Dáil Éireann debate -
Tuesday, 15 Apr 1986

Vol. 365 No. 4

Finance Bill, 1986: Second Stage.

Minister for Finance (Mr. J. Bruton)

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

The Finance Bill gives statutory effect to the taxation changes introduced in the 1986 budget. It also contains a number of other provisions not announced in the budget. The more important of these are additional measures intended to encourage economic activity and employment and to promote greater employee involvement in share ownership.

I will deal in due course with the more significant individual aspects of this Bill. I would like in the first place to speak on the general economic and budgetary position and on the broad taxation startegy underlying the Bill.

There is a new optimism in the economy. The reduction in energy prices and the continuing downward trend in inflation have increased confidence. This will be reflected gradually in improving investment and employment prospects. We have a good competitive position internationally and the opportunities exist in the new climate for significant economic growth. The Government's role is to provide the best possible environment for growth and to provide special incentives where appropriate. In particular, we must encourage investors to break out of the traditional mould and to show a greater willingness to take risks in building up enterprise. For the first time in several years the outlook is bright, we are on a rising curve and we must not miss our opportunity.

Since the budget, the positive outlook for the Irish economy and for other oilimporting countries has been enhanced by the steep fall in energy prices. While oil experts and economic commentators are still unsure about future trends, there is general agreement that the maintenance of lower prices will boost the projected growth in demand in most economies and lead to a more pronounced reduction in inflation rates than had been envisaged some months ago. This should benefit our economy in a number of ways. The annual increase in the consumer price index at mid-February of 4.6 per cent was the lowest since 1968. Inflation will be lower than projected at budget time and should average no more than 3 per cent this year. Indeed, the year-on-year rate of increase will decline further to around 2 per cent in the second half of the year. As a result of this reduction and the income tax reliefs in the budget, the growth in real personal expenditure should be considerably more buoyant than in 1985. Investment should also maintain the upward momentum experienced last year due to the better economic climate now in prospect and due to the measures introduced by the Government to assist activity in the building and construction sector.

The stimulus to the economy from public expenditure will be somewhat larger than originally intended. As most public expenditure outlays have already been determined in nominal terms, the lower level of price increases now being forecast will lead to a higher real level of spending. The Government have already reaffirmed that the cumulative increase of 7 per cent under the 25th pay round is still on offer despite the lower projected rate of inflation. I am sure that public servants in particular will recognise the real benefits which these proposals will c on them over the next 15 months and that they will appreciate that the pay provisions in the budget represent the maximum that we can afford.

The prospects for the balance of payments are that the surplus on the balance of trade will continue to grow. Overall, the balance of payments deficit in 1986 should be much less than the 3 per cent of GNP projected in the national plan.

With lower inflation and higher economic growth, the climate for employment should continue to improve. The indications are that non-agricultural employment showed a small increase towards the end of 1985. Overall, the economic environment for 1986 augurs well for a continuation of this upward trend which will be supported by the wide series of measures introduced by the Government to increase the opportunities for employment.

The returns on Exchequer receipts and expenditure for the first quarter of the year show that the budget targets are on course. While price reductions and other developments will give a welcome boost to economic activity, they will have only a negligible impact on the public finances and will not allow for any relaxation of budget discipline. The budget deficit remains uncomfortably high and reducing this deficit must continue to be a priority. In emphasising this I am not preoccupied with book-keeping but merely drawing attention to the fundamental reality that we have a serious public finance problem and pointing out that, while the improved economic outlook offers considerable opportunities, it also carries the risk of generating unrealistic expectations about our public finances.

The improvements in personal taxation, which were announced in the budget, are now in effect and the taxpayers generally are beginning to feel the benefits. In addition, the new child benefit is payable from this month onwards. The tax improvements will cost the Exchequer £120 million this year and more than £200 million in a full year. The improvements more than meet the Government's commitments on personal taxation in the national plan and they will result in a significant increase in disposable incomes. To put them in perspective, the £120 million cost of the concession in 1986 adds up to 8½ per cent of the total estimated yield from income tax in the same period.

Despite these improvements however, I readily acknowledge that our levels of taxation remain unduly high. While we are committed under the national plan to no further increase in the burden of personal taxation the aim should be, as in 1986, to improve on that objective in so far as the constraints allow. Tax increases have borne the main burden of public finance adjustment in recent years and they no longer provide a means of closing the budget gap. All the economic arguments are in favour of reducing taxation and spreading the tax burden more widely. We can make steady progress in this direction provided we accept that it requires us to bring down our expenditure profile. If we cannot accept the logic of this, then there can be little prospect of tax reductions.

The consequences of high taxation are disturbing. It encourages the practice of payment through benefit-in-kind so as to avoid high marginal tax rates. This is becoming a widespread problem and these benefits must be taxed more comprehensively in future. High taxation also gives a boost to the black economy, making life more difficult for the legitimate trader. It causes distortion of trade because of price differentials and the leakage of trade across the Border is now very worrying. Finally, it adds to the problems associated with tax collection and enforcement. If taxes are perceived to be severe and the incentive to evade is sufficiently attractive, then the difficulties of a tax collection system, however effective, are magnified. As matters stand, our tax collection system is by no means as effective as it should be. Some changes have already been announced, further changes are under examination and I consider improvements in collection to be a priority.

If we want lower taxes, we must be ready to accept certain consequences. I mentioned already the necessity to reduce expenditure. The other fundamental requirement is that the tax base be widened. This requires that we limit exemptions and reliefs. This is the nub of the problem. People are most reluctant to concede tax benefits, which they have come to take for granted. Interest groups are continually pressing for bigger and better tax incentives. The common attitude is that tax adjustments to widen the tax base are most welcome in principle but unacceptable in practice. We must get off this treadmill of illogicality and decide where our priorities lie.

There are significant tax changes incorporated in this Bill. First and foremost are the changes in personal income tax, which have not so far received the attention that they merit. Much attention has been focused, however, on the taxation measures affecting the financial institutions. The moneys being raised from this source are required to meet the reductions in personal income tax. This is entirely consistent with the policy, which I have outlined, of widening the tax base in order to lower overall tax levels.

There are a number of provisions, including the reduction in the tax take on income from dividends of manufacturing concerns and incentives for research and development, which are designed to encourage risk capital investment by a wider cross-section of the community. We do not have a strong tradition of such investment and we are behind others in this respect. This is a pity because we need indigenous investment of this kind to lift the economy and provide more employment. I have a strong interest in promoting the profit-sharing idea or employee shareholding and a provision is included in the Bill to give a further impetus to this. There are also changes in the treatment of share options.

I turn now to the individual sections of the Bill and I will concentrate on the more significant items. As the Bill is long and much of the text is of a technical nature, it would be impractical to deal with all sections.

The early sections of the Bill give effect in the main to the income tax changes announced in the budget. These provide for the increases in the exemption limits, the new rate bands and the changes in personal reliefs. These changes in conjunction with the abolition of the 1 per cent income levy will mean a substantial improvement in the take-home pay packet of practically all workers. For example, a single PAYE taxpayer on £11,000 will have a reduction of £290 in tax, while a married couple with two children on £15,000 will be £322 better off as a result of the tax changes and the new child benefit. These are the most significant improvements in income tax for several years. I expect that workers generally appreciate the value of those changes, now that the benefits are coming through to them.

In recognition of the special circumstances of elderly people the age allowance has been doubled from £100 to £200 and the age exemption limits have been increased by 5 per cent. In conjunction with the retention tax concession being granted to those aged 65 and over, the standard of living of elderly people will definitely be improved as a result.

The abolition of the 1 per cent income levy and the reduction of the top rate to 58 per cent will, together, have a significant effect on those highly paid employees with particular skills who may feel that there is little incentive for them to earn additional income. Their income tax on each additional pound earned is being reduced from 61 pence to 58 pence.

The Bill contains a number of new significant incentives to encourage business. The current tax treatment of stock options is based on the date on which an option is first exercisable. This may act as a disincentive for some companies to make use of stock option schemes to buy shares at below the market price and it leads to uncertainty about ultimate tax liability. Provision is being made so that, in future, a charge to income tax will arise at the date the option is actually exercised and capital gains tax will be payable on the difference between the market price at the date of acquisition of the shares, irrespective of the price paid for them, and the proceeds received on sale of the shares.

It has been alleged that the new tax treatment of share options will reduce their attractiveness. This may be so in particular circumstances where options are granted at the market price and I propose to introduce an amendment to avoid this possibility. The provisions now incorporated in the Finance Bill will be extended to provide that, where an employee or director obtains an option in respect of shares in a company, or in another company by reason of his employment with the company and the option price is not less than the market value of the shares at the time the option is granted, an income tax charge will not be imposed in respect of the benefit. The gain on the ultimate disposal of shares will in all cases be treated as a chargeable gain for capital gains tax. It is worth recalling that the Bill also provides significant improvement in regard to capital gains tax anyway with the rates on long term gains down to 30 per cent.

In support of my belief that increased share ownership can only help to improve the general industrial climate of the country and increase the productivity of workers, in section 8 I am reducing the qualifying period for full tax relief from seven years to five for shares issued under approved profit sharing schemes. I will also introduce a Committee Stage amendment to abolish the 1 per cent stamp duty payable on the first sale of such shares.

Given the success of the Business Expansion Scheme, which in its first full year of operation caused some £5 million to be invested in qualifying companies, I have extended the scheme to 1991. In 1985, some 570 investors have qualified for tax relief under the scheme. The attractiveness of the scheme has been further enhanced with the recent launching by the Stock Exchange of the smaller companies market. This market will provide an additional exit mechanism for investors in the shares of qualifying companies.

Section 10 of the Bill provides for a scheme of relief from full rates of income tax on dividends paid out of the income of companies qualifying for the 10 per cent rate of corporation tax. The aim is to improve substantially the after-tax return to Irish shareholders in such companies so as to provide an enhanced incentive to encourage increased equity investment from Irish sources in manufacturing companies here. The mechanism by which relief will be given under the new scheme is to exclude from the charge to income tax an amount equal to 50 per cent of all dividends received by individual taxpayers. The balance of a taxpayer's dividend income will then be liable to income tax at his marginal rate after deduction of the full tax credit. It follows that the effective rate of income tax on the distributed profits of manufacturing companies and certain export service companies qualifying for the 10 per cent rate will be 23.74 per cent. The total tax take on such profits, inclusive of corporation tax in the hands of the company and income tax in the hands of shareholders, will fall from 60 per cent to 32.55 per cent under the scheme.

Relief will, however, be subject to a limitation in the form of a ceiling on the amount of dividend income which may be excluded from the charge to income tax in any year. The ceiling for each taxpayer has been set at £7,000 per annum. Given average rates of return on investment in Irish industry today, the level of relief available under the new scheme will be sufficient to enable an individual to invest a sum of almost £300,000 and still obtain the full benefit of relief. It is, therefore, an extremely generous relief by any standards. By providing a facility to receive investment income of an amount up to £7,000 per annum completely free of income tax, the new relief will represent an incentive to encourage Irish investment in qualifying companies which is unequalled in the member states of the EC and may be without parallel anywhere in the world.

