Tuesday, 14 October 2008
Dáil Eireann Debate
An Ceann Comhairle: Sula nglaofaidh mé ar an Aire Airgeadais, meabhraím do Chomhaltaí go bhfanann na doiciméid atáá scaipeadh maidir leis an mbuiséad faoi rún go dtí go bfógróidh an tAire iad. Ní ceart iad a thógáil ná a chur ar aon mhodh ón Teach sula gcríochnóidh sé a ráiteas. Before calling on the Minister for Finance I remind Members that the budget documents being circulated remain confidential until the Minister has announced them. They should not be taken or sent by any means from the House before the conclusion of his statement.
Minister for Finance (Deputy Brian Lenihan): We find ourselves in one of the most difficult and uncertain times in living memory. Turmoil in the financial markets and steep increases in commodity prices have put enormous pressures on economies throughout the world. Here at home we face the most challenging fiscal and economic position in a generation.
This budget sets out a plan to deal with this most unfavourable set of circumstances. The aim is to restore order and stability in the public finances, to increase productivity and competitiveness and to protect those who are most vulnerable in our society.
This budget seeks to secure the real gains we have made in the last 15 years. These gains have been substantial: 2 million at work, real improvements in living standards, a more generous welfare system and the biggest public investment programme in the history of the State. All these advances were made in the context of sound public finances and record levels of economic growth, but the economic context has changed very dramatically and with great rapidity. We are confronted with severe budgetary pressures and negative economic growth. We face difficult choices. In making those choices we will be guided by the principles of fairness, sustainability and affordability. By the decision to bring the budget forward by two months, the Government has seized the initiative and provided political leadership in this time of changed economic realities.
Some 50 years ago, Seán Lemass set his generation the task of consolidating the economic foundations of our political independence. Our economic achievements, particularly during the past 20 years, have fulfilled his vision. However, the historical task facing us today is to consolidate and build on that economic success. We will do this through sustainable, progressive and balanced policies that will create a fairer, more productive and competitive Ireland.
In his Budget Statement last December, my predecessor — now Taoiseach — referred to the significant uncertainty in the international economic environment as well as the slowdown in our construction industry. Nobody foresaw the speed with which the global and the domestic downturn would gather pace. In the past few months, the world financial system has been turned upside down. Household names in global finance have been rescued by governments and blue chip companies have either failed or been subsumed into other entities.
A fortnight ago, when the stability of our own banking sector came under threat, the Government took bold and decisive action. On the advice of the Central Bank and the Financial Regulator, we put in place a guarantee arrangement to safeguard the financial system in Ireland. We did so to protect our economy, as well as those who work in it, and we are grateful for the support of the House in that endeavour.
As a small open economy, we are especially vulnerable to economic shocks beyond our shores. The international credit crisis has compounded and deepened the downturn in the construction sector and led to a fall off in consumer confidence. The rapidity and severity of this downturn has taken even the most pessimistic of commentators by surprise. The result is a sharp rise in unemployment and a steep decline in revenue, with businesses experiencing the kind of economic difficulties we have not seen in this country for over 20 years, although we are now in a better position to address those difficulties.
The most recent data show that economic activity contracted in the first two quarters of this year. My Department expects that GNP will decline by over 1.5% this year, the first decline since the early 1980s. Throughout the world, economic forecasts have been revised downwards. The prospects in our main trading partners remain poor. In this context the forecast of my Department is that GNP will contract next year by 1%, with GDP contracting by about
0.75%; unemployment will continue to rise, averaging 7.3% for the year as a whole; and inflation will ease to 2.5% on average for the year.
We must remind ourselves that, even in this global downturn, Ireland continues to attract a disproportionate amount of all foreign direct investment into the EU. Scarcely a week goes by without an announcement of new investment in cutting-edge companies and new high-value jobs for our graduates. IDA Ireland is optimistic regarding the prospects in the year ahead. The Government is determined to retain and enhance Ireland’s reputation as a pro-enterprise economy and as an attractive location for foreign direct investment. The most important action we can take is to stabilise our public finances.
Fiscal responsibility has been the cornerstone of our economic success. Fiscal responsibility has ensured a modest national debt burden, a strengthened ability to deal with the financial and economic crisis now shaking the world economy and a credible tax regime which incentivises work and investment.
While the strength of the economy in the past decade has given us some room for manoeuvre, we cannot put our reputation for fiscal responsibility in jeopardy. We must take the right decisions now to put the budgetary position on a path to stability in the interests of everybody who lives and works in this country. A soft option of ignoring the budgetary challenge might prove popular in the short term. This soft option would have grave consequences for the future of the country. It would risk all the economic and social advances we have secured in recent years.
In framing this budget, the Government faced a deficit of the order of approximately 8% of GDP on the general Government balance unless decisive action was taken. As the White Paper on Receipts and Expenditure shows, we have, as a Government, reprioritised our spending focus. The opening position this afternoon is a reduction in the deficit to 7% of GDP. This is a significant adjustment. Our approach has been to reduce public expenditure as much as possible on the current side and as much as is sensible on the capital side.
The changes I am announcing in this budget build on those decisions. This budget will adjust the incidence and focus of taxation to those better able to contribute. It will also provide a social welfare package of €515 million. As a result of these budgetary adjustments, the deficit will be approximately 6.5% of GDP in 2009. This is the maximum reduction that we can achieve in 2009. Our intention is to reduce it further.
Our spending will be concentrated on our schools, on our health services and on the protection of the elderly and the most vulnerable. We will continue to invest in our public services but, in a time of scarcer resources, the value for money principle becomes all the more imperative.
A substantial increase in borrowing is unavoidable if we are to minimise the impact of the tighter fiscal position on the economy. Accordingly, the 2009 budgetary targets are as follows: an increase in gross voted spending of 1.8%, a current budget deficit of just over €4.7 billion, a capital budget deficit of just under €8.7 billion, a general Government deficit of just over €12 billion or 6.5% of GDP and a debt to GDP ratio of 43%.
It is my intention to secure a progressive reduction in the deficit as a percentage of GDP in 2010 and 2011. The time for corrective action is now. By moving to restore stability, we will ensure the economy stands ready to benefit from the next global upturn. We are a small nation facing a major challenge in these uncertain times. We must all pull together if we are to return to more prosperous times.
In July the Government announced that Ministers and other senior public servants would forego pending pay increases recommended by the Review Body on Higher Remuneration. I wish to advise the House that members of the Government and Ministers of State will surrender 10% of their current total pay. Officers at Secretary General level in Government Departments have volunteered to make a corresponding surrender in respect of their pay. Other public servants in leadership and senior positions may wish to consider whether it is appropriate for them to make a similar move in current circumstances.
The Government has also decided to introduce an income levy at the rate of 1% on all incomes up to €1,925 per week or just over €100,000 per annum and at the rate of 2% on the balance of all income above that level. We realise the solidarity it demands of all taxpayers. However, there is too much at stake and we all have too much to lose by not taking action now. The levy will allow all income earners to contribute in a proportionate manner to the restoration of order and stability to the public finances. This will enable Ireland to return as soon as possible to a natural level of economic growth. The levy will be kept under review in the light of economic conditions.
I am conducting a review of the National Pension Reserve Fund in the context of recent economic and fiscal developments. It is my intention to complete this review before the end of the year. Any changes requiring legislation will be brought forward in due course.
In the past ten years there has been a big increase in the public services financed by taxation. Day-to-day expenditure rose by 200% between 1998 and 2008. Spending on health has risen by 293%. Education spending has increased by 174% and that on social welfare by 200%. Successive Ministers ensured the public received higher quality and more extensive public services. However, public spending can only increase in line with available resources.
We must continue on a path of bringing spending into line with resources. There is no option. However, in so doing, the Government is determined to safeguard key public services, protect the vulnerable, refocus spending to enhance our productive capacity, regain export competitiveness, reskill our labour force, retain the substantial gains already made and continue our work in building a fairer Ireland. This means doing more with existing resources, paring down administration to focus squarely on delivery of services to the public and reprioritising our spending goals.
That is why my predecessor announced an efficiency review of all public service spending in last year’s budget. In July of this year, I implemented the findings of that initiative and other specific measures agreed by Government with the intention of achieving overall savings of €440 million this year and €1 billion in 2009. This is a first step towards addressing the emerging difficult fiscal position. These savings included a 3% cut in the public service payroll, a halving of expenditure on areas like advertising, public relations and consultancy and major savings from procurement reform.
I am pleased to report that those savings have been achieved and that the payroll reduction intended to deliver €190 million will in fact yield savings of €260 million. The savings achieved have already been used to relieve pressures in areas such as health, where additional provision had to be set aside to meet the costs of a new consultants’ contract and education, where the full year salary costs of about two thousand extra teachers and special needs assistants taken on this year had to be provided.
Despite the challenging fiscal context, the Government will make significant allocations to social welfare, education and health. The Government has agreed that gross current spending in 2009 will grow by no more than 3.6%. Within this overall figure, spending on social welfare will grow by 8.4% to €19.6 billion; education will see an increase of 2.7% to €8.7 billion; and spending on health will increase by 2.1% to €15.8 billion.
To accommodate these increases, gross current spending in other areas will require substantial reductions. The individual allocations for each Vote for current spending are set out in the budget documentation published today, together with the main policy changes they require.
I am happy to announce that the full personal rate of the State pension will be increased by €7 per week for all pensioners. This will bring the State contributory pension to €230.30 per week and the State non-contributory pension to €219 per week.
We recognise the difficulties caused by fuel price increases to those on low fixed incomes. Accordingly, the duration of the fuel allowance is being increased by two weeks from next April, while the rate of payment is being increased by €2 per week, to €20 per week, with effect from 1 January.
The personal rates of all working age payments, including both the carer’s benefit and the carer’s allowance, are being increased by €6.50 per week from 1 January. This will bring the lowest full adult social welfare rate to €204.30 per week. The minimum rate of maternity and adoptive benefit is being increased by €8.50, to €230.30 per week.
We are also increasing the qualified child rate by €2, to €26 per week and increasing the family income supplement thresholds by €10 per week per child. The full year cost of all these measures is €515 million.
Government policy is to target resources at those in greatest need. Universal entitlements irrespective of means do not target those in greatest need. In some cases there is a need to differentiate between those who have and those who have not. I am proposing in the budget this year to initiate action in this direction in some areas and to promote a wider debate in others.
I fully expect that the Commission on Taxation will examine options relating to the tax treatment of universal child benefit payments. I look forward to giving careful consideration to any progressive proposals it may make in this area. At this stage, the Government has decided to limit the entitlement to child benefit and early child care supplement. Child benefit payments will cease for 18 year olds from January 2010——
Deputy Brian Lenihan: ——and will be halved for that group to €83 per month from 1 January next. However, welfare recipients, including those on family income supplement, will be compensated through appropriate adjustments to their support payments. Early child care supplement will cease at five and a half years of age. The full details of these savings measures and the off-setting factors to assist welfare recipients are set out in the summary of budget measures.
