Dáil Éireann díospóireacht -
Thursday, 4 Dec 1997

Vol. 484 No. 2

Financial Resolution No. 9: General (Resumed).

Debate resumed on the following motion:

THAT it is expedient to amend the law relating to inland revenue (including value-added tax and excise) and to make further provision in connection with finance.

(Minister for Education and Science)

Mr. J. Bruton

The people had two great expectations of yesterday's budget. First, they expected there would be a fair sharing of the wealth generated by an economy which has been growing very quickly in recent years. Second, they wanted a budget which would tackle some of the underlying structural problems we face so that the rate of growth would continue. They wanted to ensure that the growth we experienced over the past three to four years will continue for a similar period. I believe the budget has failed to meet these underlying expectations.

The best way of judging this budget is not in terms of how much money the Minister gave away, or had to give away, but the choices he made about dividing the money he proposed to distribute and the values underlying those choices. The budget represents a bad choice by the Minister in the way in which the money available was used. Over £500 million of income tax and PRSI changes were announced but they are not being distributed fairly. Those on high incomes will benefit significantly more than people on low and middle incomes. The Minister's budget tables show a worker on the average industrial wage gained only £7.50 per week. This is less than the amount gained by a similar worker in the budget introduced by the rainbow coalition. So, although the Minister has more money to give away, the person on the average income or below receives less per week in tax cuts than last year.

The reason for this is that this budget is skewed disproportionately in favour of those with above average incomes. The Government chose to invest £100 million in cutting the top rate of tax rather than widening the standard rate band and increasing the basic personal allowances, a fundamentally mistaken and unfair decision. I give the Government credit in that it promised before the general election to deliver an unfair budget which would give disproportionately more to those on higher incomes than on lower ones. To be fair to the Government, it has kept that promise. However, it was wrong in the first place to have a tax policy that concentrated on reducing tax rates and, therefore, gave disproportionately more to those on higher incomes than those on lower ones.

Why would any grouping of political parties set out to do something which was manifestly unfair and which gave more to those on higher incomes? Everyone agrees that all parties, including those in Government, have a sense of social concern, or they at least seek to demonstrate it in words. The reason was that this budget was driven not by a desire to achieve social justice but by the needs of marketing. It is easier to market the concept of a reduction in tax rates because little has to be explained. Two pence in the pound speaks for itself. On the other hand, it requires an effort to explain that an increase in personal allowances and a widening of the tax band benefits those on lower incomes more than a reduction in the top rate of tax. The Government was not prepared to make the effort of explaining that a better tax policy would be to increase tax free allowances and widen tax bands. It was a form of intellectual and political laziness on the part of the Government, a willingness to pursue the easy marketing approach of concentrating on tax rates rather than the more difficult, in marketing terms but much fairer in political terms, approach of increasing tax free allowances and widening tax bands.

The Government concentrated £100 million on reducing the top tax rate but the problem in tax policy is not the top rate, it is that too many people reach the top rate of tax at too low an income. Before the budget was introduced a single person earning just £13,700 per annum started paying tax at the top rate and, despite the hype prior to it and the fact that the Minister had £517 million available for tax cuts, a single person will now reach the top tax rate at £14,050, a tiny change in the income level at which one reaches the top rate. The choices the Government made mean the average earner gains £7.50 per week while an individual earning £50,000 per year gains £20 per week. It was not necessary and some will ask what difference does it make — it is only a matter of pounds here or there; it is only one budget and if there is unfairness, it can be rectified in the next one.

We must not look at one budget but the impact of the pursuit of the Government's policy over a five year period as against what would be the outcome of the pursuit of the rainbow Government's tax policy over the same period. If one takes the Government's policy of reducing tax rates and leaving tax free bands and allowances more or less alone over a five year period and compare that with the impact of increasing allowances and widening bands which would have been our policy, the difference between both over five years is radical. Fianna Fáil and the Progressive Democrats Party's policy of concentrating on reducing rates of tax is fundamentally and radically more unfair than that of the rainbow Government. Over a series of budgets the effect of the Government's tax policy, if it were to survive, would be to radically widen the difference between rich and poor. That is an extremely wrong option for the country to choose.

I give Fianna Fáil and the Progressive Democrats Party credit for fulfilling their tax promises. Before the election they promised an unfair tax policy and they are delivering it. They deserve credit for that degree of consistency but that does not make the policy right.

Mr. Quinn

They may deserve credit but not admiration.

Mr. J. Bruton

The policy is wrong and the minority of people who voted for both parties and their policy will realise it is wrong.

It is not consistent with the proclaimed values of Fianna Fáil. It is a party going back to the 1930s and before which prided itself in looking after the small man and it criticised the comfortable attitudes that perhaps were demonstrated by its political opponents at that time, among whom would be ranked some of my political forebears. Fianna Fáil made much of the fact it was speaking for the small man. The roles have been reversed now as Fianna Fáil and the Progressive Democrats Party stand for the big man and woman in terms of their importance and big incomes because they are the ones who will benefit.

The Taoiseach is a man with good political antennae and he should not be confused by the fact that he will receive a great deal of praise from commentators. He should remember that they consciously or unconsciously have a sense of what is in their interest and most of them are comparatively better off than the average person in society. Those who get themselves into the position of being called upon to comment on a budget as experts earn above average incomes, generally speaking. They earn more than £13,500 per year and, therefore, comment over the next three or four days will not necessarily represent what people think. If the Taoiseach's policy of reducing tax rates was such a good one, why is it that Fianna Fáil had its second worst result in history at the last general election and why is it that the Progressive Democrats Party, which was particularly associated with the policy of reducing tax rates, virtually disappeared after it? The public did not endorse the taxation policies, which do not represent the core traditional values of Fianna Fáil, being introduced in the budget.

The Minister of State with special responsibility for people with disabilities, Deputy Wallace, is doing a good job in regard to looking after a particularly important section of the comparatively underprivileged in society. Her activities are consistent with the values of her party, values which my party espouses also. They are consistent with social justice but the tax policy of her party is not. It does not sit easily with the priorities her Department seeks to promote because it gives more to those who have and less to those who have not.

The Taoiseach

They received £24 million yesterday.

Mr. J. Bruton

That is not consistent with the traditional Fianna Fáil approach. It is not my task to be the guardian of Fianna Fáil's conscience and I am sure it will not pay that much attention to any advice I offer.

The Taoiseach

The Deputy can help us.

Mrs. Owen

That is difficult enough.

Mr. J. Bruton

The advice I have given is good.

The Taoiseach and his party failed to take it before the general election when they did not have to choose this mistaken policy which benefits the rich, but they did so in order to guarantee the support of the Progressive Democrats Party. They got into Government on the strength of that and delivered on it, but it is wrong and is a political mistake. It is also an economic mistake.

The second objective of the budget is to ensure the boom we are enjoying is maintained, the first one being that the fruits of the boom are distributed fairly and they have not been as I demonstrated. There are a number of aspects of the budget which are unwise from the point of view of sustaining the economic boom. The big threat is a growth in inflation and the choices made by the Government in this respect are unwise. A 6 to 7 per cent increase in public spending at a time when private spending is increasing at 14 per cent per year and interest rates reducing will increase demand in the economy. One might say there is nothing wrong with that, that the more people have to spend the better, but that very much depends on how they spend it. More spending in the shops is not inflationary, because if there is an increased demand for goods, those goods can be supplied. The fact that more people want to buy toys for their children, or more food or any of the other consumer goods does not increase the price.

If the Government had reduced the tax burden on the lower paid, that would have had the effect of fuelling consumer demand which would not be particularly inflationary. Instead the Government has specifically reduced the tax burden on those who are highly paid. However, people in that category, when they get extra money, do not need to buy more toys for their children, and they can only eat three meals a day, so they do not spend more in the shops. They buy a bigger house or, if they are particularly well off, a farm in the country, and become country gentlemen rather than city gentlemen.

Deputy Wallace will be aware that this is happening in our constituency where most land is not being bought by farmers to farm but by people who want the status of owning land. More power to them, but that only increases the price of an asset, the supply of which is not being increased. In other words, it adds to inflation. Likewise many people who are well off will think of trading up in terms of housing when they get the tax cuts. They will buy a bigger house in a more salubrious neighbourhood. As there is a pretty fixed supply of salubrious neighbourhoods in which to buy houses the effect of skewing the tax policy towards the better off is to artificially ensure that there will be extra spending on increases in asset prices rather than an increase in the supply of goods.

The fact that house prices double does not create an extra job, but a 50 per cent increase in consumer spending would create extra jobs. By reducing the tax burden on the better off rather than on the low-paid the Government is going for an artificially inflationary tax policy, because the better off will spend on assets which will contribute to inflation, whereas the less well off would spend on goods which would not contribute to inflation. That is a fundamental economic mistake underlying this tax policy, leaving aside social and political considerations to which I referred earlier.

The effect of this tax policy will be to drive house prices further upwards and to price those on average incomes out of the housing market. That is a growing social concern, and the biggest danger to social partnership at present. Trade union leaders, more than anyone else, have been responsible for the prosperity we now enjoy. The people responsible for the prosperity are not in this House, or even among the former Members of this House. I give credit, as I have done privately and publicly, to Ray MacSharry for being an excellent Minister for Finance, but I would not give him the first rank of credit for the achievements of the boom; nor would I attribute it to myself as the person who drafted Ray MacSharry's first budget. The person concerned is the Secretary General of the Irish Congress of Trade Unions, Mr. Peter Cassells. It was his vision that pay restraint by employees would pay off in the long run, and that helping the Government of the 1980s to overcome its problem with debt would ultimately lead to a big increase in confidence and demand in our economy when the debt problem was overcome. It was the vision of Peter Cassells and other trade union leaders who pioneered the concept of social partnership with the Government that kept wage increases well below the average in other countries — wage increases were half those applying in continental Europe for most of the period from 1987 onwards. That policy of wage restraint delivered all the extra jobs we have today. It was an inspired and inspiring decision by people who were looking to the long-term rather than the short-term interests of their members.

Social partnership will be under strain in the next two years. One of the things that will put it under strain will be increased house prices. That inflation in house prices is being contributed to by the tax policy of the Government which puts so much emphasis on reductions in income tax for those on higher incomes who are the people bidding up the price of houses. It is also being contributed to by the failure of the Government to take adequate measures to increase the supply of land for housing and of housing generally and to free up the second-hand housing market by reductions in stamp duty on the sale of second-hand houses. Decisions like that would have had the effect of turning over our housing stock more quickly and of getting people living in houses bigger than they need to sell them.

A long-term policy of increasing the supply of housing would have been one of the most effective things the Government could have done to reduce the risk of the bubble bursting as a result of inflation in house prices and the trade unions no longer being willing to accept wage restraint. I can see a situation where trade union shop stewards will have extreme difficulty in persuading their members not to look for disproportionate increases. Many of their members will be saying, for example, that they are getting married, that they want to buy a house but cannot get a mortgage for the sort of house they need at their present level of income because the Central Bank, quite prudently, says that building societies must maintain a certain relationship between incomes and loans. The effect of that will be demands for pay increases far beyond the rate of increase of prosperity in the country. The failure to tackle the underlying problem of house prices in this budget is probably the most important vulnerability in the budget as far as the long-term sustenance of the boom is concerned.

I have given credit to the Government for keeping its mistaken and unfair promises on tax. Sometimes it is said it would be better if, after elections, politicians forgot the promises they made beforehand. That is true on this occasion. If the Government had forgotten its tax promises and adopted the tax policy of the previous Government, the country would be a lot better off. From a narrow political point of view, I am glad the Government did not take over our tax policy, but from a national point of view it is a mistake that it did not.

The Government promised in its programme that it would limit net current spending to 4 per cent each year which is equivalent to 2 per cent growth in real terms. The Minister for Finance proposes an increase in public spending of 7.5 per cent which is well above that stated in the Government's programme. As Deputy Noonan pointed out here yesterday, it was difficult to discern from his contributions his underlying political philosophy other than that he believed spending should be kept under control. He has not succeeded in doing that. The only area where there was any reduction was in the Estimates in agriculture, and he had to reverse himself on that in the budget. Every other spending Minister succeeded in influencing the Minister for Finance. From the point of view of Government Deputies, it will make their life a little bit easier for the next few months.

It is almost an election budget. It is the sort of budget one would expect from a Government that did not think its life was going to be particularly long, that was not thinking of the following years but just of the next 12 months, and went for easy presentation. It is incongruous that a Government should introduce an election budget after an election. An election budget is usually introduced before an election. However, in this case it has been introduced after the election. The budget has all the mistakes and inequities of short-term thinking inherent in it.

I will focus on the aspects on the social side of the budget which show lack of wisdom on the part of the Government. The first is the mean increase of 35p per week in child benefit. This increase will enable a parent to buy one extra bar of chocolate per week for his or her child. I do not necessarily recommend that money should be spent in buying chocolate for children but it illustrates what this increase amounts to. How mean can one get? All the studies show that the greatest concentration of poverty is in families with a significant number of children. Yet there is no increase in the child dependant allowance. The only increase given to children is 35p per week. Parents will have to wait until September to receive this increase, while single and married people earning good incomes will receive their benefits almost immediately. This is a mistake and a reversal of the policy of the Rainbow Government which concentrated on increasing child benefit by one-third.

The Tánaiste said the Government has given the biggest increase ever in old age pensions. In case the Leas-Cheann Comhairle repeats this at a meeting in Carrickmacross I point out that this is not the case. The biggest increase ever in old age pensions, 25 per cent, was given by me in 1982. This was done against the background of an inflation rate of 14 per cent. The 11 per cent increase given by me was the biggest increase ever in old age pensions and I am surprised the Tánaiste, who voted against that budget, forgot this point.

Mrs. Owen

It suited her to forget.

Mr. Quinn

It is not the only fact she has forgotten.

Mr. J. Bruton

This sort of inaccuracy should not be repeated. When Ray MacSharry took over from me as Minister he basically introduced my budget which gave a similar increase.

