I move amendment No. 43:
In page 26, subsection (1), line 27, after "1952" to insert
", and any reference to cubic centimetres is a reference to the cylinder capacity of an engine as referred to in the Act".
Finance Bill, 1985: Committee Stage (Resumed).
Sections 29 to 31, inclusive, agreed to.
SECTION 32.
Amendment agreed to.
Section 32, as amended, agreed to.
Sections 33 to 41, inclusive, agreed to.
SECTION 42.
Amendment No. 44 in the names of Deputies Mac Giolla and De Rossa. Amendment No. 45 is related. Amendments Nos. 44 and 45 may be discussed together by agreement.
I move amendment No. 44:
In page 35, to delete lines 38 to 40 and substitute the following:
"(c) 10 per cent of the amount on which tax is chargeable in relation to the supply of goods or services of a kind specified in the Sixth Schedule, excluding subsections (i), (ii), (iii), (iv) and (v), and"
Are we taking amendments Nos. 44 and 45 together?
We will discuss amendments Nos. 44 and 45 together but we will take separate decisions on them.
In section 42 I am a little confused about what is relevant and what is not because some of the items are dealt with in later sections but all are dealt with in this section with regard to VAT. Amendment No. 44 refers to VAT on fuel and on building materials which is currently at 5 per cent and in accordance with this section will be raised to 10 per cent.
Fuel is vital in the household budget of many people and represents a high proportion of the outgoing payments of elderly people and people on social welfare benefits, particularly the long term unemployed who are now on assistance. Their fuel bills, particularly in winter, constitute a considerable portion of their incomes. People on unemployment assistance are not entitled to fuel vouchers. The court decided that they should be entitled to them and the Minister brought in a regulation in February and we did not succeed in being allowed time by the Government to put down a motion opposing this regulation. In accordance with that regulation the Minister has overcome the High Court decision. Therefore those on assistance, the long term unemployed or unemployed for two years — and the number is increasing and up to 75 per cent of the unemployed now are on assistance — are not entitled to fuel vouchers and their fuel bills will be going up in accordance with this VAT provision. The VAT is being doubled. Whereas I am quite aware that the term "fuel" covers all sorts of fuel for all sorts of people, the Minister could have made a provision whereby fuel in smaller quantities — in bags, for instance — would be zero-rated for VAT so that those who are buying bags of coal or a container of gas would not be charged 10 per cent VAT on that. It is not very difficult for the Minister to make exclusions in regard to VAT and in this case he should have made exclusions which would allow people to purchase smaller quantities of fuel without having to pay 10 per cent VAT.
This also refers to VAT on building materials, and of course there is another provision which also affects the building industry. The effect of amendment No. 44 is to exclude fuel and building materials and to leave those at 5 per cent, and the effect of amendment No. 45 is to include them in the 5 per cent rate. The two go together; one depends on the other. I am proposing these two amendments to section 42 because of the effect the section has on those on unemployment assistance.
The effect of the amendments proposed here would be to retain the 5 per cent VAT rate for certain fuel, building and building services and concrete ready to pour, and to reduce the rate of VAT on concrete blocks to 5 per cent. The amendments in themselves would reduce revenue by £45.5 million this year from 1 March or by £86.7 million in a full year. That level of reduction in revenue could not be accommodated within the revised three rate VAT system which we have now. It is very clear that the system itself is far better than what we have had before now, and a move towards the amendments that Deputy Mac Giolla has put down would make it impossible to operate that three rate system. For that reason I must reject these amendments.
The Minister's main argument is the effect on revenue. As I have said, unfortunately I was unable to formulate the type of amendment which would cover what I had in mind; therefore the amendment covers everything and the loss in revenue is much greater than I would want to have it in my amendment. However, I hope the Minister will accept the spirit of the amendment which is to endeavour to exclude from the VAT increase those who are purchasing just their personal requirements in small quantities. The quantity probably would cover what I have in mind without going to particular people because these are the people who are unable to purchase large quantities of fuel at a time. My concern is that the fuel would not be increased in price for those who currently are unable to pay the current prices for it and who are excluded from the free fuel scheme. If the Minister could see a way to provide a clause in regard to fuel in quantities above a certain amount being included for VAT and others excluded for VAT that might cover this. This is what I have in mind. I hope the Minister will take this on board and see if it is possible or feasible to have such a qualification.
I am afraid it would not be possible to distinguish, for VAT purposes, between different lots of fuel sold in different quantities to different people. I understand Deputy Mac Giolla's concern and it was to meet that concern that we provided in the budget this year for an increase from £4 to £5 — a 25 per cent increase — in the value of the fuel vouchers. That will more than offset the effect of the increase in VAT on fuel for those who get fuel vouchers.
At a more general level, the increase in the VAT on fuel from 5 per cent to 10 per cent will increase the price of fuel by a shade less than 5 per cent. I would like to remind the House that the total effect of the budgetary measures on the consumer price index is around one quarter of 1 per cent. Taking it altogether that represents only a very marginal change in the cost of living and, as I said last evening in relation to another amendment, the increases we have provided over the last two years and again from the middle of this year in both long term and short term rates of social welfare payments and assistance more than cover what has been happening to the cost of living over that period.
Even for those who will not benefit from the fuel vouchers, the direct effects of the budget on their standard of living is very limited, an increase of one quarter per cent of consumer price index overall, and the effect of the measures we have provided on their incomes will be such that they will be kept ahead of the rate of inflation. For that reason the concern Deputy Mac Giolla expressed for putting forward these amendments has been met by the combination of the budgetary measures we have taken.
Not in the case of fuel.
Amendment put and declared lost.
Amendment No. 45 not moved.
Question proposed: "That section 42 stand part of the Bill".
This section gives effect to the new VAT rates announced in the budget. I want to tell the House the position of our party in respect of the VAT rates, and particularly the additional VAT rates, that will apply when this Bill is enacted. I am particularly concerned about the VAT on footwear and above all the increased VAT rates on the building industry. Before dealing with these in detail may I remind the House that, in the first instance, the Minister claimed in the budget that he was acting in accordance with the recommendations of the Commission on Taxation in reducing the ranges of VAT bands from six to three. The commission recommended that we would move gradually and eventually to one single VAT rate.
It was the Minister himself who, even since the recommendations of the commission, increased the number of VAT bands to the maximum level of six. It was the Minister himself who so overcomplicated the VAT system as to cause headaches for traders and the Revenue alike. It was the Minister who increased the level of VAT at every range, and particularly the total take from the VAT to the point that our indirect taxation between VAT and excise duties is the highest in the European Community. It was the Minister and this Government, particularly in their first budget, who added the highest levels of indirect taxation between VAT and excise duty for which he now claims some credit for reducing to a limited extent.
Lest people run away with the impression that after the adjustments in the VAT bands this year the levels of VAT impositions and the amount of VAT paid will be reduced, let me make it clear that from the figures provided by the Minister, far from the VAT burden being reduced as a consequence of this budget, it will be significantly increased in money terms and, even allowing for inflation, in real terms. The Minister may counter with his usual argument that the position is better than it would have been if he had taken another course and he may say that the VAT estimate this year is less than it would be if he had left the same ranges of VAT as existed last year, but we are not in the business of fiction. We are dealing with facts. What we are concerned about is the overall burden of VAT and what its impact on the community, the trade and the economy will be when this legislation is passed, and how that compares with the total VAT take after last year's legislation.
Last year the VAT total was £1,361 million and this year the projected figure will be £1,484 million, an increase of 9 per cent over last year's figure. Are we really going to try to continue with the fiction that when VAT jumps to that astronomical figure — £1,484 million this year, a 9 per cent increase over last year's figure—that the level of VAT this year will be considerably less than it might have been if the Minister had taken different steps? The public are only concerned with how much they paid last year, and that was too much and the trades concerned — electrical, building, those on the border regions and so on — know how much they paid last year. They will realise that they will be paying a further 9 per cent in money terms this year, or 3 per cent in real terms.
Let us look at the areas which will be hit by these impositions. Deputy Mac Giolla mentioned fuel for the old and the deprived, and I agree with him, but if we look further we will see that there will be an adjustment on the VAT on clothes from 8 per cent to 10 per cent. One might say that a 2 per cent increase is a marginal rise on something which was zero-rated a little while ago. However, this will create hardship for many families. Indeed the family seems to be the target all the time in terms of income tax, excise duty or VAT.
Nonsense.
An increase to 10 per cent will add a very considerable extra burden to the average low income family, especially those in receipt of social welfare.
In addition, the Minister introduced a 10 per cent rate of VAT on adult footwear. We can remember all the nonsense that went on some time ago in relation to determining when a child ceased to be a child and how to distinguish between a strong ten year old and a weak 13 year old. The application of 10 per cent on footwear will cause very severe difficulties to an industry already in deep trouble, especially in Dundalk. Footwear is an essential item in any household budget and the bigger the family the more expensive it will be. It also explains why the Minister will be getting considerably more from VAT this year despite his claim regarding adjustments in VAT bands.
