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Dáil Éireann debate -
Tuesday, 3 Apr 1984

Vol. 349 No. 6

Finance Bill, 1984: Second Stage.

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

The principal function of the Finance Bill is to give statutory effect to the taxation changes announced in the budget statement of 25 January. Some of these changes are rather complex and only a summary description of them was possible in the course of the budget statement. In addition, there are a few significant variations on the earlier proposals. As well as spelling out the full details of the budget items, the Finance Bill also incorporates a number of further taxation changes which are intended to close tax loopholes and to facilitate tax administration.

Initially, the budget was subjected to criticism on the grounds that it was neutral in effect and, it was held, therefore failed to give an adequate stimulus to growth. This criticism of course ignored the fundamental necessity to maintain the policy of restoring order to the public finances. The first requirement for adequate growth in the economy is that there must be sound management of the finances. I would think that by now we must surely have learned this lesson. The budget had to strike a delicate balance in continuing the process of reducing Government borrowing, while at the same time recognising the necessity to promote employment to the maximum extent reasonably possible. In this situation the most rational course of action was to achieve a modest reduction in borrowing as a percentage of our gross national product. The budget was also criticised on the other hand for not achieving a sufficient reduction in borrowing. This cross-current of conflicting criticism strengthens my belief that this year's budget hit the right balance in our present circumstances.

While on the subject of the budget, I want to refer briefly to the first quarter Exchequer returns which were published yesterday. These show that the trends in revenue and expenditure are broadly in line with the budget projections. It is much too early at this point to draw conclusions about the year as a whole. Improvements which I introduced last year into our systems of monitoring both revenue and expenditure will ensure that any adverse trends will be immediately identified, so that the necessary action can be taken quickly.

There is a school of thought which argues for more capital spending on the grounds that this gives a useful stimulus to the economy and, indeed, we heard some exponents of this school of thought in the last few days. Capital spending which does not yield a worthwhile return is wasteful, and unfortunately we have had too much experience of this kind of capital expenditure in recent years. I would not hesitate to support capital projects which would ensure an economic return, but I am keenly aware that capital expenditure is not always necessarily wise. Borrowing for capital purposes is just as expensive as borrowing for current purposes and it is therefore essential that we pick capital projects which yield an adequate return.

The encouragement of more employment is our top priority. The first requirement is to secure the right financial and economic climate for the creation of employment because without this our position will deteriorate further rather than improve. There are other steps that can be taken. Even after taking account of exchange rate changes, we have suffered a 5 per cent loss in wage cost competitiveness in five years. If standards for pay deals are to be set this year by the small number of enterprises which still enjoy a strong competitive position, then more jobs will be lost in the economy and the unemployed will have to wait even longer to find re-employment or, in many cases, to find employment for the first time.

There are provisions in the Bill before the House which are specifically designed to encourage employment and I will turn to these in a moment. There are now grounds for optimism that the worst in this regard is over and that the employment outlook will gradually improve.

I now turn for a moment to general taxation policy. I have said consistently that I consider some tax levels to be too high and that I aim, in particular, to reduce income tax levels and to rationalise our VAT system. Tax reductions must obviously depend upon the overall budget picture and especially on policy in relation to public expenditure. Tax reductions must also presuppose a widening of the tax base and some provisions in today's Bill, which have met with strong opposition from various interest groups, will have this effect. The individual tax reductions in the budget were modest and they had to be matched by increases elsewhere. It is my intention next year and in the following years to make further and more rapid progress towards a better and fairer system of taxation, but I must make the point that this is possible only if expenditure is properly controlled and some tax privileges are curtailed.

The Second Report of the Commission on Taxation has just been published and I would like to take this opportunity to thank the members once again for their work, which has been carried out with great thoroughness and dedication. I will give my views in detail on this second report on another occasion, when I have had the opportunity to study it thoroughly. I would point out, however, that the commission favour the dismantling of a number of tax reliefs and incentives which at present involve a considerable loss of tax revenue and I must say I look forward with interest to see what reactions are evoked by this line of thinking.

I have been criticised by some commentators and, indeed, in this House, for not paying attention to the recommendations in the first report. This simply is not true. There was never any suggestion from the commission that a new tax structure could be introduced at short notice and I have consistently drawn attention to the fact that, especially in view of our high level of taxation, some of the commission's main recommendations are not a practical option at this time. Having said that, however, I endorse the case presented by the commission for lower rates of taxation, for an extension of the tax base and for a much more simplified tax code. This is the strategy that I would like to follow and the fact that the commission's recommendations may not be matched line by line or case by case is not to be taken as an indication that these recommendations are being discarded.

I now turn to individual aspects of the Bill before the House. As it is a lengthy Bill, it would be impractical to go through it section by section, and the explanatory memorandum, in any event, describes the essential features of each section. I intend therefore to concentrate mainly on the more significant items which were not fully detailed in the budget statement.

The early sections relate to the budget decisions on income tax, including the changes in allowances, rate bands and exemption limits and the increase in the specified amount of tax payable by the self-employed from 80 to 85 per cent. There are no changes of any significance from the budget proposals in this respect. In relation to the increase in the relief for an incapacitated person, in section 8, I would like to point out that the maximum deduction will be determined by the net cost incurred, subject to a ceiling of £2,000. In order to shut off a tax avoidance loophole that was in danger of being exploited, I am providing in section 9 that, where there is doubt as to the bona fides of a sports club, income tax exemption will be subject to the approval of the Revenue Commissioners. Genuine sports clubs which apply their income for the sole purpose of promoting sports will not be affected by this change.

One of the major items in the Bill is the proposed income tax relief of up to £25,000 a year over a three-year period for long-term risk capital. This is the subject of Chapter III of the Bill. In the budget statement I indicated that the relief would apply in respect of investment in new manufacturing enterprises. This restriction was proposed in order to ensure that investment will be directed towards areas of greatest initiative and highest risk. If, however, the relief were confined to new ventures, it is unlikely that the scheme would have a significant impact. Consequently, the area of eligibility is being extended, in section 16, to include new and existing trades in manufacturing and certain services, provided that the investment is used to create or maintain employment and fulfils a number of other criteria related in a very direct way to development.

I have great hopes for this new incentive. It is directed for the benefit of manufacturing and international services, which are among the sectors of the economy with the highest risk levels and which have consequently had little attraction up to now for investors who prefer a safer investment. I see this as a particular opportunity for groups of workers who become redundant and experience difficulty in raising finance to start a new venture.

In order to ensure that the scheme makes a genuine contribution to the generation of new employment rather than being used as a tax avoidance device, a number of important safeguards are built into the proposed legislation. Relief will not be available under the scheme to paid directors or partners of the company or their close relatives or to persons holding more than 30 per cent of the share capital of the company. The shares must be held for a minimum of five years. To be eligible the shares must be ordinary shares in an unquoted company and satisfy certain other conditions as set out in section 12.

The scheme should be attractive to small and large investors alike as relief will be given either for direct investment greater than £500 or for investment through a designated fund without a lower limit in the case of investments through the firms. This should encourage many small savers to begin to invest directly in industry. The conditions which funds must satisfy in order to be designated in accordance with section 27 are not to be interpreted as an assurance or guarantee of the viability of a particular fund but are intended to establish the fact that investment through that fund is eligible for the relief proposed here.

The scheme is a radical new departure which, if successful, could significantly influence investment patterns to the overall benefit of the economy. The limit of £25,000 on the tax relief may appear to be on the generous side but I am convinced that such a limit is fully justified if the aims of the incentive are to be realised.

It has been said to me since the publication of the Bill that these new tax provisions are perhaps too complex. A degree of complexity is inevitable and results directly from the fact that I want to ensure that the measure has the desired effect. It is essential that we define very carefully the qualifying companies and trades and the conditions under which the relief is available. The degree of specification in the legislation is no more than is necessary to ensure that it achieves its purpose.

In this connection I expect to hear the criticism of complexity being voiced in the next few days and during the passage of this Bill but the point I wish to make in advance of all that, and one that I should like people who might so criticise the Bill to take into account, is that we have here a measure that has a very specific aim. We wish to ensure that that aim is achieved. It is an aim related directly to increasing employment and to improving the productive base of our economy. I do not wish to see a situation in which any of the benefits of this measure would leak out to uses which would not make a contribution either to development or to employment. The measure is worded in such a way as to ensure that it hits the target we have set for it.

I have seen criticism of the Bill from the trade union movement on the grounds that it is weak on anti-evasion and anti-avoidance provisions. I should like to make it very clear that I reject this criticism. A number of such provisions are contained in the Bill and perhaps the most prominent is in section 29 which deals with the practice of bond washing. The announcement of this new measure in the budget led to a strong overreaction which temporarily disrupted the gilt market but the market has settled down and is functioning normally, having absorbed the change. It is, of course, one of the functions of a market to adjust to changes in conditions.

Sections 30 to 38 of the Bill contain various tax provisions which have for the most part already been signalled in the budget. In section 31 the scope of profit-sharing schemes is being extended. To date interest in these schemes has been rather disappointing and I hope that the extensions in this Bill will generate a bigger response. Profit-sharing schemes can do much for the improvement of industrial relations and I should like to see both employees and trade unions taking a more active involvement in the development of these schemes. There is a provision in section 32 for tax relief of these schemes. There is a provision in section 32 for tax relief on donations to certain bodies for the advancement of subjects related to the arts. The intention here is to encourage donations for schools of music, art, drama and so on.

In section 33 provision is made for the continuation of the existing stock relief scheme for farmers. The requirements of stock relief in agriculture are different from those in the construction industry which gave rise to the new scheme set out in Chapter VIII of the Bill. On reflection I have concluded that we should retain the essential nature of the existing scheme for agriculture. I will however, bring forward amendments on Committee Stage to provide that the period of liability for clawback should be ten years following the year in which the relief is given and to improve the provisions relating to succession.

A number of capital allowances which were due to expire at the end of March this year are being renewed for further periods. These include allowances for plant and machinery, industrial buildings, multi-storey car parks and toll roads and bridges. I am extending also the scope of the industrial buildings allowance to include expenditure on laboratories used for analysis work connected with mineral and oil exploration.

The Bill provides in section 39 that, with effect from budget day or 1 March where appropriate, capital allowances on leased machinery or plant may be written off against leasing income only and not against all income as was previously the case. It provides also that the allowances will not be available for group relief purposes. These restrictions will not apply where machinery or plant is leased as part of a grant-aided incentive package by one of the State industrial promotion agencies. This embodies the budget decision to continue the present treatment of leased assets only in the case of grant-aided industrial projects.

Changes in the treatment of new section 84 loans and artificial preference share arrangements are contained in Chapter VI. The provisions are based on the terms of the budget announcement subject to certain exceptions from the withdrawal of tax advantages on section 84 loans subsequently decided on by the Government. These exceptions comprise manufacturing companies, certain service activities and subsidiary companies of agricultural or fishery co-operatives. The loss of the tax advantages under section 84 lending in these sectors would have meant a substantial additional cost burden for many businesses which are seriously affected by the present recession. In recognition of the difficulties facing industry at present, the Government have reviewed the budget proposal and decided on the modifications which I have mentioned. These are contained in section 40 of the Bill. In section 44 the transition period within which advance corporation tax will be payable at 50 per cent of the full rate is being extended up to the end of this year. This concession will cost the Exchequer about £5 million in 1985.

