Private Members' Business. - Tax on Employment: Motion.

Tuesday, 19 October 1993

Dáil Éireann Debate
Vol. 434 No. 8

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Miss Harney: Information on Mary Harney  Zoom on Mary Harney  I move:

“That, in view of the persistent unemployment crisis with nearly 300,000 people out of work, the annual influx of 25,000 into the labour force and the consequent social blight of crime, vandalism and drug abuse, Dáil Éireann calls on the Government to reduce the punitive levels of tax on employment and to dismantle the maze of obstacles impeding enterprise, risk-taking and job creation in the Irish economy, in particular by

—reform of the income tax and PRSI codes to reduce the gap between the cost of employment and take-home pay;

—the introduction of competition in areas of State monopoly;

—the implementation of the Culliton Report; and

—the introduction of a national community employment scheme to afford part-time work to the long term unemployed.”

Last week a succession of Government Ministers, led by the Taoiseach, made a series of glowing up-beat statements about what the Fianna Fáil-Labour Coalition has described as a National Development Plan. In truth it was just a Fianna Fáil-Labour proposal to spend the hoped for £8 billion EC investment funds over the next seven years. The Government's plan did not even seek the approval of this House for its proposals. When we were informed of its contents the matter was already a fait accompli in Brussels. When the Taoiseach introduced the plan he asked us to support it but he gave us no opportunity to do so. The Dáil Committees referred to earlier [1697] had no opportunity to make an input into the development of this so-called national plan.

Those proposals envisaged the creation of 75,000 net jobs during a period of seven years, or just more than 10,000 each year. During the same period the workforce is expected to grow by 25,000 each year. The so-called National Development Plan does not even, on its own terms, promise to contain unemployment growth let alone reduce it. Therefore, shorn of all the hype, and the Santa Claus style telephone number investment programmes, as I described them last week, the National Development Plan remains fatalistic about the Government's ability to deal with the most fundamental socio-economic problems facing our society. That is the reality of mass, long term unemployment with its associated corrosive blight of crime, vandalism and drug abuse. Faced with that fatalistic outlook of the Fianna Fáil-Labour Government's plan, the Progressive Democrats have deliberately chosen to focus their current Private Members' time debate on how we can make serious inroads in tackling the unemployment crisis.

Moreover, I intend to make plain in the course of this two night debate that this no mere rhetorical undertaking. The Progressive Democrats have always been a “can do it” party. We believe in the talent, enterprise and self-reliance of the Irish people. We can solve our unemployment crisis and the social ills that flow from it. However, we will not do it if we continue to tax work as if it were a luxury item. We will not do it if our tax and welfare systems destroy the incentive for people to take up lower paid jobs. Before anyone accuses me of favouring a low wage regime, let me reject that one straight off. I want everyone to earn as much as they possibly can, but I realise that every job cannot be a high income job. The entire workplace, in terms of employers and workers, cannot be a forest of mighty oaks. The workplace must also be able to accommodate the economic saplings which will grow in time. In fact, most of our successful [1698] indigenous companies started out as small operators.

I want to see an Ireland that is teeming with enterprise and self-reliance and where everyone at every level of the social ladder has a real incentive to work hard, take risks and, where possible, employ others. We believe enterprise should be the life blood of the Irish economy. Our people can make it to the very top in countries like Britain and the United States and are willing to work long and hard precisely because there is a real financial incentive to do so in those countries.

The Progressive Democrats want to ensure that a similar climate for enterprise prevails here. That is why our motion to the Dáil, goes on to spell out some of the key measures we believe must be undertaken if the Government is to take seriously what it proclaims as the unemployment crisis. These are the reform of the income tax-PRSI system to reduce the cost of employing people; the introduction of competition in areas of State monopoly to give people choice and put downward pressure on the price of such goods and services; the implementation of the Culliton report and the introduction of a national community employment scheme to provide part-time work for the long term unemployed.

Tonight, the Progressive Democrats are putting before this House the real issues on which Irish politics must focus. We are doing that in the form of a motion which, unlike last week's farce, calls for a decision on the issues that count. The Progressive Democrats are bringing before this House the basic political issues on which this Government has so far failed and by which this Government in the last analysis will be judged.

It is perhaps worth reminding ourselves of the reasons there are nearly 300,000 people on the dole. The social partners have through the last decade pursued a series of policies which amount to “human set-aside”. What are the features of those policies? Work is taxed in Ireland at a rate and in a manner which is not even remotely approached in any other OECD country still less in any [1699] economy with a level of unemployment, economic development and population growth such as ours. Work is taxed at a rate more appropriate to a rare luxury good rather than a commodity that we have in alarming surplus.

With tax, PRSI and levies, a married person, with a non-working spouse and four children living in a local authority house has more disposable income on £8,000 gross pay than a person on £15,000, when the family income supplement, medical card, differential rents and the cost of getting to work are taken into acount. Post-budget figures supplied to my colleague, Deputy Cox, by the Department of Finance demonstrates that there is less disposable income for a person on £15,000 than on £8,000. In fact, they are worse off to the tune of £230 per year. On £12,000 gross earnings, such a person would have £1,300 less in disposable income than on gross earnings of £8,000. An unemployed worker with a dependent spouse and four children, living in a local authority house with the normal social welfare supports, needs to be offered £14,500 per year before that worker's family would have a greater net disposable income. What kind of crazy system is this? What incentive is there for that person to look for a job? What incentive is there for any worker to better themselves or work harder? Is there an incentive for any Irish person to establish an enterprise and give opportunities to others?

These are the employment economics of the madhouse. They have not just suddenly emerged. They have been carefully put in place by a generation of failed politicians, failed economists and failed social engineers whose legacy is massive dole queues and even more massive debt.

When the Progressive Democrats challenged this legacy in 1986, we were accused by every other party in this House of opportunism, buying votes and creating false expectations. When we proposed radical tax reform with a basic tax-PRSI rate of 25 per cent and an upper rate of 40 per cent we were told it could not be done. When we were established [1700] the upper rate of tax was 60 per cent, the middle rate was 48 per cent and the low rate was 35 per cent, not to mention PRSI. When we left office late last year, there were only two tax rates 27 per cent and 48 per cent. Had the 1993 budget carried through what was agreed when we were in Government, these rates would have been reduced further to a 25 per cent standard rate and a 44 per cent top rate.

At the moment, a single man or woman at work pays 48 per cent tax on marginal earnings well below the average male industrial wage. With PRSI and levies, the State takes almost 60p of every extra pound earned by a single worker earning less than the average industrial wage. No other country in the OECD brutalises the single low earner like that. When you add employer's PRSI, an employer has to lay out £1.12 to give such an employee 43p in take home pay or £2.60 for every £1 in take home pay. These, I repeat, are the employment economics of the madhouse.

Bearing in mind that the Government appears to be relying on emigration to solve the unemployment problem, it is worthwhile looking at what would happen if the average male industrial wage here was taxed at UK and insurance rates. The average male industrial wage in Ireland is £14,761.24. From that income 48.4 per cent is taken by the State in the form of PRSI, tax and levies. From the equivalent salary in the UK 32 per cent is deducted in tax and PRSI, in other words, there is a difference of over 16 per cent in the rates of pay here as opposed to the rates in the UK

At the average Irish male industrial wage, therefore, tax and social insurance contributions, including employer PRSI, are almost a half of the total cost to the employer of making this job available whereas in Northern Ireland and Great Britain, the state takes just under a third of the gross cost of creating a job. These figures not only undermine and destroy the competitiveness of Irish industry, but they are set to suck further jobs out of Ireland.

