Michael Noonan (Limerick East, Fine Gael)

When I spoke just before 7 p.m. I was drawing to the attention of the Minister for Finance an issue which first arose on budget day. I knew the Minister would not be back in the Chamber at 8.30 p.m. but in the four minutes that I had before 7 p.m. it was difficult to make the point I was trying to make. That point relates to the decision that medical expenses in future may only be claimed at the standard rate of tax. I understand the reasons for that decision and am not opposing it because of the dire financial circumstances in which the Government finds itself.

I understood on budget day, from debating the budget in RTE as it was announced and subsequently, that it was the Minister's intention that this would not apply to nursing home charges. However, under the terms of the Finance Bill, while nursing home charges are exempt from application of the standard rate in 2009, they are not exempt from 1 January 2010. Due to the manner in which the Finance Bill is drafted, once 2009 elapses, the primary section takes over and the exception falls out. Therefore, without any further political decision or change in any future Finance Bill, nursing home charges will only be claimable at the standard rate of tax.

This is extremely unfair and anyone who is familiar with the thinking behind the Nursing Homes Support Scheme Bill, known as the Fair Deal proposal, will understand just how unfair it is. The provisions of that Bill do not apply to the people to whom I am referring. Under the Nursing Homes Support Scheme Bill, an individual is subject to a means test. It is a curious means test in that it decides the contribution which persons in nursing homes will make to the Exchequer, rather than the amount they will receive from the Exchequer. It is, in a sense, a means test in reverse. If one applies the means test in the Nursing Homes Support Scheme Bill to the standard rate bands in this Finance Bill, practically everyone in a nursing home will be paying at the standard rate band, so the issue does not arise. The people who pay tax at the higher rate will not be eligible, except in very occasional circumstances, for the so-called Fair Deal so, as a consequence, they will be paying their own nursing home fees.

The interdepartmental committee that examined the Nursing Homes Support Scheme Bill gave a range of nursing home charges, which are available on the record to the Minister of State, Deputy Mansergh, and everyone else who participated in Government. The charges were examined in 2006. In general terms, outside Dublin, a high-maintenance bed in a nursing home costs approximately €800 per week, while in Dublin the same bed costs between €1,200 to €1,500 per week. I know of a person in County Limerick who is paying €800 per week for a nursing home bed and of another person in Rathgar who is paying €1,200 per week. If one rounds off the figures, the cost is between €40,000 and €60,000 per year. Under the Fair Deal, if one has an income of €40,000, as calculated under that legislation, one will receive nothing from the State but will pay all of one's fees oneself. If one is a single person, under this Finance Act, one will not reach the higher rate of tax until one earns more than €45,000. In fact, the figure is even higher if one allows for personal credits, but the band is up to €45,000.

Let us examine the difference between the marginal and standard rate. The person in County Limerick, Cork or Clare who is paying €800 per week is getting a rebate of approximately 40% of that amount, if he or she is on the higher rate of tax. In other words, he or she is currently getting €16,000 per annum, but will get only €8,000 under the terms of this Finance Bill. One can easily do the calculations for my friend whose mother is in the nursing home in Dublin. She will be required to pay an additional 20% of €60,000, which is €12,000 per annum. In most cases, that is simply not affordable for people. The source of income is not unlimited. One would have to be in receipt of an excellent pension to be able to take €60,000 from it to pay for a nursing home, even when one is in receipt of a tax break, but to do that without getting a tax break at the marginal rate moves one beyond the realm of affordability.

I do not think this was ever the intention. Somebody somewhere thought there was a match between the marginal rate of tax and the means test in the Nursing Homes Support Scheme Bill and on that basis, if one was a beneficiary of the Fair Deal, one would not need to draw down this money from the Revenue Commissioners. However, they do not match although there may be a marginal crossover. Furthermore, the means test in the Nursing Homes Support Scheme Bill is based on after-tax income. Therefore, if one actually got the benefit of a rebate at the marginal rate of tax, one would have to contribute more to the nursing home because one's imputed income would be higher than if one received the rebate at the standard rate. The State was going to get it anyway.

In terms of the question of paying relatives who contribute to the nursing home charges, under the Nursing Homes Support Scheme Bill, they will be taken out of the loop completely. If the person in the nursing home does not have an adequate income, the family home will be attached. Therefore, the issue of a rebate to relatives no longer arises, whether at the standard or higher rate. If one looks at the attachment, at either 7.5% or 15%, the Nursing Homes Support Scheme Bill is silent on the tax treatment of the repayment. When a person who was a resident in a nursing home dies and the State, through the Revenue Commissioners, gets its money back through the mortgage attachment of the family home, I do not know what the tax situation is because the Bill is silent on the matter. However, I am not particularly worried about whether the person who inherits the family home gets no rebate, gets it at the standard or at the marginal rate. That is not the issue. The issue of concern comes into play while people are alive and in nursing homes. They need to have the use of their own funds to be able to pay the fees because, if they are on the higher rate of tax, in 99 cases out of 100, the provisions of the Fair Deal will not apply to them.