Chapters VIII and IX contain the new provisions for stock relief for qualifying traders other than farmers. The new system will broadly relate relief to price changes only and relief once granted will, in general, not be liable for clawback in subsequent years. In addition, relief granted under the old system which would have been liable for clawback due to decreases in stock levels in the year to 5 April 1983 or in any subsequent year will not be withdrawn. While clawback may still arise under the old or new system in exceptional circumstances, such as on a cessation of a trade, there are now provisions ensuring that clawback will not operate in cases where a qualifying trade changes hands as a going concern.

The amount of relief to be provided in the first year of operation of the new system will be based on 3 per cent of the value of a trader's opening stock. This gives effect to the budget decision that in order to control cost relief equal to 33? per cent of the price increase in the basis period will be given. The percentage to be used for calculation of relief this year will be subject to review in later years.

Section 64 provides for a restriction of the relief from capital gains tax which is available on the disposal of a principal private residence. Where such property is disposed of at development land prices, the relief will be confined to the gain on its existing use value as a residence and any development land gain will be taxed at the appropriate rate.

I now turn to indirect taxation. There are no major changes under the heading of customs and excise apart from those already announced in the budget. The provisions in sections 73 and 74, however, which deal with evasion of betting duty, have generated considerable interest. More effective measures to deal with arrears of duty and further penalties for illegal bookmaking are being introduced as well as penalties for fraudulent involvement of bookmakers' assistants. Additional grounds for refusal of certificates of suitability of bookmakers' premises are also proposed.

While some bookmakers have expressed dissatisfaction that the legislation does not go far enough to penalise those who engage in illegal bookmaking, the principal difficulty is to identify those acting illegally; once identification is made, the statutory penalties are considered to be adequate. I can give an assurance that the Revenue Commissioners will in future adopt a more aggressive approach to the pursuit of offenders under the new powers.

The main item in the Bill under the heading of value-added tax is the imposition of the 8 per cent rate on clothing. Regulations will be made to defer, until 1 September, the payment of VAT at point of importation on clothing materials which are currently zero-rated. Representatives of the clothing industry have informed me that seasonal factors in their business create a situation in which the earlier application of payment at point of importation on clothing materials would cause difficulties. These difficulties can be avoided without significant loss of revenue and regulations will be made to enable materials, at present benefiting from the zero rate, to continue to be imported by registered persons up to 1 September without payment of VAT at point of entry.

As I indicated to the House on budget day, the continued zero-rating of certain children's clothes will be operated on the basis of appropriate sizes of clothes, not on the age of the particular child involved. It is intended that clothes for children of average build under age 11 years will be zero-rated. Since then discussions have taken place between the Revenue Commissioners and the clothing industry to determine what the appropriate sizes should be. Details will be published soon by the Revenue Commissioners and suitable regulations will also be made.

Section 83 contains two changes to tighten up the application of annual turnover limits for VAT registration purposes, and in sections 86 and 87 the powers of VAT inspectors are being extended to enable them to carry out their duties adequately in the course of their periodic visits to traders' premises. Section 92 provides for the reduction of the VAT rate from 23 to 18 per cent in the case of short-term hire of cars, caravans and boats. This reduction is being made to benefit the tourism industry.

Part IV of the Bill deals with stamp duty and the bank and insurance levies. The provisions for the calculation of the levy on the banks are broadly similar to those used in previous years and are designed to yield £25 million in as fair a manner as possible. The basis on which the levy is charged in the case of life insurance business is being altered. This change was requested by the insurance industry and it will have no effect on the yield. I am providing in section 95 for the extension for a further year of the stamp duty relief in respect of the transfer of land to young trained farmers. This relief would otherwise have ceased in July.

The changes in capital acquisitions tax and the new tax on discretionary trusts, which I announced in the budget, are the main items in the final sections of the Bill. It is difficult to legislate adequately in the case of discretionary trusts and to reach a proper balance which will avoid penalising trusts set up for genuine purposes while at the same time minimising the opportunities for avoidance or evasion. I am confident that this legislation secures a reasonable balance and that it will not cause hardship. The reorganisation of the capital acquisitions tax is overdue. The spread of tax rates was confusing, to say the least, and the complete aggregation of benefits is a sensible and fair arrangement.

Last year I announced that provisions would be incorporated in this Bill to counteract abuses in relation to insurance-linked investment schemes. I have accordingly prepared appropriate legislation. As an alternative to this legislation, the industry has proposed the negotiation of a code of practice and in view of this I have deferred the question of legislation for the time being.

The terms of a code of practice are still under discussion but, if it is to be effective, it must apply in respect of all new investments from the date of its introduction and remove the potential for abuse by requiring that these investments conform to certain rules. I hope that the matter can be settled before we debate this Bill in Committee. If a code of practice is agreed, it will be put into operation shortly after the enactment of the Bill.

Arising from the suspension of the system of certificates of reasonable value, I will be providing on Committee Stage that as from the date of enactment of this Bill a CRV will no longer be required by purchasers of residential accommodation for the purpose of claiming tax relief under section 23 of the Finance Act, 1981, as extended in the Finance Act, 1983.

This Bill is an important piece of legislation which provides for substantial improvements in our tax code. In the course of my Budget Statement I set out the principles that will determine the Government's approach to tax policy over the next few years. We are working towards a more equitable and more efficient taxation system based on a wider tax base and lower rates of taxation. We have a long distance to go yet before we can claim that these objectives have been achieved but progress is being made and the Bill before the House is evidence of this.

During the course of this debate I am quite sure that a number of suggestions will be brought forward to relieve taxation in this or that area, to provide for greater levels of incentive and, in fact, to do a great many things which would alleviate the tax burden on different groups or different individuals in our society. I have to say, as I said a few moments ago, that I have every sympathy with that general approach and every intention of taking opportunities which present themselves of alleviating the tax burden on business, or our productive sectors and ordinary individuals. We must, nevertheless, bear in mind the fact that our total tax revenue today, even with our present rates of taxation, is nowhere near adequate to cover the total expenditure which we have provided for during the course of this year. That is a single fundamental point which is very often missed in discussions on taxation or on public expenditure. If we were now covering our expenditure requirements, even our current expenditure requirements, from tax revenue, we would all feel that we had a great deal more leeway to adjust the incidence of our tax system, to redistribute the incidence, or even to alleviate the total burden. Since we are not in that position it seems to me that simply to make the case for alleviation of taxation, while we might all agree with it, is not enough in itself.

This Bill, as I said, is designed to give statutory effect to the provisions of this year's budget. Since the budget was announced and passed by the House no new factors, no new circumstances, have come to light which would in any way lead me to change the overall thrust of budgetary policy which as I said at the time and again today, is carefully constructed to fit in best with the circumstances in which we find ourselves this year and to leave us in a position where we can continue during the course of this year to make the progress which we made during last year in terms of total production, total exports, and to put ourselves in a position to benefit from the further buoyancy which we expect to find in world trade during the course of this year so that we can, by the measures which are set out in this years budget, and indeed by other measures, get whatever benefit is available that we can direct into the expansion of employment in our economy.

This Bill, as I said, is intended to give statutory effect to those provisions. The Bill is what results from the budgetary policy we have had this year. It is in that sense, and in the context of those overall objectives, that I will approach the debate on this Bill, which I commend to the House.

Our analysis of the Bill will obviously be related to the proposals announced in the budget which are, as the Minister indicated, incorporated in the Bill. Before I come to those detailed analyses, we must also respond to the Minister's general comments about the general purposes of managing the nation's finances and how this Bill will help to achieve that, as he suggests it does.

We might have been prepared for some of the Minister's suggestions but we could not have been expected to be prepared for the idea that this Bill is moving towards equity in taxation, reducing the tax burden, restoring order to the public finances, contributing to growth and employment, and I propose to deal with each of these in some length. However, before I do so, I wish to dispel the myth that the Minister and the Government have been spreading for some time and which has been repeated here again this afternoon by the Minister, that the criticism of his budget ignored the fundamental necessity to maintain the policy of restoring order to the public finances. Let us see how this order is being maintained before we come to deal with the impact of the Bill.

The Minister indicated that he was going to reduce the current budget deficit. If we are told that the nation should expect that an increase from £960 million deficit outturn last year to £1,100 million deficit outturn this year will reduce the current budget deficit, than we are talking a different language and the public know this. The Minister said it is too early yet to comment on the outturn for this year and the only reason the Minister said that is that he knows that relevant comments indicate that the deficit for this year will certainly overrun the Minister's projections, £1,100 million, which is a significant increase over last year's deficit and yet we are told that the public finances are being brought into order.

In this extraordinary production the Minister also mentioned the determination of the Government to reduce the general level of foreign borrowing. On 6 or 7 February the Minister said in this House that the total State foreign indebtedness increased by £2,000 million last year. That is on the record and is not a matter of argument from me or any other Deputy on this side of the House. Can anyone say that that is reducing the target of our foreign indebtedness? When that is taken in conjunction with the fact that already in the first quarter of this year the Government have increased foreign borrowing by a further £677 million, are we now going to face reality and look at the Government's second target when they came to office? They said that borrowing would be reduced but we now find that the deficit is being decreased by being increased and that apparently borrowing is being decreased by also being increased every day. We are then expected to accept that the Government are moving towards putting the finances in order.

We are also expected to accept that the Government are restoring our competitiveness. We all agree that this is necessary and, if there has been a disagreement, it is that the Minister has focused on this as being the only priority in terms of our international competitiveness. In the 12 months before the Government came into office, inflation dropped from 23 per cent to 12 per cent, a reduction of 11 per cent. They are now in office for almost 18 months and we are still in double digit inflation figures and the latest official returns show an increase in the underlying rate of inflation over the trend in the previous three months. The previous Government managed to reduce inflation by 11 per cent but in the last 16 months, although international trends are favourable to the Government in terms of reducing inflation, we are expected to acknowledge this as another achievement. The reality is that our OECD partners have an average rate of inflation of 5½ per cent or 6 per cent. Our inflation has remained high purely through the actions of the Government who ignored our advice in the budget last year on three fundamental issues: indirect taxation, the level of the increases which they imposed last year which are now filtering through, and the mistaken decision to realign our currency within the EMS. That flock of chickens is now coming home to roost. When the Minister was negotiating in Brussels we argued against it publicly because of the extraordinary leak from the Taoiseach in Dublin. This ensured that inflation, far from coming down into line with the international trend, is significantly and uniquely out of line with that trend which is indeed favourable at present.

It is clear that when the balance of payments is revised there will not be a very favourable trend because of what is recognised widely by a whole range of commentators as the black hole into which so much of our money is escaping and disappearing. When the figures are released the Minister may use terms like variable or other gobble-de-gook——

The Deputy need not anticipate the terms I will use.

