Finance Bill, 1996: Second Stage (Resumed).

Question again proposed: "That the Bill be now read a Second Time."

Mr. M. McDowell

The Finance Bill, 1996, is a monument to the lack of vision and ideological confusion of this centre-left rainbow Coalition Government. In favourable economic circumstances for tax reform and in particular with every possible reason, politically, socially and morally, to reduce the crippling effect of high employment taxes, the people have been cursed to have in office a Government consisting of a set of parties, none of which has the appetite, vision or competence to bring about what this country needs, a dramatic, pro-employment, pro-enterprise root and branch reform of our taxation system. The cause of this malaise can be described in one word — Labour.

When the Labour Party got into office in 1992 it immediately halted the programme of tax reform which in the previous years had seen the reduction of the top rate of tax from 58 per cent to 48 per cent and the standard rate from 35 per cent to 27 per cent. Labour tore up that strategy of low marginal tax rates and immediately imposed a 1 per cent income levy on all taxable income, which was equivalent to a 2 per cent increase in the standard tax rate for 27 per cent taxpayers, bringing their tax rate back up to 29 per cent. Three years later the Labour Party's period in office has achieved nothing on the tax front except tinkering, sleight of hand, increasing complexity in our tax system and a stubbornly high dole queue.

Last Saturday the Minister for Finance, Deputy Quinn, and the Minister for Enterprise and Employment, Deputy Bruton, emerged as competitors in the whole area of tax reform. In a pre-emptive strike Deputy Quinn told the papers on Saturday that he would face up to the question of the middle income tax burden because, as he saw it, in plainly political terms that was what the Labour Party needed to be seen to be doing. On Sunday Deputy Bruton, determined not to be upstaged, did a trailer for a forthcoming document on tax, PRSI and jobs, to appear in Monday's papers, but this Finance Bill makes political liars of them both.

To those who have consistently emphasised the need for reform and the reduction of taxes on work, this deathbed conversion on the part of the rainbow Coalition partners on tax policy evokes nothing but the deepest cynicism. We should remember that Labour has been in office for 13 of the last 23 years. That is an enviable record and I congratulate the Minister for being part of those Governments but the Labour Party cannot now turn to the other parties in this House and say it was not there. It has been in office for the majority of the last generation.

Mr. Quinn

Is that the independent or the Progressive Democrats line?

Mr. M. McDowell

Our tax system has built up during that period.

Mr. Quinn

Which party is the Deputy working for now?

An Ceann Comhairle

The Deputy in possession, without interruption.

Mr. M. McDowell

Between 1973 and 1977 the bones of our tax system as it is now were put in place. Every single word on the tax statutes has been either there since Labour was in office or has been kept in place by Labour. Our tax system is the Labour Party's tax system because it has been in office for a majority of the last quarter century during which that system evolved. The Labour Party's insatiable spending plans have put a consistent upward pressure on taxation.

Mr. Quinn

It is good to know we had such influence.

Mr. M. McDowell

Between 1973 and 1987 Labour and Fine Gael raised the number of taxpayers paying above the standard rate of income tax. A total of 98 per cent of taxpayers were on the standard rate when Labour and Fine Gael came into office in 1973 but by the time they left office in 1987, Labour and Fine Gael had brought surtax to the masses and increased the number of taxpayers paying above the standard rate of income tax from less than 2 per cent to 43 per cent.

Mr. Quinn

Which parties were in power then? The Taoiseach came from the Deputy's constituency.

Mr. M. McDowell

I spoke to a member of that Government in 1977 and suggested to him that its catastrophic defeat at the hands of the electors might have had something to do with the fact that it had not index linked the tax system. He replied that index linking the tax system would be the end of all social progress.

Mr. Quinn

Is that why the Deputy left?

Mr. M. McDowell

Those words ring in my ears because I read occasionally in The Irish Times, particularly on Saturday, about crocodile tears now being shed over the effect of tax on lower paid people but that the Government which brought this about included people who were deeply hostile to any form of tax reform.

Labour and Fine Gael who presided over the crazy anti-employment tax changes which at one point reached 77 per cent and which they only reduced to 60 per cent to avoid defeat in the 1987 election. It was a Labour and Fine Gael Government which criticised most strongly the Progressive Democrats in its first year for suggesting we could have a system with a 25 per cent standard rate and a 40 per cent top rate. It was Labour which, in its first budget in 1993, tried to revoke the PDs' tax reforms by throwing the whole process into reverse and imposing the 1 per cent levy.

Having declined all sensible proposals for tax reform, Labour and Fine Gael are now vying with each other to recover middle income support by laying the foundation for so-called tax concessions in the next budget. In the meantime we have a Finance Bill that does nothing on that agenda. The facts speak for themselves. In the next year, the average taxpayer will pay £117 more in income taxes to this Government to assist it in its tax and spend policies.

There is no need for a by-election post-mortem in the Labour Party to produce a deathbed conversion to tax reform, nor do we need another postgraduate research paper from the Minister for Enterprise and Employment, Deputy Bruton. We need a Finance Bill that tackles the issue now but what we have is a lamentable evasion of the fundamental problems in our tax system. Our tax system is killing jobs, stifling investment in jobs, lengthening the dole queues and encouraging the black and grey economies.

Those people to the left, as they like to deem themselves — they might more properly be deemed the left behind — should be expected to show a little radicalism now and then and some smidgen of concern for the 300,000 marginalised people and their families to whom this country offers nothing but dole and crocodile tears. One might expect a party of the working man to take on the greatest single impediment to social justice for those who do not have jobs — a tax and welfare system that excludes the most vulnerable in our society from any chance of participating in economic life. Instead we have a deeply cynical, self-serving social partnership which has chosen unemployment, high taxation and to keep State control over huge areas of the economy.