This, to my mind, is a very important part of the Finance Bill and should be seen to be linked to the Government's White Paper on Industrial Policy. In the White Paper the Government said that, while they appreciated the importance of foreign manufacturing investment in Ireland, they wanted to see a greater development of strong Irish-owned companies in manufacturing rather than major Irish companies in the service or semi-protected sectors of the economy. The best way of doing that is to encourage Irish people to invest in either whollyowned Irish companies or in companies operating in Ireland which may have some ownership outside as well.

The philosophy underlying the Finance Bill is one which seeks to attract funds of Irish people away from forms of saving which are not autonomous wealth generators, where in a sense the money is being kept safe or static, into risk investments and into the manufacturing or trading sectors of the economy where the benefit will be enjoyed not just by the saver but by our population generally since that investment of savings will also create jobs. By developing a flow of funds into Irish-owned manufacturing companies we will be reducing what in the past may have been an undue dependence on foreign investment for the growth of manufacturing in Ireland.

This and other provisions in the Finance Bill should be seen as a direct consequence of earlier decisions taken by the Government in the White Paper on Industrial Policy to shift the incentive for saving into the risk oriented sector and to shift the emphasis towards domestically-owned companies rather than an unhealthy reliance on foreign-owned companies.

Section 11 of the Bill provides for the continuation for a further year of the existing stock relief arrangements for farmers. Section 12 provides for a credit for farm tax paid against income tax liability generated by farming.

In Chapter III of the Bill there is a new mechanism designed to encourage taxpayers to invest in research and development projects, where the risk is high, but where the rewards may be equally high when they materialise. The level of R and D in this country is disappointingly low by international standards and we must do something about this. Expenditure in 1984 on industrial research and development in Ireland accounted for 0.4 per cent of GDP as compared to 1.2 per, cent average for the OECD. The scheme for relief for investment in R and D may appear detailed and lengthy as it is set out in the Bill.

The need for complex legislation arises in order to prevent the provisions of the scheme being abused and serving solely as a means of avoiding tax rather than facilitating the objectives of the scheme. Such detailed legislation will also assist genuine prospective investors by removing any uncertainty as to the scope or application of the relief. Under the scheme qualifying investors may get tax relief of up to £25,000 in respect of moneys invested in a research and development company. The investment may be short to medium term and it is unlikely that many long term investment projects will be involved.

Qualifying research and development is defined in terms broadly similar to those used in the Industrial Development Act, 1969. Because of the varied nature of the projects which it is desired to promote it is not possible to provide a more detailed definition of "qualifying research and development" without running the risk of excluding some worthwhile project. There is a requirement that the benefits of any such project must accrue substantially to this country and, in order to encourage involvement by outside investors, the ceiling on investment by the sponsoring company, which must be a manufacturing company incorporated in this country, will be limited to 20 per cent. This incentive will supplement the existing provisions of the business expansion scheme which may be used for raising capital for research and development in the case of a manufacturing company.

There has been, as Deputy O'Kennedy will recall, some criticism from time to time of the business development scheme. It was said that it was unduly complex.

Mr. O'Kennedy

Absolutely.

Mr. J. Bruton

While it is fair to say that in response to representations very substantial changes have been made in that scheme since it was introduced, there may still be a need in respect of the business and development scheme and the scheme for research and development to promote actively an understanding of the way in which these schemes work among the accounting and legal professions and among investors. I hope it will be possible for the Revenue Commissioners, in conjunction with other bodies with expertise in this area, to produce guidelines which would be of assistance to people seeking to avail of these schemes.

The business development scheme and the research and development scheme are designed to give a major boost to the development of a strong self-sufficient Irish manufacturing and food processing sector. Clearly, they will only work if they are widely understood and availed of by small investors as well as the few who may have access to the highest possible professional advice. It is my view that the Revenue Commissioners in conjunction with myself and other Government Departments, should be active in promoting an understanding of the way these schemes work. Once this Bill is passed I intend to make arrangements for the dissemination of the maximum amount of information on how to avail of these schemes.

I regard the emphasis the Bill gives to the promotion of research and development as particularly important. If any Member of this House looks at the range of goods on display, at, say, a trade fair he should ask himself how many of those goods would have been available at such a trade fair five years ago. He will probably find that up to half the products on display would not have been there at that time. The logical extension of that is that if you were to go to the same trade fair in five years' time you would probably find that 50 per cent of the products now on display would not be on display then. The lesson is that unless one is constantly developing new products to meet new tastes one will simply not survive in the marketplace; hence the need for companies to have priority for research and development which this Bill gives them the financial means of implementing.

It has been argued that the present rates of capital gains tax are a disincentive to investment. This Finance Bill will go a considerable way towards ensuring that this is not the case. In addition to the planned reduction in the 40 per cent rate of capital gains tax announced in the budget, the Bill also provides for a new lower rate of 30 per cent which will apply to assets held for six years or more and also to gains made on trading on the Smaller Companies Market. The Smaller Companies Market is in its infancy and it is important that it succeed and open up new sources of capital to companies which at present qualify for quotation on the Stock Exchange. With this in mind, the Bill provides that, for a period of three years, gains realised on trading on the new market will be subject to the 30 per cent capital gains tax rate. This, I hope, will provide an impetus to the new market and will help to ensure its success.

The incentives for industry, also the food industry, in this Bill should give a major impetus to investment in an already very favourable investment climate. There is no reason why industry should not be able to utilise this climate to create new jobs on a significant scale. This is the ambition which underlies the provisions of the Bill.

Chapter IV of the Bill gives effect to the deposit interest retention tax scheme. The retention tax, as announced in the Budget, has received a mixed reaction. The financial institutions generally have welcomed it as a major step forward in harmonising the tax treatment of invested funds. There has been criticism of the tax because of its impact on certain individuals and institutions. The order which has now been brought to the tax treatment of deposit interest is overdue and, together with the uniform reporting arrangements, it will create an environment for fairer competition among the financial institutions. For a long time some of these institutions have been asking for standard tax arrangements to apply across the board.

I would like to take this opportunity to clarify some aspects of the tax which appear to have been causing confusion. First, the tax is deductible from deposit interest paid or credited after 5 April 1986: it is not a tax on the capital sum, simply on the interest. Secondly, the tax does not represent double taxation since the interest earned by a capital sum is regarded anyway as a new source of income and has always been liable to tax in the hands of taxpayers. Finally, there have been allegations that taxpayers will have to pay double tax on deposit interest for 1986-87. This is not true. As a transitional measure, the previous-year basis for taxing deposit interest is being suspended for relevant deposit accounts on 5 April 1986, and the 1985-86 tax liability for deposit interest will be switched to an actual year basis. That is, 1985-86 liability will be based on interest paid or credited in 1985-86 only.

The imposition of the tax will not materially alter the tax position of the bulk of depositors who are liable to income tax: the measure is a more effective tax collection system for that liability. The tax as originally announced was to apply to the deposit interest of all resident depositors. In granting concessions to charitable bodies, incapacitated persons and individuals aged 65 and over, I feel that the best possible balance has been reached in minimising the extent of genuine hardship while at the same time maximising the yield from the tax. It should not be forgotten that the tax will also apply to deposit interest paid in respect of moneys earned in the black economy.

A tax of this nature will ease considerably the administrative difficulties involved in collecting tax on deposit interest. No doubt there will be continuing demands from other bodies and groups of taxpayers to have exemptions similar to those granted to charities and to older and incapacitated persons. I must emphasise that, since exemptions are costly to administer, increase the complexity of the tax code and reduce the tax yield, there can be no question of any further concessions being granted. When the Bill was published, I said that the Government had decided to exempt the over 65s and incapacitated persons as these are the categories most likely to be solely dependent on interest for income, because of inability to engage in other income-earning activities. Obviously, there will be a small number of individuals outside these categories who may be able to make a similar case. Wherever the line is drawn, however, there is the risk of genuine cases being on the wrong side of it. Refunds for all non-liable persons cannot be considered, however, because this would be far too costly.

Chapter V gives effect to the tax incentives which have been announced by the Taoiseach and the Minister for the Environment to promote development and reconstruction in certain designated inner city areas in Dublin, Cork, Limerick, Waterford and Galway. The precise areas in which the incentives will apply are defined in the Third Schedule to the Bill. This chapter complements the Urban Renewal Bill, 1986, which is already before the House and provides for the establishment of a new statutory authority to promote and control development of the Custom House Docks site in Dublin and for schemes of rates remission in relation to development on that site and in the other designated areas.

For many years, inner city areas of the major urban centres in Ireland have been decaying and large areas have become derelict. For decades, there has been a significant tendency for new development to locate in suburban areas and in outer urban areas which are perceived by the property market to be more favourable. There has been a consequent increase in the extent of physical decay, unemployment, crime, vandalism and the dispersal of established communities in the inner city areas. Inner city decay also poses a continuing and increasing threat to the architectural character of urban areas generally. Although public sector housing of a high standard is being provided in inner city areas, efforts to encourage private development there have had little or no success to date. Activity by the private sector has, in general, been painfully slow in securing the redevelopment of inner city areas.

The Finance Bill, in conjunction with the Urban Renewal Bill, 1986, represents a major effort by the Government to stimulate activity to redress this situation and I am hopeful that the private sector will now respond to the needs of the areas in question in a positive way. A further objective of the incentives is employment creation. I am pleased to report to the House that the anticipated activity in the designated areas, along with the activity generated by the home improvement grants and the general pick-up in housing demand, have an employment potential of more than 3,000 jobs per year.

Section 42 contains the promised legislation to counter abuse of limited partnership arrangements for tax avoidance purposes. The legislation has retrospective effect from 22 May 1985, the date when my predecessor announced in Seanad Éireann the Government's intention to introduce such legislation. The abuse in question arose from the fact that, in a limited partnership arrangement, the limited partners have had the right to set off losses and capital allowances arising out of the partnership trade against other income without any restriction. Limited partners could thus circumvent their tax liabilities by manipulating in a contrived way a partnership arrangement so as to create highly inflated tax losses. Their investment in the partnership need only have been nominal, but limited partners were in a position as a result of that investment to obtain a guaranteed return in the form of a reduction in their tax liability which could be, and most often was, a multiple of the investment.

A number of instances of such blatant abuse indicated that there was a significant loss in tax revenue occurring as a consequence of limited partnership arrangements. In these circumstances, the Government have had no alternative but to move against the abuse in the interests of tax equity. In commending this section of the Bill to the House, I wish to put formally on record my intention to extend the scope of the proposed measure with retrospective effect to all general partnerships in the event that these are now used for the purpose of continuing the abuse which heretofore has been confined to limited partnership arrangements.