I wish the Minister would restrain himself as I did when he was speaking although I found it very difficult. I am quoting terms the Minister used in the House; his recollection is also faulty——

I said the Deputy should not anticipate the terms I would use.

The Minister's recollection is as faulty as his accounting. There is a suggestion that the Minister is at least a good bookkeeper. In fairness to all bookkeepers, he is very badly qualified. Of course we welcome export buoyancy from the manufacturing industry but it should be clearly acknowledged that new manufacturing industry, almost exclusively introduced by Fianna Fáil in Government in the period from 1977 onwards, new technologies and pharmaceuticals, raised the home industries from their knees as has been acknowledged. However, the Government boast of the achievements of someone else.

The pièce de résistance in the Minister's speech was the following:

We are working towards a more equitable and more efficient taxation system, based on a wider tax base and lower rate of taxation.

The Minister has turned words on their head in respect of budget deficits and we will come back to that again. The Government are reducing foreign borrowing by increasing it: words are certainly changing their meaning in this House. When we hear the Government telling us they are working towards a more equitable and efficient taxation system based on lower rates of taxation and a wider tax base we know that not only are we in cloud-cuckooland but we are in the outer atmosphere of cloud-cuckooland.

The Minister was quite right in anticipating some of the things we were going to say. Is it not extraordinary that he anticipated our criticism of this Bill, that it would give rise to confusion and complexity? How was this possible, apart from the benefit he may have got in watching our Ard Fheis which I am sure he will realise did not spend too much time on the people across the floor of the House. The Minister has been told by every concerned group that the budget was a disincentive in every sense and if what everyone knows to be the reality is repeated in this House the Minister should not be surprised. We believe that this Bill and some of its provisions will give rise to even further complexity and that it will be self-defeating like so much of what this Government have done. It will not help them to achieve even their own narrow targets and because of their damn bad bookkeeping they will defeat their own objectives.

Whatever about targets, budget aggregates and figures — and even here the Government are telling the big lie — the real issue is the almost 250,000 unemployed and the Minister seems to be coming around to facing that fact. The unemployed are much more important than budgetary aggregates. The Minister had the extraordinary cheek to imply that this Bill and the budget are moving in the direction of improving the employment situation. Does improvement mean the extra 40,000 people who have been out of work since this Government took office? It is no great pleasure to say that many more thousands will be unemployed by the time the impact of this Bill is felt throughout the economy. Another 25,000 or 30,000 people will be out of work next year. If that is improvement, perhaps we should really move to restore the Irish language as the first and only language here so that we can use it in terms that cannot be confused in the way the English language now seems capable of being confused.

Let us consider how we are moving to a lower rate of taxation and a wider base. I do not suppose the Minister will mind if I start with 1980. There are two reasons: the first is that at that time I sat where the Minister is sitting now and, secondly, it was the year I established the Commission on Taxation. The purpose was to consider the whole range of taxation having regard to the need for equity and the national economy and to use the system not just as an element of penalty but also as an instrument of incentive. If I started in 1979 some of the comparisons I shall point out would be even more damaging against the Minister.

In 1980 income tax receipts were just over £1,000 million but four years later the forecast is for just short of £2,000 million — to be exact, £1,952 million. That is some progress towards reducing the level of taxation — a doubling of income tax in four years. The most significant part arose from the budgets last year and this year. In 1982 the figure was £1,459 million and that sum is forecast to increase by £500 million. The Minister said some rather ominous things today which suggests that there may be worse to come. However, we will take the forecast figure as the bottom line.

In 1980 taxation was £1,631 million but this year it is forecast to be £3,372 million. I know that this is taking inflation into account but it is almost double what it was four years ago. Yet, the Minister tells us we are moving towards reduced rates of taxation. Of course there was a reason for the increase. In the meantime, little matters such as income levies were introduced. As I mentioned on another occasion, Edmund Burke was right when he said that any fool can contrive new tax measures. The income levies are worth quite a lot — a sum of £153 million has been forecast for this year. Social insurance, through PRSI, has increased from £455 million in 1980 to £960 million. I am talking now about what is forecast even though it appears that a supplementary budget will be necessary this year. Total taxes have increased in the period from £2,979 million to £6,125 million, all at a time when we are told we are moving towards equity in taxation and lower levels of taxation.

The Minister made the extraordinary statement that implied that total tax revenue is nowhere near adequate.

What is the rest of the sentence? The rest of the sentence was "to cover our current level of expenditure".

He said it was not adequate to fund our expenditure programme, but who is responsible for that programme? Who has responsibility in Government, who has to decide how expenditure should be used? When the Minister tells us that total tax revenue this year is forecast at £6,125 million not alone will people at home start to shudder — they have every reason to do so — but those outside the country will have another cool look and decide that, wherever else they may go with their funds for investment, they will not come in our direction because of the increase in the tax burden of the type announced by the Minister. The Minister has told us that there is not adequate cover from tax revenue to fund the current expenditure programme. If such signals are coming from the Minister I believe the Finance Bill will give the wrong signals at home and, more important, to those who are looking at the country as a target for investment and as an opportunity for expanding their activities through investment.

I should like to give some figures in regard to income tax as a percentage of GNP. I recognise that quoting figures as I have done does not tell the full story, but to round off the picture on the general level of taxation I should like to put them in context as a percentage of our GNP. That relates them to the question of public expenditure also. In 1980 income tax as a percentage of GNP was 18.9 per cent and one year earlier it was 16.9 per cent — I am not picking the most favourable contrast for my own purpose. This year, before we get another blow at a later stage, it will be 23.1 per cent of GNP, an increase of more than 4.5 per cent in terms of its proportion of our total wealth. We have been told that we are moving towards equity and a reduction on the general tax burden. Our total taxation as a percentage of our GNP in 1980 was 34½ per cent of our total wealth expressed in GNP. This year it is forecast that it will be 42 per cent of our GNP. Before the Minister took over in 1982 it was 39½ per cent. It should not be said that inflation is causing all this. The reality is that the Government's programme is narrow, and short-sighted. Revenue preoccupation is the cause of the distortion and disparity that is now emerging in our economy.

At home and abroad revenue is seen to be the preoccupation of the Government to bridge the deficit, something that is broadening all the time. The old bridge is creaking so much in the middle that it is splitting. The gap has broadened to such an extent that it has become a gulf. That is happening because of the Government's preoccupation with the narrow targets which although valid enough in themselves ensure that they are self-defeating. Meanwhile, our people pay the price — 250,000 of them, with more to come. There is great hope and scope, something I will deal with later.

I should like to deal with some other matters in the Bill. It would be interesting to compare the rate bands for married couples as introduced in the Finance Bill of 1980 and those proposed today. It is no harm to point out that in 1980 there were not any levies and the PRSI levels were a lot less. The provision of a 25 per cent tax rate on the first £2,000 in 1980 has gone. The 35 per cent rate in 1980 was £8,000 and it is £8,000 in 1984. The 45 per cent rate was £4,000 in 1980 and is the same for this year. The figures are the same for the 55 per cent rate, £4,000. In 1980-81 the balance was at 60 per cent but for 1984-85 we have the new rate of 65 per cent which did not exist in 1980. There has not been any adjustment in the tax bands for four years. It is important to make it clear that we have got rid of the lowest rate of 25 per cent and added a new rate of 65 per cent. Account has not been taken of inflation in that four year period. The elimination of the 25 per cent and the introduction of a new rate of 65 per cent is the reason why the income tax share of total tax and as a percentage of GNP has increased so enormously.

The increase in the CPI between February 1980 and February 1984 was 78.2 per cent. One can give many examples of how that is biting in different directions. It is difficult to compare families with children here with those with children in Britain or in Denmark because in those countries they tend to have fewer children. However, the one thing that is constant is the position of the single person. A single person earning £12,500 with PRSI levies and standard tax allowances can be in a marginal rate of tax of 75 per cent. A counterpart of that person in the UK would have to earn £40,000 sterling to get to the same point, almost IR£50,000. I do not know why the Minister has mentioned competitiveness when one considers those figures. When one considers how much those who are subject to the PAYE income tax system must pay between levies and taxes is it any wonder that we get the reactions from the trade unions such as those in recent days to the admonitions, decisions or diktat of the Government? Is it any wonder they are not prepared to listen?

The Minister may find it difficult to restrain himself when listening to me. I had difficulty when listening to him turning facts on their heads. However, it is more important that he consider how the Bill will achieve what should be our priority; to get some discipline into the public finances and, above all else, to create a climate for a renewal of growth activity and a renewal of the spirit of enterprise and incentive. We will be making some considerable proposals on those matters and I hope they will give a little hope from Leinster House this afternoon as distinct from the message we have got from the Government since they took office.

I should like now to deal with the budget deficit for this year. The Minister has told us that it is too early yet to give any indication of the deficit. Some trends change from time to time but it is not too early to comment. The Minister may use the bland expression, being "broadly in line with the projections of the budget", and that covers a very big area. However, I should like to point out some specific areas which are anything but broadly in line with the projections in the budget and which suggest that we have a shortfall already after the first quarter of about £80 million. If that trend continues we will have a deficit of about £300 million. We should take account of the increase in inflation over last year and the fact that for the first three months of this year the high penal rates of VAT, which the Minister introduced last year, were in operation; they were in operation for only one month of last year. With inflation during the year running at 11 per cent, one would expect that VAT receipts would be 33 per cent higher in the first quarter of this year, but they are not. They are 21 per cent higher, leaving a shortfall of 12 per cent.

The Minister has been getting a bit tetchy with economists these days. The particular economist involved on this occasion had been an adviser to the Government until recently, Brendan Crowley. Indeed he was an adviser to successive Coalition Governments. In the Sunday Independent this week the Minister commented on “that kind of smart-assery these people have produced to sell their services”. They are economists who up to recently advised the Government, but when these economists produced figures not acceptable to the Government they are guilty of smartassery to sell their services. There will be other economists making the same comments.

The Deputy was wrong last year. He never learns.

I do not mind so long as I do not have to learn at the Minister's feet. I hope the Minister will retain his cool. I am more concerned with the terrible damage the Minister's ill-informed policies are having on the country. Perhaps it is because of his lack of experience in Government or in public life generally. The Minister told us it is too early to comment. Of course it is not when one sees that so far the figures are exactly the same in regard to excise receipts — £263 million, the same as in the first three months of last year. The Minister has said that does not show a trend of revenue shortfall. It is line ball, exactly the same as last year. With inflation running at 11 per cent we are asked to believe that there is no evidence of a shortfall or of a trend in that direction. Of course it is not too early to comment. It is about time we pointed out that this is evidence of the Minister and the Government ignoring advice from this side. We told them that what is now emerging would happen. That advice can be read in the debates of last year.

