Wednesday, 4 December 2002
Seanad Eireann Debate
Budget 2003 paves the way for continued economic success. It is a prudent and cautious budget, which encapsulates the best thinking of the two parties that contributed to its formulation. It is a good budget for the country by several different measures. It sets out to deliver another strong surplus on the current account. This shows that the State's finances are in very good order and that in terms of day to day spending we are managing our affairs very well.
The budget brings public spending under control. Indeed, the people who have been telling us for the last six months that we are spending too much are now beginning to change tack and tell us that we are not spending enough. The budget keeps our national borrowing levels down and puts us up near the top of the European league table for the management of the public finances.
The budget will help to build and maintain confidence in the Irish economy and provide a sound basis for job-creating investment. Some people have tried to whip up talk of a crisis in public finances over the last six months. I reject that suggestion completely and believe that any objective analysis of the situation would bear out that rejection. If people want to know what a crisis looks like they should go back to the 1980s. That was a time when the country nearly went under, not just in terms of Government finances but also in social and economic terms. The 1980s are distant history for the younger generation but they still live in the folk memory of all those who were old enough to take even a passing interest in politics at that time.
It is instructive now to look back at just where we were in those days. One third of tax revenue was going to service interest on our national debt. Up to 90% of income tax receipts went to service the national debt. We were not just failing to pay our way in day to day terms but were running a current budget deficit of up to 8% of national output each year. In the space of just five years, between 1982 and 1987, our national debt actually doubled from €11.7 billion to €23.7, and all of that took place against a backdrop of punitive tax rates on investment, enterprise and work. It is hardly surprising that national confidence effectively evaporated. Mass unemployment and mass emigration were the inevitable consequences of our inability to manage public finances properly.
There is little point now in finger-pointing or indulging in blame games over what happened 20 years ago or more. It is fair to say that both sides of the political divide, as it was then, should shoulder some of the responsibility for what went wrong. The important thing is that we learn from what happened. There are two major lessons from our experiences of that period. First, lose control of current Government spending and you will inevitable lose control of the economy itself. Second, raise taxes to pay for runaway spending and you will destroy the incentive to work, the incentive to invest and the incentive to create jobs.
There has been much talk recently about borrowing and deficits. Listening to some people one would think that the idea of State borrowing for capital spending was some kind of dangerous fiscal heresy. For the last 30 years or so Exchequer deficits have been the norm. Every year the Government would run a deficit on the current account and increase it to fund investment in housing, roads and infrastructure generally. It was only in the mid '90s that we managed to balance our current spending. Even then it was considered quite normal – desirable even – to continue borrowing for capital purposes. Indeed, I am not aware of any commentator who said, at the time, that we should not engage in capital borrowing. It was only in the late 1990s, during the first term of the present coalition, that we reached the enviable position of not just running a current budget surplus but actually running a surplus so big that we did not need to borrow for capital purposes. That was a very fortunate position to be in but, in retrospect, I am not sure how sustainable it was in a liberal democracy, with a dynamic and expanding economy and a fast growing population.
If you go back little more than two years you will recall the kind of criticism to which the Government was open. How can you run massive current budget surpluses when public services need to be improved? How can you run massive surpluses when we need to put money into the health services? How can you run massive surpluses when we need to put huge resources into social welfare? These are all legitimate questions in a democracy. A responsible Government has to operate within certain parameters in a parliamentary democracy, run too big a deficit and rightly be accused of being irresponsible and putting the economy at risk or run too big a surplus and be accused of being uncaring and out of touch with the real needs of the people.
As in all things in life, one rarely gets it exactly right but by and large the Government has got the fiscal and economic balance right over the last six years. The evidence is there to prove it. Full employment did not happen by accident.
The Progressive Democrats have participated in the formation of nine budgets in three different Governments. That is not a bad record for a party which came into being only in the last month of 1985. In fact, we have participated in the drafting of nine of the last 14 budgets. To put that achievement in context, the Labour Party has been involved in five of those 14, while Fine Gael has been involved in just three budgets. The voters have given us the opportunity to bring our distinctive view to bear on the economic management of the country.
All of us in the Progressive Democrats feel privileged and believe that we have used the opportunity well. We have obviously won some converts along the way. We started out as the only party preaching the values of a low tax economy. After 17 years, no party is willing now to campaign seriously for higher taxes to fund their particular political vision.
The economic challenges are very different from those which faced the country in 1985, when our party was formed. They are new and exciting challenges and how we cope with them will determine the success or failure of the country over the next ten to 20 years. I believe every challenge represents an opportunity and that, with a positive outlook, there is no limit to what we can achieve in the years ahead. The motion before the House is that Seanad Éireann notes the Minster for Finance's Budgetary Statement and I add that we also commend the Minister for his and the Government's prudent fiscal management which is the key to sustaining high levels of employment and prosperity in Ireland in the years ahead. I recommend the motion to the House.
Mr. Morrissey: I second this motion and I welcome the Minister of State to the House on the occasion of the first budget of this Government's second term in office. This prudent budget manages the Government finances, while assisting the less well-off in terms of increases in the old age pension, child benefit and other social welfare provisions. When today's increases are added to the increases of the last five years, one can see the enormous leap that has been taken by the Government in terms of the provision of social welfare.
The Progressive Democrats Party set out its manifesto for managing the economy before this year's general election. The document said that sound management of the public finances is absolutely essential, it pledged to ensure that there would be no borrowing to fund current Government spending and it promised that taxes would be kept low and employment high. We have seen dramatic improvements in the economy in the last five years as a result of such policies. Foreign direct investment has increased and, by keeping taxes low in today's budget, we have sent a signal that such investment will continue to arrive. It is to be hoped that jobs will continue to be created.
The purpose of today's budget was to create stability for the next few years and to calm the nerves of people, especially investors, after the events of the past 12 months. The Budget Statement, as outlined by the Minister for Finance in the Dáil today, has achieved these objectives to a great extent. Our policy of low taxation of business is the engine that has driven our economic success in the last five years. In spite of calls in recent weeks to retain the rate at 16%, corporation tax has been reduced to 12.5% today. This means that this country has committed itself to a low taxation regime and investors should continue to arrive here as a result. The Government finances have suffered greatly in the last 12 months as a consequence of low income tax receipts. Employment created by foreign direct investment is central to our economic fortunes and if such jobs dry up we will not have the tax receipts to pay for old age pensions, infrastructure or child benefit.
As a consequence of today's announcement, the health budget will have increased to €8.9 billion, education spending will have risen by €2.5 billion to €5.6 billion, social welfare spending will have increased by €4.5 billion to €10.2 billion and spending on infrastructure will have increased by €2 billion to €5.6 billion. Infrastructure received another welcome boost in today's budget with the announcement that major new projects will be allowed to commence from next year.
Mr. Morrissey: We can see today that the grant was not all that it was purported to be, as it benefited only 10,000 people. Today's measures to assist first-time buyers, however, will be of benefit to everybody.
Mr. Morrissey: The first-time buyer's grant cost the Exchequer about €37 million, but the new measures to help first-time buyers will cost more than double that amount – approximately €78 million over a certain period. The Minister's new provisions provide the answer to the difficulties faced by first-time buyers, each of whom will benefit.
Mr. Morrissey: Employees' entry point to the income tax system has been increased to a level which is 90% of the minimum wage, representing a huge improvement on the figure some years ago. In 1997, a person entered the tax net at €98 but that figure is €209 now, which is an increase of over 100%. We have looked after personal tax rates, very important business tax rates, first-time buyers, social welfare recipients and old age pensioners. I commend the budget to the House.
This is not a good budget. I listened to the Minister for Finance recite his old mantra this afternoon, when he said that international factors can be blamed for our economic difficulties. Ireland has always been subject to outside economic influences, but they are minimal at present. The reason we have had an announcement of the nature of today's Budget Statement is the massive and reckless splurge of this Government and its predecessor. The budgetary policies of the two years before the general election have caused the difficulties we discussed in this House when the Book of Estimates came before it two weeks ago.
Savage cuts in many areas were mentioned by many Senators in the course of the debate on the Estimates. Despite the manifesto promises of the Government parties in relation to the schools building programme, it has been cut by 4%. The Government vowed to create jobs, but community employment schemes have been cut by 5,000 places. There was a promise to fast-track the Luas project, but it has been delayed by a further year and the metro is nothing but a pipe dream.
