Dáil Éireann - Volume 318 - 27 February, 1980

Financial Resolutions, 1980: - Financial Statement, Budget, 1980.

Minister for Finance (Mr. O'Kennedy): Prudent management of the public finances and improving the climate for economic development are normal priorities for a Minister for Finance when drawing up his Budget. This obligation takes on a special significance at a time of international economic recession, such as we now experience.

Because the international recession has had a particularly damaging impact on our energy dependent open economy, there is a new burden to be carried today. We must all ensure that this new burden, unwelcome though it may be, will be shouldered evenly by all who can bear it. A progressive economic policy can only be implemented through the collective commitment and action of all sections of the community. It must be built on the firm foundation of a caring and sharing society, so that in overcoming the immediate problems, we emerge more determined to achieve a healthy social and economic order which we can all respect.

My proposals today, and Government policy throughout the year, will be firmly directed towards those ends.

The experience of last year indicates that we have found it difficult as a nation, in a period of growing prosperity, to adjust to the new reality of international economic recession. But adjust we must, and my budget proposals today are intended to encourage that adjustment in our individual and national interest. The pursuit of social justice in a basically healthy economy, beset as it may be by serious difficulties, has been a guiding principle for the Government in adopting the proposals which I will outline. I hope that they will evoke a [705] positive and helpful response at this critical time in our national development. Our renewed determination, following the dramatic upsets of the past year, to achieve the objectives of equity and a proper balance in our national finances will not yield immediate results in the year ahead, but it will make a major contribution towards positive progress in that direction.

There is an urgent need to reduce the balance of payments deficit and the level of Exchequer borrowing. In seeking to reduce the level of borrowing, the Government have concentrated on curbing the growth of public expenditure, so as to ensure that taxpayers will be called upon to contribute only to absolutely essential services. We must see to it that the taxpayer's money is used effectively and in a manner that he or she will fully endorse. This will also ensure that the general burden of taxation is kept to the minimum consistent with economic and social priorities.

I will return to both of these themes later, but first I wish to review the economic developments in 1979. These comments will be brief because Deputies have already received a copy of the paper Economic Background to the Budget, 1980.

THE ECONOMY IN 1979.

Obviously, there has been a complete change of circumstances compared with the situation as it appeared this time last year. Nobody foresaw then the massive oil price increases that were to come later in the year with their attendant problems. The farming community met serious difficulties during the year resulting in an unexpected fall in their incomes. The pattern of industrial disputes and, in particular, the industrial dispute in the Post Office, which commenced in February and was to last until June, caused disruption of services and interference with private, commercial and industrial life. A recently published EEC report indicated that, relatively, we lost more man-days through industrial stop [706] pages in 1978 than any other EEC country. Our experience in 1979 can hardly have improved the record.

So what started off as a year with great economic opportunities eventually deteriorated to the point of serious setback to the targets for growth and financial stability which the Government had set for the year as a whole.

But performance, although not up to expectations, had its good features. The growth rate last year at 3 per cent was in line with the OECD and EEC average. There was a further significant increase in employment. Registered unemployment showed a substantial decline. If agricultural exports were disappointing, industrial exports performed strongly. They rose by almost 25 per cent in value compared with 1978, while investment grew in double figures for the second year running.

Nonetheless, at budget time last year the expectation was that the balance of payments deficit for the year would be about £300 million. Present estimates put the deficit at about £760 million, or more than 10 per cent of GNP. In both absolute and relative terms this is very high and gives serious cause for concern. It is true that higher oil prices were responsible for about £140 million of the increase in the deficit, but it is equally clear that as a community we are living far beyond our means. Progress towards our targets has been obviously impeded by these factors. To reach them now we must adjust our immediate individual expectations.

REVIEW OF 1979 BUDGET OUTTURN

As regards Government finances, the 1979 Budget envisaged an Exchequer borrowing requirement of £779 million, or 10.5 per cent of GNP. The outturn was very much higher at £1,009 million, or 13.7 per cent of GNP. A sum of £522 million was borrowed to meet the deficit on the current budget and £497 million was borrowed for capital purposes.

The current budget deficit was £233 [707] million above the estimate, partly because of excesses on public service pay, social services and CIE, and partly because of delayed collection of revenue due to the industrial dispute in the Post Office. In addition, there was the cost of the PAYE tax concession under the national understanding and also a shortfall in revenue from hydrocarbon oils and car sales.

The subsidies of £59 million which were received during the year as a result of our participation in the EMS helped to reduce somewhat the impact of these items.

Capital expenditure totalled £1,035 million, of which £1,001 million was for the Public Capital Programme.

Approximately one-half of the total borrowing requirement was raised through foreign borrowing, including £144 million from the European Investment Bank. The other half was raised from domestic sources, mainly through sales of Government securities to Irish residents, including the commercial banks.

ECONOMIC PROSPECTS FOR 1980

When one turns then to the economic prospects for 1980 and the background to this budget, there is no escaping the fact that this is going to be a difficult year, not least because of international factors beyond our control.

During the past 12 months there has been a severe deterioration, related directly or indirectly to oil prices, in the economic outlook. During 1979 alone the price of crude oil rose by more than 80 per cent and there have been further increases since the end of the year. Many countries as well as ourselves face strained balance of payments positions, higher inflation and the prospect of significantly slower growth. The oil importing world as a whole is significantly poorer as a result of the shift of wealth to oil producers.

The international reaction to these developments is still emerging. Last year, economic policies in many countries [708] became more restrictive. It remains to be seen what the pattern of response will be to the oil price increases which have occurred since December last. There could be a further widespread tightening of policy internationally. Much as we might deplore this, it is a risk which cannot be ignored. Even as things stand, little or no growth is expected in the OECD area this year. World trade could grow at even less than half last year's rate. There is the strong probability that our main export market—the U.K.—will actually contract. Competition, both at home and abroad, will clearly be intense this year, and there is no prospect of an early improvement.

When the world economy is faced with a marked downturn, we as an exporting country dependent on foreign markets to absorb half of our production are pulled in the same direction. But, if we have no real control over external developments, we alone are responsible for our reaction to these events; and there are significant economic factors which will help. Ireland is an attractive investment location from which to exploit the market of 260 million people in the countries of the EEC. Last year we were particularly successful in our industrial promotion. These new and established industries should ensure that industrial exports will increase, even in the face of tough international competition, provided we can keep costs in check. The outlook for agricultural exports, which are so vital to our economy, is also better than last year.

However, the fact that there was a further major increase in the price of oil in December last rules out the prospect of any automatic improvement in the balance of payments. The prospective deficit is so large that policy cannot remain passive; corrective action must be taken. We cannot afford to let the deficit go on growing. If we did, inevitably this would require drastic measures from us—and perhaps not too far in the future—measures which could cause far-reaching hardship, and wipe out much of the economic advance which we have made in recent years.

[709] EEC AND EUROPEAN MONETARY SYSTEM

We are approaching the completion of our first year's successful participation in the new European Monetary System. The events of the past year have, if anything, reinforced the reasons for its introduction. The international economy has been buffeted by oil price increases and political instability. These developments have intensified pressures on exchange rates. In all of this, the EMS has been an important influence towards stability.

From our national standpoint membership of the system, and the breaking of the link with sterling that followed, necessitated important adjustments in monetary and financial practices. The instability of sterling outside the system added to our difficulties of adjustment. The Government are satisfied, in the light of experience during the past year, that our participation was fully justified and that it can help us to increase trade and investment—particularly with EEC countries—and to reduce, over time, the rate of inflation.

Progressive policies must also be pursued by the European Community to bring about the stated aim of balanced economic development in which the EMS, through monetary stability, can play a significant role. We are also determined to pursue domestic policies which are consistent with our membership of the EMS and to protect the stability of the exchange rate. There are no soft options in this direction. A strong currency depends on the disciplined pursuit of sound economic policies and it is the intention of the Government to do precisely this.

MONETARY POLICY

Monetary policy in 1979 was formulated with the aim of limiting the growth in credit to a level that was consistent with the protection of the exchange rate and maintenance of external reserves adequacy. It was considered that the external reserves could be allowed decline somewhat so as to permit [710] an 18 per cent growth in private sector credit.

The credit policy year runs from mid-February to mid-February and, while figures are not yet available, it looks as if the outturn for the year will be close to the original guideline. In order to achieve this, however, the Central Bank was forced to take steps to slow down the increase in private-sector credit, which was growing at an unsustainable rate, and to ensure that available credit was channelled to the productive sectors of the economy.

The overall position was eased considerably by increased foreign currency lending by the banking system. In addition, the Agricultural Credit Corporation and the Industrial Credit Company were authorised to undertake certain foreign currency borrowing for onlending to agriculture and industry, respectively. In October, the Government made arrangements to allow the Trustee Savings Banks to provide an additional £10 million by way of bridging finance in order to ease the position in the housing market where particular problems arose.

The detailed monetary policy measures for the coming year will be announced by the Central Bank in the near future. The bank has already indicated that there is every likelihood, on the basis of the information now available, that the guideline for the growth of credit in the coming year will be less than the 18 per cent guideline in force in the year to February 1980.

The current level of interest rates is high, both by historical standards and by reference to the expectations of many borrowers. This is but a reflection of world trends at this unsettled time. In fact, prime lending rates in this country have increased by proportionately less during the past year than they have in any other EEC country. Against this background, and in the light of the need for a restrained policy here, one cannot be optimistic about the prospects for any early fall in interest rates.

The exceptionally high level of inflows into the building societies in the past year has meant that they were able to [711] avoid any increase in mortgage rates. Net inflows during the year came to almost £200 million, not far short of twice the previous year's level, and were more than sufficient to finance the societies' lending programmes for the year. The societies enter 1980 with a high level of liquidity and they should have good prospects of repeating last year's record performance with regard to the number of units financed.

Saving and Exchequer Financing

I have given particularly careful consideration in the circumstances of this year to the desirability of encouraging saving in the community. With a view to increasing the contribution from domestic sources to Exchequer financing, I propose to improve the attractiveness of the Government's saving schemes.

The rates of interest on deposits in the Post Office Savings Bank and the Trustee Savings Banks will be increased by 1 per cent. Ordinary rates will increase from 7½ per cent to 8½ per cent and Investment Accounts in the Trustee Savings Banks from 11 per cent to 12 per cent.

I propose also to extend the limits on holdings of Savings Certificates and Indexed-Linked Savings. These savings media provide the investor with very attractive tax-free returns. The maximum amount which a person may hold of the 9th Issue of Savings Certificates is £7,500, as fixed in 1978. I am increasing this limit to £15,000. I am increasing from £750 to £1,500 the maximum amount which may be held in Indexed-Linked Savings Bonds. Anyone aged 65 or over can buy these bonds. I am also increasing from £50 a month to £100 a month the maximum amount which a person may invest in the Indexed-Linked National Instalment-Saving Scheme.

In addition, I intend to increase the prize fund for Prize Bonds so as to enhance their attraction for investors.

Foreign Borrowing

Foreign borrowing serves to maintain the external reserves at an adequate [712] level, as well as supporting domestic sources in financing the Exchequer borrowing requirement. The volume of such borrowing will be decided from time to time having regard to the Exchequer's financing needs and the position of the external reserves. I might add that part of the foreign funds to be raised in 1980 will come from the European Investment Bank and that loans from that source have the particular advantage that we receive the EMS-related interest subsidy on them.

GENERAL APPROACH TO BUDGETARY AGGREGATES IN 1980

A major constraint on the Government's room for manoeuvre this year has been the need to reduce the Exchequer borrowing requirement. Borrowing in 1979, at 13.7 per cent of GNP, was far in excess of that obtaining in most other member states of the EEC. Central Government borrowing in these countries was generally 3 to 4 per cent of GNP. Roughly half of Exchequer borrowing was to finance current expenditure. I am determined to ensure that the burden on the taxpayer for debts created to pay for current services will not continue to grow indefinitely. We cannot ask the taxpayer of tomorrow to pay for the services we require today. This would be socially unfair and economically irresponsible.

Borrowing, the balance of payments and the external reserves are all interlinked. Government borrowing allows a higher level of expenditure in the economy, which generates a demand for further imports and adds to the external deficit. A reduction in borrowing is required in the short-term in order to help reduce the balance of payments deficit to a sustainable size.

Expenditure 1980

The level of social, economic and other services to which the taxpayer contributes has grown inexorably, and the demands for further extensions of these services are virtually unending. However, it is time for us to take a hard look at the position and to accept that [713] services can only be provided if we are willing to pay for them. The changing social and economic climate requires a continuing re-assessment of existing services. If we are to cater for the pressing needs of today and tomorrow, we cannot blandly assume that yesterday's services must all remain intact.

As is evident from the Current and Capital Estimates, the Government's aim in reviewing expenditure has been to ensure that taxpayers will be called upon to contribute only to absolutely essential expenditure. At the same time the Government's objective is to redistribute expenditure, concentrating on the areas of greatest need and potential so that the maximum economic and social benefit is derived from it.

The process of curbing expenditure involves many difficult decisions. It also comes up against the constraint that much of Government expenditure cannot be changed in the short-term because of virtually fixed commitments. It is unreasonable to suggest that such commitments can be significantly altered in any one year.

The Government have had the difficult task, therefore, of deciding what services could be deferred or curtailed, while providing for the mainteance of essential services and protecting the interests of the weaker sections of the community. Government subventions should be paid only to those who need them and should be designed to achieve the maximum economic and social benefit.

Expenditure on the non-capital services is up by 16 per cent—from £2,906 million to £3,367 million—before the additional provisions which I am making today. However the cost of the non-pay supply services is projected to increase by only 5 per cent, representing a real curb on the growth of expenditure.

The Government are committed to the promotion of science and technology as major contributors to economic and social development. Expenditure in this area has been collated this year by the National Board of Science and Technology in a new science budget. Notwithstanding the current difficult financial situation, I have, in the main, [714] increased the provisions for the public sector institutions active in science and technology, in particular the research institutes.

Public Capital Programme 1980

The Government are conscious of the need to continue to give priority to public investment, so essential for our economic development. The Public Capital Programme, at £1,154 million, is 15 per cent above the 1979 outturn. This will enable the overall volume of activity financed by the programme to be maintained in spite of competing pressures on resources this year.

More importantly, in deciding the individual allocations within the programme, the Government increased the proportion of the Programme devoted to infrastructural development from 29 per cent in 1979 to 33 per cent in 1980, inclusive of an increase of 28 per cent in the provision for telecommunications development. Some 42 per cent of the programme will be devoted to improving the productive capacity of the economy, including an increase of 22 per cent in the provision for industrial promotion by the IDA, SFADCo and Údarás na Gaeltachta. A further £29 million has to be added for other capital requirements outside the programme, bringing total capital expenditure to £1,183 million.

