indirect taxation is a big burden on our people, but I wonder about the suggestions put forward by the Opposition in regard to taxation. We have heard suggestions about selected inducements, reflation and other throwaways, but I wonder if they are feasible. I do not think such moves were successful in the past. If Fianna Fáil consider that they would solve all our problems why is it that they did not introduce them when they were in Government?

There is a feeling in some quarters that taxation can be reduced without any measures being taken to make up the shortfall. We do not spend enough time telling people where their taxes go, where the money is spent, whether on environmental services, health or educational services or a whole host of other services which are regarded as being free. Deputies from all parties have not been telling the people exactly what is happening. Nothing is free — they pay for it all. When a Government tell the people that they will be able to give them something without any additional burden, then it means the money will have to be borrowed. It is unfair, unjust and unethical to try to tell people that this can be done. It was done in the past in 1977 when people were told that cars under a certain horse power no longer needed to be taxed. People enjoyed four or five years' complete relief from that taxation and everybody thought it was a great idea. It probably seemed so at the time but nobody pointed out what was likely to happen to the road system as a result. Did anybody point out that a continuation of that policy would be disastrous? Does anybody now claim responsibility for the current condition of the roads as a result of that measure of tax relief? It is about time we realised that we can only give to the people what we are taking from them. If we give over and above that amount then we have to pay it back at a very high cost in terms of interest, and future generations will have to bear the consequences.

It can undoubtedly be said that there has been a general increase in the burden of taxation over the past couple of years. If the burden of taxation were much lower, where would the revenue come from to pay for the services that are now being demanded with increasing rapidity by the people opposite? Perhaps they could tell us, keeping in mind at the same time their failures in the past.

The VAT system is another element of taxation. There is a degree of criticism of the levels of VAT and the impact on some industries, particularly small service industries which are labour intensive. Often these enterprises have large borrowings at high interest rates and many of these employers are probably asking themselves whether there is sufficient incentive to remain in business. Many people feel they would be better off not using their skills and expertise to provide themselves and others with jobs but allowing the system to look after them or in some cases operating on the black market. More consideration could be given to the problems experienced by firms, particularly service industries which are faced with heavy administrative, VAT and other costs, in order to encourage them to remain legitimate and not go into the black economy. Many who are now operating legitimately may feel that they would be better off out of the system. Perhaps the proposals the Minister has now set in train, such as the reduction or removal of some VAT bands, will have the desired effect in that area. If not, it could mean the loss of a number of small service industry jobs. It would be sad if a number of employers were forced out of the system because of administrative and tax costs.

I welcome the change in VAT rates as the first indication of a move towards a single rate of VAT which would remove many administrative problems. It would, of course, create a number of problems in certain areas which are zero-rated since few people would applaud a change at that level. Nevertheless the general direction seems to be constructive and I hope it will have a beneficial effect on the economy generally.

A number of speakers have commented on the effect of the new rate of VAT on the construction industry. It would be wrong to say that anybody involved in that industry has welcomed this change. Obviously it creates an extra burden and increases the price to the purchaser by adding to the overheads of house construction. It must be pointed out, on the other hand, that the Government decided to offset the burden somewhat by doubling the grant. The grant aid now available to the construction industry is greatly in excess of what it was some years ago when the people opposite felt that they alone had the sole responsibility for keeping the building industry in motion. I would contend that the increased financial provisions for housing, such as the £5,000 grant for special categories and the increase of £1,000 in the new house grant, will more than offset any ill effects that might be created by the increase in VAT.

There are a couple of other matters which at another time we might go into in more detail. One of these concerns VAT refunds for local authorities, a change they have been seeking for some time. They are seeking an exemption in respect of VAT on materials on the basis that this would have a major impact of their budgets. I appreciate that to make this change would result in a shortfall elsewhere but perhaps the Minister would consider the matter and make the change at some future stage.