In the employment intensive clothing [1701] industry, for example, where there are minimum wage rates in operation, the Welsh Development Authority confirmed to my office today that they are receiving many inquiries from firms here about the possibility of establishing operations on that side of the Irish Sea.

A simple example illustrates the attractiveness of such a move. Having paid the relevant minimum wage rates, and after tax, levies and social insurance deductions are made, take-home pay in Ireland is IR£96.52, while in Britain it is IR£99.18. The British worker is better off despite the fact that his gross pay is only £113.96 whereas the Irish gross wage is £131.

The explanation of course is “our anti-jobs tax wedge”. The total take by the State in Ireland on this wage is IR£50.46 while in Britain it is IR£22.30. What this means is that not only does it cost a British employer less to give a job, but even on the much lower wage, the British worker is still better off in terms of his take-home pay.

The clothing industry is the kind of labour-intensive activity where more jobs could be created, and if the Government was serious in its protestations about unemployment it would realise that. Yet in the past three years, over 3,000 jobs have been lost in that industry here. It still accounts for over 8 per cent of total manufacturing employment in this country, and the proposal from the Irish Clothing Manufacturers' Federation urging the virtual halving of employers' PRSI from 12.2 per cent to 6.6 per cent for workers in the industry earning up to £9,000 per year, or £175 per week, is the kind of practical tax reform measure this Government should undertake. It would not only improve the competitiveness of this labour-intensive sector, but it would also help safeguard the remaining 15,000 jobs there and improve the chances of generating additional employment.

Such a practical measure would be better than all the plethora of agencies, county enterprise boards and quangos so beloved of this Government. So crazy has the jigsaw of Government bureaucracy now become that the Department of [1702] Enterprise and Employment has recently produced a new internal directory so that the various staff there might know what each of them is supposed to be doing.

This Government is so hell bent on creating agency after agency, bureaucratic nonsense after bureaucratic nonsense that it has lost sight of what it should be doing. In truth, we have a vicious, job destroying anti-employment tax system that is so grotesque that one might be forgiven for believing that it was designed by a job-hater. We need radical pro-jobs tax reform which will bring down our tax rates further, expand the lower tax band greatly, and dramatically reduce the gap between payroll expenditure which must be met by employers and the take-home pay of workers.

I will add to some of the nonsense to which I have already referred by quoting from a letter dated 30 July from a compliant taxpayer who got into difficulties and was negotiating affairs with the Revenue Commissioners. The letter refers to the fact that the company had paid £4,000 of interest charged on liabilities because it was late in paying its tax and it now owes £8,319.53. In writing to the Revenue Commissioners they said:

Will the amount of £4,000 which has already been paid be offset against this new amount? As we interpret the scheme an amnesty has been granted for the previous period and had we not complied we would now receive an amnesty.

It would, as I'm sure you realise, be most unfair that we should be penalised for having already paid — when if we didn't we would now receive an amnesty. As complying taxpayers you must realise our disgust and upset at the treatment which we have received and are receiving which is completely different to the treatment of the noncomplying taxpayers who are undermining our business because of their non-compliance.

They are now to receive an amnesty while we continue to be pressurised by the Revenue for late payment.

[1703] This is unfair, frustrating and totally immoral. Surely it should be the other way around. We are being told “YOU PLAY BY THE BOOK AND NOT AN INCH, WHILE THE DEFAULTERS ARE BEING TOLD DEFAULT AND WE'LL HELP YOU”

and these are the people we are in competition with.

That letter was written on behalf of a very small business in the south-east. It sums up clearly what many business people feel about the Government's attitude to enterprise and initiative. During my speech on the National Development Plan I quoted extensively from an interview given by Patrick Campbell of Bewleys where he said that Bewleys had the capacity to employ 1,000 more people but that that would be done outside of this country.

The Progressive Democrats believe that Ireland needs a radical new programme of tax reform over a number of years during which tax, PRSI and levies will be amalgamated into a single upper rate, and a standard rate of 25 per cent. The standard rate must also be extended towards the average industrial wage. Such a programme will yield results. It will entail economies in public spending, a broadening of the tax base, and a concentration on real take home pay rather than paper increases in the public sector pay bill.

In combination with a new approach to long term unemployment that guarantees the unemployed part-time social employment and the freedom to earn whatever else they can for the remainder of the working week, these measures can overcome the poverty trap which is keeping around 300,000 Irish people in subjection and deprivation and a sector of our community confined to internal economic exile in a forgotten social Gulag, mainly on the outskirts of our major cities.

This Government professes to believe in Culliton, but in its one and only budget thus far, it did the exact opposite to what Culliton advised. It increased the tax [1704] wedge. It imposed an income levy which completely reversed the tax reform which the Progressive Democrats had achieved in the last few budgets by effectively pushing the 27 per cent standard tax rate to nearly 29 per cent.

The Minister now speaks of giving back the 1 per cent income levy but claims the cost to the Exchequer is great. The cost of keeping the income levy is greater still. We cannot afford to keep the socially corrosive anti-work tax system that we have. We cannot afford not to change it, but that is not the only area, of course, where the landmark Culliton report, commissioned by Deputy Des O'Malley, when he was Minister for Industry and Commerce, has been aborted, despite verbal protestations to the contrary. We have not got the integrated industrial development agency for indigenous industry; the one-stop shop where State assistance of all kinds, including research and development, marketing and cash grants or loans would be provided on a co-ordinated basis. Far from the agency integration advocated by Culliton, we have got from this Fianna Fáil-Labour Government a kind of agency mania, with one for every part of the country.

The current Aer Lingus tragedy is one example of how our State owned industry and employment are being destroyed by State protectionism, bureaucratic inertia, inadequate management skills and lack of political foresight. The need for competition and ending State monopolies was obvious when the Progressive Democrats called for it in 1988. A joint venture arrangement then might have saved Aer Lingus.

Mr. Broughan: Information on Thomas P. Broughan  Zoom on Thomas P. Broughan  Does the Deputy think it has gone?

Miss Harney: Information on Mary Harney  Zoom on Mary Harney  If the Deputy does not do something about it, it will be gone.


A Deputy:  If it was up to the Labour Party, it would be long gone.

Mr. Finucane: Information on Michael Finucane  Zoom on Michael Finucane  What you did before [1705] the election helped to get you elected — let us hope it keeps you there.

An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  Ciúineas led'thoil.

Mr. Cox: Information on Pat Cox  Zoom on Pat Cox  The Deputy should ensure he does not have a crash landing on his side of the country.

Miss Harney: Information on Mary Harney  Zoom on Mary Harney  The present investment programme does nothing to face up to the airline's long term difficulties and leaves the staff there exposed to an uncertain future.

Telecom is another case in point. Its 12,800 employees fear and oppose competition, with some real cause, but we cannot insulate ourselves from what is happening in the wider world. We are on the brink of a massive telecommunications revolution where nearly everyone will have a portable phone and fibre optics will provide a radically different set of communications services to every home. Ireland has, through Telecom, invested more than £1 billion in what is rapidly becoming obsolete technology. Portable telecommunications and fibre optics are poised to create a financial crisis for Telecom which will make the Aer Lingus debacle seems like a hiccup. The sheer uncompetitiveness of Telecom, which has resulted in the recent price onslaught on the captive domestic customer to enable it to salvage its overseas business, simply has to be addressed.