Despite the crisis in the tourism sector, Bord Fáilte's grant has been cut by 20% and the budget of the embryonic Tourism Ireland, a North-South joint initiative, was cut by 3%. Although the scourge of crime was demonstrated by the graphic illustration of street violence in last Thursday's “Prime Time”, the promised 2,000 additional gardaí will not be recruited. The first-time buyer's grant has been abolished in spite of the enhancement programmes designed to enable people to own a house for the first time and to get their feet on the property ladder. There was a categorical promise to allocate 200,000 additional medical cards, but the plan has been consigned to the scrapheap.
In this budget, the Minister has tried to apply a sticking plaster to the gaping wounds that have been created by the Book of Estimates and a band aid to the savage cuts that are to be found in all Government Departments, but it will not work. This is not a budget of redemption, but a budget that will cause job losses, perpetuate inequality and do nothing for stay-at-home spouses. It will fail to reform the public service. The Minister's Budget Statement contained an admission that public service employee numbers have increased by about 50,000 in the past five years. What have we to show for the increase? The budget is an acknowledgement of the fact that the Government miserably failed to manage the public finances in its first term.
Ireland does not face an economic crisis, but a crisis of management of the public finances as a consequence of sloppy management by the Government. As Deputy Richard Bruton said today, this Government makes decisions on the basis of the egos of its members rather than the national interest. Ireland is not in a recession; its economic growth rate is almost double the EU average. The Government's collective ego, however, means that Ministers have publicly denigrated the state of the economy. It suits them to state that the global economy is to blame for our difficulties rather than their appalling mismanagement. Ministers know that if they repeat that mantra often enough, people may believe in it.
The central fact in this debate is that expenditure grew by 50% in under two years while revenue grew by 4% during the same time. No public service can be said to have improved by 50% since 1997. Health spending has increased almost threefold since 1997 and will be increased again. Is anyone seriously suggesting that the standard of the health service has improved? Certainly not those who are ill, handicapped or disabled or who, as of last night, must pay €70 per month more for necessary medicines.
It is sloppy, unprofessional management and leadership which has landed us in this mess. The NDP is 62% over budget and two years behind schedule after only three years. The cost of extending medical cards to the over 70s was underestimated by €70 million. The cost of the special savings scheme was underestimated by hundreds of millions of euro. Health service employment grew by 30,000 during that period and only 6,150 of these jobs were in the medical professional area. After the Celtic tiger years fewer people of low means are entitled to medical cards than in 1997. Young children are still being taught in condemned buildings and the schools building programme has effectively been frozen by a cut of 4%. Mullingar hospital, built in 1997, is still a shed and will not now be commissioned until 2007. Despite numerous reviews, only one in five houses is purchased by first-time buyers. Ireland has slipped badly in the competitiveness league.
Worse than sloppy, unprofessional management is the fact that ordinary citizens are paying today because the Government and the Minister in particular put their egos before the national interest. It was the political ego of the Minister that drove him to introduce two election budgets, for 2001 and 2002 – two massive spending budgets which drove public spending out of control and the nation back into debt. It was the need to feed this political ego that led the Minister, in 2001, to tax jobs and frighten away foreign investment by abolishing the employers' PRSI ceiling. When the social insurance fund was in surplus, it was political ego that wasted €400 million on an abortive national stadium. This equates to more than 1% of income tax receipts.
Reality has dawned for the Minister and his ego trip. His ego was dented when public spending got out of control and to salve it he reduced spending by the back door. He abolished the first-time buyer's grant. He twice increased the amount the sick must pay each month for medicine. He increased the so-called registration fee for third level students by 70%. He increased hospital charges and, by extension, VHI costs. As he did not have money left to invest in public transport, fares went up by 15%. His ego was well and truly dented by the figures published last night that graphically illustrated the Government's failure to deliver on its promise to eliminate hospital waiting lists by the end of the year. By the end of September, two months ago, 6,273 adults and 1,201 children had been on the waiting list for hospital admission for more than one year. The much vaunted health strategy, worth €10 million, is in tatters.
The Minister's ego led him to announce proudly last year that he would not borrow, relying on the now discredited raid on the Central Bank and the social insurance fund. He fooled not only the people but, in its arrogance, the Government also. In May it built a fraudulent manifesto based on that economic house of cards and its promises are today in tatters.
Because there is no economic crisis, merely one of mismanagement and incompetence, there was time today to begin addressing the problem. Again, however, this budget has been driven by the Minister's ego rather than the national interest. Last Friday, instead of acknowledging the crisis of confidence, he delivered €230 million of funny accounting using transfers from the capital services redemption account and various EU budget transfers.
Mr. Higgins: It is well known that small cars generate far fewer greenhouse gas emissions. In doing this we are flouting clear directives from Europe. This is a failed budget and one that the Minister will rue.
Mr. Browne: The former Minister for Justice, Equality and Law Reform, Deputy O'Donoghue, was known as the Minister for zero tolerance. The Minister for Finance should be renamed Minister for zero credibility. In April he told us everything was going brilliantly in the economy. In June we heard leaks about €900 million in cutbacks. He denied that the leaks were true and said that in fact matters were worse. We were then told we were facing deficits and just as we were getting used to that idea, we were back into surplus. He is a mixture of David Blaine, the fantastic magician, and Pat Shortt from D'Unbelievables. That is the school of economics from which he comes. Perhaps former Taoiseach Mr. Charles Haughey was correct when he said never to appoint an accountant as Minister for Finance.
The Minister has no credibility. I certainly do not attach much importance to the Department of Finance's figures. I am worried about its independence and about how true the figures really are. Were they cooked to suit the Minister on the eve of the budget? This is a poor budget. I am disappointed with the increase in VAT. We can talk about lower taxes until we are blue in the face, but we are faced with VAT every day, whether we are buying lunch or equipment in a shop or building a house.
I found Senator Morrissey's contribution on first-time buyers amusing. A few weeks ago a first-time buyer was entitled to about €4,000 in grant aid. If he or she was building a house of a certain area, VAT was payable at 12.5%. From now on it will be 13.5%. The Department of the Environment and Local Government has also instructed local authorities to put a levy of around €6,000 on planning permissions. We are now talking about an increase of around €10,000 in the price of a house.
Senator Morrissey may be able to quote figures back at me, but he omitted to say that while the Minister's scheme to assist first-time buyers might benefit more people, the money involved is actually less and if one divides the number of people involved in the scheme by the amount of money, they come away with a fraction of the amount.
Mr. Browne: I had assumed the Minister would put mortgage interest relief measures into the budget, but I am disappointed with his mediocre attempt. When the truth behind the first-time buyer's scheme is exposed, there will be a huge outcry.
The children's allowance measures are regrettable. The Minister promised a lot and has not delivered. The allowance is being increased not by €38, as was expected, but by a measly €8 or €10, depending on the child.
Mr. Browne: There has been no change in medical card limits, about which, as public representatives, we have all received complaints. We were told there would be changes, but nothing was announced today. That is a disappointment. Only a very modest increase in carer's allowance was given, although carers do fantastic work for the State. They have been rewarded badly in this budget. The increase in the respite care grant, however, is welcome.
The people have been robbed. As has happened with every one of the Government's budgets, the Minister has given with one hand and taken away twice as quickly with the other. When we are paying stamp duty on our laser cards and cheque books and VAT on meals out, we will notice the difference. We have been short-changed by the Government.
Mr. J. Phelan: I support the comments of my colleagues, Senators Browne and Higgins. I was taken aback by Government Senators backslapping the Minister for Finance for his new found devotion to fiscal rectitude. Irish growth rates of over 3% are the envy of Europe. How is it that a country expanding at that rate, with an economy that is still growing, can find itself in this position? Senator Higgins spelt out the answer. The finances of this country have been completely mismanaged over the past three or four years and the chickens have come home to roost today.
I was amused to hear Government Senators say that there had been no increases in tax. Perhaps they did not hear the Minister, but VAT was always a tax as far as I knew. The 1% increase in VAT will have a serious impact on many aspects of the economy. The Government has failed to face up to the problem of inflation. This increase will have a serious knock-on effect in many sectors of the economy and will fuel inflation further.
Soft targets have been hit again. Those buying their first house were hit with the abolition of the first-time buyer's grant and today's paltry €300 a year goes nowhere towards redressing the balance.
