(Carlow-Kilkenny): I wish to share my time with the Minister of State, Deputy Durkan.
Private Members' Business. - Finance Bill, 1997: Second Stage (Resumed).
That is agreed.
(Carlow-Kilkenny): Before the debate was adjourned I replied to some of the points made by Deputy McDowell. I referred to the “feel good” factor and the results of a recent survey which shows that 53 per cent of the public is very happy with the Government's performance. That makes it difficult for the Opposition parties who must come up with imaginary grievances against the Government when everybody knows it is doing a good job. The Progressive Democrats repeatedly tell us how they would like to have taxation almost at a minus level.
(Carlow-Kilkenny): We would all like to have taxation at a minus level but, unfortunately, the country must be run. Calling for low rates of taxation would be a good mantra if money was not needed to run hospitals, schools, etc., but it wears a bit thin when it is constantly repeated. That is the case also in regard to the honesty of one particular party. We all have our own sense of pride and I would like to think I am as honest as anyone in the Progressive Democrats. If I make a wrong statement, there is little point in pretending my honesty compelled me to make it.
I welcome that three sections of the Bill deal with education. Section 6 relates to tax relief for third level fees for undergraduates and confirms that fees paid for qualifying part-time third level courses by non-earning spouses can be set against the earning spouse's taxable income. It also helps those doing Open University courses. The Minister is to be complimented on that because people who spend money on education while working deserve a break.
Section 9 closes off a loophole whereby wise accountants could present scholarships as a type of part payment for tax relief purposes. Section 14 allows tax relief on certain corporate and personal donations of £1,000 per month to publicly funded third level institutions. It is important that donations to third level institutions are encouraged.
I welcome the provision of up to £5,000 for alarms, public liability insurance and restoration of approved art contents in houses of heritage. That is important because if we are to encourage people to open their houses to the public they must be given money towards the cost of installing an alarm.
All houses need alarms now. The Deputy should come out my way where they are open season.
Deputy Browne was thinking of Kinsealy.
(Carlow-Kilkenny): Deputy Woods is correct. Despite the best efforts of Minister Owen in the past two years, she cannot make up for what was not done in the previous seven years. The Minister has done more than her share and I thank Deputy Woods for reminding me of that.
I welcome the allowances to cover the cost of expenditure incurred in farm pollution control. We cannot expect farmers to keep the countryside 100 per cent pollution free without giving them grants for pollution control. I welcome also the continuation of farm stock relief.
There is no doubt that some people believe farmers are always complaining, but it must be acknowledged that those currently involved in beef fattening, for example, where prices have dropped to 78p in the pound, have reason to complain. Those farmers must be supported because they contribute a great deal to the economy. If beef farmers are put out of business it will have an adverse effect down the line, particularly on local businesses if people do not have money to spend. I hope the Minister for Agriculture, Food and Forestry will be in a position to come to their rescue and that any money given will not be seen as buying votes. It is unfortunate that grants have to be given to certain people in an election year because the cynics will say it is an attempt to buy votes.
Fianna Fáil would wait until after the election.
Fianna Fáil would make sure it did not get into that position.
(Carlow-Kilkenny): I suppose a Dublin Deputy would not understand the farming scene but farmers are currently facing a crisis.
I welcome the reduction in corporation tax. That is important for small businesses in particular which must be encouraged to offer employment.
I welcome the curb on the illegal sale of cigarettes on the streets of Dublin. It is ridiculous that these people can be filmed illegally selling tobacco on our streets. Apart from the loss of revenue, this is an example of people openly breaking the law. I am glad the gardaí are moving on this and that the EU Commission has agreed to establish a high level group to study this problem which appears to be a European phenomenon of a type we could do without here. The open defiance of those selling tobacco illegally cannot be tolerated if we expect people to have respect for the law.
Deputy McDowell referred to residentail property tax. While I am not affected by this in Carlow — that is not to say we do not have fine houses in Carlow and Kilkenny — it is a fact that geographic location decides the value of a house. I have always believed that RPT was an unjust tax because a person who owned a four bedroomed bungalow in Carlow or north Kildare, which is very close to Dublin, would not be in the tax bracket even though the same size bungalow in Dublin would be worth a fortune. It is unfair to require someone to pay tax because of where that person lives. I do not begrudge the relief given in this regard to people living in Dublin or the larger cities, no more than the people in Dublin who were not paying water charges should begrudge those of us in the country who will benefit from their removal.
I congratulate the Minister for Finance and the Government on producing this Finance Bill which gives legislative effect to the budget and the various positive changes contained therein. In the face of such positive news I realise it is difficult for Opposition parties to welcome the Finance Bill, following the Social Welfare Bill. I listened with some amusement to Opposition speakers earlier this afternoon. I was particularly amused by the dilemma in which Deputy McDowell found himself when he cast a very jaundiced eye on the Bill and the performance of the Government. He downgraded the positive elements of the Bill and attempted to accentuate what he thought were the less positive aspects.
My constituency colleague, Deputy McCreevy, was much more positive in his contribution and readily gave recognition to the Bill as being positive legislation coming at a time in the country's economy when it would be easy for a Minister for Finance to lose the initiative seized by virtue of careful financial management over the past number of years. That would have been an opportunity lost.
This Finance Bill comes at a time when it would be very easy for the Government to lose the run of itself, to go overboard and bend every which way in an effort to appease every lobby that appears on the horizon during an election year. However, it is the Opposition that has lost its nerve. It must surely be the first time in the history of the State that an Opposition has lost its nerve in the lead-in to an election and seems to wish to jump, lemming-like, over a cliff into the unknown. The Progressive Democrats' reaction on the question of water charges was classical— they plucked a figure out of the air which bore no relationship to cost, and which turned out to be three times what would be necessary, in an effort to massage a section of the electorate into an appropriate state of mind before the election. That represents a clear flaw in what purports to be a potential Government.
When Deputy Michael McDowell suggested that the Minister for Finance and the Government might not be in office for much longer, I was immediately concerned as to the state of health of members of the Government. Perhaps Deputy McDowell is in possession of information of which I am not aware. He should not presume that the people have any great desire for a change of Government. The general consensus is that the Government has taken a positive and constructive approach to the economy and to looking after the people.
