Seanad debates

Wednesday, 27 November 2002

Adjournment Matters. - Local Government Fund.

 

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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I thank you, a Leas-Chathaoirligh, for accepting this matter and I thank the Minister of State for coming into the House to hear it.

It has been a welcome development that in recent years the Government sought to reduce the tax burden on both the individual and on business. It has and will continue to provide an incentive for companies to develop and expand as well as providing individuals with an incentive to participate in the labour force. However, there is one area of business taxation that has been forgotten. It is an area where businesses have experienced increases over the past ten years averaging almost twice the rate of inflation. This area is commercial rates.

Commercial rates are one of the four main ways in which local government is funded, the others being income on goods and services, grants and subsidies and the local government fund. The whole issue of commercial rates takes on increasing importance following the recent publication of the pre-budget Estimates in which the allocation to the fund is €420 million. This represents a marginal increase in the fund for 2003 and in real terms, when inflation is taken into account, it could well be a reduction. Meanwhile, I understand that the local authority pay bill has increased by well in excess of 12% in 2002 alone and when benchmarking is taken into consideration, it is certain that the increase in the bill for 2003 will also be significant. I am sure the Minister of State is also aware that for 2003, in contrast to 2002, there are no specific allocations to local authorities to finance the salaries of elected members.

Taking these figures into account, will the Minister of State not agree that many local authorities will find themselves with deficits next year and many may be tempted to significantly increase their take from commercial rates to make up for any deficits in their budgets, particularly since the cap on increasing commercial rates has been removed? Further increases in commercial rates would have the effect of countering many of the gains businesses have made from tax cuts in many areas in recent years, which have been instrumental in the success of our economy over the past ten years.

I am sure the Minister of State is aware that many small and medium sized businesses, particularly those in rural Ireland, are already struggling with rising costs such as insurance and wages. Will he not agree that in the current climate, a rise in commercial rates could have serious implications for these hard pressed businesses and, for some, could be the last straw? Many small and medium sized enterprises, particularly in rural Ireland, are currently operating on very slim margins but they all have to pay their commercial rates bill regardless of whether they are in profit.

In light of this, would the Minister of State consider reviewing the allocation provided in the pre-budget Estimates for the local government fund with a view to increasing the allocation to reflect the rising costs local authorities face in the execution of their functions? If the Minister did that, local authorities would not be tempted to significantly increase their take from commercial rates to balance their books. It is essential that the allocation include appropriate remuneration for local authority elected members, who give so generously of their time, and for their sterling commitment to the effective representation of their constituents.

Those in the business community must pay their way and I am certain they do not object to paying. I am aware also that the private sector is only too aware of the changed economic circumstances in which we now find ourselves but since the abolition of domestic rates in 1978 and rates on agricultural land in 1984, business is the only sector that pays rates on its property to local authorities.

The total collected in commercial rates in 1984 was €182 million. That figure has risen to €746 million today. In other words, since becoming the sole contributing sector in 1984, the total take from the business community by local authorities has increased in excess of 400%. I am sure the Minister of State who, in the past, has proven himself to be pro-enterprise and understanding of the pressures under which small businesses throughout urban and especially rural Ireland operate, would consider that this level of increase is both excessive and unsustainable, particularly in the current economic climate when many firms are struggling with rising costs.

Business must also pay for water, disposal of commercial waste, charges linked to planning permission, the provision of parking and connection to water and sewerage schemes. These charges have increased almost exponentially.

There is a limit to the amount that any one sector of society should be expected to contribute. While we all understand that we are living in much tougher times when we all have to tighten our belts in the global economic downturn, perhaps the Minister would reconsider the decision to allocate little or no increase in the local government fund and ensure that local government is adequately funded so that struggling small and medium sized businesses, particularly in rural Ireland, will not have to bear the brunt of further rises in costs through increased commercial rates.

Photo of Noel AhernNoel Ahern (Dublin North West, Fianna Fail)
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This is the first time, since taking up my position in the Custom House, that I have had to deal with the issue of local government funding in the House, and I welcome the opportunity to do so.

I was a member of Dublin City Council for about 17 years and I fully share Senator MacSharry's concern that local authorities must be properly resourced to carry out the wide range of functions entrusted to them. It goes without saying that without resources, little can be achieved. It goes without saying also that if resources were unlimited, local government could justifiably and effectively spend significantly more in improving the range, depth and quality of the services they provide to the public. However, as every Member of this House will be only too aware, resources have always been and will always be limited. Hard choices, therefore, will always have to be made.

That said, the track record of this Government in contributing resources to local government stands up to the closest scrutiny. This year, some €593 million has been allocated to local authorities from the local government fund in general purpose grants. That is an increase of 75% in five years and an increase of 10% over the 2001 baseline allocations. This House should acknowledge the scale of this achievement and the extent to which it has contributed to putting local government on a sound financial footing, perhaps for the first time in very many years.

I should also mention that in addition to general purpose grants, the introduction of the local government fund by this Government has seen grants for non-national roads increase by over 100% since 1997. That does not mean that we can stand still. The Minister is finalising proposals for the 2003 local government fund general purpose grant allocations and these will be notified to authorities in the next couple of weeks. These allocations will take account of the potential cost increases facing local authorities next year, increases which Senator MacSharry has highlighted.

All options are being examined to ensure that an appropriate level of general purpose grant can be made available to each authority from the local government fund next year. At the same time, it must be understood that important as these grants are, they contribute to only about one fifth of local authorities' current income. In drawing up their budgets for the coming year, local authorities must look to all potential income sources to ensure that their income matches their expenditure.

In framing its Abridged Estimates the Government took many hard decisions and it did not take these lightly. It took them in full knowledge of the need to consolidate the public finances by bringing expenditure growth under control. It is right also that in managing their affairs and framing their budgets for 2003, local authorities should have regard to the particular requirement at this time for sound and responsible financial management and should take appropriate decisions to balance their expenditure against income from central and local resources.

As the Senator mentioned, the cap for the year has been removed and it is up to the local authorities at their Estimates meetings in the coming weeks to do the best they can in matching their revenue sources with their expenditure. While the grant from the central Exchequer may not be what many local authorities would like, they will have to do the best they can. I accept the point that the cap has been removed and some local authorities may increase the commercial rate by more than they would have in another year. Hopefully they will not see that just as the easy option or the easy way out. It will probably be set higher than the rate of inflation and now that the cap is removed I hope they will not lose the run of themselves but I do not believe they will.

Photo of Marc MacSharryMarc MacSharry (Fianna Fail)
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I thank the Minister of State for his reply and for taking cognisance of the issues I have raised. He is doing a fantastic job in his Department.

The Seanad adjourned at 8.20 p.m. until 10.30 a.m. on Thursday, 28 November 2002.