Dáil Éireann debate -
Wednesday, 16 Dec 1992

Vol. 425 No. 3

Finance (No. 2) Bill, 1992: Second Stage (Resumed).

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

Mr. Noonan

(Limerick East): The practice of legislating by regulation is a very bad one. The Minister stated he will now enact many agreements already reached at EC level into Irish law by way of regulation. He states he is empowered to do so under the European Communities Act, 1972. On the generality of items probably he is so empowered but I wonder whether that power extends to financial items. The matters in question here are those that involve changes in taxation. I should have thought that the fact that the Minister's office is a constitutional one, that there are requirements under the Constitution that all financial matters should be authorised by this House, at least renders it questionable that enacting such a wide range of procedures by way of regulation alone is not being done on very strong constitutional ground. Will the Minister give the House a commitment that at the first available opportunity he will re-enact and allow debate in the House on the matters which says he will now enact by way of regulation? I believe the Minister is now on very thin ice in regard to constitutional matters such as these. Throughout the Bill other decisions are being made to take on the power of legislating by way of statutory regulation in matters which should properly come before this House for debate.

The Minister referred to the 1992 out-turn. We are happy to note that the year is ending with the figures more or less in line. Even though Supplementary Estimates were passed yesterday brining forward £71 million of pay commitments into the current year the Minister appears to think the year will still end with the outturn slightly under 3 per cent. Quite clearly, that is good news. The Minister referred also to the opening position for 1993. I presume we shall be hearing more about that as the days go by.

The Minister referred also to measures to maintain the yield from VAT in view of the fact that VAT at the point of entry will be abolished from 1 January next. Will he please state what are his intentions about these measures to maintain the yield from VAT? When replying will he inform the House what precisely he intends doing if he is still in the Administration when the forthcoming budget is introduced. Will he state what are the present recommended measures in the Department of Finance? There is no doubt but that the budgetary position in 1993 will be quite tight. There is no doubt also that almost every financial decision will be made in the shadow of the exchange rate issue.

If I may be so bold as to comment on the published programmes of the parties now in negotiations to form a Government, while they contain many items of merit, and certainly the Labour-Democratic Left document would envisage a more caring, inclusive society, when it comes to the hard economics either of the Fianna Fáil position or that of the Labour-Democratic Left it seems to me there is no measure at all which will effect any substantial change in the underlying economic position in 1993. I can identify no proposal that will obviate the need for the Minister to provide for something in the region of, say, 25,000 to 30,000 extra people on the live register in 1993. I do not see any proposal for any radical change that will alter the underlying position of increasing unemployment, continuing emigration, with more families having to rely on social welfare alone. I do not see the change, the new departure, that fundamental radical shift of priorities which would be necessary to address the enormity of the problems facing us. However, those matters can be dealt with at another time.

On the question of deposit interest retention tax the Minister did not specify his estimate of the yield loss by moving down to a rate of 10 per cent. I understand the figure was somewhere in the region of £90 million and I presume that figure will have been increased in the light of the interest rate increases. I should like the Minister to give the precise figure.

I put the proposition to the Minister that the position has changed radically, to the extent that the proposals advanced in his Budget Statement of January last are no longer valid. Certainly in January last it was fair to assume that on the basis of the interest rates then prevailing when exchange controls would be abolished from 1 January 1993 there would be an outflow of funds from the country, in particular that savers, ordinary citizens with savings, would tend to move their savings to where their net interest yield would be greater, say, to Northern Ireland, into special accounts in the United Kingdom, to Luxembourg, or wherever they would be subjected to a zero rate. I wonder is that assumption true at this stage? The Minister should reconsider the position between now and budget day, if he is the Minister who will introduce that budget. It appears to me that anybody in this jurisdiction at present would be crazy to move money into a United Kingdom deposit account since the relevant interest rates are totally favourable to keeping money on deposit here. Indeed, the exchange rate risk of moving into the United Kingdom, with a floating £ rather than a fixed exchange rate, would seem to me to be a major inhibiting factor as well to the movement of such money.

The position within the EC is changing also. For example, last Monday's Financial Times talked about a certain amount of money moving out of Germany into Luxembourg because in Germany they have introduced a 30 per cent deposit interest retention tax. It appears to me that throughout the EC — that is, those countries that do not have it already — they will introduce deposit interest retention tax. Would it not be better if some kind of agreement could be reached at EC level rather than writing off a very big yield to the Exchequer from a tax on unearned income? With our very strong, positive, interest rates those with savings are getting a very good return. Therefore, it would appear to me there is a case for re-examining whether it is necessary to pull back from 27 per cent to 10 per cent, or if it is found necessary to pull back, what is so relevant about 10 per cent; why not 15 per cent? In the new circumstances prevailing I do not think the case has been made and since it involves such a huge loss to the Exchequer I contend it warrants reexamination.

The whole purpose of the new deposit accounts is to protect the liquidity of the system, to ensure that money does not flow out of the country with the yield to the Exchequer thereby reduced. Could this not have been done in terms of individual rather than corporate deposits? Could that not have been done by way of regulation? Does the Minister see any merit at all in re-examining the position? It is now debatable whether the decision taken in January last remains a valid one.

The question of motor car registration I find extremely disturbing, because we were given to understand that we were coming in to enact, almost on the nod, what the Minister announced in the last budget. That is not the situation we are presented with. The Minister said:

Faced with this division, it is, as already stated, simply not possible to reconcile the objective of revenue-neutrality with the achievement of price neutrality in all cases, given that a single rate of VRT must apply to all models in a particular category.