This increase is also inequitable. While a single old age pensioner is being given an increase of £5, the spouse of an old age pensioner will only receive an increase of £1.50 per week. Is there that much difference between what it costs to keep a 64 year old person who is married to an old age pensioner and what it costs to keep a 66 year old person? Why is an old age pensioner being given an increase of £5 while his or her spouse is only being given an increase of £1.50? The reason for this is the same as the reason the Government reduced tax rates instead of increasing allowances.

An increase of £5 per week sounds good, in the same way as a 2p reduction in the top rate of tax sounds good. However, the budget was designed from a marketing point of view rather than a long-term planning point of view. This is why I suspect it is either consciously or unconsciously an election budget. If the Government believes it has to take out insurance against an election in every budget the sooner it calls the election the better. The country cannot afford election budgets every year. It is a great tribute to the political strength of Deputy Blaney and others that they made the Government so afraid of a general election that it introduced this budget. Alternatively, it is a great tribute to the importance of the electorate of East Limerick and North Dublin that the Government felt it had to introduce an election budget for a by-election. In any event unwise decisions have been taken by the Government.

The Minister for Finance decided to adopt a careful approach to the introduction of tax relief on child care. While this will be criticised by many, the Minister is correct. It is not right to discriminate between child care given by a parent on an unpaid basis at home and child care which is paid for and provided by a third party. There should be tax equity between all forms of child care. It is not correct that paid child care should benefit from tax relief if unpaid child care does not also benefit from it. The tax code should not interfere to the extent that it is more attractive for a parent to go out to work so that he or she qualifies for tax relief on child care.

I am not saying the Government should artificially introduce a tax allowance to make it more attractive for a parent to stay at home than go out to work, but the tax code should at least be neutral. It should be a matter for a couple to decide whether one of them will stay at home to look after their children. There should not be an intervention in the tax code which says that people who go out to work and pay someone to look after their children will receive tax relief while those who stay at home to look after their children will not receive tax relief. If the Government proposes giving tax relief for child care it will have to be designed in such a way that a value is put on the unpaid child care provided by the mother or father at home. Otherwise, it will do something which is not in the long-term interests of society.

This is the trend in other European countries. The European Commission proposed that a target should be set to increase the rate of participation in the workforce to 70 per cent. However, it completely ignored the unpaid work done by people at home: because it is not paid for it is not work and, therefore, should not be measured or taken into account. The unpaid care provided by a spouse or partner at home is probably more important than that done by people who go out to work in terms of its effect on the next generation. Many people do not have this choice for financial reasons. I am not making a value judgment which is critical of any choice made by a person. However, the Government should not artificially weigh the choice against people who choose to stay at home so that we discriminate in favour of paid child care and against unpaid child care by family members. I hope the Taoiseach takes this point into account in tax policy. We should not forget the unpaid work carried out in any area of life, particularly unpaid child care.

I will return to the topic on which I crossed swords with the Taoiseach last night. It is a busy day for him and I thank him for staying to listen to my contribution. I am also glad the Minister of State, Deputy Wallace, is present. I said last night I could not understand why virtually all the counties which surround my county will receive tax relief for hotel building while counties Meath, Louth and Westmeath will not receive tax relief for this purpose. One might say it does not matter that Cavan, Monaghan, Leitrim, Donegal, Mayo and Sligo will get relief, that it will make no difference to other counties, but it will, particularly to neighbouring counties. In the case of Meath there is great need for hotel building to cope with tourist demands, for example, visitors to some of the attractions into which the Government has put money, such as Trim Castle, the interpretative centre on the Boyne and so on. Much money has been spent in that area, but there will be a full return only if hotels are built in the county to accommodate bus tours and so on.

If a hotelier has money to spend and realises that if he builds in county A he will get tax relief whereas if he builds in county B he will not, the likelihood is that where previously he might have been willing to build in county B on commercial grounds, the tax relief will encourage him to build in county A. People will look at the bottom line, and if a tax allowance is given to one county, investment will not be made in the other. Rather than selecting counties, the Government should have established certain criteria for qualification for tax relief. An assessment should have been carried out of the number of hotel beds per 100,000 people in a given area and the number of tourists to that area to establish areas where there is a lack of symmetry between availability of hotel beds and demand. An analysis should be made to establish whether demand will be met by normal commercial investment or whether an extra boost is needed.

If such an assessment had been carried out people could accept the decision to exclude some counties. In deciding which counties to include, the Government looked at the Border counties, which already receive assistance for hotel building that is not available in other counties, and provided an extra relief for them. The problem is that a hotel will be built in Kingscourt instead of Navan, for example. I have no objection to the building of a hotel in Kingscourt rather than Navan if that is the right thing to do, but if the demand is in Navan, Slane, or elsewhere in Meath, why should relief not be granted for that? Why should a person have to go ten or 15 miles up the road to build a hotel simply because the Government decided to provide tax relief for that county?

Mr. Quinn

Meath does not have a Sinn Féin Deputy.

Mr. J. Bruton

Neither does Sligo-Leitrim, nor Donegal.

Mr. Quinn

I am not sure about that.

Mr. J. Bruton

There are three Fine Gael Deputies in Mayo. Obviously Deputy Naughten has more influence in Roscommon than Deputy Belton, or perhaps it has something to do with Deputy Albert Reynolds who has disappeared. Perhaps Longford is being punished.

The Taoiseach

The Longford Arms is an excellent hotel.

Mr. J. Bruton

There are two hotels in Longford, the Annaly, which is our hotel, and the Longford Arms, which is Fianna Fáil's hotel. I am a loyal supporter of the Annaly and during every election campaign I am filmed walking through the very narrow corridor of that hotel. I have an ambition to see the Annaly Hotel developed. I do not understand why Longford has been excluded. I wonder is there political vengeance involved.

An Leas-Cheann Comhairle

The Deputy has one minute remaining.

Mr. J. Bruton

I appreciate the gentle way in which you interrupted me, in view of my argument about Carrickmacross. Why is tax relief not provided for the building of a hotel in Meathill as in Magheracloone? What is the difference between those two areas that determines that a tax incentive is given for the building of a hotel in Magheracloone while not in Meathill, Barleyhill, Carrickleck or other such places that are dear to Deputy Farrelly — they are in his part of the county. I hesitate to mention those places——

Mr. Farrelly

The Deputy does not always mention them.

Mr. J. Bruton

Will the Taoiseach consider this matter between now and the introduction of the Finance Bill to see if a fairer system can be devised? Perhaps he will consider the need for hotel accommodation development in west Wicklow. Why should Wicklow and other counties be excluded from the tax incentive?

Mr. Quinn

I am one of a diminishing number of Deputies remaining in the House who sat through the budget speech of the late George Colley as Minister for Finance in January 1978. To a rapturous reception, the contents of the Fianna Fáil manifesto of 1977 were implemented. As has often been remarked since, that was a great party, and we spent about 15 years paying for it. It is extraordinary the Minister for Finance, Deputy McCreevy, and the Tánaiste, Deputy Harney, spent most of their subsequent political careers denouncing the profligate nature of that manifesto, only to come back to the House and repeat that economic madness.

The circumstances today are uncannily similar to those in 1977. This year, as in 1977, a good and prudent Government handed over office with an economy in excellent shape and starting to boom — in the recent case the boom was well under way. Instead of nurturing the economy, the Lynch Government felt impelled to deliver on its extraordinary promises, and the rest is history. Within a short time the economy overheated and crashed viciously, with the weak, poor and most vulnerable bearing the burden of recovery.

The 1998 budget threatens to repeat that serious tragedy. I support the comments made by Deputy Bruton, particularly his reference to the bubble in the housing market. Let us consider the facts. The legacy bequeathed in June 1997, by the Government of which Deputy Bruton was Taoiseach, to my successor, Deputy McCreevy, gave him many choices. The prudent management of the national finances by the rainbow coalition meant that Deputy McCreevy found himself with a windfall of approximately £1 billion in tax revenue this year over and above the projected target at budget time last January. Instead of a deficit of 1.6 per cent, the national finances were heading into surplus and all the economic and social indicators were positive. The Minister faced a term of office with a new national programme, Partnership 2000, where the social partners had agreed with the Government a broad strategy for a form of economic development which would share the benefits among all sections of society. Instead of having to implement the commitments of Partnership 2000 over three years or more, the Government could have made substantial progress this year and still have room for a large surplus.

There is, however, a complete change of direction. The fruits of the boom are given out selectively. The more you make, the more you get. That is the message. The result will please the best off in our community, but as reality gradually dawns on the majority of people, I sadly predict, deep disillusionment will set in. I will not repeat the figures for different earners, they have been well documented and presented in the past 24 hours, but one does not need a calculator to quickly figure out that payback time has arrived for the rich while the low paid, at best, simply mark time. A golden opportunity to create equity and equality within the tax code has been lost. The chance to help the low paid feel they are rewarded for work rather than staying on welfare has been spurned. I think it was the late Donogh O'Malley who referred to the Fianna Fáil Party as the party that represented people with open neck shirts. We are now in Louis Copeland's time and we have a different type of constituency that can afford to dress comfortably with the unnecessary largesse which has been showered on the wealthy backers of the Fianna Fáil Party.

The budget is a disgrace, a serious socially divisive instrument that will divide society in ways we have yet to measure.

Mr. J. Bruton

That is correct.

Mr. Quinn

It gets worse. Unearned income — a capital gain — is to be specially rewarded. So much for the work ethic. Disposal of property or shares is to be taxed at half the current rate, a mere 20 per cent. Capital gains tax should work hand in hand with income tax. In any other European country the marginal rate of capital gains tax reflects closely the marginal rate of income tax. This will no longer be the position here. The budget sends out a message that people should switch from work and enterprise, for which they will pay 46 per cent at the margin, to trading and dealing in property, for which they will pay a mere 20 per cent in tax and no PRSI or levies.

Mr. J. Bruton

Reaganomics.

Mr. Quinn

We need to change this philosophy if Ireland is to become a country of full employment and enterprise. In contrast, this dealing, trading Fianna Fail-Progressive Democrats Government has put the clock back and is sending us in the direction of traders and hucksters instead of promoting wealth, enterprise or employment. It is a scandalous anti-labour budget, the full philosophical tenets of which will slowly but surely become apparent to the public.

The budget is also crazy in the short term. The 20 per cent capital gains tax rate sends a signal to investors to intensify the purchase of property where the greatest gain can be maximised. This will cause further asset fluctuation and drive out the ordinary house buyer. In turn, we are storing up trouble for ourselves at a later stage by preventing the owner occupation of housing.

The Government's action in this area is astounding. Five months after coming into office it appointed a group of consultants to advise it on the problems associated with the housing market. What are the experts in the Custom House doing? Is there such a lack of expertise in the Department of Finance, the local authorities and the construction section of the Department of the Environment that after five months the Government must hire a group of consultants who will simply tell it what its professional civil servants could tell it today. In the meantime, as a result of the budget, the constituents of the Minister of State, Deputy Wallace, will not be able to buy houses in the townlands in which they grew up because of rich people from Dublin buying up land and property around them. This will be repeated in every so-called rural county on the periphery of a large urban area.

Mr. J. Bruton

It is happening already.

Mr. Quinn

It is scandalous, stupid, brazen and unnecessary.

The trend in public spending is also deeply worrying. We have already exposed what I am sure parliamentary language will allow me to describe as a fiddle in current expenditure, resulting from the massive switching of moneys from next year to this year which helped the Minister pretend he has kept his election promises. Neither I, as the former Minister for Finance, nor Deputy Bruton, as Taoiseach, were responsible for the outrageous outturn in the l997 figures. When examining our performance last year in terms of the estimate for public expenditure and the final outturn, future historians will conclude that the incoming Fianna Fail-Progressive Democrats minority Government were left a legacy of massive overspend. That is not so. Massive amounts of money due to be spent next year were brought forward to this year's figures.

I do not know if the Minister of State is aware of one particularly outrageous fiddle. It is conventional that school teachers are paid by the Department on the fifth day of the month following the month which they worked. Therefore, on 5 January this year a pay bill of approximately £33 million would have been paid to teachers by the Department of Education. That pay date for this year alone has been brought forward to the end of December, l997 and, hey presto, the magical accountant, the Minister Deputy McCreevy claims he has made a saving of £33 million for l998 and that there was an increase in expenditure for l997 of the same figure. He claims he has lowered his rates for l998 and can tell accountancy lies which would have him debarred from practising as a professional accountant if he were to publish such accounts on behalf of clients. He certainly would be severely sanctioned by his institute and the accounts in question would have to be so qualified that the Revenue Commissioners or stock investors would examine them seriously. That is only one fiddle. There has been a symphony of fiddles in the expenditure figures.

When we attempted last year to make provision for £60 million for hepatitis C payments before the end of l996 to show good faith to the women who had been damaged by the negligence of the Blood Transfusion Services Board, the former Deputy McDowell and the now Minister, Deputy McCreevy, were apoplectic and incensed. I accept it helped our figures. Deputy McDowell suggested that on mature reflection, I would be obliged to resign. Yet, a symphony of fiddles characterises this Book of Estimates. If Members do not consider my word as being objective, they should read Moore McDowell's — the older and perhaps wiser brother of Michael — analysis on this matter in today's Irish Independent.

Public spending must be examined seriously. The Labour Party is not against increased public spending or against providing resources for necessary services. However, we are certainly against the loss of control in public finances so that massive increases in public spending do not result in improved services. It is obvious that every additional penny going into the health service will fund the pay roll and not reduce waiting lists or improve the quality of service for patients. The Leas-Cheann Comhairle is a professional medic in his own right and knows, perhaps more acutely than most, that virtually 80 per cent of moneys that go into the health services go towards salaries and not on the improvement of services. We are told that more money is being spent, but services are not being improved.

It is obvious that after less than five months the Taoiseach, who is a former Minister for Finance and Labour and prides himself as an expert in human resource management — the new and more fancy title for industrial relations — and the Minister Deputy McCreevy have given up on the strategic management initiative. They have walked away from the only way we can reconcile improved quality of services, pay and conditions for people in the public service and efficiency for the public at large. We simply must reform the way we run our public administration, both in the civil service and in the wider public service.

