Sinn Féin Response to Budget 2008
Full address by Sinn Féin Economy and Public Finance Spokesperson Arthur Morgan
I welcome this opportunity to respond to the Finance Minister in this Budget debate.
In my reply I will expose the hypocrisy of pre-election promises made by this government, and others, on tax cutting, when voters were grossly misled on the state of finances and the management of the economy, and I will give examples of how things could, and should, be done differently and better.
Since the summer, Minister for Finance Brian Cowen has been industriously beavering away to condition the public for a tight budget. He has been strenuously trying to dampen down expectations, created by his own party, with their unrealizable pre-election promises. Fianna Fáil, in advance of the election had promised 2,000 Extra Gardaí, 4,000 Extra teachers, 1,500 Extra hospital beds, 2,000 Extra consultants, tax cuts, PRSI cuts, affordable housing and much more. The deceit on which the election was won is clear for all to see, as tax cutting proposals which were never viable, have to be abandoned in the face of a €1.75 billion shortfall in tax revenues. And despite much talk about value for money in noted that there was no mention of it in the Ministers speech today.
Despite the fact that the economy is still relatively strong, Minister Cowen has done such a good job of lowering expectations that people expected nothing from this budget. It suited the Minister to keep expectations low, and to create fear of a harsh budget. This will allow the budget he has delivered to be presented as 'better than expected'.
So how should we judge this budget?
1. Will it lift people out of poverty and deprivation?
2. Will it ensure a more equal distribution of the benefits of prosperity?
3. Will it put the economy back on a more stable competitive footing?
4. Will it deliver an improvement in quality and capacity within our creaking public services?
5. Will it reduce the financial pressures on hard pressed families?
6. Does it deliver value for money for tax payers?
These are the question that people across the state will be asking, as they examine the details of what has been delivered in this budget. And in many senses, it is too early to judge this budget. We have not seen the fine print. We will have to examine its contents, and the measures that will be announced by individual Departments, in the hours ahead. There is a very real concern that this Budget may well contain hidden cuts in public services that will not become apparent until departments start to allocate their own budgets. Remember the HSE cuts which Minister Harney said would not affect patient care. They certainly have affected patient care.
Last week, Sinn Fein set out our priorities for maintaining healthy public finances, for building the economy, and for investing in health, education, housing and childcare. We proposed measures to help people back into the workforce. We realise, that as finances become tighter, it is not possible to deliver the levels of improvement in capacity and quality in public service that we are aiming for, in one or two budgets. But the priorities have to be right: front line services in health, primary and preventative health care, school buildings and class sizes, pre-school education and childcare infrastructure – these are the kind of issues that should have been delivered in this budget if the Minister wanted a positive appraisal. There was no mention at all of improving the childcare infrastructure and there is nothing on pre-school education.
This budget will be disappointing for a lot of people – ordinary workers struggling on low and medium incomes, people seeking an improvement in public services, including health and education. There will be huge disappointment at the failure to introduce an increase in the medical card threshold. Yet and symbolic of the government support for private healthcare the allocation to the National Treatment Purchase Fund which is of little benefit to most people requiring hospital acre is being increased.
It is a minimalist budget. Yes, there are increases in social welfare – but these are too low to keep families, faced with sharp increases in the cost of living, out of poverty. What has been gained from the widening of the standard rate tax band, while welcome, will be lost again as stealth charges are increased as cash strapped local authorities across the state will inevitably increase service charges, and fail to take estates in charge, leaving new residents with the additional burden of management charges. What has been announced on social housing is not adequate to ensure the end of social housing waiting list any time soon – doing more on this would have had the additional benefit of boosting the declining construction sector. Where are the long overdue steps towards the creation of a state pre-school system? The measures on childcare do not go nearly far enough to assist families unable to cope with childcare costs equal to a second mortgage - €100 more a year in the early childcare supplement will do little for these people.