In regard to income tax, the budget target was for a 17 per cent increase throughout the year. In the first quarter, when the figures will not be affected by the reduction in the budget, if it can be called a reduction, the figures are now beginning to take shape and it can be seen that instead of a 17 per cent increase in receipts the increase is only 15½ per cent. The Minister said it is too early to comment. It is time he would comment. There were two significant omissions from his speech, which I have now supplied. One is the whole picture emerging in relation to total taxation, and the distortion in regard to the increasing burden of taxation. The Minister is not only confused but he is contradicting himself.

I am concerned about the people outside. The Minister ignored the trend because he did not want to face it. I happen to be a member of the Committee on Public Expenditure and though I commented in the House in relation to the black hole of taxation the Minister passed it off as gobble-de-gook. The members of his party on that committee — I will not name them because they are on record — are insisting on getting to the root of the problem with the Department of Finance. That committee will insist on having the Central Statistics Office before them to ensure that we will get the precise reasons for miscalculation. This will occur at next week's meeting.

How much of the Minister's speech in introducing the Bill can we take as a guideline this year? I refer to his speech last year, reported at column 412 of the Dáil Official Report. He said at one part that the emphasis is specially directed towards countering evasion and improving collection. He also said:

I welcome the new awareness of the need for a better distribution of taxation because there is scope for considerable improvement.

Later he said that the changes in legislation would be supplemented by administrative procedures. There was to be a streamlining and we were given an assurance that the legislation would be improved by administrative procedures. We know what happened about the property tax. The revenue was a net £300,000 but the Minister had expected to get £10 million from it. Is it any wonder the whole tax system is creaking, falling apart? Apart from the black economy it has generated only one growth area, the major accounting houses who are sending out proposals to their customers to try to make the most of the complexities in the Finance Bill. They are saying that even the new incentive scheme is so complex that they should seek their professional services. So much public time will be spent teasing out these little details that the only growth will be in waste of time, not in revenue.

This Minister does not seem to be capable of introducing even small changes in a simple and effective way. He surrounds these changes with so many qualifications, ifs and buts that they are self-defeating. In fairness it must be admitted that he is consistent because he said today what he has said on many other occasions: that his priority is to regulate and control tax revenue and to seal off loopholes. By crossing the "t"s and dotting the "i"s without having regard to the needs of the economy and using the tax code as an incentive element, he is making sure that the only people to benefit will be the accountancy firms and the people in the black economy. As he crosses one "t" they uncross another. That is the type of approach which is occupying this Government, but it is doing nothing to encourage incentive and activity of the kind that is so necessary.

Besides complexity, inconsistency and words being turned on their head, there is also the question of confusion. Let us take words at their plainest meaning. In the Budget Statement the Minister said:

With effect from today, "new section 84" lending and artificial preference share financing will not confer tax advantage.

Nothing could be simpler than that.

In addition, accelerated capital allowances, that is, free depreciation on initial allowances, will not be allowed in respect of assets leased from today to customers by financial institutions, except where such new leasing forms part of a grant-aided incentive package by the State industrial promotion agencies. The overall amount of leasing will be maintained at about the present level sponsored by these agencies. The Finance Bill will contain provisions to ensure that these measures are not circumvented by the transfer of tax-based leasing to the non-financial sector or by the undue continuation of existing "section 84" loan arrangements.

Obviously things have changed in a short while and the gospel of January 1984 is now cast aside. I would not make too much of that if that were the only change because there is something to be welcomed in this U-turn. I do not worry about U-turns if they are in the right direction, but I am worried when the Minister takes a U-turn and creates confusion in the minds of the people. They do not know exactly what the Minister is doing or even when he will change his mind again. As I said, the Minister made a U-turn but over the weekend he is reported in the Sunday Independent, 1 April 1984, as saying:

It represents a substantial assistance from the taxpayer without control or direction and it does not conform with any aim other than reducing the costs of borrowing.

This is a clear indication that the Minister may change his mind again. He also noted that its creation was an accident arising out of a previous attempt to close a tax loophole. From all he said we believe that this tax based lending is not finally secure. Within the last month or two this Minister has been persuaded to restore it but he is not giving a signal to the public at large or to investors that it is there for good and that the argument is over. Between last year and this year this Minister has sent out so many confusing signals that people interested in investing in the future of this nation will pause. They may say that the Minister is a cool and calculating dude, but even a cool dude can speak with different tongues and give inconsistent signs. We have been consistent.

Last year the Minister got rid of the 50 year old tax credit for shareholders in publicly quoted Irish companies which had been introduced in the time of Seán Lemass. Last year we pointed out to the Minister that the need to invest in Irish publicly quoted companies was so obvious that he should not get rid of this concession. Nevertheless he got rid of it. He has not restored it this year although he responded to some degree to our request which I put on the record of this House. During last year's debate on the Finance Bill I asked why he did not extend the interest tax relief to cover individuals who had invested in productive companies, why he did not introduce some relief to stimulate development of a venture capital layer for which there was a great need. At that time Deputy Molony nodded his head but the Minister did not listen to us. For the past 12 months I have been calling for the risk capital section, and more, but the Minister set his face against it last year and moved in the other direction. In this year's budget he says "new manufacturing industry" and today he says "manufacturing industry". This is so circumscribed by conditions, regulations and qualifications that it is not very good because it will not stimulate anything like the amount of economic activity and investment required to change the direction in which this Government are going.

Foreign investors ask about the tax climate in a country in which they are interested in investing. They want to know what it is like to be in business in different countries. They consider what members of Governments say. Businessmen from America, the Netherlands and so on watch and listen, because they want security. A little more than a year ago the Tánaiste said that the price for the continuing support of the Labour Party to the Coalition would be that in this year's Finance Bill there would be a wealth tax. If anyone doubts my word he can check the record. We do not have the wealth tax, for which I am glad, but so much for the commitment and determination of the Tánaiste. Confusion is created because people do not know what is happening and this undermines the climate for investment.

There is a new provision in relation to risk capital. The essence of the scheme is that individuals are to be allowed income tax relief in respect of investment in manufacturing companies up to a limit of £25,000 in each of the three years from 1984 to 1987. The first criticism is that it has taken the draftsman 20½ pages to deal with this subject in a language which is totally incomprehensible to any businessman. It is twisted, confused legislative jargon. Is it any wonder that the Minister says he knows it will be criticised for its complexity? It is a good example of how legislation ought not to be drafted. No businessman or investor in his senses would attempt to avail of this relief without seeking the most expensive professional advice. Where did the figure of 1 per cent commission rate for fund managers come from? Any good promoter may scoop up all of that in preparation of the investment programme, even in the first six months, and from there on he is tied to 1 per cent. Why must we include such restrictions when we are trying to do something new? Are we so concerned with regulating and controlling tax that we must keep everybody on their toes? This is a crazy restriction which time will show to be self-defeating.

Why are quoted companies excluded? I am sure there is a tax revenue reason for it. One of the great disadvantages of investing in Irish companies is the problem of disposing of the investment. The Stock Exchange is not the vehicle it could be for creating an investment climate. It has become a gambler's paradise, although some of them have lost heavily recently. The Stock Exchange is anxious to help create an investment climate and has expressed that view. Publicly quoted companies are excluded. What is the rationale of this? Why should somebody purchase an asset if there is no possibility of being able to sell it on the market? The reality of business is that people like to buy and sell. It is the reality in, for instance, the United States where everybody is a potential investor or entrepreneur. Every single employee in the Pan Am building is potentially a millionaire because he or she is watching the market and buying and selling. We are imposing niggardly restrictions to ensure that such a climate cannot develop here. It is of fundamental importance that companies should be able to avail of this scheme, even if they are quoted on the Stock Exchange or on the unlisted securities market. Why should they be excluded? If the investment is sold within five years there is a recapture of the allowance in any event. Why should the Government worry whether a company is quoted or not? I leave that question with the Minister. It is a question many business people are asking. The Government are doing something new but do not want to see too much tax being lost, irrespective of the tax from increased growth, and they are trying to seal off the loopholes.

No individual can benefit from the relief if he and his associates control more than 30 per cent of the share capital. What is the purpose of this 30 per cent restriction? A relative of the owner of a business cannot benefit. An individual taking up, say, 25 per cent of the share capital would benefit but it would be clawed back if, unknown to him, his brother were to take up more than 5 per cent. From now on one is responsible for the actions of his brother and any other relative. This is nonsense. "I am not my brother's keeper" is a statement made in the Bible but under this Bill we are responsible for the actions of our brother or other relatives.

The proprietors of business are excluded, as are paid directors. Why is this so? The companies most likely to succeed are those which have already been started. It is much easier to expand than to start from scratch. Therefore the 30 per cent ceiling on family shareholding will make the scheme totally ineffective. Why impose so many restrictions?

Product development, marketing and research and development are an essential factor in our economic development. This was stated many times at our recent Ard Fheis and I have often said it in the House. We are giving relief for investment in fixed assets and so on but marketing, research and development are excluded. These needs are completely ignored. This may not be deliberate and perhaps the Minister will respond to some of our proposals. I cannot imagine why, when the whole emphasis is on the development of employment through the skills of our people in marketing, research and development, we should deliberately exclude it from the new scheme. We deliberately exclude that from this new scheme while we include matters such as physical assets which, unfortunately, are becoming more and more not quite the great assets they might have been with so many of them closing.

Then we find the relief is confined to manufacturing companies which do not have manufacturing subsidiary companies. Many Irish companies are structured with a manufacturing company and a subsidiary sales company. Why not? It is the nature of things to have manufacturing companies with subsidiary sales companies. Why not acknowledge this reality and encourage it? What is wrong with it? If they are structured in that way they are not included in the Bill. Is it because this was introduced reluctantly, or is it because of the Revenue Commissioners? I do not know.

If the Minister listened to business people as we have been listening to them over the past number of weeks since this was announced, these things would have been pointed out to him. An investment in such a manufacturing company with a sales subsidiary will not qualify for this relief. I do not know why. Perhaps the Minister will get rid of that restriction, regulation and qualification and we can move on and get people to invest, and to hell with the blinking restrictions and qualifications.

It is understandable that, when they are making their investments, investors want to know that the company will qualify. It should be a definite requirement on the Revenue to give rulings within a very specific time frame. If Revenue cannot give these rulings very quickly, it might be better to leave them to some other agency such as the IDA or CTT who have been engaged in commerce. When we are trying to promote investment, activity and employment, I am not sure that we should leave the determination of the criteria to the Revenue Commissioners. Their inclination — not always, but understandably — is to cut off the loopholes, to seal off the exemptions and tax avoidances. That is what they look at.

We are not concerned with that kind of nonsense any more. We are not concerned with an administration who are engaged in their own little game. We are concerned with the world out there that needs something new. We are concerned with business people who are asking when will the Government get off their backs and give them encouragement. If they have many more qualifications and any requirements and bureaucratic chains around their necks, they will give up the bloody candle and say it is not worth their while, that the only reality is the reality in the Civil Service or the Department of Finance, and in the Minister's small mind. It is time we got away from that. We got 20½ pages when half a page would have done. If the Minister lost a miserable £5 million or £6 million out of a total tax bill of £6 billion, so what?