Let us look at the situation elsewhere on this island. Only 60 miles from this House, in Northern Ireland, British Telecom has 600,000 customers and services them with a staff equivalent of 3,800 personnel. Telecom Éireann with 1.1 million customers have 12,800 staff. British Telecom is opening an office in Dublin next month and plans to offer our leading businesses very competitive services in areas where Telecom's monopoly cannot apply.

The warning signs for Telecom Éireann must be obvious. I am no ideologue, but it is quite plain that unless the Government and the management of that company face up fully to the challenges [1706] of competition and the telecommunications revolution they will end up in the same sorry state that Aer Lingus is in now. This Government, because of ideological hangups, is set to crash-land both Aer Lingus and Telecom. We need to confront the ongoing crisis; not to massage peoples' fantasies. We cannot afford the “competence deficit” that is destroying jobs, capital and investment in the public sector.

We talk a lot in this House about unemployment but the Government has yet to grasp the nettle that unemployment will not be significantly reduced by current policies. Paying 300,000 people not to work and helping them on the precise condition that they do not work or help themselves is another example of a poor country pretending to be wealthy. We cannot afford to lose the efforts of 300,000 people on a permanent basis. We cannot afford that policy of “human set-aside”. The Department of Social Welfare may feel that issuing 300,000 payments each week is a manageable exercise from the Department's point of view, but it is not manageable, not sustainable, morally, socially or economically.

Of course, other solutions are more difficult to administer. Regardless of whether we approach the issue from left or right, the fact remains that our response to long term unemployment needs to be radically changed. We need to offer economic participation where we now offer only economic exclusion. That is why the Progressive Democrats for a number of years have been urging that the community must become the employer of last resort for the long term unemployed. We published proposals for a national community employment scheme last November and I welcome the recent contribution to this debate by the Conference of Major Religious Superiors.

What we need now is a start on building in Ireland a system whereby the community offers two or three days useful socially beneficial work each week to the long term unemployed and encourages them to use the remainder of their time [1707] to seek part time employment. Where there is despair we can bring dignity, hope and a bridge to economic participation. This House needs to confront this issue urgently. Time is not on the side of the complacent.

I now wish to refer to the negotiations that might possibly take place on Programme for Economic and Social Progress II to which the Minister referred in the House a few days ago. As I said earlier, the Government has to confront the fundamental problems in the economy and it would be more useful, rather than give percentage pay increases, to consider the cost of employment and the disposable income or take home pay of workers. Would it not be better to give workers an increase in take home pay rather than a percentage increase, to give them an incentive and to increase morale given that many of those at work are fed up with the system that is being operated at present? They feel that it is not worth their while making any effort because no one understands the case they are making with the result that they would be better off if they were not employed.

Would it not be better for the employer also if the cost of employment was lower? Would it not be better if the 300,000 people who are unemployed and the 25,000 people who will be added to that number each year until the end of the decade could see a Government that rewarded those who showed enterprise and initiative and helped small businesses which are trying to do something for themselves and who wonder if politicians understand the needs of business today? One business person said to me last week that before they earn a penny for themselves they have to pay seven different taxes and that if they were to work for the Government they would have to pay an eighth in the form of withholding tax. Apart from being economic madness it is also bureaucratic nonsense. The hands of business people are tied day in, day out; they have to complete application forms and come to terms with the bureaucracy associated with their business.

We need to develop a philosophy of [1708] self-reliance because it is my experience that people from all classes, people who may be considered by some to be marginalised, all want to be independent and want their individualism to be respected. They want to be able to help themselves and provide an education for their children. They do not want the Government to interfere and seek to stop that. If we believe in the philosophy of self-reliance which has worked well in the past in parts of the country and abroad in particular, we need to rethink the way we do some things.

We cannot afford sweetheart deals which cosset the social partners at the expense of the social outcasts who are the unemployed and the school leavers. Public sector pay deals which increase the public pay roll at twice the rate of inflation in five years and leave the lowest paid public service workers hardly any better off are not worth any amount of industrial peace. The time has come for Government to govern. Blather about partnership and the absence of confrontation has gone too far. For pay policy the emphasis from now on must be on slashing the excessive levels of taxation on work so that workers will enjoy higher take home pay and the overall cost of employing people will be reduced. Implementing such a policy would do more for employment creation than a hundred document launch jamborees in Dublin Castle.

It is true that the market left to itself will not solve unemployment, but as far as employment is concerned, you cannot book the market either. Unless we make it worthwhile for those who are unemployed to take up employment, for those in jobs to work harder, for business to take on extra workers rather than cut their payroll and unless we make investment in jobs more financially rewarding than depositing funds in banks we are paying lip service to the unemployment crisis. Tax reform by itself will not solve unemployment but, as Culliton said no single, more potent means than radical pro-jobs tax reform is available to the Government in the fight against unemployment.

[1709] We need to confront our problems. Partnership is becoming a hackneyed expression for a conspiracy to avoid confronting realities. Each time I hear a Government Minister or a Minister of State speak on television, or in this House or elsewhere, they seem to pin their colours to the partnership deal worked out with their coalition partners. As I said last week, Fianna Fáil seems to think it has found a formula for staying permanently in Government. It now has a compliant partner in the Labour Party but people are seeing quickly through this arrangement.

This House is constantly being marginalised by the Government. In a few weeks time we will have no Question Time and Ministers will not be held accountable. That is supposed to be a pilot project; while I am all in favour of projects, of improving the way the House operates and making it more relevant, it is extremely important, if this House and democracy are not to be marginalised, that we are seen not only to be active but to deal with the realities and not use hackneyed phrases such as “the partnership is working”.

We have been given many promises and there has been much rhetoric but little action. The first budget from this Government was disappointing and Members need not rely on me for that information. I would like to quote what Mr. Paul Tansey, economist and contibutor in The Sunday Tribune, had to say shortly after the Government introduced its budget:

The first budget presented by this Government was a sorry affair. Those who voted for change last November have been deeply disappointed. This Budget has been inspired by the mistakes of the past and not the needs of the future. Those who sought a new beginning have seen their hopes deflated. This budget is stale, safe and unimaginative. Those who believed that the Government would at last be forced to confront the jobs crisis have been confounded for this budget provides neither the vision nor the framework [1710] to create sustainable employment.

Mr. Broughan: Information on Thomas P. Broughan  Zoom on Thomas P. Broughan  Does Paul Tansey not give any answers? Does he offer any solutions?

Miss Harney: Information on Mary Harney  Zoom on Mary Harney  The solution is not to make it better for somebody to be on £8,000 than to be on £15,000 or to have a situation that the unemployed person with four children has to earn over £14,500 for it to be worth his while to have a job. We must go back to basic economics. If one works it must be worth while for one to work, and if one works harder and longer it must be worth while for one to work, and if one works harder and longer it must be worth while for one to do so. Until that is the case all the rhetoric and all the ideology of the Labour Party and all the great words about partnership plans and development plans and so on will not matter. The Labour Party in particular will be judged by its record on job creation.

The Progressive Democrats intend to come up with new and radical proposals on tax reform. The Minister may say that it is easy to talk about rates and ask where he can find the money. We will not be found wanting when it comes to telling the Minister where he will find the money. The Minister can confirm that we were always good at identifying where the money will come from. There can be nobody in this House now, as there was in 1988, who believes that we cannot afford to go down the road of radical pro-jobs tax reform. The income levy must go. All the disincentives to employment must go. All the difficulties that are placed in the way of those who want to create jobs must go. Employers must be made to feel welcome in Ireland and not hounded at every opportunity. We must get away from the politics of treating everybody in business as some kind of criminal trying to rob the taxpayer and the economy generally. In a country with 20 per cent of the labour market, 300,000, unemployed, what we need are more entrepreneurs, more enterprising people right around Ireland, not just in the cities [1711] but in the rural areas too. We need to provide the framework that will allow them to create enterprises, to expand them and to want to give employment, as most of them do.