The 10 per cent VAT rate on the building industry demonstrates the total lack of awareness by the Government of the impact of their new tax impositions on one of the most fundamental labour-intensive national industries. Deputy Molloy will be dealing with this in considerable detail and I am sure many other Deputies who have been listening to building contractors will also contribute. The building industry has an almost exclusive domestic input. The materials are purchased and processed almost exclusively at home and the level of employment is 100 per cent home based. The labour intensity of the industry should single it out for special favour at a time of such great unemployment. It should not be a target for the Minister's arrows. It is just another symptom of how the Government think and it brings out our strongest possible opposition. Yesterday, during the debate on venture capital, the Minister deliberately and coldly refused to even consider the application of the venture capital scheme to the service sector including the building and hotel industries. One or two of the Minister's colleagues supported me in the debate but voted against me in the division. I suppose that is the way this House works but they must be very frustrated when they realise that the Minister did not listen to their arguments and were forced to vote against what they said. At least they came in to speak and I must give them credit for that, unlike the absent Labour Deputies who have no interest, good, bad or indifferent in anything going on here——
How about the Deputy's lot?
Members of the Labour Party have not been here for even one minute of this debate. I want to give examples of how the Government have singled out the labour-intensive construction industry for especially harsh treatment in the last two years. The increase of VAT from 3 per cent to 10 per cent is one example. Effectively, there has been a 30 per cent reduction in the public capital programme and the introduction of the nonsensical residential property tax has discouraged the private house sector in the middle class environment of the city. It yields very little money, £1 million gross, and, if the cost of administration is deducted from that, it amounts to nothing. If that tax were abolished, there would be increased sales in secondhand-houses which would bring in much more revenue in stamp duty than the property tax. This tax was the price of staying together.
The virtual abolition of section 23 from April 1984 and the reduction in mortgage interest relief also had a detrimental effect on the building industry. The Minister's colleague abolished the wet time scheme but I will not go into that in detail. However, they all caused damage to the industry. We also had the withdrawal of the industry from the employment incentive scheme and I am sure that rural Deputies have memories of the suspension of the farm modernisation scheme. It is supposed to be coming back but in a diluted form. CRV and planning charges have also increased. We all know what the impact of all this has been on the building industry. We may choose to ignore it but we should listen to people in that industry.
The increased PRSI charges on employers is particularly onerous for a labour-intensive industry. Everybody will tell you that taking on an employee is a very expensive undertaking because of income levies and PRSI charges. If you have to shed labour you may then be faced with an unlawful dismissals case. It means that the employer now takes the view that he will not add to his costs or run the risk of being penalised for shedding labour. As a consequence, he does not employ anyone. Our major construction companies are having a limited degree of success elsewhere. Because the climate is so hostile here, their only option is to go elsewhere.
People came to see me. If the Minister likes I will give him their names, but not publicly in the House. They wanted to tell me as Opposition spokesman what investment plans were. The major construction companies are making 85 per cent of their investment outside this country to maintain the skeleton 15 per cent at home. I have not dreamed up these conversations. I did not invite these people. They came to me without any suggestion from me to convey to me as Opposition spokeman the depth of the recession in the industry and the consequences of it. We like to see our people being mature enough, confident enough and successful enough to go abroad and engage in construction activities and compete with the best. Some of the ones I am thinking about can do that. We like to see that as a choice or an option in normal times. We do not want to see it as an obligation forced on them because of the hostile tax climate at home.
I want to give the lie to what the Government are saying about emigration. It is of the order of 30,000 per annum. Gay Byrne hardly needs to have his programme proclaimed in this House. Emigration is now a matter of such considerable concern that on Thursday or Friday morning next those who want to tune in can hear an expert on American emigration for a full hour. He will answer questions and tell people how to get into America in the short term and the long term, how to get in quietly and stay permanently. The same can be done in the case of Australia and Canada.
In the face of all that we are being asked to ignore the fact that the Government are hell bent on killing the industries which have always generated employment. They singled out the building industry, the clothing industry and the footwear industry in the name of rationalisation as they see it. The Government have turned a blind eye to the ruinous state of the construction industry and its associated trades and professions. The Minister has only to consult with any architectural firm or any firm of quantity surveyors, or any group of consultants in that area, and he will find that a firm who employed up to 50 professional staff three years ago are now employing eight at the maximum. They have closed offices all over the country. I do not want to mention their names in the House but, if the Minister chooses to take issue with me on that, I will give him the details of each firm and he can ignore the realities if he wishes.
It is clear from all that that the Minister has turned a blind eye on the ruinous state of the construction industry. In the budget this year he reduced the public capital programme by £50 million and added £2,000 to the cost of a private residence. The housing market was already very depressed and the profit margins of the industry at a dangerously low level. The subsequent increase in the grant of £1,000 was totally inadequate to compensate for the harsh measures imposed by the Government which the Minister is now asking us to pass in this Bill. I do not know why but the Government seem to be deliberately hostile to the construction industry. Having regard to the track record of the industry in the past and its employment potential at this critical time, the deliberate dismantling of this major domestic industry has the most critical social and economic consequences. This applies to employees, customers, suppliers, associated professions and traders at large. When they go into liquidation what happens? Inevitably as they keel over they crush down on top of others who are already heavily burdened themselves. There is a continuing spiral of liquidations. Instead of confining his discussions to the staff of the Department of Finance or within his own very limited consultations which do not seem to be in contact with reality, I wish the Minister would listen to his own backbenchers.
I should like to ask what connection there can possibly be——
Is this a point of order?
Yes. What connection can there possibly be between Deputy O'Kennedy's grossly misinformed opinion of the groups with whom I talk and how I talk to them and the section? What he is saying is not connected with the section at all. He is talking through the back of his head.
The Minister does not like what is being said.
I do not need any advice from Deputy O'Kennedy.
We seem to have touched a sore point. The Ceann Comhairle did not allow what the Minister very cynically called a point of order. The Minister does not seem to be familiar with his own legislation. We are speaking on section 42 of the Bill which introduced the new tax bands in respect of the areas mentioned in the Schedule. Among those is the 10 per cent tax band in respect of the construction industry.
What has that got to do with the people I talk to or how I talk to them?
There are still some sensible people in the Fine Gael Party. I have informal discussions with them from time to time and I know their views. One of their concerns is that apparently the views they express are not being reflected by the Minister who closes his eyes and his ears and adheres to his own decisions.
Una voce.
The Minister's. Not one amendment put down to this Bill has been accepted by the Minister.
Notice taken that 20 Members are not present; House counted and 20 Members being present,
Before calling on Deputy O'Kennedy, I would remind Deputies that this is a limited debate which by order of the House must conclude at 7 p.m. today. Between now and then we will have a sos, Question Time and statements. Therefore, each Deputy should be allowed make his speech without interruption.
If progress through this Bill is a measure of the relevance of the House, we have made some progress this morning. Because of the importance of section 42 we have decided to focus to a considerable extent on the issues involved.
The impact of the burden imposed by the Government on the construction industry bears heavily also on traders, suppliers, customers and perhaps most of all on employees. Even the banking sector and the financial institutions have been affected badly by the general running down of the construction industry. The decline in the industry in 1984 in volume terms was at least 7 per cent. The decline was particularly acute in the private housing sector where it was at least 8 per cent. There was a reduction of 28 per cent in private house completions for the final quarter of 1984 compared with the final quarter of 1983 and in 1983 as a whole private housing output was 2,000 fewer units than the figure for the previous year which was 18,000. Unfortunately, the problem was not confined to the private housing sector. It extended also to the commercial and industrial sectors where the decline in volume in 1984 was almost 20 per cent. One need only have regard to the number of "For Sale" signs on private houses around this city to realise how bad the situation is in that sector.
The Government's harsh measures have resulted in a continuing and disastrous decline in output in the industry and that input is now 25 per cent less in volume terms than the 1981 level. The construction industry has been regarded always as the measure of prosperity and activity in the economy. The decline in the industry as I have outlined reflects almost exactly the rundown in investment in the economy in every other sector. That rundown is of the order of 20 per cent less in real terms compared with 1981. This is a measure of the depression which the Government seem deliberately determined to maintain.
Despite the warnings issued by us in the past number of years, but especially last year, the Government have continued to fail to respond and have not introduced any incentive to encourage private sector investment in construction. They deliberately excluded the industry from the scheme introduced in the 1984 Finance Act to promote capital investment. Even to have included the hotel industry might have stimulated construction in that area. Some of our hotels are in need of refurbishing and that work must be undertaken if we are to exploit the great potential in the tourist industry. If the purpose of the 1984 scheme was to generate employment in native industry there can be no explanation for excluding from the scheme the labour intensive building industry, especially since the equivalent British scheme included deliberately the construction industry within the ambit of the programme and we know that the building industry does not represent as much to the British economy as it represents to our economy.
Despite all these factors and the potential of the industry for employment, the Minister chose to ignore it. Not only has the industry been damaged severely by these disastrous decisions but State revenue has decreased and State expenditure has increased as a consequence. Revenue has decreased because of decreasing returns from the industry and because of huge increases in terms of social welfare payments to the unemployed. The level of unemployed in the industry is more than 50,000. This is costing the Exchequer almost £150 million per annum in social welfare payments but yet the Government are determined to continue with the demolition of an industry engaged essentially in construction.
