The 1996 budget represents a poor return from a booming economy. From a taxpayer's point of view it is one of the most disappointing and insignificant budgets for many years. It is a complacent budget which does far too little for the PAYE taxpayer, the income needs of the long-term unemployed and the old. It is largely a marking time exercise which does not significantly advance progress where it is most needed, and does not deal with the major issues. Even if the Minister did not turn up in the House or in his Department this year, he started off with about £700 million being raised through the system. There are no proposals in the budget for capping our £30 billion debt, reducing our burden of taxation, making our tax and PRSI systems more competitive and the creation of employment more attractive. None of these issues has been dealt with in any more than a glib manner.
The underlying financial situation has deteriorated. The general Government deficit, which has been between 2 per cent and 2.5 per cent of GDP since 1990, has reached its highest level of 2.6 per cent. That is the true measure of the public finances. The primary budget surplus has been steadily falling. We continue to tolerate a situation where high marginal rates of tax are being paid on low incomes. We are missing the opportunity for real tax reform, at a time when overall tax levels can be reduced. We have low inflation, falling interest rates, buoyant tax revenues but even more buoyant public spending.
With the international recession out of the way and the backlog of special pay awards cleared, there was a unique opportunity in these last two years to accelerate a process of fundamental tax reform, already set in train by me in the 1992 and 1994 budgets on behalf of the Fianna Fáil Party, some of which is still working its way through the system. Instead, all the available resources have gone on increased Government spending.
This budget is clearly the best that the three warring partners in Government can agree on with the Fine Gael Ministers largely pushed out of the way in the spending stampede. That is why we face looming problems in the health sector. Cutbacks are on the way in several areas of the health service and other Departments and, as we saw outside the gates of Dáil Éireann last night, the nurses are on the march for the first time in over 15 years. There is no discernible overall economic strategy. In terms of content, it is a budget of bits and pieces, very thin on content. It will not frighten the horses on the international markets but it will not propel our society forward either. We will be relying even more heavily on our track record since 1987. When the social partners, the employers and the trade unions have more time to reflect on it, I doubt if they will be very satisfied.
The budget for all intents and purposes will be found in the revised Book of Estimates, that is why the Minister's speech was so short yesterday. If this Government cannot get it right in these boom conditions, it will never get it right. The whole thrust of this Government's policy is to underpin vast spending programmes which are not even always concentrated on essentials. We should spend more on the real priorities and less on the not so urgent items and optional extras. A few crumbs are being thrown to the low paid, employers and the well off.
The Minister is giving away nothing in this budget. This morning I want to go back over the figures and analyse them the morning after, as I am sure many people around the country will be doing. He is handing back to taxpayers by way of rebate a tiny and derisory percentage of what he hopes to raise from them this year. If you subtract the additional taxes that he hopes to raise, you are left with £60 million, being handed back. The cost to the Minister is further reduced by buoyancy effects to £12.5 million. For every pound the Minister collected in tax last year, he is collecting another 6.5p this year; for every pound paid in taxes, the Minister is handing back, on average, a rebate of about a halfpenny in the pound, which is costing him in net terms even less, one-tenth of one penny in the pound, or if one prefers one penny in every £10 collected. In other words, the Minister is giving back next to nothing after yesterday's great give-away budget. Over two years going on his pre-budgetary estimates, the Minister has made net tax concessions that cost him a princely £9.5 million. The buoyancy effect is a tacit admission that this year's tax cuts are nearly 50 per cent self-financing, a concept the Department of Finance was always loath to admit.
If the Government had kept strictly to its own current spending targets, it would have had an extra £212 million available to eliminate the current budget deficit, which is the policy of my party, and to provide an additional £130 million in tax or PRSI reliefs. There might be even more taking account of additional savings on the national debt interest from eliminating the current budget deficit, not to mention buoyancy effects.
Tax revenue will increase by £733 million this year. Without anything happening, £733 million more will be taken through the tax system. Of that almost £600 million or 82 per cent is being swallowed up by increased Government expenditure. This is based on the Government's figures of yesterday given to us in this House. Surely that proves, on its own admission, that we have a tax and spend Government. Fine Gael, especially the Minister for Agriculture, Food and Forestry, when I was Minister for Finance, used to go on in this House about tax and spend. They are strangely silent now. They are not even here. Agriculture was hardly mentioned yesterday, except for a reference to the mandatory EU refunds.
