Dáil Budget Speech, Fianna Fáil Spokesperson on Finance Michael McGrath

Published on: 15 October 2013

As we all know, the last five years have been incredibly difficult for the majority of people in this country, to varying degrees.  People’s incomes have come under sustained attack, their living standards have worsened and their future plans have had to be changed.  Above all else, people look to the Government to give them hope that there are better days ahead.  Including today’s Budget Statement, a staggering total adjustment of more than €30 billion has been introduced in the public finances since 2008.

We all hope the country is on the cusp of recovery, but it is too early to draw definitive conclusions.  All of us involved in politics, particularly those in government, have a responsibility to ensure the sacrifices made by the people are worthwhile and that Ireland is put firmly on the road to sustainable recovery.  It means staying focused on the task ahead.  Fianna Fáil believes a budget adjustment of a similar order to that proposed by the Government is required.  We accept that there is no easy way to put through tax increases and spending cuts in the order of €2.5 billion.  However the litmus test of the budget is not the response of the Opposition but whether the people outside the House, those most affected by its measures, believe it to be fair.  I am not naive enough to think one can achieve consensus on what constitutes fairness, but our definition is whether the burden of the adjustment has been spread in line with people’s ability to carry it.  By any reasonable analysis, this is the Government’s third successive budget that places a disproportionate share of the burden on those least able to carry it.

It over-promises and under-delivers.  When one strips away all of the PR we have seen in recent days, this budget targets the elderly, medical card holders and young mothers.  It abandons people who are struggling to keep their homes and, yet again, incredibly, the Government has gone out of its way to insulate the better-off from the worst effects of it.

The way pensioners have been targeted in this budget is disgraceful.  They are our parents, grandparents, people who have lived through far greater hardships than any of us can appreciate.  Not only will many of them lose their medical card, they will have higher prescription charges and lose their telephone allowance and bereavement grant, while DIRT is going up.  Even the dead are not safe from the Government.  As if it is not enough to take property tax from the estates of the deceased, the Government is removing the modest grant their loved-ones receive to give them the dignity of a decent burial.

In a famous quip a few years ago the Minister for Finance, Deputy Michael Noonan, asked the then Minister for Finance, the late Brian Lenihan, what he had against the third child.  What does the Minister have against young mothers?  Only three months ago he introduced tax at the marginal rate on maternity benefit, taking up to €108 a week out of their pockets.  Today the Government is taking another €32 a week out of those same women’s pockets.  That is a cut of €140 a week from the pockets of women who have just given birth to babies.  From where is this coming?  What is the logic?  I cannot understand it.  The strategy behind the budget seems to be to divide and conquer, isolate the weaker sections of society and those on the margins and to do so in a way that maximises political advantage for Fine Gael and the Labour Party.

In recent days we were bombarded with spin from the Government parties that the coping classes, those who pay for everything, as they put it, would be given a break in this budget.

Unfortunately, when the reality sinks in, many people will be left bitterly disappointed when it becomes clear what this budget means for them and their families.

The tone of self-congratulation coming from Government Buildings will ring hollow tonight when people realise its full extent.  In many ways Opposition spokespersons are responding to a budget we have not yet seen.  We have the Government’s speeches and the booklets that have been distributed, but shortly individual Ministers will attend press conferences in their offices to explain what the budget means for their Departments.

Only then will we find out the full extent of the cuts and increases buried in the detail of the budget.  That detail is often carefully drip-fed in the hope it will hardly be noticed.  A full assessment of the budget can be made only when we have all of the facts at hand.  My colleague, Deputy Sean Fleming, will highlight some of the cuts the Ministers have not mentioned in their statements but which will become very clear on an analysis of the booklets.

Often, in the hours and days immediately after a budget an issue takes on a life of its own when its full magnitude is realised.  In this budget, that issue could well be removing the telephone allowance, not just from pensioners but from carers, blind people and people on disability allowance.  Most people do not go to bed worrying about the general Government deficit, the debt-to-GDP ratio or the yield on Government bonds, though all of those metrics are important.

They worry about ordinary things.  They worry about putting food on the table, paying their mortgages and paying their electricity bills, and at this time of year they begin to worry about providing for Christmas.  If they are lucky enough to have a job they worry about holding onto it, and if they have not got a job they worry about finding one.  It is only when people see things getting a little easier that they will accept that the economy is recovering in a way that is meaningful and holds relevance for them.