There was no hope for the construction industry in the Building on Reality document. Despite the Minister's puerile attempt last evening to defend that plan, he demonstrated that it has been totally discredited. It is obvious that the Government are determined to continue their tax on the construction industry because public investment, even in terms of the plan, will fall by 3 per cent per annum in volume terms up to 1987. Where, then, is there any sign of hope for the industry? There is no signal from the Government that investment in the industry should be encouraged and renewed.
The final blow for the industry we are debating has been the doubling of the VAT rate from 5 to 10 per cent. Prior to the budget it was estimated that construction output would decrease by 3 per cent in 1985. This was to follow declines of 11 and 7 per cent in 1983 and 1984 respectively. However, the effect of what is being done in this legislation will be to reduce the output by at least a further 3 per cent. The Minister seems determined to continue the slow but unfortunate consistent slide of this industry into total collapse. The impact of this throughout the economy is disastrous because of the reduction in the level of work that can be financed now through the Public Capital Programme.
Another consequence of what is being done is that those who are not registered for VAT will have to fund the higher costs themselves. The implications of this will be severe, particularly for new house purchasers.
There will be consequences of all this, too, so far as the black economy is concerned and which as I have said many times is now the only growth area in the economy. Many times the Minister has referred to his determination to deal with those who operate the black economy but by his measures he is encouraging participation in that economy. By way of the changes in the rates in respect of concrete blocks and other materials the Minister will give even a further boost to the black economy because bona fide firms will find it impossible to compete with those operating in the black economy.
The impact of the Government's attack on the construction industry can be gauged from the fact that activity in the industry has declined by almost 30 per cent in four years. For that reason we urge the Government even at this late stage to withdraw this penal burden of an extra 5 per cent by way of VAT on the industry and instead to make a determined effort to restore the industry to its former state of health. The abolition of some of the measures that have been introduced by the Government, the restoration of schemes they have abolished and the introduction of incentives to promote private sector investment in the industry are essential if the huge potential of the industry vis-á-vis the economy is to be realised.
The burden of taxation is affecting everyone but it is affecting particularly badly the labour intensive industries. Bona fide firms must be allowed compete on fair terms with those operating in the black economy. Therefore, the Government must reverse their disastrous decisions and restore some degree of health and activity to the construction industry.
I wish to make two brief references to other matters affected by the new VAT rates. I refer first to the question of magazines. We welcome the reduction in VAT on newspapers. However, magazines in one way or other cater for the same market and we cannot see much justification in equity for or any great impact on revenue from not applying the same decision to magazines as to Irish newspapers. If the Minister wants to raise a point of order, it is covered in this section. I shall at some time take the opportunity of familiarising him with the legislation which he himself has introduced here.
No, the Deputy has an amendment on it later on.
I can make the point now on this section. We shall be dealing with the amendment in greater detail later.
Last year there was an outrageous reaction from the Minister who accused me of indulging in shamrockery when I referred in our own language to the imposition of VAT on hurleys. If he has that attitude towards it, I shall not tempt the same response this time.
I shall match the Deputy's attitude to the language any day without the slightest difficulty.
Let us be judged as regards our attitudes to it, how we use and respect it. The Minister's reaction to my using it was contemptuous.
I am miles ahead of the Deputy.
I shall leave that for someone else to judge. It certainly is time that the Government responded to the case for the abolition of VAT on hurleys. Nothing is required to bolster that argument beyond this, that if we are trying to get a renewal of some of the characteristic spirit — and every nation has its own characteristic spirit and we do need a renewal — we would try to promote our culture in every possible way. An essential aspect of that culture is our native games, particularly hurley — not just the game itself but the association that promotes it. If the Minister were aware of what it represents in our towns and villages, he would see something very important in its contribution to a healthy social environment. He would note particularly the cost of hurleys for young people and that this great game — which I have had the privilege of playing for a considerable number of years, if not all too skilfully — would warrant special privilege. I would not apologise to any other sport here, no matter what it is, for giving special privilege to that game, for all the reasons which I have mentioned. I hope the Minister may relent at this stage.
We shall be dealing with each of these matters in greater detail in the relevant sections, but this is the section which introduces the new rates. I thought it appropriate to give a broad approach to what the Minister has claimed to be reform but is, in fact, an increase in the VAT level and in the burden on industries such as the clothing, footwear and, above all, the construction industry.
I listened attentively to the case being made by Deputy O'Kennedy regarding increased VAT levels and the changes in VAT rates announced by the Minister in the budget contained in this Finance Bill. If we get beyond the sections, subsections and legal jargon and look at the reality of what is being done, it is almost inexplicable to people looking at it from outside the House.
The fundamental reality facing our economy is this: Our major problem on the economic front, from which most of our social problems derive, is that of unemployment. Everybody accepts that. The breakdown in law and order, crime, vandalism, the undermining of family life all spring mainly from that problem of unemployment. Even the Government and their economic and social advisers, handlers and public relations men accept that. At least they have had the decency to pay lip service to it on a number of occasions.
Given the reality that the major problem facing the country is unemployment, what are the Government doing in the Finance Bill? They are increasing the imposition of taxation on four or five of our most labour-intensive industries. The gap between what they are doing and the reality on the economic and social front is simply unbelievable. For example, the rate of VAT on footwear is being increased from zero-rating to 10 per cent. The footwear industry is one which has been particularly badly affected by the recession. It is significant that on the very day the Minister announced this increase in the Dáil in his budget speech one of our main footwear firms closed down, with the loss of from 350 to 370 jobs. That is an ominous portent of things to come.
The clothing industry is labour-intensive. It has been devastated and ravaged by the recession over the past few years. The Minister's response to these difficulties and declining employment in this industry is to increase VAT on clothing by 25 per cent — from a rate of 8 per cent to 10 per cent. The Minister has congratulated himself and brought his backbenchers in to congratulate him on changes made in VAT to correct the situation whereby people were finding it more attractive to do their shopping across the Border. This problem also applies to the clothing industry. The net result of this increase means that it is 2 per cent more advantageous to cross the Border and purchase clothing there.
It is 15 per cent up there. The Deputy slipped up there for a moment.
I can anticipate the Minister's response. I shall come to that in a moment. The motor trade has also been affected by the changes being brought about by section 42. The rate of VAT on motor repairs is being increased from 5 per cent to 10 per cent — that is a 100 per cent increase. I am open to correction on this, but I think that at one stage the Minister advanced the reduction in VAT on motor vehicle parts from 25 per cent to 10 per cent as part justification or part compensation for the extra imposition on the motor repair trade. This is a novel concept, to increase VAT on one section of an industry and reduce it on another section and justify the increase by referring to the reduction.
The Deputy has become very mixed up there.
If the Minister had any concept or knowledge of how this business works, he would know that in reducing VAT on motor parts he was aiding the black economy. He is reducing the cost of these parts to people not registered for VAT. The increased VAT on service is putting those who are not registered for VAT in a more advantageous position than those who are.
Deputy O'Kennedy has dealt at great length with the increase in VAT on the building industry from 5 per cent to 10 per cent. As we have an amendment down for section 49, I shall come back to this in more detail later. The Minister congratulated himself in his budget speech and on a number of occasions outside the House and within it on the fact that he had reduced the number of VAT bands and simplified the system somewhat from the administrative point of view. I shall not condemn him too harshly for congratulating himself on undoing something which he and his Coalition colleagues, but largely he himself, did, but it must be put on the record that that is all that he has done.
Most of the items which prior to the July 1981 budget were charged at 10 per cent are still charged at 23 per cent and I defy the Minister to deny that. The present 10 per cent rate applies, for the most part, to items previously either zero-rated or rated at 3 per cent. The Minister is talking about reducing the number of VAT bands. Was it not he himself who increased the number of VAT bands in all directions? It was either this Minister or Deputy Bruton who introduced the 8 per cent and the 18 per cent bands. If the Minister now sees his mistake that is good, but it is hardly something about which he should spend a great deal of time congratulating himself.
The net result of all this manoeuvring and tinkering about with VAT rates is that the old 10 per cent rate has become 23 per cent and the old 3 per cent rate has largely become 10 per cent, with the addition of fuel, footwear and clothing. The net overall effect of the budget changes is that the VAT system will take in £122 million more than it did in 1984. People who know nothing about economics but who have commonsense know that what is needed is a reduction in the VAT burden, not an increase. When Fianna Fáil introduced the concept of self-financing tax reductions——
Fianna Fáil never found one.
——they were sneered at by the Minister and by the Government but now the Minister seems to have suffered a partial conversion. Last year he told me in this House that VAT on newspapers could not be reduced. He told me in very forceful terms that this could not be done because of the disastrous loss to the Exchequer. This year the Minister gave such a reduction. This year he told Deputy Haughey that his suggestion regarding a reduction in the excise duty on spirits was ludicrous. He said it could not be done, that the economy would collapse. However, eventually the Minister saw the light and gave the reduction. I congratulate him on what he did in that instance and I only hope that in the interests of the country, and particularly of the young people who cannot find jobs, he will see some more light as he travels along the way.
