In the midst of the business pertaining to the Lisbon treaty, to which I shall return later, I wish to bring again to the notice of the Taoiseach an issue of real concern for hundreds of thousands of people, namely, the cost of fuel prices. Fishermen, commuters, small business, farmers and everyone else now are being screwed by the rise in fuel prices for diesel and petrol. This is a real burden on everyone. The cost of filling an average car is approximately €100, which is making life extremely difficult for a great number of people. Members have seen evidence of the frustration felt by fishermen, hauliers, commuters on a daily basis, small businesses, farmers and so on. Does the Taoiseach accept the Government is taking a real windfall from price increases, as it takes one cent for every increase of five cents? What relief measures does the Government propose to implement to assist in the burden that commuters, small businesses, hauliers, fisherman, farmers and everyone else in the community now face?
Leaders’ Questions.
I explained the last time the Deputy raised this matter that the Exchequer yield from excise, as excise is set at a nominal amount, does not increase as the price of fuels increase. On the other hand, the yield from VAT, which is set as a percentage of the price, increases as the price of fuels increase. As Members will be aware, VAT receipts are falling and in a situation in which tax revenue is tightening, the Government cannot cut tax in any area without jeopardising funding for essential services. It also should be borne in mind that to the extent that spending in the economy is reallocated to petrol, diesel and other oil products and away from other VAT-liable spending, and to the extent that the overall level of economic activity is reduced by higher oil prices, there will be little or no net gain to the Exchequer.
I also must point out that businesses are entitled to reclaim VAT incurred on their business inputs, including VAT incurred on fuel. VAT incurred on auto diesel, for example, on marked gas fuel used in the course of business, is a deductible credit for business in the VAT system. According to recent EU data, Ireland has the ninth lowest petrol prices and the 12th lowest auto diesel prices of the 27 EU member states. It is mainly the newest member states that have lower fuel prices than Ireland.
At their meeting earlier this month, EU Finance Ministers discussed the difficulties created by high oil prices. They confirmed the agreement reached in Manchester some years ago that distortionary fiscal and other policy interventions should be avoided. The fact is that reducing taxes on fuels would send the wrong signal both to consumers and oil producers. We have to be careful not to exacerbate what is an already difficult situation.
Any measures taken will have to be targeted. Ministers met for over nine hours on the fishing industry. We will examine what is an EU wide problem at the next meeting of the Council of Ministers.
That does not answer my question. What relief measures will the Government put in place to assist people who are now really feeling the pinch? I listened to a fisherman from Kilmore Quay talking about his €18,000 diesel bill for five days steaming, even though there may have been no fish at the end of it. I spoke to a haulier in Cork who drove his lorry north of the Border and back, which took up 600 litres of fuel. These costs are sometimes passed onto consumers, but commuters every day are now faced with rising prices at petrol and diesel pumps. With price increases across the board, this is eating into disposable income at the end of the week.
Does the Taoiseach agree with the projections that the Government will take in an extra €64 million in VAT because of the price increases? Does the Government have any proposals to assist with the tax burden that is currently imposed on drivers? This is a serious issue for hundreds of thousands of commuters on a daily basis, and the Government needs to do something about it. They know the Government is taking in €64 million extra in VAT and they want to know if it can bring in any measures to alleviate the financial pressures being imposed on them.
I am sorry but again I must point out that the VAT intake has been reduced, so I do not know where he is getting the idea that the Exchequer has seen an increase. Overall economic activity has decreased because of the higher oil price, therefore the Exchequer take on VAT has decreased as well. That issue was raised by a Fine Gael spokesperson in a press statement last week.
How can there be a reduction in fuel?
There was €64 million extra in VAT.
The fact is that oil prices are higher due to rising commodity prices in general. If we use the taxation system as a means of assistance, we will provide benefit to the producers and not to the consumers. The benefit will go to those who are already getting a higher price for their product. The Deputy is making the point that there is a windfall available to the Government, but that is not the case. The overall reason for that is very simple. If people have a set disposable income, while they must pay more of that on petrol than before, they still have only the same income to spend. The fact that more of it is being spent on petrol does not mean that there is a windfall available to the Government, as the overall consumer spend is the same. A greater amount is spent on petrol and that is what is causing hardship in certain sectors. That is why there has been a meeting between Ministers and their representative bodies.
