Wednesday, 30 September 2015
Pre-Budget Outlook: Statements
I am delighted to be back in the Seanad. I suppose it is extremely timely that we are having this discussion in advance of the budget that will be presented to the Oireachtas two weeks from now.
I will begin by setting out the broad fiscal context in which we find ourselves in the run-up to budget 2016. Based on the fiscal forecasts in the spring economic statement, Ireland is set to exit the excessive deficit procedure at the end of this year with a general Government deficit of 2.3% of GDP. This development, like our exit from the EU-IMF programme in 2013, represents another milestone along the path to a full and sustainable recovery for our economy. It also means that beginning in 2016, we will be subject to the preventive arm of the Stability and Growth Pact. I know these things can be fiendishly complicated for people. Specifically, we will be subject to compliance with what is known as the expenditure benchmark. This will set a limit on fiscal space for next year by applying a defined growth rate to the expected 2015 expenditure out-turn. As we outlined in the spring economic statement in April, based on current estimates a budgetary package of between €1.2 billion and €1.5 billion is envisaged for next year's budget. This will deliver compliance with the expenditure benchmark, which is legally binding on us. This is a prudent amount, given the level of general Government debt the country has.Based on this package being split evenly between tax and expenditure, this will allow for expenditure increases of approximately €750 million next year.
It was outlined in the spring economic statement that the Government had decided to host a national economic dialogue in Dublin Castle before the summer. As we go forward under the new European fiscal rules, it is important that all sectors of our society share informed discussions about the options and choices we face. The national economic dialogue was not a return to the old social partnership model, but it was unapologetically an attempt to have a shared social and economic perspective on the challenges we face. The dialogue, which took place on 16 and 17 July, was structured around plenary sessions chaired by an independent moderator and smaller break-out sessions on specific themes. Arrangements were made to show the plenary sessions on television and the Internet. This genuine and robust dialogue examined the realistic options open to the Government within the available fiscal space. The event was well attended by members of the Opposition; Members of this House; representatives of community, voluntary and environmental groups; business interests, trade unions, research institutions, the academic community and the diaspora.
The national economic dialogue facilitated an open and inclusive exchange on the competing economic and social priorities that were facing the Government as it prepared for budget 2016. It was informed by the macroeconomic and fiscal parameters, including the EU budgetary framework, which were set out in the spring economic statement. I am pleased to say that the discussions were cognisant of the pressures we face as a people and the need for informed decisions on the reallocation of resources to meet the priorities out there of which everyone in this House is aware. I do not doubt that the open and informed discussions at the dialogue helped to broaden everyone’s understanding of the issues we face. I refer to issues such as how best to provide incomes and health care for older people, the appropriate models to deliver quality education and child care and how best to address the housing issue.
At the time of the spring economic statement, I announced the beginning of discussions with trade unions on the issue of public sector pay. We needed to prepare an orderly unwinding of the emergency provisions governing the cuts in public sector pay which had taken place. As the economy recovers, pay levels in the public sector stay can be restored in a manner that ensures they remain sustainable. People need to recall the important point that reductions in public service pay are determined under law by the Financial Emergency Measures in the Public Interest Acts. The operation of those emergency measures is conditional on there being a financial emergency, certified by me each year. I do that in July of each year. It has been my view that the only prudential course of action available to the Government is to seek an orderly wind-down of these measures over time. Our legal advice is clear that this is what we must do. Practically, if we were not to do so, we would expose the State to the risk of a successful court challenge to the legislation. This would be a hammer blow to the State's public finances, for which the suite of measures in the Acts in question generates some €2.2 billion annually.
I am proud of how we managed the industrial relations challenge we faced during the recession. We maintained our commitment to collective and inclusive bargaining. We maintained our commitment to doing so through negotiation. I was delighted to announce the Lansdowne Road agreement in May of this year. I firmly believe it strikes the right balance between the legitimate aspirations of public servants - nurses, gardaí, civil servants and local authority workers, etc. - for pay recovery and the need to sustain our improved public finances. As Senators will know, the agreement was ratified in the past couple of weeks by the public services committee of the Irish Congress of Trade Unions. The agreement will target lower and middle income public servants without risking the sustainability of the public finances. The agreement, which has been accepted by vote by most of the public sector, has been made possible by the improvement in our economic circumstances and the delivery of real and tangible reform of their work practices by public servants. If we are on a path to restore public service pay, we are obliged to unwind the public service pension reduction too. We have targeted less well-off pensioners for relief in the first instance. The cost of these two measures - beginning the unwinding of the pay reductions and the pension reductions - will be €297 million next year. Obviously, this must come out of the €750 million that is allocated on the expenditure side.
Over 80% of voted current public expenditure in Ireland is allocated to three areas. It is a striking fact that over 80% of money is spent on health, education and social protection. That would not be the norm everywhere. This current expenditure supports vital services across the State, with more than 2.2 million social welfare and pension payments being processed each week, 3 million visits being made to outpatient hospital facilities each year and over 56,000 teachers providing education for more than 860,000 primary and post-primary students. Ireland’s demographics compare favourably to those of many other countries. We have a growing population and the highest birth rate in the European Union. While this is welcome, it can present its own challenges. By 2021, an additional 57,000 students will need to be provided for in our primary and secondary schools, with 20,000 additional third level enrolments also projected over this period.A well-educated workforce is one of the economy's strongest attributes and we need to ensure our public finances can support this trend into the future. While we currently enjoy favourable demographics over many other European partners, we will be facing pressures sooner rather than later. Relative to a decade ago, an extra 200,000 citizens will be over the age of 65 by 2021. That will account for a quarter of our population by 2060. Pressures in all areas, such as health and State pension schemes alone are estimated to cost an initial €400 million per annum. This is simply the cost of standing still. Our commitment to our citizens in these areas requires that we consider these trends into the future and make plans accordingly. Undoubtedly, we have lived through a number of difficult years. Public service pay has had to be cut, expenditure pressures arising from increased unemployment rendered the fiscal adjustment difficult but I am proud that we have turned the corner now. I am proud too that we have done so with our social protection system largely intact, a system that continues to impact forcibly on the disadvantaged in our country. This year, gross current expenditure across the social protection, health and education sectors will amount to more than €40 billion, 81% of total current expenditure.
Let me touch on progress on each of these critical areas. On social welfare, despite increasing demand across many social welfare schemes we have maintained primary social welfare rates, such as pensions, disability payments and jobseeker's payments. This has ensured that Ireland's system of social transfers remains among the most effective in Europe in reducing the risk of poverty rate. Significant investment in and reform of Ireland's system of labour market activation has resulted in a comprehensive response to the unemployment crisis which the Government inherited. Through Pathways to Work, the unemployed have been given the opportunity to upskill and rejoin the labour market.
The education sector has faced increasing demands. Between 2011 and 2015, primary school numbers have increased by more than 35,000, secondary school numbers have increased by more than 21,000 and third level numbers increased by more than 8,000. Our continued investment in the education sector has seen the pupil-teacher ratio remain broadly maintained since the Government came into office. The Government has protected the funding allocations to DEIS which prioritises the educational needs of children and young people from disadvantaged areas. Budget 2015 provided for an additional 1,700 new posts to be created during the course of this year but we have gone beyond that. By the end of the year, we will have an additional 900 mainstream teachers, 570 more resource teachers compared to 2014 and approximately 830 extra special needs assistant posts will be in place this year, reflecting our prioritisation of special education needs.
In the health area, the provision of medical cards and GP visit cards has increased from 1.3 million in 2007 to 1.9 million last year. We are forecasting another increase of 200,000 in card beneficiaries during the course of 2015. Staffing levels in health last year increased by 2,331 or 2%. That is something many people do not know. In the first two quarters of this year, there has been a further increase of another 2,000 staff. The increase in staff has been concentrated in the hospital sector. That is an increase of 4,500 staff in just over 18 months. In the acute sector, €30 million has been provided to manage additional pressures. This funding will provide transitional care in the form of step down facilities and extra home help hours. Overall, this funding will ensure a reduction in the number of delayed discharges alleviating, I hope, the pressure in some of the largest hospitals and ensuring people are treated in the most appropriate health care setting.
An extra €44 million has been allocated to support the successful fair deal scheme which has seen waiting times fall to four weeks or less. We will maintain them at this level. Some €35 million has been provided in 2014 and 2015 for enhancement of mental health services. The challenge in next year's budget is to build on that progress, to seek to improve services and to seek new and different ways of doing things.
Sometimes when I listen to the broadcast media I note that each change we made is portrayed as a cut or a step backwards. One would think that 2008 was a perfect world but even then too many of our citizens were facing difficulties. What this Government has done well, through Pathways to Work and An Action Plan for Jobs, is to restore the importance of employment as the cornerstone of our anti-poverty strategy. To ensure that the lessons of the crisis are not forgotten and our public finances are deployed efficiently in service of our citizens, we have implemented a programme of reforms to improve the State's budgetary architecture.
Budget planning is now made on a multiannual basis to ensure the budget process is consistent with aggregate fiscal objectives. This provides clarity to the public and decision makers regarding the parameters under which expenditure policy is operating. Additional reforms include: regular comprehensive reviews of public expenditure; the publication of updated public spending codes; the implementation of the performance budgeting initiative; and the establishment of the Irish Government economic and evaluation service. We brought a greater level of transparency and efficiency to the allocation and spending of public money. None of these reforms is in and of itself a game changer. While they have yet to imbed themselves fully in the public mind they represent a fundamental improvement in the way we do public business. These reforms will remain key components of the architecture of our budgetary process in the years head.
