Finance Bill, 1987: Second Stage (Resumed).

The following motion was moved by the Minister for Finance, Deputy MacSharry, on Wednesday, 3 June 1987:

That the Bill be now read a Second Time.

Debate resumed on amendment No. 2:

To delete all words after "That" and substitute the following:

Dáil Éireann notes the contents of the Finance Bill, 1987 as presented, but conscious of the failure of the Bill:

(a) to provide for reforms in the system of taxation;

(b) to alleviate the tax burden on workers;

(d) to amend the provisions of the recent financial resolution providing for a withholding tax on professional fees paid by the State;

declines to give the Bill a Second Reading.

—(Deputy McDowell.)

Mr. Desmond

This morning I propose to deal with six aspects of the Finance Bill. First, I want to refer to the appalling slowness in the reform of our taxation system. Secondly, I want to put up some alternative measures on taxation. The Minister has rightly challenged those who wish to see reliefs introduced or to see the general level of taxation reduced and he has asked them to suggest alternative measures to obtain Exchequer resources. It is not unfair to say that Deputy McDowell last evening put forward several measures on tax reduction but not a shred of an alternative proposition for meeting the inevitable reduction in Exchequer resources. Thirdly, I want to deal with the land tax decision by the Government and, fourthly with the very exceptional decision of the Government relating to the building societies and the banks and the policies issued here. Then I shall deal with the exclusion of the VHI from retention tax, something I regard as a serious anomaly. I refer to the exclusion of contribution payments by VHI subscribers in respect of consultants. Finally, I shall be making some observations on the international financial services proposal which is being hyped up beyond all merit and prospects.

Regarding taxation reform, time slips by rapidly both in this House and in terms of reform. It slips by so rapidly that it has resulted in the conversion of the Taoiseach who has decided to go for broke in restoring the nation's finances to some order. He saw from 1981 to 1987 valiant efforts on our part but nothing emerging from his own assessment in 1980-81, and he has decided to undergo a massive conversion. That is to be welcomed. It is in the areas and methods of conversion where we in the Labour Party part company with him, but in view of the overall thrust and necessity of bringing some sanity into financing Exchequer expenditure we do not cavil in any way at that policy approach.

It is now five years, July 1982, since we had the first report of the Commision on Taxation which pointed out on page 70 in paragraph 1.11 that turnover tax was introduced in November 1983, wholesale tax in 1966 and VAT in November 1972, that there was an extension of income tax to certain farmers in 1974, that estate duties were removed in 1975 and replaced by capital acquisitions tax, that the gift tax was introduced in 1974, that inheritance tax then changed in 1975, that capital gains tax and wealth tax were introduced in that year, that wealth tax was abolished in 1978 while corporation tax on company profits was introduced in 1976, that rates on private houses were abolished in 1978 and the PRSI contributions system was brought in in 1979. I suppose since then the only other major reform has been the DIRT which was brought in a year or so ago.

We have not in any way, contrary to anything the Minister said yesterday evening, broadened the tax base to any necessary extent. We have not made the tax system fairer and we have now introduced a multiple series of allowances within the tax system. This causes enormous confusion to the taxpayer, imposes great difficulty in the administration of the taxation system and encourages a great deal of tax avoidance and tax evasion within the system, so much so that we have a very substantial black economy. It is difficult to estimate the size of that but I would not be surprised if it is in the region of 10 per cent of GNP because the more I remain a Member of the House, whether in Government or Opposition, the more I become aware of the manner in which so many people operate outside the formal system, apparently with some success. That is the only conclusion I can come to from seeing the way some people live and how they have disposable income readily available to them. The House and successive Governments have failed to enter into fundamental reforms in the tax system as called for by successive reports of the Commission on Taxation onwards from July 1982. It is not unfair to say that successive Ministers for Finance are little more than what one might call Exchequer firebrigade officers and expenditure controllers to a degree. As each Minister knows well, every month a budget trend report, a revenue trend report, an expenditure trend report is presented to the Cabinet. Most Ministers for Finance spend most of their time just policing the expenditure, fighting battle after battle in Cabinet, preventing the expenditure from rising ever more and trying to ensure that revenue is brought into the State.

This brings me to a fundamental question about the organisation of Government which impinges very much on the Finance Bill. I do not think it possible for a Minister for Finance, in our current Cabinet structure who is required to bring in some six or seven thousand million pounds a year in tax revenue and the best part of six or seven hundred million pounds in non-tax revenue, to do all that work and simultaneously act virtually as a Minister for public expenditure and control the multiple Votes of Cabinet. Within six months most Ministers for Finance have either declined into virtual ill health because of the pressures on them — there is not a Minister for Finance who has not undergone that trauma — or have discovered how obdurate are their colleagues in terms of acceptance of their views or the views of the Department of Finance. Remember that Ministers for Finance must take on virtually the whole Government and fight battles on a very lonely basis. In the end, most Ministers for Finance after two or three years and particularly coming up to an election, tend to throw in the towel. Their real target in the long term, in turning around the taxation system, in introducing fundamental reforms and, above all else, ensuring that people pay their taxes becomes an almost impossible task to discharge.

There is a need for the reorganisation of Government. It is no secret that, in Government, the Labour Party put forward a view that perhaps there should be a Minister who would be responsible for public expenditure — just on the expenditure side — a senior Cabinet Minister responsible for controlling expenditure, responsible for what one might call the perennial, bilateral debates with other Government Departments. The Minister is currently engaged in bilateral discussions with his colleagues, probably with a view to a mid-summer budget. There is all the smell of a mid-term budget about it at present, bearing in mind in particular the letter which was issued from the Taoiseach's office.

Within the structure of Government if the Minister for Finance were relieved of the appallingly difficult job of controlling public expenditure, requiring only to take macro-decisions relating to expenditure, then he could sit back and become somewhat more reflective in his work. Above all else, he could occupy himself with taxation reform. With profound respect it is my opinion that we do not have a Department of Finance in this country. In fact, what we have is a department of public expenditure control. Most departmental officers in the Department of Finance at Deputy Secretary, Assistant Secretary and Principal Officer level are busy with their own Votes, particularly on the expenditure side, operating at second remove from the Revenue Commissioners and it means that, as such, we do not have a Department which is innovative in terms of taxation reform, a Department which can sit back and take a long hard look at the requirements of, for example, the First Report of the Commission on Taxation.

I spent four years in Government, during which time there was not a response from the Department to the commission's report and very little internal discussion in relation to the various reports produced. Admittedly there were all sorts of reasons X, Y or Z reform could not be introduced or implemented. The officers of the Department were unstinting in assisting Government Ministers in those discussions. Nevertheless, a small Government Department with a limited number of experts available, working at second remove from the Revenue Commissioners, is not in a position to introduce fundamental reforms into the system.

It is strongly arguable that perhaps Cabinet responsibility should be split. I have no desire to introduce further divisions of labour within the Department of Finance. We saw the chaos that ensued when we had a Minister for Economic Planning and Development, when the Department of Finance declared war on other Departments. Eventually that Minister was subsumed out of the body politic, the Department being brought back into line but there is a very strong case to be made that in the Cabinet one Minister should be responsible for public expenditure and another for the revenue system. There is absolutely no doubt in my mind that the revenue collection system has broken down. It has been acknowledged that it has broken down. Despite the best intentions of successive Ministers for Finance, there is widespread evasion and widespread avoidance.

I come now to a proposal which would stop all that. In fairness to Deputy McDowell I should say he was totally honest last evening when he said the main reason people were not objecting to the deposit interest retention tax or other taxes in relation to disclosure is because they know they are getting away with substantial hidden benefits by virtue of not having total disclosure of moneys lodged in bank accounts, building societies or in the system generally. I hold the view strongly that we will never have here a fair taxation system and we will never be able to eliminate the black economy unless there is total disclosure in the banking system. That is an imperative. Otherwise one can wipe out any real prospect of fundamental reform of the taxation system.

I well remember the assurances given by successive Ministers. Particularly when the deposit interest retention tax was introduced, I remember well the trenchant and quite ridiculous allegations made at the time that we were taxing children's confirmation money, widows' savings, that we were imposing penal taxation. No sooner were Fianna Fáil in office than they immediately accepted that that fundamental reform was needed as far as the country was concerned. I am very much in favour of it. Mind you, the Department of Finance were not in favour of the deposit interest retention tax and there were some strong objections raised, allegedly because it was thought it would cause havoc in the banking system. Needless to remark, it has not. In fact, the banking system tried a very smart move last year in the crediting of interest. They are caught this year under the provisions of the Finance Bill, which means we have recovered back moneys we had anticipated we would get in 1987 and which they tried to dodge in terms of payment.

I come back to the fundamental plea for disclosure. The ordinary industrial worker here has nothing whatsoever to worry about in terms of disclosure. He has no money to disclose full stop: he has no money. He spends every penny he earns in a week. If his earnings have not been spent on Thursday evening certainly they have on Friday evening. He does not have any savings. By and large in terms of the ordinary industrial worker there is no money to be saved — a person bringing home, say, £95 or £120 a week, or a pensioner with £47 or £50 a week, that is all they have and they spend it. But there are people — and it is widely known — in manufacturing industries, in personal service industries, in a whole range of industries, who keep two books. One is on an official counting basis and the other is on a cash basis. The cash is deposited and the cheques and the ordinary invoice payments are for the Revenue Commissioners. No matter how clever the Revenue Commissioners are, there are always people who are up to dodges and money goes into deposit accounts, building societies and banking accounts. We saw recently several major cases — constituting the tip of the iceberg only — when the Revenue Commissioners caught up with a few people, when they had to pay £1 million or £0.5 million in revenue assessments which were proven but they got away with those which were unproven.

That boils down to the fundamental question. The overwhelming majority of ordinary income earners have nothing to fear from the disclosure of income. I have no doubt whatever that if the Revenue Commissioners had a fundamental right to simply ring up a bank and say: "I want a print out of the depositors in the Carrick-on-Shannon branch" they might have found a fish deal much faster and it would be interesting in that case to find out who was signing a promissory note for a couple of million pounds. That would be more satisfactory. At present the Revenue Commissioners are virtually precluded from getting a schedule of depositors.

I was Minister for Social Welfare for the best part of four years and I found some very interesting cases of people who applied for non-contributory pension and they had deposits which the Revenue Commissioners would never hear about in a thousand years under the current system. There is massive objection to the disclosure of income. There is not a solicitor in a government who would not run a thousand miles from disclosure. Solicitors keep clients' accounts on the basis of confidentiality and non-disclosure. Most Dáil Deputies, particularly those who come from rural constituencies and those who come from a business background, would run a mile from disclosure. They and their closest constituents would literally whip people from one end of a townland to another at the very thought of them standing at a chapel gate and advocating disclosure. It would be regarded as the State inquiring into the private affairs of a citizen, but there is no alternative.

The taxation system could be regarded as just fulfilling about 30 per cent to 40 per cent of its true purpose of ensuring that people who earn money pay a modest proportion of it to the Government of the day to enable the running of our essential public services. That is the purpose of taxation. Most people want and demand services but are very reluctant to pay for those services. We should have to pay tax on the basis of total disclosure of income. I make that general point because it is a fundamental aspect of our taxation system which is ignored time and time again in the House.

There are other aspects of reform to which I want to refer, which would ensure that the Government would have some reasonable revenue in 1987 with which to run the country and which would at least be an answer to those who, as the Minister correctly claimed, advocate tax reliefs and simultaneously refuse to indicate from where the alternative sources of revenue should come. I want to refer to the Minister's confirmation, in relation to the Finance Bill, of the reduction of the VAT refund scheme for unregistered farmers from 2.4 per cent to 1.7 per cent. I do not have the exact yield figure but I think it is about £9 million in 1987. The Minister should have abolished the refund scheme or should have reduced it by 50 per cent. I would have reduced it from 2.4 per cent to 1.2 per cent and I would have availed of the extra £8 million or £9 million in 1987. The reduction by half of that amount would have meant a legitimate income to the Exchequer. I would have abolished it completely in 1988. Our taxation system is such a multiple mess of allowances and refunds that I sympathise with any civil servant who tries to administer it. The reason I home in on the VAT refund system for unregistered farmers is that successive Governments have, for all practical purposes, abdicated their responsibility of ensuring that the same system of income taxation applies to the farming community as applies to the PAYE workers.

There is multiple evidence in this Finance Bill of successive Governments who chopped and changed the basis for taxing farm incomes. In real terms they have actually reduced substantially the level of taxation of the farming community. That is a disgrace and there is great public anger about this matter. I was proud in Government that at least we had some system of rationality in this regard although it was not a perfect system. Farm tax was introduced in 1986 for 2,150 farmers with 150 adjusted acres and upwards, despite vociferous opposition from the Fianna Fáil Party. I am glad the Fine Gael Party and the Labour Party in Government reached agreement on it. It was a singularly important achievement just as the DIRT tax was very important and produced the best part of £150 million a year which was critically necessary revenue with which to run the country. It was envisaged that from 1987 the farm tax would apply to all farmers with above 80 adjusted acres and the estimated yield for 1987 was about £30 million, but the Fianna Fáil Party decided to abolish that tax. We had envisaged that in the three to four years between 1987 and 1991 the farm tax would be extended to cover all farmers above 20 adjusted acres. It was being brought in slowly but surely on an effective basis.

We spent £4 million or £5 million setting up the farm classification office. It was an excellent office which uncovered some very valuable information in relation to the farm structural system. As I said already, one office found that a couple of greyhounds owned a couple of hundred acres of land and those greyhounds had very good surnames. Other offices discovered that people who lived in towns owned land but you would not think they owned their backyards. Slowly but surely, for the first time in the history of the State, the farm classification office was doing exceptional work which would have been tremendously valuable when considering the higher education grants in future and also to the health boards in terms of applications for medical cards. It would have been invaluable also when doing household budgets. The information that those offices would collect would have been invaluable in future taxation profiles and the Revenue Commissioners would have had fundamental information available to them. All the information would have been brought together by dedicated public officers.