Ireland is the most conservative of economies. Our conservatism is social democratic conservatism. We constantly seek derogation from European competition directives and have left our tax and social insurance systems largely unreformed. We are now governed by a complacent, out-dated and inept governing class supported by self-serving, bureaucratic State machinery. We do not have any radicals or radicalism in our system and that is strange in a country where so much is so radically wrong.

This sick and, I suggest, sickening State takes 57p in taxes and PRSI in every extra pound earned by a single worker earning well below the average industrial wage. This Bill is leaving in place a system which needs more of their extra earnings than a single man or woman earning less than £12,500 per annum. We do that because nobody will face up to the truth that a tax system which confiscates more than half the extra earnings of a single person earning well below the average industrial wage is sick to its heart.

The people who justify that system and who talk in public about being of the left and concerned with the working classes and the plight of those on low wages are hypocrites because they offer those people nothing but confiscatory tax rates on below average earnings. We take more from below average earning workers in Ireland, which has the lowest average earnings in Europe, than any other country in similar circumstances and we justify that by reference to the need to spend more money. It is not simply confined to lower earning workers because many people find themselves in the position where it is better not to work. They have more disposable income doing nothing for 40 hours per week than if they worked for 40 hours per week. That is our problem. It is a sick country which does that to the weakest and most vulnerable sections in the community while, at the same time, claiming it is making progress and that the fundamentals are right. A country with a centre left coalition, in which a Labour Party postures as being the party of the working man, which fails to remedy that in budget after budget should be ashamed as should any party which accepts it.

There is nothing new about what I am saying; it has been well appreciated for a long time. There is nothing unprecedented about a speech of this kind in this House but what is unprecedented is the unwillingness of the parties most interested in high taxation and high spending to face up to the truth that they are part of the problem and not part of the solution. Why, since coming into office in 1992, has Labour done nothing to change the tax rates that workers earning below the average industrial wage face? Why, after four years of Labour in office and two years with a Labour Minister for Finance at the helm, do single working people earning well below the average industrial wage still give more than half of their marginal earnings to the State in taxation? Why is it that people on £14,000 per year living in a local authority house, even taking into account family income supplement, PRSI, tax and other fringe social welfare benefits, are no better off than if they were earning £9,000? How does the Labour Party explain, after four years in office and two years at the helm, that it cannot reform our tax system to do something for those people? If we are talking about social justice — this Government came into office with a mandate to put justice back into economics and trust back into politics — how can it after two years face an electorate and say it is fine by it that the State takes more than half the earnings of a person earning £1,500 less than the average industrial wage?

Such a country and the parties which preside over it are sick and hypocritical if they say they have any intention of doing anything sensible about unemployment, while at the same time pursuing and keeping in place such a tax regime. That is the cost of the Labour Party to the working class. Where is the social justice in that and where is the conscience of the Left? I suggest the conscience of the Left has been left behind at the social partners' negotiating table.

In 1994-95 the Packard Electric company in Tallaght paid the Minister for Finance, Deputy Quinn, and the Minister for Social Welfare, Deputy De Rossa, £3.5 million in PAYE and PRSI on a total wage bill of £15.5 million. That is equivalent to a 35 per cent levy on its wage bill in terms of employer and employee PRSI and employee PAYE. That company was trying to hold on to employment in Ireland in a highly competitive world market and the work it offered was highly labour intensive. It was offering genuine employment to people who were not the most skilled workers but who were willing to work to improve their circumstances and to keep their families' heads above water. Yet our Government had two Ministers careering around the world looking concerned when there was a redundancy package. This company was dragged down by the fact that the Exchequer is so organised that it requires 35 per cent of the payroll of such a company in taxes and levies. That is the truth. As long as we run a regime which takes so much from those who provide employment for people who need it most, we have no chance of confronting the employment problem.

I contrast what the Exchequer did to Packard Electric, that is, taking 35 per cent of its payroll spend each week, with what it does to other jobs which are apparently more important to the social partners, like jobs in the semi-State sector. What is wrong with a job at Packard Electric that it must be taxed as if it were a luxury? Why is it so different from other jobs which must be subsidised as if the country depended on them? What type of society is this that we tax out of existence the jobs of ordinary working people who are most vulnerable and deliberately load a burden of taxation on their work which makes it impossible for their employers to compete on an international field? What type of society is this that we say to those people to keep paying high taxes because we have a lot of things on which to spend their money?

There is a different way to look at our economy which does not come from those in this House who believe in radical tax reform and who have in the past done something to change our tax system. It comes from those across the world, formerly of the Right and the Left in politics, who realise that the type of sick state-dominated economy so many people in Ireland feel so addicted to and dependent on cannot survive in modern circumstances.

There is always a danger in conjuring up a vision of another economy, waving it before the people and saying this is the way we should work because every economy and society has its problems. Our economy is very sick because the fundamentals are not right in terms of economic or social justice. Any society which fails to address the fact that most of those at the bottom of the economic ladder are better off not participating than participating is one which is running away from the truth and which will face serious consequences in the future.

We have failed to address our fundamental economic problems. It is not for want of analysis. We do not need another paper from the Minister for Enterprise and Employment, Deputy Bruton, on why the Culliton report was right. The Culliton report said there was one thing the Government could do to improve the employment situation, which was to radically reform the tax system. It said it was the one central thing on which Government could deliver, but the Labour Party in Government does not believe in that. The Labour Party does not believe in that publicly or privately or in changing the burden of tax on work. That is why when the Labour Party got into office in 1992 with Fianna Fáil and in 1995 with Fine Gael the result was exactly the same on both occasions. A flimsy, intangible set of targets for tax changes was put in place. Three or four lines, which could mean anything or nothing, were shoved into a programme to allow for flexibility. The real issue was to get on with the social partnership, driving up public sector pay in gross terms and to forget about the importance of take home pay to the average person and the incentive to work and to give others employment.