The Government was elected on one key task, namely, to restore the public finances and the Irish economy to health. It pays not to be complacent about these matters but the improvement is available for all to see and the lessons of the noughties must still be learned. The prudent and sustainable management of the public finances is the first task facing any government of any political hue. Ireland's public finances must be kept on a sustainable path with revenues able to support the level of spending envisaged. The challenge will remain to prioritise and design Government interventions within that framework. Fiscal choices are increasing and there will be continued modest increases in resources in the coming years. However, there is a wide range, as members will be aware, of competing demands for that available money. It is, therefore, important that we make good choices about raising and allocating resources.
On 13 October we will present budget 2016 to the Oireachtas. This will strike a balance between what is fair and appropriate while ensuring that our economic and social recovery is sustained and strengthened.
I thank the Minister for coming to the House. One thing is certain, whatever decisions are made on budget day will be wrong in the sense that we would all have our version of what should and ought to be done. That would vary from person to person within the Labour Party, the Fine Gael Party and, perhaps, within all members of society. The choices are what politically divide us. We are glad to have the opportunity to make a few points in advance of the budget because all too often it was announced on the day and from that perspective we are grateful.
During the course of the past five years the Minister said the Government was elected to put the public finances in order. The manifesto was one thing and later came the programme for Government. At the banking inquiry I noted that the Minister for Finance, Deputy Michael Noonan, said it would be fair to say that the Government predominantly followed the four-year plan as set out by Brian Lenihan. I think he described it as a pretty good plan. Our view is that plan could have been implemented with less stress and pressure on the less well-off than was done while the sacrosanct higher earners and higher tax rate, certainly sacrosanct within Fine Gael, seemed to go untouched. Those higher earners who, frankly, expected a bigger hit were in a better position to take the bigger hit and perhaps this would have made some of the more difficult measures less necessary to implement in terms of the elderly, the sick, the less well-off and the most vulnerable in society.That is what divides us politically. Since coming to power, while claiming that it has not increased the income tax rate, the Government has introduced 13 separate increases in tax on income and a total of 45 other separate tax increases. It has also introduced numerous stealth taxes and has driven up the cost of living for families. It seeks to hide very substantial increases in tax, resulting from the abolition of mortgage interest relief in 2017 and the likely abolition, it seems, of tax relief on private medical premia, if universal health insurance goes ahead. Together, these measures will take €600 million from families throughout the country. While we are in an era of announcement after announcement of investment, which is positive and all investments are to be welcomed, it is worth noting that €600 million taken from families is ultimately what hurts people most. The announcement of a metro to Dublin Airport on the never-never between now and 2026 is certainly a good aspiration, and one to be welcomed because it is important that we have good public transport in our capital city, but the people who paid the price of this global disaster, particularly in Ireland over the past ten years, are the ones who deserve most in return. When discussing the budget, we must begin to focus on the people in the terraces, the people who are homeless, who are sick or elderly and who are most vulnerable because they are the ones who ought to be looked after first.
Does the €1.2 billion to €1.5 billion identified for 2016 refer to the full year effective taxation or to the first year effect? This is a very significant point because, for example, the Revenue Commissioners estimate that the full year cost of a 2% reduction in the standard rate of universal social charge, USC, will be €728 million, almost the entire amount earmarked for tax reductions. On the other hand, if the Government based its plans on the first year effect, this reduction would be €528 million, implying scope for over €200 million in tax cuts. That clarification would be welcome.
Does the €300 million commitment for public sector pay increases under the Lansdowne Road agreement reduce the €750 million available for expenditure?
It will be €450 million of new measures. Now we know that there will be €300 million off the top of the €1.2 billion or €1.5 billion under the Lansdowne Road agreement. It is good to have that clarification.
Will the additional spending commitments required take account of demographic pressures on health, education and welfare and the scope for expenditure to improve overall service delivery mostly focused on the less well-off? While it is great to have the opportunity to discuss the budget in advance, and I commend the Minister and the Government on that, the fiscal council has been largely ignored since it was brought into being. It set down a clear marker that €1.5 billion in tax cuts and expenditure increases is at the outer limit of what would be prudent for the Government to undertake. The council also called for a realistic medium-term plan. Has the Government taken adequate cognisance of this advice? In the last budget the fiscal council was largely ignored. Vital information that would inform policy discussion is withheld from the public and interest groups, and at times the information presented on budget day cannot be relied upon, as we saw in the budget last year when €113 million in medical card probity savings were announced but we never really got to the bottom of it. We need to measure outcomes versus the language or spin in the Budget Statement.
I would like to see a simplification of the tax code. There is a need for that regarding pay-related social insurance, PRSI, USC and income tax because each has a different entry point at €12,012 for USC, €16,500 for income tax and €18,304 for PRSI. There is also the anomaly that an increase in pay makes an employee on an income of €18,300 worse off by €700 because all income become liable for PRSI at that stage. It does not seem fair that this should be the case.
It is important to recognise the importance of ability to pay. The local property tax, water charges, commercial rates and similar charges are not linked to ability to pay. In many instances they represent a regressive burden on homes and businesses and we need to consider that. We need to reform the USC, but perhaps that is in the Minister’s plans. A taxpayer on an income of €17,766 pays the same rate as those on very large incomes. Lower income earners must be taken out of the USC net. Only 18% of income earners benefit from a cut in the top tax rate. There is a need to prioritise increasing tax credits which benefit all taxpayers equally over changes to the rates. There is also a need to address the anomaly of the self-employed. A self-employed single person earning €15,000 pays almost six times as much tax as an employee in the PAYE system with the PAYE credit. We have to incentivise people to get out there and work and to start businesses. We need to breed entrepreneurial flair in the community but the system does not do that. There is also a need to increase the threshold on inheritance tax and my colleague Senator White will deal with that aspect.
We also need to think a little bit outside the box. I would love a government to abolish the means test for the carer’s allowance, even on a pilot basis. With other supports, such as medical cards, some home help and the home adaptation grant, many of our loved ones, our aunts, uncles or parents, could be kept at home at a cost of perhaps €600 or €700 a week. This would give a family member or someone else a job in looking after that person, instead of them holding up an acute bed which costs €1,000 a day or even a nursing home bed which could cost approximately €1,200 a week under the fair deal scheme. Some government should try this - it might not work but it would be worth a try. We have to be prepared to be innovative and to think outside the box.
I thank those in the Fine Gael group who covered my absence during the recent banking inquiry. I also offer my heartiest thanks to Jimmy Harte for his work here. I have not had an opportunity to do that and I wish him and his family well in his retirement.
The entry point for USC was €4,000, but we brought that up to €12,000, which is a big increase. Practically everybody paid USC at one stage but in the past two budgets 500,000 people have been taken out of it. That is not bringing us back to the days when 40% of people paid no income tax - as I read recently in an article by the late Dr. Garret FitzGerald - and we wondered how our taxes collapsed. It was not too difficult to see how that happened.
I support the dialogue with the community pillars. One of the things this Government has done well, and the Minister must be given credit for it, is that in the main there have not been strikes. People bought into the plan, some of which we inherited, as must be acknowledged, and the alterations this Government made to it.I do not support electioneering on budgets. There is always a price to pay in the future. It happened in the 1970s with the Lynch Government, and we know what happened with the banking collapse and everything since then. One of the figures I was flabbergasted about was that voted expenditure from these Houses, which was less than €19 billion in 1997, had risen one decade later to €63 million. And we wonder how our economy collapsed. While the banking sector contributed, it did not account for all of it. The fall in the tax take when the downturn came was the primary cause. At one stage, we had a deficit of €23.7 billion - not quite €2 billion per month, but very close to it. This puts it in the context of the per annum situation. Anglo Irish Bank will have cost us €30 billion in its entirety, and one year's deficit was close to the same figure.
I fully support the restoration of moneys to the public by way of tax reductions, if possible, by removing people from the USC net and lowering the tax bands. Given that the public - nobody else - paid for all of it, we must give back to people the opportunity to have a standard of living that they accept. The Irish people are the reason we are back on target to reach a normalised cycle. The Minister referred to the Financial Emergency Measures in the Public Interest Acts, and we all remember passing the Acts in both Houses and scratching our heads wondering whether it was doable. It was doable and it has been done, and the public is entitled to something back.
I have always been clear, and the Minister has heard me say it several times, that there must be a reward to work. The data is available to show there is a very small gap between those on lower pay and those in receipt of social welfare payments. The gap is the reward for working. The solution is not to impoverish people by further slashing welfare rates but to allow people to earn more money and pay less tax. We are trying to do this by the means mentioned earlier, and it must happen.
There are issues - I will not say "crises" - that are coming down the tracks very loudly and clearly. We cannot ignore housing affordability. While there is much discussion about the crisis in the housing sector, there is very little discussion about the affordability crisis. This morning, I heard on the radio that it costs six times the average wage to buy a property in Dublin and five times the average wage in the country, which is well outside international norms. The ratio outside Dublin is much more alarming, given that there are higher pay rates in Dublin than down the country. It is a criticism that while some would say Dublin is recovering, the rural areas are slower to catch up. Will the Minister examine the housing affordability crisis? I am concerned about it.