Deputy Brian Lenihan: The OECD estimates that spending in Ireland on pension and health care may rise from about 8% of GDP at present to about 18% by 2030. We cannot sustain such a huge increase without basic changes in how we achieve our common goals.
I am determined to secure savings on health sector payroll and staffing numbers to provide for a greater concentration of available resources on the actual delivery of key primary and acute health care services. I want to see improvements in the operation of frontline services and an appropriate rebalancing of costs to provide a more sustainable basis for funding into the future. I will work with my colleague, the Minister for Health and Children, to this end. The Government has agreed that the HSE will begin an innovative proposal to fast-track the roll-out of new GP practice units in collaboration with the private sector, while retaining full HSE control of the units. The Minister will give further details of this initiative.
Deputy Brian Lenihan: Investment in education is essential for our future prosperity. I have provided for an increase of €308 million in the total expenditure provision for education in 2009. A total of €230 million of this increase is for current expenditure, to provide for the additional costs across the system as a result of increasing student numbers due to demographic factors.
Deputy Brian Lenihan: The challenges facing the education system will be demanding in the years ahead. I have done the utmost to protect this sector in the prevailing circumstances. We have provided the maximum possible additional funds to this important area. Further details of the necessary changes are set out in the budget documentation and full details will be provided by my colleague, the Minister for Education and Science.
Deputy Brian Lenihan: The task force on the public service established by the Taoiseach has been preparing an action plan for the public service and its recommendations will be considered by the Government in November.
In regard to public service pay and numbers, we must do more with less. Pay rates are a function of agreed negotiations. Our public servants, including teachers, doctors and nurses, often of the highest calibre, enjoy very favourable pay and working conditions by international standards. As economic conditions worsen, those enjoying protected status need to contribute in a broader sense to the greater good of the wider economy. Payroll costs are a function of staff numbers. One of the most limiting factors I have found in my short time as a Minister is the lack of flexibility in re-allocating staff resources to the areas of greatest need. This has to change. We can no longer afford the increases in numbers we have seen in the past decade. Where there are clear staff surpluses in certain areas, or where policy priorities change, staff numbers must be correspondingly reduced or reassigned.
Deputy Brian Lenihan: Since the establishment of the HSE the number of whole-time equivalent staff has increased by 12%. The Government has decided that a targeted voluntary early retirement scheme will be introduced for the HSE and discussions are under way on the development of such a scheme. This will initially be targeted at surplus middle management and administrative staff, but may be extended to other surplus staff.
Indeed, I believe it is essential to extend such schemes, in a targeted manner, to other areas of the public service where surplus staff are identified. In this context, the Government has decided to conduct a focused review of public sector numbers in all branches of Government to assess whether the resources are being fully deployed in an efficient and effective manner and what economies can be made. This decision will be implemented in November when the report of the task force on the public service is received.
Our approach to public spending requires a systematic change in the way we do business. It is not just a one year phenomenon. It will have to be pursued and consolidated each year. We need to look at public spending on the basis of priorities set by Government. There can be no separate agendas or public bodies seeking to protect their turf. All of us must work collectively to secure the public good.
The Government has decided to reduce the number of State bodies and agencies by 41 and to streamline certain other functions. It has also been decided to reduce the number of Army barracks to bring it more into line with operational requirements of the Defence Forces and to permit economies of scale.
Deputy Brian Lenihan: The details of this first round of rationalisation are set out in the summary of budget measures. My colleagues will provide additional information and details about each of the proposals in the days ahead. These proposals are but a first step. I will, in consultation with my colleagues, be examining the scope for further rationalisation of agencies.
The Government has reviewed the decentralisation programme in the light of the changed economic circumstances. The timeframe in which the programme can be implemented has to be revised. The Government has identified priority elements which will proceed as planned.
Deputy Brian Lenihan: In excess of 2,500 public service posts have already moved to new locations outside of Dublin. The priority elements, coupled with the progress already made, will bring a total of 6,000 public service jobs to 40 locations around Ireland. We are deferring decisions on the timing of the implementation of the balance of the programme pending a review in 2011 in the light of budgetary developments.
Deputy Brian Lenihan: I turn from current expenditure to the subject of public investment. Over the past decade, our rate of investment in public capital projects has been more than 5% of gross national product — double the rate of most EU member states. In our new financial position, we have to be much more targeted in our investments. We need to concentrate on capital projects that add significantly to our productive capacity and promote employment. We have to secure maximum value for money and to consider less costly spending alternatives where possible. Our plans remain ambitious but we will have to be more patient in achieving them.
Gross capital spending next year will amount to more than 5% of projected GNP in 2009, or €8.2 billion in absolute terms. We will seek to maintain this rate of investment in 2010 and 2011. If the quantity of investment is less than planned, we are determined that its quality will more than compensate in value to the wider economy.
Deputy Brian Lenihan: The Government capital investment programme in 2009 will support core capital investment priorities such as the improvements in public transport, including work on extending Luas services to the Point and to Cherrywood, completion of the Cork to Midleton commuter line and general capacity improvements; the continuing work on the major inter-urban roads, which are all on schedule for completion by 2010; the ongoing work on the convention centre in Dublin, which is scheduled for completion in 2010 and the continuing substantial investment in water services, which will receive an additional €90 million, or 19% increase in 2009.
Deputy Brian Lenihan:
These projects will help provide the foundations for future economic expansion and sustainable job creation. Direct Government capital investment will be complemented by the extensive capital investment programmes of the commercial State bodies such as the highly visible progress being made by the Dublin Airport Authority on terminal
2 in Dublin Airport and the investment by the State energy companies in energy
Of this total, I have provided more than €300 million for the continued implementation of the strategy for science, technology and innovation to drive world class research and in-company research and development with a view to commercialising new ideas and know-how for the longer term benefit of the economy. We have allocated €179 million to Science Foundation Ireland in 2009, up from €172 million this year, while Enterprise Science Technology Innovation will receive a 2.5% year on year increase, bringing it to €127 million in 2009.
Ireland must continue to compete aggressively for overseas investment while supporting the indigenous sector. Enterprise Ireland and the IDA will be well placed in the coming year to ensure that export-led growth continues to underpin economic revival. The Government will continue to promote research and development, innovation and commercialisation by private enterprise.
Deputy Brian Lenihan: ——will be devoted to the school building programme. This substantial investment will provide additional school places, in response to the increased population. It will allow for the modernisation of the existing school infrastructure. Higher education plays a critical role in fostering economic development and promoting social cohesion. Capital investment in the sector is being increased to €265 million in 2009, an increase of more than €80 million on last year.
Deputy Brian Lenihan: The Government has invested significantly in housing in recent years. For 2009, the Government will allocate more than €1.65 billion in Exchequer funding for a range of housing programmes.
First, we will extend the existing local authority mortgage scheme by increasing the maximum loan available to borrowers. This extension will assist purchasers who wish to become homeowners but who are, at this time, unable to obtain loan finance. This will be a targeted and temporary initiative. Funding will be provided by the Housing Finance Agency and it will be operated by a small number of local authorities acting on a regional basis.
Second, we have decided to introduce a single Government equity initiative to replace a range of existing schemes which have developed in recent years. Under this initiative the Government will assist those seeking affordable housing by taking an equity share in such houses. This proposal will simplify the delivery of affordable homes.
Deputy Brian Lenihan: Based on the latest available data our greenhouse gas emissions were an estimated 70 million tonnes. We are committed to reducing our emissions to an annual average of 63 million tonnes over the period 2008 to 2012. The EPA has projected that, based on measures already taken and those already planned, the annual average emissions will now be higher than previously claimed. In the budget last year we introduced significant changes to begin the process of moving to a lower carbon intensive economy. This year we intend to build on those steps.
We must learn to use energy more efficiently. The Government can play a role in improving energy efficiency in our homes. To that end we are providing additional funding for a number of measures. We will allocate €20 million for the home energy saving scheme in 2009, an increase of €15 million on 2008. This will provide grants of up to 30% of the cost of retrofitting homes. This scheme will increase energy efficiency and lead to carbon savings.
This scheme complements the warmer homes scheme which provides insulation and energy advice to households in receipt of various social welfare benefits. The Exchequer will provide €5 million for this scheme in 2009 and this will be supplemented by funds from industry. We are also introducing a new scheme to examine the potential for energy savings in local authority housing stock through the retrofitting of older heating systems with new green energies.
There are several taxation measures in this area also and I will deal with them shortly. The Minister for the Environment, Heritage and Local Government will deal with climate change policy in more detail in his carbon budget which he will present to the House tomorrow.
Deputy Brian Lenihan: We have been successful in building and maintaining strong economic growth for more than a decade. While a range of factors have contributed to this success, the ability of the tax system to adapt and respond to the changing needs and pressures of a globalised economy has played a significant part.
As we go forward, our tax system will need to evolve and change to align with ever more changing political, economic, environmental and fiscal conditions. Globalisation and ageing are challenges that require us to think about the way we raise tax in the future. Aging increases pensions and health-related expenditures while globalisation means tax bases are more mobile — an unhealthy combination of increasing costs and revenue risk. The Commission on Taxation will inform our strategic thinking about the nature and burden of taxation for the next ten to 20 years.
We have a low tax burden by European standards. As a country, we have made a choice to reward work and enterprise. It has to be recognised that we demand ever more ambitious public services. We have an aging population and at the same time more modest rates of economic growth in the future are anticipated. This means that less money will be available to meet public expenditure demands. This has implications for our tax system in the long run. In the next year, close to €2 billion in tax revenue must be raised to keep within the fiscal targets set out earlier. If the current economic circumstances deteriorate, it may be necessary to make some equally difficult tax choices next year.
€2 billion is a very substantial amount of money to seek in any one year, but circumstances are such that there is no option. In raising this sum, the Government has been guided by three essential principles. First, the imposition must be fair and equitable and at a higher rate for those on higher incomes; second, the levies involved must be straightforward and readily collectible and third, we must seek to protect sustainable production, employment and the economy to keep Ireland competitive in the global marketplace. The Government is concerned that some of the more expensive tax reliefs, especially for the better-off, should be scaled back and the resources used, as appropriate, to protect those taxpayers who are most vulnerable in these times. It is fair and reasonable that those who profited most from the recent good economic times should shoulder a commensurate burden as conditions worsen.
Earlier I indicated the Government has decided to introduce an income levy at the rate of 1% on all incomes up to just over €100,000 per annum and at the rate of 2% on the balance of all income above that level. Apart from this the main tax measures are as follows.
Deputy Brian Lenihan: Excises on cigarettes will go up by 50 cent per packet of 20. I am increasing the excise on a standard bottle of wine by 50 cent with pro rata increases on other wine products and an increase of 8 cent on a litre of petrol.