There are also changes in VRT. We have an extraordinarily high level of VRT when compared to other European countries. That will become important in the near future when the cost of cars before taxation is equalised throughout the EU, leading to a situation where Irish cars will be much more expensive than all of our EU colleagues. That is a serious situation for motorists. We can say we want to get people out of their cars but we do not have a decent public transport that provides a realistic alternative to driving. I object to the continuous harassment of motorists by this Minister.
I object to the increase in stamp duty on credit cards, from €19 to €40. That is a hell of an increase in one go and it does not bring a tremendous amount of money into the Government coffers. It is another soft target. I do not have a credit card but credit card holders should not have been treated in this way.
Dr. Mansergh: I welcome this budget. It is a good budget in difficult circumstances that looks after the least well-off. It is the role of the Opposition to play devil's advocate. The same debate is going on in Germany, where the election took place in September and the SPD and the Green Party are being accused of having deceived the electorate.
Dr. Mansergh: The reality is that in elections all parties paint best case scenarios and after elections we are back to choices and hard day-to-day realities. Many Ministers for Finance would be only too glad to be able to announce a budget which has a borrowing requirement of only 0.7% next year and a decline in debt as a percentage of GDP to 34%.
Senator Higgins is wrong to minimise global influences. They are always important at any stage of economic development, be it on the up-turn or the down-turn. I was also sorry to hear Senator Browne attack the integrity of the Department of Finance. I have worked closely with members of the Department of Finance in the tax strategy group and they are people of integrity. Senators should not attack the public service.
Dr. Mansergh: This budget maintains and consolidates Ireland's economic strength. If we want social partnership to work and our infrastructure to develop, we must maintain confidence in the economy. The measures are not on the scale of the 1980s but confidence will help the economy to expand more quickly. One economist referred to this as “expansionary fiscal contraction”. There is not even any contraction. Post-budget spending is marginally above the rate of inflation. Other countries are at or over the limits of the stability pact but this budget and the Exchequer returns published last night send a very strong message. Any deterioration in the public finances is being arrested.
We have not been deflected from maintaining lower personal tax rates and the consolidation of corporation tax at 12.5%. We have carried that through. People should be reminded that Deputy Quinn, as Minister for Finance, set that target. The harmonisation of corporation tax at European level will not provide the solution to Germany's economic problems. The United States is fully federal but there is tax competition between the different states. The proposal will not get anywhere.
There has been a limited increase in the employee tax credit, or the PAYE allowance, from €660 to €800, making 90% of the minimum wage tax free. There is increased help for first-time buyers. A mortgage of up to €200,000 for a married couple will be covered, compensation that is way beyond the cost of an extra loan that would be needed to make up for the loss of the first-time buyer's grant. The gains are concentrated at the lower end of the income scale.
Generous tax relief has been given over the last five years, with both rates being cut and bands being widened. It is not possible to repeat that this year but the public will understand the importance of maintaining a strong economy. The number of jobs will rise by 18,000 in 2002, with a projected increase of 11,000 in 2003. In all previous recessions jobs were lost or there was a slow down. The economy is not in recession. The unemployment rate in Germany is 10%.
The public service has increased by 20,000 since 1998, or 33,000 if health workers are included. Employment in semi-State bodies has decreased somewhat. I understand the reason for the cap but it is a crude instrument and a more sophisticated management measure must be found to achieve the same result.
There is pain in the budget, such as the non-indexation of tax allowances and the modest increases in indirect tax. It was right to raise the lower rate rather than the upper. There are also tax increases on cigarettes, alcopops, spirits and diesel.
Property has been far too attractive an investment and certainly the reliefs should be time limited if they are to have an impact. The time limit has been set for some time in the future but in the meantime that will give an extra incentive for projects to go ahead now.
There is more justification for reliefs when there are higher rates of taxes. I always find it a bit difficult to understand why so many wealthy professional people have so much difficulty in paying tax straightforwardly and will adopt any device – I am talking about legal eagle devices – to avoid paying into the Exchequer. If one has done well out of society and the economy, what is wrong with paying one's tax straight to the Exchequer?
Dr. Mansergh: When the time comes, I hope ways will be found to help the film industry. The state of schools has been raised and I hope the PPPs will help in that regard. I warmly welcome the welfare increases, which are fully in line with or slightly above inflation. In the past child benefit was the first thing not to be increased. As recently as 1995, I recall a 2.5% increase, including old age pensions. A €535 million package is a very substantial social package, which was only exceeded last year.
The point has been made here that this is an ideologically driven budget, demonising the Minister, Deputy Charlie McCreevy. Some better understanding is needed of the process of how a budget is put together. This is a Government budget. I spoke to the Taoiseach and he is personally pleased with the budget. There were many people involved in drawing it up and much of the ground work was done by officials of the Department of Finance and others. It is childish to demonise the Minister for Finance. He and the Government are to be congratulated on a good budget. I thank the Department of Finance for its excellent work.
Mr. Quinn: The good news tonight is that the Taoiseach is pleased with the budget, which I was not surprised to hear Senator Mansergh say. I normally sit here between a professor from Trinity College, Senator Norris, and a school teacher, Senator O'Toole. I want to be a school teacher tonight because I want to give the Minister marks for his exam. I have decided I will give him pass marks for the budget, but it will be a low pass mark because how the student behaved over the past five years must be taken into account. The Minister, who is a sportsman, cycles.
Mr. Quinn: Well done, he stayed on the bike. However, when one is cycling uphill one has no energy left. Therefore, I am concerned that we are starting from the wrong place. We should be starting from half way down the hill rather than being at the bottom and trying to come up. This is why I am deducting marks from the Minister.
I will give him extra marks, however, for introducing the carbon energy tax. I urge him to take into account that this measure should not be revenue earning but behaviour changing. I was at a conference this morning on the environment where this topic was raised. It appears the plastic bag tax did not earn much income for the State but it changed behaviour. I would like to see the same happen in regard to carbon energy. The Minister has removed the benefits which applied to investing in wind production, for which he may have valid reasons. As this will have an impact on getting electricity from natural resources, he lost marks also for that measure.
I have taken marks from him for imposing tax on cheques, credit cards and so on. As that tax does not apply in the North it is possible we will lose business to the North. As this appears like the answer to the DIRT tax, perhaps we should be setting up the tribunal because of what we will encourage people to do. On the other hand, I support the increase from €19 to €40 in tax on credit cards because that is the most expensive way to borrow.
I am pleased the Minister stuck to his guns in regard to the 12.5% corporation tax for companies. It has helped our competitiveness in Europe, even though it is now being threatened by France and Germany. I think I am correct in saying that some of the steps he has taken do not affect companies but they will affect sole traders. The removal of the benefit will mean there will be much less incentive to expand one's business. If a sole trader wishes to expand a small factory it is less likely he or she will do so because he or she will have a cash flow shortage. The same applies to the capital allowance for plant, but it does not necessarily apply to large companies because they have the benefit of the lower tax rate. If one is a sole trader and wishes to invest in plant, it will be a disincentive to do so.
I will give the Minister marks for not touching tax on essential items. He has imposed a tax, however, on new homes. The price of a new home will be increased by 1% at a time when the first-time buyers' grant is being abolished, therefore he loses marks for that.
I am alarmed about the Minister's continued relaxed approach to inflation. On the one hand, he makes a virtual wave of recognition to the obvious, namely, that we have seriously lost competitiveness due to several years in which our inflation rate has been on average more than double that of the EU and, on the other, he shows no sense of urgency or alarm at the need to get inflation under control. He says this may happen in 2005. With an attitude like that and a forecast level of 4.8% inflation for this year, I shudder to think where Ireland might stand in a competitive world in 2005. I will give him a pass, but only a low pass.
Mr. Norris: I am grateful to my colleague, Senator Quinn, for allowing me to share his time and also for exaggerating me into a professorship. I was a mere senior lecturer when I retired precipitately from the college of the most Sacred and Undivided Trinity near Dublin.
This is a first bite at the cherry and it is an instant reaction. I have only got a kind of limited purchase on the budget which I think is a reasonably good one. I will be voting with the Government because in difficult times it has done a reasonable good job.