Our record growth and positive budgetary situation is the fruit of eight years' consistent economic performance under Fianna Fáil management with the support at different times of other parties and underpinned by social consensus outside of this House. It was a period in which we twice achieved 7 per cent growth in 1990 and 1994 and averaged over 4 per cent for the period. Last April net employment grew by 140,000 as the Minister stated, to the highest level since the 30s. Within two years of 1987, we moved within the Maastricht guidelines, and have remained there, with Exchequer borrowing below 3 per cent of GNP. Inflation remained in low single figures. In short, it was Fianna Fáil that transformed the worst performing economy in Europe into the best. Ireland was being portrayed as the Celtic warrior and tiger in 1994, well before the present Government came into office. The Government can claim the merit that the boom has continued under it, but that is all they can claim.
If we wish to continue on this path and avoid painful and disruptive adjustments in the future, as Deputy McCreevy pointed out yesterday, we have to think strategically and face up to serious challenges that lie ahead. The Minister, at the beginning of his budget speech, did not list the areas where we were underperforming last year. We have a huge national debt to which we added £1 billion last year and which went over £30 billion for the first time.
On this side of the House we find it both sad and amusing that the Government say we had a great year of celebration last year, a year we should all be happy about, yet we borrowed £1 billion more and thus increased our national debt to £30 billion. Public expenditure is not being kept under control and the Government's own targets have been missed by a large margin, even though it has been only a year in office.
Long-term unemployment as measured by the live register increased, not decreased, averaging 12,000 above last year's budget target and was 5,000 higher at the end of the year than at the end of the previous year. The Government's efforts to tackle it were an abject failure last year. In many areas our tax and PRSI system is uncompetitive and inhibits employment growth especially in the light of our strong economy and strong currency. Our inflation performance has slipped compared with other countries. Most of our partners had a rate below 2 per cent last year. I have no doubt this is creating major concern in the Central Bank and in the Department of Finance. A year ago we had one of the lowest inflation rates in the ERM countries; now we have one of the highest inflation rates and it is rising all the time with the indirect tax increases in yesterday's budget.
The servicing of the national debt this year will eat up £2.3 billion, more than 20 times the nominal value of the Minister's budget tax concessions. Last year the Exchequer borrowing requirement of £627 million resulted in a £1 billion addition to the national debt, pushing it up to more than £30 billion. Depending on exchange rate movements, this year's EBR may add another £1 billion to the national debt. This will have to be serviced this year, next year and into the far distant future.
In 1994 I, on behalf of my party, succeeded for the first time in almost 28 years in eliminating the current budget deficit. Last year the Minister not only restored the deficit but exceeded his target, coming in with an end year deficit of £362 million after a surplus of £15 million the previous year. The pre-budget White Paper on receipts and expenditure, with a small opening surplus, shows clearly that a current budget balance is within easy reach if there is more restraint in public expenditure.
Fianna Fáil, ESRI economists and the former Taoiseach, Garret FitzGerald, believe one of the budget's main priorities should be to avail of strong economic conditions to eliminate the deficit now and all borrowing by 1999. This is our target and political point of view. There are several reasons for this. At a time when the economy is growing it is prudent economic management to let borrowing fall.
I am glad that, despite the Minister's original target, the EBR fell from 2.2 per cent of GNP in 1994 to 1.9 per cent last year, even though this was not by the full half percentage point I considered desirable. If Fianna Fáil was in Government the EBR would fall to approximately 1.5 per cent this year and 1 per cent next year. That was the aim of the previous Fianna Fáil-Labour Government. Unfortunately the budget gives no indication that this is the Minister's target and, consequently, we are left to hope that conditions will be better than forecast.
The EBR figures are, of course, heavily manipulated as between 1995 and 1996, with payments and savings being transferred between years. For example, the 1995 savings on the national debt have been brought forward to this year while the hepatitis C payments have been brought back to last year. The purpose of this is to make the comparison between this year's EBR and last year's EBR look less bad and to mask the deterioration. The European markets and our colleagues in Europe judge our performance on the basis of the general Government deficit rather than the Exchequer borrowing requirement and the current budget deficit. The budget proves that there has been a deterioration in the general Government deficit from 2 per cent last year to 2.6 per cent this year, the highest increase since 1990. Unfortunately, the bad old days are drifting back again. While our colleagues in Europe may say that our economy is doing well the reality is that the general Government deficit has increased by 0.6 per cent, and they do not know the rest of the facts.