I sympathise with the main Opposition party because its forthcoming marriage is on shaky ground considering the prospective partners, although still in Opposition, do not agree on basic fundamental fiscal policies. Obviously such items would be ironed out within the confines of Cabinet, but since the question of Cabinet confidentiality is entertaining and occupying the minds of one or both the Opposition parties at the moment, I would be somewhat apprehensive about the sounds likely to emanate from the Cabinet room given that complete agreement has not been reached on fundamental issues at this stage.
This Bill is constructive and positive. It is drawn up in such a way as to respond to the needs of the economy at this time, given that the economy is performing better than ever before. As to Deputy McDowell's assertion that the Department of Social Welfare is anti-employment, the live register figures are the lowest in five years and are going down, and every possible effort is being made to ensure that information is being made available to the people at whom the various schemes are targeted so that they are able to access employment in a way that previously was not possible. On the Department of Social Welfare and the numbers on the live register, particularly the number of long-term unemployed, serious reduction in the numbers of long-term unemployed will come only after long-term training specifically geared to prepare the people in question to take a place in the workplace. It has not been easy for someone who has been out of the workforce for a considerable period, man or woman, to get back into the workforce and to be successful in obtaining and holding a position. Without doubt, we are in the unique position that there are jobs available; it is a matter of tailoring employees for the jobs. In the future we will spend more time looking at how best to ensure those who happen to become unemployed through no fault of their own are pointed as quickly as possible in the direction of the scheme or training course most likely to bring them back into the workforce at the earliest possible date. My reason for so saying is that once the term of unemployment extends beyond six months the chances of getting back into employment without serious retraining are much slimmer. In my dealings with the public I have found that most people are well disposed towards availing of every opportunity to get back into the workforce. Given that Government Departments like the Department of Social Welfare are willing to assist them at a vulnerable time in their working lives, they will respond positively, and tax inducements, social welfare provisions and various schemes combined make it possible and attractive for the person who is unemployed to get back into the workplace.
Much has been said over the years about our tax base and the alleged uncompetitiveness arising therefrom. Some elements of the Opposition seem to suggest that major tax give-aways are the answer. Nothing could be further from the truth. Economies that followed such a policy over the past 15 years suffered nothing but disaster. It is of no use for the Opposition to tell the public that pursuing a fiscal policy that allegedly puts more money in people's pockets will do anything other than create serious problems in the long-term which will have to be paid for in future. Given their supposed political sophistication, I am amazed that serious politicians of some standing in this House seem to want to go down that road. They know these policies have been followed before and have failed miserably. In the final analysis this Bill, having run its course, will put into effect the legislative fiscal measures that will ensure the country is run on a straight and narrow course until the end of the year and the introduction of the next budget which will be brought in somewhat earlier than in previous years to comply with new trends in Europe and elsewhere, and benefit business and the economy generally.
I congratulate the Government, particularly the Minister for Finance, on introducing this Bill in an election year, which in the past tended to accelerate the degree of generosity of Governments and which on this occasion seems to have drawn great excitement from the Opposition. I congratulate the Government on keeping its head at a time when it would have been easy to do otherwise, and acting in the long-term interests of the economy and the people. It is easy to propose to do something in the interests of the country, particularly in the short-term, but it is different to follow a course of action geared at ensuring the country's economic health and well-being over the longer-term. We will have to wait to see the outcome of an event that is often talked about in this House and allow the public to make its decision on that matter.
This Bill is a favourable recommendation made by the Minister for Finance to the people for their perusal. As a result of the Bill the economy will prosper and grow. I have no doubt that in a year's time it will be possible to carry out a similar exercise to ensure the continued economic growth of the economy.
I read with great interest the speech of the Minister for Finance earlier today and was somewhat surprised he devoted only the first page of his speech to outlining the strategy behind the Government's thinking on finance, the economy, planning and development in the years ahead. The Minister said that he will think ahead three years or five years, but he did not do that in this Bill. Those who wish to see how devoid of strategy the legislation is should look at the first page of the Minister's speech, in which no strategic approach is outlined. The speech states that this is the third Finance Bill the Minister has had the privilege of bringing into the House and that it will enable the Government to, for example, combat illegal tobacco sales, which is welcome, and undertake consolidation, which is long overdue. There are pre-consolidation measures in the Bill. The Minister then turns to the various sections of the Bill. There is no indication of a strategy or plan, no preparation for the future or what we will do in 1999 when European Union funding decreases. That is the weakness in the Finance Bill and in the Minister's presentation.
We are currently dependent on extraordinary growth in the economy, which we are fortunate to experience, a growth that was developed by the Government's predecessors. Everybody is aware it was the hard work of 1987-89 and 1992-94 that turned the economy around. In 1999 the moneys from Europe will be reduced, possibly significantly, but there is no strategy to deal with that. This budget is designed on the basis of motoring on and using up available resources, spending more while making no provision for emergencies that could arise. In this Bill we are dependent on continuing growth. Let us hope it continues.
We must plan, as any business person would, for difficulties down the road. There is enough money in the coffers at present to avoid making decisions, facing realities and planning ahead. Perhaps the rainbow coalition, with the three parties glued together, are so dependent on one another that they are happy to keep the economy turning over while we approach the election. If there is a reduction in growth we will be in serious trouble in terms of services such as education, health and social welfare and maintaining the forces which fight daily against crime. The approach adopted by the Minister in the budget leaves us dependent on the present growth and if there is a reduction in growth of 1 or 2 per cent we are in serious trouble. The number dependent on social welfare will increase as growth decreases and we must be in a strong position to look after those people.
Similarly, if there is an increase in interest rates we are in trouble. Many young people are buying houses at present and depend on the Government to maintain stability. They look to this Bill for assurance that spending is under control and that the present position will be sustained. That will be done only if, in these good times, we reduce the debt, which the Minister has made no effort to do. In the coming years it is expected the debt will increase further, from approximately £30 billion to £32 billion, putting us at greater risk.
There is no control over spending. Control of spending does not mean a reduction in benefits to people, it means better management. The Government is responding to pressure and seeks to fix any problem that arises by allocating the necessary money. Its current behaviour is in line with the economics of a drunken sailor, and the longer we have to wait for the election the worse they will be. The Government is on the run and the Minister for Finance failed to put down a marker to show it will stand firm.
