Financial Resolutions, 1996. - Financial Statement, Budget 1996. – Dáil Éireann (27th Dáil) – Tuesday, 23 Jan 1996

An Ceann Comhairle

Before calling on the Minister for Finance, Deputy Ruairí Quinn, to make his Budget Statement I am pleased to inform Members of the House that, in line with recent precedent, a copy of the Minister's speech is being made available to all Deputies in accordance with the arrangements agreed by the Committee on Procedure and Privileges. I must request, however, that Deputies wishing to leave the Chamber, before the Minister has concluded, relinquish their copies of the speech to the usher on duty.

Minister for Finance (Mr. Quinn)

Today I am presenting my second budget to Dáil Éireann. The budget is a central part of the way in which we organise our nation's finances. It indicates choices and highlights priorities for us and for our society.

Last year's budget was a success. The nation has had a very good year. In fact, Ireland's economic performance in 1995 was better than that of any other economy in the European Union or the OECD. This was achieved through the efforts and co-operation of workers, managers and entrepreneurs in both the manufacturing and services sectors of the economy, including the public service. I want to congratulate all those involved in this success, particularly those who helped to create the thousands of new jobs throughout this island.

The budget reaffirms the three main objectives of last year. These are:

(i) to reward work,

(ii) to promote enterprise, and

(iii) to strengthen social solidarity.

Work is central to all our lives. It is one of the ways in which we define ourselves to each other. It is the process that enables us to create wealth as individuals and as a community. People enrich themselves through work. Without it they may not only become impoverished, but remain unfulfilled. Society loses its full potential if it cannot ensure that all of its people are able to work. That is why unemployment affects all of us.

Enterprise creates work and generates wealth. It is the central energy in each of us that develops our society by applying our skills and talents to meet the needs of both our own markets and the markets of the rest of the world. It involves risk, effort and judgment, as well as skill, dedication and integrity. We need to promote enterprise throughout our society in both the public and private sectors. We must recognise that enterprises grow and develop and pass from generation to generation. We now have a growing number of first generation Irish firms that are preparing for this critical stage. We must ensure that they continue to be productive and secure throughout this process.

The work and enterprise of our society enables us to generate the necessary wealth to build and sustain a community. That wealth is the means by which we can ensure that the young and the old, the sick and the disabled, remain part of our community with a sense of purpose and belonging. We have all been young and we are all getting older. We are, therefore talking about ourselves when we look at how we develop new ways of strengthening the bonds of social solidarity within our society.

We have many needs which require resources but such resources must first be generated and developed by each one of us working together. Everyone has a contribution to make to the development and growth of our economy. No one who is able, or capable, can be excluded or excused from participating in our society. When normal markets, including labour markets, do not function efficiently, then we must intervene within the economy to correct these market failures. In particular, we must deal with the major problem of structural long-term unemployment in our society.

The economy in 1995

We have been successful in achieving the objectives which I set for my first budget. The results speak for themselves:—

—employment increased by some 45,000, or 3.75 per cent;

—the overall growth rate as measured by GNP was over 7 per cent;

—investment grew by almost 11 per cent;

—private consumption increased by almost 4 per cent in real terms reflecting higher living standards;

—mortgage and short-term interest rates are at historically low levels;

—export volumes increased by over 13 per cent;

—unemployment on the same basis as measured by the Labour Force survery, decreased by some 25,000.

The economy has grown by an annual average of 4.7 per cent over the past five years, compared with the EU average of 1.5 per cent. This rate of growth was achieved while inflation was kept to 2.5 per cent on average over that period compared with the EU average of 4.1 per cent.

Most encouraging of all, there are clear signals that rapid economic growth is now being translated into very impressive increases in the numbers of people at work. There are now some 1,230,000 people at work, the highest figure since the 1930s. By improving the conditions for enterprise and work in last year's budget we underpinned the real improvement in economic prospects and sustainable employment which came through in 1995. Our social cohesion measures have ensured that those who are less well off in our society have been cared for. In fact, taking pay, tax and PRSI changes together, the gains for employees in particular, have been ahead of those expected when the Programme for Competitiveness and Work was negotiated.

I want to say something more inclusive. This strong economic performance is a tribute to the success of the fiscal policies which have been pursued by different Governments in recent years in co-operation with the social partners. The commitment by all concerned to sound public finances has enhanced confidence in the management of the economy. This has helped to secure and maintain low inflation and low interest rates which have contributed to a sustainable expansion in domestic demand. In turn, this has provided the conditions for converting economic growth into additional jobs.

This process has been aided by:—

—the Programme for Competitiveness and Work which kept domestic cost increases moderate and ensured the maintenance of our international competitiveness and

—the tax and PRSI initiatives in recent budgets which aimed at improving both the incentives to employers to offer jobs and to employees to take them up.

The progress which I have just outlined has a message for all of us, as politicians, workers and citizens, that is working together is an effective and powerful way forward.

Outlook for 1996

This year is expected to be one of continuing economic growth, as confirmed by the following indicators:—

—Employment will increase by 31,000;

—GNP will grow by 5 per cent;

—Inflation will average about 2.25 per cent;

—Consumer spending will grow by about 4.5 per cent in real terms;

—An increase of almost 8 per cent in the volume of investment is expected and

—the balance of payments will remain in substantial surplus.

Our economic and other policies have brought about our good economic performance. Our task now is to adapt them as necessary to the rapidly changing economic conditions facing us over the rest of this decade. We will continue to pursue a stable exchange rate for our currency to ensure the maintenance of low inflation and, consequently, competitiveness. The full details of the performance of the economy in 1995 and our economic forecasts for the year ahead, are contained in the Economic Background to the Budget which is being circulated today.

Review of the 1995 Budget Outturn

The 1995 budget outturn showed an Exchequer borrowing requirement of £627 million, or 1.9 per cent of GNP as against our budget target of 2.4 per cent. In fact,

—the outturn was £186 million below the EBR target of £813 million set in the 1995 budget;

—the general Government Deficit, calculated in accordance with the Maastricht Treaty, is estimated at just over 2 per cent of GDP, compared with the budget estimate of 2.5 per cent; and

—the general Government debt declined as a proportion of GDP from almost 92 per cent at end 1994 to about 85 per cent at end 1995.

The outturn for current expenditure was only slightly ahead of that targeted in the budget, despite our having set up a fund of £60 million for hepatitis C sufferers, and the extra cost of higher than anticipated numbers on the live register. This overall result reflects the Government's commitment to keeping expenditure levels under strict control. The budgetary outturn once again places Ireland among the strongest in terms of fiscal performance in the European Union in 1995.

I wish to refer to the general Government deficit which is rapidly becoming dominant in the context of our qualification for European Monetary Union, our Maastricht Treaty obligations and our continuing eligibility for the Cohesion Fund. This measurement also gives a better indication of the underlying trend of the budgetary balance than our traditional measure, the EBR. Accordingly, while I still propose to use the Exchequer borrowing requirement, it has to be recognised that the general Government deficit as a ratio to GDP will be focused on more in the future. This measurement is attractive because it tends to level out the effects of onceoff factors as it is wider and partly based on an accrual system of accounting. This is in contrast to the EBR which is simply a cash figure, but which has been an important focus for the financial markets. For the same reasons, the General Government debt as a proportion of GDP will, in the future, be used more rather than the national debt as a proportion of GNP.

Economic and Monetary Union

When Ireland voted for the Maastricht Treaty, we, the citizens, voted for Economic and Monetary Union, European Monetary Union, which includes the single currency. The Madrid Council in December, confirmed the starting date for European Monetary Union and decided that the new currency will be known as the Euro. European Monetary Union will be introduced on 1 January, 1999 and Ireland intends to be among the initial group of EU member states who qualifies for membership. The policies required to ensure our successful participation within European Monetary Union are already being implemented, and will need to be intensified in the lead-up to January 1999.

EMU will be good for Europe and Ireland. It will provide us with a stable currency, low interest rates and low inflation. It will also remove currency risks as well as reducing transaction costs. European Monetary Union also provides challenges, particularly as regards the relationship between the countries taking part at the outset, and the other member states. Accordingly, I have commissioned a study of the economic implications of European Monetary Union. This study will be completed by mid-year and its findings will be made public. The purpose of the study is to provide us with more detailed information which can be used for decision-making purposes. This will facilitate better planning for European Monetary Union, both in terms of qualifying for it and, more importantly being successful within it.

Public Service Renewal

One of the challenges we face in this regard is the modernisation and renewal of our public service. The Government will soon decide on a programme, based upon the report of the Co-ordinating Group of Secretaries of Government Departments, on how to proceed with the strategic management initiative.

The SMI process has the full support of the Government and the programme is designed to empower and energise the public service, devolve decision making and make the entire process more transparent and accountable to the citizen as customer and client. There will be full consultation with the staff associations involved and other interested parties as the process evolves.

Such a transformation is necessary if we are to achieve our goal of having the most efficient public administration system within the European Union. This reform is essential to improving our economic performance.

Tax Administration

Tax compliance costs are always a source of concern to business, small businesses in particular. The Revenue Commissioners have made considerable progress in this area. They have assured me that they plan to introduce further important measures to simplify and streamline tax collection procedures. Details of a number of planned measures are given in the Principal Features.

Public Service Pay and Pensions

This Government is committed to the process of social partnership. It has worked well for the nation in the last ten years. We must build upon its success. We are, therefore, confirming here and now that we are meeting all our commitments in the Programme for Competitiveness and Work pay agreement. Accordingly, the 1996 Estimates include provision for the cost of the general increases in the public sector of 1.5 per cent from 1 June 1996 and 1.5 per cent from 1 October 1996. They also provide for the estimated cost in 1996 of the settlement of claims under the local bargaining or restructuring provision of that agreement.

It remains crucial that all negotiations under this latter provision adhere to the cost parameters underlying the pay agreement and have regard to the need for flexibility, change and improvements in efficiency and effectiveness. The need to contain overall pay costs is also being tackled through a rigorous approach to the creation of new posts within the Civil Service and certain restrictions on the filling of vacancies arising in 1996 as part of a wider strategy to stem the growth in numbers employed in the public service.

The effect of meeting our pay agreement commitments, with other costs such as increments and the carryover effects of extra employment in 1995, has been to increase the cost of Exchequer pay and pensions by £249 million to an estimated £4,813 million in 1996, an increase of 5.5 per cent.

Voluntary Early Retirement Scheme for the Defence Forces

The Government has accepted in principle the conclusions of the Efficiency Audit Group on the need for reform in the structure and organisation of the Defence Forces. These reforms will give the Defence Forces the capability and flexibility to meet and adapt to their roles in the most efficient and effective way. They will also bring best practice to bear on the management, organisation and operation of the Defence Forces. Accordingly, I am providing £13 million for a voluntary early retirement package for the Defence Forces to facilitate the implementation of these reforms.

Debt Management

The 1996 debt service estimate of £2,310 million takes account of £119 million in savings carried over from 1995 and a target of £100 million in savings to be achieved by the National Treasury Management Agency in 1996.

Public Finances

In referring to Economic and Monetary Union earlier, I acknowledged the need to position ourselves for entry to the third stage of European Monetary Union. One essential ingredient in this regard is to ensure that our public finances are in a healthy condition. I am pleased to be able to confirm that they are.

The real increase in current supply spending for 1996 at 2.5 per cent contrasts with an annual average of about 5.5 per cent over the past five years. Despite restraining the growth in expenditure, this Government:

—introduced free third-level fees;

—secured the highest rates of pupils remaining in the education system to leaving certificate level;

—approved the largest programme of capital spending in the health area, and

—introduced, for the first time, a comprehensive programme for women's health.

