Dáil Éireann díospóireacht -
Thursday, 3 Feb 1994

Vol. 438 No. 3

Financial Resolutions, 1994. - Financial Resolution No. 8: General (Resumed).

Debate resumed on the following motion:

That it is expedient to amend the law relating to customs and inland revenue (including excise) and to make further provision in connection with finance.

—(Minister for Finance).

Miss Quill

This new employers' PRSI may prove to be the most sinister measure of this budget. It certainly is an anti-employment measure because it adds greatly to labour costs of which we ought to be conscious, particularly in the context of export industries which must keep their costs down if they are to remain competitive. Guinness has already said that the likelihood is that this one measure will add £1 million to its annual wage bill. That £1 million will go directly to the Government with no benefit either to the company or to its employees.

This morning I telephoned a number of new chemical industries in Cork — these are the great white hope of a Cork that was bled to death with the collapse of the manufacturing industries of the 1980s, including Ford, Dunlops, Gouldings and Dwyer's. These new chemical companies were brought to the Cork region by the IDA at substantial cost to the public purse by way of grants and incentives. I asked these companies how this measure would impact on them. One new and expanding company told me that it would add about £150,000 to its wage bill at the end of the year, the kind of money that would enable this company to take on six additional workers. In this case, these workers would have been graduates who otherwise would be forced to emigrate adding to the great brain drain from this country. Is it not sad that the Government is putting in place the kind of measures that will force graduates to seek work abroad, using the talents they acquired here at the expense of taxpayers for the benefit of competing companies in a shrinking world market? Is it not a sad irony that the Government did not take this factor into consideration when this measure was proposed?

I talked to managers of co-operatives and they had a similar story to tell. The companies with highly skilled and graduate labour will suffer most. The co-operatives, the new high-tech chemical industries and the financial services companies are the main new employers of young graduates here, and they will be penalised and forced to shed staff at a time when we ought to be encouraging them to take on additional workers. We should consider the contradiction of providing State grants for these companies to induce them to set up here in the first place and introducing another measure in this budget to add to their labour costs.

What type of impact will this measure have on the IDA's future plans for attracting job-generating enterprises to this country? Surely the cost of labour is a very important element in the decision of any company to locate in Ireland and anything that adds to labour costs is a disincentive to companies to come to Ireland and create badly needed jobs.

This Government would wish us to believe that this is a job-creating budget. What a nonsense, and what a setback for those who live in the Cork region where there was a huge investment not just by national government but by local government to create the conditions where these companies could set up. Great efforts were made to create linkages between these companies and University College Cork and the regional college in Cork. What a setback this budgetary measure will be for those who live in Cork and who are so acutely aware of the need to retain existing jobs and create more jobs. Shame on whoever thought of this measure.

I wish to refer to the residential property tax which is nothing more than a badly thought out botched attempt to put in place a revenue-earning measure. It must be scrapped. It constitutes a charter of unfairness and bears no relation whatsoever to the ability of families to pay. It takes no account of a family's position in respect of a building society or lending house. Very few young people own their own houses; rather, they pay huge mortgages to building societies. Indeed, very few of us in middle age have paid off our mortgages. Yet it is proposed to levy a property tax on such people. It is a purely locational tax that will hit middle income families, ordinary people such as teachers, nurses and gardaí, who have invested their money wisely and built houses in certain locations in city areas.

Nowadays, a house is valued by its location. Families who live in much more valuable houses in parts of rural Ireland will get away scot free. This measure bears no relation to the delivery of State or local government services and its level is dictated by the whim of the property market which can be very volatile. The aggregation of family or household income is discriminatory and will mean that a series of very modest incomes in a family will tip them over the income threshold of £25,000 per annum. It will impact greatly on families who will also be hit in this budget by the reduction in mortgage subsidy and VHI relief. Those families are the backbone of this country. They have to pay for their children's third level education, their health services and service charges to local government. They pay for everything. This is a mean discriminatory tax and I appeal to the Minister present to use his influence to scrap this part of the budget. The Progressive Democrats will do everything possible to ensure that this measure is defeated in the Finance Bill. It is nothing less than a disgrace, an assault on ordinary people trying to put a roof over their heads and maintain a standard for themselves and their families.