I was interested to hear Deputy McDowell state that the Government regards PRSI as a tax. That is a serious and sad development and spells danger for workers, pensioners and those who depend on the social insurance fund. Unless we maintain the stability of that fund, we will face major difficulties in the future. Some people may claim the money can be made up from taxes. The Government's approach in the run-up to the election is to make up all deficits from taxes. It is designing a strategy so that the benefits workers receive in future can be means-tested. If PRSI is regarded as a tax, it cannot be claimed that workers have a right to those benefits without being means-tested. It is amazing that the Labour Party, in particular, agrees with such a policy.
Deputy McDowell is correct in claiming the logic of the Minister's approach is to regard PRSI as a tax. It is not a tax, it is a social security insurance, to which workers have a right irrespective of what Government or Ministers for Finance or Social Welfare are in office. However, when it is regarded as a tax that will not be the case. That is the reality of reducing the social insurance fund from 5.5 per cent to 4.5 per cent and regarding it as a tax.
When this Government came into office the social insurance fund was in surplus and was able to offer better security and support to workers. Many more benefits could be given to workers who contribute to the fund which is currently in a deficit to the tune of £138 million and which will probably double in a full year. Future Ministers for Finance will have to make up that £138 million from taxation. What will happen if there is a change in growth levels?
Managing the economy is like managing a big complex business. Good business people keep their eye on the various elements so that they can achieve the correct balance in future years. They do not allow huge deficits to accrue in any area. The Minister for Finance referred to accrual accounting. Sophisticated accrual accounting will not be necessary if certain measures are taken. Because of increased employment and the contributions of the self-employed, there is a good flow into the social insurance fund. According to the latest figures, the self-employed contribute approximately £180 million per annum to the fund. Very little of that funding is currently being drawn down, but there will be wailing and gnashing of teeth when those pensions are drawn down in future. What is the Government doing with the money in the meantime? Is it being frittered away or used to reduce our debts or to develop our indigenous resources to provide for the future? What strategy is in place in that regard? These issues must be addressed and the public must be made aware of them. Nobody wants to be a Job's comforter. Of course we can all enjoy the current cashflow, but if business people sit back and enjoy their cash flows they will not be in business in a few years' time. The difference in this case is that, unless there is good strategic management, the penalties will be imposed on the people.
The Finance Bill is a key strategic instrument in the Government's approach to our further social and economic development. That is why we expected so much from the Minister, but we did not get it. With the Social Welfare Act, the Finance Bill should set out the measures that will steer the economy through the troubles and challenges that lie ahead and ensure that workers, pensioners, families and those who are sick, disadvantaged or unemployed are properly catered for and adequately protected.
The Bill does not present a strategic plan. It is a confused and aimless reflection of a left-right coalition whose only objective in life is to stick together at any cost and to set aside any principle or decisive action in the interests of its own survival. The Taoiseach said Fine Gael does not have a policy of its own. Its policies have vanished into the woodwork and become part of the glued together tripartite party. Fine Gael pursues the lowest common denominator between the two left and one right wing parties and thanks the Tánaiste and the Minister for Social Welfare, Deputy De Rossa, for keeping it in office. The hapless Minister for Finance has no option but to accept the dictates of the Democratic Left, whose every wish the Taoiseach seeks to satisfy. The Minister knows he must present a strategic plan, that his reputation is on the line and that history has a terrible habit of being savage when delving into one's past.
When the shallow veneer created by the coalition's army of creative scriptwriters, ministerial handlers and public relations experts is stripped away, one is left with a reckless, irresponsible and indecisive Government. Consequently, the Finance Bill is devoid of any real initiatives and is simply a collection of half measures and tidying up arrangements. There are some measures which we obviously welcome, for example, the removal of VAT from commercial child minding, the abolition of residential property tax, various measures against the illegal trade in cigarettes and many other small measures. There will be more time to discuss them on Committee Stage. Much of the Bill is technical and involves tidying up and filling in loopholes. It is fine to do that but there is no real meat, drive, strategy or planning there.
In previous years the Department of Finance had problems and that was why there was a suggestion there should be a separate planning department. The Department of Finance cannot just become a sort of keeper of the purse; it must plan and show, in the major speech of the year, that there is a strategy and a plan. This Bill is designed simply as a pre-election holding measure sprinkled with a collection of sweeteners to pacify the electorate.
This is a fair-weather coalition drifting along on the rising economic tide which was created by their Fianna Fáil predecessors. Let there be no mistake about it; Fianna Fáil laid the vital groundwork for the current success of our public finances and our economic development. It took hard work, good strategic planning and a new social partnership to bring about our current prosperity. It took great sacrifices on the part of workers to create the economic environment we now enjoy, which has low inflation, low interest rates, rising employment and exceptional growth.
In return we in Fianna Fáil promised lower taxes and we delivered them. We reduced the upper rate of tax from 60 per cent to 48 per cent —a drop of 12 percentage points. We reduced the low rate from 35 per cent to 27 per cent; a drop of 8 percentage points. The rainbow coalition of Fine Gael, Labour and Democratic Left stopped this reduction in taxes undertaken by Fianna Fáil and welched on the commitments in the Programme for Competitiveness and Work. In three years' budgets, in times of plenty, they reduced only the standard rate of tax by a mere 1 per cent commencing this week. It is a wonder Deputies on the other side of the House are not turning their heads away in shame.
In terms of tax reduction, Fianna Fáil beat the three party coalition by a cricket score. We reduced income tax rates by 20 points in difficult times, while the two left and one right coalitions only reduced them by 1 per cent. On the first key yardstick, the burden of personal taxation, this coalition has failed.
Fianna Fáil achieved these dramatic reductions in personal taxation at first alone, later in association with the Progressive Democrats and then in partnership with The Labour Party. One thing we know with certainty is that we can trust Fianna Fáil to deliver on the key objective of reducing personal taxes. We can trust Fianna Fáil to do that because the party has already done it in large measure. If Fianna Fáil says it will do it further, then it will deliver.
In sharp contrast we also now know that we cannot trust the present rainbow coalition, two left, one right, to reduce the rate of taxation. They have not done it in three years' budgets and Finance Bills. They are not doing it in this Bill and they will not do it in future. As we line up for the general election let the voters beware. Deputy John Bruton has sold his party's soul to Proinsias De Rossa, and the Democratic Left Party will not allow him to reduce personal rates.
One of the things that worries me is that we are going deeper into debt. One of the main concerns of the electorate is our ability to maintain our hard won economic growth and development. Young people buying homes at inflated prices need the assurance that our economy will be stable and our low interest rates will be maintained so that they can continue to repay their mortgages. With good management of our healthy economy we can continue our present progress, but the Government's lack of financial responsibility and their penchant for spending and borrowing in times of plenty must raise serious doubts about a future under rainbow coalition management.