One of the most unfortunate myths which the Labour Party tends to propagate, publicly and privately, is that marginal tax rates do not matter but that what is really at issue is the overall burden of taxation. With that wave of the intellectual wand, it is saying that it does not matter if the tax rate is 27 per cent, 20 per cent, 48 per cent or 77 per cent, as in the past, but that what really matters is how much one pays on the bottom line. That is demonstrably false.

Countries such as New Zealand which have opted for low tax rates of 18 per cent or 20 per cent and a top rate of 33 per cent understand that the marginal tax rate is crucially important when it comes to getting out of bed and going to work, deciding whether to work an extra three hours on a Saturday morning if one's employer asks, deciding whether to take promotion and responsibility, investing in a new machine in one's small business and taking on two extra workers and hazarding one's savings in a small business which might generate employment for others rather than putting it into a house let in flats. This may not be apparent in the deepest recesses of Merrion Street.

I know the difference between having two thirds or one third of a fee confiscated in tax and the incentive to me. I sometimes say I would prefer to go on holidays this week because all I am doing is giving the Minister for Finance a present of most of what I earn — that is not personal. I know how ordinary people tick.

Mr. Quinn

Should I declare it?

Mr. M. McDowell

They tick by reference to the effect on them of getting up, working extra hours, taking extra responsibility and putting money into some remunerative investment. It is crucially important to a businessman who invests in a particular concern to know whether the return, taking into account the risk that it could all go wrong, will be taxed in a way that he gets only half into his own pocket. That doubles the risk of failure as far as he is concerned. If the positive return on an investment, which can lose money, is taxed at half the return then the odds on success are effectively halved.

I reject the notion, propagated and peddled by the Left in Ireland in particular, that there is something intellectual and abstract about the difference between facing a 48 per cent tax rate and a 33 per cent tax rate. It is demonstrably wrong. Those societies which understand what drives people to fend for themselves, to work harder to improve society, and which are not caught up in ideological befuddlement, which suggests to them that there is something wrong with somebody wanting to work harder or to better themselves and which do not make a complete icon of the culture of dependency, cannot be told if they are earning less than the average industrial wage that the state needs more of any extra money they earn than they do.

Societies such as New Zealand have learned a hard lesson as to how one can throw away, across a whole generation, the opportunities for growth and self-sustaining economic development if one has a high tax, highly regulated economy. I ask the Minister to bring the Labour Party into the real world. Do not be part of the "left behind", become part of the radical left, bring the Labour Party to the point where the New Zealand Labour Party was, in a mood to challenge, on a radical basis, the ill effects of the state through its taxation and control in that economy.

Why can Felipe Gonzalez in Spain privatise but the Irish Labour Party cannot? Why can even the French Left take on the issue of state ownership of assets but the Irish Labour Party cannot bring itself to do it? Why is it that across the world parties of the left have woken up to the new agenda in politics but in Ireland they have not? The reason is that at the heart of the Labour Party's thinking up to this point — and I think it will change — there is a notion that going into the next election if they keep faith with the 250,000 Irish voters in identifiable industry such as the semi-State sector, the public service and the State sector generally in terms of teaching, nursing and council employees they will return with more or less the same number of seats into the next Dáil. That is the strategy but it is in tatters because the Labour Party could think only in conservative terms: let us service this political constituency, let us bash ahead with a little more of the social partnership economics, let us keep the show on the road and look after our own. That is a fundamental political mistake and it will not work. It will be blown out of the water because an economic window of opportunity will not be availed of.

Between 1997 and the year 2001 this country will have a huge opportunity to effect a dramatic transformation. We could have a divestment of State control in a large area of our economy to allow competition, to reduce public indebtedness and the calls on the Exchequer to capitalise various projects. In relation to Aer Rianta we could say, for instance, that the State has no particular interest in owning that company any more and does not need to capitalise its £100 million investment plan we read about today. It does not need to do that. It does not need to control airports. I do not want to control airports any more than I want to own shopping centres, both of which are equally vital for our economic life but I see no reason one should remain in State ownership rather than another.

We do not need a system of semi-State sea ports as opposed to State sea ports. We need a system whereby every Irish port of any size is competing with Larne to ensure that Irish traffic going through the Republic's ports faces charges which are on a line to make them competitive with those in Northern Ireland. We do not need a system in which the State does all the generating of electricity. We do not need to derogate from the European Union directives in relation to telecommunications competition. We do not need any of these things if we have the strength of character and the sense of purpose to effect in the next four years a dramatic transformation in the Irish economy. We have uniquely favourable circumstances to do it: transfer of funds from Europe, a good position internationally, good growth in some portions of the economy here. Now is the time more than ever for someone with a radical vision of how this country can transform itself to be in office. Unfortunately, now is the time when we stand cursed with a Government with no vision, no united sense of purpose and no programme. To compound all that, the Government thinks it should have the right to determine a successor programme to the Programme for Competitiveness and Work. What a tragedy that would be.

This Government lacks the basic understanding of what is needed over the next four years and should not, in its declining days, be allowed to set the agenda for the next four years. It is for an incoming Government to do that and it is for the people to set, by their votes in the next election, the mandate and the parameters as to how Ireland can be transformed in the next four years. It is not for a confused group of ideologically bewildered partners who are wed in a coalition only because of the need to be in office. It is not for them to set the agenda for tax reform in the next four years.

