Finance Bill, 1976: Second Stage.

Minister for Finance (Mr. R. Ryan)

I move: "That the Bill be now read a Second Time."

The Bill gives effect to the taxation and other changes announced in the budget and it also provides for a number of other matters which I shall mention later. Apart from changes in tax rates, the main thrust of the Bill is towards the equalisation of the tax burden. This standing objective of Government policy is being further pursued by a variety of measures including some extension of the tax base, more uniformity in treatment of different categories of income tax payers and further anti-evasion provisions.

I have often thought that the ministerial practice of devoting much of the Second Stage introductory speech to a seriatim explanation of each section is a rather pointless exercise when the purpose of each section is already clear enough from the previously published Bill and the accompanying explanatory memorandum. I, therefore, propose to depart from this practice and trust Deputies will regard the departure as both a compliment to their intelligence and literacy and a worthwhile saving of parliamentary time.

Much of the Finance Bill is necessarily concerned with amendments to existing law. Compensation of what is involved in a particular section is often not apparent without a careful study of the original Act. It has occurred to me that it would be helpful to legislators and the public alike if the index to the Bill and the marginal notes were to briefly explain the matter to which the original section being amended referred. I am, therefore, hoping to effect appropriate changes to this Bill at a later stage.

Before I come to the Bill itself, there is one other matter to which I wish to refer—that is the disposition of people to the payment of taxes. The great democratic delusion is that people are entitled to free services from the State. A belief based upon an impossibility is obviously fallacious. The services rendered by the State are not free. They may not be charged for at the time and place at which they are rendered but they are paid for before or afterwards in taxes.

The resistance—to whatever extent— of some people to taxation is no doubt attributable in part to the fact that some taxpayers feel that they are obliged to part with money in return for which they received no immediately apparent benefit. The discussion of the annual budget in terms of millions has left little impact upon the individual and family consideration of each taxpayer. I would, therefore, like to illustrate the type of benefits which the typical family of parents and three children enjoy in return for payment of taxation in Ireland.

	£
1. Primary and secondary schooling for children	750	annually
2. Medical services for parents and children	400	,,
3. The protection of the person and property from wrong-doers	150	,,
4. Social Welfare children's allowances	120	,,
5. Rates: The benefits of State subsidisation of rates to domestic rate-payers	45	,,
6. Subsidisation of foodstuffs, transport etc.	100	,,
7. Exchequer contribution towards cost of roads	33	per private vehicle

Thus will be seen at a glance that an average family can receive back from the State about £1,600 annually, over £30 per week in benefits. But that is not the end of the story.

The State subsidy for each tenant of a local authority house is worth on average £200 a year; the income tax relief for housing loan interest is worth on average about £60 a year to the taxpayers concerned; an unemployed man with three children has total social welfare benefits at a level equivalent to some £1,850 a year; a widow contributory pensioner with three dependants gets £1,150 a year and a pensioner couple up to £1,150. In the case of university education, in addition to the special grants which average about £400 per eligible student, the State contributes an average of £840 for every student in the system. There is also very heavy capital investment by the State in education, for example each additional place at primary level costs a sum of the order of £450 and at second level about £1,000.

State aid to agriculture averages out at about £550 for every worker employed. In industry, State aid for industrial job creation averages £3,500 per job and an average of almost £1,000 is contributed for every worker trained or retrained by AnCO.

We risk damaging community contentment through a dichotomy of protest that taxes are too high and State benefits are too low. When—as now —taxes and linked revenues cover only £66 of every £100 spent by the State and £34 of every £100 spent has to be borrowed, there is obviously no scope either for a reduction in taxes or for an increase in State expenditures. With those sobering thoughts in mind and subject to what I said earlier about not covering all the Bill in detail, I now turn to some specific provisions in the Bill.

Part I of the Bill relates to income tax, sur-tax, corporation profits tax and capital gains tax. Although sur-tax and corporation profits tax have effectively been repealed, it is still necessary to provide for them in the Bill as some of the measures in the Bill could affect amounts of taxes which are still unpaid. Some of the provisions appearing in the Bill will of course need some amendment in order to take account of the recently enacted Corporation Tax Act, 1976. The Bill for that Act was still under parliamentary discussion when the Finance Bill was being drafted. I propose to bring forward appropriate amendments to the Bill on this account on Committee Stage.

Sections 9 and 10 provide for the continuation for 1976-77 of the rates of income tax which applied in 1975-76 and for the increases in personal allowances which were announced in the budget. A point I might perhaps mention is that the new married personal allowance of £1,010, when added to the working wife's allowance of £230, will give a total of twice the amount of the single personal allowance of £620.

The Bill contains two further income tax provisions for married persons specifically and I feel that they will be welcomed. Section 4 will dispense with the present requirement that a claim for the separate income tax assessment of a husband and wife must be renewed each year. The purpose of section 11 is to enable a married woman to complete a separate return of her own income.

The income tax free personal allowances improvements since 1974 are now costing the Exchequer some £80 million annually. The advancement of the due dates for payment of Schedule D tax, as announced in the budget is provided for in section 6. There are some points relating to this matter which are worthy of mention. Tax liabilities under Schedule D are not being increased by the present measures. These liabilities are continuing to be computed on the preceding year basis of assessment. At present the tax liability on profits does not have to be paid until long after the profits have been earned. The new provision modifies this unduly favourable position and the provisions of section 6 must therefore be viewed as an essential element in the Government's determination that those within the tax net must be treated as equally as possible.

A measure which may be associated with the advancement of the due dates of Schedule D tax is the proposed change, outlined in section 29, in the provisions relating to payments on account in cases where tax is the subject of an appeal. The section ensures that where a payment on account is made which turns out to be less than 80 per cent of the final liability, an interest charge will apply to the balance of tax unpaid. Hitherto the payment of substantial amounts of Schedule D tax could be delayed for lengthy periods, and interest charges avoided, by the payment on account of sums which although corresponding with liabilities in previous years were in fact much less than the actual liability of the year of assessment. Section 29 is accordingly designed to ensure that payments on account are made in realistic amounts.

A further measure relating to the equalisation of tax burdens is contained in sections 15 and 16 of the Bill. Section 15 of the Bill will extend PAYE to employees and pensioners at present excluded from the scope of that scheme. The decision to make this change was announced in June, 1975. Over 100,000 people, including Members of the Oireachtas, the Judiciary, civil servants, national teachers, the Garda, the Army, employees of the Central Bank, of the Commissioners for Irish Lights and of the Dublin Port and Docks Board and certain employees of the Bank of Ireland are affected by the change.

In my budget statement on 28th January last I said (a) that the change would take effect from 6th April, 1976; (b) that I had had discussions with staff associations in the public service on means whereby the transition to the new system could be eased; and (c) that the estimated cost of the easement was being taken into account in the budget for 1976. As recently announced, the easement decided upon by the Government, and which is provided for in section 16 of the Bill, will mean that one-half of the tax assessment for 1975-76—which is based on income in 1974-75—will be set, in three equal instalments, against PAYE tax due for the years 1976-77, 1977-78 and 1978-79. Thus in each of those three years the relief will be equivalent to one-sixth of the tax assessment for 1975-76.

In considering the easement I took account of the fact that employees in the private sector who were changed to PAYE in 1960 were given a remission of six months' tax. That remission was given in its entirety before PAYE deductions commenced. I also took into consideration the fact that the change to the new system will involve a considerable increase in tax liability for the groups affected and that this could cause hardship in cases where workers had entered into binding commitments.

In order to correct any misapprehensions which may exist I should like to make quite clear the effects of the change to PAYE for the taxpayers concerned. The change will mean that the tax liabilities of those affected will be considerably increased. It is estimated that the gross PAYE liabilities of the groups in question will total some £76 million in 1976-77. This compares with an estimated amount of some £60 million which would have been their tax bill in 1976-77 if they had been allowed to remain on the old basis of assessment instead of being changed to PAYE. Thus it is obvious that the change to PAYE will result in a much heavier tax take from the public service in 1976-77 than would otherwise be the case, even when one deducts the value of the remission instalment of some £6 million being allowed in the year 1976-77.

The fact that income of the year 1975-1976 will not be taken as a basis of tax assessment has misled some people into thinking that this will in some way confer an exceptional benefit on public service taxpayers. In fact the contrary is the case. As I have shown, the Exchequer stands to gain substantially from the public service taxpayers by reason of the substitution of 1976-77 incomes for 1975-76 incomes as the basis of assessment.

Sections 30 and 31 are concerned with the tax deductions which may be claimed in respect of expensive motor cars used for business purposes. Deputies will recall that the Finance Act, 1973, provided that capital allowances for cars would be restricted to a maximum of £2,500. Because of the increase in car prices since 1973, an increase in this limit to £3,500 is now appropriate. In the 1973 legislation however no tax restriction was provided in respect of the running expenses claimed for business purposes. Accordingly, as announced in my budget statement, it has been decided to restrict the tax deduction in respect of the running of expensive business cars. The limit for both the running expenses and the capital allowances restriction will, with effect from 29th January last, apply to cars costing more than £3,500, and sections 30 and 31 provide accordingly.

Two sections in the Bill are concerned with the taxation of benefits-in-kind received by employees. The principal legislation on this subject was introduced in 1958 but it has not applied to employees who are paid from outside this country and are thus outside the scope of the PAYE system. Section 22 is therefore designed to ensure that all employees are equally treated as regards benefits-in-kind. Such benefits may in some cases be very substantial in relation to the taxable salary.

Section 23, the other benefits-in-kind section, provides for the introduction of a minimum charge where an employee has available to him for his private use a car provided by his employer. Our approach to this matter is influenced by the fact that the overwhelming majority of motorists have to meet their total motoring costs out of after-tax incomes. It must be borne in mind that where a taxpayer has available to him the private use of a car provided by his employer there is a very considerable benefit to him even though his private motoring might be relatively limited. Apart from the capital cost of providing a car, there is a saving to him of the fixed motoring costs of depreciation, road tax and insurance. It seems reasonable, therefore, to hold that the availability of a car for private use constitutes a benefit-in-kind—of a certain minimum value —irrespective of the extent of private use. In present circumstances a minimum benefit, as provided in section 23, of £300 or 15 per cent of the cost of the car, if greater, can hardly be regarded as excessive.

I now turn to the taxation of farming profits which is dealt with in sections 18 and 19. In February, 1975, following an agreement between the Government and the Irish Farmers' Association, the whole question of farmer taxation was referred to the National Economic and Social Council for examination. The report of the council was received by me on the evening before the January budget. The report has since been under examination which is continuing. In the meantime however it is necessary that certain measures in relation to the taxation of farming profits should be provided for in this Bill. These concern the notional basis of assessment to tax and certain anti-avoidance measures.