This Government is making no provision for the rainy day. If the high rate of growth slows down, and when EU Structural Funds are reduced, we will come under severe pressure. We now have the opportunity to consolidate our position and our economic and social progress on a sound and sustainable footing. We will not do that by plunging the country deeper into debt.
In 1986 the Fine Gael-Labour coalition borrowed £2,145 million and ran a current budget deficit of £1,395 million. By 1994 Fianna Fáil had reduced borrowing to £672 million and the current budget deficit was turned into a small surplus of £15 million. This steady and prudent management of our economy must be maintained and Fianna Fáil can do it. I call on all parties to agree in principle to cap our national debt at £30 billion and to begin the task of gradually reducing it. In these times, which are very good, we must stop adding to our national debt. We must protect our people against a reduction in growth and ensure that we can maintain our services, meet the needs of our growing number of pensioners and keep low interest and inflation rates. This coalition is on a pre-election spending spree with no care for the future. They simply see it as somebody else's problem.
There has been slow progress in tackling unemployment. In December 1994 there were 272,000 people unemployed. In December last the figure had only dropped to 270,000. Yet, the Fianna Fáil-Labour Government had estimated an average rate of 266,000 for the year 1995. Something went radically wrong when the rainbow coalition took charge in late December 1994. With the number of jobs continuing to rise, the number of unemployed people rose again. Something had gone wrong. The outturn for 1995 was 277,000. That is 11,000 more people unemployed every week during 1995.
The rainbow coalition set a less ambitious target of 275,000 for 1996 but overshot even this by 4,200 per week to end up with 279,200 people unemployed on average every week of the year in 1996. This is rainbow reality.
Perhaps this is best illustrated by figures showing the average weekly number of unemployed people, the estimate, the outturn and the increase for 1995, 1996 and 1997. In 1995 the estimate was 266,000; outturn, 277,000; and the increase over the Government's budget plan was 11,000. In 1996 the estimate was 275,000; the outturn 279,200, which left an increase of 4,000. After all that the Government tells us that for 1997 their unemployment estimate, on which the Finance Bill is based, will be 259,000. We have heard from the Minister that to meet the needs of public service pay a further £25 million is to come out of Social Welfare. That would reduce the figure to be catered for to somewhere between 252,000 and 255,000. It would be a reduction this year of 24,000 to 27,000 — every week, not just in one week. These are the Social Welfare figures on which we pay. They are not the figures the PR men can play about with. This is the reality of business. It is what we pay for every week.
The rainbow coalition failed to deliver in 1995 and 1996 despite all the hype and the PR misrepresentation. I am sure most people would think that 1996 was a marvellous year with a wonderful drop in unemployment. In fact, the figure exceeded by 4,200 the weekly average for the whole year, and more was paid out. Somebody is trying to fool someone somewhere. Those are the official figures that have now come out for 1996.
The Minister for Finance said the Government will save a further £25 million this year on unemployment payments to meet special wage increases. This would mean a further reduction in the 1997 unemployment figures to 252,000 or 255,000. Perhaps the Minister could give us an estimate of the number of people who will be unemployed in 1997. He has budgeted for a reduction of at least 24,000 a week in 1997. Given the experience of the past two years, does the Minister think a projected saving of between £85 million and £95 million in the Social Welfare Vote is realistic or does the rainbow coalition expect someone else to meet the deficit because it will not be in Government at the end of the year?
The live register figures for the end of March are higher than expected. They show that an average of 265,000 people were unemployed over the first three months, which is higher than necessary. They must improve significantly if the estimate of the Department of Finance is to be achieved. It seems it will be difficult to achieve and it suggests that somebody is cooking the books for election purposes.
There is no help in this Bill for drug and crime ridden areas. It sets out the Government's plans for the next year and beyond but ignores one of the major issues facing society — crime and the abuse of drugs. We know from experience and innumerable studies that drug barons prey on disadvantaged areas from where the vast majority of the inmates of our juvenile and adult prisons come. We are entitled to expect that the Government will include solutions to these problems in its key planning instrument — the Finance Bill. However, they have been forgotten or ignored.
The Minister for Finance may say these issues should be tackled by other Departments. However, he is wrong. Unless the Government regards a reduction in the level of crime and drug related activities as central to our economic and social development, it does not deserve to be in office. The Minister, for example, could have extended the urban renewal scheme to projects in disadvantaged urban areas, which are well defined and quantified. If he superimposed the drugs and crime incidents on these areas, their needs would become clear. We need to encourage renewal and development in these areas by providing financial incentives and liberal investment schemes. We need to recognise and financially support those who work in and serve these areas. The Government must take the lead, co-ordinate this work and draw up plans. This Bill falls short in that regard.
The rainbow coalition has been bad for families, pensioners, sick people and the unemployed. The Minister said he increased old age pensions by £7 per week over the past three budgets. This amounts to £2.33 per week per annum. The increase for an adult dependant is £1.17 per week per annum. The average increase for widows is £2.20 per week and it is £2.17 per week for people on disability allowance.
Old age pensioners are bitterly disappointed that the 1 per cent relief in PRSI does not apply to them. The Minister for Finance could have removed the 1 per cent levy which applies to pensioners. Why were they singled out for adverse treatment? Why were their needs ignored? Now that the coffers are awash with money, do we need to punish pensioners with this levy? Surely they are among the people most in need? This says much about the hard hearted men who lead this coalition and their disregard for old age pensioners. That trait runs deep in Fine Gael, back to the time when it reduced old age pensions from ten shillings to nine shillings per week.
I am sorry I do not have time to deal with the provisions for the family, voluntary and community organisations and charitable lotteries. As regards the live register, there is something radically wrong with the estimate of the Department of Finance which undermines the Government's figures. An election is looming and the Government has compromised itself. For that reason, I am not happy with this Bill.
The Finance Bill and the budget are different from those described by Deputy Woods. I recall Deputy Michael McDowell lauding the Minister for Finance on budget day for reducing PRSI by 1 per cent. It is strange, therefore, for Deputy Woods to quote Deputy Michael McDowell in support of his argument that PRSI should not have been reduced, particularly when the Minister specifically stated on budget day that neither he nor the Government believed that PRSI was a tax, despite some jibes from Deputy Michael McDowell that it was.