Receipts from the European Regional Development Fund assist in financing capital expenditure. The Government have had discussions with the EEC Commission about the difficulty experienced by member states in getting commitments of fund money translated quickly into payments. As a result of these discussions, receipts from the fund are expected to increase from £26 million in 1979 to £47 million in the current year.

Other resources available to defray capital expenditure are estimated at £593 million, leaving a balance of £543 million to be found by borrowing.

Revenue Buoyancy 1980

The resources available to finance current expenditure come from tax and [715] non-tax revenue. Tax revenue, before the adjustments which I will make today, is estimated at £2,450 million, an increase of £441 million, or 22 per cent over the 1979 outturn. The estimate for non-tax revenue is £571 million, an increase of £196 million, or over 50 per cent, on the 1979 outturn. Both the tax and non-tax revenue estimates include amounts carried over from 1979 as a result of the Post Office dispute.

Opening Deficit 1980

The estimated expenditure of £3,367 million on current services and the revenue estimate of £3,021 million give an opening deficit on current account of £346 million. Adding the Exchequer borrowing requirement for capital purposes of £543 million, this gives an opening borrowing requirement of £889 million.

This budget's proposals will involve tax reliefs and tax increases, as well as changes in expenditure mainly in relation to social welfare. Before proceeding to deal with these policy changes, the presentation of the cost of basic services must be completed by making an adjustment for public service pay. I should like to speak about pay policy generally before doing this.

Incomes Policy

Government action can provide only part of the response needed to the problems posed for us. Success or failure in dealing effectively with these problems will depend critically upon the development of incomes, the climate of industrial relations and a shared community concern. I am confident that the overall impact of this budget will be seen as making a positive contribution in this direction.

Centrally negotiated pay arrangements have operated through the whole of the past decade. Many workers—including in particular the lower paid—could not have hoped to do as well without the support of the collective strength of the trade union movement through the centralised arrangements. Increases in pay secured during the [716] decade more than compensated for movements in the consumer price index.

The national understanding, as a development of these centralised arrangements, has been, on balance, worth while. It has united Government, workers and employers in a comprehensive response to national problems. It has shown that pay developments cannot be seen in isolation, because they influence the entire economic and social fabric, and because workers' aspirations are rightly not limited to pay alone. Benefits are flowing from the understanding. The discussions which led up to it, and which have continued since, have given all sides a deeper appreciation of each others' aims and of the very real constraints within which all must operate. The efforts which are being made by responsible trade unionists to secure greater industrial peace is a significant development, deriving in large part from the collective approach to industrial relations which the understanding has fostered.

This is not to claim that the understanding has worked perfectly. The Government accepted the pay terms with some misgivings as to the effect they might have on the economy, and only because they indicated restraint in regard to special claims and an assurance of industrial peace. The extent of special increases and the adverse development of unit wage costs in industry last year gave substance to these misgivings. Last year, costs here rose significantly faster than the EEC average. An exporting country like ours, with a large deficit in the balance of payments, cannot afford to lose competitiveness internationally through such increased costs.

The basic pay provisions of the National Understanding will lead to a further substantial increase in average earnings this year. Payments due under the second phase will come to about 10 per cent of average industrial earnings. This is even higher than the 9 per cent paid under the first phase nine months earlier. By international standards these are very high rates of increase indeed. From a strictly economic viewpoint, [717] there would not appear to be scope for any further pay increases this year.

I am sure that our people now accept that we cannot continue to live beyond our means, nor to award ourselves increases in incomes which are not accompanied by an increased margin of productivity to guarantee the competitiveness of output at home and abroad.

The increases in oil prices have contributed significantly to the cost of living. They have made us and other industrial countries poorer in absolute terms and we have to face the reality that we, as a community, cannot compensate ourselves for this loss simply through increases in incomes. To attempt to do so will drive up the inflation rate further and will leave less advantaged sections of the community worse off. This is the unanimous view of the Finance Ministers of the EEC. Against that background, efforts to provide compensation for the impact on consumer prices of higher oil costs were inappropriate and are even more so now.

The Government at this stage have an open mind about what arrangements should follow the National Understanding. But the dominant consideration must be that levels of pay should be appropriate to the more difficult economic conditions with which we are now confronted at home and abroad. Arrangements which ensure this in the interest of our common well-being will be welcomed by the Government. Arrangements which did not could not be acceptable.

Public sector pay and pensions

The growth in the cost of public service pay and pensions is a matter of serious concern. The 1979 cost, at £1,158 million, represented an increase of 25 per cent on 1978. About £110 million arose from special pay increases payable in addition to the standard increases of the Pay Agreements of 1978 and 1979.

The estimates for 1980 include a sum of £1,387 million for the Exchequer cost of pay and pensions. This includes provision for the second phase of the 1979 [718] Agreement and for the carry-over effect of other increases granted in 1979.

With the exception of some major groups, most public servants will by now have obtained a substantial special increase in pay in the current series of such increases which commenced in 1978. I would emphasise again that these special increases are on top of the generous standard increases arising under the 1978 and 1979 pay agreements. Even in favourable economic circumstances, it would be reasonable to expect that special increases on this scale would take care of any anomalies or inequities as far as public servants are concerned for a number of years to come.

It is therefore particularly disturbing to find fresh demands for special increases—some of them very substantial—coming from groups who have already benefited in the current series of such increases in 1978 or 1979. I would ask those concerned to consider carefully the consequences for themselves and for the public generally of such unreasonable demands.

As I said earlier, there would not appear to be scope from a strictly economic viewpoint for further increases in rates of pay this year. For that reason I am most reluctant to make provision for further pay increases. I must, in prudence, however, make some provision under this heading. I am therefore adding to the expenditure estimates £100 million for pay and pensions. If, in the event, this provision has to be increased, I am determined that we will not have a recurrence of last year's experience whereby such excess expenditure added to borrowing. I shall, if necessary, introduce supplementary proposals whether by way of increasing revenue or decreasing services, to cover any excess costs.

Deductions from expenditure

I should mention at this stage that I intend to deduct from expenditure a sum of £40 million for unspent balances in the hands of Departments.

There is also a relatively small saving to be made as follows. There has been a [719] large increase in recent years in official foreign travel arising out of Ireland's international trading and diplomatic links and membership of various international organisations. I am concerned to ensure, in the interests of economy, that only essential travel is undertaken and that there is no unnecessary duplication of attendance at meetings abroad, particularly those unconnected with our membership of the European Economic Community. I have directed Departments to secure the maximum savings possible in this respect. The amount involved—about £¼ million—may appear small relatively speaking, but it is important as an indicator of the Government's intention to keep taxation at a minimum.

In effect, I have now added a net £60 million to the opening deficit on the current side of the budget.

TAXATION

I turn now to the subject of taxation.

The overall level of taxation in Ireland, at 34 per cent of GNP in 1978, compared with an average of 40 per cent for the other EEC countries. This relatively low level of taxation in Ireland has been made possible only by large-scale borrowing over the past five years to finance current services.

The Government are fully committed to devising an equitable tax system as between each taxpayer and each section of the community. It is not possible to allow each section the tax system of its choice, nor can a complex tax system be changed all at once. The Government will endeavour to ensure that taxpayers will recognise that no one is being disproportionately burdened and particularly that no one, by evasion, passes on his burden to another.

Steps have already been taken in the last two budgets to improve the position of low income taxpayers, in particular by means of large increases in the personal allowances. The proposals in this budget will advance the Government's objectives significantly.

The Government-ICTU Working Party on Taxation have devoted considerable [720] time to devising acceptable and factual bases of comparison of the distribution of the tax burden. These are but the initial steps in tackling the complexities of the matter. In order to assist the Government to assess the problem objectively and to design an equitable tax system, the Taoiseach has proposed a full-scale Commission on Taxation. The Government envisage that the commission would discharge their task with all possible speed and might, by arrangement, provide interim reports on specific tax areas. Significant changes need not await the conclusions of the commission, as today's budget measures will show.

Within the obvious constraints that apply this year, my tax proposals should demonstrate the Government's commitment to equity in the tax system in a manner consistent with the economic and social priorities we must pursue.

INCOME TAX

I will deal first with personal income tax. Of all taxes, personal income tax has most notably become a cause of widespread public unrest and dissatisfaction. I cannot in my Budget resolve all the problems associated with income tax but, when I have finished, I hope it will be clear that I have gone a long way towards an acceptable tax system—indeed probably further than most people would reasonably expect, in the present circumstances. I am satisfied that the need to give justice and fair-play to income tax payers requires that substantial measures be taken now rather than later.

In principle income tax is a fundamentally fair tax system. Its essence is that each taxpayer pays according to his means on a common basis with everybody else in the same position and that those who are better off pay more by an appropriate amount. The tax code also has a wide range of allowances and reliefs to cater for a varying range of social and family circumstances.

It is when the tax system is allowed to drift away from the basic principle I have outlined that the public's notion of fairness and equity is offended and disquiet [721] about the tax system begins to mount. This is an issue which must be faced and resolved.

There are four main problems to which my proposals must address themselves:

First of all, in the light of the recent Supreme Court decision, I have to deal with the taxation of married couples, particularly those where both husband and wife are earning.

Next, I have to tackle the higher tax burden imposed on an increasing number of taxpayers in recent years because income increases have attracted higher rates of tax.

Thirdly, I think there is a need to give further reliefs to the less privileged taxpayers—those with low incomes, and particularly those with social and physical handicaps.

Finally, there has been increasing unrest caused by the difference between the basis of assessment applied to wage and salary earners on PAYE and that applied to other taxpayers such as self-employed. These, as a general rule, pay tax based on profits of the accounting period ending in the preceding income tax year.

Taxation of Married Couples

With regard to the taxation of married couples, the Government are satisfied, in the light of recent developments, that nothing less than substantial changes in income taxation will now suffice. We intend, therefore, to implement our undertaking to alleviate the taxation of married couples. A narrow approach towards effecting the minimum changes to meet the Supreme Court's decision would lead to unjustifiable discrimination against the one-income family, particularly where a married woman elects to care for the family on a full time basis at home rather than take up work outside the home.

Even in cases where both spouses are working, their tax liability, if nothing were done, would vary depending on how incomes were divided between them. There would also be considerable scope for tax avoidance by self-employed and better-off taxpayers, who [722] could now attempt to take advantage of the Court's decision and arrange for both spouses to have an income designed to minimise liability for tax.

To implement the basic principle that taxpayers with the same income and the same family and social circumstances should pay the same amount of tax, the Government have decided to implement now and in full our longer-term plans for income-splitting. This means in effect that all married couples, whether with one or two incomes, will have the benefit of double the personal allowance and rate bands applicable to single persons.

Deputies: Hear, hear.

Mr. L'Estrange: That is the only “hear, hear” we will hear here. It will be where, where are we going?

An Leas-Cheann Comhairle: Order. Deputy L'Estrange will have his opportunity later.

Mr. L'Estrange: That is whistling passing a graveyard anyway.

An Leas-Cheann Comhairle: We could get on much better without any “hear, hears” or anything else.

(Interruptions.)

An Leas-Cheann Comhairle: The Minister without interruption.

Mr. O'Kennedy: The Government are reinforced in their view that this represents a major and much needed social advance in the tax system by the views expressed by such representative bodies as the Irish Congress of Trade Unions. The Government believe that the introduction of this principle accords with the general needs and wishes of the community, notwithstanding the cost and the inevitable measure of tax redistribution involved.

The main personal allowances have been increased substantially in each of the past two years and, even if unchanged, would still be higher in real terms than they were in 1977. However, [723] I am providing a special Schedule E employee allowance of £400 for each PAYE taxpayer in order to improve the tax progression for these taxpayers and also to take account of the fact that the self-employed generally have at present the advantage of paying tax on a previous year basis. I intend to exclude from this provision those Schedule E taxpayers in a position to control their own remuneration or that of their spouses, for example directors of proprietary companies. This Schedule E employee allowance is also intended to take account of the case made by ICTU that the present general scheme of allowances discriminates against employees and in favour of other taxpayers. Where an eligible husband and wife are both earning, this allowance will apply to each income. On the other hand, as a consequence of the introduction of income-splitting, the working wife allowance is being abolished.

The higher rates of tax—or tax bands—now apply at unduly low rates of pay. This has occured largely because, over the years, the value of the tax bands has not kept pace with inflation. Income taxation has become too progressive. Relatively high marginal tax rates clearly contribute to inflation and affect the attitude to work and attendance at work.

I have decided to tackle this problem as effectively and as fundamentally as I can. I propose, therefore, to raise the income levels at which the tax rates from 35 per cent upwards apply.

The new rate structure will be as follows: The first £1,000 of taxable income for single persons and £2,000 for married persons will be at a rate of 25 per cent; the next £4,000 for single persons and £8,000 for married persons will be at 35 per cent; the next £2,000 for single persons and £4,000 for married persons will be at 45 per cent; the next £2,000 for single persons and £4,000 for married persons will be at a new rate of 55 per cent; and the balance of taxable income, that is above £9,000 for single persons and £18,000 for married persons, [724] will be taxed at a rate of 60 per cent.

The special allowance for PAYE taxpayers will have the effect of raising the point of application of the 25 per cent and higher tax bands by further £400, or by a further £800 where an eligible married couple are both earning.

A male industrial worker on, say, just over £100 a week will get relief of about £150 if he is single and £230 if he is married. If his wife also works and earns the average industrial female wage, the total relief for the couple will be about £500 or over 20 per cent of their tax bill.

At present a married PAYE earner whose wife does not work may move from the standard, or 35 per cent rate, to 45 per cent at £122 per week. As a result of my proposals, this will not now happen until his earnings reach not less than £243 per week. The corresponding figure for single persons is raised from £100 to £125 a week.

The new structure, at one stroke, will bring over 180,000 taxpayers, or nearly two-thirds of those at present liable at higher rates, down to the lower standard rate band.

Tables which are circulated with my Financial Statement will show the relief which is granted to different categories of taxpayers.

It may appear that the distribution of tax relief unduly favours married couples with higher incomes, but this is an unavoidable consequence of observing the Supreme Court decision and of implementing income-splitting in full.

