Seanad debates

Wednesday, 24 March 2010

Finance Bill 2010 (Certified Money Bill): Second Stage.

 

3:00 am

Photo of Dan BoyleDan Boyle (Green Party)

We entered into budget 2010 and the Finance Bill, which underpins the policy implications of the budget, with an understanding, given that we contacted the European Commission for support for the medium-term to get our public finances in order, that we required an adjustment of €4 billion. It was something of an open secret that, as a minority party in Government, we would have argued that the balance might have been achieved differently. There may have been fewer cuts to public expenditure and more revenue raising measures.

The Minister for Finance got that decision right. In meeting our obligations under the six year programme we had to show, and have shown decisively, that we needed to get public expenditure under control. It has required difficult decisions in regard to public sector pay and social welfare. Unfortunately, it was unavoidable if we wanted to show seriousness and intent regarding how we were to get public finances back on track and, in particular, how we could examine the illustration of confidence which is needed amongst those from whom we will have to borrow money for a significant period of time until we achieve a budget balance.

It is a myth that budget 2010 has been expenditure-led. The Minister highlighted several measures in his opening speech on the Bill which show there is a strong commitment on the part of the Government to implement many of the recommendations of the Commission on Taxation. As a negotiator for the original programme for Government and its recent review, and having asked that a Commission on Taxation be established, it is important to commit ourselves to such a course because the decisions which will be made regarding budget 2011 will reflect many more of those recommendations.

In budget 2010 and the Finance Bill we have attempted to address some of the measures which have caused ongoing public concern, such as the taxation of high earners and the tax treatment of those who claim non-domicile status, and how we can change the taxation system. The main contribution from the Green Party has been to increase the basket of taxation measures which are available in order to avoid the type of economic shock which we experienced in our Exchequer returns by being too reliant on particular taxes which were subject to economic vagaries. Chief among those is the introduction of a carbon levy. This plays a dual role as it provides the State with a form of income. It has been introduced in the way my party has always argued it should be, namely, that it is largely hypothecated. The purposes for which it will eventually be used are known in advance. We have several spending areas which have an environmental and economic benefit as a result of the revenue achieved through a carbon levy.

Some €100 million will be spent on the retrofitting of homes. We can put money into research and development in order to develop technologies in this area. We need to examine, in terms of social welfare, fuel allowances, when it is introduced into the sector. There is now a dedicated funding source which would not have existed otherwise. Those who have patently failed to understand the carbon levy have expressed fears that it has to do with a possible inflationary risk. Because the carbon levy is a set sum of money rather than the percentage tax we are familiar with as regards VAT, any rise in the cost of fuels is not reflected in a rise in the carbon tax itself. As the price of fuel increases, this will not be accompanied by an increase in the carbon levy rate.

It was good that it was introduced at this time, as we see the price of petrol again going above €1.30 a litre. It is not so long, about 18 months ago, since we were looking at a peak oil price of €1.45. A carbon levy is meant to achieve an improvement in the behaviour of society as regards how it uses fossil fuels. We were unprepared for the last cycle of price rises in petrol in particular and I believe we shall be more prepared as a result of this as well as the introduction of new policy measures including the greater use of renewable energy. The Government has a policy of achieving one third of electricity generation in this manner by 2020. This seems to be a policy that will be largely exceeded. Last year alone, some 40% of electricity produced on 8 August 2009 was from renewable sources. On average we are producing 12% of our electricity from wind generation.

In addition we have measures to improve the tax treatment of bio-fuels, which the Green Party welcomes. The bio-fuels argument is somewhat more complicated because it is more difficult to argue in favour of it on a global sense, since it is obvious that the growing of bio-fuel crops in the United States and South America in particular runs the risk of becoming a food replacement initiative whereas in Ireland we have a natural ability to grow more bio-fuels, since there is plenty capacity here to grow both food and bio-fuel crops.

Even accepting the point just made by Senator Quinn, the potential Ireland has as an agricultural country and the need for debate on genetic modification, GM, has less to do with GM and more to do with the choices that need to be made. It has to be one or the other. My party and I believe that the greater economic potential for agriculture exists in presenting Ireland as a clean food producing country, and I should be quite happy to have a debate on this in the Seanad in the future.

