Arthur Morgan (Louth, Sinn Fein)

I welcome the opportunity to respond to the Tánaiste and Minister for Finance in this budget debate. I intend to expose the hypocrisy of the pre-election promises made by this and other Governments on tax cutting which grossly misled voters on the state of the finances and the management, or mismanagement, of the economy. I will also give examples of how things could and should be done differently.

Since the summer, the Tánaiste has been beavering away to condition the public for a tight budget. He has been strenuously trying to dampen expectations created by his own party's unrealisable pre-election promises. In advance of the election, Fianna Fáil promised 2,000 additional gardaí, 4,000 teachers, 1,500 hospital beds, 2,000 consultants, tax and PRSI cuts, affordable housing and much more. The deceit on which the election was won was clear for all to see when tax cutting proposals which were never viable had to be abandoned in the face of a €1.75 billion shortfall in tax revenues. Despite the fact that the economy is still relatively strong, the Tánaiste has done such a good job of lowering expectations that people expected nothing from this budget. It suited him to keep expectations low and to foster fears of a harsh budget because it allowed him to present the budget he has delivered as being better than expected.

How should we judge this budget? People will ask whether it lifts them out of poverty and deprivation, ensures a more equal distribution of the benefits of prosperity, puts the economy back on a more stable competitive footing, delivers an improvement in quality and capacity within our creaking public services, reduces the financial pressures on hard pressed families or delivers value for money for taxpayers. These are the question that people across the State will be asking as they examine the details of what has been delivered. In many senses, however, it is too early to judge this budget because we have not yet seen the fine print. We will have to examine its contents, as well as the measures that will be announced by Departments, in the hours ahead. There is a very real concern it contains hidden cuts in public services which will not become apparent until Departments start to allocate their own budgets. I recall the HSE cuts which affected patient care despite the Minister for Health and Children's assurances to the contrary.

Last week, Sinn Féin set out our priorities for maintaining healthy public finances, building the economy and investing in health, education, housing and child care. We also proposed measures to help people return to the workforce. As finances become tighter, we realise it is not possible to deliver the levels of improvement in capacity and quality in public service we want in one or two budgets but the priorities have to be right. Front line services in primary and preventative health care, school buildings and class sizes, pre-school education and child care infrastructure should have been delivered in this budget if the Tánaiste wanted a positive appraisal. Scandalously, no mention was made of improving child care infrastructure or of pre-school education.

This budget will be disappointing for ordinary workers struggling on low and medium incomes and people seeking an improvement in public services such as health and education. There will be widespread disappointment at the failure to increase the medical card threshold, which is set at a mere €184. It is telling that the standard social welfare payment of €185.80 is higher than the medical card threshold. The allocation to the National Treatment Purchase Fund, which is symbolic of the Government's support for private health care, is increased to €100 million despite being of little benefit to most people requiring hospital care. That money should go to the public sector rather than bolstering the private sector.

This is a minimalist budget. I acknowledge that increases are being made to social welfare but these are too low to keep families faced with sharp increases in the cost of living out of poverty. While the gains from widening of the standard rate tax band are welcome, they will be lost again when stealth charges are inevitably imposed by cash strapped local authorities across the State in the form of increased service charges and management charges for residents resulting from the failure by local authorities to take charge of estates.

The announcements on social housing are not adequate to ensure the end of social housing waiting lists any time soon. Doing more in this area would have had the additional benefit of boosting the declining construction sector and helping the 43,600 unfortunate families who have languished on the social housing list for lengthy periods of time.

Where are the long overdue steps towards the creation of a State pre-school system? The measures on child care do not go nearly far enough to assist families who are unable to cope with child care costs equivalent to a second mortgage. The additional €100 per year in the early child care supplement will do little for these people.

The Tánaiste stated that the economic prospects for farming have improved, with increasing producer prices and food exports, but there was no acceptance by him that farm incomes are falling or stabilised at a very low base. Many small farmers, particularly beef and suckler farmers, are surviving on unsustainably low incomes.

Sinn Féin was the only party that argued in the run-up to the election that the Government, in light of the slowdown in economic growth, could not afford to cut taxes and maintain, let alone improve, public services and provide essential infrastructure. It was the only party to oppose proposals from the Government parties and others to introduce tax cuts on the ground that such cuts were not viable. There is now widespread acceptance that this is the case, as the 2008 Estimates of receipts and expenditure have proven.

