I wish to share my time with Deputy Naughten.
Financial Resolution No. 4: 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 of State at the Department
of the Taoiseach).
That is agreed.
Yesterday's budget reminded me vividly of a certain event that took place with a similar fanfare, red smoke, balloons and champagne – the Eircom launch. At the time all the spin, hype and PR had an air of euphoria about it. There were no losers, everyone was a winner and stood to gain very substantially. As we know, that cream turned very sour for those investors. They face little prospect of getting their money back, leaving aside a windfall. They were battered and bruised by the major shareholders withdrawing, about which they were not told. All the assurances from the Minister, Deputy O'Rourke, the Taoiseach and the Tánaiste at the time and all the spin and hype were just froth that disappeared into a more sober reality. It is the same with this budget. I acknowledge that it is impossible to give away £4 billion and not have some good news to tell, but this budget gambles with our economic prosperity. It raises the stakes enormously.
There are some clear warnings the Government needs to take heed of. In economic history there is no case where oil prices have doubled and house prices have more than doubled where there has not been an economic recession. What has cushioned the country from very high inflation and loss of competitiveness has been the drop in the value of the euro. The Government inherited the lowest inflation in Europe, 1.25%, but we now have three times the European average inflation. We now have the highest inflation in 18 years. Having regard to the prospects for inflation, local authorities have been advised by the ESRI to factor in a 7.5% increase into their estimates for the provision of the same public services. I am advised by the CIF that construction inflation to build a similar house, road or school is rising at 15% per annum. Inflation is out of control. All these pressures are building up in the economy leaving aside the wage inflation pressure. What has cushioned the economy has been the drop in the value of the euro, which has allowed us to remain competitive, particularly in our principal market, that of the UK, our nearest neighbour. If the euro appreciates in value by up to 10%, which is not impossible, there is a risk that on the rebound we will be seriously exposed to a cost price squeeze. We will loose our competitiveness, our export markets, jobs and investment. What will the Minister for Finance have done at this critical juncture? Like a power hose of high octane fuel, he will have pumped an expenditure of £4 billion chasing very limited capacity on the embers of an inflation developing economy. The construction industry and the labour market cannot absorb that level of growth. It does not have that level of spare capacity. What happens when too much money is chasing too limited a capacity, is that inflation rises. I greatly fear that when we move to the reality of this budget, the reality of this attempt, for political reasons, to position the Government favourably for an election, it will be similar to the Nigel Law son era in the 1980s in the UK. Then add to that all the populace reaction to those budgets, where taxes were slashed and people were thrusting forward. What happened? The UK manufacturing industry was decimated as inflation took hold. The UK lost competitiveness and there was negative equity in the housing market when people could not retrieve the equity in their house based on the previous mortgage they had taken out.
We have all the ingredients in this historic gamble of £4 billion of moving from boom to bust. That is my first serious concern. The analogy with the Eircom launch is entirely valid and the 600,000 people who are left holding share certificates will know what I mean in terms of the ultimate pain they suffer.
The second area I wish to touch on, which is the most gaping, glaring omission and oversight in the budget, a matter on which I have the unique experience to speak, is the BSE crisis. I was Chairman and President of the European Council of Ministers in the latter half of 1996 when we had the Presidency of the European Council, when the last BSE crisis was at its height. I know what the decisions of the Council of Ministers on 4 December mean. The decision to not feed meat and bonemeal to any pigs and poultry means there is no market in meat and bonemeal. It is now a commodity to be disposed of.
The second decision to shoot to kill, to destroy or to screen all animals over 30 months has major economic significance. I want to develop this point because the mandarins in the Department of Finance have not got to grips with the reality of it. Not one penny has been provided in the budget to deal with the BSE crisis. This is not only a crisis for farm incomes, it is a crisis for the Exchequer. If the Government is in any doubt about it, members of it should go to the UK Minister for Agriculture in Whitehall, as I did. Europe is going down the track of the destruction system that the UK had to go in response to BSE. That cost it billions of pounds.
I will tell the Government how the time bomb on which it is sitting will detonate. Very shortly after the bank holiday on 1 January, when these decisions come into effect, the Minister for Agriculture, Food and Rural Development, will get a call from the rendering and meat and bonemeal group and subsequently from meat processors to say, "Sorry, there is no point in us rendering meat and bonemeal because we have nowhere to sell it; it is a waste product". We produce 140,000 tonnes of this. They will say, "Sorry, we are closing down the rendering plants because there is no one to buy our meat and bonemeal". Very quickly Larry Goodman and all the meat factories will be into the Minister to say, "Sorry, we have trolley loads of offal piling up in our meat factories – as they said to me one Easter Tuesday in 1996 when they said – we can't slaughter animals anymore because there is nowhere to go with the offal." They landed into my office to tell me that the meat processing industry had come to a grinding halt. There is only one group who can buy the meat and bonemeal, that group sits in the Government. It is faced with the same situation as was the UK. It will have to buy the meat and bonemeal, store it and dispose of it. There is no other reality. No one inside or outside Europe will take it off the Government's hands. We have been getting rid of it by way of pig and poultry feed. That decision on that matter is one made by the European Council.
I now turn to the second decision that was made. We have 750,000 animals over 30 months old. The Food Advisory Authority expert, Mr. Wall, has said they should all be destroyed and not consumed. Cow beef will be virtually unsaleable. That means the Government will first have to decide if the animals will be screened. On doing that, the first difficulty that will be encountered is that the incidence of BSE will rise, which will have a knock on effect on our beef markets. The most likely outcome is that the animals will have to be destroyed and rendered. Who will buy those animals? There is no market for them either.
Our beef industry is our largest indigenous industry, accounting for in excess of 3% of GNP. This is a nightmare for us. We have 1 million tonnes of beef to export, as we consume only 10% of what we produce. We are the largest exporter of beef in the Northern Hemisphere. This is a huge fiscal crisis. The Government will have to buy the meat and bonemeal, arrange for its storage and disposal and deal with 750,000 animals. In the nine month period between the latter half of 1996 and the early part of 1997, between slaughter premium, agreed with the Department of Finance, and top up payments in special beef premium, suckler cow premium and slaughter premium, we negotiated £400 million of compensation when there was a market for meat and bonemeal and for these cows. There will be huge difficulties disposing of that, therefore farm income compensation will be the third level of cost on the Exchequer. I know Franz Fischler has no appetite for picking up these costs. It has already been established that we will have to deal with 10% of the animals over 30 months, or 70% of that cost, and the entire cost of the meat and bonemeal.
No contingency provisions whatsoever were made in the budget for that. I can imagine the spin doctors saying: "Please, our whole budget arithmetic will be set aside if we have to deal with the reality of this. We could not go ahead with all the good news in our spin doctor programme for tax and social welfare increases and so on." Therefore they simply ignored the issue and pretended it did not exist. The Minister said it was too early to indicate this but if one goes to Whitehall one can find out exactly what it will cost and the way it will develop. I predict that it will cost the Government several hundred million pounds in the next two years to pick up the tab for the decisions made by the Council of Ministers in Brussels on 4 December.
The most serious and undermining aspect of the Government's handling of the economy relates to housing. If one talks to ASTI members, signalmen or members of the other 350 groups going to the LRC to discuss pay problems, they will say: "My partner and I are working and we cannot even aspire to buying our own home." That is the underlying pressure for wage inflation, particularly in the greater Dublin area. The average industrial wage is around £16,000 per annum while the average cost of a new house is in excess of six times that. Lenders will only give three times one's gross income, therefore there is an affordability gap for most people. The NCB report stated that only one fifth of people at work are now in the private housing market. One has to have an income of over £35,000 per year and that has been independently assessed.
What did the Government do about that housing crisis? The solution was very simple: demand exceeds supply, so we need to increase supply to 60,000 houses per year and we must build 500,000 more houses. That is the only solution to the housing crisis. What did the Government do? Absolutely nothing. During the Committee Stage debate on the Finance Bill, 1997, Deputy McCreevy, then in Opposition, stated in column 812: "If I had an accounting business and a farming business I could offset losses, one against the other. Revenue should look at the farming business from the point of view of a rule of standards." He went on to state that similarly, section 23 relief should be provided and he tabled amendments Nos. 17, 19, 71 and 81 to bring the property owning business into line with other trades and professions to offset one's interest costs against income tax.
The private rented residential accommodation sector report stated that we need 33,000 new accommodation units every year for students and those with contract jobs who do not wish to settle down in an area. I am now told that because of the Bacon report, and the 9% and 2% per annum provisions, investment in this sector is at a total standstill. Rents are due to increase by a minimum of 20% per annum and there will be a real, unprecedented crisis in the private residential market.
In addition, capital gains tax and the social housing provisions of Part V of the Planning Act mean that the supply of houses in the last quarter of this year and going into next year will reduce by 20%. At a critical time for supply, Government-inspired decisions will help reduce supply and the situation will become profoundly worse. This is very serious and will have a knock-on effect on industrial disputes, wage inflation and so on.
Part V of the Planning Act sets out that 20% of a housing development of a certain size must be set aside for social housing. However, no blueprint has been provided to ensure 20% of the land goes to the local authority at an agricultural price, neither is there a workable proposal to ensure that a local authority gets a certain number of houses free. There is total uncertainty in the construction industry as it cannot determine the price for the remaining 80% of the houses. The construction industry is saying it will not buy a pig in a poke and is backing off. Similarly, capital gains tax is at 20% but if one does not use it this rises to 60% within three years. Landowners are looking for indemnity against that, which results in a lack of supply of land for the market.
Those three measures, the capital gains tax, the Planning Act and particularly the Bacon measures, will restrict supply. The number of new units per year, instead of going from 46,000 to 50,0000 and on to 60,0000, will go back to approximately 30,000 per year. The underlying growth in the labour market, demographic requirements and reduction in house formation sizes mean these units will be required. Again, one will have too much money chasing too few houses and prices will continue to rise. That, more than anything else, will contribute to pressure in the economy.
There are other key differences between Fine Gael's policies on taxation, welfare and other issues and the Government's approach. If one gives away £4 billion a lot of Fianna Fáil cows are calving. There must be a lot of popular measures but some key points have been missed. The cut in the top rate of tax and the failure to exempt income within the national minimum wage is a serious error. If one earns the national minimum wage, which has been independently arbitrated at £220 for a 40-hour week, then one's gross and net pay should be the same. The resources were available to allow that in the budget but it has not been done. The stay at home mother receives an increase to £60 per week through the extension of individualisation but the fact that she does not qualify for the PAYE allowance is another serious anomaly. We have argued that the fairest thing to do would be not only to exempt the minimum wage but to introduce a new middle rate of tax between 20% and 40% at 33% because the key problem is not that our top rate of tax is too high but that people on very modest incomes are paying the top rate.
The biggest benefits in the package favour the better off and skew it in an unfair way. The small print of the PRSI provisions will be very negative for the manufacturing industry, which needs to reverse the brain drain and to get the top people in, particularly in the electronics sector. These are the companies which will pay the higher corporation tax. They go from 10% to 12.5%, so they get none of the benefits the service industry get, yet they will be faced with higher PRSI charges of £130 million with the abolition of the ceiling. In relation to welfare, I cannot understand how any Government could be proud of the fact that free fuel stays at the present level of £5 or £6 per week. The cost of fuel has increased enormously since the 1980s, when that was last adjusted, and this is a very effective cash scheme which provides for the real needs of pensioners during winter. I am disappointed that all that could be done was to extend the scheme by three weeks.
There is also a clear problem regarding chil dren under five years when it comes to child benefit. Such children are not in the formal education system and no provision has been made to give a variable rate for infant children or those under five. Resources should be targeted better, as children in primary or secondary school do not need child care. The cost of child care impacts most on those children who are not in formal education in terms of crèches, playschools and so on, yet that is not recognised at all. The Minister gave the impression he is knee-deep in analysis and reports on this matter, yet how he could miss that basic point strikes me as a glaring omission.
The Minister referred to the reduction of 1% in the top rate of VAT from 21% to 20% as helping e-commerce. There is no vision regarding e-commerce in the budget. It is not beyond the wit of mankind to devise, as President Bill Clinton did, a special VAT rate for e-commerce sales abroad. An imaginative proposal to stimulate sales on the web could have been brought forward but that will not be possible in terms of the alteration of the top rate of VAT.
The Government has missed a major opportunity to bring forward novel schemes to promote savings. I have spoken about the personal spending boom. All these lessons have been learned before. In the late 1970s, what happened with the huge release of money from that manifesto into the economy? There were more imports of cars, televisions and brown goods, all of which had to be paid for later.
Savings must be encouraged. We proposed that the first £5,000 of income from DIRT would be exempt to encourage people to save because there is such a low rate of return and there are many products that the insurance industry has put forward in terms of life assurance and the taxation of the exit of money from assurance and insurance investment schemes at 25%. Halving that to 12.5% was a particular budget submission. I have advocated that the NTMA should introduce an infrastructure bond of, say, five or ten years' duration. That would be very attractive and, like post office savings, tax free. These are all novel measures in savings, yet all we have is something that should have been done three years ago in relation to the credit unions. I am glad the Minister has eaten humble pie in that regard because his arrogance was completely out of line in relation to the excellent work done by that community based, non-profit movement.
The Minister is extremely vague in the area of charities. The section restricting donations to domestic charities needs to be completely revamped, with a minimum of £200. Voluntarism is the backbone of many activities in this country and I regret that the Minister has just made some nebulous reference to the Finance Bill and that he does not have any definite proposals at this stage.
There is a big hype about medical cards being extended to those over 70 but for those under 70, it is not so great. Many people do not reach that age; I think three score years and ten was the biblical provision. That is where Fianna Fáil clocks in for medical cards. The percentage of the popu lation with medical cards, and it varies from one health board area to another, has gone from just below 50% to about 30%. The number of medical card holders has greatly reduced. We propose that people under 18 in full-time education and people over 65 should get a medical card, and that will be our position in the election, but many other people could be considered. What about families where the wife has a part-time job and perhaps they have a little extra coming in because of overtime. They will lose their medical card because they are earning over £135 a week. Every week people come to my clinics to complain about that. A basic provision for a family of £200 of an income limit would be more meaningful than waiting till the person is 70. I regret the Government has not taken a more radical approach in relation to medical cards.
I am very disappointed in relation to the green agenda, my own area of responsibility in terms of the environment portfolio. There is no budget for recycling. There is a waste crisis looming in this country and 29 landfill sites are almost full. The Government does not have any coherent strategy other than blaming local authorities. Someone needs to drive waste management through a new authority, and set up the critical mass and the necessary measures for recycling. Plastic recycling facilities are a joke. Recycling facilities for cans, both steel and aluminium, do not work. Glass is the only facility that works. We have no tyre recycling facilities and in a whole series of areas we are the worst in Europe. A serious administrative and fiscal effort needs to be made to deal with recycling. Everyone agrees that 50% of our waste, two million tonnes a year, should be recycled but there is no infrastructure on the ground to deal with that. Also in that regard, I regret that there is nothing much for the green energy sector in terms of wind energy.