Mr. Norris: I will not give him honours. He did a wonderful trick so I will give him marks for conjuring with first-time buyers. I admire him because he abolished the first-time buyer's grant, gave them a double mortgage relief and took it away with the other increase, which is wonderful because they will stay where they are. At least to stay where one is in difficult times is not bad.
I am pleased the alcopops were hit. Alcohol should have been hit further. It is extraordinary that on a day when the Minister did something useful about the kind of drinks young people take, planning permission has been granted for St. Mary's Church, an historic church just off O'Connell Street. It is precisely what we were talking about the other day. This will be another massive boozer which will hold 2,000 young people. It is not the Minister's problem but it is a problem others should address.
I am pleased that carers and old age pensioners are getting something. I am sorry people on the minimum wage are not removed completely from the tax net. We should bite the bullet in this regard, even if there is a cost involved. It would be a thrilling prospect to be able to do that.
I have just returned from taking part in a teleconference of the World Bank in Paris about AIDS. We linked a number countries from Africa and so on and I was really pleased to say that we had pledged €30 million to the world-wide fight against AIDS. This is one of the very few countries which has fully subscribed to this fight, which is very important.
I am pleased the artists' exemption remains. This is a good idea because it is an excellent measure. It brought credit to this country, it did not cost very much money and it gave us a certain status. As was pointed out earlier, it actually saved some money because in the old days an artist who did not come up to the level of paying money would not get tax credits from his wife. One wins and loses so it was a good thing to retain the measure. I do not know why the stud fees exemption was retained because it benefits the privileged. I am glad carers got something.
Mr. Norris: It will and I thank you for reminding me, a Chathaoirligh. The Minister must look at how the consumer price index is arrived at. It is insane that, while we complain about the problem of alcoholism and the health costs of cigarette smoking, these products are included as if they are necessary to continue living – they are not. As a continuing drinker and reformed smoker, I have no difficulty in saying they should be taken out of the consumer price index. That would solve some of our inflation problem.
Mr. Kitt: I welcome the motion proposed by Senator Minihan. The Minister in his address to the Dáil explained the circumstances surrounding this budget. He mentioned that the economic situation was not as favourable as in other years and used the word “moderate” to describe the changes he had made. I welcome his address and I am glad he put emphasis on the roads issue, one of the most important facing us. There is a very good programme in place and, though there have been delays, I hope it can be rolled out. The Minister put great emphasis on public-private partnerships. I hope he and the Minister of State at the Department of Finance, Deputy Parlon, will be able to achieve much on the programme in coming years.
I want to make a particular case for towns that have sought bypasses. I have said before in the House that bypasses should be looked at as stand-alone projects. Loughrea, for example, should not have to wait for the entire road from Ballinasloe to Galway to be laid before it gets a bypass as one of the main bottlenecks. The same is true of Ennis and other towns. Bypasses should be provided immediately for the towns in question instead of waiting for a huge stretch of road to be finished.
The Minister made an interesting comment about the social inclusion programme and the fact that the benefit from dormant accounts would be put towards that programme. I welcome this and the increases for old age pensioners, in widow's, widower's and child benefit, and particularly carer's benefit as mentioned by Senator Norris. The improvement in the means test is a positive move by the Minister. I have called on Ministers in various Governments to improve carer's allowance and the Minister has now done so. There is a respite grant of €735, a €100 increase on the previous figure, which is welcome. The Minister stated the payments for these allowances would be made on the same starting dates this year, which is also welcome.
With regard to the first-time buyer's grant, I welcome the increase in mortgage tax relief. I am glad there is a benefit, particularly for young people attempting to provide a home for themselves. I welcome the increased duty on alcopops as there has been a lot of discussion on alcohol in the Seanad in the last fortnight. While the Minister has hit some of the old reliables, he has been careful about certain issues. Unleaded petrol is left at the same rate and, while there is an increase on diesel, the Minister has been careful about the drinks industry. The humble pint is the same price.
Mr. Kitt: I do not know if wine is as humble as the pint, but the Minister has left it as it is. Another welcome announcement concerns improvements with regard to the transfer of land to young farmers. It is a big issue, on which I know you, a Chathaoirligh, have views.
The Minister also dealt with the closing of loopholes and said urban renewal schemes would end in 2004. There have been very good schemes. There has to be a cut-off point, however, and the Minister has been positive in what he has said.
Many speculated that there would be changes to the special savings scheme. Commentators on radio and television said it was a wonderful scheme and that a contract had been entered into between the Government and the savers involved. I am glad the scheme is in place as it will be of great benefit. Young people have particularly taken to it, which shows the positive results that can be obtained if there is an incentive to save.
Mr. McDowell: Every budget is a game of two halves; there is the Estimates process and the announcements made on budget day. Rarely has it been as true as today that the second half is the least significant, but that is clearly so. The real decisions with regard to the 2003 budget were made and announced in the Estimates a few weeks ago.
Today has done nothing to alleviate the pain announced on that day. In fact, it has done a great deal to elucidate further on the nature of the pain outlined in the publication of a remarkable document from the independent Estimates review committee. Members spoke about the decision-making power of those in the Department of Finance and various Ministers. It is extraordinary that three individuals, albeit eminent, are given power by the Government to make such an extraordinary report recommending, as it does, severe cuts in virtually every area of government.
They were asked to recommend €900 million worth of cuts and did so. However, in case people were not happy with this they went on to recommend about another dozen areas which could be looked at to provide for further cuts. I will list some from the document: Defence Forces numbers could be reduced; pupil-teacher ratios could be reviewed; third level fees could be further increased; the universality of child benefit could be reviewed; water charges could be introduced in 2003; the allocation to child care initiatives could be reduced; there could be a reduction in the allocation for housing; and there could be a further increase in the drugs refund threshold. As we know, the Government has already announced several of these – only last night it announced an increase in the drugs refund threshold. However, several measures are still lurking and the Minister should tell us whether he intends to act on some of the recommendations.
Senator Norris might usefully have read the section on education before he so generously welcomed the budget. The section on education clearly recommends that a further increase in registration fees, bringing them to a total of €1,000, be implemented by Government. Perhaps I missed it, but this has not been announced heretofore. It is a significant increase in registration fees which effectively amounts to the reimposition of third level fees by the back door or by the front door. Is this Government policy? Many of the recommendations in the review committee document have been implemented already. We deserve to know if many of the rest will be implemented in the days, weeks and years to come.
The Minister has made wrong choices. He could have increased the resources available to Government, cut services or taken a range of other measures. He has chosen to act as he has by cutting services because he is ideologically driven in this direction. He has also chosen, as he inevitably does, to stand by his past decisions, however wrongheaded they appear with the benefit of hindsight. He has chosen not to intervene in any way to ameliorate the damage being done to Exchequer finances by the SSIAs and chosen to insist that we borrow up to €1.1 billion and gamble a large part of it on international equity markets. I cannot understand the logic of that. There is, perhaps, €1.6 billion at stake. When one compares that with the €38 million saved by the abolition of the first-time buyers' grant, one wonders where the sense of priority and proportion is.
The most striking aspects of today's announcements are those on social welfare. This is by far the paltriest allocation in recent years to the least well off in our society. The basic flat rate increase of €6 per week for most social welfare beneficiaries is an absolute disgrace. I wager that it will not cover the rate of inflation or keep up with the rise in wages next year. Those depending on flat rate social welfare benefits will undoubtedly be worse off because of today's decisions.
The Minister has quite clearly abandoned the programme for increases in child benefit he announced two years ago. We were told to expect an increase in excess of €30 per month for the first and second children and more than that for subsequent children. The Progressive Democrats claimed credit for that policy. The policy is now in shreds and the Minister is rescheduling it over three years. Today's increase is slightly less than one quarter of what we were led to expect.
The Minister abolished the first-time buyer's grant of €3,800 and has replaced it with an annual benefit to those taking out first-time mortgages of about €165 for a single person and twice that for a married couple. People will immediately lose the €3,800 and get €10 or €12 per month for the next four or five years. By any stretch of the imagination, that is inadequate and does not compensate people in this area. It is window dressing and the Minister is well aware of it.
Speaking of window dressing, I was struck by the big play made by the Minister on the abolition of reliefs. The reliefs the Minister listed in the Dáil were due to terminate naturally at the end of 2004. He had never previously expressed an intention to prolong them beyond that. I understand that individuals in the rural renewal area had been told not to expect a prolongation. All the Minister has done, under the guise of taking something from business, is announce the termination of schemes that were to terminate in any event. It is nonsense for him to describe this as spreading the burden equally.
