Seanad Éireann díospóireacht -
Thursday, 24 Jul 1975

Vol. 82 No. 9

Finance (No. 2) Bill, 1975 (Certified Money Bill): Committee and Final Stages.

Question proposed: "That section 1 stand part of the Bill."

Mr. Yeats

I should like to say a little on this section which is the one which imposes the surcharge on all income tax which is paid at the rate of 35p in the £. This is a typical example of the difficulty of following the twists and turns in policy of the Minister for Finance. Only a few months ago the Minister was saying in Dáil Éireann, at column 1581, Volume 278 of the Official Report of 15th April:

Nominal incomes in Ireland are, in fact, in real terms worth much less than in any other European country I know of because of the very high levels of tax associated with brackets of income, the thresholds of which are below those applicable in other countries. In order to try to cool the situation for top executives' salary demands, which will have a beneficial effect I believe right down the line, we consider it is appropriate on the income front alone, if wealth tax were never to be contemplated, to make these adjustments in the thresholds and the rates.

This was when he was reducing the level of surtax in his January budget. In other words, the case he was making was that, in the interests of the economy, in order to further enterprise, to encourage executives to come and settle here and to build up industry, it was necessary to reduce the rates of income tax on these grades. The grades covered by the surcharge, as I mentioned on the Second Stage of this Bill, include almost all the people whom one thinks of as middle class, teachers, executives of all kinds, almost the whole of the Civil Service, all these are covered. These are precisely the people the Minister, as recently as January, felt it necessary to help by putting excessively high levels of income tax on them. It is unfortunately too usual with this Minister, having made these wise and correct remarks, to turn round the following month and put back part of this tax on these same people. It is difficult to understand the purpose of it. It is difficult to understand why alone of the entire community this relatively small section should be expected to pay for the cost of the various subsidies in this Bill. One wonders whether it is that the Minister feels that the voting power of those who do not suffer from this tax is greater than those who do and can afford to ignore their views in this matter.

Leaving aside the political aspect of it, the Minister is unwise in that this type of taxation is not going to help to put people into employment; it is a drag on enterprise. He has told us it is intended to be temporary. I would be interested to know whether the Parliamentary Secretary has any suggestion as to how temporary he feels it is likely to be. It is supposed to be taken off as soon as possible. I hope the Parliamentary Secretary will be able to give us some kind of assurance that if not next January, certainly it will be no later than the budget after that.

Mr. Bruton

The surcharge is a temporary imposition to meet present difficult economic circumstances. Everybody has been asked to make a sacrifice at the moment. This includes all workers, even those on low incomes. Therefore, those who are relatively better off are also being asked to make a proportional sacrifice. Senator Yeats referred to the problems created by the relative rates of taxation in this country and in Britain, against a background, presumably, of executive mobility. Even including the present surcharge for tax rates in this country the trend has been more favourable over the past year or so in Ireland than in Britain. The tax comparison for Ireland and Britain for 1975-76, even including the surcharge, is considerably improved compared with the position in 1973-74. The tables I have here give particulars that show in respect of a salary of £5,000, a single man in Ireland in 1973-74 would have paid £179 more in tax than his counterpart in Britain. In 1975-76, even with the surcharge, he will pay only £4.37 more. If his salary were £10,000, he would have paid £1,038 more in 1973-74, whereas in 1975-76, even with the surcharge, he will pay only £379.62 more. A married man with a salary of £15,000 would have paid in 1973-74 £1,909 more than his British counterpart. In 1975-76 he will pay £776.60 more. Therefore, the Senators will see that in 1973-74, the year immediately after our predecessors in office left, the relative tax position of the top executive in Ireland vis-à-vis his British counterpart was worse than it will be in 1975-76 following the introduction of this surcharge.

Mr. Yeats

These figures the Parliamentary Secretary has given us seem to me to controvert his whole case. All he is saying is that for married and single men at various levels of income, in each case they are worse off this year because of this surcharge than the corresponding figure in England. The Parliamentary Secretary says we are less worse off than before, but surely that attitude will not do much good for the economy. We should be better off.