We must also get away from the politics of throwing large sum of money at problems. We have an unfortunate attitude of regarding anything we get from Europe as free money and no regard is had for how it is spent. If throwing money around could solve our problems I would not be standing here tonight talking about the 300,000 people who are unemployed.

I am delighted that the Minister for Finance is to respond to this debate. I know that he too is concerned about the unemployment crisis. I would like the Minister to tell me if he has firmed up his attitude in regard to the income levy. What is his attitude to tax reform? How far does he think he can go? Does he really want to go very far, or is he going to be a compliant Minister for Finance worried about keeping his Coalition partners happy and ensuring that all the spending programmes promised by the Labour Party are put in place? We can certainly continue to spend money but by doing that we will drive more and more people out of employment, put down more and more entrepreneurs and we will have bigger problems after the national plan is in place than we have now. We spend about £1 billion, at current prices, on unemployment benefits at the moment. In seven years we will spend £7 billion paying people to do nothing. That is a nonsense we cannot continue with.

I commend this motion in the name of the Progressive Democrats to the House. I hope it will receive the support not just of Fine Gael but of the Government and that we will not have to continue to accept this blandness that passes for economics in business, this blandness that says that the Government have their partnership programme and the national plan. That is no substitute for an economic plan or a business plan or a plan to solve our economic difficulties.

[1712]Minister for Finance (Mr. B. Ahern): Information on Bertie Ahern  Zoom on Bertie Ahern  I move amendment No. 1:

To delete all words after “That” and substitute the following:

Dáil Éireann notes that Ireland's recent employment performance, while falling short of our needs, compares favourably with that of the EC generally at a time of international slowdown; commends the strategy of the Government for tackling the problem of unemployment; and looks forward to the implementation of the proposals in relation to tax reform and job creation contained in the Programme for a Partnership Government and the measures to create employment contained in the National Plan.

I wish to share my time with Deputy Ivor Callely and Deputy Séamus Kirk.

An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  I am sure that is satisfactory and agreed. Agreed.

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  At the outset let me congratulate Deputy Mary Harney on her election as leader of her party and wish her well in the post.

If good suggestions are put forward, particularly at this time of the year, I am certainly prepared to have them examined, although it is not always possible to simply take them on board. Deputy Harney said that she believes these things should be done over a number of years. I have argued that for many years. Too often in the last 30 years a policy line has been taken and then reversed. It has happened in the last ten years.

Mr. M. McDowell: Information on Michael McDowell  Zoom on Michael McDowell  Does that refer to the income levy?

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  It has happened practically every year. Let me refer to some of the articles quoted. It is remarkable that eight or nine months ago commentators said that adopting a tough fiscal stance and a tough political stance would be disastrous. In the last week or so they have agreed that the Government's approach was right. The Government [1713] cannot change its policy line every month. However, of the five major critics of some of these policy lines, four have now turned full circle. I am glad they now agree with me, although I am aware that by the end of the year they may have changed their minds again. I am anxious to listen to the debate this evening and most of tomorrow evening and where constructive points are put forward I will do my utmost to take these into account.

In the limited time available to me I want to look at some of the wider international problems and their bearing on our position vis-à-vis what we have achieved and what we have yet to achieve. This is in no way to minimise the unemployment crisis, but the progress we have made in tackling our problems compares favourably with that of most industrial countries. In recent years our rate of economic progress has been remarkable, considering the scale and duration of the international downturn. For example, in the last three years GDP growth here has averaged almost 5 per cent per year. In contrast, EC annual average growth was less than 2 per cent; in the United States it was only 0.5 per cent and in the United Kingdom GDP actually declined by 0.75 per cent per annum. We achieved our faster than average growth without fuelling inflation or resorting to massive public borrowing. This year Ireland and the United Kingdom are likely to be the only EC countries to show much by way of output growth. While we may not have got everything 100 per cent right, we have certainly gone a considerable way down that road.

Not only have we stronger economic growth, lower inflation and lower public borrowing than most other EC countries but our employment performance has also more than held its own by international standards. In the last two years employment here has been broadly unchanged, while it has fallen by about 0.25 per cent a year in the EC and about 0.5 per cent per year in the United States.

The available information suggests that employment has been holding up well this year. Payroll related revenue [1714] receipts for the first three-quarters of the year are encouraging. Receipts from the training and employment levy show a year-to-year rise of 8½ per cent while income tax receipts, excluding DIRT receipts are up by 8¼ per cent. PRSI receipts are also well in line with budget expectations. All these indicators point to at least a modest increase in employment this year. This view is supported by independent international forecasts. The EC Commission forecasts, for example, predict that Ireland will be the only EC country, apart from Luxembourg, to show any employment growth this year.

If our performance in terms of growth and employment has outpaced that of our EC partners in recent years — and it has — then our needs are of course also much greater than theirs and I readily acknowledge that. I do not for a moment disagree with the view that progress to date has been well short of what is needed. Unemployment here remains higher as a proportion of the labour force than in any other EC country except Spain. Our natural rate of labour force increase is well above the EC average. Although there has been some catching up in recent years, income per head in Ireland is still well below the EC average. Reducing unemployment and narrowing the gap in living standards with our EC partners are two or our foremost economic challenges.

The Government is well aware of the enormity of these challenges. It has set out its strategy for responding to them on numerous occasions from the Programme for a Partnership Government to the National Development Plan. I welcome the opportunity to discuss our strategy again here tonight because we need the widest possible public debate on these vital issues. Ultimately, the response to both these challenges — the need to create many more jobs and to bring living standards closer to the EC average — will have to come through efforts to accelerate the growth of market based output.

I have no difficulty in agreeing to most of the issues laid on the table tonight by Deputy Harney although we would argue about some of the means of implementing [1715] her suggestions. I acknowledge the efforts made by the Progressive Democrats in the past, I will not criticise everything that has been suggested but it is extremely easy for everybody in this House, during Question Time each day and in every debate, to put forward reasons for implementing reports on the improvement of services. I am not accusing any particular Deputy; everybody puts forward suggestions as to the spending of £10 million, £20 million or £30 million without specifying where the money will come from. During a recent Question Time there were 29 occasions on which people glibly said that money should be paid. If Deputies' suggestions during that day's Question Time were implemented it would cost about £400 million. Such suggestions are put forward every week and as long as that continues it will be very difficult for a Minister for Finance or any other Minister to have a serious debate on matters. As long as glib solutions are put forward on very important matters we will never control expenditure.

Mr. M. McDowell: Information on Michael McDowell  Zoom on Michael McDowell  That sounds like a Labour Party solution.

Miss Quill: Information on Máirín Quill  Zoom on Máirín Quill  Has the Minister alternative solutions?

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  I certainly have. I undertook to implement some very unpalatable proposals this year which are leading to a much healthier economy. There is increased growth, lower inflation and tighter control of expenditure. However, there is still more to be done.

Miss Quill: Information on Máirín Quill  Zoom on Máirín Quill  It is not generating jobs, that is the difficulty.

An Leas-Cheann Comhairle: Information on Joe Jacob  Zoom on Joe Jacob  The Minister should be allowed to continue without interruption.

