Finance Bill, 1988: Second Stage.

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

This Bill provides a statutory basis for the taxation provisions which I announced in the budget on 27 January. It also includes a number of new incentives to help develop the economy as well as some other technical tax provisions.

Before turning to the main provisions of the Bill I would like to review briefly the developments since the budget and the economic prospects for the year ahead, as well as to say a few words about the general issue of tax reform.

The recently-published Exchequer returns for the first quarter of the year indicate that we are fully on course to achieve the 1988 budget targets. The overall Exchequer borrowing requirement in the first quarter was £536 million. Allowing for seasonal patterns in Exchequer receipts and expenditure, the borrowing requirement was very low — representing only 37 per cent of the target for the year as a whole.

Excuse me, Minister. Could we terminate other meetings that are taking place, Deputies? The Minister to continue, without interruptions.

The corresponding percentage at this time last year was 51 per cent. In fact one has to go back to 1984 to find a better relative position at the end of the first quarter.

The drop in the level of borrowing is a direct consequence of the tight expenditure control and coherent overall budgetary strategy adopted by the Government since coming to office. We are now building on the success of last year and I am confident that the budgetary targets will again be achieved in 1988.

As well as indicating that the budget targets are on course, the Exchequer returns also demonstrated the excellent results of the Exchequer's funding programme in the first quarter. By the end of March the Exchequer had raised virtually all its borrowing needs for the year as a whole, with minimal recourse to net foreign borrowing, at £97 million, was at its lowest since the late seventies.

The good budgetary figures, and the strength of the Exchequer's funding position, gave a further boost to market confidence. This growing confidence in domestic markets helped to create the positive climate which enabled the Central Bank to cut its official interest rates — by three-quarters of a percentage point — on 11 April. This was quickly followed by reductions in interbank and Associated Bank rates.

At this point, key interbank interest rates are up to six percentage points below their level of 31 March, 1987. Whereas in March 1987 these rates were four percentage points above the corresponding UK rates, they are now below them. This is a major change in the space of a year and interest rates are now at their lowest level for ten years.

The growing confidence is not confined to the financial markets. The reaction from business and other circles has been equally positive. There is growing acceptance that the Government are on the right path in pursuing the closely-related objectives of improving the public finances and revitalising the economy. I have every expectation that 1988 will see a continuation of the economic progress made in 1987. I expect to see further strong export growth. Córas Trachtála have recently forecast a 9 per cent growth in the volume of exports, with a heavy emphasis on exports to our EC partners. With strong export growth, both the trade surplus and the surplus on the current account of the balance of payments should strengthen.

A further reduction in inflation to 2½ per cent or less, on average, this year is also in prospect. The annual inflation rate to February of 1.9 per cent is very encouraging and means that inflation here is now below the EC average. Lower inflation as well as the reduction in interest rates and the income tax concessions in the budget should improve the prospects for growth in private consumption. In addition, the climate for private investment has improved considerably and I look forward to a significant rise in the volume of private investment this year.

Overall, the volume of gross domestic product is expected to grow this year by between 0.5 per cent and 1 per cent. This would mean that, taking the two years 1987 and 1988 together, the volume of GDP would grow by over 2 per cent per year, a very creditable performance particularly in view of the scale of budgetary adjustment undertaken.

It is clear of course that there are significant structural and competitiveness weaknesses in the economy that we must continue to address if employment performance is to be stepped up. Achieving improved competitiveness is, therefore, a key element of our strategy. With the low level of inflation now prevailing and the significant income tax relief awarded in the budget, there is no justification for employees or employers to seek or agree pay increases above the parameters agreed in the context of theProgramme for National Recovery. In the short term, improved competitiveness is one of the most effective means open of improving employment prospects. The Government are, of course, continuing to pursue with the utmost vigour all possibilities of encouraging viable developments at a sectoral level. Indeed, some of the key provisions in this Bill are framed with that objective in mind and I shall return to these later.

Despite the significant progress made towards remedying the problems of the public finances I want to make clear that we cannot relax. The level of outstanding debt remains very high. We still have a significant budgetary gap to close if we are to stabilise the debt/GNP ratio and break clear from the debt spiral which has been pre-empting so much of our resources — resources that could otherwise be used to create employment. This is the only way we can create more room for manoeuvre, reduce interest rates still further, get down the overall level of taxation in the economy and bring about sustainable growth and increased employment.

The Government remain firmly committed, therefore, to the fiscal targets set out in theProgramme for National Recovery. The precise size of the budgetary adjustment that will be needed in 1989 will depend on various factors, including how the economy performs for the rest of this year and developments at the international level. It is fair to say, however, that the adjustment will have to be of significant proportions, probably of the same order of magnitude as in 1988. Arrangements for a repeat of last year's expenditure review procedures, with a view to securing the necessary savings, are already in train.

Notwithstanding the constraints to which I have referred the 1988 budget represents an important new phase in the Government's programme. The tax changes that I have announced, and which are incorporated in the Finance Bill, represent a major step on the road to tax reform. The combination in the Bill of significant income tax reductions, a major revamping of the corporation tax code, and the radical overhaul of the tax assessment and collection regime marks a significant movement in the right direction.

The result of the changes in income tax provided for in the Bill is that in the current tax year nearly 63 per cent of taxpayers will be paying tax at the standard rate. I am sure Deputies will agree that this represents considerable progress towards the Government's objective of having two-thirds of taxpayers paying tax at the standard rate only.

I assure the House, however, that this year's tax changes are the beginning, not the end, of the Government's intentions in regard to tax reform. The overall level of taxation here is still far too high. This in turn reflects the excessive level of public expenditure, notwithstanding continued substantial borrowing which must also be phased down. While the room for manoeuvre is narrow, because of the budgetary constraints, the Government want to reduce the overall level of taxation as soon as possible, so as to encourage initiative and enterprise in the economy. The task of reform will also be made easier according as the economy resumes a higher growth pattern. Taxpayers must share in the fruits of this growth. Pending a reduction in overall tax, there is still much more we can do to restructure and improve the present system.

In the restructuring of our tax system, we must also have regard to the proposals for harmonisation of indirect taxes in the European Community, as part of the moves towards the creation of an internal market in 1992. The proposals create particular difficulties for Ireland because of our heavy reliance on indirect taxes. Discussions in the Community on the Commission proposals, and on how the problems facing countries such as Ireland might be tackled, are still at a preliminary stage but I will keep the House informed as the discussions develop.

There is continuing pressure for tax incentives to encourage business and we now have a wide range of these incentives in our tax code. They are expensive in terms of tax foregone, and they are a factor in our high tax rate structure. Incentives are necessary but they must be on a selective basis as is provided for in the present Bill. The deciding factor in each case must be the balance of advantage to the economy and I am satisfied that the incentives in this Bill will boost economic activity. I would, however, welcome discussion in this debate as to how Deputies consider that the tax base should be widened.

I would now like to refer to individual sections of the Bill and to draw the attention of the House, in particular, to the more significant items. Full details of the individual sections are contained in the explanatory memorandum I have circulated with the Bill.

The first three sections of the Bill implement the income tax changes I announced in the budget. The changes go far beyond what was required to honour in 1988 the commitments made by the Government as part of theProgramme for National Recovery. Reliefs costing just over £30 million would have been adequate to fulfil our commitment this year. In the event, the reliefs in the Bill will cost £91 million in 1988 and £152 million in a full year. On a cumulative cost basis, the reliefs will cost over £400 million over the next three years, compared with the £225 million undertaking agreed in the programme. These figures demonstrate the Government's determination to achieve the targets set out in the programme.

On other specific aspects mentioned in the programme, the Bill also fulfils Government commitments. The PAYE allowance is being increased from £700 to £800, while the 35 per cent rate band is being extended by £2,000, from £9,400 to £11,400, in the case of a married couple, and by £1,000, from £4,700 to £5,700, in the case of a single person. We have also provided for increases in personal allowances of £100 for a married couple and £50 for a single person, with comparable increases in the widowed, widowed parent and single parent allowances. In this context I might mention that, following a commitment I gave to the House last year, section 3 of the Bill provides for an improvement in the position of widowers taxed under single assessment in the year in which they are bereaved: from now on, such widowers will be put on the same footing as widows in similar circumstances and will be entitled to the equivalent of the married personal allowance in that year. Finally, the Bill provides for increases both in the general exemption limits and in the two higher exemption limits which apply to persons aged over 65 and over 75 years.

Sections 4 to 6 of Chapter 1 deal with other items of importance. Section 4 provides for the renewal of the £286 PRSI tax allowance for the current year. Section 5 removes the prohibition on part time directors and employees from participating in the approved share option schemes provided for in the Finance Act, 1986.

Section 6 includes the process known as plant micro-propagation or plant-cloning in the relief for investment in corporate trades, more generally known as the Business Expansion Scheme. Deputies will recall that this process became eligible for the 10 per cent rate of corporation tax under last year's Finance Act. The Government are anxious to ensure that this innovative industry, which is only just beginning in Ireland, can exploit its full potential for the benefit of the economy by being able to generate the equity capital it needs through the Business Expansion Scheme.

Section 7 of the Bill gives effect to the extension of the deduction at sources system for certain professional fees to payments for in-patient treatment by medical professionals under health insurance policies. This extension was signalled in my Budget Statement when I indicated that the measure would be introduced in respect of payments under insurance contracts with the Voluntary Health Insurance Board. The Government have decided, however, that in the interests of equal treatment the withholding tax should apply to specified payments by all health insurers licensed under the 1957 VHI Act. In the main the licence holders are "in-house" schemes, providing cover only for employees, retired employees and their dependants. Total membership of these schemes is estimated at less than 50,000 as compared with about 400,000 policy holders in the VHI.

The section sets out how the withholding tax will be applied. The main features are as follows:

Deductions will be made at a rate of 35 per cent, with effect from 6 June next, from payments under health insurance contracts in respect of fees to medical professionals for services to in-patients of hospitals in the State;

to facilitate the medical insurer in making the tax deductions, the insurer will be required to pay the balance of the relevant claim — after deduction of the tax — direct to the medical professional concerned rather than the subscriber;

there will be no change in the existing arrangements for payments by the insurers to subscribers for maintenance costs in hospitals, and the withholding tax will not apply to these payments;

the subscriber will remain liable for any uninsured balance of the professional fee and the deduction at source system will not apply to this payment;

where a subscriber pays fees directly to a medical professional, the professional is required to refund to the subscriber any excess of the total amount paid by the subscriber and the health insurer — including withholding tax deducted — over the amount of the professional's fee;

the Minister for Finance is empowered to make regulations to secure the smooth operation of the deduction scheme for payments made by health insurers;

the health insurer and the subscriber are indemnified from any claims arising from the deduction of the tax.

Since publication of the Bill it has come to my attention that the Bill as drafted does not encompass certain forms of in-patient professional treatment for which benefit is paid under VHI policies. I will introduce amendments on Committee Stage to rectify this.

Concern has been expressed as to the effect this measure will have on holders of health insurance policies. I would like to stress that the measure does not affect the existing rights of subscribers under health insurance contracts. The coverage provided under insurance policies will be as before and the only change will now be that payments to medical professionals for in-patient treatment will be made directly to the professionals involved on behalf of the subscriber.

It has also been suggested that medical consultants may feel it necessary to increase their fees because of the new system of deduction. I must emphasise that there would be no justification for any such increase in fees. The withholding tax already applies to payments to other professionals and the system is simply being extended to include payments to the consultants by health insurers. The new system involves no more than a payment on account in respect of tax due at a later date on the payments in question. Thus, no additional tax liability is imposed on the medical professional who will get credit for tax withheld under this system. Substantial legal protection for subscribers is written into the legislation. The Government will, of course, monitor the operation of the arrangements so as to guard against abuses and make sure that the legal protection for subscribers is adequate.

Section 7 of the Bill also adds a number of bodies to the list of accountable persons for the purposes of the deduction at source system. Deputies will note the inclusion of voluntary private hospitals who are grant-aided by the Department of Health. This change will put such hospitals on the same footing as health board hospitals already operating the deduction scheme.

In the budget I announced a comprehensive package of inter-related measures which the Government propose to take to bring about a major and permanent improvement in the tax assessment and collection system. These changes are now being given legislative effect in the Bill.

