Dáil Éireann debate -
Wednesday, 24 Apr 1985

Vol. 357 No. 8

Finance Bill, 1985: Second Stage (Resumed).

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

Mr. Sheehan

Clearly our economic problems cannot be solved overnight. The nation's economic ills have been fully analysed by this Government. I do not subscribe to the view that all is bleak as was said by Deputy O'Kennedy in his contribution yesterday.

For the first time in many years we have a Minister for Finance able to present a sound fiscal budget, prepared to take into consideration the necessity of improving our economy. It is all very fine for Deputy O'Kennedy and his associates to criticise the Minister and the Government. It is easy to be the hurler on the ditch. That is how one might describe Fianna Fáil spokesmen who have spoken on this Bill to date. They appear now to have cures for all the ills that befell this country in the past decade. It amazes me how they can procure such cures overnight especially when they were the architects of the unstable economy that obtained when this Government assumed office. The electorate now realise that we are the architects of our recovery. When I say "we" I mean each and every Deputy in this House who should be playing his part in that recovery provided that the appropriate environment and incentive to so do are presented. They have been provided in no uncertain fashion by the present Minister for Finance in his budgetary proposals. With that type of lead I have no doubt that our economy will go from strength to strength.

The latest budget marks the end of a long period of rising taxation. Over the years we have seen successive Fianna Fáil Governments merely skim the surface with regard to tackling the problem of getting our economy in order. They were pussyfooting with the idea of doing so. They did not have the backbone, courage or determination to ensure that corrective measures were taken to aid our ailing economy. If I might draw an analogy, the situation was like that of a sinking ship; they did not even help to pump out the waters being taken in by that ship. Now they have come to the point at which they see fit to criticise this Government for taking the correct steps in ensuring that our economy is stabilised, rendering this a country with a better standard of living for its inhabitants, affording them an opportunity of earning a decent living and of playing their part in establishing it once more on a sound economic footing.

Not alone are this Government adhering to the commitment to increase the share of national income, with tax reliefs exceeding tax increases implemented in the budget, but we are introducing major reform in both the income tax and VAT areas. It is a well known fact that every single taxpayer will pay less tax this year and that the marginal rate of tax is lowered in respect of over 220,000 taxpayers. For example, 65,000 taxpayers who had been paying a marginal rate of 45 per cent will be reduced to 35 per cent, 80,000 taxpayers whose marginal rate was 55 per cent will now pay at 48 per cent and, as a result of the abolition of the 65 per cent band, more than 60,000 taxpayers will benefit by the reduction to 60 per cent. This constitutes an incentive to our future development as a country. It is an incentive also to business people to grasp the nettle, expanding where at all possible.

For years our taxation code has hindered our economic recovery. The new system, with two rates of VAT and three rates of income tax only will ease administration, reduce evasion, restore incentives and boost our economy. As the House is aware, the implementation of only two rates of VAT constituted a major breakthrough. If risk taking is encouraged our business entrepreneurs will invest, particularly if the appropriate means of realising their gains, repaying a fair proportion, are afforded them. Likewise entrepreneurs will invest if it is evident that the proceeds of taxation are prudently and efficiently spent and if they foresee a fair return on their investment and effort. But there must be an incentive given for further development and investment here. The more investment we can attract, the more development we can achieve, the sooner will our unemployment figures drop considerably. Recently hopeful trends have appeared in these unemployment figures. I have no doubt that if the policies being effected by this Government are allowed to continue in future years we will see a remarkable reduction in the amount of unemployment here.

On Sunday last I had an opportunity of speaking with a German industrialist in west Cork. He told me that in the great Federal Republic of Germany— where a major boom existed since pre-war years — there is now a serious situation obtaining as far as unemployment is concerned, that millions of people in that wonder economy of west Germany are now unemployed with some of the greatest empire building companies in that Federal Republic having gone into liquidation.

We must bear in mind that the problems we face are much greater in other European countries. I have no doubt that with proper incentives, administration and a proper direction from Ministers the economy will be restored in the not too distant future. A start has been made but much remains to be done. The problem of budget deficits must be tackled. The scope for providing incentives by reducing taxation is limited but that on its own will benefit the economy. Our Minister has been courageous enough to outline the measures which must be taken if we are to survive. The pie in the sky policies pursued by the Fianna Fáil administration in the late seventies when we were told that there was no end to the rainbow contributed to the ruination of the economy. About £13 billion was borrowed from 1977 to 1981 for unproductive purposes. The interest on that colossal sum is having a crippling effect on the restoration of confidence in the economy. There was an abrupt ending to the rainbow. The manna from Heaven which was hoped for did not come and facts had to be faced. This Government had the courage and consistency to face the facts.

The Finance Bill contains several features which will improve the business climate, thereby increasing economic growth. The decision to rationalise the VAT system and abolish the VAT rate of 35 per cent is a very welcome move. It is a step in the right direction. It will reduce the distortion of trade which gave rise to colossal imports from Northern Ireland in recent years. It will also reduce the cost of the importation of machinery and parts essential to industry. The reduction of the 35 per cent rate to 23 per cent has had a good effect in restoring confidence in the economy. We have seen it in a direct return on income to the pockets of the overtaxed housewife. A huge range of products were reduced in price. For instance, a 22-inch colour television set was reduced from £600 to £500, a 3.1 kg of washing powder came down from £3.89p to £3.55p and it costs £3.45 sterling in the North; shampoos are down from 89p to 81p as a result of the VAT reduction and the same type of shampoo costs 79p sterling in the North; disinfectants are down from 75p to 68p a bottle and the same detergents costs 64p sterling in the North. These are a few of the items in the huge number of items affected by the reduction in the 35 per cent VAT rate.

The restructuring of income tax bands and the elimination of the 65p rate should act as an incentive to people to work and take on additional responsibilities. Without an incentive to work the economy would grind to a halt. The first signs in over a decade of an incentive being given by any Minister for Finance has appeared in this progressive budget. The reduction in the industrial electricity prices will help to improve the competitiveness of Irish industry although the charges remain higher than those of our European counterparts. It is a step in the right direction.

In the last 12 months our exports have almost equalled our imports, for the first time in 20 years. We have seen that our industrial workers, if given the chance and the incentives, will rise to the occasion and can compete with their European counterparts.

The reduction in VAT on tourism will enhance the competitiveness of the tourist industry. Ireland has its own climatic charms which we should exploit to the full. I have no doubt that it is a major attraction over the barren volcanic views of some sun-drenched countries. Ireland is known as the emerald isle and because of its beauty is in a position to attract many tourists. It is my belief that we are only skimming the surface as far as attracting tourists is concerned. Our climate is ideal unlike that in the sun drenched volcanic countries. Our air is pure and our water clear, two essentials in any effort to boost tourism. I was pleased to note that VAT on hotel charges has been reduced from 23 per cent to 10 per cent. That will be a tremendous boost to the tourism industry. Any reduction in taxation in that area will prove rewarding.

Section 58 exempts from inheritance tax inheritances taken by one spouse from the other on or after 30 January this year. Small business and farms will be more secure now because of that exemption. The concession will mean that family owned enterprises will not have to be sold on the death of a spouse. In recent years property inherited from deceased relatives had to be sold to pay inheritance tax to the Revenue Commissioners. I am pleased that that will not be the case in future. Such inheritance will be free of tax. That is a step in the right direction and one that will benefit small businesses and farmers.

Section 4 is welcome. Up to now the single parent allowance was only available to parents who qualified for the £100 child tax allowance. Up to now if a child had an income of £180 in a year a single parent could be deprived of an allowance of £1,900 per year. The new income limit for a child is £720 per annum and tapering arrangements are provided under which that allowance would not run out until the child's income reaches a ceiling of £2,120 in the case of a widowed parent or, £2,620 in the case of other single parents. The Minister should consider giving more concessions to the PAYE sector for children. Such people are allowed £100 annually for each child. That was the amount allowed 15 years ago. In making tax concessions in the future the Minister should consider raising that allowance to a realistic figure of at least £1,000 per child. The days of an allowance of £100 per child have gone. The Minister should take immediate steps to increase that allowance.

Section 7 reduces the age qualification for rent relief on private tenancies from 60 years to 55 years. It increases the ceiling on relief from £500 to £750 in the case of a single or widowed person and from £1,000 to £1,500 in the case of a married man assessed to tax in respect of his own and his wife's income. That is a step in the right direction. It is a major breakthrough. It will help the underprivileged, the aged and the infirm who pay colossal rent in cities and towns.

I welcome the decision to increase the limit on the amount of interest on deposits with the Trustee Savings Bank and the Post Office Savings Bank from £120 to £240. I also welcome the increase in the limit which applies in the case of interest on deposit with certain commercial banks from £50 to £100. There is no need for pensioners to keep a little nest egg under the mattress. They need not fear putting money on deposit in the post office or the Trustee Savings Bank. Up to £5,300 can be invested in those institutions free of income tax. The Minister's decision to increase the limit was a humanitarian response to the problems of old people. He was conscious of the many attacks on old people, particularly those living in rural areas. I hope he will increase that limit further in the next budget. I hope this will mean that there will be no more mugging or tying up of old people. I hope they will be allowed to live in peace and not in fear of being robbed of the few pounds they put aside for burial and other purposes.

Section 10 provides that exemption from income tax will be granted to farmers over 55 years in respect of the first £2,000 of leasing income. The £2,000 ceiling will apply separately to each spouse where both spouses engage in leasing. That will help to encourage the greater utilisation of land by young farmers. Hundreds of thousands of acres of good agricultural land lie idle because the owners feared they would have to pay tax on any money received for the letting of it. Irrespective of what Deputy Noonan said this morning, the proposal in the Bill is recognised as a major incentive.

The decision to double the new house grant to £2,000, the granting of a £3,000 mortgage subsidy and a special grant of £5,000 will be a boost to the building industry. It will relieve the strain on local authorities of providing houses. Everybody knows that this was a courageous step on the part of the Minister for Finance. The number of applicants for all three grants is increasing by hundreds each day. This is bound to have the effect of reducing the local authority housing lists. It is an important strategy and the Minister deserves the kudos. The reduction of VAT on concrete blocks from 23 per cent to 10 per cent is a very welcome boost to the building industry. The registered manufacturer will certainly benefit and house prices will be reduced considerably by this measure.

The additional money provided for fishery harbour development works is very welcome, particularly in Schull where work on the long awaited extension to the pier will commence very shortly. I need not remind the House how long this problem lay on the desks of successive Ministers for Finance and Ministers for Fisheries. It was put on the long finger until the present Ministers saw fit to provide the extra money to give these people the opportunity of making a living and contributing to the economy. The economy will certainly benefit from these works.

Expenditure on road construction is up by 23 per cent of the 1984 figure. Expenditure on educational building is also up by 17 per cent or £14 million on the 1984 figure.