This budget has three extremely serious flaws. First, it is a recipe for boom to bust. Second, it ignores the reality of the cost on the Exchequer of the BSE crisis and, third, it fails to address the house supply impediments that this Government has put in place. When the froth wears off, these realities will emerge to the public.
I want to highlight a point Deputy Yates mentioned, the £4.5 billion which is being thrown into the economy. That is pouring petrol rather than water on the inflation fire and the knock-on bottlenecks such as the infrastructural deficits Deputy Yates highlighted. The Minister did not take the opportunity yesterday to focus on the issues of inflation and congestion, which are opposite sides of the same coin. Regardless of the amount of money thrown at certain elements of the system, it will not change the current position. The spend on the health sector has increased by 75%, yet people are spending longer periods on the waiting lists for treatment than before. There have been a number of instances of people dying while on the waiting lists. In my own area, the Western Health Board called a person on the waiting list for surgery who had died two years previously. That is the system the Minister for Finance is currently standing over, yet he is not prepared to tackle the bottlenecks in the system. There is a need to radically change the whole structure of our health service and other services if we are to get the benefit from the spend about which the Minister has spoken. Without that structural reform, the budget will not have the impact for which the Minister is hoping.
A sound economy is crucial to achieving a better quality of life. Such a vision cannot be built on policies which undermine our long-term competitiveness. Loose spending policies and heavy-handed bureaucracies have no place in a strategy to rebuild the quality of our public services. Our economic growth remains vulnerable. The threats are real. We need to consolidate our prosperity. Already the strains are evident. We are running into serious capacity problems. This is especially evident in the construction and housing sectors. It is also evident in the skills and labour shortages in the transport sector. The consequences are increasing pressure on wages and prices, and rapidly escalating congestion costs. Competitiveness would be quickly lost if everyone pushes for their own claim for a bigger share in the free for all. We must preserve and deepen the social partnership we have built. In a more open global marketplace, competitiveness is of fundamental importance. We must protect and carefully build on our competitive strengths. Public and private monopolies should be broken up and the State must confine itself to dealing with the regulatory issues necessary to protect the weak and maintain competitive conditions.
Yesterday the Minister spoke about reducing VAT to alleviate the effects of inflation on the consumer price index, and the Tánaiste also referred to that in the House last night, but unless the reductions in VAT are passed on to the consumer, they will not have the desired impact. The only way to ensure that is done is to have a strong Competition Authority but, unfortunately, the Government has squeezed the Competition Authority into a position where it is completely ineffective. The Tánaiste has provided funding for additional staff but without reform of the structure, that funding will not succeed in getting additional staff. The authority is finding it extremely difficult to recruit and retain staff, especially experienced staff such as solicitors, because of the uncompetitive pay structure and poor prospects for salary increases.
The Competition Authority is recruiting junior solicitors who are not experienced to deal with the level of resistance with which the authority has to deal in terms of anti-competitive practices and passing on the benefit of the decrease in VAT to consumers. Senior solicitors working in the private sector are paid the same salary as the Director of the Competition Authority and there is little chance of recruiting them into the authority. The Tánaiste has stated on numerous occasions that she intends to fully resource the Competition Authority. However, her inaction in solving the staffing difficulties has not only seriously compromised the effectiveness of the authority and the public perception of it, but it has also given a bad impression to potential employees. There is little point in talking about the elimination of bottlenecks or the need to improve competitiveness if the authority is not given the necessary resources. Fine Gael has proposed the establishment of a task force to look at the bottlenecks which are jeopardising our competitiveness and putting pressure on inflation and to put forward recommendations which can be swiftly passed by this House.
We should examine areas where the rates of price increase are above the norm and make them a priority so that the pressures are removed. Deputy Yates referred to housing, which is a good example. The 9% rate of stamp duty introduced earlier this year has put huge pressure on the private rented sector and is a contradiction to the proposals put forward by the commission on the private rented sector. Two years ago the Minister introduced the rural renewal scheme, the urban renewal scheme and the town renewal scheme. The 9% rate of stamp duty obliterates the incentives under these schemes. The objective of the schemes was to encourage investment in dilapidated areas of towns and rural areas which have been devoid of investment for generations and to revitalise them. The Minister has completely blocked such investment by the introduction of the 9% rate of stamp duty on second homes.
One of the consequences of this is that people are coming under increasing pressure in trying to find rented accommodation. I know a number of third level students who only managed to secure rented accommodation in Dublin last week. The Minister has continued to ignore this problem and did not avail of the opportunity to address it in the budget. He has ignored both the private rented sector and students who have to pay astronomical money for accommodation if they are lucky enough to get it. Many landlords are not prepared to rent to students and the rate of grant is not adequate to cover the cost of accommodation.
There has been a decrease in the number of students taking up science and technology courses in third level institutions. This comes back to the point made by Deputy Noonan yesterday that many Departments have returned money at the end of the year because they have not been able to spend it. The Tánaiste's Department returned funding allocated for investment in the science and technology area and ensuring we have an enterprise culture which will help indigenous industries to grow and expand in the same way as some of the major players in the IT sector. The Minister for Defence, Deputy Smith, who is a former Minister with responsibility for science and technology should realise the importance of investment in this area. Unfortunately, the necessary structures have not been put in place and the funding for this area has been returned to the Exchequer. The Minister for Finance has allocated the handsome sum of £0.25 million for the promotion of enterprise education at second level. However, not one penny was allocated for the promotion of science and technology. We can talk about enterprise all we like, but unless the basic fundamentals are in place in the economy and people can take up the skilled jobs we are wasting our time.
I wish to refer to an issue close to my heart, that is, school transport. I raise this issue because the Minister's proposals in this area are along the lines of the recommendations made to the Minister of State, Deputy O'Dea, 12 months ago in the Oireachtas Joint Committee report on school transport. Sadly, the Minister has failed to address the issue of dilapidated buses. It is not acceptable that children should have rain falling on top of their heads while travelling in school buses. The Minister did not avail of the opportunity in the budget to fund a rural transport initiative, as proposed in the report. He did not address the issues of bus safety, the provision of first aid kits and mobile phones on buses so that contact can be made with depots when they break down, over-crowding or the problem where children are abandoned outside schools at 8 a.m. and have to wait in the rain until the school opens at 9 a.m. The Minister had an opportunity to address these issues with the money available to him.
Sadly, the Government is not meeting the targets for infrastructure set out in the national development plan because of bureaucratic inertia and the turf wars between various Departments. Unless these bottlenecks are tackled and resolved the Government will not be able to deal with the infrastructural deficit. The Minister for Finance referred to reform of the CPO. However, the measures announced by him, which will have no net cost to the Exchequer, will not resolve the problems in relation to motorways, gas pipelines or fibre optic cable. These problems could be swiftly resolved if some imagination was applied to the projects. Instead of putting large integrated projects out to tender, the Government is breaking up the work into smaller pieces, thereby slowing down the process as each project has to go through a separate planning and tendering process. For example, the Dublin-Cork motorway will be built in six segments. It could easily be built in one segment and allotted to a single contractor at a competitive price. It is a matter of reforming the bureaucratic nightmare that exists to resolve some of these issues, provide competition in the marketplace and ensure we meet our targets, which need to be delivered on in terms of infrastructure.
Presentation nowadays is considered more important than reality when it comes to the annual budget. In every budget introduced by the Minister for Finance, Deputy McCreevy, we are told how immensely better off we will be but for most people it does not quite turn out like that. Every year we are told that so many wage earners have been removed from the tax net, a figure that hardly survives longer than the day on which it is announced.
For example, using the Minister's figure, he forecast on a post-budget basis that tax revenue for 2000 would amount to £20.15 billion. He told us yesterday the outturn will be £21.49 billion. That is an error of 7.5%. In other words, the Government took £1.34 billion more in taxes from people than even the Minister for Finance had planned in the current year. Yesterday he told us that on a pre-budget basis he expected tax revenues for 2001 to amount to £24.5 billion but that post-budget revenues would amount to £23.99 billion. In other words, after yesterday's measures introduced in the budget the forecast outturn will be £23.99 billion.
The first fact to be highlighted from these figures is that despite the hoop-la surrounding his tax cutting budget the Government next year plans to take £2.49 billion more in tax revenues than in 2000. The second thing that can be stated with confidence is that the Minister and the Department have again underestimated the resources available to the Minister for the coming year. One could see some merit in times of scarcity in the Department of Finance continually coming into this House and seriously, not marginally, underestimating tax revenue outturn.
Deputy Rabbitte, I ask you to refer to the Minister for Finance, not the Department of Finance or its officials. The Minister is responsible in this House.
You normally spend your time in that Chair, a Leas Cheann-Comhairle, asking me not to say things about the Minister. I will be very glad to comply with your stricture.
However, successive Ministers for Finance, since economic growth took off, have come into the House and made predictions which they must have made on the basis of advice from the model operating in the Department of Finance. The consistent under estimation of key economic indicators and outturns for the year to that extent by the Minister and the Department ought to be reviewed because I cannot see what purpose it serves nowadays. It served a purpose when times were bad in so much as it acted as a brake against Ministers for Finance and Governments taking measures they would have liked in terms of spending and so on, but when there is a Minister in office who, despite his image, has no regard for spending, I cannot see what the merit is in consistently under estimating the outturn.
The total tax take planned by the Government for next year is to increase. I acknowledge that yesterday those who have over the decades paid their taxes, DIRT and eschewed offshore banking got something back but it could and should have in certain areas been greater and it could and should have been better balanced and more equitably and fairly distributed.
I refer again to the Minister's figures in his Budget Statement to illustrate why the budget is not what it appears. The Minister stated:
Compared with last year a single worker on the estimated average industrial wage had £1,602 more in his or her pocket in a full year due to wage increases and tax reductions in my last budget. This overall increase represents a 13% increase for that worker's disposable earnings on last year. After today's budget this worker next year will not only receive a further 5.5% from the second phase of the PPF and an additional 2% as a result of the adjustments agreed on 4 December but will also benefit from tax reductions in this budget to give a total increase in disposable income next year of 13.5%.
That is a quite remarkable and succinct summary, which demonstrates that the worker on average wages, who most certainly did not feel he did well this year, will increase his disposable income next year by 0.5% – 13.5% in 2001 compared to 13% in 2000. The Minister's figures give a lie to the impression that the average worker will receive a huge benefit from the budget. Everyone acknowledges that last year's budget was skewed in favour of high earners, yet in this budget the person on average wages will improve his or her disposable income by 0.5% as compared to this year.
What the Minister's presentation unintentionally achieves is to highlight the extent of low pay in the land of the Celtic tiger. For example, take the Minister's claim that we now have a tax code which exempts 667,775 wage earners. What kind of an economy exempts this number of workers from tax when the exemption threshold is £144 per week or less than £7,500 per annum? Accepting that not all of these are single workers, a total of 667,775 out of 1.7 million workers shows that we have a huge low pay problem. In a country where the price of a modest home has doubled in four years the person on average earnings has no prospect of affording his or her own home.
A person earning close to the average industrial wage, say £16,000 per annum, will gain £620 from the budget while a person on £60,000 will gain £2,165 or a person on £100,000 will gain a little short of £3,000. This is perfectly consistent with the Minister's previous three budgets. If the cumulative benefit of his four budgets is analysed in terms of tax changes, it amounts to a gain of £1,138 for the person on the average industrial wage. However, the same effect over four budgets for a person on £34,000 is £4,862 and it is £6,422 for someone on £60,000.
If one examines a comparison between single and married persons over those four budgets in five different earning categories the figures are interesting in terms of the totals. A single person on £9,100 gains a cumulative £1,138, as I said, whereas a married couple receives £459. At £17,000 the figures are £3,842 compared with £2,192 for a married couple. At £34,000, the figures are £4,862 compared with £7,684. At £60,000, the cumulative benefit is £6,422 or, for a married couple, £9,244. At £100,000 the figures are £8,822 and, for a married couple, £11,644. In other words, the single person on £9,100 receives £1,138 and the person on £100,000 receives £8,822. If he or she is married and is on £9,100, the figure is £459 and £11,644 if he or she is on £100,000. There is no equity in that type of tax reform driven mainly by the Minister and her party, although she and the Minister for Finance are political Siamese twins and there probably was not much of a struggle in seeing eye to eye on it.
Which one should survive?
That is something the Taoiseach is actively considering. If he should separate them, the house of cards might come down.
The weakest link will have to go.
On the other hand, if he lets nature take its course, the Government might stagger on until next summer.
The tables of the Minister for Finance show that a single person on PAYE and earning no more than £9,000 a year will still pay tax. The Minister spent £371 million in reducing tax rates when that money could have been targeted at increasing the exemption threshold, thus benefiting all taxpayers but especially those on very low pay.
I am intrigued that a Minister for Finance would wheel out his surrogates to accuse, misleadingly, my colleague, Deputy McDowell, of being prepared to raid the pension fund. All the advisers recruited in Áras de Valera devise colourful sound bites. They do not read the policies published by other parties but they have sound bites on the word processor. All they need do is push a button and out they come. While they accused my colleague of being prepared to raid the pension fund, the same Minister in this budget has not hesitated from not only raiding the pension fund but also cutting the PRSI rates. We do not see any humbug in the two positions taken by the same Government.
Some employer bodies complained this morning about the abolition of the PRSI income ceiling but made no mention of the cutting of the contribution rate from 5% to 3% for self-employed and proprietary directors. The corporate sector has generally done well. I am not sure why it is no longer headlined because it used to be but one must now read the accompanying documents to discover that the cost to the Exchequer of the cut in corporation tax on the way to realising the single rate of 12.5% is £194 million. I thought that would have been headlined in the traditional fashion.
Small businesses receive further relief through the announced change in the definition of a small firm by the raising of the income limit from £50,000 a year to £200,000 a year, which is worth another £20 million. In addition, changes to the operation of capital allowances will cost the Exchequer and benefit business to the tune of £140 million in the next few years. The changes in respect of company cars will cost the Exchequer another £10 million over the next three years. I heard Turlough O'Sullivan saying on television last night that, from the chat he had with the Minister, she was prepared to re-examine the PRSI ceiling.
I did not say that.
I would like her to take the opportunity in addressing the House to say if she has given that commitment to IBEC. We already had the announcement last night about vehicle registration tax and it is important we should know the full extent of what is included in the budget.