I have no deep seated objection to a further programme if it produces industrial peace, but not at any price. Any programme that does not have as its starting and its ending points radical tax reform and which does not factor into every agreement about wages the issue of tax reform, take home pay and restraint on growth in public sector pay and private sector pay and is not built on that cornerstone is a programme that we cannot merely do without but one which we would be cursed to have foisted on us by a Government in its dying days. We need something radically different from what is available. We were far better off not to have had a programme negotiated during the lifetime of this Government, to let the people have their say about what they want to happen in the next four years in terms of taxation reform. There is no way one can map out a strategy for three or four years of a successor programme without facing up to taxation. This Government has not the political will to do the basic political ground work to deliver on the issue of taxation and it does not have the ideological cohesion to put before the people a single vision to that end.

I do not claim to be a political clairvoyant. It would be a foolish person who would predict what will happen at the next general election. Parties which appear to have the backing of only approximately one-third of the voters should not set the agenda for their successors. Parties which do not have the confidence of a working majority of the electorate and, in particular, those which do not have any reasonable prospect of getting the support of a working majority of the electorate should not tell the electorate how the country will be run after they lose office. It would be a great tragedy if an incoming Government was stuck with an agreement it could not rupture or renegotiate without it being in bad faith.

Mr. Quinn

How does the Deputy imagine the 1 per cent came about? Such arrogance. His party left us the unpaid bills. How dare he? This is mind boggling and arrogant.

An Ceann Comhairle

Let us hear Deputy McDowell without interruption.

Mr. M. McDowell

The Minister will have an opportunity to reply and, undoubtedly, he will do so in his usual trenchant way. He should not talk to me about arrogance. He should reflect on a single woman earning below the average industrial wage, from whom he is taking 57p of every extra pound she earns, and then tell me he is a party of the left. If he can tell me that he has her interests at heart, when in three years he has not changed her position significantly, he can address the issues I am raising with a greater degree of confidence.

The Finance Bill is not merely an adjunct of the budget, it is the law of the land. Our tax system is the law of the land. Our tax system is in its present state because each year for a quarter of a century Members have voted to leave it as it is. We have done less than any other country in Europe to address the issue of taxation on work but, curiously, we have the most reason to do something. We have had commissions, Culliton and OECD reports, we have set up the NESC, working parties and forums and the Minister for Enterprise and Employment, Deputy Bruton, proposes to introduce another paper on the importance of taxation, but we have not had action. I have studied the details of the Bill and I do not propose to deride them because much work has been done on its drafting. Effectively, it is a fine tuning and tweaking of an existing tax system. It does not propose significant reform. In real terms, the changes in allowances are all within a few percentage points of zero. People will discover in the next few weeks that the Bill will make little difference to anybody. This is a missed opportunity to deliver on taxation reform.

I hope I am not being too arrogant in saying that I regard it as somewhat bewildering that coming up to election time, a Government should flag that tax reform will be on the agenda for its final budget. It is disappointing that it is a question of party political interest rather than doing what is right. It is also disappointing that the Minister should be quoted in the newspapers as saying he will now do something for the middle income groups for which he has done little in the past. He should start from his socialist roots and do something for single workers who earn £1,500 per annum below the average industrial wage and must pay 57p of every extra pound earned to the Government. If the Minister does something for those workers and forgets about the middle income group he might have some authentic socialist credentials. If he does something radical for them he might be seen as a radical socialist but if he does nothing, the political, economic and electoral consequences are inevitable.

Minister of State at the Department of Finance (Mr. Coveney)

I wish to share time with Deputy Finucane. I welcome the opportunity to commend the Finance Bill, 1996 to the House. Deputy McDowell's colourful speech should not surprise me. He is continuing to reiterate views and policies, with which many people agree, but which are in sharp contrast to his party's performance in Government, particularly in terms of growth in public expenditure and increased taxation. His views do not gel with his party's performance and this is a serious criticism of what he constantly preaches. I listened to him preaching similar sentiments when his party was in Government but he was not a Member of the House. It is amazing that when his party was in Government it did not do something about these matters. Unless and until Deputy McDowell and his party confront that reality the electorate will view them with a degree of cynicism. Public life is being diminished by the continuous assertion about what the Progressive Democrats would do about taxation and public expenditure control when that party's performance in Government left a great deal to be desired. I do not know why Deputy McDowell does not confront that subject when he speaks on this topic.

I was also amused at his unfounded comments about the parties in Government being confused and bewildered. The Government's cohesion on the Estimates, the budget and the Finance Bill has been marked. Of course, the parties in Government have different points of view but we respect one another. We have conducted debates and dealt with our differing views in a sensible manner, reached conclusions and are working well together.

The Finance Bill is the most complex legislation laid before the House each year. Many of its key provisions have been widely discussed since the budget speech in January. However, for the first time this year there has been extensive consultation on some of the Bill's more technical aspects prior to its publication. This applies not only to the discussion paper released some time ago but also to specific areas, such as the amendments to the BES scheme, on which there was extensive consultation with interested parties, practitioners and so on between budget day and the publication of the Bill. That process of consultation is essential to the efficient preparation of complex technical legislation such as the Finance Bill. The initiatives taken this year will be expanded in future years and this can only enhance the quality of our legislation and allow for more efficient use of the House's time in debating such technical provisions. The Bill also provides for the initial legislative stages in the process of consolidating approximately 30 years of taxation law. This is a major project which will be welcomed in particular by professionals and practitioners.

The Bill is unusual in one other key respect, that is it does not contain the provisions which give legislative effect to many of the key priorities addressed in the budget. The economy is prospering as never before and is growing at a faster rate than that of any of our fellow members of the European Union. The level of job creation has improved significantly. However, not everyone who desperately needs to work has been afforded that opportunity. The central thrust of the Government's policy in the budget was to direct resources towards the long-term unemployed and low paid. These measures are not appropriate to the Finance Bill as they are administered by the Departments of Social Welfare and Enterprise and Employment. The Finance Bill does not, therefore, give the full picture.