Admittedly these officers were employed on a contract basis; many of them were not employed full time in the public service.

I have been very critical of the role of the Department of Finance but I know the Department worked well in bringing in the farm tax system. They deserve credit for their efforts. What happened? The Minister for Finance and the Fianna Fáil Party, to placate a few raucous farm leaders, said during the general election that they would abolish the farm tax. Have they done so? Not yet. We are running out of time in 1987. The House will adjourn on 26 June or thereabouts and I suppose we will not be back until 15 October. Will the revocation and the abolition of the land tax, the formal legislative measure, go through between now and the summer recess? Will it go through between October and December? It is highly unlikely. I doubt if we would even get it through in time for the next Finance Bill.

Meanwhile, to add insult to injury, we had the High Court case in Youghal last week. An Act of the Oireachtas relating to the health contributions of 1979 was signed and promulgated for 6 April. Deputy Haughey as Minister for Health probably inadvertently — I do not hold him responsible because it was more a departmental matter than a ministerial fault — signed the order for 4 April thus invalidating the order. This means that any farmer can refuse to pay and once again one section of the community who can afford to pay, for all practical purposes, will not be paying a reasonable contribution to the Exchequer.

In fairness to the Minister for Finance, in January 1987 he mooted the possibility of a farm tax being introduced for all farmers above 20 adjusted acres on an interim basis of self-assessment. I went along with that because I thought it was an effort to accelerate the general application of the farm tax. That has been abolished by this Government. The option of self-assessment for 1987 would have allowed the Government's farm tax reform programme to be implemented to the fullest extent in 1987. It could be argued that all farmers with the ability to pay were being brought into an effective tax system this year. I was glad to note that the ICMSA were not particularly hostile to bringing forward the self-assessment system for the farming community and I thought that was a useful and valuable development and one which I, in Government, strongly supported. The main advantage of that option was that compliance of the farming community would be ensured and then slowly but surely the system would have gelled together.

I bitterly regret that this Government have made a fundamental error which they will have great difficulty in living with particularly in urban constituencies when people point out to the Fianna Fáil Party the formal abolition of the land tax and the virtual non-replacement of any other form of taxation. The question of accounts will be disputed and will be the subject of enormous administrative delay. In the long run and once again we will drift into the non-collection of a reasonable contribution from the farming community.

I make that point because I do not think it has dawned on the Irish body politic the extent to which there is a maltransfer of resources within the community. I will give a couple of examples. I brought in the child benefit scheme — £15.10 per child — which was a valuable innovation. What are we doing this year? We are giving the farming community about £27 million in child benefit, a straight transfer of child benefit to the farming community. We abolished the £100 tax allowance for PAYE workers in lieu of child benefit but we increased the children's allowance from £12 to £15. Members of the farming community benefited from that but they paid no tax. Effectively there was an additional net transfer of resources to one section of the community. I do not think it is fully appreciated when we see cutbacks in local government, that the grant in lieu of rates on agricultural land — running at about £125 million — is a very substantial transfer of resources, and there is nothing coming back. This is the reality.

The Minister should look at the data. There is £175 million being paid by way of old age pensions and widow's pensions directly into the farming community on a non-contributory basis, and there is nothing coming back. A farmer will hand over his farm to his son so that he will qualify for the old age pension. Six months later he will get an old age pension for himself and his wife, if she is over 66 years of age. He will have free travel and he can travel at his leisure because his son is working his farm, which he has been working for the past ten years. If people realised the extent to which money is transferred from the Exchequer to the farming community there would be an uproar. We can add to the pension free travel, free television licences and free electricity to the tune of how much? In 1986 the figure was £23.8 million. If the Ministers have any problems with my figures, all they have to do is ask the Department of Finance for an up-date. The last date I have is 28 October 1986.

I said to the previous Government, "In the name of God, what are we doing?" We are crucifying ourselves and this Dáil for a lousy £6.5 million raised by way of £10 outpatients' charges. The Department of Finance go into a frenzy of public spending cutting from people who go into a hospital and all for £10 million or £12 million. We introduce all sorts of micro cuts which amount to £6 million or £7 million. At the same time the really big money lies untouched because politically it would be dynamite in certain constituencies to touch it whether it is Fianna Fáil, Fine Gael or, in some cases, the Progressive Democrats who are involved. Indeed, in some rural constituencies the Progressive Democrats would run a thousand miles from any effort to touch such money.

Mr. Keating

The Deputy cannot blame the PDs.

Mr. Desmond

That is the position. I do not suffer in any way from chronic urban anti-farmeritis. Most of my relatives come from the farming community and they regard PAYE and PRSI as a kind of sick Dublin joke. They put the creamery cheques behind the clock or, occasionally, lodge them. Their main concern is to get to the mart on time. That is the position in regard to the two societies that exist here and it should be changed by the Government. Money should be collected from this source and the Government should be prepared to say to the farming community that as there is massive State support for them there is no reason why they should not pay their fair share in taxation.

I should like to deal with another matter that irritates me profoundly. The Minister, in the course of his speech, told us that money was flowing back into the economy. Perhaps it is but why money flows out and money flows back into the economy is a very interesting topic.

Mr. Lenihan

Psychology.

Mr. Desmond

I have spoken to many financial controllers of multinational companies about transfer pricing, whether it concerns computers in Galway or pharmaceutical products in the midlands, and I have come to the conclusion that the way money flows out of the economy merits a good deal of examination.

Mr. Lenihan

It is all about confidence.

Mr. Desmond

I am not sure the Bill exerts any profound influence on this matter. It should be noted that the commercial banking fraternity, and the building societies, make a lot of money whether we are talking about the Bank of Ireland making a profit of £105 million before tax or AIB making about £140 million before tax — in both cases one could deduct £45 million in tax. The bank levy in the past three years has remained at £25 million although those institutions made huge profits.

We also have the squandering of money by building societies. There is not a social democratic country in western Europe that would tolerate the administrative expenses — they amount to people drawing fat salaries, the building of new luxury offices and putting up signs in front of them calling them building societies — being paid from our money. Money for housing, my eye. Most of the money goes on big salaries. It is worth noting that some of the executives of those concerns earn salaries that are three times that of a Minister or five times the salary of an Assistant Secretary in the Department of Finance. Those executives have many other perks and we do not know the extent of them because there has never been a full scale examination of the administrative expenses of the building societies. With due respect of the Registrar and the Department of Finance, I do not think they have time to carry out such an examination. The Revenue Commissioners have enough to do without chasing after some of the big wheelers in the building societies. If they did chase after them the first thing those individuals would do is hit the Fianna Fáil Party over the head with many threats, as they did with our Government. I can recall the attitude adopted by them in regard to the Coalition.

There should be full disclosure of deposits with building societies. The only way to run the system is to stop the nonsense. If we had full disclosure I do not think there would be an extraordinary outflow of money to the Cayman Islands, to Swiss banks or across the Border to Newry. Had the bank levy introduced in 1981 been index linked today it would be bringing in between £35 million and £40 million. Once the banks knew the levy was indexed we would not have the perpetual pleas to abolish it. We would not have submissions to the Minister for Finance that the levy will result in a massive reduction in banking confidence or that interest rates will rise. We would not have the Governor of the Central Bank sending his memo to the Department of Finance asking them to get rid of the levy because it was upsetting international banking services. Such statements are little more than a load of hooey. It is no different to the perpetual blandishments that go on about the payment of a reasonable level of taxation.

By and large, the banking and commercial sector are a law unto themselves. I can recall the way they put the frighteners on the previous Government, particularly in regard to the collapse of ICI. It was an eye-opener to me to see how AIB behaved on that occasion. I was amazed to see how a major financial institution here would try to railroad a Government. They may have railroaded some of the officials of the Department of Finance but they did not railroad the Government.

Mr. MacSharry

What about collective responsibility? The Deputy was a member of that Government.

Mr. Desmond

In the end we did not lose money but some very vigorous control by the Minister for Finance was required to prevent us being railroaded on that issue.

Mr. MacSharry

The Deputy cannot have it both ways.

Mr. Desmond

We recovered well from that and, to his credit, the Minister for Finance in regard to the application of the retention tax on ICI handled the matter with great competence. In my view the commercial banking sector who are doing very well and the building societies who are doing even better could well afford to make a substantial tax contribution to Exchequer resources. That proposition merits the support of the Minister.

In the course of the UK general election there has been a debate about reform of the rating system there. They are also debating capital taxation. It is a tragedy that taxes here on property and asset wealth have almost been abolished. We might as well abolish them all and forget about them. At the moment those taxes bring in about 3½ per cent of Exchequer revenue, or maybe less, and they involve a complicated process of assessment. One wonders if it is worth chasing after that money. When domestic rates were abolished in 1977 I had a liability of £350 for rates on my house and had we kept the rating system I have no doubt I would be paying £700 in rates annually. I now enjoy a property which is totally free of rates. Such a system is unique, not just in Europe, but in the world. I well remember when I went into my first and only dwelling in 1964,23 years ago. If the State was still receiving money from rates on property it would amount to about £700 million and the Minister for Finance would not have to indulge in making penal reductions of £40 million or £50 million in the health services.

There should be a fundamental review by the Government on the question of taxation of property and asset wealth generally because this is a fundamental defect in the system which the main political parties created. I was a Member of the House in 1977 when domestic rates were abolished and ever since, slowly but surely, the taxation system has gone askew on reform. My proposition merits further examination because the current yield from that area is a derisory £35 million per year. No other Minister for Finance in Europe would put up with that system. Some of my European colleagues were aghast at the rates system in this country. I had to explain, rather shamefacedly, that perhaps it was because we were so poor we could only afford to pay about £34 million per year. They laughed at me as they drove around the country and saw the exceptionally fine housing stock provided mostly by a massive subsidy transfer with virtually no payment of taxation.

I also wish to refer briefly to the retention tax and the VHI. When this resolution was introduced in the budget, I pointed out that the VHI were given an exemption. I recall when I was Minister for Health that I repeatedly raised the fact that if a system of taxation of this nature was brought in, inevitably, we would have to ensure that the Revenue Commissioners would get a schedule of payments made by the VHI to subscribers in respect of consultants. There should be a fundamental new section in the Finance Bill to ensure that such information is transferred. When I tried to get such information on a direct basis, as Minister for Health, I was told by the VHI that under the 1957 Act I had no entitlement to it. I relayed this back to the Government who set up an informal inter-departmental working group. The view of officials of the Department of Health was that the Minister for Finance should include a section in this year's Finance Bill to ensure that the VHI gave that information to the Revenue Commissioners. We are talking about an income of £30 million and even with a 35 per cent tax rate you are still talking about £8 million or £10 million. There is no reason not to bring in that reform because if nothing is done all hell will break loose. For example, an ordinary doctor will get his GMS payment cheque at the end of June and instead of the £3,000 he expects he will get £2,000 because of the 35 per cent clawback. Simultaneously, the VHI will be paying out cheques to subscribers. Admittedly, the subscriber need not pay the consultant. That is the problem but it can be dealt with.

Mr. MacSharry

Why did the Deputy not deal with it when he was Minister?

Mr. Desmond

The subscriber could go on a holiday with the cheque and indeed some of them do but the information is available on the computer of the VHI relating to the consultant. If the consultant has received £800 for a cardiac bypass or £300 for administering an anaesthetic that information is on the computer and it can be given to the Revenue Commissioners in confidence. The Revenue Commissioners can quite easily say to the consultant they have reason to believe he received £60,000 last year from the VHI on top of his common contract of £34,000 or £35,000 and that they intend to treat it as an income. If the consultant says he did not receive that amount he should be required to produce evidence to that effect. However, it would at least mean that the Revenue Commissioners could keep a tab on the consultants. It is manifestly wrong to impose a retention tax on GMS payments for GPs without bringing them into the system.

The State, for example, provides for VHI tax relief on medical insurance to the tune of £30 million. If you are in the VHI you get tax relief at the top rate. I am not anti-consultant; many of them work very hard and their life span, in terms of their skill, is relatively short. Most of them are dedicated public servants who work extremely hard and with great diligence for their public patients. They also have private practices and there is nothing wrong with people paying tax on their income from private practice. Many consultants fully declare their income and pay taxes but some do not. If we protest that we are reforming the financial system we must do so without selectivity or fear or favour for people in certain circumstances. That is necessary and fundamental to reform of the system. I urge the Minister to bring in an amendment on Committee Stage to ensure that that particular system is brought into operation as quickly as possible.

Another fundamental criticism which I have to make of the system is its ongoing failure — this brings up the question of the way in which the Government are administering the system — to match revenue records with social welfare records. It is a scandal that the administrative system has failed to bring about that match. Let me give one example which will shake the House. I remember pointing out to the previous Government around 20 Deireadh Fómhair——

Mr. MacSharry

When?

Mr. Desmond

——that there was a major gap between income tax records which cover 350,000 tax paying families and social welfare children's allowance records which cover 480,000 recipients. There is a black hole and it is a huge one. There has been a failure to match social welfare records with income tax records. That is not the fault of the administrators but of the politicians. Ministers for Finance chase three-legged rabbits of £2 million or £3 million public expenditure while the big stuff flies by right over their heads. They have no time to sit back as they have to do their constituency work in order to get themselves re-elected. All Ministers for Finance suffer incredible odium, no matter who they are. Therefore, they have to keep in touch with their constituencies in order to ensure that they get re-elected.

Mr. Lenihan

There are four years in which to do all of that.

Mr. Desmond

As we are aware income tax records are set up on the basis of a husband's RSI number whereas the social welfare and children's allowance file is set up on the basis of claims made by wives. Apparently, as of yet there is no common characteristic which permits the information on the children's allowance file to be associated with the corresponding information on the revenue file. One or two fine officials have now gone into the private sector and one former assistant secretary in the Department of Finance who transferred to the Department of Social Welfare was particularly preoccupied with this terrible gap.