I want to say something at this point about the film making industry in Ireland. The abuse of limited partnership arrangments was exploited to a considerable extent to fund film projects. Because of the contrived way in which such arrangements were structured, the cost to the Exchequer in terms of tax foregone was out of all proportion to the benefits accruing to film making. Since the announcement of the Government's intention to legislate against the abuse, there has been pressure for some special tax incentives to encourage investment in the industry. In response, I have fully reviewed the taxation arrangements which now obtain in relation to film making and I wish to take this opportunity of saying that I consider them to be generous by any standards. When I referred to existing incentives in film making, I particularly have in mind the fact that film making qualifies under the business development scheme whereby individuals can invest up to £25,000 of their income in any year and do not have to pay any tax on that money, if it used for film making or put into an investment fund whose purpose is film making. That mechanism has already been very successfully used in respect of an Irish made film which is now on a first run showing in cinemas all over the country. That model provides a very effective tax incentive to commercial film making where people are investing in film making with a view to making a profit but also in the knowledge that they might lose something if the film did not do well, in other words, a normal commercial investment. Unfortunately, what some people seem to want as an incentive for film making is a completely no risk situation for the investor, where he puts in his money, gets his tax break and cannot lose. That is not a desirable way of encouraging any form of commercial activity.

Clearly there has to be a risk element for the investor as well as a tax incentive and that is why I have decided that we have gone far enough in the provisions already made for film making without getting into the area of providing risk free investment opportunities in any sector of the economy which would be most undesirable in the headline it would give to the rest of the economy. It would also be most undesirable from the point of view of the ordinary taxpayer who could not afford to avail of such incentives but whose tax burden would be increased as a result of the erosion of the tax base by such proposals.

Section 44 provides for the application of a surcharge on ultimate tax liability where certain income returns are not received by an inspector of taxes within a specified period. This change was announced by the Taoiseach in this House last October as part of a tax reform package. The charge will be 10 per cent of tax ultimately payable. It is a significant imposition and it is aimed at improving compliance by self-employed and corporate taxpayers in submitting income returns at an early date.

The ceiling on the restriction on capital allowances for business cars and the pro rata restriction on the running expenses of such cars is being increased from £3,500 to £4,000. This is a modest increase which, of course, does not take account of the increase in the general level of car prices since the introduction of the £3,500 restriction in 1976. However, the cost to the Exchequer in raising the restriction to a level consistent with present prices for appropriate cars would be quite prohibitive and is out of the question at this time. It would also be inequitable since it is clear that many of those who have business cars enjoy a considerable advantage over other taxpayers who must meet all their motoring expenses out of after tax income. This is due to the fact that the private benefit derived from the business car is subject to less income tax than monetary income. In these circumstances, it would not be fair to ask other taxpayers—and, indeed, taxpayers who cannot afford to run a car at all — to bear the cost of a substantial increase in the restriction.

For the future, I am prepared to consider raising the restriction beyond its present, revised level on the basis that the cost of doing so is matched in large part by an appropriate increase in the benefit-in-kind charges which apply in respect of the private use of business cars and by taxation of business mileage payments.

I shall now deal with indirect taxation. Part II of the Bill is concerned with Customs and Excise. For the most part this confirms the changes already announced in the budget. The duties on tyres and tubes and spare parts are being abolished. In the case of tubes and tyres this will be effective from 1 September 1986. The duty on spare parts will be reduced from 10 per cent to 5 per cent on that date and abolished from 1 January 1987. Section 64 amends the betting duty legislation to facilitate the Revenue Commissioners in countering evasion of duty in non-registered premises. The two following sections provide more effective measures for the Revenue Commissioners in the control of red diesel oil. Section 70 provides for the new rates of road tax on private motor cars announced in the budget, with effect from 1 March 1986.

Part III gives effect to the VAT changes announced in the budget, primarily, the reduction to 10 per cent in the rate on many services previously liable at the standard rate; the increase in the 23 per cent rate to 25 per cent; and the exemption of services supplied by dental technicians. The reduction in value-added tax for services is a significant boost to the employment-intensive sector of the economy and should create more employment.

Some additional measures are also included. These deal with the taxation of services received from abroad that can currently avoid tax, the use for VAT record keeping purposes of data stored in electronic form and the withholding of VAT repayments in certain cases involving associate companies. The existing provision that allows for newspapers to be liable at the 10 per cent rate is being re-worded to extend the benefit to certain fortnightly newspapers.

I am confident that the reduction in the VAT rate on services, which will take effect from 1 July will bring real economic benefits, in particular for the tourist sector but also for employment generally. It will also strike a blow against the black economy by helping to restore the competitiveness of legitimate traders. Finally, I am confident that consumers, too, will quickly see beneficial spin-off effects in the form of lower prices for the services affected.

Section 85 imposes a once-off stamp duty at a rate of 9 per cent on the investment income and the profits on the realisation of investments of life assurance companies. The life assurance companies have enjoyed extremely favourable arrangements on corporation tax and this special duty is intended to recoup to the Exchequer some of the tax revenue forgone under these arrangements. A further reason for this new charge is that there would be an unfair competitive advantage for life assurance investment if the tax regime applicable to it remained unchanged at a time when a retention tax is being imposed on deposit interest.

Since a special tax imposition may sometimes present particular difficulties for the sector affected, it has been decided to reduce the impact of the charge, as originally announced in the budget, in a number of respects. The rate of duty is being reduced from 15 per cent to 9 per cent, industrial branch business and business relating to credit unions are being exempted, in addition to pensions and foreign branch business, and the final 10 per cent of the duty will not fall to be paid until mid-1987. In addition, this charge will not apply for future years; instead there will be changes in the corporation tax rules applicable to life assurance companies which will increase considerably the corporation tax yield from the companies. These changes will be incorporated in the Bill by way of an amendment on Committee Stage.

Section 92 provides for the continuation of the stamp duty exemption for transfers of agricultural land to young trained farmers. I am conscious of the fact that this scheme has over the past four years facilitated the transfer of land to young farmers but I am also conscious of the fact that its indefinite extension would remove the urgency for an early transfer of land and so would defeat the object of the scheme. Accordingly, the Bill provides that the scheme will expire at the end of September next year and that for the final 12 months of its operation the age limit will be reduced from 35 to 30 years and the minimum qualifying ACOT courses will be extended from 100 hours to 150 hours. This will give an added urgency to the need for an early transfer of land and will also encourage more in-depth agricultural training, both of which should lead to an immediate improvement in agricultural productivity.

The Bill gives effect to the decision announced in the budget to impose a 1 per cent annual charge on those discretionary trusts which were made subject to the 3 per cent once-off charge introduced in the 1984 Finance Act. The charge is directed at those trusts which are set up essentially to avoid or delay indefinitely the payment of capital acquisitions tax. As such it will not apply where the disponer is still alive and any one of the principal beneficiaries is under 25 years of age. I do not feel that a charge of 1 per cent is in any sense excessive or that it is a threat to the viability of any ongoing business concern. If over a period of time a return of greater than 1 per cent per annum cannot be secured from the assets in a trust, economic pressures should force an adjustment in the disposition of the assets within the trust. The effect of the tax might even be to speed up this natural process of adjustment.

As I stated earlier, I have not followed the text section by section in my address but Deputies will, of course, have an opportunity of discussing each section on Committee Stage. It has not been possible to incorporate all the proposed changes in the text as circulated. Consequently, I will introduce a number of amendments on Committee Stage. For the most part these are expected to be of a minor or technical nature, dealing with omissions or textual improvements. As I indicated earlier, I will circulate an amendment for changes in the corporation tax provisions applicable to insurance companies. These changes are intended to provide a long-term basis for securing a reasonable tax contribution from the insurance industry.

No doubt the standard criticism will be made that the Bill does nothing for employment. This simply is not true, as I demonstrated earlier in my speech. This Bill is to a considerable extent about changes in taxation that are designed to encourage greater economic activity, to increase disposable incomes and thus generate more employment. I am optimistic about the outlook for employment. The reduction in inflation, the falling energy prices and the income tax improvements in the budget provide a background for a strong growth in real consumer spending. There is a new confidence among the business community and this will be translated into improving job opportunities as the year progresses.

I commend the Finance Bill to the House.

Mr. O'Kennedy

Anybody coming into the House this afternoon would expect a sense of great urgency, a new sense of direction and a sense of dynamism from the Government even at this belated stage in their failed administration. Anybody coming in would be further disillusioned by the tone and content of the Minister's statement to the House having regard to the appalling problems that exist in every sector of our community. We have had a nice cosy, one might say smugly reassuring, introduction from the Minister when the reality is that what is required is a total new sense of direction from the Government and a sense of purpose from the new Minister which will somehow lift the veil of pessimism and gloom that is all over the place. If the Government are not aware of the position outside, I despair of any sense of positive response from them.

The Finance Bill is a totally inadequate response from the Government to the critical condition of the nation and the chronic problems of unemployment and emigration. The Minister was right in anticipating that the standard criticism will be made that the Bill does not do anything for employment. I wonder what the Minister means by, "the standard criticism". Does he mean that the criticism I made in 1983, in 1984 and in 1985 will be repeated again in 1986? Those criticisms made down the years were proved to be all too accurate despite the reassuring general tone of the Minister's predecessor. That tone is reflected exactly in the same general reassuring tone of the Minister today. If they are standard criticisms let me say that they have been proved to be all too accurate. The same standard criticism that will be levelled at the Minister, and the Government, in this debate will equally be proved to be accurate.

Mr. J. Bruton

I would love to interrupt the Deputy because he is being provocative in his inaccuracies.

Mr. O'Kennedy

I did not interrupt the Minister. Before the debate on Second Stage concludes we will demonstrate how the standard criticisms will prove to be accurate once again. We will show how the dismissal by the Minister of what he called the standard criticism relating to unemployment is not warranted. The reality is that outside the House everybody is waiting for an improvement in employment and some hope and opportunity for those who have been unemployed for so long.

The main reason for the problems our citizens face is seen clearly in the negative and repressive policies of the last three years which, even at this late stage, require to be fundamentally changed to create a new climate for enterprise and for investment and a dynamic spirit throughout our community. There is no sign of that in the Finance Bill and there is no sign of a message from the Minister. The absence of our colleagues in the House today demonstrates just how irrelevant they think the exercise is. This should be an occasion for there being a packed house awaiting a new message.

Mr. J. Bruton

There are twice as many people on this side of the House as opposite.

Mr. O'Kennedy

The Minister will regret having made that point. When it comes to Committee Stage the Minister will find that he will be alone on those benches, as was his predecessor on many occasions, and that I will have the company of very many colleagues on this side of the House. The Minister will discover that he will have not even one joining him in his vain attempt to defend a Bill that is not easily defended.

Instead of the radical change required in policies, direction, even in philosophy, what we got was a change of responsibilities within the Cabinet. The facts are that the personnel remain the same. The budget policies, so universally rejected by the people, have not been changed and are being implemented, with some minor adjustments only, under the provisions of this Bill. Not only are the policies not being changed but the whole purpose — in terms of dealing with late payments to the revenue, increasing the efficiency of collection, the whole objective of getting in as much as possible at whatever cost — remains exactly the same. The scriptwriter, whoever he may be, is presenting the same material to the Minister for Finance. With the exception of the Minister's facility to depart from his script on occasion he has not got the authority or the imagination——

Mr. J. Bruton

It is an excellent script.

