Safe sex.
The financial statement is not just an economic budget it is also a statement of our aims and priorities as a community. Our community comprises not only a record number of people at work but also a record number of people who depend on those at work, be they old age pensioners or people who depend on social welfare. The budget is not only a budget for those at work but for those who depend on them.
Much of the focus of the pre-budget speculation centred on the need for so-called continuing tax reform. In this context the phrase "tax reform" is a misnomer. What commentators really mean is a reduction in income tax or any other tax which they happen to pay. They do not mean reform in any serious sense of that word. I for one find that unfortunate.
The residential property tax did not serve the purpose for which it was intended. It did not contain house price inflation, it did not channel investment into more productive sectors of the economy and, most importantly, it did not bring in much money. The tax fell foul of that most important of taxation maxims, it failed to command public acceptance. It had to go and no doubt few will shed many tears over it. Its going also represents a significant failure. It represents our failure once again to devise an acceptable way of taxing something other than income or consumer spending.
As the Minister of State, Deputy Rabbitte, pointed out yesterday, the overall take from taxation is not high by European Union standards, but the take from income tax is among the highest. Inevitably this will continue to be so for as long as the political establishment and the social partners refuse to countenance any broadening of the base. In these days of high economic growth this is probably a matter of little consequence. However, as the Opposition is keen to point out, high growth cannot be expected to continue for ever. Sooner or later we must grasp the nettle of broadening the base. We should use the opportunity now to give serious consideration to introducing carbon and energy taxes. We should reconsider capital taxes, particularly capital acquisitions tax. The lessons learned from the introduction of RPT are powerful and must not be forgotten, but they must not frighten us off the medium-term aim to broaden the base and thereby reduce considerably the level of income tax currently extracted from the PAYE sector.
All parties in the House are apparently agreed on the need to reduce taxes on income. The Minister has made considerable progress in his three budgets since 1995. The standard income tax band has been widened by £1,700 in the case of a single person and by £3,400 for a married couple. That is an increase of more than 20 per cent, an amount which more than compensates for the reduction in mortgage interest and VHI reliefs. Those increases are significantly ahead of the cumulative inflation rate over that three year period which runs at approximately 7 per cent. Personal allowances have also been increased well beyond the level of inflation as has the general exemption limit as a result of which many thousands of workers and pensioners have been taken out of the tax net.
There may be general agreement in this House on the desirability of reducing income tax, however, I suspect there is little agreement on the rationale behind tax cuts and the means of implementing them. The prime purpose of tax cuts must be to promote employment. The primary way of doing that is by eliminating the poverty and unemployment traps in the tax system. It is not good enough that somebody could be worse off by virtue of taking a job or by earning more. This has implications beyond the tax system.
In terms of the income tax system, if we accept the need to reduce the impact of such traps, inevitably we will be driven to focus the benefit of taxation reductions on those on low or moderate pay. In fairness to the Minister, he has sought to do that. He has reduced the lower rate of tax and raised personal allowances, but the Minister and the Government need to do more to deal with this issue. Last year the Government published a report of the commission charged with recommending ways to integrate the tax and social welfare systems. The commission provided a useful analysis of the anomalies in the existing systems. It dealt at some length with issues such as basic income, provision for children and support for workers on low income. It also made detailed short-term proposals. It suggested the gap between personal allowances and exemption limits should be progressively closed. It also suggested that provision be made for the retention of secondary allowances in certain circumstances. The Minister has made significant progress in this direction but I am sure he will agree that more needs to be done.
The other main reason to reduce income tax is to contain wage inflation, while adequately rewarding workers at a time of economic growth. This aim was central to the Minister's thinking in negotiating the Partnership 2000 programme which is likely to be accepted by ICTU today. I strongly support the notion of social consensus and partnership. It is important to involve the social partners in determining how economic growth is to be sustained and how the fruits of that growth should be distributed. Many other groups were given an opportunity to express their views as to what the programme should include. I endorse not just the contents of the agreement but also the process which brought it about. It is important that we do not take it for granted.