Halfway through its term in government, this is a good time for the Government to take stock of the economy, of where it said the economy would be at this time and of where we actually are today.  I believe the fairest and most important measures of economic performance are growth, jobs and the public finances.  On growth, the economy has not performed anywhere near the level the Minister and his colleagues predicted it would when they first came to office approximately two and a half years ago.  Back then, the Minister said the economy would grow by 5.5% from the beginning of 2012 to the end of the current year.

He now estimates that over that period it will have grown – if we are lucky – by 0.4%.  That is a prediction of 5.5% versus a reality of 0.4% growth in the economy.  We have had little or no growth over the past two years and the forecast for next year has now been downgraded for the third time since the Minister came to office.  The predicted growth rates of 2% and 3% are always for next year or the year after, but they never seem to arrive.  The economy today is approximately €5 billion smaller than the Minister said it would be at this time when he came to office.

It goes without saying that the weak external environment has been a drag on our exports.  That fact, alongside a struggling domestic economy, has resulted in an overall economy that remains fragile and largely flat.  Where the Government has scored best is on the public finances.  On coming to office, the Minister predicted that the deficit at the end of this year would be 7.2%, and it is now going to come in at approximately 7.3%, which is welcome.  Fianna Fáil welcomes the fact that the reduction on the deficit remains on target.  I am sure both Ministers will acknowledge that the progress in the public finances is not limited to their tenure in the Departments but is also due to the work of the Minister’s predecessor in the latter years of the previous Government.

Our deficit, while still high, is continuing to come down.  The achievement of a deficit below 5% in the current year is an important step towards achieving the milestone of a deficit of less than 3% by the end of next year.  However, there has been a marked difference in how the Government has gone about bringing about that adjustment.  The measures it has taken to date have unquestionably been regressive.  They have targeted those on low and middle incomes in particular, and these people have borne the brunt of the budgets, while the wealthiest in the country have been asked to contribute precious little.

There has undoubtedly been an improvement in the jobs market in recent months, and that is welcome.  As far as I am concerned, every new job, whether a part-time or a full-time job, is good news.  However, we all accept that the level of unemployment in this country remains a national crisis and the scale of the task ahead is immense.  Let us look at the facts.  The official measure of unemployment is the CSO quarterly household survey.  According to its latest figures, the number of people officially unemployed has fallen since March 2011 by less than 7,000, from more than 307,000 to more than 300,000.  Over the same period, the number of people in employment has increased by 12,700, and the total now stands at 1.866 million.  It is true that the more recent data is more encouraging and, hopefully, a real dent can be put on unemployment numbers in the year ahead.

However, this is all a far cry from the promise of 100,000 net new jobs we heard from the Government on coming into office.  Job creation in the private sector has played a role in the reduction in the number on the live register, but so too has forced emigration.  In the last two years for which we have full data, 2011 and 2012, almost 170,000 people emigrated.  Of those, almost 90,000 were Irish nationals.  No town or village in the country has been left unaffected by the scourge of emigration.  The harsh reality is that the Government is actively encouraging people to emigrate.  I have a letter here that was sent by the Department of Social Protection to somebody on the live register who was formerly employed in construction.  The letter tells him about a job vacancy in his area, not in Cork, Limerick or Dublin, but in Canada.  This is a letter from the Government – from the Department of Social Protection – to an individual who is looking for a job in this country.

The letter goes on to give a detailed description of what the job in Canada would involve and states that if the person is interested, he should send his CV to an e-mail address within the Department of Social Protection.

Just like the Tesco ad, the truth hurts here.  So anxious was the Government to assist that person in applying for the job in Canada that it provided information on the CV format Canadian employers like to see.  This is the truth – a letter from the Irish Government.  The person was informed on the back of the letter of a whole range of vacancies in Canada which could be applied for – vacancies in cabinet making, carpentry, fence building, glazing, finishing carpentry and so forth.  God knows how many people have received this letter from the Department of Social Protection, but when we combine it with the Minister’s decision today to cut the jobseeker’s allowance rate for young people, what message does this send out to the young people of Ireland?  It gives them the message that they are not wanted here, there is no future in this country for them and they are better off going abroad to Canada.  That is the message people will hear from the budget today and it is the message in the letter they are getting from the Department of Social Protection.