That works both ways.
It does not both ways. It works the only way it can. One cannot double count. One can only count once. The fact is that a greater percentage of consumer spend goes to those areas which have higher prices, but on the basis of fixed incomes, the same amount of money is collected by the Government. Due to the higher oil prices, the reduction in economic growth rates means that the overall Exchequer take is down on those headings, as was pointed out by the finance spokesperson for Fine Gael when the figures came out last week.
Saudi Arabia will be increasing its output in order to reduce the price of oil. The Government should pass that on to the consumer here.
This country is now facing some very big problems. We were in here earlier this afternoon talking about the aftermath of the rejection of the Lisbon treaty. We are now probably facing the biggest diplomatic challenge since the Second World War. Last week the live register went above the 200,000 mark. We have seen the biggest increase in unemployment over the last year in 40 years. Jobs are being lost in our economy at a rate of 235 a day, or 1,600 a week. On top of that, there has been a great change in our public finances. There was a €5 billion surplus two years ago, but there is a €1.5 billion deficit already this year. Our economy is heading for a recession.
Against that background, it is unthinkable that the Government is effectively proposing that the Dáil be closed for public business for three months of the summer. The Labour Party is proposing a motion in Private Members' business which would require that the House sit towards the end of July and return at the beginning of September. The Government has tabled an amendment to that motion which effectively provides for one extra week's sitting for statements on the national development plan. Against the scale of the problems we are facing, I do not think that is acceptable.
The people of this country are worried sick about jobs, businesses, rising prices and other problems. Can the Taoiseach explain why we are going to up sticks in the second week of July and not do any public business until the end of September? In circumstances where there has been a great erosion of confidence in political leadership in this country, does the Taoiseach not think that we ought to be here addressing the serious problems facing the nation, the consequences of last week's decision, and where we are going as a country?
It is true that some of the economic scenarios referred to earlier in the year have come to pass. We have had an international credit squeeze. We have seen unemployment rise, although there are 200,000 people unemployed today in a workforce of 2.2 million. The last time we had that figure, there were only 1.25 million people working. Unemployment has risen to over 5.5% as a result of recent developments, which means there are challenges to the economy. We intend managing the economy from a position of relative strength to ensure that we get through this period without doing any permanent damage.
If we talk down the economy to a greater extent than the actual level of difficulty, that will lead to an erosion of confidence. I was disappointed to hear an Opposition spokesperson talking about the dark days of the 1980s. We borrowed £6 for every £1 we earned back in the 1980s, while more than 30,000 people emigrated. At that time, 16% of the adult population had no job. Inflation was at 21% and interest rates were over 20%, while the national debt was 125% of GNP. Personal taxes were 40% at the standard rate and 65% at the higher rate. Therefore, the suggestion that we are returning to the dark days of the 1980s on the basis of the difficulties we now face is, quite frankly, not a correct analysis.
By the same token, I am not suggesting that there are not considerable challenges facing the economy. However, if the Deputy wants to talk about an erosion of confidence, then that sort of analysis would be best left aside as it does not reflect the situation we are facing at the moment. We need to maintain our strength through this current situation. There has been a reduction of €1.16 billion in the first five months of this year, as compared to the €1.5 billion referred to by the Deputy. This is a development we shall have to address in terms of maintaining our budgetary discipline this year and planning our budgetary stance for 2009 and the year after. The budgetary stance for this year provided us with a stimulatory impact on the economy of something in the region of 1.4%. That is necessary in view of what has happened internationally, where many of the scenarios forecasted have come to pass. There is no question of suspending our management of the economy on the basis of when the Dáil rises, whenever that might be. We are talking about maintaining a responsible budgetary position, working in a disciplined fashion, setting out the situation for 2009 and the year after, which will prioritise our capital programme to get the greatest possible rate of return, putting in place the building blocks for the continued growth of the economy towards the better times ahead, and trying to consolidate the gains we have made through a disciplined approach. That, however, has not been the analysis heard from the other side of the House in this regard.