We ought to provide further tax incentives for the small saver, incentives that would be greater than any proposed so far. I am thinking particularly of the elderly in this regard because there is evidence to suggest that a number of elderly people tend, for various reasons, not to invest their money. In some instances this reluctance may stem from fear on their part, fear of losing their meagre savings, fear of having to pay tax or of losing some benefit but we must do everything possible by way of incentives to encourage them to invest their money in the post office, in Government bonds or even in the banks. Money that is being hoarded and not invested is not being utilised for the good of the economy. Therefore, by bringing about a situation whereby the person with small savings would be encouraged to invest that money would not involve any cost to the Exchequer in terms of incentives.

The Opposition have been talking about a possible supplementary budget but those suggestions have been answered by the Minister for Finance. All I can say in that regard is that I can recall one or two occasions when the people opposite while in Government thought about introducing supplementary budgets but did not do so. During the last year in which they were in Government, public finances were very much out of control but no changes were made by way of supplementary budget to correct matters. Perhaps the then Government were not aware of how bad matters were or maybe they did not take action because of the pending general election. On that occasion a miscalculation to the extent of several hundred million pounds seemed to emerge. That information may be only academic now but it may be no harm to recall it because we can draw inspiration from such experiences.

Section 54 of the Bill refers to the levy on the banks. This is a topical matter because when business and people generally are experiencing financial pressure, it is reasonable and understandable that they demand the kind of levy that is being put on the banks now. Banking institutions and the big investors may not share that opinion but there must be some room for rationalisation in the banking system. To take one instance, a depositor with a bank is paid 8 per cent interest on his money while a borrower is charged about 15 per cent on the money borrowed. The margin in this respect has widened considerably down through the years. One appreciates that administrative costs have increased and that there have been various Government impositions on the banking system but these hardly account for the wide margin between the two levels of interest. The Minister might look at this question at some time in the future. I am not suggesting that it should be dealt with in a way that would impose a burden on the system but some means should be arrived at whereby the margin could be narrowed.

I regard this Finance Bill as being constructive and forward looking. It does not indicate proposals to hand out massive amounts of money to the electorate in an election year. The Bill has been designed carefully with a view to keeping the economy on the rails to the greatest extent possible. I am confident that that purpose will be achieved and that next year we in Government will be bringing forward another Finance Bill.

Mr. S. Brennan

The Deputy will be on this side of the House by then.

Mr. Durkan

A little numerical exercise will keep Deputy Brennan and his friends where they are.

Mr. S. Brennan

This country needs courage and the lack of courage on the part of the Minister for Finance in relation to this Bill is very evident. I wish to concentrate on merely a few of the sections of the Bill. Much of what it contains has been dealt with already during the budget debate. When I refer to courage I have in mind the sort of courage the Minister tried to bring to bear last year in introducing the venture capital scheme but, unfortunately, his own actions stifled that scheme subsequently. The same has happened again this year. I refer to Section 67 of this Bill. Section 67 demonstrates the toe in the water approach of the Government in the sense that they have come up with a very good idea and a very good scheme but then they strangle it with regulations so that at the end of next year they will have to dash in with amendments to make the scheme work. Why does the Minister continually bring interesting schemes into the House which sound good but which do not work?

Section 67 says that if multinational companies want to invest some of their £500 million — this famous black hole money — in special Government securities, the State will not tax them on that investment. On the surface, that is a good idea for which the Minister should be complimented, but unfortunately, this scheme will not work and we will be telling the Minister this time next year that it was a good idea which did not work. It will not work because while it is desirable that foreign firms should reinvest their profits in Ireland, if they make money in this country it is earmarked for two things, for manufacturing activities elsewhere and to reward shareholders with dividends. It is extremely unlikely that those funds will be available to invest in Irish Government stocks. Their other manufacturing plants all over the world will be looking for cash to reinvest in their business — not in Ireland — but worldwide. If that pressure does not get the money, the shareholders, who will be seeking those funds as a reward for their investment, will almost certainly get it. I compliment the Minister on the scheme but it is not of any great interest to the nation.