The Minister said that “thankfully the economic prospect for farming have improved with increasing producer prices and increased food experts”. There was no acceptance by the Minister in speech that farm incomes are falling or stabilised at a very low base. Many small farmers – particular beef farmers and suckler farmers- are serving on unsustainably low incomes.
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Sinn Féin was the only party which argued in the run up to the election that, with the slow down in economic growth, the Government could not afford to cut taxes and maintain, let alone improve public services and provide essential infrastructure. Sinn Féin opposed proposals from the Government parties and others to introduce tax cuts, because these cuts were not viable. There is now a widespread acceptance that this is the case – the 2008 Estimates of Receipts and Expenditure are proof of this.
No one doubts that presenting a budget in the current economic circumstances, is more challenging than in previous years. As an open economy, we are affected by international developments, including rising oil prices, the declining value of the dollar and an international credit crunch. At home, we have a slow down in the construction and property sectors, on which the economy had become over-dependent. There has been a string of job losses in regional towns. We face increased competition from low wage economies in the accession states, and in the Middle and Far East. Ireland, as a whole, continues to suffer from significant infrastructure deficits, and lags behind other states in terms of Research and Development capacity within enterprise, while the level of engagement in upskilling and re-training by Irish workers remains too low. All of this should act as a wake up call – a reminder that we need to take action to put the economy back on a solid foundation – to ensure that we regain competitiveness.
The current account has a surplus of over €7 billion. The state is also in a strong position, with regard to the debt to GDP ratio, to borrow for capital projects. More could have been done to improve public services.
Growth for the next number of years, while down on previous predictions, remains healthy by international standards. The Minister in his speech has forecasted GDP growth of 3 %. The problem is not the percentage of growth – GDP growth of 3% is still respectable – it is that this Government planned its spending programme, as outlined in the Programme for Government, on the basis of an overoptimistic assessment of growth. This projection of growth was not based on a realistic assessment of future economic developments. It is important to recognise that there has been a perceptible change in the economy during the last five years - it became flabby - it started to rely on construction and consumption, rather than on the exports which had been central to performance of the economy in the early days of the Celtic Tiger.
The slow down in the construction and property sectors has, predictably, had a substantial impact on tax receipts. The Department’s own Tax Strategy papers identified this as a likely possibility in advance of Budget 2007 – but the government refused to accept it and went on to make foolhardy proposals to cut tax.
Now we have the farcical situation where the Minister is trying to rewrite history and cover up the reality of the approach the Government took. Delivering his speech to Indecon recently, Brian Cowen stated that “In managing our public finances we have not in the past and we will not in the future plan the public finances around the assumption that tax receipts from the property and wider construction sector will continue to grow in future years as they have done in the recent past.” But his Government did, and there is no getting away from it. The shortfall of €1.75 billion is a glaring reminder that they planned public finances around the assumption that tax receipts from property and construction would continue, despite clear signs of a slowdown in this sector.
We now face crucial decisions on the direction the state must take. Sinn Fein will be holding the Government to account to ensure that decisions to raise or reduce overall taxation revenue are made on the basis of what is needed to meet social goals and other spending demands. For more than ten years the government has pursued a policy of low personal tax and low public services, with a growing reliance on stealth taxes. Changes in the tax base over the last decade have involved cuts in income taxes which have benefited the better off, and increases in indirect taxes, which disproportionately impact those on low incomes.
While the Minister has announced a number of positive taxation measures as part of this budget, they maintain the status quo – they do not represent a move towards a fairer or more progressive taxation system. Why has the Minister, yet again, failed to strengthen the limit on the use of tax relief’s by certain high income individuals, introduced as part of the 2006 Finance Act? This should have been done in order to ensure that these tax reliefs are not exploited by some high income individuals to reduce their tax bill to where they end up paying less tax than an ordinary worker.
Sinn Fein welcomes the fact that the Minister has increased tax credits to keep those on the minimum wage out of the tax net – but we remained concerned that the minimum wage is not meeting the 60% of the average industrial wage.