I wish to refer to some of those measures lest they be forgotten. The Government introduced an £80 per week subsidy for employers who provide jobs for the long-term unemployed. Special provisions have also been introduced to help 18 and 19 year olds avoid the trap of long-term unemployment. The low rate of employers' PRSI has been extended and now covers more than 600,000 employees. A range of tapering arrangements, including the retention of medical cards, have also been introduced. The Bill reaffirms the Government's commitment to the creation, through enterprise, of real sustainable jobs. It provides for the exemption from tax of grants received from county enterprise boards and grants paid under the Leader and area partnership programmes and back to work allowance scheme. The subsidy of £80 per week paid to employers in respect of the recruitment of long-term unemployed persons is also to be exempt from tax. This provision will allow these employment creating incentives to be maximised to the full by small and micro-sized businesses.

The Finance Bill is the single most complex piece of financial legislation brought before the House each year and it therefore merits careful thought and attention. It is sometimes regarded as the sum total of the Government's deployment of the benefits of economic growth, which of course is not the case. The Finance Bill is but the final stage in a long process which involves the settling of the Estimates, the Budget Statement, the Social Welfare Bill and a host of other measures.

The fruits of economic growth are spent not just on tax concessions or measures to help the unemployed but also on the improvement of services in hospitals, schools and other areas of society. None of this would be possible without the underlying prudent management of the economy to which the Government is totally committed. Economic prosperity which to some extent is taken for granted is not an accident; rather it results from proper policies and prudent management of the economy. There can be no improvements to services or significant reductions in the tax burden without continuous strong economic performance and prudent financial management. These are the key challenges facing the Government which has managed, and will continue to manage, the economy with the prudence necessary to promote sustained economic growth and real sustainable jobs. No package of employment subsidies or other pro-employment measures can deliver the kind of real sustainable jobs created by a prospering economy. A total of 45,000 new jobs were created last year and more than 30,000 new jobs will be created this year. Special interventions are necessary for those who have not been able to avail of economic prosperity, but in the end it is the overall management of the economy which will create real long-term employment opportunities.

A broadening of tax bands or a reduction in tax rates is guaranteed to make the headlines. The improvements in take home pay which these desirable changes can deliver are modest when contrasted with the savings to households arising from sustained low mortgage interest rates and low inflation. These are the ways in which economic prosperity is primarily shared.

Modern history textbooks rightly deal at length with the "economic miracle" of the late 1950s and early 1960s. However, the final years of the 20th century are the most exciting for this economy since the foundation of the State. As a nation we stand at the brink of becoming a founder member of a true single European market. This is a dream the founders of this State could scarcely have contemplated. In order to realise that dream we must manage our growing economy in a prudent and sensible way. The economic planning and policies which underpin this year's budget and the Bill reflect this necessary prudence and sensible management.

I do not propose to deal at length with the individual sections of the Bill as my colleague, the Minister for Finance, has already done so and I have no doubt they will be discussed in detail on Committee Stage. A significant number of the provisions reflect decisions already announced but there are some new items to which I would like to refer. I am particularly pleased that the relief granted for the installation of alarms for the elderly has been extended in section 5 to the relations of elderly people living alone. The extension of the relief will make it more accessible to those who need it most and the Government recognises that it is needed.

The provisions to curb abuses of the patent income relief have received much publicity. I fully support these measures as the level of abuse could, in a relatively short period, undermine the entire system of relief in this area. The new proposals which, in certain circumstances, relate the level of distributions to actual research and development expenditure should assist the genuine innovator and promote research activity in the State. The Bill also includes a separate provision, section 48, which broadens the scope of the special tax relief for research and development expenditure introduced last year. Any measures which foster innovation are to be welcomed.

In the two budgets introduced by it since it took up office the Government has increased the level of relief from capital acquisitions tax on the transfer of family business from zero to 75 per cent. This relief is crucial in ensuring that long-established family enterprises, most of which have created employment, can pass to a new generation without a significant tax charge requiring the sale of assets.

The small and medium-sized business sector is a major creator of employment and will deliver many badly needed jobs in the future. The risks taken and the commitments given by these business people must be recognised. In this context I welcome section 52 which makes the 27 per cent lower rate of capital gains tax available to a wider range of genuinely entrepreneurial business people who dispose of their businesses. I look forward to the further extension of this lower rate in the future.

I have no doubt that the economy will continue to perform strongly this year. All of the indicators are that the low interest rate and low inflation environment will continue in tandem with strong growth and job creation. The pro-employment measures introduced this year will be effective and the Government priority will be to reduce the burden of personal income tax next year. This year we concentrated largely on targeting the long-term unemployed, and we make no apologies for that. In future it is my desire to reduce the burden of personal income tax. This cannot be done at once, but it is an area that this and future Governments must address in future.

I look forward to constructive discussion on this Bill, on which there was extensive early consultation prior to its publication. It is a continuation of the same prudent economic principles which underpin the Estimates and the budget announcements and reflects the Government's commitment to job creation through enterprise and through the maintenance of a low interest rate, low inflation, high growth economy. The creation and maintenance of such a climate is much more important than any individual measure in the Bill. The Government is determined to continue sensible policies and not to be thrown off course, even by electoral considerations, as mentioned by the previous speaker. The Government has a duty to manage the economy in a sensible way not just to proceed, under the Maastricht Treaty, towards a single currency but because the policies operated by it brought about high growth, low inflation and other positive economic factors which have not filtered down to everybody yet — that will take time. The Government recognises it is also necessary to tackle the question of taxation which everybody agrees is a disincentive and must be reduced. It will be reduced in the months and years ahead by this Government and its successor which I believe will be this Government.