The Minister goes on at length to explain the issues. The bottom line on it is that every person knows now that the Minister is saying that the price of cars will increase. That is an absolute botch of an arrangement. I did not come into this House this morning to underpin an increase in the price of motor cars. I know the Minister will say that I am misrepresenting the position, that some prices will increase while others will reduce and that the Revenue have to strike a balance to protect the yield.

In the real world, the price of cars will go up in circumstances where the Revenue Commissioners and the Minister are getting an extra take. Where there is any slight reduction, that, in the traditional manner of Irish business, will not be passed on to the consumer, just as the benefits we were supposed to get from a strong currency were not passed on.

The Minister this morning is increasing the price of motor cars. It is all hocuspocus to say that we must be revenue neutral and that we must protect the yield. That is a bit ironic. One of the great benefits of the Single Market we were told was that we would have free movement of capital and labour, that we would end up with price equality and that if items were produced more cheaply in other jurisdictions we could get them cheaper here once the Single Market came into operation.

There was an expectation at one stage that the price of motor cars would reduce dramatically. The Minister knocked that on the head last January when he said he would have to introduce vehicle registration tax to mop up anything that was lost on excise and that, depending on the model of the car, several thousand pounds will be the contribution on the first time registration tax. The Minister has gone beyond that now and is adopting this kind of belt and braces approach where the margin is always on the side of the Government and the Exchequer.

He has taken measures this morning to increase the price of cars when the expectation was that the introduction of the Single Market would at least mean that there would be some reduction in the price of cars over the years. This is outrageous. We were led to believe that there was no change from the Minister's budgetary position but today we find a new section being introduced which was not in the White Paper published in the course of the election. We see that the rates will increase the price of cars. It is very unfair to those Members who are co-operating with the Minister, and the Department, that the Minister is approaching it in this fashion. There is very little we can do about the fact that we are this morning waving the Minister on as he raises the price of motor cars. We were supposed to do this without even looking at the sections.

Mrs. Doyle

We can vote against it.

Mr. Noonan

(Limerick East): We were not even going to have a Committee Stage debate. This is using the exigencies of the hour to take advantage of Members. It is a very unfair way to proceed.

Section 15 is another outrage. We agreed to deal with matters necessary for the functioning of this country and which were an absolute prerequisite before 1 January and now we have in section 15 the Minister introducing a new power for customs and excise officers which will be the same power as the Garda Síochána in respect of untaxed cars. This is not a criminal justice Bill; it is not part of a Road Traffic Act. I did not come here this morning to give extra powers to customs and excise officials to pull people up if they had not taxed their cars.

I am prepared to agree that customs and excise officials should have a role in the enforcement of the new VRT — obviously, vehicle registration tax will have to be a matter for such officials — but I am not prepared to agree that their powers should be extended so that they will have the same powers as the Garda Síochána under the Road Traffic Acts, in respect of car tax. That goes beyond what we agreed with the Minister and his officials. I suggest that the Minister delete that because, if he does not, I will be calling a vote against that section. There is a principle involved here. As is usual with the Department of Finance, if we give them an inch they will take a mile.

We are prepared to agree certain matters but the Department is loading more weight on the camel by introducing material to which we did not agree and which is not necessary in this Finance Bill and has nothing to do with the 1 January deadline. This is just a handy way of giving extra powers to the customs and excise officials and we were expected to wave it through without a Committee Stage debate.

I am surprised, and very disappointed with the Minister and his officials. I suggest that the Minister instruct his officials to make the appropriate amendments to section 15 to remove the extra powers being given in respect of road tax. We did not have any intention of increasing the powers of the Revenue Commissioners today, into an area unrelated to vehicle registration tax.

With regard to life assurance, the Minister in his speech talked about making more use of regulations. The DIRT proposals on the special accounts will distort the savings market. There is no doubt that it will dramatically affect the insurance industry. The White Paper published in November referred to special equity accounts to be offered to the public by insurance companies, which would level the playing field somewhat and give insurance companies a chance to compete for savings. I welcome the removal of the 3 per cent levy but I am not sure what the Minister's intention is in respect of equity accounts now. The Minister said on the one hand that this might be dealt with in the budget and then said he might do this by way of regulation. Major tax changes should not be made by way of regulation. That is flying in the face of the democratic procedures of this House. While technically it may be a correct way to proceed, we are not needed if we can have government by dictat and if the Minister, and his officials, can draw up regulations and promulgate them without having to enter this House.

I am pleased the Whips have agreed to give us some chance to discuss some of these sections in Committee, but I would like the Minister to take what I said to heart. I do not want to call votes today but, regardless of any prior agreement, if a matter is being introduced in this Bill which is not connected with the 1 January deadline, I will call votes. The Whips should be notified that this is not by agreement, if it is going to continue.

Miss Burton

The Labour Party consent to the passage of this Bill today, but there are observations I would like to make on various tax policy issues that arise from some of its provisions. Much of this Bill is technical but it deals with areas of tax policy which represent important tax breaks for certain sectors of Irish society, in particular the corporate and better off sectors. It is our fundamental belief that tax reform should remain a key element in any strategy to get Ireland back to work and create a fair and just society.