The self-employed kept going through thick and thin during the recession. If it is possible, perhaps over a number of years, to ensure that the self-employed are on the same rates as the employed, I would fully support it. It has been flagged several times and it is on the radar. Sometimes, it is easier to avoid the hard choices.
The Minister mentioned DEIS, which was originally calculated in 2004, pushing towards 12 years ago. For some reason, some very obvious areas were excluded from having DEIS status. For example, our constituency, Courtown-Riverchapel, which the Minister knows well, is an area of urban disadvantage that should be on the same level as other DEIS schools but is not. Although it is a difficult one to grasp coming into an election, it should be done. The area requires the same pupil-teacher ratios and advantages that exist in DEIS schools.
County Wexford does not do well regarding IDA jobs. This is a fair criticism and I accept my portion of the blame for it. I was very disappointed last February that Wexford received none of the IDA's regional funding. The IDA has four acres of land in County Wexford, which is not good enough for a county of our size. There should be more focus and we should be more strategic about what can be done. I do not want to eat anybody else's sandwiches, only to ensure that what should be available for our county is available. The situation is a mistake and should be addressed.
Senator MacSharry made a claim about the higher-paid. I have always tried to be fair to the previous Administration, which implemented much of the plan in late 2010 under the then Minister for Finance, the late Brian Lenihan. It was clear, at the time, that those on higher pay would pay more, which we all supported. According to the OECD, our income tax system is the most progressive in the OECD, which I support. Those who earn more pay more. However, there comes a time when one cannot keep taxing a smaller number of people and thinking it will fill the hole in the nation's finances. The Fine Gael view is the fair view that somebody who is earning more pays more, but we cannot keep pushing those rates up because it will result in diminishing returns. I support the very progressive position the Minister took last year by increasing the entry point into the higher rate of income tax, which is 40%, from €32,800. In our English-speaking neighbours east and west, the UK and the US, one can earn approximately 20% and 35% more, respectively, before incurring the higher rate. The major issue with the tax system is that one is subject to the higher rate far too early. When a couple merges two €40,000 salaries, we can call them "high earners," but I do not believe they are fabulously wealthy.
The Minister is very welcome, and I welcome the opportunity to have a little influence on his thoughts as we approach the budget. I note the Minister's ongoing openness and engagement with individual Senators and with the House. As the Minister said, it is a time for political choices and options, and this is what we are trying to influence. I will focus on specific issues regarding children. I am delighted to say that my colleague Senator Mary Ann O'Brien will focus on issues of carers and respite, and I support everything she will say on it.
I am concerned about the talk of a €5 increase in child benefit mooted by the Tánaiste. Thinking in terms of political choices, an increase of €5 in child benefit will not be the answer. This morning, I heard Teresa Heeney of Early Childhood Ireland saying a family in crisis needs much more than €5 - they need €55 or €105 - while a family that is not in crisis will probably not notice it. However, if we were to put the money together to ensure we got value for money and focus on improving outcomes for children, we could show how we have changed our thinking and methods. Families that are under considerable financial strain want to know that services exist, that they have a right to them, that they are available and that they are of high quality.
We need to invest in child care services. A few months ago, Early Childhood Ireland released a report. I am chairman of Early Childhood Ireland, and it is a governance role.I support the recommendations contained in the report, Footsteps for the Future, which was authored by Dr. Stephen Kinsella. He took the 2015 spring statement forecast and the CSO's demographic projections to 2021 as his basic data. In the report, he discussed the costs and benefits of several medium-term current and capital spending plans. The headline statement in that report is that we need to move gradually towards having one year of paid parental leave, adding one month every year for six years. We can take a step in the right direction in this regard. That is why the report is called, Footsteps for the Future. Its recommendations are in line with international best practice in terms of what is good for babies in their first year, that is, to be at home with either of their parents.
We need a structured approach to considering funding of out-of-school and afterschool care. New Zealand has a good model called out of school care and recreation, OSCAR, in which the household and the state share in the payment of approved operators. This is outlined in the report. I am concerned about afterschool funding, in that we do not have guidance and structures. Like the child care sector, this may grow into a model that is not the best place from which to start. We have an opportunity now to structure afterschool care.
We must consider increasing capitation levels to child care providers. Those I have met around the country are struggling and closing. Often, people discuss whether someone is a private or community-based provider, but that is a false dichotomy. The only difference is in the payment of rates. They are struggling with the same issues. Of the 25,000 child care workers, 3,370 - almost 14% - needed to sign on to the live register, costing the State €7.2 million. Surely, there is a better way. They are professionals and we are asking them to have qualifications, yet we ask them to sign on every year because the free preschool year only lasts 39 weeks. Could we extend that year so as to keep these people employed in providing child care instead of stigmatising them and forcing them to sit at home because they are not valuable enough to keep them on?
We need a rights-based approach to children with additional needs and those from disadvantaged areas and to consider a model of anticipatory funding. We know the demographics concerning children with special or additional needs or from disadvantaged areas. Dr. Kinsella estimated that it would cost €16 million per annum to front-load a system that ensured a framework based on prevalence and demographics. There should also be just one inspectorate for early years education. Currently, the State is funding several. A cost to the State, it is equally a burden on the child care providers when different inspectors land on their doorsteps. We are funding public health nurses up to assistant director level to inspect child care services. It makes no sense. Public health nurses are wonderful people, but they are not qualified to inspect child care settings. In fairness, the Department of Education and Skills has been doing a great deal of work in this regard recently. Perhaps it should be the lead and we should have just one inspectorate.
I am the chair of a new cross-party group on children's future health. I have serious concerns in this regard, particularly about obesity and child poverty. The Comptroller and Auditor General raised the issue of the school meals programme in his report yesterday, in that some schools have inflated numbers. I welcome his call for a re-examination of the programme. One applies to the Department of Social Protection for funding, yet the Departments of Education and Skills, Children and Youth Affairs, Health and Agriculture, Food and the Marine handle the other aspects. We should determine how to co-ordinate all of that. Healthy Food for All has asked for an additional budget to be allocated for the school meals section to co-ordinate a forum of the various Departments so that they might interact with schools in just one way on the programme's delivery. This work should be led by the Department of Education and Skills, given the potential for the stigmatisation of children and young children who avail of the scheme. Yesterday, we received a briefing from the Irish Heart Foundation and Healthy Food for All. They referred to a principal. The scheme is available to a certain number of children in the cohort in question. In order to make it inclusive, the principal used it as a prize for the other students so that two per week were lucky enough to participate with the other children. This reminded me of my uncle telling me of how he had always believed that we had relations in Canada because his family used to get the Christmas parcel. His mother made sure that they did not know that it was coming from the Society of St. Vincent de Paul. The way we structure schemes sometimes places a burden on children.
I have written to the Minister for Finance regarding a further issue, namely, the need to implement a sugar-sweetened drinks tax in the budget. This would help to tackle the problem of obesity by reducing consumption and generating income for reinvesting in children's health initiatives while assisting the Department of Finance in meeting its fiscal goals. This will require political will around the Cabinet table, but I have provided the Minister with a great deal of evidence.
With the Minister, Deputy Howlin, examine the scheme to support national organisations? A core grant, it is pushed from one year to the next and has never been structured properly by the Department of the Environment, Community and Local Government. This Government inherited it and it stems from different machinations, but no one has ever tackled the issue of having just one source of funding for NGOs. They should declare that they get no other State funding. I have no difficulty in that regard, but we do not have a way of supporting core organisations in their work. I would support any funding that we could give to the Child and Family Agency, Tusla, which was burdened with a legacy debt that it cannot carry through.
As to community supports for early discharges, the Irish Heart Foundation and the Royal College of Physicians of Ireland produced an excellent report and costed the supports. I presented that information to the Minister for Health. The model is there for us to follow.
Senator MacSharry made a point about the fiscal council. It has agreed with the headline figures. It is for the Government of the day to decide how we spend our resources. The Senator stated that we needed to spread the recovery beyond urban areas. It is important that we use the budget as a mechanism to do so.
This morning, the ESRI reported that Ireland was the fastest growing economy in Europe, with the latest forecast being 6%, an upgrade from the ESRI's summer forecast of 4%. Last year, Senators were considering our first expansionary budget. It was in the region of €500 million, representing an increase of €1.5 billion from the previous year when over €1 billion was removed from the economy. This year's budget represents a €3 billion turnaround, which should be noted.
There has been a recovery in domestic demand. According to the CSO's figures, the overall volume of retail sales has increased to 2005 levels or thereabouts. The best route out of poverty is a job, as has been mentioned repeatedly. The Government has stated its determination to bring the economy back to full employment by 2018. We are approaching the point of unemployment decreasing to 9% this year, according to the ESRI, and even lower next year. We did this while managing to increase the national minimum wage, which gives lie to the idea that one must have a low-cost economy to grow, improve and increase employment.
