Finance Bill, 1993: Second Stage (Resumed).

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

Mr. Mulvihill

I welcome this opportunity to address many of the issues which arise on this Finance Bill. First, I might remind the House of the circumstances prevailing when this most recent budget was framed, it having been no easy task for the Minister for Finance, when one bears in mind the attack on our punt and the various other pressures confronting the Government. Having said that, it is easy to accept the good provisions of the budget but not the more harsh ones, such as the 1 per cent income levy and the VAT on clothing. With regard to the 1 per cent levy, even at this late stage, I would ask the Minister to raise the present base-line of £9,000 as it affects the less well off in our society. I should point out to the House that it would appear this will be a temporary measure which hopefully will be removed next year.

I should like to speak now on a topic of which I have an intimate knowledge, that is the problems of widowers and how they are treated under our social welfare code. We must remember that our social welfare system is funded by the taxpayer, yet it actively discriminates against all male taxpayers. For example, a widower with five dependent children, who satisfies all of the criteria stipulated by the Department of Social Welfare for the receipt of a contributory pension, that is having five dependent children, his spouse having died and the requisite number of contributions made — is denied a pension his spouse would have received had he predeceased her. I note that in June 1992 the Minister for Social Welfare said in this House:

... it is now discriminatory that widowers do not qualify for a contributory pension.

I welcome the Government's commitment to built 3,500 local authority houses this year and to continue that commitment during their term of office, which will have an enormous effect in creating more jobs, which is what the Labour Party said in the course of the general election campaign. It will be seen that they have honoured that promise.

In my area of east Cork, there is at present a major drive for the promotion of tourism. For example, there is the Queenstown Heritage Centre in Cobh which will be officially opened this year and which is expected to attract up to 100,000 people to the town of Cobh annually. Then there are Fota Island Wildlife Park, Barryscourt Castle in Carrigtowhill, the Jameson Heritage Centre in Midleton, the new cross-river ferry linking Carrigaloe in Cobh with Glenbrook on the opposite side of the River Lee. These are all much welcomed developments which will lead to much needed employment, particularly with so much unemployment prevailing in towns in east Cork.

I contend there is a need for more investment in our rivers and waterways to attract more tourists to this country. Cork harbour is one of the most natural, scenic harbours worldwide. It is my belief that the Government, in conjunction with the relevant local authorities, can promote the towns of Cobh, Midleton, and especially the town of Youghal, which has one of the finest beaches nationwide. More resources should be invested in these areas.

Concerning the Eurovision Song Contest, there was a remark passed on a news bulletin this morning in that regard. I think it was reported that it was being staged in a cow shed. I very much resent such a remark on the part of any broadcaster. Indeed I might point out that the complex in which this contest is being staged is one of the finest nationwide. I congratulate Mr. Noel C. Duggan of Millstreet on having had the guts to stage the contest in Millstreet. Perhaps the broadcaster confused the event with another incident which happened some time ago, when the Taoiseach of the day visited the Limerick West constituency to officially open a cow shed. Perhaps that is how the confusion arose.

I welcome the Government's stated commitment to Irish Steel, the steel industry being vital to this nation and the east Cork and Cork city local economies. However, I am disappointed that the Damon Shipping Company who took over the former Verholme (Cork) Dockyard a number of years ago have not delivered the 450 jobs promised to date. However, I shall not dwell on that issue at present because I understand there are negotiations in train with a party who, hopefully, will deliver those jobs. I welcome the Government's commitment to developing the Naval Service in Cork Harbour. The Government can make a return on its investment because fines levied on vessels fishing off our shore are returned to the Department of Justice. It is very welcome that Cork Harbour Board has agreed to hand over some of its land for the construction of a Naval College as this should create jobs. Will the Minister for Defence lift the embargo on recruitment to the Naval Service as those in the service already are under severe pressure? At present they go out on patrol around the harbour or around our coastline for a three week period to protect our fish stocks and when they return to base they have other duties. Manpower shortages are creating enormous problems for staff and I ask the Minister to investigate the matter urgently. Indeed a great many sustainable jobs could be created in the Naval dockyard. I firmly believe that if the Government commits enough money to development in Cork Harbour it will become one of the biggest employers in the country in the not too distant future.

