Thomas Byrne (Fianna Fail)

Fianna Fáil supports the decision to achieve an 8.6% deficit target in 2012. We are delighted that we apparently will reach a deficit of 10.1% this year. We are hoping to achieve a 2.9% deficit over the period of the plan by making savings of €3.8 billion next year. Most rational political parties, if they are not solely motivated by political gain, accept this basic necessity.

However, Fianna Fáil does not believe the Ministers for Finance and Public Expenditure and Reform have made all the right choices. We will not oppose for the sake of political opportunism because certain elements of the budget are positive and should be welcomed. The decision not to increase taxes on income was correct. Substantial increases in income taxes have played an important role in reducing the deficit to 10.1%, as Senator Sheahan noted, but they have also placed a significant burden on ordinary working people. As that well is now dry, it is welcome that the Government is turning to other sources even if we do not agree with all of them.

The Minister, Deputy Noonan, listened to our recent pre-budget submission in which we called for changes to the universal social charge for low earners. That is the right thing to do and we commend him on his initiative. However, it will make little or no difference for the vast majority of workers who are hit by the charge. We should reflect on whether we went too far on the USC in last year's budget . It turns out we would have hit a 10.6% deficit, probably without a lot of the USC receipts coming in. We went a little too far last year, although it must be said it was for the benefit of the country. It was certainly a cost to ordinary families but hopefully was in their better interests in the long term.

The immediate VAT increase proposed by the Government will cost jobs. Let us be clear and upfront about this. It will cost jobs in every county and every town and village in this country, particularly around the Border areas. A number of years ago, the parties that are now in Government railed against a 0.5% increase, which the Government then reversed because of the severe impact it had, particularly on cross-Border trade. I predict today that this will not be the last VAT increase, because in the figures that the Minister has given, we are looking at a rise in taxes of €8 billion over the next three to four years. I do not know where the Government will get that unless it keeps going back to the VAT well, as I predict it will. When we see Hungary's VAT rate of 27%, we can see there is nothing to stop us going to those high levels if the Government is to stick to its pre-budget commitments on income tax.

Increases in VAT affect people in different ways. For those on lower incomes it has a massive effect on their disposable income. For pensioners, the disabled and carers, who have seen many of their benefits cut by this Government, the VAT increase represents a double or triple whammy. We committed to the VAT increase over a longer period because we felt it was the right thing to do and that when consumer confidence returned we could then go and seek more VAT, but to do it in one year will have a damaging effect on jobs and business.

The Government has said it expects to bring in €670 million from this 2% increase. Let us see whether that happens and whether demand falls. As my colleague Deputy Michael McGrath said in the Dáil today, anyone who has studied economics will know that an increase in price results in a reduction in demand. This has not been taken into account by the Department.

We have seen a lot of sneaky things in this budget. I will acknowledge that we have not had hits across the board, but particular sectors have been hit, including the young disabled, pensioners and the fuel-poor. Rural schools, contrary to what we were told this morning, have been hit with a pupil-teacher ratio increase and have been told to consider merging or closing. Rural and urban Garda stations will close. The pupil-teacher ratio in secondary schools has been increased, with the removal of guidance counsellors. There are 27 schools in County Meath with fewer than 86 pupils. Those schools were told last night to consider their futures because of Government decisions. This is wrong, and it is about time some pressure was put on the Government by the rural Deputies and Senators who came in here today to welcome the education cuts without knowing what they consisted of. Many non-Catholic schools will struggle to stay open as a result of this change.

I warn the Government that this was the easy budget. Where will it get €8 billion in taxes over the next few years? How will it implement the cuts that are required and still achieve an increase in growth? We wish the Government the best of luck with it, but it will be difficult.