An Leas-Cheann Comhairle

I presume this is only a passing reference to expenditure. We are dealing with taxation, not expenditure.

Mr. Sheehan

This has been provided for in the Finance Bill.

An Leas-Cheann Comhairle

Expenditure is not relevant on the Finance Bill. We are dealing with the taxation, measures in the budget. A passing reference is allowed.

Mr. Sheehan

It will provide a major boost to the building industry, of which it is sorely in need. The winter fuel scheme was introduced in the Social Welfare Bill.

An Leas-Cheann Comhairle

That scheme certainly costs money but we are talking about the budget and the Finance Bill.

Mr. Sheehan

Provisions were made in the budget for an increase of 25 per cent in this scheme. This will mean that old age pensioners in rural Ireland will receive a voucher to the value of £150 rather than £120. This is a major breakthrough in favour of the underprivileged section of society.

The reduction in the taxation on spirits has had a major impact in curtailing the smuggling of spirits across the Border. The Minister may see fit in the not too distant future to reduce duty on the poor man's pint. This would involve no detrimental effect on taxation and would give the poor man an incentive to enjoy his pint at a fair price. The complete removal of excise duty of 8p per gallon on diesel oil used by fishermen will be a welcome boost to our fishing industry. It will mean an injection of about £2.5 million into that industry. I have no doubt that the Minister has embarked on the correct course for the economy. I welcome the Bill and all the increases outlined. However, it is only a step in the right direction and there is a long way to go.

There has been widespread recognition for some time of the need to reform our taxation structure. This would have a profound effect on the economy and I have no doubt that our Minister has the foresight to proceed along those lines. It is evident that if we are to survive and compete with other European nations we must streamline our industrial projects, strengthen the backup services for those industries and keep up the tempo of our exports. Our exporters must get the best possible advice from CTT and other semi-State bodies which can play their part in the restructuring of our economy.

The Finance Bill represents a creative and forward-looking response to our needs and problems. I would remind Opposition Deputies — there is only one Member on the Opposition benches— that the day of manna from Heaven is over. All of us must do our best to ensure that the economy will continue to grow and develop to the maximum extent, with the ultimate aim of employment for all. We are all together in this battle for survival. The time has come to discard the begging bowl. We must all play our part in building the economy, so that this country can achieve its rightful status. This will not be achieved by petty political scoring in this Chamber but only by the dynamic foresight of every Deputy in helping the Minister and the Cabinet to put us on the road to success.

We will only succeed in putting our economy on the road to success if each of us is prepared to work hard. Our country needs that boost from the people and from the Government. We must be realistic. If any concession can be made it should be made first in favour of the PRSI worker because he is the one who is overburdened with taxation. I appreciate that other groups, farmers and others who are essential to the economy, have to pay tax also but the PRSI worker should be considered first in the event of our being able to ease the tax burden. By the time he receives his wage or salary a good deal of it has already been deducted in respect of taxation.

I would advocate the introduction of a rent allowance for PRSI workers who are paying high rents for flats in cities and towns. It is difficult for them to pay those rents when on average 45 per cent of their income, after the tax free allowances have been provided for, is taken from them. In addition, the Minister should consider tax allowances for those who must travel round journeys of up to 60 miles per day because of their place of work being some distance from their home. In most cases these people have built their homes in rural areas or in villages and must travel to the towns and cities to find work. It would not be feasible for them to rent flats in urban areas.

I wish now to make an appeal to the Opposition, to ask them to desist from playing political football with the major problems in our economy. The Opposition must face up to their responsibilities. It is said that the one who never makes a mistake is never any good. If Fianna Fáil have made mistakes in the past they have plenty of time in which to correct them. Consequently, they should begin by supporting the Minister and the Government at this crucial time. We must co-operate if we are to solve the problems of our economy. Otherwise, the recovery will be very much delayed.

Mr. Wilson

I am a little reluctant to break in on this love-in between Deputy Sheehan and the Minister for Finance and to break into a world of shampoos, cheap detergents, disinfectants and colour television sets in a climate that is neither too warm nor too cold. But love is blind and a lover does not notice the follies of his lover. Deputy Sheehan is blinded by his affection. He waxed eloquently about nest eggs under the mattress. It would be a difficult proposition to use that kind of bed. The Deputy forgot to tell us about the various gradings that were increased in number by the present Minister.

Mr. Sheehan

There is no need for whitewashing on our part.

Mr. Wilson

It is dangerous to intervene between lovers but the wisdom of decreasing the level of the tax free interest last year on bank deposits and of increasing it this year may be lost on people who are committed emotionally. Last year the figure in this respect was reduced. Before resuming his seat Deputy Sheehan assumed the role of father confessor by asking us all to confess. No doubt, the Minister confessed to the Deputy that reducing the figure to £50 last year was wrong. It is unlikely that the Minister will be in office next year but if he remains penitent perhaps he will increase the £100 to £200.

We are faced with consideration of the Finance Bill and I should like first to comment on the income tax situation. Yesterday our spokesman on Finance reminded the House that one of the major planks of the Coalition platform was that the burden of taxation on the PRSI worker would be reduced. This has not happened. The Minister must realise that he has reached the point of diminishing returns. The April 16 edition of Iris Oifigiúil indicates that income tax returns this year are down at this stage by £35 million. Admittedly, in taking a figure like that at an arbitrary date, the full picture does not emerge; but it is an indication that at this stage in the year the income tax take is dropping. The levy is down by £3 million on the corresponding period for last year. This indicates that, with the combination of high unemployment and the severity of taxes, the Minister has got the income tax section of the Finance Bill all wrong.

I welcome the provisions with regard to the relief granted to widows and single parents as far as they go. A realistic view of the problem indicates — although I do not want to make wild suggestions— that the Minister could have gone a little further down that road. I also welcome the relief granted to people of 65 years and over and I am sure that the Minister's intention to encourage people to put money in the Post Office Savings Bank and the Trustee Savings Bank is a good one for social reasons as well as for his own reasons of getting more money in which may be used for productive purposes. The increase of £120 to £240 and that of £50 to £100 which were mentioned by Deputy Sheehan are welcome but as the Post Office Savings Bank and Trustee Savings Bank are State controlled perhaps he has started on a road upon which some future Minister for Finance should continue to travel. I know that during the year some malicious people spread rumours about the Trustee Savings Bank and the Minister had to assure the House that there was no truth in them. The Trustee Savings Bank was not and is not in danger and is a desirable place in which to deposit money. The interest rates are good and it is available to the State for proper use.

I agree with our spokesman on agriculture that the relief from income tax with regard to the leasing of land is a very small pourboire as far as that area is concerned. However, the idea behind it is right because we had a European farm retirement scheme, for example, and it was so badly constructed and operated that it is now a dead duck. Allowances were made to people but no cognisance was taken of their rights under the social welfare code and the result was that there was no great change in ownership of land and no retirement on the scale originally expected. Consequently, it is being done away with altogether. The thinking behind relief on money received from leasing land is right and if it were applied across the board in the case of transfer of land from an aged farmer to — I do not know where we can send it now because this lunatic Government are getting rid of the Land Commission, the only bulwark for the small man against the cheque book speculator — a young farmer with the proviso that the retiring farmer was properly looked after and not precluded from social welfare benefits, I would subscribe to that kind of philosophy.

I am slightly irritated by the priority which the Revenue Commissioners and other State institutions have with regard to funds when there is a liquidation or a bankruptcy. I am a little worried about the position vis-à-vis the private citizen because very often the private citizen gets 1p in the pound or perhaps nothing when the priority institutions have taken their cut of the funds available. It should be established by law that the individual citizen has at least equal rights. I know that very often the management or persons responsible for bringing down a company had not exercised due care and had not lived up to their responsibility regarding the State and I am sure other members of this House are also worried about the position of the private citizen vis-à-vis that type of institution. But when all is said and done the private individual can often suffer the greatest damage compared with public institutions which will continue to exist one way or another. It can be argued, of course, that the public institution is holding money for the citizen, and that is true. However, I should like consideration to be given in our thinking and legislation to the position of the individual citizen and his rights in circumstances where he or she find themselves in a big league.

I cannot but praise the effort to encourage the allocation of moneys to research and development. A country which is basically not very wealthy has to use all the rat wit because sometimes we are able to avail of research which can be costly in some fields and which has been done elsewhere. On the industrial scene, unless a company are going to establish themselves and stay in the country, the results of special research done in the company will be applied for the benefit of the company in whatever country in which they may be operating in a major fashion.

One of the complaints about industries invited in, financed and looked after very well here in the past was that they did not provide funds for research and development. We have particular advantages in that we have a very strong, young population and we are trying to provide them with the basics in education and to prepare them in such a way that they will be capable of doing research. Therefore, anything that encourages native companies or those from abroad to carry out research and development in the country should be encouraged. I refer in particular to the fact that this extends the facility with regard to the College of Commerce in Rathmines, the two National Institutes for Higher Education, the colleges of technology and the regional technical colleges. A wide diaspora of institutions can now gain by that measure. I hope that the people responsible for the funds in various industries will act on this. It is a primitive view that you should not spend money on research and development and that you are not gaining anything for yourself or for shareholders, if it is a company.

The building societies are carrying a very high burden of responsibility. There does not seem to be any doubt about the fact that the Government deliberately set out to run down the construction industry. That is the only conclusion which anybody can come to by dispassionately and objectively examining what has happened since they took office. There are close on 50,000 skilled people unemployed in that sector, people with skills ready to deploy those skills if the opportunity is made available to them, and all the activities, positive and negative, of this Government have been to run down the construction industry. Apart altogether from the capital programme which is the major one this extra 5 per cent VAT was imposed on new houses this year. It is impossible to understand it. It was rapped on the day of the budget and of course a furore was to be expected, or at least if the mandarins in the Department of Finance did not expect it that is further proof that they are insulated from the realities of life. Some small time contractors stood to lose £1,500 each on houses that they had already signed a contract for at that time.

Admittedly the imposition was postponed until 1 May and that at least saved them the immediate burden, but the 10 per cent goes on on 1 May anyway and that is simply incomprehensible. Therefore, the building societies should get special favour treatment because they are shouldering most of the responsibility as far as private housing is concerned. Without building societies the whole thing would collapse and, of course, people who have skills which are not being used tend to lose those skills. Therefore, the Government and in particular the Minister for Finance are especially culpable in this regard.

With regard to section 19, I do not think that the Department of Industry, Trade, Commerce and Tourism or for that matter the IDA are making enough effort to fill the advance factories which are already available. The allowances are generous in anyone's language and I cannot see how the failure has been so great. It is not merely regional, although my region is particularly badly affected, but all in all the effort is not being made to fill the empty advance factories.