There is still an incentive to an executive to work in England rather than here as far as tax is concerned. The executive or any member of these grades in the public service or out of it, at a comparable income, will pay more tax in Ireland than he would in England. That is the point I am getting at. Therefore there is an incentive to work abroad rather than in Ireland. That is the problem we are faced with in trying to live in the Irish economy. I accept that in the January budget the condition was improved. It still was worse than in England. Now again it has been worsened, at a time when the Government should be considering every single time they make any fiscal changes, will these changes improve the prospects of the economy, by providing employment, or will they worsen them? Quite clearly and categorically, these changes worsen the prospects of providing employment. They reduce the likelihood of inducing people to come here we would like to see coming. It reduces the incentive to enterprise which is so vital to our development. The figures the Parliamentary Secretary has provided are a complete argument in themselves against the provisions of section 1 of this Bill.

The other point the Parliamentary Secretary made was—and I found it rather curious—that at a time when everyone else was being asked to make sacrifices, this grade should also be asked to make sacrifices. Who else was asked to make sacrifices? I am well aware of the fact that there are 100,000 people out of work. They, of course, are making sacrifices. I do not think this is what the Parliamentary Secretary meant. He is talking about the project which is contained in this Finance (No. 2) Bill, 1975.

As usual with this Government, money was spent, deficits were increased, no taxation of any kind was imposed, except this. There were remissions in taxation. There were subsidies, these people were not only asked to pay increases in their income tax, but also, as I have already mentioned on Second Stage, face increased mortgage charges for houses in the private sector. I cannot understand the Parliamentary Secretary's point.

Mr. Bruton

The point is relatively simple. We are looking for a renegotiation of the national wage agreement. We are asking people to accept a lower rate of pay than that which was agreed. That, of course, is a sacrifice for all those people. It includes large numbers of workers who are earning, I am sure the Senator will agree, far less than even the people about whom he is talking will be earning after tax.

The situation also is that, as I clearly illustrated, the relative position of the Irish executive vis-à-vis the British executive has improved, even with this surcharge, in 1975-76 as against 1973-74. If all the disastrous consequences which Senator Yeats seems to envisage arising from this differential were to arise they would have arisen in 1973-74. The situation has improved and will be improved in 1975-76. You cannot do it all at once and I think Senator Yeats' prophesies are not justified by the facts as they have unfolded to us since 1973-74.

Mr. Harte

The Minister mentioned the renegotiation of the national wage agreement and Senator Yeats will wonder why I did not say anything about it earlier on. I am speaking only because the Parliamentary Secretary raised it. I speak in the context of the surcharge in tax. There are workers who will have to pay the 38½ per cent on some of their earnings and this arises after bonuses, profit shares, overtime shifts, and so on. Any other fringe benefits that come in by way of money are taxable and there is no beef in the trade union movement in general about that. In respect of the other side of it, naturally there is a beef. The reason I have not said anything about it is that I think it is not the right time. The Employer-Labour conference is taking place today and I do not think it is appropriate that any of us should get into a discussion or debate on that matter as it is being dealt with in the correct way.

Mr. Lenihan

I appreciate the sensible attitude adopted by Senator Harte and I am not going to go into that area at all. He says, rightly, that the Employer-Labour conference will, hopefully, work out some modus operandi that can keep the ship going. There is one point I would like to take up with the Parliamentary Secretary. It tends to be an attitude of mind and I thought it would have gone with our membership of the EEC, but there still is this futile business of explaining our situation vis-à-vis Britain and exchanging notes as to salaries operating here and operating in Britain. That is not the ball game we are in. The sooner we get away from this kind of British-Irish ball game the better. Britain is the sickest economy in the EEC. We are next door to being in the same situation. Comparisons between Britain and Ireland are not really relevant in the overall context and we should not be talking in terms of A, B, C, D tax reliefs, that we are nearly as good as the British. That is not the point. We should be away ahead of them. We should be in a different league altogether, seeking to have a society here that offers incentives to people to come in and manage, offering incentives to investment here, having sufficient tax reliefs here to get the economy on the road, because basically our economy, from the structural point of view, is a healthier economy. I know it is only a microcosm of the British economy but basically it is a far healthier economy than the British one.