Given the culture of contentment that seems to exist among large sections of our society, with people often being apparently indifferent to the hardship suffered by others, there is a resistance to serious reform within Irish society and I would say also in this Chamber within probably all of the parties, despite the comments made by Deputy Noonan. There is a determination to maintain tax break after tax break for particular sectors. The economic argument for that is that tax breaks will produce jobs, the so-called trickle down theory that enough tax breaks will produce enough jobs. Experience in many other countries shows, however, that as the sole engine of economic growth that is a dangerous illusion and a wrong road to follow. In a small society such as ours, one end result of the adoption of that policy is the widespread belief that many sectors pay much less than their fair share of tax, which leads to a substantial erosion of confidence in the whole tax system. It is my belief that that is probably the major moral encouragement to the black economy. It is amazing how much brain-power, intelligence and professional expertise are used to manufacture tax breaks and avoidance schemes. An example of that in operation has been witnessed in the inspector's report on Telecom. Ireland is probably unique among countries of its size in that we have more than 1,000 pages of tax legislation. Surely that must be a record of some kind for such a small state. The consent of the Labour Party to specific measures in the Bill should not be interpreted as blanket support for the philosophy underlying them. We in the Labour Party have a larger view of the measures that need to be taken for economic growth.

I note the Minister's comment on the strong corporation tax out-turn. The move to tax companies has come after a very long and arduous campaign undertaken by the labour and trade union movement. In fact, that was one of the areas on which I first campaigned when I became involved in politics in the seventies. At that stage we were told that there was simply no money available from the company sector. Time has proved that those who made the argument for equity in the tax system and for an extension of the tax base were correct.

In relation to the section of the Bill that deals with the International Financial Services Centre and the Shannon zone, it is understandable and logical that our European neighbours should seek to protect their tax bases. Many people here fail to understand that in other European countries there is a general belief that companies should pay a minimum contribution and that that concept is vigorously pursued by national legislatures. The Minister should protect Irish interests in our participation in the EC by seeking Community-wide corporate tax bands with special lower levels for industry and sectors with a high job content. If there are special reasons for tax breaks they should be on the grounds of peripherality; tax breaks should be an added incentive to job creation in peripheral areas. The whole strategy of creating taxation black holes by the Liffey and the Shannon is not in the long term the most conducive method of ensuring the viability of the Shannon zone or of the International Financial Services Centre. I have no doubt that the action taken by the German Government will be followed by others. We have had a fair warning from an important European partner that future action may be taken in this area. We should take heed of that warning in respect of tax plans and policy for the future.

While I recognise that a certain level of activity has now apparently taken off from the International Financial Services Centre, I believe that a policy of jobs by taxation often results in a shift of jobs from one location to another in the same way that land re-zoning often results in a shift of housing from one location to another rather than a net increase in the total number of houses being built. I have read the Minister's comments about the jobs and the tax take from the Financial Services Centre but it is my contention that in order to undertake a full analysis of the results of the centre one would need to determine how many jobs and how much tax have simply been transferred from other sectors of the economy and to examine the net position rather than the gross position.

With regard to the regulations on DIRT, life assurance products and products of the insurance industry, we are faced with a continuing problem concerning investment policy. It is definitely more profitable to invest money in banks, building societies and property than in projects that will lead to job creation. With reference to the remarks made by Deputy Noonan, this is a problem that has to be addressed by all parties in the House. In the current crises that have beset the ERM and the performance of the equity market during the past two years, many small investors have been very poorly served by the insurance industry. There is a need for the provision of more information about the performance of investments. Many small investors feel that they are charting an unknown course and are given very little information. The entry cost into insurance industry products is also extremely high. Very high levels of fees and commissions are taken in the first and early years of investment. In order to improve the climate of investment in productive industry, rather than simply in risk-free investments, which in Ireland have always tended to veer towards property — we need to reconsider the way in which tax breaks are structured. I welcome the Minister's indication that he will attempt to guide investments into productive sectors of Irish industry and into smaller companies as well as the large companies.

The experience of the BES scheme in the first few years of its operation illustrates just how difficult it is to do that in Ireland. Although the BES scheme was supposed to be based on jobs and the manufacturing industry, there was a substantial drift by financial advisers towards advising clients to hedge and to guarantee the investments, particularly by reference to property, so that in many ways the fundamental purpose of the scheme was outwitted by essentially tax avoidance mechanisms. The House will have to tackle this issue.

I should like to comment on the vehicle registration proposals, VRT. I accept the remark made by Deputy Noonan that people will probably be disappointed at the cost of cars in Ireland. Were Deputy Noonan ever to listen to Gay Byrne or any of the other popular commentators he would realise that people's belief in the ability to purchase cars more cheaply on 1 January 1993 was blown a long time ago. I do not think many people expected the Minister for Finance to act as Santa Claus to the car market. It has been confirmed this morning that he does not have any nice presents for that market for this Christmas. That has been widely known and I am taken aback at the extent of Deputy Noonan's surprise this morning at the news.

Mrs. Doyle

We did not expect an increase.

Ms Burton

In relation to the VRT we should examine a mechanism for distinguishing between environmentally friendly motor vehicles and those that are grossly polluting. If we are moving in line with European legislation there is a case to be made for distinguishing between vehicles that are to some extent environmentally friendly and those that are not. I ask the Minister to consider that point.

Taxation of lorries should be examined and perhaps they could be taxed in proportion to axle weight. The damage caused by lorries to our roads bears very heavily on the local authorities and in Dublin, in particular, it has a major impact on the quality of life for the citizens.