I want that £5 million or £6 million to create jobs.

The Minister is not worried about that.

Deputy O'Kennedy is working up a terrible head of steam.

The Minister is not the man who will create jobs. The people who will create jobs are the people out there on the ground, the doers, the goers, the workers, the investors, the men who started with a small little forge and are now running foundaries or whatever, the men who came in from the hills and started factories. This Minister is the last man in this nation to create one job. He should at least create the climate in which people such as I have described will create jobs. Instead, with his small little mind he is circumscribing them in every direction. He wants to ensure that he will have his miserable £5 million out of a total tax bill of £6 billion. He cannot see the need and the opportunity to take down all the bloody signposts which are pointing in the wrong way, pointing down a cul-de-sac and into desert areas. He should point them in one direction and give people an opportunity to move forward.

Even if the Government are to get credit for that, we have reached the stage where the national interest is much more important than who sits on which side of the House. That is really true. With young people looking for jobs we would prefer to see the Government change course and succeed, and perhaps be reelected if it came to that, rather than to have this awful preoccupation with small-minded and niggling regulations which are killing incentive. We have more of that here today.

Why is the scheme confined in terms of the kind of company that will qualify? In the United States the number of people engaged in manufacturing is declining rapidly as a percentage of the total workforce. Does the Minister know that the numbers engaged in the service sector in the United States are about the same as they were 20 years ago, but total employment has increased by about 2 per cent each year. Where? In the service sector over the same 20-year period, as is the case in Japan, Norway and Switzerland. The Minister is confining it here to the manufacturing industry. Why? We have asked him many times.

Why exclude tourism? Why exclude the hotel industry? We are in an international growth pattern in tourism, and we have been for the past number of years. Why exclude tourism with its employment potential? Why exclude the construction industry? Why exclude the ones I have mentioned and put restrictions around them?

Fewer people are producing far more goods than previously. That is the pattern now, not only here but all around the world. New employment is being generated and not just in the manufacturing industry. We must face that reality. At the Ard Fheis we concentrated on employment. New information technology areas are being excluded. Some may get in and some will not. The scheme takes very little cognisance of that except to a limited extent with regard to some of the services. Surely it goes without saying that service companies must develop on the home market too. They have to get experience on the home market before they can effectively penetrate export markets.

Do we expect to see service companies penetrating export markets before they get experience at home? They are excluded. It is given to export services and one welcomes that. Why exclude services on the home market? I do not know, unless somebody said to the Minister: "If you put in too much of that you will find that there will be a Revenue linkage or a shortfall and that is the last thing in the world we want". That day has long since gone. These companies have to learn to walk before they start to run in the external service area. I should like to see the availability of the scheme extended.

I hope the Minister will listen to what we are saying. We will be saying it for a long time. I have been saying it for the past 12 months since I first mentioned it on the Finance Bill last year. It should be extended beyond the manufacturing industry to the service sector. We want to promote venture capital activity and new confidence. Last year on reflection he introduced certain restrictions in relation to external bank accounts which, incidentally, did not do us any good either. People do not like to be bitten when they get the wrong signal. He listened to us on a number of matters last year and I hope he is capable of doing the same this year. It is all about promoting a climate for employment generation and incentives.

The next matter with which I want to deal is that of the levels of value-added tax. By comparison with rates applying anywhere else in Europe our VAT rates are of such a dimension they are crushing many sectors of business activity, particularly in the service area. It is important that the Minister recognise that it has gone too far, is killing the whole climate of the service sector. Tourism around the world has been a growth area but we are not benefiting at all from such growth. This year, with the visit of President Reagan of the United States, we will be afforded an opportunity, unless Young Fine Gael manage to undermine the potential there——

Unless Fianna Fáil manage to do so either.

(Interruptions).

Deputy Owen should come down and join us.

The Deputy should take her seat in the House.

On a serious note, would the Taoiseach please tell these young boys and girls who are giving the impression to all and sundry that one can join Fine Gael and get whatever one likes——

A Cheann Comhairle, on a point of order, what has Young Fine Gael to do with the Finance Bill?

I am talking about it——

A passing reference.

A passing reference it may be but it is vitally important.

The Deputy came into the House only two minutes ago.

I learned from Deputy Gene Fitzgerald.

Let us be serious for a moment. We too have young people who feel strongly about the foreign policy of the United States. But however strongly one feels, if one wants to promote tourism, one must remember that the United States President has his reasons for coming here and we have our reasons for welcoming him, into which we do not need to go in detail. But one of the advantages to which we would look would be tourism in this and following years. If there are demonstrations on the part of Young Fine Gaelers or any other groups here——

We cannot go into this in detail.

——the end result will be the very opposite of what we want to achieve in tourism. Perhaps the Taoiseach and his Government would take these young people in hand, telling them that they can express their reservations some other way some other time but that it would be irresponsible and damaging to do it this way. It would be most damaging. Various television cameras would pick them up. Their photographs would appear on CBS, ABC, NBC and other networks— but we will pay the price.

The VAT levels imposed on tourism here are really crippling. Incidentally, reports today of the administration of the new package of exemptions for visitors are so complex that anybody who manages to avail of such exemptions will be a wizard. Before coming into the House I received a telephone call from some business people predicting that if this is what they and others are going to have to do the whole thing should be dropped because it is nonsense. I have not got full details but when I have I shall take up the matter again on Committee Stage. I had a telephone call this afternoon from a business person in County Mayo asking me to get across to the Minister how impossible it would be to implement these new provisions if it has to be done on the basis of the administrative regulations. Would the Minister please take note that present VAT rates are killing tourism and reduce the levels, particularly on services provided in restaurants, hotel kitchens and so on where the real employment is to be found. We must recognise that he would receive more money by so doing.

Another area, the electrical trade industry, is literally on its knees because people are buying televisions, videos and so on anywhere but in Dublin. As Deputy Allen knows, they are even travelling from Cork to buy them in the north of Ireland. None of us here begrudges what is happening in Border towns, but when one sees the revenue receipts going into the coffers of Madame Thatcher then one is entitled to ask questions. That is where those revenue receipts are going. These commodities are manufactured in England, the revenue is going to England and only the shopkeepers in the distributive trade in Newry and elsewhere are reaping the benefit. All of that is because of our penal levels of taxation — another black hole constituting something of the order of £250 million or £300 million flowing out of our economy and for which these penal rates of taxation are responsible.

Then there is our newspaper industry which is now having to compete with VAT-free newspapers from the United Kingdom.

About to change.

The newspaper industry and what it represents is of vital importance to us: the amount of employment it provides, the opportunity of having views expressed here by people from here — whether or not we always agree with them — as distinct from our neighbours in the United Kingdom being subsidised to do so. Therefore, the newspaper, electrical and tourist industries and many others are affected. Our difficulty on this side of the House is to assess which of those is most important in terms of our economy, a question we are seriously considering. If the Minister does not respond and reduce the general level of VAT then certainly we shall be advancing some proposals on Committee Stage.

As I have already indicated, the revenue yields from such value-added tax are not reaching the levels they should or could were those rates lowered. Last year the Minister indicated that he would review the question of the imposition of VAT at point of entry, or at least keep the matter under consideration. As spokesman for this side of the House, I can say that we would welcome such review. We would suggest strongly that the imposition of VAT be removed from products imported here for further processing. Employment is of such vital importance now that we would recommend the abolition of VAT on any products imported for further processing or manufacture. Employment must remain the central focus. Unemployment is now a matter of national crisis and anything that contributes to the generation of employment must be encouraged, even if this Government——

Does the Deputy's party support the expenditure cuts to go along with it? That is the question.

I have told Deputies on the other side of the House——

Deputy G. Mitchell will have an opportunity of contributing.

There should not be so many interruptions.

I have given many indications of where expenditure could be controlled. As Deputy G. Mitchell has asked me, I will suggest one for the moment — the public relations allocations for each Government Minister; it would be a good idea to start there. That is one example of a bloated nonsense in public expenditure——

And consultancies for the friends.

That is number two.

(Interruptions).

I must have order. I will not tolerate interruptions.

I will give Deputy G. Mitchell many examples of more significant public expenditure controls I would suggest over and above public relations and consultancies for Ministers.

Last year the Minister laboured the issue of evasion. It appeared he would talk so much about it that it would frighten off anybody thinking of investing here. There was almost a notion of collective condemnation of business people and the self-employed for whom we as a party have great regard. Indeed, monuments should be erected to the self-employed rather than always being made the butt of criticism, implication and so on. It should be made clear that there are some people who are smart guys. However, we should acknowledge the efforts of those people who take it upon themselves to set up their own businesses employing a few others. As regards evasion, last year we asked the Minister to ensure that a new Companies Bill would be introduced to deal with the scandal of some people using the limited liability concept to escape their responsibilities when they go into liquidation and then set up a new enterprise. We were told last year on the day the Finance Bill was introduced that it would be introduced very soon. I think it was Deputy Cluskey who said that. Twelve months later, the cowboys are still there.

The Deputy must relate this to the Bill.

Of course I will. With respect, the Ceann Comhairle must not have been listening if he does not think that is the case. Tax evasion is a matter of considerable concern for all of us. One of the areas, although it is not immediately a matter for this Minister, is the amendment of the existing legislation relating to limited liability. Some people have availed of this to pile responsibility onto the already overburdened taxpayers for their "smart-aleckry". I could use the Minister's term if I wanted to. They are cheating and they are criminals.

That is the one I used. I would not be as rude as that.

It is in quotations. If it is not, the record here will have to be changed. I was using a quote.

I know the Deputy always quotes these inaccurate things.

The Government will have our full-blooded support for that legislation. We are very critical of their tardiness in introducing that legislation. There are people availing of this to engage in criminal evasion of their liabilities and pass them on to others. Some have already done this and the Government should say that we have had enough of this nonsense.

I should like to refer to the Commission on Taxation about which the Minister had a word to say and not a very significant one at that. I appointed that commission in 1980 and told them to look at the need for a whole new system of taxation which would get rid of the complexities which were emerging then with allowances here, exemptions there and restrictions somewhere else. Even then they were a matter of serious concern. Now, four years later, they have become a matter of very serious concern.

The taxation changes in the budget and in the Finance Bill do not show any movement towards accepting the major recommendations of the commission. In fact, it moves the other way. In the first report it was argued that a single rate of income tax, lower than the current rate, should be introduced and that this should be applied to a wider base. The wide panoply of exemptions and deductions embodied in the current tax system could be removed. We should try to look at this seriously as a trade-off for a lower rate of taxation. I acknowledge that this cannot be achieved overnight but we should not be moving in a direction which would make it more difficult to achieve.

The commission also indicated that the taxation system should be adjusted to deal with distortions arising from inflation. This is of considerable importance. The Minister has become the major factor behind the rise in direct tax revenue through his indirect tax impositions. He is moving in a direction contrary to the recommendations of the commission. He is getting the benefit, as one often does as Minister for Finance, for revenue buoyancy which accrues when there is an inflation impact in the following years. The commission said that inflation has brought surtax to the lower income groups. I demonstrated that earlier in my figures.