Mr. Finucane

I do not know whether I was fortunate or unfortunate to listen for 30 minutes to Deputy Michael McDowell's contribution. Although he appeared to focus mostly on taxation — and there have been successes in that area — at no stage did he recognise that we have a very buoyant economy. People who have mortgages are extremely happy with the relaxation of mortgage interest rates. Inflation is low and there are low interest rates in the banks. All these factors contribute to the present state of the economy. I would love to take Deputy McDowell to where I live in Newcastle West where he would see the housing boom——

Mr. Cullen

Is the Deputy saying the Minister is responsible for that?

Mr. Finucane

——and that obviously reflects an enhanced economy. I prefer, however, to deal with the technical aspects of the Bill, some of which are good. I am glad the Minister decided to change the budget provision regarding the installation of security systems by pensioners over 65 and make relatives of older people eligible to avail of the facility. There was further recognition of the particular vulnerability of older people when the Minister for Social Welfare, Deputy De Rossa, announced a further £6.5 million to cover extra provisions for the elderly. I am sure Telecom Éireann will row in with a reduced telephone installation cost. The Government does reflect on the situation outside the House and has responded positively.

It is recognised that this Government is pro-enterprise. In 1995 it created 45,000 jobs and another 30,000 jobs are projected for next year. The Finance Bill states that grants from county enterprise boards, area partnership boards, Leader groups or grants under the back-to-work schemes will be exempt from taxation. That is desirable because, as a member of a county enterprise board, I have seen at firsthand how, at a relatively small cost, a county enterprise board can help to create many jobs in its local area. The Government is to be complimented on setting up such organisations in every part of the country.

I want to sound a note of caution about county enterprise boards. The Government is at present conducting a study to evaluate where funding will go in future. I am afraid that one of its recommendations might be that a greater amount of funds should go to city areas. Although that might be desirable in itself, I would not like it to be at the expense of county enterprise boards around the country which, in many cases, are getting a reduced amount. Most county enterprise boards are allocated £90,000 every three months and must operate within that budget. My county enterprise board is already exceeding its budget. The number of people interested in the various grants is an indication of the success of the county enterprise boards. I would like to think the Government would consider increasing the finance for the operation of those boards because they are creating many jobs at local level, far more successfully than some of the more renowned bodies.

Another element of the budget is the concession to encourage the transfer of farms. There has never been a greater incentive to do this. The Government is encouraging the transfer of farms to younger people and this Finance Bill contains concessions on leasing and capital acquisitions tax. Parallel with that is a very successful EU farm retirement scheme. The young farmer, if he avails of a particular Teagasc programme, is entitled to an installation grant of £5,600. All these elements are conducive to encouraging the transfer of farms, which is desirable.

One thing that concerns me is whether the priorities of the various organisations are sometimes misplaced. This struck me very forcefully during the week when I accompanied a deputation from a small rural community called Fianna who have been trying for the past five years to get a sewerage scheme for their village. Unfortunately the news from the council was disappointing, it would not even submit this scheme to the Minister for the Environment because so many other applications for similar schemes were stockpiled and awaiting approval. This is disappointing for a community which is typical of most rural villages around the country. It has a vibrant community council and, over a period of time, achieved third in the county in the tidy towns competition. It is one of the areas selected under the urban and village renewal schemes introduced by the Minister of State at the Department of the Environment, Deputy McManus. It is located in an area subvented by Leader funds, yet those villagers are threatened by the loss of a teacher, the relevant local authority not allowing them planning permission because of septic tank considerations. This is a contradiction in terms — a rural community endeavouring to advance while being constrained by bureaucracy.

One can talk about the Leader programme, partnership boards and urban or village renewal but local infrastructure must be a first priority. If one cannot implement a sewerage scheme for such a community — even at a cost of £200,000 — that community will wither through its inability to construct houses there. Having recently led a deputation of ten on this subject I was very disappointed with the official response as were the other members who returned to their area without any great confidence. That is what happens in many villages. While acknowledging the spending parameters of Leader programmes and partnership boards, it appears the Minister for Finance cannot entertain such demands within his budgetary constraints. Somebody must seriously examine the position and ascertain where funding can be provided for such community plans and requirements.

A good aspect of this Bill — and here I agree with Deputy Michael McDowell — relates to the incentive to work. There are many industries located in west Limerick, the gross income of most of whose employees, including some overtime, would amount to approximately £10,000 annually which is subjected to income tax. Many people with four or five children come to our clinics for advice and tell us that it is more beneficial to be unemployed than to work. That is something to which I referred when speaking on a Finance Bill some three years ago. One important anomaly — the loss of a medical card — has been removed. Heretofore, whenever an unemployed person returned to work he lost the benefit of a medical card estimated to be worth approximately £500 annually to an average family. The abolition of that anomaly is some incentive to return to work. There is also the positive incentive to employers who, on recruiting people who have been unemployed for three years, will be eligible for the employment subsidy of £80.

I also welcome the environmental controls on forestry introduced in the past few days by the Minister for the Environment in conjunction with the Minister for Agriculture, Food and Forestry. I particularly welcome the proposed consultations with local planning authorities on projects to be grant-aided, including forestry projects. In the western part of my county small communities, comprised of older people, live in isolation and in fear in the homes in which they resided happily for many years. They perceive many local forests almost as havens for the thugs who prey on them. This phenomenon is leading to rural decline, as some people are forced to move into larger communities. I welcome any tightening up of regulations in this area.