Betting tax is being increased from 1% to 2% yielding €40 million in a full year. I am also making a reduction in the allocation for the horse and greyhound racing fund, the details of which can be found in the summary of budget measures.
I propose to standard rate the tax relief for unreimbursed medical expenses, which are currently available at the full marginal rate of tax. I also plan to reduce the annual earnings limit for tax relieved pension contributions from €275,000 to €150,000 per annum. These measures will promote greater equity in tax relief.
Consistent with moves by other EU member states such as the UK and the Netherlands, I intend to introduce an air travel tax from 30 March 2009; the tax will apply to all departures from Irish airports.
I will increase the standard rate tax band by €1,000 for a single person and €2,000 for a married two earner couple to help maintain its real value and to ensure the maximum possible number of taxpayers continue to pay tax at the standard rate of 20%. This will cost €200 million in a full year.
In relation to mortgage interest relief, from 1 January 2009, the rate of tax relief for first-time buyers will be increased from 20% to 25% in years one and two of the mortgage and to 22.5% in years three, four and five. This change will benefit first-time buyers who purchased since 1 January 2005. The rate for years six and seven will remain at 20%. First-time buyers relief ends after year seven. To fund this change, the relief for non-first time buyers will be reduced from 20% to 15%. This rebalancing makes for a fairer system and helps those buyers with the biggest financial exposure and those facing falling property values. Circumstances can change of course and this rating structure is not set in stone. It is very much tailored to current market conditions.
Successive Governments since the 1950s have recognised the importance of a corporation tax regime which incentivises investment and employment in key economic sectors. The past 20 years have seen Ireland become a major centre in the areas of technology, pharmaceuticals and financial services to name but three.
The 21st century economy is now mobile, globalised and increasingly knowledge-based. As a nation, we have to ensure that we are a location of choice for foreign direct investment and one in which indigenous industry is able to prosper. We became a global player in manufacturing in the 1980s and 1990s and this decade has shown that we can adapt and attract global players to Ireland and build local competencies alongside them. We have managed to build indigenous global players as well.
The 12.5% rate of corporation tax is an important element in our taxation system. It has been a cornerstone of our industrial development in the past decade. I emphasise that this rate of tax is not for changing upwards and it will continue to be a central part of Ireland’s economic brand. Ireland’s economic prospects are dependent on a vibrant and modern business base and I know that virtually all sides of this house will agree with me that our rate of corporation tax is essential to this.
The Government is convinced it is important, despite the need to secure a substantial increase in tax, to maintain and enhance pro-employment business tax reliefs. As an economy we are open to new business and new investment. I am bringing forward a number of measures to support jobs, encourage enterprise and enhance our productive capacity.
The R&D tax credit available to companies will increase from 20% to 25% putting it to the forefront of R&D regimes globally. This will increase Ireland’s attractiveness as a location for R&D activity and it will provide a well-targeted stimulus for such value-added activities. I will consider making further enhancements in the forthcoming Finance Bill.
Intellectual property has become important globally in recent years and we need to ensure that our tax regime fully reflects the changes which have taken place in this area. If this sector can provide jobs and revenue to the State, I am willing to listen. I have asked the Commission on Taxation to investigate options in this area and I plan to return to it in the future.
In recognition of the challenges faced by new and start-up companies in these challenging economic times, I propose a remission in corporation tax and capital gains tax in their first three years of operation with certain limits.
It is important that all sections of the economy and community play their part in addressing the fiscal challenges. Recognising the positive changes made in the corporate area, I propose to bring forward the payment dates for companies paying more than €200,000 corporation tax on their profits. This will yield €350 million in 2009 on a once-off basis. Details are in the summary of budget measures.
Earlier this year I signed the order for mandatory electronic filing and payment of tax. This is a modern, secure and easy method for the payment of taxes for business. As a further pro-business measure, I propose to encourage take up of Revenue’s online services by providing a general extension to existing deadlines where returns and payments are made via the online systems.
To encourage greater use of electronic means of payment for commercial, financial and retail transactions, I propose to build on the initiative introduced in last year’s budget by halving the stamp duty on combined ATM cards from €10 to €5. To fund this measure, the stamp duty on cheques will be increased from 30 cent to 50 cent per cheque. This important step will further encourage the use of electronic payment methods. To promote the development of e-payments in the economy, which has the potential to yield significant competitive benefits, the Government will establish shortly a high-level group comprising representatives of the main stakeholders to direct the preparation and implementation of a national payments implementation plan over the next two years.
The related areas of stamp duty on commercial properties and capital gains tax on such transactions are imbalanced and I propose to rectify this. This imbalance does not apply to residential property because the principal private residence exemption means there is no capital gains liability in such cases.
Deputy Brian Lenihan: Full details are in the summary of budget measures. We need commercial development and investment if we are to create jobs and stimulate economic activity. We must also give an impetus to the commercial property market. This cut is my contribution. The rate will stay at 6% and it will not go lower in the lifetime of the Government.
Second, I am financing this measure through an increase of 2% in the capital gains tax rate. This increase also mirrors the level of income levy being imposed on higher earners and it is equitable to match this levy increase effectively with an equivalent rise in the rate of capital gains tax. I will continue to review the rate of capital gains tax on an ongoing basis.
Deputy Michael Creed: What about the farm installation aid and the farmers retirement scheme? Was the Minister for Agriculture, Fisheries and Food, Deputy Brendan Smith, even at the Cabinet’s budget meetings? It is disgraceful.
The Commission on Taxation has been asked to examine the matter and I expect to receive its report by the end of September 2009. The report will assist the Government in assessing how such a levy might best be structured and implemented in a fair and consistent manner in the budget next year. We must ensure that Ireland’s economic prospects are protected and enhanced and that the most vulnerable do not lose out. I look forward to making a firm announcement on the issue in my budget 2010 speech.
As part of the Government’s overall programme to support a sustainable environment, I propose to introduce a flat rate levy in the major urban areas of €200 where an employer provides car parking facilities for employees. In addition, I propose a tax incentive to promote cycling to work.
Deputy Brian Lenihan: These initiatives seek to encourage greater use of public transport and ease congestion in our major cities. I will also bring forward measures in the Finance Bill to relate benefit-in-kind on cars and mileage to CO2. These measures, together with expenditure decisions and enhancement to capital allowances for energy efficient products for businesses will make a positive contribution to reducing Ireland’s carbon emissions.
I will also introduce a new tax incentive scheme to facilitate the relocation of Seveso-listed industrial facilities, which hinder the residential and commercial regeneration of docklands in urban areas. The EU Seveso directive seeks to protect public safety by placing land-use restrictions on new residential and commercial development near locations where potentially dangerous activities are undertaken. This scheme will be subject to clearance by the European Commission from a state aids perspective.
Building on the measures introduced this year, I will extend the range of energy efficient equipment purchased by companies that can qualify for accelerated capital allowances. These will include energy efficient data server systems and, vital in these times of high energy costs, electricity provision equipment and control systems.
Demand for Local Government services is increasing all the time. It is important that local authorities can operate on a sustainable financial basis. The Government has, therefore, decided to broaden the revenue base of local authorities by introducing a charge on all non-principal private residences.
Deputy Brian Lenihan: The charge will be levied and collected by local authorities, and will be used to support the provision of local services. The new charge will be set at €200 per dwelling and will come into effect in 2009. It will be payable by the owners of private rented accommodation, holiday homes and other non-principal residences but will not be applied to new dwellings as yet unsold.
Motor tax is an essential contributor to local government funding. It is proposed to increase motor tax rates by 4% for cars below 2.5 litres and CO2 bands A to D. A 5% increase will apply to cars above the 2.5 litre threshold and CO2 bands E, F and G. Goods and all other vehicles will also increase by 4% with no increase for electric vehicles.
Cludaíonn na bearta a leagaim ós bhur gcomhair ár bplean gníomhaíochta le haghaidh téarnamh eacnamaíochta. Cuirfidh siad smacht ar airgeadas poiblí. Treiseoidh siad ár gcumas táirgiúlachta. Tabharfaidh siad tús áite do thionscadail infheistíochta a mhéadaíonn ár gcumas iomaíochta, agus san am céanna cabhróidh siad leis na daoine is inleonta.
Deputy Brian Lenihan: In July, we brought forward a package of savings which will benefit the Exchequer by €1 billion in a year. As the fiscal position deteriorated over the summer, we took further action at the beginning of September by bringing forward budget day by two months.
Two weeks ago, when the stability of our banking system was in jeopardy, the Government took immediate and decisive action. The budget I put before the House today is our plan of action for economic renewal.
Deputy Brian Lenihan: It will bring order and stability to our public finances. It will enhance our productive capacity. It prioritises public investment projects that add to our competitiveness. While doing all of this, it will protect and support those most in need.
Deputy Brian Lenihan: Crisis also brings with it opportunity to reform the way we do our business, to move on to the next stage in our development as a sophisticated, high value economy, and, above all, opportunity to work together in the best interests of our citizens.
Deputy Brian Lenihan: This budget serves no vested interest. Rather, it provides an opportunity for us all to pull together and play our part according to our means so that we can secure the gains, which have been the achievement of the men and women of this country. It is no less than a call to patriotic action. It is my great honour to commend this budget to the House.
Deputy Richard Bruton: Over four reckless budgets the Minister for Finance’s predecessor dragged this economy to the very edge of a cliff. Today, with this budget, the Minister has pushed us over the edge. We were told this would be a budget about making provision for the future, but it is all about extra taxes for ordinary families, extra charges for people and cutting capital spending.
Deputy Richard Bruton: The truth is hard for the Deputies opposite to take. Today we see increases in income tax, capital gains tax, DIRT, VAT and motor tax. Every tax has been increased. This is not what the country needed. The capital programme has been axed by €1,300 million, which is a cut of 11%. This was a time when we needed investment for the long-term future. The Minister has made decisions today that will threaten to turn a recession into a depression. The savings the Minister has found have not been found in the big bureaucracies that have been built up in recent years.
Deputy Richard Bruton: They have been found in the small crumbs that trickle across the table to ordinary people who are struggling. They have seen higher charges for drug refunds, accident and emergency departments, and hospital admissions. Their medical cards have been means tested even at very low income levels. The Minister has hit those who are most vulnerable. People awaiting home care packages have felt the brunt of cuts before this budget was even thought of, but the Minister has now turned the screw even further. People talk about courageous decisions but this is not courage. Courage is about taking a brave road — taking decisions that may make one unpopular in the short term, but which build something for the future. These are not the decisions the Minister has made today.
Deputy Richard Bruton: He has taken the soft road. He is looking to tax any family, every family, any business, and every business. He is looking to make it tougher for people who are struggling to get by. There is no sign the Minister is aware of the pressure on people from fuels bills, the pressure on people who have lost their jobs. That is the tragedy about this budget.