This Government is committed to firm management of the public finances. A prudent and cautious approach is necessary with current supply spending as with other budgetary aggregates. The prudent approach over the last few years is evident from the fact that each year since 1993 the budgetary targets have been more than achieved. Keeping the general Government deficit below 3 per cent of GDP each year is crucial in the context of the Maastricht Treaty criteria.

Accordingly, in framing my targets for 1996, I have adopted a similarly prudent approach to that adopted in other years. The opening EBR, having allowed for departmental balances of £38 million, is £583 million. Having made provision for the measures I am announcing today, my targets for this year are:—

Exchequer Borrowing Requirement:	£729 million (2 per cent of GNP)
Current Budget Deficit:	£82 million (0.2 per cent of GNP)
General Government Deficit:	2.6 per cent of GDP.

I also wish to confirm that the non-capital supply services expenditure figure for 1996 will, as a result of my budget day proposals, remain unchanged at £12,087 million, the figure I announced with the publication of the Estimates in December. I have maintained that figure intact despite the many pressures for increased expenditure. To the extent that any expenditure measures I announce today are not already provided for in my post-budget target, their cost is being met from savings elsewhere in supply spending. Full details are set out in the Principal Features of the Budget.

REWARD WORK

I now turn to the first of my objectives, namely, rewarding those at work.

Employees' PRSI

Last year, the Government announced a series of measures to reduce the burden of income tax and PRSI and direct relief to those on low incomes generally, especially those outside the current income tax net. These initiatives were favourably received and have contributed significantly to reducing the tax and PRSI wedge on lower incomes. The principal innovation was the allowance for full rate PRSI contributors, under which the first £50 of weekly wages is disregarded in the calculation of PRSI contributions. I am happy to announce that this allowance will now be increased to £80 per week. To part fund this increase, it has been decided not to renew, from 6 April next, the existing £140 per annum income tax PRSI allowance available to full rate contributors.

This increased allowance will result in gains of up to £86 per annum or £1.65 per week for those full rate PRSI contributors exempted from income tax or on marginal relief.

It has also been decided to increase the corresponding allowance to those on the modified PRSI rate and the self employed by £10 to £20 per week. These groups do not get the income tax PRSI allowance and are thus not affected by its non-renewal.

The PRSI ceiling applicable to employees and the self-employed will increase from £21,500 to £22,300.

Mr. Power

Another revolving door.

Income Tax

Mr. Quinn

The standard rate income tax band is being widened by £1,000 to £18,800 for married couples and by £500 to £9,400 for single persons.

The personal allowance is being increased by £300 to £5,300 per annum for married couples and by £150 to £2,650 per annum for single persons with an increase of £150 being applied also to widowed, single parent and widowed parent allowances.

The general income exemption limits below which no income tax is payable are being increased by £400 to £7,800 per annum for married couples, or £150 per week, and by £200 to £3,900 per annum for single persons, or £75 per week, with a similar increase in the age exemption limits. This will remove around 18,000 persons who would otherwise be in the tax net.

The thresholds for payment of the employment and training levy and the health levy are being raised by £500 to £9,750 per annum or from £178 to £188 per week.

The impact of the tax/PRSI package on a family with two children and only one spouse earning £15,000 on full PRSI and PAYE, will be to leave them better off by £129 per annum or £2.48 per week. For the same family on £10,000 per annum the increase is £246 or £4.73 per week.

Taxation of Unemployment Benefit/ Disability Benefit (UB/DB)

The special tax relief on unemployment benefit payments to systematic short-time workers introduced in the Finance Act, 1994 is being extended for a further year. The exemption of the first £10 per week of unemployment benefit from tax, introduced in last year's Finance Act, will also continue at its current level.

Benefit-In-Kind Cars

I propose to introduce a focused relief in regard to the taxation of car benefitin-kind. The present tapering relief provisions for high mileage create difficulties for company representatives, particularly in urban areas, who use their cars intensively and indispensably in their work, but who do not accumulate enough mileage to avail of the present reliefs. In recognition of the imbalance in the current provisions I propose to introduce a 20 per cent relief from BIK on cars for those company representatives who spend 70 per cent or more of their time on business away from their place of work. This relief is an alternative to the existing high mileage tapering relief and will be available only where the business mileage exceeds 5,000 miles per annum.

Mr. Dempsey

One will have to be a mileage inspector for that.

Mr. Quinn

This concession will cost £1.7 million in a full year.

Cross-Border Workers

Cross-Border workers who work in Northern Ireland but reside in the State are liable for the health and employment and training levies at 2.25 per cent. Arising from the report of the special inter-departmental committee which I established, I propose to exempt their Northern Ireland earnings from these levies. Accordingly for a person with yearly earnings of £15,000, the saving is £337.50 per annum.

Cost of income tax and employee PRSI measures

The total cost of the income tax and employee PRSI measures, after taking account of the non-renewal of the annual £140 income tax PRSI allowance, is £119 million in 1996 and £204 million in a full year. This includes the cost of a number of further income tax reliefs I will mention later.

PROMOTE ENTERPRISE

I now turn to ways in which I propose to fulfil my second objective, that of promoting enterprise.

In order to enhance the capacity of the economy to create self sustaining employment over the longer term, it is necessary to build on the progress made in last year's budget in reducing corporation tax and PRSI on businesses.

Employers' PRSI

With that aim in mind it has been decided in the case of Employers' PRSI

—to reduce the standard rate from 12.2 per cent to 12 per cent, and

—to reduce the lower rate from 9 per cent to 8.5 per cent and increase the threshold below which this lower rate applies from £12,000 to £13,000 per annum, or from £231 per week to £250 per week, in terms of weekly earnings.

The ceiling on employers' PRSI will rise from £25,800 to £26,800 broadly in line with wage inflation.

Mr. S. Brennan

The Minister is tinkering.

Mr. Quinn

The object of these reliefs is to target reductions on lower paid employments in order to secure a competitive reduction in non-wage labour charges. The cost of these measures is £31 million in 1996 and £51 million in a full year.

Corporation Tax

In my first budget, I cut the standard rate of corporation tax from 40 per cent to 38 per cent. I made it clear that the Government intended to reduce this rate further to bring our structure into line with overseas competitors. The Government have given careful thought as to how this objective can best be achieved.

I am conscious of the demands being made for a special low rate of corporation tax for small firms in the services sector of up to a certain size of turnover and profit level. The Government believes that the calls for a reduced rate on small companies' profits and the need to continue progress in getting the standard rate down can be met by the introduction from 1 April 1996 of a new lower rate of corporation tax of 30 per cent on the first £50,000 of taxable income for all companies or groups irrespective of size.

Mr. M. McDowell

The Minister got that one from The Irish Times.

Mr. Quinn

Such a rating structure means that for service sector companies the effective rate of corporation tax will be between 30 per cent and 38 per cent depending on the size of taxable income. This measure will cost £1 million in 1996, £23 million in 1997 and £31 million in a full year.

To benefit certain smaller firms, I am also reducing from 20 per cent to 15 per cent, the surcharge on the undistributed trading profits of professional close service companies. Full details are in the Principal Features.

Business Expansion Scheme (BES) Relief

The current BES scheme will terminate in April 1996 unless renewed for a further period. The operation of BES has been subjected to a thorough analysis by my Department in conjunction with the Department of Enterprise and Employment and the Revenue Commissioners. In addition the Tax Strategy Group has been consulted as have the main interested parties — the Small Firms Association, ISME, the major designated funds and the Dublin Business Innovation Centre.

As a result of this review it has been decided to retain the current BES, including the limits of £1 million per company and £25,000 per annum per investor, but to introduce a statutory certification system for all BES projects which raise over £250,000 in total under the BES. The certification process, which will be undertaken by the main development agencies, is aimed at ensuring a better jobs return from the significant Exchequer relief under the scheme. Further details of changes to the BES are set out in the Principal Features and in the Financial Resolution, to be moved later in the House, to come into operation on and from today.

Film Relief

Because of its importance to the Irish film industry, the Government has decided to continue section 35 film relief for another three years. However, certain modifications designed to improve the targeting of the relief and make it more cost-efficient from the point of view of the Exchequer are being introduced.

This amended relief will be given effect by a financial resolution which will be moved later in the House and come into operation on and from today. The more important changes to the relief include:—

—a reduction in the amount of expenditure on larger films which qualifies for relief,

—a significant increase in the limit for corporate investment,

—restricting the tax deduction to 80 per cent of the investment, and

—substituting a one year holding requirement for capital gains tax purposes for the current three year holding period for investments.

Further details are contained in the Principal Features. The Minister for Arts, Culture and the Gaeltacht will be making a more detailed statement on the revised relief and of the Irish film industry.

Mr. E. O'Keeffe

And Ballycotton.

Mining Tax Relief

Mr. Quinn

The Finance Bill will provide for a new tax relief for companies in respect of the costs incurred by them in closing down a mine and returning the site to a greenfield state in accordance with the mining licence requirements. The proposed relief will cost about £1 million, on average, in a full year. This is a welcome environmental measure which was recommended by the National Minerals Policy Review Group.

Capital Acquisitions Tax Business Relief

Last year, I increased the business relief under capital acquisitions tax to a flat 50 per cent on all qualifying assets. I have decided to increase the flat rate to 75 per cent in order to reduce further the tax impact on the transfer of family businesses. As before, this increased relief will also apply to agricultural property. However, the new relief will be subject to a revised clawback arrangement to ensure that the full 75 per cent will only apply if the assets concerned are retained in the business for ten years or more. Full details are in the Principal Features.

Capital Gains Tax Reliefs

As regards capital gains tax, I am relaxing a number of restrictions on the application of the 27 per cent capital gains tax rate and the availability of rollover relief for equity investments. The details are in the Principal Features.

Science Technology and Innovation Advisory Council Report

The report on science, technology and innovation — published last March — was the most fundamental appraisal of this critical area ever undertaken. Since its publication, the report's recommendations have been examined by a task force and a Cabinet sub-committee under the chairmanship of my colleague, the Minister of State with responsibility for Commerce, Science and Technology.

Mr. S. Brennan

How much did Pat get?

Mr. Quinn

Many of the recommendations relate to better ways to plan and manage State funding and programmes relating to science and technology so as to make them more effective in improving competitiveness and generating new jobs.

An Ceann Comhairle

Let us hear the Minister without interruption. Members will have ample time to debate the budget later.

Mr. Quinn

I understand their problems. It is very hard to listen to so much good news.

Mr. D. Ahern

The Minister is being sarcastic.

Mr. Quinn

There is more to come. A number of recommendations have financial implications and I am, therefore allocating a sum of £4 million to facilitate implementation of such recommendations.

Mr. S. Brennan

He asked for more.

Dublin Docklands

Mr. Quinn

I have been concerned for some time that the Dublin docklands area, which is no longer required for its original purpose, should be developed and planned in a coherent way. The Custom House Docks Development Authority has made an impressive and successful contribution, but there is a large area, on both sides of the River Liffey, which is now in transition. A substantial portion of the land is in the ownership of State bodies. The Grand Canal Harbour basin, a key amenity resource, is also located in the heart of this area.

The entire area, at the centre of Dublin, has great potential for the continued redevelopment and rejuvenation of the city, but it requires a planned and coordinated approach. To this end, the Government has established a task force to be chaired by the Secretary of the Department of the Environment——

Mr. M. McDowell

Another one.

Mr. Quinn

——to consider the arrangements which should be made to develop an overall master plan for the docklands, including the appropriate implementation and co-ordination arrangements in co-operation with the local authority concerned.

Cost of business measures

The cost of these business measures is £35 million in 1996 and £88 million in a full year.