In broad terms, a relief given to a single person is doubled for married couples. Consequently, unless single persons on relatively modest incomes were to have their income tax burden increased, married couples with high incomes had to obtain substantial tax relief. The Government were faced with a situation in which the income of the average single male industrial worker had in many cases brought him into the 45 per cent tax band. To remedy this situation, it was necessary to widen the standard rate tax band for single people—with a resultant double benefit for married couples.

The following is an example of the effect [725] of my proposals on a married couple where the husband is earning £8,000 and his wife, who also works, is earning £4,000. Between them, because both are working, they have an income of about twice the average income for single workers. In 1979-80 they paid much more than twice the average tax of single persons and the top rate of 60 per cent applied to part of their incomes. Their top rate of tax will now be reduced to 35 per cent and the amount of tax they pay will be twice that of two single persons each earning half their combined income of £12,000—their tax will be reduced by over £1,300. Under my proposals, much the same relief will now be given to a single income family.

The net result of the Budget proposals will be that the burden of income tax for nine out of ten single people on PAYE will now be less than it was in 1977-78. In the case of all married couples on PAYE, the burden will now be less than at any time since the introduction of the present unified system of income tax in 1974-75. For married couples generally, the income tax structure will be at least comparable with that in the U.K. and, for the vast majority of taxpayers on lower incomes, whether single or married, it will be significantly better.

Subsidiary allowances

I now come to deal with less privileged taxpayers. I am concerned that liability to income tax can apply to persons on very low incomes, particularly young people just starting work and casual or part-time workers. I cannot solve this problem completely but I am happy to go a long way in that direction by introducing complete tax exemption limits for people on low incomes, including those affected by sickness and unemployment. The exemption limits will be £1,700 for single and widowed persons and £3,400 for married persons. There will also be marginal relief at a rate of 60 per cent for taxpayers with incomes just above the exemption limits. As a result of this proposal, 75,000 persons who would otherwise pay tax this year will not now do so.

[726] A single person on £33 per week will be relieved of all his tax amounting to £146 per year. A married couple on £66 per week will get full relief of £300 a year.

The Government are particularly aware of the difficulties and anxieties experienced by many old persons in completing their income tax returns and complying with their tax obligations generally. In many cases this is out of all proportion to the ultimate liability involved. For this reason, I propose to raise the age exemption limits to £2,000 and £4,000 respectively for single and married persons aged 65 years and over. Special exemption limits of £2,500 and £5,000 will be introduced for persons aged 75 years and over. These limits will remove 8,000 old persons from the tax net, bringing to 83,000 the number of low-income taxpayers removed from liability. Marginal relief will benefit many more.

In 1969, an allowance was introduced to cover the case in which an individual, or his wife, is totally incapacitated throughout the year of assessment and a person is employed for the purpose of taking care of the incapacitated person. I propose to double this allowance to £330.

I also propose to increase the allowance for incapacitated children to double the normal child allowance.

A special allowance of £250 was introduced last year for one-parent families which consist of a widowed person, a deserted spouse or an unmarried parent with a dependent child or children. This was widely welcomed. I am satisfied that this allowance fulfils a genuine social need and I propose to double it, to £500.

The allowance for blind persons has not been increased since it was introduced in 1971. I propose to double this allowance also to £330. In the case of a married couple, both of whom are blind, this allowance will apply to each spouse.

Taxation of Social Welfare Benefits

The Government have been reconsidering the planned taxation of short-term [727] social welfare benefits from 6 April next, which was provided for last year. The new tax exemption which I have proposed for those on lower incomes would reduce any revenue gain from the effects of making short-term social welfare benefits taxable and, moreover, the new tax structure will improve the incentive to work. In these circumstances the Government have come to the conclusion that the proposal should not be implemented. This change in plans will cost £8.5 million in 1980. The necessary amendment will be included in the Finance Bill.

In drawing up my proposals I had particular regard to the representations made by ICTU. In many respects the effects of my proposals on individual taxpayers are quite similar to those of the ideas they had put forward. Where there are differences, they are not, I feel, major ones.

The total cost of the changes in allowances, rate bands and exemptions is £131.5 million in 1980 and £227 million in a full year. Including the decision not to tax short-term social welfare benefits, I have now deducted £140 million in 1980 from the revenue side of the Budget.

Taxation of Self-Employed Persons

The fourth major element in my imcome tax package this year is to devise more uniform treatment of employed and self-employed persons.

Self-employed persons are normally charged to income tax in any year on the basis of the profits of the accounting period ending in the preceding income tax year. In present circumstances, when both incomes and profits are rising rapidly in money terms each year, this results in a substantial advantage to the self-employed compared with taxpayers in the PAYE sector, where tax is charged on current earnings. It would be in the interest of greater equity if both sectors were brought to an equivalent basis of assessment as soon as possible. While there are considerable difficulties in doing this, I am examining the matter [728] with a view to bringing about the changes that are necessary.

I have already announced that I am giving a special PAYE allowance of £400 to compensate PAYE taxpayers for the generally more favourable basis of assessment applied to other taxpayers. I now propose also to change the dates of payment for Schedule D tax on self-employed. At present this tax is payable in two instalments on 1 September and 1 January in the year of assessment. Subject to an exception to which I shall come later, I propose to provide that all income tax other than PAYE will now be payable in one instalment on 1 October in the year of assessment.

This change will yield £24 million in 1980.

Supreme Court Decision

As I have outlined, my tax proposals for 1980/81 take fully into account the Supreme Court decision on the taxation of married couples where both spouses are earning. I have extended this principle to all married couples and legislation in the Finance Bill will be drafted on this basis for 1980/81 onwards. I await the decision of the Supreme Court in regard to the issues recently opened before it to determine the further measures, if any, I might be required to adopt.

Relief in Respect of Residence-Related Work

Last year a scheme was introduced, to operate for 1979/80 only, to give income tax relief, within certain limits, for the labour content of expenditure on home maintenance and improvements. As the implementation of this scheme was affected by last year's postal dispute, I propose to continue the relief for another year.

Life Assurance Relief

I have received representations that the £1,000 limit on relief in respect of life assurance premiums, which was introduced in 1974, should be raised. Due to the restriction to one-sixth of total income on the amount of premiums qualifying for relief, an increase in the limit would only benefit persons with incomes [729] over £6,000, who are already getting substantial tax relief under my Budget proposals otherwise. However, I have decided that where a husband and wife are assessed as single persons the £1,000 limit should be applied to premiums paid by each spouse on policies on the life of either spouse. Where a couple opt for income-splitting a limit of £2,000 will apply. This will cost £0.2 million in 1980.

Compensation for Loss of Employment

Representations have been made to me that the existing tax exemption limit of £3,000 in respect of lump sums paid as compensation for loss of employment is too low as it has not been changed since 1964. I propose to increase the limit to £6,000.

The taxation of farming profits

Developments in agriculture have generally been very favourable to our farmers since we joined the EEC. Last year was, however, an exception. Between 1975 and 1978, farm incomes rose by 76 per cent but in 1979 it is estimated that they fell by about 4 per cent. Proposals made recently by the EEC Commission on price fixing as part of the annual review of prices and on measures to deal with surplus production would, if approved, seriously affect our farmers, particularly those engaged in the production of milk and sugar-beet. These proposals would also seriously affect workers in the related food processing industries. The Government have already made known their opposition to the proposals and they will continue to oppose them strenuously.

A strong and developing agricultural sector is basic to the economic well-being of the nation. Agriculture supports not only those directly engaged in farming but also the many thousands of others working in food processing and in services. The rapid development of agriculture since we joined the EEC reflects the energy and dynamism with which our farmers have taken advantage of the opportunities opened to them through higher prices and free access to markets provided by the Common [730] Agricultural Policy. Investment in land improvement and in up-to-date equipment and buildings has grown enormously—traditional methods are more and more giving way to modern sophisticated techniques of farm management and production.

There is a growing realisation of the mutual interdependence between the rural and urban communities. I am anxious that understanding between farmers and workers in general be promoted and fostered. I am heartened by the recent meeting between the farming organisations and the Irish Congress of Trade Unions to develop such understanding and also by the support given by the unions to the recent rally against the proposed super-levy on milk.

However, the proportion of tax paid by each sector has been, unfortunately, a source of division rather than understanding between them. Since the introduction of farm taxation in 1974, taxpayers generally have felt that the amount of tax paid by farmers was less than was justified by reference to farm incomes and was not conducive to achieving equity between farmers and other sectors of the community. It is true that, in that period, farm incomes have risen substantially and the Government last year, after lengthy consultations, announced a revised system of farm taxation to be introduced this year.

Whatever differences of opinion exist on the appropriate relative share of tax paid by each sector, I believe there is universal acceptance of the principle that the amount of tax paid should reflect the income of the taxpayer. Where there is a decline in income as was experienced by the farming community in the unfavourable conditions of last year, the estimate of yield from tax must be reduced. To do otherwise would be to add a disproportionate burden of tax to the loss of income already sustained.

I do not therefore propose to insist that the yield from farm taxation in 1980 be of the same order of £100 million as was calculated before this fall in income emerged. I am not insisting on a predetermined yield from the scheme that has been announced but I must estimate [731] the likely yield from that scheme as with every other revenue category.

Deputies will be familiar with the scheme announced last year. However, I feel I should outline it here again, particularly as I propose to make some adjustments to it. These adjustments should have little or no revenue implications but should facilitate the operation of the scheme and at the same time take account of the special circumstances of the farming community.

In the first instance, the threshold for liability to income tax will be lowered from £50 RV to £40 RV, making a further 9,000 full-time farmers, or 36,000 in all, liable to income tax. However, marginal relief will apply between £40 RV and £49 RV, so that a farmer with a holding of £40 RV will pay only one-tenth of his full liability, two-tenths at £41 RV and so on until the full liability becomes payable at £49 RV.

All farmers who are liable to income tax will be assessed on the basis of their profits as shown in accounts. I recognise, however, that farmers between £40 and £50 RV entering the tax system for the first time may have difficulty in preparing accounts. Accordingly I have decided that a simplified form of accounts should be used in these cases. The Revenue Commissioners, at my request, are consulting with the farming organisations to examine the form such simplified accounts should take. A new mobile advisory service which I propose to provide for taxpayers generally, and to which I will refer later, should be of special assistance for farmers in this new category.

As is normal when the income tax threshold is lowered, farmers entering the tax net for the first time will have the option of presenting current year's accounts rather than the normal previous year's accounts. This option will only apply this year as the Government have decided that the tax threshold for farmers will not be further lowered within the next three years. I think this is desirable to enable the Government to assess the operation of the scheme as it [732] now stands. It will also enable farmers to plan ahead without the uncertainty in this area which can sometimes appear to act as a disincentive.

The notional basis of assessment will be abolished. The notional basis was introduced in 1974 and was designed to assist farmers who were not used to keeping accounts and in general to ease farmers into the tax system. It has now outlived its usefulness and can no longer be justified on equity grounds since it allows some of the highest-earning farmers to pay tax on only a fraction of their real incomes.

As announced, a restriction of capital allowances to 30 per cent of net profit before deduction of capital allowances was to apply where accelerated allowances are claimed. However, as I am anxious to encourage investment for further development and increased productivity, I have decided that the restriction should be confined to plant and machinery only. This means that the restriction will not apply to farm buildings or to farm works such as land reclamation or fencing.

Over investment in plant and machinery inspired by tax avoidance is not in farmers' own best interest; nor is it in the best interest of the community as a whole since the bulk of farm machinery has to be imported to the detriment of our balance of payments. In addition, there is not a limitless pool of available credit for agriculture and wastefully soaking up an undue amount on plant and machinery which is not sufficiently employed to pay its way deprives other more deserving and productive areas of the necessary funds. The restriction, which will not affect ordinary wear and tear allowances, represents merely a deferment to later years of part of the extra capital allowances. It should not affect genuine investment which is so important to the development of agriculture.

As regards rates on land, which was another element of the scheme, the Minister for the Environment has already announced that he will shortly introduce the necessary legislation to lower the cut-off point for rates relief under [733] the agricultural grant from £60 RV to £40 RV. The cut-off point will remain at £40 RV for three years.

The scheme announced last year provided that full-time farmers would no longer pay their income tax in a single payment on 1 January, but rather in two instalments on 1 September and 1 January in the same way as other Schedule D taxpayers. I have already announced that a single payment date of 1 October is to be introduced this year for Schedule D taxpayers generally.

However, if this were applied to full-time farmers, it would mean that they would pay two years' tax in 1980—their full 1979-80 tax under the existing single-payment date system on 1 January last, and their full 1980-81 tax under the new single-payment date for Schedule D taxpayers on 1 October. I have decided to avoid this in the interest of equity in their case. I intend instead to postpone the payment of the first instalment of 1980-81 income tax to 1 October to coincide with the single payment date of other Schedule D taxpayers.

The resource tax on all holdings of £70 R V and over at a rate of £3.50 per £ RV will be introduced from 6 April 1980. It had been intended that this tax would have been payable in one instalment on 1 September. But, in line with what I have already indicated in relation to income tax, I propose that this date should be 1 October. Marginal relief will apply to holdings between £70 RV and £79 RV.

As I have indicated, I must provide in my budget, as in all other cases, for an estimate of the revenue yield from the farm tax scheme. Accordingly, the estimated 1980 yield will now be £86 million, consisting of £33 million from income tax, £46 million from rates on land and £7 million from the resource tax. This compares with £16 million from income tax and £36 million from rates on land in 1979.

The income tax reliefs which I announced earlier will, of course, apply also to farmers.

This scheme of farm taxation is designed to move towards equity between taxpayers and indeed between farmers. [734] I think that farmers themselves will recognise that it is in the interest of the farming community generally that farmers with sufficiently high incomes actually pay—and be seen to be paying—their fair share of tax from the income which they have. As I indicated to the farming organisations in my consultations with them, the operation of this revised scheme now being introduced will be kept under review in the interest of equity and in the light of experience of its operation.

Capital Acquisitions Tax

I have received numerous representations on the question of the liability of farmers to capital acquisitions tax, that is gift tax and inheritance tax, on the transfer of the family farm. Many farmers have been concerned about their possible liability to the tax in view of the big increase in land prices since the tax was introduced in 1976. Because of this land price rise the market value of many farms has in recent times been substantially higher than their income-earning capacity.

Despite a tendency lately for market prices to reduce more in line with use value and thereby easing this concern I have decided to increase the upper limit of the special agricultural relief from £100,000 to £150,000 in the Finance Bill, with effect from 1 April next. This will mean that the market value of agricultural property for the purposes of the tax may be reduced by up to £150,000 for farmer beneficiaries, thereby directly relieving the problem caused by the land price rise. The cost in the current year of this change will not be significant because of the time lag between liability and payment. I firmly hope that this concession will act as a real incentive to transfers of farms to the younger generation of the farming community, and thereby promote productivity and increase the income from family farms—to the benefit of the whole economy.