The former Government introduced a national climate change policy. It explicitly stated that measures would be taken to introduce carbon taxes from 2001. The Minister today made it clear that he will do nothing about this for at least another two years. The Minister does not have the slightest intention of taking seriously our international responsibilities under the Kyoto Protocol. Above all else, it shows the short-term nature of his thinking.
Today's budget was much ado about nothing. Its major fault was the failure to increase social welfare benefits in excess of the rate of inflation and not even close to the rate of increase in wages. Beyond that, some people will be slightly worse off while others will be slightly better off. Two weeks ago the pain that is to be inflicted over the next year was announced. Today we received more details.
Minister of State at the Department of Finance (Mr. Parlon): I thank my colleagues in the Progressive Democrats for tabling this motion for discussion today. It is right that this House should have the opportunity to comment on the measures announced in the other House by the Minister for Finance.
Senators will be well aware of the difficult economic circumstances in which this budget has been framed. They will also be aware that those difficulties are driven by international factors that, to a large extent, are outside our control. As a small open economy, we rely heavily on international trade and the health of the international economy has a direct effect on Ireland's prosperity and prospects. Unfortunately, the upturn expected this year in the major economies has not happened and the current weakness is continuing. The international economic picture is cloudy in the short term and this uncertainty makes economic projections even more difficult. Forecasts for the economy of the eurozone and the United States for 2003 indicate growth rates of 1.8% and 2.3%, respectively. However, it is hoped that international growth will pick up in the second half of next year.
We expect GNP growth this year to be as low as 1.8% rising to 2.25% in 2003. GDP growth is forecast at 3.5% in 2003, although 2004 and 2005 should see higher growth. Indications are that jobs will increase in the year ahead by 11,000 with unemployment up to 5.25% on average. Consumer price inflation is estimated to average 4.8% next year, with the prospect of a significant reduction by 2005.
It is important to realise that the budget is set in a three-year context. We must have regard for 2004 and 2005 where pressures will still exist as witnessed by the projected need to borrow more than €3 billion in both years. The EU assesses us on a three-year basis and it makes sense to frame a budget with a multi-annual focus.
We all recognise the benefits of social partnership and I hope to see the partnership process continuing. Negotiations on a new national pay agreement and on the implementation of the recommendations of the Public Service Benchmarking Body have just begun. If agreement is reached, the cost of the first phase of benchmarking would be €565 million, including arrears from 1 December 2001. This cost is provided for in the budget.
However, the Government has made it clear that the growth in the public service pay bill has to be contained, both in the level of pay increases and overall numbers. Senators may be surprised to learn that there are about 50,000 more working in the public service than there were five years ago. Consequently, the Government has decided that numbers across all sectors of the public service are to be capped at the present authorised level with immediate effect and has set a target of a reduction of 5,000 in those numbers over the next three years.
The recently published Government expenditure Estimates for 2003 drew a considerable amount of comment from the Opposition, much of it misdirected. The Government intends to continue to do what is best for Ireland and all our people by prudent management of the public finances and the economy. I want to assure the House that there will be no return to the failed spending solutions of the past. Having said that, I think it would be useful to mention a few facts on the level of public expenditure provided for in 2003 compared to 1997. Over that period, health spending will have risen by €5.2 billion to €8.9 billion; spending on education will have gone up by €2.5 billion to €5.6 billion; spending on social welfare will have increased by €4.5 billion to €10.2 billion; and spending on infrastructure will increase by €2 billion to nearly €5.6 billion. These figures clearly demonstrate the commitment of the Government to areas of priority. Contrary to what I hear from the Opposition, everything cannot be a priority. Choices have to be made and difficult decisions taken – that is what it means to be in Government. On top of the Estimates allocations, the extra expenditure announced by the Minister today adds a further €1.3 billion in gross spending and has been allocated to priority areas.
Protecting the weaker sections of our society will continue to be at the top of the Government's agenda and this is evident in the wide range of social inclusion policies in the programme for Government. We are committed to dealing with the problem of consistent poverty. The social welfare measures announced today will cost €530 million in a full year. The Minister for Social and Family Affairs will announce details on a wide range of increased support for those most in need.
The full personal rate of old age and related pensions will go up by €10 per week. This will bring the old age contributory pension to €157.30 per week and the old age non-contributory pension to €144 per week. In the programme for Government we undertook to improve the living standard of our older citizens by increasing the State pension to €200. Today's increase is a first step in delivering on that promise. In the last two years we have succeeded in narrowing the gap between the widow's and widower's contributory pension and the old age contributory pension. Further progress is being made today with a special increase in the widow's and widower's contributory pension. Next year, the weekly rate will rise by €11, bringing the general payment rate for those aged 66 and over to €155.80 and to €162.20 for those aged 80 or over.
Other full rate social welfare payments are also being increased from next month by €6 per week. I am sure the House recognises the value of direct financial support in tackling child poverty and helping parents in the choices they make in looking after their children. Child benefit rates will be increased by €8 per month for the first and second children to €125.60 and by €10 per month for third and subsequent children to €157.30.
We are making steady progress on the national development programme. The level of capital spending in Ireland is nearly twice that in the EU generally. In recognition of the key role of transport, the Minister has allocated an additional €209 million for the NDP roads programme, bringing investment to €1.25 billion next year.
I am proud that perhaps the most notable achievement of the Government over the past five years has been the reduction in the direct tax burden on workers and enterprise. This has played a major part in our economic success. We have heard demands from many quarters for tax increases and U-turns on corporation tax recently. Members will have heard the Minister state that he intends to keep to the course we have charted for ourselves, which has been shown to deliver jobs.
As regards personal taxation, the employee tax credit will be increased by €140 per annum from €660 to €800 per annum. This will increase the entry point to the income tax system from €209 per week to €223 per week for employees, which is 90% of the current minimum wage. In addition, the income tax exemption limits for those aged 65 and over will go up from €13,000 single and €26,000 married to €15,000 single and €30,000 married per annum, respectively.
The mortgage tax relief available to first-time buyers is being increased from €3,175 single and €6,350 married to €4,000 and €8,000, respectively. In addition, the period for which the relief is available will be extended from five to seven years. This will benefit more than 45,000 first-time buyers. The combined effect of these changes in personal taxation will be that 37,400 taxpayers will be taken out of the tax net.
Benefits received by an employee as part of their remuneration package have been subject to tax, but not to PRSI and other levies. These benefits will now be brought within the PAYE, PRSI and health levy systems from 1 January 2004. This will raise more than €83 million in a full year.
It will not come as a surprise that what are referred to as the “old reliables” feature in the Minister's Budget Statement. Most people will be relieved to hear that these will not be hit as hard as they feared. The 12.5% lower rate of VAT will be increased to 13.5% from 1 January next. Cigarettes and retail tobacco products will go up by the equivalent of 50 cent per packet of 20 cigarettes. Excise on spirits will be increased by 20 cent per standard measure and the rate on spirit-based ready to drink products or “alcopops” is being raised by 35 cent per bottle to align the rate with that on spirits. Diesel will be increased by 3 cent per litre. All these increases are VAT-inclusive and will apply from midnight tonight.
Our corporate tax regime has played a significant role in our economic success over the past few years and most people will agree that the business sector has prospered. The Government is committed to maintaining an attractive climate for enterprise and I am happy that the standard rate of corporation tax will be reduced to 12.5% from 1 January next as planned. However, in the interests of equity, all sections of the community must be seen to shoulder their fair share of the burden in the present situation. It is, therefore, appropriate that in these difficult times the Minister should look to the business sector when seeking to raise additional revenue.
The Finance Bill will provide for a contribution from the financial institutions of €100 million per annum for three years. This will be a special stamp duty related to the amount of tax on deposit interest payable by them in 2001. Stamp duty on commercial property has not been increased since 1990. From today the current rates of stamp duty on non-residential property will be increased. The valuation bands to which they apply will also be amended. Rates of up to 9% will apply, depending on the value of the property. This will raise €158 million in a full year.