We want the multinationals to leave their money here and there is a better way of ensuring that they do so. The Government should encourage these firms to invest directly in Irish industry because those funds are for industry and not for putting away safely. If they wanted to invest in Government stocks or others, they would not be in the manufacturing business in the first place. They would simply sell off their plants, liquidate their assets and then buy Government stocks. If they were interested in safe, gilt-edge investments, that is what all companies would do. However, they are interested in manufacturing investment and in industry and commerce and that is what their money is for. The Minister should take advantage of that and encourage them to invest directly in Irish plant and machinery. Why not give them tax breaks if they expand their operations, set up new industries, or if they increased employment within their operations here? That would be a more practical approach and falls in line with what they want to do with their money.

Would it not also be a good idea to say to them that if they left some of their money here, we might consider joint ventures with the Government and other firms? There is much work to be done here in relation to the development of infrastructure, the food processing industry, our natural resources and so on, which need huge capital. We spoke this morning about the capital needed for oil exploration. Capital is also needed to build motorways and why not get money from multinationals to put into those schemes by giving them tax breaks? Why pretend that they suddenly want a nice, safe haven for the £500 million? They want to invest this money; to an extent it is risk money and, for that reason, the Minister's approach is wrong.

They could also be given tax breaks if they helped to increase the linkages in the economy, that is getting small industries to plug into bigger industries and get things moving in that way. Perhaps the Minister may like to amend the Bill as it goes through the House but I predict, as I did on venture capital last year, that the Minister will amend this section within 12 months because the companies will tell him that the money is for shareholders and plants worldwide. We should cash in on that and offer the plants and outlets here to invest directly in Irish industry. If they do that, they should get tax breaks.

There is another side to that upon which I want to concentrate because it demonstrates the wrong direction and naivety of the Government in introducing imaginative schemes and then panicking half way through and holding back. What happened in the venture scheme will also happen in this case. One would not be too suspicious in thinking that all the Government are trying to do here is to borrow money. That is fair enough because economists have been suggesting that we should borrow internally instead of externally. However, this section could force the Government into borrowing money at higher rates than in the marketplace because, if these special securities are issued at interest rates, it means that the Government are simply borrowing money from the multinational companies. They are asking them to lend them money instead of sending it abroad and they will be paid interest on it. If it is cheaper to borrow money abroad or in the Irish marketplace even with the tax break, why lock yourself into this system of borrowing money from multinational companies when you could get that money more cheaply elsewhere?

It is not clear from the section whether there will be a market created in these securities or whether people will be able to trade in them. If they cannot be traded in properly, multinationals will not get locked into them and the system will not work. The Minister has also missed a crucial area. I read the section carefully and, all through it, it refers to companies. Does the Minister know what is going on in the Irish economy? The reality is that most foreign operations do not have companies in Ireland, they operate through branches. The section does not mention branches and any reading of the section ties it to a company. Every second line refers to companies. It is quite clear that, for a start, nobody will qualify. I do not want to name companies but there are many large companies operating here as branches. The Minister should bring in an amendment in that regard and include the word "branches" in this section.

I have demonstrated that this shows the naive approach of the Minister for Finance in attempting to inject a spark into the Irish economy. He started off with a spark but he very quickly threw cold water on it and has now put it out. The fact that the Minister put this forward as a major advance worries me, particularly when put side by side with last year's venture capital scheme. Last year I welcomed the venture capital scheme as a step forward, but I want to quote what I said on 8 May 1984 in this House on this section of the Bill as reported in the Official Report, column 394, volume 350:

This scheme lacks a lot of courage. On the one hand it says that we want venture capital... to get businesses started, but there are so many barriers here that people will not avail of this scheme. The reaction I am getting to this scheme is that it is an exciting scheme; but there are too many barriers...

I said that 12 months ago in this House and I say the same about that section 67 today. I have been proved dead right about that venture capital scheme. Questions put down to the Minister in this House as recently as a month ago have elicited the response that only three or four venture capital funds have been set up in the country in response to the scheme. We had expected 30, 40, 50. We expected huge interest.