This Bill gives effect to the largest package of personal and business tax reliefs in the history of the State. The full year cost of that package, which will be of significant benefit to the economy and the various sectors, is £490 million. However, that does not take account of further significant increases in child benefit which were announced in this year's budget. Those increases are the best method of targeting people's needs and eliminating poverty traps. In this Government's short lifetime, child benefit has been increased from £20 to £30 a month for the first and second child and from £25 to £39 a month for third and subsequent children.
This week people will begin to see the benefits of the measures announced in the budget. A single person on an average industrial wage will gain approximately £9 per week and a married couple with two children on an income of £24,000 will benefit by approximately £10 per week. When the elimination of residential property tax, the abolition of water charges and free third level fees, which are worth approximately £3,000 to £4,000 to a family with two university students, are taken into consideration, the overall effect is a significant transfer of resources from the State to the individual. Such benefits are beyond criticism.
The idea that reducing personal taxation is a function of reducing rates is a gross oversimplification of the process. In the three budgets introduced by the Government we have spread the benefits across a number of areas, including a reduction in rates this year, which effectively resulted in a reduction of 2 per cent in the standard rate, a significant widening of the bands and an increase in allowances. I do not want to state the obvious, but if a person's income tax can be reduced from 48 per cent to the standard rate of 26 per cent, every pound for which the lower rate applies results in tax on that income being reduced by more than 20 per cent. The notion that simply reducing rates, which is headline news, produces tax reform flies in the face of common sense and the facts. To reduce the overall tax paid by individuals it is necessary to give high priority to widening the bands, increasing allowances and reducing rates. That is what the Government has been concentrating on.
The Progressive Democrats, in particular, make much play about the benefits to be gained from radically reducing tax rates. The Government's approach to tackling bands, allowances and rates, is more balanced and produces a better result. That can be demonstrated by comparing the results of those two approaches. In 1992, the Progressive Democrats when in Government with Fianna Fáil reduced tax rates from 29 per cent to 27 per cent and the top rate from 52 per cent to 48 per cent. Those reductions were welcome, but the average rate of tax paid by a single person earning the average industrial wage under that Administration fell from 33.7 per cent to 31.36 per cent, a fall of little more than 2.25 per cent, despite radical reductions in the rates but little in the way of widening the bands or increasing allowances. In contrast, this Government's more balanced approach has reduced the average tax for that taxpayer from 31.3 per cent to 27.16 per cent, a fall of more than 4 per cent. I mention those figures to emphasise that an obsession with simply reducing rates, which undoubtedly is headline news, completely misses the point that if people can move from the higher rate to the standard rate there is a 20 per cent benefit as a greater amount of their salary taxable is at the lower rate. That point is obvious but it seems to be constantly missed.
Regarding the provisions in the budget and the Finance Bill which encourage business and enterprise, the rate of corporation tax on the first £50,000 of profits has been reduced to 28 per cent. Bearing in mind that three years ago the rate was 40 per cent, it is a very significant reduction which will aid the development of the small business sector, one of the biggest potential engines of economic growth and job creation. The standard rate of corporation tax has been reduced this year from 38 per cent to 36 per cent. The Government is putting down a marker that corporation taxes are reducing and this trend will continue. Business, big or small, can make plans in the anticipation that corporation taxes will continue to be targeted downwards by the Government. In addition, the special 8.5 per cent lower rate of employer's PRSI now applies to salaries up to £13,500 and this reduces tax on employment in many of the exposed sectors of the economy.
For the first time, tax relief is being provided for pre-trading expenses. In the past the tax code was very severe in that it penalised people who took risks, invested their money, time and effort in starting up a business and getting it established. No tax relief was given for such pre-trading costs and expenses. This is a welcome relief which business interests sought. Some of the best measures in Finance Bills or budgets are as a result of Governments and Ministers for Finance listening to the people at the coalface and the representatives of small businesses explaining the issues that make the difference between the successful development of enterprises and failure. This is such a measure.
One of the Government's great achievements in respect of family business and farms is its treatment of capital acquisitions tax. It is now at a level where it is no longer a significant disincentive to the passing on of businesses and farms to the younger generation. Ninety per cent of the value of assets transferred is exempted from tax, which is a major benefit to a sector that in the past has found it impossible to contemplate passing on assets because of the application of penal rates of capital acquisitions tax. The Government has tackled that matter decisively over the past three budgets.
These and other measures are widely seen as pro-enterprise and ones that will underpin further growth and job creation. Deputy Woods said he saw no evidence of a strategy in the speech of the Minister for Finance. He spelt out his strategy in great detail in the budget and, therefore, it was not necessary for him to spell it out again in the Finance Bill, which simply gives effect to that budget and the framework he eloquently outlined here on budget day. There is a clear strategy to encourage enterprise and to underpin, in every way open to us, further growth and job creation. That is an objective on which there is no disagreement in this House.
I wish to refer to some new measures in the Finance Bill — the incentives to promote donations to third level research institutions, universities, institutes of technology, regional technical colleges and so on. We have seen the beginnings of skill shortages in certain hi-tech industries. It is ironic at a time when we have a high level of unemployment to hear employers say they cannot get workers with sufficient skill experience to take up hi-tech jobs in new industries.
The fact that there are now serious efforts to attract Irish emigrants back from the UK and the US is a sign of success. There are advertisements in newspapers in those countries asking people to come back and take up high-skilled jobs in Ireland. We can be happy with that in one way in that it provides an opportunity for people whose birthright is Irish to return and work here but we must, nevertheless, ensure that Ireland turns out a stream of young people with the necessary high-level skills to take up the jobs provided, not only by international investment but by indigenous industry which must develop high-tech skills if it is to survive. This kind of measure, which provides tax incentives to individuals and companies which have resources which they are willing to invest in the development of research and high-tech skills in Ireland's third level institutions, is also part of the strategy to create more employment and growth and provide in particular for the greater numbers of graduates and highly skilled technologists necessary to take up the jobs of the future. That is the background to that measure in the Bill and I welcome it.
There was a great deal of apprehension in the days leading up to the publication of the Finance Bill about what it might contain in relation to the construction of new hotels. That apprehension was misplaced because, while there are some limited measures to ensure the correction of a number of abuses, there is no disincentive in the Bill to the investment which is necessary in the growing tourism industry and the resulting necessity for more hotel accommodation throughout the country. I welcome that development also.