Mr. O'Kennedy

——to say: "Sorry, the scripts have failed for the last few years."

Mr. J. Bruton

The Deputy had all of this prepared before he heard my speech.

Mr. O'Kennedy

I had not. I invite the Minister now to read what I wrote before I heard his speech. What I am now saying is not included in my prepared script. I am capable of presenting my own ideas. Indeed the Minister might remember that I do not have the benefit of the administrative back-up he has. The reason I am responding spontaneously now is that I am genuinely gravely concerned and disappointed at both the tone and content of the Minister's remarks.

The Minister has seen fit to say that there is a new optimism prevailing in the economy. I might ask: where does this Minister live? It may be that in certain lush parts of County Meath there is a new sense of smug optimism for one reason or another. I can tell the Minister that there is no new optimism felt in this economy in any sector I can identify whether on the part of the old, the young, the worker, the farmer, the businessman or whoever. I see no trace of a new optimism prevailing in the economy which the Minister claims, indeed at a time when there should be.

Mr. J. Bruton

The Deputy is wrong.

Mr. O'Kennedy

I accept and endorse that there should be a new optimism prevailing. But the Minister claiming that there is will merely add to the frustration experienced by so many people over the last few years. The reason for there being a new optimism in our economy is all too clear. The Minister has referred to it but he has not indicated what the Government propose doing to take advantage of the magnificent boost they have received externally, the first Government to receive such an unprecedented boost to our economy. Yet they have not got the wit or capacity to take advantage of it. With international oil prices falling to their lowest level since 1973, the dramatic drop of the last six to nine months has brought the oil prices on which this small open economy is so particularly dependent, to the same level at which they stood prior to 1973. In nine months they have dropped as much as they increased over a period of almost ten years. No Government in the history of this State has been presented with such an opportunity. We moaned and groaned at the consequences of the increasing oil prices, the first experienced in 1974-75, the second, the Iranian oil crisis when I was in Government in 1978-79, when we foresaw the effects of those increases on our economy. But when we receive the boost we have in the last six to mine months, the best this Government can do, through their ever-present public relations men, is to get across the message that this magnificent, external boost is a mixed blessing, a term used in many journals.

Mr. J. Bruton

That is not the case at all. That is not so.

Mr. O'Kennedy

In case the people might begin to expect some response from the Government commensurate with the opportunity that has now arisen, we have been told to look upon it as a mixed blessing.

Mr. J. Bruton

Who told the Deputy that? Of course it is a good thing.

Mr. O'Kennedy

The Minister should read all the material being trotted out by the Government Information Service over the last six months, pointing out that for instance, it may give rise to a certain strengthening of our currency against sterling which, in turn, will reduce our competitiveness. Has the Minister not seen such remarks? Some of the Minister's favourite pets, who produce the favourite columns through informed sources, have been trotting out that nonsense for quite some time.

Mr. J. Bruton

I do not know what the Deputy is talking about.

Mr. O'Kennedy

No, the Minister would not because he is not sufficiently long in the Department to know. The Minister will recognise these sources without my naming them. Had I thought the Minister would question this I would have brought in the appropriate texts that referred to Government sources talking about the mixed blessing. Perhaps the Minister will call them off from such nonsense henceforth.

Mr. J. Bruton

The Deputy has not been reading my speeches recently. I will send him a set.

Mr. O'Kennedy

Then the Minister had better begin exerting authority. The Minister is a member of the same Government who introduced those policies. If I thought the Minister could change the attitude of the whole Government I would be very happy but I see no sign of it judging from his introduction of this Bill. I will demonstrate that not alone have such policies not been changed but are even getting worse. Let us look at the reality of the situation. With oil prices falling to their lowest level since 1973 world economies have been given a major boost for expansion, with unparalleled growth projections for almost all of the European and major world economies. For instance, the growth projections for the Federal Republic of Germany over the next three years are unprecedented.

Mr. Durkan

The most sophisticated economy in Europe.

Mr. O'Kennedy

The projections of growth in the Netherlands are unprecedented as they are in almost all of the western economies. In fact those growth projections are now well in excess of anything experienced since the sixties. What do we do? Somehow we decide to mark time. Obviously we have no plan whatsoever to avail of the new market opportunities obtaining. It is even suggested by some that because falling oil prices improved people's position on the outside it does not help us because our competitiveness is not improved by reason of the fact that it helps them as well. It is time we stopped that kind of nonsense and demonstrated that when there is a new enhanced, buoyant market externally, new opportunities are opened up for everybody. This Government appear to have no plan whatsoever to avail of those favourable market opportunities, the enhanced consumer demand for the products of what is a very open economy.

Mr. J. Bruton

Wrong again.

Mr. O'Kennedy

The Minister had better hold his tongue as I managed to hold mine when he was delivering that awful, flat, toneless, lifeless, spiritless introduction to the House. If I managed to be patient while I listened to that I hope the Minister will exercise the same discipline and restraint listening to me.

Instead of promoting these new market opportunities the Government tinker with policies which have failed demonstrably. I notice the reference to the budget deficit, an amusing hint of an enlightened attitude. The Minister will remember in 1983 — he was in Government then — when the total commitment of this Government was to eliminate the budget deficit in four years. It got to the stage that there were old ladies talking about the budget deficit at front doors. The preoccupation of the Government was with the elimination of that awful cancer, the current budget deficit, in four years. They managed to convince the electorate that they, and they alone would do just that, that others could not be trusted because they did not have the same missionary zeal to do so. A change of mind took place when, as a consequence of their policies, not only did they not eliminate that budget deficit but increased it, increased unemployment and all the other negative factors in our economy.

The second stage of reducing the budget deficit came in Building on Reality in which we were no longer talking about eliminating anything. That was gone. We changed our sense of direction and spoke about reducing the deficit to 5 per cent by 1987. That was the target a little more than 12 months ago. That is more of the cloud cuckooland of the 1983 reference to eliminating the budget deficit.

Today the new Minister for Finance spoke about reducing the budget deficit, and said it remains a priority. He said "the budget deficit remains uncomfortably high". It was lower than that when they came into Government but they regarded it as not only uncomfortably high but as the major constraint, the chain around our necks, the scandal of international financiers. It is now still higher but it just happens to be "uncomfortably high". We are assured that reducing it continues to be a priority. If this treatment of the budget deficit as a priority is to be as successful as the attempts to eliminate, the Government will have to re-write history as well as their present policies.

I wonder if our party would be allowed in our policy statement approaching the general election to make a pronouncement on the budget deficit and borrowing. Are we sufficiently cleansed to be allowed to say that reducing the deficit would be our priority? Would that be as acceptable from us as from this responsible Government?

Mr. Durkan

From past experience nobody would believe it.

Mr. O'Kennedy

Would we be allowed to say we will reduce the total national debt which the Government have increased by 66 per cent in three years? Let us acknowledge that the Government not only have failed in all these things but they have totally forfeited any right to credibility from people who match their performance with their words.

In this new international economic climate what have the Government been doing? Are they tinkering at the edges? They are doing worse, as I intend to demonstrate. Instead of availing of the new opportunities they maintain artifically high prices by increasing taxation on products that are falling dramatically on international markets — petrol and diesel oil. When the prices of these products are falling internationally the Government are ensuring that it will not be allowed in this nation, further undermining our competitiveness in labour intensive industries like tourism. They maintain huge prices on petrol and diesel oil.

When the Government came to office excise duty and VAT on these products accounted for 123.5p of the retail price of 248p per gallon of premium petrol. Granted, international prices of oil in those days were high. Consistently in successive budgets the Government increased the level of excise duty and VAT on these products with the pinnacle now proposed in this Bill of 178p of the retail price of 267p, namely, 67 per cent of the total take from the user of petrol. Less than three years ago the Exchequer take was 49 per cent. I will give the incremental stages by which this pinnacle was reached.

Pre-January 1983, the retail price of a gallon of petrol was 248p. The tax take was 123p, representing 49 per cent of the total retail cost of a gallon of petrol. The change introduced in January 1983 meant that the tax element was increased by 16p to 139p of the total cost of 267p, representing 52 per cent. This continued until June 1985 when the tax element was increased to 174p, a jump of exactly 45p since the Government took office. That 45p jump meant that the Government take on a gallon of petrol was 56 per cent. Before this year's budget the tax take on a gallon of petrol was 57 per cent, but in this year's budget and Finance Bill the actual proportion of tax on a gallon of petrol was increased by 9 per cent, almost 10 per cent, to 67 per cent of the retail cost of a gallon of petrol. The tax now is 177.8p of the retail price.

That has been done by a Minister who told us about the great signs outside, the great new economic resurgence. How could the Minister have the effrontery to tell the House that things are looking up when by this Bill he is increasing the percentage of tax take on petroleum products by 10 per cent, the biggest single increase in any one year, far surpassing anything his predecessor, who was pretty widely criticised for his tax takes, ever attempted? The tax element now on the retail price of these products is 45 per cent higher than when the Government came to office. Yet the Minister tells us about a new climate for investment, activity and buoyancy.

Driving through my constituency today I heard on the radio of a crisis call from the Society of the Irish Motor Industry. They are recruiting every possible agent they can get to approach every Member of this House to underline the extent of the crisis because of the tax level that has crippled the industry. Obviously, the Minister did not listen to his radio when he can introduce increases like this and pretend we are not in a critical state. Instead of passing on benefits which are there to be passed on, the Minister is blocking them at source. If we are to continue with the same depressing experience we have had in the past three years it is not surprising that there has been a major fall off in the consumption of these products in recent years with an inevitable reduction in confidence in the Government.

The consumption fall-off in petroleum products in the last three years, as illustrated by replies which I received from the Minister for Finance, represents 30 per cent. Can the Minister see that as a sign of renewed buoyancy of the economy? There is in consequence a very sharp drop in the real return to the Government in revenue, which the Exchequer returns for end of year demonstrate as exactly the same with regard to petroleum products as last year. Perhaps there is an extra £3 million or £4 million, but that is of no consequence in a yield well over £100 million. We have clearly reached the point of diminishing returns and the Government are determined to prevent our enjoying any benefit from the new opportunities available now. It is not surprising that international tourism is decreasing, even though it had been during the whole recession the great growth industry. Elsewhere there appear to be very optimistic projections in this regard, but any possibility of growth in our tourism sector was stifled by those prohibitive price increases and the magnetic attraction across the Border, of which we all have been aware. This gave rise to the desolation of the economy of the Border counties.

The Minister must be aware that in his own constituency it is a matter of crisis proportions, particularly in the northern end of County Meath, if he ever happens to go that way. There and in County Cavan he would see the critical consequences of recent actions which he now proposes to further aggravate. He will surely get a hero's welcome in County Meath from petrol station and garage owners for this proposal in the Finance Bill. I thought that the Minister might have had a change of mind in this area, but that was not so. He is going to increase the tax take on petroleum products. The desolation of the Border counties is a direct consequence——

Mr. J. Bruton

The Deputy is wrong again.