Secondly, only a handful, a few thousand pounds of investment has gone through the scheme and it is quite clear that the venture capital scheme, launched with much fanfare, has been a total failure. When we told the Minister last year that it was an exciting scheme we were not being begrudging about it. We pointed out that yes, it was a good scheme but he was killing it with red tape, and it did not work. I point out to add strength to my argument that this section 67 in regard to multinational companies will not work either and I ask him this year to take my word for it. I do not want to stand here again in 12 months' time having to point out that that section did not work either while admitting that it was a good idea.

On the venture capital scheme the Minister for Finance, Deputy Dukes, last year said, and I quote from column 428 of the same volume:

The scheme has been delimited to get the best results and the best multiplier effect we can from the application of investment to the kind of activity we have talked about. We could spread the net wider. There would be no difficulty doing that. It would require no imagination whatsoever. We could spread the investment jam a little more thinly and get a lesser result, but we are talking about a sensible balance between the requirements.

That was the Minister's response to our call here to expand and extend the scheme. He thought it unnecessary at that time. Six months later he announced some minor changes in it. Again in the Bill today there are more minor changes in it, and he tells us now that on Committee Stage he is going to bring in some further amendments.

The Minister was much too cautious with this scheme. The British experience with a much wider scheme has been more successful. All right, in the attempt to be more successful and courageous in Britain they have taken on a few cowboys, they have had a few bad eggs, the odd maggot has slipped through the net; but the result in terms of creating jobs has been an overwhelming success. In Ireland in our over-cautious approach of nailing down every little edge of the carpet and covering every corner in case the tax whizz kids would do you, we have killed the scheme. The Minister brought forward an exciting scheme and offered it to the public and nobody took it up. The Minister made that clear in his replies to parliamentary questions in the last few weeks.

I await the amendments on Committee Stage to see if they will be very interesting. The management fee must be altered if that scheme is to work, that is, the small percentage allowed to the people who manage the funds. A person who manages a fund of £1 million was offered £5,000 last year in the Minister's Bill. Would you manage £1 million funds for £5,000? I would not, with all the risks involved and the difficulties. We told the Minister last year that nobody would do that, but he was afraid the funds would rip off the investors so he was extra cautious, and cautious Deputy Dukes put into the Bill that the maximum was 5 per cent, and nobody took it up. He must change that. He made a statement recently, on which I compliment him, in which he said that he realised that those management fees would have to be changed and he will change them on Committee Stage. I look forward to him making that change, but let him do it properly if he is going to do it. Do not put it up to 7 per cent or 8 per cent. Leave it to the market, let the market decide. If I invest money in a financial institution or ask a fund to put away my money in manufacturing companies, I can handle what I pay the professional adviser to do that. We do not need the State to step in between the two of us saying "You cannot charge more than this". Leave it to the market and it will work itself out. The firms that charge too much will not get the support of the investor and the funds that give a good deal will get the support. It is another example of just too much Government interference in the regulation of the economy. That is one of the major difficulties in this economy on which I have spoken many times. I do not want to go into it today but we should face it squarely.

The Minister said also that he would extend this scheme to relatives. We pointed out last year throughout the debate on the venture capital that that had to be done, that you cannot exclude relations investing in these venture capital funds because if you do that you are excluding the people who have a real interest in doing it. The people who will have a real interest in investing in most small companies are not some fancy outside pinstripe suited bankers but more likely the relations and distant relatives, people who want to help out that company. Up to last year they were not being given the tax breaks and it is not in the Bill yet to do so. They should be given the tax breaks, and the Minister has made a public statement that he intends to make some changes in that regard. I encourage him to make those changes; but, please, if he is making them stop the dipping the toe in the water approach which we had last year in the venture capital scheme and this year in the multinational section. Plunge in, take the risk. We cannot be worse off in this country than we are today. Leaving party politics aside, the condition this country is in must be of serious concern to anybody no matter what political hat he wears, and this is no time for this extraordinary cautiousness which the Minister demonstrates in all of these schemes. If you are going to have an exciting scheme like the venture capital scheme, for God's sake let it breathe. If there are abuses we can tighten up a little, but at the moment good schemes are being stillborn.