We did not hear much from the Minister about anything because of his much vaunted button lip policy. The Minister for Finance is also responsible for the public service. There is a division within his Department responsible for that sector. I have not heard a word from him or the Taoiseach to try to persuade over 250,000 people working in the public service of the need to improve, develop and modernise the manner in which that service operates. These workers would be the beneficiaries of such an improvement. If this reform was taken seriously by the Government, their job satisfaction, personal fulfilment, working relations with colleagues and relationship with the wider public would be transformed for the better as would their pay and working conditions. However, there is no evidence that the Government is willing to do so.

The Minister's failure to reform the public service and implement the SMI will come back to haunt him in 1999. The no policy change position shows another 6 per cent growth in public current spending that year, largely driven by the pay bill. The Government will have no room for any initiatives or new developments if it is to stick to its spending limits. It is obvious that it will not be able to stick to those limits because they are in excess of what they were proclaimed to be in the Fianna Fáil manifesto and the Estimates.

On the capital spending side, I was glad to see the Minister abandon his ridiculous target of a 5 per cent limit. There is a need for infrastructural development to remove the congestion described by the ESRI and others. We have to tackle the problems of prosperity. The traffic chaos in Dublin and other urban areas needs action, not more inquiries. The Minister is budgeting for a drop of £40 million in capital spend in 1999. Much of this is attributable to the way information technology capital is being spent in education. However, this leaves no room for Luas.

Somebody in the Government will have to come clean very soon and proclaim the death of Luas. Someone will have to say it is over, we will not get the money from the EU as we cannot get the project together in time. Someone will have to admit that instructions were given to the Department of the Environment and Local Government, which, in turn, telephoned South Dublin County Council and asked it to have the tender documents ready for the Dundrum bypass because the money is not going to be spent on Luas. Someone will have to tell commuters that an opportunity to introduce a light rail system in Dublin, where approximately one-third of the population lives, has been deliberately and wilfully sabotaged by Deputy O'Rourke's further inquiry into the underground option. It is spurious and misleading to suggest that the underground option was not looked at. Ray Byrne or any of those associated with Luas will confirm that it was looked at in the early stages. The six month delay is the death-knell of Luas. The Minister and the Government know this and it is buried in these figures. Luas is over because of the decision of this Government and the death notice is submerged in the myriad detail in the budget and the Book of Estimates.

Ireland is about to embark on the important but hazardous entry into economic and monetary union. The Government has signed up for the stability and growth pact. In a worse case scenario, under that pact we can run a budget deficit of no more than 3 per cent. This dictates that, at this high point in the cycle, we should be generating substantial surpluses. The discipline associated with the stability and growth pact has not been properly analysed or debated. We should be generating substantial surpluses. The Government could do so with the money available. However, it has chosen not to do so. Instead it is unashamedly rewarding the rich. If one does not believe my words then look at the headline on the front page of the budget supplement of The Irish Times—“Better-paid benefit most from £517m. ‘tax give-away’ Budget”. This is criminal irresponsibility reminiscent of 1977. Fianna Fáil has learnt nothing in 20 years. It is outrageous because it is the poor and the weak who will have to pay when the party comes to an end.

We are in a different situation from that in 1977. We are entering monetary union within the next 12 months. By May 1998 we will know which other countries will join us on this new and hazardous journey. It is a necessary journey but it involves uncertainty because it has never been tried before. Therefore, like any prudent traveller, we should take precautions. We should make sure that we understand the nature of the hazard and that we have additional resources to provide for the unforeseen. There will be unforeseen problems. Are we doing so? Is there a debate taking place? Citizens are getting a buttoned lip instead of a serious dialogue for fear that a wrong word might send a tremor through the markets and cause some difficulty. There is an obligation on the Government to inform and involve the citizens, be they elected representatives or the wider public. No such debate has been initiated, notwithstanding the excellent preparatory work undertaken within the Department of Finance and the social partners.

EMU is not the only potential hazard on the horizon. The so called Asian tiger success has begun to unravel. Today's newspapers carry a story that £37 billion has been made available to bail out Korea. The Japanese banks are technically insolvent. Japan has the resources to restore their solvency but at an enormous cost. However, we do not know the economic impact of such a correction on the rest of the world. Therefore, having regard to the discipline of the growth and stability pact and the possibility of our fortunes suffering an external shock over which we have no control, we should be able to respond with a budget surplus. Are we doing so? Not at all. The Government seems to think we can ignore the rest of the world as George Colley did in 1977 because no one predicted that the Iranian oil crisis would cause an economic catastrophe two years later which hammered our economy.

This budget is dangerously reckless. The goalposts have shifted. It is no longer good enough to balance the books. Financial markets expect more as will the European fora where Ireland will be judged in the single currency. Why are we gambling? We are testing our public finances with a further stimulus at a time of huge congestion and signs of overheating. This stimulus would be justifiable if it went to the weakest — the low paid and those caught between welfare and work. Effectively, these people are getting nothing.

I do not know if the Fianna Fáil backbenchers have analysed this budget. It is the most socially divisive budget in recent times. It is so anti-worker it is not true, yet a gloss has been put on it by self-interested commentators. No one should be fooled by its short-term popularity and favourable comments over the next few weeks. It is more than an anti-worker budget; it is an antifamily budget. There is nothing in it to compare with the child benefit increases introduced by the Rainbow Coalition. Every objective study shows that child benefit is a unique way of helping families to move in a work-friendly direction. The Minister of State, Deputy Mary Wallace, will know this. A gimmick that proposes helping families with multiple births by giving extra child benefit only exposes the paucity of the resources being given to the family in this budget. The amount, 35p next September, is unbelievable given that lawyers in the Four Courts cannot agree fees with Mr. Justice Flood. They are having their tax rate of 48 per cent reduced significantly. This unbelievable provision comes from the party that represents the men with open neck shirts.

We may never again get the opportunities presented in these years to assist social cohesion. The end of the debt crisis and years of economic growth will not always be with us. Sooner rather than later this extraordinary period of economic growth will abate and we will return to harder choices. This opportunity is now being missed. We are about to lose our Objective 1 status for Structural Funds if Monday's Financial Times is to be believed. There is no sign in this budget of preparation for the period of weaning off those funds and the CAP. We need a national debate on how we will plan our development without these moneys. We face a possible bubble in the short term, with tax cuts for the rich and sharp interest rate deductions in April which will rev up the economy. Later, if we survive, we face a sharp fall in incoming funds and the fiscal instruments we were used to, such as the ability to have a significant deficit to combat the recession.

This requires a well thought out, planned response, and there is no evidence of that anywhere in the budget. The Taoiseach is walking blindly into a future that has been well charted and signposted by previous administrations, some of which he participated in. It is an extraordinary capitulation to four Deputies who represent a greedy philosophy that is so alien to the traditional views of Fianna Fáil that it is astounding the Taoiseach has embraced it.

Mr. Stagg

Hear, hear.

Mr. Quinn

Deputy O'Donnell may smile, but her colleagues in the Law Library are also smiling because they will benefit immensely from this budget.

Ms O'Donnell

Deputy Quinn has plenty of colleagues in the Law Library.

Mr. Quinn

However, there will be no smiles in Tallaght for her party leader. Those people are not in work, cannot get into work and this budget's measures will not facilitate them getting work. When the boom finally comes to an end, as all booms must, there will be no resources to deal with problems because of the constraints we have signed up for. The White Paper on the Amsterdam Treaty is not being published until after Christmas because the Taoiseach feels it might get lost in the Christmas rush. We are not having a debate about where the country is going, the difficulties we will face or the unique opportunities now before us, which could have been consolidated in the budget. They are being frittered away instead.

Let us look at tax changes in relation to going to work and staying at work. Every time the Government has to choose between the rich and the poor, it chooses the rich. Every time it is a choice between helping someone get work or rewarding those already at work, particularly if they are better off, the Government chooses the better off. There was a choice between helping small companies to retain more of their profits because they are starved of capital by definition, and the big companies: the Government chose the big companies. Approximately 25,000 companies are reported as trading in the economy, and 13,000 report profits of under £100,000. Lorraine Sweeney and others have lobbied for the 28 per cent threshold to be moved to £100,000 or £200,000; instead, the level has been taken down from 36 per cent to 32 per cent. Do Fianna Fáil Deputies realise what they have done? They have given the biggest lottery prize in the history of the State to approximately 20 major companies. Banks, building societies if they are paying tax and large insurance companies will get the bulk of that tax reduction, and small companies, which need to retain as much of their profits as possible for reinvestment and capital acquisition, will get nothing like the same benefit. The rate has come down from 28 per cent to 25 per cent, but the amount has stayed fixed at £50,000.

There were two ways of reaching a figure of 12.5 per cent for integrated corporation tax by 2006. The thresholds could have been moved up and the rates brought down. However, a choice has been made in relation to bringing down the rates that will not enhance the capacity of Irish companies to hire more people or to retain their profits for investment. This Government has been faced with unprecedented wealth in its first budget, and at every turn it has chosen the rich over the poor and the greedy over the needy. It has spurned one large constituency which yields substantial votes and which, as Deputy Bruton said, is one of the key architects of our economy's success in the past ten years.

The Irish Congress of Trade Unions brought in the concept of social partnership based on the 1986 National Economic and Social Council report. Those were difficult times, but this was done with the courage and commitment of the two employers' organisations, the farming bodies and the then Government. Foreign commentators have beaten a path to Ireland to find out how we have turned the financial crisis of the 1980s into the unparalleled economic success of the past five years. Each has been told that it was the discipline of the social partnership that brought about pay restraint. This lead to modest increases in labour costs that improved competitiveness and productivity. That brought about real increases in take-home pay because of matching tax reductions and an increase of 200,000 people at work in over four years.

That is now being put at risk. The maverick vote received by a factory worker in SIPTU should not be dismissed as targeting the Liberty Hall leadership. There is an unease in the workforce that they are not sharing in the benefits of the Celtic tiger. For two thirds of those people who pay tax at the standard rate, the Government's cosmetic reduction of rates without increasing bands and allowances means they will not hear the roar of the Celtic tiger when they are paid in April and May.

What will they do then? They will look for increases. Mr. William Attley of SIPTU's threat of a special delegate conference should not be easily dismissed. I have disagreed with him on many occasions, but he has been uncannily close to the centre of political gravity when reading the mood of his own members. This Government prizes its special antennae for and sensitivity to the labour movement, and it should listen carefully to the architects of the Celtic tiger's success. The trade unions are now being copied by their colleagues in Britain and Europe. We could have done far more. We could have had more people back at work and rewarded the workhorses of the economy by concentrating tax reductions on the lower and middle paid.

The Government had a clear choice and was not devoid of advice or consultation. However, four Deputies held out until the last minute for cosmetic changes and got them, and the rich are richer at the end of this budget in a way they did not dream of. The last time Fianna Fáil implemented this kind of crazy nonsense the Taoiseach and Deputy Harney were members of the same party. It appears the homecoming has been completed and that to all intents and purposes Fianna Fáil has rejoined the ideology of 1977, which combines economic madness with political selfishness. When properly analysed, this will be seen as a time in our history when social justice was within our grasp, where the possibility of eliminating poverty for certain key sectors of our society was attainable and where we could consolidate the foundations of an economy that could take us safely into the next century in a socially cohesive way where we would not have ghettos of poverty leading to crime and lawless-ness. Instead we got an extraordinary budget.

A sum of £10 million is being allocated for people with disability and £20 million for Croke Park. I enjoy sport. Sport is wonderful for the country at large and I want to see a state of the art stadium here sooner rather than later.

I will tell the House something that is not known publicly. I made informal inquiries to the GAA a couple of years ago, having regard to the balance of the surplus moneys in the lottery, of which there is about £60 million. The deal was simple. Let us complete the Croke Park stadium, that wonderful edifice, with lottery money on condition that the park would be open to all sporting codes. The word that came back was that it was not possible to do that. It was unable to bring about a change in its rules. It might be possible some time in the future but not now. Has any undertaking been given by the Gaelic Athletic Association to revisit, consider or change its internal rules to allow other codes to be played in that wonderful stadium, the restoration of which we fully support? If not, I put it to the Taoiseach — through the Chair — that in that little vignette of a policy decision he has illustrated the social division and the unfair way in which the Government approached its first budget. This is a sad day and given that we are no longer a poor nation, an impoverished people, very poor people in our midst no longer need to be poor, hungry or abused, because for the first time we have the resources to address those needs. Instead the party of the men of the open neck shirts has chosen to reward the rich.

It is criminal and I am deeply and passionately angry at the way in which these decisions have been made, the con in the accountancy of the figures in the Estimates and the detailed choices that have been made which reveal a division, an attitude and a philosophy that should have no place in society. I commit myself to combating it at every twist and turn.

The Taoiseach

This is probably the most remarkable budget of modern times. The amount we have been able to do is a reflection of the huge economic progress we have achieved in the past ten years. It is a tribute to social partnership and to the collective restraint responsibly exercised by the people over many years, that this budget is possible. It is a recognition and a reward for effort, including the efforts of those now retired. It is also an incentive to continue along the same path. The budget underpins the sharply rising trend in employment and continuing high economic growth.

The budget is historic for many reasons. Its timing in late autumn is an important reform in budget procedures. For the first time in 50 years we will have returned to broad budget balance and we will no longer be adding more borrowing to the national debt. In my time in the House I did not believe I would ever see that. We are exercising the promised control of current expenditure by keeping its increase under 4 per cent. Greater generosity is shown to the elderly than in any recent budget. The broad tax and social commitments of Partnership 2000 over three years will have been delivered upon by the second year, thus keeping faith with the social partners.

Mr. Broughan

The figures have been massaged.

The Taoiseach

We have also kept faith with the electorate by delivering one third of the tax reliefs promised over five years. For the first time in a long time, these reliefs can be paid for without resort to additional borrowing, as defined by the EU. That is why the reliefs are larger this time. Tax on the business sector is being reduced so that we can maintain our competitive edge.

Both parties in Government — Fianna Fáil and the Progressive Democrats — are proud of their shared sponsorship of the budget, which is a balanced reflection of both our philosophies. The Minister for Finance, Deputy McCreevy, has also put his stamp of authority on the budget and deserves our warm congratulations on its overall shape and detail.