The second report of the commission published last week shows this clearly. They said that in 1983-1984 approximately 40 per cent of taxpayers, 315,000, are expected to pay tax at rates above the standard rate of 35 per cent. This compares with 8,000 surtax payers or 1 per cent of all income taxpayers ten years earlier. Inflation has given rise to that situation. There were 8,000 in 1974 and 315,000 now. The Minister seems oblivious of the defects of the present tax system. The commission's report highlighted the fact that there are considerable problems with our tax structure. It is inefficient because it encourages tax avoidance rather than increased output. The system is creaking. We are not able to collect money from new devices which are introduced.

This Government have an insatiable appetite for tax but the more that is imposed on the system the more it fails to respond. It is unfair. People who earn income in different ways are taxed to different degrees although they all have the same income. The system is too complicated. I hope what I am about to say is not contrary to anything I have said previously, but it taxes labour and subsidises capital. There are studies which indicate that for every £100 a businessman invests in capital it costs him approximately £40 because of the exemptions and allowances that are available. For every £100 he invests in labour it costs him at least £170 because of PRSI, levies and tax. If a businessman is given a choice between £100 that will cost him £40 for a machine and £100 that will cost him £170 for an employee we know what choice he will make. We are arguing for businessmen to invest and I have mentioned the services in R and D marketing. Employment is so important that we should encourage investment in it and not just in machines and other assets.

The commission pointed out that the present system discourages saving. They said that in order to save £10,000 in a year and cover living expenses of £15,000 a married person would have to earn over £58,000 under the present system at 1983-1984 rates of tax and levies. In order to save £2,000 and cover living expenses of £8,000 a single person would have to earn over £21,000. That is enormous and outrageous. That is stated at page 43, paragraph 2 (19). For that reason we must look, on an all party basis, at the main recommendations of the second report of the commission. They are saying yes, they provide a limited range of tax incentives for certain companies and maybe they are against some of the things that I have been proposing to which the Minister is responding in some way at this stage. However, we must promote investment immediately as a matter of urgency, at the same time not excluding, in our review of the total tax codes, a look at some of these anomalies. Then we will begin to move in that direction, particularly having regard to the needs of employment inequity. There is a fair amount of sense in their proposals which I endorse broadly but I know that they cannot all be implemented immediately, and I prefer to see some evidence at least of moving in that direction.

Those are my comments at this stage. All of the comments of myself and my colleagues will have one constant theme, that of a tax system, if it is to be refined, being refined as a means to promote investment and entrepreneurial activity in our economy which is so badly needed, and this can be done. It will be fairly evident from what I have said that I feel that even some of the welcome innovations in this Bill are being introduced in such a fashion as to be quite the opposite. They promote further complexity, confusion and doubt and with those and disincentives we will continue, unfortunately, in the same pattern that I outlined at the start. I hope that when I get up to speak next year — maybe we will have changed sides in the meantime — if I am on the same side as I am now I will not have to say in my opening line that the total burden of taxation has now gone from 42 per cent of GNP to 44 per cent. If the pattern of this last year is anything to go by, unfortunately that is what I will have to say. I hope not, and on that basis I hope the Minister will have acknowledged some of the recommendations I have made at this stage, which we will pursue further on Committee Stage.

I do not believe in rubber-stamping or agreeing with everything the Government and the Minister say or the Department propose. In the various fora available to me in the parliamentary party or committees of the parliamentary party or in direct contact with the Minister as Chairman of the Fine Gael economic affairs committee I, with my party colleagues, try to raise issues with the Minister from time to time in an effort to have an influence on the decisions that are being taken because of the dire situation in which we find ourselves.

I find Deputy O'Kennedy one of the most consistent contributors in the House. He has proposed here today that the levels of VAT be cut, that there be cuts in VAT at point of entry and that PAYE be cut at the same time as we continue with the levels of expenditure that we have at the moment. That is very consistent because the only way to do that is by borrowing, which certainly has been Fianna Fáil policy for a very long time. The problem is that we have borrowed ourselves into a situation where 90 per cent of what we collect in income tax, mainly from the PAYE sector, is now being paid abroad to foreign bankers to service the finance which we borrowed so recklessly. That is the kernel of our problem at the moment. We have what is unusual in Europe, a population almost half of whom are under 25 years of age, and in certain suburbs of Dublin 60 per cent of the population are under 25 years of age, and all that Deputy O'Kennedy can offer is the same sort of policy as he offered in Government, lower taxation but no lower Government spending, which means more borrowing. That is a very sad contribution to make at this stage, given the very dire circumstances in which we find ourselves. It is not too much to expect, given our difficult circumstances, that the main Opposition speaker in this area would come up with some sort of contribution which would either suggest some solution to the problems or else put the Government under pressure to do something about them. Deputy O'Kennedy has done neither. He has just gone through the same sort of rubbishy speech that could have been contributed in this House at any stage by any Opposition spokesman who was reckless enough to do so for the last three years. I regret very much that the Opposition are not capable of putting the Government under pressure. I would welcome that and it is a pity that it is not being done. The sooner it is done constructively the better.

I want to refer to some of the things that Deputy O'Kennedy said and then make some contribution to the debate. He referred to the tax bands in the UK and said that people in this country were on to tax bands much earlier than in the UK. There are very good reasons for that. The Government are spending 60 per cent of GNP and they are collecting that amount to spend. The Government are interfering far too much in people's private lives. Instead of leaving money in people's hands to dispose of at their own will the Government are taking it and disposing of it for the people. That is not happening in the UK. There they have domestic rates which we have not got here. The UK does not have free telephones and free travel for senior citizens as we have here. The Government, having cut off various avenues of revenue, particularly in the area of rates which the Opposition seem to think a very good idea, are not in a position to collect the revenue to meet this enormous amount of spending. They collect that revenue mainly through income tax and the PAYE sector.

There is only one solution. If we are sincere about cutting the PAYE sector tax bill, then we must cut public spending, but if we try to cut public spending in even the slightest margin of areas the Opposition are up in arms and, what is more, within my party my colleagues and myself are up in arms because of the enormous complexity of the situation we are in. I was very hopeful that I would hear the Fianna Fáil Ard Fheis passing a motion calling for the introduction of single seat constituencies. I think that is a very good idea. We are competing all the time amongst ourselves and between Government and Opposition. How can we hope to govern this country properly if we cannot debate important issues such as the pro-life amendment, neutrality or any issue which a Parliament should debate because of the competitive arena we find ourselves in? We are all bending and bowing and afraid to move even one inch in either direction. The only way we can cut the income tax bill, PAYE in particular, is by the Government cutting public expenditure, not spending money for people and letting them spend it themselves. In that way much wasteful spending could be cut out because the same care is not exercised when looking after somebody else's money as when looking after one's own.

A few short months ago Deputy O'Kennedy in this House said many of the things that the present Minister is saying, and they are on the record of this House. During the debate on the Finance Bill last year I made the point that we must get away from this nonsense of saying one thing in Government and another thing in Opposition. Deputy O'Kennedy spoke about adequate taxes. He is the very person who said in this House as Minister for Finance that taxes were inadequate.

Would the Deputy please give the date of that quotation?

I do not have the quotation with me.

Is the Deputy in order in that?

He is if it is only an extract.

He said then that taxes in the area of excise would have to be increased. I would be happy to forward a copy of the quotation to the Deputy.

Deputy Fitzgerald will find that he said the same himself at one time.

Deputy O'Keeffe should look after Schull pier, now.

The Deputy's party were long enough looking after it.

We made a good job of it. It is a pity that Deputy O'Keeffe was not down there on Sunday. The people were talking about him then.

We cannot go on making general statements of this nature. We could expect a little more from the main Opposition spokesman, with respect to Government finances, last year's Exchequer returns show that for the very first time since 1978 Government finance has been on target. Despite suggestions by Deputy Fitzgerald of a mini budget before the summer recess the returns so far show that the Government targets for this year are only marginally out of line.

On a point of order, I have not started at all yet.

It is wrong to attribute some of our problems to this area. If we spent our energy in determining the areas which have problems, we would be carrying out a useful exercise.

The Central Bank, in their report of 31 December 1982, said that the fulcrum — and that was the word they used — of the plan for economic recovery was the elimination of the current budget deficit over a fixed period. They suggested four years. The NESC have from time to time suggested a four year period and every year or two a four-year period is suggested. The Government must give due regard to public finance and the bringing of the current budget deficit under control. The Central Bank are financial advisers. They have no responsibilities in this field. Their expertise would not extend to the understanding of the social implications of some of the decisions which they urge on the Government. They are right in suggesting that we must get our current budget deficit under control. I am not suggesting otherwise. However, this strict four-year limit needs to be examined and has been examined. At the end of this year in real terms the current budget deficit will be very close to what it was at the end of 1983. However, in terms of percentage of GNP, it will be somewhere in the region of 7½ per cent as against 8¾ per cent last year, which is real progress.

We must be happy that at least public finances are under control. If we cannot show that they are under control, we will not be able to borrow the moneys which we need. I am not talking about finance borrowed for day-to-day spending, which is wasteful and reckless spending. I am speaking about the capital money which we can justifiably borrow, on which we can get a return, and which will pay the interest on the capital which, in turn, can be used to create employment. We would otherwise find ourselves in the same position as Argentina, who are under enormous pressure to try to reschedule their losses and face all sorts of problems. The only difference is that, unlike Argentina, we are not self-sufficient. We do not have the same avenues of resistance open to us.

Our main problem is that during the period 1977 to 1981 we borrowed, and Deputy O'Kennedy is again advising us to — to pay for the abolition of car tax, of water rates, of wealth tax; the virtual abolition of capital gains tax and mitigation of the capital acquisition tax. Almost every tax was abolished. We all know why that was done, but I shall not go into detail on that at this time.

Deputy O'Kennedy quoted from an article in the Sunday Independent of the day before yesterday, which paper appears to be very popular reading with some Deputies. I wish to quote from an article by, I think, Joseph O'Malley, published side by side with the one he quoted headed “Europe pays Price for Seventies Errors”. It mentions that 15 months ago the British and French economists, James Ball and Michael Albert, were asked to report on a crisis affecting the EEC and the proposed solutions for recovery and growth. These two economists showed a sharp European decline in relation to both the United States and Japan where from 1973 to 1983 employment in the Community dropped by 3 million and in the United States rose by 15 million. Before 1973, EEC growth was much faster than in the US but since then it has slowed down with a fivefold increase in unemployment compared with a doubling in the United States and with Japan still enjoying full employment conditions. At the end of the decade the high unemployment, high inflation, low investment and high taxation conditions were a mirror image of Ireland's own problems. Europe, like Ireland over the 1973-1983 period had sacrificed the future to the present and bought off the crisis on credit. Consumption was preferred to investment and consumption was financed by borrowing and temporarily sustained living standards in excess of the wealth generated through growth.

