Before Question Time I was speaking about the most serious problem affecting the economy, unemployment. I deplore the fact that this Finance Bill did not address itself to that problem. Since this Government came to power the economic environment has deteriorated drastically. Pessimism prevails throughout the entire industrial milieu. There is no investment in business or in farming. In the absence of this investment unemployment will get worse. The annual Finance Bill should be an important instrument in creating the optimum environment for investment and on this test the Bill fails dismally. It leaves us with rates of tax which are absolutely penal and are forcing young people, particularly young graduates, onto the emigration queues. When young people get their pay cheques and find that their net pay is only half of their gross pay it is hard to blame them for searching for an oasis, a more hospitable climate.
It is extremely sad that the money which the taxpayers invested in the education of very talented people is wasted because their skills are exported to be of benefit to some other economy. That is a pity when our competitor economies are reducing their tax rates particularly in the UK and in the US. In the UK the maximum rate of corporation tax has been reduced recently to 36 per cent and in the US the maximum rate of income tax has been reduced to 35 per cent. In economies similar to and smaller than ours, for example Switzerland, the top rate of income tax is as low as 18 per cent.
It is extremely difficult, if not impossible, to see an improvement in the employment environment with the sort of tax rates we have, in particular when people get into the high tax rates at a relatively low income. This tax system is stultifying enterprise and initiative. There is no incentive to invest or to take a risk because, if any profits are generated — and it is difficult enough to generate profits in the environment in which we live — they are taxed at a confiscatory rate. We will never solve our economic and social problems, and we will certainly not solve our unemployment problem, until we reduce drastically the tax burden.
In the past three years the number of unemployed has escalated from 170,000 people in 1982 to the present level of 240,000, notwithstanding the fact that approximately, 30,000 young, talented, well educated people emigrate each year. I am glad that reality has dawned on the Government and at least one Minister, Deputy Quinn, conceded that fact. There was no point in covering it up any longer because this is one of the tragedies of the economic mess in which we find ourselves.
In essence, this Bill does nothing for the PAYE worker. It makes no attempt to reduce the ludicrous level of taxation. There is a token gesture to increase the tax bands and to provide some form of amelioration. This, however, will not counteract the level of inflation, even though it has been reduced in line with the other economies with which we trade. The reality for industry is that interest rates on borrowing for equity, the real level of which are the highest in the history of this State, are of the order of 17 per cent or 17½ per cent. Many firms have to rely on borrowings to a great extent. With inflation running at 3 per cent to 4 per cent this means the real rate of interest is 12 per cent to 13 per cent.
I call on the Minister for Finance, through the Central Bank, to ask the commercial banks and the lending institutions to reduce the rate of interest on borrowings for business, enterprise and mortgages because, when inflation is at 3 per cent or 4 per cent, when deposit interest is at 5 per cent or 6 per cent and the lending rate is 17½ per cent, surely there is something wrong? As I said, the real rate of interest is 12½ per cent to 13½ per cent, the highest in the history of the State. The result of this is that more firms are finding it harder to meet their commitments to fund their borrowings and they have virtually no money for reinvestment or re-equipment.
The saddest spectacle of all is to see our young people trying to make a living in another country. I submit that our negative taxation régime is the main reason for that. I find it incomprehensible that the Government have not implemented at least some of the recommendations in the five reports issued by the Commission on Taxation in the past few years. I call on the Minister to take these reports seriously and to take on board some of the more positive recommendations.
I should like to comment on people and organisations who are prudent and put money aside. The recent imposition of the deposit interest retention tax will have a serious impact on savings. I congratulate the Minister on the concept of a retention tax in association with confidentiality. This was one of the most progressive steps taken in the recent budget and showed some original thinking. If there was one thing more than anything else that discouraged people from putting money into the financial institutions so that it could be redistributed to industry and farmers, it was the problem of disclosure. In the past two years we have heard of elderly people in rural Ireland being beaten and in some cases murdered because they had a few pounds in the mattress or in a biscuit tin. I welcome wholeheartedly the Minister's initiative in introducing confidentiality and harmonising the regulations which apply to all financial institutions. It is unfair for people with tax free allowances up to a certain limit to be penalised on their savings when they find it impossible to earn enough to bring their income up to those tax free allowances.
The amendments to the Bill do not go far enough. I do not accept that people of 65 years of age and over should be asked to fill in a tax form and claim their refund before they are given any concessions. This means these people will have to disclose what they have in the financial institutions if they want their refund, while the fact cats, the bigger investors, will have the benefit of non-disclosure. These elderly people will have to declare their income and fill out complex tax return forms if they wish to claim a refund on their meagre income. For non-contributory pensioners that could have very serious implications.
It is regrettable that many thousands of people lost their jobs in the past few years. They got lump sums by way of repayments and those who were prudent put their lump sums aside to educate their children, or to have money for a rainy day, but they will now be penalised because the income supplement they receive from their lump sums on deposit will be taxed and, if they want to claim a refund, they will have to disclose what they have invested in any financial institution.
There has been inconsistency in financial planning and programming over the past few years. As late as last year the Minister for Health and Social Welfare — no longer Minister for Social Welfare but Minister for Health — issued leaflets to pensioners advising them in their own interest to keep their savings in financial institutions and not to keep them at home. The threshold was doubled to encourage these people to put their savings in banks and take them out of their homes. That was only last year. This year if those people earn £100 interest they are being taxed £35 out of that £100.
There is a considerable amount of money in non-residents' accounts in the financial institutions here. Some people put it in the order of £2.5 million. In the budget debate it was suggested that, if those accounts were retained in the domestic fiscal system, there would be no difficulty about it, but in the Finance Bill it appears that Irish residents with external accounts will have to disclose the extent of those accounts. Of course, the result of that will be to force that money out of the fiscal system into a more hospitable investment climate, and there are many of these — the Isle of Man, the Channel Islands, the Caymen Islands, Switzerland — waiting with open arms for this money. That £2.5 million is not a considerable sum of money but we need that kind of money in deposits in our financial institutions. If we have not got it here we must borrow it and we know the cost of that in repayments.
We have a banking and financial services sector here second to none internationally and we should have the best possible climate, not alone to retain the savings and deposits we have, but also to encourage an inflow of money into the country. Traditionally our emigrants have returned money to Ireland if they could be sure there was a safe home for it here, and that the greedy palms of the Revenue Commissioners would not be stretched out to grasp it — or at least the interest earned on it — at the earliest possible opportunity. That is a most negative attitude and I call on the Minister, when he is implementing his tax amnesty, to extend that amnesty to non-residents' accounts in the banking institutions, and to have the best possible environment for deposit taking, saving and the encouragement of prudence within the fiscal system. I have made the point in, I think, every budget speech in the past seven or eight years that some of the people in the Department of Finance might take a sabbatical or a few months in Switzerland or some of the more enlightened countries——