While multinationals remain a critical part of our economy, Fianna Fáil believes that not enough attention has been paid to the indigenous economy, particularly small and medium-sized enterprises.  The Minister has announced a number of measures in his package today which, to be frank, are underwhelming.  To use the Minister’s terminology, there are “a few bits and bobs”.  That is about it; there is nothing of any great significance.  I sincerely hope these measures are more successful than the measures he introduced last year.  The take-up of the microfinance loan scheme has been minimal and the scheme is already under review.  The temporary partial loan guarantee scheme has had an exceptionally low take-up and is being re-examined because of its limited application.  The Minister is giving a two-year tax holiday for unemployed people who start up a new business and is providing for a whopping €1 million as a cost, because he knows well that the last thing unemployed people starting a new business are worried about is their taxation bill and profits for the first two years.  This is the kind of window dressing we get from the Government when it comes to job creation.

The lack of credit is hampering many business and we would like to see far more innovative measures to address this, such as tax relief for individuals and making loan capital investment to SMEs.  We would like to see a special low capital gains tax rate for new entrepreneurs starting up businesses, not the type of cumbersome roll-over relief on capital gains tax he has announced today.  We believe that a State-backed enterprise or investment bank should be considered for the provision of capital to growing businesses.  This could be done by means of a stand-alone bank or by using the infrastructure that exists within Permanent TSB.  Such a model is already well established in Canada, the US, Germany and is currently under development in the United Kingdom.

In many respects, the main issues that affect small and medium-sized businesses in Ireland did not even warrant a mention in the budget.  We know electricity and gas prices are going up for businesses and we know they are crippled by the burden of local authority rates.  We know revaluations going on throughout the country are causing havoc for SMEs, leading in many cases to dramatic increases in the rates burden they face.

We know the collapse in property values has contaminated many good trading businesses and there is a need for a new approach in this area.  The banks need to be required to restructure SME debt to ensure viable businesses can continue to grow and expand.  Today the Minister announced illness benefit will not be paid for the first six days a person is out sick.  I presume where an employer has a sick pay policy he or she will have to pick up the tab for the extra three days.

With regard to the VAT scheme the announcement of an increase in the threshold for cash receipts to €2 million is significant and it is to be welcomed.

The Minister announced a number of measures with regard to construction.  The message I want to convey today is the main issue to address in construction and property, if one wants to get the sector moving again, is the lack of credit and the fact many young people who have been saving and want to buy a house for the first time simply cannot get a mortgage from the banks.  The priority must be to fix the banks to get a normal level of credit flowing in the economy again to give these people an opportunity to buy a property for the first time.  There may well be areas, particularly in Dublin, where there is a shortage of certain types of property but the main issue which needs to be addressed in the short term is the lack of credit.

The Minister announced a certain change to corporation tax today.   He should be under no illusions; Ireland’s corporation tax policies are under siege.  We need to send out a strong united message from the House that Ireland values its ability to determine its own corporation tax policies and that our rules are transparent and in line with OECD guidelines.  We need to be far more proactive in making the case definitively for retaining autonomy and setting our own corporation tax rate.  This needs to be a priority for the Government at the highest level.  None of us should be complacent about the mutterings we hear from Germany about the ongoing coalition government negotiations there, whereby Ireland’s corporation tax regime has found its way onto the agenda.  Let us not be complacent about this.  It poses a real and substantial risk to this country and needs to be addressed.

Last month the European Commission sought information from Ireland, as we know, on how certain multinationals are treated from a corporation tax point of view.  We need to insist this preliminary investigation which has been launched is dealt with as quickly as possible, because for as long as it remains open-ended it is a cloud hanging over our inward investment offering and needs to be addressed.  The reality is Ireland is at war to defend our corporation tax rate and system.  What we have heard from the Government until now is there will be no unilateral change and we will move along with other countries to implement the OECD initiative on base erosion and profit shifting, BEPS, and any changes would be part of a co-ordinated initiative.  What the Minister has announced today is a departure from this.  It might be regarded as a minor change, and certainly the notion of a “double Irish” has given us a bad reputation in recent times as hardly a week goes by without a significant international newspaper or media outlet covering the issue, but we need to examine it in great detail.  There has been a departure from the stated policy until now that we will move in line with other countries.

Let us see the detail.  I will not play politics with corporation tax.  The Minister stated it would be in the finance Bill so let us see what is in it.