A considerable amount of work was done in the Department of Social Welfare in matching child benefit records against the Department's central records file in order to pick up the RSI numbers. When some trial runs were carried out some alarming information was shown up as the Department of Finance well know. I urge the Minister to dig out the memoranda from which he will have little difficulty in seeing that a black economy has resulted from RSI numbers not being matched to children's allowances/child benefits. As a result, the taxing of short-term social welfare benefits, particularly disability benefit, which is a policy with which I concur, cannot be done. There has been one interdepartmental working group after another and I was involved in establishing one in December 1985 which reported in the same month. It was estimated that the optimum full year yield from the taxing of short term benefits would be about £70 million. Twenty seven million could be raised from unemployment benefit but that figure would now have decreased as a result of the cuts in pay-related benefit which are now in operation. If disability benefit was regarded as taxable income the best part of £40 million could be brought into the Exchequer.

A contributory old age pension or a retirement pension is taxable. A widow's pension or a widow's contributory pension is taxable. Deserted wife's benefit is taxable. An invalidity pension is taxable. The orphan's contributory allowance is taxable and, as we know, all of the others are means tested, yet disability benefit is not subject to tax. There are people who go on a roller coaster through the system. That is one anomaly which I desperately tried to take out of the system but I failed as you cannot match the revenue frame with the social welfare frame. I do not blame the Department of Social Welfare or the Revenue Commissioners, I blame us politicians as we have not knocked our heads together for eight or nine years or taken the system by the scruff of the neck.

I will go back to the fundamental thesis at this point to say that the Minister for Finance and the current Government structures cannot deliver. The Minister for Finance has to do everything. He screams at the Revenue Commissioners to keep up buoyancy and he is being pestered by the major companies who owe a stack in tax to see if he can do something about it. He is besieged by Deputies who want all kinds of routine supplications answered and as a result he falls between all of the stools. He has to attend every Government meeting and he has to represent the country abroad at meetings of the IMF, the World Bank and the devil knows what. He must attend these meetings because if he does not do so the Opposition will crucify him. Therefore, he ends up flying Concorde to and fro dragging the unfortunate secretary of his Department with him who writes his scripts on the way.

Mr. MacSharry

Invincible.

Mr. Desmond

In the end, the Minister for Finance falls disastrously between the stools. When it is suggested that a senior Government Minister should be responsible for revenue, which I have suggested previously, who might be called a Minister for Taxation or a Minister for Revenue Collection there is an aghast silence in the Department of Finance. There are cries of "our empire is going to be trembled. It is bad enough having one Minister but now we could have two and they would end up fighting with each other and we would have different divisions." The Revenue Commissioners lapsed back into sullen disapproval with chants of "here we go again". The memoranda and aide memoires started flying again in order to stop this lunatic proposal. They had one Minister for Finance whom they could control and if they kept him busy with memoranda eventually he would either go away or he would get so worked up that he would just disappear and not bother them too much. In any event, the secretary would eventually end up in the Central Bank.

That is what is happening. There is no innovation and no fundamental reform. Even the Taoiseach will get more and more edgy. I think he will start to shout one of these days. I will not blame him as he suffers from the generation problem which I and most politicians over fifty also suffer from. We think we can do everything ourselves. We cannot delegate as we have never been trained to do so. We are very bad administrators. The Taoiseach, like most Taoisigh, thinks he can do everything and in the end very little is done and at the end of four years in office all there is to show is three and a half tons of paper.

Therefore, I come back to the fundamental proposition that there should be a restructuring of Government which would involve those unfortunate altar boys, the Ministers of State. I was one of them and had an enchanting eight months with the then Minister for Finance, Deputy Bruton. It was an extraordinary experience and I enjoyed enormously working with him, even on the budget which blew up in our faces in this House.

However, it is a joke. We have 15 Ministers of State and by and large the most important thing is to make sure that a Minister of State never gets your Cabinet papers. If he did you would never know what might happen; he might tell somebody else in the party and if somebody else in the party found out what was really going on in Cabinet everybody would get terribly edgy. It is important to keep the Ministers of State six or seven miles out there and get them to do as many functions as possible.

Mr. MacSharry

It was in the papers every day for the last four and a half years.

Mr. Desmond

A Minister has to make sure that, if the Department's secretary is to see the Minister of State, he sees the Minister first. The Minister must ensure that Ministers of State do not exceed their mileage and cause a bit of a problem for the party or for the Government. Frankly, I would take three or four Ministers of State by the scruff of the neck and send them to the Revenue Commissioners to do a bit of work. Have we thought of a Minister of State specialising in VAT collection, for example? He should sit in the office where perhaps the union might feel he should not be. Get somebody else to specialise in capital taxation and get the money in. The politicians of the day crucify themselves on public expenditure questions and simultaneously are supplicants to the Revenue Commissioners. I well remember them saying to us that we were going to be short £180 million at the end of 1986. There is not a Minister for Finance who does not prepare a budget trends report around May or June and says "Tell them revenue will be short £200 million. We will never get any cuts unless you really lay it on." At the end of the year you are short £70 million or £80 million.

Mr. MacSharry

Pat yourselves on the back then.

Mr. Desmond

If Ministers of State were involved in the public expenditure decisions and, above all else, in revenue collection, we might have a better system of administration. I feel sorry for the Ministers of State; I felt sorry for myself as one. Apart from indulging in forays in respect of Knock Airport and a few such matters, I did not manage to become involved in the system. One's prospects of involvement are always better in a monolithic party. When people are reluctant to become involved, then the situation is quite different.

I make a plea direct to the Minister regarding the taxation system on the revenue side which has become quite unacceptable. It is absolutely imperative to reform the structure as a matter of the utmost urgency. In that respect, the use of the junior Ministers would be of enormous value. I say that because the Fifth Report from the Commission on Taxation found that the administration of taxation has virtually broken down. That report contained many recommendations for change, a number of which were implemented. There was very exceptional work done by the previous administration in bringing in reforms on tax avoidance and tax evasion. I stand over that valuable work. However, we still have a long way to go before the fundamental reforms of structural Government are introduced.

The Labour Party are not afraid to say to the Irish people that they must collect revenue from the citizenry at large for essential social welfare and public services. We have never been afraid to advance that fundamental thesis. That question is now before the Irish people in a very stark way, particularly in relation to the health services. I find it extraordinary that 4,500 to 5,000 people lost their jobs — about 1,200 in local government. There are 2,000 jobs gone in the non-filling of vacancies in the health services and about another 2,000 temporary staff have been declared redundant. Did anyone suggest a 1 per cent solidarity levy to protect those jobs? No; nobody cared. My trade union colleagues occupied themselves with the prospect of a private deal with the Taoiseach, possibly in Dundalk, for 3 per cent in 1988 of a public service pay increase but at what cost? Five thousand fellow public servants in the Civil Service, in the health boards, in the voluntary hospitals, in the local authorities lost their jobs. If it is your unemployment, that is your problem. If it is my salary, that is my privilege; that is my right. I take a fairly jaundiced view of what happened in that regard. I take a somewhat cynical view of some of the selectivity that has gone on in relation to some of the protests. It will be very interesting at the end of the day to see if we have this national accord, with such a manifest loving going on in certain circles at the moment. It will be very interesting to see if anything much will come from it.

I remember arguing in Government about a solidarity levy of 2 per cent. I said I was prepared to pay 2 per cent out of my public service income — and I had no other — in order to conserve £60 million, so that we would keep jobs. Admittedly, we would all have a slightly lower income but other people would have their jobs. We would contain the public service and would not have the present mayhem. That is a possibility but it requires courage, particularly on the part of my trade union colleagues in the public sector. It is not a question of advocating a cheap labour policy. I have often asked people if they want to preserve their pension and their permanent status and the job of the woman down the road who is a nurse and whose husband is unemployed with no prospects of employment. I have asked would they care a thought for her losing her job but I have often been met by a blank stare while another pint is ordered.

If somebody walked into the Dáil and suggested that to keep the essential public services going we add another 2p to the price of the pint and another 4p on the pack of cigarettes, I would have no objection. These three price increases could bring in between £28 million and £30 million in revenue. That would keep the public services going for another year until next year's budget so that we can keep the current budget deficit down to 6.9 per cent. I have no objection to paying these increases. If the Minister for Finance comes into the House and says he is going to increase health contributions from 1¼ per cent to 1½ per cent so that he can get another £11 million from that I am quite willing to pay this increase because we must pay for what we consume on the public services side.

I remember in 1981 when I put down six amendments to the Finance Bill all hell broke loose but I do not think he will lose his Finance Bill this year.

I met consultants, architects, engineers and quantity surveyors and I had it hot and heavy with them over the retention tax. I told them that if, as principals of their companies, they were paying their full updated PAYE on the full current PAYE schedule and A1 rates of PRSI and if they had tax clearance certificates, I would not mind saying to the Minister for Finance why not consider an exemption in respect of the professionals on the construction side. I would not be unduly worried about not giving an exemption to barristers, solicitors, GMS doctors, estate agents, auctioneers or the other professionals who have got together in the inter-professional group. There is a case to be made for an exemption in the case of the construction industry that has been hit very hard in the budget. The professionals in that industry are in a state of shock at present. If those professionals and their employees are on current PRSI and PAYE contributions and have tax clearance certificates perhaps they should get an exemption.

I do not know what this exemption would cost because I have not broken down the segments of it. Relatively speaking, it probably would not cost a great deal, perhaps £4 million, £5 million or £6 million. It is a point which the Minister might consider. Of course, he is faced with the problem that all the other professionals will descend on him like locusts demanding exemptions. If the Minister decides to bring in an alternative measure to match up the revenue I have no objection to this because this country cannot afford to have reliefs brought in all over the place and, at the same time, lose essential revenue.

I look forward to having an interesting discussion with the Minister on Committee Stage in relation to the points I have made. I regret delaying him excessively this morning but, as he and his colleagues know, it is the occupational disease of politicians, particularly when they are in Opposition and do not have prepared scripts never to stop talking. I hope I have put out a few pointers and highlighted the areas where we can get to grips with the appalling problem of restoring the public finances to some order, maintaining essential national confidence and, at the same time, maintaining vital public services which so many people would decimate for entirely the wrong reasons and which must be protected by all of us in this House.

Minister for Foreign Affairs (Mr. Lenihan)

I would like to pay tribute to Deputy Desmond for his very constructive and interesting contribution which was designed to be helpful. Many of the thoughts expressed by him will be translated into action by the Government and the Minister for Finance.

The matter of the efficient and equitable collection of taxation over a broad area which are two difficult criteria to square, is a fundamental aspect of Government policy. In relation to confidence, Deputy Desmond referred to the reasons why money came and went. Confidence is a psychological area that affects money both in terms of outflows, inflows and in particular in respect of investment. That confidence, that psychological factor which affects the flow of money, depends largely on political stability and on an appreciation on the part of investors in regard to the political stability of the Government and administration in charge.

It became evident during the last 18 months the previous Government were in power that there was not a steady hand on the tiller, to use a nautical phrase. That directly resulted in a perception on the part of investors that this country was not being run properly and was not a safe place for investment. This was the psychological spur to the outflows of money that occurred during the last 18 months of the Coalition Government. No one can deny that. This Government have sought to re-establish that confidence in our economy, to put the public finances into order and to restore the level of investment and to target it to rapidly increase the level of investment to deal with the fundamental underlying problem of unemployment.

The Finance Bill is designed to implement the budget and the purpose of the 1987 budget is to lay the foundations to ensure that national recovery can take place. The Government have clearly spelled out in their Programme for National Recovery that the first requirement is to secure the base of the economy by getting order and balance into the public finances, and then to undertake and implement a series of measures which will restore confidence and stimulate investment, economic growth and employment as a consequence. The objective of getting order and balance into the public finances is vital to national economic recovery.

The absence in recent years of effective policies makes our task more urgent now because of the size of the increase in the number of unemployed which has become a serious social evil and the doubling of the size of the national debt which occurred during this period. This Government have clearly seen and understood the implications of the situation. We are prepared to confront this and are determined to see that Estimates for every area of public expenditure are examined rigorously and in detail and cut back to an irreducible minimum. Public expenditure last year was 56.2 per cent of GNP. As a result of the present budget, it will be reduced to 55 per cent of GNP in 1987 and this will be a good and proper start to a process which we mean to continue.

This process will lead to a restoration of confidence in the economy by both domestic and foreign investors. It will lead to the maintenance of stability for our currency, to the reversal of the outward flow of money and to the further reduction of interest rates from their present high levels. It is essential in order to stimulate the investment process. There are already clear signs in that the process is starting to work to good effect. When it is fully under way it will allow growth and development to take place on a solid basis in contrast to the stark and unacceptable alternative of increasing our present burdens and thus jeopardising our children's future.

The restoration of confidence will in addition allow us to capitalise on our present low inflation rate, to maintain the competitiveness of our exports and build on the benefits accruing from the current reduction in the external deficit. Deputies will recall that our trade balance has been moving into increasing surplus. Facing now as we are into the completion of the internal market in the European Community by 1992, with all the potential that that prospect holds for us, it is all the more important that the state of our economy allows us to take full benefit from it.

We must recognise the importance of the export sector to national recovery. Exports already provide nearly 50p out of every pound of our GDP — one of the highest ratios in the developed world. Two out of every three Irish jobs are dependent, to one degree or another, on exports. Since 1973, 80,000 jobs have been created here by foreign investment in manufacturing industry.

To underline the significance of exports to the European Community I would like to compare our trade statistics with other EC countries for the first four months of this year and last year. Last year in the period January to April we imported £2 billion worth of goods; this year the amount of imports was reduced by £100 million to £1.9 billion. In contrast, our exports to the European Community from January to April 1986 were worth £2.1 billion whereas the figures for the comparable period in 1987 have moved forward to £2.3 billion, thus increasing even more our surplus.