Mr. O'Kennedy

——of these huge increases which encourage the continuing flow of cross-Border traffic, at great loss to the national economy. Instead of reversing the trend, this Bill further aggravates the position. Fianna Fáil will seek the support of all parties in this House, including the party which are never represented in any economic debate, not even by one Deputy — the Labour Deputies who are too ashamed to show their head and will be during the course of this debate.

Mr. Durkan

They are not too plentiful over opposite, either.

Mr. O'Kennedy

We will seek the support of all parties to reject these latest increases. Instead of presenting a policy for Government renewal, the Government in this Bill are pursuing a policy of economic stagnation in a vain attempt to compromise between the conflicting ideologies of the Coalition partners — although there is nothing which in any way demonstrates partnership about the attitudes shown in the last 12 months, or particularly the last few months. However, we still euphemistically call them partners. They are determined clearly to emulate their Coalition predecessors of the dreary, miserable fifties when they utterly failed to take advantage of the post-war economic recovery. There was a post-war economic recovery everywhere else at that time.

Mr. Durkan

In the sixties.

Mr. O'Kennedy

I was a student in the fifties here in the dreary, miserable "vanishing Irish" days of the Coalition fifties. We were then getting the same miserable approach as we are getting now, from——

Mr. J. Bruton

The Deputy is still a student.

Mr. O'Kennedy

——the third generation of Coalition, the same incapacity to show any awareness and to lift with the lift outside the country. Students of political economy and history might just record that the fifties were a period of great growth in the European economy.

Mr. Durkan

What about the early fifties?

Mr. O'Kennedy

But they did not like that kind of activity.

Mr. J. Bruton

The Deputy is wrong again. The economists are now beginning to see that a lot happened in the fifties which was not obvious.

Mr. O'Kennedy

It certainly was not obvious.

Mr. J. Bruton

There was very substantial investment in the fifties in our infrastructure.

Mr. O'Kennedy

I suppose we will now be told that something good is happening out there now which is also not obvious.

Mr. J. Bruton

If the Deputy wants to go into economic history, he should get the details right.

Mr. O'Kennedy

We will get the same prating nonsense in a few years' time that it was all happening and we did not see it. When Fianna Fáil come back they demonstrate that you can actually see what was happening.

Mr. Durkan

The same happened in 1977.

Mr. O'Kennedy

If the Minister has to leave, I shall send him a copy of my script. I do not think the Minister should have to go, as I had the opportunity of listening to all his speech.

Mr. J. Bruton

Representatives of the building societies are coming to meet me.

Mr. O'Kennedy

I must protest very strongly.

Mr. J. Bruton

I shall wait and listen to the Deputy.

Mr. O'Kennedy

The Minister knows that his first responsibility is to this House.

Mr. J. Bruton

I am not going yet; I am just collecting my papers.

Mr. O'Kennedy

I am damn sure that the Minister will not leave unless under great protest from me.

Mr. J. Bruton

I shall leave when I want to.

Mr. O'Kennedy

If the Minister for Finance decides to leave while the Finance Bill debate is going on, in order to meet the representatives of building societies, he should have picked a better time to do so, like this morning or tonight. Once he is here to listen——

Mr. J. Bruton

I have not heard anything in the last three-quarters of an hour.

Mr. O'Kennedy

That is right, because the Minister was too busy scratching and shifting. If he sat still for a little while he might hear something.

Mr. J. Bruton

The Deputy has not given the faintest idea of what he proposes.

Acting Chairman (Mr. Barrett,

Dublin North-West): The Deputy should be allowed to proceed.

Mr. O'Kennedy

The Minister for Finance follows the same dreary pattern of his immediate predecessors by claiming. for instance that the budget and the Finance Bill will generate 10,000 new jobs. As the continuing growth in the unemployment figures and the ever-increasing spiral of emigration underlines, the only new jobs available for our people are all outside Ireland, as a consequence of this Government's policy.

Quite a number of the Government Ministers took the opportunity over the St. Patrick's Day period to visit the United States. I, too, spent some time in the United States at that period. If the Government Ministers witnessed what I did at Kennedy Airport — and they must have, unless they were blindfolded — they would have seen what would have shocked and appalled anybody with a sense of confidence in or concern for this country — huge droves of young people unloading from the jumbo jets each day. Did any of the Ministers there even notice what was going on? In the past three years over 100,000 young people have left, and we are talking about providing jobs here. These were mostly energetic and frustrated young people who had abandoned the hope of employment here.

I want to protest most strongly at the Minister's departure. Why do we not adjourn the House? Is there any reason for the Minister for Finance being allowed to leave? I had to sit and listen to his platitudes. It may happen that he may take himself off on Committee Stage, also. It is a grave offence, not just to me but to the House, that a Minister should deliberately make arrangements in advance, ensuring that he cannot be here to listen to the Opposition's criticism of a miserable, pathetic Finance Bill. I have had some considerable experience in this House and this is the first time that this has happened.

Mr. Carey

On a point of order, I would remind the Deputy that on 25 April 1985 he said exactly the same to Deputy Dukes, as Minister for Finance. I took time to look at the record. When Deputy O'Kennedy was Minister for Finance, he also left the House during the debate.

Mr. Hegarty

Hear, hear.

Mr. O'Kennedy

Deputy Carey does not know what a point of order is. He should have listened carefully when this was explained. He would then know what a point of order is. He should have listened to his late father, who would have instructed him in the matter.

Mr. Carey

My father is still alive.

Acting Chairman

Deputy O'Kennedy, without interruption, on the Finance Bill, please.

Mr. O'Kennedy

It has not happened before that the Minister for Finance has left the House in the course of a reply from any Opposition spokesman.

Mr. Carey

Yes, he did.

Mr. O'Kennedy

I protest most strongly against this discourtesy, not to me personally. The Minister should not have bothered coming in.

Mr. Carey

The Deputy did it himself, as did Deputy Dukes.

Mr. O'Kennedy

Will somebody tell Deputy Carey that I did not do it myself? Deputy Dukes did not do so either. He had better check the record and find out.

Mr. Carey

I will come back with it.

Mr. O'Kennedy

Our tax levels are clearly the highest in the whole OECD area and instead of moving towards lower levels and taxation reform this Bill proposes to add further to the complexities of the tax system by introducing the inequitable and confiscatory DIRT proposal. Year after year we have argued and tried to persuade this Government that the tax levels they were imposing would have disastrous effects in every area but they ignored what we said. We pointed out that there would be effects in the black economy and that the investment climate would be undermined and put us at a very major disadvantage. Each year the Government ignored us. The Minister said today that all the economic arguments are in favour of reducing taxation and spreading the tax burden more widely. It is a pity he is not here to hear my welcome for that statement. I agree. All the economic arguments were there for doing these things three years ago, two years ago and last year, but despite that the Government went the other way and increased the tax burden. They are doing precisely the same today, although the Minister says that all the economic arguments are in favour of reducing taxation and spreading the burden more widely. The burden may be spread more widely but it is certainly not spread more fairly.

The Minister also stated:

High taxation also gives a boost to the black economy, making life more difficult for the legitimate trader. It causes distortion of trade because of price differentials and leakage of trade across the Border is now very worrying.

This repeats and endorses what I have been saying for a considerable time. The leakage of trade across the Border, the disadvantage for the legitimate trader and the growth of the black economy have been promoted with special favour by this Government. This Finance Bill, particularly in maintaining high levels of excise duty and VAT, will do exactly the same. While the Minister at least recognises in his speech that our tax levels are too high, I should like to see him go a step further and take effective action to reduce them. Our tax levels are the highest in the whole democratic world, a point underlined in the OECD survey. Instead of moving towards lower tax levels and taxation reform this Bill proposes to add further to the complexities of the system by introducing the DIRT proposals.

The Minister for Finance indicated during his publicity presentation of the Finance Bill when he met political and economic correspondents that the income tax reductions, as he calls them, are urgently needed and that difficult measures like this new tax must be contemplated to achieve the overriding priority of reduced income tax. That is what the Minister said when he was trying to justify this totally inequitable and confiscatory tax. Today he says more or less the same and perhaps we should give him some marks for consistency. He said that the moneys being raised from this source are required to meet the reductions in personal income tax. Those who will be paying DIRT should know that their money is necessary to meet the scarcely visible reductions in personal income tax.

The Minister went on to say the retention tax as announced in the budget has received a mixed reaction. I am convinced the Minister is totally out of contact with reality in describing that reaction as "mixed". We will have much difficulty in speaking the same language, much less agreeing on economic measures. The Minister also stated that refunds for all non-liable persons cannot be considered because this would be far too costly. Refunds cannot be considered for people who are not liable to tax on the grounds that it is too costly. How could any Minister for Finance or Government justify those principles? People who are not liable for tax will be made to pay this tax in order to reduce the burden on those who do pay tax. Those are outrageous principles to present to any House. It is outrageous and cynical that minimal income tax reductions for those within the income tax band can be achieved only through the imposition of a 35 per cent retention tax on those whose income is below the income tax base. No Government should introduce such a proposal and attempt to justify it by the kind of statements the Minister made here today. No Government with any sense of justice could advance such an indefensible justification for imposing a 35 per cent income tax on the poorer sections of our community, hitherto exempt from income tax. The Minister for Finance even has the temerity to claim that he is increasing the exemption limits, while at the same time imposing tax at source on the income of many of those who are being exempted. He is making sure that the increase in the exemption limits will not be of any great benefit.

Let us be clear about this tax. All under the age of 65, widowed, married or single, who are totally dependant on interest on their deposits will henceforth, on the proposal of this Minister for Finance and this Government, have tax deducted at source on the interest on their deposits.

The Minister of State at the Department of Agriculture, Deputy Hegarty, has arrived. I heard him recently speaking on radio. This Government seem to have social contact cnly at a very privileged and smug level of our society. I heard the Minister say that the farmers with whom he is in contact have really no objections to paying the new service costs to ACOT.

Minister of State at the Department of Agriculture (Mr. Hegarty)

If the Deputy wants to debate that, I am prepared to do so at any time. He is talking rubbish.

Mr. O'Kennedy

This Government in their personal experience and personal disposition do not have any contact with, sympathy or human concern for the poor, needy and less well off.

Mr. Hegarty

On a point of order, the Deputy shows his total ignorance of the ACOT Bill because only those farmers who are in a position to pay will be asked to pay.

Mr. O'Kennedy

Now that we have a Minister at the Department of Agriculture rather than the Minister for Finance, perhaps we should turn to that. The Government intend to apply this income tax at source to all under the age of 65, irrespective of their income or their capacity to earn who will have deposits in the banks and regardless of whether they are widows, single or married persons or whether they are young people on behalf of whom parents may have deposited some moneys by way of giving them a start in life or of encouraging the savings habit. In most enlightened countries people who save are given tax breaks. The Japanese economy has been built up to a considerable extent by way of encouraging savings through tax allowances. That should be our attitude also but the Government are taking the opposite approach. Young people and children who by definition have no taxable income will be subjected to the same harsh treatment without any regard to their needs or dependency. This tax offends every principle of justice and equity. Any Government with a semblance of respect for those principles would ensure that this type of tax would apply only to those whose income is within the normal income tax bands.