Mr. Cullen

So far, the tone of contributions, particularly from Members on the Government side of the House, has been very interesting. While listening to the Minister of State at the Department of Finance and Deputy Finucane I was fascinated that they almost ignored the failures inherent in this Bill and its objectives. I was struck forcibly by their obvious difficulty in identifying any provisions their party could clearly state it had carried forward from Opposition and implemented in Government. Indeed the Minister for Finance had very little to say yesterday about overall policy thrust, or any concrete achievement by him in his second budget. He failed to point to any notable legacy worth retaining in terms of taxation after his term of office. He unenthusiastically commented on the various sections of this Bill in a very lack lustre fashion without making any radical change in the development of fiscal policy. It appears the type of policies he might want to implement are not capable of being implemented under this tripartite Government and he realises his failure.

Since the recent by-elections I was struck by the Minister for Finance's promise that his next budget will deal with the most fundamental problem of taxation as it affects middle income families. He almost held out a bribe to the electorate in advance of next year's general election. It is reasonable to interpret such remarks as a bribe. He hopes the very serious failing fortunes of the Labour Party and this Government can be rectified in the interim. Over the next 12 months, no doubt we will be treated to a regular diet of such statements from the Minister for Finance and the many spin doctors associated with this Government, but the electorate will not be fooled. In the past two years the greatest opportunity in 25 years existed for tax reform when, for the first time, a Labour Party Minister had control of the Department of Finance. Yet there was the greatest failure on the part of any Minister who had espoused a particular radical ideology over recent years and the Labour Party, when afforded that opportunity in conjunction with Fine Gael and Democratic Left, to do anything that could be construed in any way as beneficial for PAYE workers. It is reasonable to suggest that it will be difficult to sustain the high levels of economic growth experienced in recent years, facilitated by Fianna Fáil-led Governments since 1987, into the next century.

The electorate will not be fooled into believing there will be an overnight change of direction in next year's budget. They will perceive any carrot held out to them as merely being offered in advance of the next general election. There should be a health warning on the package that the spin doctors will make public in the next few months. Let us remember that there is provision for a further budget in the autumn of 1997. The electorate should take on board that whatever bribes the Government may try to offer in early 1997 in conjunction with the general election, if it is returned to office, it will have the opportunity to bring in a second budget that year. I have no doubt that whatever concessions, packaged as real tax reform, may be given in the early part of 1997 will be reversed in the latter half of the year should this Government be returned to office. This country cannot afford the luxury of the policies pursued by this Government.

I have read the Official Report for the period when the Minister for Agriculture, Food and Forestry, Deputy Yates, was Opposition spokesperson on Finance. His statements from these benches are a world away from what the Fine Gael Party is doing in Government. It is failing to deliver on a shred of its radical proposals professed in Opposition. The Fine Gael Party simply abandoned any thought of radical tax reform when it entered Government. Apart from the fact that it is a tragedy for the Fine Gael Party——

Minister of State at the Department of Finance (Mrs. Doyle)

That is misinformation. The Deputy is wrong.

Mr. Cullen

In fairness to the Minister of State, she is one of the people who knows well what I am talking about.

Mrs. Doyle

Put the facts on the record.

Acting Chairman (Mr. Kirk)

We do not encourage exchanges across the floor. It cuts into speaking time.

Mrs. Doyle

I will give the Deputy an extra minute to put the record straight at any time.

Acting Chairman

The Deputy without interruption.

Mr. Cullen

I am too long in this House to be put off my stride by the Minister of State's comments because she knows that what I am saying is true, as do the public.

Mrs. Doyle

The Deputy does not know.

Mr. Cullen

What is more interesting——

Mrs. Doyle

The Deputy is incorrect. The Deputy is putting words in my mouth and he should get them correct if he proceeds in that vein.

Mr. Cullen

One only has to walk the streets, the highways and byways and talk to Fine Gael supporters who will tell you exactly what I am asserting in this House. My point is that the electorate will not be hoodwinked or fooled by messages emanating from the Minister for Finance, Deputy Quinn, since the by-election and the "4 per cent" Labour Party. The Minister for Finance has suddenly found the Holy Grail and realises that middle income families have been decimated by his lack of action in the past two budgets. Given the substantial increase in productivity and the wage restraint shown by the PAYE sector, it would have been reasonable for the PAYE sector to have expected a pay back in terms of real tax reform that would put extra money in their pocket. They had expected to benefit from the substantial economic growth, but that did not happen. It did not happen because the rainbow coalition Government of Fine Gael, Labour and Democratic Left was unable to deliver on a package that would have led to continued economic growth, a reduction in unemployment and sustaining the jobs that are available. That is a real tragedy.

We can look to independent forces for some indication of where our economy is going. At a time of increasing economic expansion in the European Union and the strengthening of various world markets, it is extremely worrying that the competitive position of the Irish economy is slipping. In the recent OECD report we can see that we have fallen very far from our competitive position a short time ago. We compete for mobile international investment in order to create sustainable jobs which in turn creates further jobs. We know the benefits of international investment by some of the biggest companies in the world markets that have set up in this country. We know that the cost of employment in this country is turning potential investors away from investing in Ireland. We simply cannot afford this. Not alone will we lose potential jobs but the companies already here are beginning to think in terms of expanding in other countries. If that happens, the existing jobs will shrink, there will not be continued growth and the unemployment crisis will be further compounded. Tragically, this stems from this Government's decisions. There is no use in blaming outside forces such as the German, American or Japanese economies for the problems we have created for ourselves. My colleague, Deputy McCreevy, rightly stated last evening that many workers on low wages are better off when they are out of work and live off the State and have made a decision not to work because of the punitive taxation of low paid workers.

This problem has been on the agenda since I was elected ten years ago. We have had reports from independent consultants and departmental assessments have been carried out. We do not need any more reports, we simply need to take the sort of action that is necessary if we are to make a real impact on our levels of unemployment. It is reasonable to interpret the policy of the Government in this Finance Bill as not being committed to doing anything worthwhile in creating employment and reducing unemployment. In 1995, 45,000 new jobs were created but this year the Government expects somewhere in the region of 30,000 new jobs to be created. That is extraordinary considering the level of economic growth we are experiencing. It is an extraordinary admission by this Government that it has no answers and is literally depending on outside forces in the hope that something might happen.