The main changes are set out in Chapter II, comprising sections 8 to 20 of the Bill, and arise from the decision to introduce self-assessment for corporation tax and for income tax for the self-employed. As I indicated in my Budget Statement, because of the extent of the changes involved and the numbers of taxpayers affected, a full system of self-assessment must be phased in over a period to avoid undue disruption and protect revenue yield. The Chapter II provisions of the Bill represent, however, a major initial step on the road to full self-assessment. The key features of the new arrangements are:

in general there will be a mandatory obligation on self-employed and corporate taxpayers to make a return of income; there are specified exceptions to this obligation;

there will be a requirement to pay advance tax. Advance tax payment is essentially the same as the existing procedure under which the taxpayer specifies his own estimate of his tax liability in advance of that liability being finalised;

there is provision for the estimation of advance tax by the tax inspector and, if the taxpayer wishes, he or she can replace this estimate by the taxpayer's own estimate;

formal tax assessment will generally be made by the inspector only when a tax return is completed. If the taxpayer so wishes he may compute his own tax on the basis of the return of income that he is submitting;

the provisions establish rules for payment of tax, submission of returns, charging of interest, the levying of a surcharge in the absence of a return and for the making of appeals in specified circumstances.

The overall objectives of the new arrangements are to place more responsibility on taxpayers for meeting their own tax obligations, to reduce the levels of estimated tax and to streamline and significantly reduce the numbers of appeals.

Deputies will note that while a substantial part of the overall statutory framework for the move to self-assessment is being put in place, the computation of his own tax by the taxpayer himself is not a mandatory requirement at this stage. The taxpayers concerned will indeed be receiving new forms on which they can themselves compute and pay tax, but completion of the form and payment of the tax due on that basis will be a voluntary, non-statutory arrangement for the present. I should mention that the Revenue Commissioners are already operating, with a volunteer group of tax practitioners, a pilot scheme for the computation of capital acquisitions tax. The purpose of these voluntary schemes is to determine the practical considerations which would arise from the introduction of full self-assessment on a statutory basis.

The move to new return and assessment arrangements is accompanied by two other measures aimed at eliminating tax arrears and improving collection. These are the incentive to clear up arrears of tax provided for in section 68 of the Bill and the introduction of power for the Revenue Commissioners to attach the financial assets of tax defaulters, which is provided for in section 69.

The combination of the new arrangements for tax assessment and the introduction of the power of attachment will mean that tax defaulters will face a much more hostile climate in the future. This is only as it should be: we need to achieve a better balance in the system in favour of the majority of taxpayers who settle their tax obligations. In the changed circumstances defaulters are being given a once-off incentive to clear their arrears of tax. The incentive arrangements set out in section 68 provide for the waiving of certain outstanding interest charges and penalties, where the taxpayer brings his total liability to income tax, sur-tax, corporation profits tax, corporation tax, capital gains tax, value-added tax, PRSI, health contributions, employment levy and income levy up to date at any time between 27 January 1988 and 30 September 1988. The main taxes not covered by the incentive scheme are capital acquisitions tax and stamp duties. These are not included because they are not subject to the same collection problems as the other taxes to which I have referred.

The incentive scheme ends on 30 September 1988 and the power of attachment will come into force on 1 October 1988. I have been informed by the Revenue Commissioners that there has been a huge volume of inquiries in relation to the incentive and I am confident that it will make a very significant contribution to the clearance of arrears this year. The initial impact of the incentive scheme and of the improvement already made in collection arrangements is reflected in the good performance of tax revenue receipts in the first quarter of the year.

Section 69 of the Bill gives effect to the power of attachment. The section provides that, where the Revenue Commissioners believe from information available to them that a third party has an amount of money owed to a tax defaulter, they may direct the third party to pay the amount to them or to pay the actual amount of tax due by a defaulter, if less. The power of attachment will thus provide the Revenue Commissioners with a speedy and cost-effective response to default. This is essential if the fight against tax default and tax evasion is to achieve success. The power of attachment is available to Revenue authorities in other countries, notable the United States and New Zealand, and its introduction here was recommended by the Commission on Taxation. It will be particularly welcomed by the vast bulk of taxpayers who comply fully with their obligations and who will have nothing to fear from this new power.

I would like to outline briefly for Deputies the main features of the attachment process.

There is a starting date of 1 October next; thus as I have indicated earlier taxpayers may avail of the incentive arrangements to clear arrears before the new power comes into operation. The power extends to the employment levy, health contribution and PRSI as well as the main taxes. The power will not be used in respect of wages, salaries, pensions or social welfare payments. The taxpayer will have a one-month grace period following default before entering the period during which attachment may be used. The taxpayer will receive prior notice that he is entering the attachment phase. To implement attachment the Revenue may give a notice to a debtor, including a financial institution, to make a return and pay over to the Revenue, from a debt due to the taxpayer, the amount in default or, if less, the amount of the debt. Payment must be made within ten days of the notice being received. The debtor does not have to indicate how much is owed to the taxpayer where this exceeds the amount in default. The Revenue Commissioners must have reason to believe that there is an amount owing to a defaulter from a third party and they will continue to rely on their existing powers of information in operating the power of attachment. Only one notice of attachment per taxpayer can be in force at any one time and attachment will not apply to amounts in dispute or in a liquidation or bankruptcy situation.

Chapters III and IV of the Bill contain several provisions aimed at encouraging development of various sectors of the economy.

I announced in the budget that the tax relief known as "section 23" was being restored for a further three-year period. This measure, provided for in section 24 of the Bill, allows expenditure incurred after budget day on constructing new residential accommodation for renting to be set-off as a deduction against all rental income, including that derived from the particular "section 23" property. The maximum floor area limit for flats of 90 square metres, which previously applied, is being retained, but without the former restriction as to number of bedrooms required. Going beyond what was announced in the budget the Government have also decided to renew for a similar three-year period the earlier reliefs for certain costs incurred in the conversion and refurbishment of property for rental accommodation. Thus, expenditure on converting a qualifying building into two or more residential units will be allowed as a relief against all rental income, while that incurred on refurbishment of qualifying property will, as previously, be an allowable deduction against the income from that property only.

The overall effect of this package will be to provide a timely and significant boost to the construction industry and encourage the provision of moderately priced rented accommodation. It will also assist the improvement of low cost residential accommodation.

A further measure which will help the construction industry and the process of urban renewal is the two-year extension of the time limit originally applying to incentives in the designated areas in the five county boroughs of Dublin, Cork, Limerick, Waterford and Galway. This is provided for in section 23. The various tax and other incentives will now be available for qualifying expenditure up until 31 May 1991, in common with the other nine recently-announced designated areas.

Section 27 of the Bill gives exemption from income tax and capital gains tax for investments made by pension funds in financial futures and options, in order to facilitate the participation of pension funds in such transactions. Section 32 enables certain non-manufacturing companies located in the Shannon Customs-Free Airport to qualify for the 10 per cent rate of corporation tax in 1990. This special rate has been available to new companies which have set up in the airport since 31 December 1980. Section 32 provides that similar treatment will be given to existing companies located in the airport when their present tax exemption arrangement expires in 1990.

The Bill contains a number of measures which are designed to assist the development of the International Financial Services Centre being established in the Custom House Dock area. Before outlining these measures, let me bring the House up to date on progress in regard to this project. To date, two certificates have been granted to companies which will locate in the centre. In addition, some 20 further projects have been approved in principle. These 22 projects involve definite employment commitments — to be written into the certificates — amounting to over 700 jobs. This is a very positive result in a relatively short period and is indicative of the great interest, support and goodwill which exists in relation to the centre. I am confident that the coming year will see further substantial progress, resulting in many more projects and job commitments, and this will be helped by the provisions in the Bill.

There appears to be some confusion among Opposition Deputies about the procedure for granting certificates to companies establishing in the centre. The relevant legislation is drawn up on precisely the same basis as that governing certificates for companies in the Shannon Airport zone. There is the same requirement for ministerial approval. The Shannon legislation has been on the statute book since the late fifties and there have never been any charges or unfair ministerial decisions in regard to Shannon certificates. There is no basis for supposing that things will be otherwise in the case of the IFSC.

In fact, there is a very formal process of approval for IFSC companies before a ministerial decision is given. As is widely known, we have established a Certification Advisory Committee which is representative of my Department, the Department of Industry and Commerce, the Central Bank and the IDA. All projects must be submitted to this committee and examined by them before they are submitted to me with a recommendation for approval. Obviously, in deciding on an approval, I will have regard to the recommendations of the committee and this is a major safeguard against arbitrary or unfair decisions.

Section 33 of the Bill removes the requirement, which has proved to be unnecessary, that activities which are to be carried on in due course in the Custom House Docks area should be located in temporary accommodation not owned by the relevant company pending the availability of suitable premises there. Section 33 also extends the special 10 per cent rate of corporation tax in the centre to speculative commodity trading which is essentially financial in nature. Section 34 allows a deduction for tax purposes for interest on loans paid by a company in the centre to a non-resident parent company. Section 35 grants an exemption from withholding taxes on interest payments made by companies in the centre to lenders outside Ireland.

I also want to give notice of my intention to introduce amendments on Committee Stage to bring the investment income of life assurance companies and the income and capital gains of unit trusts located in the centre within the ambit of the 10 per cent rate. All of these measures will, as I have said, be of benefit to the promotion of the centre as an attractive location for international financial services.

Section 38 makes a novel provision for the repatriation to this country, free of tax, of dividends earned abroad by the subsidiaries of Irish companies. The intention is that the repatriated funds will be used for investment here with direct benefits to the economy. I would emphasise that in order to avail of this new relief, it will be necessary to show that repatriated funds are directed towards the maintenance or creation of employment here. Each individual application will have to receive, on a case by case basis, the prior approval of the Minister for Finance for its investment plan. The repatriation of funds under this scheme will result in a further addition to liquidity in the economy.

Section 22 provides for the increase from £4,000 to £6,000 in the capital allowances and the deduction for running expenses for motor cars. Section 45 renews for a further three-year period the favourable treatment of expenditure incurred on the construction of multistorey car parks. The existing relief, of a 50 per cent initial allowance and 4 per cent annual allowance expired on 31 March last, and its continuation will give a boost to the provision of off-street parking.

The Bill implements the major changes in the corporation tax structure which I announced in the budget. The main elements of the changes are provided for in sections 30, 42 and 43 of the Bill. These are a phased reduction in the first-year capital allowances for plant, machinery and industrial buildings, from 100 per cent to 50 per cent, and a parallel reduction in the standard rate of corporation tax from 50 per cent to 43 per cent. These measures are very much in line with the trend internationally towards lowering the tax rates, on the one hand, and available reliefs, on the other, and it is the Government's firm belief that these changes will improve the equity and economic efficiency of the tax code. The fact is that our tax incentives and exemptions have been rather generous, and have in practice tended to encourage capital investment at the expense of employment. The reduction in the standard tax rate will assist employment creation and, in particular, will act as a stimulus to the services sector which is recognised as an important source of new job opportunities.

Apart from the foregoing major changes in the reform of the corporation tax code there are also a number of related measures which I will briefly outline. In line with the reduction of the standard rate to 43 per cent, most lower rates of tax will be abolished under section 30 of the Bill. However, the 10 per cent rate for manufacturing and certain other activities is not affected. Under section 47 the reduction in capital allowances will not apply to contracts entered into on or before budget day, or to projects which are in course of negotiation with, and approved by the industrial development agencies by the end of this year. Likewise, the special building incentives in the designated areas for urban renewal, and qualifying services activities in the Custom House Docks area and in Shannon, will not be affected.

The arrangement introduced in 1981 whereby distributions paid by a company had firstly to be paid out of profits which had benefited from the 10 per cent tax rate — the Primary Fund — is being terminated. It no longer serves its original purpose, now that full advance corporation tax is in operation. It is now proposed, in section 29 of the Bill, that tax credits will be treated as coming proportionately from the tax mix of profits available for distribution. Tax credit rates for shareholders will, of course, be reduced under section 28 following on from the phased reduction in the tax rates themselves.