ADVISORY SERVICE FOR TAXPAYERS

It has been my experience and, I am sure, that of many Deputies that many [735] taxpayers are bewildered about tax and find it difficult to come to grips with the complexity of the workings of the tax system. This may cause unnecessary apprehension which, in my opinion, can be overcome if the taxpayer could have access to an advisory service. Some people may not be aware that such a service is already provided in tax offices and is widely availed of. I have now arranged, in addition, for the acquisition by the Revenue Commissioners of a mobile tax advisory office. This unit should be ready in a few months and will provide an advisory service for those not resident near tax offices. I stress that this service will be purely for advisory work, to enable individual taxpayers who need it to have direct access to advice, free of charge.

Mr. O'Keeffe: A wanderly tax wagon.

Mr. O'Kennedy: I will keep the operation of this service under review in the light of experience, to ensure that it is of maximum benefit to those taxpayers who require it.

Deputies will appreciate that its success will depend on the closest co-operation and understanding between the people who have access to it and the Revenue officers who are always ready to provide guidance for the public in filling in their returns form.

TAXATION OF BUSINESS

Stock Relief

Stock relief was introduced as a temporary measure in 1975 in order to assist firms in certain sectors in coping with the effects of inflation on the cost of replacing stocks. Under present legislation, stock relief is available in respect of accounting periods ending before 6 April 1979.

The 1979 budget continued the relief for a further year at a rate of three-quarters of that previously allowed. I have decided that the relief should be continued for a further year at the level obtaining in 1979. This will cost the Exchequer £3 million in 1980.

[736] Special Incentive for Manufacturing Companies

The 1977 Budget introduced an incentive scheme whereby manufacturers showing certain improvements in output and employment could benefit from a special 25 per cent rate of corporation tax. The scheme, whose terms were made more favourable in 1978, covered the years 1977, 1978 and 1979.

I have decided to extend the scheme to 1980 pending the introduction of the new 10 per cent rate for manufacturing profits generally. As Deputies are aware, a 10 per cent rate of corporation tax will come into operation as from 1 January 1981 and will run to the end of the year 2000. Provision will be included in the forthcoming Finance Bill to give effect to this scheme.

Business Entertainment Expenses

Considerable disquiet has been caused by the fact that many business concerns are seen to entertain on an unduly lavish scale, ostensibly for the purpose of building up the goodwill required to secure and retain customers. The stricter test for determining the admissibility of expenditure incurred for business entertainment which was introduced in 1973 does not appear to be having the desired effects. Unnecessary entertainment not only entails a subsidy from the taxpayer but also arouses a sense of inequity in the minds of those taxpayers who cannot afford to indulge in it themselves. Accordingly I propose to limit the allowance for business entertainment expenses for tax purposes to 50 per cent in future.

Contribution to Taxation by Financial Institutions

I am conscious of the vital role which the financial institutions play in providing for the requirements of industry and commerce as well as individuals. The question nevertheless arises as to whether the contribution to taxation by these institutions is fair and equitable having regard to the contribution being made by individuals to income taxation.

[737] Intricate problems and interests other than those of the financial institutions themselves are involved and I am at present reviewing the matter. At the same time, I feel that this whole field might well benefit from the type of close and objective study which could be given to it by the proposed Commission on Taxation. I will consider, therefore, asking the Commission, as soon as it is set up, to carry out such an investigation as a matter of urgency and, if practicable, to deal with the question by way of an interim report.

Contribution to Taxation by Other Companies

I have considered, as a general matter of tax equity, the desirability of bringing forward the time of payment of tax by companies in the light of the change now proposed in relation to individual taxpayers other than PAYE taxpayers.

This could be justified in equity, but I am also conscious of the effect which such measures could have on liquidity and investment in present circumstances. While keeping the matter under review, I have decided to defer making such a change for the present. I have also in mind that it would be useful if the proposed Taxation Commission were to investigate the contribution to taxation by companies at large and I would propose to ask them to include it in their programme of work.

Indirect Taxation

There is of course no escaping the fact that the income tax improvements and social welfare improvements being announced today must be met from taxation and the only realistic source for the vast bulk of this is indirect taxation. There is no scope through other forms of income taxation or of direct taxation otherwise for raising the amounts involved.

Pursuing the general social orientation of my proposals, I have concentrated my indirect tax proposals on discretionary expenditure as far as possible. In this way, the impact will be minimised on the necessities of life, and therefore on households and individuals whose means [738] and commitments are such as to allow of only limited discretionary expenditure.

There are of course limits to the extent to which the wide range of essential public services can be financed from highly selective taxation, but my purpose has been to travel this road as far as I can.

The one area where I have felt obliged to tax less discretionary expenditure has been oil products and related headings. Energy considerations, balance of payments considerations, and of course revenue considerations all arise here. The balance of payments and budgetary needs I have already explained. We simply have to reduce our dependence on highly priced imported oils. Our pattern of usage of private motor transport in particular derives from an era when our roads and streets were less congested and when the human, environmental and financial costs of our habits were of little consequence. It is vitally important for economic, social and environmental reasons that we rationalise our consumption habits. Car-pooling, use of public transport, good driving habits and staggered arrangements for delivery of goods to congested urban and city areas can all play a major role in relieving the obvious problems and ensure that motor transport can once again be an unqualified social and economic benefit for all. Some recovery of the lost ground of latter years in petrol taxation is clearly called for, together with a greater balance in taxation of oil products generally.

Hydrocarbon Oils

Excise on all of the hydrocarbon oils has not been increased since 1976, and road diesel has remained at its present level since 1969. I propose the following increases.

Petrol, Road Diesel and Liquid Petroleum Gas (LPG) used in Motor Vehicles

First, I propose an increase of 20p per gallon for petrol, road diesel and liquid petroleum gas (LPG) used in motor vehicles. Revenue considerations demand that no undue encouragement be given [739] to switching away from the more highly taxed petrol.

The rebate for diesel oil used in buses on services scheduled in accordance with the relevant legislation will be increased appropriately so that bus fares will not be affected.

I am particularly concerned about the special case of handicapped drivers, a concern which I believe the public share. In order to avoid imposing additional taxation on these drivers—

Mr. L'Estrange: We are all handicapped from now on.

An Leas-Cheann Comhairle: We will have to handicap Deputy L'Estrange. Deputies must allow the Minister to continue. Deputies will have months to talk on it.

Mr. O'Kennedy: I am arranging that the rebate to them will be increased by the full amount of the duty. In addition, I am increasing from 450 to 600 gallons the annual rebate quota allowed to these drivers.

Other Oils

I have given very careful considration to the effects an increase in the duty on “other oils” might have on different categories of users, to energy conservation and to the alternative tax measures which might be otherwise required. I have decided that it would be appropriate, taking all the relevant factors into account, as they affect both individuals and industrial concerns, to propose an increase of 5p per gallon on these oils. By way of extension of an existing concession, producers with glasshouses of a minimum area of one quarter of an acre and mushroom growers with not less than 3,000 square feet of cultivation area will be rebated 3p of this 5p increase.

The additional revenue in 1980 from the tax increases on hydrocarbon oils is estimated at £113 million.

[740] Private Motor Vehicles

In the light of what I have already said, additional taxation on private motor vehicles also clearly falls to be considered. I propose that the excise duty on private motor vehicles, including motor cycles, should be increased from 35 per cent to 40 per cent. This can be expected to result in an increase of about 3½ per cent in the retail price. The estimated revenue yield in 1980 is £9.2 million.

The total yield in 1980 from the foregoing proposals for tax increases would be £122.2 million. This would be far short of what is required to finance the cost of the reliefs in direct taxation so I must turn at this point to what are popularly known as the “old reliables”. In doing so I am encouraged by the fact that these are discretionary expenditures, and expenditures not without their social undertones in some cases.

Tobacco Products

I am proposing a tax increase of 10p in the retail price of the packet of 20 cigarettes in the most popular price category, with pro rata increases for cigars and other tobacco products. These increases are estimated to bring in extra revenue of £19.0 million in 1980.

Spirits

An additional 16p tax is proposed in the retail price of a glass of spirits. This will mean an extra 8p on the normal half-glass measure. This is estimated to bring in extra revenue of £14.0 million in 1980.

Beer

An increase of 6p is proposed in the tax element in the retail price of the pint of beer. This is estimated to bring in extra revenue of £30.8 million in 1980.

Mr. L'Estrange: Clean living—we will all be drinking milk from now on.

Mr. O'Kennedy: I also propose to increase the taxes on wine, cider and perry, and table waters.

[741] Wine and Made Wine

An increase of 40p is proposed in the tax element in the retail price of a bottle of table wine. The increase will be pro rata for stronger wines, and for sparkling wines the proposed increase is 80p per bottle.

Cider and Perry

Following the restructuring of the excise duty on cider and perry in the 1979 Budget, I propose a modest increase of 10p in the tax element of the retail price of the gallon of ordinary cider. The change represents an increase of roughly 2p in the price of the ordinary flagon of cider. The highest strength will bear excise duty at the new rate proposed for “made wine”, while cider and perry of intermediate strength will be increased by 55p a gallon.

Table Waters

The existing rate of excise duty of 10p per gallon on table waters has not been altered since 1975. I propose to increase the tax element in the retail price per gallon by 30p.

The new rate will be equivalent to:

6.6p on the family sized bottle (1 litre), 2.2p on the 12 oz. can and 0.7p on the 4 oz. mixer.

Mr. T.J. Fitzpatrick (Cavan-Monaghan): What will he put it on next?

Mr. L'Estrange: We will all have to change our ways.

Mr. O'Kennedy: I am very aware of the effects this increase could have on the smaller manufacturers of mineral waters so I propose to increase the existing rebate provision pro rata. The new level of rebate will be:

12.4p on the first 20,000 gallons of output and

6.2p on the next 80,000 gallons of output.

The increases proposed for tobacco, alcoholic drinks and table waters is estimated to bring in extra revenue totalling £75.8 million in 1980.

[742] VALUE ADDED TAX

I consider in the special circumstances of this year and particularly from a balance of payments point of view that some more general constraint on expenditure is needed. The Government gave careful consideration to the question of some fundamental alterations in value-added tax. They decided, for reasons of social concern, that the present zero and 10 per cent categories should remain unaltered but that an increase in the 20 per cent rate to 25 per cent would be justified and least likely to cause hardship. This will take effect from I May 1980. The additional revenue expected in 1980 from this change is £17.75 million.

I turn now to other, less general, excise and other duties where an upward adjustment of tax is necessary and appropriate.

Televisions and Gramophone Records

It is proposed that the specific duty of £69 on the top category of colour TV sets will be increased by £10 with pro rata increases for all other categories of colour and monochrome sets. It is also intended to increase the excise duty on gramophone records from 30 per cent to 40 per cent.

“Cigarette” Lighters

I am aware that for some time now there has been a rapid growth in the sale of disposable cigarette lighters. Lighters are not subject to excise duty while matches are. Notwithstanding the fact that lighters attract VAT at a higher rate, the overall taxation favours lighters. For this reason I propose that a new excise duty of 20p per lighter be imposed on all lighters.

Stamp Duty on Cheques

I propose to increase in the Finance Bill the stamp duty on cheques from 1p to 3p. The 1p rate has applied since February 1971.

These three changes will yield an extra £1.6 million in 1980.

Minor Excise Duties

There is a large number of miscellaneous licences issued which bear an [743] excise duty. They relate mainly to the alcoholic drinks industry and to auctioneering, betting and gaming, as well as to many other activities. I am having these examined with a view to increasing the duty, where appropriate, in order to bring them up to a realistic level in present-day terms or, at least, to cover the present-day costs of administering them. I would intend to make the bulk of these changes in the forthcoming Finance Bill.

I have already decided to increase the licence duty on gaming machines. The proposed new rate is £100 for a full licence for each machine and £25 for a quarter year. I am increasing the reduced rate licence to £16.50 a quarter, but at the same time extending it to cover Saturdays as well as Sundays and public holidays. I also intend to provide in the Finance Bill for an increase in the licence duty for gaming premises from £100 to £200.

I also propose to double the existing rates for firearm certificates. The new rate, for example, for a shotgun will now be £6.50 a year.

The additional revenue in this area of miscellaneous licence duties is estimated at £1.2 million in 1980.

I turn to two further revenue proposals, one affecting outdoor and the other indoor recreation. I feel I voice a commonly held view when I say that racecourse betting and dancing might be called on to make a contribution to revenue needs.

On-course Betting

There is a wide differential between the 20 per cent excise duty which applies to off-course betting and the 6 per cent levy which operates for on-course betting with bookmakers. I am having the general role of the latter levy in the financing of the racing industry reviewed but in the meantime I propose to impose a stamp duty of 1½ per cent on on-course betting with bookmakers, the proceeds to accrue to the Exchequer rather than to the racing industry as in the case of the levy. The benefit to the [744] Exchequer in 1980 is estimated at £0.5 million. Betting on the tote will be unaffected by this change.

Dances

Dances, discos, cabarets, dinner-dances and the like comprise one area which can bear an additional element of taxation. I am considering the various alternatives which may be open to me in this respect and I would intend to bring forward firm proposals at an early date.

Before I leave the area of excises, there are two subsidiary matters I would like to mention.

Small Brewers

The first is the small brewers scheme which, by way of concession, I am continuing for a further year at a cost of £160,000 in 1980. The scheme, introduced in the 1978 budget, readjusts the incidence of excise duty on beer so that the smaller producers bear a somewhat lesser rate of duty while the larger producers pay somewhat more.

Deferment of Excise Duty on Spirits

The second matter concerns the way manufacturers of spirits pay excise duty. The duty is paid at the end of the month following that in which spirits are released from bond, except for the month of March when the payment may not be deferred. This catch-up arrangement is a hang-over from the old April to March financial year. I propose to replace it with a similar arrangement which would operate in December.

This has the once-off advantage from the budgetary point of view of bringing forward to this year the duty which would have been deferred to end-January 1981. The gain to the Exchequer in 1980 is estimated at £8.3 million.