Live horse and you will get grass.
I do not want to talk down the economy, nor do I want to return to days of high unemployment or rising emigration. Neither do I want to see the type of terror we witnessed on the faces of families whose homes were about to be repossessed. However, there is a difference between talking it down and ignoring it. It seems the Government is in denial. The economy is in a serious situation, and people are worried about it. When people ask themselves what happened last week, I can explain it. There is an apprehension in the pit of the stomach of the nation as regards how matters are going. People are worried about their jobs, businesses, the country and their children. They see prices going up every day and the €70 or more it costs to fill the car with petrol compared to €50, 12 months ago.
Deputies
It is €90 or €100.
There just cannot be a "business as usual" response to this, with the Government closing the Dáil and heading off into conclave to discuss Estimates and a budget over the period of the summer and early autumn. This is public business that affects the lives of the people it and needs to be conducted in public. I know there is a certain ritual every year as regards when the Dáil closes and the length of the recess and so on. However, the problems the country face this year are such that it is irresponsible for the Government to close the business of Dáil Éireann. The message we need going from here is not that Deputies are on holidays, but that the country faces serious problems and leave is cancelled.
It is important to point out that the question of holding a debate on the European issue and the economy is something I should welcome during the course of this term, whenever it ends. It is important to have such that debate.
In putting matters in perspective I am not suggesting we ignore the challenges, which the Government is very much aware of, but rather that we emphasise the need for a strategic approach as regards how to get through the present impasse. As an open economy we cannot suggest that we can be immune from developments elsewhere. Higher commodity and oil prices must have an impact on every economy. How we deal with that, in terms of maintaining competitiveness, is not to suggest it is not happening by providing rebates all over the place indicating we can do this while our competitors do not. That will not maintain competitiveness but postpones the day when we have to take on board the reality of higher oil prices impacting on the economy, the same as everywhere else. It is wrong to believe this would provide a palliative or solution.
It is one of the proposals that came from the Opposition benches and is precisely what we should not do because the benefit will not go to the consumer anyway. The real issue involves continuing with the capital programme and investment, for example the approval in 2007 of €23 billion of investment under the national development plan. This was not exclusively capital investment, but also current in trying to build up skills, invest in education, improve physical infrastructure, proceed with the public transport projects and make contributions as an offset, not full compensation, for the reduction in some aspects of private sector activity, particularly in construction. This activity has to be maintained in an overall budgetary context that is sustainable. It is true that as we face into this year and next, in particular, we will have to take whatever temporary adjustments are necessary to maintain a sustainable budgetary position.
On the basis of our base of activity which has greatly increased in recent years, in health, education, social welfare or whatever, we are talking about hugely increased current investment as well as capital side expenditure. We must maintain a capital spend commensurate with what is needed to continue to deal with the deficits in physical infrastructure, which have been historic because of the past unavailability of resources. We must also seek to maintain budgetary discipline as well in respect of expenditures already authorised for this year — expenditures that were too great, according to the Opposition's critique. Other Members, however, have said they were inadequate. In fact they have provided a stimulatory impact equivalent to 1.25% of 1.5% growth.
The Taoiseach is not answering the question.
I am answering the question.
The Taoiseach is not answering the question. He is making the type of speech we should be having——
I am sorry——
Deputy Gilmore cannot interrupt.
I am not prepared to be interrupted while I am speaking, no more than I interrupted the Deputy when he was speaking.
We are trying to answer the Deputy's critique that we are indifferent about the state of the economy. We are certainly not and are proceeding in a responsible fashion. The budgetary stance we took this year was the correct approach, despite the criticism we received and we will, in the changing environment we face, further adopt a responsible approach for this year and next. Far from being indifferent, we are proactive in this area.