Section 36 provides for special exemption from corporation tax for five years for the profits of Nítrigin Éireann Teoranta arising from their gas trading activities. The purpose of this exemption is to enable Nítrigin Éireann Teoranta to service and pay off their debts. This exemption formed part of the arrangements agreed for the ICI-NET joint venture operation.

In the budget speech, I announced that it was proposed to impose, on a once off basis, a levy on the investment income of pension funds. The detailed provisions giving effect to this are contained in section 49 of the Bill. Following discussions with representatives of the pensions industry, the basis of implementation of the levy has been changed from that set out in the budget. Instead of being charged on actual income and realised gains, the charge will now be based on an imputed investment yield calculated by reference to the asset value of pension funds as of 1 January 1988. In addition to the exemption for small self-administered schemes, there will also be a parallel exemption for nongroup schemes run by life assurance companies. I am satisfied that the revised provisions will, overall, present fewer problems for pension funds, and their administrators. The changes now proposed will not affect the expected yield to the Exchequer.

Turning to excise duties the Bill confirms the budget changes. Section 54 provides for the repeal of section 43 of the Finance Act, 1968, which provides for the remission of road tax on vehicles converted for use by disabled drivers. This remission is to be subsumed in the proposed new scheme of assistance towards the mobility of the disabled. Discussions between the Minister for Health and representatives of the disabled drivers are continuing. I hope that agreement on the scheme can be reached in the near future. I want to stress that the decision to rationalise the existing scheme of assistance was not aimed at saving money but at eliminating unfairness and distortions which have been a feature of the present arrangements.

Part III of the Bill, comprising sections 56 to 59, confirms the VAT changes announced on budget day and which took effect on 1 March last. The imposition of a 5 per cent rate on electricity has not resulted in any price increase for domestic consumers because of the matching reduction in unit costs, while businesses have actually benefited because they can reclaim any VAT paid. As I stated in my budget address, this will enhance business competitiveness.

The reduction in the rate of farmers' flat rate addition from 1.7 per cent to 1.4 per cent has given rise to some adverse comments from farming interests but, as I have indicated on previous occasions, I could not allow the continuation of this mechanism at its former level while significant arrears of tax related levies remain unpaid by the farming community. The solution is clear. If the problem of the arrears is resolved I will be willing to look again at the matter in the context of next year's budget.

The corporation tax contribution from the banking sector is still at an unsatisfactorily low level, despite an appreciable increase in bank profits. The bank levy has remained at £25 million since 1983 and, in the circumstances, will now be increased to £30 million for 1988. Section 60 gives effect to this.

Section 62 of the Bill makes provision for the £10 duty on ATM cards which was announced in the budget. In the period since my Budget Statement I have received a number of representations in connection with this measure. I have given due consideration to the points raised and while there is some validity in the case made I am not convinced of the merits of the alternative proposals put forward for raising the projected yield elsewhere within the banking sector. The provision of banking services by use of electronic methods will continue to develop and this is something which has to be considered as part of the overall issue of the taxation of financial services.

Section 67 brings the tax treatment of securities issued by Bord Telecom Éireann and Irish Telecommunications Investments plc into line with the treatment of those of a number of other commercial State bodies, for example, the Electricity Supply Board and Aer Lingus. The purpose of the section is to enable ITI and Bord Telecom Éireann to raise more of their borrowings in unguaranteed form and so curb the growth in the contingent liabilities of the State.

Section 70 applies to income tax, corporation tax, capital gains tax, capital acquisitions tax and stamp duties the general principle of the Status of Children Act, 1987, namely, that relationships between persons are to be determined without regard to whether the parents of any person are or have been married to each other, unless the contrary intention appears. Deputies will recall that a commitment was given that the taxation implications of the Status of Children Act would be dealt with in a Finance Act. I am happy to be able to introduce a suitable provision in this year's Bill in fulfilment of that commitment.

In this opening address I have dwelt on general economic issues and tax reform as well as outlining the more significant elements of the Bill. I look forward to the opportunity on Committee Stage to discuss in more detail the individual sections of the Bill.

I commend the Bill to the House.

(Limerick East): This Finance Bill, like its predecessors, implements the provisions of the budget. There are few changes from the budgetary announcements, and consequently the mistakes of the budget are incorporated in the Finance Bill.

The Government say they expect that 256,000 persons, on average, will be unemployed in 1988. The Government say, too, that 30,000 persons will emigrate each year, over the next three years. Not only do the Government proceed with the implementation of their policies, as if this level of unemployment and emigration was acceptable, they act as if it were of no consequence. In his budget speech the Minister for Finance, addressed neither the problem of unemployment or of emigration. There is only a token reference to these problems in his speech today.

At no time, since the State was founded, have we been able to organise our affairs, so that all our people can get jobs: only for a very short period of our history has the flow of unwilling emigrants been stemmed. But now for the first time ever, we have a Government who are totally ignoring the plight of a quarter of a million people unemployed and who are seeking to institutionalise emigration.

We know from bitter experience, that emigration is a consequence of an under-performing economy, but never before have a Government sought to make the emigration of the young a plank on which economic policy rests. Fine Gael do not accept this approach. We do not believe, as the Minister for Foreign Affairs does, that there is not room enough for all our children on this island. We do not believe the country is too small to accommodate them all. We will not accept the deliberate reduction of our population as making any contribution to the solution of our economic problems and we will oppose any such policy.

We need growth in the economy. The budget and this Finance Bill are based on zero growth. Without economic growth our problems will continue; 20 per cent of the work force will queue for the dole; and the best and brightest of our children will leave the country; those in employment will face an intolerable tax burden, and there will be little disposable income. Our education, health and social welfare services will continue to be starved of resources; we will have high cost low efficiency services and the economy will continue to stagnate.

The Finance Bill does nothing to change this prospect. The Government are now pursuing a one item agenda: reducing the burden of the national debt. We welcome the diligence with which the one item is being pursued and we hope that the Government continue to pursue it, but unless the economic agenda is extended the economy will not grow and our real problems will continue into the next century. We must attack the roadblocks to growth in our economy. The problem of the national debt is one such roadblock, and we will continue to support the Government in tackling it. There are others, however, which must be attacked with equal vigour because their removal is essential to economic growth. These are the reform of the taxation system and, in particular, the income tax code, the cost of transport, especially internal road transport, the cost of energy, the cost of telecommunications and the cost of wages.

One of the greatest disappointments of the Finance Bill is its failure to commence the reform of the income tax code. Our taxation system is crippling. It is destroying the work ethic. It is a major contributory factor to emigration, and, in my opinion, it is the foremost inhibitor of economic growth in the country. It is a major disappointment that the Governement did not take the oportunity in the Finance Bill to make major proposals for reform.

The last year has been unusual in Irish politics in that the Governemnt have succeeded in making progress in controlling the national debt, with the help of the Opposition parties, in particular Fine Gael and the Progressive Democrats. Fine Gael now perceive the reform of taxation, and especially personal taxation, as just as important as controlling the debt, and we are disappointed at the lack of courage in the Government's proposals. The key problem with our income tax system is the low level of income at which persons move to high marginal rates. When we add PRSI to these high tax rates persons on quite moderate incomes pay rates of 55¾ per cent and 65¾ per cent respectivley. This year, following the implementation of sections 1 to 5 of the Bill, single people will pay these rates on reaching a gross income of £8,550 and £11,450 respectively. In the UK they would pay a standard rate of 25 per cent on the first £19,000 approximately earned, and a higher rate of 40 per cent subsequently.

It is usual at budget time to distribute tables to illustrate the effect of tax changes on individual taxpayers. The typical example is frequently the married couple, one spouse working with two children. It is interesting to note that this taxpayer respresents 8 per cent of the work force. Single people subject to the penal marginal tax rates which I have described account for 46 per cent of the labour force. Is it reasonable to expect single people on the average industrial wage to pay tax rates in excess of 55 per cent? Is it reasonable to expect single people who have a gross income of £220 a week to pay tax at a rate more than 65 per cent?

To a large degree our industrial policies are people based. The IDA advertise the excellence of our highly qualified young people. Will the young Europeans stay on to work here under such penal tax rates? Will the highly qualified, who are also the potentially high earners, stay, when a far more benign tax regime beckons just a £75 return flight away? Will not our emigration problem be now compounded when those who are being forced out are joined by those who are being attracted out? We cannot succeed with a people-based industrial policy if those with "get up and go" get up and go. We cannot build with sheep if the shepherds have left.

There is now evidence from all over the country that workers with certain key qualifications are leaving because of our penal income tax system. There is also evidence that companies are finding it increasingly difficult adequately to reward key management staff. There is evidence that industries which are willing to establish here are setting up in the UK because of our high marginal income tax rates.

We have established a corporate tax regime which is highly attractive to manufacturing industry but it is paralleled by a personal tax regime which is totally unattractive to the key people who work in manufacturing industry. Consequently, our industrial development programme is not as successful as it could be, and in certain companies an inordinate amount of time, especially financial management time, is involved in developing tax avoidance schemes to enable the company adequately to reward key personnel so as to maintain their services.

When we take our income tax code, together with our system of PRSI, and examine their joint macro effect on industry, the consequences for employment are obvious. We favour capital over labour. We favour machines over people. We favour the profitability of the corporation over the reward of the workers who have made the corporation profitable. We force wages upward, as workers seek to claw back some of their tax losses through higher gross wages.

If no other roadblock to economic growth existed here our income tax system on its own would be sufficient to prevent us achieving the growth rates of comparable OECD countries. We must change it. I accept that it is very difficult for a Government radically to change our income tax code. There are no massive unused resources available for tax reductions. Reform can only be achieved along the lines of the recommendations of the Commission on Taxation.

I believe only a package of reforms presented to the people can work. If a gradual approach is adopted the losers under the new regime will identify their losses far quicker than the winners will identify their gains. As Opposition parties support the losers Governments lose votes and there is no compensating increase in their support from those who win from the new regime. There is now, however an opportunity for the Government which is unique. The main Opposition Party have been supporting the general policy of the Government and against that background the timidity of the Government's tax proposals is amazing.

The Government merely engage in fancy footwork to fulfil their obligations under theProgramme for National Recovery. They have changed allowances and bands in a minor way. The cost of their proposals is £90 million. This £90 million is collected from the taxpayer by taxing his pension fund, putting VAT on his ESB, duty on his ATM cashcard, by making his VHI more expensive and by reducing the rates of VAT rebate to farmers. They are all robbing Peter to pay Paul proposals. What the Government put into the right pocket they have taken from the left and pretended it was tax reform. It is not. It is a missed opportunity seriously to reform the income tax code and the Government who have not acted in the Finance Bill which is, in effect all their own work, will live to regret it. I believe there will be no real growth in the economy in the absence of radical tax reform.

In my budget speech, I dealt in detail with the cost factors in our economy which make us uncompetitive. Since then some progress has been made both by the ESB and Bord Telecom in reducing the cost of electricity and telecommunications. Much remains to be done. The decision in the Finance Bill to impose a 5 per cent VAT charge on electricity, together with the Government's ingenuity in getting the ESB to repay in full a £30 million loan to the Exchequer this year, runs counter to the progress that has been made in reducing energy costs.

One of the greatest roadblocks to growth is the uncompetitiveness of our transport, both access transport and internal transport. If our economic growth is to be export led, we must be competitive in our transport costs. At present we are not. It costs 60 per cent more to transport by lorry a metric tonne in Ireland than in the UK. A combination of higher excise duties on fuel and on tractor units of articulated vehicles, together with delays at customs and a poor road infrastructure, all contribute to this problem.

Again, Government policy accentuates the situation. There is no relief or incentive of any sort to reduce transport costs in the Bill and the cutting of the capital programme on roads will ensure a continuation, indeed a worsening of existing conditions.

I wish now to discuss the specific proposals of the Bill. I have already discussed sections 1 to 6 in the context of what I have said about income tax.

With regard to section 7, when the withholding tax on professional fees was introduced last year Fine Gael opposed it. The experience of its operation over the last year has reinforced our objections. It is operating most unfairly. When last questioned about the matter in this House the Minister for Finance admitted that no repayments had been made to professionals from whose fees deductions had been made in excess of their tax liability.