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  In the limited time available to me it will be very difficult to go through the full text of my script. Nobody can deny that labour market growth is [1716] now four times the European average. We have to consider radical solutions and that can only be done by implementing unpalatable proposals.

Deputy Harney asked a straight question on the 1 per cent levy. To do away with the 1 per cent levy will not improve the position for the 300,000 people who are unemployed. Take home pay in the last five years, including the period in which the Deputy's colleagues were in Government — I am sure they will share the credit — increased by between 10 per cent and 14 per cent. The 1 per cent levy clawed back just a small amount of that money. If we do away with the 1 per cent levy it will do nothing for the unemployed and nobody will be better off.

Mr. M. McDowell: Information on Michael McDowell  Zoom on Michael McDowell  The Minister should follow that logic by increasing the figure to 5 per cent, thereby clawing back more next year.

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  If that could be targeted it would be very easy, but as the Deputy knows we cannot do that. It would be a crude device.

Central to acvhieving this goal is a radical improvement in competitiveness in all its forms throughout the whole economy — in the public enterprise sector no less that in the private sector. This also applies in the sheltered sectors, both public and private, no less than in those manufacturing sectors which are fully exposed to the chill winds of international competition. In those sectors which are exposed directly to international competition, the objective must be not just to maintain our international competitiveness but to improve it. We have no room for complacency in this area. Other countries are making significant progress in containing their cost increases and we must not only match them in this area but do better. This must and will be a key issue in any discussions about a new programme for economic and social progress.

For its part, the Government must do all in its power to improve the climate of competitiveness. The role which taxation and the PRSI system can play in this area [1717] is important. Our room for manoeuvre in this area is of course circumscribed by budgetary constraints. I would not accept that the tax-PRSI wedge has been the primary cause of rising unemployment here in recent years. Nevertheless, this is certainly one of the many issues which has to be addressed in tackling our unemployment problem.

In looking at this in a sensible way, clear priorities must be identified. In the Government's view, and there would be few who would disagree, the two aspects of our income tax system which will have the greatest impact on employment are reducing the tax burden on the lower paid and raising the threshold for progression to the higher rate of income tax. To make significant progress in these areas on a financially responsible basis — and we have already made this clear in the Programme for Government — the thrust towards broadening the tax base must be continued.

People are quick to endorse base broadening in general but they criticise the measures needed to achieve this. Only by ensuring that income, in whatever form it may be received, is subject to tax and, furthermore, is taxed on a broadly comparable basis can we ensure that the tax rates to which income generally is subject are no higher than necessary. Apart from economic efficiency, transparency and neutrality, there is also the important consideration of equity; if a given amount of revenue is to be raised, then those who are fully taxed must pay more than they otherwise would, simply because there are others who are not fully taxed. We now have a fairer, simpler and less onerous tax system, with tax rates that would have been unimaginable five years ago. Deputy Harney referred to that matter earlier.

What has been achieved in tax reform is not confined to income tax. Major progress has been made towards a better structure of company taxation over the period since 1988. Business has a regime that is, overall, on a par with general EC norms, while striking a reasonable balance between encouraging investment and promoting employment. Our corporation [1718] tax regime is now much more employment friendly than it was a few short years ago. The changes in the capital gains tax code were in the same spirit as the income tax reform. The changes made have been widely recommended over the years and they address, at source, a number of tax avoidance schemes in this area. The flat 40 per cent rate for capital gains tax aligns the rates of capital gains tax and corporation tax. It also achieves, as far as practicable with a single rate, a measure of parity with personal income tax. That has been welcomed by business as it works very well in the case of self-assessment. Perhaps not every aspect of this system is clear but it is certainly much more efficient than any system that operated in the last ten to 20 years.

The fundamental changes to the administration of our tax system, in particular the move to self-assessment, were introduced with one clear purpose in mind, namely to ensure that tax liabilities are discharged in full and in good time. The Government has in the last few years progressively strengthened the mechanisms for countering evasion and promoting prompt payment. Clear concern for the impact of the tax system on employment was evident this year when a number of measures were brought forward, most of which were linked to assisting start-up business which is lacking here, as I have made clear on many occasions. With the various business bodies, we considered ideas such as the new seed capital scheme. For existing early stage entrepreneurs who wish to put their money into small companies the business expansion scheme is available. Every change possible has been made to try to stimulate activity in that area. Rollover relief from capital gains tax is now available on the sale of shares for established business people interested in moving from an existing company to a BES-type company. The tax relief available for new employees investing in shares in their employer's company has been increased from £750 to £3,000.

A second set of incentives is designed to encourage outside investment in Irish [1719] firms. These incentives are linked to the BES scheme, which was extended for three years. In addition the BES company limit was increased from £500,000 to £1 million. In order to help new BES companies in their start-up phase, research and development is now regarded as permissible for BES purposes. The pension funds have agreed to the principle of investing in developing Irish companies. This will provide money for start-ups, seed capital and equity investment. The pension funds have prepared their own paper, which will be available shortly, in which they set out how they best see this risk capital working. This will be a very useful incentive to small businesses over the next few years. The special investment accounts provide a special low tax regime for investment products with a large Irish equity content.

Finally, specific changes were made in the tax code which will impact positively on certain sectors with employment potential. The VAT on a range of labour intensive service industries was reduced from 16 per cent to 12.5 per cent. A new scheme has been introduced for individuals investing in film production, the amount of tax relieved investment permitted for corporate investors has been increased and changes have been made to facilitate the making of films under co-production agreements with other countries. This arrangement has proven to be remarkably successful this year. New arrangements allowing businesses which supply inputs to exporting companies to avail of VAT zero rating have been introduced. This scheme has been very helpful to exporting companies. Further measures have been taken to improve a number of sectors in the tourism industry.

In line with the commitments in the Programme for a Partnership Government, we are seeking to strengthen Ireland's industrial scientific and exporting base in line with the recommendations of the Culliton report to increase the level of directly productive activity and to encourage a dynamic spirit [1720] of enterprise. Most of the changes in the structures of Government Departments and industrial promotion agencies promised in the programme have already been put in place or will be put in place before the end of this year. We remain committed to the further development and strengthening of a dynamic and efficient State enterprise sector — a Department was established for that purpose. The Government intends to ensure that strong public companies provide value for money to the customer.

The need for improved competitiveness is not confined to the exposed manufacturing sectors or to the State enterprise sector. The sheltered private sector also has a major contribution to make to the national goal of increasing employment. This means rigorously examining all existing practices and procedures to see whether they are promoting or inhibiting the maximum rise in employment.

Last week the Government launched the National Development Plan. The investment of £20 billion in the Irish economy over the period of the plan will greatly encourage activity in capital investment in a number of areas. There was a two day debate on the plan last week and there is no need for me to repeat the points made. The aim of the plan is to turn the investment which will be made during the period of the plan into the creation of approximately 200,000 jobs. In the preparation of the plan I was adamant that we should set out clearly what would happen. The reality is that between 10,000-15,000 jobs have been lost in the Irish economy every year for the past few years. Clearly we are losing too many jobs and more emphasis has to be placed on the maintenance of existing jobs rather than merely the creation of new jobs.

Under the Programme for National Recovery and the Programme for Economic and Social Progress the role of sound macroeconomic policies in creating the conditions for growth in employment has been amply demonstrated. The consistent and clear implementation of the strategy which [1721] integrates the fundamental elements of a successful macroeconomic policy will raise employment. Jobs in the private non-agricultural sectors have been increasing. The Government's policies of reducing the debt-GNP ratio, reducing the burden of taxation on employment, maintaining a stable exchange rate within the EMS and seeking consensus and moderation in regard to the evolution of pay and industrial relations and policies which seek to encourage those sectors which will sustain growth in output and employment are all designed to generate a stable environment conducive to both investment and jobs. The record of the past few years bears ample testimony to the success of this economic strategy.