Farmers' Flat Rate VAT

The level of the farmers' flat rate addition, which is a mechanism to compensate unregistered farmers for the VAT borne on their farming inputs, is being increased from its present level of 2.5 per cent to 2.8 per cent with effect from 1 March 1996.

Mr. E. O'Keeffe

What about beef farmers?

Mr. Quinn

There will be a corresponding increase in the associated VAT rate for livestock which will also increase to 2.8 per cent with effect from 1 March 1996. This change, which is based on a calculation of the level of VAT on farming inputs, is in keeping with the Government's statement in the Programme for Competitiveness and Work to retain the flat-rate arrangements on the existing basis as provided for by EU legislation. The cost of this increase to the Exchequer is £6.3 million in 1996 or £9 million in a full year.

In the case of farming, I also propose to increase the current tax exemption limits for income from certain farm leases and to remove a disincentive in the treatment of the value of farm stock in transfers under the early retirement scheme. These measures will cost a half million in 1996 and £1 million in a full year.

Mr. Martin

Did Deputy Eric Byrne approve of that?

SOCIAL SOLIDARITY

Mr. Quinn

I now turn to ways in which I propose to fulfil my third objective this year, that of strengthening social solidarity.

Employment measures for the long-term unemployed

Despite the success of the Government's overall economic and employment strategy in creating jobs in this country, the Government believes that the intractable nature of long-term unemployment is unacceptable.

Mr. B. Ahern

The three card trick.

Mr. Quinn

The Government is determined to ensure that the long-term unemployed share in the benefits of economic growth along with other sectors of society. The following new measures have been agreed by Government on foot of recent proposals which have been made in this area:—

—a recruitment subsidy of £80 a week will be paid to employers in respect of new employees who have been unemployed for at least three years. Up to 5,000 places will be provided under this arrangement;

—an additional 1,000 full-time places will be provided on community employment, on a pilot basis, for people over 35 years of age who have been unemployed for at least five years;

—25 per cent of the 40,000 part-time places on community employment are to be reserved for those over 35 years of age and unemployed for three or more years, with up to 75

per cent of places reserved for those over 21 years and unemployed for at least 12 months;

—a scheme of work trials lasting five weeks will be introduced with a target of 5,000 places. Participants will be unemployed for over six months and in danger of drifting into long-term unemployment, or be long-term unemployed but considered to be ready for employment. They will continue to be paid their social welfare entitlements and, in addition, receive a contribution towards outof-pocket expenses;

—persons who have been unemployed for at least one year will retain their medical cards for three years after entering employment; and

—special measures will be introduced for 18 and 19 year olds: after six months on the live register, there will be a requirement to register with FÁS or the Local Employment Service, or to participate on a work progression programme consisting of intensive counselling and progression to a job, training option or youth employment option. Details of the measures will be announced by the Minister for Enterprise and Employment in consultation with the Minister for Social Welfare.

Social Welfare

The primary objectives underlying this year's social welfare budget changes are:—

—to help the long-term unemployed obtain work;

—to make the social welfare system more work-friendly, and

—to improve the position of families, pensioners and carers.

Pro-Employment Social Welfare Measures

While increases in payment rates are an essential element in assisting the unemployed, the Government believe there must also be accompanying changes which facilitate them in seeking and taking up employment. Towards this end, we have reviewed the existing range of social welfare work-related incentives. In the light of this review, we have decided to make a number of modifications and improvements in the family income supplement, FIS, child dependant allowances, in the assessment of earnings from employment for unemployment assistance purposes, and in the back to work allowance scheme. These changes are interrelated, particularly those in respect of FIS and child dependant allowances. Overall, they constitute a significant package of pro-employment measures.

Family Income Supplement

The family income supplement is aimed at increasing the disposable income of families in relatively low paid employment. At present, nearly 12,000 families are receiving payments under the scheme.

In order to improve the attractiveness of the scheme and hence its incentive value, the Government has decided that the existing income thresholds used to calculate entitlement to FIS should be increased by £10 per week. This will mean that FIS recipients will get an additional £6 per week and the average payment will increase to over £37 per week. Other improvements will reduce the qualifying period of employment from six to three months, extend the scope of the scheme to include job sharers for the first time, and relax the eligibility criteria used to determine entitlement to allow more part-time and casual workers with dependent children to claim FIS.

Child Dependant Allowances

In a related move designed to increase the take-up rate of FIS, the Government have decided that, in respect of people unemployed for 12 months or more, any full-rate child dependant allowances which they currently receive as part of their weekly social welfare payment should be retained by them for a period of 13 weeks after they take up employment. The Government sees this initiative as providing an important bridge to cover the period of uncertainty which arises while the person is waiting for a decision on whether he or she is entitled to a family income supplement payment. The expectation is that this change will help to smooth further the transition to work.

Unemployment Assistance

The Government has decided to simplify greatly the basis for calculating entitlement to unemployment assistance by moving from an approach based on a day of unemployment to one based on a week of unemployment. This will enable those who can avail of part-time and casual employment opportunities to calculate more readily their overall income position, and will improve the incentive to take up such opportunities.

Back to Work Allowance Scheme

In addition to the facilitating measures which I have just announced, the Government have decided to extend the availability of the back to work allowance scheme. Under this scheme, a long-term unemployed person or lone parent who is at least 23 years of age can retain, in addition to their wages, a certain percentage of their previous social welfare payment at a reducing rate on taking up employment or becoming self-employed. At present, there are about 10,000 participants on the scheme. The scheme has been successful in encouraging many long-term unemployed people to move into paid employment. Accordingly, the Government have decided to provide for an increase in the number of participants from 10,000 to 15,000 during 1996. Taken together, these measures represent a cohesive and focused approach to providing real opportunities to break the cycle of long-term unemployment for many people.

Weekly Welfare Payments

In addition to these employment related measures, I am providing for a 3 per cent increase in all personal social welfare weekly payments and adult dependant allowances from mid-June 1996.

Dr. Woods

Miserly.

Mr. Quinn

In consequence, the weekly personal rates will be increased by a minimum of £2 and the adult dependant allowances will be increased by a minimum of £1 per week.

Mr. D. Ahern

Shame.

Mr. Quinn

A special £3 per week increase will apply in the case of carers giving an overall increase of £5 per week for this category. These changes will ensure that the value of the weekly payments is more than protected against inflation.

Mr. Hilliard

The same as last year.

Mr. Quinn

It is more.

Dr. Woods

Not much.

Mr. Martin

Democratic Left do not care much about the elderly.

Child Benefit

Last year's budget saw a major improvement of £7 per month in child benefit rates. On this occasion, I am providing for an increase of £2 per month in these rates with effect from September next. This will increase the rate to £29 for each of the first two children and to £34 for the third child onwards. Combined with the general increase of 3 per cent I have just announced, the enhanced child benefit should result in a real increase in the income position this year of all families dependent on social welfare.

I am increasing the grant payable on the birth of twins from £200 to £500.

Mr. R. Burke

Well done. There is hope for us all.

Mr. Quinn

In addition, I am providing for a new grant of £500 to be paid in respect of twins on their reaching 4 and 12 years of age.

Miscellaneous Improvements

I am also providing for a number of other improvements in the social welfare system aimed at meeting the particular needs of certain categories. These include an increase to £6 per week in the living alone allowance payable to pensioners; the extension of the free schemes to certain low income occupational pensioners who do not qualify for these benefits at present; the extension of the free travel companion pass to visually impaired children; improvements in the back to school clothing and footwear allowance, and additional funds for the community and voluntary services operated by the Department of Social Welfare.

One-Parent Family Payment

The Government has decided to proceed with the introduction of a new oneparent family payment scheme, with effect from January 1997. This will replace the existing lone parent's allowance and deserted wife's benefit schemes. Payments under the new scheme will not be conditional on claimants having to prove that they have been deserted. The scheme will be available on an equal basis to men and women.

Details of the full range of social welfare measures are being announced today by the Minister for Social Welfare.

Total Cost of Social Welfare Package

The total cost of the social welfare package which I have outlined today will be £80 million this year and £161 million in a full year. This is a significant level of additional resources. It brings the full-year level of gross spending on social welfare to almost £4.4 billion. It also underlines, in a very real sense, this Government's continuing concern for the disadvantaged in our community.

Total cost of current expenditure measures

The total cost of the current expenditure measures I have announced is about £182 million.

Mr. Dempsey

Three per cent.

Mr. Quinn

This total is offset by savings on various Votes of some £54 million and by departmental balances totalling £38 million as detailed in the Principal Features document.

Income Tax Allowances

As regards income tax allowances for carers and others, I propose to increase to £7,500 from £5,000 per annum the maximum allowance which people can claim against tax where they employ a person to care for them or their spouse. I also propose to increase from £600 to £700 per annum the tax allowance in respect of an incapacitated child. The blind persons' tax allowance will also be increased by £100 single and £200 married where both are blind.

Alarms for persons aged 65 and over

I propose to introduce a tax relief of up to £800 at the standard rate of income tax for persons aged 65 and over living alone for the purchase cost of alarm systems. This relief will be available for a period of two years.

Tax Relief for Donations of Works of Cultural Importance

Last year I introduced a relief for donations to the major cultural institutions of important heritage items. An annual cap of £500,000 was put on the maximum value of the donations which could be accepted under the scheme. This will now be increased to £750,000 for 1996.

Indirect Taxation

The initiatives announced by me earlier require that certain revenue raising measures be taken. Accordingly, in the excise area, I propose to seek an additional contribution through a VAT inclusive tax increase of 10p per 20 cigarettes, with pro-rata increases on other tobacco products, and a VAT inclusive increase of 1p per litre on petrol and diesel, all of which will take effect from midnight tonight.

Mr. D. Ahern

So much for helping Border areas.

Mr. Quinn

I propose to increase the VAT inclusive tax on super plus unleaded petrol by a further 3.1p per litre with effect from 1 September 1996, subject to obtaining the necessary EU approval. This will bring the duty rate into line with that of leaded petrol and reflects environmental concerns over the use of this product as against ordinary unleaded petrol. These increases will raise £40 million in 1996 and £47 million in a full year.

I also propose to increase the stamp duty on ATM cards from £2 to £5 per annum with effect from 1 February 1996. This will raise £1.7 million in 1996 and £3.4 million in a full year.

On the positive side, I propose to cut the excise duty on non-automotive LPG for consumer and industrial use by 0.44p per litre with effect from 1 July next. This will be of assistance to industrial users of LPG, such as the production and processing of poultry, and glass making.

I also propose to make a small reduction in the duty on certain gaming machine licences and certain other minor VAT and VRT adjustments. The details are contained in the Principal Features.

Mr. Hilliard

Mr. Quinn

To begin with, the Government, when completing the expenditure Estimates, also agreed on the final budget day figure for non-capital supply services expenditure. I subsequently published that figure in conjunction with the Book of Estimates.

Following this budget, I intend to publish within a couple of weeks an outline of the main features of the Finance Bill so as to enable interested parties, both inside and outside the House, to prepare for the detailed discussions and debate of these provisions when they are published in the Finance Bill.

Multi-annual budgets

It is also my intention, in accordance with the strategy statement drawn up by my Department in the SMI context and the recommendations of the steering group, to begin to provide for multi-annual budgets. This will involve a three year cycle and will be based, initially at least, on a projection of the budget position assuming existing levels of programmes and services along with existing tax rates. This new arrangement will enable us to move away from the restrictive straitjacket of much of the ritual which tends to characterise our departmental expenditure estimates each year. Already, many companies and organisations are involved in multi-annual budgetary arrangements. It makes good sense for us to do the same, because of the complex and ongoing nature of budgetary commitments.

