We are all agreed that the Irish people have made enormous sacrifices in recent years as Ireland works its way through an extraordinarily difficult economic period. The Irish people have been patient and tolerant. They have made major changes in their own lives to reflect the new economic realities faced by them and by the country.
Of all the things people want from their politicians at this time of crisis, the most wanted are honesty and leadership and for us to ensure the decisions made are fair. I wanted the Government to bring in a budget that gave people hope for the future, showed we are all in this together, that was about fairness and solidarity, had enterprise at its heart, said something about our values as a country, was about more than the national accounts and provided some direction for Ireland. Fianna Fáil want the economy to recover. That is why we have put forward our own ideas in A Fairer Way to Recovery, to achieve the deficit targets and stimulate economic activity.
I hoped the Government, in preparing today’s budget, had learnt a lesson from last year when the Minister introduced the first regressive budget since the crisis began in 2008, a budget that hit the poorest income households the hardest. It will take a while for a full assessment to be done of the impact today’s budget on different income groups. On the face of it, however, low and middle income families and elderly citizens will bear the brunt of the budget. They are the biggest losers from a budget that has, again, protected the country’s highest income earners at the expense of struggling families who are put to the pin of their collars to pay essential day-to-day bills such as the mortgage and their grocery, heat, electricity, health, transport and school costs. I get no sense of empathy or understanding from the Government, nor do I get any sense that they understand what life is like for ordinary people and families.
The Government has introduced a budget that is shaped more by the respective party political needs of Fine Gael and Labour than the national interest. The deep divisions between Fine Gael and the Labour Party that emerged in recent days are most revealing. Fine Gael showed that its absolute priority in the budget is to protect those who have most. We are told the Labour Party made valiant efforts to protect households dependent on social protection but, clearly, it has failed.
All of this begs the question, who was looking after everyone else in the middle. Families who do not qualify for a medical card now have to make a drugs payment of €144 per month. In the budget negotiations, who was watching out for families who get no assistance whatsoever with their mortgage or rent or who have to bear the full cost of their children’s education?
The price Fine Gael wanted to extract in return for considering even a modest increase in tax for those earning more than €100,000 was to cut the most basic welfare payments.
Fine Gael used the basic welfare payment of €188 per week as a negotiating chip to protect those earning more than €100,000 per year.
The Government has increased the universal social charge for pensioners over 70 years of age by 3%, but it cannot increase the tax on those earning enormous sums of money.
In the face of this resistance from Fine Gael, the Labour Party capitulated and accepted the symbolic fig leaf of a so-called mansion tax that will affect a small number of people and bring in little additional revenue.
Principles that were articulated in opposition are forgotten around the table of power.
Fianna Fáil believes the Minister had some scope to increase the direct taxation burden on those with very high incomes. This would have given him a wider set of choices in deciding his spending priorities.
The Minister, in a highly regressive move, abolished the PRSI exemption threshold in a move that will cost every worker earning anything above the minimum wage €264 per annum.
This will be seen for what it is, an increase in income tax through the back door, and it will fool no one. The promise not to increase income tax has been broken by default today.
This change is designed to have the greatest impact on low and middle income families. For example, a worker earning €20,000 will pay €264 per annum while it will cost a worker earning €200,000 per annum the very same €264 per annum. As a proportion of their income, it will the person on €20,000 ten times more than it will cost the person on €200,000 per annum.
This proposal will bring in €300 million in a full year. Behind the property tax, it is the second largest revenue generating item in this budget.
Today the Government has targeted families with children, who need their car to go to work and who have made sacrifices to provide a home. A family on low to middle income, with three children, living in a modest house with a mortgage and valued at €220,000 in a full year will pay €405 in property tax, an increase of €305 on the household charge, and will lose €10 per month for the first and second child and €18 per month for the third child, a loss of €456 in a year. Assuming it is a one income household, it will lose €264 in PRSI and will pay at least another €50 in motor tax, amounting to just under €1,100. That does not count the additional money for the drugs payment scheme and the additional charges Ministers will announce later this week, such as school transport costs. We have yet to find out the impact of the proposals of the Minister for Health’s proposals for health insurance premiums.