I welcome this debate and, as I said at the outset, any constructive points made will be taken into consideration.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  As this is the first occasion I have spoken in the House since her appointment as Leader of the Progressive Democrats, I wish to say that I admire and respect Deputy Harney for her dedication and commitment to the Irish political scene. I extend to her sincere and hearty good wishes on her appointment.

Miss Harney: Information on Mary Harney  Zoom on Mary Harney  I shall be looking for a few northside TDs.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  I hope the Deputy does not find too many good ones.

Mr. Cox: Information on Pat Cox  Zoom on Pat Cox  The Deputy can use this as a reference in election literature.

Miss Harney: Information on Mary Harney  Zoom on Mary Harney  I will be delighted to take the Minister and the Deputy.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  The Deputy will have to negotiate with the Minister.

I welcome the opportunity to contribute to this very important debate. If there is one issue which warrants debate and constant review it is the creation of the proper environment for employment. Like many other people, I have not been impressed with our success in this area to date. I think most people appreciate and understand the reasons for this lack of [1722] success. I am pleased to welcome the Minister's encouraging statement this evening.

Mr. Molloy: Information on Robert Molloy  Zoom on Robert Molloy  The Deputy must be joking; the Minister's statement was depressing.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  We should not cloud the issue and I do not think the Minister clouded the issue. Our unemployment level of approximately 300,000 is of great concern to everyone. Many publications have been issued putting forward ideas on how to address this problem. I agree with the Minister that economic growth is the most positive way of creating sustainable employment in our economy.

I wish to quote from a recent publication on Irish unemployment, which notes:

That the prospects for unemployment in Ireland will be influenced by the fact that the natural growth rate of the labour force is now on a plateau and by the mid 1990s this will begin to be reflected in a decline in the number of labour market entrants. Also the level of net external migration is expected to increase when the recovery from the present recession begins to feed through to labour market opportunity in Britain, Europe and North America.

Mr. M. McDowell: Information on Michael McDowell  Zoom on Michael McDowell  That is what the National Development Plan is all about — emigration.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  The publication continues:

Rapid growth of exports, combined with a recovery of domestic demand as both the household and corporate savings ratios fall, could generate very rapid growth in Ireland in 1993 and beyond. This prospect, allied to some easing of the pressures on the supply side of the labour market, justifies the expectation of a decline in unemployment in the medium term. Despite these developments high levels of unemployment will remain and [1723] measures are required to address this central economic and social problem.

Mr. Cox: Information on Pat Cox  Zoom on Pat Cox  Measures but not schemes.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  I wish to refer to the measures which have been introduced during the past week. On 11 October last the Government launched the National Development Plan, which envisages a total investment in our economy of £20 billion during the years 1994-97. Approximately £8 billion of this funding will come from Structural and Cohesion Funds, while £12 billion will come from the Irish public and private sectors. One hopes this investment will lead to the creation of 200,000 jobs, 120,000 of which will be in the manufacturing and international services sectors.

We have heard from contributions in the House and from political commentators in the media that in framing the National Development Plan, the highest priority for the Government has been the creation of jobs. As the first line of the synopsis states, the plan is about jobs.

Mr. Cox: Information on Pat Cox  Zoom on Pat Cox  And spending, and getting money from Europe.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  Let us be very serious about this matter. Money is coming from Europe, £8 billion, but does the Deputy decry that? If we were not to receive the £8 billion the Deputy would be saying something else. It has been a tremendous achievement on the part of the Government to obtain £8 billion. Let us now hope that the money from Europe, and the public and private moneys, will be invested wisely. Deputies will surely agree that we must benefit.

Mr. Cox: Information on Pat Cox  Zoom on Pat Cox  This debate is on how to turn growth into jobs.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  I am trying to make constructive comments about a serious issue. The Deputy is trying to throw snowballs at an issue that warrants more constructive [1724] debate than that in which he is engaging. If the Deputy does not recognise that this type of funding will create economic growth thereby allowing us to make some gains, he is looking at the issue foolishly. If we invest this money wisely we will benefit.

The synopsis states that the plan is about jobs. The central objective of the plan is jobs. It is also further designed to reintegrate in the economic mainstream the long term unemployed and those at risk of joining that category. There are four key elements in the plan's strategy all of which will help to create and sustain employment: investment in the growth potential of the economy in industry, agriculture, natural resources and in tourism; investment in infrastructure to improve the capacity of the economy to compete i.e. our roads and ports; investment in education and training to develop the skills of our people and investment in local development. A key feature will be the integrated development of areas of high long term unemployment and social exclusion.

The development measures in the plan should, across the various sectors, produce approximately 200,000 jobs gross in industry, services, natural resources sectors and construction. Since the Deputy has asked about them, I will highlight the various measures.

Mr. Cox: Information on Pat Cox  Zoom on Pat Cox  I read the plan.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  Under the industry operational programme it is envisaged that 120,000 jobs will be created, in projects supported by the IDA, in the years up to 1999. Under the plan, £600 million will be spent on tourism, with the creation of 30,000 jobs in the years up to 1999. A total of £3 billion will be spent on agriculture, forestry and fisheries, with the creation of 6,000 jobs in the period up to 1999. A total of £2.6 billion will be spent on transport which will improve the infrastructure, resulting in the creation of 14,000 jobs in the wider economy between now and 1999. A total of £1.26 billion will be spent on local development projects which will create 21,000 jobs.

[1725]An Leas-Cheann Comhairle: Information on Joe Jacob  Zoom on Joe Jacob  The Deputy has one minute remaining.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  I hope I will be allowed some injury time, a Leas-Cheann Comhairle.

Mr. Cox: Information on Pat Cox  Zoom on Pat Cox  Just the yellow card.

Mr. Callely: Information on Ivor Callely  Zoom on Ivor Callely  I was encouraged to go into those figures by the comments of Deputy Cox but there is a serious problem that will not be resolved by a magic wand. One area on which we should focus is youth employment. Also we should have regard to the millions of pounds that have been spent on decentralisation. I would ask the Government to review the policy in relation to decentralisation.

Mr. Yates: Information on Ivan Yates  Zoom on Ivan Yates  With the agreement of the House I propose to share my time with Deputy Michael Finucane.

An Leas-Cheann Comhairle: Information on Joe Jacob  Zoom on Joe Jacob  Agreed.

Mr. Yates: Information on Ivan Yates  Zoom on Ivan Yates  I would like to congratulate Deputy Harney publicly on her election as Leader of the Progressive Democrats and to wish her every success in the future. I apologise for my absence during the earlier part of this debate. Deputy Harney might be aware that we have a commission report due out tomorrow, the contents of which I had to see within the past hour.

Miss Quill: Information on Máirín Quill  Zoom on Máirín Quill  Tell us about it.

Miss Harney: Information on Mary Harney  Zoom on Mary Harney  We would prefer to hear about that.

Mr. Yates: Information on Ivan Yates  Zoom on Ivan Yates  I would like to indicate to the members of the Progressive Democrats that we will be supporting this motion. We will not be tabling any amendment to the motion as we are quite happy with it.

I am disappoined with the Minister's speech. His statement that he would not accept that the tax and PRSI wedge has been the primary cause of rising unemployment indicates a stark difference between the Government side of the [1726] House and this side in relation to what must be done in terms of economic policy.