Stamp duty on cheques will go up from 8 cent to 15 cent per cheque. The duty on credit cards will go from €19 per annum to €40 per annum and that on ATM cards will increase from €6.25 to €10 per annum. Stamp duty of €10 per annum is being introduced on laser cards. The stamp duty on combined ATM and laser cards will be €20 per annum. These changes take effect from midnight tonight and will raise €52 million in a full year. Considering the rise in the usage of these cards in recent years, both in terms of volume and value of transactions, the increases in duty are not unreasonable. The existing exemption from stamp duty for the transfer of land to young trained farmers will continue for a further three years.
The Finance Bill will provide for changes in capital gains tax which is currently payable on a preceding year basis. In future this payment will be made by 31 October each year in respect of gains made up to 30 September in that tax year. Tax due on gains made over the remainder of that tax year will be paid by the following 31 January. This will result in a once-off gain of €250 million for the Exchequer in 2003. In making this move, we will put capital gains tax on a similar footing to other tax charges. In addition, the capital gains tax base is being widened by the curtailment or termination of certain reliefs.
The tax base must be widened if we are to keep tax rates low. Reliefs narrow the tax base and their value as a development tool must be kept under review. Research by the Revenue Commissioners shows that capital allowances on buildings continue to be used by high income earners to reduce their taxable income by substantial amounts. The Minister has decided to make a number of changes in this area.
Members will be familiar with the tax incentive schemes such as urban renewal, rural renewal and car parks reliefs introduced over the years. In light of the budgetary situation, the Minister has decided that these and other schemes will end on 31 December 2004. He has also decided to change the special capital allowances regime for hotels to the general industrial buildings allowance and to abolish capital allowances for holiday cottages with effect from today.
I congratulate the Minister on closing a number of tax loopholes. He has also signalled that he will act quickly on any other such scheme he discovers. I am sure he has the support of the House and all genuine taxpayers.
Most fair-minded people will agree that the package of measures announced today represents a balanced and prudent approach in the current economic climate. I am confident the budget will achieve the key objectives identified by the Government. These are that we protect the less fortunate in our community, that we maintain the gains we have worked hard to achieve in recent years and that we position ourselves to benefit from the return to growth in the international economy.
Mr. Bannon: I welcome the Minister of State to the House. The budget shows that the Government has lost the confidence of the people. The Minister for Finance, Deputy McCreevy, has lost his credibility. If he was a director or manager of a private company, he would have been sacked long ago. I would not fancy his chances if he applied for a community employment scheme. He would have to stay even closer to the Tánaiste to get a job in that area.
The problem with the Minister is that he cannot count or remember anything. Those are notable problems for any politician, but they are particularly suspect in a Minister for Finance. The public finances have gone from a boom time budget surplus to a budget deficit without adequate explanation. It is time for the Minister to give us answers, not more Government whitewash. The Minister created this problem. Where have the missing billions gone since May? Where is our economic boom? We are no longer the envy of the world. We are the unfortunate victims of Charlie the slasher.
Last May the Government told us that significant overruns were not projected and that cutbacks were not being planned. Today we are in crisis. We are paying the price for proving the Minister for Finance wrong. We are condemned to spending cuts across the board. There will be an increase in homelessness because the rent supplement has been capped. There will be longer queues in accident and emergency departments across the country. There are numerous hospital cutbacks. Ill patients must be fed by their relatives in our hospitals. They have lost their dignity as a result of overcrowding.
The school building fund has been cut. There are many rat infested schools throughout the country. Many schools do not have proper toilet facilities and plaster is falling off the walls. There are holes in school windows which are big enough to walk through in some cases. Teachers, nurses and doctors are working in intolerable conditions. These problems have been caused by the Minister's ineptitude and they will be made worse by this budget. The Minister's rhetoric is out of touch with economic reality and his standing, and that of the Government, has fallen in the eyes of the public because of the inaccuracies in his forecasts.
The Minister's target was to raise additional revenue, but he has, as usual, put the squeeze on the weak and the voiceless. The “I'm all right Jack” mentality of the Government and its cronies is again forcing the less well off to bear the burden as the negative consequences of Deputy McCreevy's pre-election blindness to reality begin to be felt. The tax savings granted to PAYE workers do not even meet the rate of inflation, while mortgage relief for some is only €130 per annum. I note that the pittance given poor old county councillors will be hit, as will chairmen's allowances in benefits-in-kind.
Across the spectrum, people will find themselves worse off. For those in the PAYE sector, taxes will rise, there will be significant increases in the prices of cigarettes, alcohol and fuel in the coming months, inflation will rise and borrowing will go up. Road building projects are to be shelved, schools building projects will be put on hold indefinitely and health spending will be reduced to dangerously low levels. Where are the 200,000 medical cards that were promised to the less well off? What will happen to public sector benchmarking? The people were duped at the last election; trust has been broken and the inevitable consequences will follow.
This budget has gone too far. The Minister is hoping and praying the economy will turn around and get him out of the hole he has dug for himself. We need evidence that he has stopped digging and begun to try to climb out. The electorate distrusts the Government, by which it feels totally let down.
The budget is one of the most socially balanced we have had for a long period and when people say the less well off will have to pay for it, I wonder if they have listened to the Minister. Did they read the literature that has been circulated?
The commitment to reducing consistent poverty is probably stronger in this budget than in previous years. Social welfare expenditure in 2003 exceeds by €4.5 billion the 1997 figure and I do not understand how anyone can say that is not a benefit to those on low incomes. It is almost double the level set by the Labour Party and Fine Gael when last they were in Government. As a result of changes made in last year's budget, all weekly social welfare increases will be paid from 1 January. This means that increases will be paid to those who depend on them more than five months earlier than they were when those Opposition parties last held office.
The effort made in this budget to continue to remove people from the tax net is another example of equality. One cannot argue with the figures. This year's budget increases in tax credits, exemption limits and mortgage interest relief will take 37,400 people, one third of whom are aged 65 and over, out of that net. In one year, Fianna Fáil has almost equalled the number of people removed from the tax net over three budgets by the Labour Party and Fine Gael.
Pensioners, who represent one of our most economically vulnerable groups, have seen their pensions increase by €10 per week. A contributory pension now pays €157.30 per week while a non-contributory pension is worth €144. Those with selective political memories should not be allowed to forget that over the three budgets of the rainbow coalition, the Labour Party Minister for Finance gave pensioners a total average increase of €2.95, while under the current Government the average has been a massive €9.71. In percentage terms, old-age contributory pensions increased by less than 10% under the rainbow coalition while under the Government they have increased by 59%. These figures speak for themselves.
Despite doom-and-gloom reporting and comment, some of which has been repeated ad nauseam over the past week or two, the Government has prudently managed to maintain increases in welfare measures including child benefit, family income supplement and widow and widower pensions. It has given assurances that these improvements will continue to be made into the future.
This is a socially balanced budget. The Government's total commitment to the weaker sections of our society is indicated clearly by the three objectives the Minister for Finance outlined at the beginning of his Budget Statement, namely, to protect the weaker sections of society, to invest in the future and to secure stable public finances to safeguard gains already made. As I listened to Opposition comments stating that welfare recipients had not been looked after in this budget, I recalled the 1970s and 1980s when I worked in the then Department of Social Welfare. People lined up in the rain in extremely long queues in order to sign on at unemployment exchanges. Those days are gone.
Mr. O'Toole: I welcome the Minister of State. It is good to have the opportunity, at this early stage, to comment on the Budget Statement, which is a curate's egg. There are things in it which can be looked at positively, but there are others which will give rise to huge problems in the long term.
On the down side is the reduction in public service staff numbers which will mean war in primary and secondary schools that fail to secure the additional teachers they require. That is unsustainable. I have been there, done that and seen it happen before. It will just not work. On the positive side, any day we stuff €500,000 into the back of the ATM machine cannot be bad. I look forward to restocking it in the course of negotiations over the next couple of weeks to ensure that the flow is maintained.
What concerns me most about the budget is the failure to index link gains in personal income taxation over the last three to four years. The vast majority of people will have their gains eroded by inflation over the course of 2003. I choose the word “eroded” carefully and I do not employ the word “eliminated”. If there is going to be a standstill budget, there should be a 4.5% improvement in income tax thresholds and bands. I acknowledge that this is only relevant to people earning in excess of €20,000 or €25,000 a year and that for those on lower incomes, inflation will effectively be neutralised. At least their position will be maintained.