Motor Vehicle Duties

My next proposals concern motor vehicle duties and relate back, to some extent, to the duty increases on petrol and oils; they have both conservation and revenue implications. I propose

— an increase in the initial and annual registration charges for cars of 16 [745] horse power and under from £5 to £10;

— an increase in the charges for motor cycles from £1 to £5; — an increase in the annual charge on excavators, agricultural tractors and other agricultural vehicles to £10;

— an increase in the driving licence fee from £2 per annum to £3 per annum.

The new rates will apply from 1 April 1980. The extra yield in 1980 from these changes will be about £3.5 million.

POST OFFICE CHARGES

The proposals I have presented to the House relate to what is technically described as tax revenue. I turn now to a matter which concerns the non-tax revenue, namely, Post Office charges.

In principle, the Post Office services are expected to pay their way but, in fact, they have been incurring a heavy commercial loss. In 1978 the overall deficit was £19 million and, in 1979, £29 million, notwithstanding the increase in charges in that year. The deficits would not have been so high were it not for the lengthy strikes in those two years. The full year effect of last year's increases in charges plus increases in traffic might have been expected to improve the position in 1980; but the increases have been more than eaten up by the sharply rising costs of the services. At present charges, the overall loss could be £33 million in 1980 and greater still in 1981.

The deficits on Post Office services have to be met from general taxation. It is out of the question to expect taxpayers generally to continue to carry such heavy losses. Charges for telecommunication services will therefore be increased from 1 July next and postal charges from 1 May. The Minister for Posts and Telegraphs will announce the details later.

The estimated yield this year from the increases in cash terms is £17 million. [746] They will not eliminate the deficit. On the basis of present pay and other costs, the commercial accounts will still carry a deficit of about £9 million at end-1980. A further increase in charges cannot be ruled out next year depending on increases in pay or other costs.

The total of the revenue increases which I have detailed is £289 million. When set against the cost of tax reliefs of £143 million and the net addition of £60 million to the expenditure side of the Budget, I am left with £86 million.

FOOD SUBSIDIES

It continues to be the Government's belief that food subsidies applying as they do irrespective of individual need do not sufficiently discriminate in favour of the less well-off sections of the community. We gave very full consideration, therefore, to the question of further reducing them in line with our declared intentions. However, because difficult economic circumstances impinge most severely on the least prosperous, we have decided, in their interest, to maintain the present levels of subsidy for a further year. In the meantime, the Government will be actively searching for a more effective way of using the food subsidy funds to help this section of the community.

SOCIAL WELFARE

While every section of society awaits the Budget with a keen sense of interest, the interest of social welfare recipients is more deeply personal. It is my purpose in this Budget to maintain the momentum of social and economic development, particularly through a common adherence to acceptable standards in the community. An adequate social welfare provision is not just necessary in its own right but as clear evidence to the people of a fundamental Government commitment in this area. Today, I am announcing measures which, despite the difficult background to the Budget, will demonstrate the Government's care and concern for the most vulnerable in society. These major improvements in the income of the less well-off are a central [747] element in this Budget. I confidently believe that they will be endorsed as such by the community at large.

Weekly Social Welfare Payments

I am happy therefore to announce that, in addition to continuing the temporary increases given last October which represented some 6 per cent on average on weekly rates, there will be further substantial increases in April in weekly rates of social welfare payments.

Existing long-term weekly rates— which include contributory and non-contributory old age pensions, widow's pensions, invalidity pensions and deserted wife's benefit and allowance, and health allowances such as the incapacitated person's maintenance allowance—will be increased by 25 per cent. As a result there will be weekly increases of £4.90 and £4.20, respectively, in the maximum personal rates, under 80, for old age pensions contributory and non-contributory. There will be an increase of £8.55 a week in the present maximum contributory old age pension for a married couple both of whom are of pension age and under 80; for a married couple both of whom are under 80 and on old age non-contributory pension the weekly increase will be £8.40. A contributory widow with three children will get £9.00 a week extra, while a non-contributory widow with the same number of children will get a weekly increase of £8.40.

Short-term weekly rates—which include unemployment benefit and assistance, disability benefit, maternity allowances and supplementary welfare allowances—will be increased from their present levels by 20 per cent. For a married man with three children on unemployment benefit this will mean a weekly increase—exclusive of payrelated benefit—of £8.40; and in the case of a married man with three children on unemployment assistance (urban rate) the increase will be £7.40 per week. For a woman on maternity allowance the weekly increase will be [748] £3.40 while for a married man with three children on supplementary welfare allowance the weekly increase will be £7.25.

Full details of the various increases, together with certain miscellaneous improvements, are to be found in the “Principal Features of the Budget”.

Compared with the rates of benefit in operation last April, the new weekly rates of benefit which will operate from next April will be on average 31 per cent higher in the case of long-term rates and 26 per cent in the case of short-term rates.

Children's Allowances

Children's allowances, as an income supplement, particularly for hard-pressed mothers and families, are an important element in the range of our social benefits. Despite recent speculation to the contrary, it has never been this Government's intention to cut back on these allowances. In fact, our intention has always been not alone to improve them but to ensure that this improvement went above all to those families for whom the allowances were an important item of income. For the second year in succession therefore, the Government have decided to increase the level of all children's allowances as from 1 July next. The allowance for the first child will be increased by £1 per month and for the second and each subsequent child by £1.50 per month. To ensure that these increases will be directed to those in greatest need, the income tax child allowance will be reduced from £218, as at present, to £195.

The increase in the Social Welfare Children's Allowance will cost £9 million in 1980 and £18 million in a full year. Against this there will be an offset of £3.1 million this year and £5.2 million in a full year from the reduction in the income tax child allowance. The net effect will be that those not liable to tax will of course gain in full from the increases and the biggest gain for taxpayers will be for those in the lower income categories.

For example, a married couple with 3 children on a wage of £66 per week or [749] less, and who will now have no tax liability as a result of today's measures, will get the full benefit of improved children's allowances which for them will come to £48 in a full year, or nearly £1 per week.

Unemployment Assistance for Smallholders

Smallholders in specified western areas drawing unemployment assistance have the option of having their means assessed on a factual basis or a notional basis. The vast bulk of smallholders are on a notional basis which, in effect, is concessionary both by reference to present levels of farm income and to the means test applied to other unemployment assistance claimants. The Government have therefore decided that the rates of unemployment assistance paid to persons who opt for the notional system of means assessment will be maintained at their October 1979 level.

The gross Exchequer cost of the social welfare and health changes I have announced is estimated at £95 million in 1980 and £126.4 million in a full year.

Abuse of the System

The Government's concern for the needy which has motivated these exceptional increases requires that the benefits be conserved for those who are genuinely entitled to them. Any abuse will be vigorously and firmly pursued by the Government, but our effort must be supported by a consensus in our society in favour of the necessary actions. We will not reduce expenditure for the needy because of abuse by others. Consequently, we will be redoubling our efforts against those who abuse the system.

During the past year, the Minister for Social Welfare implemented a number of measures to control abuses of the unemployment and disability schemes. He has set up a special investigation unit and he has strengthened the panel of medical referees. In addition, closer control of unemployment payments is now possible because of improved liaison with the national manpower service for the placement of unemployed persons in jobs. Action [750] is also being directed at cases of “working and signing” and persons whose incapacity for work through alleged illness is suspect. All cases of fraud will be strongly pursued.

All of these actions are designed to ensure that the taxpayer's money, intended for the relief of the needy, will be directed to them and them alone. As we expect the taxpayer to endorse the application of his tax for these social purposes, he is entitled to expect us to see that it is not misapplied.

TAX EVASION

I have mentioned the matter of abuse of the social services. This brings me to the even graver matter of abuse of the tax system in various forms.

The changes I have made in the income tax structure represent a major effort to make it a just and equitable system. It is no less important that the system should be seen to be enforced fairly and equitably. The vast majority of citizens co-operate in a public-spirited manner in paying their taxes but there is unfortunately a minority in the community who do not act in this way. By evading payment of taxes they pass on their share of the burden to their fellow citizens who in many cases may be less well-off and less well able to pay tax. The taxes payable by our community are imposed in the name of the community and are expended on purpose determined by the community in a democratic process. Evasion of those taxes cannot be condoned by specious argument.

The tax evader, insofar as he engages in deliberate infringement of the law through fraud, misrepresentation and false declarations, can expect the full rigour of the law to be applied against him. I wish to reassure taxpayers that in all such cases prosecutions will be brought by the Revenue Commissioners instead of their seeking discreet settlements. Over the past few years, there has been a significant increase in the number of cases where proceedings were initiated.

While a person engaged in tax avoidance may feel he is operating [751] within the law, the margin between avoidance and evasion in many cases is no more than hairline. I would like it to be understood by those engaged in schemes of tax avoidance, particularly schemes which have no real economic or commercial justification, that the operation of such schemes will not be immune from changes in the law.

There are people who are avoiding paying taxes because their business activity has not come to the notice of the Revenue Commissioners. Last year the provision of additional staff enabled the Revenue Commissioners to set up special enquiry units with an emphasis on outdoor investigation, to uncover traders and landlords and providers of services and others whose business is not on record for tax purposes or whose scale of business is not fully reflected in tax returns. In recent months 6,150 such cases have been uncovered.

There is an onus on all persons engaged in business to complete tax returns. If they do not, they must realise that when discovered, the transactions of previous years will be reopened and arrears of taxes, together with any appropriate interest and penalties, will be fully recovered from them.

Very considerable changes have been made in recent years in the legal powers of the Revenue Commissioners to deal with tax evasion and omission to provide information. These powers are now being used by the Revenue Commissioners to protect the interests of the vast bulk of the community who are paying their share of taxation and, if it seems necessary to strengthen the law further, I will have no hesitation in putting forward new proposals for legislation.

If every wage earner has his tax calculated precisely on his income and deducted at source, surely justice and equity require that the self-employed and professional classes should also disclose their income fully and pay their tax accordingly. As Minister for Finance, I feel an obligation to ensure that all taxpayers receive the same treatment and I will make available to the Revenue Commissioners [752] all necessary resources to implement this principle.

SPECIAL FEATURES

I propose now a number of measures which, although relatively insignificant in themselves in a budgetary or financial sense, are intended to recognise in an explicit way certain important factors in our national life.

VETERANS OF THE WAR OF INDEPENDENCE

Because of the role they played in the foundation of the State, veterans of the War of Independence are an especially deserving section of our community. We have a duty, within our resources, to do whatever is necessary in order to protect them from financial hardship. I propose, therefore, to provide certain additional reliefs for them and for their widows.

First, I propose to exempt their military service pensions from income tax in recognition of the fact that such pensions are payable in respect of active service rendered during the War of Independence.

Secondly, as matters stand at present, payment of special allowances cease on the death of the holder, in contrast with the position of a military service pension. I am now arranging for the payment of a flat-rate annual allowance of £185 to the widows of special allowance holders who would not otherwise qualify for any allowance under the Army Pensions Acts.

Thirdly, and with the same object in mind, I am extending the free electricity allowance and free television licence arrangements to widows of veterans who at present stand to lose these concessions on the death of the veteran.

The exemption of military service pensions from income tax will come into force from 6 April 1980 and the remaining concessions will take effect from 1 July 1980. The estimated cost in the current year will be £0.6 million and in a full year would amount to £1.1 million.

[753] CUNAMH SPEISIALTA CHUN AN GHAEILGE A CHUR CHUN CINN

Faoi mar a luaigh an Taoiseach le déanaí, is í an Ghaeilge, atá á labhairt sa tír seo le breis agus dhá mhíle bliain, an ghné is tábhachtaí agus is luachmhaire dár gcultúr agus is inti, thar rud ar bith eile, atá leanúnachas agus leithleachas an náisiúin le fáil. Tá rún daingean ag an Rialtas tacú leis an teangain dúchais atá mar oidhreacht agus mar sheoid chultúrtha againn uile.

Is léir go bhfuil báidh an phobail leis an nGaeilge agus is mian leis an Rialtas go spreagfaí iad chun beart dearfa dá réir a dhéanamh agus go gcuiríf chuige sin mar ghnó phráinneach. Táim tar éis an cheist a phlé le hAire na Gaeltachta agus is é ár dtuairim go mbéadh cúrsa tarraingteach ar an teilifís agus ar an radio ina chuidiú mhór don phobal chun feabhas a chur ar a gcuid Gaeilge agus iad a chur á labhairt. Ba mhaith linn freisin dá bhféadfaí socruithe a dhéanamh chun tús a chur leis an gcúrsa an fómhar seo chugainn agus daoine a thabhairt le chéile ina mbuíonta beaga ar fud na tíre d'fhonn an leas is fearr a bhaint as.

Beidh comhoibriú á lorg ag Aire na Gaeltachta ó dhreamanna éagsúla mar Radio-Telefís Éireann, Bord na Gaeilge, údaráis oideachais agus eagrais Ghaeilge. Ó mo thaobhsa de, tá suim £100,000 á cur in áirithe agam le cur leis an soláthar atá ar fáil cheana féin d'Aire na Gaeltachta, i dtreo go mbeidh ar a cumas féachaint chuige nach gcuirfear moill ar an dul chun cinn de cheal airgid. Iarraim ar Theachtaí a gcuid tacaíochta pearsanta a thabhairt don iarracht tábhachtach seo ar mhaithe leis an nGaeilge.

DEONTAIS FÁ CHOINNE CAMÁN

Táthar ag iarraidh ar an Aire Airgeadais le roinnt blian anuas cáin bhreisluacha—nó VAT—a bhaint de chamáin. Ní féidir liom áfach sin a dhéanamh toisc cosc ginearálta a bheith i bfeidhm ag an gComh-Mhargadh Eorpach le tamall anuas ar aon rud eile a scaoileadh ó VAT seachas na rudaí nár ghá cáin a íoc orthu sular tháinig an cosc i bhfeidhm. Ach tuigim cé chomh [754] costasach is atá camáin, agus gur minic a bristear iad, agus tuigim freisin an tábhacht ar leith atá ag dul leis an iománaíocht i saol agus i dtraidisiún ár dtíre. Mar sin, tá suim £100,000 á cur ar fáil agam le haghaidh scéime chun camáin a cheannach do dhaoine óga.

(Cur isteach).

Mr. O'Kennedy: Cuirfear an scéim seo ar bun agus déanfar í a reachtáil ag an Aire Stáit sa Roinn Oideachais tar éis dul i gcomhairle le Cumann Lúithchleas Gael.