In relation to section 15 and the additional powers of the Revenue Commissioners, perhaps the Minister would outline to the House how these regulations may be enforced, what powers the officers will be given and how they may be expected to carry them out. As a fellow Dubliner there is one point of local concern I would like to make to the Minister. Along with the city centre I am sure he is aware that a number of areas of Dublin West particularly in parts of the corporation estates in Blanchardstown and Clondalkin are plagued by sporadic out-breaks of so-called joyriding and vandalism. One of the elements contributing to this problem is the sale of cars for very small sums of money by traders in used cars to young children, in some cases as young as ten years of age. Perhaps some of the extra powers to be given to the Revenue officers could be used to prevent some of these traders offering for sale cars at £50. This is a nightmare for the neighbourhoods involved and there is a substantial risk of killing other people. Already there have been a number of deaths in Clondalkin and Ballyfermot. I do not think it would be a bad measure if we could crack down on this aspect of trading which facilitates joyriding. I will be interested to hear from the Minister how it is proposed to regulate the activities of the officers and how they are to carry out their functions.

In relation to the section dealing with favoured car numbers and temporary registration, I would like some information from the Minister. Does this mean we will now adopt what was a feature of yuppie life in London in the 1980s where well off people will be able to buy favoured car numbers? If so, where will the revenue from this go and how much revenue does the Minister anticipate raising from this scheme? If people want it I suppose there is no objection to it. I suppose we could have some fun——

Mr. Ferris

Provided they pay for it.

Ms Burton

——provided they pay for it. I will be interested to hear the Minister's proposals on this matter.

Acting Chairman (Miss Quill)

I now call Deputy Michael McDowell.

Mr. M. McDowell

It is a pleasure to see you in the Chair and I always welcome and appreciate your powers of chairmanship.

Acting Chairman

Thank you, Deputy. I hasten to assure you, however, that this is nothing more than a temporary little arrangement.

Mr. M. McDowell

I should like to deal with a few of the points raised. I do not want to repeat points made by others and I do not want to unnecessarily take up the time of the House. It is reasonable that some of these measures should be taken at this time in order to pass revenue conserving measures that are urgently needed. We should remind ourselves of the dreadful situation the incoming Administration faces in terms of making the figures match each other in the forthcoming budget. We cannot afford to indulge in too many romantic notions protesting about this and that in circumstances where the figures themselves require urgent action. In present circumstances, no responsible Minister for Finance can relax his grip on the flow of revenue to the Exchequer especially in view of the pressures the social expenditures have created on the budgetary situation for next year. Therefore, if there is room for a marginal increase and I presume the Minister is speaking in good faith when he says the figures have been rounded upwards solely to conserve revenue and are not intended as additional taxation in their own right, I commend the Minister to err on the side of caution. In the context of the forthcoming budget there is no point in erring on the side of relaxation.

I agree with the points made by Deputy Noonan in relation to EC regulations. The 1972 Act only permits regulations to be made in respect of the State's necessitated obligations under the European treaties. So far as the State chooses to do it by regulation rather than by legislation one has to bear in mind that that must be constitutionally justifiable. I believe, and it has been argued by people more learned than I in text books, that the State is unnecessarily and improperly relying on regulations to achieve legislation in areas where there are definite legislative choices being made and it is not simply a matter of implementing in Irish law obligations under European law.

In particular I agree with Deputy Noonan that this House has a constitutional role in relation to taxation and the public finances and to start taxing the country by way of regulation, by references to the EC treaties and the 1972 Act in my view is extremely suspect. Doubtless somebody some day will challenge one of the regulations made by the Minister and then, at long last, it will be decided that the inconvenience of having legislation pass through this House was a factor that should not have prevented legislation being used where a regulation was abused. I have no doubt that will happen sometime in the future and who knows what the consequences will be. I agree with the point made by Deputy Noonan that the Minister is skating on thin ice in making regulations under the 1972 Act in relation to tax gathering matters.

I should like to make a point in relation to a matter raised by Deputy Burton. She said there is an army of people out there one of whose functions is to advise people who have resources on how they can avoid taxation. In the efforts made by the Minister to avoid artificial linkage of accounts I can see a fairly easy loophole in the proposal made by him. In his anxiety to prevent accounts being linked together in a manner which exaggerates the interest which is entitled to the 10 per cent rate, the Minister should take into account the fact that it may not be done through the mechanism of accounts; for example, there could be other arrangements such as investments in insurance bonds. I can think of a stack of things I would do if I were a tax adviser today to get around this measure. That measure will need further consideration. I am not offering free counter-avoidance advice to the Minister but it is unfortunate that legislation of this kind has had to be rushed through in circumstances where a better job could have been done if more time were available. Presumably it can be looked at again in the Finance Bill next year.

I agree entirely with the general point about taxation principles made by Deputy Burton. I agree completely with the philosophy she advanced today in relation to taxation. I am not being facetious when I say I hope, since the Labour Party will have a pivotal role in whatever transpires in the next few days in terms of giving this country a Government, that that spirit will inform their negotiations and the tax reform will not be forgotten about. Tax reform seems to be an unfashionable thing at the moment in some of the speeches I have read; it is somehow seen as the obsession of a few people, including me.