When we talk about monetary union — I have spoken on it many times in this House — and its effects on this economy, the one question we all keep coming back to is whether Ireland should participate in it if the United Kingdom does not because of our close relationship with the British economy. It is a real and difficult question. However, we are doing nothing to create the conditions in our economy that would greatly lessen the negative impacts if we participated in economic and monetary union and the United Kingdom stayed outside.

Employers and employees alike do not have room to manoeuvre because punitive levels of taxation have removed any scope within a company when a problem arises. When various sectoral problems arise in our economy — there have been problems in the beef industry recently — its immediate impact is job losses. It would not have to be that way if these companies had room to manoeuvre with their employment costs. Since employers are bearing the major proportion of the cost burden, job losses seem to be the first and only alternative in a crisis. This is not the case in other economies. Many other measures can be taken long before jobs are lost. However, that is not the case in the Irish economy. This is coming more into focus and will worsen when sectoral problems arise because the employers' room to manoeuvre has been removed. That is very much in keeping with our slipping down the scale of the world competitiveness league.

We can argue about monetary union forever but our decision would be a million times easier if we made tax changes, which is within our own remit, to reduce employment costs and the burden on employers. If there was more scope and room to manoeuvre in those areas and if those costs were substantially reduced, the impact of the United Kingdom staying outside economic and monetary union would not be as great and our companies would be able to cope with it in a far better way than at present. There is currently no room to manoeuvre because of the punitive costs involved in employment. There is no point in talking in this or other fora about plans to reduce unemployment if substantial and radically different changes are not made to our taxation system.

There was movement that made a difference from 1987 onwards. There was growth in employment and real benefits began to filter through. However, all this came to an end when the Labour Party got its hands on the Department of Finance. It is impossible to have a high spending Government and a low taxation regime at the same time. This high spending Government's performance has been substantially masked by the economic growth it was fortunate to inherit. It did not create the current levels of economic growth in this economy. They were created and built upon during the last eight years by Fianna Fáil led Governments. It would be ludicrous of the Minister to suggest that he created that economic growth, but he had the opportunity to benefit from them. However, he slammed the door on continuing the move towards the downward trend in levels of personal taxation and employment costs. It is extraordinary that the party that failed the most in this matter was that which purported more than any other to represent the PAYE worker. Of course, those of us who have been in politics long enough know that most of what the Labour Party says is hot air and suited to a short-term agenda. It has never had a proper, committed long-term strategy that it was prepared to espouse in Opposition and deliver when it came to Government.

The Labour Party has spent 13 of the last 23 years in Government but what has it contributed? Every time it has been in Government there has been a crisis in its removal from office. It spent large amounts of money, did nothing about taxation and crippled the economy and this pattern is repeating itself. However, this time the economy is in such good shape that it is masking its lack of ability, commitment and real dedication to do something about taxation.

Another aspect absent from this Bill, from a party that had much to say about it in Opposition, is that of local government. There is no mention or reference to it in the Bill. The local government strategic management initiative was announced last week. While this is important, how can the Minister be serious about taking a radical approach in that area and say nothing about funding and finance and the framework of the dreadful property tax? We know about the anger of people with regard to the way service charges etc. are structured. The Labour Party introduced them and hounded members out of every council chamber.

While the Minister for Finance and the Minister for Health do nothing, their county council colleagues are still opposing everything. There would have been no development of local government if it had been left to the Labour Party. Fianna Fáil has saved local government in extraordinarily difficult times. We have suffered a lot of pain for doing so but many local communities have benefited from our stand.

I am a member of a county council that has seen much strife and difficulty in that area. However, it is extraordinary that this Government, which consists of the Labour Party Tánaiste, the Minister for Finance and the Minister for Health, has not even inserted a line or a reference to local government in the Bill, as if it exists in other countries but not here. It is quick to tell us at committee meetings about the success of the Nordic countries, including Denmark and Sweden, Spain or France but it does not refer to the level, contribution or status of local government in those countries and the commitment to it by socialist parties — which the Labour Party is supposed to be — to encourage people to pay for necessary services. Most county councils and corporations are involved in major sewerage schemes and dump sites which will cost substantial sums to operate on a current basis, irrespective of the capital costs involved, yet there is no reference to local government in this Bill. It is as if the Minister for Finance, Deputy Quinn, accepts that when this issue arises next year he will be in Opposition on his old hobby horse shouting about it and somebody else will have to take responsibility for the difficulties, unlike the Labour Party, Fine Gael and Democratic Left which have not done so.

I wish to refer to two aspects of the Finance Bill. I applauded the seaside resort renewal scheme introduced by the Minister last year to invest in and rejuvenate seaside resorts. However, within 12 months he excluded accommodation from capital allowances under the scheme as if addressing the needs of resorts like St. Moritz and Cannes. Does he realise the condition of our seaside resorts and the struggle encountered by those engaged in the tourism industry in those areas? The welcome radicalism initiated by my colleague, a former Minister for Tourism and Trade, Deputy McCreevy, in devising that scheme left a legacy for the Government to introduce it to protect seaside resorts and assist tourism development. We supported the Minister in introducing that scheme last year but this year he excluded accommodation from capital allowances and ring-fenced rental incomes. He might as well abolish the scheme. He must be aware of the number of projects seriously affected by that measure which is a nonsense. The scheme was hardly up and running when the Minister introduced that severe measure. It is typical of the Labour Party that, when its members thought some people might make a few bob out of the scheme, they imposed a restriction on it.

Dáil Éireann díospóireacht - Wednesday, 17 Apr 1996