Tonight between 400,000 and 500,000 people will sleep in family homes where the mortgage is in some level of arrears.  Alongside unemployment it is the single greatest economic and social challenge we face in the State.  They received a cursory mention in the Minister’s speech.  The issue was glanced over, and it was clearly a box-ticking exercise for whoever wrote the speech that a mention was given to mortgage arrears.  However there was nothing new in it.  The Government’s response to the crisis so far has been to give the banks more power, to allow them repossess homes more easily and quickly, and to dilute key protections borrowers have had.

Today 143,000 family home mortgages are in arrears and there is no easy solution to the problem.  No one suggests the banks can throw away the capital the taxpayers have given them and they must be prudent.  One thing is certain; the problem will not be solved if banks are allowed to continue to run the show.  Last March the Central Bank issued targets for the banks to offer sustainable solutions to those in arrears.  The Government warmly welcomed the new targets programme but it has since been shown conclusively the banks have effectively made a mockery of the process, relying on threatening legal letters to reach their targets.  The Minister stated he does not regard a threatening legal letter to be a sustainable solution.  Let us back up these words with actions.  We await confirmation from the Central Bank as to whether this is acceptable.

In the majority of cases presented to the Joint Oireachtas Committee on Finance, Public Expenditure and Reform the bank’s solution was to tell the borrower it wanted the home back and the person either had to sell it or give the bank the keys, or the bank would go to court to repossess it.  This was the message from the banks in the majority of cases.  In many cases these threats were made to people before any other forbearance measure was even tried.  The message from the Government has been that repossession is the last resort, but the reality in very many cases about which I personally know – and I am sure every Deputy also knows of cases – is that such a letter was the first action the banks took in respect of people in mortgage arrears.  It is simply not good enough.  The banks in this country owe their very existence to our citizens and the least they can afford to do is show some compassion and civic-mindedness in dealing with mortgage arrears.  We need more proper long-term sustainable solutions and not mere sticking plasters in the short term.  We need more permanent interest rate reductions, sustainable split mortgages and debt for equity arrangements.  We all know it makes far more sense economically and socially to keep people in the family home where it is at all possible.

The establishment of the new insolvency service was a welcome initiative, but there is growing evidence already that thousands of the most distressed borrowers in the country who most need access to the service are being locked out because they have no ability at all to repay any of their debts within the insolvency guidelines.  In many cases they simply cannot afford the fees being charged upfront by the personal insolvency practitioners.  The Government’s singular response to the mortgage arrears crisis was to abolish mortgage interest supplement for new entrants.  This is the one payment people rely on to make interest payments on mortgages, to try to keep the wolf from the door and prevent banks from coming at them.

This is a shameful decision.  If the Minister announced it was to be replaced with a radical new innovative policy to support those in mortgage arrears of course we would examine it and its merits.

The one safety net people had, the one direct cash support from the Government to those in mortgage distress, has been pulled from under them.  I cannot understand the logic behind it.  It will only make the situation worse.

The Minister announced a new levy in respect of banks operating in Ireland.  It is fair to say nobody will chain themselves to the gates outside Kildare Street tonight to protest against the introduction of a bank levy.

Who will end up paying this levy?  Will the banks simply be allowed pass it on to customers by way of increased fees, charges or higher variable interest rates?  We know we do not have a properly functioning banking system and we must ask whether this measure will help.  At a time when we are trying to attract more competition in the banking sector in Ireland I must ask whether the introduction of this levy will make it less likely we will be able to attract competition into the banking sector here.

The Minister is removing the restriction on the use of deferred tax assets for NAMA.  This is a big win for the banks and I would like to see much more detail on it.  If the banks return to profitability, which I hope they do, what will this mean in terms of taxation they will not have to pay?  We need more information on this because it would seem there is a far bigger win for the banks by way of tax they will not have to pay from the levy announced today.

While people are coming to terms today with budget 2014 the truth is last year’s budget has not finished with them yet.  Next year hard-pressed homeowners will be faced with a double local property tax charge.  From the Minister’s point of view I am sure he views the local property tax as a major success, bringing in €50 million more than expected and with Revenue achieving a very high compliance rate.  The full year’s charge being levied on 21 March next year will really hurt people and could have significant implications for the domestic economy.  I remain of the view the tax is unfair in that it does not take into account ability to pay in any meaningful way and it is being levied even on those who cannot afford to make their mortgage repayments.