I want to extend this venture capital area to financial services, to tourism, for example. Why not extend it to tourism, to construction, to agriculture? Some of our largest industries are being excluded in a scheme which simply says that if you invest £25,000 in an industry you can write that off against your income tax. That is a brilliant idea which is very successful in America, on continental Europe and in Britain. This country is the only place it has not been successful because we flew up the kite and then pulled it down before anybody had a shot at it. I am concentrating on that plus the multinational thing which I have talked about because, taken together, they demonstrate the basic problem of the Minister's approach to solving our economic problems, which is much too cautious, much too careful, offering the goodies and putting them back before anybody gets a chance to examine them. On the venture capital scheme I want to see amendments in this Bill dealing with management fees, with relations, including the services, tourism, construction and agriculture and in that way the Minister will get new funds set up and new investment in the economy. Those two matters epitomise what I want to say on the Finance Bill.

The income tax take will rise this year after an 18 per cent rise in 1984. That must be taken into account with the income levy, the youth levy and all the other tax measures in the budget. Let us be calculating about these figures. For a person employed the employer pays 12.2 per cent PRSI and the employee pays 5.5 per cent, the health charge is 1 per cent, the youth charge is 1 per cent and the income levy is 1 per cent. That is 20.7 per cent. I have said a number of times that, aside altogether from PAYE, there is 20.7 per cent taxation in the income of every person in the State. Is that a policy designed to employ people in this State? I have appealed to the Minister before now to tackle that situation. Every board of every company today have on their agenda after the usual items "rationalisation of staff" as they call it. The other word for that is "redundancies". The reason for that is that every person they employ, between the employer and employee a 20.7 per cent slice is taken off the top before any ordinary PAYE is taken. That is prohibitive. We must, as I think we can, get to a situation where at board meetings of all the companies the spirit of one item on the agenda will be that it is cheaper to take on extra people, so let us do it — not the notion that the more people we take on the more we are crucified, therefore we will not do that.

Apart from that burden of taxation which has been spoken about at length from this side of the House — and there is a growing awareness on the other side of the House — I would be delighted if I thought that burden could be reduced or stabilised, but the reality is that the figures do not look any better for next year or for the period of the national plan. If one looks at the Government's projections in that plan one sees it is inescapable that the taxation figure will rise even further, that is not to meet my targets or the targets set by outsiders but to meet the Government's own targets. The flow of revenue from taxation is not sufficient to meet the targets set down in the Government's plan. If I had time I could demonstrate that by a series of facts and figures which are there for everybody to see.

I want to comment on section 54 which deals with the bank levy. This question of taxing banks and of bank levies has to be rationalised, because while one arm of Government — the Department of Finance — were busy imposing a Robin Hood type of arbitrary tax on deposit holders by way of the bank levy, instead of having a comprehensive sensible taxation system, another arm — the Department of Industry, Trade, Commerce and Tourism — failed to supervise the Insurance Corporation of Ireland. They did not know what was going on in one of our major clearing banks, AIB and their then subsidiary, the Insurance Corporation of Ireland. The Insurance Corporation of Ireland should be made report to this House through their administrator now that they are a semi-State company. I am a little concerned that once the fuss has died down everyone will go back to his desk and let the situation drift. I will be tabling a motion at the Joint Committee on Commercial State-Sponsored Bodies asking that we call the Insurance Corporation of Ireland before us without undue delay because they are now a semi-State company and should be made amenable to that committee. There may be a case for the bank levy but there is no case for, on the one hand, a bank levy and on the other, not bringing forward a proper taxation system for the banks and not insuring the safety of depositors' funds because Departments are not living up to their responsibilities in controlling insurance companies in particular.

