That problem could, of course, be overcome in a private firm by management offering talented individuals extra money to stay on if they were tempted to leave. But the Government cannot and will not do that. In fact the combination of their refusal to pay the Gleeson award, and their offer of very generous terms to quit, will lead to an exodus of talent from the public service. That clearly does not worry the present Government. Their time horizons are rather short. But it must surely be a cause of concern to more thoughtful members of this House who worry about the direction this country is taking. Far greater sums could be lost than anything saved by the redundancies, from misjudgments and inefficiencies of a public service depleted of its best managerial talent.
The other questionable decision arising from the pact with the unions is the decision to provide social security pensions for the self-employed. There is no clamorous demand from the self-employed to take part in the costly and compulsory system of social insurance pensions. At this very time, neighbouring countries are looking at methods of encouraging choice, diversity and new thinking in regard to the provision of pensions. Other countries see options in the pension area as ways of encouraging individuals to save wisely, and of spreading the individual ownership of shares in productive wealth.
Yet at this very time, the Fianna Fáil Government are going in exactly the opposite direction. They seem to believe that the old, unreformed, compulsory and monopolistic system of social insurance should simply be taken and extended to the self-employed. Is this a wise decision? Let me read out the views of the oft quoted Commission on Taxation. The Commission said, on page 306 of its first report, that our existing system of social insurance contributions, breached virtually all the standards normally accepted for equitable taxation. They described it as "regressive relative to income" and as "failing to take into account ability to pay because the same contribution is payable without regard to marital status".
The commission went on to make the most damning condemnation of all of our existing social insurance system when they said that its economic effects "included a higher level of unemployment". If that is what the Commission on Taxation thinks of our social insurance system, why do Fianna Fáil want to extend and entrench it? Surely their priority should be to reform it.
Our social insurance system is bad for jobs because it is a tax on one factor of production only — labour. Thus it directly penalises job creation. The Commission on Taxation also condemned the present social insurance contributions system because "to the extent that the contributions are shifted forward into prices, they increase the cost of goods produced in Ireland relative to foreign produced goods." In other words they help, indirectly, to subsidise imports. Because the contributions are only leviable on the bottom slice of income, and totally exempt income above a certain figure, they tend, in the view of the Commission — and it is a view that I share totally —"discourage the employment of low income earners (largely the young, part time workers, women and older unskilled workers.)" The Commission also saw the system as encouraging "proliferation of benefits-in-kind which in practice do not carry the burden of social insurance contributions." In other words, it encourages the culture of tax avoidance, so prevalent in this country.
What process of logic persuaded the Government to extend a system such as this to a whole new sector of the economy? Surely the correct course would have been to reform the system as recommended by the Commission on Taxation, rather than entrench it by extending its coverage? In their actual proposals for the self-employed the Government seem set to introduce new and further anomalies into the system, as if the present ones were not enough. Let me give one or two examples. First, they propose that there will be a minimum payment of £2 per week by each person covered, a minimum payment whether or not there is an income that week or that year. The scheme is supposed on paper to be a pay-related system of social insurance. How then can the scheme continue to be called "pay-related" if some people have to pay a minimum sum whether they have an income or not?
The Minister for Social Welfare, Dr. Woods, claimed in this debate, that this minimum contribution provision was "necessary in the case of self-employed persons mainly because capital allowances are deductible for PRSI purposes and self-employed persons with high capital allowances who would otherwise have a reasonable income, could end up paying a very small PRSI contribution or none at all". Surely the Minister knows that this is not the only possible reason why a self-employed person might have no income in a particular year? Has he never heard of trading losses, of falling products prices, of bad debts? There are all reasons why self-employed persons might have no income in a particular year even though this Government want to make them pay a minimum contribution to a so-called pay-related system. If capital allowances are the reason for this minimum contribution proposal, which flies in the face of the pay-related concept, then let us make special provision for taxpayers claiming capital allowances. But it is entirely wrong to throw out the "pay-related" principle, and make people with no income pay contributions, just because of that difficulty.
There is another anomaly. The Minister for Social Welfare said that smallholders on unemployment assistance will not be required to contribute to the scheme —although they will presumably qualify for the benefits. This will create a poverty trap for those just above the income limit for smallholders unemployment assistance. How does he propose to get over that difficulty?
Many support the extension of the PRSI system to include the self-employed on the ground that it will make them pay their share. This school of thought ignores the well documented case that this proposal will do the opposite. It will, in fact, confer massive long-term financial benefits on the better off self-employed. These are the ones who would not normally qualify for non-contributory old age pensions, but who will now qualify for contributory social insurance pensions. This is an extra cost on the PAYE sector.