This is a most welcome trend and I hope it will aid in demonstrating not only the potential but the actual existence of growth when the underlying mechanisms are favourable and in good working order. In a climate where despondency is reluctant to release its hold and where many people refuse to believe that improvements can and will take place, I believe it is important to note this particular positive element.

The Programme for National Recovery does not stop at outlining the basic necessary framework. It goes on to demonstrate and enumerate the areas where there is scope for growth and development. I would like to dwell for a moment on one area which has important beneficial side effects, through constructive linkage with several of the other fields; I am referring to the services area.

Services have taken on growing importance in the economy in recent years. They now employ twice as many people as are employed in manufacturing industry. This is the sign of a growing sophisticated society. Their potential in the export area is becoming increasingly evident. A number of Irish semi-State bodies and companies have already established a presence abroad, in both developed and developing countries, and are selling expertise in a variety of areas, including management, public utilities, training for technicians and skilled workers, health and environmental services, and consultancies in engineering and physical development.

The export of these services is clearly beneficial in terms of the return to our economy, whether this be direct from the country concerned or from an international agency such as the European Development Fund or the World Bank. Irish companies and semi-State bodies are able to gain a foothold in foreign markets and also to build up a reputation with the international agencies which will put them in a position to compete for future contracts. The raw material — if I may describe it as such — which we put into this area is what we have in greatest abundance — our skilled youth and manpower. The provisions of the Bill are calculated to encourage Irish people to become active in this area by enabling them to remit their income home under favourable conditions. This is a unique provision in the Finance Bill.

An area of service which is of particular interest is tourism. We have suffered both as a result of two bad summers and of events on the world scene, beyond our control, which affected traditional tourist flows to Europe. Even though our exports of manufactured goods exceeded our imports in value this year and last year, the balance of payments in both years has been unfavourable, to a considerable extent because spending by Irish people on holidays abroad exceeded tourism income here. This is a situation which gives cause for concern but is also one which is within our power to rectify, through an active campaign aimed at improving our tourist attractions and amenities, making ourselves competitive in terms of price and promoting Ireland more effectively as a tourist destination. The provisions of the Finance Bill and the guidelines laid down in the Programme for National Recovery address the need to improve our record of recent years in tourism, put in place incentives which will enable people in the tourism industry to offer attractive conditions and facilities and exploit the undoubted potential which Ireland has in this regard. The recent package in regard to air and sea fares is part of this overall package to further develop Ireland as an attractive tourist destination for the current season and for future seasons, because it is in the area of reducing costs into this country that we can get a more effective return.

The establishment of a Financial Services Centre in Dublin is already well under way. The potential which we have for an enterprise of this kind is clear — our young, highly educated, computer-literate work force with a degree and range of skills which compare favourably with those of people in established centres of internationally traded financial services. Utilising the basic brains and skills that are so predominant in a young population to a higher degree than in any other western European area, although it poses problems and challenges, also gives us a decided advantage in an area such as this. Our location in proximity to major European centres and between the financial markets of the Far East and the US will also work to our advantage. It is the Government's policy to provide the best available facilities in terms of infrastructure, accommodation and communications for further development in this area. We already have a well developed computer and software sector. Living standards, amenities and accommodation costs make Dublin attractive by comparison with other European locations. Finally, the incentives provided for in the Bill will constitute a persuasive argument for multinational banks and corporations active in the financial services area to locate here as their base of operations.

I indicated earlier the Government's determination to confront the problem of the public finances and to control the costs of the public sector. Most public attention has focused on the Government's attempts to reduce expenditure in the health sector but to do so is to miss the essential point. This is something which is taking place in every possible area of the public finances. It must be re-emphasised that the record level of services provided through the public sector was based on unsustainable levels of borrowing which were snowballing out of control. That arose out of the very political nature of the last Government, where there was a constant tug of war between the two parties in Government in continual conflict over expenditure and cutting expenditure. That constant tug-of-war during a number of years eventually spelled out in very great detail why the last Government failed to secure re-election, because the inherent conflict gave rise to a no policy in terms of collective responsibility. That lack of firmness of purpose was appreciated and seen by the electorate, and the main reason the electorate decided in the last election to reject the outgoing Government was precisely the absence of any sense of cohesion or collective will on the part of that Government to deal basically with the financial management of the country.

The Government when they came in were faced with two options: either to introduce remedial action which, while regrettable in a more ideal context, is absolutely indispensable in the present reality, or to ignore the problem which had been ignored for some years because of the inherent instability or tug-of-war between the two parties constituting the last Government. To take the latter course of ignoring the problem would clearly involve more painful and harmful consequences in the long run, harmful in both the national sense and the personal sense of doing untold hardship not just for one year but for a number of years and possibly for a generation.

Our approach to the problem will be right across the full spectrum of the public service, and that has been our approach in introducing the budget and this Finance Bill and will be our approach to the management of the public finances and the administration of the country in the years ahead. Each area of activity will be scrutinised to see if its continuation is necessary. Where it is not, the required action will be taken on a collective basis by Ministers who participate in collective Government decisions. Overlaps or duplications will be abolished and necessary redeployment will be implemented so that the final result will be a more rational and efficient use of our limited resources.

I mention by way of illustration that in so far as my Department are concerned during the past four years staff numbers have been cut by 10 per cent at headquarters, and this is in the context of the overall budget for Foreign Affairs of less than half of 1 per cent of the total expenditure of Government Departments. Other areas where further cuts may be made are being examined with a view to planning the necessary expenditure cuts for 1988 and 1989. Every Government Department are at present working along those lines.

I must emphasise the Government's awareness of the extent to which control of health expenditure affects every member of our society because of the escalating bill, overruns and overdrafts involved in expenditure by the various regional authorities. The Government are very aware of the special concerns that exist in relation to the very young and the elderly and are determined to make every effort to shield the more vulnerable groups in our society to the maximum extent possible within our framework of having realistic expenditure in regard to health, hospital and medical services generally.

Irish health services have seen a major expansion and modernisation since 1970. Total numbers employed in the health services have increased by 10,000 since 1976. I need hardly remind Deputies of how favourably Irish expenditure on the health services sector compares with a number of European countries whose basic financial capacity to provide such services far exceeds our own capacity in this respect. I must point out that even when present Government targets and reductions of expenditure are achieved in this area, the percentage of GNP which will continue to be spent on health will still be very significant, for instance larger than amounts spent by some of our bigger and wealthier neighbours. Indeed, even in spite of the painful adjustments we are making in the health services this year, the Government are increasing expenditure on health from £1.298 billion in 1986 to £1.315 billion in 1987. That is allowing for the adjustments in regard to what have become known euphemistically as cuts. Making allowance for that, the expenditure on health has increased — I repeat the figures — from £1.298 billion in 1986 to £1.315 billion in 1987.

I am aware of the concern that has been expressed about the adjustments which have been found necessary in various areas funded by public expenditure. I can assure Deputies that no Government like cutting back on services provided for the public. Obviously, we are doing this because it has to be done. We feel obliged to do so now because we accept the reality of the current economic and financial situation. We realise that the exigencies of that economic and financial situation which we face are such that we can deal with the problem only by restoring balance in the public finances and safeguarding our prospects for growth in future. By restoring balance in the public finances one can proceed to where there will be inflows of capital instead of outflows and then to where interest rates will fall and where there will be stimulation of domestic and foreign investment here.

I have referred to the contribution which increased exports of goods and services can make to the process of recovery and growth. Indeed, this country is and must be an international trading country. Any future investment designed to deal with our unemployment problem must be in export-led industry because there is no scope within our small market for the intensification of investment based on the home market. We have long passed that point. Therefore, growth must be export-led, and that emphasises the importance of our continuing involvement within the EC without which such growth would not be possible, and of providing Ireland as a location for the increased investment that can participate in a market of 320 million people that will be a free internal market totally without restriction or prohibition by 1992.

I find it incredible that anyone would gainsay or deny the fundamental fact that as an exporting country, we are dependent on exports and on employment for growth. We have to be involved in a Community of that kind, of which we have been a member now for 15 years. Within that Community we can publicise the advantages of Ireland as a location, particularly to third countries, to utilise Ireland as an operational base for manufacturing services to be provided within that expanding Community in the years ahead. It is on the basis of the exports of goods and services, provided by capital from home and abroad and based on a solid foundation of confidence that we must make the progress so urgently required in the Ireland of today. The two dimensions, balance in public finances and promotion of enterprise, are not contradictory but complementary facets of a single process which, if carried through with determination, will restore balance and confidence in the economy and secure the future for all our people, in particular that of the new generation we have educated and trained here — through an excellent system of education and training — providing the necessary outlets for them in the Ireland of the future.

Tomás Mac Giolla

The Finance Bill we are debating is significant in what it does not contain. For the first time in many years the Minister for Finance has come to the House with a Finance Bill containing no concession whatsoever for the PAYE sector. There is not so much even as a token nod in the direction of a fair and equitable tax system. It should be remembered that the main purpose of a Finance Bill is to set out the taxation strategy and system. As in so many other areas since Fianna Fáil came into Government, their pre-election pledges on taxation have been cast aside and the electorate treated with some contempt because a fair and equitable tax system constituted one of the fundamental parts of their manifesto. Their manifesto described a fair and equitable tax system as of paramount importance but that will become an even more distant prospect if this Bill is passed.

The Taoiseach speaking in the budget debate of 5 February 1986 said that the then existing levels of taxation, particularly personal taxation were in very large measure responsible for the prevailing mood of frustration, low morale and lack of confidence. The Bill before us will increase the level of personal taxation — income tax on the PAYE sector — by approximately £300 million. Presumably the Taoiseach and the Minister for Finance accept that this will increase the prevailing mood of frustration, low morale and lack of confidence. That is precisely what it is doing.

This Finance Bill probably constitutes the greatest setback to the campaign for tax equity since the famous tax marches of 1979 and 1980 which, surprisingly, were referred to by Deputy McDowell of the PDs, when three quarters of a million people came on the streets throughout the country on a certain day early in 1980 demanding justice in the tax area. From all those tax marches, all the wrath about the inequitable taxation system at that time, the only real achievement was the establishment of the Commission on Taxation which produced five separate reports over the following five or six years. Those reports contained various recommendations, many of which we would agree with and others with which we would not agree. Nevertheless they have been set out for Government. I do not know whether successive Ministers for Finance have even read them. Certainly the political will to deal with the problem of inequity in the taxation system did not exist in the lifetime of the last Government despite Deputy Desmond's references to the problems. I do not know whether he raised all those issues at Cabinet level in the previous Government but certainly they were not dealt with.

This, the first Finance Bill of this Government, indicates that they will not deal with the political problems, the real problems arising for Government in implementing a fair and equitable tax system; in other words, hit the people with the money, hit them where it hurts. Successive Governments have refused to do that. Since the seventies successive Governments have misled the PAYE sector in their talk of their commitment to genuine tax reform. This Government are no exception. In the course of the general election, the subsequent budget and Finance Bill, this Government have confirmed, in a painful way, to workers that parties of the right will not deliver a fair deal for the majority of our taxpayers. There is nothing whatsoever for the PAYE sector in this Finance Bill. Section after section contains concessions of a major or minor nature to farmers, businessmen, traders and industrialists. There is no concession whatsoever to workers and their families who pay the bulk of taxation. A reading of this Bill would lead one to believe there was nothing fundamentally wrong with our taxation system, that all that was required was a minor adjustment here or there, a slight shift in this or that provision. Of course the reality is very different.

In 1979 when the tax marches to which I referred took place PAYE workers paid 87 per cent of all income tax, the balance of 13 per cent being paid by the self-employed and farmers. That was very bad and people marched in their hundreds of thousands because of that inequity. Yet, in 1986, the proportion was much worse. Last year the PAYE sector paid 90.3 per cent of all income tax, with 9.7 per cent only of all income tax being paid by the self-employed and farmers, a much worse situation than had obtained when those tax marches took place in 1979 and 1980. This year the burden on the PAYE sector will be even greater because the provisions of this Finance Bill do not tackle the inequitous position of the PAYE sector. This year they will pay an extra £300 million because of the refusal to ensure indexation in the provisions of this Bill. On average the PAYE worker pays 50 per cent more tax than the self-employed, three times more than the large farmer because they are the large farmers only who have been assessed and taxed. It should be remembered that the amount the large farmers pay constitutes one-third only that of the average PAYE worker. Rates on agricultural land raised £36 million in 1979. In that year, when all those tax marches took place, farmers paid £36 million in rates and £16 million in income tax, making a total of £52 million. In 1986 farmers paid only £33 million altogether in income tax and they paid no rates. The total tax collected from farmers has dropped from £52 million in 1979 to £33 million in 1986. Allowing for inflation the difference would seem to be far greater.

It is very difficult to know the actual number of farmers in the country. There are figures for landholders and so on but there are at least 130,000 farmers. Some figures are as high as 150,000, 160,000 or 180,000 with land holdings of three acres and five acres. If we take the figure of 130,000, only 17,500 of those paid any tax in 1984-85. In that year 80,000 farmers were not even asked to fill in a tax form to find out whether their incomes were taxable. The IFA cry about the Government asking small farmers to pay tax but nobody is asking them to do so. They were not even sent a tax form. It is the big farmers in the IFA who are using the small boys as their argument for not paying any taxes.

The position of the Government in bowing to the needs of the IFA is absolutely reprehensible. They said they intend to abolish land tax and that is riling PAYE workers even more. They see that their share of tax is being increased but land tax, which they thought was beginning to tackle the problem of getting a fair share of tax from farmers, is about to be abolished. The Workers' Party always believed that the land tax would not only help to ensure a fairer return from the farming sector but would also encourage the more efficient use of agricultural land which is our greatest natural resource. Deputy Barry Desmond drew attention to the fact that we are unique in the world in not having property taxes on houses. There is no property tax on land either. A person can own as much land as he likes and will not have to pay tax on it.