Section 7 renders a bad situation worse. The tax as introduced obliged accountable persons to deduct 35 per cent from fees due to certain professionals arising from a contract of service. All accountable persons were Departments of State, State companies or State agencies. In extending the obligations of Part I of the Finance Act, 1987, to Voluntary Health Insurance the Minister for Finance is not merely adding one more State agency to the list of accountable persons, he is extending the scope of tax beyond its original concept. In so doing he is in breach of commitments given by him and the Taoiseach to this House in the course of the 1987 budget debate.

The contract of service in the case of the VHI is not between the insurer and a member of the medical profession, it is between the insurer and the VHI member. Both thede jure and de facto position is that the VHI pay the patient on foot of insurance cover and the patient pays the medical consultant. To force the VHI — under the provisions of this Finance Bill — to pay the doctor rather than the patient and to withhold 35 per cent of that payment and return it to the Revenue Commissioners constitutes a gross interference in the relationship between the VHI and their members, a relationship on which the success of the VHI was based. The Government are seriously mistaken in interfering in this relationship and should think again.

I fear that medical fees will be increased by the medical profession in an attempt to recover the amount of fees withheld. I fear that patients with full cover will in future find they have in practice 35 per cent less than full cover.

I appreciate the attempts made in the section to indemnify VHI members against any attempt to legally recover 35 per cent of fees withheld. However, I do not believe this indemnity will work. The payment of fees by patients to doctors is seldom an issue in our courts. The patients are at their most vulnerable in such circumstances. Legal indemnities will not solve the problem because pressure exerted on patients is not legal pressure.

If the Minister considers that the tax collection agencies of the State are unable to collect the income tax due on foot of VHI paynments I contend the problem is easily solved. I understand that the VHI are now prepared to supply to the Revenue Commissioners a list of those medical practitioners who benefit from VHI payments together with the amount of these payments in each individual case. In the past the VHI were unwilling to do so.

For four solid years.

(Limerick East):——for four solid years, as the previous Minister for Health knows.

And they went to senior counsel every time.

(Limerick East): Right, and got legal advice thereon. They have now changed, I presume, as a result of the provisions of this section. The Minister should change his tactics also because this should solve any tax collection problems that may exist — if there is a list supplied to the Revenue Commissioners, naming the doctors, and the amounts paid. The Minister would not then be interfering with the relationship between the VHI and their members.

That logic applies to barristers' work for the State also.

And there will be no breaches of confidence either.

(Limerick East): Those with vested interests should not trot them up and down the floor of this House. I would ask the Minister to seriously consider introducing an amendment along those lines. I would ask him to omit section 7. I should like him to draft and introduce an alternative section along the lines I have suggested. If he does not do so I will be drafting an amendment along those lines anyhow.

I welcome the provisions of Chapter II of this Bill. Self-assessment to tax liability is Fine Gael policy. When Deputy John Bruton was Minister for Finance in 1986, he invited the International Monetary Fund — in their capacity as international consultants — to advise on the matter. This chapter is drafted against the background of that advice. We support the chapter in principle but will consider putting forward amendments on Committee Stage.

In general we welcome the provisions of Chapter III. We will introduce an amendment to section 21 on Committee Stage to seek to encourage farmers to increase beef herd numbers.

We welcome the increase in benefit-in-kind relief on company cars proposed in section 22. The motor car industry is extremely depressed at present. Therefore, measures to stimulate demand for new cars are vital. Moreover, we believe the Minister has not gone far enough. I intend to introduce an amendment on Committee Stage, the purpose of which will be to assess benefit-in-kind on the engine capacity of company cars rather than on the market cost. This will involve no extra charge on the Exchequer but will act as a stimulus to the sale of new cars.

I welcome the reintroduction of the provisions of section 23 of the Finance Act 1981, together with associated sections, in an attempt to stimulate the building industry but I do not believe it will have much effect because there are now so many tax avoidance devices available that were not available in 1981. Although it is my belief that the reintroduction of these provisions will not be effective, any measure to relieve the gloom of the battered building industry is to be welcomed. I am confident that, when the news of the reintroduction of section 23 of the Finance Act, 1981, is carried on Radio Saudi Arabia members of Irish construction companies will pause in their labours, will turn towards Mecca and pray for the Taoiseach and his Ministers, remembering the balmy afternoon in the Berkeley Court Hotel when they were promised a 5 per cent VAT rate and an injection of £200 million into the construction industry.

And the Minister's Government delivered.

(Limerick East): The Minister did not deliver the VAT rate. They opened the cheque books but did not deliver on the VAT rate.

(Interruptions.)

(Limerick East): Sally O'Brien will be looking for the Minister for Finance before the building industry gets off its knees. The Minister will have more than an egg in the autumn unless he has left office.

We support the changes proposed in corporation tax contained in Chapters IV and V. The trading of reductions in accelerated capital allowances against lower rates of corporation tax is welcome. I should like the Minister to provide full figures here. It appears to me that the savings effected from the reductions in accelerated capital allowances would enable the Minister to reduce corporation tax to less than 40 per cent; the quid is there but thepro quo is not there in full. I should like the Minister to give us full details and figures in this respect because it is my opinion that the Minister could reduce the rate below 40 per cent rather than the 43 per cent proposed

With regard to Chapter VI, I note that section 49 deals with the proposed pension fund levy. This proposal is different from that contained in the budget and constitutes an improvement thereon. There are many aspects of this section I will wish to explore in the course of the Committee Stage debate. The effect of the proposal on pension funds will vary. I will be seeking assurances that no pension fund will be put at risk of insolvency by the implementation of his levy. I shall also be asking the Minister to confirm that this measure is proposed for one year only. I shall revert to this levy on Committee Stage. But, as I understand the position, the exemptions now provided would exempt pension funds with an asset value of something in the region of £1 million. I should like the Minister to give more detail on how the £5,000 answer to the mathematical formula contained in this Bill, providing the exemption, translates into the assets of a pension fund. I think the relevant figure is of the order of £1 million.

I shall discuss certain aspects of Chapter VI, Part I on Committee Stage. My party are opposed to the provisions of section 54 which provide for the repeal of section 43 of the Finance Act 1968 which, in turn, provide for the remission of road tax on vehicles converted for use by disabled drivers. Fine Gael see no good reason why this scheme should be moved beyond the remit of the Revenue Commissioners. Our spokesman on Health, Deputy Allen, has already stated our policy on this matter.

Fine Gael are opposed to the proposals in section 58 to reduce further this yéar the percentage levels at which VAT is rebated to farmers not registered for VAT. We opposed similar proposals in the 1987 Finance Bill.

The changes in VAT rebates in 1987 and 1988 are quite substantial. They represent an extra tax take, in 12 months of more than £8 per statute acre. Approximately 3,000 farmers are now registered for VAT. They tend to be the larger or more specialised farmers. Tax codes should be transparent and this proposal in section 58 is covert taxation.

I turn now to section 62, which imposes a £10 stamp duty on bank accounts against which an ATM cashcard is issued. This is a variation on the budget proposal which sought to impose a £10 duty on the card rather than on the account.

The proposal, in either manifestation, is most shortsighted. Banking is expensive in this country. Our banks need to cut their overhead costs. Any tax discrimination against cost saving technology is contrary to the interests of both banks and customers. Charges will increase and profits will fall. Any movement from ATM service to counter service by customers will significantly increase payroll costs and will militate against the many advantages, both present and prospective, which ATM banking provides,

Other issues also arise. Workers in many companies have agreed to payment of wages by cheque rather than in cash. The security advantages of this are obvious. Claims by trade unions to allow workers time off during working hours to visit banks to cash cheques or draw cash are met in many companies by the provision of ATM cashcards, to enable workers to bank outside bank opening hours. The imposition of the £10 duty reopens this industrial relations issue.

All students, but paricularly students in receipt of ESF grants or VEC grants are particularly affected by this proposal. These grants are paid directly into bank accounts, and without an ATM cashcard it is difficult for students to withdraw money. It was generally believed in this House that the Minister would not proceed with this proposal. There was reason for this belief as remarks both by the Minister for Finance and the Taoiseach were interpreted by the media as signals that the Government had had second thoughts. These interpretations were not contradicted. I would like to hear the further views of the Minister on this stamp duty as I am sure he would be reluctant to have an election over a £10 note. Section 69 is the most radical proposal in this Bill. The powers which it proposes to give to the Revenue Commissioners are draconian and the Minister has not convinced me that they are necessary. The power to attach and make deductions from payments due to tax defaulters, of amounts due in relation to tax, is an extreme measure.

We will need to establish very clearly the scope of the proposal. Will it enable the Revenue Commissioners to make deductions from payments due to farmers for delivery of milk to a dairy co-op or the sale of animals at a mart or to a meat factory, if the farmer is a tax defaulter? Will it enable the Revenue Commissioners to make deductions from the payments due by a customer to a company on foot of the supply of goods and services, if the company is a tax defaulter? Will it enable the Revenue Commissioners to make deductions from money held by a solicitor in respect of the sale of property, if the vendor or purchaser is a tax defaulter?

Previous Ministers for Finance and the Revenue Commissioners themselves have said that, when issuing assessments, they deliberately exaggerate the amounts they consider due, sometimes by as much as a factor of five, to encourage speedier tax returns. Will this policy continue? If it does will the exaggerated assessment be the basis for the attachment order? If not, is it the amount owed, or the amount which in the opinion of the Revenue Commissioners is owed, which is attachable?

I note that money in a financial institution, held to the credit of a tax defaulter for his benefit, is considered a payment from which deductions can be made. This raises serious issues.

When the deposit interest retention tax was introduced, non-disclosure of accounts was extended to all financial institutions. Will this now be changed? How can bank accounts be attached unless knowledge of who holds which account and how much is in it is available to the Revenue Commissioners? Is full disclosure being introduced by the backdoor, without consideration of the ramifications of such a move? If not, will the Revenue Commissioners go on a national trawl of financial institutions, by means of attachment orders, until they find an account to the benefit of the tax defaulter? Will attachment orders be made to head offices of financial institutions rather than to individual branches, thus putting the onus on the institution to establish whether money to the benefit of a tax defaulter is held in any account under their auspices? Is the post office a financial institution under the terms of this section? Has the impact of this proposal on the availability of credit been examined? If it has will the Minister inform the House of his conclusion? As the proposed section gives a prior right to the Revenue Commissioners over all other creditors, will the provision of credit in certain sectors of the economy quickly dry up? Will this not have a very serious effect on certain economic activities and will not a certificate from the Revenue Commissioners, that tax is paid be in future a prerequisite for the obtaining of credit?

The existing priority of the Revenue Commissioners in the liquidation of companies or in cases of bankruptcy is justified but I am uneasy that, without the winding up of a company, the Revenue Commissioners should now be given priority over all other creditors, which will have a most serious effect on the availability of normal trade credit in the economy. Is it the intention that the powers of this section will be developed to Revenue sheriffs under subsection (18) of this section?

I will have further more detailed questions on Committee Stage, in the meantime I expect the Minister for Finance to answer the questions I asked today, when he concludes this debate on Thursday.

I have argued in the course of my speech that there will be no real improvement in our country in the absence of economic growth, and that the Government have not taken action to remove the obstacles to growth. I would like to conclude by outlining briefly the financial situation as I see it and as the Government prepare the 1989 departmental Estimates. The Minister briefly referred to the situation but I should like him to expand on it on Thursday. My predictions are based on stable international interest rates and zero domestic growth. The ongoing commitments of theProgramme for National Recovery are as follows: Pay will cost £80 million, social welfare £75 million, tax relief £75 million, i.e. a total of £230 million. Each one per cent reduction in the Exchequer borrowing requirement will require £175 million in cuts. To reduce the EBR to 6.2 per cent of GNP will require cuts of £350 million. As expenditure cuts have a negative buoyancy effect on revenue, gross cuts of almost £500 million will be necessary to do this. The buoyancy effects of cuts required to fulfil the commitment of the Programme for National Recovery are neutral. Therefore, the Government need to make public expenditure cuts in excess of £700 million to continue the progress towards stabilisation of the debt GNP ratio. A tall order indeed. If that is the case, we should all know early in the year.