A Leas-Cheann Comhairle, I wish to share my time with Deputy Seán Ryan.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Mr. S. Ryan

The provisions of this Bill must be seen in the context of the first 100 days of this partnership Government and the statutory requirement to bring in an Estimate, a budget and a Finance Bill. On that basis I hope we can generate confidence in the economy. Given the levels of unemployment it is important to generate confidence so that everybody will work together to try to attain our objective of reducing unemployment.

At the outset let me welcome the positive measures in the Finance Bill to boost investment in Irish companies. While we are concentrating on taxation we should not overlook the increase of £175 million in the allocation to social welfare. From September the monthly child benefit payment will increase by £3.20 per child for the first three children. While this is very much welcomed outside this Chamber I had hoped that we could pay a similar increase for subsequent children in large families. Time and time again we are told there is a decline in the number of large families but parents with six or seven children have complained to me that they are being discriminated against. The increase in child benefit together with the substantial increase in mortgage interest relief will compensate for the negative effects on household incomes arising from the 1 per cent income levy. I am opposed to this income levy and I hope the Minister will use every opportunity to ensure it will be abolished next year.

It is perceived that the PAYE sector is carrying the burden of taxation and we have to ensure that the levy is reduced. The Taoiseach as well as the Minister for Finance have outlined the reasons for imposing the levy. I will be supporting the Government because I am confident the levy will be dropped at the earliest possible date. I make no apologies to the Opposition for taking this line, as they would be the first to blame the Labour Party if the Exchequer borrowing requirement had been increased because the levy has not been imposed.

Mr. Browne

(Carlow-Kilkenny): The Deputy is misreading us.

Mr. S. Ryan

I have no doubt that the Finance Bill will bring about the climate to generate jobs. Obviously, as a TD for Dublin North I am deeply concerned about Aer Lingus. I hope that matter will be dealt with as soon as possible. While there is no provision in the budget for equity capital I am confident that the necessary equity will be provided by the Government for an equity injection in Aer Lingus later in the year.

Falling interest rates will save the Government up to £200 million in debt service costs. This will free up money which can be earmarked for Aer Lingus without undermining the Minister's Exchequer borrowing targets for the year. It should not be forgotten that a job saved is as good as a job created. If GPA, which has received a vote of confidence through the massive investment by General Electric, can be saved we can be confident that the airline industry worldwide is set on the upward path of recovery. This means that the equity investment in Aer Lingus will not only secure jobs but produce a financial return for the Exchequer. Irrespective of the consequences I believe it is incumbent on this Government to provide the equity that will be required to ensure that our national airline gets the support it requires at the appropriate time. I hope that by our actions in this House we can generate confidence in both management and staff to finalise a package that can be brought to the table which will allow the Government to provide the equity.

Amdahl, a company in my constituency has lost up to 40 per cent of its workforce in the past three months. The eastern region, which includes Dublin, has lost out in recent years. While we have a collective responsibility to ensure that our national economy is protected, the statistics show that the eastern region has lost out. I am appealing to parliamentarians from all the political parties in the eastern region to work together to ensure that the case for Dublin is brought to the forefront and I have no doubt that the two Ministers who are present this afternoon will fully support the provision of jobs for the eastern region.

I am concerned about the impact of the VAT increase on clothing manufacturers and it is incumbent on me to raise this issue here. The people in this industry fear that the VAT increase will lead to job losses. I ask the Minister to take on board the points put forward by politicians from all sides and particularly by people in the industry. He should lend a sympathetic ear to their case which I believe, having spoken to many of them, is very genuine.

Today's Irish Independent contains a table which illustrates the need for tax reform, concentrating on an increase in the standard rate tax band. It is ludicrous that single people on incomes of less than £15,000 and married couples with an income of between £25,000 and £30,000 are taxed at the 48 per cent rate. The Programme for Government is committed to an extension of the standard rate tax band. This would be the best way to take those on an average income out of the 48 per cent tax band. This reform which is urgently needed has been the focus within the Labour Party for a number of years. I urge my colleagues in Government to ensure that this matter be given top priority and that further progress be made in this area in the next budget.