The Farm Tax Bill, 1985, was a weak measure and its shortcomings were compounded by the failure of the Coalition Government to ensure that farm holdings were properly assessed for liability. As a result, the return from the land tax was even smaller than it should have been. Deputy Desmond said today that the Farm Tax Bill which the Coalition introduced should have brought in £30 million this year. I would be surprised, if the Coalition were still in power, if they intended to raise £30 million from the land tax. That figure would be seen as a reasonable sum. As farmers paid £36 million in rates in 1979 it would not be unreasonable to take £30 million from them in land tax nearly ten years later.

To abolish the land tax would be a great step backwards. It would increase urban-rural confrontation particularly as there seems to be no effort as yet to put an income tax system in place which would ensure that all farmers pay their fair share. There were many indications that the land tax was acceptable to many farmers. A number of them came out against the IFA and said, "Yes, give us a land tax." Fianna Fáil capitulated to the big farmers at the top who do not want to pay any taxes whatsoever. Not alone will they not pay land tax or income tax but they will not pay health contributions and they will demand and get their health service even though they do not pay any taxes for it. The poor suckers pay the tax to provide all the facilities and services. The big farmers who can well afford it want to avail of everything and to pay nothing. They want to make sure that all their family get third level education as is their right. The family of the ordinary worker will never receive third level education and many of them will not even get second level education. That is the next area that will be hit, as we will see in September. At present the health cuts are taking the headlines but when people in the autumn discover what is happening in schools, education will then take the headlines. Free education is now a thing of the past and even primary education is not free anymore.

The position in relation to the other sectors is just as bad. Business tax reliefs cost more than £800 million in 1985-86. The real yield from capital tax is down once again and has been going down consistently since 1974. The black economy has increased massively since 1979. It is now up to £1,500 million per annum which would result in a tax loss of about £600 million per annum to the Exchequer. Over £700 million in collectable taxes is legally due. All the processes have been gone through but this tax is still unpaid.

I was very disappointed with the Minister for Finance when he said in his speech, when referring to tax evasion: "There is considerable misunderstanding about the true situation and some of the figures mentioned about arrears are wild exaggerations". He said there is considerable misunderstanding about the true situation but why did he not tell us what the true situation is, as he sees it? What figures are wild exaggerations? It is very difficult to get figures. The Comptroller and Auditor General who has reviewed the whole situation has possibly seen that hundreds of millions of pounds have not yet been properly assessed but would have been assessed if sufficient staff was available. He gave the figure of £700 million which is legally due and is collectable but as yet it has not been paid even though all the processes have been gone through. Of that £700 million, £140 million is made up of PAYE and PRSI which is taken from workers by firms, held by them and not paid over to the Government. That is highway robbery. It is pure, unadulterated theft. These firms have stolen the money from the Exchequer. They take the money from the workers and do not hand it over to the Government but yet they are not prosecuted, they are not seen as criminals, they are not put in jail and the money is not collected from them. The Minister then says that the whole matter is exaggerated and it is a gross misrepresentation to suggest that problems can be solved and the tax burden reduced significantly if all the arrears are duly collected.

Indeed, it might be a gross misrepresentation to say that but it is not a gross misrepresentation to say if these taxes were collected the Minister for Health would not have the problems which he now has. If one-seventh of those taxes, £100 million of the £700 million, was collected the Minister for Health would not have to close hospitals. If another one-seventh was collected the Minister for Education would not have any problems. If the Minister for Finance is doing his job he could be of great assistance to these other ministries. His attitude yesterday was most disappointing to say the least. When talking about tax collection, he said "... it must be acknowledged that uncollected tax is a serious problem and any tax reform package must incorporate measures to improve collection. Significant progress has been made in this respect in recent years." That is the reverse of the truth. We have moved backwards in recent years. Significant progress has not been made. I do not know where the Minister got this information or how he could make a statement that "significant progress has been made in this respect in recent years" when all the evidence shows that things are getting worse.

A few weeks ago we discovered that VAT bills outstanding for more than three years were being written off. The Minister did not say if that directive from the top had been quashed and it is time he told us if it was. He should assure us that VAT bills of three years or more, or ten years or more for that matter, will be pursued because if a PAYE worker owes tax, he will be pursued by the Revenue Commissioners who can go back as far as his first day at work if they wish. How the Minister can say that progress is being made while at the same time, VAT bills outstanding for three years or more are not being collected is unbelievable.

There has been no real attempt to stamp out tax evasion because the number working in the Revenue Commissioners is insufficient to deal with the problem which is getting worse by the day. Anti evasion legislation was introduced but it was not used. The tax collection system is in a shambles and many people are saying this daily. Ninety-five per cent of all returns from the self-employed are accepted without question under a Revenue Commissioners pilot scheme. The tax commission estimated that the chances of being caught evading taxes were 100 to 1; in other words, the chances of being caught today are slimmer than ever before, in spite of the Minister saying great progress has been made and even on those rare occasions when people are brought to court, the fines imposed are often derisory. The average fine in 1984 was £424. Even then, penalties were imposed in a little over a quarter of the cases. In other words, no fines were imposed on three-quarters of the cases brought to court and in those cases where a fine was imposed, the average was £424. That is not tackling tax evasion. The only cases brought to court have been lying there for years but in present circumstances a case has to be really bad before it is brought to court. Even then, the odds are three to one that the person will get off without a fine.

The Finance Bill before us fails to address these issues and should, therefore, be rejected by the Dáil. The only really new element in this year's Finance Bill is the provision in Chapter III which provides for the deduction at source of tax at a rate of 35 per cent for payments for professional services made to individuals and companies mainly in relation to services provided for Government and other public bodies. In the debate on the financial resolutions on budget day, The Workers' Party speakers welcomed the principle of the move pointing out that it was not a new tax but simply a method of bringing forward the collection of tax which would be due anyway.

I am sure most Deputies, like ourselves, have been the subject of some very intensive and professional lobbying from groups and individuals on the subject of the withholding tax. I would like to read from one of these letters which shows that many of these groups accept the principle and purpose of this tax. This letter points out that it appeared the intention of the proposed legislation was to effectively deduct tax at source from self-employed professionals, mainly doctors, barristers, self-employed engineers and architects, whose tax settlement is invariably in arrears of the income received. They went on to say that in this respect the intention was not only understandable but it was indeed to be commended. In other words, it is accepted and understood that the principle and purpose of this tax is correct. This letter went on to say that the situation in consulting engineering companies was fundamentally different — I do not understand how it is fundamentally different but they say it is — and that it will create great problems. They accept the principle of the tax but they end by stressing they have no objection to the principle of introducing tax equity in relation to the self-employed professionals. There is no reason why they should not pay as they earn like the PAYE worker. We accept that but we also accept that the manner of its implementation may in some cases produce difficulties and problems for those affected. In particular we urge the Minister to ensure that the manner of its implementation does not threaten jobs in small firms which are particularly dependent on fees from public bodies.

It has to be said that the PAYE system produces great difficulties and hardship for workers and their families but we do not have any professional groups lobbying on their behalf. It also has to be said that there are fairly generous provisions in this Bill for interim refunds to alleviate hardship in cases where a substantial proportion of the fees in question is paid out to meet the expenses of the business or practice involved. There are on the other hand, no hardship clauses for people in the PAYE sector. People have to pay out week after week, month after month, irrespective of whether it suits them or if it creates financial difficulties for them. They never get this money into their hands no matter what their difficulties or hardships. The money is deducted at source. It is only at the end of the year when their income is assessed that a refund of tax may be due to them. As I said, there is no hardship clause for the PAYE worker but there is a hardship clause for the withholding tax.

An additional point is that this withholding tax will apply only to fees paid from the public purse and does not cover fees from private work which would normally constitute a major part of the income of any practice or group. The system which allows the self-employed and businesses to pay their tax, when they choose to pay it at all, on a year late basis — that is, paying tax in 1987 on their earnings in 1986 — gives them a great advantage over the PAYE sector who must pay each week or each month. Chapter III of the Finance Bill makes some small progress towards dealing with this anomaly. We urge the Government to resist the pressure being exerted on this issue and to stand firm on the principle of the tax ensuring that genuine difficulties and anomalies are ironed out.

If the professional groups and practices who are directly affected by this innovation are genuinely concerned about its impact, there is an obligation on them to come up with firm suggestions or proposals for a tax system which would ensure that they pay a fair share of tax and that they do not enjoy any advantages over the PAYE sector. I have yet to hear anyone come up with any such ideas. In some respects it is like the IFA who insist, of course, that they are not against farmers paying tax or paying their fair share of tax, but they simply refuse to accept any of the suggested methods for paying them.

Has anybody ever heard them propose a fair tax system? They have not. They oppose anything that is suggested, say they will not pay it and the Government write if off or, as one Government did, refund anything that has been paid. The Government then think of something new, operate it for a few months and abolish it because the farmers announce that they will not pay it. The country would be in a bad state if the PAYE sector announced that they would not pay their taxes or if they threatened to take the issue to court to test its constitutionality. However, other taxes can be declared unconstitutional.

In the course of his contribution Deputy McDowell of the PDs tried to imply that the withholding tax was unconstitutional. He seemed to indicate that if the Government passed that tax they would try to have it declared unconstitutional. The attitude of the PDs to taxation is absolutely hypocritical. At the outset of his contribution Deputy McDowell referred to the need for tax reform, recalled the tax marches and the reports of the Commission on Taxation. He highlighted the need for a fair and equitable tax system but when an effort is made to spread the burden by the introduction of another tax he calls for its abolition. The PDs do not agree with the land tax and have called for its abolition. They do not want the farmers, the self-employed to pay tax but how do they expect the burden on the PAYE sector to be reduced? They are trying to have it both ways.

We cannot have a fair and equitable tax system, a reduction in the burden on the PAYE sector, unless we increase other taxes. Tax reform and equity is all about increasing the tax on property, on wealth and on capital and reducing the burden on the PAYE sector. Otherwise it will be necessary to adopt policies similar to those being pursued by the Minister for Health. If we do not have tax reform and if the Government are not prepared to pursue those who owe taxes to the State — the Minister for Finance has indicated that he is not prepared to do that — all Ministers must effect cuts. We will have hospital closures, the postponement of operations and we will be playing Russian roulette with people's lives. That is happening at present because the Minister for Finance will not collect the taxes that are due. He will not collect the health contributions that down the years many people refused to pay.

The Government refuse to tax farmers, to impose a tax on property or on capital at the same rate that applies in other European countries. They are putting lives at risk by cutting health services and propose to cut services in the field of education. Those cuts will be felt next September. The collection of outstanding taxes, and the introduction of a system that will ensure that everybody pays their fair share of taxes, are matters that should be dealt with in a Finance Bill but they are not in the Bill before us.

Deputy Desmond dealt at length with the question of tax on capital, wealth and property. I hope he pushed that line very hard when in Cabinet. However, I did not hear anything from the last Government about taxes on capital, on wealth or on property. If he was making such proposals at Cabinet he did not get anywhere with them. In my view the provisions in the Bill will fail and that is why The Workers' Party have tabled the following amendment:

1. To delete all words after "That" and substitute the following:

"Dáil Éireann, noting that the Finance Bill, 1987,

(1) fails to honour the pre-election commitment given by Fianna Fáil to move towards the establishment of a fair and equitable tax system;

(2) fails to index tax allowances or bands, with the result that almost every PAYE taxpayer in the country will pay more tax;

(3) fails to introduce any significant measure to deal with tax evasion or avoidance or to ensure that unpaid outstanding taxes are collected;

(4) will result in an increase in the income tax of more than £300 million this year, most of which will be paid by the PAYE sector;

there declines to give a second reading to the Bill."

I was amazed to hear Deputy Desmond putting the blame for the loss of 4,500 jobs in the Civil Service on permanent civil servants. He seemed to indicate that the permanent staff should have paid a levy to keep those people employed or at least forego any increase, even the 3 per cent increase which was not sufficient to keep pace with inflation, to keep those unfortunate people in work. I do not know why workers in one sector should be asked to carry the burden, why they should be asked to pay special taxes or levies to keep others at work when they are aware that millions of pounds due in taxes is not collected. Civil servants are aware of those who are not pursued and can see that people are ripping off the Government. It is wrong to suggest that those who never missed paying one penny in tax should take a cut in pay or pay an additional levy to prevent others losing their jobs. That was an unbelievable suggestion.

I have confined my remarks to the area of taxation because that is the main purpose of a Finance Bill but it is no harm to refer to the strategy of the Government in regard to job creation. All the evidence is that unemployment is increasing rapidly and will reach the 300,000 mark very soon. In the recent election job creation was a big issue but the Government have not produced a plan to tackle that problem. They have not put any money aside for that purpose or produced any proposal to broaden the tax base to raise more money.

Mr. Dempsey

As a new Deputy it strikes me as a little strange to be discussing the Finance Bill half way through the year and to have a budget presented when a quarter of the financial year has gone. It is a strange way of doing business and underlines why we are in our current economic mess. Having said that, I should like to commend the Minister for Finance and the Cabinet on their speedy and decisive action in drafting the budget in the short three weeks they had. I also commend them for the imaginative action they took despite the time constraints and other constraints imposed on them by a reckless spending spree indulged in by the Fine Gael Party during the four weeks of the election campaign.

It is also strange that Ministers in the outgoing Government entered into contracts and committed huge sums of public money without any reference to this House during that period. Many examples of this were given over the last six to eight weeks but probably the worst was in the primary school building programme where the outgoing Minister signed contracts in January worth approximately £30 million, just prior to the general election.

Mr. Yates

It was an excellent move.