No one doubts that presenting a budget in the current economic circumstances is more challenging than in previous years. As an open economy, Ireland is affected by international developments, including rising oil prices, the declining value of the dollar and international credit crunch. At home, we are experiencing a slowdown in the construction and property sectors, on which the economy has become excessively dependent, and face increased competition from low wage economies in the accession states, Middle East and Far East. Ireland, as a whole, continues to suffer from significant infrastructure deficits and lags behind other states in terms of research and development capacity within enterprise, while the level of engagement in upskilling and retraining by workers remains too low. All these factors act as a wake up call, a reminder that we need to take action to put the economy back on a solid foundation and ensure we regain competitiveness.

The current account has a surplus of more than €7 billion. The State is also in a strong position in terms of the debt to GDP ratio to borrow for capital projects. More could have been done to improve public services. Projected growth for the coming years, while lower than previous predictions, remains healthy by international standards. The Minister forecast GDP growth of 3%, which is a difficult but achievable target. The problem is not the percentage of growth — GDP growth of 3% is respectable — but that the Government planned its expenditure programme, as outlined in the programme for Government, on the basis of an over-optimistic assessment of growth. This projection was not based on a realistic assessment of future economic developments given that a perceptible change had been under way in the economy for the past five years. It had become flabby and had started to rely on construction and consumption, rather than the exports which had been central to economic performance in the early days of the Celtic tiger.

The slowdown in the construction and property sectors has, predictably, had a substantial impact on tax receipts. Although the Department's tax strategy papers identified this possibility as likely in advance of budget 2007, the Government refused to accept this view and proceeded to make foolhardy proposals to cut tax. We now have the farcical position of the Minister for Finance trying to rewrite history and cover up the reality of the approach the Government took. This will not work.

Delivering a speech as part of the Indecon public policy lecture series recently, the Minister for Finance stated: "In managing our public finances we have not in the past and we will not in the future plan the public finances around the assumption that tax receipts from the property and wider construction sector will continue to grow in future years as they have done in the recent past." The course of action the Minister proposed to avoid is precisely the one the Government chose. The shortfall of €1.75 billion is a glaring reminder that it planned public finances around the assumption that tax receipts from property and construction would continue, despite clear signs of a slowdown in this sector.

We now face crucial decisions on the direction the State must take. My party will hold the Government to account to ensure decisions to raise or reduce overall taxation revenue are made on the basis of what is needed to meet social goals and other spending demands. For more than ten years the Government has pursued a policy of low levels of personal taxation and public service provision, with a growing reliance on stealth taxes. Changes in the tax base in the past decade have involved cuts in income taxes which have benefited the better off and increases in indirect taxes which disproportionately impact those on low incomes.

While the Minister has announced a number of positive taxation measures as part of the budget, these initiatives maintain the status quo and do not constitute a move towards a fairer or more progressive taxation system. Why has he again failed to strengthen the limit on the use of tax reliefs by certain high income individuals introduced as part of the 2006 Finance Act? This should have been done to ensure tax reliefs are not exploited by some high income individuals to reduce their tax bill to the point at which they pay less tax than ordinary workers. This is a ludicrous position which should have been prevented.

While Sinn Féin welcomes the Minister's decision to increase tax credits to keep those on the minimum wage out of the tax net, we remain concerned that the minimum wage is not meeting the benchmark of 60% of the average industrial wage. I welcome the increase in the standard rate income tax band. My party strongly argued that those on or below the average industrial wage must be kept within this band.

I also welcome the Minister's sensible decision not to proceed with the cut of 1% in the top rate of income tax which his party proposed in advance of the general election. This measure would have cost the Exchequer €280.4 million and benefited those on higher incomes most, as was the case with the reduction in the top rate from 42% to 41% in last year's budget. Reducing the standard rate tax band by 2% would have cost the Exchequer €1.13 billion, revenue that is clearly needed to fund our public services.

In the run-up to the budget, Sinn Féin argued that maintaining healthy public finances had to underpin the Government's approach to budget 2008. If public finances are not kept in a healthy state, the Government cannot ensure that everyone's basic rights to housing, health and education are met, nor can it deliver infrastructure to ensure our cities, towns, villages and businesses are served by modern transport and telecommunications infrastructure and everyone has the benefit of a comprehensive regime of social protection.

While Sinn Féin welcomes the changes in vehicle registration tax, we question the reason this step was not taken when it was signalled last year. Why did the Minister believe it necessary to give people a year to purchase their high emitting vehicles without having to face any consequences? Why will this measure not come into effect until July when most other measures will take effect almost immediately?

Sinn Féin also welcomes the increases in mortgage interest relief. Many of those who bought their homes in recent years are being pushed to the limit as a consequence of increases in mortgage interest — I believe there were nine in all — introduced in the past year.

As I indicated, the tax measures announced today do not contain anything radical. We can only urge that the proposed commission on taxation be set the task of determining the best way to fundamentally restructure to tax system to create a progressive, redistributive tax system through which revenue is raised in a fair, transparent and accountable manner in order that Government has the revenue needed to reduce inequalities, improve public services and deliver infrastructure. The commission must also address the recent explosion in stealth taxes and charges.