That impact is irrespective of income, it is not income sensitive. The example I gave is the same for a couple on €20,000 as for a couple on €200,000. It does not matter. The property tax, the child benefit cut and the PRSI increase are not income-related. How can the Minister stand over a situation where people on low and middle incomes will lose as much in nominal terms and far more proportionately than people who earn multiples of their incomes. It is inequitable by anyone’s standards.
Before last year’s election, the Labour Party said it would not agree to cuts in child benefit, it was a red line issue for the party. Families were told child benefit would be safe under Labour. It was a commendable stance to take during a general election and the party was so exercised by the issue that during the election it took out newspaper adverts and erected posters warning people about the dangers of voting for Fine Gael. In the first budget, the Labour Party broke that promise. It cannot blame Fianna Fáil, the troika or the memorandum of understanding for that because it says nothing about child benefit. Just like the pledge on student fees during the election, the pledge on child benefit was made with the full knowledge about the state of the country’s finances. The party made that promise to secure votes. It got the votes, is now in power and has broken that promise twice. That is the Labour Party’s record on child benefit and it will not be forgotten by families around the country.
There will be an attempt to say this budget was dictated by the troika, that the cuts and tax increases were decided in Brussels and Berlin. This budget, like last year’s budget, was decided in Dublin after the four wise men let the Cabinet see it on Wednesday. I acknowledge the Minister is working within tight constraints and must introduce a budget with an adjustment of €3.5 billion and there is no easy way to do that. The decisions announced today are the decisions of this Government and as the Minister said up to 14 months ago, the troika made clear it has no difficulty substituting one fiscal measure for another with equal value.
Let us look at the record of this Government. It has cut home help services from elderly citizens while protecting bankers’ pay and pensions. It has cut special needs assistants while paying its advisors above the agreed pay cap. It forced the most severely disabled people in the country to stay outside the gates of this House overnight before it performed a U-turn on cuts to personal assistants. We must question the Government’s priorities when we hear the parents of children in a school in Dublin must be told to make sure their children have a coat on in class because it cannot afford to fix the boiler. We must question its priorities when HSE social workers are writing to St. Vincent de Paul asking for public donations to be used to paper over the gaping cracks in the public health service, before even the health cuts that will introduced by the Minister today. There is something perverse about continuing to pay increments to senior civil servants while the elderly, who have lived through the toughest of times and kept the State afloat, are now being asked to pay the price.
The centrepiece of the tax package is a new tax on the family home. Thousands of families and individuals will simply be unable to pay the property tax. The Government did not raise the possibility with the troika of the property tax being replaced with other taxation measures. The Minister knows that the memorandum of understanding we signed up to in 2010 provided for a site value tax, an altogether different animal to the market value family home tax he is introducing in this budget.
The Minister should have told the troika there is no question of introducing a family home tax against a backdrop of a mortgage arrears crisis that is out of control. The Minister has the perfect reason for doing it but instead he is proceeding with a punitive tax on the family home at a time when most people can ill afford to pay it. This will be a divisive tax, which will hit all home owners but especially penalises home owners in Dublin, Cork and other major urban centres.
Where is the legislation underpinning this property tax? We were promised we would have the legislation for this debate but we do not have it. Where is the Thornhill report? It has been knocking around Government Buildings since June but the Government did not have the courtesy to publish it in advance of today’s budget so we can have a proper debate. This is the Government that talked about reform of the budgetary process.
This tax will be hardest felt by families in low to middle income brackets and by those dependent on welfare. We believe this is the wrong tax at the wrong time. According to the last official figures from the Central Bank, almost 170,000 mortgages are in arrears or have been restructured, more than 20% of family home mortgages. That is likely to rise to one in four when the next official figures are released. The mortgage arrears problem has got dramatically worse in the 21 months the Government has been in place. These people cannot pay their mortgages, they are not choosing not to pay, they do not have the money to pay, and now the Minister is imposing a property tax on them. How many people sitting at the Cabinet table have any understanding of what it is like for a family who are struggling to make the monthly mortgage repayment?