In conclusion I will refer to youth unemployment. At present there are 85,000 people under the age of 25 years on the live register, many of whom left school and failed to find work. They went directly from education to a life of idleness, aimlessness and hopelessness. This budget gives them no hope or prospect of a job. Young people wishing to secure a place in apprenticeship schemes are failing to do so. It was rightly said in this House not long ago that it is easier for a young person to secure a place in a medical faculty of a university than to secure a place in an apprenticeship scheme. The way we treat our young people is scandalous and this budget gives no hope to such people. As I said at the outset, it is a bad budget and will do nothing to retain existing jobs and less to create new jobs. It must be condemned and my party will not support it.

Ms Keogh

What a debacle this budget has turned out to be. From a position where there was no great pressure on it, the Government has snatched defeat from the jaws of victory. Why should that surprise us? This is a Government in which one party dumps policy for political expediency, allows Gerry Adams to be treated like a celebrity, whose first Bill was to be an Ethics in Government Bill and in which a Minister is asked to answer questions of conflict of interest on behalf of another Minister. This is a Government which has further mortgaged our future and that of our children, that spends nearly £1 million on one Minister's constituency and allows the Education budget to provide £5 million for a sports stadium while some schools are deemed seriously substandard.

How can this Government expect an uplift in the economy through an expected upsurge in business confidence when it displays itself as being politically inept? What does it consider the public's reaction will be to the speculation on a rowing back of part of the budget provisions, however welcome that rowing back might be? What will business people think of the lack of judgment in applying a property tax and then having an apparent change of mind? Business confidence will not be built on the "will they, won't they" school of politics. How can that possibly help job creation?

The whole emphasis of this budget — or the lack of it — displays a Government that is unsure of itself, prevaricating and doing a little of this and a little of that. It tinkered with the tax system where there has been a small reform. For example, a single taxpayer will receive the maximum benefit of almost £200 per annum by a change in the personal allowances and standard rate tax band. It gave a small concession on levies for low income earners, a little too modest to have any real impact. It reduced employer's PRSI for low earners, a modest little gesture, but did it consider the possible ramifications? My colleague referred to the ramifications for those on higher incomes, but I will dwell on the revision of the PRSI rates for those earning £9,000 or less per annum.

At first glance that measure might be welcome as a step towards reducing employment cuts. However, serious questions must be asked about the social credentials of a Government which is prepared to penalise employers who wish to pay their employees fair wages in favour of those employers who pay subsistence level wages. I accept that we should have some sympathy for the vulnerable sectors such as the clothing industry which has been bombarded from all sides — including the imposition of a 21 per cent VAT rate on clothing — but this measure is not restricted to those type of "at risk" jobs. This measure will encourage companies to erode full time employment and replace it with lower paid part-time work. For example, in the United Kingdom one-third of the jobs in the retail sector are estimated to be part-time and lower paid and evidence suggests that the bulk of new jobs being created in the labour market there are lower paid and part-time. This follows on a United States trend where official Department of Labour figures show that up to 95 per cent of new jobs created in certain sectors of retailing in a ten year period were officially classified as "dead end" jobs. The Minister by his actions, whether intentional or not, has opened the door to the creation of a dead end, poorly rewarded underclass, with all the attendant social implications. We have already heard about the penalties on employers who wish to reward those who are highly qualified.

This is allegedly a Government of transparency and accountability. Let us consider its accounting principles. Normal Government accounting principles have been severely stretched over the past few years. For example, some, though not all, of the savings on the servicing of the national debt last year were carried into 1994 to be deducted from this year's debt service cost. However, arrears of public sector pay due to be paid this year were prepaid last year to raise last year's borrowing level. The comparison with last year is made even more complicated by the fact that there was a similar shifting around of payments at the end of 1992 when a public sector pay round was paid ahead of time so that the 1993 Exchequer borrowing requirement could be artificially reduced.