I want to set out Fine Gael's policy in relation to converting economic growth into employment. Fine Gael believes that the main area of economic reform which has not been utilised is tax reform. It is the main recommendation of the Culliton and the NESC reports that has not been implemented. Essentially, Fine Gael believes in lower direct taxes and lower taxes on employment.

We believe there are two major problems with the Irish tax code. First, it is a clear barrier to additional employment simply because of the tax wedge. The level of tax, levies, PAYE and PRSI, is a direct incentive for employers to reduce payroll costs, to cut staff numbers and not to employ more people. Second, it impinges unfairly and severely on the low and middle income sector to such an extent that people with large families who are paid for every additional child through the social welfare system will be, in some instances, better off unemployed and on social welfare than at work. It is quite wrong for a married couple or a parent with eight children to be paid more on the social welfare system for every additional child while in employment they have the same tax free allowance as a married couple with no children.

The Government is at an economic crossroads in relation to finding a successor to the Programme for Economic and Social Progress. There is no doubt that the Programme for Economic and Social Progress has been very good to some people. It has been good to those in public sector employment and those with access to special pay claims, but it has been very bad for school leavers who have had to depend on emigration for the prospect of a job. It has been very bad for the taxpayer. In 1990 public spending absorbed 35p of every pound in circulation. It now absorbs over 38p in the pound. The growth in taxation year on year since 1990 has been over 6 per cent. It has exceeded the nominal growth rate in so far as if one adds inflation and adds [1727] the real growth rate, the tax burden has been rising in real terms.

I could not help but wonder at the uncritical appraisal of the Exchequer returns some weeks ago. The Minister was complimented on “Morning Ireland” for good housekeeping and looking after the national finances. It seemed to escape most commentators that what was provided for in the budget and happened in the first three-quarters of this year was that spending rose by 15 per cent and taxes by more than 8 per cent. It is very easy to meet one's targets if one has that level of latitude of increase in taking money out of people's pockets. Whether it be the 1 per cent income levy, or the VAT hype from 16 to 21 per cent or probate tax, the fact is that the real burden of taxes is rising very substantially this year.

We are now facing into a critical time with the successor to the Programme for Economic and Social Progress. There is a socialist party in Government, the Labour Party, allied to a party whose basic policy is to implement the policies of whoever may be their partner in Government, committed to high spending and high taxation. This on top of the recent record of the Programme for Economic and Social Progress will be ruinous to our prospects of improving competitiveness and directly damage the prospects of enhancing employment growth. We can achieve a dual objective of enhancing employment prospects and increasing living standards by tax reform. If we focus on integration tax and pay talks, on net pay, as did the Programme for National Recovery, we can make people better off and, at the same time get an extremely moderate pay deal while reducing the tax wedge.

The figures are quite startling. For example, current expenditure in 1990 was £8.4 billion; this year, it is more than £10.5 billion; taxes were under £8 billion in 1990 and this year are more than £9.5 billion. The Minister will know that there will be no scope for abolishing the 1 per cent levy — which is the tip of the iceberg in terms of tax reform, in terms of the [1728] basic allowances, in relation to the narrowness of the standard band of taxation — and that he will be unable to make progress unless he comes to terms with the issue of some form of ceiling on the growth of public expenditure. Unless the Minister can ensure that public expenditure increases do not grow at a rate as fast as our economic growth and as quickly as our national income is rising, then we shall, be doing nothing other than living beyond our means.

The most important cornerstone of any successor to the Programme for Economic and Social Progress is to say to the trade union movement, to the lobby groups queuing up for extra money, to those in the Labour Party and the Minister's backbenchers who want to implement the Programme for Government that we must have a ceiling on public expenditure that will not exceed 2 per cent in real terms. Unless such a discipline is put in place the prospect of having any money available for tax reform will go out the window.

Fundamentally we must decide that the fruits of economic growth must finance tax reform. Of course, it is possible to say that we will impose VAT on food and introduce a property tax, but that would not reduce the overall burden of taxation; it would be merely moving it from one pocket to the other, robbing Peter to pay Peter. If we look at the European comparison we find that while we have similar tax rates to the wealthiest countries in Europe when we compare ours with what are described as the Cohesion states, we find that we have much higher rates of tax and, therefore, those on lower incomes pay huge taxes.

Between 1981 and 1992 the real burden of PAYE on a single person increased by 10 per cent. Allowances have not kept pace with inflation and we have since had the imposition of the 1 per cent levy. But if one looks at the effect on married couples with three children one finds that the real burden of income tax has risen by a staggering 86 per cent. Is it any wonder that people cannot afford to take [1729] up employment unless it is in excess of the average industrial wage?

The successor to the Programme for Economic and Social Progress and the next budget afford the Government the last opportunity to implement the recommendations of the Culliton report. Unless we face the chronic issues of heavy taxation on the low paid we will not make progress.

The income tax code contains some glaring anomalies and inequities. For example, it is totally unacceptable that a single person begins paying income tax at the marginal rate of 35p in the pound, including employee's PRSI, on £72 per week. We know that that is driving people into the black economy.

We have seen the effect of the 1 per cent income levy. People earning in excess of £10,000 per annum are worse off as the levy is applied on the first £ of income compared to people earning £7,800 per annum because the cut-off point is £9,000 per annum.

The Minister will have to be very blunt with the trade union movement and say that if we are serious about improving our competitiveness we must look at labour costs. Indeed, the most critical component of labour costs is not the rates of pay but rather the rate of tax applicable to those rates of pay. If one takes the example of the clothing industry, a labour-intensive sector, employing in manufacturing approximately 13,000 people we find that, compared with Northern Ireland, the gross pay costs here are higher but the net take-home pay of the workers here is lower. Therefore, we lose both ways. Workers here must get pay increases to maintain a standard of living, yet our products are uncompetitive. If we are to make any meaningful contribution to competitiveness we must deal with the tax wedge.

Our tax code does not discriminate fairly in favour of families. In the mid-eighties when the tax free allowance in respect of children was abolished the child benefit was payable to all parents [1730] in its place. Not only does that create a poverty trap at a particular level of income but it is grossly unfair. People do not really become poor until they have dependants and must rear a family. It is then they encounter problems. In addition, the role of the stay-at-home spouse, be it man or woman, has been neglected in our tax system. The concept of caring for dependent relatives, children and adults, in the home has been neglected in our tax system. There is need for radical reform in all of those areas.

My priorities would be the immediate abolition of the income levy; a range of new allowances that would support the cost of rearing a family; tackling of the cost of child care when, in some cases, both spouses must go to work and increasing the dependent relative allowance. Under the latter scheme the paltry allowance is £110.

The Minister has a unique opportunity. I will not quibble with his growth forecasts in that the 3.5 per cent predicted over the period of the National Development Plan is a consensus figure agreed by many economists. That means that were the Minister not to introduce changes in the tax system for the next four budgets, revenue would rise dramatically. That affords the Minister the unique opportunity, that did not arise over the past few years, to use the proceeds of that economic growth to reduce taxes. I fear that the Minister will not get reform of the conciliation and arbitration process and that he will be unable to get a payroll neutral. At the end of the day, the Minister will go for a deal at almost any price even though the unions are seeking a moderate deal at present.

The Minister will also have the benefit of the lowest lending rates on servicing the national debt for some time, a windfall for the Minister, estimated by the National Treasury Management Agency at approximately £100 million per annum. The Minister has the benefit of favourable trends such as low debt-servicing cost, low inflation, moderate pay [1731] demands and a period in which public sector pay has risen by two-and-a-half times the rate of inflation over the past six years. They present him with an ideal opportunity to adopt a radical approach.