When compared to this largesse, most social welfare recipients have less to exult about. The £8 per week basic increase is mean-spirited at a time of unimaginable riches. It brings the unemployment or disability benefit rate to £85. The provision for carers is indecent in a bountiful economy when only 5,000 extra will qualify for the modest allowance out of an estimated population of 120,000 carers. If the Minister was not going to take up the Labour Party proposal to use the £173 million windfall from the DIRT inquiry for the benefit of pensioners, then surely he could have ring-fenced it for the benefit of hard-pressed carers. The changes for medical card entitlements are minimalist and the Minister and Government have run away from the child care issue.
In an economy working almost at full employment, it is scarcely surprising that child care was a principal debate running up to this budget. In a society where ownership of a reasonable home is predicated on two persons going out to work, it is scarcely surprising that the grossly inadequate and hugely expensive child care issue should have been a main debate. Against a background where Fianna Fáil in 1997 promised that home-based carers would be given a tax free allowance and that working parents would receive an equivalent amount of tax relief, it is scarcely surprising now that there is such a feeling of let-down after a budget that avoided the issue and ran away from child care.
There is no point seeking to confuse child benefit, an instrument of social policy, with child care, a support to employment policy. I note that Barnardo's drew attention to the fact that Ireland has one of the highest levels of child poverty in Europe. Yesterday's improvements in child benefit are very welcome in the assault on child poverty. However, this ought not be confused with the child care issue.
With the school teachers at the gates of Leinster House, primarily because two teachers can no longer secure a mortgage for a reasonable home, the Minister's response to the housing crisis is the introduction of a rent a room scheme. If one cannot afford a home, take in a lodger. This is almost the first indication we have had in the lifetime of this Government of a rift between the Torvill and Dean of the Government. The Minister is determined to drive the women of Ireland back into the workforce, but the Minister for Finance wants to turn them into landladies. It is back to the 1940s and 1950s as a new version of the glimmerman will inspect who is sleeping in the attic in what the Minister for Finance says are the many homes where the possibility exists of spare accommodation being rented out.
The Minister has long boasted he is a man of the world. Does he really think people driven to taking in lodgers to pay the mortgage will be over the moon to learn that rental income up to £6,000 per annum will, in future, be exempt from tax? Does the Minister for Finance, above all politicians in this House, believe that unfortunate people trying to repay a mortgage are not already doing precisely that? Who is eligible to benefit from this creative attack on house prices? Do the landladies in Maynooth qualify for this £6,000 allowance? It shows the facility with which Fianna Fáil can push the buttons in terms of who they should support because, in terms of making—
The landladies in Tallaght will also qualify.
—a constructive contribution to the housing crisis, this cannot be taken as a serious proposal. I do not know if it means that St. Luke's in Drumcondra will be brought back on stream—
Now they have to pay rates.
—in terms of assisting with the housing crisis, but it is certainly a novel approach if the Minister thinks we would take it seriously. The Minister believes that some new capacity will be freed up in this measure, but he does not appear to know what is happening on the ground. This is the same Minister who, for example, demonstrating his knowledge of the black economy, told the RTE reporter George Lee, when the scandal about tax evasion in the banks broke: "The sums uncovered are very small in the context of the level of tax paid each year, so I think we need to put it in context". If the sums are small in the banks that were involved in tax evasion, they are very small in terms of the unfortunate young couple who have to open their home unwillingly to a lodger in order to be able to pay the mortgage. The Minister went on to say:
It is an insult to the vast majority of taxpayers to say that tax evasion was widespread. The question of tax evasion is not a unique Irish problem, nor is the question of residents having offshore bank accounts for tax evasion a unique Irish thing, as well. So, these things should be borne in mind rather than people going off half cocked and making ridiculous and outlandish allegations, both against the Revenue Commissioners and against other people as well.
That is the hard-bitten Minister for Finance who knows what is going on on the ground. That is his assessment of what is happening when it comes to multi-million pound tax evasion facilitated by the financial institutions, yet this is the measure that he thinks will make a contribution towards freeing up capacity to deal with the extent of the housing problem.
Inflation has again soared and Ireland is once again a high inflation member of the European Union. In 1999 the headline rate of inflation was just 1.6%. In his budget speech a year ago, the Minister forecast an inflation rate of 3% for the year 2000. This year, however, inflation will actually average 5.5% according to the Minister. This is likely to be another miscalculation. The average for this year understates the true picture in that it does not convey that inflation has continued to rise through the year and is currently at around 7%. A year ago the Minister was of the view that inflation would rise during the early part of this year but would then fall back. It has not. It has continued to accelerate through the year, so this was yet another serious miscalculation. The Government has actually managed to blow away the low inflation economy that it inherited. We now have an inflation rate seriously in excess of the EU average and also seriously in excess of the average in the euro zone. The Minister's response yesterday was to engage in a sleight of hand, juggling the consumer price index figures for next year by cutting VAT and excise on fuel, but will it work? There are no measures in the budget to ensure that the cut in VAT will be passed back to the citizens.
The Competition Authority is under resourced and understaffed. Rather than giving resources to the authority to police the new regime, the Minister simply said that if the cut in VAT was not passed back by business then that would be the end of VAT reductions. So much for attacking inflation. This is reminiscent of the phoney attempt to arrest excessive price taking by publicans. It did not work, but then one would only be disappointed if one was naive enough to believe that it was intended to work. Fianna Fáil will not take on the publicans. Does anyone seriously believe that the price of a pint will be reduced by 2p? Does anybody seriously believe that will be the outcome of the budget, given the manner in which the Director of Consumer Affairs has been obstructed, and given the flaws in the order made by the Minister of State, Deputy Tom Kitt? The Minister for Finance has actually facilitated a further 2p profit taking on the pint and the price of drink generally by publicans. The much hyped anti-inflation package does not amount to a hill of beans, and that is without going into the environmental arguments that have been raised about excise duties by other Deputies in last night's debate on the financial resolutions.
Fianna Fáil was never serious about tackling the issue of the publicans who contribute a disproportionate 0.9% to the consumer price index. Instead of causing the publicans to row back on the increases, the Minister made a flawed order which is being flouted and cannot be policed by the Director of Consumer Affairs. It will happen thus as a result of the budget measures which contain nothing to facilitate an attack on inflation.
On 8 October, the Taoiseach – bringing both sides of the road with him – told Seán Duignan:
The highest earners in our society should not have a difficulty with paying 44%. I don't think that's the argument; it is that people on relatively low levels of pay still drift into that higher tax rate.
The Taoiseach, of course, was only reiterating the fair-minded consensus that this year's tax reductions ought to be targeted at the lower to middle income category. IBEC has been strong in supporting Congress on the same issue, but whatever the Tánaiste wants, she gets. After her annus horribilis, the Progressive Democrats had to be given their way in reducing tax rates rather than spending the £371 million on genuine reform of the tax code that would benefit all, but more especially the low to middle income earners. It probably was not such a struggle inasmuch as the Tánaiste and the Minister for Finance are political Siamese twins. Having decided not to separate them, the Taoiseach decided to capitulate to them. Out the window went his fine words about targeting ordinary workers as, once again, the biggest gains accrue to the largest earners. The people who in bad times paid punitive taxes to keep our social services functioning, and who did not rush offshore with their money or take refuge in the nearest bogus non-resident account, get less than they deserve from yesterday's budget. At the same time, those who acquired tax exile status, real or imagined, will gain most, but then nobody ever accused this Government combination of being fair.
I agree that yesterday people got some of their own money back. The Government – which, in the words of the Tánaiste, is awash with money – could do no less. The Government could have done more, however, for the 200,000 in persistent poverty. People who fell out of the workforce because of accident, disability or ill health, and who paid punitively high taxes when they were at work, will now receive an extra £8 in disability benefit bringing the weekly rate to £85. The housing crisis threatens to undermine the economic boom. Some 46,000 people are on local authority waiting lists, and 60,000 people are on waiting lists for all forms of housing option. People are sleeping in doorways in our cities. Some 1,200 children are in bed and breakfast care in this city alone. What does this budget offer to redress the housing crisis? Rent a room and take in a lodger, is the response of the Minister for Finance.
The Labour Party, for example, supported the belated initiative on homelessness eventually extracted from the Minister of State, Deputy Molloy, but even he acknowledges that, like everything else he has done, the initiative will take time. I do not know whether he intends to have the homeless sleeping in taxis over Christmas, but he must acknowledge that emergency measures are urgently required to end the scandal of homelessness in a country, in the words of the Tánaiste, awash with money.
The Tánaiste is aware that, as she continues on her continental mission from South Africa, Beijing to Newfoundland, the cost of housing in the economy is a real barrier to people coming here to work and provide the skills which she says are necessary. There is nothing in the budget which deals with the housing crisis. In so far as policy has been devolved to Mr. Bacon, he has only made matters worse and created an imminent crisis in the private rented sector.
I thank Deputy Rabbitte for sharing his time.
The fundamental issue which had to be faced in compensating social welfare recipients was the role of inflation in this calendar year. The forecast of the Minister for Finance, Deputy McCreevy, last year of a figure of 3% has turned out to be catastrophically wrong. The figure has ended up at almost 7%. Increases in social welfare, which were paid from April, were, therefore, almost eroded before social recipients received them. The increases averaged 5.2% to 5.5%. The miserable increase of £4 per week for those in receipt of long-term assistance payments was almost wiped out before they received the money in their pockets. In mid to late summer as the price of fuel, heating, transport, groceries and many other items began to escalate and explode any doubts which remained about the social welfare increases provided for in budget 2000 were totally wiped away.
When I raised the alarm in September at the Joint Committee on Family, Community and Social Affairs, I strongly urged the Minister, Deputy Ahern, to bring forward the payment date of the 2001 increases to January, but he steadfastly refused to do so. He engaged in childish and ridiculous PR hype in recent weeks when he announced that he had been stalled and prevented by the Tánaiste and other Ministers from granting an additional £74 million by way of a double payment in 2000. I asked him why he had not resigned as a result, given that he accepted that there was a real problem because of escalating inflation due to the increase in the price of fuel and problems with the euro, and that he had asked for more money, but failed to get it. The bottom line on budget 2000 is that there was no increase across a range of social welfare benefits.
The Minister for Finance estimates that the rate of inflation in 2001 will be 4.5%, but after his hopeless prediction and that of his advisers last year, can we really believe him? Can we really accept – this time next year we will be within weeks of having the new euro notes in our pockets – that there will not be shocks and a hard landing in the economy with the result that, like this year, social welfare increases will be significantly eroded? On the Minister's figures, net current spending will rise by 6.6%. This alone suggests that the rate of inflation will be higher than 4.5%. Does the Minister really care? Paying social welfare increases from April will leave a neat run-in for both him and the Taoiseach to a June general election.
Given the rate of inflation projected for next year, the increase of £8 per week across a range of social welfare assistance and benefit payments is pathetic. It will bring the personal rate of unemployment assistance, disability allowance and pre-retirement allowance up to £85.50 and carer's allowance, widow's and widower's non-contributory pension and blind person's allowance to £88.50. Even insurance pensions such as invalidity pension will only rise to £89.10. All through the year, each time the Minister for Social, Community and Family Affairs met the voluntary pillars of social partnership – the INOU, Combat Poverty Agency, St. Vincent de Paul, CORI and Women's Network – he received steady advice that if he wanted to make up for the ravages of inflation on social welfare recipients, who account for one third of the population, he would have to provide for an increase of £14 or, at the very minimum, £10. Sadly, neither he nor the Minister for Finance and the Tánaiste listened. They were not even prepared to grant what everybody accepted should be the minimum increase to try to keep social welfare recipients ahead of inflation. The basic increase for 2001 is, therefore, woefully disappointing.
The Labour Party urged that the applicable figure in respect of qualified adult allowance be increased to 70%. This would mean, for example, that the payment in respect of a dependant of a person in receipt of unemployment assistance would rise to between £58 and £60. The reality is that the Minister for Finance has only granted an increase of £7.
I concur with my colleagues that the Tánaiste and the Minister are the driving force behind the Government on fiscal policy. Social welfare spending has fallen year after year from 11.5% of GDP when the Government took office to around 7% this year. The proportion of GDP for which social welfare recipients account has, therefore, fallen dramatically in what is now a 100 billion euro economy. It can clearly be seen where the real priorities of the Fianna FáilProgressive Democrats Government lie.
The Minister for Social, Community and Family Affairs has trumpeted the increases for pensioners, but despite all the hype the non-contributory pension has still not reached £100 per week. It currently stands at £95.50 per week. It took four budgets to increase the contributory pension to £106. Because of the scandal of widescale tax evasion, including DIRT, during the past 30 years the Labour Party demanded that contributory and other types of pensions be increased by at least £24 per week, to increase the basic rate to £120 per week, well over 34% of average industrial earnings. We are still a long way from that benchmark.
Irrespective of what happens in coming months and the timing of the next general election, the Labour Party will guarantee that under any Government in which it participates all pensioners and all those in receipt of long-term social welfare payments will receive an increase of £24 per week backdated to 1 January 2001. My party's spokesperson on finance has carefully costed this proposal. This is only proper and the right of the poorest segment of our community. The Government, the Minister for Social, Community and Family Affairs in particular, has failed social welfare recipients.
The Labour Party's target of an increase of £24 per week is based on the premise that for 30 to 40 years there has been massive tax evasion, including DIRT. The next general election – as will be seen from its posters – will mark pay back time for social welfare recipients, the poorest segment of our community, whom the Government has callously and wilfully disregarded over the past three and a half years, who now account for 7% of GDP and whose basic needs – from carers to pensioners to child care – have not been met. The Labour Party will demand that the extra £628 million which it has promised be paid by any Government in which it participates.
I wish I had all the power the Deputies opposite seem to think I have. As I said on the Order of Business, this budget ensures that the success of this economy, which has generated unprecedented wealth in our society, is being spread more evenly throughout society. Above all else, it shows that there is no conflict between competitiveness and remaining competitive on the one hand and having a compassionate or caring approach on the other.
So when is the election?
We have now introduced our fourth budget and there is one to go. In 1997 this Government set out to deliver five reforming budgets. We have delivered four of them and we are on course to deliver the fifth in ten months' time.
We set out to increase employment and reduce unemployment, to promote social inclusion and prevent social exclusion and to create economic prosperity and use the fruits of that prosperity to help those who most need a helping hand. We made great progress towards these objectives in our first three budgets and we are making further progress in budget 2001.
I will begin by discussing personal taxation. The last four budgets have seen dramatic progress in the area of personal tax reform. Rates have been cut, bands have been widened and allowances have been raised. The PRSI burden has been reduced. More than 77% of earners have now been removed from the top rate tax net and some 38% of workers have been taken out of the tax net. Almost four out of every ten workers will not pay tax as a result of our four budgets. This is real tax reform by any standards.