Mr. Dempsey

Another example on a smaller scale was seen in relation to the amenity grants allocated in the run up to the election. The schemes under which these grants were allocated were originally for severely disadvantaged areas but I can only deduce that the Government redefined a severely disadvantaged area during the period of the general election as one where Fine Gael were in danger of losing a seat.

It is remarkable that public money could be used and allocated in such a fashion prior to a budget or without approval from this House. I wonder if this type of action is legal and, if so, I am not surprised that the economy is in its present state. If this action is legal the Minister for Finance should ensure that the law is tightened in this regard. When one considers that all these things took place under a party which in 1981 talked about restoring order to the public finances by — I will quote from their documents —"the publication in September each year of the budget for the following year and its discussion by the Dáil over the following two or three months", it underlines the necessity for some action to be taken in this area so that it will not happen again under any Government.

In relation to the budget and the Finance Bill, the Opposition spokesman, Deputy Noonan, talked about previous targets set by Fianna Fáil Governments not being met and he attempted to give Members a history lesson about what Fianna Fáil did when in Government. If the Deputy wants to talk about targets not being met or commitments not being honoured he need only look at his own party's record in Government over the past four years. In 1984, two years into their term of office, they produced a document called Building on Reality which set out a programme of action for the period between 1985-87. That programme was launched with a huge fanfare of publicity, targets were set, policies were expounded and action was promised. Some of the targets mentioned in the document were that unemployment would be reduced to 210,000 by 1987 but the figure now is much higher than that. Employment was to be increased to 1.134 million but it decreased to 1.074 million. Taxation was to be at 36.5 per cent of GNP but it ended up at about 37 per cent of GNP. The current budget deficit which, according to the Joint Programme for Government, was originally to be wiped out by 1987 was then revised to a figure of 5 per cent of GNP for 1987 and ended up at approximately 8.5 per cent of GNP. Exchequer borrowing was to be 9.75 per cent but ended up at 13.6 per cent.

Yesterday Deputy Noonan repeated his opening remarks in the budget as he tried to claim credit for the policies pursued by this Government. He talked again of Fianna Fáil stealing Fine Gael policies and doing U-turns but, in the next breath, he criticised Fianna Fáil for not having any policies. I do not accept his contention about stealing Fine Gael policies but if Deputy Noonan believes that, I fail to see how he can now declare that we do not have any policies. Fianna Fáil have policies and, more importantly, the courage to implement them.

It would be wrong in my initial contribution in the House to be negative in my approach to the Bill or to the Opposition Members who have already spoken. However, certain things must be said. It is important to put the Bill firmly in context and to reiterate the circumstances in which it has been put to the House. It is for this reason I intend to deal initially with the macro-economic aspects of the budget and the Finance Bill in general and then to deal with some of the positive and imaginative aspects.

It is no secret that the major problem facing the Government on taking office was how to stimulate growth and confidence in the economy because, as we pointed out throughout the election campaign, the only realistic hope of countering the serious financial difficulties facing us was to achieve real economic growth. The challenge was not new, it faced our predecessors and previous Governments. However, in facing this challenge, we were presented with a unique set of constraining parameters within which we had to operate if the best interests of the country were to be served. For example, as I outlined, we inherited an unacceptably high level of direct public expenditure, a staggering millstone of foreign debt which doubled in the four years of the last Government, the lowest levels of private investment in living memory and an enormous drain of funds to foreign banks and money markets. To all this must be added the endemic structural problems of high unemployment, unprecedented numbers depending on social welfare payments, an unacceptable burden on taxpayers in order to support the unbalanced dependency ratio and the unhelpful world market forces which impact in times of depression on a small, open economy like ours. There were — and are — no easy solutions and no part answers. Hard choices must be made. We need no further proof than the last four years that increased Government spending and high levels of borrowing provide no solution, they only make the problems more difficult.

Restoring order to the public finances had to be the foundation for tackling the problems. Unless we do that our resources will be wasted in debt service to pay for current costs. Interest rates will be too high and will act as a disincentive to further investment. This is why the amendments tabled by The Workers' Party and the Progressive Democrats have more to do with political posturing than with any real analysis of the situation and possible solutions to it. Their approach to this Finance Bill is akin to a mechanic trying to repair the brakes of a car as it crashes headlong down the hill. Obviously, the real problems must be faced first, not just the symptoms of those problems. We must control public expenditure, we must try to achieve some real economic growth and we have to create a climate for business investment not by means of handouts but by rationalising our incentives and supports.

As has been said by every other speaker so far in this debate, we must also reform our tax system to make it fairer to all and above all to widen the tax base. In addition, we must take strong social measures to remove inequalities in our society. We had to ensure that the hard choices were made in such a way as to achieve an equitable balance between financial rectitude, protecting the weaker sections of our community, which unfortunately have grown numerically stronger in recent years, and stimulating growth. We had to do so by providing a framework within which the defeated private sector could once more acquire the confidence and the opportunity to make a positive contribution to growth.

We have started on that particular road with the provisions of this Finance Bill. The road we have embarked upon is more difficult but not unlike that travelled by Seán Lemass with his First Programme for Economic Expansion. The reward for success now is as great as it was at that time but the price of failure now, I fear, is greater. We are, in effect, at probably the most important crossroads we have faced. The task of leading us down the right road has proved to be too much for others. This budget is the first step in providing strong leadership down the right road. The signs are already there that the economic strategy chosen is the correct one. We have taken a firm and businesslike approach to the problems facing us. Our strategy is based on identifying and targeting areas of growth. We have concentrated on stimulating market effectiveness in a positive manner and on getting on with the task of selling the country and its strengths on the international front.

We have picked up those areas where the pursuit of weak policies has eroded our capacity to make the best use of the resources and talents at our disposal. There is already a marked and noticeable increase in economic activity and a sense of confidence is returning and hope is beginning to replace the defeatism we had all become too familiar with. This budget proposes to reduce the current budget deficit from 8.5 per cent to 6.9 per cent of GNP. That is an important step in correcting the imbalances in the public finances. However, it should be realised that it still implies that the Government's current expenditure will exceed current income by over 6.9 per cent of GNP. As I say, it is a courageous first attempt to reduce the deficit. Much will now depend on interest rates and as Deputy Noonan mentioned in his contribution yesterday, it would be a mistake to assume that it would be beneficial in the short term if interest rates come down. We have to look for a long term reduction in interest rates.

What are the signs which show that we can face the difficulties ahead with some confidence? Firstly, we can look at the downward trend in interest rates which I have referred to as a very positive sign. We received much criticism because we refused to divert public expenditure or tax concessions directly to sectoral interests, for example, in the construction area. In terms of sectoral initiatives the Government rejected the usual approach of providing incentives to certain key sectors such as industry and the construction sector and the absence of sectoral initiatives is a feature of this budget. However, there is a provision for incentives for financial services and these are contained in section 28 of the Bill.

There was also an expansion in the incentives to tourism which that industry has been looking for for some time. However, we believe that real growth in those areas can only come about in any sustained way when the problem of high interest rates is tackled. They are still too high but the continuance of our policies will ensure a continuing downward trend and only in this way can we guarantee the longer term buoyancy in areas such as the construction sector. The days of short term expediency are long since passed.

Second, we can take heart from the vibrant activity on the domestic money market and the already encouraging signs of an upward trend in private investment. There are very positive indications that we have turned the corner and there is reason to believe that we have plugged the gap in the black hole and that the debilitating drain of private funds out of the State has been stemmed. I am optimistic that we are now seeing a repatriation of some of the funds which were previously taken out of this country in response to the misguided financial and taxation policies. In this regard, the Minister's move in section 4 of the Bill is to be warmly welcomed. I am sure that this too will result in a steady flow of funds back into the country and will encourage our exiles to repatriate their money.

On a macro-economic level, we should be encouraged by the success of the Department of Finance in negotiating a loan on very favourable terms in Japan. This long term loan has been negotiated at a staggeringly low interest rate of 4.5 per cent and will enable existing higher interest rate loans to be repaid at a considerable saving to the Exchequer. This loan had to be negotiated in the face of bad publicity, particularly during the general election campaign, in regard to the economic and financial health of the country. I have before me a copy of the Bangkok Post which contains an article entitled “Ireland joins the world debtor countries league” and the source of the article was attributed to none other than the son of the outgoing Taoiseach, Dr. John FitzGerald, who is an economist. That is only one example of the bad publicity we received at that time.

That bad publicity was fuelled mainly by speculation and statements made by Government Ministers. More recently, there is the example of Deputy Spring meeting with his socialist friends in Europe when he emerged as a born again socialist. After four years in the wilderness he suddenly found his way and was welcomed back to the brotherhood. Where his socialist principles were during the last four years is anyone's guess. I do not mind if Deputy Spring wants to attend socialist jamborees anywhere in the world but I strongly object to him using these occasions to deride and decry this country. There has been enough of that nonsense.

What we now need is a positive and aggressive promotion of our country throughout the world and in this respect I would like to welcome the appointment of Deputy Séamus Brennan as a Minister of State with responsibility for trade and marketing. It is a tribute to the steps we have taken in marketing this country in a positive way that that loan which I referred to earlier was granted. It is also very tangible proof of the confidence being shown in our economic policies and a clear indication of the support we can expect now that a strong line of correct leadership in economic matters can be identified.

So far, I have concentrated on macro-economic policies. It is important to do so because we must now build on the firm base that has been established. This is not a time for ideological arguments which will show the country in further bad light to our international partners. Confidence, growth and marketing are the key notes of success. We have made the right start and must maintain that impetus. This Finance Bill will do just that. I ask all sides of the House to join in the concerted campaign we have launched to sell Ireland in a positive manner. The theme of the recent IMI conference in Killarney, Ireland plc, was not entirely inappropriate for the times we find ourselves in and the challenges we face. It behoves all of us in this House to realise that the marketing function of Ireland plc resides here with us and in this respect, at least, we should present a united front.

This budget and the Finance Bill have allowed us to make some real progress. That progress has been achieved while we protected the weaker sections of the community. Because of the difficulties facing the country and the attention that has been focused largely on economic, financial and social aspects of the budget, and possibly the cutbacks as they are called, it would be a pity if some of the innovative and positive steps we have taken in areas were to go unnoticed. Budgetary strategy aimed at stimulating the economy by giving greater emphasis to certain development areas requires to be underpinned by major structural change in the machinery of Government.

A new Department of the Marine has been established to capitalise on the scope for major development of our marine and marine-related resources which will benefit the economy in terms of wealth creation and additional employment. The distribution of functions between other Departments has been rationalised in order to restore a clear sense of direction in such areas as finance, tourism, transport, energy and industry and commerce. Of most significance in the longer term will be the establishment of the new offices, each headed by a Minister of State with responsibility for key sectors of development. Areas targeted for significant attention on growth include food, trade and marketing, horticulture, finance, technology and forestry.

This Finance Bill contains sections which will help in a very positive way to develop these areas. The developments outlined represent the most radical overhaul of the public sector in recent times and contrast starkly with the rhetoric of public sector reform which has been prevalent for some time. Furthermore, this radical change which will yield significant benefit in future years has been achieved through the redeployment and rationalisation of existing resources rather than through additional expenditure. The process of ensuring that the public sector is adequately geared towards making a positive contribution to growth will be a continuing one.

We are already committed to developing the semi-State sector as an important arm of Government for social and economic development. For example, there are already 20 State and semi-State institutions with a combined staff of 3,400 providing aid of one form or another to industry. We need to take a cold, hard look at how these efforts can best be provided so as to reduce unnecessary duplication and overlap. For too long now we have accepted that major areas of Government expenditure are committed before we even sit down to draw up the budget. The only accountability that exists in any real sense for such expenditure is the formal reporting to the Houses of the Oireachtas of how appropriately it was spent. Despite attempts by various committees, no one has yet succeeded in introducing a more meaningful accountability in relation to the use of taxpayer's money.

We can no longer afford to allow expenditure to be committed without looking at value for money or allow services to persist without looking for a value added contribution from them. We must now make it a priority to introduce the concept of value added to all our Government expenditure. State services provided directly by the Civil Service Departments and indirectly by semi-State and other grant aided bodies must be subjected to the most vigorous scrutiny as to the value for money they represent. They must be made accountable for performance rather than expenditure. We must begin to do this in a systematic manner. As part of this process we should look at the contributions and future prospects of our semi-State companies. Bord na Móna are perhaps a case in point. Here we have a major semi-State company which have made a substantial socio-economic contribution in the past and have been a mainstay of employment in rural areas. But do we really know how effective they have been? As for the future, do we know what they should be doing, given that they depend on a finite peat resource which will be exhausted in the next 30 years or so? I am convinced we need to take a fresh look at many areas like this as part of our ongoing economic strategy. The budget points the direction for new initiatives in public sector management and structures and for the emergence of new forms of accountability to take account of value for money and value added. This should be our emphasis for the future in public sector management.

I refer now to the proposal to establish the financial services centre in the Custom House and also to comments which have been made, some adverse, some favourable, by Members of the House and by outside financial institutions. There has been some scepticism as to whether this will work but I would just call the attention of the House to the fact that since 1978 the Isle of Man has been developing as an offshore financial centre. At present there are 42 banks licensed there, 36 insurance companies licensed to write insurance business outside the island and 19 British based companies with Manx offices. In addition, there are ten other deposit taking institutions, 51 accountancy firms and four stockbrokers, also 40 fund management and investment companies and 25 trust companies. When one takes into consideration that in the Isle of Man in 1978 bank deposits were about £345 million and are now over £3 billion, we can see how successful the operation has been. I refer to Jersey where there is a staggering £24 billion on deposit. This year the Isle of Man expects the amount on deposit in the financial institutions to double from £3 billion to £6 billion.

We can certainly learn from the Manx experience and, in addition to the incentive proposed in this Finance Bill, we must also ensure there is proper control and regulation of these institutions that will be established here so that we have only the highest standards from the institutions and so that the investment we make is not ruined in one form or other by cowboy operators. There is no doubt that the Isle of Man enjoys certain advantages we have not got; not least among our own disadvantages are the 58 per cent personal tax rate, the bank levies, the exchange controls, etc.