I wish to take issue with some claims made by the Minister, particularly with regard to VAT. In respect of the reduction in the 35 per cent rate to 23 per cent he said it would "ease the cash flow burden of VAT for industry, both at point of import and for domestic transactions since many inter-industry goods have been liable at the 35 per cent rate". This is correct in so far as it relates to imports but they constitute only a tiny part of the picture. If the Minister or his Department had taken the time to work it out, they would have come to the self-evident conclusion that VAT within our domestic borders is self-cancelling as between the different industries. One industry pays VAT on output and another industry claims it on input. Regardless of the change in rates, there is no overall cash advantage to industry from that reduction. That gives the lie to the Minister's claim in his budget statement.
The Deputy had better talk to a few more accountants.
I am waiting eagerly for the Minister's response. These views are not just mine but the views of many independent and respected commentators. The Minister also claimed that the budgetary changes, mainly the alterations in the VAT system, would "substantially improve the employment capacity of Irish commerce and industry". That is a ludicrous claim. One commentator described it as "public relations gone too far". How will these small mediocre changes in the VAT system contribute to that situation? Where is the increased spending power going to come from to give any significant boost to sales and create employment? The net effect of the VAT changes will be only £9 million in a budget of more than £7,000 million. The Minister should face reality.
Deputy O'Kennedy referred to the unemployment situation in the building industry. Clothing, footwear, the motor trade and building are labour-intensive industries. Surely the Government must accept that the main problem facing those who wish to solve the unemployment crisis is the level of taxation on productive and labour-intensive industry? The Government, both expressly and by implication, have accepted that and, therefore, the question must be asked why are they persisting in pushing through this Finance Bill which will increase the tax on those labour-intensive industries? It does not make sense.
The self-evident thing to do is to reduce the tax imposition, that is, if the Government want to create employment. If they accept that one of the main barriers to employment creation is the tax burden, why are they exacerbating the problem by increasing taxation? Why not reduce it or at least maintain the VAT levels at their present rate rather than increase them in those vulnerable industries? I cannot understand the attitude of the Government, and nothing the Minister has said in connection with the budget or in this debate has explained it to me. If the Minister can give me a rational, logical explanation for his proposals I will be happy to hear it. I would feel a little more secure leaving this House tomorrow evening if the Minister could explain to me how increasing tax on labour-intensive industries will help to solve the unemployment problem.
Most of the points have been covered, particularly the effect on the building industry which is of vital importance in view of the enormous unemployment problem and the consequent expenditure by the Exchequer. I wish to deal with the effect of the increase in the cost of footwear and clothing. When I spoke about the effect of the increase in the price of fuel, the Minister said the total effect of all the VAT changes on the cost of living would be one quarter of 1 per cent.
Of the budget changes.
That is a very convenient figure for the Minister but he should relate that to households where the greatest proportion of income goes on food, clothing and fuel. These items will probably take more than one-quarter of one per cent of a household's expenditure. It is estimated that 140,000 people are now on unemployment assistance and the payments in such cases will leave those families well below the poverty line. In their case the VAT increases on fuel, clothing and footwear will be much more than a quarter of 1 per cent of their expenditure and that is what the Minister must take into account. The Minister has not compensated the lowest paid in any way.
It is interesting to note that later on, and under this section also, there is provision for an increase from 2 per cent to 2.2 per cent in what is sometimes referred to as a VAT refund to unregistered farmers. In the explanatory memorandum it is explained as a raising of the flat rate credit intended to compensate unregistered farmers for the increased tax borne by them because of all the changes in VAT rates. Apparently there are only 700 farmers registered. Therefore when one talks about unregistered farmers, one is talking about probably 160,000 to 170,000 households. All of them are compensated for the increased tax borne by them because of the changes in VAT rates. There is no compensation whatsoever for the unemployed, particularly the long term unemployed. The VAT increases generally, particularly those proposed in the building industry and on footwear and clothing, will increase the numbers of unemployed but there is no compensation for them for such increases which will have a tremendous effect on their household budgets.
I should like the Minister to explain on this or the next section, which deals specifically with——
The Chair feels that the next section would be the more appropriate one for the contribution the Deputy is now making.
Quite so. But under this section I am sure the Chair will accept, as he seemed to accept from Deputy O'Kennedy, one could deal with anything in connection with VAT because it is all covered there, including the 2.2 per cent rate which applies only to the supply of livestock.
Yes, but section 42 seems to deal specifically with farmers.
I quite agree. Each will arise specifically on other sections. For example, section 48 will deal with theatrical or musical performances while footwear will be dealt with under section 47. I know there are separate sections for them but this one covers all of them. I hope the Minister, on this or the next section, will explain why unregistered farmers must get this compensation which, incidentally, in respect of the last year for which I have figures, 1983, amounted to £53.70 million. That figure rose from the year 1979 at £6.8 million to £53.70 million in the space of those four years. I do not know what was the figure for 1984; probably it had risen to £60 million. The Minister now proposes increasing that from 2 per cent to 2.2 per cent, representing another 10 per cent increase, when it should be reduced.
The other matter with which I should like to deal is the decrease in VAT on newspapers which was welcomed and had been called for over a long number of years, which we had supported and thought would be implemented when the VAT rate on books was altered. There has been a major reduction in VAT on newspapers from 23 per cent to 10 per cent which was widely welcomed. I should like to draw the Minister's attention to what the newspapers have done with this reduction. They had been arguing that the VAT rate should be reduced to render newspapers here competitive with their British counterparts which were outselling them. VAT on newspapers was reduced, but what did the newspapers do? They did not pass on this reduction to their readers. For example, The Irish Times cost 50p before the reduction in VAT, which was reduced to 47p thereafter, where as that reduction should have brought the price of that paper down to 42p. Effectively this meant an increase of 5p on the price of that newspaper. Similarly the Irish Independent cost 45p before the reduction, was reduced to 43p whereas it should have been reduced to 40p, representing an increase of 3p. Therefore those two papers did not pass on to their readers the reduction in VAT which they claimed was necessary to render their papers competitive. The Irish Press which was probably at rock bottom anyway at 35p before the reduction, remained the same thereafter.
If this occurred in other areas the newspapers would be very quick to draw attention to this quick profit taking. When VAT is increased all products immediately register the full VAT rate in their prices, but when VAT is reduced that does not happen. The Minister should ask why when VAT is reduced the consumer does not receive the benefit, why, instead of the money going to the Exchequer, more than half the money saved by the newspapers goes to their proprietors. That is of no advantage to consumers and does not bear out the point about which the newspapers were screaming, the headlines that they were not being allowed to be competitive with their British counterparts on the market here. That goes for many other products also. The Minister can examine the situation but there are many other products that have had a reduction in VAT and in respect of which the relevant loss to the Exchequer has not meant a saving to the consumer. In most cases 50 per cent, or a large proportion of it, goes in increased profits to the industry or the industrialist concerned.
I might ask, as have other Deputies, why not a reduction in VAT on magazines also? What is so special or different about them that they must continue to bear the high rate of VAT? I know there are flashy magazines. There are all types of magazines, those in the commercial and industrial sector, but generally they afford people who have something to say an outlet therefor which books or papers do not. Some magazines are of interest or importance to a minority only — for example, their articles might refer to birds, animals or insects, or to a commercial area or product, to the arts or culture, or even to the political area. They play a major role in our society, our culture, our development and in giving information to people. Will the Minister explain what is so special about them that they must pay VAT as against newspapers and books?
The reduction in the VAT rate to theatrical and musical performances was widely welcomed but I should like to know if the Minister realises the effect of the exemption from VAT as against a zero-rating. I have written to the Minister about this matter, particularly in connection with the Gate Theatre. That tiny theatre is finding it very difficult to become commercially viable although in recent years they have had a lot of success in that area. It was felt that the exempting of them from VAT would be of tremendous benefit but it has transpired that exemption from VAT means that the theatre cannot claim VAT refunds if they purchase equipment for the stage, erect buildings or engage in refurbishing.
The Gate Theatre indicated that, while they will save in the region of £20,000 by the abolition of VAT, they will lose approximately £30,000 by virtue of the fact that they are unable to claim VAT refunds. This year a major refurbishing project is being considered for the theatre and I understand that the VAT refund could mean as much as £46,000 in the current year; but by virtue of the fact that they are exempt rather than zero-rated they cannot claim that amount. While they are saving £20,000 on the 5 per cent VAT exemption they will lose this year £46,000. I understand that in an average year they will lose £30,000. Even if the Minister increased the VAT rate from 5 per cent to 10 per cent this year the theatre would be £6,000 better off than by being exempt.
This is a technical matter. Up to now I did not understand the difference between exemption and zero-rating. I found the Minister's reply to my letter about this matter unsatisfactory. It appears that the Minister did not remove VAT from theatres as a cultural effort to help theatres and live performances but because if he did not exempt them he would have to increase the rate to 10 per cent. He was afraid of the flak that would result if he increased the rate to 10 per cent. The Minister decided to exempt theatres without considering the effect on them.