We should be talking in terms of giving far greater reliefs than exist in Britain to executives, far greater reliefs in regard to investment here, far greater relief in regard to exports, far greater reliefs in regard to every area of economic activity. What I am saying is that we should get rid of any ideological hangup that may link us to what is growingly becoming the most Marxist society within the EEC, that is the British society and the British economy. The sooner we get rid of the ideological hang-up that links us to and makes us think in the same sort of Marxist terms and compels us psychologically to make comparisons between ourselves and British, the sooner we get rid of all that nonsense and regard ourselves as part of the EEC with an incentive and an enterprise attitude, the sooner we will be on the right road, not just the Government but all political parties, trade unions, employers and everybody.

That is the sort of society we are going to have.

In this small country, three million in the Republic and four-and-a-half million in the island as a whole—we will concentrate on the Republic for the time being—we should not think in terms of the British comparison because Britain is very sick, and I do not agree with breaking the link with sterling or any of that nonsense. As far as psychologically getting out of that straitjacket, what you might call the British straitjacket and thinking in terms of having a society here that is free from comparisons with Britain and thinking in terms of a European situation, right across the board, we can do business, but in particular it lies with the education of our people and it lies with us as leaders in that respect to get away from the British sickness. The British sickness is an ideological hang-up on Marxism. I believe in practical socialism.

Mr. Bruton

The reason I think the comparison with Britain is the most relevant comparison to make in terms of the rate of tax on executives is because we share a common language with Britain. There is far more executive mobility between Ireland and Britain than between Ireland and France or Ireland and Germany. I agree with Senator Lenihan that in the overall sense of economic guidance and economic measurement we should certainly make comparisons not with Britain but with other healthier countries, but in the narrow area of comparing the relative tax loads of executives in one country or another a comparison between Ireland and Britain is more relevant because of the language situation.

Mr. Yeats

The Parliamentary Secretary is probably right in saying that there are practical reasons for making comparisons between this country and Britain. The basic point is that before this budget, at the various levels the Parliamentary Secretary has set out, Irish executives were worse off than their comrades in Britain. After this budget they are still worse off and that is the basic point. It is not calculated to help the Irish economy.

The only other point I will make —I will not discuss the question of the negotiations which Senator Harte has pointed out are taking place to-day—is that I think we should understand what is meant in this reference to sacrifices. Senator Harte will agree with me that it is not a sacrifice to suggest to a worker that he can match a 4 per cent decrease in his living cost with a 4 per cent decrease in wages. We would all agree that the workers would be better off if their wages went down by 4 per cent to match a 4 per cent decrease in the cost of living. That is common sense. I do not think anybody expects any more of anyone. I do not think the word "sacrifice" as used by the Parliamentary Secretary is in any way required of workers under the national pay award and agreed negotiations.

Question put and agreed to.

SECTION 2.

Question proposed: "That section 2 stand part of the Bill."

Mr. Yeats

I expressed on the Second Stage some doubts about the wisdom of the provisions in section 2. While stressing that I was in favour of the reductions in prices which will be achieved on foot of section 2, I feel it would have been wiser to do it by means of subsidies. There are two reasons for this.

First of all, there is the problem that it adds a considerable number of other items to those already VAT zero-rated in this country. Now the prevailing practice in the EEC is, I think in almost all countries except for Britain, that there is no zero-rating. All items are taxed at some level and in view of this prevailing view, in the event of harmonisation of VAT rates taking place throughout the EEC, it is very likely that it will occur on the basis that there will be either no zero-rating or else only a minimum of zero-rating. We are complicating the issue very much for ourselves if we agree to any such harmonisation and then add in this way to the number of items zero-rated. Also I think the Government are piling up unnecessary problems for themselves in the future. The Minister for Finance has said in regard to this budget that these cuts in VAT in this section are temporary to deal with a specific situation at the moment and that it is intended in due course to remove them, that they will no longer be necessary.

If that is the situation, then it is, I would have thought, politically speaking much more difficult to put VAT back on anything than it would be merely to remove a subsidy. People accept that subsidies are temporary by nature and that ultimately they will go. It will be very much more difficult to put VAT back. However, that is the Government's problem, not ours over here, but it is a problem.