If we take the once off measures introduced in the Finance Bill, Exchequer borrowing requirement will be around 8.9 per cent of GNP. Therefore, I presume that the Government's starting point will be nearer to 9 per cent than to 8 per cent. Consequently, they will have further to travel to get down to 6 per cent. Also, is an extra pay day looming in 1989 for the public service which will mean another £50 million or £60 million?

I would be grateful if the Minister would expand on his rather cryptic statement at the commencement of his speech today that cuts of similar magnitude to those made this year will have to be made next year. Perhaps in 1988 we will achieve very high growth rate but the Minister did not seem to think so when he talked about GDP growth of between 0.5 and 1 per cent. I presume that translates into a GNP growth rate of less than 1 per cent even at its most optimistic. Perhaps there will be higher growth rates in 1989 but there is not much sign of that yet. I hope too that if there is growth it will, unlike the growth rate of 1987, be bedded in the real economy and will have a real benefit on disposable income and consequently on the buoyancy of revenue. Perhaps people will begin to spend their very high levels of savings and this will help the Minister in increased revenue buoyancy. However, I am worried about the magnitude of what is emerging.

Another thing that worries me is that the Government have now established a long list of no-go areas when it comes to expenditure cuts. As a result of theProgramme for National Recovery they are committed to certain pay increases, social welfare increases and increased tax relief. The serious effects of the cutbacks on health and education services over the past 12 months may make them reluctant to make further cuts in these areas. The capital budget has been almost abolished so there is very little scope for cost cutting measures there. The big question as we go through this Finance Bill is what the Government's intentions are for 1989 and where they will go to find in excess of £700 million of cuts in public expenditure. The economic agenda is extremely narrow at this point and it would be in all our interests and the interest of the country if the Minister were to extend the agenda along the lines I have suggested.

The Finance Bill, as the last speaker pointed out, is not full of surprises except that in a global sense it is surprising that it has not addressed itself to some of the fundamental problems which confront our economy. This is an occasion on which the Dáil makes its annual assessment of the taxation system. While, as has been pointed out, in many respects it is merely the implementation of the budget announced by the Minister for Finance on budget day, we must recognise it is the only occasion on which we, as legislators voted in by the people to make decisions about our tax system, have the opportunity to pass judgment on the system of taxation itself or to reform it for that matter.

Viewed in the light of tax reform, this Bill is a very modest proposal indeed. While it is agreed that last year the Minister had to introduce a budget and Finance Bill in hurried circumstances which, it could be argued, prevented him from setting out any grand strategy for tax reform, the same excuse does not avail him this year. That we have a taxation system which badly needs reform is generally agreed. The Irish taxpayer faces the highest initial tax rate of all OECD countries and reaches the highest marginal tax rate experienced by any OECD paid taxpayer in the context of his country's annual average industrial wage. The consequences of our cripplingly heavy tax burden are apparent to everybody throughout the industrialised world.

There is a dramatic shift to low standard rates of personal taxation which is not confined to Margaret Thatcher's Britain and it is not a matter of Lawsonomics, as they are now called. It is not the hallmark of a sternly blue tinged Government because, as has been pointed out on many occasions in this House, there are increasing signs that Governments of a different political hue, for instance, the Labour Government in New Zealand, have seen the light and realised that in the context of taxation there are no longer in an increasingly interdependent world economy opportunities for fiscal independence of the kind which obtained heretofore. Looking at an avowedly leftist Government such as those who hold power in New Zealand and what they propose in relation to personal taxation and the situation they had to confront in terms of massively increasing public indebtedness, a small population and an agriculturally based economy with many features similar to our own, one thing becomes remarkably clear.

Tax reform will not be a reward for economic and financial fiscal stringency and rectitude. It will not be the fruit of a recovery. In my and my party's view it is part of the process towards recovery itself. There will be no substantial recovery while the fiscal climate is hostile to economic activity. There will be no progress towards creating employment and greater participation in the economic life of the country if we wait for tax reform as an unexpected bonus, as the light at the end of a tunnel through which we are travelling. That is a mistaken understanding. Tax reform must be part of the process of recovery, not its fruit, and we are making a big mistake as a Legislature if we believe we can postpone tackling the taxation issue until some time when we believe there will be more room to manoeuvre.

There is never room to manoeuvre politically except perhaps when 80 per cent of a parliament are willing to support a programme of radical tax reform. Political circumstances are more important in many respects than economic circumstances. When will there be political circumstances more conducive to radicalism on the part of a Government than those obtaining now? Even if we had a snap election and even if right around to where I sit was occupied by Government Deputies, would there be more opportunity for radicalism? Is it in some sense the case that the minority status of this Government forces them to be fiscally conservative now? I do not believe that is the case. I believe that now is the time and opportunities are being lost daily in this House to take the necessary radical steps.

I welcome Deputy Noonan's statement that incremental tax reform is not possible and is a strategy which is probably politically self-defeating. I agree with him entirely that a population will not take to incremental tax reform where they can perceive all the negative consequences and none of the positive consequences of a tax reform package. I agree entirely with his thinking that there is no such political opportunity as that created by putting together a major package of taxation reform and putting it before the people as one "take it or leave it" measure. That is the experience internationally of Governments both right and left. If you want to achieve a radical transformation of the taxation system you must present a package.

Viewed in this light, the Government have proposed as their fiscal target a tax reform which means effectively that 66 per cent of people should be paying tax at the standard rate. That means 33 per cent of taxpayers should remain above the standard rate of taxation. Given that last year 43 per cent of people were paying tax above the standard rate, we are really talking about changing the marginal rate of 10 per cent of taxpayers. That is not the stuff of which a radical tax reform is made, whereas it can be achieved by small movements this way and that of the bands and does not require a dramatic transformation in the tax base itself, in the method of calculation of taxable income, or in the allowances or deductions which can be made by people. The proposal to bring 66 per cent of people to the standard rate of income tax presented by itself is not a worthy aim and is one which will prove in the last analysis, if achieved, not to have remedied the really damaging effects of the Irish taxation system.

The introduction of self-assessment for the self-employed and the realistic amnesty which the Minister proposes are welcome developments which have been advocated by my party since its foundation. I commend the Minister for them and I commend him also for the proposal to put in place attachment orders for noncomplying taxpayers. That was a proposal which my party were the first to make and it was also set out in the report of the Commission on Taxation, as the Minister has pointed out. It is a necessary weapon in the armoury of the Revenue Commissioners but, as Deputy Noonan has said, it is a draconian measure.

One of the things which sometimes strikes me — and I hope it is not too cynical a thought — is that the reason we have to some extent been able to cohabit with the viciously progressive system of taxation this country has endured for the last decade at least is the inefficiency of the revenue system. When the revenue system becomes more efficient and gets all these new weapons and tools to do its job more efficiently, as it indeed deserves, the pressure for tax reform and the political necessity to reform the tax system will grow. It is not simply a matter of the increased yield from taxation, due to efficiency in its collection and the ending of avoidance, evasion or default, being made available to reduce tax. The very fact of the Revenue Commissioners being able to recover money quickly, operating efficiently and being in a position to extract payments due to the Exchequer will, by itself, increase the pressure for tax reform because of its consequences.

In relation to the attachment procedure it is worth pointing out that in many respects it will be used by people to force payment to them on an advance basis, rather than that which was previously agreed, in order to defray tax bills. If I owe the Revenue Commissioners money and another person owes me money I can inform the Revenue that that debt is due to me and in that sense I can make the Revenue Commissioners my debt collector and get money from people who thought they were, due to commercial positions or commercial strength, in a position to resist pressure of one kind or another. I would instance the case of a supplier supplying goods to a supermarket chain but who is owed money by them. He will be able to do things to the supermarket chain in future which he could not have done in the past. All he has to do is to hand details of the moneys owing to him to the Revenue Commissioners and secure payments. There will be some people who will be surprised by the consequences of that. I am aware that in some circumstances certain credit terms are allowed but where these have been exceeded and where the sum is due there will be a sort of domino effect in terms of people using the Revenue Commissioners as collectors for their own debtors.

In relation to the withholding tax on professional fees the Commission on Taxation suggested that withholding taxes should be used as widely as possible where it was fair to do so. I have no objection to withholding taxes in principle. However, the effect of the measures introduced last year was to slap many sorely pressed individuals on to what was in effect emergency rate taxation. This is causing hardship and the Minister admitted on two occasions in questioning from me in this House earlier this year, that virtually no moneys have been returned on foot of the hardship clauses. The consequence is that a considerable number of people, and they are not the wealthy, in real terms they are frequently young professional people who are providing services through the GMS who do not have a large margin on which to work and who have a considerable number of liabilities have been put onto emergency taxation. That is the consequence of the withholding tax. In many cases it is proving to be unjust in operation.

It is logical, however, if you are going to apply the withholding tax to medical fees funded by the State to seek equity among various recipients and I believe it would be illogical and unfair if people were to be treated very differently on the basis that they were providing medical services directly for the State or through a State insurance system. To many people, the direct financial relationship between doctors and their patients is not as sacrosanct as is now being claimed. The VHI is for many people seen as virtually the equivalent of a State voluntary health insurance system. They do not see themselves as dealing on a private basis with their own medical practitioner. In that context there is something to be said for achieving equity as between different members of the medical profession. I see a huge difficulty in that since the sums are to be recovered directly from the patient, since there will be a cash flow problem, since there is no effective way of controlling the sums charged by a consultant to his patient and since the moneys paid by the VHI are recognised only to be a part reimbursement for the moneys due by the patient to the consultant in many cases, it seems that there is a very significant danger that fees will be increased to take account of the financial embarrassment which the withholding tax will cause to many members of the medical profession whose incomes are chiefly derived from voluntary health insurance and that the loser in this process will be the patient. It is all very well for the State to apply withholding tax to the fees of barristers appearing for the Director of Public Prosecutions because it was not open to the Bar to say: "We will increase our fees to the Director of Public Prosecutions in those circumstances and that will relieve us of the embarrassment caused by the withholding tax". In the case of an individual who has a direct financial relationship or the right to call for a direct payment from the person on behalf of whom he is providing the professional service, it seems to me that he has an indirect method open to him of reimbursing himself for the real cost to him of the increased tax load implicit in the withholding tax system. As Deputy Noonan said, and I agree with him completely, no indemnity is worth anything to a person in those circumstances because the pressure to pay the specialist's fees does not derive from the threat of legal action. It has much more to do with moral pressure and the relationship of trust and a human relationship between the doctor and the patient or the doctor and the patient's wife, husband or parent and in those circumstances it seems there is an opportunity which the Minister should be aware of for people to get around the effect of this particular imposition of taxation by moving the cost elsewhere.

The arrangements in relation to hospital consultants' fees are extremely clumsy. I hope the Minister will accept proposals for their simplification if not in the course of this debate, on some other occasion. Something must be done to make the system more safe from the point of view of the patient and more orientated towards keeping their financial interests in the foreground.

Nor is comparison of our tax system with those of other countries simply an opportunity for fiscal envy. We have, on many occasions recently, read many newspaper editorials on how the British budget was unfair, imbalanced or whatever. For me it is not simply a matter of coming to a view that I would prefer to live in a low tax economy. In the context of the Single European Act we have to face up not merely to harmonisation of indirect taxation but also to the equally strong economic pressures there will be for harmonisation of direct taxation. Of course they are not part of our obligations under the treaty or under the Single European Act but if the fiscal climate is very much less favourable in an economy from which capital enterprise and labour can freely move to a nearby and more favourable fiscal climate, by necessary implication there is a curtailment on our direct taxation sovereignty. We cannot act anymore as if we were an island in relation to direct taxation. We live in a Europe where direct taxation is on the way down and is being standardised at low rates. It is not open to Ireland as an economic option to carry on with our tax system the way it is. We deceive ourselves in the context of the Single European Act if we think that Ireland can possibly maintain cripplingly high rates of tax on work, investment and essential inputs such as energy and telecommunications costs without repelling foreign investment and exporting economic activity itself. No amount of EC subsidies can redress an economic imbalance which arises out of a hostile fiscal climate for investment, work and savings. Nor can we expect to be accorded a totally one-sided treatment by the Community in the context of a single Europe.