Pre-Budget Submissions

The number of pre-budget submissions being sent to the Minister and the Department of Finance has increased enormously in recent years. It continues to grow and it is not possible to comply with the requests from all of the groups for meetings. Where meetings are arranged, the process is unsatisfactory as the dialogue is one way, with each group stating what it wishes to have included in the budget to meet the interests of its organisation or association.

Mr. R. Burke

It is called democracy, openness.

An Ceann Comhairle

Let us hear the Minister.

Mr. Quinn

I am therefore proposing that the Finance and General Affairs Committee of the Oireachtas, currently chaired by Deputy Jim Mitchell——

I do envisage, however, that the Minister for Finance would, in the normal way, still be available to have full pre-budget discussions with the official representative groups of the social partners.

Mr. Martin

That is very generous of the Minister.

Mr. D. Ahern

The Minister wants an easy life.

Timing of Budget

Mr. Quinn

Finally, we must consider the merit of bringing forward our budgetary arrangements, in line with our European Union partners, so that the budget process is completed before the commencement of the year for which it is intended. Such a reform will impose new pressures and strains upon existing arrangements and procedures. We need to move carefully, but move we must. Because of the need to plan fully for this change, and the pressures which will arise from the EU Presidency in the second half of this year, I envisage the 1998 budget as the first to be brought in under this timetable. In other words, the budget for 1998 should be delivered in late autumn of 1997.

Mr. M. McDowell

The Minister will not be in office.

Mr. Quinn

The benefits which we will derive from these changes will improve our efficiency and our effectiveness. Ireland will be a better place for these reforms. They are a part of the objective of ensuring that we have the most efficient and effective public administration system in Europe.

Social Partnership

Ireland is now entering an exciting new phase of European development. The Intergovernmental Conference, which begins in March, will consider changes in the European Union Treaty now that developments arising from Maastricht are well under way.

Ireland will take up the challenge of the Presidency of the European Union from 1 July to the end of the year. We remain committed to economic and monetary union and are one of the few member states that continue to meet the Maastricht criteria through our efficient and effective management of our economic and social affairs. We have only been able to manage these affairs successfully because of the way in which the social partnership has developed in our country. We have had three national agreements since 1987. The present one, the Programme for Competitiveness and Work, is coming to a close at the end of this year.

The Government believes that we must continue to build on the consensus approach to managing the economy which has served the country so well in recent years, underpinning high levels of growth, improvements in competitiveness and, above all, substantial employment creation. We are committed to commencing work on the followup to the Programme for Competitiveness and Work and we look forward to an early dialogue with the social partners on the strategic issues which arise for all sectors of the economy in that context.

The Government believes that its development of a three year multi-annual budgetary scenario will provide a fresh context for these deliberations.

The deliberations with the social partners would be informed by the features of the medium-term budgetary position, including capital and current expenditure. Such deliberations would, of necessity, include discussions on the priorities of social expenditure as well as numbers and pay in the public service.

It would be our objective to attain a balanced current budget in the follow up to the present programme, so as to strengthen the economy and position our society to face the new century with both optimism and flexibility. The strengthening of our economy and the development of our society require the sound and prudent management of our public finances, the necessary modernisation of all of our public services and the efficiencies which will be brought about by the strategic management initiative. We may only achieve that desirable goal if we ensure that the social partners can achieve a consensus on how those objectives are to be achieved. The result, if successful, would provide us with a certainty and a security which would be invaluable.

If there is to be a new agreement, then its timetable will take us past the launch of European Monetary Union and the present phase of Structural and Cohesion Funds, right to the threshold of the 21st century and the next millennium.

We need to prepare. We need to analyse, and to propose new ways of enabling all of our people to position themselves, as individuals and as a nation, so as to ensure that we are ready to meet the challenges of the next century.

We will only do that together if we know where we want to be. We will only start to get there, if we begin to take small steps together. This budget is one of those steps. Let us take it together.

Mr. D. Ahern

It is a very small step.

Mr. E. O'Keeffe

There is nothing for the farmers, but Deputy Theresa Ahearn is clapping. It is an anti-farmer budget.

TABLE EXPLANATORY OF CURRENT BUDGET, 1996

Revenue			£m	Expenditure			£m
		£m		1. Central Fund Services	£m		3,053.7
1. Tax Revenue (the PRSI tax allowance is not being renewed) 2. Non-Tax Revenue		12,080.0	366.3	2. Non-Capital Supply Services Adjusted for net revisions to Estimates (including PRSI buoyancy, etc)		9,372.3-54.3
							9,318.0
3. Deduct:
Income Tax reliefs:	£m			Add:
—increases in personal allowances, standard rate band, and exemption limits	-87.4			3. Social Welfare improvements, including Health element			80.0
—other Income Tax concessions	-4.8			4. Contribution Initiatives [impact on Supply spending]:
		-92.2
VAT measures		-6.5		PRSI concessions:
				—Employee contributions	41.9
Corporation Tax measures		-1.2		—Employer contributions	30.7
Capital Tax measures		-1.0				72.6
Threshold for Employment & Training Levy		-2.1		Health Contribution		2.6
			-103.0				75.2
4. Add:				5. Other Employment Measures:
Other Income Tax measures		2.0		Vocational Training Opportunities Scheme		5.0
Stamp Duty measures		1.7		Community Employment Schemes		4.0
Excise Duty measures		39.8		Recruitment subsidy for long-term unemployed		1.0
			43.5				10.0
5. Net effect on tax revenue of tax and				6. Miscellaneous:
spending changes			47.0	Defence: Early Retirement Scheme		13.0
				Science and Technology		4.0
6. Current Budget Deficit			82.1				17.0
				8. Estimated Departmental Balances			(38.0)
			12,515.9				12,515.9

DEPARTMENT OF FINANCE, 23 January 1996.

TABLE 1

1995 BUDGET OUTTURN

	1995
	Budget Estimate	Provisional Outturn
	£m.	£m.
Current Budget
1. Expenditure
(i) Central Fund Services	2,987	2,983
(ii) Supply Services	8,865	9,046
	11,852	12,029
2. Revenue
(i) Tax	11,196	11,335
(ii) Non-Tax	346	332
	11,542	11,667
3. Current Budget Deficit/(Surplus)	310	362
Capital Budget
4. Expenditure
(i) Public Capital Programme	2,663	2,672
(of which, Exchequer PCP)	1,258	1,261
(ii) Other (non-programme)	105	10
	2,768	2,682
5. Resources
(i) Exchequer	860	1,006
(ii) Non-Exchequer	1,405	1,411
	2,265	2,417
6. Exchequer Borrowing Requirement for Capital Purposes	503	265
7. Total Exchequer Borrowing Requirement (3+6)	813	627
8. Total Exchequer Borrowing Requirement as % of GNP*	2.4	1.9

*This ratio is calculated on an estimated GNP outturn which reflects CSO revisions announced subsequent to the 1995 Budget.

TABLE 2

CURRENT GOVERNMENT EXPENDITURE AND REVENUE IN 1995

Current Expenditure	Current Revenue
Item	£m	% of gross expenditure	Item	£m	% of total
Service of Public Debt			Budget Deficit	362	3.0
Central Fund Services (part): Interest	2,156	14.7
Sinking Funds, etc.	249	1.7
Total	2,405	16.4
			Tax Revenue
Economic Services			Customs	200	1.7
Industry and Labour	493	3.4	Excise Duties	2,139	17.8
Agriculture	522	3.6	Stamp Duties	284	2.4
Fisheries, Forestry	41	0.3	Income Tax	4,129	34.3
Tourism	36	0.2	Income Levy	6	0.0
			Corporation Tax	1,146	9.5
			Value-Added Tax	2,889	24.0
Total	1,092	7.5	Motor Vehicle Duties	254	2.1
			Capital Taxes	117	1.0
			Employment and Training Levy	159	1.3
Infrastructure	81	0.6	Agricultural Levies (EU)	12	0.1
			Total	11,335	94.2
Social Services
Health	2,273	15.5
Education	1,962	13.4	Non-Tax Revenue
Social Welfare	4,281	29.3	Court etc. fees	36	0.3
Housing	6	0.1	Interest and Dividends to
Subsidies	167	1.1	Exchequer	76	0.7
			Central Bank — Surplus
Total	8,689	59.4	Income	110	0.9
			Proceeds of National Lottery Surplus	85	0.7
Security	1,033	7.1	Miscellaneous	25	0.2
Other	1,319	9.0	Total	332	2.8
Gross Expenditure	14,619	100.0
Supply Service Receipts	2,590
Net Expenditure	12,029		Total Revenue	12,029	100.0

TABLE 3

CURRENT GOVERNMENT EXPENDITURE 1992-1996

	1992(1)	1993(1)	1994(1)	1995 Provisional Outturn	1996(2) Estimate	% change 1996 over 1995
	£m	£m	£m	£m	£m	%
Service of Public Debt
Central Fund (part):
Interest	2,142	2,159	2,004	2,156	2,036	4
Sinking Fund etc.	213	231	223	249	274	10
Sub-Total	2,355	2,390	2,227	2,405	2,310	6
Economic Services
Industry and Labour	286	320	389	493	515	4
Agriculture	551	576	523	522	539	3
Fisheries and Forestry	34	37	42	41	43	5
Tourism	27	28	35	36	35	- 3
Sub-Total	898	962	989	1,092	1,132	4
Infrastructure(3)	54	54	80	81	90	-11
Social Services
Health	1,722	1,907	2,121	2,273	2,296	1
Education	1,569	1,727	1,876	1,962	2,101	7
Social Welfare	3,534	3,743	3,879	4,281	4,291	2
Housing	5	4	4	6	7	17
Subsidies	167	170	169	167	167	—
Sub-Total	6,997	7,551	8,049	8,689	8,862	2
Security
Defence	395	403	427	430	444	3
Garda	362	391	411	418	431	3
Prisons	85	91	99	102	103	1
Legal, etc.	57	65	76	83	95	14
Sub-Total	899	950	1,013	1,033	1,073	4
Other
Central Fund (part):
EEC Budget	354	453	507	547	633	6
Miscellaneous	17	26	87	31	111(4)	358
Supply Services(2)	577	631	761	741	834	13
Sub-Total	948	1,110	1,355	1,319	1,578	20
Gross Total	12,151	13,017	13,713	14,619	15,045	3
Less: Supply Services Appropriations in aid, P.R.S.I. receipts(3)	2,335	2,494	2,548	2,590	2,619	1
Net Current Expenditure	9,816	10,523	11,165	12,029	12,426	3
Exchequer Pay and Pensions included in above(2)(3)	3,750	4,087	4,356	4,564	4,795	5

Notes:

(1) The figures for 1992, 1993 and 1994 reflect actual audited expenditure.

(2) The 1996 Estimate corresponds to figures published in the White Paper on Receipts and Expenditure 1996.

(3) To allow for comparison the 1992-94 figures have been adjusted to exclude expenditure and receipts in respect of the Air Navigation Services Office whose functions were transferred to the Irish Aviation Authority on its establishment in 1994.

(4) Payments in 1996 in respect of the Exchequer's liabilities to the An Post and Telecom Éireann Pension Funds are provided for in Central Fund Services rather than in the Vote for the Department of Transport, Energy and Communications as was the case in respect of part of the 1995 liability.