Furthermore, the better off self-employed will pay proportionately less towards these benefits than will the poorer self-employed. This is because there is an income ceiling on contributions in our social insurance system. An uncounted number of people, within three years from now, will for a minimal contribution, be qualifying for tax-financed pensions that they do not need, and never sought. What sort of tax equity is that? Most self employed are on relatively low and variable incomes. That is not really a very persuasive case, on grounds of equity with the PAYE sector, for making them pay social insurance contributions as well as income tax, health and youth employment levies.
It is worth mentioning a few facts about the taxation of the self-employed, just to put matters into perspective. First self-employed taxpayers do not qualify for the PAYE tax allowance of £800. This means that they are liable up to £464 a year extra income tax. Second, the privilege they enjoy of paying tax on a previous year's account is now worth much less than it was a few years ago when inflation was at a higher level. Third, it should be noted that—and I quote from the report of the Commission on Taxation—self-employed persons are usually taxed on the basis of income accrued or earned whether or not it is actually received. In other words, their income could be tied up in extra stock in trade, which is not immediately available for tax or social insurance payments.
Fourth, self-employed tax payers are compelled to incur large book-keeping and accountancy costs in order to comply with their tax obligations. The auditing of accounts can come to £1,000 per year, even if there is no tax or social insurance payable. In addition, the Commission on Taxation quoted figures for the extra costs on self-employed persons of collecting PAYE and VAT for the State. They said that these extra costs borne out of after tax income by the self-employed person were 6 per cent of the State's PAYE receipts from that sector and 11 per cent of the State's VAT receipts from that sector. These administrative costs have to be met by the self-employed person regardless of whether the business is making a profit. The commission pointed out that these burdens fall disproportionately on small businesses, the type likely to be run by self-employed individuals, rather than by companies. These are the types of business that some argue must, on equity grounds, be brought into the social insurance net.
The self-employed do enjoy the benefit of a more liberal regime in regard to expenses. It is widely believed, probably with considerable justification, that this allows self-employed persons, quite legitimately, to minimise their tax liability. If this really is the problem the criteria for claiming expenses should be changed. Introducing comprehensive social insurance is an expensive and lazy way of dealing with minor anomalies like that.
I believe that the Revenue sheriffs appointed by the previous Government and the tax amnesty proposed by this Government will quickly clear up the problem of tax arrears. Once these arrears are cleared up, and I do not justify them in any way, a good part of the reason for the "aggro" against the self-employed will have disappeared. If so, where is the need on grounds of equity, to bring in social insurance for the self-employed at this time, which will end up costing the PAYE sector huge sums of extra money and giving virtually free pensions to many people who have not sought them?
Family Income Supplement was introduced to remove the poverty trap which locked people into unemployment. Many people found that when all expenses were taken into account they would lose money by taking up a job and signing off unemployment assistance. The FIS gives a cash supplement to low income earners at work, and is related to the number of children they have. The scheme is rather complicated and the take up has therefore been disappointing. There is certainly a very good case for reforming it, but there is no case for undermining it, as the Minister for Finance seems to be doing in this budget.
He has announced substantial, and justifiable, increases in the personal rate of unemployment assistance and increases in other social welfare benefits as well. Yet the figures for eligibility and the rates of payment, under the FIS, have not been increased in line with the other social welfare increases. This diminishes the value of the FIS, diminishes the incentive to work and is bad social policy. I strongly condemn the Minister's failure to maintain parity between the FIS and other social welfare schemes.
I now turn to an anomaly in our tax code to which I have a strong personal and philosophical objection. Our tax code has followed the British one in ceasing to recognise the costs associated with the rearing of children as affecting a tax-payer's ability to pay his or her income tax. We have the curious situation that £4,100 extra of one's income is tax free, and one also qualifies for double tax bands if one has a dependent spouse. But if one has a dependent child, one qualifies for no extra tax free income, and no improved tax bands.
The present tax treatment of spouses is based on the Supreme Court judgement in the Murphy case. This judgment relied on the constitutional provisions in favour of the family to strike down any discrimination in the tax code against married couples in favour of single people. I do not understand, therefore, why the same constitutional provisions in regard to the family do not require that the tax code affords some consideration to the costs associated with bringing up children.
I know it will be argued that a child tax allowance, like all other tax allowances, is liable to confer greater benefits on the better off, who will gain 58p for each £1 of child tax allowance granted, whereas poor people will only get 35p or nothing at all. That does not seem to worry people in regard to other allowances. But if it is a problem it can be overcome by granting a tax credit for children instead of a tax allowance, or indeed reforming the entire system to substitute credits for allowances.