The VAT change will affect theatres more than live musical performances that are staged in different areas. Those involved in live performances would not have the same opportunity of claiming VAT refunds as theatres. Theatres could claim a VAT refund for different jobs carried out in the theatre before but they cannot do that now because they are exempt from VAT. Will the Minister tell the house why he cannot zero-rate theatres? Is something preventing him doing so? Is my information about zero-rating and exemption wrong? I hope the Minister will explain the matter.
In the course of his budget speech the Minister said:
The changes which I will propose today have been carefully designed to have the maximum possible beneficial effect on employment.
I read that slowly so that there would not be any doubt what the Minister said on 30 January in his budget speech. He told us that the changes were designed to have the maximum possible beneficial effect on employment; but, a few months on, I should like to know what beneficial effect the Minister was talking about. Surely he must realise that some of the proposals in the section under discussion have had the opposite effect, particularly in regard to the construction industry.
The Minister also said in his budget speech — it was divided so handsomely into two sections, the first a public relations exercise indicating massive goodies people were led to believe they would aspire to in the second section — under the heading, Relief for Building:
In order to reduce the effect on the building industry of the increase in its rate of VAT, the Government will introduce a number of special measures.
I do not know what special measures the Minister intended or if they have been introduced. The construction industry is aware, and the Minister should be aware from the many submissions he has been given by the federation, by public representatives who called to him on behalf of that industry, and from the contributions of Members of this side of the House, the effect his proposals have had on an already ailing industry. The industry had been decimated up to January and has been further damaged by what the Minister described as special measures introduced for the benefit of it.
Everybody, that is everybody with the exception of the Minister and the Government, must be aware of the plight of the building industry. The ridiculousness of the doubling of the rate of VAT on housebuilding by the Minister in his budget should be entered into the Guinness Book of Records for its insensitivity. Even allowing that anybody can make a mistake — the person who never made a mistake never made anything — and allowing that the Minister made an error of judgment in doubling the VAT on house building, he has not done anything since he introduced his budget to rectify the position.
We had hoped that the Minister would see the light and the effect of the doubling of the rate of VAT on house building materials. We had thought the Minister would restore the VAT rate to 5 per cent. We are unhappy that the Minister has sternly opposed any suggestion from anybody who knows anything about the construction industry about reducing the VAT rate. For the construction industry all other provisions in the budget have been overshadowed by the proposed increase which will have disastrous and far-reaching effects on the building industry. The Minister has been told that it will undoubtedly put some contractors out of business. The Minister must be aware that since the beginning of this year at least 14 house building contractors have been deregistered. The effect of the doubling of the VAT was surely one of the principal reasons for their going out of business.
This increase will escalate the cost of new houses. A house costing £25,000 plus the 10 per cent VAT will now cost £26,190; a house costing £30,000 will increase by £1,428 giving it a new selling price of £31,428. As we go up the scale the increase becomes greater. That occurred when the economy was at its lowest level since the mid-1950's under a Coalition Government. Surely the Minister in discussions with the representatives of the construction industry must have been made aware that they have not suffered so badly since the dark days of the mid-1950's under a Coalition Government. Our depressed economy is the result of policies being pursued by this Government. The Government have totally ignored our promptings and encouragements and the advice given to them by people with practical knowledge in Government and practical knowledge in the construction industry.
A Government never had so many advisers as this one. Some of those advisers should be made redundant like all the other people who have been made redundant since this Government came to office because their advice is having far-reaching, damaging effects on the economy generally and more seriously on the construction industry. The construction industry is the best vehicle to create employment at little cost. Many of the raw materials used in building are home produced. The basic materials, sand, gravel and so on, are a natural resource. Do the Government realise even at this stage the value of the construction industry and its spin-off industries? Why are the Government not encouraging the development of the construction industry to create employment? What is the Government's thinking, when they can allow this vital industry to be so severely restricted? One of the first acts of this Government on coming to power in 1982 was to take £200 million out of the capital programme——
That was £200 million from a contingency reserve that Fianna Fáil did not know was there.
The Government took £200 million out of the capital programme and everybody knows that that had the immediate effect——
(Interruptions.)
Will the Deputies keep to the section.
It is all very relevant.
It is pure fiction.
The increase in the grant for first time house buyers from £1,000 to £1,750 was an announcement made by the Government, only short of trumpets blaring. That will go nowhere near making up for the increased cost due to the VAT increase even in the case of lower priced houses. An increase of £750 will not cover the lowest increase I quoted which was £1,190. When will this Government get off the stage with their public relations exercises trying to persuade the public that by adding £750 to the grant it will make up for an increase of £1,190 on a £25,000 house? Despite the juggling of figures, no propaganda will distort the facts. The Government can fool some of the people some of the time but cannot fool all the people all the time.
It is obvious that the increase will further widen the gap between the purchase price of the house and the loan available. It must be remembered that only 60 per cent of purchasers qualify for the first time grant. Forty per cent of purchasers do not qualify for one reason or another and 40 per cent accounts for a significant number of house buyers. It would be as well for the Government to remember that.
Have the Government realised that the increase in VAT will reduce the amount of Government and local authority work which can be done since it will now cost more to build any project? This will affect all aspects of public work including schools and local authority houses. The increase in VAT means an effective reduction of approximately £50 million in the public capital programme. The Minister talked about reducing the VAT on concrete blocks as a help to the construction industry. What naivete. The increased VAT will also encourage further activity in the black economy. The difference between VAT charged on materials and VAT payable by registered contractors has been reduced and even eliminated in the case of some materials and this will increase activity in the black economy. The effects of the items I have outlined can only lead to reduced demand, reduced employment, when already 50 per cent of operatives, trades people and professional people attached to the construction industry are out of work. Nevertheless, I keep reminding the Minister that the changes he proposes were carefully designed to have the maximum possible beneficial effect on employment. In order to reduce the effect on the building industry of the increased rate of VAT, the Government will introduce special measures. Maybe these measures will be announced when the Minister is replying. Up to now neither I nor anybody else on this side of the House or in the construction industry or any of the operatives are aware of the measures to be introduced to maintain existing employment in the construction industry and to restore to it the proud tradition, the quality of service to the economy that it had until this Government came into power in December 1982 after the November election when right away confidence disappeared in the building industry, and the effects continue to be apparent day after day.
Depending on circumstances, house purchasers may have to pay the increased cost due to VAT but will not be able to avail of the increased grants. As I have indicated, that number in my reckoning comes to about 40 per cent. At present the workforce in that industry are 50 per cent unemployed. The budget was introduced on 13 January and since the start of this year that trend of increased unemployment in the industry has continued unabated and all the indications are that more and more construction workers will be on the dole queues between now and the end of this year. Everybody knows that at this time of the year construction projects normally begin to avail of fine whether and this would have the immediate effect of giving employment to the trades people, the general operatives, right down to the man who puts on the last brushful of paint. Now projects are completed and very few projects are starting up.
I have mentioned the professional people in the construction industry. Anybody who has knowledge of the industry knows that for projects to commence, work on the design stage, the bill of quantities and so on must be done by professional people between 12 months and two years prior to the commencement date. We are all aware of the numbers of professional people who are not working at the drawing boards at this time, who are not studying the quantities, who are not doing the surveys. If and when these people get back to work we are talking about a start-up date to show the effect of their work 12 months and in some cases two years afterwards. How long will it take builders' suppliers firms so carefully developed over the years to supply the needs and services to the construction industry? Some such concerns have no representatives at all on the road now and many of them have reduced their counter staffs to the minimum because of the reduction in demand. These are simple, basic facts. Why can the Government not see this? Have the people who are advising the Government, be they civil servants or outside, put their heads in the sand that they do not see what is happening? While all this is having immediate effects on employment within the industry the full effect of the lack of confidence in the industry and the drastic effect of this doubling of the rate of VAT will not be felt until the third quarter of this year when the projects that are now nearing completion will be completed and no new projects will commence despite all the work that is there to be done.
The trend in the reduction in the number of new private houses being built was aggravated by the doubling of VAT and is accelerating. Let me be parochial and quote the figures of housebuilding in my constituency. The number of new private houses completed there in 1981 was 2,486. In 1983 it was down to 1,700 and in 1984 it was 1,313. That is a clear indication, if such is needed, to the people responsible, of where we are going with housebuilding. It is difficult to be accurate at this time of the year but I forecast that the number of private houses to be completed in 1985 will be very much below last year's level. The real effect of the budget on housing construction will not be felt until 1986. Another significant thing could happen in 1986 when the real effect of the doubling of VAT on housebuilding will be shown. I am sure that will be when Fianna Fáil return to Government. We are hoping for that not just for our own sake but for the nation's sake and for the sake of the industry because they know and can tell anybody who wishes to listen to them that when Fianna Fáil were in government the construction industry was always, in their own words, flying, up and away. With Coalition Governments they are even below the bottom.