TABLE 4

RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES 1973-1996

	Exchequer	Local Authorities (a)
	Current Revenuee	Non-Capital Expenditure	Expenditure	Revenue (b)
	State grants received	Rates collected
	£m	£m	£m	£m	£m
1973—74	793	803	298	183	71
1974 (April- Dec.)	651	744	292	190	61
1975	1,091	1,350	481	332	84
1976	1,470	1,672	567	404	109
1977	1,757	1,958	684	504	111
1978	2,023	2,420	831	670	82
1979	2,384	2,906	1,007	820	91
1980	3,155	3,702	1,313	1,062	103
1981	3,973	4,775	1,565	1,284	102
1982	4,908	5,896	1,878	1,560	95
1983	5,711	6,671	2,093	1,749	105
1984	5,952	6,991	2,302	1,888	122
1985	6,331	7,615	2,493	2,066	141
1986	6,710	8,105	2,633	2,160	153
1987	7,151	8,331	2,699	2,223	170
1988	7,690	8,007	2,387	1,862	194
1989	7,756	8,019	2,552	1,931	231
1990	8,269	8,421	2,761	2,116	239
1991	8,776	9,076	3,000	2,349	252
1992	9,360	9,806	3,285	2,591	265
1993	10,140	10,519	3,358	2,683	280
1994	11,203	11,188	3,650	3,007	302
1995 c)	11,667	12,029	3,897	3,103	321
1996 (d)	12,385	12,439	3,957	3,172	341

NOTES:—(a) Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.

(b)The revenue of Local Authorities comprises rates, State grants (including payments on behalf of Health Boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g. rents and fees. Only State grants and rates are shown herein.

(c)Provisional.

(d)These estimates are consistent with those in the 1996 White Paper on Receipts and Expenditure.

Mr. McCreevy

This budget is somewhat similar to the song "The Teddy Bears' Picnic". If you go down to the woods today you are sure of a nice surprise, particularly if you are a Democratic Left bear, or even a Labour Party bear. I remember a day when there were little blue-beribboned Fine Gael bears who believed in the principle of rewarding people who made a contribution to Irish society——

The Taoiseach

This is unbearable.

Mr. McCreevy

——and who believed in supporting those who were prepared to work hard. There are not many surprises in this budget for that type of person. I concluded my budget remarks last year by telling the Minister for Finance that I hoped he would not be pulled and dragged by his partners in Government in the future. Over the past number of months, particularly in the lead-up to this budget, we have seen a spectacle which we have never before witnessed in the history of the State. There are supposedly three parties in Government who agreed to a programme at the outset of their term of office. However, for several weeks it has been clear that one party in particular is running the Government. The Minister for Social Welfare and his party have decided what should and should not be Government policy, what should be and what cannot be in the budget.

It is no secret that there are ideological differences between all of the parties in this House, otherwise we would all be members of the one political party. However, notwithstanding ideological differences, there was agreement at the start of this Government's term that it would do certain things on foot of the agreed programme. What we have seen in the past while is outrageous. Two parties on the Left are jockeying so much for position and are so busy keeping an eye on one another that nobody is prepared to make any decision without consulting the Minister for Social Welfare.

The Minister for Finance has been ignored during this process. For a number of months his press officer, I presume, and people in his Department have been using the Monday morning papers to plead with his Cabinet colleagues not to be too hard on him in the run-up to the budget. At least 20 editions of Monday morning papers have run with some headlines definitely inspired by the Minister for Finance or by somebody on his behalf, saying that the Government cannot afford increases which will be looked for by other partners in Government. Week after week, the opposite happens.

After the last election, Labour Party gurus and people close to it had in mind the position of rotating Taoiseach for the Leader of that party. However, I do not believe they had in mind the position of rotating Taoiseach or Tánaiste for the Minister for Social Welfare, Deputy De Rossa, but that has effectively happened. We have reached a situation where the Labour Party cannot be seen to oppose anything which comes from the Democratic Left. That is why this budget was decided by a group who are in the minority and for whom the people did not vote in the last general election.

A small percentage of the people voted for parties of the Left. Some 3 per cent voted for Democratic Left, but 97 per cent did not. It is not acceptable that such a small group should control the Government and decide economic and fiscal policy. When the people exercise their vote at elections, they decide, in their wisdom, what party should be in Government and who should be in the Dáil. According to the last opinion poll the Democratic Left commands the support of only 1 per cent of the electorate, yet it decides economic policy. The two Government parties of the Left decide what will happen——

Mr. Noonan,

(Limerick East): What about the budget?

In the same article a member of the Democratic Left said of the Tánaiste: "Dick is so bloody touchy, dealing with him is like walking on eggshells all the time". This must be a result of pre-budget tension. It seems the Taoiseach is not in charge of the Cabinet, but is running an asylum and needs the assistance of Dr. Anthony Clare. It looks as if he is running a home for the bewildered rather than the Government. Perhaps the Taoiseach could ask Deputy Bhamjee to deal with these problems.

Before Christmas, during the lead-up to the budget, there was much debate as regards creative accountancy by the Government when dealing with the hepatitis C fund. Some £60 million was miraculously taken from the 1996 Estimate in 1995 and there was considerable debate about the real increase in spending by the Government in 1995 as opposed to 1994 and previous years. I advised the Minister for Finance to spend some time looking up the terms mentioned because there was some confusion which was caused deliberately.

About one month after last year's budget Dr. Garret FitzGerald said in an article in The Irish Times on the increase in the net estimates, which have always been used to compare like with like since budgets were introduced, that the Minister's speech showed sleight of hand but that was not how they were now being prepared. He said he was able to prove that was the case. I asked the Minister for Finance not to use phrases to try to confuse people. The Minister said the real increase in current supply spending for 1996 at 2.5 per cent contrasts with an annual average of about 5.5 per cent over the past five years. That is being liberal with certain figures because Table F of the Principal Features of the Budget states it is estimated that net current supply services spending will increase by 6.2 per cent over the 1995 provisional outturn.

Last year after one month's analysis by various commentators and, before Dr. FitzGerald came up with his figure of 6.8 per cent, when researching that budget I found that some good civil servant in the Department of Finance had put down the figure of 6.8 per cent in the same place. While public servants might advise a Minister of any Government against a particular course of action, one can be sure they will cover themselves by including the exact figure somewhere.

The increase in net current supply spending in 1996 over 1995, which is the parameter used in all budgetary arithmetic since budgets were introduced, is 6.2 per cent according to the Minister's figures. The Minister did not mention that figure in his speech, but it is there, and nobody tumbled to it except by accident at the weekend when the figure of 6.8 was given in a small table. Someone in the Department of Finance put it in last year also. This year's Table F in the Principal Features of the Budget is similar to last year's and, therefore, the Minister's remarks in this regard are not true.

Comparing like with like, the increase in 1996 over 1995 will be 6.2 per cent in net current supply spending. This is the barometer which has always been used because we have no control over the amount of money we will pay in the Central Fund, etc. The gross figure for current supply spending takes into account the amount of money raised in PRSI and does not take account of appropriations-in-aid. In my last contribution in this House before Christmas I told the Minister to stop the nonsense of trying to confuse people. He has done so again today, and I refer people to Table F of the Principal Features of the Budget.

The macro way in which this budget has been prepared is ridiculous. In a few short years we will be facing the slowing down at least of European Structural and Community Funds coming here. We hope to be in a position to join the economic and monetary union when our chances of being able to control our own public spending will be lessened and we will not have the flexibility of having current budget deficits and Exchequer borrowing requirements. Also, we are at the height of the economic cycle. Within the past 12 months, although the Irish growth figures have been outstanding given our past performances, all our competitors and major markets are experiencing a slowing down. Whether now or later, there is a danger that by the end of this decade these three features will be affected together. Until Deputy Bertie Ahern eliminated it at the end of 1994, current budget deficits had been a feature of the economy for nearly 25 years. There will never be a better chance than this year of having no current budget deficit.

Mr. Quinn

Where would the Deputy cut?

Mr. McCreevy

If the Minister was able to keep the increase in current spending to just 2 per cent we would have no current budget deficit and that could be done if the Government stuck to the parameters set out in its programme of renewal. We will pay a heavy price in the future if we do not face up to our responsibilities now. We do not have to look across the water or anywhere else for examples of daft economic policies that do not work. We have examples here, and we are hell-bent on doing nothing about them. The Government cannot do anything because it is pulling in at least three different directions. I would have the height of respect for the Minister for Finance if he was allowed to do what he knows he should do. He asked me how I would get rid of the current budget deficit this year. The Minister should stick to his own proposals as put forward in the Programme for Government and we would not have a current budget deficit.

It is foolish to adopt the upper limits of the guidelines in the Maastricht Treaty in controlling debt, because should anything happen this year regarding economic growth, we would be outside those liberal parameters. Has the European Commission been made aware of some of our fancy accounting footwork? Eliminate the hepatitis C payment of £60 million which was included in last year's accounts but not this year's and the savings of £119 million for the NTMA which was brought forward from one year to another, and that will bring the Exchequer borrowing requirement up by another £180 million. If there is any slippage we will fall outside the Exchequer borrowing requirement needs as outlined in the Maastricht Treaty, and at the end of 1997 we will be judged on those criteria. It is, therefore, extraordinarily foolish and risky to play at the upper end of this market, particularly at times of high economic growth.

Mr. Cowen

It is irresponsible. We will fail the basic test.

Mr. McCreevy

If over the last six years we could keep the rate of public spending to the rate of inflation we would have today in excess of £2.5 billion to spend on tax reforms, social welfare and any other changes we want to make.

I note that the phrase "tax reform" does not appear in the Budget Statement. It has been forgotten. When times were tough people on both sides of this House said that if we ever managed to correct the imbalances in the public finances and had good economic growth they would do something about tax reform. Today that is not even mentioned. In fairness to the Minister, he did not insult the House by mentioning it, because this budget is not about tax reform.

The Minister asked where cuts should be made. At the end of 1994, when we had a balanced current budget deficit, I do not remember hearing an outcry from any sector of the community for increased public spending. If the Minister for Finance and the Government cannot face up to the pressure groups, it is time they stepped aside and let somebody else do the job. That is what happens in business organisations. When the chief executives or board of directors cannot resist demands and face up to their responsibilities they step aside.

Mr. Noonan,

(Limerick East): Like Fianna Fáil did last year.

Mr. McCreevy

We made horrific mistakes in 1995 and 1996. Whatever the foolishness in 1995, to compound it in 1996 when we had a very good year and revenue was high is quite ridiculous and we will suffer for it.

The Minister does subscribe to the theory of getting rid of current budget deficits. I hope I helped him over many years to come around to that way of thinking. He agrees at least that it might be a good thing, but he does not say when it will occur.

Mr. Cowen

If we cannot get rid of the budget deficit now, we will never get rid of it.

Mr. McCreevy

No economic commentator in Ireland or elsewhere has ever subscribed to the notion of giving a stimulus to the economy at the height of the economic cycle. We are experiencing growth rates never before experienced. No economist has ever advocated stimulating the economy by current budget deficiting at times of high growth. If there is an economist anywhere who subscribes to that view, let him come to Kildare Street where every adviser will tell him that this is not the thing to do. The Minister is limiting his room to manoeuvre in the future. Future Governments and Ministers for Finance will have to impose stringent corrective measures in the future just because we cannot face up to it now.

The Minister made some tax and PRSI changes, but their effect will be minimal.

One could pick any category from the table of the Principal Features. For example, a single person taxed under PAYE on an income of £12,000, taking into account the PRSI and tax changes, as well as any other changes in this area, will have an increase in income of 1 per cent. Looking through the table one finds that most people will have an improvement in their incomes of only 1 per cent, and that is before changes in the prices of petrol, cigarettes and other indirect taxes. A married couple with one earner and two children with an income of £18,000 per annum will have an increase in net income of 1.1 per cent.

For weeks we have been hearing about the wonderful changes the Government will introduce to give people more incentive to work and about what this budget would do in that regard. It has done absolutely nothing.