Section 20 is a pathetic gesture, and this is relevant to what I have been saying about the construction industry. That industry itself and people who have expertise in that area have stated bluntly that it is a pathetic gesture to the building trade and that it will have no major effect on employment in the construction industry. There is an indication in Iris Oifigiúil that as far as corporation tax is concerned the Minister has crossed the boundary. Up to 16 April 1985 the corporation tax yield was £33.9 million. For the same period in 1984 it was £33.5 million, practically the same, and when inflation is taken into consideration one can see that it is a falling back. There is no surprise about that. That 230,000 people are out of work is an indication of how many businesses and industries have closed down. You cannot knock blood out of a turnip, and the Minister should realise that also.

All Deputies from all political parties who represent constituencies along the Border have been talking in this House ad nauseam about our problems. The trouble is that nobody believes us. It is apparent that nobody believes the combined wisdom of Deputies from the Border constituencies. It may be the old story that he who cries “wolf” too often is not finally believed when the wolf comes, but we have been adhering to the facts with regard to the economy along the Border but to no avail as far as official Government thinking goes, with this Government anyway. That creates no surprise because our area is not represented in Cabinet, it is not represented in Government. For that reason there is no voice to indicate the parlous position of the economy.

An EC social committee high powered team examined the social and economic problems along the Border. Of course, they would not say the obvious but it has been obvious to us for so long that the thing should not be there at all anyway; there should be no Border. Belfast was our economic capital when I was growing up and I was born after the Border was established. Gradually the Border became more of a reality as time went by. People went to work from my area to Belfast, but there is an unnatural Border which has done violence to the economics of the historic province of Ulster which, as this House knows, has nine counties. The social committee, looking at the scene objectively and far more dispassionately than I can look at it, said that it is one of the most deprived areas in Europe and they made suggestions which were thrown aside churlishly by the Minister for Finance who is responsible for this Finance Bill.

This is not an occasion to go into the whole economics of the Border area and of the Ulster position generally, and I accept no definition of Ulster which does not make an Ulsterman out of me, but what have we now? We have this Minister coming in and putting an extra excise duty on petrol and diesel. The result is that within a certain distance of the Border no petrol retailer is selling petrol or diesel. He just must close shop and go. As Deputy O'Kennedy said yesterday, the excise duty on petrol and diesel is absolutely savage and unjust. It is doubly savage and unjust in our context. An increase of £1.78 per hectolitre was put on by the Minister and that is incorporated in this Bill. I do not find much satisfaction in the fact that offcourse bets have been reduced from 20 per cent to 10 per cent in that context, having failed to have all of County Cavan and County Monaghan declared severely handicapped for the purposes of the Common Agricultural Policy. We have failed on that but we are going to keep talking. We are not going to be silenced. We will continue to point out the position there.

With regard to the reduction from 25 per cent to 10 per cent on motor vehicle parts, any reduction is welcome. I see that it does not come into operation until 1 February 1986. It escapes me why if it is good in 1986 it is not good now and why it is not brought into effect. The answer we used to get in the past in those circumstances was that it would be administratively difficult to do it immediately but I do not know what answer will be thought up for this.

The Minister is going in pursuit of the mineral water manufacturers. Would he tell his inspectors to be civil and respectful to the citizens? I had to raise this matter in the House on a number of occasions with regard to social welfare inspectors. We do not have a good tradition, I regret to say, of public servants dealing with citizens respectfully. The result is that when a household has a visit from one of these inspectors, for whatever purpose, there is immediately an atmosphere of hostility generated. I know our public servants are well trained and well educated and I think the Minister for the Public Service, Deputy Boland, was starting a campaign telling public servants they would not be welcome in the public service if they did not treat citizens with respect. When I see in a Bill that inspectors are to be let loose on the makers of mineral waters, I suggest that these inspectors be told that they should treat the citizens with respect.

I note the provision in the Bill for the reduction of excise duty on spirits. When the economy was sinking slowly Deputy Haughey suggested that a move like this would be beneficial and would not cause any loss of revenue but might even increase revenue. At that time it was useful for the national handlers to ridicule that suggestion because of where it came from. It is one of the mysteries of politics and of many organisations to which I belong that suggestions are not assessed on their merits but rather on their source. This is a major error. When Deputy Haughey made his suggestion for a reduction in the duty on spirits and beer there was a big build up in the newspapers that Fianna Fáil were being irresponsible again. I have had letters from people around the Border areas saying we should press for a reduction in the duty on beer.

Deputy Sheehan referred to the reduction of excise duty on television sets when he was involved in his love-in with the Minister for Finance. The people in the Border areas do not regard the reduction as significant so far as the smuggling of television sets is concerned. Any reduction is welcome but the fact is that the reduction will have to be very considerable before it is of any use.

I mentioned already that there was a reduction in the number and rates of VAT from 35 per cent, 23 per cent, 18 per cent, 8 per cent, 5 per cent, 2.2 per cent and zero rating to 23 per cent, 10 per cent, 2.2 per cent and zero rating. The point I have already made is that this Minister introduced the 35 per cent rate and we will not burn incense in front of him for having a maximum of 23 per cent.

There have been many discussions about the imposition of VAT on footwear. This subject has been teased out, discussed and debated enough and I will not delay the House, but, in my view this VAT should not have been imposed. I know shoes for children up to 11 years have been excluded but it could be said there is difficulty in identifying children's ages up to 18 years. There is a lot of pressure on the PAYE wage earner because he pays very high PRSI and now he has to pay heavily for footwear, much of which I regret is imported.

The labour-intensive industries which have gone to the wall have left a large gap in the economy and have put many people on the unemployed list. I remember Deputy Geoghegan-Quinn telling me that some years ago she bought children's shoes in Galway. When she asked where they were made she was told they were made by a shoe factory in Bailieboro, County Cavan. She said that for style and quality they were superb. That factory has closed and I am sure much shoddier shoes, both from the design and quality point of view, are on the market now. She bought these shoes in a big store and I am sure the price was competitive. Irish Shoes Supplies of Belturbet have also closed down.

It is gratifying to know that there is some soul in the Department of Finance. The provision for theatrical and musical performances should be welcomed by all civilised Members of this House. We all know the Abbey Theatre is in financial difficulties. They have had to reorganise the theatre, something I regret very much. It seems strange that a theatre called The National Theatre should go over the top because of the production of one play by Eugene O'Neill. The board are trying to cope with this problem at the moment. I hope they will not lower their very high standards and that they will continue to make available to the public plays which, in the normal course of events, we would not be able to see in Dublin.

The people involved in the tourist and hotel industries are very anxious that the VAT on meals should be, if not eliminated, then at least reduced. We are reducing the VAT for accommodation and the hiring of boats, which is important in my constituency. Caravans and so on are probably used more extensively in other parts of the country. I know that as far as the Erne is concerned leasing boats is a thriving industry.

I have already referred to the VAT increase of 10 per cent on new houses from 1 May. I do not know if there is any point in appealing to the Minister to do something about that at this stage nor do I know what the thinking was in the Department but it is not too much of an exaggeration to say that the industry is in the throes of death. Many firms have gone out of business and what the Government have done is inexplicable. I hope that reason will prevail.

The question of a bank levy is always a difficult one. In a sense it is illogical to say that we will take so much from them. There is a modification of the method in this year's Finance Bill but it is very difficult to maintain that there should not be some money taken from the profits made by the banks. It is easy to attack and criticise the banks. Many people have had their legitimate transactions hammered by the banks. I would hate to think that anyone would be afraid to criticise the banking institutions. However it is important to have a banking business in which the public have trust. The ICI debacle did not help in this regard.

Years and years ago, a distinguished Deputy, Deputy Frank Aiken, was convinced that the Government should be in a position to demand financial facilities for industry, whether farming or manufacturing, at a fixed low rate of interest. Most of the arguments he advanced then would hold good today. At the time he was arguing, in the thirties, I am sure the profits the banks made in a world which was severely depressed were invested somewhere else to develop other countries.

I am pleased for two reasons with section 56. This deals with the voluntary transfers of agricultural property to young farmers who hold certain training qualifications. There is a dual aspect worthy of commendation in this. First of all, there is the emphasis on educational training. This provision will encourage people to avail of whatever agricultural education is available to them in their own localities. I believe the pressure for places in agricultural colleges is very strong and I am delighted to hear that. ACOT are doing a good job in that respect. They put together educational packages which young people working on farms could avail of. Suggestions have been made that any money made available for development should only be made where certain educational courses have been followed by the young farmers or certain certificates or diplomas received. That would provide a great impetus to young farmers to avail of agricultural education. I understand from educationalists in the agricultural field that they are hardly able to cope with all the demands they have received. Voluntary organisations, particularly Macra na Feirme, did a great job in educating young farmers. Now we have formal education encouraged through section 56. Lending institutions will look with more favour on a young man with agricultural education when he seeks loan facilities.

Section 58 will get support from all sides of the House. Those of us who run clinics know that people who could not by any stretch of the English language be considered wealthy could suffer as a result of a severe inheritance tax on the passage of a farm from husband to wife or wife to husband as a result of death.

There was a new attack from various quarters on the provisions of section 59. That section makes provision for a special insurance policy to cover inheritance tax arising on death. If those who have strong objections to it could spell out the reasons for them I would be interested to hear them. I am not saying the objections are not there but I do not understand them. There is no income tax relief for the person paying the insurance policy. If there was it could be argued that the State was subsidising an individual so that he would avoid having to pay the tax himself. The State does not lose with regard to the actual amount of tax because the insurance policy covers that. I do not think even a strong ideologist of whatever hue could logically attack that provision.

In section 66 there is provision for the purchase of shares by the Minister for Finance in Bord Telecom in addition to what is provided for in section 22 of the 1983 Act. I am more than disappointed at the attitude of the Government and the Minister for Communications to the management of An Bord Telecom. I put it on the record that the action which led to the withdrawal of Mr. Byrnes, the chief executive, from Bord Telecom should be condemned by the House. I had the privilege of hammering out most of the arrangements with the chairman and chief executive prior to the 1983 Act going through the House. They were a unique team, a unique combination. They had flair. They had a commitment. The chairman gave his time with no benefit to himself. I thought the least a Minister might do was to preserve that team and see them over the next four or five years for the benefit of the country.

I will now come to the tax free Government securities section. I think it is section 67. I have some doubts about this whole provision. It is somewhat of a gamble. It is difficult to talk about it because nobody will know how it will work out until it has been in existence for some time. In this House we debated the black hole syndrome for long enough. The Minister for Finance was very reluctant to admit there was any such thing until finally Deputy O'Kennedy and outside commentators indicated to him that it did exist, that it was there and that it was serious.