The budget delivers on the Government's tax commitments in Partnership 2000. By agreeing wage increases to the end of the decade in Partnership 2000, the Government has provided stability and certainty to companies, employers and employees about the future over the next two to three years. Those years will be among the most momentous, not just because we are approaching the millennium but because that historical date coincides with a number of significant events in which Ireland will be a partner and participant.
I refer in particular to European Monetary Union which will probably be the greatest factor of change to affect Europe's economy and citizens in 20 or 30 years. The notion that member states could all share a common currency was little more than a dream a decade ago. It is now very much in the grasp of many member states and it is certainly within Ireland's grasp. There is a good deal of apprehension about it and that is understandable as it is a new territory but for a country, such as Ireland, which depends more on exports than any other member state by far, but the notion that currency risk can be eliminated, transactions can be simplified and business can be conducted within a common currency area must be to the benefit of Ireland in the medium and longer term.
That does not mean that Ireland will not experience some anxious moments along the way.
The concerns expressed by some exporters, particularly those exporting primarily to the UK, are understandable. I have heard some commentators say that Ireland should not enter this great new world without the UK. Of course it would be more convenient and less risky if the UK joined European Monetary Union with Ireland on 1 January 1999. However, the reality appears to be that the UK will choose not to do so. That is a matter for the British Government and the Government has no control of that, but it would be a great step backwards if Ireland was to lose its self-confidence and step back 20 to 30 years to the day when the link with sterling was broken and Ireland commenced its move from economic dependence on the UK. Ireland has built a strong export business and strong business contacts with the member states of the EU, such as Germany and France. It would be a retrograde step and a sign of our lack of confidence if we were to falter simply because the UK decided not to join at the earliest opportunity.
Ireland will meet the criteria for European Monetary Union and that is to the credit of the Government and, indeed, its predecessors. This is not a criterion which is met in a year or two; it is something to which Ireland has been building up in the 1990s. All parties which have participated in Government can share in the credit of Ireland's economic success story which will enable us to qualify and take part in the implementation of this great change in world and European currency and economic matters from 1 January 1999.
I place some emphasis on this because it leads me to one conclusion, namely that Ireland will require a stable Government in the immediate future which is certain of survival. The next three to four years will be critical. The economy is in very good shape and European economies in general are in relatively good shape. The future is bright but uncertainty will not assist the process toward European Monetary Union.
When the Coalition Government came into existence in rather extraordinary circumstances on the fall of its predecessor, it was not perceived by some as a stable, fundamentally sound association of three parties but has proven to be such, as it has demonstrated that its members can deal with any differences of opinion within its number in a rational manner and in a spirit of compromise.
The alternative Government, comprised of parties opposite, when previously in office — while having achieved some of its objectives — ultimately proved unable to work together, which will be a factor in the weeks and months ahead. If ever there was a period in which instability and uncertainty will pose a stumbling block to our future development and economic growth it will be in the years immediately ahead. This will be the case not only in relation to the uncharted territory of economic and monetary union but in the very tough negotiations we shall face post-1999 in regard to Structural Funds and so on when, inevitably, many other unpredictable events will require a Government comprised of parties with a proven track record of working co-operatively together.
I reiterate that stability, an essential prerequisite to low interest rates, low inflation, high economic growth and high domestic and international investment, emanates from stable Government and sensible economic management. The provisions of the Bill demonstrate this Government's determination to work together constructively, to manage our economy prudently, allowing us to face into those testing years around the turn of the millennium with confidence, certainty and stable Government.
With the permission of the House I wish to share my time with Deputy Ó Cuív.
I must take issue with the final argument of the Minister of State at the Department of Finance, Deputy Coveney, when he said that this Government was comprised of the only parties that could coalesce and provide stable Government into the future. There were earlier periods in our history when Coalition Governments comprising the party of the Minister of State and others did not last very long in office. There is no reason my party cannot operate effectively in office in the future, either as a single party Government or one with minority support, to which I look forward in the not too distant future.
This is the third successive Finance Bill introduced by the Minister for Finance, Deputy Quinn, who, two years ago, informed Members he would clean up the bureaucratic muddle enveloping our taxpayers, those paying under the PAYE system or the self-employed.
There were some welcome changes effected in the Minister's preceding two Finance Bills — for example, direct payments of VAT, RSI, PAYE and other administrative ones, making it simpler for the self-employed to comply with our tax laws. The Minister also promised to introduce a consolidation of taxes Bill which I note from the Government's legislative programme will be published prior to the summer recess. Its introduction will represent a welcome progression for anyone constantly engaged in examining earlier tax Bills introduced since 1967, a time-consuming, costly exercise for many tax advisers and their clients.
Some excellent allowances and schemes were introduced in the preceding two Finance Bills, such as the tourist resort renewal scheme, the film scheme — Deputy McCreevy's idea — apart from which minimal changes only were effected in tax bands and rates which, within the context of what could have been done, is my main criticism of this Government. In this period of booming economy, the Government had indeed an opportunity to be more generous.
Our taxpayers are still subjected to an array of taxes, many not recognised. Examples are driving, television, dog, gun licences, rates, publicans' licences, Government duty on credit cards, bank guarantee cards, cash cards and the many other licence fees imposed on businesses, of which many people might not be aware. One must also pay a fee whenever one lodges an appeal, intends developing one's business or being connected to certain services, all of which have crept in in recent years. The reason is that local authorities were not financed as heretofore to enable them to properly carry out their statutory functions and have had to devise other methods of raising funds, leading to the imposition of these costly fees used to shore up or bail out the excessive spending of Administrations over many preceding years.
With the passage of time people cease to question but rather accept these impositions as part of everyday life. It is opportune to question and review all of them but the Minister and his Government have failed to grasp that opportunity within this, the most favourable economic period in the history of our State. It appears the Government of three heads is afraid to rock the boat and effect meaningful changes in our overall taxation system, the rock on which it will perish whereas there is an urgent need to revamp its economic and social policies to enhance the overall well-being of our people. To achieve this belief the taxation system must be reformed. There is a necessity to reduce significantly the high levels of taxation as they are damaging our competitiveness and growth. Reports from the Commission on Taxation, the task force on small businesses, Forbairt, Culliton and Forfás have called for tax reform.