Mr. Cowen

I accept it has been the intention of Governments to provide people with an incentive but it has not worked. We now have such a multiplicity of exemptions, different thresholds and rates that if an employer gives an employee an increase, the employee is worse off. What kind of ridiculous system have we perpetrated upon the Irish people whereby an employee who is given an increase is actually worse off? That is the effect of the PRSI changes and the thresholds we have introduced in this House.

I can tell the Minister from practical experience that the effect of the changes proposed today will lead to further anomalies and complications in the PRSI system and people who get increases will have less take home pay when they reach certain thresholds. I say to the sensible Members in the Government, particularly those who implement these changes, that we cannot continue down this road because we are making the system so complicated and non-productive that nobody can follow it.

On the taxation rates, whether we like it or not, there is considerable disincentive among people who would like to take up a job but who will not do so because of the tax and PRSI rates. In regard to small businesses, there is not any incentive for an employer to employ people and there is little incentive in our social welfare and tax system to take up the option of employment in low paid jobs. We have compounded that problem in this and last year's budget.

People make conscious economic decisions. Those of a left wing or socialist persuasion may not like to hear this, but most people I know make economic decisions based on what is good for them. Employers will only take on additional staff if it increases their profits. Ninety nine per cent of the employers I know do not take on extra people just to satisfy the Government or out of some sense of social good. The main consideration is whether it will be worth it for them and if it proves too difficult they will not take on additional people. Employees make the same economic choice, but if to choose to work is not for their betterment or is too much hassle, they will not take up employment. That view may be surprising to people of a left wing disposition, but for those of us who live in the real world, that is what happens.

A Government Minister living in a protected world tends to forget what goes on in the real world. People will not get up at 6.30 on a Monday morning if they do not come home on Friday night with more money in their pockets than they would get if they stayed in bed for the week. That might be anathema to many people but it is the reality. Neither do employers take on people for the fun of it. The employers I know only take on additional staff if they will make an extra few pounds as a result. If we face up to that reality we will be far better off as a society, politicians will respond more favourably to problems and media commentators will write about them more realistically.

My party has proposed an introductory tax rate of 20 per cent for the first £1,500 of taxable income for a single person and £3,000 for a married couple. We also propose that no employee earning a marginal income should pay tax or PRSI at a rate greater than 50 per cent because, in the real world, people who earn extra money but have more than 50 per cent of it taken in taxation will not bother working unless they have to. If people are reasonably well off and have a choice on whether to do more work, but can do without the hassle, the employee will not choose to do overtime or the employer to take on more staff if more than 50 per cent of the reward is taken in tax. That is the reality of today's tax and PRSI system and that is why we have proposed that the top rate of tax, with employee's PRSI, should not exceed 50 per cent.

I term levies, services charges and residential property tax as "excuse me tax". I know that tax was beloved by the Labour Party in the 1980s but in 1992 the Labour Party was elected on the backs of the middle classes who may not love residential property tax. I am surprised it has not been abolished because in effect it is only an "excuse me tax". Levies such as the youth, employment and health levies as well as service charges upset a great many people. People feel that if they are to pay tax, it should be taken out of their wages or in a lump sum if they are self-employed. Our goal is to get rid of what I term "excuse me taxes" and have a proper system of taxation without in-built anomalies.

The Minister for Social Welfare, Deputy De Rossa, the champion of the poor, has made great play of increases in social welfare in the past number of weeks. The allowance for those over 80 has been increased to £5 from £4.80, a total of 20p for which I am sure they will be delighted. All the increases are listed in the Principal Features of the Budget but it would be far better if the Minister were to target a few groups. I thought that the Minister would follow on from the logical step of targeting child benefit by channelling resources to areas which would have a real effect on the poor. Instead, there has been a return to the belief of looking after everybody. I believe society has a duty to look after the sick and the old and those who are not able to fend for themselves, but society should not actively encourage able bodied men and women to stay out of the employment force. These young able bodied men and women could take low paid jobs but do not think it worth their while to do so because of the tax and social welfare system. I do not believe a system which is such a disincentive. My party believes in looking after the old and the sick and in allocating enough money to combat crime so that people can live in their homes without fear.

We do not believe in the ridiculous anomalies in the tax and social welfare system that allow able-bodied men in their 20s who prefer to lounge in bars to live off the rest of us when there is plenty of work to be done. I make no apologies for saying that, even though it may not be politically correct, it is the truth. The people at work believe that to be the case. In last year's budget the Minister for Social Welfare, Deputy De Rossa, excelled himself by giving a 2.5 per cent increase, this year he has given a 3 per cent increase to impress the old and the sick but I do not think it will wash with them.

I read in the past few weeks that the Government has put off a decision to increase the TV licence fee but that will be announced later. The increase in ESB charges was not announced on budget day.

There are 286,000 people unemployed, of whom 134,000 are long-term unemployed and out of work for more than one year. Of that figure, 68,000 have been out of work for more than three years and 37,000 have been unemployed for more than five years. There has been spurious arguments on the merits of the labour force survey over the live register statistics. The live register, at least counts the numbers of those who sign on every week. As a matter of interest the labour force survey shows that 80,000 are long-term unemployed whereas the live register shows that only 68,000 are long-term unemployed. It is ridiculous to give more credence to the statistics from a survey than from the numbers signing on every week. If there was the political will to have exact statistics on the number of long-term unemployed, it could be done. Millions of pounds have been spent on computerising the Department of Social Welfare, its computer system and that of the Revenue Commissioners is as good as anywhere in the world and the best in Europe. By universal use of the RSI number and the click of a few buttons it is possible to categorise people signing on. As a former Minister for Social Welfare, I know this can be done if one wants to.

Last week the deputy leader of my party, Deputy O'Rourke and I launched our proposals to tackle long-term unemployment. We accept that every party has done its best to tackle this problem but with limited success. No party has had outstanding success in this area. Will the Minister sincerely consider our proposals? We believe that the employee must make a conscious decision to enter employment and should be targeted by giving him or her an additional tax free allowance. In addition the employer should have an incentive, all things being equal, to choose a person from the long-term unemployed by getting a double allowance for taking on that person. We believe this system is less open to abuse, will work well and deliberately target the long-term unemployed. Nobody has a panacea for this problem but our proposal is worthwhile and should be considered.

A considerable number would take up employment if they were not disadvantaged by so doing. During the past number of years we have endeavoured to tackle this problem by allowing people to retain their medical cards and secondary benefits for a period. The certain way to achieve this is by reducing taxation and PRSI and then people will have a real incentive to work. A percentage of the long-term unemployed should probably be on disability allowance but we do not have such a system. A number of those classified as long-term unemployed are not capable of working and I suggest it may be up to one third of the number. They have to be looked after but it would be more appropriate if they were to receive disability allowance. We should simplify the rules and regulations governing allowances because confusion over allowances creates problems.

The Minister has made some changes in corporation tax as applied to companies earning less than £50,000 profit. Last week we proposed that the figures should be of the order of £100,000 but the Minister has gone some way down this road and I welcome that. It is estimated that approximately 150,000 people operate small businesses. Unemployment would be wiped out if small business were in a position to take on two additional people. I make the point to those of a left wing socialist persuasion that small business people are not sharks; they are not living off the system. They are doing their best, working hard and do not like it when politicians make little of their contribution. It is only through the efforts of people who create real wealth, that others, such as those in the public service and politicians, can be paid. They provide the money for social welfare and education. They are creating employment, but some commentators and many politicians belittle them at every turn. They are the real wealth creators to whom incentives should be given.

On the sterling crisis, officially, Irish growth rates are most impressive but there are two economies within those figures. The multinational economy is export led and provides the reason for the increase in the growth rate figures. The other economy involves indigenous firms which are experiencing much lower levels of growth. Many are in severe difficulty due to the increase in the strength of the pound vis-à-vis sterling. Our dependence on the British market has decreased over the years but it will always be our main market and approximately 50,000 jobs are at risk due to the depreciation of the pound.

The ingenious solution to this problem identified by the then Government may have encountered some difficulties in the interim with the EU Commission, however, I am sure another ingenious solution could have been found if the Minister is afraid to offend our European partners. The firms facing pressures as a result of the depreciation of the pound against sterling were identified the last time this occurred. A body of information exists which can be used for the type of industries which are most vulnerable and consideration could be given to lowering the employers' rate of PRSI for those firms. This would not contravene any European directive. If the pound continues to depreciate against sterling, many people in the Irish economy will go out of business. They will end up on the dole queues, their jobs lost forever.

In the past we heard much from members of the Government about openness, transparency and accountability. The Minister outlined his new process of dealing with pre-budget submissions, but it is in total contradiction to his well rehearsed phrase of openness, transparency and accountability. This is the first year the select committee, of which I am a member, has been in operation and it did good work. It intends to take pre-budget submissions——

Mr. Cowen

It will do the Minister's work now.

Mr. McCreevy

——however, it was not intended to replace the process of pre-budget submissions to the Minister for Finance.

Mr. M. McDowell

There is a recessionist in the Department of Finance.

Mr. McCreevy

When one is a Minister, the useful aspect of meeting lobby groups is that one hears about what happens in the real world. Notwithstanding the good advice one receives from professional civil servants, lobby groups highlight what is really happening. A journalist writing an article on this matter contacted me recently and I told him that when I was in Government I changed my mind totally about lobby and pressure groups and that a Minister who brought a good idea into effect probably heard it from a lobby group at some stage.

One cannot accommodate about 90 per cent of the matters about which one is lobbied and a fair percentage of them are nonsensical in the first place. However, most of the gems of good administration and proposals in recent years resulted from pressure groups meeting Ministers. If the proposal regarding pre-budget hearings is implemented, the Minister and the Government will lose out. It would be easier for the Minister and departmental officials if they did not have to arrange a long series of meetings in that regard. The Minister said he will not attend the pre budget hearings at the committee. I ask him to reconsider his proposal and not to go ahead with it. The committee will hear the submissions but the Minister will lose out.

Mr. Cowen

The Labour Party wants Fine Gael to do the donkey work.

Mr. McCreevy

I have said many things in the past about openness, transparency and accountability and it must have been at work when the Minister for Social Welfare selected the five members of his politbureau. He advertised those jobs in a "well known magazine", the Democratic Left journal. I had never heard of it and no other Member, other than Democratic Left Deputies, has ever read it.

Mr. Cowen

The Deputy was not targeted.

Mr. J. Walsh

The Deputy was not supposed to read it.

Mr. McCreevy

Last year, the first person to suffer from the OTA policy was Deputy Phil Hogan who sent documents to the Fine Gael headquarters. He was not leaking information every day to journalists in the run up to that budget. None of those people was sacked but Deputy Hogan lost his job to offer up another person at this high altar. A few weeks later Deputy Hugh Coveney was demoted to Minister of State as a result of the same nonsense. It did not impress anybody.

We make political points on that issue with some grave doubts. As this side is well aware, the impression is that anything hooky only happens when Fianna Fáil is in power. The impression given is that we are well known muck savages who cannot be trusted with anything. However, ordinary people do not believe that. The recent book by the former Government Press Secretary puts across that point well in a few quotes. I appeal to the Government to cut out the nonsense.

I wonder what our founding fathers — de Valera, Collins, W. T. Cosgrave, Griffith, Lemass and O'Higgins — might say about our budgets and the system we have put in place? We have so complicated our affairs that when we get a pay rise we are worse off than we were; we are better off staying at home than going out to work; there is a faculty in one of the Dublin universities to explain our complicated social welfare system; we have rules, regulations, schemes, etc; and a National Treasury Management Agency that can bring savings forward. If such leaders could see what we created, they would say what they did was not worth it.