Section 18 extends for 1976-77 the option of the notional basis of assessment and also contains an anti-avoidance provision. The purpose of the anti-avoidance provision is to eliminate a doubt which has arisen as to whether a farmer who opts for assessment under the notional basis can claim loss relief where the notional basis calculations produce a minus figure, that is, where the total of rates, wages and depreciation exceeds 40 times the rateable valuation. It was never the intention that loss relief should be available in those circumstances. Section 19 counters attempts to avoid tax by the fragmentation of farm holdings.

At this stage I should like to mention other anti-evasion provisions of Part I of the Bill. For too long the opinion has been held in some quarters that the evasion of tax is a tolerable activity which is to be practised if possible. The truth of course is that it is not merely anti-social but also illegal. In its consequences it is no different from many other illegal acts against the community which society rightly considers shameful. The white-collar crime of tax fraud is no less shameful than simple theft and is not entitled to a more lenient attitude by society.

At present the power of the Revenue Commissioners to demand the production of books and records is limited to cases where no tax returns or unsatisfactory returns have been made. This limitation clearly offers considerable scope to would-be evaders. Section 33 closes the loophole by enabling Revenue officials to inspect business records for income tax purposes. It should result in the more certain detection of cases of tax evasion and help to curb such evasion in future. Section 3 is a consequential administrative measure.

A particular field in which further anti-evasion measures are needed is the construction industry. As I explained in my budget statement, the 1970 scheme of tax deductions from payment to certain sub-contractors has proved to be defective and open to abuse. Section 21 accordingly provides for revised arrangements. Tax will be deductible from payments made to a sub-contractor by principal contractors unless the sub-contractor has obtained a specific Revenue certificate of authorisation and the principal contractor has received specific authority to pay without deduction. The issue of certificates will be subject to stringent conditions. As these arrangements cannot be put into operation until next December, the Bill also provides—in section 20—for transitional arrangements, which were introduced by a financial resolution on budget day and will operate until 6th December next.

Anti-evasion provisions are also contained in sections 1, 14 and 17. The basic purpose of these sections is to ensure that PAYE tax, and tax which is deductible from payments to sub-contractors, are not retained by employers or principal contractors but reach the Exchequer without delay.

Two sections in the Bill arise from matters announced in my financial statement of 26th June, 1975. The first, section 25 provides for the exemption from tax of payments made to employers under the premium employment programme. The other, section 27, provides that interest on housing loans made by banks under approved schemes at specially reduced rates will be subject to a reduced rate of tax so that the net return to the banks will be the same as if the bank had lent the funds at ordinary commercial rates. As I said last year, the Government welcome the co-operation of the banks in this very important sector.

Sections 12 and 26 provide for the continuance for one more year of the stock relief introduced last year and for its extension, with retrospective effect to 1974-75, to individuals. It should be noted however that the relief for the third year is being expressed as a deferral in the first instance. Stock relief is a matter to which I will give further consideration as the year progresses but at this stage I think it well to provide only for deferral of tax in respect of the third year of relief being afforded by the present Bill.

A provision to reduce tax avoidance —as distinct from evasion—is contained in section 13. The combined effect of the 20 per cent income tax surcharge to be imposed on retained income of certain discretionary trusts and of income tax at the standard rate will be total income tax of 55 per cent, as compared with the present maximum personal income tax rate of 77 per cent. In the absence of this new provision, wealthy individuals could resort to discretionary trusts to an even greater extent than they do at present for the investment of their spare funds and the accumulation of earnings on that investment, because the Corporation Tax Act, 1976, contains provisions to counter tax-avoidance by such persons through another device, namely, closely controlled investment and service companies. I am satisfied that the exclusions from the surcharge which are set out in section 13 are adequate to cater for discretionary trusts set up for worth-while purposes and in accord with public policy.

I now turn to section 32. The Government adhere to the view expressed in my financial statement on 28th January last that it would be inequitable to continue the tax exemption hitherto enjoyed by agricultural and fishery co-operatives. The circumstances which gave rise to the exemption are not those that obtain now. Inequity arises from the unfair competition of agricultural co-operatives against firms subject to normal taxation. I cannot over-emphasise the necessity to broaden the tax base fairly so as to ensure general public acceptance of our taxation system. The Government will not be deflected from pursuing this essential task.

The Government are, of course, fully aware of the special problems of agricultural and fishery co-operatives and are therefore, studying the matter most carefully in the light of the submissions which were made by representatives of those co-operative and of the discussions which both the Minister for Agriculture and Fisheries and I have had with those representatives. Following those meetings, I have carefully considered what would be an appropriate response to the particular problems posed. The detailed package which will be necessary will require quite an amount of draft work in order to fit it into the new corporation tax code but I am hopeful that it will be available in a few weeks for all concerned. At this stage, however, I consider that I should give Deputies the broad outline of the new tax provisions. These will affect profits arising on or after 6th April, 1976 only, and not earlier ones. This I hope will remove the major anxiety expressed to me about the effective date of operation of the new tax provisions and the need to retain funds to pay tax. Co-operatives can make provision to meet the due tax which will fall for payment in 1977 and later. Broadly, the corporation tax code with its allowances and reliefs which is applicable to companies will apply to co-operatives also. As a transitional measure to take account of heavy capital investment in recent years, the co-operatives will be able to claim the balance of capital allowances over normal wear and tear allowances in the first year under corporation tax if they so wish. I feel that the provisions outlined will be welcomed by those concerned.

One other section in Part I to which I would like to refer is section 24. This section continues for the year to 5th April, 1976 the provisions whereby an Irish resident is chargeable to tax on the amount of any tax credit to which he is entitled under the 1973 double taxation agreement with the United Kingdom as extended in 1975 for one year. As recently announced, active steps are being taken towards the conclusion of a new agreement. Such agreement would, of course, come before the House in due course.

Part II deals with customs and excise. Sections 35 to 38 confirm the budget increases in excise duties on beer, spirits, tobacco and wine. Much publicity has been given over the last week to representations made to me for a reduction in the increase in excise duty on beer which if given might be matched with reductions in the brewers' and traders' margins of profit. In determining what increase in excise duty on beer to recommend to the Dáil, the Government carefully balanced both the necessity to increase revenue and the capacity of individual forms of consumer expenditures to bear additional taxation. The tax increase on beer approved by the Dáil on 28th January last was between excise duty and VAT 6p per pint, I repeat 6p per pint and no more. Subsequently with effect from 1st March the breweries, albeit with the approval of the National Prices Commission, and traders generally, without the approval of the National Prices Commission, increased the price of a pint of beer by a total of 4p per pint.

The pattern of beer consumption following the budget, but prior to the trade increases in price, would indicate the correctness of the Government's tax calculations. Relevant to any consideration as to whether the price of beer should be reduced is the purpose to which recent increases are applied. Every penny of the 6p tax increase is returned to the public benefit, the other 4p increase goes to the private interests which imposed them. Having considered with care every aspect of the situation the Government are satisfied that the correct course is to adhere to their original taxation measures which were designed to result in additional revenues of approximately £23 million in the current year for the public benefit.

Section 39 increases the duty on mineral hydrocarbon light oil by 9.36p per gallon. In addition, this section imposes an excise duty of 2p per gallon on all hydrocarbon oils, other than dutiable petrol and diesel. Section 40 imposes a new excise duty of 2p per gallon on gaseous hydrocarbons in liquid form, and contains the legal and administrative framework for the implementation of the duty. This section also provides for the imposition of the duty at a rate of 10p per gallon, at a date to be appointed by order under section 41. A rebate system will ensure that the 10p per gallon rate will apply only to gas intended to be used for automotive purposes and that other gas will continue to bear duty at 2p per gallon. Section 41 provides that the duty rate of 10p per gallon imposed by section 40 shall apply to gaseous hydrocarbons in liquid form intended to be used as motor vehicle fuel. The resulting price to the user of liquid petroleum gas in a motor vehicle will therefore be comparable to the price of diesel. The legislative and administrative framework necessary for the implementation of the duty are contained in this section. The penalty provisions for contravention or noncompliance with the requirements of this section are set out in subsection (9).

Section 42 empowers the Revenue Commissioners to amend or revoke any order made under section 139 of the Customs Consolidation Act, 1876, under which they may require the entry of goods about to be exported. This provision is required to put beyond doubt the legal basis of the requirement that goods for export must be entered. This facilitates the Revenue Commissioners in the enforcement of prohibitions and restrictions on the exportation of certain goods and in the compilation of trade statistics—which are then furnished to the Central Statistics Office for inclusion in publications and periodical returns issued by that office.

Section 43 provides for an increase to £500 in the penalty for the irregular use of rebated hydrocarbon oil in road motor vehicles and confirms the powers of the Revenue Commissioners in regard to forfeiture, in certain circumstances, of a vehicle in respect of which an offence is committed. There has been a very significant increase in detections in the illegal use of rebated hydrocarbon oil in recent years. The existing penalty of £100 was fixed as far back as 1940. Section 44 increases to £500 the indictable limit for customs proceedings in the District Court. The present limit of £100 was fixed in 1963.

Section 45 provides for the customs entry of aircraft, ships and the like imported into the State and for payment of the appropriate duty. A penalty of £500 and forfeiture of the vessel is provided for failure to comply with these requirements.

Part III of the Bill contains a few stamp duty provisions. Section 47 extends from two to six years the period during which a refund of stamp duty may be claimed. Section 48 provides for the continuation of the exemption from duty of those types of new houses which would have qualified for a State grant prior to 1st January last —from which date eligibility for grants was restricted by reference to income criteria. Section 48 also amends the Finance Act, 1969, by limiting the exemption allowable thereunder in respect of dispositions by local authorities under the Housing Act, 1966. There is obviously good reason why an exemption should apply to houses sold by local authorities to their tenants. However as building land bought by private housing developers, other than from local authorities, is subject to stamp duty, there is no good reason why such land bought from a local authority should be exempt; accordingly exemption will not in future be allowable in respect of dispositions of building land by local authorities.

I now come to Part IV of the Bill which deals with value-added tax. The provisions in this Part of the Bill fall into three categories, firstly, the VAT changes announced in my Financial Statement on 28th January last; secondly, consequential matters arising from those changes; and finally some anti-avoidance and miscellaneous provisions.

First of all, I will deal with measures related to the January budget:

Section 53 provides for the changes in the rates of VAT which were announced in the January budget and came into effect on 1st March.