Those changes were made to avoid the appearance of a good out-turn from the Exchequer borrowing requirement in 1993, which would have raised expectations considerably in the early part of 1994. That is not good practice. It would be much better to account for funds when spent rather than to move expenditure from one year to another for no good reason other than to make the figures look good. Setting such a precedent means that Governments could massage figures endlessly by allocating funds between different years on a large scale. That is not a sound practice for any Government. The Minister failed to give details of any plan to reduce over time the need to borrow money each year to fund the Government's expenditure.

By the end of 1994 our national debt will be in excess of £29 billion. The Minister said that the EBR will be kept comfortably below 3 per cent of GNP. Any economist would say that the forecast of an addition of £800 million to the national debt cannot be described as an action which will reduce our debt burden. There is no attempt even to reduce new borrowing.

Unless we believe that Government spending is so efficient that it produces an economic return in perpetuity which is greater than the interest rate on the debt — an outcome very few business people would accept — and we want to reverse some of the progress made in controlling expenditure and borrowing, there must be a decision not just to reduce but to eliminate new borrowing. The Government has not carried through on this policy. Borrowing for day-to-day expenditure should be eliminated. There is no strategy for this in the budget, no strategy for the future of our country.

This Government which has such a large majority — a monolith that staggers its way through — presided over the most hamfisted charade ever when it launched the so-called National Development Plan. We saw the Tánaiste and Minister for Foreign Affairs, who when he was on this side of the House, scourged his current colleagues on the Government side for lapses in ethics, go along with and participate in that charade managed by the spin doctors.

A folk culture has been established through the generations of Fianna Fáil Governments, the fancy footworkers, the three card trick party of Irish politics. Labour is now well imbued with that culture. The property tax and the reduction in mortgage and VHI reliefs renege on previous promises. Who is leading whom?

Of all the budget measures the extension of the property tax hits people hardest. It does so in two ways. People will have to pay tax on a national value, not on what they own. Very few people own their houses. I have not repaid even half my mortgage. Moneys used to pay this tax have already been taxed so it represents double taxation. People liable for this tax are not property speculators; they are not sitting on an expensive asset waiting for the highest bidders. They are people who have worked all their lives to provide a good home for their families. Young people who have scrimped and saved to buy their dream home, in which to raise their family are also victims of this tax. Those people have been dealt a double blow by the imposition of a tax on their home and a reduction in the mortgage interest relief. They are stretched to the limit at present. How will those in receipt of a fixed income meet their commitments? The Government is creating another poverty trap.

The property tax is a concerted attack on ordinary middle income families, who strive to put a roof over their heads, pay their own health insurance and be net contributors to society. They are being targeted by this soulless Government.

There were absolute commitments given prior to the last general election by the two parties now in Government. They have introduced taxes that were then explicitly ruled out. Promises which Deputy Kemmy described today as being made in "the white heat of the election campaign" are coming back to haunt them. The middle income families whom they have explicitly targeted will not easily forget or forgive. People in my constituency of Dún Laoghaire will be penalised by the imposition of this tax because of where they live. I can imagine the message which will be sent out in forthcoming elections to the parties in Government.

The proudest boast of the Labour Party at their conference this year will be that the only promise they have kept is to lift the ban under section 31 and make Gerry Adams a superstar.

Mr. Ellis

I wish to share my time with Deputy Callely. Having listened to Deputy Keogh take such high moral ground I thought she was not in the House last week, but I suppose that is an internal party matter to which we should not refer. Regarding the budget proposals and the background to it, we must consider how far this country has progressed since 1987 and how it performed from the early eighties until 1987. From 1982 to 1987 our rate of borrowing was between 13 per cent and 16 per cent of GNP, while under the 1994 budget projections our rate of borrowing will be less than 3 per cent of GNP.

Deputy Keogh referred to the public finances. The changes that have taken place in public finances during the past number of years have led to an inflation rate here of approximately 1.5 per cent, the lowest inflation rate here since the fifties. The benefits to this country from that low inflation rate are obvious to all citizens. It has improved our living standards, perhaps not to the extent that everyone would have liked, but such improvements cannot be made without sacrifices.