We have not been able to do all we would like. However, we have fulfilled at least half the items from the agreed list of priorities for our first budget issued on 4 June 1997. They were priorities, not absolute or immediate commitments. The important thing is that we have made a flying start. We need to continue on the path set out, so that over five years we can fulfil most of our commitments and more.

Next year we can look forward to economic growth of 7 per cent, following on nearly 8 per cent in 1997, for the fifth year in succession. The current phase of exceptionally high growth began in 1993-4 following a successful devaluation. Over the long term, growth since the dramatic and decisive economic turnaround in 1987 has been running at an average of 5 per cent per annum.

The current phase of strong growth started under the Fianna Fáil-Labour Coalition. I acknowledge the service of the Rainbow Coalition and especially the Minister for Finance who succeeded me, Deputy Ruairí Quinn, in sustaining high growth over the following two and a half years. It is the Government's job to sustain the winning run as long as possible, recognising it will not continue forever.

While there used to be a worry about jobless growth, since 1987 we have created 250,000 jobs, which is an enormous number.

Mr. Broughan

There is still a lot of people unemployed.

The Taoiseach

It is important not to mislead people. The economic policies we are pursuing continue to generate jobs. I look forward, at a time when employers in practically all sectors are calling for labour, to incentives such as the £3,000 extra relief, the £1,000 per child and, perhaps, £4,000, £5,000 or £6,000 for a relatively small family being available. It is an imaginative announcement taken straight from one of our manifesto documents. I hope it will work.

As of April this year, total numbers at work were equivalent to the highest previous recorded level in 1936, and by now we have certainly exceeded that figure. In 1997 and 1998, net numbers at work are expected to increase by an average of 50,000 a year, a remarkable figure by previous standards. The increase in employment reflects particular credit on the social partners. There has also been a significant improvement in living standards delivered through the tax reductions implemented since 1989 and in increased income support for welfare recipients from the same time.

The basic requirement to sustain high growth is to keep inflation down and to exercise fiscal prudence. The indirect tax increases in the budget make only a modest 0.2 per cent contribution to inflation, the same as the effect of last January's budget. Low inflation not only makes growth sustainable but allows everyone to improve their standard of living.

With such high growth rates and to avoid overheating, I have continuously argued since 1994 that we should be moving swiftly to overall budget balance while we have the opportunity. The current budget surplus has moved into four figures while we also have a modest general Government surplus. Our projections are always prudent and if we do better than anticipated we will soon be able to start reducing our £30 billion national debt, not only as a percentage of GNP but also in cash terms. We will achieve the European target of a sustainable general government debt-GDP ratio below 60 per cent by the end of the century, a remarkable achievement if we consider it was roughly double that level ten years ago. In the first budget of 1997 the previous Minister, Deputy Quinn, projected extra borrowing of £2.2 billion by 1999. The Government does not have a philosophy of spending all the money we can lay our hands on but rather spending only what we need and handing the rest back to the taxpayer to whom it belongs. By running a budget surplus now we will create the leeway to prevent a serious decline in public capital investment as a result of the eventual scaling back of EU Structural and Cohesion Funds allocations to Ireland.

Starting in 1998, the first year for which we have full responsibility, we are adhering strictly to the spending targets set out in our election manifesto. Most of the extra spending incurred by the Government in the latter half of this year was for the purpose of reducing long-term liabilities, an entirely prudent thing to do. The Opposition parties gave commentators a rough time this morning for praising the budget. There are people who suggest it is not such a great idea to deal with long-term liabilities in good times. If one does not deal with long-term liabilities in good times when should one deal with them? Should one wait until they jump up and bite or until the tiger turns vicious? We have adopted a sensible approach in building up pension funds in An Post and Telecom Eireann. Deputy Quinn knows from experience the extent of the liabilities in that area. The Minister for Finance has made money available to deal with the issue. I would like to hear others outline their solutions and indicate how we should deal with long-term liabilities if we do not deal with them in good times. Should we continue to run up huge surpluses?

In an ingenuous commentary one stockbroker stated that the markets might be slightly disappointed with the projected borrowing figure of £89 million given the surplus widely expected. He referred to the fiscal stance but ignored the fact that the figures could have been massaged. Instead workers have been looked after. My colleagues in the Labour Party and on the far left fully support this approach. It was his concern for workers that led the Minister for Finance to make these excellent decisions.

Next year, taking account of debt servicing, we intend to keep within the 4 per cent limit we set ourselves for current expenditure. Within that limit we will address priority social and infrastructural needs.

It was erroneously suggested that the increase in capital expenditure by 17 per cent next year was a breach of the Fianna Fáil manifesto commitment to hold it to 5 per cent but commentators failed to read the qualifying clause. This stated that: "We will limit growth in Exchequer capital spending to 5% a year, until the current budget surplus is equal to and can offset Exchequer borrowing for capital purposes".

The current budget surplus is £1,100 million. The capital budget deficit is £1,200 million. By the European general government deficit definition there is not even a small gap but a small surplus. There is no doubt that a rapidly growing economy needs increased capital investment to prevent bottlenecks from developing in terms of availability of people with the right educational skills and transport capacity in particular. Post-budget we have an Exchequer capital programme of £2 billion and a total public capital programme of £4.4 billion.

I am particularly proud of the social provisions of this budget.

Mr. Broughan

What about child benefit?

The Taoiseach

Let me tell the Deputy about it.

Mr. D. Ahern

The Deputy will now be given a lesson.

The Taoiseach

I have had to listen to the arguments all night and all morning. The changes announced by the rainbow coalition Government in its budget earlier this year cost £8.33 million or £25.04 million in a full year. The changes announced yesterday will cost £9.46 million in 1998 and £28.3 million in a full year. The rainbow coalition Government gave far less.

Mr. Broughan

Buttons. It was to be increased to £20 per week.

Mr. Quinn

It was increased by one third.

An Leas-Cheann Comhairle

The Taoiseach to continue without interruption.

The Taoiseach

Overall, we have provided as much money for social welfare increases as the rainbow coalition Government earlier this year, marginally more. Personal rates are being increased by £3 per week or over 4 per cent in most categories. The increases are being brought forward by two weeks. These increases are significantly more generous than the 2.5 per cent and 3 per cent increases in the 1995 and 1996 budgets. We are at last making serious inroads into long-term unemployment. The budget provides specific measures to accelerate this trend. The number of places on the back to work allowance and direct employment programmes is being increased by 7,000. This reflects the importance the social partners attach to targeted support for the long-term unemployed. The incentive of the area based allowance is being extended nationally.

A real incentive for the long-term unemployed to re-enter the workforce is the special tax allowance to be tapered over three years of £3,000 plus £1,000 per child for the long-term unemployed with retention of secondary benefits as well as a double tax deduction incentive for the employer. I have debated and answered questions about the tax wedge. It has long been argued that the disincentive for the long-term unemployed, particularly those with children, should be removed. This incentive was developed by my good colleague, the Minister for Public Enterprise, Deputy O'Rourke, with the assistance of the task force which conducted the necessary research, and included in our programme. On top of their existing allowances a long-term unemployed person with three or four children will receive in the first year a special tax allowance of £3,000 plus £1,000 per child. There will also be an incentive for the employer. If there was ever a time to introduce such an incentive this is it, particularly when we are being told by employers that things are so bad they cannot recruit Irish people to fill the many vacancies available. I have no problem with them recruiting people from other countries——

Mr. Broughan

Tell that to Deputy Callely.

The Taoiseach

——but a significant number of Irish people are unemployed and they should now be given their chance. As a result of this measure those entering the workforce, having been on the live register for more than 12 months, will pay little or no tax in most cases to start with. This removes inequalities in the system for so long.

The most important break with the recent past is the provision of a £5 per week increase for old age pensioners giving increases of 6 per cent to 7.5 per cent. In the programme for Government, An Action Programme for the Millennium, Fianna Fáil and the Progressive Democrats stated we "recognise that our older people have helped to build up the country into what it is today. It was their sacrifices, their taxes and their efforts which have helped to create the economic prosperity which we now enjoy". I am particularly glad that we have been able not only to deliver a more substantial pension increase than has been seen for many years but have also raised the tax exemption limit, which has always been a sore point, by £400 and £800 for single and married people between the ages of 65 and 74 and by £300 and £600 for those over 75, these increases being the highest in recent years. We have addressed the inheritance tax worries between elderly and other relatives not married to each other who are living under the same roof, known traditionally as the brother and sister clause. This measure will be of great help to them.

The Leader of the Opposition referred to his 1982 proposals which were part of a budget that fell. Fianna Fáil in its three budgets of 1980, 1981 and 1982, in keeping with the principle espoused by its then leader, Charles Haughey, increased the pension rate by 25 per cent.

Mr. Broughan

When the inflation rate was high.

The Taoiseach

It was but Deputy John Bruton claimed it was a practice we had followed over those years. Inflation was in high double figures throughout that period but there were also real increases granted which took most old people out of the poverty net.

We have continued the policy of recent years of increased child benefit. The increase of £1.50 for the first and second child given in this budget compares favourably with the £1 increase given in the January 1997 budget. Therefore, I am very surprised at Deputy Bruton's criticism of it this morning. If his criticism is based on the fact that our giving £1.50 for the first and second child is that awful, why did he grant a mere £1 some nine months ago? Perhaps it is that he forgets. There is also an additional £3 a month for a third and subsequent child in addition to the £5 given earlier this year and £2 last year.

In response to many representations, we are paying child benefit for twins at 150 per cent of the normal rate. There are also important improvements in the family income supplement so that, relatively speaking, the low income family is among the biggest beneficiaries of this budget. The one-parent family payment, which was frozen by the British Labour Government this year, also the object of some controversy here in the earlier part of the year, has been increased by £3 in this budget.

Significant additional resources have been provided for health on which spending is due to increase by 11 per cent. In 1996, in particular, the health budget was maintained within very tight margins which perhaps contributed to some of the difficulties we are now experiencing.

Inevitably, the major focus of attention at budget time is on changes in taxation. That is appropriate not only because of the significance of the amount involved but also because of the vital role tax policy can play in underpinning economic performance and living standards, which has been at the heart of our successful social partnership arrangements for the past ten years. Moderate wage increases, backed up by appropriate tax reduction policies, generate high living standards and put dramatically more people at work. This budget deepens that strategy, reflecting the expectations of working people that they should share fully in the benefits of the economic performance they have produced. This is very much the point at issue.

Deputy Quinn was right in the last point he made, that people at work feel they should be getting a return on their taxes and share in these benefits, which is precisely what occurred yesterday. The two parties in Government were elected because we showed a more serious commitment to reducing the burden of personal taxation. In general, Labour and Democratic Left do not like cutting taxes more than they can possibly help. Their philosophy always has been that an extra £1 spent by the State is more beneficial than £1 given back, with which we fundamentally disagree. We won an unequivocal mandate from the electorate to reduce the tax burden.

There has been much argument on whether cutting tax rates or increasing bands and allowances is the better approach. Our view is that there is much to be said for combining elements of both — that it is not an argument that falls down on one side or the other — recognising that it is not possible to do everything simultaneously. Members will note that we have increased the personal tax-free allowance by the same amount as our immediate predecessors in their budget of January last, that is £250 for a single person and £500 for a married couple, an increase of 8.6 per cent. Moreover, unlike the January budget, we have increased the PRSI threshold by £20 to £100. Some people missed that——

Mr. M. Smith

They do not want to see it.

The Taoiseach

I am not talking about Members of the House but those outside who appear to miss its significance for the lower paid. It will cost £38 million and any of the relevant tables will show clearly its beneficial effect for the low paid. Ironically, our immediate predecessors in Government reduced the PRSI rate by 1 per cent while we have increased the allowance, putting each of us on the opposite side of where we are on taxation.

For the first time since the last Fianna Fáil-Progressive Democrats Government, we have reduced each of the income tax rates by 2 per cent. While adhering to our 20 per cent standard rate goal — we want to get the standard rate here down to 20 per cent as soon as we possibly can — we decided it would be better to achieve this by a general across-the-board reduction, together with the preservation of a two-rate system, rather than by establishing a somewhat token introductory rate, as appears to be the intention of the British Labour Party Government at some time in the future.

There has been some adverse criticism of reductions in the top tax rate. Since the mid-1980s, in every tax document we have prepared my party has argued that nobody should have to pay more than 50 per cent in combined tax and PRSI deductions to the State. That is fair and equitable. While we are some way off that point, we are getting closer. Even before the good times began, and we started to deal with these issues, our yardstick was that somebody working should not have to pay over 50 per cent. While that is not terribly generous on the part of the State, I recollect that in previous budgets, which we all tend to forget, for example in 1975, the taxpayer was subjected to a super tax rate of 77 per cent. Only ten years ago, we were abolishing what was the then super tax rate of 65 per cent. Of course, people forget that, at that time the prevailing rates were 65 per cent, 58 per cent and 35 per cent. Therefore, it will clearly be seen that we have effected dramatic reductions in those rates along with considerable increases in tax-free allowances, bands and thresholds over that period, allocating moneys for different purposes.

Whatever tax rate or type of tax we talk about, there is much evidence that high, nominal tax rates are both ineffective and economically inefficient. Western countries have long since abandoned surtax rates of up to 98 per cent, or even the 58 per cent or 65 per cent rate that obtained here because they do not work and, in the final analysis, have proved to be detrimental. Therefore, it is no accident that those sectors of the economy, such as manufacturing, where we can afford to or where we have to apply a lower rate, are flourishing. In addition, we should learn from the economic policy failures of post-war Europe. Lowering high tax rates benefits everybody, not just the rich but the economy overall, jobs and employment opportunities. I want to make one other comment about the rich. There is always the view taken here on budget day that the rich are perceived as those in receipt of an annual income of £11,000 or £12,000. First of all, proportionately, people at that level of annual income are poor. Yet, when one talks to people in receipt of annual incomes of approximately £25,000, they do not perceive themselves as being rich when account is taken of repayments on their mortgages, car, children's education, health expenses and others. The perception that they are rich is a misguided one. In fact, Members of this House who earn just under £35,000 feel they are paupers. Therefore, let us cease to use labels, misguided definitions or be forced into looking at comparative tables. Of course those on annual incomes of £10,000 are poor and should be out of the tax net. That is why we resort to PRSI exemptions, the family income supplement, and give them extra incentives in an endeavour to take them out of that net. In my tenure in office I would like to take them out of the tax net altogether or at least subject them to a rate of 20 per cent only. That is what we are endeavouring to do but do not let us fool ourselves that the poor are those in receipt of annual incomes of under £12,000 and everybody else above that mark is rich. That is a hypocritical argument that does not stand up.