Apart from changes in rates, other matters covered by the budget and dealt with by section 60 of the Bill include the ending of the VAT exemption for short-term car hire and the application of the 20 per cent VAT rate to fur clothing which had previously been zero-rated.

As regards both short-term car hire and fur clothing, the Government carefully considered the cases advanced by various interests affected to abandon or at least defer the implementation of the proposed change. They decided however that they would not be justified in according any special concession in all the circumstances.

Certain transitional arrangements in relation to cars and motor cycles are necessary on the changeover to the new two-tier rates of 25 per cent and 10 per cent which replaced the former rates of 30 per cent and 6.75 per cent. These arrangements are provided for in section 63. They will ensure that new cars and motor cycles which bore tax at manufacturer or import level before 1st March, 1976, at the old 36.75 per cent rate, will be liable only at the 6.75 per cent rate on any further sales of these vehicles by wholesalers or retailers up to and including 30th April, 1976. Without this provision, such vehicles could, fortuitously, be liable for excessive VAT.

In the remaining Fourth Schedule items such as radios, television sets, gramophone records and so on, are, since March, 1976, liable to VAT at 40 per cent comprising an effective 30 per cent at manufacturing level and 10 per cent at subsequent levels.

Deputies will be aware that during the past few years a considerable number of amendments have been made to the first four Schedules to the Value-Added Tax Act, 1972, which set out the classification of goods and services for the different VAT rates. Further changes are now needed in view of the January budget changes and of other provisions in this Bill. So as to provide a clear, simple and unified reference course for all concerned, section 60 provides for re-enactment in consolidated form of the amended Schedules.

I should also refer to the abolition, with effect from 1st March last, of the 1 per cent VAT credit allowed to VAT-registered customers of unregistered farmers and fishermen. The abolition is being effected by means of the repeals outlined in Part II of the Fifth Schedule to this Bill. The flat-rate credit of 1 per cent to farmers' customers was designed to secure that such traders would be willing to pay a slightly higher price to farmers and fishermen and thus compensate them for any input VAT borne by them on purchases of farm requisites.

In view however of the considerable increases in income that have accrued to farmers since VAT was introduced in 1972, and having regard to the considerable income tax exemption enjoyed by the agricultural community generally—less than 1 per cent of agricultural incomes but about 18 per cent of non-agricultural incomes are taken in income tax— I feel that the abolition of the 1 per cent VAT credit is fair in all the circumstances. In this connection I should like to mention that the extensive zero ratings of agricultural inputs have not been changed. For example, fertilisers, animal feeding stuffs, seeds, animal oral medicines and other items are zero rated so that no input VAT arises for farmers on purchases of these items. Furthermore direct refunds of the VAT incurred on certain grant-aided outlays on farm buildings, land drainage and land reclamation remain available to farmers.

As I mentioned earlier, the Bill contains a number of measures to counter avoidance practices and to tighten up the VAT legislation generally. The twin objectives of these measures are the safeguarding of tax revenue and the prevention of trade distortions. Sections 51, 52, 54 and 59 are anti-avoidance provisions.

Section 51 provides for the redefinition of self-delivery which is contained in section 3 of the Value-Added Tax Act, 1972. The existing definition is somewhat vague and some doubt has arisen as to the scope of the term "use" contained therein.

Section 54 limits to 10 per cent, which is the new second tier of the top VAT rates, the amount of VAT which may be deducted by VAT-registered traders where top rate goods are used other than as stock-in-trade. The primary aim here is to ensure that a person who, as a registered manufacturer or assembler of top rate goods, is normally entitled to full credit for VAT on purchases of such goods will not be able to avoid the first tier of VAT. For example, a manufacturer of television sets will not now be able to avoid the manufacturing or import stage of the top rate by a practice of hiring rather than straightforward selling of the sets.

Since the ceiling on deductions of top rate goods is defined in part by reference to their use otherwise than as stock-in-trade, it is necessary to make it clear by means of section 59 that stock-in-trade does not include goods held for self-delivery.

To counter a weakness in the law which has led to some distortion of trade, section 52 of this Bill provides for some changes. At present it is possible to buy alcoholic drink which is in bond and thus avoid VAT on the excise duty which arises when that drink is eventually removed from bond. Traders who do not have a warehouse must charge VAT on a price which includes the relevant excise duty. While the practice does not appear to be widespread, it is only fair that competing traders should not be put at a VAT advantage or disadvantage and section 52 is so designed.

The basic objective of sections 56 and 57 is to secure the prompt remission to the Exchequer of VAT due by traders. The approach follows closely the approach adopted in relation to the paying over of PAYE income tax collected by employers.

Section 58 of the Bill provides for control of the relief allowed to VAT-registered traders in respect of inputs used by them in both VAT taxable and VAT exempt activities. The review period is being extended from one year to five years so as to ensure that a true apportionment will be made as between exempt and taxable activities.

Section 62 will ensure that VAT due by traders to the State will have the same preference in bankruptcy, receivership and winding-up proceedings as that already attaching to income tax collected by employers under PAYE.

I now turn to Part V of the Bill— sections 64 to 79—which deals with excise duties—road tax—on mechanically propelled vehicles.

The Government have been very concerned at the widespread evasion of road tax. It is a hard fact that there were approximately 40,000 prosecutions for motor tax offences last year. Although it is impossible to be precise about the full cost of the evasion to the Exchequer, it has been estimated at some £4 million a year even before the introduction of the new tax rates. This is over 16 per cent of the road tax paid in 1975. The majority of motorists are quite rightly aggrieved at this scandal and I have received many representations on their behalf. It is high time this injustice ceased. The Government have decided therefore that new and stronger anti-evasion measures should be introduced.

The measures in the Bill to counter evasion of road tax do two things; on the one hand they make provision for the introduction of a system of continuous liability to road tax and, on the other hand, for the strengthening of existing provisions and the increase of penalties for offences related to vehicle registration and licensing.

Continuous liability, as provided for in section 70, basically means that the owner of a vehicle will be liable for road tax, whether he uses the vehicle or not, in much the same way as a person is liable for a television licence. However, a motor dealer will not be subject to continuous liability in respect of vehicles which he keeps in the course of his business. This new system is a vital part of the Government's anti-evasion policy. Because of the need to revise administrative procedures at local level and to prepare regulations it will not be possible to introduce it immediately. But the intention is to introduce it at the earliest practicable date.

Section 60 provides that the classes of vehicles to which continuous liability will apply will be specified by Government order, to come into effect only after it has been approved by both Houses of the Oireachtas. Initially it will be applied only to certain classes of vehicles, particularly private cars. A vehicle which is permanently incapable of being used, has been broken up or destroyed, has been exported permanently or has been stolen and not recovered will cease to be subject to continuous liability.

In addition to continuous liability, this Part contains, as I have already mentioned, a number of provisions designed to strengthen existing anti-evasion measures and to increase penalties. These provisions can be introduced almost immediately and should ease the problem of evasion pending the introduction of continuous liability. In the longer term, a number of these provisions, while applying to all vehicles, will be of particular importance in the case of vehicles not subject to continuous liability.

Section 65 provides for the making of regulations by the Minister for Local Government pursuant to this Part of the Bill. Section 66 specifies the general application of this Part of the Bill to all vehicles liable to road tax subject to the exemption from certain provisions of vehicles used by motor dealers under the authority of a trade licence.

A person who keeps a vehicle is required under section 67 to notify the local licensing authority of both the keeping of the vehicle and the transfer of his interest in the vehicle. This section confirms the existing legal requirements which have previously been provided for only in regulations.

Section 68 provides that where road tax is not paid within 14 days of the expiry of the previous tax, it shall be recoverable by the local licensing authority as a simple contract debt. This section will enable the authorities themselves from their own records to take proceedings in cases of unpaid tax. However, this will not affect the existing powers of the Garda to prosecute those whom they find using untaxed vehicles.

At present only the user of an untaxed vehicle can be prosecuted for unlicensed use of that vehicle. As a result the unsatisfactory situation at present exists that if an untaxed vehicle is parked in the public road the Garda can only prosecute for unlicensed use where they can identify the user, that is, they must wait for the user to return to the car so that he can be identified. Section 71 removes this anomaly by providing that, henceforth the registered owner of the vehicle, if he has authorised its use, will—as well as the user—be liable for the use of an untaxed vehicle. An employee will not be liable if he is using the vehicle on the orders of his employer.

Fines imposed for the use of an untaxed vehicle are often not a sufficient deterrent to repeated evasion by unscrupulous persons. Section 72 provides that the court shall, in addition to any penalty which it may impose, order the payment of the arrears of road tax due to the licensing authority.

Section 73 provides that both the user and the keeper of a vehicle shall be subject to prosecution for the non-display of a current tax disc. Section 74 brings this offence within the scope of the "fines on the spot" procedure.

Section 75 put the onus of proof on the defendant in any proceedings for an offence under this part to show the existence of a current road tax licence, that this vehicle was not subject to continuous liability or that he had not authorised the use of his vehicle, as the case may be. This section will enable cases to be dealt with quickly by removing delays arising from the need for the licensing authority to provide documentary evidence which may not be readily accessible.

Evasion of road tax is a sufficiently serious offence to warrant a hefty maximum fine. Sections 76 and 77 provide for this—£100 in each case. Section 77 also provides for the settling by regulation of the fee payable for a duplicate registration book—up to now the maximum fee of 25p has remained as fixed in the 1920 Roads Act. Under section 78, liability for road tax relates to use of the vehicle in a public place, whereas up to now it was confined to use on the public roads.

Section 79 provides for the new annual rates of road tax for private cars which came into effect on 1st March, 1976. It also specifies that the additional proceeds arising from these new rates will not be taken into account in determining the amount to be paid into the Road Fund in respect of road tax and related charges.

I commend the Bill to the House for a Second Reading.

An Ceann Comhairle

Deputy George Colley.

Mr. R. Ryan

Before Deputy Colley commences, may I say I have already indicated to him that my presence is required elsewhere, as I think many people know, and I mean no discourtesy to him or to the House by leaving.

Mr. Colley

I appreciate the position in which the Minister finds himself. I hope his efforts will meet with success.

Mr. R. Ryan

I thank the Deputy for his support.

Mr. Colley

I am afraid I am not optimistic of his success, but there is no harm in hoping, and I certainly hope he will be successful.