Deputy Richard Bruton: There was an alternative. We, and many outside this House, articulated an alternative. It was an alternative where the Minister did not go down the soft option of raising taxes. The Minister is raising €2 billion in taxes today. That is the reality. That is €2 billion out of the economy. That is making it tougher for people to get by. It is tougher for people to spend. The Minister has also cut the capital budget by €1.3 billion. That is reducing activity in the economy. Those are the decisions.
When one looks to his current spending budgets, the Minister is still pushing ahead. There is €2 billion extra on current spending, only a quarter of which is for social welfare. He has pushed ahead with extra pay in the public service right across the board.
Deputy Richard Bruton: Today we see the highest borrowing in this country for 22 years. We see the golden rule, of only borrowing for capital purposes, broken. Some 40% of the borrowing the Minister is planning to undertake will be spent on day to day spending, not on capital spending. The Minister is on course to double the national debt in less than four years. This will be the legacy of Deputy Brian Lenihan’s tenure in this post as Minister of Finance.
Let us be quite blunt. It is not the bankers in Zurich or the mortgage lenders in Detroit who have brought us to this sorry pass. It is a Government that was cocky enough to claim credit for the good times and is not man enough to recognise its huge contribution to creating the property bubble and creating the difficulties that have plunged this economy into recession.
Deputy Richard Bruton: For four years the Taoiseach, then Minister for Finance, had the opportunity to show courage, to embrace reform in the public service, to ensure that the public money we spent made a difference to people at the front line, and he refused to make that courageous decision. He sat on his hands. He allowed spending increase with no reform. That is what we are paying for today. That is why people are seeing borrowing at historic levels, huge increases in taxation and the most vulnerable being asked to chip in more. That will not be forgiven either.
It is a tragedy that, once again, a new generation is asked to mortgage its future to pay for the mistakes that Fianna Fáil has made in Government. The culture of the Galway tent, the culture of spending when you have it is what has got us into this hole. It has damaged the fundamentals of our economy and we will pay for it in the years ahead.
Our problems today do not come from international difficulties. They come from a Government that has sabotaged the capacity of this economy to withstand that storm which was inevitable. Why is the mighty Celtic cruiser the first to hit the rocks in this recession, the first to see its public finances run into difficulties? It is because the captain and the officers, who were on the deck and who we expected to look out for our interests, ignored the storm warnings, overloaded the vessel and neglected to maintain the engine, and now we are drifting towards the rocks.
The reason is clear. It is the way in which the Government pumped up public spending on the back of unsustainable revenues. It is the way they allowed the property bubble to destroy our strong exporting economy. It is the way they abandoned hard-learned habits of preventing waste in public spending. That is why we are in this predicament. It has nothing to do with the international factors.
Even today, with everything obvious out there, the Government remains in denial about the underlying causes of the difficulties that we face. While other countries have felt the force of the international shock waves, it is not they who are deep in recession. It is not they who find their public finances turned upside down. It is only Ireland that has seen that. Where other governments, like the Spanish, in particular, took the courageous decisions to make changes, the Minister sat on his hands.
Already we see the human casualties that have come from the Government’s approach to managing the economy and to failing to prepare. More than 80,000 people are already in the dole line, terrified for their future. There are thousands of talented businesses turning to loyal workers telling them they must let them go, and they are fearful that soon they will have to shut the doors and call in the receiver. There are hundreds of thousands of families struggling to pay mortgages on houses which will never see the value again that they paid for them, and they are sick with worry that it is their job that will be the next to go. There are old people looking on today at the closure of hospital beds and the freezing of home-care packages, frightened that the services they need will not be there when they turn to look for them.
The ultimate test of this budget is whether it has looked out for those families. Has it avoided the soft options? Has it protected the most vulnerable? Has it made major structural changes in the public sector that will avoid waste? Is it part of a wider plan to create a smarter economy? The sad answer to all of those questions is “No”.
Let us remember the context against which this budget has come. Since 2000, the Government increased current public spending by 140% or €32 billion —€20,000 extra for every family in the country. They increased the numbers in the public service by 72,000, but they delivered little or none of the commitments they made to improve the quality of public services.
They grew careless about how they spent money because they never really had to confront the taxpayer with the bill. The explosion in tax revenues from the property boom filled the gap and they went on blissfully unaware of the reality of the wasteful spending they incurred.
This bonanza in spending was not costless. Someone did pay. It was financed on the backs of hundreds of thousands of people who entered into 35-year mortgages and who now are struggling to pay that money. They are carrying the can. Young people have carried the can for Government waste. These miraculous revenues that were flowing in were not from some goose laying the golden egg. These were from real families who are now faced with the reality of a Government that did not manage the economy prudently. They are the ones whose backsides are exposed now, who are facing the real dangers and the cold winds of this economy.
Like the bankers so rightly now in the dock, this Government built long-term commitments on short-term revenues. They threw caution to the four winds. They put their self-interest ahead of their responsibilities. The banks bailed out the developers. The Government bailed out the banks. Now the taxpayer is being asked to bail out the Government. Who will bail out the taxpayer, that is what I want to know?
We will see the equivalent of a new 1% levy, both on the standard rate and on the top rate. It will apply to everyone. Even those exempt from tax will pay it. This applies right across the board. It is three tax increases rolled into one. It is a direct hit on those at work with no allowance for the commitments they might have to family and to mortgage. This is completely turning on its head equity in the tax code.
It is a temporary measure. Income tax was a temporary measure, I think, during the Boer War when it was introduced. The insurance levy was a temporary measure when it came in 25 years ago, and it is still there. I have little confidence that this is a temporary measure.
Deputy Richard Bruton: Today we see no increase in tax credits, the small payments that give a little relief to the people at the bottom. There is no increase, not even for the personal credit, not for the home carer credit, not for the disabled child credit, not for the age exemption credit. None of these people has got a cent in the budget’s concessions.
Even on indexation of the bands, the Minister offered only a little over half of indexation. This means that every person in the country will have to face paying €292 more than they should had their taxes and bands been indexed. That is the case for single people; it is double that for couples.
The Minister is hitting ordinary people at their most vulnerable times. He has decided to haul back the relief for people who have large medical expenses. These are the people in nursing homes or people who have expensive illnesses. They are being told they will no longer get relief at their marginal tax rate.
Deputy Richard Bruton: Again, this will hit families who are vulnerable. I have carried out a simple calculation of how this budget affects families on €60,000 per annum. God knows, that is not a great deal of money and those families will be eligible for affordable housing if the Minister’s plan goes ahead. These are very ordinary families struggling to get by, but today’s budget amounts to €2,300 in extra taxes, charges and levies on those families. That is the reality the Minister is presenting. These families are trying to cope with child care and the difficulties of living in straitened times.
We were told the Minister would be prudent in how he would invest scarce moneys. Why did he remove €2.2 billion from the public capital programme? He knocked over €1 billion from the State’s contribution and €1 billion from the PPPs, which is a total of €2 billion. That is inexplicable when one recalls the Minister saying, time and again, that the one thing the Government would protect was its investment in the capital programme. Why has the Minister sacrificed €2 billion of it? That appears totally perverse at this difficult time.
The problem in this country is that there is a collapse of confidence in these Ministers to deliver value for money in the public service. That is the legacy of this Government. The annual catalogue of waste in the reports of the Comptroller and Auditor General has produced no more than an indifferent shrug from the Government. There is no resolve to change. Deplorable decisions have got us into this hole. Whether it was benchmarking, the birth of the HSE and how it was handled or the crass political handling of decentralisation, Ministers have failed time and again. They failed to lead change in the public service because they do not work to professional standards themselves. They are the first to break the rules when they wish to push through a pet project and they are the last to accept responsibility when something goes wrong.
How can these Ministers be taken seriously? Not one of them produced their statement of strategy on time, even though it is their legal obligation. They do not bother to measure three quarters of the tasks they regard as priorities when producing the annual output statements. Even last year, they only delivered a fraction of the commitments they undertook to deliver with the money we gave them. These are not Ministers one can take seriously. One will search in vain for radical reform in public service delivery in this budget. We were told by Deputy Cowen when he assumed the position of Taoiseach that public service reform would be the hallmark of his regime. It did not happen in the four years when he was in charge of the public service but that was to change. However, there is no change today.
There has been no change in the way budgets are put together. Budgets are still dished out without Ministers being tied to any hard and fast performance targets. Evaluations of major projects are still not published, even though taxpayers are expected to stump up the money for them. We still have agencies that are not paid on a performance basis. What is the result? We see it daily. It means that when the HSE runs out of money it closes down beds, instead of looking for more patients to come through so that money would be attached to those patients. It simply closes down the beds and tells patients it has nothing for them.
Deputy Richard Bruton: That is a ridiculous system but the Minister persists with it. We have not seen in this budget the commitment to reform that is necessary. The budget should have been a watershed and should have provided for real changes, whereby managers were held responsible, power was devolved, change was implemented and people were expected to reach high standards. This was the opportunity to do it but, again, it has been fluffed.
The vulnerable deserved a lot better than what they got today. Even before today’s budget was produced, the Government did not spare the most vulnerable in our community. When the HSE’s budget was running short during the summer it targeted the disabled and the old. Programme improvements for them were withdrawn so the HSE could limp on unreformed. When savings were required in July, where did the hand go? It went for overseas development aid and the money that had been assigned for nursing homes. It was all clawed back. Again, it was the soft option of hitting people who are weak.
Today we see more of it. The accident and emergency service charge is increased by 51%, the hospital charge by 14%, the drugs refund charge by 11% and the long-stay charge by
26%. Who will these charges hit other than the people in our community who are sick and vulnerable? However, these people only received a €7 increase in their social welfare payment. That is not even indexation, it is 3% when inflation is running at 4.5%. Their annual income has been cut in real terms and they are also being asked to stump up all these extra charges when they use these services. I do not know who was with the Minister when he set the increase for the fuel allowance. It is just €2 extra per week at a time when fuel prices have gone through the roof. Older people who are dependent on poor fuel systems will suffer through this winter but there has been no consideration of their needs.
There was also little consciousness of the 200,000 people who are at risk of losing their jobs under the new regime. Where was the reform of the redundancy scheme to provide for immediate re-training or reform of the back to education scheme so people will not have to wait years before they get a chance to re-skill? Where is the reform in the family income supplement to target it at people who really need it? There has been no attempt to innovate, to think our way through or to create opportunities for people who are losing their jobs. That is not good enough. This budget has not been about innovation, change, hunting down waste and finding ways to help people who are vulnerable. Instead, the soft option is always chosen. That is the tragedy we are confronted with today.
In the longer term our success depends on being a successful trading economy. The gravest policy mistake in recent years by the Government has been to forget that this country stands or falls by its ability to export. That is a tragedy, which will make it very difficult for us to pull through and recover from these difficult times. There is nothing in today’s budget that sets out the new programme for reform in the public sector organisations that hold that back. Let us be honest. Ireland is bottom of the league in terms of ports, airports, electricity costs, waste management costs and broadband. Where is the innovation or the commitment to reform these to give our exporters a chance?