It could also be argued, as I have frequently heard it done, that people "freely choose" to have children, and that the State has therefore no obligation to give them a tax cut just because they have undertaken these extra responsibilities. If that logic is accepted, it is hard to see why a couple should have a double tax allowance because one of them "freely chooses" to remain at home, as a dependent spouse, or because they "freely choose" to have a mortgage, or pay health insurance contributions.
Another argument against a tax allowance for children that I have heard, is that the State already spends a lot of money on the education of children. In providing free or subsidised education, the State is saving the family a lot of money and it is argued that this is more than fair recompense for the lack of a child tax allowance. This line of argument presupposes that the provision of free education is some sort of favour that the State confers on families. As I see it, free education is something that is provided not as a favour, but because of certain moral values held by the community, and expressed by the State, as to the rights of children and the general development of society. If that is so the existence of free education is hardly a sufficient argument for granting tax allowances for the individual himself, his spouse, his mortgage and health contributions, but not for his children.
It may be argued that the system of social welfare child benefits, paid to the spouse, is a full and adequate substitute for a child tax allowance. I do not accept this and the figures show that this is not so. The child benefit system does not achieve horizontal equity between taxpayers on a given level of income—one who has a spouse and no children and the other who has a spouse and a number of children.
The child benefit is only worth a maximum of £180.60 a year to a family for each child. The tax allowance and double tax bands for a spouse are worth up to £2,550 in tax saved. The tax saving for a dependent spouse is up to 14 times as great as the benefit for a child. Surely this is unfair to families with a number of children, relative to those who have none. We should reform the system of tax treatment of children. We should look at the French tax system which contains a much fairer system for allowing for children and other dependants. It is described in some detail in paragraph 16.16 of the first report of the Commission on Taxation. Under it, tax paid is related closely to family responsibilities. This is done by a system of quotients. It encourages people to accept responsibilities for dependants. This ultimately spreads responsibilities and saves money for the State.
To judge from the Minister for Education's speech in this debate, the Government's educational policy is one of reviews, task forces, committees and no action. Between pages seven and 12 of the Minister for Education's script I counted seven different reviews, studies or task forces, which she has established in order to long finger real educational problems on which she should be taking decisions now. The plain reality is that Fianna Fáil's educational priorities are wrong by any normal standards. They are concentrating their cuts in the primary and vocational sectors. These are the sectors of most relevance to the early school-leaver, the child most at risk of long term unemployment.
Meanwhile we have the idiocy of continuing in this budget to spend £20 million over the next three years on the training of 1,800 national school teachers for jobs that will not exist, and with qualifications that are not recognised in any other country outside Ireland.
We have continued spending on universities, in faculties the bulk of whose graduates are emigrating. Mr. Patrick B. Diggins of the Teachers' Centre in Drumcondra has estimated that the Irish taxpayer spent £87 million on third-level education of graduates and nurses who emigrated in 1986. He describes this as a straight transfer of wealth from this country to rich countries where these emigrants settle. He accepts that emigration is natural and healthy, but he raises a very valid question as to whether this relatively poor country should continue to transfer educational financial resources to other countries without acknowledgment, compensation, or profit. He suggests, and I agree, that Europe should develop a common educational policy whereby the costs of third-level education would be shared by member states within the European common labour market. In this context the transfers to Ireland of funds for education from the European Social Fund should be seen not as a privilege but as a right.
I believe that we should cut back on the level of graduate output from university faculties from which there is an especially high emigration. For instance, the cost per architectural graduate—virtually all of whom emigrate—is £21,899. The cost of a commerce graduate—much fewer of whom emigrate—is only a quarter as much—£5,600. We should reduce one and increase the other. Thus we could save money, without reducing total student numbers, simply by shifting resources from one faculty to another.
If we are seeking to release resources for important educational priorities — for example, in the primary or vocational sector — we must surely question also the huge amount of money, estimated at £160 million, which we spend on teaching Irish. Could be not devote at least some of that money to introduce a continental language at national school level, and provide for the teaching of at least two continental languages to all students at secondary level?
I realise that these are changes that would take some time to bring into full effect. I doubt if the present Government have either the political will, or the length of perspective, necessary to make a start on fundamental reforms of this kind.
There are a number of other fundamental educational reforms I would like to see. They are, first, the provision of an educational voucher — cashable for education or training at a later stage in life — to all early school leavers. This would bring some justice into our present unjust educational system; second, the introduction of proficiency tests in reading, writing and basic mathematics at the age of 10, as a means not of streaming but of identifying children in need of extra help and establishing relative standars in regard to schools and third, the making available to parents of inspectors' reports on schools. This has been done in Northern Ireland and gives useful comparative information, as well as being a spur to improve standards in schools.