This Government have produced a number of Finance Bills which at best were irrelevant to our economic problems and in some cases were positively damaging to our economy, but I suggest that never have they produced a Finance Bill more irrelevant or more damaging than this Bill now before the House. To consider this Bill in context one has to examine the major problems facing our economy and to consider whether the provisions of this Bill will help to solve those problems or make them worse. I do not think there will be any dispute about the fact that the major problems that our economy is facing today are inordinate inflation, massive unemployment, a huge national debt, and the impact of pay and incomes generally on all of these problems.

In Parts II, IV, V and to some extent in Part I of this Bill there are provisions having the effect of increasing the consumer price index by about five percentage points. This is quite apart from such things as the earlier increase in the tax on petrol, the increase in fares, postage, phones, social welfare contributions and so on, in respect of which the Government have direct responsibility. I do not think that even the most committed supporter of the Coalition and not even the Minister for Finance himself could contend that the provisions of this Bill are doing anything to solve our problem of inflation.

The ridiculous nature of the approach of the Minister in imposing such huge tax increases to which we have adverted on a number of occasions is highlighted by the British budget announced yesterday. It is interesting to contrast the approach of the British Chancellor with that of the Minister for Finance. Each was in many ways facing the same kind of problem, and whatever one may think of the British Chancellor one cannot but accept the fact that he displayed a great deal more wisdom in his approach to the application of higher taxation than did the Minister for Finance, whose increases in taxation imposed on budget day and proposed to be made permanent in this Bill are such that without any doubt, in some areas at least, the effect will be to reduce the amount of the revenue to the Exchequer rather than to increase it. I hope to come to that matter later; there is a glancing reference to this by the Minister in the long speech he gave us introducing the Second Stage.

The evidence shows that in regard to the first of the major problems facing the economy which I have mentioned, that is, inflation, the provisions of this Bill, far from doing anything to help, are deliberately not just hindering but deliberately fuelling inflation. The result is that we have just recorded one of the highest quarterly increases in the cost of living in our history. I am not certain of this, but I think there is only one quarter ever in our history in which we recorded an increase slightly higher than the one recently announced. The fact that this huge increase has occurred at a time when other countries are reducing their rate of inflation will, I hope, put an end to the claim which we have heard ad nauseam from the Coalition and their apologists about world conditions and not being able to do anything about them. If neighbouring countries facing the same world conditions are able to reduce their rate of inflation at a time when ours records one of the highest increases in our history, there is something wrong here at home, and not even the Coalition can deny that. I would suggest it is becoming clear to those who are not aware of the fact up to now that the major problem here at home has been the mismanagement of our economy over the last three years.

There is an even more serious aspect of this matter than that mismanagement of our economy. It now appears that members of the Government do not know what is happening and do not know the consequences of what they are doing. I say that because less than a fortnight before this huge increase of 7.3 per cent in the consumer price index for one quarter was announced, the Taoiseach, speaking in New York, said:

My Government has taken firm measures to curb the inflation generated within our own economy and the indications are that our measures will be successful.

I find it very difficult to know what exactly he had in mind. What were the firm measures the Government had taken? What were the indications that these measures would be successful? He said that less than a fortnight before the announcement of almost the highest rate of increase in the consumer price index we have ever had.

There have been similar statements from time to time by the Minister for Finance. The implications of that are even more serious than the mismanagement of our economy. Neither the Taoiseach nor the Minister for Finance, and presumably any other member of the Government, is aware of what is happening, is aware of the consequences of this Bill, of the increase of five percentage points in the consumer price index, part of which only was recorded in the recent increase. I say part of the increase because that 7.3 per cent increase in the last quarter was recorded on 17th February and some of the increases in VAT provided for in this Bill did not begin to operate until the 1st March. Therefore, the full extent of the tax increases provided for on a permanent basis in this Bill has yet to be recorded in the consumer price index.

When we hear this kind of statement, the evidence is clear that members of the Government simply do not know the consequences of what they are doing. I find it very difficult to understand how the Taoiseach could make such a statement or how the Minister for Finance could make similar statements when they suited the particular purpose they had in mind, if they were aware of the consequences of the measures introduced in the budget and those now proposed to be implemented in this Bill. I, therefore, suggest that it is quite clear in regard to inflation, one of our major problems, that the Bill makes our position worse and does nothing to help us in what should be our battle against inflation. That battle is now becoming more acute with the success of a number of our neighbouring and competing countries and, in particular, with the indications of some degree of success attending the efforts of the British Government in their battle against inflation.

While it is true that any improvement in the British economy should redound to some extent to our benefit, if they are succeeding even to a modest degree in combating inflation while we at the same time are recording almost our highest ever increase in the rate of inflation, then it bodes ill for the future of our manufacturing industry in particular and for the service industries which depend on manufacturing industry.

The second of the major problems facing us, and against which this Bill must be measured, is unemployment. It is clear now that for quite some time the unemployment figures recorded have been hovering fairly steadily in the region of 117,000. Of course, those recorded figures do not include most of the school leavers of last year or of this year, who will be very shortly coming on the market with no hope of a job. If one were to include the unregistered school leavers of last year and this year, I estimate that they would number in the region of 90,000 or even more. When they are added to roughly 117,000, we see just how serious and dangerous a problem we are facing. We are entitled to look at this Bill very closely to see what it is doing, since it represents the implementation of a number of important aspects of the Government's budgetary strategy to tackle this unemployment problem. What we find when we examine this is that the effect of the increased taxes in this Bill will undoubtedly be, and has already been, to cause more unemployment.

If one thinks of tourism as an example one can see that the effect of the increased taxes imposed under this Bill on petrol, beer, spirits, cigarettes, tobacco, car hire and so on, add up to making tourism here less competitive and causing further unemployment in that area. The same kind of thing is happening, and will happen to an even greater extent in the future, in public houses, breweries, distilleries and in any manufacturing industry producing non-essential goods where the profitability situation has been fairly marginal. In all those cases the effect of these increased taxes is undoubtedly the creation of further unemployment. The same applies to various service industries which are dependent mainly on manufacturing industry and the kinds of producers I have mentioned.

Car assembly is an obvious area where there is already a considerable problem, which will get worse. It is true that there was a rush to buy cars both before and subsequent to the budget before the 1st March, the date of the believed imposition of the additional VAT. There is an area of doubt in that regard relating to motor cars. In so far as this artificial rush to buy cars might have disguised the consequences of the taxes imposed, that effect is wearing off and it will be quite clear soon that the consequence of what is being done in this Bill is to make even more acute the problem of unemployment in the car assembly industry. That is an area of major concern in regard to the problems facing this country.

When we examine the problem of inflation, we find that this Bill is not alone not helping but is specifically making the problem worse. One cannot say that this is an incidental spin off from those increased taxes that could not have been anticipated. On the contrary, the consequences are so directly arising from the increased taxes that one must accept that the Government were aware of them, anticipated them and were prepared to have them occur before they decided to impose those taxes. It is not credible to say that those taxes were imposed and the decision was made to impose them by the Government in the belief that they would not produce unemployment.

The third of the major problems affecting our economy, and by which one can judge this Bill, is the whole question of the national debt. Although it is reasonably well known, it is worth repeating and it is a very sobering thought, that in three years the Government succeeded in bringing to approximately two-and-a-half times the total amount of the national debt incurred in the previous 50 years. If you take the estimated revenue from all the taxes being imposed under this Bill and put them all together you find that, taken together, they will not be enough to pay the increased cost of servicing the additional borrowing of last year and a small proportion of this year's borrowing. The cost of servicing the national debt arising in that regard is more than will be brought in by all the taxes imposed under this Bill.

The extent of our borrowing has gone so far that the Government have had to borrow through the European Economic Community with all the other members of the Community guaranteeing repayment and conditions imposed which substantially reduce the Government's room to manoeuvre. No matter how bad our economic situation has been at any time in the past, either during the war or back in the twenties, to the best of my knowledge no Irish Government in the past, not even a Coalition, had to accept such humiliating conditions as this Government have had to accept in order to make the huge borrowing they have made through the EEC with the guarantee of our fellow members of the EEC that we will repay it, that guarantee, of course, giving the right to impose those conditions and our situation having been allowed to deteriorate to such an extent that the Government had to accept the conditions.

It is no answer to say that the conditions were in line with the policy we were following. Many people would not accept that that was true. Even if it were true it is one thing to decide on a policy which you are going to follow but it is quite another thing to have imposed on you as a condition of borrowing money that you will follow certain policies. For our Government to decide freely that they will follow certain policies, well and good, but for them to be told that they must follow certain policies or do without the money they want and to find themselves saying: "We need the money so we have to get it; we will accept these conditions" is a different situation and there is no use trying to gloss over it. It may be that the conditions imposed are in the best interests of the people but that is not the real point.

The point is that our economy has been allowed to get into such a situation that we are subjected to this kind of humiliation which never was imposed and never could have been imposed at any stage in the past, no matter how bad our economic situation was. I suggest that is a measure of what has been happening to this unfortunate country in the last three years. As I said previously, the only equivalent to what has happened in commercial life is the putting in of a receiver. Since the cost of servicing the national debt is growing faster than our revenue we are going backwards and our position is getting steadily worse. If we are to reverse this situation we must get growth into our economy. I suggest that the effect of the provisions of this Bill, in particular the taxation provisions, will be that it is very likely to be another year of zero growth or even negative growth as we had in 1975.

The fourth major problem of our economy is the problem of pay and incomes. The Government have not even a pretence of a policy on incomes. If they had they simply could not introduce yet another Finance Bill deliberately increasing the cost of living, in this case by five percentage points. There is no conceivable way in which a Government, who either have a policy in regard to pay and incomes or who even seriously sought such a policy, could introduce a Bill of this kind.

I suggest it is utterly unrealistic to demand a wage freeze in the case of lower paid workers when the increase in the consumer price index in 1976 is likely to be in the region of 20 per cent. In particular, it is unrealistic of the Government to seek a pay freeze from lower paid workers when much of that likely increase in the consumer price index is a direct consequence of Government action, and much of it is a direct consequence of the provisions of this Bill.

Let there be no doubt about the fact that repeatedly we on this side of the House have said here and outside the House—and I will say it again now —that pay restraint is essential if our economy is to have any hope of recovering. If ever a Government created a climate inimical to pay restraint this Government did so. This Bill and other Government measures are clear evidence of the kind of climate the Government have created which is totally inimical to pay restraint. The Government have acted consistently as if budgetary and taxation measures have no bearing whatever on pay claims.