I was glad to hear that Deputy Burton shares my philosophy completely in relation to tax reform. No doubt she would have some different ideas as to the actual structure of the reformed system, but we at least share the common position that the present system of taxation needs radical reform. I hope the Labour Party, in its relations with whatever party or parties it forms a Government in the future, will bear in mind that this country definitely needs radical tax reform and that the ordinary "Joe Soap" or "Josephine Soap" who has to pay outrageous rates of tax on below average industrial earnings is looking to the incoming Government to put these matters right.

I wish to refer to section 15 which proposes to extend the power to impose on-the-spot fines to Customs and Excise officers. I have no particular objection to officers of Customs and Excise carrying out this function when they, as an arm of the State, stop a car and see that the person driving it is committing an offence or when, during the course of their duties, they see a vehicle on a street which is untaxed. I have no particular hang-up about whether it is right or wrong to extend powers to them under the Road Traffic Acts.

I wish to make a more radical point to the Minister, that a vast amount of State resources is wasted in operating the present on-the-spot fine system. My pet theory about this system is that the entire criminal sanction should be taken away. It is absurd to have traffic wardens queuing up, taking a Bible in their hands and giving sworn evidence out of a notebook. That system could be made much more effective if the criminal offence which at present lies behind these on-the-spot fines were replaced with a civil tort, a municipal tort, where the local authority would simply enter judgment against the registered owner of a car in a book. That could be done constitutionally; it does not require a criminal procedure to impose an on-the-spot fine. The Americans, by citations, completely avoid that entire procedure.

The Minister could make it a criminal offence not to pay one of these civil penalties which is imposed and hit somebody for £200 or £300 if he did not pay within the time limit provided for payment of the penalty. If this were done — I know that in times past the Department of Finance has examined the entire area of fine collection — I guarantee the Minister that there would be a huge surge in the amount of revenue to the Exchequer and, perhaps, to local authorities. That is not just a lawyer's view of the matter. During the course of the election campaign I had a conversation with a traffic warden in Thomas Street who agreed entirely that that is what is required.

Ms Burton

Did he give the Deputy a ticket?

Mr. M. McDowell

No, I was on foot at the time.

Proinsias De Rossa

A bounty.

Mr. M. McDowell

It seems that a little bit of lateral thinking would improve the situation dramatically in many matters, and this is one of them. Instead of extending the existing creaking scheme which will require Customs and Excise officers to go to court on a particular day and be sworn in relation to the little entry in their notebooks it would be much better to introduce a system which would work and be effective.

I agree with the points made by Deputy Burton about the need to bear in mind environmental considerations in relation to taxation. However, I thought that in the vast majority of cases VRT would apply only to new cars. Our anxieties will probably be overcome by the much more stringent pollution controls which are being imposed as a matter of European obligation on new cars than otherwise. The motor taxation requirement might apply to older cars but, as the possessor of an older car, it would be a bit harsh to penalise me for not buying a new car merely because my car is less environmentally friendly than others.

This is an unwelcome method of doing our business. It is an efficient method in the sense that a series of measures which are, roughly speaking, uncontroversial, are going through the House in a hurry, but the next Finance Bill should be dealt with in a better way than were the Finance Bills were dealt with when I was previously a Member of this House. The idea of guillotines and holding up the House for days while Deputy Noonan, Deputy Burton and the Minister, whoever that is — now that I think about it, one of us could be Minister — go through the text of a large Finance Bill while other Members are elsewhere is absurd. I hope the next Finance Bill which comes before the House will, for the first time, be genuinely dealt with by a committee and we will not have——

Mrs. Doyle

The last Finance Bill was dealt with by a committee.

Mr. M. McDowell

I know it was. I hope there will not be a repetition of the old system I had to endure when I was previously a Member of this House, a system which, if I may say so, was miserable in every respect.

Proinsias De Rossa

I wonder what we are at today given that we have a caretaker Government, if that is the correct term. We are dealing with, whatever way it is defined, an important Finance Bill. How real is this debate? We seem to be in a kind of dreamlike state of slow motion.

Mrs. Doyle

Limbo.

Proinsias De Rossa

I understood limbo had been abolished.

Mrs. Doyle

So have the Government; they are gone.

Proinsias De Rossa

There still seems to be a shadow of limbo hanging around this House.

Mr. B. Ahern

I did all this work both before and during the election. I thought Deputy Noonan would be implementing the Bill but he gave out to me this morning because I prepared it all for him.

Mr. Ferris

That is called purgatory, not limbo.

Mr. M. McDowell

That is resurrection from the dead.

Mr. Ferris

Crucifixion.

Proinsias De Rossa

I want to make clear that I am not in any way denying the valuable work the incumbent Minister has carried out in this area. Obviously, I will have differences of opinion in relation to various aspects of the framework within which he is working in this area.

The point I want to make is that if on Committee Stage an amendment was pressed to a vote the Government clearly does not have the numbers to defend it. If an amendment is defeated, what will happen to a caretaker Government that is defeated on a financial matter?

Mrs. Doyle

It would have to resign again.

Mr. M. McDowell

Re-resign.

Proinsias De Rossa

Who will it resign to and how will it resign? It is probably a constitutional issue but nevertheless it highlights——

Mr. B. Ahern

We can let the people decide on 10 January.

Proinsias De Rossa

——the dreamlike state we appear to be in. The question arises: why are we going through this procedure at this time? This should be addressed for the future and dealt with in terms of the need for an indepth look at our Constitution. The position in which we find ourselves today also throws up another area of concern.