There is no point in repeatedly heralding and applauding the very welcome doubling of the Community's regional and social funding for this country while at the same time maintaining that we will not have anything to do with tax harmonisation because of the cost of this process to the Irish Exchequer. Although the Single European Act commits us to a process of harmonisation of indirect taxation, I believe the Government are in error in persisting in the position that Ireland cannot afford harmonisation. The cost is put in today's paper at £470 million and it is suggested that we cannot afford this as a consequence of economic or fiscal adjustment in the context of the Single European Act. I would express the opposite view. I suggest that Ireland cannot afford not to adopt a strategy the purpose of which is to ensure that this island is on broadly equal terms with the rest of Europe as a location for investment in economic activity. That involves changing our direct and indirect taxation. It is our view that our geographical disadvantages must be compensated for and not compounded by our tax system.

It is a mistake too to assume that the money foregone by VAT and excise harmonisation is money thrown away by the Exchequer. In any event there would be an element of buoyancy in tax receipts which would inevitably arise from harmonisation or at the very least from a proximation of tax rates. Secondly, the tax base in Ireland is narrow and has to be widened. Thirdly, the moneys gone must be spent by the beneficiaries, the people who are no longer taxed at the high rates we have for indirect taxation. Although one has to accept that the pattern of expenditure will be more importoriented and less likely to be spent on essential services now provided by the State either free or heavily subsidised, it is my view that this country has to undergo a political revolution, a revolution of political attitude. The State, in the context of the European Community and the Single European market, cannot afford to give to the haves, and therefore as between the haves and the have nots there must be a focusing of the redistributive function of Government. The haves will have to realise that the consequences of low taxation are low subsidy and low handouts from the State. That is the inexorable consequence of a low tax regime. It is not a choice that is open to us to make. We cannot opt out of the general world drift in direct or indirect taxation. We can only steer a slightly different course and then only to a very marginal extent. Those are iron laws of economics by which we are bound, like it or not. No amount of whingeing about fairness or unfairness in relation to low rates of taxation can undo the fact that we are only a few minutes flight from an economy which has a wholly different tax structure. We cannot expect resources, people or enterprise to remain in this country regardless of the disadvantage in relation to taxation under which they labour. We cannot expect that our economy can follow an entirely different course with high personal taxation and high indirect taxation without regard to the consequences.

This means that we have to make some very harsh political decisions, not harsh in the sense of taking away from the have nots in society but harsh in terms of destroying our own illusions about the services and the degree of redistribution which can be given to the haves. In addition to other features I have mentioned and the £470 million implicit in the harmonisation of VAT rates, we have to take into account that there will be an economic benefit in direct transfer payments arising from the doubling of the Regional and Social Funds. I accept that the money will mainly be expended on capital projects and will be of little assistance to the State in funding current liabilities but in the last analysis in terms of total resources available to the economy as opposed to the Government, we must take this into account.

I welcome the decision to reduce the higher rates of corporation tax. I agree with Deputy Noonan that it is possible that the robbing Peter to pay Paul process in relation to capital allowances and the rate of corporation tax may not have been entirely resolved in favour of the taxpayer. There may not be a strict equality between the concessions given and the reduction but that remains to be seen. If we believe in a sane and rational defensible system of corporation tax and tax in general we must hope to see the day when corporation tax will also approximate at the standard rate of income tax. I believe that will inevitably be in the region of 25 per cent.

I welcome the reintroduction of section 23 reliefs. When I suggested this last year I got fairly short shrift from the Minister but I am glad he has changed his mind on the matter. In the context of urban renewal section 23 reliefs are not sufficient. The Government rightly got rid of the Metropolitan Streets Commission, a body with very limited powers and a limited lifespan, but unless there is a positive active urban renewal corporation with powers to acquire and develop land and to infill sites with the co-operation of the private sector many of these incentives will go unused and will not realise their full potential.

One of the most disappointing features of this Finance Bill is the duty on the automatic teller machine cards. My reasons for suggesting that this measure is foolish are sixfold. It increases the need for liquid cash in the economy and there by keeps money away from investment. It prevents the development of the banking sector in accordance with modern trends. It retards the law in relation to the reform of wage payments. It imposes extra security costs on the State, the banking sector, employers and traders. It prevents the establishment in Ireland of the cashless society. It militates against overdue reform in relation to unnecessary overmanning in the banking sector. The same revenue could easily have been generated by a different form of levy on the banks, be it in the form of an increased levy on cheque cards or increased cheque duty or a combination of both. There is some merit in the position the Minister advances that there has to be some yield from the financial services sector in terms of tax to the economy and that the tax yield is, relatively speaking, low.

This measure is a retrograde step. The consequences of it will be that a process which was accelerating will be retarded. In particular, it will be retarded in the places where it could have done most good — stop the payment of wages in cash, stop the necessity to send people from factories up and down to banks with £2,000 or £3,000 in their cars, stop people from having to lay out on tables large sums of money and run around the table with pennies and coins in their hands, stop robberies and also stop wasting people's time, which is an additional imposition on the cost of employment and manufacturing in this country. These things could and should have been avoided. The Progressive Democrats will oppose that measure and if the other Members of the House also oppose it the Government would be well advised to think of an alternative way to raise those moneys.

In relation to the taxation of pension funds, it seems to me that nobody but the most gullible could possibly believe that this is intended as a once-off levy. The measure is discriminatory in that it punishes those who have made provision for their pensions by saving. I should like to remind the Minister that there are many people, particularly those in the public service, who have unfunded pensions. There are particular cases to which people with longish memories can point where people decided to work for a semi-State body with a funded pension fund, on the one hand, or opted, on the other hand, to remain employees of State bodies. People in one of those groups are now going to have a 6 per cent levy on the income of their pension funds while people in the other group are going to carry on with an unfunded pension which is much more expensive in many ways to the taxpayer and does not represent the same degree of savings or effort on the part of those persons.

Even with the reforms the Minister has suggested and the exclusion from the system of the vast majority of small pension funds and individual persons pension funds, it still seems to be wrong to tax the so-called income from pension funds which, in fact, is calculated without reference to the solvency of those funds or to their liabilities. Many Irish pension funds are, technically speaking, insolvent in that their present liability or anticipated future liabilities are unlikely to be met for many years by the assets available to them. In that context, to go to trustees, which pension funds really are, and to take from them 6 per cent of their income when they are not providing adequately for the obligations which they have undertaken and when the money would, when finally paid, in any event be taxable in the hands of the recipients is unfair and discriminatory, This part of the Finance Bill should be, and will be, opposed on Committee Stage.

The proposal to end the excise rebates for disabled drivers is an example of a harsh and insensitive economy. The health boards to whom an alternative scheme is to be entrusted simply do not have the resources to fund the alternative. Anybody who is conversant with the position of health boards, who knows what they do and do not have to do with their money and the pressures that are on them in relation to the application of the resources available to them will understand immediately that to take from the Department of Finance the administration of the scheme in these circumstances and to hand it over to what is in effect a frontline agency labouring under extreme difficulties is inevitably putting the whole scheme into danger.

I know it sounds a bit ridiculous to give a person who is immensely wealthy excise rebates or a deal in terms of tax, irrespective of his or her needs, but implicit in any scheme of general application is the problem that some people who do not need it will receive it. On the other hand, for the disabled — those people who have difficulty moving about and who have difficulty walking ten yards, if they can walk at all — the very process of participating in the economic life of the country, getting to and from work, not remaining at home and not needing help, is a daily struggle. Society is making a mistake in removing from them a financial incentive which was designed to increase their mobility in order that they could lead as normal a life as possible in the circumstances.

I do not believe the Minister when he says this is not a money saving measure. I believe it is a money saving measure. There is no clamour on the part of any group in society for this change and if there is no clamour for change and if the motivation for it comes from the Government, in the last analysis the only explanation I can think of is that it is motivated by economic considerations.

We handed all the money over to health authorities.

You may have done this year but you will not do so next year. I believe that the motivation for it is not based on a desire to improve the scheme.

Read what that piece of legislation says.

I do not believe that the recipients of the present concession would oppose it so vociferously if they thought it was merely designed to achieve fairness.

They have concluded discussions with the Department of Health about it.

I appreciate that the Minister has concluded discussions——

They have.

——but I understand that the groups in question are heavily outnumbered on the consultative committee on which they are represented.

Four to two, to be exact, in their favour.

I do not think——

(Interruptions.)

I appreciate that when they come into this House Deputies perhaps equate the Second Stage of the Finance Bill with the budget. In respect of the Finance Bill we are required to treat specifically what is there rather than make projections as to what might happen next year.

I am dealing with the section and I am indicating why I am opposed to it.

You are making your Second Stage speech.

I am indicating why I am opposing the section.

You are bringing in the matter of your projections as to what might happen next year, which is not provided for in the legislation.

I will have to respectfully disagree with your views on that.

Respect-fully or not, the Leas-Cheann Comhairle or the Ceann Comhairle is required to advise Deputies of the limits of the debate on the Finance Bill.

I was replying to what the Minister said in his speech, that it was not a cost cutting measure. I was indicating that I disagreed with him and thought it was a cost cutting measure. I may be right or I may be wrong but I am entitled to express my view if he is entitled to express the contrary view.

I should indicate that the Finance Bill, as presently drafted, contains a number of matters which will be opposed by the Progressive Democrats. I ask the Minister, in particular in relation to those matters which I have addressed, to show some flexibility and not to make them a matter of confrontation in this House. Under the rules of this House we cannot put down amendments to show where the money could come from alternatively, even in relation to the stamp duty on the ATM cards, but I have no doubt that the money is available and that a fairer system could be devised. We will not oppose the Bill on Second Stage but we will oppose the individual measures to which I have referred: the pension fund levy, because it is improperly worked out; the ATM cards; and the proposal to reform the law in relation to disabled drivers. I ask the Minister to consider between now and Committee Stage whether, in relation to the individual matters which are not at the heart of the Finance Bill in any real sense, he could see his way to qualifying them or altering them with a view to taking on board what I believe is the consensus view of this House that they are, as presently drafted, misconceived to some extent.

Chapter II of the Bill in relation to the first element of self-assessment is a tremendous achievement. It marks the beginning of sanity in our tax system. The rules which heretofore obtained whereby one could get away with anything and it was up to the Revenue Commissioners to discover it are beginning to end and the process of self-assessment, though not completed here, is so necessary to any real tax reform in this country and the revolution of attitudes in respect of the obligations of people to the Revenue Commissioners. It would be churlish of me not to congratulate the Minister on introducing those measures at this stage.

The one memorable phrase in the contribution of our colleague, Deputy McDowell, was his reference to the iron claw of economics. The last time I heard that was in an Alf Garnett television programme. The sacrosanct aroma that one tends to give to the iron claw of economics in this House requires some sober analysis. For example, what is so ironclad about a principle whereby out of some 50,000 companies registered in this country only about 9,000 pay any tax at all?

The rest of them are on shelves.

These are companies registered and overwhelmingly in operation and they do not pay any tax at all.

(Limerick East): Were you on that television programme?

Alf Garnett must certainly be the main shareholder in 40,000 of them because he seems to pay no tax. I have not believed that there is a particular unique taxation system whereby, in order to run an economy such as we run in this country, we have to give £900 million last year in specialised tax relief to industry.

For example, the reduced manufacturing tax rate of 10 per cent cost some £124 million in lost revenue to the Exchequer. We have a unique export sales tax relief which costs us the best part of £400 million in 1987. We have this glorious section 84 tax-based lending to allow the banks to get away with murder in the international financial services sector which we will come to later on. What do we do? We are so worried that the banks here might not be making money that we have to introduce section 84 tax-based lending which helps the banks to reduce their tax bills. Allegedly this money is passed on to industry but in practice it is a device to help the banks to pay less tax and that cost us this year over £70 million. By the time we are finished with the Custom House Docks site it would be up to about £90 million without a job in sight.

It should be borne in mind that there are many tax reliefs in existence which have been built up over the years by successive Governments and which have never been the subject of a truly rigorous examination in terms of their impact on enterprise, their impact on employment, their impact on entrepreneurial endeavour, in terms of what makes a person become an entrepreneur and engage in industry and exports and create employment, enjoy the operation in the process and contribute enormously to the economy. Instead, we have a succession of Finance Bills which bear very little real relationship to our economic and social development.