Everyone in this House has good intentions but we cannot see the wood for the trees. Turnover tax at 5 per cent and wholesale tax at 10 per cent were replaced by VAT. We brought in VAT rates of 5.26 per cent and 16.37 per cent and increased it by 10 per cent one year to 19.37 per cent. A query was then raised as to why we had a 15 per cent rate. That is the kind of system we have today. If our founding fathers saw the mess we have made, not through malfeasance but through stupidity, they would not be impressed. We need a new vision of Irish life and a "can do" philosophy.

Those who have been in Government know about Government memoranda which are sent to Departments for observations. That is a clear recipe not to do anything because by the time the memorandum comes back the person who had an idea has forgotten what it was and what it was intended to do. It is usually sent to a committee where it is further changed and a task force may be set up.

We are hung up on openess, transparency and accountability. We continually analyse everything, forget what the original idea was and end up with a nonsensical proposal. It is time politicians were not afraid to make mistakes. There is only one safe mechanism to ensure mistakes are not made in taking policy decisions and that is not to make any decision on anything.

Let us have a philosophy of creating wealth and encouraging people. Let us not be afraid to take decisions and make mistakes. Let us have an uncomplicated social welfare system as was originally intended. To hell with the begrudgers and opinion makers who write long, boring articles about openness, transparency and accountability, the reasons we cannot do things and why this and that would be a good or bad idea. Let us have a simple philosophy where we would encourage people to work and take chances. We will make mistakes and bad policy decisions. Seán Lemass made many bad decisions but he also made hundreds of good ones which he would not have made had he not made the bad ones. Let us get rid of our fear and do something for ourselves. If we do not, we will submerge the country in layers of bureaucracy and form filling. We have taken away from people the incentive to take chances. Let the next Government decide it will take risks and make mistakes. If it does not, it will not tackle the problem of long-term unemployment, more people will be unemployed and society will not be healthy.

This budget fails on all counts. That is not surprising as the Minister was pulled in every direction by his partners. This failed ideology, beloved of some socialists, will fail here as it has everywhere else. It is time for us as politicians to get on with the job. The sooner the people are given a real choice in the next election the better.

Mr. M. McDowell

We should begin by apologising to Deputy Hogan for having created a fuss last year which led to his departure from office. When I read page 14 of The Irish Times today where not only were the contents of the budget set out but also the chapter headings and the structure of the Minister's speech, I realised we live in a very strange world where the Department of Finance leaks in advance, through I presume, its Minister, the entire Budget Statement to a highly respected journalist. It makes one wonder if there is any sense of occasion on budget day. Those who think there is not and that it is an anticlimax should not be deluded. There is one Member of the House who thinks it is an important occasion — Deputy Bhamjee is paying one of his annual visits. I am glad to see him here today.

Dr. Bhamjee

The Deputy looked behind him.

Mr. M. McDowell

I am interested in what the Minister of State at the Department of Enterprise and Employment, Deputy Rabbitte, said in 1994 in the context of the tax leaks which took place then: "This Government is the only vessel I know of that leaks from the top." It is strange that he is in a Government that is so riven with leaks that on Monday mornings it debates Cabinet matters on the front pages of newspapers, on Tuesdays the Government parties complain about each other to the media and they reprimand each other on Wednesdays.

Mr. Cowen

It sets up inquiries on Thursdays.

Mr. M. McDowell

Although Deputy Rabbitte is a junior Minister he occupies a high chair slightly removed from the Cabinet table. We must ask what all this division betokens. It is very clear, as this budget proves, that the Government is completely divided on basic economic strategy.

I note from last Sunday's newspapers that a financial journalist is being interviewed by detectives regarding other Department of Finance material. I presume we will not have the same regarding the structure of the Minister's speech in The Irish Times today. The story stated that there were 12 investigations in hand involving detectives from Garda Headquarters trying to determine where the leaks originated. They are coming from Ministers and programme managers. It is about time these detectives were told to deal with crime and real work instead of acting as the pawns of cynical Ministers who pretend they abide by convention as far as secrecy is concerned while they give the entire Budget Statement and its structure to be set out in the financial page of The Irish Times. It is time to face reality.

Public spending has increased in terms of current supply service net expenditure by over 6 per cent. That is a far cry from the figure of 2 per cent the electorate were told about. Taxation and expenditure are set to increase significantly next year. The Government is not willing to admit that but will use any formulation of figures to deny the truth and persuade people that the post inflation increase is of the order of just over 2 per cent when we know the net increase in supply service expenditure for this year is well over 6 per cent.

I want to deal with the changes the Minister has made in the tax and PRSI system. He has exchanged some PRSI breaks for an abolition of the PRSI allowance. I want everyone in this House to realise what is involved. The change in tax allowances of £150 for a single worker on the 27 per cent rate is worth 41p per week. The change in the 27 per cent band is worth just over £1 per week. Because the Minister scrapped the PRSI allowance and substituted for it a PRSI break on income up to £80, a single man or woman must pay the top rate of tax at earnings of £247 per week, £30 less than the average industrial wage. That is the radical change the Labour Party and Democratic Left have achieved. Before this budget a person had to earn £237 per week before paying the top rate of tax. This budget moves the goal posts between paying 27 per cent tax and 48 per cent tax by an infinitesimal amount which is well below the average industrial wage.

The Minister has always stated that he is interested in widening the 27 per cent tax band. He is not interested in the tax rates and he is mistaken in terms of his analysis of tax rates. The £500 increase in the tax band for a single person is only double that required by inflation — the figure would have to be £230 or £240 to satisfy inflation — and the difference for an employee in those circumstances is roughly £1 per week. As will be seen from the Principal Features of the budget, ordinary people are expected to fall down in admiration for this radical, pro-jobs budget when they find they are better off to the tune of 1 per cent. Some people are better off by only 0.6 per cent and some by 2 per cent, but the average is between 1 and 2 per cent.

A man with a wife and four children, earning £18,000, which is above the average industrial wage, will gain by £155 per year from this budget. However, as is provided in sections 6 and 7 of the Finance Act, 1994, mortgage and VHI relief are reduced by a half in one case and a quarter in the other. For many people there will be no improvement whatsoever from the budget. By the time they pay the extra money for cigarettes, petrol and their ATM card, taking into account all the clawbacks of tax and the loss on mortgage and VHI relief, they will find they are no better off. The Minister must face up to the fact that because of political pressures the Government has totally failed to put in place a strategy which the ordinary people can understand. What is the point in giving PRSI breaks when in the same breath the PRSI allowance is taken away? What is the point in moving money from one pocket to another when in the last analysis there is very little improvement for the ordinary worker?

In this budget the Government has completely given up on the process of tax reform. Since Labour came to office in 1993 the only changes of significance in our tax system have been the following. A 1 per cent income levy was imposed for one year but was abolished after pressure from the Irish Congress of Trade Unions. The Government attempted to widen the residential property tax but took fright at the political consequences and reversed that decision. That is the total tax reform under the Labour Party. In the last three years during which the Labour Party has been in office the process of tax reform has juddered to a halt. Today's budget is not a tax reforming budget but a PRSI tinkering budget which will have very little effect on what ordinary people will do.

Is there a single person in this House who believes that the effect of scrapping the PRSI tax allowance and increasing the amount of income exempt from PRSI will encourage more than a handful of people to change the decisions which govern their lives? Where is the analysis of the interplay between the social welfare system and the taxation system? Where is the analysis and the strategy that deal with the fact that people earning £247, well below the average industrial wage, are faced with a 57 per cent rate of tax on all their extra earnings? Why does the Minister, Deputy Quinn, demand 57p out of every pound earned by a single man or woman earning below the average industrial wage? Why does our tax system extract that much money from people earning below the average industrial wage? The simple answer is that political decisions have brought us to this pass.

In 1973 when the first of the recent Fine Gael-Labour Coalition Governments came to office 1.8 per cent of taxpayers were taxed above the standard rate. More than 98 taxpayers in 100 were taxed at the standard rate and did not pay surtax. By the time the second Fine Gael-Labour Coalition Government left office in 1987 the proportion paying above the standard rate had increased to 43 per cent. Fine Gael and Labour — I blame both parties equally for this — increased taxation to the point where almost one in two people paid super tax rates. Fine Gael and Labour in Government are the parties who brought super tax to the masses. When they initially came to office less than 2 per cent of taxpayers paid above the standard rate of tax and in a short period of time almost 50 per cent paid above the standard rate. Not satisfied with that — it is not as if this was a Government of financial stringency — in its second period of office, from 1982 to 1987, that Government doubled the national debt.

These parties stumbled into office by a set of unforeseeable political circumstances at a time when the fundamentals of the Irish economy were in a dramatically improved condition. They not only have an opportunity to transform the country between now and 1999 or 2000 but they have an imperative to do so. When the Euro funds begin to scale down at the end of this century this country will be in a very different position. In the context of European expansion the Common Agricultural Policy will not be the source of huge transfers to the Irish economy that it was in the past. In that context there is an imperative to change the way the country works, to make it a country where working is worthwhile. What did this Government do when it had an opening surplus in its accounts? It produced a budget where the difference between the 27 per cent rate and the 48 per cent rate for single workers earning well below the average industrial wage is changed by £10, from £237 per week to £247 per week. That is the extent of radicalism in this budget.

Perhaps it was in the first flush of enthusiasm in his initial budget that last year the Minister for Finance began his Budget Statement by saying that the budget he was about to deliver was radical. At the end of his statement — it is worthwhile noting his exact words — he said: "This budget is but one small step in that direction". Therefore, having read through his script, he had convinced himself he was not a radical.

The same applies today. We were told at the end of the Budget Statement that this is but one small step in the process of bringing Ireland in the right direction. The time is over for small, faltering, ideological motivated, tottering steps. The time is ripe for a Government which has the appetite, sense of direction, coherence and strategy to put in place a plan for the period between 1997 and 2001, the term of the next Government.

This Government has a neck to talk about three year budgetary plans. Of course we need three year budgetary plans; of course we need a Government and a country not managed on a hand-to-mouth basis whereby nobody looks at the medium or longer term but this Government has not demonstrated any strategy. The Labour Party has not demonstrated a willingness to change the climate for work here. Many employers find their biggest competitor is not necessarily a British manufacturer but the Minister for Social Welfare. In a survey published today 22 per cent of manufacturing employers indicate they find it difficult to recruit people because of our tax and welfare laws. One might think that a party devoted to the interests of Labour or Democratic Left — supposed to be a socialist party — would have been prepared to insist that something radical was done to improve the climate for work in our economy, rendering work a value we hold in high esteem. After three years of Labour Party participation in Government the only answer the electorate can glean from what is now taking place is that there is no appetite for change on the part of this Government.

I come then to the Fine Gael Party. In the 1994 budget debate the present Minister for Agriculture, Food and Forestry, Deputy Yates, said: "The Labour Party in Government always means higher spending and higher taxes.

It is strange to note that the Fine Gael Party has not changed its thinking since. I read in a newspaper on Sunday last that one of the 47 Fine Gael Deputies in this House said:

We are enjoying the perks of office but the Labour Party and, in particular, Democratic Left, are enjoying power. Our Ministers are making no impact because the important portfolios are held by the Left. Our Ministers carry out reviews. Nora Owen is reviewing the prison system, Michael Noonan is reviewing health care and Richard Bruton employment policy. Meanwhile Democratic Left and Labour Ministers are spending the money.

Deputy John Connor, who represents Longford-Roscommon, was reported as having said:

In the last budget it was all concentrated on the lower paid. I think that middle income people would like to get some relief too. I would like to see the 27 per cent rate going down to 20 per cent and the 48 per cent rate going down to 40 per cent.