I wish to bring to the Minister's attention the matter of representations I received from families on relatively modest incomes who are trying to educate their children, particularly those whose children have to go to England for education. I would ask the Minister to examine the question of covenants for children — at present a maximum of 5 per cent of income is allowed. As with most allowances, this measure is of most benefit to those on high salaries — 5 per cent of £10,000 is not very significant whereas 5 per cent of £30,000 is a reasonable sum. The Labour Party has sought the introduction of a new allowance in the form of a tax credit to ensure equal allowances to all taxpayers. This would be a transitional step as part of wider tax reform which would see the phasing out of discretionary allowances and replacement by direct payments of equal value. In the interim I ask the Minister to allow a minimum of £1,000 for convenants for educational purposes to ensure that parents are enabled to assist their children through higher education. I would ask the Minister to consider this matter on Committee Stage as very little cost to the Exchequer would be involved.

As I said earlier, the Estimates, the budget and the Finance Bill must be considered together. I commend the Government on making available extra finance for local authority housing. However, I am concerned about one matter. Given the extent of the housing problem nationally, a commitment should be given to start a housing programme. It is acknowledged by people on the housing list that such a programme is necessary. The Minister should make available the necessary finance in the Estimates and in next year's budget to ensure real progress in this area.

Minister for Finance (Mr. B. Ahern)

I wish to share my time with the Minister of State, Deputy Eithne Fitzgerald.

An Leas-Cheann Comhairle

Is that agreed? Agreed.

Minister of State at the Department of Finance (Ms E. Fitzgerald)

This Finance Bill gives effect to the budget which, as Deputy Ryan said, was introduced in difficult circumstances, at a time when there was a large overhang of expenditure due to commitments under the Programme for Economics and Social Progress and the difficulties that arose from the loss of revenue on the introduction of the single market. A number of substantial improvements were made in the budget. For example, £20 million was provided to tackle the problem of hospital waiting lists.

Mr. Carey

And hospital charges.

Ms E. Fitzgerald

In relation to the increased allocation for persons with a disability, £8.5 million was provided for people with a mental handicap the biggest single increase ever. I hope this is just the start of a programme that will continue to be implemented.

Mr. Carey

Hospital wards are closing in Ennis.

Ms E. Fitzgerald

A substantial increase of £12 per week was made in the family income supplement. Deputy Cox yesterday raised the issue of the poverty trap and this is an important measure in helping to deal with that problem. The increase in children's allowance which will come into effect in September is important in tackling family poverty.

Overall, prudence was important in the budget in respect of financial management. In recent months we have seen a decline in interest rates, much of which is due to the position in foreign countries. It is notable that Spain which has devalued its currency twice already is still experiencing currency difficulties. The Irish interest rate is now virtually in line with the German rate. If our financial policy as laid out in the budget was not recognised by the markets we would be paying a substantial premium over and above the international interest rate.

I welcome in the Finance Bill the new incentives for job creation and enterprise, particularly the innovative scheme in relation to seed capital. Under this scheme people who set up businesses will get a tax refund and this is very welcome. One of the matters raised by the Commission on the Status of Women was the treatment of wives for tax purposes. At present the male spouse is treated as the taxpayer. It has been a cause of great offence to women to find that tax rebates due to them go to their husbands. Discussions have taken place between the Revenue Commissioners and Department officials to find the most appropriate way to tackle this problem. Changes will be required both at administrative level as well as legally. I hope the proposals currently being considered will be ready for inclusion on Committee Stage.

As the tax year has already begun it will not be possible fully to implement measures in this regard in the current year. It is extremely important for women and for their economic independence that they are treated as individuals by the Revenue Commissioners. Any funds they owe on their incomes should be paid by them to the Revenue Commissioners and any funds owing to them should be paid directly to them rather than to their husbands. Women believe that to treat them purely as an appendage of their partner in terms of money they earn in their own right is an attack on them.