I understood from a response from the Minister for Defence, Deputy O'Dea and from the Minister for Finance that my point was taken. However, the Finance Bill is drafted on the basis that the marginal rate of tax will apply to nursing home fees for 2009 but from 1 January 2010, the standard rate will apply. That is unfair, misguided and based on a false logic. I believe the Minister intends to amend the Bill but having said that, I have had the same conversation with him on a number of occasions already. This provision is like Dracula — it keeps coming back.

I will now move on to the budget itself, which was a very difficult one for the Minister to put together. As with all budgets, he had three options — to borrow, tax or cut. In my view, he taxed and borrowed too much and did not cut enough. There is much talk about the public service at the moment. The public service is this and that, public servants earn this and that and so forth. I was a Minister on a number of occasions and worked with public and civil servants. When I was in the Department of Justice in the 1980s, fellows worked all night for small money. They were very good at their jobs. They did not get overtime once they were past a certain grade — administrative officer was the grade at the time. I also worked in the Department of Health. Sometimes I agreed with the policy that was being advocated and sometimes I disagreed, but I never disagreed with the fact that they work very hard. Again, once one was past a certain level of seniority, one worked into the night, and frequently at weekends. I am certainly not going to launch any kind of attack on the public service. Teachers work hard, nurses work hard, and gardaí all over the country and in my town work very hard indeed. However, that is not the issue. I resent the fact that by some convoluted logic an international crisis caused, by and large, by the private sector, specifically the financial services industry, is now being attributed to the public service. Whoever caused the financial crisis internationally, it was not the public service. However, the public service does come into it.

Let us come back to the choices facing the Minister of whether to borrow, cut or tax. We had a building boom that generated an enormous amount of revenue in income tax, PRSI, VAT, stamp duty and capital gains tax, which the Government, in its political unwisdom — if there is such a word — decided to spend on ongoing programmes. It was not sustainable. When the building industry collapsed, the revenue stream that was funding the public service programmes collapsed as well. Thus, we are now running a State we can no longer afford. This is where the public service comes into it. We can no longer afford the public service we could afford when there was a huge flow of revenue coming through from the building industry. Every 10,000 houses built generated €1 billion. When the amount of houses being built goes from 90,000 down to 40,000 and is heading for 25,000 next year, is it any wonder there is a hole in the Government finances? In seeking to address this, the public service does come into the frame. It is not because its members are lazy — they are not. It is not because they are untalented — they are not. It is because a Government addressing a fiscal crisis such as this cannot do so without reducing payroll expenditure. Unless this is done, either through numbers or through salaries, the hole remains. That is the problem. The public service understands this as much as everybody else, but it seems to me we would go farther with a type of partnership solution in which everybody acknowledges the problem, rather than some people grandstanding and implying that public servants for one reason or another are now to blame for what is essentially a private sector crisis.

The country is spending what it cannot afford at the moment. We were supposed to restrict borrowing to 3% of GDP under European rules. According to the budget, we will now raise this to 6.5%. Already, even though the budget is only a few weeks old, it looks like 8% at year-end without further correction. That is not sustainable. We are no longer borrowing just for capital, which I support. Some 10% of the current budget is funded by borrowing. That cannot continue either. If we tax, we will take any steam there is out of the economy. Every country in Europe that has a bit of leeway is trying to give some kind of Keynesian impulse to the economy, either by cutting taxes or by further spending. Ireland is the odd man out because we do not have the leeway to do so. That is my objection to the budget. There is too much borrowing. A total of €2 billion is being raised in taxation of various kinds. It is the wrong solution.

There is a further problem. The public gets tired of medicine after a while. They get very tired of harsh measures. They can sustain it for a short period of time, but if the Government wastes a year with the wrong type of medicine, such as is being applied in this budget, it may run out of time. This budget has thrown away the options for 2009. There is nothing in this prescription which goes towards solving the problems in 2009. When it comes to solving problems for 2010, the Minister and his advisers would want to start now. To take measures which will be effective in 2010, the Government needs to have them sorted out before 1 March. There is a lead-in time to all these things. If it is left again until late autumn or early winter next year, and the Government comes up with another budget that is trying to fill a gap, with too many taxes, not enough cuts and more borrowing, we will be in for years of this. The time is short. I thank the Leas-Chathaoirleach for his patience.

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