Martin Ferris (Kerry North, Sinn Fein)

I thank Deputy Burton for sharing time. Sinn Féin does not support the free allocation of carbon allowances to energy generating companies and others. In allocating these allowances free of charge, the Government undermined the ability of the measure to function as originally envisaged. While these companies were allocated carbon allowances free of charge, they are required by the electricity regulator to include the cost of carbon in electricity pricing. This is something the Government should have considered at the time it was allocating the allowances. My party's position on this issue has been shown to be correct.

lf the regulator's requirement has the effect of increasing costs for households, it is reasonable for the Government to impose a levy on what will, as this motion states, be a windfall profit. The only concern I have regarding the Fine Gael proposal is whether it might have the unintended effect of further pushing up electricity costs for consumers. Sinn Féin has argued that revenue generated from carbon taxes or levies should, as far as possible, be recycled for use in promoting energy efficiency. If revenue is raised by way of a levy on electricity generators, consideration must be given to using part of this revenue to alleviate the plight of those experiencing fuel poverty. This is of paramount importance. Low and average income households consume a greater proportion of their income on daily necessities such as food, heating, housing and transport. The poor spend twice as much on fuel as a proportion of their incomes.

Sinn Féin has put forward several proposals to tackle fuel poverty. We proposed the introduction of a new scheme, based on the residential renewable energy grant scheme, specifically for low-income households. Under the scheme, anyone entitled to fuel allowance or with an entitlement under the free energy scheme would be eligible for a grant to cover the full cost of installation of sustainable heating alternatives. We also proposed a substantial expansion of the warmer homes scheme. Positive discrimination must be directed to the less well-off in society as a priority. The impact of rising prices on low-income families is a matter of serious concern. In the case of fuel and food, these rising costs are pushing people into poverty. We must look at how these can be addressed while also examining how tax policy impacts on those on low incomes.

This debate raises important questions about consumption taxes and the proportion of the overall tax take which is raised by way of such taxes. The unfair impact of high indirect taxes on low and average-income earners is a major concern for Sinn Féin. We have repeatedly pointed out that indirect taxes such as VAT are inherently regressive as they are paid at a fixed amount or fixed percentage of a price and, therefore, do not take into account the ability of the taxpayer to pay the tax. These types of taxes hit low-income earners hardest. This is a significant concern because almost one third of the overall tax take is raised through VAT and more than 13% by way of excise duties. In 2006, a Combat Poverty Agency report found that indirect tax payments for the lowest-income households amounted to more than one fifth of income, while the corresponding figure for the wealthiest households was just over 9%. Thus, those on low and average incomes end up paying more than their fair share of taxation through income tax and high indirect taxes. This anomaly must be tackled.

Changes in the tax base over the last decade, including cuts in income taxes which have benefited the well-off and increases in indirect taxes which disproportionately impact those on low incomes, have meant a lower tax burden for those on high incomes and a corresponding greater tax burden for those on lower incomes. Moreover, changes in the tax base saw the Exchequer become overdependent on consumption taxes and thus open to a sharp contraction in revenue as consumer spending slows. We are now beginning to see the impact of this on Exchequer revenues. The indications are that consumer spending will continue to slow and that the consequences of this for the Exchequer are likely to impact on public services.

While there are some anti-regressive features built into the current consumption tax system, such as the non-taxing of children's clothes and footwear and the reduced VAT rate on food and fuel, the full scope for introducing new anti-regressive and pro-energy efficiency measures should be examined. A review of the tax system must include a consideration of how the burden of indirect taxes such as VAT can be reduced, given the impact these have on the less well-off. Is this issue being examined by the Commission on Taxation?

While the Fine Gael motion includes some interesting suggestions, I am not convinced by the linking of the proposed cut in VAT with the proposed levy on unearned windfall gains from electricity generators. While reducing VAT is one measure the Government can take to reduced inflationary pressures, we must look at other factors which contribute to inflation. These include user fees and service charges for public services.

The Government must change its approach to the management of the economy. There is a clear need for a hands-on approach to tackling the economic challenges we now face. The public finances have deteriorated dramatically in recent months. The Government failed to ensure they remained healthy. The economy was allowed to become unsustainable as growth in the last five years was driven by domestic consumption rather than by exports or trade. In addition, the unsustainable construction sector was fuelled by the greed of the banking system. We are now beginning to pay the price for failing to ensure the economy was built on solid and sustainable foundations.

One of the challenges in terms of economic management is that tax revenue is well below projections. In the first four months of 2008, some €927 million less in tax revenue was collected than in the same period in 2007. This amounts to an alarming reduction of 6.5% in tax revenues. Sinn Féin calls on the Minister for Finance, Deputy Brian Lenihan, to state clearly that he will not proceed with the tax cuts proposed in the programme for Government. Above all, we ask him to outline how he intends to ensure public finances are adequate to pay for essential public services. Infrastructure delivery must be prioritised and tightening public finances should not be used as an excuse to postpone key infrastructural projects. If necessary, borrowing should be used to finance these projects, which will play a significant part in ensuring future competitiveness.

There has also been a failure by the Government and relevant Ministers to ensure education and training are targeted at workers in vulnerable sectors of the economy. In addition, there has been a failure to increase the numbers of workers participating in upskilling. Nothing has been done specifically to address the plight of vulnerable construction sector workers, either to protect their jobs or to ensure they are enabled to access alternative employment. There must be action from the Government to tackle inflationary pressures, to ensure jobs losses are minimised and job creation maximised and to put the economy back on a stable and competitive footing.

See this speech in context