I have said that the effect of this silly, ill-conceived, unconsidered doubling of VAT on housebuilding had put at least 14 construction companies out of business. Hundreds of these firms are suffering because of closures. Sub-contractors are very badly affected as every public representative — except those on the Government side — knows. This is particularly true of those self-employed who are servicing the construction industry and do not qualify for unemployment benefit, redundancy payments or any of the social welfare benefits. Do the Government realise the difficulties these people are facing? Have they any conception of what is happening? When will they wake up and bring some semblance of reality into their policies and operations? The effect of the doubling of the VAT rate to 10 per cent cannot be over-stressed. Actions speak louder than words. It is very difficult to find words to describe the Government's inaction at a time when action is needed to restore the construction industry.
The Government's document is ominously titled Building on Reality. How unreal can the Government be when the building industry is being decimated, is being bludgeoned into inactivity, because there is a lack of incentive and encouragement for those involved in this industry? But the sledgehammer blow must be the doubling of the VAT rate on house building from 5 per cent to 10 per cent. I appeal to the Minister, even at this late stage, to accept what we are saying in the interests of thousands of workers. Allowing for the fact that we are approaching 20 June, this Government should encourage the workers in the building industry and the supporting services. They should throw them a lifeline and maybe, just maybe, this will be seen as one of the most effective public relations exercises we are likely to see from the Government. The people from Cape Clear to Malin, from Clifden to Ireland's Eye, abhor this Government's policies. Throw a lifeline to the building industry. Remove the doubling of VAT from 5 per cent to 10 per cent. This would be worth all the handouts, all the goodies and all the public relations exercises we will see from now until 20 June. I ask the Minister and the Government very seriously to consider this section of the Finance Bill.
May I make a general comment about the VAT rates which I believe have helped people to understand the VAT system? This has simplified the system for people in business, industry and commerce. The move towards the three rates, and hopefully one or two rates, is wise and prudent and has been welcomed. Inevitably there will be difficulties when VAT changes are made because certain categories will be regraded upwards or certain sections which were previously exempt from VAT or who paid lower rates may find that they are now eligible to pay VAT. They are the people we will hear about in this House.
Deputy Lyons referred to the building industry. We all know that industry is going through a very difficult time but that did not start when this Government took office. There is a world recession. It would be more beneficial to the building industry and the country at large if we got away from the idea that if one party or other were in government things would be different. A change in government does not mean that the new party will bring a pot of gold with them. There are no leprechauns in this House as far as I know who can produce pots of gold to pay out this extra money. It is time to stop this nonsense. The building industry held a very good briefing session for Deputies before Christmas. I was not able to attend but I got their written documentation. I doubt if any non-party card carrying members of the building industry taking an objective view of the problems they face would say that changing a party from one side of the House to the other will solve their problems because it will not.
The doubling of the new house grant from £1,000 to £2,000 has helped to remove many of the difficulties which arise because of the changes in VAT rates. In addition to that grant is the £5,000 grant to tenants of local authority houses or flats with three years standing, who surrender their local authority house or flat and buy their own house. That is a great incentive. Already I have assisted a great number of people to apply for this grant and many local authority tenants have surrendered their flats and houses and bought their own dwellings. This has to be a boost for the building industry. There are people who can qualify for the £5,000 grant for surrendering their local authority house or flat, the £2,000 new house grant and the £3,000 subsidy, £10,000 in grants, to buy their own houses. This move has been brought in by this Government in the middle of a recession. Let us cut out the tripe about one side of the House being more avuncular than the other to the building industry. I should like to see a more liberal view taken of who qualifies for the grant of £5,000——
You are now moving away from the section.
If we took a more liberal view in that regard it would work wonders for the building industry and local authorities. The VAT changes have cushioned the building industry to some extent. Perhaps a toll could be applied to house or other building and if the building industry could come up with more suggestions, we might help employment in that area.
I am sure that the newspaper industry welcomes the changes in VAT. However, we must ask if the newspaper industry is giving the sort of employment it has traditionally given and if the changes in VAT will be reflected in the number of people employed in the newspaper industry or will it be simply reflected in the size of dividends paid to newspaper owners? Let us be constructive and objective in this regard. We depend on the media for reporting events but these are people of integrity and we respect their independence. If the newspaper industry is to have a zero rating, there should be an arrangement that they will maintain a certain level of employment and that we are not just providing an added dividend for newspaper owners. They should not be allowed to use the money for buying new machinery to the detriment of employment. The Minister should give some thought to deregistering newspapers rather than bringing them down to a zero rate. Deregistration would not cost the Exchequer very much and would be a great help to the industry. However, in return for any moves in that direction we should be seeking the protection of employment in the industry.
I welcome the changes in regard to VAT on theatre tickets and I should like the Minister to extend this facility to cinemas. The cinemas bring people into the city at night and keep it alive. It also helps to keep down the crime rate and perhaps the Minister could extend the facility to cinemas. Dublin Corporation have taken expensive steps to provide housing in the inner city and changes in the rate of VAT on theatre and cinema tickets can certainly help to keep the city alive.
I am glad of the opportunity of making a short contribution on the most penal section of the 1985 Finance Bill. Everybody accepts that there are difficulties facing the Minister for Finance in preparing a budget and the various ways by which he must produce revenue. It is a long process and many submissions are made, some of a vested interest nature, covering building and many other facets. Submissions will also be made from within the Minister's party, the Civil Service and by many well meaning and well intentioned people throughout the country. I am sure that, among the groups I mentioned, nobody submitted that he should increase VAT on footwear, the building industry or clothes. I suspect that even his colleagues in Government would not have suggested these changes.
Deputy Mitchell made a very strong case as to why the 5 per cent rate should not be doubled for the building industry. He outlined their difficulties and said that they had to be faced up to. If Deputy Mitchell is honest in continuing his argument, he will agree that a Minister for Finance should not introduce such a penal measure. The Minister obviously does not realise the serious consequences it will have on an industry which has served the country well through good times and bad. We have always been told that the building industry is a barometer of the economy. The Minister said that the difficulties of the industry are being overcome because they have increased the public capital spending programme. The problem is—and the Minister knows this—that increasing the public capital spending programme does not, unfortunately, necessarily mean one extra job because automation and mechanisation have taken over to a large extent and the number of jobs are decreasing each year. This imposition on building is hitting most at the people who have been traditionally employed in that industry. It had its tough, difficult origins, it was known as the hire and fire industry. Luckily, because of organisation at worker and management level, it became a much better organised industry and gave good, steady employment in addition to providing the badly needed infrastructure of society, housing, roads, bridges and so on. The industry gave good, strong, steady employment to fathers of families which allowed them to live in reasonable comfort and provided them with a worth-while income in a steady secure job. They worked hard. Many of them served long apprenticeships. The Minister will be regarded as the person who sounded the death knell of the industry. He was ill-advised to do that. I am sure no submission was made to him, but he must have had consultations. The argument that it is in the interest of harmonising taxes or reducing the number of groups is not adequate for all the people who are unemployed and those who will be unemployed by the end of the year.
A few weeks ago I said in this House that in my own city and county the building industry was on its knees and that by October it would be flat on its face. Nothing I have seen or heard in the intervening weeks has changed my opinion. I believe it will be flat on its face by the end of the year unless there is an urgent change of direction by the Government. It is tragic to see so many people losing their jobs. Places like Verolme in Cork provided employment for many skilled people. Men are now coming into my clinics and asking me how they can get to projects in the Middle East. These are all fathers of families. This is tragic. It is forced emigration on a scale which will grow and grow while the Government continue with their present policies.
I could go into great detail about the excellent character of the people who worked in the building industry. I had long associations with the industry in my pre-political days. It was not the easiest of work but they were hardworking, good people who contributed to the welfare of the State. They played their part in society. They built their own homes and became part of the community. They reared families and tried to educate them. Now they see their jobs being eroded. With the help of the European Social Fund we invested substantially in training young people, and rightly so. There was great co-operation between trade unions, employers and successive Governments to ensure that the best possible training skills were available for our young people. How right that was. It was true in particular in relation to building crafts. The standard of workmanship and skill implanted in those young people was very high. What is the future for those fine young people who have been trained?
The Minister's decision on the building, industry was wrong. He would be making a very wise decision if he decided to change it. We often have U turns but the Minister would be very wise if he reversed the 5 per cent decision for the sake of the many jobs which could be provided in the industry. I welcome and encourage the decision about the person living in a local authority house. The increase in the grant is but a fraction of the added increase in costs because of the 5 per cent. The Minister would make a very big name for himself if he changed direction on that one.
I referred to the increase in the price of footwear and clothing for adults. The increase in the cost of footwear is very substantial. It was zero rated prior to the budget and it is now rated at 10 per cent. That imposes a substantial charge on families who are already hard hit by the recession which is deeper than anybody expected. The Government are tending to plan in direct opposition to how jobs can be created.
In the British Conservative party 20, 30 or 40 solid party members have decided that the British Prime Minister is on the wrong course. Our Taoiseach and Government are trying to out-Thatcher Mrs. Thatcher. Those solid sensible people consider that there should be a change of plan by their government. The Minister should consider my appeal to reverse the 5 per cent decision on the building industry.
Is the Deputy about to join the Tory party?
The Minister should be more serious than that.
The section we are discussing——
An Leas Cheann Comhairle
The amendments.