There has been much talk in the last number of weeks about tax reform. Some commentators expected that a minibudget would be issued in response to the Culliton report. There are very serious issues to be addressed in the whole area of tax reform. Tax reform is not a mantra for somebody to chant. In tax reform there will be losers and winners. I hope those who are calling so loudly for tax reform and rebalancing of the tax system will have the guts to acknowledge that there are tough decisions and will not criticise what happens on all sides.

Mr. Carey

What tough decision did the Minister ever take? They took the soft way out — the 1 per cent levy, hospital charges, telephone charges.

An Leas-Cheann Comhairle

The Minister without interruption, please.

Ms E. Fitzgerald

The Deputy's spokesperson on finance favours VAT on food and savage cuts in public expenditure. If they were in power what would happen to people on hospital waiting lists and to people with disabilities?

Mr. Carey

One still cannot get into hospital.

Mr. B. Ahern

You doubled the national debt when you were there.

Ms E. Fitzgerald

Those who cry loudest for tax reform should have the political courage to face up to what tax reform entails.

Deputy Yates accused the Government of having no policy on tax reform. Yet he read the section on tax reform from the Programme for a Partnership Government. The Government's action in this area is set in the context of the overriding requirement to maintain firm control of the public finances. This is the essential ingredient to meet our commitment under the Maastricht Treaty. It is also the fundamental requirement for industrial development, according to the Culliton report. It is an essential requirement for this country to avoid a return to the debt and recession spiral of the early eighties. I was pleased that during the debate Deputies reiterated that as the commitment of all parties in the House. I am grateful for the support we received in following the line over recent months. On the foreign currency markets today we see the wisdom of our decisions as opposed to the line taken by others. One month money and three month money are below 8 per cent and the gilt market and the equity market in this country are remaining stable.

The Monetary Committee is meeting in long session today. What will happen with regard to the peseta and the escudo is not yet clear and that might have repercussions for all of us. Before and after Christmas I said we should indicate strongly to the markets that we would achieve a particular stance, get acceptance of our difference and our identity and that we should publicise what we had achieved over the last five or six years in improving our economic fundamentals. It is our position that has brought interest rates from 16.5 per cent on budget day to under 8 per cent now. As Deputy Cox said the other day, the climate generally in the international market is a major part of the change. Other countries should have been beneficiaries of the same international climate. However, Spain devalued by 6 per cent in September and 5 per cent in November and even today the speculators are biting at their heels and we are not sure what will be the outcome of the Monetary Committee meeting. Our reserves are extremely healthy and our gilt and equity markets are holding solidly. Our inter-bank rates are under 8 per cent. Regardless of political persuasion, people have to acknowledge that the major part of that reason is the market's acceptance of the battle that was fought, the tight budgetary position and our firm commitment to stick to controlling public prices.

Within that restraint this year's budget and Finance Bill work towards the tax reform targets set out in the Programme for a Partnership Government by improving the position of the very low paid through increases in the exemption limits and allowances.

Deputy Yates said there is no timetable set for the Government's tax reform programme. The timetable is the lifetime of this Government up to the summer of 1997 or later. Deputy Rabbitte spoke strongly in favour of a Government having a medium term plan. I agree. The Government has such a plan. It is set out in the Programme for a Partnership Government. I agree with the Deputies' views about the low paid and the exemption limits and we are trying to remove these categories from the net. That is the way to get real tax reform. It is at the bottom of the scale we need to make changes. That is precisely what is set out in the Programme for Government.

Although Deputy Yates speaks strongly in favour of tax reform, he is also against any specific base broadening measures which are put forward. For example, he opposes the probate tax which will put a very low tax charge on most assets passing from one generation to another. He also opposes the changes in the VAT area which bring more items up to the standard rate. In addition, he proposes to narrow the base for residential property tax, and broaden the availability of the new seed capital scheme by removing all the safeguards. If one is opposed to everything it is impossible to have any tax reform because it is not possible to reduce all the taxes.