I will address a related matter which remains largely ignored by Government, namely, the expansion of low paid employment, a development which has serious long-term consequences for the tax take, both in terms of income tax revenue and revenue from spending taxes. Although figures for employment growth for 2007 show a net increase of 78,400 new jobs for the 12 months to the end of June, there was no commensurate growth in income tax receipts because the vast majority of the new jobs were low paid.

Government priorities must also include ensuring that attempts by any employer to depress wages in key sectors of the economy through the exploitation of migrant workers are prevented. The use of agency workers to drive down pay and conditions can be stopped through the introduction of new legislation. I and other Deputies have called for the introduction of such legislation on many occasions.

As we speak, the Minister of State with responsibility for labour affairs, Deputy Billy Kelleher, is plotting with his British counterpart to block an EU directive that would give 30,000 temporary workers the right to the same pay and conditions as full-time staff. This is a disgrace. Nothing in the budget, in terms of adjustments to tax credits and bands, will compensate for the loss of earnings people across the State will experience if the downward pressure on pay and conditions arising from the failure to regulate for equal rights for agency workers is not addressed.

The Minister's increases in social welfare, particularly with regard to pensions, carers and lone parents are welcome, but in the main do not go far enough to tackle poverty in the State. The increases in the main payments may be in line with inflation but given the low rate of existing payments they will not go far towards improving the life of somebody reliant on welfare.

The universal nature of child benefit and the early child care supplement means the minimal increases have the least effect where needed, nor do the increases offer anything substantially different or innovative in terms of encouraging people out of welfare and into work. This was the main social welfare priority for my party in our budget proposals. We recognise the large sector of people in receipt of welfare who would rather contribute to the economy but are caught in welfare traps and poverty.

We called for the medical card scheme to be extended to five years for people returning to work, for family income supplement payments to be increased substantially and automatically flagged and wage disregard thresholds to be raised. Once again the Minister has failed to use the opportunity presented to him to achieve something of note. Instead we are left, as usual, with a piecemeal approach to welfare, with incremental, paltry increases that, weeks into the new year, will be of limited benefit.

We welcome the fact that the proposals to cut PRSI contributions have not been announced as part of this budget. We all want to see the burden of taxes and PRSI on ordinary workers reduced, but it can only happen if it is visible and viable. This is not the case if the cuts will undermine the capacity of the social insurance fund to meet social protections, such as redundancy payments, maternity benefit and social welfare. This was demonstrated by the latest actuarial review of the social insurance fund which predicted that the fund's surplus is projected to be exhausted by 2016 on the basis of the central economic assumptions and benefits indexed in line with earnings. The proposed 2% cut in the employee PRSI rate would have cost €720 million in a full year, while the 1% cut in the self-employed PRSI rate would have cost €220 million in a full year.

A key priority for Sinn Féin is increased quality and capacity within public services. This must involve getting better value for money in public spending. To do that, Ministers and their Departments will have to demonstrate better management of their respective briefs. The wasteful over-use of consultants will have to be abandoned, or, at least, significantly reduced.

Promises to improve the health service are in tatters as the unworkable mess that is the HSE fails more and more of our citizens, most notably in recent times the women affected by the breast screening scandal. Undertakings made before the election to address the crisis in primary education mean little to parents whose children cannot access a place in primary schools. The key question against which this budget has to be assessed is whether it provides the revenue needed to address the deficits in key public services. Has the Minister for Finance, Deputy Cowen, provided what is needed to increase quality and capacity in public services?

The population of the State has grown considerably in recent years from just over 3.6 million in 1996 to 4.2 million in 2006. In some areas, such as the greater Dublin area and the commuter belt, the population growth has been dramatic. Quite simply, public services have not been adequately expanded to meet this demand and the pressure is being felt in schools and in hospitals in particular. Public transport is full to capacity in urban centres, while rural areas lack any proper public transport infrastructure. If one walks down this city this evening, one can hardly walk past the bus stops because there are dozens of people queuing to board grossly overcrowded buses. The public is willing to use public transport if it is provided but, unfortunately, it is not.

Social housing output has not been sufficient to meet demands and there are still approximately 43,600 families on social housing waiting lists. Other essential services, including the fire service, remain under resourced. I have a communication from a colleague in Donegal who told me that a constituent of his has been on the housing waiting list for 15 years. She was pregnant when she signed on to the housing waiting list. She has again been promised a house next year. There is a reasonable expectation that she may eventually be housed next year. When her child, probably over a year later, is attending college that will be 16 or 17 years without a proper home.

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