In addition, we have introduced tax credits, the most significant and far reaching reform of our personal tax system in a generation. With this year's budget the transition to tax credits, first signalled two years ago, is now complete. We have not finished yet. This Government will deliver its fifth budget next October and it will be well worth waiting for. The next budget will take all those on the national minimum wage out of the tax net altogether. This is the Government that introduced the national minimum wage. It was not the Labour Party or Democratic Left.
We had to hassle the Government along. I chased the Minister for three years.
Allow the Tánaiste to speak without interruption.
The Deputy's party was in Government for nearly four and a half years between 1992 and 1997 and it did not introduce a mini mum wage. This Government introduced it and it is this Government that will take the minimum wage out of the tax net.
The rate of progress has been spectacular over the past three and a half years. It compares more than favourably with that of the previous Administration. The main Opposition party, Fine Gael, huffs and puffs about tax reform these days but it did precious little about it when it had the chance. It is true to say that when Fine Gael was in power tax reform proceeded at a snail's pace or maybe I am offending the snails.
That is so witty; put it on record.
I thank the Deputy. We have heard a great deal about the snail.
The Tánaiste is in sparkling form for a change.
One point was taken off the tax rates. A total of 26 points were taken off the tax rates since 1990 and it was a Progressive Democrats-Fianna Fáil Government that removed 25 of the 26 points. That speaks volumes for our commitment to tax reform.
The Tánaiste is doing some double counting; very entertaining.
The rainbow coalition achieved virtually nothing on the taxation front. When this Government came to power in 1997 it inherited a tax system that had been left almost unchanged over the previous three budgets, a regime which bore down heavily on people on modest and middle incomes.
Consider the situation as it was in 1997. A single person entered the tax net at just £77 per week. I am pleased this Government was able to raise this figure to £144 per week and that we will be able to increase it more in next October's budget. In 1997 a single person still hit the top rate of tax at an annual income of just £13,600, little more than £260 per week. Again, I am pleased that this Government has been able to widen the band and raise that figure to £20,000 a year. Further band widening in our next budget will push that figure higher again and ensure that the vast majority of people on middle incomes no longer have to pay tax at the top rate.
In 1997 the basic rate of income tax was still pitched at a punitive 26%. In four budgets this Administration has been able to get that rate down to 20% in line with the commitments set out in the joint programme for Government. The two main Opposition parties now preach about raising allowances and broadening bands. Why did they not practice what they now preach when they were in Government? The rainbow Government increased the value of the basic tax and PAYE allowance by just 17% in three budgets; we have doubled it in four. It raised the value of the standard rate band for a single person by less than 20% over three budgets; we have increased it by almost 50% in four.
This Government is committed to cutting tax rates but it has also done more to increase bands and allowances than any Administration in the history of the State. The tax debate is not between those who favour raising bands and allowances on the one hand and those who favour reducing rates on the other. A look at the figures shows that this is not the case. The real debate is between the progressive forces in the current coalition which seeks to promote tax reform and the conservative forces in the previous coalition which sought to prevent it. If raising bands and allowances is the game of the Opposition parties, we have taken them on at their own game and beaten them handsomely.
Much of the budgetary debate in recent years has centred on the top rate of income tax. The position of the Government parties on this issue is clearly set out in the joint programme for Government and we have consistently delivered on that commitment in the programme. We believe that low marginal tax rates are an important economic incentive. Low marginal rates contribute to the competitiveness of the Irish economy and in the long run they generate more revenue for the Exchequer.
The position of other parties is not so clear. This year the Labour Party argued strongly that the top rate of tax should remain fixed at 44%. Last year it argued that it should remain fixed at 46%. Three years ago it argued that it should remain fixed at 48%. Just for good measure, in 1998 the party argued in favour of reducing the top rate of tax to 42%. Given its confusion on the subject, it is probably understandable that the Labour Party left the top rate unchanged when it was in Government.
One of the key contributors to Irish economic success has been our low rate of corporation tax. The IDA has been able to use the 10% rate, and now the 12.5% rate, as a magnet to attract mobile investment into this country. That policy has been spectacularly successful by any standards. We currently win about 27% of all mobile investment coming from the United States into Europe even though we have less than 1% of the European population. We win more than 40% of the investment in the software sector. Ireland can be proud that it is one of the world's largest exporters of software, an achievement that would not have been reached without low corporate taxes among other things.
They were invented long before the Progressive Democrats were ever thought of.
Low taxes? I think not.
The 10% corporate tax rate predates the Progressive Democrats by several generations.
Deputy O'Malley was the Minister when there were first no taxes on export sales and then 10% as it happens.
It was there before him.
If low tax works for corporations, it works for the workers who work in those corporations. If the profits generated by workers are to be taxed at 10% or 12.5%, it is not fair that the worker should have to pay tax at more than 40% or 20%.
They are still paying tax on the minimum wage.
We have used low tax rates to attract companies to this country. It is now time to use low tax rates to attract people here.
If we want Ireland to develop as a high skill, high income economy, the way we have to go is obvious. We will have to focus more on modern high tech industries in sectors such as information technology, telecommunications, international financial services and bio-technology. If we wish to keep Irish people with the requisite skills at home, to get former emigrants to return and new people to come and work in this country, it is vital that we offer them an attractive personal tax regime.
The Social Democrat led Government in Germany is now committed to substantial reductions in tax rates for higher earners to stimulate the country's economy and improve its competitive position. It knows that the policy makes sense. The question for Labour and the other left-leaning parties in this House is clear. This Government has cut the top rate of tax from 48% to 42% since 1997. Would they reverse those cuts if returned to Government after the next election? I would like to hear the parties opposite tell me that because the voters would be very interested to hear it.
A shrewd debating point there. That would go down well in the L & H.
Judge this Government by any yardstick one chooses and our record on tax reform stands up well. Look at the average tax rates, a measure sometimes favoured by those on the opposite side of the House. By pressing ahead with tax reform on all fronts – bands, allowances and rates – we have reduced average tax rates right across the board.
Under the previous Government a single person on £10,000 a year faced an average tax rate of 19%. We have reduced that to 5%. Under the previous Government too, a single person on £20,000 a year faced an average tax rate of 34%. We have reduced that to 17%. A single income married couple on £30,000 a year faced an average tax rate of 28%. We have now reduced that to 14%. This is clear evidence of the fairness of our tax policies. We have delivered the biggest reductions in average tax rates to those on low incomes. That is the kind of record of achievement of which any Government can be proud.
Our PRSI system is incredibly complex. There are no fewer than 12 different contribution classes and 35 sub-classes. The system is full of ceilings, floors, allowances and exemptions and this complexity adds to administrative costs throughout the economy. The present system is riddled with anomalies and inconsistencies. Average PRSI rates, for instance, are lower for people on high incomes than for those on modest incomes.
The Government is committed to reforming our system of PRSI and levies. That reform will take place in a way which ensures that the marginal rates are reduced for all earners and that the burden of tax and PRSI on individual workers is reduced. We want to see a regime that is simple and clear, fair and transparent. We have made a start on the process of reform in this year's budget, which will be further advanced in next year's budget.
This Government strongly believes in the incentive power of low taxation in the business sector. The standard rate of corporation tax has now been reduced by 16 points since the Government took office and we are on course to have the new 12.5% rate in place by 2003. In addition, this year's budget contains very generous measures to reduce the burden of corporation tax on the small business sector. The low-rate band is being broadened substantially, a move which will be of direct benefit to small companies. We have now created one of the most favourable climates for business to be found anywhere in the developed world. Society as a whole is gaining in terms of increased employment and prosperity.
The Government is very conscious of the need to keep inflation under control and to prevent it from taking root in the economy. Inflation is not just a thief which devalues the savings of pensioners and the incomes of people on welfare. It also damages our competitive position as an exporting nation and, left unchecked, would threaten the foundations upon which our economic prosperity is built.
The rise in inflation in the course of the past year was primarily due to external factors beyond the control of the Irish Government. The sharp rise in the price of oil and the sharp fall in the value of our currency have pushed prices up right across the economy in recent months. The international backdrop is becoming more favourable now and the euro has rallied strongly against sterling and the dollar in recent weeks.
The Minister told us that last year.
It was not an issue last year.
It was an issue.
In this budget the Government has demonstrated its commitment to combating inflation. The standard rate of VAT has been reduced. The last time it was reduced was when there was a Progressive Democrats-Fianna Fáil Government in 1991. Excise duties on petrol and diesel have been reduced and excise increases which might have been expected in other circumstances have been foregone. All of these measures will have a significant impact on bringing down the consumer price index. In addition, the reductions in personal taxation set out in the budget will underpin social partnership and help to control inflationary wage demands in the economy.
Independent forecasts already tell us that the rate of inflation is set to moderate significantly next year. The package of anti-inflationary measures included in the budget will help to ensure that that happens. We must distinguish between short-term fiscal measures designed to take the sting out of inflation and the kind of long-term measures required to increase the productive capacity of the economy. We have already seen the benefits of liberalisation in air travel and telecommunications. We will soon see the benefits of liberalisation in the taxi market. The same formula must be applied right across the economy if we want to see real competition delivering real benefits for the consumer.
Hear, hear.
In 1997 I gave a commitment as leader of the Progressive Democrats to raise in Government the basic rate of the old age pension to £100 a week. I am very pleased that in yesterday's budget, we did not just reach that target but actually exceeded it.
The Government did not reach it.
We have exceeded it.
Not for the non-contributory pension.
We all recognise the tremendous contribution which the present generation of pensioners have made to our social and economic life. They had to endure great hardships and make great sacrifices and we all owe them a great deal of gratitude. This Government has sought to repay that debt by delivering substantial increases in the old age pension. We have now raised the basic rate by £28 over four budgets. That is an increase of 36% in four years, well above the rate of inflation for the same period. I note that Deputy Broughan and the Labour Party have recently woken up to the needs of the older generation. All kinds of vote-buying promises are now being made. All kinds of commitments are being given.
They were caught out on their documents. That was a knee-jerk reaction.
Just one promise.
All kinds of commitments are being given. Pensioners should judge their politicians by what they do and not by what they say. When the Labour Party had the chance to do something for pensioners, it did precious little. Its first opportunity arose in 1995 when the Labour Party was in office with Fine Gael and Democratic Left. It failed to deliver in its first budget anything substantial for the pensioners. What did it do? It raised the old age pension by £1.80 per week.
Shame.
That is 26p per day.
Shame.
We will get our chance.
I assure all the old age pensioners that the days of the 26p per day increases are well and truly behind us and there will be no going back to them for as long as this Government remains in office.
They are still not happy with it.
This is a great budget for pensioners. They will benefit from the increases about which I have spoken. They will benefit from the extension of medical cards and free schemes. They will benefit from the extension of the fuel allowance and they will benefit too from the tax changes in the budget. A single pensioner can now earn £8,500 a year without having to pay income tax. A pensioner couple can earn £17,000 a year without having to pay income tax. These reliefs show the Government's commitment to reducing the tax burden on pensioners. Our aim must be to remove the vast majority of pensioners on modest incomes from the tax net altogether.
Our Constitution commits us to cherishing all the children of this nation equally. Child benefit is a universal payment made directly to parents. As such, it is the most efficient and most effective way in which the Government can channel help to children. Ireland is now a very prosperous and successful country by international standards. We have the resources to achieve great things. If we really want to do so, we can eliminate child poverty over the next three years. That is an ambitious target but one I have no doubt we can achieve. Child poverty should have no place in a modern Irish society. Child poverty has no place in a decent Republic. Our objective will be achieved over the next couple of years by ensuring that resources are targeted to families, particularly through child benefit.
The basic rate of child benefit has been increased by £25 per month for each child. To put this figure in context, it is greater than all the increases in the seven previous budgets together. That £25 compares very favourably with the basic rate increase of just £1 given by the Rainbow Government in its last budget. Odds of 25 to one sound like good odds and are the odds I would put on the Opposition being elected to Government after the next election too.
This year's increase is the first in a series of three budgets that will take the basic rate of child benefit to £117.50. Parents will get the second instalment next year and we will give them the third instalment after the next election.
I now mention briefly some specific budget initiatives in my area of ministerial responsibility. Accommodation costs are a serious problem for young apprentices and trainees. Current levels of demand for apprenticeship training are very high. In order to ensure maximum use of existing training capacity and to address current backlogs, it is increasingly necessary for apprentices to travel beyond their local catchment areas. FÁS trainees currently receive £27.50 per week towards accommodation costs where they have to live away from home to access training. The existing payment has fallen significantly behind the cost of rented accommodation and is a disincentive to attend training away from home. Given the critical need to boost apprenticeship training, it is proposed to double the accommodation allowance from £27.50 to £55 per week. Based on the figure of 7,000 apprentices and trainees eligible for support, this measure will involve an increase of £3.6 million in the level of support for apprenticeship. Helping people with disabilities to integrate better into the workforce is a major priority for this Government. The training functions of the National Rehabilitation Board were transferred to FÁS earlier this year. The objective was to mainstream the vocational training of the disabled and to provide greater focus on their reintegration into the labour market.
Following extensive consultation with organisations representing the disabled and training providers, we intend to standardise the training allowances paid to disabled persons. The practice varies at present depending on the training provider. In the future, all disabled persons will receive the standard FÁS allowance, in addition to a training bonus of £25 per week and will retain full secondary benefits. This will cost an additional £2.5 million in 2001.
Three and a half years through its term of office, it is now an opportune time to review this Government's track record in managing the Irish economy. Any reasonable and objective observer would agree that our track record is good and that the social and economic achievements of the past three and a half years have been spectacular. We have sought to reward effort and enterprise and to encourage people to move from welfare to work. We have also sought to promote social inclusion in order that all sections of Irish society can benefit from our new found prosperity. As I stated at the outset, we have proved beyond all doubt that there is no conflict between remaining competitive and being compassionate.
Our policies have succeeded and the figures speak for themselves. Since this Government took office in 1997, the number of people at work has increased by 360,000. The tax burden on all workers has fallen significantly with the biggest reductions going to those on modest incomes. In 1997, the number of unemployed people represented 10.7% of the workforce and that figure has decreased to 3.7%. The number of people in long-term unemployment has fallen from more than 90,000 to just under 25,000. In fact, we are well on track to achieve the effective elimination of long-term unemployment before the Government completes its term of office in mid-2002. In my view, providing people with employment is the greatest poverty fighter of all.
The Government has reduced tax, helped old age pensioners, widows and widowers and provided substantial increases in child benefit but these are not the only areas in which its record is unprecedented. In the area of overseas development aid, Ireland, like most other countries, has signed up to the UN target of 0.7% of GNP. No Government has ever seriously sought to reach that target. The £52 million increase in ODA this year is unprecedented, bringing our contribution in this area to more than £260 million. By the end of 2000, we will have reached a target of 0.45% of GNP, the highest achieved in Ireland to date. It is only right that at a time of unprecedented economic prosperity, we would be more generous and more supportive of those who live in appalling circumstances in many developing countries.