DEFICIT AND BORROWING REQUIREMENT

With these minor additions to expenditure, I come to the end of the specific actions which I am taking in this budget. To recapitulate briefly, these changes have all been made on the current side of the budget. I opened with a deficit of £346 million based on the pre-budget estimates of receipts and expenditure. My proposals for additional revenue will yield an estimated £292 million, in all, this year. This will finance £143 million of tax reliefs, £95 million of improvements in the social welfare services, £100 million for public service pay, less £40 million of departmental balances available towards expenditure. The net result is that the deficit on the current budget emerges at £353 million—compared with an actual deficit of £522 million last year. It is my firm intention to resist any attempts by Departments to exceed the limits of the allocations provided for their estimates.

The Exchequer borrowing requirement for 1980 will be comprised, therefore, of £353 million for the current budget deficit and £543 million for capital purposes. At £896 million in all, or 10.4 per cent of GNP as projected post-budget, it compares with borrowing last year of £1,009 million or 13.7 per cent of GNP. It is worth noting that this year's current budget deficit at £353 million represents 4.1 per cent of GNP by comparison with a deficit of £522 million, 7.1 per cent of GNP, last year.

[755] As Deputies will note, the effect on demand and the balance of payments of the policies underlying this Budget will be achieved through restraint in expenditure, combined with some net increase in taxation. The result of the Government's proposals will be, as planned, to reduce the balance of payments deficit. Because of a number of other constraints, including in particular the desirability of not damaging the economy's potential for growth and employment, the reduction will not be dramatic but it is an earnest of the Government's firm resolve to bring our external account back into reasonable balance.

NATIONAL DEVELOPMENT

Responsibility and balance in the management of our affairs underlie this Budget. These qualities will continue to characterise our economic policies for some time to come. This does not mean that the progress that has been achieved since this Government came to office is being set aside. For over two years there has been an impressive expansion in investment, both in the public and private sectors; across the board in Government expenditure, emphasis has been placed on better education, on training and retraining, on raising productivity, on better marketing of our goods and on raising the level of economic performance. The means of continued future progress have been created. Prudent management of the national finances, rather than putting these gains at risk, is a necessary condition of taking advantage of them and benefiting from them.

It is the Government's intention to use fiscal measures positively, in line with the needs of development, rather than negatively simply to offset adverse economic trends. The continuing work of reassessing future expectations for the economy and the identification of policy changes that might be necessary will be guided by this objective.

[756] CONCLUSION

Before outlining the specific budget proposals, I indicated a number of major areas where I saw the need to make substantial progress. I have put forward my proposals in the confidence that they go a long way towards meeting this need, by implementing income-splitting, by protecting and indeed enhancing the position of low-income households, and by making substantial progress towards equity generally and in particular in the field of taxation.

Of course I do not delude myself that the budget proposals together with the estimates of expenditure on current and capital account, will satisfy all sections of the community. At the very best of times, there will exist a conflict between the various demands for increased expenditure on the one hand and for tax reliefs on the other. I believe that the budget strikes a proper and realistic balance between these competing demands.

Doubtless there will be critics who will focus on one or other aspect of the budget.

Mr. Kelly: Shame on them.

Mr. L'Estrange: Within the Minister's own party.

Mr. O'Kennedy: I would only ask that the total package of measures should be examined carefully before conclusions are reached.

There are those who may say that more should have been done this year to reduce Exchequer borrowing. We were not prepared, however, to allow the need for budget stringency to override the necessity to move towards tax equity and to protect and improve the circumstances of the less well-off, whether in employment or dependent on social welfare. The initial progress made this year towards bringing our finances into balance will clearly have to be built upon in coming years. Similarly, to attempt to remedy our balance of payments difficulties in one move would mean forcing the economy into marked recession, and that I am not prepared to do. This [757] economy, like others, needs time to adjust to the massive increase in oil prices.

In adopting this gradualist approach I am keenly aware of the continued pressing need for growth in output and employment.

The Budget will not hit the sources of growth and employment. Investment, supported by the Public Capital Programme, will continue to grow, as will exports. The volume of national output will also grow, although less quickly than in 1979, partly because international economic conditions will be more adverse.

The necessary restraint in public expenditure will not, of course, allow the Government to continue to take the lead, through the public sector, in job creation, as we did over the past two-and-a-half years. We are at the same time acutely aware of the need to do everything possible to maintain and increase employment. This is seen in our decision to increase the State's investment in industrial promotion by £30 million this year. The bulk of this increase is being made available to the IDA and will, we believe, enable the Authority to achieve their target of 30,000 new job approvals in 1980 and so help to guarantee the future employment prospects of our young people.

We have likewise made a very large provision for infrastructural development, and this investment in our future should similarly stimulate employment creation.

Consumer prices will, of course, be affected by the Budget changes. The prices that will rise will, however, be very largely those relating to discretionary expenditure or to energy consumption. In any assessment of their impact, regard must be had to the very real increases in incomes which will result from the markedly higher social welfare benefits, and the substantial reductions in direct tax liability, which I have announced today. The fact is that in our circumstances [758] we are compelled, for reasons of budgetary balance, and because of our balance of payments deficit, to increase taxation. Direct tax cuts have to be financed by other taxation; it would be grossly irresponsible and dishonest of us to pretend otherwise.

The need for moderation in income developments remains paramount. I have already made the point that, as a community, it is not a realistic option for us to compensate ourselves for the rising cost of oil imports. Equally selfdestructive in terms of competitiveness, and therefore of employment and living standards, would be any attempt to use as a basis for income increases the indirect tax measures announced by me today. These are, in fact, designed to cover the cost of the reforms and benefits contained in the Budget.

This is a realistic Budget, which recognises that a significant start has to be made on resolving the problems we face. I believe it will help to point the direction which all of us can follow—benefits for the needy, opportunity for the able and a conscientious dedication at work for all.

There is a growing if belated recognition abroad of the interdependence of rich and poor nations and the need to redress the balance in the face of the shifting foundations of the world economy. I have attempted in the Budget to apply the same principle of interdependence to the situation here at home. Each of us has a choice in relation to many of the additional taxes proposed today but no one of us is entitled to a choice between community responsibility and self-interest. If the strong assert themselves at the expense of the weak, we are all diminished and weakened. If, on the other hand, we agree to accept standards which we can all respect, we will be united in a common purpose. And we have a common purpose—guaranteeing the well-being and future of all of our people.

[759][760]Revenue

£million

Expenditure

1. Tax Revenue

2,450.0

1. Debt Service and other Central Fund Charges

765.0

2. Non-tax Revenue

571.0

2. Supply Services (non-capital)

2,602.4

3,021.0

3,367.4

3. Add:

3. Add:

Public Service Pay

100.0

Personal Income Tax

Social Welfare

95.0

—Schedule D

24.0

Other (net)

0.6

195.6

—child allowance

3.1

Farm Taxation

4. Deduct:

—income tax

10.0

Estimated departmental balances

40.0

155.6

—resource tax

7.0

Indirect Taxation

—hydrocarbon oils

113.0

—tobacco, alcoholic drinks and table waters

75.8

—motor vehicles

12.7

—value-added tax

17.8

—spirits duty deferment

8.3

—other

3.3

Post office Charges

17.0

292.0

4. Deduct:

Personal Income Tax

—allowances, rate bands and exemptions

131.5

—short-term social welfare benefits

8.5

—life assurance relief

0.2

Tax on business

—stock relief

3.0

Small brewers

0.2

143.4

148.6

5. Deficit

353.4

3,523.0

3,523.0

Department of Finance

27 February, 1980

[761][762] SUMMARY OF CURRENT AND CAPITAL BUDGETS 1979 and 1980

1979

1980

Provisional Outturn

Post-BudgetEstimate

£m

£m

CURRENT BUDGET

1. Expenditure

(i) Central fund Services

588

765

(ii) Supply Services

2,318

2,758

2,906

3,523

2. Revenue

(i) Tax

2,009

2,582

(ii) Non-Tax

375

588

2,384

3,170

3. Current Budget Deficit

522

353

CAPITAL BUDGET

4. Expenditure

(i) Public Capital Programme

1,001

1,154

(ii) Other (non-programme)

34

29

1,035

1,183

5. Resources

(i) Exchequer

166

174

(ii) Non-Exchequer

382

466

548

640

6. Exchequer Borrowing Requirement for Capital Purposes

487

543

7. Total Exchequer Borrowing Requirement(3+6)

1,009

896

8. Total Exchequer Borrowing Requirement as % of GNP (Estimated)

13.7%

10.4%

SUMMARY OF CAPITAL BUDGET REQUIREMENTS (INCLUDING CURRENT BUDGET DEFICIT) AND RESOURCES, 1979 OUTTURN AND 1980 ESTIMATE

[763][764]

£ million

REQUIREMENTS

1979

1980

Budget Estimate

Provisional Outturn

Estimate

1. Public Capital Programme

974

1,001

1,154

2. Non-Programme Outlays

328

556

382

of which: (a) Exchequer Financed

(i) Current Budget Deficit

289

522

353

(ii) Miscellaneous

8

5

10

(b) Non-Exchequer Financed

31

29

19

3. Total Requirements

1,302

1,557

1,536

RESOURCES

4. Non-Exchequer Resources of State Bodies and Local Authorities

364

382

466

of which: (a) State Bodies

338

360

440

(b) Local Authorities

26

22

26

5. Exchequer Internal Resources

134

140

127

of which: (a) Loan repayments

68

69

43

(b) Sinking Funds

66

71

84

6. European Regional Development Fund

25

26

47

7. Exchequer Borrowing

779

1,009

896

of which: (a) Net Sales of Domestic Securities

(i) to the public

206

(ii) to commercial banks

104

(b) Small Savings

779

27

(c) Foreign Borrowing

509

(d) Change in Liquidity of Departmental Funds

21

896

(e) Increase in Central Bank portfolio of Government Securities

100

(f) Miscellaneous Borrowing

42

8. Total Resources

1,302

1,557

1,536

PRE-BUDGET TABLES [765][766]

1980

INDEX

TABLE 1.

Summary of current and capital budgets 1979

TABLE 2.

Main heads of current government expenditure

TABLE 3.

Certain receipts and expenditure of the Exchequer and of local authorities

TABLE 4.

State expenditure in relation to agriculture.

Detailed tables relating to public capital expenditure will be found in the separate publication entitled “Public Capital Programme 1980”.

[767][768] TABLE 1

SUMMARY OF CURRENT AND CAPITAL BUDGETS 1979

1979

Budget Estimate

Provisional Outturn

£m.

£m.

Current Budget

1. Expenditure

(i) Central Fund Services

580

588

(ii) Supply Services

2,196

2,318

2,776

2,906

2. Revenue

(i) Tax

2,112

2,009

(ii) Non-Tax

375

375

2,487

2,384

3. Current Budget Deficit

289

522

Capital Budget

4. Expenditure

(i) Public Capital Programme

974

1,001

(ii) Other (non-programme)

39

34

1,013

1,035

5. Resources

(i) Exchequer

159

166

(ii) Non-Exchequer

364

382

523

548

6. Exchequer Borrowing Requirement for Capital Purposes

490

487

7. Total Exchequer Borrowing Requirement (3+6)

779

1,009

8. Total Exchequer Borrowing Requirement as % of GNP(Estimated)

10.5%

13.7%

[769] [770] TABLE 2

MAIN HEADS OF CURRENT GOVERNMENT EXPENDITURE

(£000)

1975

1976

1977

1978

1979 Provisional

1980 Estimate

Service of Public Debt

241,533

337,043

403,318

510,042

622,191

796,404

Central Fund Services

Interest

155,601

217,030

278,615

361,389

449,974

588,000

Sinking Fund, etc.

39,002

61,239

55,475

56,839

64,437

78,000

Supply Services

Interest

40,526

51,173

60,649

80,612

91,077

109,397

Sinking Fund, etc.

6,404

7,601

8,579

11,202

16,703

21,007

Social Services

598,470

724,510

844,393

991,523

1,223,208

1,307,932

Social Welfare

210,156

246,948

274,510

314,365

373,991

353,685

Education

181,006

223,603

260,123

302,123

380,143

439,887

Health

207,308

253,959

309,760

375,035

469,074

514,360

Economic Services

170,894

198,143

214,877

247,529

296,947

312,109

Agriculture

94,927

107,289

109,604

118,442

130,001

129,653

Industry and Energy

23,294

28,831

36,142

48,954

64,702

71,432

Tourism and Transport

45,238

53,282

59,546

66,992

89,245

92,458

Forestry and Fisheries

7,435

8,741

9,585

13,141

12,999

18,566

General Services

218,975

260,874

295,263

347,142

415,199

521,975

Post Office

67,172

81,357

89,097

105,398

123,186

161,203

Defence

58,479

72,833

86,059

100,038

112,490

143,726

Justice, including Gardaí

57,171

59,812

66,941

81,446

106,436

130,425

Public Service Pensions

36,153

46,872

53,166

60,260

73,087

86,621

Other Expenditure

101,433

146,077

197,009

307,515

347,871

428,966

EEC Budget

10,777

14,598

24,710

44,874

69,282

95,000

June 1975 Consumer Subsidies

16,128

41,434

53,999

66,052

44,136

42,252

Dept. of Environment grant in relief of rates

17,243

79,342

91,826

106,565

Miscellaneous

74,528

90,045

101,057

117,247

142,627

185,149

TOTAL

1,331,305

1,666,647

1,954,860

2,403,751

2,905,416

3,367,386

Public service remunertion included above(a)

479,098

584,475

667,373

800,727

996,586

1,196,764

GNP (in £ millions)

3,697.5

4,510.8

5,359.0

6,315(b)

7,355(b)

Current Government Expenditure as % of GNP

36.0%

36.9%

36.5%

38.1%

39.5%

Note: (a) Includes all pay in the health area but does not include the pay element in grants to noncommercial State-sponsored bodies, universities and colleges, etc.

(b) Preliminary estimates.

[771] TABLE 3

CERTAIN RECEIPTS AND EXPENDITURE OF THE EXCHEQUER AND OF LOCAL AUTHORITIES

Exchequer

Local Authorities(a)

Revenue

Non-capital issues

Expenditure from revenue (b)

State grants received

Rates collected

£000

£000

£000

£000

£000

1959-60

129,856

128,682

55,104

24,480

21,412

1960-61

138,839

139,565

57,885

26,476

22,058

1961-62

151,686

152,393

64,165

28,792

23,203

1962-63

163,478

168,335

67,379

32,725

22,776

1963-64

184,419

186,638

71,323

34,871

24,466

1964-65

219,045

222,011

82,973

41,210

26,061

1965-66

240,761

248,542

90,588

46,465

29,761

1966-67

272,843

272,051

98,959

50,676

31,533

1967-68

305,409

305,621

107,430

57,472

34,702

1968-69

345,480

353,849

120,675

65,808

38,294

1969-70

411,012

411,550

144,540

76,927

42,953

1970-71

481,506

490,429

173,652

93,803

50,086

1971-72

569,402

571,602

196,359

115,473

59,753

1972-73

659,070

664,541

239,542

138,133

70,068

1973-74

792,913

803,339

297,661

182,610

71,335

April-Dec.