The only other point I would make on this section is that I am dubious about the results of removing VAT from clothing, fabrics, yarn and footwear. Obviously it will reduce the cost to the consumer and it may marginally increase sales of these items, but the difficulty is that taking VAT off these means that you take it also off all imports and you are helping imports just as much in this respect as you are the home product. The Government should have considered this more carefully to see in which way they could help home produced clothes, fabrics, and footwear rather than take this step which helps both home produced and imported.

Mr. Lenihan

My main criticism of this section—I mentioned it this morning on Second Stage and to some extent I disagree with what my colleague has just said now—is that I do not think it will obviously reduce the cost of living because the whole experience of this area heretofore has been that when you reduce something of this kind at the retail level the laws of trade have a way of adjusting themselves and the fact of life is that the reduction will be subsumed within the whole price structure and the net effect will be that you will be back where you were but at a loss to the Revenue. This was precisely the position when VAT was removed from food in 1973. You had the very same situation that theoretically the cost of living was reduced by X per cent by reason of VAT on certain food items being reduced to zero. Again, and I said it this morning, quite bluntly this is another cosmetic exercise with a view to selling something across the board to the trade union movement. Theoretically, the cost of living will be reduced by X per cent.

Again what I said this morning in relation to the consumer price index, I do not think this will happen. Making a prognostication and examining the result, I think the relief from VAT in relation to the particular commodities mentioned here will not be to reduce the cost of living to the same degree as is envisaged. I doubt if there will be a 50 per cent efficacy from it. We can have a debate here in two, three months' time and the net efficacy will be shown to be about 50 per cent. That will be the very height of it and the rest will be subsumed by the trade in their own way. In other words, profit will be made along the lines in regard to these particular items, that is, A, B, C.

It is basically, then, a cosmetic exercise artificially to reduce the CPI, the target being to reduce it from 25 per cent to 21 per cent and say to the trade union movement, who will sell it to the members: "We are in the Bill reducing the cost-of-living index, the consumer price index, by 4 per cent and therefore we want the trade unions to get their members accordingly to withdraw their particular rightfully given claims by mutual agreement last April; now in July we want these withdrawn on the basis of a reduced CPI." I will not quote from him again, I did it this morning, but the Taoiseach said yesterday that he had grievous doubts about it but that he was dictated to by the CPI. The consumer price index is now the Government. The consumer price index incorporates these aspects that we are talking about and a theoretical case can then be made to induce the trade union movement to induce their members to accept a fall-back position in regard to an agreement reached in April, and on we go.

That is all right in terms of settling a situation for the month of August. We are getting used to monthly budgets now. That will tide the situation over for August-September. I would like to see the situation in regard to the commodities mentioned here in October-November, to what degree this reduction in value-added tax in fact has reduced the prices concerned as far as the consumers are concerned. I would like to ask the Parliamentary Secretary, I doubt if he has it, to what extent the reduction on VAT in the particular consumer food items in 1973 really reduced the cost of living or the CPI. Fundamentally, this is what we are talking about.

I think personally it is a confidence trick. It may work. It may keep certain people happy because they are afraid of losing their jobs. This could be the operation. I think it is the operation but fundamentally it is no real solution to the problem. All you have is a substantial loss to the Revenue without any real gain in reducing the real cost of living. I am not talking about some phoney index, like the consumer price index. I am talking about the real cost of living in terms of a customer going in to buy. What we are talking about here is that the real cost of living will not be reduced to the full extent. The Government will be very lucky if there is a 50 per cent bonus out of it. That is my reading of it. We can have another debate about it in the future.

Mr. Bruton

I will first of all deal with Senator Yeats' point. He suggested that we should have a subsidy instead of taking VAT off these items. One would have a situation then where one would have one set of inspectors being paid to take the money in and another set of inspectors being paid to pay it out again on the same products. That to my mind would lead to administrative bungling on a large scale and would not be justified and would be adding, of course, substantial administrative costs to the whole operation, which would not be a good thing. I understand that what would be proposed is a consumer subsidy that such a consumer subsidy could not discriminate as between home and foreign produced items in this situation and that if it did perhaps we might find ourselves in trouble with our European partners. As we all know many of the items which we are concerned with in this section are products some of which are imported.