I welcome the fact that the Minister has increased the standard rate income tax band. Sinn Féin has strongly argued that those on or below the average industrial wage must be kept within this band.
I also welcome the fact that the Minister has sensibly decided not to proceed with the cut of 1% in the top rate of tax, which his party proposed in advance of the general election. This would have cost the exchequer €280.4 million and would have benefited those on higher incomes most, as the reduction from 42% to 41% in last year’s budget did.
Reducing the standard rate tax band by 2% would have cost the exchequer €1.13 billion. This is clearly revenue that is needed to fund our public services. In the run up to this budget, Sinn Féin argued that maintaining healthy public finances had to underpin the Government’s approach to Budget 2008. If public finances are not kept in a healthy state, the Government cannot ensure that everyone’s basic rights to housing, health and education are met. Nor would it be in a position to deliver infrastructure – to ensure that our cities, towns, villages and businesses are served by modern transport and telecommunications infrastructure – or to ensure that everyone has the benefit of a comprehensive regime of social protections.
Sinn Féin welcomes the changes in VRT introduced by the Minister though we question why this was not done last year when it was signalled – why exactly did the Minister feel it was necessary to give people a year to purchase their high emitting vehicle and face no consequences? Why is this measure not going to come into effect until July?
Sinn Fein also welcomes the increases in mortgage interest relief – many of those who bought their homes in recent years are being pushed to the limit as a consequence of the rise in mortgage interest over the last year.
As I said, there is nothing radical in the tax measures announced today. We can only urge the proposed Commission on Taxation be set the task of determining the best way to fundamentally restructure to tax system, to create a progressive redistributive tax system where revenue is raised in a fair, transparent and accountable manner, so that Government has the revenue needed to reduce inequalities, to improve public services, and to deliver infrastructure. The commission will also have to address the recent explosion in stealth taxes and charges.
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I want to touch on a related matter that remains largely ignored by Government. That is the expansion of low paid employment, something which has serious long term consequences for the tax take – both in terms of income tax revenue and revenue from spending taxes. Employment growth for 2007 shows a net 78,400 new jobs for the 12 months to the end of June, but there was not a commensurate growth in income tax receipts, as the vast majority were low paid.
Government priorities must also include ensuring that attempts by any employer, to drive down and depress wages in key sectors of the economy, through the exploitation of migrant workers, is prevented. The use of agency workers to drive down pay and conditions can be stopped through the introduction of new legislation. As we speak, the Minister for Labour Affairs Billy Kelleher is plotting with his British counterpart to block an EU directive that would give 30,000 temporary workers the right to the same pay and conditions as full time staff. This is an utter disgrace. Nothing in this budget – in terms of adjustments to tax credits and bands - will compensate for the loss of earnings that people across this state will experience if the downward pressure on pay and conditions, as a consequence of the failure to regulate for equal rights for agency workers, is not addressed.
The Minister’s increases in social welfare, particularly with regard to pensions, carers and lone parents are welcome, but in the main do not go far enough to tackle poverty in this state. The increases in the main payments may be in line with inflation, but when you look at how low the existing payments are, you can see how little they will go to improving the life of somebody reliant on welfare. The universal nature of child benefit and the early childcare supplement means the minimal increases there have the least effect where they are needed.
Nor do the increases offer anything substantially different or innovative in terms of encouraging people out of welfare and into work. This was the main social welfare priority for Sinn Féin in our budget proposals. We recognised the large sector of people in receipt of welfare who would rather be contributing to the economy, but are caught in welfare traps and poverty. We called for the medical card scheme to be extended to five years for people returning to work, for Family Income Supplement payments to be increased substantially and automatically flagged to, and for wage disregard thresholds to be raised. Once again the Minister has failed to use the opportunity presented to him to achieve something of note. Instead we are left, as usual, with a piecemeal approach to welfare, with incremental, paltry increases that, weeks into the New Year, will be of limited benefit.