Fianna Fáil will table amendments for Committee Stage in an effort to ensure such provision and we will be expecting support from every party but particularly from Labour who have expressed their concern about the lower income groups, about widows and people below the income tax level. Our amendment will enable also The Workers' Party and the Progressive Democrats to support us in ensuring that people whose income, regardless of source, is below the income tax level will not be subjected to a deduction at source at the rate of 35 per cent.

Mr. Durkan

What about the family income supplement?

Mr. O'Kennedy

Is Deputy Durkan aware that, for instance, a widow living on her own does not qualify for family income supplement but will be subjected to this tax? The same applies to anyone living on his or her own, so the family income supplement will not help the many who will be hit by this tax. If they are under 65 the Revenue Commissioners will deduct from the interest on their savings at the rate of 35 per cent. I trust that we will receive the response that our amendment will entitle us to so that there will be a more equitable position.

Regarding the so-called concessions, those over 65 or who are permanently incapacitated and their spouses are to be the only ones to be exempted from this tax, but the concession will merely allow them to claim refund of taxes that were deducted at source regardless of whether those concerned would be liable otherwise to income tax. In other words, if such people can demonstrate that they are not liable to income tax and that they are over 65, they will be entitled at the end of the year to reclaim what was deducted from them at the beginning of the year and repayments would only be made by the Revenue Commissioners on receipt of applications at the end of the tax year. We all agreed that we have an overburdened tax system, but now we are proposing to add an extra layer of bureaucratic weight. This is being imposed in direct contradiction to the recommendations of the Commission on Taxation who recommended that there be no new taxes of this nature. Such a tax is contrary to any principle of common sense and equity. Most old people would either be unable or afraid in many cases to present claims for refunds and would consider awesome the task of proving to the Revenue Commissioners ineligibility for income tax. One must ask who dreams up this sort of nonsense and what kind of Government can present a tax of this kind and imply that 75 year olds will have no trouble in making applications for refunds at the end of the year or in demonstrating clearly that they are not liable to income tax. I did not think we would reach a stage where we would be imposing that burden even on those in respect of whom the Minister suggests there are to be concessions.

The Minister has made no reference to the matter of refunding the interest on the interest deducted at source. If these people are to be deprived of their money at the beginning of the year and are not to be in a position to reclaim that money until the end of the year they will have lost the facility of the use of the interest in the interest. There is no proposal to repay them the interest on the amount that was deducted during the 12 month period. If he is not prepared to take an approach on those fair lines even to those who are not even liable to tax and who may be in their seventies, eighties, or nineties, what may we expect from him? In section 44 he is providing for the application of a surcharge on ultimate tax liability where income tax returns are not received by an inspector of taxes within a specified period. If the money is due to the inspector of taxes, the full whack of interest will have to be paid on it and in addition there will be a surcharge of 10 per cent. If the money is withheld for 12 months from some impoverished person or old age pensioner, there is no provision to pay them interest on what has been deducted from them for the 12 month period even if they are being given a refund. The Government must recognise that fair play should be an essential feature of every position and particularly so in relation to the poor and the old. If the Revenue Commissioners are being given extra powers by reason of section 44 to recover interest payable to them on foot of outstanding debts, the least that should be done in respect of disadvantaged citizens is that there be repayment at the same level of interest as that deducted from their meagre income.

The so-called concession to legal charities is also limited unfairly to those bodies or organisations whose activities are limited to legal charitable purposes only. Let us be clear that legal charitable purposes are very limited, are very strictly confined and relate only to trusts set up for the specific and exclusive advancement of education, for the relief of poverty or for the advancement or promotion of religion. Many of the sporting, recreational or community organisations will find the interest on their limited funds diminished by 35 per cent on the basis that their activities are not specifically or exclusively for legal charitable purposes.

One obvious example is the Lions Club, who do remarkably good work in many of our towns and cities. Most of their work would otherwise be regarded even in law as specifically charitable work for the relief of poverty but they happen to be engaged also in what everyone recognises are worthwhile community activities — for instance, the promotion of recreational facilities, support for certain social, cultural or artistic activities or perhaps the provision in hospitals or institutions of certain medical facilities. Because they are engaged in those other activities, which are in addition to the strictly legal charitable activity, whatever funds they might have would be subjected to this tax. We need to promote a spirit of enterprise and community concern and to recognise the marvellous contribution of the many voluntary organisations, but instead we are to subject them to a 35 per cent tax solely because all of their work is not exclusively for legal charitable purposes. The imposition of such a disability is most unfair. Many people who conduct those activities would be subjected to the new tax because their other worthwhile community work or social work will take them outside the concession of charitable purposes only, which is referred to in the Bill. Even those limited and specific charities which qualify for the concessions will find themselves for the first time under the income tax code. They have always been exclusively exempt but they will now be contributing to income tax because of lost interest on the 35 per cent withheld between the beginning of the year and repayment, where appropriate, 12 months later. For the first time, even in respect of legal charges, we are going to have some level of loss in respect of tax deducted because of the interest which will be lost and which would otherwise be in their account for the full year.

It is a cruel irony that a Government which has just asked the Dáil to sanction the establishment of a Combat Poverty Agency should now proceed with a proposal to spread poverty even more widely throughout the community and to penalise so many community organisations whose very spouse it is to provide an outlet and an escape from the all too pervasive poverty which exists at present. I am sure Deputy Durkan, who permits himself a smile, is aware of the fantastic work of many of these community organisations. The only relief so many of those people get from grinding poverty is to enjoy community activities organised by these bodies. For some, it may be bingo. This Government who pretend to combat poverty are now going to spread it even more and are going to tackle those people who are trying to make our country somewhat happier even in the face of the terrible poverty which we experience.

In his statement the Minister argues that these unjust impositions are, "justified by the fact that the top rates of tax, formerly 60 per cent, are now to be reduced by 2 per cent to 58 per cent". This new DIRT tax, so appropriately named, is necessary even for the poor because, the Minister says, "the top rates of tax are reached at very modest income levels by comparison with other countries with whom we compete". I agree, but even those at that income level who are clearly penalised very heavily by comparison with their counterparts in other countries would not have the gall to propose, as the Minister now proposes, that their burden at 60 per cent should be reduced to 58 per cent by applying a burden on people whose income is so low as to be beneath the tax level. That is turning justice, logic, reason or any kind of economics on its head. It is outrageous that the Minister should make such a statement.

I have argued for a very considerable time in public and in this House that our tax levels, evidenced particularly by the top tax levels, are way above those which apply in other countries with whom we compete. I will demonstrate in the course of Committee Stage of this debate, and the Minister will have to confirm this information, that both the level of top tax in Ireland and the income at which it applies is penal by comparison with anything that operates in other European Community countries. In most cases a top tax level of 60 per cent is never reached. If and whenever it is it will be at an income of six or seven times the level at which it applies here.

Mr. Durkan

They did not go on the spending sprees like we did.

Mr. O'Kennedy

I will introduce those figures on Committee Stage when proposing some adjustments to the income tax bands that the Government are pursuing in order to demonstrate the fact that our top tax levels are way out of line. It is a disgrace to suggest that the only way that those top tax levels can be reduced is to impose income tax burdens on people who are below the income tax limit. That is an appalling injustice and should not be allowed to stand even in the interest of those on the top tax band whom the Minister claims he will relieve.

The reality is that the comparison of tax levels for the top income earners demonstrate graphically the penalties which this Government impose on key personnel who are crucial to the promotion of enterprise and employment. Many of the multinationals who came here for a while and then went away were not discouraged from doing so by their personnel who were located here. They saw that the level of tax that they had to pay here was not such as to encourage them to continue their efforts here. If we read behind the stories of some of those we lost we will find that one of the main reasons for going, at great cost to the taxpayer through subsidies of IDA grants and otherwise, was because of the tax levels which applied to key personnel. The reason some of our own industries cannot attract people back is the very same, because of the tax levels that apply to top personnel. If we are going to generate any sense of renewal and investment in the economy it will only be through recognising and rewarding people at every level and particularly at the top tax levels. It is the only way that we will create a new enterprise and climate for investment which is so badly needed. While we need to generate wealth and employment the Government, as those figures will demonstrate, are determined to penalise it. The politics of envy are alive and well in this Coalition. They are trying to set every section against each other. They are now unfortunately setting taxpayers on the top tax band against the poor who have up until now been exempt from paying income tax. The reaction will be, why should I have to pay tax so that the 60 per cent taxpayer will not have to pay his?

This Government can at least claim consistency in line with the nonsense residential property tax, the yield from which is scarcely adequate to cover the administrative cost of collecting it. Is it not a farce that we will still retain that nonsense tax on the Statute Book after this legislation is passed? The reason for that is the politics of envy. We want to signal to people that it is not acceptable under this Government to succeed or to generate wealth for reinvestment for one's family and for the economy. That situation should be changed. This latest development is going in precisely the wrong direction in order to do so. The Minister for Finance should introduce an amendment not only to change the DIRT tax but to abolish it. We will introduce amendments to give effect to the principles of fair play and equity and also to get rid of the nonsense residential tax which has killed the private house market for those who in many other countries would be included in the lowest income tax categories.

There are some things in the Bill which I welcome such as the relief for dividend income and capital gains tax. They are long overdue. We have been calling for them each year and now that they have been introduced we will welcome them without reservation. There are other concessions proposed by the Minister, such as the £500 increase in car allowance, which are so limited as to be inconsequential. Some, which he has now belatedly acknowledged himself, such as the stock option proposal, will in reality worsen the position for executives who might avail of the provisions of the Finance Bill.

I must say that it is quite significant that having introduced a provision for stock option the Minister has now belatedly recognised that in particular cases it may be that the new tax treatment will reduce the attractiveness of what has already been operating. This may be so in particular circumstances where options are granted at the market price. The Minister proposes to introduce an amendment to avoid this. We are used to this Government introducing amendments to their own proposals. What was presented as a concession originally is now recognised to be, quite frankly, far from a concession but a disability. We will support the Minister in changing the concession that he at first introduced which, in fact, we were determined to oppose by way of an amendment in any event if he did not come to that conclusion.

The abolition in this Bill of the child tax allowance is going to impose a particular penalty on income taxpayers whose children are way above the age for children's allowance and who are pursuing third level courses of education. At a point in the experience of every family when the maintenance in education costs are heaviest the Government blindly ignore these heavy burdens. They add to them by abolishing the already limited allowances. In very many respects budget policies and the Finance Bill maintain the anti-family prejudice of this Government.