I welcome the section dealing with inheritance taxation. After June 1982, a spouse could bequeath a maximum of only £150,000 to the other spouse. That meant that the pension, home, life insurance policies and so on were totted up and if they came to over £150,000 the surviving spouse had to pay inheritance tax. This has been removed in this Bill and I welcome it. Let me say bluntly that it had to be removed because not removing it was returning us to the old system of death duties. Up to now the proceeds of insurance policies were included for inheritance tax purposes. This too has been changed in the Bill and I welcome it, but the Minister has not allowed income tax relief on the premiums of such insurance policies. If I am paying an insurance policy to pay inheritance taxation between myself and my wife I do not get income tax relief on the premiums I pay on that policy. Normally I get income tax relief on insurance policies but for some strange reason I do not get it on this policy.

I want to concentrate on this multinational business by saying it will not work and I put forward some suggestions as to how it might be changed. I pointed out the changes that would be necessary to make the venture capital scheme work. Let me deal now with the overall financial situation of this State which scares the living daylights out of me, as it does to anybody who is thinking clearly. This State owes £19 billion and we are borrowing more money at the rate of some £2 billion a year. I wonder if any of us, whatever our political persuasion, will ever see the end of these difficulties in our life-time. This scares the living daylights out of me when I look at my children and then look at this £19 billion increasing by £2 billion each year. Where is it going to end? How will we handle it? While I can make suggestions and proposals, and the Government have their own ideas, this is a real difficulty. I am not over-attracted by the suggestion of the economist, Mr. Barrett, that we call in the IMF. There has to be a case over the next few years for assistance from outside agencies, from the EC or the IMF, because I do not think we can handle this problem on our own. That is my honest feeling at this stage.

Could we, as a nation, reschedule some of this debt? In my view the burden of repaying this debt is so crippling that perhaps we should face the music and try to reschedule the debt and not allocate blame between the parties or politicians. We should face this problem together and do something about this £19 billion because in five or six years time we may be looking at a figure of £30 billion of £40 billion and looking at an increased proportion of our hard earned taxation money flowing out to pay foreign lenders. The Government as the leaders of the nation should take the initiative to talk to the EC and the IMF about a rescheduling of the national debt. I am aware that there is a certain amount of rescheduling going on. Individual loans are being rescheduled week in and week out, but they are only being pushed out by 18 months or two years. These are minor adjustments. I do not think we would lose face if we put that £19 billion in one box and told the lenders that we wanted to reschedule this, we want to renegotiate this, and we want to deal with this in a mature way before it engulfs the whole nation.

I know there are people who will scream about that and ask what about our credibility and international standing, but that did not seem to worry us where Irish Shipping were concerned. We had sheriffs chasing our ships around the globe, nailing white things on the masts, confiscating telephone lines, locking up provisions and so on. If this matter is handled sensitively I do not believe it will damage the reputation of this nation. I would like to see this country with the help of the IMF, the EC and if necessary the USA, reschedule the debt so that we can breathe.

Let me put it this way, what would any of us do if we had personal bank loans but could not live on our income. Suppose 99 per cent of our salary was going to pay the bank, what would we live on? How would we look after after our families and our households? This is what is happening to this nation. Too high a proportion of the income of the State is going to repay our debts. We have many committees set up to deal with various items and why not have one set up to deal with the national debt? We can allocate blame at the hustings, stand at opposite church gates and sort out who is to blame then but let us do something about the £19 billion before it engulfs this small nation on the edge of Europe and pulls it down in the next couple of years.

In the national plan it was stated that Government expenditure would be static but it has gone up by 2 per cent. It was stated that export growth would be 100 per cent but it has been 66? per cent. It predicted a 2 per cent fall in interest rates but interest rates have held since then. The point I am making is the same as my point about the national debt: the plan is off course. The best we can do is to attempt to reschedule the debt in a mature way with a maximum amount of support from all sides of the House.