People who were encouraged to come here and set up industries were told they were free to repatriate their profits. Therefore, we have no legitimate grouse if they did just that. There is an obligation on the Government to see to it that the conditions exist for investment, either further investment in the industry concerned, or in an allied one, or in a different industry, which will lure and entice those people to keep the money invested here. The Minister has promised tax freedom on Government securities provided that the companies are wholly owned subsidiaries of foreign companies. He said yesterday that interest has already been shown in the scheme. He was not able to tell us very much about what the actual conditions will be.

We are glad these companies have come here and started industries and employed people, but we should not be unmindful of the fact that they got very substantial incentives to do that. When we are providing this opportunity for them to invest, I hope the investment will rate the title of productive investment. We want to be very careful. We do not want them to have the money and the bun when the whole operation is over. I suggest that the Minister is attempting to cope with part of the black hole. I spoke already about the part of it which affects my own constituency, namely, the money going out across the Border.

This is another aspect of it. If this is not successful — and the touchstones, the yardstick of success I would apply is whether the economy is benefiting substantially — I would cut it out. I would give it a try and if it does not work out to the benefit of the economy in a way that satisfies the people who created the idea, I would cut it and cut it fast.

When the Government were campaigning for office, as was their right, and when they were entrusted with the Government of the country, they told us they would get rid of the large budget deficit. In my opinion the public were conned in this regard. Figures given in the House yesterday indicated that there have been no major tax reductions. People are suffering from tax more than ever before. If it were a question of employment or unemployment I would opt for employment even when it is severely taxed. I would be traitorous to the whole society in which I grew up if I did not maintain that. Some people are suffering very severely because of the heavy burden of taxation.

I am disappointed that the Miriam Hederman-O'Brien income tax tribunal results have never been debated in this House. The Minister talked about growing confidence in the economy and said that the first phase of the recession has been passed. He must be joking. That is codology. I suppose he has to keep up some kind of a front but that is the greatest of nonsense. The US boom is petering out. We did not even gain from it. We exported chemical, engineering, electronics and office equipment. We did very well there, but it has not resulted in increased jobs. There is no return of confidence. Most of the world's economists think that, with the huge deficit in the United States, that whole economy is in a very coddlesome position. Admittedly if the dollar flops a bit we will probably gain because we have borrowed so much in US dollars.

The Minister is a very intelligent man so he must be bluffing. He must know that to say the worst phase of the recession has been passed or that there is a growing confidence is wishful thinking. I have not met that animal for a long time, Mr. Growing Confidence. The Minister gave himself a way out of the question of a second budget. He said the required steps would be taken. It reminds one of the joke about the policeman — long steps there will be if there is a necessity for a second budget.

We have had declining employment and yet the income tax burden has increased by £2,191 million since 1982. This means the burden is much heavier on those who are actually paying tax. Our foreign debts have almost doubled in that time. We know about the debacle about interest rates in the fall of last year because the Minister scooped up all the money available for governmental purposes. Pressure came on interest rates and unfortunate devils who had borrowed modest sums for their own productive purposes suffered accordingly. We had a drop in rates and hopefully they will drop still further.

We should be proud of our workers. They have done their job, particularly in the field I have mentioned and their productivity has been high. I am tired of people challenging our productivity record. I have already read into the records of this House comparative figures for other countries and we have nothing to be ashamed of. I also read into the record details on various other matters as well, such as absenteeism. We should always look at the general scene before we castigate our own.

Exports have increased all right but that is in a special field and the labour intensive industries have been suffering very badly. We will have to be conscious of that. As all the studies indicate, unemployment is the big problem. The NESC report simply says: "On the debt side unemployment, which in the Council's view is the indicator of paramount importance, continued to rise and stood at 16.7 per cent of the labour force in December 1984". There has been a little lift in the most recent figures from the Central Statistics Office. I hope that trend will continue, but I am not all that optimistic about it.

We have been speaking about money going out of the country. The rate of investment is going down, also. It is sad, in the context of unemployment and my mention of the Border areas, that the Minister has to put 181.1p duty on a gallon of petrol. It is terrifying and is inhibiting any kind of development.

We made a strong effort to provide education and training over a number of years. In our wisdom, we told young people to learn a trade. All kinds of pundits told young people to be aware of academic studies and to get into electronics, to get a trade. We have at present almost 50,000 skilled people in the construction industry without jobs. I know for a fact that many of the graduates of the national institutes for higher education, the colleges of technology, not to mention the universities, who have degrees and diplomas in electronics and in computer science are surreptitiously crawling away to New York and Boston. That is a fact that cannot be contradicted.

One of the old chestnuts as far as Fianna Fáil are concerned, which was scrambled out of the fire or love nest or whatever Deputy Sheehan was talking about, was the national debt. I do not have to repeat the figures given here in the House of this Government's performance, which give us pause.

We had a report from the ERSI about the incidence of pay-related social insurance and people being made to pay 8.3 per cent of their wages, even if they have not enough income to pay income tax. It would not be a bad idea for the Minister to consider giving special income tax allowances for the workers who are involved in export industries whose productivity is high. There would be an outcry against it and we would probably be told that it would be difficult to administer, but it is not too difficult to pinpoint the factories that are producing for export as of now. We have given relief to the exporters, in fact, what they export is created by the workforce. It would be a very healthy thing in our economy if we had people clamouring to get jobs in industries that export a great deal, to the benefit of our economy.

There has been talk about work incentives. One is in a very delicate area in talking about wages of a certain level, if unemployment assistance, plus allowances with regard to local authority rents, plus some allowances for fuel, would leave a worker better off than if he were working at a low rate of wage. I know that it is difficult to make comparisons between one economy and another and sometimes not very illuminating because circumstances are so different, but if we want to be positive in our approach to something like the Finance Bill we could ask the Minister to have a look at what a neighbouring Chancellor did with regard to workers. If a firm in the UK are employing someone at £30,000 per annum, there is a £1,700 impost on that person and those under £130 per week are cheaper to employ. That is two-fifths of the total workforce in the UK. Those over £265 per week are much more expensive to employ. There should be an argument for the Minister for Finance here to cut out PRSI on all wages under a certain figure. I do not think that in the end he would lose very much by it. It is something that we should think of as a possibility.

The pay-related social insurance contribution made by the worker is another form of income tax. What is the difference? It is money taken out of his pocket. As far as the employer is concerned, it is a kind of payrole tax on him. He has extra money to pay on each person he employs, so that if it were removed below a certain figure — although there might be certain dangers in this — there would be an incentive for the employer to employ and for the employee to seek out the job. The ESRI report published in today's newspapers has some relevant remarks in regard to that.

We could also consider — and I have no statistics on it at the moment — the cost of our taxes. I have a figure from The Economist which indicates the price of taxes in the neighbouring country. The land tax is collected at a very high cost; income tax is next highest; customs duties next highest after that; capital transfer tax next after that; capital gains after that. Pay-as-you-earn has a low cost as distinct from income tax in general, because it is easy enough to collect. The employer passes it on, or should pass it on. Corporation tax has a low cost and also VAT, for the same reason. Fuel and tobacco taxes have a very low cost, indeed. Again, this is an area that we could study, to see how our economy could gain by that.

We can be proud of our entrepreneurs and workers in that manufacturing output has gone up, including agricultural output. I do not think it is appreciated by the people in general how important agriculture is to the economy. I remember getting a shock at a press conference called to outline policies with regard to agriculture and other areas of Government when it transpired that not one single question was asked with regard to agriculture which I regard as the premier industry in our economy. There is a blindness with regard to agriculture.

Since 1973 agricultural output has increased by leaps and bounds and even before that farmers had increased productivity. We have run into trouble with regard to milk production but that should not blind us to the fact that it is better to be in that position than to be the sick man of Europe, not able to produce at all or producing half of the amount we should produce. Obviously we are not producing all that we should produce but generally farmers deserve credit in the matter of productivity and output.

Consumer spending is down according to all indicators and investment also is down. In 1984 the major items exported were chemicals, metals, engineering and office machines. These are highly commendable but there has been no visible result with regard to employment. I hope the Minister will resist any temptation to put pressure again, as he did last year, on the money market and thus cause interest rates to increase

Manufacturing industry has always been regarded as the area where employment could be increased and wealth created. We will have to have another look at that area because the type of manufacturing industry on which that judgment was based has changed considerably in the recent past. In the United States the employment figures in the services industry are simply amazing when one compares them with the figures for manufacturing industry. They are way ahead of manufacturing industry and there may be a lesson for us there. Perhaps we could concentrate on that area.

On a number of occasions when I spoke on the Finance Bill I mentioned our difficulties since the breakdown of the major international monetary arrangement made after the last war. Even if we had the best experts in the world in the Department of Finance and if we had the top Minister for Finance in the world, the whole matter of international exchange could impoverish us even though we were working hard and making the right decisions. For that reason I advocated that the Minister for Finance in all the councils to which he belongs should push either for the ECU or some other Euro reserve currency. For example, he should push for the ECU as a petro-currency. We have to pay for every gallon in US dollars and thus action taken by Mr. Volcker can cause us to pay more for our petrol. I know that the Ministers for Finance of the Ten were to meet in Palermo in mid-April and one of the matters on the agenda was the position of the ECU. The idea was to enhance the ECU as a reserve asset. There are difficulties. The biggest difficulty is that the United Kingdom did not join the European Monetary System. Some people say they are having second thoughts but I do not know if that is so. Of course there is a strong link between Washington and London on financial matters and that may be the reason they stayed out in the first instance. The Federal Republic of Germany is a little cautious about advancing the ECU to the status of reserve currency.

I should like the Minister in his reply to indicate if any progress has been made as a result of the meeting which I presume took place at Palermo in mid-April. They intended to increase the interest rates on ECUs held by the various central banks and to encourage its use in the interventions that have to be made from time to time to keep the currencies within the 2.25 or 2.5 band which is the essence of the EMS. They were also to consider if they would allow non-EC banks to hold ECUs. Until that matter is regularised we will be at the mercy of something we cannot control. The dollar and the yen are reserve currencies. If we had a Euro reserve currency we would be to a greater extent masters in our own house. Sometimes this is interpreted as an anti-American attitude. It is not. It is simply looking after our own shop.

The Finance Bill should be used as a weapon to attack the large pool of unemployed, both skilled and unskilled, but that is not the case. The problem is the provision of jobs. In the first place the Government and in the second place this House will be judged on our ability to face up to this problem. It is sad to see rural villages and parishes being denuded of young people who were trained perhaps at the RTC, at NIHE or at university. One asks where is John Brady and one is told he qualified as a plumber, that he did his course at RTC and has gone to the United States. He is better equipped to emigrate than many of his forefathers but there is plenty of work for him here and there is plenty of potential for development.

Despite some of the statements in the White Paper on Industrial Development, I hope that during the year the Minister for Finance will address himself to this problem. If he does not he should move over and let somebody else do the job.