One cannot guarantee that over the next year there will be necessarily a reduction in the price of all these items. Of course there will be other factors, apart from the rate of value-added tax, bearing on the cost in the shops of coal, which of course comes from outside Ireland, and is therefore determined in price by factors in the country from which it comes. From the point of view of shoes and so forth, there will be many other factors operating there as well as the rate of value-added tax. So it would be entirely wrong of any of us to try to create an impression that simply by taking value-added tax off these products will automatically stop all rises——

Mr. Lenihan

That is what the boys are being told.

Mr. Bruton

——in the cost of these products. That will not necessarily be the case at all, but what is happening and will happen is that by virtue of this section the prices being charged for the products covered by it will be 6.3 per cent less than what they would have been if this section were not introduced and that is the truth and incontrovertibly a benefit to the shopping public.

Mr. Lenihan

I dispute that.

Mr. Bruton

Senator Lenihan asked about the impact of taking value-added tax off food in 1973. I would remind the Senator that on that occasion there was no net reduction in total revenue because the money which was being taken off was being taken in elsewhere on other products. But it so happens that in terms of the consumer price index and in terms therefore of the relevant importance to different households, food was far more important than many of the other items on which a higher tax rate was to be paid to compensate for the fact that no tax was to be paid on food. The result was that though there was no net loss in revenue on that occasion, there was a reduction of a half of 1 per cent in the cost of living as a direct result of the value-added tax adjustments made by the Government.

This is a continuance of that strategy because the Government are selecting both for the value-added tax reduction in the case of this section and for subsidisation in the case of the others, products which are of greatest importance in the consumer price index. But they are only important in the consumer price index because they are important to the average household. The consumer price index is drawn up on exactly that basis to represent the relative importance of different products in the household. Therefore, the measures that have been introduced by the Government will help the average household over a very difficult time and therefore are measures that I hope can have the support of the Seanad.

Mr. Yeats

First of all, I shall briefly deal with the sad tale of what happened when VAT was taken off food. It is, I think, a classic demonstration. Of course Senator Lenihan thinks that was the myth of the consumer price index. The Minister for Finance in fact at that time made a profit of £5 million. It was not the case of just paying for the cost of taking VAT off food. He made a profit on the whole deal of £5 million by putting that much more on other items than he took off food. Nonetheless, in spite of the fact that the consumer was paying £5 million more, the notional decrease in the consumer price index was half of 1 per cent which I think shows the myth of the CPI, but the consumer paid more in all, the consumer being the person who buys all these items, not just food. You cannot live on a desert island eating food and nothing else. We all have other things, too, to buy.

Anyway, the Minister made a profit of £5 million. There was notionally a decrease of half of 1 per cent on the CPI. But of course in practice, as we all know, the increase in that particular month in the consumer price index was around 3 or 4 per cent because the half of 1 per cent never appeared at all in the statistics. It had long since been swallowed up by other items that went up. I think it is fair to say, and indeed I suggested this to the Minister, that not one housewife three months later, or anyone in the country, would even have remembered it if you had mentioned it, that the whole operation had ever taken place. This appeared like a ship in the night and nobody even remembered that that particular bookkeeping transaction had been done. It had no effect at all in practice in reducing anyone's costs.

As regards this question of subsidies, I was of course aware that you could not put a subsidy on home produced goods and not on imports. You would be, as the Parliamentary Secretary rightly says, in trouble with the EEC, and that is not what I am suggesting. I am suggesting that if the Minister had wanted to give practical help to home industry rather than imports he could have done it in some other way. I am convinced that there could be some sort of import restrictions or licensing which if not exactly welcomed would at least be countenanced by the EEC, and I think the Government should have done what other countries have done. They have taken a rather more severe line with some, perhaps, of the less important rules of the EEC. One can overdo this thing of being a loyal member. I think the time has come when something practical needs to be done to keep out imports which are putting large numbers of our people out of work. It is really in those terms that I was thinking about subsidies. I am suggesting that it could be done on home industry but I think the Government will regret in due course having taken VAT off so many items. It will cause considerable problems both internally and externally in future years.