The question of tax reform has been referred to by Deputy McDowell who is fearful that the issue may have fallen off the agenda. That would certainly be of concern to me and my party as indeed, I believe it would be of concern to most parties. I do not believe that the general idea of tax reform has fallen off the agenda but that the way in which tax reform has been tackled, both by the last Government and previous Governments, has led to a degree of cynicism among people outside of this House who expected that tax reform would have some alleviating effect on their financial position when they received their salary cheques. That does not seem to have been the case. The type of newspaper headlines that we have seen, for instance, indicates that there has been a certain degree of tinkering with the system. We have had headlines such as "Corporate Tax Sector Unpoliced", and "Unpaid Tax Totals £2.5 billion". Indeed, there have been many other headlines generated by the Comptroller and Auditor General's report which scarified the tax paying public.

There is a need to redefine tax reform and to clarify for everybody what exactly is required. To most people who consider this question — I am sure that by and large it is the PAYE tax sector who bear the brunt of the income tax burden and also the indirect taxes such as VAT — tax reform signifies some financial alleviation. We argued during the election campaign, when launching our tax document, that a good tax system should consist of four basic objectives, objectives which it has to be said, may often conflict. First, it must be fair in the way it provides for the collection of revenue and must recover similar amounts from people and corporate bodies with similar resources; second, it must redistribute income, wealth and work; third, it must collect sufficient revenue for the Government to provide services that are socially necessary; and fourth, it must serve the economic objectives of encouraging enterprise and job creation.

It has to be said clearly that Irish Governments have focused primarily on the last two objectives, raising revenue and attempting, without much success, to encourage enterprise. They may have genuinely believed that handing out vast sums of money to industry in tax breaks and subsidies would stimulate job creation, just as they thought that the massive public spending in the late seventies would kick-start the private sector. Clearly, they were wrong and, therefore, there is a need for a fundamental rethink on what precisely tax reform is about.

By and large the last Government promoted the idea of tax reform on the basis of reducing the rate at which the PAYE sector pays its tax, without attempting to adjust the bands or the levels at which people actually enter the various rates. The net effect of that has been that when the previous existing caretaker Government came into power with promises of tax reform, those in the PAYE sector paid an average of £3,127 and by 1991 this had increased by £438 to £3,565, representing an increase of 14 per cent on average paid by the PAYE employee.

I do not propose to go through all the examples of the failure to genuinely shift the tax burden, which is probably the primary concern of the PAYE sector. There are examples of some sectors which have only marginally increased and others which have dramatically fallen in terms of the tax paid by them. There has not been a perception among the public that the talk about tax reform and the declarations that tax reform was under way has had an impact on the people outside this House who vote and who put a Government into power or who provide opportunities for various parties to gain power by forming a Government through negotiations following an election.

In relation to the Finance (No. 2) Bill 1992, one could say it is the third attempt to deal with the question of the Single Market which will operate with effect from 1 January 1993. I do not propose to go into the details that other speakers have covered. I want to avoid repetition. I consider section 1 of the Bill an extraordinary provision. It relates to certain companies trading in the International Financial Services Centre and the Shannon Free Airport zone. The Explanatory Memorandum to the Bill states:

In certain circumstances, (it proposes to) reduce the Irish tax relief to which certain companies trading in the International Financial Services Centre or the Shannon Free Airport Zone would otherwise be entitled.

It proposes to reduce the Irish tax relief to which certain companies would otherwise be entitled. In other words, the Minister may by order increase the amount of tax to be paid by a company trading in the International Financial Services Centre or the Shannon Free Airport zone where this will facilitate that company to avoid paying tax in their own country. Apart from the fact that this section gives the Minister extraordinary powers by order to increase or subsequently decrease or to restore relief in the amount of tax to be paid by a company, it also throws interesting light on the arguments of those who claim that foreign companies based in Ireland cannot be asked to pay their fair share of tax or they will flee. The background to this is that countries such as Germany, Sweden and the United States are now beginning to move against operations like the International Financial Services Centre and they are taking steps to prevent companies using Ireland as a tax haven in order to avoid liability for tax payments in their own countries.

I understand that representatives from a number of German banks met the Minister for Finance earlier this year and asked to be allowed to pay three times more corporation tax in order to avoid the effect of new German tax laws. This must have been an historic occasion, the first time in our financial history where banks have gone to the Minister for Finance and pleaded to be allowed to pay more tax. It is time to start asking questions about the nature of the International Financial Services Centre operation. The aim of the centre was supposedly to provide jobs and not simply to establish a tax haven. While it did provide a badly needed boost for the building industry, which obviously is short term, the centre has failed to provide jobs on the scale forecast.

When the centre was first planned there were forecasts of 7,000 jobs before 1992. However, in December of last year the Minister told my colleague, the former Deputy Pat McCartan, that the number of new jobs created up to that point "by companies approved to operate from the IFSC" was just 986, a long way from the projected 7,000 jobs. As the Minister's reply admits, these are in companies approved to operate from the IFSC. Many do not operate from the centre.