There has been much talk about the budget, the residential property tax and other taxes but there has been little talk about the changes in taxation in respect of personal allowances and the tax bands. There is a commitment that until such time as the proposed changes are fully implemented there will be ongoing adjustments in respect of the tax bands and rates so that people will not incur any financial loss in respect of taxes for which they are liable.

I and my neighbours have paid indirect taxes by means of service charges for several years. Some people have been dealt a double blow in respect of those service charges in that they have had to pay for services, such as group water schemes, and also to pay the ongoing costs of maintaining those services. Yet people in this city and other cities do not pay any service charges. It is time the people who are up in arms about the property tax considered their position in respect of liability for service charges. If service charges had been applied such a measure might have obviated the need for the Minister for Finance to introduce a property tax.

The budget catered for a number of groupings. Those in receipt of social welfare will benefit from the budget by receiving increases of 3 per cent at a time when the rate of inflation is 1.5 per cent. The budget also proposes increases in child benefit in respect of the third child and subsequent children. It has introduced the provision of a widower's pension which is an historic development. There have been changes in the social welfare system in respect of PRSI and the amounts to be paid by low income workers.

The clothing and textile industry — and companies with tight profit margins — will welcome this change. The change in PRSI could well influence the prospects with regard to further job creation. With the other schemes such as the family income supplement, the budget is aimed at encouraging people to go out and work rather than to live on social welfare. The margin between living on social welfare and working in a low paid job had become very small and the changes in the budget will increase it.

The increased funding provided for non-national roads is welcome in terms of development. If facilities are not provided in rural areas for people to travel to and from work and social activities the country will be denuded of its rural population. People will be forced to live in overcrowded towns and villages which lack services and a social environment. Despite what some people say, money will be provided on an ongoing basis to bring our rural roads up to a proper standard. In recent times roads have deteriorated due to inclement weather conditions.

The housing policy will succeed in shortening waiting lists. We all welcome the opportunity of helping those most in need, who are not in a position to provide proper housing accommodation for themselves and their families.

I am surprised that some Deputies have not highlighted the changes in tax bands to the same extent as they have highlighted some of the minor changes. Single persons will receive an increase of £175 in their personal allowance while married couples will receive an increase of £350. The 27 per cent tax rate will apply to married couples earning up to £16,400. These are major changes in allowances and tax bands. People seem to think that because there was a surplus in last year's budget, there should have been hand-outs this year. Surplus moneys should be directed towards social problems. Our major social problem at the moment is unemployment and any money that can be diverted towards creating employment is welcome. The fact that £100 million of low interest money is being provided for industry is welcome. If properly used, it will make an enormous contribution to our small industries and help them to compete in a wider market.

We are living in a time of change with regard to social issues and what people are prepared to do for themselves. Many people will benefit from the tax changes, particularly the change in regard to probate tax. I thank the Minister for Finance for acceding to the request by many backbenchers in the last 12 months to change what everybody believed was an unfair tax on people when they are most vulnerable. The 1 per cent levy, which it was agreed 12 months ago would be introduced for one year, has now been dropped but the change has not received much recognition. Enormous benefits will accrue from the changes in PRSI for members of farming families and families of those involved in small industry and service sector. It will bring these people into line with other taxpayers.

I hope that the ongoing negotiations with regard to public service pay will be brought to a speedy conclusion. Nothing has helped this country more in the last few years than the Programme for Economic and Social Progress. It prevented industrial strikes which in the 1980s led us to believe that we were going nowhere. Every time there was a strike or a go-slow and wage increases were given, it was believed that the businesses were not in a position to sustain those increases.

Changes in this budget will allow people to decide what way they want to spend their money. In terms of the property tax, perhaps the Minister should consider the level at which this tax is to be introduced and the exclusion of income of family members. It may not be fair to include the income of families as well as that of their parents as in many cases those people do not make a direct contribution to the household budget.

I welcome the provision of £100 million to wipe out health boards' debts. This will clear up a mess that had been ignored down the years. Because health boards were allowed to overspend in the 1980s they had built up a deficit of £100 million. I hope that a word of warning will go to those health boards that, while they have been bailed out with amnesty moneys, it will not be available in future. The position with regard to waiting lists has also improved.