Mr. M. Smith

They do not mean it, they are not serious.

(Interruptions.)

The Taoiseach

We are part-funding reductions in the top rate of tax by limiting tax breaks, mainly to the benefit of the most wealthy in our society, reducing the net full-year cost by approximately one-third. For example, the net cost of reducing the 48 per cent income tax rate accounts for a relatively small proportion only of the total cost of the personal tax package. The ordinary 48 per cent taxpayers, comprising approximately 400,000 people, should not be penalised for the lavish lifestyles of the relatively few. By placing limits on the availability on the business expansion scheme and capital allowances for a number of purposes, our aim is to have investors pay more tax at a reduced higher rate with less ability to avail of write-offs. I see nothing contrary to equity in all of that.

There are few new tax reliefs in this budget with the exception of those for domestic charities, donations to disadvantaged schools and nursing homes, unrestricted capital allowances for hotels in less advantaged counties and an allowance for wind energy. Another point to be made is that headline rates do matter, particularly at a time when we need to attract skilled Irish people home from abroad to fill well-paid jobs.

While the highest absolute gains always will be to the better paid, as any recent budget will show, I am quite satisfied that, viewing it as a whole and not selectively, there is equity in this budget and that the needs of the less-well-off and low paid are being well attended to.

The total of £517 million in a full year available for the reduction of personal taxation far exceeds anything given in the past. For example, Deputy Quinn's package earlier this year amounted to merely £400 million which, while substantial, compares with £200 million given in 1996. Therefore, by any standard, the commitment of resources in Partnership 2000 has been fulfilled in full, well ahead of time, with the announcements made in the calendar year in which that programme came into force.

While not taking any credit for this, if my recollection is correct, Deputy Quinn completed negotiations on Partnership 2000 in or around 20 December 1996. While we have not quite reached that stage yet, over a three-year programme, this House will have delivered on those commitments, which is the message which should go forth because there are those who believe that politicians make promises and sign up to agreements, but never honour them.

Mr. Broughan

What about the commitment to those participating in the community employment scheme?

The Taoiseach

Deputy Broughan should not be putting his foot in it — he would be wronging all of them. We have also increased the overall places available on that scheme, some 7,000.

As the Minister for Finance indicated, the Government has an open mind on the possible direction of certain important elements of future tax strategy.

Mr. Byrne

Deputy Broughan loses every time he opens his mouth.

An Leas-Cheann Comhairle

The Taoiseach, without interruption.

The Taoiseach

This is in line with the examination of options under Partnership 2000. We will carefully consider the analysis both of the tax credit and the basic income proposals, which are currently being examined. We have not closed our minds to any of those issues, but other commitments in our joint programme are under examination also. Our tax strategy group began work in early September, after the holiday break, but we had to abandon that work in early November to prepare for the budget. That work must be continued.

I attach importance to the commitment to find a resolution of the position of the cross-Border workers who are taxed more here on what is, in many cases, lower comparable incomes north of the Border. A solution will help the economy of the Border regions.

Mr. Quinn

It is impossible to find it in the tax code, as the Taoiseach well knows, but I wish him well.

The Taoiseach

We have to try, because people have worked very hard in this area. Deputy Keaveney worked extremely hard to try to solve this and we must continue in those efforts. There is a case to answer.

The indirect tax changes will not adversely affect most people. If people do not smoke or use leaded or super unleaded petrol, which they should not do, they will escape altogether. There is a welcome small reduction in vehicle registration tax to help the motorist and the motor industry.

Our ambition is to make Ireland one of the most favourable countries in which to do business. The 4 per cent reduction in the standard rate of corporation tax as well as a reduction of the lower rate will be a real incentive to expand and increase employment. We would have preferred it if the outgoing Government, in its last weeks of office, had not effectively pre-empted the decision on the level of the new standard rate at or close to the lower rate but, having made that decision public, the incoming Government was left with little room for manoeuvre. Adjustments to the corporate tax regime will reduce the overall net cost of the reduction which will be mainly of benefit to the large service sector where most new jobs are created.

On the question of the £50,000 raised by Deputy Quinn, we did exactly what the Deputy said we did not do. We reduced the rate for small businesses from 28 per cent to 25 per cent.

Mr. Quinn

But the £50,000 remained.

The Taoiseach

The reality is that only 20 per cent of the total number of companies trading in the State have taxable profits in excess of £50,000, and 94 per cent of small businesses are in that category. Reducing the rate from 28 per cent to 25 per cent was of direct benefit to almost every small business. If we had moved the figure to £100,000, as suggested by the Deputy, it would be of no benefit to 94 per cent of those businesses.

Mr. Broughan

The Taoiseach helped the bigger companies.

The Taoiseach

The bigger companies gained but the Deputy should remember what we did last night. I appreciate Deputy Quinn's leadership but I had to take a barrage from the right wing here last night who wanted me to cut corporation tax, give £105 million to the business sector as well as give all the reliefs on the SCRIP dividend. I had to stay here until midnight to resist Fine Gael which wanted to give tens of millions of pounds back to companies without closing down any of the——

Mr. Browne

(Carlow-Kilkenny): That is to help——

The Taoiseach

Why does the Deputy want to make them richer? Surely it was enough to give them £100 million. We are the only workers' party left in this House.

A Deputy

Nobody but the Taoiseach knows that.

(Interruptions.)

The Taoiseach

A further measure of benefit to business will be the reduction of capital gains tax exemption for development land, but this is also partly paid for by the halving of the tax free allowance. This will create a real incentive to free up capital gains in cold storage and to move capital around to more productive uses, resulting in more investment and employment.

It is a good budget for the farming community which has faced many difficulties in recent years. Farmers will benefit from the general tax reductions, like everybody else. We have provided an increased £23 million funding for headage payments——

A Deputy

——and the Taoiseach took £35 million from the Estimates.

An Leas-Cheann Comhairle

The Taoiseach, without interruption.

The Taoiseach

——particularly for hill farmers, as well as an increased tax allowance for pollution control works. I am particularly pleased the Government has been able to contribute £20 million spread over three years to the redevelopment of Croke Park by the GAA——

Mr. Broughan

How many Fianna Fáil boxes?

The Taoiseach

——which will be visited by huge numbers of people each year. There is always a balance to be struck between support for the big imaginative national projects, and for the smaller community projects, especially in disadvantaged areas.

(Interruptions.)

The Taoiseach

Deputy Quinn asked a fair question. I hope that as Croke Park develops into what will be a national stadium capable of holding more than 80,000 people, the GAA will continue the process it has started. Concerts and an American football event have been held this year, and the GAA has changed its attitude to athletics. It is prepared to consider allowing the European Championship and other events which will fit in with its summer calendar to be held in Croke Park. The GAA has stated that if athletic bodies here——

Mr. Quinn

Would the Taoiseach like to see Bohemians play there?

The Taoiseach

If the Olympic Council of Ireland and the BLE can attract some of these events, the GAA is prepared to consider that.

Mr. Broughan

They will have to change the design.

The Taoiseach

The GAA has also said that it will continue to examine these matters. The Minister for Tourism, Sport and Recreation, Deputy McDaid, has put in a bid for the Special Olympics and I know the GAA is in favour of assisting in that regard. Having talked to many of the officials, I believe we are not too many years away from seeing at least one other of the national sports played in Croke Park. I hope that decision will be made in the lifetime of this stadium.

Mr. Quinn

The Taoiseach would have encouraged them more by imposing a condition.

The Taoiseach

When we gave money to Shamrock Rovers, Shelbourne, St. Patrick's and Cork City, it was not on condition that the GAA would allow a hurling match to be played.

Mr. Broughan

The Taoiseach did not get the credit for that.

The Taoiseach

They were small developments. Santry Stadium, which is a track and field stadium, has been allocated a great deal of money in recent years and soccer matches are now held there. We are looking at the national pool. This matter cannot be worked out in the overall context of Croke Park but if a voluntary sporting organisation is prepared to put up £150 million, what is wrong with supporting that?

Mr. Quinn

Nothing.

Mr. Power

The Taoiseach should not mind the begrudgers on the left.

The Taoiseach

In fairness, Deputy Quinn did not criticise that but I want to see other sports played.

I am pleased with the broad welcome the budget has received from the social partners and from most groups in society. I realise the Opposition parties have to do their duty. The two criticisms they have made are that the budget will overheat the economy and that it is directed towards the rich. The elimination of general Government borrowing and tighter control of expenditure is an antidote towards overheating.

I will refer to the real rich, the people who earn £200,000 and £300,000 on the back of the PAYE system. If one examines what the Minister did yesterday in limiting capital allowances, and the way he ringfenced that, the way people were progressively able to invest money in Temple Bar, film projects eligible for tax relief, urban renewal areas and other tax driven schemes, it meant that a person with an income of £250,000 or £300,000 could get away without paying any tax. Under this arrangement they will be substantially hit. They will still have benefits of up to £25,000 and will get rental income if they purchase an apartment or a house. However, they will not be able to take their large salaries, spirit them away and not pay anything in respect of equity. The Minister for Finance has ensured that.

Mrs. O'Rourke

There has been too much of that.

The Taoiseach

The Minister did not only provide for the low paid and the middle classes in yesterday's budget, but under the same mechanism, he has for the first time in many years closed down the shelters that were available. Those who dodged taxes through clever legal devices will now be substantially hit. Not one member of the Opposition parties congratulated the Minister on that yesterday, but I do so now. It is a remarkable achievement.

Mr. Broughan

It did not work with the tax amnesty.

The Taoiseach

I can only conclude that all members of the Opposition were protecting high earners who pay little or no tax because those people are members of their parties. I do not know any of them. Maybe they are members of Opposition who are in the Law Society, they are not members of the Government parties who are in the Law Society.

The reduction in personal taxation will moderate pay demands and help to keep employment high. The restriction of tax reliefs and their better targeting are designed to ensure that the really wealthy pay more not less. This is not a budget for the rich, as the protests from some accountants is already making clear.

I congratulate all those who worked on the budget. I thank the officials in Revenue and in the Department of Finance who, as always, serve this country very well, regardless of who is in Government. I also thank the two parties in Government and my colleagues in the Progressive Democrats, particularly the Tánaiste, who worked very closely with the Minister for Finance and me on this and I congratulate the Minister for Finance. We feel proud that in a sensible, prudent and careful say we delivered Partnership 2000 and delivered substantially on the promises we made to the people last June.

Mr. Coveney

I extend my sympathy and that of my party and the House to the Minister for Finance on his loss. I read in this morning's paper that on a day which would normally be the highlight of his political life he lost the person who in a sense was virtually his father. I admire the way he carried out his duties yesterday when he must have been feeling anything but good.

The Taoiseach

Thank you, Deputy.

Mr. Coveney

I will talk about the budget primarily as it affects agriculture, but I will make a few broad comments on it, particularly as I had the privilege of serving with Deputy Quinn in the Department of Finance. We should claim some credit that we handed over a set of books the like of which no Government has ever inherited. Given that, it is reasonable we should constructively criticise the steps taken by the Government to avail of the opportunities presented by what it inherited from the previous Government.

It would be churlish of people not to welcome many of the excellent features of the budget. On the taxation side, the overall package is one that will bring satisfaction to many people and I do not want to take from that. We lost the argument about rates versus bands, but I find it difficult to comprehend that a person who will pay tax at 46 per cent does not realise how much better off he or she would be if there was a greater concentration on widening the bands. That would give a benefit of 22 per cent and not 2 per cent. Our strategy in Government, which we presented to the people, and would use if we were in Government now, would be to place greater emphasis on personal allowances, to widen the tax bands and to reduce rates including the top rate. However, the Government has made a decision on this and it is for the people to judge it.

Another serious concern I have about the budget is the way in which the Government dealt with public expenditure. It is continuing to delude itself and the nation that it is sticking rigidly to a 4 per cent increase, but that depends on what that 4 per cent is applied to. Our view would be that taking the outturn for 1997 without adding in the money brought forward out of 1998 and without including the rate support grant which does not arise in 1998, there would be a much lower base on which to apply the 4 per cent. However, by what has been described as different ways of playing around with the figures, the Minister has managed to create the impression that he is sticking to a 4 per cent increase. Some, although not many, commentators have seen through that, but there are dangers in that for the future. The proper addition for a realistic and correct 4 per cent increase would have been slightly more than a £500 million increase in expenditure while the real increase is in excess of £1 billion post-budget. That is a significant difference. While most Governments try to present their figures in the best possible light to suit themselves, this year's shenanigans with public expenditure has gone further than ever before and we are stacking up some difficulties for the future by dealing with public expenditure in that manner.

If the hoped for reductions in interest rates arise from our entry into EMU, it is projected that over the next 12 months or so interest rates will fall by 2 per cent. That may not happen, but the likelihood is that it will. The combination of reducing interest rates, rapidly increasing public expenditure and giving a good deal in tax cuts, which nobody denies were due, will result in increased pressure and will tend to overheat the economy. The Minister, Deputy McCreevy, might well finish up like Nigel Lawson by producing an attractive tax reducing budget, but the Minister's approach is dangerous because he has resisted the temptation to keep public expenditure tight.