One of the features of Fianna Fáil's economic management during its eight years in office was its counter-cyclical approach. Between 1987 and 1990 we greatly reduced Government borrowing and the debt-GNP ratio. During the more difficult years from 1991 to 1994 when growth was expected to be lower we increased expenditure. The criticisms by the Government of the Fianna Fáil-Progressive Democrats Coalition Government for increasing expenditure at a higher level than the present level are wide of the mark. Given the depressed international conditions it was, broadly speaking, the appropriate response. In 1994 budget growth was forecast at between 3-4 per cent but it subsequently turned out to be 7 per cent and expenditure was set in the light of this. However, having got rapid growth a different response was necessary.
The Government has been boosting expenditure in a pro-cyclical manner in the full knowledge that there was a period of high growth. The difficulty will be to sustain such levels of expenditure if growth falters, which it will eventually, without breaching the Maastricht limits so that we can ride out the next international recession by causing as little damage to the economy as in the early 1990s.
The Government should be creating ample room for manoeuvre but unfortunately it is not doing so. The German Finance Minister is essentially correct in pushing for a 1 per cent borrowing limit during the good times and our Minister is wrong to oppose it. The general Government deficit of 2.6 per cent is much too close to the ceiling for comfort.
Another reason for eliminating borrowing is that we have the benefit of very substantial EU Structural and Cohesion Funds at present. Given the rapid progress made in catching up with our EU partners these funds are unlikely to continue at their present levels post-1999. If we wish to maintain the current levels of public investment we will have to do more from our own resources.
The most fundamental reason for eliminating borrowing is that it would give us a free hand to create a highly competitive low tax economy which would generate greater employment. This can be achieved in the present conditions without damaging the quality of our social services or our caring approach to the least well off in our society. In order to lay the basis for a low tax economy all we have to do is slow down for a period the rate of growth in public expenditure so as to bring expenditure and revenue into balance.
Despite its claims to the contrary the Government has not been exercising the necessary restraint. Last year current day-to-day Government expenditure increased by more than 8 per cent, in breach of the 6 per cent target. Nevertheless last year the Minister presented a budget consistent with that target. This year he has presented a budget which is already in breach of this year's target. This is some feat given that this is only 24 January. In a footnote to the "Principal Features of the Budget" the Government defines the increase in net current spending as 6.2 per cent. As those who have checked this document will know, one would need a microscope to find the figure of 6.2 per cent but it is there. There is one thing we must say about the Department of Finance; it will put in the figure somewhere, it will not go along with the Government and try to hide it. The figure of 6.2 per cent has been achieved by removing the £140 million in equal treatment payments from last year's base. This footnote signifies that the Government will increase current spending by 4 per cent in real terms this year rather than 2 per cent. This means that the target in the Programme for Renewal has effectively been abandoned. There is not much use looking at that document any longer as it is based on financial parameters which have been thrown out the window by the Government, and once this has been done one might as well tear up the rest of the document. It will be interesting to find out from what programme the Government is working — and my party will endeavour to find out this as the year goes on.
The Government claims that the rate of increase in expenditure is lower than under previous Governments in the early 1990s. That is not true as far as 1995 is concerned. If one includes all the equal treatment payments and excludes the once-off amnesty expenditure, as promised by me in 1994 on behalf of the then Government of which the Minister Deputy Quinn, was a member, the underlying rate of increase in day-to-day expenditure in 1995 was 10.6 per cent. By way of comparison, the underlying rate of increase was 6.9 per cent in 1994 and 8 per cent in 1993. There was no excuse for last year's double figure increase in expenditure during boom times and it is thoroughly misleading and economically illiterate to compare it with an increase of slightly more than 11 per cent in 1992 at the height of the international recession and the currency crisis.
From his jibes here it is clear the Taoiseach gets a few one liners from his handlers, spin doctors, programme managers and others and from what he said yesterday it appears he is economically illiterate. As I reminded him yesterday, a man who failed to get a Finance Bill through the House is obviously economically illiterate. I also had to deal with an overhang of special pay increases which has been frozen in the late 1980s. I managed to get those out of the system, thus making it easier for my successor to hold down public spending. The Taoiseach does not know anything about those agreements as he did not believe we should pay them, he did not believe in social consensus.