Mr. Yates

Having spoken in the budget debate on a number of general taxation points I should like, in this contribution, to zone in on a number of areas warranting attention by the Minister and the Government and on some of the things I should like to see included in this Bill. In doing so, I support the Bill. While some of its provisions merely give effect to budgetary decisions they are innovative and deserving of support.

I should like to speak principally about value-added tax. I think it is correct to say that it is our second largest revenue earner, after income tax, and that many consumers are not aware of the difficulties of the value-added code. That code was the subject of reform in this year's budget when the number of rates were reduced from six to three but, at the same time, many opportunities were lost.

One can view VAT from the singular point of view of the cross-Border situation outlined by Deputy Wilson, but one must dig considerably deeper to appreciate the real difficulties of the VAT code. The whole tax collection system for VAT is done by people who are not employed by the local inspector of taxes, by the Department of Finance or the Revenue Commissioners but who have to do so simply because they buy and sell goods. The amount of paperwork undertaken by retailers, for which they get no recognition, is simply unfair. It is equivalent to asking some of the Revenue Commissioners' officials to work for nothing.

When turnover tax was introduced, as a precursor of value-added tax, there was a credit allowed for those people who administered the VAT collection system. That was abolished. It should be replaced by a £500 credit, principally against one's net VAT payments. People make VAT returns every two months when, if one is in a payment situation, one submits the returns and the cheque along with them. At the end of the year there should be a system under which one would receive a credit of £500 against one's net VAT position.

The second area relating to VAT is at the point of entry. VAT at the point of entry cheque system is unique vis-à-vis the payment of any other type of tax in this country. One does not merely write a cheque, one must go along to one's bank manager and pay in the form of a guaranteed cheque, in that it constitutes a continuous drain on one's overdraft accommodation and one never sees that money. This causes many cash flow difficulties for firms. At a cost of £190 million, while I realise that VAT at the point of entry cannot be repealed, nonetheless it is necessary to abolish the guaranteed cheque system, replacing it with a normal VAT payment system whereby instead one would pay the cheque on the due date every two months. If one defaulted in that payment then one would have to give the guaranteed cheque thereafter.

In Belgium they have a novel system of exempting the whole of the retail trade from the keeping of VAT returns. They did so through the introduction of an equalisation tax. Let us suppose here that Deputy Wilson was an electrical retailer. He buys a radio from a manufacturer or wholesaler for which he pays £10. If he sells that radio at £20 he would be subject to a VAT invoice for the purchase of £10 and would have to charge VAT to the customer on his margin. Therefore the retailer's margin is liable to VAT. In Belgium they introduced a system whereby retailers were placed in the same position as the consumer. This means that when the retailer goes to the wholesaler or manufacturer and purchases the radio, that is the last point at which VAT is paid. If it were 10 per cent VAT it would be increased to 12 per cent to compensate the Government for the loss but there would be no bookkeeping involved in the retailer's margin because that margin would not be liable. Therefore, the position that the consumer is in now would be the position of the retailer, at no cost to the Exchequer whatsoever.

Mr. Wilson

The wholesaler or manufacturer collects all the tax.

Mr. Yates

Exactly. It would operate as a sales tax at that point in the same way as it operates as a sales tax to the retailer now. The rate could be raised to compensate the Government for the loss of the retailer's margin being liable to VAT, constituting a cost effective method. One of its effects would be to render a lot of VAT inspectors redundant. That is probably one of the vested reasons it has not been followed up.

In relation to value-added tax reform the Minister introduced three rates, 23 per cent, 10 per cent and zero. There is also a 2.2 per cent rate for farmers' refunds increased by .2 per cent. I believe the Revenue Commissioners got it slightly wrong. There should be three rates of value-added tax instead of six to simplify the code; we would all agree with that but it must be remembered that, for every rate, every business person must keep another column of accounts. The difficulty is that there are basically three types of goods one can buy. The first are luxury items, such as a fur coat or a glorious hi-fi set, the second ordinary standard or basic goods and the third pertains to services whether that be a house, a plumbing service or a contracting service of any kind. Those are the three categories of goods and there should be three ranges of rates for them. The Minister simply adjusted the 5 per cent rate up to 10 per cent and reduced the 35 per cent rate to 23 per cent. One can fiddle the rates so that one gets the same yield.

The crucial rate warranting examination is the service one which has a labour content, whether it applies to a motor mechanic, the building of a house, any type of service, say, the repair of a television set or whatever. Here there is a black economy factor. The service rate was 3 per cent, it was increased to 5 per cent and has now gone to 10 per cent and that is the rate that will be added on to the cost of legitimate tax paid labour. The black economy operator does not have to pay VAT on his labour because he is not registered for tax. What is needed is to maintain the service rate of VAT as low as humanly possible and switch the VAT to the parts that the motor mechanic buys, the parts used by the television repair man, and by the agricultural contractor for the tractor he buys. It should be remembered that the nixer will have to buy those components anyway, which will oblige him to be registered for VAT.

The Minister recognised all of these arguments when he reduced VAT for the motor trade in relation to labour on motor mechanical repairs to 5 per cent but, because it has been rationalised to three rates, it slipped up again to 10 per cent. If we are to look after small businesses, legitimate employment — who are paying for everything through the nose, everything being above board and declared — then one must realise that one may have to introduce new items, food or whatever, into the VAT net, or maintain a high rate for luxury items. But whatever one does or does not do one must be aware of the uncompetitive position of the people who obey the law. One might take an agricultural contractor as an example, or anybody else providing a service. There are agricultural contractors competing with people who will never pay a penny tax. If they charge a farmer for cutting ten acres of silage or corn they will find they will have less take home pay and are charging the farmer more because the Government get the difference. That is simply unfair and penalises the people honest enough to register for tax.

If one wanted to create jobs in relation to VAT there is one area that should be examined, that is the imposition of VAT at 23 per cent on meals. VAT on meals is unique. Anybody else who is in the VAT business is subject to VAT on everything that comes in and everything that goes out. But in the case of meals food is not registered for VAT; only the paper napkins are registered for VAT. Suppose I am an restauranteur and you, a Cheann Comhairle, are another restauranteur. Let us suppose that we are in intense competition in the same high street and we charge £5 for a two course lunch — which is the most we can get for it — when we must pay 23 per cent out of that. It is not the case that we bought, say, tomatoes, potatoes or bread, paid 23 per cent VAT on our inputs and merely passed it on to the consumer; it comes out of the restauranteur's margin which is unique in the operation of VAT and is simply unfair. In this instance VAT operates punitively as a sales tax and, given that it is labour-intensive, warrants a change.

The position at present is farcical because if one goes into a fast food outlet, say, McDonalds in Dún Laoghaire they will ask: are you eating the food on the premises or are you taking it away? If you take the food away you do not pay any VAT at all while, if you eat it on the premises, you must pay VAT. Therefore the more jobs created in cleaning up the tables and working in the restaurant the more they must suffer the penalty. I believe that all fast food outlets should be liable to VAT. It should be done in such a way that the cost of reducing VAT from 23 per cent to 10 per cent on meals in restaurants — which I understand to be £26 million — would be offset completely by introducing VAT on take-away sales. They have done so successfully in the United Kingdom. Obviously there are direct employment factors and a tourism factor which generates external incomes.

I was surprised that Deputy Wilson, as Opposition spokesman for Transport, did not refer to the unusual position of VAT on transport. We have CIE who provide the national transport service; we have many coach tour operators and many people operating a scheduled service for school bus routes; we have car rental operators, taxi drivers and so on. We are unique in Europe in that anyone who operates in the transport area is exempt from VAT. If I take a ride in a taxi or a bus I think I am not paying VAT whereas the fact is that I am. If one is engaged in the transport business one cannot register for VAT though one pays VAT at a very high rate on one's car, bus, parts and petrol. One cannot reclaim that VAT because one cannot register for VAT because one is allegedly exempt. Therefore one cannot charge one's passengers the VAT. The Commission on Taxation examined this from the point of view of CIE and recommended that VAT on transport be introduced. This was a very important recommendation. The Commission on Taxation estimated that the contribution that CIE already make in VAT is about £7 million to £8 million. That is the refund they could have got if they could have registered for VAT. Passenger fares in public and private transport costs involve a VAT content. If VAT at 10 per cent were introduced on transport the customer might think that an extra 10 per cent was being slapped on but this would not be the case because customers are already paying a VAT content. The effect of introducing a 10 per cent VAT rate would be that such people as car rental operators and coach tour operators who are being decimated by UK operators in the tourism context, would survive. At the moment we have an ironic situation in that if I am living in the US and want to take a holiday in Ireland and rent a car to travel around, or if I want to take a coach tour to Ireland, it would be cheaper to take a flight to London and book a car or coach tour holiday from London. The difference between the car rental and the coach tour prices in Ireland and the UK can be explained by the difference in excise duty and VAT. If we want to create jobs in tourism we must make transport no longer exempt from VAT. We should charge 10 per cent and allow the operators to claim VAT on their input as they do in every other European country. This is one area which needs urgent attention.

In relation to income tax, last summer, the Joint Committee on Small Businesses had the Revenue Commissioners sitting where Deputy Wilson is now sitting and we asked them questions about tax evasion and the black economy. They outlined their difficulties in collecting tax. In relation to the tax collection system, one of the points made was that in 1983 they issued to county registrars and county sheriffs 97,000 certificates for the collections of arrears of tax and they said that they could have issued far more through the legal system but for the fact that it was totally jammed up.

Mr. Wilson

Many of them were pseudo ones.

Mr. Yates

The 97,000 certificates have worked their way through the system. That was the last resort of appeal, that was not assessment. The reality is that schedule D tax collection is not working. We must look at another method. I studied the system in the United States based on the self-assessment system of income tax where a person calculates his income calculating the first few thousand pounds at the 35 per cent tax band and the next few thousand at the 48 per cent tax band and then he submits a cheque with his returns and if he deliberately misled the authorities he would get a very rough ride. This automatically frees the system of assessment and all the machinations of the Collector General's Office. The Revenue Commissioners could pilot a self-assessment system here, perhaps for one profession or in one tax area to see if it will work. I am very sceptical about the vested interests of the Revenue Commissioners in relation to employment but if we asked them about this scheme they would say that it would not work because the Irish character is so malicious, devious, cute and cunning that any opportunity to avoid tax will willingly be grasped.

Mr. Wilson

So that is where they got all those qualities.

Mr. Yates

The Revenue Commissioners have no evidence of this. There is already an administrative track record within the United States for this to work and the system could be piloted in many ways. If the people involved in the pilot scheme co-operated and submitted their forms and a cheque for it, it would free the system to deal with the real tax evaders.

There is an anomaly as regards the self-employed. A shop keeper could set up a company and the company could employ him and he could draw a salary from that company but he would not benefit from the £600 PAYE allowance. Alternatively if a shopkeeper employs his son or daughter they will not have the benefit of the £600 PAYE allowance. I am not talking about people who are self-employed but about people employed under the PAYE system. If these people are unlucky enough to be a blood relation of the employer, or if they are a corporate employee of their own company, they do not benefit from this allowance. This is not a question of tax evasion and the anomaly should be cleared up immediately.