It is worth recalling the contrast between the past four years and the years when the rainbow Government was in power, when Deputy Ruairí Quinn was Minister for Finance and I was Minister for Enterprise and Employment. At that time the volume of exports was growing at 17%; now it has collapsed to just 6%. Under that Government, productivity was growing at 8% per annum; now it has collapsed to just 2%. Then, our market share increased by 25% in four years; this Government has cut it by 20% in four years. That is something a small open economy cannot tolerate and survive and thrive. That must change, but the start on that vital change was not made today.
As a people, we have taken great pride in the creation of a new Ireland in the past two or three decades. Families separated by emigration were reunited, young people leaving school were able to find good jobs in this country and towns and villages in danger of fading away returned to life. We grew anxious in recent years when the pressures of working in an economy of runaway house prices, jumbo mortgages, poor transport and expensive child care gradually choked the quality of many people’s lives. However, people kept going and put their trust in Fianna Fáil, which promised it had everything under control. Fianna Fáil said it had a strategy for health care, school buildings and smaller class sizes, which is now gone. It had a strategy for spatial planning and climate change and it believed the property sector was based on sound economic fundamentals. Those plans and strategies have all proven to be hollow shells. When tested, they cracked and yielded little inside. We now know the trust in Fianna Fáil was misplaced. It was asleep at the wheel and had grown lazy and lethargic and increasingly incompetent. The Fianna Fáil economic miracle has turned into a mirage. The complacent Fianna Fáil message that it should be trusted on the grounds that it knows what it is doing is simply no longer holding up.
Even today, with a crisis on its doorstep, the Government has failed to grasp the profound changes that have affected our economic health and the far-reaching reforms that are called for. It has made a bad situation worse. The ordinary people will pay for its mistakes, not just today, which is clear, but in the future.
Deputy Joan Burton: Today’s performance by the Minister for Finance has really been like a Hallowe’en B movie. For Fianna Fáil, it is really “Nightmare on Merrion Street” with mood music from the shower scene in “Psycho”.
This is a tough budget for middle-income and working families, just like the Government promised. Middle-class and working families have not just taken a hit, they have been mugged by the Minister. Whether we are referring to the income levy or the restriction in terms of health costs, we should make no mistake about the fact that the coping classes, the PAYE sector, are the Minister’s main targets today. While this budget will eat into the income of the average PAYE family, the ultra-wealthy, the tax exiles and those who made a killing from the Celtic tiger will suffer relatively little pain. I noted how the Minister thought about them when he introduced the levy of €10 for people leaving the country but I noticed how he managed to exempt those friends of Fianna Fáil with private jets. The levy does not apply to craft that carry fewer than 20 passengers. If the girls want a weekend in New York, as people got used to in the Celtic tiger years, and want to avoid paying the €10, they had better talk to a friend with a private aircraft.
The budget reeks of panic measures. The Minister lacks a clear and coherent strategy for economic recovery in the medium term. I worry about the quality of the figures in the budget. No fewer than three very reputable commentators and economic firms indicated the Minister is overestimating the tax take for next year by up to €3 billion. His plan is very limited and very reminiscent of the Haughey budgets of the early 1980s, during which era there was a broad indication that line Ministers would reduce costs by specific targets. However, it never really happened. It was not until Ray MacSharry became Minister for Finance some years later that there was real implementation of cutbacks in regard to targeted spending.
The Minister should have delivered a recovery plan to put the 80,000 unemployed back to work, training or education. On page B.15 of the Budget Statement, the Minister indicates eight very severe restrictions to entitlement to welfare payments. This will mean that many people, who through no fault of their own are losing their jobs in the current economic climate, will be subject to many more restrictions and will have to wait many more weeks to receive a benefit. When they receive it, their qualification period will be reduced.
There is nothing in the budget to get the 80,000 on the dole back to work, education and training. When I was in the Department of Social Welfare with the Minister’s former ministerial colleague, Deputy Michael Woods, I introduced the back-to-work allowance and a series of other measures to get people off social welfare and back into employment. This budget contains no such positive measures.
What a bonfire of the vanities we have witnessed today. Very little has been spared. Into the bonfire goes the national development plan and many of our most ambitious plans for a proper transport system. There is no mention of metro north, metro west or a train to Navan, but the roads programme has been kept.
Into the bonfire goes the Fianna Fáil manifesto and all it promised. Into the bonfire goes most of Fianna Fáil’s commitments to a fair society and social justice. One of the monuments to children and women that the Celtic tiger should have built — because we worked for it — was a proper child care and pre-school education system. Instead, the Minister indicated that he really intends, in future budgets while the recession continues, to take the axe to child care and child benefit. This represents a bad day for many women in Ireland, be they full-time carers of children in the home or working outside the home and trying to mix work with child care. We should have built a pre-education and pre-school system because all of our competitors in Europe, whom we aspire to be like, have one. We had the money during the boom but did not build it.
The Government has driven the economy into the ditch. Today we have the first full view of the wreckage and our first full opportunity to estimate the cost of the repair. Believe me, the wreckage is not a pretty sight and the repair bill will leave every taxpayer gasping. No doubt Ministers will congratulate themselves on their tough-love approach. However, will the Taoiseach be able to look in the eye a family whose livelihood has been destroyed by his economic mismanagement and say to it, in the style of Bill Clinton, “I feel your pain”? Like hell he will. Those on the Government benches will feel very little pain over the measures announced today; they are too well cushioned for that.
The levy the Minister introduced will mean extra income tax of €500 or €600 for those earning €50,000 or €60,000 per annum. Such a family does not merit a doctor-only medical card or a full one but many such families must often pay for treatment for really serious medical conditions. If they want to go to an accident and emergency unit, they must now pay €100, an increase from €66. If they must pay privately for a fast operation to save the life of an elderly parent in the absence of a medical card, as many now do to avoid queues, they will find the tax refund to which they were entitled heretofore has been reduced to 20%. I ask the Minister to rethink this before the introduction of the Finance Bill.
There are many well-documented cases of families taking second mortgages on houses to pay for expensive private medical care because it is not otherwise available or because, for one reason or another, their health insurance coverage or that of their parents is not intact. They will take a very heavy hit in today’s budget. The Minister has not thought through the consequences of this for the complex arrangements families make to support themselves and their loved ones when their private medical insurance does not cover them or when their only option is to go to a private institution not included in their insurance plan. For years, we have heard talk about soft and hard landings. The Taoiseach assured us time and again that we would have a soft landing. The Minister, Deputy Brian Lenihan, is the Taoiseach’s trusted pilot but the Minister does not know the territory and he is carrying tonnes of excess baggage. There is a heavy fog, it is pitch dark outside and he has not a clue where to make a landing, either hard or soft.
This is a budget that compounds the conditions it was meant to address. It does nothing to stem the haemorrhage of jobs, it abandons a long-held policy of having little or no borrowing for current spending and it puts important capital projects like public transport on the long finger at the time we should be preparing the country to take advantage of any recovery. Everywhere we look, the economic news is troubling. While it took Ministers a long time to come to terms with that cold reality, for many of our people it is not really news. They have been paying the price for months, even if the Taoiseach failed to notice.
Some 80,000 workers have lost their jobs this year, the largest annual increase ever recorded. Official records show that there are 110,000 children living in poverty. It has never been more difficult to save or to retire and thousands of pensioners have to choose between food and fuel because the rising price of both is not matched by either their pension or their fuel allowance. I welcome the increase of €2 in the fuel allowance, which is great.
Deputy Joan Burton: The Minister knows that in our joint constituency, even in a cheap shop, a bag of coal costs approximately €17. He could have acceded to the request of the Society of St. Vincent de Paul, which works at the coalface, to have at least doubled the fuel allowance, which would have only taken another €6.
Across Ireland, young people have to come to terms with a reality that their parents never thought would return. In the coming five to six weeks, thousands of young men and women and their proud parents will go to graduation ceremonies in universities and institutes of technology all over Ireland. Many will have failed to get jobs since they left college or will have stop-gap temporary jobs. Many graduates of earlier years — engineers, architects, scientists, accountants, surveyors and solicitors — have been let go during the past month. The best brains of a generation will feel as if the dream that so many have hoped for is slowly slipping away.
It has been an interesting three months for the two Brians. It has been interesting to watch both of them respond so belatedly to the new economic reality. They sat on their hands all summer until it was too late. Their first reaction to this crisis was traditional bluster, with the same old tired line over and over again: “The fundamentals of our economy are strong.” In the same way, the bank regulator and the Governor of the Central Bank used to say: “The fundamentals of our banking system are strong.” Every unemployed worker would love to have a euro for every time he or she heard that dreary slogan all through the spring and summer as jobs were lost and the banking crisis moved inevitably to a long-predicted meltdown.
I have every confidence we can steer ourselves out of this crisis. The whole world knows the Irish are a resilient race. One lesson we should learn is that we cannot steer ourselves out of this situation by heading in the same direction with the same failed policies. I do not fault the Minister, Deputy Brian Lenihan, for all the problems we are facing now, but I fault his delay in waking up to their existence and his tardy response. I fault the economic philosophy the Government has slavishly followed for the past 11 years. It is a philosophy that says we should give more and more to those with the most and hope that prosperity trickles down. It is a philosophy that says even common sense regulations are unnecessary and unwise. It is a philosophy that lets vested interests — the speculators, the developers and the bankers — dictate our country’s economic policy, so it worked for them instead of for our people. Let us be clear. What we have seen in the past few months is nothing less than the final verdict on this philosophy, a philosophy that completely failed the most basic stress test.
A Government less given to vanity and to lecturing the rest of the world on the brilliance of its economic achievements would have seen the dangers and prepared for them. The economy has become seriously unbalanced on the watch of the Taoiseach and the Minister. Basically, after months reassuring everyone that things were under control, the Taoiseach, Deputy Brian Cowen, now says the sky is falling and that to save the world we have to do exactly what he says. Why should we respect his word today? I heard his party constituency colleague, Deputy Sean Fleming, state on “Prime Time” last week that the people who led us into this mess are not the people to lead us out of it. He meant the failed bankers, but his words are no less pertinent with regard to the Taoiseach and his Ministers.
This budget is the legacy of the Taoiseach, Deputy Brian Cowen, to Irish families. The true cost will hang like a millstone around the necks of our people for years to come. The Minister, Deputy Brian Lenihan, referred to international events as though the then Minister, Deputy Cowen, was simply the victim of international events rather than being very culpable in regard to matters such as the property bubble. It was bad ministerial judgment, not international events, that created the costly decentralisation fiasco. It was bad ministerial judgment, not international events, that created the HSE fiasco — we are paying McKinsey consultants millions of euro to undo that Micheál Martin monument to bad governance. It was bad ministerial judgment, not international events, that made the then Minister for Finance, Deputy Cowen, continue to inflate the property bubble with tax breaks when every single warning shouted stop. It was bad ministerial judgment, not international events, that made the public finances so utterly dependent on an overheating house building sector.