The commitment to the lower paid, which is reflected in the removal from the tax net of certain persons, is welcome. At pre-budget and pre-Estimate meetings with the Minister for Finance I appealed to him to take those on the minimum wage out of the tax net. I regret that has not been done but I recognise there has been movement in that direction. I look forward to bringing that to the final stage as soon as possible.
What irritates me and what I welcome in the budget are both in the same area. I welcome the fact that we are taking €100 million from the banks. In the event of no national wage agreement, the unions representing those working in banks will not be happy with a small pay increase. With banks making huge profits, that is not on. A point which Senator Ryan and I have made previously is that irrespective of changes made in corporation tax it was surely never intended to benefit huge financial institutions.
That there is a problem with Government taxation revenue and income irritates me. Whereas I accept that, I do not accept there is a significant problem in the general economy. Given that it was not necessary to reduce corporation tax this year from 16% to 12.5% it could have been deferred for a year. Others were made to wait. That was a mistake. I appealed to the Minister previously to hold back on reducing corporation tax. They are the people who make the biggest profits and who have gained most. When all those things are put together in a budget it is clear that those who have most are getting most.
How is it that Santa, good as he is, always brings the bigger gifts to the children who live in the richest areas? This budget is rather like Santa Claus – the best presents are going to the rich. This does not take from what I said earlier. There is the balance in trying to deal with income taxation. That money could have been kept in Government revenue and could have been used in areas acceptable to people on all sides.
The medium term prognosis given by the Minister today will have to be looked at. He talked about a GDP rate of 3.5% which is about the average of what economists say, not that I trust any of them because I cannot find an independent economist. The idea of an independent economist is a contradiction. I do not know any economist, to whom we listen, who is not paid by a large financial institution in some form or another and is not selling something in that area. The GDP prognosis of 3.5% for 2003 is approximately the average.
I regret the changes in VAT rates because they will be counterproductive. However, I do not oppose the increase in tobacco. Together they will add 0.9 of a percentage point to inflation in 2003. Consequently inflation next year will be just under 5% at 4.87%.
The Minister has advised a GDP growth rate of 3.5% in 2003, 4% to 4.5% in 2004 and 5% in 2005. That is the highest level of growth that will be experienced anywhere in Europe and is double the euro average. In a booming economy compared to anywhere else, the idea that managers, investors, businesses, industrialists could not afford to pay a decent wage and salary increase to workers would be unacceptable. Given that he is a practical man, the Minister of State will recognise the validity of that point. I ask him to take that message back and to hammer a few tables. Should he meet anyone from the farming organisations perhaps he would tell them there is no point talking about not paying benchmarking. I am glad the Government did not listen to them on that issue. As I said to the Minister of State's successor in his former position when he advocated some weeks ago not paying benchmarking, a farmer should know that no man ever fattened a beast by knocking over his neighbour's trough. That would be a good message to take back to those people.
Mr. Dardis: Senator O'Toole and others will know statements on the budget in this House are of relatively recent origin. It has become the practice to use Private Members' time to debate the budget, which is the main issue of the day. The motion was tabled as a courtesy to the House in an attempt to facilitate it to discuss this matter. The Minister of State has acknowledged that.
Opposition is a mighty comfortable place to be because one can bash everything and kick the furniture without having to say what one will do. As far as I can recall what was contained in the main Opposition party's manifesto is not markedly different from what was in the Fianna Fáil and Progressive Democrats manifestos and it is what was delivered in the budget. Therefore, it is in accordance with what they were saying. Pointing the finger in one direction is not a particularly beneficial exercise.
I note Senator Bannon described the Minister, Deputy McCreevy, as the slasher. That is a word of Longford origin. Perhaps we can add to the political lexicon the Basher Bannon, as well as the McCreevy Slasher and the Longford Slasher. With a little encouragement that could be included in the political dictionary.
Despite a setback, the economy will grow significantly over several years on the basis of the Minister's predictions. Germany is predicting a growth rate of 5% this year and 1% next year. It is essential that all the benefits that accrue from that level of growth are retained, that the economy is managed prudently and well, otherwise the soft landing being managed and created will be a figment of the imagination and we ain't seen nothing yet. From that point of view what my county colleague, the Minister, Deputy McCreevy, has done is to be applauded and the House should support it.
It is remarkable that the Labour Party could table an amendment before the budget was discussed. Those on the Government side would get into very severe difficulties if they breathed what was in the budget. One can recall a Fine Gael Minister of State losing his post for a relatively minor indiscretion but the Labour Party knows what is in the budget beforehand so it can table an amendment.
Mr. Dardis: One would think 11 September never happened, that the foot and mouth outbreak never happened and that somehow we live in a cocoon. We have a competitive open economy and suddenly we want to live in this cocoon that insulates us from the world. That is not living in the real world. We have to accommodate ourselves to the conditions in the international marketplace.
Much reference has been made to inflation. The Minister, by virtue of increasing the price of tobacco, spirits and diesel, has acknowledged in his Budget Statement it will add 0.85% to the consumer price index. I am in favour of a greater increase in tobacco excise. However, I am aware that if one was to increase it to the level I think is right, it would have a profound effect on the consumer price index and inflation. There would then be howls from the other side of the House about what was being eroded through inflation. The correct balance has been achieved.
Mr. Dardis: In regard to VAT, the tax is on the basis of what one spends and its control is within a person's remit. The more one spends the more VAT one pays. In regard to personal levels of taxation, the Minister has held the line to ensure personal rates do not increase. At the same time he has been able to increase spending by 8%, a significant achievement.
The proof is in the €530 million package for social welfare which does a lot for individuals. Old age pension is up by €10, better than the level of inflation, and the Government is on track towards the €200 a week target it set itself to achieve by 2007 and which was part of the Progressive Democrat manifesto prior to the general election. Widow's pension goes up by €11 to €155.80. Child benefit also rises. The budget report was prepared with regard to the stability fund and contains a lot more information than was included formerly.
In regard to capital taxation, it is appropriate that if the personal tax bands do not increase, the indexation of capital taxes should be stopped. This will be done from the end of the year. There must be consistency between capital and personal taxes. The differential between the two has bedevilled us for years. The Minister, to be fair, was trying to deal with the situation where individuals with clever accountants could use either capital or personal taxes to minimise the amount they should in conscience pay. The national anti-poverty strategy is also included in the document for the first time.
The final point I wish to make has to do with infrastructure. Infrastructural spending is being protected. Senator Kitt was right in regard to bypasses of towns that are bottlenecks. Are motorways required when a good main road with a bypass would save a lot of money and serve just as well? We could build more roads if we did not have this fetish about building unnecessary autobahns.
Mr. Ryan: On more than one occasion the Cathaoirleach declined to call someone off the rota because they arrived late and gave the impression they did not take the House seriously. I am disappointed the Leas-Chathaoirleach did not follow precedent on this occasion. Members should not just walk in and out.
Mr. Ryan: This is an extraordinary budget. Sometimes a Minister can be accused of letting his head rule his heart and other times of letting his heart rule his head. This budget has neither heart nor head. It is heartless.
Let us get the social welfare increases into perspective. A widow is not getting €10 but closer to €7. Only a widow over 66 years of age will get the larger increase. The issue, however, is not social welfare, but the other things that make people's lives a misery such as appalling housing, or the particular philosophy reflected in this chilling document produced by the so-called “three wise men.” I emphasise the fact that they are men which is clear from their disapproval of the child care initiative. These three middle aged men talk about child care as something disposable. They talk about reducing further expenditure on housing and about a 50% increase in student university fees which nobody on the Government side has yet discovered. Senator McDowell asked if anyone knew anything about it. It is on the page dealing with education and suggests a rise from €670 to €1,000. Has the Government decided on this?
Mr. Ryan: Most of what is in the document has been implemented. Is this going to happen? The problem with the budget is that it has no heart because it does not reflect an understanding of the human problems in society and no head because it talks nonsense about sustaining a competitive position with the worst infrastructure in Europe.
Investment in infrastructure must be judged in this context. One should read the national competitiveness report about the appalling state of our railways and the poor state of road transport. Dublin is the slowest city in Europe for delivery times. What are we going to do about this? We are going to wait until the economy improves. Common sense economics, as practised throughout the civilised small countries of Europe for the last 20 years, have been based on the fact that, when an economy is in slowdown, expenditure is stabilised by practical, sensible borrowing. Not only will the Government not do this, but it is borrowing money to fund a pension fund that will not apply for 20 years. It is also borrowing money to continue funding a daft savings scheme introduced to meet a one-off concern about inflation. Over €2 billion a year is being committed to these schemes.