In that context the Fianna Fáil Leader, Deputy Bertie Ahern, is to be commended for initiating the process when Minister for Finance. He would do well, however, to read the report of the proceedings of the Select Committee on Finance and General Affairs in March 1996 when it heard an extraordinary and forceful presentation by the former Minister for Finance in New Zealand, Ms Ruth Richardson. During the course of her presentation she viciously attacked the concept of social partnership and all that goes with it. Her exposition was one of the most ideologically right wing presentations which I have heard in the confines of this House in recent years. She derided any concept of social consensus, national accord and most of the values on which European society, post-World War II, have been constructed.
Following this exposition from the Honourable Ms Richardson, the Progressive Democrats spokesperson on Finance, Deputy Michael McDowell, said: "I support what you said with a heart and a half". Last week the same Deputy endorsed, in principle, the provisions of the Partnership 2000 programme. As Deputies will remember, this is not the first issue on which he has recently changed position.
In their 1995 statement on the economy the Progressive Democrats made it explicitly clear that they favoured the privatisation of most, if not all, of the public utilities during the next five years. This commitment, too, appears to have been watered down, or has it? In the not too distant past the Progressive Democrats explicitly supported a property tax. I wonder if they still do. I also understood that the Progressive Democrats agreed with the standardisation of tax reliefs. This was less than clear, however, from the contributions made to this debate last week by Deputies Harney and Michael McDowell.
The confusion, if that is what it is, in the Progressive Democrats policy is nothing by comparison to the bogus duplicity of the Fianna Fáil position. Deputies McCreevy and Harney have made it clear that they think the Minister is spending too much. Deputy Ahern has explicitly committed Fianna Fáil to eliminating borrowing altogether by 1999. He has said that the national debt should be frozen at a level under £30 billion. Since the national debt currently stands at £29.9 billion, this would effectively freeze borrowing almost immediately.
Equally, Deputies Ahern and McCreevy have demanded that deeper and more expensive tax cuts be made, again with immediate effect. The effect of this in this year's budget would have been to reduce spending by a sum in excess of £1 billion, yet Fianna Fáil speakers in this debate have consistently demanded increased spending on a range of areas. Yesterday, Deputy O'Donoghue demanded an increase in the social welfare provision for old age pensioners, while Deputy de Valera demanded considerably increased spending on the arts. Each of Fianna Fáil's spokespersons outlined a litany of projects for which they want funding. Rarely does a week go by without Deputy Martin making further demands for increased resources in education provision. All of these demands are inconsistent with that party's rhetoric on the budget.
The truth is simple, one cannot improve social services without spending money. If one wants to cut spending one must cut services. Fianna Fáil is looking to take £1 billion out of this year's budget. This amounts to almost 10 per cent of total net current spending. This cannot be done without significant cuts in essential services. It is high time this was spelled out to the public.
We are told that the Minister is spending too much, that he has been profligate and, even, promiscuous with the public finances. This allegation deserves study. This is the first time in decades that a Minister for Finance has set out to return a surplus on the current budget, and not just a small or technical surplus. The Minister has provided for a current budget surplus of no less than £192 million. For the first time in living memory the national debt fell last year. The debt-GDP ratio is significantly lower than it was when the Labour Party came to power in 1992 in partnership with Fianna Fáil. It is well within the criteria set out in the Maastricht Treaty.
Those who argue for reduced spending often point to public service pay as being the core of the problem. In a sense, they are right, the public service pay bill is rising beyond the rate of inflation. There is more than a little evidence of what is euphemistically called grade drift within the system. Numbers in the public service generally have increased in recent years but not by very much. Almost all of the increase is accounted for by the areas of health and education, areas which have been specifically exempted from any cuts a Fianna Fáil-Progressive Democrats Government might introduce.
The Progressive Democrats have informed us that they will cut 3,750 jobs in the Civil Service. We, and more particularly Civil Service workers, need to know where and when the axe will fall. Perhaps Deputy McCreevy will tell us if Fianna Fáil is committed to a similar reduction in numbers. People deserve to be told before the axe falls so that they can make a sensible and informed choice.