I want to put one question to the Minister and I hope it will not bewilder him. I am sure he and the Taoiseach would want to be remembered not just for economic success, however elusive that seems in present circumstances, but also for a progressive record in advancing social justice, so let him answer the following simple question. After 12 years in power, why is income inequality still so deep and why is wealth inequality in assets worse than when the Government took office?
The Government has invented more tax breaks in a decade for the rich than their accountants can keep up with. It is a Government which has presided over a widening, not a narrowing, of inequalities of personal wealth. The top 1% now own more of the nation’s wealth than they ever did. Property and land speculators have been the biggest beneficiaries of the Government’s terms in power but the Government coaxed them on, regardless of the consequences.
I note the Minister reduced the top rate of stamp duty on commercial property from 9% to 6%. In a falling commercial market, there is merit in this but, at the same time, why did he not pay attention to the young couple stuck in their first house but who cannot afford to trade up? Why always go after the commercial interests of the big property developers?
One of the reasons we are not creating more businesses in this economy is the cost of rents. Most major commercial property is owned by the same large group of developers who have dominated Fianna Fáil’s economic philosophy. The rents they charge are astronomical, but there is nothing in the budget that insists that property developers begin bringing rents down so that young people who want to start businesses can pay a reasonable and affordable rent.
At the outset, the Minister referred to the bank situation. To recall a phrase uttered by a colleague of his — I nearly said “former colleague”— Boston and Berlin now have one thing in common. They are both nationalising or part-nationalising their banks. It appears inevitable the Government will have to provide some mechanism to allow banks and financial institutions to recapitalise. If that is to be done it must be based on one clear proviso. The people will support decisions made by the Government to salvage the principal elements of the banking system but the Government and taxpayers must get what people who provide capital are entitled to, namely, a share in ownership so that all the gains of a successful rescue plan do not go to the people who made the mess in the first place but back to the taxpayers who made significant sacrifices to calm the situation down and rescue it.
The banks have to be made fit for purpose. We need to take a back-to-basics approach to the banking sector. The reformed financial system, built by the Government and paid for by the taxpayer, needs to be plain and old fashioned. In the United States it is called “plain vanilla finance”. The banking system should be restored to its traditional role of supplying credit to the real economy, with as few complications or fancy products as possible. We need a system in which retail banks accept savings and make loans for regular businesses, large and small, and regular mortgages for families around the country, and where the complexity of financial products is strictly limited and subject to the kind of independent safety tests associated with new drugs or cars. That is serious hard-touch regulation and citizens will rightly insist on it as the price of any further rescue package.
Despite the huge rise in the budget deficit and the many spending cuts and tax increases outlined by the Minister, the budget’s impact will probably be overshadowed in the next ten years by further tax increases to pay for bank bailouts. The Minister has said the unnecessarily wide-ranging bank guarantee will not cost taxpayers anything. He is wrong and taxpayers will pay the price for his, and the Taoiseach, Deputy Brian Cowen’s, misjudgments.
The budget brings back many unhappy memories of an era we hoped would never return. One nasty feature of that era, which we only discovered years later through the tribunals, was the hidden offshore accounts. We remember Ansbacher man and his arrogant determination that taxes and sacrifices were for the little people only, while he and his friends lived in splendid luxury as their fellow citizens endured job losses, high taxes and emigration. What measures does the budget have to share the burdens of today? I see very few. There is no doubt the coping classes, people on PAYE earning between €40,000 and €80,000, will pay for the bulk of the measures in the budget. They will bear the brunt of the cutbacks and levies. When they go to an accident and emergency unit that cost will rise from €66 to €100. They will pay and pay. Why then are we not sharing any burdens in the budget? We tolerate the tax exiles who still dominate many sectors of the economy while refusing to contribute their share. We still riddle the tax codes with exemptions and breaks for the super rich, including the very people whose banking practices have brought us to the sorry state we are in today.
Most citizens have braced themselves for sacrifices. I am not at all sure that feeling is shared by our local “Masters of the Universe”, who blithely demand cuts in public services to facilitate their unlimited greed and avarice. I wonder if that banker who expressed his desire to see cutbacks just after he had been bailed out will give the budget top marks. He will not suffer but many of the people he recommended should suffer, will. I wish I was more confident the Minister had some of those people in his sights today. All the talk of burden sharing is shallow unless people see clear evidence of it, but there is precious little such evidence in today’s budget.
The present crisis bears the fingerprints of the extreme free-market advocates who have dominated economic thought for two decades. What is missing from the budget is a recognition that those two decades of freebooting, unregulated markets are over and that we are turning a page into a new period. The free marketeers always had a naive belief that free markets are always self-correcting and that markets left to themselves will always achieve the best results. They are the ideologues who believe any regulation of private business is fundamentally wrong. They are the ones who have resisted the regulation of financial markets and the supervision of financial institutions. They believe that government is always the problem, never the solution. Some members of Government have done much to undermine the ethos of the public service. They are so hostile to any notion of public service that they appear to forget the vast bulk of teachers, doctors and nurses are public servants. The motto of those ideologues is “Public service bad, private sector good”.
When there is a crash the self-same ideologues argue we should cover their losses with the people’s taxes. The same people always demand lower and lower taxes for themselves and many pay none at all. There is an alternative viewpoint and it is high time it was heard. It is one that recognises the importance of markets, but also recognises the limitations of markets. It recognises the role of the public good and market regulation. It values transparency, honesty, competition and innovation but does not encourage speculation or reward for merely short-term success. It is a political culture that values profit and productivity achieved through hard work, but does not endorse the ethic of the quick buck or the scheme nobody else knew about because it was in the small print of the tax code as a way of avoiding taxes.
I believe in incentives and rewards. I also believe trust and traditional ethical standards are essential elements of the financial and business system. I believe in the profit motive but I also believe in responsibility to the community where those profits are made. After a decade of so much squandered on the short term, we must encourage a much wider debate in the community on the role values play in economics and business. We need to have a debate on how we assess the long-term values of companies, their executives and their assets against their long-term performance, as opposed to the short-term asset bubbles we have experienced at such a high cost that are now wreaking so much devastation in the economy. This is very much a values debate; greed and mega profits as against a culture that values hard work and thinking about and preparing for tomorrow.
In many ways today is the epitaph of the Celtic tiger. I regret the lack of a universal child care system and the lack of provision for pre-school education. What can one say about the Greens? It is a bit like Norman Tebbit and “On your bike”. We welcome the provision of €1,000 to buy a bike once every five years.
Deputy Joan Burton: We were promised that a carbon levy was under consideration by the Commission on Taxation. Carbon taxes are about changing behaviour as much as about raising income. It has been promised over and over again that carbon levies would be revenue neutral. Instead, what is there today? There is an increase in petrol of 8 cent from tonight. There is a planning system that has tens of thousands of people living many miles from all of our major cities and towns.
Deputy Joan Burton: The people living in these places have no public transport. They have no park-and-ride facilities, other than on the south side of Dublin, at locations where they can leave the car and easily get to work on a train. If one wants to save the planet one must first provide a mechanism for people to change behaviour. One does this by investing in public transport. If nothing else, this budget reinstates the primacy of roads. The indications are that we will pay from €700 million up to €900 million over the next five years because of Kyoto Protocol commitments. I would have welcomed more initiatives in the budget to reduce our greenhouse gas emissions and make our contribution to reduce global warming.
This budget is about Fianna Fáil hubris. Like Icarus, that party flew too close to the sun, claimed they could do everything and now, unfortunately, we are the people on top of which they have crash landed.
Deputy Arthur Morgan: I welcome the opportunity to respond to the Minister for Finance. The former US president Mr. Harry Truman kept a plaque on his desk that read, “The buck stops here”. For the last year, as we witnessed the turn in the tide of our economy, the Government has run itself along the lines of, “The buck stops nowhere”. I wish to make it clear to this Government that the buck stops with it. It is in charge and was quick to take credit for the boom. It must, therefore, take responsibility for the bust. Sinn Féin approached the budget prepared to support any measures that would stabilise and reinvigorate the economy, prioritise job creation, address the significant shortfall in public finances, deal with cost-of-living pressures, and provide solutions for those who have become unemployed or who face unemployment.
We argued for the Government to see this budget as an opportunity to turn around the economy. We wanted a budget that was about more than balancing the books, an approach we believe has the potential to drive us further into recession, rather than lift us out of it. We wanted it to provide a vision for a new economic model, based on sound industries such as research and development, exports and a thriving indigenous small and medium enterprise sector, capable of delivering the revenue needed next year to revive the public finances.
Today, people wanted to see the beginning of a three year plan to get the economy back on track. Central to that wish is the creation and retention of jobs and addressing the shortfall in public finances. The Government fell far short on both counts today. It failed the leadership test. It promised to look after the most vulnerable but it did not. It said it would ensure top earners paid their fair share, but it did not. It promised frontline services in health and education would be protected but that did not happen either.
We can rebuild the economy, but that means taking bold decisions. It means investing in infrastructure that will create jobs and build competitiveness. It means helping those who have lost their jobs return to the workforce as quickly as possible and ensure such people are supported properly while that happens. It means ending the era of tax breaks for the rich, while PAYE workers struggle to survive. It means truly advancing the all-Ireland economy. Change is possible and it should have started this afternoon. It did not and the State will be poorer next year because of that.
We have witnessed an extraordinary economic period. Gross domestic product and gross national product increased exponentially in the past decade. Ireland turned from an emigrant country to a destination for economic migrants. We saw an explosion in purchasing power as evidenced by the growth in home ownership, high-end cars and in quality brand names on our shopping streets. Simultaneously, Government policy ensured that massive private debt accumulated. As the gap widened, the void between the rich and poor became more obvious and precarious. The Government spent wildly during this period, mostly on tax breaks for those who least needed them, keeping the consultant industry in business and on wasteful pet projects. It did not use the budget surpluses to turn Ireland into a first world model. It used them to buy elections.
Anyone believing the Opposition spokespeople who preceded me would have implemented different economic policies which would have led the State down an alternative path need only cast their memories back to these parties’ pre-election manifestos in 2007. Both promised tax cuts alongside increased public spending. They criticise Fianna Fáil now, but shared the same economic outlook then. Of course, it was the Government that did the real damage. It presided over many investment failures, especially with regard to value for money. There was no strategic investment in broadband, revitalising rural Ireland, renewable energy, ports, or public transport, despite some small exceptions like the Luas. Of the infrastructural projects undertaken, few came in on time or on budget. We need only consider the example of the Dublin Port tunnel. The original cost was €457 million, but it eventually cost €752 million, representing poor value for money.