Remedial works on local authority housing are ongoing and we all hope they will continue in the years ahead. The money provided to agriculture, which will go towards installing a proper computer system to help speed up payments to farmers, is welcome. Another welcome provision is the £5 million to tourism for which the Minister for Tourism and Trade, Deputy McCreevy, will have responsibility. It is important that expenditure on tourism promotion is in the hands of those accountable to the public, namely, the elected public representatives or the Minister of the day.

Like many of my colleagues, I could go on at length about the benefits to the community from the changes in the budget. In the months and years ahead the country will benefit enormously from this budget.

Mr. Callely

The 1994 budget is significant, not just in a budgetary context, it is a budget with a medium to long term strategy. It builds on the solid economic foundation developed by Fianna Fáil-led administrations since 1987. The dark days that resulted from the short stint in office of the Fine Gael-Labour Coalition from 1982 to 1987 are gone and we can now move progressively forward.

All the Opposition Deputies who have contributed to the debate have highlighted all that is wrong with the budget and have referred to the problems facing the country. I would not wish to deny a person the right to highlight an issue about which they are concerned but, in fairness, we should consider the progress made by Fianna Fáil-led administrations in tackling all national issues.

In 1987, Fianna Fáil set out clearly the then Government objectives:

This Government has firmly set for itself the following policy objectives which are interdependent and related to each other.

1. To restore the public finances by reducing overall Government expenditure.

2. To reduce Government borrowing and to stabilise and then reduce the growth of the National Debt as a percentage of GNP.

3. To restore confidence, bring down interest rates and maintain the stability of the Irish pound within the EMS.

4. To stimulate and encourage economic growth, investment and employment in every possible sector of productive activity.

5. To reduce the overall burden of taxation and in particular the level of direct personal taxation, and to reform the tax system to make it more equitable.

6. To improve the cost effectiveness and equity of our social services.

In essence, those six policy objectives have created the solid foundations on which we have been able to build our economy. We have made much progress since those policy objectives were copperfastened and embroidered into Government policy in 1987. Our rate of economic growth has been remarkable while growth in GDP has averaged approximately 5 per cent per annum compared to an EC average of 2 per cent. Not only have we stronger economic growth but we also have a low inflation rate and our Exchequer borrowing requirement has been greatly reduced.

While still not satisfactory, our employment performance compares favourably with that of other countries. While we have made good progress, I do not for a moment disagree with the view that the number of jobs created is well short of what is required. Reducing unemployment and improving living standards are two of the most important challenges facing the Government. The strategy on how to respond to these challenges is set out in the Programme for Government and the National Development Plan. The budget endorses this strategy and spells out the Government's desire to address the issue of unemployment and boost enterprise. The budget is also socially caring and will keep the public finances under control.

It has to be agreed, however reluctantly, by some Opposition Deputies, including some Labour backbenchers, that a great many people will be much better off after the budget. By now most people know the implications of the budget for them and how much better off they will be as a result of the wide-ranging tax reforms and social welfare measures. The budget contains much good news and has opened a lot of doors, so to speak.

The item in the budget which has given rise to the most debate is the residential property tax. This is probably one of the smaller items in the budget. If my memory serves me right, the residential property tax will bring in an additional £5 million in 1994. In the context of the overall budgetary figure, this is a relatively small amount of money. The rate of residential property tax for property under £100,000 is being reduced from 1.5 per cent to 1 per cent and the rate is being set at 2 per cent for properties in excess of £100,000, with a reduction in the income threshold from £28,000 to £25,000. I do not believe there is much difference between what people would have paid on the £91,000 threshold and what they will pay on the £75,000 threshold.

I want to make it clear that this change will affect me both personally and in my capacity as a public representative, and I do not like it. I raised this matter at a parliamentary party meeting, where matters of this nature should be discussed. It is reckless and foolish for any public representative to come into this House, try to score points and get front page media coverage by dissociating themselves from a particular measure in the budget. I want to state categorically that I am concerned at the way some Labour backbenchers have been so hypocritical on some of the issues contained in the budget — they want to know the good news and want to associate the good news only with their party. One has only to listen to their speeches in the House.