1974

651,407

743,712

292,086

189,875

61,327

1975

1,091,226

1,349,987

480,958

332,109

84,041

1976

1,470,197

1,671,638

567,120

404,344

109,004

1977

1,756,884

1,958,401

683,798

504,299

110,899

1978

2,023,352

2,420,141

831,412(c)

669,953(c)

81,599(c)

1979

2,383,919

2,905,416

992,272(d)

820,501(d)

91,000(d)

1980

3,021,000(d)

3,367,386(d)

1,134,026(d)

919,000(d)

106,000(d)

NOTE:—(a) Local Authorities comprise County Councils, County Borough Corporations, Borough Corporations, Urban District Councils, Town Commissioners, Regional Health Boards, Vocational Education Committees and County Committees of Agriculture.

(b) The revenue of local authorities comprises rates. State grants (including payments on behalf of health boards to voluntary hospitals and homes in respect of general medical services) and other receipts e.g., rents, fees, etc.

(c) Approximate.

(d) Estimate.

[772]

[773] TABLE 4

STATE EXPENDITURE (a) IN RELATION TO AGRICULTURE FROM 1976

1976 £000

1977 £000

1978 £000

1979 Provisional £000

1980 Estimate £000

1. Aids reducing production and over-head costs and production incentives(b):

Relief of rates on agricultural land

36,231

40,733

38,341

39,796

37,725

Lime and fertiliser subsidies

5,877

5,654

3,313

885

250

Reduction of land annuities

2,023

2,305

2,757

3,247

3,760

Sheep grants, etc.

2,455

701

401

206

213

Small farm incentive bonus

579

339

147

48

25

TOTAL

47,165

49,732

44,959

44,182

41,973

2. Schemes operated under EEC regulations and directives:

Farm modernisation

13,315

25,815

28,900

32,377

33,752

Farmers' retirement

1,708

2,073

1,489

852

1,309

Aids to farmers in less favoured areas

13,032

15,227

17,746

13,606

13,949

Dairy herds conversion

(-)79

76

60

6

(-)3

Market intervention (c)

7,120

(-)3,053

194

6,468

6,800

Socio-economic advice and vocational training of farmers

125

149

167

160

195

Aids for orderly marketing of cattle

14

34

Grants for individual projects

34

Aids for horticultural producers'organisations

19

32

30

40

TOTAL

35,235

40,340

48,588

53,499

56,076

3. Education, research, advisory and inspection services:

Education

5,477

7,827

9,391

10,583

9,530

Research

7,180

8,112

8,929

11,050

12,450

Farm advisory services

3,924

4,019

6,385(d)

7,654(d)

8,699(d)

Farmer contribution to education, research and advisory services

(-)10,400

(-)4,000

Technical services

2,609

3,011

3,306

4,079

4,510

Inspection services

1,699

1,537

2,039

1,822

Rural organisations

109

103

140

174

184

TOTAL

19,299

24,771

29,688

25,179

33,195

4. Disease eradication:

Bovine T.B.

2,077

7,651

7,769

6,790

8,397

Brucellosis

3,539

4,231

6,060

7,440

15,000

Hardship Fund

1,000

600

1,200

1,500

1,000

Other, e.g. leucosis

11

209

20

Less: Contribution and EEC Receipts

(-)2,719

(-)13,421

TOTAL

6,616

12,482

15,040

13,220

10,996

5. Long term development aids (b):

Arterial drainage

2,884

3,392

5,262

7,174

7,178

Land project, farm buildings and water supplies

6,191

3,663

1,640

1,608

1,600

Improvement of cattle, pigs, horses, sheep and poultry

1,334

1,356

1,978

1,780

2,329

Rural electrification

1,886

2,040

2,205

2,364

2,446

Restructuring and improvement of holdings by Land Commission

3,412

3,168

3,521

3,612

4,324

Other rural improvement schemes and grants

1,490

1,618

1,586

2,794

2,093

[774]TOTAL

17,197

15,237

16,192

19,332

19,970

[775][776]6. Marketing aids:

Dairy produce

25

25

Meat

482

530

608

642

317

Potatoes and cereals

19

2

TOTAL

526

557

608

642

317

7. Technical staff associated with administration of acts, regulations schemes:

3,319

(e)

(e)

(e)

(e)

8. General administration and overhead costs(f)

13,058

12,945

14,987

18,962

21,342

GRAND TOTAL

142,415

156,064

170,062

175,016

183,869

NOTES—(a) The figures include both capital and non-capital expenditure and are net of appropriations-in-aid which include recoupments from EEC for schemes in section 2 above.

(b) Further aids of these kinds are given under EEC schemes—see section 2.

(c) Expenditure and receipts for market intervention are as follows:—

1976

1977

1978

1979

1980

£m

£m

£m

Provisional

Estimate

£m

£m

Expenditure

24.6

18.3

28.6

30.2

25.4

Receipts from EEC

17.5

21.3

28.4

23.7

18.6

(d) Includes part of the grant in relief of rates borne on the Environment Vote.

(e) From 1977 these costs have been distributed under appropriate heads above.

(f) These costs were not included in previous tables.

footnote: Agriculture also benefits from EEC aid under the Common Agricultural Policy (the figures include intervention receipts at (c) above):—

1976

1977

1978

1979

1980

£m

£m

£m

Provisional

Estimate

£m

£m

FEOGA GUARANTEE SECTION

102.0

244.5

366

398

360

FEOGA GUIDANCE SECTION

—receipts under individual project scheme

2.0

2.2

2.6

2.1

2.0

—Receipts for structural schemes

0.5

5.1

6.7

15.3

18.4

[777] Mr. L'Estrange: I admire Deputy Gibbons. He is not applauding. It is a hair shirt budget. Ministers can clap; they have saved £1,570 under this budget.

(Interruptions.)

An Leas-Cheann Comhairle: Deputy Barry.

Mr. L'Estrange: Half a dozen of the Minister's men did not clap and they are to be admired.

Mr. P. Barry: For the third year running the Fianna Fáil Party have got it wrong. Having damaged the economy by the publication before the last general election of their manifesto, they have not, after three years, turned around and put it on the road to growth. This budget will reduce growth from what is thought to be 3 per cent, the Government's own figure, to zero. It will increase the cost of living for every single person—old age pensioner, £20,000 a year man, those working and those not working. It will do nothing to increase the level of employment but it is attacking and damaging our two principal industries, agriculture and tourism. One would have thought Fianna Fáil did enough damage to the tourist industry last year without renewing their attack through the budget in 1980.

The Minister made a lot of the reliefs he has given in personal income tax. With the permission of the Chair I should like to ask him this question: what is the level of VAT on petrol?

An Leas-Cheann Comhairle: Such question can be asked later on the resolutions.

Mr. P. Barry: The fact that the Minister has not answered or will not answer is enough in itself.

Deputies: Hear, hear.

An Leas-Cheann Comhairle: These questions will arise later on the resolutions.

[778] Mr. P. Barry: I would have thought normal courtesy would have given the information which I may not have in front of me.

Mr. T.J. Fitzpatrick (Cavan-Monaghan): The Minister does not know.

Mr. O'Kennedy: It will arise on the resolutions but if the Deputy wants to know it is 10 per cent.

Mr. P. Barry: Therefore, the increase in the price of petrol is not 20p but 22p plus any other added——

Mr. O'Kennedy: The Deputy is wrong but we will come to that in the resolutions.

Mr. P. Barry: Is VAT included in the 20p?

Mr. O'Kennedy: Yes.

An Leas-Cheann Comhairle: We will debate that on the resolutions.

(Interruptions.)

Mr. P. Barry: I think the Minister for the information that VAT is included in the 20p increase in the price of petrol. The increase in personal allowances is £131 million and the motorist will be asked to pay £125 million of that. The increase in hydrocarbon oils plus the increase in VAT on motor vehicles will amount to over £125 million. Therefore, the Minister is getting the tax reliefs back in entirety from the motorist.

I should like to say a few words about how we debate the budget. It is time that some attention was given to this matter. Last Wednesday the Book of Estimates was produced, on Friday the capital Estimates and on Monday the estimation of receipts and expenditure for 1980 were produced. Today we are debating a document introduced by the Minister of almost 100 pages dealing with over £4,000 million worth of expenditure. That strikes me as being a most inefficient way to run the affairs of the country. [779] Most of us in the post this morning got the Swedish budget for 1980-81 starting from April this year and ending next April. That was produced last December and I presume debated by the Swedish Parliament at that time. The American Government are at present debating their budget for next year. The method we use is inefficient and does not give a chance to anyone in the House to assess the budget. It is brought in on a Wednesday afternoon at 3.30 p.m. and nobody really has a chance to study the Minister's speech or the effects of the budget on various people.

The social welfare reliefs granted are generous and will go some way towards meeting the inevitable increase in the cost of living which the budget will bring about. That cost of living increase, as a result of indirect taxes introduced by the Minister, will be 5 per cent on top of the 16 per cent projected for inflation this year. That means that the cost of living index for mid-May of this year could be in the region of 20 or 21 per cent. What chance has any Minister for negotiating a wage settlement with a 21 per cent increase in the cost of living already on the table?

We said on the last budget and in 1978 that the most important concern of any Government is to ensure and maintain the competitiveness of Irish industry. That is not being done by this budget because there is no possibility of a wage agreement that will be in any way conducive to maintaining competitiveness being negotiated later in the year. That will have effects not alone on the level of public sector pay already budgeted for but the balance of the public sector wage bill from August 1980 through to the following year will also be greatly inflated. That will affect the budgetary prospects for 1981.

I am not sure if the Minister appreciates, being new to the job, the importance of this element and that a whole series of measures will affect business and competitiveness in the coming 12 months. He announced an increase in telephone charges, postage, [780] petrol and everything that petrol and oil relate to. There will be an increase on printing, VAT on motor vehicles and the bringing forward, which will affect the cash flow of many business, of the tax payment period.

Indeed, in a speech made yesterday the Director General of the Confederation of Irish Industries pointed out that unless something was done to help industry in this year and in this budget, there was a very grave danger that many small businesses would go to the wall, throwing people who are presently employed back on the market. It is noticeable that the Minister did not— unless I missed it and I do not think I did—mention anything about creation of employment in his speech, except as a secondary effect of what he was doing. He said nothing directly in his speech about increase of employment.

One of the benefits for the community in the stock relief proposal is very real. The Minister's predecessor last year said that because of the reduction in inflation he was reducing it to 75 per cent. Turning that argument around, the Minister should now be increasing it from 75 to 100 per cent for the current year, which he has not done. This will be noted by the business community.

The most damaged section of Irish industry in the last 12 months was the tourist industry. There is no doubt about it that sensitivity in the Government towards its needs last year was greatly lacking. The attitude of the Minister for Industry, Commerce and Energy to the petrol crisis, the damage done to the tourist industry by the postal dispute and the breakdown in telephone services—all of these meant that, for the first time since 1972, there was no hope in that industry. Given that, the Minister has now, in his Budget, increased the cost of petrol, oil, postage, telecommunications. All these are matters within the Government's control and they are unconcerned about the effects which this will have on the tourist industry in the coming 12 months. This is regrettable.

An Leas-Cheann Comhairle: I am sorry, Deputy. There is far too much [781] noise around the House, please. We cannot hear anything that is going on. Deputy Barry.

Mr. P. Barry: It is regrettable that the Minister did not take this opportunity, instead of damaging further the tourist industry by the measures introduced in the budget, to introduce special measures to aid this industry, which is of particular benefit to the rural areas.

The tax reliefs appear to benefit more particularly those with higher incomes. This makes a mockery of the Minister's assertion, in finishing his speech, that the Government were concerned that the less well off people were protected in the future. Someone with £20,000 annual salary will benefit under the Minister's proposal by, to the best of my reckoning, £1,500, whereas it appears that someone under £5,000 a year who is married and has children will, in fact, not benefit from this budget at all, and indeed, will be worse off, taking into account the level of indirect taxes. The typical householder with under £5,000 a year will be worse off because a book published yesterday by the Government entitled “Redistributive Effects of State Taxes and Benefits on Household Incomes in 1973” indicates that people on that level pay a higher proportion in indirect taxes than do people on a much higher level. People with under £5,000 a year could be paying up to 20 per cent of their income in indirect taxes whereas in the higher level this need only be 11 or 12 per cent.

The agricultural labourer, perhaps the most convenient example to give, with three children who is, in fact, paying no income tax today, not being in the income tax net, will get no relief but, on average, will pay about £1.75 a week extra as a result of indirect taxation. This could hardly be said to be a budget which redistributes the wealth in favour of those less well off.

I would guess that the Minister is the first Minister in this country to budget for a deficit of £350 million. He has certainly put a bigger increase on the price of petrol than even the Arabs did at one [782] bite. The problems in this regard can be traced back, as we have been saying for the last two years, to the lack of responsibility of the Fianna Fáil Party in relation to our economy. As I said, there is no mention in this budget about employment. The concern of many parents over the prospect of getting jobs for their children later on in the year certainly will not be in any way relieved as result of what they read in tomorrow's papers.

The real damage in this budget is the increase in the acquisition tax levels of farmers. These, as was indicated when they were read out, are not really sufficient to keep pace with inflation as it was over the last three or four years.

The most damaging effects will, undoubtedly, be in the prices and income sector. It should have been quite obvious to the Government that a lot of the trouble they were getting into over the last two years in their general economic strategy was that they failed to get people to appreciate the relationship between exports, competitiveness and wage levels. On every occasion they attempted, they failed to bring into control, particularly the sectors over which they themselves had control and for which they were directly responsible in the State employment sector—the ESB, Posts and Telegraphs Department and other State companies. They have not the co-operation and support from those bodies which would set an example for the private sector and which would allow us to maintain our competitiveness and our export markets.