We have a uniquely unbalanced tax system. We have PAYE workers who have an income tax number stamped, so to speak, on their backs every week; tax is deducted at source and they have no escape. Simultaneously we have virtually a "no tax" regime for the agricultural sector or the fisheries sector. We have a unique anomaly, carefully protected by successive Taoisigh and Ministers for Finance, whereby we have a bloodstock industry which offers a tax haven to the super rich; those who can afford to have a few horses pay no tax at all.

If one looks at farm tax generally, this year it is purely nominal even after the introduction of the 3 per cent PRSI and income tax. If one takes the reduction in VAT refunds, the total situation still remains that for about every £ we get in tax from the farming community we give back directly about £15 in subsidies. That is the reality. There is virtually a non-tax regime in agriculture. While last year farmers paid about £40 million in income tax there was still about 12 times that given back in social subsidies.

Therefore, I am sorry to have to say to the Minister for Finance, a most assiduous Minister for Finance, that he has lost a double opportunity. He lost one last year in the 1987 Finance Bill. He has lost the opportunity again this year to bring in very fundamental reforms in terms of a population paying its taxes and I am not very sanguine about self-assessment. The capacity of Irish people to avoid and evade payment of tax is unique in western Europe and self-assessment is not going to cure the malaise despite the confident predictions that it may do. In fact, I would nearly predict that it may make a bad situation worse.

We now have a two-tier tax system whereby those in certain income categories pay very little in taxation and those in the PAYE net pay very substantial levels in income taxation. We have heard a great deal about a two-tier health system. We have it all over the place. It does not matter whether we are talking about health where there is £48 million in tax relief to the VHI and the sole contribution of that tax relief is to enable people to jump the queue, to get ahead of a public patient in hospital. If that £48 million was maintaining the public system there would be a degree of parity, of equality of treatment. That is the reality and one could take it right down the line.

If you have enough money you can have higher education for your children convenanted and you will get very substantial tax relief. You will be able to afford that level of higher education. There is a two-tier system of education in operation at that level. If you want better housing and have substantial disposable income — while admittedly there is a ceiling on mortgage interest relief — there is a standard rate in operation and you can gain substantial benefit at the top marginal rate as far as mortgage interest relief is concerned. Such mortgage interest relief is costing this year about £160 million.

The fundamental reforms are really difficult to bring in politically. This tricking around with pass cards to the extent of £6 million is a cosmetic exercise. The very necessary fundamental reforms in our taxation system have not been introduced in the Finance Bills of 1987 or 1988. The bringing in of self-assessment is no cure for the breakdown in the administrative system of tax collection. As we know, the system has been giving at the seams in recent years. The Bill has provision for a degree of PAYE tax relief, but I am not happy about its extent or the manner in which it will be applied.

There are married couples living on about £7,000 a year. Many politicians and economists believe in a low wage economy. I think we have one such politician here. There are others who believe in a low social welfare economy. They believe that if you keep depressing the social welfare benefit the so and so's will go out and get jobs. The philosophy is to cut social welfare and the unemployed will get up off their backsides and get jobs and simultaneously to cut tax at the top level for those at the 58 per cent rate or those with perhaps £50,000 a year, give them a huge lump of tax relief and they will keenly go out to create jobs. The proletariat, who are presumed to be too lazy to work, will get jobs through the wonderful entrepreneurs getting tax relief. Such Thatcherism is rampant here now. It has virtually an 80 per cent political endorsement, but not a public endorsement. This Thatcherism, this Norman Tebbittism, is imported into this country in the belief that if you reduce social welfare payments people will seek work and become mad devotees of the phrase "incentive to work". The fact that this social value is perverse and wrong in terms of an iron law of economics does not seem to matter. The public perception is that we live in a society where it is dog eat dog and if my neighbour has no job, no bread on the table, no Sunday joint, that is his problem. When it comes to taxation and taxation relief the cry is "give me back my money. I see no reason why I should pay for anybody else who might be unemployed, or on low income, or suffering illness or the trauma of old age." We the politicians have pandered to an enormous degree to this philosophy. We have even set up a political party to cater for it.

Certainly, in one sense the politicians did set up the Progressive Democrats, but it was by their failures.

That party subverted an old party and in the process both of them became converted to that philosophy.

This is interesting but it is not relevant to the Finance Bill.

There is a fundamental philosophy behind the Finance Bill which must be exposed. Let us take the £91 million in tax relief as an example. If you are earning £15,000 to £20,000 a year, you get some relief; if you are earning from £6,000 to £14,000 a year you get a paltry £1.40 a week. The Bill has been drafted in favour of the better off. Married couples with one spouse working, earning from £6,000 to £14,000 a year, will get a miserable £70 per annum. Couples earning £15,000 to £30,000 a year will have a reduction, on average, of not less than £411 per annum. That is some social equity. That is what gives the Government a 43 per cent support in the opinion polls. Those who have want more and will vote for that down the line and those who have not are not around to participate in opinion polls because they are so busy trying to earn a few bob and are not particularly impressed by opinion polls.

If the Deputy believes that, he will believe anything.

That is the reality. There are not many middle class people carrying out opinion polls going into the homes of the deprived, many of whom have lost the facility even to fill in the forms.

I want to refer to a statement made by the Minister for Finance, namely that this year the volume of GDP is expected to grow between one half per cent and 1 per cent. That is a strange contrast to what the Minister said last year in his Finance Bill, which was: "Money is flowing back into the economy and this will be reflected in new investment and new job opportunities." There has been no money flowing back into this economy. As the Minister well knows, there was a zero growth last year in the volume of consumer expenditure. In retail sales last year there was a drop of 1.7 per cent. You can talk to any shopkeeper who will endorse that. In investment expenditure there was a drop of 1 per cent last year. There was a drop in Government expenditure, in Government overall consumption, of 2.25 per cent. Far from there being new job opportunities, there was a fall of 1.5 per cent in employment. We had an increase in unemployment of 4.6 per cent. That was the outcome in 1987 of the Finance Bill which enshrined that philosophy. There was growth this year of a half of 1 per cent in GDP. Of course, that means a drop of 1 per cent in GDP overall at the end of 1988. That is an admission at this stage of the year that our economy is still in a substantial decline. That is something that is quite alarming in terms of economic policy. The Minister in his speech says:

It is fair to say, however, that the adjustment will have to be of significant proportions, probably of the same order of magnitude as in 1988.

I was accused last week of being irresponsible, mischief-making and of scaring the daylights out of the elderly when I predicted that about £150 million was being sighted in the guns of the new review body headed up by the Department of Finance, for the expenditure review commencing now, in terms of budgeting for 1989. I was assailed as being utterly irresponsible. The Minister on the Finance Bill tonight admitted that I was correct in what I said. The Minister said also in his speech:

Arrangements for a repeat of last year's expenditure review procedures, with a view to securing the necessary savings, are already in train.

We all know that the bulk of expenditure reductions in 1988 have not yet come through this year. In the autumn, at local authority level and at education level, the Minister will face a very traumatic period as the people who are currently expressing satisfaction with the Government are affected, as with a dose of salts, from the working through of the cuts in health, social welfare and in education. Looking at the sums for next year, we know that the Minister is giving a little preview in his speech of what is in store for us. We should consider the £70 million of public service pay for next year, plus £28 million in increments, plus £15 million on special payments, which are inevitable, plus the fact that it is not envisaged that the Minister will go ahead next year with the pensions levy which will bring in £16.5 million this year. In the heel of the hunt the Minister will reinstate this levy next year because he will have no option, depsite his once-off implication today.

We should also consider that the Minister for Education, having made a bags of the Education Estimate, has overshot by about £17 million for 1988 already, according to first budget trends report which the Minister got. We should also remember that there is a carry over into 1988 of at least £55 million on the social welfare increase given in the budget and that there is a requirement of £60 million for a full year's tax relief in addition to the tax relief in this Finance Bill. We should also add to all of that this giveaway of benefit in kind on motor vehicles which this year will cost a miserable £600,000 but which will cost the Minister £7 million next year, and £14 million the year after. One should also add the fact that the Minister screwed £31 million this year from the ESB — the ESB were much less politically kind to us — but that he will not get it next year because that was a once-off capital repayment.

(Limerick East): They might have something else which would be helpful.

Deputy Desmond, these nostalgic recollections are not entirely relevant to the Bill.

I will conclude my comment on this note. When one adds all this up one can readily see why the Minister for Finance and the Department of Finance are working themselves up into their mid-year tizzy for further major reductions in the area of public expenditure. My comment of last week was responsible and appropriate and was a warning in due time to the people of what is to be expected. One would have thought in that circumstance that the Minister would have been very circumspect in the Finance Bill and that he would not give away much.

If there is one giveaway which is a public national, and international scandal it is in relation to the Custom House Docks site. I was involved in negotiations on the Custom House Docks site as was Deputy Noonan. We were involved in a responsible manner. We are directly concerned with the revitalisation of the inner city areas of Dublin, Cork, Waterford, Limerick and the Custom House end of the Dublin area. With that in mind we brought in four specific tax reliefs as a major incentive for that area. We offered full remission of rates for ten years in relation to new buildings. That is a substantial relief. We considered that carefully and we had lots of memoranda from the Minister for the Environment and the Minister for Finance right through 1985 and 1986 in relation to that. Looking at it calmly and without panic we then agreed that if people built on that site and put up substantial reconstructed and reinstated buildings and the value of those buildings shot up to perhaps five times their original value, we would give a full remission for a further ten years on the increase on the valuation of reconstructed buildings. That was a very generous concession to get things moving on the Customs House Docks site. In addition we gave capital allowances for commercial development, on capital expenditure incurred on commercial buildings and structures, namely buildings used for the purpose of carrying out any trade, profession, business or other undertaking. We agreed that these allowances would apply in relation to the Custom House Docks site and all the designated areas.

As the Minister knows, in 1986 we decided in relation to capital allowances that an allowance of 100 per cent would apply to the Custom House Docks site and in designated areas other than in Dublin the allowance would be 50 per cent. Finally, we decided to give a double rent allowance against trading income. These allowances were to apply within five years of the approval of a planning scheme for this site. That was generosity over and above the normal allowances for designated areas, in the case of the Custom House Docks site. That was a major package of incentives. We published this package and got a reasonable response and a reasonable degree of interest. The Taoiseach in his pre-election advice when, for the first time in his political career, he became enamoured of financial advisers and economists of stock exchange ilk, decided to go one better. The Taoiseach did not give a package of four specific propositions.

Will the Deputy give me the number of that Government memo from which he is reading?

I am reading from a very appropriate document——

A Government memo.

I will show it to the Minister afterwards. I will give the Minister the date.

Will the Deputy give the number of it — the number of the Government decision? The Deputy has the memorandum there.

The reference number of the interim report of 17 January 1985 is S22601. The Minister should have little difficulty in tracking it down. The Minister for the Environment also made proposals on the same date in regard to tax relief.

It is not usual for former Ministers to make revelations in respect——

It is not a revelation. It is all contained in the GIS statement of that date.

(Limerick East): It is public knowledge.

We made a rapid decision to give four tax reliefs.

A sneak preview.

The Taoiseach on passing the Custom House on his way to a breakfast meeting one morning with his financial advisers dreamt up a beautiful phrase. He said they were going to create 7,500 jobs in the Customs House Docks site and an individual, a namesake of mine, sold him the idea of an international financial services complex.

(Limerick East): Another Corkman.

It sounds wonderful and with the national colours behind him and the serried ranks of industry in front of him it sounds even more wonderful. The reliefs which were given by the Coalition Government were fair and reasonable and I stand over them, but what did this Government decide to do? They decided to introduce a whole range of nice sounding words, which sound wonderful in a political manifesto, such as "securities"— that has a ring of political action about it —"trading", "dealing", "banking and treasury products". They are all great buzz words on a platform on the other side of the Liffey during an election meeting.

Fully understood by all.

"Fund management" and "assets financing" are wonderful phrases and when they are really stuck they talk about "treasury management". What this will mean in the long run is that the Bank of Ireland and Allied Irish Banks will be able to shift a few computer terminals from Baggot Street or Ballsbridge to the Customs House docks site and make £20 million overnight.