In relation to employment growth, it is quite striking that Europe as a whole is not at the races in comparison with the other major trading blocs. If one looks at comparisons between Europe and the United States in any decade in the past century, one will find that the United States had a four times better record at creating jobs from the same level of growth as the European economy. That is because they have a more flexible labour market and a lower tax regime.

I must also say to the Minister — as the Taoiseach said at Question Time today — that the real potential for employment growth resides in the services sector. My party colleague, Deputy Richard Bruton, yesterday launched our detailed policy document in this area. There is no doubt that a tax treatment of the services sector is particularly punitive and inhibits employment prospects. In the wider services sector, including the public service, there are enormous possibilities for employment creation through job sharing. I am aware of umpteen nurses who cannot avail of job sharing in general hospitals due to the insufficient number of places. Because of the number of women in the workplace job sharing is ideal. There is not enough development in that area to expand employment. This is not work sharing, it is job sharing where the costs and the hours worked are split and there is no additional cost. From a productivity point of view you get better value for money because people who work longer hours lose their energy and concentration. In internationally traded services we are not getting our share of the jobs and that issue needs to be dealt with.

I support the Progressive Democrats motion in relation to competition policy. Undoubtedly there are restrictive practices [1732] in our economy and a lack of competition in certain areas in the services sector. Something I was disappointed with in the National Development Plan 1994-1999 last week was that even though there was money for energy, telecommunications, An Post and transport, there was no clear reduction in cost. There were no targets for the ESB or Telecom Éireann to say that there should be a relative real improvement in cost structures over a period. There was no demand or quid pro quo for efficiency in return for capital investment. That struck me as reasonable because, in terms of selling into the Single European Market, you would not start from here if you had a choice due to our peripheral location, especially when the Channel Tunnel is built, because of our low consumer population base. We have natural disadvantages and, therefore, we need a sharply focused semi-State sector that will revolve around a direct improvement in cost cutting during the next few years.

I regard the issues that will be decided between now and the next budget as fundamentally critical to the prospects of school leavers. People at work, particularly in public sector employment, are well represented and when times are bad they can protect their interests. Whether in the banks, in new technology or other areas it is possible to do a deal in productivity or new technology to protect those in employment. In recent years the record shows that the most unprotected group is school leavers who number 25,000 every year. What I found most objectionable about the National Development Plan was that if you worked out the figures for the 140,000 job losses and the demographic change you were relying on massive emigration of about 20,000 per year to prevent unemployment reaching the horrific figure of 400,000. That is unacceptable. If nothing else, that should focus the Minister's mind.

While the issue of the 1980s was the national debt, the clear issue of the 1990s [1733] is unemployment. It is not a rhetorical issue, it is a case of whether these young people will have a prospect of living in Ireland. If you scan through all the reports — we do not need more analyses or consultation — it will be evident that we need decisive action. The one part of all those recommendations and conclusions which has not been implemented is tax reform, critical to which is reform of PAYE and PRSI. Between now and the budget my party will vigorously campaign to ensure there is radical reform in those areas.

Mr. Finucane: Information on Michael Finucane  Zoom on Michael Finucane  I congratulate Deputy Harney as the new leader of the Progressive Democrats. I am sure she will acquit herself well in that portfolio. I hope that as a result of re-energised Opposition activities we will shake this Government out of the cosy consensus which operates. During the summer months we witnessed the opening and reopening of various places throughout the country. If an excuse was found to open a small extension the Minister took it. Much of this is window dressing by the Government to prove to the electorate that it is doing something. If we can shake this cosy consensus and the feeling that it has a monolithic majority we will achieve much through the electorate.

This motion is timely because it touches on something which has concerned us during the past few years. It is opportune because Deputy Harney referred to the poverty trap and the difficulties experienced by people in receipt of gross pay ranging from £8,000 to £15,000. It is also timely in that we have had a response to a specific question to the Minister for Finance today. It is strange that a person on a gross pay of £8,000 will now have a net disposable income of slightly less than a person on a gross income of £14,000 or £15,000 per year. A person on a gross pay of £8,000 in receipt of benefits will have a net disposable income of £8,254; a person on gross pay of £9,000 will have a net disposable income of £7,716; a person [1734] on gross pay of £10,000 will have a net disposable income of £7,470; a person on gross pay of £11,000 will have a net disposable income of £7,377; a person on a gross pay of £12,000 will have a net disposable income of £7,392; a person on a gross pay of £13,000 will have a net disposable income of £7,764. The situation gets worse. That exposes the farcical situation where a person on a gross pay of £13,000 ends up with less net disposable income than a person on a gross income of £8,000. A person in my constituency in Limerick who is in receipt of gross pay of £15,000, £300 per week which is way above the average in most of the companies in the area, who would regard himself as well off would end up with a net disposable income, on those figures, of £170 per week.

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  It would be useful to the House if the Deputy gave the remainder of that reply.

Mr. Finucane: Information on Michael Finucane  Zoom on Michael Finucane  If the Minister wants the breakdown I can give it.

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  It is very important to give the number of people.

Mr. Finucane: Information on Michael Finucane  Zoom on Michael Finucane  The figures I have quoted apply to a married man with a wife and four children.

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  How many are affected?

Mr. Finucane: Information on Michael Finucane  Zoom on Michael Finucane  The difference——

Mr. Yates: Information on Ivan Yates  Zoom on Ivan Yates  That is what is called a contraceptive tax plan.

Mr. B. Ahern: Information on Bertie Ahern  Zoom on Bertie Ahern  That ploy has been around for ten years. It affects 4,500 people.

An Ceann Comhairle: Information on Seán Treacy  Zoom on Seán Treacy  If the Deputy is quoting he should give the quotation in its entirety, if it is not too long.

Mr. Finucane: Information on Michael Finucane  Zoom on Michael Finucane  I certainly will.

[1735]Mr. M. McDowell: Information on Michael McDowell  Zoom on Michael McDowell  It was on the record earlier today.

Mr. Finucane: Information on Michael Finucane  Zoom on Michael Finucane  I can understand the Minister's frustration as his statement was a rehash of what he said on the budget with a few new elements introduced to encourage budding entrepreneurs but he had no reply to the unemployment problem. He encapsulated what the Minister for Enterprise and Employment, Deputy Quinn, said this afternoon in regard to what he would do about unemployment. He said the county enterprise boards were the only measure which could do something extra to encourage employment.

Deputy Richard Bruton responded in his document — which I encourage the Minister to read if he wants to get good points from the Opposition — to the services sector and pinpointed how that sector has been neglected down through the years. There has been an over emphasis on new measures to encourage manufacturing activity. We have failed to recognise the great potential within the services sector. Deputy Richard Bruton does the Fine Gael Party justice in producing this document. It gives a boost to the services sector and I encourage the Minister to take many of its ideas on board. A businessman in Newcastle West said to me recently that at this stage he almost feels like a criminal. Not only is he harassed by social welfare officers, he is harassed by the tax man and it is almost regarded as dishonorable to make a few bob. That is what the business people are up against and that is what they are putting up with in the services sector. Because of the way in which things have evoloved in recent years he has a point. About two weeks ago in my own town of Newcastle West we had a blitz where the whole community knew that ten or 12 people were in the area, calling to every business. The Minister may say they have a job to do in regard to compliance and so on but I assure him it does not encourage [1736] those businessmen to take on extra employees.

Debate adjourned.

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