One might reasonably have hoped that by now they would have learned this elementary lesson. This Bill is a monument to the continuing ignorance of the Government on that fundamental issue. It is not as if the Government were not told about it. It is not as if the Government had no experience of what happens. We have only to go back to the first budget of last year, the January budget of 1975, which was introduced in the knowledge that negotiations were about to take place on a national pay agreement. The Government brought in a budget which, at that time, had the effect of increasing the consumer price index by four percentage points. Of course, the inevitable happened. The national pay agreement was negotiated in the light of these likely increases in the consumer price index. Indeed, it contained provisions directly relating pay to the increases in the consumer price index.

There was no mystery about this. In fact, months before we had been telling the Government this would happen. The only point I wish to make in this regard is that, at that time, quite apart from any other incident, the Government saw what happened and saw for themselves that the consequence of introducing a budget and a Finance Bill which increased the consumer price index in that way was that those increases were taken into account in negotiations on a national pay agreement. One cannot accept as an explanation or excuse from the Government that, in introducing this Bill which will increase the consumer price index by five percentage points, the did not understand or believe it would affect pay claims.

The strange thing is that the Government have been acting as if they believed that. As a consequence of other factors already existing, plus the consequences of the taxation in this Bill, plus such things as changes in prices of agricultural products, and other increases in the pipeline like ESB charges, and so on, the likelihood is that there will be an increase in the consumer price index in 1976 in the region of 20 per cent. Is it reasonable in those circumstances for the Government to be demanding a pay pause from lower paid workers? Does it make any sense? Can one look at this Bill and the proposed increases and say: "Well, in relation to pay and incomes this Bill and its provisions take account of the reality of the situation and the necessity for restraint in pay claims and, indeed, according to the Government, the necessity for a pay freeze for nine months."

I find it impossible to reconcile the provisions of this Bill with repeated statements by the Minister for Finance, the Taoiseach and other members of the Government that a pay freeze for at least nine months is essential to our future. I think I am not wronging the Minister for Finance if I paraphrase a recent speech by him in this regard in which he said if we do not have this we will suffer national crucifixion. How does one reconcile that approach and this Bill with the deliberate increase in the price of almost every item one can think of?

Of course, the Minister for Finance would try to explain it by saying the Exchequer has to find revenue. Yes, but is it realistic for the Government to demand restraint from everyone in sight and to exercise no restraint themselves? A situation in which revenue has soared to such an extent that one has to impose this kind of taxation and still end up with a huge current deficit—bigger than we have ever had before—is clear evidence of lack of restraint on the part of the Government. It is incredible. It is inexplicable in rational terms that the Government should on the one hand demand a pay freeze and, on the other hand and at the same time, deliberately increase the cost of living in this way. As I said earlier, we have recently recorded one of the highest increases ever in our history in the cost of living, most of it due to the deliberate action of the Government as enshrined in this Bill. It is inexplicable in rational terms.

I suppose that should not surprise us too much. The Minister for Labour does not see anything inexplicable or irrational in telling us, as he did recently, that statutory control of pay is not on. This comes from the Minister who piloted through this House and is now enforcing a statute which controls the incomes of those employed in the banks. God knows our problems are great enough. If we are saddled with a Government whose approach to these problems is totally irrational, there is very little hope of solving those problems.

One gets a distinct impression that the Government believe talk is a substitute for policy. For approximately 18 months we have had from the Government a White Paper and a stream of speeches, some exhortatory, some threatening, on the subject of pay and incomes. Recently the speeches have become quite contradictory, the line being taken depending on which wing of the Coalition the speaker comes from. The whole business has now degenerated into a continuous, ineffectual bleating utterly lacking in credibility. What is being clearly revealed is the total inability of the Coalition to agree on, to implement and to stick to a policy on the question of pay, a question they acknowledge freely to be vital to any hope of economic recovery. I suggest in this area of pay and incomes, as in the other two major areas I have mentioned, namely, unemployment and inflation, we are finding once more that the provisions of this Bill not alone do not help in regard to pay and incomes but are specifically geared to produce a result which has made the conclusion of a national pay agreement more difficult and may well have caused it to be impossible.

I said earlier when the Minister was leaving that I hoped he would be successful and I repeat that hope now. Fianna Fáil pioneered national pay agreements. We know now important they are and we went through a great deal of political obloquy in order to bring about national pay agreements. When in Government we were prepared to say what we believed was in the national interest and we acted accordingly. As a result, we succeeded in producing a climate in which national pay agreements were negotiated and concluded. They have their drawbacks but we believe that on balance they are the best course in the national interest.

We have repeatedly pointed out to this Government that their actions, particularly in their Finance Bills, have been such as to render more difficult the conclusion of further national pay agreements. In particular, we have told the Government in relation to this Finance Bill and its provisions, most of which were announced on budget day, that those provisions are making it virtually impossible for trade unions and employers to act in the national interest by concluding a national pay agreement which would, as the Government seek, constitute a pay freeze for nine months or at the very least would constitute stringent pay restraint.

I find it impossible to understand or to explain the approach of the Government in regard to the imposition of taxation and the total disregard of its consequences on pay claims. I cannot explain it and I cannot understand it. Neither can the Minister for Finance explain it; I have asked him to do so on many occasions but no rational explanation has been forthcoming. If we are to be subjected to this kind of government, at least I hope the public will be aware fully of the irrationality of the approach that is involved. It is my impression that more and more members of the public are becoming so aware and the sooner the better so far as I am concerned. Once people know what is happening, once they know of the total lack of policy, logic or rationality in the economic approach of this Government, we can rest assured the day is closer when they will give the answer that such a situation requires. As soon as possible they will give themselves a Government who, whatever faults they might have, at least will try to tackle the problems facing the country in a rational, common-sense manner, as they demonstrated they could do in the past.

Recently we have had some strange speeches from members of the Government, quite apart from those I have mentioned. Some time ago we had one of the strangest speeches ever delivered by any member of an Irish Government, namely, the speech made by the Tánaiste in Wexford in which he called for an economic plan. We are still trying to work out on whom he was calling for the plan; a strong suspicion has grown that he was calling on Fianna Fáil because he had not a hope of getting it from anyone else. We do not know who it was because he did not tell us.

Even more recently the Tánaiste spoke in Cork and said that the bubble had burst and that we could never return to the growth and rising living standards of the sixties. That was the time when Fianna Fáil Governments were running the country but, of course, the Tánaiste was not going to leave it at that. In order to make it clear that he was not giving us any credit for the growth and rising living standards of the sixties he said this was true all over Europe; the bubble had burst and never again could we go back to the days of the sixties when we had rising living standards.

The main reason he gave for this was the increase in the cost of oil, with the implication of the transfer of wealth from Europe to the oil-producing countries. In that context he also mentioned the disarray on the international monetary scene. Allowing for all those factors, what the Tánaiste said was nonsense and if that is the kind of thinking there is in the Government it is no wonder we are in our present state. In the course of discussion of the first budget introduced in this House after the oil crisis I pointed out that the estimated cost of the oil crisis at that time to the economy was between 3 per cent and 4 per cent of our GNP and that the consequence of that was if we achieved a growth of between 3 per cent and 4 per cent, strictly speaking we would not have an increase in our standard of living. We would simply be paying for the increased cost of oil. Of course, that is not a permanent situation. It does not mean that if we had a 3 per cent or a 4 per cent growth rate every year our standard of living would never improve. However, that is the implication in what the Tánaiste has said, that we have no hope of achieving growth in the future.

I do not accept that. Of course the oil crisis has set us back and we have to produce greater wealth to overcome the difficulty. But we can do it; there is no good reason why we cannot. Other countries are doing it. I do not say it is easy or that it can be achieved overnight, but it can be done and must be done if this country is to get anywhere.

In the budget debate immediately after the energy crisis broke I urged that the Government's budgetary and general economic policies should be geared to the fact that this transfer of wealth was taking place. They ignored the whole situation. It seems that the main impact of the oil crisis on the Government has been to provide an excuse, a cover-up for their failures, their incompetence and lack of ability. If we followed right policies here and if we gave determined encouragement to exports we could achieve growth and if we achieve growth we will achieve increased employment, increased revenue for the Exchequer and increased resources for investment in our future.

I have mentioned the attitude of the Tánaiste in this regard. He is not alone in the Government in this approach. One finds in this Bill a very good example of the kind of approach which ignores the necessity for making growth a priority in our economic plan. There is provision in the Bill to impose tax on agricultural and fishing co-operatives. The Minister dealt with this in his speech. He has signalled that he is back-pedalling a bit but he has made loud noises about the importance of the principle of equity which he sees involved in this. The Minister for Finance and some of his colleagues are great men on this topic, but he excels. I wonder does he really understand and believe what he says. I suspect he does not because I have pointed out on a few occasions to him the total lack of logic in what he says. Yet, he persists in saying it. In his speech he says that it would be inequitable to continue tax exemptions hitherto enjoyed by agricultural and fishing co-operatives and continues:

The circumstances which gave rise to the exemptions are not those that obtain now. Inequity arises from the unfair competition of agricultural co-operatives against firms subject to normal taxation. I cannot overemphasise the necessity to broaden the tax base fairly so as to ensure general public acceptance of our taxation system. The Government will not be deflected from pursuing this essential task.

Previously the Minister used slightly different words to say the same thing. What he is saying is that he and the Government are determined to bring about a situation in which equal tax is paid on equal salaries. That sounds like a fair, plausible proposition, but the Government do not mean a word of it. I shall explain why I say that.

When the Minister trotted out this alleged great principle originally, I pointed out that for many years we have operated a system in which a manufacturing firm exporting its product and making—for argument sake —£100,000 net profit in a year pays no tax on that net profit because it gets the benefit of export tax relief whereas another company could be making exactly the same product, not exporting it and making £100,000 net profit but will pay 50 per cent tax on that. Similar incomes are not paying similar tax. When I pointed this out to the Minister and said that the logic of what he was saying was that export tax relief was to be abolished he became very annoyed and said I was endangering the best interests of the country. But he said the same thing in his budget statement. Again, I pointed out the nonsense he was talking and the Taoiseach took occasion when speaking on the budget to make it clear that it was not proposed to abolish the export tax itself.

I put it to the House that, whatever the reason is for imposing tax on agricultural and fishery co-operatives under section 32 of this Bill, it is not equity. If that were to be the reason the Government should be logical and ignore the economic consequences of exemptions given in regard to tax and stand on the equity principle, if that is what is meant. If one examines the situation in regard to these co-operatives in the economic sense one finds that the national interest is best served by not imposing this tax on them. I hope to develop that in more detail later. To me, the problem is posed in this way: do you, because of a concern for equity and equal treatment as between taxpayers, impose this tax and ignore the economic consequences? Or, do you have regard to the economic consequences, recognise the importance to our prospects of growth and recovery in our economy, recognise in particular the importance to our exports, of cultivating and encouraging these co-operatives to expand, and ignore the equity principle?