Our track record in Government shows we are the only party in recent history capable of controlling Government spending. Too great a temptation confronted the coalition parties when put in charge of our finances. After years in Opposition they went mad spending the hard pressed taxpayers money from their projected 6 per cent over-run to 20 per cent. They are continuing to do this to buy votes to get back into power after the next election. Were it not for the buoyancy of the economy this country would be near bankruptcy as it was in 1987. There is no doubt current management of taxpayers' money is fundamentally fraudulent. The people will have an opportunity to pass judgement in the near future on this miscreant Government.
I welcome the farm pollution control grants. Despite what many people think the net taxable income of most farms is £16,000 to £20,000. Out of that farmers are supposed to rear and educate their families and reinvest in their farms by erecting new buildings or purchasing new machinery. On such an income there is great hardship in developing and maintaining the capital equipment which is necessary to provide for a decent living.
The time has come to look at capital allowances for the struggling majority of farmers. Some 10 per cent of farmers are in the top league, while in the medium league are the farmers who are suffering. Due to falling milk and cattle prices and chaos in the beef industry every sector of the farming community is under pressure. When farmers are doing badly it affects not only the farmer but the factory, the co-ops and the shops so the spin-off effect is enormous. It is important to provide the aids necessary to maintain the industry.
We should examine the costs involved for a young farmer taking over a farm from a parent. Usually a deal has to be done with other members of the family and in many cases farm buildings and machinery must be upgraded. The aids provided to young farmers are not sufficient.
Corporation tax has been reduced but the 1 per cent reduction in the past year is derisory and will not make or break any individual. There should be a greater reduction in corporation tax for small firms. The cost would not be excessive and the figures produced by the Department of Finance, and available from the Minister, bear this out.
I welcome the targeting of illegal tobacco sales. It is not acceptable that people flouting the law are portrayed on our television screens. This is not a minor crime given that millions of pounds are lost to the economy through this illegal activity. For many years I have made representations to the effect that pre-trading expenses should be allowed and I am pleased the Minister has seen fit, on this occasion, to introduce them. Capital gains tax must be considered and I am disappointed the Minister did not take it into account in the budget. There is scope for developing and increasing activity in the indigenous industries in the treatment of capital gains.
When examining the tax side of the budget it must not be forgotten that VHI and mortgage interest relief have been reduced to standard rate allowances. While there have been many benefits there are also negatives. For example, the increase given to pensioners, as outlined by Deputy Woods, was derisory and will not be forgotten in the next month or so. Also the number of butter vouchers was halved. This raises a doubt in the minds of many people as to how the Government views the less well off in society.
A recent article in the Sunday Business Post by the chairman of the Revenue Commissioners, Mr. Cathal MacDomhnaill, clearly indicated the change of emphasis by the Revenue Commissioners in dealing with taxpayers. It indicated the Revenue Commissioners are no longer just trying to enforce compliance with the tax laws but are focusing on value for money and cost effectiveness, honing in on real corruption and evasion, providing a service mainly to smaller business people, advising and helping them with their returns and helping them overcome problems with payment. The Revenue Commissioners no longer say returns should be in by a certain day and taxpayers will be subjected to all the powers at their disposal. As a practising accountant I can confirm that what the chairman has stated in that article is true. That is how the Revenue is operating today. A survey of the satisfaction rating of many institutions, including the Revenue Commissioners, showed that people dealing with the Revenue Commissioners rate them and their treatment highly. This is a complete change from the 1970s and early 1980s. The change of attitude by the Revenue commenced when self-assessment was introduced. There is now a higher rate of compliance than at any time in the history of the State. I particularly like the statement by the chairman that the Revenue Commissioners pay attention to “Phoenix” companies which rise from the ashes of failed predecessors, often operating from the same premises. The approach now is to pinpoint “Phoenix” companies and ensure they are given no leeway in delaying tax payment. This is an excellent policy. Many “Phoenix” of companies go out of business without paying their creditors or subcontractors and start off again the following morning. The history of many of them will show they have done it time and again. I am pleased the Revenue Commissioners are moving to curb that.
There are many other issues I would like to raise and hope to do so on Committee Stage. This is another unimaginative Finance Bill which does little to further the growth and development of our economy or equity in the taxation system.
I welcome the opportunity to contribute to the debate on the Finance Bill. I do not intend to refer to high finance and special schemes for people with large incomes, rather it is my intention to discuss those I represent, namely, people on low incomes. I wish to highlight a number of basic facts which seem to have eluded the Government.
It is extraordinary that this Government claims to include a left wing element. The thresholds for tax are mainly determined by exemption limits. Members will not see comments in the financial or ordinary press about exemption limits because newspapers do not usually represent the interests of those who write or commentate for them or the people who are perceived to read them. However, there are large numbers of these people and they should have a voice.
The general basic tax free allowance was increased by £250 this year from £3,150 to £3,400. However, when the exemption limits for those on low incomes are considered, the increase in the allowance was a measly £100 from £3,900 to £4,000. If we consider the case of pensioners over 65 years of age, their basic personal tax free allowance was increased from £3,350 to £3,800, which includes a personal allowance of £3,400 and an age allowance of £400. However, when the exemption limits that apply to those over 65 years of age are taken into account, unlike those whose incomes are above the exemption limits the limit was increased by £100, from £4,500 to £4,600. For those over 75 years of age, the exemption limit also increased by £100 from £5,100 to £5,200. I apologise for quoting so many figures but, in simple terms, the increase in the exemption limit for those over 75 years of age was 1.9 per cent. Why was this group the most disadvantaged by the budget? Why was it completely forgotten?
It is amazing that, for a person under 65 years of age, the difference between the basic fundamental allowance of £3,400 and the exemption limit of £4,000 is £600. However, if they receive a PAYE allowance the amount is zero. Is there a recognition of the need to completely remove people on low pay from the system? Does the Government realise that those whose incomes are in excess of those measly thresholds are dragged back into the full tax regime because they are obliged to pay 40 per cent on their taxable income? Whereas the Government reduced the low rate of tax from 27 per cent to 26 per cent, it could do nothing to spread the burden for those whose incomes barely rise above these rather low exemption limits.
I cannot understand why the exemption limits and the marginal tax rate are not pitched at approximately 10 per cent above the basic rate so that there would be a slow tapering in rather than people coming up against a stone wall at 40 per cent. People on very large salaries complain about paying 48 per cent tax, but surely those on the lowest salaries have a legitimate case in stating that 40 per cent is too much for them to pay.