Huge amounts of money are being invested in the IFSC but the advantages to this country are hard to identify. According to a story in the Sunday Business Post on 16 August last, German companies invested more in Ireland in 1991 than in any other country, amounting to £2.5 billion, almost double the level of German investment in France. Only £10 million of this was invested in manufacturing in Ireland, creating about 650 jobs and the balance of the £2.5 billion was believed to be invested in the IFSC, where the six German firms involved created just 55 jobs. According to my very basic mathematics, that works out at about £45 million per job, surely the most expensive jobs created anywhere in the world. I ask the Minister to state specifically how many people are working in the IFSC and how many of these are new jobs. I also ask him to give the total of public money spent on the IFSC since it was first announced. Will he indicate the steps he is taking to deal with the brass plate operations, companies which have been licensed to operate from the IFSC and who enjoy the tax benefits but who still have not moved in? It was reported in various newspapers during the summer that only 22 of the 137 companies licensed to operate in the centre had actually moved in. Is that still the position? Will the Minister claw back the tax concessions given to companies which have not moved in? Is the new tax contained in this Bill to be restricted to companies actually operating in the centre, as distinct from more brass plate operations?

It is time to look at the entire concept of operations like the IFSC. Other countries are becoming more determined that these centres will not be used as tax havens and that is a reasonable position from the point of view of German or Swedish workers. Should we not put time, effort and money into creating productive jobs in indigenous industries based on our own resources, as has been recommended in virtually every report on job creation produced in the past two decades?

The other major provision in this Bill relates to the new vehicle registration tax. This is to provide for a replacement for excise duties which are due to be abolished from 1 January next under the rules of the Internal Market. There is probably at this point no alternative because simply to do away with excise duties would result in a huge drop in revenue to the Exchequer. However, many people, motorists in particular, will feel they have been cheated. When we first entered the European Community we were told that one of the great advantages for Irish people, apart from the possibility of getting continental weather as promised by one speaker, would be the removal of tariffs and excise duties so that goods, including cars, would be available to Irish consumers at roughly the same cost as to consumers in other European countries. This, we were told, would help compensate for sacrifices in other areas, including the loss of jobs in traditional industries, such as the motor assembly industry. While the Irish motor assembly industry is dead and gone, Irish motorists still face the position that the prices of their cars are well in excess of those in other EC countries. A large proportion of our population still live in scattered rural areas, away from shops and other services. For them a car is not a luxury but a necessity, especially in view of the poor public transport infrastructure in some of these areas. We should not have to accept on a permanent basis that cars will be much more expensive here than in the rest of Europe.

Our position in relation to this Bill is somewhat unreal. I cannot see how anything the Minister is proposing can effectively be changed. Apart from the question of the numbers on the Government side and the risks that would be involved and the constitutional turmoil that would be created if they were defeated on any point, there is also the question of the time constraint on this debate. I conclude in order to allow Committee Stage to commence.

Mrs. Doyle

I ask the Minister to refer to the supply spending overrun and to quantify that in his reply.

Minister for Finance (Mr. B. Ahern)

I will certainly try to do that. The preparation of this Bill took place mainly during October and it was ready for issue in early November. The Dáil was dissolved before that. I proceeded to request permission from the Ceann Comhairle's Office to publish the Bill, but I found this could not be done once the House had been dissolved. However, it could be issued in the form of a White Paper and this was the course of action followed.

In view of the inconclusive result of the election and the uncertainty regarding my position and that of my party, we felt it was unnecessary to go ahead with provisions relating to the BES and other schemes. I reviewed the contents of the Bill and removed everything that was advised as being unnecessary by Revenue, the Department of Finance and others. While Deputy Noonan and others were talking, it was my responsibility as Minister for Finance in this Government to complete the work. I asked my officials and colleagues to make sure that the Opposition spokespersons were briefed.

I understood Deputy Noonan was briefed on the contents of this Bill but I do not know whether that briefing extended to every section of the Bill. No provisions were slipped in. I have to confess that since the election the length of time I have spent examining the work I had done prior to the election has not been great, other than to make sure that everything necessary was included. Before the Bill was published I was not very concerned about what was in or out, other than what was legally proper to be enacted before the end of the year. Deputy Noonan has always been very constructive during my period in office and I want to assure him that nothing was done in bad faith. I hope he will accept that.

I agree with the points made by Deputies Noonan and McDonnell in regard to regulations. It took me six hours to read through the briefs on that some time ago. I have to say that if I had been given it as primary legislation I do not think I would have spent six hours reading it. However, I learned in my previous job in the Department of Labour when I once signed regulations in regard to oil tanks and road safety and found a week later that there was a tragedy which was not covered by the regulations, that one must be very careful to read regulations even more closely than primary legislation. If it had been possible I would have done it another way, because there is a huge number of regulations. I do not altogether want to apportion blame for what happened in the recent election. Our colleagues in Europe have not been as speedy as they might have been in tidying up these regulations; we spent right up to the August holidays going through the regulations to clear things, finishing up at about midnight on 31 July. I thought they were all concluded. However, under the British Presidency these matters were not finally tidied up until this Monday. Many months have drifted by without much progress. However, they are there now and it is essential that they be there.

In regard to vehicle registration tax, unfortunately I do not have the time to go through all the questions that were raised. However, because of the major changes the motor industry have been closely involved in all the discussions to make sure that this system works. Rolling it all through without complying with the provisions would have made it unworkable. Previously the system was quite simple; half a dozen importers dealt with car importation. Now things are far more complex. I want to record the good will of the people involved in the industry. This involves very substantial changes for them and naturally we have to negotiate these changes and obtain the good will of those involved in the industry. They spent weeks during the course of the last year arriving at this system. While there may be some ups, there are also plenty of downs. I acknowledge the point made by Deputy McDowell about the difficulties. I still have shivers about the new system in the context of the protection of revenue. Deputy McDowell spoke about loopholes in another area and I agree with him. I do not think one would have to delve too far into the new system of examining vehicle registration to see how easy it is to get around vehicle registration when we have customs people at our ports. One can easily see what the difficulties of the present system would be. They are quite horrendous and I think Deputy Noonan knows that. We must be very careful on this one.