In relation to income tax, opportunities have been missed as regards employment creation. There is no doubt that even in the best possible situation, given the percentage of young people here, there will not be enough jobs for those seeking work. A reasonable scenario for employment is to distribute the existing workload. That can be done in two ways. It may be said that if those who retire now at 65 or 66 years of age retired at 55 or 56 years of age it would create on a once off basis 10,000 jobs straight away. Apparently that cannot be done because the cost of pensions is too high. However, it must be remembered that many of those people would be entitled to early retirement pensions either through superannuation, Irish Life pensions or pensions to which they contributed. I suggest that the age exemption limits in the income tax code be brought down to 55 years of age. We could tell people that if they retire at that age they will not be taxed as heavily on their pension as they would be if they waited until 65 years of age to retire. That would be an innovative way to deal with the matter.

The tax system can be used in another way to create jobs — this can apply in particular in the public sector — through job sharing and splitting jobs. Many married women become unemployed because they cannot remain full time at work but if they split the work, the wages, the hours and the tax they would be able to do so. A difficulty with the operation of the tax free allowances is that it will not necessarily pay them to do that. I would like to see an additional tax free allowance being granted to those people who make the sacrifice in the national interest of splitting their job with somebody else. Those people would then have a better take home pay. It would be reasonably cost-effective and a lot cheaper than paying part of the £11 million we spend every week on the dole.

In regard to corporation tax and jobs, I must point out that there is a mechanism for manufacturing industry whereby they get £10 per week relief for each extra employee. In other words, they receive £500 per year against their corporation tax liability for each employee they hold on to for a year. As Deputy Wilson said, the common experience in the United States has been that the job growth will be in the service sector, in the personal service sector. Our tax system must take account of that. An employer or a business in the service sector must be able to obtain the same corporation tax relief for new employees as the manufacturing sector. In other words, if a shopkeeper, a hotelier or a publican takes on an extra person off the dole, whatever about the employment incentive scheme, they will get £10 per week off the corporation tax bill of the company. It is not tax dodging; it is an incentive to recruit people off the dole.

The whole area of capital allowances needs to be looked at. We must look at the rate at which one can depreciate fixed assets, a building or a machine. There are some gross anomalies in this regard. A farmer who builds a farm shed or cow byre gets depreciation of 30 per cent per annum on those buildings. A garage proprietor who buys a forklift truck gets depreciation on that equipment but a grocer who renovates his premises or builds an extension is not allowed to claim one penny of that against tax. If the grocer borrows the money the interest paid on it is allowed against tax. We have an anomalous situation between different sectors as regards capital allowances and there are anomalies in the way some businesses are competing with UK concerns and the operation of capital allowances. For example, a taxi driver can only depreciate his car by 20 per cent per annum. In other words, his vehicle is supposed to last five years. Any taxi driver will say that a vehicle will not last five years. In Britain there is a 100 per cent capital allowance in the first year. Given the deplorable state of our finances I would not go that far but I would allow the special licence plate holders, the tourist operators, those involved in coach tours and car rentals exclusively for tourists, a special 100 per cent capital allowance in the first year.

In regard to capital acquisitions tax there is an appalling anomalous situation. Section 58 deals with the abolition of an estate duty on transfers from husband to wife but an appalling anomaly still exists. I should like to refer to the position of a farmer who sells his property and buys a bigger farm. If that person does the decent thing and puts it in his wife's and in his own name he does not get roll-over relief on what he sold the first farm for. The fact that there is joint ownership of the second property means that only 50 per cent roll-over relief is granted. There is a glaring anomoly there. One would think that the roll-over relief should apply where a person puts the new property in joint ownership. For all capital tax purposes the measure in section 58 should be taken as the path to travel on with husbands and wives being treated as one.

There is also a difficulty in regard to capital acquisitions tax. Land prices reached a high pinnacle in the late seventies but prices have dropped from £3,000 per acre to £1,000 per acre. It is totally unfair that on property transfers now one should pay tax on a totally artificial land value that is unsustainable. I would like to see some mechanism introduced through the Valuation Office whereby current land values would be taken.

I notice that in the Bill there is a switch in emphasis from the Revenue Commissioners and the legal status they have to the local inspector of taxes for the various tax collection systems. I welcome that. When the Joint Committee on Small Business were carrying out a study on the black economy the members found it incredible that a known tax dodger in difficulty with corporation tax would not be known to those who were looking after his VAT books, his P35 returns for employees' PAYE or PRSI. Those officials did not know each other. With the exception of the special investigation branch there was no central mechanism to deal with such problems. The new move is obviously a way to simplify certain arrangements and I hope there will be some mechanism at the inspector of taxes level to combine the different types of tax an enterprise has to pay. I hope there will be a better cross communication system within the Revenue Commissioners.

Section 14(3) amends the Finance Act, 1969. The change means that if one has a thoroughbred stallion one is free of income tax if one operates in Ireland. The section in effect says that if one has a stallion located in Newmarket or Longchamps one will not benefit from that concession but it is a great pity that the Minister did not use this opportunity to deal with a glaring anomaly. If one leases a stallion from Bord na gCapall and it generates an income from stud fees one does not benefit from the exemption under the income tax code. Small farmers with two or three mares may lease a stallion from Bord na gCapall. We must remember the importance of those small breeders to the country.

We must remember their financial position as against that of such people as Robert Sangster. It is anomalous that they should not benefit from income tax exemption on stud fees. The Minister might look at section 14 on Committee Stage and at the anomaly whereby people leasing stallions from a State board cannot benefit through half-breds. It is very unfair.

Another anomaly exists in relation to the building industry and the subcontractors' tax certificates. A main contractor for the building of, say, a school may employ an electrical subcontractor. In order to pay the latter he must produce a C2 tax certificate. If the electrical subcontractor cannot do so, the main contractor must deduct 35 per cent of the money due to him. This is reasonable because it helps to stamp out the black economy. However, the subcontractor may encounter a contrary inspector of taxes when he applies for his C2 form and could experience various delays. My complaint is that this is the only aspect of the tax collection system where there is no appeal mechanism. People who have been refused this C2 certificate should have a right of appeal because often there can be administrative errors.

The Minister might clarify the business expansion scheme introduced under the 1984 Act which has been operational since 1 January this year. The basis of the scheme is the allowance of £25,000 free of income tax for individual taxpayers who invest in certain funds which provide low risk capital equity for manufacturing firms. I have no doubt that the scheme will be successful. There is a great lack of equity base in small indigenous firms. There is also the problem of the debt-equity ratio. There have been problems with this business expansion scheme. The operating expenses which the administrators of these funds can charge are absolutely minimal — 3 per cent or 5 per cent. This needs to be amended. I am not sure if there is such provision in this Finance Bill. The scheme is designed to get private funds into small businesses in the form of equity.

In section 67 new securities are being introduced in relation to multinational profits. During the rumpus about the black hole everybody missed the point. It is not a matter of knocking multinationals. They come here on a certain understanding and they are perfectly entitled to send their profits back home. There should be no problem about that. The lesson is that if we support small Irish industry they cannot repatriate their profits abroad but must keep them at home. Therefore they are worth far more to the Irish economy and deserve preferential treatment. If gilts are to be established through these funds in much the same way as any investor can invest in Government securities and bonds tax free, the Minister should specifically ensure that the proceeds of these funds should not go into the general Revenue pool but should specifically go towards providing equity finance for indigenous business. Multinational companies such as Digital and Wang have a stream of middle management who can set up small industries on their own. Many of the parent companies are only too delighted to help them. They see it as part of their contribution to Ireland's development. They set up the front-runner in computer software and there will be spin-offs in research and development. I would like to see the proceeds going to an equity fund for small businesses. There would be a far better reaction from multinational companies if we said that the funds were to be earmarked for a specific purpose.

Lurking behind this Bill is the question of land tax. There may be people in Dublin, Cork and other areas who are convinced that there is some crock of gold among farmers who are not paying their contributions. Various figures can be quoted such as their contribution of £35 million in income tax out of a total income tax receipt of £2,000 million. One could say that agricultural incomes amount to about £900 million and that farmers are not paying their fair share, that they are mean and selfish. The fact is that there is not a crock of gold out there. I do not say this out of love for farmers; it is simply a statement of fact. They do not have the advantages of limited liability and they are exposed to everything from climate to being unsecured creditors. I will be supporting the land tax in principle. It has advantages as a replacement to the PLV system of rates and adjusted acreage is fair.

There are two points I would make which I should like the officials of the Department of Finance to note before they ride rough-shod into a wilderness. The rate of tax to be paid has been set at £10 per adjusted acre. if the rate of increase is linked to inflation they will be walking a very dangerous road. As we saw in the late seventies, high inflation can mean low farmers' incomes because the increase in what they are obtaining for their produce does not match inflation. They bear the cost and are caught in a cost-price squeeze. A high rate of inflation does not guarantee a high rate of increase in farm income. I should like to see a three-year moratorium on any increase from £10 until it is fully operational. A farmer with 100 acres might say that the land tax was costing him one thousand gallons of milk. It could be linked in such a way that in ten years time he would be paying the then equivalent of 1,000 gallons of milk. Alternatively it could be linked to real farm income increases or decreases as determined by An Foras Talúntais. There must be some mechanism which relates to the farmers' ability to pay.

A farmer who has 60 cows could be destroyed overnight by the loss of 40 of those cows through brucellosis. There is no way he can get compensation. He may have a huge family but the land tax takes no account of that. He may have 70 acres but owe £120,000 to the ACC and the Bank of Ireland. There are various cases of genuine hardship. There should be some single mechanism for mitigation of land tax payments. In other words, if a farmer can obtain from his local inspector of taxes a certificate to the effect that because of brucellosis or because of unusual family circumstances or because of huge borrowings, his tax liability should be nil and if after the Revenue Commissioners have decided that no tax is payable that farmer could then present that certificate to the local authority and have his land tax bill mitigated. Those are the two areas I urge the Minister to take note of when the land tax Bill is being prepared. We accept the principle of a land tax and all it entails but essential ingredients of it must be the rate of increase factor and some single mechanism to deal with hardship cases.

I wish to refer now to the operation of the Collector General's office. There are some very understanding and reasonable people in that office but for every understanding person one will always find another who is not so understanding. Many of the cases with which the Collector General must deal relate to companies who are in arrears in respect of tax. I am not condoning the late payment of tax because such a policy would involve unfair competition in so far as those who pay on time are concerned, but there is inconsistency and a lack of uniformity in the collection of tax arrears.