All these will have to be looked at and action taken to ensure they do not act as a disincentive in this development. I am glad to note that in relation to the financial services sector the Finance Bill starts the process of looking at this matter with the 10 per cent rate of corporation tax.

I welcome also the recently announced package for the tourist industry. This is welcome and essential for the restoration of tourism as a substantial earner of foreign revenue. Following the ravages of last year particularly it was necessary to act decisively to re-establish Ireland as a tourist centre. The extension of the business expansion scheme to tourist related activities and exports should be welcomed by all in the House. We have assets in our tourist business that no other country has; I refer, of course, to the beauty of our scenery, to our heritage and the friendliness still of our people. These are assets that we should protect and promote as much as possible. We should be aggressive in our promotion of tourism. I hope that in the coming years Bord Fáilte will be given a larger budget so as to ensure that tourism promotion continues and expands.

Reference has been made to the removal of the land tax. Deputy Desmond spoke at length on this issue. He lamented the fact that Fianna Fáil had removed the tax thereby keeping a promise made some time ago, and not as the Deputy contended, made during the general election campaign. I have heard Deputy Desmond and Deputy Mac Giolla, too, talk on many occasions about the necessity of having equity in the tax system. The land tax was inequitable. It bore no realationship to a farmer's ability to pay. We should be trying, and I believe we are, to ensure that everybody pays tax on the same basis, that is on accounts. I have no objection to a land tax per se; it is when it is used as an income tax that it becomes inequitable. A land tax has a place in an overall tax system as a method of raising local tax for local government. It would be as equitable then as the current charges operating at local level. That is the way forward in relation to land tax rather than putting it forward as income tax. Deputy Desmond glossed over the fact that the money foregone in the land tax will be subject to the clawback from the VAT refund scheme for farmers. In this way the farming community will pay the same amount of tax as they would have paid if the land tax had been left in place. I believe very strongly that the farming community must not only pay their fair share of tax but must be seen to pay it.

Another controversial issue in the Bill relates to the tax deduction at source on professional fees paid by certain public sector agencies. Despite all the comments and the political hullabaloo that has been made about this tax by various parties and Deputies, it is now clear that there will be no additional tax liability on the persons or companies affected by this law. The scheme contains a measure to mitigate any adverse consequences which have already been adverted to by many Members of this House. It seems ridiculous that the State should pay out millions of pounds of taxpayers' money to people who owe money to the State in the form of taxation.

We have had a great furore during the past month about uncollected taxes. Deputy Mac Giolla made a long contribuiton in relation to this. There has been an ongoing debate over many years about self-employed people and the amount of tax they pay. Regardless of whether it was the intention of the Minister for Finance, this tax will help to ensure that there will be a considerable improvement in the tax collection rate from this sector and that it will be paid very much earlier than at present.

I want to refer to the remarks made by Deputy Mac Giolla in relation to the letter he received from a consultant engineering firm who agreed in principle with the Bill. They thought it was a good idea and agreed that we should get money in much quicker. However, they went on to make a case as to why the consultant engineers in particular should not pay their taxes earlier. It is the same story with everybody; we all believe that more taxes should be collected from certain sectors, that there should be cutbacks in State expendiute and so on but that it should not affect any of us individually. The Deputy should know that that is the principle on which that letter was written to him.

The deduction of tax at source will be welcomed by every PAYE taxpayer as a move towards a more equitable tax system. I welcome the assurance given by the Minister that there will be no undue delay in the repayment of any overpaid tax under this scheme. This is important because it will affect the cash-flow situation but provided firms have their tax paid up to date, it should not unduly affect them.

I welcome the move to put export trading houses on the 10 per cent corporation tax rate. We are all aware of many small, well estalbished Irish companeis who have been in operation for some time and who are on a very firm footing on the home market. These companies would benefit substantially from some expansion into the foreign markets but simply because of their size, or of their personnel or lack of capital and marketing expertise they cannot do so. The provisions of the Finance Bill and the encouragement which will be given to these trading houses will act as a tremendous boost to our small industries, most of which are indigenous.

During the past eight weeks or so I have had to defend outside this House the budget and the Government. I am pleased to have the opportunity of supporting today in the Dáil the Government and their budgetary strategy, I defend the budget, not particularly because I like it or because that is a popular thing to do, but because I see it as the only hope we have. I see the moves that are being made by the Government as the only hope for thousands of intelligent, educated young people who are currently in our educational system and will be leaving our schools and colleges seeking employment and opportunities during the next few years. I defend the budget for the sake of the many thousands of young Irish people who have already been forced to go abroad. These people have no one to speak for them. I would like to put the thoughts of one young person on the record of the House. These thoughts are in the form of a letter which was written by an emigrant from Kilkenny to one of our national papers some months ago. He says:

I had great interest in the general election, but I wasn't voting, because I wasn't in my own country, I'm living in the USA, and have been since October.

What brought me here? Need brought me here. The need to earn a living. The need to have a better way of life and a better standard of living. The need to be a useful member of society.

Unemployment brought me here. My enforced absence from the Irish workforce lasted four years, and I regard my exile as an escape from the prison of unemployment.

I don't speak on anybody's behalf but my own, though I am sure lots of people share the same sentiments. When historians come to write about the '80's, they'll mention unemployment and emigration, just like what was written in the '50's and early '60's. Have the thoughts and feelings of any emigrant Irishman or woman ever been recorded?

I'd like my views on politicians, unemployment and emigration to be heard. I regard myself as a rejected and forgotten member of Irish society.

I joined the expanding ranks of the unemployed in September 1982. Later on that year, Garret FitzGerald's Coalition Government came into office. They were elected with a reputation of untarnishable integrity. I helped elect one member of that Government.

In my home town we used to have one employment exchange. Before I left, we had two. One for each of the Coalition TDs who represented us.

Politicians have rarely spoken honestly about unemployment. Oh, they'll mutter the usual phrases: "Unemployment is deplorable", "It's sad and something needs to be done". Their utterances are nothing more than gratuitous concern. Politicians only care about people when it affects their election chances. Our present representatives can't convince people otherwise.

Despite their numbers, the unemployed aren't a strong lobbying force. They aren't privileged and prominent, like many other groups in our society.

What do politicians know about the unemployed? Can they even try to imagine what it's like to be unemployed? Do they know how it feels to face each new day without work? Would they relish the thought of spending years of their lives in idleness? Do they know what it's like to try to exist on parsimonious unemployment assistance? Do they know how it feels to be utterly penniless and in debt? Who do they think they are? They don't have a mandate to pursue policies that will consign people to long years of unemployment. Nor do they have a moral right to do so.

No TD in Government, or in opposition, can stand innocent. All of them knock on our doors and request our support at election time. All of them want to be at the centre of decision-making. All of them, with few exceptions, possess more ambition than ability. When they are elected, they forget it's their constitutional duty to assist all Irish people achieve a better way of life and a better standard of living — in Ireland. Every employment exchange should be a monument to every TD. Every emigrant is an indictment of their failure.

A vast number have left Ireland, never to return. What would they come back to? They are lost to their country, and they are also lost to their families. I'm speaking from experience as my own family has suffered the insult of emigration. I've got two brothers and a sister living and working in Britain.

In the 1950's, a generation of politicians depopulated Ireland of approximately 500,000 people. Now another generation of politicians are doing the same. But one thing must be remembered. The opinions of emigrants are unimportant. They won't be around to vote in the General Election.

Is it one million of our people who are in receipt of benefit from social welfare? Our population is approximately 3.6 million. That means an excessively high percentage depend on social welfare. That's a scandal and the members of Dáil Éireann should hang their heads in shame.

Surely, there's a better way to run the country. Surely, there's a better way to organise the nation's finances and distribute the nation's wealth in a just and equal manner, so people will be independent.

Where are the ideas? These days, imagination is a stranger in Leinster House. Long before I became unemployed. I was finding it increasingly difficult to exercise my right to vote. The choice of candidates and the lack of ideas of the elected ones left something to be desired. But, somehow, I always voted. Gradually, my spirit broke. The years of unemployment disheartened me. I no longer cared. No longer did I want to listen to the long-winded assertive and empty academic who was the Taoiseach. No longer did I want to hear the leader of the Labour Party remind everybody he was looking after the needs of the less well off. As one of that unfortunate group, I gradually remained unconvinced and unemployed. No longer did I want to remain in my own country. I left Ireland a necessity emigrant and an embittered emigrant and at present I hope I never again have to seek employment in my own country".

That letter was written by a young man from Kilkenny who is currently resident in New York. I would not agree with some of the things he said in it but it is important to put it on the record of the House. That is the bottom line in this budget or in this Finance Bill.

It is part of the long term strategy of this Government to restore order to our economy to enable us to provide our people with employment and a satisfactory standard of living. If we shirk that responsibility, in the years to come thousands of young people from Ireland will be in foreign lands; they will never want to set foot on our shores again and they will indict every Member of this House for its failure to tackle the real problems. I hope that I will be able to say at the end of my time in this House that I did the right thing, faced the real problems and had the courage to see them through to the end.

Mr. Yates

I understand that Deputy Dempsey was making his maiden speech. I wish him a long tenure of office. A lot of the content of the speech lacked any knowledge of recent Irish history. If the Deputy had had the benefit of being a Member of this House in previous terms he would have seen that Fianna Fáil had the unique capacity in Government between 1979 and 1981 to run up supplementary estimates in each Department of no less than 45 per cent and sometimes as high as 80 per cent and that in Opposition between 1982 and 1986 Fianna Fáil still steadfastly opposed every step that the last Government tried to make to redress the country's financial imbalances. I do not share the Deputy's sense of optimism about turning the corner. There is a prevalent attitude that the last one out should turn out the lights and lock up the shop. There is total depression among health workers looking at protective notices, among people suffering under the crushing weight of taxation and among people mystified by the U-turn that Fianna Fáil made in their pre- and post-election position.

While Fine Gael will give the type of co-operation that Fianna Fáil never gave in Opposition it must be emphasised that Fianna Fáil successfully duped the people into believing that there would be an easier and a better way, when in fact they found just the opposite. Unfortunately this Government's economic strategy is far too narrow in focus. It is zoned in on something that we emphasised in the election. We produced literature about the vicious circle. Fianna Fáil have not only grasped hold of this principle of high spending leading to high borrowing leading to high interest rates, leading to job losses, with vigour, but they have also adopted it as a sole economic policy. It is limited because interest rates depend on currency as much as anything else. While the Irish punt is stable at 90 pence against £1 sterling our interest rates will come down. It was only when the instability of the speculative time of 1986 arose that interest rates, especially deposit rates had to be increased to induce money into this country. What is needed is an overall economic policy and not just a look at interest rates. We need to examine our current tax structure to see how it is crushing people's hopes of economic recovery and their economic spirit.

Our clear philosophy of "Ireland plc" must be that the only way we will create sustainable employment is by earning more abroad and by increasing our percentage of world trade. This Government have failed to set any goals of trade such as are necessary in order to implement any policy subsequently. Our trade goals should be the immediate setting about of a proper import substitution plan. There are £700 million worth of industrial goods that can be produced by the existing capacity of Irish companies and a further £300 million of consumer goods can be produced by existing capacity and capability particularly in clothing, grocery, food products and so on. We must set a target of 50 per cent of our indigenous manufacturing small firms exporting, preferably to the North or the UK. At present 80 per cent of our manufacturing firms do not export at all. That is an indictment. We must zone in on markets such as West Germany and sell as much per capita to them as we do to the Dutch. Until we set out a firm economic agenda and the means of achieving it, we cannot create jobs or raise standards of living. This Government have too narrow a focus and strategy in their economic policy and, therefore, unfortunately, are limited in the eventual results.

I cannot support some aspects of this Bill. The withholding tax, which is provided for in Chapter III of the Bill, is unfair, penal, inequitable and perhaps unconstitutional. It proposes to confiscate 35 per cent of the turnover of many small businesses. In no way is it compatible with DIRT which only taxes 35 per cent of income, nor is it compatible with the C.2 certificate in the building industry or the C.45 deductions whereby if you do not have a tax certificate 35 per cent of your income is deducted. Withholding tax has no precedent at all in tax law. It is a simple confiscation of turnover irrespective of tax liability or tax owing to the Revenue Commissioners, and, therefore, is totally unfair.

The wording used in different sections to facilitate interim refunds is unworkable. Anyone who has experience of VAT returns will know that you are plagued with inspectors, form filling, and penpushing before you get your VAT refund. This withholding tax will force many architects, engineers, veterinary surgeons and doctors into a cash flow crisis in their business that will force them under. Two-thirds of the work of many architect companies is comprised of State business. What will be the effect on their cash flow if 35 per cent of their income is taken away? All of these companies have their tax affairs up-to-date.

I would not oppose a tax like the C.2 system in the building industry which provides that if your tax affairs are not up-to-date then you have to pay withholding tax, but this is simple confiscation which will force doctors and dentists to cut back on their staff, to cut down on their standards and to charge more to the public, the taxpayers, for the services they provide. I will be a part of the Fine Gael team in this House who will be vigorously examining Chapter III of this Bill on Committee Stage and if the Government do not accept the relevant amendments they will be opposed vigorously. It is totally unfair that from next Saturday, 6 June, the contracts that many of these professionals have entered into are being rewritten by this tax. There should have been consultation on this and there is still time for that. This is a precipitous way of doing business which will rebound on this and future Governments and I do not believe it will bring in the expected £20 million revenue.

Let me suggest what I would like to see in this Finance Bill that it lacks. Every speaker on this Bill today has referred to unemployment, the creation of employment and the reversal of the trend of emigration as our economic and social priority. Unfortunately, there is very little, except a few minor sectoral changes in shipping, tourism and the trading houses, that will create even one job. I have four proposals for the creation of jobs by way of restructuring the tax system and using it to allow those who are in a position to create jobs to do so.