I will concentrate on the budget as it affects the agricultural community. The Taoiseach stated this is a good budget for the farming community. He talked about providing an increase of £23 million for headage payments, but that is not the truth. For reasons I do not understand, the Minister for Agriculture and Food seems to have been unsuccessful in convincing the Minister for Finance about the treatment of his Estimate. Although I was broadly critical of the excesses of this year's Estimates, it was extraordinary that, in such a climate, the Estimate for the Department of Agriculture and Food dropped by about £22 million in real terms, that is, taking last year's base and adding 2 per cent for inflation. There were significant cuts, including a cut of £34 million in real terms in headage, £30 million on farm investment — the control of farmyard pollution and the dairy hygiene schemes, in particular — £5 million in structural improvements — installation aid for young farmers — and £5 million in the TB and brucellosis eradications schemes. Some people may not know we are on the brink of losing our brucellosis free status so it is a strange time to cut back expenditure in this area. Those cuts totalled about £75 million in real terms in 1998 as against 1997. There were some increases but cuts under these specific headings seem especially inappropriate in the present climate.

Yesterday, the Minister for Finance said he put back £23 million into headage. He did not, however, read out the postscript which said that £13 million of the £23 million will have to be found from other savings in the Department of Agriculture and Food. In fact, he gave back an extra £10 million and nobody has explained where the £13 million in savings will be found, although the Minister may do so in his speech next week. When those savings are found, will the £23 million be sufficient to fund the vital headage scheme for next year? To a large extent, we are speaking about the less well off sectors of the farming community who depend so much on headage. There are dangers ahead and for the Minister to say he gave back £23 million without mentioning that £13 million of it had to be found from savings in the Department was a bit of a sleight of hand.

The failure to provide funding for the reintroduction of the control of farmyard pollution and the dairy hygiene schemes both of which, to a large extent, are mandatory on farmers at a time when farm incomes are dropping vis-à-vis the rest of the community and in real terms, was an unfortunate failure by the Minister, perhaps more on Estimate day than on budget day. In some respects, the budget dealt with installation aid for young farmers and £3.5 million was provided for that purpose. It was, however, stated emphatically that it was to deal with applications in the pipeline without any commitment to the maintenance of the scheme after 1998. Young farmers are particularly cynical about this Government because of this issue which is small in relative terms.

During the general election last June Macra na Feirme wrote to parties and asked them a specific question about installation aid. The main Government party, Fianna Fáil, replied in writing and stated unequivocally that not only would it maintain this scheme, but it would improve it. However, by 7 August it had eliminated the scheme. It is now half-heartedly reinstating it to deal with applications already in the pipeline. I spoke to young farmers last night and there is grave cynicism and disappointment about this. When one looks at overall budget figures, the mean way in which this issue was tackled by the Government is surprising and uncharacteristic of a party which has its ear to the ground in rural Ireland.

On the control of farmyard pollution scheme, there is a tax measure in the capital allowances area which will help a little. Most farmers with small and medium sized farms, who need to invest in the control of farmyard pollution scheme, cannot do so without some financial assistance from the State. A totally inadequate response was given in the agriculture Estimate to the request for funding to encourage this valuable scheme. The same is true of the dairy hygiene scheme which is mandatory on dairy farmers. Small dairy farmers cannot afford to undertake this scheme themselves. Small producers are living on the edge with falling incomes. The 1996 Teagasc survey on farm incomes indicated that 63 per cent of all farmers earn less than £10,000 per annum. People living in cities, who are generally critical of farmers and farm leaders who they believe constantly bellyache about issues do not appreciate the low incomes farmers earn. Offering capital allowances to small farmers, who are not in the tax net because of low incomes, will not allow them to invest in the control of farmyard pollution scheme, which they need to do.

I welcome the extension of stock relief for young farmers from two to four years. I was disappointed by the response to the widespread demand from rural Ireland for some form of a rural renewal incentive scheme. I know from my time in the Department of Finance that such schemes are extremely difficult to design in a way which will target them at those who need them. Many schemes, including the urban renewal scheme, have been seized upon by smart accountants and have been abused. I welcome some of the steps taken on BES and capital allowances to redress that. However, we should not be discouraged from considering a scheme which would encourage investment in rural communities because there is no doubt that in the coming decade Irish and European farming will face the greatest threat to its existence. There is considerable pressure not so much from Brussels but from the World Trade Organisation in Geneva to force European farming into a market price related situation with minimum and temporary supports from the EU. That is a matter for another day, although we debated it last week.

In such a climate and if we are serious about redressing the flight from the land which is causing chaos in our cities in terms of traffic and so on and protecting small to medium sized farm families, we will have to look at innovative ways outside mainline agriculture to encourage investment and job creation in rural areas because farmers will only survive as part-time farmers and will look for alternative work. A type of rural renewal scheme, rather than the lip-service paid in the budget to designing a pilot scheme in the upper reaches of the Shannon, will be required. One possible measure could be the renewal scheme embracing the idea of advanced factories in specified rural towns providing alternative jobs, part-time or wholetime, for farm families, although I can see the difficulty in ringfencing it to ensure it is not abused as some of these schemes have been in the past.

As far as farming is concerned, the budget attempted to redress the deficiencies of the Estimates in a minimal way. I referred earlier to cuts in the Estimates of about £75 million in real terms. Yesterday, the Minister gave back £13.5 million, £10 million in headage payments and £3.5 million in installation aid, having accepted cuts in real terms of £75 million in schemes essential to agriculture. It is not true, as the Taoiseach said, that the farming community has done well out of this budget.

There are other interrelated difficulties facing agriculture. The Minister must do more than he proposed for grain farmers who have suffered serious losses in the south and south east. The Minister, having raised many expectations, devised a £1.2 million package which excluded all tillage farmers who managed to salvage or harvest any of their crops and confined it only to those who could not harvest anything. Many farmers believed that if they did not make an attempt to harvest what in some cases were partially unharvestable crops, they would not qualify. Having done that, they are now disqualified. That is unfair and unreasonable. The Minister also attached a set of conditions at the eleventh hour stating that any other on or off farm income of any significance disqualifies farmers. The combination of both these factors has excluded the vast majority of farmers who suffered catastrophic losses as a result of weather in August, the likes of which none of us in the south can remember having seen before. Rain and high winds throughout the month wrecked tillage crops, especially the grain crops, in south Cork, south Waterford and Wexford. The Minister's response is inadequate.

Given the problems in the UK which again highlight the problems of beef producers, the Government's failure to make any worthwhile progress on the export of live cattle, especially to the Middle East, has been extremely disappointing. It was an issue the current Administration made much of during the election. The Minister for Agriculture and Food and the Taoiseach gave a clear signal to farmers in letters they issued and in interviews that they would raise——

Mr. D. Ahern

Deputy Yates gave a letter on the day of the election.

Mr. Coveney

That also needs to be followed up.

Mr. Deenihan

He was only acting on what he received.

Mr. Coveney

The Government and its Leader gave clear indications that they would be on air-planes, that they would send faxes and that they would go to every capital in the Middle East to reopen this trade, as they believed it was essential for the maintenance of a competitive beef market in terms of giving producers an alternative market in which to sell their product. To date, their efforts and results have been inadequate and the Middle East market is still shut. Given what is happening at the moment in the UK, the Government may well rue that it was not more energetic in this area.

The issue of beef quality assurance, which is also related to what is happening in the UK, is one about which we have been speaking for too long. It cannot and will not happen until the computerised cattle movement monitoring system is in place. It is a tracking system without which this famous traceability back to the farm from where the cow came cannot be achieved. The system is not mysterious; it exists in Northern Ireland. However, for some reason which escapes me, it has defied the bureaucracy in the Department of Agriculture and Food. It is something which the Minister needs to force his Department to put in place so the beef quality assurance scheme supported by traceability back to the farm can be delivered to every marketplace in the world, thus ending any speculation about quality. We know we have the best quality beef but we have not always been able to sell that concept, especially in terms of the prices achieved on overseas markets.

I am glad the two issues which arose suddenly in the UK were discussed on the Order of Business by the party leaders. The blockade of UK ports by Welsh and Scottish farmers is a pernicious development for a small island country which exports a huge percentage of its products. It is a follow on from what happened in France and it is now being used as an instrument of protest by groups of people over whom we have no control and who seem to be out of control in their jurisdiction. The activities at the British ports are outrageous. That the British police stand back and facilitate unruly protesters to examine the contents of Irish trucks and decide arbitrarily whether they will let it through is at variance with the rule of law, with all the principles of the Common Market and with the free movement of goods. The British have been one of the foremost advocates of free trade and constantly call for the breaking down of barriers and the opening up of markets. With honeyed words from their Minister for Agriculture and their Prime Minister, they have given tacit approval to what is going on. An unruly mob of unrepresentative farmers is being allowed to act as customs inspectors and to decide what will be let in and out of the UK. Worse still, they decide what will pass through the UK to Europe. The situation has now escalated not only to an increasing number of ports but to an increasing number of Irish products. It is no longer confined to beef as all refrigerated Irish foodstuffs are now at risk, butter, cheese, poultry or pig meat. Furthermore, products destined for Europe which are transported through the UK are also prevented from entering. That is intolerable.

The Minister for Agriculture and Food is going to London today to discuss this issue and I wish him well. He has our support in whatever measures he takes to end this. However, it is the UK authorities who must put an end to it. I understand the Taoiseach will contact Prime Minister Blair as will my leader. We must use everything, including the European Union, to end this anarchy. If it is not ended, it will do untold damage not only to the price of beef and other products but also to the confidence of our customers in the UK and Europe at a critical time of the year for the food industry, coming up to Christmas. If we do not insist that the British put an end to this quickly, untold damage will be done. The Minister and the Government must also be extremely active in the area of compensation for producers as it is not good enough to let exporters carry that burden on their own. The Government is conscious of this, but a unified message will go out from the House and I hope I have aided that.

There was a further development yesterday on the sale of beef on the bone. Anything which affects beef exports adversely is to be deplored. On the other hand, we must be conscious of the primacy of the consumer and if there is a scientific basis for this ban, we must be aware of it and take the necessary steps but serious doubt has already been cast on the basis for it. Will the Government — and I am sure the Minister will also deal with that issue in London today — obtain the evidence, have it examined here independently by scientific people who do not have a vested interest, and make a statement on it quickly?

The trouble is that if the consumer believes there may conceivably be a problem the damage is done. Sales of beef on the bone in the UK are probably so seriously damaged that anything one does about it will not redress it. Fortunately, beef on the bone sales of Irish products in the UK amount to slightly more than 5 per cent of exports. I hope that will not be terminally damaging but it has come at a time when confidence in beef and its sales has been rising steadily and the incidence of BSE has been dramatically falling. The worst months for BSE are October, November and December and the figures to which the Taoiseach referred for November are especially heartening at a time when one might have expected them to increase. With the beginning of a restoration of confidence in beef, it is unfortunate this should have happened but we can recover from it.

Last week, Teagasc published a survey on farm incomes in 1996. I do not know whether the 1997 position is worse but I am sure it is. The fact that 63 per cent of farmers live on incomes of less than £10,000 is a shocking indictment of the state of agriculture. It is not an indictment of any Government but there is no doubt there are three broad categories of farmer. There are big commercial farmers who are efficient by international standards and with reasonable support they will continue and grow. There is a middle group of farmers who are under threat and there are small farmers who are on the edge. It will be very important in future budgets and policy formation that support will be directed to maximising the number of people on the land. It is a big subject but one about which we must be vigilant.

There is a widespread view in the rest of the community that farmers are getting millions, creaming off everything and not paying taxes. That is patently untrue and it is up to farm leaders and politicians to get that message across because there needs to be greater support for agriculture from non-agricultural sources if the industry is to be saved.

Minister for Social, Community and Family Affairs (Mr. D. Ahern)

I echo Deputy Coveney's remarks in regard to the sudden death of a relative of the Minister for Finance. It has been a difficult day for him in that respect and I thank the Deputy for his remarks which will be appreciated.

The social, community and family affairs budget which the Government has brought before the House is a radical one. It is one of the most substantial social affairs budgets ever presented. At a time of unprecedented economic growth, there is a grave onus on Government to ensure this prosperity is shared and that those who are less well off are afforded every opportunity to participate in the workplace. This first budget is a substantial response by the Government to the challenges that face society. One of the key objectives of the Government is a commitment to fight social exclusion, tooth and nail and this is no mere rhetoric. This budget is putting it into action.

It must be set firmly in the context of the broader agenda, the fact that Ireland is at a moment of historical importance in its development. The advent of the Celtic tiger, the achievement of peace in Northern Ireland, the initiation of all-party talks, and moves towards closer European integration are just some of the key developments which are currently reshaping Ireland. The economic outlook is extremely favourable with projected economic growth of 7 per cent of GNP in 1998 and nearly 5.5 per cent in 1999 and 2000. Employment is projected to grow by 120,000 over the next three years while inflation is expected to remain at 2 per cent per annum. It is vital that this opportunity is seized to redefine society in a way which makes it more inclusive and which shares the benefits of growth among all our citizens.

The budgetary process must play a key role in that redefinition of society. The budget delivers on the commitments made in An Action Programme for the New Millennium. It provides the clearest evidence of its determination to ensure current record levels of economic growth are sustained; the economy is managed in a responsible and prudent manner in the interest of all citizens; the benefits of economic growth and social solidarity are maximised, and problems of social exclusion and marginalisation are tackled effectively at source.

The national anti-poverty strategy framework put in place by the Government, and, in particular, by my Department, will ensure key objectives on social inclusion are delivered across all Departments and public bodies. In this, the first budget to be prepared by the Government, we will set out the first steps of the redefinition I referred to earlier — to highlight the priority areas for future development of our system of social, community and family support as we move into the new millennium. Unlike Deputy de Rossa who spoke endlessly about the need for a strategic approach and yet chopped and changed from one year to the next, I will provide a coherent and focused approach to welfare reform.

In the 1980s and early 1990s we were faced with particular economic difficulties, including very high unemployment, to which the social welfare system had to respond. That situation has now changed dramatically and thanks to the macroeconomic benefits of social partnership and prudent financial management of the economy, Ireland is going through a period of intense economic and employment growth. Live register unemployment has dropped to levels unknown since 1990.

At the same time we are faced by new priorities. The number of older people is growing and will continue to increase significantly in coming years. The needs of people with disabilities and carers are achieving the recognition which they deserve. Furthermore, the addition of new responsibilities in regard to the community and family has raised new challenges for my Department.