Yes, the amendments first. Thank you, Sir. There is more than a slight air——
The Minister does not know what is in his own Bill. We are on section 42 in which the Minister is proposing the change in the VAT rate.
We are on the amendments first. We discuss the amendments first before we discuss the section.
On a point of order, the Minister does not seem to be aware that the amendments have been disposed of.
The amendments have been disposed of. We are dealing with the general debate on the section.
The amendments are not being pressed?
They are not being pressed.
Has the Minister slept through the morning?
I heard every word. I am a little heartened to hear that the amendments are not being pressed. There is an air of absolute unreality about the Opposition's approach to the question of VAT rates. Taking all the VAT rates together including the other sections we will come to later, Deputy O'Kennedy has made a series of suggestions which would reduce revenue by £158.4 million in a full year. Deputy Mac Giolla has put down amendments which would reduce revenue by £145 million in a full year. At no stage during any of the remarks which have been made on this section — and a Leas-Cheann Comhairle, you and the Ceann Comhairle have allowed more than passing references to other parts of the Bill——
On a point of order, could I remind the Minister that I said the money which would be saved on social welfare would be the exact amount he mentioned, £158 million?
At no stage has the Opposition or Deputy Mac Giolla suggested how that revenue gap might be made up. Last night the Leader of the Opposition said he felt a modest amount of £200 million might be added into the public capital programme. They are at exactly what they have been at for the past 2½ years. They would like more spending and less taxation, but they never try to make a connection between the two.
The Minister's policy is a glorious failure.
Deputy Molloy is getting a bit chippy. He had very little to say during the course of the debate so far. He is welcome back.
I do not see what that has to do with it.
The section provides for the changes in the VAT rates which I announced on budget day. I should like to indicate what the effects of different changes are so that Deputies will be able to take a more realistic view of the reasons for the changes. A wide range of goods and services is not affected by the budget changes.
Three cheers.
It includes food, electricity, books, medicine and medical aids, children's clothing and footwear, and the vast majority of the goods which were in the 23 per cent rate up to the time of the budget. Products that are subject now to great reductions or exemptions include all of the former 35 per cent rated products. The reduction in the first year in VAT revenue from that move is £67 million. There is a reduction also in the rates applying to newspapers, hotel accommodation, car hire and concrete blocks and there is an exemption in the case of theatre. The reduction in revenue in respect of these changes for the first year will be £14.1 million. In areas where there are increases in the rates, first, there is building. The increase in revenue from the change in that respect is £42,500,000.
In respect of one industry alone.
The changes in the rate in respect of car repairs will result in an increase in revenue of £2,500,000 while the increase in respect of the change in the rate in fuel will be £9.4 million. The additional 2 per cent on adult clothing increases the revenue by £5.7 million while the bringing of adult footwear into the VAT net at 10 per cent will raise £6.9 million in the first year. The net effect of all that so far is to reduce VAT revenue by £14.2 million.
There is a further £6,500,000 reduction from the deferment of the application of the 10 per cent rate of VAT on private housing from 1 May. The net effect of the increase in revenue resulting from reductions in the ratings, from purchases diverted back here from north of the Border and from the first year or one-off loss in terms of VAT at the point of entry represents a net increase of £5 million in revenue.
The overall total effect of all these measures is to reduce VAT revenue in the first year by almost £16 million. The reorganisation in itself has dynamic effects which are worth-while achieving and which can be achieved for a revenue loss of the order I have outlined. Deputy O'Kennedy returned to what is apparently one of his favourite diversions of confusing tax rates with tax take. Properly he produced a copy of the table for current revenue, 1984-85, and read from that that the 1984 outturn in revenue from VAT is £1,361.6 million and that the post-budget estimate for 1985 is £483.9 million. The Deputy says that means there is a 9 per cent increase in VAT revenue, that there is a 6 per cent inflation rate and that consequently there must be a real increase in the VAT burden. That is utter nonsense. The increase in VAT revenue reflects a number of different factors. First, inflation has an effect on VAT revenue. If the price of goods increases and if VAT is being charged on a percentage basis, it follows that VAT revenue increases, too. Inflation will not add a lot this year because we expect price increases to be a little less than 6 per cent. Therefore, with an unchanged base and with a general price inflation of 6 per cent, there would be an increase of about 6 per cent in revenue without any change in the rates and without changing the base. That does not represent an increase in the burden of taxation.
But there will be an increase of £9 million.
Secondly, we expect a growth in consumption in the economy this year.
The Minister must be joking.
Deputies opposite may not wish to believe that but they have been quoting figures at me selectively for the past couple of weeks.
Mair a chapall agus gheobhair féir.
They have been quoting selectively from the Central Bank bulletin and the last ESRI quarterly bulletin. Either the Deputies have not read about or have chosen to ignore the expected volume of consumption in the economy this year. There will be a contribution to that as a result of the increase in the volume of consumption.
Is the Minister including the consumption power of the 30,000 who have emigrated?
There will be a dynamic effect on the economy and therefore on the revenue as a result of the changes being made.
The Minister was wrong last year, too, and had to bring in a minibudget.
Deputy Molloy should know better than to interrupt me in this way. I was not wrong last year.
Interruptions are disorderly.
Last year Deputy O'Kennedy, the magician who cannot tell a tax rate from the tax base, was here telling me that I was trying to pull the wool over people's eyes, that I would take in more revenue by way of VAT than I was pretending and that I was opting for a smaller budget deficit than I was indicating. This year the Deputy is singing a different song because he is confounded by the fact that subsequently we were found to be pretty close to the forecast.
That was after the mini-budget. The Minister knows I was right then.
That is where the 9 per cent increase comes from. Deputy O'Kennedy might take some advice about calculating take. In addition, the average rate of VAT in the economy has been reduced by the measures we have taken this year. I am glad that we were able to take those measures. Deputy Mitchell expressed the hope that this was a step along the road to a single rate of VAT. That is something we will have to think about but in any event there is a reduction in the overall burden.
By contrast, to have proceeded along the lines set out by Deputy O'Kennedy in his amendments would have been to reduce the VAT revenue in a full year by about £158 million.
All the schemes that the Government had launched could be cut back.
If we were to bring about that change by way of the VAT system, it would probably involve increasing the 23 per cent rate to 26 per cent or one could look elsewhere and, for instance, increase the 10 per cent rate, though I do not think that is what Deputy O'Kennedy and his colleagues would wish us to do. If the people opposite have no idea as to where the revenue should be replaced, they should have ideas as to where expenditure could be reduced but they have not put forward any such idea.
On a point of order——
Is this another spurious point of order?
——obviously the Minister was not listening to the debate when he asked what we were discussing. He did not know that we were discussing section 42.
He knows it now.
I was well aware of what was going on.
Neither was he listening when I pointed out where we could save on current expenditure. I mentioned a figure of £150 million that would derive from growth in employment in the construction sector. There are 50,000 people unemployed in that sector.
Deputy O'Kennedy should think a little more before putting forward such a proposal. He is suggesting that we would immediately reduce expenditure on social welfare by £150 million and create extra employment but we would need considerably more than £150 million to stimulate the projects that would employ those people. The very point I am coming to is that one is not going to do that by reducing one's total revenue by £150 million. That cuts one off by twice the amount——
It is not reduced by £150 but by £100 million.
——if one needed to give effect to the kind of measure that Deputy O'Kennedy was talking about. That Deputy and Deputy O'Dea had some remarks to make about the change which we have made in the number of rates. I am quite happy that we have done the right thing in reducing the number of rates. I am perfectly prepared to agree with the Deputies on the other side that there were two rates in the system which I brought in. One was the 8 per cent rate on clothing, which was part of the process of bringing clothing into the system, and the other was the 18 per cent rate on hotel accommodation, having given a reduction previously as a relief in order to assist that sector.
Adding 75 per cent.
They were temporary or transitional measures required in order to meet particular situations. However, since reference was made to the report of the Commission on Taxation on indirect taxes, I have to point out that that commission's report came out in June of 1984. Since then there have been no new rates introduced whatsoever, so Deputies may take it quite seriously when I say that I am, to an extent, following the advice given by the Commission on Taxation there.
I dealt with Deputy O'Kennedy's continuing difficulty in distinguishing between tax rates and tax take. He made a number of remarks about the effect of these measures on specific industries. Indeed, a number of other Deputies mentioned this also. They mentioned, for example, the effect on the footwear industry of an increase in our VAT rate. The rate of VAT on footwear in this country is not the rate that affects our footwear industry. Most of the footwear manufactured here is exported. Indeed, the firm to which Deputy O'Dea referred exported, as far as I am aware, over 90 per cent of their production to the UK. The rate of VAT that affects most employees in Irish footwear manufacturing enterprises is the 15 per cent rate charged in the UK, not our rate. Deputies are picking the wrong targets.
That is some statement from the Minister — that the VAT rate on footwear does not affect our footwear industry.
If VAT has any effect on Irish made exported footwear, it is VAT in the country to which those shoes are exported. It is not our VAT rate here.
(Interruptions.)
I will not give way to Deputy O'Kennedy, because he has had most of the morning to make these points. He does not like being told the facts. He has a grand habit of jumping up with these spurious points of order.