The Government’s property-based tax relief left us with many hotels, car parks and shopping centres, instead of social housing, rail lines and wind farms. Now we face a period of virtually no infrastructure development. How is the State supposed to develop its competitiveness when it does not have something as necessary as universal, high speed and quality broadband provision?
As well as failing to invest, the Government took reckless decision after reckless decision relating to the tax system. Measures were introduced to the tax base which resulted in a dangerous over-dependence on construction and consumption-related revenue. Stable sources of tax were cut. Its failure to grapple with the mistakes it made in the tax system was reflected in abysmal fashion throughout this year and last year, and in its inability to project from month to month what was coming into the Exchequer’s funds. As a result, the Government in the budget had to take into consideration a projected tax receipt shortfall of €6.5 billion for 2008 and now an Exchequer deficit of 11.5% projected to be some €14.7 billion next year. To put this in perspective, I recall the then Minister for Finance, Deputy Brian Cowen, assuring us in this month last year that gross domestic product growth in 2008 would be approximately 3%, more modest than we were used to but growth nonetheless. Instead, we have seen an unprecedented negative turnaround in growth. Unemployment has reached its highest level in a decade, resulting in lower income tax returns and a growing demand on the social insurance fund. Inflation measured 4.3% in September and this has impacted on consumer spending. Consequently, consumption revenue with VAT returns are €1.1 billion behind target to date.
The Government has pointed to international forces for the downturn and tried to deny that the policies it pursued lacked foresight, encouraged instability and indulged speculative greed. The global downturn has impacted on international trade and the banks’ liquidity issue poses its own problems. However, the Government could have left the State in a much better position to cope with the crisis. Instead of building the State’s competitiveness, Fianna Fáil and its construction partners left us economically dependent on the construction industry, with stamp duty rising from 3% of the Government’s total tax take in 1997 to 8% in 2006, accompanied by huge VAT returns from house build costs. The growth of this sector allowed the Government, the heads of the industry and, of course, the good old banks to profit from those who got into debt when trying to own a home. In the interim, the Government abandoned real economic development. Our exports market was ignored. The banks took the Government’s lead.
At a recent ISME conference, business people pointed out that over the past ten years, the banks did not want to know them unless they had property. They were told they could not borrow to support start-up companies unless properties were included in their business plans. The owners of small and medium-sized enterprises are being denied overdraft facilities by banks which are burdened with properties while simultaneously nursing developers’ loans. The Government’s unconditional support of property developers has harmed this State’s competitiveness. Property tax reliefs ate into money that could and should have funded necessary infrastructure. High property prices had a further detrimental effect on business as rents spiralled. However, the Government continued to claim, right up to its lengthy summer break, that the fundamentals of the economy were sound. It is still repeating this.
Some deeply misleading claims have been made over recent times. A recent report, Catching the Wave, made such claims in respect of our export market. In 2006, foreign-owned firms which are based in Ireland were responsible for 90.2% of all exports from this country. The indigenous export sector is crying out for Government intervention. The domestic market is equally badly-off. The Government has failed to tackle the flooding of the Irish market with cheap imports. It has not dealt with contentious issues such as sell-by dates and the incorrect labelling of products as “guaranteed Irish”. These two issues were mentioned by the owners of Cappoquin Chickens before the company went into liquidation and had to be sold to foreign owners, who are only willing to pay the staff the minimum wage to keep the operation going.
Sinn Féin was attacked by all parties in this House when it said the Government’s economic policy was not sustainable and would come crashing down. Now that the crash has happened, we firmly believe the most important role the Government can play in the current crisis is to ensure there is employment for the many people who are being made redundant. I refer to those who were working in the construction sector, for example. Equally, the Government should ensure that people are not made homeless as a result of negative equity and repossessions.
In the run-up to this budget, the debate in the Houses of the Oireachtas, the media and the street has centred around how little money the Government will have to run the State next year. Many people asked how much it would need to borrow and where cuts would need to be made. Throughout this debate, Sinn Féin argued that there should be a focus on how to create jobs over the next year. We need to turn the economy around and build a revenue stream that will make cuts in future budgets unnecessary. Vested interest lobby groups have suggested that overspending by the Government has caused problems for the Exchequer. They have called for cuts to be made. However, our level of public spending is the third lowest in Europe. Lithuania and Estonia are the only countries that spend less than we do. We are coming from a low base. Far more spending was required over the last decade to construct the physical and social infrastructure needed to develop the State’s competitiveness and eradicate poverty. Unfortunately, what was spent was spent badly, in the main.
Other groups have launched attacks on public sector personnel. I do not doubt that efficiency savings can be made in the public service. In this time of financial turmoil, value for money is essential. However, the last thing the State needs is a reduction in the number of nurses, gardaí or teachers. We need reviews of bodies like the HSE. We need leadership from the Members of this House. How many elected representatives are maintaining their jobs in the public sector, thereby holding onto pensions and other entitlements which accompany such jobs? We need to bring an end to the giving of disproportionate bonuses regardless of performance. I refer to the bonuses which were reported in the media last weekend, for example. We do not need cuts that will harm frontline services and prolong the recession.
Sinn Féin has highlighted the spending that is needed to help the most vulnerable people in society. Their lot has not improved over the past decade. Many people will tune in to the “Six One News” tonight to learn if anything has been done to help them pay their exorbitant mortgages, to keep them in employment, to provide books, uniforms and school meals for their children, to provide child care places so they do not have to fork out thousands of euro each month for private facilities, to alleviate their health costs and to reduce the impact of inflation on their diminishing wages. I am conscious of the plight of people in more desperate situations. I refer to those who have become unemployed, who are struggling to get by on inadequate welfare payments, who are at risk of fuel and food poverty this winter, who fear for their children’s health and their own health, who face eviction from unscrupulous landlords or whose homes may be repossessed by the banks.
In its pre-budget submission, Sinn Féin called for supports to be given to the most vulnerable people in society. We believe the Government has a responsibility to protect the weakest first. It should take care of children, the elderly, the sick, the poor and people with disabilities before it worries about anyone else. The Government could have shown more foresight. It could have put in place a three-year plan to get the economy back on track. Instead, it is engaging in a book-keeping exercise. A former US President, Franklin D. Roosevelt, turned the tide of his country’s economic fortunes when he established what was known as the time as the “New Deal”. Under that programme, widespread government borrowing took place to fund major public works, employ millions of people and slowly bring the economy back to life. The “New Deal” showed initiative and courage.
Sinn Féin argued in the run-up to the budget that immediate economic stabilisation measures should be taken. We said that the Government should prioritise job creation, for example, by initiating an immediate retraining programme for construction workers to direct them into the renewable energy sector and other industries. We proposed that the commitments under the national development plan in the areas of social and affordable housing and school building be frontloaded to provide necessary infrastructure and secure jobs and tax revenue. Under this budget, however, investment in social housing is to decrease by 2% and investment in affordable housing is to decrease by a whopping 30%, which is totally unacceptable.
At the end of 2007, the National Pensions Reserve Fund contained €21.2 billion. In March of this year, it was estimated that the size of the fund had dropped to €19.4 billion. It is clear that money is being lost on the stock markets, although much of the losses are only on paper until the moneys are withdrawn and any gains realised. It would be more responsible for the Government to use a proportion of the National Pensions Reserve Fund for infrastructural investment.
Sinn Féin has called on the Government to reduce the cost of living pressures on the low-paid and those who depend on social welfare by establishing an anti-inflation package and delivering social welfare increases. It has asked the Government to bring forward a set of proposals to reduce cost pressures on small businesses and to put in place specific programmes to support indigenous businesses which are seeking to boost their export capacity. It has proposed that the tax system be overhauled to assist those on low incomes. Those at the higher end of the scale should pay their fair share of taxes if we are to generate sufficient revenue to meet medium-term investment and current spending demands.
In the wake of the decision earlier this month to guarantee the banking system, we called for the Government to use the guarantee as a further way of contributing to the Exchequer and stabilising the economy. We want the banks to make a windfall payment to the State, as a proper payback for the taxpayers’ insurance. A levy should be introduced on the banks’ profits as part of the new regulatory regime. We want the State to have shares in the banks and take positions on their boards so it can monitor the interests of the taxpayer. Measures should be introduced as part of the guarantee to protect those who are facing home repossessions. The banks have a duty to take the steps needed to reschedule the mortgage payments of low-income families. The Money Advice and Budgeting Service should be put on a statutory footing to ensure it has the authority to negotiate with the banks.
This budget, as well as stabilising the economy next year, should have aimed to stimulate it in the medium to longer term. Sinn Féin wants investment under the national development plan to prioritise public transport, communication, health, education, renewable energy and child care.
Deputy Arthur Morgan: We want investment in education and training programmes to be linked to information technologies. We also want the national action plan for social inclusion to be delivered. Our approach to this budget has been unique. Rather than focusing on cuts, we focused on revenue generating ideas and job creation. It is a poor indication of what we will face in next year’s budget that this Government did not take the same approach, but chose instead to make savings in areas where we can least afford them.
For too long, our taxation system has been biased in favour of the well off. I have already mentioned how this Government’s policies led to instability in the tax system, but nobody should think that such instability was an accident of design. We have the fifth lowest tax take in the European Union. The tax structure by tax type — indirect 44%, direct 40% and social security contributions 15% — differs considerably from the structure typical for the EU as a whole, where on average there is less reliance on indirect tax. The fact is, if there is high VAT, there is a range of stealth taxes on everything from accident and emergency visits to waste management, and this will have a disproportionate effect on those with the least in their pockets.
Sinn Féin has long called for reform of the tax system. There are people in the system paying too little and people paying too much. The biggest con-trick the Government ever played on the people was convincing them that we have a low-tax economy. We only have a low-tax economy for those who are well off. Everyone else is paying through the nose. In our pre-budget submission, we called for the Government to undertake a rolling review of taxation, through the Commission on Taxation, with a view to increasing the number of income tax bands. This morning the Minister for Finance stated that the Government’s priority was to protect the vulnerable and to ensure that those who earn the most pay the most in tax. He said he supported a progressive tax system. This would be a major Government U-turn in policy if it was delivered, but it has not been delivered. Instead, the budget only tinkered at the edges of the taxation system and with stealth taxes, as opposed to overhauling the system to bring in money to the Exchequer. The Minister has made the situation far worse for many families, particularly those most vulnerable. The income levy and the VAT increase are a disgraceful attack on people on low incomes. They are neither fair nor progressive.
I welcome the Minister’s decision to take on board our proposals to increase the PAYE tax credit to meet the annual increase in the cost of living, the increase in betting tax and DIRT. However, we have serious concerns regarding other measures. The proposed income levy is regressive. While it is positive that people earning more than €100,000 will pay 2%, the fact that all those on under this figure will pay the same levy means it disproportionately hits those on low incomes. It is almost a flat tax. The increase of the 21% VAT rate by 0.5% is also regressive. It will hit low income families and does nothing to reverse the State’s dependence on consumption taxes, one of the key contributors to the current public finance difficulties.