The Minister announced a significant change on pension tax relief.  I wish to ask on a point of equity whether it applies to the highest echelons of the public service.  For example, will the pension tax relief of a person continuing to pay into a pension which will yield in excess of €60,000 be also curtailed?  I take it that it will, from the Minister’s response.

The Minister has announced that the lower rate of VAT will be retained in the tourism and hospitality sector.  That decision will be warmly welcomed by a sector that has undoubtedly benefited from the announcement.  However, I have to raise the issue of the pension levy.  The Minister has announced that the levy is to end, but the booklet states it is to increase.  In 2014 it appears it will go from 0.6% to 0.75% and then down again to 0.15% in the following year.

It is one or the other.  The Minister cannot have it both ways.  The truth is that he has played a three-card trick.  Since he announced the pension levy back in 2011, he reiterated time and again – he did so again in last year’s Budget Statement – reassuring all those affected by it, that it was to end in 2014.  He has now broken his word.  As he knows, the levy has very significant consequences for those with pension savings.  We know the scale of the crisis in defined benefit schemes, in particular, including a deficit of €1.5 billion alone in the ESB.  As the Minister is not abolishing the levy, let us not play with words.  He is increasing it in 2014 and reducing it in 2015.  Will that be the end of it?  I said in 2011 that I just did not believe the levy was to end in 2014.  I believe people will treat with some cynicism the trick the Minister has played with the levy.  Until we shone a light on this issue, the proceeds from the levy were being diverted into the general Government coffers and not used for the jobs initiative; therefore, I am glad the Minister that has now made further announcements on the initiative.

Will the Minister clarify whether there is PRSI of 4% on top of the higher DIRT rate?  He seems to be indicating that there is not; therefore, the figure of 41% is inclusive of PRSI.

In regard to excise duties, again, the Minister has left the off-trade untouched and is targeting the on-trade with the increase in excise duties.  He knows what our view is on this issue.  We believe the problem in regard to alcohol sales is, frankly, encountered in the large multiples, where alcohol is sold exceptionally cheaply.  There is a need to reduce the enormous discrepancy between the on-trade and the off-trade, but the Minister has made no moves whatsoever on that front.

The Minister is abolishing the air travel tax from April next year in an effort to boost tourism.  However, as evidence of the lack of cohesion, he is decreasing the budget for tourism programmes by €13 million.  He is giving with one hand and taking away with the other.

It is welcome that Ireland is on course to exit the bailout programme in two months time.  We do not regard the putting in place of a precautionary line of credit as being in any way a second bailout.  We encourage the Minister to take all necessary prudent steps to ensure Ireland can exit the bailout programme in a sustainable way.  However, in many ways, the enemy of the Government from that point onwards will be complacency because fundamental reforms in the sheltered professions, the banking system and in terms of labour activation remain to be put through.  A lot of work has to be done on that issue.

We supported the liquidation of the IBRC in good faith and I do not regret that decision.  However, I am not happy with a number of issues that have emerged since.  I am not happy that credit unions lost some €14 million because of the way they were treated, that the employees were shafted from the point of view of redundancy or that mortgage customers of the former INBS now face the potential risk of losing the protections afforded to them under the code of conduct for mortgage arrears, depending on who goes ahead and buys the loan book.

The Minister needs to do a lot more work in respect of the ESM.  Mr. Wolfgang Schäuble today said it was not probable that we would get a retroactive deal on bank debt recapitalisation; therefore, a huge body of work remains to be done in that regard.  The Minister has indicated previously that he will set out a medium-term economic strategy.  I want to know that we asking the big questions about whether our debt is sustainable, whether we have a proper funding model in place for third level education, pension provision, pension liabilities and universal health insurance and whether we have a vision for Ireland’s role in the European Union.

Yet again in budget 2014 the Government has targeted some of the weakest in society.  The basic level of comfort given to older citizens is being systematically unravelled.  Those struggling to keep the family home have been given another kick.  This is a Government that talks about fairness but does the opposite.  It is a Government that has set records for broken promises.  At a time when the people want to see it show compassion, exemplify the values of the country and show true leadership, they have been badly let down.  This budget fails the basic test of fairness.  Even within the accepted constraints, it could have done better.  It is now over to the people to pass judgment on it.

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