Those who attack the public service pay bill need to tell us where the fat is to be found. Is it, for example, at clerical assistant grade where an entrant will earn £155 per week rising to £230 per week after 11 years or is it at clerical officer grade where an entrant will earn £156 per week rising to £280 per week after 15 years? If Fianna Fáil or the Progressive Democrats think that these figures are excessive, they should say so and let us have a debate but perhaps the fat is at the higher grades. Higher grade civil servants have received pay increases significantly ahead of inflation in recent years but the bald fact is that most of these people are still paid far less than they could reasonably hope to command in the private sector.
Perhaps we should look outside the Civil Service altogether. Are the Opposition parties saying that teachers, nurses or Army personnel are paid too much? Are they saying that we have too many teachers, nurses or Army personnel and that they will reduce the numbers? It is not good enough to say that bureaucracy would be reduced. We must be told how and when that will be done.
I am not attempting to say that all is rosy in the civil and public service. There are unquestionably management and other deficiencies in the service which we have been too slow in addressing. The way in which budgets are managed, for example, leaves much to be desired. There is far too much inflexibility. Most of all, there is a stream of accountability and a culture of secrecy which is utterly unsuited to the information age at the end of the 20th century.
On public spending, I am willing to ask if we should be doing more to improve public services, although I fully accept that we should be slow to incur recurring costs in the system. I am not making that argument but we could do more in terms of once off spending. I cite hospital waiting lists as an example. The Minister has continued the initiative started some years ago by the Minister for the Environment, Deputy Howlin, when Minister for Health, of targeting moneys at reducing specific hospital waiting lists. This initiative has been very successful in reducing waiting lists by almost a half but I acknowledge that more needs to be done. Would it be possible to provide additional moneys on a once off basis to continue this initiative?
The Minister for Education has provided funding for a programme to reduce the number of substandard schools. Again, this is once off expenditure. I wonder, however, whether we should take the opportunity to do all the work that needs to be done now, although I acknowledge that much has been done. Last week the Minister provided £250,000 to upgrade the heating system in schools in the Kilmore west area in my constituency.
There has been much discussion about the fact that the marginal rate of taxation was not altered in the budget and claims have been made that there is nothing in the budget for higher earners. This is completely untrue. Even if we discount the fact that RPT has been abolished and third level fees eliminated, both of which are more likely to affect higher earners, there is a great deal within the budget which is of direct benefit to those who pay the 48 per cent marginal rate.
A reduction in the standard rate benefits everyone, not just those who pay all their tax at the 26 per cent rate. By contrast, a reduction in the higher rate benefits only higher earners. Surely it is a more equitable use of resources to introduce changes which will benefit the maximum number of people. It makes one wonder why the Opposition parties are so anxious to reduce the top rate. It could be a matter of political opportunism to buy the votes of higher earners. However, since this possibility is so awful perhaps we should leave it aside in the spirit of charity and look at the economic arguments.
The argument traditionally advanced is that if the well-off are given an incentive there will be a knock-on effect on less well paid workers and on job creation. This is what Bill Clinton famously called the "trickle down" effect and what George Bush earlier referred to as "voodoo" economics. The truth is that trickle down does not work. The experience of Nigel Lawson in the UK is instructive. He certainly managed to multiply the number of champagne swilling yuppies in the city. He also overheated the British economy which ultimately led to inflation and a current budget deficit, the likes of which we have not had in this country for some years now. Does anyone seriously believe that at this point in the economic cycle we need more money swirling around in our economy? It amazes me that commentators who normally scream loudly at the risk of inflation or overheating seem to have little or no difficulty with injecting money into the economy through tax cuts.
Does anybody believe that cutting the higher rate of tax will increase job creation? It may encourage people to do more overtime and take a part-time job in addition to their existing one. It will scarcely create more jobs, particularly for those who are long-term unemployed. I concede that the marginal rate kicks in far too early but Deputy Quinn has made significant progress in that regard and we can now at least say that a married couple with a mortgage and one person earning will not pay a higher rate of tax until they earn in excess of £30,000.
This is a good budget which does not stand on its own but falls into the pattern of the budgets previously introduced by the Minister, Deputy Quinn, and the 1992-94 Labour-Fianna Fáil Government. I hope the Minister will be in a position to continue the progress in years to come.