I would like to respond to the remarks of a number of Deputies about the new temporary income levy announced in the budget. The levy is payable by all individuals over 16 years of age and I would stress, because there has been much inaccurate comment in this regard, that the levy is not confined to the PAYE sector. There is a specific income exemption in order to protect the lower paid. As regards the particular criticisms made of the levy, I would again repeat that the Government was in a particularly difficult budgetary situation this year. Additional revenue had to be raised and the Government was faced with very difficult choices. The 1 per cent temporary income levy was chosen in the belief that taxpayers would accept a temporary imposition of this nature against the background of the Programme for National Recovery and earlier years of the Programme for Economic and Social Progress which have seen progressive and substantial increases in real take-home incomes in the order of 8 per cent to 9 per cent during the past five years as opposed to a reduction between 1980 and 1987 of approximately 11 per cent.

I accept that the levy is a blunt instrument but that is an unfortunate consequence of measures of this nature. Again, I would accept that there is a local disincentive effect immediately above the £9,000 threshold. However, it must be recognised that this is a consequence of setting the threshold at this relatively high level, by comparison with other taxes, which was decided on to protect the lower paid. Unlike the existing levies and the income levy which applied in the early eighties, employers are not liable to pay the new levy in respect of their employees who are medical card holders.

I would reject out of hand the notion that the temporary levy inposes an across-the-board disincentive. Deputies have called the slight increase in the tax wedge in evidence in this regard.

Mr. Cox

The first in six years.

Mr. B. Ahern

As Deputies will no doubt be aware, the tax wedge is a measure of the cost to the employer of giving an increase in net pay. In response I would simply reiterate the point I made in my introductory speech that the levy will only impact on employment if taxpayers seek to compensate themselves through higher charges and wages — rather than accepting that they should make a limited contribution towards the exceptional unemployment and other costs imposed by the protracted slow-down in the international economy.

Mr. Cox

It does not sound so temporary after all.

Mr. B. Ahern

Deputy Yates criticised the seed capital scheme for being too restrictive. I am afraid the Deputy has confused "restrictive" with "targeted". The rationale of the scheme is to provide an incentive to individuals who propose to leave employment to start their own new venture. It is aimed at sectors of the economy with the potential to create additional sustainable employment while not at the same time indulging in the pointless, expensive exercise of encouraging displacement of existing employment. We had an employment incentive scheme in the past but it was abandoned because it did not achieve its targets.

The scheme makes a number of requirements of entrepreneurs — that they make an investment themselves; that they make a genuine commitment by way of full-time employment in the new venture; that they be genuine entrepreneurs with a substantial interest in the venture.

The scheme also requires prior clearance by Bord Fáilte or the appropriate industrial development agency. This will serve both to ensure value for money for the general body of taxpayers by avoiding investments in areas with the prospect of little economic benefit and indeed to protect potential entrepreneurs from being the victim of their own enthusiasm. The scheme is not available to people who are already in business since an incentive to encourage such people to start up in business would be rather pointless.

I am sure that anyone undertaking a reasonable appraisal of the scheme will agree that it is a valuable, well focused initiative which is greatly preferable to the blunderbuss approach urged by Deputy Yates. I reiterate that small businesses and those who write to the Department are very supportive of the scheme. They do not want to see an individual in any category or sector set up business without some organisation interested in generating employment, not necessarily the Revenue or the Department of Finance, overseeing the scheme. There is no point in 5,000 people who want to make chairs putting the existing 1,000 people who are already making chairs out of business. For that reason we must have an agency to oversee the scheme.

Deputy Cox launched a wide ranging broadside on the BES——

Mr. Cox

It was well focused.