Yesterday, the Government announced the extension of maternity leave from 14 to 18 weeks, a measure which will support women at work who must leave work for a period of time to care for their newborn. I welcome the provision of an additional four weeks and the extension of unpaid leave, bringing the total possible leave period up to almost six months. This is a pro-woman, pro-family and pro-labour market measure in that people are allowed to spend a reasonable length of time with their newborn children before returning to the labour market.
Much reference has been made to child care throughout this morning's debate. The Government has sought to treat working couples as individuals in the tax system in an effort to create equalisation. That is delivering and will continue to deliver substantial increases to working couples. It is only fair that those who go out to work, voluntarily or otherwise, should be treated as separate individuals in the tax system. Working couples will now take home significantly larger sums of money; a couple with a joint income will gain in the region of £60 per week.
There is a myth that only the rich pay high taxes in Ireland. Deputy Rabbitte spoke earlier about tax exiles. This budget does nothing for tax exiles. If people do not pay tax in this jurisdiction, they will not benefit from the reductions or from any of the budget provisions. I am concerned that the people who have stayed in this country, worked hard and paid taxes here will now pay less tax – what could be regarded as a fair share of tax. I am not concerned about the people at whom Deputy Rabbitte seems to believe the budget is addressed.
Record increases have been made in tax allowances, social welfare, child benefit and the old age pension. This Administration certainly likes setting records and we may yet set another record after the next election. I believe that this coalition Government will be the first Government in 30 years to be re-elected. We need continuity in the economic and social policies which have been pursued by this Government.
This is a fair and balanced budget which provides for an £850 million social inclusion package and a £1.2 billion personal income tax package. Health spending has increased by more than 80% and spending in the area of education has increased by almost 70%. We are now generating the resources and wealth to ensure a fairer, more decent and compassionate society. At a time of unprecedented economic prosperity, we must target increases at those categories in our society which have not done well in the past, such as the elderly, widows and child benefit. That is what the Minister for Finance did yesterday.
Like the Tánaiste, I am pleased we have arrived at a position where we have a significant degree of prosperity and where it is now possible to do many things we may not have been able to do in the past. However, I find it difficult to believe that the Tánaiste is the same person who spoke in Opposition about the absolute necessity to restrain public expenditure. The Government has now thrown overboard the public expenditure targets trumpeted after the last election. I find it difficult to believe that the Tánaiste is the same person who, in Opposition, complained about the "nanny State"– her words, not mine.
The Tánaiste has given us a little bit of fiscal history. Although she claims to lead a policy driven party which does not engage in political abuse, she is quite good at the repartee herself—
Political debate.
—and I would not necessarily do any different if I were in her position.
I would like to point out one or two salient facts in regard to the history of fiscal policy in this country. The fight-back that produced our current prosperity began in June of 1981 when we started cleaning out the Augean stables which flowed from the Fianna Fáil Party's – of which the Tánaiste and Minister of State, Deputy Molloy were members – famous 1977 election manifesto. That claw-back and adjustment was interrupted in 1982 for a mercifully short period by a Government led by Fianna Fáil, of which the Tánaiste and the Minister of State were also Members before they had their conversion on the road to Damascus.
In 1987, a measure was taken by the then main Opposition party which was designed to ensure we stayed on the path of sensible fiscal policy. I am glad it worked and I take some modest credit for that. I want to remind the Tánaiste of the position of the Progressive Democrats at that time. They would not participate but stayed outside à la Lyndon Baines Johnson and the tent. Although they were members of a policy driven party, they did not have the guts to support that effort but were damn glad to follow that same policy prescription when they went into coalition with Fianna Fáil in 1989. The Progressive Democrats did not do much about which they can be proud during a period when it was difficult to ensure that some common sense prevailed in the operation of fiscal policy, and the Tánaiste should remember that from time to time.
I do not know if we will find out whether the Tánaiste and her party will be consistent in their views in Opposition because their prospects, after the next general election, are that they will disappear.
The Budget Statement by the Minister for Finance yesterday did not refer to BSE which will have serious implications for agriculture. A huge part of the food processing sector depends on agriculture, has the potential to cause immense hardship in rural communities and requires large amounts of public expenditure for health protection, income protection and waste disposal. There was not a single word in the statement of Government economic policy, not just for next year but in the framework of 2001 to 2003, which is the one on which yesterday's budget document is fixed. Farming, food processing and rural communities are facing a disastrous drop in income, yet in a budget that gave away £1.6 billion to the man and woman in the street, no provision was made to deal with it although this problem has been known and, in its latest manifestation, has been around us for the past two weeks.
I spoke of £1.6 billion. I am adding together the full year effect of yesterday's measures on income tax, value added tax, excise taxes, social welfare payments and the pay provision of the PPF – £1,593 million on a full year basis is being made available through all those channels to deal with issues raised in the budget. Not one penny of that is earmarked or directed towards dealing with the problems we will have on farms, in rural communities and for those who work in food processing as a result of the BSE problem. I deplore that lack and myopia on the part of the Government that has not seen what is in front of it or, to use what used to be the Tánaiste's famous phrase, coming down the tracks at us. I cannot believe we have a Government that is so out of touch that in its major statement of economic policy for the year it would not directly address such a big problem.
There is another problem that rated not one line in the budget – I saddle the Tánaiste with responsibility for this – or any consideration in the stability programme document appended to the budget or in the sensitivity analysis that is given of the policy framework 2001-2003. That is the implications of the World Trade Organisation talks for the future of our economic activity and the pattern of our trade, particularly the value and volume of our agricultural and food exports. Two major factors affecting our economic circumstances in the budget framework, which is 2001-2003, that could have serious implications for working out our budgetary framework over that period have been completely overlooked. That omission will have serious implications for the balance of this budget and for the success through that framework period of the policies being put in place. In particular, that omission will affect two of the four stated basic objectives of the budget. They are: "to manage our economy to secure our continued prosperity" and "to improve our quality of life".
In the executive summary of the stability programme, which is the overall framework for this budget, there are some thoughts on the economic review and outlook underlying the budget. It states that this updated stability programme is framed against a prospect of strong but moderating economic growth underpinned by a supportive international economic environment. The prospective moderation of Ireland's economic growth reflects the emergence of supply side, particularly labour constraints. It goes on to mention forecasts of GDP growth and GNP growth. It states that a more accurate reflection of national income in Ireland is anticipated to average 6% over the period 2001-2003 and that employment is expected to continue expanding by about 2.5% on average over the next three years.
I have identified two factors that are not addressed in this budget that could have a substantial effect on the prospects for GNP growth, trade growth and employment growth. To the extent that they work in the opposite direction from what is set out in the stability plan, the economic framework of this budget is suspect. I submit that, on both counts, we face serious difficulties in the year or two ahead. There is more than that. Being careful, our Administration has carried out a sensitivity analysis of the policies set out in the stability programme. The economic forecasts to which I have just referred that are included in the stability programme are based on four key assumptions. They are standard – unchanged interest and exchange rates, unchanged commodity prices, a continuation of reasonable growth in the world economy as forecast by the European Commission's Autumn 2000 assessment and a gradual loss of Ireland's competitiveness as growth in earnings continues to exceed those of our main trading partners.
One of those key assumptions is unchanged commodity prices. BSE will have a major effect on one of the principal commodity prices that determines the value of our export trade and that has a substantial influence on GNP. There again the economic fundamentals of this budget are suspect because the Government has omitted key elements. It is based on the assumption of unchanged commodity prices. I would like to hear the Tánaiste speak on this. I have never heard her talk on her trade brief. That assumption seems to be a heroic one in view of what could happen in the course of talks in the World Trade Organisation on a new round of agricultural trade talks. I do not know the Tánaiste's expectation but I took the trouble to look at the mandate the Council of Ministers agreed on for the world trade talks. If she cares to refresh her memory, it is based on the acceptance by the European Union of further reductions in export supports or intervention supports and the probability of further commitments by the European Union to give access guarantees to our markets to our trading partners. Those factors can only have the effect of bringing about a further net reduction in commodity prices in the agricultural sector. That is another reason for saying the economic fundamentals of this budget are flawed and to the extent that it is targeted in a way that omits consideration of those factors this budget will not reach its target either this year or within the policy framework 2001-2003. It is not just regrettable that is the case, it is a serious omission on the part of the Government.
BSE has not been considered in the budget, although we now know it will have a dramatic effect on very important sectors of the economy. It will have a huge effect on the value of output in the cattle sector. Prices have already fallen substantially since the latest increase of tension. The Tánaiste may not remember – I am not sure she pays much attention to such things – that last winter there was a major drive to secure a price of 90p per pound for producers of prime cattle. That was successful and prices in the intervening period have been as high as 96p per pound. Today, they are down to 82p per pound and for cattle over 30 months prices are down to 80p per pound. There is a loss of at least £100 in the value of each carcase of prime cattle going through our factories, that is when farmers can get factories to take them. This week it is proving virtually impossible to sell cows to factories, and the prices are far lower than the ones I have mentioned.
I do not know how long this situation will continue, but for as long as it does the implication for farm incomes is nothing short of disastrous. BSE has already begun to have a substantial influence on consumer demand for beef, which will continue – I would like to think otherwise but I must be realistic – for as long as it takes to put in place a credible certification system so that beef can be safely and honestly offered to consumers as being BSE free.
The effect of the situation will be felt not just on beef farms but on dairy farms, which are selling animals into the beef chain, in rural communities and employment and income levels in meat processing industries. Farm incomes will decrease – there is no way around that – thereby affecting the economy of rural areas and putting pressure on family farm members, many of whom will seek employment elsewhere. It will also put pressure on our food processing industry. God knows food processing plants are key operations in many towns and every part of the country will be affected by this crisis.
We must ask what we should do. We must first identify, track, control and eliminate the disease for the sake of consumers, in the interests of public health and for the sake of producers. At the earliest possible date we must have testing of all animals destined for the food chain. I understand it was initially proposed at EU level to begin testing in July, but yesterday and today I read that the intention is to begin testing in January. I would like to think testing will be in force throughout the EU from 1 January, but I remain to be convinced that is possible. However it is done the system must be brought into operation at the earliest possible date.
We must also eliminate all animals which may pose a risk, which will entail huge costs for the producers of those animals and others. The costs will be in reduced asset values, in the reduction of herds and in the reduction of overall output. Serious income losses will arise which will result in social and community problems. Again, no area of the country will be unaffected. The arguments are just beginning in the Council of Ministers about the way in which they will fix the price for the destruction scheme. This is a key argument which will have a major influence on the extent of income losses and the Government will have to be particularly vigilant in this regard.
There is an urgent need to define and put in place a system of compensation to deal with these problems. This week's meeting of the Agriculture Council barely brushed the surface of the process. The EU Heads of State and Government meeting in Nice this week will have to give the matter attention. In that regard, I again deplore the fact that a question I tabled to the Taoiseach and the Minister for Agriculture, Food and Rural Development asking what proposals for compensation they intend to bring to the summit was ruled out of order on the grounds it was not urgent. The Taoiseach is representing us at the summit and I asked what he would propose by way of compensation measures. He transferred the question to the Minister for Agriculture, Food and Rural Development, who had it ruled out of order on the grounds it was not urgent. This happened on Tuesday when we already knew the Taoiseach was going to the summit, which begins today, and that the summit would deal with this problem. I am not criticising the Ceann Comhairle or his office, but I do not know what definition of urgent is necessary in order to have something aired in the House two days before the key meeting began, which would see the Heads of State and Government of the 15 member states begin to deal with this disastrous crisis which we face.
Some measures have been put in place which are listed in the farming press this week. Again, they are only a beginning. For example, to say that bringing forward the date of payment of the remaining outstanding 2000 premia is a contribution to this is nonsensical. That money is already owed and due to farmers.
We must dispose of all animals which may pose a risk, which means we must provide for incineration of carcases. I was somewhat encouraged when the Minister for Agriculture, Food and Rural Development stated this a couple of days ago, and I am glad that at least one member of the Government has finally plucked up the courage to say so. I know the Minister for the Environment and Local Government is going in that direction, but he has not yet been as firm about it in public as he should. It is clear we can no longer rely on the process we have used up to now, namely, rendering and storing carcases of suspect animals until we can export them to Germany for incineration. Storage or burial cannot be used to dispose of carcases. Disposal must be by incineration and we must make provision for this ourselves, if only because the facilities we are using abroad will themselves have a huge difficulty in dealing with the problem on their own doorsteps. This is directly relevant to our budget ary strategy because to provide for it will require substantial public capital expenditure and a coherent policy, carefully administered, to ensure the right animals are targeted, tracked and destroyed. It will also require a clear and determined policy in terms of location. I was profoundly depressed when I listened to a man being interviewed on radio yesterday morning, who is undoubtedly a committed clergyman and undoubtedly has the interests of this country at heart, argue that we should not have incineration of these carcases. I do not know what he expects us to do with them. Does he expect us to build cold stores that will be there in perpetuity with beef rotting away without having any idea what is happening to the prions causing this problem? It is about time that so-called environmentalists woke up to reality. People with that bent should decide, like I have, that it is long past time we let the best be the enemy of the good. We should live in the real world that faces us, not in some Utopia where all these problems would be wished away by waving a green magic wand.
The fourth thing we need to do as quickly as possible is to get into a position where we can certify tested BSE free beef for home and export customers. That means we must be able to track beef from the farm to the processor to the wholesaler to the retailer to the table.
The fifth thing we need to do, and this is essential, is to ensure there is common and concerted action on these problems at EU level. The current problem, the crisis we face today, has been magnified by the failure of other member states to take the kind of action we took in 1996. It was regarded at the time as extreme action, but we know now it was prudent. It is no criticism of my colleague, Deputy Yates to say that in hindsight there might have been other things we could have done, and I am sure he would agreed with me. However, other member states of the European Union considered themselves above and free of the necessity to do that, but they have found to their cost and to our cost that was not true. Although we are clearly in a far better position to back-up the quality of our beef – if the Minister of State, Deputy O'Keeffe, stays quiet, as his credibility is totally gone – and we are in a far better position than any other member state to claim that people can rely on our beef, we are suffering from the fact that there is deep distrust now of the others because they did not take the kind of measures we took in 1996. Although we moved swiftly to act in 1996, farmers here are suffering because of a lack of action in other member states. That is why member states must tackle this problem together. Consumers can be protected only by common action. Consumer confidence will be regained only by common standards and farm families can be effectively helped only by common action.