(Limerick East): Under a section of this Bill, they will not have to shift them at all.

That is what it will mean in the long run. I am taking these buzz words from a speech which the Minister for Education made in London on St. Patrick's Day when she encouraged them all to come over and invest their money in Dublin.

They are on their way.

The Taoiseach decided that he would have to introduce a few more biggies in the Finance Act, 1987, to attract the big boys in, not just the Bank of Ireland who were going to set up there anyway because of the rates reliefs. In the 1987 Finance Act the 10 per cent rate of CPT was extended to cover income derived from certified international financial services which were to be carried on at the Custom House Docks site. One outstanding Senator of stockbroking fame smiled when he read about that in 1987. I know bankers and the economists advising them who could not believe their ears when they heard that they would pay CPT at a rate of 10 per cent if they transferred their treasury transactions out of, say, Irish Life to the Custom House Docks site. Two licences have been issued to date and the IDA have been driving the Chase Bank out of their minds in an effort to get them to make an announcement. They made this announcement at a conference in London just to keep them happy. That was concession No. 6.

Concession No. 7 was given on the day before the contract was signed for the building of the international financial services centre. The big boys put the screws on the Taoiseach, the Minister for Finance and his officials and told them they were going to go back to London, while the Irish banks consortium told them they were going back to Baggot Street or Ballbridge — they did not have very far to go. They demanded from the Government further concessions in respect of group relief which the Minister for Finance conceded abjectly against the advice of his Department. In reply to a question which I put down to the Minister in respect of the Custom House Docks site on 17 February 1988 the Minister said and I quote from the Official Report, Volume 378, 121:

. . . the development consortium and the Customs House Docks Development Authority sought an assurance that no restrictions would be placed administratively or otherwise upon the capacity of the owners of the buildings to be provided in the area to claim capital allowances on the buildings in question under section 42 of the Finance Act, 1986.

Do you remember section 42 of the Finance Act, 1986? I remember it; we had many a discussion in Government on it. The Minister went on to say:

This assurance was given by me and is reflected in the proposed changes in the corporation tax code announced in my Budget Statement of 27 January last, specifically as regards group relief. It is not possible at this early stage in the development of the Customs House Docks area to estimate the cost in terms of tax foregone of the concession given, but I am satisfied that it was necessary in order to ensure the success of this very worth while development.

That was concession No. 7 but still the big boys would not bite. The Taoiseach is off to New York again where he is going to meet a few more — more chased than Chase — and he will endeavour to make a further announcement on further people coming to the Customs House Docks site. In the meantime the Minister has issued two licences and 24 are awaiting approval in principle.

(Limerick East): Twenty-two.

My apologies, I was a bit over optimistic.

Perhaps two came in today of which I am not aware.

(Limerick East): He is so well informed.

I have no doubt that we will get the figure up to 24 when the other concessions are given. I will now go on to deal with concession No. 8. The Minister has now decided, under section 33 of this Bill, that the requirement in regard to activities which are carried on in the Custom House Docks area located in temporary accommodation not owned by the relevant company pending the availability of suitable premises is to be removed. Why is the Minister removing the requirement? We argued about this last year. The Minister inserted it into the Finance Bill last year and is now taking it out this year. Why? Because, again, some of the big boys have told him, financially speaking to get stuffed and that they will not set up there unless that provision is also taken out.

That brings me to concession No. 9. We have reached a concept, not a new concept because the number of chancers in this game have to be not just seen but met to be believed, of speculative commodity trading. There are individuals who are engaged in speculative commodity trading and they have no intention of going down to the Custom House Docks site unless the 10 per cent CPT rate applies to them also, and fair dues to them. I do not see why they should not get in on the act. If others have got away with it why should they not get away with it? They have said to the Minister for Finance: we will go down there too; we will even come home from America and from London and will go down there if the 10 per cent CPT applies to us. We have to out-do Nigel Lawson, Norman Tebbit, Margaret Thatcher and even Ronald Reagan in terms of tax appreciation and we have to apply the 10 per cent CPT rate to speculative commodity trading which, as the Minister has said — I like his phrase — is essentially financial in nature. That is another one of those Department of Finance definitions.

We then come to concession No. 10. Section 34 allows a deduction for tax purposes for interest on loans paid by a company in the centre to non-resident parent companies. If I were living in Cork in a barren industrial estate like Ringaskiddy, at this stage I would be going for a long walk off that pier. I would be saying to myself, how in the name of God are we going to get all those concessions?

I now come to concession No. 11. Section 35 grants an exemption from withholding taxes on interest payments made by companies in the centre to lenders outside Ireland. I know a person who went to England with £800,000 but the English would not take the money from him because they thought it was stolen or subversive money and they sent him back home with it. He went to the Revenue Commissioners and gave them £0.5 million. He has £300,000 left and his conscience is now clear.

Why did he go to England?

He wanted to lodge the money in England.

He prefers Margaret Thatcher's economy.

No, he wanted to avoid paying tax here. The reality is that one can set up one's lender outside Ireland and make an interest payment to that company. The Revenue Commissioners, the Department of Finance and the special certification advisory committee will not know about it. One can then borrow money from there, pay interest and avoid DIRT and withholding taxes on interest payments made. It is simple enough. It is like PARC, a subsidiary of Aer Lingus, saying to nurses; if you come to Baghdad we will pay your money into the Isle of Man and you will not have any income tax liability. That actually happens and that is an interesting matter for the Minister for Finance.

They can pay it back here and there would still be no tax liability.

They can pay it back here but by the time we find out where it is the nurses are coming home with gold dripping off them and not in cash. That is what will happen in terms of the 11th concession given.

Iraq is a socialist economy.

This is what we called a mixed economy. That brings me to concession No. 12. I have sympathy for the Minister for Finance. I remember a famous Minister for Education in this House who used to have an announcement every day but after the first 100 days he ran out of them and after the next 100 days he was nearly run out of Government. The Taoiseach wants to have this great, unique, special, entrepreneurial example glittering down on the seafront of Dublin with all those yuppies coming in on their short haul flights, buzzing down the runway from London and back again, namely the International Financial Services Centre.

At this stage, the Minister for Finance must be embarrassed, to say the least, because no sooner was the Finance Bill published than the people of my namesake got at him again and said: "We have to give a few more incentives. Irish Life are acting bolshie." The Government cannot make up their mind whether or not to privatise that company. It is a dicey political decision because the unions might get truculent and theNational Programme for Recovery might be in a terrible state. They, therefore, decide to bring the insurance companies into this operation which I regard as nothing more than an international financial scam. That is what this measure is all about. I will come to the tax foregone in a moment.

What is the Minister going to do? This measure is so rushed through that he has not even put it into the Bill for Second Stage debate. He is going to bring it in on Committee Stage. He proposes to locate life assurance companies and unit trusts in the centre and they will get the 10 per cent tax relief. They will qualify for the 10 per cent rate of CPT. I might say to the Minister that I loved his measured modesty when he finally said in relation to this measure: "All of these measures will, as I have said, be to the benefit of the promotion of the centre as an attractive location for international financial services". Irish Life will uproot themselves from Abbey Street and bring their filing cabinets across the road. They could get a trolley from the Department of Social Welfare or the gardaí in Store Street could give them a hand because they only have to move about 70 yards. They will bring their investment income from life assurance and automatically their tax rate will drop from 43 per cent to 10 per cent on income derived therefrom.

These 13 concessions will be introduced in the space of 12 months. We gave four concessions and left it at that. We were not going to mess around anymore. The other nine concessions have been given by the Taoiseach in order to attract international financial institutions into this country and have them all located adjacent to the Custom House, bounded by Sheriff Street.

Finally, the Minister has issued two certified licences to date to these companies to locate in the centre and 22 further projects have been approved in principle. The Minister has said that these 22 projects involve definite employment commitments to be written into the certificates, amounting to over 700 jobs. I have almost 20 years' experience in this House, five or six of them in Government, and I know that many of the job commitments written into so-called certificates and IDA applications are not, for the most part, worth the paper they are written on. Chase is one of the companies which made a big hoo-ha. They were being hammered to death by the IDA to give a job commitment. They have given one to keep them quiet. Frankly that figure is phoney. I do not care if the director, former governors of the Central Bank, or anybody else is on the validation and certification monitoring committee. The boys — and I know a number of them — are laughing all the way to the pass machine because the poor old punter pays £10 a year.

The estimate of tax foregone on corporation profits tax alone for the financial institutions on the basis of the concessions given at the Customs House Docks site is in the region of £24 million. They are clocking it up. They maintain that in two or three years time, with a few dozen people there drinking champagne, as well they might, they will have a net gain of £24 million. At that stage the Taoiseach should become a governor of the banks, they will give him that appointment in gratitude.

I wish to make a parallel analogy. The week the Taoiseach decides to go to America to fund raise — all the correspondents are being sent with him; I do not know what they are going to write but it is very bad for newspapers not to be on the right side of the Taoiseach — the Bank of Ireland decided to spend no less than $370 million or £230 million to take a holding interest in New Hampshire Bank Incorporated. They have no difficulty in a rights issue of £74 million and £47 million preferred stock. Is it not a strange investment decision that this money, admittedly a part of the US holding company but a substantial part of Irish reserves, is being spent outside the country the same week the Taoiseach is going to the United States to bring back money?

I share the stricture of Nigel D'Arcy, managing director of the Taylor Investment Group, one of those involved in the International Financial Services Centre. There are many members of that association who share my views; not all of them are involved in this scam. Mr. D'Arcy said:

In April, the UK's Financial Services Act comes into force, which will create a complete legislative structure governing the entire British financial services industry — which includes everything from banking and insurance to stockbroking, as well as controlling building societies and their activities, etc. We need a similarly comprehensive measure. An Irish Financial Services Act — modelled on the UK statute — is vital to assist in marketing Dublin's International Financial Services Centre.

In the light of my comments this evening on the massive handouts operation here, statutory control is imperative. Mr. D'Arcy also said:

I understand that the approach that will be adopted regarding the Centre is that banking activities as defined by Irish law will be supervised by the Central Bank, insurance companies by the Department of Industry and Commerce and all other financial activities will operate under an appropriateselfregulatory framework to be approved and monitored on a prudential basis by the Central Bank. Such a framework is simply too fragmented and vague, as well as lacking the necessary legal clout sufficient to avoid questions being raised about Irish authorisation standards abroad.

That is a legitimate criticism made in the public interest and is one I support. Before we went down that road fundamental protective measures should have been in place. As the Minister conceded, we are in urgent need of a revised Central Bank Act. We have been drawing up this Bill for 20 years and it has languished in the Department of Finance. My last sight of it was in 1981 when I was a junior Minister. It appears to be buried in the Department again.

I share the views of my colleague, Deputy Noonan, on the VHI. The Minister has made an almighty mess in this area, and there is a very simple solution which we considered in Government, namely, that there should be a regulatory mandatory requirement on the VHI to send a computer print-out to the Revenue Commissioners detailing the payments made to consultants. There would be no problem with that but the VHI refused point blank to do that for me. They put forward all sorts of arguments — confidentiality of medical records, which need not arise, contractual relationship with subscribers and so on. I did not accept that argument. I was on the point of ensuring that this measure would be brought about, but time ran out. Now we have come to this impasse.

When dealing with consultants charging fees over and above those paid by the VHI, the Minister said in his speech:

I must emphasise that there would be no justification for any such increase in fees.

When it comes to the medical profession, that is called whistling into the wind. The Minister knows that phrase is meaningless because there is nothing to prevent a consultant charging a fee which will be recouped by the VHI while the patient has to pay another fee. We will be opposing this section because in terms of framing it is a nonsense. There is no reason the Minister should not insist on this measure being introduced.

I can readily appreciate the horror in the Department of Finance if that proposal is made because people will ask why the print-out of interest payments made by building societies to individuals should not be sent to the Revenue Commissioners. That would cause a stir. Non-disclosure would raise its ugly head. The Minister has an easy way to recast this section and ensure that additional money is received by the Revenue Commissioners. At present all that is involved is the deduction rather than the full rate of tax which would fall to be paid in the event of a full print-out being sent directly to the Revenue Commissioners to be reconciled with the ordinary taxation returns.

Debate adjourned.