Mr. B. Ahern

——in which he focused on its history and not its current status as a well targeted relief, endorsed by Culliton, focused on the economic sector and firms that are both high risk and offer a prospect of extra sustainable output and jobs. I assume Deputy Cox was using his notes from the pre-amended BES because his remarks omitted two clear points. He said millionaires could make huge sums of money from the BES. I would make two points in response. First, the BES £25,000 annual investment limit remains as it was when the scheme was introduced. The cap has been reduced to £25,000 over a span of years. We have only a certain number of people who can afford to put in £25,000 each year. Those people have used up their £75,000 limit but the £25,000 limit will allow those same people to continue to invest. If they are paying income tax of huge proportions they can invest £100,000 in the BES, they have to abide by the £25,000 limit. Second, as any alert observer will be aware, BES investors take a substantial, real risk which should not be under-estimated.

I am required to put the following question in accordance with an Order of the Dáil of this day: "That the Bill be now read a Second Time".

Question put.

The Dáil divided: Tá, 69; Níl, 37.

Tá

Ahern, Bertie.
Ahern, Michael.
Ahern, Noel.
Aylward, Liam.
Bell, Michael.
Bree, Declan.
Briscoe, Ben.
Broughan, Tommy.
Burke, Raphael P.
Burton, Joan.
Byrne, Hugh.
Callely, Ivor.
Collins, Gerard.
Foley, Denis.
Geoghegan-Quinn, Máire.
Haughey, Seán.
Hughes, Séamus.
Hyland, Liam.
Jacob, Joe.
Kavanagh, Liam.
Kenny, Seán.
Killeen, Tony.
Lawlor, Liam.
Lenihan, Brian.
McCreevy, Charlie.
McDaid, James.
McDowell, Derek.
Moffatt, Tom.
Morley, P.J.
Moynihan, Donal.
Moynihan-Cronin, Breeda.
Mulvihill, John.
Ó Cuív, Éamon.
O'Dea, Willie.
Connolly, Ger.
Costello, Joe.
Coughlan, Mary.
Cowen, Brian.
Davern, Noel.
Dempsey, Noel.
de Valera, Síle.
Doherty, Seán.
Ellis, John.
Ferris, Michael.
Fitzgerald, Eithne.
Fitzgerald, Liam.
Flood, Chris.
O'Donoghue, John.
O'Hanlon, Rory.
O'Keeffe, Batt.
O'Keeffe, Ned.
O'Leary, John.
O'Shea, Brian.
O'Sullivan, Gerry.
O'Sullivan, Toddy.
Pattison, Séamus.
Power, Seán.
Quinn, Ruairí.
Ryan, Eoin.
Ryan, John.
Ryan, Seán.
Shortall, Róisín.
Smith, Brendan.
Smith, Michael.
Stagg, Emmet.
Treacy, Noel.
Wallace, Dan.
Walsh, Eamon.
Woods, Michael.

Níl

Ahearn, Theresa.
Allen, Bernard.
Barrett, Seán.
Blaney, Neil T.
Boylan, Andrew.
Browne, John (Carlow-Kilkenny).
Bruton, John.
Bruton, Richard.
Carey, Donal.
Clohessy, Peadar.
Cox, Pat.
Crawford, Seymour.
Cullen, Martin.
De Rossa, Proinsias.
Dukes, Alan M.
Durkan, Bernard J.
Fitzgerald, Frances.
Flanagan, Charles.
Fox, Johnny.
Gilmore, Eamon.
Harney, Mary.
Harte, Paddy.
Higgins, Jim.
Kenny, Enda.
McDowell, Michael.
McGahon, Brendan.
McGrath, Paul.
McManus, Liz.
Molloy, Robert.
Nealon, Ted.
Noonan, Michael (Limerick East).
O'Donnell, Liz.
Owen, Nora.
Quill, Máirín.
Rabbitte, Pat.
Timmins, Godfrey.
Yates, Ivan.

Tellers: Tá, Deputies Dempsey and Ferris; Níl, Deputies E. Kenny and Boylan.

Committee Stage ordered for Monday, 24 May 1993.

Question declared caried.

An Ceann Comhairle

When is it proposed to take Committee Stage?

Mr. B. Ahern

On Monday week, subject to the agreement of the Whips.

Dáil Éireann debate - Thursday, 13 May 1993

Finance Bill, 1993: Second Stage (Resumed).

Tá

Níl

Dáil Éireann debate -
Thursday, 13 May 1993