I know of one construction firm who in the years 1980, 1981 and 1982 paid about £200,000 in tax but who in each case were three months late in making the payments. The company are being pursued and vilified in respect of every penny due by way of interest for the three months during which the payments were late in each case. It is unfair that slightly delayed payments should be dealt with in this way while there are some who are grossly abusing the system by way of not paying their tax. The people I am talking about are in the white economy. They are paying their taxes, but because of a cash flow difficulty in the construction sector they were three months late with their payments. Very often the Office of Public Works and other State institutions, too, are much later than three months in terms of payments while refunds from some tax offices are very often delayed for some time. The Revenue Commissioners should be allowed use their discretion in the application of interest penalties.

So far as the Collector General's office is concerned, there is preferential status in respect of the tax arrears of a company. One might argue that if the situation were otherwise the Revenue Commissioners would not be paid in many cases. However, one can argue also that because the Revenue Commissioners know that in the event of a company going to the wall they have a fair chance of being paid and that they will be paid before unsecured creditors and after the banks, they adopt a very complacent attitude. If, say, for three weeks in succession a company fail to make returns there is no emergency system to alert the Revenue Commissioners to the possibility that that company are experiencing cash flow difficulties.

A person taking over a company from a receiver as a going concern will not agree to pay the taxes that are due. He will be interested only in paying for plant and machinery and in having money for raw materials. The point I am making is that in many instances of receivership companies are not being taken over but are being allowed go to the wall as a result of the preferential status of the Revenue Commissioners. Huge problems in relation to tax arrears are allowed develop because of the complacency of the Collector General's office. Therefore, the preferential status of the Revenue Commissioners should be abolished. I am not saying that tax should become negotiable but following two or three weeks of returns not being made by a company the Revenue Commissioners should move in fast, ascertain if there is a problem and, if so, reach some arrangement. The present system allows arrears to accumulate to huge amounts and this in turn leads to unemployment.

The whole question of PRSI is very relevant in terms of the ERSI report published today. I have not read the report in detail but from what I have read of it and from what I have heard of it on radio I consider it to be very selective. It is easy to pick holes in certain aspects of the PRSI system. Chartered accountants who trot around from conference to conference tell us that we have the lowest rates of PRSI in Europe. That is correct, but the inequity in the system rests in the area of the employers' contribution. An employer's PRSI contribution in respect of his employees is usually about 10 per cent of his operating surplus. Therefore, a person in manufacturing or in business who employs 25 people pays 10 per cent of his gross profit in PRSI. However, a person employing 100 people whether, he be in the textile industry, in the construction industry or in any other area, pays 40 per cent of his operating surplus in PRSI payments.

The simple message is that the more people one employs the greater share of one's profits will have to be handed over in PRSI payments. Consequently, one would minimise in so far as possible one's employment levels. Not only do we have a State apparatus that encourages employers to utilise machinery rather than people but we have a tax system whereby the more people one employs the more tax one pays. We have figures to indicate that in respect of the labour intensive industries: in the construction and textile industries the employer's share of PRSI is about 40 per cent of his operating surplus. That factor is more important than the case of any one individual, having regard to the fact that employment is our biggest problem.

I am relying largely on Patrick Kinsella's account on RTE of the ERSI report, though perhaps the true picture cannot emerge since he was given about 60 seconds during which to outline the contents of a report of perhaps 60 pages or more. However, Mr. Kinsella made the point, from his reading of the report, that the PRSI system was unfair so far as the low paid worker was concerned. This view apparently is based on the fact that people who earn more than £12,500 do not pay PRSI on the additional amount while people at the low end of the scale pay 8.3 per cent on everything they earn.

There are a few points to be made in this regard. We all know that 100 per cent of nothing is nothing. The low paid worker who is paying 8.3 per cent of his income in PRSI is entitled to the flat rate disability and unemployment benefits while this is not the case in respect of the higher paid worker. In addition, those earning the lower wages are entitled to far more from the social welfare fund than is paid into that fund by way of PRSI payments. Therefore, they are not necessarily losing but, what was more unfair in relation to the comment on the report, was that specifically people earning over £12,500 per annum are not entitled to a hospital services card, they have to go to the VHI for health insurance. Perhaps that is fair in one sense in so far as they do not pay for what they do not get but it must also be remembered that if you are earning over £12,638 per annum and are single you pay 73p in every pound through PAYE and PRSI.

In the long term, the only way to reform PRSI is to combine it with PAYE. They have done this in other countries and contributions to PAYE could be increased to compensate for the drop in PRSI. I am not saying the Exchequer should take in less but that is a simpler and more effective system which provides the same benefits. It also combines the social welfare and tax systems. The employer's contribution should be abolished but should not be shifted to the employee, clearly that would be unfair. The Commission on Taxation recommended the introduction of a social security tax which means that everyone will pay 4 per cent of their income to pay for the welfare state. It has to be paid for by someone and it should have an income distributive effect on the economy whereby you take from the people who have it and give it to those who do not in a straight social security tax. The Commision on Taxation did not make any comment on taking in less taxation, they just recommended a simpler, more efficient way of getting in tax. It is tragic that successive Governments have seen fit to neglect the commission's report.

In relation to the black economy, the Joint Committee on Small Businesses in their second report on retail distribution, which I hope will shortly be debated in the Dáil, devoted a section to the black economy and I should like to see the numbers of the staff of the special investigation branch, which at present stands at 14 and which uncovered 23,000 operations in a period of two years, extended to 40 people. The increase in staff is badly needed to deal with this problem. The Revenue Commissioners should not hound people who are registered for all taxes but should concentrate on those who are evading the system.

Deputy Wilson and others have made suggestions in relation to tax relief and I am equally guilty in that regard but I try to be constructive. Many people do not realise that for every pound paid in taxation of all kinds, we spend £1.20. If you are running any kind of business on a 20 per cent deficit, there is no scope for tax relief. When people talk about tax reform, they really mean tax reduction which is not feasible. However, a case can be made for the PAYE sector. If you want to help that sector, one way to do so is through the £600 PAYE allowance. This year, that will cost £211 million but I hope that the Government, or any future Government will not dream up a new system for helping the PAYE sector. The means to do this are already there; if you double the allowance that would be the most effective assistance you could give. Because we are spending £1.20 for every pound paid in taxation, we must look at ways of reducing the sum of £1.20. Of that sum, 84p goes on Departments of State. The largest sum, 20p, is spent on the Department of Social Welfare, the Department of Health accounts for 16p, a sum of 12p is spent on the Department of Education and the Department of the Environment gets 9p. The biggest single expenditure of that sum of £1.20 is 32p on paying interest debts. In other words, if we could reduce the sum of 32p to 30p by reducing the debt, we would have exactly the right amount of money to double the PAYE allowance from £600 to £1,200. That may sound very simple but we need to understand that the best way to help to reduce our biggest single tax collection, income tax, and the biggest sector of that, PAYE, is to reduce our expenditure and our debt service by 2p from the sum of £1.20 which I mentioned. The fundamental point is that if you want tax relief you must have cuts in public expenditure. I support such cuts but many of the people who are so adamant about tax relief would not support such cuts. Hypocrisy or double think is something which the electorate will see through but I hope that the Government, by their tough decisions which we support, will get down their debt service and will then be in a position to double the PAYE allowance.

Tomás Mac Giolla

Unlike last year's Finance Bill, there are no significant changes from the budget this year. The Minister's speech was significant in certain respects although, in some ways, it says nothing. It is mostly made up of a rehash of the explanatory memorandum. Some parts are almost exactly the same, there are just little bits added on here and there. On page three, one thinks he is about to go on to something important when he says that this affords an opportunity for discussion on overall strategies for the economy and the public finances in particular. We think we will hear a Government assessment from the Minister of their overall strategies for the economy but he dismisses it in about ten or 12 lines with phrases like "we have taken a responsible approach to public finances", "we have resisted the pressures to take short term initiatives", "we have achieved our budget targets" and so on and he attacked the spendthrift policies which brought all this about. He also said that they will continue their prudent approach and that they will watch their budget targets.

In the next paragraph he gives an opening for a mini-budget by denying that he has any intention of bringing one in at this time. He said that there is no basis for this kind of comment and although some receipts fell short of expectation it is much too early to draw conclusions. However, should it happen that a significant overrun emerges in the course of the year, he said that the Government will take whatever steps are necessary to keep the budget in line with targets. The steps required would obviously be a mini-budget which nowadays comes in not as a mini-budget but as Government action in the August holiday period. This has been done by Fianna Fáil Governments in the past. They make significant changes even in the direction of the economy without bringing in any budget or, as the Government did last August, abolish half the food subsidies. Probably they will abolish the other half once the recess comes in July or August next. That will be his mini budget if, as he says, a significant overrun begins to emerge. He has promised to abolish the other half in 1986 so he can anticipate it by six months by abolishing them next August, and I think that is precisely what he has in mind. Of course, there is a great possibility of a significant overrun when we see what is likely to happen in regard to the ICI affair and the possibilities of the Government having to take further action in that when we begin to understand the full extent of what might be occuring.

What most annoyed me was the Minister's reference to tax reform. He says that this budget and this Finance Bill constitute only one phase in the process of tax reform. There is no tax reform in it. There is some relaxation in the PAYE area, the tax bands and VAT which is welcome — anything that simplifies the tax system is welcome — but it did not reduce the amount taken from the PAYE sector, or for that matter the VAT sector, so there was no tax reform whatsoever. As he went on the mind of the Minister came out very interestingly. He said, and I quote:

We still have much to do before we can be satisfied with the structure of our tax system. We have to widen the tax base further by limiting concessions and bringing more areas of activity into the tax net.

That is very interesting and I agree with him absolutely. The nub of the whole question is to bring more areas of activity into the tax net, which not one Member of Fianna Fáil in all their criticisms of the budget suggested. They criticised and showed all new areas of expenditure but they did not give any area of activity which they would tax to bring in further taxation. I thought that now our Minister for Finance, Deputy Dukes, was facing up to this when he said, "We will have to bring more areas of activity into the tax net". He went on to indicate what we are doing:

We are planning the introduction of a child benefit scheme which will unify in a single payment State support towards the cost of rearing children and tax this payment as appropriate.

That is the new area of activity he proposes to bring into the tax net, not wealth or capital or property but this child benefit scheme. He went on to say:

This will achieve a more equitable distribution of the benefits of the very significant level of support for children which is funded by the taxpayer.

I do not know why the Minister introduced this into his speech because it does not come into the Finance Bill and it did not have to, but he sees this as a new area of activity that he can tax. The whole social welfare system and in particular this child benefit scheme are designed to bring in more money from taxation. We will resist this very strongly. It is very interesting and seems very significant that you put together all the present forms of child support such as tax reliefs, social welfare child allowances, children's allowances and the new family income supplement and bring all that into a single payment, the child benefit, which will be about £30 a month. That is very good and sounds great, but it will be taxable. The significance of that changes the whole concept of what we are talking about. As things stand with the present tax structure and the present social welfare system many lower income families, especially larger families, will be brought into the tax net if social welfare payments and child benefits are made taxable and if the tax bands and allowances are not increased very dramatically. If they are, then possibly those people could avoid it; but if they are not increased very dramatically then the low income families, particularly larger families, will be brought into the tax net for the first time.