Mr. Carey

This Finance Bill is to give expression to the 1985 budget as outlined by the Minister for Finance in January. At that time he examined the economic position. He said that in 1984 gross domestic product grew by almost 3½ per cent which was a rate of growth appreciably faster than the average for the rest of the EC. He said further significant progress was made in curbing inflation with the average increase in consumer prices for 1984 easing to about 8½ per cent compared with 10½ per cent for 1983 and 17 per cent in 1982. It is reported in today's newspapers that the Central Bank expects inflation to fall to 5½ per cent. That is an indication that the Government have been trying to resolve some of the grave financial difficulties outlined by Deputy Brennan.

We have a very serious financial problem. Like Deputy Brennan I agree that all parties should acknowledge that the problem exists. Sometimes, in debates in the House, Members opposite appear like Robin Hood. They say we cannot increase taxation. Deputy Brennan said the Minister was too cautious with venture capital and the multinationals but at the same time he criticised the national plan and said the figures in it were too ambitious. The Government adopted a reasonable approach in Building on Reality and set modest targets. I, too, will despair if modest targets are not achievable now. We must acknowledge that we have financial problems. Earlier today Deputy Haughey criticised the announcement made by the Minister for Energy this morning concerning oil exploration. Perhaps it does not go far enough in encouraging oil companies to drill for oil here but at the same time Deputy Haughey cannot come charging in to say that he is here to protect the taxpayer from the giving away of more largesse by the Government.

I was present last year when Deputy Brennan spoke about the venture capital programme and I heard him say there were limitations attached to it. I agreed with him and I thought that the management fee outlined in the previous Bill was not sufficient to encourage the financial interests to promote venture capital on the scale we need. I understand that the benefit which will accrue to the investor only comes into effect from January 1985. It is in this tax year that the benefits will come onstream. Perhaps that aspect was ignored. It is encouraging to see that two major trusts have been formed and it is well to understand that there are legal constraints on the operation of venture capital funds. I understand the Minister for Industry, Trade, Commerce and Tourism will bring in reforming legislation to allow venture capital funds greater scope. I agree that there are limitations on the kind of investment that can be made in a venture capital programme particularly for services and other aspects of industry.

One of the problems we have apart from interest payments on the national debt is the high level of unemployment. We could make an effort through the venture capital fund to create new employment. In the mid-west an international corporation has already made a certain amount of capital available to a small industry allied to their own trade. I am speaking about the investment made by Molex in a small company in Smithstown. There has been an increase in the number of jobs there. There are people who are willing to invest in the economy and that includes multinationals.

There has been a great deal of criticism about the Minister's approach to to multinationals and the black hole. The gyrations of Deputy O'Kennedy had to be seen to be believed. He is the person who pours doom and gloom on everything. Yesterday it was on education yet his colleagues proposed that £100 million more be spent on education. They said there should be 5,000 extra teachers and that there should be 2,300 more jobs for remedial teachers. In order to pay them an extra £100 million would be required from the taxpayer and that does not take account of buildings in which to house them.

In an area quite close to Deputy O'Kennedy's constituency a multinationals has put capital into a small company. There is confidence in the economy. The cautious approach described by Deputy Brennan is building up confidence. We have got used to doom and gloom. I usually buy my clothes in a shop in the town of Ennis. I always buy Irish clothes. The person who owns the drapery is a member of the Opposition party. He has a good business and it is growing.

Mr. Creed

I am surprised at the Deputy supporting him.

Mr. Carey

I asked him how business was in 1983 and he said his turnover was up by 25 or 30 per cent on the previous year. In 1984 I asked him about business and he said it had improved a lot and that the turnover was up by approximately 20 per cent. He said: "We will go out and have a jar", so we went out to have a jar. He asked me: "How is politics?" I said: "We do not know when we will have a general election. Everybody is predicting a general election". He said: "The country was never so bad. Nobody wants a general election". That is the doom and gloom he believes in, and he tried to convert me to the doom and gloom image. I do not believe the Irish people want that any more.

Debate adjourned.