Wednesday, 5 December 2007
Seanad Eireann Debate
Senator Dan Boyle: For the past five years I have had the privilege of being an Opposition spokesperson responding to the speech of the Minister for Finance on budget day. It was a role I greatly enjoyed and I hope I performed it with the appropriate level of responsibility. I noted in several of those speeches the trend of recent budgets — the seven that had been produced by the previous Minister for Finance, former Deputy Charlie McCreevy, and the three produced up to today by the current Minister, Deputy Cowen. Analysis carried out by the Combat Poverty Agency showed that the first six of those budgets unashamedly favoured the better-off in our society, that the seventh was neutral, and that the three produced by Deputy Cowen showed a trend, which has continued into this year’s budget, of favouring the less well-off at the expense of the better-off. The first principle in drawing up any budget is to achieve this. The Minister must be congratulated.
One of the reasons for our participation in Government is the idea of index-linking the tax system so that those on minimum wages are not caught within the tax net and those on average industrial wages are not in the higher tax band. I would like to see this achieved through legislation and being done automatically every year, but I am glad to see it has been done in this first budget of the new Administration.
The Minister needed to tick many boxes, the first being social equity, which he addressed well. The second box was that of getting the balance of future economic development right to ensure increases in public expenditure were controlled, the cost of living was met by all Departments’ allocations as far as possible and surpassed where necessary, and capital expenditure on infrastructure addressed the gaps in our economy as soon as possible. The overall increase in spending is
8.6%, comprising 8.2% in current expenditure and 12% in capital expenditure. The Minister described the ability to rely on improved and increased research and development as an engine for future economic prosperity, a sub-theme of the budget that will have a benefit in future.
My party is most concerned about environmental policy, in which we would like to see the most achieved. My party is a junior member of the Government and by no stretch of the imagination is this a green budget, but it is the greenest budget ever and has been influenced by the Green Party significantly. While people might look at the headline changes in tackling the growth in carbon emissions, those changes being in respect of VRT and motor tax, there are other aspects of the budget that show what the green imprint has achieved. The increases in expenditure in the Departments of the Environment, Heritage and Local Government and Communications, Energy and Natural Resources are above the average — 13% and 25%, respectively. Some of their subheads display how the Ministers are getting the funding for the policy areas in which they need to meet the programme for Government’s core commitment of reducing carbon emissions by 3% per year. The budgets of the Environmental Protection Agency and the national parks and wildlife service have increased by 43% and
30%, respectively. By any criteria, this budget has a green influence.
A plethora of smaller items litter today’s budget, such as the exemption of bio-fuels from excise duties, the matter of changes to VRT instead of the tax system in respect of hybrid vehicles — a 50:50 split between electrical and fuel-based — and a complete VRT exemption for electrical vehicles. These measures are designed to give a choice.
Those who want to question the Green Party’s commitment will discuss how motor taxation changes will hit motorists. The temporary changes in the current system of motor taxation will have effect from 1 February 2007 to 1 July 2008 and are the last throes of an old system. However, that system is one of local government’s main sources of funding. If people want local government to be resourced properly, they must recognise it must be funded in this way.
The proposed increases — 11.5% for cars of more than 2.5 litres and 9.5% for cars under that size, which are good measurement criteria in terms of social justice — are not excessive when one takes into account that the rate of inflation since these taxes were last raised in 2004 has accumulated to 15%. People are paying proportionally less for motor tax than at the time of the previous increase.
An effort has been made not to endorse any of the scaremongering in the media in recent weeks. The proposal for a short-term change in motor taxation is sensible, sane and fair. The real changes with the greatest environmental and social effects will come into effect on 1 July 2008 when the VRT and motor taxation systems will merge into a carbon-based system. This will encourage people buying new vehicles to shop around for the most effective. A car labelling system will apply to every car, including imported second-hand cars. On this basis, consumers will be given every assistance in ensuring not only will their money be spent to the best effect with the State’s assistance, they will be given the best choice in terms of helping the environment.
My colleague will address the Green Party’s influence on the budget’s important social aspects later in the debate. Several references by the Minister are the direct fulfilment of pledges in the programme for Government. The commission on taxation was negotiated by the Green Party and we welcome its establishment next year. We are delighted with the debate on how to achieve fair taxation. These comprise an important start.