I welcome the fact that the proposals to cut PRSI contributions have not been announced as part of this budget. Of course we all want to see the burden of taxes and PRSI on ordinary workers reduced – but it can only happen if it is viable. This isn’t the case if the cuts will undermine the capacity of the social insurance fund to key social protections - such as redundancy payments, maternity benefit and social welfare. This was demonstrated by the latest Actuarial review of the Social Insurance Fund which predicted that the Funds surplus is projected to be exhausted by 2016 on the basis of the central economic assumptions and benefits indexed in line with earnings.
The proposed 2% cut in employee PRSI rate would have cost €720 million in a full year, while the 1% cut in the self-employed PRSI rate would have cost €220 million in a full year.
A key priority for Sinn Féin is increased quality and capacity within public services. This must involve getting better value for money in public spending. To do that, Ministers and their Departments will have to demonstrate better management of their respective briefs – the wasteful over use of consultants will have to be abandoned.
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Promises to improve the health service are in tatters as the unworkable mess that is the HSE fails more and more of our citizens, most notably in recent times the women affected by the breast screening scandal. Undertakings made before the election to address the crisis in primary education mean little to parents whose children cannot access a place in primary school.
The key question against which this budget has to be assessed is whether it provides the revenue needed to address the deficits in key public services. Has Brian Cowen provided what’s needed to increase quality and capacity in public services?
The population of the state has grown considerably over recent years from just over 3.6 million in 1996 to 4.2 million in 2006. In some areas – such as the greater Dublin area and the commuter belt - the population growth has been dramatic. Quiet simply, public services have not been adequately expanded to meet this demand and the pressure in being felt in schools and in hospitals in particular. Public transport is full to capacity in urban centres, while rural areas lack any proper public transport infrastructure. Social housing output has not been sufficient to meet demands and there are still approximately 43,600 families on social housing waiting lists. Other essential services including the fire service remain under resourced:
1. The people of north Wicklow who experienced the awful tragedy of the death of two firemen are forced to campaign for funding for a full time fire service for an area which has experienced huge increases in population but no commensurate increase in essential services.
Across the state teachers are forced to teach children in pre-fabs. In particular I am aware of a number of Gaelscoilieanna which have been forced to operate under these totally unacceptable circumstances.
1. In the Taoiseach’s own constituency teachers in Gaelscoil Barra in Cabra have been teaching classes in dilapidated prefabs for ten years.
2. In Clondalkin, Gaelscoil Na Camóige has been existing in second had pre-fabs for 15 years.
3. In the Tanaiste’s Constituency, Gaelscoil Portlaoise’s classrooms are made up of eight prefabs for the last 9 years.
4. Gael Scoil Gort Alainn in Montenotte, Cork has been occupying temporary buildings for the past 14 years.
In the Dublin commuter belt there has been a complete failure to put in place the education facilities needed. As a consequence we have had the situation where some schools have turning away non-Catholic children. In one area of West Dublin, Lucan, Sinn Féin representatives have been inundated with requests from non-Catholic parents to help get their children into primary school.
In areas like West Dublin and in particular Dublin 15, parents are putting their children’s names down when they are born and are still forced to camp outside schools for registration in a new term. There are more and more children being forced to wait until they are five before admission to school.
The €95 million extra allocated for primary school building is welcome but as the Minister says there are 13,000 new enrolments due next year. That €95 million will barely cover the school places needed for them let alone go towards improve the conditions in dilapidated schools.
I will have to scrutinise in more detail the spending plans of the Department of Education.
The Programme for Government promised to double the income limit eligibility for parents of children under 6 and treble it for parents of children with a disability. They have reneged on that commitment. The Government could well afford to more low income people - to increase it to €250 per week for 2008 as demanded by Combat Poverty. Even this would not have gone far enough – all those earning on or below the minimum wage should be eligible for the medical card. They have failed to prioritise access to primary care in this budget.