The abolition of the child allowance scheme is matched by the obdurate refusal of the Government each year to provide for an adequate tax allowance for elderly relatives maintained at home by their families. This Government are forcing many young couples through income pressures to look to the State and State institutions to provide for their parents or grandparents in old age. Enlightened social policy demands that old people be cared for, if possible, in the comfort and security of their own homes. Sound financial policy would reach the same conclusion because appropriate tax concessions would be very much less costly for the State than the growing cost of hospital and geriatric institutions. The Government however close off all options for the care of the aged by forcing people to turn to the State while at the same time through the uncaring actions of the Minister for Health reduce the bed capacity of geriatric institutions and in some instances close them altogether. The Minister for Finance has an opportunity in this Bill to introduce some sanity and concern: sanity in terms of economic management because it will cost much less, and concern in terms of social policy.

We will again this year, as we did last year, propose, and I hope not in vain, that the Minister offer appropriate tax allowances to couples, particularly married couples, who are providing for their parents or grandparents in their own homes. It would be much more effective and appropriate social policy and more acceptable to older people if we did that. It has to be said, as I said last year, that it would cost the State much less than adding at great cost to institutional care and hospital facilities which clearly the Government are undermining at this stage through the zeal of the Minister for Health.

The Minister mentioned today that he had created, through Government policy, a major boost for the building industry. I want to underline the fact that this again clearly illustrates that the Government are totally out of contact with reality. We will demand in this Bill that the 5 per cent VAT introduced by the Government in the Finance Bill last year be abolished forthwith. If the Minister for Finance comes into the House today and claims that the building industry and the level of building activity is buoyant I will tell him, as I told his predecessor, that this type of false representation is totally and utterly unacceptable and gives rise to even further frustration from the very industry which is being crucified by his taxation policies. I want to refer to statements which have been made by representatives of the industry in the context of where opportunities do arise for development and activity in this economy.

There are very many areas where urgent action is needed. The Government and the Minister for Finance have utterly failed to produce incentives for investment and development in areas of great potential for the national economy. The continued exclusion of the service sector from the Finance Bill venture capital scheme ignores the investment and employment potential in this labour-intensive sector. We asked the Minister for Finance in 1984 and 1985 to extend the scheme to the service sector. We warned him that the complexities which he introduced in 1984 would guarantee that the scheme would meet inevitable failure and doom. He ignored all our proposals and amendments and introduced a most complex scheme, the consequence of which is that today, two years after it was introduced, £5 million has been invested in a scheme that was then presented to us as being a great new world by the Minister for Finance just as today the current Minister for Finance presents the new research and development tax incentive scheme as being a great new world. I want to appeal to the Minister again that he should extend the original 1984 scheme, which we welcomed, to the service sector. Employment growth in the advanced economies, such as the United States and Japan, in the last two decades while always based on a sound manufacturing sector has been to a very large extent concentrated on the expanding service sector such as financial services, tourism and construction. This Government continue to ignore this reality in an economy which has a major potential for such expansion.

When one looks particularly at the treatment of the construction industry the imposition of the 5 per cent VAT is a monument to this Government's lack of awareness of the role of that industry and its current state. The Minister claimed today that the building and construction industry was moving into a period of growth. Let me tell him that apparently he is prepared to ignore the reality that was presented by the Construction Industry Federation as recently as last week. That reality was based on the fact that cement sales for the first three months of the year show a 15 per cent fall in volume in comparison with sales for the first quarter of last year which were regarded as being the lowest on record. Those figures indicate that the construction industry, which is being crucified by this Government, will suffer an even worse experience than in 1985. Private house starts have fallen by 25 per cent and employment in the industry has fallen by 11 per cent over last year. Yet the Minister tells us that the indications in the construction sector are encouraging. Cement sales, too, have fallen by an average of 15 per cent for the three months and in March alone by 32 per cent. The Government, in saying that these trends are encouraging, are ignoring reality — the reality of unemployment, the reality of emigration, the reality of misery and poverty. They are ignoring the lack of investment so necessary in any nation. It is time the Government took a range of measures to counteract the slide in this important industry. I would suggest that in the first instance they would undo the damage — and we will give them the opportunity of doing that on Committee Stage — by lifting the 5 per cent extra VAT imposed in last year's Finance Bill. I would also suggest that, instead of investing in agencies and corporations, they should restore the £18 million they reduced the public capital programme by since budget day and generate activity in this sector, put the money into productive, labour-intensive activity rather than the administrative agencies so beloved of this Government.

They should restore the financing for building roads, sewerage treatment plants and other public works and introduce investment schemes for venture capital participation in those areas. We are all aware of the deplorable state of our roads and the terrible lack of services. I am sure the Coalition Deputies beat their breasts when they are told by their constituents that the roads are in a bad condition. Would it not make some sense to have money invested in the construction industry in all these areas rather than in these nonsensical schemes that are being insisted upon by the Government? Why not realise that here is a labour-intensive area that has literally been crushed out of existence by this Government? Why are so many of our major investors in the construction sector now going out of Ireland to invest their funds? If there is one sector more than another that has been hit by lack of investment and leakage of investment, it is the construction sector. Most of the major companies traditionally engaged in that sector here are now much more heavily engaged abroad in America, Saudi Arabia, Europe and Africa than they are here. Most of them are forced to be engaged much more heavily abroad to earn some return from their investments just to maintain a skeleton activity at home. That is the reality. Yet this is the sector which the Minister says is improving and that he still intends to burden it with the 5 per cent extra VAT imposed last year.

I want to turn some other areas in the service sector which are of vital importance. There is no incentive whatsoever for a marketing promotions scheme at a time when our marketing strategy is so deplorably weak. With new marketing opportunities opening abroad we call on the Government once again, as we did last year, to introduce tax concessions for marketing and sales personnel who spend a considerable proportion of their working days abroad. Our marketing is nowhere near adequate. We need to familiarise ourselves with the market places to expand particularly the opportunities that now follow, especially in Europe. A small concession by way of tax allowances to people who spend in excess of 100 days a year abroad engaged in sales and marketing promotion would reap dividends. Last year the Minister, in refusing to accept my amendment, said that it might cost all of £5 million. One would imagine that we were not an open economy trying to exploit the markets that are there. One would imagine that we were totally satisfied with our marketing effort in Europe or elsewhere. It is clear that we require a major new onslaught on the markets of the world and on those of Europe in particular. Our market penetration of the European Community is on a par with that of Malta and that should be to our shame. It is to the shame of this Government who cannot even see the need for adopting what we proposed last year and will propose again this year — adjustments in income tax for marketing personnel who spend most of their year abroad. This would cost little or nothing to the Revenue Commissioners but would yield major returns to our manufacturing sector.

We asked for concessions in respect of investment in research and development in the past and I am glad to see that they are being introduced. But surely the Government should have learned from the experience of the business expansion scheme of 1984 not to surround a worthwhile scheme with so many limitations and qualifications as to almost guarantee that it cannot get off the ground. The Minister said that the need for complex legislation arises in order to prevent the provisions of the scheme being abused and serving solely as a means of avoiding tax rather than facilitating the objectives of the scheme. That was the same crazy justification for surrounding the business expansion scheme of 1984 with so many complex conditions, regulations and limitations. Let us face reality. Any scheme that enables one to reduce one's tax liability is, by definition, a tax avoidance scheme. If the Minister is going to introduce a worthwhile scheme which will at the same time reduce tax liability let him not surround it once again with regulations and so on. If it is worth doing, it is worth doing simply. The tax system is complex enough. There is no justification for introducing further complexities of this nature, having regard to the experience of the 1984 Bill which failed. There is no point in ensuring that this, too, will fail before it starts.

The Government are continuing to play with the nonsensical idea of the farm tax. They have a provision here to, as it were, keep it on the life support machine, without really implementing it at this stage. The cost of administering this, of sending the adjusters out to dig holes and do soil surveys on every farm here, will be well in excess of the yield from that tax in its first year of introduction, whenever that may be. It may be next year, but I would not think so. It may be the following year or it may be in five or six years' time. But I can guarantee that it will not be so at that stage because we will have taken up responsibility and we will deal with that nonsense as we always said we would: we will replace it with a proper, fair system of taxation.

Mr. Durkan

Tell us about that one.

Mr. O'Kennedy

All the time which the highly qualified agricultural science graduates should have been giving to help farmers will have gone for nothing. All the holes will have been dug for nothing. All the gates will have been opened for nothing. This Minister does not have the honesty to recognise that this is a nonrunner and to drop it. Why does he not make a name for himself, be seen as a man who makes effective decisions and drop this nonsense which will be of no help to the country and certainly will not give relief to any sector of the economy?

What agriculture needs at the moment is a comprehensive expanded programme to launch a major redevelopment which will culminate in secure employment from primary producer to employer and employee in a strengthened agri-food sector. If we are to have a strengthened agri-food sector which will provide more jobs, and if we are to play to our strength, then one of the things we must do is to have skilled and sophisticated marketing personnel who know the eating habits and how the people dress in other countries and who will be able to translate that into ideas and product development. Clearly this is not being done at present. Small tax concessions for marketing personnel could achieve that objective.

In the Minister's constituency and in mine, there was a great deal of moaning and groaning because of the closure of Erin Foods in Mallow, reducing the employment level in the Sugar Company and so on. That is the pattern at present——

Minister of State at the Department of Agriculture (Mr. Hegarty)

It has reopened. The Deputy is not with it.

Mr. O'Kennedy

Some opening. If the Government had a sense of confidence or a sense of purpose they would recognise that research and development, marketing and so on, would benefit everyone, as far back as the primary producer who is being prevented from producing some of the traditional products because of the Government's capitulation on the quota system on dairy products.

There are areas of great potential which are very obvious, but this Government failed to see them — in the service sector, the manufacturing sector, marketing, research and development, agriculture, the construction industry and tourism. Far from improving the opportunities for all these sectors, which are by definition labour-intensive, this Finance Bill does the opposite. This Government are either unaware of this potential or, even worse, are determined to ignore it because they are adhering to the same dreary and negative prescriptions which will only guarantee more of the same needless misery and hopelessness which has been a characteristic of this Government for the last three years.

Mr. Durkan

Deputy O'Kennedy painted the same pessimistic picture which he painted in his contribution on the Combat Poverty Bill some time ago. Again he outlined the worst possible combination of circumstances which could befall any nation or which might dominate the thinking of the people at any given time. As on that occasion, I became more depressed as the debate went on and I hope future Opposition speakers will try to be more positive and optimistic and that as a result, they will inspire Government Deputies and the people generally to reach greater heights instead of attempting to demoralise us by telling us about the hunger, thirst, poverty, deprivation, the queues of Irish people at foreign airports, the overcrowded hospitals where people with terminal illnesses are dying in corridors and so on.

Mr. O'Kennedy

Is that not true?

Mr. Durkan

All that was trotted out here a week ago but the Deputy failed to mention that the hospital to which he referred had already been given a fairly considerable grant allocation to carry out the necessary extension. I hope that in future we will have a little more optimism and less of the pessimism which has brought the country to the state it is in. The Deputy and his colleagues might have done a lot more about that situation when they had the opportunity to do so.