Mr. Lenihan

I will be very brief and talk to the Revenue people, some of whom are here with the Parliamentary Secretary, because they are concerned naturally.

An Cathaoirleach

The Senator will please address the Parliamentary Secretary and the Seanad through the Chair.

Mr. Lenihan

I am talking through the Chair to the Parliamentary Secretary and through him to the Revenue Commissioners who are present, in regard to the effectiveness of section 2. I am trying to talk some realism. All of us here as taxpaying citizens are concerned that the Revenue Commissioners should gain as much as they can within degrees of equity.

I appreciate the Government's problems in this respect, but the facts of life are that the world's worst way to go about improving the Revenue situation and at the same time seeking to reduce the cost of living is the way that it is done under this section, because one has the worst of both worlds. One is setting out to reduce revenue as is envisaged under section 2 by reason of the removal of VAT from the items concerned, and at the same time one is not effectively reducing the cost of living. It may be useful as a cosmetic exercise, as I have said, for the purpose of helping the boys towards a withdrawal from the pay agreement. That may be useful for the purpose of today and tomorrow, but fundamentally this type of removal of tax in this uniformly spread form of indirect taxation which is value-added tax, right across the number of articles that have to come in in an open trading economy from various sources as most of them have—some of them are from home sources—means that it is quite impossible to ensure that what the Revenue are being deprived of will be passed on in real terms to a reduction in the cost of living. It may be a theoretical or paper reduction in that zero rating will apply on X commodities and accordingly there is a reduction in the cost of living. Then the members of the trade union movement throughout the country should accept an abatement in regard to their claims by reason of this theoretical transaction from one column to another.

It is not real. It could only be real if we had a totally closed, controlled economy where there is complete price control, complete control of production, distribution, retailing, total control in regard to the whole price mark-up for manufacturers at home, importers from abroad—that right through the whole process there is a system of control whereby the reduction in tax can be corralled as it were into a reduction in price as far as the consumer is concerned.

What I am saying is common sense. Everybody knows that once you have VAT in operation it affects the cost of living. This is why I should like to hear genuinely from the Parliamentary Secretary through the Revenue advisers how this can be channelled in the direction that it is intended— it is intended to be for the benefit of the consumer. In my view it will not get back to the consumer and experience heretofore has been that way. Having been a member of Government, I know from numerous memoranda on this subject when we introduced value-added tax, and all the advice that we got at that time from the Revenue Commissioners that it was just not on to start differentiating first of all between commodities, that zero rating A, B, C, D, E, and not zero rating other items was just not on, that a tax of this kind had to be applied across the board. This is the European system. This is the way it operates in every country in the EEC. These two crazy islands, for political reasons only, have decided to make exemptions and exceptions to cod whom I do not know. It merely adds to the growing inflation. In Britain and in Ireland we have decided to make these exemptions and monkey around with the system that is there. Once value-added tax is applied and is in existence any diminution or exemptions from that by whatever Government are in power, unless you have a totally totalitarian situation in a trading economy any such diminution will to a large extent be subsumed or absorbed by the various trading areas involved. There will be a mark-up between importer, manufacturer, producer, distributor, wholesaler, retailer. They will utilise this and make money out of it. That is the way of commerce. All you are doing is giving an outlet to commerce to engage in an extra profitable percentage. In the notion that the CPI is being pinned down to enable the trade unions to tell their members that the cost of living is coming down all you are doing is putting extra money into the hands of various people both at importer level and all the other levels.

While I can see difficulties in regard to having a direct subsidy from various points of view, fundamentally this sort of tinkering does not work. There are other ways to go about the job. I do not mind doing this sort of thing if there is a gain at the end but in my view only a very limited gain will accrue to the consumer as a result. Only about half the benefit will be passed on, if that, and the Revenue Commissioners will suffer a net loss and we are back to the dog-chasing-the-tail situation again. The revenue will be lost and all that is achieved is a holding operation for a few weeks in order to satisfy a certain situation.

Mr. Boland

It appears to me that we now have opposition for the sake of opposing. Senator Yeats has urged the Government to disregard certain EEC directives where he feels they might be damaging to employment. The next speaker, Senator Lenihan, urges that VAT ought not to be zero-rated on certain items because throughout Europe it is applied across the board. If you want to stand full-square behind EEC standards on the one hand and three minutes earlier have urged that certain EEC directives be disregarded because they might be detrimental to employment, then we are at the stage of opposing for the sake of opposition.