Members on the other side of the House are right when they say that in times of difficulty budgets are about choices. Times are difficult in comparison to the last five years. For those years Members on the other side had no choices to make and could do everything. This is the first budget where they must make choices. They have made choices that reflect an understanding of economics that goes back to about 1925. Since then most middle of the road economists, apart from those who subscribe to the Chicago school, accept the idea that borrowing should be contra cyclical, based on productive capacity and available to maintain the competitiveness of the economy. We have decided, unlike the most successful Chancellor of the Exchequer the United Kingdom has ever had, that we do not believe in this. Our genius from Naas and all the Members on the other side of the House who want to be demonised with him have decided that they know better than the collective wisdom of the successful economies of Europe which have been stabilised through intelligent borrowing and investment.
Mr. Ryan: As I said, this budget has no heart because it does not address the fundamental fact that this is the most unequal society in the OECD. The budget has no head because it does not address the basic problem of competitiveness arising from our appalling infrastructure, development of which is being indefinitely placed on the long finger. There will be no improved railways, no real improvements in road transport and no development of telecommunications infrastructure. The latter is the most necessary of all forms of infrastructure if we are to justify our claim to be a high-tech economy.
Mr. Dooley: I welcome the Minister of State, who is representing the Minister for Finance on this important day for the advancement of our economy. I welcome the Budget Statement and I support the motion.
This is a prudent and careful budget which provides for a well managed economy. I have no doubt that it will be the keystone for our continued future economic development. We are in the middle of a difficult economic period and the Minister for Finance and the Government are working well to deal with the situation. This budget has three key objectives, as set out by the Minister in the Budget Statement. The first is to protect the weaker sections of society, an objective which is understood and accepted on all sides of the House and which formed a critical element of most of the recently published budget submissions to the Minister. Investing in our future to position ourselves for a return to the growth levels we enjoyed in recent years is another key element of the budget. The third objective is to secure stable public finances to safeguard the gains we have already made.
The comments of some speakers on the other side of the House this evening conveyed the impression of an economy in turmoil. They have not recognised or appreciated the growth which has taken place since 1997 under this Government. Listening to them, one would almost think we were on the verge of bankruptcy. In 1997 we really had problems and issues in this economy. Some of the contributions we have heard this evening would appear to have been pulled out of filing cabinets in offices where they have been sitting in the meantime. Some comments were obviously written well in advance of the today's budget. As noted earlier, the Labour Party amendment was submitted even before the Budget Statement had been heard.
It concerns me that there is no recognition of the developments taking place in our economy and that, at a time of considerable difficulty in international markets and economies, people are not prepared to recognise the prudent measures that are required and are being taken by the Minister for Finance. Senator Higgins said the Minister was blaming international markets for all our problems and implied that those market situations were not a significant issue.
A number of Senators also referred to the events of 11 September and the impact of the foot and mouth disease crisis. It has to be recognised that the global economy has failed to recover at the pace expected earlier this year and the short-term prospects are not good. That has been clearly recognised throughout Europe and in the US. GDP in the euro area is forecast to grow by just 0.8% this year, rising to 1.8% only in 2003. Those figures are down significantly on the rates we have seen in recent years. To minimise the effect of the economic downturn is to lose sight of reality. It may suit some people to ignore the facts, but the Minister and the Government are dealing with them and will continue to do so.
Following real GDP growth of about 1.6% in the UK in 2002, recovery to 2.5% is anticipated next year. Real GDP growth in United States is expected to reach 2.3% this year and next. Fundamental to the growth of our economy is the recognition that foreign direct investment comes primarily from the US. In the past three to four years, approximately 30% of all green field foreign investment into Europe has come to Ireland. That is an astonishing figure. Having regard to the difficulties in the US economy and the consequent drop in foreign direct investment – this year's figures are not yet to hand but I assume there will be a considerable reduction on the previous average – one can see the hazards and difficulties with which the Minister for Finance must contend. We have to take cognisance of the significant slowing down in our economy.
Senator Higgins lambasted the Minister for the spending programme he followed over the past two years and Senator Quinn used the analogy of the Minister riding a bicycle. There is a scientific analogy which states that when something is moving, one should continue to give it momentum so that when it reaches a valley and has to face an uphill climb, the momentum will help to drive it over the hill. That analogy might be worth taking on board.
There was some discussion about the community employment scheme, which is an issue of concern to everyone. However, having regard to the proposed cut of 5,000 in the number of participants in that scheme, set against the 36,000 work permits issued to non-nationals last year and an expected similar number this year, there is a need for some balance to be brought into the situation. The Minister's figures project a 5.5% unemployment level, which is equivalent to full employment if we have to invite some 36,000 foreign nationals to take up jobs which, for one reason or another, we are unable to fill otherwise. I again compliment the Minister and the Minister of State on the budget and I commend it to the House.
Mr. McHugh: In deference to the Leader of the House, I will be parochial. This is a bad day. The situation we are discussing has come about over the past two years, not just today. The reins of the economic horse should have been pulled back then, rather than leaving it until now.
With regard to Donegal, there is nothing happening in terms of additional investment in roads and other infrastructural projects. It appears we may only receive €5 million from the National Roads Authority this year. There was a contradictory announcement about Letterkenny becoming a gateway for additional investment under the national spatial strategy. I cannot see that happening. For the peripheral counties, including Senator Dooley's county of Clare, this is a bad budget and, in that context, we will return in tomorrow's debate on the national spatial strategy.
Mr. Minihan: A key point which has been yet again overlooked by the Opposition is the fact that gross current spending will rise by 8.7%, or an extra €3 billion, for public services. Evidently, that is of no interest. My party's manifesto, Managing the Economy, clearly stated the principle that there must be no borrowing to fund current spending, that the general Government balance – in line with our EU obligations – should be kept in or near surplus and that growth in Government spending should be kept in line with growth in revenue. I am confident the budget will fulfil those requirements. I compliment the Minister of State, Deputy Parlon, for his input to the budget in terms of ensuring that those principles were adhered to.
The Opposition has attempted to fire missile after missile at this budget, the Minister and the Government without reading or studying the document. Although the Labour Party tabled an amendment in advance, no Member from that party has made reference to it during the debate.
There have been a number of comments about mismanagement. In order to mismanage one has to have the opportunity to manage in the first place. Time after time the Opposition has not been given that opportunity. Its inability to manage has been recognised not only by the Government but by the people as recently as the general election. Mantras based on the Fianna Fáil slogan, “Much done and more to do”, are thrown around. In the case of the Opposition it is clearly, “Much done and we do not know what to do”.
The Opposition has trawled the budget to find serious criticism and has failed. It has failed to provide opposition to the budget, as it has failed to provide opposition generally. If it wants to be serious it should bring forward one credible public policy initiative. We have not seen it. To criticise the budget with a speech pulled out of a filing cabinet is not to contribute properly.
Senator Quinn referred to the Minister riding a bicycle and a previous speaker alluded to the art of cycling. I suggest that the key to competitive cycling is to pace yourself and ensure that you do not fall off. That is exactly what the Government is doing and what the Minister has done in the budget.
Governments are elected to govern and make decisions and the Government has done so yet again. Advisory groups and committees, as referred to by Senator McDowell, do nothing but advise. The Government makes the decisions and will listen to advice, as it will listen to any constructive opposition.
Senator Ryan talked about social inclusion. One of the best examples of social inclusion is the provision of jobs. The Government has reduced long-term unemployment to an all-time low. It has secured jobs and the budget will continue to ensure that those jobs are maintained. Wealth has to be generated to fund our social needs and the budget does this. It generates wealth to ensure we can continue to meet the social demands placed on the Government of the day.
Senator Ryan alluded to no heart and no head. I take it he has yet again failed to look at the record of his new-found party when it was in Government and at the social welfare increases introduced by Labour in that Government. They were a dismal insult to the people and we have doubled them every time.
There are choices to be made and the Government has made them by introducing a prudent and cautious budget in the interests of the people. I recommend the budget to the House and urge the Senators to support it.
Kitt, Michael P.
Mooney, Paschal C.
Ó Murchú, Labhrás.
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