At this point and so soon after the re-emergence of this crisis, all I can do is set out the framework of the action required, but we need to seriously get down as quickly as possible to the business of detailing the actions that must be taken and put in place measures to ensure that they are taken. Unless action is taken successfully along these lines, one of the basic assumptions of the budget arithmetic and the framework for action over three years will be proven false.
I mentioned my concerns about talks under the World Trade Organisation. It would be useful to recall what happened on the last occasion. The European Union did a simple thing on the last occasion, it sacrificed agricultural markets within the European Union and in third countries to the trade interests of other sectors. When I read the mandate given to the Commission for that negotiation, apparently agreed to by Irish Ministers, I noted there is a serious danger the same thing will happen again. In addition to having to deal with the BSE crisis, we will also have to deal with more pressure – unless the Minister for Agriculture, Food and Rural Development changes this – on agricultural markets from countries that do not have BSE in the way we do or that do not know they have it because they have not been looking for it. As these two issues move through the system, we will find important parts of the structural background to this budget have been ignored or will change substantially so that the outcome will be very substantially different from the rosy picture being painted by the Minister for Finance and other spokespersons for the Government yesterday and today.
It is always a sign of a good budget when the debate on budget night finishes early and we all go home early from this House. God be with the days when we used to be here until 12 midnight. It is often said that when a good budget is delivered the Opposition do not have much to talk about. Similarly, again today, the first day after the budget was introduced, we have witnessed the Labour Party members, whose members are absent from the Chamber, sharing time with each other. Normally Opposition Deputies are clamouring to get as much time as possible to speak on the budget, but I suppose they do not have much to say, given what was delivered by the Minister for Finance on behalf of the Government yesterday.
In the area of Social, Community and Family Affairs, the budget is radical, progressive, a bold statement of action and a declaration that the wealth and resources of this country are to be directed as never before towards the needs of the poor, the underprivileged and the aged. This budget is about empowerment, social inclusion and spending the wealth and supporting the weak. It is about republicanism and about equality for all the people of Ireland.
For more than 70 years we have shied away from such public promotion of the real ideological motivation behind our policies. This was understandable. From the foundation of the State up until the last decade, central Government was simply bereft of the financial means to force those ideals into the positive and effective policies required, this was especially true in the area of social policy. Furthermore, we lived in a century where ideology was much misused globally, where republicanism, here in Ireland, was abused to cloak corruption and murder and where the very term "republicanism" was more synonymous with terrorism than with Tone and with fratricide than with fraternity.
This is a new century, a new millennium. Where once central Government lacked the financial means to effect real and lasting change, today we know prosperity. Where once ideology split Europe and masked tyranny, today across our Continent the great majority of political parties are falling into the centre-left, the traditional home of my political party, Fianna Fáil. These policies now converge upon the same beliefs, which underlie our vision of a truly socially and economically inclusive society.
The republican party, Fianna Fáil, in partnership with the Progressive Democrats, strives for a society where all citizens receive an equal opportunity to realise their full potential. Our aim is an Ireland where gender, race, creed, economic and social background are no impediment to their advancement.
This is our republicanism. It moulds our social policy, it is our guiding principle, a levelling force and it is the vision that has shaped the budgetary measures we outlined over the past 24 hours.
In the three budgets to date, these measures have focused on four themes. The first is that we support families. The historic and unprecedented measures I will outline here are aimed at ensuring that any child born into or already in any family or any community in Ireland today will receive the same chance to realise his or her full potential without social impediment.
Second, we aim to improve the living standards of all those on social welfare. Every citizen of this State who relies upon social welfare deserves and is due, by right, a standard of support high enough to ensure that he or she is not, through poverty, inequality or disadvantage, divided from other communities. Every citizen of this State raised or living on a social welfare entitlement must have a living standard which will empower him or her in every aspect of his or her life in this republic.
Third, it is our aim to provide real, meaningful and deserved measures for older people. The provision of a decent and comfortable quality of life into old age is a fundamental entitlement in any republic. Republicanism is about moving away from the notion of a person as a simple economic entity or a pawn in the national economy. A person's worth does not end in retirement, and the measures I will outline underline this outlook. Fourth, we are focusing on supports for people with disability and on carers. The 10% of Irish people with physical, sensory or intellectual disability must receive due support from the State. Through this support, financially and through the provision of services, we aim to empower this section of our population. The State must also recognise the enormous contribution which carers make to the lives of others. Their sacrifice and devotion to the needs of those less fortunate comes at a substantial personal cost. The budget provides in total for additional social welfare expenditure of £850 million, which is no less than four times the level which the so-called rainbow Government provided in its last year in office in 1997. That Government was stuffed with so-called socialists and their advisers. It was an election budget and they knew it, but our budget provides a fourfold increase in social welfare.
Deputies will say that this is ancient history and that Ireland today is a different place to the Ireland of 1997. They are right and this Fianna Fáil-led Government has helped to make it a different country, a better country where we can now invest real money in building a better Ireland for all. We do not just promise. We deliver, unlike some other parties.
Just five years ago Democratic Left and Labour were in power with Fine Gael and they gave £1.80 to old age pensioners. This year we are giving them £10. I am delighted to see an Opposition Member present.
I came in to hear the propaganda.
Perhaps they do not like to hear what we have to say.
Propaganda.
It is not propaganda. It is a fact. It is a pity Deputy Broughan left before the Tánaiste reminded him of 1997; he obviously saw it in her script and disappeared.
Three years ago, the great socialists of Democratic Left and the Labour Party, together with Fine Gael, gave £1 and £5 extra to child benefit. This year we are giving £25 and £30. Our action programme promised to put families at the centre of all our policies and the budget delivers in full on that commitment. We are announcing the most substantial increase in child benefit since the payment was introduced, in the form of children's allowance, over half a century ago. Not only that, we will invest £1 billion in this area by 2003, which is a threefold increase. This year we are increasing child benefit by £25 and £30 compared with the measly £1 and £5 in Deputy Quinn's budget. The full year investment is £330 million, almost 40% of the entire package of social welfare improvements provided last year.
In this, the first year of a three year commitment, a family with four children will receive more than £300 per month or more than £70 per week in child benefit. A family of 14 children, including two sets of twins, was mentioned in today's newspaper. Such a family currently receives £813 per month, £9,756 per year or £187 per week. As a result of the budget changes, that £9,756 goes up to £15,000 and that £187 goes up to £289. In effect, that person is £5,280 better off per year just on child benefit alone, not to mention other social welfare benefits that might be built into that.
It is sometimes argued that child benefit is not sufficiently targeted because it goes to all families.
Deputy Mitchell and I should not be the only ones who have the inestimable advantage of listening to the Minister.
Notice taken that 20 Members were not present; House counted and 20 Members being present,
I am delighted Deputy Dukes gave me an audience. I remind Deputies, if they did not know it otherwise, this year we are giving increases of £25 and £30 in child benefit. Deputy Dukes was part of a Government in which Deputy Quinn was Minister for Finance three years ago which awarded increases of £1 and £5 in child benefit. It is important to remind people of that.
Over the period of the rainbow coalition the old age pension was increased by £7, whereas we have given £28 while in office; even averaging that over the period it is a hell of a lot more than the rainbow coalition ever gave. Regarding child benefit, £24 was given over three years by that Administration, while we are giving approximately £84 to £85.
It is sometimes argued that child benefit is not sufficiently targeted because it goes to all families and not just to the poorest. The Government does not accept that argument. All of our families and all of our children are deserving of support from the State. Furthermore, ESRI research shows that around 20% of child benefit expenditure goes to the households in the bottom 10% of the income scale. Only 4% goes to the top decile, so it is an effective way of giving the resources to those who need them. We believe in supporting people in rearing their children. We also believe parents know best and must be given the choice as to how best to care for their children.
These major increases will be payable to all families, to those who choose to go out to work and who use paid child care, to those who have informal child care arrangements, and to those who choose to work in the home and care for their children in that way. From June next year, a full three months earlier than normal, some 532,000 families with a total of over one million children will benefit from the support the Government will provide through the enhanced child benefit scheme.
I say without fear of exaggeration that this is the most significant investment which any recent Government has made in the social welfare area. Before we came to office, expenditure on child benefit was £397 million annually. Our first three budgets increased that by more than 40% to £575 million. With this budget's increase, that is now over £900 million, and we are committed to making that £1.5 billion in the next two budgets.
I am also increasing the funding available in the school meals community programme from £100,000 to £300,000 per annum. This programme, which I launched last September, provides 100% funding of food costs for established community school meals projects providing breakfast clubs, lunches and after school meals. Sixteen projects are currently funded with over 2,000 children benefiting. By providing this additional funding, I expect that additional projects will receive funding and some existing projects will be able to expand their service.
In the meantime, an inter-agency working group is reviewing school meals provision. The working group's report will be available by the middle of 2001 and the recommendations will be considered in the context of budget 2002.
In our action programme we also promised to allow women, and indeed men, who took time out for family reasons, to qualify for old age pensions. In recent years, considerable flexibility has been introduced into the qualifying conditions for the old age contributory pension. More recently, this year's Social Welfare Act provided for further recognition of contributions paid prior to 1953. All these measures make it easier for people to qualify for pensions, particularly those who, for one reason or another, have broken insurance records.
Currently it is estimated that about 90% of women over 65 years of age are receiving social welfare support. Of these, 87% have a payment in their own right with about 62% of those who have a payment receiving one based on their PRSI record. While it would be impossible for the social welfare system to cover all gaps in pension coverage, more must be done in this area to improve on the numbers receiving PRSI based pensions.
In this regard I am strongly committed to converting the existing system of homemaker disregards, which help women who take time out from the paid workforce, into homemaker credits. In principle, the homemaker's scheme, which currently operates only from 1994, should be backdated. These issues will be considered in the context of the second phase of the review of the qualification conditions for pensions which my Department will undertake in the new year.
Will they be in the Social Welfare Bill?
I am glad to see Deputy Broughan back in the House.
I was waiting for the Minister.
I will remind him again that in his party's last budget, there was an increase of £1 for child benefit. We are now giving £25.
We will have our choice.
Deputy Broughan, allow the Minister to continue without interruption.
How can Deputy Broughan face the music? Is it any wonder he ran before the Tánaiste reminded him also?
There are many women currently at or near pension age who will not benefit from some of the improvements recently made. In general, these women are in receipt of a qualified adult allowance. We must do something immediately to improve the position of these women.
The Minister must.
The Government has decided, not promised, unlike the Labour Party which promised but never delivered, that the rate of QAA for qualified adults over the age of 66 will be increased over this and future budgets to the full old age pension rate. I am making a major step towards this objective by providing for a £15 per week increase in the rate of pension QAA for persons over 66 in an effort to give women over that age a payment in their own right. I am sure all Deputies in the House will agree with that.
Following the report of the PPF working group which is examining the issues of administrative individualisation, and we are going further than that promised in the PPF, arrangements will be put in place so that part of the pension can be paid directly to the qualified adult as a homemaker's pension. The issues associated with the implementation of this arrangement are being examined by the working group.
On the recommendations of the PPF working group, my colleague, the Minister for Finance, has announced that maternity leave will be extended to a total of 26 weeks with an increase to 18 weeks in paid leave. Accordingly, I am providing for the payment of four weeks additional maternity benefit. I am delighted to announce that this will also be available to adoptive parents. This improvement will be of vital benefit to parents at a critical stage in their lives.
I am also increasing the minimum amount of maternity and adoptive benefits by £8 and bringing the maximum rate of these benefits to £183 per week – an increase of over £100. In line with the recommendations of the PPF group, we will award credited contributions to those on maternity leave during both the paid and unpaid portions of the leave.
This budget is not just good for families. Everyone benefits. I am providing for an £8 per week increase in the general social welfare rates – an increase of from 10% to 12%.
What about the £14 the Minister promised?
This brings the lowest rate of social welfare to £84 per week in line with meeting the PPF target to increase that rate to £100 over three years. This rate of increase means that there will be a significant real increase in all social welfare payments as guaranteed in the PPF.
In addition, as I promised last year, I am making further progress towards increasing the rates of QAA to 70% of the main rate. In the case of old age contributory and retirement pensions payable to persons over 66, we are exceeding the 70% due to the measures I have already outlined. I am also providing for general increases in QAAs of between £7 and £8 per week.
It is important to remember that many of those receiving the general £8 increase are also receiv ing the additional higher increases announced in the budget. Many people are also benefiting from the child benefit increases. A total of 66,000 qualified adults are receiving the enhanced increase in the QAA. A total of 10,000 people on disability payments are receiving an additional allowance and 15,000 carers are also receiving an additional allowance. For example, an unemployed couple with four children will receive an increase of no less than £40 per week as a result of the budget yesterday.
The Government recognises that pensioners have built this country to what it is today. We promised to increase the old age pension to £100 by 2002 and this commitment was reiterated in the PPF. Since we took up office we have increased the old age pension by £18. This year we are providing for a further £10 to bring it to £106 – one year ahead of target. This means that in 2001, the old age contributory pension will increase to 31% of average industrial earnings in line with the recommendations of the national pensions policy initiative. A pensioner couple, where both are over pension age, will get a combined increase of between £20 and £25 per week.
In line with the Fianna Fáil election manifesto, I have decided to increase the widow and widower's contributory pension for recipients aged 66 or over to the full old age contributory pension rate over the next budget. I am providing £12.90 as a special increase this year to bring the widow's pension to £102 – again over the £100 target for pensioners.
Developing a sound pensions structure is not just confined to social welfare pensions and for that reason I am pleased that the Programme for Prosperity and Fairness agreed earlier in the year to place a significant emphasis on occupational pensions. I very much welcome this commitment in the programme and because of that we will bring forward a new Pensions Bill early in the new year. This Bill will be a clear signal of the Government's intentions in this area. It will contain provisions for some important developments in the pensions area such as the establishment of a pensions ombudsman, a pensions compensation scheme and the introduction of personal retirement savings accounts, a new retirement savings vehicle which I am confident will play a significant role in achieving extended supplementary pensions coverage among the workforce.
In last year's budget I extended the free schemes to all people aged 75 years and over, regardless of income and household composition. This was an important measure which was widely welcomed. In this budget we are going further in extending the free schemes to all people over 70 years of age. This will ensure that all people aged 70 and over who are resident in the State will qualify for all of the free schemes, regardless of their income and household composition. This measure serves to support older people in their wish to remain in the community and also recognises the value and esteem of this Government for all older people in our community and in our society.
Some 29,000 pensioners and their families will benefit from this measure and a further 14,000 households, already in receipt of free electricity and free TV licence, will now qualify for free telephone rental allowance. This also makes a further step toward the amalgamation of all the free schemes into a unified household benefit, which we intend to do.