On the other hand, the modification of tax has been looked at in terms of the manner in which we levy VAT. The reduction, while small, is a step in the right direction. My colleague, Senator Dearey, when he has an opportunity to speak later, will talk about the potential that has, particularly on the Border region. It is important that we modify taxes, particularly in a time of economic slowdown, to encourage spending. It is the encouragement of spending that will increase economic activity and enable us to find our way out of the particular situation we are in.

The other measures in the Finance Bill built along a similar principle are tailored, particularly in terms of financial services, to make Ireland more market friendly, in terms of market diversity, for example the provisions on Islamic finance which can be defined in those terms. Ireland has the potential to become a market leader in financial services in terms of environmental financial instruments - I know that has been talked about in a wider sense – as well as the whole area of ethical investment, which is something we have ignored too much in the past.

Returning to the new taxation measures, which I believe have been largely ignored, the fact that there is now a €200,000 fee for non-domiciled tax earners will go some way towards addressing the perception that there are people who live largely in Ireland, gain their wealth here but do not contribute to the workings of our society. Likewise, the reducing measure in terms of tax reliefs and the fact that the minimum rate is being increased by 20% to 30% will affect higher earners and help increase the individual contribution to a greater extent than in the past. These are important measures.

The success or otherwise of the 2010 budget and this Bill will depend on global economic recovery. While there are some encouraging signs in the most recent economic data, there is still a fear that there may be a double dip as regards some of the key economies we depend upon, such as the United States. While the US is currently in growth, there are suggestions that much of this is stimulus led and might be followed this year and next with either slower rates of growth or even a return to negative economic conditions.

The challenge for us is to find new markets and new ways of providing goods and services that will create a new and stronger economy, not just in the short-term but in the long-term also. I believe most of the recommendations to be found in the Government's smart economy document allow us to do exactly that.

I started by talking about the €4 billion adjustment that was needed and the fact that this was largely done by a series of public expenditure cuts. We have a commitment under the programme we have submitted to the European Commission for a €3 billion adjustment in the 2011 budget. It has been suggested that €1 billion of that is already accounted for by reduced capital expenditure in 2011 and the other €2 billion needs to be accounted for either by a combination of further curbs on public expenditure or new taxation measures. I am relatively confident that targeted new taxation measures will meet most of the shortfall.

We have also had a recent commentary by the European Commission to the effect that we need to be looking at the levels and projections for this particular plan with the emphasis on 2014. Undoubtedly we have to err on the side of caution and it could be that tax receipts may not reach what we were hoping for and further decisions might have to be made. However, it is important to be optimistic. If economic recovery is to be achieved, it will be by the provision of hope and confidence within the economy, which is largely a job for the Government.

Finally, in terms of further financial projections and where Ireland is as a country, it is important to note that not only are we engaged in an exercise of getting the State's books in order, the larger problem, perhaps the elephant in the room, is the element of private debt, in particular the level of personal debt that exists in society. Squaring that problem through a series of incentives that gets the balance right between an appropriate level of savings and encouraging people to spend in the economy, is the real challenge for the country in the years ahead.

There is no doubt that we have binged on spending over a ten-year period, and quite a number of people are in a vulnerable position as a result. The recent Cabinet initiative led by my colleague, the Minister for Communications, Energy and Natural Resources, in terms of mortgage debt, has been informed by the work of Senator MacSharry and others and is something that deals with part of the problem. However, in examining how the financial institutions are to be restructured, the key questions are how people may find their way out of the debt predicament and how money can be made available to allow for reinvestment in the economy, along with the ultimate spending of money in the economy to create more jobs. The economic indicator that will judge the success or otherwise of the Government's economic policies will be the number of jobs provided and the reduction in unemployment.

While we are at a historic high at present of somewhere in the region of 420,000, this has decreased in the past month and indications are it will decrease again. If this is the beginning of a trend, we should welcome it because it means there will be a reduction in public expenditure by default and perhaps the availability of more money for investment purposes.

Strangely, we also saw a reduction in inflation last month, although a very small one. If we can manage a small level of inflation into the immediate future, that in itself will also help us.

It is a slightly mixed message we are delivering today but I want to confirm that I believe the Minister has devised the right policy to get us through the public expenditure difficulties in which we find ourselves. The House needs to be prepared, as does the wider society, for the fact this is only the first step in a number of budgetary steps that need to be taken until we find ourselves on solid ground once more.

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