For me there is no doubt at all what is the right thing to do. We should get our economy moving. We should get growth into our economy and then start talking about equity. I am getting tired of the Government, the Minister for Finance in particular, telling us the importance of equity in the taxation system, because as they apply this alleged equity the economy is getting smaller and smaller—it decreased by 3 per cent last year—and as the economy gets smaller the demands on it are getting bigger.

Of course it would be possible to have equity if everybody was broke. We believe in the rising tide that lifts all the boats. If one wants to achieve equity one must get growth in our economy. It is sheer hypocrisy and self-delusion to be talking about achieving equity in the taxation system if the economy is shrinking. That is the thinking behind section 32 of the Bill. I have no apology to make to any Member, or anybody outside this House, for saying that our first priority should be to get growth into our economy thereby creating jobs and revenue and ensuring that the Exchequer is able to pay its way. We should get rid of the deficits we have at present and for which we have to borrow so much, and enable the Exchequer to do the kind of things we all want to see it doing in regard to health, education and social welfare. To do that we must get growth in our economy and growth is not produced by an obsession with theoretical equity. If pursuit of theoretical equity in taxation has the effect of reducing the size of our economy we are not helping anybody here.

I am afraid that the concern for growth which we on this side of the House have consistently urged, and practised when we were in office, only gets some lip service now and again from the Government: in practice it is not getting support from the Government side. I am speaking not only of section 32 but of all the other activities of this Government which seem in this sphere to be motivated primarily by a tax gathering outlook and to be unconcerned in reality with economic management and, in particular, with economic management designed to achieve growth in our economy.

This is borne out, apart from all the other elements available, when one looks at the disturbing fact that under this Government the proportion of Exchequer spending devoted to capital purposes has been going down while the proportion devoted to current has been going up. For instance, last year's capital programme estimate of expenditure was £489.8 million and the actual amount spent was only £467.3 million, which I suggest is of some significance when one looks at the current side and finds that the estimate which was huge was far exceeded. The result was that we had an enormous deficit and this year it is estimated that we will have a much bigger deficit on the current side.

This is symptomatic of the thinking involved in section 32: forget the growth, appear to produce equity and to hell with the consequences if equity is produced. The consequences of that mentality for us are becoming extremely serious. When we have in the region 117,000 registered unemployed and in the region of 90,000 school leavers later this year unregistered, and when we have our inflation taking off again, it is time that the Government devoted some concern to achieving growth in our economy.

Let us talk about equity when we are getting growth and can pay for equity. The climate that is being produced by the Government, a climate in which it would appear that more and more people have decided that they are not prepared to invest their money or their effort because it is not worth their while, is one which is contributing to the shrinkage in our economy, to the 3 per cent drop last year in our GNP. It is a climate which is directly encouraged and fostered by the kind of thinking involved in section 32.

I note that the Minister said he was not going to go through the various provisions of the Bill in detail, but, he seemed to do that almost as much as has ever been done. I suspect that the purpose of what he was saying was to give him an excuse to come out with the figures he gave about the contribution of the State to the average family. The figures are interesting. I have no doubt that some people will dispute them in due course; I have not had an opportunity to check the impact of them, but they are interesting. It is no harm that attention should be drawn to what is paid out by the State because there is an undue tendency to think in terms of revenue being devoted almost exclusively to paying the public service.

However interesting and educational these figures may be the fact is that the overall cost of running the country, whether it consists of the kind of payments out the Minister mentioned or of the pay to the public service, or any other heading, the responsibility of the Minister for Finance and the Government is to ensure that the overall cost of all of these things does not go so high that we cannot pay. That is what has happened in the last three years. The Minister for Finance and his colleagues have allowed the cost of all these things to escalate to such an extent that we have been running these huge deficits and borrowing abroad to pay, but we have come to the end of our tether.

I know it is virtually impossible for a Minister for Finance to cut back on existing expenditure. There are some exceptions, but by and large that is true. We never expected the Minister to do that, but we expected that he would exercise the responsibility cast upon him in his position as Minister for Finance by controlling the overall increase in expenditure so that it stayed within the limits of what we could afford to pay. Failure to do this by the Minister has resulted in something that is bringing us close to collapse in our economy. Failure one year was bad enough; failure two years was much worse; but failure three years in succession is almost intolerable.

It need not have happened. It happened, I believe, not because of ignorance or inexperience. That might explain the situation in the first year; but when it has happened three years in succession it can only be attributed to an effort on the part of the Government to buy political popularity and to gamble with the future of this country. That gamble has not come off. We are all paying the price. Unfortunately, one sees a small proportion of the price we are being asked to pay in the various measures of taxation provided for in this Bill.

It has already been made quite clear that the level of increase in tax on such things as beer, spirits, petrol and motor cars is not only an enormous and shocking burden on the average person but is gravely depressing to the economy. It is not only depressing demand but, in regard to pay claims, is having the effect of damaging our economy. If one adds to these the VAT increases right across the board, one sees how misconceived and irresponsible has been the approach of the Government to the management of our economy as exemplified in this Bill.

I do not propose at this stage to go into detail on these matters. Different aspects of these matters will be dealt with on Committee Stage by subsequent speakers. There is one small point in regard to the imposition of increased taxes on car drivers to which I wish to advert. We have had a succession of enormous increases in taxes on petrol and now we have an increase in car tax. The excuse given by the Minister for Finance has been, apart from revenue, that he wanted to discourage the use of excessive amounts of petrol for which we are paying so much more as a nation. A useful way of achieving a smaller consumption of petrol would be for the Minister to provide incentives to people to use smaller cars. One could say that the increases imposed in this Bill are such as to render the use of large cars unattractive, but positive incentives could have been introduced which would have lent a good deal more credibility to the Minister's claim that he was concerned to reduce the amount spent by the country on petrol and oil.

In section 26 there is a provision in regard to the valuation of stocks. I hope the Minister will advert to this in his reply. He did refer to it in his introductory speech, but it would appear that there is a clawback provision in that section. If that is so, I should like the Minister to explain why he is providing for it. Is he merely keeping options open which would enable him to obtain a clawback? If that is what he has in mind, would he explain why he is doing so? It would appear that this provision is to some extent taking away the benefits that were being provided to companies who are very badly affected by inflation in recent years. Some explanation is required for the approach involved in section 26.

I want to register a complaint, Sir, in regard to the explanatory memorandum issued with this Bill. I know that with almost any Bill it is difficult to get an explanatory memorandum which is sufficiently detailed to convey what is in the Bill and yet sufficiently simple to be of any advantage to people as against the terms of the Bill itself. This is true of any Bill and is probably more true of a Finance Bill than any other. But, allowing for all that, I do not think that the explanation of what is involved in Part V of the Bill is adequate. I recognise the difficulties involved, but there is a very important change proposed to which I think more attention might have been given. The Minister adverted to it today, but I doubt if many people are aware of what is involved in the proposals in sections 69 and 70.

What is involved is that the Government would be able to make an order in respect of a particular class of vehicle. The Minister has indicated that it would be proposed to make it in respect of private motor cars. Once that order is made, a person will be liable for road tax whether or not he is using his car. In fact, the only exemptions provided for in this regard are garages who have cars in the course of business and two other categories, provided application is made. One of them deals with the situation where a car is stolen and the other deals with a car that has been broken up completely, or is shown to be incapable of being used.

Broadly speaking, that is the situation. I wonder if the implications of this have been thought out by the Minister. I can see very clearly the implication for the purposes of administration. It makes life a lot easier from the point of view of the administrator if this is done. Effectively what it is doing is saying: "As long as there is a car registered in your name and tax is not paid, you are presumed guilty until you are proved innocent". Since one of the things for which a person could be exempt is if the car was stolen or was rendered immovable for some reason or another, he has to apply for exemption and there will be many people unaware of this situation and they will be caught for tax in respect of a car which was in their eyes laid up.

The situation, I suggest, is even worse than that. There are many people who cannot afford to tax a car for the whole year every year but who do not want to part with them because things may improve in the future, or it might cost them money effectively to dispose of their cars at the moment. There are people who because of age or health do not use their cars in the winter months. There are various reasons why people would decide deliberately and voluntarily not to use their cars at certain times. Under present arrangements, provided they make that decision and take the cars off the road, they are not liable for tax.

But under this Bill they will be liable and in cases of people who simply cannot afford to run their cars for six months in a year and who at present would lay up their cars, perhaps on blocks in the garage, it will not be sufficient to apply for exemption—they have got to go on paying the road tax whether they are using the cars or not. It would seem to me that in order to come within the exemption proposal a person would have to remove some essential part of the car and perhaps he might have to dump it with the Garda or the local registration authorities, a very unwelcome move, in order to prove that the car was unusable and came within the section. If the Minister does not envisage this happening, he is saying: "I do not care whether you can afford the car or not. So long as you are keeping a car you will have to pay the road tax".

I do not think it is right that this kind of thing should be introduced. It will, of course, not have any effect on people who have some money, people who are reasonably well off. The people who will be affected by it are those who are marginally able to run cars, and I mentioned in particular older people who do not run their cars in the winter months.

I do not believe that, even if there were enormous administrative advantages involved in this, it would justify the introduction of this approach. I do not believe that the administrative advantages in this respect would be at all commensurate with the hardship and inconvenience which sections 69 and 70 will produce in combination. I very strongly urge the Minister to rethink these provisions, which are unfair and unjust and which I do not believe are necessary for the purpose of the more effective administration of road tax.

Let me make it clear that I support in general efforts to make road tax more effective and I think the Minister was right in implying in his introductory remarks that it is unfair to those who pay road tax that so many people should avoid payment. However there are steps which can be taken to improve the collection of road tax and this proposal will not alone go too far but is quite unjust and uncalled for and should be reconsidered.

In regard to the proposal for the taxation of co-operatives, at a time when the economy is under extreme pressure, and the co-operatives—the major producers and exporters—are vital to bring about an early recovery, it is extraordinary and particularly insensitive that the Government should be devoting the time and energy of the Department of Finance to measures designed to tax the country's co-operative societies. It has been decided to terminate the exemption enjoyed by agricultural and fishery co-ops with effect from 6th April, 1976. I understand that, while the termination will not be reflected in the tax receipts in 1976, the revenue gain is expected to be as much as £3 million a year thereafter.