It is quite apparent that if there is a reduction in ESB bills, a reduction in the price of gas, the price of turf, the price of heating fuels generally, that means a reduction for the consumer whether it affects the CPI or not. And, of course it does. It means that the consumer gets a reduced bill. Since the oil crisis some of the energy producing bodies have been experiencing a fall-off in consumption because of the increase in price. The ESB are particularly affected. If the price of electricity is reduced by the removal of VAT and additional demand is stimulated because of that, electricity is made cheaper for everybody and people are encouraged to use more electricity, thereby generating the production of the scarce goods to meet the additional money, which is the classic way of solving inflation, and it also provides employment.

Senator Lenihan suggests that with the removal of VAT, the slack will be taken up in manufacturers' and distributors' profits. I do not know why every draper shop in the centre of town has notices in their windows announcing reductions in the price of clothing. If the price of clothing is reduced from what it was a few weeks ago then it is cheaper. To my simple mind that means that people have got cheaper clothes. That is what it set out to do. Senator Lenihan's and Senator Yeats's minds have become so refined through their perambulations around the European capitals that they have now got to such a sophisticated stage that if clothes are reduced in the shops in Dublin, because they can economically work it out that it is wrong, then that has made things dearer. I do not understand that. I was told that a suit I bought this week would be cheaper than if I had bought it a month ago. That appears to me as if section 2 is working. To Senator Lenihan's mind it does not. We are listening to opposition for the sake of opposing and it would be far better if we moved on and finished discussion of the Bill.

Mr. Yeats

Senator Boland must be the advertiser's dream. He apparently stands at the shop window and sees "Great bargains" and believes it is some sort of statement from the Bible. The ordinary man in the street treats these notices in shop windows with a little less seriousness than Senator Boland does. They may be correct. Again they may not.

Senator Boland has misunderstood the point made by Senator Lenihan and myself. My point about imports was quite simply that the Government ought not to continue as they have been doing for the past year saying: "We admit that there is heavy unemployment in the textile and shoe industries. We can do nothing about it because the rules do not allow it." Other countries have dealt with matters of this kind and got away with it. Our Government should try the same. The Government were at fault in that, although it has been known for well over a year that serious problems existed in the textile and shoe industries, it was only the day before this most recent budget that the matter was for the first time discussed with the EEC Commission. That is a disgraceful absence of ability to govern from a Government.

We are not advocating the universal application of VAT. It has nothing to do with whatever rarified atmosphere we may breathe when travelling to the Continent. I find that politicians on the Continent are very little different from those at home. I do not think the atmosphere is any more or less rarified there than anywhere else. Other hardheaded, businesslike, efficient countries have found that the most effective way of dealing with a tax of this kind is not to have exceptions. The Parliamentary Secretary said that it would be foolish to have subsidies because on the one hand you would be paying to collect VAT and on the other hand you would have another set of people imposing subsidies. He is quite wrong. You do not save in administration by zero-rating. You increase the cost of administration not merely for the Revenue Commissioners but also for all those in trade and business. There is nothing more complicated for the ordinary business man than to have a whole lot of different ratings, zero ratings, 6.75, 19.5, 36.75 and so on for different items in his shop. This is what complicates his existence and adding a further zero rating complicates his existence and his costs still more and complicates the process of administration still more. The VAT process is a sort of automatic one that carries on whether the thing is zero-rated or not and I cannot see that anything is saved by zero-rating. Indeed it will be found quite clearly that zero-rating increases costs of administration. So I do not think there is anything in that point.

Mr. Bruton

I can assure the Seanad in one of my other capacities in Industry and Commerce that we will, as is agreed, be looking, through the National Prices Commission and the other resources at our disposal, to ensure that the benefit of this section and that the subsidies is, as is the intention, passed on to the consumer.

Question put and agreed to.

Sections 3 and 4 agreed to.

Schedule agreed to.

Title agreed to.

Bill reported without recommendation, received for final consideration and ordered to be returned to the Dáil.