The state of the health service has been under particular spotlight in recent weeks. Figures from Trolleywatch indicate that whereas there were 159 patients on trolleys and chairs in A&E on the 4th December last year, yesterday there were 268 patients.
Services across the state are overstretched. For example
1. The Rotunda hospital’s capacity was so overcrowded last summer that women were moved into the Hotel adjacent to the hospital for treatment.
2. Children in need of Orthodontic treatment in the Kerry area are currently on waiting lists of 6 years.
In the health service we continue to have the situation where end-of-year budget over-runs have seen the Health Service Executive imposing cuts in services to patients.
In my own region, the latest fallout from HSE cuts is that there will be no elective surgery in Dundalk Hospital in December. We have already seen medical and general surgical elective work postponed in Navan and the planned closure of the Orthopaedic Unit at Navan for a whole month. 1,700 operations have been cancelled in Our Lady's Hospital in Navan in the last 3 years due to Bed shortages.
Up to eight operations per day have had to be cancelled at Cavan General Hospital. And many patients requiring rehabilitation after serious accidents and/or major surgery are being denied admission to the National Rehabilitation Hospital in Dún Laoghaire because of the cutbacks.
In other cases we have the outrageous situation where expensive facilities in hospitals are not operational because the staffing cap prevents additional people being employed to run them. For example:
- In Waterford Regional Hospital a brand new Cardiac Unit has been built at a cost of around €1.2M. A consultant has been hired to head up the unit. However the new unit which is due to open in January 2008 will be left idle as the HSE are refusing to fund another €1.5 M euro to equip and staff the unit. Patients in the South East region have to continue travelling to Dublin or Cork for Cardiac investigation and treatment.
- The A&E ward at the Mercy Hospital in Cork is currently lying idle because of a dispute between the HSE and nurses over staffing levels. When questioned about this on a recent visit to Cork, Minister Harney's response was that solving the problem was not her area of responsibility.
- In Tullamore there is still no date for the full opening of the new hospital which has been ready for around a year. While an ‘open day’ was held before the election it is only providing very limited day services. The poor conditions in the old hospital have been highlighted in the media – at one stage patients had to go for a week without hot water.
Sinn Féin had set a small number of key commitments which we wanted to see addressed as part of this budget. They included: delivering the 3,000 beds needed; increasing the medical card threshold to €250 per week for 2008 with a commitment to increase it over the next 2 years to level of the minimum wage. This budget should have contained a commitment to provide the revenue to roll out the cervical cancer screening programme state-wide in 2008. We also demanded an end to the misuse of public money in the form of tax breaks for private hospitals and the ‘co-location’ land gift scheme.
A key financial pressure on many families is the cost of childcare. In particular, the ability of low income parents to participate in paid employment is being threatened by the changes in the Childcare Subvention scheme, which this Government is set to introduce. Across the state many Community Childcare projects are under threat of closure. It is deeply disappointing that this want a priority int his budget. For example:
1. In Waterford City, the Larchville and Lisduggan Coomunity Childcare Project, which benefited from €1million in capital funding and which is hoping to be open by January, will be under huge pressure because of the changes.
2. In the constituency of my colleague Deputy O Caoláin childcare workers at Farney Community Creche in Carrickmacross, have predicted that, if this scheme goes ahead, many parents will pull out of the crèche and it will have to double its fees. Like other such childcare facilities it could be forced to close, resulting in loss of jobs.
Sinn Fein had two key childcare demands that we wanted to see delivered in this budget:
- The Introduction of a universal pre-school session of 3.5 hours per day, five days a week for all children in the year before they go to school. (The NESF costed this at €136 million).
- A Suspension of the Childcare Subvention Scheme and extension of the Equal Opportunities Scheme by six months, pending reform of the Subvention Scheme entailing detailed consultation with Childcare providers using the Scheme around the state.
These measures should have formed a core part of this budget.