I turn now to the question of broadcasting. I believe that the Programme for National Recovery was padded out with State enterprise proposals to please the trade unions. One such proposal, which according to the Minister for Communications in his speech in this debate is proceeding apace, is the establishment of a new long wave radio service, namely, Radio Tara. The project will provide very few jobs — as acknowledged by the Minister — but it would appear that the Minister believes that it will finance itself by the generation of revenue from the sale of advertising airtime in the United Kingdom, which he describes as exports. If that is to be the basis of its financing I fear that it will be another white elephant. To survive, it will have to win a large slice of an increasingly crowded British advertising market. Just as Radio Tara is going into business, the British authorities have announced the issuing of 500 new local commercial radio licences and the establishment of three new national commercial radio stations. All will be competing directly with Radio Tara for advertising on the British market. Before the Minister continues encouraging RTE to spend large sums erecting a huge transmitter in County Meath — over the virulent objections of local residents — he night pause to ask himself if this is really such a good commercial venture at all.
There are one or two other matters raised by Ministers in this debate which I would like to query. The Minister for the Environment said that he was not going to build a national hazardous waste dump at Baldonnel and that he was offering private sector firms 50 per cent grants to dispose of hazardous waste. If so, where will the waste be dumped?
This looks to me as if the Minister is washing his hands of the whole matter of hazardous waste, and is going to leave it to local authorities, private firms and local residents to fight it out as to local authorities, private firms and local residents to fight it out as to where, now or by whom hazardous waste is to be disposed of. Meanwhile, the problem gets worse and the Minister wrings his hands. Surely the Minister should not be running away—and that is all he is doing —from his responsibilities in this matter. This is typical of the short-term, politically slick thinking that comes out from between the small print of many Government announcements—kick the issue into next year, or the year after, and maybe it will go away.
There is a similar piece of slick manoeuvring in the budget remarks of Deputy O'Hanlon, the Minister for Health. Last year he announced estimates which involved a drastic cutback on the long-term illness scheme. This created grave anxiety on the part of many sick people, who feared huge bills just to get life-saving drugs. As with the leaks about property tax and possible restrictions on mortgage interest relife, the Government seemed to be building up public anxieties deliberately.
Then on 4 February along comes the Minister for Health to tell us that the Government had, between October and January found it possible to provide an additional £11 million for the scheme, thereby allowing it to be retained in full. The Government found it possible, within those few months, to provide the money this year. What does this mean? Does it mean that they might not find it possible next year. What was the original £11 million cut all about? Did the Minister get cold feet? Did the survival of the long term illness scheme depend solely on how the latest estimates for tax revenue turned out just a week or two before the budget? If that is the case the long-term illness scheme has just got a short-term reprieve and will be abolished next year. The Minister for Health owes the House a proper explanation as to what happened. Until such an explanation is provided, one must assume that this scheme remains under threat, and was reprieved for one year only because of the vagaries of this year's budget arithmetic.
If our budgetary problems are to be overcome, our economy must grow. The key to economic growth is flexibility and the rapid and continuing reallocation of resources. The monopolies in the transport, electricity and telecommunications areas tie up resources and push up costs. Our social insurance and tax systems penalise employment, and reward labour saving.
Our social welfare system continues to tie people into idleness, as do decisions in this budget about the Family Income Supplement, rather than rewarding each and every effort to make a positive contribution to society. Our education system is grossly inefficient, condemning many to perpetual unemployment, concentrating huge resources on the few.
The favourable tax treatment for income tax and capital gains tax purposes —of Government stock and personal investment in housing ties up too much of our savings in these unproductive assets, rather than channelling them into assets which produce new wealth.
We need a systematic policy to push resources out of any area, where they are making a small return, into new areas where the return will be greater. This must be the overriding criterion of Government policy, a Government policy for growth.
The Irish people need a dynamic alternative to the present Government, an alternative Government and Fine Gael are determined to provide this. That is what we are building towards; that is the key to our present work on policy development. Our people want effective Government, not the playing of parliamentary games of—I address myself to the empty benches over there — holding the balance of power, to quote one slogan in the 1987 election. What the people want is an alternative Government to Fianna Fáil and the only people in a position to provide that are Fine Gael.
Our problems are serious. Our opportunities are vast. I say to all who want to listen, let us concentrate on building an alternative Government. That is the role Fine Gael want to play in Irish political life today.