I am glad the Minister stressed that the Government were not, in spite of the rumour I saw in one paper recently, reconsidering our membership of the European Monetary System, but it seems impossible to continue to pay ourselves increase of the level of the last three years, of 19 or 20 per cent, and increases that are budgeted for in the economic background to the budget and in other Government documents published in the last week assessing the wage increases in the next 12 months. We cannot continue to pay ourselves wage increases of that level while the [783] Germans and other fellow members of the EMS pay themselves 7 per cent, and hope to maintain our position within the European Monetary System. It is in this regard that the budget should be reviewed; from the point of view of prices and wages and with inflation at 16 per cent, assumed for the 12 months ended mid-February, the Government are adding 5 per cent to that.

By the time the increase in excise duties on petrol and their percentages are added and VAT added to those percentages to cater for the manufacturer, the garage owner, the publican and everybody else who will have the handling of any one of those items that has been increased by today's budget, the level may be very much more than a 5 per cent increase. We may find ourselves into 20 per cent inflation, the highest probably in Europe, brought about directly by the actions of the Government, a Government which, as stated in another section of the Minister's speech, believe that the control and level of incomes must be brought more into line with those of countries with which we are competing. Yet, there is no doubt that this budget will have precisely the opposite effect in that regard. There is no doubt that the trade union movement will want to see the poorer sections of the community being protected. The people in the lower tax bands will certainly be worse off and the trade unions will seek to have them recompensed for the increases brought about by the budget. There is no doubt that they will very quickly see that the car owners are paying for the tax relief and that £150 million on top of that will give the amount that the Minister is taking out in extra taxation over and above what he is giving back in relief and that will come out of the pockets of the wage earners. That is bound to be reflected in demands that will be made by the trade union movement for wage increases during the year.

There is no point in the Minister offering the excuse that these are discretionary expenditures, that it is at the [784] discretion of the wage earner whether he spends or not, and that they should not be reflected in any wage increases. The fact is that they always have been and as long as they comprise part of the consumer price index it will be quoted in its entirety as a justification for wage demands. Any attempt to restructure the CPI so that these items are not included would certainly be resented. Perhaps the tax on cigarettes will not evoke too many objections but the 16p increase in the price of spirits is a penal tax. The Minister might attempt to justify this because we are spending about £1 million a day on drink. But there is no point in pretending, as is sometimes argued, that the person addicted to alcohol will be cured as a result of this. What will happen is that the alcoholic or the person addicted to drink will consume exactly the same amount of it as previously; he will pay more for it and his family will be deprived of the money. That has been proved over and over again. Increasing the price of alcoholic drinks by budgetary methods does not win people away from alcohol but rather deprives their families of a certain amount of money.

The Minister has increased the price of wines by 40p a bottle without making any distinction between those in the higher and those in the lower price levels. There is a small wine making industry in the country and by having a flat rate of tax right across the range he is harming it more than imported wine. Before the Financial Resolutions are passed tonight he should look at the matter again. The flat rate does not help. There is a small number of people employed and perhaps in coming years that will become a significant number. Certainly, the tobacco and drink companies do employ substantial numbers of people whose prospects of employment may be damaged if there is serious interference with consumption of tobacco in the future.

As regards the borrowing level, I am not sure we can have much faith in the Minister's ability to contain it within the limit mentioned in his speech because the [785] same strong language and determined voice were used last year by the Minister for Finance and he was applauded by his back-benchers when he said he was going to bring it down to 10.5 per cent of GNP for 1979. We all know what happened; it ended up at 13.8 per cent at the end of the year. I hope the Minister's resolve this year is stronger and that we will see a reduction in the borrowing level for 1980. The level of borrowing he talks about as having been brought down is about £840 million, about the same as the previous year. He is aided in this by the carry-over effect of £100 million from the Post Office Savings Bank, unpaid cheques for income tax and unpaid accounts of P and T. Even at 10.4 per cent it is a level of borrowing that is far too high and one which the country could not carry for any significant number of years. Given the deflationary effects of this budget, holding it at that level this year may be in question at the end of the year.

It is doubtful for a number of reasons if this is the only budget we will have this year; not that we will have a formal budget such as was introduced today, but because of the cuts that were made in the Book of Estimates, particularly on the capital side, and they cover a wide range of services, and because of the fact that the employment content of them will not vary—it is just that the materials will not be there—there will be nothing for many sections of the public service to do towards the end of the year unless Supplementary Estimates are brought in for many Departments. The cuts announced this year in the grants for environmental works show a reduction of £3 million and private housing grants are down by £7 million. All these will damage employment prospects for this year.

The water supply and sewerage grants are down by £500,000, the local improvement schemes are down by £750,000, the shcool transport scheme is down by £500,000. Even the allowance to the National Library and the Museum have been cut. They are small things but it makes a mockery of our commitment in considering ourselves as a cultural [786] people if we are cutting in actual money terms the amount of money available to the National Library and the Museum, which means that in real terms this has been drastically cut. The grants for sports have also been cut. Where is the commitment of the Government to youth and sport when they cut the grant from £1.4 million to £1.3 million? The youth employment grant is cut from £1½ million to £500,000. All of those are cut in money terms, which means that the cuts in real terms are far greater. There will either have to be Supplementary Estimates introduced at the end of the year or there will be unemployment right across the State sector.

I hope that the Supplementary Estimates will be a bit more realistic than some of them were last year. The Taoiseach was in charge of the Department of Health then. He was so far out in his estimation of what he would require for last year that he had to look for a further £72 million for his Department. This figure was so wrong that about £25 million was returned. This is part of the £40 million returned from the Department. I hope the Departmental Estimates this year are a bit more accurate than the Estimate was in that case last year. It is difficult to see with a deficit still running at over £500 million, unless there is further borrowing—that is the only other source left if the Minister does not bring in another budget to increase taxation—how employment can be maintained in the last three or four months of this year.

While the budget, as is customary, gives and takes and leaves a deficit which must be met by borrowing this year, it does not say at any stage how employment will be maintained. Deputy Bruton gave a very good example last week when he pointed out that after the Land Commission have paid out wages and salaries they will have only £10 left in 1980 with which to buy land, which is their function. The Minister did not refer to this in his budget speech. I do not know if he referred to the employment maintenance scheme in his speech.

[787] Mr. O'Kennedy: I did not refer to it in the budget speech. The Deputy will perhaps be aware of some developments from the EEC in that connection but we can deal with it later.

Mr. P. Barry: It was a valuable scheme which allowed some fringe companies in the textile industry to maintain employment. Many people would have been put out of employment if this assistance was not available. The present scheme runs out on 1 April. I am glad to hear that the Minister has been able to negotiate that with the EEC.

Mr. O'Kennedy: I did not say that. We will come to it in a different context. It is affected by an EEC decision which has been taken recently.

An Leas-Cheann Comhairle: These matters will come up in the General Resolution.

Mr. P. Barry: That is a totally different thing. I understood from the Minister that the present employment maintenance scheme was being replaced after 1 April next by an EEC scheme. I now gather that there will not be any scheme for the fringe companies in the textile trade after 1 April next.

Mr. O'Kennedy: I do not know if we want to go into the detail of this matter now.

An Leas-Cheann Comhairle: Matters of detail of this kind can be discussed on the General Resolution.

Mr. P. Barry: There is a scheme in existence at the moment that gives £5 a week to people who are employed in the textile industry. That scheme runs out on 1 April next and unless another scheme is introduced there will be serious unemployment in many of those companies. Would the Minister take note of that? Unemployment is pretty extensive in the textile industry and the profits are extremely tight. Many companies find it extremely difficult to stay in business. Unless another scheme is introduced [788] before 1 April next there will certainly be unemployment in that sector of industry. As well as suffering the loss of the maintenance scheme they will also be affected by the many increased charges the Minister introduced in the budget. They will not benefit from the tax reliefs except in their capacity as salary earners from their companies.

They do not benefit next year from the 25 per cent reduction for increased employment this year because it is related to profits and most of those companies do not make any profit. The 10 per cent corporation profits tax next year will not benefit them either because they will have no profits on which to pay tax. Those people are in business in a very small way but they have a very high content of unskilled labour. Those people would find it quite impossible to get work in another area. Those small firms will be subjected to the increase in the cost of oil, petrol, telephones, and presumably an increase in the cost of the stamp, which was not mentioned by the Minister. What will the contributions by employers and employees be from 1 April next? The amount of money provided in the Book of Estimates for social welfare has been greatly reduced. The presumption must be that this charge will have to be taken up by the employers and the employees.

The Taoiseach: The total goes from 11 per cent, or whatever it is at the moment, to 12 per cent.

An Leas-Cheann Comhairle: We should not have questions across the House at this stage. It is not in order.

Mr. Kelly: If there are any they should be answered by the Minister for Finance, who is supposed to know something about this.

(Interruptions.)

Mr. Kelly: The voice is the voice of Jacob but the hand is the hand of Esau.

An Leas-Cheann Comhairle: That does not enter into this at all.

[789] Mr. O'Kennedy: As Deputy Kelly probably knows, the practice has been that we engage in question and answer during the resolutions but not at this point.

Mr. Kelly: It was the Taoiseach who engaged in this dialogue.

An Leas-Cheann Comhairle: The Chair wants to make it clear that on occasions like this there is a statement from the Minister and there are brief speeches by a Member of each of the Opposition parties. There can be no questions across the floor of the House. The Deputy can pose questions if he likes, but he can wait for answers.

Mr. Kelly: It was a rhetorical question.

An Leas-Cheann Comhairle: Deputy Barry is well able to make his own speech.

(Interruptions.)

The Taoiseach: I apologise, but I was endeavouring to be helpful to Deputy Barry. He asked a question and I impulsively answered. I apologise to Deputy Barry.

Mr. P. Barry: When the Financial Resolutions are being debated we cannot ask questions about this because it will not be part of the Financial Resolutions. It will come in later as part of the Social Welfare Bill in March. I am trying to find out exactly what the cost to the employer will be and what will be the deduction from the employee of the cost of making up the money which is not being provided by the Government in the budget or in the Estimate for the Department of Social Welfare. It is quite obvious that that increase will come.

I noted that the Minister did not say that the ESB will be relieved of the increase in the duty on the price of oil. Therefore the rate of electricity will be going up. CIE are being relieved but every other form of transport is going to cost [790] more. Every worker who uses his car going to work is going to be considerably worse off. The average industrial wage at the moment is about £110. If he has a family of three or four children and has to drive any distance to work he is going to be considerably worse off as a result of this budget. These are the very people that we are told the Government have as their primary concern, the people who have the first call on their largesse, the people who were to be catered for and who were going to be the recipients in the redistribution of wealth and who are going to benefit as a result of the strategy and the stance of this Government in relation to taxation. Yet we find that the people in the £20,000 a year bracket will, as a result of the tax concessions here today, probably be £1,500 better off, minus the indirect taxation which might be £300-£500 a year; they are £20 a week better off whereas the person who earns about £110 a week and who has a family will be much worse off.

Added to that is the damage being done to both the farming industry and to the tourism industry in a year when farmers have found it particularly difficult. When their overall income has increased by 4 per cent in 1979, they are again assaulted. I suppose there is not much point in quoting the Fianna Fáil manifesto, this infamous document that was the cause of so many of the problems here.

An Leas-Cheann Comhairle: It is not in order to quote at this stage. The precedent down the years is that the statement from the Minister is given and then brief statements from members of the Opposition are made.

Mr. Creed: It is through that document the Minister got where he is.

An Leas-Cheann Comhairle: It has never been done. It has never been allowed.

(Interruptions.)

[791] Mr. Kelly: This House is becoming a House of——

An Leas-Cheann Comhairle: Would Deputy Kelly allow the Chair to decide these matters. The Chair is only following precedent all down the years—brief speeches from the Opposition.

Mr. P. Barry: Item No. 6 says that Fianna Fáil will retain the notional system of taxation.

(Interruptions.)

Mr. P. Barry: This makes great reading. It says that the accounting procedures of the ESB will be examined and brought up to date with a view to reducing the price of electricity and that Government policy will be directed towards discouraging price increases in all areas where they have control or influence. They put 20p a gallon on petrol today. It says that the National Prices Commission will be carefully and thoroughly examined.

The farming community accepted in good faith the intentions of the Government prior to the 1977 election. They must be bitterly disappointed that for three budgets running they have been attacked by this Government, singled out for special attention, money taken from them whether it was by the clumsy method of the 2 per cent levy last year or by the various methods introduced this year, particularly the item on machinery; they will not realise until later on in the year how damaging that will be to the development of their farms. In this year when they can least afford it they have an added number of costs which they will have to bear as well as the increase in taxation such as the abolition of the artificial manure subsidy, the lime transport subsidy, the beef cattle incentive scheme; the 2 per cent levy on beet, beef, milk, grain and so on was introduced and the levy for disease eradication has to be paid by farmers. All these have been introduced by this Government. This is again going to reduce the amount of money available to farmers as part of their own income. A [792] lot of damage has been done by the Government to what is our number one industry.

There will be a great amount of damage done to tourism in the coming year because the costs are bound to go up. The rates that will be quoted for transport, car hire, hotels and drink will be compared unfavourably with rates in the countries from whom we hope to win tourists. I see a bleak future for those two industries as a result of this budget.

More important is the difficulty there will be in getting an acceptable level of wage rounds in 1980 because of the fuelling of inflation owing to the indirect taxation introduced by this Government today. As I said at the beginning, for the third year running they have got it wrong. They have introduced the wrong budget at the wrong time because of the road they started out on before the last general election. We must remember that this is a continuation of the policy that was decided on by members of the present Government when they came to power in 1977. They never seemed to be sensitive to the economic background to the budget last year. Last year they said that they did not think the oil price increases would do any great damage. Today the Minister said it was impossible to foresee at the time of the last budget the effect of the oil prices on the economy here. Yet at that time when the budget had been read here the oil wells in Iran had been closed for three months, the Shah had fled his country and the Ayatollah Khomeini was in charge there and the Government at that time could not see that there would be any damage to our economy. No wonder the Taoiseach is smiling; it is because he feels he will be the gainer out of all this. They said that any damage was unforeseeable at this time last year. Of course it was foreseeable. It was forseen by every other country in Europe that had inflation rates of approximately half of ours even though they had to pay the same increased price for oil as we have.

In another one of the pre-budget documents it is stated that the two things that damaged this economy last year [793] were the increase in the price of oil and the weather; Fianna Fáil did no damage to the economy. If we have a bad summer there will be three factors this year, the weather, the price of oil, which will increase by possibly 60 per cent in 1980, and the budget being introduced here because it will certainly have the effect of reducing our rate of growth, which will be zero. It will put a lot of people out of employment. It will increase wages and make many of our goods uncompetitive and this will happen because the strategy adopted by this Government in the last three years has damaged the economy of the country.

Debate adjourned.