The property market slowdown should have prompted the government to do what it should have done a decade ago - shift policy towards funding the local authorities to provide social and affordable housing. This budget does not go far enough on social and affordable housing. If more young working people had access to social and affordable housing this would create more disposable income which would simulate the economy rather than being paid to banks and building societies.
Such a shift in Government housing policy would also keep up levels of employment in construction.
Housing should be seen as part of our essential infrastructure, not just as a market for land speculators and property developers. It is also reasonable to borrow to increase the social housing stock.
In advance of the budget Sinn Féin demanded that 12,000 social housing units be constructed in 2008.
Our economy has come on leaps and bounds over the last two decades. But we have failed to use the successes of the last number of years to build for future competitiveness. We are starting to feel the squeeze with regard to our lack of infrastructure, knowledge capacity and flexibility, and will find it difficult to adapt our economy for future competition. For too long this Government enjoyed the benefits of an economy based on low costs and low taxes. Developments in China, India and Eastern Europe mean we cannot hope to compete in that kind of market anymore, and nor should we.
We are still competitive, but our rankings are slipping. We have fallen 17 places in the World Economic Forum’s competitiveness rankings since 2000 to 22nd.
Our increases in consumption and investment, rather than strong export growth; the slow down in Irish productivity growth, particularly in high-tech sectors; the contribution of net exports to economic growth being small or negative in recent years and; and the high reliance on the construction sector for employment; have all led to this drop.
We have seen a slide off in both the construction and manufacturing sectors and worse, we have seen parts of the country become economic blackspots. East Cork recently lost the proposed Amgen development and in Waterford, 470 jobs went in Waterford Crystal. In Galway yesterday we saw the loss of 500 jobs from Abbott. Recent CSO figures confirm Tralee is one of the state’s worst unemployment black spots. There are 1,300 people out of work in the North Kerry town – that’s an unemployment rate of 14.2 per cent. The government and its employment agencies have done little or nothing to bring replacement industries to the area. There hasn’t been one job created by the IDA in North Kerry in the last 5 years. This neglect of the West can also be seen in the decision to allow Aer Lingus move from Shannon. This will have a devastating effect.
We need to be innovative, not traditional, to make sure we are developing the kind of economy we want for the future.
Sinn Féin has consistently argued that ending the partition of our country will contribute to the building of a strong competitive economy. Much of the business community, North and South, is behind us in this demand. Duplicate government and public service structures; unnecessary administrative burden on those wishing to do business in both jurisdictions; and, of course, two currencies, mean we are competing with ourselves for economic investment.
Ireland’s physical infrastructure north and south, also remains a source of competitive disadvantage. Successive governments over the boom years to date have failed to introduce the infrastructure needed to build competitiveness. We built a motorway that couldn’t handle capacity around Dublin, then handed it over to private operators to profit from. We have a serious public transport deficit, both in urban areas where there is not enough capacity in public transport, and in rural areas, which in many cases have no public transport at all.
- In a situation mirrored across rural Ireland there is no Government subsidised public transport available to the people of North and West Donegal, connecting rural parishes to larger urban areas. These communities are losing their bus routes one by one due to commercial considerations as private operators focus on the profitable routes.
We pay the highest rates for broadband which is the slowest in Europe. The state recently ranked 17th in the 27 member EU in terms of broadband access – behind the accession states of Latvia, Estonia and Slovenia. The root cause of this was the decision of the government to privatise Eircom.
We came belatedly to R&D and have failed to invest sufficiently in it to redress that imbalance. I welcome the announcement made today regarding funding for R&D but asm disappointed that there was little or no mention of the need for investment in ICT in secondary schools.
In transport, energy, information and communication technology, Ireland’s infrastructure lags well behind those of comparable countries in the OECD.
I am pleased to see the Minister’s commitment to improving infrastructure, there remains some concern – as the roll out of projects under Transport 21 fall behind schedule for example - that departments are purposely slowing down the rollout of capital projects under the National Development Plan in order to reduce budgetary pressures in the year ahead.