Prior to the budget, we had called for all discretionary tax relief schemes to be available at the standard rate. This would have yielded €1 billion to the Exchequer. It is staggering that the Minister only tinkered with this. It is also hard to understand why the Government failed to abolish the ceiling on PRSI. The social insurance fund will come under more pressure until we can get people back into work, and this measure would have provided essential resources.
I am also concerned that there were no firm proposals on utilising the National Pensions Reserve Fund. We called for this money to be used to fund critical infrastructure projects that would improve competitiveness and provide jobs. There is now concern that this fund will be used to help recapitalise the banks. That should not happen. The Minister said that no vested interests were served in this budget, yet the Construction Industry Federation’s demands on cutting commercial stamp duty have been almost wholly met by slashing this tax from 9% to 6%.
We proposed a number of additional revenue producing initiatives, such as increasing motor tax for the highest emitting non-commercial vehicles, increasing the health levy by 1% on those earning more than €100,000 per annum, introducing legislation to end tax-exile status and ending State subsidies to private schools. Denis O’Brien and Bono, two of our biggest tax exiles, will not be perturbed by this budget. Bono’s concern for Africa is laudable, but it is a pity he does not share the same concern for the people in this State.
Deputy Arthur Morgan: I do not blame those tax exiles for availing of the opportunity. I blame the Government for providing it to them. I just felt it was essential to use an example of these multimillionaires swanning around the globe while the Government allows them to pay no tax in this State.
Deputy Arthur Morgan: We have all heard the reports that social welfare payments would be frozen, that child benefit would be taxed, that the Department of Social and Family Affairs had the biggest expenditure and is a so-called drain on the public purse strings. This system is meant to aid those in need, whether they have lost their jobs, are part of a family on low income, are elderly, disabled or ill. Social welfare is not charity for the State to dole out at will. It is a right and an entitlement, and the money within the system is put there ever year by taxpayers, conscious of the fact that they might one day need to access it. If the budget of the Department of Social and Family Affairs is rising, the Government should look at why so many are accessing the system, and set about finding solutions to get people off social welfare and back into employment. The Government’s responsibility is not about making savings that will harm the most vulnerable.
This budget did not take that sensible approach. Instead, it chose to make savings by cutting payments like the early child care supplement. This supplement was introduced as a poor attempt at dealing with the lack of a functioning State child care policy. There was no attempt to make this cut equitable. In a recent parliamentary question, I asked how much money would be saved were this payment to be made only to families earning less than €100,000 per annum. The response, based on revenue estimates, was that this process of payment would save the state €71 million. Did the Government undertake any kind of study regarding this proposal before it made this decision, or did it just arbitrarily decide to slash a percentage of the payment to everyone?
The individual payment increases will do nothing to make next year any easier for those struggling with poverty. The Society of St. Vincent de Paul reported a 50% increase in requests for assistance in the first half of 2008. Threshold has highlighted the significant increase in illegal evictions caused by landlords running into mortgage arrears, and a dramatic increase in home repossession. Merchant’s Quay Ireland reported an 11% increase in the number of meals it provided to homeless people this year. Failure to protect our most vulnerable in this budget will do nothing to fix our economy next year. It will merely create more poverty traps, more misery and more social problems in the years to come.
When cuts were mentioned in advance of this budget, the Government stated clearly that they would not affect front line services in health and education. This budget is an attack on our health services. The paltry increase in funding falls far short of clearly identified needs and will undoubtedly lead to deterioration in services. Health cuts were introduced before last year’s budget and have accelerated since. Patients were being turned away this morning from Our Lady of Lourdes hospital in Drogheda because of overcrowding. Deputy Ó Caoláin has learned that a promised and much needed ambulance will not now be provided to Monaghan General Hospital. The orthopaedic unit at Our Lady’s Hospital in Navan looks set to close for four months. The Minister for Health and Children and Professor Brendan Drumm promised that cuts would not affect patient care, but we have not seen any proof. This budget will speed up the process. Patients will suffer and patients will die as a result of this budget.
Far from representing savings, these cuts are shortsighted and will cost more in the long run. The cuts in home help hours and other services in the community for older people will force more of them from their own homes, and into expensive nursing home care, much of which will be subsidised by the State at a huge cost.
The closure of hospital services across the State for weeks on end to stay within HSE budgets is another false economy as hospital staff continue to be paid and facilities maintained while these facilities are closed to patients. I refer to an example from my area. Last Christmas, Navan orthopaedic unit was closed for several months, but the nurses, consultants and other staff were still paid and the only saving was in the replacement body parts, hips and knees, which were to be used. The people who needed those replacements in December when the closure occurred still needed them in January, February, March and April, the only difference being that they were suffering more and the queues were growing longer. This is very poor efficiency and shame on the Government for allowing that to happen and for continuing with that disgraceful policy.
With rising unemployment leading to an increase in the numbers of people eligible for the medical card, it is essential that services for medical card patients are maintained. GPs must be discouraged from setting quotas for medical card holders. It is wrong that entitled families are refused by doctor after doctor. The Government has failed to fulfil its own commitments to index the income thresholds for medical cards to increases in the average industrial wage and double the income limit eligibility of parents of children under six years of age and treble them for parents of children under 18 years of age with an intellectual disability. When the over 70s non-means tested medical card was introduced, Sinn Féin asked why the same principle was not applied to people under 18, people with a range of medical conditions and, indeed, all citizens. This scheme has been withdrawn and that demonstrates the lack of consistency and the inequity at the heart of Government health policy. That will hurt many elderly people who do not meet whatever means criteria are set out for the medial card. It is most unfortunate the Green Party could not exercise more influence to ensure the scheme was continued.
The cost to the Exchequer of tax foregone in capital allowances to the developers of private hospitals rose from €1.9 million in 2004 to €10.6 million in 2006, with figures for 2007 and 2008 not yet available. The cost in 2006 alone would fund over 6,000 extra full medical cards for a year. The private hospital co-location scheme is another massive subsidy to the private health business. The cost of tax breaks for these developments is not yet known and it cannot be quantified. The land to which they have been given access is a huge asset which will be lost to the public health system. Ultimately, the only guarantee of equal access and real efficiency in our health services will be fundamental reform and the establishment of a universal public health system, with access based on need alone, free at the point of delivery and funded from general, fair and progressive taxation.
Sinn Féin wants to see the immediate establishment of a health funding commission to report within a year on the costs of the transition to a new single tier public health system with universal provision, taking into account all spending on health services under the current systems, including State funding and spending on private health insurance.
Education is another area which the Government promised to protect from cuts in this budget. Given that the system is barely existing on its current funds, a marginal increase is akin to cuts in real terms. We accept that this is a new economic environment, but the education sector must be considered as part of an overall strategy to reverse the current economic outlook and to ensure the long-term stability of the Irish economy. We cannot build a knowledge economy if we do not invest in knowledge from pre-school up through the system.
Perhaps the most blatant neglect and disregard shown to our young people by the Government is in the area of school buildings. The Minister has effectively deceived the Dáil on this issue. Investment in primary school building was not increased but rather it was reduced by 5%. Public-private partnership costs have gone up by 30%. The recently introduced school building programme is completely inadequate. Only 25 schools are to benefit, which means hundreds of schools will be disappointed. One third of our primary schools have applied for a new school or need building works on their existing school. Glenswilly national school in Donegal has been innovative in its response. It has renamed itself, Seeking an Extension since 1992. Unfortunately, the Government showed no such innovation. I called to St. Joseph’s school in Mell in Drogheda this morning where 211 pupils are crammed into all sorts of closeted conditions. Two cloakrooms have been converted into classrooms. Other pupils wishing to use the toilet are forced to go through those tiny cloakrooms.
Deputy Arthur Morgan: I hope that some parties within the Government will seek to change Government policy in this regard. Those children are not receiving an adequate education. Six of the classes in St. Joseph’s school in Mell have more than 30 students.
This programme came on the back of the revelation that many schools that have been given approval for extensions cannot proceed to construction because the funds provided only cover a fraction of the actual cost. The Department of Education and Science spends €35.5 million per annum on prefabricated buildings. That is a complete waste of money. It is money down the drain. I spoke earlier about how the downturn in the domestic building sector provides an opportunity to address historic underfunding of school buildings in a way that will provide real value for money. Now is the time for immediate recommencement of the school building programme to ensure that all schools with unsafe and substandard accommodation are upgraded immediately.
I also draw attention to the inadequate primary capitation grant system. Energy costs, waste disposal charges, water charges, with cleaning and hygiene costs, have increased dramatically and schools can no longer meet those costs. On average, after receiving all funding available from the State, each primary school has an average annual debt of €23,000. That means that €82 million has to be raised by parents, friends and school boards this year to cover the debts of primary schools throughout the State. This places pressure on parents, many of whom are struggling to make ends meet in the current climate. That is a pressure that should not exist in a State with so-called free education. A total of €82 million in this year alone is some free education system.
Deputy Arthur Morgan: The Minister’s party with Fianna Fáil and with what is left of the Progressive Democrats has presided over an absolutely disgraceful budget. The Minister of State should have used his influence to make this budget more progressive and effective for the people, but he failed to do so. I am happy to allow him to heckle me because I will call it as it is and I will hold him and the Government to account regardless of whether he likes it.
The Minister of State should tell the children of Mell that. The aim is to reduce class sizes to 24 by 2010-11. There is little chance of this happening, given the attitude of the Government this afternoon. Yet, almost 100,000 children remain in classes of 30 pupils or more. The lack of funding in this sector has also had detrimental effects on the identification of children with special needs and has failed to solve the issue of illiteracy. An estimated 500,000 Irish adults have literacy difficulties. This is an educational crisis. To have any hope of developing the economy, we need to eradicate illiteracy, introduce paid educational leave as a statutory entitlement and make work-based learning and training available to all workers. In yet another budget, the Government has failed to identify the potential for education development and the return it will bring, not just for the next generation but for ourselves.
Given the public finance shortfall, we knew this budget would be tough. I have talked about what has got us into this mess and I have had a go at the Government for decisions it has taken and those they have failed to take. However, when all is said and done, the Sinn Féin Deputies were prepared to come into this Chamber and support measures which we believed offered responsible solutions to the current mess created by the Government.
I appreciate the pressure the Minister for Finance labours under in delivering this budget, but this budget will not turn around the economy. It contains short-sighted and, in many cases, irresponsible measures.
This budget needed to look to the future. It had to deliver a new value for money ethos. It needed to contain a vision for the creation of jobs. It had to deliver funding to those Departments that will help the economy in the long term, namely, the Department of Education and Science and those dealing with the fallout from years of underfunding, such as the Department of Health and Children. Instead, it tinkers at the edges of the crisis, makes cuts where they will hurt the most and displays no real political leadership to get this State back on its feet. We needed a brave budget but instead we have been presented with a blinkered one.
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