That is how those two economists, charged with that responsibility, summarised the problem which faces the Community. Deputy O'Kennedy is suggesting that we borrow, even though we are not in a position to do so. It is not an alternative open to us. Deputy O'Kennedy, speaking as the main Opposition spokesman, trots this out as a solution to our problems. It is hard to believe that he is a full-time spokesman, which I understand he is. It is ridiculous that that sort of nonsense is offered here today.

Joseph O'Malley also suggests in his article — and it is probably suggested by the two economists referred to — that for a country without means of reflating the economy because of the state of the public finances, the attractions of a Community-led reflation are obvious.

The solution to our problem lies in the EEC context. It was heartening to see a contribution by the former British Prime Minister, Edward Heath, in the Sunday Observer of two Sundays ago in which he suggested the same solution. It appears that the Department of Finance did not think too much of that contribution, from the official reaction which I got when I raised with them some of the points he mentioned. European-led reflation is the only way in which we can make a significant impact on the problems we are facing and the sooner we try this the better. Most other countries, particularly Germany and the Benelux countries, are very disposed towards that type of approach. The people of the United Kingdom, perhaps with the exception of Mrs. Thatcher——

Would the Deputy please explain that point in greater detail?

Very many people in the United Kingdom, including people like Mr. Heath, are very much in favour of this approach. I think that public opinion there can be persuaded that the European approach to reflation will be helpful. It is the way in which to solve our problem.

Parliament and the Government must take a more leading policy role in the whole area of public finance and employment generally. It is very difficult to do that in the current environment but we must have the courage to act. There will be parties who will be aggrieved at such a suggestion, and I am not too sure that their difficulties could not be accommodated, but we must reach a stage where the Legislature and the Executive play the policy role they are meant to play. I am not sure that either play their role to the full extent in the area of public finances, of State funding and of employment.

As I said in my contribution on last year's Finance Bill, it would be helpful if the main parties were not dependent on trade unions or business sources for the revenue to run their parties. We should include in the Finance Bill a section which would put the onus on the State to fund political parties. If a trade union support a Labour candidate or if a business supports any of the three main parties, they are not doing so for some philanthropic reason but for reason of influence. It is time we brought the areas of policy and influence back to the Executive and put a stop to this business of faceless men being in a position to have a say without having any responsibility simply because they subscribe to party funds.

If we are serious about reform there are some specific areas we must turn our attention to and these include those two questions of the funding of parties and of Dáil seats. We must make these changes in order to be able to deal in a pragmatic and objective way with the problems of the country instead of being in the pocket of any group. We should not put ourselves in the position of having to look over our shoulders in deciding on what should be introduced for the common good.

I wish to refer to some items I should like to see included in the Bill. It is not my intention to suggest anything so dramatic that it could not be incorporated in the legislation. One area concerns an injustice that has been perpetrated on some people by reason of their not qualifying for the £600 PAYE allowance. This situation arises mainly for persons who are related to their employers, whether it be the case of a husband working for his wife, of a wife working for her husband or of the employed person being the son, daughter, niece or nephew of the employer. A good deal of hardship is being created because of this regulation. I have come across four or five such cases in my constituency during the year. One case concerns an upholsterer whose business is just about adequate to enable him to employ his son and thereby keep him off the dole, but the son does not qualify for this £600 PAYE allowance. Consequently, he is at the loss of so many pounds per week. That may not seem an extreme case but I know of another man who is living away from the family home and who, because his wife was working, was in the 65 pence tax band. He has a mortgage to pay. Suddenly, his wife discontinued working and the Revenue reviewed his tax and on finding that he had been working for his father for the past three years decided that he should not have been getting the £600 allowance. They decided to take back during the year 1984-85 the amount that he had gained during those years because of the allowance. This means that in this year he is paying back tax covering four years and all because of an allowance to which he considered himself to be entitled but which he is not entitled to so far as our Revenue rules are concerned. The man in question is the only one working in the family and his income is about £8,500 per year. This £600 allowance is very important to him and I cannot think of any good reason why he should not be entitled to it. I have raised this issue with the Department and before this week is out I intend proposing an amendment which would have the effect of making available to certain categories of persons the £600 allowance to which they are deemed not to be entitled. Obviously, the allowance could be open to abuse in that a person could put on his books his wife or son although they were not working for him. In that way he would be saving £600 at the highest tax rate. Presumably that is the reason for the restriction but surely areas of abuse could be identified and the allowance made available in cases that are genuine. I hope that the Finance Bill will be amended to change this situation.

I must be critical of the Minister and of his Department for their offering the excuse of not being able to devise wording to incorporate such a change. If with all the revenue officials we have we cannot devise proper wording we should devise a system which would enable us to have access to people who would be able to put forward formulae that would incorporate changes of this kind in legislation.

In the UK there is an advisory committee on taxation. They are known as the Tax Consultative Committee. In a reply in the House of Commons, the Chancellor of the Exchequer, on being asked who were the members of this committee and what were their terms of reference said that they were an informal body who meet from time to time under the chairmanship of a Treasury Minister to discuss various problems in the direct tax field. The Chancellor went on to say that the committee have no formal terms of reference but act as a sounding board on technical tax matters of current interest. He said that membership of the committee consists, on the one hand, of senior officials from the Inland Revenue and Treasury and, on the other hand, people knowledgeable in tax matters from the point of view of individuals, industry, commerce and the law, that these outside members attend in a personal capacity because they are experts in their respective fields and not representatives of particular institutions. The Chancellor said that their discussions are confidential.

It would be very helpful if we could have a committee of that type, a committee that would consist perhaps of people who have been involved in revenue but who are now in business or who are lecturing but who are involved generally in the community. Such a committee would be in a position to advise the Minister on the drafting of amendments that we are told cannot be devised because of drafting difficulties. They should be able to devise wording whereby the regulation in respect of the £600 allowance could be changed to enable those people who should be entitled to the allowance to be so entitled. It is time that we looked at the whole question of the establishment of such a committee. The UK committee was set up by a previous government in Britain and on the advice of the Treasury.

The original proposal in the UK arose because of technical problems that were encountered in 1975 when estate duty was discontinued and capital transfer tax was substituted. There are probably a lot of changes that we could make in the whole area of taxation if we could get away from this red herring of changes being too difficult technically to incorporate in legislation. I do not accept that that is the case at all. It is a very narrow concept and one quite generally held by advisers to the Minister, but our job here is to find solutions, to legislate for the public generally not for any person with one particular point of view. We have to do this in a businesslike way and we have to take advice in relation to that. I hope the Minister will consider setting up such an advisory committee on taxation, a brains trust, which will purely advise him on the technical aspects of Bills so that he can decide how, why and what he will incorporate in certain legislation.

I consider the Deputy is making a very worthwhile contribution and we should have a quorum to hear his contribution.

Notice taken that 20 Members were not present; House counted and 20 Members being present,

It was very kind of Deputy Fitzgerald to bring in the audience to hear me. He was obviously enjoying the speech I was making. I did not intend attacking Deputy Fitzgerald up until the time he called for the quorum and in view of the fact that I have been so constructive to date I will not do that at this late stage. There are a few points I want to make about the bond washing restrictions which the Opposition cried so much about. The Minister has been clever in his dealings with the bond washing controversy. Fianna Fáil made something of a controversy out of it. I believe that a lot of the people who technically were not making capital gains but the gains they were making were being treated as capital gains by bond washing have now got a genuine outlet under the incentives the Minister is giving for investments in unquoted companies. That is a very clever tandem operation. If people have money and they say they want to invest it in the economy and in the productive area and they are crying foul because of the bond washing sections I believe they have a very good avenue of investment open to them in relation to investment in the shares of unquoted companies. I hope this will commend itself to people in that category.

The Minister's changes in relation to stock relief albeit changes, as it now turns out, only in the non-farming area, which will restrict stock relief to price increases and not include the volume increase element is a very reasonable and sensible way of approaching the problem. I cannot help but feel that it is a bit unrealistic to give stock relief in the volume area, particularly at a time when there is relatively low inflation. I believe the correct way to do it is through the price changes only. The Minister's suggestion of allowing a proportion of the increase in the price index as a stock relief is a very worthy one. He has obviously seen fit for some reason not to apply these provisions in the farming area. I know that agriculture is very important to the economy even though there are not many farmers in Dublin South Central but, as a former accountant with the Irish Farmers' Association, I know only too well the contribution agriculture makes to the economy in terms of employment within the same constituency. I hope the Minister will spell out the arguments when we come to discuss this particular section. It is important for us to understand the reasons for this.

The changes in the capital acquisition tax area limiting the categories to three and putting an upper limit on the threshold available seem quite reasonable. I hope the Minister will be open to suggestions where it causes unnecessary hardship. It is a pity we have not the technical committee because there may be some hardships introduced by this section which are not in the Minister's mind and are not intended by him but in the wording of the section and the way it is being done could translate into injustice. I hope during the debate on that section on Committee Stage that we will be certain that we are doing in the section precisely what we intend to do.

I hope the Minister will find it possible to accept an amendment on the PAYE allowance for related persons and that he will also find it possible to take up my suggestion about creating a tax consultative committee which will advise him on technical matters. I look forward to pursuing on Committee Stage some of the points I made.

With regard to capital gains tax on the principal private residence where there is a development gain that is quite a reasonable provision. When some of the sale price is because of the development potential of the property there is a capital gain there similar to any other capital gain. It is not as if the person was selling his or her main residence on an acre of land. If there is a development gain it is quite reasonable that it be charged as a development gain. In the case of compulsory purchase — this is purely a technical point — particularly where a local authority are compulsorily purchasing a person's private house for road widening or something else the Minister should consider exempting the development gain in that case because it will only have the effect of increasing the price which the local authorities will have to pay to the person who has been served with the CPO.

I listened with interest to some of the comments made by Deputy Mitchell on the Bill. Before I express an opinion on them, I wish to compliment Deputy O'Kennedy on his excellent, well researched and thorough contribution to this debate. It contrasted sharply with the presentation by the Minister of this multi-sectioned Bill which, we will be discussing for a considerable time.

Deputy O'Kennedy obviously put a lot of hard work into researching the taxation system and the need for restructuring and change in this area. I was surprised to hear his speech being criticised by Deputy Mitchell. He implied that Deputy O'Kennedy encouraged further borrowing but Deputy Mitchell said that the only solution to the European recession is reflation of the European economy. I should like him to spell out how he visualises that being done and where the money would come from. One must be consistent when making a contribution in this House. He also spoke about the importance of single seat constituencies — the relevance of that to the Finance Bill needs an elastic stretch of imagination. By inference, Deputy Mitchell was not in favour of free travel for senior citizens. I deeply regret that any Member of the House should feel that this well deserved and badly needed perk should be withdrawn.

I did not say that; the Deputy can put his mind at rest.