In spite of the commentary to the contrary, it must be noted that we have a highly progressive income tax system. Senator Michael D'Arcy made this point. There is a tax wedge for those in receipt of 160% of the average wage in comparison with those who are on 60% less than the average wage, placing us second highest in the OECD. It is also worth pointing out that the Irish tax and welfare systems have been effective in reducing inequality during the crisis. The OECD figures show that Ireland is a more equal society now than it was at the beginning of the crisis. These factors should be recognised as we face into budget 2016. I do not want to capture an old cliche, but it is a case of a lot done, more to do. A great deal of progress has been made.
I disagree with Senator White regarding capital gains tax and capital acquisitions tax.I come from a family in which there was a saying "Money comes to money". I see absolutely no reason people who have inherited wealth or have been given gifts pay a lower tax rate than somebody who works an extra hour in a supermarket. One of the great things that this Government has done is to have moved the CGT and CAT tax rates more in line with the tax rates on earned income.
The universal social charge, which was introduced by a previous Government, has been reduced for those on low and middle incomes, as has already been pointed out. We have all read the speculation that this Government intends to reduce it even further in this budget and I welcome that.
I want to move on to some specific issues. This is a pre-budget statement so I want to move on to the issue of the housing crisis. There is a housing crisis. The President thinks so, the ESRI thinks so, almost every voluntary organisation in the country thinks so, and I think almost every citizen in the country thinks that we have a housing crisis. I welcome the announcement yesterday of €2.9 billion for the construction of social housing and a further €300 million to promote PPPs in delivering social housing. The fact remains that our housing crisis threatens to derail our economic recovery. This point has been made by a number of people.
Politically, there are a number of issues still on the table. One of them, which is particularly close to my heart, is the issue of the rent certainty legislation. The Minister for the Environment, Community and Local Government, Deputy Kelly, made a statement in February 2015 which, I believe, he acted on and produced legislation to introduce rent certainty into our legal system. Not to put too fine a point on it, there is a political issue between the Labour Party and Fine Gael on this matter. I want to be clear on a number of points here. We are dealing with an extreme family homelessness crisis in this country. We all agree that housing supply is the issue and once housing supply recovers, the system will step in and rents will fall and equalise and so forth. In the meantime, homelessness will rise in this country unless we act to limit the issue of rent increases.
I will speak from my own experience. In 2013, because I work closely with a front-line organisation, I noticed that the number of families becoming homeless was growing exponentially. We had not seen this before and it happened for one clear reason: people could not afford to pay their rents. It is an economic issue. The fact remains we are in a situation in which rents rose by 35% between 2011 and 2014, and in the past 12 months they have risen by a further 10%. There is no way out of this situation if we do not regulate the rate of rent increases. I know the Minister for Finance has ideological reasons for not interfering with the market but the fact is we interfere with the market in many other areas. If we do not regulate the rate of rent increases, we will see homelessness rising at an exponential rate. We are not alone in this crisis. The Greater London Authority is also looking at introducing a rent certainty model. Nobody is suggesting that landlords should not get a decent return on their investment. This model does not mean they will not get rent increases. It just means those rent increases will be regulated.
There is a reluctance to increase the rate of rent supplement while there is no cap on the rate of rent increases. Were we to have a rent certainty model, I believe we could look again at the issue of rent supplement. I believe very firmly that a significant number of European countries that have this model have a very vibrant, well-regulated rental sector. One in five Irish families lives in rented housing and they will continue to do so. That number will rise. It is very important that if this Government achieves nothing else in the housing area, it gives those families a secure future. People have come to me and said they will not buy a school uniform for a particular school because they do not know whether their child will be in the school in 12 months because they do not know where they will be in 12 months. That is not a reasonable position for families to be in. I ask the Minister to exercise whatever influence he has with the Minister for Finance to get this legislative provision over the line because it will have a serious impact on the number of homeless families in this country.
I welcome the Minister and the opportunity to have this debate because in previous years we did not have the opportunity to express our opinion before the budget. There is little doubt that there is a confidence in the country that did not exist before. That confidence has come about because the Government has got the economy back on track. I congratulate it on that. It was not just from cutting costs. Tourism VAT was brought down to 9% and I urge the Minister to consider making sure that nobody touches it unless it is to reduce it further.
It is not popular to say, but one of the concerns I have is that there might be an increase in the minimum wage. It is understandable why there would be a demand for it but it seems to me that every time we increase the costs on employers, there are fewer jobs. It dissuades employers from hiring more staff even when they need them. If there is to be an increase in the minimum wage, there should also be a decrease in the employer PRSI rate. Otherwise, employers will be wary of employing somebody else when there is an increase.
My other concern is about upward-only rent reviews in retail. It is an issue I raised in the House and on which we passed legislation. I know it was a very difficult issue for the Government because we passed it as a majority on all Stages in this House but it has gone no further. The reason, we are told, is that the Government has been advised by the Attorney General that it might be unconstitutional. I urge the Government to pass it through the other House and have the President, who will say that there is a doubt about it, pass it to the Supreme Court. That Bill should be passed and referred to the Supreme Court, on which basis we could get a clear answer. It is damaging retailers throughout the country, especially in Dublin.
I would like to see additional measures in the budget to help small retailers and SMEs. Retail Ireland has called for the Government to make it easy for retailers to succeed online. We are not very good at this. We have not done a very good job on this. The idea is we could offset the cost of web development against VAT costs. That has happened in other countries and we could do something on that. I went into a shop in Estonia a few years ago and there were only two or three people working downstairs. Upstairs there were 11 people working on the Internet and exporting. We can do that. There are some great export businesses working on that basis.
It is also well known that SMEs are losing out when it comes to research and development tax credit. Small businesses do not have the capacity for the paperwork and the red tape to access credit. IBEC is calling on the Government to consider launching credit lite, as it were, research and development tax credit models for SMEs. It is worthy and I support it and hope that the Minister of State at the Department of Jobs, Enterprise and Innovation, Deputy Gerald Nash, will give serious consideration to it.
I have a concern about automatically increasing costs. I do not smoke. I hate smoking and I disagree with it but I worry that if we increase the cost of cigarettes, all we do is encourage smuggling. I know that smuggling is a big challenge. There is a curve in economics called the Laffer curve which says that if a government increases taxes, it earns less. The opposite of that is that if a government reduces taxes, it sometimes earns more. I do not suggest that we reduce taxes on cigarettes on that basis but I am concerned that when we automatically increase taxes on something such as cigarettes, of which I think we would all approve, we find that we encourage other developments such as smuggling.Revitalising town centres is something we can do. The Government must be commended on its recent announcement of a €30 million fund to aid the regeneration of towns. I was involved in the Local Heroes project in Drogheda and it was great to see what could be done. The Austrians set rent for retailers at a low fixed rate to allow small and unique businesses to survive because they attract people into town centres. This is something we could consider doing. The Government also needs to look at ways to encourage people to live in the centres of towns and cities. It should remove red tape and ease the planning regulations.
I wish to bring up another point, which is the extension of the additional voluntary contributions, AVC, scheme past 2016. We still have problems with individuals and businesses getting access to credit. There are various ways they can get it, but one way people and SMEs can get easy access to credit is by releasing some of the cash they have locked up in their pensions. The Minister for Finance was very progressive several years ago in allowing people some access to cash that was locked up in their AVCs. For a three-year period from March 2013, people were able to avail of the scheme, but it will expire in less than a year's time. We can do something about this. It is amazing to consider that up to September of last year more than 12,000 people had availed of the scheme. This meant that more than €90 million was directly released into the economy, while €36 million was paid in income tax. I was disappointed to learn from the Minister for Finance that he had no plans to extend the scheme past 2016. I will take this opportunity to ask the Minister about the future of AVCs. Will the Government consider extending this very worthwhile scheme in the 2016 budget?
While we are talking about business, a number of barriers are in place for those who create businesses. There is discrimination against entrepreneurs. As IBEC has pointed out, the PAYE tax credit in effect allows an individual to earn €8,250 free of income tax but, astonishingly, there is no PAYE tax credit equivalent for self-employed persons or proprietary directors. I do not understand this. That is what we are trying to encourage, but we say if one is self-employed or sets up a business one does not get this benefit. That being said, the effective income tax rates for those who are self-employed are much higher than for PAYE workers at the same level. That is not sustainable. We must change it and it should be changed. There is another 3% USC charge on self-employed incomes over €100,000. This should also be reduced, because we need to set conditions whereby people are not made worse off by setting up or running their own businesses. Most experts point out that entrepreneurs are some of the primary wealth creators in this country. We should not give them a reason to set up their businesses in a competitor country because of outdated tax regimes. Senator Healy Eames spoke about a function she attended in Galway on encouraging development, which was attended by British tax people encouraging people to go to Britain. There were there solely to explain the benefits of establishing a business in the North of Ireland or Britain, as against Ireland. We have competition and we can do something about it.
I welcome the Minister of State of the House. The emphasis of this budget, even more than last year, will be on recovery and building rather than retrenchment. Yesterday we had the announcement of substantial public infrastructural spending. When we think of where we were five years ago, this spend is most welcome and needed. The focus of the budget must be on securing the recovery rather than squandering the recent gains in a populist fashion, as many of the Opposition frequently suggest. While it is proper that the emergency taxation measures for the public and private sectors be unwound, there is a wider issue. The Opposition calls for this and that taxation measure to be abolished or reduced. Opposition Members also want a much greater spend on each and every popular issue that arises. This is the modus operandiof opposition, but it also has a responsibility to be honest. Opposition Members want Nordic levels of services without thinking about where the money comes from. Sinn Féin, for instance, is loud in calling for significant State investment in affordable child care and in every other area. At the same time, it calls for the abolition of property and water charges. If both charges were to be abolished, where would it find the money for this substantial investment in child care? Billions of euro do not come from thin air. It is important to state this because it seems not to be understood in some circles. Services are paid for by the moneys collected from the taxpayer. If various charges and taxation measures are abolished, little money would be left for investment in services. It is that simple.