Deputy McGinley said that the rate of personal taxation in this country is far too high and acting as a disincentive to employment or improving your job. He too called for reductions in the 27 and 48 per cent taxation rates.

Why does nobody listen to Fine Gael Deputies? Whenever the Minister of State, Deputy Rabbitte, says something there is a hullabaloo about it; whenever the Tánaiste and Minister for Foreign Affairs, or one of his advisers, Mr. Fergus Finlay, says something everyone snaps to attention? Why, when Fine Gael Deputies — based on what the Minister for Agriculture, Food and Forestry said on one occasion — know that the Labour Party in office means high spending and high taxation, and do not like it, they cannot do anything about it?

Where in the Budget Statement is there one policy initiative which could be laid at the door of Fine Gael? Where is there one input by Fine Gael to this disastrous budget? Nowhere. Indeed it reminds me of the Light Brigade at Balaclava. We are now in the position that the Fine Gael Party is merely required to maintain this battle to remain in office despite any damage it may have to suffer: "Theirs not to reason why; theirs but to do and die; boldly they rode to die, the gallant half hundred". Where is this Light Brigade? Why is it that we only read about them in the newspapers? Why is it they have no influence on the manner in which this Government is run? The answer is that effectively they are captives, political hostages of the Left. As if that were not bad enough, the Left itself seems to have been taken hostage by Democratic Left, which represents a tiny fraction in terms of overall political outlook in support of our electorate.

We are in a most extraordinary position — facing into what must be an election year, with three parties in Government who have no mandate, and know it. If opinion polls are to be believed, those three parties between them have approximately 30 to 35 per cent support nationwide. They know they cannot win the next election and none of them even thinks there is a chance they will be reelected. They are holding on grimly to office, fearing the consequences of losing it far more than they fear damaging their credibility with the electorate.

The Government talks about reforming the way this country is run, about making plans and producing a successor to the Programme for Competitiveness and Work but, in every single respect, it has run out of steam, burned out its boiler and has no steam left with which to operate; it is dead on its feet. In the most auspicious circumstances in which any Government has come to this House it came here today, offering the electorate nothing but confusion, dissent and lack of leadership; that is what we had today, no coherent strategy.

Since so little has been done in this budget perhaps we should consider what should have been done. If the Government had seriously contained the growth in public spending this country would be in a position to embark on a programme of fiscal transformation in relation to taxation, public spending and borrowing. Today should have been the occasion on which medium-term targets were established even though the Government has run out of steam. If the Government had set some medium-term targets it could have led to circumstances in which the electorate could learn to live, in terms of what their Government spends next year, on more or less what it will spend this year. If we had begun to approach our economics from that perspective the road to greatly reduced tax on work, greatly increased productivity, greatly reduced borrowing and repaying some of our national debt within three to five years would be open to us.

The fact is that choices have been made which have brought us to the present juncture. It is not an accident that the national debt doubled between the years 1982 and 1987. That occurred because the Tánaiste and Minister for Foreign Affairs made pronunciamentos from the hospital bed that there were to be no cutbacks in public spending and Fine Gael capitulated. That doubling of the national debt to £10 billion costs £700 million annually on an open ended mortgage. If we had contained the public sector pay bill, not by way of a freeze, but by allowing it to increase at the same rate as the wages of average industrial workers since 1989, another £700 million would be available to cut taxation. Of those two sets of political decisions, one was embodied in a Government which would not face up to its borrowing problems and had to hand over the country in a shambles to its successors, and another arose from three successive pay deals negotiated by a Government intent on driving up gross wages while doing nothing about the taxation system. Had those decisions not been taken our position would be radically different.

It is time to implement a plan for our economy which would start off on the basis that we must contain public spending and tackle taxation and that a Government should not enter the Estimates campaign with all its players attempting to prove their macho political prowess by maximising the amount of money Departments get but rather all members of a Government should operate on the basis that the more it can save taxpayers, the better this country will be. That is a radically different approach from the one being followed by this Government and it is the only one that will effect the necessary transformation of our economic fortunes if we are to survive in a post-EMU Europe.

Mr. Broughan

The Deputy should tell us about the tax system.

Mr. M. McDowell

At present Ireland seems to comply with economic monetary union convergence criteria, but if we join the economic monetary union in the year 2000 or 2001 without having transformed our system of taxation on enterprise and employment and as a high spending and high taxation economy, at the very best we will survive as the sick man of the union, will limp as economic cripples into a system and thereafter be dependent on the charity of the other larger players in Europe. If this country has the sense at the next general election — and the sooner it comes the better — to elect a Government which would be determined to face up to the question of public spending, to radically transform our taxation system and to face up to a regime where it does not borrow money annually to keep the show on the road as is being done in this budget, I am confident this country could prosper within the economic monetary union and not merely survive but begin to create in Ireland a society in which there would be sufficient enterprise and incentive for people to work and earn a living.

I wish to comment on remarks made in public recently about what is involved in tax reform. Some people on the Left seem to think that tax reform and tax reduction amounts to the politics of selfishness. They seem to believe that high expenditure and high taxation are good and low taxation and disciplined expenditure are bad, selfish and redolent of Thatcherism. I am talking about social justice, people earning below the average industrial wage, men and women in Coolock and Ringsend from whom more than half of every extra penny they earn is taken by the State. Those people are looking to this House to do something on tax reform.

Mr. Broughan

That is hypocrisy.

Mr. M. McDowell

They are not the "haves" in society or the people who are driving a process of political change in pursuit of selfish goals. They merely want to live in a society where they would get more than Minister Quinn if they work harder. That is a reasonable and not a very ambitious sentiment. I suggest that TDs from left wing parties who suggest that to transform the system to give people back more than half what they earn, especially those earning below the average industrial wage, is pandering to the rich and to the selfish in our society do not know what makes people tick.

TDs who talk about a society in which low taxation is sought in order to encourage work and describe it as Thatcherite and obnoxious do not realise that the real answers to Ireland's unemployment problem do not lie in make-work elastoplast economics such as we have seen proposed today. The idea that £80 a week may be given to certain employers to take certain people off the dole and put them at the work bench beside other people ignores the fact that such subsidisation will result in one employee in that factory being taxed at the crippling rate to which I referred. What is the ultimate end of that process? It is the displacement of employment from those who are highly taxed to those who are subsidised. How long do Members think that an £80 weekly subsidy will be maintained? How many previous schemes which sought to encourage employers to take on the long-term unemployed by means of a wages subsidy survived more than 18 months? How many had significant uptakes? How many made a significant dent in the dole queue? Practically none. All those work trials and different modes of massaging the live register proposed by the Government with an increasing sense of urgency which is welcome are nothing compared to one basic duty of Government, to create a society which encourages everyone to work hard.

The Culliton report which was widely based and generally accepted identified one element as the most important contribution a Government could make to employment, reform of our taxation and PRSI system. That report recommended such reform but since it has been put on the shelf beside the report of the Commission on Taxation and various others nothing has been done to implement that basic message that the Government's biggest contribution to the employment prospects in this country is to stop taxing employment as if it were a luxury. Has that happened in today's budget? Is there anything in it which indicates that the Government realises that taxation on work is a real problem? There is one message of hope. It is beginning to see that PRSI operates as a disincentive; it is a regressive tax on employment. That message is beginning to sink in, but the Government has merely shifted the burden of PRSI from the lower paid to the top of the structure. The bands for employer's and employee's PRSI payments have increased by £1,000 from £21,000 to £22,000. It has shifted the burden of taxation but has never considered reducing it.

As Deputy McCreevy said, the global totals from taxation anticipated for next year have not changed much as a result of this budget. In circumstances of unprecedented economic growth this society seems incapable of addressing the taxation issue. If it is Labour Party policy to claim that it needs more of every extra tenner earned by a single man or a single woman earning £247 per week——

Mr. M. McDowell

"Dream on, babies" is all I can say. There is no reason to expect this budget is anything other than the best the Government can do because it is done in the best possible economic circumstances. If this is the best the Government can do then God help us if there is a downturn in international economic circumstances.

This is not an occasion on which this country is dividing between right and left. The left in any society is supposed to be on the side of working people, not taxing them with super tax as though they were millionaires. This is an occasion on which common sense lies in radical tax reform because something is radically wrong with our economy and something radical needs to be done to put it right.

Mr. Broughan

Is the Deputy talking about gimmicks?

Mr. M. McDowell

We do not need gimmicks. This is an occasion on which a strategic approach is necessary. The Government, given every opportunity, ought to have given the country leadership. This was an occasion on which the Minister for Finance, Deputy Ruairí Quinn, backed by his Government, ought to have set out a strategy which the average person could understand on where our tax system was going. The people looked to this House for some sense of leadership, hope, guidance, planning and strategy. In return they get absolutely nothing, a collection of half thought-out schemes, work trials. What are they? Nobody reading the speech knows what the Minister is talking about.

The budget is a collection of half thought-out, half-baked subsidies and elastoplast economics which are no substitute for real politics. I would not mind if I could discern any coherent strategy in the budget, even if I thought it was misguided, or if some plan was being followed. I have come to the conclusion, having listened to the Budget Statement, that any Government that can scrap the PRSI allowance for tax and at the same time give a PRSI break and claw back even the reliefs being offered by measures designed to tweak and to fine tune a system that is not working does not deserve to continue in office. If this budget was an opportunity for radical change it has been lost. The Progressive Democrats has published a document on a different way in which to approach the economics of this country.

The way in which the Labour Party in Government has operated since 1993 has been disastrous. The Labour Party — not the Opposition — has increased the dole queue. According to this document the dole queue was supposed to be going down to 265,000, but it is ending up at 283,000. What does Labour do? It comes to this House and says the live register is no longer a reliable indicator of unemployment. The live register consists of real people, queuing at real hatches to receive real money every week. There is nothing unreal about that. If there are people who ought not to be on the live register collecting their money then I have yet to hear one of the left wing Ministers tell us why that is the case. The references in the labour force surveys to an increase in employment reflect a fragmentation of jobs into part-time jobs. This explains why there is such a divergence between the live register and the labour force surveys. If that is the case the budget has done nothing to address the problem.

This budget will go down in political history as the worst by far. Nobody will be satisfied with it tomorrow. A few benighted ideologues in the media may see something in it for them but the great majority of ordinary people will see through it and release that on the occasion when most was possible least was done. In fiscal terms, the Minister for Finance and his colleagues have snatched political defeat from the jaws of victory. They have written their epitaph as a Government which cannot lay any claim to economic competence and have sealed their fate in the next election, whenever that takes place. From today on we will see a rapid political and economic decline in the fortunes of the Government. I hope this happens because the sooner the better the public has an opportunity to set the Government aside and to put in its place one which has a coherent view of what it wants to do with the economy——

Mr. Broughan

What about the measures taken in 1992 when the Progressive Democrats were in Government?

Mr. M. McDowell

——which has a four year view of where tax rates should be and is willing to put in place a plan for public spending which is carried over from year to year.

Mr. Broughan

What about 1992?

Mr. M. McDowell

Progress will only be made when the public has an opporunity to reject the Deputies behind me and their Ministers who have failed abjectly to do anything serious about our economic problems and to put into Government a group of people who have a strategy and a sense of purpose, who know what they are about, who command the respect of the electorate and can lead them through thick and thin to achieve real reform, who can take hard decisions and stand by them. The sooner we have an election the better. It is time we brought to an end the practice whereby a Minister for Finance can come into the House and call a wretched leaked document which is nothing but an excuse for ideological confusion a budget.

Dáil Éireann díospóireacht - Tuesday, 23 Jan 1996

Financial Resolutions, 1996. - Financial Statement, Budget 1996.

A Deputy

Dáil Éireann díospóireacht -
Tuesday, 23 Jan 1996