First, other countries have a jobs tax credit system which works on the basis that if an employer takes someone off the dole or employs anybody for a year he will get tax credit of, say, £1,000 against the company's tax liability. That could be corporation tax, net VAT payments or PAYE-PRSI liability. If the employer holds the person for a second year he will get a further refund of, say, £500. This system could be operated easily by the National Manpower Service who could give a voucher to certify that someone had been taken off the dole and was employed. There we would have a direct tax led incentive to create jobs. Such a system would be simple and easily operated. When people remit their cheques for tax liability such as VAT, employer's PRSI, PAYE or corporation tax they could enclose a voucher which would act as payment.

Secondly, jobs could be created through promoting an early retirement scheme. If people were to retire from employment at 55 years of age we could say we would not tax any retirement pension, superannuation pension or retirement benefit until the person reached pension age of 66 and the pensioners would have that income from early retirement entirely tax free. That would be a real incentive to create jobs. It is reckoned that if you reduce the old age pension age from 66 to 60 years of age you would create 10,000 jobs on a once-off basis. A modest adjustment such as I have suggested would be much cheaper than reducing the pension age and would effectively create 5,000 jobs.

Thirdly, in relation to job sharing it is possible, particularly with married couples, that some people in the public and private sector would be interested in half a job with half a salary. For instance, women with family commitments, young children and so on, might wish to retain an interest outside the home and have an income other than, say, their husband's but, at the same time, could not hold a full time job. Such people are at present employing full time babysitters in the black economy. I suggest that we increase the PAYE allowance from £700 to £1,000 for participants in any approved job sharing scheme in the public or private sectors. Again, that could be administered by the NMS who at present are just taking in inquiries from jobless people who cannot place the vast majority of them in employment. This would not involve loss of competitiveness whereas reducing the working week would involve such a loss. Such a tax incentive in the nursing profession and certain administrative work in the public and private sectors would be successful.

Fourthly, we could create an adjunct to our tourist industry in relation to emigrants who wish to retire home. A very large Irish ethnic community in the UK and in the US have one wish in their retirement and that is to die in Ireland where they were born and reared. We should introduce a change in our tax code to ensure that any foreign retired person coming to Ireland would be exempt from income tax here provided they were not dependent in any way on the Irish State, that they had sufficient means, would be taking up a home of their own. That would constitute an extension of the provisions of section 4 of this Bill. Those four proposals, the jobs tax credit, the early retirement scheme, the job sharing scheme and a scheme to attract foreign residents to retire here would successfully and realistically create jobs on the ground.

I wish to turn now to tax reform. I have in front of me the weighty volumes of the different reports of the Commission on Taxation, of most significance their First Report which dealt with direct taxation and was published in July, 1982. The commission sat for over three years and had quite a lot to say about our whole taxation system. They made a number of recommendations in the area of direct taxation, that is income taxation. I am looking now at pages 45, 46 and 47 of their First Report where they recommended that income tax relief on mortgage interest should be abolished, that medical insurance relief should be abolished. They believed that the deduction of premiums payable on permanent health insurance schemes should be withdrawn and any benefits accruing from such policies paid free of tax. They also recommended that no change should be effected to extend tax relief in respect of expenses incurred in travelling to and from one's place of work and no further relief should be introduced in respect of educational expenses. I disagree with all of that. The Commission on Taxation were given an impossible brief in terms of reconciling their terms of reference of coming up with a simple, equitable code, which they did, because the more equitable our tax code the more complex it will be. Therefore, the simpler it is the more unfair it will be. While they leaned on the side of simplicity in terms of direct income tax it has to be said that the more blunt our taxation system the more unfair it will be.

There are many recommendations set out in the different reports of the Commission on Taxation that are worthy of consideration and in respect of which the Fianna Fáil Party had given a commitment. Yet nothing has been done in that respect by way of the provisions of this Finance Bill, a source of great disappointment. The first is in the area of self assessment for Schedule D taxpayers. A discussion document was published by the former Minister for Finance, Deputy John Bruton, but nothing has happened since. I would hope that self assessment would be introduced. It would free up manpower resources in the Revenue Commissioners to get at the black economy. Another way in which reform could be carried out without involving any loss of revenue is by way of a switch from tax free allowances to tax credits. What that means is that, instead of having a personal allowance of, say, £1,500 one would have a tax credit of £1,500. If one has a tax free allowance and one is paying tax at 35p in the £, that is worth less than if one had an allowance of £1,500 when one is paying tax at 58p in the £. Therefore, the present structure of tax free allowances benefits those on the highest tax bands most because their allowances are worth more to them. A tax credit would allow a given amount of income tax remission but would be progressive in so far as the highest earners would pay the highest rate of tax. A replacement of tax credits for tax free allowances is not only progressive but is fair. I would hope that the Minister for Finance would set about establishing urgently a system of self assessment, a system of replacing tax credits for the existing tax free allowances.

In the lifetime of the last Dáil I sat in the House throughout many Stages of Finance Bill debates, particularly on Committee Stages, when standing where I am now was the Fianna Fáil spokesman, Deputy Michael O'Kennedy who tabled amendments to our Finance Bills in each of the last four years. He spoke most eloquently and passionately, tabling the same amendments each year, amendments relating specifically to dependent children in respect of whom the tax free allowance was abolished. He argued that no account was being taken within the tax system of large families and family needs. He went on — and I can produce the records on Committee Stage of this Bill — to show that dependent elderly and incapacitated relatives should be kept in the home instead of receiving institutional care which costs at least £150 a week. That is something which, on face value, one could not but support. Unfortunately, in this Finance Bill not only is there no provision for any tax free allowance in respect of children, there is no change whatsoever in respect of incapacitated or elderly relatives and no change in relation to Deputy O'Kennedy's hobby-horse, the tax free allowance position of widows. It is reasonable to ask; will Deputy O'Kennedy be contributing to this debate and, if so, will he be mindful of his contributions to Finance Bills over the past four years? I would hope that Fianna Fáil would recall their past commitments in this House.

I mentioned in the course of my contribution to the budget debate that the group hit hardest in the last budget was the low to middle income group. They would now be liable for all the new charges — increased school transport charges, new hospital charges and increased local authority charges. They are being hit savagely. As Deputy Mac Giolla pointed out, unfortunately, for the first time, the provisions of this Finance Bill allow for no relief whatsoever of the income tax burden on that group. While I understand the overall economic parameters and limits to the tax relief available this year — and I support that general macro position — it should have been possible to introduce minor changes to deal with the problems of this group, the real new poor. I am thinking of people in council houses, who have to travel to work, people who would be better off on social welfare with pay-related benefit, people who pay high rents on local authority houses, people just beyond eligibility for a medical card. Given that overall tax changes could not have been effected, surely specific changes could have been made in respect of a married man with, say, three children occupying a council house, so that he would have been given some relief in respect of his rent payments, in respect of his medical and educational expenses and in respect of his travelling expenses to and from work. None of those factors is taken into account in assessing his eligibility for anything. We must realise that these people constitute the backbone of this country in terms of extra productivity, extra output. They represent an essential grouping in so far as the incentive to work is concerned because, if those people do not have an incentive to work, the dole queues will never shorten. The only treatment of those people under the provisions of this Finance Bill is a restriction for the first time ever in their mortgage relief, down to 90 per cent of interest payments as outlined in section 6.

I should like to move on to an area particularly in need of reform which is not addressed by the provisions of this Bill at all, that is our whole system of pay-related social insurance contributions. I have been speaking for many years on the need for reform in this area. It has been studied by the ESRI and other groups but unfortunately nothing has been done. At present we have a tax on employment in the form of employers' PRSI contributions. The more people you employ, the more PRSI contributions you pay, and the more labour intensive your sector, whether it is construction, personnel-related or the tourism sector. It is unfair that employers should be penalised through this tax for employing more people.

The Commission on Taxation in their first report recommended that this system was unfair and outdated and that it should be changed. They stated on page 53, chapter 21 of their report:

Social insurance contributions should be replaced by a social security tax, levied at a single rate of all income including realised capital gains, gifts and inheritance. The yield from this social security tax should be paid into a separate fund along the lines of the present social insurance fund.

It goes on to say:

In present circumstances the rate of social security tax should be about 5 per cent. The balance of the fund proposed in Recommendation 113 should be raised from indirect taxation.

As the Minister for Social Welfare is in the House, I ask him to realise the direct effects which employers' PRSI contributions have on employment and on employment intensive sectors. I ask him to immediately examine the imposition of a social security tax at 5 per cent or at the appropriate rate to ensure that the burden of social welfare is shifted away from the employment-generating sector of the economy and borne by all those who can afford it. There are other sound arguments from a non-tax perspective for doing so because at present the rate of unemployment assistance is higher than the reduced rate of unemployment benefit. Many people who work on and off in the construction industry and who are currently in receipt of benefit get less money than if they were on unemployment assistance and they are not allowed to break their claim and draw unemployment assistance at the maximum rate. In many cases recipients of non-contributory old age pensions are within a whisker of getting the same amount as someone who worked throughout his life.

There is a particular problem in relation to the public sector where people should be paying the full class A.1 PRSI contribution but they are not doing so. There is no justifiable argument for not proceeding with that. One of the consequences is that retired postmen, retired health workers and retired local authority workers, people who have given years of service, are now on a lower pension and are not entitled to any of the fringe benefits of the social welfare code by virtue of the fact that they were in a different social insurance scheme. I ask the Minister to urgently review that area.

Much discussion has taken place on the Finance Bill to date in relation to farmer taxation. I do not wish to dwell in detail on the rights and wrongs of farm tax and land tax vis-à-vis income tax other than to say that in other European countries a two-tier system is successfully operated whereby for small farmers there is a notional form of income tax and large farmers pay tax on accounts. Such a system could and should have been devised here. I ask the Minister, when responding on Second Stage, to tell us what way the farm profile form will work. This was tried in 1980 and 1981 and it did not work because of industrial action and other problems with the Revenue Commissioners. What efforts will now be made to ensure that the accounts system works?

I would like to put on the record of this House that farmers were duped by this Government. While they honoured their promise to abolish land tax, with the other hand they drastically changed the farmers' VAT refund system, saving £9 million. They took that money directly out of the pockets of farmers irrespective of whether a farmer was making or losing money and irrespective of whether he was a big rancher or a small-time subsistence farmer. They also drastically increased the levies and contributions under the TB eradication scheme. They have drastically cut back on the farm improvement programme grants system and tied it up with red tape. They have almost abolished the county committees of agriculture. They have abolished the installation premium aid for young farmers who wish to get land. They have introduced new charges for ACOT and they have given no commitment to extend the EURO-finance scheme which we introduced to provide working capital for farmers. While some farmers have gained in a very short-term way, nearly all farmers have lost heavily under the changes proposed and enacted by this Government.

It is appropriate that I say a few words about the Revenue Commissioners. Questions have to be asked about their level of performance. In 1986 gross expenditure of the Revenue Commissioners was £96.8 million. This year it is £109 million. In net terms, the figures for 1986 and this year are £84 million and £95 million, respectively. In gross and net terms that represents an increase of 13 per cent which no other Department received. I wonder how cost effective, how efficient and how productive the Revenue Commissioners are at present? The collection system has fallen into total disarray. The Collector General's Office in particular is not in control of the current tax arrears situation. We should decentralise our tax collection system so that collections are made at local level.

At present the local tax district office makes the assessment and if the case is not appealed it goes to the Collector General's Office, then to the Revenue Commissioners and then to the sheriff. Last year 100,000 certificates passed through the hands of the sheriffs and they could have done much more if the whole system was not jammed up. Professional consultants should be employed to review the operations of the Revenue Commissioners. The debt collection function should be privatised to professional debt collectors with full computerisation facilities, to ensure that arrears are not allowed to build up. In order to rectify the situation, an amnesty on interest on certain outstanding taxes should be given to ensure that these taxes are collected as per the appropriation accounts.

I would like to say a few brief words on local taxation. Under the current system, rate support grant cuts, the abolition of rates and dependence of central Government have crippled local authorities. There are charges for refuse and water, planning fees and now there are charges for caravan parks. The current system of financing local authorities cannot and does not work. What we need is a new system of local taxation based on a full credit — for every £ you would pay of local taxation you would get a full credit against your income tax — or, alternatively, funds would be diverted through the VAT structure so that VAT paid locally would be sent to the local authorities. If we do not have proper financing of local authorities we will endanger our fire services, house repairs will be put on the back burner and roads fencing will become a thing of the past.

I wish to make many other points but time does not permit. Fianna Fáil have reneged on the construction industry through cuts in the public capital programme, the abolition of grants, the failure to honour the promise on VAT and failure to honour the promise on residential property tax. I hope this Government will extend their sectoral policy by providing a proper financial structure for research and development as proposed by the NBST in 1984 to set up a proper infrastructure for bio-technology and advanced manufacturing technology. I hope also that a marine research laboratory can be established in Wexford.

In relation to the financial services centre, particular consideration should be given to a futures market whereby people can hedge against the future value of certain commodities and, alternatively, people can speculate. I believe one thousand jobs could be created in this way and it is much more viable than the current basis for the financial services sector. I hope the motor industry will be given special consideration later this year if a second budget is introduced by way of a change in the excise duties and some modification of the stringent benefit in kind régime. I believe we have reached a stage of diminishing returns as regards the motor industry and employment therein. In the past it has proved to be very successful.

Fine Gael will oppose certain aspects of this Bill on Committee Stage, particularly the withholding tax and some glaring omissions.

Debate adjourned.

Dáil Éireann debate - Thursday, 4 Jun 1987

Finance Bill, 1987: Second Stage (Resumed).

Dáil Éireann debate -
Thursday, 4 Jun 1987