I must address another populist mantra, which is "Let the rich pay more." The facts, however, speak for themselves. The top 1% of income earners pay 21% of total income tax and USC in Ireland. This increased from 19% due to the changes made in budget 2015. On the other hand the 76% of earners who have salaries of less than €50,000 per year pay 20% of the total tax take. Much of the leftist opposition asserts that all our problems can be solved by penal taxation of those earning more than €100,000. The simple problem with this is that only 6% of taxpayers make more than that figure. These are the figures of the Revenue Commissioners. If those on the left believe 6% of taxpayers are able to fund all the spending promises and cuts in taxation to which they have committed, then they are utterly mistaken. The actual problem with the Irish taxation system is that those on relatively low incomes hit the marginal rate of tax much too early. I hope this can be addressed in the forthcoming budget.
The usual trend in expansionary budgets such as the forthcoming one is to provide a little funding for many things. I would prefer on this occasion, as time does not permit me to go into all of the areas, to concentrate on two in particular. The first is the issue of high-quality and affordable child care. I have been discussing this issue in Galway in recent months and I will host a public meeting tomorrow. The lack of high-quality and affordable child care is of huge concern to many people. Child care is now like a second mortgage for many families. It prevents those who wish to re-enter the workforce from doing so. The simple fact is that we as a country have not spent and do not spend sufficient money on child care. Recent figures from the Department of Children and Youth Affairs show that just 496 children were registered for the after-school care scheme between September 2014 and August 2015 - that is, 0.1% of a primary school population of more than 500,000 children. Those participating pay €15 a week and the State provides between €40 and €80 a week per child. The total funding allocation for this year is just €1.32 million. It is clear from the participation and funding levels that there are significant problems. I earnestly hope that in the forthcoming budget we will see a significant move to increase State investment in child care. It will not be possible to make all of the required changes in one budget, as it will take a multi-annual approach, but I hope the budget will make a start in the area.
The second issue I wish to raise is that of the self-employed, particularly low-income self-employed people, who are significantly discriminated against in terms of taxation. The self-employed are just as important as PAYE workers and it is time they were treated fairly. Publicpolicy.iehas calculated that a self-employed single person on an income of €15,000 pays almost six times as much tax and PRSI as an employee on the same income. A simple principle of fairness in any taxation system is that two people earning the same amount of money should pay the same amount of tax, but this is not the case. Our system fails a basic fairness test at the first attempt. I urge that the budget commence the process of levelling this playing field.
Thankfully, today we are in a position to discuss how money can be invested in people and projects because of the actions of the Labour Party and Fine Gael Government. The economy is going from strength to strength because of the hard decisions that were taken and the sacrifices the people of Ireland made over the past four years. We cannot throw this success away now. We cannot listen to the Opposition, who know neither the cost nor the value of anything. I commend the Government on the work it has done to date.
I welcome the Minister of State, Deputy Harris, to the Chamber, and the Minister, Deputy Howlin, who was here earlier for this discussion. It is certainly an important discussion to have ahead of the budget, to reflect on where we stand and the fiscal space available to the Government. Of course, we are speaking about fiscal space because of the European framework that is now in place.It is moving from the corrective arm, which came into place in November 2011, to the preventive arm, which is to do with the debt and budgetary rules pertaining to what the Government can do in the forthcoming budget. The knock-on effect of that was the establishment of the independent Irish Fiscal Advisory Council, IFAC, which is doing an excellent job in merging the gap between Brussels and Dublin regarding surveillance of spending by government, Departments, local authorities and so forth. Those are the positives that have come out of the negative crisis we have emerged from and we now have surveillance beyond that available to a government. Irrespective of which party is in government, whether it is Fianna Fáil, Sinn Féin or Fine Gael, that external surveillance and the independent knowledge from the Irish Fiscal Advisory Council served the taxpayer well not only here in Ireland, but across Europe. I very much welcome that and I hope it will lead to the end of the boom and bust budgets we have seen in the past, which have resulted in negative consequences and political buying of votes using the taxpayers' money.
The Irish Fiscal Advisory Council made a pre-budget submission this year; it did the same last year. In that submission it spoke of a consolidation of approximately €1 billion. The Government did not listen to that and went to €2 billion. I am anxious to see what will happen this year. The Irish Fiscal Advisory Council is saying the €1.5 billion is at the upper limit and it believes the Government should move forward on a prudent basis, to use the council's own words.
One of the shortcomings in the structure in place in terms of the Irish Fiscal Advisory Council pre-budget submission, in the lead-in to the budget and even in terms of this discussion, is the fact that there should be a statutory obligation on the Government to respond to the pre-budget submission by the Irish Fiscal Advisory Council. The Taoiseach made flippant remarks recently about its submission to the effect that it is an issue for future governments to worry about. It will be an issue for future governments to worry about but it is also an issue for this Government to worry about in the forthcoming budget. There should be a statutory obligation on the Government to respond to the information provided by IFAC. That may be a shortcoming. Obviously, it is a political matter. Governments have democratic responsibility, and I accept that as a practising public representative, but at the same time something should be brought about in that regard.
Regarding the budget, the fiscal space was outlined by the Minister, Deputy Howlin, in his contribution. On the expenditure side, the split is about 50-50 between taxation and expenditure, which will allow for expenditure increases of approximately €750 million. There are many areas that require attention, and I have no doubt it will be a difficult task for the Minister for Finance going into the budget, but areas have been highlighted by the Irish Fiscal Advisory Council and other agencies regarding demographic changes to do with future pension provisions that need to be nailed down and addressed in the Budget Statement.
The improvement of the economy and the projected 6% increase this year was touched upon. That has to be welcomed but, unfortunately, it is a two-tier recovery. In my part of the country, Donegal, the recovery is not evident on the streets, in the retail sector or for the young people who cannot find a job and who are struggling to survive on social welfare. All of us can see the fruits of the recovery here in the capital and in major urban centres but that is not happening in rural Ireland. I hope the Government will take the opportunity to bring forward a package that will revitalise some form of a recovery in rural Ireland because it is not evident at the moment. There is no doubt that will be a challenge but it is also an opportunity. If I was part of a government going into an election, I would provide something to rural Ireland not necessarily by way of financial transfers in the State, but economic stimulus packages that would get people back to work in local areas rather than feeding into the Teagasc report, which stated that 60% of the population will live within 30 miles of the east coast by 2032. The Government, through policy intervention, must stop that happening because that would see an exodus of people from the west. That should not happen, and a policy intervention can change it.
I wish the Minister well. I have no doubt he will be busy in the coming weeks, and we look forward to the Budget Statement.
I welcome the Minister and thank him for the opportunity to communicate on this issue here. As we approach the budget, and I welcome the fact that the Minister is in the House because I know he will be on the same page as me, I believe it will be a budget for our carers. Family carers have consistently lost allowances, benefits and supports over the past four years, as well as services on the ground. As we all know, Irish people place a high value on family in terms of looking after their elderly parents or their daughters, sons, sisters or brothers with a serious long-term illness or disability. These carers deserve a budget that will offer them stability, security and dignity.
The Government views carers as a financial burden as opposed to valuable, hard-working citizens who are doing vital and difficult work in saving the State millions of euro. If Senator van Turnhout was caring for a relative, she would be getting €204 a week because she is under 66 years of age. If Senator Quinn, who I think is over 66 - he is 67 - was looking after an elder relative he would be getting €239 per week. What amounts of money are those for somebody who is trying to manage a household and work seven days a week under incredible stress? The Minister spoke about people with disabilities, Alzheimer's and other incredibly difficult diseases who need 24-hour care. We have the wonderful fair deal scheme but these carers are saving the State millions of euro. A fair deal arrangement will cost the State €800 to €1,000 a week whereas Senator van Turnhout will cost it €209 a week, but I think Senator van Turnhout, or carers like her, should be getting at least double that amount.
For a wife caring full-time for a husband with Parkinson's disease, the disproportionate 19% cut to the respite care grant in budget 2012 has made her caring role much harder, not easier. For the couple who are caring for a young family and an older mother with poor mobility due to pulmonary disease, the cuts to the housing adaptation grant scheme means they will wait years, not months, for supports to be put in place for a much-needed downstairs bathroom. Those are the basic requirements, and dignity, these people deserve.
To go into a little more detail, the 19% cut to the respite care grant imposed in budget 2012 was deeply unfair and disproportionate to the cuts applied across the general social protection budget in the context of Ireland's economy slowly recovering, with cuts in income tax entering the fiscal discourse and cuts to other social welfare supports being restored in last year's budget. I urge the Minister, as do the members of the Carers Association, to restore the respite care grant to the full €1,700 in budget 2016.
