Michael Noonan (Limerick East, Fine Gael)

I wish to share time with Deputies Durkan and Deenihan.

I had the pleasure of watching the Budget Statement on television because I was not in the House that day. It was a non-event; there was very little of significance in it. The same criticism applies to the Finance Bill which enacts the budget and puts it on a statutory basis. With two exceptions, the measures on VRT and stamp duty, it is of interest only to tax lawyers and accountants. There is little to it as an instrument of economic management. On the day of the budget the Minister spoke about the difficulty of using a budget as an instrument of economic management when the way ahead is so uncertain, especially when the Exchequer returns are in decline and he could not foresee the preceding run of taxation continuing into 2008 and 2009.

After contemplating this for a long time, he decided to do nothing and fill the void by borrowing. This was quite dramatic in terms of the deterioration in the public finances. He turned a surplus of €2.3 billion into a deficit of €4.9 billion. Between the end of 2007 and the start of fiscal year 2008, the public finances have deteriorated by a record €7.2 billion. Since 1922 there was never such a deterioration in public finances over a fiscal year in absolute or percentage terms. That assumes that the Minister's figures will come in as expected but I do not think they will. They are based on 60,000 new houses being completed in 2008. Every 10,000 houses yields €1 billion in taxation to the Exchequer. The expectation in the building industry is 40,000 houses, a figure calculated by a former colleague of the Minister's, Mr. Parlon. That represents a deterioration of €2 billion in the public finances.

There is not much in the budget for pay, although new pay negotiations are looming. On the normal rule of thumb, if one adds the Minister's consumer price index prediction of 3.5% and his growth rate prediction of 3%, the opening position for the pay round will be 6.5%, just to stand still. That is a significant sum of money on a payroll and the budget does not provide for such serious expenditure on pay. Although there will not be a full year effect, it will begin to come in this year.

The budget is based on fairly sandy foundations. There is a serious deterioration in the public finances and the Government is engaging in a significant borrowing requirement. The country can afford it for one year because the previous years have been so strong but by the Minister's rolling budget there will be even more serious borrowing in 2009 and 2010. The Minister's illustrious predecessors, Messrs Lynch, Colley, O'Donoghue, Haughey and O'Malley started out with good intentions in 1977, fulfilling many budget promises, but they trebled the national debt between then and 1981. This was done in yearly increments and everybody had the best of intentions. That is what can happen when one goes down this road.

I can see why the Minister decided not to depress demand by taking stringent measures to restore fiscal balance but he did not take the supply side initiatives that would help the economy. He has made no effort to reform the public service, to eliminate the massive waste in public capital programmes, to fulfil our mantra of being a knowledge economy when we rank 26th out of 32 OECD countries for broadband service, or to restore our competitiveness which has declined on every front over the past five years. Normally if one cannot risk demand management — I can see why he did not do this — and one borrows, a Minister for Finance managing an economy should have a series of supply side interventions which would make it more efficient.

I agree with the VRT provisions in the Bill. It was far-sighted of the Green Party Ministers, particularly the Minister for the Environment, Heritage and Local Government, Deputy Gormley, to base VRT on engine emissions rather than engine capacity. The five categories suit all sorts of vehicles. There is, however, a downside. I have been driving an environmentally friendly car, a 320 diesel BMW, for several years. According to a schedule published in The Irish Times the VRT on it before the budgetary changes was €12,900, but after the changes it is €6,800. A reduction of €6,100 in VRT seems like good news but its effect on me is to reduce the value of my car by €6,000. For those of us who were conscious of the environmental effect of driving, the first result of this change is to reduce the trade-in value of our cars. It is worth considering that the first to be penalised are not those who drive gas guzzlers but those who drive low emission cars.

The cost of motoring is high. Petrol and diesel have become very expensive, particularly in the past 12 months. I hope that using VRT as an instrument of environmental protection does not bed in VRT at the current rates because there is a strong case for progressively reducing the burden of VRT. It was first introduced to protect the car assembly industry in Ireland but where is that industry now? We and the Danes received permission to introduce VRT for similar reasons. Now, however, it exists purely to collect taxes. I hope the Government, particularly the Green Party, will not see this as a way of collecting taxes in the future and using it as an instrument to protect the environment by varying the rates for cars with different emission levels.

Tolling also makes driving expensive. The way in which tolling operates at present means the more economically disadvantaged areas will have a higher incidence of tolls than the greater Dublin area. The reason is that projects in the capital programme that were lower down the priority list were funded by public private partnerships. In Limerick, one will pay a toll on the Limerick tunnel next year after its completion. Thereafter, one will pay tolls on the road from Limerick to Nenagh and following the extension of that road to join the motorway at Portlaoise, one will pay a toll along the entire route. Apart from the expense of driving, the Government should take into consideration that the incidence is heavier on the less competitive regions.

While I do not wish to return to the issue of Shannon Airport, I have encountered something that the Minister of State should bring to the attention of his colleagues. I refer to Aer Lingus's constant policy of trying to close down its routes out of Shannon. I checked recently on someone's behalf the return cost of flying from Dublin to Los Angeles and from Shannon to Los Angeles. It cost 50% more to get on the aeroplane in Shannon, fly to Dublin and take the flight to Los Angeles than to fly from Dublin. At present, the return cost from Dublin to Los Angeles is somewhat more than €400. However, the difference in cost for taking the flight from Shannon is €230. This constitutes blatant discrimination on the part of Aer Lingus to give itself justification for closing down the routes from Shannon on the basis that people are not using them and is as good an example as one will find.

I agree in principle with the Minister's actions on stamp duty. He has adopted the correct approach by acting on a once-off basis rather than incrementally. However, it is a pity that he did not carry this out last year because it is not now having the effect of putting a safety net under the building industry. It is too late for that.

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