The Minister referred to commitments to be honoured from next year onwards, including the doubling of the income threshold for health cards for children under six years of age and the trebling of the income threshold for people with an intellectual disability and who are under 18 years of age. These important social commitments were included in the programme for Government by the Green Party and we welcome that they are well on their way towards implementation.
Given prior constraints due to changes in the international economy, this is a good and fair budget that shows the direction in which the Government will go for the next four years. I am happy to endorse the budget and congratulate the Minister on the balance he has achieved. I look forward to the provisions being added to by future budgets.
Senator Alan Kelly: I welcome the Minister of State and his officials to the House. I will try to go through the budget’s provisions in a fair-minded way, the best way to do so. I will give praise and criticism where they are due.
I will not address the international and domestic factors in the budget’s environment, but we all know that a major domestic factor is that of tax receipts, especially in respect of stamp duty and the consequential roll-on. The figures and graphs are going down, which we must address within the environment in which the budget was framed. This year’s growth rate is 4.25% whereas next year’s is projected to be 3%, which is of serious concern.
Inflation at its current level is an issue, particularly as the prices of basic food items are always increasing. Inflation is running at twice the level described to workers when they signed up to Towards 2016, which provided for a 10% increase in 27 months. In many cases, employees are concerned by any increases in a budget, real or not. We must worry about the projected increase in unemployment levels to 5.5%. The concern is not just unemployment, but the displacement of higher income jobs versus lower income jobs.
Senator Alan Kelly:
I listen intently to every debate in the House, but Senator MacSharry’s statement could have been on any budget.
There was no detail. That he read the budget
beggars belief. Complimenting the Senator’s namesake——
I acknowledge and welcome the changes to the budget’s procedure. It is a much better way of doing our business to set out the spending of various Departments at this point. We need to acknowledge where spending is going, however, and in some cases that is hard to work out from the figures presented.
The changes to income tax are aimed to keep wages in line with inflation. While they will have some effect, I am concerned some people will not enter the top level of tax, primarily because they do not have the level of income required. This is largely owing to the various types of jobs and the way employers use part-time employment to minimise workers’ hours and pay. I am concerned that in the current economic climate these changes will not keep wages in line with inflation.
Non-residency tax loopholes allow millionaires fictionally to live abroad and to get away without paying substantial taxes. In an internal survey it was noted that 48 of the highest earners in the country paid less than 5% tax on their incomes. None of these issues has been addressed by the budget, a matter the Green Party may wish to consider.
The budget did not roll back on several stealth taxes introduced in previous budgets. Raising the duty on cheques is mean as it hits mainly the elderly who may not be as financially sophisticated when it comes to payments with electronic cards.
The mortgage interest relief measures are to be welcomed but have not gone far enough. PRSI, flagged by the Government on previous occasions, has not been dealt with. Why is it still in place, and the health levy for that matter? Many low income workers pay as much in PRSI and health levies as they do in income tax.
I agree with Senator Twomey that while the changes to the stamp duty regime are welcome, they are too late. The current discourse on the housing market will take much to change. I cannot see the new measures doing that. The principal beneficiaries will not be those who buy average-priced houses but those buying at the upper end. The mismanagement of the housing market is written all over this Budget Statement. The increased borrowing and limited tax and social welfare packages reflect the hit the Exchequer has taken from the property slump.
I am concerned the vehicle registration tax measures are revenue neutral. Some officials in the Department of Finance also have concerns over it. The measures will not do much for hybrid vehicles, considering the numbers of them. Motor tax is simply a tax. It has no link to the environment and will not change behaviour. It is better if that is said straight.
There has been no movement for one-income families or on the PAYE tax credit, thus penalising them on the double. This should be changed and I had hoped the budget would recognise this. It seems, however, that individualisation will remain a policy of this Government.
I lament the PAYE tax credit not being amalgamated with the individual credit for those who are self-employed. Many, self-employed workers, especially in the construction industry, cannot avail of it. It is touch and go to call them self-employed because in many cases they work under contract for someone else.
Senator Alan Kelly: It has been increased by one week — gee whiz. The increases in social welfare benefits are €12 per week instead of the recommended €20 per week. Child benefit only goes up by €6 which will be below inflation. If pensions are to rise to €300, they needed an increase of €14 per week. There has been no change in medical card status as well as in the dependant spouse pension and mobility allowance.
Vision was necessary for the preschool education area. The child-minding cap of €15,000 remains, which is unacceptable. There has been no movement on stock relief or installation aid for farmers. The recruitment of extra teachers seems to be behind schedule. The spending on health care raises serious concerns, particularly from the point of view of cancer services.