In terms of restoring the household benefits package, the decision to abolish the telephone allowance flies in the face of Government policy to care for people at home. Without a telephone line, lives are put at risk as older people, the sick and the disabled are denied access to alarms or telecare equipment as well as having a direct link to their carers.
Family carers cannot claim relief on medical expenses incurred as a result of their caring roles. Could the Med 1 form through which PAYE workers can claim relief be put in place for carers?
I support Senator Quinn regarding self-employed entrepreneurs. Coming back to the issue of capital gains tax, CGT, for entrepreneurs, I ask the Minster to examine the English CGT system. Currently, CGT is at 33%. All of us here want to encourage young entrepreneurs to start businesses and employ people but if they put together a successful business, employ people, are successful and want to dispose of their businesses and assets in five or six years' time, they will pay 33% CGT. In England, there is a special relief for entrepreneurs which means they pay only 10%.On the subject of capital gains tax, CGT, a person in England with a low income who is lucky enough to have a gain such as an inheritance will have a CGT rate of 18%. If one is a high earner, one's CGT rate will be 28%. I ask the Minister to consider taking away this blanket CGT rate. While I agree it may be fair that people who have lots of properties and never did anything to earn them should pay at a rate of 33%, an entrepreneur who has created wonderful business, stimulated the economy, employed people and has gone through all the pain should have a different system.
Members do not often have the opportunity to engage with the Minister, Deputy Howlin, although he comes into the House on occasion. When I saw he was in the Chamber, I decided to come in and speak on this important subject. The Government has made and is making a priority of homelessness and housing, which is its main focus at present and hopefully the outcomes will be successful. I look forward to the implementation of yesterday's announcement of €2.9 billion for social housing. The Government must ensure that whatever it does regarding housing is well thought out and well thought through. I listened to Senator Hayden on the cap and whatever and while rent controls are in vogue at present, measures must be well thought out and well thought through in respect of supply because after all, Governments do not build houses; people and builders do.
I came into the Chamber to speak about the child care issue in particular. While Senators van Turnhout and Naughton have spoken about it previously, I consider it to be the most pressing issue after housing. At present, 80% of the budget goes on health, education and social welfare. Were an investment made at the early intervention stage, one would reduce the budget of each Department by at least 10%. I ask the Minister - and have made this point previously to the Minister for Children and Youth Affairs, Deputy Reilly, - that each Department be levied for a stipend towards child care and early intervention and prevention. This not only concerns the Department of Children and Youth Affairs but it concerns all Departments. One might ask how the Department of Justice and Equality's responsibilities relate to children, but it has been found over the years that for every $10 spent, at least $2 were saved. It was in dollars at the time, which was before surveys were available in Ireland. Children do not go to prison, end up being better educated, have higher workforce participation rates and have better health. Consequently, it is a false economy to suggest it is only the Department of Children and Youth Affairs which deals with the issue. Each Department should conduct an internal examination of itself in this regard. While Governments always are being charged with looking at single years, the present Government is engaged in long-term planning of which this would be an element. There is no point simply in throwing money at child care and the Minister, Deputy Reilly, has stated it must be of high quality and all Departments must consider this point. It does not come cheap and will not be cheap but it must be done. Another point regarding the workload early childhood care and education providers now have is many of them go on the dole if their employers cannot afford to pay them throughout the summer and in consequence, €6 million or €7 million is paid out in dole payments. It would be much better to put that money right into the system to provide early intervention, particularly for the most needy. On the question of giving €5 in child benefit, while it of course is welcome, is it best? If the aforementioned €5 gets into the hands of people who do not understand the benefits of early intervention, they might put it in the wrong direction and it would not necessarily have any impact on the child in the long term. I ask that this point be considered.
Another issue that already has been mentioned in the Chamber is that of increasing women's participation in the workforce and after-school care and the need to draw up a stable programme for that because it is piecemeal at present. The advisory council established by the Minister has made some recommendations in this regard and while Members must await the budget, I refer to the Hands Up for Children recommendation and the ongoing review of the effectiveness of existing child and family services to ascertain whether they all provide value for money. On the inspections, I agree completely with Senator van Turnhout's point that while nurses are well qualified and so on, they are not the right people to make such visits. I served on the very first expert group on child care in 1991, at which a vote was taken on whether it should be under the remit of the Department of Health or the Department of Education and Skills. Health won out but I consider that to be the wrong Department and that it should be under the remit of the Department of Education and Skills. I compliment the Government in that this is the very first year in which the Department of Education and Skills has taken an interest and will provide an inspectorate. However, co-ordination with the inspectorate through the Department of Education and Skills, Tusla and so on must be done.
While I mentioned the workforce, I note it is employers who provide the jobs in this regard. As for support systems, one should reduce the lower rate of PRSI for employers. While I must conclude on this point, the taxation of work must be a third priority. As for getting people back to work, there is nothing like getting people out of poverty by providing them with jobs. I compliment the Minister, Deputy Bruton, on the work he has done in this regard and on the figures Members see each week. The issues of employers' PRSI, making it easier for people to employ, as well as the benefits employers themselves get if they happen to find themselves out of work also must be examined. As for the universal social charge and pensions, I could go on but I have mentioned what are my priorities. I look forward to continued success for the Government.
I welcome the Minister of State, Deputy Harris, to the House. That is a general welcome because I believe the Ministers, that is, Deputies Noonan, Howlin and Harris, have done the State some service compared with the situation the public finances were in. I am glad they are operating within the European Union guidelines, as well as the guidelines of the Irish Fiscal Advisory Council, that we have lessons to learn from what happened before which are being learned and that we are not in the business of buying votes, which probably does not work in any case. As Members engage in their surveillance of the public sector, there still are efficiency gains that are essential. The Comptroller and Auditor General's report on postcodes published today reveals an Inspector Clouseau-like conduct by the project's promoters. I have not yet received a single letter that has a postcode on it. It was a dream world. Members pointed out both here and at the Joint Committee on Transport and Communications that nobody wanted this project. Private sector people did not seek it and An Post already was delivering 98% of letters on a next-day basis anyway. I wish everything operated at an efficiency rate of 98% but this project appeared to have a life of its own. It involved strange employment of consultants without open competition and a cost-benefit analysis that added in benefits that were not there and forgot to include costs and so on. It is a case study. In all of this and in the reforms being implemented by the Minister of State, Deputy Harris, and his ministerial colleagues, Deputies Noonan and Howlin, is there a procedure by which the Comptroller and Auditor General, the officer charged with these efficiency duties under the Constitution, could be involved before it gets to the State pathologist or the coroner's report? Could these projects be spotted first and steps taken to avoid them? This is what the Comptroller and Auditor General is there for and it is a useful reminder to the House that many of the problems experienced in the past still must be addressed and Members cannot cover everything.
On tax reform, I note there again is a movement to the effect that Ireland has too many low-income people who are kept out of the tax net. I support keeping them out and consider it to have been a progressive move by various Governments to operate taxes in that way. While there is an opposite view to the effect that everybody should pay something, paying something or paying a lot on low incomes is not the kind of social model we have espoused. The various Ministers have referred to the top tax rate on average incomes, and I presume it will be addressed. The water tax turned out to be a poll tax. It is €260 for the first glass of water regardless of income and is free thereafter. Members tabled amendments in this House that would have been useful, because the Leader and the Cathaoirleach allowed full debate here. Some amendments and proposals that were put forward in this House would have helped the Government. Nevertheless, it is strange to introduce a poll tax. As for the universal social charge, USC, having an exemption limit which then is abolished once one goes over the exemption limit, that must be corrected because that turns taxation on its head. On the issue of corporate tax, the single low rate tax is the one to defend. However, we must move - and the base erosion profit shifting, BEPS, movement from the OECD is the way to go - towards stating the rate of 12.5% here is a bargain and towards asking people to pay at that rate of 12.5%.Let us not have a whole industry of tax lawyers and accountants, the fiscal termites, trying to erode the 12.5% rate.
On capital projects, some start was made yesterday, particularly in the later chapters. We must appraise capital investment much more strictly than we did in the past. The Minister must look at the alternatives, tell us the cost-benefit ratio, the internal rate of return, the net present value and all of those, and not have projects proceeding because the beneficiaries - the engineering sector and the construction sector - think it is a good idea. If one asks any sector whether it wants the entire GDP spent on it, of course it will answer "yes". Robbing Peter to pay Paul usually gets the support of Paul and Paul's tax lawyers and accountants. That is not the point. On redistribution, we should emphasise again that it is to take from the haves to give to the have nots. The squeeze on medical cards for people aged between seven and 70 contrasts strangely with a flaithiúlach attitude to people who are under seven and over 70. We are meant to have transfers from the haves to the have nots.
On institutional reform, as the Comptroller and Auditor General suggests, we must develop more individual responsibility. Regarding the passing of the buck which is dealt with in the later sections of the Comptroller and Auditor General's views on postcodes, someone in a Department promoted that and despite everything we said at the Committee on Transport and Communications, it still went ahead. Some €38 million was spent as well as there being ongoing charges and we have not seen a single letter using it yet after the first three months.