Mr. McGrath

What about Niall Andrews?

Mr. Callely

Fianna Fáil has had a solid proven record in Government since the first Fianna Fáil Government in 1933 and, in particular, since 1987. If the partners in Government agree a strategy on budgetary matters which entails acceding to the demands of one or both partners for increases in certain items of expenditure, they must realise that one has to look at other ways of raising revenue. If Fianna Fáil was to ignore the overall picture and accede to all the demands of the "monkey on your back", for the want of a better description, without considering other ways of raising revenue it would be reckless and would once again place the country in the disastrous position in which it found itself in 1987. To slip back into that position would be unforgivable and downright irresponsible and while it may have been accommodated by Fine Gael just to remain in Government I know my party will not put up with that type of recklessness.

I am very pleased that most of the measures in the budget have been welcomed. It is regrettable that people are jumping on one particular bandwagon and making a major issue out of this. I raised this matter at a meeting of my parliamentary party, the correct place to raise such matters. I am pleased that the Minister and the Taoiseach indicated that they would be prepared to consider various measures to address the concerns of the Fianna Fáil public representatives who brought certain matters to their attention. I think I can say, "watch this space", in the Finance Bill and we may see an alteration in relation to the residential property tax.

The taxation reform in this budget is welcome and most people will benefit from it but taxation reform which is directed at stimulating genuine enterprise and promoting employment is particularly welcome. The £100 million fund for small businesses to ensure availability of adequate credit facilities from financial institutions at reasonable terms is welcome also. I anxiously await details of the European Union subsidisation loans which are to be administered by the ICC Bank at a time when Irish interest rates are at their lowest for almost 20 years. These measures will encourage and assist the business community to take the necessary risks, develop their businesses, stimulate enterprise and generate employment.

I welcome also the measures to reduce bureaucratic form-filling and simplify tax compliance with the announcement of a single tax form for registration of all taxes, including VAT, etc. and the provision of a single tax clearance certificate which is renewable on a yearly basis for companies or persons to tender for public service contracts. I raised this issue with the Minister for Finance last year and he brought it to the attention of the Taoiseach. I wish to quote from statistics which indicate the amount of work that goes into the processing of tax clearance certificates, the amount of bureaucratic form-filling and the cost involved. In 1990, a total of 10,318 tax clearance certificates were issued; in 1991, 12,634 certificates were issued; in 1992, 32,480 were issued and up to 23 November 1993, 40,788 tax clearance certificates were issued at a cost of £800,000. That involved a great amount of work by Revenue staff to process and administer all these certificates. Therefore, the measure in the budget is indeed welcome.

Deputies will be familiar with the submission by the Society of the Irish Motor Industry which contained a seven point survival package, as they referred to it, with three positive constructive measures which the society asked the Government to consider.

I regret I an unable to refer in more detail to the society's submission but I welcome the alteration in respect of vehicle registration tax and the measures in relation to the value thresholds for calculating capital allowances and some other allowable expenses in respect of motor cars. This should be beneficial to the motor industry. I have requested the Minister for Finance to examine the benefit-in-kind on company cars as I believe a reduction in that could be beneficial also.

One issue I have raised in the past at budget time was the carer's allowance. Figures from the Departments of Health and Social Welfare highlight the cost of keeping elderly people in care either in health board institutions or in private nursing homes where they avail of subventions compared to the allowance paid to carers who provide 24 hour care seven days a week, 365 days a year for their relatives, thereby enabling the patients to remain in their home environment. This is an issue that we should pursue because the potential that exists with thousands offering an excellent level of care has not been tapped. While I appreciate the Minister on this occasion relaxed some of the considerations for persons applying for carer's allowance, I do not believe we have gone far enough. A large amount of money is being spent by the Departments of Social Welfare and Health and the time is now opportune for the two Departments to introduce a new scheme for carers.

Debate adjourned.