In regard to taxation principles, during 1992 I took my fair share of criticism in regard to taxation reforms and loopholes. Whoever holds the office of Minister for Finance when the new Government is formed will need to be very careful. Having been through the talks in 1991 on the Programme for Government, I agreed with the removal of concessionary rates of tax. However, behind the removal of every concessionary tax rate there is a lobby that comes with heavy powers and they do not go away too easily; they descend first on the Minister, then on his officials and then, if that does not work, they descend on everyone else in the House to try to force the Minister to change. I did not do too many U-turns during the year, and I am proud of that. However, removing concessionary tax rates is not an easy job. I still agree with the views on tax reform. In 1992 I removed about 47 loopholes. The problem is that everybody agrees with the removal of loopholes except the one that affects them. There will always be absolute support from the world, from every international body from the OECD and IMF to the ESRI, but they can all make an exception of the one that affects them. We make changes in income tax and everybody must accept that.

On section 15 dealing with enforcement, I do not want to be in any way unfair to Deputy Noonan or to anyone else in the House. Deputy Noonan's criticism of section 15 is on the grounds that it was an inappropriate provision in the Bill. I should make it clear that this includes section 60 of the proposals published in November. As far back as April I signalled very clearly — and I will be glad to provide the Deputy with a transcript because of the circumstances of this debate — that this would fulfil a dual purpose in that it gives the Garda a role in the enforcement of the VRT and enables the customs officers, in the course of their duties in relation to the VRT, to take whatever action is necessary in cases of non-compliance with the road tax requirements. I know Deputy Noonan has no wish to make life easier for people who do not wish to pay the tax. The powers here are similar to those already available to traffic wardens in relation to road tax. Discussions are taking place in the Department of Justice with regard to the operational arrangements which will apply in relation to enforcement by customs officers. If it would make Deputy Noonan happier I would be glad to say that no arrangements will be put into operation until they are cleared with the spokesman for Finance or by the House or by some other mechanism. I am as sensitive to the powers of the Revenue Commissioners as everybody else. To answer Deputy De Rossa, the reason I put this in is that the excise powers will be gone in a matter of days. The position will not be the same on 1 January. The bottom comes out of the system then.

Proinsias De Rossa

I know why we are doing it.

Mr. B. Ahern

I appreciate the co-operation of the House in doing this. It is not like old times whereby we can do this and nothing will happen on 1 January. All these powers are gone on 1 January.

Proinsias De Rossa

Sovereignty is no more.

Mr. B. Ahern

The excise system that is here at the moment will be finished, with huge revenue losses. How are we to protect our revenue base if somebody can drive from Rosslare without even having to wave to the customs man who, if he was in a good humour, would let them through, and maybe somewhere in the Wicklow hills or in Waterford they might be unlucky enough to run into a revenue person? This is a new regime and a major change. I take Deputy Noonan's point that in the future we should consider whether every officer of the State should have these powers and functions given the major difficulties we are going to face.

In relation to on-the-spot fines, I will bring the Deputy's views to the attention of the Department of Justice. I appreciate the difficulty in this regard.

In relation to the loopholes with regard to DIRT, the Deputy has a point; the position has changed a lot since 29 January when I announced the new provisions. It would be good if the Deputy could predict what the position might be in a few months time. In relation to the loopholes and the operational rules for DIRT, the Department will have to keep a close eye on the position and I have no doubt that changes will be made in 1993 in this regard. It would not be appropriate for me to pontificate on what might or might not happen in the 1993 budget.

Mr. Noonan

(Limerick East): Will the Minister be Taoiseach?

Mr. B. Ahern

That will be a matter for the next Minister for Finance, that is if we have a new Minister for Finance by next February when the budget is due.

Deputy Doyle raised the question of overspending. This occurred primarily in the area of social welfare because of the unfortunate ongoing rise in the unemployment register and in the health sector despite the major increases announced in the budgets of 1990, 1991 and 1992 and the supplementary budget following the 1989 election, and by the end of the year, it will still be outside the adjusted figure which was agreed by the Cabinet in July. This covers mainly the old reliables — the general hospital service and particularly the GMS system. I hope the new arrangements entered into with the Minister for Health will prove to be of help but we can only wait and see. Finally, because the unemployment figure is still rising related expenditure, such as expenditure on health clinics and rent allowances, continue to overrun the budget allocation.

The relevant provisions in the 1993 Estimates which I completed last week and which will be available to the new Minister for Finance will show increases in these areas. As I said yesterday and again this morning, the unemployment figure has increased significantly with the result that the figures for 1993 are higher than expected. Because it will be impossible to make reductions in these areas other areas will have to be looked at and other ways considered. However, that is an issue the incoming Government will have to address immediately.

Let me reiterate what Deputy McDowell said today; there are no easy solutions. Because of the cutbacks in public expenditure in the past few years and the necessity to comply with the European Monetary Union criteria, hard decisions will have to be made; there are no easy decisions. As I said, this matter will have to be considered in due course.

Question put and agreed to.