I welcome this Bill because it presents a reasonable attempt to capitalise on the circumstances which surround us. Despite what the previous speaker said, I believe events will prove that the Bill and the budget are exactly what are required to lift this nation out of the depression painted by the Deputy opposite.

Mr. O'Kennedy

The Deputy believed that last year and the year before.

Mr. Durkan

It is time we tried to lead the people to greater heights and to invigorate the nation as a whole by positive leadership. If we continue with the negative attitude outlined by the previous speaker there will be no way of saving this country. The day we start to think and act in the way Deputy O'Kennedy has suggested is the day the country as a worthwhile trading entity will disappear. Fortunately not everyone thinks like Deputy O'Kennedy.

I also welcome the tax incentives to promote industry and as they affect PAYE taxation. Following a period of high inflation and high interest rates we are now coming into a new era. We have an opportunity to capitalise on external and internal forces, low inflation rates, lower interest rates and the prospect of even lower rates. The most important thing is for this country to be in a position to capitalise on the upsurge in trade when it comes. Deputy O'Kennedy suggested that we should try to capitalise on the position in the same way as they attempted in 1977, in other words, that politicians cushion themselves from the electorate by promising to give them anything they wish and promising to deliver on any demands they make at any particular time. In this way politicians would be removing themselves from reality. Surely we have learned enough not to go down that road again. We should recognise that things like car tax and other "freebies" are not for our people because they produce nothing in terms of jobs of a lasting nature, and they do even less for morale. If we are to do one worthwhile thing we should take stock of what is happening around us and try to provide not for the next 50 or 60 years but for the next five or ten years. Eventually the people will give recognition to those who are prepared to face reality. Deputies opposite have been very vocal when suggesting that realism is a virtue which should be practised by all. One would have expected that a spokesman of Deputy O'Kennedy's calibre would have recognised that but, I am sorry to say, he does not appear to have done so.

Another idea which is very worthwhile and labour-intensive is the provision of tax incentives to promote development in the many inner city areas. People on the opposite benches have been calling for that because as intended it will give a considerable boost to the contruction industry. We have listened time and time again to speakers on the opposite side calling for greater financial assistance for the construction industry, and here it comes. Incidentally——

Mr. O'Kennedy

The Minister broke precedent by leaving the House when I was speaking. I hope that the Deputy will not mind if I leave.

Mr. Durkan

I will be deeply offended——

Mr. O'Kennedy

I know he will.

Mr. Durkan

——not because the spokesman is removing himself from the House but because he leaves nobody behind him on those benches. At this time the incentives and money being provided for inner city renewal is bound to have a considerable constructive impact on the industry concerned. It is to be hoped that we will see a fairly sizeable improvement in the number of people employed there.

Deputy O'Kennedy talked a few moments ago about the drop in sales of cement and so on. The irony of that is— there is still nobody on the Opposite side of the House, and that is ironic because a few moments ago there seemed to be great emphasis on the fact that this was an important debate and that it was time that the people looked to this House for leadership etc., and it is amazing that the benches opposite are completely empty with not a spokesman in sight. I am sorry for digressing. Deputy O'Kennedy mentioned the drop in the volume of cement and other items associated with the construction industry. It is amazing that the number of planning applications submitted to the various local authorities has increased dramatically, perhaps to the extent of 50 per cent. I would not think for one moment that the speaker opposite was suggesting — he was present then — that perhaps people were looking for planning permissions and never intended to build. I feel that the people are recognising the benefits set out in the various schemes being put forward of home improvement grants, house surrender grants and Housing Finance Agency loans, a combination of which obviously has provided them with the enthusiasm and confidence to go forward and make application to carry out improvements to their homes. That was long sought on this side of the House and, I am sure, by everybody in the House. Unfortunately, we had to wait until now to do that. Let me repeat what I have said already on a couple of occasions, that there is still scope in that area, with particular reference to the need to ensure that every household in the country have basic sanitary services provided for them. There is no excuse nowadays for not having sanitary services provided to each household.

I am glad to note that a Member is descending on the opposite benches and, no doubt, will lend to the debate the kind of optimism we did not have heretofore from that side of the House.

Mr. Reynolds

The Deputy has the wrong word. It is opportunities he should be talking about, not optimism.

Mr. Durkan

Deputy Reynolds is very welcome, but I ask him not to spill all the water. As I was saying, in that area there is still scope, and I would like to see the various local authorities coming up with a scheme to provide the necessary services to all households in their respective areas. That could be done relatively easily with the aid of the extra funds now available under the SDA loans system, the full allocation of which has not been taken up over the last couple of years in many counties.

Reference was made in the Minister's speech today and in the Budget Statement to the motor industry. The last speaker was exceptionally pessimistic in that area, but it must be said that negotiations have been going-on with the motor industry over a number of years and many changes have taken place at the request of the motor industry. Also it should be noted that duty on tyres, tubes and spare parts etc. is being abolished. This will have some impact on the motor repair industry which obviously has been able to capitalise on the incentives available there. Like every other industry, that industry is subject to attack from the black economy, and it is up to the industry to do its best to compete. They should be able to do so. The concessions in the budget and here to day in the Finance Bill will be of good advantage in that regard.

The only discordant note I want to sound at this stage is to say that there are increases in road tax in the budget enforced through the agency of the Finance Bill. People are a little sensitive to that at present and have been so for quite a number of years. Road tax increases have taken place since 1977 with a great deal of regularity. When car tax was removed to a great extent in 1977 everybody thought that extra money would be made available through one source or another, mostly by some magic method which had not yet been discovered but was about to be discovered. It did not happen and, of course, the roads suffered and continue to suffer. Now it is almost impossible to maintain the main and county roads in any county and the result is that a great deal of money is required to bring those roads up to a reasonable standard. It is difficult to explain to the public how they can be expected to accept an increase in road tax when they see at the same time the condition of those roads deteriorating. It is all very well for us to say in this House that the reason for that deterioration is that for a few years as a result of election bonanzas and foolish and foolhardy election promises, money for those areas was cut off. The source of suply was cut off and, as a result, the chickens are coming home to roost. I would like to see more money made available if and when possible to the various local authorities for expenditure on main and county roads. If we do not have that it will be extremely difficult to countenance motor tax increases which the public will see as unacceptable having regard to the condition of those roads.

Another area which the Minister referred to today is the reduction of VAT levels on a number of services such as the catering industry. It covers restaurants and hotels and a number of other service industries. That is a positive move, an indication of a recognition by Government of people's feelings that a reduction in the taxation could have a useful effect. Government have responded in a positive fashion despite the fact that finances are very straitened and have been so for some time. Incidentally, Deputy O'Kennedy seemed to be suggesting that further concessions could be made in all areas where the Government made some attempt to make concessions, but he avoided completely any attempt to quantify these concessions in terms of cost. He never once indicated who would pay the piper, who was going to be the loser or who would have to pay if the kind of concession which he is now suggesting could be made. That has been one of the problems of Irish political life for a long time and I would have thought that we were getting away from it. Surely the present generation are too intelligent to believe for one instant that people can be given concessions without somebody somewhere having to pay the cost. I sincerely hope Deputy O'Kennedy did not believe all the things he said.

The reduction in VAT in the area of tourism and by way of a general boost to employment, particularly in service areas, will be of great benefit which is obvious from the response we have had from constituents which indicate that the affected industries will capitalise on the relief given. I note that there is a further exemption on stamp duty in respect of transfer of land to younger farmers. The Minister is right in suggesting an end to that scheme because if any scheme is continued indefinitely on the basis of proposals to attract people into it, obviously its attraction is diminished. Therefore, it is a positive proposal to terminate the scheme in 18 months or so, and perhaps at that stage the time would be ripe to introduce another scheme which would have the same effect. Incidentally, the present scheme was successful as it encouraged the handing over of land and agricultural property, an asset which is obviously productive orientated, to young enthusiastic people who were in a position to utilise the land to its full potential.

The Minister also referred to improvements in personal taxation. In future years wage increases in certain income categories could come by way of tax concessions which would have the double effect of giving a wage increase on one hand and an indication to the people concerned that their labours are not entirely in vain. They would see a positive return unlike the position over the past ten years or so whereby many employees found themselves running faster to stand still. There is and should be further scope for concessions of that nature which will remove one of the greatest reasons each year for increased claims for higher wages. I am not suggesting that the claims will not be there but, if tax concessions were granted, they would alleviate the problem to a considerable extent. The Bill gives a sum of over £200 million in tax relief in a full year. The Opposition regard this as insufficient but, of course, it is the business of the Opposition to castigate the attempts of the Government to provide anything of a constructive nature.

However, one must not totally disregard a sum of £200 million. After all, a few years ago there were strident calls from the other side of the House on numerous occasions in relation to expenditure of a similar amount of money which they suggested should be spent on capital works in relation to the construction and road building industry and that sum was regarded as a huge possible investment. It is much more positive to spread it right across the board and to give an incentive to those who are working and heavily taxed. Given the circumstances at present it should be possible by this time next year to provide even further concessions along those lines and then we can at least compare ourselves with our European partners in relation to tax levels. Perhaps it will take some time, but it is many years since we were able to compare ourselves with our European partners, or any others for that matter, in relation to taxation levels. Nobody on the other side of the House need say that this only happened over the last four or five years; it has been going on for quite some time and we should not attempt to delude ourselves into thinking that we can be on a par with any of our competitors in the short term.

Mr. Reynolds

We are still going in the wrong direction. The Government are taking 6 per cent more this year than they did last year.

Mr. Durkan

At least we are prepared to cost our proposals whereas the Opposition call for increases or reductions as the case may be, which all cost money, but whose costing they are not prepared to detail.

Deputy O'Kennedy also mentioned the farm tax and made veiled suggestions as to what might happen in the unlikely event of Fianna Fáil coming to power. He said that Fianna Fáil might replace the present tax by "a fairer system". We heard all this before but a fairer system depends on your vantage point. Farmers and PAYE employees will be very worried when they hear the fair system war horse trotted out once more. At a time when interest rates, energy prices and inflation are falling — and indications are that these trends will continue — there must be a great temptation on the part of politicians to capitalise on the possible buoyancy which might be created and to embark on a policy of give away.

That might have the effect of placating the electorate for a short time but the long term consequences could only be similar to those which were patently obvious following the policies embarked upon in 1977. I do not want to harp on this, but let us do the right thing now as far as the people are concerned. We should not pretend that we can embark on a freebie system once again when we know the disastrous consequences it had in the past and would have in the future. I hope we have all matured as politicians because I know that the public are far more mature now than they were in 1977. For that reason, there is little fear that we will go down the same road and I hope that politicians will not fall into the trap of suggesting that we should.

At a time when energy prices are falling and likely to continue to fall and interest rates are favourable from the point of view of this country. I should like to see price reductions passed on to the consumer. In a number of areas that are not Government controlled price increases have taken place although those moves have been somewhat inconsistent with present trends. Some of those increases took place in recent times.

Debate adjourned.