In formulating the social, community and family affairs budget package, we have, drawing on the key objectives set out in the An Action Programme for the New Millennium, responded to these priorities by identifying five key themes which are securing the future for our older people; improving the real value of social welfare payments; supporting people with disabilities and carers; investing in employability and developing family and community supports. In formulating the detailed measures set out in the budget, we have drawn not only on An Action Programme for the New Millennium, but on the election documents of both parties in Government and the guidance of colleagues in this House and the Seanad.

The social, community and family affairs improvements in this budget package deliver on these key objectives. Costing an additional £125 million in 1998 and £225 million in a full year, this package represents a substantial first step in implementing our action programme. It also delivers on key commitments made in Partnership 2000. Above all, it reflects our belief that there is a need for a multifaceted approach to social welfare reform, an approach which will provide a secure income for those who rely on social welfare for some or all of their income, a real improvement in the position of our elderly citizens, real incentives to the unemployed to take up education, training and work opportunities, and which will support people and communities in their efforts to improve the quality of their lives.

One of the true marks of a progressive society is the regard in which its older citizens are held. As a nation we owe a tremendous debt of gratitude to the elderly. They have helped build the modern Ireland of today. They have ensured that their sons and daughters were afforded the best in life, often by making great sacrifices themselves. Older people should know that their country holds them in the highest esteem and that their contribution to the building of this nation is never taken for granted. However, research carried out by the ESRI and funded by my Department has shown that the relative position of older people has declined in recent years.

In response to this, the Action Programme for the New Millennium provides that contributory old age pensions will be increased to £100 over a five year period. In recognition of the fact that our older people have helped to build up the country into what it is today, we have decided to go beyond what is strictly required by that commitment in the first year and to give a special catch-up increase of £5 per week in the maximum personal rates of payments for pensioners aged 66 and over, with pro rata increases for people on reduced rate contributory pensions.

This increase will apply not only to people receiving contributory and non-contributory old age pensions and retirement pensions, but also to other people over 66 such as those in receipt of widow's and widower's pensions, blind person's pension, carer's allowance and a number of other payments and to people over 65 in receipt of invalidity pension.

In percentage terms, the £5 rise represents increases ranging between 6.4 per cent and 7.4 per cent. With an expected inflation rate of 2 per cent for 1998, the new payments represents real increases of between 4.3 per cent and 5.3 per cent for those receiving £5 per week. For example, a couple both of whom are entitled to get an old age contributory pension in their own right will now receive £166 per week — an increase of £10 per week. A couple, one of whom is entitled to a retirement pension with an increase in respect of a qualified adult over the age of 66, will receive £139.90 per week — an increase of £6.50 per week.

The real increases this year of between 4.3 and 5.3 per cent compare to the situation under the so-called rainbow Government of no real increase in 1995 — remember Deputy De Rossa's miserly 2.5 per cent increase at a time when inflation was 2.5 per cent, a real increase of 0.7 per cent in 1996 and only 2.5 per cent in the so-called election budget of 1997. Even the Deputies opposite must admit that this is the best real increase for pensioners in a long time and delivers, in one fell swoop, a higher percentage increase than Fine Gael, Labour and Democratic Left provided over the lifetime of their Government. This increase will benefit some 324,000 claimants, about 36 per cent of all social welfare claimants. It will mean that social welfare payments to older people will be above the minimum rate recommended by the Commission on Social Welfare.

In recognition of the fact that the budget this year comes earlier in the year, we have decided to bring social welfare increases into effect from the first week in June 1998, providing an additional two weeks increase in 1998 compared to this year. I am pleased that increases in all weekly social welfare payments will be brought forward to the first week in June 1998.

In addition to the rates increase for older people, I am also introducing an important improvement to the free travel scheme. With effect from October, 1998, the free travel companion pass will be extended to cover all pensioners, aged 75 and over, who are unable to travel alone. This measure will address one of the features of the free travel scheme which has been the subject of some criticism, that is, where a person who is entitled to the free travel pass is unable to avail of it because he or she cannot use public transport without the assistance of another person. The free travel companion pass will enable someone to accompany the pass holder at no additional cost. It is estimated that as many as 17,000 people will benefit from this measure.

Revised capital assessment provisions which improve the position of the vast majority of pensioners affected will be extended from June 1998 to include the rent allowance which covers former controlled tenancies.

In the means test for the widow's and widower's non-contributory pension, I am introducing provisions with effect from April 1998 to exempt rental income from the assessment of means where the income is in respect of a person who lives with and pays rent to the pensioner.

Taken in conjunction with the extremely beneficial tax changes announced yesterday by my colleague, the Minister for Finance, in relation to the elderly, these measures, and in particular the £5 increase, enormously improve the position of pensioners.

Partnership 2000 guarantees that the real income position of those dependent on social welfare will be protected and enhanced and that the minimum rates recommended by the Commission on Social Welfare will be implemented before the end of the Partnership 2000 in 1999. In this budget I am delighted that we are able to provide a general increase of £3 for all those claimants not already benefiting from the higher increases for older people, with pro rata increases for people on reduced rate contributory payments, together with a 3 per cent increase, in general, in the rates of qualified adult allowance. This increase will be paid from the first week in June 1998. The £3 increase means that payments will rise by between 4.2 and 4.6 per cent, that is, a full 2.2 to 2.5 percentage points above expected inflation in 1998. Apart from the 324,000 people who will gain from the £5 increase, a further 566,000 people will benefit from this £3 rise.

As a result of these substantial increases, the two lowest payment rates — short-term unemployment assistance and the supplementary welfare allowance involving 57,000 people — will now have risen from 95 per cent to 98 per cent of the rate recommended by the Commission on Social Welfare. All other social welfare payment rates will have exceeded the CSW rate.

Among those currently on rates of payment below the Commission's recommended rate, £70.10 in 1998 terms, and who will move over that rate as a result of this budget are recipients of the old age non-contributory pension, widow's and widower's non-contributory pension, one parent family payment, deserted wife's allowance, prisoner's wife's allowance, blind person's pension, disability allowance, injury benefit, disability benefit and unemployment benefit.

To illustrate the scale of these changes, the House will be interested to learn that 93 per cent of people who rely on social welfare payments will now receive more than the CSW recommended rate. Unlike the previous Government which talked a lot about it but did not match rhetoric with performance, this Government, in its first budget, has more than achieved the recommended CSW rates for the vast majority of those who rely on social welfare payments. The full cost of these increases will amount to almost £108 million in 1998 and £181 million in a full year.

I mentioned at the outset that this budget was being presented by a Government which is delivering on its commitments. The increases in rates represent real and tangible progress towards meeting the commitment we made in our action programme to provide substantial social welfare increases, as well as the commitment contained in Partnership 2000 to reach the minimum rates recommended by the Commission on Social Welfare over the lifetime of the partnership.

In line with the commitment in the action programme to implement the report of the Commission on the Status of People with Disabilities, I am delighted to announce that we are meeting one of the key recommendations of the commission in my area by bringing all disability payments to over 100 per cent of the minimum rate recommended by the Commission on Social Welfare. The general £3 increase will bring the current lowest disability payments — disability allowance and blind person's pension — to £70.50 per week, which is over the commission's recommended rate.

The Commission on the Status of People with Disabilities has highlighted the importance of independence for people with disabilities. I have already announced a package of £5 million which will help people with disabilities to live independent lives. In order to facilitate people with disabilities in taking up rehabilitative work, I am announcing a significant increase in the amount which people in receipt of disability allowance and blind person's pension can earn without affecting their payment, from the existing £36.30 up to £50 per week.

The Commission on the Status of People with Disabilities recommended that incentives to take up employment should be available to people on disability payments. I am committed to ensuring that this recommendation is implemented by providing access to the back-to-work scheme operated by my Department and measures such as the income disregard announced today. I will look at this issue in the coming months to see what further measures can be implemented to support people with disabilities in gaining access to employment.

I am also introducing a change in the free scheme rules which will be of benefit to invalidity pensioners and recipients of disability allowance and blind person's pension. In future, people who transfer from one of these payments to another social welfare pension, for example, the widow's contributory pension, will be allowed to retain their existing entitlement to the free schemes. This change recognises that, in the great majority of cases, such people will continue to be disabled and they should not lose out on transferring to a different type of pension payment.

Carers play a crucial and often invisible role in communities. Many of them feel isolated as they go about their work, while some may feel a lack of appreciation. Governments should care for the carers and acknowledge the value of their contribution in a practical manner. The action programme provides that the value of the carer's allowance will be increased in real terms. As announced, this year we are increasing the allowance for carers over the age of 66 by £5 per week, with a £3 increase for carers under 66 years.

We are also providing, with effect from October 1998, that all recipients of a carer's allowance will be entitled to a free travel pass in their own right. At present, a carer can only travel for free when accompanying the person for whom they are caring. This measure will provide them with a degree of independence and will facilitate them in getting out and about and keeping in contact with family and friends. I am also introducing provisions which, in the case of the carer's allowance, will allow for the disregard of non-national disability pensions up to the level of the maximum rate of old age contributory pension.

The carer's allowance is currently under review in my Department. This review is considering the purpose and development of the scheme and its future potential both in terms of its operation and in the wider context of care provision in the home generally. It will also examine the potential for the development of provisions for carers through the social insurance system and the role of the private sector. In the light of that review, I will bring forward a range of measures in next year's budget.

I want to refer to employment support and the measures being introduced in the budget. Unemployment is falling, while strong economic growth is leading to massive job growth. This is in stark contrast to the position a few years ago when we were faced with a stagnant job pool and high levels of unemployment. Unemployed people often found themselves in a hopeless cul-de-sac. Fortunately, the position has changed dramatically for the better and we must refocus our policies radically in order to get the best from the Celtic tiger.

This refocusing is being undertaken against the background of a sustained reduction in the numbers signing on the live register. It is worth pointing out that the live register includes people who are working part-time and others who are signing for credited insurance contributions. The downward trend in unemployment is forecast to continue. The latest analysis produced by FÁS and the ESRI suggests that job creation will continue to increase in the coming years. It is notable that the most rapid growth is predicted to be in the high skill occupations which require third level qualifications. It is also predicted that there will be high growth in sectors which require second level education and vocational training. It is crucial that the dramatic changes in the nature of the unemployment problem are mirrored by a radical change in our unemployment and social welfare policies. I am determined to ensure that my Department will be to the forefront in achieving that radical change. In line with EU guidelines, we must move from paying income support as a response to unemployment to investing in employability so that the unemployed can share in the benefits of economic growth.

The measures adopted in the budget reflect this changing approach. While the financial position of the unemployed has been improved substantially by the general £3 rate increase, we are targeting additional expenditure at those areas which will help to develop people's skills and support them in making the transition to work.

We are implementing the commitment in Partnership 2000 to calculate family income supplement on a net income basis. FIS is designed to ensure that we give unemployed people an incentive to take up work and employees an incentive to stay in work by providing an income supplement to low income families in employment. FIS currently supports the income of some 12,000 workers with families.

A drawback of the scheme was that entitlement was calculated on the basis of gross income and as such failed to take account of the effect of taxation on income. This meant that a FIS recipient's disposable income could be reduced as a result of entering the tax net because the person could also experience a decrease in the amount of FIS paid. Partnership 2000 contained a commitment to change the calculation of FIS from its present gross income basis to a net income basis and I am pleased that we are meeting that commitment in the budget. This move, which will take effect from next October, will strengthen the link between FIS and employment while overcoming the poverty trap associated with the current arrangements.

In examining the cost of this change, we were able to use more up-to-date data than was previously available. It was found that the cost was lower than previous estimates had indicated. Those estimates were based on 1987 survey data, updated to current terms. More recent data, based on the ESRI 1994 "Living in Ireland" survey, which was partly funded by my Department, has now become available. The estimates based on this data indicate that the cost is now considerably lower. The full year cost of the FIS changes in the budget is approximately £10 million.

We are also increasing the weekly income thresholds for FIS by £7 at each point with effect from June 1998. This will have the effect of making existing FIS recipients some £4 better off each week. These measures will significantly increase the level of FIS payable and the rewards from taking up employment. The combined effect of FIS, the back to work allowance scheme and the special tax allowances for the long-term unemployed announced yesterday by the Minister for Finance will ensure that people are always better off at work than on welfare.

We are also providing an extra 5,000 places on the back-to-work scheme, an additional year's payment for self-employed people on this scheme, bringing it to four years in total, and a new back to education programme. I recently launched independent evaluations of the back to work allowance and the area based allowance enterprise schemes. The main thrust of the evaluation shows that these schemes have been very successful in motivating unemployed people to get back to work. They have been particularly successful in motivating so-called "discouraged" workers to get back into the labour force by providing them with a link into employment. The Pacsort company in Dundalk in my constituency is an excellent example of the contribution these schemes can make in getting long-term unemployed people back to work.

The forecasts of survival rates look promising and already there are thousands of success stories involving people who were previously long-term unemployed and who were encouraged to start a business with the support of these schemes. Many of these entrepreneurs are now employing people and the benefits of these initiatives are reaching beyond their targeted sectors. As a result of these evaluations, we are providing for those who are long-term unemployed a further 5,000 places on the back to work allowance scheme from January 1998, bringing the total number of places up to 27,000.

We are also integrating the area based allowance more fully into this scheme. Up to now the area based allowance, which is equivalent to a full unemployment payment for the first year, has been available to those taking up self-employment only in areas covered by the area partnerships. The operation of the area based allowance in certain areas has, however, led to the creation of a two-tier system of financial support for those long-term unemployed who take up self-employment opportunities. To counter this, I am in effect introducing a four year back to work allowance in all remaining areas for unemployed people who take up self-employment. This will provide transitional support amounting to 100 per cent, 75 per cent, 50 per cent and 25 per cent of their unemployment payments over the four years. This measure will encourage a greater number of long-term unemployed people to seek to establish their own businesses.