I suggest that these proposals are hurried and that what the Minister said today in regard to the back pedalling he is doing in connection with them, that he is unable to reduce the tax, is further evidence of the hurried nature of this proposal which has already, I suggest, caused consternation and resentment among the country's 165,000 co-operative members. I suggest it is unlikely that the yield to the revenue will be anything like £3 million in a year. It is much more likely that the removal of the tax exemption from co-ops will result in an increase in consumer prices for a wide range of produce including fish, meat, vegetables and dairy produce. It will also lead to an immediate increase in redundancies in the co-op organisations and a rise in the overall indebtedness and a fall in investment in the co-operatives whose proportion of reserves will be further reduced. All this is supposed to take place because the continuance of the exemption is difficult to justify.

I suggest that if the Minister found it difficult to justify this very longstanding incentive he would have been far wiser, in the interest of the whole economy of the country, to have undertaken a comprehensive review of the co-operative societies and of their role in our economy as a basis on which to plan for taxation.

I have tried already to point out that the doctrinaire approach of the Minister to taxation shows little evidence of any concern for the immediate task of creating employment and stimulating exports. This seems to be another example of the kind of Coalition taxation witchhunt to which we have been subjected from time to time. It is occurring at a time when the resources of the Government should be directed to the promotion of economic growth and increasing the real incomes of our people.

It is no harm to recall that these various co-operative societies were established to fulfil a vital social and community task: co-ordinating the marketing of farm and fishery produce, arranging group purchasing and promoting the production standards and general welfare of the farming community.

The non-commercial profit nature of co-operatives is reflected in the special circumstances which surround their activities. The co-ops are not places for the large-scale investor, the speculator or the profit-orientated entrepreneur. The co-ops operate on extremely low margins and the maximum dividend payable is 10 per cent. The net profit of the co-ops, as a percentage of sales, is only 2.1 per cent nationally compared with an average of nearly 7 per cent earned by public companies. They depend to a large extent on the retention of surpluses as a means of building up their reserves. The taxation of these surpluses will result in depletion of this source of funding for what is, as I have already said, a low proportion of reserves.

Almost of their nature Irish co-ops are under-capitalised. Of their total resources share capital accounts for a mere 7 per cent while finance from loans and creditors accounts for 70 per cent. Therefore it is more important now than ever before that the co-ops be given greater freedom from the controls of the various lending agencies by increasing their own reserves. The proposals in this Bill will have the effect of lessening the co-ops reserves and of increasing their dependence on borrowing as a source of finance. Consequently the co-ops will go even deeper into debt and will find the cost of servicing such debt through high interest charges an increasing burden on their operations.

These added costs will lead directly to increased prices to the ultimate consumer and to reduced competitiveness on export markets. It is reasonable to expect that co-ops will price theirs goods and services to their members in such a way as to leave no surplus at the end of the year. If that happens both the Minister for Finance and the co-operative movement will be the losers since there will be no surpluses of any consequence for the Minister to tax and no reserves to strengthen the financial position of the co-ops.

These co-ops have helped many thousands of weaker and smaller farmers to remain viable in their purchasing and selling activities. They have reduced production costs by lowering the purchasing and selling margins. Frequently they have either prevented or done away with exploitation of producers and consumers by speculators. In that way alone I suggest they have done a valuable national service by rationalising production and keeping prices down. At present they could be criticised on the grounds that they have shown a great reluctance to dismiss staff in the interests of efficiency. Some people do criticise them on that ground, but they give permanent employment even in the most isolated rural areas.

The proposals in this Bill will leave the co-ops with no alternative but to use redundancy as a means of maintaining their competitiveness. Of course this will mean more job losses at a time when there is very little prospect of this Government providing alternative employment for such people, especially those in rural areas. Approximately 36 per cent of the members of these co-ops farm in designated areas. In addition many small farmers who would not otherwise be liable to income tax will be taxed now through their co-op activities. In practice they may find it less advantageous to do their business through the co-op. This is an ill-advised, ill-considered proposition, one put forward hastily on a theoretical doctrinaire argument which does not stand up in practice, which is likely to affect small farmers far more than large farmers but which, above all, is likely to damage the overall interests of our economy, not having any regard to the interests of individual farmers or individual non-farmers.

The overall requirements of our economy are that we use every resource we have to get growth into our economy, to encourage exports. We will never be able to pay the increased price of oil unless we increase our exports; that is the only way we can do it on a long-term basis. If we do not get growth into our economy we will get worse and worse, we will have more unemployment and inflation until we grind to a halt. When growth is what we need it does not make sense to tax these co-ops, which are such an important part not only of life in rural Ireland, of the economy of agriculture and of the economy of the country as a whole, particularly in relation to exports, and do anything which would discourage their activities or render them more difficult. On the contrary we ought to be looking for ways to encourage that kind of activity, in particular to encourage exporters of any kind of goods, be they agricultural or non-agricultural. That is where the salvation of this country lies. Instead of that we are fiddling around with this kind of nonsense in this sector, wasting the time and energy of people who should be devoting it to getting the country moving.

This is the kind of thing with which we have been saddled under this Government for the past three years that becomes difficult to take at times when one looks around and sees the situation deteriorating daily, when one sees the waste of time and effort in this House and outside it in totally irrelevant legislation, theoretical legislation that might have some relevance if the country were booming and people were making huge fortunes, instead of which the economy continues to shrink, with more people becoming unemployed and those who are not unemployed are struggling marginally merely to keep their heads above water.

The whole thing is an Alice in Wonderland situation. This country cannot stand this kind of thing. Section 32 in its thinking and in its terms illustrates what is wrong with the approach of this Government to our economic problems. The Minister stated today something demonstrably untrue in relation to the acceleration of payment of income tax by the self-employed: that he is trying to achieve comparable treatment between these taxpayers and those under PAYE. Whatever arguments one may achieve, that is not being achieved. If people are not given an exemption of half a year's tax, as is being done in the case of all of those being brought in under the PAYE system, and was done in the case of those who were brought in under it years ago, one cannot claim that there is anything like party or equality of treatment. There are other arguments involved, but it is a different situation.

What is being done with the taxpayers involved is that the Minister is calling it acceleration of payment, but in fact it is collecting a great deal more tax from them. When I adverted to this matter before on 10th March, I pointed out that the self-employed person will have to pay four half-yearly payments—that is, two years' tax—between 1st July, 1976, and 1st July, 1977. I do not care what terms the Minister uses to describe that situation, but it is certainly not equitable or comparable to the treatment of other taxpayers. Many of those who will be affected are the owners of small businesses, shops and so on. If they are obliged to pay two years' tax in a 12-month period at a time when business is rock bottom, what does the Minister think will be the effect and result of that? One gets no prizes for foretelling the consequences of that in practice. More people will be put out of business and jobs; more people will be depending on the Exchequer for their subsistence. Why is this being done? Is it another stab at equity by the Minister for Finance? Is that what it is all about? Whatever the reason it is misjudged, ill-judged and misguided. It can only do damage to our economy.

One eventually becomes tired of pointing out the consequences of the actions of this Government, particularly in the taxation field. We have done this time after time. I can produce evidence that in almost every case we were right. I would far prefer that the Minister would pay attention to what we are telling him, than have to acknowledge in due course that we were right. What we are telling him now is that this proposal to, in effect, charge two years' tax in a 12-month period on the self-employed is going to do enormous damage. It is going to put people out of work and out of business. It is not necessary and it is ill-judged. I would urge the Minister to drop that proposal, to drop the proposal in regard to the co-ops, and to try to stand back briefly and have a look at the overall economic consequences likely to result from the provisions of this Bill. I am certain that, if the Government do that, they will find that the requirements of our economy would suggest that we take this Bill away immediately and adopt totally different proposals, the aim of which would be to reduce the tax burden on those on whom we can depend to create a growth in our economy—proposals that would provide incentives to people who could create jobs and contribute to the country, whether they are in farming, manufacturing or the services sector. There is no time for doctrinaire distinctions. We have got to get this country moving. This Bill is going to hold us back and sink us further into the mire. The proposals in this Bill are so damaging to the national interest that it cannot get the support of this side of the House.

Mr. O'Malley

Any place I go in this country today—and this applies to my colleagues as well—people come up to me and say "You do not know me. I know who you are. For God's sake, when are you going to get this shower out? If you do not do it soon we will have no country left". We have been saying that sort of thing for the last few years. Everybody in the country is saying it now. Everybody is getting worried. Everybody now sees the writing on the wall. When talking about the economic situation that exists here at present one has this consolation: no matter what you say about it you cannot be accused of exaggeration, because it is so serious that it is impossible to exaggerate the true nature of it. It is estimated that the national debt by the end of 1976 will have reached a figure of almost £3,000 million. In March, 1973, when this Government took office the accumulated national debt after 52 years of self-government was £1,200 million.

At the end of this year our national debt will have increased in 3½ years by more than it was after 52 years. There are members of this Government who would seek to suggest that things are not too bad and that in so far as they are not so good it is due to factors outside our control.

This Bill is put in its proper context and shown up for what it is by what happened in the House of Commons yesterday. There you have the only other country in the EEC in serious economic difficulty. Their difficulties are not dissimilar from our own and while the magnitude of them may not be as great, the nature of them is somewhat analogous. There you had a budget introduced by Mr. Denis Healey, Labour Chancellor of the Exchequer in a party where nearly 50 per cent of its parliamentary members voted a very left wing member of the party as leader of the party, and the whole nature of that budget is diametrically opposed to the budget of the Minister for Finance introduced here at the end of January, the legislative provisions of which are now contained in this Bill. There were minor increases in Britain yesterday on things like drink, cigarettes and petrol, minor increases in some cases one-tenth or less than the increases imposed here. You had the offer very clearly made to the nation as a whole, and in particular to the trade unions, of significant reductions in income tax provided restraints on incomes were agreed.

Let us look at the contrast between the situation here, a situation sought to be perpetuated by this Bill, and the situation there. There is a realisation at long last in Britain that constant increases in taxation, whether indirect taxation by way of VAT and excise duty, or direct taxation by way of income tax, are rapidly becoming counter-productive. People are getting to the stage where they feel it is no longer worth the effort of working harder and trying to earn more because the harder one works the more one loses in the long run.

In yesterday's Times there is a table in a reply given by Mr. Robert Sheldon, Financial Secretary to the Treasury, showing, for a married man with two children the initial rates converted into £ sterling at which income tax is charged and the maximum chargeable in each of the EEC member states, in Sweden, the United States of America, Canada and Japan. The figures are set out and they include the Irish figure. In that there is a mistake because they show the top rate of tax at 70 per cent, not taking into account the 10 per cent imposed last year and reimposed this year. The situation is that the Irish threshold is almost the lowest at which tax begins to become payable. A few are a little under it but it's almost the lowest.