Another issue which must be taken into account is that social welfare pensions are taxable. At £75 per week, these amount to £3,900 per year. If the basic exemption limit is £4,600, a person receiving an occupational pension in excess of £700 per year will enter the various tax brackets. Many old people find it a major burden to deal with the small amount of paperwork involved. The amount of time and effort wasted does not justify their collecting this money in the first instance. As stated on previous occasions, I cannot understand why single people earning less than £100 or married people earning less than £200 are obliged to pay tax. Many schemes and systems could be brought to an end if people were allowed to keep what they earn without paying tax.
If a person's income is over the exemption limit or they are operating on the exemption scheme, they are allowed mortgage relief but they are not allowed relief in respect of payments to the VHI, etc. One of the extraordinary things in this regard is that relatively few pensioners pay mortgages because financial institutions will not lend them money if it is likely that they will be making repayments on reaching 65 years of age. On the other hand, many people who are employed for the entirety of their working careers and receive a substantially reduced income at pension age continue to make payments to the VHI because it is the only protection they have in the event of illness. If their incomes have decreased to a level where they must avail of the exemption limit, they discover they are not entitled to VHI relief. That is extraordinary.
Another issue which must be tackled is whether social welfare payments are taxable. If the Government agreed with my argument that people whose incomes fall below a basic threshold should not pay tax, a uniform system could be operated and a decision could be made regarding whether to tax social welfare payments. As far as I am concerned, the simple option is to provide a large basic threshold and make social welfare payments taxable, with the exception of child benefit. The system currently in place is neither here nor there. Unemployment assistance and disability allowance are not taxable or assessable for tax. Unemployment benefit and disability benefit are 50 per cent taxable.
The Deputy's party introduced that system when in Government.
When on that side of the House I stated that, as far as I was concerned——
The Deputy accepted it and voted in favour of its introduction.
Exactly, on the basis that the basic threshold would be increased. Exemption limits were increasing at that time but, under the current Government, movement in this area has slowed down. Every pension and lone parent's allowance is completely taxable. Will someone explain the logic behind this?
Most people like to be able to check their own tax affairs. However, I doubt that between 30 and 40 Members could decide what is and is not taxable under the finance code as it relates to social welfare. They might not be able to state the correct answers because in certain cases £10 of the amount people receive is not taxable. In addition, their child dependant allowance is not taxable. However, other benefits are either taxable in respect of child dependant allowance or not taxable at all. This creates confusion and people cannot double check if their tax affairs are correct. I know a person who paid an accountant to deal with the complexity involved yet who ended up paying more tax than he should have because he did not clarify the nature of the social welfare payment he was receiving.
The scrappage scheme for cars has an urban orientation and favours those with higher incomes who can afford to buy a new car. It does not deal with the problem of cars being abandoned in rural areas and ending up as hen houses. The scheme was amended but it now favours two car families who can now trade in the older of the two cars for new car. However, no incentive is given to the person who has an old car and can only afford to replace it with a secondhand car. No assistance is given to get those cars off the road.
Since the inception of the scheme I have favoured a universal lower payment for anybody who hands over a car of ten or more years old and the registration book. The scheme should be universal and should not discriminate against those who cannot afford a new car or those in rural areas. In rural areas, particularly given the condition of the roads, people need bigger cars. However, most people would regard it as foolish to buy a new car even if they could afford it. The idea of pulling a trailer with a bullock in it with an 800 cc or 1,000 cc car is so far fetched as to be unrealistic. In the area of the country in which I live such a car would not last six months given the condition of the roads. The scheme is wrongly based and does not give encouragement to people to ensure that no further cars disfigure the countryside and that when cars are no longer useful they are delivered to the local scrapyard.
My colleague referred to the seaside resorts scheme. The answer I received from the Minister for Finance when I asked why Clifden had not been included in the scheme still rankles. He told me it was a booming town. Other towns, such as Youghal and Westport, which have fewer problems of dereliction, or Salthill, which is on the edge of Galway city with a population of 90,000 people, are included in the scheme — although I am glad Salthill was included. However, the one town in Connemara which urgently needs a face-lift and whose centre needs major development was excluded. Clifden's geographic location 50 miles from Galway makes it one of the most isolated towns in the country. However, for reasons I cannot understand it has been passed over for inclusion in the scheme. I ask the Minister to reconsider the position of Clifden. The town should not be penalised for the great efforts it is making on its own behalf.
I listened to the Minister's speech and with great interest to the contribution from Deputy McCreevy. He always makes interesting and often provocative points. He stated, as ever, that he is in favour of good management of the economy and put that forward as his party's policy, as one would expect given that he is the party's spokesman on finance. He made the point that the Government is hostage to every interest group at present.
The Leader of the Opposition visited my constituency last year. He was brought to each area where there was a problem with a school, a blocked drain or a community hall needed. At the end of Deputy Bertie Ahern's visit to County Roscommon I estimated that while away from the glare of the Dublin media he gave about £30 million worth of commitments to various communities. In each area he visited where there was a problem he had no difficulty in giving millions of pounds worth of commitments. He moved on to County Longford and I estimate he made commitments of the order of £20 million.
It was particularly galling to hear Deputy Ahern some time later make a speech in the House in a classic fiscal rectitude vein. He upbraided the Government for excesses in public spending and exceeding the borrowing and spending limits in the financial year. One cannot have it both ways.
Deputy Michael McDowell adopted a similar line with regard to water rates. His views were interesting in the light of the volte face of the Progressive Democrats on the issue. Less than a week ago the Leader of that party appeared on “Morning Ireland” and was asked to comment on the results of an opinion poll. Deputy Harney was not pleased with the results of the opinion poll and launched into a tirade on water rates. She blurted out things she did not intend to say and hung her party out to dry. Since then she has been trying to retrieve the situation.
I submit that 75 per cent of the people agree with the abolition of water rates. They see water rates as an inequitable tax, not related to consumption. I acknowledge that it was a Government led by my party which introduced water rates in the mid-1980s and the form in which they were introduced and implemented was a mistake. When the group water scheme representatives met the Progressive Democrats environment spokesperson, Deputy Molloy, he told them that his party would have no difficulty if in Government in providing £23 million or whatever it would take to solve their problem. Against that background, his party leader has said that water rates should be reintroduced. What hypocrisy. There is no support for such a policy. I imagine that in Deputy Harney's constituency 95 per cent of people disagree with her proposal.