There is a need for much greater emphasis on developing the skills and qualifications of people out of work. I have decided to bring together the existing second chance education schemes operated under my Department as part of a single back to education programme embracing both second and third level. The existing book allowance of £100 is being increased to become a cost of education allowance of £150 per year. I am delighted to announce that, for the first time, students with disabilities in receipt of disability allowance and blind person's pension will be able to qualify for the scheme. I will be making a further announcement in this regard shortly.

In 1992, only 1 per cent of the Department's budget on unemployment was spent on active measures to get people back to work and support employment. By 1997 this proportion had risen to 12 per cent and, as a result of the measures we have introduced in this budget, that proportion will increase to 15 per cent in 1998. I aim to achieve a target of 20 per cent by 1999.

A further way in which people can be encouraged to get back to work is through increasing their take-home pay. One of the objectives of the Government's action programme is the reduction of PRSI, with particular emphasis on the low paid. The £20 per week increase in the PRSI free allowance, announced by my colleague, the Minister for Finance yesterday, benefits more than one million employees. The measure will be particularly effective in improving the return from work for the nearly 60,000 employees who earn between £80 and £100 per week who will now be exempted from making an employee PRSI contribution. In addition, the earnings limit for the lower rate of PRSI is being increased to £270 per week. This extends the application of the lower rate to a further 27,800 employments. Almost two-thirds of all industrial, commercial and service sector employments, a total of more than 725,000 jobs, will now attract PRSI at the lower rate.

It must be remembered, however, that the incentives arguments in favour of PRSI reductions must be balanced by the equally important objective of preserving the social insurance fund. Social insurance plays a key role in the provision of social protection in society. People, when they are economically active, make contributions to the social insurance fund according to their ability to pay and depending on the range of benefits and pensions for which they are covered. These contributions will amount to approximately £1.92 billion in 1997, they fund the pensions of an earlier generation of contributors and pay benefits to persons who are not working because of unemployment or illness. Social insurance contributory pensions and other benefits are paid to more than 414,000 people and this number will increase as the age profile of the population grows. The implications of this increase have been highlighted in the actuarial review which I published recently and will be considered further in the light of the report of the national pensions policy which I expect to receive shortly.

The social insurance system represents a long-term contract between employers, employees, the self-employed and the Government. It achieves solidarity between generations by funding the payment of contributory pensions to an earlier generation of contributors and between those at work and those currently not at work. It is vital, therefore, that the social insurance fund is protected in the future so that it can meet its short and long-term commitments.

All the pro-employment measures I have described, in conjunction with the substantial beneficial tax changes announced yesterday by my colleague, the Minister for Finance, will provide a real incentive to unemployed people to avail of work opportunities, and effectively nail the myth that people can be better off on welfare.

In the area of family supports, there is general agreement that child benefit provides the best form of child income support. Child benefit provides support directly to the carers of children and, unlike other forms of child support, such as child dependant increases, it does not act as a disincentive to take up employment. There is widespread agreement that child income support policy should focus on improving child benefit and this will be the approach which I will take in this and coming years. In this year's budget I am introducing a range of measures to improve child benefit.

Across the board increases of child benefit are, however, very expensive but proposals by various commentators to target increases, for example, by making child benefit taxable, have their own difficulties. There is, however, another way to target child benefit. When the payment was introduced by Sean Lemass in the 1940s it was originally provided only to large families on the basis that such families were most affected by poverty.

Research carried out by the ESRI indicates that this is still true. For example, a two adult household with one or two children has a risk of poverty of 14 per cent. In contrast, a two adult household with three children has a risk of poverty of 22 per cent and this rises to 38 per cent for families with four or more children. Thus, by concentrating increases on the larger families, resources will be better targeted at those most in need.

Accordingly, as part of a long-term programme to improve child benefit significantly, particularly for larger families, we are providing for increases in child benefit of £1.50 for the first two children and £3 for all subsequent children to bring the monthly rates to £31.50 and £42 respectively. A family with four children, for example, will now receive monthly payments of £147 or almost £34 per week, an increase of more than £2 per week.

In line with election commitments, we are providing for a new payment of 150 per cent of the normal child benefit rate for twins. In other words, where there are twins in a family, each child will receive one and a half times the appropriate rate of child benefit. An estimated 12,500 sets of twins will benefit from this measure. We are also increasing the grants payable on the birth of three or more children to bring them into line with the existing arrangements for twins. This will mean that families with triplets, quadruplets and other multiple births will receive a grant of £500 on birth, at the age of four and at the age of 12. The improvements to child benefit which I have outlined will cost £28.5 million in a full year. Those improvements will take effect from September and will mean that more than 500,000 families and more than one million children will benefit. Taken with the significant improvements to the family income supplement scheme, the position of families with low incomes will be particularly enhanced.

It has been stated that we are giving less money by way of child benefit than the outgoing Government proposed in its so-called election budget, but the figures speak for themselves. The rainbow Government proposed an increase in child benefit totalling £8.33 million in the budget year and £25 million in a full year. Taking normal rates of child benefit and rates for twins, we are giving in this budget £9.46 million, nearly £1.2 million more in the budget year and £28.5 million in a full year.

Under this Government, the remit of my Department has been substantially increased. In this context, my Department has been assigned additional responsibilities which it will shortly take over. In line with the commitments set out in An Action Programme for the Millennium and informed by an interim communication from the Commission on the Family, I am pleased we have been able to make provisions in respect of a number of important new pro-family measures. In particular, I am moving to establish a national mediation service as provided for in the action programme through the provision of very significant additional funding to the Family Mediation Service in 1998.

We are also providing for a range of additional measures including the establishment of 25 new community and family centres; increased support for marriage and child counselling; the establishment of a family affairs unit in my Department and pilot programmes on parenting and family services. I will announce further details on these items in the near future.

Communities provide an essential support to the fabric of our society, a support which enriches and enhances all our lives and without which public services could not succeed. I am determined to ensure that community and voluntary organisations can grow and develop in a supportive and enabling environment. In 1998, I will bring forward a White Paper on the Community and Voluntary Sector. In addition, I will establish a community trust to bring business funding and know-how to support community development; in line with the commitment in Partnership 2000, I am providing additional funding to the Community Development Programme; I will establish a new community and family fund with additional funding for voluntary organisations. I am enhancing the capacity of the National Social Services Board to support volunteering and information provision by voluntary organisations.

In this first budget to be introduced by the Government, we have demonstrated our ability to deliver on the commitments contained in An Action Programme for the Millennium and in Partnership 2000. The spending increases provided for my Department's areas of responsibility are well targeted. The measures we are introducing will have the effect of improving the quality of life of the elderly, improving the living standards of the unemployed and those in low paid employment and enhancing the prospects of securing employment, removing disincentives to employment and increasing the return from work, improving the position of all families, particularly larger families who are at greatest risk of poverty, achieving greater social inclusion and enhancing the role of the community and voluntary sectors.

This budget delivers on Partnership 2000 by increasing the real value of social welfare rates, meeting the Commission on Social Welfare recommended rates for the vast majority of people on social welfare, putting family income supplement on a net income basis and extending the community development programme. It also delivers on the action programme by moving very significantly towards pensions of £100 per week, by improving the real value of the carer's allowance and disability payments and by moving to establish a national mediation service.

Mr. Deenihan

Before commenting on the provisions of the budget I will refer briefly to its background. It is regrettable that to date Government commentators have not acknowledged the major contribution of the previous Government to the prevailing favourable economic conditions. This is the type of budget any Government would like to be able to introduce.

Mr. D. Ahern

At least the Deputy is admitting it is a good one.

Mr. Deenihan

We have the strongest economic environment in the history of the State. Sustained growth, record levels in job creation and revenue buoyancy were evident long before the current Government took up office even though it convinced the people that things could have been better. We now realise the Government is continuing to implement the policies of the previous Government, giving a little here, taking a little there and basically heading in the same economic direction.

The use of budgets merely to adjust and shift the edges of economic policy is no longer sufficient. That is more or less what this budget set out to do. A budget must fulfil a strategic function, it must enhance our competitiveness which is at the centre of our capacity to produce and sell on the domestic and world markets. In turn, our ability to compete will determine living standards, employment levels, tax rates, social welfare benefits and the amount of revenue we can invest in infrastructure.

As already stated by Deputy Noonan, the Minister should have taken account of two imminent changes in our macroeconomic environment, the advent of EMU and the expected reduction in EU support in the form of Structural Funds and under CAP. Public finances must be sufficiently robust to accommodate the loss of revenue from reduced EU Structural Funds. It is worth noting that in 1997 net transfers from the EU are expected to amount to approximately 3.8 per cent of GDP, equivalent to approximately £1.7 billion or almost 10 per cent of Government expenditure. These changes in the macroeconomic environment require firm control of current expenditure as the single most vital element of a strategy to develop a competitive economy. The Minister is committed to more than £1 billion of spending above his target, some of which he achieved through creative accounting by bringing forward expenditure to 1997, no doubt blemishing the record of the previous Minister for Finance as well as making commitments to spending in 1998 which will weaken our competitive position when we enter EMU and receive less structural funding.

Deputy Noonan also referred to our infrastructure, particularly our roads structure. People are becoming increasingly frustrated with the high density of traffic on our roads. It is affecting investment, particularly in rural areas. An Italian company considered taking over a business in Listowel that had gone into liquidation, but decided against it because of the length of time it took to travel from Dublin to Listowel, mainly because of the density of traffic on the roads. This bears out the necessity to invest in infrastructure in a growing economy. The latest ESRI medium-term review highlights that high growth requires high levels of investment merely to keep pace with the volume of activity. Higher than anticipated growth since 1994 already suggests that the current tranche of Structural Funds would have been insufficient to match our recent economic performance. This is a strong argument for tighter control on current expenditure to make resources available for capital expenditure on roads, research, development and information technology.

I was disappointed the Minister did not refer in more detail to the national debt when he has so much money at his disposal. The current debt rate of £30 million is more than eight times the 1976 level. Debt repayments in 1997 are estimated to be approximately £2.5 billion, equivalent to about one-sixth of our tax revenue. A reduction in debt service costs would have a rat-chet effect, permitting greater tax reform, higher capital expenditure and stronger growth. Growth would ensure revenue buoyancy to facilitate additional debt reduction. Our national debt should be examined carefully over the next three budgets. We have addressed to some extent the issues of personal taxation and corporation tax, but the national debt or the cost of servicing it have not been addressed. Economies move in curves and if we run into financial difficulties in the future our debt burden could strangle our economy. The higher our debt the more we will have to pay if international interest rates get out of control again.

Great play has been made of the concessions in personal taxation. While I welcome them, they should have been directed more at the lower to middle income tax groups than at the higher income tax groups. Members of the House stand to benefit more than those on low or middle incomes. A number of sectors benefited to a greater extent from the tax give in last year's budget. For example, single people earning £10,000 per annum benefited to the tune of £414 last year, but this year they will benefit to the tune of £223. People on the average industrial wage of approximately £15,000 benefited to the tune of £432 last year, whereas this year they will benefit to the tune of £410. When one considers that this will not be paid until next April it will have little effect on the living standards of workers. It is unfair and inaccurate for the Government to give the impression that working class people have been given a Santa Claus budget. The Government should not be raising expectations. The majority of people will be disappointed when they realise how much they have to spend.

The previous two budgets gave considerable tax breaks to this sector. For example, a married couple with two children earning £20,000 gained £841 in last year's budget, this year they only gain £487. Those earning £50,000 will gain over £1,000 this year. These are selective examples. We should target concessions at lower and middle income earners who are hardest pressed.

This budget does not create the tax wedge to which we have referred. The Minister has not taken the opportunity to provide an incentive to work. I welcome the reduction in the rates of corporation tax from 36 per cent to 32 per cent and 28 per cent to 25 per cent. We have to proceed towards a single rate of, approximately, 15 per cent, depending on what we can negotiate in Europe. However, this budget is a move in the right direction. A lower standard rate of corporation tax will allow for increased reinvestment in small businesses and provide an important boost to the employment intensive service sector. In addition to tax incentives, this will give businesses an incentive to employ more people.

A significant reduction in the rates of corporation tax was needed. The rates in the UK have been reduced from 33 per cent to 31 per cent, backdated to April. The rate for small businesses was reduced from 23 per cent to 21 per cent. People doing business in the UK and Ireland state that it is more competitive to pursue their business interests in the UK. It is more advantageous for them to base their headquarters in the UK because of the social costs and competitiveness of the British economy. This is why the reduction in our corporation tax rates was important.

The increase of £5 in social welfare payments may seem a big concession. The previous Government made no substantial increase in the old age pension. However, a £5 increase is not adequate. The financial position of pensioners must be looked at carefully. They are poverty stricken. They are the people who built this country and they deserve better treatment. This increase is more than they got last year. However, when one looks at general inflation, the cost of vital necessities, such as fuel, has increased. Pensioners are less well off than they were five to ten years ago.

This is the first budget since the Government introduced its national anti-poverty strategy. The agency suggests that the budget should be audited to ensure that it is consistent with the principles set out in the strategy and that budget proposals should be independently analysed with regard to their income distribution effects. The Government should accede to this suggestion as it is important to know how budgetary provisions will affect vulnerable sectors of society.

The Combat Poverty Agency made a strong case for increasing child benefit by £7. However, we have an increase of £1.50 per month for the first two children and £3 for subsequent children. Deputy Ahern was selective in his figures. The rainbow Government increased child benefit by 60 per cent. This year's increase goes nowhere near that figure.

I welcome the provision made for investment in Croke Park. It is right that the headquarters of the GAA should be of international standard. The Taoiseach and the Minister for Finance are strong supporters of the GAA and this is reflected in the £20 million contribution. There is need for additional funding for clubs and pitches throughout the country and the grassroots of the organisation should not be ignored. It is right that the GAA should have a better stadium than other codes such as soccer and rugby. I am sure this funding will be appreciated.

The previous Government was often accused of being anti-farmer by the Opposition. This Government must go down as the most anti-farmer Government ever. It has been lethargic as far as our foreign markets are concerned and has cut the contributions to farmers in the Estimates. There is nothing in the budget apart from a small increase in headage grants to suggest that the crisis in farming is being taken seriously.

Debate adjourned.