The Exchequer must make quite clear to lobbyists that it serves society as a whole, not just lobbyists. Lobbyists distract industry from the market. What is the market? We have had an internal devaluation and we cut the costs in the public sector. We have an external devaluation because our currency, the euro, has declined relative to our major trading partners, in both sterling and the dollar. Our attitude seems to be to get out there and go for export-led growth rather than trying to replace it by domestically generated growth which got us in trouble before. However, the direction is sound and I wish the Minister of State and his two colleagues every success.
I welcome this afternoon's debate and I will try to be brief with my comments. I have a great deal to get through. Speaking about recovery would seem like crazy talk to many people, given the struggle everyday life remains for working families, those looking for a job or those who may be caring for others, as was discussed earlier. We in Sinn Féin are under no illusion: recovery is not being felt by everyone and it is limited to certain people in certain sectors in certain regions. It is time for a fair recovery and I hope the 2016 budget will achieve that. Tackling inequality is not just about simple measures of taking from the rich to give to the poor. Economic inequality can only be reduced if policy is joining up the dots between taxes, public services, jobs, wages and the cost of living. I will take this opportunity to touch on some of those issues in the limited time I have. In the next few weeks we will be able to reflect on this when the budget is presented in the Dáil.
We all agree that more quality jobs are a key antidote to poverty and low incomes. A Eurofound document released earlier this year, the European Jobs Monitor report 2015, found that the increase in jobs in seven countries studied, including Ireland, is in "a transition from the more polarised employment shifts of the peak recession years to a flatter, more equal distribution of employment across the wage distribution, with, if anything, a downward skew – in other words, greater growth in lower-paid employment". From this, it notes that there may be increases in low-productivity employment, but this means in turn that output does not rise. Therefore, in spite of the increase in jobs, living standards no longer rise. It goes on to find that the jobs growth of the past three years has been asymmetrically polarised, with the greatest growth in well-paid jobs, modest growth in low-paid jobs and declining employment in jobs in the middle of the wage distribution. The OECD has said the fostering of better jobs for a larger proportion of the workforce will be key to reducing inequality and this must be a priority.
Some reference has been made to progressive taxation systems and progressive income tax systems. There has been some dispute about this, specifically about what constitutes a tax system. It goes beyond just looking at income tax and must incorporate corporate, capital, income, property, wealth, value added and other taxes. Fintan O'Toole discussed this in The Irish Timesyesterday. He argues that the claim that we have the most progressive tax system depends on ignoring the highly regressive nature of indirect taxes, which leads me to my next issue.
It will not come as a surprise to the Minister of State or to anyone else here that one of the things we would like to happen in the budget is a commitment to abolish domestic water charges.
I feel privileged that I am the only person being talked over here this afternoon. The argument about savings is redundant following EUROSTAT's comprehensive destruction of the attempt by the Government to have Irish Water counted off the books. The abolition of water charges is not only fair but also achievable and affordable. The Sinn Féin vision for a fairer tax system will mean that some will pay more. Some will pay more - not struggling families, but those who can afford to pay it. As before, we propose that a third rate of tax be introduced in order that individuals, not couples, who earn in excess of €100,000 per year will pay some extra tax on the portion of pay over €100,000. We will talk about a wealth tax to discuss how some of those who earn the most in the country will be taxed for that. I refer again to the figures published by Credit Suisse and the CSO earlier this year which show that the wealth held by the top 20% is, respectively, 72.5% or 72.7%. That means that roughly one in five people own three quarters of the value of all the land, housing and financial assets in the State. That needs to be looked at. Our proposals are costed, they are realistic and we will be happy to provide them to the Minister of State in the coming week when we finalise them in advance of the budget.
Looking to services in the coming years, as has been mentioned, the State faces demands for higher expenditure in the areas of health, education, social protection and pensions as the composition of our population changes. In addition, the cost of providing the existing level of public services is likely to rise in line with the forecast general rise in prices and wages in the economy. In respect of the announcement yesterday, the economist Michael Taft has argued that the projected €27 billion expenditure on public investment between 2016 and 2021, as outlined, represents stagnation. He bases that on some statistics and figures, namely, that in 2015 public investment made up to 1.8% of GDP and the €27 billion package over six years represents 1.9% of GDP. That means that between this year and 2021, the average annual increase in public investment will be less than €250 million.
We in Sinn Féin will not pretend we can have better public services while people pay less and less tax. That would be dishonest of us. If we want better public services, we will have to pay for them. Our fairer tax system will deliver those sound revenues and more and better targeted public spending. In his speech, the Minister, Deputy Howlin, noted that our commitment to our citizens in these areas requires that we consider these trends in the future and plan accordingly. That is why in our pre-budget submission, which I referred to and which we will be presenting, we will be looking at that taxation system to ensure we can provide these services into the future.
I welcome the Minister of State. I agree with Senator Sean Barrett that he has made a very fine contribution to the portfolio.
We do not have a bottomless pit but because of the way we do our budgets every year, we give the wrong impression to the public that we do. It is unforgivable that we continue in this vein. I have said it before in this House. Last year I published a budget reform Bill which would have required the Government to produce a mid-year balance sheet, showing our assets, our liabilities and our contingent liabilities. This would have given us an open and honest baseline to start the debate and from which to work. That is still not available. We are relying on the Government's figures to know whether we can reduce taxes by €750 million or reduce spending by that amount. This is the Government's estimation. Meanwhile, we have the ESRI saying we should have a neutral budget because it does not want to risk the recovery. Neither do I. I am glad the recovery has started. I welcome it every step of the way and I have voted for it in this House, regardless of which side of the Chamber I was on.Contrary to what the Taoiseach has said, the recovery is not behind every door. I know he would like it to be there, but I know what I am finding behind every door, or many doors. I am finding unresolved debt that no welcome cut in the universal social charge will correct. I am finding missing people through emigration and, unfortunately, through suicide. These are very real issues in the environment we are in.
To be fair, the fiscal council brings a sober voice to budgetary matters. I think that is very welcome. It has said that where the Government is going is the outer limit. I ask again what we can spend the available money on. We should only spend on priorities. When I hear the Government saying every child over the age of five should have an iPad - it was all over the newspapers last Saturday and Sunday - I know it has lost it a little bit. I will explain why I believe that. First, it is not educationally sound for every five year old to have an iPad. I accept that in the hands of the right people - teachers and parents who are trained - it can be a tool for learning, but it is not for every child. I have seen how children work iPads. I have an open mind about the use of iPads by children in senior primary school classes and in secondary school. Of course I support assistive technology for children with learning difficulties, and I know the Minister of State is with me on this one. When he sums up at the end of this debate, can he tell me how much it would cost to give an iPad to every child in this country aged five and over? This is a serious question. The cost of this measure needs to be balanced against the fact that 2,200 people in this country, 1,200 of whom are children, are in emergency accommodation. Do they need an iPad, or do they need a house, a bed and food? I remind the House that the Capuchin monks are feeding 800 people a day. There is no argument. Anyone who watched "The Week in Politics" last Sunday night will be aware that 8,000 social workers are needed for over 40,000 abuse and welfare cases. An iPad is not a priority in that context. Will the Government's budget proposals fill those 8,000 social work positions? I hope to see these priorities addressed. In July of this year, I could not get this House to debate the fact that 18 pregnant women were homeless. What are our priorities?
We have refugees coming in and I welcome them. I welcome the Syrian refugees. They are refugees. They are looking for refuge. I understand that approximately 7,000 families are willing to offer a bed to them. This is a wonderful integration method that should not cost money. I completely disagree with the proposal to pile them all into centres, especially in light of the mess that has been made with direct provision by this Government and its predecessor. It is ridiculous that their applications are not processed after seven to ten years. We should not waste money that way again. I accept that the approach I am advocating would take a good bit of co-ordination. We know that the Syrian people, by and large, are educated and cultured and have a contribution to make. The Minister, Deputy Fitzgerald, has said they will be processed very quickly, but I doubt it. I will wait and see. If that happens, I will welcome it and take my hat off to it. If these refugees are processed within a year and are out and about, contributing to the community and the economy, I will welcome that.
I am not finished. I just-----
I will take 30 seconds to make a second point on budget reform. When the Government announces its spending caps, it should be announcing targets and saying what aspects of the expenditure of individual Departments worked and did not work in the last term. It is wrong that there is no impact assessment. The waiting lists for scans are ridiculous. I will finish on this point. A young woman told me the other day that when she went to the orthopaedic department at Merlin Park Hospital for a scan on her shoulder, the surgeon told her that he could do it immediately if she paid €200 and that otherwise she would have to wait eight months. I ask the Minister of State not to tell me that the Government is doing impact assessments. It is going to be giving out the same money to health again this year without seeing what is working and what is not working. This is why I am annoyed that my Bill on budget reform was not brought onto the floor of the House. I am not concerned about myself, but about better spending of taxpayers' money. I ask the Government to stick with priorities, rather than populism.
Okay. I will try to finish sooner. I wish to mention a few headline issues. We should look at a number of public expenditure issues that came very much into vogue and into focus when the economic crisis broke. I refer, for example, to the rates of pay across the public service and indeed the rates of pay generally in the country. I was amazed that a 2008 survey done by the University of Glasgow showed that urban pay rates in Ireland represented approximately 29% of the pay of the whole country. We were actually at the top of the league, with an average of €43,000. The nearest was Denmark at €36,000. The figure for Germany, which is the paymaster of Europe, was €31,000. Britain was at €29,000. France, which is a highly unionised and labour-organised country, was at €23,000. The survey in question showed how far out of line we were. We should ensure that never happens again. When I hear about the restoration of pay in the public service and all of that, it strikes me that we need benchmarking, although not the kind of mar dhea benchmarking that existed in the past. I would have made this point in the Seanad when benchmarking was first raised. We should benchmark against similar positions in the public service in western European countries. If we do that and keep within those parameters, we will keep ourselves competitive. That is the first point I want to make.