The initial rate of tax payable here is far higher than it is anywhere in all these other countries, apart from Britain, and the maximum rate of tax, taking into account the 10 per cent imposed last year and reimposed this year, is higher in Ireland than in any of these countries, apart from Britain. I believe the British have come to a realisation of the unacceptability of a high rate of taxation generally and I only wish the Minister for Finance here had done the same. Unfortunately for us he labours under the impression that the higher the taxes you impose, whether by way of direct or indirect taxation, the more money you expect.

If this party were in Government at the moment I believe we would take the kind of approach Mr. Healey took yesterday. We would encourage people to work again. We would encourage people to spend money and buy goods. We would encourage an increase in the general turnout within the economy. This is the only way in which the problems created by the present Government over the last three years could even begin to be solved. I believe the British realised that. It is tragic that we should still have trotted out to us today this rubbish we have been getting so constantly for the last three years from the Minister about the main thrust of this Bill being towards the equilisation of the tax burden and so on and how necessary it is to achieve equity and that nothing matters except input in taxation. We are of course rapidly achieving equalisation of the tax burden by equalising everybody's tax rates upwards and effective and real incomes downwards. The Coalition Government are, in the process of doing this, gradually destroying the economy and I do not think that even they can now deny that this is happening.

I have warned on a couple of occasions over the last three or four months that the economy was going in that direction, that unemployment was going higher and higher, that expectations were being kept up by the Government in circumstances in which they were not justified and that an enormous crash was going to come when the Government could no longer borrow money to pay social welfare benefits, as they have been doing over the last couple of years, and that when that happens there would be for the first time for many, many years people hungry on the streets and there would be a revolution. Some may have thought that what I was saying was a bit farfetched or that, if it were to happen, it would not happen for a long time to come. I was glad to see that warning taken up in the last few weeks by the Parliamentary Secretary to the Taoiseach who spoke the other night on very similar lines and warned of the possibility of this happening. I am afraid it is no longer just a possibility. If the policies pursued by this Government continue it will become an increasing probability and virtually certain in a comparatively short time.

Deputy Colley dealt with the obtaining by the Government of a loan of some £155 million from the European Economic Community some weeks ago. This is apparently the only money which the Government are able to borrow from abroad. They are able to borrow from abroad not on their own credit, not on our credit as a nation, but because the other eight members of the EEC have underwritten that loan and have guaranteed its repayment to Saudi Arabia and the other countries where it was raised if the Irish Government failed to repay. In addition to that indignity it was made a condition of the loan that the EEC would supervise the spending of that money and would allow it to be spent in certain ways only and would not allow it to be spent in certain ways in which borrowed money was spent last year and the year before by the Coalition.

We have been an independent nation for 55 years. This is the first time ever that an Irish Government failed to raise money abroad on their own credit. It is the first time ever that an Irish Government and the Irish people were subjected to the indignity of being told that money would be lent to them only because other countries were good enough to guarantee them at the bank, and only if the Government undertook to spend the money in a way those who arranged the loan approved of.

Our independence was won hard by the sacrifices of a great many people. Our political independence was maintained and supported down through the years by the hard work of a great many people in trying to build up the prosperity and economy of this country. All those sacrifices and all that work have now been set at nought by the situation we see today in the indignity of what we are subjected to in trying to borrow money from abroad.

Even tiny countries with less developed economies than ours do not have to suffer these indignities when they seek to borrow money. We should be thankful that we are members of the EEC. We have become so bankrupt that nobody will lend money to us unless the Community, which have been sneered at and derided by members of the Government in recent months, come to our aid because we cannot raise it under our own credit.

I want to say something about the effect of this Bill on our tourist industry. Tourism is our second biggest industry, second only to agriculture. It has had many difficulties in recent years. In the past few years 115 hotels closed and there are now 712 hotels registered. A prominent firm of accountants in Dublin, at the request of the Irish Hotels Federation, have gone through the accounts of all registered hotels in great detail in recent years. In 1974, the latest year for which detailed figures are available, 32 per cent of our hotels were losing money and 20 per cent were only breaking even. That meant that over 50 per cent of our hotels were not making a profit. Many of those who were making a profit were making a purely nominal profit. The figures for 1975 are not yet available but the federation are satisfied that they will be worse than for 1974. How much worse has not yet been ascertained.

The income in real terms, not just in inflated or deflated cash, which this country earned from tourism has dropped by 16 per cent since 1969. This industry, unfortunately, is very much on the downslide. It needs reasonable encouragement. If it did not get reasonable encouragement, the very least it needs is not unreasonably to be discouraged. I asked the House to look at the provisions in this Bill and in the budget and the effects they will have on the tourist industry generally.

Many of our tourist interests sell holidays to Americans and continentals a long time in advance of the actual holiday, frequently six, nine or ten months ahead. A great many holidays that will not be enjoyed until this summer were sold to Americans, French, Germans and Belgians as long ago as last autumn. Many of those package holidays included self-drive cars. They were free of VAT last year but today they are subjected to 10 per cent VAT. Those who arranged the holidays have endeavoured, as far as they can, to see if they can pass on the extra 10 per cent to those who book the holidays, but there is no possibility of their doing it.

The holiday-maker from America or the Continent is not interested in the foibles of the Minister for Finance. He says: "I booked for a particular figure and I will pay that and no more". The number of car hire firms and holiday operators generally who are running into very serious difficulties as a result of this single instance is enormous. In addition, a great part of the activities of hotels have been subjected, as from 1st March, to an increase in VAT from 6.75 per cent to 10 per cent. That is not just an increase of 3¼ per cent, it is an increase of approximately 47 per cent on the existing VAT rate. The amount of VAT they have to pay is about 47 per cent higher than they had to pay before the 1st March.

What effect does the Minister for Finance think increases of that nature will have? Has he the faintest shame about the infamous promise made in that 14-point plan that prices would be strictly controlled and maintained at the level that operated in February, 1973? Are the Arabs to blame for an increase in VAT of about 47 per cent on all items in one fell swoop? One assumes that the Arabs are not to blame, but one would not have been altogether surprised if the Minister had announced that in some way or another they were. Are the German Government, for example, to blame because the Minister increased VAT from 1st March by approximately 47 per cent? Most positively they are not.

I can recall not much more than a year ago the Minister for Finance going to a meeting of the Council of Ministers of the EEC and lecturing other Governments, such as the German Government, on the fact that they were not following the right policies and that he could not arrange things as he wished because all other Governments would not co-operate with him and follow the right policies that would get Europe and the Community out of the recession it was then in.

The German Government need not be blamed by anybody. Least of all can they be blamed by the Minister for Finance in Ireland because the German Government have reduced inflation to a figure of 5½ per cent, 5¾ per cent, 6 per cent while the Minister for Finance in Ireland presides over an economy where, instead of inflation getting any better, as it is in every country in the world, it is getting very substantially greater and where in the last quarter alone the increase was 7.3 per cent. That does not include the huge increases in VAT imposed by the Minister for Finance on 1st March last. When it is converted into an annual rate, an increase of 7.3 per cent in a quarter represents more than 30 per cent per annum. There is every possibility this may be repeated when the huge VAT increases are taken into account in the next quarter. If it is repeated over a 12-month period we are well and truly back again in the banana republic league with South American type inflation figures.

Not alone is there no effort by the Government to control this but, on the contrary, there is a deliberate effort to increase those figures. More than half of that 7.3 per cent is due to what the Minister for Finance did on 28th January last when he introduced a budget with increases in taxation all over the place. If this Bill is enacted and if all those increases are made a permanent part of our revenue law, what future is there, for example, for the 712 hotels which remain open in the country at the present time with over 50 per cent of them making no profit whatever? Were it not impossible to sell an hotel in the country at the moment, as it has been for the last 12 months, except at a complete give away price, up to half of those 712 hotels would have been sold by their present owners because there is no future for them. If there was a market for hotels in the country at the moment the banks who are owed substantial sums of money by hotel owners, away above what the figure should be in many cases, would have long since moved in on the mortgages to realise their security and would have sold the hotels. The banks have declined to do that, not because they want to go out of their way to help the hotels in question, but because they are looking after their own long term interests. If they were to flood the market with hotels the possibility of selling any of them would be even more remote than it is at the moment.

The security which the banks hold for their loans is negligible at the present time because it is unrealisable. If industry generally was in the position the hotel industry is in at the moment there would be closures all over the country on a very much higher scale than the existing high scale because the amount of capital that is needed is greater in industry. Families who have been in the hotel business for most of their lives will do anything rather than see their premises close down. They will even act foolishly and lose more and more money and spend their time working at something out of which they are not getting anything, and are unlikely to get anything for a number of years to come. Their difficulties are compounded many times over by the incredible provisions of this Bill in relation to VAT, its introduction to car hire and the increase of the 6.5 per cent to 10 per cent, an increase of 47 per cent.

Increases in VAT on things which directly affect the tourist industry, such as those I have been talking about, are by no means the end of the story. We had a huge increase in the cost of petrol of 13p. Petrol now costs 88½p per gallon, which is 13p more expensive than it is in Great Britain and Northern Ireland. Is that, in the eyes of the Minister for Finance, supposed to be an inducement to people to come here? Is this supposed to be an effort by him to support the second biggest industry in the country? As Deputy Colley said, the Minister for Finance gives the impression of somebody who decides on a figure and never makes the slightest effort to work out in his own mind or in the minds of his advisers what the consequences, economic and social, of what he is doing will be? How could any rational man force the price of petrol up by 13p more than it costs in Great Britain and Northern Ireland and expect the tourist industry to have a good year this year?

Tourists coming to the country like to have a drink when they are on their holidays. There will not be many of them who will do that this year because I know of no country in the world, except some of the more expensive places in one or two countries like Switzerland, where the price of drink in an ordinary licensed premises is higher than it is today in Ireland. The cost of a pint of stout in Dublin at the moment varies a bit depending on the type of premises in which one is drinking, but it is fair to say that the average price is about 40p. If a man was in the habit of drinking five pints of stout a day, which is not an abnormal quantity for those who drink stout, he will now spend £2 a day or £14 a week on what, particularly for the ordinary working man, may well be his only form of relaxation.

Debate adjourned.

Business suspended at 1.30 p.m. and resumed at 2.30 p.m.

Dáil Éireann debate - Wednesday, 7 Apr 1976