In these circumstances, if that is what the Minister is doing, the effect of increasing the child allowances and then taxing them will be that the PAYE workers and social welfare recipients will be in the tax net and will be paying this, many of them on ridiculously low incomes. Those who are not paying taxes, the non-taxpayers, will get a very fine bonanza. They will get the £30 per month for every child and not pay a penny tax on it. It will be tremendous for them. The same people will be screwed into the ground again. Go down the scale to the lowest possible incomes and tax them on the child benefit while others who are not paying taxes will get the same £30 per month and will not pay taxes on it. That is what the Minister in his speech referred to as tax reform and bringing new areas of activity into the tax net, and it shows a sick attitude on his part. Presumably the intention is that it will come up in the next budget. If that is the Minister's intention we will certainly oppose it and build up a campaign of opposition to it from now right up to budget time.

In this Finance Bill all the inequities, all the income levies, the youth employment levy and the temporary income levy remain. Remember the temporary income levy that was brought in two or three years ago. That is renewed of course and will continue to be renewed. They cannot do without it now. That 1 per cent temporary income levy is a most iniquitous tax. There has been no change in PRSI.

Section 5 of the Bill renews again for 1985-86 the special allowance of £286 in the case of employees who pay the higher rates of PRSI. That allowance was £312 in 1982-83 and this Government reduced it to £286 in 1983-84. That allowance by now should be at least £400 but it is continued at £286 in this Finance Bill. All those inequitable areas remain, but some significant people are being helped. Sections 20 and 21 of the Bill are fairly extensive and the people they help are the landlords. The Housing (Private Rented Dwellings) Act which was passed here gave landlords a guaranteed income for life. They no longer had to just go out and get their market price for their property. They went out and got an economic price, the economic rent, not whatever they could get from the market. They are guaranteed an economic rent and if the people out there in the flats cannot afford to pay this rent the Minister pays them out of the taxpayers' money. These landlords are paid out of the Exchequer, and now the Minister is giving them new incentives. We know what that means. "Incentives" means more money into their pocket, less taxes for them to pay.

The Minister will say that this is a great way of giving incentives to them to refurbish property that is dying, collapsing, in decay, to reroof, rebuild and so on, but note that only landlords get this tax relief. The ordinary "Joe Soap" might put his money into refurbishing a house or his property but under this Bill only the landlords will be allowed to offset their expenditure on refurbishment against future rental income. This incentive is for landlords who are letting property. That is very significant and shows the attitude of this Government and the Minister for Finance. When he thinks of taking more money he goes to the bottom of the pile and screws as much as he can out of those people but when he thinks of incentives he goes to the top, to the landlords.

There has been no change in the area of corporation tax. A recent case which came to notice as regards the payment of corporation tax was Tara Mines, and I am sure Tara are not the only profitable concern who are not paying tax. The only way we found out they were not paying tax was that we heard that they were not paying any royalties. It transpires that under their lease their royalties are dependent on the amount of profits and the tax they pay on those profits. Since the Government and the Ministries concerned have not succeeded in working out precisely how much tax is to be paid, how much their profits were and so on, Tara Mines do not pay any royalties. This means they have paid neither royalties nor tax on the ore they extracted from the Tara ore body since 1978. In all that time they have been exporting the raw ore and making profits but paying the Government neither tax nor royalties. Now the Government are in the process of making a deal to hand over to them the Bula ore body for less than one-tenth of its value. The minimum we are asking the Government to do is to ensure that, before they hand over the Bula ore body, they should work out a new deal with Tara Mines and alter the terms of the lease so that royalties will be paid on every tonne of ore extracted from the mine, not on profits, which is how the lease should have been read in the first instance. Now the Government have an opportunity to do that. If Tara have to pay royalties on every tonne of ore extracted, they will then have to pay tax on profits.

I wonder if the oil companies are looking for a deal as good as Bula got? They are saying the oilwells off the south coast are small wells and that a previous Minister, Mr. Justin Keating, had in mind only large oil wells. The oil companies are saying they will not bring the small wells ashore unless they get a new deal. That is the usual threat of mining and exploration companies —"If you do not do what we say, we will not extract the oil or the ore". What difference will it make to us if we make a deal like that made with Tara? Apart from the jobs in the Navan area, Tara Mines are of no benefit to the country in terms of increased wealth or jobs down the line. Are we going to make a similar deal with the oil companies to allow them to bring the small wells ashore? There are probably hundreds of small wells rather than one big well, but it seems the oil companies are trying to put the screws on the Government in the same way Tara were allowed to do some years ago.

I am sure every Deputy got a copy of a press statement I received from the Irish Customs and Excise Union, who are affiliated to the Irish Congress of Trade Unions. With your permission, Sir, I will read from this statement by the Irish Customs and Excise Union in relation to recent Government directed cutbacks in the customs and excise service, March 1985. This is a cry from the heart by people who know their job inside out. They are pointing out that in spite of denials to the contrary there have been savage cutbacks in manning levels throughout the uniformed customs and excise service with effect from 17 February 1985 and that further cutbacks are being implemented on a day to day basis. They say the situation has been arrived at where they are left with a shambles of a customs service on Sundays and public holidays, the very days when the numbers of people entering or leaving the State are at a peak. They go on to say that the cutbacks range in severity from about 35 per cent to 65 per cent. They say that the opening hours at all frontier posts have not only been reduced but that manning levels during these reduced hours have been savaged.

They go on to say that it has been decided — and this is the frightening thing — by the Minister for the Public Service, presumably with the knowledge of the Minister for Finance and other Ministers, that not all arrivals or departures of small aircraft to or from EC countries would in future warrant a customs presence. Up to now all aircraft warranted a customs presence. This means that small aircraft will be able to fly to and from EC countries without any customs presence whatsoever. As the statement from the union says, this must be very welcome news for the smuggling fraternity and must be viewed as a most alarming and serious development because it can only lead those misguided people to thank their lucky stars and to take advantage of this Government directed good fortune. This move will be welcomed by all smugglers, including drug smugglers. The Taoiseach said they had got on top of the drug problem but now they are cutting back on the customs service and leaving the country wide open to drug smugglers. They say that at ports and airports only a token customs presence is now provided.

This is very serious not just from the point of view of the Minister for Finance but from the point of view of the drug problem which we have. I thought before I received this circular from that union that surveilance had been increased at all exit and entry points in the State — ports, airports and places where small aircraft could land. I was quite sure that there was increased vigilance to ensure that drugs would not be smuggled into the country. Now I find that this is far from the truth. I ask the Minister and the Government to look at the position again. This ridiculous embargo has no meaning whatever and if the Government looked at it they would see that it was losing them money in many areas. By all means reduce staff in as many areas as possible, because we must reduce expenditure, but surely it could be done in a more scientific manner rather than having this embargo of one in three. It has reduced our customs service and many other services to a state of ridiculousness.

The VAT changes were welcomed by most people. The system was simplified for everyone. The main areas the vast majority of people did not welcome were VAT on footwear of 10 per cent, the increase of VAT on clothing from 8 per cent to 10 per cent and the increase to 10 per cent on new houses. The damage done to the construction industry has been well dealt with over the last couple of months and it must have hit home by now.

We have been told that there will be fewer local authority houses, and income ceilings have been introduced in order to reduce the numbers on the waiting list. Incentives have been offered to encourage people to buy their own house, yet we have this increase to 10 per cent on new houses. It is contradictory and does a lot of damage to the construction industry. It is difficult to see the purpose of it.

One of the specific VAT proposals I welcomed on the day of the budget was the reduction of VAT on theatres to zero. I thought theatres and live performances were all zero-rated. I discovered then that they were exempt but not zero-rated. There is a difference between being exempt from VAT and being zero-rated. The director of the Gate Theatre, Mr. Michael Colgan, wrote to me and other Deputies and said he was saving £20,000 on the reduction of VAT from 5 per cent to zero but he could no longer claim VAT rebates on goods such as material for sets, printing, advertising etc. If he was zero-rated he could claim such rebates. Last year the Gate Theatre claimed £30,000 rebates. This year they expected it would be £45,000 because they planned major refurbishing. While they gained £20,000 they lost £25,000.

I wrote to the Minister for Finance regarding this. I was sure the Minister's intention was to try to catch up on Deputy Haughey's great move for the arts and was sure Deputy Dukes felt he would get in on the act and do this out of the goodness of his heart. I thought he reduced VAT on theatres to help them out. I wrote to him and said it would be a great pity if the usefulness of this was lost through some technicality. I said I was not aware that there was a difference between exemption and zero-rating. I appealed to him to do what was necessary to ensure that what was obviously his original intention would be carried out. I really thought it was his original intention.

When I received his reply he went down very much in my estimation. It appears that instead of putting up the rate to 10 per cent the Minister decided to take out the 5 per cent, not for the good of the theatre but simply to rationalise the VAT system. As a result of the budget changes the number of VAT rates were reduced from six to three and the 5 per cent rate was abolished. All the goods and services at the 5 per cent rate were moved to 10 per cent rate with the exception of admissions to live theatrical performances and certain other forms of live entertainment. I was told the Minister had now re-examined the position and that it was considered that the theatre had by no means been badly treated by being exempt given the 10 per cent and 23 per cent rates which apply to most other goods and services.

On the figures supplied by the Gate Theatre it is obvious that the Gate would be better off if the Minister had announced that he was increasing VAT to 10 per cent because then they would get £45,000 rebates and would pay £40,000 in VAT thus giving a saving of £5,000. As it now stands they will lose £25,000. I do not understand why the Minister cannot see that. I ask the Minister to look at it again on Committee Stage to see if it is possible to have theatres zero-rated.

During the budget debate I asked about the position of unregistered farmers but I did not receive a satisfactory reply to my question. The figure has increased from 2 per cent to 2.2 per cent. The refund of VAT to unregistered farmers totalled £6.8 million in 1979. In 1981 this amount increased to £22 million. In 1982 it went up to £41.5 million. In 1983, which is the last year for which I have figures, it went up to £53.70 million paid out of the Exchequer to unregistered farmers. Apparently there are only 700 registered farmers. Now it is intended to increase that 2 per cent to a VAT refund of 2.2 per cent. I cannot understand what this is about because a number of farm inputs, including fertilisers, are zero-rated. What has increased in price which makes the Minister want to increase this VAT refund from 2 per cent to 2.2 per cent? I hope the Minister will answer that question during the course of Committee Stage.

Debate adjourned.