I am also easing the means test that applies to pensioners aged 66 years or more who claim rent or mortgage interest supplement under the supplementary welfare allowance scheme. Up to now, all rent supplement and mortgage interest supplement recipients had to contribute a minimum of £6 per week towards their rent or mortgage interest costs and, in addition, they had to contribute any income they had over and above the basic rate of SWA. From April 2001 I am introducing a £5 per week disregard in the means test for people aged 66 years or more who claim rent or mortgage interest supplement. This will reduce the amount of the personal contribution they have to make to their rent or mortgage interest costs.
I am making improvements to the fuel allowance in two respects this year. First, fuel allowances will now be paid from the first week in October to late April. This will give an overall fuel season of 29 weeks. As a first step, the current fuel season will be extended by two weeks in April 2001. Second, I am easing the means test for recipients of fuel allowances. Up to now, people with contributory payments, such as retirement pension or widow's contributory pension, qualified for a fuel allowance if their income from other sources is no more than £30 per week. This is being increased to £40 per week from the beginning of the next fuel season in October 2001.
Compensation for inflation in fuel prices is being provided through larger increases in primary payments which more than compensate for inflation. These are paid for all 52 weeks of the year. This is more costly than increasing the rate of fuel allowance but it is a better approach because increasing the rate of fuel allowance would result in recipients facing a substantial fall in their weekly income at the end of April. I think Deputy Broughan will agree with me on this.
Why did the Minister not increase—
We have given higher increases than anything the Deputy was a party to. The most the Government of which his party was a member gave was £3. Just five years ago it gave £1.80 to old age pensioners.
Eight pounds per week—
Please, Deputy Broughan, this is a limited debate.
Social insurance represents a key part of our social welfare framework. It plays a major role in Irish life in terms of the number of people who depend on it and its financial scale. It is an important vehicle of income redistribution and solidarity between generations. Over the years the system has been extended to cover as many people as possible; as a result, we can expect in the future that more people will qualify for contributory benefits, especially pensions, in their own right and dependence on means-tested payments will be reduced.
Yesterday my colleague, the Minister for Finance, announced a number of changes in the structure of PRSI contributions. The social insurance fund is in a very healthy financial situation due to the high levels of employment growth and lower level of unemployment. Although the fund is currently in surplus, this will not continue indefinitely as the ageing of our population will increase demands on the fund in future years. We need to take all these factors into account. The announcement of the Minister for Finance yesterday that these issues are to be examined is timely and I look forward to working with him on the review.
The Government is strongly committed to supporting care in the community and people with disabilities to the maximum extent possible. Our reform of the carer's allowance scheme, which we introduced in 1990, has resulted in an increase of 77% in the number of carers in receipt of the allowance since the Government took office. This large increase is reflected in the expenditure on carer's allowance from £37 million in 1997 to £78 million this year. Under the budget, expenditure on carer's allowance and benefit will be tripled to £114 million in 2001. These figures clearly demonstrate our commitment to carers during our time in office.
I recently introduced the radical new carer's benefit scheme which will be extremely beneficial for those carers who experience the tremendous difficulties involved in caring and working full-time.
Eleven people—
It is only a few weeks. The Deputy's party promised, but we delivered. The Deputy's party did nothing for carers and he is full of hypocrisy.
Will the Minister tackle—
Deputy Broughan I must ask you to cease interrupting. If you interrupt again I will ask you to leave the House.
He left the House when he was told the truth and he was only shamed into returning by the quorum and my reference to him.
I did not know the Minister was speaking.
I was here when the Deputy left.
If Deputy Broughan interrupts once more I will ask him to leave the House. The Minister has half an hour to make his contribution and he is entitled to that time.
The means test for the carer's allowance has been eased significantly in the past few years with the introduction of disregards of income from employment and other sources. From August 1999, a disregard of £75 per week is applied to the income of a single carer and a disregard of £150 per week is applied to the joint means of a couple. I intend to go further and again increase the disregards so that a single person can have an income disregard of £125 and a couple can have a joint income disregard of £250. This measure will increase the payment of almost 3,000 recipients of carer's allowance. It will also ensure that an additional 5,000 carers will qualify for a payment. The measure, which will come into effect in April 2001 at a cost of £18 million represents a huge increase in expenditure on carers.
The income disregards I have introduced already exceed the income limits for the minimum wage rate for joint income households and ensure that carers receive a maximum allowance. My latest proposals, announced here today, are a further move towards what I see as the optimum situation, which is to arrive at the stage whereby all carers, whose joint family income is at average industrial earnings, will qualify for the carer's allowance at the maximum rate.
One of the many measures I introduced in 1999 was an annual respite care grant and last year I made provision to increase this to £300. I am further increasing the grant this year to £400. I have also made provision to pay a double grant to those carers who are caring for more than one person. These payments will be made in June 2001 and will benefit those in receipt of carer's allowance, carer's benefit and carers who are caring for someone in receipt of constant attendance allowance or prescribed relative's allowance. The total amount allocated in 2001 for carer's allowance will be more than £100 million.
Looking forward, the Government pledged in the review of An Action Programme for the Millennium to put in place a co-ordinated approach addressing the needs of carers. One of the key priorities we set was to develop a partnership model to facilitate the development, by the State in conjunction with the private sector, of an improved system for meeting long-term care costs. There is currently an important study under way into the operation of the existing nursing home subvention scheme by the Department of Health and Children. In addition, I recently initiated a consultancy study on the future financing of long-term care. The study will examine the strategic issues involved in financing long-term care. It will involve an assessment of alternative financing and funding approaches and their feasibility in the Irish context. The study, which involves the Department of Health and Children and the Department of Finance, will encompass the financing of personal long-term care needs both in the community and in institutional care and the potential of the private sector or a combined public/private sector approach to develop new initiatives in this area. This study will com plement the initiative announced yesterday by the Minister for Finance relating to possible tax reliefs for future insurance products in the area of long-term care. These studies will inform the development of new policy measures to ensure that we have supports for caring up to the best European standards.
We have made many commitments in relation to people with disabilities. We announced the extension of the living alone allowance of £6 per week to persons in receipt of invalidity pension, disability allowance and blind pension. This measure will benefit an extra 10,000 people with disabilities. It will give them a weekly increase of £14 per week. I am providing an extra £1 million for Comhairle, the successor of the NSSB, to enable it to strengthen and develop its existing information, advice and advocacy services.
Since the Government came into office there has been a significant decrease in the number of people on the live register. As a result of the changes in the general rates, we are increasing the family income supplement by a record £25 per week, which will benefit 17,500 families and provide an average weekly increase in FIS to those families of £15 per week. The back to work scheme has been a major success and more than 39,000 in employment and self-employment are supported under the programme. We have introduced a number of initiatives in this area and will continue to introduce further initiatives.
I am delighted to commend the resolution to the House. I have been lucky as Minister to have been able to say over the past four years that the social welfare increases are record ones. As I said earlier, when Deputy Broughan was not present to hear the bitter truth, this social welfare package of £850 million is twice the amount we delivered last year.
The Government had loads of money.
So it should be.
I want to remind Deputy Fitzgerald that £1 is all the Government of which her party was a member gave in child benefit. Shame on it.
The figure should be twice that amount.
The Government has delivered and over the next three years we will continue to deliver what should be delivered to adults and children.
The Minister should refer to the next millennium. He is stuck in the mid-1990s.
We stand on our record, but the Deputy's party cannot.
We have lost our sense of outrage, anger and injustice. I am not referring only to politicians but also to the media in reflecting the political message and the community itself.
The Minister said he was part of a republican party. I am a member of a party affiliated to the Christian Democrats, the largest political movement in Europe and the largest grouping in the European Parliament. The reason I am in this party is that I believe we must encourage enterprise and use the fruits of enterprise to ensure the causes of social justice are served.
With regard to serving enterprise, I do not mean that a wealthy businessman should get incentive and reward. For example, if we take two people living side by side, one of whom gets up and goes to work at 8 a.m., puts in a day's work and arrives home at 6 p.m. or 7 p.m. and the other, who has the opportunity to work, is not disabled or does not suffer from an illness but does not take that opportunity and spends his or her day in the bookmakers and the pub, the latter person should not receive the same incentive or reward as the former, who makes the effort.
The society we have developed rewards the person who does not get up and make an effort. If the same two people live in a local authority flat complex the man who works pays rent on his notional gross income, his medical card would be assessed on that basis if he were to apply for one and he has the expense of travelling to and from work. He does not have the opportunity to do a nixer or anything else, whereas his neighbour's rent and medical card are assessed on his actual income and he has all day to do a nixer if he wants.
People who cannot help themselves should be helped and I will refer to them later at length but we must distinguish between those who cannot work and those who will not work. In that sense there is a connection between the dual principles of enterprise and social justice. The Christian Democratic movement, of which I am a member, is committed to those dual principles.
Reference is made to how well the Minister is doing in giving this, that and the other to people but it must be borne in mind that the Minister is not giving anything. The Minister or the House does not have the money. The money is taken from the public and entrusted to the Government to use in the public interest. People are given what they pay for but there is supposed to be a redistributive element to this so that those who cannot help themselves and who need assistance or need a hand up and not a hand out are supported. That is where the budget falls down.
When the Taoiseach was asked about the budget surplus during an interview yesterday he asked what he could have done. It might not make sense to pay off what the Government had borrowed because the amount was so low now or to put more money into the pension fund, so the thing to do was to give away some of the money. According to the Minister for Finance's figures the third highest cost to the Exchequer is still debt servicing. It is still a substantial cost but, nonetheless, I would like to suggest to the Taoiseach some areas where I believe the surplus could have been spent more usefully.
I do not believe in spending money for the sake of it. However, the money and resources which taxpayers provide should be used to address the issues about which they are concerned. Yesterday I met a friend who had returned from London and he could not get over the traffic congestion in Dublin city. I pointed out to him that the number of cars registered in Dublin this year had gone over 100,000 for the first time. A couple of friends of mine who returned from the US recently were also amazed at the traffic, yet we think we can do nothing about traffic congestion.
I reiterate the case I made during the budget debate last year for an integrated public transport ticket which can be used on the DART, Luas and Dublin Bus, to which the Minister for Public Enterprise said she was disposed recently, and which when purchased on an annual basis by the taxpayer would be tax deductible. If such a ticket cost £400, for example, and was tax deductible at 20%, it would cost £320 per year or a little more than £6 per week. If people could travel at any time, day or night, on Dublin Bus, Luas and the DART they would buy an integrated ticket.
My problem, for instance, is that if I travel from O'Connell Street to Rathmines, I must get a No. 14 or 15 bus. However, if I could get a bus to Brady's Corner and hop on a different bus there using an integrated ticket I would leave my car at home more often. I am happy to leave my car at home when travelling to Leinster House or around my constituency. I believe such a ticketing system would work. It would contribute to reducing the number of cars on the roads. It should be tax deductible for employees as well as employers, which is the case at present.
A total of 20% of those who attend acute hospitals in Dublin are not from the city. If the integrated ticket was tax deductible, these people together with those who live in Dublin would avail of it. It would make a major contribution to incentivising people to use public transport. However, the DART only operates along the coast and Luas is still under construction, but people could hop on and off buses if they had such a ticket in their pocket. I commend that idea to the Minister of State at the Department of Finance, who is present, and I hope he will give it some thought. I have raised this issue previously and will continue to raise it.
I would like to suggest other areas which could have been addressed with this money in reply to the Taoiseach. The participation rate in third level education in the inner city areas in my constituency is as low as 5% and the maximum rate is 15%. That compares with an average of more than 50% in other parts of the city. There are flat complexes in the inner city areas of my constituency where nobody has ever attended a third level institution. The population of these complexes is greater than that of a modest sized village outside Dublin. Money should be spent to specifically ensure people have the wherewithal to access third level education and such investment should begin at primary level. A more integrated delivery of services is needed in the areas to which I refer.
Partnership boards are present in areas which have already been designated as disadvantaged. In such areas in Dublin there are also drugs task forces. It would be a good idea if there were task forces in the same areas with their own budgets and the freedom to supplement educational needs on a school by school or pupil by pupil basis if necessary without setting precedents nationally. They should be given a little extra on top of their normal budgets but without strings attached by the Department or national implications. Local educators, public and community representatives and parents could decide what needs to be done at primary level, in particular, to give children the necessary wherewithal to equip themselves to go on to third level.
If the Taoiseach asked me where else he could spend the surplus I would have said on prison reform. Some 75% of the prisoners in Mountjoy Prison come from five identifiable areas of Dublin. I have said this in the House before and I will continue to say it because, if we repeat the message often enough, we will get it on the agenda and things can be done. Those five areas have a 5% participation level in third level education. In many cases in the past and now, young lads who have gone to prison without a drugs problem have been released with one. I remember a parent pleading with me at one of my clinics to have her son sent anywhere but to Mountjoy because he did not have a drugs problem and she did not want him being released with one.
We need to invest money in prison reform. People ask where is the model in the world where it worked. Let us be the model. We showed the world missionary zeal in times gone by. We were once the island of saints and scholars and sent people abroad to evangelise the world. Why can we not in this small country with a prison population of about 2,500 set the model for prison reform where there is real rehabilitation and investment? What we have instead is a swinging door policy where people are released to reoffend and are imprisoned again. It does not work and we have invested a fortune in this system for which we do not receive any measured return. It would be in the interests of society to invest some of the surplus in prison reform.
I wish to speak at length on the health services as I am Fine Gael spokesman on the area and it is my area of special responsibility. Between 1994 and 1997 the expenditure on the health services grew exponentially. There was a huge explosion of expenditure during those years. It was pointed out recently to the Committee of Public Accounts in evidence given by the Department of Health and Children that almost 60% of the extra spending on health from 1994 to 1999 was on pay costs. We have all heard by how much the health budget has increased and how it has increased continually. I notice in the budget statistics that, if things continue the way they are going, in two years' time health expenditure will exceed social welfare expenditure in that it will be more than £6 billion. We will quickly reach the stage where we will spend £10 billion on health and still may not have resolved some of the problems in the service.
It is not just a question of resources. Serious problems within the health system need to be addressed. The first is the need to end apartheid in the health system. The reality is that, if a person has money, he or she does not have to wait to be seen and treated. If he or she does not, he or she enters a long queue. There is even a queue to enter the queue. There is talk and bluff about figures being reduced but that is because people receive two letters and, if they do not respond, they are removed and said to be treated. There are people whose illnesses have changed because their condition has worsened while on a long waiting list with the result that they must enter another queue. They are removed from the list. People who have died are removed from the list. Despite this, there are people in a queue to see a consultant who cannot even get on the list.