I just want clarification on something that the Minister said. When the Minister discovers a pearl like this, I would like to consider it.
Even the very statement made by the Deputy shows that he has not really thought what the VAT system is all about. If you are exporting products, you pay no VAT in the country of origin.
We are on Committee Stage and I am asking for clarification.
You should let the Minister conclude and then you may ask.
But I want clarification on this.
VAT is paid by consumers in the countries where products are bought.
Deputy O'Kennedy, would you wait until the Minister has concluded?
But the Minister has said that VAT levels here have no effect on our native footwear industry.
That is what he said.
I am saying that the rate of VAT which affects the Irish footwear industry most, because most of our product is exported, is the rate of VAT charged in the countries to which they are exported. Of course, VAT will affect domestic production sold here, there is no doubt about that, but by far a more important influence on the Irish footwear industry is the rate of VAT charged in the market to which they are exported, which is the UK. In the specific case——
Would the Deputy let the Minister conclude? Then he can come back again.
We will never come back again. The Minister does not know where he is going. Tell Clarks about all that. They will be greatly re-assured.
In the specific case raised by Deputy O'Dea, that was an export industry and their problem was with competition in London, as I understand it. If there was any problem with VAT, it was with the UK's 15 per cent rate of VAT on footwear.
What are we expected to do? Go around in our bare feet here?
That is pathetic, that Deputy O'Kennedy should be making remarks like that on Committee Stage of a Finance Bill, asking if he is supposed to go around in his bare feet. That is his problem. Intellectually, that is what he is at at the moment.
What are the other people to do?
There was comment on the effects on the building industry of the VAT changes. I think it was Deputy Fitzgerald who said that we have been told for years that the building industry is the barometer of the economy. That may well be. We all use barometers to tell us what the weather is like and what the climate is doing to us, but there is one sure thing and that is that you are not going to improve the climate by tinkering around with the barometer. There is a principle there that Deputies on the other side of the House should remember.
That is rubbish. It is trash.
I have absolutely no difficulty whatever in accepting that the building industry is a very important part of our economy. Nor have I any difficulty in accepting that for many reasons there should be a very high public input into the construction sector. That is why, taking this year's public capital programme, some £7 out of every £10 spent on construction here is public money provided by the taxpayer or borrowed on behalf of the taxpayer by the Exchequer through the public capital programme.
40 per cent has gone back to the Exchequer.
If that is not a massive commitment to building and construction, I do not know what is. In addition, the total amount of money available in this year's public capital programme for building and construction will exceed last year's by about £180 million. Even taking account of the effect of VAT on those bodies which cannot reclaim, where it becomes a net extra charge, there is more than enough provision in this year's programme to provide for the VAT and for extra leeway for more work to be done within the framework of the public capital programme.
Utter rubbish. There has been a 25 per cent reduction in the last three years.
The facts of that matter should be very plain to the Deputies. We have taken the opportunity of maintaining funding the public capital programme and putting it towards the construction sector, which in previous years was used for things which did not have such a direct construction input — for example the telephone capital programme or, indeed, the high tech machinery that went into Moneypoint.
Would the Minister give examples of where the investments will take place? It just will not hold up his statement.
The public capital programme has been published and the Deputy can look through it.
The Minister said that last year and there was drop and he said the same the previous year and there was also a drop.
The Deputy can find out where the changes are in expenditure in relation to building and construction.
Do not embarrass the Minister by asking him to read it himself. He knows that it is a fairytale.
I will ignore Deputy O'Kennedy's remark. If that is all that he has to say about the Finance Bill, he is not making much of a case for himself. Deputy O'Dea asked a fairly fair question: why some of the things which Deputies had wanted me to do last year and I would not do last year are now being done this year. I remind Deputy O'Kennedy that the VAT rate on hurleys is now reduced from 35 per cent to 23 per cent. Deputy O'Dea wondered specifically why, when I would not last year reduce the rate of VAT on newspapers, I would do it this year. I think that was very clear last year as it is this year in relation to a number of amendments. There are quite a number of things that I would consider desirable to do, and the Government also, but which cannot be fitted in within the budgetary constraints of a given year. That is a difficulty that we always have when discussing a budget or a Finance Bill. Deputies in Opposition see all the desirable things. They do not want to be saddled with making choices between what is desirable and can be done this year and what will have to wait for a later stage.
I will give the Minister a list of examples.
They do not want to know about the business of deciding on options or on priorities. It was very clear that there was not room last year for a reduction in the VAT on newspapers. That fact that we were having a fundamental re-organisation of the system this year presented us with the opportunity and occasion to do so. I do not intend to pursue the newspapers and find out what exactly they did with the change to their revenue arising from the VAT changes. We do not have detailed price control on newspapers. Offhand I cannot think of a way in which we could make a specific deal in relation to tax changes versus employment. However, knowing the situation in which the major newspaper groups find themselves these days, there are very few people who will find themselves getting a lot fatter as a result of the reduction in VAT on newspapers. I hope the extra leeway this will give them will allow them to make progress in improving their financial situation. I do not think it would be appropriate for me to chase after them with further detailed controls or to ask them precisely what they did with the funds they have saved as a result of the change we have brought about.
What about deregistering them?
I would not be in favour of exempting them, which is what I think the Deputy means. As a general rule it is better to keep newspapers and products generally within the normal VAT system rather than make exceptions in particular cases.
Deputy Mac Giolla wondered why theatres were exempted rather than zero rated. The choice was not between exemption and zero rating. It was between exemption and a 10 per cent rate. Under EC law we have no scope for introducing new zero rates and that applies to a number of comments made during the debate. As I have told the House on previous occasions, if anything, we are under pressure from the EC to restrict the scope of our zero rates and I do not intend to add to the pressure that is on me from that point of view by bringing in new zero rates and thereby stirring up a hornet's nest.
That covers the main substance of the remarks made by speakers on the opposite side of the House. The VAT structure now is a more efficient and constructive one than what we had before. A further simplification in future years would be desirable. I have my own views about where I would start but I do not intend to bring them into this debate.
The Minister will not have to go to that trouble.
I believe the Minister has given misleading information to the House regarding the amount of the public capital programme. He said there was a sufficient increase in the money allocation for the public capital programme to absorb the VAT increase. I put it to him that in the public capital programme affecting the construction industry there is in real terms a drop of 3.5 per cent before one takes into consideration the increase in VAT which the Minister has added. Following the increase from 5 per cent to 10 per cent in the VAT rate, there wil be a drop in real terms of 6.5 per cent in the public capital programme affecting the construction industry. If that is so, how can the Minister say he has provided a sufficient increase in moneys for the public capital programme to absorb the VAT increase which, on his own estimation, will amount to an extra £42 million of a burden on building in respect of VAT. In fact, even in money terms the increase in the public capital programme affecting the construction industry is only £39 million as compared with last year. That is the amount in money terms but in real terms there is a 6.5 per cent drop.
I do not have the figures to hand——
That is not good enough.
The Minister made a statement and he should be able to uphold that statement.
I will come back to the Deputy with the figures. The total amount of expenditure on building and construction in the public capital programme this year is increased. The increase over last year is more than the estimated amount of the extra VAT that will have to borne by bodies in the public capital programme who cannot recover the VAT.
What is the figure the Minister is quoting in money terms?
I have said to the Deputy I do not have the figures in my brief but I will come back to him with them in the House.
Any Minister who can say that the impact of increasing consumption is being taken into account in the levels and yield from VAT is capable of making any outrageous statement. All the evidence is that consumption is dropping considerably for obvious reasons such as the growth in unemployment, continuing emigration and the economic depression. The figures demonstrate that the Minister is not relying on buoyancy based on consumption. He is relying on buoyancy based on increasing VAT levels. If he is going to increase the VAT take by 9 per cent this year, he cannot get away from that fact by referring to increased consumption and that kind of nonsense. When one considers that inflation will probably be about 6 per cent, it is obvious the VAT take will be at least 3 per cent more this year in real terms than last year. The section singled out for crucifixion is the building industry where the Minister is proposing to take an extra £42.5 million.
I am sorry to disappoint the Deputy but all the forecasts agree on a projection that the volume of private consumption expenditure will be up by about 2 per cent this year. There is no way that that will not have an effect on VAT revenue. When that is added to the effect on prices, one gets a double effect that will increase the amount of VAT revenue by more than the rate of inflation. The overall effective rate of VAT will be slightly less this year than last year. It will apply to a bigger base which will have been increased by the increase both in the volume of consumption and prices. That is where the increase in total VAT revenue comes from.
In relation to the reply of the Minister with regard to newspapers and the theatre, I fail to see how an argument that can be applied to the theatre in respect of exemption, and therefore deregistration, cannot be applied to the newspaper industry. The Minister gave a one-line reply to that suggestion. He spoke of people being outside the VAT area but the same argument could apply to the theatre. I am sure the Minister has not got it in mind to increase VAT rates on newspapers at some time in the future. I cannot see why exemption and deregistration could not be given to newspapers.
Progress reported; Committee to sit again.
Sitting suspended at 1.30 p.m. and resumed at 2.30 p.m.