My second point relates to pensions. If I remember correctly, the additional pension contribution that we have all had to make as a consequence of the difficulties of recent years is approximately 7%, on top of the existing 6% contribution. I do not think that should be unwound. Those of us who are working in the public service should recognise that we would not be able to get a similar pension system in the private sector, as it would be unaffordable and we just could not pay for it. Most of the private sector has moved from defined benefit schemes to defined contribution schemes. This has been done to protect against the type of inflationary issues that confronted many of the trustees of pension funds during the last decade or more. I know people have pension rights, but I would leave the additional contribution as it is, at 13% or 14%, for those who wish to stay in a defined benefit public service scheme. I suggest that if one does an actuarial assessment of that, one will find that the real cost of it is probably around 34% or 35%. I accept that a minor proportion is being paid by staff towards the cost of it. I think we need to do that. I would give each person in the public service the option of changing part of his or her pension arrangement to a defined contribution scheme, on a voluntary basis, and coming back to the 6% level. People should not be afraid of that because many people in the United States who were working in employment did exceptionally well in the last couple of decades by investing in mutual funds as part of their pensions. Many of them created a wealth that they would never have had without that. I think we should look at it that way.
I would like to mention while the Minister of State is here that a number of things need to be looked at on the taxation side. In my opinion, capital gains tax is an absolute mess. People who have suffered significant losses on investments are unable to write off those losses. Some of them are related to insurance. It has become far too complicated. In addition, the rate of 33% is far too high and needs to be looked at. Capital acquisitions tax has also been mentioned. I am sure some of my colleagues have spoken about it. We have seen examples of people who inherited houses having to sell those houses even though they needed them. That is wrong. I think it needs to be looked at.
I will conclude by speaking about the universal social charge. As the Minister and the Government have said, it was an emergency measure. It was clearly stated at the time that it was being introduced to meet the needs of the fiscal crisis of the time and would be unwound as soon as we got into better and calmer waters.That commitment should be honoured.
I requested this debate and strongly pressed the need for such a substantial discussion but I will allow the Minister of State to reply because it would be ridiculous to try to make sense of budgetary policy or make a coherent argument in two minutes. Without any difficulty or disappointment, I will give way to the Minister of State and let him reply to the people who at least had a reasonable length of time to make their submissions.
I thank the Acting Chairman. I also thank, on my behalf and that of my colleague, the Minister, Deputy Howlin, all Senators from all sides of the Seanad who took the opportunity to engage in this pre-budget debate, which has been very useful. I certainly found it very thought provoking and we had quite an honest debate. In my time in the Chamber today, I have heard a number of trends being repeated, which is always a good indication of what people are highlighting as priority areas and issues that they want the Government to consider in the context of the budget, which is in just under two weeks. I will endeavour to respond to some of those points.
The first point is there has been budget reform. I take the point made by Senator Healy Eames and accept her conviction on the issue, as I heard her speak about this passionately before. I fully accept her bona fides in that respect. Nevertheless, I must outline that there have been some budgetary reforms, although that does not mean we are finished with the process. We have already seen a number of these reforms introduced by the Government, with the core concept being the principle of openness and transparency, which allows for clearer accountability and oversight. One of the first actions taken by the Government in 2011 was the implementation of a medium-term budgetary framework to enhance the management of public expenditure. This new framework, along with two comprehensive reviews of expenditure, which considered every cent of public expenditure, provided an opportunity for discussions to move away from consideration of short-term issues to broader strategic debates.
Elements such as the public spending code and value for money policy reviews are well established at this stage and aim to systematically analyse departmental expenditure. The establishment of the Irish Government Economic and Evaluation Service, which could be considered in this House at another time, means that we can examine, from an economic evaluation perspective, how public funds are being spent in each Department. It is a welcome measure. We have introduced performance budgeting, which provides a link between funds allocated, key outputs and performance indicators of each Department. Coming into this budget, two of the most exciting reforms are the development of the spring economic statement and the national economic dialogue. With the spring economic statement, we now have more data than ever before at the disposal of every Member of this and the other House, and at the disposal of the public, in order to have an honest debate. As a result, we have moved to a space where I think - I am open to correction - there is almost a political consensus in terms of the fiscal space available.
When I attended the national economic dialogue in July with the Ministers, Deputies Noonan and Howlin, I was struck by the fact there were many stakeholders from society attending the event. These included people doing superb work in non-governmental organisations, representatives of the trade union movement and the business community. We had an honest exchange about the priorities and almost everybody, if not everybody, had the discussion in the context of the Government having a limited pot of €1.2 billion to €1.5 billion. The discussion was on how to divide that pot, which in itself was a good development.
Some of the debates at the national economic dialogue, which was streamed live for every citizen in the State to see, were very useful. I will make a point on the tax side. I was little disappointed that some of the national economic dialogue was a discussion about tax merely as a redistribution tool. Redistribution is an important element of tax and I fully understand the concept of taking from a group and giving it to another. However, tax also has another role to play, particularly when a government or a political consensus wants to arrive at full employment. Tax can be used as a tool for economic growth and job creation. I have heard references to the ESRI report this morning, which I note, but there are elements of the ESRI report in the spring economic statement which indicate that if tax on work is reduced - the reference is universal social charge and income tax - one can help create more jobs and increase productivity. We saw this with the 9% VAT rate, and if we put in place targeted tax measures, this may not just be an argument from the past about Robin Hood and distribution but rather about economic growth as well. It is a point worth making.
There is a bit of a phoney debate that goes on from time to time and I am grateful that we did not seem to have it in the House today, or at least not while I was present. That debate is about whether we look after the economy or society. I am sure this will come into sharp focus in the run up to the general election. I can get very frustrated at home at the weekend listening to the radio discussions when people say the Government only cares about the economy and what about society? I challenge anybody in the House or a commentator in the media to explain how to deliver the society these people talk about at great length without having a functioning economy to deliver it. The economy is not an end in itself but a means to an end. It is a tool or a vehicle but we must ensure that we do not engage in fanciful politics and economics, telling people we are favour of this, that and the other but we are not in favour of this tax, that tax or the other tax. People should not say they are not in favour of water or property taxes while promising that they can make all the services better. The people will not be conned by that so we need an honest debate in that regard.
I will briefly touch on some of the tax issues that were raised. With regard to the self-employed, the Minister for Finance, Deputy Noonan, and the Taoiseach are already on record as saying they intend to examine that area in the budgetary context. It is important that as we move further into a period of economic recovery and growth, we should ensure that we can create an entrepreneurial society. To tell people to set up a business but penalise them on the tax side when they do that seems anomalous and unfair. We cannot eradicate the problem in one budget but we can begin that process; I hope we will do it in the budget.
The Department of Finance has recently concluded a tax and entrepreneurship review and a very good document has been published, which is still on the Department's website. It asked a number of questions, including what we are doing that is damaging the possibility of entrepreneurship, the supports in place for working entrepreneurs and what supports are in place that no longer work or which are no longer needed. If these are no longer needed, should we tweak or abolish them and what new supports should we introduce? It is a very good document and we have received over 40 submissions from interested stakeholders. The Minister and the Government will reflect on them in the budgetary context.
As the Minister, Deputy Noonan, has said, we are moving from the idea of "if I have it, I will spend it", which led to boom and bust. We are going to keep to strict parameters, and as Senator Healy Eames and others have said, this means that priorities will have to be picked. I do not have a costing to provide an iPad for every child in the country because there is no intention to give an iPad to every child in the country. My understanding is the Minister was talking about the need to move in the direction whereby our children and our schools can be equipped for ICT.
I am sure the Minister would be happy to provide it as well. There are significant education priorities and I am sure we have all had engagements with the Irish National Teachers Organisation and the principal networks, etc. I do not mean to be partisan about the issue but I am proud of the capital plan published yesterday because it does not contain a Bertie Bowl or a white elephant. It contains many common sense measures and after years of not being able to invest in capital infrastructure and only being able to pay the day-to-day bills, we can now begin to plan for the strategic investments of the future.
I have heard Senators speak very eloquently. Senator Mary Ann O'Brien spoke about the views of the Carers' Association and there is absolutely nobody in this House or in the Government suggesting that the past several years - it spans further than the lifetime of this Government - have been easy for people. We now have a vehicle where we can begin to try to invest in the services that we value as a country, and that must include our carers. Senator O'Brien used the words stability, security and dignity, and I will ensure they are in my mind as we approach the budget.
We cannot solve every issue that has been raised here or that will be raised in the context of the budget but we can begin in this budget to move into a new period whereby we have a functioning and growing economy, and we can take measures to ensure that every single Irish person who wants a job can get one and that we will have more people employed in this country than ever before by 2018 at 2.1 million people. We will be able to invest in those crucial services then, and I look forward to debates in this House over the next fortnight and beyond in the budgetary context.