How many Ministers even have a mortgage on the family home?
The Minister said the exemptions are largely based on the exemptions to the household charge, which are exceptionally narrow in nature. The Minister failed to point out, however, that those on mortgage interest supplement, who were exempted from the household charge, are not being exempted from the property tax. Around 16,000 of the lowest income families in the country, who cannot pay their mortgage without the assistance of the State, are now being required to pay this property tax. It makes a mockery of the lip service paid by the Government to addressing the mortgage arrears crisis.
All of that is without even mentioning the buy to let mortgage book, which is in a complete mess, as the Minister well knows.
We all accept that it would have gone up far more but for the safety valve of emigration. A total of 87,000 people, mainly young people, left our shores in the 12 months to April 2012. When the Minister took office, he said employment levels would grow in 2012 by 0.5%. He now says they will fall by 1.2%. He said unemployment would be 13.7% by the end of this year. He now admits it will be just under 15%. He is now predicting no increase in employment levels throughout next year. All the fanciful talk of 100,000 jobs under New Era and the five point plan has been long forgotten. The five point plan has not been seen since February 2011.
The most alarming aspect of this is the dramatic increase in the number of people who are long-term unemployed. A total of 60% of people out of work are now long-term unemployed. What are we doing for them and where are the jobs? Can we really say that we are putting enterprise at the heart of everything we do? Can we say that we are doing everything to support the 200,000 small businesses in this country who provide almost 700,000 jobs? We know these businesses will lead the economic recovery if we give them the capacity to do so. These businesses are starved of credit. The Minister knows that banks are not meeting the lending needs of this economy. Even when AIB came before the Oireachtas committee on finance, public expenditure and reform, it confirmed that the new lending it has extended so far this year is €600 million, not the €3.5 billion the Minister says it is providing. They are loans that are repackaged and approvals that never get drawn down because the conditions and interest rates are so onerous that the borrower would never have the capacity to draw down that money.
The Minister said the economy would grow by 2.5% in real terms in 2012. He now says it will grow by 0.9%. He said it would grow by 3% next year but has now halved that and says it will grow by 1.5%. He said private consumption, which is the driver of the domestic economy, would grow by 1% in 2013. He now says it will fall by 0.5%. He said exports would grow by 6%. We are now told they will potentially grow by 3%. The warning signs were there in respect of the public finances and Exchequer returns yesterday, particularly in respect of the self-employed. The €300 million deficit in income tax last month should have set the alarm bells ringing and the Minister should be giving that sector every support he can in its time of need.
I hoped and half expected that the Minister would pull a rabbit out of the hat today in respect of the promissory note and bank debt and am sadly disappointed. I wish him well in his ongoing negotiations. The technical talks on the promissory note have been ongoing for about 14 months. They must be extremely technical. We have not seen any paper so far and would love to see one and have an input into it. I wish the Minister well in that because it is important for the country and we will do everything we can to support the Government to get a deal on bank debt. The Minister also needs to be honest with people in respect of the use of the European Stability Mechanism. It will be at least a year before there is any relief in that aspect of bank debt and he might as well call it as it is and tell people what the position is.
This Budget day is one which many ordinary families have been dreading. They are looking to this House and Government for reassurance about their future. They want a Government that will lead them through this economic crisis in a fair and compassionate way. The harsh reality is that today’s Budget will put an unbearable financial burden on many families. This Budget reaffirms the approach of a Government that has broken almost every promise it made to the Irish people at the beginning of last year. People were looking to this Budget for a sense of hope and for some sense that the Government understood what their lives are like. This Government has the numbers to put through whatever budgetary measures it wishes but on the basis of what has been presented today, getting public acceptance of these measures will be a far greater challenge.