The real measure of a successful health system is that it should be available to people based on their health needs, not their wealth. We have built a system where, if a person has the money, he or she can be seen. A lady comes to my clinic in Inchicore whose knees and arms are turned in and who is stooped. She is in great pain, yet she has had her operation postponed several times. She would never have had to wait if she could have written the cheque. We have read the St. Vincent de Paul comments about the lady with gangrene in both feet who could not be seen in our hospitals. It had to pay for her to be seen. How many of us have poor people come to see us whose children's teeth are growing crooked and who cannot get to see an orthodontist? If the fathers had a decent income, they would not have to wait and would be seen because they could pay for it. For whatever reason, we have allowed an apartheid system to develop in the health services. It is a bad day's work and money alone will not solve it.
There is the manpower issue and the need to attract, for example, nurses back into nursing in Dublin. However, the reality is that 60,000 nurses pay annual registration fees in Ireland and little more than half are employed in hospitals. Of the 1,800 vacancies throughout the country, about two thirds are in Dublin. It is no wonder we have a problem in the health service when people cannot be attracted back in. There is a precedent in the information technology area where bonuses are paid. There must be a specific incentive to get nurses back into the system in Dublin. If it means a Dublin weighting or assistance with housing or whatever it takes, so be it. We must get them back in.
In some cases, it is not a good prospect and, if any of us had daughters who were nurses, we would also see it that way. It is not a good prospect for them to be coming out at unsocial hours on to the streets of Dublin to walk to a parked car, perhaps, which is some distance from the hospital. We must think about how we can make it attractive in terms of housing, pay and personal security. If we do that, we can attract people back into the health service. We can have a system which provides beds not on the basis of budget but on the basis of needs.
It is extraordinary that 100% of beds in private hospitals are constantly occupied because a person in a bed is a source of revenue to the hospital. This means that, every time a bed is vacant, it is ensured another patient is brought in quickly because he or she is a source of finance. In public hospitals, because a block allocation is given to hospitals, a patient is a cost so the attitude is to keep them out. We must change that and make it attractive to have patients in hospitals. That is why I argue for a change from the current system to a universal insurance system where patients not only have access to hospitals but where they also have choice because they can select their own insurance company paid for through the tax system. This would mean hospitals would want to have them present to be treated because every patient would be a source of revenue to the hospital. We must make the glass half full instead of half empty and have the hospitals top it up by making it efficient to do so.
Not only do we need to provide and target resources, we also need to ensure those resources are being used productively. In my previous work for a productivity company, within most businesses and certainly within the health service there is huge waste of expenditure in areas such as energy control, food and purchasing. We need to get a handle on how the system is managed. Instead of having a crisis management response as we have for housing, where we have a forum for this, an expert group for that, a commission for the other and a committee for something else, we need a strategic role for the Department of Health and Children and a total reform of and change in the way hospitals are run and administered.
We need more managed competition. There cannot be competition as there is in the economy generally. That will not apply. However, there can be managed competition within the medical system where boards are representative of the citizens and where management is on contract, like chief executive officers of vocational education committees or Secretaries General or city and county managers who have a six or seven year contract. If they perform well, the contract can be renewed or they can move on. We must reach that stage where people begin to use the resources they have to the effect that patients benefit and people are rewarded. Instead, we have a system which gives block grants which encourage hospitals to keep out patients. That must change.
As part of that change, not only should we change the structure of health governance with a strategic approach down to hospital boards, we should also take as much pressure off hospitals as we can and fund services within primary care so that GPs and pharmacies and even community based hospitals play a greater role. I would like to give a few examples of that.
As regards the medical card qualification levels at present, a single person who earns more than £95 in assessable income no longer qualifies for a medical card. A married couple who get more than £135 in assessable income no longer qualify, and the figure for a married couple with two qualifying children is £167 or thereabouts. In other words, only the poorest people are qualifying for medical cards, but that was not ever intended. The agreement between the Department of Health and Children and the Irish Medical Organisation allows for up to 40% of the population to be covered by medical cards under the current scheme. It used to be as high as 38% or 39%, but it has now fallen back to 31% or less. Overnight, we should double the threshold allowances so that a married couple with two children, earning £19,700, will be eligible for a medical card. They need a card because by the time they have paid tax and mortgage repayments they cannot be classed as wealthy. They should have that support in order to see a general practitioner whenever they or their children need to. An individual earning less than £10,000 should not have to pay medical costs either. That income equates to £200 per week, which is a little more than double the current £95 limit. They are the sort of income levels that should apply to medical card eligibility because £10,000 is not a huge amount of money.
The children of people living in poor areas often have crooked teeth and they are smaller in stature than others. They are not brought to see the doctor when they have 'flu or when a lump appears somewhere on their bodies. They are only brought when more serious matters arise because their parents cannot afford the cost of visiting a general practitioner. Such parents might be inclined to visit the accident and emergency department of their local hospital because they simply cannot pay the doctor's fees, but they should not have to do so. They should have access to a GP, as of right, when they require treatment, and the cost of prescribed medicines should be paid by the State. Extending medical card facilities to the existing provided level of 40% of the population does not go far enough. We should do that straight away, however, because it would take pressure off hospital accident and emergency wards. It would be more egalitarian because people would have access to their GPs and it would be more cost effective, costing about £130 per annum per head of population.
Ireland is out of step with most European countries in that we do not provide free medical services for children. I do not agree that there should be a free GP service for everybody, although perhaps at some time we will be able to afford it. I do not see why some very wealthy people, such as the O'Reillys or the Smurfits, would need a free GP. I do not think they would welcome it themselves, in any event. We should have targeted free GP services. There is a strong case to be made for allowing a free GP service for children up to the age of 18, and beyond that when they are receiving third level education. There is also a case to be made for free GP services for people aged 65 and over, as well as those on the lower 60% of income levels. That would leave the top third who are able and willing to pay for health services. The effect of taking that pressure off the secondary care sector and investing in primary health care, would be that people would visit the doctor more often. Preventative medicine would take pressure off hospital accident and emergency departments.
These measures should be coupled with granting GPs a 100% tax write-off, certified by the health board, on necessary annual expenditure for their practice and premises. Where such expenditure cannot be written off in one year, there could be carry forward provisions for future years. This measure would take pressure off the secondary care area and I hope it will be considered for provision in the Finance Bill. If such a step was taken, one would find not only individual GPs, but groups of GPs, coming together to make such investments. It is not uncommon both here and abroad for groups of doctors to co-operate either in their group practice or another co-operative procedure, when purchasing x-ray and other equipment which they will use, thus avoiding having to send patients automatically to the local hospital. Providing doctors with the incentives to make such investments would take further pressure off hospital services.
Similarly, community pharmacists are one of the great under utilised resources in the health sector, and that should be changed. Under Statutory Instrument No. 150, protocol No. 9, governing licences, pharmacists are obliged to undertake the profiling of patients so that they can give advice to people on the correct use of medication. Some 50% of people do not use their medicines properly, however. They either stop using them, use them to excess or take them in conjunction with alcohol and, consequently, they do not get the effect of the treatment. In turn, that means they end up back in hospital. Pharmacists should be required to give advice but that cannot be done across a counter in a crowded pharmacy. Therefore, pharmacists should be given a tax write-off for developing a private consultation area on their premises. In that way they could advise patients on the correct use of medicines, which would take yet more pressure off the secondary care sector, including hospitals. It would also contribute to finding a solution to the current problems facing hospitals.
I have produced a document containing such proposals. I do not claim that they are perfect and I know that some changes to them might have to be made. I am prepared to listen to advice and consult people in that regard. If those proposals were implemented, however, they would give us a health system of which we could be proud. It would be fair, workable and could take the lead in Europe. We have the ingredients for one of the best medical systems in Europe because we have well qualified and dedicated people working in our medical service. Yet, we have one of the worst medical services in Europe. We cannot be proud of a service that leaves a woman with gangrene in both feet on the waiting list, until the Society of St. Vincent de Paul pays for her to be treated privately. We need to implement major reform in the health sector, but throwing money at the problems will not solve them.
Investment is being wasted throughout the public sector, but the systems in place simply do not pick up on that issue. Value for money audits provide a welcome contribution towards identifying such problems but much more needs to be done. I have declared an involvement with one productivity company, Impac, but I am no longer chief executive of the company. The Minister of State should consider talking to a cross section of experts about how they might make the public service more productive, not just in terms of moving personnel – although I know there are vacancies in the sector – but by using financial incentives to get fewer people to do more work. It may be in our interest to do that by sharing productivity with them. We should specifically examine how we use energy materials and how we control purchasing. Such aspects need to be examined across the board and not just at a macro level. We need people in each sector who will implement change. It can be done and huge amounts of money could be saved. Such resources could then be used to keep staff within the public sector, sharing productivity and providing better financial incentives for workers. It would be a good day's work for everybody.
We should not pat ourselves on the back too much when we throw taxpayers' money at problems. We need to use taxpayers' resources to bring about a fairer and just system which encourages enterprise and is concerned with social justice. In the areas mentioned we have a long way to go to deal with issues of concern.
I wish to share my time with the Minister of State at the Department of Health and Children, Deputy Hanafin.
Is that agreed? Agreed.
I am delighted to have the opportunity to contribute to the debate. To respond to Deputy Mitchell's final point, we have radically changed the set-up within the Office of Public Works to six business units. We have been awarded ISO 9002 on the project management services side. I intend that all business units receive similar recognition as soon as possible. They are all working to this end. The set-up of the GSA has also changed radically. It is now one of the most efficient purchasing groups in the country. I am very much aware of the need to be productive and to give value for money. It is to the forefront of our thinking. We are even producing profit and loss accounts in some areas. That is a radical step throughout the entire Civil Service.
The Government has a proud record of economic achievement and I am confident that the budget will contribute further to this record. It is important to recall how much progress has been made since this Administration took office. The number employed is up by over 250,000, unemployment is now below 4% compared with 10% when we took office, personal taxation has been reduced substantially, there have been real improvements in living standards for those in employment and those dependent on social welfare and there have also been significant increases in public investment.
The budget is designed to build on these achievements by addressing the challenges we now face as a society. For the first time in our history we are no longer preoccupied with the related problems of emigration and unemployment. Instead the key tasks today are to manage a rapidly growing economy, tackle our infrastructural needs and implement a progressive social agenda. To recap, the budget set out to secure our continued prosperity, improve our quality of life, promote a fairer society and reward work and enterprise through ongoing tax reform.
Securing our prosperity is a primary objective of policy. We aim to sustain our economic progress in order to improve living standards and our capacity to pursue our social policy objectives. The Government is convinced that keeping social partnership together is essential in order to achieve this objective. Accordingly, the budget must be considered in the context of the Programme for Prosperity and Fairness, which has been under strain during the course of the year due to higher than expected inflation. While it is clear that many of the factors pushing up prices are outside our control, the Government has already taken a number of positive measures. I am happy to say that the budget contains further measures to reduce inflation while providing for significant gains in take home pay for all employees.
On indirect taxation, the standard rate of VAT will be reduced to 20% from 1 January 2001. Excise duty on auto diesel will be reduced by 6p per litre, giving a VAT inclusive reduction of 7.3p. Inclusive of the 1% VAT reduction, this will give a tax cut of 7.8p per litre from 1 January. The excise duty on unleaded petrol will also be reduced by 2p per litre, giving a VAT inclusive saving of 3p per litre by January next.
The full year cost of these VAT and excise measures is £349 million. They will take 0.5% off the consumer price index, if fully passed on to consumers. I am glad to say that these measures are working as a number of garages have already reduced their prices. Before I came into the House, however, I was informed of a few which have not done so. I urge them to obey the law as passed by Dáil Éireann last night. The reductions were introduced from midnight. I remind them that if they have not reduced their price of diesel and unleaded petrol, they are breaking the law. I urge them to pass on what is rightfully due to their customers immediately.
The direct tax measures introduced in the budget will provide substantial gains in take home pay and more than honour the Government's commitments in relation to the PPF. The tax increases announced are nearly three times higher than the amounts promised under the PPF for this year. These measures provide a basis for sustaining the PPF, which will help to secure lower inflation in the future.
To recap on the decisions taken, taxpayers will benefit by £1,231 million from the following income tax and PRSI measures announced yesterday. Basic personal allowances will be increased by £800 for a single person and £1,600 for a married couple to £5,500 and £11,000 per annum, respectively. The PAYE allowance will be increased from £1,000 to £2,000 per annum. These measures will remove 133,000 taxpayers from the tax net, bringing the total numbers exempt from tax to 668,000 or 38% of taxpayers. In anyone's measurement, this is a staggering achievement.
The single person standard rate income tax band will be increased by £3,000 from £17,000 to £20,000 per annum with a consequential increase for double earners. The married one earner band will increase by £1,000 from £28,000 to £29,000 per annum, with transferability of bands between spouses thereby increased also to £29,000. As a result of this band widening the proportion of income earners on the higher rate will fall to 23%. In 1997, 36.6% of taxpayers were on the higher rate.
The standard rate and higher rate of income tax will be reduced by 2 percentage points. In the next year the rates will be 20% and 42%, respectively. This compares with tax rates of 26% and 48% when the Government took office. This fulfils the election pledge which the Government parties gave in relation to income tax rates in the programme for Government. I am certain these developments will be welcomed by the House.
A number of changes have also been made in relation to PRSI in the budget. The contributions ceiling on the self-employed and proprietary director rate will be removed and the rate of PRSI for this category reduced to 3%. The ceiling on employee PRSI is being increased to £28,250 per annum, which reflects the normal earnings related increase. The class A rate for employees is being reduced from 4.5% to 4% at a cost of £63 million in a full year.
It is clear that these tax and PRSI measures are significant and will the boost the net take home pay of all employees in the tax net. Compared to last year a single worker on the estimated average industrial wage has £1,602 more this year due to wage increases and tax cuts. This represents an increase of 13% in disposable earnings, which is more than double the average inflation for this year of 5.5%.
After this year's budget and including the 5.5% under the second phase of the PPF and the additional 2% agreed this week, the take home pay of the same single workers will increase by 13.5%. This is well above the forecast inflation rate of 4.5% for next year.
One of the main aims of the Government is to reward work and enterprise. The tax reform package announced in the budget, with the three preceding budgets, will provide the right set of initiatives to reward work and risk taking.
Tax measures are not the only way to tackle inflation. We also need to use the tax system to promote saving instead of spending, where possible. Incentives have already been provided for pension saving both through tax changes and by giving savers greater choice and control over their money. The Minister has announced measures to encourage medium-term savings in the credit unions and is considering extending these to other financial institutions in the Finance Bill.
In addition, the Government is saving a large part of tax revenues despite the tax reductions and expenditure increases announced. It is estimated that the Exchequer surplus this year will be almost £2.5 billion with a similar figure forecast for 2001. In addition, 1% of GNP is being set aside for future pensions. On a general government basis, the surplus will be 4.3% next year, one of the highest in the European Union. This sensible approach to managing the public finances will help to sustain economic growth.
Debate adjourned.