I agree with the capital investment programme at many levels but I am concerned at funding for training programmes. I welcome the small and medium enterprises incentives. There has been no reform to public and Civil Service pension areas which would allow for decentralisation. I presume decentralisation has not been mentioned in the budget because its progress levels are minimal.
I am concerned the new proposals for research and development incentives will be more complex. This was also a time to examine risk investments in IT areas. I am concerned there is no investment for new generation networks for broadband. Tourism did not receive any mention. There is no package for the mid-west despite the Government’s representative claiming €55 million will be earmarked for the region. Whether it is open skies or the Aer Lingus pull-out, there has been no movement on Shannon Airport. There was no exemption from VAT charges for schools and hospitals when purchasing certain goods such as computers.
Senator John Hanafin: The budget was a question of priorities and it matches our expectations. We wanted the Minister for Finance to look after the less well-off. It is a time of economic change in the world in which we have little say. It is a time of uncertainties in the finance and equity markets. The Minister for Finance took the right course. It was a prudent budget but one which looked after the most vulnerable.
Last year, Senator Quinn gave the budget a pass at a time with a high Exchequer surplus which led to high expectations. This year there was no surplus but prudent borrowing of 0.9% of gross national product for which the Minister got honours. It proves that what is done with the available moneys is how people will assess a budget.
It is an excellent budget because it has dealt with smaller items in a positive way. It has cleared the way for corporate tax to be paid at different times to suit businesses. It has reduced the duty on bank and credit cards and made positive contributions to the green challenge, including vehicle registration tax, VRT, on which the Minister is to be commended.
People worried that house prices were far higher than people realistically could be prepared to pay and the collapse of sub-prime lending in the American market raised further questions about the stability of the housing market. The Minister has taken the opportunity to deal with this on two levels, by significantly increasing mortgage interest relief, which is welcome, and by making allowance for first-time purchasers to avoid the clawback on stamp duty relief after the first two years of purchase rather than the first five. This reflects the mobile nature of society as people move to work in different parts of the country and is a small but significant item for those whom it affects. In addition to the timely changes in stamp duty, it will give the added impetus necessary to the market.. There was a significant and continuing bounce in the world equity markets at 3.30 p.m. today which indicates that confidence is returning. By this time next year the situation will be very different, with possibly a significant increase in the moneys going to the Revenue Commissioners from the housing sector, as often happens.
The Government has increased spending on public services by €8.6 million to €62 million which is entirely appropriate at a time of uncertainty. While the market has slowed down in this country, the infrastructure is being rolled out with expenditure in many areas, including transport, education and health. We were in the unique situation that certain areas needed extra funding quite quickly as the population grew. Uniquely in Europe, by the time a new school had been built in the western and northern suburbs of Dublin, another was needed. It is difficult for anyone to anticipate growth of that level. None of our European neighbours had but we are meeting that challenge directly.
Senator John Hanafin: I am pleased with the increase in the social welfare payments. Dependants, who were in an anomalous situation, have received a significant and welcome increase of €27 which, when combined with the increase of €14 in the contributory pension, makes an increase of €41 a week or more than €2,000 a year. Respite grants have increased. Supporting older people is one hallmark of the Government of which I am particularly proud.
In respect of family support, there is an increase of €6 each for the first and second children per month and an increase of €8 for the third child, making €20 for a family of three. There is an additional €2 million in funding for school meals, representing another significant increase for those in disadvantaged areas. I like to see this because looking after those who are less well off is the sign of a good budget.
Taxation has decreased significantly through the years. This is a vast improvement by any yardstick and using any inflationary figure. It is a great credit to all budgets heretofore. A married person with two children on the full rate of PRSI and earning €15,000 paid 11% of that in income in tax in 1997 but he or she pays nothing now. A person earning €25,000 in 1997 paid 20% and pays nothing now. A person on €120,000 paid 43% and still pays 27%, a significant amount, as it should be. It is, however, attractive for people to come to this country. Foreign direct investors look not only at the economic climate and taxation — we welcome the retention of the allowances for the business expansion scheme and film investment — but also at the provision for education and health services. We have a high standard of both and I was delighted to see a significant sum, in addition to ordinary resources, being expended on cancer care because this is present in all our minds. This is a commendable budget because within its constraints it concentrated on the less well-off.
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