It certainly is badly needed now as they got such a meagre increase in the budget. There are a number of major debates in this House each year, the all-embracing one follows the introduction of the budget. We had an extended debate on that occasion and various opinions were expressed about the budget. Most commentators thought it was neutral and that it completely ignored the major problems facing the country — unemployment and job creation. There were areas indeed where the budget contributed to further job losses and it did not attempt to introduce badly needed tax incentives to promote, stimulate and encourage investment which would result in increased employment. Deputy O'Kennedy developed that theme at length and spoke of the necessity for tax reform.

Since our entry to the EEC, agriculture has changed substantially. Maybe the CAP and the annual discussions which take place in Europe have replaced, to a large extent, the importance of our budget to the farming community. Agriculture subsidies once formed a major part of budget presentations. In my first year in this House I remember there was great rejoicing by the Coalition Government because they were able to save £30 million in subsidies and vote the money to social welfare benefits. However, the budget this year did not do anything for the farming community or employment. The subsequent talks which were finalised at the weekend did not do much for the agricultural community either in spite of the embraces given by some members of the Cabinet to their colleague when he arrived back. One could see it was a welcome home party deliberately organised to counteract his poor performance.

They were on speaking terms anyway.

The Minister of State is fully aware that this was a public relations exercise to camouflage the failure of the Government to deliver a worthwhile package to the farmers. Penal levies have now been imposed——

Munster farmers are happy.

The Minister should not draw me out in that regard. The only reason they are happy is that his advisers are doing a reasonably good job at present but the truth will soon dawn on the farmers. Not only will the Munster farmers be affected but many jobs in the co-ops will also be affected.

The Finance Bill is designed to implement budget proposals and changes. Every Minister for Finance tries to justify his decisions. I read the Minister's speech very closely and it seems to be a series of apologies for changes which he made. He did a few U-turns one of which I was in favour — the return of section 84. The withdrawal of assistance under section 84 could have meant severe job losses and further factory closures. Coming from a region such as Cork, neither Deputy Allen nor myself want any more job losses or closures. In this instance the Minister for Finance responded to pressures, especially from this side of the House and from interested parties, and I am very glad there has been a change of heart with regard to section 84.

However, I echo the comments of Deputy O'Kennedy when he said that the approach adopted in the past two budgets is inclined to undermine confidence. We cannot be sure next year that job incentives will be continued. We cannot be sure that aid will not be withdrawn. This is always the fear and danger of a Coalition Government who change their policy stance at least twice a week. I think they hold two Government meetings each week and for some reason there is always the danger of a change of policy then. I welcome what has been done with regard to section 84 because it will help employment to some extent but, more important, it will prevent further job losses. This matter has been mentioned on many occasions by this side of the House and I am glad we have encouraged the Minister to change his mind.

The income tax changes are so minimal and insignificant that one wonders at the time, energy and effort that went into framing them. The ordinary worker will get very little at the end of it all. In my opinion, no longer can we afford to take in isolation pay and pay increases, taxation, particularly of the magnitude of the tax regime now existing and the burden it imposes on the ordinary people, job creation and employment, training and education. Government, employer bodies and trade union organisations have to be involved. This is why I regard yesterday's exercise by the Government as a major setback to our development as a nation and a community. It was a slap in the face to all recognised trade union and employer procedures, to negotiations and consultations and to institutions such as the Labour Court and other bodies. Basically it was a rejection of them and it interfered with their independence.

This matter has been referred to by some commentators today. The Cork Examiner referred to it as a dangerous stance and I agree with that. Taxation, employment, job creation, pay policy and pay increases, training and education are closely linked. What moves in one direction will affect the others. This is why I believe yesterday's decision by the Government to dictate pay policy over the next 18 months was a serious setback. Basically it said to the trade union movement that they have no part to play any longer with regard to pay or other related areas.

I should like to quote from the leading article in today's issue of The Cork Examiner:

Clearly the Government would be far better advised to drop this grossly illconceived tactic.

The Chair has no objection to a passing reference to pay but a full debate on the matter is not in order.

I accept the ruling of the Chair but the quotation refers to the taxation system. If the Chair will hear me out he will accept I am in order. The quotation continued as follows:

and supplant it with some form of inducement, preferably in the realms of taxation, where they could be plainly seen to be attempting to alleviate at least some of the burden on the PAYE workers who comprise the majority in this country and against whom the major thrust of this latest move is directed.

The effort, time and energy that went into drafting all the section on income tax could be described as wasted because at the end of the day the benefit to the ordinary PAYE workers has been so little and so insignificant. This is especially so in view of yesterday's announcement, a week or more after the Bill was circulated.

Each year we have a number of important debates in this House. Probably the first one in the year deals with the budget and then we have discussion on the Finance Bill which implements the major changes in the budget. I wonder how every Government continue to make the tax regime more complex not only with regard to income tax but in other areas? Later in my contribution I will come back to the link between taxation, employment and pay. They are not isolated from each other any longer.

I should now like to refer to indirect taxation and VAT. Deputy O'Kennedy referred to some of the changes proposed. The Government now propose to implement the 8 per cent VAT on clothing, £8 per £100 on clothing for ordinary people. How relevant that is to yesterday's decision. The anomalies referred to about the size of a ten-year-old child will cause tremendous difficulties. The introduction of that VAT is a serious setback to the ordinary wage-earner, the self-employed, farmers and, above all, the unemployed. I can recall the night in February 1982 when the Independent Member from Limerick voted against the Government on the issue of clothing and footwear. I was interested to see in the explanatory memorandum the definition of clothing as distinct from footwear. At least for the moment the 8 per cent will apply to clothing with some exceptions. The exceptions will cause many difficulties for parents and shop assistants. Subsection (1) of section 82 states:

footwear includes shoes, boots, slippers and the like but does not include stockings, under-stockings, socks, ankle-socks or similar articles of footwear without soles or footwear which is or incorporates skating or swimming equipment;

A detailed examination of the section which the Deputy is pursuing would be more appropriate for the Committee Stage.

I was making a passing reference to those matters to indicate the complexities being introduced into our taxation system. I accept that such an examination is more appropriate to Committee Stage but, bearing in mind that there are 110 sections in the Bill, it is possible that the section I have referred to will not be discussed in detail. We are all aware that on Committee Stage many sections are not debated because of the importance and the interest in other provisions. It is quite possible that the section I have referred to will not be debated.

Section 90 proposes to reduce to 5 per cent the rate of VAT applying to ready-mixed concrete and to certain live theatrical and musical performances, including circuses. In the course of his reply to Second Stage I hope the Minister will enlarge on that. I should like to refer him to the submission by the Irish Showmen's Guild in regard to funfairs at seaside resorts. Although a strong case was put to the Minister I believe he has stood steadfast on this issue. The Minister is well known as a person who does not yield.

At this stage I should like to ask Deputy Mitchell why he is announcing now that he will be proposing later this week an amendment in regard to the earned income allowance of £600. Why is it that the Deputy did not propose that amendment in the months that have elapsed since the budget was introduced? Is the Deputy satisfying a group in his constituency who approached him?

The Minister should bear in mind that funfairs at seaside resorts give a lot of employment. Deputy O'Kennedy pointed out that while some of the provisions in the Bill are welcome the main area of tourism was not given any encouragement. The funfairs generate great activity during the tourist season. The Munster region has great tourist potential despite the efforts of the Government to try to deny us a way of bringing tourists in by sea or air. It appears that we do not have any direct links with any other countries any more. I welcome the Bord Fáilte promotion in Germany. It is important that every effort is made to attract tourists from the continental mainland.

There will be a lot of tourists from there this year.

Earlier a colleague of mine welcomed the decision of the President of the United States to visit Ireland and expressed the hope that it would be possible to contain the young tigers in Fine Gael and lock them away on some island for the duration of the President's visit in case they destroyed us by displaying placards or banners that may prove harmful. I rely on the Minister of State to keep those young Fine Gael tigers under rein on that day. They should be confined to some suitable area.

The Deputy should find his way back to the Finance Bill.

I regret that I was provoked into that comment by the interruption from the Government side. Now that the Minister has given me an assurance that we will see many tourists from the Continent this year I hope he directs them to the Cork-Kerry region. I accept that Deputy Allen shares that wish with me.

VAT is a major concern. All of us have had proof of the lean times and the problems of the newspaper industry which is having a very difficult period. There is a suggestion that in some cases national daily newspapers might have to reduce their publication to one every second day. There are many reasons for this but one of them is VAT. Having been in that office for a period I appreciate the difficulties and the pressures on the Minister to be selective in regard to particular industries. I feel annoyed at the foreign competition our national newspapers are having to face. There is no doubt that the cheap tabloid type newspapers are now far more prominent in our streets — and I refer to towns rather than the capital — than some of our own newspapers. They are being sold at a much cheaper rate and in addition to the harm they are doing to our own newspapers, which give substantial employment, the content of those newspapers is not as desirable as we should like it to be. I hope the Minister will examine ways and means through which our newspapers could be helped to overcome the disadvantages. It would be in the interest of job preservation, and above all we must try to save jobs.

Exchequer receipts are an important factor and Deputy O'Kennedy spelled out in detail where the shortfalls are occurring and are likely to continue. The Minister should be seriously concerned about the downturn in industrial activity and the impact it is having on tax collection. I spoke earlier of the complexities of our tax regime. Warnings have been issued with increasing seriousness in the past 18 months about the effects of the recession on commodities which used to be regarded as luxuries. In my city our last worthwhile industry from the employment point of view, the brewing industry, should be of concern to the Minister.

We have the Commission on Taxation, and Deputy Mitchell referred to the body in the UK. His colleague, Deputy Kelly, is always complaining about borrowing ideas from the UK, so apparently Deputies Mitchell and Kelly do not agree. We have had a second report from the Commission on Taxation which contains recommendations at variance with some sections of this Bill. One wonders, accordingly, whether the Government have decided to accept each report, put it in mothballs on a shelf and leave it there. The Government might ask the commission for their comments and advice. The commission are not an advisory body but they are a very high-powered independent group which include people of high intellectual calibre and commitment to our taxation problems. Why should they not be asked for their advice on taxation, both direct and indirect?

Section 84 contains provision for the continuance of stock relief, but the Minister glossed over very lightly the continuation of the 2 per cent employment levy. Many times I have said that ordinary people would not object to paying that levy if at the end of the day the levy was used to provide additional training, temporary employment and work experience during the transition period between school and work. One must take issue with a spokesman on the other side who screamed and roared that this levy should be used by the Youth Employment Agency. The founding of the agency was hastily thought up without any worthwhile research. It was put up as part of the famous Gaiety Theatre package and introduced here before Christmas 1981, and the Youth Employment Agency was established without calm, cool deliberation by the Government. That was in a period leading up to the election of February 1982. The members were appointed quickly and the agency was there before I resumed office in March 1982. I regard the agency's executive as a good one which I then and still support. However, I am afraid the agency have lost their way not by themselves but because the Government do not know what function they could perform. The employment levy is being allocated to the agency because it saves Exchequer funds. The levy is another form of taxation. It should not be called an employment levy because it is only an alternative form of taxation.

Debate adjourned.
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